HC Deb 26 May 1952 vol 501 cc1030-7
Mr. Martin Lindsay (Solihull)

I beg to move, in page 60, line 39, after "1948," to insert: or of any unregistered company being a body corporate incorporated in and having a Principal place of business in Great Britain. To be on the safe side I should declare that I have a remote, indirect interest in this Clause, in that the beneficiary under this Amendment would be a company which is a shareholder in another of which I happen to be a director. It is because of this connection that the injustice which this Amendment seeks to remove came to my notice.

Subsection (2) discriminates—I dare say, quite unintentionally, and due to a drafting error—between statutory and other companies, because as this Clause is drafted only companies under Section 56 of the Companies Act, 1948. can include their share premium accounts as part of their paid up share capital, and statutory companies are, of course, not subject to Section 56 of the Companies Act, 1948.

Apart from water companies, which are in a special position, since the nationalisation of the gas and electrical companies, there are, I understand, only two statutory companies. The first one of those is not interested in this Amendment, because it intends to take its assessment for the Excess Profits Levy by one of the alternative methods; but the other one is gravely concerned.

I hope that it will not be suggested that this anomaly should be continued because statutory companies are in a different position in regard to share premiums, because, of course, there is no discrimination whatever in taxation arising from the distribution of share premiums by statutory companies in contradistinction from any other company. I therefore hope that the Chancellor will accept this Amendment in order to remove this anomaly, and to extend to the statutory companies—the one statutory company other than water companies—the advantage of Clause 57 of this Bill.

The Solicitor-General

This Clause was drafted in this way for the purpose of eliminating non-resident companies, such as foreign companies with a branch in the United Kingdom, but if there are companies such as those coming within the Amendment moved by my hon. Friend, or, indeed, companies coming within the definition of the Amendment in the name of my hon. and learned Friend the Member for Ilford, North (Sir G. Hutchinson) that has not been called. in page 60, line 38, after "of," to insert: any company formed under any private Act of Parliament for the purpose of supplying water or of. having a share premium account although not registered under Section 56 of the 1948 Act, it would not be right that they should be differently treated; and, we certainly will give consideration to their position between now and the Report stage.

I hope that in the circumstances it will not be necessary to go into the ramifications of the water companies or, indeed, of those other companies. We shall, I hope, have a full opportunity of considering their position between now and the Report stage. I hope, therefore, my hon. Friend will withdraw his Amendment.

Sir G. Hutchinson

I shall not detain the Committee for more than a few minutes. I am much obliged to my hon. and learned Friend for what he has said. I would point out to him however that it by no means covers this very important point. As my hon. Friend the Member for Solihull (Mr. M. Lindsay) has said, the most numerous and most important class of company affected by this matter is the statutory water company. Like him, I have to disclose a certain interest in companies which will be affected by these Amendments.

I desire to draw the attention of my right hon. and learned Friend to the fact that statutory water companies are in a special position in this matter because, unlike registered companies, by the terms of their special Acts they are required to issue their capital by tender and they have therefore over the years accumulated substantial share premiums. These share premiums they are required, by their specials Acts, to treat as part of their capital and they have, therefore, no share premium accounts corresponding to the share premium account which registered companies are required to maintain by Section 56 of the 1948 Act.

The two Amendments which stand on the Order Paper in the name of my hon. Friend the Member for Solihull and in my own name do not deal with this particular aspect of the matter. I had an Amendment on the Order Paper at an earlier stage which did deal with it, but it suffered the fate which does sometimes overtake an Amendment—it was not called. I desire now to draw the attention of the learned Solicitor-General to this matter which is of some importance and in which a very large capital sum is involved, and I hope that on the Report stage what is evidently an omission will be made good.

Mr. M. Lindsay

I think that we can be grateful for the statement made by the Solicitor-General and, in view of what he has said, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Roy Jenkins

I beg to move, in page 61, line 12, at the end, to add: Provided that the issue by a body corporate of shares to members of that body whose right to participate in the assets is not thereby increased shall not be deemed to be the giving of valuable consideration within the meaning of this subsection. I feel rather sorry that the Chair has decided to call this Amendment, because it is becoming clear that the only way to get an Amendment from this side of the Committee accepted by the Government is not to have it selected by the Chair. As this is largely in the nature of an exploratory Amendment, I need not be too distressed about that. The hon. Members and myself put this Amendment down in the hope that the Solicitor-General would explain it to us.

Clause 57 (3), to which it relates, says that where a company issues shares for a consideration other than cash, for a factory or something of that sort, their share profits can be increased by 10 or 12 per cent. of the amount. That is what I would have read into this Clause, there being a corresponding arrangement where a company does not issue shares.

The "Accountant" has written a number of articles on the subject of the Excess Profits Levy and has put a different construction on this Clause. It has implied that it covers the issue of bonus shares. I would like to call the attention of the Committee to the issue of the "Accountant" which made this statement. In an article on 19th April, 1952, it stated: In our necessarily brief summary of the levy provisions two weeks ago we said that for the purpose of computing standard profit the expression 'paid up share capital' did not extend to bonus shares, This was incorrect. What we had in mind were Clauses 33 (2) and 34 (2) which provides in effect for an increase in standard profit of a sum equal to 10 per cent.—12 per cent, for director-controlled companies—of any increase in paid up share capital. The increase is expressly confined to sums which the company receives in cash. The meaning of this is extended by Clause 57 (3)‖. It gives Clause 57 (3), and goes on to state: This sub-clause deals with a case of a company acquiring assets in consideration of an issue of its shares, or repaying some of its paid up capital by means of a distribution of its own assets in kind, and is not in our opinion apt to describe the application of undistributed profit in the paying up of bonus shares. I take it that this means that this does bring in the issue of bonus shares, although it does it in rather a clumsy way. All that the Amendment is designed to do is to ask the Solicitor-General whether the "Accountant" is right in thinking that subsection (3) of Clause 57 does affect the issue of bonus shares in any way.

The Solicitor-General

I will give an answer to the question put by the hon. Gentleman as shortly and as clearly as I can. I can only hope that the hon. Gentleman is not confused in consequence. I say quite emphatically that it is not intended to give any allowances in respect of the issue of bonus shares, and, as far as I can see it, no such allowance could be claimed under the present wording of the subsection.

If a company issued bonus shares, it neither receives cash nor does it receive any valuable consideration, and to entitle it to get an allowance, then the allowance which a company may have for the issue of new share capital is tied to what the company receives in respect of that capital. If it does not receive anything in respect of that issue, it will not be entitled to the allowance.

Mr. Albu

Surely the wording Where valuable consideration is given otherwise than in the form of money by or to a body corporate‖. must include the issue of bonus shares.

The Solicitor-General

The company has also to receive something in exchange. It will not get an allowance unless the allowance it gets is tied to what the company receives in respect of that issue. If the company is not receiving anything in respect of the bonus issue it will not get the allowance.

Mr. Jenkins

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

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

Mr. Roy Jenkins

Before we leave this matter I would like to ask the Solicitor-General a question. There is a paragraph in subsection (1) which starts with the word "Director." It states: 'Director' has, in relation to any body corporate, the same meaning as it has in section two hundred of the Companies Act, 1948, in relation to a company…. I and some of my hon. Friends were unable to discover any definition of the word "director" in Section 200 of the Companies Act, 1948. I should like the Solicitor-General to tell us exactly what is meant by that paragraph.

The Solicitor-General

Section 200 (9) of the Companies Act, 1948, includes not only directors so called, and I quote from the Act, but any …person in accordance with whose direction or instructions the directors of a company are accustomed to act…. These words are necessary or there may be evasion by people acting as directors although not known as such. They are also necessary in considering whether or not a company is director-controlled. The Amendment which the hon. Gentleman had on the Order Paper and which has not been selected, if it had been carried, would have excluded from the definition of director someone who was, in fact, acting as a director but was not so defined.

8.0 p.m.

Mr. R. Williams

Does not the Solicitor-General feel that this needs a little tidying up? Disregarding entirely the Amendment which was not selected, the question of what is a director arises on the Clause itself, which says that it has, in relation to any body corporate, the same meaning as it has in Section 200 of the Companies Act. That gives the impression that Section 200 of the Companies Act should be consulted for the meaning of the term "director," whereas under Section 200 (9) of the Companies Act it is clearly stated: …a person in accordance with whose directions or instructions the directors of a company are accustomed to act shall be deemed to be a director and officer of the company. We are still left entirely in the dark as to what a director is, although we know that there are certain persons who are included in the term "director." To find out what a director is we have to consult Section 455 of the Companies Act, which is not referred to in the Bill. There we find that "director" includes: …any person occupying the position of director by whatever name called…. The position is rather complicated by the fact that a wider term, "officer." is defined in the same Section of the Companies Act, 1948, where it reads: …in relation to a body corporate, includes a director, manager or secretary…. In those circumstances I suggest to the Solicitor-General that he might between now and the Report stage look again at Clause 57 on this point, because it seems to my hon. Friends and myself that there is some confusion. At the moment one has to consult a number of authorities, and that is something which the Solicitor-General would not regard as being in any way desirable.

Question put, and agreed to.

Clause ordered to stand part of the Bill.

Mr. Butler

I beg to move, That the consideration of Parts IV and VI, of new Clauses, of Schedules 1 to 3 and of Schedules 5 to 7 be postponed until after the consideration of Schedule 11. The Motion means that we go next to the Eighth Schedule, which has to do with the Excess Profits Levy, and take Schedules Eight to Eleven which, I think, will be convenient while we have all this fresh in our minds. We shall then come to the Clause dealing with the Profits Tax, and, after that, the few remaining Clauses of the Bill and then the new Clauses.

The Committee has still a great deal of work to do, although we have two Parliamentary days left. I am most anxious to prevent people from sitting up late or all night, but that entirely depends on progress. I can only say that there is no need to invent work as we already have plenty of work to do. If we go on in the same spirit as we have had I do not see why we cannot make progress in reasonable time; but it depends on getting down to the work and sticking to it in the way we have done.

Question put, and agreed to.

Consideration of Parts IV and VI, of new Clauses, of Schedules 1 to 3 and of Schedules 5 to 7 postponed until after the consideration of Schedule 11.