§ 6.55 p.m.
§ Report received.
§ Clause 2 [Accounting reference period of a company]:
Lord LYELL moved Amendment No. 1.
Page 4, line 14, leave out ("31st December") and insert ("30th September").
§ The noble Lord said: My Lords, the purpose of this Amendment, as the noble Lord will recall from an earlier stage, was an attempt to lighten the burden of work on the Registrar of Companies and also on the accountancy profession. In the course of the Committee stage the noble Lord explained that the date I suggested on the advice of the accountancy profession, 31st March, was the second most popular date for terminating the financial periods, what I call financial years. Therefore I have thought fit to suggest to your Lordships that we should insert 30th September instead of 31st December. Any Company which is uncertain as to when it wishes to terminate a financial period shall give this option to the Registrar. I understand from the accountancy profession that the 30th September is the date next most popular but, at the same time, it would allow the Registrar of Companies and the accountancy profession a reasonable chance of lightening the workload at the other two popular dates, 31st December and 31st March. I beg to move.
§ Lord WINTERBOTTOM
My Lords, the objective of the noble Lord and the Government is to produce the most satisfactory date for this particular operation. As I understand it, and as I attempted to explain on the similar Amendment moved by the noble Lord in Committee, the main reason for choosing 31st December as the accounting reference date for those companies which do not notify the Registrar of their choice of date is precisely because 31st December is the most popular date at the end of the financial year. We were obviously trying to meet the convenience of the companies in question. To have chosen any other date would have caused more inconvenience both for companies and for the Registrar as more companies would have had either to alter their accounting arrangements to 1967 bring them into line with the date allotted to them or would have had to agree an alternative date with the Registrar.
The Government appreciate that the 31st December peak creates problems for auditors and that they would therefore prefer some other date to be assigned to these companies which do not notify the Registrar of their accounting reference date. But the convenience of the auditors does have to be balanced against the convenience of the companies. I should like to stress one further point, if I may. On reading the Official Report of the Committee stage, I noted that the noble Lord, Lord Lye11, may have slightly misunderstood the intention of Clause 2 in respect of a newly registered company. 31st December will only be allocated to a new company as its accounting reference date if the company does not notify the Registrar of an alternative date within six months from the date of incorporation. A new company therefore has the same opportunity as an existing company to notify the Registrar of its own choice of accounting reference date. It will not necessarily be 31st December. This is why I said in Committee that the Government did not expect there to be a significant increase in the number of companies having 31st December as their financial year-end as a result of the provisions of this clause.
All companies will have an opportunity to notify the Registrar of their accounting reference date. The only ones which will fail to take advantage of this will be those whose choice of date coincides with the date—whatever it is—that will be automatically allotted to them and which do not therefore need to bother to send in a notification and those which are too inefficient to do so. As the Registrar will send out reminders to those companies which do not notify him of their date, this latter group should be very small and it is only these companies which will lead to any increase in the number of companies which have a 31st December financial year end.
Having said this, if the accountancy bodies are still concerned that the provisions in the Bill will cause difficulties for them, the Government would, of course, be ready to discuss these difficulties with them and to see if some acceptable solution could be found. This is a 1968 purely technical point which can be discussed between now and when the Bill goes to another place. Surely it will he possible for the professions and the Government to decide at the end of the day which date they prefer. We are not bound to any date. All we want is to satisfy the profession as best we can.
§ Lord LYELL
My Lords, I should like to thank the noble Lord for his very full explanation. In view of what was said at the end of the statement about the Government's intention to satisfy the desires of the profession and of all those who administer companies, as well as to assist the Registrar of Companies, I beg leave to withdraw this Amendment.
§ Amendment, by leave, withdrawn.
§ Clause 3 [Alteration of accounting reference period]:
§ 7.2 p.m.
Lord WINTERBOTTOM moved Amendment No. 2:
Page 5, line 15, leave out ("hereafter in this section referred to as").
§ The noble Lord said: My Lords, at Committee stage I undertook to try to satisfy the noble Lord, Lord Lyell, in drafting a series of Amendments—or a single Amendment, as I then hoped—which would cover his point, which is immediately preceding an apparently very innocent phrase. The point is entirely valid, but when we get down to drafting all sorts of complications follow. With the permission of the House, I should like to speak to Amendments Nos. 2, 3, 4 and Amendment No. 5—which is the key Amendment to satisfy the noble Lord—6, 7, 8, 9, 10, 11, 13, 14, 15 and 16. These all hang together—or hang separately, perhaps! They concern a very simple point, but if we change something which is quite complex some drafting is needed, and this is what we have tried to do. The key Amendment is No. 5. I shall discuss Amendment No. 12 later, because this concerns a separate point.
§ The Amendments deal with the point raised by the noble Lord, Lord Lyell, during the Committee stage. They will facilitate the alignment of the accounting reference periods of a holding company and a subsidiary by enabling a company to alter an accounting reference period retrospectively for this purpose, provided 1969 the company is not in default in filing or of laying its accounts for the period concerned.
§ The substantive Amendment is made in the three new subsections of Amendment No. 5. Subsection 1A will provide that a company may, subject to subsections 1B and IC, give the Registrar a notice retrospectively altering the date on which a previous accounting reference period ended. Subsection 1B provides that such a retrospective alteration may be made only if the effect is to make the company's accounting reference date coincide with the reference date of a holding company or a subsidiary of the company. Subsection 1C provides that such an alteration may be made only during the period allowed for laying and filing accounts.
§ The remaining Amendments to Clause 3—apart, as I said earlier, from the substantive addition to subsection 4—are all consequential. The clause was originally drafted on the basis that alterations would be allowed only in respect of the current accounting reference period. The Amendments to subsection 1 are drafting Amendments designed to simplify the wording and bring it into line with corresponding wording in the new subsection 1A. The other Amendments adapt the provisions of subsections 2 to 8 of the clause to take account of the fact that alterations are now also to be allowed in respect of a previous accounting reference period. The Amendment to Clause 6 is also consequential. Subsection 6 is concerned with the period allowed for laying and filing accounts when an accounting reference period is shortened. The Amendment applies the subsection to the shortening of a previous accounting reference period as well as to the shortening of a current accounting reference period.
§ These Amendments do not go quite as far as the Amendment which was proposed by the noble Lord, Lord Lyell. Nevertheless, they deal with the situation with which he was primarily concerned; namely, the need to be able to alter a company's accounting reference period retrospectively in order to bring it into line with that of other companies in the same group. I have tried to explain what the three subsections do. The other Amendments in this group are all either consequential or drafting Amendments. The Amendments to subsection 1 are 1970 drafting Amendments which do not affect the substance of the subsection. They merely clarify the wording and bring it into line with that in the new subsection 1A. The other Amendments, including that to Clause 6, which is now in Amendment No. 16, are consequential. Clause 3 and subsection 6 of Clause 6 were drafted on the basis that alterations could be made only to the current accounting reference period. If alterations to a previous period are now to be allowed in certain circumstances, the provisions of Clauses 3 and 6(b) need to be adapted to take account of this.
§ The Government Amendments are somewhat more limited in scope than the Amendment proposed by the noble Lord, Lord Lyell, in Committee, which would not have imposed any restrictions on a company's ability to alter a previous accounting reference period but, as was explained at the time, the Government consider that an unfettered right to make alterations retrospectively would be open to abuse, as some companies might take advantage of it to delay the filing of their accounts. In moving his Amendment, the noble Lord, Lord Lyell, explained that its purpose was to make it easier for a company which joins a group of companies to bring its accounting reference period into line with the rest of the group. The Amendments now proposed will achieve this, and for this reason I hope that the noble Lord, Lord Lyell, will feel that our Amendments will go a very long way towards satisfying him. I beg to move Amendment No. 2.
§ Lord LYELL
My Lords, if I may take together all the Amendments discussed by the noble Lord and which he has explained at considerable length and in considerable detail, it seems, from such conversation as I have had with several members of the accountancy profession, that this Amendment, or this series of Amendments—which, as the noble Lord, Lord Winterbottom, said, may hang together or separately—will satisfy the wish of the accountancy profession. This wish was that companies should be free to carry out such a change in their accountancy reference period. I pointed out in Committee that such a change would be very exceptional and that all we were seeking was that the Registrar of Companies and the Secretary of State should have this power to permit 1971 a company to carry out this manoeuvre, if this is the right word, in exceptional circumstances. These circumstances would be fairly exceptional, and would not occur more than 50 times in a year. This series of Amendments has satisfied me and my friends on this point, and I shall be very glad to accept them.
§ On Question, Amendment agreed to.
§ Lord WINTERBOTTOM moved Amendments Nos. 3 to 11 en bloc:
§ Page 5, line 16, leave out ("current accounting reference period") and insert ("that accounting reference period (" the current accounting reference period")")
§ line 18, leave out (" in the case of the current accounting reference period") and insert (" as the case may require")
line 20, at end insert—
("(1A) Subject to subsection (1B) and (IC) below, at any time after the end of a period which was an accounting reference period of a company by virtue of section 2 above or this section the company may give notice in the prescribed form to the registrar of companies specifying a date in the calendar year ("the new accounting reference date") on which that accounting reference period ("the previous accounting reference period") and each subsequent accounting reference period of the company is to be treated as coming or (as the case may require) as having come to an end.
(1B) A notice under subsection (1A) above shall not have effect unless the company is a subsidiary or holding company of another company and the new accounting reference date coincides with the accounting reference date of that other company.
(1C) A notice under subsection (1A) above shall not have effect if the period allowed for laying and delivering accounts in relation to the previous accounting reference period has already expired at the time when the notice is given.")
§ line 21, at end insert ("or previous")
§ line 28, after ("end ') insert (", or (as the case may require) to be treated as having come to an end,")
§ line 30, after ("falls") insert ("or fell')
§ line 32, at end insert ("or previous")
§ line 34, after ("current") insert ("or previous")
§ line 38, after ("current") insert ("or previous")
§ On Question, Amendments agreed to.
§ 7.12 p.m.
§ Lord WINTERBOTTOM moved Amendment No. 12:1972
Page 6, line 3, at end insert—
(c) the company is a subsidiary or holding company of another company and the new accounting reference date coincides with the accounting reference date of that other company.")
§ The noble Lord said: My Lords, this Amendment is an attempt to meet the requirements of the noble Earl, Lord Limerick, who proposed in Committee an Amendment which would have permitted a company to extend its accounting reference period at any time for the purpose of enabling the directors of a holding company to comply with their obligations under Section 153 of the 1948 Act. This section requires the directors of a holding company to secure that the financial years of the company's subsidiaries coincide with the company's own financial year, unless there are good reasons for not doing so. In Committee, I said that the Government were sympathetic towards this Amendment, subject to being satisfied that it would not create any loopholes or abuses. I am glad to say that on further study we have not found any such problems.
§ This Amendment, although somewhat differently worded, will achieve the result proposed by the noble Earl, Lord Limerick. It will enable a company to extend an accounting reference period, even when it has already extended an earlier period within the previous five years, if the effect is to align the accounting reference periods of a holding company and subsidiary. The clause as originally drafted would have allowed this to be done only with specific authorisation from the Secretary of State. This Amendment will make special authorisation unnecessary, and will thus reduce the administrative burden on both the company and the Department. I think that this is a useful change, and I am grateful to the noble Earl for proposing it.
§ A company will not, however, be able to extend an accounting reference period beyond 18 months. The Government have carefully considered the suggestion put forward by the noble Lord, Lord Lyell, in Committee, that an accounting reference period of more than 18 months should be permitted in certain circumstances, but have concluded that this would not be desirable. The preparation and filing of accounts at regular intervals 1973 is an important safeguard both for shareholders and creditors, and it is not acceptable that a period of more than 18 months should elapse between successive sets of accounts.
§ The Government recognise that this limitation may occasionally mean that a company which has to align its accounting reference period with that of other companies in a group has to produce accounts for a period of less than 12 months. But the period will never need to be less than six months. Also, the other proposed Amendments to Clause 3 will greatly facilitate the alignment of the reference periods of companies in a group and, in particular, the ability to make a retrospective alteration for this purpose will normally make it possible to adjust the periods without the necessity of having a short reference period, and without any need to breach the 18 month limit. I hope that that is a satisfactory solution to the problem. My Lords, I beg to move.
§ Lord LYELL
My Lords, perhaps I may be permitted, on behalf of my noble friend Lord Limerick, who has been unavoidably delayed and will not be here for this stage of the Bill, to express his appreciation to the Government for taking this action.
§ On Question, Amendment agreed to.
§ Lord WINTERBOTTOM moved Amendments Nos. 13 to 16 en bloc.
Page 6, line 7, leave out from ("given") to end of line 9.
line 22, after ("current") insert ("or previous").
line 35, leave out from ("company") to end of line 36 and insert ("which—
- (a) in the case of a notice under subsection (1) above, is earlier than the current accounting reference period, or
- (b) in the case of a notice under subsection (1A) above, is earlier than the previous accounting reference period.")
§ Clause 6, page 9, line 22, leave out ("which is current at the time when a") and insert ("as respects which").
§ On Question, Amendments agreed to.
§ Clause 7 [Transitional provisions and savings]:
§ The noble Lord said: My Lords, this is purely a drafting Amendment. It deletes a proviso to subsection (3) which is otiose. The proviso to subsection (3) adds nothing to the subsection, as the condition which it stipulates is one that is necessarily fulfilled if the other provisions of the subsection apply. Clause 7 is concerned with transitional provisions to facilitate the introduction of the new requirements as to the filing of accounts. Subsection (3) provides that the duty under Section 127 of the 1948 Act (which is otherwise superseded by Clause 1) to annex accounts to an annual return shall continue to apply to a company which, at the date when Clause 1 comes into effect, has laid accounts before a general meeting but not delivered a copy to the Registrar. Without this transitional arrangement, such a company would not be under any obligation to file those accounts as they would be subject neither to the old filing provisions nor to the new.
§ The proviso provides that this transitional provision shall apply only to accounts which are made out at a date earlier than the beginning of the company's first accounting reference period. But the first accounting reference period is defined in Clause 2 as beginning immediately after the date to which the accounts last laid before a general meeting were made up. The proviso is there-fore quite unnecessary, since accounts laid before a general meeting before Clause I comes into operation must, by definition, be made out at a date before the start of the company's first accounting reference period. It is for this reason that the Government propose that the proviso should be deleted. My Lords, I beg to move.
§ On Question, Amendment agreed to.
§ Clause 15 [Resignation of auditors]:
§ 7.18 p.m.
Lord LYELL moved Amendment No, 18:
Page 18, line 24, leave out ("may resign") and insert ("resigning").
§ The noble Lord said: My Lords, the purpose of this Amendment is exactly the same as that of the Amendment moved in Committee, when the noble Lord, Lord 1975 Winterbottom, was kind enough to give a lengthy explanation; he has been even kinder since and has written to me. But there is still a doubt in my mind, and in the minds of members of the profession, that the clause does not cover every aspect of an auditor resigning. The purpose of this Amendment which is very simple—and I hope it will not lead to a series of drafting Amendments such as we had earlier this evening—is to cover every case of an auditor resigning.
§ At the Committee stage, I put the case of an auditor who declined to allow himself to go forward for re-election at the annual general meeting. I believe it is the wish of the profession that if an auditor vacates his office—provided he is not incapacitated through death or illness—in the middle of the year or at the annual general meeting, he should be compelled to issue a statement to the shareholders and to the creditors. Already, under the clause as drafted, the auditor must do this if he discovers financial malpractice and other errors during the course of his audit. He may call a meeting of the company in the middle of the year, and explain his actions and state why he wishes to resign, and he may do this in writing.
§ All I am seeking by this Amendment is to ensure that when an auditor resigns at the end of the year he must do the same as he would do in the middle of the year. We understand that as drafted the clause permits an auditor to resign without giving a written statement to the shareholders. The noble Lord will be aware that professional etiquette is such that a retiring auditor must, and in every case does, write to the succeeding auditor explaining whether there are any circumstances why the new auditor should not take on the new audit. All that we are seeking to do is to ensure that this aspect of the auditor's etiquette is put into the Bill. My Lords, I beg to move.
§ 7.21 p.m.
§ Lord WINTERBOTTOM
My Lords, the noble Lord, Lord Lyell, and I have tried to get to the bottom of this matter on two separate occasions—on Second Reading and in Committee. As drafted, the Amendments will not affect the substance of Clause 15. There is no way 1976 other than that provided in this clause whereby an auditor may resign his office. The clause thus already has the effect that a auditor can resign if, but only if, he deposits a notice of resignation containing a statement as to whether or not there are any circumstances connected with his resignation which he considers should be brought to the attention of members or creditors. We are talking now about resignation. The proposed Amendments would merely alter the drafting of subsection (1) and might cast doubt on whether or not a notice of resignation which did not include the statement required by subsection (2) was effective.
The Amendment would not affect the position of a retiring auditor who does not offer himself for reappointment. Such an auditor is not seeking to resign his office. This is the point where the chink of light broke in and then was again extinguished; his appointment is already at an end. He has got to be reappointed for the coming year. Clause 15 does not, therefore, apply to him and would not do so even if this Amendment were accepted.
However, the Government, nevertheless, recognise that there is some concern about the fact that an auditor who does not seek reappointment will not be required to make any statement. The noble Lord has put up a marker and this is being considered. Such an auditor will have already completed his audit of any accounts laid before the annual general meeting and this is an important safeguard. However, the Government will be discussing (this is more positive than my earlier statement about the Government offering to discuss) with the accountancy bodies whether any further safeguards are necessary. With this undertaking and the statement that the Government will be discussing with the accountancy bodies the important and rather difficult point raised by the noble Lord in the two previous stages of the Bill, I hope that the noble Lord will agree to withdraw his Amendment.
§ Lord LYELL
My Lords, I can say that possibly I am a little more satisfied than I was at the Committee stage. At the same time, perhaps the noble Lord will permit me to say that I am not totally satisfied. Indeed, it was the accountancy profession which raised this point with me and asked me to raise it 1977 with the noble Lord and the Government both at this stage and during the preceding stages. The accountancy profession were not of the opinion, as is the noble Lord, that as drafted the clause states that the auditor may resign "if, and only if". The purpose of my Amendment is to ensure that the clause conveys what the noble Lord says it conveys already. If the noble Lord is prepared to give that guarantee, I am prepared to accept it at this stage, particularly in view of his kind words at the end of his statement, that the Government will continue to discuss this matter with the accountancy profession.
The only purpose of this Amendment is to ensure that any auditor vacating his office at any time—either resigning or not being reappointed—should give a clean bill of health regarding the company's financial state of affairs. As the accountancy profession viewed this clause, there was a danger that in qualifying the accounts a weak auditor need not state the grounds for his dissatisfaction, whereas in a statement he might well need and be compelled to be more explicit on the grounds for his fears regarding the company's financial sickness. That said, I beg leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Lord MONSON moved Amendment No. 20:
§ 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 be 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 addresses 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 fine not exceeding £50.
(2) The above subsection shall not apply to any company whose issued share capital is less than £100,000.
(3) This section shall come into force on 1st January 1978.
§ The noble Lord said: My Lords, I beg to move Amendment No. 20. This is virtually identical to the Amendment that I moved in Committee but with two alterations. First, I have provided that reply-paid proxy cards should be sent to United Kingdom addresses rather than 1978 to United Kingdom residents. The word "resident" is fraught with fiscal implications relating to domicile. Many possible pitfalls can be avoided by substituting the word "addresses", particularly as a company's sole legal obligation is to send documents to a shareholder's registered address, without having to worry about his or her precise residential status.
§ The second alteration has been to change the words "fifty pounds" into numerical form so as to bring the Amendment into line with the rest of this Bill where all fines are expressed in numerical form, in contrast to the 1948 Act from which much of the wording of this Amendment has been derived. Contrary to what I implied in Committee, I have not, after all, sought to include in these provisions the Isle of Man or the Channel Islands, because since then I have ascertained that United Kingdom business reply facilities do not extend to these territories.
I do not intend to repeat all the arguments that I advanced on Second Reading and in Committee, but I should like to take up the noble Lord, Lord Winter-bottom, on one point that he made in Committee. In column 1502 he said:
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.
§ So far as matters of personal freedom are concerned, I agree entirely with the noble Lord; but this is not a matter of personal freedom. My Amendment would simply limit slightly the freedom of companies so far as their relations with shareholders are concerned. It is a question of consumer protection, which I should have thought was a cause dear to the hearts of members of all Parties in this House. Let us not forget that Section 136 of the 1948 Act already gives to shareholders a measure of protection. This is simply an extension of that protection. It ought to be remembered that, while a retired person, or, in certain cases, a self-employed person, can attend company meetings in person, provided that they do not live too far away and also provided that they can afford the fare, which cannot always be taken for granted nowadays, the only opportunity that a man or woman who is in full time employment has to exert any influence upon the conduct of the company of 1979 which he or she is part owner is by means of the proxy card. We should also remember that collectively small shareholders have lost millions of pounds in recent years as a result of various company failures. In contrast, institutional shareholders tend to have their ears rather closer to the ground and frequently, if not invariably, can get out in time.
§ Finally, there is nothing in the slightest novel or revolutionary in the proposal that proxy cards should be reply-paid. As I pointed out at earlier stages of the Bill, the overwhelming majority of companies already send reply-paid cards. The purpose of this Amendment is simply to nudge the minority into adopting the excellent practices of the majority. I beg to move.
Lord WINTER BOTTOM
My Lords, I am certain that the House is grateful to the noble Lord, Lord Monson, for the thoroughness and persistence with which he has pursued his point. As I said to him—I think it was late in the evening during the Committee stage—I am always prepared to listen to arguments and at the time I was impressed by his argument. But having given this matter further thought since the Committee stage, the Government find that they must abide by their original view; namely, that this is not something that should be required by the law. The law provides the basic right of a member of a company with a share capital to appoint a proxy. The mechanics of the appointment are something which should be left to the company, not laid down in legislation. The noble Lord, Lord Monson, referred in Committee to the Stock Exchange listing requirements: he quoted two leading companies whom he had consulted as saying that the listing requirements would be a more appropriate vehicle than legislation. The Government are inclined to agree with that.
The noble Lord's Amendment would restrict the scope of this requirement to companies with an issued share capital of more than £100,000. I undertook in Committee to consider whether, despite my objection to the general principle, there was any special category of companies to which the requirement could reasonably be applied. Our conclusion was that it was not an appropriate matter 1980 for the law, even in relation to the largest companies. The use of reply-paid proxy forms is costly. We estimate that for the largest companies the cost of postage involved in providing reply-paid forms which were returned by, say, half the shareholders would be over £10,000 per meeting. We believe it should be left to the company to decide—in accordance with the wishes of shareholders—whether resources should be used for this purpose. I think the point made by the noble Lord is important, but we believe that the arguments against it are stronger.
§ Lord MONSON
My Lords, I am disappointed in the reply given by the noble Lord, Lord Winterbottom. I do not doubt for one moment that his figure is correct on the assumption that 50 per cent. of shareholders reply, but I believe that would occur only if the company were to have produced poor results, or something was going on which ought not to have been going on. As I pointed out during the Committee stage, in the normal way—if the company's results are good—not more than 10 per cent. bother to reply, and I think that suits everybody. However, I have received no support from any other part of the House, so all I can do is to beg leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Lord STRABOLGI
My Lords, I beg to move that the House do now adjourn during pleasure until 8 o'clock.
§ Moved accordingly and, on Question, Motion agreed to.
§ [The Sitting was suspended from 7.34 p.m. until 8 p.m.]