HL Deb 14 March 1939 vol 112 cc179-85

Matters for which Trust Deeds pursuant to Unit Trust Schemes must provide.

  1. 1. For determining the manner in which the sale price of units and the yield therefrom are to be respectively calculated.
  2. 180
  3. 2. For regulating the mode of execution and the issue of unit certificates, and, in particular, for securing that no unit certificate shall be executed or issued in respect of rights or interests in any property until steps have been taken, to the satisfaction of the trustee, to secure that the property will be vested in him.
  4. 3. For securing that any advertisement, circular or other document containing any statement with respect to the value of units or the yield therefrom, and any invitation to buy units, shall not be issued by or on behalf of the manager until the trustee has had a reasonable opportunity of considering the terms of the document or invitation, and shall not be so issued if within a reasonable time after the document or invitation first comes under his consideration he notifies his disapproval of the terms thereof in writing to the manager.
  5. 4. For the establishment of a fund to be applied in defraying the expenses of the administration of the trust and for regulating the application of that fund.
  6. 5. For the publication of accounts relating to the trust.
  7. 6. For requiring the manager (subject to any provisions as to appeal contained in the deed) to retire from the trust if the trustee certifies that it is in the interest of the beneficiaries under the trust that he should do so.

In this Schedule the expression 'units' means securities (described whether as units or otherwise) which may be created in pursuance of the unit trust scheme, and the expression 'unit certificates' means certificates of the acquisition of such securities."

The noble Lord said: These are matters for which trust deeds pursuant to the schemes must provide. The new ones will provide for them, as I have stated, ab initio. The existing unit trust schemes will have before the appointed day to pass a supplementary deed, to do which they are empowered by the Bill as it stands, in order to include these matters. I think your Lordships will agree that they are all of a highly reasonable character, and that no proper unit trust scheme, and no proper trustee or manager, would object to them in any way. Accordingly, I beg to move the Schedule, which can be treated en bloc subject to two Amendments which your Lordships will be dealing with at once.

Amendment moved— Page 30, line 37, at end insert the said Schedule.—(The Lord Chancellor.)

LORD MANCROFT moved to amend the proposed Amendment by inserting the following new paragraph after paragraph 3: For securing that any advertisement, circular or other document containing any statement with respect to the value of units or the yield thereform, and any invitation to buy units, shall not be issued by or on behalf of the manager unless the document or invitation discloses the name, address and description of the manager, and if the manager be a managing company the names, addresses and descriptions of the directors of the managing company.

The noble Lord said: As in many cases the managers of a unit trust are a company, the names of the directors of the company are often not divulged. My Amendment is for the purpose of making it compulsory for the managing company to give the names, addresses and descriptions of the directors of that company when seeking subscriptions from the public.

Amendment to the Amendment moved— After paragraph 3 insert the said new paragraph.—(Lord Mancroft.)


So far as regards advertisements, etc., as to the yield of a unit trust, the advertisements in question always have on them in practice the name of the management company, and the only question is whether there should also be published, in addition, the names, addresses and descriptions of the directors of the management company. It always is, or must be if this Bill becomes law, a company, and not an individual firm or individual person. In the case of ordinary advertisements, that would be a very burdensome requirement to impose, and it would lead to very great difficulties for these bodies, which on the whole are endeavouring to carry on an honest business. With regard to things which are not ordinary advertisements, the matter in the view of the Government is already sufficiently covered by Section 145 of the Companies Act, 1929, which provides that every company to which the section applies—and so far as is known there are no management companies to which the section does not apply—must in all trade catalogues, trade circulars, show cards, business letters on or in which the company's name appears, and which are issued or sent by the company to any person in any part of His Majesty's dominions, state in legible characters in respect to every director particulars … which I think I need not read in full to your Lordships, including the Christian name, present surname, former Christian names and surnames, and nationality if not British. All those things have to be published in everything except ordinary advertisements. I take the view on behalf of the Government that the present Amendment to the Amendment is not necessary, that it would create hardship in certain cases, and that the real object which the Amendment is intended to carry out is one which is carried out by Section 145 of the Act to which I have referred.


If the Lord Chancellor thinks so I am content, and I beg leave to withdraw.

Amendment to the Amendment, by leave, withdrawn.

VISCOUNT BUCKMASTER moved to amend the proposed Amendment by leaving out paragraph 5 and inserting: 5. For the keeping, auditing and publishing of accounts relating to the trust and manager.

The noble Viscount said: This Amendment is designed to prevent abuse on the part of management companies. In not every case does the management company act as principal. Where the management company acts as principal, and quite apart from any question of abuse—and I can assure your Lordships that, although the matter is technical, there is ample opportunity for abuse—where, as I say, the management company acts as a principal, apart from the question of abuse, there is the question of the possibility of very large profits being made by the management company and concealed. To use a somewhat common expression, the dice are loaded in favour of the management companies, who, by intelligent anticipation of the public demand for units, are able to forestall the market. It is clear—the Anderson Committee stresses this point—that the management company are in a fiduciary capacity with the public. They receive remuneration which is very generous. In one case the total charge is quoted as being 12½ per cent. They receive this charge on the one hand, and on the other hand they do make substantial concealed profits. If they are to make these profits I hope your Lordships will think it reasonable that the public should know what is happening.

I do not suggest that my Amendment would prevent abuse, but I do hope—and I attach a good deal of importance to it—that your Lordships will feel that it is not unreasonable for the public to be in a position to know what profits have been made, and to know what is taking place; so that when they buy these shares they can choose a company which is economically and soundly run, or, if they prefer, they can choose one that is more extravagant. I am aware that under the Companies Act these accounts have to be published, but the information so acquired would not in my opinion be adequate. We want a good deal more, including, I feel, an account setting out the profits and losses made in dealing with units or sub-units. No one suggests that the accounts of the trustees will be illuminating. One knows how admirable the accounts of those people who are present trustees are likely to be. We shall get no information, and the public will really know nothing unless the management accounts are published. I believe some of the unit trust groups accept this Amendment, and I hope it will commend itself to the Lord Chancellor.

Amendment to the Amendment moved— Leave out paragraph 5 and insert the said new paragraph.—(Viscount Buckmaster.)


I know that the noble Viscount has considerable knowledge of this matter. If it were only auditing as well as keeping accounts relating to the trust I should have nothing to say, except that this is a very useful Amendment. I am troubled about the word "publishing," and I am troubled about the inclusion of the word "manager," without anything to show what accounts of the manager are intended to be published. I suggest to the noble Viscount that if the clause he proposes were to be of any use he would have to consider with a little care what it is he is inviting us to make part of the constitution of every unit trust in the land. For example, a manager acquires certain shares. When the trust is formed he transfers the shares to the trustee on behalf of the trust at an increased price. Some people think that is a very wrong thing to do, but how can you stop it? How long or how short is to be the time between the dates when a manager has acquired the shares and the date when he transfers them to the trustee? He might have had them for years. He transfers them at the market value, I suppose. Are you going to say that his previous accounts are to be kept and audited and, as the noble Viscount suggests, published? You cannot do that. You must limit the accounts relating to the manager to some specific date. It is not done in the Amendment. But what does it mean? The accounts of the manager in relation to the trust after a date when the trust was formed? That might work out, but, then, what accounts are to be so published?

It has been suggested to me that there is a danger of this nature, that if the accounts show the securities bought and the securities sold by the unit trust you may be helping, not the unit holders, but stockbrokers and jobbers who may have occasion to deal with the trustee or with the manager upon any alteration of the securities that form part of the trust. People in the City are often very chary about publishing the whole of the securities which they possess. Some trust companies, as your Lordships know, do it, but other investment trust companies are very careful not to do it. At any rate, it is the sort of thing that requires considerable care before your Lordships at once insert in these trust deeds a clause which may be thought to have a pretty wide effect and which, if the noble Viscount will allow me to say so with the greatest respect, is not worded in such a way that the Court or the Board of Trade can determine what accounts relating to the managers, as from what date, and containing what particulars are to be kept, audited, and published. I am not at all unwilling to consider any other Amendment at a later stage to paragraph 5 of the Schedule, but for the moment I am unable to accept the present Amendment.


Would the noble and learned Lord go as far as to say he has some sympathy with the principle that the management accounts, if they could be properly specified, should be published, and would he consider, if possible favourably, the question of the Government putting forward some Amendment on these lines? In that case of course I would be pleased, with your Lordships' permission, to withdraw my Amendment.


I have some difficulty in making a promise at the present time because I am not quite sure how far it will extend. I know I have advisers who think that for the moment the present paragraph 5 is sufficient. I am not satisfied that the noble Viscount himself may not be able to amend that clause, and therefore I would invite him to exercise his great abilities in drafting an Amendment, but I would prefer not to make any promise at the present time on behalf of His Majesty's Government.


I beg leave to withdraw the Amendment.

Amendment to the Amendment, by leave, withdrawn.


I should like to draw the attention of the Committee to paragraph 3 of the Schedule dealing with advertisements. At this late hour I am not going into a lengthy discussion, but the point is one of the very greatest importance, and I would suggest that the matter is not by any means as clear as it should be. I understand that the noble and learned Lord may invite me to a conference with his advisers on this question, and if that invitation could be extended I should not trouble the Committee with my special points.


I should be very glad to have a conference with the noble Earl on this matter.

On Question, Amendment agreed to.