HC Deb 24 July 1986 vol 102 cc691-2

Lords amendment: No. 146, in page 151, line 18, at end insert— (7A) Where, in connection with any transfer, rights are to be conferred on members of the society to acquire shares in priority to other subscribers, the right shall be restricted to those of its members who held shares in the society throughout the period of two years which expired with the qualifying day; and it is unlawful for any right in relation to shares to be conferred in contravention of this subsection. (7B) Where the successor is an existing company, any distribution of funds to members of the society, except for the distribution required by subsection (2)(b) above, shall only be made to those members who held shares in the society throughout the period of two years which expired with the qualifying day; and it is unlawful for any distribution to be made in contravention of the provisions of this subsection.

Mr. Ian Stewart

I beg to move, That this House doth agree, with the Lords in the said amendment.

Dr. McDonald

Fortunately, my comments on both parts of the Lords amendment will be brief. It appears that the amendment is designed to make it even more difficult for building societies to convert into public limited companies. I do not disapprove of that intention because I do not believe that building societies should be able to convert from mutual organisations into pies. Perhaps the Minister would like to explain why the amendment appears at this late stage and what it is intended to do.

Mr. Stewart

Conversion has been a matter of difference between the two sides of the House, but there has been no difference about how it should he done. We agree that it should not be made easy for people in the market place to move funds from one society to another in the hope of being able to influence the conversion of a society into a limited company. It should not be easy for them to vote for that process and obtain short-term benefit from doing so, while expecting to move their funds off to another society. Such a risk was clear from certain events in the United States and we have been anxious to ensure that it should not be possible when the Bill is enacted.

The hon. Lady asked me why the amendment is needed. It is a technical matter. Lords amendments Nos. 146 to 150 would add an additional limitation on cash distributions in a conversion. They are designed to apply to transfers to existing companies—if an existing deposit taker receives the business of a building society which is undergoing conversion to corporate status. Cash distributions in such circumstances must be limited to members who hake held shares throughout the two-year qualifying period.

Like the Opposition, the Government are anxious that there should be adequate safeguards to ensure that conversions happen for proper reasons of commercial development and are not decided by the prospect of possible short-term financial gain such as I have described. We have made it clear all along that we regard it as important that conversion provisions should prevent speculative flows between societies on rumours of an impending conversion.

Clause 98 already contains a considerable number of limitations on cash distributions and other benefits to members at the time of conversion. However, as the Bill stands without these amendments, it does not cover one particular area—it does not put a limit on who may be paid a cash distribution in the event of a transfer of a business to an already existing society or body. It is clearly important that it should. Otherwise, for example, one society could try to tempt investors into it in order to obtain new members who would then vote in favour of a conversion with the promise of an immediate cash bonus. Obviously that would be highly undesirable and the amendments would put it beyond doubt that they would not be able to qualify for a bonus in those circumstances.

Question put and agreed to.

Subsequent Lords amendments agreed to.

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Maude.]