HC Deb 18 July 1927 vol 209 cc47-56

(1) If in connection with a scheme for the reconstruction of any company or companies or the amalgamation of any companies it is shown to the satisfaction of the Commissioners of Inland Revenue that there exist the following conditions, that is to say—

  1. (a) that a company with limited liability is to be registered, or that since the commencement of this Act a company has been incorporated by letters patent or Act of Parliament, or the nominal share capital of a company has been increased;
  2. (b) that the company (in this section referred to as "the transferee company") is to be registered, or has been incorporated, or has increased its capital with a view to the acquisition either of the undertaking of, or of not less than ninety per cent. of the issued share capital of, any particular existing company;
  3. (c) that the consideration for the acquisition (except such part thereof as consists in the transfer to or discharge by the transferee company of liabilities of the existing company) consists as to not less than ninety per cent. thereof—
    1. (i) where an undertaking is to be acquired, in the issue of shares in the transferee company to the existing company or to holders of shares in the existing company; or
      2. 48
    2. (ii) where shares are to be acquired, in the issue of shares in the transferee company to the holders of shares in the existing company in exchange for the shares held by them in the existing company;
    then, subject to the provisions of this section,—

(A) The nominal share capital of the transferee company, or the amount by which the capital of the transferee company has been increased, as the case may be, shall, for the purpose of computing the stamp duty chargeable in respect of that capital, be treated as being reduced by either—

  1. (i) an amount equal to the amount of the share capital of the existing company in respect of which stamp duty has been paid, or, in the case of the acquisition of a part of an undertaking, equal to such proportion of the said share capital as the value of that part of the undertaking bears to the whole value of the undertaking; or
  2. (ii) the amount to be credited as paid up on the shares to be issued as such consideration as aforesaid,
whichever amount is the less; and

(B) Stamp duty under the heading "Conveyance or Transfer on Sale" in the First Schedule to The Stamp Act, 1891, shall not be chargeable on any instrument made for the purposes of or in connection with the transfer of the undertaking or shares, nor shall any such duty be chargeable under section twelve of The Finance Act, 1895, on a copy of any Act of Parliament, or on any instrument vesting, or relating to the vesting of, the undertaking or shares in the transferee company:

Provided that—

  1. (a) no such instrument shall be deemed to be duly stamped unless either it is stamped with the duty to which it would but for this section be liable or it has in accordance with the provisions of section twelve of The Stamp Act, 1891, been stamped with a particular stamp denoting either that it is not chargeable with any duty or that it is duly stamped; and
  2. (b) in the case of an instrument made for the purposes of or in connection with a transfer to a company within the meaning of the Companies (Consolidation) Act, 1908, the provisions of paragraph (B) of this Sub-section shall not apply unless the instrument is either—
    1. (i) executed within a period of twelve months from the date of the registration of the transferee company or the date of the resolution for the increase of the nominal share capital of the transferee company, as the case may be; or
    2. (ii) made for the purpose of effecting a conveyance or transfer in pursuance of an agreement which has been filed, or particulars of which have been filed, with the registrar of companies within the said period of twelve months.

(2) For the purposes of a claim for exemption under paragraph (B) of Sub-section (1) of this Section, a company which has, in connection with a scheme of reconstruction or amalgamation, issued any unissued share capital shall be treated as if it had increased its nominal share capital.

(3) A company shall not be deemed to be a particular existing company within the meaning of this Section unless it is provided by the memorandum of association of, or the letters patent or Act incorporating, the transferee company that one of the objects for which the company is established is the acquisition of the undertaking of, or shares in, the existing company, or unless it appears from the resolution Act, or other authority for the increase of the capital of the transferee company that the increase is authorised for the purpose of acquiring the undertaking of or shares in the existing company.

(4) In a case where the undertakings of or shares in two or more companies are to be acquired the amount of the reduction to be allowed under this Section in respect of the stamp duty chargeable in respect of the nominal share capital or the increase of the capital of a company shall be computed separately in relation to each of those companies.

(5) Where a claim is made for exemption under this Section, the Commissioners of Inland Revenue may require the delivery to them of a statutory declaration in such form as they may direct, made in England by a solicitor of the Supreme Court or in Scotland by an enrolled law agent, and of such further evidence, if any, as the Commissioners may reasonably require.

(6) If—

  1. (a) where any claim for exemption from duty under this Section has been allowed, it is subsequently found that any declaration or other evidence furnished in support of the claim was untrue in any material particular, or that the conditions specified in the said Sub-section are not fulfilled in the reconstruction or amalgamation as actually carried out; or
  2. (b) where shares in the transferee company have been issued to the existing company in consideration of the acquisition, the existing company within a period of two years from the date, as the case may be, of the registration or incorporation, or of the authority for the increase of the capital, of the transferee company ceases, otherwise than in consequence of reconstruction, amalgamation, or liquidation, to be the beneficial owner of the shares so issued to it; or
  3. (c) where any such exemption has been allowed in connection with the acquisition by the transferee company of shares in another company, the transferee company within a period of two years from the date of its registration or incorporation or of the authority for the increase of its capital, as the case may be, ceases, otherwise than in consequence of reconstruction, amalgamation, or liquidation, to be the beneficial owner of the shares so acquired;
the exemption shall be deemed not to have been allowed, and an amount equal to the duty remitted shall become payable forthwith, and shall be recoverable from the transferee company as a debt due to His Majesty, together with interest thereon at the rate of five per cent. per annum in the case of duty remitted under paragraph (A) of Sub-section (1) of this Section from the date of the registration or incorporation of the transferee company or the increase of its capital, as the case may be, and in the case of duty remitted under paragraph (B) of the said Sub-section from the date on which it would have become chargeable if this Act had not passed.

(7) If in the case of any scheme of reconstruction or amalgamation the Commissioners of Inland Revenue are satisfied that at the proper time for making a claim for exemption from duty under Sub-section (1) of this Section there were in existence all the necessary conditions for such exemption other than the condition that not less than ninety per cent. of the issued share capital of the existing company would be acquired by the transferee company, the Commissioners may, if it is proved to their satisfaction that not less than ninety per cent. of the issued capital of the existing company has under the scheme been acquired within a period of six months from the earlier of the two following dates, that is to say—

  1. (a) the last day of the period of one month after the first allotment of shares made for the purposes of the acquisition; or
  2. (b) the date on which an invitation was issued to the shareholders of the existing company to accept shares in the transferee company;
and on production of the instruments on which the duty paid has been impressed, direct repayment to be made of such an amount of duty as would have been remitted if the said condition had been originally fulfilled.

(8) In this Section, unless the context otherwise requires—

References to the undertaking of an existing company include references to a part of the undertaking of an existing company:

The expression "shares" includes stock.—[Mr. Churchill.]

Brought up, and read the First time.

Mr. CHURCHILL

I beg to move, "That the Clause be read a Second time."

This is a very formidable Clause on paper. It covers two-and-a-half pages of Orders of the House of Commons, but I hope the House will not be at all alarmed by it, because it is all in the nature of concession. If it were rejected, the revenue would not suffer in the slightest degree. On the contrary, it might mean adding to it. Other interests, larger and more general, would suffer. The right hon. Member for Colne Valley (Mr. Snowden) made in December last, I think, a very interesting and, if I may say so, a very sagacious speech on amalgamations and combinations, and showed how the old prejudice which attached to such proceedings required very considerable scrutiny and analysis under modern developments. There may be combinations which are entirely for the public advantage, which give more security to the employés, which enable more employment to be given to labour, which give a new service to the public and in every way are a step towards that higher organisation of production and distribution towards which, some by one road and others by another, we are all making our way.

In the Finance Bill, I proposed Clause 48 which facilitated amalgamations by relieving them, under certain conditions, from the liability to Stamp Duty. Careful examination has shown that a number of amalgamations among companies of a particular class would not have been included in the scope of our concession. That is why we have re-written the Clause and made it wider in its scope to cover a number of classes which would otherwise have been excluded. The Clause in its original form followed substantially the recommendations of the Company Law Amendment Committee, which reported in 1926, but those recommendations only dealt with reconstructions or amalgamations of companies registered under the Companies Acts, and the relief conferred by the original Clause was applicable only to classes where the whole of the undertaking or at least 90 per cent. of the shares of the company under the Companies Act were being acquired in consideration of shares in another company which had been registered, or which had increased its capital for the specific purpose of the acquisition. Here are some of the cases which would have been omitted from the scope of the original Clause:

  1. (a) Reconstructions or amalgamations affecting companies incorporated by Act of Parliament or letters patent.
  2. (b) Reconstructions or amalgamations which do not involve the incorporation of 52 a new company or an increase of the nominal capital of the existing company but which are carried out by the issue by the existing company of already authorised share capital on which capital duty had already been paid.
  3. (c) Reconstructions or amalgamations under which a part or parts only of an undertaking or undertakings were being acquired.
  4. (d) Reconstructions or amalgamations in which shares of the absorbing company were to be issued to shareholders of the absorbed company otherwise than in proportion to their existing shareholding, or were to be issued to creditors of the absorbed company in satisfaction of their claims.
These would have constituted a series of cases which would have been left completely outside the scope of our concession, and which we saw no reason for excluding. There is no serious loss of revenue involved. I am not able to estimate what the direct loss of revenue will be, but I am advised that it will not necessitate any alteration of the Budget figures. It is a matter which will balance itself over a course of years. Of this I am quite sure, that if the House as a whole approves of the principles which were involved in the promulgation of the original Clause 48 for facilitating these amalgamations, they will also approve of the wider extension and the greater refinement with which this particular new Clause now deals.

Mr. SNOWDEN

I do not think this is an occasion when we should enter into a lengthy discussion of the advantages and disadvantages of amalgamations. On the whole, I think it may be said that it is to the interest of trade, with proper safeguards for the interests of the community, that trade amalgamations should be encouraged. They serve to eliminate competition, they lessen cost of production and, therefore, material advantages accrue all round, of course, assuming that the financial operations involved are of a sound character. Under these circumstances, we shall offer no objection to this new Clause. I think the Chancellor of the Exchequer is well advised in extending the scheme to include those cases which would have been left outside the operation of the original proposal. I have never been very much enamoured of the Stamp Duties. They are a rather prolific source of revenue, but that is the best that can be said for them. Undoubtedly, they are more or less a serious burden upon industry. It will be within the recollection of the House that a few months ago a very extensive merger took place in the chemical industry and, if I remember rightly, £1,000,000 or more was paid in Stamp Duty, although in that case there was no additional capital. That charge becomes a permanent addition to the charges on the company. The Chancellor of the Exchequer says that he is advised that there is not much revenue involved in this concession. Even if there be a slight loss, I think he will gain it indirectly in the larger profits of the companies and, therefore, a larger yield from Income Tax. For these and other reasons which could be stated, we shall give our support to this new Clause.

Mr. HERBERT WILLIAMS

I think it is rather unfair to Members of this House that we should have a new Clause occupying two and a half pages of the Order Paper presented to us on Saturday morning, without any opportunity of finding out what it all means. As far as I can make out, it is a desirable new Clause, but on behalf of a great many Members I wish to give expression to a little protest against the great delay in publishing it in time to give us an adequate opportunity of studying it.

Mr. CHURCHILL

I would appeal for the indulgence of the House in order to answer my hon. Friend. I had intended to deal with the point when I explained the new Clause. I should like to express my great regret that it was not possible to put the Amendments on the Order Paper until Saturday morning. The reason was not, as has been unkindly suggested in certain quarters, because of some desire on my part to prevent hon. Members on both sides of the House from mastering the Clauses and understanding the subjects with which they deal and consequently to disable them from taking effective part in the Debate. I have far too much pride in the House of Commons and in the Parliamentary work which I have the honour to discharge ever to play such a trick as that. All I desire is to secure that the real issues of debate are brought to test in good time in the House, so that those who disagree can express their views and take their line. The reason we have, unfortunately, had delay in this respect was simply because during the whole of the week the head officials of the Inland Revenue were engaged in seeing hon. Members and trying to meet objections in every way, as some of those now present can testify, in order that the Amendments put on the Order Paper should as far as possible embody to the fullest extent the concessions which we were able to give. Nevertheless, I wish to express my regret to the House that such a lengthy new Clause should have been placed on the Order Paper at such short notice.

Sir ALFRED MOND

I have handed in a manuscript Amendment. May I move it now?

Mr. SPEAKER

After the Clause has been read a Second time.

Question put, and agreed to.

Clause read a Second time.

Sir A. MOND

I beg to move, as an Amendment to the proposed new Clause, in line 64, to leave out from the word "under" to the word "this" in line 65.

I have to apologise to the House. This Amendment is not on the Order Paper, but it is owing to the fact that the new Clause of the Chancellor of the Exchequer was only issued on Saturday. I have to thank the Chancellor of the Exchequer for having met a number of the objections which were raised to the original Clause, Clause 48, and as he has met most of the objections, I hope he will extend his work to its logical conclusion by accepting this Amendment. The original Clause was limited to relief in cases in which either a new company was registered or the existing company dealt with an increase of capital. A third case exists which is not provided for. It arises in the case of an unregistered company which has a certain amount of unissued share capital and uses part of that capital for the purposes of amalgamation. The Chancellor of the Exchequer in his new Clause has met this point as far as dealing with the unissued share capital for the purposes of amalgamation. He has limited the relief to conveyances and transfer duties. The object of my Amendment is to make this relief complete and make it also apply in respect of company capital duty. I cannot see why there should be a differentiation between the two forms of duties, As a matter of fact, there does not seem to be any logical basis in applying this relief to conveyances and transfer duties and denying it in respect of company capital duty. I suggest that perhaps this point, owing to the difficulty and perplexity of drafting this new Clause, may have been overlooked. The equity of the step is quite obvious, and I feel that if the Chancellor of the Exchequer had had time to go fully into the question he would accept my Amendment. It is obviously right to extend the relief to unissued share capital in the case of transfer duties, and if that is so, I cannot see any ground for not granting a like relief in the case of company capital duty. From the business point of view, it is extremely inconvenient to have to make frequent issues of capital. It is very inconvenient as the Chancellor of the Exchequer is no doubt well aware. It means a large amount of formalities and special meetings of the shareholders, and in the case of a large company carrying out a policy and building up a large organisation, it may be forced to take such steps as these two or three times in the year. That is extremely inconvenient and could be avoided it my Amendment is accepted. Even from the revenue point of view, it will be more convenient that company capital duty should be paid on any increase of nominal share capital with a view of future amalgamation, and that duty will remain in the hands of the Revenue authorities until such time as the whole of the unissued capital is used for the purpose contemplated. The Chancellor of the Exchequer will lose no revenue and I am assured, on very expert advice, that it will be a great convenience.

The ATTORNEY-GENERAL (Sir Douglas Hogg)

The Government do not think this Amendment is reasonable, because, in effect, it would give a repayment of company capital duty in cases in which the capital has not only been issued but has, in fact, been used. Let me give an illustration. Suppose there was a company with a capital of £30,000. It reduces its capital—I have instances in my mind—to £20,000, of which £10,000 is treated as issued under the new scheme and £10,000 is treated as unissued. On its original capital of £30,000, which has been used, it has paid capital duty. Now, in its reconstructed form, the company has £10,000 issued capital and £10,000 unissued capital, but if the Amendment was accepted the effect would be that should it use this £10,000 unissued capital for the purpose of new business it would not only get off any transfer duty on that purchase, which it does under the terms of the new Clause, but it would also get repayment from the revenue of the capital duty it had originally paid on the £10,000, although that £10,000 had, in fact, been issued and used in the business. It does not seem to be a reasonable proposal. Although we quite recognise the intention behind the Amendment, in our opinion, it would go too far and give relief to cases to which the new Clause is not intended to apply.

Amendment to proposed new Clause, negatived.

Clause added to the Bill.