STATEMENTS OF TRANSACTIONS OF PRESCRIBED CLASS OR DESCRIPTION (Hansard, 17 July 1973)

§ Mr. Anthony Grant
I beg to move Amendment No. 43, in page 6, line 21, after 'applies', insert: 'or subordinate company within the meaning of section 10 below of any such company'

Mr. Deputy Speaker
With this amendment it will be convenient to take the following amendments: No. 5, in page 6, line 21, after 'applies', insert 'and every subordinate company within the meaning of section 10 below',
No. 44, in page 6, line 25, at end insert: '(2) Different classes or descriptions of agreements or arrangements may be prescribed for the purposes of this section in relation to companies of different classes or descriptions.' No. 45, in Clause 12, page 13, line 7, after 'section', insert 'or section 6 above'.

§ Mr. Grant
These amendments fill a gap to which attention has been drawn by Amendment No. 5. Amendment No. 43 follows the line suggested by the perceptive amendment tabled by the hon. Member for Farnworth (Mr. Roper). It was the Government's intention to require notice under Clause 6 of transactions subject to limitation under Clause 10. As, however, the transactions of subordinate companies or connected persons are to be aggregated with those of their parents, it is necessary to be able to impose a notification requirement on the subordinate. That is what Amendment No. 43 does.
The principle amendment leads to the need for the power to prescribe to be applicable to certain companies for certain transactions, and this is provided by Amendment No. 44. Amendments Nos. 45 and 47 are consequential.

§ Mr. John Roper (Farnworth)
I must declare an interest in speaking for the first time on this Bill. I am a director of the Co-operative Insurance Society. I regret that I had no chance to participate in the earlier stages of the Bill.
I am grateful to the Government for Amendment No. 43, which is worded very similarly to my own Amendment No. 5 and has the same effect. It is an important amendment because it plugs a gap in Clause 10, as drafted, which could otherwise have left the clause open to the very abuse that it was designed to prevent.
Clause 10 proved extremely difficult for the Standing Committee, which spent a considerable time on it. It is of considerable importance, because it provides that, where a life assurance company is part of a group of collective companies, 379 not more than 5 per cent. of the life assurance fund may be invested with connected organisations within the group.
Obviously, such a clause is clearly necessary to stop the kind of thing that happened shortly before the Vehicle and General Assurance Company failed, when it borrowed £1 million from its subsidiary life assurance company—Pioneer Life. The dangers arise not only in the case of motor insurance but also with the other businesses within a group and with which the proprietors are involved. If one of those businesses gets into difficulties, there will be an irresistible temptation to the proprietors to take advantage of the life assurance fund—which represents people's savings—to try to save that business.
Clause 10 specifically exempts from the 5 per cent. restriction any investment by a life assurance fund in a subordinate company, so that if a life assurance fund is investing in a subordinate company—that is, a company in which the fund has a majority interest—the 5 per cent. restriction in Clause 10 does not apply, although any investment, in turn, by the subordinate company in connected organisations within the group is brought within the 5 per cent. restriction.
This exemption in Clause 10 is quite proper, because there can be proper investment by a life assurance company in its own subsidiaries. But although this is an unavoidable loophole, it enables a certain abuse to take place, because Clause 10, as drafted, would have limited the loan, for example, from Pioneer Life to the Vehicle and General to a maximum of 5 per cent. of the Pioneer's life fund.
If the structure of the company had been different, and if it had happened that Pioneer Life had been the parent company of Vehicle and General it would have been possible for Pioneer, even under Clause 10 as drafted, to have made the loan of £1 million. But the financial effect would have been the same and Clause 10 would have imposed no restriction on the amount which could, in such circumstances, have been lent by Pioneer to Vehicle and General.
It is clearly accepted, therefore, that Clause 10 must include an exemption of investment by a life assurance fund in its subsidiaries because otherwise a large 380 number of legitimate transactions would be caught.
We should ensure that regulations are made, and that is why the amendment is important, because it enables the making of regulations for immediate disclosure to the Department of Trade and Industry of any substantial investment transactions which may be a circumvention of the spirit of Clause 10. I hope the Secretary of State will make regulations under Clause 6, as soon as it becomes operative, to require immediate disclosure of any substantial investment by a life insurance fund in either a connected organisation or a subordinate company.
As it stands without the amendment, Clause 6 would not permit regulations to provide for the immediate disclosure of any investment of this kind. I am glad, therefore, that the Government have accepted the point in my amendment and that they have moved Amendment No. 43, which will give them the necessary power. I hope that they will use it. I welcome the amendment.