EXPERTS' REPORTS ON NON-CASH ASSETS REQUIRED FOR ALLOTMENT OF SHARES (Hansard, 27 February 1980)

§ Mr. Parkinson
I beg to move amendment No. 319, in page 29, line 28, after "company", insert by a person appointed by the company".

Mr. Deputy Speaker
With this it will be convenient to take amendment No. 27, in page 30, line 11, leave out that is to say, a person", and insert "who is", and Government amendments Nos. 28 to 33.

§ Mr. Parkinson
The effect of these amendments is to ensure that the expert who carries out the report required by the clause on non-cash considerations provided in the payment of shares has to be appointed by the company.
The Law Society of England and Wales pointed out to us that, as drafted, the clause does not specify by whom the expert may be appointed and this amendment—our having accepted the strictures of the Law Society—deals with the problem so kindly highlighted for us.
Amendment No. 27 is concerned with the requirements as to the expert who makes the report required by clause 24 on non-cash assets provided in payment for the allotment of shares. As drafted, the Bill defines the expert as an independent person—that is to say, a person qualified at the time of the report to be appointed or to continue to be the auditor of the company.
Amendment No. 27 would have the effect that the expert would have to meet two criteria. As well as being qualified to be the auditor, he would also have to be in some other respect independent. The question is, do we really need this additional requirement? This was discussed in Committee and we promised to consider the matter further. Indeed, following that further consideration, my hon. Friend wrote to the members of the Committee in January to say that we did not think that this change was necessary. Obviously we have not succeeded in convincing the Opposition that we were right. I would, therefore, like to explain our reasons for maintaining our view.
1507 The point essentially is that if a person is sufficiently independent to be the company's auditor, surely he is also independent enough to provide the sort of report required by clause 24. Section 161 of the 1948 Act lays down various provisions concerning the appointment of auditors—they must have particular professional qualifications, they cannot be officers or servants of the company and so on. Indeed, as the right hon. and learned Member for Warley, West (Mr. Archer) said in Committee, section 161 contains two sorts of qualifications—the professional qualifications and the qualifications relating to independence. That is the point. Auditors will be independent of the company. Section 161 effectively provides two tests and we see no point in duplicating those, as we believe amendment No. 27 would do.
The purpose of Government amendments Nos. 28 to 33 is to clarify the clause, which requires an independent expert to value a consideration, other than cash, which is to pay up shares on allotment. Under subsection (4) he can, if he wishes and if it is appropriate, arrange for some other person to provide him with a valuation on which he can rely, provided that the independent person complies with the safeguards built into the clause.
It was intended that the independent person should have the power to rely on some other person to value part of the consideration in question, with the independent person, for example, valuing the rest. However, it can be argued that the clause as drafted, and in particular subsection (4), does not permit that, but requires that the other person must value all the consideration. We believe that this inflexible all-or-nothing requirement would not be sensible and therefore the amendments spell out clearly that the independent person has the power to arrange for other persons to value part of the consideration.

§ Mr. Archer
We are grateful to the Minister for Trade for setting out what is in issue in relation to our amendment No. 27. The Bill provides that the report should be made by an independent person, who is defined as a person qualified to be an auditor. As some of us said in Committee, we believe that there can be 1508 someone qualified to be an auditor who could not be said to be independent.
Indeed, at some stage perhaps we should have a debate on the whole question of the independence of auditors, because I have always been a little troubled by the fact that an auditor owes his work to the fact that he is engaged by the very people on whom he is reporting. But that is perhaps a debate for another time, and I hasten to set the Minister's mind at rest: we do not propose to pursue the matter tonight, because the hour is late, but perhaps we can pursue it at another time.