HL Deb 19 December 1966 vol 278 cc1912-50

7.4 p.m.

Order of the Day for the House to be put into Committee read.

Moved, That the House do now resolve itself into Committee.—(Lord Brown.)

House in Committee accordingly.

[The EARL OF LISTOWEL in the Chair.]

Clause 25 [Directors' service contracts, or memorandums thereof, to be open to inspection at company's registered office]:

LORD DRUMALBYN moved to add to the clause: ( ) For the purposes of this section the expression "contract of service" shall not include a contract expiring or determinable by the company without payment of compensation within a period not exceeding twelve months, and where a director is serving a company on terms contained exclusively in the company's Articles of Association and not otherwise he shall be deemed not to have a contract of service with the company. ( ) Nothing in this section shall apply to a private company or to any other company none of whose shares or debentures are for the time being dealt in or quoted on a prescribed stock exchange or to a company which is the wholly owned subsidiary of another.

The noble Lord said: Dealing with this clause, which requires directors' service contracts or memoranda about them to be open to inspection at the company's registered office, we have put down this Amendment in order to make certain exceptions. I would accept that shareholders probably ought to know more about directors' service contracts, and therefore we agree with the intention of this clause. However, it is questionable whether the clause does not go too far, as it requires all contracts, whether written or verbal, whether, as I understand it, for one week or ten years, and whatever the pay involved may be, to be disclosed, and, in particular, it does not discriminate between public and private companies.

One important purpose of the clause is to enable shareholders to work out what it might cost the company in damages to remove a director before the expiry of his contract. In that case, there would be little point in requiring disclosure of contracts with a short time to run of, say, a year or so, and certainly those with less than a year to run, where those contracts could be terminated by notice within that period and without any payment of damages. A high proportion of directors, and particularly non-proprietary directors, in groups of public companies are working under a contract of one year or less, and no useful purpose will be served by compelling wholly-owned subsidiary companies to disclose this information, as it will already be known to the only shareholder, which is the parent company.

The peculiar position of private companies does not seem to have been taken into account. Many thousands of directors of family companies do not work under a contract of service, for the simple reason that they are their own employers. In a director-controlled company the directors' remuneration is often fixed at the year end according to the available profits, and not by any formal contract. Where the directors and the shareholders are one and the same people, or even where the directors as a body own the majority of the equity shares, there is clearly no point in requiring disclosure of any contract of service. We therefore think that the clause should not apply to what are at present exempt private companies—to private companies, that is, or to unquoted companies.

For those members of the public, including the Press, who want to find out what a director of a good company earns, the solution will be simple. The purchase of one share for perhaps less than £1 will entitle the holder to inspect that director's contract of service. In this light, one is left wondering whether the Government believe that only telling the public the number of directors falling into rising bands of remuneration is as much as is good for them. I think, on reflection, the Government will see that this clause is rather too comprehensive and goes too wide. I beg to move.

Amendment moved— Page 21, line 7, at end insert the said subsections.—(Lord Drumalbyn.)


I think we can take this Amendment in three parts, the first ending "not exceeding twelve months", the next one at the end of that paragraph, "service with the company", and lastly "wholly owned subsidiary of another". I should like to ask the noble Lord whether he is arguing that in the case of directors serving a company on terms contained exclusively in the company's articles of association, as mentioned in the second part of the first paragraph, it is unnecessary to make the contract itself available. If he can tell me that, I can shorten the reply and speed up business.


That is so.


The first part of this Amendment seeks to exclude from the requirements of Clause 25 directors' service contracts expiring within a year or determinable by the company within a year without its having to pay compensation. One of the reasons for making information available to members about directors' service contracts is that if a director has a service contract over a long period, with no adequate provision for its termination or revision, the company may be put to great expense if it wishes to get rid of the director. I am aware of the Stock Exchange requirements in this regard.

May I reduce the time that I spend on this point? Since the objects of that part of the Amendment up to the words "twelve months" are in line with the general purpose of the clause, may I say that we will accept that part in principle, and see that the intentions are carried out. Moreover, we have been assured by the noble Lord, that since the information is in the articles of association and available to all, it is unnecessary to make the contract itself available. I do not think his wording is quite right, but we will consider whether anything can be done before the next stage.

With regard to the third part of the Amendment, beginning "Nothing in this section shall apply" I must tell the noble Lord that we cannot agree to this. Private companies have shareholders who are not relatives (that was said by the noble Lord), and it is clearly of interest to the shareholders to have information about directors' contracts of service, since they give some indication of what it would cost the company to dismiss a director. I should have thought that the noble Lord, with his knowledge of Company Law, would have wanted this included. Another thing that could come out of it is whether any part of the company's future earnings was likely to be absorbed by an increased remuneration for directors. I can assure the noble Lord that it is sometimes very difficult to get to know anything, even in a private company. So we believe there are no grounds for making a distinction between public and private companies, so far as disclosure of directors' service contracts to members is concerned. Having conceded in principle the first part of this Amendment, and having undertaken to consider the second part, I am afraid that I must ask the Committee to turn down the third part.


I am grateful to the noble Lord for the way in which he has dealt with this Amendment. I am grateful to him for accepting the first of the three parts and agreeing to consider the second. With regard to the third part, I think there is substance in what he has said. It is undoubtedly the case that not enough information is available to some of the shareholders in private companies, and what the noble Lord has said has convinced me, at any rate, that the shareholders should be able to see the register. I take it, however, that this will relate only to the shareholders. The Bill is drafted in terms that the register should be open to the inspection of any member of the company without charge. Since this is, of course, a private company, with limited shareholders, and the shares are not available to the public, it seems to me that he has answered this point. I notice that the noble Lord nods assent to what I am saying, and I therefore ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 25 agreed to.

Clause 26 agreed to.

Clause 27 [Rules for giving effect to Section 26(1)]:


This Amendment deals with a very simple point. It is to ensure that where a director, for example, is given a proxy, he should not be considered to have an interest resulting there from. That is the whole point of this Amendment. I think the Government probably agree that this is right. I am not quite certain whether it is already covered in the Bill, but it does not appear to be, and perhaps it is as well to make it explicit. I beg to move.

Amendment moved—

Page 25, line 7, at end insert— ("( ) In determining whether a person is interested or deemed to be interested in shares or debentures there shall be disregarded any entitlement to exercise or control the exercise of any right or voting power being an entitlement which arises solely by reason of such person's being the proxy of another.")—(Lord Drumalbyn.)


We are grateful to the noble Lord for his Amendment, which is helpful. We accept it in principle but we should like to have another look at the wording. If the noble Lord will withdraw the Amendment, we will certainly accept it in principle and include the same or slightly different wording.


I am much obliged to the noble Lord, and beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 27 agreed to.

Clause 28 [Provisions for securing that information furnished under Section 26, and certain other information about directors' interests, is recorded and made available]:

LORD DRUMALBYN moved, in subsection (8), to leave out "or other person". The noble Lord said: This Amendment is to leave out the words "or other person" in subsection (8) which says: Any member of the company or other person may require a copy of the said register, or of any part thereof, on payment of sixpence, or such less sum as the company may prescribe, for every hundred words or fractional part thereof required to be copied. This is virtually in identical terms to Section 113 of the Companies Act with regard to the inspection of the register and index. The substance of this is not quite on a par with the inspection of the register or index. We are here dealing with the obligation of a director to notify interests of his shares or debentures in the company or associated companies. This applies so far as public companies are concerned, but does it not go rather too far so far as private companies are concerned? Here again we are dealing with shares which under Section 28 (1) of the Act cannot be transferred outside a restricted number, because by definition a private company means a company which by its articles restricts the right to transfer its shares, and prohibits any invitation to the public to subscribe for any shares or debentures of the company.

I should have thought that in taking this direct from Section 113 the Government have gone a little far, and that is why I propose to leave out the words "or other person". I should be grateful if the Government could indicate what they have in mind in going so much wider than I should have thought was necessary. I beg to move.

Amendment moved— Page 27, line 13, leave out ("or other person").—(Lord Drumalbyn.)


I do not want to spend too much time reiterating comments that I made on previous clauses, but may I say briefly that we are anxious to take the bold step of having one class of limited company, and to follow this through. That is one basis of argument. I wonder whether, without taking up immediately the words of the noble Lord, I could embark upon another line of argument which is rather different? I should like, if I may, to take into my remarks not only Amendment 32, but Amendments Nos. 33, 38 and 39. The noble Lord will see why in a moment.

Amendment No. 32 limits the right of receiving a copy of the register of directors' holdings to members. Amendment No. 38 applies the same restriction—that is the limitation of the right of receiving a copy of the register of those with a 10 per cent. interest—to members, excluding the public. Amendment No. 33 proposes an increase in charge for supplying a copy of the directors' register, and Amendment No. 39 proposes the same increase for the cost of supplying a copy of the register of those members of the company holding 10 per cent. or over.

We concede that there may be at times a rather indiscriminate use of this right on the part of non-members of the company to apply for a copy of either of these two registers, and we are prepared to increase substantially the amount of the charge which a company is entitled to make for supplying a copy of either of these registers to members of the company or to members of the public. We are not prepared to go quite so far as the 2s. 6d. for a hundred words which is suggested by the noble Lord in his Amendments and which compares with the current charge of 6d. per hundred words. We have not quite finished our consideration of what would be an appropriate figure, but it would be a substantial increase.

I am wondering whether it would be possible to cut down the debate on this matter in view of the fact that there is partial agreement between us. If this argument does not suffice, I shall have to rise again to support the case with some further argument, but for the moment I will rest my case there.


I think the noble Lord has argued in the only way he can, having regard to the fact that the Government are prisoners in their initial blunder in trying to treat private companies in all respects in the same way as public companies in whose shares the general public are interested. This particular clause seems to me to be quite indefensible and iniquitous. It is what might be called a "Nosey Parker's charter". Staff reporters on the local paper will apparently be able to go and have a look at the register and then write chatty little articles on who owns what in a particular town. It will be a quite unwarrantable intrusion into privacy, but the Government, having made their initial blunder, obviously have to carry it through. I cannot see what else they can do, unless they are prepared to have a different category in some respects for private companies.


I wonder whether the noble Lord has thought of differential charges as between members of the company and members of the public?


May I revert to the substance of this question? I think I made it clear that I put down the Amendment because I thought there was a real distinction between holdings in public companies, which have to be on the register and which can be made available, and holdings in private companies, and changes therein. I think the noble Lord really ought to make some comment on this because there is a distinction between a private company which, under its articles, has its right to transfer shares restricted and none of the shares is available to the public, and a company in which all the shares are registered and the public can inspect the register. I should have thought it was essentially a private matter how the shares were distributed. We are not objecting in any way—indeed we could not object—to the actual amount of the capital being disclosed, including the paid-up capital, but the way in which it is distributed seems to be a different matter, and that is why I made this distinction.

I do not pretend that my Amendment is perfect, but I put it down in order to draw attention to this point. Having done so, if the noble Lord, Lord Brown, does not want to give a full explanation tonight we shall understand and perhaps I could put down an Amendment on the next occasion, but I will leave it to him now to say whether he would prefer me to do that, or whether lie is able briefly to give an answer to the point.

7.26 p.m.


I am quite happy about giving the answer to-night. I was hoping the Amendment would be withdrawn in view of the fact that we have gone some way towards meeting it by indicating that we propose to increase the charges. We are really dealing with something which might be described as a clash of philosophies over this matter. The noble Lords on the opposite Benches are using the words "private company" to denote both companies whose shares are not transferrable and also undertakings carried on by individual persons, and it is nobody's business what they do. The clash of philosophy I think arises from the fact that on this side of the Committee we do not think we can really regard businesses—and in particular many of the major businesses which are, in the noble Lord's sense of the word "private"—as private affairs. They are part of the economy; they use labour, they use resources, they use services; they are responsible for exporting and they are not really "private" in the ordinary sense of that word. To limit the right of knowing a great deal about these companies to those who are shareholders would, in our opinion, be wrong in principle.

This is one of the reasons why we have sought to create one class of limited company. We are opposed to exempting substantial companies which happen to be private in the limited sense of the word "private" from disclosure of their affairs to the public; and although we do not want to expose them too much to the person who merely wants to be a nuisance, we think that a member of the public should have this right.

I want to make a comment on the proposal that there should be differential charges: one charge to members of the company for copies of the register and perhaps a higher one to members of the public. I think that would complicate the matter and if we introduced substantially higher charges it would limit the use to which this could be put responsibly. I hope the Amendment will be withdrawn in the light of our attempt to concede at least part of the noble Lord's Amendment.


The noble Lord thinks that this information should be available to the public. For what purpose? I can see that information about the shares of a public company where the shares are widely held is of importance and interest to the general public, but the case we have in mind is possibly that of the local garage. What profits it any man to know who holds the shares and in what proportion? It is of no interest to the creditor because it is a limited liability company. He has no recourse to the shareholder. Nothing but simple curiosity would be satisfied, and I feel there would be a great deal of intrusion into privacy.


I am sorry to have to return to this subject. I am left wondering where this argument really ends. One can understand that where a great factory or great enterprise is involved the public has an interest in knowing who has the say in the decisions that are made. The argument that the noble Lord has put forward is that here the resources of the nation are being used, resources of manpower, material resources, and so forth, and therefore this is a matter of public interest. Surely the same could be argued of bank accounts. The money one puts in there is used by the banks and used presumably for financing this and that in the national interest, and before very long you get to the disclosure of bank accounts as well. Where are we going to stop? Is there to be no privacy at all?

I do not propose to pursue this argument. I am grateful to the noble Lord for having gone as far as he has in saying he will meet this more general point, which really is a matter of pure cost. It seemed to me wrong that a company should be put to a loss in providing this information, and therefore it seemed to me sensible the charge should come nearer the cost of providing the information. It was not a question so much of stopping people from getting the information; it was of imposing on the person asking for the information the duty of paying something more like the appropriate cost. But this is quite a different matter from the major question of principle involved here. I do not propose to pursue it any further, but I think it is a matter we may revert to at the next stage. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

On Question: Whether Clause 28 shall stand part of the Bill?


Would the noble Lord give a little explanation of subsection (9)? Its meaning is rather peculiar. As he is well aware, at many company meetings where there has been adequate profit and a dividend has been paid a skilful chairman can dispose of the business of the meeting in a very few minutes. This suggests that if there were by chance a shareholder who wished to have information, which he is rightly entitled to have, he is able to get that only "during the continuance of the meeting". It would seem logical that the wording should suggest that a certain period, however few minutes, after that would be available for any shareholder who wished for information. The wording appears to give the opportunity for a company which wished to suppress information to withdraw the facilities which the subsection is aimed to give.


I think the matter is covered already in the present Act. If questions are asked at a general meeting about directors' shareholdings or share dealings it is useful if the register is at the meeting and accessible to anybody who wants to consult it. Provision to that effect is made in Section 195(7) of the present Act and it is repeated in this subsection.

Clause 28 agreed to.

Clause 29 [Obligation of persons to notify company of acquisition, changes in amounts of, and disposal of shares in the company carrying unrestricted voting rights]:


This is a drafting Amendment to correct an accidental omission; it makes no change of substance whatever. Clause 27 contains rules for determining the meaning to be given to references to a person's being interested in shares for the purposes of Clause 26. Clause 27(7), (9) and (10) state that certain interests are to be disregarded. Clause 29(4) was to apply the rules in Clause 27 to Clause 29, which itself requires the disclosure of substantial interests in the voting shares of quoted companies, subject to the interests set out in Clause 27(7), (9) and (10) being disregarded. The reference to Clause 27(7) was accidentally omitted, and it is inserted by this Amendment. I beg to move.

Amendment moved— Page 29, line 35, after ("subsections") insert ("(7)").—(Lord Brown.)


This again is a purely drafting Amendment to remove an incorrect reference to debentures in Clause 29(4)(c), and makes no change of substance. I beg to move.

Amendment moved— Page 30, line 2, leave out ("or debentures").—(Lord Brown.)


This is another drafting Amendment to clarify Clause 29(7), and makes no change of substance whatever. I beg to move.

Amendment moved— Page 31, line 27, after ("director" insert ("of the company").—(Lord Brown.)

On Question, Whether Clause 29, as amended, shall stand part of the Bill?


I should like to ask a question on this clause, the purpose of which seems to be to warn a company if somebody acquires 10 per cent. of its shares, presumably for the purpose of going on and taking over the company. What is the philosophy behind protecting the managers from someone who goes to the market and uses the market in the perfectly normal way to buy shares in a company which he considers—I am assuming he is a man who wants to take it over—he could run better if he were in charge? Why should inefficient managers be protected against somebody doing that? That is my first question.

Assuming that the noble Lord can satisfy me that it is important that anybody who buys 10 per cent. of the shares in a company must declare that interest, I consider the clause is very badly drafted. All the man has to do is to buy 9 per cent. of the shares for himself, 9 per cent, for his wife, and 9 per cent. for say, his brother, or anybody else. He can easily get control of the company in exactly the way he does now. What is the point of limiting it to 10 per cent. and limiting it to one man? It seems to me that we need a little explanation of what the noble Lord himself called his philosophy in regard to this clause.


There is a long history of attempts, starting I think with the Cohen Committee, though it may have been earlier, to deal with the situation created by the convenience of nominee holdings, and the other side of that penny: the disadvantage that some people using nominee holdings and other forms of anonymity can get into significant positions in companies without its being known. The object of disclosure of 10 per cent. holdings is not to protect the company from take-over bids and so on; it is to disclose. It may indeed help those who wish to take over a company which is inefficient to do so. It cuts equally both ways. It discloses information.

I am not going to pretend that the clause is ideal. But, of course, there are difficulties in dealing with the situation where one wants at the same time the convenience of nominee shareholdings and the right of the individual not to have to declare the totality of all his shareholding, on the one hand, and the secrecy which would allow some people to operate in a way in which we should not wish them to operate (and I stress that) and to obtain a situation from which they could manipulate the affairs of the company. These two things clash, and the clause is an attempt to force disclosure by those who are getting into the power positions among shareholders in companies. I think it would be proper to say that consideration is now being given to the possibility of including within the clause spouses and children, to try to close the gap to which the noble Viscount has referred. But the philisophy behind this is simply that of trying to overcome some of the unfortunate effects of a convenient procedure with nominee shareholders and other types of anonymous shareholders. We are, so to speak, dealing with two requirements which clash somewhat.


I am sorry, but I still cannot see what is wrong in somebody acquiring shares in a company through the market. A market is there for the purpose of allowing people to buy what is on offer. Why should purchasers then have to put it in their own names? I think it is going to protect the manager who would otherwise find—and perhaps a good thing, too!—that somebody with greater initiative is able to turn him out. I am afraid I do not agree with the noble Lord that it cuts both ways. I think it will cut one way only.


I do not really understand the point the noble Viscount is making. Nobody suggests for a moment that there is anything improper in people buying shares in a company on the market. That is what puzzles me somewhat. I cannot see how disclosure of information is going to be a protection for anybody. I do not follow the argument that, because one discloses the ownership of 10 per cent., and over, of the shares of a particular class in the company, one is thereby protecting the managers of the company. It seems to me that, by disclosing who holds the key among the shareholders, one might equally be making it easier for somebody who wishes to bid for these shares to approach the persons who hold the percentages and make their offer. I do not want to argue that it is easier; I am merely balancing the noble Viscount's argument by saying that it seems quite obviously to cut both ways, and to say that it prejudices the thing in one direction or the other does not ring a bell with me at all.


May I ask one simple question here? Does the expression "person" in subsection (1) include the Industrial Reorganisation Corporation?


I should require notice of that question. I will try to give the noble Lord an answer as soon as possible.


I am much obliged.

Clause 29, as amended, agreed to.

Clause 30 agreed to.

Clause 31 [Limited companies may be re-registered as unlimited]:

On Question, Whether Clause 31 shall stand part of the Bill?


May I ask one small question here? Clause 31 concerns limited companies which may be reregistered as unlimited, and subsection (3)(a) says— The documents referred to…are— (a) the prescribed form of assent to the company's being registered as unlimited subscribed by or on behalf of all the members of the company. I am a little concerned about the words "or on behalf of". As I mentioned on Second Reading, it seems to me extremely important that everybody concerned, all the shareholders, should know of this intention to change and to re-register a company as unlimited, because in that event each of them will be incurring unlimited liability, and one would want to be certain that "on behalf of" means that they have given their consent, and that it is with their authority that the application is being made.


I entirely agree with everything the noble Lord has said. Of course the documents in paragraphs (a) and (b) of subsection (3) are most important, precisely because the conversion may impose heavy liabilities on individual shareholders. Therefore it is essential to see that either it is "subscribed by…all the members of the company "as individuals, or "on behalf of"—and strictly on behalf of"—by somebody who really is authorised to do so. I will keep the point in mind, but there is no difference of opinion between us.

Clause 31 agreed to.

Clause 32 [Unlimited companies may be re-registered as limited]:

7.46 p.m.

THE LORD CHANCELLOR moved in subsection (2)(b)(ii), after "with respect to the" to insert substance and form of the".

The noble and learned Lord said: I beg to move this Amendment standing in the name of my noble friend Lord Brown. It puts right a pure omission. If a limited company is to become unlimited, or an unlimited company to become limited, its documentation, mainly of course the memorandum of association and the articles, ought to be both in substance and in form as they would have been if the company had started life in that capacity. That is why the Committee may see in Clause 31(2)(a)(i): if it is to have a share capital, are requisite to bring it, both in substance and in form, into conformity with the requirements imposed by the principal Act with respect to the substance and form of the memorandum of a company and so on. That is repeated twice again in paragraph (b)(i).

Then one comes to Clause 32, which, two lines from the bottom of page 35, reads: both in substance and in form, into conformity with the requirements of the principal Act with respect to the substance and form of the memorandum and articles…". Then, in sub-paragraph (ii) it says: if the company is to be limited by shares, provide for the making of such alterations in its memorandum as are requisite to bring it, both in substance and in form, into conformity with the requirements of the principal Act with respect to"— and then it should say "the substance and form of the memorandum". This has been left out by mistake. I beg to move.

Amendment moved— Page 36, line 12, at end insert ("substance and form of the").—(The Lord Chancellor.)

Clause 32, as amended, agreed to.

Clause 33 agreed to.

Clause 34 [Exemption, in certain cases, of unlimited companies from requirements of section 127 of the principal Act]:

On Question, Whether Clause 34 shall stand part of the Bill?


On a point of order, are we not inserting six stars after Clause 33?


That indicates that the Amendment has gone.

Clause 34 agreed to.

Clause 35 agreed to.

Clause 36 [Exemption from obligation to print certain resolutions and agreements]:

On Question, Whether Clause 36 shall stand part of the Bill?


There is a small point on this clause. It says: no company need forward to the registrar of companies a printed copy of a resolution or agreement to which that section applies, if instead it forwards a copy in some other form approved by the registrar. May I ask what the words "approved by the registrar" mean? Do they mean a particular or a general approval? And how will the registrar signify his approval? Is it in each particular case, or is it a general approval?


As I understand it, it is the practice of the Registrar to accept documents reproduced by electrostatic photography such as the Rank Xerox process which he regards as printing. There are some other processes—for example, spirit duplicating—which he is prepared to accept from exempt private companies under Section 143. Some amendment to Section 143 is in any event necessary, since the proviso would cease to have any meaning with the abolition of the status of exempt private company. Clause 36, in effect, allows all companies, not merely those which were formerly exempt private companies, to forward to the Registrar copies of resolutions or agreements reproduced otherwise than by printing provided that the form of reproduction is acceptable to the Registrar.

The clause is consistent with paragraphs 493 and 495(j) of the Jenkins Report which deal generally with the form of documents delivered to the Registrar. Paragraph 493 points out that the form in which, under the Act of 1948, documents must be delivered to the Registrar varies, and suggests that there should be substituted for separate and inconsistent rules one uniform rule requiring all documents delivered to the Registrar to be legible and durable but not necessarily printed. The need to limit the size of the Bill is the reason for not giving effect to the whole of the Jenkins recommendation about the reproduction of documents. In substance, the Registrar will accept whatever is legible and durable. We live in times when methods of reproduction are changing fairly often.


I am much obliged to the noble and learned Lord. I take it from what he says that the Registrar will not, in fact, publish indications of the forms which he is prepared to accept, but that so long as a document is legible he will accept it.


So long as it is legible and durable.


I am much obliged.

Clause 36 agreed to.

Clause 37 [Exemptions from prohibition imposed by Section 434 of the principal Act of formation of partnerships with more than twenty members]:

On Question, Whether Clause 37 shall stand part of the Bill?


We welcome this clause, but there is a small point which arises on it relating to the stating of business names. As the law now stands, as I understand it, the names of all the partners have to be shown on the letterhead. I believe that this requirement is frequently not complied with, but it seems to be the law. If one is going to have many more than twenty partners, one is going to have them strung right down one side of the notepaper. I was wondering if the Government have considered the effect in this small way of this clause on the law and practice in this matter.


So far as I know, this point has not received consideration. It has always been thought to be important that the names should be there, unless they are trading under some other name, following the provisions of the Business Names Act. One is familiar, in the case of American partnerships, with all the names, however many there are, usually being shown on the notepaper. But I will certainly see that the point is borne in mind.

Clause 37 agreed to.

7.54 p.m.

BARONESS ELLIOT OF HARWOOD moved, after Clause 37, to insert the following new clause:

Prohibition of registration of companies by undersirable names

". For section 17 of the principal Act (which prohibits the registration of companies by undesirable names) there shall be substituted the following section:—

'17.—(1) No company shall be registered by a name which in the opinion of the Board of Trade is likely to mislead the public as to the nature of the goods or services offered or is in any other respect undesirable.

(2) Where a company is registered with a name which is subsequently used in a manner which in the opinion of the Board of Trade is likely to mislead the public, the Board of Trade may direct that such a company discontinues use of such a name forthwith and on failure to comply with this direction the company shall be liable to a fine not exceeding five pounds for every day during which the default continues.'"

The noble Baroness said: I rise to move Amendment No. 41, but before I do so I would draw the Committee's attention to the fact that there are three Amendments put down in the names of the noble Lord, Lord Peddie, and myself. I should not like it to be thought that he has joined me, or I have joined him. We are as your Lordships know, members of the Consumer Council, and it is for that reason that these Amendments have been put down. I shall move the first one and Lord Peddie will move the other two.

In introducing Amendment No. 41A. I should like to make one or two comments about all three Amendments. We believe that there is a common purpose in them all. British Company Law has never made it a prime concern to safeguard the interests of the consuming public, and the ancestry of the Companies Acts has been the need to protect the interests of investors and of traders one in relation to another. Yet recent events have emphasised a longstanding need to protect consumers of goods and users of services within the framework of company legislation. I am referring not only to the recent failures of insurance companies, but also to those public and private companies which go into liquidation leaving consumers with defective goods or goods which carry an obligation for maintenance by the manufacturer; or companies providing services who are no longer able to fulfil their obligations for uncompleted contracts.

While the Companies Acts give shareholders and creditors the machinery of investigation and the right to claim benefits on liquidation, the consumer is left without spares for his refrigerator, without servicing arrangements for which he has paid and with a commodity which for these reasons is much reduced in value as an asset. In the field of providers of services, such as the installers of central heating, house improvement contractors and decorators, there is no remedy for defective work done by a company in liquidation—it is a company made of straw. It is for these reasons that the consumer should be given a much stronger position in company legislation, and those consumer bodies who are now recognised as a force in the land should be given wider and better facilities to institute the investigations of companies and company directors.

Section 17 of the present Companies Act gives the Board of Trade very wide powers to refuse a company permission to use an undesirable name. Despite these powers, many companies are registered and operate with names which are misleading. In this Amendment I seek to spell out the criteria that should be used by the Board of Trade in deciding whether or not to permit a name. It may not be generally recognised that possession of a pretentious or otherwise misleading name may be a valuable asset to a dishonest company and that an imposing title can be used as an instrument of deception or fraud. The value of a misleading title is too well recognised by the dishonest trader. An example of the kind of thing that can mislead the public is the institution known as the National College of Health Limited which is not in fact a recognised teaching establishment but a commercial institution offering postal medical diagnoses of certain serious conditions. There are many other misleading company names and business names. It is to be hoped that in deciding whether or not to permit an imposing title the Registrar would apply the same standards to businesses not covered by companies legislation as he applied to companies which come within the Companies Acts.

In this Amendment we suggest that the Board should be given power to withdraw a title when this is being used as an instrument of deception. An example of this is the organisation which calls itself Purchaser Advice Bureau; this organisation provides no competent advice service to purchasers but uses its high-sounding name to obtain subscriptions in a dishonest way from traders. When evidence of this sort comes to the notice of the Board of Trade they should be able to order that the title be discontinued. The Board of Trade explained their policy in relation to Section 17 of the Companies Act to the Jenkins Committee in terms which indicated that they had considerable sympathy with the views I express here. There is a reference here to paragraph 448 of the Jenkins Report. I know that the Amendment we propose would strengthen the Board of Trade's position vis-à-vis the dishonest trader. I beg to move.

Amendment moved— After Clause 37, insert the said new clause.—(Baroness Elliot of Harwood.)


It may he for the convenience of the Committee if we also discuss the next Amendment, which stands in my name. I find myself in considerable sympathy with the noble Lady's Amendment, but frankly I prefer my own, which covers very much the same point. This stems from a Jenkins recommendation in paragraph 456(a) which says that the Board of Trade should be empowered to direct a company to change its name at any time if the name has become misleading in such a manner that it is likely to cause harm to the public. There should be a right of appeal to the Court. My Amendment seeks to provide that right of appeal, which I personally think is important. It may be that the drafting of my Amendment is not consistent with a right of appeal, but in that case I think the Amendment should be redrafted to provide for such an appeal.

For example, if the obligation was laid on the Board of Trade to notify the company of the respect in which the name has become misleading or gives a false or misleading indication of the activities of the company or the nature of the goods or services offered, it would then be an appealable ground. So a company which received a direction to discontinue its name on these grounds would be able to appeal against the grounds given. One of the reasons why I prefer my own Amendment is that I designed it to fit in more closely with the Consumer Protection Bill which we hope to see again before very long.

There are really two points here. First of all, there is the type of case to which the noble Lady was referring, where a company has taken a name and used it in a misleading fashion. I am not quite certain whether or not some of the organisations to which she was referring were companies. Some of them seemed to me to have been business names, and of course they would not be caught, so far as I can see, by either of our Amendments, which deal merely with company names.

The other side of it is the case of a company which registers a name, when I would suggest the use of the name is not so much a matter to be called in question. My noble friend's Amendment refers to: a company…registered with a name which is subsequently used in a manner which in the opinion of the Board of Trade is likely to mislead the public". It would seem to me that it was more the relationship between the name and the activities of the organisation which had to be examined, and in that way I think my Amendment would be preferable. An Amendment along these lines would be desirable, and of course it is a fact that this is one of the improvements which was recommended by Jenkins. I quite appreciate that such an Amendment would not cover all the Jenkins recommendations, because we are not able to deal with the business names aspect. Nevertheless, it seems to me that we should go as far as we can. I would commend the idea and initiative of my noble friend, and hope that the Government will be able to do something along these lines.


Section 17 of the principal Act states that No company shall be registered by a name which in the opinion of the Board of Trade is undesirable. The word "undesirable" is used in the widest possible context. The Board of Trade explained in their evidence to the Jenkins Committee that, in general, they considered a name to be undesirable on any one of five grounds—namely, one, falsely suggestive of Royal patronage or connection with the Government or with a local authority; two, falsely suggestive of connection with foreign Governments, three, pretentious or otherwise falsely indicative of the nature of the company; four, calculated to lead to confusion by being identical with a registered trademark which is not the property of the company; five, calculated to lead to confusion by resembling too closely the name of an existing company.

The first subsection of the new clause proposed by the noble Baroness would give the Board of Trade the same power as they have at present, but would mention specifically one, and only one, of the grounds on which the Board of Trade might form the opinion that a name is undesirable. In the Government's view, therefore, the proposed change is unnecessary and seems to them undesirable as it would give undue prominence to the particular ground mentioned.

Under Section 18(2) of the principal Act, the Board of Trade have a limited power to direct a company to change the name by which it is registered. The direction must be made within six months of the date on which the company was registered in the name it is required to change. The ground of the change must be that the name is too like that of another company which was registered before the company whose name is to be changed was registered.

Subsection (2) of the new clause would give the Board of Trade a new power: that of directing at any time that a company should forthwith cease to use its name, on the ground that it is using it in a manner likely to mislead the public. But the subsection in the terms proposed would be unworkable, because a company cannot be left without a name which it can use. It is true that the alterations in the subsequent Amendment of the noble Lord, Lord Drumalbyn, go rather further. But as to both there is, of course, the additional point that the whole question of names is one which my right honourable friend proposes to have considered in the second Bill. I do not know whether the noble Lord would like me to address myself to his further Amendment at this stage or to leave it until it is called.


I suggest it is dealt with now.


Of course, the same argument applies to both. This is a subject matter which is not covered at all by the present Bill, and the Minister proposes to consider and to deal with the whole question of names when we come to the second Bill.


I am grateful for what the noble and learned Lord has said, but it seems to me that it would be desirable to deal with this matter in this Bill. Of course, the difficulty about knowing whether a name is desirable or undesirable when it is registered is that the Memorandum goes exceedingly wide, and at the time of registration it is not known exactly what a company is going to do. It may do one of a great many things, but if the name which has been chosen proves to have been chosen with the object of misleading it would be right to direct that the name be changed as soon as that is discovered.

As to whether it is desirable to wait for further legislation, one never knows when opportunities for legislating on Company Law may arise. I think it is eighteen or nineteen years since we had the last Companies Bill, which came nineteen years after the previous one. It seems to me that where a matter does not appear to present any great difficulty and does not involve any consequential amendments in other legislation, such as the noble Lord, Lord Brown, referred to on an earlier Amendment in connection with no par value shares, it might well be desirable to amend the Bill if the Amendment can be relatively easily framed. If we could deal with this matter now, I should have thought it better to do so. I know the noble and learned Lord did not want to waste the time of the Committee by going into detail on my Amendment. But I should have thought that the prospect of more company legislation was not sufficiently imminent to lead us to attach very great weight to the argument which he adduced.


I am grateful to the noble and learned Lord for his answer to me. I am quite willing to withdraw my Amendment in favour of that of the noble Lord, Lord Drumalbyn, since the noble and learned Lord has pointed out that mine falls short in one or two ways, whereas the Amendment of the noble Lord, Lord Drumalbyn, is better. I should like to put in a plea to the noble Lord, Lord Drumalbyn, for an Amendment on these lines, because, like him, I believe that a bird in the hand is better than waiting for several years for another in the bush.

I think this is an important matter affecting a lot of people. We are continually hearing of names which mislead the public, and although the Board of Trade has five grounds for action under the existing Act, these Amendments contain one or two points which are not covered. I would beg the noble and learned Lord, if he can, to look at this again to see whether or not something can be done to protect the consumer on this particular matter, which is quite an urgent one.

Amendment, by leave, withdrawn.

8.10 p.m.

LORD PEDDIE moved, after Clause 37, to insert the following new clause:

Application for investigation of company's affairs.

". For subsection (1) of section 164 of the principal Act (which provides for the inves- tigation of a company's affairs on the application of its members to the Board of Trade) there shall be substituted the following subsection:—

'164.—(1) The Board of Trade may appoint one or more competent inspectors to investigate the affairs of a company and to report thereon in such a manner as the Board direct—

  1. (a) in the case of a company having share capital—
    1. (i) on the application either of not less than two hundred members or of members holding not less than one-tenth of the shares issued;
    2. (ii) on application by a member or members of the public whose interests are materially affected by the activities of that company or by the Consumer Council or by any body representing the interests of consumers or users of goods or services supplied by that company;
  2. (b) in the case of a company not having a share capital—
    1. (i) on the application of not less than one-fifth in number of the persons on the company's register of members;
    2. (ii) on application by a member or members of the public whose interests are materially affected by the activities of that company or by the Consumer Council or by any body representing the interests of consumers or users of goods or services supplied by that company.'"

The noble Lord said: I rise to move this Amendment, which stands in the name of the noble Baroness, Lady Elliot of Harwood, and myself. It seeks to extend the power of the Board of Trade to appoint inspectors to investigate the affairs of a company so that consumers as well as shareholders may apply for an investigation under Section 164. I have already, I think, during the Second Reading debate on this Bill, outlined the damage that can be sustained by consumers when a company gets into difficulties. All your Lordships will be aware of the case of two years ago when the Rolls Razor Company collapsed and left a large number of households with completely useless service agreements for washing machines. The owners of those which developed defects found considerable difficulty in obtaining spare parts.

I want to point out that this does not apply merely to large-scale public companies, but applies equally to private companies in the consumer field. It is true that the abolition of exempt private companies will increase the safeguards in this respect; but, quite frankly, it is not enough. Time and time again the Consumer Council has had knowledge of impending liquidations in the case of private companies but has had no real means of starting timely investigations to protect consumers. Some of these crashes have certainly been the result of normal commercial hazards which every company has to face, but far too many have been caused by an intention deliberately to perpetrate short-term and lucrative frauds. It is for this reason that I feel certain that the consumer should have the same rights to apply to the Board of Trade—and I emphasise the words, "to apply to the Board of Trade"—for an investigation as those who have a direct financial interest in the company. In pressing this Amendment, we feel that it will give certain rights to the consumer which are in the best interests of all. I beg to move.

Amendment moved— After Clause 37, insert the said new clause.—(Lord Peddie.)


I think there is a good deal to be said for this approach, for the reason that those who have, let us say, purchased some goods, some consumer durables, or something of that kind, are not themselves organised. They are not in a position to bring an action, or to take proceedings in any form; and, generally, the value of the goods they have acquired is not enough to warrant their taking action individually. Therefore, the Jenkins comment that it is open to a consumer to defend himself in this way is perhaps not appropriate.

I am not sure whether this Amendment is drafted in a form that the Government will be prepared to accept, although I think the idea should commend itself to the Government. Perhaps something along the lines of an application by a body which appears to the Board of Trade to represent the interests of a substantial number of consumers or users of goods or services supplied by that company might meet the case. Certainly the Consumer Council has been set up purposely to make representations to the Government on any lines which may reflect the interests of consumers, and I should not have thought that this could be considered to be outside the scope of its remit. I think that the words I have suggested would bring in at any rate the Consumer Council, and might also bring in other bodies. I do not think it necessary to be precise about it, but certainly one would want a definition that would include the Consumer Council.

8.14 p.m.


I do not know whether your Lordships' Committee appreciate that this Amendment simply repeats the whole of the existing version of Section 164(1) of the principal Act, with the addition of paragraphs (a)(ii) and (b)(ii), which state that the Board of Trade may appoint inspectors on application by a member or members of the public whose interests are materially affected by the activities of that company, or by the Consumer Council", and so on. Section 165(b) of the Act states that the Board of Trade may appoint inspectors to investigate the affairs of a company if it appears to the Board that there are circumstances suggesting…that its business is being conducted with intent to defraud its creditors or the creditors of any other person or otherwise for a fraudulent or unlawful purpose or in a manner oppressive of any part of its members or that it was formed for any fraudulent or unlawful purpose;… The Act as it stands, therefore, enables the Board of Trade to appoint inspectors if they are satisfied that the circumstances mentioned in Section 165(b) exist, and they might be so satisfied after considering information sent to them by a member or members of the public, by the Consumer Council or by a body representing the interests of consumers. In the Government's view, therefore, the Amendment is unnecessary unless it be held that Section 164, which makes no mention of circumstances suggesting fraud or the carrying on of business for an unlawful purpose, permits an appointment on a ground which is not covered by the purposes mentioned in Section 165. It should be noted that subsection (2) of Section 164 states: The application shall be supported by such evidence as the Board of Trade may require for the purpose of showing that the applicants have good reason for requiring the investigation… I am afraid that I am unable to accept the Amendment, because it is unnecessary, since any application which the Consumer Council might make successfully under the proposed new clause they can make already, under Section 165(b) of the principal Act.

I should add that here again, of course, this whole question of investigation was one intended to be covered by the second Bill. I appreciate what has been said about a bird in hand, and I know the argument which has been advanced on behalf of the Government in relation to other clauses—about not wanting to accept an Amendment because it goes outside the scope of this Bill, and had been reserved for the second Bill. But noble Lords opposite have had great political experience, and they know the political facts of life. It must have been, I suppose, when they came back in 1951 that they had a great deal more to do than could be done, obviously, in the first Session; and all Governments have this difficulty of choice, and of deciding what they regard as of priority. Perhaps I may explain this point a little further, because I said on Second Reading that the Government would welcome any Amendments which were designed to improve the existing Bill but not, I hoped, to extend it. I was taken to task by one or two of your Lordships for saying that, and therefore perhaps the Committee will forgive me if, even at this hour, I explain what I had in mind.

When the Government came back to power in 1964, they had rents and housing Bill but not, I hoped, to extend it. I but even then they managed to include a consumer protection Bill, which we had all wanted, and a company law reform Bill with some 45 clauses. Then, as your Lordships know, in March there was, if I remember rightly, a rather small majority, and it was thought that it might be more satisfactory, having seen what a Labour Government were like for eighteen months, that the country should say whether it wanted them to go on or whether it wanted a return to a Conservative Government.

Then, again, in April the Government had the same problem to consider. Although this was to be a rather longer Session than usual, there was still this very difficult question of priority. For obvious reasons, the setting up of the Land Commission was politically a "must"; and, while I should not mention four-letter words in your Lordships' Committee, I suppose I may properly mention five-letter words, and one of them is "steel". Again, for a good many reasons, including the fact that this major industry must know what its future is to be, that obviously had to be taken in the first year. These are two major Bills.

But, as noble Lords may remember, owing to the Recesses, the Saturdays and Sundays, there are only 160 Parliamentary days in the year; and, of course, the pressure is not here but in the House of Commons. Six days have to be given to the Debate on the Address; that leaves 154. The Finance Bill and the Budget take up 16 days; that leaves 138. All Governments have to allow from 25 to 30 days for contingencies. Things are always happening which necessitate Bills which are not foreseen; and I have put down 27 days for this because I have ascertained that in no year during the last eight years have contingencies ever occupied less than 25 days. That reduces the Government's days for legislation to 111. There are 26 days to which Private Members are entitled; that reduces the number of Government days to 85. But the Supply and Consolidated Fund, the days when the Opposition take over Parliament, amount to 32; thus it is that in the ordinary session there are only 53 days which the Government have to get all their legislation through.

This time, apart from the Land Commission Bill and the Steel Bill, there are considerations affecting a number of Bills. The Parliamentary Commissioner was mentioned in the Queen's Speech as long ago as October, 1964; that matter could not be left over again. With crime as it is, the time had arrived for a major Criminal Justice Bill. Then the economic position was not the strongest that the country has ever been in; and there were essential measures dealing with that: Building Control, Industrial Development, and the Industrial Reorganisation Corporation. Then there was the Ministry of Social Security and, of course, the Finance Act and Export Guarantees and many others. There are also the ones that cannot be avoided; they may not be long but all have to be allowed for: Guyana Independence, Singapore, Malawi, the Lesotho Independence Bill, the Botswana Independence Bill. Then, with the increased activity of certain bodies, they needed more capital; they cannot be allowed to run out of money. The New Towns Bill was simply a question of more money, the Public Works Loans Bill, Post Office (Borrowing Powers) Bill, the Films Bill. There were others from which you cannot escape: the Expiring Laws Continuance Bill; and the whole of the redevelopment of New Street Station in Birmingham would have come to a standstill without the Post Office Subway Bill.

In a Session of this kind it was impossible, unfortunately, to include a Bill either for consumer protection or for Company Law reform. Of course, if a Minister is prepared to start a Bill in the House of Lords—it still has to go through the Commons—this is, perhaps, something of a help. Here was a Minister who was prepared to start his Bill in your Lordships' House. But something had happened meanwhile. What used to be a Bill of 45 clauses now became a Bill of 87 clauses—quite impossible in this Session's programme, it might be said, to allow for a Bill of this size. Surely, when one bears these things in mind, one can understand a Government's saying, in effect, "Well, if you are prepared to start it in the House of Lords, on the clear understanding that it is not going to build up to anything more than 87 sections, we could just take it."

It would be unfortunate—would it not?—for all of us who are concerned for law reform (and, apart from directors' remunerations and political contributions, this is all lawyers' law reform; there is nothing Party political in it) if so much were added to the Bill in this House that the Government might have to consider whether or not they could carry it on any further. We want to encourage Ministers to start Bills in this House. So there are really two perfectly good common-sense reasons for the Government's saying: "Oh, that is going to be in the second Bill." The first is that there is only a limited amount, after all, which any Minister or Department can do; and, while the Board of Trade always has a very wide sphere of activity, in view of the events of the last two years it has had enormously more placed on its plate than ever before. It has had to see the whole of the distribution of industry, the local employment Acts, the Industrial Development Act, the establishment of the Cotton Industry Development Council, the recent acquisition of all responsibilities previously exercised by the Minister of Civil Aviation, B.E.A.., B.O.A.C., the Films Bill, the Hire-Purchase Acts, monopolies and restrictive practices, company fraud, a considerable share of the work caused by the Prices and Incomes Bill, Import Surcharge, GATT, EFTA, relations with the British National Export Council, the Queen's Award for Industry, and so on. Exports, after all, are a success story. I am sure that my right honourable friend would not wish to suggest that it is all due to him. Primarily it is due to the way in which British manufacturers and exporters have tackled the problem. I venture to suggest that those concerned with exports and industry have never been so much helped as by this Government—and with all this my right honourable friend and his Department have had to cope. On company law reform, he had already, by the introduction of the first Bill in February, covered a great many of the recommendations of the Jenkins Committee and, in substance, all the disclosure ones. Since then, he has gone further and has added a very large number of things which, of course, were not in the first Bill. That is why this Bill is about double the size of the first Bill.

The second reason is that there is always a limit to what a Government can allow for what. Whatever Government arc in power, there are complaints from all quarters of this House that not enough Bills are started in this House. This, I apprehend, is because most Ministers are in another place and every Minister likes to introduce his own Bills in his own place. In the case of a Labour Government, I suppose that they may be rather more reluctant to start a Bill in a Chamber where they have no majority; but I suggest that we ought to encourage them to do so. We do not want Ministers to say, "I am not going to start my Bill in the Lords. Look what they did to the Company Law Bill".

For all these reasons it is, I suggest, sensible—and I hope ultimately your Lordships will take that view—to point out that the Minister has every intention in the lifetime of this Parliament of having a second Company Law Bill. I know that he is most anxious to do so; but I hope we shall not so treat this Bill by expanding it. After all, a thing like the shares of no par value is a major thing. If we so expand it, the Government may have to reconsider whether, after all, they can go further with the Bill beyond this House. That is an additional reason why I feel that this Amendment cannot be accepted.


I must thank my noble and learned friend for that exceedingly detailed reply; but I am at a loss to understand whether it was the second part which was the basis for non-acceptance of my Amendment or whether it was the first part, which related more closely to the Amendment itself. Do I understand from the comments made by my noble and learned friend that under existing legislation bodies such as the Consumer Council would have full right, and indeed responsibility, to make representations to the Board of Trade for the purpose of setting up such an investigation? If that be so, if the answer be Yes—and I assume it is—I would beg leave to withdraw the Amendment.


That is conditional. Will the noble and learned Lord answer?


That is so.


Before the noble Lord withdraws his Amendment, may I make one further point? One recognises the general point about introducing Bills in this House. We certainly want to see them introduced here, and we do not want to take action which will have the effect in future of discouraging the Government from introducing Bills in this House. At the same time, may I suggest that we should have a little sense of proportion in this matter? If there are already 87 clauses in a Bill, it would not seem to matter very much whether the number is increased to 90 or so. I think it would be extremely discouraging to your Lordships if we were to be told that the sole condition on which Bills were introduced here was that we should not be allowed to make helpful suggestions for further provisions in them. I hope that that is not what the noble and learned Lord the Lord Chancellor meant.

So far as another place is concerned, I should not have thought that it would make very much difference there whether they received a Bill containing 87 or 90 clauses. As for the question of introducing a Bill in another place, had it been introduced there I have no doubt that we should also have wanted to expand the contents of the Bill and so I do not think it makes any difference either way. I quite see that there are always limits to these things. On the other hand, I hope that the Government will not seek to restrict too closely what can go into the Bill. So long as a reasonable sense of proportion is kept in this matter I hope that we shall all be satisfied. In this case it is true that the Jenkins Committee recommended that Clauses 164 and 165 should be merged into one and be redrafted. This is not what this Amendment seeks to do, and indeed we shall be quite content to await the next Companies Bill to see that redrafting, especially as in any case I understand that Section 165(b) is the section of the 1948 Act under which the Board of Trade normally proceeds in investigations.

Amendment, by leave, withdrawn.

8.33 p.m.

LORD PEDDIE moved, after Clause 37, to insert the following new clause:

Amendment of section 188 of principal Act

".Section 188(1) of the Principal Act (which provides for the restraint of fraudulent persons from managing companies) shall be amended by the insertion, after sub-paragraph (ii) of paragraph (b), of the following sub-paragraph:— '(iii) has shown himself, when acting as a director of any company or when otherwise concerned in their management, to have acted in an improper, reckless or incompetent manner in relation to the company's affairs'.

The noble Lord said: I hope, in the light of the comments made by my noble and learned friend the Lord Chancellor, that this Amendment will be considered as being a reasonable one which would add to the strength of the Bill. Section 188 of the principal Act deals with the power to restrain fraudulent persons from managing companies, and where a director has been guilty of fraud against the creditors of his company, or where he has been guilty of any fraud in relation to the company, the court may disqualify him from holding company directorships for five years. Noble Lords will certainly have noted that the kind of fraud envisaged here is fraud against the company, or the shareholders, or the creditors. Nothing is said of the damage done to consumers unable to formulate such a claim.

It is interesting to note that the Report of the Jenkins Committee recommended, in paragraph 85(b), that such extension should be made, and this Amendment is based upon that recommendation. This extension to the power of the court to disqualify should now be made, an extension which will incorporate the consumers' claims.

The Consumer Council, to which I have already referred, has a considerable list of individuals who involve themselves in short-term private companies and operate with fundamental fraudulent intentions. When one company go broke they may escape with complete impunity and then spring up again on the board of a new concern, or perhaps under the guise of the name of a "shell" company which they have purchased. The abolition of exempt private companies will certainly go some way towards keeping tabs on these people but, in my opinion, not far enough. The Consumer Council has had a number of instances where a fraudulent intention preceded liquidation, but they found that both the Board of Trade and the appropriate Fraud Squad were quite unable to act until it was too late.

An extreme example of this type of thing was the franchise racket operated by a man calling himself Mr. Holland—he had other names, too—who was active in the affairs of more than twenty companies, selling rights in respect of non-existent coin-dispensing machines and launderette washing machines. The Consumer Council knew of the impending liquidation months before it happened, but were unable to persuade the authorities to take any action. We feel that this Amendment will deal with this situation and we hope that the Government feel able to accept it. I beg to move.

Amendment moved— After Clause 37, insert the said new clause.—(Lord Peddie.)


In order to save the next Amendment in the name of the noble Lord, Lord Drumalbyn, from being ruled out by this Amendment, I will now call it.

8.39 p.m.


I have suggested that the words in this Amendment to the Amendment be added because there were in the recommendation to paragraph 85(b), to which the noble Lord, Lord Peddie, referred, three proposals one of which is reflected in the Amendment which he has just moved. I thought it would be worth while to add the other two which equally form part of the recommendation of the Jenkins Committee in this case.

Amendment to the Amendment moved—

At end insert the following sub-paragraphs: ("'(iv) has been convicted on indictment of any offence involving fraud or dishonesty whether in connexion with a company or not; (v) has been persistently in default in complying with the provisions of the Companies Acts 1948 to 1966.'").—(Lord Drumalbyn.)


As to Amendment No. 41D, I can only repeat what the noble Lord, Lord Drumalbyn, has already pointed out. There were three recommendations, and the Amendment would cover only one of them. If one is to deal with them at all, it would seem better to deal with all three. The Amendment to Amendment 41D would cover all three, but I am afraid that I can give only the same answer as before. This is part of the matter which my right honourable friend will consider when he comes to his second Bill.

There are other recommendations concerned with the situation arising from fraud and improvidence on the part of directors. There is a recommendation that the power under Section 270 to order the public examination of directors of insolvent companies should be extended, and that the penalties for fraudulent trading provided by Section 332 should apply, whether or not the facts are discovered in the course of winding up; and also a suggestion that Section 333 should provide a summary procedure to deal with actionable negligence by directors. All these proposals in this field were made by the Jenkins Committee, and the subject remains accordingly for consideration in the preparation of the further Bill. In view of that I hope that the noble Lord, Lord Drumalbyn, will agree to withdraw his Amendment and my noble friend, Lord Peddie, his.


May I just say one word? I listened with great interest to the noble and learned Lord the Lord Chancellor, and we sympathise very much with the enormous amount of work which he and his colleagues have in their lives at the present time. But I feel a little depressed by the thought that legislation in existence, which the Lord Chancellor has mentioned to us, does not stop the kind of fraud and the kind of bad and wicked things which happen and which get into the Press. One or two have been mentioned by the noble Lord, Lord Peddie, and there are others which could have been mentioned. If legislation is being passed but does not stop these things, surely it cannot be very good. It may well be that we have to go on putting up with this situation, but when we are producing a Bill which we hope is going to be of great benefit to many people, to allow these loopholes to continue to exist because they apparently cannot be stopped up now is a trifle depressing.

I am not speaking, as the noble and learned Lord will realise, in any Party political spirit, since this is a matter about which both my noble friend Lord Peddie and I are deeply concerned. We hoped that we might have had something in the present Bill which would deal with these matters. Perhaps in the next Session or in the Session after we shall have another Bill and we shall welcome it, but meantime Rolls Razors and others will go on just the same and it is apparently not possible to stop them. I should have thought that this was a matter of some urgency, and in spite of the noble and learned Lord's tour d'horizon, I should have thought it possible to stop up a few of the holes. Otherwise these wretched people will get away with it and we shall continue to have these sad stories which I am sure the noble and learned Lord, as a lawyer, regrets just as much as any of us.


In a sense what is being suggested in this Amendment is much along the lines of what is suggested in Clause 28 in regard to insurance com- panies. If we can legislate now without undue trouble to prevent the public from being defrauded, I should have thought that it would be well to do so. I think this is a more immediate way of protecting the public than the other points to which the noble and learned Lord referred. By the same token, it is one the omission of which would be more likely to attract criticism both here and in another place.


This is only part of a number of different recommendations, all in the field of fraud. I appreciate very much what the noble Baroness and the noble Lord have said, but in relation to this first year I do not think we could have blamed the Government if they had said, "We could have a Company Bill so long as it was restricted to 45 clauses, as was the Bill introduced in February. If there was any chance of its becoming an 80-clause Bill, we simply could not have found the Parliamentary time". They did not do that, but accepted the 80-clause Bill. I am only apprehensive that if we push them too far, they might reconsider whether they have sufficient time to go through with it. From the commonsense point of view, we might do better to leave it as it is.


In that case, I beg leave to withdraw my Amendment to the Amendment.

Amendment to the Amendment, by leave, withdrawn.


I beg leave to withdraw my Amendment.

Amendment, by leave, withdrawn.

Clauses 38 to 40 agreed to.

Clause 41 [Interpretation of Part I, and application of provisions of the principal Act]:

THE LORD CHANCELLOR moved, after subsection (2), to insert: ( ) A person shall not be deemed to be within the meaning of any provision of this Part of this Act a person in accordance with whose directions or instructions the directors of a company are accustomed to act by reason only that the directors of the company act on advice given by him in a professional capacity".

The noble and learned Lord said: This Amendment remedies an omission. The Companies Act 1948 and the Bill require that for certain purposes—for example, under Clauses 24(2), 26(11) and 28(12)—a person in accordance with whose directions or instructions the directors of a company are accustomed to act shall be deemed to be a director even though he does not himself hold the office of director. Section 455(2) of the Companies Act 1948 makes an exception for those, like solicitors and accountants, who are giving purely professional advice to the directors on which they are accustomed to act. A similar exception should have been made in the Bill but was omitted. I beg to move.

Amendment moved— Page 41, line 19, at end insert the said subsection.—(The Lord Chancellor.)


We very much welcome this Amendment. It is not quite true to say that it was omitted entirely from the Bill, because it appears in Part Il dealing with insurance. It is now to be applied to Part I. I know that it is very much welcomed by the professions and I am sure we all agree to it.

Clause 41, as amended, agreed to.

Clause 42 [Commencement of, and exercise of powers to make regulations under, certain provisions of Part I]:

On Question, Whether Clause 42 shall stand part of the Bill?


I wonder whether it would be possible to simplify the drafting of this clause. I myself got caught on this point. I think that the words "both inclusive" are unnecessary and it would be much better not to have them at all.


May we consider that and perhaps return to it at a later stage of the Bill?

Clause 42 agreed to.

House resumed.

House adjourned at thirteen minutes before nine o'clock.