§ Mr. Corfield
I beg to move, Amendment 104, in page 44, line 22, at the beginning to insert:'Without prejudice to the next following subsection'.
§ Mr. Deputy Speaker (Sir Eric Fletcher)
It would be convenient at the same time to take the following Amendments:
§ Amendment No. 105, in line 23, to leave out 'conclusive' and to insert 'prima facie'.
Amendment No. 106, in line 28, at the end to insert—
(6) Notwithstanding the provisions of the last preceding subsection a certificiate of incorporation issued by virtue of this section shall be conclusive evidence of the status of the company and that status shall not be challenged in any proceedings whatsoever.
§ Mr. Corfield
The Amendments are self-explanatory and I hope that the right hon. Gentleman will accept them because they meet the one objection which he made in Committee to an Amendment similar to No. 105. We think that we have cured that objection by coupling Amendment No. 105 with Amendments Nos. 104 and 106.
Section 43 deals with the re-registration of limited companies as unlimited companies. The early subsections, particu- 2368 larly subsection (3) onwards, deal with matters which are subsequently described as "precedent and incidental" which must be gone through before the company can be re-registered. Among these matters "precedent and incidental" is the production by the directors ofthe prescribed form of assent to the company's being registered as unlimited subscribed by or on behalf of all the members of the company".Similarly, paragraph (b) requiresa statutory declaration made by the directors of the company that the persons by whom or on whose behalf the form of assent is subscribed constitute the whole membership of the company".As the Bill stands, the certificate of incorporation issued as a result of these important formalities is conclusive evidence of all the matters referred to. It is conclusive evidence that the requirements of the Clause with respect to re-registration and all matters "precedent and incidental" thereto have been complied with, and that the company was authorised to be re-registered under the principal Act in pursuance of the Clause. It is clear, therefore, that it is not only conclusive evidence that the company has been re-registered as unlimited; it is conclusive evidence that the members of the company have subscribed, or have had subscribed on their behalf, the assent that the company should become an unlimited company.
There could be a situation in which the assent of a member had been forged or obtained by some form of duress. I accept the right hon. Gentleman's contention in Committee that, for all that, it is still essential for people dealing with the company that its status should not be in doubt, and that is the raison d'être of Amendment No. 106, which says that notwithstanding the fact that we have made it prima facie evidence, it shall be conclusive evidence as to status. Anyone dealing with the company is as much protected under the Bill as amended as under the Bill without the Amendment. But the Amendment leaves open the possibility of someone bringing a civil action for having his signature forged or his assent obtained by some form of duress, which is basic to our common law. If we do not do that, we could have the situation in which the necessary formalities were completed by fraud or duress and there would be no 2369 redress, as civil proceedings could not succeed against the person carrying out the fraud because the certificate was said to be conclusive evidence that the assent had been properly obtained.
This is the object of this set of Amendments. I hope that they will be accepted, because they meet—I am not aware of any grave drafting errors—the only objection that the right hon. Gentleman made to acceptance of the original Amendments moved in Committee.
§ Mr. Darling
The hon. Member for Gloucestershire, South (Mr. Corfield) is right in his arguments, but I have been advised that, notwithstanding the words of subsection (5), the certificate would not be conclusive evidence in proceedings involving allegations of fraud or forgery. Therefore, the Amendment is unnecessary and the arguments which the hon. Member has put forward are covered.
§ Mr. Graham Page
It is not only fraud or forgery that one is dealing with here. Subsection (5) says that the certificate is conclusive evidence that the requirements of the Clause have been met. When a company is being converted from a limited company to an unlimited company the individual members of that company now have unlimited liability. While they are members of a limited company, if they hold fully paid up shares, they are under no further liability, but once they become members of an unlimited company they have individual liability. It is not quite the same as a partnership, because a creditor cannot pursue them individually. He would have to put the company into liquidation, and it is only the liquidator who can claim unlimited liability against the members. However, it is a different status for the members, and it might happen by mistake. For instance, if a member's address is wrong or has not been properly registered, notice of the change from limited to unlimited can occur without his knowing anything about it. The fault may not be the member's; it may be the company's. Yet the certificate is to be conclusive evidence that the requirements have been properly carried out.
It is right that it should be conclusive evidence of the status of the company 2370 as an unlimited company when it deals with third parties. Third parties should not have to look into the procedure whereby it changed its status and therefore, the certificate should be conclusive there. But if the company has done something wrong, by failing to give notice to a member, he should have his remedy against the company and the certificate should be prima facie evidence only that it has met all the requirements. If the member can say, "It was the company's fault. My assent to this change in my liability was brought about without my knowledge", he should be able to recover from the company.
Our Amendments are intended to leave it clear that third parties dealing with the company can rely on the certificate, but, if the company has done something wrong in the procedure of converting itself from a limited to an unlimited company and thereby increased the liability of individual members, the members should have some redress.
§ Mr. Temple
At this late stage, after about 12 hours of debate on Report, I congratulate my hon. Friend the Member for Gloucestershire, South (Mr. Corfield) on bringing this important matter to the notice of the House. It seems that members of a company which converts itself from limited to unlimited status will be put at risk, albeit inadvertently. The Minister had not grasped that point when he replied. As I listened to my hon. Friend the Member for Crosby (Mr. Graham Page), I was at once seized of the matter because my hon. Friend has a knack of putting complicated matters in a comprehensible way, which is most helpful to hon. Members who are trying to follow these complex questions.
§ Mr. Stanley Orme (Salford, West)
It was clear to me.
§ Mr. Temple
That surprises me, because it did not seem too clear to the Minister of State.
This may well be a matter of some consequence. The change from limited to unlimited liability will be encouraged under the Bill. We pointed out earlier that there would be a good many companies turning themselves from one status to another in order to avoid certain of the Bill's provisions. I hope that the 2371 Minister will acknowledge the force of the case which has been put. People who had taken shares in a limited company could find that, unwittingly, they had saddled themselves with a quite different level of liability.
§ Mr. Darling
In Committee, the point now made by the hon. Member for Crosby (Mr. Graham Page) was not raised. We were then concerned with the question raised by the hon. Member for Gloucestershire, South (Mr. Corfield) about difficulties caused by fraud or forgery. Looking at it from that point of view, we took the discussion further to make sure that the points then raised were covered. If they had not been, we would have done something about it by Amendment ourselves. I repeat that, in regard to fraud and forgery, notwithstanding the words of subsection (5), the certificate would not be conclusive evidence in proceedings involving allegations of that kind.
I should like to look into the other point to make sure that the position of the injured innocent person is protected. I should like to be sure that some redress is open to the person who has not received any communication from the company about changes in status and who then finds himself in difficulties.
§ Mr. Corfield
I mentioned fraud or forgery only as examples of the way in which assent could be obtained without the knowledge of the person from whom it was required. The results of assent obtained in that way follow from the nature of the Clause. At the end of the day, a limited company becomes an unlimited company, and the individual members have to face the rigours of unlimited liability.
The right hon. Gentleman did not address his argument to the question of duress. At one end of the scale, there is the slight influence which a man has, for instance, with a relation who is accustomed to rely on him for advice. Predominantly, under this Clause, we have to consider the small family company. Very often, the relatives, parents, aged aunts and so on, have money in the business and they are used to being told, "This is all right. Sign it". They are accustomed to rely on such advice. Whether it is strictly duress, I do not 2372 know. At least, I shall not argue it at this hour.
Someone could take advantage of such a relationship, knowing full well what the effect would be. Auntie, of course, may be the member of the family with the money who will have to meet the debts. It is quite wrong to have any suggestion that her cause of action against the man who induced her to sign the document, to give her assent or to give her solicitor authority to do it for her could be barred by a certificate which is said in the Bill to be conclusive evidence. Perhaps I can be quite frank at this time of the morning. I simply do not think that the right hon. Gentleman's advice is good enough. If there is any doubt, there cannot conceivably be any good reason for not putting in this safeguard. I beg the right hon. Gentleman to do this.
I do not share the Lord Chancellor's views that small companies are the homes of fraud. There are frauds, however, and we should not legislate by putting in a Statute something which could be a bar against the handing out of justice in a case of this sort.
Obviously, one cannot think of every possible ramification. There may be other examples. I have given the one which springs to mind. At this late stage of the Bill, with so little opportunity for further amendment, I am compelled again to ask the right hon. Gentleman to accept the Amendments. They could not possibly do harm. I suppose that their Lordships could be induced to throw them out easily at a later date. I believe that the Amendments are necessary. Even if they are not, they could do no harm at this late stage and we should play safe and put them in.
§ Mr. Darling
I have already explained that on the fraud question, the Amendment is unnecessary. I am also advised that the way the three Amendments are drafted would not satisfactorily cover the point raised by the hon. Member for Crosby (Mr. Graham Page) and that further drafting would be necessary to deal with his situation. The status of the company would have been changed in any event notwithstanding whether the person had been misinformed or whether there had been any fraud. One has to think in terms of the position of the creditors.
2373 Apart from those arguments, however, I am informed—and I must take this advice—that to cover the point raised by the hon. Member for Crosby would require further redrafting. That was why I said that we would look at it.
§ Mr. Graham Page
May I interrupt the hon. Gentleman—
§ Mr. Speaker
The hon. Gentleman has exhausted his right to speak.
§ Mr. Page
I was not endeavouring to speak again, Mr. Speaker. I was endeavouring to interrupt the right hon. Gentleman, if I might interject in that way. Having regard to the fact that, unless an Amendment is made now it cannot he reconsidered in connection with the Bill, whereas if the Amendment were made now it could be corrected at a later stage in another place, will not the right hon. Gentleman accept the Amendment, even though it may not be right, so that he can then bring this valuable principle into the Bill?
§ Mr. Darling
The timetable to which we are working and the arrangements that have to be made now will prevent our carrying out what, in other circumstances, would he a very sensible and wise proposition. Our difficulty is that the Bill started in another place.
§ Amendment negatived.
§ Mr. Jay
I beg to move Amendment No. 217, in page 44, line 43, at the end to insert:() In this section, 'prescribed' means prescribed by regulations made by the Board of Trade by statutory instrument.With this Amendment is associated Amendment 219, in Clause 44, page 47, line 14.
The purpose of these Amendments is to remove possible doubt. In Clause 43 there is a reference in subsection (1) to an application framed in the prescribed form and in subsection (3) to the prescribed form of assent.
In Clause 44—this is relevant to the second Amendment—there is reference to an application framed in the prescribed form. These Amendments remove any doubt about the meaning of "prescribed" for the purpose of these Clauses by making it clear that the matters prescribed by regulation are done by the Board of Trade by Statutory Instrument.
§ 3.45 a.m.
§ Mr. Graham Page
I want only to object again to the fact that this is by Statutory Instrument which will not be laid before the House. This deals with forms required. It is true that normally a Statutory Instrument providing for forms does not come before the House on any Parliamentary procedure, but very frequently these are laid before the House so that Members can see them—and, indeed, could raise them on an Early Day Motion. These are going to be important forms, especially the one under subsection (3,a), the prescribed form of assent. Moreover, this is something new, something which Members ought to have an opportunity of seeing. Merely to say that every Statutory Instrument is printed is really not sufficient. Important Statutory Instruments of this sort ought to be laid before the House.
§ Amendment agreed to.