POWER TO ALTER CERTAIN PROVISIONS WITH RESPECT TO REDEMPTION OR PURCHASE BY A COMPANY OF ITS OWN SHARES (Hansard, 19 October 1981)

§ Mr. Eyre
I beg to move, That the clause be read a Second time.
The Government put forward the new clause in pursuance of an undertaking that I gave in Committee to consider a suggestion made by the hon. Member for Norwood (Mr. Fraser) with support from the hon. Member for Coventry, North-West (Mr. Robinson)—namely, that bearing in mind the possibility that an opportunity to revise the provisions enabling a company to purchase its own shares may not arise for some years, it would be reasonable to take a power to adapt the provisions by statutory instrument subject to affirmative resolution if, in the intervening period, it was found that they could, with advantage, be developed.
The Government have given full and careful consideration to that suggestion. Obviously, there are objections to the provision of powers to amend primary legislation by statutory instrument, and we have not overlooked them. However, there are sound considerations that we believe justify such a provision in this case. In devising the legislative provisions to permit a company to purchase its own shares, we have attempted to take account of the foreseeable positions in which the interests of shareholders and creditors will need to be protected and to provide procedures accordingly. While we have received representations, such as those discussed in Committee—my hon. Friend the Member for Chichester (Mr. Nelson) was effective there—that some changes might be desirable, we are reasonably confident at this stage that the provisions strike just about the right balance. Their present form reflects the outcome of extensive consultations during their preparation. However, we acknowledge that a power to purchase own shares is a fundamental change in company law. It is impossible to know in advance all the circumstances in which companies will exercise that power, and what will be the effects for members and creditors. We are also sensitive to the concerns that have been expressed—for example, those referred to in Committee by the hon. Member for Coventry North-West and my hon. Friend the Member for Chichester—that in some areas, such as in the way in which we have defined off-market purchases and the detailed authorisation requirements we have applied to them, we have been unduly rigorous. We therefore see considerable attractions in providing a power to adapt the purchase of own shares provisions by statutory instrument, and that, in principle, is the purpose of the new clause.
The Government have, however, been extremely careful to ensure that the proposed power goes no wider than what we consider necessary. We have, therefore, sought to set out in the clause not only those aspects of the provisions that seem to us, in the light of comments received from outside bodies and in debate in Committee, might need to be changed, but also, where possible, in what way those aspects might need to be changed. There is obviously a difficult balance to strike here. The power is intended to accommodate uncertainty, so the more precise its provisions, the less useful they might prove to be. We have done our best in the course of thorough consideration within the Government to strike a sensible balance, and I hope that hon. Members on both sides of the House accept that we have achieved that balance. We have, of course, provided for the fullest possible parliamentary scrutiny of any instrument by requiring that it be laid in draft and approved by affirmative resolution of both Houses. 68 To summarise, the Government believe that the new clause enhances the potential usefulness of the purchase of own shares provisions in a sound, commonsense manner that ensures proper parliamentary accountability. We intend to exercise the power, if at all, only in the light of experience of operation of the power to purchase own shares when there is reliable evidence to justify any change. 6.45 pm
We shall be considering a number of mainly technical amendments to clauses 43 to 57 on the subject of the purchase of own shares. The new clause effectively completes the edifice of our new provisions. Standing back from the necessary details of the statutory framework, it is appropriate to remind the House of the important and valuable objectives that will be served by those clauses. As we set out in the Green Paper last year, we envisage that the power to purchase own shares will provide additional flexibility in a wide range of circumstances—for example, where a bank or some other investor is wiling to invest equity in a company only if he can have an assurance that he will not be locked in, where an entrepreneur wishes to raise equity without giving up a proportion of the company's capital, where a major shareholder retires or dies and the stability or character of the company might be otherwise adversely affected, where a company wishes to redistribute surplus funds, and so on.
We cannot predict exactly how the provisions will be used. That is one reason for taking a power of amendment. I am sure that many companies, investors and advisers will consider how they might be used to advantage. We believe the provisions to be a major and radical advance in company law. We are heartened by the response that they have received since the Green Paper was first published. We look forward with intense interest to their application in practice.

§ Mr. Clinton Davis
I very much welcome the Government's response to the proposals put forward in Committee by my hon. Friends. I am grateful to the Minister for having accorded that responsibility to them and for the response that he has made. The Minister has embarked upon a useful precedent. Few hon. Members who have served in Committee on companies Bills regard them as great examples of the efficiency of parliamentary procedures. We are bogged down with an enormous welter of technical detail. Few of us, including myself, understand much of that detail when it is before the Committee. The proposal establishes a useful precedent for dealing with technical areas of legislation.
The Minister was right to stress that a draft statutory instrument should be laid before the House considers the matter. Knowing the Department of Trade, I imagine that the most careful consultation will take place with outside bodies both before the draft is prepared and after it has been published. The bodies with a professional interest in such matters have a great deal to contribute—more, I fear, than hon. Members when dealing with highly technical, non-contentious matters.
I hope that the Minister will take this opportunity to assure the bodies concerned that he will listen carefully to their representations on both the principle and the detail. I am sure that the Minister is right to say that we need a flexible approach when legislation in a narrow, technical 69 area is shown to be unduly burdensome. We should not have to wait for a further Bill, with all the problems of time that that poses for any Government.
I wholeheartedly welcome the proposal. It is a great advance. I am glad that the Government have taken time to put it before the House today.

§ Mr. Nelson
I welcome this sensible improvement to the Bill. I am grateful to my hon. Friend the Under-Secretary of State for the way in which he responded to my comments on an earlier new clause.
The drafting of the new clause appears to be of a flexible nature. It has been drafted in a way that shows that any resolution will, if anything, make the position more flexible or beneficial for companies rather than more restrictive. In other words, the resolution-making powers in the Bill appear to be designed to liberate the position rather than to tighten it at a later stage.
Normally I and, I suspect, some of my hon. Friends regard order-making and resolution-making powers within Bills as Trojan horses that are designed to keep extremely late in the House those who do not have pairs. We have not always thanked those who have been responsible for introducing order-making powers which have sometimes resulted in radical changes in legislation being introduced under the guise of a long since passed Bill. In this instance I think that the logic is accepted on both sides of the House, and I hope that the power will be used to advantage.
The provisions to allow companies to purchase their own shares have been drafted rather tightly. I suspect that far fewer companies will exercise their rights to purchase their own shares than many hon. Members on both sides of the House hope. If there is no abuse of the provisions, I think that we shall be able to use the new clause to advantage.

§ Mr. Eyre
I was glad to hear the approval that my hon. Friend the Member for Chichester (Mr. Nelson) gave to the clause. I much appreciate his strong interest in this area of company law. I am happy to give the assurance for which he asked.