'In section 52 of the Act of 1948 (return as to allotments) for the words "one month" wherever they occur, there shall be substituted the words "fourteen days."'.—[Mr. Clinton Davis.]
§ Brought up, and read the First time.4.30 pm
New clause 17—Amendment of s.33 of Companies Act 1967:
'In section 33 of the Act of 1967 the word "person" shall be defined as any person whether acting alone or in concert with any other person'.
§ "27A.—(1) If a person fails to comply with a notice under the foregoing section the company may by order direct that the shares in respect of which the notice was served shall, until that person complies with the notice or further order, be subject to the restrictions imposed by this section.
§ (2) So long as any shares are directed to be subject to the restrictions imposed by this section—
- (a) Any transfer of those shares, or in the case of unissued shares any transfer of the right to be issued therewith and any issue thereof, shall be void;
- (b) No voting right shall he exercisable in respect of those shares;
- (c) No further shares shall be issued in right of those shares or in pursuance of any offer made to the holder thereof;
- (d) Except in a liquidation, no payment shall be made of any sum due from the company on those shares, whether in respect of capital or otherwise.
§ (3) Where a company makes an order directing that shares shall be subject to the said restrictions, the company shall forthwith give notice in writing thereof to the person whose 1382 failure to comply with a notice under the foregoing section led to the making of the order such notice shall be deemed to be duly given by being sent by prepaid first class post to the last known address of that person.
§ (4) Where a company makes an order directing that shares shall be subject to the said restrictions, or refuses to make an order directing shares shall cease to be subject thereto, any pawn aggrieved thereby may apply to the Court and the Court may, if it sees fit, direct that the shares shall cease to be subject to all or any of the said restrictions in whole or in part on such terms as the Court thinks fit.
§ (5) Whenever an order is made in respect of: shares comprised in relevant share capital of the company under this secton or under section 174 of the Act of 1948 (power of the Secretary of State to impose restrictions on shares or debentures) the company shall be under an obligation to inscribe against the name of the member in whose name those shares are registered in a separate part of the register kept by it under section 34 of the Act of 1967 (Register of Interests in Voting Shares) the fact that the restrictions were imposed, the date on which they were imposed and, where appropriate, the date on which they were lifted.
§ (6) Subsections (2) to (9) of the said section 34 (which relates to the manner in which the register is to be made up and provide for public inspection of the register) shall apply in relation to the part of the register referred to in subsection (5) above as they apply in relation to the remainder of the register, and as if reference to subsection (1) of that section included references to subsection (5) above.
§ (7) In this section 'relevant share capital' has the same meaning as in section 33 of the Act of 1967 and 'the court' means any court having jurisdiction to wind up the company.".'.
§ "27(B.—(1) Where, on the application of the Secretary of State it appears to the High Court—
- (a) that a person has failed to comply with a notice under section 27 of this Act: or
- (b) that in connection with an investigation under either section 172 (appointment and powers of inspectors to investigate ownership of a company) or section 173 (power to require information as to persons interested in shares or debentures) that there is difficulty in finding out the relevant facts about any shares (whether issued or to be issued), and that the difficulty is due wholly or mainly to the unwillingness of the persons concerned or any of them to assist the investigation as required by the Act of 1948;
§ (2) A person whose shares have been forfeited under this section shall cease to be a member in respect of the forfeited shares, but shall, notwithstanding, remain liable to pay the company all monies which, at the date of forfeiture, were payable by him to the company in respect of the shares, but his liability shall cease if and when the company shall have received payment in full of all such monies in respect of the shares.
§ (3) The Secretary of State shall give not less than 10 days' notice of his intention to apply for an order under this section to the person who has failed to comply with the notice under section 27 or to those persons who appear to him to be unwilling to assist in an investigation under section 172 or 173 of the Act of 1948 and to the company, and on the hearing of the application that person or those persons and the company may appear and may give evidence or call witnesses.
§ (4) On the hearing of any application for an order under this section or on any application made by a person aggrieved by such order to rescind or vary the same, the Secretary of State shall appear and call the attention of the court to any matters which seem to him to be relevant and may himself give evidence or call witnesses.
§ (5) In this section 'the court' means any court having jurisdiction to wind up the company.".'.
§ Amendment No. 36, in clause 33, page 41, line 19, leave out 'one month' and insert 'fourteen days'.
§ Amendment No. 37, in page 41, line 29, leave out 'one month' and insert 'fourteen days'.
§ Amendment No. 38, in page 41, line 37, leave out 'one month' and insert 'fourteen days'.
§ Mr. Davis
This group of new clauses and amendments enables us to debate and to try to find a way of dealing with the serious issues for British companies that have been raised in the recent Consolidated Gold Fields case. New clauses 16 and 17 represent a more general approach as distinct from the more specific proposals that we adumbrate in new clauses 18 and 19, which provide detailed and quite Draconian powers which are designed to render section 27 of the Companies Act 1976 far more effective.
We feel that a serious issue has been raised. Important problems and serious threats are posed to the ownership of United Kingdom quoted companies. Bearing in mind that about 25 per cent. of the top 1,000 companies cited by The Times are already controlled by 1384 foreign shareholders, we must recognise the importance of dealing with the issue effectively.
Surely it was the Government's ditty to seize the opportunity to announce proposals and to take effective action. However, once again, when it comes to taking effective remedial action to deal with an abuse, the Government adopt their characteristic posture of masterly inactivity. That is an attitude that no doubt will be much praised by all those who pose a major threat to many of our largest companies. No doubt the Minister will seek to camouflage his sluggishness, as he did yesterday, with an attack on the drafting of our proposals. I think that he will refuse to deal with the issues of principle. That will be a totally unacceptable role for him to fulfil. I hope that my pessimism about his conduct will not come to pass.
The Department of Trade appointed inspectors under section 172 of the Companies Act 1948 to investigate and report on the membership of Consolidated Gold Fields Ltd. That action was taken rather late in the day. Everybody appears to know the present membership of the company. We should be addressing our minds to strengthening the provisions of the 1967 Act by providing companies and the Secretary of State with some effective sanctions. There can be no doubt that it is an important matter. A danger to British companies has arisen as a result of the abolition of exchange control regulations, which the Consolidated Gold Fields case has illustrated vividly.
§ The Secretary of State for Trade (Mr. John Nott)
For about four years the hon. Gentleman, as Under-Secretary of State for Trade, was responsible for company affairs. Will he illustrate the occasions during those years when the Department of Trade persuaded the Treasury to use the exchange control legislation to block a foreign bid? Will the hon Gentleman tell us when that legislation was used to stop a bid when he was a member of the Labour Government?
§ Mr. Davis
I cannot recall that now. However, a danger has been posed by a specific case. If the Department of Trade was not alerted to the position before, as clearly it was not, it is right that we should now learn from the lesson. I hope 1385 that on that ground the right hon. Gentleman will be with me. I recognise only too well that there are matters that arise from inspectors' reports to which the Department is not alerted and to which Ministers ought to be alerted. Those matters have been missed by Ministers and by those advising them. The value of inspectors' reports and the value of any scandal is to learn lessons from them. Surely the Government should have said "There is a clear lacuna in the law which needs to be remedied." Evidently that is not the attitude that the Government plan to take.
§ The Minister for Trade (Mr. Cecil Parkinson)
Will the hon. Gentleman tell us on how many occasions when he was in charge of these affairs he introduced legislation to deal with problems that had arisen within two or three weeks of appointing inspectors to investigate and report, and long before they had reported?
§ Mr. Davis
Is the Minister arguing that this is a serious matter that warrants some action? Surely he cannot equate it with everything else that has arisen. The Government's attention was drawn to the matter in the Ashbourne report. It is not as though the Government were not alerted to these events before they happened. I shall quote paragraph 1257 of the Ashbourne report, which was delivered on 30 April 1979. It was published by the Government. It has been in the Secretary of State's possession for a considerable period. The inspectors stated:Finally, we express concern at the inadequacy of the present legal machinery to enable the identification of the true owner, or owners of shares of a British registered company, where those shares are held by a nominee resident abroad.That view is also stated by Professor Gower, who is the head of the panel of advisers appointed by the Government. In his book on modern company law he deals with piercing the veil of nominee shareholdings. He states:The weakness, of course, is that a pyramid of nominees may make it impossible to ascertain the identity of the ultimate beneficial owners. Severe penalties can be imposed for failure to give information or for giving false information, but these are ineffective as regards people outside the jurisdiction.1386 That is the important feature. Professor Gower continues:In such a case resort to the appointment of an inspector under section 172, or investigation by the Department of Trade under section 173 of the 1948 Act, is likely to be equally ineffective.If the Government's case is that the Labour Government were neglectful because they did not address their minds to the issue, that is no excuse for not doing something now. The Government claim that they are entitled to rectify Labour legislation and Labour Government omissions in other respects. Why do they choose not to do so in this instance when their attention was alerted by the Ashbourne report while the Bill was being prepared? They cannot escape from that.
§ Mr. Nott
The Government have had about 10 months to consider these matters. The hon. Gentleman had four years to consider them. What did he introduce for piercing the veil, as he puts it, to deal with those who were hiding behind foreign companies or foreign situations in his proposals for insider dealing? What were the Labour Government's proposals to deal with matters handled from outside our jurisdiction? I do not recall what he thought should be done to pierce the veil in those instances.
§ Mr. Davis
This is not essentially an instance of insider dealing. The right hon. Gentleman should address himself to the relevant aspects. Insider dealing is only a peripheral issue. The Labour Government introduced as a first attempt—the then Opposition played a substantial part—the nominee provisions in the 1976 Act. That measure was designed 1387 to build on the 1967 Act. It was a refinement of Jenkins; it was an advance. However, we did not pick up the issue with which we are now dealing at that time. I have conceded that. I am arguing that the right hon. Gentleman has had his attention specifically drawn to the issue now before us. He cannot escape from that, bearing in mind the Ashbourne report of April 1979.
The right hon. Gentleman has a Bill that has been in the course of drafting for some time. I suspect that the Government have not picked up the issue because of the mess that they have made of the proposals in the first place. It may be that they intended to introduce a Bill to deal only with the proposals relating to the second directive. They made a hash of that and then changed their mind on the brink of Second Reading in this House, after the legislation had passed through another place.
That is why the Government have introduced all these complicated matters dealing with insider dealing, conflicts of interest, loans to directors and so on in a haphazard way during the Committee stage. That is a most unsatisfactory way to deal with legislation, and the Minister knows that. Indeed, if it had not been for the Minister of. State, we would not have had the legislation. The Secretary of State had set his mind against it, as he indicated on Second Reading of our Bill. I understand that a great deal of internal bickering went on in the Department, but the Secretary of State was defeated by his Minister of State—which was a good thing.
In addition to averting their eyes from the Ashbourne report, the Government have ignored the consequences of the abolition of exchange control in this respect. It is now much easier for overseas investors to accumulate secretly large stakes in United Kingdom companies and bid for them outright. Foreign companies and individuals who are not subject to United Kingdom law are no longer bound to obtain Bank of England consent for the acquisition of 10 per cent. or more of a British company. British and foreign companies are subject to different rules, until a stake reaches the 30 per cent. mark, when it has to be declared to the take-over panel.
1388 Therefore, it is relevant to ask the Secretary of State, as he is here, whether the consequence of the abolition of exchange controls was contemplated by him or the Chancellor of the Exchequer when the proposals were introduced in October. What thought did the Secretary of State give to that? What advice, if any, did he tender to the Chancellor of the Exchequer? Or did he not alert himself or the Chancellor to the dangers?
§ Mr. Nott
As the previous Government never used the Exchange Control Act in these circumstances, I do not think that it is an important point.
§ Mr. Davis
I cannot accept the right hon. Gentleman's assertion. I believe that he is wrong. I do not have the details here, nor does he. It is simply a bare assertion.
Let us turn to the Consolidated Gold Fields case and the issues concerned there. [Interruption.] Does the Secretary of State wish to intervene again?
§ Mr. Davis
Good. I am glad that he is enjoying my speech.
The Consolidated Gold Fields case has cast an enormous question mark over the ability of the City to regulate its own affairs. The take-over panel and the Department of Trade proved powerless to deal with the breach of the gentlemanly understandings that apply in the City. The system and spirit of the law were flouted by those who made the bids and who are not amenable to those criteria because they are not within United Kingdom jurisdiction and do not wish to make themselves so amenable. Therefore, I believe that the case calls for a serious review of the law and the rules of the take-over panel and the Stock Exchange.
It is fair to say that the Stock Exchange, like the Department of Trade, is holding an inquiry. However, let us examine what happened in this case. I contend that it was a case of significant 1389 importance which was virtually unprecedented. I am glad that I carry the Secretary of State with me on that point. De Beers bought 11 per cent. of Consolidated Gold Fields and added to that furtive acquisition over the previous four months, making a 25 per cent. interest in all in the company. It would not appear on the face of it that De Beers offended any United Kingdom company law. It does not appear that the company was caught by section 28 of the 1967 Act. I shall not rehearse the provisions of that Act, but it appears that that was the case. Certainly many financial and legal commentators in the press took that view.
Therefore, there are many unsatisfactory features about the case. First, there is the covert way in which De Beers built up the initial shareholding. Its own shareholding and that of the unnamed parties for which it had options to purchase shares were just below the 5 per cent. mark. On the face of it, it would seem that the company was not required to make disclosure under the Companies Act. Secondly, I believe that it was a thoroughly discreditable way of behaving, particularly in the case of a company with the international reputation which De Beers used to enjoy.
I am not alone in that opinion. The case drove the chairman of the Stock Exchange, Mr. Nicholas Goodison, to Say:It looks as if the intention of company law, which is that a company should be able to discover the beneficial owners of its capital, was being at least temporarily frustrated.It was only when the Secretary of State announced the section 172 investigation that De Beers revealed anything at all.
§ Mr. Donald Anderson (Swansea, East)
Does my hon. Friend recognise a further worrying factor? Given the nature of the shareholding in Consolidated Gold Fields, where no particular shareholder has more than 5 per cent. of the holding, a less than 30 per cent. holding, in effect, may give the foreign purchaser effective control of the company.
§ Mr. Davis
My hon. Friend has anticipated my next point. I need not rehearse it again; I entirely endorse his remarks.
In the course of the operation, the fourth unsatisfactory feature was that De 1390 Beers, having entered into the covert acquisition of shares, went on to mount a share raid on 12 February in a very questionable way. Indeed, it was reported in the Financial Times of 16 February:The jobbers were given full details of the buying plan by brokers Rowe and Pitman at 8.30 am, and by 10 am it was all over. Between them they had bought 16.5m shares at 616p compared with a closing price of 525p on Monday and 510p last night. Clients were scaled down to around 75 per cent, but could still feel very pleased with the outcome.The effect of that was to exclude the vast majority of Consolidated Gold Field shareholders from the buying spree in aid of the Oppenheimer benefit fund After the completion of the order, the shares fell back considerably.
The institutions seemed to do all right out of it. Again, I quote the Financial Times:De Beers bought its shares on a first come first served basis, which inevitably meant that the institutions got the lion's share of the action. Rowe and Pitman told the four jobbers in the stock what was happening at 8.30 am. but it was not until nearly an hour later that many leading brokers heard what was goinq, on.For an hour and a half, the City's telephones were humming with specific, privileged, price sensitive information. It would he challenging to explain to anyone not wise in the ways of the Square Mile why this does not count as insider trading.Could it be said, in any circumstances, that the spirit of the take-over code, the gentlemanly arrangement for conduct, was honoured in this case? Did shareholders have sufficient evidence, facts and opinions on which to make an adequate judgment? Did they have sufficient time in which to do so? The answer must be in the negative. Anglo-American appears to have its own shady interpretation. However, I shall not enlarge upon that.
The case illustrates yet again the need to make insider dealing a criminal offence. There is no doubt that on that Tuesday morning much specific price sensitive information was exchanged among, as the Financial Times said, "the favoured few", in pursuance of swift and certain gain.
§ Mr. Tim Renton (Mid-Sussex)
I have listened to the hon. Gentleman's argument with great interest. I have sympathy with many of his points. However, surely he is wrong to refer to this as "insider 1391 dealing", or as "price sensitive information in relation to insider dealing. I agree that, according to the available information, there was a large buyer in the market at a price well above the previous night's closing price. That is not insider dealing. It did not relate to specific developments within the company or to price sensitive information about developments within Consolidated Gold Fields.
§ Mr. Davis
This issue can be dealt with the Stock Exchange. That is why I said that it was peripheral to the main issue. It is alleged that some people made use of certain specific information that was not publicly available. They did so in a way that would constitute insider dealing. I do not wish to cross swords with the hon. Gentleman. I do not think that that is a particularly important point.
The important question is whether we can learn any lesson from the main issue involved in the case of Consolidated Gold Fields. We must decide whether it requires legislative action. As a result of, at best, somewhat dubious conduct, £100 million changed hands in about 90 minutes. The whole affair might never have been detected had Consolidated Gold Fields not kept—fortuitously perhaps—a tally of unregistered shares. That was the great safeguard. I am sure that it has helped the Secretary of State in his inquiry.
A large part of one of our biggest companies was acquired in a piecemeal and furtive fashion. It was not unmasked until the whole deal had virtually been accomplished. The value of investigations at this stage is limited. The facts appear to be known. We need to change the law in order to ensure that it cannot be bypassed in a similar way in future.
The law should compel parties acting together in concert to declare their position if they together hold more than 5 per cent. of a company's capital. Sir Peter Parker has pointed out that that would prevent an undesirable "mergerous intent". It is needed in the interests of a diminishing band of small investors who have been strongly encouraged by the Government. It is needed in the interest of the fair operation of the market. It is required in order to reinforce the desirability of adequate disclosure. It is 1392 needed also to stop faceless parties abusing the spirit of the law. We are entitled to a positive response from the Government.
I shall now consider the new clauses in detail. New clauses 18 and 19 propose to amend section 27 of the 1976 Act. That, of course, is restricted to companies on a recognised stock exchange. Therefore, no objection can be raised to the effect that this will encompass private companies. The precedent used in drafting the new clauses is found in section 174 of the 1948 Act. That section may be exercised only by the Secretary of State. Precedent is also established in subsection (2), which reproduces section 174(2). Subsection (4) is based on subsection (3) of the main Act. Subsection (5) reproduces section 27(5) of the 1976 Act. I hope that all hon. Members will therefore agree that the new clauses have an impeccable pedigree.
Subsection (1) provides for failure to comply with a notice under section 27 of the 1976 Act. It entitles a company to impose the restrictions that are set out in the new clause so long as non-compliance persists. Subsection (2) deals with disqualifications relating to shares. They will apply as long as they are subject to the restrictions. Subsection (3) provides for notice of the restrictions to be sent to the person failing to comply. Subsection (4) provides for an aggrieved person to seek remedy through the courts. The court is able to make such order as it thinks fit. Subsection (5) provides for registration of the restriction, and of its lifting. Subsection (6) provides for certain consequential amendments of section 34 of the 1967 Act. Subsection (7) requires no further comment.
New clause 19 provides severe powers with the ultimate sanction of confiscation. Again, that is based on section 174 of the 1948 Act. Subsection (1) provides that, when the Secretary of State makes an application under section 174 of the 1948 Act, the court has power—in circumstances prescribed in subsections (1)(a) and (b) and when it is also in the interests of the company that an order shall be made—to make an order to forfeit and cancel shares and debentures on such terms as it thinks fit.
Subsection (2) provides consequential safeguards for the person whose shares 1393 have been forfeited. Subsection (3) states that the Secretary of State should give notice of his intention to comply with such an order. It also provides for the period within which such notice must be given. That would have smoked out De Beers much earlier. Subsection (4) sets out certain procedural matters at the hearing of the application.
Those are draconian sanctions. However, it is a matter of life and death to many of our leading British companies which are vulnerable to that form of colonisation. We therefore feel that this form of treatment is required.
§ Mr. Anthony Nelson (Chichester)
Can the hon. Gentleman confirm that the amendments and new clauses do not affect the problems involved in an early morning share raid on such companies? I recognise that they seek to rectify the problem of non-registration of shares.
§ Mr. Davis
That is right. The hon. Gentleman will no doubt concede that it is extremely difficult for an Opposition who have not been helped by a parliament draftsman to get all these answers right. That is why I said that it was incumbent upon the Government to make these proposals. Our proposals are not unreasonable in the circumstances. I hope that they have been reasonably drafted. However, I cannot say that they are without imperfection. I often heard that remark being made when present Ministers were in opposition.
I hope that the Government will not say that legislative action is not required, or that there is no precedent. We are the only major trading country where this can occur on such a scale. I understand that Japan makes a distinction between domestic and foreign registered shares. That enables the Bank of Japan to lift the veil on nominee holdings. No single foreign person can acquire more than 7 per cent. of an industrial company.
In France, if a foreign holding is thought to have passed the 20 per cent. mark, banks or brokers can be obliged to disclose the identity of their clients. In Canada and Austrailia there are similar provisions. Of course, the Securities and Exchange Commission operates in the United States. It is inconceivable that it would not intervene at an early stage. If a holding of 5 per cent. is not 1394 disclosed, the SEC can seek an injunction and prohibit further deals, or require the purchaser to sell the holding.
In conclusion, I submit that this is a serious matter which requires urgent attention. There is no need to wait for the determination of the section 172 report before the Government are able to make up their mind whether there is a lacuna in the law. It is a lacuna that has been exposed in a number of cases—in the Ashbourne report and in Professor Gower's learned work on company law. It has been exposed most particularly in this case.
I hope that the Minister will say that the Government are working urgently on the matter and will be proposing in another place amendments to attempt to prevent that abuse from occurring again, or at least will use their best endeavours to effect that purpose. I cannot ask for more than that.
§ Mr. Nelson
The Opposition have performed a singular service in presenting the new clauses and amendments. They give us a valuable opportunity to discuss an incident that is of concern to many hon. Members. It is right that the Government should be aware of our worries and have the opportunity to respond.
When press reports indicated that shares were being acquired in Consolidated Gold Fields, I tabled a number of questions to my right hon. Friends the Secretaries of State for Trade and for Industry to see whether there was an indication that the existing law had been infringed and whether the beneficial ownership of the shareholdings built up was known and desirable.
My concern was quite simply this. Consolidated Gold Fields is a company with major interests in North Sea oil exploration, gold and uranium mining, road construction and transport, which can be regarded as interests of strategic as well as economic importance. Is it desirable that, within a short time, by covert means, a shareholding, and possibly an effective controlling interest, can be built up in one of the 15 largest companies in the United Kingdom? It is because of concern felt about existing voluntary and statutory regulations that seek to prevent such a situation that I 1395 have been moved to contribute briefly to the debate.
Amendments Nos. 36, 37 and 38 amend clause 3 in the same way as new clauses 16 and 17 seek to amend section 52 of the Companies Act 1948 and section 33 of the Companies Act 1967 by reducing the registration period from one month to 14 days. New clause 18 enables a company to place restrictions on rights attaching to shares if they are not registered within that time, such restrictions including those on transfer, votes, scrip issues and dividends. New clause 19 enables a court to order the forfeit of shares that are not registered in time. The purchaser of the shares remains liable under the new clause for moneys payable to the company.
There appears to be a "Catch 22" situation as the covert and partial bid for Consolidated Gold Fields was not prevented by any existing controls. Under the Companies Acts, there is a requirement for purchasers to declare interests in a company of over 5 per cent. As has been rightly pointed out by the hon. Member for Hackney, Central (Mr. Davis), it does not cover concert party purchases. The take-over panel, which has some interest and influence in the area, is also powerless in this instance, as acting in concert is only of interest to it where there is a bid in progress, where the interest built up exceeds 30 per cent. and where a bid for the whole company has to be mounted.
There is also the serious problem of the share raid mounted on that major British company within half an hour of the opening of trading on the Stock Exchange. It must be of concern to all of us who wish to see the London Stock Exchange exemplifying the best standards of fair practice that £100 million worth of shares can be acquired—some 16.5 million shares in that major company—within half an hour on the basis of an agreement between the stockbrokers, Rowe and Pitman, and the stock jobbers. While some institutional shareholders did extremely well and others managed only to sell 25 per cent. of their holdings, there were a substantial number of small shareholders who were given no opportunity and no public notification of the likelihood of a share price of some 100p in excess of the previous day's closing 1396 price and the possibility of disposing of their shares in that way. I have some experience of the City and I regard that as sharp practice. I hope that that will not be taken as a compliment by the brokers and jobbers involved.
I am in favour of the substantial relaxation of exchange control regulations announced by the Chancellor of the Exchequer. However, we should recognise that the former rule that an overseas buyer had to secure Bank of England approval when buying more than 10 per cent. of a United Kingdom company has gone by the board. Some companies have used that new freedom as a means of building up share interests in British companies which formerly would have had to be disclosed.
Some companies in other countries, and, indeed, in this country, have tried to get round the problem by including in their articles of association a provision limiting foreign nominee shareholdings in their company to, say, 5 per cent. Presumably it is within the realms of possibility for any British company that is concerned about the Consolidated Gold Fields incident being repeated to change its articles of association to protect itself.
However that may not be wholly desirable. It is preferable that share ownership in companies is not restricted by their own provisions but rather by the law or the proper voluntary practice of City agencies, and is therefore made to apply to all companies and all shareholders rather than a few that decide to change their articles of association.
My concern is principally about the size of that company and the nature of its industrial and mining interests. If it is possible to acquire within a short time an effective controlling management interest in the company, it is conceivable that similar interests could be built up in other major important British public companies.
For that reason, I asked my right hon. Friend the Secretary of State for Industry whether the interests of Consolidated Gold Fields in areas such as North Sea oil exploration fell within section 11 of the Industry Act 1975 and whether a change of control could be prohibited or prevented under section 13. I do not have a high regard for the provisions of that Act, but it is the legislation that enables the Secretary of State to try 1397 to prevent changes in control or undesirable shareholdings being built up in major British manufacturing undertakings. The definition of a manufacturing undertaking in the Act probably excludes Consolidated Gold Fields in that case. However, it is interesting that my hon. Friend the Under-Secretary of State, in his reply said:Section 37 (3) provides that a number of non-manufacturing activities, including transport and mining and quarrying, shall be treated as manufacturing industry so far as they relate to products manufactured or to be manufactured by the undertaking. Detailed and comprehensive information about Consolidated Gold Fields' United Kingdom activities would therefore be needed to indicate to what extent the powers in section 13 might be applicable."—[Official Report, 22 February 1980; Vol. 979, c. 359.]My hon. Friend, in winding up the debate, may wish to refer to the existing industrial legislation as well as that which falls within his ministerial remit.
I am pleased with the prompt response that I obtained from my right hon. Friend the Secretary of State for Trade to my expression of concern and call for an inspector to prepare a report on this matter. It would be most unwise for the Government to accept these amendments and new clauses before they had received the full report that is being undertaken and before they had obtained the more detailed advice of the stock exchange, which is undertaking its own inquiries, together with various other interested bodies in the City.
It is important to get changes in legislation right before they are undertaken. I hope that, in replying to the debate, my hon. Friend will be in no doubt about the concern felt by hon. Members on both sides of the House about this particular incident and our strong anxiety that the law should be changed if necessary to prevent similar situations from arising in the future.
§ Mr. Anderson
We have heard a remarkably helpful speech by the hon. Member for Chichester (Mr. Nelson). It was made in an entirely non-controversial and non-partisan way. Since he made his speech in such a non-partisan spirit, I shall refrain from pointing out, as I had intended to do, that Consolidated Gold Fields contributed £20,000 to Tory Party funds and £2,000 to the Economic League. I shall abandon that section of my speech 1398 as a result of the hon. Gentleman's contribution.
The hon. Gentleman has a good record in seeking to lift the lid off these creeping acquisitions, known in the City for some time before Oppenheimer eventually put up his hands in relation to this transaction. The hon. Gentleman said that there was a sharp practice by the institutions in relation to the ganging-up at the time he mentioned and the consequent loss by a number of small investors. That is one, but not the most important, aspect.
The most important, as the hon. Gentleman conceded, is the fact that a substantial British company was in danger of being taken over by stealth. This is one of the more vulnerable companies, as my hon. Friend for Hackney, Central (Mr. Davis) pointed out. There is such a scattering of small shareholdings in this country that a holding of 25 per cent. plus gives effective control to the company that has taken it over. This could have the adverse effects on United Kingdom security to which my hon. Friend referred.
At least the hon. Member for Chicester recognised that a problem had been revealed. We have yet to hear the response of the Minister. The immediate response made to my hon. Friend the Member for Hackney, Central hardly bodes well for a positive response by the Government to the problem revealed. That problem essentially was that Anglo-American and De Beers Consolidated Mines had bought a 25 per cent. stake and probably effective control, given the difficulties of the other shareholders in concerting a position in Consolidated Gold Fields, one of the top 15 companies in Britain, for at least £150 million. This was done, whatever the importance in our national interest terms, without anyone knowing what was going on.
There had been three months of speculation as this creeping acquisition was taking place. Some of the press comment stated a sense of relief that the company that eventually took over, Anglo-American, represented English South African interests rather than General Mining, the Afrikaaner interest, for what that is worth. I am not sure that this has any particular relevance. A foreign company or a foreign country, with a far more sinister background, may, by means of acquisition, 1399 have achieved a major stake, or a stake at least, in British North Sea oil exploration and other matters of considerable importance to this country.
This has been facilitated by the abolition of exchange control by the Government. Since last October, foreign companies and individuals are not subject to United Kingdom company law and are no longer bound to obtain Bank of England consent for the acquisition of 10 per cent. or more of a British company. One wondered, as my hon. Friend for Hackney, Central declared, whether this side effect of the abolition of exchange control had been considered and whether a whole series of other side effects of that abolition, such as the undermining of much of our tax legislation, in terms of capital transfer tax, for example, and other aspects, had been seriously considered by the Government in the great bonfire of controls orgy in which they indulged last October.
When this point was raised with the Secretary of State by my hon. Friend the Member for Hackney, Central, the only response he received was to have a question posed to him asking whether he could indicate when, in the last four years, the Treasury had blocked a bid from a foreign company seeking to acquire a substantial shareholding in excess of 10 per cent. in a British company. One can only comment on the complacency revealed by that question in the face of the revelations made in the Consolidated Gold Fields case.
Secondly, it indicates perhaps that the Secretary of State is not concerned at the fact that a major British company can be surreptitiously taken over in this way, with all the implications that would follow. To indicate that, even if the Secretary of State is not concerned about this problem, there is concern among other major interests, one need only quote Mr. Nicholas Goodison, chairman of the London Stock Exchange, who, according to the Financial Times on 13 February said:It looks as if the intention of company law, which is that a company should be able to discover the beneficial owners of its capital, was being at least temporarily frustrated".The writer of the Lex column says:It seems extraordinary that a company of De Beers' stature should wait until Gold 1400 Fields had gone to the lengths of asking the Department of Trade to conduct an inquiry before it showed its hand.There is a case for considering a change in the law along United States lines, making it obligatory to disclose a purchase of more than 5 per cent. of a company by an individual or a group of individuals acting together".That is the concert party point made by the hon. Member for Chichester. In The Times of 13 February it was reported:It could have been worse. Instead of the expected emergence of Afrikaaner business interests as the big buyer of Gold Fields' shares over the last two or three months, it was the Anglo-American Corporation of South Africa—the republic's biggest mining finance house—which finally admitted yesterday that through its De Beers diamond associate, it had built up a stake of almost a quarter in the United Kingdom-owned Gold Fields group".I am not sure about the relevance of the phrase "It could have been worse". At least, it shows that far more sinister interests could have acquired this interest in a sensitive part of United Kingdom industry without our being able to do anything about it.
The commentator in The Times states in that same article of 13 February:The most enduring lesson of the past few weeks may not be the fact that Anglo has taken a quarter stake in a major British industrial company but the weaknesses the episode has exposed in United Kingdom company law when it conies to overseas bidders.The article quotes Mr. Goodison, who stated:'Adequate disclosure is essential for a fair market' he added, and that is something that has been palpably lacking in Gold Fields' shares for at least the last three months. The City's self-regulatory mechanism has once again been shown up to lack real force when one side refuses to play by the spirit of the law.Finally, the joint managing director of Consolidated Gold Fields, Mr. David Lloyd-Jacob, was critical of the way Anglo-American had built up its stake. He said:'There are implications for United Kingdom law and the protection of shareholders,' he said.So at least, even if the Government have not accecpted the lessons of this takeover bid, some of the leading interests in the City and some of those immediately concerned in the company realise the lacunae in the law which have been exposed. If we conclude that it is necessary to amend our company legislation, 1401 what better time than now since we have before us a Bill which is being mightily transformed as it proceeds? The Government will have an opportunity, if not now, at least when the Bill reaches the other place, to state their response to the problems that have been exposed.
My right hon. Friend the Member for Hackney, Central has already largely explained the detailed considerations which prompted us to draft the clauses, the first in relation to the time obligations. New clauses 18 and 19 are based upon impeccable precedents. They arise from the problem exposed by Consolidated Gold Fields. They build on section 27 of the 1976 Act, which is restricted to companies on a recognised stock exchange. There can therefore be no objection that private companies would in any way be caught. They are aimed at nominees resident abroad, against whom the criminal sanctions of the 1976 Act are useless.
Therefore, if a company seeks to follow the chain of its purchasers it may come eventually to a nominee resident abroad. It may reach the "Gnömische Kreditvereinbank and if that is a Swiss company, not only will it refuse to disclose who the principal is but it will claim that the inquiry is impertinent and, worse, that it is contrary to Swiss company law for it to disclose upon whose behalf it is acting. That is the reality. The chain breaks when one comes to a nominee resident abroad. Therefore, that nominee being outside our jurisdiction, there is no means of our tackling the problem unless the Government adopt proposals such as we have made in new clauses 18 and 19, which are adapted from existing United Kingdom company legislation and which build on the 1967 Act.
My hon. Friend the Member for Hackney, Central has given the precedents upon which we have drawn. In subsection (4) of new clause 18, which refers to the ability toapply to the Court and the Court may…direct that the shares shall cease to be subject to all or any of the…restrictions',there is a precedent there in the case of Ashbourne Investments Ltd. That provision makes the legal position clear.
The possibility of disfranchising shares is, as the hon. Member for Chichester said, not new. It can already be written into the articles of association of companies, 1402 and I understand that more and more companies are doing that in any event.
Therefore, new clause 18 would freeze the benefit in the hands of a nominee resident abroad to force him to declare who he was. If that proved insufficient one could move on to the ultimate weapon, the more Draconian provision in new clause 19 which amounts to confiscation with all the safeguards which are contained there.
Manifestly, as is accepted by the chairman of the London Stock Exchange, self-regulation is not enough, and until the appointment of the two Department of Trade inspectors under section 172 to examine the share ownership of Consolidated Gold Fields there was no possibility of the Oppenheimer bid being revealed. There were no legal means of forcing Oppenheimer to declare himself.
We must ask the Government, if they accept that there is a problem, how, other than through the procedures we have set out in seeking honestly to assist the Government, they will deal with it. Do they believe that they can proceed other than by building on the 1967 Act and accepting the legislative possibilities of freezing or confiscation as set out in our new clauses?
We look to the Government for a considered reaction. We have done our best to meet the problem, and we hope that no complacency will result as there certainly appears to be no complacency among those concerned in the City, those in the company itself or, one hopes among those responsible journalists who realise the threat which could be posed to many of our major companies—perhaps sensitive companies with a strategic importance to our economy—by a form of creeping acquisition on the lines of the Oppenheimer bid. We recognise that the problem exists; the City recognises that the problem exists. We have posed a means of dealing with it, and we look to the Government to give us their considered reaction.
§ Mr. Renton
I declare two interests in this matter. First, although I am not a stockbroker, I am political consultant to a firm of stockbrokers. Secondly, I declare a former interest in that I am a former employee of the Consolidated Gold Fields group.
1403 I followed with interest the speech of the hon. Member for Swansea, West (Mr. Anderson), but I find it slightly ironic that the Labour Party should now be up in arms about a major South African group acquiring a 25 per cent. interest in Consolidated Gold Fields. Consolidated Gold Fields is Cecil Rhodes's old company. It is the company into which he put all his stakes in South African gold mines. We should remember that it was Cecil Rhodes, along with Beit and others—as Thomas Pakenham's book reminds us—who used his money to involve the British in the Boer War.
In recent years Consolidated Gold Fields has developed successful companies in this country dealing principally in road-making materials. A notable example is ARC. It is, however, ludicrous to suggest—and I say this with respect to my hon. Friend the Member for Chichester (Mr. Nelson)—that Consolidated Gold Fields should be regarded as a company of vital strategic importance to this country.
§ Mr. Anderson
There was no attempt on my part to say that there was something specifically wrong because this was an English or Afrikaaner company from South Africa. The money might just as well have come from Arab interests or, indeed, from Soviet interests. It is a precedent and a matter of general importance. That is our point. As for strategic importance, since Consolidated Gold Fields has interests in North Sea oil and stakes in other sectors in British industry, I hope that the hon. Member will accept that that is a matter of national interest.
§ Mr. Renton
I am sorry that I gave way to the hon. Gentleman. He is merely repeating his point. Consolidated Gold Fields' interest in North Sea oil is minor. It has interests in construction companies in this country which are important to it and it owns Tennants, a well-known merchant company for which I used to work, but I cannot believe that it was because of that that De Beers was interested in the company. The reason for Harry Oppenheimer's interest in acquiring this important stake in Consolidated Gold Fields was that company's interest in South African gold mines. It was for no other reason. Harry Oppenheimer was anxious to see that that important stake 1404 —often a minority stake—did not fall into the hands of the Afrikaans-controlled groups, notably General Mining. In a sense, therefore, it was a defensive move on the part of Mr. Oppenheimer.
That is not to excuse the deal, but it is important to put it on the record that that was the reason for the share acquisition. Although I do not approve of the way in which this purchase was handled, it should be said that Mr. Oppenheimer has done more than any other mining magnate in South Africa to advance the cause of black labour and native management within that country's industry. He has played a notable part in helping the South African mining groups to give more realistic jobs and more responsibility to coloured people. We should remember that.
I listened with interest to the speech of the hon. Member for Hackney, Central (Mr. Davis), and I found myself in sympathy with many of the points that he made. It is important that the announcement of a 5 per cent. holding in a United Kingdom publicly quoted company should take place immediately, whether that holding has been acquired by a foreign company or by a number of related and associated companies. The fact that in this case the holding was just under 5 per cent. in each case and that it was disbursed among a number of associated companies, was, I think, a clear breach of the intentions of company law. I have no doubt that the Minister will tell us what steps he is taking—after carefully taking note of the report of the inspector—to ensure that this loophole is plugged.
My hon. Friend the Member for Chichester asked whether the necessity to disclose 5 per cent. holdings had gone by the board as a result of the Government having, quite rightly, lifted foreign exchange controls. I do not believe that it has gone by the board, since it is possible that if a 5 per cent. holding acquired by a foreign company is not immediately notified to the offeree company once it has been registered the offeree company could then ask for de-registration or disenfranchisement of the shares acquired by the overseas company as a result of non-registration. It is possible that the loophole could be plugged in this way, and I imagine that this is one of the aspects which my hon. Friend the Minister will consider.
1405 Having worked in the City before coming into politics, I am concerned that the reputation of the City should not be tarnished by this incident. I think that it is important that self-regulating mechanisms should be seen to work if we are to be content with those mechanisms. I am concerned particularly about this deal because I believe that the brokers and the jobbers involved knew for some time before February exactly what was up.
They were aware that an overseas buyer was building up a stake well in excess of 5 per cent. and they knew who that buyer was. I feel that there was a duty on the jobbers and brokers concerned to reveal to the Stock Exchange who the overseas buyer was, and that they should have done that in discharge of their own duties as members of the Stock Exchange. I further believe that on the morning in February on which it acquired this large quantity of shares De Beers told the brokers which institutions they were to buy from. In this manner it was certainly not giving equal treatment to each shareholder in an individual class as is required by the condition laid down on page 84 of the Yellow Book issued by the Stock Exchange.
What can we do in future? One of the provisions of the Yellow Book issued by the Stock Exchange, as stated on page 78, is that in the case of a partial offer every shareholder is to be treated pro rata. I believe that the acquisition of 25 per cent. by De Beers falls into the category of a partial offer for shares in Consolidated Gold fields. It would be much better in future—we have all adumbrated what went wrong in this instance—if we had a formula by which public tender was made for shares. This would follow the American and Canadian practice, under which it is possible to display a tender form in the press and invite shareholders to submit their shares to the offeror company. It frequently happens that offers are then scaled down. People submit their shares on tender and are finally told that because it is only a partial tender their offer has been accepted for only 30 or 40 per cent. of their shares. In that manner all shareholders of the same class are treated equally.
Under that system we would not in future have a situation such as that in which De Beers not only indicated to its brokers the institutions from which it par- 1406 ticularly wanted to buy, but, conversely, the institutions which were told by the brokers that they were not the lucky ones might insist that some of their shares were taken at the favourable price or they would never do business with those brokers again. That is an example of the use of muscle by the big battalions in the City which no one in this House appreciates.
It must be said that the period during which registration must take place-30 days—takes account of stock exchange accounting periods. It would be difficult to reduce that, as the Opposition suggest, from 30 to 14 days. The process of registration should certainly be tightened up. This is by no means the first time that a buyer has hidden his identity from the offeree company by not registering his transfers. I hope that my hon. Friend the Minister for Trade will outline a procedure for tightening up on registration within a suitable period of transfers, so that companies can know what is happening about the transfer of their shares.
My hon. Friend the Minister for Trade has always given great attention to matters affecting the honour and reputation of the Stock Exchange, the take-over panel and the City in general, as I know from the years that I had the pleasure of working with him on, for example, the previous Companies Bill.
Clearly the matter requires detailed consideration in order that the reputation of the Stock Exchange and the take-over panel should come out unscathed. I hope that my hon. Friend will tell us, with his customary scrupulousness, what steps he proposes to take to plug the loopholes that have been uncovered, though clearly he will have to await the inspector's report before taking action.
§ Mr. Parkinson
May I say how much I preferred the approach of my hon. Friend the Member for Mid-Sussex (Mr. Renton) to this range of problems? He recognised that the Consolidated Gold Fields case had highlighted a number of problems, but he did so against the background of believing in the system and wanting to see it work better.
The hon. Member for Hackney, Central (Mr. Davis) aired a few of his favourite prejudices—the City, foreigners and 1407 the colonisation of our companies. He aired his distrust of self-regulation, a distrust which was known throughout his time in Government but was not accepted by his right hon. Friend the then Secretary of State, who believed that a mixed system of regulation could be made to work. Pervading the hon. Gentleman's speech was a fundamental dislike of our system and not an anxiety to see the system improve, which is what my hon. Friend the Member for Mid-Sussex and I wish to see.
The hon. Member for Hackney, Central was right to say that the Consolidated Gold Fields case has revealed that there may be gaps in our system of regulation and that we must look at the case carefully to see how we can eliminate some of those gaps.
The Opposition's approach highlights the difficulties of taking precipitate action without fully thinking out the consequences. The effect of new clause 16 would be to reduce the period for delivering to the Registrar of Companies a return of allotments under section 52 of the Companies Act 1948 from one month to 14 days. The amendments to clause 33 of the Bill would similarly reduce the period for delivering to the registrar details of class rights attached to shares from one month to 14 days.
The amendments are straightforward, but we had a little difficulty in understanding their relevance, although we had work out that they represented a peg on which the Opposition wanted to hang a debate on the Consolidated Gold Fields case. Section 52 is concerned with delivering to the registrar details of new shares alloted and has nothing to do with disclosures or transfers of shares already issued.
There may or may not be a case for reducing the period to 14 days, but the new clause is irrelevant in the case of Consolidated Gold Fields. We want to see returns made promptly, but we do not want to impose on companies unreasonable duties to make returns. The period of one month has been in legislation, in one form or another, since section 7 of the Companies Act 1900.
From time to time there have been suggestions about shortening the period 1408 and there was such a proposal in the 1973 Bill. When the previous Labour Government produced a White Paper in 1978 they specified 14 days, but when the Bill was produced in November that year the limit had been increased to one month. I do not know why that was done. Perhaps the hon. Member for Hackney, Central concluded that a month was fair after all.
In the context of the debate on Consolidated Gold Fields the question of one month or 14 days does not matter, though perhaps the right hon. and learned Member for Warley, West (Mr. Archer) will explain when he intervenes why the Opposition have reverted to their White Paper proposals and not their Bill proposals.
I accept that new clause 17 could be relevant to the problem that we are discussing, but it is defective and not just because of minor drafting errors. It provides that the word "person" includes a person acting alone or in concert with any other person. But that is the effect of section 33 of the 1967 Act as it stands. Of course a person comes within the section whether he is acting alone or in concert. The purpose of the new clause seems to be to aggregate the holdings of more than one person when acting in concert. We suggest that if that is the intention, it will require much more careful drafting. We recognise the effect that the hon. Member for Hackney, Central is after, but we do not think that the new clause would deal with the problem at which it is aimed.
Leaving aside the technical defects, the purpose of the new clause is no doubt to apply section 33 to "concert parties". It seems that as concert parties are disappearing from the seaside they are reappearing in company law.
§ Mr. Clinton Davis
Will they appear in the company law review that the hon. Gentleman is to undertake?
§ Mr. Parkinson
It depends what sort of concert party the hon. Gentleman has in mind.
We believe that in setting out to define a concert party the new clause is defective. A much more careful definition will have to be introduced into the law of when people are acting in concert. The words in new clause 17 are not 1409 sufficient. We recognise the valid objectives of the new clause and we thank the Opposition for their suggestion, but we do not believe that it would achieve the desired result.
The Consolidated Gold Fields case has highlighted a problem. A substantial ultimate holding in a United Kingdom company has been acquired without the company being aware, or informed of, the share transactions that were taking place. It was unable to find out, until a very late stage, the identity of the new, substantial shareholder.
A number of questions arise from that case. The first question—touched on by the hon. Member for Hackney, Central—is whether the law enables companies and the authorities adequately to identify concert parties. Can both the law and the provisions of the regulatory authorities be applied equally to United Kingdom persons and persons acting from overseas? Do new problems arise from the abolition of exchange controls? Would the existence of exchange controls have prevented the Consolidated Gold Fields case? We shall have to wait and see what facts emerge as a result of the investigation. It may be that the existence, or non-existence, of exchange controls would have been totally irrelevant in that case.
Can there be equality of opportunity for shareholders—whether institutional or small shareholders—where a major buyer is out to make a quick, substantial purchase of shares? My hon. Friends the Members for Chichester (Mr. Nelson) and Mid-Sussex both made the problem a substantial feature of their speeches. I share entirely their view, and the view of the hon. Member for Hackney, Central. One of the most unsatisfactory features of the Consolidated Gold Fields case was the way in which the small shareholder was denied the opportunity to take part in the bid.
As the hon. Member for Hackney, Central knows, I feel passionately that we must encourage the spread of shareholdings. I would seek to do that in every way possible. I was an enthusiastic supporter of the last Conservative Government's attempt to do that through the Finance Bills. If we are to encourage small shareholders it is absolutely vital that they have confidence in the market. 1410 That is probably one of the least attractive features of the Consolidated Gold Fields case.
The final question is what action can be taken by a company, through suitable provisions in its articles, to ensure that creeping acquisition of control by unknown persons is made unattractive. Those are not new problems. The hon. Member for Hackney, Central knows that. For a while during the passage of the 1976 Act, he and I formed an unholy alliance. He was in Government and I was in Opposition, and we found ourselves in agreement on a number of matters. In that Act he reduced the level of shareholdings that needed to be reported from 10 per cent. to 5 per cent. As early as 1976 he sought to deal with some of Fields case has now highlighted, one being the problem of making sure that a company knows the identity of the person trying to acquire a substantial holding.
The hon. Gentleman knows that both the Government and the self-regulatory authorities have the matter under permanent and continuing scrutiny. I wish to stress that, unlike the hon. Gentleman, I think that there is a substantial role for non-statutory regulation, as well as statutory regulation, in the area of securities. I use the words "non-statutory regulation" in deference to Mr. Goodison, the chairman of the Stock Exchange, who feels that that is a more accurate description than "self-regulation".
There is a role for the Stock Exchange Council and for the Council for the Securities Industry to consider the affair from their point of view, and decide what steps they can take to improve their own arrangements. The Consolidated Gold Fields episode has raised a number of matters of legitimate concern. It is unfair of the hon. Member for Hackney, Central to say that the Department of Trade did nothing.
§ Mr. Parkinson
The hon. Gentleman did say that, but I am glad to know that he did not mean it. Within 48 hours inspectors were appointed. The Stock Exchange established an inquiry. It expressed dissatisfaction. The take-over panel is making its own investigation. There are three important bodies with a legitimate role in the affair establishing 1411 their own inquiries and deciding how to deal with their aspects of the problem.
I do not understand how it can be regarded as sensible to rush into new measures which, in the time available, cannot be subjected to the consultation and scrutiny that this complex area demands. The Government, the Stock Exchange Council, and the CSI are all considering their own areas of responsibility. They will decide how they can adapt their own regulations and rules in the light of the position that has developed, and of which they are now aware as a result of the Consolidated Gold Fields case.
The hon. Member for Hackney, Central suggested that action should be taken at this stage, and in another place. It would be unwise to do so, because we do not know the facts of the case. We may find that there was not strict compliance with the present law. That would be one position. There are sanctions available to deal with that. We may find that the law was observed, but the way in which it was observed, and the manner in which it was possible to get around the spirit of it, may give us a clue about the action that we need to take to Prevent that sort of activity in future. That is information which will become available when the inquiries have been made.
The self-regulatory authorities will draw their conclusions. They will decide whether any changes are necessary in their arrangements. For the Government to charge in and make changes in their arrangements, in the middle of inquiries that are being treated as a matter of great urgency, would be rather foolish. We do not have a wholly statutory regulatory system. We need concerted action by the Government, the Stock Exchange Council and the CSI if we are to deal adequately with the problem. We recognise that when the results of the inquiries are known it may be necessary to take action.
I have a long and detailed explanation of why we object to new clauses 18 and 19. There are substantial weaknesses in both clauses. The basic reason for our objection is that the matter arose three weeks ago. Urgent inquiries are taking place. The three bodies that will make changes are conducting their own inquiries. It would be foolish, at this stage, to introduce half thought out measures that 1412 have not been fully discussed, against a background of comparative ignorance of the facts.
§ 6 pm
§ Mr. Parkinson
I shall give way in a moment. When the hon. Gentleman thinks about this matter I hope that he will come to the same conclusion. It is all very well to mention Ashbourne. That was a specific and small problem. As the hon. Gentleman knows, the money for the shares, the ownership of which could not be declared because of the rules of the Swiss bank, is still resting in Britain. It has never been paid over. Ashbourne made a glancing reference to this problem. Even though the Ashbourne report was available, we did not hear a word about the problem from the hon. Gentleman until the Consolidated Gold Fields case. That was what triggered off his interest.
That is what has triggered off activity everywhere, and it is unfair of the hon. Gentleman to say "We were all aware of the problem that Ashbourne highlighted." Why did not he and his colleagues bring the matter to the Government's attention earlier? Why did not Ashbourne move him to deal with what he considers to be a major gap in our law?
§ Mr. Clinton Davis
It so happens that I did make a speech about Ashbourne and Dowgate—I do not think that the hon. Gentleman was here at the time—in the early part of this Parliament. That was a somewhat irrelevant remark from him. Surely the Government do not require the Opposition to alert them to a problem. Presumably the report of the inspectors will not be available for a considerable time—months and possibly many months. In the meantime, is it not right that the precedent which has been established might be repeated and that no defensive mechanism is available in the interim? Therefore, would it not be perfectly possible for the Government to carry out their necessary consultations before the Bill reaches another place and before it completes its passage there? That is not an impossible task to fulfil. The Government have acted swiftly before in other respects. Why cannot they do so here?
§ Mr. Parkinson
I do not want to repeat my speech. Obviously, the hon. Gentleman was not listening to it. By the way, I was present for his speech on Donate, and I thought that it was a disgrace. As I remember, it amounted to a personal attack on an hon. Member of this House. I would have thought that the hon. Gentleman would have been very glad to forget his performance on that occasion. The rest of us would prefer to do so.
We believe that a thorough investigation is the right way to proceed. As I have said, three different bodies may have to change their rules and procedures to deal with the problem. We believe that considered action on the basis of knowledge, properly thought out and consulted on, is the right way to proceed, rather than to rush through half-thoughtout measures. I have already shown that in two cases the hon. Gentleman's attempt to deal with the problem is totally irrelevant. They are just examples of how ill-considered action can cause more problems than it solves.
§ Mr. Anderson
The hon. Gentleman will know that we have made an honest stab at the problem in new clauses 18 and 19. Even if he cannot give a detailed reason for the rejection of the principles in those new clauses, cannot he at least do us the courtesy of showing the broad lines of the Government's unwillingness to accept them? Why does he find those two new clauses unacceptable, apart from the timing point of view?
§ Mr. Parkinson
We feel that there are already substantial sanctions under section 27, and that just adding to the range of sanctions would not do very much to deal with the problem.
§ Mr. Parkinson
Perhaps I can remind the hon. Gentleman what those sanctions are. It is not the absence of sanctions that has caused this problem. The penalties for conviction on indictment are imprisonment for not less than two years, or a fine, or both. On summary conviction, the penalty is imprisonment for not more than six months, or a fine not exceeding £400, or both.
§ Mr. Parkinson
I am replying to the hon. Gentleman's question. The truth is that it is not the absence of sanctions which is not making section 27 work properly. Therefore, while the proposals would add to the range of sanctions, we do not believe that they would do so in a worthwhile way, because we do not believe that sanctions, or the absence of them, are the problem.
§ Mr. Parkinson
I understand them perfectly, perhaps better than the hon. Gentleman, otherwise he would not have tabled the new clause in the form in which he did, or thought that in doing so he was helping to deal with the problem about which he spoke.
§ Mr. Parkinson
I shall not give way. I think that I have explained the Government's attitude. I believe that it is a reasonable attitude. I thank the Opposition for making suggestions about their approach. If I may say so, their proposals, are, not untypically, half-baked. We shall consider what has been said, and we shall deal with the problem in a satisfactory fashion.
§ Mr. Peter Archer (Warley, West)
This debate has been about the Consolidated Gold Fields case, which is what we all expected. For that reason, it is no answer for the Secretary of State to say—and in a quiet and muted way for the Minister to echo—"Well, you did nothing about it when you were in Government." From time to time events bring to light problems of which previously half the country was not aware and the other half did not believe that they constituted a serious matter. Of course, all of us knew previously that there were problems. Now, by a concrete example, we can actually see what they mean.
Previously, we may wish to have written on the gate "Beware of the dog!", but when grandma actually gets eaten by the wolf we get round to testing the strength of the chain. Consolidated Gold Fields was a major trauma in the City, and company law can never be the same again. I think that the Opposition are entitled to say that if the Government are not impressed by the facts of Consolidated 1415 Gold Fields, we really do not know what will stir them into action, or what they require to instil a sense of urgency. If they are prepared to accept an indecent assault, what do they require to take action—mass rape and pillage on a Viking scale?
It does not follow that, having been taken so completely by surprise by these facts, they had to go back to the beginning of their thinking and start again. What Consolidated Gold Fields did was to impress upon us all that the kind of matters that had been discussed in academic, administrative and City circles for quite a long time were now matters that required some action. There is a difference between saying "Now we know that action is required" and saying "Now we must go right back to the beginning of all our thinking and start again".
This debate has been triggered by Consolidated Gold Fields, but we should not pretend that it is a totally new problem. A number of things were important about the Consolidated Gold Fields case. First, it was a take-over by De Beers, a company which already dominates the world's markets in an important commodity. It was that company which last autumn unilaterally increased the price of diamonds by about 30 per cent., and no one was in a position to intervene. Now, having swallowed diamonds, the octopus is reaching out its tentacles for gold. We all agree that this is not intended simply as an indictment of De Beers. The hon. Member for Mid-Sussex (Mr. Renton) pointed out that the company has some alleviating qualities. In many ways, it has helped to improve conditions for black labour in South Africa. I suppose that it is probably fond of good music and kind to animals. This is not an indictment of Mr. Oppenheimer. The point is that it is a lesson from which we can learn about the future. Next time it happens, it may be someone who is tone deaf and horrid to animals.
Secondly, this happened to Consolidated Gold Fields. Again, I do not mean any disrespect to Cecil Rhodes or to the hon. Member for Mid-Sussex, but, as the hon. Member for Chichester (Mr. Nelson) pointed out, in what was a thoughtful and helpful speech—and as has been pointed out by my hon. Friends—this was one 1416 of the top 15 companies in the United Kingdom. That was the significant point about Consolidated Gold Fields. It was one of the top 15 companies in the United Kingdom, and the second largest gold mining company in the world. I accept the words of The Economist on 16 February:After this week, can Rio Tinto-Zinc, GKN or M & S sleep sound?We have heard much from Conservative Members over the last month or two about back-door nationalisation, particularly in relation to the National Enterprise Board. Metaphors about which doors we use are perhaps less important than what is visible through the window. Any measures that were taken by the National Enterprise Board were open. Everyone could see what was happening. It was explicit. The purpose behind what was done was made public, and everyone knew who was doing what, and why. Its measures were subject to challenge in the House, so there was some responsibility for what was happening. Further, when the NEB made a move, British capital took over on behalf of British people, and subject to British control, rather than foreign capital acting in its own interests. That is not chauvinist. That is not xenophobia.
I claim to be as good an internationalist as the Minister of State. It may be that in his lifetime and mine we shall not have to talk in this manner, because the nation States of the world will have come together and seen where their interests lie. At present, nation States protect their own industries. Other nation States protect their industry, which is in competition with ours. They leave us no alternative. We cannot leave our industry unguarded. As my hon. Friend the Member for Hackney, Central (Mr. Davis) pointed out, the danger has become more insidious since the Government abolished exchange control.
All sorts of people are at risk. It is a matter of some urgency. First, and obviously, shareholders are at risk because there is a major buyer in the market, about which they do not know. They are at risk because if a company about whose activities they have not heard acquires control of the company, decisions may be taken as to its future without regard to the interests of the existing shareholders.
1417 We are concerned with the small investor. I am sure that the Minister of State was not seeking to imply that only Conservative Members cared about the diffusion of property. We have been talking about it for years. I am even prepared to quote from the Communist manifesto, which said that the Commmunists had been accused of being against property. It said that they were so much in favour of it that they thought more people should own some.
There is nothing between us on that. But we are not simply concerned with the interest of the small investor. We are also concerned about the institutional investors who carry the interests, and often the economic future, of many people who have never heard of the Stock Exchange and who have never opened the Financial Times. The practice is bad enough when it is carried out openly. It is more frightening when it is carried out by the intruder in the night. We may have differing views about concert parties, but the concert parties that I used to watch were always delighted to perform to packed houses and to be seen publicly. That is the difference in the matter with which we are now dealing.
We are not only concerned with the shareholders. We are concerned also with the employees. Some hon. Members have had the frightening experience of talking to employees in their constituencies when something of that kind has happened. I have had two such experiences. The story builds up. There is the straw in the wind, the uneasy speculation, the vague rumour, the word of confirmation, the sudden fear, and then the panic. What is the purpose of the take-over? Will the work force be cut down? Will the new company bring in its own employees and sack the existing employees? Is it its intention to acquire the company's know-how and then to close it down and move the assembly to another place? What will become of the employees? They have a real interest.
The hon. Member for Chichester pointed out that the reputation of the Stock Exchange is in jeopardy, and in turn, therefore, the reputation of the City of London. Invisible earnings are brought about by the reputation of the Stock 1418 Exchange, and hon. Members who know something about international arbitrations know how important that reputation is. It is, therefore, a matter in which the public have an interest, and in which the Government should have an interest.
We need some controls to deal with such situations when they arise. But it goes further than that. Those situations are less likely to arise if controls exist. The existence of controls, even when they are not used, is likely to change the whole climate. They are not only weapons for use against people who behave in a certain manner. They will have a healthy deterrent effect. There may be no need to act upon the powers once they exist.
It would be possible to exchange debating points with the Minister of State about new clauses 16 and 17. We could exchange views on draftmanship, and the legislative history of the matter. I am not sure that it would profit either of us, and I do not propose to enter into that debate. However, I am concerned about his views on new clauses 18 and 19.
As my hon. Friend the Member for Swansea, East (Mr. Anderson) pointed out, we have gone to some trouble to face up to the problems, and to suggest solutions that we thought would hold together. All that the Minister of State has said so far is that we already have sanctions. But they are sanctions for the controls that already exist. The one essential difference between what we suggest and the controls that exist is that the existing controls necessarily bite on companies and people who are within the criminal jurisdiction of our courts. How are we to have controls with sanctions that will prevent the insidious creeping in of foreign capital? We accept that there may be genuine problems that are worth debating.
We should like to have known the Government's proposals. In a nutshell, they are that we should wait until the result of the inquiry. After the inquiry the self-regulatory authorities may take their own action. That is a matter for them, but a combination of self-regulatory authorities and a self-satisfied Government will not begin to solve the problems. The Government's proposal is that we should then re-examine the matter and consult at some unspecified time. When the 1419 Lord President of the Council and the Leader of the House of Commons can slot in another Bill, we may have an opportunity to deal with it. Heaven knows when that will be.
§ Mr. Archer
Before I give way, I should like to pose a question, so that the hon. Gentleman may have an opportunity of answering it. The hon. Gentleman is not listening, so there is no point in my posing the question.
What is it about the problem with which we are confronted that the Government do not know? There may be facts about the Consolidated Gold Fields case which will emerge from the inquiry, but what is it about the problem that the Government do not know at present?
§ Mr. Parkinson
I apologise to the right hon. and learned Gentleman. My hon. Friend made an interesting and slightly flattering comment about him, so I was distracted for a reason of which I think he would approve.
We believe that there are strong sanctions available now. Under sections 172, 173 and 174, the Department of Trade has the right to make a range of orders dealing with shares. We feel that, as the right hon. and learned Gentleman says, Consolidated Gold Fields has introduced a new element into the whole debate. We want to concert our actions with the actions of the other two bodies that have a responsibility in this matter, and it will take a little time to do that. There is no reason for the right hon. and learned Gentleman's suggestion that it will be years and years away. As he knows, we shall be legislating fairly regularly on company law. That will include the next Session and, I am quite sure, the Session after that. There will be opportunities, therefore, and these problems will be dealt with.
§ Mr. Archer
My feeling of déjà vu, which has emerged from time to time during these debates, has emerged again, I fear, for two reasons. The first is that the argument that the hon. Gentleman has just used is precisely the one that he used earlier. I suspect that we are going round in circles. Secondly, he is saying "We shall do it in the future and it will 1420 not be all that long." But we hear that said frequently, and those who advise us on company matters always come back and say "That is what we were promised last time."
The new element in Consolidated Gold Fields is the one that I tried to identify—the insidious infiltration of foreign capital. That, it seems to me, is not dealt with by the existing controls and the existing sanctions.
Suppose that the hon. Gentleman had said "The Bill has not completed all its stages yet. There will be discussions in another place. We shall be happy to discuss it with you and to see whether there is something that we could inject into the Bill at this stage, although it may not be the whole of your new clauses Nos. 18 and 19." Had he said something of that sort, we would have been responsive, but he has said nothing of the kind. He has told us that there is no hope of producing any kind of action in this Bill. In those circumstances, we have no alternative but to try to secure that action by dividing the House.
§ I beg to ask leave to withdraw the motion.
§ Motion and clause, by leave, withdrawn.