§ [No.41]
§ Insert the following new clause:
§ Duty to notify company of acquisition etc. of voting shares.
§ —(1) In section 33 of the Act of 1967 (duty to notify company within fourteen days of acquisition etc. of shares amounting to one tenth or more of relevant share capital) for the words "one tenth" and "fourteen days" wherever they occur, there shall be respectively substituted the words "the prescribed percentage" and "five days".
§ (2) In the said section 33 as amended by subsection (1) above "the prescribed percentage" means 5 per cent. or such other percentage as may from time to time be prescribed for the purposes of that section by regulations made by the Secretary of State by statutory instrument, and different percentages may be so prescribed in relation to companies of different classes or descriptions.
§ (3) No regulations shall be made under subsection (2) above 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.
§ (4) In the case of a company which at the time when this section comes into operation, is one to which the said section 33 applies, every person who at that time is interested in shares comprised in relevant share capital of the company of a nominal value equal to 5 per cent. or more but less than 10 per cent. of the nominal value of that share capital shall be under an obligation to notify the company of the subsistence of his interests at that time and the number of shares comprised in that share capital (specifying it) in which each interest subsists at that time.
§ (5) Subsections (4) to (10) of the said section 33 (which relate to the enforcement and interpretation of that section) shall have effect in relation to subsection (4) above as they have effect in relation to subsection (2) of that 832 section but as if in subsections (5) and (9) for references to five days there were substituted references to fourtedn days and as if in subsection (5) for references to the prescribed percentage there were substituted references to 5 per cent.
§ (6) If regulations under subsection (2) above come into operation whereby the prescribed percentage for the purposes of the said section 33 is reduced, subsections (4) and (5) above shall apply in the case of a company in relation to which the regulations have effect as in the case there mentioned but with the substitution—
- (a) for references to the time when this section comes into operation of references to the time when the regulations come into operation; and
- (b) for references to 5 per cent. and 10 per cent. of references to the reduced percentage and the percentage prior to the reduction.
§ (7) Neither this section nor any regulations made under subsection (2) above shall be construed as requiring the notification by any person of the occurrence of an event before the time when this section or the regulations come into operation; and subsection (1) above does not affect the time for fulfilling any obligation which arose before the time when this section comes into operation.
§ (8) A person who would, apart from this subsection, be under an obligation, by virtue of subsection (1)(b) of the said section 33, to notify a company of the occurrence of an event shall not be under that obligation if—
- (a)the nominal value of shares comprised in relevant share capital of the company in which he was interested immediately before the event, and
- (b)the nominal value of shares so comprised in which he is interested immediately after the event, produce, when each of them is expressed as a percentage of the nominal value of that share capital and (as so expressed) is rounded down, if not a whole number, to the nearest such number, the same result.
§
(9) In subsection (4) of the said section 33, after paragraph (a)there shall be inserted the following paragraph—
(aa)an interest as holder of shares of a member of The Stock Exchange who—
§ (10) For the avoidance of doubt it is hereby declared that where the relevant share capital of a company to which the said section 33 applies is divided into different classes of shares, references in that section and this section to a percentage of the nominal value of its relevant share capital are references to a percentage of the nominal value of the issued shares comprised in each of those classes taken separately.
§ 11 p.m.
§ Lord WINTERBOTTOMMy Lords, beg to move that this House doth agree 833 with the Commons in their Amendment No. 41. This was another of the new clauses which was added to the Bill in Committee in the House of Commons in response to pressure for measures to deal with warehousing. This clause tightens up the requirements relating to the notification of major beneficial interests in voting shares in listed companies. It is very similar to the corresponding clause in the 1973 Bill but incorporates a number of Amendments designed to meet particular technical problems.
This clause tightens up the requirements of the 1967 Act regarding the disclosure of beneficial interests in the voting shares of listed companies. At present, disclosure has to be made only when a person acquires 10 per cent. or more of such shares. The clause lowers this percentage from 10 per cent. to 5 per cent. and gives the Secretary of State power to alter the percentage by Statutory Instrument subject to Affirmative Resolution. It also requires disclosure to be made within five days instead of 14 days.
The new clause will thus make it much more difficult to abuse the nominee system. The use of nominees can be entirely valid and has many conveniences in practice, especially for banks and other institutional investors who handle investments on behalf of large numbers of beneficiaries. Nevertheless, there have been abuses of the nominee system, including in particular the practice of warehousing. This is the practice whereby a person seeking to obtain control of a company surreptitiously builds up a stake in the company by acting in concert with a group of people each of whom acquires a holding in the company of less than 10 per cent. and is not therefore required to disclose the interest to the company but who will, when the time comes, make their holding available to the potential bidder, thus making it virtually certain that the bid will be successful, irrespective of the interests of the employees and other shareholders. This clause and the following new clause which supplements it will make this practice much more difficult. This clause will mean that a bigger "concert party" will have to be organised in order to build up the same stake in the company and this will not only make it more difficult to organise but will greatly 834 increase the chances of the attempt being discovered. The shortening of the period allowed for notification is also an important strengthening of the law.
The clause makes one other important change in the notification requirements. At present, once the initial threshold has been passed, every purchase or sale, however small, has to be notified. With the lowering of the threshold from 10 per cent. to 5 per cent., this would impose a considerable burden on investors, especially institutional investors, and would tend to flood companies with notifications most of which had little or no significance. The clause was therefore amended in the House of Commons so as to restrict the notification requirement to changes which result in a person's holding reaching or passing a new percentage point; that is, change from 5.5 per cent. to 5.6 per cent. would not have to be notified, but one from 55 per cent. to 6.1 per cent. would. This provision will greatly reduce the number of notifications which have to be made and will thus make it easier to detect significant changes. These are somewhat complex matters, but I know they are important and I commend them to your Lordships' House.
§ Moved, That this House doth agree with the Commons in the said Amendment. —(Lord Winterbottom.)
§ Lord LYELLMy Lords, as the noble Lord has already stated, this is a complex matter, and it is a particularly complex Amendment. He has explained it clearly and also explained the particular provisions of subsection (8)(b); the rounding up of numbers from 5.5 per cent. to 6.1 per cent. We regard this as a valuable concession, in that it will eliminate much needless and detailed work, but nevertheless will provide adequate safeguards for companies so that each company will know, or at least have a reasonable chance of knowing, who has the beneficial interest in its shares. We regard this Amendment and the new clause as one of the more important additions to the Bill, and we are grateful both to the Government for introducing it and also to the noble Lord for explaining it so clearly.