COMMONS AMENDMENT (Hansard, 27 July 1967)

§ LORD BROWN
My Lords, in moving that this House doth agree with the Commons in Amendment No. 19, I seek the House's permission to speak also to Amendments Nos. 22, 38, 39, 46 to 50, 116, 280, 281, 302 and 303. Clause 37 permitted unquoted companies to leave out of the accounts and directors' report filed with the Registrar of Companies information about directors' and senior executives' emoluments required by Clauses 6, 7 and 8 and Section 196 of the Companies Act 1948 and analysis of turnover and profitability required by Clause 17.
The clause was deleted at Report stage in the House of Commons. A number of changes, have, however, been made to the Bill to exempt small companies from certain disclosure requirements. Thus companies which are not members of a group are exempt from the requirements in Clauses 6 and 7, provided that the aggregate remuneration of the directors does not exceed £7,500 a year. Such companies whose turnover does not exceed £50,000 a year are exempt from the requirement to disclose turnover or the analysis of turnover and profitability between differing activities; companies (other than holding companies) with a turnover of £50,000 (instead of £20,000 as originally provided for) will not be required to disclose exports, nor will holding companies presenting consolidated accounts if the group turnover does not exceed £50,000. It should be noted that where a company qualifies for one of these exemptions it can omit the information from its accounts entirely; that is to say, not only the accounts filed with the Registrar but the accounts circulated to members. I beg to move.

§ LORD DRUMALBYN
My Lords, we regard this as an important series of Amendments, partly because it includes the abolition of Clause 37, which was inserted in your Lordships' House and deals with the exemption of unquoted companies from having to attach a copy of 1169 the directors' report to their annual return. It is not worth while going over the arguments we had, but I should like to ask the noble Lord whether he can give us any idea of the number of companies involved. He put up the argument that there were some unquoted companies of very considerable substance, and that for that reason he could not accept the Amendment. It would be interesting to know how many unquoted companies there are with, shall we say, a turnover of £250,000.
It is all a question of what level is fixed for exemption. We have not any real figures on this, and I doubt whether the Government have either. I believe that they have some estimates based on a sample that has been taken, but I wonder whether the noble Lord can tell us what is the basis of the level of £50,000 that has been chosen in these Amendments. How many companies will fall below this level? Of those companies, how many are trading at all? It is difficult to say. No doubt a good many of the retail companies will be excluded from this—and this, of course, was one of the arguments which we put forward before. But I am not at all certain that all the independent retail establishments with only the one shop will be excluded from this level. I am, of course, talking more of the traders in the high streets of the small towns, which have a turnover of anything between £30,000 and £150,000 a year. I would ask the Government particularly to watch how this works. If they are going to introduce another Bill in a couple of years, they will by that time have a good deal of evidence on which to draw.
The other matter that I think is important when fixing a figure is that, at a time when values are changing fairly rapidly, the figure soon becomes out of date. We shall have the same problem when we come to consider the minimum assets required in the insurance provisions. This is a difficult problem. But the figure we put into the Bill now will be unrealistic in a few years' time if the present trends continue. Some measure has to be devised for dealing with this. I should have thought it was advisable, in putting figures of this kind into the Companies Bill, to make provision at this time. But the least we can ask is that consideration should be given to this, and to the best 1170 means of making such provision, so that when we come to the next Bill this can be inserted.
We naturally welcome the concessions, in so far as they go. We do not think they go far enough, and we think that the Government should watch this most carefully to see whether there is any real advantage being derived by the economy through the disclosure of these figures. My noble friend said at an earlier stage: The last thing we want to do is to present a whole horde of figures that are going to be of practically no use at all except to individuals who are studying for their Ph.D. as a source of material on which they can make theses. This is not what is required by the economy. Certainly this will require further effort, and we doubt very much whether that effort will be justified in any way by the results that will be achieved.

§ LORD CHORLEY
My Lords, I should like to put a slightly different point of view from that which the noble Lord opposite has been putting. I dare say he will say: "That chap over there has been concerned with supervising these Ph.Ds., and it is impractical." But I hope that this is not altogether so. It seems to me a pity, so to speak, that this concession has been made. I think that the more information which is available in the business world, the better. While I have not had a great deal of experience in the actual practical handling of company work, as a lawyer one cannot study the law reports without realising that these very small companies are—and this is a point which I made on an earlier stage of the Bill—frequently used as a vehicle of oppression by dominant personalities, who often treat the company as if it belonged to them. I think the more information that is available to the unfortunate widows, and others, who often are very much oppressed and cannot get effective legal assistance because of the absence of information, which often exists in these cases, the better things will be. These people would be better off, and more able to protect their interests, if this sort of information were made available. Therefore, I am a little sorry that this concession has been made, and I certainly should not like it to go further.
1171 I do not want to go over the main emphasis of the speech I made on Second Reading, but it has always seemed to me that the privilege of incorporation was too easily acquired: and I think this was the view of the Jenkins Committee. It would be better if the people who run the small liability companies were confronted with difficulties, in the way of disclosure of information and that sort of thing, which would drive them out of the area of incorporated associations and back into that area in which business is done by partnerships, and in which it is not so easy to adopt oppressive tactics towards people, so to speak, peripherally interested, but so often financially very much interested, in the concerns of a company. Therefore, I take a different view about this from the one expressed by the noble Lord opposite.

LORD HAWKE
My Lords, perhaps I may support one portion of the view of the noble Lord, Lord Chorley. It is something which I put forward on Second Reading, when I was briefed by a very able Chancery lawyer on the subject; namely, that the Government, before the next Company Bill comes along, should see whether they cannot find a new animal, something that is not a partnership and is not an incorporated company. It is really ridiculous that one's baker, butcher and so on, with a turnover of £10,000, £15,000 or £20,000, should be a limited liability company and have to go through the same motions as I.C.I.

§ LORD BROWN
My Lords, I do not want to prolong the discussion other than to say that the criterion of turnover and aggregate now proposed in these Amendments is a somewhat more objective means of differentiating between companies—on the ground that it differentiates on terms of criteria and of size—than the old one of trying to differentiate on the ground as to whether it was a private company or a quoted company. I will not say any more on that.
The noble Lord, Lord Drumalbyn, has asked me to comment on the basis upon which this figure of £50,000 turnover was selected. I am the first to admit that it is somewhat arbitrary. One is in the old 1172 position of not knowing which comes first, the hen or the egg. If we had information about the turnover of companies in this country we could probably make a wiser choice as to the limit at which to set the size of the company in terms of turnover; but at the present stage we do not know. However, the best estimate that we are able to make about this matter—and I cannot vouch for the accuracy of this estimate because of the difficulty of making it—is that this criteria of £50,000 turnover will probably exempt 350,000 companies out of the 540,000 on the register.
The noble Lord has also asked the Government to watch how this works out, with a readiness to change the figure if it does not appear to work out satisfactorily. I am quite happy to give that undertaking, although I think it would probably take a little longer than he expects to get relevant figures, because of the fact that many of these figures will not appear for something like 18 months after this Bill is enacted.
He has also asked me to comment on the effect of inflation on figures of this sort in legislation. The Government are concerned generally about this. Inflation is bringing all sorts of quantitative money figures, inserted in legislation in a situation where they no longer have the results they were supposed to have when the legislation was drafted; and it is a matter for consideration, although I cannot promise action in the near future. The noble Lord, Lord Hawke—

§ LORD DRUMALBYN
My Lords, the noble Lord is not suggesting that one single solution can be found for these problems everywhere. All I was suggesting was that a solution should be found for the problem so far as this particular legislation was concerned. I think the noble Lord is being very optimistic indeed if he thinks there is a possibility of finding one general solution that will cover the whole spectrum, from social legislation to Companies Bills.

§ LORD BROWN
My Lords, I do not want to go into the matter. As it happens, I have some personal ideas on it which I had probably better not give voice to here at this stage. Personally, I do not think the matter is as difficult as some might feel. No, I am not suggesting it should cover the whole gamut of legislation. But if one were to introduce a 1173 principle of this sort it would be wise to make it cover a large spectrum. There would be no point in making it cover one piece or one clause of the Bill.
The noble Lord, Lord Hawke, has raised the issue of the need for what was called "a new animal". That was discussed on this Bill at Second Reading, and I believe in the Committee stage too. I would make it clear that the Government have undertaken to introduce a second Companies Bill during the life of this Parliament. The possibility of a third Bill, which would consider issues of this sort, is' under consideration, but it is unlikely that it will be produced in the life of this Parliament. This is a very big issue indeed—to consider a new form of company and the many other bigger issues that have been raised in this House around the whole subject of company legislation—and it is certainly not a matter that could be foreseeably drafted in the form of legislation in the next year or two.