COMPANIES BILL. [H.L.]

HL Deb 27 February 1947 vol 145 cc1075-132

House again in Committee (according to Order):

[The LORD STANMORE in the Chair.]

Clause 32:

Information as to compromises with creditors and members.

32.—(1) Where a meeting of creditors or any class of creditors or of members or any class of members is summoned under Section one hundred and fifty-three of the principal Act for the purpose of agreeing to a compromise or arrangement, there shall— (a) with every notice summoning the meeting which is sent to a creditor or Member, be sent also a statement explaining the effect of the compromise or arrangement and in particular the manner in which the interests of the directors of the company, whether as directors or as members or as creditors of the company or otherwise, will be directly or indirectly affected by the compromise or arrangement; and

4.20 p.m.

LORD CHORLEY

The first two Amendments are two drafting Amendments. It has been suggested that, as drafted, the clause is possibly a little obscure, and that its scope is wider than is necessary. The two Amendments we propose have been drafted in order to clarify the clause and to narrow somewhat its scope. I hope and think that they succeed in so doing, and that your Lordships will agree with me and accept these Amendments.

Amendment moved— Page 31, line 35, leave out ("the manner in which the") and insert ("stating any material").—(Lord Chorley.)

On Question, Amendment agreed to.

Amendment moved— Page 31, line 38, leave out from beginning to ("and") in line 39 and insert ("and the effect thereon of the compromise or arrangement, in so far as it is different from the effect on the like interests of other persons").—(Lord Chorley.)

On Question, Amendment agreed to.

Clause 32, as amended, agreed to.

Clause 33:

General duty to make disclosure.

33.—(1) It shall be the duty of any person who is or has been a director of a company to give notice to the directors of such matters relating to himself as may be necessary for the purposes of the four last foregoing sections.

The MARQUESS OF READING moved, in subsection (1), after "been" to insert: "at any time during the preceding ten years." The noble Marquess said: This clause puts upon the director the duty to disclose various particulars in regard to his association with companies, and these particulars are set out in four previous clauses. As Clause 33 now stands, it would extend to any period, however remote in the past, and might mean a very great deal of research which, in its turn, might prove entirely abortive because of the space of time intervening between the actual happenings and the date on which the director is called upon to disclose them. In these circumstances, what is really required is a definite and reasonable time, and I suggest that ten years would put a reasonable limitation on the duty of a director.

VISCOUNT MAUGHAM

Some limit of time should be put in. Whether it be ten years or not is largely a matter of opinion, and perhaps the opinion of the Government would have more sway than anything I say or the noble Marquess say's. But there ought to be a limit.

LORD CHORLEY

We are obliged to the noble Marquess for pointing out this matter. I am not sure that the period of ten years is the right one, but I agree that: there should be some sort of limitation. It is obviously necessary, of course, that there should be obligations of this kind, because it may well be that during the period a director will cease to be a director and obviously he must be brought in: but that the obligation should last indefinitely is quite another matter. If the noble Marquess will withdraw his Amendment, I will give the assurance that I will put down one dealing with this matter on the Report stage.

LORD BALFOUR OF INCHRYE

When you say that ten years may or may not be correct, are you suggesting that ten years is too short or too long? Because if a director of sixty-nine feels that he cannot continue any longer, by the time he is seventy-nine it may be that his memory will not be as acute as it was at sixty-nine.

LORD CHORLEY

My own impression is that it is rather too long. That is the basis on which we want to consider it.

THE MARQUESS OF READING

I am glad the noble Lord, Lord Balfour, has elicited the information that it is minus rather than plus. But on the understanding that there will be a proposal on the Report stage in terms of a period of less than ten years, I am prepared to withdraw my Amendment.

Amendment, by leave, withdrawn.

Clause 33 agreed to.

Clause 34:

Inspection of company's affairs on application of members.

34.—(1) The powers of the Board of Trade under Section one hundred and thirty-five of the principal Act in relation to the appointment, on the application of members of a company, of inspectors to investigate the company's affairs shall in the case of an application made after the coming into force of this section be exercisable—

(3) In the said Section one hundred and thirty-five— (b) the expression "agents" in relation to a company shall include the bankers and solicitors of the company and any persons employed by the company as auditors, whether those persons are or are not officers of the company, so, however, that a solicitor acting for the company in connexion with the investigation shall not be required to disclose without the company's consent any matters which first came to his knowledge after he was first instructed in connexion with the investigation or with the proposal to appoint an inspector.

(4) If an inspector appointed under the said Section one hundred and thirty-five thinks it necessary for the purpose of his investigation that a person whom he has no power to examine on oath should be so examined, he may apply to the court and the court may if it sees fit order that person to attend and be examined on oath before it on any matter relevant to the investigation, and on any such examination—

1. (a) the inspector may take part therein either personally or by solicitor or counsel;
2. (b) the court may put such questions to the person examined as the court thinks fit;
3. (c) the person examined shall answer all such questions as the court may put or allow to be put to him, but may at his own cost employ a solicitor with or without counsel, who shall be at liberty to put to him such questions as the court may deem just for the purpose of enabling him to explain or qualify any answers given by him;

THE LORD CHANCELLOR

I put down the next Amendment because I am proposing, by an Amendment which comes in after Clause 38, to insert a new clause. The new clause deals with the position of a solicitor in regard to privileged communications. I do not know whether the words of my Amendment are in all respects the best that can be adopted; I have a perfectly open mind about the words to be used on this point. At the present moment my intention is to omit words, the object being to write in words afterwards. I have done it to met, so far as I can, an Amendment which obviously must be met which is down in the name of the noble and learned Viscount, Lord Maugham.

Amendment moved— Page 34, line 2, leave out from ("company") to the end of line 7.—(The Lord Chancellor.)

On Question, Amendment agreed to.

VISCOUNT MAUGHAM

Having regard to the Amendment which the noble and learned Viscount, the Lord Chancellor, has put down on Clause 38, which goes a long way to meet the next Amendment in my name, I am not sure that it would be wise for me to move at present—on the understanding that if I cannot get something, which I hope to get, in the Amendment of the noble and learned Viscount, the Lord Chancellor, I can put it down again on the Report stage. I do not think that that will be necessary, and therefore for the present, on the understanding that I am not giving away all rights, I will not move my Amendment.

LORD BALFOUR OF INCHRYE moved, in subsection (4) (c), to leave out "at his own cost." The noble Lord said: This clause deals with the inspection of the affairs of a company and this particular subsection gives an inspector power to apply to a Court and to obtain an order stating that certain persons must attend for examination and that they can be investigated upon oath. A person so summoned will naturally wish to employ a solicitor or counsel, and it may transpire as a result of the investigation that the director—he probably is a director—in fact is entirely blameless, or even that his behaviour may have been most praiseworthy. Therefore, we do not understand why it should be necessary to saddle him with the cost of employing a solicitor or counsel. My Amendment suggests that the Court should direct as to who should pay the costs. Naturally we assume that the Court will exercise discretion in the proper manner, and that the person who is blameless will escape costs, while if he is guilty he will naturally have to face them. I beg to move.

Amendment moved— Page 34, line 21, leave out ("at his own cost.")—(Lord Balfour of Inchrye.)

THE LORD CHANCELLOR

Whilst not liking the words which the noble Lord has used in the Amendment, I will, between now and the Report stage, consider this matter, in order to see whether I cannot do what the noble Lord wishes. My present impression is that if we had some general words, such as: "and the costs shall be borne in such manner as the Court may direct," that would meet the point. The actual words which the noble Lord has employed are not suitable, for there might well be a case of a company not being a party to proceedings. In substance, I think that the noble Lord can rely on getting what he wants.

LORD BALFOUR OF INCHRYE

I thank the noble and learned Viscount, and on that assurance I withdraw my Amendment.

Amendment, by leave, withdrawn.

Clause 34, as amended, agreed to.

Clause 35 agreed to.

Clause 36 [Proceedings on inspector's report]:

THE MARQUESS OF READING had given notice to move at the end of subsection (2), to insert: and for the purposes of this subsection it shall not be regarded as in the public interest that any person responsible for any such fraud, misfeasance, or other misconduct, shall not be proceeded against unless the Board of Trade shall, after considering the matter, decide that such proceedings are not likely to result in any conviction.

The noble Marquess said: The intention of this Amendment was that it should make it obligatory for the Board of Trade to take proceedings and that it should not merely be left to their discretion, even though the company concerned might be a very small one and they might, at first sight, think it not worth while to take proceedings. In connexion with this Amendment the wisdom of the practice of the Bar, in that if you are a leader you have a junior, has been demonstrated because, not for the first time in my experience, my junior has now pointed out to me that I am wrong in law. In these circumstances I do not propose to proceed with the Amendment.

Clause 36 agreed to.

Clause 37:

Expenses of inspection of company's affairs.

37.—(1) The expenses of and incidental to an investigation by an inspector appointed by the Board of Trade under the principal Act or under the last but one foregoing section shall be defrayed in the first instance by the Board of Trade, but the following persons shall, to the extent mentioned, be liable to repay the Board: (c) unless as a result of the investigation a prosecution is instituted by the Director of Public Prosecutions or by or on behalf of the Lord Advocate— (i) any body corporate dealt with by the report, Where the inspector was appointed otherwise than of the Board's own motion, shall be liable, except so far as the Board otherwise direct; and

THE MARQUESS OF READING moved, in subsection (1) (c) (i), after "corporate" to insert "adversely."

The noble Marquess said: This is a small Amendment to Clause 37, which deals with the question of expenses of inspection of a company's affairs. The whole purpose of it is to insert in line 22, after "corporate" the word "adversely." It did not seem to us right that a company against which nothing could be said in any way should be penalized to the extent of having to bear the expenses of an investigation. Therefore, the Amendment suggests that it is only in a case, where a company is adversely reflected upon that the subsection should be operative. I beg to move.

Amendment moved— Page 37, line 22, after ("corporate") insert ("adversely.").—(The Marquess of Reading.)

LORD CHORLEY

I have some sympathy with the point of view which has been put before your Lordships by the noble Marquess, but there are difficulties which, on the whole, make it desirable that this Amendment should not be accepted. In the first place, the provision follows a similar section dealing with the same sort of matter in the existing Act, Section 136 (3) (b), whereby the Board of Trade are given a discretion of this kind. Moreover, if the Amendment were accepted it would place the Board in the rather invidious position of having to decide whether a company had or had not been adversely dealt with in the Report of the inspector which, no doubt, would be a matter of difficulty. I am not suggesting that questions of libel would, in fact, come up, but they do arise in matters of this sort. If the matter is left as it is under the 1929 Act—and no difficulties have arisen in this connexion under that Act—it can be quite confidently felt that the Board of Trade will deal with cases in a proper and sympathetic manner. I do not feel that there is any real need for the Amendment proposed, and I hope that the noble Marquess will not wish to press it.

VISCOUNT SWINTON

May I be allowed here to make one suggestion? We have just dealt with a case which seemed to me to be analogous and to which the noble and learned Viscount, the Lord Chancellor, seemed sympathetic. I think he said that the Court should have jurisdiction over costs and would do what was right. I do not know whether this may cause the Board of Trade some embarrassment, but I do feel that it may cause the individual or the company great embarrassment. If you are taken to Court, and it is proved that there is nothing at all against you, that you are there simply because the Board of Trade haled you there, and that you have a perfectly clean sheet, surely it is a right principle that you should not bear any part of the cost. If the company does not come out of the proceedings with a clean sheet, or if, at any rate, the matter is so uncertain that an investigation was obviously necessary, then it may be that the company, having got themselves into a mess, ought to pay their share of the expenses. But if someone comes out of an inquiry entirely immaculate, surely the principle should be established and stated that they do not have to pay any of the costs involved? Is there not some way of meeting this? Whatever may have been in the old Act—for which, I quite agree, there is no doubt I bear responsibility—could not this matter be dealt with in the same way in which the Lord Chancellor, when speaking on the previous Amendment, suggested that situation might be met? Is it not possible that there should be a discretion, so to speak, to let the costs follow the issue of the proceedings?

THE LORD CHANCELLOR

I will look at this, but without holding out any sort of promise. As Lord Chorley has pointed out, it is a fact that under the existing law the position is, according to Section 136 (3) (b), that: the expenses shall be defrayed by the company unless the Board of Trade think proper to direct, as the Board are hereby authorized to do, that they shall either be paid by the applicants or in part by the company and in part by the applicants. I think that that is probably right, and it does seem that if there is a case of a company against whom nothing can be alleged, it is right that the applicant should pay the expenses and not the company. The Board of Trade, I have no doubt, would in fact use proper discretion. I do not like the word "adversely" which the noble Marquess proposes to insert. I can see an argument arising as to whether a Report is adverse or not, and I think that that would be unfortunate. If the matter were left as it is left in the old Act—and I do not think that the noble Viscount, Lord Swinton, need be at all ashamed of his part in framing it—I am inclined to think that would be the better way. But I will look at this matter, as I have said, to see whether something can be done.

VISCOUNT SWINTON

The Lord Chancellor has some Amendments, with which I am in entire and complete sympathy, enlarging the powers of the Board of Trade to hold investigations on their own. This particular clause, Clause 37, is dealing with an inquiry which is set on foot by the requisite number of applicants. It would have no bearing on what would happen when the Board of Trade on their own motion started an inquiry. What is sauce for the goose is sauce for the gander, and I think that it would be convenient if the Lord Chancellor, when he is looking into this matter, would also look into the whole position of the Board of Trade's powers in investigating the affairs of a company, with special reference to what is to happen in the event of the company coming out of the investigation with a clean sheet. In that case, equally, I do not think a company ought to be put to extra expense. If the whole question might be looked at and considered at the same time, it would be a most convenient course to follow.

THE LORD CHANCELLOR

I will do that.

THE MARQUESS OF READING

I am obliged to the noble and learned Viscount, the Lord Chancellor, for agreeing to reconsider this matter, and on that understanding I beg leave to withdraw my Amendment. But I do want to add one more protest against your Lordships being told, as we are being told: "We will put something into a Statute in as wide terms as possible, and you may rely upon the responsible parties seeing that it is properly carried out."

Amendment, by leave, withdrawn.

Clause 37 agreed to.

Clause 38:

Appointment and powers of inspectors to investigate ownership of company.

38.—(1) Where it appears to the Board of Trade necessary or expedient in the public interest, they may appoint one or more competent inspectors to investigate and report on the membership of any company and otherwise with respect to the company for the purpose of determining the true persons who are or have been financially interested in the success or failure (real or apparent) of the company or able to control or materially to influence the policy of the company.

(2) The appointment of an inspector under this section may define the scope of his investigation, whether as respects the matters or the period to which it is to extend or otherwise, but subject to the terms of his appointment his powers shall extend to the investigation of any circumstances suggesting the existence of an arrangement or understanding which, though not legally binding, is or is likely to be observed in practice and which is relevant to the purposes of his investigation.

(3) For the purposes of any investigation under this section subsections (3) to (6) of section one hundred and thirty-five of the principal Act, and subsections (4) to (8) of the section of this Act relating to the appointment and functions of inspectors under the said section one hundred and thirty-five, shall apply with the necessary modifications of references to the affairs of the company or to those of any other body corporate, so, however, that— (a) the said subsections shall apply in relation to all persons who are or have been, or whom the inspector has reasonable cause to believe to be or have been, financially interested in the success or failure or the apparent success or failure of the company or any other body corporate whose membership is investigated with that of the company, or able to control or materially to influence the policy thereof, including persons concerned only on behalf of others, as they apply in relation to officers and agents of the company or of the other body corporate, as the case may be; and

(4) Where from any report by an inspector appointed under this section it appears to the Board of Trade that there is difficulty in finding out the relevant facts about any shares (whether issued or to be issued), and that the difficulty is due wholly or mainly to the unwillingness of the persons concerned to give the inspector all the assistance in their power, the Board may by order direct that the shares shall until further order be subject to the restrictions imposed by this subsection, and so long as any shares are directed to be subject thereto— (a) any transfer of those shares, otherwise than by operation of law or by way of forfeiture thereof, or in the case of un issued shares any transfer otherwise than as aforesaid of the right to be issued therewith and any issue thereof, shall be void;

4.40 p.m.

THE LORD CHANCELLOR moved, in subsection (1), to leave out "necessary or expedient in the public interest" and insert "that there is good reason so to do." The noble and learned Viscount said: May I take this opportunity of saying a word or two about this matter? I see that I have been criticized—I am very accustomed to being criticized—and it has been said that I am mere clay under the potter's thumb and your Lordships are the potters. Certainly your Lordships' persuasion very often convinces me, and perhaps sometimes I go too far, but my own reflection does lead me to say this. I am proposing not to press Clauses 57 to 62 dealing with nominees, but I think the price I ought to exact in place of them is that I am given very wide powers here. I say frankly I would very much like to think that a register of shareholders was a useful document that would disclose who were one's co-operators in a company, but a register would not do any such thing. Under the provisions of Clauses 57 to 62 it still will not do any such thing, because all that is proposed in those clauses is that the company shall keep a register and enter in it such matters as are notified to them. The obligation to notify does not extend to all shareholders; it extends only to those shareholders who hold one hundredth of the total number of shares in the company. There were Amendments down on the Paper to substitute some other figure for the purely arbitrary figure of one hundredth.

I feel that these clauses would involve the company in a great deal of work and we should not get any really very satisfactory result. Though the time may come when our manpower position is much easier than it is to-day, I cannot think it would be wise at the present moment to cast upon the companies a very onerous obligation such as this might well prove to be. I have amused myself at looking at these clauses and seeing how I could evade them. I played this game for about half an hour one evening, and I discovered five different ways in that half-hour of avoiding those clauses. Each of these ways I believe to be entirely watertight. Having that experience, I frankly became convinced that the game was not worth the candle, so far as those clauses, as now drafted, are concerned. I hope I am not being mere clay, but I came to the conclusion that we had better abandon those clauses.

On the other hand, however, I feel we must confer upon the Board of Trade very wide powers with regard to inspection. Whilst following entirely what was said with regard to the last Amendment by the noble Marquess who has just sat down, I am afraid we must trust Government Departments to act with some common sense and some common honesty. Unless we do that our whole system completely breaks down. There has never been a case in the history of the Board of Trade where it has been alleged that the President of the Board of Trade had authorized some investigation which he ought not to have authorized. There have been many cases in which it has been said the President had not used his power in cases where he ought to have done.

I want to make it quite plain that in any case where there is a question of irregularity going on the President of the Board of Trade ought not to be slow in the exercise of the powers which we are now going to confer upon him. Accordingly, several of the Amendments are deliberately designed to tighten up and strengthen this clause. The first one is to use the words "that there is good reason so to do," and the reason I think the Amendment is desirable is this. It may be that you have a case where you have to investigate the ownership of shares or debentures, which is not of wide importance. It is difficult to say this is a matter of public importance in the sense that a large mass of the public are concerned, but it certainly is of public interest in that the public are always concerned to show up any cause of irregularity. Therefore the words "good reason so to do" confer a wider power upon the Board of Trade to prevent anybody from saying: "After all, this only concerns a small parcel of shares held by small men, and you cannot say that public interest demands this." If I get the words "good reason so to do" inserted in the clause, I shall start by conferring a very wide discretion upon the Board of Trade, and it is that discretion want to confer. I beg to move.

Amendment moved— Page 38, line 16, leave out "necessary or expedient in the public interest" and insert "that there is good reason so to do".—(The Lord Chancellor.)

VISCONT SWINTON

I think it is very convenient that we should range a little Wide on this particular Amendment. I wholeheartedly welcome the Amendment, and I do not think the Lord Chancellor need be at all nervous about any charges of being clay in the hands of the potter. We are all potters here, and we are trying to mould the clay to make this Bill the best instrument for its purpose in the interests of the public. I started: by sharing with him the view that I should like a share register to be a document that "he who runs may read." I may say at once, in order to disclose my disinterestedness, that I have never been greatly concerned up till now with the use of nominees. I have never in my life been a nominee or registered a share with a nominee.

I started with a prejudice in favour of abolishing nominees and saying that if a share belongs to John Brown it should be registered in the name of John Brown. Probably most of the members of the Cohen Committee started with that sort of bias—I do not know whether I ought to call it prejudice—in their mind. They went into the matter and reported unanimously that it just cannot be done. They deal with the matter exhaustively in their Report, and they say that this procedure of nominees serves a very useful and necessary purpose.

I will not go into the whole business, but there are thousands of cases where people go abroad—public servants, individuals, or anybody—who have investments in this country, and they can do one of two things. They can give somebody a power of attorney. That is what I have always done, and I know what a frightful nuisance it is. Every time anything is done you have to produce, or your wife or solicitor has to produce, the power of attorney to everybody concerned, and you are charged half a crown at every The second way is by simply going to the bank and saying: "Take these shares and put them into your nominee company." The Cohen Committee give a great many other examples. In paragraph 78 of their Report—it is headed The Popularity of the Nominee System—they give a typical case from one of the big clearing banks where the bank nominee company made a close analysis of all the nominees. There were 72,456 of them. I must say that I was amazed at those figures. They say that it is only in 6 per cent. of those cases that there are unidentified purposes which could embrace concealment.

The Cohen Committee unanimously came to the conclusion that they could not recommend the abolition of the nominee system, and rather unwillingly (I think if I had been sitting on the Committee I probably would have been driven to the same conclusion). They then said: "Is there anything we can do? We admit that anything we can do is ineffective, because it can be got round. If something is to be done, we can devise you a system which—as the Lord Chancellor has said—will put not only the companies but a great mass of individuals (I think probably all trustees) to interminable trouble, waste of time and expense, without achieving their object."

I am quite convinced, as is the noble and learned Viscount, the Lord Chancellor, that there are only two ways of dealing with this matter. You can abolish the nominee system entirely and say that never shall any share be registered anywhere in the name of a nominee. For good reasons, which I am prepared to accept—and which the Government, of course, have accepted—the Cohen Committee came down against that. I do not believe there is any half-way house at all. The noble and learned Viscount, the Lord Chancellor, and the noble Lord, Lord Simonds, on the Second Reading, in a speech which delighted the House, showed that you could drive a whole succession of coaches and four through anything that can be devised. What do we want to discover here? We want to know, where it ought to be known, who is the owner. I go much further than that. I say that the Board of Trade ought to have a power of inspection where they think there ought to be an inspection.

With great respect to the noble and learned Viscount, the Lord Chancellor, in exonerating the Board of Trade he went, I think, a shade further than he ought to have done. He said there had never been a case where the Board of Trade had conducted an inquiry where they had not the power to do so, although they had refrained sometimes when they should have proceeded. As I said on the Second Reading of the Bill, I plead guilty to having quite knowingly, when I was President of the Board of Trade, instituted on at least two occasions an inquiry which I was subsequently advised on high legal authority I had no power to institute. You may say that it was a wrong thing to do. I am not sure it was.

One case was Farrow's Bank. Everybody knows the history of that. I believe I had no power, but I put an inspector into Farrow's Bank. There was no requisitioning by anybody to do so. Of course, all those people were in the racket together. My excellent officials said to me, "We believe there is some dirty work going on here." I said: "Well, go in." I put in a ferret. There was very dirty work going on, and I stopped the assets being disposed of. What was left of Farrow's Bank (and a great deal more was left than there would have been if I had not acted illegally) was taken over by a properly established Bank, and a great many people were saved. There was another occasion, which I will not particularize further, in which I took similar action, to the great advantage of the shareholders.

THE LORD CHANCELLOR

I obtained a brief in it.

VISCOUNT SWINTON

Well, it was of advantage to the noble and learned Viscount, the Lord Chancellor.

THE MARQUESS OF READING

That was the last justification for your action there.

VISCOUNT SWINTON

I daresay the Lord Chancellor got a good fee, but I got £500,000 for people who would not otherwise have got anything. I quite agree that that is a very unsatisfactory way of doing the business. But I am quite sure of this: Apart altogether from nominees, the Board of Trade ought to have the widest power to go in at the first possible moment, of their own motion, if they think there is "dirty work at the crossroads." This nominee business is, so to speak, taken in its stride, by these Amendments. These are, indeed, wide powers to give to the Board of Trade. I am quite content to give them. With my experience as President of the Board of Trade for seven years I say they are powers which the Board of Trade ought to have. I am sure they will be wisely exercised. I am certain this is the right way, and indeed the only way, of dealing with anything which ought to be investigated with regard to nominees, or indeed in regard to any other matter requiring investigation. I am extremely glad that these Amendments have been submitted, and I give them my wholehearted support.

THE MARQUESS OF READING

As the actual Amendments to remove Clauses 57 to 62—which we shall come to—stand in the names of my noble friend Lord Rennell (who is unfortunately unable to be here to-day owing to a domestic bereavement) and of myself, I will, if it is convenient, say at this stage the little I want to say, as the matter has been raised, and I will content myself with formally moving the Amendments when we come to the clauses. There has been in the Press and perhaps elsewhere some criticism of the suggestion to remove these clauses; indeed we have been accused of efforts to emasculate this Bill. In putting down our Amendments my noble friend and I were just as anxious as anybody that if the machinery could be made to work it should be introduced into this Bill. But the reason that led us to put down the Amendments is the reason which the noble and learned Viscount has himself now accepted—that however great your desire may be to make provisions of this kind possible, in fact it cannot be done.

Obviously, it was one of the primary matters to which the Cohen Committee directed their attention, because I think it not unfair to say that it was perhaps the outstanding matter on which public attention was generally concentrated and upon which the public hoped for some solution from that Committee. The Committee found themselves, possibly to their own surprise, baffled by the complexity of the problem, and in the end were obliged to abandon, to all intents and purposes, their efforts to solve this problem. I look at the matter simply from this point of view. For the sake of putting something of this kind into the Bill, are you going to get a return under two heads? First, are you going to get a return in respect of the very considerable manpower involved in operating these provisions; and secondly, are you going to catch a number of guilty people in reasonable proportion to the amount of effort and manpower required in doing so. The justification of these clauses would have been clear if we could make them not only foolproof but knave-proof, but we cannot.

In these circumstances, I am extremely glad that the noble and learned Viscount has seen his way to withdraw the clauses. On the powers which he seeks under Clause 38, I entirely agree with what the noble Viscount, Lord Swinton, has just said. This is a case of very great public importance, where obviously the Board of Trade must have considerable powers of moving by their own motion where they are under any reasonable apprehension that something is being done which is not in the public interest. In those circumstances, whatever powers the noble and learned Viscount, the Lord Chancellor, considers are required in this matter I agree should be freely conceded.

LORD LUCAS OF CHILWORTH

As one who holds very firmly to the view that the public interest demands a full and frank disclosure of the capital holdings in the public companies of this country, I am very conscious of the fact, as the noble Viscount opposite has said, that there is a substantial body of opinion which thinks that nominee shareholding should be made illegal. It is well to take notice of that. I do not know whether I am guilty of making an improper remark, but this Bill will eventually have to go to another place, and I think that view will be very strongly held there. We should be very careful what we do. If the noble and learned Viscount, the Lord Chancellor, is quite satisfied that the public interest is adequately safeguarded by the Amendments which he proposes, I, for myself, am quite content, because I agree with the noble Viscount, Lord Swinton, and the noble Marquess, Lord Reading, that it is useless to put into this Bill something which is inoperative—that only brings the law into disrepute, and it will not serve the public interest in the long run. But I would beg the noble and learned Viscount, the Lord Chancellor, to consider very carefully whether the proposals which he is making give adequate powers to the Board of Trade to make the investigations necessary to safeguard the public interest and to bring these matters to the light of day. If the noble and learned Viscount is satisfied, then I, too, am satisfied.

THE LORD CHANCELLOR

Perhaps I may just answer those observations. I confess that before I read the Cohen Report I was very strongly of the view that nominee shareholding ought to go altogether. That has been my view, but I feel most strongly that it is no good halting between two opinions. There may or may not be a case for what I have just said. I venture to think that there is not very much to be said for the compromise we have got. Like most compromises it can be attacked from both sides. I believe it is more effective to have these wide powers for which I am asking under the clause we are discussing, Clause 38, than to have the powers which would have been conferred by Clauses 57 to 62. That is an answer to the noble Lord. As to whether or not the time may come when other people may think the whole nominee system ought to go, which I confess was the view I held until I read the Cohen Report, I would ask noble Lords to read the Cohen Report, which does rather shake one if one has held that view in the first place, and then to consider the amount of work that would be involved in selecting this moment of time to put an end to the nominee system.

VISCOUNT MAUGHAM

I had intended to say a few words when we came, in the order which we observe so strictly in this House, to Clause 57, but as everybody seems to have departed, to some extent, from that order, it may save time if I now say very shortly what I was going to say on the destruction of the clauses about nominee shareholders. On the Second Reading, I expressed my favourable view on these clauses, and I said something about very long experience in relation to company matters and the frauds committed by people under various guises. I shall now take the opportunity of expressing my great regret that the noble and learned Viscount, the Lord Chancellor, does not see his way—and has, I agree, substantial reasons for not seeing his way—to continue with those clauses. I share the view expressed by the noble Lord opposite, that nominee shareholding is often used as a device by which people obtain the benefit of a company by supporting proceedings, and nobody knows the real interests in shares beneficially held by people.

Therefore, I maintain my hope that something may be done to introduce some simpler form of prevention with regard to this matter. I know that no clauses will be sufficient to prevent these things being done, but I want it to be the rule of company life that people shall disclose their own holdings, unless matters of trust or executorship of deceased people, and so on, are involved. As regards their own holdings there ought, in my opinion, to be a general feeling in the whole commercial community, including the City of London, that it is not right to hold a large number of shares in a company when you yourself are engaged in some analagous business, and to hold them in the name of a nominee. If only the City of London would make up its mind to set its face against that sort of thing, almost as much as is possible could be done in such a case. But as it is, one must face facts as we see them, and I must take into consideration the opinions of others who are just as entitled to express an opinion as I am. Therefore, having expressed my deep regret, I shall say nothing on Clause 57 when it comes on. But, returning now to order, I would say that the present Amendment moved by the noble and learned Viscount, the Lord Chancellor, seems to be one against which (there is no objection.

LORD SALTOUN

We seem to be disposing of Clause 59 now, and perhaps I may be allowed to say one word on this point, really in answer to my noble friend, Lord Lucas. In the first place, I would like to say perfectly frankly that if I saw any way by which anybody who held shares through nominees could be made to disclose his interest, I, for one, would be very glad; but to do away with the nominee system would, I think, be a great mistake, because it is of such great advantage to business. I suppose if the use of the nominee company were to be discontinued, even in my own small affairs it would about treble my work. As a trustee, I always try to get trust securities held in the names of nominees, because it is far easier, with trustees all over the country, to deal with these matters. I will not say any more on that matter, but I would point out that the arrangement suggested in Clause 59 would be quite inoperative, and for this reason. Your Lordships will observe that when anybody holds more than 1 per cent. of a company's stock in his own name, or in the names of nominees, he is bound under certain penalities to disclose that interest. That is a very good thing. It will be put on the share register of the company. But he is not compelled to announce it when his holding falls below that amount. I think it is quite impossible, with any justice at all, to compel people to announce to the company when they hold less than a certain number of shares.

When one thinks of the number of old ladies who are not accustomed to business and who might be liable to penalties, it would really be most unjust. To take an extreme case which is applicable, it would be quite possible, after these clauses have been in operation for a few years, for a company to find it had 150 holders registered with more than 1 per cent. of its shares. Such a register would be quite useless for the purposes of accurate information. I think I am justified in putting that to your Lordships because it is quite clear, if you think for a moment, that the same effect will be brought about if it happens with only 5 per cent. of the shares. So long as you cannot rely on the register giving the state of affairs at the moment, it is of no use at all. In any case, I think Clause 59 would not be operative, and I do not consider it is possible to produce an Act of Parliament that will have the effect desired. I am perfectly satisfied with the noble and learned Viscount's Amendment.

On Question, Amendment agreed to.

THE LORD CHANCELLOR moved, in subsection (2), to leave out, "but subject to the terms of his" and insert: and in particular may limit the investigation to matters connected with particular shares or debentures. (3) Subject to the terms of an inspector's".

The noble and learned Viscount said: The purpose of this Amendment is to secure that an inspector may investigate the ownership of some, but not necessarily of all, of the shares or debentures of a company, if that course seems right to the Board of Trade. When there is reason to fear, for instance, that there have been improper and undisclosed dealings by directors through nominees in some of the shares of a company it would be unnecessary to investigate other shares of the company Which had not been the subject of recent stock exchange dealings The noble Lord, Lord Lucas, will bear in mind that so far as directors are concerned there is an absolute duty of disclosure, and this clause is complementary to that duty. It gives power to the Board of Trade to investigate a particular block of shares, and I hope they will use this power quite freely if they think there have been irregular dealings by directors through nominees and non-disclosure. I beg to move.

Amendment moved— Page 38, line 26, leave out from ("otherwise") to ("appointment") in line 27, and insert the said new words.—(The Lord Chancellor.)

On Question, Amendment agreed to.

LORD CHORLEY moved, in subsection (2), to leave out the second "is" ["is likely"] and to insert "was observed or." The noble Lord said: The object of this Amendment is to put the present into the past. As the clause is now drafted, it gives the inspector appointed by the Board of Trade the power—indeed it imposes the obligation upon him—to investigate circumstances which suggest the existence of some arrangement or understanding which, while not legally binding, is, or is likely to be, acted upon. As the clause stands it might suggest that if some arrangement of that kind had existed in the past and was no longer likely to be acted upon, the inspector would not be under an obligation, or indeed would not have the power, to investigate it. It is obviously desirable that he should have that power and this slight alteration in the wording is suggested in order to give him power to probe into these matters which are, so to speak, in the past. I beg to move.

Amendment moved— Page 38, line 30, leave out the second ("is") and insert ("was observed or").—(Lord Chorley.)

On Question, Amendment agreed to.

LORD MANCROFT

had given notice that he would move, in subsection (3) (a), after "others" to insert "not being concerned merely as counsel or solicitor." The noble Lord said: The point at issue here is very much the same as that raised by the Amendment to Clause 34, standing in the name of the noble and learned Viscount, Lord Maugham. That being so, I will refrain from moving this Amendment, if I may, on the same conditions as those upon which Lord Maugham withdrew his Amendment to Clause 34.

5.15 p.m.

THE LORD CHANCELLOR moved, after subsection (3), to insert the following subsections: (5) Where it appears to the Board of Trade that there is good reason to investigate the ownership of any shares in or debentures of a company and that it is unnecessary to appoint an inspector for the purpose, they may require any person whom they have reasonable cause to believe—

1. (a) to be or to have been interested in those shares or debentures; or
2. (b) to act or to have acted in relation to those shares or debentures on behalf of some one interested therein;

to give them any information which he has or can reasonably be expected to obtain as to the present and past interests in those shares or debentures and the names and addresses of the persons interested and of any persons who act or have acted on their behalf in relation to the shares or debentures. For the purposes of this subsection a person shall be deemed to have an interest in a share or debenture if he has any right to acquire or dispose of the share or debenture or an interest therein or to vote in respect thereof, or if his consent is necessary for the exercise of any of the rights of other persons interested therein, or if other persons interested therein can be required or are accustomed to exercise their rights in accordance with his instructions. (6) Any person who fails to give any information required of him under the last foregoing subsection, or who in giving any such information makes any statement which he knows to be false in a material particular, or recklessly makes any statement which is false in a material particular, shall be liable to imprisonment for a term not exceeding six months or to a fine not exceeding five hundred pounds or to both.

The noble and learned Viscount said: The purpose of this Amendment is to secure that where the Board of Trade wish to investigate the ownership of any shares or debentures in a company but think it unnecessary to appoint an inspector to do so, they may themselves conduct the investigation. There may be cases where the appointment of an inspector might be a cumbersome procedure in view of the small size of the shareholding requiring investigation. For this purpose the Board of Trade may require information from any person whom they have reasonable cause to believe to be or to have been interested in the shares or debentures, or to act or to have acted in relation to those shares or debentures on behalf of someone interested therein. The proposed subsection (6) lays down penalties for failure to give the information which may be required by the Board of Trade. I beg to move.

Amendment moved— Page 39, line 8, at end, insert the said new subsections.—(The Lord Chancellor.)

On Question, Amendment agreed to.

THE LORD CHANCELLOR

This Amendment and the Amendment to line 14 are consequential on the Amendment to which your Lordships have just agreed. I beg to move.

Amendment moved— Page 39, line 9, leave out from ("Where") to ("it") in line so, and insert ("in connexion with an investigation under this section (whether or not an inspector is appointed)").—(The Lord Chancellor.)

On Question, Amendment agreed to.

Amendment moved— Page 39, line 14, leave out ("to give the inspector all the assistance in their power") and insert:" ("to assist the investigation as required by this Act").—(The Lord Chancellor.)

On Question, Amendment agreed to.

LORD CHORLEY moved, in subsection (4) (a), to leave out "otherwise than by operation of law or by way of forfeiture thereof." The noble Lord said: There are two small drafting Amendments at line 18 and line 20. There is a technical point involved. Where shares pass by operation of the law or are forfeited, the word "transfer" which is used is not technically the appropriate word. These Amendments are put forward in order to gel: over that small difficulty. I beg to move.

Amendment moved— Page 39, line 18, leave out from ("shares") to the second ("or") in line 19.—(Lord Chorley.)

On Question, Amendment agreed to.

Amendment moved— Page 39, line 20, leave out ("otherwise than as aforesaid").—(Lord Charley.)

On Question, Amendment agreed to.

LORD CHORLEY moved, after subsection (7), to insert: (8) The four last foregoing subsections shall apply also in relation to debentures as they apply in relation to shares. The noble Lord said: Clause 38 empowers the Board of Trade to appoint an inspector to investigate the ownership of shares in a company. The wording of the first subsection is wide enough to allow the investigation to take place not only into the ownership of shares but also into the ownership of debentures. Subsection (4) provides in effect that where an inspector is Obstructed in the investigation of the ownership of shares, the Board of Trade can put a stop on the transfer of the shares, may order that any transfer shall be declared to be void, and that there shall be no voting rights exercised or diviclends payable in respect of these shares during this period. Subsections (5) (6) and (7) deal with necessary modifications and also establish penalties for infringement. It is necessary that similar provisions should be brought into effect in regard to the debentures as well as to the shares, in order that the powers given under the first subsection in Clause 38 may effectively be operated. Therefore, the Amendment is proposed in order that debentures may be brought into line with shares, and the inspector may have the necessary powers. I beg to move.

Amendment moved— Pago 40, line 12, at end, insert the said subsection.—(Lord Chorley.)

LORD SALTOUN

I wonder if the noble Lord will say a word more about debentures. The matter always appears rather difficult to me, because a debenture is a debt on the part of company, and the debenture holder has no hold over the company except so far as his rights as a creditor exist. I am curious as to why debentures should come in.

LORD CHORLEY

I should have thought it fairly clear that there are cases where it is just as important that an investigation should be made into the debenture holdings as I into share holdings. At any rate, that is the view which is taken, and it is a view with which personally I have no difficulty in agreeing. If it be so, obviously it is essential that the inspector should have the same powers of making an investigation in connexion with debentures as he has in connexion with shares. That being so, I think your Lordships will agree that this Amendment is a necessary one.

VISCOUNT MAUGHAM

There are cases in which the debenture holders—as I think my noble friend will agree—get control of the company. There may be some slight breach of the rules governing the rights of the debenture holders, and the debenture holders may put in a receiver manager who will manage the company for years. In those cases, at any rate, it is right that the Board of Trade should have these rights.

LORD BALFOUR OF INCHRYE

Under some conditions, debentures might, in the future, be converted into the equity of the business. I agree with the noble Lord that the Board of Trade should have these powers.

LORD CHORLEY

I am much obliged to the noble Lords for the examples.

On Question, Amendment agreed to.

VISCOUNT ELIBANK

Subsection (6) on page 39 says that any person who fails to give any information, or makes any statement which he knows to be false, shall be liable to imprisonment for a term not exceeding six months, or to a fine. Is it not usual to put "on conviction" after that? And before what Court would he come?

THE LORD CHANCELLOR

He would come before the Magistrate's Court. It follows that he has to be convicted before he is liable to a fine. The offence is either not giving information when you have it, or giving false information. He will appear before the Magistrate and he might go for trial. Normally, he would go before a Magistrate and he may appeal. I can assure the noble Lord he would have to be convicted before he was fined.

VISCOUNT MAUGHAM

In other words, there must be a prosecution.

VISCOUNT ELIBANK

I only asked for information.

THE LORD CHANCELLOR

That is the position.

Clause 38, as amended, agreed to.

THE LORD CHANCELLOR moved, after Clause 38, to insert the following new clause:

Saving for solicitors and bankers.

. "Nothing in the foregoing provisions of this Act shall require disclosure to the Board of Trade or to an inspector appointed by them—

1. (a) by a solicitor of any privileged communication made to him in that capacity, except as respects the name and address of his client and any person for whom his client acts or has acted; or
2. (b) by a company's bankers as such of any information as to the affairs of any of their customers other than the company."

The noble and learned Viscount said: We now come to the new clause which I mentioned before. Remembering that we are giving the Board of Trade very wide powers to ascertain the ownership of shares, we have to consider what we are to do in the case of two persons, the solicitor on the one hand and the banker on the other. They are naturally concerned to maintain the privilege which traditionally, and very properly, is theirs. I want to make it quite plain that so far as solicitors are concerned I wish to preserve their privilege, subject to this: that I must be able to ask the solicitor: "Who is your client?", and to ascertain the ownership of the shares.

For instance, if John Smith goes to a solicitor perhaps he will put the shares in the name of the solicitor. I must be able to say to the solicitor: "For whom do you hold those shares?" He will say: "John Smith," or whoever the man may be. I will not go further, and I do not want to ask him: "What did John Smith say to you?", because that would be breach of privilege. I am quite willing to look at these words again, but there must be this provision, because you may have John Smith going to the solicitor and saying: "I am the nominee of these particular shares for Tom Brown." The solicitor may simply say: "Well, John Smith was my client," and not state the further fact that John Smith made it quite plain that he was only acting for the proper owner of the shares. I wish to be able to get that fact. I only want to be able to ascertain from the solicitor the name of the owner of the shares to his knowledge; and nothing more than that.

With regard to the other persons affected by the clause, the bankers, the Committee of London Clearing Bankers expressed concern lest Clauses 34 and 38 might impel them to give information, not only about the company, but also about the affairs of any director. That is not at all what we intend, and I have drafted this Amendment with the intention, at any rate, of meeting the very natural fears and apprehensions of the bankers. I think that in this way I am doing what I can, whilst not hampering myself in ascertaining—and this is the vital question—who is the owner of the shares which I am investigating. Apart from that, I am protecting the privilege. Accordingly I beg to move.

Amendment moved— Page 39, line 8, at end, insert the said clause.—(The Lord Chancellor.)

VISCOUNT MAUGHAM

My trouble here is with regard to the words which the noble and learned Viscount, the Lord Chancellor, says he will consider. The privilege of a solicitor is, of course, a very important matter to preserve, not for the benefit of solicitors but for the benefit of their clients. The privilege is not that of a solicitor. In the strict sense, it is the client who ought to be entitled, according to the general ideas of justice in this country, to be able to go to a solicitor and make a clean breast of everything with which he is concerned, whether it be a crime or only a company fraud, and yet be perfectly convinced that the solicitor, on behalf of the client, will always be entitled to say: "I am not compelled, and I cannot properly divulge the secrets of my client."

First, I will brush aside this point: In my Amendment on Clause 34 I included the words "counsel or solicitor." I do not think I am giving anything away on behalf of counsel which, of course, I could not possibly do, having regard to my record, because I do not think counsel are hit by any of the clauses or Amendments introduced into this Bill. I am only concerned with solicitors. The new clause introduced by the noble and learned Viscount, the Lord Chancellor, includes the words "except as respects the name and address of his client," and the noble and learned Viscount wants (I think on reasonable grounds) to be able to ask the solicitor, whoever he may be, who is being questioned in respect of a particular matter: "Who was your client?"

The position of privilege of address is, I think, this: that if one of us or anybody else writes to a solicitor and says, "I want to consult you to-morrow at 10.30 on a particular matter; can you see me at that time?" and gives his name and address on the letter in the ordinary way, there is then no privilege as regards the name and address of the client because he has not written his name and fixed the appointment under a confidential relation. He is saying: "Will you see me?" before he is a client at all. So that in the normal case I should not regard myself as giving away anything of the smallest importance with regard to the benefit of privilege by assenting to this exception as regards the name and address of the client. But it is true that there are cases that one can imagine—I hope not very frequent but they may exist—in which client John Smith goes to a solicitor and says, "Look here, I wrote from such and such an address and I have given you my name but I also have a private address at Seven Dials which I do not want disclosed to anybody." In that case, that would be privilege and I have to admit that I am giving away that privilege by assenting to the words: "except as regards the name and address of his client," because it might be that in some cases the name and address in question would be a subject of privilege.

I think that is a very-unlikely and remote case, and I am not quite sure that there would be any great justification for an honest man requiring a solicitor examined by the Board of Trade under this Act to withhold not the ordinary address but some special address which the client would require for some purpose, more likely to be an improper one than a proper one. As in this case one has to be reasonable, I cannot help thinking that I am entitled to say, on behalf of the people whom I am in a sense representing here, that I have no objection to this clause as far as the words "name and address of his client"; and if I may properly do so I shall assent to those words. Therefore my claim to support the privilege, which I had in the Amendment under Clause 32, would no longer be an Amendment which I would choose to move.

I confess, however, that I think the words following are very much an invasion of the proper privilege, commonly known as the privilege of a solicitor. Let us take the name of a solicitor as being A. and the name of a client as being B. Then A. cannot withhold the address of B. But is it right that he must also disclose, if he has got to know the facts in a very confidential spirit, the persons for whom B. acts at the time of the question or the persons for whom he has acted, on any previous occasions going back for years? That is a clean invasion of the privilege in question. Although I cannot ask at the moment for anything more than the noble and learned Viscount, the Lord Chancellor, has promised to give me—namely, very careful consideration whether or not the additional words which I so strongly object to ought to be retained in his Amendment, I shall reserve the right to have a clean fight with the noble and learned Viscount on Report stage on the matter of those additional word, but at the moment I am satisfied with the clause as suggested by him.

THE MARQUESS OF READING

I appreciate that the noble and learned Viscount, the Lord Chancellor, is going to look into this again, but at the moment I want to say, like the noble and learned Viscount, Lord Maugham, that I do view these particular words with considerable disquiet and if it is possible to eliminate them I think we should all be a great deal happier.

On Question, Amendment agreed to.

Clause 39:

Power to keep register where made up.

39.—(1) Where a company arranges with some other person (in this section referred to as "the agent") for the making up of its register of members to be undertaken on behalf of the company by the agent, the register may be kept at the office of the agent at which the work is done instead of at the company's registered office:

Provided that the register shall not be kept—

1. (i) in the case of a company registered in England, at a place outside England; or
2. (ii) in the case of a company registered in Scotland, at a place outside Scotland.

VISCOUNT BRIDGEMAN moved, in subsection (1), to leave out from "at" where that word first occurs, to the end of the subsection and insert: any office in Great Britain of the company or of the agent: Provided that the location of the register shall be recorded in the Annual Return. The noble Viscount said: As your Lordships know, this clause gives effect to the recommendation of the Cohen Report, that steps should be taken to legalize the present practice whereby certain companies have registration carried out by professional firms and the registers are kept at the offices of the professional registrar. But in its recommendations the Cohen Report went on specifically to recommend that the register of a company registered in England should be kept in England and that the register of a company registered in Scotland should be kept in Scotland. Unless there is some very good reason in English or Scots law why that should happen, it seems to some of us on these Benches that that recommendation is making matters unduly complicated, and that the Amendment which I have proposed would make it easier to administer, not being open to any practical objection, provided that it is not open to legal objection.

After all, it does not follow automatically that because a company is registered in Scotland the majority of its members also reside in Scotland. Your Lordships no doubt can think of a number of companies—I can certainly think of one big company—where a proportion of shareholders are quite likely to be outside Scotland. Therefore, without labouring this point I want to suggest that we should try and make these rules as simple as possible and unless there is some overriding legal reason, the procedure under the Amendment which I propose is more workable and more convenient than the clause as now drafted.

THE LORD CHANCELLOR

This Amendment would have the effect of allowing a company to keep its register in any office in Great Britain of the company or of its agent. That is not acceptable to us. We are willing to depart from the rigour, in accordance with the Cohen Recommendation, of Section 98 of the existing Act, which says the register must be kept at the registered offices of the company. We are willing to allow it to be kept at the offices of the agent where work is done, but further than that we cannot go. There are some very ingenious people in this world, and it might be that a group of them in a company might say that they will have an agent on, shall I say, the top of Snowdon. It would of course be quite impossible for anybody to go to work at such a place, but they would have their agent there, and they would say: "That is where we are going to have our agent and keep our register." The register must, clearly, be kept at some kind of convenient place. If it is a place at which the agent works, that is good enough for us—we are willing to go that far to meet the noble Viscount—for it is exceedingly unlikely that the agent would work at the top of Snowdon.

With regard to the question of Scotland and England, I have not apprised myself of the details of the Law of Scotland, nor am I prepared to say in what respect it differs from the Law of England. But I have discussed it with Scottish friends, particularly the Secretary of State for Scotland, and I can assure your Lordships that a suggestion of a Scottish company being allowed to keep its register in England is one which creates the most bitter opposition. Remembering the trouble which we have had in this House about airfields in Scotland and so on, I am most reluctant to concede such a possibility. I can assure your Lordships that the trouble which we then had would be as nothing to the trouble we should have if we allowed the suggestion to hold good that a Scottish company might keep its register in England. Therefore, I cannot meet my noble friend on that point. I will, however, go to this length: I will provide that the register may be kept at the office of the company or at the office of the agent where the work is done. I hope that by going that far I shall satisfy the noble Viscount.

VISCOUNT BRIDGEMAN

I am very much obliged to the noble and learned Viscount, the Lord Chancellor. I only wish to say, now that he has got his Amendment regarding inspectors, that I, for one, am not in the least frightened at the idea of an agent sitting on the top of Snowden, because I feel that the noble and learned Viscount would have powers to deal with him. In view of the assurance that has been given I beg leave to withdraw my Amendment.

Amendment, by leave, withdrawn.

VISCOUNT MAUGHAM

Before we leave this clause may I be allowed to say a few words? I have not dealt with this matter by way of Amendment but I have mentioned it to various people. A register in the case of a company registered in England has to be kept anywhere in England. There has always been doubt in my mind whether a dishonest company could not have a place in England which, in effect, would be almost as inaccessible at the present time as the top of Snowdon. Although this matter which we have been discussing is mainly new, I mast point out that it is not entirely new, because, in my early days at the Bar, it carne to my notice that dishonest groups used constantly to register their companies in Jersey. They did it partly to avoid trouble with the shareholders, and partly to get out of the payment of certain fees. Although the fees are not in question here, I would ask the noble and learned Viscount who is in charge of the Bill to consider whether there ought not to be introduced somewhere words such as: "at some reasonably accessible place in England," or something of that kind. I admit, frankly, that no trouble has yet arisen except in the matter of Jersey. But I know that the Isle of Lundy is situated in England, and I think that perhaps that might be thought a good place for a dishonest company to be registered in. I do not want to give anyone a hint in saying that. I have only risen to speak of this particular point in order to show another place that the matter has, at any rate, been mentioned in the way that I have mentioned it.

Clause 39 agreed to.

Clauses 40 and 41 agreed to.

Clause 42 [Contents of annual return]:

LORD CHORLEY

This is a very small Amendment to correct a printing error. I beg to move.

Amendment moved— Page 42, line 7, leave out ("annexed") and insert ("annual").—(Lord Chorley.)

On Question, Amendment agreed to.

LORD CHORLEY moved, after subsection (3), to insert the following new subsection: (4) The annual return of a company made next after the expiry of paragraph (1) of regulation two of the Defence (Companies) Regulations, 1940, (under which the annual return of a company having a share capital need not contain any list of members, except in the case of a company's first annual return or of a private company), need not, if that paragraph applied to the annual return last made by the company, give the particulars required by subsections (1) and (2) of the said section one hundred and eight as to past members of the company or as to shares transferred.

The noble Lord said: The object of this new subsection is to remove what would be an anomaly arising out of the suspension of the publication of companies' returns of shareholders under Section 108 of the Companies Act, 1920. Under that section, companies are required in their annual returns to give information as to persons who have ceased to be members since the date of the last return of shareholders. During the war years, public companies have been absolved from making returns of their shareholders, and when this regulation is repealed the companies will, as the Act now stands, be under an obligation to file with the list of shareholders a list of all those persons who have ceased to be members since the year when they last made a return of the shareholders. Obviously, even if this were in all cases possible, it would be a very laborious business, and I am assured that in a substantial number of cases It would be completely impossible because, as the result of enemy action, records are no longer in existence. Even if that were not so, and this laborious process were gone through, the result would be of no value to anyone. Therefore, it seems right and sensible that we should start anew. I beg to move.

Amendment moved— Page 42, line 31, at end insert the said subsection.—(Lord Chorley.)

On Question, Amendment agreed to.

Clause 42, as amended, agreed to.

Clause 43:

Inclusion in annual return of accounts of private companies.

43.—(1) A private company shall not after the coming into force of this section be exempt from the obligation to include in its annual return a copy of the balance sheet and other documents required by subsection (3) of section one hundred and ten of the principal Act, unless—

1. (a) the conditions mentioned in the next following subsection are satisfied at the date of the return and have been satisfied at all times since the coming into force of this section; and
2. (b) there is sent with the return a certificate signed by the persons signing the certificates required to be so sent by Section one hundred and eleven of the principal Act, that to the best of their knowledge and belief the said conditions are and have been satisfied as aforesaid:

Provided that if at any time it is shown that the said conditions are then satisfied in the case of any private company, the Board of Trade may on the application of the company's directors direct that, in relation to any subsequent annual returns of the company, it shall not be necessary for the said conditions to have been satisfied before that time, and the certificates sent with those returns shall in that event relate only to the period since that time.

(2) The said conditions are—

1. (a) that, subject to the two next following subsections, no body corporate is the holder of any of the company's shares or debentures, and no person other than the holder has any interest in any of the company's shares or debentures; and
2. (b) that the number of persons holding debentures of the company is not more than fifty (joint holders being treated as a single person); and

(3) The condition contained in paragraph (a) of the last foregoing subsection shall be subject to exceptions for— (b) any shares or debentures held by trustees on the trusts of a will or family settlement disposing of the shares or debentures, so long as no body corporate has for the time being any immediate interest under the said trusts; (c) any shares or debentures held by a body corporate which is a banking or finance company, where the banking or finance company—M (i) became the holder by subscribing for the shares or debentures in the ordinary course of its business as such and by arrangement with the company or its promoters; and and where no person has any interest in the shares or debentures other than the banking or finance company and any persons having an interest by virtue of its debentures.

(4) In applying the said condition contained in paragraph (a) of subsection (2) of this section or any exception under the last foregoing subsection—

1. (a) any interest in any shares or debentures, whether as holder or otherwise, which a banking or finance company has by way of security for money lent in the ordinary course of its business as such shall be disregarded and, where it is the holder, the person entitled to the equity of redemption shall be treated as the holder; and
2. (b) any interest under a contract for the transfer of any shares or debentures or any interest in shares or debentures shall, until completion by the parties, be disregarded unless completion is unreasonably delayed, but (subject to the foregoing paragraph) on completion of a transfer of shares or debentures the transferee shall be treated as the holder, notwithstanding that the transfer requires registration with the company, unless there is unreasonable delay in applying for registration thereof or the transfer proves ineffective by reason of the restrictions imposed by the company's articles.

(5) In this section—

(b) the expression "family settlement" means a settlement made either— (ii) otherwise in favour of any of the following persons, that is to say, the settlor and any other individual who at the date of the settlement is a member of the company or, in the case of a settlement of debentures, a member or debenture holder of the company, and the wife or husband and issue, and the wife or husband of any of the issue, of the settlor or any such other individual, and persons taking in the event of a failure of the issue or any class of the issue of any person taking under the settlement; and for the purposes of this definition the expression "issue" shall be construed as if the stepchild, adopted child or illegitimate child of any person were that person's child, and any reference to a wife or husband shall include a former wife or husband and a reputed wife or husband;

VISCOUNT SWINTON moved, in subsection (2) (a), to leave out "body corporate" and insert "public company." The noble Viscount said: We are dealing in this clause with what we have called the "exempted private company" which is a company that has not more than fifty shareholders. The clause provides that a company shall cease to have that privilege, though it may contain only fifty or fewer shareholders, if one of the shareholders in the company is a body corporate. If by "body corporate" is meant a public company which itself has to make returns of accounts, then I think it is quite right that shareholding by a public company in an exempted private company should withdraw the special privilege from the exempted private company. On the other hand, if the body corporate is merely another exempted private company, there seems no reason why the privilege should be withdrawn.

With a private company, as we know it in common parlance, the real test is the limit of fifty shareholders. I suppose it would be conceivable, if my Amendment were accepted as it stands, that you might have a number of private companies investing in other private companies, and each of the private companies which was investing might themselves have a number of shareholders. I do not think it would be probable, but it might be desired to provide a safeguard against that, and I believe it would be quite reasonable, in order to maintain what is the standard test, to lay down that in all there should not be more than fifty shareholders. Subject to any refinement of that kind, I venture to suggest that the right thing to do is to say that it shall cease to be an exempted private company if a public company is a shareholder, but if the body corporate which is a shareholder is another private exempted company then the private company should retain its privilege. I beg to move.

Amendment moved— Page 43, line 14, leave out ("body corporate") and insert ("public company").—(Viscount Swinton.)

5.50 p.m.

THE LORD CHANCELLOR

I do not think I can accept this Amendment. Frankly, I am anxious to keep these exempt companies within a very narrow limit. They are having great privileges conferred upon them. They are getting the benefit of limited liability without the obligation of disclosure which affects ordinary companies. Therefore, following on what was said by the Cohen Committee, I am anxious that they should be private companies in the real sense of the word; that is to say, a few individuals who have banded themselves together for convenience in the form of a private company. The test is to see that the number of Shareholders does not exceed fifty. I am willing to do this to meet my noble friend's point: I will see that an exempt company shall not cease to be exempt merely because another body corporate holds shares in it if that body corporate is also an exempt company. You must then have regard to your fifty shareholders from the point of view of adding together the number of shareholders in the one exempt company and the other exempt company. So long as they are all exempt companies, and so long as the aggregate number of shareholders in this company does not exceed fifty, then I think we may fairly treat it as an exempt company.

We know there are estate companies with one or two shareholders, with one company to run the garden and another company to run the stables. I have heard of one which formed a separate company to run the mushrooms which were grown on the manure which came from the horses. So long as you have only the same three or four people in the concern, I do not mind all those companies holding shares in the company and treating it as exempt. I think it would not be unreasonable to extend the benefits of exemption to these companies which, in the real sense of the word, are private companies. Therefore let it be left in this way: I will endeavour to draft appropriate words—it is not going to be very easy—to put down on Report stage to clarify our existing conditions and to say that it does not matter if the body corporate which holds the shares is another exempt company, provided that the number of shareholders in all the exempt companies added together does not exceed fifty. I hope that will meet the requirements of the noble Viscount.

VISCOUNT SWINTON

I think that is extremely fair, and I gladly accept it. I will withdraw the Amendment, on the understanding that an Amendment giving effect to that promise is put down on the Report stage.

Amendment, by leave, withdrawn.

LORD MANCROFT moved, in subsection (2) (b), after "person" to insert: not including persons who are in the employment of the company and persons who, having been formerly in the employment of the company were, while in that employment, and have continued after the determination of that employment to be, persons holding debentures of the company. The noble Lord said: As your Lordships are aware, the purpose of this Amendment is to provide that debentures held by persons in the employment of the company or by persons who, having been formerly in the employment of the company, were, while in that employment, and have continued after the determination of that employment to be, persons holding debentures of the company, shall not be included when computing the total number of fifty debenture holders. I think it is reasonable that the considerations which govern the holding of shares in private companies should be extended in this case to the holding of debentures. I accordingly beg to move.

Amendment moved— Page 43, line 20, after "person" insert the said words.—(Lord Mancroft.)

THE LORD CHANCELLOR

I am sorry not to be able to meet the noble Lord on this. I will tell him quite frankly why. I think we have already gone too far in our definition of an exempt company. Many of these pensioners come in as shareholders, and in not counting them we have erred too much already. If I am now going to allow a large number of debenture holders to come in and still treat it as an exempt company, it seems to me I am going right away from my idea of an exempt company. A company that is getting as large as that, if it wants to have the privileges of limited liability, ought to be subject to the obligation of disclosure. My feeling is that I have already gone too far, and this is really the last straw which is breaking the camel's back. If I cogitate upon this matter very much more I shall ask your Lordships perhaps to go back and reduce the number of shareholders. I would far rather do that than extend the number of debenture holders. Accordingly, I am sorry that I have turned at last!

LORD MANCROFT

Far be it from me in any way to correct the noble and learned Viscount the Lord Chancellor, but I do not think it is strictly fair for him to say this is the last straw. The next Amendment of mine on the Order Paper is a further straw. Nevertheless, in view of what he said, I beg leave to withdraw this straw.

Amendment, by leave, withdrawn.

LORD MANCROFT moved, in subsection (3) (b), after "settlement," to insert: "or settlement for the benefit of employees and ex-employees of the company and the dependants of employees and ex-employees." The noble Lord said: The object of this Amendment is to add to the exceptions in this clause. Many of these settlements exist, and they are all small private affairs, purely of a beneficiary nature. I was going to say I feel, but I presume I must now say I felt, it would be fair and satisfactory to add these to the exemptions. With some diffidence, I beg to move my Amendment.

Amendment moved— Page 44, line 33, after "settlement" insert the said words.—(Lord Mancroft.)

THE LORD CHANCELLOR

I am sorry, I was wrong. As the noble Lord rightly pointed out, I said that the previous Amendment was the last straw. It was the penultimate straw. I am sorry, but the answer I made to the last Amendment applies also to this one.

LORD MANCROFT

In that case I beg leave to withdraw my Amendment.

Amendment, by leave, withdrawn.

VISCOUNT BRIDGEMAN moved, in subsection (3) (c), after "corporate" to insert: "which is itself a body corporate exempt from the obligations mentioned in subsection (1) of this section or." The noble Viscount said: I rather think that the point of the Amendment standing in my name is covered by the undertaking given by the Lord Chancellor. I have merely moved this Amendment in order to make certain I am right. If so, I shall be very ready to withdraw it.

Amendment moved— Page 43, line 36, after "corporate" insert the said words.—(Viscount Bridgman.)

THE LORD CHANCELLOR

Yes, that is so.

Amendment, by leave, withdrawn.

VISCOUNT BRIDGEMAN moved, in subsection (3) (c) (i), to leave out "subscribing for" and insert "acquiring." The noble Viscount said: I beg to move the Amendment which stands in the name of my noble friend, Lord Rennell, who is unavoidably absent. The point of this particular Amendment is to make certain that the conditions do not apply to the shares which come into the possession of banking or financial houses in the ordinary course of their financial and banking business. I suggest that "subscribing" is too narrow a word, and the word "acquiring" would be a more suitable word to use on this occasion.

May I give your Lordships one instance? Suppose that a banking house decides to finance a company and that the capital of that company consists of a certain number of preference as well as of ordinary shares. In that case the financial house might conceivably propose to acquire the preference shares from the existing holder in order that he might then subscribe for ordinary shares. There are a great many possible variations in the way in which a business is financed, and it would be quite wrong that one form of financing should be exempt from the working of this clause and another form, which is the purchase of the shares as part of the financing of the company, should be outside it. For that reason I suggest that the Amendment is more suitable for the achievement of the object which lies behind these words. I beg to move.

Amendment moved— Page 43, line 39, leave out ("subscribing for") and insert ("acquiring").—(Viscount Bridgeman.)

THE LORD CHANCELLOR

I will accept this Amendment but, having said that, I must warn the noble Viscount that I think I shall have to add to it when we get to the Report stage. I think it will be necessary to ensure that not more than 20 per cent. in the aggregate of the voting power is exercisable by banking companies. Therefore, if I do move such an Amendment on the Report stage, I hope that he will not think I am in any sense letting him down. In the meantime he will realize that I am accepting the Amendment.

VISCOUNT BRIDGEMAN

I am grateful to the noble and learned Viscount the Lord Chancellor, and I understand the position perfectly.

On Question, Amendment agreed to.

LORD BALFOUR OF INCHRYE moved to leave out subsection (4). The noble Lord said: I have put down the Amendment to omit this subsection for the purposes of elucidation, because it seems to me that the meaning of this subsection is very obscure. Frankly, I do not understand it, and I believe other noble Lords do not understand it. It says in effect that a transferee is to be treated as the holder although a transfer has not been registered, and if there is unreasonable delay in the time for registration, then the transferor will be the holder. It seems to me that this might encourage unreasonable delay in some cases. Again, if the directors are parties to the transfer, how is the company to know if the transfer has been executed and not presented for registration? Again, the subsection seems to be hedged about with restrictions and limitations, and its use seems somewhat problematical. I do not want to delay your Lordships, but I think we should like the noble and learned Viscount the Lord Chancellor to be good enough to give us some explanation of what this subsection is intended to do.

Amendment moved— Page 44, line 5, leave out subsection (4).—(Lord Balfour of Inchrye.)

THE LORD CHANCELLOR

I will do the best I can to give a sort of bird's eye view of the broad problem. Subsection 2 (a) of this clause sets out the conditions, and one of the conditions is that "no person other than the holder has any interest in any of the company's shares or debentures". We have to consider this case—perhaps the noble Lord never had to consider this case, but I have often had to consider it. You sometimes have to deposit shares with the bank to raise some money for security for your overdraft. It happens not infrequently. When that happens, some person, other than the holder, has an interest in the company's shares, and it is quite obvious that we should not take away the exemption just because you go to the bank and raise a little money on your shares. The subsection is included to deal with that case.

The second case it has to deal with is this—it is really a machinery section. There is inevitably a time lag between the date of the sale and getting your name on the register. Immediately the sale takes place, before you are on the register, someone other than the holder has an interest. Accordingly, if we did not have words to this effect, we should find in the case of anybody who sold a share during the time lag that this trouble would arise. Those are two simple illustrations. I have no doubt there are others, but I hope I have explained the matter sufficiently to enable the noble Lord to withdraw his Amendment.

LORD BALFOUR OF INCHRYE

I thank the noble and learned Viscount the Lord Chancellor for explaining the complications of this position, which I can assure him I fully appreciate. I beg leave to withdraw my Amendment.

Amendment, by leave, withdrawn.

LORD CHORLEY

The next Amendment and the two following ones to lines 17 and 18 all deal with the same matter. The two later ones are consequential on the first, and they are purely drafting Amendments. The term, "completion of a transfer," which appears in the clause at present, is not really sufficiently precise from the technical point of view. Therefore it is proposed to substitute for it "execution of the instrument of transfer." I beg to move.

Amendment moved— Page 44, line 16, leave out ("completion") and insert ("execution of the instrument of transfer").—(Lord Chorley.)

On Question, Amendment agreed to.

Amendment moved— Page 44, line 17, leave out ("completion") and insert ("execution thereof").—(Lord Chorley.)

On Question, Amendment agreed to.

Amendment moved— Page 44, line 18, leave out ("completion of a") and insert ("execution of an instrument of").—(Lord Chorley.)

On Question, Amendment agreed to.

LORD CHORLEY moved, in subsection (4) (b), to leave out "there is unreasonable delay in applying for registration thereof or." The noble Lord said: This Amendment has been designed to make subsection (4) (b) of Clause 43 clearer. It has the effect of removing a provision that where a transfer of shares or debentures is completed, and there is unreasonable delay in applying for registration thereof, the transferor shall continue to be treated as the holder. In that case, he would be a nominee for the transferee and the company would lose its status as an exempt company. I beg to move.

Amendment moved— Page 44, line 21, leave out from ("unless") to ("the") in line 22.—(Lord Chorley.)

On Question, Amendment agreed to.

LORD CHORLEY

I am not quite sure which is the next Amendment.

VISCOUNT SWINTON

I think the intention of the Amendment is to go up as well as down.

LORD CHORLEY

I am much obliged to the noble Viscount.

Amendment moved— Page 44, line 46, after ("settlor") insert ("his parents and grandparents").—(Lord Chorley.)

On Question, Amendment agreed to.

LORD CHORLEY

The next Amendment is consequential on the last.

Amendment moved— Page 45, line 4, after ("settlor") insert ("his parents").—(Lord Chorley.)

On Question, Amendment agreed to.

LORD CHORLEY

The next Amendment is also consequential.

Amendment moved— Page 45, line 7, leave out ("expression") and insert ("expressions 'parent', 'grandparent' and").—(Lord Chorley.)

On Question, Amendment agreed to.

LORD CHORLEY moved, after subsection (5), to insert the following new subsections: (6) Any reference in this Act to an exempt company as defined in this section shall be construed as referring to a company with respect to which the conditions mentioned in subsection (2) of this section are satisfied and have been satisfied at all times since the coming into force of this section or since the giving by the Board of Trade of a direction under the proviso to subsection (1) of this section. (7) References in this section to the said conditions having been satisfied since the coming into force of this section shall, in relation to a company first registered under the principal Act after the coming into force of this section, be construed as referring to the conditions having been satisfied since the company's registration.

The noble Lord said: This Amendment defines an exempt company. It is necessary, as the result of the Amendment which your Lordships accepted to Clause 16, page 16, line 10, to have such a definition, and it is now tabled before you. I do not think it is necessary to read it. I beg to move.

Amendment moved— Page 45, line 18, at end, insert the said subsections.—(Lord Chorley.)

On Question, Amendment agreed to.

LORD SALTOUN

Before this clause is approved, as the noble and learned Viscount the Lord Chancellor has very kindly consented to look again at page 43, subsection (2) (a), may I bring one point to his attention, which I might possibly have done on the Amendment of my noble friend Viscount Swinton, but I think strictly it would have been out of order. Subsection 2 (a) deprives a company of exemption where a body corporate is the holder of its debentures. I have nothing to say on a question which might arise if debenture holders were in charge of the company, or anything of that kind. Strictly speaking, I think if properly considered, that would not matter from the point of view I am going to urge. These exempt companies may be precisely the companies the noble and learned Viscount wishes to see exempt, yet they may be under the necessity of finding a considerable sum of money. For example, it is quite possible that one of these exempt companies might have to raise money, not for a debt incurred in its business but to pay estate duties under Finance Acts which lay the direct burden of estate duty on a company—though possibly it may have recourse.

In such a case the company might find that the best way of raising money is by debentures. It might go to Mr. Campbell to get the money, or it might go to a financial house and get the money by giving the financial house a debenture or debentures. In such circumstances, I think it would be very hard on a company that it should lose its position of exemption. It will feel a double hardship if it is for estate duty, because it will feel the burden as one injury and at the same time be deprived of its status. I would be grateful to the noble and learned Viscount if he would consider that when he is considering other changes he is about to make in this clause.

THE LORD CHANCELLOR

I am quite willing to look into that but, as I have already indicated, I am very anxious that this privilege of limited liability, plus exemption from obligation to disclose accounts, should be very strictly limited. I will, however, see that the matter that the noble Lord has mentioned is looked into.

Clause 43, as amended, agreed to.

Clause 44 [Signature of annual return etc. and penalty for false statement]:

LORD CHORLEY

The next Amendment is purely drafting, and it is to correct a small printing error. I beg to move.

Amendment moved— Page 45, line 35, after ("(3)") insert ("of").—(Lord Chorley.)

On Question, Amendment agreed to.

Clause 44, as amended, agreed to.

Clauses 45 to 47 agreed to.

LORD HAWKE moved, after Clause 47, to insert the following new clause: .—Notwithstanding anything contained in Section one hundred and eighteen of the principal Act (which requires a printed copy of every Resolution to which that Section applies to be forwarded to the Registrar of Companies and recorded by him) it shall be sufficient compliance with the provisions of that Section in the case of a private company which, under Section forty-three of this Act is entitled to claim exemption front the obligation to include in its annual return a copy of the Balance Sheet and other documents required by subsection (3) of Section one hundred and ten of the principal Act, if such a company forwards to the Registrar of Companies, in accordance with the provisions of Section one hundred and eighteen of the principal Act, a certified and legible copy of the Resolutions or agreements to which the said Section one hundred and eighteen applies. The noble Lord said: I am extremely ashamed that my name should be associated with an Amendment of such inordinate length to serve such a trivial purpose. The principal Act states that a printed copy of every resolution or agreement shall be forwarded to the Registrar within fifteen days. It has been represented to me that it would ease the burden of small exempted companies if they were allowed to put in a manuscript copy instead of the printed copy. I think your Lordships will agree that, even without the threat of printers being shut down, this would be quite a reasonable Amendment to accept, and I hope that the noble and learned Viscount will be able to accept it, or to give me some hope. I beg to move.

Amendment moved— After Clause 47, insert the said new Clause.—(Lord Hawke.)

THE LORD CHANCELLOR

I should be very sorry to deprive the noble Lord of any hope, but I am bound to say that I have some hesitation about this clause as it is drafted. It says: "a certified and legible copy"—that is, written in handwriting. Many of your Lordships who have been making suggestions to me in regard to this Bill have written me letters, and all the observations in those letters have been well worthy of my attention. But I hope your Lordships will not mind my saying that I have now adopted the routine of getting my typist to decipher them and to produce them to me in type. I should not have the slightest hesitation in accepting this Amendment if it were limited to "typewritten," or some form of reproduction. After all, it is all very well to say a "legible copy," but it is quite obvious to me that people's idea of legibility differ. I think if the noble Lord would be content with something on the lines I have suggested, limiting it to either "typewritten documents," or something of that sort, and not a flimsy document, but rather of a durable nature, I would be quite willing to meet in principle what the noble Lord has in mind. I will see that some words are drafted and put in on the Report stage.

LORD HAWKE

I thank the noble and learned Viscount. "Typewritten," or something like that, will certainly meet the case. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 48:

Applications for, and allotment of, shares and debentures.

48.—(1) No allotment shall be made of any shares in or debentures of a company which are offered to the public by a prospectus issued generally (that is to say, issued to persons who are not existing members or debenture holders of the company), until the third day after that on which the prospectus is first so issued or such later day (if any) as may be specified in the prospectus (which day is hereafter in this Act referred to as "the date of the opening of the subscription lists").

An application for shares in or debentures of a company which is made in pursuance of a prospectus issued generally shall not be revocable until after the expiration of the third day after the date of the opening of the subscription lists, or

(5) In reckoning for the purposes of this Section the third day after another day, any intervening day which is a Saturday or Sunday or which is a bank holiday in any part of Great Britain shall be disregarded, and if the third day (as so reckoned) is itself a Saturday or Sunday or such a bank holiday there shall for the said purposes be substituted the first day thereafter which is none of them.

LORD CHORLEY moved to leave out subsection (1) and to insert: (1) No allotment shall be made of any shares in or debentures of a company in pursuance of a prospectus issued generally (that is to say issued to persons who are not existing members or debenture holders of the company), and no proceedings shall be taken on applications made in pursuance of a prospectus so issued, until the beginning of the third day after that on which the prospectus is first so issued or such later tune (if any) as may be specified in the prospectus. The beginning of the said third day or such later time as aforesaid is hereafter in this Act referred to as 'the time of the opening of the subscription lists'. The noble Lord said: We now come to Part II, which deals, in the first place, with allotment, and the first Amendment is largely a drafting one, intended to make the first subsection of Clause 48 rather clearer. It provides for an interval of two clear days between the date on which the prospectus is first issued and the date on which the subscription lists are closed—a very necessary period of time. The Amendment is framed to make it clear that an allotment can be made, or the subscription lists closed, at any time on the third day after the day on which the prospectus was first issued. In those circumstances, I am sure your Lordships will agree that this is a useful Amendment. I beg to move.

Amendment moved— Page 46, line 40, leave out subsection (1) and insert the said subsection.—(Lord Chorley.)

On Question, Amendment agreed to.

LORD CHORLEY moved, after subsection (3), to insert the following new subsection: (4) In the application of this section to a prospectus offering shares or debentures for sale the foregoing subsections shall have effect with the substitution of references to sale for references to allotment, and with the substitution for the reference to the company and every officer of the company who is in default of a reference to any person by or through whom the offer is made and who knowingly and wilfully authorizes or permits the contravention.

The noble Lord said: The object of this Amendment is to adapt the provisions of Clause 48 to an offer of sale: that is to say, to deal with the case where the company does not itself offer the shares or the debentures, as the case may be, to the public, but allots them, for example, as is quite frequently done in these days, to an issuing house, with a view to that issuing house in turn offering them to the public. It is obviously essential that the position there should be covered, and the Amendment has been framed for that purpose. I beg to move.

Amendment moved— Page 47, line 18, at end insert the said subsection.—(Lord Chorley.)

On Question, Amendment agreed to.

LORD CHORLEY

The next Amendment is a consequential Amendment. I beg to move.

Amendment moved— Page 47, line 22, leave out ("date") and insert ("time").—(Lord Chorley.)

On Question, Amendment agreed to.

THE MARQUESS OF READING moved, in subsection (5), after "this" to insert: "and the next succeeding."

The noble Marquess said: This is a small Amendment. Clause 48 deals with the allotment of shares and prospectuses issued to the public. Clause 49 is concerned with permission to deal on the Stock Exchange. Subsection (5) in Clause 48 makes certain specific provisions with regard to reckoning of material time for these purposes, but they are for some reason not applied to Clause 49. The suggestion is that they should apply not only to Clause 48 but equally to Clause 49 in this matter of obtaining permission to deal on the Stock Exchange. I beg to move.

Amendment moved— Page 47, line 28 after ("this") insert ("and the next succeeding").—(The Marquess of Reading.)

6.20 p.m.

LORD CHORLEY

I entirely agree with the view which the noble Marquess has expressed about this matter. I am very much obliged to him for tabling his Amendment, which I am glad to accept.

On Question, Amendment agreed to.

LORD SALTOUN

Before we leave this clause, there is one question which I should like to ask of His Majesty's Government. Line 30 on page 47 reads: "… or which is a bank holiday in any part of Great Britain…" I have written to my noble and learned friend about this. The fact is that in Scotland every urban community has the right, and has in fact exercised it from time immemorial, to make its own holidays. These holidays are universal and all the banks are shut. They often take place on a Monday, and they are known as bank holidays. The question to my mind is whether the word "statutory" should not be put in here, because it would be rather awkward for a company if it found that its notices were invalid because there was a bank holiday in, say, Tain, where none of its shareholders lived. I do not think it very much matters, but I would like to ask His Majesty's Government to consider it.

LORD CHORLEY

The noble Lord did mention this matter to me, but I have not yet had time to consider it effectively. I will certainly do so, and if we come to the conclusion that it is desirable to deal with the matter on Report stage, we shall certainly do so.

Clause 48, as amended, agreed to.

Clause 49:

Allotment of shares and debentures to be dealt in on stock exchange.

(4) Where—

1. (a) the first allotment by a company of shares offered to the public comprises more than one class of shares; and
2. (b) the allotment of any of them is rendered void or prevented by this section so that the amount remaining subscribed is less than the minimum subscription;

any allotment previously made of any other of these shares and not rendered void by this section shall be voidable under subsection (1) of Section forty-one of the principal Act as if made in contravention of Section thirty-nine thereof, but with the substitution in the said subsection (1) for the reference to the date of that allotment of a reference to the date on which it becomes voidable by virtue of this subsection.

This subsection shall be without prejudice to the effect of the said Sections thirty-nine and forty-one in relation to shares not vet allotted at the time when the allotment of any shares is rendered void or is prevented by this section.

LORD CHORLEY moved to leave out subsection (4). The noble Lord said: It has been found that this subsection serves no practical purpose, and if we can eliminate it, I think that will appeal to everybody concerned. I beg to move.

Amendment moved— Page 48, line 21, leave out subsection (4).—(Lord Chorley.)

On Question, Amendment agreed to.

LORD CHORLEY moved, after subsection (8), to insert the following new subsection: (9) This section shall have effect—

1. (a) in relation to any shares or debentures agreed to be taken by a person underwriting an offer thereof by a prospectus as if he had applied there for in pursuance of the prospectus; and
2. (b) in relation to a prospectus offering shares for sale with the following modifications, that is to say—
1. (i) references to sale shall be substituted for references to allotment;
2. (ii) the persons by whom the offer is made, and not the company, shall be liable 1123 under subsection (2) to repay money received from applicants, and references to the company's liability under that subsection shall be construed accordingly; and
3. (iii) for the reference in subsection (3) to the company and every officer of the company who is in default there shall be substituted a reference to any person by or through whom the offer is made and who knowingly and wilfully authorises or permits the default."

The noble Lord said: This Amendment seeks to add a new subsection to Clause 49. Paragraph (a) of the proposed subsection is intended to secure that where shares are taken up by an underwriter in connexion with a prospectus which states that an application for permission to deal will be made to the appropriate stock exchange, and where such permission is in fact refused within three weeks of the date of the closing of the subscription lists, the underwriter shall be placed in the same position as that in which a shareholder would have been placed in an analogous case. I am sure your Lordships will agree that he ought to have the same rights as a shareholder. Paragraph (b) of the proposed subsection, adapts the provisions of Clause 49 to offers for sale, which we were discussing a moment ago.

Amendment moved— Page 49, line 18, at end, insert the proposed subsection.—(Lord Chorley.)

On Question, Amendment agreed to.

Clause 49, as amended, agreed to.

Clause 50:

Facts to be stated in prospectus to which S.35 of principal Act applies.

Prospectus.

50.—(1) The matters required by section thirty-five of the principal Act together with Part I of the Fourth Schedule thereto to be stated in any prospectus issued generally shall not include the contents of the company's memorandum or the other particulars specified in paragraph 1 of the said Part I, but shall include— (a) the date of the opening of the subscription lists; (c) as respects any such property purchased or acquired, or proposed to be purchased or acquired, by the company as is mentioned in paragraph 8 of the said Part I, short particulars of any transaction relating to that property completed within the two preceding years in which any vendor of the property to the company or any person who is, or was at the time of the transaction, a promoter or a director or proposed director of the company had any interest direct or indirect;

THE LORD CHANCELLOR

This Amendment is consequential.

Amendment moved— Page 49, line 26, leave out ("date") and insert ("time").—(The Lord Chancellor.)

On Question, Amendment agreed to.

THE MARQUESS OF READING moved, in subsection (1) (c), after "such" to insert "freehold or leasehold." The noble Marquess said: In the absence of either of the noble Lords in whose name this Amendment stands on the Order Paper, I propose to move it. I think it was felt that the intention was that the words "freehold or leasehold," although they had not actually been put into the Bill, should appear. This Amendment was put down in the hope of getting some indication as to why those words do not appear. I beg to move.

Amendment moved— Page 50, line 1, after ("such") insert ("freehold or leasehold").—(The Marquess of Reading.)

THE LORD CHANCELLOR

I am not quite certain, if I may say so with great respect, that that is exactly the difficulty. The difficulty felt by the noble Lord, Lord Rennell, and to which he referred in his speech on the Second Reading is, I think, this: he is concerned at the obligation to disclose all these small routine contracts. If I could find any form of words which would make it unnecessary to disclose routine contracts of an absolutely trivial nature, I would gladly put it into the Bill, but, quite frankly, I have not succeeded in doing so. If I can do it between now and the Report stage I will, but I have already devoted a good deal of time to it, and I am not sure that I shall be able to do it without making a loophole for the fraudulent person. That is the difficulty. We could not possibly use the words "freehold or leasehold."

You might, for instance, have the purchase of a large amount of plant; you might have the purchase of a menagerie; you might have entered into a contract for the purchase of a gold mine but the contract has not gone through. The noble Marquess will agree that all those things must be disclosed. It is the little routine things which I should like to exempt, but my trouble is that I do not know how to define "little routine things" without making a loophole. If any of your Lordships has an inspiration on this matter and will let me know, I shall be very willing to act upon it, but at the present moment, although I am looking at this matter sympathetically to see what I can do, I have evolved no way of dealing with it.

VISCOUNT SWINTON

I am afraid that I cannot be very constructive on this. It may be that we shall create a loophole if we do not do it, but if we include all this mass of contracts we shall distract the attention of the investor from the things that matter. What the investor wants to do is to look at the material contracts. It would become a complete farce if a company with a large number of running contracts had to disclose them all in the prospectus. There would be an enormous printing bill, and it would be to no purpose. I am not at all sure that the current contracts of a large manufacturing firm would not have to be disclosed. I do not want to say anything offensive about the United States, but they have certainly carried this a great deal too far there. Enormous disclosures have to be made, and as a result, when an Issue is made, the company produces about two volumes, which nobody reads. It is good for the printers, and they have more paper over there than we have, but it distracts attention from the things which one does want to have disclosed.

We have in the past construed the word "material," and I rather imagine that in construing a word like "material" these very small contracts have, in practice, been excluded. At the same time, I am not at all sure that we are not breaking the law when we do it. What, under the good old régime of Lord Swinton's Companies Act of 1928 was possible, will become a bit more dangerous under Lord Jowitt's Act of 1949—or whenever it is going to go through.

VISCOUNT ELIBANK

I would ask the noble and learned Viscount, the Lord Chancellor, when he is considering words like "freehold" and "leasehold" whether he will consider how that will apply to Scottish cases. For instance we do not always use the word "leasehold." We have such things as "feus" and so on. Therefore, any form of words he puts in here which might apply to England, would not necessarily apply to Scotland, and I suggest that when he considers it he should look at it from the Scottish point of view.

THE LORD CHANCELLOR

There can be no question of words like "freehold" and "leasehold" going in at all. It is quite obvious that a very important contract might be a contract of plant, and it is also evident that that would be entirely different. The sort of words I must get are words with the effect of "small routine contracts," "contracts in the ordinary course of business," or something of that sort. I have not yet been able to find any words, but I will go on trying.

LORD SALTOUN

Will the noble and learned Viscount consider, as the noble Viscount, Lord Swinton, suggested, the word "material" for the word "short" at the end of line 3? In any case, I think it is an improvement, because if disclosure is not "material" it is "short." I think that might meet his point.

THE MARQUESS OF READING

If the noble and learned Viscount will consider that matter I will beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 50, as amended, agreed to.

Clause 51:

Reports to be set out in prospectus to which S.35 of principal Act applies.

51.—(1) Part II of the said Fourth Schedule to the principal Act (which specifies the reports as to the finances of the company and of any business proposed to be purchased which are to be set out in any prospectus issued generally) and, so far as it relates to the said Part II, Part III of that Schedule shall have effect with the amendments for which provision is made by this section.

(2) The said reports shall be required to relate to five, instead of three, years and accordingly—

1. (a) for the word "three," wherever used in the expression "three financial years" or in the expression "three years" in the said Part II and in paragraph 5 of the said Parr III there shall be substituted the word "five";
2. (b) in the said paragraph 5 immediately before the words "two years or one year" in both places where those words occur there shall be inserted the words "four years, three years".

(3) The report by the auditors of the company required by paragraph 1 of the said Part II shall relate to the assets and liabilities of the company as shown in the last balance sheet, if any, as well as to profits and dividends as provided by that paragraph, and the report by accountants required by paragraph 2 thereof shall relate to the assets and liabilities of the business to be purchased as shown in the last balance sheet (if any) as well as to profits as provided by that paragraph; and references in those paragraphs to profits, shall be construed as referring to profits or losses, as the case may be.

(4) Where the company has subsidiaries, the said auditors' report shall be required—

1. (a) instead of dealing only with the company's profits or losses, to deal either as a whole or individually with the profits or losses of the company and, so far as they concern members of the company, with the profits or losses of its subsidiaries; and
2. (b) in addition to dealing individually with the company's assets and liabilities, to deal as a whole with the assets and liabilities of the company and of its subsidiaries, indicating the allowance to be made for persons other than the members of the company.

(5) If—

1. (a) the proceeds, or any part of the proceeds, of the issue of the shares or debentures are or is to be applied directly or indirectly in any manner resulting in the acquisition by the company of shares in or debentures of any other body corporate; and
2. (b) by reason of that acquisition or anything to be done in consequence thereof or in connexion therewith that body corporate will become a subsidiary of the company;

paragraph 2 of the said Part II shall apply as if the said proceeds were to be applied in the purchase of the business of the body corporate; and a report set out in the prospectus by virtue of this subsection—

1. (i) shall indicate how the profits or losses of the other body corporate will concern members of the company and what allowance is to be made, in relation to assets and liabilities, for other persons; and
2. (ii) where the other body corporate has subsidiaries, shall deal with the profits or losses and the assets and liabilities of the body corporate and its subsidiaries in manner provided by the last foregoing subsection in relation to the company and its subsidiaries.

(6) Any report by accountants required by the said paragraph 2 shall be made by accountants qualified under this Act to be auditors of a company.

(7) In paragraph 6 of the said Part III (which defines the expression "financial year" in the said Part II by reference to the period for which the accounts of the company or of the business, as the case may be, are made up) after the words "the company" in the first place where they occur there shall be inserted the words "or of the other body corporate" and in the second and third places where they occur there shall be inserted the words "or other body corporate".

(8) Any report required by the said Part II shall either indicate by way of note any adjustments as respects the figures of any profits or losses or assets and liabilities dealt with by the report which appear to the persons making the report necessary or shall make those adjustments and indicate that adjustments have been made.

LORD CHORLEY

The next two Amendments are small drafting Amendments. The words "as shown in the last balance sheet" might imply that the figures shown in the balance sheet should not be replaced, for example, by the new valuation of fixed assets or otherwise adjusted. Therefore, it is proposed that these words shall be substituted. I beg to move.

Amendment moved— Page 51, line leave out ("as shown in the last balance sheet, if any,") and insert ("at the last date to which the accounts of the company were made up").—(Lord Chorley.)

On Question, Amendment agreed to.

Amendment moved— Page 51, line 15, leave out ("as shown in the last balance sheet (if any)") and insert ("at the last date to which the accounts of the business were made up").—(Lord Chorley.)

On Question, Amendment agreed to.

THE MARQUESS OF READING moved, in subsection (4) (a), after "subsidiaries" to insert: or alternatively to deal with the profits or losses of the company and, so far as they concern members of the company, with the combined profits or losses of its subsidiaries treated as a whole. The noble Marquess said: I am in a little difficulty with this, owing to the absence of my noble friend, but I formally move the Amendment.

Amendment moved— Page 51, line 25, after ("subsidiaries") insert the said words.—(The Marquess of Reading.)

LORD CHORLEY

We will accept this Amendment.

On Question, Amendment agreed to.

THE MARQUESS OF READING

The next Amendment is consequential. I beg to move.

Amendment moved— Page 51, line 28, after ("subsidiaries") insert ("or with the assets and liabilities of the company treated separately and with the combined assets and liabilities of its subsidiaries treated as a whole").—(The Marquess of Reading.)

On Question, Amendment agreed to.

LORD CHORLEY

This is a drafting Amendment. Clause 51 (5) deals with the reports by accountants which have to be included in a prospectus where the proceeds of the issue are to be applied in acquiring such a share interest in another company as will make it a subsidiary. An issue to raise money and to buy the debentures of another company would not make the second company a subsidiary of the first. The reference to debentures in the clause is, therefore, inappropriate, and the Amendment is moved in order to get it deleted. I beg to move.

Amendment moved— Page 51, line 35, leave out ("or debentures of").—(Lord Chorley.)

On Question, Amendment agreed to.

LORD CHORLEY

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

Amendment moved— Page 51, line 45, leave out from ("corporate") to ("and") in line 2 on page 52 and insert ("dealt with by the report would, in respect of the shares to be acquired, have concerned members of the company and what allowance would have fallen to be made, in relation to assets and liabilities so dealt with, for holders of other shares, if the company had at all material times held the shares to be acquired").—(Lord Chorley.)

On Question, Amendment agreed to.

Clause 51, as amended, agreed to.

Clause 52:

Issue and registration of prospectus.

(2) No prospectus issued by or on behalf of a company or in relation to an intended company shall be issued unless the copy thereof delivered for registration under Section thirty-four of the principal Act has endorsed thereon or attached thereto—

1. (a) any consent to the issue of the prospectus required by this section from any person as an expert; and
2. (b) in the case of a prospectus issued generally, also—
1. (i) a copy of any contract required by paragraph 13 of Part I of the Fourth Schedule to the principal Act to be stated in the prospectus or, in the case of a contract not reduced into writing, a memorandum giving full particulars thereof; and
2. (ii) where the persons making any report required by Part II of that Schedule have made or indicated therein any such adjustments as are mentioned in the provisions of this Act relating to such reports, a written statement signed by those persons setting out the adjustments made and giving the reasons therefore

LORD CHORLEY

The next Amendment is a drafting Amendment. Clause 52 (1) requires a statement that an expert has given and has not withdrawn his consent to the issue of a prospectus with his expert report included in the form and context in which it is included, to appear on the face of the prospectus—a very important provision, as your Lordships know. The Amendment proposed is that it shall be sufficient for the statement in question to appear in the prospectus, not necessarily on the front page. I am sure your Lordships will agree that that is desirable. I beg to move.

Amendment moved: Page 52, line 32, leave out ("on the face of") and insert ("in")—(Lord Chorley.)

On Question, Amendment agreed to.

LORD CHORLEY

The next Amendment makes a slight alteration to the liability to penalty under Clause 52. Clause 52 (1) provides that a prospectus, including a statement purporting to be made by an expert, shall not be issued without his consent and without a statement that he has consented appearing on the face of the prospectus. The subsection also provides for a penalty on every person who is knowingly a party to the issue of a prospectus in contravention of the subsection. The Amendment extends the liability to penalty to the company and it brings Clause 52 (1) into line with Section 34 (5) of the Companies Act, which lays down a penalty for issuing a prospectus without a copy having been filed with the Registrar of Companies. I beg to move.

Amendment moved: Page 52, line 34, at the end, insert ("the company and").—(Lord Chorley.)

On Question, Amendment agreed to.

LORD CHORLEY moved, after subsection (4), to insert the following now subsection: (5) The right under subsection (1) of Section three hundred and fourteen of the principal Act of inspecting, or of requiring copies or extracts of, documents kept by the registrar of companies shall in relation to documents registered by virtue of sub-paragraph (i) of paragraph (b) of subsection (2) of this Section be exercisable only—

1. (a) during the fourteen days beginning with the date of publication of the prospectus; or
2. (b) with the permission of the Board of Trade."

The noble Lord said: Clause 52 (2) (b) (i) requires, in accordance with the recommendation of the Cohen Committee, that copies of material contracts, not being contracts entered into in the ordinary course of the business, or contracts entered into more than two years before the date of the issue of a prospectus, must be filed, together with the prospectus, with the Registrar of Companies. It is important that prospective subscribers to the issue should have an opportunity of inspecting these contracts, but they may contain information which, if it were permanently on record, might be of considerable help to competitors of the company which makes the contracts. The Amendment has been moved, therefore, to provide that, except for a period of fourteen days beginning with the date of publication of the prospectus, the contract shall be open to inspection only with the permission of the Board of Trade. Where inspection is desired in connexion, for example, with an action arising out of the prospectus, the Board of Trade will, of course, give the necessary permission. I beg to move.

Amendment moved— Page 53, line 27, at end insert the said subsection.—(Lord Chorley.)

On Question, Amendment agreed to.

LORD SALTOUN

There is a point here. I think the noble Lord's second Amendment rather disarmed me by reference to Section 314. As I understand this section, as amended, a company is liable to a fine not exceeding £500, as well as every person who is a real party to the misdemeanour. I would point out to His Majesty's Government that this is an offence which will not transpire until the company gets going, and it seems to me that it puts a penalty on all people subscribing for shares, whether or not they were members of the company at the time when the wrong was committed.

LORD CHORLEY

I should not have thought that was so, but since the noble Lord has suggested it to us we will look into the matter.

Clause 52, as amended, agreed to.

Clauses 53 and 54 agreed to.

Clause 55 [Statements in lieu of prospectus]:

LORD CHORLEY

The next is an Amendment framed to correct a very small oversight in the drafting of the Bill. I think, with your Lordships' permission, we might leave it at that.

Amendment moved— Page 56, line 16, leave out from ("shall") to the end of the subsection and insert ("apply in relation to the said Section twenty-seven as it applies in relation to the said Section forty.")—(Lord Chorley.)

On Question, Amendment agreed to.

Clause 55, as amended, agreed to.

THE LORD CHANCELLOR

I think we have made pretty good progress. It might be to your Lordships' convenience if we decide to break off at this point.

House resumed.