HC Deb 12 July 1967 vol 750 cc851-4

Any provision of a company's memorandum of association that expressly precludes it from carrying on insurance business of any class shall cease to have effect.—[Mr. Darling.]

Brought up, and read the First time.

Mr. Darling

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

I am sorry that I must almost invite the hon. Member for Yeovil (Mr. Peyton) to repeat the speech he made on the previous Clause. I hope that he will not do so, however. I think that it would be better if it were taken in silence on this occasion. But here we are doing good again. I am sorry to say that we discovered this point at a late hour, but that does not stop us from doing good, and I hope that I shall not be prevented in any way from continuing to do so.

This Clause deals with the case where under the Bill, an insurance company has to bring into supervision a class of business which has previously been exempt from supervision. In many cases the range of insurance business has been conducted under a memorandum of association of the company and certain businesses have been precluded. They are now to be brought in as a result of the Bill. Therefore, the insurance company, to put itself into legal probity under the Bill, will have to alter the memorandum of association.

Under the Companies Act, 1948, the company, to get the memorandum of association altered, must do so by special resolution. This means, according to that Act, that at least three weeks' notice must be given. Therefore, we have a gap of three weeks in which this previously excluded type of business is not properly brought within the scope of the Bill. We think that it will be unfair to expect all the affected companies to anticipate by three weeks or more the passing of the legislation so that they may give three weeks' notice to have their special resolution meeting on the date that the Bill becomes law.

Therefore, to ensure that companies are not suddenly placed in the position of having to cease part of their business, the Clause provides that any restricting provision in an insurance company's memorandum of association shall cease to have effect. In other words, the insurance company can carry on and everything will be all right until the company has held its special meeting and has altered its memorandum of association, so that it can continue to carry on the class of business which had previously been excluded by the memorandum of association.

Sir J. Foster

I do not understand this. If the memorandum of association precludes the company from carrying on any kind of business, I would have thought that the business was ultra vires.

Mr. Darling

It is the other way round. I am sorry that I did not make the position clear. In some cases insurance companies have only one class of business—say, plate glass, credit, or animal insurance. It is specially written in the memorandum of association that the company can do only that class of business. A company may want to alter its memorandum of association. We are now extending the provisions to all classes of insurance business, and some of these classes may have been precluded previously from supervision. It is required that all classes of business shall be covered, and the company will have to alter its memorandum of association to enable it to come within the legal provisions of the Act.

5.0 p.m.

Mr. Michael Shaw (Scarborough and Whitby)

If a company has a memorandum stating that it is entitled to conduct insurance business except for certain classes, the exceptions will now be removed automatically from the memorandum under the new Clause. If, on the other hand, as I suspect, many companies put it, not in the negative form but in the positive form, that they are empowered to conduct insurance of certain classes, the Clause will not cover such cases. We are not removing the exceptions but merely removing the power to carry on those classes of business for which they have power at present. It seems to me, therefore, that the new Clause will be very uneven in its effect on companies.

Mr. Darling

I shall look into that point, but companies of the type mentioned by the hon. Gentleman would be affected anyhow, because if their memorandum of association stated that they would conduct classes of business, they would go on conducting those classes of business. Where they were precluded, the provisions we now propose in the new Clause would apply. They would alter their memorandum of association, and the period of grace, so to speak, which we are giving them here would allow them to make the alteration without any effect on their business.

Mr. F. A. Burden (Gillingham)

I apologise to the right hon. Gentleman for not being here earlier, the point which I have in mind may already been answered. Companies which have their trading area laid down in articles of association cannot alter those articles except after a meeting of which they have given three weeks' notice, this being specifically required for the alteration of articles of association in order to extend the area of trade.

Mr. Darling

That is precisely what I said, and that is the purpose of the new Clause.

Question put, and agreed to.

Clause read a Second time and added to the Bill.