§ Mr. Corfield
I beg to move Amendment No. 4, in page 5, line 33, after 'name', insert 'if known to them'.
Mr. Deputy Speaker
With this Amendment we can take Amendment No. 5, in page 5, line 33, leave out from 'of' to second 'the' in line 34.
§ Amendment No. 6, in line 35, leave out 'if known to them'.
Amendment No. 7, in line 35, at end insert:
Provided that where the ultimate holding company is not known to the directors of the subsidiary company that fact shall be stated, together with a statement indicating the names
of such intermediate holding companies and the countries in which they are respectively incorporated as are known to the directors of the subsidiary company.
§ Amendment No. 135, in line 38, leave out from 'to' to 'its' in line 39.
Amendment No. 10, in line 39, at end insert:
'or with respect to any of the said intermediate holding companies'.
Amendment No. 9, in line 40, after 'opinion', insert:
'or in the opinion of the directors of that ultimate holding company or of the directors of any of the said intermediate holding companies'.
Amendment No. 11, in line 41, after first 'company', insert:
'or of any of the said intermediate holding companies'.
§ Mr. Corfield
Yes, Mr. Deputy Speaker.
It is fair to say that the object of the Clause is to disclose who owns whom. En this regard it has one or two serious defects. The first is emphasised by the words in lines 33 and 34, which refer to the name ofthe body corporate regarded by the directors as being the company's ultimate holding company …First, what does the word "regarded" mean? Does it mean that the directors merely think that a certain company is the ultimate holding company but do not have to go to any great trouble to find out, or does it mean that they have solid grounds for believing that a certain company is the ultimate holding company? If so, it is surely necessary that they should indicate the grounds on which their belief is based.
The whole implication of the Clause is that in certain circumstances the directors may not know which is the ultimate holding company. This supposition is supported by the words, "if known to them" in line 35, in relation to the country of incorporation. On the face of it one would have thought that if a director knew the name of a company—whether it was the ultimate holding company or anything else—it should not be an insuperable problem to discover the country in which it is incorporated.
We feel that the Clause is defective. If the directors do not know which is the ultimate holding company it is very 2250 much better that they should say so clearly.
One of the effects of the Amendments, therefore, is that directors will be required to state the name of the ultimate holding company, with the proviso that if they do not know they should say so, in which case they should then proceed to give such details of the company's parentage —if that is the right word—as are known to them.
It is important that the other links in the chain should be disclosed, especially where the ultimate holding company cannot be stated with certainty. This is much more useful and satisfactory than merely the name of a company which may or may not be the ultimate holding company If it is not, a great many misleading deductions may be drawn. If we are to have the concept of a company "regarded by the directors" as the ultimate holding company, we ought to know the evidence for that opinion.
It is odd that the Clause makes it the responsibility of the directors of the subsidiary to form an opinion about whether the holding company's interests will be harmed by disclosure, particularly if, under subsection (1), they refer to a company which they merely "regard" as the holding company. We suggest that, under subsection (1), they should disclose the names and countries of incorporation of the intermediate companies, if any—at any rate giving the immediate parentage—and that, in subsection (2), it should be in the opinion of the directors of the company which is likely to be harmed that it is harmed and not in that of the directors of some other company, so that at least the directors who claim that the interests of their company will be harmed will have a right to approach the Board of Trade for consent that the information need not be given.
This is much more logical and is greatly to be preferred in the company's interests and even more in regard to disclosing valuable information to the public, rather than leaving the Clause as it is and, in certain circumstances, producing information which is not only valueless but completely wrong and misleading.
§ Mr. Jay
Amendment No. 4 is unnecessary, as the Bill has substantially the same effect, providing that a subsidiary company must give in its accounts the name of the company which the 2251 directors regard as being the ultimate holding company. If we added these words, they would have no substantial effect. If the directors do not know the ultimate holding company, they will not regard any company as such. They will be able to give information only about the company next in the chain, which appears to them, on the information which they have, to be the holding company. Therefore, if they are not even aware that they are a subsidiary, they will not regard any company as being their holding company and will give no information. Therefore, no change is necessary. There is no serious disagreement about objectives here.
On the other Amendments, the Jenkins Committee recommended that every subsidary company should disclose in its accounts the name and the country of incorporation of its ultimate holding company, so far as possible, and that, if a subsidiary could not get this information, it should be required to say so and to give the name and country of incorporation of the most senior company in the chain.
The Clause gives effect to the Jenkins recommendation by requiring disclosure of the name of the body corporate regarded by the directors as being the company's ultimate holding company. Both the proposed new version of the Clause and the existing Clause would permit an exemption for a subsidiary carrying on business outside the United Kingdom if the disclosure would be harmful and the Board of Trade agreed.
For these reasons, there would be very little advantage in making the change which the Opposition suggest. We have provided in the Bill that the directors shall give all the information which it is possible for them to give. We do not think that the situation would be improved by incorporating the Amendment in the Bill.
§ Mr. Costain
Suppose that there is the possibility of a take-over bid being made which could alter the ownership of the holding company between the drawing-up of the balance sheet and its publication. Is the company expected to show the position as at the end of the year or when the balance sheet is issued?
§ Mr. Jay
The Clause requires a subsidiary company to give in its account 2252 the name of the company which the directors regard as being the ultimate holding company. I take it, therefore, that they would give the name of the company which, when the accounts were made up, they regarded as being the holding company. Therefore, it would depend on whether the take-over operation to which the hon. Gentleman refers had been consummated, to put it in that way, when the accounts were made up.
§ Mr. Michael Shaw
I cannot accept the explanation of the President of the Board of Trade. The position is unsatisfactory.
In Clause 5(1), ignoring the Government Amendment which we have just passed, there is a clear obligation that thereshall be … annexed to, the company's accounts laid before it in general meeting the name of the body corporate regarded by the directors as being the company's ultimate holding company …Suppose that it knows perfectly well that it is a subsidiary company and that it knows which company holds its shares. But suppose that it also knows that that company is under the control of another company. It is therefore clear that the company which holds its shares cannot be regarded by the directors as being the company's ultimate holding company. In those circumstances, it would be wrong of them to put that company's name in the account as being the ultimate holding company because it is known that that company is a subsidiary of another.
However, the subsection insists that there shall appear in the accounts or annexed theretothe name of the … ultimate holding company".What happens if it does not know it? No matter how one explains this, it does not seem to me that we can get round this difficulty unless we accept the Amendment. It is not a complete answer to say that the Government have inserted Amendment No. 151 in the Bill to the effect that the Board of Trade might agree that the information need not be disclosed. The Board of Trade may want to know the name of the ultimate holding company, but it may be decided not to give consent for that name to be given. What will be the position then?
Here we have a company that is bound by law to give the name of its ultimate 2253 holding company, and if it does not give that name the Board of Trade can say, "We are interested in your ultimate holding company and unless we know it we will not give you consent". On the one hand, we have the Board of Trade refusing to give consent, while, on the other, we have the ultimate holding company refusing to disclose itself. The directors of the ultimate holding company will have to decide whether to take their punishment like men or resign from the board. There is an unresolved problem in the Clause which will, sooner or later, have to be faced by the Government. Unless our proposal is accepted I do not see how the matter can be resolved.
§ Mr. Jay
If the circumstances were that the company in question knew that it was a subsidiary of another company, but did not know of what company it was a subsidiary it would be bound by the wording of the Measure to give any information about the company it had recorded as being its holding company because it would regard such a company in these circumstances as being the ultimate holding company. The same thing would apply if the Amendment were accepted. It contains the phrase "if known to them". The situation would be that the ultimate holding company would not be known to the company in question. Even if we accepted the Amendment there would not be any substantial difference in the meaning of the provision.
§ Mr. Corfield
The right hon. Gentleman has not got the point. "If known to them" is merely a paving Amendment to what follows. The object is to make it clear that the company in question shall state its ultimate holding company. If that is not stated, then, combined with Amendment No. 7, the company in question must state the links in the chain.
There can, therefore, be no question of a company which is a subsidiary either stating that the immediate holding company is its ultimate holding company, although there may be holding companies further back in the chain. Moreover, there would be something definite on which the Board of Trade, the Registrar of Companies or whoever else might be involved in this matter can bite.
"Regarded" is a curious word to use in this context. I cannot think of a 2254 Statute in which this word is used in this sense. It could mean anything from a vague impression to virtual certainty. Almost any charge could be countered by saying, "We regarded this as our holding company". As my hon. Friend the Member for Folkestone and Hythe (Mr. Costain) said, if a holding company or one of the intermediate companies in the chain is in the process of being taken over, it requires a degree of care to obtain accurate information.
I do not understand why the right hon. Gentleman said that acceptance of our proposal would not improve the Clause. We are out to obtain full information about the parentage of the company in question. If the holding company is not known, then under the Bill as drafted one will not get disclosed the immediate parentage of the company that is known.
This is important. When I was in the Conservative Government, some years ago, and we had all the fuss about Rachmanism, one of the great problems was to try to trace the connection between the various companies that grew up. In many cases, it would have been no good at all knowing what the ultimate holding company was. We wanted to know the intermediate links, which were much more important.
I cannot understand the right hon. Gentleman not accepting the Amendment with open arms as something which clearly improves the Bill from the point of view he has presented it to us, namely, that the public should have information which is of interest to it. In this respect, I should have thought that it was clearly of public interest in the wide sense of the term. It is not even confined to the interests of shareholders or creditors, but rather something that in company law is becoming more and more apparent as being in the public interest to know the tie-up of the firms.
We seem to be falling over backwards to help the right hon. Gentleman to improve his Bill, at which, I must frankly say, he has not made a good shot so far. But we are still doing our best. It is still not too late. I hope that the right hon. Gentleman will reconsider the position.
§ Amendment negatived.2255
Amendment made: No. 151, in page 5, line 43, leave out 'consent to the information's not being disclosed' and insert:
'agree that the information need not be disclosed'.—[Mr. Jay.]
§ Mr. Michael Shaw
I beg to move Amendment No 12, in page 5, line 44, at the end to insert:(3) For the purposes of this and the previous two sections 'carries on business' means 'either sells directly or indirectly goods or services, or manufactures'.This is a probing Amendment. We discussed the matter to a certain extent in Committee. Clause 5 requires a statement in a subsidiary company's accounts of the name and place of corporation of its ultimate holding company. Subsection (2) gives a relief in certain circumstances, one of which being the consent of the Board of Trade. As the consent of the Board of Trade is necessary, it becomes important for us to have a complete understanding of what the words relating to the potential relief mean. Subsection (2) says:The foregoing subsection shall not require the disclosure by a company which carries on business outside the United Kingdom of information …".Our Amendment seeks to define "carries on business". The right hon. Gentleman may argue that he would prefer not to have too close a definition so as to give him and the Department wider discretion to give relief where necessary.
To a certain extent I would be prepared to accept that argument provided I were satisfied that the relief is in fact going to be given as widely as possible. The purpose of putting down this Amendment lies in some words spoken by the right hon. Gentleman the Minister of State during our deliberations in Committee. The right hon. Gentleman said:It is not our intention to go as wide as the hon. Member has suggested might be possible—salesmen overseas, and so on. We were thinking in terms of a company operating outside the United Kingdom in a fairly big way, with practically all its operations taking place outside the United Kingdom.If the Board of Trade is to interpret its concept, or the basis of its concept, along those lines, I believe it will interpret it on far too narrow a basis. My hon. Friend the Member for Gloucestershire, 2256 South tried to probe along these lines and said:What I do not quite follow is what precisely he has in mind when he describes a company as carrying on business outside the United Kingdom.Then the Minister of State spoke the words I have quoted and my hon. Friend said:From our point of view, we should like to leave this as wide as possible."—[OFFICIAL REPORT, Standing Committee E, 7th March, 1967; c. 206–7.]That is why we put down this Amendment to get that expression, if we could, from the Minister.
One of the remarkable things about our export trade is its variety of products and the variety of methods under which industry operates. We should do everything we can to preserve the variety of products and the variety of methods by which we export to other countries. I am not talking only of companies which set up companies abroad and market their goods abroad or manufacture and sell abroad but also of companies which manufacture in this country and sell abroad, and those which manufacture in this country and sell to others in this country who then export goods which are identifiable as to which factory they have come from.
I give a theoretical example. It might well be that a company manufactures an identifiable product, a branded product perhaps, which is widely sold in different parts of the world by another company which buys the products in this country and then exports them to another country. If it were known for a surety in certain countries that the particular company known to be manufacturing these products was in fact a subsidiary of another company, then the sale of those products could easily dry up in that country abroad. Yet by no stretch of the imagination, although it is an important export market indirectly to the company manufacturing those products, could that company be regarded as onewith practically all its operations taking place outside the United Kingdom.It would be detrimental to the interests of this country if manufacturers of that company were selling directly abroad and if its products which are identifiable with it were sold by other companies in 2257 foreign markets and the manufacturing company had to disclose its ultimate holding company. It could be very detrimental to our trade in that country with those particular products. Anything which might narrow the field of advantage which we might hold in markets abroad should be frowned upon.
If disclosure would make it more difficult to sell our products in markets abroad the discretion of the Board of Trade should be exercised in favour of the company so that it does not need to disclose its ultimate holding company. The purpose of the Amendment is to find out exactly what the Board of Trade intends. It is of interest to the whole country and certainly to all companies that export to know clearly what are the criteria that will be used by the Board of Trade in giving its consent to companies and what its interpretation will be of the words "carries on business".
There are several ways that business can be carried on: manufacturing abroad, manufacturing in this country and selling directly abroad, or manufacturing in this country and selling to another company which then does the exporting. If the ultimate holding company becomes known, in certain cases it might mean the closing of a market abroad.
I support my hon. Friend the Member for Scarborough and Whitby (Mr. Michael Shaw) in his remarks. Not having had the inestimable privilege of taking part in the proceedings upstairs on the Bill I do not myself find that the Clause makes nearly clear enough the mechanism by which this exemption has to be sought. The Amendment at least gives some hope of finding out how this should be done and what are the standards by which an exemption should be obtained.
The purpose is unmistakable enough, but after the rather formidable first subsection of Clause 5 there is this exempting second subsection. To a dispassionate observer a company's accounts, unless given specific exemption, will have attached to them somewhere the name of the ultimate company owning it.
In some parts of the world, such as the Middle East, where we have these very dangerous and yet very puerile acti- 2258 vities going on most of the time, especially in the commercial world, disclosure could be very damaging. But I have yet to find from the terms of the Clause how a company can know in advance that it will not have to attach to its documents statements about its ultimate ownership, which might be on the wrong side of one of the many schisms which have crevassed the Middle East for as long as I can remember.
The Amendment gives some hope of particularising that a company may be dealing only indirectly with this market. The word "indirectly" is the operative word. If the ingenuity of the Board of Trade could make clear (a) that an indirect activity is as valid as direct salesmanship or commercial activity in one of these foreign countries which are so unstable and, (b) what is to be done to obtain this exemption, many companies —I can think of some in my own personal circumstances—would be greatly relieved to be given the information which the Clause only very cloudily adumbrates.
§ Mr. Keith Stainton (Sudbury and Woodbridge)
I approach the Amendment from a rather different standpoint. The validity and purpose of it turns on the question of the criteria and attitude to be adopted by the Board of Trade in giving exemptions under subsection (2) of the Clause. I do not detract from the argument put by my hon. Friends in terms of legitimate business activity overseas, but, at the other end of the argument, unless the words "carries on business" are defined more objectively, perhaps on the lines of the Amendment, United Kingdom companies could put themselves in the position of evading the, whole purport of Clause 5 by demonstrating to the Board of Trade in very loose terms that they carried on business overseas simply by having some form of company registered for trading in Geneva, Lisbon or somewhere else.
§ Mr. Corfield
One point not mentioned so far is that we are dealing with the definition for the purposes of Clauses 3 and 4 as well as Clause 5. On Clause 5, we are considering a disclosing company which, by the nature of things, will be a company incorporated in Britain. We are, therefore, concerned mainly with harm to a British holding company. It is not that we do not mind what happens 2259 to foreign companies, but we are principally concerned with what happens to British companies. It is a depressing feature of modern conditions that, as my hon. Friend the Member for Gosport and Fareham (Dr. Bennett) said, a company with a good trading outlet in the Arab States might lose that outlet if it was known to be a subsidiary of a Jewish-controlled company.
I turn now to the similar provisions in subsection (3) of both Clauses 3 and 4. This is the reverse situation in which the disclosing company is the parent. We are dealing with disclosure of the affairs of a subsidiary or associated company, which might be either a British or a foreign company. Here it is even more important to know what constitutes trading or carrying on business overseas.
It is curious that the Board of Trade has gone to the trouble of providing in these three Clauses for consent to be given to non-disclosure where it thinks that to be in the interests of the company, yet on Clause 20 it has been very sticky about even admitting the national interest as an excuse for a similar exemption. However, be that as it may, it is essential on these three Clauses that companies should know what the Board of Trade has in mind.
§ Mr. Jay
The answer to the question raised by the hon. Member for Sudbury and Woodbridge (Mr. Stainton) about a possible loophole in the Bill for firms unreasonably withholding disclosure is that one of the conditions is Board of Trade consent to the information not being disclosed. It would not automatically follow, because a company was carrying on business outside the United Kingdom, that it would enjoy the privilege of non-disclosure. Both conditions have to be satisfied.
It is agreed that the purpose of the Clause is to ensure that disclosure of this kind is not prejudicial to exports, to the overseas earnings of a British company, or to the United Kingdom balance of payments in the widest sense. That is the purpose of the Amendment. In our view this is most likely to be secured if the words in the Act are not too precisely defined, and if we adhere to the words "carries on business", which have a wide but not a precisely defined meaning.
2260 The criterion by which the Board of Trade would operate the power of granting consent or not would be whether the disclosure of the information was prejudicial to exports or earnings overseas. We believe that it would be more effective if it were conducted in that way, and nothing would be gained by trying to define the words more exactly, since at present they are sufficiently wide to cover all those cases in which we should be likely to agree to non-disclosure on the ground that disclosure would result in harm to our overseas trade.
I believe that if we adopted the definition in the Amendment, which is very broad—although I understand its purpose, it would go too far. It would enable many companies which had very remote overseas trading connections to qualify for non-disclosure when no serious damage would be likely to occur to our exports or overseas earnings. It is not our intention that the Clause should be operated as widely, and therefore I think that we shall secure the objectives which we all have in mind by adhering to the words in the Bill.
Will the President of the Board of Trade say how he contemplates the exemption is to be obtained? I have no reason to understand this from the Bill as it stands. Is it to be obtained beforehand? Must the information be collected by a company and passed to the Board of Trade, which then says that it need not go any further, or what will happen?
§ Amendment negatived.