HC Deb 12 June 1986 vol 99 cc556-60

22B. — (1) Paragraph 12 above does not apply to any transaction entered into by an overseas person as principal with, or as agent for, a person in the United Kingdom, paragraphs 13, 14 and 15 above do not apply to any offer made by an overseas person to or agreement made by him with a person in the United Kingdom and paragraph 15 above does not apply to any advice giver by an overseas person to a person in the United Kingdom it' the transaction, offer, agreement or advice is the result of —

  1. (a) an approach made to the overseas person by or on behalf of the person in the United Kingdom which either has not been in any way solicited by the overseas person or has been solicited by him in a way which has not contravened section 51 or 52 of this Act; or
  2. (b) an approach made by the overseas person which has not contravened either of sections.

(2) Where the transaction is entered into by the overseas person as agent for a person in the United Kingdom, Subparagraph (1) above applies only if—

  1. (a) the other party is outside the United Kingdom; or
  2. (b) the other party is in the United Kingdom and the transaction is the result of such an approach by the other party as is mentioned in sub-paragraph (1)(a) above or of such an approach as is mentioned in sub-paragraph (1)(b) above.'. —[Mr. Howard.]

Mr. Bruce Millan (Glasgow, Govan)

I beg to move amendment No. 20, in page 135, line 23, at end insert— '22A Paragraphs 12, 13 and 15 anything done in connection with the purchase or sale of a business, or the assets of a business, offered for sale as a single entity.'.

Mr. Deputy Speaker

With this it will be convenient also to consider the following amendments: No. 21, in page 135, line 23, at end insert— '22B Paragraphs 12, 13 and 15 above do not apply to anything done by a body incorporate in relation to the internal organisation of its own funds.'.

No. 22, in page 135, line 23, it end insert— '22C Paragraphs 12 and 15 above do not apply to anything done by a company in relation to reconstruction of its own capital, except in a case where such reconstruction involves activities falling within paragraph 13 above.'.

No. 24, in page 136, line 6 at end insert— '(3A) Advice given to a company in relation to the activities mentioned in subparagraph (3) above shall not be regarded as investment advice for the purposes of this schedule.'.

Mr. Millan

I shall make it clear immediately that these four amendments are probing amendments because I want to have some clarification about schedule 1.

The first amendment deals with the purchase or sale of a business, or the assets of a business, offered for sale as a single entity." I know that in Committee the Minister said that this matter is excluded from the definition of investment in the Bill. However, to me and to professional people outside it is not at all clear where or how this matter is excluded in the Bill. It seems that some clarification is required. If the Minister can point to the words or passage in the Bill which deal with that item and satisfy us that it is adequately dealt with, fair enough. However, as far as I can see it is not currently dealt with explicitly in the Bill

The other three amendments deal with advice on corporate finance given to companies. The Minister will know that the accountancy bodies have been rather concerned about which elements of corporate finance advice are caught by the Bill and which are excluded. That is not clear at present. There is a misprint in amendment No. 21 because I have in mind a body corporate, not a "body incorporate" as is printed on the Amendment Paper. Since I am complaining about the lack of clarity elsewhere I feel that I should make that clear.

There have been discussions between the Departments and the accountancy bodies on this matter and I have seen a letter written on 19 May from the Department. However, far from clarifying the position, the letter, if anything, makes it less clear than I had understood it to be. Obviously there is a need for some clarification, and that can be done only by an amendment to the Bill. It would obviously be undesirable for the Bill to reach the statute book with some doubt as to exactly what the schedule covers. It must be in everyone's interest that that should be put right before the Bill becomes an Act.

Amendment No. 21 deals with the body corporate in relation to the internal organisation of its own funds. I am thinking specifically of whether advice in relation to that would be covered as investment advice in the schedule. I think that there would be a case for saying that it should not be covered because one is not dealing with an outside party which is being invited to invest. One is dealing with the internal organisation of the company's own funds. Of course, in itself that may involve a certain amount of investment advice on changing investments or financing arrangements and so on. I do not have a particular view as to whether that should be excluded. My amendment would say that it should be but, as I have said, it is a probing amendment. I am simply saying that we should know whether it is excluded or not. That is the important element in the amendment. There are arguments on both sides.

Amendment No. 22 deals with the capital reconstruction of a company. There are different circumstances, whether it is a capital reconstruction which involves further investment from outside and further calls on shareholders, or whether it is capital reconstruction which does not involve that. Again, it is not covered exclusively in the schedule to the Bill and it is not clear to many professional people whether that is covered or not. In some circumstances investment advice in relation to capital reconstruction, should be covered by the Bill, and in others it should not. I do not want to be dogmatic about where the dividing line should be, if, indeed, there should be a dividing line at all. Accountants and other people involved in professional advice must know whether a particular activity is covered by the Bill.

7 pm

Amendment No. 24 deals with what is already an exclusion in the Bill. Schedule 1 paragraph 23(3) relates to the issue by a company of its shares, which is not regarded as falling within the schedule. That does not make clear the position of advice in relation to the issue by a company of its shares. That is not mentioned specifically in the schedule. It may be that, although the issue by a company of its shares is excluded, advice in relation to that is not excluded. Again, there are arguments on both sides about whether the matter should be included or excluded. My point is that there must be clarity so that professional advisers know exactly how they are placed in relation to the legislation.

I have chosen only three examples of matters involving advice on corporate finance. Many other matters may arise which are not dealt with clearly in the Bill. The way in which schedule 1 is drafted makes it extraordinarily difficult to table amendments which one can be reasonably confident will have the effect that one intends. I tabled the three amendments in order to ask the Minister for clarification or at least an undertaking that the matter will be reconsidered in the other place. Then we can be reasonably confident that when the Bill reaches the statute book we have it right, and those who will he involved will know what their responsibilities are.

Mr. Tim Smith

I support the right hon. Member for Glasgow, Govan (Mr. Millan). His amendment No. 20 has the same object as my amendment No. 1, which was not selected for debate. The White Paper stated clearly: Investments' will be defined to exclude … business, or the assets of a business, offered for sale as a single entity". It would be helpful to hear what progress my hon. and learned Friend the Minister has been able to make towards incorporating such a provision in the Bill.

I know of the letter to which the right hon. Gentleman referred because I have seen a copy of it. It was intended to be helpful and to be a clarification, but it illustrated the complexities of the problem of corporate financial advice. That has been highlighted further by the fact that the Association of Corporate Treasurers has now written to many hon. Members saying that it has recently been suggested that its activities may be covered by the Bill. We are a long way from the original object of the Bill if it covers corporate treasury work, and I understand that the advice of the Department is that it does. Within a group there may be a subsidiary company with a minority holding, so I can see how that may be the case. If that is so, we are a long way from the original object of protecting domestic investors. Anything that can be done to clarify the Bill's ambit as precisely as possible before it becomes law cannot be other than the best possible course of action.

Mr. Howard

I shall do my best to respond to the entirely reasonable requests of the right hon. Member for Glasgow, Govan (Mr. Millan) and my hon. Friend the Member for Beaconsfield (Mr. Smith) for further clarification of the points that they raised. I shall endeavour to provide a degree of further clarification or, failing that, to say how we propose to set about the task of providing further clarification.

I can offer the right hon. Gentleman some reassurance on two points regarding amendment No. 20. First, the sale of the assets of a business will not normally constitute an investment activity, so a person whose business it was to arrange the transfer of assets, such as plant and machinery, from one proprietor to another would not be caught by the Bill. Secondly, the Bill would not catch a privately arranged sale by shareholders of their shares to a new proprietor or proprietors. However, the Bill as drafted would catch someone who advises on such transactions by way of business or is a transfer agent whose business is to arrange sales of the shares of small companies with few shareholders — often members of the same family — to new proprietors.

We are sympathetic to the idea of excluding such activities from the scope of the Bill, but the difficulty comes when one starts to try to define the transactions to be excluded. It would, for instance, be possible to provide an exclusion when a transfer agent advises on or arranges the sale by one person of the entire issued share capital of a company, or virtually the entire capital because there must always he two shareholders in a limited company, to another person. But that would be of limited use. Frequently, there will be more than one person on one or other side of the transaction, and the transaction may not involve all the shares, either because those wanting to sell do not own all the shares or because they want to retain an interest in the company, which they may, after all, have founded.

If one tries to accommodate such transactions a number of other questions quickly arise. Should there be a limit on the number of people involved on each side of the transaction, and if so, what should it be? Should it be a requirement that the people on one side were connected to each other in some way, and if so, how? What should be the minimum proportion of shares that would have to be transferred for the exclusion to apply? I hope that the whole House will agree that these are not easy questions to answer.

Obviously, there is no point in providing an exclusion if it is so limited as to be of no value to advisers and transfer agents. Equally, we must avoid opening up unacceptable loopholes. The references in the right hon. Gentleman's amendments to the sale of a "business" are not apt to the sale of shares in a business, and the amendment does not answer the important questions I have mentioned. But we have certainly not ruled out amendments to deal with the point, and I would welcome any suggestions as to how they might be framed so as to achieve a satisfactory balance between two objectives that conflict to some extent. If a satisfactory definition can he found, the Government would certainly be prepared to bring forward amendments in another place.

The remaining amendments deal with the position under the Bill of corporate treasurers and advisers on corporate finance. It might he helpful if I deal with them separately.

In addition to what has been said today, I have received some representations about the impact of the Bill on corporate treasurers. I accept that the present exclusion in schedule 1 for own-account dealings may not deal adequately with the problem of transactions undertaken by a company with or for another company in the same group. There may also be problems when a corporate treasurer deals with professional and business investors overseas. I propose to consider what needs to be done to deal with these problems, and the Government will bring forward amendments in another place.

The term "corporate finance" is broad and rather vague. It includes activities which are clearly within, and ought to be within, the definition of investment business, as well as activities which are outside that definition and others which fall close to the borderline. It may be possible to exclude from the definition certain restricted categories of corporate finance advice, such as the particular activity identified in amendment No. 24 of advising a company on the issue of its shares. I would be very willing to consider any other proposals which might help to clarify the boundary of investment business without opening up unacceptable loopholes. But I should repeat that some of the activities of the larger corporate finance advisers are clearly within the scope of the Bill, and I would not be prepared to exclude them completely.

Mr. Millan

The Minister has just told us that this is a difficult problem and that he does not have the answers to some of my points——

Mr. Howard

Yet.

Mr. Millan

I am not entirely confident from his speech whether he ever will have the answers to these particular problems. I am sure that the professional bodies outside will want to read his speech carefully. It is clear that some amendments to the schedule will be required, and it is unsatisfactory for the House that we do not have them at this stage. Obviously, it is not possible to judge what the amendments are likely to be and whether they will be acceptable because we shall not nave an opportunity to see them.

Mr. Gould

Does my right hon. Friend share my surprise that, given that the Bill had its genesis some time ago and was foreshadowed by a substantial report, we still have not had answers to these important questions?

Mr. Millan

It is surprising because one would have thought that these questions would have had to be answered before the Bill was drafted beyond its preliminary stage. The Bill should explain what it covers, what an investment is and what is investment advice. Everything else in the Bill depends on such definitions.

This is the core of the Bill. Although these amendments may appear to be technical, we are dealing with the definition of matters upon which the whole Bill hangs. The professional bodies, will, as I have said, wish to consider what the Minister has said and I hope that there will be further discussions. I admit that these problems are difficult and I am in no way minimising the difficulties of producing the correct definitions.

I accept the Minister's point that we do not wish to have exclusions in the schedule which would allow loopholes. I would certainly support that. I have made the point, and the Minister accepted this, that there must be further amendments. I hope that the discussions which will no doubt take place, will eventually produce a reasonably satisfactory and comprehensive solution. In the meantime, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 23, in page 136, line 1, after 'shares', insert 'or share warrants'.

No. 25, in page 136, line 8, leave out first 'and'.

No. 26, in page 136, line 9, at end insert— 'and "share warrants" means any investment which falls within paragraph 4 above and relates to shares in the company concerned.'—[Mr. Howard]

Forward to