GOVERNMENT LOAN TO PRESSED STEEL COMPANY (Hansard, 27 July 1964)

§ LORD SHEPHERD
My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

§ LORD DRUMALBYN
My Lords, the Local Employment Act, 1960, specifies that loans under Section 4 shall be made on such terms and conditions as may be recommended by the Board of Trade Advisory Committee. The terms and conditions of the B.O.T.A.C. loan of £9.5 million to the Pressed Steel Company do not oblige the company to consult the Board of Trade before introducing a scheme such as that to which the noble Lord refers, and they did not do so.

§ LORD SHEPHERD
My Lords, I thank the noble Lord for his reply. Would the Government not think that the company had at least a moral obligation to consult with them, bearing in mind that the Board of Trade is a creditor well in excess of the issued capital of the company? Would the noble Lord also not. 888 agree that the directors and the executives concerned in this matter will have been able, between June 5 and July 21, to make £195,000 tax-free?

§ LORD DRUMALBYN
My Lords, with regard to the first part of that supplementary question, the loan by the Board of Trade would rank, of course, ahead of the normal rights of shareholders. With regard to the second part of the question, perhaps the noble Lord is under some misapprehension as to the nature of the option that was granted. The option approved for senior executives is to take up shares not less than two years nor more than five years hence, at a price not less than 15 per cent. above the middle market quotation on the day when the option is granted.

§ LORD SHEPHERD
I thank the noble Lord for that information, which was, of course, available to me. But is it not a fact that the directors and shareholders will be able, and are able, to obtain a considerable sum, tax-free, from any rise in the value of the shares? May I ask the noble Lord a further supplementary question? Would he not agree that this company is of tremendous importance to the motor manufacturing industry, and that it would not be in the best interests of the industry if that company were to come under the control of one particular company in the manufacturing industry? Does he not recognise that the agreement that the shareholders have now come to with their directors may well place the directors of the company in a position in which it would be to their personal advantage to agree to a take-over bid?

§ LORD DRUMALBYN
My Lords, reverting to the noble Lord's first supplementary question, I thought that he implied that it was as a result of the granting of these options that £195,000 had been made.

§ LORD SHEPHERD
Could have been made.

§ LORD DRUMALBYN
Could have been made. But even that is impossible, because the options could not have been taken up within two years. So this does not arise at all. With regard to the second part of the question, options are a normal form of offer to senior executives—perhaps more on the other side 889 of the Atlantic than here—and the purpose expressed by the company in this case is to attract to the company executives of high calibre, and to hold them, in order to avoid the "brain drain". This is surely a matter in which it is for the shareholders to decide where the interests of the company lie.

§ LORD LUCAS OF CHILWORTH
My Lords, while I agree with the noble Lord in what he said in his original Answer, I think he would agree that there is an overall responsibility on the part of Her Majesty's Government to safeguard the interests of the taxpayers when there is so much at stake in some of these concerns. May I ask whether the Minister is aware that, while this dubious financial manœuvre (as I can only call it) to which the original Question refers was being carried out, this company was trying to extricate itself from its ill-starred alliance with the Bloom Rolls Razor organisation, an operation which has resulted, if the Press is to be believed, in a loss to this company, and therefore to the shareholders and the Government, of half a million pounds? Is he further aware that at the meeting where this option was granted these facts must have been within the knowledge of the chairman, and that, while he stated to the shareholders that the holding in Rolls Razor had been sold at a profit, he made no reference whatsoever to this potential loss. Would the noble Lord be good enough to consult with his right honourable friend the President of the Board of Trade and ascertain whether or not this non-disclosure of relevant facts comes within the scope of Section 165(b)(iii) of the Companies Act, 1948?

§ LORD DRUMALBYN
My Lords, I think with regard to the last part of the question, this is clearly something of which I should require notice, but I will look into the matter and write to the noble Lord. The main point of the noble Lord's question is, surely, that there was a potential loss that might or might not at that time be known—and we are talking about June 4—in regard to Rolls Razor. But I should, I think, make it clear that in the case of both Pressed Steel and Rolls Razor, to the best of my knowledge, and certainly in the case of Pressed Steel and Rootes, the relationship was that of supplier and customer and I do not think that that 890 consideration can arise. I can say this to the noble Lord. If a loss of these dimensions was envisaged, it just shows that in giving an option of this kind one is by no means giving a certainty.

§ LORD SHEPHERD
My Lords, would the noble Lord answer the second part of my supplementary question? If I may be allowed to refresh his memory, would he not agree that Pressed Steel is a most important part of the motor manufacturing industry, and would he not agree it would be wrong for the control of that company to be acquired by any particular company in the motor manufacturing industry? Also, in view of the fact that this company is in debt to the Board of Trade for this large sum, would the noble Lord not agree that the company, before it considered any amalgamation with another company, should have consulted the Government?

§ LORD DRUMALBYN
On that point, my Lords, I find it very difficult to believe that the company, in those circumstances, would not have consultations with one of its principal creditors. On the other point, I do not think I am called upon at the present time to give an opinion as to whether or not it would be a good thing for this particular firm to be acquired by one of the motor manufacturers. But I can say that the chairman himself has denied that either he or his board had any knowledge of any such negotiations for such acquisition.

LORD HAWKE
My Lords, is it not a fact that the party who would stand to gain most from a take-over bid would be, apparently, the Board of Trade, to whom this company owed £10 million? Is my noble friend aware that there was an article in a reputable financial journal last week advising shareholders to put their money into companies where the directors had been given options to buy shares, because historically the author found it very profitable?

§ LORD DRUMALBYN
My Lords, certainly the purpose of giving options in the future of this kind is to try to incite the senior executives—and this is a question of senior executives and the phrase, I understand, includes directors in this case—to greater effort on behalf of the company.

§ LORD LUCAS OF CHILWORTH
My Lords, is the noble Lord aware that the reason why this financial newspaper gave this advice—very sound advice—is that the directors have prior knowledge above all other shareholders as to the winners as well as the losers? While the House will be grateful to the noble Lord for the frankness with which he answered these questions, he will surely agree that the sooner the Companies Act is revised, whichever Government may be in power next Session, the better.