RESTRICTION ON DISTRIBUTION OF ASSETS (Hansard, 27 February 1980)

§ Sir Graham Page
I beg to move amendment No. 393 in page 48, line 24, leave out 'accumulated'.

Mr. Deputy Speaker
With this it will be convenient to take amendment 1527 No. 391 in page 48, line 25, after "previously", insert distributed before the appointed day to shareholders in dividends or".

§ Sir Graham Page
The clause puts a restriction on the distribution of certain assets. It provides that a company cannot distribute in dividends the undistributable reserves. That it should not distribute something that is undistributable sounds reasonable enough. We then come to the definition of undistributable reserves. According to the Government's interpretation of the EEC directive, with which I disagree, undistributable reserves include something already distributed.
If, for example, a property company has found that in the past—there is no limitation on the number of years so far as I am aware—its property has increased in value and it has revalued the property and included that as part of its assets—or, indeed, as part of its profits—and distributed the enhancement in value, it can never again, if the clause is passed, distribute anything in dividends until it has made up what it has previously distributed in the way that I have described. That puts many property companies in an extremely difficult position. Therefore I tabled these amendments to ensure that the clause is not retrospective.
I think that everyone accepts that in future this type of distribution of assets as profits should not occur. So far it has been perfectly legal and perfectly proper for a company to do it. It is not a good practice, but it is certainly a legal practice. It is accepted that in future this shall be illegal, but it imposes an extreme burden on companies to make it retrospective, so that a company must put back all the money that has been distributed before it can distribute another dividend.
I hope that there is some way round this directive. I wait for my hon. Friend to disclose the way round it, if there is one. That will make it possible for me to withdraw my amendment.

§ Mr. Eyre
I believe that there will be a solution to the problem raised by my right hon. Friend. As this affected certain investment companies, my right hon. Friend will remember that I promised that I would meet the representatives of those companies. Accordingly a meeting took place between officials of the Department 1528 and the British Property Federation. It was agreed that, in principle, the affected companies could overcome the problem by a change in accounting practice. The British Property Federation is now holdful discussions with the Inland Revenue. which I understand are proceeding well, and that a satisfactory outcome is expected. I am sure that the answer will please my right hon. Friend.

§ Sir Graham Page
I am grateful to my hon. Friend for carrying out the assurance and undertaking that he gave to the Committee. I hope that the solution will prove satisfactory. It has been reported to me that the property companies are happy with the discussions which they had with the Department and believe that they will have similarly fruitful discussions with the Inland Revenue. In those circumstances, I beg to ask leave to withdraw the amendment.