HL Deb 05 April 1976 vol 369 cc1469-504

5.45 p.m.


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

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

On Question, Motion agreed to. House in Committee accordingly.

[The Lord Maybray-King in the Chair.]

On Question, Whether Clause 1 shall stand part of the Bill?


There is one point on Clause 1 about which the noble Lord, Lord Winterbottom, might be able to assist us. It is the question of the printing of accounts which I raised on the Second Reading of this Bill. Will the noble Lord be kind enough to confirm what he wrote to me in his nice letter, that accounts and other documents are accepted by the Registrar of Companies if they are typewritten and also if they are legible and durable? I understand that electrostatic copying of various kinds is permissible—as, indeed, is laid down in the October 1974 edition of the notes for the guidance of registered companies. This is a small point but one which is of very great interest to over 500,000 company secretaries. Over the weekend I read various reports that 640,000 companies will be filed at Cardiff. Probably that figure is a trifle over-optimistic. I understand that there are about 50,000 in Edinburgh, so this is probably a gross figure. Nevertheless, 500,000 companies are covered by this small point and I should be grateful if the noble Lord could confirm it.


I am grateful to the noble Lord for raising this point and also for doing so on Second Reading. The point was raised also by one of my noble friends and obviously is a matter of concern to the House as a whole. The only purpose of the requirement is to ensure that accounts are legible and in a form which will be durable. All too often at present they are, for example, poor-quality carbon copies which rapidly fade and become torn. The Registrar proposes to announce that printing will be held to include letterpress, photocopies of typed documents, offset litho printing and, for very small companies, top-copy typing—that is to say, not carbon copies. Spirit duplicating and dieline copying will not be acceptable because they tend to fade on exposure to light. And all documents must be suitable for microfilming. Nevertheless, if the range of possibilities is adhered to, even the smallest company should have no difficulty in preparing its accounts in one of the acceptable forms.

Clause 1 agreed to.

Clause 2 [Account reference period of a company]:

5.50 p.m.

Lord LYELL moved Amendment No. 1 Page 4, line 14, leave out ("December") and insert ("March").

The noble Lord said: This is a fairly brief Amendment which seeks merely to permit the Secretary of State to alter the date which the Registrar will allot to a newly registered company. Under the Bill as it stands, this particular date will be automatically 31st December. From the conversations that we have had on this side of the House, we believe that the Registrar might receive some considerable assistance, as indeed would auditors and company secretaries, if the automatic date were to be 31st March and not 31st December. Various companies like to have their accounting reference periods at a date other than the 31st December for all sorts of reasons, but where the preponderance of companies end their accounting reference period on the 31st December then the Registrar will have some alleviation from the heavy work load demanded by the sending out of reminders to companies and in chasing up the laggards among them. I think such a change from 31st December to 31st March would help auditors, company secretaries and all kinds of other people who are concerned in preparing and filing accounts for submission to the Registrar. I beg to move.


I am not going to repeat the arguments put forward by my noble friend Lord Lyell, but clearly this would be a great advantage to the profession of accountants who, at 31st December, suffer considerable congestion. I would rather like to see the word "or" put into the Bill, but I certainly think the Amendment is a reasonable one.


Both noble Lords obviously have the same objective in mind. The most common date for the end of a company's financial year is 31st December, but I think noble Lords would agree that the concentration on this date creates problems for auditors, and the purpose of this Amendment is presumably to try to spread the load more evenly. The choice of the accounting reference date to be assigned to companies which do not notify the Registrar of their reference date is inevitably arbitrary. But the choice must be one which causes the least possible inconvenience to those concerned; namely, the auditors and the companies.

As 31st December is the most common financial year end, the choice of this date will ensure that it coincides with the existing financial year end of the maximum number of companies. Any other date would mean that more companies would have either to change their financial year or to agree an alternative reference date with the Registrar under the provisions of subsection (3). Either course would cause the company some inconvenience and the latter would add to the Registrar's workload. The choice of an alternative date would do little to spread the work load for auditors or the Registrar. The Registrar intends to send out notices and reminders about the new arrangements which should ensure that only a small minority of companies fails to notify him of their accounting reference date. Of these, few are likely to retain 31st December as their reference date unless this happens to coincide with their existing arrangements. The drift towards 31st December resulting from this provision is thus likely to be small. An interesting point is that 31st March is the second most popular financial year end. To the extent that there is a drift towards the date chosen, therefore, the substitution of 31st March for 31st December would merely shift the load from one peak period to another. I am grateful to the noble Lord for his positive and constructive proposals, but apparently in purely technical terms the assistance given by this Amendment would not be great.


I would thank the noble Lord for that very full explanation, and I should also like to thank my noble friend Lord Milne for his observation. I would stress to the noble Lord, Lord Winterbottom, that I understood that this movement in the accounting reference year end would be of some assistance to the auditing profession. I am glad that the noble Lord has confirmed that it would not be of assistance to the Registrar, because we had understood that the change to 31st March would be helpful. Nevertheless, after what the noble Lord has said I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 2 agreed to.

Clause 3 [Alteration of accounting reference period]:

5.55 p.m.

Lord LYELL moved Amendment No. 2: Page 5, line 21, at end insert ("or immediately preceding")

The noble Lord said: This Amendment may at first seem fairly simple and straightforward, not to say short, but we believe there are one or two problems which are likely to occur when one individual company decides to join a group of larger companies or perhaps wishes to change its accounting reference period. If the Committee will permit me, I should like to give a short example. Let us suppose that there is an individual company called "A. Limited" whose accounting reference period ends at the calendar year-end on 31st December. Let us suppose that it decides to join a larger group of companies having its accounting reference period ending on 31st March. That seems fairly simple so far, but if the merger between the group and A. Limited is decided on and agreed, let us say, at the end of January or during February, a number of difficulties will arise. It would be logical that A. Limited—the individual company—should make its accounting reference period coincide with that of the group, which would be very much to the convenience of the group, but we understand that under the Bill as at present drafted only the current accounting period can be extended.

Thus in order to allow A. Limited to alter its accounting reference period so as to coincide with the group, A. Limited would have to make up and deliver to the Registrar of Companies not one, but two sets of accounts. The first one would be to the end of December for about 12 months, and the second set of accounts would be towards the end of March, for three months. Under the Bill as at present drafted, any extension of the accounting reference period must be to the current accounting reference period. This would mean that A. Limited would extend its current accounting reference period and it would be at least 15 months, and possibly longer, before A. Limited could have its own accounting reference period to coincide with that of the group. This Amendment would permit A. Limited merely to extend the accounting reference period so that its own and the accounting reference period of the group might coincide as speedily as possible. I beg to move.

The Earl of LIMERICK

I rise to say a word in support of my noble friend Lord Lyell. He has put forward a clear instance where it would seem to be convenient to all concerned that his Amendment (or words to the same effect) should be incorporated in the Bill. In the absence of any strong technical reasons to the contrary, I hope that the Government can accept this Amendment.


The Government are grateful to the noble Lord, Lord Lyell, for tabling this Amendment. We believe that in fact his proposals have substance and we will try to meet the point he has raised. However, we believe that the drafting of the Amendment as it now stands is obscure. As the noble Lord has explained, the purpose is pre- sumably to allow a company to change an accounting reference period retrospectively, but as at present drafted, as the noble Lord has pointed out, this is not permitted by the clause. It is argued, particularly by the accountancy bodies, that this is unduly restrictive, especially following a take-over when it is necessary to align the accounting reference periods of the companies concerned. Having said that, may I add that we will try to draft an Amendment, which perhaps will seem as obscure to your Lordships but will probably be less obscure to the lawyers, in order to achieve this particular objective.

I should like to make a point in relation to this, in order to enable us to get the matter properly settled. A general power to alter an accounting reference period retrospectively would be—or or could be—open to abuse. In particular, it would not be acceptable for a company which was already in default to evade its obligations by retrospectively lengthening its reference period. Similarly, a retrospective lengthening could be used by a company as a means of postponing the date by which it was required to file its accounts. Nevertheless, the Government accept that there is a case for allowing a retrospective alteration of an accounting reference period in order to align the reference periods of companies within a group.

Any such alteration should, however, be permitted only during the period allowed for laying and filing accounts. No alteration should be possible when the company concerned is already in default in filing the accounts for the period concerned. Perhaps I was a little guarded. We shall put down an Amendment at the appropriate stage. If there are other circumstances in which the ability to make retrospective alterations would be valuable and would not give rise to abuse, the Government would, of course, be prepared to consider them. But as yet no case has been made out for any further relaxation of the rules beyond those points raised by the noble Lord, Lord Lyell, and the noble Earl, Lord Limerick.


I am very grateful for the kind welcome this Amendment has received from the noble Lord. I understood that the drafting might give rise to obscurity, as the noble Lord has said. Nevertheless, we are very grateful for the response this Amendment has received. I beg leave to withdraw the Amendment.

Amendment, leave, withdrawn.

6.2 p.m.

The Earl of LIMERICK moved Amendment No. 3:

Page 6, line 3, at end insert— ("or (c) the notice is given for the purpose of enabling the directors of a holding company to comply with its obligation under section 153 of the Act of 1948.")

The noble Earl said: In moving Amendment No. 3 I should apologise to the House because this Amendment and Amendment No. 4 were tabled rather late. I was able to give notice of the context of the Amendments on Friday to the noble Lord, Lord Winterbottom. This Amendment, I believe and hope, has the merit almost of speaking for itself. It has been noted that there is nothing either in Clause 3 or in Clause 8 which gives any reflection of the duties imposed on directors by Section 153 of the 1948 Act. It would seem appropriate that there should be words inserted here in Clause 3 to enable the accounting reference period of subsidiary companies to be brought into line with those of holding companies. The circumstances in which this could arise are quite clear. If a company becomes a subsidiary of another company in circumstances when it has already changed its reference period within the past five years, in the absence of some such provision as in this Amendment there would seem to be no discretion available to the Secretary of State or no means by which this company could again change its reference period, and thereby the directors of the holding company be empowered to discharge their duties under Section 153.

I think it is possible that I have been guilty of a semantic error in the last word in line 2 of the Amendment, being "its". Since we are talking of the duties imposed in the terms of Section 153 on the directors, that word should probably read "their". I am sure that this small matter would not stand between this Amendment and its acceptance by the Government if it in other ways commends itself to them. I beg to move.


May I make two points. First, may I thank the noble Earl for spotting a possible flaw in the drafting. May I say also that the drafting did not arrive too late for the convenience of my Department and myself. It has already been altered—possibly as a result of a phone call—to correct what the noble Earl has said might be a flaw in its drafting. My draft says, "to comply with their obligation". So perhaps we are communicating telepathetically, which is a new technique.

May I say that the clause already allows the Secretary of State to authorise extension of a company's accounting reference period not normally permitted by subsection (4). One of the purposes for which it was proposed to use this power was to enable the accounting reference periods of a holding company and a subsidiary to be aligned. The Amendment as proposed would make permission to extend the current accounting reference period for this purpose automatic rather than discretionary. This has considerable attractions both for the companies and for the Department, which would thus have to deal with fewer applications for special authorisations.

It will be necessary, I regret, to consider whether the Amendment could result in any loopholes or lead to any abuses, particularly when taken together with the relaxation of the prohibition on retrospective alterations of an accounting reference period which is also being considered. Subject, however, to this, the Government have considerable sympathy with this Amendment, and I hope I shall be able to come up with something at Report stage.

The Earl of LIMERICK

I take that to be an invitation to me to withdraw the Amendment at this moment. In view of what the noble Lord has been good enough to say, I am happy to beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 3 shall stand part of the Bill?


Before we leave this clause, I wonder whether it would be in order to ask the noble Lord whether or not the Secretary of State would be able to approve extending the accounting reference period to more than 18 months? Otherwise we could find our company—I was speaking about company A Limited—again making up two sets of accounts for 12 months and possibly for seven or eight months so as to bring its accounting period into line with that of a group. I would be very grateful if the noble Lord could give me albeit an instantaneous reaction.


I am not really very good at instantaneous reactions. Am I right in thinking that what the noble Lord would like is extension of the accounting reference period to more than 18 months?




In that case I shall take advice, and if we can extend it I will do so. At this moment I cannot give any firm undertaking.

Clause 3 agreed to.

Clause 4 [Penalties for not complying with section 1 within the period allowed for laying and delivering accounts]:

The Earl of LIMERICK moved Amendment No. 4: Page 7, line 17, leave out from ("a") to ("of") in line 18 and insert ("fine").

The noble Earl said: In moving Amendment No. 4, I am venturing on to rather thinner ice; first, because I am conscious of the fact that Clause 4 bears a rather startling similarity to Clause 60 of the ill-fated Bill of 1973 and I was not altogether unfamiliar with the procedure by which that Bill was brought forward. More particularly, it is a ground on to which those with no specialist knowledge of the law venture at their peril. The point I want to bring out in moving this Amendment is this. I should apologise for a small technical irregularity, which I am advised has been brought to the attention of the noble Lord; that is, that the Amendment should read, …leave out from ("a") to the second ("of") in line 18". I think that is apparent.

The point is that I am informed by those more learned in the law than I that there is a vital difference in the onus of proof imported by this distinction between civil proceedings and a fine imposed in criminal proceedings. In criminal proceedings the prosecution, I believe, would have to prove beyond reasonable doubt that there had been non-compliance, whereas in civil proceedings it is the Secretary of State who would have to prove that non-compliance rests simply on a balance of probabilities. In other words, this burden of proof is greater in criminal proceedings, and it seems doubtful in principle that such a penal provision should be enforced as if it were a civil dispute. It also seems illogical that, in relation to the same offence, the burden of proof should be different as between directors and the company. I make no complaint, of course, about the principle of levying a penalty on the company. It is merely my purpose to elicit the reason for the difference in procedure in pursuit of the directors, on the one hand, and the company, on the other. I beg to move.


May I, in replying to the noble Earl, see whether I have understood him clearly as to the intentions of this Amendment. As the clause stands directors of any company who fail to lay accounts before the company in general meeting or to file them at Companies House within the period allowed are guilty of an offence and are liable to heavy fines. In addition, if the accounts are not filed on time, the company is liable to a civil penalty of an amount which increases as the length of default increases subject to a maximum of £450. It is this civil penalty which the Amendment would convert into a criminal penalty. This is if I have understood the noble Earl correctly.

I cannot, unfortunately, be as helpful on this particular Amendment as on the two earlier ones. As drafted, the clause makes a company which is late in filing its accounts liable to a civil penalty which is payable to the Secretary of State. This is, in part, an incentive to companies to file their accounts promptly and, in part, a punishment for failure to do so. It also recognises the very considerable amount of work involved for the Registrar in pursuing companies which are in default. The cost of running Companies House is greatly increased by the large number of companies which fail to file documents on time. I think the Committee will agree that it is right that these companies should be asked to pay a penalty. The Amendment would remove this civil penalty and substitute a criminal penalty (which would not, of course, be payable to the Secretary of State). As drafted, it would be a very curious criminal penalty as it would be a fixed penalty rather than the more usual maximum. The court would thus not have the power to vary the penalty in the light of the circumstances in a particular case.

The reason why, under the clause as drafted, it is the directors rather than the company who are guilty of an offence and liable to a fine is that the duty to lay and file accounts is specifically imposed on the directors. It is more common to impose a duty on the company, but in this case it was decided to put the duty on the directors in order to stress their personal responsibility for ensuring that it was complied with. It follows that it is the directors who are guilty of an offence if they do not do so. It would be rather odd to make the company criminally liable in these circumstances since it is the directors who have to make the decision.

The Earl of LIMERICK

There is nothing between us in the desirability of enforcing this part of the Bill, nor indeed in the measure of the penalty to be imposed. I think that my Amendment would not have had the effect of changing the penalty payable. It might, as the noble Lord suggested, mean that it was payable to a different party. I think that that would not be a matter of primary concern to the company. I was concerned solely with the question of the onus of proof, since I am advised that the onus of proof would be less great if the Amendment were accepted than it is if the Bill is in the form in which it now rests. I do not know whether I could be further enlightened on this point. I shall be happy to withdraw the Amendment and study what the noble Lord has said. If he can give me any final word on this it would be helpful.


I appreciate the noble Earl's attitude. It is a complex point. Perhaps in addition to what I said I might write to him, and then we might decide what we do at a later stage.

Amendment, by leave, withdrawn.

On Question, Whether Clause 4 shall stand part of the Bill?

The Earl of LIMERICK

I have one point to raise on which it did not seem necessary to put down an Amendment on Clause 4. There is a defence in Clause 4(2) available to those charged under Clause 4(1), whereby they can plead that they took reasonable steps in securing that those requirements would be complied with before the end of the period allowed for laying and delivering accounts. However, there is no comparable defence provided in respect of an offence which may be committed under subsection (3). On the face of it this is odd. One can envisage circumstances of a printing dispute, or a postal strike, whereby it would be beyond the competence of those charged with the duty to fulfil the letter of their requirement under subsection (3), and yet apparently they are denied a defence analogous to that available from the burden of subsection (1) which is provided under subsection (2). I wonder whether there is some reason which can be adduced for this difference?


I cannot myself adduce any reason. May I make the same offer to the noble Earl. May I take advice on the point. It would seem to be an interesting and valid one, and if tidying up is necessary we might tidy it up at Report stage.

Clause 4 agreed to.

Clause 5 agreed to.

Clause 6 [The period allowed for laying and delivering accounts]:

6.17 p.m.

Lord LYELL moved Amendment No. 5:

Page 8, line 32, at end insert— ("() Notwithstanding subsection (2) above the period allowed for laying and delivering accounts in relation to any accounting reference period of a company shall be not longer than seven days after the date then the said accounts are laid before the shareholders of the company in general meeting.")

The noble Lord said: This is, in spite of the somewhat lengthy layout of the words, a fairly simple Amendment. It seeks merely to accelerate the delivery of accounts to the Registrar. It seems to us that there can be some unreasonable delays in delivering accounts to the Registrar even with the permitted time limits of seven and 10 months respectively for public and for private companies. I hope that this Amendment is reasonable. It has the support of those of us who are concerned with company administration. I beg to move.


The noble Lord's Amendment is in the spirit and intention of the Government, but unfortunately it does not quite enable us to achieve our joint objectives. We both want that accounts that are sent to shareholders should be filed promptly, and of course the Government very much hope that companies will follow the practice suggested. There is nothing in the clause which will prevent them from doing so. Nevertheless, the Government cannot accept this Amendment as they do not agree that this should be a legal requirement. The objection is that it would be almost impossible to enforce. The Registrar dos not know when a company's accounts are laid before the shareholders and he will not therefore know when they are due to be filed. This is one of the main drawbacks in the present requirements. It is largely to avoid this difficulty that the new arrangements were devised. It would therefore be completely counter-productive, in our view, to introduce a requirement which suffered from the same drawback, even though it would be qualified by the long stop that all accounts had to be filed within a specified maximum period.

The enforcement difficulties of a provision on the lines proposed would result in a need for extra staff. The Registrar would, of course, be expected to try to enforce the requirement and to investigate complaints about non-compliance. This would require a considerable amount of staff time as it would first be necessary to discover if the accounts in question had in fact been laid before the company and, if so, when. The Amendment would, in fact, affect only a small percentage of companies. The vast majority of the 640,000 companies in both countries on the register are small, and past experience suggests that they will barely succeed in laying and filing their accounts within the periods to be allowed and that there is virtually no prospect of their laying their accounts in time for the Amendment to affect the timing of the filing of their accounts by more than a few days at most. The Government's view is, thus, that companies, especially listed companies and other large companies in which there is the greatest public interest, should, as a matter of good practice, file their accounts immediately after laying them but that this should not be made a legal requirement. The law sets a minimum standard applicable to all companies, but noble Lords will agree that the larger companies can reasonably be expected voluntarily to comply with a higher standard. That is the view of Her Majesty's Government on this matter.


I thank the noble Lord for the very full way in which he has set out the Government's position and, subject to further study—we might return to this matter at a later stage—I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 6 agreed to.

Clauses 7 to 11 agreed to.

Clause 12 [Accounting records]:

6.22 p.m.

Lord LYELL moved Amendment No. 6: Page 14, line 41, after ("records") insert ("in such manner as to enable the directors to inform themselves at any time of the financial position of the company and of its ability to pay its debts as they fall due, and which are")

The noble Lord said: This is one of the most important Amendments I have set out before the Committee today. It will, we believe, define much more clearly Clause 12(1). Subsection (2) of this clause details exactly what the accounts shall contain, but as many noble Lords will know, commercial life is both complex and, indeed, fast moving, and those with experience of this matter and those who have consulted others on the subject consider that the Amendment is necessary. To use a sporting example, we seek not only the picture at the finish of the event but also the action photographs at any stage of the event—in this case at any time during the accounting reference period. The Bill as drafted will help to see that accounting records give a true and a fair view of the balance sheet and the profit and loss account and, to use a sporting metaphor, these two documents will provide the photograph at the finish of the event, in this case the accounting reference period. However, we do not consider that a true and a fair view can necessarily be used to define the situation at any point during the accounting reference period, and for this reason we have suggested the Amendment.


The intentions of the Amendment are obviously right. We have seen in the present troubled times several companies run into serious financial difficulties which, partly because of inadequate accounting records, have not been foreseen by directors. The purpose of the Amendment as we understand it is to underline the importance of this aspect of keeping proper accounting records, and of course one must agree with this. However, we believe that the Amendment would not help this objective. The first half of the Amendment is, we believe, unnecessary as it is already implied in the clause as drafted. If a company's accounting records are, in the words of subsection (1), Sufficient to give a true and fair view of the state of the company's affairs"— which has been defined—they must necessarily also be such as to enable the directors to inform themselves at any time of the company's financial position. This part of the Amendment thus achieves nothing. The noble Lord might not agree with this point because he mentioned the photograph at the finishing post, but the horses may gallop on a little before the photograph is developed.

The second half of the Amendment is highly desirable in principle but impossible in practice. Of course, directors need to know whether or not the company will be able to pay its debts as they fall due, but unfortunately this is not something which can be deduced from the accounting records alone. Accounting records are necessarily concerned with recording what has happened in the past, not with predicting the future. The records can, and should, show what debts the company is due to pay and when, what its assets are and what payments are due it. This is, of course, essential information for the directors. But whether or not the company can pay its debts as they fall due will also depend on other factors which do not appear in the records: will the company be able to raise more money? Will the bank agree to an increase in the overdraft or will it withdraw existing facilities? Will a major creditor default? Sometimes they do. These factors are crucial to the company's future prospects, but are quite outside the scope of the accounting records. If a company is hopelessly insolvent, the fact should be apparent and clear to the people who understand these things from the records, but these are unusual circumstances and by then it is often too late.

As it is normally impossible for the accounting records, however efficiently kept, to be kept in such a manner as to enable the directors to reach an overall view of the company's ability to pay its debts, except perhaps in the most dire circumstances, it would be wrong to impose such a requirement on companies. However, I should have thought that the experience of the past few years for those in business life would point clearly to the importance of watching cash flow at the various monthly board meetings between the publishing of annual accounts, and the value of the Amendment would be to underline once again the importance of cash flow in the difficult business climate in which we are operating.


I cannot admit that I am entirely satisfied or happy with the noble Lord's reply. Possibly it may be a question of drafting or perhaps it may be a question of lack of clarity of language, but I understand that the Amendment as drafted would show that such accounting records should be kept, in such manner as to enable the directors to inform themselves…of the financial position… at any time during the year.

The question of a true and fair view has concerned accountants for many years, I think ever since the Companies Act 1948 was passed. But the definition of "true and fair view" at the moment greatly concerns the accounting profession because it considers this true and fair view to be, so to speak, the finishing photograph, and what I am concerned with—what the profession and the first part of the Amendment is concerned with—is what we might call the stewards' camera. The noble Lord mentioned the horses galloping past the finishing post. What we as accountants are concerned with is foul play at the jumps—dirty riding and that sort of thing—and the stewards have a camera on the racecourse. Accountants are keen to have these powers and to be able to use all the techniques that they have available to them at any time during the year, and that is the purpose we seek in the Amendment. I am grateful for what the noble Lord has said, although I am not entirely happy and should like to return to the point at the next stage after further consultations.


I would have backed the noble Lord, Lord Lyell, in his Amendment had it not been for the wording, "at any time". As an accountant turned poacher/director, thinking of companies in the contracting world where there is an enormous amount of work in progress and there are many computers and where the cash flow is difficult to estimate at any given moment, I find that, though I am very keen on such a provision—and I know that the profession is also—the words, "at any time" are difficult.


I should like to thank the noble Lord for his support. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 12 agreed to.

Clauses 13 and 14 agreed to.

Clause 15 [Resignation of auditors]:

6.33 p.m.

Lord LYELL moved Amendment No. 7:

Page 18, line 35, at end insert— () This section shall apply where a retiring auditor declines to offer himself for re-appointment at the annual general meeting.

The noble Lord said: This clause provides the most valuable support for the auditor in executing his duty and the accountancy profession believes that it is most welcome. However, the clause, as at present drafted, gives the possibility that an auditor would be able to resign his office without necessarily giving notice in writing. In the clause, as printed, it appears that the auditor, may resign his office by depositing a notice…". The Amendment seeks to include in the provisions of the clause any auditor who attends the annual general meeting of the company and who merely declines to allow his name to go forward as the company's auditor for the forthcoming year. That would permit a retiring auditor to vacate his office without giving the full reasons to the members of the company in writing. It is to clear up that anomaly that I beg to move the Amendment.

The Earl of LIMERICK

This is a point to which I also drew attention on Second Reading and I rise merely to express support in this matter for my noble friend Lord Lyell.


The noble Lord was good enough to explain to me the intentions underlying the Amendment. The situation which he envisages is something which could arise. However, we believe that the requirement to make a statement is not appropriate in the case of an auditor who does not seek re-appointment at the annual general meeting. The purpose of the requirement in Clause 15 is to prevent a weak auditor from resigning in mid-year—in fact, half way down the course—without saying anything and without completing his audit because he has discovered something which suggests that things are going wrong and he is not ready to face up to his responsibilities in such a situation. By the end of the year, the audit will have been completed and, if things are found to be wrong, the auditor will have to qualify the accounts. The auditor's report is thus the safeguard for shareholders and creditors in this situation and it is not necessary to require the auditor to make a further statement.

It is also difficult to see how a requirement to make a statement would be enforced in the case of an auditor who does not seek re-appointment. An auditor can resign only if he first makes the required statement, but it would be ridiculous to force an auditor to offer himself for re-appointment. A penalty for failing to make a statement might be one possibility, but to make failure to make such a statement a criminal offence does not seem appropriate. That is the reason why, although we are in sympathy with the noble Lord's attempt to block a potential loophole, we believe that this is a non-starter.


I am grateful for the nice way in which the noble Lord has put that, but I cannot say that I am entirely satisfied. The noble Lord says that the intention of the clause is to prevent a weak auditor from resigning in the middle of the accounting reference period. The belief of the accountancy profession is that a weak auditor is a weak auditor at any time. It does not matter whether it is six or eight months later; a weak auditor could resign after four months of the accounting reference period and yet at the end of the year he will still know and recognise that there are grave malpractices or flaws in the company's accounting system. He may qualify the accounts, but the accountancy profession believes that the members of the company—and this is particularly so in the case of small companies whose annual general meetings are but sparsely attended—should have a statement in writing from the retiring auditor giving his reasons for retirement. I emphasise that it is his retirement and not necessarily his resignation, but we feel that he should give his reasons for not wishing to go forward.

I understand that it is a matter of professional etiquette among the accountancy bodies that, where an auditor relinquishes office, he will allow his successor as auditor to know the reasons for his retirement, and that that is normally achieved with the minimum of fuss and bother. However, the accountancy bodies spotted what they feel to be a loophole and they are worried.

Clause 15(1) says that the auditor of a company "may resign his office by depositing a notice…" I wonder whether, if we were to substitute the word "must" for "may" and say that, when he resigns his office, he must deposit a notice in writing, that would suffice. That is the main point of the present Amendment. I feel that perhaps I and my advisers should have seen this earlier and, while I thank the noble Lord for the kind manner in which he has given the Government's reply and while I give notice that we shall probably raise this again at a later stage, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 15 shall stand part of the Bill?


Before we finish with Clause 15, may I ask the noble Lord, Lord Winterbottom, for some guidance? On Second Reading, I raised the point of an auditor facing the possibility of a libel action. The noble Lord most kindly wrote to me and set my mind at rest on this point. Nevertheless, I should be grateful if he could confirm what I believe to be the case—namely, that an auditor has qualified privilege from being sued for libel by directors or members of the company concerned or members of the public, so long as his remarks in the statement which must accompany his notice of resignation are confined to his statutory duty, explaining his resignation to the members. This would, I trust, preclude directors from issuing a writ the moment an auditor gave notice of his resignation. Indeed, the directors might claim that reasons for resignation such as criticisms of the directors were sub judice. Can the noble Lord confirm that what I believe to be the case is so and that there is qualified privilege?


I am grateful to the noble Lord for the opportunity to place on the record the position in this important matter. The answer is that when a resigning auditor has to make under Clause 15, or chooses to make under Clause 16, a statement, he will have qualified privilege. Therefore, unless the auditor uses a statement for some improper purpose—for instance, he is malicious in the legal sense—no person who is criticised will be able to sue him successfully for libel. That is an important matter.

With regard to Clause 15, the noble Lord was very persuasive on his Amendment, and as I have shown one chink in my argument perhaps we could have another look at the matter at Report stage. The question of "may" and "must" is important, and I have just thought of another small gap of light which we might look at in due course.


I am very grateful to the noble Lord.

Clause 15 agreed to.

Clauses 16 and 17 agreed to.

6.41 p.m.

Lord REIGATE moved Amendment No. 8:

After Clause 17, page 21, line 10, at end insert the following new clause:

Minimum paid up share capital required for company limited by shares

Share capital

.—(1) A company limited by shares shall not commence any business or exercise any borrowing powers unless—

  1. (a)the amount paid up on its shares, whether in cash or other consideration, is not less than the statutory minimum; and
  2. (b)there has been delivered to the registrar of companies for registration a statutory declaration by all the directors of the company, in the prescribed form, that paragraph (a) above is complied with;
and, if the directors take into account for the purposes of their declaration any consideration other than cash, the declaration shall include a statement to that effect and a certificate in the prescribed form by an auditor of the company (or a person qualified for appointment as such) that in his opinion the directors have reasonable grounds for making the declaration.

(2) The statutory minimum for the purposes of this section shall be such amount as is specified by regulations made by the Secretary of State by statutory instrument, and different amounts may be so specified in relation to public companies and private companies.

(3) The Secretary of State may by regulations made by statutory instrument provide that consideration of any description specified in the regulations (other than cash) shall not be taken into account for the purposes of this section, and references in this section to consideration other than cash shall be construed accordingly.

(4) No regulations shall be made under this section unless a draft of the instrument containing the regulations has been laid before Parliament and has been approved by resolution of each House of Parliament.

(5) If a company commences business or exercises borrowing powers in contravention of subsection (1) above, every person who is responsible for the contravention shall be guilty of an offence and liable—

  1. (a)on conviction on indictment, to a fine;
  2. (b)on summary conviction, to a fine not exceeding £40 for every day during which the contravention continues;
but nothing in that subsection shall invalidate any transaction entered into by a company.

(6) Neither subsection (1) above nor any alteration by regulations of the statutory minimum shall apply to a company which has lawfully commenced business or exercised any borrowing powers before that subsection, or, as the case may be, those regulations come into operation.

(7) A private company shall not alter its articles in such a manner as to become a public company at a time when the statutory minimum specified for the purposes of this section in relation to public companies is higher than that specified in relation to private companies unless paragraphs (a) and (b) of subsection (1) above, as they would apply to a public company which has not commenced business or exercised any borrowing powers, have first been complied with.

(8) Notwithstanding anything in its articles, a company limited by shares shall not reduce its share capital—

  1. (a) at a time when the nominal value of its paid up share capital does not exceed the statutory minimum; or
  2. (b) so as to reduce the nominal value of its paid up share capital below that minimum.

(9) Section 109 of the Act of 1948 (restrictions on commencement of business) shall cease to have effect.

The noble Lord said: I should like your Lordships to think that this modest, brief Amendment was entirely my own handiwork, like a pavement artist, and that I was a born Parliamentary draftsman. But like George Washington I cannot tell a lie, and it would become quite clear that the whole of this Amendment, and the subsequent Amendments in my name, are lifted from the 1973 Bill which, unfortunately, was dropped when the change of power took place two years ago.

On Second Reading it was made quite clear that some of us thought that the Government were missing a major opportunity to bring into being some rather extended powers such as were included in the 1973 Bill. Therefore on that occasion I gave notice that it was my intention to move one or other of these Amendments. I must apologise that the Amendment was tabled only last Thursday. This was not due to any dilatoriness on my part, but simply and solely to the fact, unbelievable though it may seem, that there was not a copy of the 1973 Bill in the Library of either House. I should like to apologise particularly to the noble Lord, Lord Winterbottom, though not with any great sincerity, because I am certain that when he saw the Amendment his officials were able to say to him: "Minister, we recognise these Amendments. They are awfully good Amendments. The drafting is perfect, and in a sane world they would be accepted." But I have a feeling that that will not be the kind of answer I am to get from the noble Lord today.

I now wish to revert to the subject of the Amendment. The £100 limited liability company has been a byword and a joke for years. In any shady case it is always a question that somebody has formed yet another £100 company. So it seemed to me very sensible that under the 1973 Bill the Secretary of State would be able to take power to increase that amount by regulation. That seemed perfectly sane, sensible and reasonable, and I find it quite extraordinary that the Government have not chosen to incorporate this very sensible little reform in their Bill.

When the noble Lord was doing battle on Second Reading, he told us that the Government had instituted a wide-ranging review of company law, and therefore we should have to wait for that, but I still think it is a pity that they have not taken this opportunity. We are waiting for Bullock and for a wide-ranging review, and at this rate I feel we are going to wait until the cows some home. It is a great pity that this opportunity has been missed. I beg to move.

The Earl of LIMERICK

My noble friend Lord Reigate has done even better than he suggested. He has contrived by some strange process that his Amendments Nos. 8 to 11 bear a striking similarity to Clauses 8 to 11 of the 1973 Bill. As he says, the drafting is immaculate. I have a good memory for faces and I worked closely and happily with officials who are advising the noble Lord. I shall be more than intrigued to learn why they may consider that the case for including these Amendments in this Bill is less strong and compelling than when it was presented to me in 1973.


I feel that this is to be the most interesting part of our deliberations this evening. First, I completely absolve the noble Lord, Lord Reigate, of any discourtesy regarding late tabling of the Amendments, because I and my advisers suffered from the same problem. What happens to Bills which become lost is an interesting question. I suppose that they lie in some dusty archive in my Department. This was our problem, as well as that of the noble Lord, and thus I do not charge him with discourtesy.

I hope that he will not charge me with willing blindness on the virtues of his Amendments. All his Amendments have a great deal to commend them. However, since the Bill was laid in 1973 profound change has come about in our legal relationship to those activities which are common to us and to other members of the Common Market. When I was first briefed on this Bill I asked specifically whether anything in the Bill as it stands cut across Common Market legislation, and I was told, "No" But I hope the noble Lord will accept it when I say that his Amendments Nos. 8, 9. 10 and 11 are all—I do not say in conflict—in parallel with legislation which we are to discuss this week. They are all relevant to the second EEC draft Directive.

I know that the noble Lord has been doing his homework because I guided his steps in the direction of a tutor. If they were accepted, all these four Amendments, admirable and well drafted though they are, might have to be modified if and when the Common Market Directive becomes law. I am not speaking as an expert—there are other noble Lords more expert than myself—but as I understand the position, once a Directive is agreed by the Council of Ministers it cannot be modified by member Parliaments. It is the law of the European Community. It has so happened that our Scrutiny Committee has requested us to look at the second Directive, which covers the areas of the four Amendments I have mentioned.

I now wish to give the formal reply to the noble Lord. We are now speaking about Amendment No. 8. The draft second EEC Directive on Company Law contains provisions concerning a minimum capital which a company must have before it is incorporated or allowed to start trading. The terms of the draft Directive are at present being negotiated in Brussels, and although these negotiations have reached an advanced stage, the terms of the instrument which will finally emerge from the discussions are not yet settled. It would therefore clearly be inappropriate at this stage to include in the Bill a provision on the lines of the proposed new clause which might very well have to be scrapped in the second Bill which is approaching.

British company law will in any event have to be amended in order to implement the requirements of the draft second Directive. It is desirable to make all the necessary Amendments to our law at the same time, rather than deal with them in a piecemeal fashion. That is why Her Majesty's Government are opposing this, and the next three, Amendments. But is might be extremely vain-able if we were to take the discussion a stage further on Thursday of this week when we have to discuss these four Directives.

The Earl of LIMERICK

There is one other serious point which underlies this matter. One's memory goes dim after 2½ years, but if I recall correctly, this question of minimum paid-up capital is not unassociated with the distinction between private and public companies. There is in European law a very inconvenient distinction for us in that the rigour of some of the provisions applicable to large companies could be applied to small companies if some such distinction is not imported. I recall (without recalling closely the detail) that this was a point very much in our minds in looking at these two sections of the Bill together in 1973—that of the minimum paid-up capital and the distinction between the public and the private companies. It would indeed be helpful if the Minister could go one step further and tell your Lordships' Committee that this point is one which, likewise, is in his mind and in the minds of his advisers as they approach the discussions on Thursday and as we approach the later stages of this Bill.


The noble Lord's reply was as disappointing as I expected and as he was kind enough to warn me it was going to be, so it came as no shock to know that my Amendment was not going to be accepted. I was a little confused by his argument, because he very kindly referred me to the documents which are going to be discussed on Thursday, and I found the relevant sentence, which reads as follows: This Article requires that on formation of a company a minimum capital shall be subscribed, the amount of which shall be not less than 25,000 units of account, say £10,000". That is not the point, but then it goes on to say: This would require legislation in the United Kingdom". It would not if my Amendment was accepted, because the whole point of my Amendment is that the present £100 is abolished and it is left to the Secretary of State to fix the amount. He can fix it at £100, and, by Statutory Instrument, when the time comes, he can raise it to £10,000. All that is happening is that the Government are taking the line that the necessary Bill to implement the European thing will be just one clause longer. What a waste of time!

However, I can see that I am not going to get anywhere with the noble Lord or with the Government—except, of course, that when the Head of Government changes there is always some hope that a more enlightened attitude might prevail. But for the moment I therefore ask leave to withdraw the Amendment standing in my name; and, in view of the slightly stultifying and obfuscating attitude of the Government, I shall not move the other Amendments standing in my name.


Including the last two, which are not covered by the second Directive?


Numbers 9, 10 and 11.

Amendment, by leave, withdrawn.

Lord REIGATE moved Amendment No. 12:

After Clause 17 insert the following new clause:

Listed companies not to issue equity shares with restricted voting rights

Non-voting shares etc.

.—(1) No company any of the shares in which are for the time being listed on a recognised stock exchange shall, except with the consent of the Secretary of State, issue any equity share which does not carry—

  1. (a)an unqualified right to vote at general meetings of the company; and
  2. (b)on a poll, a constant number of votes determined in accordance with subsections (3) to (5) below.

(2)For the purposes of this section a right to vote is unqualified if it is not subject to any restriction by reference to the matter to be voted on, and a number is constant if it does not vary by reference to that matter.

(3)Where the company has not previously issued any equity shares carrying unqualified voting rights, the number of votes required in the case of a share by subsection (1)(b) above shall be such number as the company may determine, being a number which, in proportion to nominal value, is the same as that determined in the case of each of the other equity shares (if any) issued on the same occasion.

(4) Where the company has previously issued any equity shares carrying unqualified voting rights, the number of votes required in the case of a share by subsection (1)(b) above shall be such number as, in proportion to nominal value, is equal to the number of votes carried on a poll by each of the existing shares or, if those shares do not all carry the same number of votes in proportion to nominal value, of such of them as carry the highest number in proportion to nominal value.

(5) Where any of a company's existing shares carries a number of votes which is not constant, the share shall be treated for the purposes of subsection (4) above as carrying that number of votes which it carries in relation to the generality of matters to be voted on; and if the share carries special voting rights (that is to say, rights different from those carried by other shares of the same nominal value) in relation to some matters but not others, the reference in this subsection to the generality of matters to be voted on shall be construed as a reference to the matters in relation to which the share carries no special voting rights.

(6) Any share issued in contravention of this section shall, notwithstanding anything in the company's memorandum or articles or in the terms of issue, carry the rights and, on a poll, the number of votes required by paragraphs (a) and (b) of subsection (1) above (subsection (3) being read as if it required the share to carry one vote for every ½p of nominal value); but, save as aforesaid, nothing in this section shall invalidate any issue of shares or expose a company issuing any shares to any penalty.

(7) Subsection (1) above shall not preclude the issue of a share which at the time of issue does not comply with that subsection if—

  1. (a)the rights making it an equity share are expressed by the terms of issue to be conditional on the exercise by the holder of an option in that behalf; and
  2. (b)the share will comply with that subsection if the option is exercised;
and for the purposes of subsections (3) to (5) above any share in respect of which such an option is exercisable shall be treated as carrying the rights and, on a poll, the number of votes which it would carry if the option were exercised.

(8) Nothing in this section applies to any share issued by a company in pursuance of an obligation entered into by the company before the coming into operation of this section.

The noble Lord said: I can be very brief on this. This is dealing with the question of non-voting shares. In 1973 the enlightened Government of the day took the line that non-voting shares were a bad thing, and so included this clause, which I have carefully repeated today. I think it will be interesting to know whether, after two years, the Government have any views at all on the matter. I beg to move.


The Government are not groping in the dark; they are simply moving towards the light, and the rate at which we move must depend on the complexity of the subject. This Bill is an interim measure—and I have said that time and time again—designed to deal with certain urgent problems. Non-voting shares do not fall into this category, and this Bill is not, therefore, the appropriate place in which to deal with them. They should be considered as part of the Government's wider review of company law. The issue by listed companies of equity shares with restricted voting rights is now very rare, and it is unusual for a company to come to the market for the first time without first enfranchising its shares. The Stock Exchange and the institutional investors strongly discourage the issue of new equity shares which do not carry' full voting rights. Over the last few years, several companies have enfranchised existing classes of shares with restricted voting rights. Ranks is the latest example. The Government welcome these moves.

The provisions in the 1973 Bill were an unhappy compromise. They would have caused considerable problems and imposed awkward restrictions on the freedom of listed companies with existing equity shares with restricted or no voting rights. On the other hand, they would have allowed the issue to continue unresolved indefinitely, as they did not require the enfranchisement of existing restricted voting shares. The provisions in the 1973 Bill must therefore be further considered in the course of the Government's general review of company law, and this will be done. It may be that market forces are already achieving the desired results without any of the frictions and problems caused by legislation; it may be, however, that legislation will be needed to bring the laggards into line. These matters need to be studied. It would be premature to legislate before completing this study, and inappropriate, in any case, to legislate on this subject in this Bill.


That is not really a very satisfactory reply, because when the noble Lord comes to read it in the Official Report he will probably see that he in fact contradicted himself. But that is neither here nor there. It is quite clear that the Government are not going to allow the scope of this Bill to be expanded in your Lordships' House at all. I can only hope that more sense will prevail in the other place and that this opportunity will not be allowed to pass. I therefore ask leave to withdraw my Amendment. I should like to say only that when the end comes and the voices are collected it may be that someone will say, "Content" and perhaps no one will say, "Not-Content", but I shall be murmuring under my breath "Mal-Content!"

Amendment, by leave, withdrawn.

Clauses 18 to 24 agreed to.

Clause 25 [Size, durability and legibility of documents delivered to registrar]:

Lord LYELL moved Amendment No. 14: Page 28, line 32, leave out ("fourteenth") and insert ("thirtieth").

The noble Lord said: This is a very small Amendment. It seems to some of us who are concerned with company administration that a period of 14 days for allowing accounts to be reprinted or for altering the format might in some cases, and particularly where the smaller companies are concerned, involve unnecessary hardship and expense, and an unreasonable amount of trouble for the company secretary or the company administrators. This is just in the nature of a probing Amendment to see whether the Government will allow an extension of a further 14 days—say, 30 days. With that, I beg to move.


Again, we welcome the intention but question the answer. The requirements as to the form of documents will be published, and the Registrar intends to bring them to the attention of all companies. There will therefore be little excuse for any company to submit a document in an unacceptable form. The grace period, therefore, is a concession to those who fail to comply with statutory requirements.

The clause applies to all documents delivered to the Registrar, and not only to accounts and directors' reports. This is where the problem arises. Many of the documents have to be filed within strict time limits after a particular event has occurred. This time limit is often less than 30 days. For example, notices of changes in directors or the address of the registered office must be filed within 14 days. There are several similar requirements. It would not be desirable to allow a company a longer period in which to resubmit a document in an acceptable form than it had to submit the document in the first place. We believe that it is unlikely that a printed document would be found unacceptable and would thus have to be reprinted. The requirements will be designed primarily to ensure that documents are legible and durable. Any document which is printed (in the form that we have talked about today) is likely to meet those criteria. The documents which cause problems are those which are in manuscript or are poor quality copies of typescript, and these would not take long to reproduce in an acceptable form. But I think the key point is the conflict between the 30 days proposed and the legal requirements for 14 days in other areas of company law. That is why we resist this Amendment.


I should like to thank the noble Lord for that. Possibly I might be able to come back to this point at a later stage. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 25 agreed to.

Clauses 26 and 27 agreed to.

Lord MONSON moved Amendment No. 15:

After Clause 27, insert the following new clause:

Proxy Voting

.—(1) Every notice calling a meeting of a company having share capital which is sent to persons entitled to attend and vote thereat shall he accompanied by a proxy form with provision for two-way voting on all resolutions intended to be proposed. All such proxy forms sent to United Kingdom residents shall be reply-paid; and if default is made in complying with this subsection as respects any meeting, every officer of the company who is in default shall be liable to a fine not exceeding fifty pounds.

(2)The above subsection shall not apply to any company whose issued share capital to less than £100,000.

(3)This section shall come into force on 1 January 1978.

The noble Lord said: This is something of a trial balloon. When I spoke of my intention to introduce an Amendment on these lines on Second Reading there were murmurs of approval from various parts of the House. The noble Lord, Lord Winterbottom, remained non-commital, whether on grounds of principle or on technical grounds or on grounds of time I am not sure. The object of the Amendment is to help the small shareholder, albeit in a minor way. Small shareholders are legally part owners of the company in which they hold shares. This is all too often overlooked. I believe they should be assisted to exercise the responsibility that goes with ownership. Shareholders' dividends have not kept pace with the cost of living over the past five years or more, nor have the capital values of their holdings kept in line with inflation. Postal charges go up almost quarterly, and while there are shareholders living in remote rural parts of Scotland, Wales or indeed England, and who may be minus a stamp, such people are understandably disinclined to drive a long way to get to a post office unless they can be fairly certain that the thing they are voting for has a good chance of success.

It is argued by many directors that I know that small shareholders often fail to reply even when proxy forms are reply-paid. I would suggest that when the company is doing well there is no need for anybody to spend money on postage, whether shareholders directly or the company indirectly. It is when the directors are not behaving in a satisfactory manner, either towards shareholders, employees, customers or the public at large that such provisions as I have proposed would, I suggest, come in useful. Take the case of an engineering company which, a year or so ago, passed its dividend as a result of a disastrous fall in profits, but where at the same time the chairman increased his salary from £10,000 to £15,000 a year. In such circumstances shareholders would welcome the opportunity to register a protest even though there may be little chance of success. I might add that, of six blue chip companies who replied to a query that I made as to whether or not they would support proposals on these lines, three were in favour, two were in favour in principle, but felt it should be done by an Amendment to the Stock Exchange listing requirements rather than by legislation, and only one out of the six was opposed.

There is a precedent for this sort of shareholder protection in Section 136 of the 1948 Companies Act, but the protection given is rather random. Section 136(2) provides that: …there shall appear with reasonable prominence a statement that a member entitled to attend and vote is entitled to appoint a proxy… Section 136(4) states: If…invitations…are issued at the company's expense to some only of the members… and not all, the officers responsible for the offence will be liable to a fine of up to £100. But Section 136 does not go any further than that.

Clause 5 of the Stock Exchange listing requirements stipulates that a proxy form with a provision for two-way voting shall be sent with all resolutions to be proposed. This listing requirement does not help with unquoted companies. It might be argued that there are not many unquoted companies with share capital in excess of £100,000 where the shareholders are neither all members of one family nor institutional shareholders; none the less it seems reasonable to include them as well.

The main point is that the Stock Exchange listing requirement does not at present include the words "reply paid", and so long as it does not do so I believe that Parliament has a right to step in and fill the gap. In order to draft this Amendment it was necessary in the first instance to require the sending of proxy forms, which is not in any Companies Act at present, although it is in the Stock Exchange listing requirements. That having been done, it was possible to insert the requirements that all such proxy forms should be reply-paid.

I have taken the wording partly from Section 136 of the 1948 Act, including the provision for a penalty of up to £50. I have taken the wording partly from Clause 5 of the Stock Exchange listing agreement which is a little more detailed and also includes the word "person" rather than "member", which could be advantageous in so far as it covers convertible loan stockholders and others who might be morally entitled to cast a vote in such circumstances. Some of the wording is my own. Finally, a company secretary of one of our well-known public companies pointed out that for technical reasons the provision ought to be confined to United Kingdom shareholders only. I should like also to include those resident in the Channel Islands and in the Isle of Man, but I am not sure whether the reply-paid provisions would be easily applicable to them in the long term. Perhaps that could be looked at at a later stage, provided the principle of this Amendment is accepted. I think it is reasonable that the requirements should be confined to companies with issued capital of £100,000 or over, and that the company should be given a generous 18 months to prepare for this ruling, if Parliament accepts the principle of it.

In putting down this Amendment, I was inspired by the words of the noble Baroness, Lady Phillips, at the Third Reading of her excellent Bill to permit shops in holiday resorts to stay open for a longer period of the year. She is not present now, but I am sure she will not mind if I paraphrase what she said; that is, that if Back-Benchers wished to get anything through this House there are two requirements. The first is that it should be simple and straight forward; and, secondly, one should be content to take one small step at a time. I believe that this Amendment fulfils both criteria, and I hope it may be accepted in principle.


I should like to add my support to the Amendment proposed by the noble Lord, Lord Monson. I think it is a very relevant point that shareholders should have every possible opportunity to participate in the annual general meeting and other meetings of their company; therefore we should support any measure which helps shareholders to participate.


Noble Lords may or may not believe me, but I listen to arguments put forward by noble Lords on these occasions. In order to understand the noble Lord's arguments, will he please say what he means by "two-way voting". I should like that defined before I reply.


It means that you can vote either for or against the resolution.

It comes straight out of the listing requirements of the Stock Exchange.


The noble Lord indicated the problem we face. When things are going well either you do not bother to send in the proxy forms—you think the company is in good hands—or, if you do support the company, they go into the hands of the company secretary and are produced if necessary. The problem is really when things are going badly. I am not sure that merely sending in your proxy form, voting against one or more measures, is a real safeguard. Presumably someone has to marshal the votes which are opposed to company policy before this action becomes effective. Certainly the Government agree with both noble Lords that it is desirable that the average shareholder should take a more active interest in the affairs of the company, and should vote on the resolutions put before the company in general meeting.

It is arguable—and the noble Lord, Lord Monson has given examples—that reply-paid proxy forms may help to achieve this. But we believe that this is not something which should be required by law. I have a feeling that we are tending to tell too many people what is good for them rather than leaving them to reach their own decisions as to what they should do. The law provides the basic right of a member of a company with a share capital to appoint a proxy; but the mechanics of the appointment are something which can only be left to the company and not laid down by legislation. Companies send out proxy forms, sometimes reply-paid. The Stock Exchange already requires listed companies to send out proxy forms to provide for two-way voting, as the noble Lord said. Whether or not the forms are reply-paid is a matter which is left to the discretion of the company. We believe this is a relatively minor matter of company administration, and is really a public relations operation by the company itself. It should be left to individual companies to determine. The reply-paid forms could be very costly for a company with a large number of shareholders, and we believe it should be left to the company to decide whether or not to use its resources in this way. We believe it would not be right for the law to determine these matters.

I have every sympathy with the objectives of the noble Lord, but I do not see how the new clause, as drafted, would help the shareholder in the North of Scotland who is dissatisfied with the operation of a company which is holding its annual general meeting in London.

Viscount LONG

My Lords, I have not taken part so far in this debate, but I notice that subsection (2) of the Amendment refers to the fact that subsection (1) shall not apply to a company with an issued share capital of less than £100,000. So far as I know, this point has not been mentioned. Do the Government agree with this figure? There are so many companies with a share capital of less than £100,000 that I think the noble Lord ought to refer to this.


May I think about that point? I was arguing the case against any pre-paid proxy form being sent out. There may be a distinction between those companies with an issued share capital of above £100,000 and those below. The influence on the smaller company would be greater. May I have another think about this? We could tidy it up at Report stage.

Viscount LONG

I am most grateful. The noble Lord also referred to North of the Border, and I wondered whether this was applicable to the South-West or the South-East.


I thank the noble Lord, Lord Winterbottom, for indicating that he will look at this matter again. I cannot accept his view that this would be a tremendous burden on companies. One of the reasons why I suggested confining it to companies with an issued share capital of over £100,000 was for the reasons he mentioned: some smaller companies might find difficulties. But it costs only £15 to obtain a reply-paid licence, and most public companies have one. They only pay one half penny more than the actual postage for each proxy returned. The most telling point is that between 75 per cent. and 80 per cent. of public companies already provide reply-paid cards. There does not seem any valid reason why the minority should not fall into line with the majority. The noble Lord was kind enough to say that he would look at this again, and there- fore I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Remaining clauses and Schedules agreed to.

House resumed: Bill reported without Amendment.