Lords Sitting of 2 July 1979

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR Oil the Woolsack.
Prayers—Read by the Lord Bishop of Oxford.
Several Lords—Took the Oath.

HOMEWORKERS: PAY AND CONDITIONS
Baroness VICKERS: My Lords, I beg leave to ask the first Question which stands in my name on the Order Paper. May I say how pleased we are to see Sir Peter back again.
The Question was as follows:
To ask Her Majesty's Government what action they will take to ascertain whether homeworkers are being adequately paid or exploited.
The MINISTER of STATE, DEPARTMENT of EMPLOYMENT (The Earl of Gowrie): My Lords, while fully endorsing what the noble Baroness has just said, may I answer her Question as follows: The wages inspectorate of
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my Department will continue to examine the earnings of homeworkers in those industries where statutory minimum rates are laid down by wages councils, and the Government are considering what further research is needed into homeworking generally.
Baroness VICKERS: My Lords, I thank my noble friend for that reply. Can I anticipate that he may introduce a Bill in the not too distant future? I am sure he realises that these women—and they are mostly women—who do this work at home are not only helping production but are also safeguarding and supporting their families.
The Earl of GOWRIE: My Lords, the Government are well aware of that.
Lord BROCKWAY: My Lords, to what extent do the wages councils, which my noble friend Lord Shinwell and I helped Mary McArthur establish 60 years ago, cover all the homeworkers today who are now spread over a much larger area than they were when the wages councils were established?
The Earl of GOWRIE: My Lords, we would all wish to pay tribute to the work of the noble Lord in helping to set up the wages councils. My information about their current levels of activity—if that is what he wants to know—is that home-

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working inspectors recently visited every known establishment employing homeworkers in seven wages councils' trades in Lambeth, Southwark and Wandsworth in South London and in Walsall in the Midlands. The results to hand show that of the 486 homeworkers whose earnings were checked, none was statutorily underpaid. Although we are somewhat sceptical whether there is widespread abuse, we are glad to have the machinery to investigate where there is abuse.
Lord BROCKWAY: My Lords, I thank the Minister for that reply.

ALCOHOLIC DRINK AS PRIZES
2.39 p.m.
Baroness VICKERS: My Lords, I beg leave to ask the second Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what is the legal position of those holding fetes and other functions for voluntary organisations and offering bottles of alcohol for raffles, as prizes or on bottle stalls, in regard to Section 160 of the Licensing Act 1964, which appears to prohibit the offering of alcohol as a prize unless the stallholder has a licence.
The PARLIAMENTARY UNDER-SECRETARY of STATE, HOME OFFICE (Lord Belstead): My Lords, I cannot offer an authoritative statement on the legal position. This is a matter which only the courts can decide.
Baroness VICKERS: My Lords, does the Minister agree that it may be possible to table an amendment to the Act in order to clarify the situation? As he knows, the fete season of garden parties and so on is now in full swing. Can my noble friend assure the organisers of such fetes that there will be no risk of anyone who has a bottle stall or a raffle being arrested?
Lord BELSTEAD: My Lords, I should like to give the assurance for which my noble friend asks, but that is a matter for the police. We will, of course, look at the legislative timetable as regards her point about legislation.
Lord MURRAY of GRAVESEND: My Lords, will not the Minister agree that if a charitable organisation or, indeed, a political organisation holds such a fete, it is rather unfortunate that someone can telephone the police on the day, telling them that such a raffle or tombola stall is likely to be there, and that then the police can immediately move in to stop it? It seems unfortunate that people are not forewarned on these occasions about breaking the law.
Lord BELSTEAD: My Lords, it depends on one's view about the sale of alcohol.
Lord TAYLOR of MANSFIELD: My Lords, what is the situation as regards the offering of tobacco and cigarettes as prizes at these fetes and galas? Shopkeepers require a licence for the sale of those goods. Would the same apply?
Lord BELSTEAD: My Lords, not as far as I know.

THE PAROLE SYSTEM
2.41 p.m.
Lord AVEBURY: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will publish a paper on the parole system, including a discussion of the work done by the Parole Board (referred to in the introduction to their 1978 report) on the feasibility of indicating, in general terms, the reasons why parole is refused in individual cases.
Lord BELSTEAD: My Lords, the Government intend to publish an assessment of the working of the parole scheme after the first 10 years. The paper will include discussion of the feasibility of giving reasons for the refusal of parole. The Government feel it right, however, to say that, on the available evidence, the giving of reasons would be incompatible with the present parole scheme and would make unacceptable demands on resources.
Lord AVEBURY: My Lords, is the Minister aware that that statement will

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cause widespread disappointment, but that, according to its annual report, the Parole Board has sent the Secretary of State a full account of its thoughts on the difficulty of explaining to prisoners why they are refused parole? Will the Minister confirm that that full account will form part of the paper which he has just mentioned? Furthermore, if that account is not published, will it not excite suspicion in the minds of the public—it is, of course, already widespread among prisoners—that the system is arbitrary and capricious? Also, is he aware of the evidence that exists to show that prisoners who are liable for deportation on completion of their sentences are, notwithstanding the assurance he gave me in his Written Answer of 14th June, treated less favourably than those who are patrial? What steps will he take to reassure prisoners who are in this position that there is no discrimination against them, and will he welcome an investigation by the Commission for Racial Equality into this matter?
Lord BELSTEAD: My Lords, the parole system is not arbitrary or capricious. It is run by volunteers and it works very well indeed, as the last report of the Parole Board confirms. I am happy to be able to tell the noble Lord that it is the intention of the Government to put together the findings of the Parole Board—which the noble Lord asked me about—the findings of the local review committees, which were undertaken and ended in December 1978, and also the findings of the review which has been going on within the Home Office about the general working of the parole scheme, and, in answer to the noble Lord's question, to put all that together in a Government paper. That is the assurance that the noble Lord asked me to give him. So far as deportees are concerned, I have previously replied to the noble Lord on that particular subject.
Lord BOSTON of FAVERSHAM: My Lords, while I accept that, as we found in a recent debate in your Lordships' House, there are real difficulties about giving reasons, and, while I should also like to welcome what the Minister has said about publishing an assessment, can the noble Lord go any further this afternoon and say whether or not that assessment will
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include details of the recent series of experiments which have been carried out?
Lord BELSTEAD: My Lords, I am sorry to seem evasive on that, but at the moment we are still formulating our ideas as to the form the assessment will take. I do not think that I can go any further than that this afternoon.
Lord CAMPBELL of CROY: My Lords, before the Government publish their proposed paper, will they be addressing themselves to the policies of both the Parole Boards, as they may be operating on different lines? This question refers to "the Parole Board", and it is not clear whether the policies of the Board north of the Border and the Board south of the Border are to be considered.
Lord BELSTEAD: My Lords, I shall certainly take into account the remarks of my noble friend.
Lord HUNT: My Lords, will the Minister accept that, I, too, welcome the statement of the Minister that the Government intend to publish the findings of the internal review which has been going on for a long time?—I think for rather more than 12 months. Therefore, I share the concern of the noble Lord, Lord Avebury, to see its appearance. Would not the noble Lord agree, however, that in general the workings of the parole system, which I suggest has amply justified its existence in the last 12 years, would be greatly improved in the public eye by a policy of more openness? Finally, can the Minister give an assurance, even at this early stage, that the system, despite its shortcomings, will not be made more burdensome, costly, and time-consuming by substituting a policy of a prisoners' right for the present principle of the Home Secretary's discretion?
Lord BELSTEAD: My Lords, the expense of the scheme is very much in our minds. This of course is one of the things which I would ask noble Lords, and other people who will read the paper when it is published, to take into account. May I just add that I think it is natural that there should be a wish for reasons to be given for decisions which affect a prisoner's liberty, but the difficulties of actually doing this are formidable. What I am asking is that your Lordships would wait to make

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up your own minds on this issue when the Government paper, which I have promised, is published. The noble Lord quite rightly said that an internal review within the Home Office seemed to have been going on for some time. One of the things we had to wait for was the ending of the local review committee experiment, and that ended only seven months ago.
Lord AVEBURY: My Lords, while I am grateful to the noble Lord for his undertaking that all these discussions will be published, may I ask him whether there will be statistical material in the Government document which will enable us to form some opinion as to whether or not prisoners who are liable to deportation at the conclusion of their sentences are treated less favourably than others? Will he answer my question about whether the Government would welcome an investigation by the Commission for Racial Equality into this matter? Can the Minister say whether he would allow Members of Parliament or Members of your Lordships' House to sit in on the process of review, so that, while respecting the principle of confidentiality, they could assure themselves that the process was as they would hope?
Lord BELSTEAD: My Lords, I really do not think that I can go further than I have this afternoon. I have, in essence, answered the Question which the noble Lord put to me, which was, will there be a Government paper? My answer is, yes. With that, I hope your Lordships will be content.

NURSES: MILEAGE ALLOWANCES
2.48 p.m.
Baroness WARD of NORTH TYNESIDE: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government when community nurses are to receive adequate mileage rates for running their own cars in the interests of the service and what reply has been sent by the Department of Health and
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Social Security to the letter from the Royal College of Nursing drawing attention to the injustice of the present situation.
Lord SANDYS: My Lords, mileage allowances were substantially increased in line with motoring costs on 1st April this year and the General Whitley Council for the health services has agreed a further increase in allowances from 1st June which takes into account recent petrol price movements and VAT changes announced in the Budget. A reply was sent on 19th June to a Royal College of Nursing letter on the subject dated 30th May. A reply to the College's further letter of 19th June will be sent as soon as possible.
Baroness WARD of NORTH TYNESIDE: My Lords, while thanking the noble Lord for that Answer, may I ask him just two brief supplementary questions. When will publication of the new rates take place? How do nurses compare with other employees of other local authorities? I should be delighted if he could give me proper answers to those questions.
Lord SANDYS: My Lords, I shall endeavour to satisfy the noble Baroness with proper answers. The publication will take place tomorrow, and a copy of the new schedule will be placed in your Lordships' Library, as indeed it will also appear in the Official Report. In regard to the comparison between local authority employees and the community nurses, the situation is this: the lump sums paid—and I am referring here to the present system—are currently exactly the same as paid to local authorities. NHS mileage rates are very slightly less for mileage below 9,000 miles and slightly higher for the higher mileages.
Viscount MOUNTGARRET: My Lords, is my noble friend aware that petrol prices are supposed to be going up again this week, I think, and that therefore any allowances so raised as a result of the Budget might be slightly out of date, even by the end of this week?
Lord SANDYS: My Lords, the new schedule which is to be published tomorrow gives the assumed petrol price at £1·10 per gallon. In the unhappy event that

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petrol prices increase further, that will have to be taken into account at the next review.
Following is the schedule referred to:

NHS MILEAGE RATES EFFECTIVE FROM 1st JUNE 1979
STANDARD RATES
(Payable to employees who need to make only occasional journeys by car).

501–1000cc

1001–1750cc

Over 1750cc

per mile

13·8p

16·0p

18·1p

REGULAR USER RATES
(Payable to employees who need to use their cars regularly during the year).

501–1000cc

1001–1500cc

Over 1500cc

Lump sums per annum

£198

£234

£279

Per mile in addition (first 9,000 miles)

9·4p

10·2p

11·9p

Per mile thereafter

6·0p

6·5p

9·2p

PUBLIC TRANSPORT RATE
(Payable to employees who could reasonably use public transport but prefer to use their own car).

Per mile

7·0p

GOVERNMENT STATEMENTS
Lord DENHAM: My Lords, with the leave of the House, at a convenient moment after 3.30 p.m. my noble friend Lord Lyell will repeat a Statement being made in another place on the postal situation.
In addition, a Statement was made in another place on Friday last about business to be taken in the EEC Council of Ministers during July; I shall as usual, with the leave of the House, arrange for this to be made available in the Official Report.
It may also be for the convenience of your Lordships to know that dinner will be available this evening.
Following is the Statement on July business of the EEC Council of Ministers:
"With your permission, Mr. Speaker, I will make a Statement about the main business to be taken by Ministers in the European Community during July. The more detailed written forecast was deposited on 27th June. At present four meetings of the Council of Ministers are proposed for July.
"The Finance Council will meet on the 16th and is expected to discuss the general economic prospects of the Community with particular reference to the effect of oil price rises and more specific discussion of items remitted from last week's European Council.
"The Budget Council will meet on the 23rd and will establish the Draft General Community Budget for 1980.
"The Foreign Affairs Council will meet on the 24th. Ministers will again discuss the Commission's proposals for regulation of State aids to the steel industry. They will also discuss the outstanding points on the GATT Multilateral Trade Negotiations and the negotiations with China for an agreement on trade in textiles.
"The Agriculture Council will meet on the 23rd and 24th. It will resume discussion of the organisation of the market in potatoes and is also expected to consider agricultural structural problems in the Community."

BRITISH RAILWAYS (SELBY) BILL
Read 3a, with the amendments, and passed, and returned to the Commons.

CHARGING ORDERS BILL [H.L.]
2.52 p.m.
The LORD CHANCELLOR (Lord Hailsham of Saint Marylebone): My Lords, I beg to move that this Bill be now read a second time. It is another law reform Bill, this time based on a report of the Law Commission, the Limitation Bill having been based on a report of the Law Reform Committee. Like the Limitation Bill, it owes its origin to a reference by myself, though this time under the inspiration of a memorandum by the Bar Council and the Law Society. Like that Bill, the seed thus sown germinated and in the course of years fructified into a report to my noble and learned successor and present predecessor. This Bill is the fruit, carefully nurtured by the noble and learned Lord, Lord Elwyn-Jones, and, I hope, introduced with equal impartiality by myself. The subject-matter is, I am sorry to say, both technical and difficult, but I hope to keep my speech short. It concerns the means by which judgments for the payment of money may be enforced. The Law Commission's Report—for those interested, No. 74—is short, clear and cogent and the Bill differs only slightly from the draft Bill annexed to the report. Changes have been made in three respects: first, the short title is now even shorter; secondly, the distribution of jurisdiction, by Clause 1(2), between the High Court and the county court; and thirdly, the provisions in Clause 3 regarding charging orders in respect of registered

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land are slightly different. The changes that have been made are concurred in by the Law Commission.
I should begin at the beginning, and to do so I must tell your Lordships shortly what a charging order is and how it works. It is an order, obtainable sometimes in the High Court, sometimes in the county court, whereby the property of a judgment debtor is charged in the creditor's favour with the payment of his debt. It is, in short, a method of execution, a means of enforcing payment, and is available only where the debt is established by a judgment or the award of an arbitrator. Where the order is made, it puts the creditor in substantially the same position as if the debtor had himself voluntarily executed an equitable charge over the property in question. In effect, it gives the judgment creditor security which may be enforced if the judgment debtor defaults.
The history of the matter is this. Before 1838, judgments were enforced by two main methods. The first was used in the case of the great Pickwick of immortal memory, by seizure of the debtor's person and his detention in the Fleet Prison until the debt was paid. The second was by seizure and sale of his goods. So far as his land was concerned, the creditor might take possession of it on what, for some reason, was called the writ of elegit, but that did not allow the creditor to sell the land; he merely took possession and remained in possession until the money was produced.
In 1838, by the Judgments Act of that year, the creditor was given a new remedy. He was given the chance of taking a charging order over the debtor's land and certain of his securities. Between 1838 and 1956, developments were relatively unimportant. But charging orders on land, and interests in land, were put on a new footing by Section 35 of the Administration of Justice Act 1956, which is where the existing law is to be found. The Law Commission pointed in their report to a number of defects in Section 35 and this Bill's main purpose is to cure them. The other area of concern is the law relating to charging orders on securities. These, for reasons that I need not go into, are contained in Rules of Court. Here too the Law Commission have suggested improvements which the Bill is designed to effect.
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Clause 1 provides that, subject to certain exceptions, a charging order may be granted by the High Court in respect of a judgment debt of over £2,000. In other cases, the order is made by the county court. The shift from the High Court to the county court in all but the larger cases is intended to make it easier for the judgment debtor to attend the hearing, to enable the court to determine whether it would be oppressive—from the debtor's point of view, that is—or unfair to the other unsecured creditors to make the order in favour of the applicant.
Clause 2 sets out the different types of property which may be charged. It is wider than the existing law in that it covers not only land and interests in land but also interests under trusts. In particular it makes it possible to deal with the case where land is vested in the debtor and his wife on a statutory trust for sale. By Clause 2(2) a charging order may be made against the debtor's beneficial interest. In addition, in certain circumstances the order may be made against the legal estate in land held on trust for the debtor by someone else. As for securities, Clause 2(2)(b) includes a few additions to the list of chargeable securities, notably local government stock, stock of bodies incorporated outside England and Wales and unit trusts. Clause 3 provides for the variation or discharge of charging orders and for the registration and cancellation of entries made under the Land Charges Act 1972 and the Land Registration Act 1925. Subsections (7) and (8) of Clause 3 give the Lord Chancellor by Statutory Instrument power to change the categories of chargeable assets listed in Clause 2 if the list now proposed gets out of date.
Clause 4 deals with a fascinating but highly technical point in the law of insolvency which came before the Court of Appeal in 1963. In a case called In re Overseas Aviation Engineering (G.B.) Ltd., reported in 1963, Chancery, page 24, it was held by a majority (my noble and learned friend Lord Russell of Killowen, then Lord Justice Russell, dissenting) that in order to retain his security in the event of the debtor's bankruptcy, the creditor could not rely on a charging order alone; he had in addition to apply for a receiver. This has been criticised as creating a trap for the unwary creditor and involving the wary creditor (and, for that matter, the

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debtor, too) in unnecessary inconvenience and expense. Clause 4 provides that the extra step is no longer required.
Clause 5 empowers the two rule committees (respectively of the Supreme Court and of the county courts) to make such procedural changes as they may judge to be expedient to give effect to the previous clauses, and to make the process of enforcement by charging order quicker and cheaper. Clauses 6, 7 and 8, where they do not restate the existing law, are in other respects self-explanatory.
Moved, That the Bill be now read 2a.—(The Lord Chancellor.)
3.1 p.m.
Lord ELWYN-JONES: My Lords, I am sure that the whole House will be grateful to the noble and learned Lord the Lord Chancellor for his lucid explanation of this highly technical matter, and I am sure that we are all the better for having heard it. It has the quality of being non-controversial perhaps in part because it is so highly technical. As the noble and learned Lord said, the Bill is based on a report from the Law Commission, which in turn acted upon a recommendation that was made jointly by the Law Reform Committees of the Bar Council and the Law Society, which in 1971 made representations to the Lord Chancellor for the reform of aspects of the law relating to charging orders. Therefore, the House will see that the legal profession is interested in law reform. In the bad old days it used to be said that it was no more likely to see lawyers urging law reform than tigers urging reform of the jungle. That has been a wholly unwarranted observation, at least in recent times, as the activities of the Law Reform Committees of the profession are showing.
I should like to take this opportunity to pay a tribute to the continuing work of the Law Commission. Since its inception in 1965 it has contributed immensely to the process of law reform, and I believe that we owe much to the energetic, able, and wise judges who have chaired the Law Commission since 1965: the noble and learned Lord, Lord Scarman; then Mr. Justice Cooke, whose early death was a grievous loss; and now Mr. Justice Kerr.
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Law reform is, I believe, primarily the responsibility of Parliament. I hope that that observation will not unduly distress the noble and learned Lord, Lord Denning. The existence of the Law Commission has supplied the process of law reform with both expertise and momentum, and I consider that Parliament can at least take some satisfaction from the fact that we have not simply docketed these reports and forgotten about them. Broadly speaking, the successive Parliaments since 1965 have a good record of giving effect to the Law Commission's proposals, and I am glad to see that that is being done by the present Administration.
Noble Lords will note that in bringing forward its recommendations the Law Commission has continued its usually used procedure of first publishing a working paper on the subject under consideration. That in turn evokes—and in this case did evoke—responses from a number of interested organisations and individuals, and I think that this process of consultation by the Law Commission with those who might be affected by the change is of very great importance indeed. The noble and learned Lord the Lord Chancellor has described the Bill and I will not myself venture to enter into its esoteric mysteries. Sufficient it is for me to express the view that it is a worthwhile piece of law reform which will be welcomed by the legal profession.
On the important matter of enabling a creditor with a charging order to rank automatically as a secured creditor, which would give him preference over other creditors, the House will note that the court has a full discretion as to whether or not to accede to an application for the charging order, and in exercising that discretion the court should take into account any evidence before it not only about the personal circumstances of the debtor but also about any other creditor of his who might be unfairly prejudiced if the charging order was granted. So a good precautionary requirement is included to prevent injustice. My Lords, I am happy to support the Bill.
3.7 p.m.
Lord HALE: My Lords, once again the printed list of speakers, which is an extraordinarily short one, has not been

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adhered to, and I am in a little difficulty in taking up the points that I had in mind. The list as printed bears only my name apart from that of the noble and learned Lord the Lord Chancellor, which appears twice. The noble and learned Lord on the Woolsack will recall that I raised the matter of bankruptcy reform in an Unstarred Question tabled by me in early February of 1974. I think that the list of speakers then was just about the same as it is today, and the noble and learned Lord dealt with me with his usual magnanimity and generosity. I was then particularly concerned to refer to the Committee on Judgment Debts of which I had been a member, and which sat under the benign and brilliant chairmanship of Mr. Justice Payne from 1965, when I was a Member of Parliament, to 1969, after I had resigned; it was a very brilliant committee. The noble and learned Lord on the Woolsack was good enough to assure me that many of the reforms recommended, which of course included references to charging orders, had been dealt with, and indeed I have since been told about many of the recommendations of the committee, which ran to about 1,400 paragraphs and involved a number of dissentient or other reports, including one from me.
I do not want to waste the time of the House, and I should be doing that if I were now to pursue this matter. Due to the difficulty regarding Order Papers and other papers, and the problem of knowing what was happening, as well as being absent ill on Thursday, I had some difficulty in my mind and I was concerned about some of the problems which would arise on the new proposals regarding charging orders on homes. Since then, I have consulted the Law Society's memorandum, and I pay increasing deference and respect to what the society says now that I have ceased to be a member. The society confirms that it was a joint reference from it and the Bar Council to the noble and learned Lord on the Woolsack which was followed by the reference to the Law Commission.
I have read the report of the Law Commission—indeed, I have read it more than once, because I had read it previously—which is a quite remarkable, gifted and diligent report. I agree with every word
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that my noble and learned friend on the Front Bench has said about it. Indeed, it is from my noble and learned friend that I have from time to time received assurances about what is happening. I am not sure whether, in his summary, the noble and learned Lord on the Woolsack mentioned, as I am told by the Law Society is the case, that provision is now being made for there to be an application by someone who has had a charging order made against him to remove it from real property if and when the debt has been discharged. The Law Society understand that that is the case. They tell me that their difficulties are met and that they are grateful for what has been done, even if it has taken time. I was left only with a little doubt about the application.
Finally, my Lords, may I say this—and I say it with great sincerity. One has apprehensions about provisions for charging orders on a man's home, which I am told now predominate and which predominated, as I understand it, in the time of the writ of elegit. I have in fact looked that up in the dictionary, and I find that it apparently originated from the wisest school in Christendom, in the early years of the 1600s. In any event, this useful but limited reform is clearly acceptable to everybody. I have had no intimation of any intention to file amendments, and I shall therefore not put down any amendment in Committee. I thank the noble and learned Lord for his very lucid and helpful explanation.
3.13 p.m.
The LORD CHANCELLOR: My Lords, I am very grateful to both noble Lords who have played their part in explaining this Bill to the House. I am particularly grateful to the noble and learned Lord, Lord Elwyn-Jones, for what he said about the Law Commission. I really think that it is a major instrument of law reform which has come into being in our time. It was, by some, given rather a grudging welcome when it arrived in 1965, but I am happy to think that I was not one of those who grudged it. Certainly in both my incarnations as Lord Chancellor I have used it habitually, as did the noble and learned Lord, Lord Elwyn-Jones, before me and between me. I am therefore grateful for what he said, and also for mentioning the names of the various chairmen of the Commission,

17
each of whom has played a notable part in the help they have given, both on this and on other matters.
I also quite agree with the noble Lord, Lord Hale, that the real watershed in judgment enforcement in recent years was the work of the Payne Committee. It would take me rather out of my way to expatiate on this matter, but I think he is entitled to regard himself and the other members of that committee as having made the major reform in this field. I think he will find the little doubt that he expressed (if I caught it rightly) answered in Clause 3(5) of the draft Bill; but if he finds that he is in any more trouble, I know my office would be happy to help him.
I must say this about the last two or three sentences of what the noble Lord said. Since the Payne Committee there has been, as the noble and learned Lord, Lord Elwyn-Jones, would know, not a flood but a trickle of letters, through various Members of the other place, from disappointed creditors who complain that they cannot enforce their judgment debts as well as before. I do not say that this will entirely reassure them, but we think of them as well as of the debtors, and we have demonstrated by our actions and by the continuing interest we have shown in this matter that we are interested in humanity to the debtor as well. So we try to do justice as far as it is practicable to do it in this rather thorny field of the law. At any rate, we have travelled a long way from Mr. Pickwick and the Fleet Prison.
On Question, Bill read 2a, and committed to a Committee of the Whole House.

COMPANIES BILL [H.L.]
3.16 p.m.
The MINISTER of STATE, DEPARTMENT of INDUSTRY (Viscount Trenchard): 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.—Viscount Trenchard.)
On Question, Motion agreed to.
House in Committee accordingly.
[The Lord GREENWOOD of ROSSENDALE in the Chair.]
Viscount TRENCHARD: It may be helpful if, before we begin considering the many amendments before us, I explain the attitude which the Government intend to take towards those amendments which seek to extend the scope of the Bill beyond that necessary to accommodate the EEC Second Directive in a sensible way into our existing body of law. I recognise that, as the noble and learned Lord, Lord Elwyn-Jones, pointed out during the Second Reading debate, the Long Title of the Bill is widely drawn and therefore might be thought to encourage wide-ranging amendments. I also recognise that some of the amendments which have been put down represent useful and, indeed, overdue measures of company law reform which are not controversial, either in substance or, indeed, in method. In that category I would put the improvement of the position of minority shareholders and the revision of penalties, neither of which subjects, incidentally, was discussed in Standing Committee in another place during consideration of the previous Administration's Bill. But the matters which were covered in Parts IV and V of the 1978 Bill, and which were debated at length in another place, require further study before the Government will be ready to bring forward their own proposals on these important matters.
The Government gave careful consideration to the scope and timing of this Bill before they introduced it, and concluded that it was better to introduce quickly a shortened Bill, confined to the EEC Second Directive and related provisions, rather than delay the Bill while we reconsidered our detailed approach to the duties and conduct of company directors and to insider dealing. When the noble and learned Lord, Lord Elwyn-Jones, said on 25th June that he doubted whether, without the compulsion of the EEC Second Directive, there would be a Companies Bill before us now, he was—
Lord ELWYN-JONES: I ventured to say that there would not be a Companies Bill before us now were it not for the Second Directive.
Viscount TRENCHARD: I stand corrected. He was, in the sense of timing, absolutely right. The whole raison d'être of this Bill at this time is to implement that Directive. But he and other noble Lords opposite surely recognise also that a similar timing requirement will operate in 1980, when the Fourth Directive must be implemented. There can, therefore, be no question of the indefinite postponement of a further Bill, as he might have been thought to have implied.
Noble Lords also have on record my statement on Second Reading that it was not the Government's intention to drop these important but complicated matters. We cannot, therefore, accept amendments which take the Bill into new areas or into those areas where, as I have just indicated, further study and consultation is necessary. As I have explained, the Government are not yet ready to bring forward legislation on insider dealings or the duties and conduct of directors. Is it inappropriate of me to hope, after what has already been said on Second Reading on these matters, that we may perhaps not spend too long on their consideration? After all, there will he another opportunity when the 1980 Bill is before us.
It may help the Committee to know that, since the Government recognise that there is genuine concern that desirable reforms which do not require further study and are already agreed in principle should not be needlessly postponed, I shall be recommending that the Committee accept those amendments from Part VI of the previous Administration's Bill which deal with the protection of minority shareholders, the power of a company to provide for employees on cessation or transfer of business and the revision of penalties. These amendments can, I believe, be agreed to quickly without delaying the Bill; but, for the reasons I have outlined earlier, I shall ask the Committee to reject other amendments which extend the scope of the Bill.
Lord ELWYN-JONES: My Lords, if it is proper for me to do so, I should like to make a few observations following the helpful statement, if he will permit me to say so, of the noble Viscount, Lord Trenchard. We are grateful to him for indicating how the Government propose
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to deal with this complex and, no doubt, difficult Companies Bill today. As your Lordships will have seen from the somewhat untidy condition of the Marshalled List—for which I apologise but for which I have no direct responsibility—the Opposition have brought forward a number of proposals by way of amendment which we think ought to be introduced into the Bill. We would have appreciated rather longer time in which to prepare for this, the Committee stage.
However, we appreciate, as the noble Viscount has said, that from the point of view of our EEC obligations the sooner we can properly implement the EEC Directive the better. I can assure the noble Viscount and the Committee that we on this side will not engage in mere obstruction and delay. However, we have put down a series of amendments which bring into the Bill what we deem to be the important and urgently-needed reforms to company law which were included in the Labour Government's 1978 Bill but are not included in the present Bill.
Inspectors' reports in recent cases have, we believe, given a new urgency to the need for reforms in company law and to the necessity to remedy defects in it which have enabled dishonest and unscrupulous men to "milk" their companies, to inflict severe losses on their companies, on the shareholders and on the public alike. We believe that the package of amendments which we have put down would, if carried and implemented, greatly reduce the recurrence of these evils.
Our wish is to enable this House, through its Committee at this stage, to fulfil what we regard as a vital function of this Chamber; namely, that of being a revising Chamber. We on this side of the Committee propose to take a constructive part in the consideration of this Bill. As I have said, we should have liked far more time to prepare for the Committee stage; but here we are and we must proceed to deal with these important matters. Naturally, we on this side of the Committee are glad to hear that there is already a somewhat limited response, useful as it is, from the Government side, to three of our proposals. We have about half a dozen equally as good and some better. It may be that at this stage, on whatever road it is, there will be a late

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conversion of noble Lords to what we have in mind. We must wait and see.
I must repeat what I said at Second Reading stage: that further delay in dealing with the scandalous wrong of insider dealings would be unacceptable to business interests, to the wellbeing of the City and to the wellbeing of the people of this country who are concerned that our companies should be operated honestly and effectively. I can visualise that we will indeed have to engage in very serious controversy on that matter, but I greatly hope that time can be saved by an early agreement by the Government to accept what emerged after a great deal of consultation with the interested parties after hours of discussion in another place. We hope, in respect of insider dealings as in respect to other matters which I do not think it right for me to embark upon now, that we shall see acceptance of the reasonableness of what we have proposed.
In conclusion, may I say this. I indicated on Second Reading that it appeared that in so far as the Bill carried forward—with only drafting amendments, as the noble Viscount, Lord Trenchard, assured us, and no changes of substance—that Part of the Labour Government Bill of 1978 we shall not be proposing amendments to the provisions in the Bill necessary to implement the EEC Directive. We shall not, therefore, be disposed to quarrel with the Government on what they acknowledge in effect to be, if not a carbon copy, a very close relation, indeed, of what we, ourselves, put down in the 1978 Bill.
3.29 p.m.
On Question, Whether Clause 1 shall stand part of the Bill?
Lord MOTTISTONE: This, I assure my noble friends on the Front Bench, is raised in clarification. It seems to me that, with the new definitions, it is not entirely clear from the Bill what is the position of wholly-owned subsidiaries of large companies and of companies limited by guarantee without share capital. It seemed to me on reading the Bill that these would be private companies, that they would retain the sub-title "Limited" as in the past; and, in fact, that in respect to their name there would be no change for them. I should be grateful if my noble friend could confirm this to me.
Lord LYELL: We are grateful for the brief way in which my noble friend Lord Mottistone has outlined his first amendment and has asked these two particular questions. As we understand the position, it is that each company will stand entirely on its own merits according to the legislation in the Bill and according to Clause 1 under the definition. As we understand it, it will be the case that wholly-owned overseas subsidiaries will not be public limited companies under the definition of the Bill unless these companies fall within the ambit of public limited companies as defined in other parts of the Bill. Regarding the second case mentioned by my noble friend, the Government's position is that companies which are limited by guarantee but without a share capital would not meet the criteria of public limited companies as set out in the Bill, and therefore these would not be public limited companies within the scope of the Bill. I hope that this will satisfy the noble Lord.
Lord MOTTISTONE: My noble friend mentioned overseas wholly-owned subsidiaries; I was inquiring about the wholly-owned subsidiaries of the United Kingdom public limited companies. What is their status?
Lord LYELL: I am sorry if I mentioned overseas subsidiaries, but the wholly-owned subsidiary of a United Kingdom public limited company, if that subsidiary fulfils the requirements in the Bill of a public limited company, could be a public limited company of its own accord. But if the subsidiary does not fulfil all the requirements, as set out in the Bill, then the subsidiary company will not be a public limited company.
Clause 1 agreed to.
Clauses 2 to 7 agreed to.
Clause 8 [Old public companies]:
3.33 p.m.
Lord MOTTISTONE Lord MOTTISTONE moved Amendment No. 1:
Page 10, line 19, leave out from ("company") to ("company)") in line 21.
The noble Lord said: With permission, may I suggest that we take Amendment No. 41 with this amendment. These

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are purely technical points which came to light in trying to study the position of private companies. I noticed in relation to my Amendment No. 1 that there was a reference to Section 28 of the 1948 Act; then, when one turns to Schedule 3 of the Bill, one finds that Section 28 of the 1948 Act is to be repealed. It seems slightly illogical to quote a section and then repeal it. It may be that this is permissible; but I have always understood that if something is repealed it is effectively struck off forever. I have really put these amendments down to draw the Government's attention to this point, and for no other purpose. I beg to move.
Lord LYELL: The effect of these amendments would be to replace the new definition of public and private companies in Clause 1 with the present definition of private company in Section 28 of the Companies Act 1948. Clause 1 continues to be the cornerstone of the whole Bill and any tampering with this clause and the linked amendment to Clause 8, Schedule 3, would alter the Bill grievously.
The call for the continuation of Section 28 is totally unexpected. The then Government—of which the noble and learned Lord, Lord Elwyn-Jones, was a member—first announced their intention to repeal Section 28 and move to a new definition of public company with private companies forming a residual category in a consultative and explanatory note published in July 1977. The detailed proposal was contained in the draft Bill published as a White Paper in July 1978, and the clause was approved in Committee in another place without any doubts being raised on the new definition. Indeed, during the whole process of consultation, which has been long and thorough, the new approach has been accepted and indeed welcomed, by for example the Confederation of British Industries. So, the amendments under discussion go completely against the whole tide of comments so far, but we accept the reservation that my noble friend wanted clarification.
The definition of public and private companies is of course fundamental to this Bill. Now, if one maintains the present definition of private company
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contained in Section 28, the structure of the Bill breaks down. I hope the Committee will permit me to explain by giving two instances. First, Section 28 defines as a private company a company whose articles contain restrictions on three matters; first, the number of members; secondly, the offering of its shares or debentures to the public; and, thirdly, the transferability of its shares or debentures. The critical factor under Section 28 is whether the company's articles contain these three restrictions. If they do, the company is private; if they do not, it is "a company other than a private company" or a public company. Furthermore, if a private company changes its articles so that it removes one or more of these three restrictions, it automatically becomes public.
This is unacceptable now. The Bill contains provisions in Clauses 5 and 6 for the re-registration of private companies as public and these are there to meet the requirements of the Directive. The Directive sets minimum standards for public companies and Article 13 calls for control over companies converting into public companies. But Clauses 5 and 6 would be avoided, and the Directive would be breached, by the maintenance of Section 28, since conversion from private to public in that special case is subject to no controls and is entirely a matter for the company.
The second instance that I should like to quote is the case of companies of relatively minor substance which have necessarily a relatively large number of members. Examples of this are some housing and tenants' associations with each member being a shareholder in the company. If there are more than 50 of them they fall outside Section 28, since their articles do not restrict the maximum number of members to 50, and therefore they are, under the present legislation, public companies. They cannot become private companies under Section 28, but they will not be able to meet the minimum standards called for by the Directive for public companies. The amendments would put these associations and small companies in an impossible situation which could only be resolved by winding them up. The Bill, as drafted, allows them to become private companies easily, rapidly and smoothly.

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I think your Lordships will agree that this has been a somewhat lengthy explanation, but I hope that my noble friend Lord Mottistone will see that his amendments are, in the context of the Bill and of what the Government are trying to do, unacceptable at this stage. I should like to make the point, to avoid any misunderstanding, that while the repeal of Section 28 of the 1948 Act would mean that private companies would no longer be compelled to maintain their articles containing the three restrictions I referred to, there is nothing at all to prevent their putting in these restrictions should they wish to do so, or indeed to continue to have them. These restrictions have always been something which the law has left the companies to decide upon. That remains the position at the moment. Private companies will be able to restrict the transferability of their shares if they wish and they will be able to limit the number of their members. I hope, in the light of all I have said, that the noble Lord will be reasonably satisfied with the explanation.
Lord MOTTISTONE: With the greatest possible respect to my noble friend, I think he was briefed to answer a question which had a different point from mine. Of course, I do not want to destroy the important parts of the Bill—it would be absolute nonsense, particularly with the EEC Directive behind it—and the particular bits that I sought to amend were identical to the ones in the earlier Labour Bill. The fact of the matter is that I am fearful that the Government are making a nonsense by repealing a section of an Act and quoting it: that is all. If my noble friend can assure me that his advisers will look at this and that, if necessary, the Government will come forward with an amendment at Report stage, I would be more than happy to withdraw the amendment.
Lord LYELL: I thank the noble Lord, Lord Mottistone. I am given to understand that the words of Section 28 are indeed written into this clause and are applied to this clause alone. Section 28 is to be repealed but for these transitional provisions for the companies and small associations that I mentioned. I understand that it is necessary to maintain a part of Section 28 which is written into the clause: I think there is a reference in
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the clause. Certainly, I am advised that Section 28 should be repealed but with the reservations that certain parts will remain in Clause 8 of the Bill.
Lord MOTTISTONE: I shall certainly not prolong this any further and I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
On Question, Whether Clause 8 shall stand part of the Bill?
Lord MOTTISTONE: I hope your Lordships will forgive me for being repeatedly on my feet during this part of the Bill. We feel that Clause 8 is a rather complicated clause, which makes it somewhat difficult for the uninitiated to see precisely what is intended. As we see it, there are three courses of action open to an old public company and if it does not follow one of them it is committing a criminal offence; and because it is committing a criminal offence we think that if it is at all possible it would be extremely helpful if the Government could either, at a later stage, re-word Clause 8 so as to make it clear that there are these three possible alternatives, one of which must be followed, or, if that is not possible because of drafting needs, perhaps they could make sure and assure your Lordships that they are going to produce guidance notes to make it quite clear to people what these options are and how they must take them.
Lord LYELL: I should like to assure my noble friend that there will indeed be guidance notes such as he is thinking of. That is very much part of the Government's plan and I can assure him that these notes will be issued.
Clause 8 agreed to.
Clauses 9 to 13 agreed to.
Clause 14 [Authority of company required for allotment of certain securities by directors]:
3.46 p.m.
Lord BRUCE of DONINGTON Lord BRUCE of DONINGTON moved Amendment No. 2:
Page 19, line 36, after ("liable") insert ("on conviction on indictment to imprisonment for a term not exceeding two years or a fine or both, or")
The noble Lord said: Perhaps it would be for the convenience of your Lordships if we were able to discuss Amendments Nos. 2, 3, 4 and 5 together. The Amendments relate in the main to offences committed under Clause 14 of the Bill, which specifies the authority of the company required for the allotment of certain securities by directors, and also to Clause 34, which lays on directors in certain circumstances the duty of convening an extraordinary general meeting in the event of a serious loss of capital.
In both cases the amendments seek to bring the penalties more into line with the seriousness of the offence and in both clauses reference is made to the statutory maximum fine which is reproduced at Clause 54 of the Bill on page 61, from line 13 onwards and specifies:
"£1,000 or another sum fixed by order …"
and it varies in the case of Scotland to some small degree. The amendments seek to bring in the words,
"on conviction on indictment to imprisonment for a term not exceeding two years or a fine or both, or".
It is perhaps necessary to realise that in both cases, whether under Clause 14 or Clause 34, it is necessary, for any penalty to be incurred at all, for a director to contravene "knowingly and wilfully". Any director who acts inadvertently, or is perhaps subject to delegation or staff inefficiencies, quite clearly comes outside the ambit of the clause altogether.
The clause itself specifies "knowingly and wilfully", and it is our submission that in cases where this condition is proved to be satisfied—that is, "knowingly and wilfully"—the court should have a far greater discretion to award a more severe penalty where the circumstances warrant; of course, the gravity of the offence may vary from one case to another. What these Amendments seek to do is to enlarge the area within which the court may operate under these circumstances.
I am not sure whether I understood the noble Viscount, Lord Trenchard, correctly, but I believe he gave an indication to your Lordships that the Government were thinking of inserting clauses very similar to the ones which would be given effect if your Lordships agreed to
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these various penalty amendments. If that be the case, it is quite unnecessary for me to detain your Lordships further and I await the elucidation of the noble Viscount on that point.
Viscount TRENCHARD: May I make clear, as my noble friend Lord Cullen was going to do in replying to the points on this amendment, that Amendments Nos. 34 and 40 are the two amendments which we plan to accept, with the leave of the Committee. But we shall wish to speak to the detail of Clause 14 and Clause 34 of the Bill.
Lord BRUCE of DONINGTON: I am obliged to the noble Viscount. I do not think there is any necessity for me to elaborate on what I have already said on these two matters. It is quite simple. It is merely a question of what judgment one sees fit to exercise in the matter. So it would be our wish, subject to a satisfactory reply being received from the Benches opposite, to give this matter favourable consideration, and we hope that the reply will enable us to withdraw this series of amendments. I beg to move.
Lord CULLEN of ASHBOURNE: The effect of Amendments Nos. 2 and 3 is to increase the maximum penalties for directors who knowingly and wilfully contravene, permit or authorise the contravention of Clause 14. The clause as drafted treats the offence as falling into the least serious category of offences, which does not permit trial on indictment and sets the maximum fine on summary conviction at £200. The amendment would substantially increase the maximum penalties. On conviction on indictment, the maximum would be two years imprisonment and/or an unlimited fine, and on summary conviction an unlimited fine.
The question of penalties in criminal offences frequently comes down to questions of judgment. I agree with the noble Lord who moved this Amendment, that the Bill as presently drafted imposes rather too light a penalty, but I think that the amendment goes rather too far. The penalties in this Bill fall into three categories, and these categories match those which would be introduced into the other Companies Acts by the amendment standing in the names of the noble Lords. The penalty presently proposed is the

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lowest. Then, in other cases—for example, Clause 30(1)—the next penalty is for an unlimited fine on indictment and a fine up to the statutory maximum of, presently, £1,000 on summary conviction. Then comes the more serious penalty of up to two years and/or an unlimited fine on conviction on indictment, with six months and/or a fine up to the statutory maximum on summary conviction. There is a fourth category, found not in this Bill but in the noble Lords' amendment, for cases of fraud where the maximum term of imprisonment would be seven years.
While I agree, therefore, that it is wrong that the penalty in Clause 14 should be the lowest, I incline to the view that the appropriate penalty should be an unlimited fine on indictment and the statutory maximum on summary conviction. In fact, it is the second category. It seems to me not to be a case where imprisonment is an appropriate sanction. In saying this, I also believe that the penalty I propose is in line with the penalties set out in the long amendment proposed by noble Lords opposite. For example, it is in line with the penalty that they propose for failure to hold a general meeting under part of Section 131 of the 1948 Act, or for failure to send to the registrar details of a registrable charge under Section 96. I hope, therefore, that noble Lords opposite will not press their amendment, in the light of an undertaking from me that an amendment on the lines that I have described will be moved by the Government on Report.
Lord ELWYN-JONES: That seems to me, with respect, to be a reasonable suggestion. I can understand the desire of the Government to avoid proceedings by way of indictment, in regard to offences carrying penal penalties, and in view of the assurance of the noble Lord perhaps we can return to this matter when we see the colour of their amendment in the fullness of time.
Lord ROBBINS: Is it in order for me to ask the noble Lord who is speaking for the Government about a matter of general principle? In the course of his valuable remarks, he mentioned an absolute sum which the Government have in mind. May I inquire whether the Government propose, with year after year of inflation, to alter that absolute sum so as to keep it
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of equal real weight? If not, it will be of diminishing real weight and the penalty therefore, in so far as it has any disincentive, will be diminishing also. I hasten to assure your Lordships that I am not in favour of universal indexation, but it seems to me that the Government are laying on themselves or their successors the necessity, if justice is to be maintained, of introducing a series of yearly Acts while inflation, or conceivably deflation, takes place.
Lord WEDDERBURN of CHARLTON: If the noble Lord, Lord Robbins, looks at Clause 54, he will see that the amount of £1,000 is alterable by order. I wanted to ask the Government if, when they reconsider the penalties imposed under Clause 14, they will consider whether even now they have it right. The noble Lord who spoke for the Government said that they have now got it wrong, because it is too light at one end of the scale, and that we have got it wrong in our amendment because it is too heavy. He suggested, in regard to the new penalties which will be imposed after the glad tidings of the noble Viscount that the Government will accept the amendments about penalties, that when that is done the higher penalty on indictment of imprisonment for two years and a fine, and the appropriate summary conviction and the penalties that follow, should be applied only to cases equivalent to fraud.
If that be so, then surely there is a case for suggesting, as my noble friend Lord Bruce did, that a director who contravenes subsection (7) of Clause 14 will be acting knowingly and wilfully or permitting or authorising in contravention of his obligations, which obligations relate to the allotment of new share capital. I should have thought that someone who knowingly and wilfully played tricks with the allotment of new capital deserved more than the middle penalty, and perhaps the Government could take that into consideration when they come back with their amendment on Report.
Lord CULLEN of ASHBOURNE Lord CULLEN of ASHBOURNE Dealing first with the question asked by the noble Lord, Lord Robbins, there is power to amend the statutory maximum and no doubt that will be done, but I doubt whether it will be done annually. If I may reply to the noble Lord, Lord

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Wedderburn of Charlton, as I said originally this is a matter of judgment. I have given the Government's view upon this matter and I stand by it.
Lord BRUCE of DONINGTON: In view of the assurances given by the noble Lord, and without prejudice to our scrutiny of the amendment when it is brought forward by the Government, I beg leave to withdraw Amendments Nos. 2, 3, 4 and 5.
The PRINCIPAL DEPUTY CHAIRMAN of COMMITTEES (Lord Greenwood of Rossendale): Technically speaking, one has to withdraw Amendment No. 2 and not move Amendments Nos. 3, 4 and 5. Is it your Lordships' pleasure that Amendment No. 2 be withdrawn?
Amendment, by leave, withdrawn.
[Amendment No. 3 not moved.]
On Question, Whether Clause 14 shall stand part of the Bill?
Lord HAWKE: Can the noble Lord tell me exactly what subsection (8) means? To a lay reader of the Bill, it looks as though a fraudulent director can issue fraudulent shares. Nothing in this subsection will prevent the validity of those shares. That cannot be right, I am sure; I must have misread it.
Clause 14 agreed to.
Clauses 15 to 33 agreed to.
Clause 34 [Obligation to convene extraordinary general meeting in event of serious loss of capital]:
On Question, Whether Clause 34 shall stand part of the Bill?
Lord WEDDERBURN of CHARLTON: Before Clause 34 is agreed to, may I raise a small question with the noble Viscount on the Government Front Bench. Clause 34 deals with the obligation of the directors to call an extraordinary general meeting when net assets of the company have fallen to half or less than half of the amount of the company's called up share capital. It has been put to me that there is a difficulty
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for the directors, upon which perhaps guidance could be given to them by means of a suitable amendment to be moved by the Government on Report. It relates to the question: How are the directors to value the net assets? One can envisage a case where the assets of a company have fallen to half or less than half of the share capital. Where they are plunging downwards, the right basis might be almost a break-up or a knock-down valuation. One can envisage another case where the assets are teetering on the brink of half and there is some kind of new stability in the company, which requires a tidying up operation at the annual general meeting. Would the Government care to give an indication as to whether any guidance will be given, either in the Bill or elsewhere, regarding the valuation process?
Viscount TRENCHARD: First, may say that if I have not met the point raised just now by my noble friend on the interpretation of Clause 14. We shall try to make it clear to him between now and Report stage.
To deal with the point raised by the noble Lord, Lord Wedderburn of Charlton, on this quite difficult Clause 34, in any event, where we have had arguments from more than one side as to whether or not calling an annual general meeting, when the assets of the company have fallen very materially indeed, could cause the collapse of the company—which was the point raised by the noble Lord, Lord Bruce of Donington, at Second Reading—I take on board the comment which the noble Lord, Lord Wedderburn of Charlton, has made. However, the precise definition of a huge drop in assets is, clearly, a very difficult point. Between now and the Report stage, I hope to take advice and see whether I can satisfy the noble Lord on this question.
It seems to me to be common sense that, if one has this clause, it is almost impossible, without enormous delays for expert valuation, to work out an exactly precise definition. So the choice before the noble Lord, and indeed the House, is whether or not to have this clause, which requires the attention of shareholders to be drawn to the matter if there is a major drop in the assets. I doubt whether we can make it very much clearer. However, I take the point which the noble

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Lord has raised. I shall let him know before Report stage whether there is any way in which the position can be made clearer as to what is meant by a huge drop, and whose judgment it is to be.
Clause 34 agreed to.
[Amendments Nos. 4 and 5 not moved.]
Lord LYELL: My Lords, I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

THE POSTAL SERVICE
4.7 p.m.
Lord LYELL: My Lords, with your Lordships' permission I shall repeat a Statement which is being made in another place by my right honourable friend the Secretary of State for Industry.
"In the middle of last week the Post Office had a backlog of one-and-a-third days' mail. This comprised some 40 million letters. This was the cumulative effect of industrial action in the Post Office; and on the railways; bad weather earlier in the year; staff shortages, and letter bombs in Birmingham. The worst effects have been in the London area.
"Over the weekend there was extensive working to reduce this backlog, and I welcome these efforts. But while improvements were made, some problems remain, particularly in parts of London and the South-East. Continued efforts will be necessary.
"Although I recognise that special circumstances, some of them beyond the Post Office's immediate control, played a considerable part in last week's difficulties, these problems have only confirmed that much needs to be done to improve the efficiency and productivity of the postal service, and I have made this clear to the chairman of the Post Office, for whom I have great respect. I am particularly disappointed that an offer by the Post Office of better pay for reduced costs, higher productivity and better services has been refused by the workforce.
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"If co-operation to improve services is not manifest, it will be necessary to review the Post Office's monopoly for the carriage of letters. I shall be asking for reports on possible modifications, their practicability and their implications, to reach me before the end of this year."
My Lords, that concludes the Statement.
Lord PONSONBY of SHULBREDE: My Lords, may I thank the noble Lord for repeating the Statement which is being made in another place by the Secretary of State. I felt that, on the whole, it was rather an ungracious Statement, bearing in mind the fact that thousands of postal workers worked very long hours over the weekend, after a long week of work, in order to clear the backlog of the mails. The present situation, as the noble Lord has said, is the cumulative effect of a number of factors coming together. Perhaps the most important of these was the closure of the Birmingham sorting office during the past few weeks. I understand that only today, for the first time, was this office opened fully. This has meant that mail has had to be sorted in all kinds of inconvenient and unsuitable places in Birmingham, such as in drill halls. This is important, as that particular sorting office is the fifth largest office in the country.
The threatening statement made by the Secretary of State in the last paragraph of his Statement concerning the monopoly of the Post Office is rather curious in some ways. One remembers that the last time this monopoly was broken, in 1971, the private operators were only too anxious that the postal services should resume. Indeed, the Economist commented on 20th February 1971:
"Most groups of private postmen have shown a conspicuous lack of business enterprise. Most groups are only going to be too thankful to pack up when the postmen are back".
Indeed, one heard stories that the mails that they could not deliver eventually landed up in the post boxes.
My Lords, I think we should remember that the postal service is a service for us all, and if there is no monopoly the rural areas will certainly suffer. The Post Office can only operate a successful service if it has a monopoly. Despite their past inability to function adequately, private

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operators would certainly focus their activities on city centres, as has happened in the United States of America and in Canada, with a detrimental effect on rural areas and also an adverse effect on postal rates. We should remember that even with the proposed increase in postal rates our postal services are the cheapest, bar one, in Europe at the present time.
I very much regret that the Secretary of State should have included in his Statement the paragraph about breaking the monopoly, because I feel that this will have the effect of undermining the morale of postal workers, who are working very long hours to see that the public get their mail as quickly as possible.
Baroness SEEAR: My Lords, we on these Benches would also like to thank the noble Lord for repeating the Statement that has been made in another place. We have always been particularly concerned with the interests of consumers in the Post Office, and, as noble Lords will remember, during the last Administration we pressed successfully for the inclusion of consumer representatives on the Post Office Board.
While making all allowances for the fact that the bombing in Birmingham has affected the present situation, I think nobody can really pretend that the consumer is being adequately served, and we have to remember that practically every adult in this country is affected by the efficiency of the Post Office in one way or another. There could hardly be a service in which a higher proportion of the population is involved. While reserving judgment on the question as to whether or not the monopoly should be broken, we must agree with the Government that it is necessary that this situation should not continue. We are glad that they are going to follow the situation very closely and I would remind the Government that the full report of the Carter Commission has not been implemented at the present time.
Lord LYELL: My Lords, I should like to thank the noble Lord, Lord Ponsonby of Shulbrede, and also the noble Baroness, Lady Seear, for their welcome, in varying degrees, for the Statement. I hope that the noble Lord,
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Lord Ponsonby, will not take the concluding paragraph of the Statement to be threatening. I do not think it is intended so to be. I think that what my right honourable friend is seeking to do is to improve the service upon which, as has been pointed out, we are all dependent. The Government wish to examine every possibility of improving that service and they do not wish to rule out the possibility of excluding the monopoly in certain circumstances, if indeed that monopoly needs to be changed in some way. I noted that the noble Baroness, Lady Seear, was firm in her support for our efforts on behalf of the Post Office. We thank her for that support and also for her support in keeping the mind of the Government flexible upon any ways which can improve the service.
Lord JACQUES: My Lords, the Statement refers to industrial disputes and also to the inability to get workers. Surely that indicates that there is at least a prima facie case for an inquiry into wages and conditions in the Post Office. Would it not have been much more useful to take that kind of action rather than to threaten the breaking of the monopoly?
Lord LYELL: My Lords, I hope, once again, that there were no implicit threats, but I should like to stress to the noble Lord, Lord Jacques, that three months ago he was asking about the pay of postal workers in that particular part of the service. Three months ago the Post Office offered a pay increase of 9 per cent. plus a further 4½ per cent. which was to be paid for by way of three particular items. This package was successfully negotiated with the postal workers' executive but it was rejected by five to one by the union membership. Negotiations are still continuing. We believe that the offer that has been made is certainly generous and I wonder whether, in the light of that generous offer, an inquiry is called for at this stage.
Lord JACQUES: My Lords, does the fact that the wage offer was rejected by five to one not show that there is widespread dissatisfaction within the ranks of the postal workers and that some investigation is needed?
Lord LYELL: My Lords, we believe that negotiations should be continued with the postal workers, but with the executive. I believe that if any investigation needs to be carried out it should be carried out within the union of postal workers and not within the Post Office as a whole.
Lord MERRIVALE: My Lords, I should like to ask my noble friend two questions. First, bearing in mind the remarks of the noble Lord, Lord Ponsonby, regarding the good work of the postal workers this last weekend with the view to clearing the backlog of mail, is it intended that postal workers should be employed during other weekends and, if so, when does he feel that the backlog will be cleared? Secondly, if in effect the monopoly is broken, would private enterprise be involved in the dispatch and receipt of mail from abroad?
Lord LYELL: My Lords, I should like to thank my noble friend for those two questions. I do not think that the Government, or indeed the Post Office, can give any firm reply as to whether it is the intention of the Post Office to employ postal workers for further extensive hours of overtime during the next three of four weekends. I hope the Post Office will do what it deems necessary to clear the backlog. That may involve some overtime or it may not.
With regard to the second question asked by my noble friend Lord Merrivale with regard to the possible ending of the monopoly over some sectors of the postal service, I think the only good answer that I can give is that we shall have to wait and see what turns out in 1981 when my right honourable friend has received reports from all sectors of the Post Office.
Lord DERWENT: My Lords, is not the principal trouble that the general public are fed up to the teeth with the rapidly deteriorating service? They would not mind the increased charges so much if the service were better, but they do mind the increased charges when the service is getting rapidly much worse.
Lord LYELL: My Lords, I would take issue slightly with my noble friend. I agree that the service appears to be worse in some areas, but I think that
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overall the service is exceptional. Personally, I have found that during the past week letters with first-class stamps have reached me in your Lordships' House, and indeed elsewhere in London, within 24 hours. There have been difficulties and there have been many complaints, but I do not think that that is a general aspect of the Post Office. Nevertheless, I take the point made by my noble friend.
Lord PONSONBY of SHULBREDE: My Lords, perhaps the noble Lord will not forget, and we should not forget, that until the recent problems the Post Office had been achieving over 80 per cent. next-day delivery for first-class mail, and that is an infinitely higher percentage than is achieved in France or Germany.
Lord LYELL: My Lords, I thank the noble Lord and I take his point; but of course all Members of your Lordships' House will be aware that your Lordships—and indeed members of the public—obtain what we pay for.
Lord MERRIVALE: My Lords, will the noble Lord, Lord Ponsonby, bear in mind the poor service given by the second-class mail?
Lord SOMERS: My Lords, while agreeing with the noble Lord, Lord Ponsonby, that it is essential that the postal service should be kept as a unified whole, have the Government given any consideration to the possibility of separating the telephone service from the postal service, and, if so, what does the noble Lord think the benefits would be?
Lord LYELL: My Lords, so far as the Government are concerned, I am sure they are considering every form of improvement of the Post Office as a whole. I do not think it would be for me to comment at this stage on any possibilities or probabilities of separation or otherwise of the telecommunications industry from the Post Office as a whole.

COMPANIES BILL [H.L.]
4.21 p.m.
House again in Committee.
Lord WEDDERBURN of CHARLTON Lord WEDDERBURN of CHARLTON moved Amendment No. 6:

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Page 44, line 4, after ("section") insert ("or of section 54(2) of the 1948 Act,").
The noble Lord said: In view of the statement made by the noble Viscount on behalf of the Government, it may be that one can address oneself very briefly to this amendment. Its object was to increase the penalties in relation to Section 54 of the Companies Act 1948, which is the section which prohibits a company giving financial assistance for the purchase of its own shares. That section is, of course, doubly important if, as is about to be done under Clause 35, it is expressed in statute law, and not merely, as now, in case law, that a company may not acquire its own shares. However, as I understand it, the noble Viscount was saying that he would accept at least most of the new schedule which is being proposed with Amendments Nos. 34 and 38; that is to increase the penalties under the existing Companies Act. That schedule includes Section 54 and, if that were accepted, my amendment would not be necessary. Therefore, I await what the noble Viscount has to say and hopefully will be able to withdraw the amendment.
Lord CULLEN of ASHBOURNE: I confirm what my noble friend said, that we do propose to accept the later amenment. I hope that under those circumstances the noble Lord will withdrawn his amendment.
Lord WEDDERBURN of CHARLTON: I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 35 agreed to.
Clauses 36 to 39 agreed to.
Clause 40 [Restriction on distribution of assets.]:
Lord WEDDERBURN of CHARLTON Lord WEDDERBURN of CHARLTON moved Amendment No. 7:
Page 49, line 21, at end insert:—
"(5) A Company to which this sub-section applies shall not after the appointed day apply its assets in furtherance of political objects otherwise than in accordance with the provisions of Schedule (Distribution of profits and of assets for political objects) and shall accordingly act in relation to distributions in accordance with that Schedule.
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(6) Where, in accordance with sub-section (5) above, a company transfers into its political fund an amount otherwise payable to a member by reason of a distribution that member shall not at any time have any proprietary interest whatosever in that amount."
The noble Lord said: I beg to move Amendment No. 7 and hope your Lordships will find it convenient to take with that Amendment Nos. 8, 9 and 10 and the new schedule to the Bill which is listed as Amendment No. 39; that schedule is in typescript towards the end; it is the typescript schedule, not the printed one which has been xeroxed.
Clause 39 deals with the restriction on distribution of a public company's assets, and therefore it makes it particularly appropriate to introduce my amendments at this point where we are codifying for the first time the law relating to the distribution of dividends in public companies. The object of these amendments would be to introduce a legal provision whereby political expenditure of public companies should be out of a political fund in a manner parallel to the law relating to trade unions. Similarly, it is an object of the amendments to secure parallel rights for shareholders in public companies to those which exist for the individual member of a trade union in respect of such donations or financing or expenditure out of such political funds.
The definition of "political objects" is partly related in my amendments to the definition already used in the Companies Act 1967, under which, by Section 19, a company is already obliged to disclose political donations and subscriptions. It would be foolish not to use that definition of "political object". But there is added to it in the schedule, as your Lordships will see in paragraph 16, the same definition also of"political objects" as in Section 3 of the Trade Union Act 1913. So there is an attempt to make the matter parallel as between the member of a public company and the member of a trade union.
I argued this case at Second Reading and I will not do so at great length in Committee. But it is right, I think, that I should do two things in Committee: first, that I should rehearse the argument of principle and in doing so answer one of the points the noble Viscount made at Second Reading; and, secondly, that I

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should at least sketch out the techniques and mechanics whereby these amendments would seek to achieve their object. I say the second in particular, because this matter has come before another place on two occasions; first, on the 1978 Companies Bill, where my honourable friend Mr. Mikardo moved amendments in Standing Committee F with a similar object, and where, although the Government spokesman—that is, the last Government—told him that that Government had sympathy with the amendments, the Government spokesman was forced to draw Mr. Mikardo's attention to some 16 technical difficulties. A similar process occurred when my honourable friend Mr. Hoyle presented a Bill in another place in June 1978 for the same purpose. Therefore, I think it is right that I should come in the second part of my remarks to explain why I think, hopefully, that these amendments have overcome at any rate the major part of the technical obstacles which beset the Bills of my honourable friends Mr. Mikardo and Mr. Hoyle. I have had the advantage of reading them and also the advantage of reading the discussions on them. I hope to encourage your Lordships to judge the matter according to the weight of the argument rather than through any whip or whim of prejudgment, and even perhaps move some of my noble friends to support me in the matter.
First, as to principle, it might be thought that the burden of proof was on those who wished to resist these amendments. I say that because they go no further than to give to a member of a public company the rights in respect of political objects and political expenditure which have been the rights of a trade union member since 1913. I say that in principle—and this is, if I may put it this way, the core of the matter—a shareholder who invests his money in a public company should have a legal right to be exempt from its political expenditure pro tanto, political expenditure with which he may not agree, just as a member of a union has the right to contract out of the union's political expenditure. The noble Viscount replying for the Government on Second Reading said—and this was his major point—that not only do such companies disclose their political outlay, which is true, in every directors' report, but he said that the shareholder can contract out of the
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political levy. Then he explained how he could do it: "They" (that is shareholders)
"… can sell their shares individually and invest in another company".—[Official Report, 25/6/79, Col. 1281].
—and thereby of course escape the company's political activities.
I submit that this is no answer to the case that is put to the Government, it is no answer on a twofold basis, both on fact and in principle. In fact it may not be true. The shareholder may not be able to find an equivalent investment, or indeed he may be a trustee obliged to maintain that very investment. But, apart from the fact, it is not right in principle. Why should a shareholder be compelled to quit the company to avoid its political activity? Why should the directors have the right to enforce his withdrawal, when company law puts so many boundaries around their rights to cause minorities to quit in other ways?
Let us take the parallel with the union member. What kind of reception would the noble Viscount expect to have if he came to your Lordships' House and said, "There is no need for the Trade Union Act 1913; there is no need to give the member a legal right to contract out of his union's political levy. He can always quit the union or if need be change his job". That is exactly what the 1913 Act prevented, and every single one of the 10 million members of the 73 trade unions that have political funds has a legal right, and has had it for 66 years, to say: "I don't like the Labour Party. I shall not pay the political levy, but I shall stay in the union and I shall stay in with the right not to be prejudiced or disadvantaged, because that is what the 1913 Act affords to me".
Why should not a shareholder be able to say, "I don't like the Conservative Party, so I shall withdraw from the political payments; but I wish to, and I shall, maintain my membership of the public company". There are such shareholders. On Second Reading I appealed to the Liberal Benches for support for the proposition that there were such shareholders. On that occasion there was no-one there to support me, but I am heartened today to see that those Benches are not entirely empty and I am sure that I

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shall receive support, at least for that proposition, from those Benches.
Lord LLOYD of KILGERRAN: I can assure the noble Lord that he has great sympathy from me personally on that one point.
Lord WEDDERBURN of CHARLTON: I am glad at least that the Liberal Party is here to express its voice. On Second Reading, the Noble Viscount and some other noble Lords had their doubts. Indeed, as they made various points, it is perhaps worth while dealing with them in the hope that they will not clutter the debate upon this occasion in Committee. The noble Viscount and some other noble Lords, including the noble Lord, Lord Harmer-Nicholls, made two propositions about the trade union analogy, as it were, as reasons for not extending it into company affairs. They doubted whether union members knew of their rights under the 1913 Act and they doubted whether they could get the forms to contract out. Indeed, the noble Lord, Lord Harmer-Nicholls, even alleged, at column 1272 of the Official Report for 25th June, that:
"in many unions the chances of getting a form to enable one to contract out are almost impossible".
I hope that we shall not conduct this debate in Committee on that basis, because the evidence is overwhelmingly against any such proposition.
Of the 10 million members in the relevant unions, 190,000 regularly contract out—it is a fairly stable proportion every year. Secondly, in the last three years recorded—from 1976–78—in the Certification Officers' Annual Reports there have been only 33 complaints relating to the political fund, and of those only half related to the obtaining of exemption notices or anything to do with the exemption process. Something like five cases a year is hardly convincing evidence that 190,000 members find it hard to contract out. Indeed, as far as the knowledge of trade union members is concerned, I was convinced that the noble Viscount had not held a trade union card, because had he done so he would have known that it is invariable practice for a trade union subscription card to set out the political levy separately, and therefore one knows very well whether one is paying the political levy or not.
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As a union member, the worker has a legal right to refuse his share of political payments and to stay in the union—and to stay in not disadvantaged. But, if he invests or buys a share in a public company—and I should have expected noble Lords opposite to be keen on the employee obtaining a shareholding in a public company, and to want worker shareholding and employee participation by employee shareholding—he has no such right to contract out. Indeed—and this is much more serious—nor has his pension fund any right to contract out of the political payment. It is well known to workers whose pension funds invest in public company shares that political donations are made, and they do not very much like it.
There would, of course, be a number of pension funds which would immediately become exempt if these amendments were adopted. It would seem to me—and I hope to your Lordships—that that is a something in favour of them and not against them. If one looks at the year ended March 1979 and the accounts of Messrs. Turner and Newall, Limited, one sees that they gave £17,000 to bodies associated with the Conservative Party. It is all perfectly properly disclosed. But not one of its 45,700 shareholders, including the 143 pension funds, could contract out or withdraw from those donations. It is no answer to say that some complainant shareholders could move a resolution to dismiss the company's directors. Indeed, the example that I have given shows how absurd the idea is. They may not want to dismiss the directors. They may be quite happy with the directors in every other respect. It is not right in principle to suggest that, any more than it is to say that the union member who does not like the political payments of his union should move a resolution to dismiss the executive. He may have a great brotherly love for the union executive, except in that one matter.
On Second Reading the noble Viscount suggested that there was some "political" element in my argument, and he is, of course, quite right. The argument is about political expenditure and it is about equity and evenhandedness as between members of public companies and members of trade unions. To put it more broadly, it is about—and, in this sense

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with a small "p", I agree that it is political—the conditions upon which vis-à-vis their members public companies should be allowed, in the latter part of the 20th century, to make political donations.
As I rehearsed the figures on Second Reading I shall not do so today, save to say that in the last recorded period for which we have figures some 378 companies gave £1,400,000 to the Conservative Party and such associated bodies as the Economic League, Aims, Common Cause, the Centre for Policy Studies and that most mysterious of organisations, the British United Industrialists. Indeed, as the Observer for 19th October 1969 recorded,
"apart from direct donations to the party this"—
—that is the British United Industrialists—
"is the Tories' biggest single source of industrial gifts".
The Liberals used to get a few pounds—£50,000 in 1975 and £5,000 in 1966—but I am afraid that they have fallen out of the running and companies now give money only to the Conservative Party. I explained on Second Reading to your Lordships' House why, on a reasonable estimate, donations of company money to the Conservative Party and its allies in 1979 is likely to be £2·5 million—and that is a conservative estimate. Oddly enough, by 1978 the political expenditure of trade unions—of course mainly to the Labour Party or to Labour Party purposes—is something like £2,400,000. So there is a comparability in principle and in practice and in quantity, save, of course, for there being no comparability in the amount that is available, because trade unions have only about £4 million in their political funds and companies have hundreds of millions of pounds which they could, if they wished, subject to their memoranda of association, give for political purposes.
However, there is comparability in present practice and, in quantity. It is in law that there is no comparability. These amendments are directed towards introducing that comparability in principle so that the shareholder can have the same right, the pension fund investment can have the same right; the institutional investor can have the same right as the union member to say, "I want to stay in the company, but pro tanto I want
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part of what would otherwise be paid as political expenditure."
It is right, therefore, that I should briefly explain to your Lordships the mechanics of the amendments which are based upon the six simple principles, which I hope will avoid at any rate the major problems of the previous proposals on this matter. May I interject that Amendments Nos. 8 and 9 are, of course, obviously just dummy runs for the insurance and investment companies and I shall not be pressing them. They were put on the Marshalled List merely to indicate that some arrangements should be made equivalent to the ordinary public company, if the public company amendment was passed.
The six simple principles of the mechanics are as follows. First, for the public company, political objects must be financed out of a separate political fund approved by an ordinary resolution at the general meeting of shareholders. That is the equivalent of the ballot of members in a trade union. Where the company is a subsidiary—and this is one of the many technical points most of which I shall pass over in the schedule—the schedule would require a general meeting of its holding company to pass the ordinary resolution first. That is an obvious process to prevent an evasion. A clear loophole would otherwise exist for evasion. Normally, the company's own general meeting must pass an ordinary resolution.
The second principle is that the company shall pay into the political fund sums which are available as a distribution—that is, as a dividend—out of its profits. It is that principle which makes the amendments particularly appropriate for this part of the Bill, because this part of the Bill deals with legislation as regards distributions. It shall pay in amounts distributable as profits. Therefore, at the same time as it declares a dividend, it must declare the amount to be paid into the political fund. In doing so, the directors would, as it were, give notice that an amount which might have been distributed as a distribution—which is, of course, not the same as a dividend, but I am using the word "dividend" in a very broad sense (in the amendments it is a distribution of any kind)—would go into the political fund.
That leads us to the third principle—that a member shall have the right to

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notify the company that he wishes to be exempt. It is just like a trade union notice of exemption; just like a trade union notice to be relieved of the political payment. When he does notify his wish to be exempt, he shall be exempt from seeing his share of the distributable sums going into the political fund. In effect, although the mechanism is different—that is, he receives the amount which would have gone into the political fund but which now comes to him pro tante, if it were spread across the total distribution that the company is making—this is the same as a contracting-out mechanism. It has to work the other way round; that is to say, it has to work by giving the exempt member more, for the very good reason that the last Government gave my honourable friend Mr. Mikardo when he moved his amendments in another place. If you once allow the full dividend to go to all members and then take some back from those who are not exempt, it is very unfair to the non-exempt members in regard to their tax position and to their proprietary rights in respect of the dividend. Naturally it works differently because company law is very different from trade union law, but its effect is the same.
The fourth principle is that when an exempt shareholder sells his shares the purchaser will know that he is exempt by reason of a mark on the share register and the purchaser will remain so unless and until he notifies the company to the contrary. The problem of sales of shares has been raised before.
Lord LLOYD of KILGERRAN: I am sorry to interrupt the noble Lord, but I am trying to follow him in relation to the principles and the particular amendments. I would find it very helpful if he could indicate what part of his lengthy amendments applies to his third principle dealing with a notification of exemption, and then the procedure to be followed thereafter. I am sorry to interrupt him, but it would be helpful if I could have that information.
Lord WEDDERBURN of CHARLTON: Your Lordships will have noticed, as has the noble Lord, Lord Lloyd of Kilgerran, that I am not taking the points in the same order as they are set out in the schedule. If the noble Lord looks at
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paragraph 8 of the schedule, he will see that it sets out the definition of an exempt member, which is rather more complicated than my summary. An exempt member is either someone who voted against the ordinary resolution to set up the political fund or a member who gives notice on the prescribed form that he wishes to be exempt. He remains exempt so long as he does not give his consent in writing, in the first case, or withdraws his notice, in the second.
So far as sales are concerned, the noble Lord will find the amendment in paragraph 12, paragraph 10 being the precise equivalent of Section 3 of the Trade Union Act 1913. Paragraph 12 deals with sales of shares and paragraphs 13 and 14 deal with my next matter, which is principle five of what I call the six principles of UDI for those who will be public company exempt members if these amendments are passed. Principle five is that, if the exempt shareholder is a trustee or nominee who holds on behalf of a number of other people, he should act in accordance with their wishes—this is paragraph 14 of the schedule—as to whether he should be or remain an exempt member. Principle six is that no exempt member (this is paragraph 10 of the schedule) must be put under a disability or disadvantage as regards the general affairs of the company by reason only of his exemption. Again, this is a direct parallel with the 1913 Act.
These are the technical provisions in the schedule to which Amendment No. 7 refers, and I hope that they will prove acceptable to the Committee. I am sure that improvements can be made in the drafting, in which I have not had the assistance of those who spend their lives drafting such matters. I invite your Lordships to treat the principle of Amendment No. 7—the bedrock principle—as the point upon which you decide the matter. As a matter of principle, the question is not affected by whatever arrangements are made in the public financing of political parties. The question of principle is whether or not the public company should have a legal framework around its political expenditure for the first time and whether, in that legal framework, an exemption right should be given to a shareholder, which is precisely parallel to the right to be exempt from political payments which is given to the

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trade union member and which has been so given for 66 years. I hope your Lordships will think that the amendments combine a measure of social responsibility for the public company with an evenhanded equity for the individual shareholder. On those grounds, I beg to move the amendment.
4.47 p.m.
Baroness HORNSBY-SMITH: In the absence of my noble friend Lord Harmar-Nicholls, who I know would have liked to join issue with the noble Lord, Lord Wedderburn of Charlton, I should like to raise one or two points which the noble Lord made. The noble Lord seems to expect noble Lords in this Committee to believe that contracting out is free and easy. If he does, he is living in Cloud Cuckoo Land. For 20 years I was privileged to be a Member of another place. I had a large docker estate transferred from East London into the midst of my constituency. I admit that I had a great minority of supporters in that area but not one of them dared contract out; they would have been unable to join any of the gangs unloading ships if they had dared to say "I do not want to support the Labour Party". If the Labour Party genuinely believed that it was free and easy to contract in or out, why did it not keep to contracting in if a man said, "I want to support the Labour Party. I want to pay the Labour levy"?
The noble Lord said that a miserable 170,000—I hope I am quoting him correctly—have contracted out out of a total of 10 million trade union workers. But what about the switch in support which has accrued to the Labour Party when it changed its original policy of contracting in, if one wanted to contribute to the political levy, to contracting out, which, if I remember rightly, was the change made by the Government of 1945 and thereafter. How on earth does the noble Lord equate 10 million trade unionists and a miserable 170,000 contracting out with the investigation that has just been made by Mr. Heywood of Transport House deploring the percentage of trade unionists who voted for the Conservative Party? They must have paid their levy. It was certainly more than 170,000 out of 10 million. Can one really imagine a contracting-out trade unionist attending one of the great trade union conferences and
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opposing a levy because they have so completely aligned themselves with the one party? The comparisons made by the noble Lord do not stand up to examination.
If one is in a closed shop, and half the agenda of the union at its annual general meeting is solely in support of the Labour Party and solely against Conservative policy, one has to be a very, very courageous man to say, "I want to contract out of the levy"; to say that one must be an inordinately strong man, possibly without a family and children to look after. The noble Lord said that he had come across five cases. I had at least 50 a year every year in my constituency when I was a Member of Parliament. When I said that I would fight the matter for them, they would say, "Perhaps you had better not, because you are not on the shopfloor where I shall have to go through the mill for doing so". Anybody who believes that it does not happen is living in Cloud Cuckoo Land. One may lose in a democratic decision, but he can oppose a contribution being made to a particular political party. I accept that one has to accept the democratic decision.
But he has put his savings in a company which he expects to pursue private enterprise. In my experience, where I have seen such votes take place, there has been the most minimal opposition. At one famous meeting I attended I remember being in a position to ask how many shares the three protagonists against the company had. The three loud voiced gentlemen who came to try to prevent a contribution being made had all bought one share each in the company for the sole purpose of creating the opposition. We should regard this matter seriously, and I do not believe that we should accept that contracting out is any substitute for contracting in, and we should take with a large dose of salt some of the allegations the noble Lord has made.
4.51 p.m.
Lord MURRAY of GRAVESEND: I should like to support my noble friend Lord Wedderburn in his very well put amendment. I should like to declare my interest as a political levy paying member of NATSOPA. I, unlike the noble Baroness, Lady Hornsby-Smith, have not been present at any shareholders' meetings,

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but I have been present at meetings of my trade union. I can assure the noble Baroness that nobody gets lynched if they are critical of the Labour Party or radical movements in this country.
Around about New Year time we get in national and local papers a spate of letters. I have seen letters in the Gravesend Reporter and in national newspapers urging trade unionists to contract out of paying the political levy. It would be ill of me to suggest that they emanate from Conservative organisations, but certainly I do not think they are written by members of the Labour Party. I should like to ask the Government Front Bench one question. We have this week an organisation called, I believe, Aims, promoting free enterprise week. I would hope that as a further blow for freedom, which they are usually claiming they make, they give the freedom to shareholders in companies to contract out.
Lord MOTTISTONE: I should like to support my noble friend Lady Hornsby-Smith. It seems to me that this whole argument has been thought up with great skill and care by the noble Lord, Lord Wedderburn, in order to fight a battle for which it is not relevant. To equate the shareholders of a public company with the members of a trade union strikes me as being a bit of nonsense, for the reason already put by my noble friend Lord Trenchard, and others, that a shareholder has much greater freedom of action. He can sell his shares. He can buy shares in other companies. But if he is an employee in certain fields of employment he has to belong to a trade union. There is a much greater freedom to dispose of your interests, and the way in which you can control, if you like, the company.
The other thing you can do, with a much greater chance of being heard, is to make your protests at annual general meetings, which my noble friend Lady Hornsby-Smith mentioned. The fact that these protests may be made by people who have bought a share each in order to make them is, to my mind, not really the point. This can be found out at the time. The point is that they can do that. So the whole area of owning shares and giving financial support to a public company is quite different from that of supporting a trade union. It would seem to me that to
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equate the two dead down the line and pick bits out of the 1913 Trade Union Act, bits out of something else, and to parcel the whole lot together as though we were tackling an identical point is not reasonable. Therefore, I hope that my noble friends will resist this amendment.
4.56 p.m.
Lord LLOYD of KILGERRAN: When the noble and learned Lord, Lord Elwyn-Jones, made his preliminary remarks on this occasion he quoted very forcefully the well known Asquithian adage, "Wait and see". That has been the part I have been playing this afternoon. However, I should like to say that I very much sympathise with the general principles that have been enunciated by the noble Lord, Lord Wedderburn, with such clarity, and in particular his generalisation, which was something along these lines: that social justice requires that there should be a legal framework around any political fund set up by a company. In my view that approaches industrial activities, and the distribution of assets arising from industrial activities, in a very realistic way.
Of course it is arguable—and I should welcome any observations from the noble Lord, Lord Wedderburn, on this generalisation—that in the modern state of industrial activities social justice requires that companies should not be entitled to form a political fund of any kind, and therefore that none of its assets produced by the efforts of its employees should be used for any political purposes in a partisan political way. I am inclined to agree with the noble Lord, Lord Mottistone, when he says that to try to compare the position of a shareholder in a company with that of a member of a trade union does not help in this general consideration of social justice when making political payments.
Having regard to certain developments in another place in regard to payments made to political parties to assist them in the research activities of their staff, and in view of what is now called, I believe, the "short money"—the assistance given to political parties—I wonder whether the noble Lord, Lord Wedderburn, has considered in any way the point that if a political fund is to be set up by a company then the assets put into that political fund should, in social justice in the context of

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our industrial society, be shared somehow among the main political parties concerned.
At the present time "short money" is distributed by some formula which relates to the number of votes the parties have and the number of Members of Parliament that have been elected, up to a particular maximum. It would seem to me—and I make an earnest appeal in this matter—that companies should consider whether or not social justice demands their taking a lead by deciding, if they set up a political fund, that the share-out shall be distributed in a way comparable to the way in which public money is now given under the "short money" scheme.
Lord TORPHICHEN: May I ask the noble Lord, Lord Wedderburn, how he intends tax treatment to be comparable? Does he intend that trade unions may use tax free payments from their members to be applied directly to the Labour Party, and does he intend that companies may pay money to the Conservative Party only after they have paid 54 per cent. corporation tax? Could he explain it, please?
Viscount TRENCHARD: Would the noble Lord like to explain that point before I reply?
Lord WEDDERBURN of CHARLTON: I understand that the amount paid into the political fund would not suffer any tax disadvantage under my schedule compared with the situation as at present.
5 p.m.
Viscount TRENCHARD: I had hoped that we could deal with these amendments—and I am grateful to the noble Lord for moving them all together—in such a way as to shortern time by dealing with them in a brief way, but I feel I must reply to a number of points he made, some of which he made on Second Reading and additional ones he made today, and then I will reply to the points made by the noble Lords, Lord Murray of Gravesend and Lord Lloyd of Kilgerran.
I hope the noble Lord will not take it amiss when I say that I believe these amendments are—I am sure sincerely and therefore in error—bogus in moti-
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vation; albeit accidentally, hypocritical in nature; and wholly unnecessary or inappropriate to a Companies' Bill, and I shall begin with the latter point. I agree with the point made by Lord Lloyd and others that one cannot compare companies with trade unions, and I note that the right honourable gentleman, Mr. Dell, in Committee in another place was quoted as having said in 1968:
"There is a difference in position between companies and trade unions, apart from the administrative problems which would be involved"—
in the proposals at that time—
"The difference is that it is easy for a shareholder to contract out if he thinks fit.—[Official Report, 10/7/68; vol. 768, col. 510.]
I shall come later to the special classes of shareholders whom the noble Lord mentioned. I do not feel that those who moved and support this amendment are really trying to protect shareholders; I believe they are basically trying to increase pressure on boards of directors not to contribute to a party which they may consider has the welfare of their company more at heart than any others.
Directors have the task of looking after their companies in every way they feel appropriate. It is my experience that the majority of shareholders often wish their companies to pay more than boards of directors usually suggest—I shall come to the very small figures later—and often wish their directors would do that and contribute to the party which stands as the main bulwark between them and, sometimes, threats to their welfare, such as nationalisation, whether frontdoor or backdoor; such as considerable State interference which they believe sincerely is likely to risk the future of their companies and of their employees in them; and such things as excessive price control, rendering profits at a level which cannot sustain investment, and excessive dividend control, and indeed policies now proved to be conducive to industrial decline to a degree which would have proved fatal to this country's standard of living and to all its social policies as well, but for certain good fortune in the shape of North Sea oil.
The amendment is hypocritical in nature because I believe noble Lords know well that in many surveys, and notwithstanding all the remarks they have made, it has been shown that large numbers of

55
employees have no idea that they are paying a political levy, and some of these surveys were mentioned in Committee in another place.
Lord WEDDERBURN of CHARLTON: Would the Minister state exactly who did the surveys and across what sample they were done?
Viscount TRENCHARD: There was a survey quoted in Committee in the other place that had been done by Michael Moran, who studied Post Office workers in London in 1975. It was mentioned there that of his sample only 51 per cent. realised they did so—only 21 per cent. thought their union should be affiliated to the Labour Party—and therefore 49 per cent. did not even realise they were paying the levy. There was another survey of Vauxhall wokers in Luton and I have seen others. I would be delighted to discuss the matter with the noble Lord, but any industrialist with experience would confirm that a number of forms are signed when an employee joins a company and that they are not read with care, and he is in. While I accept he can contract out and that, theoretically at least, nobody will know he has contracted out, the atmosphere on the shop floor is such that he is in whether or not he knew it, and he would certainly need some of the courage which my noble friend Lady Hornsby-Smith mentioned to consider contracting out.
In many other countries employees still have to contract in. In many countries it is not legal to deduct union dues of any kind at all. Therefore, it must be accepted, and is known, that this becomes very much an automatic levy. I feel that noble Lords also know that we have a quite unique closed shop position, and this at times leads to pressures—not of course in many cases—which cannot be called entirely wholesome. I feel that employees simply would not, if they had to make a voluntary act, in many cases contribute to a party of which they are not members and which, in a number of cases, they do not support or even vote for.
Lord HATCH of LUSBY: Like the noble Baroness behind him, I fail to follow the Minister's argument, and perhaps he can help us. He seems to be arguing that the principle of contracting
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in should be applied in the case of trade unions but not in the case of companies. If he is talking about a principle then, as my noble friend Lord Wedderburn pointed out, surely the question of equity should be included in this Bill. On the same point, may I also ask the noble Viscount whether he has any surveys of the number of shareholders who are aware of the political contributions of the companies of which they are members?
5.10 p.m.
Viscount TRENCHARD: First, I want to make it clear that I am not recommending anything in relation to trade unions. I have in fact already pointed out—there have been several mentions of the matter in the debate—that the comparison between trade unions and companies is not appropriate. At the moment I am dealing with the question of whether the movers of the amendment are really wishing to protect the shareholder, in view of the other side of the picture (in so far as one can compare) involving comparisons between the pressures on employees, tacit or automatic, and the pressures on companies.
With regard to the noble Lord's second point, as to whether I know of surveys of shareholders the answer is, no, I do not, but I know of cases where there has been considerable pressure, and I know of companies who have written to all shareholders, and where a very large majority have in fact encouraged boards of directors to subscribe. But I do not know of any published independent surveys; and I was speaking there from my experience as an industrialist.
I should like to continue for a few moments on these general points before returning to the applicability in company law. Do noble Lords opposite wonder why more companies do not contribute to their party? I wonder whether this is because the shareholders as a whole believe that that would not be in the interests of their companies or employees. I wish to refer very quickly to two figures which were also mentioned in the Committee stage in the other place. First, I gather that the percentage of union contribution represented by the political levy is about three per cent. Furthermore, I gather that the percentage of dividend in

57
those cases where companies contribute is 0·3 per cent. of the dividend.
I will not take the time of the Committee in entering into the detail that I should like to enter into in relation to the noble Lord's figures both at Second Reading and now, but it must be well known that two-thirds of the top fifty companies, for instance, make no contribution. The average contribution made to the Conservative Party, and not to other bodies (which I shall come to in a moment), in the minority of contributions that comes from companies is £200. The majority of the Labour Party's finances come from the political levy with the degree of automaticity that I have suggested. I understand that the noble Lord, Lord Houghton of Sowerby, in his committee looked at a hundred constituencies in relation to individual membership, and found that 2,400 members was the average for the Conservative Party, 500 was the average for the Labour Party, and 300 was the average for the Liberal Party. I will not say more on that aspect, except to add that I feel that the comparison cannot be made, but if one does make it, it must be made fairly so far as a general discussion is concerned.
I feel that this measure is totally unnecessary and inappropriate in a companies Bill. We have already seen the scale and size of contributions which are declared; they are very small, and do not involve a majority of companies. I cannot see why any class of shareholders—private, pension fund, or trustees—who presumably have a degree of freedom of investment, and who, if they really feel that this is a matter that they should not under any circumstances support, should not move their support. Of course, before that, institutional investors are in the fairly strong position of being able to raise the matter with the company. I am quite clear that at the moment the answer they would get from the company is, quite possibly, put up the subscription.
As I have said before, directors must be free to take any actions which they consider to be in the interests of their companies, of all who work in them, and of the shareholders; and I believe that in some cases there will be no question that directors quite correctly take the decision that the action would be in the interests of their company.
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There is an invidious situation in the proposals as written. For instance, they require the names of those who contract out inevitably to be public and to be known, as I understand it. Of course, this is distinct from the trade union position where although, as I have said, there may be a fear as to whether the fact will be known, while in this case it would be known. I understand that under the proposal as drafted, if the assets of a company, including even a sportsfield were used for a particular occasion—even for the Liberal Party to run a special event in the summer, if I may say so—without the AGM being asked, that would be illegal. Therefore, we feel that apart from the comparison first being not valid, and secondly, being one-sided, in so far as it has been made today—and I have tried to put the other side—what is proposed is not appropriate to company law. We feel that shareholders' interests are well and truly protected without any such measure.
I am afraid that I have taken rather a long time, and I should like quickly to look at the points made by the noble Lord, Lord Murray of Gravesend, including the point that shareholders should be free to contract in. He made the point—I was out of the Chamber at the time—that there has been much publicity advising shareholders to contract out. I accept that there has been this publicity, but speaking with a little advertising experience behind me, I still believe that the surveys will show that there is still a very high percentage of employees who are not aware of the position and who sign all their forms upon arriving in their company.
With regard to the points of the noble Lord, Lord Lloyd of Kilgerran, all I would say, in order not to detain the Committee, is that there are many broader arguments in which different opinions are held as to how social justice, as he describes it, can be attained in our peculiarly British situation where the trade unions are, to a greater extent than anywhere else, affiliated to one party. Therefore, I believe that the problem in this country is quite a separate one, and that company law should not lay specific requirements on boards of directors in relation to this kind of contribution which, in any event, has to be made openly and published. Therefore, I advise the Committee to reject all these amendments.
Lord WEDDERBURN of CHARLTON: Following the noble Viscount's reply, I feel that it is necessary to say something more to the Committee on this matter. First, I wish to say on behalf of myself, and I think one or two of my noble friends, that the noble Viscount adopted an attitude which we have noticed—some of us being quite new to your Lordships' House—has become a fairly regular procedure on the part of the Government. With great charm and urbanity he attacked my personal integrity in moving the Amendments. If I may use his words, he said that those who moved them were "bogus in motivation" and "hypocritical in nature". This kind of attack, from which we on this side of the Committee always try to refrain, is one part of the double standards with which one hopes your Lordships' Committee will not be troubled too much longer.
One of the first things that one is taught at the Bar is, "Do not plead fraud unless you have to, because if you plead fraud and attack the other side's bona fides it will only look as though you have a very weak case"; and if ever I have heard that proved, it is today by the noble Viscount from the Government Benches. Because what did he do? He said that I am not trying to protect shareholders, and that my noble friends and I do not care. We are, if for no other reason because—all right—there is a party interest in the matter. I am very interested in the pension funds which workers build up and which are becoming increasingly heavy investors. Apart from pension funds of the National Union of Railwaymen, which go elsewhere, the pension funds of trade unions are very important investments these days in public companies, and, as their members have the right to contract out of political payments in their union—and I say this with no double motivation—I want them to have the right to contract out of political payments by public companies.
The noble Viscount then went on to make a speech which largely criticised the 1913 Act, just as did the noble Baroness, Lady Hornsby-Smith. I do not know how many complaints she took to the Registrar about those who could not contract out, but certainly not many are recorded; and, of course, it is always very difficult to argue with something which has
60
been said to another Member of your Lordships' House in private. No doubt the conversations which she conveyed to your Lordships' Committee were valid and correct, but I still insist that overall the evidence is overwhelming that those who want to contract out do so. The noble Baroness was less than accurate in her memory about the mechanism of trade union law, because, of course, the method of contracting out was introduced in 1913; the method of contracting in was imposed in 1927; the method of contracting out was restored in 1946—the first act of the Labour Government, and the rightful first act of that Government, in that year—and in 1968 the Donovan Commission went into the whole matter. Since its report it has generally been accepted on all sides that it is now a non-party matter that contracting out should remain, and I was very surprised to hear from the Government Front Bench even the hint of a suggestion that they will go back upon that.
The noble Lord, Lord Mottistone, said that it was wrong to equate the shareholder with the trade union member. Of course, in many respects that must be right; the noble Lord is pushing at an open door. What I am saying is that in respect of political expenditure there is an equation which can and should be made, and it does not answer the case (as, indeed, the noble Lord found when he addressed himself to the point) to say that the shareholder can sell, because it should be his right to stay in and not to pay.
Lord ROBBINS: May I ask the noble Lord a question? Would his strictures be so severe if it were proposed to substitute contracting in both for shareholders and for trade unionists?
Lord WEDDERBURN of CHARLTON: I have views on that, and I would be happy to discuss with the noble Lord on some other occasion whether we should reconstruct the entire law rather than the 1913 Trade Union Act; but the noble Viscount has already accused me of being irrelevant in these very amendments, and it would be wrong for me to follow the noble Lord, Lord Robbins, into further irrelevancies.
The noble Lord, Lord Mottistone, said, which is true, that some workers work in a closed shop. The latest estimates put the

61
figure at about 6 million of all forms of union membership arrangements, if I may use the correct term, out of a 24 million workforce. Of course, it is true that, for those workers, changing a job is very difficult; but it is to be remembered that that is the proportion and that it is no higher. But whether or not in a closed shop, the worker has the right to contract out. There are, indeed, trustees who would find it very difficult to avoid investing in one company or another which makes a political donation without being in some form of breach of duty. The noble Viscount, Lord Trenchard, said that the majority of shareholders support political payments. Indeed, he suggested that the majority of shareholders would want to put them up. I am not doing anything to stop them putting them up: I am saying that the minority ought to have the right to contract out.
What an extraordinary example of contrast we have when it comes to individual rights! When it is the individual rights of the union member—except on this occasion, when apparently they are to be reduced to that of contracting in, but otherwise—a great phalanx appears on the other side of the Committee baying for the blood of those who defy workers' individual rights. But give them the individual rights of the shareholder to play with, and what do they do? They throw them out of the window. "Oh!—he is just a man who has bought a share to come along and make trouble", says the noble Baroness. He has a right to buy that share, just as he has a right to be a member of some trade union. He has a right to buy a share if he wishes, and if he wants to say, "I want to contract out", why on earth should he not?
In fact, the arguments on the other side of your Lordships' Committee have been addressed, not to my amendments (except for the points made by the noble Viscount, to which I am just coming) but to the 1913 Act. If, when the time comes, noble Lords opposite want to move amendments to the 1913 Act, we on this side of the Committee shall be very interested to debate them with them; but what I am doing is to take the law as it is and to say that the law is out of phase, is not evenhanded. I am saying that there are some shareholders who genuinely want to contract out of political expenditure, and
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that this is the way to do it. Nothing said by the noble Viscount has proved that the mechanisms in my amendments will not work—and it is not right to say that this has been debated only recently. This matter has been debated four or five times in various places: once in another place on Mr. Hoyle's Bill, once in Committee in another place on Mr. Mikardo's amendments, and elsewhere on other occasions; and usually it has been said, "It is company law; you cannot do it because the techniques are too difficult". But the noble Viscount has not produced one single company law argument today to show that the mechanisms in my amendment will not work. So, for the first time, your Lordships' Committee has a chance to vote on the principle of the thing.
The noble Viscount says, "Ah! But it is not appropriate to put it in this Bill". With great respect to him—and I do not doubt his integrity in saying that—Clause 40 is precisely the place to put it, because Clause 40 of this Bill deals for the first time in English law with the distribution of assets of a public company, with their right to distribute assets, with their right to distribute dividends, with what is to be regarded as an undistributable reserve and so on. I am saying that the right mechanism is to have a political fund made up of distributable assets, and that, therefore, when you are putting into statute law for the first time what shall be put into distributable assets and what shall not, that is the time to introduce the right of a minority shareholder to contract out of a political fund.
As for using the assets of a company, the noble Viscount suggested that if a company financed a sports day for the Liberal Party that would be illegal. I think that was a slip of the tongue—I will give him the benefit of the doubt—because, of course, it would not be illegal.
VISCOUNT TRENCHARD: I did not suggest that it would be illegal. I said it would have to have the permission of an annual general meeting.
Lord WEDDERBURN of CHARLTON: I see. We can resolve that by looking at the Official Report, but I am happy that the noble Viscount says that. It is quite true that on my amendments it would need an ordinary resolution to

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set up a political fund, and that it would have to be financed out of a political fund, just as, if a trade union finances a sports day for the Labour Party, it is paid for out of its political fund.
The noble Viscount suggested that there is something sinister—this is my final point—in that part of the schedule which requires the exempt member to be distinguished by name. It is quite true that in a paragraph of the proposed schedule (which I would be perfectly happy to withdraw if that is his only remaining objection) a mark is to be put by the side of the names of exempt members. That provision is there to deal with a point made in Committee in another place, that a purchaser ought to have the right to know whether or not the person from whom he is buying a share is exempt. If the noble Viscount does not want the purchaser to know by way of looking at the share register but to have to ask the shareholder I shall be very happy to withdraw that paragraph of the amendment at Report stage, after it has, as I hope it will be, been passed by your Lordships' Committee today.
The sense of the sinister of the noble Viscount, his antennae for the possibly sinister, is quite staggering. He suggested that this was an invidious feature of the Bill, as though the exempt shareholder was to be held up to ridicule, placed in the stocks. It is nothing of the kind. It is simply an attempt to answer a technical point that a purchaser who wants to buy shares ought to know whether or not a shareholder is exempt. If the noble Viscount has a better way of doing it, I am perfectly happy to adopt it. I repeat what I said in introducing these amendments to your Lordships. I believe they are right in principle, and I believe they are practicable in mechanics. I have not heard any argument which relieves me of that view, and I therefore beg leave to press these amendments before your Lordships' Committee.
Viscount TRENCHARD: May I say one thing? I did say that I did not doubt for a moment the sincerity of the movers of these amendments, but I said that I found that the amendments were bogus in their motivation, and hypocritical in their nature. I was not reflecting on noble
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Lords. I said that I recognised that they hold with great sincerity the beliefs that they have expressed, just as I hold mine.
I think that my noble friend Baroness Hornsby-Smith was not suggesting—and, certainly, I was not suggesting—that there should be a change in the situation in relation to contracting in or contracting out. What we were both suggesting was that the changes that have been made—and the noble Lord has corrected us as to the dating and timing—did apparently have a dramatic effect, which was referred to at Committee stage, on the number who were so contributing. This, I think, supports the feeling that there is automaticity. It was part of our rejection of the fact that a comparison—we feel that such a comparison ought not to be made, but in so far as one can make it at the moment—which suggests that the shareholder has less rights in this matter than the employee is, in practice, not correct.
If I may finally again advise the Committee, in the British situation, as it is and with the practice of the position as it is, and bearing in mind the duties of directors, I feel that these amendments should be rejected.
Lord WEDDERBURN of CHARLTON: I accept the noble Viscount's remarks about my sincerity and express my now new understanding about the amendments themselves, rather than my own sincerity being bogus and hypocritical. I take the opportunity to say that it is remarkable that, in his final three minutes at the Dispatch Box, the noble Viscount concentrates on the 1913 Act and ends up by saying that the shareholder does not have less rights than the union member. I repeat that the shareholder does have less rights—but he will have equal rights when these amendments are passed by the Committee.
The DEPUTY CHAIRMAN of COMMITTEES (Lord Nugent of Guildford): The debate has run over several amendments. The Question before the Committee is that Amendment No. 7 be agreed to.
Viscount TRENCHARD: Does the noble Lord not wish to move all the amendments that he mentioned?—Amendments Nos. 7 to 11 and No. 39.
The DEPUTY CHAIRMAN of COMMITTEES: They can be moved later if the noble Lord so wishes. The Question before the Committee is that Amendment No. 7 be agreed to.
5.42 p.m.
Clause 40 agreed to.
[Amendment 8 not moved.]
Clause 41 agreed to.
[Amendment 9 not moved.]
Clause 42 agreed to.
[Amendment No. 10 not moved.]
Clauses 42 to 45 agreed to.
5.33 p.m.
On Question, Whether the said Amendment (No. 7) shall be agreed to?
Their Lordships divided: Contents, 33; Not-Contents, 80.

CONTENTS

Ardwick, L.

Fisher of Rednal, B.

Sainsbury, L.

Aylestone, L.

George-Brown, L.

Segal, L.

Bacon, B.

Hale, L.

Shinwell, L.

Blyton, L.

Hatch of Lusby, L. [Teller.]

Stewart of Alvechurch, B.

Brimelow, L.

Jacques, L.

Stone, L.

Brockway, L.

Janner, L.

Taylor of Mansfield, L.

Bruce of Donington, L.

Leatherland, L.

Wedderburn of Charlton, L. [Teller.]

Burton of Coventry, B.

McGregor of Durris, L.

Castle, L.

Murray of Gravesend, L.

Willis, L.

Collison, L.

Oram, L.

Wynne-Jones, L.

Cooper of Stockton Heath, L.

Phillips, B.

Craigavon, V.

Plant, L.

NOT-CONTENTS

Aldenham, L.

Fortescue, E.

Mottistone, L.

Alport, L.

Fraser of Kilmorack, L.

Mountgarret, V.

Amory, V.

Galloway, E.

Mowbray and Stourton, L.

Ampthill, L.

Glenarthur, L.

Newall, L.

Avon, E.

Greenway, L.

Nugent of Guildford, L.

Belstead, L.

Hailsham of Saint Marylebone, (Lord Chancellor.)

Rankeillour, L.

Bessborough, E.

Rawlinson of Ewell, L.

Buxton of Alsa, L.

Hankey, L.

Redmayne, L.

Cairns, E.

Hanworth, V.

Reigate, L.

Campbell of Croy, L.

Harmar-Nicholls, L.

Romney, E.

Cathcart, E.

Hawke, L.

Sandys, L. [Teller.]

Chesham, L.

Henley, L.

Sempill, Ly.

Clancarty, E.

Home of the Hirsel, L.

Soames, L. (Lord President.)

Clitheroe, L.

Hornsby-Smith, B.

Spens, L.

Cockfield, L.

Hylton-Foster, B.

Stamp, L.

Colville of Culross, V.

Ilchester, E.

Strathclyde, L.

Cottesloe, L.

Inglewood, L.

Strathspey, L.

Cullen of Ashbourne, L.

Killearn, L.

Swinfen, L.

Daventry, V.

Kilmarnock, L.

Swinton, E.

de Clifford, L.

Long, V.

Torphichen, L.

De Freyne, L.

Lyell, L.

Trenchard, V.

Denham, L. [Teller.]

Macleod of Borve, L.

Tweedsmuir, L.

Ellenborough, L.

Mancroft, L.

Vickers, B.

Emmet of Amberley, B.

Marley, L.

Vivian, L.

Exeter, M.

Merrivale, L.

Ward of North Tyneside, B.

Faithfull, B.

Monck, V.

Willoughby de Broke, L.

Falmouth, V.

Morris, L.

Young, B.

Resolved in the negative, and amendment disagreed to accordingly.

Lord MISHCON Lord MISHCON moved Amendment No. 11:
After Clause 45, insert the following new clause:
"General fiduciary duty of directors
45A.—(1) The directors of a company (whether performing their functions or acting individually) shall act honestly in relation to the company and observe the utmost good faith towards it and accordingly shall perform their functions in what they consider to be the best interests of the company as a whole.
(2) The directors of a company shall not perform any of their functions for a purpose not contemplated by the instrument or resolution conferring or imposing that function.
(3) A director of a company shall not—

(a) allow a conflict to arise between the duties of his office and his private interests or any duties he owes to any other person; or

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(b) do any thing which, at the time it is done, could reasonably be expected to involve his contravening pragraph (a) above.".

(4) Without prejudice to subsections (1) to (3) above, a director of a company or a person who has been a director of a company shall not, for the purpose of gaining, whether directly or indirectly, an advantage for himself—

(a) make use of any money or other property of the company; or

(b) make use of any relevant information or of a relevant opportunity—

(i) if he does so while a director of the company in circumstances which give rise or could at the time he does so reasonably be expected to give rise to such a conflict; or

(ii) if while a director of the company he had that use in contemplation in circumstances which gave rise or could at the time he had that use in contemplation reasonably have been expected to give rise to such a conflict.

(5) In this section—
"relevant information", in relation to a director of a company, means any information which he obtained while a director or other officer of the company and which it was reasonable to expect him to disclose to the company or not to disclose to persons unconnected with the company;
"relevant opportunity", in relation to a director of a company, means an opportunity which he had while a director or other officer of the company and which he had—

(a) by virtue of his position as a director or other officer of the company; or

(b) in circumstances in which it was reasonable to expect him to disclose the fact that he had that opportunity to the company.

(6) If any person contravenes subsection (4) above, he shall be liable to account to the company for any gain which he has made directly or indirectly from the contravention and shall be liable to compensate the company for any loss or damage suffered directly or indirectly by the company in consequence of the contravention.
(7) A person shall not be regarded as contravening any of the foregoing provisions of this section by reason of any act or omission which is duly authorised or ratified; but the foregoing provision shall not be construed as permitting the authorisation or ratification of any act or omission which cannot be authorised or, as the case may be, ratified apart from this section.
(8) This section has effect instead of any rule of law stating the fiduciary duties of directors of companies, but is without prejudice—

(a) to any remedies which may be available apart from this section for a breach of any such duty; and

(b) to any other provision of the Companies Acts imposing duties or liabilities on such directors or defining their duties or liabilities;
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and compliance with any requirement of those Acts shall not of itself be taken as relieving a director of a company of any liability imposed by this section".

The noble Lord said: I crave the indulgence of the Committee and its usual kindliness as I rise to move Amendment No. 11. I shall possibly get some sympathy from the Committee if I try to make a brief and not a long speech. I am going to try to do it in this way: I want to speak, obviously, to Amendment No. 11 but I want to bring within the purview of my remarks the other amendments that I shall be moving—namely, Amendments Nos. 12, 14 to 18 and 21 to 23—all of them dealing with matters affecting directors. Therefore, I want to make some general remarks about why we feel that these provisions should be in the present Bill. I want to try to stress the urgency of the matter and I hope to convince the Committee that these amendments should be passed.
Amendment No. 11 deals merely with the duties of directors and conflict of interest. But the following amendments deal not only with those duties but with the care and skill which directors ought to exercise in carrying out their duties, the questions of conflict of interest, loans and guarantees in regard to directors, service contracts of directors and transfers of property by and to directors. All these matters have had consideration in another place over a very long period of time and indeed have had the consideration of two committees: the Jenkins Committee and the Bullock Committee.
Before I come to some of the questions which relate to the unacceptable face of some aspects of City life, as revealed over recent years, may I say that the main consideration that over a number of years exercised the minds of many people who were concerned with matters affecting the direction of companies, was that the duties of directors, and the matters to which I have just referred in general terms, are matters that range over a wide area of case law going back over an extensive period. The maxim "Ignorantia juris neminem excusat"—" ignorance of the law excuses nobody"—seems to move rather harshly in connection with those who are expected to carry out certain duties and know what their duties are if

69
they had to find them in the midst of a whole list of cases and, in some cases, abstruse judgments of our learned judges.
If I may quote the need as stated by the Bullock Committee that there should be urgent codification of our law and that the rights and duties of directors, and all the things that I have been talking about in connection with directors, should find their way into a statute, I should like to use this quotation from the Jenkins Committee:
"We think it is important that there should be a clear statement of the basic duties of directors in statute law. We realise that this will not clarify all the complexities and ambiguities in case law, and that specific points will continue to be tested in the courts. But we believe that there must be one place where a director can see a statement of the basic duties he owes to the company as a result of his membership of the board".
The Party opposite sought to do something about this in their own Bill in 1973. So it is not a question of this being the first time that they have had a chance to study this matter. I use the word "study" because the noble Viscount, in his helpful opening statement to the Committee, said that further study was necessary before the Government could venture into the clauses with which I am dealing.
The matter has been made very much worse, as we all know, by the reports that have been made by the inspectors under the direction of the Department of Trade of investigations into many matters that have caused us and, quite frankly, the many decent people in the City, the gravest concern. When one looks, subsequently to the 1973 Act, to the way in which the last Government felt that it was really necessary to get down to this job—and they did this in the 1978 Bill—and at some of the quotations from the inspectors' reports, one sees the urgency of this matter and the need for statutory enactment.
It would accord with the good taste that the Committee and the House of Lords always show—I had a slight doubt about it during the debate on the last series of amendments but I am sure that misunderstanding was removed after a very friendly interchange which took place just before the Division—if I do not mention any names, and I shall be forgiven therefore if I say "X", "Y", or "Z". I say this
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because it is well known—and I am looking at the Peachey Property Report and the Dowgate Report—that some people are no longer alive and others occupy respected public places at this moment. It would ill befit me if I were to mention names, in view of the fact that, so far as I know, no prosecutions have been brought yet in respects of these matters, if indeed any will he brought at all.
If I may refer to the Peachey Report referring, as the inspectors did, to what had happened in that company at the instance of the chairman and managing director, Mr. X—here I quote from page 141 of the inspector's report: Mr. X
"used the Company as his private bank. Purely personal items, such as medical bills, hire of films (watching old films at home was another of his interests), entertaining, some domestic bills, were all paid for initially by the Company. From time to time he was required to pay in substantial sums by way of reimbursement both of these items and the proportion charged to him of travelling and entertaining expenses the balance of which had been borne by the company".
Then amounts for the 10 years from 1967 to 1977 are given in the next paragraph. They amount to a total of some £388,000.
In the Dowgate Report, from which I shall quote, a leading member of the City, against whom no criticism at all was made, was questioned by the inspector. This questioning related to a conflict of interest—a matter which is dealt with in the amendments that I shall have the privilege to move before the Committee—and he was asked for his views by the inspector. I shall read from page 250 of this report:
"We ask this question"—
that was of Mr. W—
"how do you deal with a situation which has taken men like Mr. S, who was employed by two companies: Dowgate on the one hand and Saint Clements on the other—both, as it happens, public companies, though one has had its quotation suspended, and both of whom have different shareholders. What is the answer to that?"
Instead of the answer being given: "That is completely contrary to Section so-and-so of the Companies' Act", this is what was actually said:
"Well, I think it puts the man concerned in an impossible position. Whatever he is likely to do or unless he did it on a 50–50 basis and he himself did not participate, I think that this sort of arrangement is completely wrong and it should be forbidden in some way".
That gentleman was the chairman of a leading merchant bank and he thought

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it should be forbidden in some way—no enactment to turn to, no statute to turn to. He thought it should be forbidden.
When I heard the noble Viscount say that further study was necessary, I thought of the 1973 Conservative Bill and then of what had happened in regard to the 1978 Bill of the last Government, which dealt with all these matters: indeed in these amendments we are merely reproducing clauses from the 1978 Bill. What happened was this: the draft Bill came out in the White Paper that was issued, and the White Paper had the careful consideration of all the institutions that are normally connected with company matters. They gave their views; journals, City columns and so on commented and the learned professions concerned with company matters commented. Then came the 1978 Bill, and that was considered in Committee over a period from 5th December 1978 to 29th March 1979. There is not one matter dealt with in the amendments which, as I have said, I shall have the privilege of moving before the Committee, that was not dealt with by the Standing Committee in another place. Furthermore, on each occasion—and I have read the Committee's report very carefully—those representing the party opposite on that Standing Committee (that is to say, politically of the same denomination as the party opposite on Standing Committee F) all showed by their contributions that they had carefully considered every single one of the clauses now before the Committee. They gave their reasoned, considered views: in each case there was no disagreement of principle but only on the approach to the problem.
There is no earthly reason why, that interval of time having taken place and there having been all that consideration, we should not take advantage at this moment, with all the urgency thrown up by the reports to which I have referred—and there are others to which I have not referred—and say: "This is the time to do this job". By all means let the amendments be passed today; by all means let consideration be given at the Report stage to any additions or subtractions that Members opposite would wish to put forward. But the one thing that nobody can afford to do is to say, as the noble Viscount presumably said: "There are a few things that are not controversial:
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there is the question of minority interests and the position under Foss and Harbottle, which ought to go out of the window. There is the question of some degree of employee interests which we can deal with as non-controversial and there is a third item, penalties, which is non-controversial But, surely, it cannot be said by the Front Bench opposite that the matters to which I have referred—of conflict of interest, duties of directors, transfer of property, and of trying to borrow money from companies, so scandalous in some of these cases, that these matters, although they were considered by the Jenkins Committee, by Bullock, in the 1973 Conservative Bill and in the 1978 Labour Bill—all these matters now have to be put off again until 1980.
Frankly, I wonder, if we did put them off until 1980, with all the other matters that come crowding in, whether there would not be some excuse so that these would not be dealt with even in 1980. I ask the Committee to take advantage of this opportunity now, with all this background. I therefore hope that we shall be taking these Amendments, looking at them seriously and, in my view, serving the City well by grappling with these problems at the present time. I beg to move, first of all, Amendment No. 11.
6 p.m.
Lord HARMAR-NICHOLLS: The noble Lord and his noble friends seem to love using words. I should have thought, in general terms, that if there was one clause that was not necessary it was the new clause, Amendment No. 11. Why state the obvious? If something wrong is being done, then it ought to be taken into account in the full context of what has been done. I ask your Lordships to examine the words in new Clause 11. It states that a director "shall act honestly". I should have thought it was clear on both sides, before anyone was elected to the board, that he was expected to act as honest men would. Then we go down,
"shall perform their functions in what they consider to be the best interests of the company as a whole".
If that is not taken for granted when a directorship is offered and accepted, I do not know what is. Then there are the words:
"shall not allow a conflict to arise between the duties of his office and his private interests".

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Who would do that? When unnecessary words are put into legislation, it is confusing and it makes it more likely that an injustice will be done, than that a wrong will be righted.
I have vivid remembrances of when I held junior office at the Ministry of Works. The Ministry of Works were responsible for Trafalgar Square, and the police wanted us to bring in a whole string of regulations which said, "It shall be a breach of the law if they break a flower. It shall be a breach of the law if they scratch part of the plinth. It shall be a breach of the law if they are in the water around the fountain". When I was there, I refused to agree to that. I believe that the only powers the police wanted were to be able to prove that somebody had been committing a nuisance or committing damage, and he ought not to have the protection of being able to say that the damage to a tulip or a plinth was accidental. I believe that it was the duty of the police to show that something had been done deliberately and with some kind of malice, and that some kind of damage had been caused.
1 would cut out all the words in Clause 11 and bring in concise and easily understood legislation. If the noble Lord wants that kind of cover, I would put, "When a director accepts the office of a directorship, he promises not to cheat". That is all you want, and that is all that this adds up to. I do not believe that we want to make this background slur on the way that, by and large, companies are run, by suggesting that this general proposition of honesty and of not allowing interests to conflict is not automatically accepted. If people want to cheat or to act dishonestly, then, if they are to be brought to book in order to have their dishonesty dealt with, it ought to be proved and shown in the full context. There is no need for words of this kind.
Before my noble friend gives the official version, which may be some kind of agreement with the noble Lord, I want to say that it is something of a slur on the general body of people who take on the directorships of companies. If standards of this kind are not taken for granted, then I cannot understand any group of men allowing people to join them on the board of directors. Furthermore, I cannot understand anybody who does not give the
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appearance of being honest letting his name go forward. It is easy to read these words but, at the end of the day, what matters is the quality of the individual. I am saying that they are unnecessary words and that one sentence will cover what is wanted, if noble Lords feel that the obvious needs to be covered. I believe that it is bad legislation to insert on this kind of scale words which are merely stating something that is taken for granted, even before you begin to have any association with a company.
Lord WEDDERBURN of CHARLTON: The noble Lord, Lord Harmar-Nicholls, has put it in a nutshell. You could sum this up by saying "You, the director, must promise not to cheat". But if the noble Lord really believes that legislation of that kind avoids ambiguity, he should take another look at the United States. The central piece of legislation in the securities regulations of the United States, the text of which I do not have with me, is Rule 10(b)(5). The noble Lord would put it very well if he said that all that that rule says is "Thou shalt not cheat", but it has given rise to an enormous amount of litigation, to a huge expenditure in lawyers' fees and to extraordinary uncertainty.
What this clause tries to do is to set out in words that are, on the one side, intelligible and, on the other side, sufficiently particular to bring this to the attention of those who are taking directorships upon themselves, so that they can regulate their affairs and avoid the kind of practices which my noble friend Lord Mishcon described. I hope the noble Viscount will agree that there has been a valiant effort on the part of his advisers to codify in what the noble Lord, Lord Harmar-Nicholls, seems to think is a very easy area, but is, in fact, a very difficult area of case law. For example, it is possible to find that some breaches of the fiduciary duty of directors are capable of being validated by an ordinary resolution in general meeting, by means of what Lord Justice Harman, in the case of Bamford v. Bamford in 1970, at page 212 of Chancery Cases, called,
"The absolution of their sins by the general meeting in ordinary resolution".
The vast area of complicated fiduciary duties, which have been reduced here in a most remarkable manner to a text that

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will bear the brunt of any criticisms that are brought to bear upon it, derives from cases of that kind, and from the leading House of Lords decision of Regal (Hastings) Limited v. Gulliver in 1942. Those areas are open to ratification. But there is another area of fiduciary duty which is not open to ratification; that is, the very grave and serious cases which are not easy to define. Noble Lords who know this area will have heard of the case of Cook v. Deeks in 1916, in the first volume of Appeal Cases for 1916, where the directors' breach of fiduciary duty was so grave that the general meeting was not allowed in law to validate what had been done.
This point is addressed by the text of the clause in what is now subsection (7). I noticed that the noble Lord, Lord Harmar-Nicholls, did not proceed to explain what that subsection meant, but in case he should want to do so I suggest it means that, as far as the clause goes, the duties imposed may be open to that form of ratification. But if there are breaches which, apart from the clause, could not be ratified—that is, under the doctrine of cases such as Cook v. Deeks; the very serious breaches—then they remain not open to absolution by way of authorisation or ratification. It is true that that lets in some of the old case law by the back door, because you have to go to the old case law to see what, apart from this clause, is open to ratification and what is not. But I do not think that the clause should be criticised on that account.
It refers to the old cases. It was impossible to put into the clause precisely the circumstances where ratification was available. But the clause is saying that in the ordinary case it normally will be available, unless it is a very grave case, and for that you will have go go to the judicial decisions, which may be as far as the codification of the fiduciary duties of directors should go for the moment. But that it should not go so far, in the circumstances described by my noble friend on the Front Bench, would seem to be most deplorable.
It would not take very much of the time of the Government to bend an ear to the pleas of those who want this codification of directors' duties, so far as it goes, the purpose being that you would be able to
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point to, at any rate, a "highway code". You would not get out of all the problems. No statute ever gets out of all the problems—the lawyers see to that. There is always a brief fee to be earned somewhere, on one side or the other, and quite properly earned. There is nothing improper about it. The noble Lord seems to think that there is something wrong with that. There is nothing improper about lawyers earning their fees and arguing about the interpretation of a statute, and they will argue about this "highway code".
But, at least, you will have a "highway code". At least, you will not get report after report, where the first thing that a director says to the investigating inspector is, "I did not realise that I was doing anything wrong". If you give him those two pages he makes a start and addresses his mind to the fact that if he is a director he must not allow a conflict between his interests and his duties. Noble Lords opposite may think that that never happens. The noble Lord, Lord Harmar-Nicholls, suggested that anyone who becomes a director knows that. In that case, the noble Lord is very fortunate in his friends. I am sure that most of them do, but there are some who do not. They turn up in these cases.
When it comes to other amendments to the clauses, I hope to address your Lordships on some other malpractices which turn up, although, no doubt, in a minority of cases. But why cannot the Government accept, as my noble friend has said, a text which has been much debated, which would do some good, which would not end the difficulties—because case law will continue although, one hopes, on a diminished scale—but which at least would provide a "highway code" of fiduciary duties for directors of companies, where so much of the malpractice is said to stem from ignorance? At least that would surely be cured.
6.10 p.m.
Viscount TRENCHARD: I think I am right in saying that this is the first time that the noble Lord, Lord Mishcon, has spoken from the Front Bench opposite. May I congratulate him on the much greater clarity that he commands than anything which I or, indeed, many Members of your Lordships' House can possibly command and also on the way in which he put his points.

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This is the first of the matters which was mentioned by the noble and learned Lord, Lord Elwyn-Jones. In reply to my introductory statement, the noble and learned Lord said that he hoped that he could persuade us to amend our views. Therefore, it is important for me to repeat once again why the Government feel, regarding these matters—and this one in particular—apart from those upon which I have already given the Government's undertaking to accept amendments, that they cannot accept this amendment.
First, during the Second Reading debate I used the word "controversial" on one or two occasions. In my introductory statement today I do not think, although I shall look at Hansard, that I used it. Certainly I did not use it often. We accept that the duties of directors and, when we come to them, insider deals are not controversial, in the sense that all concerned want to make sure that there are no loopholes in the law that allow behaviour which no one could condone. Therefore, I hope that your Lordships will accept my statement at Second Reading, which I have repeated today, regarding the Government's intention to return to these matters when the 1980 Bill is considered in this House. Thus, again I say that there will be a full opportunity at that time to go into those matters in very much more detail than I certainly intend to do in replying today either to this amendment or to the others.
The Government feel that there are many matters concerning the treatment of these important proposals which require more study. We say that partly because of recent cases, such as the Peachey case which has been quoted. The Government are studying the full implications of the latest cases in order to make as sure as they can that the law, when enacted, will deal effectively with these matters. We accept that the need is urgent, in the sense that one cannot condone the continuance of this kind of thing. However, I go some way—I think I must say only some way—with my noble friend Lord Harmar-Nicholls, when I say that I am absolutely sure that not only is our company law not effective, to a degree, at the moment but that the majority of businesses would no more contemplate the kind of occurrence we have seen exposed than the man in the moon.
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I do not know whether it is appropriate at this point to say that there was a moment when I was trying to persuade one of my sons, when he was leaving university, that industry was a rewarding challenge. I told him that in my 30 years of industrial experience I had virtually never been let down; I had found men of business to be men of honour, in every shape and form. He looked at me charmingly and said, "Dad, I'm not sure that you know what goes on"! Therefore, I do understand the view which has been expressed by the noble Lord, Lord Mishcon, that we must treat these matters as urgent. And the Government are treating these matters as urgent. However, I say again that the Government are absolutely certain that more study needs to be done.
Let me refer quickly to Amendment No. 11. This subject was mentioned at the Second Reading of the Bill by the noble and learned Lord, Lord Elwyn-Jones. He argued that this part of the previous Governments Bill:
"… expressed succinctly the rules with regard to a director's fiduciary duty as they have been developed in a wide variety of court decisions over the past 100 years".—[Official Report: 25/6/79; col. 1249.]
With respect to the noble and learned Lord, I am advised that there are doubts as to how succinct the clause really is. Moreover, a great many commentators have expressed very serious doubts about its effects. While there is general agreement on the desirability of a form of statutory statement of directors' duties, the form that statement should take cannot be regarded as one where there is no disagreement, or one which is subject only to minor disagreements on drafting. In fact, this subject raises fundamental questions of approach which demand the most careful consideration and consultation.
May I explain in a little more detail the doubts and difficulties regarding the proposal in this clause to codify directors' fiduciary duties. Both the noble and learned Lord and the noble Lord suggested that a statement of the kind set out in the previous Bill was recommended, to a degree, by the Jenkins Committee. As I am advised—and I know that I am speaking in the presence of much greater experts than I—the Jenkins Committee specifically recommended in many respects against the codification of this area of the law.

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Jenkins, as I understand it, accepted the view expressed then by The Law Society and the Bar Council—a view which I understand they still maintain—that codification was likely to do more harm than good, since it would be almost impossible to express the law correctly. Jenkins recommended instead a partial statement of directors' duties designed to supplement the common law and not to replace it.
The noble and learned Lord, Lord Wedderburn of Charlton, said in the debate on the gracious Speech that:
"The valiant attempt of the department to codify, in Clause 44 of the 1978 Bill, the fiduciary duties of directors, may indicate that some areas of the judge-made law cannot be included in a codification; … ".—[Official Report: 16/5/79; col. 93.]
Lord WEDDERBURN of CHARLTON: Would not the noble Viscount agree—and I hope that he will because I am reading from it—that although the Jenkins Committee stated in their report, as he said, that they were not in favour of a complete codification of fiduciary duties, they summarised their view by saying:
"On the contrary we think that a general statement of the basic principles underlying this relationship nowhere explicitly stated in the present Act might well be useful to directors and others concerned with company management and we recommend such provision in paragraph 99A below".
Would the noble Viscount not agree that the Jenkins Committee said that in 1962 and that, in the 17 years that have passed, the lack of such a general statement as that in the amendment being proposed by my noble friend has done a great deal of harm, and it is time it was remedied?
Viscount TRENCHARD: My Lords, I am sure that the noble Lord has correctly quoted the Jenkins Report. I am also clear that the fact that very little has been done in a considerable number of years is not entirely the fault of this Administration. Furthermore, once again we believe that the point quoted by the noble Lord—namely, the reconciliation of a new definition of directors' duties with the common law—needs to be thought through further. When the noble Lord gets his opportunity—when we come to the 1980 Bill—he will find that this subject will be treated in a way which we
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hope and believe he will agree will be a better way.
We feel—I hope noble Lords will agree—that there is somewhat of a legal minefield surrounding this subject. As I have said, the last Government waited until the last Session of Parliament before introducing legislation, and even then they were forced to introduce substantial amendments at the last moment during the Committee stage in another place. Noble Lords cannot now reasonably expect us to rush in. I hope the noble Lords who tabled this Amendment will accept that, in view of the serious differences that there have been on this whole question, the Government are right to approach it with care and to defer any decisions on it until after a reasonable time for consideration and consultation. I hope, therefore, that they will agree to withdraw the Amendment.
Lord MISCHCON: I promise to detain the Committee for only a few moments, but first I must thank the noble Viscount for his kind and encouraging remarks and in return I promise never to quote his son's words to him, "I do not think you know what goes on".
The noble Lord, Lord Harmar-Nicholls, may not know this, and I forgive him immediately if he does not, but this was indeed a very clever summary, in the words that he did not find acceptable, of case law dealing with the question of directors. Of course, it is not usual for our learned judges to be content with such brief words as "You shall not cheat" but this followed a particular ruling by Lord Green in Re Smith v. Fawcett in 1942. If I may say so, I am surprised to hear the noble Viscount say that, in spite of all the opportunities that have been given, there has not yet been sufficient consideration of these matters to deal with the question of codification, and particularly the matters with which I tried to deal generally with regard to these amendments.
I only wish to say, first, that the attempts to codify are approved by such bodies as the consultative committee of accountancy bodies, the Institute of Directors, the Association of Chambers of Commerce. Finally, I should like to quote to the noble Viscount what was said in fact in Committee when this stage was reached by the

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honourable Member for the City of London and Westminster—and it will not surprise the noble Viscount if, having mentioned that constituency, I tell him that the honourable Member was in fact a member of the noble Viscount's party. This is what he said in 1978 or at the beginning of 1979:
"The Government have set their hand to the plough and quite rightly and we are in agreement with them. If Solon could do it in one generation and Solomon in another it is right that this Committee likewise should be lawmakers".
Resolved in the negative and Amendment disagreed to accordingly.
6.34 p.m.
Lord MISHCON Lord MISHCON moved Amendment No. 12:
After Clause 45, insert the following new clause:
I hope that this Committee will indeed be lawmakers in this respect in the way that the colleague of the noble Viscount said in such eloquent terms when clauses similar to this were being discussed at Committee stage in another place some months ago.
6.26 p.m.
On Question, Whether the said Amendment (No. 11) shall be agreed to?
Their Lordships divided: Contents, 44; Not-Contents, 74.

CONTENTS

Ardwick, L.

Fisher of Rednal, B.

Mishcon, L.

Aylestone, L.

George-Brown, L.

Monson, L.

Bacon, B.

Gordon-Walker, L.

Murray of Gravesend, L.

Blease, L.

Goronwy-Roberts, L.

Oram, L.

Boston of Faversham, L.

Hale, L.

Pitt of Hampstead, L.

Brimelow, L.

Hanworth, V.

Ponsonby of Shulbrede, L.

Brockway, L.

Harris of Greenwich, L.

Shinwell, L.

Bruce of Donington, L.

Hatch of Lusby, L.

Stewart of Alvechurch, B.

Burton of Coventry, B.

Henderson, L.

Stone, L.

Castle, L.

Houghton of Sowerby, L.

Strabolgi, L.

Collison, L.

Jacques, L.

Taylor of Mansfield, L.

Cooper of Stockton Heath, L.

Janner, L.

Thomson of Monifieth, L.

David, B. [Teller.]

Llewelyn-Davies of Hastoe, B. [Teller.]

Wedderburn of Charlton, L.

Donaldson of Kingsbridge, L.

Wells-Pestell, L.

Elwyn-Jones, L.

McGregor of Durris, L.

Wynne-Jones, L.

NOT-CONTENTS

Alport, L.

Hailsham of Saint Marylebone, (L. Chancellor.)

Rawlinson of Ewell, L.

Amory, V.

Redmayne, L.

Ampthill, L.

Hankey, L.

Reigate, L.

Avon, E.

Harmar-Nicholls, L.

Renwick, L.

Bessborough, E.

Hawke, L.

Robbins, L.

Bridgeman, V.

Henley, L.

Romney, E.

Cairns, E.

Hornsby-Smith, B.

Sandys, L. [Teller.]

Campbell of Croy, L.

Inglewood, L.

Sempill, Ly.

Cathcart, E.

Killearn, L.

Soames, L. (Lord President.)

Clitheroe, L.

Kilmarnock, L.

Spens, L.

Cockfield, L.

Kinnoull, E.

Strathclyde, L.

Colville of Culross, V.

Long, V.

Strathspey, L.

Cottesloe, L.

Lyell, L.

Swinton, E.

Crathorne, L.

Macleod of Borve, B.

Tanlaw, L.

Cullen of Ashbourne, L.

Marley, L.

Teviot, L.

Daventry, V.

Masham of Ilton, B.

Torphichen, L.

de Clifford, L.

Merrivale, L.

Trefgarne, L.

De Freyne, L.

Monck, V.

Trenchard, V.

Denham, L. [Teller.]

Morris, L.

Tweedsmuir, L.

Faithfull, B.

Mottistone, L.

Vickers, B.

Falmouth, V.

Mowbray and Stourton, L.

Vivian, L.

Fortescue, E.

Newall, L.

Ward of North Tyneside, B.

Fraser of Kilmorack, L.

Nugent of Guildford, L.

Wigoder, L.

Galloway, E.

Orr-Ewing, L.

Willoughby de Broke, L.

Glenarthur, L.

Rankeillour, L.

Young, B.

Degree of care, diligence and skill to be expected of directors
45B. In the performance of his functions in circumstances of any description, a director of a company owes a duty to the company to exercise such care and diligence as could reasonably be expected of a reasonably prudent person in circumstances of that description and to exercise such skill as may reasonably be

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expected of a person of his knowledge and experience.
(2) Subsection (I) above shall have effect instead of the rules of law stating the duties of care and diligence and of skill owed by a director of a company to the company".
The noble Lord said: Amendment No. 12 deals with the degree of care, diligence and skill, and for the special benefit of the noble Lord, Lord Harmar-Nicholls, may I say that it is a codification clause which follows the rules laid down by Mr. Justice Romer in the well-known case of City Equitable Fire Insurance which is reported in 1925 Chancery 404. Having made that learned remark, I beg to move.
Lord HARMAR-NICHOLLS: All I would say, as on the last occasion, is that I do not quarrel with the words; they are almost poetic words and they are words with which one could not disagree. I merely said that they are unnecessary. To clutter up the Statute Book with unnecessary words is bad Parliamentary business, particularly when you can get a fairer decision by letting them prove the case without trying to codify or to identify it before it happens. I have nothing against the words. So their Lordships' Bench in the Court of Appeal, or wherever it was, can rest assured that I was not criticising their choice of the English language.
Viscount TRENCHARD: This Amendment, No. 12, has been moved, and for all the reasons I gave on the last occasion I would advise the Committee not to accept it. The question of a statutory formulation of directors' duties of skill and care raises important and difficult issues. The formulation proposed in this clause is simple, and some might say even too simple. Restatement of the rule, as expressed in the leading case of City Equitable Fire Insurance, would be to establish as statute law the proposition that a director owes an objective standard of care, that reasonably expected of a reasonably prudent person, and a subjective duty of skill, that of a person of his knowledge and experience.
Serious doubts have been expressed about the wisdom of this course by a number of commentators, among them Justice, the international committee of Jurists. Many people feel that the time is now ripe to raise the standard of skill
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to be expected of directors from that laid down in the City Equitable case and to impose some form of objective standard. Indeed, there is a widely-held view that the natural development under the common law would, unless legislation intervenes, tend to move in that direction.
Thus there are two important questions that need to be considered carefully and not rushed. First, at a time when the common law on this subject is being developed by the courts, is it right to put a halt to this development by the enactment of a statutory rule? Secondly, if it is decided that a statutory rule is desirable, very careful consideration will have to be given to its formulation if it is not on the one hand to ossify what is already considered by many to be a slightly outmoded view, or on the other to impose a uniform standard which could not realistically be applied to all company directors, those in small family businesses as well as those responsible for the affairs of major public companies. I hope noble Lords will therefore agree that the subject of this clause is more appropriately left for the forthcoming 1980 Bill.
Lord WEDDERBURN of CHARLTON: I apologise for missing the opening remarks of the noble Viscount, but I heard him say that it is not appropriate to introduce this consolidating measure now because the common law is still being developed by the courts in respect of what one might call the subjective part of the clause, relating to the skill which may reasonably be expected of a person of his knowledge and experience, which of course has been the common law basis of negligence on the part of a company director ever since the Lagunas Nitrate case in 1899. I was surprised that the noble Viscount mentioned that this area was still being developed by the common law, because I do not know of any case law in the recent past which suggests that the standard of negligence is being changed.
What, of course, does happen—and this is why what is put in here is only a basis or a floor from which to begin—is that many a director, being an executive director, has a contract with his company (and we are coming to contracts in later amendmends) and in that contract there is, either expressed or implied, an objective standard of skill. That obligation—the

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skill that may reasonably be expected of a person of his knowledge and experience—is the subjective standard that must apply to any director where there is no contract.
I must take the opportunity to say that many of us on this side of the House do not doubt the sincerity or integrity of the Government in believing that they will have a 1980 Bill. But, looking forward to 1980 one wonders how much time there will be for company law reform, considering the other matters that the Government will need to legislate upon, given their present policies. One wonders why this has to be left to the chances of 1980 legislation, especially as it would be very difficult to alter the duty of skill in the absence—and I stress, "in the absence"—of a contract.
Surely the only demand that one can make of a director is that he shows such skill as is within his experience and his knowledge. I say that for the simple reason—and the noble Viscount touched upon small domestic family companies—that being a director is not yet a profession. Of the surgeon we can demand an objective standard of skill and care because he has to pass rigorous examinations before he can perform an operation. It is no good his saying, "I do not have the knowledge and experience to be a good surgeon", because he has been tested. We can make the same demand of the architect and the solicitor. However, of the director who does not have a contract, there is no examination as yet imposed upon him by the Institute of Directors or as there should probably be by a company's commission which should administer some kind of test before people sit upon a board.
There is no such test, and, as I understand it, the Government are not suggesting that they will introduce one—or are they? Is there deliberation in the direction of making directorships of companies into a profession? If that is the way they are thinking they should give notice now. Unless they are thinking of doing that, there cannot be any reason for not introducing in clear language what is only a codification of a series of case law decisions.
Lord HARMAR-NICHOLLS: I should like to know the thinking behind what the
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noble Lord is saying. He is making a contribution to matters that will affect all sorts of companies—big, medium and small. He is talking with authority and with the support of the Front Bench opposite. Does the noble Lord think that there ought to be an examination before anyone can sit as a director, and that instinctive knowledge and experience ought not to be sufficient? Is that his view? Is that where all his arguments will lead us? Is it a question of "big brother"?—because that is what the noble Lord is rather suggesting. Is that what he thinks is good?
Lord WEDDERBURN of CHARLTON: As a matter of fact I do not. I do not think that an across the board examination for directors would be practicable at all. I happen to think that for the directorships of the giant company some type of test might well be applied, but we can debate that on another occasion. I am saying that no such test exists. What is common between myself and the noble Lord, Lord Harmar-Nicholls, is that an across the board test would be quite impracticable when our company law deals, as it does, with both small companies and giant companies. If we ever divided our company law so that we had one code for the giant, one for the small and perhaps something in between, there might be another debate. However, as matters stand I agree with the noble Lord that it is not practicable, and presumably the Government agree too—I am sure that the noble Lord and I hope that they do.
I was explaining and suggesting that if there is not to be such a test the director, as a beast, as it were, as part of the zoo of professions, is in a different cage from that in which one puts the architect, the solicitor, the surgeon, the lawyers and others who have to pass examinations and tests and therefore have to suffer the Latin tag imperitia culpœ annumeratur. They must live up to a certain standard of skill in judging their fault in an objective sense. As the noble Lord, Lord Harmar-Nicholls, suggests, one cannot do that with directors.
So, the suggestion of the noble Viscount that the common law is developing new standards in this area is, with great respect to him, in the first case wrong

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because there is no such case law; not even the recent decision in the case of Daniels v. Daniels in the Chancery Division suggested a change in the standard of negligence; and, in the second case, it is one which surely is not desirable in the absence of a contract. The reason why this test is perfectly satisfactory as regards the subjective standard is that in the absence of a contract it is the correct test to apply.
As far as the objective part is concerned, I read with great interest the speech of the honourable Member Mr. John Nott, who is now the Secretary of State for Trade, during the proceedings of Standing Committee "F" in another place. He attacked the notion that one should even have an objective standard of care and diligence which the cases impose and which this clause would impose—that is, such care and diligence as could reasonably be expected of a reasonably prudent person, which is an objective test. At column 962 of the Official Report of Standard Committee "F" Mr. Nott, who is now the Secretary of State in the noble Viscount's Department, said:
"Business is about taking risks, not about reasonably prudent persons".
He went on to oppose the law as it stands. I hope that the noble Viscount will not follow him.
If the last clause was non-controversial and had been much discussed, then this clause does no more than set out the ground plan of the liability of directors in terms of negligence, to which, of course, any company can add by way of contract with its executive directors, and surely most companies do. It is up to the company what standard of care it imposes on an executive director by way of contract. The law can start from here, and why on earth cannot the Government accept the amendment?
On Question, amendment negatived.
Lord ELWYN-JONES Lord ELWYN-JONES moved Amendment No. 13:
After Clause 45, insert the following new clause:
"Directors to hare regard to interests of employees
45C.—(1) The directors of a company shall, in addition to the duties they owe to the company, owe a duty to the employees of the company to have regard in the performance of
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their functions to the interests of those employees in general.
(2) Where in any proceedings it falls to a court to determine whether a director of a company is in breach of his duty to have regard, in the performance of his functions, to the interests of the company's members, the court shall take into account the fact that the director is also required to comply with the duty imposed by this section".
The noble and learned Lord said: I hope that the noble Viscount will take the view that this amendment is a non-controversial amendment which reasonable men should readily accept. It has a limited but important purpose to make clear what the law expects of a reasonably conscientious director in regard to his employees. Our intention in moving the Amendment, is that the clause should impose a positive duty on directors, in carrying out their duties to the company, to have regard to the interests of the company's employees in general. It is a modest duty. It is intended more as a shield for directors against attack when they act with due regard to employees' interests, rather than to give employees a sword to use against them when they do not indicate this. The second section of the proposed new clause makes that clear.
However, although it is modest in its statement of the nature of the duty, it is positive and is a matter, I believe, of real importance. It is no longer acceptable that company law, as it now stands, should require directors to act solely in the interests of shareholders. That, curiously enough, is the present state of the law. That statement of the law is unrelated to present practices and I believe that it does not reflect the reality of business operations now, or the practice of responsible boards of directors. I do not believe that what is proposed in the amendment would be seriously opposed by responsible company directors.
When we discussed this matter on Second Reading, I ventured to quote what was said in May last year by the present Secretary of State for Employment in an open letter to Conservative trade unionists, when he said:
"Company law should be amended to reflect existing practice in industry, which is that in furthering the interests of their company, the board of directors should have particular regard to the interests of employees".
The Labour Government proposed that and embodied this amendment, which I now move, in their 1978 Bill.
As my noble friend Lord Wedderburn of Charlton pointed out in the Second Reading debate, the Conservative Government of 1973 also introduced a clause which enabled directors to take account of employees' interests. It would indeed be deplorable if a Government, which already look like running into hot water over industrial relations, should be more backward in this respect than their 1973 predecessors, remembering in their bitter experience to what trouble industrial relations led.
I recollect that the City Takeover Panel broadly agrees with the view which I have expressed. In its Panel Code of 1976, with regard to directors' duties of an offerer or offeree company, it stated:
"It is the shareholders' interests, taken as a whole, together with those of employees and creditors, which should be considered".
I venture to say that the failure of the present Government to come forward and to move forward in this matter will be noted as being in very marked contrast to their willingness—which I was delighted to hear the noble Viscount express at the beginning of our proceedings—to accept Amendment No. 31, which sets out the clause in the Labour Government Bill which dealt with this matter.
It is a curious state of affairs because noble Lords will know that Amendment No. 31, which is to be accepted—a fact which I welcome—deals with the power of a company to provide for employees on cessation of business or transfer of business. It is odd that it should be limited to that difficult, dismal time when a company is going out of business. I should have thought that there was certainly an equally strong case, if not a somewhat stronger case, that consideration for the interests of employees should be a continuing operation and should certainly operate when the company is in business, and possibly doing very good business indeed.
Therefore, we shall pursue this matter again very closely when we endeavour to discover from the Government the apparent contradiction between the way in which they deal with employees—if they continue to oppose this amendment—and the reasonable attitude which they take in regard to Amendment No. 31. If I may say so, it is a contrast which makes a nonsense of the position they take—not that I like using words such as
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"nonsense"or other words which, unhappily, were used earlier in the debate. But I am sure that that was a temporary aberration on the part of the noble Viscount. Indeed, as noble Lords will have noted, his expression of acceptance of the sincerity of my noble friend—he being a generous man—ended the matter.
However, I submit that here there is a case for consistency of treatment and an even greater case for approval of Amendment No. 13 than approval of the other one; but I had better not pitch that too high, otherwise it might induce the noble Viscount to withdraw Amendment No. 31 as well. However, I seriously submit that if this proposal is implemented, it could have an important psychological effect at this time of difficulty in industrial relations. It does no more than reflect what a good and responsible company director in fact and in practice does. Nothing is lost by acceptance of the amendment. Accordingly, I hope that on this sunny evening, the sunshine of reason will burst upon the noble Viscount and that he will approve the amendment. I beg to move.
Viscount TRENCHARD: May I begin by saying that I do not take the use of the word "nonsense" in any way personally. I understand that the noble and learned Lord, Lord Elwyn-Jones, uses it in reference to the amendments as he sincerely sees them; that is, the amendment before us and Amendment No. 31. I accept absolutely what he has said on this subject: that a situation where a company is taking account only of its shareholders does not reflect the reality of the present situation. I should like to make that publicly clear. In this day and age it is quite impossible for any company acting in the interests of its shareholders not to make sure that it does everything possible to ensure that its whole team of employees work in a thoroughly co-operative manner, and they will not do that unless they believe that their interests are being taken care of.
There is a slightly separate situation when we come to Amendment No. 31, which we are not directly discussing and which I have said I will accept. We are dealing with cessation or termination. There is no longer this inevitable long-term interest. It is also a separate subject which we believe in every respect is not

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controversial. I shall not withdraw my offer, as the noble and learned Lord suggested I might, in relation to that amendment when we reach it. However, I am afraid that I cannot accept this amendment.
This clause seeks to replicate the equivalent provision—Clause 46—of the 1978 Bill, amended in Committee in another place. The clause imposes a duty on directors owed to employees to consider their interests. This new duty is entirely separate from the duties owed by directors to their company. I say that the clause seeks only to replicate Clause 46 of the 1978 Bill, because, in fact, subsection (2) was deleted in another place after considerable debate. The then Government spokesman strongly argued that subsection (2) was otiose and, on the legal doctrine of expressio unius est exclusio alterius, might throw into some doubt the legal consequence of a breach of duty of the duty imposed by the clause. Perhaps the noble Lords—I am not inviting them to speak longer on this amendment—who have moved the amendment might indicate shortly whether or not the retention of subsection (2) is a deliberate change.
More generally, noble Lords have asked whether the Government stand by the view, expressed on a number of occasions in Opposition, that company law should be amended to reflect existing practice in industry; which is that in furthering the interests of their company, the board of directors should have particular regard to the interests of employees. I can confirm that that remains our view, and it is a view which we hold no less firmly than noble Lords opposite. However, although this is an area where there is general agreement on the need for reform, the precise formulation is inevitably subject to profound doubt and debate. Those who have read the Official Report of the debate on this subject during the Committee stage in another place will know of the many and different views expressed there; views which revealed honest difference not merely along party lines but within parties.
Questions, in my view, remain about the practicality of imposing a new duty on directors without proper consideration of the impact this would have on the perfor-
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mance of their duties to the company. It is the inter-relation of these two that needs further study. There is certainly no unanimity of view among expert commentators. I hope, therefore, that the Committee will agree that the proper course is to explore and consider different opinions which have been expressed before introducing legislation on this subject, which noble Lords will then be able to debate.
7.1 p.m.
Lord HARMAR-NICHOLLS: I do not feel inclined to leave it entirely to the lawyers and professors on the other side when matters to do with companies are being discussed. The noble and learned Lord, Lord Elwyn-Jones, used the word, "psychologically". I believe that psychologically it would be dangerous to do what is being suggested in this amendment. At the end of the day I believe that the responsibility of the board of directors is to the company: The employees are part of the company; the shareholders are part of the company; and the executive directors are part of the company. So long as you ensure that their skills and their endeavours are used in the interests of the company, it means that they are using their skills and endeavours on behalf of all those groups. To single out one group would be invidious and dangerous.
The noble and learned Lord properly spoke about the necessity of industrial relations and the general commercial reputation of this country being maintained at a high level today—and how right he is on that. One important ingredient today, which should bother us more than it appears to bother those in many quarters, is the necessity for investment. We have to encourage people to invest in British companies. We have to encourage people to do that. If you give the impression that the concern of the directors is anything other than for the company as a whole; if you give the impression (and I use the noble and learned Lord's word) psychologically that you are asking for special treatment to be given to one section of the three sections that make up a company, then I believe you may well be discouraging the necessary investment that we must have. So long as we have it that they are responsible to the company, that includes employees of all types.

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There is no clash with Amendment No. 31. In Amendment No. 31 what we are putting upon the directors is nothing to do with the company as it now exists. You are asking the company to do something which marginally financially is not in the company's interests. You are asking them to spend part of the company's assets to help ex-employees, and an ex-employee is no longer a useful part in developing the company now.
I would ask the noble and learned Lord, Lord Elwyn-Jones—and I am the president of his fan club, and it gives me no joy to be on the other side of the thinking—to think carefully over the word, "psychologically." He has had vast experience over all the fields, and he knows that if you single out one section of a team for special mention and consideration it is bound psychologically to cause the other sections of the same team to think that they are being omitted and that their concern is not properly being taken into account.
You never get Latin tags from me. I was accepted as a student of Middle Temple in days when you were supposed to have obtained some sort of ability in Latin, and I had not got it. They sensibly allowed in that Temple, which is so excellent, that if they could be satisfied that had the student attempted to do Latin he would have reached the standard, they would accept that that would have been the case as equivalent to him having the qualification. So I never understand these Latin tags, and I always wish that I had a translation. But I submit that the common sense of running a business, and of not appearing to give special concern to one section of the team, is something we should take into account, and you can use English language to cover this.
7.5 p.m.
Lord MONSON: I very much agree with what the noble Lord, Lord Harmar-Nicholls, has just said. We should ask ourselves what is the underlying purpose of this amendment. It has surely nothing to do with marginal improvements in wages or salaries, with improved canteen facilities, with the provision of more soap and towels in washrooms, or even with safety considerations. Most, if not all, modern company directors have these considerations very much at the forefront of their minds anyway.
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I suspect that the real purpose is to make provision for the exertion of pressure upon boards of directors to keep open uneconomic and possibly loss-making factories so as to safeguard employment. If this measure is carried into law, and this pressure is exerted successfully, certain consequences will ensue so far as the shareholders are concerned. First, their dividends will not rise to keep pace with inflation. If they are lucky their dividends will be frozen; more likely they will be cut, or possibly passed altogether. At worst, the net tangible asset value attributable to each ordinary share will fall sharply—very sharply in the highly-geared company—and quite possibly the company will before long go into liquidation. I wonder whether noble Lords know how many public companies quoted on the back page of the Financial Times have gone into liquidation in the last 10 years or so, and the shareholders in these companies have lost every penny in those companies that they have invested.
If this amendment is carried into law, risk investment will become twice as risky as it is already, which is saying quite a lot. If one is going to change the rules—and I see the philosophical case for doing so—it surely ought not to be done at the present time in the middle of the game. If this new principle is to be introduced into company law, then there should be at least a five-year transitional period so as to allow existing equity holders to wind down their commitments in ordinary shares if they so desire. Quite apart from the equity holders' personal interest, would not this amendment adversely affect the national interest as well, in so far as it would be necessary to offer a much higher return in the region of perhaps 18 to 20 per cent. in future on a new equity investment, whether raised by way of rights or otherwise?
Lord BRUCE of DONINGTON: It would seem clear that the noble Lord, Lord Monson, has not really read the terms of the amendment at all, because all the amendment requires is that the directors of a company shall, in addition to the duties they owe to the company, owe a duty to the employees of the company to have regard, in the performance of their functions, to the interests of these employees in general. It seems to me that

95
this is on all fours with the excellent observations made by Mr. Nott, who is now the Secretary of State for Trade, and also I believe by Mr. Prior himself, in the statement read by my noble and learned friend Lord Elwyn-Jones. It is quite clear that company law, say these two prominent Conservatives, should be amended to reflect existing practice in industry, which is that, in furthering the interests of their company, the board of directors should have particular regard to the employees of the company.
Why has there been this sudden change of mind? The noble Viscount, Lord Trenchard, said that these matters are open to public dispute and some discussion upon them, and that therefore it would be unwise to proceed further for the time being. This is the explanation he has given for quite a number of the amendments put forward by my noble friends here. Perhaps I ought to warn him that the Fourth Directive on Company Law of the EEC, which is the ostensible purpose, or the advertised purpose of the proposed Bill that is supposed to come before us in 1980, is only concerned with company accounts and the form of company accounts. It is not in any way concerned explicitly with the duties of directors.
I therefore hope that when the 1980 Bill comes before us, we shall not have the excuse then, "This is merely to put into operation the fourth directive on company law of the EEC. It would not be appropriate for us to go into matters that are not covered by the directive". If that might conceivably in future develop into an intention expressed in concrete terms, there would be considerable trouble, not only in your Lordships' House but possibly also in another place. For that reason, I hope we shall insist on the amendment, if only for the reasons enunciated by the noble Lord, Lord Monson, which give added justification for the Government putting themselves squarely behind the words of their own leading spokesmen. If they do not, it may be misinterpreted in the country.
Viscount TRENCHARD: If the noble Lord will check the Official Report he will see that I confirmed the statement made on a number of occasions when my party was in Opposition:
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"Company law should be amended to reflect existing practice in industry, which is that in furthering the interest of their company, the boards of directors should have particular regard to the interests of employees".
That view remains our view. The subject will come back for debate in the 1980 Bill. Our reservations are those which I will not repeat but which I spelled out, I hope very clearly.
7.12 p.m.
Lord WEDDERBURN of CHARLTON: The position of the Government becomes more and more strange. The noble Lord has repeated yet again, to put it in a few points, that, first, the practice of boards of directors is to take account of the interests of employees. No doubt we all accept that—just as they take account of other interests; the interests of consumers and so on—but we agree that the position in law is not that. The position in law is that they owe their duty to the company, and the noble Lord, Lord Harmar-Nicholls, pointed that out. In fulfilling that duty to the company, they must take account directly of certain interests above others. The law is clear—that they must take account directly of the interests of shareholders, present and future—and in fulfilling their function (and since cases like Evans v. Brunner Mond in 1921 this has been a common practice of boards of directors) of considering directly the interests of shareholders, they can of course take indirect account of the interests of employees, the nation, even the man in the moon.
What one is asking in the amendment is that the Government move with us to put the law into accord with practice. I could quite understand the Government's position if they were to say, "We do not like your Amendment because it is badly worded. We want to go back to our 1973 version". I am not sure whether that would mould very well with the City Takeover Panel and Principle 11 to which I referred on Second Reading, but I could understand it if they said they did not like this version because it said, "Directors shall be under an obligation to consider the interests of employees", whereas their version is that they " shall be empowered or entitled" to consider the interests of employees.

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Yet they will not go even as far as the 1973 Government, and I wonder why this is the case? I wonder whether they share some of the fears expressed by the noble Lord on the Cross Benches? He suggested this was some sinister pressure to keep open unproductive plant. But workers would not use amendments of company law as their primary method of pressure to keep open a plant, productive or unproductive; they are more likely to turn to their trade unions and a writ in the Chancery Division. It is not that kind of rationale that is behind the Amendment at all. Are the Government to be frozen into immobility every time a subject has some indirect reference to industrial democracy, which of course this has? But that is not the reason for the Amendment; of course it has an indirect reference to industrial democracy, but this is not the industrial democracy debate, nor would I wish to make it such.
The case for this type of Amendment is to bring the law into accord with modern day practice, and that the Government are prepared to do in certain circumstances. When the company is flowering in the spring, summer and autumn and the fruit is ripe, then the employees' interests must not appear on the stage of company law at all. But when the winds of winter come and the company is tottering and the edifice is falling apart, then, as Lord Harmar-Nicholls suggests, there must be a special law to bring the interests of employees into play.
The Government's posture will look highly peculiar to workers in industry. It will look very strange if they are prepared to bring into company law the interests of employees when the company is unwell and sick, but are not prepared, even with a new version with new words, to bring in something which has been discussed for many years—for two decades—which their predecessors in 1973 were eager to do and which it is still party policy to do. Yet they will not do it. It would take five minutes to pass this Amendment and I am sure if they suggested a different version of words we could spend another five minutes to find agreement on the different wording. Yet the Government oppose. As I say, their posture will look very strange to the workers in industry when they hear about these debates.
Lord MOTTISTONE: That was a remarkable speech from the noble Lord, Lord Wedderburn of Charlton, in suggesting that the Government have been getting stranger and stranger. In fact they have been consistent. It is the Opposition who are getting stranger and stranger. It seems they are terribly disappointed that Parts IV and V of their Bills have been cut out, and although they have had promises that they will be considered in due course and put into the next Bill, they appear rather petulant and say they must have the argument now.
All the arguments we are hearing at the moment, which are taking up an awful lot of time of the Committee, will be arguments to be properly directed at the next Bill when it comes. My noble friend has promised that most of the clauses which are troubling the Committee now will appear in some suitable form then, and of course if they do not cover exactly the ground which the Opposition think they should as a result of that promise, they will then have every reason to protest. I suggest noble Lords opposite have had ample guarantees for the future, and I urge them not to go on plugging away at things which are highly contentious as worded because, with respect, this seems to be wasting an awful lot of time.
Lord ELWYN-JONES: I assure the noble Lord, Lord Mottistone, that I do not feel at all petulant. I submit that what we have put forward here is so much in keeping with what responsible directors agree with anyway that I find it surprising that it is not acceptable to the Government. I have risen merely to affirm my view that subsection (2) of Amendment No. 13, should stand because in a sense it is protective of adventurous litigation by the barrack room lawyer who may think he can found a cause of action on the alleged breach of duty here. Therefore, I would adhere to it, and I should have thought it was a sign of grace on the part of this allegedly petulant spokesman that we are prepared to go so far on the road to reasonable compromise, and I hope the Committee will approve the amendment.
7.20 p.m.
On Question, Whether the said amendment (No. 13) shall be agreed to?
Their Lordships divided: Contents, 39; Not-Contents, 48.

CONTENTS

Ardwick, L.

George-Brown, L.

Oram, L.

Aylestone, L.

Gordon-Walker, L.

Pitt of Hampstead, L.

Bacon, B.

Hacking, L.

Ponsonby of Shulbrede, L. [Teller.]

Blease, L.

Hale, L.

Blyton, L.

Hanworth, V.

Segal, L.

Boston of Faversham, L.

Hatch of Lusby, L.

Stewart of Alvechurch, B.

Brockway, L.

Henderson, L.

Stone, L.

Bruce of Donington, L.

Houghton of Sowerby, L.

Strabolgi, L.

Castle, L.

Jacques, L.

Taylor of Mansfield, L.

Collison, L.

Janner, L.

Thomson of Monifieth, L.

David, B.

Llewelyn-Davies of Hastoe, B. [Teller.]

Wedderburn of Charlton, L.

Donaldson of Kingsbridge, L.

Wells-Pestell, L.

Elwyn-Jones, L.

Mishcon, L.

Wynne-Jones, L.

Evans of Claughton, L.

Murray of Gravesend, L.

NOT-CONTENTS

Alport, L.

Hawke, L.

Romney, E.

Amory, V.

Inglewood, L.

St. Aldwyn, E.

Ampthill, L.

Kilmarnock, L.

Saint Oswald, L.

Avon, E.

Long, V.

Sandys, L. [Teller.]

Belstead, L.

Lyell, L.

Soames, L. (Lord President.)

Brougham and Vaux, L.

Macleod of Borve, B.

Strathclyde, L.

Cairns, E.

Marley, L.

Teviot, L.

Cathcart, E.

Merrivale, L.

Torphichen, L.

Colville of Culross, V.

Monck, V.

Trefgarne, L.

Cottesloe, L.

Monson, L.

Trenchard, V.

Cullen of Ashbourne, L.

Morris, L.

Tweedsmuir, L.

Denham, L. [Teller.]

Mottistone, L.

Vickers, B.

Falmouth, V.

Mowbray and Stourton, L.

Vivian, L.

Fortescue, E.

Rankeillour, L.

Ward of North Tyneside, B.

Hailsham of Saint Marylebone, (L. Chancellor.)

Redmayne, L.

Young, B.

Reigate, L.

Harmar-Nicholls, L.

Renwick, L.

Resolved in the negative, and amendment disagreed to accordingly.
7.27 p.m.
Lord MISHCON Lord MISHCON had given notice of his intention to move Amendment No. 14:
After clause 45, insert the following new clause:
"Contracts of employment of directors
45D.—(1) A company shall not incorporate a term to which this section applies—

(a) in a director's contract of employment unless the term is first approved by a resolution of the comapny in general meeting;

(b) in the contract of employment of a person who is a director of its holding company unless the term is first approved by a resolution of the holding company in general meeting.

(2) This section applies to any term by which a director's employment with the company or, where he is a director of a holding company, within the group is to continue, or may be continued at the instance of the director (whether under the original contract of employment or under a new contract entered into in pursuance of a right conferred on the director by or by virtue of the original contract) for a period exceeding five years during which his employment—
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(a) cannot be terminated by his employer by notice; or

(b) can be so terminated only in specified circumstances.

(3) In any case where—

(a) a person is employed with a company under a contract of employment and his employment cannot be terminated by the company by notice or can be so terminated only in specified circumstances, and

(b) more than six months before the expiration of the period for which he is so employed, he enters into a further contract of employment (otherwise than in pursuance of a right conferred on him by or by virtue of the original contract) under which his employment with the company or, where he is a director of a holding company, within the group is to be continued or may be continued at his instance,

subsection (2) above shall apply as if to the period for which he is to be employed under the later contract there were added a further period equal to the unexpired period of the original contract.
(4) A resolution of a company approving a term to which this section applies shall not be passed at a general meeting of the company unless a written memorandum setting out the contract incorporating the term is available for inspection, by members of the company entitled to attend and vote at the meeting, both—

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(a) at the registered office of the company for not less than the period of 15 days ending with the date of the meeting; and

(b) at the meeting itself.

(5) A term incorporated in a contract in contravention of this section shall to the extent that it contravenes this section be void; but instead the contract shall be deemed to contain a term entitling the employer to terminate the employment at any time by the giving of reasonable notice.
(6) No approval is required to be given under this section by any body corporate unless it is a company within the meaning of the 1948 Act or registered under Part VIII of that Act.
(7) In this section:

(a) contract of employment' includes any contract for services; and

(b) 'group', in relation to a director of a holding company, means the group which consists of that company and its subsidiaries.".

Lord REDMAYNE: Before the noble Lord embarks upon his argument, I wonder whether I may say something about the practical aspect of the debate. I sympathise with noble Lords opposite in trying to make the most of a very good political occasion, but I wonder whether they realise that the amount of parliamentary time available to the Government in this session is very limited? At the most, there are 10 practical days, or 15 perhaps, right to the end of the Session, and if noble Lords succeeded in overloading the Bill by putting in more contentious matter, that would simply lead to a situation in which in the end the Bill would fall. I do not think that anybody would greatly worry, in that it can all be put into the 1980 Bill, but it seems to me that noble Lords opposite are playing the game rather unwisely. The 1980 Bill seems to be a long way away. I take it that that Bill will be included in the Queen's Speech, which is within 20 or 25 parliamentary days.
Lord MOTTISTONE: I wonder whether I may intervene? As I understood the noble Lord, Lord Mishcon, when he introduced Amendment No. 11—
Baroness LLEWELYN-DAVIES of HASTOE: I do not think that this is quite in order. The mover has not yet spoken to the amendment.
Lord MISHCON: I have not even moved the amendment. I now move Amendment No. 14, and in—
Lord MOTTISTONE: I was wishing to make a point on procedure, if I may. When the noble Lord, Lord Mishcon, introduced Amendment No. 11, he asked us to take with it, with the leave of the Committee, everything except Amendments Nos. 13, 19 and 20. My understanding is that, when he says that, it means that if he loses on the first amendment, the rest automatically fall.
Lord MISHCON: Let me answer that point straight away. I made abundantly clear, I hope—and I apologise to the noble Lord if I was not lucid enough—what I was doing, so as to avoid a repetition of the points that I was making, which would not have pleased your Lordships. I said that I would urge upon the Committee the need to deal with all these clauses that related to directors; I gave the reasons why I felt that that should be done and why my noble friends thought that that should be done; but then I said that all I would do afterwards was deal with each individual amendment as an amendment and not duplicate the reasons that I had tried to give for all these amendments being incorporated in the Bill. I hope to keep my word to the Committee, and therefore deal merely with the purport of Amendment No. 14.
I would have hoped that this matter would not have been a controversial matter at all, or one that would cause the noble Viscount, Lord Trenchard, to say that it was a matter which caused difficulty or upon which further consultation had to take place. It in fact deals with the contracts of employment of directors, and in order that I can at least see whether my copy of the Marshalled List of amendments is correct, I wonder whether your Lordships will find the typing error that I found. It is a small one, but the (6) at the end of the subsection beginning with the words, "In this section", should read (7). There is already a (6). The amendment provides that a company shall not, without prior approval of a general meeting, grant a service contract to a director which does not expire within five years, or which could not be terminated by the company within that period except in specified circumstances. Subsection (1)(b) was inserted to cover the Law Society point, to prevent the avoidance by a director negotiating a service contract, not with the company of

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which he is a director but with a company controlled by that company. Therefore, under subsection (1)(b) approval is required of both the holding company and the company concerned.
At the Committee stage of the 1978 Bill, to which I have referred so often, the party opposite agreed with the principle of this clause. So little is it controversial that the Stock Exchange listing agreement has a similar provision, but makes the period not five years but 10 years. The option before the Committee therefore is, if they wish to do anything about this at all, either to negate these agreements completely and say there can be no service contract with a director, or to take the Stock Exchange listing agreement period of 10 years, or to do as we do in this amendment—namely, to seek a compromise and make the period five years, as we have done.
Subsection (3) is to stop a director from entering into, say, a four-year contract and after one year entering into another four-year contract to take effect at the end of the first four years, thus effectively giving him eight years; but it is all right, obviously, if he takes on a new contract in the last six months of the preceding contract. Subsection (4) provides that when a resolution is put to a general meeting of shareholders a written memorandum setting out the material terms must be available for inspection by shareholders, both at the company's registered office 15 days before the meeting and at the meeting itself. Subsection (5) makes void any term in a service contract which contravenes this clause, and substitutes for it a term giving the company the right to terminate at reasonable notice.
Subsection (6) excludes, first, bodies corporate not organised on lines of companies governed by the Companies Act, in that they do not have general meetings and control is not exercised by shareholders in general meetings. Obvious examples of that are the British Gas Corporation and other nationalised industries. Secondly, there are excluded foreign holding companies outside the United Kingdom. Subsection (7) covers service contracts; in other words, contracts for services. Otherwise, of course, a director could circumvent all this by having consultancy agreements. I beg to move the amendment.
Lord CULLEN of ASHBOURNE: This clause is less controversial, both in context and in drafting, than those which appear on either side of it in the Marshalled List. The clause, together with those that follow it, prescribes the general rules and restrictions which should apply to directors entering into transactions with the companies on the boards of which they serve. That there is a need for a reform of the law in this area is not in dispute. However, we will argue later, in debates on later clauses dealing with this general subject, that some of these clauses reveal major areas of disagreement, seriously defective drafting and internal inconsistencies. I hope I shall be able to persuade the noble Lord that the sensible course is for the Government not to rush headlong into such a technically difficult area without proper consideration and consultation.
With regard to the present clause, I hope the noble Lord will accept that it is best dealt with in the context of the rest of the provisions on transactions between directors and their companies, which we propose, as my noble friend Lord Trenchard has said several times, should form part of the 1980 Bill. I urge that this subject should not be dealt with piecemeal, and that the new clause should not be included in the Bill.
Lord HARMAR-NICHOLLS: I am glad to see that the Leader of the House is in his place. I wonder whether he feels that he could reinforce the point made by my noble friend Lord Redmayne, who, from his vast experience as Chief Whip in another place and as someone who understands the procedures and how a Session's work can be completely upset, gave a very sensible warning to your Lordships' Committee. The position, if I may remind my noble friend, is that this Bill has been submitted and accepted on all sides as a preliminary reform of the Companies Act as it affects directors generally, and that there has been a clear undertaking given, that cannot be questioned, that the topics which are now being discussed in the form of amendments will be introduced, within literally a few weeks' time, in the 1980 Bill. If it is that time is taken up by presenting the arguments on these amendments now, with only 10 to 12 days of this Session left, it looks as though this Bill will have

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to fall, because I should like to tell my noble friend the Leader of the House that a number of us are not prepared to allow the arguments being presented in support of these amendments by noble Lords opposite to remain the only arguments on the record. This autumn, many things are going to happen, concerned with the Trade Union Congress and various conferences, which are going to affect matters outside this Committee, so I believe that we have a duty, in the wider interest, to see that the other point of view is put to the arguments which are being presented.
Now if it is that the noble Lords opposite intend to pursue this course at the grave risk of losing the whole of this Bill, I do not think we would mind. Why not enter into discussions with them with a view to withdrawing this Bill and producing the 1980 Bill with all these points in it? But I do not believe that we can allow the record to stand with one-sided arguments on matters which are of vital importance to the industries and the companies of this country. If it is that both sides of the arguments on the amendments are presented, there are not enough days left in the Session for this Bill to go through. I wonder whether my noble friend the Leader of the House could reinforce the arguments presented by the noble Lord, Lord Redmayne, in order that what the noble Lords opposite are doing they will do in the full knowledge of the consequences which might well flow from them.
The LORD PRESIDENT of the COUNCIL (Lord Soames): I am grateful to my noble friend for raising these points when I was in the Chamber. There is not a totally simple situation here. There was a Companies Bill which the party opposite introduced previously, but we have chosen to take, as it were, two bites at the cherry. It would not be right, with respect, to say that the 1980 Bill will be coming in a few weeks. This is not going to be in the Session that ends in November 1980; it will be in the 1980–81 Session, so it will not be here for some while. As I see it, the Opposition must of course make up their minds on this, and many people will judge from what they say and how they choose to do it. But they are open, within the rules and orders of the House, to do as they deem fit. I
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would add that I think it is a great pity. having been given the degree of assurance that has been given, so to try to change the Bill as to make it into a very much larger Bill when they know that there is a second Bill coming on which these matters will be argued out.
Having said that, there is nothing which I as Leader of the House can do to inhibit the Opposition from putting down any amendments which they choose to put down, providing that they are in order. But, having made that point, I should have thought from a Parliamentary point of view, given that it is known there is going to be another Companies Bill, that a number of these amendments would have been better argued in the next Bill.
Lord WEDDERBURN of CHARLTON: It is precisely from the Parliamentary point of view that some of us wish to press these amendments, including that amendment now under discussion. If the Government had wished, they could have brought forward not a Bill (I quote the Long Title) "to amend the law relating to companies" but a Bill with a different Long Title. If they had chosen to bring forward a Bill to amend company law so as to bring into effect the Second Directive and matters related thereto, then they might have been able to resist these arguments. It will not do for noble Lords opposite to tell us to wait until what now appears to be 1981—because the Bill will be in the 1980–81 Session, and it will be much debated. As my noble friend Lord Bruce of Donington has said, it has to do with company accounts and that will take a long time and is very controversial; it has to deal with the new small proprietary companies, and that is controversial and complex; and it has to deal with all these clauses. It will be a very large Bill.
What my noble friends are saying is that there are a number of matters which a legislative chamber ought to consider in relation to "An Act to amend the law relating to companies"—and which should be done now. They have been hanging about in the dustbins awaiting statutory rescue for years. Now is the time to do it. All we hear from the Government is that there is nothing much wrong with the amendments, but that now

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is not the time to do it. If that is the only argument that they can put forward, they should accept far more of our amendments than they have. I commend my noble friend's argument, expecially on Amendment No. 14, which I hope the Government will consider accepting.
Lord MISHCON: I ought to answer the courteous words of the noble Lord the Leader of the House. He immediately disabused the noble Lord, Lord Harmar-Nicholls, of his optimism, and very likely his confidence that there would be a Bill in a few weeks' time. We have now heard that it is to be not 1980 but 1980–81. This would be a very reasonable request if it were not against a background, as I have said before, of a 1973 Conservative Bill and a 1978 Labour Bill which went right through the Committee stages, which were indeed elongated Committee stages when there was considerable argument on all these clauses; and were it not against a very worrying background in the City following upon inspector's reports on matters which have scandalised all of us.
It is in these circumstances that one hoped that these amendments would be looked at and at least would be accepted so that they could be dealt with, if they had to be revised, at the Report stage. I do not want to be long-winded but I must make the point that this is not now a Bill which is being restricted merely to the Directive from the EEC. It is a Bill where it is admitted that there can be found a place for matters dealing with penalties, for matters dealing with minority interests and for matters half dealing with the rights of employees of companies.
Once you admit that—and I am glad that the Front Bench opposite has been reasonable enough even to say that—then really it is absolutely indispensable from our point of view that matters which we regard as so urgent, and which have been under discussion over a period of years, should now be dealt with. But regrettably our amendments are not being accepted even where, as I have said, they are not controversial. We feel that we have a duty and we propose to carry it out. The only thing that I promise so far as I am concerned it that I shall do it with as short speeches as possible; but I intend to move all the amendments.
Lord HARMAR-NICHOLLS: One thing ought to be said on that. The noble Lord has admitted that he wants the Government to act out of panic—because, as he said, of scandalous things that have recently happened. The reason I am interested in wanting all these matters to be properly examined is that it is not only certain companies which caused the noble Lord to panic but all companies, big, small and medium. You are going to put them into a straitjacket, within legislation which will not have been properly examined and digested. I do not believe that a Government ought to be put in a position of bringing in legislation out of panic.
Lord MISHCON: I am sure that the noble Lord would not wish to misquote me. I did not say that. I said that these were matters which had been considered very carefully and had got to the Bill stage in 1973, and again in 1978. I said that the urgency was due not only to recent inspectors' reports—and I can think in terms of London and County which is not recent and which led to the whole fall of secondary banking in 1974—and still we have no statutory enactment to deal with these matters. It may be that the noble Lord says that one ought to blame the previous Government for not having got on with things before 1978. But during the Committee stage other reports—and certainly the Peachey Report—were discussed. I cannot add to anything that I have said and I shall bore the Committee if I become repetitive. It is our duty to move these amendments and we only wish there could be some resilience and a little co-operation from the Benches opposite, at least to deal with the non-controversial matters, many of which I am dealing with now and will be dealing with, by accepting them into the present Bill.
Lord SOAMES: I hope that the noble Lord, Lord Mishcon, will understand the situation. When the present Government were elected to power in May this year there were certain matters to do with company law that had to be put into operation, that had to go through all the legislative process in order that we should fulfil our commitments towards the EEC. It was because of that that the Companies Bill was hurried forward. The noble Lord will have some idea of what this

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involves in terms of drafting of legislation and the amount of time taken up in these matters.
It was also realised that there needed to be much more than that done and, therefore, that there was going to be a need for a second Bill because there was not time to put into the first Bill all that we intend and wish to do with company legislation. There is no doubt that we intend to do it, but it was not possible to put into a Bill all that we should have liked to put and to have had that in this House as I intended—and I argued that it should come first to this House—with all the features that we wished to have.
What did we do? We did what I think was a reasonable and sensible thing to do. We concentrated initially—and I am not saying that there are not one or two other matters; I cannot pretend to be as great an expert on this Bill as is the noble Lord—on a Bill essentially designed to meet our obligations in the EEC. And it had to be done by a certain date. That meant that it had to come into this House by a certain date. That was the concept. To say that what you are going to do is to move every single amendment which the noble Lord would like to see put in a final Companies Bill seems to me to be not perhaps giving the Government sufficient understanding as to why it is that we are doing it in this way with one short Bill—essentially to live up to our commitments, and with another Bill to follow.
As the noble Lord will realise, there is a lot of other controversial legislation which will be coming before us. We have a full Session of legislation and there will not be a second Companies Bill immediately following this. So this one had to be hurried through. This was a perfectly reasonable position for a Government just in power to adopt, given the timetable with which the Government were forced to live in order to stay within their responsibilities to the Community. I hope that this reasonable attitude will be reflected in the number of amendments moved by the noble Lord.
Lord MISHCON: I do not want to prolong this discussion because all I am doing is taking up time which could be taken up more usefully by moving my amendments very shortly. I must correct the record from one point of view. The
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I noble Lord the Leader of the House is always very careful in his observations, but he will not get very much sympathy in regard to the extreme difficulty of draftsmanship and the prolonged effort which had to be taken in order to produce his Bill. It is a complete replica of the Bill prepared by the last Government in 1978. The great need for expedition is not really as real as he says. I remember the answer given on Second Reading that I believe it is the Germans who alone of the members of the EEC have legislated to date in regard to the second Directive. Therefore if a few more months had been taken to deal with this Bill, and one had incorporated into this Bill the various urgent amendments, as I see them, which I together with my noble friends, am trying to put to the Committee, it would have been a better Bill. Having said this, I must carry out my duty as I conceive it and so must my noble friends. We are very sincere in the view we take. We obviously accept that the views which have been put which are contrary are nevertheless put forward with equal sincerity.
On Question, amendment negatived.
7.52 p.m.
Lord MISHCON Lord MISHCON moved Amendment No. 15:
After Clause 45, insert the following new clause:
"Substantial property transactions involving directors, etc.
45E.—(1) A company shall not enter into a contract to transfer, to any person who is a director of the company or its holding company or is connected with such a director any non-cash asset the value of which at the time the contract is entered into is not less than £1,000 but subject to that, exceeds £50,000 or ten per cent. of the amount of the company's relevant assets.
(2) For the purposes of subsection (1) above—

(a) except in a case falling within paragraph (b) below, the amount of a company's relevant assets is the value of its net assets determined by reference to the accounts prepared and laid under section I of the 1976 Act in respect of the last preceding accounting reference period in respect of which such accounts were so laid;

(b) where the contract is entered into at a time when no accounts have been prepared and laid under that section, the amount of a company's relevant asset is the amount of its called-up share capital.

(3) A contract entered into by a company in contravention of this section shall be voidable at the instance of the company unless—

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(a) restitution of the subject matter of the contract is no longer possible; or

(b) any rights acquired bona fide for value and without notice of the contravention by any person who was not a party to the contract would be affected by the avoidance of the contract; or

(c) the contract is, within a reasonable period, affirmed by the company in general meeting."

The noble Lord said: This amendment is a reproduction of Clause 48 in what we term the 1978 Bill as amended by a Government amendment in Committee. It covers substantial transactions involving the transfer of any non-cash asset from a company to a director of that company or its holding company to the value of more than £50,000 or 10 per cent. of the amount of the company's relevant assets as defined in subsection (2). Since the amount involved is the lesser of those two and one could get de minimis transactions involving, say, a company with relevant assets of £2,000, the clause does not apply at all where the asset transferred is worth no more than £1,000. Subsection (2) defines relevant assets. Subsection (3) provides that the transaction covered by this section is voidable at the instance of the company unless one of the sets of conditions in subsection (3)(a), (b) and (c) applies. I beg to move.
Lord CULLEN of ASHBOURNE: I first should like to say to the noble Lord, Lord Mishcon, that I fully appreciate that he is trying to hurry things along; we certainly appreciate it from this side of the Committee. This clause prohibits a company from transferring without the approval of the general meeting any substantial property to and by a director, a director of its holding company, or a person or company connected with a director. The clause also provides what are to be the consequences in civil law for any transaction entered into in contravention of the clause.
In recent years there have been a number of cases where there has been serious abuse by directors of their position in order to further their own private interests. An important part of this abuse has involved transactions between a company and its director, and between companies where a director of one company has a substantial interest in the other. In each case, transactions have
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been arranged primarily in order to further the interests of the director; and, in the second case, by furthering the interest of the company in which he is interested. The Government fully accepts the need to deal with abuses of this sort.
That said, I am far from convinced that this clause properly deals with the issue. It is a complex and difficult provision. Noble Lords who have read the report of the Committee proceedings in another place on the equivalent clause will have seen that the then Government attempted to amend the clause in several important respects. Such is the complexity of the issues discussed that two of the amendments were withdrawn for further consideration. I see that the present clause is not in the form in which it was originally introduced in the 1978 Bill, nor is it in the form it was approved by Committee in another place; nor is it even in the form in which the Government argued it should be. May I ask the noble Lords who moved the amendment whether they are confident that they have got it right this time?
For example, why is it now thought inappropriate to make any provision for a holding company in general meeting to approve any affirmation or ratification made under subsection (3) of a contract entered into between a director of the holding company and its subsidiary in breach of the clause? Without such a provision, it would surely be open to holding company directors to require a subsidiary company to affirm a contract entered into with them in breach of the clause, thus negating its effect. Is it not the case that the very complex consequences of extending the clause to holding company directors have not properly been carried through? Does not this example (and there are others) amply demonstrate the wisdom of the Government's intention, festina lente and to bring forward properly formulated provisions after due consideration and full consultation?
Lord MISHCON: Let me at once be as frank with the Committee as I believe they would expect me to be. It is perfectly correct that at the Committee stage of the 1978 Bill the Government brought forward an amendment which dealt with all the matters to which the noble Lord has just referred, and then said that some further

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consideration would have to be given because of certain aspects that I shall not bore the Committee with at this stage, in order that the Amendment that they themselves were bringing forward would meet all the desired things that it should, both in regard to clarity and comprehensiveness. That amendment could have been brought forward, as was expected, in a short period of time. Then, as we all know, the general election supervened. That does not mean that if this amendment were accepted by the Committee a suitable amendment dealing with all the matters to which the noble Lord has referred could not be with us at the Report stage. I am perfectly content, if the noble Lord is, to deal with all these matters at Report stage. As I said, an amendment was framed and it was purely a question of trying to tidy up the wording that caused the Government to take the amendment back.
Lord CULLEN of ASHBOURNE: It will not surprise the noble Lord if I say that of this series of amendments, all regarding directors, we cannot accept this amendment piecemeal in the middle of the other clauses. I ask my noble friends to resist the amendment.
On Question, amendment negatived.
7.59 p.m.
Lord MISHCON Lord MISHCON moved Amendment No. 16:
After Clause 45, insert the following new clause:
"Prohibition of loans to directors, etc.
45F.—(1) Subject to the following provisions of this section, a company shall not do any of the following things, that is to say:—

(a) make a loan to a director of the company or of its holding company;

(b) enter into any guarantee or provide any security in connection with a loan made by any person to such a director;

(c) if it is a relevant company, make a loan to a person connected with a director of the company or of its holding company;

(d) if it is a relevant company, enter into a guarantee or provide any security in connection with a loan made by any person to a person so connected.

(2) Subject to subsection (4) and (5) below, each of the following transactions are excepted from the prohibition in subsection (1) above, that is to say—

(a) a loan by a company to its holding company or a company's entering into a guarantee or providing any security in connection with a loan made by any person to its holding company;

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(b) a company's doing anything to provide any of its directors with funds to meet expenditure incurred or to be incurred by him for the purposes of the company or for the purpose of enabling him properly to perform his duties as an officer of the company;

(c) a loan by a moneylending company to any person or such a company's entering into a guarantee in connection with a loan by one person to another.

(3) Where a director of a relevant company or of its holding company is associated with a subsidiary of either of those companies, sub-section (1) above shall not by reason only of that fact prohibit the relevant company from—

(a) making a loan to that subsidiary; or

(b) entering into a guarantee or providing any security in connection with a loan made by any person to that subsidiary.

(4) The exception specified in subsection (2)(b) above operates only if one of the following conditions is satisfied, that is to say—

(a) the thing in question is done with the prior approval of the company given at a general meeting at which the purpose of any expenditure and the amount of any loan to be made by the company or the extent of the company's liability under any guarantee to be given by the company or, as the case may be, in respect of any security to be provided by the company are disclosed;

(b) that thing is done on condition that, if the approval of the company is not so given at or before the next following annual general meeting, the loan shall be repaid or that liability discharged within six months from the conclusion of that meeting;

but that exception does not operate to authorise a relevant company to make a loan to any of those directors or to enter into a guarantee or provide security in connection with a loan made by any person to any such director if at the time that the loan is made or, as the case may be, the guarantee is given or the security provided, the aggregate of the relevant amounts exceeds £10,000.
(5) The exception specified in subsection (2)(c) above operates only if both the following conditions are satisfied (subject to subsection (7) below), that is to say—

(a) the loan in question is made by the company or it enters into the guarantee in question in the ordinary course of the company's business; and

(b) the amount of the loan made or guaranteed is not greater, and the terms on which the loan is made or the guarantee is entered into are not more favourable in the case of the person to whom the loan is made, or in respect of whom the guarantee is entered into than that or those which it is reasonable to expect that company to have offered to or in respect of a person of the same financial standing as that person (any connection between the company and that person being disregarded);

but that exception does not authorise a relevant company to make a loan to any director of the company or of its holding company or any

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person connected with such a director or to enter into a guarantee in connection with a loan made by any person to any such director or to any person connected with such a director if at the time that the loan is made or, as the case may be, the guarantee is given the aggregate of the relevant amounts exceeds £50,000.
(6) The condition specified in subsection (5)(b) above shall not of itself prevent a company from making a loan of any of the following descriptions to any of its directors, that is to say—

(a) a loan for the purpose of facilitating the purchase, for use as that director's only or main residence, of the whole or part of any dwelling-house together with any land to be occupied and enjoyed therewith;

(b) a loan for the purpose of improving a dwelling-house or part of a dwelling-housd so used or any land occupied and enjoyed therewith;

(c) a loan in substitution for any loan made by any person and falling within paragraph (a) or (b) above or this paragraph,

if loans of that description are ordinarily made by the company to its employees and that loan is made on terms which are no more favourable to that director than those on which such loans are ordinarily made by the company to those employees.
(7) In this section "money-lending company" means a company the ordinary business of which includes the lending of money or the giving of guarantees in connection with loans made by other persons, and any reference in subsection (5) above to a person connected with a director does not include a reference to a company with which he is connected but which he does not control.
(8) In this section, sections 49G and 49H below "guarantee" includes indemnity and cognate expressions shall be construed accordingly.
The noble Lord said: I hope to get some praise again for brevity, but I cannot be quite as brief as on the last occasion because this amendment deals with an important matter, one that arose on the various reports with which we, with some sadness, have been dealing this afternoon. Amendment No. 16 deals with loans to directors and guarantees given for the benefit of directors under the Companies Act 1948, as amended by Section 2 of the Companies Act 1967. At this moment it is unlawful for a company to lend money to any of its directors or, when it is a subsidiary, to a director of its holding company, nor may it guarantee or provide security in connection with a loan made by a third person to any such director.
There are three exceptions under the present law. The prohibition does not apply, first, in the case of a subsidiary company where a director is its holding
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company; secondly, in the case of a company whose ordinary business includes the lending of money or the giving of guarantees or anything done by it in the ordinary course of its business; and, thirdly and lastly, to anything done to provide a director with funds to meet expenditure incurred or to be incurred by him for the purposes of the company or to enable him properly to perform his duties as an officer of the company.
In this last case the exception only operates either if the company, in general meeting, with full disclosure made to it, has given its approval in advance, or the loan is made or the loan or security provided on condition that if approval is not given at or before the next annual general meeting the loan is to be repaid or the liability discharged within six months after that meeting. If approval is not given, the directors who authorised the transaction are jointly and severally liable to indemnify the company against any loss which arises.
The amendment, which is Clause 49 in the 1978 Bill, is intended to re-enact Section 190 that I have just referred to, and is partly based on recommendations of the Jenkins Committee. That committee noted, among other things, that there is nothing to prevent a company from making or guaranteeing loans to another company in which the directors, singly or collectively, or their families have a controlling interest. Furthermore, there is nothing to prevent a company from making a loan to a member of such a director's family. The affairs of the London and County Securities Group and indeed the general crash of the secondary banks, made it additionally abundantly clear that the exceptions to the prohibition under the existing law have proved far too wide and have been gravely abused. Indeed, the inspectors appointed by the Department of Trade to investigate the London and County Securities Group recommended the abolition of the banking exemption in Section 190 of the 1948 Act.
The 1973 Companies Bill, brought forward by the then Conservative Government, followed the Jenkins recommendation but retained the banking exemption and provided no penalty for contravention. The amendment before your Lordships prohibits a company from

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making a loan to a director of the company or of its holding company, or entering into a guarantee or providing security in connection with a loan made by any person to such a director and, if it is a relevant company, if I may say so in parenthesis, that broadly means a public company or a group with a public company in it—the making of a loan or the giving of a guarantee or the granting of security to a connected person. The exceptions to the prohibition broadly copy the exceptions of the 1948 Companies Act, to which I have already referred, except that there is a limit on loans to directors for the company's purpose of an aggregate of £10,000 and to a loan or guarantee by a money-lending company of an aggregated sum of £50,000 which must bear terms not more favourable than would apply ordinarily to such a transaction when carrying out its normal business. There is a further provision that a money-lending company, if it ordinarily makes loans of this nature to its employees, may lend monies to a director to purchase his only or main residence or to improve a dwellinghouse or to repay an existing loan, taken for either of these purposes. I beg to move.
Lord LYELL: Failing a wish on the part of any other Member of the Committee to speak, I will be as brief as possible. I noticed that the eloquence of the noble Lord, Lord Mishcon, was in its usual flowing state but that he appeared to be a little more cautious and to be sticking fairly closely to the subject. I hope that he and the Committee will allow me to stick equally closely to the fairly lengthy amendment he has just moved.
I look around at the Opposition Benches and find them, if I may say so, speckled with lawyers. In that category I would also include the noble Lord, Lord Wedderburn, because I understand he is a professor in jurisprudence or thereby. I am a layman, but as I understand this amendment, this clause would attempt to re-enact some of the existing prohibitions on companies from making loans to their directors, or directors of their holding companies, or indeed from giving security of guarantees in respect of loans made to them. I think this is in Section 190 of the 1948 Act and it seems to me that the noble Lord, Lord Mishcon, went through it fairly carefully and paraphrased it
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extremely well. I may say I was impressed.
These prohibitions are, like the existing 1948 Act rule, subject to certain important exceptions, and particularly, as we have heard from the noble Lord, Lord Mishcon, the "banking exemption" which allows "moneylending companies" as the clause puts it, to lend to its directors. I do not think it will cause the Committee much surprise to learn that the Government accept the need to strengthen the provisions of both Section 190 and Section 197 of the 1948 Companies Act, but we do not believe that it would be sensible simply to adapt the relevant clauses of the 1978 Bill with such minor amendments as it would be possible to make in the relatively short time which has been available since the Government took office; and indeed we have to consider the Bill before us.
Following the report of the inspectors from the Department of Trade into the affairs of the Peachey Property Corporation Limited, the previous Government came to the conclusion that it was not enough simply to legislate and simply to prohibit directors from taking loans from their companies, and that similar rules should be applied to the taking of other forms of credit—that is, not merely loans—and also the misapplication of company funds for the directors' own purposes. For this purpose, new clauses were prepared during the Committee stage of the Bill in its previous incarnation in another place, and I think I am right in saying that they were not finalised at that stage and they do not appear to have been put down as amendments in this particular amendment to the present Bill. That may be, as the noble and learned Lord would have it, a lacuna—a word which we used in our deliberations two years ago on the Patents Bill, when I seem to remember that such words flowed easily from the noble and learned Lord when he sat in another seat.
I can understand this slight flaw and certainly I sympathise with the relative haste with which these clauses had to be prepared in the last days of the previous Administration. However, I think that it must also be admitted that the clauses are in need of considerable refinement. I am afraid that we have not been able to have the full consultation with all the interested bodies which is absolutely essential before this type of very important

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legislation, which has been so carefully outlined by the noble Lord, Lord Mishcon, is enacted. Very sensibly, these clauses have not been put down as amendments to the present Bill but we are not going to ignore the Peachey Report. The Government take the view that this particular Report revealed serious abuse which must, and indeed will, be checked. It will serve little purpose if directors are prohibited from benefiting from loans from their companies if they can obtain the same benefit through some other form of credit. There seem to be the two subjects of loans to directors and the extension of credit to directors, which are inseparably linked, and it seems to us that the proper course is to deal with both subjects in the 1980 Bill after proper, and extremely thorough, consideration and consultation.
I want to add that, apart from the need to deal with credit transactions as such, we have seen and continue to see serious problems in the way in which the last Government proposed to deal with loans to directors of particular banking companies and with the disclosure of such loans. While in office, the previous Administration acknowledged the need to make special provision for clearing banks. I paid fairly close attention to the noble Lord, Lord Mishcon, but I do not see the present clause attempting to make provision for clearing banks. With some regret, we reject the view that clearing banks should be treated differently from other major banks, but we take the view that some form of special provision is necessary, particularly for the primary banking sector. What form this provision will take will be the subject of consideration and consultation over the coming months.
The Peachey Report was mentioned by the noble Lord, Lord Mishcon, and I drew attention to it in my remarks. The noble Lord quoted from one page. I have a quotation which is very apt and relevant, not only to this clause but to the other new clauses which have been moved over the past 30 minutes or so. It comes on page 148, in the middle of paragraph 195, and it states:
"It is hard to apportion serious blame to older, semi-retired men meeting each other rarely and serving for, at most, a few years for failing to react strongly against a younger, vigorous and compelling character who has served the board for a lengthy period."
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I believe that those words are very apposite to what happened in the particularly sad case which the noble Lord, Lord Mishcon, quoted this afternoon. I also believe that they give some guide as to why certain things have happened. We hear that legislation will not always cure human behaviour, particularly as it is set out in that paragraph. I do not seek any similarity there. I may be young and vigorous, but the rest of the attributes do not apply to either my noble friend Lord Cullen or myself.
I hope that this short intervention, together with the long illustration on a very lengthy and complicated clause, may be sufficient to indicate why the Government do not think it right at this stage—and we have discussed why we think the amendments are defective; it is a matter of degree, but we are not convinced that they are absolutely right at this stage—to consider legislating on this subject, and why we should much prefer to leave this difficult matter to the 1980 Bill.
8.14 p.m.
Lord WEDDERBURN of CHARLTON: What the noble Lord has just said on behalf of the Government is very surprising, because what he has said is that the Government appreciate that this matter has been under discussion for a long time, that it has become very urgent because of the London and County matter and the Peachey matter, that they know about the Jenkins Report and know that loans to directors are a major engine of malpractice, but they can think of ways around the clause. The Government have thought of other forms of credit. The Government did not have to think of them; they were raised by the previous Bill.
If the noble Lord wishes, I can give him a number of other ways in which you can get around the clause. You can usually get around most clauses. It was suggested in Committee in another place that you could give loans to an employee just before he became a director. My honourable friend Mr. Mikardo suggested that directors would retire at the rate of one a week, so that they were not directors when they had their loans. Somebody else suggested that you could set up money-lending subsidiaries so as to take advantage of the money-lending window.

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That is a more doubtful evasion, but there are many possible evasions. There are always possible evasions to statutes.
If the Government want to bring in a better clause, let them do so. If the noble Lord's arguments were taken seriously, nobody in another place would ever pass a taxation statute in any year, because as soon as it is published draftsmen get on to the job of finding ways around the sections. So all he has said is that he knows this is a major engine of malpractice, but because there are ways of getting around it that he can see, which could easily be put right the Government will not make a start. It would not be very difficult to put the other forms of credit point right. The resignation of directors is a little more difficult, but that could be put right, too, because we need in our company law a wider concept than that of "directors" when we are dealing with these duties; we need a new concept of "manager" which is wider than that of members of the board, to which these obligations would apply, but that could be easily put right.
We are saying that the matter is so urgent that, in a Bill to amend company law in 1979, it is flagrantly wrong that the Government should not include any provision at all. If, as the noble Lord and his party believe, shareholders really are an engine of control in a company, then at least let us pass this clause, because then, if they are right, the shareholders' noses will twitch if they see some evasion. At least they will know about loans to directors, and about which loans ought to be made and which ought not. The shareholders will then see to it that these forms of evasion will not be practised. That the Government should not accept this clause, when they have given us a concession on three other matters this evening, astonishes me.
Lord LYELL: If I may reply instantly, the noble Lord, Lord Wedderburn, may care to see when the Peachey Report was signed. This is rather like being a rabbit in a shooting gallery. This is not necessarily personal, but the noble Lord rains the points down very sharply. Perhaps a more apposite comparison would be that it is like facing some of the famed tennis stars at Wimbledon. I do my best, but I must point out that this report was published and signed on 11th December
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1978, which is not a very long time ago. I ask the noble Lord, Lord Wedderburn, because it is he who has fired these points at me, how soon he wishes to have a clause to cover all the points that he mentioned. It is not a question of how soon?—tomorrow, within six weeks or before the end of the Session. We have to see that this Bill gets on to the statute book with as few flaws as possible.
Throughout the debate, the noble Lord, and other noble and learned Lords in the House, will not have failed to notice that there have been continual cast-iron guarantees given by my noble friends Lord Trenchard and Lord Cullen, and, indeed, by my noble friend the Leader of the House, that we intend to have a much larger Companies Bill in the 1980–81 Session. We have had comments from the noble Lord, Lord Bruce, who I am pleased to see is back in his accustomed place redressing the balance of lawyers on the Opposition Benches; and there is one accountant to come. But I believe that it would be an error just to push in all the things that the noble Lord, Lord Wedderburn, put this evening in the course of two minutes.
It may be simple to the noble Lord, but it is not so simple to the Government. It is far more a case of wishing to plug up every possible loophole. The whole Committee has been hearing that there are abuses. We want to get this clause into company law—be it in this Bill, or in the later Bill that is to come—as nearly perfect as possible, and we do not agree with the pace which the noble Lord, Lord Wedderburn, is setting. Let he and the Committee be in no doubt that the Government are not going on like snails. We are pushing on, but we wish as our prime objective to have the best company legislation that we can have.
Lord WEDDERBURN of CHARLTON: If I may reply to what the noble Lord has said in 30 seconds, I am well aware that the Peachey Report was signed in December 1978, but it added nothing to the case in respect of loans to directors. I was saying, to put it another way so that I am not misunderstood again, that the Government have a golden opportunity. They appear to have legislative time for two Companies Bills. No Secretary of State for Trade has been in that position for generations. There-

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fore, why should not the Government start with loans to directors now and then, after all consultations with other bodies have been concluded, deal with the points in the 1980–81 Bill, if they wish to do so, which they find are reasons for not proceeding now. Not to stop the most flagrant abuse now, simply because one can think of other minor ones, or other abuses, later on, is never a reason for not legislating.
Lord LYELL: The noble Lord is now prepeating at a slower pace, which I have been able to grasp, and which perhaps the rest of the Committee has been able to grasp, his first argument. The Government do not believe that they should make such haste. The noble Lord has said that there will be two Companies Bills. Indeed, I look forward to hearing just the same speech as the noble Lord has made during the proceedings on the 1980–81 Companies Bill, when we shall deal with exactly the same matters as we are dealing with tonight. We want this matter to be as perfect as we can make it. I do not believe—and, indeed, the Government do not believe—that we shall get it right at this stage. There are several consultative processes which we wish to continue.
Lord MISHCON: I wonder whether I may be allowed to answer the observations which have been made with what we now regard as the typical charm of the noble Lord opposite, whose youth we immediately excuse because he seems to be showing an ebullience and a wisdom which go beyond his years. To answer the points which he has made, I hope very briefly, it just is not right, if he will forgive me for being so deliberate, to pick out points which are normally so easily dealt with between Committee and Report stages, set them up as huge barriers, impossible to overcome, and therefore to say that one has to delay legislation.
The next amendment, which deals with credit transactions, is a paving amendment. At the Committee stage of the 1978 Bill, what was going, to he covered by those credit transactions was fully set out. The only thing which arose from Peachey relevant to this clause was that the chairman and managing director of Peachey did not borrow the money; he
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just got the company to pay it out in regard to his private debtors. That hardly constitutes a loan. Therefore, that point had to be covered. There was a further point, which he might have taken against me, that the Law Society said that it would be a good idea to deal with the assignment of debts as well as the debts themselves—in other words, by the company buying a debt due from a director to a third party. But these matters are ordinarily dealt with with great ease. There is no great complexity about them. I still ask the noble Lords opposite, before we divide—as divide we shall have to do, because this is such a vital matter arising out of all that happened in 1974 to secondary banks and thereafter—to be conciliatory enough to say that this is something that they will bring into the current Bill and, therefore, that they will accept this amendment.
Lord HARMAR-NICHOLLS: I hope that my noble friend does not say that. In their attempt to be conciliatory, I think that perhaps the Front Bench have said too much. They have committed themselves far too far down the road of what may be included in the 1980–81 Bill. They have accepted the general principle behind many of the arguments. When they come to examine it, I think they will find that they are unable to go that far. To give the kind of undertaking for which the noble Lord opposite has just asked would not give much happiness to those sitting behind the Government Front Bench. With regard to the money-lending companies, most of what the noble Lord said one agrees with, from one's limited knowledge of what he calls the malpractices. But in the case of money-lending companies, which are doing their work in the normal way, too many restrictions are perhaps imposed by this wording. I do not wish to pursue that point, although I may wish to return to it when we see it in detail in the 1980–81 Bill.
However, is not the noble Lord at all impressed by the main point which was made by my noble friend; namely, that the Government have not completed their consultations? They have said that the general principle behind what the Opposition are saying, and also the evidence of Peachey and Jenkins, has been taken into account but that they are not

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fully satisfied and that other negotiations and consultations are taking place which have not yet been completed; there would be a reason for speeding up these consultations, no doubt to the point of risking not coming to the right conclusion, if it were not for the fact that we are going to have another Bill. However, since we are going to have another Bill within the next 12 months and since all of these things will be dealt with in that Bill, I should have thought that prudence would insist that the consultations on the way are concluded before the Government accept any amendments.
Lord MISHCON: I should be grateful if the noble Lord would give way, and I do so for the convenience of the House. If he promises not to repeat once again all the things that he has already said, I promise not to repeat my replies to what he has already said.
Lord HARMAR-NICHOLLS: The noble Lord will know when we have sat together longer that I give no undertakings as to what I shall say. I believe that the strength of Parliament is that its Members come along to talk freely about what they honestly believe. If they think that certain things are worthy of reiteration, they reiterate them. As the noble Lord has admitted, we have had many repeats"—"playbacks", I think they call it on television—of what we have said. I promise the noble Lord that if he even implies a repeat of some of the arguments
which I find are not in the best interests of this country, I shall repeat my objections to them. I give no undertakings. We have free speech in this country. This may bore some people. However, I should not have the satisfaction of feeling that I had done my duty if I allowed the noble Lord to get away with some of the generalisations which he has put as details in this particular debate.
Viscount TRENCHARD: I wonder whether I could say to the noble Lord, Lord Mishcon, that it is neither our opinion nor our advice—including advice from people who know a great deal about this subject—that these are matters which can be easily dealt with between the Committee and Report stages. We have tabled, with remarkable alacrity and with the concessions which I have today given after receiving the authority of the Government so to give, a very great part of the Companies Bill of the last Administration which it took them quite a long time to table. The clauses which we hold back are sincerely held back because we believe that they can be improved. I hope, both in relation to this amendment and to future amendments, that our sincerity on this point will be accepted.
8.29 p.m.
On Question, Whether the said Amendment (No. 16) shall be agreed to?
Their Lordships divided: Contents, 34; Not-Contents, 43.

CONTENTS

Ardwick, L.

Evans of Claughton, L.

Mishcon, L.

Aylestone, L.

Goronwy-Roberts, L.

Oram, L.

Bacon, B.

Hale, L.

Phillips, B.

Blease, L.

Hall, V.

Ponsonby of Shulbrede, L.

Blyton, L.

Hampton, L.

Stewart of Alvechurch, B.

Boston of Faversham, L.

Hanworth, V.

Stone, L.

Brockway, L.

Hatch of Lusby, L.

Strabolgi, L.

Bruce of Donington, L.

Houghton of Sowerby, L.

Thomson of Monifieth, L.

Collison, L.

Jacques, L.

Wedderburn of Charlton, L.

David, B. [Teller.]

Janner, L.

Wells-Pestell, L. [Teller.]

Donaldson of Kingsbridge, L.

Llewelyn-Davies of Hastoe, B.

Wynne-Jones, L.

Elwyn-Jones, L.

NOT-CONTENTS

Amherst of Hackney, L.

Denham, L. [Teller.]

Hawke, L.

Ampthill, L.

Duncan-Sandys, L.

Hornsby-Smith, B.

Avon, E.

Exeter, M.

Inglewood, L.

Belstead, L.

Falmouth, V.

Long, V.

Campbell of Croy, L.

Ferrers, E.

Lyell, L.

Cockfield, L.

Fortescue, E.

Merrivale, L.

Colville of Culross, V.

Hailsham of Saint Marylebonc, (L. Chancellor.)

Morris, L.

Cottesloe, L.

Mottistone, L.

Cullen of Ashbourne, L.

Harmar-Nicholls, L.

Mowbray and Stourton, L.

Orr-Ewing, L.

Saint Oswald, L.

Trenchard, V.

Rankeillour, L.

Sandys, L. [Teller.]

Tweedsmuir, L.

Redmayne, L.

Strathclyde, L.

Vivian, L.

Reigate, L.

Teviot, L.

Ward of North Tyneside, B.

Renwick, L.

Torpichen, L.

Young, B.

St. Aldwyn, E.

Trefgarne, L.

Resolved in the negative, and Amendent disagreed to accordingly.
[Amendments Nos. 17 to 18 not moved.]
8.37 p.m.
Lord BRUCE of DONINGTON Lord BRUCE of DONINGTON moved Amendment No. 19:
After Clause 45, insert the following new clause:
"Particulars in accounts of substantial contracts in which a director has a material interest.
45J.—(1) Subject to subsection (4) below, the accounts of a company which are prepared in pursuance of section 1 of the 1976 Act in respect of any accounting reference period ending on or after the appointed day shall contain the particulars specified in subsection (3) below of any contract in which a director of the company had directly or indirectly an interest at any time during that period, if—

(a) that interest is, in the opinion of the other directors of the company, a material interest; and

(b) the value to the company at the time the contract is entered into of the property, services or other thing to be provided by the company under that contract, together with any cash to be so provided, exceeds £5,000 or one per cent. of the value at the end of that period of that company's net assets, whichever is the greater; and

(c) that contract was entered into after the passing of this Act and either subsists at the end of that period or has subsisted at any time during that period.

(2) Where the value of anything to be provided by the company under any such contract is unascertainable or otherwise uncertain at the time the contract is entered into, that value shall be estimated for the purposes of subsection (1)(b) above by reference to all relevant circumstances which are ascertainable and certain at the end of that period.
(3) The particulars referred to in subsection (1) above are—

(a) a statement of the fact of the contract's subsisting or, as the case may be, having subsisted as mentioned in subsection (1)(c) above;

(b) the names of the parties to the contract (other than the company);

(c) an indication of the nature of the contract;

(d) the name of the director (if not a party to the contract);

(e) an indication of the nature of that director's interest.

(4) This section shall not require the said accounts to contain—

(a) any particulars of any contract of employment between the company and a director of the company; and

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(b) anything which is required to be contained in those accounts by section 53 below."

The noble Lord said: This amendment seeks to establish particulars in the accounts of substantial contracts in which a director has a material interest. I do not propose to elaborate on the wording of the amendment itself, which seems to me to be self-explanatory, and, in order to save the time of the Committee, I beg to move it formally.
Lord CULLEN of ASHBOURNE: This is another in a series of clauses about directors. We have said several times that we would rather not take piecemeal one particular clause out of this series, and I ask my noble friends to resist this amendment.
On Question, amendment negatived.
8.39 p.m.
Lord BRUCE of DONINGTON Lord BRUCE of DONINGTON moved Amendment No. 20:
After Clause 45, insert the following new clause:
"Particulars in accounts of loans to officers, etc.
45K.—(1) The accounts of a company which are prepared in pursuance of section 1 of the 1976 Act in respect of any accounting reference period ending on or after the appointed day (the relevant period) shall contain the following particulars of every relevant loan made by the company after the passing of this Act, that is to say—

(a) the name of the borrower and, if this subsection applies to a loan by reason of the borrower's being connected with any person, the name of that person;

(b) the terms of the loan;

(c) the amount outstanding on the loan, in respect of principal and interest, at the beginning and at the end of that period, and the maximum amount so outstanding during that period; and

(d) the amount of any interest which, having fallen due, has not been paid and the amount of any provision (within the meaning of Schedule 8 to the 1948 Act) made in respect of any failure or anticipated failure by the borrower to repay the whole or part of the loan or to pay the whole or part of any interest thereon.

(2) In this section "relevant loan" means any loan made to a person—

(a) who (whether or not he was an officer of the company or a director of its holding

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company at the time the loan was made) is such an officer or director at any time during the relevant period; or

(b) who is a person connected with a director of the company or of its holding company at any time during that period when the loan is outstanding (whether or not he was such a person at the time the loan was made),

being a loan which either is made during that period or, if made before it, is outstanding at any time during the period.
(3) The said accounts shall contain the particulars specified in subsection (4) below of every guarantee entered into and of every security provided by the company in respect of which the following conditions are satisfied, that is to say—

(a) the guarantee was entered into, or the security provided, by the company in connection with a relevant loan made by any person after the passing of this Act; and

(b) the liability of the company in respect of the guarantee or security has not been discharged before the beginning of the relevant period.

(4) The said particulars are—

(a) in respect of the relevant loan in connection with which the guaranteee is entered into or the security provided, the name of the borrower and, if subsection (3) above applies to the guarantee or security by reason of the borrower's being connected with any person, the name of that person;

(b) the maximum which the company may become liable under the guarantee or in respect of the security both at the beginning and at the end of the relevant period and the maximum of that amount during that period;

(c) any amount paid and any liability incurred by the company for the purpose of fulfilling the guarantee or discharging the security (including any loss incurred by the company by reason of the enforcement of the guarantee or security).

(5) Where—

(a) a sum to which this subsection applies is owed to the company at any time during the relevant period by a person (the debtor) who is an officer of the company or a director of its holding company at any time during that period (whether or not he is such an officer or director at the time the sum is so owed) or is connected with a director of the company or its holding company at any time during that period when that sum is so owed by the debtor; and

(b) at any time during that period when that sum is so owed by the debtor the aggregate of that sum and any other sum to which this subsection applies and which is so owed by the debtor exceeds £5,000,

those accounts shall contain particulars of the former sum.
(6) Subsection (5) above applies to any sum owed to a company other than one owed in respect of the principal or interest on a relevant loan.
(7) The accounts referred to in subsection (1) above shall contain, in respect of any loans
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made before the passing of this Act and outstanding at the end of the relevant period, the particulars which, but for the repeal of section 197 of the 1948 Act (particulars in accounts of loans to officers, etc.) by this Act, would have had to be contained in the accounts mentioned in that section."
The noble Lord said: This amendment relates to the particulars to be disclosed in the accounts of companies of loans to officers and including directors where the circumstances are permissible. Once again I do not propose to go into the details of this amendment, which, it seems to me, are quite easy to understand and in fact are self-explanatory.
However, I have it in mind, having had a sight of the EEC Fourth Directive on company accounts, that there is quite a chance that a number of the provisions in this particular amendment—and therefore in the Bill—may find themselves in conflict with the statutory form of accounts that will be commended to the House if the Fourth Directive on company accounts is followed. One would not wish to anticipate the arguments that will be adduced at the state when the Government bring in their own Bill based on the Fourth Directive, but I should just like to sound this warning in advance. The nature of the Directive is not one that will be readily assimilable within the accounting practice of this country. It has a number of defects.
I would hope, therefore, in conformity with the attitude expressed by the noble Viscount so far, that when it comes to a conflict between the general outline incorporated in the EEC Fourth Directive and the more detailed requirements in this particular Amendment, which I do understand are largely of a non-controversial nature, the British practice in this case will prevail. I beg to move.
Viscount TRENCHARD: I would assure the noble Lord that we shall study the implications of the Fourth Directive in relation to this issue very carefully indeed. We have spoken at length in relation to this subject of loans, and I will not detain the Committee, but merely say that I hope, in view of what has already been said, and the assurance that I have just given, the noble Lord will not press this amendment.
On Question, amendment negatived.
Lord MISHCON Lord MISHCON moved Amendment No. 21:
After Clause 45, insert the following new clause:
"Duty of director to disclose to company names of persons connected with him
45L.—(1) A director of a company shall—

(a) if he is a director on the appointed day, within 28 days from that day, and, in any other case, within 28 days from his appointment, disclose to the company, by notice in writing, the name of every person who he knows is connected with him; and

(b) within 28 days from its appearing to him, at any time after he has made a disclosure under this section, that a person whose name he has not so disclosed is connected with him, so disclose that person's name.

(2) A director of a relevant company who contravenes subsection (1) above shall be liable on summary conviction to a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum for each day until he does disclose the name.
The noble Lord said: Amendment No. 21, which I beg to move, deals with the duty of a director to disclose to the company names of persons connected with him, as defined in the following amendment, No. 22. I beg formally to move.
Lord CULLEN of ASHBOURNE: This is rather a different matter, and in our opinion this clause amounts to an unwarrantable invasion of personal privacy. It would, for example, require a director to reveal to his company the existence and identity of an illegitimate child or an estranged wife, even though there might be no question of any transaction or loan between these and the company. It is surely totally unreasonable to force every company to maintain details of their directors' wives, children and the rest, simply on the off-chance that some of them will do business with connected persons. What is more, it is unnecessary. The Jenkins Committee made proposals for improving the present rules relating to disclosure of directors' interests. In our view these recommendations offer a better route to the objective aimed at in the present clause. We will consider further precisely how these recommendations might be adapted and adopted in the context of our more general study of the rules relating to transactions between companies and their directors. Meanwhile, I hope the Committee will agree that the
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present clause deserves no place in any Bill, and certainly not in this one.
On Question, amendment negatived.
8.43 p.m.
Lord MISHCON Lord MISHCON had given Notice of his intention to move Amendment No. 22:
After Clause 45, insert the following new clause:
"Interpretation
45M.—(1) In this Part of this Act "relevant company" means any company which—

(a) is a public company; or

(b) is a subsidiary of a company which either is itself a public company or has another subsidiary which is a public company; or

(c) has a subsidiary which is a public company;

and in this subsection any reference to a public company shall during the transitional period include a reference to an old public company.
(2) For the purposes of this Part of this Act, a person is connected with a director of a company it, but only if, he is—

(a) that director's spouse, child or step-child: or

(b) a person acting in his capacity as the trustee (other than trustee under an employees' share scheme or a pension) of any trust the beneficiaries of which include the director, his spouse or any of his children or step-children or the terms of which confer a power on the trustees that may be exercised for the benefit of the director, his spouse or any of his children or step-children; or

(c) except where the context otherwise requires, a body corporate with which the director is associated;

and in this subsection a reference to the child or step-child of any person shall not include a reference to any child or step-child of that person who has attained the age of 18 years, but shall include a reference to any child of that person who is illegitimate and has not attained that age.
(3) For the purposes of this Part of this Act—

(a) a director of a company is associated with a body corporate if, but only if, he and the persons connected with him (other than bodies corporate with which he is associated), together, are interested in shares comprised in the equity share capital of this body corporate of a nominal value equal to at least one fifth of that share capital or are entitled to exercise or control the exercise of more than one-fifth of the voting power at any general meeting of that body; and

(b) a director of a company shall be deemed to control a body corporate if but only if—

(i) he or a person connected with him (other than a body corporate with which he is associated) is interested in any part of the equity share capital of that body or is entitled to exercise or control the

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exercise of any part of the voting power at any general meeting of that body; and

(ii) that director, the persons connected with him (other than bodies corporate with which he is associated) and the other directors of that company, together, are interested in more than one-half of that share capital or are entitled to exercise or control the exercise of more than one-half of that voting power.

(4) The rules set out in section 28 of the 1967 Act (interest in shares) shall have effect for the purposes of subsection (3) above with the substitution of the words "more than one-half" for the words "one third or more" in subsection (3)(b) of that section, and in subsection (3) above

(a) "equity share capital" has the same meaning as in section 154 of the 1948 Act; and

(b) references to voting power the exercise of which is controlled by a director shall, without prejudice to the other provisions of that subsection, include references to voting power the exercise of which is controlled by a body corporate controlled by that director."

The noble Lord said: This is a consequential amendment upon one that has been defeated, and therefore I do not move it.
Lord MISHCON Lord MISHCON had given Notice of his intention to move Amendment No. 23:
After Clause 45, insert the following new clause:
"Consequential repeals and savings
45N.—(1) Section 190 of the 1948 Act (prohibition on loans to directors) and, except in relation to any accounts prepared in pursuance of section 1 of the 1976 Act in respect of any accounting reference period ending before the appointed day, section 197 of the 1948 Act (particulars in accounts of loans to officers, etc.) shall cease to have effect.
(2) Section 16(1)(c) of the 1967 Act (particulars of contracts in which a director has a significant and material interest) shall cease to have effect, except that it shall continue to apply in relation to any contract such as is mentioned in that section which was entered into by the company before the passing of this Act.
The noble Lord said: This amendment, I am afraid, suffers the same fate. I do not move it.
8.44 p.m.
Lord ELWYN-JONES Lord ELWYN-JONES moved Amendment No. 24:
After Clause 45, insert the following new clause:
"Prohibition on stock exchange deals by insiders, etc
45P.—(1) Subject to subsection (6) below, an individual who is, or at any time in the
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preceding six months has been, knowingly connected with a company shall not deal on a recognised stock exchange in any securities of that company if he has information which he knows—

(a) is not generally available; and

(b) would, if it were so available, be likely materially to affect the price of those securities.

(2) Subject to subsection (6) below, an individual who is, or at any time in the preceding six months has been, knowingly connected with a company shall not deal on a recognised stock exchange in any securities of any other company if he has information which he knows—

(a) is not generally available; and

(b) would, if it were so available, be likely materially to affect the price of those securities; and

(c) relates to any transaction (actual or contemplated) involving both those companies, or involving one of them and securities of the other.

(3) Subject to subsection (6) below, an individual shall not, at any time when he is prohibited by subsection (1) or (2) above from dealing on a recognised stock exchange in any securities, counsel or procure any other person to deal on a recognised stock exchange in those securities.
(4) Subject to subsection (6) below, an individual shall not, at any time when he is prohibited as aforesaid from dealing on a recognised stock exchange in any securities by reason of his having any information, communicate that information to any other person if he knows or has reasonable grounds for believing that that other person will make use of the information for the purpose of dealing, or of counselling or procuring any other person to deal, on a recognised stock exchange in those securities.
(5) Subject to subsection (6) below, where any individual who is not connected with a particular company, or is so connected without knowing it, has information of such a nature that, if he were knowingly so connected, subsection (1) or (2) above would apply to him and he knowingly obtained the information (directly or indirectly) from an individual who was, or at any time in the preceding six months had been so connected, then the former individual—

(a) shall not himself deal on a recognised stock exchange in the securities of that company if he knows that the information would, if it were generally available, be likely materially to affect the price of those securities;

(b) shall not himself deal on a recognised stock exchange in the securities of any other company, if he knows that the information—

(i) would, if it were generally available, be likely materially to affect the price of those securities; and

(ii) relates to any transaction (actual or contemplated) involving that particular company and the other company or involving one of them and the securities of the other;

135

(c) shall not counsel or procure any other person to deal on a recognised stock exchange in the securities in which the former individual is prohibited from dealing by virtue of paragraphs (a) and (b) above; and

(d) shall not communicate the information to any other person if he knows or has reasonable grounds for believing that that other person will make use of the information for the purpose of dealing, or of counselling or procuring any person to deal, on a recognised stock exchange in the securities mentioned in paragraph (c) above.

(6) The provisions of this section shall not prohibit an individual by reason of his having any information from doing any particular thing if—

(a) he does that thing otherwise than with a view to the making of a profit or the avoidance of a loss (whether for himself or another) by the use of that information; or

(b) that thing consists in his entering into a transaction in the course of the exercise in good faith of his functions as liquidator, receiver or trustee in bankruptcy; or

(c) the information—

(i) was obtained by him in the course of a business of a jobber in which he was engaged or employed, and

(ii) was of a description which it would be reasonable to expect him to obtain in the ordinary course of the business;

and he does that thing in good faith in the course of that business.

(7) In subsection (6) above ' jobber ' means an individual, partnership or company dealing in securities on a recognised stock exchange and recognised by The Council of the Stock Exchange as carrying on the business of a jobber.
(8) Where a trustee or personal representative who apart from subsection (6)(c) above would be prohibited by this section from dealing, or counselling or procuring any other person to deal, or a recognised stock exchange in any securities deals in those securities, or counsels or procures any other person to deal in them, he shall be presumed to have acted as mentioned in that paragraph if he acted on the advice of a person who appeared to him—

(a) to be an appropriate person from whom to seek advice; and

(b) not to be a person prohibited by this section from so dealing or counselling or procuring any other person so to deal, in those securities."

The noble and learned Lord said: We now come to what I submit is the most important, as it is the most controversial, of all the new clauses that my noble friends and I have been raising in this debate. Our submission is that failure to deal with this now, and not at some receding date, 1980 or 1981, would be a serious failure of duty on the part of the
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Government. There is now widespread support in the city and elsewhere for the view that insider dealing should be made a criminal offence. That concept is supported by the Council for the Securities Industry, and it is now generally agreed that dealing in securities by a person who has privileged information which he exploits for personal benefit is wrong. It is forbidden under the rules of the Stock Exchange and the City Panel on Takeovers and Mergers.
I was interested to note that the noble Viscount, Lord Trenchard, quoted a report from Justice when we were dealing with Amendment No. 12, and I am happy to think, therefore, that so impressed has he been with the recommendations of Justice that he will follow suit in approving of what they say about insider dealing. The crucial question is whether conduct of the kind which I have briefly described ought to be penalised by law. I think everybody agrees it is wrong. That seems to be the critical question. We believe that it ought to be declared illegal. I am greatly assisted by the brief report that was published by Justice on insider trading way back in 1972. This subject, at any rate, has been on the tapis for years, has been ploughed over for years, and it is time for action. My submission is that the scheme which is included in the amendments with which we are now dealing, Nos. 24 to 30 in effect, is practical, sensible and workable.
We believe that insider trading ought to be made illegal; first, because we think that deliberate non-disclosure of material facts is just as wrong as deliberate misrepresentation, at least in cases where the other party to the contract is not yet in a position to discover the truth. As the Justice report says, it ought to be subject to similar penalties. Secondly—and I agree with Justice in this—we think it is contrary to good business ethics that a man holding a position of trust in a company should use confidential information for his personal benefit, and that good business ethics ought to be not only supported but reinforced by appropriate legal sanctions.
The present law of England on this matter is generally thought to be unsatisfactory. It was held in the case of Percival and Wright that directors of a company do not as such owe any fiduciary

137
duty to the shareholders and are entitled to buy shares without disclosing the existence of negotiations for a takeover. A fortiori in the converse case of a sale by a director, the director does not owe a fiduciary duty to a prospective purchaser who is not yet a member of the company. It is not surprising that the Jenkins Committee on Company Law said that they regarded the law on insider trading as wrong, and came to this conclusion:
"The law should protect a person, whether or not a member of the company or companies concerned, who suffers loss because a director has taken unfair advantage at his expense of a particular piece of confidential information about the company or any other company in the same group in any transaction relating to the securities of such company"
The Jenkins Committee specifically recommended that in addition to more extensive disclosure being made of share dealings by directors, first, a director of a company should not make use of any money or other property of the company or of any information acquired by virtue of his position as a director or officer of the company to gain directly or indirectly an improper advantage for himself at the expense of the company. Secondly, a director who commits a breach of these provisions should be liable to the company for any profit made by him. Thirdly, a director in such circumstances should be liable to compensate a person who suffers from his action in so doing unless that information was known to that person.
Fourthly, a director of a company should be prohibited from dealing in options in the securities of his company or other companies in the same group. Although we do not accept all the recommendations of the Jenkins Committee, nevertheless we think that action by way of legislation—and action which we think is best taken in the form of criminal sanctions—should now be taken.
As I have said, the City Code of Takeovers and Mergers has prohibited that, and although there is available the threat of suspension from membership of the Stock Exchange, we do not believe that that is an effective sanction for others than a stockbroker who is concerned in the negotiations. The code can provide no sanction against a director who commits a breach of its rules, except suspension of quotation of the company's shares, which would, of course, penalise innocent share-
138
holders as well. It is interesting that in the United States insider trading is severely restricted—as my noble friend Lord Wedderburn has said—by the Securities Exchange Act 1934 and by the famous Rule 10(b), to which he has referred, made by the Securities and Exchange Commission. Canada has thought it right to proceed by legislation against insider trading and in France there are measures directed to the same end.
The critical question is, what kind of legal control is required to deal with this mischief? We are of the opinion that the most effective and the most needed is that insider trading should be treated as a criminal offence. Like the members of the Justice Committee, we have considered the other possibilities: that the insider should be accountable to the company for any gain he has made, or that the other party to the contract should have a right of action against the insider for a rescission of damages. However, it is our view that insider trading through a stock exchange should be made a specific criminal offence punishable by imprisonment or a fine. Amendment No. 27 provides that:
"An individual who contravenes the provisions of section 57, 58 or 59"—
which I submit effectively state the mischief and describe what is prohibited—
"shall be liable—
(a) on conviction on indictment to imprisonment for a term not exceeding two years or a fine, or both."
Your Lordships will notice that the amount of the fine is left to the discretion of the court and is not limited.
It goes on:
"on summary conviction to imprisonment for a term not exceeding six months or a fine not exceeding the statutory maximum, or both."
It is important that the penal provision provides that:
"Proceedings for an offence under this section shall not be instituted in England and Wales except by the Secretary of State or by, or with the consent of, the Director of Public Prosecutions."
So, there is no danger of vengeful or malicious prosecution being initiated on the strength of the recommendations in Amendments Nos. 24 to 27.
There is also a valuable provision—I shall not trouble to deal with civil remedies

139
for contraventions of what is provided for—in Amendment No. 29 that:
"If it appears to the Secretary of State that there are circumstances suggesting that there may have been a contravention of section 57 or 58"—
45P and 45Q—
"he may appoint one or more competent inspectors to carry out such investigations as are requisite to establish whether or not any such contravention has occurred and to report the results of their investigations to him."
Then there are safeguards as to the conduct of such an inspection and such an examination.
Here, I submit, is at last a serious, responsible and constructive attempt to identify and define the mischief of insider dealing and to deal with it effectively in the courts of law with the precautions against abuse of the procedure which are provided for in the amendments. I submit that it is a matter of urgent importance. I do not need to repeat that, but, in the light of the reports which we have had in recent years, this is a serious blot upon the conduct of companies by a limited number of men who have shown their willingness to exploit the defects to the great damage to the company, to shareholders and to the community at large. I beg to move.
Viscount TRENCHARD: I should like to try to answer the points that the noble and learned Lord has made as regards not only Amendment 24 but other amendments which he has mentioned through to Amendment No. 30. He started by saying that he had noted my belief in the opinions of Justice. I still believe in Justice. We all think it right that insider dealing should be made illegal. It is true that the subject has been around for years, but we believe that it needs to be put right in a way which will not do damage to desirable market functions and normal investment functions. This is only the second main subject which the Government have said we cannot include in the Bill. We are determined to get it right and we shall have a further opportunity on which to concentrate on the matter to a high degree. Therefore, 1 feel that noble Lords should not speak as though we were trying to delay this for an indefinite period.
I would begin my remarks about insider dealing with a simple statement of the
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Government's position. The Government fully hold to the widely held view that insider dealing is wrong and should be discouraged and condemned in every way possible. The introduction of criminal sanctions would obviously be a significant step forward when—and this is an important, not to say vital, qualification—measures can be drafted which distinguish clearly between the objectionable, which is to be punished, and the unobjectionable and indeed the desirable, which should not be threatened. We are, I think, all agreed on that. Certainly it was the view expressed by the then Secretary of State for Trade when the last Government's Bill was read for a second time in another place. He said:
"one must recognise, however, that the distinction between reprehensible conduct and innocent, and indeed useful, activities is one which it is easier to recognise in practice than to embody in specific language".
He went on to stress the need to protect legitimate or desirable activities.
It is clear that our paths part at this point. Noble Lords opposite believe that clauses to deal with insider dealing are available from the previous Bill in a sufficiently satisfactory form to form part of this Bill, and they argue that the changes needed could be dealt with during the passage of the Bill. I must say that the Government disagree profoundly. The task of sorting out the problems is not a straightforward one and the dangers involved in getting the legislation wrong are, as we all recognise, very great. The differences between us are matters of both drafting and approach, and they are vital matters, reflecting real differences.
I confess that I was surprised during the Second Reading of the Bill when the noble Lord, Lord Bruce of Donington, said that the first three clauses of the lapsed Bill on insider dealing were:
"assented to by the Committee without very much argument at all".—[Official Report, 25/6/79; col. 1273.]
Clause 57 provoked long debate and no agreement between the parties on the outstanding points. Indeed, if noble Lords will read the debate on the Motion that Clause 57 stand part, they will find that there was a debate of some passion which, on a Companies Bill of all things, is rather unusual. It showed just how important the differences were.

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Noble Lords have drawn attention to the amendments put forward by the then Opposition during the Committee stage in another place and which were intended to remedy the weaknesses which had been identified. One can, of course, argue that the Government need only adopt those amendments and all would be well. In return one could respond that if the noble Lords opposite thought so highly of these amendments, it is rather strange that the Government of the day resisted them. But one must be more serious than that. The amendments that were proposed, particularly on the definition of what amounts to inside information, represent one approach to overcoming the problems of definition. We think that there are others, and the Government are determined to explore them fully. Again, the debates in another place showed that there were problems in stating clearly another key element in the provisions, the test of when information is generally available. The then Government put forward an amendment aimed at clarifying this, but how far it was satisfactory is a matter of some debate; indeed, the Government spokesman himself seemed to have his doubts.
Of other outstanding points there are the comments of the Council for the Securities Industry in its first annual report for 1979. It recorded its opposition to insider dealing, its support for legislation, and dealt with the previous Bill and the improvements in it which had been achieved. It concluded, however:
"The Bill was lost by the dissolution of Parliament, and the council proposes, while the matter is still fresh in everyone's mind, to see what can be put together as a series of proposals which would deal with insider dealing while avoiding harm to useful activities. It is necessary to be clear about the boundaries of the evil with which we are dealing. Further, discussion on the Bill has shown that one of the first tasks is to examine the basic structure of the legislative proposals. In the United States and Canada there is not the same distinction between the treatment of tipper and tippee. Some of the difficulties on the 1978 Bill arose out of dealing with the tippee separately from the tipper. Again, the distinction between stock exchange dealings and other dealings would have had awkward results and its validity needs to be appraised afresh".
Noble Lords will recall that the noble Lord, Lord Wedderburn of Charlton, referred to this report in his Second Reading speech. He did not take up the council's point about the distinction
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between the stock exchange and other dealings, but in referring to the council's remarks about different treatment of tippers and tippees he said that some of the amendments put forward by the then Opposition in another place dealt with this issue. I am advised that none of the then Opposition's amendments did, in fact, deal with this difference.
I do not think that this is the place for a long debate on insider dealing. It is not the place for a detailed catalogue from me of the issues which need to be covered in the further consultations and reconsideration which the Government propose on this topic. We ask for the agreement of the Committee that this important subject should be left out of the present Bill in order to permit the Government and those who will be affected by legislation on insider dealing adequate time to give proper consideration to this subject. Therefore, I beg the Committee to reject this amendment.
Lord WEDDERBURN of CHARLTON: I do not think that the noble Viscount could possibly believe that what he has just said would convince those of us who have been arguing for information on insider dealing since the late 1960s. As my noble friend has suggested, his previous Government of 1973 had clauses for it; clauses were put forward in Standing Committee "F" in another place this very year on behalf of his party. It would not be impossible to put through in this Bill a reasonably worded set of clauses to deal with insider trading. He asks us now, "Please let us leave it out of the present Bill"—after Justice has made its proposals of 1973, his own Government have put forward clauses in 1973; when the Stock Exchange wants it and when the Council for the Securities Industry, which the noble Lord quoted, said what he said and also that the previous Government's Bill afforded:
"a useful opportunity for dealing effectively with the evil of insider dealing".
Its report welcomed what the Government had done—that is, the previous Government—but hoped the Bill could be further improved. It then said:
"The insider who advised an outsider to deal should be more effectively dealt with".
In other words, the council appears to wish for even stronger provisions than are

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provided for in the 1978 Bill and in the clauses which are now put forward on that particular point.
Viscount TRENCHARD: It is, indeed, quite possible that when we bring in the proposals, in some respects they will be stronger in dealing with the evil. I hope that the noble Lord will not ask me to go over the points that I have highlighted—and there are many of them—which led to the differences in the other place on the Government's Bill. I hope he will accept, rather than restate what he has made clear to us already, that our view is that there is a real risk of doing damage to the desirable function of the market in probing for real information which is available, and making it more widely known. As many people have said when arguing the previous clause, this needs further time. I hope that we can avoid a misunderstanding or a repeat of arguments on it.
Lord WEDDERBURN of CHARLTON: I hope that the noble Viscount will not misunderstand me if I say that we have heard that argument for 11 years or more. Some of us have argued for this legislation since the 1960s. We have always been told that it is the wrong time and the wrong draft. It just will not do any more. The noble Viscount implied that it is a small problem. I am not sure how small a problem it is. I promise that I shall make these points as briefly as possible, but they deserve to be made on a Companies Bill. To put it in context, many of us were told in 1968, "It is just not necessary to hurry this matter. It is not a very serious problem". That was 11 years ago.
On 1st November 1978 Mr. David Hopkinson, the investment trust manager of M & G, the fund management group, was reported in The Times as saying:
"Ten or 20 years ago there was a fabulous amount of insider dealing in the City. It was part of the ethos of the stock market in those days".
Then he goes on:
"All the pressure to have insider dealing made a criminal offence has done the world of good. It has tightened people up".
Then what happened? We had, a few months afterwards, the City Panel report on the reverse takeover in the Chaddesley affair, where one director and an accountant were found guilty of insider
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dealing. One knows that a great deal of this goes on.
It is no answer to the argument, which I will not repeat, of my noble and learned friend that we need legislation now to deal with this matter, to tell us to wait until 1980 or 1981 because the Government cannot be quite sure that they have the definition of tippee, or insider information, or information generally available, exactly right. Indeed I say this, and I say it for the record, that now the need to define these terms so closely, and to pare and hone their meaning, is beginning to be used as an excuse for not legislating.
We shall see what the Government bring forward, and when they bring it forward. When they bring it forward, they will have to remember that they have let go by at least another year, perhaps two years. By the time their next Companies Bill is on the statute book, perhaps three years—another three years of this kind of dealing, which has brought to London a great deal of shame, despite the greatness of the City in other respects. The Government will be responsible because it could be put through now. It is scarcely credible that a Companies Bill should be enacted in 1979 which contains no provision on insider dealing.
9.11 p.m.
Lord HARMAR-NICHOLLS: My noble friend did not say that it was not an important matter. He said the exact opposite. He said that it was a very important matter indeed. Nor did my noble friend say that he was not going to legislate on it. Indeed, he made it clear that he was going to legislate on it. He went further and said that the legislation to prevent this objectionable practice going on would be in stronger terms than these words in the Amendment itself.
My noble friend made it clear that the general proposition put by the noble and learned Lord, Lord Elwyn-Jones, is accepted on all sides. This is a matter that ought to be dealt with, but it ought to be dealt with properly. Those who have to deal with these matters in the City know that, if by mischance you use wrong words when you commit it to legislation, it can do more damage than we know. There are already great efforts in various parts of the world to move financial control in many cases from London itself.

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If we show irresponsibility, even through it were well intentioned, in putting into legislation with Government backing things that are going to undermine the proper operation of desirable things in the City, we may be doing something bigger than we perhaps anticipated.
One accepts absolutely the general proposition put by the noble and learned Lord, Lord Elwyn-Jones. The reason in this instance that there is not the great urgency to do it at this minute, as distinct from doing it properly after proper investigation in the next Bill that has been guaranteed, is that we know that the Stock Exchange are apprised of this situation themselves. We are not leaving it absolutely without protection. We know that the Stock Exchange are very much alerted to this. We know they are very alive in wanting to use whatever powers they have to prevent this sort of thing happening. You are not leaving it completely without a safety chain.
While one has heard the arguments on all the other amendments, I should have thought that on this one above all the others, having accepted the main burden of the case put by the noble and learned Lord opposite that we see the absolute necessity of having it properly done when it is dealt with next year, the noble and learned Lord would not wish to push this to a vote in view of the undertakings given by my noble friend.
Viscount TRENCHARD: May I suggest that if our two contenders wish to continue, we should adopt tie-breaking rule as at Wimbledon?
Viscount HANWORTH: I am no classical scholar, but there is a story about
Achilles in his tent. He was presented with a problem and said, "Come back in an hour's time". The man came back in an hour's time and Achilles then said, "I have thought about it a little but I am afraid I cannot make up my mind now. Come back this evening". The man returned in the evening, whereupon Achilles said, "The more I think about the problem the more difficult it becomes". This went on for a very long time and Achilles never made up his mind. I suggest there is a lesson here and that we should remember that the best should not be the enemy of the good. Bearing in mind the time that has been taken up on this matter and bearing in mind how one thinks that many more urgent things may happen in the next six or nine months—so that this Bill may never again be brought forward—we should come to a conclusion now and not let the best be the enemy of the good. I shall, therefore, vote with the Opposition.
Lord MOTTISTONE: Perhaps the noble Viscount, Lord Hanworth, will agree that Achilles was in fact a very successful general. Perhaps his decision, or delayed decision, was just the right thing to do.
Viscount TRENCHARD: As usual, I agree with the philosophy the noble Viscount outlined—that the best can be the enemy of the good—but I have seen a large number of episodes, many of them in very recent legislation, where situations can be made worse.
On Question, Whether the said Amendment (No. 24) shall be agreed to?
Their Lordships Divided: Contents 33; Not-Contents, 45.

CONTENTS

Ardwick, L.

George-Brown, L.

Oram, L.

Aylestone, L.

Goronwy-Roberts, L.

Pitt of Hampstead, L.

Blease, L.

Hale, L.

Ponsonby of Shulbrede, L.

Boston of Faversham, L.

Hall, V.

Stewart of Alvechurch, B.

Brockway, L.

Hanworth, V.

Stone, L.

Bruce of Donington, L.

Hatch of Lusby, L.

Strabolgi, L.

Castle, L.

Houghton of Sowerby, L.

Thomson of Monifieth, L.

Collison, L.

Jacques, L.

Wedderburn of Charlton, L

David, B. (Teller.)

Janner, L.

Wells-Pestell, L.

Donaldson of Kingsbridge, L.

Llewelyn-Davies of Hastoe, B. (Teller.)

Wynne-Jones, L.

Elwyn-Jones, L.

Evans of Claughton, L.

Mishcon, L.

Amherst of Hackney, L.

Harmar-Nicholls, L.

Renwick, L.

Ampthill, L.

Hornsby-Smith, B.

St. Aldwyn, E.

Avon, E.

Hunt of Fawley, L.

Saint Oswald, L.

Belstead, L.

Long, V.

Sandys, L. [Teller.]

Bessborough, E.

Lucas of Chilworth, L.

Soames, L. (L. President.)

Campbell of Croy, L.

Lyell, L.

Strathclyde, L.

Cockfield, L.

Merrivale, L.

Torphichen, L.

Colville of Culross, V.

Morris, L.

Trefgarne, L.

Cottesloe, L.

Mottistone, L.

Trenchard, V.

Cullen of Ashbourne, L.

Mowbray and Stourton, L.

Tweedsmuir, L.

Denham, L. [Teller.]

Orr-Ewing, L.

Vivian, L.

Exeter, M.

Rankeillour, L.

Ward of North Tyneside, B.

Falmouth, V.

Reay, L.

Westbury, L.

Ferrers, E.

Redmayne, L.

Young, B.

Fortescue, E.

Reigate, L.

Hailsham of Saint Marylebone, L. (L. Chancellor.)

On Question, Amendment agreed to.

[Amendments Nos. 25 to 30 not moved.]
9.25 p.m.
Lord ELWYN-JONES Lord ELWYN-JONES moved Amendment No. 31:
After Clause 45, insert the following new clause:
"Power of a company to provide for employees on cessation or transfer of business
.—(1) The powers of a company shall, if they would not otherwise do so, be deemed to include power to make the following provision for the benefit of persons employed or formerly employed by the company or any of its subsidiaries, that is to say, provision in connection with the cessation or the transfer to any person of the whole or part of the undertaking of that company or that subsidiary; but any such provision may be only made out of sums which would otherwise be available for distribution (whether as dividends or capital) to members of the company.
(2) Subsection (1) above relates only to the capacity of a company as a body corporate and is without prejudice to any provision in a company's memorandum or articles requiring any exercise of the power mentioned in that subsection to be approved by the company in general meeting or otherwise prescribing the manner in which that power is to be exercised."
The noble and learned Lord said: In view of the undertaking of the noble Viscount, Lord Trenchard, that the Government accepted Amendment No. 31, I do not find it necessary to paint the lily, but simply to beg leave to move the Amendment.
Viscount TRENCHARD: It is my recommendation that the Committee accept this amendment.
Lord ELWYN-JONES Lord ELWYN-JONES moved Amendment No. 32:
After Clause 45, insert the following new clause:
"Power to court to grant relief against company where members unfairly prejudiced
.—(1) Any member of a company may apply to the court by petition for an order under this section on the ground that the affairs of the company are being conducted in a manner which is unfairly prejudicial to the interests of some of the members (including himself) or that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.
(2) If in the case of any company—

(a) the Secretary of State has received a report under section 168 of the 1948 Act (inspectors' reports) or exercised his powers under Part III of the 1967 Act or section 36(2) to (6) of the Insurance Companies Act 1974 (inspection of company's books and papers); and

(b) it appears to him that any ground exists by virtue of which a member could apply to the court under subsection (1) above,

he may himself (in addition to or instead of presenting a petition for the winding-up of the company under section 35(1) of the 1967 Act) apply to the court by petition for an order under this section.
(3) If the court is satisfied that a petition under this section is well founded it may make such order as it thinks fit for giving relief in respect of the matters complained of.
(4) Without prejudce to the generality of subsection (3) above, an order under this section may—

(a) regulate the conduct of the company's affairs in the future;

(b) restrain the doing or continuing of any act complained of by the petitioner;

(c) authorise civil proceedings to be brought in the name and on behalf of the company by such person or persons and on such terms as the court may direct;

(d) provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company's capital accordingly.

(5) Where an order under this section makes any alteration in or addition to the memorandum or articles of a company, then, notwithstanding anything in any provision of the Companies Acts but subject to the provisions of the order, the company concerned shall not have power without the leave of the court of make any further alteration in or addition to the memorandum or articles inconsistent with the provisions of the order; but, subject to the foregoing, the alterations or additions made by the order shall be of the same effect as if duly made by resolution of the company and the provisions of those Acts shall apply to the memorandum or articles as so altered or added to accordingly.
(6) An office copy of any order under this section altering or adding to, or giving leave to alter or add to, a company's memorandum or articles, shall within 14 days from the making of the order, be delivered by the company to the registrar of companies for registration; and if a company makes default in complying with this subsection, the company and every officer of the company who is in default shall be liable on summary conviction to a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum for every day until that copy is delivered.
(7) In relation to a petition under this section, section 365 of the 1948 Act (general rules for winding up) shall apply as it applies in relation to a winding-up petition.
(8) This section shall apply to a person who is not a member of a company but to whom shares in the company have been transferred or transmitted by operation of law as it applies to a member of the company, and references to a member or members shall be construed accordingly.
(9) In subsections (2) to (8) above "company" means any body corporate which is liable to be wound up under the 1948 Act.
(10) Section 210 of the 1948 Act and section 35(2) of the 1967 Act (which are superseded by this section) shall cease to have effect except in relation to proceedings on a petition presented before the appointed day."
The noble and learned Lord said: Similarly with regard to Amendment No. 32, as the noble Viscount has indicated acceptance of it I am content formally to move it. I beg to move.
Viscount TRENCHARD: As I have already said, the Government accept this amendment and recommend that the Committee should do likewise.
[Amendments Nos. 33 and 34 not moved.]
Viscount TRENCHARD: Perhaps I could make one matter clear. When the Committee stage started this afternoon I said that we would accept Amendments
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Nos. 34 and 40. I was later advised, and I believe the Opposition have been similarly advised, that I should have said Nos. 38 and 40. The purpose is exactly the same and I think this is not controversial, but I want to make sure of that point.
Lord ELWYN-JONES: That is understood.
Clause 46 [Trading under misleading name, etc.]:
9.27 p.m.
Lord MOTTISTONE Lord MOTTISTONE moved Amendment No. 35:
Page 57, line 13, leave out ("six") and insert ("twelve").
The noble Lord said: With the leave of the Committee, in moving Amendment No. 35 I should like to speak to Amendments Nos. 36 and 37 as well On Second Reading I explained rather at length how the problem that arises in this particular case is more in the area of containers of goods and of packaging material than in the range of stationery, which is also affected and is encompassed within these amendments. What we are saying is that if a new public limited company has to change its entire name and has to effect that change within six months, this is unreasonable because there are many occasions when stationery would last for longer. To take one specific item, packaging material in respect of some goods can be useful, not for just six months or 12 months, as in Amendments Nos. 35 and 36, but for 18 months, and possibly several years in particular cases. I therefore hope that the Government will see their way clear to accepting these Amendments, or some variation of them. I beg to move Amendment No. 35.
Lord LYELL: I should like to thank my noble friend Lord Mottistone for moving these amendments so carefully. I hope it will meet the agreement of the Committee if, like my noble friend, I too take the three amendments, Nos. 35, 36 and 37, together. It appears that the question of time which has been allowed to make the changeover from an old name to a new name is the reason for the amendments. In earlier consultations it was thought—and we have heard this from my noble friend—that six months was unreasonable. On the contrary, it has also

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been thought in other quarters that six months was too long, and that the use of two names would and, indeed, could lead to confusion. On the other hand, it was thought that six months was much too short and that, as we have heard from my noble friend, companies would waste stationery and packaging material as a result of the length of this period.
We are anxious to ensure that the changeover should be as smooth, as efficient and, above all, as economical as possible for companies. That is why the six months' period was introduced. But, in fact, companies will have a good deal longer than six months to plan the changeover to a new name. They will be able to choose any time within 15 months in which to make application to re-register as a public company; and we hope that this will allow flexibility in planning.
Lord MOTTISTONE: May I ask my noble friend to speak a little more slowly? He is going so fast that I cannot pick up what I am sure is very important. Would my noble friend mind going back a bit?
Lord LYELL: I will go at a more moderate pace. I apologise. The Committee is coming to its end; it is getting late and we have had a long day. I sensed that it was the feeling of the Committee that we should press on, but I do take my noble friend's point that this is complicated. At the moment, I have not got down to the most complicated pieces, but I will heed his warning. I take also, as always, points from the noble and learned Lord opposite to go steadily and to make as few mistakes as possible with the law.
I pointed out just now that companies would be able to choose any period of time within 15 months during which they could make their application to re-register as a public company. I said that we would hope that this would allow some extra flexibility in planning how best to order new stocks and to run down old stocks not only of stationery but also (of great interest to my noble friend) packaging and other materials or objects bearing the company's name. The legislation will also permit an additional period of time between the Royal Assent and the appointed day, even as much as three to four months.
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My noble friend Lord Mottistone referred in his speech at Second Reading to what he called durable items. I think that he was thinking of milk bottles and other containers but particularly those which are embossed with the company's name. Perhaps that is rather grand and perhaps it is merely where the company's name is printed on it in some form. The Government agree that it would be a pity to smash a great number of, say, milk bottles merely because the milk bottles carried the wrong name; but, on reflection, I feel that it is unlikely to prove to be a problem in practice.
We have spoken of milk bottles. Let us, therefore, continue in the dairy world. Dairies customarily mark their bottles with their names but not necessarily with their statutory designation. I hope that my noble friend will take that point. They mark the bottles with their names and they do it thus for their convenience. Any noble Lord's researches will show, should he collect his milk in bottles, that they will tend to be marked "Express Dairy"—or that is what I am told. My milk is Unigate and the bottles seem to be interchangeable. The milkman will take any bottles, whatever is printed on them. Since the milk companies are not required by any legislation to display their names, certainly in this case there will be no need to change the bottles or signs or whatever; since, by simply stating their name, they are not, in this case, giving the public a misleading impression as to the status of the company. That is the important point.
I do not want to make too light of this matter. I will take it as carefully as my noble friend Lord Mottistone would wish. I realise that, under the particular clause as drafted, in some companies with slow turnover products and a long lead-in time for packaging, the six months' period (even allowing for the additional time I mentioned) will be insufficient and that this is going to involve time-consuming and, above all, expensive processes of re-packaging or re-labelling goods already on the shelves.
I hope that we can accept the distinction between stationery and more durable items like glass or I do not know what else. I will wait with eagerness to hear what my noble friend, Lord Mottistone, thinks are more durable items. I recognise that in the matter of containers or pack-

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aging there may be—indeed, there will be—special problems. We are, above all, anxious to minimise these problems whenever and wherever possible. Accordingly, I am prepared to take this away and to consult with Ministers of other Departments involved in the legislation on labelling (which is so well known to me and to my noble friend Lord Mottistone) in the light of the representations we have received.
However, if we may consider further the amendment spoken to by my noble friend to add a new paragraph (c) to Clause 46(3), I find the amendment in this case a little too vague. I hope that the noble Lord will forgive me for saying this. I am referring to the reference of a reasonable time. This apparent vagueness is undesirable; it leads to uncertainty over exactly what the companies and the courts are supposed to do in this matter. Let us not forget that this matter is statutory labelling, statutory names of the company. It is not necessarily to do with the milk bottle or other identification; names, embossing or badges. We are dealing here with a defence to a criminal offence. It is vital that the Government should make the position clear both to the courts and, above all, to the companies.
To give any companies the protection which is sought, we have to remove this uncertainty in case the company concludes that the defence is so uncertain as to be unsafe to rely on. I understand and sympathise with the intentions of my noble friend which are to cut out waste by allowing companies to use up old stocks. I hope that the noble Lord, Lord Mottistone, will agree with me that it is not the intention to permit companies to produce containers or packaging in the old name of the companies long after they have re-registered as public companies. It appears—and we are pretty clear—that the Amendment, as drafted, does not exclude this particular case.
The Government propose that the defence should be restricted to companies retaining and using up old stocks produced before the re-registration of the company as a public company. Secondly, a definite period should be substituted for the present reasonable period. An appropriate starting time would be near to 12 months; but this is something that
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we can and shall examine in our consultations.
In view of what I said earlier—I hope at not too much length—about the time that companies will have to effect the changeover in their statutory name, the six months' time limit will suffice for the general purposes of paragraphs (a) and (b) of subsection (3), but a further concession along the lines I indicated should be made for the more durable items. I do not mean to be vague but, as I understand the matter, it covers milk bottles and containers—containers that I see around London on 40 ft. lorries and other vehicles. We hope the noble Lord might see fit to digest what I have said. It has been lengthy and I apologise to the Committee but our duty must be done. The Government repeat that a further concession along these lines will be made for more durable items. With that in mind, I hope that my noble friend Lord Mottistone will reflect on what I have said.
9.39 p.m.
Lord REDMAYNE: I am afraid that is not good enough unless—and I hope my noble friend will not be short-tempered—it means that from Royal Assent a company can use both names. It is all very well to say that six months will be allowed for changing stationery and so forth. I had experience of doing this in a company some 5 or 6 years ago and it is an extremely expensive business which takes time. Any company which applies for a simple nominal re-registration from the old style to the new should be permitted to put the new style into use as soon as it has made the application for registration and then possibly a period of six months will be enough. But if my noble friend cannot agree to that, then I am afraid we must press this on another occasion. This is a matter of being practical: it is the first practical point we have had tonight—I am not being rude about the Opposition, but this is something which affects this Bill now. We must get it right or we shall cause industry a great deal of unnecessary expense just for the sake of legislation.
Lord LYELL: I must apologise if I was short-tempered with the noble Lord, but we have been practical. If anybody

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has been practical and has made concessions, I think it has been the Government. I would be pleased and keen to hear of any practical examples that the noble Lord could give, or indeed that the noble Lord, Lord Mottistone, could give. I have mentioned milk bottles and their durable containers. Could the noble Lord give us one practical example of where the concessions the Government have outlined are unresonable? Fifteen months was the period which a company would be allowed to take while changing its statutory name.
Lord REDMAYNE: That is giving me my point.
Lord LYELL: I mentioned fifteen months—
Lord REDMAYNE: May I please intervene? My noble friend had not said that both titles would be admissible during the 15 months and the statutory six month thereafter. If you say that, then all is well. It is not so easy. Take a large retail company with 1,500 branches: it is not so easy to distribute new stationery—I am not talking about goods—right throughout that chain in only 16 months. There has to be some latitude, and it is such a small point. I see nothing in it.
Lord LYELL: I am under instructions that we will consult and confirm our observations before the Report stage.
Lord MOTTISTONE: That is really splendid. I rather thought that my noble friend had said that earlier.
Lord REDMAYNE: So did I.
Lord MOTTISTONE: I should like to give him just one example, because I do not want to detain the House; but suppose you have ordered in, shall we say?, August next year, a tin in which to sell biscuits the following Christmas and it has not got your old name on it because this Bill has been held up by the Opposition until Christmas-time—so you have had your six months and you have made your tin in June. You then find that you do not sell them all at Christmas 1980, but that you can sell them at Christmas 1981. That might be two years after the Bill had been passed. That is an example of what
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could happen. All you are doing is having to be extra rigid about what is in fact PLC as opposed to LTD, as I understand it. I will certainly withdraw this amendment at this stage, but would reserve the right to reintroduce it at the next stage, in the event that we cannot come to some agreement. With the help of my noble friend Lord Redmayne, I will be writing to the Minister to give him more practical details of the difficulties.
Lord LYELL: Before we conclude, may I say that I think there is nothing between the Government and my noble friend on his question of biscuit tins or other containers. I mentioned milk bottles at length simply, because I had not any further tangible or practical experience of other items. What we are concerned with in Clause 46 is statutory names by which companies will be known. With the galaxy of lawyers on the Opposition Benches, this is what they are going to be dealing with—not the question of misrepresentation, which I think is what the noble Lord, Lord Mottistone, and myself have argued over for many years on consumerism, correct labelling and correct description of the goods. What is at issue tonight in Clause 46 and these amendments is the statutory name of the company. Very often what one finds on the biscuit tin or anything else will be a registered brand name—and goodness knows what will happen when we come into the territory of pharmaceuticals and similar products. Then we find even greater problems, because very often one needs a magnifying glass to find out the name of the company and where it is registered. Tonight, we are worried about the statutory name of a public limited company.
Viscount TRENCHARD: If we find that this has to apply to biscuit tins, I will take the noble Lord's point on board. But I believe it to be true that the companies concerned will not have to alter their biscuit tins or milk bottle tops.
Lord MOTTISTONE: The words are "any document or object" in line 19. It is the "or object" that is bugging us. Perhaps the Government will take that or board. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 36 and 37 not moved.]
Clause 46 agreed to.
Clause 47 [Provisions as to companies with registered offices in Wales]:
On Question, Whether Clause 47 shall stand part of the Bill?
Lord ELWYN-JONES: Before we part with Clauses 47 and 48, may I make a completely non-controversial observation—namely, to express my gratitude to the Government that they have recognised the existence of the language of heaven—the Welsh language. I was hoping we might hear the noble Viscount, Lord Trenchard, or his noble colleague, reading out the equivalent in Welsh of "public limited company,"but for the record may I read it out myself—"cwmni cyfngedig cohoeddus". I notice that there is a piece of inaccurate Welsh in Clause 48(3)(a):
"For the purposes of subsection (1) and (2) above—
(a) the alternative of ' limited ' is the abbreviation ' ltd '."
I should have thought that it ought to be "lltd."
Clause 47 agreed to.
Clause 48 agreed to.
Clause 49 [Continuing offences]:
9.47 p.m.
Lord BRUCE of DONINGTON Lord BRUCE of DONINGTON moved Amendment No. 38:
Leave out Clause 49, and insert the following new Clause:
"Increase of penalties and change of mode of trial
49.—(1) Each of the enactments listed in column 1 of Schedule 8 (Increase of Penalties and change of mode of trial) to this Act (being enactments under which penalties may be imposed in respect of the offences or other contraventions which are broadly described or the nature of which is indicated in column 2 of that Schedule) shall have effect as if the penalty which may be imposed under that enactment for the offence in question on a conviction thereof described in column 4 of that Schedule were the penalty shown in column 4 instead of that shown in column 3 of that Schedule as the penalty which may be imposed on any conviction described in column 3; and any offence punishable under
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any such enactment shall be triable on indictment where the penalty shown in column 4 may be imposed on conviction on indictment and shall be triable summarily where the penalty so shown may be imposed on summary conviction.
(2) Where any enactment to which this subsection applies imposes liability to a default fine or conviction of an offence after continued contravention, then, if after a person has been summarily convicted of that offence the original contravention is continued, he shall be liable on a second or subsequent summary conviction of that offence to the fine specified in the enactment for each day on which the contravention is continued instead of to the penalty which may be imposed on the first conviction of that offence.
(3) Subsection (2) above applies to any enactment contained in the Companies Acts and to any enactment applying all the provisions of the 1948 Act or section 440 of that Act or construed as one with that Act.
(4) Section 49(1) of the 1967 Act (offences punishable with a fine to be triable only summarily) shall cease to have effect.
(5) The provisions of this section shall not apply to any offence committed before the appointed day; and nothing in this section shall authorise the bringing of any proceedings in respect of any such offence on or after that day if, but for this section, the latest time for bringing those proceedings would have been before that day".
The noble Lord said: In view of the assurance that has been given today by the noble Viscount, Lord Trenchard, I propose to move this amendment formally. Associated with it is the schedule, which I am informed should come before and not after Schedule 2. I beg to move.
Viscount TRENCHARD: My recommendation is that the Committee should accept this amendment. I am not entirely clear about the procedure as to how we get Schedule 2 moved in the way that the noble Lord, Lord Bruce of Donington, suggests.
Clauses 50 to 57 agreed to.
Schedule 1 agreed to.
[Amendment No. 39 not moved.]
The DEPUTY CHAIRMAN of COMMITTEES (Lord Amherst of Hackney): It was intended that Amendment No. 40 should be moved after Schedule 1, rather than after Schedule 2, so I now call Amendment No. 40.
9.50 p.m.
Lord BRUCE of DONINGTON Lord BRUCE of DONINGTON moved Amendment No. 40:
After Schedule 1, insert the following new Schedule:

("INCREASE OF PENALTIES AND CHANGE OF MODE OF TRIAL

Enactment (1)

General description of offence or contravention (2)

Old mode of trial and penalty (3)

New mode of trial and penalty (4)

COMPANIES ACT 1948 (c. 38)

5(8)

Failing to give the registrar a copy of the memorandum as altered or to give him notice of an application to the court in relation to such an alteration and other documents in connection with the application.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

7(3)

Failing to give notice to the registrar of an increase in members of an unlimited company or a company limited by guarantee.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

18(2)

Company failing to comply with a direction of the Secretary of State to change its name.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

19(7)

Body failing to change its name so as not to include "Chamber of Commerce", on revocation of a licence to include those words.

On summary conviction a fine not exceeding £50 for every day during which the default continues.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-tenth of the statutory maximum.

24(2)

Company, on being required to do so by a member, failing to send a copy of the memorandum or articles or of any Act of Parliament which alters them.

On summary conviction a fine not exceeding £25.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

25(2)

Issuing copies of a memorandum not in accordance with an alteration.

On summary conviction a fine not exceeding £25 for each copy issued.

On summary conviction a fine not exceeding one-fifth of the statutory maximum for each occasion on which copies are issued after the date of the alteration.

38(3)

Issuing a form of application for shares in, or debentures of, a company without a prospectus complying with the requirements of section 38.

On summary conviction a fine not exceeding £500.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum.

40(2)

Issuing a prospectus including an expert's statement where the expert has not given his written consent to the issue of the prospectus, or where a statement that the expert has given his consent does not appear in the prospectus.

On summary conviction a fine not exceeding £500.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum.

41(4)

Issuing a prospectus without due delivery of copy to registrar.

On summary conviction a fine not exceeding £25 for every day until due delivery of the copy to the registrar.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

44(1)

Authorising the issue of a prospectus including an untrue statement.

(a) On conviction on indictment a term of imprisonment not exceeding 2 years or a fine, or both.

(a) On conviction on indictment a term of imprisonment not exceeding 2 years or a fine, or both.

(b) On summary conviction a term of imprisonment not exceeding 3 months or a fine not exceeding the statutory maximum or both.

(b) On summary conviction a term of imprisonment not exceeding 6 months or a fine not exceeding the statutory maximum, or both.

50(3)

Allotting shares or debentures before the third day after the issue of a prospectus.

On summary conviction a fine not exceeding £500.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum.

Enactment (1)

General description of offence or contravention (2)

Old mode of trial and penalty (3)

New mode of trial and penalty (4)

COMPANIES ACT 1948 (contd)

51(3)

Failing to keep money in a separate bank account where received in pursuance of a prospectus stating that stock exchange listing is to be applied for.

On summary conviction a fine not exceeding £500.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum.

52(3)

Failing to deliver return of allotments, or contracts or particulars of allotment, to the registrar.

On summary conviction a fine not exceeding £50 for every day during which the default continues.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-tenth of the statutory maximum.

53(5)

Failing to deliver to the registrar the prescribed form disclosing amount or rate of any share commission.

On summary conviction a fine not exceeding £50.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

54(2)

Company giving financial assistance for the purchase or subscription of its own shares.

On summary conviction a fine not exceeding £100.

(a) On conviction on indictment a term of imprisonment not exceeding 2 years or a fine, or both.

(b) On summary conviction a term of imprisonment not exceeding 6 months or a fine not exceeding the statutory maximum, or both.

62(2)

Failing to give notice to the registrar of consolidation of share capital, etc.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction, after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

63(3)

Failing to give proper notice to the registrar of an increase of share capital.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of statutory maximum.

71

In relation to a reduction of share capital, concealing the name of a creditors or misrepresenting the nature or amount of a debt, etc.

(a) In England and Wales, a term of imprisonment not exceeding 2 years or a fine, or both;

(a) On conviction on indictment a fine.

(b) In Scotland—

(b) On summary conviction a fine not exceeding the statutory maximum.

(i) on conviction on indictment a term of imprisonment or a fine, or both;

(ii) on summary conviction a term of imprisonment not exceeding 3 months or a fine not exceeding the statutory maximum, or both.

72(5)

Failing to forward to the registrar a copy of an order of the court made on an application to cancel a resolution to vary shareholders' rights.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

78(2)

Failing to send notice of refusal to register a transfer of shares or debentures.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one fiftieth of the statutory maximum.

80(2)

Failing within two months of allotment or transfer of any share, debenture or debenture stock to complete and have ready for delivery a share certificate, the debenture or a certificate of debenture stock.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

Enactment (1)

General description of offence or contravention (2)

Old mode of trial and penalty (3)

New mode of trial and penalty (4)

COMPANIES ACT 1948 (contd)

85(1)

Offences of fraud and forgery in connection with share warrants in Scotland.

On conviction on indictment a term of imprisonment or a fine, or both.

(a) On conviction on indictment a term of imprisonment not exceeding 7 years or a fine, or both.

(b) On summary conviction a term of imprisonment not exceeding 6 months or a fine not exceeding the statutory maximum, or both.

85(2)

Unauthorised making, or using or possessing apparatus for making, share warrants in Scotland.

On conviction on indictment a term of imprisonment not exceeding 14 years or a fine, or both.

(a) On conviction on indictment a term of imprisonment not exceeding 7 years or a fine, or both.

(b) On summary conviction a term of imprisonment not exceeding 6 months or a fine not exceeding the statutory maximum, or both.

87(4)

Refusing to allow inspection, or refusing or failing to provide or forward a copy, of the register of debentures or of a trust deed securing an issue of debentures.

On summary conviction a fine not exceeding £25 and a fine not exceeding £25 for every day during which the refusal or default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

96(3)

Failing to send to the registrar particulars of a registrable charge or of the issue of debentures of a series.

On summary conviction a fine not exceeding £50 for every day during which the default continues.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-tenth of the statutory maximum.

97(2)

Failing to send to the registrar particulars and a copy of an existing charge over property acquired by a company.

On summary conviction a fine not exceeding £50 for every day during which the default continues.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-tenth of the statutory maximum.

99(2)

Knowingly and wilfully authorising or permitting delivery of a debenture or a certificate of debenture stock without a copy of a certificate of registration of the charge being endorsed thereon.

On summary conviction a fine not exceeding £100.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

102(3)

Failing to give notice to the registrar of the appointment of a receiver or manager or of his ceasing to act.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

104(2)

Omitting an entry required to be made in the register of charges.

On summary conviction a fine not exceeding £50.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum.

105(2)

Refusing to allow inspection by creditors or members of registrable instruments of charge or of the register of charges.

On summary conviction a fine not exceeding £25 and a fine not exceeding £25 for every day during which the refusal continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

106B(3)

In respect of a company registered in Scotland, failing to send to the registrar particulars of a registrable charge or of the issue of debentures of a series.

On summary conviction a fine not exceeding £50 for every day during which the default continues.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-tenth of the statutory maximum.

Enactment (1)

General description of offence or contravention (2)

Old mode of trial and penalty (3)

New mode of trial and penalty (4)

COMPANIES ACT 1948 (contd)

106C(2)

Failing to send to the registrar particulars and a copy of an existing charge over property acquired by a company registered in Scotland.

On summary conviction a fine not exceeding £50 for every day during which the default continues.

(a) On conviction on indictment a fine.

(b) On summary conviction not exceeding the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-tenth of the statutory maximum.

106I(2)

In respect of a company registered in Scotland, omitting an entry required to be made in the register of charges.

On summary conviction a fine not exceeding £50.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum.

106J(2)

In respect of a company registered in Scotland, refusing to allow inspection by creditors or members, of registrable instruments of charge or of the register of charges.

On summary conviction a fine not exceeding £25 and a fine not exceeding £25 for every day during which the refusal continues.

On summary conviction exceeding one-fifth of the statutory maximum or, on conviction after continued contra default fine not exceeding one-fiftieth of the statutory maximum.

108(2)

Failing to paint or affix a company's name or keep it painted or affixed in the specified manner.

On summary conviction—

On summary conviction, a fine not exceeding one-fifth of the statutory maximum or, in the case of a failure to keep name painted or affixed, on conviction after continued contravention, a default fine not exceeding one-fiftieth statutory maximum.

(a) in the case of a failure to paint, or affix a company's name, a fine not exceeding £25;

(b) in the case of a failure to keep it painted or affixed, a fine not exceeding £25 for every day during which the default continues.

108(3)

Failing to have the name of a company in legible characters on its seal or certain documents.

On summary conviction a fine not exceeding £50.

On summary conviction exceeding one-fifth of the statutory maximum.

108(4)

An officer of a company using or authorising the use of a seal not engraved as required by section 108 or issuing or authorising the issue of certain documents in which the name of the company is not mentioned as required by that section.

On summary conviction a fine not exceeding £50.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

110(4)

Failing to keep a register of members or failing to give notice to the registrar of where the register is kept.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

111(4)

In respect of a company with more than 50 members, failing to keep an index of the names of the members.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

113(3)

Refusing inspection of the register or index of members or not sending a copy of the register when required to do so.

On summary conviction a fine not exceeding £25 and a fine not exceeding £25 for every day during which the refusal or default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

119(3)

Failing to give notice to the registrar of the situation of the office where any dominion register is kept.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum, or on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

120(7)

Failing to send to the registered office of a company copies of the entries in the dominion register of to keep a duplicate of the dominion register.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

Enactment (1)

General description of offence or contravention (2)

Old mode of trial and penalty (3)

New mode of trial and penalty (4)

COMPANIES ACT 1948 (contd)

124(3)

Company having a share capital falling to make an annual return to the registrar.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

125(3)

Company not having a share capital failing to make an annual return to the registrar.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

126(2)

Failing to complete an annual return or to forward it to the registrar forthwith.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

131(5)

Failing to hold an annual general meeting in accordance with subsection (1), to comply with directions about such a meeting in accordance with subsection (2) or to forward a copy of a resolution to treat a general meeting as the annual general meeting to the registrar in accordance with subsection (4).

On summary conviction—

(a) In the case of a failure to hold a meeting in accordance with subsection (1) or to comply with directions under subsection (2)—

a) in the case of a failure to hold a meeting in accordance with subsection (1) or to comply with directions under subsection (2), a line not exceeding £50;

(i) on conviction on indictment a fine;

(b) in the case of a failure to forward a copy of such a resolution in accordance with subsection (4) a fine not exceeding £25 for every day during which the default continues.

(ii) on summary conviction a fine not exceeding the statutory maximum.

(b) In the case of a failure to forward a copy of a resolution in accordance with subsection (4), on summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

136(2)

Failing to state in a notice calling a meeting of a company that a member entitled to attend and vote may appoint a proxy.

On summary conviction a fine not exceeding £50.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

136(4)

Officer of a company knowingly and wilfully authorising or permitting invitations to appoint proxies to be issued to some only of the members of the company.

On summary conviction a fine not exceeding £100.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

140(7)

Failing to comply with the provisions of section 140 (circulation of members' resolution, etc.).

On summary conviction a fine not exceeding £500.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum.

143(5)

Failing to send to the registrar a copy of a resolution or agreement to which section 143 applies.

On summary conviction a fine not exceedint £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

143(6)

Failing to include a copy of a resolution or agreement to which section 143 applies in every copy of the articles issued, or failing to forward a copy to a member on request.

On summary conviction a fine not exceeding £25 for each copy in respect of which default is made.

On summary conviction a fine not exceeding one-fifth of the statutory maximum for each occasion on which copies are issued or, as the case may be, requested.

145(4)

Failing to keep minutes of general meetings of the company, meetings of directors or meetings of managers.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

146(3)

Refusing to allow inspection of the book containing the minutes of any general meeting or to supply a copy of any such minute requested by a member.

On summary conviction a fine not exceeding £25 and a fine not exceeding £25 for every day during which the refusal or default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

Enactment (1)

General description of offence or contravention (2)

Old mode of trial and penalty (3)

New mode of trial and penalty (4)

COMPANIES ACT 1948 (contd.)

155(3)

Laying a balance-sheet before the company or delivering it to the registrar or issuing, circulating or publishing it, without its having been signed in accordance with section 155, etc.

On summary conviction a fine not exceeding £50.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

156(3)

Issuing, circulating or publishing a balance-sheet without the required accounts or report being annexed to it.

On summary conviction a fine not exceeding £50.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

158(3)

Failing to send company members and other persons a copy of a balance-sheet, together with other documents, at least 21 days before a general meeting in accordance with sub-section (1), or to comply with a demand for such documents made under subsection (2).

On summary conviction—

(a) In the case of a failure to comply with subsection (1)—

(a) in the case of a failure to comply with subsection (1), a fine not exceeding £50;

(i) on conviction on indictment a fine;

(b) in the case of a failure to comply with such a demand, a fine not exceeding £25 for every day during which the default continues.

(ii) on summary conviction, a fine not exceeding the statutory maximum.

(b) In the case of a failure to comply with a demand under subsection (2), on summary conviction, a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

173(3)

Failing to give information, when required to do so, about interests in shares, etc., or giving false information.

On summary conviction a term of imprisonment not exceeding 6 months or a fine not exceeding £500, or both.

(a) On conviction on indictment a term of imprisonment not exceeding 2 years or a fine, or both.

(b) On summary conviction a term of imprisonment not exceeding 6 months or a fine not exceeding the statutory maximum, or both.

174(5)

Exercising a right to dispose of, or vote in respect of, shares subject to restrictions imposed by section 174 or failing to give notice in respect of shares subject to such restrictions.

On summary conviction a term of imprisonment not exceeding 6 months or a fine not exceeding £500, or both.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum.

174(6)

Issuing shares in contravention of a restriction imposed by section 174.

On summary conviction a fine not exceeding £500.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum.

182(5)

Acting as a director without holding qualification shares required by the articles.

On summary conviction a fine not exceeding £25 for every day between the expiration of the period within which the shares should have been obtained, or the director ceased to be qualified, and the last day on which it is proved that he acted as a director.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum for every day until the last day on which is is proved that he acted as a director.

186(2)

Failure of a person appointed or proposed to be appointed a director of a public company after retiring age to give notice of his age in accordance with subsection (1); and acting as a director under an appointment which is invalid or has been terminated by reason of age.

On summary conviction a fine not exceeding £25 for every day during which the contravention continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

193(2)

Failing to take reasonable steps to ensure that particulars of a proposed payment for loss of office are included in, or sent with, any offer made for the shares of the company to which section 193 applies or to include the particulars in or send them with a specified notice.

On summary conviction a fine not exceeding £50.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

198(4)

Failing to disclose to a company matters required to be disclosed for the purposes of provisions in connection with directors' salaries, pensions, etc., and with loans to officers.

On summary conviction a fine not exceeding £50.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

Enactment (1)

General description of offence or contravention (2)

Old mode of trial and penalty (3)

New mode of trial and penalty (4)

COMPANIES ACT 1948 (contd)

199(4)

Director failing to disclose interest in contract.

On summary conviction a fine not exceeding £100.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine o not exceeding the statutory maximum.

200(7)

Refusing to allow inspection of the register of directors and secretaries to any member of the company or failing to comply with the requirements of section 200 as to the register.

On summary conviction a fine not exceeding £25 for every day during which the refusal or default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

201(3)

Failing to state particulars of every director in all trade catalogues, trade circulars, etc.

On summary conviction a fine not exceeding £25.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

202(3)

Failing to state that liability of directors and managers will be unlimited or to notify proposed directors and managers of that fact.

On summary conviction a fine not exceeding £100.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum.

206(4)

Failing to annex to every copy of the memorandum of a company a copy of every order sanctioning a compromise or arrangement with creditors or members.

On summary conviction a fine not exceeding £25 for each copy in respect of which default is made.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

207(4)

Failing to comply with requirements as to the information to be provided for a meeting of creditors or members.

On summary conviction a fine not exceeding £500.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum.

207(5)

Director or trustee for debenture holders failing to give notice to the company of matters necessary for the purposes of section 207.

On summary conviction a fine not exceeding £50.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

208(3)

Failing to deliver to the registrar an office copy of an order made under section 208 (reconstruction and amalgamation of companies).

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

235(5)

Failing to comply with the requirements of section 235 as to a statement of affairs to be submitted to the official receiver.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-tenth of the statutory maximum.

274(3)

Failure of liquidator to send registrar copy of order to dissolve a company or to make a minute of its dissolution.

On summary conviction a fine not exceeding £25 for every day during which the liquidator is in default.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

279(2)

Failing to give notice in the Gazette of a resolution to wind up voluntarily.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

283(3)

Director making a declaration of solvency without having reasonable grounds for the opinion that a company will be able to pay its debts.

On summary conviction a term of imprisonment not exceeding 6 months or a fine not exceeding £500, or both.

(a) On conviction on indictment a term of imprisonment not exceeding 2 years or a fine, or both.

(6) On summary conviction a term of imprisonment not exceeding 6 months or a fine not exceeding the statutory maximum, or both.

288(2)

Liquidator failing to summon a meeting of creditors in case of insolvency (members' voluntary winding-up).

On summary conviction a fine not exceeding £50.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

289(2)

Liquidator failing to summon a general meeting of the company at end of each year (members' voluntary winding-up).

On summary conviction a fine not exceeding £25.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

Enactment (1)

General description of offence or contravention (2)

Old mode of trial and penalty (3)

New mode of trial and penalty (4)

COMPANIES ACT 1948 (contd)

290(3)

Liquidator failing to send to the registrar a copy of the account of a winding-up and a return of the final general meeting (members' voluntary winding-up).

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

290(5)

Failing to deliver to the registrar an office copy of an order deferring the date of dissolution following a members' voluntary winding-up.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

290(6)

Liquidator failing to call the final general meeting of the company (members' voluntary winding-up).

On summary conviction a fine not exceeding £50.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

293(6)

Default by a company, its directors, etc., in relation to the summoning or advertisement of a meeting of creditors (creditors' voluntary winding-up).

On summary conviction a fine not exceeding £100.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum.

299(2)

Liquidator failing to summon a general meeting of the company and a meeting of creditors at end of each year (creditors' voluntary winding-up).

On summary conviction a fine not exceeding £25.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

300(3)

Liquidator failing to send to the registrar a copy of the account of a winding-up and a return of the final general meeting and the final meeting of creditors (creditors' voluntary winding-up).

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

300(5)

Failing to deliver to the registrar an office copy of an order deferring the date of dissolution following a creditors' voluntary winding-up.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

300(6)

Liquidator failing to call the final general meeting of the company or the final meeting of creditors (creditors' voluntary winding-up).

On summary conviction a fine not exceeding £50.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

305(2)

Liquidator failing to publish notice of his appointment in the Gazette or to deliver notice of appointment to registrar.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

328(1)

Failure of officer of a company in liquidation or subsequently wound up to disclose or deliver property of, or documents or information relating to, the company to the liquidator, fraudulent conduct by any such officer in relation to the property or affairs of such a company, and other offences by such officers.

In the case of an offence—

(a) On conviction on indictment a term of imprisonment not exceeding 7 years or a fine, or both.

(a) under paragraph (b) (pledging, pawning or disposing of unpaid for property of such a company in year before, or during winding-up)—

(b) On summary conviction a term of imprisonment not exceeding 6 months or a fine not exceeding the statutory maximum, or both.

(i) on conviction on indictment, a term of imprisonment not exceeding 5 years or a fine, or both;

(ii) on summary conviction, a term of imprisonment not exceeding 6 months or fine not exceeding the statutory maximum;

(b) under any other paragraph—

(i) on conviction on indictment, a term of imprisonment not exceeding 2 years or a fine, or both;

(ii) on summary conviction, a term of imprisonment not exceeding 6 months or a fine not exceeding the statutory maximum.

Enactment (1)

General description of offence or contravention (2)

Old mode of trial and penalty (3)

New mode of trial and penalty (4)

COMPANIES ACT 1948 (contd)

329

Officer or contributory of a company being wound up destroying, mutilating, altering or falsifying books, etc., with intent to defraud.

On conviction on indictment a term of imprisonment not exceeding 2 years or a fine, or both.

(a) On conviction on indictment a term of imprisonment not exceeding 7 years or a fine, or both.

b) On summary conviction a term of imprisonment not exceeding 6 months or a fine not exceeding the statutory maximum, or both.

330

Officer of a company subsequently wound-up making or causing to be made a gift or transfer of the company's property or concealing or removing any part of the company's property with intent to defraud creditors.

(a) On conviction on indictment a term of imprisonment not exceeding 2 years or a fine, or both.

(a) On conviction on indictment a term of imprisonment not exceeding 2 years or a fine, or both.

(b) On summary conviction a term of imprisonment not exceeding 6 months or a fine not exceeding the statutory maximum.

(b) On summary conviction a term of imprisonment not exceeding 6 months, or a fine not exceeding the statutory maximum, or both.

332(3)

Being a party to the carrying on of a company's business where it is carried on with intent to defraud creditors or for any fraudulent purpose.

On conviction on indictment a term a imprisonment not exceeding 2 years, or a fine, or both.

(a) On conviction on indictment a term of imprisonment not exceeding 7 years or a fine, or both.

(b) On summary conviction a term of imprisonment not exceeding 6 months or a fine not exceeding the statutory maximum, or both.

335

Body corporate acting as a liquidator.

On summary conviction a fine not exceeding £100.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum.

336

Giving or agreeing or offering to give a corrupt inducement affecting the appointment of a liquidator.

On summary conviction a fine not exceeding £100.

a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum.

338(2)

Failing to state on certain documents that a company is being wound up.

On summary conviction a fine not exceeding £50.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

341(4)

Acting in contravention of any general rules or any direction thereunder made or given for the purposes of preserving books and papers of a company which has been wound up.

On summary conviction a fine not exceeding £100.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

342(2)

Liquidator failing to send to the registrar a statement as to the position of a liquidation which is not concluded within one year of its commencement.

On summary conviction a fine not exceeding £50 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

352(2)

Failing to deliver to the registrar a copy of an order declaring the dissolution of a company void.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after containued contravention, a default fine not exeeding one-fiftieth of the statutory maximum.

366

Body corporate acting as a receiver.

On summary conviction a fine not exceeding £100.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum.

370(2)

Not stating on company documents that a receiver or manager has been appointed.

On summary conviction a fine not exceeding £50.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

372(7)

Receiver making default in complying with provisions as to information where receiver or manager appointed.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default line not exceeding one-fiftieth of the statutory maximum.

373(5)

Default in relation to provisions as to statement to be submitted to receiver.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

Enactment (1)

General description of offence or contravention (2)

Old mode of trial and penalty (3)

New mode of trial and penalty (4)

COMPANIES ACT 1948 (contd.)

374(2)

Receiver or manager not delivering accounts to registrar.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

414

Failure of an oversea company having a place of business in Great Britain to comply with sections 407 to 413 (documents to be delivered and information to be given to the registrar and other requirements as to the giving of information by such a company).

(a) For an offence which is not a continuing offence, on summary conviction a fine not exceeding £50.

(a) For an offence which is not a continuing offence, on summary conviction a fine not exceeding one-fifth of the statutory maximum.

(b) For an offence which is a continuing offence, on summary conviction a fine not exceeding £25 for every day during which the default continues.

(b) For an offence which is a continuing offence, on summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

421

Being responsible for the issue, circulation or distribution of a prospectus or form of application for shares or debentures of an oversea company in contravention of sections 417 to 420 (contents, issue and registration of prospectuses).

On summary conviction a fine not exceeding £500.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum.

426(4)

A person untruthfully stating himself in writing to be a member or creditor of a company for the purpose of inspecting or obtaining documents of a company where a receiver or manager has been appointed.

On summary conviction a fine not exceeding £50.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

433(4)

Banking and certain other companies not publishing periodical statement.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

436(2)

Not taking adequate precautions against falsification, etc., of company records where these are not kept in bound books.

On summary conviction a fine not exceeding £50 and a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

439

Improperly using the word "limited" in the name or title of a business.

On summary conviction a fine not exceeding £25 for every day on which the name or title is used.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a o default fine not exceeding one-fiftieth of the statutory maximum.

COMPANIES ACT 1967 (c. 81)

3(6)

Failure by company, where taking advantage of exemption from requirements in relation to statements in its accounts as to its subsidiaries, to annex required particulars to annual return.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, default fine not exceeding one-fiftieth of the statutory maximum.

4(6)

Failure by company, where taking advantage of exemption from requirements in relation to statements in its accounts as to the companies whose shares it holds, to annex required particulars to the annual return.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

11(2)

Director of a company failing to take steps to secure compliance with the requirements of section 11 (statements annexed to accounts to include corresponding amounts for the preceding year).

On summary conviction a term of imprisonment not exceeding 6 months or a fine not exceeding £200.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum.

Enactment (1)

General description of offence or contravention (2)

Old mode of trial and penalty (3)

New mode of trial and penalty (4)

COMPANIES ACT 1967 (contd)

25(1)

Director dealing in options to buy or sell quoted shares or debentures.

(a) On conviction on indictment a term of imprisonment not exceeding 2 years or a fine, or both.

(a) On conviction on indictment a term of imprisonment not exceeding 2 years or a fine, or both.

(b) On summary conviction a term of imprisonment not exceeding 3 months or a fine not exceeding the statutory maximum, or both.

(b) On summary conviction a term of imprisonment not exceeding 6 months or a fine not exceeding the statutory maximum, or both.

26(5)

Company—

On summary conviction—

In each case, on summary conviction a fine not exceeding one-fifth of the statutory maximum, or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

(a) failing to keep copy of memorandum of directors' service contracts in accordance with subsection (1); or

(a) in the case of any failure or refusal mentioned in paragraph (a) or (c) of column 2 of this entry, a fine not exceeding £500 and a fine not exceeding £25 for every day during which the default or refusal continues;

(b) failing to send notice to the registrar in accordance with subsection (3) of the place where copies of such memorandums are kept; or

(b) in the case of any failure mentioned in paragraph (b) of that column, a fine not exceeding £25 for every day during which the default continues.

(c) refusing to allow inspection of copies of such memorandums in accordance with subsection (4).

27(8)

Director failing to notify a company of interests in shares or debentures in the company or associated companies, or making a false statement when purporting so to notify the company.

(a) On conviction on indictment a term of imprisonment not exceeding 2 years or a fine, or both.

(a) On conviction on indictment a term of imprisonment not exceeding 2 years or a fine, or both.

(b) On summary conviction a term of imprisonment not exceeding 3 months or a fine not exceeding the statutory maximum, or both.

(b) On summary conviction a term of imprisonment not exceeding 6 months or a fine not exceeding the statutory maximum, or both.

29(12)

Company—

On summary conviction—

In each case, on summary conviction, a fine not exceeding one-fifth of the statutory maximum or, except in the case of a failure mentioned in the said paragraph (f), on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

(a) failing to comply with any of subsections (1) to (4) , (which relate to the keeping of a register of directors with interests in securities of companies and the recording of information about those interests);

(a) In the case of any failutre or refusal mentioned in paragraph (a), (b), (d) or (e) of column 2 of this entry, a fine not exceeding £500 and a fine not exceeding £25 for every day during which the default or refusal continues;

(b) refusing to allow the register to be inspected in accordance with subsection (7);

(b) in the case of any failure mentioned in paragraph (c) of that column, a fine not exceeding £25 for every day during which the default continues; and

(c) failing for 14 days to send the registrar notice of the place where the register is kept or of any change in that place in accordance with subsection (8);

(c) in the case of any failure mentioned in paragraph (f) of that column, a fine not exceeding £50.

(d) failing to keep an index of the register in accordance with subsection (9);

(e) failing to send copies of the register to members in accordance with subsection (10);

(f) failing to produce register and keep it accessible at general meeting in accordance with subsection (11).

31(3)

Director failing to notify the company that certain members of his family have, or have exercised, options to buy shares or debentures, and making a false statement when purporting so to notify the company.

(a) On conviction on indictment a term of imprisonment not exceeding 2 years or a fine, or both.

(a) On conviction on indictment a term of imprisonment not exceeding 2 years or a fine, or both.

(b) On summary conviction a term of imprisonment not exceeding 3 months or a fine not exceeding the statutory maximum, or both.

(b) On summary conviction a term of imprisonment not exceeding 6 months or a fine not exceeding the statutory maximum, or both.

33(6)

Failing to notify the company of acquisition, changes in amounts of, and disposal of shares in the company, or making a false statement when purporting so to notify the company.

(a) On conviction on indictment a term of imprisonment not exceeding 2 years or a fine, or both.

(a) On conviction on indictment a term of imprisonment not exceeding 2 years or a fine, or both.

(b) On summary conviction a term of imprisonment not exceeding 3 months or a fine not exceeding the statutory maximum, or both.

(b) on summary conviction a term of imprisonment not exceeding 6 months or a fine not exceeding the statutory maximum, or both.

Enactment (1)

General description of offence or contravention (2)

Old mode of trial and penalty (3)

New mode of trial and penalty (4)

COMPANIES ACT 1967 (contd)

34(8)

Contravention of provisions for securing that information about acquisitions, changes of amounts and disposals of shares in a company are recorded and made available by the company.

On summary conviction, a fine not exceeding £500 and a fine not exceeding £25 for every day during which the contravention continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

46(4)

Company not complying with a direction of the Secretary of State to abandon misleading name.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

109(4)

Failing to comply with a direction of the Secretary of State to produce books or papers or provide an explanation or make a statement.

On summary conviction a term of imprisonment not exceeding 3 months or a fine not exceeding £200, or both.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum.

110(4)

Obstructing the exercise of a right of entry or search or a right to take possession of books or papers.

On summary conviction a term of imprisonment not exceeding 3 months or a fine not exceeding £200, or both.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding the statutory maximum.

111(2)

Wrongful disclosure of information obtained by the exercise of the powers as to the production of documents conferred by the 1967 Act, the Protection of Depositors Act 1963 or the Insurance Companies Act 1974 or by the exercise of the powers of entry and search conferred by any of those Acts.

(a) On conviction on indictment a term of imprisonment not exceeding 2 years or a fine, or both.

(a) On conviction on indictment a term of imprisonment not exceeding 2 years or a fine, or both.

(b) On summary conviction a term of imprisonment not exceeding 3 months or a fine not exceeding the statutory maximum, or both.

(b) On summary conviction a term of imprisonment not exceeding 6 months or a fine not exceeding the statutory maximum, or both.

113

Destroying, mutilating, falsifying, etc. a document affecting or relating to a company, insurance company or other body in contravention of subsection (1) or fraudulently parting with, altering or making an omission in such a document in contravention of subsection (2) or being privy to the parting with the document or to its alteration or to the making of such an omission.

(a) On conviction on indictment, a term of imprisonment not exceeding 2 years or a fine or both.

(a) On conviction on indictment, a term of imprisonment not exceeding 7 years or a fine, or both.

(b) On summary conviction a term of imprisonment not exceeding 3 months or a fine not exceeding the statutory maximum, or both.

(b) On summary conviction, a term of imprisonment not exceeding 6 months or a fine not exceeding the statutory maximum, or both.

114

Making a false statement or explanation in purported compliance with a requirement to make a statement or provide an explanation.

(a) On conviction on indictment a term of imprisonment not exceeding 2 years or a fine, or both.

(a) On conviction on indictment a term of imprisonment not exceeding 2 years or a fine, or both.

b) On summary conviction a term of imprisonment not exceeding 3 months or a fine not exceeding the statutory maximum, or both.

(b) On summary conviction a term of imprisonment not exceeding 6 months or a fine not exceeding the statutory maximum, or both.

EUROPEAN COMMUNITIES ACT 1972 (c. 68)

9(5)

Failing to send to the registrar, a printed copy of an Act or statutory instrument which alters a company's memorandum or articles, or a printed copy of the memorandum or articles as altered by any document.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

110

9(7)

Failing to mention required particulars in business letters and order forms.

On summary conviction a fine not exceeding £50.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

COMPANIES ACT 1976 (c. 69)

4(1)

Directors failing to comply with the requirements of section 1(6) or (7) to lay annual accounts before the general meeting or to deliver such accounts, if necessary with a translation into English, to the registrar.

On summary conviction a fine not exceeding the aggregate of £400 and £40 for each day which falls—

(a) On conviction on indictment a fine.

(a) after the end of the period allowed for laying and delivering accounts, and

(b) On summary conviction a fine not exceeding the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-tenth of the statutory maximum.

Enactment (1)

General description of offence or contravention (2)

Old mode of trial and penalty (3)

New mode of trial and penalty (4)

COMPANIES ACT 1967 (contd)

(b) before the earliest day by which all the requirements of section 1(6) or 1(7) (as the case may be) have been complied with.

11(1)

Oversea company failing to comply with the requirements of section 9(2) to deliver annual accounts, if necessary with a translation into English.

On summary conviction a fine not exceeding the aggregate of £400 and £40 for each day which falls—

(a) On conviction on indictment a fine.

(a) after the end of the period allowed for delivering accounts; and

(b) On summary conviction a fine not exceeding the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-tenth of the statutory maximum.

(b) before the earliest day by which all the requirements of section 9(2) have been complied with.

13(6)

Acting as auditor when disqualified from doing so or failing to give notice of vacating office of auditor.

(a) On conviction on indictment a One.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding £40 for every day during which the contravention continues, or the statutory maximum, whichever is the greater.

(b) On summary conviction a fine not exceeding the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-tenth of the statutory maximum.

14(7)

Failing to notify the Secretary of State that no auditor has been appointed or re-appointed, or failing to notify the registrar that auditor has been removed.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

16(7)

Failing to comply with the requirements as to the giving of notices in connection with the resignation of an auditor.

(a) On conviction on indictment a fine.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding £40 for every day during which the default continues, or the statutory maximum, whichever is the greater.

(b) On summary conviction a fine not exceeding the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-tenth of the statutory maximum.

18

Failure of subsidiary to give its holding company, and failure of holding company to obtain from its subsidiary, information needed for purposes of audit.

On summary conviction a fine not exceeding £200.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

23(4)

Not having a registered office or failing to notify the registrar of a change in its situation.

On summary conviction a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

25(3)

Failing to notify recognised stock exchange of acquisition, etc., of company's securities by a director.

On summary conviction a fine not exceeding £500 and a fine not exceeding £25 for every day during which the default continues.

On summary conviction a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.

30(5)

Failure in case of private limited company using Welsh form of name to include in certain documents, etc., a statement in English that the company is a limited company.

On summary conviction a fine not exceeding £50.

On summary conviction a fine not exceeding one-fifth of the statutory maximum.

31(5)

An oversea company carrying on business under its corporate name in contravention of a direction by the Secretary of State.

(a) On conviction on indictment a fine.

(a) On conviction on indictment a fine.

(b) On summary conviction a fine not exceeding £40 for every day during which the contravention continues, or the statutory maximum, whichever is the greater.

(b) On summary conviction a fine not exceeding the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-tenth of the statutory maximum."

Schedule 2 [Minor and consequential amendments]:
On Question, Whether Schedule 2 shall be a Schedule to the Bill?
Lord WEDDERBURN of CHARLTON: Before the question is put, may I, in two sentences, ask the Government to consider a point. A number of practitioners have said to me how convenient it would be if Schedule 2 adopted the practice of its own paragraph 7 and set out, where words are substituted, or inserted, or altered in the 40 or so amendments to the older Acts, the full text of those sections. May I ask the Government to consider this point before the Report stage?
Viscount TRENCHARD: I assure the noble Lord that I will consider his point.
Schedule 2 agreed to.
Schedule 3 [Repeals]:
[Amendment No. 41 not moved.]
Lord BRUCE of DONINGTON Lord BRUCE of DONINGTON moved Amendment No. 42:
Page 73, line 42, column 3, at end insert (" Section 54(2).").
Viscount TRENCHARD: I confess to being not content, and also to being lost. If I have to do so, I shall promise to go back and look at it, but I understand this to be part of a subject which we have not agreed.
Lord BRUCE of DONINGTON: I beg leave to withdraw the amendment. It is not needed.
Amendment, by leave, withdrawn.
Schedule 3 agreed to.
House resumed: Bill reported with the amendments.