HC Deb 26 November 1959 vol 614 cc569-73
The President of the Board of Trade (Mr. Reginald Maudling)

In the Gracious Speech on the opening of Parliament an inquiry into the company law was forecast. The legislation concerned is the Companies Act, the Prevention of Fraud (Investments) Act, and the Business Names Acts. The Companies Act was last revised following the Report of the Cohen Committee on Company Law Amendment in 1945, inevitably on the basis of pre-war experience, and the other legislation dates from before the war.

The time has now come for a fresh review, and this review must be thorough, not because we believe that there is anything fundamentally wrong in our system but because ideas and practices have changed since the war and it is desirable to examine what modifications are needed in the light of recent experience to take account of these changes.

I propose, therefore, to appoint a committee to examine these matters with the following terms of reference: To review and report upon the provisions and workings of the Companies Act, 1948, the Prevention of Fraud (Investments) Act, 1958, except in so far as it relates to industrial and provident societies and building societies, and the Registration of Business Names Act, 1916, as amended; to consider in the light of modern conditions and practices, including the practice of take-over bids, what should be the duties of directors and the rights of shareholders; and generally to recommend what changes in the law are desirable. With the approval of the Lord Chancellor I have invited Lord Jenkins to undertake the heavy task of acting as Chairman of this Committee, and I am very glad to say that he has accepted. I hope to be able to announce the names of the other members of the Committee shortly.

This inquiry will cover the general field of the creation, operation and dissolution of companies, the protection of the public in their capacity as shareholders and creditors and the regulation of dealers in securities.

There remain the related problems of the protection of the public, not as shareholders but as depositors. As was stated in the Gracious Speech, my right hon. Friend the Chancellor of the Exchequer intends to introduce legislation concerning building societies this Session. He is also considering the much wider question of unsecured loans or deposits which are sought by many kinds of business for many different purposes and the desirability of new legislation for the protection of the investing public. Some proposals affecting invitations to the public to deposit money, for example, the disclosure of balance sheets, may impinge on the Companies Act, but the problem goes a good deal wider than this and action need not await the report of the Committee of Inquiry.

Finally, Stock Exchange procedures are constantly under review by the Stock Exchange itself, and I know that Lord Ritchie, with whom I have discussed the matter, is anxious to examine any criticisms of substance that may be made.

The savings of the nation are growing and Her Majesty's Government consider it to be in the national interest that savers generally, and especially small savers, should be able to invest their savings in our expanding economy with confidence. We have, therefore, decided to set in train this comprehensive programme, covering the whole field of private investment.

Mr. Jay

Is the President of the Board of Trade aware that hon. Members on this side of the House will certainly welcome this inquiry, as recent events have shown that thousands of small investors—both shareholders and depositors—are very much in need of protection? Can he also confirm that the terms of reference will not be limited to what I think he called the duties of directors and the rights of shareholders, important though those are, but will he at least as wide as were those of the Cohen Committee in 1945?

Mr. Maudling

Yes, Sir. The terms of reference are certainly intended to be at least as wide as those of the 1945 Committee.

Mr. Leather

Is my right hon. Friend aware that this announcement will be widely welcomed throughout industry, particularly in the City? Will he take a precedent from the Radcliffe Committee and recall that that Committee invited witnesses specifically to come from the United States to give it the benefit of their experience? Will he suggest to this Committee that it might consider inviting witnesses from the American Securities Exchange Commission to give evidence before the Committee? Finally, is it clear from his long and very complex statement that the Committee is being asked not merely to stop up gaps and loopholes, but to suggest ways of giving positive encouragement and incentives to new savers to invest in British industry?

Mr. Maudling

On the first point, the Committee will have power to obtain information as to practices in other countries, and I would certainly expect it to want to do so, because that is important. On my hon. Friend's second point, about company law, the Committee will certainly be aware of the great responsibility of giving confidence to investors, and seeing that the law is adequate to protect their interests.

Mr. Albu

Will the terms of reference be wide enough to enable the Committee to inquire into the practice of companies using their money for purposes other than those mentioned in their articles of association—such as to support political parties, or to subscribe or make donations to private institutions?

Mr. Maudling

The whole question of the duties of directors in these matters will certainly come within the purview of the Committee.

Mr. Nabarro

I congratulate my right hon. Friend on the very comprehensive terms of reference of the Committee. Can he tell the House whether those terms of reference are sufficiently wide to include provisions relating to no par value shares?

Mr. Maudling

Yes. Sir.

Mr. Oram

The right hon. Gentleman will be aware that today I had put down a Question relating to this subject, with particular reference to the desirability of including on the Committee persons knowledgeable of other codes of commercial law than that of the Companies Act. Since one of the subjects to be investigated is the question of take-over bids, and since the Industrial and Provident Societies Act prevents take-over bids being possible in a large sphere of commerce, will the right hon. Gentleman make sure that someone on the Committee knows something about the Industrial and Provident Societies Act?

Mr. Maudling

Had the hon. Member's Question been reached I would have told him that I will certainly consider his suggestion, although I cannot give any undertaking that we shall be able to include a person of that type on the Committee.

Mr. J. Hynd

Can the right hon. Gentleman tell us whether the terms of reference are such as to enable the Committee to inquire into the rapid development of the unit trust movement and to consider any possibility of having to lay down safeguards to protect the many small investors who are coming into this market for the first time?

Mr. Maudling

Yes, Sir. A unit trust cannot offer units to the public unless it is authorised by the Board of Trade under the provisions of the Prevention of Fraud (Investments) Act, which is one of the Acts specifically referred to the Committee.

Mr. Mitchison

Will the terms of reference be wide enough to include an inquiry into what may legitimately be deducted as expenses for the purposes of taxation? Will it cover the question whether, for instance, political contributions may be deducted as expenses, and what factors regulate the matter? Secondly, will the terms of reference be wide enough to enable the Committee to examine the question of offers for sale, and what must be disclosed in them? As the right hon. Gentleman knows, in many countries—in America, for instance—a far fuller disclosure is required in regard to offers for sale than is necessary in this country.

Mr. Maudling

On the hon. and learned Member's first point, the Committee cannot consider a question relating to taxation. That must be the responsibility of my right hon. Friend the Chancellor of the Exchequer. On his second point, I would expect the Committee to take into consideration all questions concerning the information that needs to be disclosed before any member of the public is asked either to subscribe for a share or to pay a deposit.

Mr. Mitchison

Perhaps I did not make myself clear on the matter of taxation. At present, it rests largely with directors as to what are put forward as expenses for the purposes of deduction. The directors have a duty in the matter, and that is a public duty as well as a duty to their shareholders. Is that duty to be examined, or are directors to be left absolutely at large to decide what should and should not be claimed as expenses?

Mr. Maudling

I think that I made the position clear. The Committee will consider the duties of directors of companies at large within the framework of the Companies Act, but it will certainly not consider the Income Tax Acts.

Mr. Mitchison

But these duties will include the duties of directors to the public and shareholders in relation to expenses, will they not?

Mr. Maudling

I think that I have made the position quite clear already.