§ [No. 80]
§ After Clause 28, insert the following new clause—
§ Extension of section 26 to spouses and children
§ (".—(1) For the purposes of section 26 of this Act—
- (a) an interest of the wife or husband of a director of a company (not being herself or himself a director thereof) in shares or debentures shall be treated as being the director's interest, and so shall an interest of an infant son or infant daughter of a director of a company (not being himself or herself a director thereof) in shares or debentures; and
- (b) a contract, assignment or right of subscription entered into, exercised or made by, or grant made to, the wife or husband of a director of a company (not being herself or himself a director thereof) shall be treated as naving been entered into, exercised or made by, or, as the case may be, as having been made to, the director, and so shall a contract, assignment or right of subscription entered into, exercised or made by, or grant made to, an infant son or infant daughter of a director
1204 of a company (not being himself or herself a director thereof).
§ (2) A director of a company shall be under obligation to notify the company in writing of the occurrence, while he or she is director, of either of the following events, namely,—
- (a) the grant to his wife or her husband or to his or her infant son or infant daughter, by the company, of a right to subscribe for shares in, or debentures of, the company; and
- (b) the exercise by his wife or her husband or by his or her infant son or infant daughter of such a right as aforesaid granted by the company to the wife, husband, son or daughter;
§ (3) A person who fails to fulfil, within the proper period, an obligation to which he is subject by virtue of the last foregoing subsection, or who, in purported fulfilment of an obligation to which he is so subject, makes to a company a statement which he knows to be false or recklessly makes to a company a statement which is false, shall be guilty of an offence and liable—
- (a) on summary conviction, to imprisonment for a term not exceeding three months or to a fine not exceeding £200, or to both;
- (b) on conviction on indictment, to imprisonment for a term not exceeding two years or to a fine, or to both.
§ (4) The rules set out in section 27 of this Act shall have effect for the interpretation of, and otherwise in relation to, subsection (1) of this section, and subsections (9) to (13) of section 26 of this Act shall, with any requisite modification, have effect for the purposes of this section as they have effect for the purposes of that section.
§ (5) In this section, 'son' includes step-son and adopted son and 'daughter' includes stepdaughter and adopted daughter, and 'infant' means, in relation to Scotland, pupil or minor.
§ (6) For the purposes of section 28(1) of this Act, an obligation imposed on a director by this section shall be treated as if imposed by section 26 of this Act.")
§ LORD HUGHESMy Lords, it was agreed that I should say something about 1205 this Amendment when we came to it. This Amendment extends Clause 26 to spouses and children. Clause 26 is concerned with any interests a director has in the shares or debentures of his company or any other company in the group to which it belongs. It is also concerned with contracts entered into by a director to sell any of those shares or debentures, with rights granted to a director to subscribe for any of those shares or debentures, and with the exercise or assignment of such a right by a director. In general, Clause 26 places an obligation on a director to inform his company of his interests and of any changes in them, of the contracts he enters into, of the rights granted to him, and of his exercise or assignment of those rights.
There are two exceptions. When the grant of a right to subscribe is made by the director's company and relates to shares or debentures in that company, it is assumed that the company does not need to be informed that it has made it. Similarly, it is assumed that the company does not need to be informed of the exercise of such a right. The effect of the new clause is to treat as an interest of a director in such shares or debentures an interest which, in fact, is that of his spouse or infant child. Similarly, a contract entered into by a wife or infant child of a director, or a right granted to one of them, or exercised or assigned by one of them, is treated as entered into by, or granted to, or exercised or assigned by, the director. The new clause therefore places a further obligation on a director. It does not place an obligation on his spouse or infant child. I beg to move that this House doth agree with the Commons in their Amendment No. 80.
§ Moved, That this House doth agree with the Commons in the said Amendment.—(Lord Hughes.)
LORD HAWKEMy Lords, I should like to ask one question. In a great many cases the spouse will not know that the shares have been put in her name. Can she in any way be charged with an offence if the director commits the offence of not notifying the company?
§ LORD DRUMALBYNMy Lords, the closing words of the noble Lord's speech made clear the difference between this case and the one we were dealing with previously. In this case it is the 1206 director who is obliged to notify, and therefore it is the director against whom proceedings will be taken in the event that the provisions of the clause are not complied with. This, of course, is right in principle. Again I am concerned with the defences available. I can see that there is going to be an investigation and that proceedings will not be taken if the investigator is satisfied that there has not been an offence or, at any rate, if he is satisfied that there has not been a wilful offence. I dare say that is right. The trouble is that the investigator may not believe what is said.
The difficulty in this case—which is different from the last—is that a husband's and wife's affairs may be separate. It may be that the husband has no knowledge of his wife's holdings, or that a wife's affairs may be dealt with for her by her stockbroker or solicitor and she may merely be given a statement of her interests at the end of the year. The director may have no knowledge, until that statement comes along, that he has committed an offence.
This, again, is a case of creating offences where the offender has no knowledge of his committing them. I agree that one must cover all cases; but I should have thought it possible to draft the clause in such a way as to give a clear defence if there were absence of knowledge. If the investigator is not satisfied that the director had no knowledge and took proceedings, it should be possible for the court to accept this as a defence. At the present time it does not seem as if the court could do so.
LORD HAWKEMy Lords, may I put a further question? Is the wife who is living separately from the husband legally a spouse under this particular provision?
THE MARQUESS OF ABERDEEN AND TEMAIRMy Lords, is not this information available in the share register?
§ LORD HUGHESThe noble Lord, Lord Boothby, was about to rise; but if he will permit me to do so I merely want to say that I did not hear what it was the noble Marquess said.
THE MARQUESS OF ABERDEEN AND TEMAIRMy Lords, I asked if this information was not available in the share 1207 register in the company's offices and also in many stockbrokers' offices.
§ LORD BOOTHBYMy Lords, all I wanted to say was that in many cases husbands do not know what shares their wives own. The noble Lord, Lord Drumalbyn, said that the husband would know at the end of the year. If his wife buys shares through her stockbroker I do not see why he should ever know. She sticks to them and does not tell him anything about it. I should be sorry if the director of a company whose wife bought some of his shares because she thought he was a good director was "had up" by the investigator, because the husband did not know that she had bought the shares. Most women do not tell their husbands what shares they buy.
§ LORD HUGHESMy Lords, without venturing into the field of Lord Boothby's extensive knowledge of what wives tell their husbands, I should like to answer two questions. First, the point made by the noble Lord, Lord Hawke, about the wife's not knowing about the shares in her name. The position is that the obligation is on the director; and, in the circumstances to which he referred, the wife would not have committed any offence. The second point, also raised by the noble Lord, Lord Hawke, was that the director might not know what were his wife's holdings. It was at this point that we had the benefit of Lord Boothby's extensive knowledge. The position is that the director has to report what he knows of his wife's holdings. If he does not know, he cannot report; if he cannot report, he does not commit an offence. The noble Marquess said that this would surely be obvious from the list of shareholders. It will not always be obvious. There may well be a director named Mr. Robert Brown. We must not assume that every Mrs. Robert Brown with shareholdings is necessarily his wife.
§ LORD BOOTHBYIn any case, my Lords, you can buy through a nominee.
§ LORD DRUMALBYNMy Lords, I hesitate to interrupt the noble Lord but, before he sits down, may I point out that he says categorically that the director has to report what he knows of his wife's holdings. But that is not what the Amendment says. The Amendment says: 1208
an interest of the wife or husband of a director … shall be treated as being the director's interest …It says nothing about whether he knows it or not.
§ LORD HUGHESYes, my Lords; but the point is that if a director is not aware of a holding which his wife has he obviously cannot report it, and, in not reporting it, he has not committed an offence. Therefore he could not possibly be the subject of a charge.
§ LORD CHORLEYMy Lords, I am not sure that that is right. Certainly the criminal law of this country knows more and more of a doctrine of absolute responsibility without any requirement of a guilty mind. It may be that this is one of those cases. I have some knowledge of these subjects, but I should not like to express a strong opinion about this point. I think there is a possibility—though it is not a matter likely to arise often—of a director being held to be responsible without his having any knowledge. I do not think a director can be expected to make a regular search through the entire register of the company which, very often, can run into tens of thousands of names. He would have to employ two or three private secretaries to make such a constant search.
This is one of the difficulties which arise because of the extreme haste with which this Bill is being passed. It is the sort of point that the draftsman himself would have noticed had he been given time. This type of legislation—and I do not want to repeat what I said the other day—is of great importance to the structure of industry and commerce in this country in the way it is organized, and it ought not to be passed in this very rapid way. These are just the sort of points which eventually come before the courts, and judges will say, with the greatest reluctance, "These words clearly establish an absolute responsibility on this man. That he did not know anything about it is neither here nor there: he is to be held guilty". This I think emphasises what was said by some noble Lords opposite and by myself the other day when we were told that we were to deal with these 300 Amendments in one afternoon. I hope that when the next Companies Bill comes along in a year or so, some of these 1209 matters will be looked at again very carefully. It is not right that a director should be held criminally responsible—because that is the effect of this provision—unless in fact he has a guilty mind.
§ LORD FERRIERMy Lords, I agree with the noble Lord, Lord Chorley. I cannot see the point made by the noble Lord, Lord Hughes. At the bottom of page 9 of the Commons Amendments there is a defence in the other direction:
it shall be a defence for a person charged, by virtue of this subsection … to prove that he had no reason to believe that his spouse … was a director …
§ LORD ERROLL OF HALEThat has nothing to do with it.
§ LORD FERRIERBut that is the other way.
§ LORD HUGHESMy Lords, the information which I gave so specifically was given because I received a very specific note from the Box that that was the case. Therefore the draftsman had no doubt when wording the matter as he did that he was not placing the director in this difficulty. I should like to direct the attention of your Lordships to page 11 and Amendment No. 80. At the top of that page the last words of subsection 2(b) are:
…and an obligation imposed by this subsection on a director must be fulfilled by him before the expiration of the period of fourteen days beginning with the next day following that on which the occurrence of the event that gives rise to it comes to his knowledge.What I said was that if a man does not have knowledge of a situation, he cannot create an offence, because the obligation is to do this within this short period after it comes to his knowledge.
§ LORD CHORLEYMy Lords, that is probably quite a sound point. The difficulty is that we are confronted with a whole page of this and we are given 24 hours, in effect, to study it. I was kindly presented with a copy the other night, but we all know that yesterday there was a very important Bill before your Lordships' House, and one cannot sit up the whole night studying these things. This is not the only Amendment which takes a whole page in length. I hope, and I think, that probably what the noble Lord has said is right, because knowledge is 1210 obviously necessary. Without knowledge you cannot have a guilty mind. But it emphasises the great difficulty noble Lords have to digest all this in the very short space of time we have at our disposal.
§ LORD DRUMALBYNMy Lords, I am much obliged to the noble Lord, Lord Hughes, for clarifying the point.
§ LORD HUGHESMy Lords, I am obliged to the noble Lord, Lord Drumalbyn. This, I must admit, is part of the difficulty under which we are labouring. Noble Lords on both sides of the House are bound to raise queries on points to which the answers are in the Amendment. But they have not found the answers simply because they have not had time to look at the Amendment, and we must accept responsibility for that.
§ On Question, Motion agreed to.