Legislation: much of biggest-ever law 'could be irrelevant' by the time it comes into force

The Companies Act received Royal Assent last week amid growing fears that it conflicts with planned EC legislation and places impossible burdens on business, corporate lawyers have warned.


Paul Lester, a partner at City firm Lawrence Graham, said much of the new Act would be irrelevant by the time it came fully into force in October 2008.


He said: 'The problem is that the government has tried to do everything in one hit. Insufficient effort was made to track developments in EC company law and to dovetail the two together.'


Mr Lester added that contradictions would be inevitable and cited uncertainty over notice periods for publicly listed company meetings as an example. The new Act, he said, called for 14 days' notice, whereas the proposed second company law directive stipulates 30 days.


According to Herbert Smith corporate partner James Palmer, the Act is 'something of a curate's egg'.


He said that the most positive parts of the new law stripped away layers of regulation and gave increased flexibility. Other aspects, such as directors' duties to certain stakeholders and the obligation to disclose arrangements with suppliers, simply increased the bureaucratic burden.


Mr Palmer, a member of the Law Society's company law committee, said his personal view is that there are 'question marks over whether this degree of change [is] consonant with the government's objective of simplifying and improving company law'.


He added that the process had shown the importance of 'de-politicising' the making of company and other law. 'A body such as an independent company law commission would make company law work better,' he said. 'The bits that worked best when the Act was being rewritten were achieved when the profession and the business community were involved in making the decisions - without the intervention of politicians.'


At 1,300 sections and almost 700 pages, the Companies Act is believed to be the longest piece of legislation ever passed in the UK. Prior to last week, it had been eight years in the making and had gone through around 3,000 amendments in the last 12 months alone.


A Department of Trade and Industry statement said the first measures would be introduced in January 2007 and that all parts of the act would be in force by October 2008.


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