HC Deb 11 June 1947 vol 438 cc1289-95
The Solicitor-General

I beg to move, in page 44, line 43, after "issued," insert: when they are allotted, and to be issued. I suppose we all have a fairly clear idea of what we mean by issuing shares, but in law there is no precise definition of the word "issue" in connection with an issue of shares. Therefore, this Amendment seeks to say that the shares shall be deemed to be issued when they are allotted. If the Amendment is accepted, Section (2) of Clause 50 will read: For the purpose of the last foregoing section, securities shall be deemed to be issued when they are allotted, and to be issued by way of bonus to members or debenture holders of a company. The Amendment simply makes clear the word "issue" in this connection.

Amendment agreed to.

Mr. Assheton

I beg to move, in page 45, line 9, at the end, to insert: Provided always that this subsection shall not apply to a bona fide issue of securities for the purpose of carrying out arrangements for the amalgamation or grouping of two or more companies, subject to a certificate granted by the Board of Trade that such amalgamation or grouping is in the public interest. This Amendment deals with the question of amalgamation. The Chancellor of the Exchequer is really subborn in his attitude towards the main issue but did show some signs of being reasonable with regard to two previous Amendments we moved at the beginning of Clause 49, and I hope that he or the Financial Secre- tary or the Solicitor-General will pay some attention to this Amendment, which really seeks to safeguard amalgamations and groupings which are frequently, in the view even of the Chancellor of the Exchequer, in the national interest. There are examples in the cotton and other industries. There may be the case where shares are issued to shareholders in existing companies in exchange for previous shares and the forms in which this is done may make the issue liable to tax under the Clause. It is obviously wrong that an operation of this kind should in any way be a case for restricting an amalgamation which would otherwise be a good and proper one, and without adding anything more to my argument I hope the Chancellor of the Exchequer may be able to concede the point.

The Solicitor-General

We feel it is perfectly possible that what might be a perfectly bona fide amalgamation may come within the scope of the tax as the Clause is at present drafted. I ask the right hon Gentleman to withdraw his Amendment on the assurance that we will, between now and Report stage, look at it with a view to devising some form of words to exclude any bona fide amalgamation.

Mr. Fletcher

Does that include amalgamations to take place under schemes being sponsored by the Government?

The Solicitor-General

I should think the answer to that is possibly "Yes," but we wish to look at the whole issue.

Mr. Assheton

I am obliged for what the hon. and learned Gentleman said. But he is certainly piling up a great deal of work for himself to do between now and the Report stage. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

4.15 a.m.

The Solicitor-General

I beg to move in page 45, to leave out lines 14 to 30, and to insert: the amount (if any) by which the aggregate amount or value of the consideration received or receivable by the company issuing the securities is less than the following amount, that is to say:

  1. (a) if letters of right relating to the securities are or have been quoted on a 1292 recognised stock exchange (within the meaning of the Prevention of Fraud (Investments) Act, 5939), the aggregate value of the letters of right on the day of the first quotation;
  2. (b) if no such letters of right are or have been quoted as aforesaid but the securities are or have been so quoted within one month after allotment, the aggregate value of the securities on the day of the first quotation;
  3. (c) in any other case, the aggregate value of the securities at the date of allotment:"
This Amendment, which appears on the face of it to be of rather an extensive character, really does very little. It is designed to put Subsection (3) of Clause 50 more into conformity with the appropriate Stock Exchange terminology. Technically it is not correct to speak of "rights," as I am advised that you do not carry "rights." It is "letters of right" which are quoted, and we have recast Subsection (3), paragraphs (a), (b) and (c) in order to make that alteration, substituting the term "letters of right" where we have previously used the word "rights." That has imposed a certain amount of recasting, but the Subsection is precisely the same as it was before. We have taken the passage about "consideration received … by the company" out of the paragraphs and we have put it in upon a part of the Clause. In so doing we have made it applicable to each of the paragraphs, with the result that the meaning is as it was before.

Mr. Assheton

I quite agree that the hon. and learned Gentleman was right in saying that this Amendment does not make very much difference. Since the Bill was issued, the Chancellor and those advising him have begun to find out a little more about the business they are trying to transact. I would have been very much happier had they found out before they drafted the Bill: that could easily have been done from those accustomed to dealing with these rights. None the less, the Bill has ken put into better shape now, and we will accept the amendment.

Amendment agreed to

Further Amendments made:

In page 45, line 36, leave out from beginning, to "is," in line 37, and insert "issuing the securities."

In page 46, line 4, leave out "rights," and insert "letters of right."

In line 11, after "company," insert "issuing the securities."

In line 16, leave out "rights," and insert "letters of right."—[The Solicitor-General.]

The Solicitor-General

I beg to move, in page 47, line 6, to leave out from "statement," to "and," in line 7, and to insert: may be treated as allotted immediately thereafter. This Amendment is designed to correct a defect in paragraph (a) of the proviso to Subsection (6). The position is this. If the Clause stands as it is, there may be a loophole which can be used to avoid making the statement including the number of securities which should be returned under this statement. Perhaps I could give an example to show what I mean and why the Amendment is necessary. Suppose that a company issued 100 shares—issuing No. 1 on 1st January and the remainder on 31st January in a particular year. The company is required under Subsection (6) to make a return on 1st February. It has to make it within one month. In making that return on 1st February, it need only return the one share issued on 1st January, because the others were issued on the 31st. When it makes its return for the month, 1st to 28th February, it can perfectly well say that it has not allotted any securities, and therefore need not include in that return the 99 securities issued on 31st January. We are seeking to cure that defect by substituting for the words in the Bill "need not be dealt with in that statement" the words of the Amendment. We postpone 31st January to 1st February so that the shares issued on 31st January would come in the next month's statement. The Amendment is simply designed to cure that defect.

Mr. Assheton

We have no objection to this Amendment. It is stopping a hole up which I do not think any rabbit would ever have crept, but none the less it is a hole.

Amendment agreed to.

The Solicitor-General

I beg to move, in page 47, line 15, to leave out "or of the rights thereto," and to insert: (or of other securities substituted or to be substituted therefor), being a sale. This Amendment and the next both relate to the same subject, and are designed to stop up another hole of a rather more extensive character. They are designed to deal with a possible evasion device. Securities may be issued to an agent of the company, on terms that he should resell to the shareholders, and while they are in the hands of the agent the securities may be converted into stock. Unless there is some proviso to put the converted stock into the position of the original shares, it may be possible to evade the requirements of the provision as to returning them in a statement for the purposes of taxation. We are now substituting securities in the two Amendments to prevent that type of evasion.

Amendment agreed to.

Further Amendment made: In line 23, at end, insert: and (c) references in Subsections (3) to (6) of this Section to the securities issued by way of bonus shall, where the sale is of substituted securities, be taken as referring to the substituted securities."—[The Solicitor-General.]

Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."

Lieut.-Commander Braithwaite

There is one point I should like to draw attention to before Clause 50 goes, and it relates to Subsection (3, c). Can the hon. and learned Gentleman tell us how the agreed value of the securities on the date of allotment can be proved? We feel that the method of valuation should be more clearly defined, so that companies may be able to assess the amount of tax they will suffer. In the case of public companies the value of the securities may be assessed as in the case of private companies, namely on their nominal capital, and unless it is clearer in the Clause it may be that quite an indefinite value would have to be made for Estate Duty purposes and for assessing liability generally.

The Solicitor-General

If the hon. and gallant Member will turn to Subsection 4 (a) he will see a proviso which deals with the question of valuation. He will there see that the value of the securities or the rights, as the case may be, shall be determined according to the same principles as would apply for the purposes of estate duty. apart from a certain proviso which is altogether irrelevant. There is a ready method of valuing if they had to be valued by the best standard, and the method to be followed is that when they have to be valued for Estate Duty. Ordinarily, for that purpose they are taken at the Stock Exchange quotation, and one can only say with regard to shares that they would be treated as any other species of property. Where there was no quotation they would be taken at the best value at which they could be taken.

Clause, as amended, ordered to stand part of the Bill.

Clause 51 ordered to stand part of the Bill.