HC Deb 27 February 1980 vol 979 cc1509-15
Mr. Archer

I beg to move amendment No. 39, in page 42, line 8, leave out 'public'.

Mr. Deputy Speaker

With this, we may take amendment No. 40, in page 42, line 17, leave out 'public'.

Mr. Archer

These amendments at least have the merit of making their purpose clear immediately on reading them. Therefore, I can spare the House a long exposition of their purpose. It is not a merit that is shared with all the amendments to the Bill.

Clause 34 relates to the action to be taken where it emerges that there has been a serious loss in the value of the company's capital assets. Everybody agrees that that would be a serious position for any company. It would be serious for the shareholders, the creditors and the employees. It could mean that the company would not be able to meet its actual or potential obligations. It must at least raise the query whether the company could continue business.

There may be a legitimate argument about what action the company should take in those circumstances. Certainly it is clear that it should take some decisive action. The Bill provides that the company should convene an extraordinary general meeting and that the directors should report the position to the shareholders. Although some Labour Members thought that there might be other action that should be taken, that is not at issue on this amendment.

What is at issue is whether those provisions should apply to a public company only. What is it about a private company which makes such provisions unnecessary in its case? Surely it is just as serious a matter for a private company. It will cast just as grave a doubt over the company's future. It is important that the members of the company should be consulted.

We discussed the matter in Committee, and it is reported in the Official Report of 15 November 1979, at column 203 and succeeding columns. Why would it impose an undue burden on private companies to make the directors keep an eye on the assets? The obligation in the Bill is not a particularly onerous duty to look at the accounts, because it arises expressly not later than 28 days from the earliest day on which that fact is known to a director. In fact, the Minister for Trade was kind enough to tell us that in his view there was not even room for the doc- trine of constructive knowledge. That caused some of us some anxiety, but again that does not arise on this amendment.

10.45 pm

It is not true that every private company is of interest only to a small family. It is not even true that every member of every family confides all his knowledge to other members. Not every family is totally intra-communicative. The right hon. Member for Crosby (Sir G. Page) echoed my puzzlement over why that distinction should be made. but, to be fair, he was questioning whether the obligation should be imposed at all, and he asked "Why this distinction?".

As I understood him, the Under-Secretary replied that all this was at a very early stage, that we were breaking new ground and that we ought to see how it worked before we extended it to private companies. His reasoning seems to be "We are not quite sure whether what we are doing is right. We are only exploring it. Therefore, we shall apply it to some companies and not to others". That is like the reasoning of the signalman at the level crossing who said that he had his gates half open because he was half expecting a train.

I cannot be accused—I hope that no Labour Member can—of being insensitive to the problems of small companies. We do not want to impose particularly heavy burdens upon them to no purpose. But I am still puzzled why this distinction should be imposed in this context. Surely it is an important element of protection. It cannot be said that it is to no purpose. It does not impose a heavy obligation upon them. It is an obligation which any assiduous director can take in his stride.

The Under-Secretary has had time to reflect. He may be able to produce a more convincing reason, but in the absence of one we shall persist with our query.

Mr. Martin Stevens (Fulham)

Following the comments of the right hon. and learned Member for Warley, East—

Mr. Archer

West.

Mr. Stevens

I beg the right hon. and learned Gentleman's pardon and that of his distinguished constituency. I should like to develop a point that he made. During the passage of the Bill through Committee we were all conscious that we were loading many duties on to company directors and others which should not only be tolerable and comprehensible, but also, desirably, enforceable.

In the passage to which the amendment applies we are saying that any company director who becomes aware of a fall in the value of the company's assets, in comparison with the called-up share capital, shall be guilty of an offence if he wilfully and knowingly fails to cause a meeting to be called. It seems to me that that is a difficult point to prove in law. We are requiring the law to prove a negative. As I told my hon. Friend the Minister for Trade in Committee, if we accept this kind of amendment, can we not make it simpler to apply by making the duty to call the meeting the absolute duty of a named officer of the company, rather than a general duty of all the officers?

If, as in the case of the depositing of the company returns with the registrar, the duty were an absolute offence, it would be something that everyone could understand. It would be easy to enforce, and if it were applied to a single officer of the company it would take it out of the area of vagueness and doubt and put it into the area of certainty. I ask my hon. Friend to consider the point.

Mr. Parkinson

I shall consider the point raised by my hon. Friend the Member for Fulham (Mr. Stevens), but it might have the result of making one director a rather worried man, even if it made the rest rather more relaxed because they knew that they were absolved from any responsibility. I am not sure that the point is a very strong one, but we shall consider it.

The right hon. and learned Member for Warley, West (Mr. Archer) asked why we apply this requirement to public companies and not to private ones. There is only one reason why we are applying it to any company. It is because article 17 of the second directive insists that we apply it to public companies. I cannot imagine that we would have volunteered to introduce the clause into our own company law. It is a highly experimental clause. It may prove to be of value; we do not know. It is an interesting suggestion. But I am by no means convinced of its value. If we are to meet our Community obligations we have to apply it to public companies, and therefore we do so in the Bill.

That is the first reason why we have to do it, and why, therefore, we shall do it. We regard it as experimental, we are not convinced of its value, although we are intrigued about how it will work in practice.

It does not seem to me, therefore, since it is essentially experimental, that we should impose it on the 650,000 private companies on which we do not have to impose it. If as an experiment it proves to be worth while, we can extend it to the smaller private company.

It was the hon. Member for Caithness and Sutherland (Mr. Maclennan) who, when we discussed the previous Government's Companies Bill, pointed out that over 600,000 registered companies are exempt private companies—companies which would have qualified for exempt private status. They are essentially small companies, with a limited range of shareholders. In tens of thousands—probably hundreds of thousands—of cases the shareholders are the directors. It is utterly absurd, therefore, to impose on them a duty to call a meeting which they will attend themselves so that they can discuss the affairs of the company when they probably live day and night with them. That does not seem to be particularly sensible.

Our attitude to these amendments is that we accepted an obligation to introduce the clause into our law, that we are sceptical about its value, but that we are willing to be impressed. However, since it is so experimental, we do not think that we should impose it on the 650,000 companies on which we do not have to impose it.

If the right hon. and learned Gentleman were to choose to force the House to vote on the amendment—I can see that the Opposition spokesmen have kept their colleagues behind them because they feel so strongly about the matter—we should be forced to resist it.

Sir Graham Page

I entirely agree with my hon. Friend the Minister for Trade that this provision ought not to apply to private companies. I say that because there was some implication— although the right hon. and learned Member for Warley, West (Mr. Archer) was quite fair to me—that I want it to apply to private companies. That is the last thing that I want.

Clause 34(1) is most complicated, and I do not know how anyone can carry out the duties within 28 days of knowing that the company has assets of only half the amount of its called-up share capital. It means that someone will have to value the assets every day. There will be dispute after dispute on the value of the assets. What happens when the value of property changes from day to day? What happens when the rate of inflation changes from day to day? How will anyone be able to say that the assets are half the value of the called-up share capital?

I am making this impassioned plea because I suggest that the Minister could have left out subsection (2) altogether. That is the subsection which creates this offence if subsection (1) is not carried out. Our obligation under any EEC directive or regulation is to make a law which provides that this shall be done or this shall not be done. There is no obligation to make anything an offence. That is left to each nation of the Community. We have on occasions merely made a declaratory statement to enforce a directive or a regulation and left it without making it an offence. It is ridiculous to ask us to do this. Therefore, I think that in this instance we might make some protest by leaving out the offence provision.

Mr. Archer

I have always believed that there was merit in our membership of the EEC. Clearly, part of that merit is that otherwise we would not have had what seems to me to be an eminently sensible provision.

I was shocked by what was said by the right hon. Member for Crosby (Sir G. Page). I hope that we shall not normally seek to comply with our international obligations by putting on the statute book duties of imperfect obligation and just leaving them there.

Sir Graham Page

Not imperfect. It would be left for the company to enforce it. It would make it not an offence against the company or its officers, but merely an obligation on the company towards the company, as we have elsewhere in the Bill.

Mr. Archer

I should hate to be counsel who would formulate a cause of action on behalf of the company. But perhaps it is a little late to become involved in that matter.

As regards the problem of applying this in an inflationary situation, the right hon. Gentleman may recollect that in Committee his hon. Friend the Member for Kensington (Sir B. Rhys Williams) suggested a way of dealing with that matter.

There it is. I should like to see more of a good thing. However, since it appears that the Government would not even have gone this far of their own volition, we must be grateful for such blessings as we have. We would not wish to prejudice the Government's prospects of extracting £1,000 million from the EEC. Therefore, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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