HC Deb 19 October 1976 vol 917 cc1336-46
The Parliamentary Secretary to the Law Officer's Department (Mr. Arthur Davidson)

I beg to move Amendment No. 1, in page 1, line 10, leave out 'and cause to be printed'.

Mr. Deputy Speaker

At the same time we may take the following amendments:

No. 2, in page 1, line 10, leave out 'cause to be printed a' and insert 'a legible'.

No. 3, in page 1, line 11, leave out 'printed' and insert 'reproduced in legible form'.

Government Amendment No. 4.

No. 5, in page 2, line 7, leave out 'and cause to be printed a' and insert 'a legible'.

No. 6, in page 2, line 8, leave out 'printed' and insert 'reproduced in legible form'.

Government Amendment No. 7.

No. 8, in page 2, line 24, leave out 'printed' and insert 'legible'.

Government Amendment No. 9.

No. 10, in page 2, line 29, leave out 'printed' and insert 'legible'.

Government Amendment No. 17.

No. 18, in Clause 8, page 11, line 44, leave out 'printed' and insert 'in legible form'.

Government Amendments Nos. 19, 22, 23 and 73.

Mr. Davidson

The amendments were originally moved in Committee but were not carried because a number of Members felt that consideration should be given to an alternative way of dealing with the question. The issue of "printed", "legibility", "durability" and so on was debated at great length, if inconclusively. Through, I think, something of a confusion in the minds of hon. Members, although there was a desire for the words and cause to be printed to be left out, they still remain in the Bill.

The issue is simple. When the Bill was first published a large number of organisations made representations to the Government objecting to the requirement that a company's accounts should be "printed". They felt that this was an unnecessary imposition, particularly for small companies. The same point was made by Members of both Houses on Second Reading and in Committee. The Government made it clear from the beginning that the purpose of the requirement was merely to ensure that the accounts filed with the Registrar of Companies were legible and that the Registrar would accept any of number of processes for reproducing documents which resulted in a document which was suitable both for use on a public file and for microfilming. However, in view of the concern which the word "printed" caused, we were prepared to delete the provision, since Clause 31 in any case gave the Secretary of State power to prescribe the acceptable processes in more detail in regulations.

Since the Committee stage we have looked further at this provision. Our conclusion is that an adequate description of the acceptable printing processes could not satisfactorily be included in the Bill and that to prescribe standards by regulation remains the best approach.

To substitute a requirement that accounts should be legible would not, in the Government's view, help greatly. Interpretation of the word "legible" would lead to endless disputes. People have a very subjective view of what is and is not legible. Also, a requirement that accounts should be legible would not be sufficient. For example, it would enable accounts to be submitted in a form in which the lettering tended to fade over a period and the paper tore too easily. Carbon copies are an example of the sort of documents which experience has shown to be unsatisfactory and which therefore should not be permitted. A more detailed prescription of the Registrar's requirements is therefore essential.

The fears expressed in Committee about the use to be made of the powers in Clause 31 were exaggerated—I think I use a rather mild expression—and in my view without foundation. The requirements to be imposed will be the minimum necessary in the interests of present and future users of company files. No company should have any difficulty in preparing its accounts in a form acceptable to the Registrar, and the view of those who prepare company accounts, particularly those of small companies, will be taken into consideration as much as the needs of the users.

Since the Committee stage my hon. Friend's Department has undertaken further consultations about the Bill. There has been no opposition to the Government's proposals on this subject. In Committee Opposition Members were a little vague, understandably perhaps, about exactly what the users' committee was. At a meeting on 28th July about 60 regular users of Companies House expressed unanimous support for these provisions, which have also been endorsed by many of the organisations consulted about the Bill.

Mr. Tim Renton

The Minister said just now that in Committee we were a little vague about the users' committee. We fastened on to the reference to a users' committee simply because we did not know that it existed. At the time the Minister was unable to tell us much about it. We were interested to hear about it and to hear what representations it had made to the Government. We asked in Committee whether we on the Opposition Benches could be advised of these representations so that we might frame or modify our views about the Bill according to the views of the users' committee. What has the committee said about the proposal since we debated it upstairs?

Mr. Arthur Davidson

I was being kind to the hon. Gentleman when I said that he was vague about the users' committee, because he now tells me that he had never heard of it. I can assure the hon. Gentleman that the information about the users' committee is readily available. My hon. Friend the Under-Secretary answered Questions about it from two hon. Members opposite. It is recorded in Hansard.

I do not think that I need go into any more detail at this stage. The matter was debated at great length in Committee and many hon. Members voiced their opinions. I do not think that I can usefully add to what I have already said.

Mr. Loveridge

I am grateful to the Government for having gone some way to meet the criticisms that were put forward. They have removed the absolute requirement in law from the provisions as originally framed that accounts would have to be printed. That would have been difficult for many smaller businesses, both in practical terms of how to get them printed in time and because of the expense.

Amendment No. 1 leaves the decision over prescription of the form with the Registrar. As a later clause makes clear, however, this leaves the size, the weight, the quality and colour of the paper, the size of the type, and even the colour of the letters and any other matter to be determined.

Although it may be reasonable that something should be left to regulation, is it not possible to accept the most simple of all solutions—namely, that matters sent to the Registrar should be legible? It maybe that the Registrar will be reasonable, but if unreasonable requirements creep into the Bill who can say that no such power, once given, may not be foolishly applied in the future? I think that the addition of the world "legible" is enough, and I hope that our amendments will prove to be acceptable.

3.15 a.m.

Mr. Peter Morrison

Has my hon. Friend taken account of the fact that for very small businesses a substantial added cost will be incurred in having these accounts prepared in certain types? It is a further imposition that they can ill afford.

Mr. Loveridge

That would happen if the Registrar prescribed peculiar colours and lettering. We all know that red and black ribbons can be used on typewriters, but the Registrar may require the use of all colours of the rainbow.

Mr. David Mitchell

This provision as originally drafted was an indicaton of the fact that the Government were trying to treat large and small companies alike, and I welcome the fact that they have moved as far as they have. Of course, large public companies must print their accounts. Who would think of ICI's accounts going out in any other form than a printed version? In such a case printing is reasonable, proper and desirable. But let us not forget Bloggs & Co., village grocers, whose directors are the husband and wife running the concern. It would be absurd if they were to be required to print their accounts. The cost of even a small number of copies could be as high as £30.

Congratulations are due to my hon. Friends who upstairs in Committee persuaded the Government to table an amendment on this matter. Certainly many small business men have reason to be grateful to them. Since the criteria as to legibility will be in the hands of the Registrar, may we have an assurance that small firms will be protected from the process of having to comply with the requirements originally envisaged in the Bill?

Mr. Tim Renton

The Minister said earlier that he looked forward to the debut in tonight's proceedings of his colleague the Parliamentary Secretary to the Law Officers' Department. The Parliamentary Secretary has now done so with his usual charm and modesty. However, the Government's actions tonight remind me of the old advertisements for the Windmill Theatre, "We Never Closed", because it looks as though this debate will never close.

It is useful to have an opportunity to go over, if only briefly, these amendments which were debated extensively in Committee. We did object not to the removal from the Bill of the words "caused to be printed" but to the follow-up argument deployed by the Parliamentary Secretary. He said that the Government wished to use the powers in Clause 31 to prescribe requirements as to the detailed form in which amendments could be submitted. We said in Committee that we saw no reason why small companies should not know now the shape, form and size in which they have to produce their accounts. We did not see why this should be done by regulation. We thought that it could be done within the ambit of the Bill. That was the basis of our objection to the amendment in Committee.

We feel that there is the element of dictatorship if small companies, about which my hon. Friend the Member for Basingstoke (Mr. Mitchell) speaks so eloquently, are not to know the manner in which they have to produce their accounts until the requirements are published, when they will be shown exactly what will be suitable. That is what is undesirable. Rarely do we have the opportunity to debate in the House, and we feel that it would be much better if it could be made clear within the Bill how the accounts are to go forward.

I speak particularly to Amendment No. 3, which is much the same as the amendment moved by my hon. Friend the Member for Upminster (Mr. Loveridge), in which we request that the requirement should be that accounts be "reproduced in legible form". The Minister said that there is a subjective view of what is legible. I regard that as a delightful phrase. Surely that which is legible can be read and that which is illegible cannot be read. Surely it is one area in which is is difficult to have a subjective view. I submit that legible would be perfectly adequate and would suit the purpose that the Registrar requires.

My hon. Friend the Member for Upminster put the matter extremely well when he said in Committee: The Minister does not seem to appreciate that many small people and small firms would rather have certainty and knowledge about their obligations, than uncertainty for a long period of time."—[Official Report, Standing Committee C. 29th June 1976; c. 38.] That is the essence of our argument as to why the form and manner of accounts should be described in the Bill rather than left to future regulation, which means that the element of uncertainty will continue. Even at this late stage I ask the hon. Gentleman to think again and to consider whether it would be reasonable for the words "reproduced in legible form" to be substituted. If he does not agree, I can only say that when the next Companies Bill comes forward—the Under-Secretary of State is always promising us further Companies Bills—we may have to reconsider this matter and try again to amend.

Mr. Arthur Davidson

I do not agree with the assumption of the hon. Member for Mid-Sussex (Mr. Renton) that something is legible if it can be read and that there can be no divergence of view about that. The hon. Gentleman was present during the Committee sitting when those advising me from the Box passed me a note that I could not read. No doubt the handwriting was beautiful, and no doubt the person who wrote it could read it immediately, but although she said it was legible, I could not read it. We have subjective views about what is or is not legible. No doubt there are countless arguments and disputes about whether documents are legible.

The hon. Gentleman asked about the criteria. In our view the prescribing of standards as to durability, legibility and size is necessary to ensure that the documents received by the Registrar are suitable for the public register and in a form that will enable them to be microfilmed.

I am sure that the hon. Gentleman already knows that the Registrar issues guidance notes on the subject. It is his experience that the majority of companies are willing to co-operate when the documents they have submitted are not in a suitable form. In other words, the Registrar is used to issuing guidelines of this sort. He will not introduce any startling new criteria. The hon. Gentleman can rest assured that the Registrar will use these powers sparingly and within the framework I have given.

Amendment agreed to.

Amendments made: No. 4, in page 2, line 7, leave out 'and cause to be printed'.

No. 7, in page 2, line 24, leave out 'printed'.

No. 9, in page 2, line 29, leave out 'printed'.—[Mr. Clinton Davis.]

Mr. Clinton Davis

I beg to move Amendment No. 11, in page 3, leave out lines 38 to 45.

Members of the Committee will recall that we said that we had serious reservations about this provision. Since then we have been engaged in wide consultation, canvassing the opinions of about 20 different representative organisations whom we usually consult in matters of this kind. I can provide hon. Members with a list of these organisations if they wish. No one has supported subsection (12). Although it appears, on the face of it, to help to focus the attention of directors on their responsibilities, I submit that this is something of an illusion, while it would probably be the cause of considerable inconvenience and render a disservice to shareholders and creditors in some cases by delaying publication of the accounts.

The law leaves little room for doubt about the collective responsibility of the directors of a company concerning the management of the business generally and in such particular matters as the annual accounts. The requirements are strict. The balance sheet is required to be signed by two of the directors on behalf of the board. That is in Section 155(1) of the 1948 Act. The accounts, profit or loss accounts and the group accounts, if any, have to be approved by the board before the balance sheet is signed. That requirement is in Section 156(2) of the 1948 Act. The requirement in subsection (12) would not, in our judgment, or in that of those we have consulted, make a director any more responsible than he is now for the accounts of the company, and I hope that by now directors are fully aware of the nature of their responsibilities—if they were not so aware earlier.

The provision is self-defeating in that it allows a director not to sign provided he gives some plausible reason for not doing so, for example that he is away on business. How is the law to define what are acceptable reasons for a director's signature not being obtained and how is it to ensure that the reasons given in the balance sheet are genuine?

Mr. Tim Renton

May I correct the Minister on one point? He said that if directors cannot sign they are allowed not to do so if they adduce some "plausible reason." That is not what the lines he seeks to delete state. They say that if for any reason the signature of a director cannot be obtained the reason shall be stated on the balance sheet. It is important to make that point. We went over the question of reasons in Committee and made it abundantly plain that, whatever the reason, it should be stated, because if it were a trivial reason the shareholders would see that and perhaps would be moved to vote against the reelection of the director at a suitable opportunity.

3.30 p.m.

Mr. Davis

Even from the hon. Gentleman's point of view, it would not suffice to leave it in the vague way that the clause indicates. It is a reasonable inference to draw that the reason would have to be a plausible one. However, if the hon. Gentleman departs from that, it is most interesting. But it does not add very much to the benefits supposedly conferred by the provision which, I repeat, has found no support amongst those who are experts in these matters.

The question of delay is one which should concern us. It is common practice in a large company for the full board to approve the accounts in draft form and to delegate the final scrutiny to a small sub-committee. If companies have found that such an approach is the most efficient way of preparing the accounts, it would be wrong for the Government to interfere with that. To require that the accounts in their final form should be signed by as many directors as are available and that an explanation should be given in the accounts for the signatures not obtained would cause administrative difficulties for the larger companies and thus delay publication. It is the larger public companies which have the largest boards, and it is also their accounts which are of most interest to the investing public. Moreover, any provision which serves to inhibit public disclosure is surely quite contrary to the underlying spirit of this Bill.

Quite apart from the arguments that I have adduced and the questions of principle to which I have referred, I suggest that the subsection is defective as drafted. The requirement that the balance sheet be signed by every director or be endorsed with an explanation for non-signature conflicts with the requirements of Section 155 (1) of the 1948 Act. That provision requires the balance sheet to be signed by at least two directors on behalf of the board. Under Clause 1 (12), it would be sufficient for explanations for non-signature in respect of all the directors to be endorsed on the balance sheet, and it would not be necessary for any of them to sign it. That is a most extraordinary situation to be reached. If we were to enact this provision, directors would not know whether they had to comply with Section 155(1) or with Clause 1(12).

For those reasons, I hope that the House will support the amendment.

Mr. Tim Renton

The amendment seeks to delete from the Bill the provision that the balance sheet shall be signed by all the directors of a company. I moved this amendment in Committee, and it was supported by 10 members of the Committee, including the hon Members for Luton, West (Mr. Sedgemore), Tottenham (Mr. Atkinson) and Oldham, East (Mr. Lamond). It is a pity that they are not here to take part in this debate, because I am sure that they, as self-appointed guardians of public rights and tribunes of the people, could have contributed a great deal to it.

In Committee, the Under-Secretary said: The purpose of the two amendments is to bring home forecfully to directors the measure of their personal responsibility for the contents of the documents delivered to the Registrar."—[Official Report, Standing Committee C, 1st July 1976 c. 92.] I got the impression from that that in many ways the hon. Gentleman approved of the principle of what we were trying to do in this amendment.

I am disappointed that the Minister seems to have moved away from that ap- proval. How does that attitude fit in with the emphasis he has laid in the past five hours on the keenness of the Government to reform company law while chiding us for what he sees as our reluctance to do so? I do not see how he can maintain these contradictory positions.

The Under-Secretary has told us that he has received representations from a number of bodies and that we should like to accept his offer to make available information about whom he has consulted.

I take the point that, technically, Section 155(1) of the 1948 Act provides that only two directors are required to sign and that the amendment which we inserted into the Bill could conflict with existing provisions. With that point in mind, together with the fact that representations have been considered by the Government, I shall not suggest to my hon. Friends that we vote against this amendment.

However, this is a serious matter and we shall be thinking a great deal more about it when we have seen the information which the Under-Secretary will be sending us. We shall also have the opportunity to come back to it in future Companies Bills. I hope that the Government will have agreed by then that the principle of what we are trying to do is one with which they sympathise.

Amendment agreed to.

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