HC Deb 04 August 1976 vol 916 cc2023-71

8.6 a.m.

Mr. Bob Cryer (Keighley)

I am most grateful for this opportunity to discuss the Lonrho Report. First, the House should place on record its grateful thanks to the inspectors of the Department of Trade who investigated the circumstances that gave rise to the report. Their sole purpose was to investigate the circumstances and to bring to light the seamier side of capitalism, with the aim of raising the standards of company life.

It is interesting to reflect on the background against which the investigation took place and the report was compiled Throughout the whole period, leading members of the Conservative Party—they were not associated particularly with Lonrho, but they were supporting the principle of capitalism—were constantly asking the workers to make sacrifices for the common good.

When I entered the House I had been a teacher on £2,600 a year. My salary was regarded by many people as being pretty good. My wife and I were not complaining we recognised that compared with the position of millions of people my salary was not at all bad. Millions of people were existing on much lower salaries and were being asked to make sacrifices. They were finding life far from being an easy path. It is true that millions of our people feel that deals in the hoard room involving, for example, £130,000 are just a dream. They fill in football pool coupons week after week in the hope that they will be able to touch a little of the sort of money that is to be gained from the shabby arrangements that go on in which a tiny group of beautiful people can divide up the spoils between them. That is a stark contrast.

It is interesting that this debate should follow the one introduced by my hon. Friend the Member for Fife, Central (Mr. Hamilton). Some hysteria has been raised by the Tories over the past few weeks, and it is an interesting reflection that the two hon. Members principally concerned, the hon. Members for Aberdeen, South (Mr. Sproat) and Louth (Mr. Brotherton), who are proud to open their mouths about people who are existing on the margin of life and make statements that reflect on every unemployed person and every person who applies for social security, are not to be heard decrying the abuses that take place in the company sector. They have not led a campaign pressing for the Lonrho Report to be debated. That is significant.

If we are to remind people of the injustices that exist in society today, we must constantly remind them of the existence of the Lonrho Report. I do not suppose that many wage earners have obtained copies of the report. It costs £13.20, and for three reports that is what many people earn in a week. It is good value, but many people cannot afford it.

The stories of the report have been outlined in the papers, and it must be recognised that yesterday's news is no news. However, our duty is to remind the nation, through Parliament, of the things that have been happening in board rooms behind closed doors. We cannot ignore them. If we have an unjust society, we cannot shrug it off by saying that only a few people are involved. If we were dealing with a crime, we would not do that. If we were dealing with murderers, we would not say "It is only a few". If they were armed robbers, we would not say "Only a small number of robberies took place, so let us ignore them". We would say that an injustice is an injustice. We did not say that George Davis is only one person and the fact that he is inside wrongly does not matter, hard lines on him; we said that that was an injustice, which must be righted. The fact that Lonrho concerns not a large section of the population but only a tiny group of people who are lining their pockets busily does not mean that we should ignore it, or sweep it under the carpet. We must bring it into the open, and make clear that a system that allows this to happen is a rotten one.

Our aim, and the aim of the Labour movement, always has been to achieve justice for people who create the wealth of this nation. Just about now lots of people will be clocking in to factories When they finish they will clock out again, and if they go to the lavatory they will ask the foreman. They have to keep production up hour after hour in order to get a production bonus. That is the reality of life for most of our people. We are therefore talking about two different and stark contrasts.

The first point I wish to make about the report relates to Lord Duncan-Sandys, because it is important to point out the way in which some people can be diverted from their job when they are actually paid by the taxpayers. That is one of the extraordinary things about this matter. Members of Parliament are paid £6,000-plus a year. If we worked outside in an ordinary job, most people would take the view that at £6,000 we were being very well paid. We should not be able to get odd jobs on the side, and people would not expect us to. They would argue that we get a good salary to do our job. They do not expect us to get a few parliamentary adviserships. In any case, I am not in favour of parliamentary adviserships, because we are paid to be here and do our job. It is a pretty good job.

One of the other things that are brought out in the report is that it was a matter of deliberate policy that some of the payments should not be made in this country, not because the people concerned had any particular affection for any other part of the world but because the tax position was better.

The report states, in paragraph 7.35. that The second point on which Mr. Sandys had a view was the extent to which the consultancy fee was to be paid overseas. Under the first series of consultancy arrangements it had been at the instance of Mr. Sandys that the consultancy fee had been allocated to overseas companies. Mr. Sandys explained his attitude as follows: A. The services were to be rendered abroad. It was to be the overseas companies. It was merely thought that for taxation purposes it was good that this should be made clear. Of course, the "taxation purposes" were to his financial advantage.

The Under-Secretary of State for Trade (Mr. Clinton Davis)

Does my hon. Friend know whether any of the services to be rendered to the company by Lord Duncan-Sandys—I have written to him as a matter of customary courtesy to say that in this debate he might be criticised by hon. Members and by me—would, in order to be to the advantage of the company, have had to be in the Cayman Islands?

Mr. Cryer

There is no suggestion that I can find. My hon. Friend is quite right to raise that point. The situation was that he had a tax advantage and chose to use it. I think it extraordinary that as a former Minister of the Crown and leading member of the Conservative Party, he should take that view. What is more, I find it extraordinary that after all this he is now in the Lords and that his career has not been held back. It has not landed him in a difficult position. People do not go around whispering "He has been naughty; he should not have done this". Instead, he is given a title. Some extraordinary people have been given titles, particularly recently, but nevertheless it is a poor sort of system that gives titles to people who are lining their pockets at the expense of the British taxpayer because they were not prepared to pay tax in this country.

Another extraordinary thing was the way in which this information about the £130,000 was kept from members of the board. In a question and answer session, a Mr. Butcher explained why not, in paragraph 7.46 of the report. He said that There was to a certain extent a certain amount of dislike in certain Members of the Board against Duncan. Duncan had always said that he would only come in if the vote was ananimous, and he was right, and I knew that there would be no unanimity. I told you this morning, the company was bleeding to death, and this is something which I did, and I might say that knowing as I do the circumstances at that time if I was faced with the same position I would do it now, because it was a question of the benefit of the company. I may be wrong. "I may be wrong", he said, referring to concealing from the board the payment of £130,000 to the adviser.

The questioner continued: But your hope, Mr. Butcher, was that the £130,000 spread over three years and paid in the way which you have indicated would be omitted entirely from the Lonrho accounts. Conversely you hoped that £130,000 of income would be derived from certain sources that would provide the funds to pay that £130,000 and that too electively would be omitted from the Lonrho accounts. The answer was: It would not have been disclosed in the Lonrho accounts. I accept all you say. So there were people engaged in concealing from the company accounts a payment of £130,000.

Tiny himself, the anti-hero of our drama, was questioned in paragraph 7.47, as follows: Therefore, you are committing the company to a six-year contract at £50,000 a year but not telling anybody about it? He replied: Well I plead guilty to that one because at that stage I was so keen to get Mr. Sandys as Chairman that I agree that I would have done everything possible—this is what I said to him, 'I will do everything possible, Duncan, to let this agreement go for the full five or six years on condition, firstly, I am still at Lonrho in this position and, secondly, that you continue to work for the company effectively.'". So they were all at it—all those three deciding to conceal from the company the information about the payment.

That was not the end of it. Duncan Sandys then apparently failed to tell shareholders, in a circular to them, anything about the £130,000 compensation. So they did not just keep it among the chums, among these beautiful people, who were talking about sums that most working people never dream of obtaining, even when they win the football pools; they kept it from the shareholders as well.

In paragraph 7.52, we read: One of their first tasks was to raise further capital from shareholders to improve the liquidity position and on 25 May 1972 a circular was sent to shareholders inviting them to subscribe for further shares at 73p per share on a 1 for 4 basis. As is customary in such a document there was attached a list of material contracts entered into by the company during the two years prior to the issue. This list did not include details of the cancellation of Mr. Sandys' consultancy agreements. Then, in section 7.54 on page 386, the report says that Mr Sandys was the new Chairman of Lonrho and he presided at the Board meeting at which the circular to shareholders was approved. The circular required the disclosure of any material contracts entered into by Lonrho within the two years prior to the issue of the circular other than those entered into in the ordinary course of business. We believe that the agreement to terminate Mr. Sandys' consultancy agreement on the payment of £130,000 compensation was material in at least two respects. In the first place it was large in amount and very unusual in nature; and in the second place it related to the Chairman who had been brought into the company to improve the standards of Boardroom control. In these circumstances we think that there was an onus on Mr. Sandys to ensure that the payment was disclosed in the circular. Mr. Sandys told us that he believed that the payment of £130,000 compensation to him had been properly approved by the Board and he assumed accordingly that the point was known to and had been duly considered by the professional advisers acting in connection with the circular and that he himself took no steps in the matter. That sort of reason, if advanced to a Conservative MP by an applicant for supplementary benefit who had omitted mention of the fact that he had done a bit of window cleaning, would not have been accepted; it would have been followed, indeed, by stories in the papers and we should have the hon. Member for Louth opening his big mouth—that rhymes well—saying that people should not do that, and that if they did not like it they should starve, which is more or less what he said yesterday.

Others were concerned. Sir Basil Smallpiece wrote letters. I shall not quote them all, because others of my hon. Friends want to speak but this report is a great mound of information. I quote briefly from Sir Basil's letter. He said: If I am blunt in what I am about to say next, it is only because I am anxious, as a friend, to see that your own personal position does not become intolerable. I think there is little doubt that the unreasonably high remuneration which Rowland has arranged for you, and the improper issue to you of incentive shares, could be looked at by many people, however mistakenly, as indicating that your allegiance has been bought. Imagine the view of somebody writing to an applicant for social security: "I am terribly sorry you did not disclose that you were earning money at the same time. You should correct it. It could look improper". That was the warning about his attitude to this former Minister of the Crown and, for much of this period, a Member of this House and of a party whose general attitude—I do not blame all its members for this—is that workers should work harder.

We had the view of the right hon. Member for Sidcup (Mr. Heath) that this Lonrho business was the unacceptable face of capitalism. This unacceptable face of capitalism happened to pop out because of a dispute in the board room, not least with Sir Basil Smallpiece, who had different views.

The matter went to court. Had it not, this might not have come out. We are concerned, and members of companies should be concerned, to get tighter legislation to make sure that standards in all board rooms are higher than those prevailing at Lonrho.

I turn to the question of perks. We have had some discussion about taxing perquisites. As my right hon. Friend the Minister of State, Department of Health and Social Services pointed out, when taxation increases, many on the Opposition Benches say "This is a terrible business. You are grinding the face of the middle class, who are already struggling," but it is worth pointing out that the cost of perquisites are quoted in the Lonrho Report, and they should be highlighted. This kind of thing may, for all we know, still be going on in some British boardrooms.

In the section on houses and flats it is pointed out that the company bought a house called Hedsor Wharf, at Bourne End, in Buckinghamshire, at a cost of £73,500. Many people cannot raise a mortgage of a few hundred pounds for a £6,000 or £7,000 semi-detached or terraced house. Many people do not even have homes. This house at Bourne End was bought several years ago. It will be worth much more now. It was felt that the house was not quite suitable and that, therefore, it should have a few improvements and that some remedial work should be carried out. So another £25,000 was spent on the house.

It would appear that the house was for use by the chairman of the company. However, it was made clear at one stage that it should be sold off to the chairman as he was using it. He said that he would use it for entertaining the company's guests, but it was decided that he should buy it and clarify and legitimise the position; so he did.

However, with the record of the company, the chairman did not go to the solicitors and say "Here is the brass" and peel it off in fivers. He did it through a company called Boullier Investments (1964) Limited. I quote from page 415, paragraph 9.22 of the report: Mr. Butcher subsequently decided that it would be unwise for Yeoman Investments to acquire a property in the UK which might suggest that it was resident in the UK for tax purposes and he concluded that it would be preferable for Yeoman Investments to make funds available to a company in the Channel Islands which in turn could acquire the property. In order to meet Sir Basil Smallpiece's deadline of 30 September 1972 Mr. Butcher flew to Jersey on 29 September 1972 and arranged for a firm of solicitors in Jersey, Le Gallais and Luce, to write the following letter to Lonhro". The letter is an offer by Boullier Investments (1964) Limited for these various properties.

Here were members of a company using tax havens for their financial advantage. This is something that the report points out on page 417, paragraph 9.25: Boullier Investments was essentially a front for Mr. Rowland and Mr. Ball and the sale of Hedsor Wharf and Mr. Ball's flat to this company was never completed. The point that Boullier Investments Limited was essentially a front for Mr. Rowland is an important one. I draw my hon. Friend's attention to the fact that these tax havens still exist and that we have not got legislation through. I have tabled a number of Questions on the matter. We need legislation to ensure that the Channel Islands do not continue to form a haven for the nefarious activities of people who are evading their communal responsibility of paying taxation to the British economy.

Mr. John Lee (Birmingham, Handsworth)

My hon. Friend is right about the need for new legislation, but is it not right to say that the Bank of England has been grossly negligent in the sanctioning of the transfer of tax domicile in some companies and, indeed, in the transfer of payments generally? Is my hon. Friend aware that Mr. Gordon Richardson has completely fallen down on his job?

Mr. Cryer

I am most grateful to my hon. Friend. He is right. The Kilbrandon Minority Report pointed out that there should he an urgent inquiry to make clear the position of these tax havens and to prevent their continuation.

The matter will not be dealt with without difficulty. The right hon. Member for Wanstead and Woodford—the House may recall that he is called Patrick Jenkin, that he is the spokesman for the Opposition in DHSS matters; and that he was at that Dispatch Box yesterday attacking the Government for the completely false story put out by theDaily Mail in big black letters on its front page, but taking the part of theDaily Mail and never apologising for it—is quoted here as saying: It would be quite improper for the United Kingdom Government to interfere with the tax arrangements for the Channel Islands and the Isle of Man. Those remarks were made when the right hon. Gentleman was Chief Secretary to the Treasury. Whilst he is keen to seek after social security scroungers—and so are we all—he is not too keen to seek out tax scroungers.

Tax scrounging still goes on. I have an advertisement for a course that people can attend if they have a few spare days and a bit of brass in the bank, which would be impossible for ordinary working people to attend. If people have been lining their pockets through consultancy agreements they can attend a programme running from 1st to 3rd December at a London hotel. There they can discuss such subjects as "What is a tax haven?", "Factors involved in choosing a haven", "Where is the source of income?", "The financial advantages of the Channel Islands", "Switzerland as a centre of operations". That is a constant topic of conversation in Keighley. People say "Where will you put your adviser-ships this year, Jack—in Zurich or the Channel Islands?" The course also includes a subject described as "Tax advantages for people who work in Europe."

The advertisement ends by saying: Please note that this is not a conference to discuss the rights or wrongs of tax havens. I bet it is not. They are too busy lining their pockets by avoiding paying tax for services while working people work day in and day out. Their morality is such that the rights and wrongs depend upon how much their pockets can be lined. That is their morality—like that of some of those connected with Lonrho. To obtain such nuggets of information they must attend a course, the fee for which is £140. That price would exclude the vast majority of working people, because they could not afford that sum. Social security recipients would not be able to afford it either.

I want the Minister to ensure that my remarks are brought to the attention of the Chancellor the Exchequer and the Treasury, because we want them to take action on tax scroungers. It is unjust that people should be able to learn how to get their money out of the country. I have tabled Questions on the subject, but I have never received a direct reply.

I want a clear statement to the effect that any fee paid by a company director or anyone else for attendance at such conferences does not count as a tax expense. It would be kicking the British taxpayers in the face if they had to pay for such people to go to conference. It would be a greater abuse than abuses of the social security arrangements.

I turn now to the cost of the perks offered in the form of expense accounts to Mr. Rowland. This is a serious matter. It involves a fairy-tale world which most people do not understand and do not realise exists. Page 517 of the report says that Mr. Rowland had overdrawn his personal account by over £306,627, that PAYE tax was not paid but that it should have been. That overdrawn account was magically transformed into an expense claim. On page 518 of the report we read: Those present at the Board meeting on 19th February were Lord Duncan-Sandys, Mr. Ball, Mr. Butcher and Mr. West with Mr. Butler and Mr. Pratley in attendance plus the Chief Accountant, Mr. King, and the company's secretary, Mr. Turner. The minute on Mr. Rowland's expense claim read as follows: '(3205) Chief Executive It was resolved: That resultant upon minute 3186 of the meeting held on 13th February, 1975, it was agreed to approve Mr. R. W. Rowland's claim for expenses from 1st October, 1967 to 30th September, 1974 in the total amount of £307,471". That is extraordinary. Not only did the board make retrospective provision for an account dating back to 1967, it kept the information from shareholders. On page 519 we read: It is our view that the explanation finally incorporated in the directors' report did not give shareholders a fair explanation of what had happened. In particular the omission of the last sentence of the draft left shareholders unaware of the manner in which Mr. Rowland's unlawful loan account had been expunged. Not only had he had an unlawful loan account; he had tried to fiddle the accounts to get it past the shareholders.

It is very interesting that leading lights in the Conservative Party should take this view of retrospective action. They held a very different view of the case of the Clay Cross councillors—11 principled men who were not lining their own pockets. When they came to office they decided that they would not go to conferences, and the chairman had £25 a year in personal allowances. Not many urban district councils can claim the same attitude. Those councillors were working for Socialism and the people they believed in.

There was a clause in a Bill simply to remove the disqualification of those 11 people, arising from the auditor's surcharge, and many Conservative Members said that retrospective provision was terrible. I think that it is necessary, sometimes. People who talk about retrospective legislation and action might apply the same standard to retrospective provision for "Tiny" Rowland and the sum mentioned in the report. Nobody on the Opposition Benches has raised a peep about it.

There are many parts of the report that I cannot cover, because I want to be brief. One extraordinary matter I must mention is the threatening manner of our "Tiny". One of my hon. Friends will reveal how that threatening manner has been perpetuated by Mr. Rowland. On page 655 of the report we read: You see, Mr. Heyman, the past, and I have got an idea what the future could be depending on whether you want to kill it. But, by God, it has got one thing, and that is it has got a protector and that is me. In other words, anybody who wants to kill that company has got to have a sub-machine gun, mortars, guns, all sorts of ammunition, because I am going to protect it to the bitter end. Believe me, Mr. Heyman, in me you have got somebody you have got to fight when it comes to Lonrho. He is telling a Department of Trade inspector, who is doing a proper job to raise the standard of public life—of people in companies—that there will be a fight, involving the use of machine guns.

If an ordinary working man said to a policeman or a social security officer "I am going to fight this thing. I've got a claim and I'm going to fight for it, and you will have to come with submachine guns and all the rest" he would probably end up in the magistrates' court. I hope that this will not be overlooked by the Director of Public Prosecutions.

That is the extraordinary story of this shabby and sorry saga. I hope that my hon. Friend will bear in mind that what is needed is for the DPP to take a close look at this—in fact, I know that that is happening. He should not be intimidated by the fact that some of these people are in important positions. The Director should undertake prosecutions as and where necessary, because that is in the interests of justice.

Secondly, we want much tighter company legislation. The myth that companies do not have to be interfered with is exploded by Lonrho. They have to be supervised; otherwise greedy people will be lining their pockets in the way described in the report. I draw the attention of my hon. Friend to the supervision exercised over the Meriden Co-operative. The co-operative has to report every fortnight to the Department of Industry. It has a loan of only £1.4 million from the Government, and it is paying interest on it. It is doing good work, providing about 750 jobs. There is constant supervision. If it can be done for Meriden it can be done for the rest of the company system, so that we do not have any more cases like Lonrho.

8.42 a.m.

Mrs. Audrey Wise (Coventry, South-West)

I realise that at this time in the morning, after an all-night sitting, it is easy to suffer from nausea. I am afraid that this topic is one which encourages that tendency and I must apologise to you, Mr. Deputy Speaker, if in your position you have to suffer as a result of hearing a rather unsavoury tale. We have been hearing a lot in the past two years or so since I have been a Member of this House about the greed of workers in their anxiety to improve their wages. We have heard of their unreasonableness and their lack of patriotism. This is constantly on the lips of Conservative Members. Recently we have had the disgraceful attacks on ordinary people who are in the unfortunate circumstances which have already been discussed.

As my hon. Friend the Member for Keighley (Mr. Cryer) pointed out, neither the Opposition nor the Press seem equally interested in the activities of a small minority at the top of our society. It is not a question of how the other half lives—this is a tale of how a tiny minority lives. But this is a tiny minority whose associations do not seem in any way to affect their careers. In this report there are some passages which could be described as "purple prose". I start by reading a sober statement of fact. In paragraph 7.1 the inspectors say: In this part of our report we describe how Mr. Duncan Sandys became a consultant to the Lonrho group in May 1971 at a fee of £11,000 per annum and how this consultancy fee was increased to £51,000 per annum in November 1971. We hear a lot about wage increases but so far we have not heard of anything like that scale of increase being given to anyone doing a useful job in our society. The report goes on: we explain how Mr. Sandys was invited to become Chairman shortly thereafter and how he accepted this change of role in return for £130,000 compensation;". That word "compensation" is an interesting one. It is a word that I normally associate with people who come to see me at my surgery and who have been injured at work. Usually they tell me that they are hoping to get compensation but that the injury was sustained two, three, four or five years ago and still the compensation has not been arrived at. In the meantime, of course, they are struggling with the adversity which faces them with their broken lives. Usually they are in the prime of life, and their accidents at work have frequently been contributed to quite grossly by management and employer negligence.

When I see the word "compensation", therefore, I normally feel an instinctive sympathy with the person claiming compensation. But I must say that compensation of £130,000 for what most people would regard as promotion is extraordinary.

The inspectors went on to deal with the question of taxation. I do not intend to labour this point, which has been dealt with adequately by my hon. Friend. I just want to reinforce his contribution by a reference to paragraph 7.3, which quotes a letter from Mr. Sandys. The letter says: You will see that in (a) I have specified 'overseas' companies. This is on the advice of my accountants for taxation reasons. But it will of course make no difference in practice. There is an interesting remark—that it makes "no difference in practice" whether these are overseas companies or domestic companies. I think that most working people would feel that it jolly well ought to make a considerable difference in practice, and that there must be, as my hon. Friend has pointed out, grave deficiencies in our taxation system.

I notice that the right hon. Member for Taunton (Mr. du Cann) spoke earlier in the debate on another subject, and it may be that this will preclude him, unfortunately, from taking part in this one. In case it does, I assure the right hon. Gentleman that I do not intend to make any personal attacks on him. But I should like to quote from paragraph 7.61. This is a letter which the right hon. Gentleman wrote to Mr. Sandys when Mr. Sandys sought advice on his remuneration. The right hon. Gentleman said in the letter, quoted in the report at paragraph 7.61: I have had extracted from various company reports a list of chairmen's salaries which I thought you might care to glance at. I do not think there is any special point to be made except that the £38,000 in aggregate proposed for you by Lonrho seems perfectly well within what one might call 'normal compass'. That is a perfectly factual quotation, and I am quite sure that the right hon. Member for Taunton has his facts right. It is very interesting for my constituents to know that there is a group within our society for whom £38,000 is a normal remuneration for a job whose function and scope it seems very difficult to establish, and, furthermore, for someone who was already, during the whole time, one would have thought, fully engaged as a Member of this House and drawing taxpayers' money therefor.

I was very interested in the references in the report, which I have no doubt my hon. Friend has noticed, to the effect that the chairman of the company would give his whole time to Lonrho—his whole time, that is, except for his political commitments. But his political commitments were as a Member of this House, drawing a salary which most people would regard as being for a job of work. I think that matter needs some scrutiny.

There are references in the report to someone whose position is rather sensitive. I do not want to dwell on any sensitive matters relating to Mr. Ogilvy, but the relationship between Mr. Rowland and Mr. Ogilvy who, between them, were pillars of society and in a position of power, is extremely interesting. It is exemplified in paragraph 5.69. When the inspectors asked whether Mr. Rowland had paid £60,000 to Mr. Ogilvy, Mr. Rowland said: I cannot tell you.… Q. Why not? A. This is a matter between Ogilvy, Alan Ball and me. I mean if I paid my dog, or some people when they die, leave all their money to a cats' home. If I wanted to pay Mr. Ogilvy £60,000 or £600,000 and he was prepared to accept it then that is a matter between him and me and nothing to do with Lonrho. If I paid Mr. Ball £120,000 or £200,000 or £300,000 that is my business. Q. Mr. Rowland, if I may say so, you are not doing yourself full justice because earlier on when we were discussing this sum of money you said that some was distributed—? A. Yes. Q. Some was distributed to Ogilvy and some was distributed to Ball? A. Yes, but I did not say how much. You have said you are entitled to do with your money what you like: if you want to give it to a cats' home you can do it can you not? Q. Yes, but what I am asking you is—did you give £120,000 to Ball and £60,000 to Ogilvy? A. My answer to that is if I did they deserved it and if I did not it is just too bad. Those answers were given to a responsible inspector carrying out a job on behalf of the Department of Trade.

We have heard from my hon. Friend the Member for Keighley other quotations relating to attitudes displayed by the people at the top of this company in their dealings with these public servants, and I think that this one is worthy of being added to that list. I am quite sure that no applicant for social security would be permitted to talk to the humblest public servant in such terms.

Of course, I am impressed with the scale of generosity displayed by the upper classes when they are apparently rather vague whether amounts of £60,000 are gifts, loans, shares, or what. It is breath-taking to find generosity on such a scale.

In the course of the inquiry Mr. Ogilvy pointed out that he was in some difficulty in explaining thoroughly the £60,000. He said: my finances are so complicated. It is certainly a sidelight on a different facet of life to come across people whose finances are so complicated that a small matter of £60,000 is difficult to account for. But Mr. Ogilvy has had his problems.

I think that the anxiety and worry that this kind of life imposes on its participants makes it our duty to relieve them of these positions of wealth and power, because clearly it has a deleterious effect on their personal relationships. This is shown by paragraph 5.70, where Mr. Ogilvy said: What happened was that Rowland in May…in effect said that he felt I had behaved quite abominably and if it was the last thing he was going to do he was going to crucify me.…In fact I put the receiver down and said 'Publish and be damned', and I went through everything to see what he could possibly have on me. That is an interesting description of the state of mind and relationship between these people wielding their immense power, and it is worth putting that statement alongside the quotation about machine guns, and so on, given by my hon. Friend the Member for Keighley. It suggests that we are dealing with people whose mental stability may, in charity, be thought to be somewhat in question. If these things are meant literally, they seem to verge on the edge of crime and threats of crime, and if they are meant as metaphors, I suggest that they are too colourful to be a proper part of business life.

This report is a rich mine of information, and I think that the inspectors have done a remarkable job, but I must say—and I hope that the Minister will note this—that I am deeply disquieted by the final paragraph in the report, paragraph 12.139, in which the inspectors' concluding words are: We believe that Mr. Rowland has a great deal to offer Lonrho and its shareholders but his achievements will be all the greater if he will allow his enthusiasms to operate within the ordinary processes of company management. Coming as it does at the end of a report in which the inspectors have established such an extraordinary and alarming situation I find that deeply disquieting, because I wonder what are the ordinary processes of company management.

As has been said, this matter came to light by accident. It came to light because the participants quarrelled amongst themselves. It may be that, as the saying goes, the thieves fell out, but can we rely on this as an adequate regulator of company affairs? We now know some of the facts about Lonrho, but how many other large and powerful companies are there about which we do not know the relevant facts? It has been said that the Press is not showing a tremendous desire even to publicise the facts that we know about this company. One might think that the term "a conspiracy of silence" would not be too harsh a term to apply to the Press in relation to the Lonrho affair.

We have a situation in which these disgraceful and disgusting machinations were discovered by accident. They have been reported on at length. I trust that the Government intend to take various suitable actions as a result, but I fear that at the end of the day we shall be left with a situation that is fundamentally unchanged. I commend to my hon. Friend a statement with which I have no doubt he is familiar, and which is the only appropriate conclusion to a consideration of this affair. It is that far from being merely an unacceptable face of capitalism, this is, I submit, the, face of capitalism, a face that is deformed and distorted by personal greed and the only remedy in the end, in addition to whatever palliatives and ameliorative mechanisms the Government bring forward, lies in fact in the commitment in the Labour Party election manifestos to ensure that there is a fundamental shift in the balance of wealth and power in favour of working people and their families.

Wealth and power in our society are now usurped by people whose sense of personal and public probity leaves much to be desired and whose effect on the life and economy of the nation is nothing short of disastrous.

9.1 a.m.

Mr. John Lee (Birmingham, Handsworth)

My hon. Friend the Member for Coventry, South-West (Mrs. Wise) said that this matter had been discovered by accident. She could have reinforced her case even more by pointing to the fact that this is not the first time a major public scandal has come to light as a result of a row between the participants.

But for the bankruptcy of Mr. Poulson, the whole sordid tangle of events in the North-East of England might never have come to light. The sordid row of the feuding directors—or, should I say, of feuding mistresses of directors?—of the Rank Board brought that matter into the open. The same could be said about the Slater-Walker row, whose shenanigans in Singapore and Hong Kong are under investigation at the moment. That would not have become public property for a considerable time, if ever, had it not been for disputes within the magic circle of the people most concerned.

My hon. Friend the Member for Coventry, South-West referred to a phrase used by the right hon. Member for Sidcup (Mr. Heath). I dislike almost everything the right hon. Member stands for, and I shall never forgive him for taking this country into the Common Market. But when he used the phrase "the unpleasant and unacceptable face of capitalism" it did him great credit. That phrase was as striking and as opposite, in its way, as the "winds of change" phrase used by Mr. Harold Macmillan. We should give credit where credit is due, and the right hon. Member's phrase deserves credit, uncharacteristic and rare though it may have been.

This is indeed a sordid story. One of its most extraordinary aspects, as I understand it, is that the authors of the report are by no means wholly protected by priviledge in matters of libel. When the same situation arose in relation to Pergamon and its chairman, Mr. Bob Maxwell, whose absence from this House hon. Members on this side can bear with considerable fortitude, there were threats of action against the reporters in that case. The other day Mr. Rowland had the gall to make threats of a similar kind against the authors of this report, and, as I understand it, those were not the only threats made. As I understand it—I do not want to go into too much detail, because it would be for the hon. Member concerned to refer to it if he wished, an opportunity he may have taken on the Summer Adjournment motion—my hon. Friend the Member for Luton, West (Mr. Sedge-more) received a threatening phone call made either on behalf of or by Mr. Rowland in terms that I would have thought constituted a prima facie breach of privilege of this House. The action would probably represent a criminal offence of itself, since it was a threat. If that is how a person under investigation behaves it seems to me unfortunate that the company concerned should at the moment be receiving an interest-free Government loan in relation to a take-over bid.

Mr. Clinton Davis

Before my hon. Friend leaves that point, will he indicate whether the alleged telephone call took place before or after my hon. Friend the Member for Luton, West (Mr. Sedge-more) participated in the Committee stage on the Companies (No. 2) Bill in relation to the question of Lonhro?

Mr. Lee

It was after that. My hon. Friend the Under-Secretary was in the Committee when my hon. Friend moved an amendment to enlarge the powers of auditors in relation to companies and referred in somewhat robust terms to the activities of Lonhro.

Mrs. Wise

Is my hon. Friend aware that the telephone call was received by the wife of my hon. Friend the Member for Luton, West (Mr. Sedgemore)? Does that not give additional cause for anxiety?

Mr. Lee

I am grateful to my hon. Friend. I think, therefore, that I am now justified in describing Mr. Rowland as a bullying thug. I do not think that that is an unreasonable or unparliamentary term to use. His whole manner on this matter is disgraceful to thenth degree. If that threat had been made to my family or my wife I would have raised it as a matter of privilege at the first available opportunity, and the fact that my hon. Friend did not do so says a great deal for his forbearance.

This sordid story falls into four parts. There is, first, the making of illicit payments—I think there is no other way to describe them—stigmatised in paragraph 11(1) on page 487 of the report with the words Counsel consulted by the company advised that his debt"— referring to Mr. Rowland's loan account and expense claim— constituted a loan contrary to Section 190 of the Companies Act That is pretty blunt.

Secondly, there are aspects of nondisclosure to fellow-directors of the board and to the shareholders, and the indulgence in deliberate deception of all parties who are statutorily entitled to know what is going on. Thirdly, there is the question of expenses payments and other matters of a related kind, which the report says do not stand up to examination.

Finally, there is the aspect that has not so far been referred to in relation to this matter, namely, the sanctions-busting operations in relation to Rhodesia. I do not propose to go into detail on this matter, but it is surely a matter of grave concern that a company registered in this country, the directors of which owe allegiance to the Crown and who are British subjects, should, by virtue of a series of interlocking directorships and interlocking company arrangements, set out to defeat aspects of the sanctions policy that are—whatever may be the rumblings inside the Monday Club—the agreed policy of the two major parties and of successive Governments since 1965. It is also surely grave that the directors, with knowledge of these matters, should deliberately have concealed what was going on.

That alone would justify the Government and the Department of Trade taking proceedings under the Companies Act for the winding up of this group.

Mr. Clinton Davis

My hon. Friend will understand that I shall be constrained not to comment on the specific matter to which he is alluding because the question of a breach of criminal law, which is alleged, consequential upon the report, is a matter for the Director of Public Prosecutions, who now has the papers. I hope that my hon. Friend will not expect me to respond to this specific point, because it would be wrong for me to prejudge the outcome of the investigation.

Mr. Lee

I understand my hon. Friend's position and I shall not criticise him if he is reticent on this matter.

A number of matters have been referred to the DPP and we shall have to await the outcome. I would not seek to comment on specific criminal allegations even if they had been crystallised against a specific person. But even under our totally inadequate company law, when a company, for instance, through its directors, behaves in a way what is contrary to public policy, that is a ground, prima facie, to wind up the company concerned. There are well-established precedents. The Minister will probably be acquainted with the recent case of Da Costa, in commercial law.

Irrespective of whether certain directors and officials of the company can be prosecuted for offences of fraud or, more seriously, for offences akin to treason in relation to sanctions busting, sufficient irregularities have been revealed and it has been established on a sufficiently adequate scale that the whole conduct of the company—the mismanagement, the sanctioning of expenses and the sanctions in relation to Rhodesia being breached—provides sufficient grounds for an application to the Companies Court for the winding up of the whole group and for the Government to put in a receiver.

I know that this is a tremendous step. Our company law needs revision. The Under-Secretary is well aware of this fact, because he is taking through Committee the Companies (No. 2) Bill, which will do something, though not very much, to block some of the loopholes and abuses, in many cases practised quite lawfully under existing company law. Surely, as matters now stand, there is already power to take action.

I do not propose to speak for very much longer, as several of my hon. Friends have already made their contributions. We are all indebted to my hon. Friend the Member for Keighley (Mr. Cryer) for raising this matter. He has done extremely good work in assimilating the report and going through certain matters in detail. However, I believe that there are two further matters that require consideration.

First, I want to know what attitude the Government take towards payments to people such as Captain Klein, who appears to be a rootless international contact man and adventurer, whose purpose is to tout for custom with all sorts of people, desirable and undesirable, and especially the latter. There has been correspondence inThe Times and some rather odd remarks from the Inland Revenue regarding the acceptability of tax defrayment for the purposes of such payments. We must have a clear indication whether this sort of practice is permitted.

I am being as charitable as I possibly can when I say that we know that sometimes, when dealing with banana republics and Ruritanias, it is extremely difficult to conduct business in the way that most of us would like. However, it does not seem to be entirely confined to that sort of business; there seems to be something of the same situation in Italy, involving BP. I do not like it. It should be restricted to the barest minimum. It should be the subject of the closest scrutiny by Government, and Government sanction should be sought in advance before anything of that kind is done.

I accept that nothing of that sort occurred involving Lonrho. All that went on was a part of Mr. Tiny Rowland's buccaneering business activity. His fellow-directors, still less the shareholders or workers, knew nothing about what was going on. However, I use my previous argument as an example of something that is wholly undesirable. It is just possible to argue that in some parts of the world there are certain circumstances in which it may not be avoidable to engage in such activity, but it is something that the Government must monitor most carefully and restrict to the barest minimum. I say no more about it, save to say that in the circumstances of the report it is just one more aspect of a thoroughly sordid and seedy story.

I have tabled about 10 Questions in the past fortnight or so about the £5 million interest-free loan that has been sanctioned by the Government to enable the Lonrho Group to take over Brent-ford Nylons. I know that the Government's attitude is that the company had to be rescued. It is true that many jobs were at risk. It has been said that 1,800 jobs were at risk. Those of us on the Government Benches who are worried beyond belief about unemployment, and, perhaps, some Opposition Members, are anxious to take measures to avoid a loss of jobs. That is axiomatic.

I shall try to put my next point in temperate and moderate terms, as I realise that we are in something of a dilemma, but I find it difficult to understand why there can be no other course of action than providing preferential financial assistance to a company that is under the surveillance of the Director of Public Prosecutions. It has probably committed a number of breaches of the civil law, some of the directors having behaved so disreputably that they are not fit to run a public urinal, let alone a public company. Why should that sort of company be singled out to be given assistance to make a takeover bid when we have all the mechanisms of the National Enterprise Board and the planning agreements under the 1972 and 1974 Industry Acts?

When there are available a whole gamut of ways in which the Government could intervene, why on earth, while the matter is still pending, should this practice have happened? I put down a whole series of Questions but have not had an answer, let alone a satisfactory one.

I end by relating what was no doubt an unintentionally humourous quotation from one of the Questions that I put. I asked the Secretary of State for Industry: what assurances he secured that on emoluments payable to directors of the Lonrho Group in respect of any extra responsibilities consequent upon its acquisition of Brentford Nylons will be paid in any country in which United Kingdom tax law does operate before sanctioning the payment of the interest-free loan of £5 million to the group. His answer was The question of directors' remuneration is a matter for the shareholders subject to the provisions of the White Paper 'Attack on Inflation: The Second Year' (Cmnd. 6507)."— [Official Report, 20th July 1976; Vol. 915, c. 470.] I am sure that was a rather gentle and delicate touch. If so, it was the only one arising out of this whole miserable case. On that light note, perhaps it is right that I should sit down.

9.21 a.m.

Mr. Edward du Cann (Taunton)

It it is not too wearisome for you, Mr. Speaker—

Mr. William Hamilton

On a point of order, Mr. Speaker. It is quite clear that the right hon. Gentleman has a considerable vested interest in this matter. Has he the permission of the House to speak again because I understand that he has already taken part in the debate?

Mr. Speaker

The right hon. Gentleman requires the leave of the House. I understood that he was referred to and that the House might therefore give him leave. However, it is up to the House.

Mr. du Cann

I am grateful, Mr. Speaker. I was just about to ask for the leave of the House.

Mr. Tam Dalyell (West Lothian)

On a point of order, Mr. Speaker. This is the Consolidated Fund, and I and other hon. Members have been waiting for a very long time to speak. There are also Ministers waiting to answer the debates. I do not doubt the importance of this subject, or the right hon. Gentleman's right to have a say in this matter. All I say is that there are other hon. Members waiting to take part in respect of other subjects which they regard as equally important.

Mr. Speaker

The right hon. Gentleman is entitled to ask for the leave of the House and it is for the House to decide whether it gives it.

Mr. du Cann

I would be much obliged if I could have the leave of the House, Mr. Speaker. I totally understand and sympathise with the point raised by the hon. Member for West Lothian (Mr. Dalyell). I hope that he would accept that this is indeed an important subject. Since this is a company of which I have the honour to be a director I think the House would expect me to be in my place and to be ready to comment on what has been said.

Mr. William Hamilton

On a point of order, Mr. Speaker. This really is incredible. The right hon. Gentleman put in for a debate himself and got it. He knew very well, when the list was put up, that Lonrho would almost certainly be debated. If he had wanted to take part in that debate without the permission of the House, he could quite easily have withdrawn his own debate. However, he has chosen to get the best of both worlds. If the right hon. Gentleman is getting the leave of the House I hope he will take advantage of it and defend the claim he made that Mr. Duncan Sandys acted perfectly honourable in this sordid affair.

Mr. Speaker

It is not I who gave permission to the right hon. Gentleman. It is the House that has given permission. If the House does not say "No" the right hon. Gentleman is entitled to speak.

Mr. du Cann

I am much obliged, Mr. Speaker, to hon. Gentlemen opposite. I have no wish to talk for more than is reasonable and I shall do my best to oblige hon. Gentlemen by commenting on the particular matters raised. The best service I can do is to be as rapid and as brief as circumstances will allow.

Although I have listened with careful attention to the three speeches which have been made, and I have examined all the other references made in this House on this matter—there have been a number—I must confess to being unsure that we are as yet discussing all the appropriate subjects under this Head which should concern us as Members of Parliament.

Although we can agree—I make common cause here with the three hon. Members who have spoken—that there might be reforms in the law, I do not think that discussion of these matters is best conducted in an emotive way. Nor do I think that too much should be made of allegories which have been quoted tonight and things said outside the House in the heat of the moment.

Certainly we can also agree with something which the Minister who is to reply said in Committee—that the law must be obeyed. It must of course be good law. I agree, too, that no one should be above the law—no entrepreneur, successful or not—just as I would say that no Minister should be above the law.

This inquiry was unusual in several respects.It was unusual especially because this company is not a failure. It is not a company which is failing to invest in Britain or overseas. It is a good exporter, it is paying considerable sums by way of taxation in the United Kingdom and in other countries. It is a company which is creating employment. It is indeed unique.

There was a dilemma for Ministers over this report. On the one hand the Department of Trade has a responsibility to support industries and commerce in this country, to support companies which are doing a good job in the national interest. On the other hand, there was some pressure to see that the report was published. I am not sure that the right decision was made.

Mr. William Hamilton

That is a matter of opinion.

Mr. du Cann

I entirely agree—it is a matter of opinion. But I am not sure that the right decision was made.

It is not for me to propose what steps should be adopted if we are to discuss reports, but perhaps we might be occupying more of our time usefully in the House if we were discussing those reports which have been published about companies which have failed—Rolls-Royce, London and Counties, Leyland, for example.

Mr. Dalyell

On a point of order, Mr. Speaker. I do not want to be unreasonable at all, but we cannot help observing that the right hon. Gentleman has a very long speech in his notes. This is a right hon. Gentleman who has already spoken for 38 minutes on the hydrographic service. I should like to register objection on the basis that other hon. Members have some rights in the debates on the Consolidated Fund Bill.

Mr. William Hamilton

Further to the point of order, Mr. Speaker. I should like to add my support to what my hon. Friend has said. It is clear that the right hon. Member for Taunton (Mr. du Cann) is going to make some kind of an apologia for this squalid report. We are not prepared to accept it If I can, I should like to withdraw my permission for him to be heard any more.

Mr. Speaker

I am afraid that that is not possible. I put it to the House twice and said that it was the House which must decide whether the right hon. Gentleman was heard. No one said "No." It required but one hon. Member to say "No." The right hon. Gentleman is now addressing the House by leave of the House. Therefore, I cannot ask him to sit down.

Mr. Dalyell

Further to the point of order, Mr. Speaker. I thought that there was an undertaking implied in what the right hon. Gentleman said—we do not want to be unreasonable—that his would be a fairly short contribution. If his speech lasts 10 minutes that is one thing, but if it is like his last one and goes on for 38 minutes on a single subject, that would seem to be an abuse of the House.

Mr. Speaker

I am sure that the right hon. Gentleman, who is one of the senior Members of the House, will bear in mind that not unreasonable appeal, since the hon. Member for West Lothian (Mr. Dalyell) has been waiting all night.

Mr. du Cann

I will most certainly bear that in mind, but it is not I who am taking time now—

Mr. William Hamilton

You have had your share.

Mr. du Cann

It is not I who prescribed the subject of this debate, and it is not unreasonable, I think, permission having been given, that I should do my best to reply to it. [Interruption.] I am sure that the hon. Member for Fife Central (Mr. Hamilton) does not wish to gag me—

Mr. William Hamilton

I do.

Mr. du Cann

I note what the hon. Gentleman says, and the world will note what he says.

I shall certainly not speak for 38 minutes. I shall say what I want to say with as much expedition as I can.

I was saying that it must be right that this House should look also at the affairs of companies which have failed, and that is true. Also, we are fortunate, as the Minister said on another occasion, in that we are preparing a programme for company law improvement, for which I have argued for many years—long before it became the fashionable nostrum of today.

We can all make our own case about these matters. This is an unusual report, in that the inspectors have not recommended a change in management. Quite the reverse; as the hon. Member for Coventry, South-West (Mrs. Wise) pointed out, they passed a vote of confidence in the chief executive and endorsed the vote of confidence which the shareholders had already given. It may be thought remarkable after three years and nearly 660 pages almost no new matter is raised, nothing that was not already covered by Peat, Marwick and Mitchell; by press and television, court proceedings, shareholders' meetings and circulars.

The report dealt with matters that may be interesting and contain a lot of detail, but they are matters only of historic interest, and recommended no action of any sort.

Some hon. Labour Members and I are political poles apart. They hold strong views about companies and private enterprise—

Mr. William Hamilton

We have seen that.

Mr. du Cann

I hope that my view is more reasonable. I believe in a mixed economy, which the hon. Gentleman does not, unfortunately. Although he is entitled to hold his view, no one is entitled to suggest that this company is different from reality, to exaggerate its defects and mistakes and altogether to ignore its virtues.

Mr. William Hamilton

Send them to gaol.

Mr. du Cann

If we ignore the politics, we must acknowledge that the reality is excellent, being successful, profitable, and a substantial taxpayer, a large exporter and a provider of employment on a large scale. It should be a favourite son of the Chancellor of the Exchequer, as a substantial investor in capital equipment, doing practical work to raise the standard of life in developing countries. It has excellent relationships overseas, which Her Majesty's Government sometimes prefer to use, rather than relying on their own communications. It has excellent relations at home with trade unions, both in the business in which it has been engaged for some time and in the new business in which it is now engaging in Newcastle. Not only has it a good record for growth at home and overseas; it is a strong influence for political evolution, and we all applaud that here. Its work is of the greatest benefit to the United Kingdom economy because its work is constructive, as I have said, and I am proud to be associated with it.

What is now required for the company, as for British industry, is that it should have a period of peace and calm to work successfully in the national interest, if the expectations of the Chancellor are to be realised. It cannot succeed in an atmosphere of constant criticism, to which there is not always an opportunity to reply. Everybody respects parliamentary privilege, but it should be used with discretion.

I was asked for a comment about Lord Duncan-Sandys. He, no doubt, can defend himself with vigour, and will do so in future. I am bound to point out that as soon as he knew the board was unaware of the payments to him, he immediately refunded them.

The Hedsor Wharf house should be a company house. It is used almost exclusively for company purposes to entertain Heads of State and other distinguished visitors to this country.

On the question of the expense account, the view was expressed that the directors did not have full information, but that was not the view of other firms of auditors. It is quite possible for there to be two views about this matter.

On the report itself, I do not criticise the bona fides of the inspectors. They are eminent men—indeed, men of the greatest eminence—but they are not infallible, and there are some mistakes and omissions. Nor would I suggest that some method of inquiry should not be open to the Department. As a former Minister, I would be the first to agree that there should, but the question is whether this is the right way.

It is interesting that inThe Times newspaper Lord Fletcher, and Sir David Napley, President of the Law Society, had correspondence, and later the Minister had a letter from the Chairman of the Stock Exchange and Lord Shawcross, all suggesting that the method should be improved. There have been articles in the journals, inThe Guardian, and in theNew Law Journal, from which I quote quickly: The much awaited Department of Trade Lonrho report causes more disquiet with regard to the working of English law than to the internal affairs of Lonrho…it is the way the report has been prepared and published that is wrong and unfair. It goes on—there is much more. I should like to quote it all. I end with this sentence: The situation is overdue for reform. This seems, then, to be a generally held view. The question to which the House of Commons should probably address itself if it is to learn the lessons of this report is—what form should the reform take? If we are to answer this question we must first pose another—why do so many authorities feel that there should be reform and express that view?

I will discuss shortly some of the reasons. A report of this nature is bound to present an apparently biased picture. If inspectors, however conscientious and however competent, inquire into three, four or half a dozen matters, they are producing a balance sheet which is lop-sided. Incidentally, all the matters into which the inspectors inquired and on which they were critical have been rectified.

The inspectors say nothing about the company's successes. The company's successes are very great. There again, I do not believe—I do not know what other right hon. and hon. Members may think—that the system of part-time inspectors who are required to be prosecutor, jury and judge can possibly be adjudged to be the best possible in the circumstances.

These inquiries take too long. This one took three years. We have just seen the publication of another report on an inquiry which took six years. More inquiries are happening. They will take longer. I do not know why they were not started long ago. It is not reasonable that there should be a shadow over a company for a very long period in this way.

It has to be acknowledged, too, that, the system adopted puts those inquired into at a disadvantage. They are unaware of the accusations, if any. There is no opportunity of cross-examination of witnesses. The facts cannot be checked. Nor can malice, if it exists, as it may, be exposed. False conclusions are therefore possible.

What effect does a report of this sort have upon the company? I appreciate that it makes a number of people who read it angry and anxious. I was worried that it would have a bad effect on the morale of the employees of the company. In the case of the Lonrho company, however, no executive and no worker has left as a consequence of this report. That is some indication of their judgment of it and is a hallmark of their confidence in the chief executive and his colleagues.

What sort of company is it, anyway, that is being inquired into? I have said already that it is a very successful company. It is a company which has a turnover now—

Mr. William Hamilton

On a point of order, Mr. Speaker. The right hon. Gentleman is abusing the permission that the House gave him to speak a second time on the Bill and he is apologising throughout for the cesspool of this report. It really is intolerable that he should take advantage of the House in this way. I ask you to appeal to the right hon. Gentleman, or to insist that he brings his remarks to a conclusion.

Mr. du Cann

I do not think I apologise for any cesspool. What I was trying to do was to conduct a kind of serious inquiry whether this was the best form of inquiry into companies. If the hon. Gentleman did not keep interrupting and did not try to stop me all the time from replying to what has been said, we should get on a very great deal quicker.

Mr. Ioan Evans (Aberdare)

On a point of order, Mr. Speaker. As you know, I submitted my name requesting a debate on the question of Lonrho. I realise that the right hon. Member for Taunton (Mr. du Cann) has a personal interest—he is a director of the company. However, if he had wished he could have submitted to you that this subject be discussed. Instead, he submitted to you another subject, and that was discussed earlier today. I think that he should now conclude his remarks and perhaps take the opportunity of writing in one of the Sunday or daily papers an explanation of the Lonrho affair. Other Members are wishing to speak in this debate. I wish to catch your eye briefly. I hope that the right hon. Member will now conclude his remarks and allow other Members to participate in the debate.

Mr. Speaker

I am in some difficulty. I know that hon. Members have been waiting through the night for the debate and that others hope that their subject will come up for debate before the debate on the Bill ends. It would help the House if the right hon. Gentleman could make his remarks as brief as possible because we are on the Second Reading of the Consolidated Fund Bill. I know that he will be brief.

Mr. du Cann

Indeed I shall be brief. I have also been waiting a long time to hear what hon. Members say and for the opportunity to reply, but other hon. Members are taking up more time than I. I reserve the right, by the methods open to me, to reply at other times and in other ways if hon. Members will not allow me the full opportunity to do so now.

Mrs. Wise

On a point of order, Mr. Speaker. You were not in the Chair at the time, but I am sure that you are aware that I was extremely careful to make no attack on the right hon. Member for Taunton (Mr. du Cann) but to use one entirely factual quotation, because I did not think that he would be able to take part in the debate.

Mr. Speaker

I was very impressed by the spirit of fair play in the House. The issue is one which generates strong feelings. The House gave the right hon. Gentleman permission to speak and no one objected. There has been a sense of fair play and I am sure that the right hon. Gentleman will respond accordingly. He has said that he will be brief.

Mr. du Cann

I am doing my best to get on, but it is difficult. I acknowledge the remarks of the hon. Member for Coventry, South-West.

I have already said that the company is successful and the figures prove that. Here is a company which is doing extremely well for our nation.

Mr. William Hamilton

Here we go again.

Mr. du Cann

The hon. Member may not like it, but it is a fact. The company deserves encouragement and support. Here are a group of people—whether the hon. Member for Fife, Central likes it or not—who are deliberately helping to raise the standard of living here and overseas. I say that that is something in which to rejoice.

We have heard something about Brentford Nylons. If any hon. Member thinks that he can do better than Lonrho to help that company, let him do so. I should be prepared to persuade my colleagues to see to the loan which has been offered, provided they can renegotiate the agreement with the receiver and that those who talk about this case but do nothing to provide the marketing, design, production and management expertise and, what is more, the resources to back that company and to stand the loss to bring it through to prosperity.

I was proud to be welcomed by the workers at Newcastle. When I rang them last night and told union officials of today's debate they said that hon. Members should go to Newcastle where they would be told how grateful the workers are to Lonrho, a company in which they have faith.

That is the reality of the modern world. Are we to encourage those who will do, who will dare to create wealth here in the United Kingdom and overseas, and who will earn for this country? Or are we, by a constant campaign of denigration and exaggeration of mistakes, to force people to work in other countries and prevent any enterprise from succeeding? I stand for enterprise. I am proud to be a director of the company and to have been of some constructive help in the work it is trying to do for the people of this country.

Mr. William Hamilton

The right hon. Gentleman has done very well out of it.

9.45 a.m.

Mr. Ioan Evans (Aberdare)

I shall not make the speech which I originally intended to make because a number of other Members are waiting to contribute. The right hon. Member for Taunton (Mr. du Cann) had the privilege of speaking twice in the debate but he did not submit his name to speak on the subject. I find it interesting that all the requests for the debate came from hon. Members on this side of the House. But we should pay tribute to the previous Government and the then Prime Minister, who referred to the company as the unacceptable face of capitalism.

Mr. William Hamilton


Mr. Evans

It was the Government of the right hon. Member for Taunton who set up the Department of Trade inquiry into the company. Going through the report page by page we find complete justification for the setting up of the inquiry. The company was originally named London and Rhodesian. Some people have forgotten its early purposes. We read of its breaking sanctions against Rhodesia. All parties in the House have agreed that we should try to bring about a peaceful settlement of the tragedy of Rhodesia, and one of the ways laid down by the United Nations is economic sanctions. Here we have a company that deliberately set out to flout the intent of this House. The company's activities border on treason.

I do not wish to make personal attacks on the right hon. Member for Taunton. He joined the company at a later stage, but earlier a former Conservative Cabinet Minister was its chairman. Possibly he came in after the breaking of sanctions, too. Yesterday there was an outburst in the House about the alleged unemployed man who spent 12 months on unemployment benefit in Spain—a fictitious character whom nobody now seems able to find. In the report we hear of hundreds of thousands of pounds being sent to the Cayman Islands.

I support my hon. Friends. The matter should not be raised only in this way and at this hour. I appeal to the Government to make sure that it returns to the Floor of the House for a full debate, as there are tremendous implications.

We are now going into recess. I know that the Director of Public Prosecutions is investigating the whole question, and charges will probably be preferred because of the many matters that arise in the report. After the DPP has taken action the Government should arrange a major debate, because there are implications for not only the Department of Trade but the Department of Industry, the Defence Department and my right hon. Friend the Secretary of State for Foreign and Commonwealth Affairs. As other hon. Members wish to speak, I conclude on that point.

9.50 a.m.

The Under-Secretary of State for Trade (Mr. Clinton Davis)

By leave of the House, I welcome this debate, as does my right hon. Friend the Secretary of State for Trade. In no way can I share the view of the right hon. Member for Taunton (Mr. du Cann) that it was in any sense inappropriate for this matter to be raised.

Mr. du Cann

I am sorry to interrupt the Minister at the beginning of his speech but I did not say that and I did not imply it. What I was discussing was whether we were considering all the questions that it is proper for the House to consider in relation to a matter of this sort.

Mr. Davis

If I misconstrued what the right hon. Gentleman said I apologise. I am afraid that he was rather ambiguous, perhaps not intentionally. I take the point made by my hon. Friend the Member for Aberdare (Mr. Evans) that this is a matter which it is right to debate, and I shall draw to the attention of my right hon. Friend the Leader of the House the request that he has made.

This is a matter in respect of which there is a high degree of public interest, as was illustrated by my hon. Friends who have spoken. It is a matter that raises important issues affecting the conduct of public companies, and I shall have something to say about that. I am grateful to my hon. Friends for raising the issue.

The right hon. Member for Taunton produced, as he was entitled to do—and I think it was right that the House should have heard him, in all the circumstances—what was described by my hon. Friend the Member for Fife, Central (Mr. Hamilton) as an apologia for the company. Having regard to the meticulous thoroughness with which this report has been prepared. I find it extraordinary that in the 20 minutes or so, net, occupied by the right hon. Gentleman he could not find it appropriate to bring a whimper of criticism about the conduct of Lonrho at the material time. He seemed to be rejecting all the criticisms made by the inspectors. It would have been much more appropriate if he had hesitated a little before presenting this matter to the House in the way he did. The House will give his comments the weight that they deserve.

Mr. William Hamilton

They will keep his directorship.

Mr. Davis

What we are debating today has a direct connection with the preceding debate, initiated by my hon. Friend the Member for Fife, Central, when the House discussed allegations made and taken up by the Opposition Front Bench, concerning scrounging—I think that is the usual word employed—on social security. It was a matter on which the Opposition said that they had the true facts. There seems to be a bit of selective condemnation on their part between one sort of scrounger and another. This selective condemnation is not confined to this case; I had cause to complain about it in an earlier debate.

The Conservatives proclaim that they have an interest in establishing the highest standards in public and commercial life. I am sure that that is the motivation of the hon. Member for Worthing (Mr. Higgins), who leads for the Opposition on these matters. I would not for one moment doubt his bona fides, because I have worked with him in Committee and I know his interest in these matters. I do not think it is true to say that of the entire Conservative Party. I did not notice any blind rush to discuss the Lonrho report, which goes to the heart of the question of establishing the highest standards in public and commercial life.

I join in the tribute paid by my hon. Friend the Member for Aberdare to the Conservative Government led by the right hon. Member for Sidcup (Mr. Heath), who had some appropriate words to say about this situation, describing it as the "unacceptable face of capitalism", and so on. That Government set up the investigative process. I am bound to say that since that time there has been no attempt on the part of the Conservative Party to raise the matter, for instance, on the Companies (No. 2) Bill [Lords]. As for the question of stimulating debate. Conservative Members have exhibited all the pulsating virility of a bunch of eunuchs in a harem of a second-class potentate. The fact is that they are schizophrenic. They divide their time between demanding stiffer laws and then excusing their friends when there is any evasion of them.

I well understand why my hon. Friend the Member for Coventry, South-West (Mrs. Wise) said that she was nauseated by this saga. We are talking about the conduct of the company in the past, and it is perfectly understandable that she should have to bear this state of nausea. But it is all the more nauseating when some of those who have been responsible for these affairs have the temerity to lecture not only the Government but the people of this country on the subject of national financial probity.

I am bound to say that my hon. Friend is entitled to be nauseated if the allegation is made out that some attempt was made at the telephone to intimidate and obstruct my hon. Friend the Member for Luton, West (Mr. Sedgemore) in seeking to carry out his duties to this House as he saw them. It is a matter that may be worthy of further investigation.

Mr. du Cann

Will the hon. Gentleman allow me to say that I know nothing of this matter? The first I heard of it was last evening. I find it very difficult to accept that there was a plot of that sort.

Mr. Davis

The right hon. Gentleman is not entitled to say that he finds it difficult to accept. What the right hon. Gentleman should have said in that intervention is "I am concerned about the allegation. I, as a leading member of the company, will see that it is investigated, and I will not prejudge the outcome of it". The hon. Gentleman'slocus in carrying out such an investigation is no longer impeccable. He has prejudged the issue.

Mr. du Cann

I know the people concerned.

Mr. Davis

The right hon. Gentleman is not adding to his reputation by that sort of remark. My hon. Friends are bitterly angry about the fact that there has been a deliberate campaign by officers of the company to camouflage and distort the seriousness of these criticisms. We were told before publication, in breach of the confidentiality imposed on them, which the company accepted at the time—[Interruption.] The House will judge the seriousness of these complaints.

My hon. Friends are entitled to be concerned about the suggestion that is made by Mr. Rowland—repudiated by the right hon. Gentleman at one turn and accepted by implication at another—that if someone is successful he ought somehow to be above the law and sacrosanct. That is wholly unacceptable.

My hon. Friends are entitled to be concerned that if there had been no board room dispute, none of this murky story might have been revealed at all. I think they are concerned to wonder whether, if the story had not been divulged, the tax-free compensation which was paid to Lord Duncan-Sandys—to whom I wrote, extending him the customary courtesy of informing him of any intention to mention him—would have been returned at all. If his conduct was as honourable as he purports, there should have been no question about its return. Why wait for the criticisms? It should have gone back instantly. Why accept it in the first place?

We have a saga here of company secrecy, of the payment of huge sums by directors to other directors into exotic tax havens, and of houses provided by directors. We are told by the right hon. Gentleman that that is all O.K. We have heard of expense accounts not being properly investigated—indeed, not being investigated at all. As I said upstairs, we are talking not about small petty cash vouchers, but £307,000. It may be that is how they operated. Perhaps there were petty cash vouchers for that kind of sum. We are talking of directors getting a piece of the action. I think that there were too many pieces of gold here, too much action, and too little disclosure.

My hon. Friend the Member for Birmingham, Handsworth (Mr. Lee) asked me to refer the whole question of tax abuse to the Chancellor of the Exchequer. I am sure that my right hon. Friend will read with interest what he said.

Mr. Cryer

Tax havens.

Mr. Davis

Tax havens, tax evasion, tax mitigation or however one wants to dignify it.

I want now to refer to the origin of this inspection and the report and to go on to talk about the lessons that we can learn from it.

In March 1973, eight directors of Lonrho, headed by Sir Basil Smallpeice, attempted to remove Mr. Rowland from executive office in Lonrho. Mr. Rowland took legal action to restrain the board, and the subsequent proceedings disclosed, in public, matters that were considered by the then Secretary of State for Trade and Industry to be grounds for the appointment of inspectors under the provisions of Section 165(b) of the Companies Act 1948.

It has sometimes been suggested that the decision was influenced by political factors that were important at that time. Naturally, I do not know what advice was given to the then Secretary of State, and far be it from me to seek to defend the actions of another Administration, but, in the light of the report that resulted and of the matters that have been discussed in the House today, there must be few Members who do not agree that the appointment was absolutely justified. That was a matter to which the hon. Member for Worthing rightly drew attention and accepted when this affair was first discussed at Question Time.

The inspectors, Mr. Allan Heyman, QC, and Sir William Slimmings, were appointed on 23rd May and 12th June 1973, respectively. Their job was to investigate the affairs of Lonrho, as I said, under the provisions of Section 165(b) of the Companies Act 1948.

In view of the suggestion that inspectors should be given clear terms of reference, it is of interest to note that upon their appointment the inspectors were advised by the Department that they should inquire particularly into five matters that came to light during the court proceedings. That point has not been taken on board in the post-report considerations by some of the critics.

First, three of the directors resided in properties that had been paid for by the company or its subsidiaries.

Secondly, there was the appointment of the then right hon. Duncan Sandys, Member of Parliament, as consultant to the company and subsidiaries at a total fee of £51,000 per annum and the subsequent termination of the consultancy at a cost of £130,000 on his agreeing to become chairman of the company.

Thirdly, there was the claim of the defendant directors that, on four separate occasions between 9th August and 20th October 1971, Mr. Rowland either misinformed the directors, or allowed them to be misinformed, of the true cost of the purchase of an interest in the Wankel rotary engine.

Fourthly, the company advanced £3.05 million to an associated company in which three of the directors had an interest amounting to 50 per cent. of the equity, the remaining 50 per cent. being owned by the Lonrho group.

Fifthly, on 25th May 1972 the company issued a prospectus that produced approximately £10 million extra capital for the company with a view to reducing the company's short-term borrowings. Material contracts were listed, but there was no reference to the payments to be made following the termination of Lord Duncan-Sandy's consultancy arrangements with the company.

Therefore, a clear area for investigation was specifically defined.

Inspectors appointed under the Companies Act are invested with statutory duties and powers, and the responsibility for the conduct of the investigation is theirs alone. However, most inspections follow a broadly similar pattern, and for convenience the process can be divided into five stages. Because of the criticisms that have been uttered, I think it right that I should refer to this procedure in the context of the Lonrho case, so that the House can judge whether the procedures applied were fair or unfair.

In the first stage, the inspectors examine the relevant documents in order to build up an understanding of the issues that they are to investigate. Although the legal inspector is normally a silk—a QC—there is no objection in principle to the appointment of a solicitor as an inspector where it may be thought appropriate, but the skills of cross-examination which develop from experience at the Bar are an important attribute for the legal inspectors in the majority of cases. The accountant inspector, who is normally a senior partner in one of the big accountancy firms, can and does deploy staff of his own firm in the numbers necessary to examine the vast quantity of documentation that has to be scrutinised in a major operation of this kind.

The second stage is to take evidence from the witnesses. The Lonrho inspectors took written or oral evidence from more than 70 witnesses, and some of them were examined on more than one occasion. The witnesses can, if they so wish, be accompanied by their legal representatives, who are able to advise and assist witnesses in the presentation of their evidence. Full transcripts of all evidence are taken by shorthand writers accredited to the court, and copies of the transcripts of his own evidence are made available to each witness.

In the third stage the inspectors consider all the evidence and formulate their preliminary conclusions.

In the fourth stage the inspectors put to witnesses whom they are minded to criticise the substance of the criticisms that they propose to make, unless this has been done at an earlier stage. In the Lonrho inspection, the inspectors provided to each of the witnesses a written statement of the substance of the criticisms that they intended to make of him. The witnesses were then given an opportunity to make written representations, or to appear again before the inspectors, again accompanied by their legal representatives. The legal representatives submitted lengthy written submissions to the inspectors. They also addressed the inspectors at length on behalf of their clients.

That is the process that was undertaken. I want to explain to the House that this is not a brief process; it is spread over many months. There has been criticism of the time needed to complete Department of Trade inspections. The House should understand that the time needed is materially affected by the procedures that are followed in order to be fair to witnesses. The opportunity afforded to witnesses whom the inspectors have in mind to criticise, which I have just described, adds significantly to the length of inspections.

The fifth stage is that, having heard the representations of the witnesses, the inspectors finalise their report, and in this case it was submitted to the Secretary of State on 1st March 1976.

The Lonrho inspectors and their supporting staff spent about 25,000 hours on this inspection. It was an expensive procedure. It cost approximately £200,000. I shall deal subsequently with the justification for these inspectoral procedures, because the right hon. Gentleman will expect that of me. Suffice it to say that if Parliament considers that the procedures are necessary for the enforcement of company law, it is important that they should be carried out properly and impeccably by men of standing and integrity in their own profession. That was done in this case, and the House can see for itself that this was no witch hunt as has been claimed by Mr. "Tiny" Rowland, who, of course, is not without an axe to grind.

Mr. Terence Higgins (Worthing)

Although Big Ben has stopped, time is passing, and for that reason and because this is an occasion for Back Benchers, I am anxious not to make a speech if I can avoid it. I set out my views in Committee on 29th July. The hon. Gentleman has discussed at some length the procedures of the Department. There has been impartial criticism directed at these procedures, and I believe that the House should have the opportunity to debate this. May we have an assurance from the Government that there will be such an opportunity on an occasion appropriate for long speeches?

Mr. Davis

That is a perfectly legitimate request. I shall mention it to my right hon. Friend the Leader of the House, and I have no doubt that the hon. Member will mention it to his right hon. Friend the Member for Yeovil (Mr. Peyton) who is the Shadow Leader of the House, so that the Opposition may consider giving a Supply Day for such a debate.

Mr. Higgins

With respect, it is not an appropriate matter for a Supply Day. This debate is similar to a Supply Day because it is an occasion for Back Benchers to question the Executive. This is essentially a matter of the reform of company law, with which I am gravely concerned. The Government should give time to debate this kind of matter. If we were in power I would believe that we should give time for this sort of debate. The hon. Gentleman must not dodge the issue.

Mr. Davis

I am not dodging the issue. I want the House to have an opportunity to discuss this, and I am prepared to do my best to see whether it can be arranged, if the hon. Gentleman will do his best, too. I am sure that we can work out a solution.

Mr. Cryer

We are all very grateful that the hon. Member for Worthing (Mr. Higgins) does not intend to make a speech, especially as he arrived one hour and twelve minutes after the debate started. We welcome the build-up in pressure from the Tory Party on this matter. Perhaps the Opposition Front Bench will reprimand the hon. Member for Aberdeen South (Mr. Sproat), and the hon. Member for Louth (Mr. Brotherton) for building up pressure on other matters.

Mr. Higgins

I refute the first part of the hon. Members' comments. I was here.

Mr. Davis

It is right that I should try to influence the Leader of the House in order to get an opportunity to probe this matter. There is an urgent need for the Conservative Party to illuminate these issues and discuss them.

I turn now to the action that was taken by the Department of Trade after it received the report. It is a requirement of Section 168 of the Companies Act 1948 that the Department shall forward a copy of the report to the registered office of the company, and this was done. In accordance with usual practice in the great majority of inspection reports prepared under Section 165, the report was also referred to the Director of Public Prosecutions for him to consider whether it contained evidence of breaches of the law, and whether criminal proceedings should be brought.

Under Section 168 of the Companies Act the Secretary of State has discretion to decide whether to publish the report or not. It is the usual practice to publish reports of inspections into public companies carried out under Section 165. The company was told of the decision to publish over 24 hours before publication.

It has been alleged that an undertaking was given to the company by officials of the Department of Trade that they would be given 14 days' notice of publication. This allegation is totally false. At a meeting with officials, the company asked for 14 days' notice of publication. It was told that it was not the practice to give advance notice but that if the Government announced the decision to publish in a parliamentary Question the company would be told in advance. It was given no undertaking whatever as to the period of notice, although one or two people on behalf of the company or with some sort of interest sought to wheedle information out of the Department. The facts which I have just stated are taken from the record of the meeting which was made by the officials concerned immediately afterwards.

In the case of the Lonrho report the Secretary of State thought it right, before making a decision on publication, to consult certain United Kingdom posts overseas about the probable effects of publication in their localities. It has been alleged that copies of the report were sent to certain overseas Governments before it was published in this country. This is quite untrue. After considering advice about the probable effects of publication, including representations made by the company, as it is perfectly proper for my right hon. Friend to do, the Secretary of State decided that the public interest required that the Lonrho report should be published, and it was so published on 6th July. Four months therefore elapsed between submission of the report and publication. Having regard to the criteria which have to be followed, that is not a long time. In fact, the time between receipt and publication has been greater than this in the majority of cases. This is because there are often extremely difficult and complex issues to be resolved, and there is nothing sinister about that.

As regards further action by the Government now that the report has been published, I have already stated that the report, as is usual in such cases, has been referred to the Director of Public Prosecutions, although I understand that the Director has asked the police to investigate certain specific matters, and it would not be appropriate for me to say anything further about that aspect. It would be wrong, however, to attach any special significance to these facts. It is the frequent practice in the case of a complex Department of Trade inquiry for the Secretary of State to pass a copy of the inspectors' report to the Director of Public Prosecutions to enable him to consider whether or not any action is called for by him.

The main responsibility of the Secretary of State and myself is to consider the implications of the report for company law, and this will be done as part of the general review which the Department is undertaking. The criticisms made by the inspectors relate mainly to what they consider to be breaches of the fiduciary duties of directors under the law as it now stands. It may be that closer consideration will indicate the need for tightening up the provisions of the law in some respects.

The main respects in which the Lonrho report is likely to be relevant to our review are, first, the duties of directors and the way in which public companies are run. The report of the Bullock Committee on industrial democracy, which the Government hope to receive by the end of this year, must be highly relevant to this subject, and the composition of company boards and the duties of directors will clearly be a central part of the major companies legislation which the Government intend to introduce to implement the Bullock Report.

Secondly, the Lonrho report has much to say that is disturbing on the subject of conflicts between the personal interests of directors and their duties to the company. Earlier this year the Department commissioned a special study of this subject as part of the review of company law. I hope that this will lead to the publication of a consultative document and will make a useful contribution in the next major companies legislation. When considering changes we shall certainly relate these closely to the need to prevent, or at least disclose, the type of unsavoury activities revealed in the Lonrho report. To my mind, one of the most disquieting features is that none of this might have come to light were it not for the dispute which developed within the Lonrho board.

Much of the comment since publication of the Lonrho report has been concerned with the point raised by the hon. Member for Worthing—the procedures followed by inspectors appointed under the Companies Acts. Some at least of this criticism has come from sources which are by no means disinterested and has been part of a deliberate campaign to blacken the Lonrho inspectors and to cast doubts upon their fairness. This has been one of the most deplorable features following publication of the report.

Mr. Heyman and Sir William Slimmings undertook this burden as a public service, as do other company inspectors. The inspection itself was arduous and complex. For nearly three years the two men devoted a great part of their time and energy to the task of unravelling the story. They have discharged it with immense care, with conspicuous fairness and with a meticulousness which should be admired, not criticised. This House and all who are concerned with maintaining the standards and integrity of the commercal life of this country are in the debt of these two men.

The system of company inspections has been a vital part of protection afforded by company law since the mid-nineteenth century. The 1862 Companies Act gave to shareholders the right to apply to the President of the Board of Trade for the appointment of inspectors. The Companies Act 1948 extended these powers by giving the Secretary of State the right to appoint where he considered that there were grounds to do so. Section 109 of the 1967 Act supplemented these powers by enabling the Department to require companies to produce documents and to provide explanations of them, with safeguards of confidentiality. In this way the Department can, where necessary, make preliminary inquiries without causing the damage to a company which can result from a public appointment.

The few inspections which attract widespread publicity are only a relatively small proportion of the total activity. In 1975, for example, inspectors were appointed to investigate the affairs of 27 companies under the 1948 Act—I think that I got this figure wrong earlier—and 150 inquiries were conducted by officers of the Department under the 1967 Act. The inspection system thus plays a vital role in the enforcement of company law, and I am glad to see that this has been acknowledged by the Chairman of the Stock Exchange and by most other serious commentators.

The primary purpose of investigations under Section 165 of the Companies Act 1948 is to establish the facts, where prima facie some irregularity has been shown in the way in which the company is run. The facts so established can serve a number of purposes. First, they are available to the DPP and other prosecuting authorities to consider whether criminal proceedings should be brought. Secondly, they can be made available to shareholders and creditors for use in civil proceedings. Thirdly, they are available to my Department to exercise its powers to bring civil proceedings to recover the company's assets or to wind it up. Fourthly, they can be made available to investors, employees and others as evidence of the way in which the company is being run, which is important. Finally, and incidentally, they provide the Government and public with a basis for discussion and action on aspects of company law reform.

When considering criticisms which have been made of company inspection procedures, it is worth recalling that these procedures became the subject of Court proceedings at the time of the investigation into the Pergamon Press case. In his judgment as a member of the Court of Appeal, Lord Denning set out the considerations which should be borne in mind in respect of an inquiry under the Companies Act.

I shall summarise those considerations. First and foremost, it is a very special kind of inquiry. It is not a trial. There is no accused, no prosecutor, no charge. It is not like a disciplinary proceeding before a professional body. It is simply an investigation, without anyone being accused. Secondly, there is no one to present a case to the inspector. He has to do all the work, to seek out and study documents, to examine the witnesses and cross-examine them, and to have their evidence recorded.

Thirdly, the investigation is in private. This is necessary because witnesses may say something defamatory of someone else and it would be quite wrong for it to be published without the party affected being able to challenge it. The only persons present are the inspectors and their staff, a shorthand writer, the witness and his lawyers, if he desires them.

Fourthly, the inspectors have to make their report. If this is to be of value they should make it with courage and frankness, keeping nothing back. The public interest demands it. It may on occasion be necessary for them to condemn or criticise a man. Before doing so, they must act fairly by him. But what does fairness demand? That is the question posed by Lord Denning.

Lord Denning's judgment as to the requirements of fairness have become an essential guide for subsequent investigations. He dealt with the procedure which should be followed by inspectors in putting the substance of their criticisms to witnesses. His conclusion was that it is sufficient for the inspectors to put the points to the witnesses as and when they come in the first place. After hearing the evidence, the inspectors have to come to their conclusions. These need not in the least be tentative. They can be final and definitive, ready for the inspectors' report.

Since that case, my Department has drawn the attention of newly-appointed inspectors to that judgment. I am entirely satisfied that the procedures advocated by the court have been followed both in spirit and to the letter. However, that does not mean that there is no room for improvement. The largest room in the world is the room for improvement.

The Secretary of State and I will study with the greatest care the suggestions that have been made in recent weeks. Two years ago the Department of Trade held a conference of inspectors who had been appointed during the previous five years to discuss the procedures used for inspections. The exchange of views on that occasion proved valuable. It was then decided, not in the light of the report, that the conference should be repeated from time to time. Arrangements have been made to hold a similar conference this September. This will provide the opportunity for a full exchange of ideas between those who collectively have a wide range of experience of the inspection procedures.

My hon. Friend the Member for Hands-worth had some comments to make about Brentford Nylons. I do not want to prolong the debate as there are other matters to follow. Suffice it to say that my hon. Friend has raised a large number of questions on the issue, all of which have been answered by my hon. Friend the Minister of State, Department of Industry. He has pointed out that it was the only available fund to rescue the company and that there were 1,800 jobs at risk. He has said that the whole matter will be monitored. It is quite clear that the Government have the ability to impose conditions.

I now turn to what someone in my constituency once described as my "perforation". As I draw to my conclusion I want to reaffirm the importance of company inspections, which I think has been well illustrated by the Lonrho report. Some of the comments which have been made appear to suggest that as long as a company makes profits the way in which it behaves should be not be open to criticism, and that it should be above the law. Those who take that view are undermining the whole basis on which the commercial affairs of the country should be conducted.

Failure to condemn the unethical activities of a small minority brings into disrepute the great majority of companies and their directors who comply with the standards established by law. To edify serious breaches of those standards by describing them as cutting corners is to weaken the fabric of industrial society. That was why I found it extraordinary that the right hon. Member for Taunton had not a word of criticism to make, bearing in mind the length and the nature of the criticisms in the report.

Mr. du Cann

I know that the Minister will wish to be fair. He will recognise that I was consistently interrupted and that I barely had a chance to say half the things I wished to say.

Mr. Davis

I am sure that the right hon. Gentleman, even if he had another half an hour, could not have been constrained to say anything critical of the then board of Lonrho Limited. I think that I am being entirely fair to him.

Mr. Cryer

Is my hon. Friend aware that, according to the report, the right hon. Member for Taunton (Mr. du Cann) began an investigation into the affairs of this shabby company and could not find anything wrong? The right hon. Gentleman and his committee could not find anything wrong with the affairs of the company at that time.

Mr. Davis

I think I have said enough about that.

The companies legislation of this country has traditionally given great freedom to the limited liability company. It has conferred great benefits. But the counterbalance to that freedom is that society should have the right, when there is evidence that it may have been abused, to go behind the closed doors of the boardroom and to expose to the daylight of public scrutiny those activities which their authors may have preferred to conceal. That is what the report on Lonrho has achieved, and it is a thoroughly worthwhile achievement.