HL Deb 24 July 1975 vol 363 cc441-51

3.39 p.m.


My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.

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

On Question, Motion agreed to.

House in Committee accordingly.

[The EARL OF LISTOWEL in the Chair.]

The Earl of BALFOUR moved Amendment No. 93:

After Clause 9 insert the following new clause:

Maximum Limits Without Parliamentary Control

(".The Secretary of State shall not permit either the Board or any of their wholly owned subsidiaries to acquire more than 50 per cent. of the share capital of a body corporate without the approval of the Commons House of Parliament:

Provided that this section shall not apply where the Secretary of State is satisfied that the acquisition is urgently needed at a time when it is impracticable to obtain the approval of the Commons House of Parliament; and in that case the Secretary of State shall lay a statement concerning the acquisition before each House of Parliament.")

The noble Earl said: Just to put the record right—and I do not intend to delay your Lordships over this—the Question, That Clause 9 shall stand part? was never put. I should like, if I may, to ask one question on Clause 9. Under subsection (2) what is the position of the Board's voting power in restricted circumstances through the medium of warrants, convertible loan stock or preference stock in connection with the 30 per cent. voting power in subsection (1)(a)? At the beginning of Tuesday's discussions I raised a point on subsection (3) of Clause 9, in which it appears to me that the Board, having acquired, say, 30 per cent. control, could then take advantage by starting a separate company under Clause 2(4)(b), which states "… to form bodies corporate". Before I go any further perhaps I could ask the noble Lord to comment on that point. I beg to move.


I think it would be of assistance if the noble Earl actually moved his Amendment, and then I could reply to it.

The Earl of BALFOUR

Perhaps the noble Lord could write to me about the question I have asked. Unfortunately, because of the insertion of Part II of the Bill if this clause was accepted it would really end up in the wrong place. While that would be unfortunate, the point of this new clause making the maximum limit without Parliamentary control is that, so far as I can see, the Secretary of State gave permission under Clause 9 for the National Enterprise Board to obtain more than 30 per cent. of shares and the Board could then go straight ahead and acquire the rest of the shares. The purpose of this new clause is to try to discourage the National Enterprise Board from taking more than 50 per cent. of the shares of a body without some reference to Parliament, which I regret to say is conspicuously absent in the first Part of the Bill.

One of the things about industry when in private hands as opposed to when it is under a Government body is this. Once more than 50 per cent. of the shares are held by a Government body I feel that the real drive of the top people in that industry tends to go down they seem to consider their position to some extent secure. Perhaps people do not put the personal effort into it that they do when personally involved in the running or management of an industry. This is something that can so easily happen, and I feel that we must encourage private enterprise to be covered by private individuals and not just one more function of the Government. The personal touch in industry is desperately important. Without people in executive and senior positions perhaps holding some of the shares of that company, the real initiative has to a great extent disappeared. I said that I would not delay the Committee, and with those few words I beg to move Amendment No. 93.


The point of the Secretary of State's permission being required for shareholders above 30 per cent. is to ensure that the Board and their subsidiaries obtain the Secretary of State's approval before putting themselves in a position under the Takeover Code where they would be obliged to make a bid for the remainder of the shareholding. This is something that we discussed at length just before we adjourned the Committee stage on Tuesday. If approval by the other place were appropriate it would in our view need to apply the 30 per cent. limit prescribed in the Takeover Code. Such a proposition was negatived at the Committee stage in another place. The Government have stated repeatedly that the Board will abide by both the letter and the spirit of the Takeover Code. In our view this Amendment would put in doubt the Board's ability to do this. Control can be exercised with a much lower shareholding than 50 per cent. if the other shares are widely dispersed. The Takeover Code recognises this and prescribes a limit of 30 per cent. above which an offer must be made for the remainder of the shares.

The other point that the noble Earl raised concerned the degree of personal effort and initiative put into the running of companies where there was a substantial State shareholding. He would not expect the son of the late chairman of a nationalised industry to accept a single word he said on that matter.

The Earl of BALFOUR

I think I must say, with all due respect to my father, that while he had not had the experience of the real old-fashioned coal owners, he had one unique advantage, that in the initial stages he had the finest brains in the country advising him when he was first of all Minister of Fuel and Power. If he had had a better knowledge of the industry later on some of the mistakes subsequently made in the coal mining industry in Scotland might not have occurred.


I wonder whether the noble Earl would allow me to intervene. I think that he probably misheard my noble friend. My noble friend was referring to his own father, the late Lord Melchett, chairman of the British Steel Corporation.

The Earl of BALFOUR

Then I apologise. That was not clear to me. In the circumstances, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 10 [General extent of powers in relation to control of important manufacturing undertakings]:

3.44 p.m.

Lord LOVELL-DAVIS moved Amendment No. 94:

Page 9, line 39, leave out ("or relevant bodies corporate").

The noble Lord said: Amendment No. 94, together with some subsequent Government Amendments we shall come to in due course, seeks to clarify a complex part of the Bill. Amendment No. 94 is the first of the changes that we seek to make. Clause 10 is, after the Amendments, a simple statement of when the powers may apply. It is concerned, if I may so phrase it, with the signal which activates the powers in respect of changes of control of important manufacturing undertakings, and subsection (2) provides a definition of what is meant by such an undertaking. We think it better to keep Clause 10 as a simple statement of this sort and therefore wish to delete the reference to "or relevant bodies corporate" in subsection (1). On reflection we believe that the concept of "relevant bodies corporate" is not appropriate to this clause but rather to Clause 11 where we are concerned with the action that can be taken. I beg to move.


I am obliged to the noble Lord for his simple introduction to what I do not regard as a simple matter. It may be that having spent some time absent from this Chamber in preparing the ground work of what I thought should be said on Clause 10, and coming back to find Clause 10 dismembered and distributed about the Bill, I am provoked to a certain feeling of impatience, though of course it is not justified since I think that the clarification, when it finally emerges, is a marginal improvement. But one is in the position of somebody who, having played chess upon a chessboard has had the chessboard, which is a jigsaw puzzle, reassembled with the squares assembled in different places. I hope the noble Lord will accept it if I take the points which arise from this rather more slowly than he anticipates from the briskness of his introduction. I say that by way of introduction, because it will explain much that follows; but I do not wish to oppose the passage of this Amendment.

On Question, Amendment agreed to.

Lord MELCHETT moved Amendment No. 95:

Page 9, line 42, after ("undertaking") insert ("which, in so far as it is carried on in the United Kingdom, is").

The noble Lord said: With your Lordships' permission, I will speak to Amendment No. 96 with Amendment No. 95. These are technical Amendments designed to remedy a deficiency in the previous drafting. As it stands subsection (2) refers to a business "wholly or mainly engaged in manufacturing industry in the United Kingdom", and thus might exclude a business which, although of great importance to the United Kingdom, was mainly overseas. This would limit the powers undesirably, and the Amendments seek to make the definition precise: if they are accepted, the phrase will be a business "which, in so far as it is carried on in the United Kingdom, is wholly or mainly engaged in manufacturing industry…". This will enable the powers to be used to protect a business which has important manufacturing activities in the United Kingdom, even if the business is mainly overseas. I beg to move.

On Question, Amendment agreed to.


I beg to move Amendment No. 96.

Amendment moved—

Page 10, line 1, leave out ("in the United Kingdom which") and insert ("and").—(Lord Melchett.)

On Question, Amendment agreed to.

3.50 p.m.

The CHAIRMAN of COMMITTEES (The Earl of Listowel)

Before I call Amendment No. 97 I should point out that if that Amendment is agreed to, I shall not be able to call Amendment No. 98.

Lord LOVELL-DAVIS moved Amendment No. 97:

Page 10, line 5, leave out from beginning to end of line 6 on page 11.

The noble Lord said: As I said in the case of Amendment No. 94, this part of the Bill presents considerable complexity and it may therefore help noble Lords, including the noble Lord, Lord Elton, if I attempt to explain the principles we have adopted before going into the technical details of how we wish to achieve them. We seek to introduce a new clause here providing a definition of "a change of control."

It is necessary to recognise that, although we are concerned with key manufacturing businesses—in the Bill "undertakings"—in practice such a business will normally be carried on by a company or, as the Bill slightly more widely provides, by "a body corporate." It is therefore necessary to enable action to be taken to protect a key business when the change of control occurs in respect of a company which either carries it on or which controls another company which carries it on. In another place the Government will press to define "control" and "change of control" and this appears in Clause 10. A numerical definition of "control" and of "change of control", reflecting the principles of the Takeover Code, has been adopted in terms of control of 30 per cent. of the votes in a company.

We have, however, felt it necessary to make further changes, which are contained in the new clause. They are all designed to give greater certainty to those concerned in a change of control. First, we wish to make it clear, through the words, there is a change of control of the undertaking only upon the happening in subsection (2) of the new clause that when a change of control of the business came about through control of a company which carried it on it would occur only when one of the qualifying percentages was reached. Previously, there was some doubt as to whether there could be changes of control other than those defined in numerical terms; this doubt is now removed.

Second, we have extended the concept of "qualifying percentages" to cover not only changes in the control of a company carrying on an important manufacturing undertaking, but also any company which controls such a company. The certainty which we wish to introduce will therefore apply up the length of a chain of control, each link of which may be tested against objective, numerical criteria. For this purpose, it is necessary to establish clearly what control is, and subsections (3) and (4) of the new clause establish a definition, again on an objective and numerical criterion.

Third, and somewhat separately, we have attempted to simplify the concept of "change of control" by seeking to delete what is now paragraph (c) of Clause 10(3). This is because, on reflection, we believe that this case—where one foreigner sells to another—is adequately covered by paragraph (a) of that subsection, since the transfer of control from one foreigner to another is a special category of the general class of transfer of control to a foreigner. I recognise that none of the changes which we are making is simple to grasp. The Amendments are technical and sometimes complex. But they seek to give effect to two principles: that the Government should be able to act in relation to a change of control of an important manufacturing undertaking and that we should all know as unambiguously as possible what is meant by these terms.


We now take a first look at the shuffled and depleted pack. I had thought that the proper point at which to raise a number of matters to which I wish to refer would have been the new clause stand part. I do not know whether it would be for the convenience of the Committee, as the matter of the qualifying percentages has already been raised, if I now dealt with the question of the qualifying percentages, and as the noble Lord has introduced them there are few points about them on which I should like clarification. In subsection (6) of the new clause a qualifying percentage is defined as 30, 40 or 50 per cent., as the noble Lord just said, and he said something to clarify what is the intention because he referred to them as points in a progress which may occur seriatim, yet one wonders whether this is the only inference to be drawn from the Bill as it is now drafted. Are they successive trip-wires, the approach to any of which the Secretary of State may detonate his mind, as it were, or are they points at which the Secretary of State can act when he sees a company in that position? Are we talking about progress or about something static? If they are a series of trip-wires, which one would assume (and in the light of what the noble Lord said one would feel more competent in that assumption), why is there an inclusion on each of the three levels for the immigrant shareholder, if I may so describe him—the owner, whether he is a corporate person or a private individual, who leaves the country in possession of the first, second or third qualifying percentage?

Presumably if he is in possession of the third qualifying percentage he is already de facto in possession of the other two, and therefore this little nuance entirely destroys my confidence in the interpretation which the noble Lord has just put on this piece of legislation. Perhaps I can leave it there, because I believe we will have a new clause stand part stage and I think it would be rather silly of me to elaborate at this point. Can the noble Lord tell me in precise terms how the first, second and third qualifying percentages are intended to operate and whether the Bill is watertight in this respect, or could they operate in other ways unintended by Her Majesty's Government?


I hope I can answer the noble Lord's questions. The disadvantage of defining "control" in numerical terms is that there are times when someone controls the numerical percentage, but does not in practice control the company. For example, ownership of 30 per cent. of a company's shares does not give control in practice when the remaining 70 per cent. are all in the hands of another person. Because of this, the Government accept that there may be times when a foreigner acquires 30 per cent. in such a way that the "control" he thereby acquired was purely formal, and no order could be made. But, under subsection (13)(b) of Clause 10, three months after the Secretary of State learnt of this change of "control", his powers would have lapsed, had control been defined as 30 per cent. only. After that period, the foreign owner of the 30 per cent. might have bought the remaining 70 per cent. of the shares, without any possibility of his being restrained under the Bill.

To guard against this, the Bill is drafted, in the new clause as before, in terms of three levels of qualifying percentages: 30, 40 and 50 per cent. A non-United Kingdom resident who was about to acquire or had acquired 30 per cent. of the shares of a vital British firm could seek the Government's approval and would then be free to proceed. He could buy further shares, if he so wished. The Government would, however, be able to take action if he were about to acquire, or had acquired, shares which would bring his holding to 40 or 50 per cent. These provisions are designed to give scope and freedom to the overseas purchaser while retaining an element of control necessary if a numerical definition is not to result in a loophole in the powers. I regret that this is more complex than might be desirable, but I hope I have explained to the noble Lord's satisfaction why it is set out in this way.


I am trying to follow the Minister's observations, but I was puzzled by his reference to part of Clause 10. Did he refer to subsection 13(b) or was he referring to Clause 13(1)(b)?


I referred to Clause 10, but I think I had a misprint in my notes. I should have referred to Clause 11(13)(b). I apologise to the Committee.


The Question I have to put to the Committee is that this Amendment be agreed to. As many—


Do we not have an Amendment to the new clause to be called?


I think the Committee is still debating Amendment No. 97.


I had not quite finished. I am obliged to the noble Lord, Lord Lovell-Davis, and I sympathise with him; it is nice to see good men struggling with adversity. It is an edifying experience and it makes one less afraid of falling into the same difficulties later on. Am I right in taking it that, where a foreign shareholder has 40 per cent., 43 per cent. or 46 per cent. and the Secretary of State is under the impression that no harm will come of that and that there is no question of control, nothing may be done? But that if, having passed 30 and 40 per cent. without comment he reaches 50 per cent. and the Secretary of State feels that control is likely to pass, he may at that point, as he might have done at the previous two points, intervene? Is that the intention?


Yes, that is the case. The Secretary of State can intervene at 30 per cent., again at 40 per cent, and again at 50 per cent. He has these specific points at which he can intervene.

The Earl of BALFOUR

I am not at all happy about these provisions. Under the new subsection (2)—and this part of the Bill has now been altered three times—where a person who is carrying on an important manufacturing business is not resident in this country and sells that business to somebody else who is also not resident, then under subsection 2(a), the Government could at that stage step in and take over the business. If I am right, I feel that this could be of very great disadvantage to Scotland. A tremendous amount of foreign investment was put into Scotland in the 1880s as well as after the last war. I am thinking of the type of industry which starts in one of the industrial estates, as so many of them did, with American capital. The business might be sold to another American and the Government could then step in.

The other question which I should like to ask relates to subsection (6). We have 30, 40 and 50 per cent. and, out of curiosity, may I ask what will happen to the chap who owns 70 or 100 per cent.? Is he excused from this provision? Could a foreigner sell to another foreigner if he owned 100 per cent. of an undertaking? I should also like the noble Lord to consider what would happen if, say, two or three companies in different countries had a joint interest in each other. They might be producing some quite specialised article. No one could override the other two, but any two could control the third.


The point, which is a very interesting one, will be dealt with on a later Amendment. Broadly, it is a fact that if one foreigner sells to another it will be possible for the Secretary of State to take action, for reasons which will be explained when we come to that point later on.

On Question, Amendment agreed to.

House resumed.