FAILURE BY OLD PUBLIC COMPANY TO OBTAIN NEW CLASSIFICATION (Hansard, 27 February 1980)

§ Sir Graham Page
I beg to move amendment No. 348, in page 12, line 27, leave out from first 'company' to 'unless' in line 28 and insert 'shall cease to carry on business'.

§ Mr. Deputy Speaker (Mr. Bernard Weatherill)
With this it will be convenient to take amendment No. 349, in page 12, line 37, leave out subsection (2).

§ Sir G. Page
These are amendments to clause 9, which provides for certain courses of action if an old public company fails to re-register as a new public company—what we shall come to call PLCs in due course.
1496 The company carries out the re-registration by delivering a statutory declaration, which was mentioned in connection with the previous amendment, under clause 8(9). That declaration shows that the company has the qualifications for the re-registration. Under Clause 9, if the company does not proceed with the re-registration of itself as a new public company, it is visited by the extraordinarily harsh provision that the company and any officer of the company who is in default shall be guilty of an offence. I cannot see the harm that is done if an old public company fails to re-register as a new public company, in itself. Of course, if the company goes on trading, it may be misleading the public.
I should have thought that the only measure that we should take when an old public company fails to register as a new company is that it should be prevented from carrying on trading. If the directors of an old public company satisfy the conditions for the re-registration as a new public company, and if they consider that it should not apply to be reregistered, in the normal course of events they will convene a general meeting at which there will be a special resolution for the company not to be re-registered. If that resolution were not passed and if application were not made for re-registration because the directors believe that in those circumstances it is better for the company not to continue but to cease to trade, under the clause as it now stands both the company and the officers of the company will be criminals for not re-registering.
It seems to be wrong to create a criminal offence merely for not carrying out a re-registration. Because of that, I seek by these amendments to leave out the words any officer of the company who is in default shall be guilty of offence and to replace them with a provision to the effect that the company should not continue to trade in those circumstances. That would mean removing subsection (2) of clause 9 which imposes the offence.
In general, it is unnecessary in company law to create too many offences merely for not carrying out company procedure. 1497 If that involves harm to the public, by all means the company should be visited with stringent remedies. However, when it is a matter of not re-registering, I should have thought that all we need to say is that the company need not go on trading.

§ Mr. Eyre
As my right hon. Friend the Member for Crosby (Sir G. Page) has explained, the effect of the amendments would be to remove the criminal penalties in clause 9 for old public companies which do not take the steps required of them to settle their status under clause 8 within a reasonable time. Instead of the criminal sanctions, the amendments propose that such companies should cease to carry on business. I confess that I am not clear what is meant by ceasing to carry on business. For example, does it mean that the company has to be wound up? Does it imply that any contracts entered into by the company are to be void?
Difficult questions are involved. My right hon. Friend will appreciate that the position of creditors, shareholders and employees could be prejudiced. For example, it is not clear whether shareholders could take any action to remedy the position. We cannot simply say that the company in question shall cease to carry on business. We cannot be certain of the effects. Such a sanction would not necessarily punish those at fault. I do not think that we should lightly impose criminal sanctions. I agree with the remarks of my right hon. Friend on that point. However, they are an appropriate penalty in this instance. It is very difficult to find another suitable penalty.
An offence will be committed under this clause only if, after the re-registration period, the company has not taken the necessary steps to re-register as a public or private company; that is to say, the company has not applied to be re-registered as a public company under clause 8. That means that it has not passed a special resolution not to be re-registered as a public company under clause 8, or that any such resolution has been revoked or cancelled.
If the company's officers have not taken measures to regularise the company's position, it is right that sanctions should be 1498 directed at them. It is therefore appropriate to have a criminal penalty that is directed at the company, and any officer in default. Perhaps it will help my right hon. Friend if I emphasise that directors will be liable only if they are in default; in other words, if they knowingly and wilfully permit the default. If a director does all that he can to regularise the position, he will not risk criminal penalties.
My right hon. Friend also asked whether an old public company could be wound up if it failed to re-register as a public or private company. In addition, there is a power to wind up an old public company that has failed to register as a public or private company. That is set out in schedule 3, paragraph 23. It amends section 222 of the 1948 Act. In such a case, the court would be able to balance the interests of all those concerned with the company. However, as a first resort it is appropriate—as a result of the complicated consequences of default—to have a criminal sanction against the company and those officers in default.
I understand my right hon. Friend's reservation about creating criminal offences. However, I ask him to consider that it is difficult to find other appropriate sanctions.

§ Sir Graham Page
I do not understand how it will help shareholders or creditors of the company, if officers of that company are made criminals. Of course, the company must be wound up. I was under the impression that if a company ceases to trade, that is a ground for winding it up. I contemplated that point when drafting the amendment. The company should be wound up and its creditors and shareholders should be properly dealt with. However, it should not necessarily be a criminal offence, provided that the company does not continue to trade and mislead the public. The shareholders and creditors should be dealt with in a proper fashion.
When we get the next Companies Bill—a ghost that floats before us at every debate—I hope that my hon. Friend the Under-Secretary will come forward with a more detailed clause that will cover what happens if a public company fails to re-register as a new public company. Perhaps he will merely deal with winding 1499 up the company rather than with prosecuting officers. In the present circumstances, I beg to ask leave to withdraw the amendment.