§ Mr. Peter Rees
I beg to move amendment No. 61, in page 72, line 20, leave out 'subsection (10) below' and insert
'the following provisions of this section'.228
§ Mr. Deputy Speaker
With this it will be convenient to take Government amendments Nos. 62, 63 and 64.
§ Mr. Rees
The amendments all relate to the same point.
When clause 62 was reviewed after the close debates in Committee, the Government came to the conclusion that the use of the words "or arrangement" in subsection (2) was superfluous and, indeed, might introduce an element of ambiguity. "Arrangement" is defined in various ways in other parts of the Bill, and it was thought that this might indicate that there was another form of arrangement not within the definition. It was thought that this would make for greater clarity. On that basis, I can commend the amendments to the House.
§ Mr. Nelson
This set of amendments takes us to the heart of the provisions of the Bill which attempt to deal with concert parties. I should like to use this opportunity to raise a number of points directly relevant to the amendments and perhaps to probe more than I did on the previous set of amendments. I am worried particularly that the amendments now under discussion, which admittedly result from a full debate and discussion in Committee, appear to introduce rather more restrictive or legal terms on the sort of agreements that will be notifiable.
I shall try to explain this more simply. We are trying to prevent groups of people acting together, either formally or informally, but with the definite understanding that they will all benefit from such co-ordination, to acquire shareholdings in companies that are above the level that has to be notified publicly and that may subsequently be injurious to other shareholders or employees in those companies. It is a matter of some significance. It is proper for us to ensure that the terms of this legislation are cast sufficiently wide to become an adequate deterrent to those who will seek by informal means to evade the responsibilities that these provisions would otherwise imply.
What really concerns me is the matter I raised on Second Reading. We are concerned not only with people in this country who may play by the rules and who may play the game. We are increasingly concerned with interests and individuals abroad who are looking more actively to companies in this country and acquiring substantial stakes almost day by day in household name companies. They are not subject to the jurisdiction of British law. There is nothing even in this Bill—sadly, in my judgment—which will take away the rights of any investment that they make in these companies. I have to admit that even if we are to cast this legislation tighter in preventing such activities, we would not wholly prevent the possibility of them arising. The difficulties that certain major British public companies have experienced even investigating who has built up a shareholding in them, let alone whether that investor has acted in concert with another party, demonstrate the real problems faced by companies in pursuing investigations outside this country. They also demonstrate the improbability that those individuals, companies, nominees and agents outside this country will necessarily observe British law in this respect.
Nevertheless, we must do our best to ensure that our legislation is cast sufficiently wide and that it is sufficiently specific to ensure that such activities are deterred so far as possible. I have referred at length on previous occasions to the case of Consolidated Gold Fields 229 where a dawn raid was preceded by the building up of a covert purchase of a substantial interest in the company by a number of foreign and domestic corporations acting in concert. Since that time and, indeed, since this Bill was introduced or discussed in Committee, there have been further examples of companies in this country that have been acquired suddenly early in the morning by predator companies acting from within or without our shores.
I recognise that dawn raids on companies in which there is an open market operation and where shares are acquired quickly and suddenly and in substantial numbers are different from the building up of a share interest in the company and where there is a requirement, as laid down in this legislation, for an interest to be notified. But these two activities often go together. Companies or individuals will build up an interest and sometimes, if they can, sadly, they will do so covertly. They will go into the market early one morning to bring their interest well above that which has to be notified and at a price that is much lower than would perhaps have been the case if they had made a general offer to all shareholders. In so doing, they act very much to the detriment of other shareholders who do not necessarily have the opportunity to subscribe to shares at the same price. 7.45 pm
Since the matter was discussed in Committee, a number of companies have been subject to this sort of activity. It was interesting to see that one major Malaysian company—I think that it was called Permodalan—took a major interest in the Guthrie Corporation here. Subsequently and, in fact, I believe only today, that same Malaysian company is bidding against Preussag for its shareholding in the Amalgamated Metals Corporation. The significance of these two events is that a major corporation, in this case in Malaysia, has sought to repatriate or re-buy the interests in certain national holdings in tin mines, smelting and other interests. We find increasingly that the nationalism in other countries, combined with the prodigious sums of money available to international investors, has made them look much more acquisitively at opportunities offered by the free market available in the City of London. On the other hand, if we look at what is happening in our own market, we see that the low level of share prices at present, combined with the relatively low exchange rate, makes it doubly attractive for foreigners to come and examine the possibility of acquiring shares in British companies.
I do not believe, that there is necessarily something more prejudicial about a foreign shareholding than a domestic one. I believe however, that we have to be careful about the possibility that we and the employees of certain major companies employing substantial numbers of our people and with very important interests involving raw materials and production in extractive industries may wake up one day to find that an effective controlling interest has been acquired on top of an initial interest built up somewhat covertly.
§ Mr. Nicholas Baker
Will my hon. Friend agree that the problem is that an offence may be committed under what will be section 67 of the Act, but, because an overseas concert party goer is involved and the offence is not a United Kingdom offence, the overseas party goer will not be guilty of a United Kingdom offence? There will be no sanction against an overseas party in those circumstances. Does my hon. Friend consider that there 230 should be power to freeze the shares in circumstances where a conviction for the offence has not been obtained but where the evidence exists that an offence may have been committed?
§ Mr. Nelson
I understand that under this legislation there is a power where someone refuses to comply with an investigation to impose in the last resort a freezing in accordance with section 174 of the Companies Act 1948. There is a power to provide a freezing where someone refuses to comply. I agree with my hon. Friend, who makes a most important point that the arm of the law is exceedingly short when trying to tackle such people abroad. That is why during Second Reading I suggested that we should go further and that companies should be able to cancel the shares involved. Even though a foreign investor may be acting illegally and even though a British investor may be acting illegally and convicted of acting illegally, this does not destroy financially what they have done. Although their interests in the company may be temporarily frozen, as provided under this and other legislation, they can subsequently obtain the full value of benefits of that shareholding.
Therefore certain firms, particularly foreign companies, are prepared to take that risk, because it is probable that they will benefit from it and realise the full profit at the end of the day. It would be a sufficient sanction—indeed, I fear it may be the only sanction—if we hung over foreign companies the sword of Damocles that in the last resort shares that they had acquired and failed to disclose, or those that they had acquired improperly, could be cancelled so that the benefit arising from them would disappear.
§ Mr. Clinton Davis
The hon. Member participated in our debates on this matter last year and we were in almost total accord on the subject, but he will recall that the Opposition's new clauses, which the Government refused even to consider in principle, encompassed precisely the points that he is raising. Like the hon. Gentleman, I regret that a more stringent regime is not included in the Bill.
§ Mr. Nelson
I have much sympathy with that point. It was a particular source of regret to me, and partly explains why I am speaking at a little more length than I would normally do, that personal circumstances, of which some hon. Members are aware, prevented me from attending the Standing Committee when we were discussing these matters. I had hoped to contribute to those debates.
However, we have legislation which attempts to deal with the problem. I congratulate the Government on that. It was thought initially that it would be too difficult, which is why the provisions were introduced as new clauses. I do not wish to be churlish about what the Government have done and I welcome the fact that they have brought forward new proposals, but I still fear that they do not go far enough and that many foreign companies have the resources and incentive to take effective controlling interests in major British companies, public and private, with strategic interests and many employees. We should be the proper defenders not only of the national interest but of the interests of other shareholders who may be adversely affected by such events.
As a Conservative I believe in freedom, but it must be balanced with responsibility. I believe in more freedom in 231 economic and social policies than do Labour Members, but I attach to that freedom a desire to ensure that individuals and corporations act responsibly.
We have derived great benefit from having free markets, a free Stock Exchange and an ability to go into the market and acquire shareholdings in companies. But responsibilities are attached to such freedoms and if those who use the freedoms fail to observe the responsibilities the freedoms will surely be curtailed in the long run.
It is a sad reflection on recent events in the City and recent practices of some of our best-known names that have histories of integrity in this country and elsewhere that their actions and the way that they have set about acquiring companies overtly and without declaring their interests make it necessary for us to consider legislation. We are introducing measures, and I hope that if we find that they are inadequate we shall actively consider the possibility of tightening them up in ways which I believe to be necessary now.
§ Mr. Clinton Davis
I pay tribute to the hon. Member for Chichester (Mr. Nelson), because he has spoken with knowledge and expertise on this subject on a number of occasions. It was a pity that, for understandable reasons, he could not contribute to our debates on this topic in Committee. He would have had some valuable advice to offer.
Like the hon. Member, I do not wish to be churlish about the Government's attempts to deal with a serious situation which was highlighted in the Consolidated Gold Fields case, but I am not confident that they have devised a system which will overcome the perils that may confront British companies in future.
The hon. Member for Chichester seized on the difficulty of dealing with overseas interests. I wish that the Government had been bolder and had accepted the philosophy that the hon. Member for Chichester and I adumbrated, in uncommon unison, when we discussed these matters last year.
Experience will determine whether the Government's confidence that they have got the answer is justified or whether we are right in our lack of confidence in their proposals. I hope that the Government will be proved right. We all hope that the loophole will be plugged, and I do not underestimate the problems and difficulties that confronted the Government and their advisers on this extremely difficult topic.
I shall say something more on the subject later and I will leave it there for the moment, but the House is indebted to the hon. Member for Chichester for his observations.
§ Mr. Peter Rees
I echo the appreciation of the hon. Member for Hackney, Central (Mr. Davis) of the contribution of my hon. Friend the Member for Chichester (Mr. Nelson), who has obviously thought long and profoundly about these complex clauses.
However, I should emphasise that the purpose of the clauses is not to defend British companies in any narrow nationalistic sense. We rightly pride ourselves on having an open economy and we have taken advantage of other open economies. My hon. Friend the Member for Chichester hardly needs reminding that British companies have moved in the American market, particularly when the dollar was weak, to make suitable acquisitions there. Therefore, who are we to complain, in a general sense, 232 when people inside or outside our economy make use of our stock market legitimately to take over British companies?
There may be circumstances in which the national interest is involved in a security sense, but I suggest that those should not be dealt with through the medium of Companies Acts which are designed to regulate and protect the position of shareholders, employees and creditors. We must proceed in that broad sense. We should not cloud the issue, and I do not suggest that my hon. Friend the Member for Chichester or the hon. Member for Hackney, Central has attempted to do so, by introducing questions of national security on these important but tightly defined issues.
The question to which we must address ourselves is the protection of a minority shareholder who may be put at a disadvantage by a dawn raid. He may not have sufficient time to reflect on whether he should accept offers being made in the market place.
Concern over this matter has been stimulated by a number of incidents going back to the Consolidated Gold Fields case. It is not necessary to go into the details of any particular case and, indeed, we may put the wrong construction on one case, but we must identify the problem and consider whether the Bill deals with it adequately.
The hon. Member for Hackney, Central expressed a natural scepticism about whether we have resolved the problems. I come very new to Companies Bills, but I have lived on the Back Benches and Front Benches in both Government and Opposition with many Finance Bills, when we have dealt with problems of comparable complexity. I have never been dogmatic about the ability of Governments, whether Labour or Conservative, to get it right, but we hope that we get it right.
§ 8 pm
§ Mr. Clinton Davis
The difference is that in a Finance Bill one can try again the year after. There has been that precedent in company legislation over the past two years, but we are anxious that it should not be repeated. There is that difference, which perhaps comes back to what I said yesterday.
§ Mr. Rees
I appreciate that, of course. It is a very telling point. I should be the last person in my present position to want to inflict another Companies Bill on a long-suffering House in 1982. We hope that this legislation will stand as long as some of the earlier companies legislation did. Of course we want to get it right. We do not want to have to go on refining the provisions, but, as I said, I hope that we have got it right.
It is to deal purely with the protection of the smaller shareholder, who is less versed in these matters and who does not have the necessary information, that we introduced this complex of provisions. We do not seek to build a wall around British companies to prevent their takeover by outside interests. Strategic interests may be involved, which we can consider on another occasion in the context of other legislation, but a Companies (No. 2) Bill 1981 is not the appropriate medium to devise such protection.
These amendments are designed to clarify what we mean by "arrangement". They provide a convenient peg for a far-ranging and perhaps helpful and interesting debate, but that is all we are tending to do. We realise that there may be many arrangements that fall short of anything 233 that would be enforced in a British court of law which may, none the less, open the door and provide the basis for a concert party, a dawn raid, whatever one may call these unattractive operations. The purpose of the amendments, which I commend with suitable modesty, is purely to clarify and elucidate.
However, there is a further point that was raised by both my hon. Friend the Member for Chichester and by the hon. Member for Hackney, Central, seeking to say that there is no way to enforce these against the extra-territorial offeror. Both hon. Members, who by now have probably a considerably deeper understanding of the Bill than I do, having sat through the debates in Committee, will realise that under clause 85 the Secretary of State has power to direct that the shares should be sold. There is no extraterritorial limit there. I can reassure all hon. Members that there is a remedy that can apply equally to those who abuse the provisions from inside or outside our jurisdiction.
We can identify a community of aim here. We can all have reservations, even those on the Front Bench, about whether we have absolutely hit the target, but I hope that on that basis the House will accept the amendments, which are designed only to clarify and elucidate what was in the draft Bill and which has been subject to much close scrutiny in Committee upstairs. I hope that we can leave it there, and that we shall not need to inflict any further elucidation on the House in the later years of this Parliament.
§ Amendment agreed to.
§ Amendments made: No. 62, in page 72, line 42, leave out 'or arrangement'.
No. 63, in page 73, line 16, leave out
'Subject to subsection (5) below'.
§ No. 64, in page 73, leave out lines 26 to 29 and insert—
'(5) this section shall not apply to an agreement which is not legally binding unless it involves mutuality in the undertakings, expectations or understandings of the parties to it.'.—[Mr. Peter Rees.]