§ Lords Amendment: In page 2, line 37, leave out from "of" to the end of line 38.
§ 10.25 p.m.
§ The Solicitor-General (Sir Terence O'Connor)
I beg to move, "That this House doth agree with the Lords in the said Amendment."
This Amendment is the first of a series dealing with the same subject-matter, and if it be for the convenience of the House and within the Rules of Order I hope I may, in dealing with this comparatively small Amendment, give an outline of the effect of the Amendments which it is proposed to make to Clause 16 and to the Second Schedule. This Amendment looks forward to those later Amendments.
As the Bill arrived in the House of Commons the provision as regards unit trusts was that a unit trust scheme was an authorised unit trust scheme when it had a trustee who was an approved trustee within the meaning of the Bill, that is to say, a corporation with certain financial responsibilities. In the Committee of the House of Commons it was urged that some effect should be given to the report of the Anderson Committee which recommended that power should be inserted for the removal of the managers if they became 646 unsatisfactory and for the control of advertisements issued by the management, particularly with regard to the yield of the units. In order to make some attempt to meet that point of view, Sub-section (3) of Clause 16 was introduced. When the Bill had passed through the House of Commons and went to another place recommendations were made and representations were received from various quarters against the provisions in Sub-section (3) in the wide form in which it then existed and, as a result of consultations with all the interests, the bankers and unit trusts, it was arranged that the present scheme should take the place of the scheme that was provided for in the Bill as amended in the House of Commons.
Broadly speaking, the effect of the Amendments is that instead of approving the trustee, the Board of Trade should approve the unit trust scheme, but that is providing that the scheme itself fulfils certain conditions which are set out in the Schedule. One of the conditions is that the trust must embody the provision laid down in the Bill, so that in a sense it is arriving at the same conclusion by a different method. Secondly, the scheme will have to be such that effective control of the management is secured independently of the trustee. That was also, I think, a recommendation of the Anderson Committee. The scheme must also be such as to secure that property subject to the trust is vested in a trustee, under a deed providing, to the satisfaction of the Board, for certain definite matters, which appear in the Schedule and which is the last of the Amendments upon the Paper.
That Schedule will provide for various things, such, for example, as the manner of fixing the sale price of units, the issue of unit certificates and the steps that are to be taken to ensure the vesting of the property in the trustees. It will ensure that the trustees are satisfied as to the terms of the advertisements, and that the fund for defraying the expenses of management of the trust is kept separately. A scheme will have to provide for audit and also for the retirement of managers in cases where it is desirable, in the interest of the holders of units in the trust. Power is given to the Board of Trade by the new proviso in Sub-section (1) of Clause 16 to allow variations from the strict requirements of the 647 Schedule in places where the variations are established practice.
Although the unit trusts were, to put it mildly, not entirely enthusiastic about, and certainly not uniformly in agreement with, the imposition of this method upon them, the Government feel that all these requirements are reasonable ones to insert in any trust deed. There would, of course, be power, in the case of trustees who were not satisfied to carry on their trusts subject to the provisions incorporated in the Schedule, to apply to the court for relief from their trust, and, on such application, it would be open to the court to make any order suitable to the occasion. For example, I understand that it is a common circumstance that the trustees receive in advance a lump sum for the performance of their duties, and, having received that lump sum, it would obviously be equitable in some cases that the court should give directions, if a trustee wished to relinquish his function, as to what should be done by the trustee in relation to the lump sum. I hope that with these few observations, in which, although they have been brief, I have attempted to cover the scope of the Amendments that have been made in another place throughout the Bill, the House will see that what has been attempted is to approach by a different and perhaps preferable method the object at which this House aimed in amending the original Bill.
§ 10.32 p.m.
§ Mr. Pethick-Lawrence
I have followed as well as I could, not only the speech of the Solicitor-General, but the detailed criticisms which were made with regard to these Amendments in another place. I am bound to say that I think the method of presentation chosen in another place is a considerable improvement on the method adopted during the Committee stage in this House. It was always a matter of regret to me that the very careful investigation of the Anderson Committee, of which I was a member, had not found favour with the Government sufficiently to form the subject of a Bill, and at first I was very sceptical whether any Amendments of this particular Measure would suffice to introduce the main ideas of the recommendations of the Anderson Committee. An ingenious method has been adopted of 648 incorporating a great deal of what was valuable in the Anderson Committee's Report in this Measure, which deals with much larger and to a certain extent different subjects, but there are two or three questions that I should like to put to the Solicitor-General, because I should like to know for my own benefit, and I think the House also would like to know, what will be the total effect of these Amendments if they are carried.
In the first place, I would ask the Solicitor-General whether these Amendments in their totality will embrace all the main proposals of the Anderson Committee? Of course, there were certain proposals of a financial character which obviously lie outside the scope of this Measure, and with which, I hope we may deal on another occasion; but the regulative proposals were all such as seemed to me suitable for incorporating in a Government Measure, and I should be glad to be told whether in effect and in substance all of them are here incorporated, or whether there are any substantial proposals which are left outside. So far as I am able to judge, there are few substantial proposals not included, but I should be glad to have the opinion of the Solicitor-General on that point.
My second question is, what would be the result of any trust refusing, or neglecting, to form itself along the lines desired by the Board and provided for in the Schedule that has been proposed in another place. I understand that the first effect would be that the Board of Trade would not approve of the unit: trust. What would follow as a result of that? Does it mean that the unit trust would be acting illegally in appealing for subscriptions? And, assuming that it persisted in that illegality, would it come under any penalty; or what precisely would be the method of compelling it to conform to the scheme which the Board of Trade would insist upon?
The third question I would like to put is, what is going to be the position of those unit trusts already in existence which have not been formed under this scheme? As I understand it, they would be deemed to have included the provisions in the articles of the two companies, the general company and the trustee company, in creating this trust. I am not clear whether I am right in that. Perhaps the House will be told what would be the 649 position of those unit trusts already in existence before the passage of this Bill. Subject to satisfactory answers on those three points, I can only say that I think this is an ingenious method of regulating trusts, and 1 do not think there can be any opposition from this side to this group of Amendments.
§ 10.38 p.m.
§ Mr. Spens
May I ask one question of my hon. and learned Friend? The Amendments, it appears to me, do carry great benefit, in that whereas on the Committee stage some of us were rather anxious because it appeared to us that the privileges which have been given to unit trusts depended solely on the status of the trustee, these Amendments carry out the recommendation of the Anderson Committee that there should be some control over the managements. The control, if I understand the Amendments aright, is left a little vague. Paragraph (b) of the Amendment which is to be inserted in page 24 of the Bill providesthat the scheme is such that the effective control over the affairs of the corporation which is the manager under the scheme is and will be exercised independently of the corporation which is the trustee under the scheme.I do not know what is in the mind of the draftsman of that Sub-section. What is meant bycontrol over the affairs of the corporation which is the manager under the scheme is and will be exercised independently of the corporation which is the trustee under the scheme"?To whom does that Amendment refer? Does it mean the shareholders of the managing company, or what is the sort of control? Who is to exercise the control? Or does it mean that the trustee of the unit trust will have some control over the affairs of the corporation? That is the only point on these Amendments about which there is any real doubt or difficulty, and if my hon. and learned Friend can clear up what is meant by them, I shall be very grateful.
§ 10.41 p.m.
§ The Solicitor-General
In answer to the question put to me by the right hon. Gentleman the Member for East Edinburgh (Mr. Pethwick-Lawrence) with regard to the question of the Anderson Committee's Report, the Bill embraces the essential and important proposals in substance though not in form. That is the 650 main assurance which I know the right hon. Gentleman requires. The right hon. Gentleman pointed out quite rightly that the immediate result of a unit trust neglecting to re-form in the way suggested would be a refusal of approval, and in practice refusal of approval would effectively prevent it from carrying on business. It could not circularise and it could not expand. The existing unit-holder would not be prejudiced, but it would prevent any continuing activity on the part of the trust. The right hon. Gentleman also asked a question concerning the position of existing unit trusts. He asked whether, if they did not comply with the Schedule, they would have to make a supplemental trust deed to enable them to conform with the Schedule. Provision to enable them to do that will be found on page 7 of the Lords Amendments which relate to page 25 of the Bill. I must apologise to my hon. and learned Friend the Member for Ashford (Mr. Spens) that in trying to find the answers to the other questions. I could not quite place the particular Amendments to which he was referring.
§ Mr. Spens
If my hon. and learned Friend will look at page 6 of the Lords Amendments relating to Clause 24 of the Bill he will see, in paragraph (b), the particular Amendment which was introduced in another place. I am asking what exactly is meant by the words:effective control over the affairs of the co-operation which is the manager under the scheme is and will be exercised independently of the corporation which is the trustee under the scheme.By whom is that control to be exercised? Does it mean that there must be independent shareholders in any corporation, or that there must be some provision under which the unit-holders shall have some special powers over the affairs of the managing corporation? What exactly do these words mean? They appear to be so very vague and wide at the moment.
§ The Solicitor-General
I am obliged to my hon. and learned Friend. The matter appears in one or two other places, but it is an attempt to deal with a particular kind of unit trust which is very rare. It is the kind of trust where the trustee and manager are one and the same person. We have had brought to our notice at least one particular instance. In every other respect it might be said to pass through the mesh. This particular pro- 651 vision is to make it clear that there must be an independence which enables control to be exercised by the one or the other.
§ Subsequent Lords Amendments to page 3, line 11, agreed to.
Lords Amendment: In page 3, line 12, leave out paragraph (b) and insert:
(b) issuing any prospectus to which Section thirty-five or Section three hundred and fifty-four of the Companies Act, 1929, applies,
(c) issuing any document relating to securities of a corporation incorporated in Great Britain which is not a registered company, being a document which—
(d) issuing any form of application for shares in, or debentures of, a corporation together with—
§ 10.46 p.m.
§ The intention of paragraph (b) of Clause 2 (2) in the form in which it was passed provided that the issue of prospectuses and invitations to subscribe for shares should be outside the restrictions of Clause 1, and the new paragraphs (b), (c) and (d), simply give effect to this intention in a more precise form. There is this additional point with regard to paragraph (d) that is rectifies an omission by extending this provision to applications for shares and debentures.