HC Deb 19 October 1976 vol 917 cc1296-302

"(1) Whenever a company in the case of which shares or debentures are listed on a recognised stock exchange is notified of any matter by a director in consequence of the fulfilment of an obligation imposed on him by section 27 or section 31 of the Act of 1967 (duty of directors to notify company of acquisition etc. of securities of the company), and that matter relates to shares or debentures listed on a recognised stock exchange, the company shall be under an obligation to notify that stock exchange of that matter; and the stock exchange may publish, in such manner as it may determine, any information received by it under this subsection.

(2) An obligation imposed by subsection (1) above must be fulfilled before the end of the day next following that on which it arises; but for this purpose, a day which is a Saturday or Sunday or a bank holiday in any part of Great Britain shall be disregarded.

(3) If default is made in complying with this section, the company and every officer of the company who is in default shall be guilty of an offence and liable, on summary conviction, to a fine not exceeding £500 and further to a default fine.

(4) Proceedings in respect of an offence under this section shall not, in England and Wales, be instituted except by, or with the consent of, the Secretary of State or the Director of Public Prosecutions.".—[Mr. Clinton Davis.]

Brought up, and read the First time.

Mr. Clinton Davis

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

Mr. Deputy Speaker

With this we may take Government Amendment No. 49.

Mr. Davis

The clause is closely related to Clause 22 which deals with the duty of a director to notify the company of his dealings in the company's securities. In effect, it replaces subsections (2) and (3) of that clause.

Clause 22(2) amends Sections 27 and 31 of the 1967 Act so as to require a person acquiring or disposing of listed securities in a company of which he is a director to notify not only the company but also the stock exchange on which the securities are listed. The new clause puts this requirement on the company rather than on the director. It is the practice of the stock exchange to accept communication of company announcements only from the company itself, and it is frequently necessary for it to authenticate messages before publishing them. This would be more difficult if—as would be required by the clause as drafted—notices were to be received from individuals rather than companies.

It is right to stress the importance of the authentication of messages. Publication of the news that, for example, a director of a major company had sold the whole of his large shareholding would have a significant impact on the market in the company's shares. It is essential, therefore that the stock exchange should be certain that the message is authentic and not a hoax. This can be checked more easily and reliably through the stock exchange's normal contacts with the company than with an individual director who may not be known to the exchange.

The new clause therefore imposes a requirement on a listed company to notify the stock exchange of any dealings in its listed shares and other securities by one of its directors by the end of the day next following receipt of notice of those dealings from the director. The clause also provides that the company and every officer in default shall be liable to a fine on summary conviction of up to £500, and to a default fine should the requirement not be complied with.

I shall refrain from going through the various subsections of the clause. I think that they speak for themselves. The stock exchange intends to make this requirement a term of its listing agreement, and will probably in practice require an even tighter time limit than is prescribed under subsection (2). It already requires a company to notify it within 12 hours of any major interest notified to the company under Section 33 of the 1967 Act.

I wish to make perfectly clear the provision under subsection (3) dealing with penalties for failure to comply. The penalty is the same as that for failure to record information received from a director in the register of directors' shareholdings which companies are required to keep under Section 27 of the 1967 Act.

Mr. Higgins

The House will be interested in the amendment and new clause which the Minister has proposed. In Committee the Opposition introduced a number of amendments designed to deal with various abuses in company legislation, including some changes which were in the Conservative Government's Companies Bill which fell with the General Election in February 1974.

The Government have been slow to introduce legislation on company law reform and we thought it right to introduce into this Bill some provisions to cover various abuses. Our consistent view has been that the general approach, which is wholeheartedly in support of private enterprise, should be combined with one that seeks to remove abuses through the operation of company law. At the same time we have felt strongly that legislative limits should be as few as possible and that as far as possible there should be a system of self-regulation.

The problem of warehousing has been universally condemned and by Clause 22 the Government are seeking to deal with the situation involving the acquisition of a large holding in a company's shares by stealth. Therefore, it is strange that the Government have introduced no new clause on those lines.

Mr. Clinton Davis

If the hon. Gentleman is so anxious to pursue such a new clause, will he explain why in Committee he tabled an amendment on insider deals and then withdrew it?

Mr. Higgins

There were good reasons, of which the hon. Gentleman is well aware. I felt that the drafting of such a clause was beyond my capabilities. Furthermore, at that time in Committee we had not the support for a proposal on insider dealings that was subsequently expressed by the Committee dealing with company law reform. Neither of those barriers should have prevented the Government from going ahead on this occasion.

It is strange that we should have had a statement by the Prime Minister designed to capitalise on recent events to the effect that the Government would take action as soon as legislative time permitted, while at the same time pressing ahead with other clauses on mutual funds, trade unions and so on. That is typical of the Government's approach.

I made clear that I may not have drafted the warehousing provisions perfectly, even though I lifted them in large part from the 1973 legislation. It is right that the Government should seek to make the drafting more precise and the provisions more reasonable.

Amendment No. 49 deletes subsections (2) and (3) of Clause 22, and the Minister skated over some of the provisions. I understand the point that duties should be placed on the company rather than on the individual because it is essential that any information that is passed on should be authentic. Serious consequences could flow if shareholders felt that not to be the case.

I shall not quibble about that point. However, I am a little worried about some other provisions. The first point concerns a comparison between what is set out in New Clause 9 and Clause 22 as it stands. Subsection (2) of the new clause provides: An obligation imposed by subsection (1) above must be fulfilled before the end of the day next following that on which it arises". I presume that means that if it arises on a Tuesday it has to be fulfilled on the Wednesday. Perhaps the Minister will correct me if I am mistaken. Although there is a provision that a Saturday, Sunday or Bank Holiday shall be dis regarded, that seems to be a tight schedule.

1.0 a.m.

We have a difficult balance to strike between arrangements which, if the period is too long, will leave a large loophole, and, if too tight, arrangements will not be predictable. The clause is imposing a tightness of timetable which was not in the original Clause 22.

Mr. Clinton Davis

I have already indicated—perhaps the hon. Gentleman did not hear me—that the stock exchange might itself impose even tighter requirements than those we have envisaged in the proposal we are putting before the House.

Mr. Higgins

I understood well what the hon. Gentleman said. I was coming to that point had he not interrupted. He said that the stock exchange was thinking of imposing a tighter limit—namely, 12 hours. I presume that the clause as drafted is effectively a time limit of 24 hours. I presume it would mean a working day of the stock exchange rather than what might be called after-hours dealing. If that is so, that seems pretty tight.

However, it seems that the stock exchange feels that it is practicable, and it has infinitely more experience in these matters than I have. I have not received any representations, but I shall make inquiries between now and when the matter is considered in another place. If the hon. Gentleman is satisfied, I am prepared to accept the timetable.

I am more worried about the penalties. Those which are now introduced were not in the original Clause 22. They apply if there is a default on the timetable that I have described. Subsection (3) states: If default is made in complying with this section, the company and every officer of the company who is in default shall be guilty of an offence and liable, on summary conviction, to a fine not exceeding £500 and further to a default fine. That is to say, an unlimited fine.

A fine of £500 on the individual officers of the company must be regarded as a pretty heavy penalty. We discussed penalties in Committee quite extensively and I do not wish to pursue the matter at this stage, but I return to the point that I made in Committee—namely, whether it is £500 out of taxed income. That may represent a large sum in terms of the individual's resources if he has to raise £500 from taxed income. A person in such a position may well be paying tax of 98 per cent.

I make no complaint about the Government introducing such a provision at this stage because they agreed to tidy up these matters, but I hope that the Minister will give consideration to the burden on the individual. The burden on the company is a different matter. Obviously the company could pay a fine of that size without any great problem. Presumably it would not be deductable for purposes of corporation tax, but the company would no doubt bear it with a little more equanimity than the individual officer of the company concerned. I hope that the Minister will give the matter consideration between now and when the matter is considered in another place so as to ensure that the penalty is reasonable in all the circumstances. That point apart, this probably helps to improve the quality of the clause and I do not wish to dissent from what the Minister has said.

Mr. Clinton Davis

We have had repeated debates in Committee about the Government's programme of company law reform and now is not the time to go into the subject again. The hon. Member for Worthing (Mr. Higgins) was not prevented from speaking on insider dealing, Mr. Deputy Speaker, and I assume that he was in order. But he knows better than most how highly complex that legislation is. He knows better than most because representations were made to him not to pursue the matter in Committee. He knows that the points he has been making are purely party points, seeking to embarrass the Government. They have no validity. He is aware that these matters are being considered by the Government and other organisations who will be concerned with the legislation and he knows that such legislation has to be got right.

The Tory Party did not get the legislation right in its 1973 measure, as was evidenced by the tremendous hulaballoo which arose on the part of some about the inadequacy of the drafting of penalties and on the part of others because they said that everything was too stringent. The hon. Gentleman knows that he has been making bogus points. I notice that, as in Committee, with his customary Olympic speed, he ran away from the issue. The hon. Member has abandoned his point about the tight schedule because on reflection he conceded that the stock exchange knew a little more about this than he did. I agree.

The subject of penalties is a bee in the hon. Gentleman's bonnet. I do not believe that his hon. Friends would join him in this. He referred to this subject time and again in Committee. It would be strange if we started introducing into criminal law penalties of £500, subject to tax. That is what the hon. Gentleman was arguing. It is the most extraordinary proposition I have ever heard, even from the hon. Gentleman, and that is saying a lot. How does it fit with the constant proclamations of the Tory Party concerning law and order? It is a wholly unrealistic proposition.

This is a serious matter and has to be dealt with seriously. We are setting maximum penalties here. I do not encourage the view that we should pity the poor fraudsman, the poor miscreant who is not prepared to comply with company law. The penalties are right. I hope that that will satisfy the hon. Gentleman and not cause him to pursue that bee for the rest of the debate.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

Forward to