EXTENSION OF SECTION 26 OF 1967 ACT (Hansard, 26 February 1980)

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

§ Mr. Deputy Speaker (Mr. Bernard Weatherill)
With this it will be convenient to take Government amendments Nos. 302 and 247.

§ Mr. Eyre
Section 26 of the 1967 Act provides for the disclosure of directors' contracts of service with the company. Clause 47 of the Bill, which will prevent directors from entering into long-term service agreements with their company without the approval of the general meeting, covers a wider category of employment agreements. This includes contracts of service which are the usual basis on which people are employed and contracts for service, for instance, where a director makes his services available through his own private company or as a consultant.
The disclosure provisions of these two sorts of service contracts are to be effected in different ways. Contracts for service which are not at present required to be 1163 disclosed as such will in future fall for disclosure under clause 54. A director will be required to declare his interest in such contracts by virtue of section 199 as amended by clause 59 of this Bill. Under clause 54, the principal terms of the contract and the nature of the director's interest in it must be disclosed in the company accounts.
Contracts of service are already largely provided for in section 26 of the 1967 Act, which requires details of directors' service contracts to be open to inspection by members of the company at an appropriate place. This section needs amendment, however, to bring it into line with the Bill in two respects.
First, we need to ensure that a director's service contract with a subsidiary company is disclosed in the same way as his service contract with the holding company, of which he is a director, is already required to be disclosed. The effect of this is achieved by subsection (1) of new clause 20.
Secondly, we need to restrict the exemption embodied in subsection (8) of section 26 for the disclosure of service contracts which require directors to work wholly or mainly overseas. Companies will now be required, by virtue of subsection (2) of this new clause, to disclose the existence of such a contract and those terms of the contract relating to duration in the same manner as those for non-overseas contracts.
Subsection (3) is merely consequential on subsections (1) and (2). It applies the provisions in section 26 relating to the inspection of service contracts, fines for default, and variation of service contracts to contracts of service with subsidiaries. It disapplies the present total exemption from disclosure of foreign service contracts.
Amendments Nos. 247 and 302 are also consequential. The latter extends the exemption from the disclosure requirements in clause 54 to contracts of service between a company and a director of its holding company, as this is now provided for in the amendment to section 26.

§ Mr. Clinton Davis
I concede that I have not looked up the reports of the Committee stage of the 1967 Bill. I should like to know what is the rationale for the exclusion of the contract of service that 1164 is to be wholly or mainly performed abroad. The Minister must have been impressed by that qualification in the 1967 Act, as he has incorporated it in the Bill.
4.30 pm
I understand that the effect of the clause is to provide for disclosure of such contracts, but there are no sanctions similar to those which are provided subsequently in the Bill in relation to breaches of the contract of service provisions. I content myself with asking the Minister to reply to those specific points.

§ Mr. Donald Anderson (Swansea, East)
To build on what my hon. Friend the Member for Hackney, Central (Mr. Davis) said, there must be very cogent reasons for exempting overseas service contracts, because the benefit in respect of a director who has an overseas service contract is no less than that applying to any other contract. If it appears that there is no need to disclose in respect of overseas contracts, greater use might be made of overseas service contracts for the purpose of evading the disclosure provisions applying to domestic contracts.

§ Mr. Eyre
Having listened to the hon. Members for Hackney, Central (Mr. Davis) and Swansea, East (Mr. Anderson), I can only think that they misunderstood what I said. I emphasised that we needed to restrict the exemption embodied in clause 26(8) for the disclosure of service contracts which require directors to work wholly or mainly overseas. Companies will now be required by virtue of subsection (2) to disclose the existence of such a contract—

§ Mr. Clinton Davis
I did not misunderstand it. I think the Minister must have misunderstood what I said. I conceded that there was disclosure, but I said that there were no sanctions.

§ Mr. Eyre
It was the hon. Member for Swansea, East who misunderstood me, then. I am sorry if I misunderstood the hon. Member for Hackney, Central.
Companies will now be required, by virtue of subsection (2) of the new clause, to disclose the existence of such a contract and the terms of the contract relating to duration in the same manner as those for non-overseas contracts. The exclusion of foreign service contracts in the 1967 Act was to prevent the disclosure of details 1165 which might be embarrassing to the holder of the contract.
The hon. Member for Hackney, Central went on to raise the question of sanctions—

§ Mr. Clinton Davis
There are, of course, sanctions for breach of the provisions which appear in the relevant clauses, but they do not apply in this instance, as I read the clause.

§ Mr. Eyre
I remind the hon. Gentleman that under section 26 of the 1967 Act companies and any officers of companies in default are liable to a fine. There are, therefore, adequate means within the Bill for the enforcement of the requirement.