COMPANIES FLEXIBLE SHARE CAPITAL (Hansard, 8 July 1980)

§ Mr. Richard Page (Hertfordshire, South-West)

I beg to move, That leave be given to bring in a Bill to allow companies greater flexibility in the terms on which they may raise share capital; to amend the law with regard to the powers of companies to issue, redeem and deal generally with their share capital; to set out the special duties and responsibilities of directors, officers and certain other persons in relation thereto; and for connected purposes. The Bill will, in essence, give a company the right within certain controls and restrictions to buy in its own shares. The primary purpose is directed towards giving close companies the flexibility in operation of their share capital that they already have over their loan capital. Perhaps even more importantly, it will give to such companies a spread of operation similar to that which is currently enjoyed by our public companies operating through the Stock Exchange.

The House is aware of the Green Paper introduced last week after I had decided to introduce my Bill. My initial reaction was to withdraw my Bill. However, I was persuaded to continue, because the Green Paper does not lay enough emphasis on the need for a parallel requirement of change within the Revenue to match the suggested alterations to the 1948 and 1980 Companies Acts. I believe that brought-in or Treasury shares should be held for redistribution at a later date and not cancelled. This is a further opportunity to draw the attention of the House to the importance of the changes and what they will mean to small businesses.

I should be delighted if the Government were to take up my Bill. If they did that, I should be extremely flexible when discussing amendments. However, I assume that that is unlikely.

It is necessary to examine the background that makes the Bill necessary. In reality, Britain has a small withered and undernourished small business sector. The popular misconception, possibly harking back to the times of Napoleon, is that we are a nation of small businesses—a country of shopkeepers. In reality, we are not. Britain is a nation of large industries, huge commercial enterprises 238 and a fat and expanded public sector. Between them the smaller business sector is increasingly squeezed.

When a country's progress and economy remains stagnant, as they have in Britain for the last six years—we have just heard how industrial production fell by 2 per cent. under the previous Government—it is inevitable that comparisons between ourselves and other more successful nations are drawn. If one does that in relation to our small business sector, several facts become glaringly obvious. Our small business sector, as a percentage of economic activity, is much smaller. It receives far less Government support, although we welcome the package in the Budget. The sector carries on its back a greater percentage of public officials per head of population.

Our small business sector is about 40 per cent. smaller than Germany's. The American Small Business Agency actively intervenes in Government legislation in favour of small businesses. If one excludes the Armed Forces, Britain has, in proportion to its population, 68 per cent. more public officials than France.

The purpose of the Bill is to encourage investors to support local enterprise. It draws attention to the need to establish and promote small businesses so that they can make an increased contribution to our gross national product and create employment. In the past investors have been reluctant to take up equity in small businesses because of the difficulty of realising their investment later. The reasons for that locked-in position could be many, but it arises usually because of the difficulty or inability of other shareholders to accumulate enough capital to buy out an investment at a price that approximates to the value of the holding.

However, even if the facility is not used—and I believe that it will be—there are many other advantages in allowing the buying in of shares. First, it can provide a way for the estate of a deceased shareholder in a company to find a buyer. Secondly, it can facilitate the retention of family control. Thirdly, it can enable a company to buy out a dissatisfied shareholder who is not pleased with the company's progress and release him from a locked-in position. Fourthly, it can be 239 especially important in relation to employee share ownership schemes, so that an employee can sell his shares if he wishes to leave the company. Fifthly, it will make it easier for close companies to raise the necessary cash and equity capital when it needs it most at the start or for expansion.

The Bill will remove the present locked-in position of the shareholder in close companies to allow people to invest, to take a risk if necessary, and to back their judgment in a local firm, knowing that they can recover their money from a small equity stake. People will be given a choice in addition to the more conventional forms of investment in the Stock Exchange, pension funds or insurance companies.

It is right to ensure that a Bill cannot be used for fraudulent intent. That can be achieved by requiring that the redemption of shares by a company can take place only after due notice to the Registrar of Companies and that officials handling the transactions are put under the same notice of care as is required when preparing a prospectus under the Companies Act 1948.

The Bill will have a wider range of operation, but I stresss its importance to close companies. I am doubtful how much use public companies will make 240 of the permission, especially with the tight safeguards to stop trafficking in shares.

The Bill does not seek to do anything unusual or revolutionary. Its provisions are not new. They are common practice in the United States and some EEC countries. However, the Bill will give small businesses the investment prospects to help them grow, and help them to provide their rightful share of our gross national product.