COMPANIES BILL. [H.L.]

HL Deb 24 February 1947 vol 145 cc861-922

House again in Committee (according to Order):

[Lord STANMORE in the Chair.]

Clause 21:

Removal of directors.

21.—(1) A company may by ordinary resolution remove a director before the expiration of his period of office, notwithstanding anything in its articles or in any agreement between it and him:

(2) Where a director is removed by virtue of this section, the appointment of another person in his place at the meeting at which he is removed shall be business which may be transacted at that meeting without notice; but, if at that meeting the vacancy is not filled and it is not resolved that it shall not be filled, it shall be filled as a casual vacancy.

VISCOUNT MAUGHAM moved, in subsection (1), to leave out "ordinary" and insert "extraordinary." The noble and learned Viscount said: There are two Amendments in my name, one to leave out the word "ordinary" in this subsection and insert "extraordinary," and the other to leave out "ordinary" and insert "special." If I am to urge one or the other, the horse with which I would elect to win is the first one, because I think that the word "extraordinary" would suit my purpose very well. The provision in this subsection is a very singular one to insert in this Bill. I venture to think that on examination your Lordships will—and certainly in my opinion you should—come to the conclusion that it is of a most revolutionary kind, and that its effect would be likely to cause a great deal, of harm in the ordinary day-to-day work of companies.

The subsection, instead of leaving the matter as it has been for many years under Table A and under Palmer's Company Precedents, would now make it possible for a single individual shareholder who perhaps has a "down" on a director, on giving the usual notice which is necessary in this case, to move a resolution to turn that director from an office which he may have filled for many years. He would be able to do that without giving any reason whatsoever, and so publish to the world by the necessary resolution—which he can and must make public to some extent—that such and such a man is to be known among people who know anything about that class of business (which means, in a country town, that he will be known through the whole town) as having been turned off the board of a company.

It is, I suggest, a form of obloquy which is without precedent at the present time. If you want to turn a man out of membership of a club you have to establish things against him, and unless you do so you fail in your object. But in a company, if this subsection is left as it is, a man who objects to a director has only to wait for a suitable general meeting or procure a requisition to call the company together for the purpose, and then, by a bare majority which the objector may easily have secured by unfair statements in private, he may procure what I term a distinct obloquy on the director. Such a thing in a country district or a country town may entirely ruin that director's professional or business career. I think we should consider whether anything of the sort should be introduced at this time with the intention of improving the Companies Act and making the vast number of companies in this country more efficient.

Let me point out, first, that the proposed subsection overrules the Articles of Association of a company. I do not quite know why a company should not be able to make up its own mind on the subject, but it is overruled by this measure. The subsection further overrules any agreement entered into, say by a private company, with a man to act as director for ten years. If the subsection becomes law that agreement must be disregarded. Why this should be so, I confess I do not know. The subsection applies to both public and private companies, although in the case of private companies, as we all know, the truth often is that the company is really little more than a partnership with limited liability. Nevertheless, the subsection applies to a private company consisting, it may be, of members of a family, who may perhaps have the sort of quarrels that go on from time to time in families which are conducting a business. In that case, whatever the agreement may be, and however necessary it is that a minority of the people interested in the company should have a director to represent their interests and keep an eye on the way in which the company's affairs are carried on, a bare majority at any time when a meeting can be summoned by giving notice of some kind—I shall say something about notice in a few minutes—can turn him off. He may have been put there to protect the interests of one portion of the family, as a basis of the company and as a condition by which the company came into existence. That is all brushed aside for some notion; I know not what. Why a bare majority of a company should be entitled to turn off any director contrary to any bargain and contrary to the rule, for, I believe, over fifty years, I confess I cannot appreciate.

I am not speaking without knowledge of the position as it has been since I came to the Bar—which I regret to say is about the half century I mentioned. In the old Palmer's Company Precedents we had a rule which was almost exactly the same as the Table A rule in the Act of 1862 and the Act of 1929. I know the rule in all the precedents has been similar to the rule which I have men- tioned. Paragraph 80, Table A, of the First Schedule to the 1929 Act, says: The company may by extraordinary resolution remove any director before the expiration of his period of office, and may by an ordinary resolution appoint another person in his stead. Then there is something about how long he shall remain in office.

I challenge anybody who opposes my Amendment to give me a single instance in the last fifty years where any real trouble has existed by reason of the fact that somebody who was not fit to be a director could not be removed except by means of an extraordinary resolution. I have looked in some of the books, and I cannot find any such cases. I do not believe there is any reason for substituting for the word "extraordinary," as in the 1929 Act, the word which I think is so objectionable—namely, "ordinary." The word "ordinary" permits the position of a director to be abruptly terminated'. It is the provision that a bare majority shall have the right to do this to which I object. I say, and I think with little fear of contradiction, that there is no instance which can be produced (and if there were one it would be the exception that proved the rule) of any compensation being necessary and being claimed—successfully or not—for a director removed by either the old rule in Table A or by the old rule in Palmer's Company Precedents. If you have a really strong case for removing a director—namely, that he has been convicted of something disgraceful or is unable to do his work—he has no claim for compensation. The people who drafted this rule have inserted something which will lead us, if the clause is passed, to an infinity of trouble.

Under Clause 21, subsection (4), we have these words: Nothing in this section shall be taken as depriving a person removed there under of compensation or damages payable to him in respect of the termination of his appointment as director or of any appointment terminating with that as director. I ask anybody who knows anything about the actual conduct of law what sort of action it would be in which a director who was turned off by a bare majority sought to establish damages. I can see myself in a Court where A. B., who was turned out of office as a director with no reason given, brings an action for damages arising out of the termination of his term of service. He is going to allege that he was turned out without reason, and he will say that the company is exceedingly prosperous. He will prove, if necessary, that the termination of his employment has had the most serious effect on his business career. I do not see how you could prevent evidence being given on all these things. I do not see how it would be possible to investigate in a number of cases the position of the company, its prospects, and the damage that had been inflicted on this unfortunate director who has seen one day in the morning paper that a resolution will be before the company at the general meeting on such and such a date to remove John Snooks from his position as a director. That is what is going to happen if you leave things as they are now.

I have never heard of a man being subject to such an insult as that, whether there be any reason for it or not. The real reason may be only that the particular chairman of that company is an autocratic individual who objects very strongly to people who are not "Yes-men" forming part of his board. I have known such cases, and I could give your Lordships instances of the way in which a man who is in control of a board sticks to his power as if it were a matter of life and death, and would go to any extreme in order to keep that advantage—it may be a great pecuniary advantage—which control of a great company or a private company may ensure. That is the sort of thing which, I say, will be a consequence of the clause as it stands, though not, of course, in every case. I am talking only of cases which will occasionally happen, and I am not going to exaggerate the number of times that it will apply; but I assure your Lordships I am not exaggerating when I say that it will sometimes apply and will be a disastrous thing for the company.

The Law Society, who have asked me to move and support this Amendment, have strongly urged that the result of the subsection as it stands is that it will have a most injurious effect on the shareholders who form a minority. Here again, there is not always a minority of shareholders, but there are a good number of cases where a minority is an important body in the company, and have certain views as to how the company should be run. In particular, in private companies it is quite common that such a matter should arise and, as appears from the report of the Committee, we are dealing here with enormous interests. There are nearly 170,000 private companies in this country, and they represent just upon £2,000,000,000. Nobody can say it is a trifling thing to have to deal with, or to try to deal with, the future of these companies. In quite a fair proportion of them there are the interests of a particular portion of a family to be protected by a certain director.

Should that right be taken away from them? I would suggest that there is not the smallest ground for it. On the main ground that Clause 21 as it now stands may inflict great injury on minority interests, which ought to be very carefully considered before we alter the protective clauses guaranteeing their rights; on the ground that the proposed clause will lead to enormous injustice to individual directors with minds of their own and who are not perhaps on the best of terms with some of the board; and, finally, on the ground—and I think this at least is sufficient to support any Amendment—that no evidence whatever can be produced to give any real reason for altering the rule about removing directors and leaving it in the hands of simply a bare majority to turn a director off the board for no reason whatever, I earnestly ask your Lordships to accept the present Amendment. Accordingly, I beg to move.

Amendment moved— Page 19, line 23, leave out ("ordinary") and insert ("extraordinary").—{Viscount Maugham.)

THE LORD CHANCELLOR (VISCOUNT JOWITT)

The noble Viscount who has just spoken wants to leave out the word "ordinary" and insert the word "extraordinary." I could not help feeling that a good many of the observations he made with regard to the obloquy and hardship, and all that sort of thing, would apply equally whether you had the word "ordinary" or the word "extraordinary." As the law now stands, I suppose you would generally find that a director, under the Articles (it is a matter for the Articles, of course) would be appointed for a specific period of time—three years or whatever it may be—with the right to be re-elected. You might, of course, under the Articles, have a rule that a director could be removed at any time by any sort of resolution. The Articles could deal with it as they liked. If you adopt Table A, as the noble Viscount has said, that involves an extraordinary resolution. That is the position as it is to-day.

Quite frankly, the Cohen Committee went into this matter very carefully. They made a very precise and clear recommendation. They said this—I am quoting from paragraph 130 at the bottom of Page 79: It seems to us desirable to give shareholders greater powers to remove directors with whom they are dissatisfied, than they have at present. Then on Page 80, about seven lines down, they say: We recommend that resolutions for the election of directors should be submitted in respect of each director separately"— that does not arise— and that there should be a provision, overriding anything to the contrary in the Articles of the company, that any director, whether under a service contract or not, should be removable by an ordinary resolution, without prejudice to any contractual right for compensation. There we have a very clear recommendation on this particular matter by a Committee, as we all agree, of singular eminence and experience. We are in this subsection merely carrying out their recommendation, and, on broad general principles, it seems to me that that recommendation is sound. We all believe in the principle of democracy, and after all, democracy involves the principle of majority rule. If the majority of the shareholders of a company, in the guise of living and functioning as a microorganism in a democracy, come to the conclusion that a particular director should be removed, why should they not have their way?

But I think—and I hope this will build a bridge between the view I am taking and that taken by the noble and learned Viscount—that though it is right that the majority should rule and should have the right to remove a director, yet we ought to guard against that being done on a snap vote, as it were, without full knowledge. Therefore, in my Amendment which is coming before your Lordships presently (I think the same principle should apply to the appointment of a new director) while I propose that the majority should rule, that is to say, that if the majority—the bare majority, if you will—by a resolution decide to remove a director, they should have the right to do so, my Amendment, which I am seeking to make at the end of line 21, provides that twenty-one days' notice must be given.

So there is going to be no snap question about this. The company will know what they are doing; and if, when they have had proper notice, the majority of the company think that a director ought to be removed, I think it is fair and all above-board that he should be removed. That is in accordance with the direct recommendation of the Cohen Committee. Therefore, although I recognize the force of the eloquent argument of the noble and learned Viscount, I am bound to tell him that, so far as I am concerned, I must adhere to the word ''ordinary,'' but that I will move an Amendment in a few minutes time making it quite plain that the resolution shall not be proposed unless there has been adequate and proper notice to the shareholders of the company.

4.28. p.m.

VISCOUNT SWINTON

I should not dream for one moment of setting myself to differ on a matter of law from the noble and learned' Viscount, Lord Maugham, who has himself been a Lord Chancellor, and I appreciate that this Amendment has the support of the Law Society. On the other band, with great respect, I do not think this is half so much a legal as a practical question, and a question of what I may call reasonable conduct. Might I add also that though I have received a great many representations from authoritative business bodies (quite rightly, because we want the ablest business opinion on this) I have not received from such bodies any representation against what I may call the basic recommendation of the Cohen Committee Report—namely, that there should be this power to remove directors. Strong exception was taken, and rightly.—I am sure it was mere oversight rather than an intention—to the idea that a snap vote could be taken, taking the Board and the rest of the shareholders by surprise. Exception was taken to the fact that a snap vote could be taken, either to remove a director or to appoint another director in his place.

I think that the Lord Chancellor has met that objection completely with the Amendments which he has on the Paper, and that being so, speaking for my part—and I think I represent the views certainly of a number of your Lordships on this matter—I do not think it would be reasonable to insist on giving a sort of vested freehold to directors, and say they could be removed only by an extraordinary resolution. I have never greatly liked the idea that a living was a parson's freehold, and, though I have myself often been a director of a company, I have never regarded myself as having a freehold or vested interest in it. I felt I was there so long as the shareholders thought I should conduct their business well, and, quite honestly, I should not care to be a director of a company on any other basis. I sat in Parliament, in another place, for some twenty years. I am not in love with proportional representation—but I must not cross swords with my noble friend Lord Rennell on that matter. I am glad to say that when I stood for election I never required proportional representation because I had a clear majority over all the other candidates; but I always thought that if I did not get a majority I should not have either a moral claim or a claim for damages if I were beaten at the poll.

There may be a case at a later stage in the Bill where the noble and learned Viscount, the Lord Chancellor, will consider this point, but, quite frankly, I do not object to overriding the Articles. After all, whenever you reform Company Law you override the Articles, because the ordinary Table A, which is changed in every reform of Company Law, is changed by Act of Parliament. A case may be made, where a director in a private company has a contract, or what is equivalent to a contract, that as representing a sectional interest he should be there for a term of years. Such a case may require particular consideration, but I should not have thought that it was a question not of ordinary or extraordinary resolutions but rather of preserving, or not preserving, contractual rights. If that case could be looked into, broad and large I should have thought that undoubtedly justice was being done, whether you seek to remove or to appoint a director. I shall support the same principle on the question of whether the seventy-year-old director should stay on. In the same way, I think the majority should decide. Frankly, if the majority are not to decide, I do not know who is. Both convenience and justice lie in accepting the Amendment which the noble and learned Viscount, the Lord Chancellor, is going to propose.

LORD RENNELL

I fully agree with what the noble Viscount, Lord Swinton, has said: that the notice of twenty-one days meets all practical requirements. With respect to the noble and learned Viscount who moved the Amendment, on second thoughts I am not sure that the obloquy of removing a director by an ordinary resolution would not be somewhat enhanced by removing him by extraordinary resolution, which would require an even larger vote of dissatisfied shareholders. For all practical purposes, however, twenty-one days' notice is wholly sufficient. The clause will provide for the removal of a director in those very difficult oases to which the noble and learned Viscount particularly referred—namely, the case of a director who had, as it were, entrenched himself in some form or another, I do not mean contractually, but by an ascendance over his colleagues and, to some extent, over the shareholders. It is to guard against such a case that I take it the Cohen Committee made this recommendation. On the basis of the arguments advanced by the noble and learned Viscount, the Lord Chancellor, and by the noble Viscount who just sat down, I consider, generally speaking, the twenty-one days' notice entirely sufficient.

However if your Lordships will allow me to anticipate by referring to the Amendment which is to be moved shortly by the noble and learned Viscount, the Lord Chancellor, there is one point on which, from the wording of his Amendment, I am not quite clear. It is whether the twenty-one days' notice will in fact be maintained in the terms of the proviso contained in the Amendment which the noble and learned Viscount is to move, wherein it is stated that there might, in certain circumstances, be less than twenty-one days' notice. No doubt the noble and learned Viscount will be able to satisfy me on that point. But on the supposition that, for all practical purposes, that does give twenty-one days' notice, I apprehend that where a meeting may be called in the ordinary course of events at less than twenty-one days' notice—for instance, at fourteen days' notice—and that meeting has been called after twenty -one days' notice has been given of the intention to propose the removal of the director, that meeting shall still be valid, and the resolution can still be tabled.

With respect, I think there is a slight difficulty there, and I consider that twenty -one days' notice is necessary, not only to ensure that time has been given to consider the arguments for and against the removal of the director, but also that all those constituents who should be consulted have been consulted. For that, as I think the noble and learned Viscount agreed, twenty -one days' is about the minimum necessary. Therefore, subject to the proviso in the Amendment which the noble and learned Viscount, the Lord Chancellor, is to move, I would agree with the general theory that twenty -one days' notice is sufficient to meet the position covered by Clause 21 (I).

VISCOUNT ELIBANK

We are all greatly indebted to the noble and learned Viscount, Lord Maugham, for having raised this matter, because I imagine—I do not know whether this is right or not—that it was as a result of his Amendment that the noble and learned Viscount, the Lord Chancellor, put down his Amendment which comes directly after it. If that be so, we should be very grateful to the noble and learned Viscount, Lord Maugham. I am not a lawyer, and would not venture to enter into a discussion from the legal point of view, but from the practical point of view I agree with the noble Lords who have just spoken that the Amendment to be submitted by the noble and learned Viscount, the Lord Chancellor, will meet the point. It seems to me that that Amendment has the effect of turning what is now called an ordinary resolution into a special resolution, so that in effect the noble and learned Viscount, Lord Maugham, has really obtained his point. On the other hand, I wish to support my noble friend Lord Rennell in the point that he has made about the twenty -one days. I do not think that there should be any limitation at any time of that twenty -one days' notice as is stated in the proviso. I hope the noble and learned Viscount, the Lord Chancellor, will support my further amendment of his Amendment, the proposal made by the noble Lord, Lord Rennell.

VISCOUNT MAUGHAM

I have heard what has been said, and I will not take up your Lordships' time on this matter for more than a few minutes. However, as I am absolutely and completely dissatisfied with the arguments that have been put against my Amendment I will just state my dissatisfaction shortly, and there I must leave it. The noble and learned Viscount, the Lord Chancellor, can shelter himself behind the finding or the suggestion of the Cohen Committee. But if he should do that, why are we here at all? Is it not because the Cohen Committee, or any committee, are apt to go wrong, that we have to consider here a multitude of Amendments? I confess that I should have thought the view of the Law Society on a point like this was worth ten times as much as the view of the Cohen Committee. I leave that there.

Then he said, much to my surprise, that the twenty -one days' notice suggested in the next Amendment alters the whole position. Of course, there has to be some notice of the meeting; nobody ever thought there could be an extraordinary meeting — I am not talking now of an extraordinary resolution—except on notice of what business was going to be transacted there. That is well known as one of the basic facts of the management of a company. Therefore that Amendment, with all respect to the noble and learned Viscount, does not alter the position of a director in the very least. It might have been said that some shorter notice might be given in certain circumstances, but we know the notice that has to be given to the company of any particular business that must be conducted, and we know that, according to the ordinary law, notice must be given of anything that is not purely ordinary business to be transacted at a general meeting. Therefore the twenty -one days' notice does not alter the position by a hair's breadth; it will be just the same after the twenty -one days Amendment is passed as it was before.

The noble Lord, Lord Rennell, suggests that to have a resolution passed against you by a three -quarters majority would cause a worse obloquy than if it were passed by an ordinary majority. Of course it would, but the whole point about the three-quarters majority is that so large a majority as that will never be obtained unless there is some real reason for the removal of a director. If there is a real reason—if for instance he has been guilty of some criminal offence—it will produce obloquy to turn him off the company's board, but he will deserve it. My objection to this clause as it stands is that a man against whom there is not one word to be said, who is perfectly honest and straightforward and who has done his best for the company, can be turned off the board because a couple of people who do not like him choose to vote and have enough share interest to procure the passing of an ordinary resolution. Against that, I have not heard one single word of argument from anybody who has spoken to-day. My objection is that in that case the obloquy will be poured on the head of a perfectly innocent person.

Those are the main arguments which have been presented to your Lordships to-day against this Amendment, and I confess that I think it would be a very unfortunate thing if they finally prevailed. I feel rather like the junior barrister who finds he is about to be decided against by the judge, or has been decided against by the judge, and who is heard to remark, obliquely: "Thank God, there is a Court of Appeal!" My feeling is just a little different; it is not the Court of Appeal for which I am thankful but for another place where this may be reconsidered. In the circumstances, as I have no support, I will not waste your Lordships' time by dividing, and I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

THE LORD CHANCELLOR

This is a drafting Amendment to lead up to the next Amendment. I beg to move.

Amendment moved— Page 19, line 23, after ("resolution") insert ("if notice is given in accordance with the next following subsection").—(The Lord Chancellor.)

On Question, Amendment agreed to.

THE LORD CHANCELLOR moved, after the end of subsection (1), to insert the following new subsection: (2) Notice of intention to move a resolution under this section shall be given to the company not less than twenty-one days before the meeting at which it is to be moved, and the company shall forthwith after receipt of any such notice send a copy thereof to the director and shall give notice thereof to the members of the company, either by advertisement or in any other mode allowed by the articles, not less than fourteen days before the meeting: Provided that if, after notice of the intention to move the resolution has been so given, a meeting is called for a date twenty-one days or less after the notice has been given, the notice, though not given within the time required by this subsection, shall be deemed to have been properly given for the purposes thereof.

The noble and learned Viscount said: This is the Amendment I indicated just now, dealing with the twenty-one days. I will ask your Lordships' permission to move it and to have it carried in this form, but I will undertake between now and the Report stage to look at the point mentioned by the noble Lord, Lord Rennell, and, if necessary, to eliminate the offending words. The words are borrowed from the existing provision in the Companies Act, Section 132, which deals with the appointment of auditors. It is thought, I suppose, that if the company, receive a notice and thereafter, upon getting the notice, promptly summon a meeting for which only fourteen days' notice is required—

LORD RENNELL

Or seven, in certain cases.

THE LORD CHANCELLOR

They may, in that way, prevent this matter coming up. That is why this procedure is borrowed from Section 132. As at present advised, I rather feel that twenty-one days ought to be the minimum. Therefore I will look at the matter and see whether on the Report stage, assuming this Amendment is accepted, I can move a further Amendment altering or perhaps eliminating the proviso. On that understanding, I will ask your Lordships to let me have this Amendment. I beg to move.

Amendment moved, Page 19, line 31, at end insert the said subsection.—{The Lord Chancellor.)

VISCOUNT SWINTON

As I understand it, the object of this (as of the section with which I am familiar, to which the noble Viscount has referred), is to ensure that where notice is given of a meeting, those who oppose the resolution cannot get a snap vote at short notice without proper consideration. I would, however, like to be clear that the following point is covered. Suppose that notice is already out for a general meeting, which must take place anyhow, and that then, less than twenty-one days before the general meeting is due to take place, a resolution is tabled by some shareholder and I twenty-one days' notice is given. Obviously the general meeting must take place upon the appointed day, but it would be most unsatisfactory if, at that general meeting, this resolution came forward and was then considered, although there had not been anything like twenty-one days' notice of it.

THE LORD CHANCELLOR

That, I think, is provided for. The proviso only applies if, after notice of the intention to move the resolution is given, a meeting is called. I will look at it again, however.

LORD RENNELL

I am very much obliged to the noble and learned Viscount. I think that point is one which is worth considering. The point made by the noble Viscount, Lord Swinton, is, I think, covered. I shall be quite satisfied with this Amendment, subject to the noble and learned Viscount looking at this point again.

VISCOUNT MAUGHAM

I am not quite sure that the clause carries out precisely what the noble and learned Viscount desires. As I' am anxious to help him with this matter as far as I can, notwithstanding the fact that he has not helped me in my Amendment, I want to ask this: Is it intended to give a single shareholder a right to have a meeting called on his own, or is this intended to apply only to a resolution which is to be moved either at a general meeting of the company, or at an extraordinary meeting called by the directors, or at a meeting called by a requisition? Those are the three ways in which you get a meeting, and you cannot put a resolution before the shareholders except at a meeting. When I read this clause—which I did very carefully to try to see what it meant—I came to the conclusion that it referred to a notice of an intention to move a resolution at a meeting of the company which would be either an ordinary meeting, called in the ordinary way, or a meeting called by requisition. I hope that I am not going back on anything that has been decided against me, but I venture to think that it is not right to let a single member of the company insist upon a meeting being called, it may be at great expense and inconvenience, unless he has the support which he would get naturally by a requisition—namely, by five members or by a holding of a certain proportion of the company's capital. I do not want the noble and learned Viscount, the Lord Chancellor, to deal with it now, but I should like him very carefully to consider it. If we have had anything to do with companies, we have all known people who have tried to wreck them by all sorts of devices. One device would be a constant motion to remove a director, coming up once every month or so, leading the public to suppose that there is something grievously wrong with the company, when in effect there is really nothing to complain of at all. Therefore, if my advice is of any value, I would suggest that this clause should be amended by showing the sort of meeting at which the resolution can be passed. On the clause as it stands, he should give not less than twenty-one days' notice. But I would add this, which I think to some extent accords with what I have already heard said on this point: since the general meeting is at twenty-one days' notice, it would be rather unfair to give less notice of the intention to remove the director. If the resolution can be passed by a majority, so much the worse for him—I am not going back on that—but I would suggest that if three days less than the twenty-one days' notice were given, the two resolutions could be brought on at the same time: namely, at a meeting when there was a good gathering of shareholders to deal with the matter. I hope your Lordships will not think that anything I have said is a desire to object to this Amendment, or to prevent it working. On the contrary, I am saying this in order to facilitate it.

THE LORD CHANCELLOR

I am much obliged to the noble and learned Viscount, and I will look into that matter. At the same time, may I tell him quite frankly that, as I understand it, this clause has nothing whatever to do with the power to require a meeting to be called. It only provides that at the meeting which is called—either the annual meeting, the extraordinary meeting, or the requisitioned meeting—if there is a resolution of which twenty-one days' notice has been given, the matter can be discussed. But this proviso does not deal with the calling of the meeting. That is the point of the proviso—because the directors might try to get round the provision. Directly they get the twenty-one days' notice, they might call a meeting, and without the proviso the shareholders would not be able to discuss this matter at that meeting. But I can assure your Lordships—unless I am quite wrong—that this proviso with which we are dealing here has in it nothing whatever to do with the right to call a meeting.

VISCOUNT MAUGHAM

I may be quite wrong, but at present I am not sure that the noble and learned Viscount, the Lord Chancellor, is bearing in mind the reason for my doubt on this matter. I agree with him that these resolutions should be moved only at a properly-summoned meeting of the company. What causes me trouble is that after the notice is given to the company to remove the director, the company, according to the words in line 4 of the Amendment: … shall forthwith after receipt of any such notice send a copy thereof to the director and shall give notice thereof to the members of the company, either by advertisement or in any other mode … Does that not mean notice of the resolution which is to be passed? Has it not to tell the members of the company, either by advertisement or in any other mode, that the resolution is going to be passed on such and such a day? In the ordinary way an annual meeting is called only once a year. There are often no requisitioned meetings, and the notice to remove the director may be given eleven months before the next general meeting of the company. The person who has given it has not to get a requisition together, because this clause does not say what he has to do. I do hope the noble and learned Viscount will consider my remarks, because I have grave doubts as to how this clause will work.

VISCOUNT ELIBANK

I rise only to ask the Lord Chancellor a question. As I understand it from what he said, any single shareholder could, under this Amendment or under the clause as it stands, demand a resolution. Is that right? I feel from general practice that it might cause a great deal of trouble if any shareholder could demand a resolution. Surely it would be better if only a collection of members, or certain members representing so many shares, could ask for a resolution. There might be some dissentient shareholder representing, for instance, live shares or one share, or even buying a share in order to table a resolution, or to call a meeting, because he has something against a particular director. I ask the noble and learned Viscount, the Lord Chancellor, to look into that point, and see whether he cannot further amend this Amendment by providing that the requisition shall be on behalf of so many shareholders, or on behalf of so many shareholders representing so many shares.

THE LORD CHANCELLOR

I will certainly look at that, but my recollection is that under Table A one shareholder moving a resolution has to get the appropriate majority.

Amendment moved— Page 19, line 31, at end insert the said words.—(The Lord Chancellor.)

On Question, Amendment agreed to.

4.58 p.m.

LORD RENNELL moved to leave out subsection (2). The noble Lord said: The Amendment standing in my name provides for the omission of subsection (2) which deals with the appointment of directors to posts which have been vacated by the provisions of subsection (1). I feel that the clause as drafted provides—even as did subsection (1)—for a snap vote to be passed at a meeting, whether an ordinary meeting or an extraordinary meeting, without due notice being given, and indeed without the shareholders having had time to consider the appointment of another person to replace the director removed.

If I may be again permitted to anticipate the Amendment of the noble and learned Viscount, the Lord Chancellor, to line 36, I find that that Amendment does not entirely remove my difficulty. I think it is true that his Amendment would, in fact, lead to the possibility of a vacancy, thus created, being filled as a casual vacancy. It does not remove the difficulty provided in the first part of subsection (2) where it says: … the appointment of another person in his place.… shall be business which may be transacted at that meeting without notice… In other words, Mr. Snooks can be appointed, without notice being given to the shareholders, to replace the director who has been removed as the result of the passing of a resolution after twenty-one days' notice, or such other period as was referred to by the noble and learned Viscount and other speakers in relation to the last Amendment. I have, therefore, moved to omit subsection (2) altogether, because, if I am rightly advised, if that subsection were so omitted a vacancy thus created would be treated as a casual vacancy and would be dealt with as would any other appointment falling vacant for instance, by directorial death.

Amendment moved— Page 19, line 32, leave out subsection (2).—(Lord Rennell.)

THE LORD CHANCELLOR

I agree with what the noble Lord said, but I would much rather do what he wants this way. I agree that my Amendment to line 36 does not quite cover the point, but I will ask the draftsmen to put in words here including twenty-one days' notice, which will be applicable to the appointment of a new director as they are applicable to the removal of an old director. If he will allow me to retain subsection (2), I will see that those words are included.

LORD RENNELL

That seems admirable. It would mean that it would be necessary for the same notice to be given by the board for the re-election of existing directors or various new directors.

THE LORD CHANCELLOR

That is right.

LORD RENNELL

I am much obliged. That will entirely meet my point, and I beg leave to withdraw my Amendment.

Amendment, by leave, withdrawn.

LORD CHORLEY

The next is really consequential on an Amendment your Lordships have accepted, and which has been referred to by the noble Lord, Lord Rennell. If, at a meeting at which a director is removed by special resolution, no appointment of a director in place of him is made, the amendment leaves it open to the directors to fill the vacancy or not as a casual vacancy; the clause as drafted requires the vacancy to be filled unless the company resolves that it shall not be filled. That is the object of this Amendment, which I am sure will commend itself to your Lordships.

Amendment moved— Page 19, line 36, leave out from the first ("filled") to the end of the line, and insert ("it may").—(Lord Chorley.)

On Question, Amendment agreed to.

Clause 21, as amended, agreed to.

Clause 22:

Retirement of directors under age limit.

22.—(I) Subject to the provisions of this and the next following section, no person shall be capable of being appointed a director of a company other than a private company if at the time of his appointment he has attained the age of seventy.

(3) Where a person retires by virtue of the last foregoing subsection, no provision for the automatic reappointment of retiring directors in default of another appointment shall apply; and if, at the meeting at which he retires the vacancy is not filled and it is not resolved that it shall not be filled, it shall be filled as a casual vacancy.

(5) Nothing in the foregoing provisions of this section shall prevent the appointment of a director at any age, or require a director to retire at any time, if his appointment is made or approved by special resolution and his age is disclosed at the meeting at which the resolution is passed.

VISCOUNT MAUGHAM moved, in subsection (1), to leave out "seventy" and insert "seventy-five." The noble and learned Viscount said: I put down this Amendment only to raise the point as to the question of the retiring age of directors. I will be frank and say that I think it is of no importance, or of little importance, provided that subsection (5) of this Bill is amended in the way proposed by the noble Viscount, Lord Swinton, and the noble Marquess, Lord Reading—namely, to alter the word "special" and insert the word "ordinary". If that is done, the position will be as follows. The company will be master of its own affairs and will be able to say to any director of any age: "We will appoint you because we think you are the best man in the circumstances, though you are approaching the age of eighty." I suggest the age of seventy-five only because in those circumstances seventy is too low an age. I suggested it at a time when the Amendment to subsection (5) was not before me.

I should rather like to know what your Lordships think about the age limit of seventy. I consider it is a very early age. I have reached an age when perhaps I can take that view. It would be easy to mention the names of many great men who during the last fifty years have reached the age even of eighty and have been more or less competent to transact business. We can look at the history of Germany, France and Great Britain and find people of over seventy who have led their country during very difficult times. I am not saying that that is a very powerful argument, because the question is whether it is very unusual or whether it is fairly common. My own impression is that during recent years, with the changes in the habits of life of the ordinary people who are likely to be directors, seventy is likely to be too early an age and that it would be better to substitute seventy-five. But I feel that is a point on which we need not be impressed by the opinions of outsiders—even the Cohen Committee. I think we should be well advised to express our own views on the matter. It is not a question of law; it is a question of pure common sense. Having said that, I will leave it to your Lordships, repeating the fact that if subsection (5) is approved the whole matter becomes of very little importance.

LORD LUCAS OF CHILWORTH

As I mentioned this matter when the Bill was before the House on Second Reading, perhaps the noble Viscount will not object if I express my opinion. I know life begins only at the age at which we have all arrived; that is natural. I support the clause in the Bill and I hope His Majesty's Government will reject the Amendment, because, first, it is necessary in the companies of this country to give more encouragement to youth than it has had in the past. As I have said before, the youthful managerial strata in this country has been kept out of high places in industry because of the limpet-like tendencies of some directors—if noble Lords will forgive the expression.

I would suggest to the noble and learned Viscount that the extraordinary cases or the special cases that need to be safeguarded are adequately safeguarded by the provision in the Bill at the present time. The exceptional case is well cared for, and if it is not sufficiently cared for there is nothing to prevent any company from re-engaging the services of a director over seventy in a special advisory capacity and paying him the necessary remuneration which is thought befitting to his extraordinary knowledge. I think the noble and learned Viscount will agree with me that in affairs of business, as in affairs of sport, "a good young 'un" is better than "a good old 'un."

VISCOUNT SWINTON

Perhaps I might be allowed to intervene for one moment, in spite of the fact that I have later an Amendment of my own. It is obvious that the Amendments have to be dealt with as a whole. In my opinion there is only one certain retiring age for directors or anyone else, and that is the age when they think they have nothing more to learn at all; and on the day when a man has nothing else to learn, be it at thirty-five or seventy-five, he ought to be sacked at once. I myself take no exception to seventy—though I am gradually approaching that age—with this proviso: I think it right to have an age, but I consider (and I am sure the Lord Chancellor is in agreement) that the democratic rule ought to apply. Provided notice is given, people ought to know whether or not they are affected at seventy, and in any case election should be decided by the ordinary majority vote.

As I understand this clause, if the Amendment is accepted—and I gather that the noble and learned Viscount, the Lord Chancellor, is prepared to accept it—the position will be that if the Articles already provide a retiring age, whatever it may be, those Articles will remain in force unaffected. If the Articles do not provide any retiring age, it will still be competent for a company, by the appropriate resolution—I think it has to be a special resolution to alter the Articles—to amend the Articles and to put in a retiring age which is different from the statutory age in the Bill, subject always to the rule, which I believe exists, that you cannot appoint a man for life. You can, I think, appoint a man to hold office until he is ninety-nine, but not for life.

Further, it is possible, with this Amendment, for a seventy-year-old to come up for election, provided that you have given all the shareholders an intimation that he is seventy. There are some very good Grand National winners among the seventy-year-olds. The Leader of the House, for example, never falls at a fence, although he may sometimes go round through a gate. But if a seventy-year-old comes up for re-election he can be proposed and, if the ordinary tenure of office is a three-year tenure and he is elected, he will hold his office for three years. It seems to me that that is going to be the position; and a very practical one, too. I should have thought that we could all agree on seventy—there is fine Biblical authority for it—provided that we are not bound by the letter of the law, and can model it to suit our purpose.

THE MARQUESS OF READING

As my name is associated with that of the noble Viscount: who has just spoken on an Amendment to this clause, perhaps I may be allowed to say a word. I am in general agreement with what the noble Viscount has said upon this particular matter. As a discussion has been inaugurated on the general question, perhaps I may be allowed to put this forward by way of suggestion—though not as a formal Amendment—to the noble and learned Viscount, the Lord Chancellor. The question of the suitability or otherwise of a director on account of age, I suggest, is one which must be considered by the shareholders, not only with reference to that particular individual but, to some extent, with reference to the composition of the board as a whole. It may very well be that in a company where there are a number of young directors there is considerable advantage to be gained by continuing in office one older man of great experience and with a comprehensive knowledge of the past history of the company, and so forth.

On the other hand, if a company has an excessive proportion of directors who are of a considerable age, this may well be a factor which should influence the minds of the shareholders and lead them to consider whether the time has not come when they ought to adulterate the board to some extent by putting in younger directors. If that be a reasonable way of looking at it—and I submit that it is—I suggest to the noble and learned Viscount, the Lord Chancellor, that between now and the Report stage he might consider whether there should be some duty put upon a company when issuing its annual report, or on some other suitable occasion, to show in a clearly legible form what are the respective ages of each member of the board of the company, so that the whole picture may be within the view of the shareholders.

THE LORD CHANCELLOR

We must remember that in the future, to an increasing degree, we may have ladies on the boards of companies, and, with that in mind I must consider carefully where I am going. I quite agree that the shareholders in whom the control obviously rests should have knowledge of these matters. But I think that if I were a shareholder of a company, without an) announcement being made of the precise details of the ages of members of the board of directors, I should be able to form an impression as to whether the company had an old board or a young board. I agree that if the board included a number of very elderly people I should be much more reluctant to allow another elderly person to go on it, than I, might be were the case otherwise. I am going to accept the Amendment to subsection (5) subject to this: that on the Report stage I shall want to add my provision about notice, and so on. The matter is not, perhaps, of very great moment. I am certainly not going to embark on an attack on the competence of people over seventy years of age. I remember that, when I was at Oxford, Sir William Osier was Regius Professor of Medicine, and he led a great campaign against people of over seventy years of age. As I am now sixty-one I feel that rather deeply. He spoke in a lecture of the "uselessness" of men above sixty years of age, and the incalculable benefit it could be in commercial, political and professional life if, as a matter of course, men stopped work at this age.

Those who are over fifty had better not be too sure of things now, for someone else will, no doubt, write a book saying that they ought to go. On the whole, I think we had better keep the age to seventy. We have not the slightest desire to see people over seventy turned off boards of companies, but we do think that the shareholders of companies with whom the decision rests should have the fact of directors' ages being over that limit brought to their notice, and then if they like to retain these people—often no doubt it would be a very wise thing to do—they ought to be allowed to do so. In view of what I have said, I shall ask the noble and learned Viscount to withdraw his Amendment.

VISCOUNT MAUGHAM

I am quite willing to do so.

THE LORD CHANCELLOR

I have told him that I am going to accept an Amendment to subsection (5), subject to adding something on the Report stage.

LORD BALFOUR OF BURLEIGH

Would the noble and learned Viscount, the Lord Chancellor, forgive me for saying a few words before the discussion on this matter is concluded? I would like to put in a plea for rather clearer drafting, because there are subsections, both in this clause and in the next, which are rather obscure. I would refer particularly to Clause 23 (4), if I may go so far as that, because they all come together. I find it a little difficult to understand. Also, I found difficulty with regard to Clause 22 (6) taken in conjunction with the first line of Clause 23 (1). There are also one or two points on which I would like assurances. I suppose that a company incorporated after Clause 22 has come into force may adopt Articles which include a retiring age for directors higher than seventy. I presume that existing Articles can be altered. I assume that a company can alter its Articles whether before or after the passage of the Bill.

Another point about which I would like an assurance is whether directors who have already attained the age of seventy when these two clauses come into force may remain in office until their term of office expires under the usual retiring provision, or whether they must retire at the next meeting and, if they desire re-election, must have a special resolution put down for that purpose. It has been represented to me that that is the effect of Clause 23 (4). I find it difficult to follow the mind of the draftsman, and if these matters could be put with a little more clarity and simplicity I think that it would be an advantage. Finally, before I sit down, I would like to ask the Government, as this is to apply to directors, whether they have thought about it in connexion with the new corporations which are to be set up—the National Coal Board, the Transport Commission, and so on. I should like to know whether there is going to be a similar provision relating to the constitution of these new bodies. I do not think there is anything about it in the Transport Bill. I do not think it applies to the Commission.

LORD STRABOLGI

I hope that the suggestion of the noble Marquess, Lord Reading, will not be lost. It is most valuable that the shareholders should be informed in the annual report or in some other way of the ages of their board of directors. The Lord Chancellor said there may be some difficulty with the ladies, but I think he has overlooked the change of mind in the modern woman. She does not mind about her age nowadays. That is my experience anyway. They are amazingly frank about their age, and may I remind the noble and learned Viscount of the saying that "a man is as old as he feels, and a woman is as old as she looks."

I think shareholders might with advantage be informed of the ages of their board. The general average of the ages of directors on the board of a large company may be rather high, and there would be a considerable case then for appointing younger men. I have been tremendously impressed recently in the United States by the younger average age of the executive directors of the great corporations. In the United States they have a tremendous advantage over us. We know the reason: we lost the flower of our youth in the first world war. But anything that can infuse new blood into British industry at this particular time is, I think, worthy of attention.

LORD RENNELL

Would it be convenient to raise a question on the interpretation of Clause 23 now, with the point that the noble Marquess, Lord Reading, has raised in connexion with Clause 22, or shall I wait until the Amendment to Clause 23?

THE LORD CHANCELLOR

It would be more convenient to me if it were raised on the next clause, because my noble friend Lord Chorley will deal with the next clause, and I am not an expert on it. He is the greatest living authority on it, and I do not know the answer as to what is proposed to be done. I have not considered that. The answer to all the other questions the noble Lord asked is in the affirmative.

LORD SALTOUN

In view of what the noble and learned Viscount has said about the possibility of a great increase in the number of ladies as directors, I hope he will consider that in such a case the question of age might be at least equally pertinent.

Amendment, by leave, withdrawn.

THE LORD CHANCELLOR

The next Amendment is simply to say that the vacancy may be filled as a casual vacancy. I beg to move.

Amendment moved— Page 20, line 22, leave out from the first ("filled") to ("be") and insert ("it may").—{The Lord Chancellor.)

On Question, Amendment agreed to.

VISCOUNT SWINTON

I beg to move the next Amendment which stands in my name.

Amendment moved— Page 20, line 36, leave out ("special") and insert ("ordinary").—(Viscount Swinton.)

THE LORD CHANCELLOR

I will accept this Amendment, on it being understood that on Report stage I will add the necessary words to make it twenty-one days.

On Question, Amendment agreed to.

Clause 22, as amended, agreed to.

Clause 23:

Application of age limit to directors of existing companies.

23.—(1) Where, at the coming into force of the last foregoing section, a company's articles contain a provision for the retirement of any of its directors under an age limit, that section shall not apply in relation to those directors; but in any other case the last foregoing section shall apply—

1. (a) notwithstanding anything contained in the company's articles at the coming into force of that section; but
2. (b) with the modifications for directors then holding office provided for by the following provisions of this section.

LORD CHORLEY moved, in subsection (1), to leave out "those directors" and insert: "directors to whom that provision applies, whether then holding office or appointed afterwards." The noble Lord said: I hope my blushes are visible in all parts of the House. Actually, my duty is to move a very simple Amendment which is only in the nature of a drafting Amendment to clarify the wording of the clause as it now stands, and to make it quite clear that the directors to whom the provision applies are both those holding office at the time of the passing of the Bill and those who are appointed afterwards.

As your Lordships have observed, the final subsection in Clause 22 provides that the section: shall have effect subject to the provisions of a company's articles, except in so far as the next section provides that it shall have effect notwithstanding the articles. Then the next line of the following clause provides: Where, at the coming into force of the last foregoing section, a company's articles contain a provision for the retirement of any of its directors under an age limit, … That is the article which is in question. There are other possible clauses in the articles dealing with the length of service of a director which are not articles for the retirement under an age limit. Then it goes on: That section shall not apply in relation to those directors. …

We wish to make it quite clear that it will apply to those holding office at the time and to those appointed afterwards. I think there can be no question about this clarifying Amendment, and that your Lordships will wish to accept it.

I understand that there are questions as to the general lucidity of this clause; and far be it from me to maintain that this is the most lucid clause in the Bill! In fact, when reading Clause 23, I was rather reminded of the famous story about the poet Browning. When asked the meaning of one of his poems he replied that there was a time when the meaning had been clear at any rate to two persons, to himself, and to the Almighty, but unfortunately in the interval he had forgotten what it meant, and now only the Almighty knew. This is a long clause, and I am sure your Lordships will not welcome a long exposition of it. It is chiefly concerned with providing the "machinery for putting this business into effect. As for the point that was raised by the noble Lord, Lord Balfour of Burleigh, it is quite clear that it is intended that the Articles shall stand in so far as they deal with the question of the provision of the retirement of one or more of the directors under an age limit. I beg to move.

Amendment moved— Page 21, line 4, leave out ("those directors") and insert the said new words.—(Lord Chorley.)

VISCOUNT MAUGHAM

May I just make an observation with regard to the drafting of this clause? I think it would be a little easier for most people if, instead of the words," of any of its directors under an age limit "the words" all or any of its directors "were inserted. It looks rather as if the provision for the retirement was a definite direction. I do not think it makes very much difference because it would probably be construed as meaning "all or any," yet the reader, reading it the first time, would think it applied only to specific directors.

With regard to the rest of the clause, I think, after some work on it, that the various subsections will work. I agree that the) are not very easy to understand, and I am afraid I have wasted some of my remaining time in trying to appreciate them. I think they will work, but I also think it possible that a little more lucidity might be introduced into the clause as it now stands.

LORD RENNELL

The Amendment which the noble Lord moved does make the first part of Clause 23 a little easier, as does the suggestion made by the noble and learned Viscount Lord Maugham, to alter the words to "all or any," though I think that is what is obviously intended. My real difficulties on the clause arise in subsection (2), with its proviso, and in subsection (3). In this context, the noble and learned Viscount the Lord Chancellor—I regret to say that he had left the House because I propose to take his name in vain, though not without notice—said on Second Reading (column 1,007, Hansard, December 17, 1946): I come now to a more debatable question—the age of directors. The Bill lays down a retiring age of seventy in the case of all public companies, but any company can if it wishes"— this is the important point— alter its Articles to provide for any retiring age, be it sixty or eighty, and any director past the age of seventy may be continued in his office by special resolution. As I understand it, the object of this machinery is to provide that, notwithstanding anything that has been said in Clause 22, a company, by altering its Articles by special resolution, can provide for its directors to retire at the age of fifty or the age of ninety as the company chooses, and that that provision is applicable both to those companies which had so altered their Articles before the coming into force of this clause, or which may alter their Articles after the coming into force of this clause. That seems to me to leave to all companies the freedom of action which we would probably all desire them to have, especially with the Amendments made to previous clauses. Frankly, however, it is not abundantly clear to me from the wording of subsections (2) and (3) that that is in fact what they say.

I should like the noble Lord, Lord Chorley, if he will or if he can (because, with respect, I do not think that in his brief remarks he addled very much to the clarity of that clause), to say that what the noble and learned Viscount, the Lord Chancellor, said on Second Reading is the case, and, moreover, that it is applicable not only to companies which had such a provision in their Articles before the coming into force of this clause, but that companies can hereafter insert such an Article by a resolution. If he can say that, then I shall be entirely satisfied, because, not being legally instructed, I would not attempt to interpret the two clauses as they stand. I think that the noble and learned Viscount, Lord Maugham, having given it mature and considerable reflection, thinks that that is the case; but, if it is possible to clarify it I think it would help the general public, who have not the knowledge of law and drafting which the noble and learned Viscount, Lord Maugham, possesses. After all, it is a general principle of our legislation that it should be understood by the ordinary person as well as by the expert.

VISCOUNT MAUGHAM

Hear! Hear!

LORD RENNELL

I should like to ask two things: whether the interpretation which I have been given, which is slightly wider than that given by the Lord Chancellor on Second Reading' in Column 1007 of Hansard, is the case, or, if it is not the case, whether the clause can be so dratted to make is clear. Alternatively, if what I have stated is intended, will the Clauses, in any event, be re-drafted to make it clear to everybody concerned?

LORD BALFOUR OF BURLEIGH

I should like to support that plea which, in effect, is the plea which I made with regard to a previous clause—perhaps a little out of time. I support the plea that an attempt should be made to redraft this clause, because the ordinary man in the street really cannot understand it.

LORD HAWKE

May I also add a plea to get the entire clause re-drafted? People have asked me: "What does this mean? Does it apply to me?" and I have had to say, "I am very sorry, but I cannot understand it either."

LORD CHORLEY

It must be quite obvious to everybody that a clause to which the noble and learned Viscount, the ex-Lord Chancellor, Lord Maugham, has had to devote so much attention in order to decide that it is, so to speak, viable, is a clause which is not the most lucid in the Bill, as I said in my preliminary observations. We will indeed ask the draftsman to lock at it again between now and the Report stage, to try to find some set of words which will be, so far as possible, understandable by laymen. Your Lordships will appreciate that the matter is one of very great complexity; it is an exceedingly difficult matter to explain these clauses in such a way as to be easily understood even by those who spend their lives dealing with this sort of matter. The noble and learned Viscount, Lord Maugham, did suggest at the beginning a slight alteration, that it should apply to "all or any," and I should be very glad to accept that Amendment, at any rate, as a little assistance to the draftsman in his new attempt to deal with this matter.

With regard to the points raised by the noble Lord, Lord Rennell, in which he had the support of the noble Lord, Lord Balfour of Burleigh, and also the noble Lord, Lord Hawke, broadly speaking, it seems to one that what the noble and learned Viscount, the Lord Chancellor, said in the Second Reading debate is borne out in fact by the subsections. I think the answer to the noble Lord, Lord Rennell is: "Yes".

LORD RENNELL

Subsequent Amendments to the Articles as well as previous ones?

LORD CHORLEY

I think it is quite clear; at least, I hope it is—perhaps the word "quite" is not the right one to use—shall I say sufficiently clear, that it does apply to alterations to the Articles after the clause comes into force, and perhaps not so clear in respect of alterations which have been attempted before the coming into force of the clause. At any rate, these are obviously matters which will have to be taken into consideration in connexion with the whole attempt to get the matter clearer, so that at the time when it comes back to your Lordships on the Report stage we shall have a new and, I hope, clearer clause which we shall be able to discuss at that stage.

VISCOUNT ELIBANK

May I suggest to the noble Lord that it is clear that, as it stands, the clause is quite incomprehensible? Personally I had already decided that if this clause were to foe passed in anything like this form, counsel's opinion would have to be taken upon it immediately. I suggest that the noble Lord, Lord Rennell, has made a very strong point, and I hope that this particular clause, which is an essential one in this matter, should be made quite clear, so that we can all understand it, and not have to call in counsel in order to find out what it means.

LORD RENNELL

I am much obliged to the noble Lord, Lord Chorley, for what he has said, or has been able to say. I think that is what is intended. But what we would like is a perfectly simple statement that companies which have altered their Articles before the coming into force of the Bill, and companies which hereafter alter their Articles after the coming into force of the Bill, shall have power to increase the age of retirement beyond the age of seventy if and when the shareholders so desire.

LORD CHORLEY

We will certainly take note of the noble Lord's observations. The draftsmen will have them in the Official Report. I think there is no question as to the intention, but we will do our best to make it sufficiently clear to satisfy the noble Viscount, Lord Elibank.

VISCOUNT MAUGHAM

The Amendments are perfectly right, so far as they go, but they do not say what Lord Rennell wishes.

On Question, Amendment agreed to.

LORD CHORLEY

There are a number of consequential Amendments which go with the last, which perhaps your Lordships would permit me to move at the same time. They are ah consequential drafting Amendments on the first one.

Amendment moved— Page 21, line 10, at beginning insert ("Subsection (2) of").—(Lord Chorley.)

On Question, Amendment agreed to.

Amendment moved— Page 21, line 20, after ("of") insert ("subsection (2) of").—(Lord Chorley.)

On Question, Amendment agreed to.

Amendment moved— Page 21, line 34, leave out ("the said section") and insert ("subsection (2) thereof").—(Lord Chorley.)

On Question, Amendment agreed to.

Clause 23, as amended, agreed to.

Clause 24 [Duty to disclose age to company]:

VISCOUNT MAUGHAM

Before we pass from Clause 24, may I mention something I to the noble and learned Viscount, the Lord Chancellor, who is in charge of the Bill, for his consideration? This is in reference to the duty of a director to disclose his age to the company. As a matter of law, you disclose your age to the company if you send a letter to the board of directors telling them that you are ninety, because the knowledge of the directors is the knowledge of the company. I venture to think, however, that the object of the clause is that the person who is to be appointed a director should disclose his age to the shareholders before they appoint him a director, or, at any rate, that in some way or other the shareholders should know what his age is. I have not an Amendment down, but it did strike me as being a slip, and that the draftsmen had thought for a moment that "company" meant "the shareholders." It does not.

Clause 24 agreed to.

Clause 25:

Power to restrain fraudulent persons from managing companies.

25.—(1) Where—

1. (a) person is convicted of any offence in connection with the promotion, formation or management of a company; or
2. (b) in the course of winding up a company it appears that a person—
1. (i) has been guilty of any offence for which he is liable (whether he has been convicted or not) under section two hundred and seventy-five of the principal Act (which relates to the responsibility of directors for fraudulent trading); or
2. (ii) has otherwise been guilty, while a director or officer of the company, of any fraud in relation to the company or of any breach of his duty to the Company;

the court may make an order that that person shall not, without the leave of the court, be a director of or in any way, whether directly or indirectly, be concerned or take part in the management of a company for such period, not exceeding five years, as may be specified in the order.

(3) An order made by virtue of the said paragraph (a) by the court by which a person is convicted shall be subject to appeal in the same manner as the conviction, and the court making the order may, if it thinks fit, pending the appeal, suspend the operation of the order.

5.41 p.m.

LORD MANCROFT moved, in subsection (1) (b) (i), to leave out "(whether he has been convicted or not)." The noble Lord said: This clause deals with powers to restrain fraudulent persons from managing companies. With the object of the clause there can be no quarrel, but I venture to suggest that the wording in places is a little unhappy. May I read to your Lordships the actual phrase complained about? It runs as follows: Where.… in the course of winding up a company it appears that a person— (i) has been guilty of any offence for which he is liable (whether he has been convicted or not) under section two hundred and seventy-five of the principal Act.… the court may make an order that that person shall not, without the leave of the court, be a director.… of a company for such period, not exceeding five years, as may be specified in the order.

It is unfortunate wording to allow it to be suggested that a man may be liable to what are, after all, very serious penalties merely because it appears that he has been guilty of an offence. Who is to decide if he has been guilty of that offence, or whether it appears to them that he has been guilty of that offence? I must confess that I am not clear. Presumably, it will be the winding-up court. But if you carry it to its logical conclusion, the man might have been tried and acquitted of an offence under Section 275, and yet it might still appear that he was guilty. The winding-up court, of course, is acting in a judicial capacity, but it is not trying a man for an offence for which he is liable to serious penalties, and it is not acting in the same way as a criminal court would, I suggest that it is unhelpful that he can be liable to these penalties merely because it appears to the winding-up court that he has been guilty of this offence. The old Act did confer those powers, but I think this is a great extension of them and one which is not acceptable. I beg to move.

Amendment moved— Page 22, line 38, leave out ("whether he has been convicted or not."—(Lord Mancroft.)

VISCOUNT MAUGHAM

I wish to say, in support of what has been said by my noble friend, that there is something very awkward about finding in an Act that if it appears that a director or some other person has been guilty, whether or not he has been convicted under Section 275, then the consequence is that the court may make the order that that person shall not be a director, say for five years, of any company with which he would desire to be concerned. The difficulty is one which can easily be met by making the words a little bit clearer and more in accordance with what I venture to think is the usual practice. Is it not desirable to make it clear that the event on which the court can make an order is that it is established that a person has done something? In some cases it might be left with a jury, but in most cases it would simply be before a Judge, but if it is established that a person has been guilty of the things mentioned in paragraph (b), then the court may properly make the order. I do not like the word "appears" in reference to a non-civil matter. There are civil cases where courts make an order when something appears to them, but in a criminal case I venture to think that it is the better practice that the man should be proved to have committed the offence.

THE LORD CHANCELLOR

If this were an Amendment to alter the word "appears" to "is established" I think there would be a good deal to be said for it. But that is not the Amendment. This is, I think, an extraordinary Amendment. To leave out the words "whether he has been convicted or not" means to say this. A Chancery Court winding-up a company goes into the matter very fully. It appears to that court that this man has been guilty of all sorts of fraudulent practices. What is the power of the court then? If you turn over the page it there says: the court may make an order that that person shall not, without the leave of the court, be a director of or in any way, whether directly or indirectly, be concerned or take part in the management of a company for such period, not exceeding five years…. Anybody who knows the meticulous care with which the Judges deal with these winding-up of companies cases would be quite certain that no Judge would ever make such an order as that unless it was established, not only to his satisfaction but beyond all reasonable doubt, that such an order ought to be made. Suppose the facts were that it was by those proceedings that these matters first came to light. The court hears of them and is quite satisfied that the man has done these shocking things, and the court thinks it is such a bad case that it will either act under subsection (I) and preclude him from taking part in the conduct of companies, or act under the existing Section 275 and subject him to payment of costs, and that sort of thing. The court would do that only if it were quite satisfied. Why should the court not be able to do that because the man has not already been convicted? Is the court to say that it will adjourn the proceedings until the man has been prosecuted at the Old Bailey? That is not how it is done.

These powers are exactly the same powers as exist under Section 275 of the principal Act. There is no need whatever to say to-day that you find these things. The Judge in charge of the wind-ing-up finds that these frauds have been committed, and he can act. The Amendment which has been moved is designed to cut down powers which exist to-day, and to say that the Judge cannot do these things unless the man has first of all been convicted. I would say that that is a most unfortunate Amendment. You must trust your court in the future as you have in the past, and if the court thinks these things have been done, then the court should be armed with absolute powers to stop this fellow, who has, ex hypothesi, been fraudulent in regard to the running of one company, from being a director of another company. The effect of the Amendment which the noble Lord proposes is that the court should not have that power to-day—that the court must let the man go away and say that it is unable to do anything at that time because the man has not been convicted.

So far as the words are concerned: "it appears to the Court," I do not feel much difficulty about that, because the words of Section 275 are as follows: If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors,… and so on, then the court may do various things. Therefore, I should be very sorry indeed to accept this Amendment, which would seem to me to tend to let people who have done wrong things, and with regard to whom the Judge is quite clear that they have done wrong things, get away with it.

LORD MANCROFT

I am very grateful to the noble and learned Viscount, the Lord Chancellor, and I appreciate the weight of his arguments. It was not, of course, the content or the intention of the clause to which I wished to draw attention, but merely the wording, but I do not feel very strongly about it. I therefore feel that I am in no position to press my Amendment. I beg leave to withdraw it.

Amendment, by leave, withdrawn.

THE LORD CHANCELLOR

This is a drafting Amendment. I beg to move.

Amendment moved— Page 23, line 14, leave out ("by") and insert ("before").—(The Lord Chancellor)

On Question, Amendment agreed to.

Clause 25, as amended, agreed to.

Clause 26 agreed to.

Clause 27:

Prohibition of loans to directors.

27. It shall not be lawful for a company to make a loan to any person who is its director or a director of its holding company, or to enter into any guarantee or provide any security in connection with a loan made to such a person as aforesaid by any other person:

Provided that nothing in this section shall apply either— (a) to anything done with the approval of the company in general meeting, where—

1. (i) the person to whom the loan is made requires it to meet expenditure incurred or to be incurred by him with a view to enabling him properly to perform his duties as director or officer of the company; and
2. (ii) the purposes of the expenditure and the amount proposed to be lent, guaranteed or secured by the company are disclosed to the members of the company before approval is given; or

LORD SALTOUN moved to leave out from the beginning of the clause to the end of sub-paragraph (ii), and insert: .If the directors of a company authorize a loan by the company to any person who is its director or a director of its holding company, or on behalf of the company enter into any guarantee or provide any security in connexion with a loan made to such a person as aforesaid to any other person, then, unless within three calendar months the loan, guarantee or security receives the approval of the company in general meeting, and unless the purposes of the expenditure and the terms and amount of the loan, guarantee or security have been specifically mentioned in the notice calling the meeting, the board of directors shall be jointly and severally liable to the company for the repayment of the loan within nine calendar months from the date of the granting of the loan, guarantee or security. Provided that nothing in this section shall apply".

The noble Lord said: The Amendment which stands in my name seeks to change the nature of this clause a little. As the clause stands it is unlawful for a company to make a loan to any person who is a director without certain things being done previously. My Amendment seeks to bind the directors of a company to be very careful in making such a loan, to make them refer it to the company within three months, and, if the company does not then approve of the loan, to compel the whole board of directors to repay the amount of the loan to the company within a further six months. The reason for that six months is in case any bonds or mortgages have been entered into in respect of the loan and to give time for due notice to be given in order that those bonds or mortgages may be terminated.

The Cohen Report recommended very strongly that the machinery by which a company could alter its Memorandum should be made very much easier and more convenient, and that it should be able to be altered without recourse to the courts. In this Bill, so far as I can see, His Majesty's Government have not followed that recommendation. The Cohen Report also criticized the very wide terms in which the Memoranda of companies are usually drawn. The practice of drawing a very wide Memorandum is a very natural one. When a person founds a business he cannot tell in what line it may most profitably develop, and in the course of twenty-five years extraordinary changes come over a business and the nature of the business. As a rule, the Memoranda are drawn very widely in order to be able to meet all sorts of un-forseen circumstances as they arise. There are, of course, companies with very narrowly-drawn Memoranda, and very often the find that they are much too narrow for the conduct of their business.

In such a case the only way out of the difficulty—which is a perfectly normal business difficulty—may be for them to issue a loan to a director. I quoted a case on the Second Reading debate—I will not repeat it to your Lordships—which concerned the purchase of land. In my experience, land is very often bought and sold very quickly; there are only a few days between the time when the land comes into the market and the time it is sold. If the only means by which a company could purchase a parcel of land which it needed for its business were by previously giving notice to its shareholders that it wished to issue a, loan to a director, the company would suffer from two disadvantages. In the first place, the three weeks notice established by this Bill is far too long, and in the second place, the company would inform all the world that it was a buyer. Both of those things would be very unfair to the company. I quote that only as an instance, but it does seem to me that, as it stands, the clause is too severe. It is extremely arbitrary, and in a matter of this kind (a matter of ordinary business practice; I do not say it is a good business practice, but it is sometimes the only possible way out of a difficulty) I submit that, subject to something like that which I have drafted—the penalties are very severe—some such arrangement should be permitted. I beg to move.

Amendment moved— Page 24, leave out lines 17 to 32 and insert the words printed.—(Lord Saltoun.)

THE LORD CHANCELLOR

I quite realize that circumstances may arise which require prompt action in the way of granting a loan, and under the clause as at present drafted it would be difficult to get the necessary authority. If that is so, then I think that an Amendment on the lines of that proposed by the noble Lord would meet the case. What I am going to ask him to do is to withdraw his Amendment now, on the understanding that I will look into it, and, on the Report stage, put down some appropriate words to deal with the point he has in mind.

LORD SALTOUN

I am very much obliged to the noble and learned Viscount and I am very happy to leave myself in his hands. I beg your Lordships' leave to withdraw my Amendment.

Amendment, by leave, withdrawn.

LORD BALFOUR OF INCHRYE moved, after "company" where that word first occurs, to insert: "other than a private company." The noble Lord said: The purpose of this Amendment is to permit loans to directors in private companies and to ensure that the provisions as to the prohibition on loans in this Bill shall not apply to such companies. To-day there are many fine family businesses which are being prejudiced by the high death duties which fall upon their owners, thus creating a necessity for the realization of shareholdings in order to pay those death duties—shareholdings which are unmarketable except within the family. On the other hand, the present high level of taxation prevents many young men in such businesses from accumulating any large sums of money to enable them in due course to take over shareholdings upon the death of their partners or relatives. It seems unfair that they should be prohibited from obtaining a loan from the one source which is available to them—their family business. For those reasons I hope His Majesty's Government will feel able sympathetically to consider this Amendment. I beg to move.

Amendment moved— Page 24, line 17, after ("company") insert ("other than a private company").—(Lord Balfour of Inchrye.)

THE LORD CHANCELLOR

I think the noble Lord has a point here. If it is a family business, I think the position is different. If he does not press me to go to the full extent and to accept the words "other than a private company" but is willing to make his Amendment applicable only to the exempted private company, I shall be happy, on the Report stage, to put down some words to meet that point.

LORD BALFOUR OF INCHRYE

I am grateful to the noble and learned Viscount, and I gladly accept his proposal. I beg leave to withdraw my Amendment.

Amendment, by leave, withdrawn.

Clause 27 agreed to.

Clause 28:

Payments received by directors for loss of office or on retirement.

28.—(1) Any provision contained in the articles of a company shall be void in so far as it authorizes the making to any director of the company of any payment by way of compensation for loss of office, or as consideration for or in connection with his retirement from office, without particulars with respect to the proposed payment (including the amount thereof) being disclosed to the members of the company and the proposal being approved by the company.

(4) After the said subsection (4) there shall be inserted the following subsections:— (4B) If such a meeting as is mentioned in subsection (4) of this section is duly summoned for two separate occasions and on neither occasion is a quorum present, any payments mentioned in the notices summoning both meetings shall be deemed for the purposes of that subsection to have been approved.

(5) Where in proceedings for the recovery of any payment as having, by virtue of sub sections (1) and (2) or subsection (3) of the said section one hundred and fifty, been received by any person in trust, it is shown that—

1. (a) the payment was made in pursuance of any arrangement entered into as part of the agreement for the transfer in question, or 901 within one year before or two years after that agreement or the offer leading thereto; and
2. (b) the company or any person to whom the transfer was made was privy to that arrangement;

the payment shall be deemed, except in so far as the contrary is shown, to be one to which the said subsections (1) and (2) apply or to which the said subsection (3) applies, as the case may be.

(6) It is hereby declared that references in this section and in the said section one hundred and fifty to payments made to any director of a company by way of compensation for loss of office, or as consideration for or in connexion with his retirement from office, do not include any bona fide payment by way of pension in respect of past services, and for the purposes of this subsection the expression "pension" includes any superannuation allowance or gratuity or similar payment.

LORD CHORLEY

This is really a procedural Amendment. As your Lordships see, as the clause stands at present it is possibly qualified by the words Any provision contained in the articles of a company shall be void in so far as it authorizes the making to any director of the company … Obviously, to make it completely comprehensive it would be much better to say: "It shall not be lawful for a company to make …" That is the object of the Amendment. I am sure that it will commend itself to your Lordships and I beg to move.

Amendment moved— Page 24, line 38, leave out from beginning to ("to") in line 39 and insert ("it shall not be lawful for a company to make").—(Lord Chorley.)

On Question, Amendment agreed to.

LORD CHORLEY

The next Amendment is purely drafting. I beg to move.

Amendment moved— Page 24, line 40, leave out the second ("of")—(Lord Chorley.)

On Question, Amendment agreed to.

LORD CHORLEY

The next Amendment is another Amendment of a procedural character. The difficulty arises that when a meeting is held and there is not a quorum, that meeting has to be adjourned. Under the clause as it stands, if a meeting were held and there were no quorum and the meeting were adjourned, later on, alter the adjourned meeting had been held, another meeting would have to be held, and if there were again no quorum and it had again to be adjourned, obviously a great deal of time would be lost. The Amendment has been drafted in order to secure that that state of affairs shall not come about, and I hope it is a satisfactory drafting to attain that purpose. I beg to move.

Amendment moved— Page 25, line 45, leave out from ("If") to ("shall") in line 1 on page 26 and insert ("at a meeting summoned for the purpose of approving any payment as required by the said subsection (4) a quorum is not present and, after the meeting has been adjourned to a later date, a quorum is again not present, the payment").—(Lord Chorley.)

On Question, Amendment agreed to.

LORD CHORLEY moved, after subsection (4), to insert the following new subsection: (5) A director's expenses of distributing any sum among persons entitled thereto by virtue of the said subsection (4) shall be borne by him and not retained out of that sum. The noble Lord said: This is a small Amendment dealing with a director who has been involved in the sale of shares or a business from one company to another without full disclosure to the shareholders so that the shareholders can agree to the business going through and to the compensation being paid to the director who is losing his office as a result of the sale or the amalgamation, as the case may be. In those circumstances the compensation, under the provisions of the main Act, is held in trust by that director for the shareholders, and it has, therefore, to be distributed to them. Obviously, it is only right and proper that the cost of such a distribution should be met by the director whose conduct has led to the necessity for this course of procedure being adopted. As it stands, however, he would be able to deduct the cost of the distribution out of the money itself, and in that way the sum which was available for the shareholders might be very much lessened. The object of the Amendment is to ensure that the cost of the distribution shall be met by the director whose conduct has made it necessary. I beg to move.

Amendment moved— Page 26, line 3, at end insert the new subsection.—(Lord Chorley.)

On Question, Amendment agreed to.

LORD CHORLEY

The next Amendment is really a drafting Amendment. The point is that in the substantive Act Section 150 (3) is linked with Section 150 (4). It deals with the matter with which we have just been discussing, the position of a director who has received compensation which he has to hold in trust for the shareholders. It is necessary, in order to make the matter clear, to bring in subsection (4), as well as subseotion (3), of Section 150. It was inadvertently left out. I beg to move.

Amendment moved— Page 26, line 5, leave out ("subsection (3)") and insert ("subsections (3) and (4)").—(Lord Chorley.)

On Question, Amendment agreed to.

LORD CHORLEY

The next Amendment is purely a drafting Amendment. I beg to move.

Amendment moved— Page 26, line 15, leave out from ("the") to the end of subsection (5) and insert ("subsections apply").—(Lord Chorley.)

On Question, Amendment agreed to.

LORD CHORLEY moved, in subsection (6), after "of," where that word occurs a fourth time, to insert: "damages for breach of contract or by way of."

The noble Lord said: This is a small Amendment but, however, one of some substance. The point is that in the clause as it stands at present the possibility of damages being paid for breach of contract—which might obviously be quite a substantial sum—has been overlooked. It was not intended to include damages for breach of contract in the clause and therefore the Amendment has been inserted to correct that omission. I beg to move.

Amendment moved— Page 26, line 22, at end insert the said words.—(Lord Chorley.)

On Question, Amendment agreed to.

Clause 28, as amended, agreed to.

Clause 29:

Register of directors' shareholdings, etc.

29.—(1) Every company shall keep a register showing as respects each director of the company the following particulars—

1. (a) the number, description and amount of any shares in or debentures of the company or any other body corporate, being the company's subsidiary or holding company, or a subsidiary of the company's holding company, which are held (b) by or in trust for him or of which he has any right to become the holder (whether on payment or not) or of which he can procure the sale;
2. (b) the date of and price or other consideration for every transaction with respect 904 to any shares or debentures on which they fall to be or cease to be recorded in relation to him under the foregoing paragraph, so, however, that where there is an interval between the agreement for any such transaction and the completion thereof, the date shall be that of the agreement.

(2) The said register shall, subject to the provisions of this section, be kept at the company's registered office and shall be open to inspection during business hours (subject to such reasonable restrictions as the company may by its articles or in general meeting impose, so that not less than two hours in each day be allowed for inspection) as follows: (a) during the period of fourteen days immediately preceding the company's annual general meeting (any day which is a Saturday or Sunday or a bank holiday being disregarded in computing the said period), it shall be open to the inspection of any member or holder of debentures of the company; and

(5) If default is made in complying with the last foregoing subsection the company and every officer of the company who is in default shall be liable to a fine not exceeding fifty pounds; and if default is made in complying with subsection (1) of this section, or if any inspection required under this section is refused or any copy required thereunder is not sent within a reasonable time, the company and every officer of the company who is in default shall be liable to a default fine.

LORD LUCAS OF CHILWORTH moved, in subsection (1), after "company," where that word occurs a second time, to insert: and as respects any other officer of the company who by virtue of his position has access to confidential information about the company's affairs. The noble Lord said: The object of this Amendment is to try to implement to the fullest extent what I consider to be the purpose of the Cohen Committee as set out in Section 86 of its Report. In this section the Cohen Committee rightly deprecated the use of financial knowledge for the benefit of directors who had it. It really lays down as a principle that any knowledge obtained by a director in the course of the company's business remains the property of the company and not of the director; therefore, it is immoral for a director to gamble with the shares of his own company on the strength of the prior and confidential information which is his only by virtue of the fact that he is a director. If that is the purpose of this clause, then I submit it is not wide enough to prevent the whole of the abuse, because there are officers of the company who, by virtue of their position as officers of the company, are in possession of that confidential information—for instance, there are the secretary, the chief accountant and maybe, in some cases, the general manager of the company.

VISCOUNT SWINTON

The chairman's typist probably knows as much as anybody.

LORD LUCAS OF CHILWORTH

I quite agree. Perhaps the noble Viscount has had the opportunity of discussing the financial affairs of his companies with officers of that description—I do not know. But she does not possess that information by virtue of her office.

VISCOUNT SWINTON

Indeed she does. If you are dictating confidential memoranda, as I am sure the noble Lord and I constantly do, to the most reputable, excellent and discreet persons, they have that confidential information and they have it by virtue of their office. That is the difficulty of this sort of thing.

LORD LUCAS OF CHILWORTH

I am quite prepared to accept the difficulties, but perhaps private secretaries are not in the position of holding shares in the company. What I want to ask the noble and learned Viscount, the Lord Chancellor, is whether he is satisfied that the clause as drafted is sufficiently comprehensive. I quite appreciate the difficulties of defining principal officers. Perhaps the draftsmen could think of a better definition of the affected persons. Perhaps it would be advisable to put them down specifically by name. But if the noble and learned Viscount is quite satisfied that it is not going to be a leakage which he obviously wants to stop, I do not wish to press the Amendment. I put down this Amendment for the sake of getting some information. I beg to move.

Amendment moved— Page 26, line 28, after ("company") insert the said words.—(Lord Lucas of Chilworth.)

LORD SALTOUN

I wonder if the noble Lord opposite would accept the word "employee," because I know exactly the kind of thing of which he is thinking. There are a very large number of companies in this country of moderate capital, £100,000, £150,000 or £200,000, which have quotations on their local exchanges but the shares of which very seldom go on those exchanges and are bought and sold only through the solicitors or through the officers of the company. Very often they are prosperous companies and the Stock Exchange quotation is purely nominal. Shareholders do not necessarily know the value of the shares but the employees of the company, one and all, generally have shares in the company. They know when a lot of raw material is coming in, they know the company is prospering and they buy shares. It is perfectly right that employees should have an interest in the company and take shares in it. I do not mind directors taking shares and I do not see why they should not be included.

THE LORD CHANCELLOR

I have considered the Amendment as drafted, and frankly what I feel about it is this. Here you are calling upon the company to keep a register and you are going to fine them if they do not. You must be able to say with some degree of certainty who and what is to be in the register. It seems that it is quite impossible to say who would or who would not be covered by "any other officer of the company who by virtue of his position has access to confidential information." If I were a secretary of a company in charge of the register I should be completely worried as to whom I was to include under this clause. I simply would not know. On the other hand, if I was a director of a company and I knew that the employees were speculating in the shares of the company, dodging in and out, and so on, personally (I do not know if I am old-fashioned), I would dismiss them at once. I suspect that is certainly the view of directors in the City of London and elsewhere.

Probably you will find that if such transactions are generally done by some surreptitious means—by using some other name. Even if you passed this Amendment, I am doubtful whether it would serve any useful purpose. I strongly suspect employees to-day would not do this in their own name. The matter would come up before their own boards and they would be rapped over the knuckles, so I suspect that where they are doing it they are doing it in some other name. So far as the Amendment is concerned, the noble Lord will not think I am not sympathetic; I am. It would be a useful thing to do, but I cannot myself accept obligations with regard to a lot of people whose number and extent I cannot in any case predicate. Therefore I am sorry I cannot accept the Amendment.

LORD LUCAS OF CHILWORTH

In view of what the noble and learned Viscount, the Lord Chancellor, has said, I beg leave to withdraw my Amendment.

Amendment, by leave, withdrawn.

THE LORD CHANCELLOR

The next is a drafting Amendment.

Amendment moved— Page 26, line 28, leave out ("the following particulars").

On Question, Amendment agreed to.

THE LORD CHANCELLOR moved, in subsection (1) (a), to leave out "or of which he can procure the sale." The noble and learned Viscount said: The object of the clause is to require the director to disclose his private holding of shares in the company or subsidiary companies, but it is pointed out to me that these words might require him to disclose all shares in a subsidiary company of which he, in his official capacity as director, could procure the sale. That we do not intend, so I propose to leave out these words.

Amendment moved— Page 26, leave out line 35.—(The Lord Chancellor.)

On Question, Amendment agreed to.

LORD RENNELL moved, at the end of subsection (1) (a), to insert: excepting shares or debentures of which the director is owner only as personal representative of some other person or as trustee of any trust. The noble Lord said: This Amendment is consonant with the objects of the clause. It is clear, and I think everyone will be in agreement with what it proposes. It provides that every company shall keep a register showing the number, description and amount of any shares or debentures of the company, or the company's subsidiary or holding company, or a subsidiary of the company's holding company, which are held by or in trust for a director, or of which he has any right to become the holder or of which he can procure the sale. We do not wish to oblige him to enter particulars of any transaction into which he has entered by virtue of the fact that he is a trustee or is holding shares on behalf of a third party as personal representative. I beg to move.

Amendment moved— Page 26, line 35, at end, insert the said words.—(Lord Rennell.)

VISCOUNT MAUGHAM

I beg to support this Amendment. It does not need any explanation. I think it is obviously right.

THE LORD CHANCELLOR

There is good force in the argument, and I propose to deal with it in this way. If on the Report stage I make it clear that directors who are merely concerned as trustees or in some fiduciary capacity, such as this, should be able to have words to that effect put against their names in the register, so that it is plain that whatever they are doing is as trustees or personal representatives or something of that sort, I should think it would meet the point.

LORD RENNELL

Would that mean in the ordinary register or the special register?

THE LORD CHANCELLOR

I mean the special register. You have to have it in the register because, after all, it is just as bad to use your knowledge for your friends and relations as for yourself. Such transactions should come in but their nature should be made plain where the director is not dealing with his own shares. He might be called upon to sell shares for which he is the trustee because a young man is going too fast and has to raise some money, and it would be quite unfair that anyone should be able to draw the inference that the director was operating in the shares of the company. Therefore against the entry should be the word "Trustee" or some words to that effect. If the Amendment is not pressed, I will see that this situation is met and the capacity in which a director deals with shares will be set out.

LORD RENNELL

That very substantially meets my point. I must concede to the noble and learned Viscount some necessity for including a transaction of that sort in any register because it would be a way of concealing what the clause was intended to disclose. I beg leave to withdraw my Amendment.

Amendment, by leave, withdrawn.

THE LORD CHANCELLOR moved to leave out from the start of subsection (1) (b) to the first "that" and insert: (2) Where any shares or debentures fall to be or cease to be recorded in the said register in relation to any director by reason of a transaction entered into by him after the coming into force of this section and while he is a director, the register shall also show the date of, and price or other consideration for, the transaction: Provided The noble and learned Viscount said: I am proposing to leave out lines 36 to 39, to make it plain that these words relate only to transactions entered into after the provision comes into force. It gives effect to what is proposed by the noble Lord, Lord Hawke. I hope the words set out by the parliamentary draftsmen are satisfactory. I beg to move.

Amendment moved— Page 26, leave out lines 36 to 39 and insert the said new words.—(The Lord Chancellor.)

On Question, Amendment agreed to.

LORD RENNELL moved, in subsection (2) (a), after "preceding," to insert: "and three days immediately succeeding." The noble Lord said: The intention of this clause is that the special register to which reference has been made, should be open to inspection by shareholders once a year, or for any one period during the year, and, as provided, it may be open for a fortnight before the annual general meeting. It appears that if the object of the clause is agreed, as I think it generally is by all of us, the purpose is not entirely met by the special register being open for inspection only fourteen days before the annual general meeting. Matters might happen in the course of the annual general meeting which might lead certain directors to take the opportunity to effect transactions in the shares of their companies immediately the annual general meeting comes to an end—a fact which would not come to light, under the present wording of the subsection, until fifty weeks later—that is, until about a year later. I am therefore moving that the words: "and three days immediately succeeding" be inserted, so that the register may be open to inspection and it may be seen what the nefarious directors have done immediately after the general meeting as well as in the year before. I beg to move.

Amendment moved— Page 27, line 4, at end, insert ("and three days immediately succeeding").—(Lord Rennell.)

THE LORD CHANCELLOR

In principle, I accept this Amendment, but the language is not quite satisfactory, because an annual general meeting might be adjourned. It is necessary, therefore, to have words to indicate that it means three days after the adjourned meeting. If the noble Lord will not press his Amendment now, I will have suitable words drafted between now and the Report stage to give effect to his intention.

LORD RENNELL

I thank the noble and learned Viscount for his assurance. I think there is a certain utility about this suggestion, and I should like to see suitable words incorporated. I now beg leave to withdraw my Amendment.

Amendment, by leave, withdrawn.

6.22 p.m.

LORD LUCAS OF CHILWORTH moved, in subsection (5), to leave out "default fine" and insert, "fine not exceeding five hundred pounds and further to a default fine of two pounds." The noble Lord said: I view Clause 29 as being one of the most important clauses in this Bill. It may be of even greater importance if your Lordships take a certain course with reference to Clause 57, which deals with nominee shareholdings. In view of that, I do not think that this subsection, as at present drafted and providing, as it does, for a default fine and nothing else, is sufficient. In an attempt somehow to make the punishment fit the crime I have put down this Amendment. I do not think that it needs any further explanation, and I beg to move.

Amendment moved— Page 27, line 27, leave out ("default fine") and insert ("fine not exceeding five hundred pounds and further to a default fine of two pounds").—(Lord Lucas of Chilworth.)

THE LORD CHANCELLOR

I agree with the noble Lord here, and I agree with the grounds upon which he is moving his Amendment. I do not know whether it is convenient to say now what I am proposing, but I think that it is, as it arises on what the noble Lord has just said. I have gone very carefully into this question of the clauses dealing with nominee shareholdings. Clauses 57 to 62, and I am bound to say, having worried myself about them a great deal, that I have come to the conclusion that they would impose a very great burden on those entrusted with the management of companies, and that they could probably be very easily evaded notwithstanding that burden. I have come to that conclusion very reluctantly but I have come to it. That being so, when we get to those clauses, if I feel then as I feel now (I admit that my mind has fluctuated about this) I shall ask your Lordships to drop the clauses. I shall accept an Amendment to leave them out.

I do feel, with regard to this clause, and Clause 38, relating to powers of inspection, that so far as those powers are concerned I must tighten those clauses up. Your Lordships, therefore, must not be surprised if, between now and the Report stage, there appear Amendments designed to tighten up, in particular, Clause 38, with reference to the powers of inspection by the Board of Trade. The Amendments will be designed to make the powers more drastic and absolute. Otherwise, in view, very largely, of the acute manpower position, it seems to me that it is unwise to select this moment to impose this duty to which we have been referring upon companies, although I confess I wish that the registers of companies did reveal to any one who looked at them and read them, who their co-operators and collaborators were. However, that is by the way. So far as this Amendment goes, I think it is good. I think it should be accepted. I also consider that it should be realized that a breach of this provision is a serious matter and it should be capable, if a Judge thinks fit, of being punished by the imposition of a fine of this magnitude. Accordingly, I am happy to accept this Amendment.

On Question, Amendment agreed to.

Clause 29, as amended, agreed to.

Clause 30:

Particulars in accounts of directors' salaries, pensions, etc.

(2) The amount to be shown under paragraph (a) of subsection (1) of this section—

1. (a) shall include any emoluments paid to or receivable by any person in respect of his services as director of the company or in respect of his services, while director of the company, as director of any subsidiary thereof or otherwise in connection with the management of the affairs of the company or any subsidiary thereof; and
2. (b)shall distinguish between emoluments in respect of services as director, whether of the company or its subsidiary, and other emoluments;

and for the purposes of this section the expression "emoluments", in relation to a director, includes fees and percentages, any sums paid by way of expenses, allowance in so far as those sums are charged to United Kingdom income tax, any contribution, premium or similar sum paid in respect of him under any pension scheme and the estimated money value of any other benefits received by him otherwise than in cash.

(3) The amount to be shown under paragraph (6) of the said subsection (1)—

1. (a) shall not include any pension paid or receivable under a pension scheme, but save as aforesaid shall include any pension paid or receivable in respect of any such services of a director or past director of the company as are mentioned in the last foregoing subsection, whether to or by him or, on his nomination or by virtue of dependence on or other connexion with him, to or by any other person; and
2. (b) shall distinguish between pensions in respect of services as director, whether of the company or its subsidiary, and other pensions;

and for the purposes of this section the expression "pension" includes any superannuation allowance or gratuity or similar payment, and the expression "pension scheme" means a scheme for the provision of pensions in respect of services as director or otherwise but for the purposes of this subsection does not include any such scheme under which a substantial part of the funds necessary for the purposes thereof is provided by the company or its subsidiary otherwise than by payment of contributions, premiums or similar sums in respect of the persons rendering the services.

(5) The amounts to be shown under each paragraph of the said subsection (1)— (a) shall include all relevant sums paid by or receivable from—

1. (i) the company; and
2. (ii) the company's subsidiaries;
3. (iii) and any other person;

except sums to be accounted for to the company or any of its subsidiaries, or by virtue of Section one hundred and fifty of the principal Act to past or present members of the company or any of its subsidiaries or any class of those members; and

(8) If in the case of any accounts the requirements of this section are not complied with, it shall be the duty of the auditors of the company by whom the accounts are examined to include in their report thereon, so far as they are reasonably able to do so, a statement giving the required particulars, and where any payment is apportioned under the last foregoing subsection the auditors shall state in their report whether they consider the apportionment appropriate.

LORD HAWKE moved, in subsection (2), to leave out from "allowance" to "any," where that word next occurs. The noble Lord said: This Amendment and my next Amendment, which follows one of the Lord Chancellor's, deal with the same matter. This is a clause which provides for shareholders to become acquainted with the income which their directors derive from a company. As it stands, the clause provides that their fees have to be shown in full and that their expenses allowances have to be shown to the extent that the Inland Revenue Authorities consider those allowances to be part of the personal income of the director and assess him on it. When the clause deals with benefits in kind, however, there seems to be some slip in the drafting, and there is no such tax proviso inserted to qualify those.

If the clause goes through as it stands it seems to me that a perfectly impossible administrative position would arise, because the company would have the onus of valuing all sorts of large and small, tangible and intangible, benefits derived by the directors from the company. We should have a situation in which a typist would have to keep a time-sheet to show how many hours she spent on the chairman's private letters, and an office boy would have to charge up the time which he spent fetching packets of cigarettes and so on. It seems to me that in dealing with any form of benefit of this kind you must have a yardstick, and that the tax yardstick is the only appropriate one. I beg to move.

Amendment moved— Page 28, line 23, leave out from ("allowance") to ("any") in line 24.—(Lord Hawke.)

THE LORD CHANCELLOR

This clause, as the noble Lord knows, has given me a great deal of worry. I think that this is a very difficult point. As drafted, we have got it in this way: The expression 'emolument' … includes: fees and percentages, any sums paid by way of expenses allowance in so far as those sums are charged to United Kingdom income tax,"— your Lordships will notice that the word is: "charged" not "chargeable"— any contribution, premium or similar sum paid in respect of him under any pension scheme and the estimated money value of any other benefits received by him otherwise than in cash, The position, as I see it, is that, under the existing law, this is dealt with under Section 128 of the Companies Act. Section 128 (1) (c) provides that you are to disclose—that is to lay before a company in a general meeting—particulars showing: The total of the amount paid to the directors as remuneration for their services,"— remember those words "as remuneration for their services"— inclusive of all fees, percentages, or other emoluments. With regard to the word "inclusive," generally in law when you use that word, you are going to include something which otherwise would not be included. You are having a rather artificial and extended meaning. The word "emoluments" is defined in subsection (5). You will notice that: the expression 'emoluments' includes fees, percentages and other payments made or consideration given, directly or indirectly, to a director as such, and the money value of any allowances or perquisites belonging to his office. Subject to the perfectly good principle of de minimis non curat lex, I have no doubt that the lunch which is commonly provided for a board meeting is an allowance or a perquisite and ought to be included in the return. It is an emolument, and the existing law requires that these emoluments should be disclosed.

I come to another matter of which I am sure your Lordships all know. There has grown a habit recently of remunerating directors by giving them a suite of rooms at a fashionable hotel at which they can entertain on behalf of the company. But they can also entertain on their own behalf, and they frequently live there. You all know of cases of this occurring, and, in practice, these directors are not returning these allowances for income tax. But the expense of this entertainment is borne by the company. That is the position to-day, and it has become rather notorious. These were the circumstances on which the Cohen Committee reported. Their Report which deals with this matter, however, does not suggest any reduction in the rigour of the word "emoluments." That is to say, they are going to keep the word "emoluments" just as it is, for they retain certain words which are precisely the words we have here, and they have not done anything to mitigate the necessity to disclose emoluments.

Frankly, I do not think it is proper for us at the present time to weaken the existing requirements. I do not think we can, and we have no suggestion from the Cohen Committee that we should. We all know, or we have all heard, that there has been some abuse of these provisions in recent years, and I think if we were to say that in these circumstances we will not now, for the first time, take the opportunity of getting this put right, we should make a great mistake. Therefore, with regard to the first part "fees and percentages, and any sums paid by way of expenses allowances" we should put in the words "in so far as those sums are charged to United Kingdom Income Tax." I should dearly have liked the word "chargeable," but I quite agree that is so uncertain that it is quite impracticable. But it does annoy me to think, if these things are not declared, and are therefore not charged, that they need not be disclosed. With regard to "the estimated money value of any other benefits received by him otherwise than in cash," I shall ask your Lordships to stick to these words and do nothing to weaken the necessity for a complete declaration.

6.34 p.m.

VISCOUNT SWINTON

I think it is an extremely difficult matter, and I share some of the blame. Twenty years ago I was responsible for the clause to which the Lord Chancellor is now asking us to agree. I do not know whether I have any business to say what our intentions were at the time—certainly that would not be relevant in a court of law—but I have no doubt at all that what the Greene Committee intended, and what we intended when we passed this Act, was remuneration. In practice, I do not believe that accountants of the highest repute have been able to administer this in any other way than by putting in these things which are charged to Income Tax, and leaving out the others. I do not believe they could have carried this out in any other way, and I do not know what the position will be. The law will stay as it is, because I agree with the noble and learned Viscount, the Lord Chancellor; he is exactly reproducing the words of the Act which I piloted twenty years ago.

I presume that accountants will continue to apply the only practical test which, over twenty years, with the vast experience of the Institute of Accountants behind them, they have found is the only practical course for them to follow. I should have thought that if we are now amending this Act, and trying to give the commercial world not only a right code but an intelligible and practicable code, we ought to try and make this intelligible and practicable. If the noble and learned Viscount, the Lord Chancellor, sends his messenger to get him some cigarettes, or I send an office boy to get me a glass of beer—I ask your Lordships to note the aesthetic distinction between the two ways we use our messengers—that will not go down in the vote of the Lord Chancellor's office as a separate item, nor will it appear in the accounts of my company. That is all right for de minimus. I quite agree that directors should not receive large perquisites which are not disclosed, but we have to consider what is practicable and not what is moral.

If a director receives a salary and an expenses allowance the very common and right and proper procedure of the Inland Revenue is to assess what is a reasonable amount for the director to have as expenses. If the company have given him more by way of expenses than is reasonable then he is made subject to Income Tax. If payments are being made, not to expenses but in some other way, which are excessive and unreasonable, and which ought to be chargeable or charged to Income Tax, then surely the right course to adopt is to amend the Income Tax law, and make these things subject to tax. Then the auditors of the company can perfectly easily work this, and bring in, as an ascertained emolument, whatever is subject to tax. I should have thought that that was the right way of doing it.

If you do not do it that way you are leaving the auditors in a dilemma. The words of the Act are left, and deliberately left, exactly as they were in the preceding Act. Auditors will continue to carry out the practice which they have carried out for twenty years, and honestly, I do not see how they can carry out any other practice. We shall be leaving ill or well alone—whichever is the right way of putting it—and we shall just be where we were twenty years ago. I should have thought that it would be better and more reasonable to take my noble friend's Amendment.

THE LORD CHANCELLOR

All I would say is this: I have felt very great difficulty about this law. There is no doubt, so far as the Income Tax law is concerned, that these things are all subject to Income Tax to-day and are chargeable. I will look at this again and discuss it with my accountant advisors between now and Report. I do not hold out any promise that I am going to alter my present state of mind, but I am quite willing to look into it again. If I can do anything, I will.

LORD HAWKE

I thank the noble and learned Viscount for his assurance. When he is turning the matter over in his mind, I would ask him to remember that we are legislating for a tremendous number of people and that we want to make the law such that they can really understand it. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

THE LORD CHANCELLOR

This is a drafting Amendment. I beg to move.

Amendment moved— Page 28, line 25, leave out ("premium or similar sum").—(The Lord Chancellor.)

On Question, Amendment agreed to.

LORD CHORLEY moved, in subsection (3) (a), after "scheme" to insert "if the scheme is such that the contributions there under are substantially adequate for the maintenance of the scheme." The noble Lord said: This Amendment is intended to clarify the position. As your Lordships see, under the clause as it stands, among the particulars which have to be given in the accounts is the aggregate amount of directors' or past directors' pensions, but in subsection (3) (a) there are excepted amounts paid under pensions schemes. The object of the Amendment is to make it clear that this exception applies only to what may be called really genuine pensions schemes and not schemes of a kind which could be used as camouflage to enable larger amounts to be paid to the directors.

Therefore, we propose to insert the words "if the scheme is such that the contributions there under are substantially adequate; for the maintenance of the scheme." Contributions which a company makes in respect of a director have, of course, to be disclosed as remuneration of the director at the time they are made. Where the contributions made by the company to the pensions fund established for the purpose of carrying through a pensions scheme were in fact less than what was actuarially sound, the company would, of course, be in effect supplementing the pension paid to the director. It is in order to escape that position that we wish to have this clause clarified, and to that end I move this Amendment. In a case where the amount is not actuarially adequate, the amounts paid as pension will have to be shown because they will come not under the exception but under the subsection, to which I referred at the beginning of my remarks. I am sure this Amendment will commend itself to your Lordships, and I beg to move.

Amendment moved— Page 28, line 31, after ("scheme") insert the said new words.—(Lord Chorley.)

On Question, Amendment agreed to.

LORD CHORLEY moved, in subsection (3), to leave out from "otherwise", where that word first occurs, to the end of the subsection and insert: which is maintained in whole or in part by means of contributions, and the expression 'contribution' in relation to a pension scheme means any payment (including an insurance premium) paid for the purposes of the scheme by or in respect of persons rendering services in respect of which pensions will or may become payable under the scheme, except that it does not include any payment in respect of two or more persons if the amount paid in respect of each of them is not ascertainable. The noble Lord said: This Amendment is intended to correct and clarify the definition of the pension scheme which is given in subsection (3) of the clause. I do not think it is necessary to read it all out. I hope the effect is to correct and clarify the definition. Possibly I ought to draw your Lordships' attention to the final words: except that it does not include any payment in respect of two or more persons if the amount paid in respect of each of them is not ascertainable. This part is intended to deal with the specific case where the: contributions cannot be separated out, and the additional remuneration of the directors therefore would not be distinguishable. In such a case as that, the pensions themselves would, of course, have to be shown. I beg to move.

Amendment moved— Page 28, line 45, leave out from ("otherwise") to the end of subsection (3), and insert the said new words.—(Lord Chorley.)

On Question, Amendment agreed to.

VISCOUNT BRIDGEMAN moved, in subsection (5) (a), to leave out subparagraph (iii). The noble Viscount said: I beg to move the Amendment standing in the name of the noble Lord, Lord Rennell. If your Lordships will look at page 28, at the top, you will see that the directors' emoluments have to be shown in the accounts of the company concerned. At first sight, it does not appear that payments paid by or receivable from any other person can properly be shown in the accounts of the company to which the director belongs. It is perfectly clear that sums from the company, and the company's subsidiaries can be so shown but I do suggest that a little more explanation is necessary as the whole sums receivable from any other person cannot be shown in the accounts of the company in question. I therefore beg to move.

Amendment moved— Page 29, line 29, leave out sub-paragraph (iii).—(Viscount Bridgeman.)

LORD CHORLEY

I hope to be able to persuade the noble Viscount who has just moved this Amendment that it is unnecessary. In the first instance I would draw his attention to the fact that it is only relevant sums which have to be included, and a certain amount of apprehension which has been expressed as to whether all sorts of sums coming in from other sources might not be drawn into the net, is therefore unjustified. Accepting that only relevant sums have to be accounted for, we come to this: not only-are sums from the company and the company's subsidiaries relevant, but in certain cases sums coming from other sources may also be relevant. This matter was discussed very carefully and fully by the Cohen Committee, and if your Lordships will look at the Report you will find it is dealt with on page 62 in 3 paragraphs—(XV), (XVI), (XVII). Paragraph (XVI) expressly requires to be shown the amount paid by way of compensation for the loss of office, sub-divided to show the amount paid respectively by the company, by its subsidiaries and by any other person.

In this instance, the "other person" contemplated is primarily a holding company, which on acquiring its interest in the company in question displaced the existing board of directors. Paragraphs (XV) and (XVII) of the Cohen Report do not expressly refer to persons other than the company and its subsidiaries, but it is not unlikely that a director may receive other emoluments or perhaps a pension from some other person. The emoluments in question cover fees and percentages and emoluments in offices other than as a director. It is quite possible, and it may happen from time to time, that the director may receive payments in the nature of commissions from persons with whom he enters into business dealings on behalf to his company. It may be in some cases that such emoluments ought not to be received, but in other cases they are perfectly legitimate and are sanctioned, and, therefore, they certainly ought to appear.

There is also the case of pensions. Very often a pensions fund is established, and the fund itself is vested in trustees and the trustees make the payment. Or, again, it may be that the company arranges to pay a premium to an insurance company which undertakes the burden of paying the pension. There again the amount will be coming in from another person. I am sure the noble Lord will see that the draftsman has quite correctly acquainted himself with the position and has provided appropriate words for bringing in these amounts.

LORD SALTOUN

The difficulty I have is with the second "payments in the accounts of the company." If the company has any knowledge of these sums it may possibly bring them into these accounts, or pass them out again, or it may put them in the next statement. But take the case of the wicked director. If he does not disclose them to the company it cannot possibly know, and this duty is laid on to the company in regard to its accounts. It ought to form a separate clause of the bill.

LORD CHORLEY

If you are dealing with the wicked director, it may be that you cannot get at him, but we are here dealing with the case where the amounts are properly paid. The instances which I gave of the pensions and commissions, which it is agreed by his board that the director should be allowed to receive, are obvious instances which are within the ambit of the clause. It may not be possible to stop up all the gaps and loopholes, but I do suggest that, so far as we can, we should do so, and the clause as at present appearing in the Bill is appropriately worded to that effect.

LORD SALTOUN

My point really—and perhaps the noble Lord will consider it—was that the duty is laid on the company and not on the director.

LORD CHORLEY

I will certainly look into that.

VISCOUNT BRIDGEMAN

I am obliged to the noble Lord for the clear explanation which he has given. It is quite plain that whatever is put into the Bill it will not prevent some dishonest directors from evading its intention. The noble Lord opposite has made the matter as plain as he can. The intention is perfectly clear, and therefore I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

LORD CHORLEY

The next Amendment is a drafting Amendment simply to exempt the auditors from having to undertake the duty which the clause as at present drafted puts upon them. Upon reflection it is considered that this duty ought not to be imposed upon them, and therefore we move this Amendment to exempt them from it. I beg to move.

Amendment moved— Page 30, line 26, leave out from ("particulars") to end of subsection (8).—(Lord Chorley.)

On Question, Amendment agreed to.

LORD BALFOUR OF BURLEIGH

Before we leave Clause 30, I would like to raise a point about which I am not absolutely happy. I have not an Amendment down, but in view of the fact that amounts of fees paid to directors of subsidiaries, and also companies of which they are nominees, have to be included, is there not some danger that these amounts may become swollen and consequently un-informative? I would be obliged if the noble and learned Viscount would look into that matter if it has not already been considered. I have a feeling that we are here attempting to something that was done in the nominee clauses.

THE LORD CHANCELLOR

I will certainly have that looked into.

VISCOUNT SWINTON

I do not want to prolong this discussion more than is necessary, but this point arises on the consideration of the clause as it stands. I have not considered in detail whether it goes into the question of bringing in the expenses in some form—by that I mean legitimate expenses. If that were the case, it would be very serious. I should have thought—and I did so think when I was out of one kind of office into another—that I earned my fees much more when I was abroad. It cost the company quite a lot of money. It would be fantastic if what I had spent in travelling and getting quite a lot of business for my company was to be shown as some reward for my services. Quite obviously that is not so. It would be a great pity if anything were put in here which tended, as the noble Lord, Lord Balfour of Burleigh said, to give swollen figures, and deterred companies from putting the best of their executives, who rightly receive very high-salaries, on to the board. The first class executive cannot really be paid too much. I like to see those people on the board and I like the bulk of them to be whole time executives, with one or two people who can give general knowledge. I am sure the noble Lord, who has spoken so interestingly in this debate, would agree that it would be a pity if, for fear of showing some figures of this kind, a board were deterred from putting two or three of its best and high salaried executives on to the board. Those are the sort of things which I think we have to bear in mind.

LORD LUCAS OF CHILWORTH

May I say how much I agree with the noble Viscount who has just spoken? It is that class of director that we should do everything we can to attract to the board.

Clause 30, as amended, agreed to.

House adjourned at seven o'clock.