§ Matters for which Trust Deeds pursuant to Unit Trust Schemes must provide.
§ 5. For the publication of accounts relating to the trust.
§ 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.
§ LORD TEMPLEMOREMy Lords, the first Amendment is a drafting Amendment. "Sale price" is more appropriate than 442 "value," as advertisements and circulars refer to the price at which units are sold and not to the value. I beg to move.
§
Amendment moved—
Page 32, line 13, leave out ("value") and insert ("sale price").—(Lord Templemore.)
§ On Question, Amendment agreed to.
§ LORD TEMPLEMOREMy Lords, the next Amendment is also drafting. I beg to move.
§
Amendment moved—
Page 32, line 14, leave out ("and") and insert ("or containing").—(Lord Templemore.)
§ On Question, Amendment agreed to.
§ LORD TEMPLEMOREMy Lords, there are two other Amendments which are purely drafting. I beg to move.
§ Amendments moved—
§ Page 32, line 17, leave out ("or invitation")
§ Page 32, line 18, leave out ("or invitation").—(Lord Templemore.)
§ On Question, Amendments agreed to.
§ THE LORD CHANCELLOR moved, in paragraph 5, after the first "the," to insert "audit and," and at the end of paragraph 5 to insert "(including accounts of the manager in relation to the trust and statements of his remuneration in connection therewith)." The noble and learned Lord said: My Lords, these two Amendments are brought forward to deal with a point raised by the noble Viscount, Lord Buckmaster. Although they do not exactly cover the Amendment he proposed, I think they are all that can be done at the present time. We are discussing the form of the Schedule which lays down the matters for which trust deeds pursuant to unit trust schemes must provide. My noble friend pointed out quite properly that publication of acounts would not necessarily include audit. Therefore the first Amendment provides for the insertion of the word "audit." Then there is the question as to what accounts relate to the trust, and in regard to that, the Amendment suggests that the accounts will be the "accounts of the manager in relation to the trust and statements of his remuneration in connection therewith." These Amendments, I think, strengthen the matters for which the trust deed must provide and I hope they will meet the approval of the noble Viscount. I beg to move.
443§ Amendments moved—
§ Page 32, line 24, after the first ("the") insert ("audit and")
§ Page 32, after ("trust") insert ("(including accounts of the manager in relation to the trust and statements of his remuneration in connection therewith)").—(The Lord Chancellor.)
§ LORD MANCROFTMy Lords, may I ask, one question, regarding this Amendment? Paragraph 5 with which we are now dealing provides for the publication of managers' accounts. Does the word "publication" mean that the accounts will be circulated to the registered holders of units, or does it mean that the holder of a unit or units has merely the right to demand and receive a copy of the published accounts?
§ THE LORD CHANCELLORMy Lords, the trust deed will have to provide for the publication of these accounts, but the Schedule as framed does not say that they need be published to the public. I imagine that as matters stand it will be sufficient if they are published by circularisation to all the people who are holders of the units. If it is thought right to extend it to mean publication to the world, I think an Amendment would be required.
§ LORD MANCROFTMy Lords, may I have the permission of the House to speak again in order to say that if the noble and learned Lord says that publication means "shall be circulated to the registered holders of units" I am perfectly satisfied.
§ THE LORD CHANCELLORMy Lords, perhaps the noble Lord will allow me to consider that. I do think it is desirable that the matter should be quite clear in the Bill and perhaps at the next stage, if it is thought necessary, I may be allowed to move an Amendment.
§ VISCOUNT BUCKMASTERMy Lords, I should like to thank the noble and learned Lord for the full way in which he has met the suggestions I put forward.
§ On Question, Amendments agreed to.
§
VISCOUNT BUCKMASTER moved to insert the following new paragraph:
7. Providing that no trustee of a unit scheme shall be entitled to act as manager of such scheme nor hold directly or indirectly any securities in the corporation acting as manager, nor have any beneficial interest in the corporation, other than the payment of
444
the remuneration provided for by the trust deed, and for providing that no director of any corporation acting as trustee of such scheme shall be entitled to act as director of the corporation acting as manager of the scheme.
§ The noble Viscount said: My Lords, I venture to think that this Amendment is of some substance. It is designed to prevent a trustee acting in a dual capacity as trustee and as manager. I do not suggest that such a practice is common—I know of no case where the trustee and manager are completely the same thing—but there are cases where directors sit on the boards of each. There may be cases—I have not been able to verify these—where a trustee company has a substantial shareholding in a management company. I cannot feel that this is desirable. The Anderson Committee were express on this point. They said that in the case of unit trusts, managers and trustees should be independent of one another, and if there was any communicating interest it should be in all particulars disclosed. There must be a conflict of interest between the trustees and managers in the case of appropriation trusts where concealed profits are made of which the unit holders have no knowledge.
§ I would not venture in the presence of the noble and learned Lord Chancellor on any enunciation of a legal principle, but one would feel that where specific remuneration is provided in the trust deed, it is undesirable that there should be any direct or indirect association between the trustees and the managers who are making—and there is no doubt they are making in the case of an appropriation trust—a concealed profit. As an example of these profits, we have recently had the issue of units at a discount below the correct price. We have had the remuneration in one instance of paid agents for placing these units increased to 2½ per cent. If we consider what ½ per cent. means, we can see that there must be some fairly substantial volume of profit to provide those payments. It is highly undesirable that trustees should participate in such transactions.
§ A further point is that if you have a common directorship it is possible—I will not say probable—that the directors of the managing company will be inclined to influence the directors of the trustee company in directions favourable to the management. There is also this final 445 point: that trustees are there, as I conceive it, for the protection of the public. They sign the certificates, and in some cases these certificates are deposited in blank with the management companies, who then fill them in and forward them to the trustees for signature. I suggest that it is highly undesirable that the people who prepare the certificates should be in any way interconnected with those who sign them and who should only release them against the deposit of the underlying securities. I hope your Lordships will feel that this Amendment does indeed strengthen the Bill. I beg to move.
§
Amendment moved—
Page 32, line 33, at end insert the said new paragraph.—(Viscount Buckmaster.)
§ THE LORD CHANCELLORMy Lords, I must admit that there is some weight in the proposal which your Lordships have heard advocated by the noble Viscount. It seems to the Government, however, that the new paragraph as printed would go considerably beyond what is legitimate, and would possibly interfere with some quite honest and respectable people who are operating the management of unit trusts at the present time. The idea suggested by the Anderson Committee, that it is undesirable for the management company to be closely connected in any way with the trustee company, is one which I accept. The difficulty is exactly how to carry it out. If it is suggested that a director of the trustee corporation should not act as a director of the management company, that, if carried into effect, might not be in the interests of the unit holders at all. It is also to be observed that the Anderson Committee did not go so far as to prohibit such a connection. Moreover, it is known to the Government that in a certain number of cases the director of the trustee company is a director of the managing company, both being large and important corporations—as they would necessarily be under this Bill. No harm has yet resulted from there merely being one or two directors of the trustee corporation who are also directors of the management corporation.
On the other hand, I feel strongly that something ought to be done to prevent what the noble Lord seems to fear as a possible future danger—namely, the possibility of there being unit trusts so constituted that the trustee corporation and the management corporation share 446 the same management. Accordingly, I am going to make a proposal to your Lordships of which I hope you will approve. Before doing that, however, I want to mention that there are cases where the new proposal could not operate without very considerable alteration, because most trust deeds at the present time provide that, if the manager is removed, the trustee shall act as manager until a new manager is appointed; so that there again there might be for a short time some sort of community of interests. There is a further point which the noble Lord ought to consider before he presses his Amendment. Where the trustees are banks—which, as your Lordships know, is a very common occurrence—and there is no separate trustee company, that is to say, holding company, as we are accustomed to under such an arrangement, it may frequently happen that shareholders in management companies lodge their shares with the hank as security for an advance. That would be prohibited by the terms of the Amendment as printed.
What I think can be done, and what I hope the noble Viscount will think sufficient, is this. Under Clause 16 the Board of Trade may by order declare to be an authorised unit trust scheme any scheme complying with the conditions which are laid down in paragraphs (a) to (c). It might be right and proper to insert a new paragraph (b) to the effect that a unit trust scheme shall be so constituted that the persons who are respectively the manager and the trustee will be able to operate independently of each other. I do not profess to have stated accurately the form which the clause should take, but the effect of it would be that, if that is done, the trustee company might have six directors and the management company might have ten directors, and there might be one or two directors who were directors both of the trustee company and also of the management company. The majority in each case would be independent of the existence of some common directors. My advisers tell me that if a clause to that effect were inserted, the dangers which my noble friend Viscount Buckmaster is desirous of avoiding and providing against would in all human probability not arise. I only add that it is impossible to forecast all the contingencies and possibilities inherent in the Amendment, and to be quite sure that there is no interfer 447 ence with perfectly legitimate business. In an effort to prevent fraud the new paragraph which I suggest would not, I imagine, interfere in any way with any legitimate business. I may say that it is thought too late at this stage of the Bill to introduce any far-reaching Amendments, which I think would be involved in the acceptance of the noble Viscount's proposal.
§ VISCOUNT BUCKMASTERMy Lords, I should like to thank the noble and learned Lord for the very full explanation he has given. I would gladly, if I may, accept his proposal to insert a further subsection in Clause 15. If I may just say one thing more, it is that if it were possible so to frame the Amendment that the trustee did not hold shares in the management company, I should feel more comfortable about it. With that one remark I beg leave to withdraw my Amendment.
§ LORD RANKEILLOURMy Lords, it is a little unfortunate that a matter of this complexity and importance should have come on at so very late a stage in the Bill. I presume that the noble and learned Lord will give plenty of time before the Third Reading, so that his new proposal may be carefully studied.
LORD SALTOUNMy Lords, I do not see how the proposed Amendment really affects the case of the banks.
§ THE LORD CHANCELLORThat observation, I think, refers to the last proposal of the noble Lord. I quite follow it, and the point will be considered. I need not say how sorry I am that this matter should come up at the last stage. Perhaps the noble Viscount will take some responsibility for this. His Amendment, it will be seen, comes at the end of the Marshalled List. The Amendment in its present form only reached me today or yesterday.
§ VISCOUNT BUCKMASTERWould the noble and learned Lord allow me to offer one word of apology, which I think is due to him and to your Lordships? I was not alive to the importance of this point until the early part of this week, and I then addressed myself to drafting a new Amendment. I also employed legal aid, but I found the task so difficult that I was unable to meet the point 448 until the last moment. Perhaps the noble and learned Lord will accept my apology.
§ THE LORD CHANCELLORThere is no apology due to me. I only mentioned the point, that it is not, so to speak, the fault of the Government Amendments that this Amendment is before your Lordships rather late. With regard to the time given for discussion of the proposed new Amendment which I have pledged myself to introduce on the last stage of this Bill, the difficulty is that it is very desirable that this Bill should pass its last stage at the earliest possible moment, and reach the other place. Therefore, although I will give my earliest attention to this matter, and table my Amendment as soon as possible, possibly tomorrow, it is a little difficult to give any length of time before the Third Reading. Your Lordships will appreciate that I am not quite sure when the Third Reading will conveniently be taken.
§ LORD TEMPLEMOREMy Lords, may I intervene? I had, without consulting my noble and learned friend, fixed to take the Third Reading to-day week, Tuesday, April 4.
§ THE LORD CHANCELLORThe noble Lord, Lord Rankeillour, will not be hurt if he does not get more than a day or two.
§ LORD RANKEILLOURIt rather depends upon the question when we adjourn. If we are sitting on Wednesday, that would be better.
§ THE LORD CHANCELLORI do not think the noble Lord will find any great complexity in the proposal when he reaches it, and I am very unwilling that there should be any delay in this Bill becoming law.
§ LORD RANKEILLOURMay I just say this: that if it is not taken before Tuesday I think my friends who are interested in the matter will be able to concentrate their minds on it by then.
§ Amendment, by leave, withdrawn.