Companies (No. 2) Bill [Lords]

HC Deb 01 June 1981 vol 5 cc646-730

Order for Second Reading read.

3.35 pm

The Minister for Trade (Mr. Cecil Parkinson)

I beg to move, That the Bill be now read a Second time.

The hon. Member for Hackney, Central (Mr. Davis) and I will shortly have at least one thing in common, namely, that we shall each have spoken from the Front Bench in three Second Reading debates on companies Bills within the last two and a half years. I suggest that we at least deserve a campaign medal, if not the full sympathy of the House.

Debates on companies Bills are always interesting, but they are rarely exciting. I have no reason to believe that today's debate will be any different from the norm.

I should quickly reassure the House that my colleagues have no intention of making a companies Bill an annual parliamentary event. Like the 1978 Bill and the 1980 Act, this Bill owes its existence in the first instance largely to the need to fulfil our Community obligations by implementing a European Community company law directive—the fourth directive. It thus reflects the fact that to some extent the agenda of company law reform and change in this country is being shaped by the various proposals for the harmonisation of company law in the Community.

The Government's approach to the so-called company law harmonisation programme is clear. We consider that harmonisation should be limited to those cases where differences in national laws are positive impediments to the achievement of the basic aims of the Community. Some proposals measure up to this test better than others. We believe that the fourth directive on the accounts of companies, adopted in 1978 under the Labour Government, is a useful directive in making the accounts of companies throughout the Community more readily accessible to and comparable by their users—shareholders, creditors, investors, analysts and others.

A complementary directive on group accounts is under negotiation. A further complementary draft directive, on the accounts of credit institutions, has recently been proposed to the Council of Ministers by the Commission and will be the subject of negotiations over the next few years. While this involves a great deal of activity inside and outside the Government, we believe that harmonisation has a role in this area of company law, and it is in that spirit that we have brought forward legislation to implement the fourth directive.

But the Bill, like the previous Bills, goes well beyond the implementation of a directive. It contains a number of other important and wide-ranging measures to help small companies, streamline Government administration, encourage enterprise, and to strengthen and improve the existing law. The Government also propose to table new clauses in Committee dealing with the disclosure of interests in shares. I shall return to that subject and to the Government's view of the Bill as a whole.

I come now to the details of the Bill. Part I and schedules 1 and 2 deal with company accounting and disclosure in implementation of the fourth directive. The technical accounting provisions, which are mainly to be found in schedule 1—that is the formats, valuation rules, disclosure requirements and so on—represent a much more detailed and prescriptive statutory approach than we are familiar with in this country. The Government have, however, been at pains to impose the minimum change necessary in actual accounting practice and, so far as is consistent with the directive, to leave as much flexibility and freedom as possible for the development of that accounting practice.

In seeking to achieve those objectives the Government have benefited greatly from the advice and assistance of the Consultative Committee of Accountancy Bodies and the Accounting Standards Committee. The accountancy profession—here I declare my interest as a member of it—has made enormous strides in recent years in developing an effective system of self-regulation. The fact that the Bill will establish a more elaborate statutory framework for accounts than we have had hitherto should not detract from the major and essential role that the profession itself will no doubt continue to play in building on this framework of arrangements, in particular accounting standards, to help achieve in this country the highest standards of practice.

Clauses 1 and 2 restate the basic requirements as to the content of individual and group accounts respectively. The central concept remains the true and fair view, but more explicit guidance is given on how that is to be achieved.

Clauses 3 and 4 extend the requirements of the 1967 Act with regard to the provision of information about subsidiaries and other bodies corporate in which a company holds shares. Clauses 6 to 10 provide for exemptions from the full accounting disclosure requirements for medium and small-sized companies.

I referred earlier to the changes to the statutory framework for accounting matters resulting from the fourth directive. The directive also breaks new ground for Britain by providing for different disclosure requirements for different sizes of company and as between accounts drawn up and accounts filed. The Government received many representations about that aspect of the directive during the extensive consultations that they undertook.

The directive permits member States to impose reduced reporting requirements on medium and small-sized companies both for the accounts that companies prepare for their shareholders and the accounts that they must file with the Registrar. Member States may also dispense with the audit requirements for small companies. In deciding how to implement those options we had to take account of the different perspectives and needs of the various users of accounts, especially shareholders and creditors. The Bill incorporates a package of provisions that strike a reasonable balance between those various considerations.

Mr. Clinton Davis (Hackney, Central)

Will the Minister reconsider the view taken in another place by the Government spokesman, namely, that it would not be helpful to have a clearer method of identifying within which classification a company appeared to be—large, medium or small? I urge the hon. Gentleman to undertake to consider the matter further before we reach Committee stage.

Mr. Parkinson

We have given the matter careful consideration. As the hon. Gentleman knows, the three sets of criteria that a company must meet to decide in which class it falls are clear and straightforward. On the whole, we believe that they are fair and represent a sensible division of companies between public, medium and small. No doubt we shall consider the matter further in Committee, but not against the background of any undertaking given by me.

I was referring to the need to strike a balance in our consideration of how to take advantage of the options open to us under the fourth directive. First, we decided that virtually all companies would remain subject to the requirement to have their accounts audited. An argument was put forward that smaller companies should not have to have an audit. We considered that argument carefully, but came to the conclusion that we would be wrong to follow that route.

I say that because I believe that most small companies will need to have audited accounts to present to the Inland Revenue and to their banks. It is possible that the principal beneficiaries of the decision not to have an audit will be the accountancy profession, which might thereby be relieved of certain obligations. We reached the conclusion that while it might be popular to exempt smaller companies, most of them would need an audit if their accounts were to be acceptable to their banks, their creditors, and, above all, the Inland Revenue. Therefore, we decided that we would make the audit applicable to all sizes of companies.

Secondly, virtually all companies will be required to prepare full accounts for their shareholders. By virtue of those two requirements, not only will the interests of shareholders be protected, but there will be some assurance that adequate audited financial information will be available for other purposes if required.

Thirdly, the Bill permits medium and small-sized companies to deliver to the Registrar modified accounts containing less information than the full accounts required to be prepared for shareholders. For medium-sized companies, the information that may be omitted relates mainly to details of turnover. For small companies, much more extensive abridgement is permitted. The Bill takes virtually maximum advantage of the derogations available in the directive, and it also sets the thresholds for determining which companies can benefit at the highest permitted level. That reflects our view that w many companies as possible should have the opportunity to take advantage of those derogations—for example, for reasons of commercial confidentiality. It is impossible to say how many will take advantage in practice. The main consideration is that companies themselves are able to make their own choice.

I make no apology for the fact that smaller companies will not need to provide the same quantity of information as will the large companies. An abridged balance sheet giving the basic details of the company's capital structure and its assets will be available, but the small company will regain some of the privacy that it lost as a result of the 1967 Act. That is entirely proper.

I said earlier that virtually all companies will have to prepare full audited accounts for their shareholders. Clause 12 provides an exception to that general rule. We received many representations that it was disproportionate to inflict the whole panoply of accounting requirements on companies that were completely inactive. We agree, and I believe that clause 12 will be generally welcome in providing a sensible approach to dormant companies that are strictly defined by the clause. If anyone thinks that it is a small matter, I must say that we estimate that there are now 50,000 dormant companies under the unnecessary obligation to file information to show that they remain—as in many cases they have been for some years—dormant.

Clauses 13 to 16 introduce a number of changes to the requirements for directors' reports. Most of those flow from the directive. We have, however, additionally decided to repeal the requirement for directors' reports to give particulars of exports. It may seem paradoxical for the Minister for Trade to be sponsoring such a provision, but experience has shown that that requirement does not result in the disclosure of useful information. It does not, of itself, make any contribution to the economic well-being of Britain. It is a classic example of requiring disclosure for disclosure's sake. I think that we are better off without it.

Clause 17 applies schedule 2, which in turn permits certain categories of company to continue to prepare accounts on the basis of present requirements, instead of those contained in the Bill. The categories in question are banking and insurance companies—for whose accounts harmonisation directives are in the pipeline—and shipping companies to whom the application of the fourth directive may be deferred for up to 10 years.

Clause 18 extends the power available under the 1948 Act to alter the accounting requirements by statutory instrument. That is appropriate, given the much more detailed and extensive accounting requirements that the Bill will impose. For example, it will facilitate the implementation of the seventh directive on group accounts, and it will give greater flexibility in the light of developments in that area to make adjustments to primary legislation.

Clauses 19 to 21 contain appropriate provisions for overseas and unregistered companies, and for the interpretation of part I.

If there is a controversial part to the Bill, it is part II, to which I now come. It deals with company and business names. The Government's policy on those matters is clear. With upwards of 800,000 names now on the register and more than 2.5 million searches per annum, any Government were bound to consider ways in which the system for company registration could be amended to reduce the call on public resources, while retaining reasonable safeguards for those who had registered a name.

The extent of the subjectivity in the exercise of his functions by the Registrar may have been feasible in earlier years when the number of registrations and searches was much fewer. It has now become impossible to operate. A shift to great objectivity has become not only desirable in order to reduce the demands on public resources, but essential if we are to have the effective and consistent system of registration that all concerned desire.

There are about 170,000 applications a year for either new names or changes of name. That represents a huge volume of work. At present every name has to be approved on the basis of a set of subjective criteria. It is an almost impossible task, the scale of which was not envisaged when the Companies Act 1948 was originally introduced. It is easy to be attached to the present arrangements because they are there, but anyone who has had to operate them, and anyone who has tried to form a company with a certain amount of urgency and tried to get approval of a name, will know that the present arrangements can be a serious obstacle and can cause serious delays.

Clauses 22 to 27 bring about this necessary greater objectivity, by applying clearer tests of what is and is not capable of being registered. The Government have undertaken in the other place to complement these provisions with additional measures to deal with an aspect on which concern has been widely expressed—namely, a new and administratively acceptable procedure to deal with the problem of "too like" names. We have invited observations on the form of such a procedure and expect to table appropriate provisions in Committee. I draw the attention of the House in this context to clause 25, which has been welcomed by charitable and other companies as it enables such companies not to include the word "Limited" in their names.

The Government have adopted a more radical approach to business names. Many commentators and organisations have expressed concern at the Government's decision to abolish the Registry of Business Names. I can understand that an institution that was created in 1916 has become familiar, and I know that the Registrar and his staff have earned widespread respect for the way in which they have tried to discharge their functions, but in many instances the expressions of concern do not take account of the present reality. First, there is the inadequacy of the current arrangements. Secondly, there is the impractability of putting a central register on an effective basis. Thirdly, there are the merits of the Government's alternative proposals, which in our view will enhance consumer and creditor protection, rather than the reverse.

The provisions in clauses 28 to 30 thus replace a demonstrably ineffective and unsatisfactory system with arrangements under which all qualifying businesses themselves will be required to display, or make available on demand to those with whom they are having business dealings, the sort of information which currently many businesses are failing to file with the Registrar of Business Names. We shall no doubt debate these matters vigorously, but I must make it clear to the House that the Government stand four-square behind their proposals, for which they believe they have an overwhelmingly good case on merit.

Mr. John Smith (Lanarkshire, North)

Will the Minister give the House some information on the financial and manpower implications of both these changes in respect of company names and the abolition of the Registry of Business Names? How many civil servants' jobs does the hon. Gentleman expect to save if the Government abolish the Registry of Business Names? The figure given in the explanatory and financial memorandum is 91. There is a reference to a saving of £1 million. Will the hon. Gentleman divide the £1 million between the company name provision and the Registry of Business Names?

Mr. Parkinson

The manpower savings are about 3:1—namely, three in the Registry of Business Names to one in the companies division. The financial savings would be apportioned in a roughly similar fashion.

We must understand that the present arrangements give a spurious certainty. The arrangements do not work. We know that there are a substantial number of defunct companies or organisations on the register. We know, too, that there are many who do not bother to register. We have a strong suspicion that those who do not bother to register are those who are committing frauds and abusing the system. It is a mistake to think that we have a system which is working and which will be thrown away if the Bill is enacted in its present form. Our principal objection to the present system is that it is ineffective and that it gives the appearance of certainty when in reality it is an uncertain instrument.

Mr. John Page (Harrow, West)

I am grateful to my hon. Friend for allowing me to intervene. I do not want to spoil the easy flow of his discourse. Has he dealt with the disclosure of directors' names on a company's writing paper? Does that arise in this part of the Bill? If it does, will he mention it? It is an important matter.

Mr. Parkinson

I should be happy to describe in detail the arrangements that will replace the registry. However, I know that my hon. Friend the Under-Secretary of State will deal in more detail with the proposals when he replies to the debate. He has been very much involved in these matters, and I think that my hon. Friend will probably receive a more satisfactory answer from him.

Mr. Ivan Lawrence (Burton)

What would it cost in terms of registration and search fees to remedy the deficiencies which it is acknowledged exist in the Registry of Business Names? Has consideration been given to the additional costs that might be involved in rectifying the deficiencies?

Mr. Parkinson

We estimate that the cost of making the present system work would involve increasing the fee of £1 to £5, and the fee of 25p to £1. That would merely make the present system viable. It would not make it work. It is virtually impossible to enforce a nationwide registry of the sort that the Registry of Business Names purports to be. We know that 40 per cent. of the inquiries that come to the registry lead to the discovery that the information that is available refers to a defunct organisation or that the organisation in question has not bothered to register. It may be said that about 40 per cent. of those registered have registered inaccurate details or have not registered when they should have done.

Mr. John Smith

It is not clear on what evidence the Minister's assertions are based. He has said that about 40 per cent. of companies fail to register. Information has been given in another place that about 80 per cent. of companies comply with the present system because the banks require them to do so. What scientific analysis has been made by his Department of how the Registry of Business Names works? If there are deficiencies in the present system, would it not make more sense to put them right rather than to abolish a protection for consumers and others?

Mr. Parkinson

We know that about 40 per cent. of the inquiries received by the Registry of Business Names turn out to be abortive. The organisation to which the inquiry relates is either defunct or not on the register. We believe that it is neither possible nor necessary to maintain the present system. We contend that our new arrangements will do the trick. We say that it is not possible to enforce the present system. That was the principal reason that led us to take steps to get rid of it. As others sitting not 1 million miles away from the right hon. Gentleman will confirm, this is not a new debate. There have been changes of heart. We have come to the conclusion after careful examination of the present system's performance and its usefulness that it gives a spurious certainty.

Mr. Clinton Davis

I am obliged to the hon. Gentleman yet again for his courtesy in giving way. With regard to the history of the issue, is it not a fact that the overwhelming opinion of professional and other bodies interested in the matter was tested in the Green Paper in 1976, and that in the 1978 Bill the Government decided that the right course was to reinforce and build up the registry? Is it not a fact also that there was no dissent from that proposition by the Minister when he was in Opposition?

Mr. Parkinson

While I do not dispute a number of things that the hon. Gentleman has said, the fact is that if action was needed to make the system viable and workable, nothing was done to achieve either of those objectives. Therefore, we have come to the conclusion that the registry is not worth retaining. We believe that the Government's proposals will give at least as good, if riot better, protection than before to those doing business with unincorporated businesses and with those not trading under their own name. I have no doubt that in the weeks ahead, we shall return to that issue on a number of occasions.

In part III we come to a different area of company law, namely, provisions dealing with the share capital of companies. This part comprises three sets of provisions, each of them of considerable commercial significance.

Clauses 35 to 41 deal with the somewhat esoteric but not unimportant question of what is known to the experts as merger and acquisition accounting. They have been brought forward in the light of very strong representations to the Government by companies, and by the representative legal and accountancy bodies, following the High Court judgment in the case of Shearer v Bercain Ltd. in February 1980. It was represented to us that in the light of the judgment, section 56 of the 1948 Act, which requires the creation of a non-distributable share premium account in certain circumstances, had a much more rigorous application than had previously been understood in legal and commercial circles. In response to these representations, these clauses provide relief from section 56 in certain defined situations, which cover most of the situations which the Government have been advised gave rise to concern.

We are, however, aware that the Confederation of British Industry has been consulting the Law Society and the Consultative Committee of Accountancy Bodies with a view to their jointly proposing a rather wider measure of relief from section 56 than is provided in these clauses. The Government will of course give careful consideration to any such proposal. It was indeed in recognition of the fact that there was not a definitive view of the matter that the Government provided in clause 41 for a power to give further relief from section 56.

Clause 42 replaces section 54 of the 1948 Act, which has been the subject of considerable debate for many years whenever company law has been considered. It was, for example, discussed in the report of the Jenkins committee of 1962. Section 54 prohibits, subject to certain exceptions, the provision by a company of financial assistance for the purchase of its own shares. Its purpose was to prevent the acquisition of companies in circumstances where the acquirer could finance the acquisition only by reliance on the assets of the company itself. It has been generally accepted that this is a matter that requires some regulation both for the protection of the interests of creditors and shareholders and as a matter of public policy. In recent years, however, there has been increasing concern on the part of lenders that in the light of certain court decisions the section has in practice been unduly restrictive and inhibiting in respect of commercial transactions that should not be regarded as mischievous in terms of the objectives of the clause, and, indeed, are highly desirable on commercial grounds.

The clause seeks to redefine the prohibitions in a way which reduces the problems resulting from the court judgments by providing additional exemptions for transactions where the company's purpose, or principal purpose, is not to give assistance or where there is no material reduction in the company's net assets. Since the clause was tabled in another place the Government have received further representations from banks and other lenders that the clause does not deal adequately with their concerns. The Government are now reconsidering those representations.

I commend particularly to the House clauses 43 to 56, which will enable companies in this country to do what companies in most other European countries and in the United States can do, namely, purchase their own shares. I pay tribute to the devoted work over many a Companies Bill of my hon. Friend the Member for Mid-Sussex (Mr. Renton), who has sponsored that notion at regular intervals throughout the House. He can truthfully clain to have won a substantial argument.

The Government's Green Paper on that subject last year received an overwhelmingly favourable response, and it is clear that these provisions will be of real commercial value to many companies, and particularly small companies. They truly represent a milestone in the development of company law in this country. Of course, appropriate safeguards have to be available for creditors and shareholders, and we believe that these are contained in the clause through prescribed procedures for authorisation and requirements for disclosures.

Clauses 49 to 53 provide for a simplified procedure for purchases of own shares out of capital. That possibility was also aired in the Green Paper and generally welcomed. The facility to purchase own shares will enable many companies to attract capital that would otherwise be unattractive either to the investor or the recipient, or to overcome, without risking the stability of the business circumstances in which a major shareholding is for disposal, and will generally be conducive to the efficient deployment of capital in the corporate sector.

As a practising accountant, one of the problems that I used to find was the difficulty of getting outside investors to take a minority interest in private companies. There was also the difficulty of releasing from private companies investors who wished to withdraw their money when the company no longer had need of their capital. This proposal will open the way to easier access for small and medium-sized businesses to a new source of funding. The House would be wise to adopt those proposals. The Government put them forward with enthusiasm.

The title of part IV which is "Miscellaneous and Supplemental", is slightly misleading, as it conceals a series of fairly important proposals. Clause 57 adds a new clause to part III of the 1980 Act, to implement a fourth directive requirement in respect of the treatment of development costs. That area has been open to abuse. The proposals in the Bill will reduce the possibilities for abuse.

Clauses 58 to 62, together with clause 71, strengthen and streamline the company inspection system in a number of respects. Clauses 63 and 64 will also increase the weapons available against company misconduct—clause 63 by strengthening the provisions under which persons may be disqualified from taking part in the management of a company, and clause 64 by extending the criminal remedy for fraudulent trading to situations other than winding-up.

Mr. Peter Emery (Honiton)

Why does it seem that in clause 63 the recommendation of the Jenkins committee on disqualification has not been carried out? In other words, a person who has been judged either by a bankruptcy court or by a Board of Trade inquiry to be unfit to manage is not one of the categories that can be disqualified.

Mr. Parkinson

One reason is that we believe that the Cork committee will come forward with proposals, so we would rather wait. There is a certainty about clause 63 that is to be welcomed.

Mr. Clinton Davis

Am I right in asserting that there is no provision in clause 61 for professional confidentiality in the protection of some information?

Mr. Parkinson

I am afraid that offhand I cannot answer the hon. Gentleman, but my hon. Friend will do so when he winds up the debate.

I stress that clauses 63 and 64 need in no way inhibit honest directors. To put it in layman's jargon, one would have to have fairly well-established credentials as a rogue before having anything to fear from the proposals.

Clauses 69 and 70 deal with a matter that has attracted some interest in the House—the disclosure of different classes of membership of companies and the rights attaching to them. Hon. Members have raised various problems from time to time, such as that of the Performing Right Society Ltd., which will be covered by the clauses. Clause 70 deals in particular with the position of companies without a share capital.

Clauses 72 will facilitate the disposal by the Crown or the Duchies of Lancaster or Cornwall of land and other assets which have been vested in them after the dissolution of a company.

Of the remaining clauses, I draw the attention of the House in particular to clause 76. When enacted, the Bill will be the fifth Companies Act in force. From the 1967 Act onwards, each amends and supplements earlier Acts. The position for companies, directors, their advisers, all who are interested in and affected by company law, in trying to establish and understand just what the law requires or permits is becoming more and more difficult. Company law can, in any event, rarely be straightfoward and readily understandable. As those who make the law, it is our duty not to make life more complex than is necessary for those subject to the law. The goal of a consolidated Companies Act, or Acts, is one that will be supported from both sides of the House.

The Government have taken two major steps to bring the achievement of that goal nearer. First, we have appointed an experienced former parliamentary counsel to work on the preparation of a consolidation. The task is a daunting one, but I am pleased to report that the work is well under way. Secondly, in clause 76 we are seeking to ensure, without detracting from the parliamentary scrutiny which any such measure must rightly receive, that the consolidation is more than a relatively mechanical bringing together of what is now scattered among five Acts, but that, from the technical point of view, company law becomes, on consolidation, coherent and up-to-date.

I have outlined briefly what is in the Bill. There is one further major subject which the Government promised in another place to deal with in the Bill—the question of the disclosure of interests in shares. This is an important and complex question, on which the Government issued a consultative document last year. The Government last week published for comment draft clauses containing provisions to improve and strengthen many of the existing provisions in the 1967 and 1976 Acts dealing with interests in shares, including provisions to require disclosure of concert parties. It is our intention to table new clauses for the Committee stage in the light of comments received on these draft clauses.

Sir Graham Page (Crosby)

To whom did the Government send the clauses? Did they go to various associations, without coming to hon. Members?

Mr. Parkinson

The draft clauses have been circulated among about 100 bodies that we regularly consult, and copies are available in the Vote Office.

Mr. John Smith

Before the debate commenced I made inquiries at the Vote Office and was told that one copy was in the Library and none was available for hon. Members. If trouble has been taken to circulate copies to 100 interested bodies, some concern might have been shown by those who pass the legislation to send copies to hon. Members. It is wrong that hon. Members did not receive copies. I hope that the Minister will apologise to the House and take steps to get the matter put right.

Mr. Parkinson

I apologise to the House. We have taken steps to get the matter put right. Copies of the 20 clauses are now available in the Vote Office, and I wish the right hon. Gentleman every happiness as he reads them. They are extremely complex. They should be considered carefully so that we can give them proper attention in Committee in a few weeks' time. We were concerned to make sure that parliamentary colleagues had access to the clauses at the first opportunity. I am sorry that they arrived in the Vote Office only this afternoon. The right hon. Gentleman was right to point the matter out. The clauses will be tabled in Committee after we have received comments on the drafts.

We also expect in Committee to bring forward amendments to the 1980 Act to modify some of its provisions in the light of practical experience since the Act came into force—and that particularly applies to part IV.

My speech will have warned the House that the Bill is long and complex. It deals with a number of important matters. The Bill is technical and complicated, but we believe that it is worth while. I commend it to the House.

4.16 pm

Mr. John Smith (Lanarkshire, North)

I am sure that the House is grateful to the Minister for explaining some of the technical parts of the Bill, although perhaps hon. Members on both sides of the House remain less than satisfied with his justification for part II.

Let me say at the outset how much we deplore the Government's recent technique in the framing and presentation of Companies Act legislation. In the Bill presented last year, new clauses were brought forward only in Committee, which is always an undesirable practice. The House should see what is proposed when it gives its approval in principle. Once again we are being presented with the notion of new clauses to be introduced in Committee, after the Bill has been through its preliminary stages in another place.

Mr. Anthony Nelson (Chichester)

The action was called for.

Mr. Smith

Indeed, it has been called for for some time, which is all the more reason for the Government to have presented the proposals at an early stage and included them in the legislation as it was framed from the beginning. I cannot but believe that it is reprehensible for Parliament not even to be presented at this stage with the proposed clauses. No hon. Member has had the opportunity to see the Green Paper, unless he has been extremely fleet of foot since the Minister made his announcement. Most of us were prevented from going to the Vote Office because we wished to listen to the Minister. One would need to be extremely capable to read and digest 20 complex clauses in such a short time, so we have to take them blind. It is a most undesirable way to proceed with legislation.

Mr. D. N. Campbell-Savours (Workington)

Is my right hon. Friend aware that this is the second such occurrence in the past four weeks? When the Iron and Steel Bill was presented to the House, the Government introduced on Report what was effectively a new Bill in the form of a new clause. This incident is just as great a slight on the House.

Mr. Smith

I am grateful to my hon. Friend for reminding me that the incompetence in this Administration is not confined to one Department. However, I do not know where the responsiblity lies for companies Bills—whether it is with officialdom or Ministers. It would be a good idea for all concerned to decide that the next companies Bill has within it at the earliest opportunity most, if not all, the provisions likely to be considered by the House.

The Minister introduced a slight note of flippancy towards the end of his remarks on this topic. I remind him that what he is doing by way of consultation is basing it upon last week's consultation document containing the clauses, with the intention of tabling new clauses when the Bill is in Committee, and he wants comments by 15 June. In other words, the Government propose that there should be about a fortnight for consultations on these very complex clauses.

I remind the House that this is not an uncontroversial area. The concert parties provisions are extremely controversial, and I think that the House should look at them with great care.

Mr. Emery

Probably all right hon. and hon. Members will agree that the real point is that, when the Government decide to make amendments—perhaps pressure in another place is a good reason for making amendments—and when a consultative document is produced, the Civil Service always seems to wish to exclude Members of Parliament. The consultative document is sent round the country and is not made available to the House of Commons. It is on that matter that we all wish to press the Minister.

Mr. Smith

I agree entirely. This is the sort of area where it might be useful to set up a Special Standing Committee to take evidence on some of these matters. I understand that practice has been followed with some recent legislation. It is a deplorable practice that Government Departments should seek to consult everyone in the country except Members of Parliament, who have to pass the legislation.

I move to the substance of the Bill many parts of which the House may wish to approach on the basis of giving the detailed provisions close scrutiny in Committee. However, there are two aspects of the Bill which are deeply controversial and, unless there is a change of policy by the Government on these matters, it will be the intention of the Opposition to seek to divide the House on the Bill since the two changes are unacceptable.

I refer to the two changes in part II. The first is the proposal to abolish the Registry of Business Names. The second is the virtual ending of the screening of names submitted for registration as limited companies.

I deal first with the abolition of the Registry of Business Names. Consultations have taken place over the years between Governments of different complexions and those concerned with the Registry of Business Names. On each occasion, the overwhelming response from all those concerned has been that the registry should be maintained. Once again representations have flooded in. No doubt hon. Members will have received representations from interested parties, including the professions, the CBI, industry, consumer groups and the National Consumer Council, all arguing that the registry should be retained.

In essence, the registry has a simple function. It allows the public and others doing business with certain companies the opportunity to find out who operate the companies by applying to the central registry.

The Minister maintained that the reason the registry was to be abolished had nothing to do with manpower or financial implications. I hope that he will forgive me if I am slightly sceptical about that justification. It would hardly do to argue that the abolition was justified on the basis of manpower implications, of course. The Bill will save only 91 civil servants and £1.1 million. The Minister says that that is to be divided roughly three to one between the Registry of Business Names and the Registrar of Companies. That means that about 60 civil servants will be saved by abolishing the Registry of Business Names and 20 odd by reducing the scope of the supervision of the Registrar of Companies. That is a very small number.

I suspect that as a result of the Rayner report, Whitehall or the Prime Minister demanded that each Department should offer a certain sacrifice by way of numbers of civil servants. I suspect, too, that the sacrificial goat offered by the Department of Trade was the abolition of the Registry of Business Names and some lopping of the numbers of those employed in the office of the Registrar of Companies. Whether justified or not, these numbers have to be offered. That is the way that this Government seem to work. As a result, the ritual sacrifice was made and, after that, some justification was sought for the measures proposed in the Bill.

I invite the House first to consider the argument that the Registry of Business Names is not making money. There is no doubt a deficiency, but that is easily solved. The present fee for registration is £1, and the search fee is 25p. No one who has made representations on this subject would object to the fees being increased to £5 for registration and £1 for a search. The Minister himself confirmed that that would eliminate the deficit incurred at present by the Registry of Business Names.

The Government refuse to make this change. It was proposed in the 1978 Companies Bill, introduced by the last Government, which failed because a general election intervened. Why this Administration refuse to make the change I do not understand. It was unfair of the Minister to suggest that the previous Administration did nothing about the problem. They proposed precisely this solution—to increase the charges and thereby to remove the deficit. It was not the fault of the previous Administration that their tenure of office came to an end before that Bill became an Act of Parliament.

Mr. Parkinson

The Labour Government might have introduced it earlier.

Mr. Smith

If the accusation is that the Labour Government did not take action earlier to save the Registry of Business Names, they should at least be given the credit for attempting to do it when they did, for not contemplating its abolition, as the present Government seem to do, and for indicating clearly that they approved of the principle of having such a Registry.

We are told by the Minister that the registry does not work and that there is no point in having a registry. It is odd how everyone consulted on the matter considered it useful to have it. Perhaps the Minister will identify any one person or body who has advocated the abolition of the Registry of Business Names. He cannot do so, because the professions, industry and the consumer organisations have all argued strongly that it should be retained. None of them has said that it should be a charitable function for which the taxpayer pays. All have said that they are prepared to pay for the service. In the circumstances, I do not understand how the Minister concludes that it is not a useful service when everyone who uses it thinks that it is. It is clear that the Government have made no scientific study of the matter. All the argument is based on mere assertion by the Minister.

The alternatives proposed by the Minister—he did not go into them in any detail—are that, instead of having a central Registry of Business Names, each company should show on its business note paper who runs it and should display a notice at its place of business saying who are the real owners or operators. These are sensible provisions, but they should be supplemental to the existing registry and not an alternative to it. How they will be more effective than the existing registry is hard to understand. Why cannot the Government merely adopt these useful ideas and use them as an additional support?

The Jenkins committee on company law reform reported in 1962, having given careful consideration to the matter. It recommended a substantial increase in the fees charged and also a small annual registration fee. It also recommended that the Government should take steps by publicity and other means to ensure that the register was kept up to date. If the Government had good faith in this matter and wished to have better protection for the consumer, they would be seeking methods to strengthen the Registry of Business Names and not seeking to abolish it.

Despite the lame protestations of the Minister, I suspect that the real reason is that this is a ritual sacrifice to the proposition that, for good or ill, there should be a reduction in the number of civil servants. It is an ideological reflex action on the part of the Conservative Party. At a time of unemployment, it is extremely hard to understand why it should be thought desirable to dispense with the services of 90 civil servants engaged in useful work whose activities could be paid for by the people who use the services which they provide.

Under this Government, we have come to expect the view to be put forward that everything in the public service is bureaucratic and that every reduction in the number of civil servants must be desirable, whether or not there is a public saving as a result.

Mr. Nicholas Baker (Dorset, North)

Does the right hon. Gentleman accept that, according to his case, the bulk of the cost of a reconstituted registry would fall upon small businesses? How many small businesses has he asked whether they would be willing to support such expenditure? What would be the effect on those businesses?

Mr. Smith

A wide variety of people use the Registry of Business Names. Small and large businesses as well as many individuals use it. The CBI does its best to protect the interests of its small members as well as of its large members. It actively opposes the change in the Bill. In addition, the Law Society—with which, I believe, the hon. Member for Dorset, North (Mr. Baker) has a slight connection—vigorously opposes that part of the Bill. I imagine that the hon. Gentleman would not disagree with the proposition that solicitors have a fair knowledge of small businesses. It is significant that members of his profession should oppose the abolition of the Registry of Business Names.

I turn to the provisions that deal with the virtual abandonment of the screening of names submitted for registration as companies. It is a serious matter. The change is being made in order to save the jobs of, at the most, 25 to 30 civil servants. Instead of making some examination of the names put forward for company registration, and instead of offering some protection to those who subsequently trade and compete with those companies, those adversely affected will be forced to take an action of passing off or some other legal remedy at their own instance.

The Registrar of Companies performs an excellent service. He tells a person who applies to register a company whether the name is acceptable. There are many reasons why a name may not be. For example, a person might innocently propose a name that conflicts with the name of a company that is already registered. That person is totally innocent and has no devious intention. It is a service to that person and to the company that bears a similar name that the Registrar should point out that fact and refuse to register the names. Under the Bill I understand that there will be no real protection.

More seriously, some people seek to register names that are similar to those of companies that already exist. It would be possible, for example, to use the name Esso or Shell or to name a company "Marke and Spence". All sorts of names might be thought up by the unscrupulous, who wish to trade for a short time and to confuse the public as to the company's true identity. Under the Bill the Secretary of State can act and after a six-month period of grace he can require the company to change its name.

Many dubious operators can make a quick killing within a short space of time. There should be some protection against exploitation of the provision. Six months might be a long time in such circumstances. There are other reasons why it is important to have proper public scrutiny of the names of companies. After all, those who trade as limited companies obtain certain privileges through the Companies Acts. Those privileges require that those who deal with such companies should be able to do so on the basis of trust. There should be as effective a form of public protection as can be devised to stop any exploitation of the privileges of the Companies Acts.

The Government have an aversion to Government-sponsored activity. However, we must be extremely careful when the Government act as a regulatory body or as a police authority, and where they carry the responsibility for ensuring that legislation is properly enforced. Any derogation of that responsibility is most serious. Therefore, I hope that the Government will seriously consider—both during this debate and in Committee—changing their mind about the abolition of the Registry of Business Names and the screening of company names.

The Government still have a substantial companies Bill without those provisions. In the other place the Government lost a vote in Committee. However, they were so addicted to the proposals that they used their majority to reverse that decision on Report. I hope that all hon. Members will be prepared to look at the arguments objectively. I hope that they will also read those clauses which, so far, the Government have prevented them from reading. They will have to do some fairly smart reading.

When the Bill returns to the House, I hope that sufficient time will be allowed on Report for hon. Members to consider the principle that lies behind the clauses on the issue of concert parties. If that is not debated on Second Reading, and if the Government's intentions are to be vouchsafed only to the Committee, it is an elementary point that we should have a longer debate than usual on Report. In that way, we could give the matter "Second Reading" consideration. After all, the provisions relating to concert parties are contained—according to the Minister—in 20 complex clauses. The average Bill contains that number of clauses and would be entitled to a whole day's debate on Second Reading. Therefore, I hope that there will be an extensive debate on that matter on Report.

I am sure that the Bill will be examined in detail in Committee. It has important implications for the accountancy and legal professions and for industry and business generally. We accept one or two provisions without qualification as desirable and sensible reforms. I much approve of clause 76, which allows some consolidation, under proper parliamentary supervision, of the rash of companies Bills that have come forward. It is important for those concerned that there should be one companies Act containing all the provisions. That sensible and intelligent device is incorporated in clause 76.

I hope that the Government will consider those two important and controversial matters. In addition, I hope that Conservative Members will not hesitate—if they are persuaded by the arguments—to show their independence of the Government. If they were to do so, a serious change—which is adverse to the interests of industry, commerce and the professions—could be avoided. Above all, the Government should not neglect their resonsibilities to consumers and to the ordinary public who deal with such companies. Those of us who consider the Bill from that point of view will regard the abolition of the Registry of Business Names and the changes in the Companies Act with the greatest of disfavour. Because of those blemishes in the Bill, the Opposition intend to divide the House tonight.

4.37 pm

Mr. Anthony Grant (Harrow, Central)

The right hon. Member for Lanarkshire, North (Mr. Smith) gave a grudging response to an extremely good Bill. Indeed, because of his previous ministeral experience in his heart the right hon. Gentleman knows that the Bill is satisfactory. I do not share his passionate enthusiasm, or the new-found love that the Labour Party seems to have acquired, for that great body, the Registry of Business Names, but even if I did I should not have thought that it would justify opposing the Bill on Second Reading. It is a matter that can be dealt with in Committee.

This is one of those happy, but all too rare, occasions when compliance with a Community directive happens to coincide with common sense. Therefore, the measure must be commendable from that point of view. I welcome the Bill because it embodies two provisions that both the Conservative Party and I have long advocated. First, it lifts some of the burden from the backs of small companies. Equally, it strengthens the law as it applies to large public companies, by increasing the disclosure requirements and the powers of investigation. Those two measures have long been necessary.

As regards small companies—which I strongly support—it is unfortunate that some of our most enterprising, energetic and enthusiastic young people are moving into the black economy. They opt out of the conventional system. On the whole, they do so because of the burden of taxation and the complexities of security and the Welfare State. In addition, the over-complex provisions of company law as it relates to small and new companies have acted as a deterrent against operating within the system and encouraged many of our best young people to work outside it.

In passing, I say to our Minister with responsibility for small firms—I wish that he would listen to such comments—that there are still far too many forms and there is far too much bumf for small firms to concern themselves with, even under the present Government.

It is necessary to make it easier for the enterprising to work within the system and to form companies and use company law as the basis of their operations. As it stands, the law is inhibiting in that respect. Many new companies are husband and wife concerns. The board meetings are held over the breakfast table. It is absurd that they should be subjected to all the panoply and the complexities that apply to much larger organisations. I agree with my hon. Friend the Minister when he says that they need an auditor—that is for the good of their company and their ease of operation—but, by and large, it should be sensible to relieve them of some of the burdens that give comfort and welfare only to the accountancy and legal professions. Therefore, I welcome those aspects of the Bill.

I welcome also the long-overdue provisions whereby a company can acquire its own shares. My hon. Friend was right to pay tribute to my hon. Friend the Member for Mid-Sussex (Mr. Renton), who was a pioneer in this respect. He influenced such great organisations as the Wilson committee on the City, which also took up the cause. These provisions are very much overdue.

Equally and oppositely, in so far as the Bill tackles larger companies and public companies, it is to be welcomed. Like many hon. Members, I have not had a chance to study the complex clauses that are to be moved in Committee. I think that we should accept the Minister's apology for the fact that they came late and that others had them before us. If they deal with some of the scandals that occur within the City and our operations at present, they must be welcomed by the House.

There is no doubt that the rewards to be obtained from fraudulent or near-fraudulent manipulation of shares in public companies make the proceeds of the Great Train Robbery seem like peanuts. All too often we see this happening. When confronted with skilful operators, the speed of whose hands deceives the eye, our present arrangements and procedures for investigation are far too ponderous and cumbersome. Therefore, the additional powers to be given to inspectors in this respect are to be welcomed. Inspectors are either too late with their conclusions and the bird has flown when something has happened, or they are too inhibited by the existing arrangements. Therefore, the proposals are to be recommended. If these clauses cause greater disclosure and greater powers of investigation, they are vital if commercial confidence is to be maintained in a free market economy.

I come to what were described by the right hon. Member for Lanarkshire, North as the controversial aspects of the Bill. First, on the question of company names, as I understand it, the passage of the Bill will mean that we shall no longer require the Registrar, or the Minister above him, to determine whether one name is too similar to another. This is an enormous task. In my professional experience, it often causes unnecessary delay. I cannot see why it should be such a splendid responsibility for the Government, in the shape of the officials at the Department of Trade, the Registry of Business Names or the Minister, to have to compare 60,000 new applications each year—[Interruption.]—I am told that the figure is 170,000; it has risen—with the existing 600,000 companies on the register. That seems to be a remarkably futile exercise on the part of civil servants, because there is provision in the Bill for companies or persons to object if the names happen to be too similar. It is far more sensible for the law to be operated in this way than for civil servants and Ministers to carry out this duty.

Mr. Parkinson

Perhaps a further measure of the waste of time is that of the 140,000 applications that are approved for changes, 70,000 are never used and are made to no purpose.

Mr. Grant

I am grateful to my hon. Friend for making that matter even clearer. The provision is justified.

There is a provision in the Bill that enables the Minister to refuse a name if it is considered to be offensive. I think that in previous legislation the word used was "undesirable". Will the Minister explain the subtle difference? I might seek to form a company called "The Cecil Parkinson Appreciation Society Limited". That might be undesirable. On the other hand, I might want to form a "John Smith Condemnation Society Limited", which would possibly be offensive. I should like clarification of that.

I am well aware of the controversy over the Registry of Business Names. It is sensible for us to remind ourselves how this legislation arose. As I understand it, in 1916, at the height of jingoistic war-time fervour, people in this country were concerned lest Herr Schmidt should trade, rather disgracefully, under the name of Smith and thereby undermine the war effort and the will of the people to resist the German menace. That was a long time ago. Since then, in my professional experience of dealing with small companies for about 20 years, I have found it of remarkably little value. I understand that all these great and good bodies have erupted and have affected the minds of the Opposition, but it would need much more explaining than they have done for me to consider that it was a matter that was worth going to the stake over in order to reject the Bill so as to keep the registry.

The latest epistle that I received from the Consumers Association said: If the Register is abolished, an important source of valuable information will be lost for the business community, for customers, for those involved in the enforcement of the law, and for journalists concerned with business affairs. We need not weep tears over journalists. They are far better at winkling out information than any register or Government body can be. I do not understand the great value of this organisation. It is virtually no protection against dishonest traders who do not comply with it anyway. No one in his right mind gives large credit to vague, woolly trade names, whether or not they are registered. People always insist upon individual guarantees. If I were asked to give credit to the Wonderful Trading Corporation, the first thing that I would want to know was who the individual was. I might find out about the individual in the registry, but if I did not have a registry I should not give large credit to the Wonderful Trading Corporation without seeking some separate guarantees. Therefore, I cannot see what additional asset this provision gives.

Mr. John Smith

Perhaps the hon. Gentleman would be good enough to explain why, if a service is provided and those presently using it wish to continue to use it, and are willing to increase the amount that they pay so that it costs the taxpayer nothing, there is any sense in abolishing it?

Mr. Grant

I think that they delude themselves. That is my point. I was referring to the Consumers Association. It exaggerates any advantage that exists in simply knowing that Mr. Smith operates as the Wonderful Trading Company. What on earth does that tell one? It gives one no advantage or credit security. I might well be in a minority on this issue, but it merits much further investigation and argument in Committee. I have heard no justification for keeping this provision in the Bill.

Let us not exaggerate the savings involved. This is not something at which one just turns up one's nose. There is no purpose in having a number of civil servants and spending a considerable sum unless there is a genuine need—not just that people think there is a need. Therefore, I support the Government's proposals in this respect. Although I can understand the matter being argued further in Committee, it is not a reason for opposing the Second Reading.

I welcome the consolidation provisions in clause '76. If, as I believe, they will simplify the law, they must be welcomed by everyone. I looked quickly at "Halsbury's Laws of England" and, as far as I can gather, there are 16 statutes, going back to 1867, that we are supposed to understand. Any simplification must be welcomed.

One of my lecturers used to say that a Chinaman who landed at Dover without being able to speak a word of English was expected immediately to understand 1 million decided cases, several hundred volumes of statutes and 100,000 statutory rules and orders. Everyone in this land is expected to know all that. The only exceptions are Her Majesty's judges, who have the Court of Appeal to put them right.

I am concerned that one recommendation of the Jenkins report of 20 years ago has been shelved by successive Governments who have jibbed at taking action to prevent directors who are found to be unfit to conduct companies and whose companies go into liquidation from fitting from one company to another. That point was brought out in Miss Esther Rantzen's great television programme last night. I understand that we are awaiting the results of the Court committee, but if nothing emerges before the Bill becomes law it is likely that we shall have to wait another 20 years before the matter is tackled. I hope that either something will be done in Committee or the Court committee will be asked to report on that matter before the Bill becomes law.

Subject to that, I welcome the Bill, because it will simplify the law, reduce fraud, stimulate small companies, increase commercial confidence and save some money and some Civil Service jobs.

4.52 pm

Mr. J. Grimond (Orkney and Shetland)

I support the hon. Member for Harrow, Central (Mr. Grant) in welcoming the promise of consolidation, though I am not sure that he is right in saying that the Bill will make life easier for small businesses. I get the impression that company law is becoming steadily more complicated. In the old days, Governments used to produce a major Bill on company law once every 20 years or so. Such Bills appear now to be annual events, though I am glad to hear that that may stop.

I have reservations about the Bill, but it has some good points. One is that it will allow companies to buy their own shares. I wish to take up the Minister's comment that one of the purposes of the Bill is to encourage enterprise. I am concerned about the possibility of developing a new structure in industry, and I should like to use the Bill to give further encouragement not only to profit sharing but to the ownership and control of industries by those who work in them. I am not talking about compulsion and I do not suggest that job ownership by individual workers should be the only structure in industry. But we need new ideas in industrial relations, and job ownership is one way forward.

I declare an interest as chairman of a small, non-profit-making organisation called Job Ownership Ltd., of which Robert Oakeshott is the director and moving spirit and which exists to promote worker-owned businesses. I hope that before the Bill becomes law it will contain statutory recognition of job-ownership companies. If we are to have new clauses, such recognition would be a most useful subject for a new clause.

Lest it be thought that that is a theoretical proposal by well meaning but incompetent Liberals, I should point out that in another place it had the support of members of all parties and of highly-experienced business men. An amendment to give statutory recognition to job ownership was moved by Lord Seebohm, a former vice-chairman of Barclays Bank and former chairman of the Industrial and Commercial Finance Corporation. It received widespread support, including that of Lord Caldecote, the present chairman of the ICFC, Lord Boyd-Carpenter, Lord Lloyd of Kilgerran, Lord Halsbury, Lord Diamond, Lord Rochester, Lord Oram and many others.

Indeed, the Government were not wholly hostile to the idea. Speeches, to some extent sympathetic, were made by the Lord Advocate, and, in another debate, by Lord Gowrie. The promoters of the idea have also received a certain amount of good will from Ministers in various Departments, but so far they have refused to incorporate the necessary provisions in the Bill, largely because they say that they are not necessary. I will return to that point.

At present, I am attempting to nudge, cajole and push the various Departments concerned towards my objective, and that is no easy task. Our institutions are indeed odd. The Department of Trade has formal responsibility for company legislation. However, I am advised that the Department of Trade would find it easier to move if the Treasury pushed it. But who is to push the Treasury? The answer is the Department of Employment, which is certainly interested in the extra jobs that job-ownership companies, no doubt partly financed by redundancy payments, could create. I draw attention to the speech made in another place by the eminent patent lawyer Lord Lloyd, who pointed out the importance of job ownership in his work in encouraging groups of skilled men to exploit their own inventions and set up their own companies.

Mr. Oakeshott has suggested that we are engaged in a form of billiards—propelling the Department of Employment on to the Treasury with sufficient force to pot the Department of Trade, taking care—to change the mataphor—that we are not snookered, as we have been up to now, by the Lord Advocate.

I have a powerful ally. In a letter to Senator Russell, which is now part of the Congressional Record, the Prime Minister wrote in August 1979: I am convinced that by increasing the commitment of employees to the financial well-being of their company … employee share ownership schemes can make a significant contribution to improving productivity and consequently profitability. The scheme has obvious advantages. As Lord Seebohm pointed out, it will get rid of management by confrontation. It will promote the better distribution of wealth—a step which is essential if we are to preserve freedom and interest more people in higher productivity. Further, as Lord Seebohm also pointed out, it will diminish industrial absentee ownership and encourage, in Lord Caldecote's phrase, a "company-owning democracy".

I do not believe that the only choices before us are State Socialism, the collective ownership of businesses and industry by organisations, or narrowly-based capitalism. When I hear the undoubted advantages of capitalism extolled, I ask myself how workers will react to the praises sometimes showered upon it, particularly by this Government. May they not sometimes feel, as do black Africans when listening to Mr. Botha saying how splendid democracy is, that they are being asked to believe in the virtues of clubs that they have little chance of joining? The success of worker ownership in the enterprises centred round Mondragon has been widely acclaimed and publicised. Is it not time that we attempted to repeat that success in this country, with due modifications to suit our circumstances?

A job ownership company should be basically owned and controlled by those who work in it. There must be flexibility in the details of the scheme. I accept some of the criticism made of the proposals offered to Lord Seebohm's amendment in another place. I feel, however, that those proposals could be adjusted. The essential factor is that those who work in the company should control it. There should be adequate safeguards against abuse of such a scheme by those who are not using it for its true purpose.

As I have said, objection put forward by the Government in another place was that job-ownership companies can be set up under existing Acts. That is true. One such company, Manchester Cold Rollers, has recently attracted a considerable amount of publicity. I would ask the Government to listen not so much to politicians but to experienced members of the House of Lords who have addressed their minds to the matter. They include not only business men but also lawyers and accountants.

Lord Seebohm pointed out that local lawyers and accountants would be chary of recommending this type of company unless it received legal definition. It was pointed out by Lord Boyd-Carpenter that these Bills are not easy to understand. Small companies that all apparently wish to help to promote are not always able to engage experienced and specialist advisers. Nor can such advice be provided by local solicitors and accountants.

Co-operatives will receive welcome relief under clause 25 of the Finance Bill. However, reliefs cannot be extended to job-ownership enterprises until these have statutory definition. The difference between a co-operative and a job-ownership company is that the owners of the latter share in the growth of its assets. At Mondragon, those who retire receive not only their pensions but lump sums which can at the moment amount to about £20,000. This is highly desirable. I would have thought that it would appeal especially to the Government. In a co-operative, however, that procedure cannot be followed. No doubt, both forms of organisation have a part to play. Unless job-ownership companies register under the old Industrial and Provident Acts, thereby becoming co-operatives or closed companies, which is extremely difficult for companies of any size, they cannot qualify for the benefits.

I would have thought that this Government in particular and the House in general would wish to encourage anything that means that management and men share the same interests and that they work together. We have learnt, on the authority of the Prime Minister, that that is what the Government want. One means of moving towards its achievement, according to those able and experienced business men and fellow peers in the other place—I accept that it may not have universal application—is to give statutory recognition to job-ownership companies. Those same peers also indicated that although it is technically possible to form such companies under existing law, they would not attract the tax advantages available under the Finance Bill, and it would be difficult for many such companies to be formed.

I am at a loss to know why the Government have resisted what I proposed. They have produced the good but strange offer of providing a foreword to a pamphlet indicating the excellence of these companies. Such a foreword is to be welcomed if well written by a competent Minister. It is, however, no substitute for legal recognition.

I hope that the Government will give way to their better instincts. If their intention is to produce a large number of new clauses to the Bill, a clause along the lines I have described would surely be a suitable candidate. I trust that hon. Members will be able to return to this matter in Committee. I hope that if and when the Bill becomes a statute it will contain statutory recognition for this class of company.

5.5 pm

Mr. Anthony Nelson (Chichester)

It is always an honour to follow the right hon. Member for Orkney and Shetland (Mr. Grimond), who brings to the debate a breadth of experience that all hon. Members welcome.

I should like to refer to certain aspects of the Bill that have aroused my interest, especially the provisions relating to concert parties. I join my hon. Friend the Member for Harrow, Central (Mr. Grant) in the generous welcome expressed for the Bill. It appears to be a well drafted Bill which delivers to the House provisions for dealing with problems that have aroused criticism over many years. I am proud to be associated with the party and the Government that have tackled these problems. I should also like to pay a personal tribute to my hon. Friend the Under-Secretary of State for Trade. Many hon. Members are aware of the immense work and time that he has devoted to the drafting and consideration of the Bill. We congratulate him.

I welcome the removal of the restriction on the purchase of shares in part III. This will enable companies to decline as well as to grow in size. It has always seemed a strange anomaly that company law assumes that corporate and limited entities are immortal. Companies should be able to die out as well as to spring up. It is not necessarily a reflection of their lack of profitability or their inadequacy that a company, its directors and shareholders, should decide at an appropriate stage that it is better to decline in size than to grow.

There are burdensome and unnecessary restraints on the ability of a company and its shareholders to decline in size. The provisions contained in the Bill will assist these companies, especially small companies. I have some detailed doubts about the provisions relating to this matter. The restrictions on the sources of finance to purchase shares, particularly the predominance given to undistributed and accumulated profits, is restrictive on certain companies. It should be possible to provide such finance from capital generally. The requirement for a special resolution of shareholders in certain cases seems a little restrictive and may deter a number of companies from buying their shares.

I welcome the proposals for changing and simplifying the requirements for accounts and disclosures. These changes will enable an abridged balance sheet, instead of a profit and loss account and a directors' report, to be presented. I understand that this proposal will assist over 500,000 companies. The modified account provisions for medium-sized companies are also to be welcomed.

Standard requirements for disclosure in Europe and, indeed, in this country, do not themselves necessarily bring about standard quality of disclosure. I have read some German accounts. Consistently, one of the largest financial provisions in profit and loss accounts of even major public quoted German companies is a provision called "Miscellaneous", which usually appears right at the bottom. There is no indication in either the profit and loss account, or in the accompanying notes, to explain how this large sum of money is made up.

In this country we tend to play the game both in the accounts and in the notes. There has been a considerable improvement in recent years in the standard of disclosure by companies. Although we may be moving towards standard disclosure requirements in Europe, we shall not necessarily gain standard quality of information. I hope that through our membership of and association with the Common Market we shall be able to press for measures to ensure that the quality of information is standardised in Europe. I understand that the provisions in the Bill are as wide as the directive allows. I hope that the directive can be extended, thus enabling accounting provisions and requirements to be simplified to a greater extent in subsequent Companies Acts.

The part of the Bill that arouses my greatest interest is that dealing with concert parties and the draft clauses contained in the consultative document published on Saturday which was, incidentally, available to hon. Members well in advance of the start of the debate. I obtained a copy from the Vote Office.

The background is well known to hon. Members who took an interest in the appalling circumstances surrounding the dawn raid on Consolidated Gold Fields at the beginning of 1980. Some hon. Members will be familiar with the circumstances, but it is worth recounting what happened.

In October 1979 De Beers began buying shares in Consolidate Gold Fields through a number of associated companies. It was careful to ensure that each of the companies did not acquire more than 5 per cent., as in so doing it would be required to disclose that holding under section 33 of the Companies Act 1967. A number of the companies involved bought 4.99 per cent. of the shares. I do not believe that that was entirely coincidental. There was, therefore, no disclosure as required under section 33. However, in one case a company accidently went over the 5 per cent. mark without declaring that interest.

The purchases were done initially and subsequently on the direction of Davis Borkum Hare, the brokers for De Beers in Johannesburg, through one of the largest and well known broking companies in London, Rowe and Pitman and in consort with one of the largest jobbing firms, Akroyd and Smithers. The broking company in Britain, Rowe and Pitman, left blank the transfer forms on which the shares in Consolidated Gold Fields were acquired. As a result it was able to circumvent the requirement that the shares should appear on the register of Talisman— the computer transaction system of the Stock Exchange.

As a result of leaving the share transfer forms open, Akroyd and Smithers was able to apply to the chief executive of the Stock Exchange for the details not to be included on Talisman. The chief executive acquiesced to that request. Subsequently Consolidated Gold Fields realised that a substantial shareholding and possible controlling interest, in that company, was being built up. It is one of the biggest quoted companies in Britain, with major interests in construction through the Amy Roadstone Corporation, and international interests in mining.

Consolidated Gold Fields applied to the Stock Exchange for an investigation into who was acquiring that interest. The deputy chief executive of the Stock Exchange refused to investigate. Subsequently the Stock Exchange set up a committee to investigate proceedings and the way in which the shares had been acquired. It concluded that the chief executive and the deputy chief executive had not acted improperly in making their decisions.

I wish to make it clear that I have no reason to believe that they acted outside Stock Exchange rules or, indeed, the law of the land. However, in my judgment all the indications are that there was an error of judgment on both cases. Furthermore, in my judgment it is wrong that the Stock Exchange should set up a committee to inquire into the activities of its chief executive and deputy chief executive and, some might say not surprisingly, exonerate them in such circumstances. One way or another, a substantial shareholding in that major company was built up without the market or the share register knowing the owners.

On 12 February 1980 Rowe and Pitman was instructed to increase the holding of Consolidated Gold Fields shares from 14 to 25 per cent. in the market. The jobbers were briefed at 9.20 am and were told that they could offer a maximum price of 615½p. The market opened at 9.30 am with a bid price of 615p and an offer price of 618p. The bid price made by Rowe and Pitman was therefore slightly above the market level. By 9.50 am it had purchased 16½ million shares in Consolidated Gold Fields.

It is interesting that not only were a large majority of the shares purchased at 615½p, the preferential market price over and above that offered to many other shareholders, but that, of the 16½ million shares acquired, 13½ million came from private clients of the brokers and institutions that they had approached, presumably involving a substantial commission to Rowe and Pitman.

The jobbers sold 1.2 million shares short, knowing that the price being offered was above the market price. They sold shares that they did not actually own, hoping that subsequently they could buy them at a lower price. Clearly there was a risk, in that the market price could move both ways, but it subsequently moved downwards and the jobbers, too, were able to take advantage of their special knowledge in selling short and making a considerable profit.

In this action a substantial number of shareholders in Consolidated Gold Fields were deprived of the opportunity of offering their shares at a preferential price. The acquisition was made covertly and was designed to give the least possible opportunity for others to bid up the market price even higher.

No rule or law was broken at that time. That event and subsequent dawn raids gave rise to pressure by many hon. Members and other commentators for a change in the law. The Stock Exchange gave the brokers concerned a mild rap on the knuckles for not telling the Scottish jobbers who made a market in Consolidated Gold Fields shares what was happening. Akroyd and Smithers was criticised for selling short and for offering different prices. It was however a mild, timid and inadequate report which did not go as far as many would have liked to ensure the keeping of the City of London's reputation for high standards of integrity and fair practice.

Subsequently, I met the chief executive of Consolidated Gold Fields to discuss the matter. I had an interest, as did a number of other hon. Members. We expressed it in the House at the time. I wrote to the Council for the Securities Industry, which was considering changes to deal with the problem. It imposed a temporary ban in August last year by requiring a general tender where acquisitions in excess of 15 per cent. were purchased. The Department of Trade subsequently published the first of its consultative documents on the matter.

I congratulate the Government on drafting the provisions and on finding time to include them in the Bill. I understand the technical difficulties that have been encountered in striking the right balance. Clearly, whatever percentage is set or whatever restrictions are placed on the ability of people to acquire shares in a certain way, there is a risk of making a free market less free.

On the other hand, the Government and those involved in the securities industry have an obligation to ensure that the free market is a fair market. If it is not fair it cannot be free for long. A basic criterion when considering provisions in the consultative document published on Saturday is whether they are a sufficient deterrent to dawn raids of that kind. I welcome the provisions as far as they go, but is my hon. Friend satisfied that they act as a sufficient deterrent? Most of the provisions seem to be concerned with disclosure after the acquisition, rather than with legislating for sufficient penalties to ensure that people are put off such acquisitions in future.

I think in particular of Dunlop, another of our major companies. Shareholdings appear to have been built up by certain interests in the Far East and, according to reports, in Malaya in particular. It has not been possible for the company, or for anyone else who has undertaken an investigation, to find out who is building up a potentially controlling interest in that major British company.

Given that now and in the future many dawn raids or other operations for buying shares might be mounted outside Britain, we must consider not only whether our legislation is sufficient to deal with the people who play by the rules here, but whether it should also put off people who operate in a different corporate climate in other parts of the world.

It was suggested, therefore, that those who acquire shares in this way and do not disclose the interest that they have as required under British law should have their rights to dividends and voting rights stripped from them. The consultative document, as I understand it, stops short of that. Although a freezing of those rights is permitted, the draft clauses propose that the ending of that freezing should be less easy than it has been in the past.

I personally doubt whether that alone will put off a Far Eastern predator from acquiring an interest. Once shares are acquired one knows that there are three rights to which one is entitled: first, the capital value of the shares; secondly, the dividend from the shares; thirdly, the voting rights of the shares. Even if such rights were suspended temporarily, and even if it were more difficult to get them back later, one knows that once one discloses one's interest at a future date, having built up sufficiently large interests, one will be able to benefit from the dividends, the voting rights and the sale of the shares.

How will the provisions prevent companies in Lichtenstein and the Far East—where there is the use of nominees, far fewer registers, and more use of bearer shares for holding companies—from building up unacceptable interests, possibly controlling interests, in the largest British companies, many of which have strategic and important national interests? I am not satisfied that the provisions go far enough in that respect. However, I have not had the opportunity to consider them in great detail. That is a proper matter for consideration in Committee.

The opposite extreme is the case of British Petroleum and Selection Trust, where a major acquisition was undertaken by this large and pre-eminent oil company in one of the largest mining concerns. When British Petroleum wanted to acquire a controlling interest in Selection Trust, it announced the fact, it had discussions with the company and offered a price—a high, cash price, I believe. It was done in the best possible way.

There was no need for a company with the history and experience of De Beers to acquire a shareholding in a company such as Consolidated Gold Fields in such a covert way. It is proper for those of us who take a genuine interest in these matters to say in the House, in the hope that it will go back to the companies concerned, that some of us censure this practice and believe that the goodwill that a company such as De Beers has built up over many years has been substantially undermined by what it did on that day and previously. I hope that in the future the capital benefit that the company got from that transaction will be offset by a decline in reputation, which I believe it deserves as a result of shady and sharp practice in the acquisition of those shares.

It is sad to say such things, but perhaps it is necessary to do so with the privilege that we are extended in the House. Those of us who frame the law and act to some extent as trustees and guardians of fair practice and the rights of minorities—and, indeed, of minority shareholders—have a right to censure companies that act in this way, just as much as we have an obligation to congratulate those that contribute to our economy.

In conclusion, I give a warm welcome to the Bill. It will go a long way towards reducing the restrictive requirements on companies. It will enable companies to operate in a freer framework, in an atmosphere that was the object of our manifesto. The objects and provisions of the Bill are in line with the basic tenets of Conservative philosophy, and I believe that the measure has been well drafted. I wish it a fair wind through the House, and I hope that the Opposition will not press their objection to the Bill, because its overriding provisions are welcome to us all, and the detailed concern of some of us about certain provisions should be left to the Committee stage.

5.26 pm

Mr. Ben Ford (Bradford, North)

I shall not follow the hon. Member for Chichester (Mr. Nelson), although I admire his frankness. From my commanding position as the sole Back-Bench representative of Her Majesty's Opposition, I was fascinated by his revelations.

I, too, broadly welcome the Bill, although I am sure that the Opposition will attempt to improve it in Committee. I declare an interest as a member of the Amalgamated Union of Engineering Workers and of the Association of International Accountants.

Neither the Bill nor the fourth directive mention international corporations. In some cases, I suppose, they are supra-national corporations. The time is long overdue for a proposal from the EEC Commission on company law to enable us to deal with these mighty organisations whose communications travel across frontiers without let or hindrance and whose financial depredations can sometimes determine the fate of nations.

I follow my right hon. Friend the Member for Lanarkshire, North (Mr. Smith) in objecting to the abolition of the Registry of Business Names. I was not convinced by what the Minister said today. In my view, the proposal is a mistake. The registry needs to be reformed and put on a sound financial basis for the future. However, if the registry is abolished, an important source of valuable information will be lost for the business community, customers, those involved in law enforcement, and journalists concerned with business affairs. As a result, it will be far more difficult to control those traders who behave unsatisfactorily under one name and then change to a different one. I shall support my right hon. Friend in Committee on this matter.

I wish to refer specifically to clause 8 which seeks to create two new classes of companies, namely, small and medium-sized companies, and to go into the question of the qualifications of the auditors required to audit those companies. For some time I have been interested in obtaining the recognition of a body of accountants which is not yet recognised under section 161 of the 1948 Act. That section was originally intended to ensure a degree of competence in the auditing of public companies. Unfortunately, that has since been extended, particularly by the 1967 Companies Act, to include private companies. One must conclude, therefore, that the meaning and interpretation of section 161 of the 1948 Act has been extended. It has become an imprimatur without which no accountant or body of accountants can practise their profession to the full.

Ministers, through their interpretation of section 161, have turned the accounting profession into a closed shop. For some time the Association of International Accountants has been attempting to obtain recognition under section 161 of the 1948 Act. Under successive Ministers and Governments, the association has gone from one stepping-stone to another. Each time when it thought that it had satisfied the requirements, something else was found to block recognition.

Finally, in 1978–79, the association agreed to employ moderators who were nominated by the Department, some of whom, unfortunately, dragged their feet.

I have been in correspondence with the Minister about this matter. He was good enough to write me a letter prior to this debate, which is the exception rather than the rule, because in the past Ministers have endeavoured to delay their communications until the day of the debate or even until half-way through the Committee stage.

I suggested in my letter that the AIA should be allowed to audit small and medium-sized companies as defined in clause 8, which I believe would have been a useful way of moving towards full recognition under section 161. In any case, small private companies do not require Deloitte, Price or Kidsons—there are about 400,000 such companies—to audit their accounts. Therefore, it would have been an extremely useful step had small and medium-sized companies been allowed to be audited by the AIA.

In his letter to me, the Minister stated that we should ensure that auditors have an adequate level of training, knowledge and experience and are subject to appropriate ethical and technical standards. He went on to make the case against two-tier qualifications, in line with the eighth directive. Although I have no particular quarrel with that approach, it seems to confirm the Department's slavish subservience to EEC direction from the Commission. I had some experience of that during a discussion on origin marking, when we were told by the Minister that we ought to watch our Ps and Qs in Committee because people from the EEC would be watching and listening.

However, clause 1(a) of article 51 of the fourth directive states: Companies must have their annual accounts audited by one or more persons authorised by national law to audit accounts". I therefore submit that under the fourth directive there is no imperative for the United Kingdom not to make its own arrangements for auditing. I contend that if the Minister were to recognise a body of accountants as eligible to audit the accounts of small and medium-sized companies under United Kingdom law, there would be no reason to infer that its standards were less than adequate in the broad context.

In his letter, the Minister speaks of technical and ethical standards. The disciplinary record of the body to which I have referred is excellent. If we examine a few cases where recognised bodies have been involved, we may come to the conclusion that perhaps they are not so shining white. There are many examples, from Rolls-Royce onwards, such as London and County Securities, Barrow Hepburn, Newman Industries, Lonrho and Stonehouse. One could go through a considerable list of cases where recognised firms of accountants have been criticised. Compared with those, the disciplinary record of the AIA stands out as an example of integrity and probity.

As to technical standards, I have received two letters within the last few hours from people who have been nominated as moderators for this body. The first is from Professor J. M. Samuels, Professor of Business Policy at the University of Birmingham. He sets out his terms of reference and says that he examined 14 of the examination papers of the association covering the examination diets held from June 1975 to June 1977. He continued to monitor the examinations through December 1978, and he states: I am able to report that the syllabus and examination papers of the Association are at least as comprehensive as those of the recognised accounting bodies and that the standard of marking is also at least as stringent as that of the recognised bodies. To conclude, therefore, it is my opinion that the examination papers that I monitored were of a satisfactory standard. They were comparable in standard to those being set by the recognised professional accounting bodies. The marking standards of the Association are also satisfactory. The second letter came from Mr. R. F. Griffiths, the senior partner of a prominent firm of chartered accountants. In it he said: Having completed my moderation of certain specific papers as required of me by the Department of Trade in relation to the December 1978 sitting I confirm that in respect thereof the syllabuses and examination papers were at least as comprehensive as those for equivalent subjects adopted by the Institute of Chartered Accountants in England and Wales, and that the standard of marking was of a correspondingly stringent nature. It is therefore my opinion that, in respect of the individual papers which I considered, the standard of examination adopted by the Association of International Accountants was similar to that of the Institute of Chartered Accountants in England and Wales with whose examinations I was conversant at that time. In his letter, the Minister refers to practising certificates. I assure the Minister and the House that the AIA issues a practising certificate only after 30 months' practising experience. The ACA has about 20,000 members of whom only 1,700 are engaged in public practice and entitled to practise as public auditors. Fairly recently, 1,000 people were admitted to that body without an examination in public auditing, although possibly with some other qualifications. There is no other body in this sector—I say this completely dogmatically—for recognition under section 161. I shall therefore seek to move an amendment in Committee to allow for the admission of the body that I have mentioned for the purpose of auditing the accounts of small and medium-sized companies.

Over the years, it seems that there has been a conspiracy to maintain a closed shop in the accountancy profession, aided and abetted by the Department. I sincerely believe that the AIA has now earned the right to recognition. If progress is not made, there might well be a case for using all the resources of public relations and the national media to launch a campaign for the registration and regulation of the accountancy profession as a whole.

5.35 pm

Mr. Robin Squire (Hornchurch)

When I contemplated speaking in the debate, I imagined having to make one apology at the outset to my hon. Friend the Under-Secretary, because a long-standing commitment will probably prevent me hearing his words of wisdom. However, I assure him that I shall read them.

I now find that I have a second apology to make, because I am a chartered accountant. As a result of the contribution of the hon. Member for Bradford, North (Mr. Ford) I feel as if I should apologise for the sins of a number of my colleagues. Without following the hon. Gentleman's argument, I assure him that if his case is as strong as he makes out, I shall do what I can to assist in granting the recognition that he obviously seeks.

I give the Bill a general welcome, because it puts right a number of omissions and problems that require amendment. I am sure that that is common ground on both sides of the House. I welcome in particular the action taken in respect of the dawn raid "concert party" exercise. I had intended to go into some detail, but I could not conceivably do so better than my hon. Friend the Member for Chichester (Mr. Nelson). I content myself by pointing out that anything which effectively discriminates against smaller shareholders and in favour of the larger battalions must be inherently wrong.

Those who support the concept of a share-owning democracy can do so only on the understanding that obvious abuses will be tackled and that the discrimination which means that those not in possession of the knowledge held by the big battalions will lose will be remedied and that such people will be protected as they are not now protected.

I welcome the reduction in disclosure requirements for smaller companies. When I studied for my qualification the system involved discrimination and something called "privately exempt companies". That went the way of all flesh, as is the way. We can see a distinction between the large, multinational company trading either in many parts of Britain or the world and the self-employed builder or window cleaner trading from the street corner. There is clearly a distinction that must be recognised in the accounting requirements.

I make a small caveat to my colleagues on the Front Bench. I hope that they will resist the siren voices within my profession that seek to reduce dramatically the auditing requirements for smaller companies. It has been suggested that because small companies often consist of directors, who are also majority shareholders, provided the directors are satisfied with the accounts that is the end of the argument. I resist that suggestion because it overlooks the important responsibility owed to creditors and would-be customers, many of whom trade with those companies on the information supplied and filed at Companies House.

Mr. Clinton Davis

I am aware of the contentious nature of that argument. However, will not the hon. Gentlemen accept that for small companies—for example, a husband and wife fish and chip business—the value of the information is, to put it at its highest, a little questionable? Such information is always in arrears, and often substantially so. What value does that have for creditors?

Mr. Squire

I suspect that not only do I understand the hon. Gentleman's point, but that I have some sympathy with it. However, drawing on my previous auditing experience, any certification by an independent auditor who is unqualified, or even by one who is qualified in a relatively minor way, is better than a statement by the directors of a company that its assets and liabilities are as certified by them. That would be unacceptable. Without wishing to cast any doubts on the honesty of most of those who run such companies, there are undoubtedly a number who are not so careful about the manner in which they conduct their affairs. If directors' statements were to be relied on to any great extent, it would collectively reduce the standing of limited companies which would be of no great advantage to anyone. I urge my colleagues on the Front Bench to resist any pressure in that direction because the responsibility is not only to the directors and shareholders but to a wider entity.

I turn to two matters that are not covered sufficiently in the Bill. While recognising that it may not be possible to incorporate them in the Bill, I hope that they will be borne in mind in the preparation of any future legislation. As another speaker said earlier, we appear to be moving towards annual Companies Bills. The first matter arises from the way in which companies operate from the same address and constantly change their names. My hon. Friend the Member for Harrow, Central (Mr. Grant) said that that subject was featured in a television programme last night. He has an advantage over me, and my subsequent comments may show that I was not privileged to see that programme.

I have been concerned about the spread of the pernicious practice of a number of companies operating from the same address. I spoke about that issue in the Chamber recently in relation to plumbing. I know of an instance in the West Midlands where there were no less than 15 different company names operating from the same address, each to be assumed as the moment was opportune and discarded as the pressure from various enforcement agencies, such as they are, grew. That must be an unacceptable practice. The only people who suffer are those unfortunate enough to engage such companies to carry out work. It would be foolish to allow much more time to pass without taking some legislative action to combat that practice.

While I recognise that the Bill takes some steps towards action against those who may be trading frauduently, the problem is the speed with which names may be adopted and discarded and the apparent immunity which many of - those concerned appear to have for a considerable number of months, if not years. I know that the Minister will say that the Government are awaiting the Cork committee report. I urge him to speed up that report. Should the Committee not touch on that issue, I hope that he will ensure that suitable provisions are introduced in any legislation that arises from the report.

Mr. Clinton Davis

Is it not surprising that the Government are resorting to the argument about having to wait for Cork when they have pre-empted Cork by asserting that they will abolish the Official Receiver service? Does not that seem inconsistent?

Mr. Squire

I do not wish to interfere in an argument between my colleagues on the Front Bench and the Opposition. The Government may have good reasons for waiting for the Cork committee report. The chairman of the committee is a person who, perhaps more than anyone in Britain, should be aware of the intricacies of bankruptcy, liquidation and possible reforms.

The second area that I wish to mention relates to the role of the Registrar of Companies. I have become conviced that it is a far too passive role. There is a danger that the office may be seen, if not as a rubber stamp, then largely as the recipient of an enormous mass of paper which is then filed, with the occasional chasing of some of the more elaborate, obvious and disgraceful exceptions to the law.

The Registrar rarely appears to pursue the more obvious points about omissions of common directorships, false company addresses and a whole range of other items with which I do not wish to bore the House at present.

Limited liability is arguably one of the reasons for the way in which a tradesman works and why the countries that have embraced that concept have shown such a major economic advance over the countries of Eastern Europe that have not done so. Indeed, it has enabled many consumers to achieve material gains which they would not otherwise have achieved. But it not only grants advantages; it must impose responsibilities. I fear that at times the balance has sometimes tilted a little against consumers and their ability to get proper redress against those operating on the fringe of economic activity. Unfortunately, there is no indication that that is reducing. Every indication from my correspondence points to those on the fringe, so to speak, acquiring a greater percentage of the economic activity in this country.

I stressed at the outset that I welcomed the Bill. I particularly welcome the statement by my hon. Friend that there will be legislation—he did not say when—which will attempt to consolidate our morasss of company legislation. As an accountant—I am sure that there are those in law, for whom I cannot speak, who would utter a similar view—I have always believed simplicity to be an enormous advantage in any sphere. The more we put a wide range of legislation round our economic entities, the more we reduce their ability to employ many people, make profits and distribute the money to those who make the profits. The more we surround them with unnecessary legislation, the more difficult it will be for them to make profits. I trust that the statement made be my hon. Friend will ultimately be transformed into legislation by the Government in a future Session. I commend the Government for introducing the Bill today.

5.52 pm

Mr. Richard Page (Hertfordshire, South-West)

I shall confine my few remarks to the part of the Bill which will enable companies to buy in their own shares. It will enable private and close companies to have access to the marketing and purchasing of their own shares—a privilege which has been hitherto denied to all but the public quoted companies.

I have taken considerable interest in this matter. Last year, I introduced a Ten-Minute Bill which was unopposed. For that reason, I was disappointed to hear the right hon. Member for Lanarkshire, North (Mr. Smith) say that he proposed to divide the House this evening. I should hate such action to be interpreted as meaning that Opposition Members are against this provision in the Bill.

Mr. Clinton Davis

We reserve the right to criticise the proposals in detail, but that is not why we propose to divide the House. The reasons are connected with the modifications of the screening of company names and the abolition of the Registry of Business Names, apart from certain omissions from the Bill.

Mr. Page

I thank the hon. Gentleman for making that clear. But I believe that the objections that he has mentioned could far better be dealt with by amendments in Committee than by dividing the House tonight.

My support for this measure is founded on my belief that this country's future lies very much in the smaller business sector. The development of that sector can only be assured if there is adequate opportunity for investment to be introduced and withdrawn as and when the need arises.

This country is one of the few countries in the world which does not have the share purchase provision. The locked-in position of the shareholder in a private or close company has been and is a major disincentive to the placing and encouragement of investment. Anyone thinking of investing in a small close company must be deterred by the present position. If he is a minority shareholder, he has to rely upon the good will and financial resources of the other shareholders to buy him out if he wishes to withdraw his investment. We all know the difficulties today of accumulating sufficient personal wealth to enable this to happen.

I am delighted that the 13 clauses which comprise this provision have been introduced, but—in life there always seems to be a "but"—I should like a few changes to be made.

One of the main objections to the introduction of any provision such as this is that, unless great care is taken, it can be used as means for fraudulent intent. Therefore, the rules and regulations must protect the creditors and other shareholders so that they cannot be disadvantaged by the buying-in of shares. The argument about fraudulent intent has blocked this kind of provision for many years—since the Companies Act 1948.

I support the provision to protect other parties, but I wonder whether one year following the date of the proposed payment to the person whose shares are redeemed or purchased is enough. Should this period be extended? For example, a major shareholder might be able to buy in, dispose of his own shares, get his money out, but keep the company running for more than a year—just long enough to get his money out to the disadvantage of the creditors and other shareholders. Therefore, I wonder whether one year is adequate.

I turn now to the mechanism for the redemption of shares out of capital for private companies. I am glad that that provision has been introduced. I am also pleased that there is the protection of the special authorisation by members of the company.

However, I wish that there could be a rethink on the principle of cancelling shares when they are bought in. I should like to think that we could once more examine the idea of Treasury shares—this matter was raised in the other place—because we shall have to go through a great deal of unnecessary paperwork in cancelling, issuing and then cancelling shares. Companies would be better off if they could hold those shares in limbo, so to speak, until they were required by someone who wished to invest in the company. I see no point in cancelling shares immediately on redemption. The second directive on article 20 suggests a half-way house—that shares not disposed of since the period of redemption must be cancelled, but only after a period of three years.

Mr. Nelson

I agree with my hon. Friend on this matter. But would I be right in suggesting that one of the reasons why the Treasury shares idea was not adopted was that it might encourage companies to make money at the expense of their shareholders by seeing trading opportunities in their own shares, in certain instances, using the special insider knowledge which companies inevitably have to buy shares at a low price from one of those who essentially own the company and subsequently to sell them and make a capital profit? I should like to agree with my hon. Friend, but I suggest that we must address ourselves to that point if we are to persuade those who would wish to see such an amendment carried.

Mr. Page

The opportunities for financial advantage will be present with the introduction of this measure in any form. I agree that what my hon. Friend suggested makes it easier, but I see no reason why directors or people with insider knowledge who want to go down that path should not go down the path of issuing shares, taking them up and redeeming them at a later date. It makes it cumbersome, I agree, but the opportunity is still there.

The House has heard more and more in recent times of the shrunken size of the small business sector and the need to expand it if we are to provide the necessary jobs, the necessary increase in growth and, in turn, increase the quality of our various social services. This part of the Bill will be a major plank in achieving those aims. I hope that it will encourage investment in local firms. I hope that it will make the local company prepared to take in local investors and therefore generate enterprise in a smaller and more localised way.

I have used the word "local" three or four times, and I have done so deliberately. I want to get away from the large company syndrome that seems to have swept through Britain. I want to see British people prepared to put more and more money into the firms that they know. I want to see a return to the "coffee shop" attitude, where three or four people get together and launch a new scheme. Those who frequented the coffee shops long ago would send out their ships and hope to get a return. I hope that that approach will be continued and that individual investors will be prepared to invest in local firms. If the Bill is enacted in its present form, those investors will know if necessary they will be able to get their money out.

There will be some other extremely beneficial spin-offs. These provisions will provide a way for the estate of a deceased shareholder to find a buyer. They will facilitate the retention of family control in a company. They will enable the buying out to take place of a shareholder who is dissatisfied with the way in which a company is being run. They will be able to be used as a means of introducing industrial democracy. They will encourage employee share ownership and make it much easier for close companies to raise capital. That equity capital will be vital at the start of a company's activity or at a time of expansion.

It is my hope that these provisions will give our people far more choice in their investments than the more conventional forms of the Stock Exchange, the pension fund or the insurance company. The hon. Member for Hackney, Central (Mr. Davis) has said that the Bill will not be opposed in Committee. I hope that we shall see its speedy introduction into the law of the land.

6.4 pm

Mr. Ioan Evans (Aberdare)

I shall make a brief intervention. I have no intention of taking up the remarks of the hon. Member for Hertfordshire, South-West (Mr. Page). The hon. Gentleman spoke of the possible advantages of companies being able to buy their own shares but he expressed certain reservations. There is the danger that that freedom might increase the scope for fraud. If the Bill did not have its present title, it could well be entitled "The Licence for Fraud Bill".

I am primarily concerned not with the purchase of shares but with the Registry of Business Names and the dangers that are presented by its proposed abolition. At one time in another place the Government decided not to pursue their original intention to abolish the registry. However, they reverted to their original proposal on Report. They have had second thoughts in another place and I hope that before we reach the end of the debate on Second Reading we shall have an indication that they will think again.

There are times when we should address ourselves to improving company legislation. However, there are now more companies closing, going bankrupt or going into liquidation than at any time since the 1930s. This is not the time to remove the controls that are provided by the Registry of Business Names. The possibility of abolishing the registry was discussed by the Labour Government. The proposal was introduced in 1976 and it was dropped by the Labour Government in 1977. There seemed to be certain disadvantages when the proposal emerged from the Department and representations were made by outside bodies, which advanced convincing arguments. It is to the credit of the Labour Government that they were prepared to drop the proposition.

Mr. Clinton Davis

I shall give my hon. Friend some insight into the history of these matters. He may not be aware that the Green Paper was a form of testing opinion. I was not right on all ocasions, but I anticipated correctly that the overwhelming view of those connected with the registry and who needed to use it would be to oppose its abolition. I was proved right and others were proved wrong.

Mr. Evans

I am delighted that my remarks drew that contribution from my hon. Friend. That is an indication that when the proposition was put to the test when the Labour Government were in office all responsible bodies, especially consumer organisations, argued cogently against the registry's abolition. It is a sensible Government who take note when strong representations are made to them. However, the Government have revived the proposal and are pushing ahead with it. As their behaviour in another place has indicated, they are not entirely sure-footed.

The Labour Government were persuaded by the arguments presented to them to continue the registry. They promised that amending legislation would be introduced to enable fees to be charged fully to cover administrative costs. There was a great deal of other legislation introduced by the Labour Government and when their Companies Bill was introduced it was subsequently lost. However, they fulfilled their intention of bringing such a Bill before the House.

The Registry of Business Names was first established in 1916. The 150,000 who were demonstrating against unemployment at Trafalgar Square yesterday said much about the Government's attitudes going back to the 1930s. However, we are now considering legislation that goes back to 1916. The registry was established to ensure that aliens divulged their true indentity behind the name under which they were trading.

The problem is that the fees charged have been too small. This had led to the registry operating at a loss. The original charge in 1916 was only five shillings. Since 1916 it has been increased only once and it now stands at £1. The Government have been only too willing to increase many other charges. The prescription charge has been increased from 20p to £1. Why do not the Government increase the fees charged by the registry, instead of abolishing an organisation which is doing a great deal of good work merely because it is making a loss? I suggest that it is making a loss only because the charges have not been increased in proportion to other costs. It has been estimated that a charge of five shillings in 1916 would warrant a fee of £7.50 today.

When the Labour Government were considering their legislation they took fully into account the recommendations of the Jenkins committee, which recommended a substantial increase in the fees charged to the public for the use of the registry and suggested that a small annual registration fee should be imposed. The Jenkins committee, which was an authoritative body, recommended that the registry should be reorganised to enable it to provide more reliable information. It said that more publicity should be given to the statutory requirements imposed by the 1916 legislation and that these should more vigorously enforced.

That important point was made. One might talk about the body saying that not enough information was being given, that some people still did not register and that they were divided by the law, but the Jenkins committee said that what should be done was that the registry should be tightened up and reorganised and improved, but not abolished, as the Government propose to do today. There should be a stronger Registry of Business Names, but the Government are abolishing it.

Reference has been made to the television programme at the weekend—"That's Life"—on which there was an example of a person who was involved in furniture sales. People sending the furniture back tried to find out who the owner was. Eventually the BBC had to intervene. There has been little strengthening of consumer protection by the Government, so bodies such as the BBC now have to act as consumer protectors. The BBC eventually found out who the owner was. Having dug deeper, it found out not only that the person had been trading in furniture on that occasion, and that people lost money, but that he had gone bankrupt—yet again. On several occasions he has operated under different company names.

Some carry on trade under about 20 different names. That man was working down the catalogue. After he had gone bankrupt while operating under one trading name, he moved on to the next one and then became bankrupt again, and so on. People are losing their money. They are being led up the garden path by what they think are reliable trading companies. No protection is being afforded by the Government.

The advertisement which many of those people saw was in The Observer. I have great respect for that paper, which is one of the better newspapers. Unfortunately for The Observer, that advertisement was in the classified advertisement columns. There are consumer guarantees for advertisements on other pages, but not under classified advertisements. That person was using a responsible Sunday paper to advertise his wares. He said that magnificent furniture could be obtained at a low cost. Those people were cheated. It is important to introduce this matter into the debate because it comes on the day after that programme. That person was not operating under his own name. He will now operate under his son's name. Therefore, he is carrying on, and more people will be cheated.

If the Government are concerned with protecting the consumer, they should take action. They should not be hidebound by their ideas about increased competition or increased fraud.

Mr. Bowen Wells (Hertford and Stevenage)

Does not the hon. Gentleman agree that in some ways the existence of the Registry of Business Names protects the fraudulent operators? A consumer dealing with a company that has been registered as a registered name assumes it to be a properly run and organised company. In that way, he is duped because the registration of the name under the Companies Act 1960 guarantees no such thing. Therefore, the Registry of Business Names in itself is misleading to the consumer.

Mr. Evans

The hon. Gentleman makes a good point. However, I am not saying that there are adequate safeguards now. The whole episode shows that, despite the Registry of Business Names, fraud is not dealt with. I accept that point. I hope that I shall carry the hon. Gentleman with me in saying that there should be a tightening-up. The Registry of Business Names at least means that there is a source to which people can go if they want to seek remedies, or to take legal action. If there is no method of control and if any Tom, Dick or Harry can open up a company without any reference to a business registry, the scope for fraud will be increased. Let us go back to the origin of the Act. People could come from abroad and set up business without any check. Therefore, the Act was brought about to introduce some checks. The Government are now abolishing any check.

I shall refer to what has been said by the Consumers Association about the Bill. It is working with the National Consumer Council and other consumer bodies. It says: It is a basic principle of honest trading that anyone who sets himself up in business should be prepared to say who he is. Until now, the Register of Business Names has existed to provide this information by means of a public register giving details of those who do not trade under their own name. The fees payable to the Register have not been changed since 1916 and the registration arrangements have not been modified for the present day. As a result, the Register makes a considerable loss and does not provide a fully comprehensive service. I accept that the registry makes a loss and does not provide a comprehensive service. However, if something is not perfect, one seeks to make it perfect. One does not remove it. The Government's policy is sadly mistaken.

The Consumers Association continues: There is a need to reform the Register and put it on a sound financial basis for the future. If the Register is abolished, an important source of valuable information will be lost for the business community, for customers, for those involved in the enforcement of the law, and for journalists concerned with business affairs. As a result, it will be far more difficult to control those traders who behave unsatisfactorily under one name and then change to a different one. The measure is a licence to carry out fraud because it means that people who are found out for organising their enterprise under one name can now more easily change the name and carry on with their operation. The Consumers Association continues: The Government's solution (clauses 28 to 32) would require customers to find out the identity of all traders in advance, in order to guard themselves against transactions which might prove unsatisfactory. This would undermine relationships between traders and their customers. Furthermore, journalists, law enforcement agencies and many others who are concerned to find out the identity and something of the antecedents of those in business would be excluded from access to this information. We would deplore this. That telling argument has been made by the Consumers Association, supported by the National Consumer Council, a body set up by the Government to deal with consumer protection. It is supported by other consumer organisations such as the Institute of Trading Standards Administration and the Newspaper Publishers Association. One can see why the newspapers are concerned, because the man to whom I referred slipped into the columns ofThe Observer. One can imagine what will happen in the future. Those bodies are deeply concerned by the action which the Government are taking.

The registry provides a useful source of information for potential creditors, for those proposing to register new names and for those who wish to avoid the risk of a passing-off action. It is essential for consumers to have adequate information about the identity and status of those who provide them with goods and services. Consumers should be able to do business on the basis of reasonable trust. It would be in no one's interest if consumers had to make a point of obtaining at the outset the names and addresses of the proprietors of a trading firm.

One wonders why the Government are introducing this clause now. I believe that the real reason is that the Department, like all other Departments, has been told that it must cut back on spending and on the number of its civil servants. The Government are seeking to make a fundamental change at the worst possible time, when companies are falling like leaves in autumn. Many small business men who have become bankrupt in the past two years want to get back into business. There is some restraint on them because of the registry.

There is sufficient reason to vote against the Bill. I hope that the Government will reconsider, if not today, then in Committee. Earlier today I asked the Secretary of State for Trade what further action he proposes to take to protect the consumer. In reply the Minister for Consumer Affairs said: The record of the Government over the past two years shows we are very ready to take steps to help the consumer both through strengthening competition and in other ways. I have a number of measures in train and will take further action as that proves necessary and practicable. The Government can take one necessary and practical step now. They can withdraw the clause, which does away with an important defence for the consumer and represents a measure aimed at maintaining good business practice.

6.21 pm

Sir Brandon Rhys Williams (Kensington)

I am glad of the opportunity to contribute to the debate. The House knows that I find company law an absorbing interest, and I have sought to introduce a measure of company law reform in every Session since 1969. The way that we organise ourselves for the creation of wealth is fundamental to our social structure and the success of our economy. If our company law is obsolete or contains provisions which belong to out-of-date political or social attitudes, or which run against the best interests of the economy, the House is allowing damage to be done that affects millions, and perhaps even tens of millions, of people. I am particularly pleased that the Department of Trade seems to be imitating me in introducing a measure of company law in every Session. Long may it continue with that enthusiasm.

The Department is indeed to be congratulated on insisting that parliamentary time must be found this year for a measure of this importance. I welcome the Bill wholeheartedly. It contains a number of good, necessary and timely measures. However, I have some doubts about it. I do not believe that the Department is moving quite as fast as the current of events. Even when the House has passed the Bill, with or without the Registry of Business Names, which I cannot believe is the most important element in the Bill, our company law will still be obsolete and will be failing to meet the needs of our rapidly developing technical situation.

Three aspects of company law are very important indeed. One is the supervision of management. The right hon. Member for Lanarkshire, North (Mr. Smith), my hon. Friend the Member for Hornchurch (Mr. Squire) and others have mentioned the privilege of limited liability. That is the crucial point. Some of my right hon. Friends are rather obsessed with the need to allow business men to get on without constantly being dictated to by Ministers or civil servants or being restrained by provisions of law; but we must remember that the privilege of limited liability was granted to companies on condition that they conducted their affairs in a way that would allow consumers and others who dealt with them to have confidence that they were properly run.

In recent years we have had all too many examples, even involving well-known national firms, where we have discovered all too late that they have not been run as well as they should be. I am speaking not only of fraud, although there have been alarming instances where criminal or near-criminal practices have been allowed or, at any rate, have persisted in spite of the provisions of the law. What concerns me is the existence of a large number, particularly of public and quoted companies, that are not as efficiently run as they should be. I do not believe that the Bill will make a significant difference in that respect.

There has been much talk about self-regulation, and we have looked to the City to provide measures to improve company management, but I am bound to say that the Stock Exchange has been less than equal to the trust placed in it in the way that it has supervised companies with shares listed in London. In New York, under pressure from the SEC, the Stock Exchange includes provisions in its listing agreements that are much more stringent than the Stock Exchange in London is disposed to apply, for instance, in regard to the practice of appointing an audit committee. Moreover, for many years it has been obligatory that companies quoted in New York should have outside directors—and that is the point in regard to supervision that I come back to again and again.

The nature of the British board of directors has changed greatly in the past 30 or 40 years. What one might call the managerial revolution has brought on to the board people who are not directors in the old sense, in that they supervise the work of the executives. They are the executives themselves. They are the heads of departments meeting in a more formal atmosphere than they normally would as they work together in the firm each day. Unless the company includes an element of independent judgment at board level, there is always the risk that the business will grow inefficient because it becomes inbred or does not have enough pressure brought to bear on the executives from people who can see wider horizons than the heads of departments.

Clearly, in firms where there is an independent or able chairman he can act as a sort of one-man supervisory board. I do not recommend that we should move towards the German practice of appointing a completely separate supervisory board for all our companies, although. in fact, many of them have adopted that formula without saying so or, possibly, even being aware of it. The company in which I served for 14 years with tremendous advantage—ICI—has what is in effect a supervisory board.

I should like to see in the Bill more than the rather tentative provisions in regard to directors' reports, disqualification of directors and the interesting new duties of the auditors in clause 15. We need to consider the role of non-executive directors to enable them to function more effectively. We should also consider the way in which directors are elected, so that elections are more open and shareholders are given more choice.

We should also tackle the large problem of all the free Western economies afflicted by an unpredictable rate of inflation—that the flow of savings into investment from the normal sources of finance is inadequate. More and more companies in more and more countries are having to look for funds to the taxpayer or to try to keep going through Government expenditure. They are not able to obtain the necessary finance because they cannot see far enough into the future to make the commitments that companies made in Victorian times when, with the benefit of the gold standard, there was no risk that prices would change so much that a company would be unable to meet its commitments.

It is a very useful development that companies are to be allowed to buy their own shares. This is extremely significant for small companies.

Mr. Donald Anderson (Swansea, East)

Has not the problem of a source of finance other than the State been solved in the German context by a two-tier board and by the banks traditionally having not just a role of equity financing, but a role on the supervisory board?

Sir Brandon Rhys Williams

The hon. Gentleman is drawing attention to a matter to which I am about to come. It is true that German company law is different from ours in respect of the way in which boards are organised, because German industry expanded rapidly at a time when there was not a flow of savings as there was here, in the United States and to some extent in France, from investors with money to put into shares. German companies had to look either to the Government or to the banks to finance their industrialisation. The banks were therefore in a much stronger position than ever they were here—until now—and they were able to place on the boards of companies nominees who retained a supervisory function. That is why, even 100 years ago, the Germans began to develop the idea of the supervisory board. Later, they added the idea that worker directors should be appointed to the supervisory boards. People make a mistake if they do not recognise that that was a much later development. However, the hon. Member for Swansea, East (Mr. Anderson) was right in what he said.

The dilemma of the perfectly sound British business which at present is not profit making but which has confidence in its future and wishes to expand or to modernise is real, and we should find ways of amending our company law to assist boards of directors who find themselves in this position. They may have very large and growing commitments to the bank without any long-term view about how they are to pay off the debt. With interest rates as high as they are, and fluctuating as much as they do, it is difficult to run a business on the basis that the capital is subscribed by the bank in the form of short-term loans.

Before the war, a company which found itself in that position and which knew its business to be sound was able often to solve its problems by the issue of debentures. But in inflationary conditions there are no buyers for debentures except on terms of interest so high that no prudent board would think of issuing them. We have to find a way, therefore, of putting companies in a position where they can issue debentures which are dynamised in some way, or which protect the investor against inflation from year to year. The recommendation that I have is that companies should be entitled to sell their value-added forward and not only to commit their assets as they would in a sale of debentures.

This is not an invention of my own. It is much discussed by accountants and others who know clients with this problem. The difficulty is that if a board issued a share that was related to the performance of the company regardless of its profitability from year to year, it would not have the tax advantage that a debenture has, yet it would have the character of a prior commitment on the turnover of the firm.

I think that there is room for a tax concession which would cost very little but which would allow companies sufficiently adventurous to do so to approach the market in this new way. I think that this has to happen. Although my right hon. and hon. Friends are making considerable progress in the fight against inflation, it is still at an unacceptably high rate and fluctuating so much that no business man looking 10, 15 or 20 years ahead can possibly predict what the position of his company will be. It is impossible to run a capitalist society on the basis of predictions running for only a year or 18 months at a time.

I wish to draw attention to what, in my opinion, is an extremely interesting contrast. It is the difference between the status and rights of investors in companies and the status and rights of landowners. The ownership of shares and the ownership of land are only different forms of investment from which people are able to draw income. For historical reasons, however, investors in companies expect that the profit and loss will accrue to them. If the company does well, they expect the whole of that profit to be distributed to the shareholders. The reverse applies to land. The tenant takes the profit and loss as seasons change and he does well or badly with his harvest; the owner of the land takes a fixed return.

There is a lesson to be learnt from the fact that relationships between the investor and the worker on the land are generally harmonious and that agriculture is one of our most efficient industries, whereas relationships between shareholders and workers are deteriorating and manufacturing industry is causing us increasing alarm, if not despair.

A subject that is not touched upon in the Bill is that of employees' rights and interests in the British limited liability company. After a considerable struggle, we were successful on the last occasion in getting a provision in company law that mentioned the employees, I think for the first time. That great landmark, the 1948 Act, does not mention employees anywhere in its hundreds of sections. Now, the directors must have regard to the interests of their employees, and that is a step forward, even if only a rather symbolic one.

The way that we organise ourselves for work in the private sector is obsolete and goes back to times that are long buried by universal suffrage and all the social changes that have occurred in the last 100 years. The way that we organise ourselves in limited liability companies is like a game of Normans and Saxons, where the investors and managers regard themselves as superior characters and the workers have a secondary status, rather like a conquered people who have to do what they are told and have very limited standing.

I do not think that we can go on with this "two sides" mentality which is so deeply embedded in the nature of our company law. On the Continent—Germany is only one example; the same applies to Denmark, Holland and other countries—company law is much more considerate of employees' rights. Provisions of a much more detailed and much more civilised character are built into the law for dealing with disputes and redundancies. The laws provide that workers are duly consulted about the policy decisions of their firms and their rights are respected as a matter of statute, not simply as a matter of custom or because an uneasy truce has been struck in the war between the Normans and Saxons in company activities.

We need to recognise in our company law that there has come a change in the character of investment and that there is also a change in the attitude of workers. Investors are becoming less like speculators and more like banks. The big institutions are not like the speculative investors of the old days. They are looking for long-term growth and steady appreciation. They do not want a flickering, exciting share of the kind that is always good news in the club, which was the speculative Stock Exchange investment of 30 or 50 years ago. The institutions are looking for the sort of firm that will expand with the economy, or do even better, and will remain strong in its share of the market and continue 30 or 40 years hence to give them the sort of yield that will enable them to meet their own long-term commitments.

Just as investors are changing in character and we need to cater for a different class of investor in the way that we offer shares through our company structure, so the employees are behaving less and less like casual labourers of the sort that feature in the works of Ricardo and the nineteenth century economists. They are becoming much more like partners in the business. Perhaps this change has crept up on us unconsciously; but workers of any seniority and standing in a firm now have a strong stake in it through their claims to its pension fund and through their claims to redundancy compensation if their firm should be wound up or they lose their jobs. They also have an increasing stake in their company because of the advance of technology. The skills' which they acquire in working for their own firm are less and less likely to be marketable in any other. Until recently, a skilled fitter, plasterer or someone qualified in one of the standard trades could move from firm to firm without too much difficulty. However, as our technology has advanced it has become more difficult for a man to leave his firm, and his stake in the company's success has become a long-term consideration.

I understand that the Government are not averse to accepting significant amendments in Committee. Either in this Bill or the next one, they should consider ways of providing new opportunities, or even tax incentives, in order to develop the practice of employee participation in management decisions.

It is fair to say that our company law reached a high degree of organisation in the 1948 Act. I am not sure whether the amendments made since then have added to its grand concept or to the degree of civilisation of our company law. During the nineteenth century partnership law was developing in parallel with company law, but tragically it seemed to atrophy at about the end of the century. As a result, in the twentieth century there has been no significant development in the concept of partnership in our law.

There have been some notable exceptions, where pioneers and philanthropists have operated partnerships on a large scale; but partnership in Britain usually involves 10 or 20 individuals—on rare occasions somewhat more—in a professional capacity such as the Stock Exchange or the law. The idea of a partnership as an industrial undertaking has not made any significant development. The Liberal Party often draws attention to this fact, but I regret that its recommendations seem artificial and do not seem to me to be based on such experience as I have gained of industry.

The "two sides" mentality in industry is destroying our society and our economy. In this Parliament, the Government should take radical measures that will allow us to organise ourselves for work in a way that does not constantly give rise to conflict or to the idea that the interests of capital conflict with those of the workers. I should welcome what is known on the Continent as the "historic compromise". I mean that we should work towards a post-Marxist, post-Ricardian solution to the problems of organisation in the creation of wealth.

Investors will have to disclaim the right to the whole of the equity profit. They will have to be content with something equivalent to a debenture or participation in the value-added. And as their half of the historic compromise, the employees will have to give up the right to strike. That is what partnership means. Once a person has become a partner in an enterprise, he will damage himself if he withdraws his labour. Hon. Members may think such concepts futuristic. However, there is no time to talk about such things as if we do not ourselves have to do anything about them. We must act now to make such developments at least a possibility. In point of fact, the change in the status of the workers and in the claims that investors can make on their companies has already begun to take place. In the past two or three years of economic difficulty we have all been forced to think in terms of company survival rather than the boneheaded continuation of the "two sides" conflict, which had become normal industrial practice since the war.

The Government should therefore introduce a range of options in company law to allow businesses to experiment with new forms of human relations and new types of capital structure, which will encourage efficiency, unity of purpose and social responsibility in the way in which our financial and human resources are brought together in the creation of wealth.

6.44 pm

Mr. Donald Anderson (Swansea, East)

The hon. Member for Kensington (Sir B. Rhys Williams) is always good at raising our sights from the micro details of share dealings and forms of accounts to new pastures. At one stage, I thought that he did so in a quasi-Marxist way, in terms of alienation and the crises of systems. I should love to follow him into those pastures, quasi-Marxist as they may be—

Sir Brandon Rhys Williams

Post-Marxist.

Mr. Anderson

I stand corrected. The hon. Gentleman also says that his heart leaps when he sees new companies Bills. I cannot say that my reaction is the same. I emit a deep groan when I see a companies Bill. Although the piecemeal reforms of company law, which are made with increasing regularity, may be good for accountants and for those who advise business men, they are not good for those who have to pay for the advice and who have to find their way through the increasing labyrinth of company law.

Much of part I deals with the implementation of the fourth directive. For a reasonable critique of those clauses one must rely heavily on the experts and practitioners who are in the front line and who can advise us of the difficulties that may be faced. If any Bill is suitable for the new procedure, under which those who earn their bread and butter on the front line can advise hon. Members during initial sittings, this is it. There may be partisan edges to the Bill, but on the whole it is non-partisan and highly complex. If the Government take the new procedure seriously, they will realise that this Bill is eminently suited to it. I fear that, like all Governments, the Government will refer to the parliamentary timetable, to the end of July, to the Royal Wedding and so on. However, this much-heralded Bill was not introduced until February. Therefore, the problem is one of the Government's making. Had they been clearer about their direction and more mindful of parliamentary scrutiny, they might have allowed time for the adoption of the new procedure.

Mr. Lawrence

Is that not a hollow suggestion? The last time the Government used that procedure—for the Criminal Attempts Bill—they had to alter drastically the heart of one of the Bill's principles as a result of the evidence given. Governments will be reluctant to use that procedure in a Bill such as this.

Mr. Anderson

It is hardly a hollow suggestion. That sounds an eminently good precedent. However, it was a different type of Bill and was of a more partisan nature. Much of part I of this Bill is technical and complex and concerns how accountants and the professions will react to the particular form of company accounts. Given the criticisms that have been made of the Bill, it is unlikely—however good a precedent was set by the Criminal Attempts Bill—that the heart will be torn out of the implementation of the fourth directive.

As to the complexities, one has heard from the accountancy profession of its concern about the increasing conflict between statute law and the recommended practice of the professions in these fields. One thinks also of the fears of accountants about the scope of their duty under clause 15, which would require the auditors to consider whether the information given in the directors' report is consistent with the accounts and to state in their report any inconsistency. This may impose an impossible task—certainly a very difficult task—on auditors, as outsiders, more or less, by definition, in passing a view on what may be a fairly general comment within the directors' report on a particular financial year. More guidance and assistance is needed on the way in which the Government see clause 15 working in practice.

Some of my hon. Friends have said that we have yet another Companies Bill without any reference to either the interests of consumers—substantial parts of the Bill appear adverse to their interests—or to employees. This relates particularly to the point made by the hon. Member for Kensington, and his "historic compromise" and the symbolic inclusion at last in company law that, in passing, genuflection should be made in the direction of employees, however unenforceable that may be in the courts.

The Government have been quite unbending against the almost universally critical response to their proposal to abolish the Registry of Business Names. I shall not go in detail through the briefing which the National Consumer Council has given on this matter. The Government are aware of the council's points of detail. In many respects, they appear to be of substance. The council says, in short, that the abolition of the registry could produce a paradise for shady traders, who would find it much easier to conceal their true identity, from consumers, trading standards officers and investigative journalists and broadcasters trying to track them down. The council concludes that the Government should retain the Registry of Business Names in a new, revitalised and self-financing form. If the Government are so concerned about the hard cash of this matter, it is not difficult to increase the registration fee.

In points of detail, the council states that consumers need to be able to trace the correct name and address of the trader whom they wish to sue, which is essential if they are to pursue a court judgment to enforcement.

The council refers to the problems of investigative journalists. The Minister will know of the complaints that have been made not only by the Esther Rantzen show, "That's Life", but also by that extremely valuable BBC "Checkpoint" series—in which I have been involved in relation to some matters. I find that an ideal weapon against the fraudulent trader. Such programmes have shown considerable concern about the extent to which the work that they do, albeit as troublemakers but on behalf of the consumer, will be hampered by the Government's decision to abolish the registry.

As to particular flaws in the Bill relating to consumers seeking to enforce their rights, the Minister will know that the NCC has mentioned that the new system will be of no use to consumers where a business has ceased trading, and therefore the information that is available within the premises or on the business stationery will be of no assistance. It will be impossible to trace the owners, even though those owners of a business may have peronal assets upon which creditors might be entitled to claim in seeking to enforce their judgments.

Similar problems could arise where a business does not have premises which are open to customers or may move its address frequently. The NCC has asked: How will the new requirements be enforceable against mobile-van traders, itinerant 'hotel sale' traders or market stall holders? It won't be easy for a mail-order customer in Nottingham to find out who owns a defaulting business in Exeter. Another point of detail is that the provision that the true names of business owners and the business address should be displayed inside trade premises is manifestly inadequate, in that for some reason there may be problems of access to the interior of the company premises. The NCC suggests that there should be an obligation on companies to display the home address of the business's owner or owners. A consumer who has, for example, through inadvertence, disposed of the business stationery after a purchase may thereafter have no right to ask for details of the owners of the business later in order to sue. Thereafter, if the consumer goes to a trading standards officer of a local authority or to an investigative journalist, those two gentlemen would find it difficult, if not impossible, to find that information as they would have no locus standi in relation to the business.

The NCC also suggests that it is wrong that no time limit is given for disclosing information, and it suggests a 21-day limit. I hope that the Minister will consider that matter carefully in Committee.

This matter is of importance not only to consumers generally. The Minister may have noticed some trade union pressure in this respect. One trade union official, the London district secretary of the Furniture, Timber and Allied Trades Unions, has said that for those in the trade union movement that registry has been an invaluable source of information, particularly for tracing the employer who has abandoned the ship with unpaid wages, accrued holiday pay and other entitlements. As the Minister knows, there has been an almost universal rejection of the proposal to abolish the registry, not just from those areas from which he might expect such criticism—consumer interests—but also from the CBI. It appears clear that in this matter the consumer side of the Department, if it had any voice, has been completely overruled by the companies side, which has taken a narrow view of the Department's responsibilities.

It is not just the consumer side that has been overridden in this way. As many hon. Members have said today, it appears that the decision to seek to abolish the registry owes more to the euphoric immediate post-election view of a bonfire of controls and of cutting back the public sector—of "public bad; private good." This is a hangover from that period, which is juggernauting on, although all those who use the registry and are directly involved have sought to show the Government the pitfalls which will result from its abolition.

In passing, let me say that in our discussions of company law reform, there is always an interesting reversal of roles between the parties—we have made this point during the Committee stages of other Bills—in respect of the traditional attitudes to policing. In other sectors the Government are prone to increase police recruitment, but they are quick to deprive company police of the manpower to carry out investigations and they seek to rely on self-regulation unless there is a tidal wave of opposition from the Stock Exchange and so on. The Opposition, who normally take a more libertarian view, adopt authoritarian views in this respect and welcome moves to give Department of Trade inspectors greater powers to call witnesses and moves to toughen the law on fraud.

One thinks of the timid response of the Secretary of State in the St. Piran case where, in clear defiance of the recommendation of the Takeover Panel, the Government refused to act. The good Mr. Raper must be laughing all the way to the bank, having bought the shares at an undervalued price and at 35p less than the Takeover Panel recommended in June 1980. The Government are particularly coy and reluctant about intervening in an obvious case such as St. Piran, where not only their inspectors, but a unanimous report of the Takeover Panel clearly condemned what was happening.

I welcome the attempt to lift the administrative burden on small companies. Presumably the proposal to allow the repurchase of shares includes, as part of its motive, an attempt to keep family businesses from going public. However, I am a little concerned that "small" is defined as a turnover of up to £1.4 million. Investigative journalists and consumers would need information on such businesses, but they will be exempted in relation to, for example, the form of accounts that they have to supply to the registrar. Presumably they will still have to give full accounts to their shareholders, and it seems odd that they will have to go through those two exercises and that creditors will not have the material that is available to shareholders. That proposal falls into the same category as the abolition of the registry and represents another hurdle for the interests of consumers.

I welcome the Government's re-think on the statutory registration of share interests by parties acting in concert. I recall the Opposition's attempt on the previous Companies Bill to introduce a new clause following the Consolidated Gold Fields case. We were told that our proposals were too draconian and that self-regulation would be adequate. Indeed, the Secretary of State was resting on self-regulation through the autumn of last year and even during debates in another place. Happily, that self-confidence has gone—weighed down by the combined pressure of the City and business interests that demanded tougher measures.

The Minister for Trade knows only too well the conclusion of the report by Department of Trade inspectors on the Consolidated Gold Fields affair. The consultative document issued on Friday last week may go a long way to cover the points that we raised during the passage of the previous Bill. There may not be many prosecutions. I suspect that no prosecutions are pending as a result of the insider dealer provisions included in the previous legislation, but they may have a deterrent effect on those who would otherwise be inclined to err.

The Government have clearly recognised that there was a lacuna in the law, through share buying by nominees, particularly foreign nominees. That was revealed not only by the Consolidated Gold Fields case, but by Dunlop and, earlier this year, by the Renwick group case. It is important that companies have the right to apply to the courts to have shares frozen when ownership cannot be determined and that they should have the Night to investigate their own share registers.

We shall have to look carefully at the consultative document issued early last month and to amend the Bill where unacceptable similarities of names occur. The Government's stance on the publication of the Bill and throughout debates in another place has clearly proved to be untenable. They have moved substantially, though I join my right hon. Friend the Member for Lanarkshire, North (Mr. Smith) in asking them to look carefully at the six-week period for investigation. Much damage can be done during that time.

A constant refrain of those involved in company law debates is the need for consolidation, because of the growth of company law statutes at an increasing pace. We had Acts in 1948, 1967, 1976 and 1980. In its way the growth is rather like the steady increase in population growth. On its introduction to another place, the Bill had 109 pages and 62 clauses. When it reached this House it had grown to 131 pages and 79 clauses and it is certain to grow even more as a result of the two consultative documents, let alone any amendments accepted in Committee. It will be a weighty measure by the time it leaves us.

I sometimes have a nightmare that company law reform is similar to a giant snowball. As it rolls downhill it picks up new items. Insider dealing provisions were added to the previous Bills and loans to directors, concert parties and an amendment dealing with names that are too alike—which we thought had been left behind—may be added to this Bill. The snowball gains momentum until one gets the impression that the whole thing is out of control.

The seventh directive from the EEC will also have to be implemented, as will a conveyor belt of other directives. Perhaps the pipedream of one consolidated statute cannot yet be achieved. An ever increasing number of statutes with little or no consolidation is not the way to run a legislative railroad. There must be a better way. It can perhaps at last be tackled by the welcome process of clause 76.

7.10 pm

Mr. Nicholas Baker (Dorset, North)

I shall not follow the remarks of the hon. Member for Swansea, East (Mr. Anderson) too far except to say that I can never make up my mind, listening to the comments of Opposition Members, whether they welcome measures to deal with matters of urgent importance. I agree with the hon. Gentleman that the Bill, especially the technical and accounting provisions at the beginning, would be suitable for the new procedure. I recall the roars of derision that greeted the Minister for Trade when he suggested during discussion of the last Companies Bill that there were matters that he would include in another Companies Bill yet to be produced. I congratulate my hon. Friend on introducing the second Bill. Two Bills in two years must be a record.

I am concerned about one aspect of the consolidation provision. I should like my hon. Friend to explain whether this novel procedure means that the Bill will come before the Select Committee on Consolidation. I cannot see any reason why it should not do so. Nor can I see any reason why, if it did, the consolidation measure should be held up. Like anyone involved in the practice of company law, I welcome consolidation.

The Bill implements the fourth EEC directive. As the hon. Member for Swansea, East remarked, it seems that we shall be receiving company law from the EEC rather than from the Jenkins committee. I urge the Government to take much greater interest in the progress and process of these directives at Brussels. An example of a directive that was growing in a manner inimical to company law and to companies and businesses in this country was the fifth directive on participation which threatened, at one time, to contribute nothing useful to participation or to company law in this country. I hope, therefore, that much closer attention will be paid to the progress of these directives in Brussels. They will play a much more important role in company law in the future.

I hope that the Government will ensure that these directives take account of the practices and the highly developed system of company law in this country by providing a series of options rather than one overall method that has to be imposed throughout the Community. I pay tribute to my hon. Friend the Member for Kensington (Sir B. Rhys Williams) who feels that company law should play a much greater part in social policy than I do. My hon. Friend might agree that it is undesirable to have social policy in company law imposed from Europe. It is much less likely to be suitable than the social policies that we devise for ourselves.

I record some disappointment that the smallest rank of companies will be required to maintain an audit. I am not suggesting that they would not want or need to produce accounts. I do not, however, attach the same weight to the importance of audited accounts, whether for Inland Revenue purposes or for creditors, investors and shareholders, that some hon. Members attach to them.

More needs to be done in the form of incorporation for small firms, although the avenues for progress are greater in the field of the development of partnership law than in company law. I was interested to hear the contribution by the right hon. Member for Orkney and Shetland (Mr. Grimond). I felt that the avenues for the job ownership company to which he referred lay in partnership and taxation rather than in company law.

I would like to make some remarks about the Registry of Business Names. One gets the feeling, listening to the debate, that there is some great, all-providing, effective British institution once again in peril to which noble Lords of every shape and size are rallying in defence. The registry was started because people were frightened that Germans would come over to this country and start businesses in the First World War. I suppose that if Germans now came to this country, we would be much more likely to consider them for the Queen's Award.

The registry provides for limited information. It gives no protection. It does not give any right in the name. It does not give any protection against third parties. It is simply an information exchange. The tears I began to feel welling in my eyes when I heard about the plight of investigative journalists almost impaired my capacity to remain in my place. The information really is extremely limited. I do not know how many hon. Members are aware of how limited it is. The idea that investigative journalists rely on the registry to do their job seems to me ludicrous.

The registry is, in practice, substantially ignored. It is not a check on fraud. It has only a limited use in the consumer field. Those who are consumers buy from people. They buy from shops. They buy in writing through mail order. They have remedies against the people from whom they buy and with whom they deal.

I am not suggesting that the Registry of Business Names is entirely useless. The answer to the question "Are you saying that the Registry of Business Names has no use and performs no function?" by the union to which I belong and to which reference was made by the right hon. Member for Lanarkshire, North (Mr. Smith) is that it does perform a limited function. I do not believe, however, that the Law Society or many other professional bodies have considered adequately the strength and the efficacy of the protection set out in the Bill.

There may be a case for beefing up the registry. I do not believe, however, that any beefed-up registry is a satisfactory method of dealing with fraud. The idea that those who engage in fraud—the people manifestly who do not register with the Registry of Business Names—would be any more likely to register if required to pay higher fees seems another example of putting hope before experience. We want to provide protection for consumers. I believe that this task is already tackled. The people who need the information are businesses, large and small, and those who deal with them. I believe that the provisions of the Bill are a substantial contribution towards that aim. I wish to make two points—

Mr. Lawrence

I have listened with care to my hon. Friend. He does not appear to have listened with care to the remarks of a former chairman of the Consumer Council, Baroness Elliot of Harwood, who said in the other place: At least half the inquiries which come before it"— that is the Consumer Council— have involved tracking down the company through the Registry of Business Names".—[Official Report, House of Lords, 19 March 1981; Vol. 418, c. 867.] That seems to be substantial evidence that the Registry of Business Names is a very effective medium for protecting the interests of consumers. Will my hon. Friend direct his argument to those words?

Mr. Baker

I did not see the remarks to which my hon. and learned Friend referred. They suggest that tracking down the companies would have been done more effectively through the companies registry. I doubt that protection is afforded by such tracking down.

There is a case for widening the class of business communications which will require the information covered in the Bill. The provisions must be properly enforced. We must make it clear that penalties will be imposed on people who do not carry out the provisions. We spend far too much time legislating for small penalties and failing to enforce them. There is a strong case for providing much higher penalties. I wonder whether the penalties in the Bill are high enough.

I welcome the Bill. People involved in the business sector and people in the professional sector advising businesses will also welcome the Bill.

7.21 pm

Sir Graham Page (Crosby)

I apologise for being absent for part of the debate because of parliamentary duties on a Select Committee. I was here in time to hear the hon. Member for Swansea, East (Mr. Anderson) say that the Bill would be useful to accountants and solicitors who would be able to collect money for advice. Neither accountants nor solicitors, of which I am one, welcome complicated legislation because it provides far more chance of them giving bad advice, with the result that insurance premiums for negligence go up enormously. We would welcome simple company law reforms.

The Minister assured the House that he did not intend to introduce a Companies Bill every year. I am glad that there has not yet been a shuffle in the Ministry and that my hon. Friend the Member for Kensington (Sir B. Rhys Williams) has not taken over, because he introduces a new Companies Bill each year. For the past 20 years, or at least since Jenkins reported in 1962, Parliament has been in a perpetual state of waiting for a Companies Bill. Even when Parliament has before it a Companies Bill such as this, another Bill is anticipated.

Those of us who are enthusiasts and want to reform the whole of company law try to use the Companies Bill which is floating through Parliament at the time to introduce valuable amendments. However, all that we are told by the responsible Minister is "Pas ce soir Josephine". I shall translate. It means "Not in this Bill, but in the next one." So we go on.

I was a little horrified when I read part I, because each of the half-dozen Bills introduced in the last 20 years has added more and more requirements to company law and to the inverted pyramid which has to be balanced on the head of small companies in particular. The small companies have suffered from many complications in company law. In each of the Bills of expediency that have been introduced, and in the regulations and orders which they have spawned, the requirements of company law have piled up on the small company.

The small family company was the acorn from which many of our great industrial and commercial oaks grew. I wonder whether that acorn would have been planted if there had been all the present requirements of form filling and filing and the procedural and administrative responsibilities which now fall on those who try to run small companies.

I was horrified by part I and the prospect of the harmonisation of company law in the European Community. The advocates of harmonisation really mean "unison". I do not believe that such harmonisation is the road to unity in commercial endeavour within the Community. I am, of course, pro-European, but I do not go along with those who are like the ardent church-going hymn singers who believe that the only way to heaven is in a four-part harmony. I believe that in some cases harmonisation can be successful, but I am not enthusiastic about putting into a statutory straitjacket—as part I does—the self-regulatory flexibility of the company accounting arrangements developed by the consultative committee of accounting bodies, to which the Minister paid tribute, the Accounting Standards Committee, and the Auditing Practices Committee. The Bill puts them into legislation.

I was somewhat relieved when I came to the clauses dealing with accounting exemptions. There at least we are going a little along the road to the categorisation of companies and a code of exemption from form filling and filing for small and medium-sized companies. Perhaps it is more of a narrow lane than a road. Companies are not relieved of preparing the information, only of filing it with the registrar. Furthermore, they are left with some burdensome responsibilities imposed by previous Companies Acts. That is right for the listed company which is seeking investment and the confidence of the public, but I had hoped that in the Bill we could have found more opportunity for relieving small companies from some of the burdens.

I welcome the clauses that deal with directors' reports. To the ordinary layman the directors' report is far more important than the accounts. He can understand it better. He will believe something in the directors' report more than figures in which he believes there might be a catch. Clauses 13, 14 and 15 contain improvements to the informative value of directors' reports. Clause 16 disposes of some unnecessary information. I hope that the clauses will be accepted by the professions.

If there is to be harmonisation, the Government must be congratulated on getting in early, certainly earlier than many other European countries. The Government should be congratulated, too, on getting it in this flexible form and setting a precedent rather than having to follow precedents which may be set by other countries. So we must be thankful for small mercies.

However, I cannot be thankful for part II. I am opposed to the abolition of the power of the Registrar of Companies to refuse to register a company in a name similar to that of an existing company. I am opposed to the abolition of the Registry of Business Names. On the first matter—the registration of a company's name—can anyone seriously condone the registration of a name which, although it is not the same as one that is already registered, is so similar as to be misleading? The Bill is an invitation to mischievous people to register such a name.

I entirely agree with the Minister and his Department about reduction in public expenditure. If the Bill reduced the checking of names, and thus released staff and saved resources, there would be some logic and reason in the provision that the Registrar of Companies could allow similar names to be registered. But, according to the Bill, a substantial check will still be needed, and surely that will take just as long as the present check.

It will be necessary to check the position of the name "limited". That is fairly easy. It will be necessary to see whether the name is the same and to consider punctuations, size of type, and so on. It will be necessary to check whether, in the opinion of the Secretary of State, the name constitutes "a criminal offence". It will be necessary to check whether, in the opinion of the Secretary of State, the name is "offensive". That cannot be done by the office boy. A certain amount of discretion is needed to make those decisions.

It has to be decided by a check whether the name is likely to give the impression that the company is connected in any way"— I underline the words "in any way"—with the Government or local authorities, or to check whether it includes any word or expression for the time being specified in regulations made under section 31 of this Act". We do not know what those regulations will include or which words or expressions they will exclude from the titles of companies. In my opinion, a substantial check will need to be made.

I do not know whether I heard the figures right, but I thought I heard my hon. Friend say that the staff now employed on this work was one-third of the number employed in the Registry of Business Names. The figure that I have for the people employed by that registry is 65. Does it mean that only 22 staff are involved in checking companies' names? If so, will the service of those 22 staff really be disposed of, when one considers the type of checks that I read out?

The index of names will still have to be kept. There will have to be special administration under the Bill concerning change of name, companies limited by guarantee, and overseas companies. Where, then, is the saving in manpower or money in allowing the registration of a similar but not the same name?

I have much the same comments to make regarding the Registry of Business Names. I should be persuaded if I thought that there was a saving of manpower and resources by disposing of the registry. However, it was admitted in another place by the Government spokesman that the cost of the 65 staff who run the Registry of Business Names made redundant by its closure would be covered by increasing the registration fee from £1 to £5. That is a perfectly reasonable and acceptable fee.

However, I question whether those 65 people could be made redundant and the provisions of the Bill still be carried out. There would have to be a staff to deal with consents under clause 28(2)(b), or with exemptions from the need for consents. There would have to be staff to deal with complaints from the public and from other traders that a particular trader was not playing the game under clauses 28 and 29. A staff would be needed to prepare cases for prosecution. Surely, inspectors would be needed to carry out spot checks where no complaint may have been made, but about names on letters, invoices, receipts, and so on, and notices on business premises.

I am sure that the administration and policing of clauses 28 and 29 and the regulations which may be made under them will require the 65 staff at present employed. So I conclude that part II seeks to destroy two useful Government services which, I agree, are not perfect but which have proved very useful, and which, if destroyed, will not reduce staff or costs.

Having criticised parts I and II, I am happy to say that I welcome part III. In particular, I welcome the provisions for the purchase by a company of its own shares. From the point of view of encouraging investment, this provision is long overdue. We debated the matter during the last Companies Bill. Careful consideration may need to be given to the size of the company and the restrictions on purchase, but I am sure that the provision will be valuable, particularly to companies whose shares do not have a ready market. Clauses 42 to 46 relate to that matter.

First, in part III, there are provisions to remove the anxieties of the companies which have effected mergers, takeovers, or reconstructions, have distributed the premiums on the share issues, and are now told by the judgment in Shearer v. Bercain that they should not have done so. I believe that the Government are right to try to correct that decision. However, in doing so, they are being over-restrictive in clauses 35 to 41. I shall briefly put on record why I believe that they are being over-restrictive.

In clause 36, the proportion of equity capital acquired to qualify for relief should be 75 per cent. not 90 per cent.—it does not need to be so high—and the distribution being restricted to the profits from one of the merged companies defeats the whole object of the exercise. In clause 37, the formation of a new company or the use of a dormant company is unnecessary. In clause 38, the restrictions to share exchanges to wholly-owned subsidiaries should go. Finally, in clause 39, share-for-share arrangements should be widened to include share-for-share and cash arrangements. I merely put those on record as improvements that could be made to that part of the Bill which otherwise is welcome.

Mr. Parkinson

I am following my right hon. Friend's speech with great interest, and we shall take careful note of the points that he has made. He talked earlier about whether we had not imposed too heavy a duty on the smaller category of company in part I. One of the problems is that, as a result of the purchase-of-own-shares provisions, we envisage that there will be an increase in the number of outside shareholders holding shares in smaller and medium-sized companies. Therefore, the Government were in a dilemma. If we are to encourage outside minority shareholders in small and medium-sized companies, we must ensure that they have access to reasonable information. That was one of the dilemmas with which the Government were presented. At present, many smaller companies do not have outside shareholders, but we hope that there will be more such shareholders.

Sir G. Page

I appreciate that point. A lot now depends on what we mean by small companies. For example, the small company described in the Bill is much larger than what I have always understood to be a small company. That is why I said that we had not gone far enough in the reform of company law in categorising the class of companies. I still believe that we must think in terms of a very small company, a small company, a rather larger small company, and so on. The rules apply differently according to the size and nature of the company.

I have been critical about parts I, II and III. I shall refrain from embarking upon the miscellaneous and supplemental matters in part IV. However, it is strange that time has been found to include a number of insignificant matters to the exclusion of matters which some of us think to be far more important in the reform of company law. For example, what is the point of clause 65 solemnly stating that the registrar shall have power to give a company a number with a letter in it? Does that really mean that the registrar will alter the numbers of existing companies? If he does that, he will be in great trouble over printing. We shall never get it all done. Why add the letter?

That is perhaps a small point, but it is one of those small matters that have been included in the miscellaneous provisions. If there is room for matters such as that, I can suggest some far more important ones.

If the Bill is not intended to cover what I would call real company law reform—obviously, it intends to deal only with specific matters—it might have been better to have confined it to parts I and III, dealing with the accounts and the purchase by a company of its own shares, which are two important matters, rather than to have thrown in provisions dealing with company and business names, the registration of share class rights, bona vacantia and all the rest which succeed only in extending the time of debate.

7.43 pm

Mr. Kenneth Carlisle (Lincoln)

I am pleased to follow my right hon. Friend the Member for Crosby (Sir G. Page), who is clearly an expert in this subject and whose wisdom and knowledge have contributed much to the debate. It was interesting to see how my right hon. Friend's views differed from those of my hon. Friend the Member for Dorset, North (Mr. Baker), who is also an expert in this matter. They have completely different views about the business registry. Therefore, as in many areas, experts disagree.

It is fair to say that the Bill does not arouse the enthusiasm of the public at large. Certainly it is not likely to bring bus loads of people to lobby their Members of Parliament, let alone Members of the Opposition. Nevertheless, it is an important Bill that deals with matters that affect the well-being and resilience of many United Kingdom businesses.

Few people in Britiain can now doubt that one of our greatest desires is to see the revival of business activity. Therefore, any measure that can help towards that goal must be welcomed. The Bill does just that. Moreover, many of its provisions will have a cumulative and increasingly beneficial effect, which must surely be the goal of any good legislation.

I want to concentrate on the aid that the Bill gives to small businesses, because in my view that is the most important aspect, for two reasons. First, we must look to small businesses to provide most of the growth in employment that we seek. We know that during the recession large firms have had to reduce the number of their employees. It is clear that even as we come out of the recession those larger businesses will not re-employ people. They now have spare capacity. Their ablility to be more productive has increased and as they make more profits they will instal new machines, which in turn will employ fewer people. Therefore, we must look to service industries, and especially to small businesses, for new employment. In the words of my right hon. Friend the Member for Crosby, we must nurture the acorns that will produce the oaks. That alone will provide the employment prospects that we want. That applies not only to my constituency, but to every constituency in the country.

The second reason for my concentrating on small businesses is that the Bill represents a further step in the Government's efforts to help small businesses. During the two years of this Government we have seen many measures to help small businesses which in total amount to a substantial package. We have removed many of the restrictions that used to face small businessess. We have reformed many of the planning controls and removed obstacles in employment law. We have reduced the burden of bureaucracy and raised financial incentives. We have greatly improved counselling services. The list is long and detailed and amounts to an impressive package.

The Bill adds further to that package and assists small businesses especially in two ways. First, it enables the limited company to buy its own shares. As we know. the Wilson committee on financial institutions advised that this was a necessary reform. Indeed, many European countries, as well as the United States of America, already allow this. Therefore, this part of the Bill does not represent a wild leap into the dark. It advocates what is already accepted practice by many of our competitors, and an independent inquiry has advised its adoption. Certainly it has been long advocated in this House, and there is fundamental agreement on that aim on both sides of the Chamber.

The advantages of allowing limited companies to purchase their shares are clear. First, small firms will be able to raise outside capital without the fear of losing family control of the business. Secondly, a shareholder with equity in a small unlisted company will more easily be able to sell his stake if he wants to.

Both those matters are important. The small business man will be able to raise funds to expand his business without any of the inhibitions that now restrain him. For example, one of the things that stops a private company from expanding is the fear that the family will lose control of that business. The Bill helps to solve that problem. In addition, the outside investor is much more likely to make his funds available if he knows that he is unlikely to be locked into that small business for ever.

We must not ignore another aspect that has been mentioned several times, namely, the impact of this measure on employee share ownership. The Bill will encourage small businesses to introduce profit-sharing schemes. They will not have to fear the consequences of diluting their equity. Profit sharing is something for which we as a party must press.

As a result of the Bill small businesses will be able to expand more readily. They will be more likely to keep control of their independence. There will be less need to sell out to a larger business to raise the capital to expand. I am sure that the House welcomes that. We all lived through the period a decade ago when everyone wanted smaller companies to form larger units. We must have learnt from experience that that seldom leads to greater energy, activity or innovation. We must have learnt from recent history.

I understand that to make this part of the Bill effective my right hon. and learned Friend the Chancellor of the Exchequer will have to amend the provisions for the taxation of share repurchases. That factor has not been mentioned. The current tax regime clearly discriminates against what the Bill sets out to achieve. I understand that my right hon. and learned Friend is considering the matter, and following the proposed Green Paper I hope that the rules will be changed in the next Budget. I should be grateful if my hon. Friend the Minister would say something about that when he replies to the debate.

Fears have been expressed that creditors will be put at risk by the proposed reform. I am glad that, in the context of the Bill, those fears are groundless. There are considerable safeguards against possible abuse. The Bill will help small companies by making it easier for them to attract the capital with which to expand. It will help small businesses by making their accounting disclosures less onerous. My right hon. Friend the Member for Crosby referred to that in his pungent phrase about less form filling and less filing.

One of the greatest complaints from small businesses, which we all understand, is the amount of paper work imposed by bureaucracy. We must remember that business men are active, go-ahead people who do not wish to be over-burdened by detailed requirements. They do not want their activities cramped by office work.

The Government have already abolished more than 1 million forms. The provisions in the Bill relating to accountancy are part of a campaign to lessen the burden on small business men. At least the Government have the correct attitude. Instead of asking themselves what it would be nice for the Government to know, establishing a great procedure through which all that information flows, and making everyone dance to their whim, they have asked what is the irreducible minimum that the Government have to know. That is a different approach which, if adopted by every branch of Government, will mean that Government bureaucracy will be vastly reduced. That approach alone will reduce the burden of bureaucracy. I congratulate the Government on that attitude and initiative.

I have restricted myself to the parts of the Bill that I consider to be of most help to small businesses. As we have heard, other speakers are better qualified technically to deal with the more detailed aspects of the Bill. I have concentrated on the small business area because it has an essential role in raising the level of employment.

The Bill adds to the many actions that the Government have taken to help small businesses. The Conservative Party is the one party that truly has the future of small businesses at heart. That is curious, because of the great emphasis that the Opposition place on the importance of employment. Small businesses will create employment. The Government's policy is for the long-term good of Britain. The Bill, although undramatic, contributes solidly to that goal.

7.55 pm

Mr. Ian Lang (Galloway)

It is a pleasure to follow my hon. Friend the Member for Lincoln (Mr. Carlisle), whose distinguished work in the area of wider share ownership is well known. He recently published a paper on that subject which was well received. I share his aim and belief that the Bill will assist with the fulfilment of that aim.

In some ways it is a remarkable Bill. Although I do not mean that as an entirely unqualified compliment, the Bill has much to commend it. Its general thrust and purpose is respectable. The implementation of European directives is desirable and acceptable, provided that they are not oppressive. The principle of international harmonisation must be welcomed in company law, especially when our trade abroad is so crucial and when, in European terms, it is growing so satisfactorily. That is especially true if the harmonisation is enlightened, as it appears to be in the Bill.

The greater flexibility in our accounting requirements for the presentation of accounts and a reduction in the demands on small firms is to be welcomed, provided—as is the case—that the central accounting concept of a true and fair view is protected and its overriding character retained. That is the case in the Bill, which reflects the British input to the negotiations on the directives.

The new gradation of companies, with the establishment of medium and small-sized companies and with exemptions for full accounting requirements is attractive. It should help the managers of such companies to concentrate on what matters—the essential features of making their companies successful in whichever area they operate. I am inclined to believe of accountants, as the late Iain Macleod said of economists, that they should be on tap and not on top.

I believe that the right balance has been struck in the combination of the full disclosure of information to the shareholders with the important exemptions and reductions in what must be filed with the Registrar of Companies. It is right that the Government have decided to continue the audit requirements for small companies, which has been welcomed by so many other speakers today. The candid and impartial regular assessments of the affairs of a company, large or small, are an important safeguard to trading standards, shareholders, creditors and the public interest.

I am slightly concerned that although when setting the size thresholds of different sorts of companies in clause 8 the Government have set them commendably close to the upper limit of the directive, they nervertheless create new distinctions. I wonder how they fit in with the existing definitions—for example with corporation tax, where the limit for a small company has been fixed at £80,000 of gross profits, or with employment legislation where other and lower thresholds for numbers employed apply for exemptions.

There is a danger of getting into a muddle with too many yardsticks of measurement. The Bill contains yardsticks of turnover, assets and numbers of employees. I understand that only two of the three need be attempted. There are too many different criteria, and I wonder whether consideration should not be given to internal harmonisation within the United Kingdom.

There is also a danger of muddle because of the sheer mass of company legislation now coming forward. It is threatening to deny the very simplification and improvement that it seeks. It has been said several times today that company law is accelerating with the number of Bills brought forward. What used to happen every two decades is now happening almost every year. Since the 1967 Act there has been the 1976 Act, the 1980 Act and now the 1981 Bill, which I understand contains 17 amendments to last year's measure. The Acts amount to more than 700 pages.

I accept that special circumstances are involved in our European membership, but I make a plea for a consolidation measure to do for the 1950s, 1960s and 1970s what the 1948 Act did for the first half of the century, and then, perhaps, for a period of silence for digestion and reflection. I understand and hope that clause 76 will make the process of consolidation easier.

What is more unsatisfactory, and the reason I described the Bill as in some ways remarkable at the outset of my remarks, is the way in which it is undergoing major running repairs on the hoof, so to speak. I do not question the quality or the importance of the changes being made during its passage. Indeed, I particularly welcome the provisions for share purchase by a company and the proposed "dawn raid/concert party" provisions. Both are the progeny of well-prepared and well-received Green Papers, as are the provisions in the EEC fourth directive.

However, I mildly question the propriety of bringing forward such major provisions—many would say that they were more important than the rest of the Bill—after Second Reading in the other place and—in the case of "dawn raids"—after Second Reading in this House. I believe that on Second Reading in the other place Lord Lyell referred to the disclosure provisions as complex and wide-ranging subjects. That may be so, and I welcome the Government's change of mind, but I wonder, with some trepidation, how many more directives, complex and wide-ranging subjects and companies Bills are already on the drawing board or even in the pipeline.

The Bill becomes like a vessel whose hull is halfway down the launching slip before the designers have decided whether it is to be an aircraft carrier or a submarine. For all that, basically it is a good Bill and I believe that it will float. Indeed, it may even fly. I should be the first to agree that it is the better for the increased ballast that it now carries.

I accord a very warm welcome to the provisions to enable a company to buy its own shares and to issue redeemable shares as opposed to redeemable preference shares. This comes under the heading "miscellaneous", but I regard this as an important part of the Bill.

I think that it will be particularly beneficial, as my hon. Friend the Member for Lincoln said, to small companies. It is in keeping with the many, varied and highly beneficial measures introduced by the Government for small businesses during the past two years. Indeed, I cannot think why this measure has not been introduced before, during the 100-odd years since it was banned in 1887. It harmonises, in particular, with the venture capital scheme, the business start-up scheme and the wider employee-participation share ownership scheme.

Clearly, a system of checks and safeguards is appropriate. The restriction on the funding of repurchases to distributable profits or proceeds of a fresh issue makes sense, as does the partial exemption of private companies from this requirement under clause 49. So, too, do the requirements for the establishment of a capital redemption reserve, the disclosure of particulars and contracts of purchases, the requirements relating to redemptions or purchases out of capital in clause 50 and the publicity thereof in clause 51.

But within those safeguards, the new provisions should greatly improve the marketability of shares in small companies. That seems fundamentally important. Family companies will be able to accept outside participation with greater equanimity. Institutions will feel less threatened at the prospect of being locked into unmarketable companies. Public companies will be better able to return surplus funds to shareholders, and employee share schemes will be simpler and easier to manage.

The provisions relating to disclosure and concert parties—even hotter from the press—will also, I feel, be welcome. It would have been quite wrong for the Government to rely on the Council for the Securities Industry or the Stock Exchange to find a solution 10 what is clearly a wilful and skilful abuse of the law relating to the present 5 per cent. disclosure threshold. My hon. Friend the Member for Chichester (Mr. Nelson) dwelt at length on and went into detail about the Consolidated Gold Fields case. I believe that another case involving Dunlop Holdings has also fallen victim to this phenomenon.

The other provisions to tighten up the powers of investigation and the prosecution of fraud and malpractice seem reasonable. But it is important not to cross the borderline into harassment and excessive demands for information. These provisions do not seem to do that, and their aim is laudable.

As regards the repeal of the Registration of Business Names Act 1916 and the reduction in the functions of the Registrar of Companies, I am prepared to accept the Government's word that what they plan is better and more efficient. It certainly looks complicated. It seems a pity, to put it no stronger, that the Registry of Business Names should be abolished. I take the point made by my hon. friend when introducing the Bill when he used the phrase "spurious certainty", referring to the inadequacies of the present state of the Registry of Business Names. If the registry is desirable in itself, it seems an invalid argument to say that we should scrap it because it is not working well. Surely, the answer is to make it work better.

I think that my hon. Friend was on less good ground when he referred to the need to increase substantially the cost of searches and registrations to make the registry financially viable. He referred to a fivefold increase. My answer would be "So what?" If cost is the sole reason why the registry is being dispensed with, I should think that a tenfold increase to £10 for registration and £1 for searches would be acceptable. If it is a means of cutting down Civil Service numbers, as information must be made available anyway to a company's customers and suppliers, why not consider selling off or contracting out the registry to private enterprise under some form of renewable licence? That would save the registry, save money and possibly even make a profit. Surely, that is not unacceptable to a Government who support private enterprise.

My hon. Friends the Members for Hornchurch (Mr. Squire) and Harrow, Central (Mr. Grant) referred to the multiplicity of company names operating from one address as being a possible omission from the Bill. I raise one further possible omission—the liability of a holding company for a defaulting subsidiary. This matter was raised on Second Reading in another place by Lord Ponsonby of Shulbrede. So far as I can see, he received no answer. At present, I understand that company law insists on regarding a holding company and its subsidiaries as separate entities, while in economic and management terms they are often run as a single unit. This seems anomalous and potentially dangerous. It could lead to a subsidiary securing credit on the strength of its rich parent company, but being left to its fate, and its creditors abandoned, if it gets into difficulties. What is the Government's view on this matter? Could such a measure be introduced in this Bill, or is this another instance of waiting for the Cork committee?

For all that, the Bill has put on weight since it started its passage and it will carry still more weight by Report. There seem to be omissions—perhaps the Bill is corked—but for all that it is not the last word in companies legislation, I feel that it is immensely worth while. I believe that it will greatly improve the legal environment in which our companies operate. I wish it good progress to the statute book.

8.8 pm

Mr. Ivan Lawrence (Burton)

I have hesitated to speak, not because others have covered the points that I want to make—indeed, more humorously and effectively than I can, because that never deters me; nor will it ever do so—but because every time I open my mouth in a Second Reading debate I find myself on the Committee. The more so do I get put on the Committee when I agree with the Government, because the Government do not want on the Committee Back Benchers who do not agree with them. Nevertheless, I begin by saying that this is an excellent Bill. It is necessary to introduce its provisions. Some of them are long overdue. I look forward to the time, heralded by the Minister, when we shall have one Companies Act on the statute book—a measure which will be easy for reference and will make a sensible contribution to the conduct of an important part of our national affairs.

I agree wholeheartedly with the contents of the excellent speech of my hon. Friend the Member for Lincoln (Mr. Carlisle). It is not sufficiently widely appreciated at this time of economic recession that the Government have enacted no fewer than 50 measures to help small businesses. The Bill is a contribution to several other measures.

I shall focus my remarks on two aspects of the Bill with which I do not agree. It will not surprise my colleagues when I say that one aspect concerns the Registry of Business Names and the removal of the need of the Registrar of Companies to deal with similarity of name.

In this place we mostly have a division of view upon which substantial arguments can be adduced on either side. There is often a division of opinion m the country. The astonishing thing about the dispute over the registry is that almost every organisation that is concerned with company law is against its abolition.

Mr. Clinton Davis

I know of no organisation that supports its abolition.

Mr. Lawrence

If there are such organisations, I have no doubt that my hon. Friend the Under-Secretary of State will tell us about them. When the argument was advanced by Labour Members, there was a chorus from my right hon. and hon. Friends on the Treasury Bench to the effect that they should read the Bill. Are the Government saying that no members of the large body of opinion against the abolition of the registry—some members of it are extremely well-informed, such as those from the legal profession—have read the Bill? Are they saying that none of them has considered the Bill's ramifications or the ramifications of the Government's alternative? Such a suggestion is preposterous. Surely the Government should think again about a proposal that has produced such united opposition.

Although the alternative proposal put forward by the Government in clauses 28 to 32 will replace at no cost to the taxpayer some of what should be removed by the abolition of the register, it will not replace everything. Substantial gaps will be left. In particular, it seems that insufficient consideration has been given to fraud. Business names are sometimes confused accidentally. That results in consumers and the public generally being misled. However, they are often confused deliberately. That is done for deliberate fraudulent purposes. Those of us who practise in the law know that there is growing activity in the international and national business and commercial scene that has much to do with deliberate misrepresentation and deceit.

It is true that the Registry of Business Names did not give legal protection unless there was proof of deliberate falsification. It may be that in that regard the correction is to make the penalties much more severe. However, the register gives protection in the sense that it provides the information upon which the legal bodies may act to correct the wrong. That is not a view that I alone express.

My hon. Friend the Member for Dorset, North (Mr. Baker) said that there was no evidence that the registry provided any protection against fraud. However, the Consumers Association is a substantial organisation that is concerned with fraud of the sort that I have described. It has said in its submission to my colleagues that there is a need to reform the register and to put it on a sound financial basis for the future. It has stated: If the register is abolished, an important source of valuable information will be lost for the business community, for customers, for those involved in the enforcement of the law, and for journalists concerned with business affairs. As a lawyer I have been substantially shamed and stimulated by programmes such as "Checkpoint" on the radio and "That's Life" on television. Such programmes bring home to a lawyer the practical day-to-day grass-roots consequences of the faults in our company law.

The Consumers Association added: As a result, it will be far more difficult to control those traders who behave unsatisfactorily under one name and then change to a different one. That to me is evidence. It is the conclusion of a body which has spent many years dealing with this branch of the law and applying its experience to the recommendations that have led to the provisions contained in the Bill. In another place Baroness Elliot of Harwood said that half of the inquiries that came before the Consumers Association when she was its chairman involved tracking down companies through the Registry of Business Names.

In my constituency there is an excellent chamber of commerce and industry. The Burton upon Trent and District Chamber of Commerce and Industry wrote to me.

Its letter states: The feeling of our members is that the services offered by the Companies Registration Office and Business Names Registry are very important to most sectors of industry and commerce. The letter continues: an unsatisfactory service is worth little more than no service at all. There was the evidence in another place of Lord Lloyd of Kilgerran, who is an expert in this area of the law. He said: The business names register affords a source of information as one means of helping to limit confusion in the course of trade, as well as fraud and malpractices."—[Official Report, House of Lords; 19 March 1981, Vol. 418, c. 864.] It will not do to say that there is no evidence that the register protects as it provides information that is a step on the way to reducing fraud.

There is another important practical aspect of the register—namely, the fact that when somebody is legitimately trying to establish a business and wants to register a name it is extremely useful for him to take the short route of referring to the register to ascertain whether there is any company of the same name. I know that this is an issue that is close to the heart of my hon. Friend the Under-Secretary of State. My hon. Friend the Minister for Trade referred to it in his opening speech.

The speed with which a small business can establish itself is an important factor. The register provides a speedy way of establishing a business name without having to go through the alternative, which is a much more convoluted system of checking whether anyone else has a similar name or an identical name in the same area of business. If there is no register, the company must make much more widespread searches. It will be expensive for the company to do so. There will be a higher degree of uncertainty about the bona fides of any of the companies concerned and the process will take much longer. There will be much greater delay.

Who will suffer? It will be the members of the small business community who will suffer, those whom we are so anxious to get started. It seems that strong evidence has been adduced and a sufficiently strong argument to encourage the Government to think again.

The second aspect with which I am concerned is the removal of the need for the Registrar of Companies to satisfy himself that the new names are not too similar to the names already on the list. That is another charter for the dishonest.

A company in my constituency manufactures a food for animals. It is a patented block which animals lick. That company has a distinctive name. It discovered that another company with exactly the same name, except for one of the vowels, had come on to the market. It marketed almost solely exactly the same commodity.

I have not named names because I prefer to say nothing about the dishonesty or otherwise of that action. However, it is suspicious when a company sets up in the identical line in a unique area and worrying if there is no check to see whether that company is taking away business dishonestly from the company which is registered. That example is not necessarily helpful to the point which I am making because the problem existed with the Registry of Business Names. It shows that even in my constituency, where matters are ordered so well that we seldom have such problems, there has arisen a problem of the loss of trade, possibly through dishonesty, possibly by inadvertence, which can be caused by confusion over business names.

Sir Graham Page

I do not know when that incident of the similar name occurred, but from information which I have been given I understand that the Registrar of Companies has already embarked on applying the Bill. He is no longer checking whether the application for the name of a company is similar to that already registered. Perhaps my hon. and learned Friend's case is recent and comes under the present practice of the registrar.

Mr. Lawrence

That is so. That was covered precisely by the point that my right hon. Friend has made. I took up correspondence with the Departments of Trade and Industry. They replied that the Registrar of Companies no longer felt it necessary to make such distinctions. That is a dangerous development. I hope that the illustration which I have given will be of some assistance to my hon. Friend when he replies.

What is being abolished is not the need for the Registrar of Companies to compare identical names. Identical names happen when there are honest mistakes. What is being abolished is the need for the Registrar of Companies to draw attention to slightly different names, which are the instrument of the dishonest. I am afraid that I find that the speech of my right hon. Friend the Member for Crosby (Sir G. Page) showing the low cost-saving figures of this astonishing introduction into our law, was most convincing. It is ludicrous to say—as was said in the correspondence in the case to which I referred—that the company concerned has a passing-off action. It is unrealistic to suggest that small businesses, which must measure the vast expenditure into which they may be led, I am sorry to say, by the legal profession—it is not entirely the legal profession's fault, but such matters drag on at great length—are not deterred from going to law with passing-off actions. They should not have to have that burden thrust upon them for no sufficient reason.

Mr. Clinton Davis

Does not the hon. and learned Gentleman agree that by the time a passing-off action may have come to trial, or even before an injunction may have been procured, irreparable damage may have been done to that small business?

Mr. Lawrence

I cannot improve on the hon. Gentleman's observation. What is wrong with our company law is the way in which some villains can too often walk boldly through the gaping holes. One can gather how often that happens by listening to ' Checkpoint" and watching "That's Life". The state of affairs is much more alarming than some of us lawyers in our cosy practices thought. It is for us in this place to fill the holes and not to make them wider. I suspect that the two provisions which I have mentioned will make those holes wider.

What are the Government's objections? They say that the Registry of Business Names is not effective at present. However, there is evidence that it is becoming more effective, if only because the banks require proof of registration before they allow the opening of an account. The improvement has been from 50 per cent. effectiveness to about 80 per cent. If anything like that figure is accurate, it reduces the strength of the point which the Government make. The fact that something is working only 60 per cent. efficiently is still better than if it is not working at all. It is demonstrably better than anything which replaces it, which will be only 40 per cent. efficient. The fact remains that any degree of effectiveness in the law in this area which the Registry of Business Names offers, the Government should be slow to remove.

It has been said by way of explanation, but it has become almost a justification, that the Registry of Business Names was not set up for that purpose and, therefore, the implication is that we are directing our attack at the wrong ship, horse, aeroplane or whatever it was. However, it does not matter why it was set up in 1916, when there cannot have been as many companies as there are now and when national and international fraud and cheating of consumers were less widespread than now. What matters is whether it is useful now.

The argument about expense is unconvincing. 'it is not an objection which small businesses, however small, are likely to raise that the registration of their businesses will be raised from £1 to £5 or that the search fee will rise from 25p to £1. That pales into insignificance when compared to the increase in the road fund licence, for example, which small businesses must pay for their various vehicles.

Again I call in aid the excellent Burton Chamber of Commerce and Industry, which represents a substantial number of industries in my area. That is just one town out of thousands in Britain. It says: 'professional' members are unanimous in the view that there will be no objections to increases in charges if they result in a service upon which they could rely; it may also have the additional benefit of deterring some of the doubtful elements. Therefore, I do not find the argument about cost convincing.

On the argument for reducing the number of civil servants, I have much sympathy with the Government's efforts to reduce public expenditure and the number of civil servants. I should like to see their number reduced where they are not necessary. However, the reality is that if the Registry of Business Names came to be computerised it would not take hundreds of man hours to compare one name with another; it would take 30 seconds, and would not necessarily require 50 or 60 staff. I am sure that computerisation will be as inevitable in that organisation as elsewhere, so the argument about reducing the number of civil servants is not all that convincing either.

Two other matters cause me a little concern. My hon. Friend the Member for Harrow, Central (Mr. Grant) mentioned the continual refusal to deal with the situation where someone adjudged to be bankrupt or disqualified from trading as a business can take another name out of the hat and set up in business almost without a stop. That is a repeated theme, and it is time that the Government took action. I am sorry that, now that we have another company law Bill, there is no such provision in it.

Secondly, I am a little concerned about clause 76, which concerns consolidation of the Companies Acts. It looks rather as though the procedure of the Consolidation &c. Bills Committee, on which I have the honour to serve, is to be changed to accommodate Law Commission's proposals. I am one of those trying to get the Government to find time to debate the Law Commission's proposals, some of which are extremely important. We shall lose the Law Commission if it continues to produce sensible reports that merely gather dust on the shelves. Those distinguished people have better things to do than to waste their time. The Law Commission's purpose is to reform our law, and we are not giving enough time to that.

However, that is very different from saying that the normal rules of consolidation should be changed to give effect to the recommendations of the Law Commission and the Scottish Law Commission. If the parliamentary draftsman says that the Bill is pure consolidation and that there are no changes in the law to be referred to anybody, but also that the Law Commission's proposals are to be incorporated in it, what should the Consolidation Committee do? Should we say that the Bill should not be consolidated in that form because the House has not had an opportunity to consider and debate the Law Commission's report or whether this is the right time and the right Bill? Such methods are rather dangerous. They hint at trying to get measures in by the back door. We should have a full debate about the recommendations of the Law Commission.

Mr. John Smith

I hesitate to interrupt the hon. and learned Gentleman, as I agree with so much of what he says, but may not the unusual provision be justified in the particular circumstances? Unless a consolidating Bill can be justified as pure consolidation, it will not go through the Consolidation Committee. There would have to be full-blown legislation if there was need for slight modification that was not pure consolidation to make sure that we had one Companies Act that all practitioners could use. Is it not sufficient safeguard to have parliamentary approval of an Order in Council? Should the proposal not be welcomed if at the end of the day we have a more workmanlike Companies Act?

Mr. Lawrence

Many of us do not agree with everything that the Law Commission proposes, so it may often be necessary to have a fuller debate than can take place in the early hours of the morning as a result of an Order in Council that we can pray against. Tomorrow we are to debate an animal health consolidation measure. I asked to pray against it, and, by an error of administration, that did not happen. We are there, incidentally, metricating in an animal health measure when the House has not yet considered whether we should have metrication.

Mr. John Smith

I have just looked again at the provision. It makes it clear that an affirmative order is required, so it would not be a case of praying against the measure but of the Government having to bring it before the House. Although not everything that the Law Commission proposes can be accepted in advance, one would hope that the exercise of the power would be used with great discretion and confined to technicalities. I should be prepared to accept the provision on that basis, provided that the Minister can give us an assurance.

Mr. Lawrence

I shall not take up further time arguing the point. It is a source of concern if only because it is changing the established procedure in our Committee in order, as it were, to bend what are the established rules for convenience or for whatever other purpose. It has to be watched with care. I say no more than that. I did not say that I was wholly opposed to it. I was merely saying that I was not happy with it.

The really important matters are the two to which I have drawn attention. Will they be something of a charter for the dishonest trader? If they are likely to be that, they are so contrary to this Government's philosophy that it is incumbent upon the Government to look at them again. If the Bill requires another running repair on the hoof or on the wing, I sincerely hope that it will be given it.

8.35 pm

Mr. Bowen Wells (Hertford and Stevenage)

Speaking in this part of the debate after the contributions of so many right hon. and hon. Members I find it very difficult to make any fresh points. However, I wish to underline and reiterate some, especially those which arose in the excellent speech of my hon. and learned Friend the Member for Burton (Mr. Lawrence), whose arguments against the abolition of the Registry of Business Names I shall comment on in a moment.

I speak as a small business man with knowledge of the difficulties of attracting investment into a small company. A minority shareholder in a small limited liability company has very little power over the fortunes of that company and therefore over whether his money is put to proper use and whether it will ever show a proper return. Therefore, the provision enabling a company to purchase its own shares makes things very much easier and encourages investment in small companies. I welcome it.

It may go some way to explain why this country, which used to be known as the workshop of the world and which the French used to describe as a nation of shopkeepers, now has one of the smallest small business sectors of all the Western European countries and one which is even smaller than that of Japan. Any attempt to ease investment into small businesses in this way is a major service in the right direction, and I hope that further legislation will follow it.

The same goes for the necessity for the rigorous accounting disclosure required at present. It imposes a disproportionate burden on a small firm, especially in the preparation of accounts. At present those accounts are prepared, inevitably, by a professional accountant and eventually find their way to Companies House for filing.

The last thing that anyone running a small firm is interested in is the production of the accounts at the end of the year. That is past history in which that person is not interested. Therefore, it is the legal requirement to do it that forces it to happen. However, in my view it is necessary as a discipline on the small company to have its accounts audited, and I am glad that the Government have accepted this advice. Even though they are to be audited in an abridged and simple form which need not take a great deal of time, they will still be a matter of public knowledge and public debate.

Obviously the move to curtail and control the activities of what are known as "concert parties" is a necessary regulatory step, and I welcome that as well.

I come to what has been heralded as the abolition of the Registry of Business Names, and I suggest to my hon. and learned Friend the Member for Burton that these provisions increase considerably the amount of control over smaller companies and go some way to stop the kind of fraud which, as my hon. and learned Friend said, is the weekly consumption of those who listen to or watch such programmes as "Checkpoint" and "That's Life".

I share his concern and horror at the fraudulent practices that such programmes reveal. That is not to say that the Registry of Business Names prevented such frauds. Indeed, it did not do so. In the other place, the former Minister, Viscount Colville of Culross stated: the shadier you are the less likely you are to wish to pay a vastly increased sum of money. There would therefore be an added disincentive for registering yourself in the first place, and an added disincentive for changing the registration if you took over a business which previously had been registered under somebody else's name."—[Official Report, House of Lords, 7 April 1981; Vol. 419, c. 483.] Therefore, the registry would be of great assistance in the control of such fraud.

Clause 63 goes some way towards achieving a desirable end. Perhaps it would not be too inconvenient to introduce a measure in the Bill to ensure that directors of companies that have gone bankrupt and that have not paid their creditors cannot become directors of other companies until the affairs of the first company have been settled. There are obvious dangers in that. A company can go bankrupt legitimately without fraud being involved. However, there has been a proliferation of companies with the same directors. Reference has not yet been made to a case that was mentioned in The Sunday Times. A Mr. John Wild was a director of many firms which carried on fraudulent practices and which attracted business through newspaper columns. One after another the businesses went bust.

The Select Committee on Industry and Trade called the producers of "Checkpoint" to help with this difficult problem. They said that although the Registry of Business Names helped them initially, as investigative journalists, it gave them only the address to which they should apply. Invariably it was not the address at which the person whom they were looking for could be found. Therefore, the Registry of Business Names could help them only in a small way. The Bill's provisions make it necessary for a company's name and registered address, together with the names of its directors, to appear on the notepaper by which it trades. That would seem to answer the complaint that a company and its directors cannot be found.

I agree with my hon. and learned Friend the Member for Burton and my right hon. Friend the Member for Crosby (Sir G. Page) that we should ensure that company names are not similar. Indeed, I agreed with my hon. and learned Friend the Member for Burton when he said that a computer could easily be used. Proposed names could be entered on a computer, which could easily be made to throw out any name that was similar to an existing name. The matter could be dealt with quickly and easily. As my right hon. Friend said, the measure does not really involve the abolition of the Registry of Business Names. Many of its functions will continue. A change is being made in the way in which such matters are dealt with. That change does not give spurious protection to companies that have registered their names. People tend to believe that that means that a company is Government backed or has some respectability if it is on the register. I urge the Government to consider those two points about the abolition of the registry. We must ensure that companies do not trade under similar names. In addition, the Government should

My hon. and learned Friend the Member for Burton has talked about clause 76 and consolidation. I welcomed that—until he began to put doubts in my mind.

Limited liability companies are not really the right format, under current company legislation, whereby small businesses should be formed or can prosper. We need to look for a new form of incorporation for small businesses which is simpler and easier to manage and does not have the onerous requirements which much company legislation rightly applies to larger companies. Although the Bill moves in that direction, we need to devote much more thought to this matter and to introduce a new concept by which we can aid the simple setting up of companies, which guards against the fraudulent company being set up and, none the less, aids small businesses in getting started quickly, with the fewest possible overheads and the best possibility of fulfilling all the legal requirements put upon them. At present, small businesses do not have the time or the expertise to comply with the masses of legislation.

I commend the Bill as a step in the right direction. We shall soon be dealing with another Companies Bill, because the European Commission is determined that we shall make some steps in the direction of supervisory boards, two-tier boards, worker participation, and so on. That is another chapter to which we shall come, I imagine, next year, and that will answer many of the problems and may enable my hon. Friend the Member for Kensington (Sir. B. Rhys Williams) to achieve some of his cherished dreams—but, I trust, not at the expense of making the small company's life more difficult and complicated. Although the Bill goes some way towards helping small companies, in some ways it makes life more complicated for them.

8.47 pm

Mr. Graham Bright (Luton, East)

We heard from my hon. Friend the Member for Kensington (Sir B. Rhys Williams) that he was fascinated by company law. No doubt many of the lawyers and accountants that we have heard—I think that there are two more to speak—are fascinated by company law. I see company law through the eyes of a small business man, and I have to employ accountants and lawyers to help me interpret it and to ensure that I do not get into trouble.

For a long time I have had no doubt about the need to overhaul company law. What has always amused me is the fact that companies such as ICI and a chemist's shop, or Guest, Keen and Nettlefolds and a small engineering firm employing half a dozen people, have the same accounting requirements. I cannot see why that should be so.

The operations of small companies are easily scrutinised in the present format in which returns are made. Any small company that is a one-product company can have its competitors looking at it in great detail, and they can extract much knowledge from that. So, too, can a company interested in acquiring that small company. The much larger concerns, especially where they have a complex relationship with holding companies, can easily hide or camouflage essential trading information, which the small company cannot do. Therefore, I very much welcome the changes that are to be made under the Bill to try to distinguish between large and small companies. As several of my hon. Friends have said, the Government have already done much to help small business. This distinguishing between large and small is yet another move in the right direction. One hopes that we shall get a bias towards helping small companies. This is another way in which that can be done.

The interests of small firms have never been served by the restrictions placed on them in regard to purchasing their own shares. I welcome the change in that respect.

I am concerned about how we distinguish between large, small and medium-sized companies. Two of the criteria relate to figures on turnover or capital on the balance sheet. However much we would like to do away with inflation, we must recognise that there will always be an element of it, and that could result in the ludicrous position of existing small companies no longer fulfilling the criteria for small companies. I should like an assurance from the Government that the figures will be reviewed, either automatically or every so often.

Much of what I intended to say will have to be omitted because time is running out, but I am concerned about the powers being sought for inspectors. It is doubtful whether the extended powers of investigation granted to Department of Trade inspectors in clause 59 can be fully justified. I accept that there is a need for investigation, but there is also a need to protect individuals, and there are no means for a court to decide on what an inspector considers "reasonable grounds" for supposing that someone other than an officer, agent or director of a company has relevant information. I have argued in the House before that such powers should be available only after reasonable grounds have been demonstrated before a High Court judge, and I should like to see such a provision included in the Bill.

The scope of inquiries permitted by the Bill is theoretically unlimited and the classes of persons who can be called upon to supply information are unrestricted. The granting of such discretionary powers was certainly not envisaged in the election manifesto on which I fought in May 1979, and the appearance of such powers in the Bill is probably a tribute to the deeply entrenched inquisitorial obsession of civil servants. It is not appropriate for a Bill that extends freedom to companies in so many ways to subject them to even more unfettered powers of inquiry. I appeal to my right hon. Friend the Secretary of State to reconsider that proposal.

The new framework proposed in the Bill is broadly acceptable. It recognises the need of small and medium-sized firms for a new and reduced body of information to be supplied in their accounts, subject to the qualifying conditions in terms of audit and so on.

I have no doubt that the opportunity for companies, whether public or private, to purchase their own shares will solve one of their growing problems. It will certainly make capital reconstuction and the retention of small and medium-sized firms in the hands of their founders' families much easier.

Safeguards in the measure, with the exception of the powers of investigation that I have mentioned, are technically well judged. The Bill offers an imaginitive series of remedies to some of the problems affecting company law. It deserves the support of the House.

8.53 pm

Mr. Clinton Davis (Hackney, Central)

For the past two years, proposals for dealing with company legislation have been introduced by the Government without adequate thought, preparation, advice, consultation or, apart from the implementation of the appropriate EEC directives, any coherent theme.

Last year's Bill was to be limited to the second directive. In another place, it was to be the second directive, the whole directive and nothing but the directive. Then, as a result of the appreciation of parliamentary realities by the Minister, in introducing a Bill with broad parameters—namely a Bill to reform company law—the appraisal was significantly revised. There were introduced either in Committee, or, in some cases, on Report, important, detailed and complicated provisions late in the day to deal with insider dealing, loans to directors and associated matters. It was a disservice to the House to deal with the matter in that way. The Minister cannot say with pride that the manner in which those provisions eventually emerged reflected well on his Department.

This year, we have been treated to a similar saga of somersaults. Originally, there was to be no legislation to deal with the Consolidated Gold Fields case, although the Opposition raised the matter on the Report stage of the last Companies Bill. The Minister, at that time, suggested that the matter was so complicated that it was not appropriate to be dealt with by legislation. His attitude was that it was more appropriate to leave the matter to the self-regulatory agencies. Then, once again, perhaps characteristically by this time, he changed course. However, so late in the day has he done so, there are still no definitive proposals before the House on a matter of great significance to British industry, much of which is ripe for financial colonisation.

Hon. Members have been presented today with virtually another Bill. The Government should change the title to the Companies (No. 3) Bill. I am not sure, incidentally how the Companies Bill became the Companies (No. 2) Bill. A vast number of detailed clauses will have to be considered. When will this happen? The clauses will presumably be discussed after hon. Members have enjoyed this great opportunity to consult lasting for 14 days! Once again, the Minister and the Department have done the House a great disservice by not waking up much earlier to the requirements and the realities. We shall have 12 sittings in Committee within which to deal with the matter. I suppose that we must be thankful that at least something is promised, albeit once again the result of pressure rather than ministerial inclination to deal with urgent requirements.

The behaviour that I have described is characteristic of the present Ministers in the Department of Trade. I should like first to refer to the ministerial inertia and, indeed, incompetence over the St. Piran affair. I noticed an interesting article in The Sunday Times about the Secretary of State. No doubt, there will be some sort of ministerial inquiry to discover the anonymous civil servant who spilt the beans about the Secretary of State's character. The right hon. Gentleman is described by this anonymous civil servant as being no tireless scourge of public extravagance or restrictive practice. If anything, he is rather indolent". The Secretary of State compounds this by saying in the article: I am certainly not always looking at the purity of my reputation". He can say that again. The right hon. Gentleman goes on: Beyond some very basic things, I remain simply very agnostic about what Governments can ever achieve". He seems to be agnostic also about how Governments can go about destroying things. The Opposition, I have no doubt, will wish to discuss the St. Piran matter in Committee. This was a situation in which Mr. Raper—very appropriately named—cocked a snook at the self-regulatory agencies and the Secretary of State. There was a situation in which all the self-regulatory agencies literally pleaded with the Secretary of State to support them, to follow the advice of his inspectors and to petition to wind up the company.

An interesting letter was published in The Times on 8 May. It was by Mr. Patrick Neill, QC, the chairman of the Council for the Securities Industry who put forward that view. He said: The Department of Trade and the self-regulators have a shared interest in preserving proper standards of conduct in the commercial world. Ministers should be ready to exercise their statutory powers promptly and vigorously when occasion arises and should be ready to back up the self-regulators in the common task. The alternatives are chaos or an American style SEC. The Minister chose to ignore the pleadings from Mr. Neill, the chairman of the Stock Exchange, the former chairman of the Takeover Panel and other significant people. The result is that he has exposed still further the deficiences in the self-regulatory system about which he, in particular, has waxed so eloquent.

We have experienced, in addition, the Ashbourne case and, indeed, others. We should now seriously consider setting up a companies commission not only to review and propose changes in the law, but to assume responsibilities currently exercised by the Department of Trade for regulating and enforcing the legal processes. It should also take over responsibility from the self-regulatory organisations. We can have our own form of SEC. We do not have to ape the Americans. We can build on our experience and base a commission on our own requirements.

Apart from failing to deal with that, the Government have no policy on the important question of industrial democracy. That issue was raised—but not using that term—by the hon. Member for Kensington (Sir B. Rhys Williams) in an interesting speech. We always expect to hear interesting and constructive speeches by the hon. Gentleman on company law. The hon. Gentleman spoke of the need to widen the duties of employees. He said that they were entitled to be consulted about essential decisions affecting their lives. I agree. In many debates I have, to a large extent, been on the same side as the hon. Gentleman.

I hope that the hon. Gentleman will be given the opportunity to serve on the Standing Committee. The trouble is that the Minister has so many critics on his Back Benches that he will find it difficult to decide whom to eliminate. Will he eliminate them all or just one or two? We shall wait and see. As always the Labour Party will be united and we shall fill the Committee Benches.

The Minister did not seize the opportunity to say anything about the abuse of window dressing which has been exposed in a number of important company reports. Should that be left to accountancy standards, or should it be dealt with by legislation? I am more and more persuaded that it should be the latter.

The Minister has been assailed by a number of hon. Members from both sides about his failure to deal with the continuing chronicle of abuse highlighted so often in the BBC's "Checkpoint" programme and "That's Life". One Conservative Member thought that "Crossroads" dealt with important company affairs. I have never watched "Crossroads" so I am not sure with what sort of affairs it does deal.

People in the country and Members of Parliament are deeply worried about the sharks who take innocent people for a ride—setting up one company after another, chains of liquidations, or companies ceasing to trade. I do not need to rehearse the matter, because it has been eloquently put by a number of hon. Gentlemen on both sides. However it is not enough to say "We must wait for Cork". I remind the Minister that on the question of the elimination of the Official Receiver service, the Government have already said that they will not wait for Cork. That is a remarkable inconsistency—apart from the fact that it would be appalling if the proposals to deal with the Official Receiver services were brought into effect.

The Minister has said nothing—no doubt he will again say "Wait for Cork"—about the matter raised by the hon. Member for Hornchurch (Mr. Squire)—the liability of a holding company for a defaulting subsidiary. We sought to deal with that matter in the Report stage of the last Companies Bill. Again, because of the Minister's refusal to deal with real problems, we shall have to come back to the matter.

It is sad, too, that not a word has been said about how to promote common ownership companies by means of this Bill or companies legislation generally. The right hon. Member for Orkney and Shetland (Mr. Grimond) raised the matter; and it is an important subject that we should explore further. However, we shall have a chance to come back to these matters later. Suffice it to say that the failure to respond to challenges that have been presented to the Department on the part of successive Secretaries of State seems to indicate that the stewardship of company affairs by this Administration leaves a little to be desired.

The lack of concern for the consumer has featured vividly again in the Bill in connection with the main areas of contention—a 'serious modification of existing screening procedures for company names, and the proposal to abolish the Registry of Business Names. I shall come back to those matters in a moment. First, I wish to deal with the disclosure requirements emanating from the establishment of the three classifications of companies. Much wider considerations of responsibility need to be embraced by the law for large and medium-sized companies. Modern society, with its new technology and demands, requires that duties should be fulfilled to employees, customers and society at large, as well as to shareholders and creditors. More disclosure is an important element in curing much of the present abuse. However, the Department of Trade has sought to follow a traditional approach—an approach that was heavily indicted by the hon. Member for Kensington.

The trouble is that the Bill and the fourth directive are aimed essentially at the traditional criteria. Therefore, although directors will have to indicate the company's future development, its projected profit, employment and investment levels, and to provide a note of the major assumptions underlying such projections, the Government oppose the introduction of a legal requirement for added value statements and an employment statement. They seek a voluntary approach on these issues.

In my view, the cost of the preparation of an added value statement would be small. Much of the information is readily available. It would show how the wealth of a company has been distributed—payments to employees, payments to shareholders and other providers of capital, payments to the Government in taxes, and how the balance is kept in the business to maintain or extend the company's future activities.

The value of an employment statement would be in providing sufficient information about the work force in the United Kingdom, the way employment resources are managed, an indication of the company's performance in this crucial area of its activities and an indication of the extent to which the company is meeting its social obligations—for example, how it goes about employing disabled people, training the young, and so on.

We put forward such a proposal in our Green Paper in 1977. Why do we think that such requirements should be sought? Essentially, it is the sheer concentration of industrial and economic power in our society today. In 1950, the top 100 companies in Britain produced about 20 per cent. of our national output. In 1979, it was nearing 60 per cent. and it is now over that percentage. Many such companies operate multinationally and exercise immense power. It would, therefore, seem that the choice lies between a growing concentration of private power held in relatively few but often closely linked hands, barely accountable to the community, or a greater accountability to society, to employees and to consumers as a whole.

In this respect, disclosure is a vital element in understanding what companies are about. It is a powerful element in appreciating the contribution that they make to the economy. Therefore, for all those reasons, I do not believe that the Government ought to rely on exhortation—on the voluntary approach. Incidentally, is that not in stark contrast to the approach which they counsel in dealing with trade unions?

Having expressed dissatisfaction with the parameters of disclosure for large companies, I turn to the classification limits and in particular to small companies. In clause 8, the Government have prescribed the criteria for determining whether a company may be treated as small so as to gain eligibility for the exemptions on disclosure.

The Minister admitted today that he has accepted the maximum criteria prescribed in the directive rather than the lower figures, which would still have enabled the Government to come within the requirements of the fourth directive, which in any event, I believe, is advisory. However, I may be wrong about that. The approach that we shall want to consider in Committee is whether it would have been preferable to narrow the definition of a small company to, say, 10 employees and a turnover of £200,000—I suggest that on its own merits—and also to consider waiving the requirements for an auditor's report being attached to the modified balance sheet.

That would provide substantial savings to the owners of small companies. It would free their accountants from what one leading accountant has described as a massive and wasteful diversion of their professional skills. However, the Minister says that he is opposed to that. Clearly, this matter is open to important debate and we can return to it later.

I now turn to the proposals for the modification of screening of company names and the abolition of the Registry of Business Names. When listening to the Minister of State, I was reminded of a remark by a former Lord Chief Justice, Lord Hewitt, who said of counsel appearing before him: It might be possible, but I doubt if it would be easy to compress in the same number of lines more fertile opportunities for doubt and error. I thought that that was true of the hon. Gentleman.

In proposal after proposal consumer protection takes a back number with this Government. It is as though the Minister for Consumer Affairs were not in the Department and did not even care. It is argued that the proposal to abolish the Offical Receiver service is the affair of the companies division or the insolvency division. But it has a great deal to do with consumer protection. That compounds the mischief of these two proposals, the genesis of which had absolutely nothing to do with the merits of the arguments for reform that were adduced by the Minister of State.

It is no surprise to me that when the Government decided to merge the Department of Trade and the Department of Prices and Consumer Protection they abandoned the word "protection" altogether. It is now the Department of Trade and Consumer Affairs. Therefore, protection has gone out of the window in more senses than one. The proposal was initiated because the Minister responsible for company affairs is benign, friendly and popular, but helpless. He was told that he had to cut 91 staff. He was probably told to cut 100, but he has won a great victory by saving nine. He had to achieve that by 1 April 1982. The Government had to construct an argument to justify that objective. Under the circumstances, the rationale is bound to be somewhat defective. That is why they are now in such a quagmire and are subject to such criticism from their Back Benches—[Interruption.] That is perfectly true.

Mr. Parkinson

No.

Mr. Davis

The Minister was not here. He left shortly after his speech. I suppose that he was satisfied with that. However, it deprived him of the opportunity to hear the amount of dissatisfaction with his speech.

Because the Bill contains contentious issues it should never have begun in another place. However, having started there the issue was lost in Committee. It was quite wrong, and unprecedented, for the Government to insist on reviving the matter on Report, especially as they had to wheel out their backwoods men to achieve the dubious result that they were seeking. The Government persisted in the measure, knowing full well that their dogmatism had met with opposition from all informed opinion, which was united in the belief that the Registry of Business Names should be retained. Who, apart from the Department, thought that the measure was a good idea?

Mr. Anthony Grant

I did.

Mr. Davis

That must be a great comfort to the Minister. He must weigh his hon. Friend's support against the opposition of the CBI, the Consumers Association and other groups. Has any organisation given support to the Department? It is a case of the man in Whitehall knowing best. The application of that maxim is bound to run into problems when the man in Whitehall is hopelessly out of step with every authority and is incompetent to boot. To add insult to injury, the Minister said that the trouble with all the other people—the Consumers Association, the National Consumer Council, the National Federation of Consumer Groups, the Institute of Trading Standards Administration, the Newspaper Publishers Association, the United Association for the Protection of Trade, The Sunday Times, the Press Council, the Consumer Credit Trade Association, the CBI, all professional bodies, the accountancy bodies and the TUC—was that they had not read the Bill. They, and the Minister, are the only people who have read the Bill.

Mr. Parkinson

Has the hon. Gentleman read the Bill?

Mr. Davis

Of course I have read the Bill, which, on reflection, seems to be more than the Minister has done. I wish to summarise the argument for retaining the Registry of Business Names. I wish to do so not only as someone who is deeply opposed to the measure, but as someone who has been a practising solicitor. I believe that the Registry of Business Names—whatever deficiencies the Minister may suggest—has been of considerable value. If someone wants to know the true name and address of the business with which he has entered into a transaction, and wishes to know its proprietors, it is an important matter. In the majority of cases that information is available. It is true that in some cases people have not registered. It is true that the most unscrupulous people would not do so. But without that information a remedy is denied. There is no effective redress in the courts. One can sue a firm, but, unless one knows who is behind it, a judgment may be empty.

Mr. Lawrence

Is there not another point about the importance of the Registry of Business Names, namely, that it provides some evidence of what is in the mind of an offender if in due course a matter should come to court? Therefore, in providing evidence, it may also be a deterrent to crime.

Mr. Davis

I adopt that argument. I do not know why the Minister should find that so amusing. The hon. and learned Member for Burton (Mr. Lawrence), who has more experience and intelligence than the Minister of State has put forward an important argument.

Mr. Parkinson

The hon. Gentleman does not have to try to be offensive; nature made him like that. I suggest that he should stop the knockabout and devote himself to the clauses—which institute a proper procedure for dealing with this problem—which his right hon. Friend the Member for Lanarkshire, North (Mr. Smith) obviously had not read when he made his speech this afternoon. Will the hon. Gentleman now devote himself to the proposals in the Bill?

Mr. Davis

I have obviously caused some concern to the Minister of State, who is always sensitive when he is in the wrong. I shall deploy my argument in my own way without the help of the Minister of State, who has been pretty helpless throughout the debate, anyway.

Two powerful arguments have been adduced, and they have not been dealt with effectively, as I shall hope to establish, by the Ministers's proposals. We should improve the efficiency of the Registry of Business Names. I believe in regular renewals. But let us consider the alternatives and some of the lacunae. I think that I can best deal with this matter by posing a number of questions to the Minister, and I hope that he will reply to them. Who will police the new arrangements? The Bill is unclear.

Will the small fines which are suggested deter wrongdoers?

Is it reasonable that customers should be expected to find out the business identity of everyone with whom they trade to protect themselves against the risk that something in a transaction may go wrong? Is not that what the Minister is expecting them to do?

Of what value are the display and disclosure arrangements when a business ceases to trade? That powerful argument was adduced by my hon. Friend the Member for Swansea, East (Mr. Anderson). It may be necessary to trace a former trader, because he may still have some assets with which to discharge his liabilities. As the consumer associations have argued, display and disclosure requirements cannot give historical information. There will be no way of finding out about the previous ownership of a business if the Minister's proposals come into effect. What will he say about that important aspect?

What use are these arrangements if business stationery is not used for a transaction? What use are the requirements to display information inside public promises when the public have no access to such premises? If someone has conducted a shady deal, is it likely bat he will willingly allow a disgruntled customer access so as to provide him with a potential remedy? How will a customer requiring information—a customer who does not live or work near the trader—go about acquiring it?

These are important matters, even though the Minister may brush them off.

Mr. Anthony Grant

I am grateful to the hon. Gentleman for giving way, because he understands these matters. Will he tell the House how many times in his professional experience he has searched the business names register on behalf of clients who were about to enter into contracts and how many times he has done so after clients have entered into contracts?

Mr. Davis

How can anyone answer such a question? There is regular access to the registry for a variety of reasons, especially in a practice that is not in central London—in other words, not a substantial City practice—and that deals with working class people.

Sir Graham Page

I can assure the hon. Gentleman that I have searched the register for clients but not when they have been entering business. My purpose when doing so has been to ascertain who to sue. I have had to do so on at least a dozen occasions in my practice.

Mr. Davis

I should say that on virtually every occasion when a firm is to be sued such a search will be made. That is the important argument. There is a strong case for having a more efficient registry. Higher fees would not constitute a real burden for the small business. It is pathetic to argue otherwise, although that was done by Lord Trefgarne in another place.

The introduction of renewable certificates, which would get rid of much of the deadwood, would be a useful procedure. However, we must remember that we are discussing a procedure that is substantially policed by the banks and others.

Some of the reforms that the Minister has suggested could be used to make the registry more efficient. There is no reason why those proposals should be regarded as mutually exclusive of proposals for the strengthening of the registry.

I strongly oppose clause 30, which seems to suggest that the Government will embark on a privatisation of the registry. It makes no provision for the duties that would be imposed upon such a purchaser. It is defective in a number of material respects and I ask the Minister to comment on it. I find it totally objectionable.

I deal finally with screening. If the Minister is to proceed with these reforms, why has he so far ignored the suggestions that have been proposed by the Association of Company Registration Agents Ltd? I do not have time to go into the detail of its proposals. It may be that it has briefed hon. Members. However, it has proposed a way of overcoming some of the bureaucracy that I think is needless in dealing with the screening of company names. In short, the suggestion has been made that the business agent, or whoever it is who is seeking a name for a company, should not be able to submit to the registrar a name at random and wait for the registrar to pronounce upon it. That element could be omitted.

In essence, the Government's proposals will degrade the interests of the consumer. They will impair the activities of investigative journalists and others who have a real interest in using a central register of business names. They will weaken the procedures for ensuring that rogues do not take advantage of the gaps that are bound to appear in the new proposals for screening names.

As the hon. and learned Member for Burton has said—I take this opportunity of congratulating him publicly upon becoming learned—the real mischief is the use of slightly different names. That is where difficulties will arise in implementing the Government's proposals. It will be absurd to rely upon the remedy of passing-off actions. That is an inordinately expensive and complicated procedure. It should not be made the only real recourse available to small firms.

For the reasons that I have adduced I contend that the Bill is seriously defective. The Ministers should say that they will take it away and consider the two major proposals on which the debate has centred. If they do so, we shall be happy not to divide the House. If they fail to do so, we shall divide the House. We shall do so in the belief that we are taking the right course.

9.30 pm

The Under-Secretary of State for Trade (Mr. Reginald Eyre)

In view of the attention that has been given during the debate to part II I feel that I should begin by explaining the reasoning behind the Government's decisions in these matters. I hope that it will be understood that that will leave me with less time than I should have liked to reply to the large number of interesting matters that have been raised in the debate. However, I shall do my best in the time available.

I am aware that the proposals in part II to amend the law relating to the control of company names and to abolish the Registry of Business Names have not been well received. The references that the right hon. Member for Lanarkshire, North (Mr. Smith) made in his opening speech disclosed that he had not studied in sufficient detail the proposals in the Bill. It is generally suggested that they reflect only decisions to reduce the size of the Department and that the Government, by apparently ignoring their critics, have consistently refused to take account of the needs of commerce and the consumer. That is far from being the case.

Although the Government's announcement of the proposals in the consultative document issued last August rightly emphasised the need to use their resources in the most efficient manner and to eliminate or modify particular functions rather than permit a general decline in the services provided, there are sound practical arguments in each case. I shall refer first to company names.

It must be recognised—hardly anyone who has spoken on the matter has properly taken this into account—that there has been a tremendous growth in the number of companies registered in this country since 1948. Even in the last 10 years, the number added to the register each year has more than doubled—from 30,000 in 1970 to just under 70,000 in 1980. The registry now comprises about 800,000 names. The company name system is computerised, but the register of business names is not, for reasons that I shall give. Although the system was computerised some years ago, the final decision on each application still requires human judgment. I emphasise the total amount of business passing through that companies registry. The computer can produce only a list of what might be conflicting names. The decision can be made only by an offical considering the matter in detail and making a decision based on human judgment. Therefore, the computer can help only to a degree in those matters.

Mr. Lawrence

About 1,300 times 30 seconds, or 2 hours a day.

Mr. Eyre

Yes, but there are more than 1,300 matters per week.

Moreover, the uncertainty of the present law, which allows the Registrar wide discretion on what name may be considered to be undesirable, has resulted in many company promoters seeking provisional approval to a name before submitting formal documents. Many weeks elapse, as all such cases must be rechecked in case a conflicting name has been registered in the interim. Dealing with 70,000 new registrations, together with about 22,500 changes of names in 1980, required over 170,000 individual judgments based on an often subjective comparison with existing names. Even with the greatest care in the administration of that large and complex system, it is not possible completely to eliminate confusion.

As I said, the right hon. Member for Lanarkshire, North does not appear to have digested the provisions of clauses 22 and 23 or their relationship to the Registrar's present practice. First, the right hon. Gentleman implied that there would be no check to prevent the registration of companies by names identical to those of companies already registered. I point out that that is expressly provided for in clause 22(1)(c). Secondly, he seemed to be under the impression that the Registrar would no longer have a responsibility to sift out undesirable names before registration. Again, that simply is not so.

Mr. John Smith

I do not mind answering accusations correctly levelled, but I have checked my speech, and I did not suggest that. Secondly, my objection was that the screening of names was greatly reduced, but not eliminated.

Mr. Eyre

I do not wish to misrepresent the right hon. Gentleman, but I believe that that was the effect of his rather confused speech. If I am mistaken, I withdraw my remarks. However, I wish to emphasise that those virtues exist and that there is an ability to look over undesirable names before registration.

The Bill substitutes certain specific tests for the open-ended word "undesirable", which, under the Companies Act 1948, is all that the Registrar has to go on. Under the authority of the Act under which he operates, the Registrar is in a difficult position. In many respects, the Bill simply puts present administrative practice into law. For example, the Registrar already tests names against a list of sensitive words, such as "trust" or "British", to see whether the implications are justified. In clause 22(2) the proposal is to put the list on a statutory basis and to make it available for everyone to see, which is an improvement. Similarly, there will continue to be discretion to refuse names that imply associations with the Royal Family or central or local government. Again, that will be a proper base for future procedure.

I believe that the right hon. Gentleman referred to one aspect of the sift that the Registrar has operated in an attempt to weed out names that are not only identical, but too similar to others. Again, I do not believe that the right hon. Gentleman is taking account of the undertakings given in another place.

I thank my hon. Friend the Member for Harrow, Central (Mr. Grant) for his excellent speech. He asked me to explain the intended effect of clause 22(1)(e), which prohibits the registration of a company by a name which in the opinion of the Secretary of State is offensive. The expression is intended to exclude names that are, for example, obscene or blasphemous. Other categories may also be found offensive—for example, a name that would be seriously offensive to a foreign Head of State or would incite racial hatred. That is the distinction between the two categories.

We consider that these new provisions not only will simplify administration, but, more importantly, will remove the present uncertainty in the minds of persons wishing to form companies. In this sense, I believe that the proposals are welcome and increasingly will come to be recognised as such. In this turmoil of company registration, where the system is not operating swiftly enough, and where proper use is not being made of resources, the basis that we are putting forward will result in a simplified and improved system that will operate more speedily and will come to be recognised as one of the good qualities of these proposals.

Mr. Anthony Grant

There are deep and philosophical difficulties over the meaning of "undesirable" or "offensive". The name Schmidt may be extremely offensive to some people, especially a number of Opposition Members. Equally, the name Smith may be similarly regarded. What does my hon. Friend really mean?

Mr. Eyre

In that connection, I noted the chauvinistic and nationalistic reasons advanced by the hon. Member for Aberdare (Mr. Evans) in defence of the 1916 Act when he talked about the danger of foreigners arriving here and setting up businesses.

Mr. Ioan Evans

I was making the point that the Government were going beyond the 1916 Act in altering the legislation and that that was one of the reasons why the legislation was originally passed in 1916. What the Minister has not yet done is to say why the relevant provisions should be done away with, leaving no safeguards in their place. Will he now address himself to that criticism?

Mr. Eyre

If the hon. Member reads his speech tomorrow he will understand more what I have in mind when I make this comment about the nature of his objections.

In another place, we said that we would introduce an amendment to deal with the problem of too-like names, and we have suggested two means by which this objective might be achieved short of a check on every proposal. Comments have been invited on whether proposed names should be advertised before registration in order to allow any objection to be considered, or whether a power to direct a change of name that was considered subsequently to be too like that of an existing company should be retained.

We are now considering the replies that we have received. They come from a wide range of organisations representing both commerce and consumer interests. We shall table an amendment as soon as possible. I believe that this will allay many of the fears that have been expressed, while still allowing the administrative simplification to be achieved. We could more profitably defer the detailed discussion of a matter of this kind to the Committee stage, but I want to assure right hon. and hon. Members that these proposals, properly developed and considered in detail, will be found to allay many of the fears expressed in the debate.

I stress again the importance of achieving such a simplification from the point of view of the use of Government resources. It is not enough to argue that in terms of commercial information it is sufficient merely to increase fees so as to pay for more staff. A limit has to be set, and it is our task within that limitation to ensure that the staff are deployed where the need is greatest. I have in mind, for example, the role of positive enforcement urged upon the Government by my hon. Friend the Member for Hornchurch (Mr. Squire).

Mr. Clinton Davis

Will the hon. Gentleman now say specifically how his proposals deal with the provision of historical information which may be very important in litigation brought against someone who has ceased to trade?

Mr. Eyre

I understand what the hon. Gentleman is coming to, and it is a Committee point.

Mr. Clinton Davis

No, it is not.

Mr. Eyre

The microfilm records that are kept of company names answer the point made by the hon. Gentleman.

I come to the Registry of Business Names, which is alleged to contain details of the ownership of more than 2.5 million businesses carried on under names other than those of their owners. The protagonists of the registry claim that it provides an invaluable source of information. However, we find that a high proportion of the businesses registered either are no longer trading or have failed to update their particulars, so that an inquiry has only about a 60 per cent. chance of success.

The right hon. Member for Lanarkshire, North asked on what facts that assertion was based. A detailed survey that was made some time ago showed that over a period of weeks inquirers obtained the information that they needed in only about 60 per cent. of cases. This year samples were taken in various parts of London, Edinburgh and Cardiff, which showed an even higher rate of failure. Of the 167 businesses visited, 83 had failed to register.

That small exercise, which covered only eight streets in typical small shopping areas, required a total of two man-days to inspect the premises, to find out whether those carrying on business were required to register—because they were carrying on business in a name other than their own—to check with the register and to find out whether a notice had been put up and whether there was compliance. That high rate of failure—83 out of 167—was revealed. Labour Members should ask themselves how they would get people to comply more with the requirements of the registration system.

Mr. John Smith

Even if, for the purpose of argument, we accept the Minister's hypothesis that only 50 per cent. of the information can be detected, is that not much better than the hon. Gentleman's proposal, whereby the public will not be able to detect anything?

Mr. Eyre

The right hon. Gentleman has completely misrepresented the alternative proposals. He should give them serious consideration. They will bring about a situation that is advantageous to the consumer and will offer better protection. It is clear that a nation-wide survey to reveal the total percentage of default would require enormous resources. If my hon. and learned Friend the Member for Burton (Mr. Lawrence) would go round part of Burton's trading areas and consider how he could make people comply with the requirement to fill in the forms on registration and send them to the central registry in order to counter the difficulty of non-compliance, he would begin to see how difficult it is to make the system work.

When it comes to allocating resources to the points of greatest need, we find that the rate of inquiries about the number of registrations is 45 times less than in the case of companies. That important point should be seen in perspective. The importance and degree of successful working and of satisfactory arrangements in the registration of business names is of a far lower order than the companies registry. I accept that we must do everything that we can to make that companies registration system work well. With the registration of business names, it is a more difficult proposition.

For all those reasons, we consider that the registry no longer serves its purpose and should be abolished. To bring it up to date and to ensure that all businesses covered by the Act complied would require resources far in excess of what this or any other Government could provide. Even to cover current costs, without providing for any improvement, the registration and search fees would have to rise considerably. To what avail? A business gains no direct protection from registration—not even the protection of its name. Increased fees could only act as yet a further deterrent to compliance.

The essential purpose of the 1916 Act can be better met by other means. The Bill's proposals will require the businesses affected to display the essential details of ownership at their premises and to show them on business documents, and they will convey a new right on any person who has dealings with the firm to require the information immediately on request in writing. That gives a right to an individual, which he will be entitled to enforce at that local level.

That will provide the answer to the essential question—namely, whom does one sue?—without the need for the Government to maintain a registry which, despite all that has been done to improve it, is only partially effective. Moreover, the information will be provided where it is needed. Information that is vital to the consumer will be provided at the very point at which business is done. I emphasise the importance of these alternative proposals, namely, that this information will be available in the locality and not at some possibly remote and inconvenient central registry.

Mr. Dennis Skinner (Bolsover)

How many new jobs will be created?

Mr. Eyre

The hon. Member for Hackney, Central (Mr. Davis) asked a number of questions. In answering them in principle—because we shall debate them in detail in Committee—I say to him that it is desirable that consumers, in their own interests, should address their minds to the question: with whom am I doing business? The alternative proposals will cause consumers to think about that. It is an extremely important point, because the alternative system then becomes extremely helpful to them in providing the basic information that they need in connection with transactions.

My hon. and learned Friend the Member for Burton and my hon. Friends the Member for Luton, East (Mr. Bright) and for Hertford and Stevenage (Mr. Wells) referred to the programme known as "Checkpoint", which at one stage was inaccurately described as "Crossroads". It was obvious that at least two of my hon. Friends had been very much attracted by the programme that features Esther Rantzen—and I understand that. They were raising matters connected with fraud and unscrupulous characters. I emphasise that our experience is that unscrupulous characters do not usually comply with the requirements for the registration of business names.

Computerisation is not enough, because if one computerised the registration of business names one would still have the difficult practical problem of how to get the 2½ million people who are running businesses around the country to fill in the forms and return them to the central registry. That is where the system has failed, and that is where the alternative proposals seek to introduce a better situation.

In the "Checkpoint" programme, and so on, there has been a great deal of reference to a range of activities indulged in by what I would describe as fly-by-night companies. In the Bill there are two measures that strengthen actions that are brought against unscrupulous practitioners of that kind. However, I emphasise further that proper consideration of the Cork report is necessary in order to get wider proposals to deal adequately with a number of difficulties raised in those programmes. I strongly resent the ill-practice of these fly-by-night companies. They damage the free enterprise system and do a great deal of harm to the general reputation of the great mass of ordinary, good, responsible and respectable traders.

Therefore, I look forward very much to the insolvency legislation, which I think will be brought forward next year, which will give us a proper opportunity to look at the situation of companies and the kind of bad practice that my right hon. and hon. Friends had in mind when they raised this subject. I believe that we shall then be able to bring forward carefully prepared and adequate measures to make the situation much more difficult for these kinds of swindlers.

In that connection, it is not possible to prevent all fraud in which unscrupulous characters are involved, because they take advantage of the innocence, and sometimes the weaknesses, of human nature. It is not possible by Act of Parliament necessarily to deal with all aspects of dishonest behaviour. I have spent some time on company names and the registration of business names, but I have been right to do so in view of the importance of the subject.

The right hon. Member for Lanarkshire, North suggested that new clauses on concert parties should be debated on Report, because they amounted to 20 complex clauses. I appreciate that the right hon. Gentleman will not have had time to consider our consultative document together with the new clauses, but I emphasise that the clauses largely amend and strengthen the existing law. The clauses on concert parties constitute only three or four of the disclosure clauses in the consultative document.

The hon. Member for Hackney, Central asked the Government to reconsider his proposal that companies taking advantage of the accounting exemptions should identify themselves, preferably in their names. Under clause 7(3)(b), modified accounts must be accompanied by a statement that the company has taken advantage of the exemptions as a small or medium-sized company. The Bill, therefore, already provides the substance of what the hon. Gentleman appeared to favour. Requiring companies to include the appropriate designation in their names would involve expensive changes of name, and not necessarily once and for all, because companies may change category from one year to another.

The hon. Gentleman also asked what provisions were made in clause 61, which extends the Secretary of State's power in relation to the investigation of the ownership of companies, to deal with the problems of professional confidentiality. The law on that matter, which is contained in section 175 of the 1948 Act, remains substantially unaltered. There is a minor consequential amendment in paragraph 8 of schedule 3 to make clear that the privilege extended to solicitors by the section applies also to counsel.

Section 175 as amended will provide that none of the inspection provisions in the Act requires disclosure by a solicitor or counsel of any privileged communication made to him in that capacity, except in respect of the name and address of his client, or disclosure by a company's bankers of any information about the affairs of any of its customers other than that company.

The right hon. Member for Orkney and Shetland (Mr. Grimond) referred to the possibility of new clauses giving statutory recognition to job-ownership companies. I recognise the great value of such companies, but as we explained to the representatives of the organisation that visited the Department, there is no need to make special provision in the Bill, because job-ownership companies can be formed on the basis of the existing law. We went further because we wanted to offer positive help in drawing the attention of other Government Departments and agencies connected with the Government to the need to explain to people the availability of job-ownership companies. We shall seek to co-operate positively in that respect and to put over that information.

I apologise if I am not able to reply to points raised by the hon. Member for Bradford, North (Mr. Ford), my hon. Friend the Member for Harrow, Central and a number of other hon. Members. I believe that we shall be able to debate those matters in detail on Report.

I wish to conclude by saying that the Government have shown their commitment to the development of the administration of company law in many ways. We have established a number of beneficial proposals. On the basis of the Bill as drafted and in the expectation of adding the clauses relating to disclosure, I commend it to the House.

Question put, That the Bill be now read a Second time:—

The House divided: Ayes 149, Noes 87.

Division No. 194]	[10 pm
AYES
Alexander, Richard	Burden, Sir Frederick
Arnold, Tom	Butcher, John
Baker, Nicholas (N Dorset)	Butler, Hon Adam
Beaumont-Dark, Anthony	Cadbury, Jocelyn
Bendall, Vivian	Carlisle, John (Luton West)
Berry, Hon Anthony	Carlisle, Kenneth (Lincoln)
Biggs-Davison, John	Carlisle, Rt Hon M. (R'c'n)
Blackburn, John	Chapman, Sydney
Boscawen, Hon Robert	Clark, Hon A. (Plym'th, S'n)
Bowden, Andrew	Cockeram, Eric
Boyson, Dr Rhodes	Colvin, Michael
Bright, Graham	Cranborne, Viscount
Brooke, Hon Peter	Crouch, David
Brown, Michael(Brigg & Sc'n)	Dean, Paul (North Somerset)
Bruce-Gardyne, John	Dorrell, Stephen
Buck, Antony	Douglas-Hamilton, Lord J.
Budgen, Nick	Dover, Denshore
Bulmer, Esmond	Dunn, Robert (Dartford)

Dykes, Hugh	Neubert, Michael
Eyre, Reginald	Onslow, Cranley
Faith, Mrs Sheila	Page, John (Harrow, West)
Fenner, Mrs Peggy	Page, Rt Hon Sir G. (Crosby)
Finsberg, Geoffrey	Page, Richard (SW Herts)
Fisher, Sir Nigel	Parkinson, Cecil
Fletcher-Cooke, Sir Charles	Patten, Christopher (Bath)
Fowler, Rt Hon Norman	Pawsey, James
Garel-Jones, Tristan	Percival, Sir Ian
Goodhew, Victor	Pink, R. Bonner
Goodlad, Alastair	Proctor, K. Harvey
Gow, Ian	Rathbone, Tim
Grant, Anthony (Harrow C)	Rhodes James, Robert
Griffiths, Peter Portsm'th N)	Rhys Williams, Sir Brandon
Grylls, Michael	Ridley, Hon Nicholas
Hamilton, Michael (Salisbury)	Roberts, M. (Cardiff NW)
Hannam, John	Roberts, Wyn (Conway)
Haselhurst, Alan	Rossi, Hugh
Hawkins, Paul	Sainsbury, Hon Timothy
Heddle, John	Scott, Nicholas
Hogg, Hon Douglas (Gr'th'm)	Shaw, Giles (Pudsey)
Holland, Philip (Carlton)	Shepherd, Colin (Hereford)
Hunt, John (Ravensbourne)	Silvester, Fred
Hurd, Hon Douglas	Skeet, T. H. H.
Jenkin, Rt Hon Patrick	Smith, Dudley
Jessel, Toby	Speed, Keith
Johnson Smith, Geoffrey	Speller, Tony
Jopling, Rt Hon Michael	Spence, John
Kaberry, Sir Donald	Spicer, Michael (S Worcs)
Kershaw, Anthony	Squire, Robin
Kilfedder, James A.	Stainton, Keith
King, Rt Hon Tom	Stanbrook, Ivor
Knight, Mrs Jill	Stevens, Martin
Lee, John	Stradling Thomas, J.
Le Marchant, Spencer	Taylor, Teddy (S'end E)
Lester, Jim (Beeston)	Tebbit, Norman
Lloyd, Peter (Fareham)	Temple-Morris, Peter
Luce, Richard	Thatcher, Rt Hon Mrs M.
Lyell, Nicholas	Thomas, Rt Hon Peter
Macfarlane, Neil	Thompson, Donald
McNair-Wilson, M. (N'bury)	Thornton, Malcolm
Major, John	Townend, John (Bridlington)
Marlow, Tony	Trippier, David
Mates, Michael	van Straubenzee, W. R.
Maude, Rt Hon Sir Angus	Vaughan, Dr Gerard
Mawby, Ray	Viggers, Peter
Maxwell-Hyslop, Robin	Waddington, David
Mellor, David	Wakeham, John
Meyer, Sir Anthony	Wall, Patrick
Mills, Iain (Meriden)	Waller, Gary
Miscampbell, Norman	Wells, John (Maidstone)
Moate, Roger	Wells, Bowen
Murphy, Christopher	Wheeler, John
Neale, Gerrard	Wickenden, Keith
Needham, Richard	Wilkinson, John
Nelson, Anthony	Williams, D.(Montgomery)

Winterton, Nicholas	Mr. John Cope and Mr. Selwyn Gummer.
Tellers for the Ayes:

NOES
Anderson, Donald	Harrison, Rt Hon Walter
Archer, Rt Hon Peter	Home Robertson, John
Beith, A. J.	Hooley, Frank
Bennett, Andrew (St'kp't N)	Howell, Rt Hon D.
Booth, Rt Hon Albert	Howells, Geraint
Brown, Ronald W. (H'ckn'y S)	Huckfield, Les
Callaghan, Jim (Midd't'n & P)	Hughes, Robert (Aberdeen N)
Campbell-Savours, Dale	Johnson, James (Hull West)
Canavan, Dennis	Kerr, Russell
Cocks, Rt Hon M. (B'stol S)	Kinnock, Neil
Concannon, Rt Hon J. D.	Leighton, Ronald
Cowans, Harry	Lestor, Miss Joan
Cox, T. (W'dsw'th, Toot'g)	Lyons, Edward (Bradf'd W)
Cryer, Bob	McCartney, Hugh
Cunliffe, Lawrence	McDonald, Dr Oonagh
Dalyell, Tam	McKay, Allen (Penistone)
Davis, Clinton (Hackney C)	Marshall, Dr Edmund (Goole)
Davis, T. (B'ham, Stechf'd)	Morris, Rt Hon C. (O'shaw)
Dean, Joseph (Leeds West)	Morris, Rt Hon J. (Aberavon)
Dixon, Donald	Oakes, Rt Hon Gordon
Dobson, Frank	Penhaligon, David
Dormand, Jack	Prescott, John
Dubs, Alfred	Roberts, Albert (Normanton)
Duffy, A. E. P.	Roberts, Ernest (Hackney N)
Dunn, James A.	Rooker, J. W.
Dunwoody, Hon Mrs G.	Roper, John
Eadie, Alex	Ross, Stephen (Isle of Wight)
Eastham, Ken	Rowlands, Ted
Ellis, Tom (Wrexham)	Sever, John
Evans, Ioan (Aberdare)	Skinner, Dennis
Evans, John (Newton)	Smith, Rt Hon J. (N Lanark)
Ewing, Harry	Spriggs, Leslie
Field, Frank	Steel, Rt Hon David
Fletcher, Ted (Darlington)	Stoddart, David
Ford, Ben	Tinn, James
Foster, Derek	Urwin, Rt Hon Tom
Fraser, J. (Lamb'th, N'w'd)	Walker, Rt Hon H. (D'caster)
Freud, Clement	Welsh, Michael
George, Bruce	White, Frank R.
Gourlay, Harry	Whitlock, William
Grant, George (Morpeth)	Winnick, David
Grant, John (Islington C)
Grimond, Rt Hon J.	Tellers for the Noes:
Hamilton, James (Bothwell)	Mr. Frank Haynes and Mr. George Morton.
Hamilton, W. W. (C'tral Fife)
Hardy, Peter

Question accordingly agreed to.

Bill read a Second time.

Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills)