COMPANIES BILL. [H.L.]

HL Deb 25 March 1947 vol 146 cc687-715

2.47 p.m.

House in Committee (according to Order) on recommitment of the Bill.

[The Earl of Drogheda in the Chair.]

Clause 1 agreed to.

Clause 2:

Length of notice of meetings and of business thereat.

2.—(I) For paragraph (a) of subsection (I) of Section one hundred and fifteen of the principal Act (which, subject to the company's articles, provides that a meeting of a company other than a meeting for the passing of a special resolution may be called by seven days' notice in writing) there shall be substituted the following paragraph:- (a) a company's annual general meeting may be called by twenty-one days' notice in writing, and a meeting of a company other than an annual general meeting or a meeting for the passing of a special resolution may be called by fourteen days' notice in writing; and, notwithstanding anything in the said subsection (1), any provision of a company's articles shall be void in so far as it provides for the calling of a meeting of the company (other than an adjourned meeting) by shorter notice than that specified in this subsection.

(4) In the provisions of the principal Act hereafter mentioned in this subsection there shall be substituted the longer for the shorter time limit so mentioned, that is to say— (c) in subsection (3) of Section one hundred and thirty-two (which relates to notices of resolutions as to the appointment of a company's auditors at the annual general meeting) twenty-eight days for fourteen days, in both places, and twenty-one days for seven days, and in proviso (a) to subsection (4) of that section (which makes similar provision as respects auditors appointed before the first annual general meeting) fourteen days for seven days.

LORD SALTOUN moved, at the end of subsection (I), to insert: Provided that in the case of an unlimited company any meeting may be called by such notice (not being less than seven days) as is enjoined in the company's articles.

The noble Lord said: My Lords, I have put down the Amendment which stands in my name as an expression of anxiety for the protection of minority share- holders, especially in unlimited companies, and I venture to think that this Amendment gives that protection. In dealing with those companies, about which our official advisers have no or very little information, I must ask your Lordships to consider them not so much in terms of companies as in terms of partnerships, because that is what they really are. Some unlimited companies I know do most of their business through their directors, in whom they have great confidence, but it is quite common for partnerships to have frequent meetings to decide the policy of the partnership; in fact, I think that is probably a rule in most partnerships.

Three weeks' notice for any meeting of an unlimited company is, I think, contrary to the interests of the shareholders of the company, because, as in most partnerships, they are in the habit of meeting and taking a real live part in their proceedings. I know of no business where matters drag on for three weeks—not if it is a live business. Things come up from day to day and are settled very quickly. The result of the Bill as it stands might well be that for members of an unlimited company there would actually be three notices of a meeting out at any one time. Moreover, these notices must be incomplete, because by giving three weeks' notice in advance, matters arising out of a meeting which is to be held in a week cannot be put down. Therefore the result of the Bill as it stands, as applied to unlimited companies, will in many cases be that the shareholders of such companies will be compelled to put a great deal more power in the hands of their directors, and confine their tasks to what in Scotland we call homologating the acts of the directors. They will therefore be deprived of a great deal of management of their own concerns, and for this reason I cannot help thinking that it is a great mistake to apply to these partnerships the same iron law that you are applying to big limited joint stock companies. I beg to move.

Amendment moved— Page 2, line 40, at end insert said proviso.—(Lord Saltoun.)

THE LORD CHANCELLOR

The noble Lord has referred to "big joint stock companies." Let him consider, for a moment, the quite small exempt private companies. What reason is there that I should grant to these companies which are dealt with in his Amendment—unlimited companies—concessions which I have not granted to small exempt private companies? There is no essential difference between the two. In this respect meetings of both of them, the exempt private company and the unlimited company, if they have sufficiently few members—and they generally have—could be called at short notice. Both might be inconvenienced by the longer period laid down in the clause. I have been asked for no special treatment for these exempted private companies, and I cannot see any reason why I should make a special concession with regard to the unlimited companies. After all, there is this objection to the Amendment. It is extremely awkward, in a general Bill of this kind, to have one rule for a meeting of one class of company and another rate for a meeting of another class of company. If it is necessary to protect the minorities in one case as in the other, I suggest we had better make the unlimited companies adhere to the same rule as is applicable to the small exempt private company.

LORD SALTOUN

With a part of what the noble and learned Viscount has said 1 am in agreement. I think there is a very strong case for adopting, my Amendment for exempted private companies. But There is a reason for this Amendment, which I shall possibly emphasize later on, and it is one which has been mentioned by the noble and learned Viscount in the course of our debates on this Bill. It is that the liability of the members of these companies cannot be measured. There is that difference. But if Parliament does decide that these people must have three notices of future meetings at one time, and carry on their business under this handicap, then they must do it. I venture to suggest to the noble and learned Viscount, however, that. the argument of uniformity is not a very good argument in a Bill which applies to every single detail of British business, which is possibly the most varied thing on the face of the earth. I will not press my Amendment, but I feel it my duty to put before your Lordships and His Majesty's Government the really cogent reasons I have for moving it. If the noble and learned Viscount is determined, then I beg leave to withdraw my Amendment.

Amendment, by leave, withdrawn.

THE LORD CHANCELLOR

The next is a drafting Amendment, anticipating the Amendments to Clause 17 which we shall come to presently. It is concerned with the appointment of auditors. This particular Amendment merely deals with the appointment of auditors before the first annual general meeting. That is the subject matter of Section 132 (4) of the Act of 1929, and the effect of this Amendment is to provide notice of fourteen days instead of seven days. I beg to move.

Amendment moved—

Page 3, line 40, leave out paragraph (c) and insert: (c) in proviso (a) to subsection (4) of Section one hundred and thirty-two (which relates to notice of a proposal to appoint other auditors in place of a company's first auditors): Fourteen days for seven days.")—(The Lord Chancellor.)

On Question, Amendment agreed to.

THE LORD CHANCELLOR moved, after subsection (5) to insert: (6) Where by any provision hereafter contained in this Act special notice is required of a resolution, the resolution shall not be effective unless notice of the intention to move it has been given to the company not less than twenty-eight days before the meeting at which it is moved, and the company shall give its members notice of any such resolution at the same time and in the same manner as it gives notice of the meeting or, if that is not practicable, shall give them notice thereof, either by advertisement or in any other mode allowed by the articles, not less than twenty-one days before the meeting: Provided that if, after notice of the intention to move such a. resolution has been given to the company, a meeting is called for a date twenty-eight days or less after the notice has been given, the notice though not given within the time required by this subsection shall be deemed to have been properly given for the purposes thereof.

The noble and learned Viscount said: This Amendment defines what is meant by "special notice of an ordinary resolution." As your Lordships will remember, in the Bill we have now there are many illustrations of this type of resolution—that is to say, a resolution which is going to be carried by a bare majority, which is therefore like an ordinary resolution, but which is a resolution of which twenty-eight days' notice must be given. Here I am, setting out what is meant by if "special notice of a resolution"; that is to say, twenty-eight days' notice to be given to the company, and then the directors have to give twenty-one days' notice to the shareholders. I beg to move.

Amendment moved— Page 4, line 10, at end insert the said subsection.—(The Lord Chancellor.)

VISCOUNT MAUGHAM

There is one thing I would like to say on the Amendment as moved, and that is with reference to advertisement. After saying that the company shall give its members notice of any such resolution, the Amendment says: at the same time and in the same manner as it gives notice of the meeting or, if that is not practicable, shall give them notice thereof, either by advertisement or in any other mode allowed by the articles, not less than twenty-one days before the meeting. In another part of the Bill there is also a reference to notice by advertisement. I confess I do not quite know when that will be desirable, but if we are going to insert the provision in the Bill, I venture to think that we must state what we mean by "advertisement." I would suggest the addition after "advertisement," of the words "in a newspaper circulating in the neighbourhood of the registered office of the company." If we do not do that, the advertisement might be in some local newspaper a long way from the company's office, and nobody would see it. So far as I know, whenever notice by advertisement is' authorized by any Act of Parliament it has always been found desirable to state what is meant by "advertisement," and to make the best endeavours to cause the advertisement to reach the minds of the persons whom it is intended to affect. I did not invent these words. They are, in substance, what is to be found in Table A of the principal Act, which deals with a case of advertisement. The Act states that it must be a newspaper circulating in the neighbourhood of the registered office. I do not think that will in any way harm the Amendment of the noble and learned Viscount; in fact, I think it will serve to render it more nearly perfect.

THE LORD CHANCELLOR

This illustrates the usefulness of having this discussion in Committee instead of on Report. I think there is great substance in what the noble and learned Viscount has said, and this is what I would suggest. A great many Amendments will be thrown up and will have to be considered in another place, and I think this is plainly one of them. My own doubt about it is that I am not certain that "the neighbourhood of the registered office of the company" is the right form of words. We had some illustrations given—and we shall no doubt have some more—of a company incorporated in Scotland with all its shareholders in London. Therefore, it might be that the location of the registered office is not the right test. However, on principle I think there is great force in what the noble and learned Viscount has said. He will remember—indeed I think he has said it—that this provision about advertisement, without a definition, is already in the Act of 1929. It would be useful to have some kind of a definition, and the matter will certainly be looked into.

VISCOUNT MAUGHAM

I would just like to add that I thought it was in Table A in the principal Act, but I may be wrong. In any case, with regard to the question of the registered office of the company, I have taken that from Table A, and it is a little difficult to give an alternative. I knew that we could not amend it here, but I thought it could be done on the next stage of the Bill.

On Question, Amendment agreed to.

Clause 2, as amended, agreed to.

Clauses 3 and 4 agreed to.

Clause 5 [Voting at meetings]:

THE LORD CHANCELLOR

This is a small drafting Amendment to insert the words "of a private company", purely to meet the point made by the noble Lord, Lord Balfour of Burleigh, about the difficulty of having various nominee clients who might want to vote in different ways. I beg to move.

Amendment moved— Page 6, line 22, after ("member") insert ("of a private company").—(The Lord Chancellor.)

On Question, Amendment agreed to.

THE LORD CHANCELLOR

The next Amendment is consequential on the Amendment we have just moved. I beg to move.

Amendment moved— Page 6, line 28, after ("proxy") insert ("or, where that is allowed, one or more proxies ").—(The Lord Chancellor.)

On Question, Amendment agreed to.

THE LORD CHANCELLOR

This is a consequential Amendment. I beg to move.

Amendment moved— Page 6, line 28, leave out ("the") and insert ("a").—(The Lord Chancellor.)

On Question, Amendment agreed to.

THE LORD CHANCELLOR

This is a drafting Amendment. In Clause 108 (4) we state that the expression "officer" shall include a director, and therefore we do not want the word twice. I beg to move.

Amendment moved— Page 6, line 44, leave out ("director or other").—(The Lord Chancellor.)

On Question, Amendment agreed to.

THE LORD CHANCELLOR

The next is a drafting Amendment on the same point. I beg to move.

Amendment moved— Page 7, line 4, leave out ("a director or other") and insert ("an").—(The Lord Chancellor.)

On Question, Amendment agreed to.

Clause 5, as amended, agreed to.

Clause 6 [Meetings attended by single member]:

THE LORD CHANCELLOR

In looking at this clause we find that the word "may" occurs twice—"directions which may be given may include." We do not want that, and this Amendment is designed to leave out the second "may." I beg to move.

Amendment moved— Page 7, line 35, leave out ("may").—(The Lord Chancellor.)

On Question, Amendment agreed to.

Clause 6, as amended, agreed to.

THE LORD CHANCELLOR moved, after Clause 6, to insert the following new clause: Exemption from obligation to print certain resolutions etc. .Notwithstanding anything in subsection (I) of Section one hundred and eighteen of the principal Act, an exempt private company need not forward to the registrar of companies a printed copy of any resolution or agreement to which that section applies, if instead it forwards a copy in some other form approved by the registrar.

The noble and learned Viscount said: This is to meet the point raised by the noble Lord, Lord Hawke, that documents, so long as they have sufficient legibility and durability, need not be in print. I beg to move.

Amendment moved—

After Clause 6, insert the said new clause.—(The Lord Chancellor.)

On Question, Amendment agreed to.

Clauses 7 to agreed to.

Clause it [Books of account]:

THE LORD CHANCELLOR

The next Amendment is to meet a point raised by the noble Lord, Lord Cozens-Hardy; that is to say, where books of account are kept outside Great Britain, a company need disclose its financial affairs only at intervals not exceeding six months, instead of three months. I beg to move.

Amendment moved— Page II, line 4, leave out ("three") and insert ("six").—(The Lord Chancellor.)

On Question, Amendment agreed to.

Clause II, as amended, agreed to.

Clause 12 [Periodical accounts (including consolidated accounts of group)]:

THE LORD CHANCELLOR moved to leave out subsections (2) to (4) and to insert: (2) A company's balance sheet and profit and loss account shall comply with the requirements of the First Schedule to this Act, so far as applicable thereto: Provided that the Board of Trade may, on the application or with the consent of a company's directors, modify the said requirements in relation to that company, for the purpose of adapting them to the circumstances of the company.

The noble and learned Viscount said: The effect of this Amendment is to leave out nearly the whole of the existing Clause 12. There follow—this makes it a little difficult I am afraid—four new clauses, which take the place, in slightly different language, of our old friend Clause 12. It is a little hard for those of us who have become familiar with that clause to try to pick it up again in four new clauses, but that is the task we have to face. I have endeavoured in the four new clauses—and perhaps I may discuss them rather generally on this Amendment—to give effect to the general wish expressed in the House that the requirements in regard to accounts should be made more elastic and should, so far as possible, be simplified. In the redraft, account has been taken of all the points which have been raised by your Lordships and, so far as I am aware, I have given effect to all the undertakings I then gave.

The first and most important concession is that under the new layout the directors of a holding company may give in some other form the information which would be required in consolidated accounts. Consolidation remains the standard way of presenting the position of a group, but the directors may, if they think it is better for the purpose of presenting the same or equivalent information, or of so presenting it that it may be more readily appreciated by the company's members, prepare group accounts in a different way. In particular, they may do so by presenting more than one set of consolidated accounts, each dealing with different groups of companies; or by separate accounts dealing with each of the subsidiaries; or by statements expanding the information about the subsidiaries in the company's own accounts; or by any combination of these four. But, of course, it must be observed that the group accounts, in whatever form they may be presented, must always give a true and fair view of the state of affairs and the profit or loss of the company and the subsidiaries dealt with thereby as a whole, so far as concerns members of the holding company. That is the first alteration made in the new clauses.

As to the second alteration, we have allowed a wide discretion to the directors of a company in determining whether a subsidiary should or should not be dealt with in the group accounts, but they can omit it only if they consider that to include it would be impracticable or of no real value to the members of the company, in view of the insignificant value of the amounts involved, or would involve expense or delay out of proportion to the value to members of the company. Where, however, a subsidiary is left out of the group accounts, certain essential information, which is laid down in paragraph (4) of Part II of the First Schedule, has nevertheless to be given with regard to the subsidiary so omitted. Thirdly, where there is a group or chain of holding and subsidiary companies, consolidated accounts are not required where the holding company is a wholly-owned subsidiary of another company incorporated in Great Britain. That is the substance of the clauses which are coming. I hope I have not been out of order in discussing the matter, but I thought it relevant to point out why I was proposing to leave out the great bulk of Clause 12 in order that presently I may put in the substance of it with this greater amount of elasticity. I beg to move.

Amendment moved— Page 11, line 12, leave out from beginning to end of line 26 on page 12 and insert the said new subsection.—(The Lord Chancellor.)

VISCOUNT SWINTON

If I may follow the example of the noble and learned Viscount, the Lord Chancellor, and deal very briefly with the new clauses which follow, I should like most sincerely to congratulate him and those who have worked with him on a most admirable and practical piece of work. As he said, we were all at one in our intentions. We wished consolidated accounts to be the common form and the normal way of presenting the affairs of a company which has, through its subsidiaries, many ramifications. We also desired that there should be the fullest possible information given. The more we went into the matter, I think, the more we were impressed with the impossibility of having a sealed pattern. Companies vary as much as the manifold businesses conducted in this country vary, and it would be almost impossible to present the accounts of every company in precisely the same form. I do not propose to go again into the sort of questions we discussed on earlier stages of this Bill and which, to anybody with any experience of either Company Law or business practice, make the matter abundantly plain.

Therefore, the noble and learned Viscount, the Lord Chancellor, as I see it, set to work to find a model that will normally be followed, in so far as it is practicable and convenient and in the interests of the company and its shareholders. But that may be varied to suit the exigencies of different cases, provided always that there is the fullest disclosure of profit and loss and that the requisite information is given. If I may say so, I think the form which this clause has now taken is admirable. I would like, if I may, to pay a compliment to the draftsmen. Not only is the requirement now to be imposed by the law the right one for those who have the management of companies, but the method laid down is the convenient way for them to meet that requirement. It has been translated into language which even I can understand, and it is a very remarkable piece of work.

LORD RENNELL

May I follow in all he said the noble Viscount who has just sat down? I would express precisely the same view. I would, however, like to ask a question on one thing which is not quite clear to me. If I may anticipate, again, the term "group" is used, I think for the first time, in the series of Amendments to which the noble and learned Viscount referred, which will be inserted after Clause 12. I think we all know what is meant colloquially by "group accounts," but I am not sure that it is not a new term and might require some definition. A subsidiary may be a company with subsidiaries, and there may be subsidiaries of those subsidiaries. Any one company need not, however, be the subsidiary of a particular company, but may be the subsidiary of two or more companies collectively. There is a point in one of the proposed new clauses where the word "group" is used. It appears in the Marshalled List of Amendments on page 5, and makes clear what is meant. It says: "The company and the subsidiaries thereby dealt with as a whole." I wonder whether the use of the word "group" does not constitute an innovation which might require qualification, either in the interpretation clause or somewhere else.

LORD SALTOUN

I would like to consult your Lordships, and especially the Lord Chairman, with regard to my position. I had an Amendment down to the clause as it stood in the Bill when it left committee. Now that clause is going to be swept away and another one substituted. I conceive that if we accept this Amendment—which I hope we shall—it will then be out of my power to move an Amendment to something your Lordships have already approved; yet the subject of my Amendment is quite different from the point we are now discussing. I should like to ask the Lord Chairman if, after this Amendment is disposed of, I may move my Amendment, or how the matter is to he taken.

THE CHAIRMAN OF COMMITTEES

The noble Lord can move an Amendment to the Amendment already moved by the noble and learned Viscount. Perhaps he would put in manuscript what he wishes to move.

LORD SALTOUN

I will certainly do that. My Amendment was to insert "not being an unlimited company," but with the Amendment we are now discussing that would make bad English. I would prefer to say: The balance sheet and profit and loss account of a company, not being an unlimited company …. That would make reasonably good English, if your Lordships would accept my Amendment in that form to the Amendment of the noble and learned Viscount, the Lord Chancellor.

THE CHAIRMAN of COMMITTEES

The Amendment can be taken now, if the noble Lord will -move it in that form.

LORD SALTOUN

This is a very serious Amendment and one of great importance. The object of it is to exempt unlimited companies, that is, partnerships, from presenting their accounts in the form laid down in the schedule. I know perfectly well that in America a great deal of information is given about the affairs of companies. I have had to study American returns, as no doubt have many of your Lordships. It is the object of this Bill to introduce something of a similar system in the business of limited companies in this country. The point about these companies is that they are limited, and, if harm comes, at any rate the shareholders lose only their shares. There is one point about what we arc doing, which I expect has engaged the attention of your Lordships. Perhaps some noble Lords thought it did not matter very much, but it has a big place in my own mind. It is that this disclosure, while in some ways it may be a good thing for the shareholders, will operate rather unfairly as between big companies and small companies. I will pot quote any names, but your Lordships could probably think of ten or twelve of the biggest companies whose balance sheets you are in the habit of studying. You can ask yourselves how much additional information about the company's affairs the provisions of the schedule will give you.

On the other hand, smaller concerns will have to put all their cards on the table, and one of the effects of that, I think, will be to give a great advantage to those companies which I always compare, in my own mind, with Aaron's rod—the rod that ate up all the other rods. I am bound to say that I do not always approve of the activities of these great concerns which eat up all The little concerns. I nave often criticized them in my own heart very strongly. This Bill, when it comes into law, will make such activities easier. I may be wrong, but I think I am right. In the case of unlimited companies, every member of the company has a liability which can never be measured. It happened not very long ago—and without my having anything to do with the company whatsoever and without any fault of my own to which I could assign it—that I fell under the shadow of an unlimited liability. I sincerely trust that none of your Lordships may ever lie for as long as I did under that shadow. It was a liability which could not be measured, which would eat up everything I had two or three times, and no action of mine could avoid it if it fell. It is a most appalling position to be in.

We have heard from the noble Lord, Lord Lucas of Chilworth, I think in the debate on this Bill—I hope it was not outside this House—that anybody in business can find out his neighbour's affairs by Gestapo methods. Take, for instance, a village Inn which is a family concern and which is an unlimited company. It has a secretary and a clerk, and perhaps a small boy. Fifty pound notes is not a very big sum to spend. It is not an enormous price for Gestapo work for a small boy. It is all very well to say that whatever form the accounts are in, they are absolutely secret; they are not; and it means that this partnership has to give a great deal of information which other partnerships do not in practice give, and would not give. I suggest that it is a very rash thing to do. I go farther and point out to your Lordships that this is a matter on which Parliament has no official knowledge at all—the Department have no official knowledge at all. This is a subject which was not examined by the Cohen Report. As a matter of fact, it was suggested to one of the members that they should examine it and they chose not to take the opportunity.

I suggest it is a dangerous thing to legislate in the dark, simply for the sake of uniformity, and what is more I think any of those who have been working on this Bill, if in consequence of this Bill something were to happen which brought down any of these companies, would find himself loaded with a reproach that he would be sorry to have incurred. Even when I was an apprentice working in Scotland not very long ago, I found that amongst the clerks in my office there was a bitter memory of the City of Glasgow Bank and the Trust that had to take over the assets of that Bank. You would be surprised how long these thoughts reign in the hearts of people. I agree with the noble and learned Viscount, the Lord Chancellor, about minorities in unlimited companies—that it might be a good thing to give them some protection. As a matter of fact, that is a matter to which I turned my mind before we began discussing this Bill, and I have a suggestion which I will make, with your Lordships' permission, when we come to the question whether this Bill be reported, in order to show which lines I think should be adopted. But I do not see how the inclusion of unlimited companies in this part of the Bill is for the protection of minorities. I think it is not for the protection of minorities, and the risks of minorities in this case are much greater than in the normal case of a limited company which has the great privilege of limited liability. I think, therefore, that unlimited companies might very well be left out of the provisions of this clause. I beg to move.

Amendment to Amendment moved—

In the proposed new subsection, leave out line r, and insert: ("The balance sheet and profit and loss account of a company, not being an unlimited company,").—(Lord Saltoun.)

VISCOUNT MAUGHAM

May I say one word in support of this Amendment? I have always understood that the price of limited liability was one of disclosure, and I am not at all surprised that at intervals—generally of twenty years or so—the amount of disclosure that has to be given by a limited company is increased. But I have never understood that an unlimited company got anything from the State or Legislature beyond the fact that they are entitled to a name which represents the corporation and, if you like, a seal, and that they therefore have a slight advantage in the sense of having a heading to their notepaper and a signature to their letters. I am quite unaware of any reason for imposing upon a partnership that have turned themselves into an unlimited company the obligation to disclose their affairs to the extent to which they would be subject under the clause in the Bill.

Much injustice and inconvenience would be caused to certain companies of unlimited liability if they had to make this disclosure. Some of them would be bound to wind themselves up, and revert to the position of ordinary partnerships. A. partnership may not, if I remember rightly, consist of more than twenty—though I do not know what happens if they have more than twenty. Nobody ever bothers about it. But it is an advantage to be able to have an unlimited company which is, in substance, a partnership with more than twenty persons. I am very desirous of not putting any difficulties in the way of a perfectly straightforward and honest partnership, carrying on business with unlimited liability, and with the advantage of becoming as I have stated, persona in law but having in that respect not a single advantage as between itself and its creditors or in respect of the ordinary carrying on of its business. Accordingly I support this Amendment and hope the noble and learned Viscount will be able to accept it.

THE LORD CHANCELLOR

I am sure I could not accept this Amendment. It is riot necessary. It is not a question of imposing an obligation to publish accounts. There is no obligation on an unlimited company to publish accounts. They must keep accounts; even if you are a partnership you must keep accounts. Clause 26 of this Bill makes the matter plain, I think. It is a fact that an unlimited company has not got to publish its accounts.

VISCOUNT MAUGHAM

I am sorry to interrupt. Can the noble and learned Viscount tell me the section to which he is referring?

THE LORD CHANCELLOR

For the moment I cannot, but I will look at it again later. Let us assume it as a fact. It is not a question of publishing accounts; it is a question of keeping accounts. I do not care whether it is an unlimited company or a partnership. I cannot conceive of a law in Scotland where a partnership, as an entity separate from the partners—there may be a subtle distinction between a partnership and an unlimited company in Scotland; in England a partnership consists of its members—does not keep accounts. I do not see why accounts should not be kept in the rather elastic form we have allowed in the First Schedule. I agree that they should not have to be published. There is no reason why they should, any more than an exempt private company has to publish its accounts. I will satisfy myself between now and the Report stage that these accounts have not to be published to the world, but I see no reason whatever why the accounts of an unlimited company should not be kept in what is now regarded as the appropriate and right form, with that very large degree of elasticity which we haveo now given. For that reason, and on that assumption, I cannot possibly accept the Amendment.

LORD SALTOUN

Of course, unlimited companies keep accounts. They keep accounts just as do ordinary companies. What I was trying to get removed was the obligation to produce a profit and loss account and balance sheet in the prescribed form, because while every member of a company may know the company's business very well, these things are apt to fall into the wrong hands. Nobody ever comes into your office and steals the whole of your books, but there may be people, some of them minors (even in spite of the Law of Trustees, minors can hold shares in unlimited companies—sometimes they have to) whom information reaches. Where you have to circularize these things it is easy for this information to fall into wrong hands. I agree that those concerns ought to keep books. I have nothing against Clause 26—if it is Clause 26 that deals with the point. I am very sorry that the noble and learned Viscount, the Lord Chancellor, will not accept this Amendment, because I think it touches a very important matter of principle. It is with the greatest reluctance that I do not press my Amendment. I do not suppose that any noble Lords will support me, but if anyone wants to do so I will divide the House on it. I think I am right, and I believe that the future will show that I am right. I am very sorry to have to withdraw this.

Amendment to the Amendment, by leave, withdrawn.

On Question, Amendment agreed to.

THE LORD CHANCELLOR

The next Amendment is consequential.

Amendment moved— Page 12, line 31, leave out ("subsections (1) and (2)") and insert ("subsection (I)").—(The Lord Chancellor.)

On Question, Amendment agreed to.

3.32 p.m.

THE LORD CHANCELLOR moved, after subsection (5), to insert: (5) Subsections (1) and (2) of this section shall not apply to a company's profit and loss account, if—

1. (a) the company has subsidiaries; and
2. (b) the profit and loss account is framed as a consolidated profit and loss account dealing with all or any of the company's subsidiaries as well as the company, and—
1. (i) complies with the requirements of this Act relating to consolidated profit and loss accounts; and
2. (ii) shows how much of the consolidated profit or loss for the financial year is dealt with in the accounts of the company."

The noble and learned Viscount said: This Amendment allows a holding company to dispense with a separate profit and loss account of its own business, so long as it supplies a consolidated profit and loss account embracing all the companies in the group as a whole as well as itself. From a practical point of view there is no advantage in giving a separate profit and loss account of the holding company, and to do so might be prejudicial to the interests of some companies and their shareholders—such, for instance, as insurance companies.

May I take this opportunity of saying, since I have used the word "group" here, that I agree with Lord Rennell that there is no definition, hitherto, as to what is a group account? I do not think that there is. I would myself attempt to describe it—not to define it—in this way. We know what is a consolidated account: the essence of that is that you bring all the accounts into one. A group account obviously differs in that they need not all be brought into one. If I wanted something further, I think I would look at page 5 of the Marshalled List of Amendments, where there is something nearer in the way of a definition. If you look at a passage about a quarter of the way down the page you will see this: The group accounts laid before a company shall give a true and fair view of the state of affairs and profit or loss of the company and the subsidiaries dealt with thereby as a whole so far as concerns members of the company. If there is that positive obligation (negative in that they need not all be embraced and brought into a consolidated account) I think it describes what I understand a group account to be. I consider this Amendment is a necessary one, and I beg to move.

Amendment moved— Page 12, line 32, at end insert the said new subsection.—(The Lord Chancellor.)

VISCOUNT ELIBANK

May I ask the noble and learned Viscount if he means by group accounts that the accounts shall be attached to each other? Can they be on separate sheets so long as they are attached?

THE LORD CHANCELLOR

Yes, I think that that would do. So long as a true and fair picture of the activities of the association, of the group as a whole, is given, it need not necessarily be in one account in the way that a consolidated account would have to be.

LORD RENNELL

I feel a certain difficulty about this matter of a group. I accept what the noble and learned Viscount has said about a group, and I think that the description in the Amendment on page 5 to which he has referred is accurate. But it comes a little way down the clause from the first reference to the word "group." I do not wish to press this, but I wonder if, for the sake of clarity, it would not be desirable to consider describing or defining group accounts somewhat more clearly, either at the beginning of the clause or in some other appropriate place where a definition can be given.

On Question, Amendment agreed to.

THE LORD CHANCELLOR

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

Amendment moved— Page 12, line 34, leave out ("the accounts of the company") and insert ("any accounts laid before the company in general meeting").—(The Lord Chancellor.)

On Question, Amendment agreed to.

THE LORD CHANCELLOR

The next one is drafting also. I beg to move.

Amendment moved— Page 13, line 10, leave out ("accounts") and insert ("balance sheet or profit and loss account").—(The Lord Chancellor.)

On Question, Amendment agreed to.

THE LORD CHANCELLOR

This too, is drafting. I beg to move.

Amendment moved— Page 13, line 21, leave out ("or consolidated accounts").—(The Lord Chancellor.)

On Question, Amendment agreed to.

Clause 12, as amended, agreed to.

3.39 P.m.

THE LORD CHANCELLOR had given notice to move to insert, after Clause 12, the following new clause.

"Obligation to lay group accounts before holding company.

.—(I) Where at the end of its financial year a company has subsidiaries, group accounts dealing with the state of affairs and profit or loss of the company and the subsidiaries shall, subject to the next following subsection, be laid before the company in general meeting when the company's own balance sheet and profit and loss account are so laid.

(2) Notwithstanding anything in the foregoing subsection—

1. (a) group accounts shall not be required where the company is at the end of its financial year the wholly owned subsidiary of another body corporate incorporated in Great Britain; and
2. (b) group accounts need not deal with a subsidiary of the company if the company's directors are of opinion that—
1. (i) it is impracticable, or would be of no real value to members of the company, in view of the insignificant amounts involved, or would involve expense or delay out of proportion to the value to members of the company; or
2. (ii) the result would he misleading, or harmful to the business of the company or any of its subsidiaries; or
3. (iii) the business of the holding company and that of the subsidiary are so different that they cannot reasonably be treated as a single undertaking;

and, if the directors are of such an opinion about each of the company's subsidiaries, group accounts shall not be required.

(3) If any person being a director of a corn-patty fails to take all reasonable steps to secure compliance as respects the company with the provisions of this section, he shall, in respect of each offence, be liable on summary conviction to imprisonment for a term not exceeding six months or to a fine not exceeding two hundred pounds:

Provided that a person shall not be sentenced to imprisonment for an offence under this section unless in the opinion of the court dealing with the case the offence was committed wilfully.

(4) For the purposes of this section a body corporate shall be deemed to be the wholly owned subsidiary of another if it has no members except that other and that other's wholly owned subsidiaries and its or their nominees."

The noble and learned Viscount said: This is the first of the new clauses. I have rather anticipated what I had to say. The first part deals with the obligation to lay group accounts before a holding company, and your Lordships will see that by subsection (2) (b) it is laid down that: group accounts need not deal with a subsidiary of a company if the company's directors are of opinion that—

1. (i) it is impracticable, or would be of no real value to members of the company, in view of the insignificant amounts involved, or would involve expense or delay out of proportion to the value to members of the company; or
2. (ii) the result would be misleading, or harmful to the business of the company or any of its subsidiaries; or

I am a little worried about that. I know that some directors of companies take what I think is too restrictive a view about this matter, and think it is harmful to the interests of the company to publish anything at all. Therefore, I am proposing an Amendment: o that by adding at the end of paragraph (b) these words: Provided that the approval of the Board of Trade shall be required for not dealing in group accounts with a subsidiary on the ground that the result would be harmful, or on the ground that the difference between the business of the holding company and that of the subsidiary is so great that they cannot reasonably be treated as a single undertaking. If you are going to leave out one of the subsidiaries from your group accounts on the ground, not that it is a trivial or small matter, or too expensive to deal with, but on the ground that it would be harmful to the interests of the company to state its accounts, then in that case you ought to get the approval of the Board of Trade to leave it out. With that qualification of the Amendment as drafted, I beg to move the first of these new clauses.

Amendment moved— After Clause 12, insert the said new clause as amended.—(The Lord Chancellor.)

LORD BARNBY

Whilst appreciating the attempt of the noble and learned Viscount to be helpful by his elucidation of this rather difficult point, I would respectfully ask his interpretation of one point. Is he not thereby rather inclined to throw an obligation on the Board of Trade? I admit that at the moment I should have a difficulty in finding an alternative to involving the Board of Trade in intimate examination of the details of a large organization and its subsidiaries, thereby bringing to light a great deal of its information (to which I would admit there might be no objection) which would normally be disclosed to the Inland Revenue Department and not to the Board of Trade. Inevitably the Board of Trade to-day, under the tendency of Regulations, would become informed of operations which, while legal, might yet be to the disadvantage of the company concerned.

THE LORD CHANCELLOR

I do not think there will be great difficulty. In the case of an ordinary decent company—not being dishonestly run—a vast mass of detail would not be required. I think the directors will go to the Board of Trade and say: "We propose to leave out this controlled subsidiary's account altogether. It is quite true it does not come under (a)—that is to say, the amount involved is substantial—but we want to leave it out because to include it would do our business some harm and possibly enable our rivals to do us an injury. These are the facts, and we want your approval to leave it out."

VISCOUNT SWINTON

I see the difficulty in this matter, and, generally speaking, I do not much like giving this amount of discretion to Government Departments. It is much better if we can lay down what is to be done, and then people can follow it. On the other hand, we are here giving—and rightly giving—very wide discretion to directors to publish or withhold certain information. If these words stood with no proviso at all, the result would be that directors could really defeat the object which we all have in view. The great majority of them would not, but someone who wished to present accounts in the form which some of us have met—where everything is put under a single head—could do so. All they would have to do would be to say, "We think it is in the interest of the company."

With great respect to the noble Lord, Lord Barnby, I do not think that it is either necessary, or indeed, would it be the intention of the Board of Trade, to go into details of how the company is run. Prima facie the board is entitled not to present group accounts if one of these three conditions is fulfilled, and the people who are to be the judge of that are the directors. But they have to be honest judges. They have to direct their minds, and the Board of Trade have to be satisfied that the directors have honestly directed their attention to the questions which are set out in (i), (ii), and (iii). If the Board of Trade are satisfied that that is the honest opinion of the directors after directing their minds to that problem, then it is not for the Board of Trade to quarrel with them in their honest judgment; it is only for the Board of Trade to refuse if what the directors have done is not to direct their minds at all to the particular matters they have to consider. I would venture to advise the House that this is a reasonable and necessary proviso to impose on the very wide latitude which it is intended to give here.

LORD RENNELL

I entirely agree with what the noble Viscount has said. I think it is a necessary provision; otherwise a coach-and-four could be driven through the whole of the consolidation proposals.

LORD DE L'ISLE AND DUDLEY

At the risk of harking back to what has been discussed already by the noble Lord, Lord Rennell, may I express the opinion that what has been said does rather reinforce his point: we ought to have a definition of group accounts. There might even 'be differences between the Board of Trade and the directors of a company about the definition of group accounts. What happens where a company has an interest in another company which is not a wholly-owned subsidiary or is not a subsidiary within the meaning of the Act, but is definitely within the grouping? I think it would be extremely helpful to all directors of companies and to the Board of Trade if the noble and learned Viscount could address his mind to this very important subject.

LORD BALFOUR OF INCHRYE

I wonder if I might ask one question? Are we going to run into an administration difficulty here? Directors are under an obligation to get their accounts out within a certain period of time. Supposing there is a conflict between directors who as a matter of policy do not wish to publish, and the Board of Trade who do not agree with that policy of the company. Obviously the Board of Trade will have to go into the matter fairly deeply, and rightly so. You may get a position where the Board of Trade, through this duty, is going to overrun the time that is allotted to the company.

THE LORD CHANCELLOR

Difficulties may arise, but, of course, wise people start preparing their accounts a good time in advance, and allow themselves time for it. I think such a difficulty would be quite exceptional.

LORD SALTOUN

I beg the noble and learned Viscount's pardon, but the object of many companies is to get the accounts to the end of the financial year as soon as possible after the close of that financial year.

On Question, Amendment agreed to.

THE LORD CHANCELLOR moved, after Clause 12, to insert the following clause:

Form of group accounts.

—(I) Subject to the next following subsection, the group accounts laid before a holding company shall be consolidated accounts comprising—

1. (a) a consolidated balance sheet dealing with the state of affairs of the company and all the subsidiaries to be dealt with in group accounts;
2. (b) a consolidated profit and loss account dealing with the profit or loss of the company and those subsidiaries.

(2) If the company's directors are of opinion that it is better for the purpose—

1. (a) of presenting the same or equivalent information about the slate of affairs and profit or loss of the company and those subsidiaries; and
2. (b) of so presenting it that it may he readily appreciated by the company's members;

the group accounts may be prepared in a form other than that required by the foregoing subsection, and in particular may consist of more than one set of consolidated accounts each dealing with different groups of companies, or of separate accounts dealing with each of the subsidiaries, or of statements expanding the information about the subsidiaries in the company's own accounts, or any combination of these forms.

(3) The group accounts may be wholly or partly incorporated in the company's own balance sheet and profit and loss account.

The noble and learned Viscount said: This is the second new clause. In view of the observations made by the noble Lord, Lord Rennell, and the noble Lord, Lord De ('Isle and Dudley, it is worth studying. It starts: Subject to the next following subsection, the group accounts laid before a holding company shall be consolidated accounts comprising,— Therefore the norm of group accounts is a consolidated account. Now you get the next subject: If the company's directors are of opinion that it is better for the purpose—

1. (a) of presenting the same or equivalent information about the state of affairs and profit and loss of the company and those subsidiaries; and
2. (b) of so presenting it that it may be readily appreciated by the company's members;

the group accounts may be prepared in a form other than that required by the foregoing subsection,"— that is to say, it may be other than a consolidated account. Then it goes on—and this answers the question of the noble Viscount, Lord Elibank— And in particular may consist of more than one set of consolidated accounts each dealing with different groups of companies, or of separate accounts dealing with each of the subsidiaries, or of statements expanding. the information about the subsidiaries in the company's own account, or any combination of these forms.

I think that gives us a pretty fair definition. The group accounts are. normally to be consolidated, but if the. company's directors think it is better, and these two conditions (a) and (b) are satisfied, then a considerable variation is allowed as to the way in which the group accounts are presented, without consolidation. This is an illustration, therefore, of considerable latitude being allowed to directors, which we all desire, and at the same time it gives, perhaps as nearly as anything can give, a definition of what group accounts should be. I beg to move.

Amendment moved—

After Clause 12 insert the said new clause,—(The Lord Chancellor.)

On Question, Amendment agreed to.

THE LORD CHANCELLOR moved, after Clause 12, to insert the following new clause:

Contents of group accounts.

.—(i) The group accounts laid before a company shall give a true and fair view of the state of affairs and profit or loss of the company and the subsidiaries dealt with thereby as a whole, so far as concerns members of the-company.

(2) Where the financial year of a subsidiary-does not coincide with that of the holding: company, the group accounts shall deal with: the subsidiary's state of affairs as at the ends of its financial year ending with or last before that of the holding company, and with the subsidiary's profit or loss for that financial year.

(3) Without prejudice to subsection (I) of this section, the group accounts, if prepared as consolidated accounts, shall comply with the requirements of the First Schedule to this Act, so far as applicable thereto, and if not so prepared shall give the same or equivalent information:

Provided that the Board of Trade may, on the application or with the consent of a company's directors, modify the said requirements in relation to that company for the purpose of adapting them to the circumstances of the company.

The noble and learned Viscount said: This carries on the good work and makes it plain that "the group accounts laid before a company shall give a true and fair view of the state of affairs and profit or loss of the company and the subsidiaries dealt with thereby as a whole, so far as concerns the members of the company." That again is another qualification attaching to group accounts. The remainder of the clause, apart from that subsection which I have just quoted, is lifted almost entirely from the old Clause 12, which we passed on the previous Committee stage and, therefore, I do not think I need trouble your Lordships by discussing it further at this stage. I beg to move.

Amendment moved— After Clause 12 insert the said new clause.—(The Lord Chancellor.)

On Question, Amendment agreed to.

THE LORD CHANCELLOR moved, after Clause 12, to insert the following new clause:

Financial year of holding company and subsidiary.

—(I) A holding company's directors shall secure that, except where in their opinion there arc good reasons against it, the financial year of each of its subsidiaries shall coincide with the company's own financial year.

(2) Where it appears to the Board of Trade desirable for a holding company or a holding company's subsidiary to extend its financial year so that the subsidiary's financial year may end with that of the holding company, and for that purpose to postpone the submission of the relevant accounts to a general meeting from one calendar year to the next, the Board may on the application or with the consent of the directors of the company whose financial year is to be extended direct that, in the case of that company, the submission of accounts to a general meeting, the holding of an annual general meeting or the making of an annual return shall not be required in the earlier of the said calendar years.

The noble and learned Viscount said: The fourth new clause, again, is stolen from the old Clause 12. It provides that a holding company's directors shall secure that except where in their opinion there are good reasons against it, the financial year of its subsidiaries shall coincide with the company's own financial year. As a matter of practice, that would be a very great benefit in reading the accounts of a group of companies. I beg to move.

Amendment moved— After Clause 12 insert the said new clause.—(The Lord Chancellor.)

On Question, Amendment agreed to.

Clause 13 [Meaning of "holding company" and "subsidiary"]:

THE LORD CHANCELLOR

This and the next Amendment give effect to an undertaking I gave to put down an Amendment to express that which the noble Lord, Lord Rennell, was moving. Its effect is that any shares held or power exercisable by a company the ordinary business of which includes the lending of money as security, should be disregarded in deciding whether that company is a holding company in relation to the company in which it holds shares. I beg to move.

Amendment moved— Page 14, line 26, leave out ("following paragraph") and insert ("two following paragraphs.")—(The Lord Chancellor.)

LORD RENNELL

I am much obliged to the noble and learned Viscount.

On Question, Amendment agreed to.

THE LORD CHANCELLOR

I have already referred to this Amendment.

Amendment moved— Page 14, line 38, at end insert— ("(d) any shares held or power exercisable by, or by a nominee for, that other or its subsidiary (not being held or exercisable as mentioned in the last foregoing paragraph) shall be treated as not held or exercisable by that other if the ordinary business of that other or its subsidiary, as the case may be, includes the lending of money and the shares are held or power is exercisable as aforesaid by way of security only.")—(The Lord Chancellor.)

On Question, Amendment agreed to.

Clause 13, as amended, agreed to.

3.55 P.m.

THE LORD CHANCELLOR moved, after Clause 13, to insert the following new clause:

General provision as to liability of directors for defective accounts.

.—(I) A director shall not be liable to fine or imprisonment under Section one hundred and twenty-two or one hundred and twenty-three of the principal Act or any provision contained in the sections of this Act relating to a company's accounts for failing to take reasonable steps to comply or secure compliance with any provision of that Act or this Act, if he shows that he had reasonable ground to believe and did believe that a competent and reliable person was charged with the duty of seeing that that provision was complied with and was in a position to discharge that duty.

The noble and learned Viscount said: My Lords, this is to meet a point that was raised by the noble and learned Viscount, Lord Maugham. I said I thought there was no need for the new clause but, as so often happens when I find myself in conflict with the noble Viscount, I find on reflection that he was right and I was wrong. It is to meet this point. Your Lordships will remember that throughout this Bill we are confining the possible penalty of imprisonment to cases of wilful default. Negligence might be dealt with by a fine. I was asked to make it quite plain that if, for instance, directors had gone away—I think it was said to Malaya, or something of the sort—and entrusted the work to somebody whom they believed to be competent over here, there was no risk that they would be fined. I said I thought there was no such risk, but, as I say, on reflection I think it is much better to deal with the matter. I am grateful to the noble and learned Viscount, Lord Maugham, for calling my attention to it, and I hope that this new clause meets the point which he indicated on the previous occasion. I beg to move.

Amendment moved— After Clause 53 insert the said new clause.—(The Lord Chancellor.)

VISCOUNT MAUGHAM

I am grateful to my noble and learned friend the Lord Chancellor for having been able to agree this new clause on behalf of the Government. To my mind, it is a clause of great value. I quite appreciate what he says as to the somewhat remote example of the director who was sent to Malaya, but it also meets the much more common case of a director who, full of honesty and integrity, is yet wholly unable to look at the book of accounts without a feeling of nausea and complete inability to understand it. Such a person as that ought not to be treated as if he were a criminal, because the position of directors, as is not always understood in the general business world, is a very singular one. They are not trustees. They have not got property in their hands. They are, in a sense, trustees of the powers committed to them. Even so, their powers are limited, because in general they only relate to actions at a hoard meeting—sometimes once a fortnight, sometimes at even more remote intervals—and in the meantime they are not obliged to think of the company. They may live a long way away; they turn up at the board meeting and give their best attention to what takes place, and that is the end of their obligation.

Their duties being intermittent and generally exercised at a time when they are liable to be out-voted by other members of the board, and since they are, very often, people who are appointed to exercise particular duties in connexion with the company——such as, for instance, helping in matters of transport or matters of sales of property and things of that kind, and in no way concerned directly with the accounts—I thought it was most dangerous to pass the new clauses in this Bill, which direct them to do certain things in relation to accounts, and which provide that profit and loss accounts and balance sheets are not deemed to be proper accounts unless they meet all the obligations that we are imposing upon the company. I was afraid it would be said that directors had to do very much more than they had ever thought of doing, or than they were in general competent to do, because everybody knows that these questions of accounts are done by staffs of accountants, or by special accountants who are appointed by the company, and that the directors are bound to trust them.

This clause, which I know has been the subject of a good deal of consideration, exactly meets the difficulties which I thought might arise in its absence. It satisfies what I think is just: it imposes upon directors a certain obligation to see that certain work is done by people who are properly supposed to be competent and reliable. But, once that is done, there is no personal liability on the directors in relation to the particular matters with which the clause is concerned. Accordingly, I thank the noble and learned Viscount, the Lord Chancellor. I am content with this clause, and I think it will be of great use hereafter, to various honest directors who are attacked because something has gone wrong with the accounts, whether by accident or fraud, so that a company gets into difficulties. In such cases as those of the City Equitable Insurance Company and the National Bank of Wales, perfectly honest directors have been attacked, but unsuccessfully attacked, under the law as it stands. And I am glad to think that that will still be the case after this Bill has passed into the legislation of the country.

VISCOUNT SWINTON

Speaking neither as a lawyer nor as one who is nauseated (though I am sometimes somewhat puzzled) by accounts, I should like to thank the noble and learned Viscount, the Lord Chancellor, for this clause. If I may say so, I think it clearly defines the position of a director—and not only a director who is merely a part-time director. It is equally important from the point of view of the whole-time executive directors of whom I hope there will be increasing numbers. Whichever they are, in this matter I regard it as the function of a director in relation to accounts, and a common function of the board, to be satisfied that there is a thoroughly competent chief accountant appointed. I would go further, and say that the relations with the auditors are those which a company should always have as to the general form of account. But having established that position, whether they are part-time directors or whole-time executives, technical directors, or sales directors, it is quite impossible for those directors continually to examine the accounts to see whether the chief accountant is carrying out his duties. If they were to attempt to do that, they would be grossly neglecting the job for which they were employed, and any chief accountant worth his salt would immediately resign his position and be snapped up by a company which conducts its business more satisfactorily. I thank the noble and learned Viscount for putting down this Amendment. From the practical point of view I think it is wholly satisfactory.

On Question, Amendment agreed to.

THE LORD CHANCELLOR

May I move that the House be now resumed, in order that I may make a short statement?

Moved, That the House be now resumed.—(The Lord Chancellor.)

On Question, Motion agreed to.

House resumed accordingly.