PART IV. (Hansard, 11 March 1947)

HL Deb 11 March 1947 vol 146 cc290-316 290

§ Interpretation of Schedule.

§ 1. For the purposes of this Schedule, unless the context otherwise requires—

(a) the expression "provision" shall mean any amount retained by way of providing for diminution in value of assets or for any known liability of which the amount cannot be determined with substantial accuracy;
(b) the expression "reserve" shall not include any amount retained by way of providing for diminution in value of assets or for any known liability;

§ THE LORD CHANCELLOR
The next Amendment we have to deal with is a drafting Amendment to clarify the position. I beg to move.

§ Amendment moved— Page 96, line 35, after ("for") insert ("depreciation, renewals or").—(The Lord Chancellor.)

§ On Question, Amendment agreed to.

§ VISCOUNT SWINTON
I do not propose to move the two Amendments which follow, but I think it would bs right that I should move the first Amendment to page 97, which is to leave out paragraph 4. I think that it will be completely covered by the Amendment of the noble and learned Viscount, the Lord Chancellor, to page 104, line 10. Is that not right?

§ THE LORD CHANCELLOR
Yes.

§ VISCOUNT SWINTON
Then I beg to move to leave out paragraph 4.

§ Amendment moved— Page 97, line 1, leave out paragraph 4.—(Viscount Swinton.)

§ THE LORD CHANCELLOR
I am quite prepared to accept this Amendment.

§ On Question, Amendment agreed to.

§ LORD CHORLEY
The next Amendment is consequential. I beg to move.

§ Amendment moved— Page 97, line 8, at end insert ("depreciation, renewals or").—(Lord Chorley.)

§ On Question, Amendment agreed to.

§ LORD CHORLEY
This is a further drafting Amendment. I beg to move.

§ Amendment moved— Page 97, line 18, at end insert ("depreciation, renewals or").—(Lord)

§ On Question, Amendment agreed to.

291

§ LORD CHORLEY
This is a further drafting Amendment. I beg to move.

§ Amendment moved— Page 97, line 23, leave out the second ("the") and insert ("any of the reserves or").—(Lord Chorley.)

§ On Question, Amendment agreed to.

§ VISCOUNT SWINTON
I would like to ask the noble and learned Viscount, the Lord Chancellor, if the next two Amendments standing in my name become unnecessary. If I am right, he has dealt with this matter at page 104, line 27. If that is so, these Amendments become superfluous.

§ THE LORD CHANCELLOR
I think that is so.

§ VISCOUNT SWINTON
Then I will not move them. I beg formally to move the third Amendment standing in my name. It is entirely a drafting Amendment, to make the meaning clear. I would accept either the words of the Bill or my words, whichever the noble and learned Viscount thinks is the better draftsmanship. I beg to move.

§ Amendment moved— Page 98, line 17, leave out from ("amount") to the end of line 18 and insert ("shall be shown free of tax and the fact that it is so shown shall also be stated."—(Viscount Swinton.)

§ THE LORD CHANCELLOR
We think the noble Viscount's drafting is better, and we will accept his Amendment.

§ On Question, Amendment agreed to.

§ VISCOUNT SWINTON moved to leave out paragraph 8 (6). The noble Viscount said: I beg to move to leave out subparagraph (6), not because I think it ought necessarily to be deleted but because I should like to have an explanation of exactly what it is intended to cover and how it will work. As your Lordships see, the sub-paragraph reads as follows: The aggregate amount or estimated amount, if it is material, of contracts for capital expenditure, so far as not provided for. I would be grateful if one of the Ministers would explain to us what it is all about. I beg to move.

§ Amendment moved— Page 98, line 25, leave out sub-paragraph (6).—(Viscount Swinton.)

§ THE LORD CHANCELLOR
I do not pose as a very great authority on this 292 matter, but I am told that the information may be most important to shareholders, and that without it the picture would not be complete. It may be argued that it might, in some cases, give too much information to competitors, but on the whole we think not. We ask your Lordships to say that this is a piece of information which ought to be included and can be included. Personally, I should be reluctant to see sub-paragraph (6) taken out.

LORD RENNELL
There is not a great difficulty in actually giving what is asked for in a contract for capital expenditure in its easiest form—a contract to buy something or erect something for which a given sum of money has been provided, in whole or in part. If it is only provided in part, then the amount not provided for is bound to be shown under this sub-paragraph. In practice, with big industrial plant, it is very difficult to say what the aggregate amount of the contract is. In the first instance, it may be a contract on a "cost plus" basis; it may be a contract the value of which is to be determined subsequently by agreement or by arbitration, and it may be that capital expenditure is represented not merely by one contract at all but by a series of contracts, one of which joins on with the other. It is not possible for a director of a company making capital expenditure on a certain scale—for instance in a steel-works—to say what the capital expenditure is and how much has been provided for, especially if it is divided up into stages. I think, therefore, that some amplification of the wording is required, even if something of this sort is allowed to remain in. I suggest that it might be reconsidered with a view to its omission, because I think it is a. very difficult subparagraph to comply with.

§ VISCOUNT MAUGHAM
I should like to support what has just been said by my noble friend. I have been concerned with cases where the contracts involve £1,000,000—contracts in which you could not really estimate at a particular time the amount of capital expenditure which ultimately would be involved. In those cases it would have been very difficult to find out precisely what it was. I venture to think it would be even impracticable to try to do so, and that it would be better that some such words as these 293 should be inserted: "so far as is practicable at the time," or something of that sort.

§ THE LORD CHANCELLOR
I will certainly look into this matter between now and the Report stage and see whether we cart clarify or modify the schedule in this way. What we have in mind particularly are commitments of the sort which may have been entered into in regard to the purchase of land or buildings, which have not been disclosed and have not been provided for. Those ought to be dealt with. That is what we have in mind, but we will look into the question.

§ VISCOUNT SWINTON
I am very much obliged to the noble and learned Viscount. I have great sympathy with that point, because I imagine that it was designed really to catch the sort of company n which has made an issue and has then made commitments, and consequently has to say how much capital is required and how it is to be spent—I am paraphrasing the provision which has to go into prospectuses—and which has bitten off more than it can chew. On the other hand, as the noble and learned Viscount knows, plant is always changing. It you take, for instance, chemical works, you may renew your plant over the course of a few years, and you do not know what you are going to spend. This readjustment of plant is a continuous process in some industries. Of course, in a reputable company, what you really want to know is what has been added to the fixed assets, and that can only be shown, and properly shown, when a new fixed asset has been established. If it could be looked at from the point of view of protecting investors and shareholders in an adequate manner, and by making it flexible to include other companies, we can get the solution. I beg leave to withdraw my Amendment.

§ Amendment, by leave, withdrawn.

§ LORD SALTOUN moved to leave out paragraph 8 (8). The noble Lord said: After what the noble Lord Chancellor has said I do not suppose he will look at this particular Amendment which I move. I take the opportunity to point out that while a company's investments might be quoted at Stock Exchange prices and be perfectly right with regard to ordinary stock exchange counters, especi- 294 ally in London, it is a very illusory thing when there are a large number of companies which do have local stock exchange quotations and in whose shares there are very few dealings. I could easily name several companies which are quoted on the stock exchanges and whose shares probably have a value very different from that at which they are quoted on their own stock exchanges where they are very seldom dealt in. What I am afraid of in this provision is that it will, as a rule, tend to give shareholders as a whole a rather too rosy view of their company's finances, and that is just as much to be deprecated as a gloomy view. In conclusion, I would say that I know one company which dealt largely in investments, an investment trust company, of which the chairman in 1929 said boldly, "None of the investments which stand at the prices in front, of you is really worth the price it is quoted at; all the investments ought to be sold." Unfortunately he was unable to carry his brother directors with him and the company sustained a total loss in the next period. That is only one particular case.

§ Amendment moved— Page 98, leave out from the beginning of line 31 to the end of line 33.—(Lord Saltoun.)

§ THE LORD CHANCELLOR
I do not think I can accept this Amendment. As the noble Lord said, investments may have been written down and their real value may be greater than the balance sheet value. The quotation values may be those at which the securities were purchased and the real values may be substantially lower than the value in the balance sheet. In many accounts this fact is already disclosed, and I think it ought to be disclosed. The retention of this paragraph is, in our view, essential and achieves that desirable object. I cannot agree to leave this paragraph out.

LORD SALTOUN
I realize the force of the noble and learned Viscount's remarks. I would like to point out that I know several reputable companies who put in their balance sheets a note to the effect that investments held are worth at least the value in the balance sheet, or if not, they disclose it.

§ VISCOUNT MAUGHAM
This Amendment is of importance to an investment company. The correct market value is generally defined in this case as meaning 295 the middle price of the day in stock exchange investments, and it makes a great deal of difference in some investments.

§ THE LORD CHANCELLOR
I will look at that.

LORD SALTOUN
I beg leave to withdraw my Amendment.

§ Amendment, by leave, withdrawn.

§ LORD CHORLEY moved, at the commencement of sub-paragraph (II), paragraph 8, to insert: "Except in the case of the first balance sheet laid before the company after the coming into force of this Schedule." The noble Lord said: The object of this Amendment is to deal with points made in the next Amendment on the marshalled list standing in the names of Viscount Swinton, Lord Rennell and Lord De L'Isle and Dudley. I think the wording of the Government Amendment is perhaps a little more artistic than that of the other Amendment, but they deal with the same point. The point is that in the first year after the Schedule comes into force companies will not be able to give corresponding amounts for the items in the balance sheets for the preceding financial year. Therefore it is necessary that they should have this period of grace, and the Amendment is moved for that purpose.

§ Amendment moved— Page 98, line 39, insert the said words.—(Lord Chorley.)

§ VISCOUNT SWINTON
I agree this meets the same point more conveniently than the words standing in my name and the names of the other noble Lords.

§ On Question, Amendment agreed to.

§ LORD CHORLEY
The next Amendment and another affecting line 15 go together. They are both consequential on the re-drafting of paragraph 2 of Part I of the Schedule. I beg to move.

§ Amendment moved— Page 99, line 2, leave out lines 2 to 4, and insert ("(a) the aggregate amount charged to revenue by way of provision for depreciation, renewals or diminution in value of fixed assets;").—(Lord Chorley.)

§ On Question, Amendment agreed to.

§ LORD CHORLEY
The object of this Amendment is to require to be shown the total amount of tax levied including tax deducted at source from dividends 296 derived from investments of the company, and not just merely the United Kingdom tax where there has been a relief from tax elsewhere. In other words it rather widens the field. I beg to move.

§ Amendment moved— Page 99, line 7, leave out ("taxation assessable on profits") and insert ("income tax and other United Kingdom taxation on profits including where practicable as United Kingdom Income Tax any taxation imposed elsewhere to the extent of the relief if any from United Kingdom Income Tax and").—(Lord Chorley.)

§ On Question, Amendment agreed to.

§ LORD CHORLEY
The next is consequential.

§ Amendment moved— Page 99, line 15, at end, insert ("depreciation, renewals or").—(Lord Chorley.)

§ On Question, Amendment agreed to.

§ LORD LUCAS OF CHILWORTH Moved, at the end of paragraph 10 (1), to insert: (2) The amount of the company's trading turnover.

The noble Lord said
I hope I may have your indulgence, because although in moving this Amendment I feel I have a case, I have a very shrewd suspicion that I shall have to make my case. May I say this at the outset? I have sat through the whole of the proceedings on the Companies Bill with the exception of a few moments, and I have been very much impressed with the public-spirited manner in which this Bill has been debated. If the noble Viscount, Lord Swinton, will forgive my saying so, I think his public spirit has followed very hard on the heels of the noble and learned Viscount the Lord Chancellor, to make this a really outstanding Companies Bill. But I do feel that there have been times when we have forgotten that there are other sections of the public interested in these things, apart from the directors, the shareholders, and the prospective investors. There is the great body of the British public, and also that section of the public who invest their labour and their skill in our great public companies.
It would not be an exaggeration to say that the financial make-up of British industry is held in very great suspicion by the majority of the public in this country. That is the fault of industry itself. In the past, the policy of British industry in its financial matters has been to tell the British public as little as it possibly could, and the time has arrived when there must 297 be far fuller and franker disclosure of the financial make-up and financial manoeuvrings (if that word is not out of place in your Lordships' House). If there is nothing to hide, there is no reason why everything should not be disclosed. If there is a reason that anything should be hidden, that is all the more reason why it should be disclosed to public criticism. I maintain that to ask for this very simple thing-and it is very simple in spite of the complications which I fully anticipate will be woven around it—the disclosure of a Company's turnover, is in the interests, first of all, of the shareholders, because it is the only real yardstick by which shareholders can get a true estimate of the profit value. Against what has the profit been made? That, in my commercial experience, has always been the acid test of the value of the profit. Against what has it been made?
Secondly, I believe it is in the interest of the public that the public should know from what these profits have been made, and I an going, with your Lordships' permission, to quote to^e you one or two examples that I have culled from the Press during these last few days. I want you to ask yourselves, as ordinary members of the British public—not as men skilled in law, or in accountancy or in company affairs, but as ordinary common members of the public—what would have been your impressions if you had read these things? Here is one passage which relates to a well-known and popular store. I will not mention any names in giving your Lordships these extracts; I will not give the concerns in question a free advertisement. The undertaking to which I am first going to refer used to sell goods before the war limited to prices of 3d. and 6d.

A NOBLE LORD
Is it the Co-op.?

§ LORD LUCAS OF CHILWORTH
This extract is from the chairman's statement: the accounts disclose a profit for the year 1946 of £9,148,557, an increase of L1,898,909 … over that of the much improved year 1945. Now as everybody in this country knows, consumer goods are in short supply, and yet that firm can make profits on that scale. People cannot get what they want, and they know that for what they can get they must—if I may use such a vulgarism in your Lordships' House—"pay through the nose." And here is a company that can make a profit of over 298 £9,000,000. What was their turnover? I make no accusation whatsoever, but I do suggest that the first impression of members of the British public generally, if they have no yardstick to measure this by, must be that the public, in buying goods from this concern's stores, have been well arid truly fleeced. But if they had the turnover to use as a yardstick to measure it by, it might well be that it would show that a reasonable profit had been made on a. very extensive turnover. But that is not shown.
The chairman of that comply in another part of his speech said: Thus you get a picture of a well balanced and healthy year's trading. The opinion of the chairman of the company as to what constitutes a well balanced and healthy year's trading, I would suggest, is sometimes about as reliable as a mother's opinion of her firstborn child. Now I turn to a second example. This is provided by another well known and popular store which suddenly increased its profits from £164,000 to £500,000. Again, what are the public to think? Why should they not be told the full facts? I now come to the last case which I expect will cause some heart-burning among some of your Lordships.

LORD HAWKE
May I interrupt the noble Lord at this point to give him what I. hope he will regard as some pleasant news? I believe that I was in the second store to which he referred yesterday. There are a lot of goods on sale there without coupons. Perhaps that may account for some of the, profit.

§ LORD LUCAS OF CHILWORTH
I do not know about selling goods without coupons, but I believe that the second store to which I referred is dealing largely in Government surplus goods. Perhaps it would be interesting to have the facts published showing what the prices are that they charge for these goods and what the prices are that they paid for them.

LORD HAWKE
They are being sold cheaply.

§ LORD LUCAS OF CHILWORTH
Well, that is no argument against disclosure of turnover. The last case to which I wish to refer is that of a company who have just declared a dividend of 100 per cent. This company have been dealing in a commodity of which I have some knowledge, and they claim here that 299 they have for years past—but I will quote again from the chairman's report: For many years past your company, as England's leading motor agents, has specialized in the buying, reconditioning and selling of used cars, and I feel that during the past year the … organization has fulfilled a very urgent need in these days of limited new car production in being able to assist in satisfying the public's demand for transport— Out of this very public-spirited service this company make profits which enable them to declare a dividend of 100 per cent. Against what turnover are those profits made? It may well be that the turnover allows for only a very nominal profit, even though they are able to pay a dividend of 100 per cent., and that no one would be able to take any exception to their trading methods. But the suspicion is that the ratio of turnover and profit was not quite so reasonable as' it should be.
I do say seriously that the public should be told these important facts. It is due to the public to know what the turnover is of these public companies so that they may regain confidence in them. Perhaps some of your Lordships may have heard that apprehensions have been expressed by directors as to the effect upon the minds of some of the employees of our companies when they see what is the remuneration of the directors. I have heard the question asked: "What is going to be the effect upon the wage earners of disclosing directors' remuneration?"

§ VISCOUNT SWINTON
Not in this House, I think. Did any one in this House say that?

§ LORD LUCAS OF CHILWORTH
No, but it has been said to me. It has been said that if the total remuneration of directors is disclosed it would create suspicions in the minds of the work people. I say that you should give them a yardstick by which to measure the value of such remuneration. Suppose you are going to pay directors, in the aggregate, £50,000 or £100,000 for controlling a company with, let us say, a turnover of £10,000,000 or £15,000,000. Nobody is going to say that is too high. I think it is clear that those directors would earn their remuneration. But if you want to remove suspicion about these things I claim that you must give the public this full information.
300 Finally, what are the objections to disclosing the turnover? I do not think anybody is going to say that turnover cannot be arrived it. I should not expect that for one moment. Every commercial executive goes into some office of his works every day of his life and immediately asks: "What is the turnover?" The turnover is one of those things which is put on a chart and which we company directors hope will go up and up and up. Any auditor, or any accountant, can easily get the turnover of any company. Objection may be made that it could be misleading; but could anything be more misleading to the public than the profits I have just read out? It is no more misleading than being asked to disclose, as a company has to disclose, the total profit. That could be misleading because nobody knows how it has been made. I do not accept, for one moment, that the disclosure of turnover is misleading.
Again, it might be said that it would give an unfair advantage to some companies over others. That I cannot accept, because it applies in this particular case to companies other than exempt companies, and these companies have so large a business that everybody in competition with them knows all about them. One of the first things you do in business today is to find out all about your competitor's business, and one of the first things you want to know is what is your competitor's turnover. That is the only measurement by which you can judge what share of any market in any particular commodity your competitor is getting with yours. I hope the noble and learned Viscount the Lord Chancellor will seriously consider this Amendment and if he cannot accept it this afternoon will at least give it some more consideration. I believe that it is in the interest of the whole of the public, and certainly in the interest of the whole of industry, that these figures should be disclosed. I beg to move.

§ Amendment moved— Page 99, line 31, at end insert the said words.—(Lord Lucas of Chilworth.)

§ THE LORD CHANCELLOR
The noble Lord has been very eloquent and has put forward a powerful case with great energy, vigour and skill. I am bound to tell him that, having listened to him, I must still make the answer which I have been instructed to make; that is to say, I must resist this Amendment. It 301 is a technical and complicated matter, and I do net conceal from noble Lords that there are two schools of thought amongst accountants about this. It is quite true that there are some eminent and distinguished accountants who think that this information would be useful, but, on the other hand, there are a large number of eminent and distinguished accountants who think to give it would be a mistake. There is a division of opinion. The Cohen Committee had evidence put before them about this matter, and if your Lordships will turn to paragraph 97 on page 54 they will see this statement towards the end of the paragraph: We have also considered suggestions that, to assist those responsible for framing general economic policy, companies should be required to disclose in their accounts details of sales, expenses of production, selling and distribution administration and management, and other like details. In our view, however, such information could not be given in sufficient detail to achieve the object in view without loading the published accounts, of which the primary purpose is to convey financial information in a form that can be assimilated by shareholders and creditors, with so much derail as to fail in that purpose. They made no specific recommendation at all about this question of turnover. It is quite true the noble Lord can answer that by saying he is only recommending that a single figure should be given—a sort of weather gauge. Unfortunately, weather gauges are not always reliable, and that figure frequently has little meaning without a good deal of other information, such as, for instance, stocks in existence and purchased. It would be necessary to require all companies to furnish a complete trading account. I quite agree that there are instances—the noble Lord has given some—where particulars of the trading turnover in relation to profit may have significance, but in a great many other instances, perhaps the majority, they would not, and much more information would be necessary in order to know their precise significance. It would be a great danger, and people might be misled, if a figure of this sort were given without further information. As against the cases where the public might be helped, there might be many more cases where they would he misled, and, in consequence, the companies concerned would have to disclose much more information than that asked for by the noble Lord, Lord Lucas.
There is a further matter. This Bill has received a great measure of general 302 agreement, and it is certain that an Amendment such as that proposed by Lord Lucas, with the best of intentions, would not receive general support and would introduce an element of disquiet which has, happily, been absent from the discussion on this Bill. I do riot desire to stress unduly the difficulties of definition (I have no doubt they could be surmounted) but it is necessary to remember that all cases are by no means so simple as those of the firms the noble Lord instances. Supposing you get a case of a contractor building a bridge, and taking three years to build that bridge. can conceive it might be extraordinarily difficult to answer the question as to what is the trading turnover in that case. Or supposing you have a group of holding and subsidiary companies where it is necessary to eliminate inter-company transactions in order to prevent a large amount of duplication. I think the noble Lord will see his suggestion is not so simple as he seemed to make out, and would need a great deal of elaboration.
There is the other point which he mentioned. I do not want to stress it unduly, but it has been represented that many concerns, particularly the smaller ones which are riot exempted private companies, would be seriously prejudiced by the disclosure of this information to their competitors. You may have a grocer's shop which is not an exempted private company. I can imagine that the disclosure of turnover would be of wry great value to a chain store in making up their minds to go and set up next door to that grocer's shop. That is an aspect we ought to consider. Therefore, for these reasons I am bound to tell the noble Lord, although I have great sympathy for the point of view he put forward so forcibly, that I do not think it would be appropriate or wise to include this provision in this Bill at the present time.

§ LORD LUCAS OF CHILWORTH
I thank the noble and learned Viscount the Lord Chancellor for the trouble he has taken in getting so well briefed upon this point. Any argument I might put forward now would be only of academic interest, so I do not intend to argue the matter further except to say that I was far more impressed by the second part of the argument than the first, the second part being that this. Bill has got so far in a very happy and non-controversial atmosphere. Far be it from roe to throw the apple of 303 discord into what has been such a pleasant, entertaining and instructive occasion. But if we are going to frame a Companies Act round what is convenient to engineering contractors who build Sydney bridges, and isolated cases of that description, and if the noble and learned Viscount's advisers can think of no better cases in contradiction of my argument than he has brought forward, then, if I may say so with respect, I would prefer my advisers to his. However, having said that, may T have your Lordships' permission to withdraw my Amendment?

§ Amendment, by leave, withdrawn

§ LORD CHORLEY
The next Amendment is consequential.

§ Amendment moved—

§ Page 99, line 32, leave out sub-paragraph (2) and insert ("(2) If depreciation or replacement of fixed assets is provided for by some method other than a depreciation charge or provision for renewals, or is not provided for, the method by which it is provided for or the fact that it is not provided for, as the case may be ").—(Lord Charley.)

§ On Question, Amendment agreed to.

§ LORD CHORLEY
This is another consequential Amendment. It is consequential on the Amendment to the First Schedule, Page 98, line 39, and it provides that in the case of the first profit and loss account after the Schedule comes into operation, the corresponding amounts of the previous year need not be given. It is parallel to the Amendment we dealt with a few minutes ago on the same point relating to the balance sheet. I beg to move.

§ Amendment moved— Page 99, line 40, at beginning, insert ("Except in the case of the first profit and loss account laid before the company after the coming into force of this Schedule").(Lord Chorley.)

§ On Question, Amendment agreed to.

§ LORD CHORLEY moved, in paragraph 1(2), to leave out "references therein to provisions shall not, except in paragraph 4 thereof, include provisions for losses of subsidiaries," and to insert: Paragraph 2, sub-paragraph (I) (a) of paragraph 9 and sub-paragraph (2) of paragraph co thereof shall nut apply in relation to fixed assets consisting of interests in its subsidiaries, The noble Lord said: This Amendment deals with the question of fixed assets.

304 The point is that the term "fixed assets" would include the interest of a holding company in its subsidiaries. The Amendment is drafted so as to exclude such interests from the provisions relating to fixed assets. Under Part II of the Schedule the information about its interests in its subsidiaries has to be given by the holding company, and that should be all that is necessary. I beg to move.

§ Amendment moved— Page 100, line 12, leave out from ("and") to end of line 14 and insert the said new words.—(Lord Chorley.)

§ On Question, Amendment agreed to.

§ LORD CHORLEY moved, in Part II, at the end of paragraph I (3) to insert: or their nominees, but excluding any of those shares or debentures in the case of which the subsidiary is concerned as personal representative or in the case of which it is concerned as trustee and neither the company nor any subsidiary thereof is beneficially interested under the trust. The noble Lord said: Paragraph 1(3) of Part II of the First Schedule requires the disclosure in the accounts of a holding company of the amount of its shares and debentures held by its subsidiaries. The Amendment proposes to include in this requirement the shares in, and debentures of, the holding company held by nominees of the subsidiary, which I am sure your Lordships will think is very necessary. On the other hand, it excludes the case where the nominee is holding purely in the capacity of a personal representative or as a trustee or in some position of that kind. For example, if a bank nominee company holds shares as executor in the banking company itself of which it is a nominee, then obviously that need not be disclosed. I am sure the Amendment will meet with the approval of your Lordships, and I beg to move.

§ Amendment moved— Page 100, line 18, at end insert the said words.—(Lord Chorley.)

§ On Question, Amendment agreed to.

§ LORD CHORLEY
There are three Amendments here which go together. There is one in line 25, one in line 30 and one in line 32. They go together, and the position is this. Paragraph (4) (b), as it stands, requires a disclosure of the net amount of the subsidiaries' profits, and, separately, of the amounts dealt with and of the amounts not dealt with in the companies accounts, 305 because by leaving undistributed profits in subsidiary companies and not taking them into account in their own accounts, holding companies would be creating a hidden reserve. The Amendments provide for disclosure of the amounts of the subsidiaries' profits not dealt with in the accounts of the holding company, and, separately, the amounts so dealt with, but do not require the total to be given of the two amounts.
The amounts not dealt with in the accounts of the holding company have to be shown under two separate headings; first of all, for the respective financial years of the subsidiaries ending with or during the financial year of the holding company, and, secondly, for their previous financial years since they respectively became subsidiaries of the holding company. The amounts dealt with in the accounts of the holding company have also to be dealt with under two separate heads. The first of these headings is exactly the same as in the case of amounts not dealt with in the accounts of the holding company, but the second heading relates to the other financial years since the subsidiaries respectively became subsidiaries of the holding company. I am afraid it is a little bit complicated but we feel that it is necessary, and I beg to move.

Tim LORD CHAIRMAN OF COMMITTEES
Perhaps it would be convenient to take these three Amendments together.

§ Amendment moved— Page 100, line 25, after ("company") insert ("and is not dealt with in the company's accounts").—(Lord Chorley.)

§ On Question, Amendment agreed to. Amendment moved— Page 100, line 3o, leave out ("other") and insert ("previous").—(Lord Chorley.)

§ On Question, Amendment agreed to.

§ Amendment moved—

§ Page 100, line 32, leave out from beginning to end of line 33, and insert: (" (c) the net aggregate amount of the subsidiaries' profits after deducting the subsidiaries' losses (or vice versa)—

(i) for the respective financial years of the subsidiaries ending with or during the financial year of the company; and
(ii) for their other financial years since they respectively became the holding company's subsidiary;

so far as those profits are dealt with, or provision is made for those losses, in the company's accounts.").—(Lord Chorley.)

306

§ On Question, Amendment agreed to.

§ 4.58 p.m.

§ LORD CHORLEY
My Lords, the next Amendment is consequential on the first of the Amendments which your Lordships accepted to Clause 12. which is on Page ii, line 9. Your Lordships will remember that that was rather an important matter under which the Board of Trade were given a discretion to permit a holding company not to deal with the accounts of its subsidiaries in its own accounts in cases where the Board felt it was right and necessary. This Amendment has been tabled to make it quite clear that the Board of Trade shall have power not only to dispense with consolidation but also with other requirements which apply to the accounts of a holding company.

§ Amendment moved—

§ Page 100, line 44. at end insert: ("Provided that in relation to a subsidiary not dealt with in consolidated accounts by virtue of a direction of the Board of Trade, this sub-paragraph shall apply only to such extent (if any) as may he provided by the direction.").—(Lord Chorley.)

§ On Question, Amendment agreed to.

§ LORD CHORLEY moved, in paragraph I (5) of Part II, to leave out from the beginning to "and," where that word occurs a third time, and to insert: (5) Paragraphs (b) and (c) the last foregoing sub-paragraph shall apply only to profits and losses of a subsidiary which may properly be treated in the holding company's accounts as revenue profits or losses, and the profits or losses attributable to any shares in a subsidiary for the time being held by the holding company or any other of its subsidiaries shall not be treated as aforesaid so far as they are profits or losses for the period before the date on or as from which the shares were acquired by -the company or any of its subsidiaries; The noble Lord said: The purpose of paragraph I (5) of Part II of the Schedule is in general to secure that where a company holds shares in a subsidiary it shall not treat profits which were earned by the subsidiary before the acquisition of the shares as revenue profits in its own accounts. They are, of course, strictly speaking, part of the capital which it has taken over. As drafted, the paragraph provides that the operative date is that of the acquisition of the shares, but sometimes the contract of sale is expressed so that it is deemed to operate 307 from a different date from that at which it would legally have effect. The Amendment provides that the date on or as from which the shares were acquired by the company or any of its subsidiaries shall be the operative date. I beg to move.

§ Amendment moved— Page 100, line 45, leave out from beginning to ("and") in line 4 on page rot and insert the said paragraph.—(Lord Chorley.)

VISCOUNT ELIBANK
That does not alter the existing practice, does it? I think that is the existing practice.

§ LORD CHORLEY
I am afraid I cannot answer that, but it is necessary that this Amendment should be moved in order to improve on the position as it appeared on the original draft, which was defective in the way which I have indicated.

§ THE LORD CHANCELLOR
It is at present good accounting practice, but it is not legal.

§ LORD CHORLEY
The object is to make the present good accounting practice legal accounting practice.

§ On Question, Amendment agreed to.

§ LORD CHORLEY
There are six Amendments following which are really consequential and drafting—that is to say, to lines 13, 15, 20, 25, 26 and 27, which really all go together; and which I would like your Lordships to take together. The object of this little group of Amendments is to simplify the requirements as to the accounts of holding companies. They are designed to omit some of the requirements which appear in the Schedule as drafted, and which it is considered, on further reflection, are not really essential. The provisions which it is proposed to omit relate to the disclosure in the accounts of a subsidiary company of the amount of shares held by it in any companies in relation to which it is itself a subsidiary company or in respect of which it is a fellow subsidiary. That is the first group. The other deals with the distinguishing of the amounts of shares held in, and indebtedness to, different groups of companies, which it would have to do under the clause in the Schedule as originally drafted. It is felt that these are refinements which are not really necessary and these Amendments have been drafted in order that these obligations shall not be imposed. I beg to move.

308

§ Amendment moved— Page 101, line 13, leave out from beginning to end of line I4.—(Lord Chorley.)

§ LORD BALFOUR OF INCHRYE
Could the noble Lord say what a fellow subsidiary is? I cannot find it defined in the Schedule.

§ LORD CHORLEY
It is not a term of art, but I think it is fairly obvious that you frequently get a case where one subsidiary is the fellow of another subsidiary in a holding company.

§ VISCOUNT SWINTON
Is the term used in the collegiate or the social sense?

§ LORD CHORLEY
It is used in the "common sense."

§ On Question, Amendment agreed to.

§ Amendment moved— Page 101, line 15, leave out ("such bodies corporate") and insert ("bodies corporate of which it is a subsidiary or a fellow subsidiary").—(Lord Chorley.)

§ On Question, Amendment agreed to.

§ Amendment moved— Page 101, line 20, leave out sub-paragraph (2).—(Lord Charley.)

§ On Question, Amendment agreed to. Amendment moved Page 101, line 25, at end insert ("body corporate").—(Lord Chorley.)

§ On Question, Amendment agreed to. Amendment moved Page 101, line 26, leave out ("company") and insert ("body corporate").—(Lord Chorley.)

§ On Question, Amendment agreed to.

§ Amendment moved— Page 101, line 27, leave out from ("other's") to end of line 30.—(Lord Chorley.)

§ On Question, Amendment agreed to.

§ VISCOUNT ELIBANK moved, in Part II, B, at the end of paragraph 4, to insert: The aggregate amount of remuneration to directors to be disclosed in the consolidated accounts shall be restricted to the aggregate sum paid to persons who are directors of the holding company, such aggregate sum to include the amount received by such persons both from the holding company and from any subsidiary companies of which they may be directors.

§ The noble Viscount said: I would like, first of all, to say that I am not quite sure that I placed this Amendment after the proper paragraph. Looking at it 309 again, I think probably it would be better if it came after line 4o. However, it is a very simple Amendment. The aggregate amount of remuneration to directors to be disclosed in the consolidated accounts should be restricted, I suggest, to those directors who are directors of both the holding company and the subsidiaries, and should not apply to directors who are directors. of the subsidiaries and not of the holding company. Otherwise you will not get a true picture of the remuneration receivable by the the directors of the holding company and the subsidiaries. There may be, somewhere else in the Bill, something which meets that point of view, but I have not been able to find it. I beg to move.

§ Amendment moved— Page 101, line 44, at end insert the said words.—(Viscount Elibank.)

§ THE LORD CHANCELLOR
I quite appreciate what the noble Viscount has in mind in moving this Amendment, and I think there is substance in it. I asked the Parliamentary draftsman whether the language was entirely appropriate, but he thought it was not and has prepared another version which is intended to do exactly the same. Your Lordships will see that that comes in the next Amendment. This is what the Parliamentary draftsman has done to carry out the wishes 01 the noble Viscount. The substance of the thing is the same, but I prefer the drafting as done by the Parliamentary draftsman. I would ask the noble Viscount if he would be good enough not to press his Amendment, and I will in a moment move the Amendment in the form which has been prepared for me, which gives the noble Viscount all he wants and is really another version of his idea.

VISCOUNT ELIBANK
I looked at the next Amendment thinking perhaps that it was meant to replace mine but, quite frankly, with great respect, I could not understand it; I could not make out what it meant. My own Amendment seemed to me far more simple arid direct, and it explains what is required. The Amendment which the noble and learned Viscount has placed upon the Order Paper scorns to be one of those almost incomprehensible provisions which the draftsmen can understand but which the layman cannot make out. If I withdraw my Amendment, I would ask the noble 310 Viscount to see whether he cannot get something inserted which can be understood by the ordinary company secretary, or whoever has _to deal with these things.

§ THE LORD CHANCELLOR
I think the difficulty in understanding it is only because it talks about "Section 128 of the principal Act and Section 3o of this Act." That illustrates the importance of consolidation. When the two measures are together I think the difficulty will disappear.

VISCOUNT ELIBANK
I accept what the noble and learned Viscount has said, and beg leave to withdraw my Amendment.

§ Amendment, by leave, withdrawn.

§ THE LORD CHANCELLOR moved, at the end of paragraph 4, to insert: 5. In relation to past and present directors and other officers of-the holding company, section one hundred and twenty-eight of the principal Act and section thirty of this Act (except so much of the said section thirty as requires the sums paid by or receivable from different persons to be distinguished) shall apply for the purpose of the consolidated accounts as if they were the accounts of the holding company, but save as aforesaid the consolidated accounts need not comply with the requirements of those sections. 6. Paragraph 5 of Part I of this Schedule shall not apply for the purpose of any consolidated accounts laid before a company with the first balance shoot so laid after the coming into force of this Schedule.

The noble and learned Viscount said
This is the Amendment to which I have just referred. It falls into two sections. Paragraph 5 is intended to reproduce in correct form the Amendment we have just been discussing. Paragraph 6 is intended to pick up a point raised by the noble Viscount, Lord Swinton, and on which he put down an Amendment. The object of paragraph 5 is to secure that consolidated accounts need not show information about remuneration, pensions, compensation for loss of office of directors, or loans to directors, in the case of directors of subsidiary companies who are not directors of the holding company.
It also provides that the information shown in the consolidated accounts as to the remuneration of the directors of a holding company, including any remuneration received by them from subsidiary companies, need not be shown under the three separate headings required by Clause 3o—that is, re- 311 muneration received from the company, from the company's subsidiaries, and from any other person. All that will have to be shown will be the aggregate sum in respect of those three headings. The balance sheet and profit and loss account which the holding company has to present, in addition to the consolidated accounts, will give the information required by Clause 30 under the three' separate headings. It is, therefore, unnecessary for these details to be repeated in the consolidated accounts, and an aggregate figure will suffice.
Paragraph 6 is substantially the same as the Amendment which the noble Viscount, Lord Swinton, put down to Clause 12, page II, line 25. It provides that for the purpose of the consolidated accounts laid before a company with the first balance sheet after the coming into force of the Schedule, paragraph 5 of Part I of the Schedule shall not apply. That paragraph requires the disclosure of additions to and withdrawals from capital reserves, revenue reserves or provisions, the Source from which any additions have been derived and the application of any amounts withdrawn. It occurred to us that this information might not be available to a holding company in the case of subsidiaries at the date of the coming into force of the Schedule, as the subsidiaries would have been under no obligation to keep this information. It is to meet that point—a point which the noble Viscount had in mind—that we have included paragraph 6 of this Amendment. I think I can assure your Lordships that, complicated though the paragraphs are, when they fit into their proper place in the Consolidated Act they will be quite simple and easy to understand. I beg to move.

§ Amendment moved— Page 101, line 44, at end insert the said paragraphs.—(The Lord Chancellor.)

§ VISCOUNT SWINTON
The second paragraph covers the point I had in mind.

§ On Question, Amendment agreed to.

§ LORD CHORLEY
This Amendment is purely consequential on the Amendment to Clause 12, to which I referred a few moments ago.

§ Amendment moved— Page 102, line 10, leave out from the first ("it") to ("coincide") and insert ("should not ").—(Lord Chorley.)

§ On Question, Amendment agreed to.

312

§ LORD CHORLEY
This Amendment is consequential on the Amendments to lines 13, 20 and 27 of page 101. Those Amendments remove the need for showing certain shareholdings. Paragraph 7 is made unnecessary as a result and therefore it is proposed to leave it out. I beg to move.

§ Amendment moved— Page 102, line II, leave out paragraph 7.—(Lord Chorley.)

§ On Question, Amendment agreed to.

§ LORD CHORLEY
This is a further consequential Amendment on the Amendment to Clause 12, which, again, was referred to a few minutes ago. I beg to move.

§ Amendment moved— Page 102, line 16, leave out paragraph 8.—(Lord Chorley.)

§ On Question, Amendment agreed to.

§ LORD CHORLEY
This is a consequential Amendment, this time consequential on the Government's Amendment redrafting paragraph 2 on page 96. It does not affect the exemptions allowed to banking and discount companies. The requirement in sub-paragraph (3) of paragraph 2 to state the method of arriving at the amount of any fixed assets has simply been transferred by the Government Amendment to sub-paragraph (3) of paragraph I. I beg to move.

§ Amendment moved— Page 102, line 27, leave out ("sub-paragraph (3) of paragraph 2").—(Lord Chorley.)

§ On Question, Amendment agreed to.

§ LORD CHORLEY
This Amendment is also consequential.

§ Amendment moved— Page 102, line 34, after ("for") insert ("depreciation, renewals or").—(Lord Chorley.)

§ On Question, Amendment agreed to.

§ LORD CHORLEY
This is a drafting Amendment. In paragraph 2 of Part III of the First Schedule there is in the case of assurance companies an exemption from certain requirements as to accounts if they comply with the requirements of the Assurance Companies Acts of 1909 and the various other Acts, culminating in one of 1946. As your Lordships are aware, the requirements of the Assurance Companies Acts in regard to accounting are very stringent, and certainly quite as stringent 313 as those in the present Bill. Assurance Companies normally prepare two sets of accounts, one which they have to provide under the Assurance Companies Acts, and which is very complete and stringent, and a rather more general one for the purposes of their own shareholders. As the draft originally appeared, it might have been thought that they would have to provide a complete and stringent set of accounts for the shareholders, but it is not really desirable that there should be these two sets of accounts prepared on that sort of basis. It is not considered that they should have to render in addition accounts as provided for by the Assurance Companies Acts, and the Amendment is designed to make it clear that that is not so. I beg to move.

§ Amendment moved— Page 102, line 47, leave out ("its") and insert ("the preparation and deposit with the Board of Trade of a").—(Lord Chorley.)

§ On Question, Amendment agreed to.

§ LORD CHORLEY
This is consequential on the Amendment to page 96.

§ Amendment moved— Page 103, line 9, leave out paragraph 3—(Lord Chorley.)

§ On Question, Amendment agreed to.

§ LORD CHORLEY
This is a further consequential Amendment.

§ Amendment moved— Page 103, line 21, leave out ("or a public utility company").—(Lord Chorley.)

§ On Question, Amendment agreed to.

§ LORD CHORLEY
This is purely consequential on the Amendment to Clause 12. The Board of Trade will no longer need these powers.

§ Amendment moved— Page 103, line 27, leave out paragraph 5.—(Lord Chorley.)

§ On Question, Amendment agreed to.

§ VISCOUNT SWINTON
These are two Amendments to insert the Cohen Committee's definition of "current" and "fixed" assets. The Schedule has been so much amended that I am not sure whether assets definitions have not been inserted or, at any rate, implied, by some of the Amendments which the Government themselves have moved. I would rather like the Government's advice as to whether my Amendments had better go in or riot. I beg to move.

314

§ Amendment moved— Page 203, line 42, at end insert ("the expression 'current assets' means cash and assets held for conversion into cash").(Viscount Swinton.)

§ LORD CHORLEY
I am afraid we are not able to accept this Amendment, but we shall be happy to consider the problem between now and the Report stage.

§ VISCOUNT SWINTON
I understand they are no longer needed, and the noble Lord need not give it any further consideration. I beg leave to withdraw my Amendment.

§ Amendment, by leave, withdrawn.

§ LORD CHORLEY moved, in Part IV, to leave out sub-paragraphs (a) and (b) of paragraph I and insert:

"(a) the expression "provision" shall, subject to sub-paragraph (2) of this paragraph, mean any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets or retained by way of providing for any known liability of which the amount cannot be determined with substantial accuracy;
(b) the expression "reserve" shall not, subject as aforesaid, include an amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets or retained by way of providing for any known liability;"

§ The noble Lord said: This Amendment provides definitions for the expression provision "in contrast to the expression "reserve." It was explained by. my noble and learned friend yesterday on an Amendment moved by the noble Lord, Lord Saltoun, and I do riot think your Lordships would like me to go over the ground again. I beg to move.

§ Amendment moved— Page 103, line 43, leave out from beginning to end of line 3, on page 104, and insert the said new sub-paragraphs.—(Lord Charley.)

LORD SALTOUN
I do not propose to move the first Amendment in my name which immediately succeeds this Amendment, and therefore I will make now the point which I should have made then. I very respectfully urge the Government to consider it. If you observe these two definitions, they are not really mutually exclusive and they leave something not defined. I consulted the Accountants' dictionary, and I also asked my own Association for their definition of "provision." They say that a provision is a sum set aside or retained either to meet a specific liability—and then they gave some examples—or to cover a specific diminution in the value of an asset.
315 "Reserve," on the other hand, is a sum retained to meet unknown contingencies or for the development of the business. The difference between "provision" and "reserve"—I should like to see the whole thing treated more generally—is that a "provision" is a sum set aside for something that can reasonably be estimated, such as a liability that is certain. A "reserve" is for something that cannot be reasonably estimated and in fact it embodies everything of the same kind which is not a "provision." The part I would rather suggest altering is in the last line and a half of the definition of "provision." I should be inclined to say, "by which the amount can be estimated with reasonable accuracy."
There you would have two alternative definitions. As it is, if you make a provision for something which you can accurately determine, then it is neither a provision nor a reserve, and I should very much like to ask His Majesty's Government what they would like it called. I hope, therefore, that they will consider this point at a later stage in the Bill, and that they may alter the definition. I am bound to say that I do not think these definitions define very well. I rather take exception to them as definitions.

§ VISCOUNT BRIDGEMAN
The Amendment which we are discussing now is a good deal more important than some of the Amendments which we have had of late. I agree very much with my noble friend Lord Saltoun that we should try to define exactly what is meant and what is required by the Amendments which we have here. I would put it in rather a different way, 'because I very much doubt—whatever my noble friend Lord Saltoun says—whether it is possible to get a form of words which can cover every possible contingency in every possible company. Therefore, I am going to approach it, if I may, from another angle.
Reading these Amendments, it looks as if the intention behind the drafting is that you should show in reserve only those things which are absolutely free and which might be capitalized, or reserves such as those created by the refund of Excess Profits Tax, and so forth. On the other hand, if there is any possible use to which your reserve or provision could be 316 allocated—contingencies, taxation, pensions and anything of that sort—and if the amount is known or approximately known, then you should not attempt to describe that as a reserve, but should in the ordinary course of things describe it as a provision. I hope that the noble Lord opposite can say whether I am right in that or whether I am wrong.
I am fortified in hoping that I am right by two things. First of all, with the leave of the House, may I refer to the Amendment laid down by the noble and learned Viscount, the Lord Chancellor, on page 104, line 10? It seems to me that the intention there is that directors of companies are to be allowed a good deal of latitude and generosity in making provision for renewals, depreciations and so forth, and that only when they have made all the provision they want in that respect is the balance, if such balance there be, placed to reserve. That is one of the reasons I hope I am right in advancing. Like the noble Lord, Lord Lucas, I have been examining the balance sheets of leading companies, but for quite a different purpose. Like him, I adopt the policy, "No names, no pack drill." I noticed that in the case of one leading company, audited by a leading firm of auditors, that practice has been followed. Nothing is shown as reserve which can be of any possible use, and anything which can be of any possible use is shown as provision.

§ House resumed.

§ House adjourned during pleasure. House resumed.

§ 5.30 p.m.