Lords Sitting of 27 March 1980

Preamble
The House met at three of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Bradford):
The LORD CHANCELLOR on the Woolsack.

HOME DEFENCE REVIEW
Lord ORR-EWING: 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 they expect the Review of Home Defence to be completed and whether the report will be published.
The PARLIAMENTARY UNDERSECRETARY of STATE, HOME OFFICE (Lord Belstead): My Lords, the Government hope to be able to make an announcement soon after the Easter Recess.
Lord ORR-EWING: My Lords, will my noble friend say whether this report, when it is produced, will be published? If it is to be published, can he try to make sure that it is available to your Lordships' House so that we may absorb it before the defence debates take place?
Lord BELSTEAD: My Lords, I quite understand the concern of my noble friend. Of course, it depends on the form that the Statement takes.
Lord SHINWELL: My Lords, is the noble Lord aware that I am surprised at that announcement, because some weeks ago when this matter was raised we were informed that by 20th March the Government would make an announcement about Home and Civil Defence, whereas now we are told that we have to wait until after Easter? What is the cause of the delay? Do the Government realise that this is a matter of extreme importance?
Lord BELSTEAD: My Lords, the Government are treating it as a matter of importance. I am not aware that either
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House of Parliament was told that there would be a Statement on or by 20th March. If the noble Lord can help me further with that point, then perhaps I may reply more effectively to him.
Lord DAVIES of LEEK: My Lords, is the noble Lord aware that some of us think it would be a constructive approach to civil defence if with regard to the countryside of Britain and the rural schools these were looked upon as areas for evacuation in—which I hope to God will never be—case of an emergency? Therefore, instead of the problem being entirely on the education grant, could not civil defence look upon the upkeep of rural schools as providing an area for evacuation for the children of the cities if there should be the need?
Lord BELSTEAD: My Lords, I will certainly take into account what the noble Lord has said and will pass it on to my right honourable friend so that he may take it into account in the review which he is conducting.
Lord CLIFFORD of CHUDLEIGH: My Lords, this Question refers to home defence, but is this not a question which should not necessarily be only for the Home Office but also for the Ministry of Defence? Home defence is understood by many people to include such things as the Territorial Army and its equivalent in the other services, whereas recently everyone has been referring to it only as civil defence. Surely both these matters are interrelated. Would not the Government ensure that the report includes home and civil defence, and not merely civil defence alone?
Lord BELSTEAD: My Lords, there is nothing between the Government and the noble Lord in what he is saying in his question. The review which my right honourable friend has been conducting covers many departments in Whitehall, but it is the Home Office which is answering in your Lordships' House.
Lord TAYLOR of BLACKBURN: My Lords, I am grateful for the Answer to this Question, but may I ask that when we receive the report we should have ample time to discuss and realise what the report is really saying, rather than be presented with a fait accompli?
Lord BELSTEAD: My Lords, I am sure that I shall need even more time than the noble Lord to assimilate the facts.
Lord ORR-EWING: My Lords, I think my noble friend did not get the point of my supplementary question; namely, is the report to be published? That is what we want time to study before we consider our defence debate.
Lord BELSTEAD: My Lords, what I meant when I replied to my noble friend, and said that it depended on the form of the Statement, is that of course if the report to Parliament is made in the form of a Parliamentary Statement, then there is nothing further to publish because the Statement is being given to Parliament.

ZIMBABWE: RELATIONS WITH NEIGHBOURING STATES
3.5 p.m.
Lord HATCH of LUSBY: 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 what representations they have made to States neighbouring Zimbabwe designed to prevent external interference with that newly independent State.
Lord TREFGARNE: My Lords, the Government take the view that the most effective guarantee against external interference is to ensure that Zimbabwe comes to independence enjoying good neighbourly relations with all the other countries in the region. The Government have encouraged the development of such relations.
Lord HATCH of LUSBY: My Lords, is the noble Lord aware that that really does not quite answer my Question? I was asking what representations the Government had made. Will the noble Lord agree that the most serious threat to Zimbabwe—happily lessened now—comes from her southern neighbour, the Republic of South Africa?
Several noble Lords: No!
Lord HATCH of LUSBY: My Lords, is the noble Lord further aware that it was
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a British official who, during the election, declared in the presence of the Governor that he had personally seen South African units within the borders of Zimbabwe (or Rhodesia as it then was) and that he himself guaranteed that he was able to identify them?
Lord TREFGARNE: My Lords, I wonder whether the noble Lord fully appreciates the changes which have taken place in that part of the world in recent months. The Government are encouraged that both Mr. Mugabe and the South Africans have expressed commitment to good neighbourly relations. Much has been done in the last few months to normalise relations with all Rhodesia's neighbours and there is now every prospect for Zimbabwe to develop fruitful relationships with all the countries in the region.
Lord GLADWYN: My Lords, will the noble Lord consider sending a telegram of congratulation to the noble Lord, Lord Soames, on converting President Machel to the doctrine of pluralistic democracy?
Lord TREFGARNE: My Lords, I shall have the honour of being in Salisbury in a few weeks' time and I shall convey that message to the noble Lord, Lord Soames, myself.
Lord GISBOROUGH: My Lords, will the noble Lord say whether or not it is true that there are 200,000 East German, Bulgarian, Hungarian and Russian troops based in countries adjacent to South Africa, particularly, Angola, Zambia and Mozambique, and what they are doing there?
Lord TREFGARNE: My Lords, I think my noble friend had better put that question to the Governments concerned.
Lord BARNBY: My Lords, arising from the supplementary question which the noble Lord answered, may I therefore ask him, with regard to the position in Zimbabwe, what is the position of the two (as reported in the Press) fully formed and foreign-trained units in Zimbabwe? Is it right to understand that until they have been withdrawn there will be no further aid from Britain to Zimbabwe?
Lord TREFGARNE: No, my Lords, it is not right to assume that we would

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necessarily cut off aid for that or for any other reason. My noble friend is right, however, when he says that there are certain units loyal, apparently, to some of the present politicians in Rhodesia. Consultations are at present taking place to see what shall be clone with them.
Lord HATCH of LUSBY: Will the noble Lord answer that part of my supplementary question which he did not previously answer? Is he aware that South African units have been seen inside the boundaries of Rhodesia, and is he further aware, or would he agree, that there are many South Africans among the security forces of Rhodesia? Have the Government any policy for repatriating them when the new Zimbabwe army is formed
Lord TREFGARNE: My Lords, membership of the new army of Zimbabwe will be for the new Government of Zimbabwe to decide, not for the Governor's interim administration. There are no units of South African forces in Rhodesia.

CITIZENS' BAND RADIO
3.10 p.m.
Lord GISBOROUGH: 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 are considering the introduction of citizen band radio, and which frequencies are under discussion.
Lord BELSTEAD: My Lords, the Government have had this issue under review for some time. We have already concluded that it would be inappropriate to introduce citizens' band radio on 27 MHz, the frequency band commonly used in other countries, but we are still examining the regulatory and administrative difficulties involved in legalising the facility on a higher frequency. We hope to announce a decision before long.
Lord GISBOROUGH: My Lords, I thank the noble Lord for that Answer. Radio-controlled model aeroplane
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operators will be relieved to hear that because it costs £60 a time if they have to renew their sets. Is he aware that this will put this country on an equal footing with the United States and Japan, who will have to start making new sets on a new frequency—45 perhaps—at the same time?
Lord BELSTEAD: My Lords, I thank my noble friend for his supplementary questions. It is, of course, the fact that there are already authorised users of this band, and particularly among those users are model controllers. So far as the practice in other countries is concerned, we find that the experience of other countries who have citizens' band on 27 MHz confirms the reservations which we have in this country.
Lord MORRIS: My Lords, following the World Administrative Radio Conference in Geneva, would not my noble friend agree that it is of the utmost importance to have the widest possible discussions with the industry and users prior to the issuance of frequency plans, in order to ensure that the most responsible use of the band spectrum results?
Lord BELSTEAD: My Lords, I can assure my noble friend that we are having a national review of frequency allocations following the recent World Administrative Radio Conference.
Lord TORPHICHEN: My Lords, can my noble friend tell me which department, which part of the Home Office or Post Office, is responsible for this review and for allocating whatever frequency is to be allocated?
Lord BELSTEAD: My Lords, it is the radio regulatory department of the Home Office.

"GAZUMPING": ENGLAND AND SCOTLAND
3.14 p.m.
The Earl of SELKIRK: 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 why the practice of "gazumping"

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house prices, not uncommon in England, is virtually unknown in Scotland.
The LORD CHANCELLOR (Lord Hailsham of Saint Marylebone): My Lords, in my first term of office I commissioned the Law Commission to inquire into the question of subject to contract agreements, and the noble and learned Lord, Lord Elwyn-Jones, will remember that they reported, in their document Law Commission No. 65, to him in 1975. They there pointed out that in Scotland the procedure on house purchase is not unlike a sale by tender and that contracts become binding at an earlier stage than in England and Wales. I do not believe that this is due to any relevant difference in law or legal requirement, but to the deliberate choice of the parties. The Law Commission concluded that, while there is no legal obstacle to the adoption of similar practices in England and Wales, the choice of subject to contract agreements is due to the different conditions prevailing South of the Border which lead parties negotiating deliberately to choose to be bound contractually at a later stage. Resiling from contracts still subject to negotiations is, of course, a risk not confined to contracts for the sale of real property.
The Earl of SELKIRK: My Lords, I thank the noble and learned Lord the Lord High Chancellor of Great Britain for his very valuable Answer. May I assure him that my only reason for putting down this Question is from a sense of sympathy for our colleagues in England. Am I not right in saying that when missives of sale are completed in Scotland that is an effective personal contract, and while it may be subject to survey or to mortgage arrangements it effectively prevents "gazumping" at a later stage, thus avoiding both disappointment and much anguish? Would it not be worth while reminding the Law Society that this course is fully open to anyone in England?
The LORD CHANCELLOR: My Lords, I am grateful to the noble Earl for reminding me of my high sounding title, Lord High Chancellor of Great Britain. I have to remind him, however, that although I have this title my knowledge of Scottish law and my responsibilities for it are rather more limited than the
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title by itself would imply. It is the case that Scottish conveyancing practice does involve the parties choosing of their own volition to bind themselves at an earlier stage in negotiations for the sale of real property than they do in England. But I sought to explain that when the Law Commission, at my request, looked into it they came to the conclusion that this was due to the will of the parties and due to the different conditions prevailing.
I think perhaps the noble Earl underestimated the peculiar differences which arise in Scotland as a result of the provision which there applies, unlike England, for subject to survey contracts. That gives rise to different difficulties which do not arise in England. I know the Law Society is familiar with the problem because, from the very first moment of my first period of office, I have been in touch with the Law Commission and, through them, with the profession on the subject.
Lord McCLUSKEY: My Lords, while congratulating the noble and learned Lord on his unaccustomed modesty, may I ask him whether he accepts that, while the Scottish practice of concluding binding contracts by an exchange of missives has the great advantage of eliminating"gazumping"and uncertainty, it involves one serious disadvantage, namely, that each prospective purchaser has, before putting in his offer, to commission and pay for a building survey by a professional surveyor acceptable to the prospective purchaser's building society, with the result that those whose offers are not accepted find themselves heavily out of pocket? Would the noble and learned Lord invite his right honourable friend the Secretary of State for Scotland to approach the Law Society of Scotland, the Royal Institution of Chartered Surveyors and the building societies to discuss this problem, with a view to encouraging the seller, before advertising his house, to commission one such survey by a surveyor acceptable to all the building societies, his fee to be paid by the successful purchaser only, thus eliminating wasteful, expensive and unnecessary duplication?
The LORD CHANCELLOR: My Lords, I am grateful to the noble and learned Lord. I always thought I was the most modest of men, so I will not accept that my modesty on this occasion was un-

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accustomed. I am grateful to the noble and learned Lord for his constructive suggestion. It was precisely that facet of the matter of which I ventured to remind my noble friend Lord Selkirk in my earlier answer. I can see on the Front Bench my noble and learned friend the Lord Advocate, and I feel sure that he will take due note of what the noble and learned Lord, Lord McCluskey, has said, and refer it to the appropriate bodies in Scotland for their consideration. It seems something which is certainly worth looking at.
Lord MACKIE of BENSHIE: My Lords, would not the noble and learned Lord the Lord Chancellor agree that the real reason for the lack of "gazumping" in Scotland is the general integrity, virtue, honesty and superiority of the Scots?
The LORD CHANCELLOR: No, my Lords. I would accept that all the qualities the noble Lord has suggested inhere in Scotland, but they are also not unknown South of the Border.
Lord JANNER: My Lords, would the noble and learned Lord be good enough to consider this position again? Is he aware—I am sure he must be—that this affects a very large number of people in this country who believe that they have entered into a contract, and at the last moment are deprived of the opportunity of dealing with a matter which they have had under consideration for a very considerable time because someone jumps in and "gazumps", as we call it? The noble and learned Lord, for whom I have the highest regard, might consider the possibility of passing some law whereby an individual knows that once he has been accepted subject to contract—the problem is subject to contract—a period of time should prevail during which no higher amount should be accepted from somebody else for the purchase. It may be that that is a way of coping with the situation. It is an extremely serious position, as those of us in the profession know.
The LORD CHANCELLOR: My Lords, with the greatest respect to the noble Lord, Lord Janner, these are precisely the issues which were pursued in very great depth by the Law Commission. Obviously, if a suggestion like
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that of the noble and learned Lord, Lord McCluskey, were made in relation to English practice, I would submit it either to them or to the Law Society.
However, I was concerned with this matter for many years—indeed, I have myself been subject to this procedure which I do not like to call "gazumping", which seems to me to encourage rather imprecise thinking. It is sometimes the purchaser and sometimes the vendor who does it. On a rising market it tends to be the vendor. In my case it was a falling market and a purchaser who did it. But, in the end, it is due to the fact that the parties do not wish to hind themselves at that stage. They do not want to bind themselves for many reasons, but the first is that the purchaser wishes to ensure that he can find the finance by way of a mortgage from, let us say, a building society or some other institution, and the vendor, equally properly, desires not to be bound until he is sure that the purchaser is financially reliable. We cannot make people enter into contractual relations when they deliberately prefer not to enter into contractual relations. That is the nub of this particular problem.
I ought to add that the Law Society has issued fairly stringent ethical requirements against so-called "contract races", and it is to be praised for having done so, and I believe that the responsible estates agents do the same. But nothing can wholly guarantee that people will act honourably when there is no legal obligation to do something else.
Lord ELWYN-JONES: My Lords, is not the noble and learned Lord the Lord Chancellor guilty of excessive modesty in accepting the designation of himself as the Lord High Chancellor of Great Britain? As he now administers the courts in Northern Ireland and appoints the judges there, is not the fitting title, the Lord High Chancellor of the United Kingdom?
The LORD CHANCELLOR: My Lords, the noble and learned Lord is loading me with honours, but in fact the title is, for some reason, "of Great Britain". I agree that I have responsibilities in Northern Ireland of an important nature which the noble and learned Lord undertook, with my blessing, from the place where he now sits, but it has not altered the title of the office.

BUSINESS
Lord DENHAM: My Lords, owing to an error, consideration of Commons' amendments to the Lords' amendments on the National Heritage Bill appears on today's Order Paper as last business. It had been arranged, in consultation with the usual channels and with those with an interest in the point concerned, that this should be taken before consideration of amendments to the Companies Bill, which is expected to take several hours. If no noble Lord objects, I propose that consideration of the amendments to the National Heritage Bill should be postponed until Monday next, when it can be taken at a time more convenient to your Lordships.
It may also be for the convenience of your Lordships to know that dinner will be available this evening at the usual time.

BANGOR MARKET BILL [H.L.]
Read 3a, and passed, and sent to the Commons.

CRIMINAL JUSTICE (SCOTLAND) BILL [H.L.]
Read 3a, with the amendments.
Clause 1 [Suspect or potential witness may be required by constable to identify himself]:
3.25 p.m.
The MINISTER of STATE, SCOTTISH OFFICE (The Earl of Mansfield)The MINISTER of STATE, SCOTTISH OFFICE (The Earl of Mansfield) moved Amendment No. l:
Page 2, line 4, leave out subsection (4) and insert—
(" (4) A constable shall inform a person, when making a requirement of that person under—

(a) paragraph (a) of subsection (1) above, of his suspicion and of the general nature of the offence which he suspects that the person has committed or is committing;

(b) paragraph (b) of subsection (1) above, of his suspicion, of the general nature of the offence which he suspects has been or is being committed and that the reason for the requirement is that he believes the person has information relating to the offence;

(c) subsection (2) above, of why the person is being required to remain with him;

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(d) either of the said subsections, that failure to comply with the requirement may constitute an offence.").

The noble Earl said: My Lords, this amendment replaces the existing requirement in Clause 1(4) for a constable, in exercising the powers conferred by Clause 1, to give certain information to a suspect and a witness with more detailed requirements.
The amendment has been tabled in fulfillment of an undertaking which I gave at the Report stage to the noble Lord, Lord Foot. In essence, the noble Lord proposed that a police officer who required a witness to give his name and address under Clause 1 should be obliged to inform the witness of the reasons for the request and to tell him that failure to give his proper name and address constituted an offence. The amendment gives effect to that proposal, and goes beyond it to provide that a suspect should also be informed that if he fails to give his proper name and address, or fails to remain if required to do so, he will be guilty of an offence under subsection (5) of the clause. It seemed to us only equitable that the witness and the suspect should be accorded similar treatment in terms of their entitlement to information. I beg to move.
Lord FOOT: My Lords, I should like to say only that I am very much obliged to the noble Earl for having inserted this amendment, which expresses very much better than my original amendment what we both have in mind. It is entirely in accord with the way in which the amendments proposed throughout the passage of this Bill have been received by the Front Bench. This is yet another example of the admirable and very satisfactory way in which the Government have listened to the arguments which have been raised, and I am very much obliged.
Lord McCLUSKEY: My Lords, I should like to mention just one little word, and that is "of" which appears in paragraph (c). I wonder whether that really is appropriate in that particular place?
The Earl of MANSFIELD: My Lords, I shall look into the matter and if necessary it can be rectified in another place.
On Question, amendment agreed to.
Clause 2 [Detention and questioning at police station]:
The Earl of MANSFIELD The Earl of MANSFIELD moved Amendment No. 2:
Page 3, line 19, leave out ("therefrom") and insert ("from the police station or other premises")
The noble Earl said: My Lords, this is a drafting amendment, consequential upon an amendment which was agreed on Report. That amendment inserted paragraph (d) into Clause 2(4), and had the incidental effect of distancing the word "therefrom" in paragraph (e) from its antecedent in paragraph (c). This amendment replaces the word "therefrom" by a more explicit phrase. I beg to move.
On Question, amendment agreed to.
Clause 6 [Judicial examination]:
The LORD ADVOCATE (Lord Mackay of Clashfern)The LORD ADVOCATE (Lord Mackay of Clashfern) moved Amendment No. 3:
Page 5, line 32, after ("solicitor.") insert—
(" (3C) Any proceedings before the sheriff in examination or further examination shall be conducted in chambers.").
The noble and learned Lord said: My Lords, this amendment seeks to provide explicitly that judicial examination or further examination shall be conducted in Chambers and fulfills an undertaking which I gave in response to a similar amendment tabled by my noble friend Lord Selkirk. I am very glad that we have been able to meet my noble friend's wishes in this way. I beg to move.
The Earl of SELKIRK: My Lords, I thank my noble and learned friend for putting in the clarification which I think is desirable.
On Question, amendment agreed to.
3.30 p.m.
Lord MACKAY of CLASHFERN Lord MACKAY of CLASHFERN moved Amendment No. 4:
Page 7, line 4, leave out ("any such declination") and insert ("his having so declined").
The noble and learned Lord said: My Lords, this is purely a drafting amendment in response to a point raised during our discussion at Report stage by the noble Lord, Lord Foot. I think that the noble Lord was a little discouraged by our use of the word "declination". The word "declinature", which he kindly suggested
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as an alternative, has some technical uses in Scots law, and we have thought it best to try to re-word the clause. I hope that what we have done meets with the point that he raised. I beg to move.
On Question, amendment agreed to.
Clause 9 [Citation of defence witness for precognition]:
Lord MACKAY of CLASHFERN Lord MACKAY of CLASHFERN moved Amendment No. 5:
Page 9, line 7, after ("sheriff") insert ("in chambers").
The noble and learned Lord said: My Lords, in effect, this amendment is the same as the one I mentioned a moment ago responding to a point raised by my noble friend Lord Selkirk. I beg to move.
The Earl of SELKIRK: My Lords, again I thank my noble and learned friend for this clarification.
On Question, amendment agreed to.
Clause 40 [Restriction on passing sentence of imprisonment or detention on person not legally represented]:
Lord MACKAY of CLASHFERN Lord MACKAY of CLASHFERN moved Amendment No. 6:
Page 31, line 7, at end insert ("or detention in a young offenders centre").
The noble and learned Lord said: My Lords, this is a drafting amendment to take account of the possibility that a sentence of detention might include a sentence of detention in a young offenders centre in Northern Ireland. It is right that that should be taken into account, and this amendment seeks to do so. I beg to move.
On Question, amendment agreed to.
Schedule 2 [Solemn appeals]:
Lord MACKAY of CLASHFERN Lord MACKAY of CLASHFERN moved Amendment No. 7:
Page 57, line 1, leave out from ("words") to (" "from") in line 3.
The noble and learned Lord said: My Lords, this is a purely drafting amendment. I beg to move.
On Question, amendment agreed to.
Schedule 8 [Repeals]:
Lord MACKAY of CLASHFERN Lord MACKAY of CLASHFERN moved Amendment No. 8:
Page 94, line 2, column 3, leave out from ("words") to (" "from") in line 6.
The noble and learned Lord said: My Lords, again this amendment is a consequential drafting amendment. I beg to move.
On Question, amendment agreed to.
Lord MACKAY of CLASHFERN Lord MACKAY of CLASHFERN moved Amendment No. 9:
Page 95, column 3, leave out lines 23 to 25 and insert ("Section 411(2).").
The noble and learned Lord said: My Lords, once again this is a consequential drafting amendment. I beg to move.
On Question, amendment agreed to. An amendment (privilege) made.
3.35 p.m.
The Earl of MANSFIELD: My Lords, I beg to move that this Bill do now pass. I should like to take this opportunity to restate, if that is the correct word, the Government's position so far as this Bill is concerned. Outside this House I think I am right and justified in saying that there has been a vociferous and, at times, ill-informed campaign of opposition on the grounds that the Bill seriously diminished civil rights. We reject that charge. We believe that the supreme civil right is the freedom to go about one's business without fear of assault on person or property. We believe deeply, fundamentally, in the citizen's right to expect that he will be protected from the activities of the criminally-inclined and the violently-disposed. We believe that regrettably that freedom has been seriously eroded in recent years. We are concerned to reverse that trend; to halt the ever-increasing incidence of crime, particularly violent crime; and we are convinced that such reversal will not be achieved without giving adequate powers to our law enforcement agencies.
However, we accept unreservedly that these powers must be precisely and carefully defined, and their exercise effectively monitored. We believe that the provisions of this Bill as it now stands
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achieve the right balance. The Bill seeks to confer the necessary powers, but it defines them in a way which leaves neither the policeman nor the citizen with whom he is dealing in any doubt about what their respective rights and obligations are. It includes many measures designed to assist the person accused, if he is innocent, to establish that innocence. It regulates the police power of detention which, as the Thomson Committee pointed out, has hitherto rested for its effectiveness on the average suspect's ignorance of his rights in the matter. It attempts to do something about the increasing and undesirable habit of carrying weapons. It tries to grapple with the problem of alcohol-related offences at major sporting events. It seeks to curb the growth in offences of vandalism. Of course, it will not halt these various forms of criminal activities overnight. No measure that we could devise would do that. But we believe that it is an important step towards reversing the rising trend, and it will do it in a balanced and sensible way. I beg to move.
Moved, That the Bill do now pass.—(The Earl of Mansfield.)
Lord McCLUSKEY: My Lords, may I respond to what the noble Earl, Lord Mansfield, has just said by acknowledging the courtesy at all times, and the occasional flexibility, of the Ministers who supported this Bill in this House. In particular may I single out the noble Lord, Lord Lyell, who is not, I am afraid, in his place today, but who was thrown at least on one occasion, and perhaps on two, into the frontline on a difficult issue, and defended the indefensible with his customary good humour, tenacity and charm. If I seemed rather harsh at the time, I hope that he will accept my apology. I was incensed at the Government's obduracy, not at his presentation of the indefensible case.
I would hope that the Government's flexibility displayed in at least some of the matters before your Lordships will be continued in another place. Indeed it must be, because I would predict a difficult passage for this Bill in another place. My own doubts about the wisdom of and the necessity for certain parts of this Bill have grown as I have studied them, and, indeed, studied the debates here. Thus I still question the value of

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Clause 4, which is the one relating to "search for offensive weapons". It is unfortunate that when talking about the need for effective monitoring of the Bill, the noble Earl did not earlier on accept the proposal that Part I should be introduced for an experimental period.
I also doubt whether Clause 6 will add anything of value to our criminal procedure in Scotland. Indeed, I think that it will add nothing, except possibly delay, expense and technicality. Part V, to which the noble Earl referred, deals with the control of alcohol at sporting events. I am sure that the idea is sound, but I fear that the provisions in Part V are not properly digested. I hope that in another place the Government will take account of the criticisms that were made of these particular provisions in the course of the Committee stage and the Report stage.
I am sorry that the Government have not yet acknowledged their moral defeat when the vote was 92–92 at Report stage on what is now Clause 69. I hope that they will look at that again in another place. In a way it is a pity that so many useful technical reforms in Part II of the Bill have been lost sight of in the debate about police powers in Part I. The noble Earl has just referred to another matter. He described the opposition outside this House as being "vociferous and ill-informed". Some of the opposition to Part 1 of the Bill has been slow to manifest itself; although it has been slow to manifest itself, certainly there has been a good deal of public interest in it in Scotland. But that does not render the criticisms that have been made any the less valid. Reasoned argument ought to be assessed on its own merits and not be lightly dismissed as vociferous, too late, too soft or ill-informed.
The Bill's critics, whether inside or outside the House, are, I believe, all concerned with the same ends—the promotion of the public interest and the improvement of relations between the public and the police. It is not too late to stop confronting the Bill's critics and try to meet them halfway. I urge the Government to do that in the course of the next few months before the Bill returns to this House.
3.39 p.m.
Lord DRUMALBYN: My Lords, it would be a pity if this Bill went on its way to another place without some comment on another part of the Bill, which has not been mentioned, and which gives effect to proposals made in the Third Report of the Committee under the chairmanship of the noble Lord, Lord Thomson, which dealt with criminal appeals in Scotland. Clause 32 and Schedule 2 deal with solemn appeals, about which we had some discussion, although not very much, during the previous stages of the Bill. In Clause 33 and Schedule 3 the Bill proposes amendments to the law relating to criminal appeal under summary procedure. Of these proposals there has been very little discussion so far. At the time when the Thomson Committee were reviewing the present procedure for summary appeals, it came under some criticism in your Lordships' House in relation to a particular case—that of David Anderson at Ayr Sheriff Court. Indeed, the report itself refers specifically to the debate which took place on that case in this House on 21st January, 1976.
The criticism was not that the summary procedure laid down in the existing legislation had not been adhered to, but that that procedure itself was defective. The criticism was mainly directed against three aspects of the procedure. First of all, there is at present no provision for an appeal on the facts found by the sheriff. This was a matter which was regarded by some English Peers at any rate with astonishment. As the report indicates, in Scotland the trial judge has always been the final arbiter of fact. Lord Thomson made no proposal for change, for these reasons: in Scotland there is a higher requirement as to sufficiency of evidence than in England, and as to corroboration; secondly, in Scotland the prosecution is under the control of a public prosecutor in the person of the procurator fiscal, who represents the Lord Advocate; thirdly, a rehearing along the lines of that afforded in England by the Crown Court, with a Crown Court judge sitting with from two to four magistrates, would require an additional tier in the Scottish court system which does not exist at present, and that would mean a totally new judicial system. There

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was said to be no demand for such a reform in Scotland.
I would not myself have found these reasons wholly convincing but for one additional point mentioned elsewhere in the report. If I have understood it aright—and I hope that my noble friend will confirm this—the question of sufficiency of evidence is a matter of law, and therefore can form the basis of an appeal to the High Court by way of stated case. The content of the stated case by the sheriff is thus of vital importance, and that is what Schedule 3 is mainly about. The Committee concluded:
"In our view the only valid criticism of our summary appeal procedure relates to the inadequacies of the present appeal by stated case".
I turn now to those inadequacies and the way in which the Bill proposes to rectify them in Schedule 3. There is no provision at present for the form of appeal. This appears to be rectified in accordance with the committee's proposal by amending Section 444 of the 1975 Act so as to require the application for a stated case to
"contain a full statement of all the matters which the appellant desires to bring under review"—
a statement which, within the specified period, may be amended or added to.
The most important criticism related to the preparation of the stated case for the High Court. Under the present provisions the appellant's counsel may propose adjustments to it, and the judge must examine them but may reject any or all of them without hearing the parties. This is what happened in the Anderson case. The committee proposed that:
"(i) a hearing on adjustments should be mandatory.
(ii) where adjustments incorporate new findings in fact or other matters not covered in the draft [stated case] and the judge proposes to reject them…he should state not only the fact of his rejection but his reasons therefor. Similarly, if a particular finding in fact is challenged as being unsupported by the evidence, the judge should be obliged to state the evidence on which the finding is based. Any proposed adjustments which are not withdrawn by a party but are rejected by the judge should be included in the minute of proceedings".
These proposals are incorporated in Schedule 3 as amendments to Section 448 of the 1975 Act, and appear in subsections (2C) and (2D) in paragraph 7.
I should like to emphasise that these
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changes represent notable improvements in the stated case procedure. Those of your Lordships who attended the two debates on the Anderson case on 21st January 1976 and 4th July 1978 will recall that defence counsel submitted 10 pages of adjustments he proposed should be made in the draft stated case, and that the sheriff rejected all but one minor one without a hearing (though he might have held one) and without, so far as I know, having seen the unofficial shorthand transcript of the proceedings. Again this is not so much a criticism of the sheriff as of the existing procedure which this Bill is rectifying. There is no doubt the sheriff was entitled to do what he did. In consequence of this defective procedure, the High Court was not judicially aware of the adjustments relating to facts challenged and the inferences which the defence considered not justified by the evidence.
May I just conclude by saying this: a great many people both inside and outside Scotland, including Justice and many lawyers and other folk, strongly believe that the proceedings leading up to the appeal in the case of David Anderson tended to bring Scottish justice into disrepute, since justice was not clearly seen to be done. The amendments in this Bill to the 1975 Act in relation to summary appeals go a long way to removing the grounds of criticism and to restoring that reputation. They certainly deserve, in my view, the backing of your Lordships, and, indeed, I give my full support to the Bill as a whole.
3.48 p.m.
Lord ROSS of MARNOCK: My Lords, I do not think that this is the time to go into the question of David Anderson, certainly at this stage of this Bill where this matter has been raised for the first time. I was Secretary of State and involved in a debate as well in another place. I also happen to live in the place where the offence took place. I think that the sheriff to whom the noble Lord referred is now dead. There is one thing clear: so far as certain of the procedures are concerned in relation to the examination of cases both in the sheriff court and the High Court, there has been a considerable improvement as a result of this Bill; and that has been further improved during the course of the consideration of the Bill.

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I was surprised on Sunday when I thought I was going to get a religious programme on the BBC, to hear a certain number of lawyers saying how difficult it was to get law reform for Scotland through the Westminster Parliament. Since I came to this place we seem to have been doing nothing else. I think we have had three Bills. There was the Bail Bill; I think there was a miscellaneous Bill as well, and now this one. Strangely enough, one of the people who was on this inquiry—and none of them seemed to know anything about parliamentary procedure and what was now happening—had been writing to us about this Bill. I hope that people appreciate the time that is given, and rightly given, to Scottish legislation in both Houses.
I hope that none of your Lordships will object to any time that I take up here. You all wanted the Scots to be here, so here we are, and you will just need to listen to us with our rather crude way of putting things.
Having said some pleasant things, I shall now no doubt proceed to say some unpleasant things. First, I am sure that the Lord Advocate will be very glad that he is in this Chamber, because if the Government were to go to the other place with a Bill of this importance based upon a report—the Thomson Report—and did not print that report so that people would know exactly what it was about, then they would be subject to all of the condemnation that they deserved. That is the first complaint about the conduct of this Bill: not a single copy of the most important report on which this Bill was based was available to us, and I am not satisfied about that.
I am glad that in the earlier clauses we made some changes in respect of the position of witnesses. From that point of view, I think we have done quite well and I am grateful to the Lord Advocate for the way in which he allowed himself to be persuaded in that respect. On the question of the powers of search by the police, I was pressed in particular by the police in what was then Glasgow, not Strathclyde, and I took the view that to tip the balance in favour of the police in this particular way and give them the statutory power would not lead to cooperation between the police and the
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public. As Secretary of State, one receives not just letters from policemen or police authorities asking for additional powers; one has letters from people and from parents complaining of the activities of the police. I have known several cases where it was very doubtful whether what had been done should have been done.
I think that at one time during consideration of the Bill we were told that what we were doing in relation to Clause 1 was only legalising what the police were already doing. It is a dangerous thing to give them new powers while at the same time we are being told that powers they already have they have been abusing. I am not entirely satisfied that that was correct.
The clauses in relation to football offences all relate to buses and to drunkenness. Many people ask why we cannot do something. One has to be sure that one does the right thing. It is no good passing a law unless it is enforceable, and the idea of an international match between Scotland and England taking place and all the people travelling there not having on them a single drop of whisky, lager or beer, passes comprehension. How many policemen is it going to take to search everyone going into the ground to ensure that they have not got with them a hip flask or a small bottle of some kind—I think the new phrase is "control container"?
In relation to buses, we already have legislation. It was not initially introduced in regard to football. It was just in relation to people moving away for the day and descending on small towns. I do not think that that has been at all effective. Until one deals with the question of the supply of drink, and stopping it being taking away, particularly in the area where a football match is being held, there will be trouble of some kind because one will not be able to enforce this legislation as the Government seem to expect. I have asked how many policemen it would take to attend a cup-tie, a cup final or an international game, or even an inter-Celtic game. I hope the Minister will appreciate that at the present time the football clubs in Scotland are very much concerned about the cost to them. They have to pay for the cost of the additional police who are employed during a football

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match. I assure your Lordships that that cost is for some of the small clubs very heavy indeed. If this legislation is to be enforced, it will place a very much heavier burden on someone. I want to know whether the burden is to fall on the ratepayers or on the football clubs. I hope that the Government have thought about this, because as far as I understand it there have already been approaches to try and ease the burden on some of the smaller clubs in respect of the cost of police at games.
I am disappointed in the Lord Advocate. He is a man in whom I had placed my hopes. He came here with a very good reputation. He built that reputation by the way in which he handled the clauses, especially when he accepted some suggestions put forward by me. After all these years I had discovered a Lord Advocate who knew good sense when he heard it. But we still have Clause 69, where responsibility is placed on the driver of a bus for the alcoholic condition of the people who are in it or, if one small bottle is discovered there, it is the driver who is responsible and he has to stop the bus, deal with the matter or take those concerned to a police station. Really, it is crazy, and I hope that before the Bill goes through all its proceedings in the other place they will take this clause out. It is not fair; it is asking too much to require the bus driver to become the supervisor of the drink question in relation to every person who boards his bus. Also when these people go on the bus he has to see that there is no drink on them and to supervise their behaviour there. If they stop somewhere along the road, if they come from a place of refreshment or where they have had a drink, once again he has to see that they have not concealed any drink on them. It is quite crazy. It will just go by the board.
Then we are left with the question of how people will behave inside the grounds. Like everyone else, I want to see better conducted football matches and crowds, but this whole provision has to do with buses. Since this Bill has been going through your Lordships' House, we have not had a case involving buses, but we have had cases involving railway trains. How many noble Lords have suggested that one has to deal with British Rail as well? I think it was in relation to a
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match between Aberdeen and one of the Dundee teams that a tremendous amount of damage was done. People were injured, and indeed terrified, by what happened on an ordinary railway train. Admittedly we have tried to deal with football special trains, and we received the answer that everything was all right. The McElhone Committee were told by British Rail and by everyone else that everything was looked after very well. This is the one area in which it is said it is not necessary to do anything, but this is where the trouble really starts. Therefore, may I ask that during the passage of this Bill we look again at this aspect? I am not going to raise the question that Murrayfield is all right but Hampden is all wrong, although I am glad to say that the results have been better at Hampden than at Murrayfield in the last few weeks. Last night it was 4:1.
Now I come to the "Taylor memorial clause", Clause 78. There has been vociferous objection not just by the people interested in civil liberties but by the Law Society of Scotland who have declared that this clause is quite unnecessary. If one is troubled with the crime, one changes the name and that solves the problem! It really is nonsense to create a new crime of vandalism. It is malicious damage at the present time. It could be three or four different things, all accumulated, even attracting bigger penalty than the new offence of vandalism. But this is the Government carrying out their manifesto commitment. Shall I whisper again to them that their manifesto commitments did not get them very far in Scotland? There are 44 Labour Members and 24 Conservative Members.
The Earl of MANSFIELD: My Lords, it is the quality that counts.
Lord ROSS of MARNOCK: Ask Southend about that in a few years' time. The man who led them, the man who went on about law and order and vandalism, was defeated, and here is the solution—we are to create a new offence and it is to be called vandalism. What nonsense! I hope the Government will think again about this. After all, he is no longer a Scottish Member, and I suggest that noble Lords opposite should quietly forget about this one. It will not solve any problem.

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I hope the Bill has a fair passage in another place. I am looking forward to watching how the Solicitor-General defends himself, especially in respect of that clause which he said would be unheard of in the annals of Scottish law if it were included in a Bill. He has to defend the fact that he actually voted against it when it was in another Bill. It will be quite amusing and I shall spend a lot of time "keeping my hand in" on the Bill when it is in another place.
Lord GALPERN: My Lords, I shall be brief and I wish to refer only to Clause 9(3), about which I am uneasy. It refers to:
"Any person who, having been duly cited to attend for precognition under subsection (1) above, attends but—
(i) refuses to give information within his knowledge".
I am wondering how we can establish that he has knowledge and is refusing to give it. In another place and even in your Lordships' House one hears Ministers indicating they have no knowledge of something, yet quite a number of us know they have such knowledge. As I say, how does one establish the position? In this case, he is not even known to be a witness because, according to subsection (1), he is only alleged to be a witness. That an accused person wishes him to be precognised means that he must attend when required and give his precognition on oath. Perhaps we could be told when the Minister replies how, when an alleged witness—he may not even have been a witness—is called and refuses, on somebody's statement, to say he had knowledge and says,"I know nothing about it ", we are to establish the position.
4.3 p.m.
The Earl of MANSFIELD: My Lords, I shall respond to some of the points that have been made at this final stage of the Bill, at least for the moment. I confirm at once to my noble friend Lord Drumalbyn that sufficiency of evidence is a matter of law which may be considered on appeal, and I hope that will satisfy him. Nobody knows better than I do the sustained efforts he has made in a case which gave rise to much misgiving. The proposals in Schedule 3, as he stated,
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are a notable improvement in the stated case procedure.
The noble Lord, Lord Ross of Marnock, made a number of complaints. So far as what I might call the "football offences" are concerned, I am sure he will recall that these were drafted on the basis of a report and recommendations of the then Parliamentary Under-Secretary with responsibility for sport, Mr. McElhone, who was a Member of the last Government. It seemed to the last Government, and it has seemed to us, that much of what his Committee decided after due deliberation made sense, and it was in those circumstances that these provisions were written into the law.
The noble Lord apparently does not contemplate his attendance at least at a football match without the consumption of alcoholic refreshment. At the last Scotland v. England match at Murray-field I was sitting among the faithful supporters of the Perthshire Rugby Club. We have five brands of whiskey which are made in Perth. On my left was the owner of one such brand and on my right was the owner of a second, and they were passing round, for free, miniatures of their respective products and inviting all —particularly when Scotland scored, which was not frequently enough—to sample the product. I managed to refuse because I intended to drive my motor car back to Perth. But it did not play any particular part in my life that I was depriving myself of alcohol on that particular occasion.
The noble Lord rightly said that this was the third measure of legal reform introduced into your Lordships' House in the short time this Parliament has been in existence. Far more than that: it is the first major piece of Scottish criminal justice legislation for many years. I should like to record that, and I am sure it will be seen as a landmark in the reform of our legal system. I take this opportunity to express the appreciation of myself and my colleagues on this Bench for the careful attention noble Lords have given to the Bill. As I have made plain on a number of occasions, the Government have been willing to consider all reasonable points of view and constructive suggestions put forward to improve the Bill, and I would make particular mention of the noble Lord, Lord Foot, who put

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forward several constructive improvements which the Government were happy to accept.
On the last occasion when the Bill was before your Lordships' House, I paid tribute to the noble and learned Lord, Lord McCluskey, with what I hoped were kind words. It is remarkable that at every stage of the Bill in your Lordships' House he has said that it was positively his last appearance. But like some aging but still attractive music-hall artist, the next time the Bill comes to your Lordships' attention, once more he springs to the centre of the stage. I particularly welcome the nice things he said about my noble friend Lord Lyell.
I am confident that the Bill leaves this House a clearer and strengthened measure and I believe that most noble Lords, including, I hope, the noble Lord, Lord Foot, accept the Bill as it now stands as balanced and fair. We have been accused on some sides of introducing a vicious measure of oppression, while on others the proposal is now seen to have become emasculated and enfeebled. Some parts of the popular Press have alleged both points of view. The truth is that people on both extremes of opinion will never be satisfied, but we believe that the vast majority of people in Scotland welcome the Bill and appreciate that it provides a fair balance between the powers of the police and the safeguarding of the rights of the individual. It seeks to protect the ordinary citizen against crime, and the effect of the Bill will be to justify and enhance continued public confidence in the Scottish criminal justice system.
I must pay a final tribute to the noble and learned Lords, the Law Lords, who played a considerable part in our deliberations. They were always constructive, even if not always to the joy of the Government. As the Bill passes into law, it will, I believe, be received as a major landmark in our legal system. We now send it on its way to the other place—where, incidentally, there will be plenty of copies of the Thomson Report for their perusal—and on behalf of my noble and learned friend and myself, I thank noble Lords in all parts of the House generally for the help they have given us.
On Question, Bill passed, and sent to the Commons.

TRANSPORT BOARDS (ADJUSTMENT OF PAYMENTS) ORDER 1980
4.10 p.m.
The PARLIAMENTARY UNDERSECRETARY of STATE, DEPARTMENT of the ENVIRONMENT (Lord Bellwin)The PARLIAMENTARY UNDERSECRETARY of STATE, DEPARTMENT of the ENVIRONMENT (Lord Bellwin) rose to move, That the draft order laid before the House on 11th March, he approved. The noble Lord said: My Lords, this order reduces British Rail's liability to make payments in lieu of rates. The order arises because of changes in the status and business of the National Freight Corporation. This order deals with two problems. There is a need for a permanent revision of British Rail's contribution in lieu of rates, and the order introduces that. There has also been a transitional problem with the NFC, and the order covers that also.
Before I explain in detail the purpose and effect of the order, it may help noble Lords if I say something about the background. Instead of paying rates, as such, on their operational property, British Rail pay an amount in lieu of rates, calculated in accordance with statutory provisions. The Secretary of State then distributes the money between rating authorities. British Rail's liability for any year depends on a prescribed "standard amount", which this order would reduce, and on the average rate poundage set by local authorities in the previous year. They also pay rates, in the normal way, on non-operational property, such as hotels, refreshment rooms, and some offices. In turn, the National Freight Corporation are required to pay to British Rail a "fair" contribution in relation to premises which they occupy for the purposes of handling rail-related traffic. The amount of NFC's contribution is to be settled by agreement between the two boards.
The previous Administration reset the standard amount for British Rail in 1977. In view of this, we have not undertaken any fundamental review of British Rail's rating. The reduction that we are proposing arises from the changing circumstances of the National Freight Corporation. It is helpful to consider the transitional problem first. When the Freight Corporation was first established, most of its traffic was carried by rail. Now, however, over 50 per cent. of the traffic

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is entirely road-borne. Under rating law, road transport depots are assessed and rated by normal methods; and this is what has happened to much of NFC property which was previously used solely for rail-related traffic. This has created an additional cost on NFC; and up to now, there has been no offsetting reduction in NFC's obligation to contribute towards British Rail's payment in lieu of rates. The NFC have argued that they have been paying twice in respect of the same property: about £ 1/2 million a year too much, at least since 1978–79.
British Rail, understandably, have felt unable to agree a reduced contribution from NFC, if that would mean that their own payment would have to be increased so as to meet the total liability. The local authorities, on the other hand, felt that the raising of new separate assessments on some properties did not justify any reduction in the standard amount. They point out that the "standard amount" relates to the network as a whole, rather than to specific properties. However, because the changes have affected the whole nature of NFC's operations, we felt that we ought, in principle, to make some reduction in the British Rail "standard amount", so that they, in turn, could agree a reduced contribution from NFC.
This order represents a compromise reduction which, in effect, acknowledges an actual or potential overpayment by NFC over recent years. The joint burden of the two boards would be reduced for the single year 1980–81, so as to compensate for the period of overpayment. British Rail and the Freight Corporation have accepted this proposal, and I understand that they will make arrangements accordingly for the sharing of their joint burden in the coming year.
The local authority associations are disappointed with the proposal, but I would ask the House to accept that this order offers a reasonable compromise all round. In recent years, NFC's operations have changed so fundamentally that it would be wrong to expect them to continue paying an amount which no longer bore any relationship with their current methods of operation. Equally, British Rail should not be expected to take on an additional burden as a result of decisions
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made by NFC. Moreover, the local authorities have benefitted substantially in recent years from the new assessments on NFC's road traffic depots.
The order before us today also meets the long term requirements for NFC. Noble Lords will know that the Transport Bill proposes that the status of the National Freight Corporation should change on an "appointed day", when the corporation will become a company under the Companies Act. It will then also lose its special rating status: all its property will become rateable by normal methods, and the rating link with British Rail will be broken. The timescale for this process is still a matter of hypothesis; it depends on a number of factors, which are not our concern today.
We have therefore made a necessary working assumption for this order that NFC's status will change on 1st October this year. On that account, we have proposed a reduction of British Rail's "standard amount" by £ 1/2 million. This reduction would be the first half-yearly instalment of a permanent reduction of £ 1 million. The long-term intention is to reduce British Rail's gross liability by the amount that NFC contribute, thus leaving British Rail's own burden unchanged.
I should stress that we do not yet know precisely when NFC's status will be changed. When the actual timing is known we shall propose a new order to reflect a permanent adjustment to British Rail's liability in 1981–82, and to compensate for any discrepancy between the date of NFC becoming a Companies Act company, and the date of October 1980.
I am sorry that such a simple order has such a complicated background, but I commend it to the House. My Lords, I beg to move.
Moved, That the draft order laid before the House on 11th March, be approved.—(Lord Beliwin.)
4.16 p.m.
Lord UNDERHILL: My Lords, I shall not detain the House for very long, since the noble Lord, Lord Bellwin, has given a lucid explanation of the order which, frankly, proposes a very sensible arrangement. In saying that, we on this side of the House do not necessarily

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support it, in view of the references to the National Freight Corporation and the Transport Bill, which has to be passed before the new arrangement comes into force. However, we regard this as a sensible proposal which seems to satisfy the British Railways Board, in that it will relieve them of the liability regarding rates on National Freight Corporation depots which are no longer rail-linked. The National Freight Corporation will no longer pay rates twice on the same properties, and it would appear that by and large the local authorities shall receive all the rates to which they are entitled, from either the British Railways Board or the National Freight Corporation. Therefore we give our support to the order.
On Question, Motion agreed to.

COMPANIES BILL [H.L.]
4.17 p.m.
The MINISTER of STATE, DEPARTMENT of INDUSTRY (Viscount Trenchard): My Lords, I beg to move that the Commons amendments be now considered. In putting forward this Motion I should like to explain that if it meets with the wishes of the House, we shall try to deal quite briefly with the very large number of technical amendments to those main Parts of the Bill which were under consideration for some considerable time in this House. If noble Lords wish to deal in detail with Commons amendments, and the reasons for them, other than where there are amendments down, we shall of course explain them. However, at the moment we are geared to move as fast as possible on those amendments which are largely technical. Having said that, may I ask my colleagues to move Amendment No. 1, unless noble Lords opposite—
The DEPUTY SPEAKER (Lord Aberdare): My Lords, I first must put the Question that the Commons amendments be now considered.
Moved, That the Commons amendments be now considered.—(Viscount Trencharcl.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
[References are to Bill (47) as first printed for the Commons.]

COMMONS AMENDMENT
1 Clause 4, page 3, line 33, leave out "issued" and insert "allotted".
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 1. I hope that it will be for the convenience of the House if I couple with Amendment No. 1 a series of similar amendments, which are mainly drafting amendments. I understand that, through the usual channels, a list of the group of amendments to which I shall be speaking has been circulated. With Amendment No. 1, I wish at the same time to deal with Amendments Nos. 7, 16, 22, 27, 28, 29, 30, 35, 56, 136, 142, 153, 240, 316, and 317. I hope that that long list will mean something to your Lordships; but all these amendments are concerned with the meaning of the word "allotment".
Amendment No. 240 is the central amendment, and this provides a definition of the word "allotment". This definition is that shares shall be taken to be allotted when a person acquires the unconditional right to be included in the company's register of members in respect of those shares. The new definition is of practical significance because it does not interfere with commercial practice in the way that we fear the Bill might do if it were left unamended. The amendment also clarifies the meaning of "payment up in cash", and, secondly, of "allotment for cash". These definitions are generalised for the purposes of all the Companies Act. My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 1.
Moved, That this House doth agree with the Commons in the said amendment.—(Lord Lyell.)
Lord ELWYN-JONES: My Lords, before we move to a detailed consideration of the matters we are to discuss at this stage, with the leave of the House, I should like to make some general observations with regard to them. I should like to begin by congratulating the Government on their Pauline conversion, on the road to another place, to most of the proposals which we on this side of the House put to noble Lords opposite when the Bill first came before the House and was discussed on Second Reading, and thereafter, during the subsequent stages of the Bill in your Lordships' House.

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The Bill initially introduced into the House by the Government dealt—and, indeed, that was its whole essence—with the task of implementing the EEC Second Directive. The rest of the Bill, in so far as it purported to be a Bill to reform the company law, was indeed a puny thing; and it was distinguished only by its total failure to deal with crucially important matters which the previous Administration included in their Companies Bill. That had been discussed in another place at many meetings during the Committee stage, and, indeed, the point was reached at which those proposals were substantially agreed; but they were rejected here, at the intitial stage of the consideration of this Bill. The particular matters I wish to refer to are the provisions relating, first, to the duty of directors to have regard to the interests of their employees, and, secondly, of course, to insider dealing. Failure to deal with those matters in the course of this Companies Bill's passage through Parliament would indeed have been little short of scandalous. We urged the Government to deal with them in this House, from which this Bill was originating; and, indeed, we endeavoured to include them in the Bill. If I may say so, I warned the Government that if they did not take that course they would run into serious trouble when the Bill came to another place.
Unhappily—and I do not blame the noble Viscount, Lord Trenchard, for this, because clearly his hands were tied—the proposals of the Opposition were rejected in this House; and, if I may say so, I think the noble Viscount, Lord Trenchard, has been badly and sorely tried by the way the matter has proceeded through Parliament. He was not allowed to make any concessions, but in another place the mighty there made them all—or most of them, at any rate. It is too bad. He has our sympathy, and we admire his forbearance in being able to continue with the odious task which falls upon him. But there it is; and, for what it may be worth, we congratulate the Government on accepting the principal proposals of the Opposition in this matter.
However, what happened in another place, and what is perhaps to some extent happening now, is, I submit, a supreme example of how not to legislate, particularly in a field of such importance and such
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technicality as company law, which, after all, represents the legal framework for most of our commercial and industrial institutions. The history of the matter in another place, briefly, is that the Bill had a Committee stage which lasted from 6th November to 11th December, and a mass of amendments was then introduced. Then, lo and behold!, at the Report stage a further mass of amendments was introduced, and we now have a veritable volume, a large volume—66 pages of it, almost as big as the Bill itself, which were added by way of amendments at the Report stage in another place. But that is not enough. Today, the noble Viscount has put down quite a number of additional amendments to the amendments to the amendments. The thing is going full circle many times.
We on this side of the House submit that this is not a sensible way to legislate, and it will be a matter more of luck than of judgment whether, at the end of the day, the Bill will be in good shape and of proper and appropriate content. However, we will do our best to assist in this situation. I regret that I will be unable to wait until the end of the proceedings, as I have another public engagement, but my noble friends and the noble Lord the Liberal spokesman will no doubt be making their contributions as well, to see whether we can make order out of what is still somewhat chaotic. As to the immediate amendments moved and spoken to, they appear to have a technical and blameless character, and I myself do not object to them, but it may well be that others behind me, and indeed in front of me, may wish to intervene.
4.28 p.m.
Lord LLOYD of KILGERRAN: My Lords, with the leave of the House may I, too, make a few preliminary observations which I am sure will save some time, in that it may not be necessary at all for me to rise in my place to make any speeches on the first 100 or so amendments with which we have to deal. I should like to thank the noble Viscount, Lord Trenchard, for sending me in advance a list of the groupings of the hundreds of amendments with which your Lordships will have to deal. I should also like to extend to him and to his industrious officers my thanks and sympathy for the tremendous amount of work which has

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been thrust upon them since the Bill left your Lordships' House for the other place several months ago.
There were two observations, at least, which I read and understood among the 1,200 or so columns which I have examined during the last weekend or so. One was made by the honourable Member for one of the Swansea constituencies, Mr. Anderson, when he was speaking in the course of the passage of the Bill through the House, which passed like a snowball racing downhill, picking up masses of new and complex clauses, even after the Committee stage. He said, quite truly, that your Lordships would not recognise this Bill when it came back to your Lordships' House. Another distinguished Member said that this was the best Bill for job-creation that he had come across, only it was job-creation for hundreds of lawyers.
I suppose that, like the noble and learned Lord, Lord Elwyn-Jones, I should congratulate the Government on changing their mind. We welcome their last-minute conversion to making at least some attempt to prevent future scandals in insider dealings, which have been the subject of so many investigations and inspectors' reports in the last decade. But from the standpoint of encouragement of enterprise, particularly of small companies, this is an appallingly unsatisfactory Bill. As I have said, long and complex clauses will, of course, lead to the creation of jobs for hundreds of lawyers. Large firms, with their large staffs, will be able to spend a great deal of time on unravelling the complexities of this Bill rather than on doing something more productive. I say seriously and sincerely that this Bill is a grave disappointment. It fails to provide proper corporate guidance to the smaller firms which are desperately in need of reforms in company law. The way in which unnecessary duties are being (and have been for so long) imposed upon the small businesses is still grossly unfair and discouraging to private enterprise.
Like the noble and learned Lord, Lord Elwyn-Jones, I welcome Clause 1 and the other clauses to which the noble Lord, Lord Lyell, has spoken. It seems to me that there is little difficulty about them. The amendments seem mainly to try to clarify the word "allot" and generally to
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ensure that, as far as possible, a company should not be allowed to commit itself without conditions for the issue of its shares.
Lord MONSON: My Lords, following what we have heard from the Liberal and Labour Benches, may I, too, make a point before moving on to the detailed consideration of the Commons amendments? When the noble Viscount, Lord Trenchard introduced this Bill on 25th June last year he said (at column 1238) as the noble and learned Lord, Lord Elwyn-Jones, pointed out, that this Bill deals with the implementation of the EEC Second Directive on company law and certain closely related matters. Then he went on to say, twice, that a second Companies Bill would be brought forward in 1980. This can be verified from columns 1238 and 1239 of the Official Report.
On the strength of that, many noble Lords abstained (as I did) from tabling amendments and new clauses to do with other aspects of company law in the expectation that there would be another occasion to do so during this Session. Now we have this Bill returned from the other place with entirely new Parts IV and V, plus four new clauses. Could the noble Viscount give us an assurance that there will be another opportunity during this Session to debate this and, indeed, will there be another Companies Bill introduced this Session?
Viscount TRENCHARD: My Lords, I expected that there could be the question of whether any egg might stick on my face in relation to this Bill. I accept the manifest goodwill in the noble and learned Lord's commiserations but I do not accept the commiserations. I do not think that I need them. We said clearly that the question of the duties of directors and the whole question of inside dealings were enormously important subjects. We also said that we had a big legislative programme with some vitally important (as we see it) measures in other areas, and also that at that stage we had a timescale to meet for the Second Directive. We further said that it was important to get these major questions as right as we possibly could and to get the degree of balance into the duties of directors and into the control of inside dealings which would

983
result in a major step forward rather than do some good and some harm.
As it became clear after the Bill had left this House, the programme changed—and I think that noble Lords will accept that all legislative programmes change a little with time—and there was even a risk of not getting the second Bill in the Session. We then had the choice between trying to get this important Bill extended and to cover the areas concerned and of having perhaps to wait much longer. So we do not apologise for taking the decision that we would, after all, accept the advice given to us by noble and learned Lords on the other side; but for perhaps the rather different and fuller reason that the balance of evidence in this area now lay in extending the present Bill.
Yes, my Lords, there will be a further Companies Bill; there is an EEC Fourth Directive. Having got a little more cautious as I become a little less green as a Minister at this Dispatch Box, I will not give an absolute guarantee as to exactly when it will come forward; but there is clearly still a chance of it coming forward in the next Session. There will be another Bill: but we believed that as the situation had changed, as I described, it became important to get major progress in these important areas in this Bill. As far as consultation is concerned, I believe that in some areas of the Bill draft clauses were made available to those organisations concerned as early as October. As far as this House is concerned, it has the benefit of the fairly long discussions and debates in the other place—even taking account of the minority, although an important minority, of amendments that were added at Report stage in another place.
So, my Lords, I do not think that we should apologise and, certainly, I do not stand here feeling that my colleagues have treated me unfairly in any way. I believe that their first decision was right and that their second decision was right; and I hope very much that we will have the tolerance of your Lordships' House in getting as much forward progress in this important area as we can at this stage, nevertheless still bearing in mind that this subject of company law and Companies Bills is an endless one and that there will he a further opportunity to come.
Lord ELWYN-JONES: My Lords, we on this side of the House will note a commitment without a promise that there will be a further Companies Bill, and we will await with patience its ultimate appearance.
On Question, Motion agreed to.

COMMONS AMENDMENTS
2 Clause 4, page 3, line 34, leave out from "minimum" to end of line 39.
3 Clause 4, page 3, line 40, leave out "the registrar" and insert "him"
4 Clause 4, page 3, line 40, leave out from "a" to end of line 44, and insert "statutory declaration complying with subsection (3) below."
5 Clause 4, page 4, line 1. leave out "written statement" and insert "statutory declaration"
6 Clause 4, page 4, line 3, at end insert—"(aa) the nominal value of the company's allotted share capital is not less than the authorised minimum;"
4.38 p.m.
Lord LYELL: My Lords, I was gratified by the views of the noble and learned Lord opposite, although perhaps he will recall that three years ago when he and his colleagues were on this side of the House we had another happy Bill called the Patents Bill, which had double the number of amendments we are dealing with today —maybe they were not returned from the other place. As I look round the House I begin to think of the happy German marching tune, Alte Kameraden, and I shall have some comments to make on the Patents Bill when I come to speak on certain amendments put down by the noble Lord, Lord Lloyd of Kilgerran. But we take with a pinch of salt precisely what the the noble and learned Lord had to say.
Lord ELWYN-JONES: However, my Lords, it is the case that the Patents Bill left this House in good shape, thanks partly to the assistance of the noble Lord.
Lord LYELL: My Lords, I would reciprocate the good wishes and say that this Bill will go on to the statute book in similar good shape (subject to what my noble friend Lord Trenchard has said) thanks to the help given by all noble Lords and by the other place.
My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 2 to 6. I think it may

985
be convenient if I speak at the same time to Amendments Nos. 12, 33, 34 and 60. These amendments simplify the provisions of Clause 4 and other clauses. Amendments Nos. 4, 12, 33, 34 and 60 change the requirement for statutory declarations in the Bill to be signed by not less than two directors of the company to a requirement that they be signed by a director or secretary. This will simplify the procedure for registration. Amendments Nos. 4, 5 and 6 remove the need for a written statement as well as a statutory declaration, as the latter can cover all the necessary matters. Amendments Nos. 2 and 3 are minor amending measures.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
7 Clause 4, page 4, line 5, leave out "issued" and insert "allotted".
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 7. I have already spoken to this.
Moved, That this House doth agree with the Commons in the said amendment. —(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
8 Clause 4, page 4, line 13, leave out subsection (4) and insert—
"(4) For the purposes of subsection (2) above, a share allotted in pursuance of an employee's share scheme may not be taken into account in determining the nominal value of the company's allotted share capital unless it is paid up at least as to one quarter of the nominal value of the share and the whole of any premium on the share."
Lord LYELL: My Lords, I beg to move that this House do agree with the Commons in their Amendment No. 8. I wish to speak to a further list of amendments, Nos. 13, 14, 15, 17, 20, 21, 23, 25, 26, 31, 36, 38, 39, 40, 61, 62, 63, 80, 81, 86, 89, 91, 98, 107, 112, 133, 134 and 186. These amendments clarify and simplify. For example, Amendment No. 86 improves considerably the drafting of Clause 22(1). As drafted, this subsection spells out explicitly and in some detail
986
what is meant by talking of a share being paid up as to one quarter of its nominal value together with the whole of any premium. We do not believe that this is necessary, and in fact causes some problems which can and will be removed by the simpler drafting proposed.
Again, Amendment No. 98 simplifies Clause 24(1) by using the phrase
"otherwise than in cash"
in place of the more complex drafting which is at present in the subsection. This phrase is also used in Amendment No. 91 to Clause 23(1). Similar changes are made by the amendments elsewhere in the Bill. Amendments Nos. 20, 21 and 186 are minor technical improvements. We are proposing a small amendment to Clause 22(1), and this is consequential on the changes which are made to subsection (3) of that clause by Amendment No. 89, to which I am speaking. We shall come to that at a later stage.
Moved, That this Houes doth agree with the Commons in the said amendment. —(Lord Lyell.)
Lord WEDDERBURN of CHARLTON: My Lords, before we pass this cluster of amendments, may I say one word not opposing it in any way? I thought I heard correctly that the Minister did not read out "236". My copy of the grouping of these amendments is very faint from Xeroxing. I believe that Amendment No. 236 comes under Clause 56.
Lord LYELL: I can confirm that straight away. I referred to Amendments Nos. 134 and 186. I will take particular care. I hope that your Lordships will bear with me if I read as clearly as I can and take time in reading each individual amendment. I appreciate that there are lengthy lists to which I am speaking, I hope for the convenience of the House, I will take great care.
Lord WEDDERBURN of CHARLTON: My Lords, I thank the noble Lord. I was sagefuarding myself against being wrong for the point I want to make. In a sense, I want to place a marker. Amendment No. 8 from the other place changes the relationship of Clause 22 in its effect upon employee share schemes. Therefore it is very important to notice

987
that when we come to Amendment No. 236 the definition of employee share schemes has been changed in a way which the noble Lord's honourable and right honourable friends in another place thought was a major work. Therefore I place a marker against this clause when we come to the re-definition of the employee share schemes.
Lord LLOYD of KILGERRAN: My Lords, as I have thrown a few pebbles at the Government, may I say that so far as Amendment No. 8 is concerned, it seems to me that it restates the position in a more direct fashion instead of referring somewhat elliptically to the other subsections in the original drafting. I support these amendments as I think they are very useful in simplifying and clarifying the position.
Lord LYELL: My Lords, I am most grateful.
On Question, Motion agreed to.
The DEPUTY SPEAKER (Lord Greenwood of Rossendale): My Lords, it may be for the convenience of the House to take Amendments Nos. 9 to 11 together.

COMMONS AMENDMENTS
9 Clause 4, page 4, line 29, leave out subsection (8).
10 Clause 5, page 5, line 20, leave out "and additions to"
11 Clause 5, page 5, line 24, leave out "and added to".
Lord LYELL: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 9 to 11 en bloc. I hope it will be for the convenience of the House if I speak to Amendments Nos. 18, 19, 24, 32, 37, 41 to 55 en bloc, 57, 58, 59, 79, 83, 97, 125, 126, 127, 155, 157, 224, 225, 226, 308 to 312 en bloc, 323, 324, 335, 337, 339, 340, 341 and 343.
These are technical amendments to improve Part I of the Bill. Amendments Nos. 9 and 42 remove the grounds for winding up which are provided in Clause 4(8) and Clause 9(3) of the Bill and instead Amendment 323 adds to the specific grounds for winding up which those subsections are intended to provide to the list in Section 222 of the original 1948 Act. These
988
changes co-ordinate the provisions on the grounds for winding up a company, which would otherwise cause needless complexities upon consolidation of the Companies Acts. All the other amendments to which I have spoken in the lengthy list correct a minor point, which is that there are a number of references to changes in a company's memorandum or articles which refer to "alterations" in the memorandum, but "alterations in or additions to the articles. There is no good reason for this difference because an addition to the articles is also an alteration of the articles, therefore "alterations in" the articles covers the case. Further, the terminology is not used consistently and might give rise to problems on consolidation, if it was not corrected.
A number of the amendments remove a possible doubt as to whether the phrase "payment up of a share "or" payment on or "payment for" a share includes payment of the premium. Amendments Nos. 43, 44, 45, 47, 48 and 58 remove the criminal sanctions from Clause 10, and instead use the more appropriate approach that is provided also in Clause 8(8).
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.
The DEPUTY SPEAKER: My Lords, I understand that it may be for the convenience of the House if we take Amendments Nos. 12 to 63 together.

COMMONS AMENDMENTS
12 Clause 5, page 5, line 36, leave out "not less than two directors" and insert "a director or secretary".
13 Clause 5, Page 6, line 8, leave out from beginning to "the" in line 12 and insert—
"(5) Where shares are allotted by the company between the balance sheet date and the passing of the special resolution as fully or partly paid up as to their- nominal value or any premium on them otherwise than in cash ".
14 Clause 5 line 15, after "consideration" insert "for that allotment".
15 Clause 5 line 16, leave out "that section" and insert "section 24 below".
16 Clause 5 line 37, leave out "issued" and insert "allotted".
17 Clause 5 line 42, leave out first "the" and insert "any".
18 Clause 5 line 42, after "memorandum" insert "and articles".
19 Clause 5 line 43, leave out from "resolution" to "shall" in line 44.
20 Clause 5 page 7, line 28, after "of" insert "the state of".
21 Clause 5 page 7, line 44, after "of" insert "the state of".
22 Clause 6, page 8, line 22, leave out "issued" and insert "allotted".
23 Clause 6, page 8, line 24, leave out paragraph (b) and insert—
"(b) each of its allotted shares is paid up at least as to one-quarter of the nominal value of that share and the whole of any premium on it;"
24 Clause 6, page 8, line 29, after "company" insert "or any premium payable on it".
25 Clause 6, page 8, line 34, leave out from beginning to end of line 36 and insert—
"(d) where shares have been allotted as fully or partly paid up as to their nominal value or any premium payable on them otherwise than in cash and the consideration for the allotment consists of or includes an undertaking (other than one to which paragraph (c) above applies) to the company, either—"
26 Clause 6, page 8, line 40, leave out from "that" to "within" in line 41 and insert "undertaking must be performed".
27 Clause 6, page 8, line 42, leave out "issued" and insert "allotted".
28 Clause 6, page 8, line 44, leave out "issued" and insert "allotted".
29 Clause 6, Page 9, line 10, leave out "issued" and insert "allotted".
30 Clause 6, Page 9, line 14, leave out "issued" and insert "allotted".
31 Clause 6, Page 9, line 17, leave out subsection (4).
32 Clause 8, page 10, line 27, after "Act" insert "other than this Part".
33 Clause 8, Page 11, line 7, leave out "not less than two directors" and insert "a director or secretary".
34 Clause 8, Page 11, line 33, leave out "not less than two directors" and insert" a director or secretary ".
35 Clause 8, Page 11, line 46, leave out "issued" and insert "allotted".
36 Clause 8, Page 12, line 3, leave out paragraph (a) and insert—
"(a) each share is paid up at least as to one-quarter of the nominal value of that share and the whole of any premium on it;
37 Clause 8, Page 12, line 8, after "question" insert "or any premium payable on them"
38 Clause 8, Page 12, line 14, leave out from "up" to end of line 15 and insert" as to its nominal value or any premium payable on it otherwise than in cash and the consideration for the allotment consists of or includes an undertaking (other than one to which paragraph (b) above applies) to the company, either—"
39 Clause 8, Page 12 line 19, leave out from "that" to "within" in line 20 and insert "undertaking must be performed"
40 Clause 8, Page 12 line 19, leave out lines 21 to 23.
41 Clause 9, page 12, line 40, after "refused" insert "or withdrawn"
42 Clause 9, Page 13, line 7, leave out subsection (3).
43 Clause 10, page 13, line 17, leave out "and"
44 Clause 10, page 13, line 20, leave out "in accordance with subsection (3) below
45 Clause 10, page 13, line 20, leave out line 23 and insert"by the resolution; and

(c) the period during which an application for the cancellation of the resolution under section 11(2) below may be made has expired without any such application having been made; or

(d) where such an application has been made, the application has been withdrawn or an order has been made under section 11(6) below confirming the resolution, and a copy of that order has been delivered to the registrar."

46 Clause 10, page 13, line 26, leave out "and such additions to"
47 Clause 10, page 13, line 29, leave out subsections (3) and (4).
48 Clause 10, Page 14, line 8, leave out from"satisfied"to"he"in line 10 and insert"that a company may be re-registered under sub-section (1) above "
49 Clause 10, Page 14, line 19, leave out "and additions to"
50 Clause 10, Page 14, line 28, leave out subsection (8).
51 Clause 11, page 15, line 38, leave out "and additions to"
52 Clause 11, page 15, line 41, leave out from beginning to"notwithstanding"in line 43 and insert"Where an order under this section requires the company not to make any, or any specified, alteration in its memorandum or articles, then,"
53 Clause 11, page 15, line 46, leave out "or addition"
54 Clause 11, Page 16, line 1, leave out "or addition to"
55 Clause 11, Page 16, line 6, leave out "or added to".
56 Clause 12, page 16, line 18, leave out"issued"and insert"allotted "
57 Clause 12, Page 16, line 27, leave out "and additions to"
58 Clause 12, Page 16, line 37, leave out" (2), (3) and (4)" and insert" (c) and (d) and (2)"
59 Clause 12, Page 16, line 43, leave out subsection (4).
60 Clause 13, page 17, line 39, leave out "not less than two directors" and insert "a director or secretary"
61 Clause 16, page 21, line 30, leave out "non-cash asset so received" and insert"other consideration so received including, if the case so requires, the release of the applicant from any undertaking"
62 Clause 16, page 21, line 32, leave out "such and asset" and insert "the consideration"
63 Clause 16, page 21, line 33, leave out "such an asset" and insert "the consideration".
Lord LYELL: My Lords, I beg to move that this House do agree with the

991
Commons in their Amendments Nos. 12 to 63 en bloc.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.
The DEPUTY SPEAKER: My Lords, I understand that Amendments Nos. 64 to 78 can be taken en bloc if the House so wishes.

COMMONS AMENDMENTS
64 Clause 17, page 21, line 41, leave out "holder of" and insert "person who holds"
65 Clause 17, page 22, line 8, leave out subsection (2) and insert—
"(2) Subsection (2A) below applies to any provision of the memorandum or articles of a company which requires the company, when proposing to allot equity securities consisting of relevant shares of any particular class, not to allot those securities on any terms unless it has complied with the condition that it makes such an offer as is described in subsection (1) above to each person who holds relevant shares or relevant employee shares of that class.
(2A) If, in accordance with a provision to which this subsection applies—

(a) a company makes an offer to allot any securities to such a holder, and

(b) he or anyone in whose favour he has renounced his right to their allotment accepts the offer,

subsection (1) above shall not apply to the allotment of those securities and the company may allot them accordingly; but this subsection is without prejudice to the application of subsection (1) above in any other case."
66 Clause 17, line 29, at end insert—
"(3A) Subsection (1) above shall not apply in relation to the allotment of any securities which would apart from a renunciation or assignment of the right to their allotment be held under an employees' share scheme."
67 Clause 17, line 31, leave out from"provision"to first"to"in line 32 and insert"to which subsection (2A) above applies "
68 Clause 17, line 34, leave out "regulation 131" and insert "regulations 131, 132 and 133"
69 Clause 17, line 46, leave out from "provision "to" by "in line 47 and insert" to which subsection (2A) above applies"
70 Clause 17, page 23, line 12, leave out from "provision" to"shall"in line 13 and insert" to which subsection (2A) above applies"
71 Clause 17, page 23, line 16, leave out from "provision" to first"the"in line 17 and insert "to which subsection (2A) above applies"
72 Clause 17, page 23, line 36, leave out from"securities"to"but"in line 37 and insert"or of equity securities consisting of relevant shares of a particular class shall include references to the grant of a right to subscribe for, or to convert any securities into, relevant shares in the company or, as the case may be, relevant shares of a particular class"
73 Clause 17, page 24, line 3, leave out "relevant"
74 Clause 17, page 24, line 4, leave out from "to" to "shares" in line 5.
75 Clause 17, page 24, line 6, leave out "either" and insert "both"
76 Clause 17, page 24, line 7, leave out "or" and insert "and"
77 Clause 19, page 26, line 13, after "requirement" insert"such as is mentioned in section 17(2) above and"
78 Clause 19, line 14, leave out from "articles" to first "the" in line 16.
4.50 p.m.
Lord LYELL: My Lords, I beg to move that this House do agree with the Commons in their Amendments Nos. 64 to 78 en bloc. These amendments make some minor improvements to Clause 17 which, broadly speaking, is concerned with the rights of existing shareholders to have a right of first refusal to shares which the company proposes to issue for cash. The amendments clarify that a shareholder who has received a preemptive offer of shares under the clause can validly renounce his rights to those shares in favour of another person. They ensure that this is also the case with employees' shares and that such renunciation would not trigger further preemptive rights on the allotment of those shares. The amendments also provide a procedure for notification of the relevant offers in the case of joint holders or where the shareholder has died or has become bankrupt. My reference is to the regulations in Table A. There are a number of drafting changes which are also incorporated in the amendments. I beg to move that this House doth agree with the Commons in their Amendments Nos. 64 to 78 en bloc.
Moved, That this House doth agree with the Commons in the said amendments. (Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
79 Clause 20, page 26, line 28, after"company"insert and any premium payable on them "
80 Clause 20, page 26, line 30, leave out from "accept" to "that" in line 32 and insert"at any time in payment up of its shares or

993
any premium on them, an undertaking given by any person "
81 Clause 20, page 26, line 35, leave out from"accepts"to"the"in line 43 and insert"such an undertaking in payment up of its shares or any premium payable on them, the holder of the shares when they or the premium are treated as paid up, in whole or in part, by the undertaking—
(a) shall be liable to pay the company in respect of those shares an amount equal to their nominal value, together with the whole of any premium or, if the case so requires, such proportion of that amount as is treated as paid up by "
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 79 to 81. I have already spoken to these amendments, and I beg to move.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell).
On Question, Motion agreed to.

COMMONS AMENDMENT
82 Clause 20, page 27, line 3, leave out subsection (4) and insert—
"(4) Where any person becomes a holder of any shares in respect of which—

(a) there has been a contravention of this section; and

(b) by virtue of that contravention, another is liable to pay any amount under this section,

that person also shall be liable to pay that amount (jointly and severally with any other person so liable) unless either he is a purchaser for value and, at the time of the purchase, he did not have actual notice of the contravention or he derived title to the shares (directly or indirectly) from a person who became a holder of them after the contravention and was not so liable."
4.52 p.m.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 82. At the same time, I should like to speak to Amendments Nos. 84, 85, 87, 88, 90, 92 to 96 en !bloc, 99 to 106 en bloc, 108 to 111 en bloc, 113 to 124 en bloc, 128 to 132 en bloc, 135 and, finally, 137 to 141 en bloc.
All these amendments relate to clauses in the Bill which deal with the payment for share capital and class rights. Amendment No. 82 restates the present provision of Clause 20(4) in such a way that it can also apply in Clauses 21, 22, 23 and 24. The purpose of that paragraph
994
is to set out the liability of people who become holders of shares in respect of which there has been some contravention of the relevant clause. In certain circumstances they may be liable, jointly and severally, with the allottee to pay certain sums. These circumstances are in substance the same for Clauses 20 to 24. It is therefore preferable to provide a generalised statement.
Amendment No. 84 clarifies the exact meaning of "a holder of a share" in this context. The point is essentially that once a holder has a right to membership he should be liable in exactly the same way as any other member in respect of shares not properly allotted or paid up, even if that holder has not been formally entered on the register. The other amendments to Clauses 22 and 23 are drafting changes. The amendments to Clause 24 are mainly minor changes, in part drafting changes and in part changes of substance. The points of substance are that the amendments ensure that the expert who carries out the report required by the non-cash consideration provided in payment for shares, has to be appointed by the company. As drafted, the person by whom the expert may be appointed is not necessarily specified. It is also clarified that the independent person can appoint a sub-valuer to value part of a consideration which is subject to the safeguards built into the clause, and that such sub-valuer could be the company's auditor in certain cases.
The amendments to Clause 26 achieve two main purposes. First, Amendment No. 151 will provide an exception from the clause for agreements entered into by the company under the supervision of the court for the transfer of an asset. Secondly, the amendments deal with a rather unusual case, which is when the consideration provided by the company is in the form of shares in the company. In this case, if the clause was not complied with, the result would be that the company would retrieve its own shares and the promises to pay up the share would become unenforceable. This is contrary to the policy of this part of the Bill, and we hope that the amendments put right this defect.
The amendments to Clause 28 correct minor technical defects. The amendments to Clause 29 are essentially drafting.

995
Subsection (2) of Clause 29 can be removed as a result of the drafting change and the new definition of "allotment" already discussed. Finally, Amendment No. 141 allows for a proxy to be appointed in the case of an adjourned meeting where one person holding any of the issued shares of that class constitutes a quorum. These amendments are perhaps rather complicated and I hope that the House has been able to bear with me. I beg to move.
Moved, That the House doth agree with the Commons in the said amendment.—(Lord Lyell.)
Lord WEDDERBURN of CHARLTON: My Lords, unless I am mistaken, I do not think the Minister has said anything about Amendment No. 137. It is a very important amendment. Clause 32 deals with class rights, and this alters the requirement of holders of three-quarters of the issued shares of a class to three-quarters in nominal value. That is a major change and, unless I am wrong, I think it has been three-quarters of the number since the 1978 Act. I hope we shall make it clearer on this side of the House and that my noble friends and I do not necessarily place reliance on the 1978 regulations as being superior to these. But where there is a change in something which has stood for such a long time, perhaps the noble Lord could tell us whether his advisers have had reason for it. Personally, I think it is an improvement but I also think it should be recorded expressly in Clause 32.
Lord LYELL: My Lords, I am grateful to the noble Lord, Lord Wedderburn, for his observations. I note it is intended to be a minor drafting amendment, but if there is some point of substance on it, I shall certainly obtain something here. Amendments Nos. 137 and 140 are intended to be drafting changes which we believe are needed to ensure that the proportion of the holders needed for consent to a variation in rights is decided with reference to the nominal value of the shares held rather than just the number of shares. We hope that this is in line with the provision in Clause 3(a) of the Bill as it stands and indeed in Section 5 of the 1948 Act.
996
One example would be that the holder of one £10 nominal value share, which has 10 votes, will be treated on a par with the holder of 10 £1 nominal value shares in the same class with one vote each. That is a slightly extravagant example, but it is possible; and therefore I hope the noble Lord, Lord Wedderburn, will see the reason for these two amendments, and certainly for Amendment No.147.
Lord ELWYN-JONES: My Lords, I think that my noble friend did see the reason and very properly pointed out that something more than mere drafting was involved. I do not say this by way of reproach for one moment; but in consideration of this forest of amendments which we regard largely as technicalities—save for those my noble friends will be introducing—perhaps the Ministers on the Government Front Bench will be alert to warn us if there is any change of substance: otherwise we may get into difficulties.
Lord LYELL: My Lords, we are grateful for those observations and we will take careful note of what has been said by the noble and learned Lord and by the noble Lord, Lord Wedderburn. We shall certainly report it in the right quarters.
On Question, Motion agreed to.

COMMONS AMENDMENTS
83 Clause 20, page 27, line 19, at end insert "(whether on account of the nominal value of the shares or by way of premium)"
84 Clause 20, page 27, line 19, after the words last inserted, insert—
"(6) References in this section to a holder, in relation to any shares in a company, include references to any person who has an unconditional right to be included in the company's register of members in respect of those shares or to have an instrument of transfer of the shares executed in his favour."
85 Clause 21, page 27, line 31, leave out subsection (3) and insert—
"(3) Subsection (4) of section 20 above shall apply for the purposes of this section as it applies for the purposes of that."
86 Clause 22, page 28, line 14, leave out from "share" to end of line 18 and insert "except as paid up at least as to one-quarter of the nominal value of the share and the whole of any premium on it."
87 Clause 22, page 28, line 24, leave out "shares" and insert "share"
88 Clause 22, page 28, line 24, leave out from "less" to"and"in line 25 and insert"the value of any consideration actually applied in payment up (to any extent) of the share and any premium on it ".
4.59 p.m.
Lord LYELL: My Lords, I have spoken to these amendments. I now beg to move that this House doth agree with the Commons in their Amendments Nos. 83 to 88 en bloc.
Moved, That the House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
89 Clause 22, page 28, line 27, leave out subsection (3) and insert—
"(3) Subsection (2) above shall not apply in relation to the allotment of a bonus share in contravention of subsection (1) above unless the allottee knew or ought to have known the share was so allotted."
5 p.m.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 89.
Moved, That this House doth agree with the Commons in the said amendment.—(Lord Lyell.)
On Question, Motion agreed to.
LORDS AMENDMENT CONSEQUENTIAL UPON COMMONS AMENDMENT No. 89
89A Clause 22, Page 28, line 13, leave out ("subsections (3) and ") and insert (" subsection ").
Lord LYELL: My Lords, I beg to move Amendment No. 89A.
On Question, Motion agreed to.

COMMONS AMENDMENTS
90 Clause 22, page 28, line 40, leave out section (5) and insert—
"(5) Subsection (4) of section 20 above shall apply for the purposes of this section as it applies for the purposes of that."
91 Clause 23, page 29, line 7, leave out subsection (1) and insert—
".—(1) A public company shall not allot shares as fully or partly paid up (as to their nominal value or any premium payable on them) otherwise than in cash if the consideration for the allotment is or includes an undertaking which is to be or may be performed more than five years after the date of the allotment."
92 Clause 23, page 29, line 18, leave out "means of"
93 Clause 23, page 29 line 21, leave out complies with "and insert" does not contravene"
94 Clause 23, page 29 line 29, leave out from beginning to fourth "the" in line 31 and insert—
"(5) Where a public company allots shares for a consideration which consists
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of or includes (in accordance with subsection (1) above) an undertaking which is to be performed within five years of the allotment but that undertaking is not performed within the period allowed by the contract for the allotment of the shares "
95 Clause 23, page 29 line 36, leave out "to transfer the asset"
96 Clause 23, page 29 line 39, leave out subsection (6) and insert—
"(6) Subsection (4) of section 20 above shall apply in relation to a contravention of this section and to a failure to carry out a term of a contract as mentioned in subsection (5) above as it applies in relation to a contravention of that section."
97 Clause 23, Page 30, line 11, leave out "the payment for" and insert "payment in respect of"
98 Clause 24, page 30, line 12, leave out from beginning to end of line 23 and insert—
".—(1) Subject to subsection (2) below, a public company shall not allot shares as fully or partly paid up (as to their nominal value or any premium payable on them) otherwise than in cash unless—
(a) the consideration for the allotment has been valued in accordance with the following provisions of this section;"
99 Clause 24, page 30, line 25, after "company" insert "by a person appointed by the company"
100 Clause 24 Page 31, line 10, after "valuation insert" of the consideration, or a valuation of part of the consideration"
101 Clause 24 Page 31, line 10, after "accept" insert "such"
102 Clause 24 Page 31, line l3, after "consideration" insert "or that part of the consideration"
103 Clause 24 Page 31, line 28, after "consideration" insert "and, as respects so much of the consideration as he himself has valued, a description of that part of the consideration,"
104 Clause 24 Page 31, line 31, leave out from "up" to end of line 34 and insert—
"(i) by the consideration;
(ii) in cash."
105 Clause 24 Page 31, line 40, leave out "the consideration" and insert "so much of the consideration as was valued by that other person"
106 Clause 24 Page 32, line 4, leave out "where the valuation was" and insert "in the case of a valuation"
107 Clause 24 Page 32, line 14, leave out from"cash"to end of line 17 and insert"by which the nominal value of the shares or any premium payable on them is to be paid up, is not less than so much of the aggregate of the nominal value and the whole of any such premium as is treated as paid up by the consideration and any such cash."
108 Clause 24 Page 32, line 18, leave out from beginning to "and" in line 20 and insert Subsection (8A) below applies where a public company allots any share in contravention of subsection (1) above"
109 Clause 24 Page 32, line 26, at beginning insert—" (8A) Where this subsection applies"
110 Clause 24 Page 32, line 29, leave out "means of"
111 Clause 24 Page 32, line 32, leave out subsection (9) and insert—
"(9) Subsection (4) of section 20 above shall apply for the purposes of this section as it applies for the purposes of that."
112 Clause 24 Page 32, line 43, leave out from beginning to end of line 8 on page 33 and insert—
"(10) Where the consideration is accepted partly in payment up of the nominal value of the shares and any premium and partly for some other consideration given by the company, the foregoing provisions of this section shall apply as if references to the consideration by the company included references to the proportion of that consideration which is properly attributable to the payment up of that value and any premium; and"
113 Clause 24 Page 33, line 10, leave out from "such" to "as" in line 11 and insert "other valuations"
114 Clause 24 Page 33, line 14, leave out "valuation has" and insert "valuations have"
115 Clause 24 Page 33, line 18, after "section" insert"(a)"
116 Clause 24 Page 33, line 22, at end insert "and
(b) any reference to an officer or servant shall not include a reference to an auditor."
117 Clause 26, page 34, line 33, leave out "at the time" and insert "on the date"
118 Clause 26, page 34, line 35, leave out "time" and insert "date"
119 Clause 26, page 34, line 44, leave out"the company's nominee"and insert"another person "
120 Clause 26, Page 35, line 18, leave out subsection (4) and insert—
"(4) Subsection (1) above shall not apply to the following agreements for the transfer of an asset for a consideration to be given by the company, that is to say—

(a) where it is part of the ordinary business of the company to acquire or arrange for other persons to acquire assets of a particular description, an agreement entered into by the company in the ordinary course of its business for the transfer of an asset of that description to it or such a person, as the case may be; or

(b) an agreement entered into by the company under the supervision of the court, or an officer authorsised by the court for the purpose, for the transfer of an asset to the company or to another."

121 Clause 26, Page 36, line 4, after "contravention" insert" then, subject to subsection (8) below—"
122 Clause 26, Page 36, line 5, leave out "subject to subsection (8) below—"
123 Clause 26, Page 36, line 8, leave out "any" and insert "an"
124 Clause 26, Page 36, line 11, leave out subsection (8) and insert—
" (8) Where a company enters into an agreement in contravention of subsection (1) above and that agreement is or includes an agreement for the allotment of shares in that company, then, whether or not the agreement also contravenes section 24 above—
(a) subsection (7) above shall not apply to the agreement in so far as it is an agreement for the allotment of shares; and,
(b) subsection (4) of section 20 and subsection (8A) of section 24 above shall apply in relation to the shares as if they had been allotted in contravention of section 24."
125 Clause 28, page 37, line 10, leave out "for" and insert"in respect of "
126 Clause 28, page 37, line 17, leave out"for"and insert"in respect of "
127 Clause 28, page 37, leave out line 37, and insert"payment in respect of those shares ".
128 Clause 28, Page 38, line 19, leave out from"the"to"and"in line 20 and insert"whole of any premium or, if the case so requires, so much of that aggregate as is treated as paid up; "
129 Clause 28, Page 39, line 1, leave out "paragraph (b) of "
130 Clause 29, page 39, line 3, leave out "issued by a public company to"and insert"taken by
131 Clause 29, page 39, line 4, leave out"by virtue"and insert"of a public company in pursuance "
132 Clause 29, page 39, line 7, leave out subsection (2).
133 Clause 30, page 39, line 17, leave out subsection (2).
134 Clause 30, page 39, line 26, leave out from second "to" to "shall" in line 28 and insert"do any other thing "
135 Clause 30, page 39, line 30, leave out "24 or 26 above" and insert "or 24 above, and where such an undertaking is given in contravention of section 26 above in respect of the allotment of any shares it shall be so enforceable notwithstanding that contravention."
136 Clause 31, page 40, line 4, leave out "issue" and insert "allotment".
137 Clause 32, page 40, line 22, after "three-quarters" insert "in nominal value"
138 Clause 32, Page 41, line 32, leave out "at least"
139 Clause 32, page 41, line 33, after "proxy" insert "at least"
140 Clause 32, page 41, line 33, after "one-third" insert "in nominal value"
141 Clause 32, page 40, line 36, after "question" insert" or his proxy"
142 Clause 33, page 43, line 5, leave out"issued"and insert"allotted ".
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 90 to 142.
Moved, That this House doth agree with the Commons in the said amendments. —(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
143 Clause 35, page 44, line 1, at beginning insert "Except as provided by subsection (1A) below".
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 143. I wish also to speak to Amendments Nos. 144 to 152, 154, 156, 158 to 167, 322 and 326 to 333. These amendments are concerned with the maintenance of capital provisions. The amendments to Clause 35 reverse the existing law that a company may receive a gift of its own shares but may not hold them directly in its own name. We consider that there is no good reason for maintaining the need for a nominee in such cases so long as the shares are fully paid, and the amendments change this rule. Amendment Nos. 149, 152, 159 and 163 provide that shares given to the company direct are to be treated in the same way as other shares falling under Clause 37, as is required by the second directive.
The amendments to Clause 36 remedy some weaknesses in the clause. For example, Clause 36 deals with shares held by nominees of a company. What this should mean is persons nominated by or with the consent of the company, but the clause as drafted does not in fact achieve this.
Your Lordships will see that there is an amendment on the Order Paper in lieu of Commons Amendment No. 149. The proposed amendment is to the same effect as Amendment 149 with the deletion of the word "otherwise" in line I of paragraph (b). I shall come to the reason for that in a moment. But first I wish briefly to explain the main changes affected by the amendment which alters subsection (1) of the clause. The amendment excludes from the operation of Clause 37 certain cases where a company is a trustee of its own shares and has beneficial interest in the shares only by reason of its right as trustee to recover its expenses or to be remunerated out of the trust property. Such a beneficial interest was not in mind when Clause 37 was drafted,
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and it is proper and desirable to ensure that it does not bring all the apparatus of Clause 37 into play.
The amendment also replaces paragraph (b) with two new paragraphs (c) and (d). This is necessary because in the light of a recent case which was decided by the Court of Appeal called Belmont Finance v. Williams the words in Clause 37 (1) (b) may not be sufficiently extensive to comply with the directive. The amendments remove that problem. The deletion of the word "otherwise" in line I of paragraph (b), to which I referred earlier, is essentially a drafting improvement.
There is also an amendment to Clause 35 which is needed as a result of the new subsection (1)(b). That new provision refers to a company acquiring shares. We need to make clear that this phrase has the same meaning in this context as in Clause 35.
The Commons amendments to Clause 38 are detailed improvements. For example, the scope of the exceptions to the clause is widened to ensure that they cover companies whose ordinary business consists of providing hire purchase finance as is permitted by the directive. The amendments to the schedule bring the relevant provision into line with Clauses 35 to 38.
There are two further small amendments which we now propose and which arise from this main group of amendments. First, there is an addition to the new subsection (1)(a) of Clause 35. That amendment clarifies the position so that a company may acquire its own shares in a reduction of capital. As at present drafted, I am advised that there might be doubt whether reductions in capital were covered by this clause. The reason for this doubt is that there is authority to show that technically a company can acquire its shares in a reduction of capital. Clause 35 (1) prevents such acquisitions, subject to the exceptions in subsection (3). The latter exceptions are not wide enough to encompass all the reductions of capital. The proposed amendment is therefore necessary to ensure that reductions of capital are not affected by the provisions of the clause.
Secondly, we propose a small amendment to Clause 36 which will exclude from the operation of that clause certain

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cases where shares are acquired by a nominee of the company, where the company has no beneficial interest in the shares other than by reason of any right as a trustee to recover its expenses or to be remunerated out of trust property. Let me give a brief example of the kind of case we would consider. Let us imagine that a bank is acting as a trustee company and in the course of that business it uses a nominee. Let us also suppose that there are shares in the company held as part of the trust and that there is a trust issue perhaps on very favourable terms. Should the nominee be allowed to acquire shares for the trust, without coming within the scope of Clause 36? We must remember that a condition in the amendment is that the company has essentially no beneficial interest in the shares. We think that this should be allowed. Such action is possible at present, and we do not consider that Clause 36 should operate to prevent it. I have taken a considerable time in explaining these amendments, but they relate to complicated matters. I hope that your Lordships have been able to bear with me and will support these amendments.
Moved, That this House doth agree with the Commons in the said amendments—(Lord Lyell).
Lord WEDDERBURN of CHARLTON: My Lords, I hesitate to protract the debate, but I believe that these matters go very much further than drafting, as the Minister made clear. I am afraid that I did not understand his reasoning on Amendment No. 147. I do not wish him to repeat his reasoning, if that is his advice; it will appear in Hansard and I shall study it with care. However, I did not find that his argument provided a good reason to take out the word "alone" in Clause 36.
Furthermore, I was not wholly clear as to the wisdom of inserting a major change compared with what we thought we had in the 1978 Bill, and indeed which we thought we had here until this late stage in consideration by another place. I refer to Clause 35 (1)(a). However, when the Minister says that it is in accord with the second directive, I presume that he is referring to articles 18 and 19, and I agree with him there.
Lord LYELL: I thank the noble Lord, Lord Wedderburn, for raising that point. I shall study it carefully.
On Question, Motion agreed to.

COMMONS AMENDMENT
144 Clause 35, page 44, line 3, at end insert—
"(1A) A company limited by shares may acquire any of its own fully paid shares otherwise than for valuable consideration."
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 144.
Moved, That this House doth agree with the Commons in the said amendment.—(Lord Lyell.)
On Question, Motion agreed to.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 144
144A Clause 35, page 44, Line 2, at end insert (" and any company may acquire its own shares in a reduction of capital duly made.")
Lord LYELL: My Lords, I beg to move that this House doth agree with Amendment No. 144A, as an amendment to Commons Amendment No. 144.
Moved, That this House doth agree with the said amendment.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
145 Clause 36, page 44, line 28, at beginning insert—
"Subject to subsections (4) and (5) below, where shares are issued to a nominee of a company mentioned in section 35(1) above or are acquired by a nominee of such a company from a third person as partly paid up, then, for all purposes the shares shall be treated as held by the nominee on his own account and the company shall be regarded as having no beneficial interest in them.
(1A) Subject to subsection (5) below,"
146 Clause 36, page 44, line 30, leave out from beginning to "which" and insert "any such company"
147 Clause 36, page 44, line 31, leave out "nominee for the company alone" and insert "the nominee of the company"
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 145 to 147 en bloc.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
148 Clause 36, page 45, line 12, leave out from beginning to "to" and insert—
"(4) Subsection (1) above shall not apply to shares acquired otherwise than by subscription by a nominee of a public company in a case falling within section 37(1)(d) below.
(5) Subsections (1) and (1A) above shall not apply"

LORDS AMENDMENT TO COMMONS AMENDMENT No. 148
148A Clause 36, page 45, Line 4, at end insert ("—

(a) to shares acquired by a nominee of a company where the company has no beneficial interest in those shares (disregarding any right which the company itself may have as trustee, whether as personal representative or otherwise, to recover its expenses or be remunerated out of the trust property); or

(b) ").

Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments No. 148, and to Amendment No. 148A. I have already spoken to these Amendments. My Lords, I beg to move.
Moved, That this House doth agree with the Commons in the said amendment, and to Lords Amendment No. 148A. — (Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
149 Clause 37, page 45, line 21, leave out from "shares" to end of line 25 and insert—

"(b) where shares in the company are otherwise acquired by the company and the company has a beneficial interest in those shares;

(c) where the nominee of the company acquires shares in the company from a third person without financial assistance being given directly or indirectly by the company and the company has a beneficial interest in those shares; or

(d) where any person acquires shares in the company with financial assistance given to him directly or indirectly by the company for the purpose of or in connection with the acquisition and
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the company has a beneficial interest in those shares.

In determining for the purposes of paragraphs (b) and (c) above whether a company has a beneficial interest in any shares, there shall be disregarded, in any case where the company is a trustee (whether as personal representative or otherwise), any right of the company (as trustee) to recover its expenses or be remunerated out of the trust property."
The Lords do disagree with the Commons in the said Amendment but propose the following amendments in lieu thereof:—
149A Clause 35, page 44, line 18, leave out (" section 36 ") and insert (" section 37(1)(b)").
149B Clause 37, page 45, line 21, leave out from (" shares ") to end of line 25 and insert—

(" (b) where shares in the company are acquired by the company and the company has a beneficial interest in those shares;

(c) where the nominee of the company acquires shares in the company from a third person without financial assistance being given directly or indirectly by the company and the company has a beneficial interest in those shares; or

(d) where any person acquires shares in the company with financial assistance given to him directly or indirectly by the company for the purpose of or in connection with the acquisition and the company has a beneficial interest in those shares.

In determining for the purposes of paragraphs (b) and (c) above whether a company has a beneficial interest in any shares, there shall be disregarded, in any case where the company is a trustee (whether as personal representative or otherwise), any right of the company (as trustee) to recover its expenses or be remunerated out of the trust property.")
Lord LYELL: My Lords, I beg to move that this House do disagree with the Commons in their Amendment No. 149, but propose Amendments Nos. 149A and 149B in lieu thereof. I spoke to these in the course of my fairly long speech. My Lords, I beg to move.
Moved, That this house do disagree with the Commons in their Amendment No. 149, but propose Amendments Nos. 149A and 149B in lieu thereof.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
150 Clause 37, page 45, line 26, after "shares" insert "or any interest of the company in them"
151 Clause 37, page 45, line 27, leave out "three years" and insert "the relevant period"
152 Clause 37, page 45, line 28, leave out from second "or" to end of line 29 and insert"in a case to which subsection (1)(b), (c) or (d) applies, their acquisition,"
153 Clause 37, page 45, line 33, leave out "issued" and insert "allotted"
154 Clause 37, page 45, line 44, leave out"(1)(b) above, the company's nominee"and insert"(1)(c) or (d) above, the company's nominee or, as the case may he, the other shareholder "
155 Clause 37, page 46, line 4, leave out "and such additions to"
156 Clause 37, page 46, line 7, leave out "framed"
157 Clause 37, page 46, line 10, leave out "and added to"
158 Clause 37, page 46, line 14, leave out from "the" to "section" in line 15 and insert "relevant period,"
159 Clause 37, page 46, line 38, after "forfeiture" insert "or are otherwise acquired by the company"
160 Clause 37, page 46, leave out lines 39 to 43 and insert—
"

(b) are acquired by the nominee of a company in the circumstances mentioned in subsection (1)(c) above; or

(c) are acquired by any person in the circumstances mentioned in subsection (1)(d) above; "

161 Clause 37, page 47, line 1, leave out "period of three years" and insert "relevant period"
162 Clause 37, page 47, line 3, leave out "period of three years" and insert "relevant period"
163 Clause 37, page 47, line 4, at end insert—
"(9A) Where a public company or a nominee of a public company acquires shares in the company or an interest in such shares and those shares are or that interest is shown in a balance sheet of the company as an asset, an amount equal to the value of the shares or, as the case may be, the value to the company of its interest in the shares shall be transferred out of profits available for dividend to a reserve fund and shall not be available for distribution.
(9B) In this section relevant period ', in relation to any shares, means—

(a) in the case of shares forfeited or surrendered to the company in lieu of forfeiture or acquired as mentioned in subsection (1)(b) or (c) above, three years;

(b) in the case of shares acquired as mentioned in subsection (1)(d) above, one year."

164 Clause 38, page 47, line 18, after "credit" insert "or the bailment or (in Scotland) hiring of goods under a hire purchase agreement, or both,"
165 Clause 38, page 47, line 18, leave out "taken by" and insert "of"
166, Clause 38, page 47, line 19, leave out"as security for the purposes of"and insert"which arises in connection with "
167 Clause 38, page 47, line 24, after "or" insert "is"
5.15.p.m.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 150 to 167 en bloc.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
168 Clause 39, page 47, line 41, leave out "41(3)" and insert "41(1)"
169 Clause 39, page 47, line 43, leave out"(whether by distribution, capitalisation or otherwise)"and insert "by distribution or capitalisation"
170 Clause 39, page 47, line 45, at end insert "in a reduction or reorganisation of capital duly made"
171 Clause 39, page 47, page 48, line I, leave out"in writing off realised losses or"
172 Clause 39, page 47, line 7, after first "of" insert "all"
173 Clause 40, page 48, line 35, at beginning insert "Subject to section 41 below,"
174 Clause 40, page 49, line 6, leave out from "utilised" to"and"in line 8 and insert"by any capitalisation of a description to which this paragraph applies exceeded its accumulated, unrealised losses, so far as not previously written off in a reduction or reorganisation of capital duly made; "
175 Clause 40, page 49, line 12, at end insert—
"(2A) Subsection 2(c) above applies to every description of capitalisation except a transfer of any profit of the company to its capital redemption reserve fund on or after the appointed day."
176 Clause 41, page 49, leave out lines 19 to 35 and insert—
"(1) Subject to the following provisions of this section, an investment company may also make a distribution at any time out of its accumulated, realised revenue profits, so far as not previously utilised by distribution or capitalisation, less its accumulated revenue losses (whether realised or unrealised), so far as not previously written off in a reduction or reorganisation of capital duly made—"
177 Clause 41, page 50, line 4, leave out"(5)"and insert"(1) "
178 Clause 41, page 50, line 12, leave out from "company" to "consists" in line 15 and insert"which has given notice in the

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prescribed form (which has not been revoked) to the registrar of its intention to carry on business as an investment company (the"requisite notice ") and has since the date of that notice complied with the requirements set out in subsection (7A) below.
(7A) The requirements referred to in subsection (7) above are—
(a) that the business of the company"
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 168 to 178 en bloc. I also wish to speak to Amendments Nos. 179 to 192 en bloc, as well as to Nos. 325 and 336. All of these amendments to Part III of the Bill are mainly drafting and clarifying technical amendments only. They meet various minor points which were raised by representative bodies. But the amendments to Clause 41 provide a new and simpler administrative scheme for regulating the distributions of investment companies, as allowed for by Article 15 of the Second Directive. In particular, the amendments to Clause 41 provide for a greater flexibility of distribution by investment companies; secure the Second Directive exemption for, and express a clear and comprehensive definition of, investment trust companies for whom the exemption in the Directive was sought and obtained by the United Kingdom Government; provide a means whereby other companies within the scope of the Directive's exemption may obtain investment company status if there are sound reasons for their doing so; and, finally, do away with the certification scheme envisaged in the clause.
These new proposals have been circulated to the Association of Investment Trust Companies who, apart from one technical point which is the subject of a Government amendment, agree that they are an improvement to the clause. We believe that the amendments provide for a practical scheme which complies with the Second Directive and contains appropriate safeguards. My Lords, I beg to move.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
Lord LLOYD of KILGERRAN: My Lords, may I raise a point in regard to Amendment No. 169? This amendment is intended to clarify the position relating
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to accounting write-offs, which were discussed during the passage of the 1978 Companies Bill. It is a complicated accounting matter, but the Minister in the other place agreed during the Committee stage on 20th November 1979, at col. 263 of the Official Report, that one of the effects of this amendment was that it would be retrospective as required by Article 33 of some EEC Fourth Directive, whose further identification I have mislaid. It may be that, in the course of the passage of the Bill through the other place, this aspect of being retrospective in its effect has been qualified in some way, but in my researches I have failed to find whether, and where, this qualification as to retrospectivity arose.
In the other place, the Minister offered to talk further with other companies which will suffer by the retrospective effect of the clause, as it was then amended. I understand that this aspect of the matter probably affects companies holding property more than any others. But it is a matter which we on these Benches consider important, when there is a suggestion of the amendment being retrospective in its action.
While researches are being made, may I make some observations in regard to Amendments Nos. 173 to 175, which are again dealing with Clause 40 on restriction of distribution of assets. I think it is appropriate at this stage that I should ask why the Government do not wish to defend in any way the liberties of shareholders as to their rights to decide themselves whether any assets of the company should be distributed to political parties. The Government have quite rightly, in my view, emphasised free enterprise, free competition and less bureaucracy, but seem to have failed in this Bill to deal with the rights of shareholders to contract out of spending the company's assets to finance a particular political party.
The answer has always been that the shareholders can always sell their shares and get out of the company. In my view, that answer is a most undemocratic one. Why should he or she as a shareholder sell, if he or she does not want to, when shares may be at a market low? In my submission, companies should be compelled to give shareholders a democratic right to decide whether money should be used for any political purpose. There

1011
should be, at least, an element of shareholder accountability.
May I declare an interest, because I am still the co-treasurer of the Liberal Party? Would it not be a good idea to introduce into the Bill permission for companies to make political contributions to all of the three major parties? If a major party received more than 8 or 10 per cent. of the votes at an election, then it might be in order for the political gifts to be appropriated in the order of their accountability, as it were, to the people in the proportion of votes that they received. I therefore thought it appropriate to raise this at this stage. May I ask again why the Government have refused to grant to shareholders some form of freedom of choice and, indeed, to include in the Bill a clause to establish political funds for companies, out of which shareholders could opt, if they so wished?
Lord ELWYN-JONES: My Lords, may I say how much I admire the ingenuity of the noble Lord, Lord Lloyd of Kilgerran, in introducing this fascinating possibility of a debate for the next two hours on the interesting question of company contributions to political funds. It may be that the Minister agrees that the matter which has been raised is wholly in order, and I shall wait with interest to hear what he has to say.
Viscount TRENCHARD: My Lords, we aired very fully the subject of political contributions when the Bill was with us before. I do not think we should add in any way to what we said, except that political contributions do have to be published. That point needs to be made clear.
Lord WEDDERBURN of CHARLTON: My Lords, could the Minister answer Lord Lloyd's point regarding retrospection?
Lord LYELL: My Lords, I must apologise if I was not swiftly on my feet at the appropriate time. I hope that there is no element of retrospection, particularly in Clause 40. I, too, share the reluctance of the noble Lord, Lord Lloyd of Kilgerran, that this House should enact any retrospective legislation. To
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deem the effect of Clause 40 to be retrospective so far as it requires the past distribution of unrealised profits to be made good before a further distribution may be made is, we believe, to look at only one aspect of this clause in isolation. Clause 40 does not invalidate any such past distribution or require any alteration in the position of individual shareholders in relation to past dividends.
The purposes of Clauses 39 and 40 together are essentially future safeguards and will impose upon the relevant companies new tests before they may pay a dividend. These tests are of a prudent nature and are intended to improve the protection of creditors and other interested parties. Any company which is unable to meet these tests will be unable to pay a dividend, whether the inability is due to past trading losses or to some other cause.
Whenever the law is changed there will always be cases in which a company, which may have been permitted to do something in the past, will be prevented from so doing in the future. A particular feature of the present Bill is that the tests to be applied before any kind of distribution may be made go further than merely requiring a company to preserve its position as it happens to be at the time of enactment. However, this seems entirely appropriate to ensure the proper protection of those who are dealing with public companies.
I hope that goes some way towards assisting the noble Lord, Lord Lloyd of Kilgerran, with his query about retrospective action in Clause 40.
Lord LLOYD of KILGERRAN: My Lords, may I thank the noble Lord for his careful answer, which I shall study with care.
On Question, Motion agreed to.

COMMONS AMENDMENT
179 Clause 41. page 50, line 16, leave out land or other assets "

COMMONS AMENDMENT
179A Clause 41 Page 50, line 15, leave out (" in securities, land or other assets ") and insert (" mainly in securities ")
5.24 p.m.
Lord LYELL: My Lords, I beg to move that this House doth disagree with the Commons in their Amendment No. 179 but propose Amendment No. 179A in lieu thereof. The Association of Investment Trust Companies has expressed the view that the new and simplified administrative scheme introduced by the amendments to Clause 41 in another place is an improvement to the existing provisions of the clause, but very recently these companies have expressed concern that by deletion of the reference to"land or other assets"in Clause 41(7) the restriction of an investment company's investments to securities only could prove to be unduly onerous to that company.
Investment trust companies can have a small proportion of direct investments in assets other than securities and, far more important, at the time of a falling stock market an investment trust company may quite reasonably decide to keep a fair proportion of its investments in liquid form. By the introduction of the word "mainly", this amendment will give investment companies additional and necessary flexibility in the investments which they may wish to hold. We believe that this is consistent with the provisions of the Second Directive, and the Association of Investment Trust Companies has stated that it meets their concern. My Lords, I beg to move Amendment No. 179A.
Moved, That this House doth disagree with the Commons in their Amendment No. 179 but propose Amendment No. 179A in lieu thereof.—(Lord Lyell.)
Lord WEDDERBURN of CHARLTON: My Lords, I listened attentively to the Minister and tried to follow the course of his discussion on this matter, which is perhaps the most important point which has been put before your Lordships' House so far in respect of the amendments from another place. The 1978 Bill included in the definition companies in respect of which the assets were in securities, land or other property. However, this was changed in Amendment No. 179, as the noble Lord the Minister has suggested, and now it is to be changed again. The new definition is to be "companies whose assets are mainly in securities." That definition may well suit the Association of Investment Trust Companies,
1014
as the noble Lord has said; but surely it behoves someone to point out that it is one of those phrases in respect of which barristers' antennae will quiver in the expectation of large fees.
The Government have introduced at this very late stage a very important redefinition of "investment companies". It is going to matter a very great deal, in respect of distributions, which is an investment company and which is not. Therefore, I am wondering what thought the Government have given to the question of certainty. It seems to me—I shall make this point on later amendments that I and my noble friends wish to advance—that one of the functions of the legislature and, one would suppose, especially of a revising Chamber (and we have shown how good we are at revising by the speed at which we have advanced through the amendments this afternoon) is to try, so far as possible, to avoid litigation by going for certainty, where that is possible.
Without myself trying to redraft, because I do not have access to the admirable advisers of the noble Viscount, I should have thought that one could have landed upon a phrase better than the phrase "mainly in securities". That seems to me to be something which is bound to end up in the courts. I cannot think that a better phrase could not have been found. I wonder whether the Minister could take us, if his advice so tends, a little further into the Government's thinking on the effect of this phrase.
Viscount TRENCHARD: My Lords, I do not think we can take the House very much further. We did consider other phrases. The point is that the usual investment in this area is in securities. However, we did not want it to be exclusive to them. Therefore, we used the term "mainly" which, though short, is fairly clear. I believe that "mainly" means over 50 per cent. in securities, for sure. It is necessary to give to investment companies a good deal of flexibility.
Lord JACQUES: My Lords, if it means 50 per cent., why not say so?
Lord LYELL: My Lords, may I, by leave, try to reply to the noble Lord, Lord Jacques? I hope we have allowed

1015
for some flexibility, but it would be foolish just to nominate one particular figure. I think flexibility is better.
On Question, Motion agreed to.

COMMONS AMENDMENTS
180 Clause 41, page 50, leave out lines 19 to 23 and insert—

"(b) that none of the company's holdings in companies other than companies which are for the time being investment companies represents more than 15 per cent. by value of the investing company's investment;

(c) that distribution of the company's capital profits is prohibited by its memorandum or articles of association;

(d) that the company has not retained, otherwise than in compliance with this Part of this Act, in respect of any accounting reference period more than 15 per cent. of the income it derives from securities.

(7B) An investment company may not make a distribution by virtue of subsection (1) above unless its shares are listed on a recognised stock exchange and, during the period beginning with the first day of the accounting reference period immediately preceding the accounting reference period in which the proposed distribution is to be made or, where the distribution is proposed to be made during the company's first accounting reference period, the first day of that period and ending with the date of the distribution (whether or not any part of those periods falls before the appointed day), is has not—

(a) distributed any of its capital profits; or

(b) applied any unrealised profits or any capital profits (realised or unrealised) in paying up debentures or any amounts unpaid on any of its issued shares.

(7C) An investment company may not make a distribution by virtue of subsection (1) above unless the company gave the requisite notice—

(a) before the beginning of the period referred to in subsection (7B) above; or

(b) where that period began before the appointed day, as soon as may be reasonably practicable after the appointed day; or

(c) where the company was incorporated on or after the appointed day, as soon as may be reasonably practicable after the date of its incorporation.

(7D) A notice by a company to the registrar under subsection (7) above may be revoked at any time by the company on giving notice in the prescribed form to the registrar that it no longer wishes to be an investment company within the meaning of this section, and, on giving
1016
such notice, the company shall cease to be such an investment company.
(7E) Section 359(2) and (3) of the Income and Corporation Taxes Act 1970 and section 93(6)(6) of the Finance Act 1972 shall have effect for the purposes of subsection (7A)(b) above as those provisions have effect for the purposes of subsection (1)(b) of the said section 359.
(7F) The Secretary of State may by regulations made by statutory instrument extend the provisions of this section, with or without modifications, to companies whose principal business consists of investing their funds in securities, land or other assets with the aim of spreading investment risk and giving their members the benefit of the results of the management of the assets.
(7G) Regulations made under subsection (7F) above—

(a) may make different provision for different classes of companies and may contain such transitional and supplemental provisions as the Secretary of State considers necessary; and

(b) shall not be made unless a draft of the regulations has been laid before Parliament and approved by a resolution of each House of Parliament."

181 Clause 41, line 24, leave out subsections (8) to (12).
182 Clause 42, page 51, line 30, leave out subsection (1) and insert—
" (1) Where an insurance company carries on long term business, any amount properly transferred to the profit and loss account of the company from a surplus in the fund or funds maintained by it in respect of that business and any deficit in that fund or those funds shall be respectively treated for the purposes of this Part of this Act as a realised profit and a realised loss, and, subject to the foregoing, any profit or loss arising in that business shall be left out of account for those purposes.
(1A) In subsection (1) above—

(a) the reference to a surplus in any fund or funds of an insurance company is a reference to an excess of the assets representing that fund or those funds over the liabilities of the company attributable to its long term business, as shown by an actuarial investigation; and

(b) the reference to a deficit in any such fund or funds is a reference to the excess of those liabilities over those assets, as so shown."

183 Clause 42, line 34, at end insert—
" actuarial investigation"means an investigation to which section 14 of the Insurance Companies Act 1974 (periodic acturial investigation of company with long term business) applies or which is made in pursuance of a requirement imposed by section 34 of that Act (actuarial investigation required by the Secretary of State);"
184 Clause 42, line 36, leave out "the Insurance Companies Act 1974" and insert "that Act"
185 Clause 42, line 39, leave out from "Act" to the end of line 9 on page 52.
186 Clause 43, page 55, line 5, after "of" insert "the state of"
187 Clause 43, page 55, line 16, at end insert—
""reserves" includes undistributable reserves within the meaning of section 40 above; "
188 Clause 45, page 56, line 1, leave out subsection (1) and insert—
"(1) Where immediately before the appointed day a company is authorised by any provision of its articles to apply its unrealised profits in paying up in full or in part unissued shares to be allotted to members of the company as fully or partly paid bonus shares, that provision shall, subject to any subsequent alteration of the articles, continue to be construed as authorising those profits to be so applied after the appointed day."
189 Clause 45, page 56, line 15, after "fully" insert "or partly"
190 Clause 45, page 56, line 16, leave out from"shares"to end of line 17 and insert"out of the proceeds of a fresh issue of shares made for the purposes of the redemption and the payment of any premium on their redemption out of the company's share premium account; "
191 Clause 45, page 56, line 23, at end insert—
" (2A) In this Part of this Act"capitalisation ", in relation to any profits of a company, means any of the following operations, whether carried out before, on or after the appointed day, that is to say, applying the profits in wholly or partly paying up unissued shares in the company to be allotted to members of the company as fully or partly paid bonus shares or transferring the profits to the capital redemption reserve fund."
191 Clause 45, page 56, line 24, at end insert"of any description are references respectively to profits and losses of that description made at any time, whether before, on or after the appointed day and ".
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 180 to 192 en bloc.
Moved, That this House doth agree with the Commons in the said amendments.— —Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
193 After Clause 45, insert the following new clause—
"Directors to have regard to interests of employees
1018
".—(1) The matters to which the directors of a company are to have regard in the performance of their functions shall include the interests of the company's employees in general as well as the interests of its members.
(2) Accordingly, the duty imposed by subsection (1) above on the directors of a company is owed by them to the company (and the company alone) and is enforceable in the same way as any other fiduciary duty owed to a company by its directors."
LORDS AMENDMENT TO THE
AMENDMENT
193A Leave out subsection (2).
5.30 p.m.
Lord MACKAY of CLASHFERN: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 193. Since 1973 Governments of both parties have attempted to introduce such a provision as this one, but I believe that the formula we have now adopted achieves the right balance between the need to recognise in company law the contribution that employees make and the necessity to avoid saddling directors with confusing or conflicting duties as regards the interests of employees and shareholders.
The need for this provision or some such provision has been apparent for some time, not least because the law as it stands is unclear as to the extent to which directors are required to take account of the interests of the company's employees, and that has been the situation since the decision in the case of Parke v. Daily News in 1962. Although, therefore, there is wide acceptance that there should be some statutory expression on the consideration of employees' interests, there is some controversy about how it should be expressed —and no doubt we shall hear something about that—and I should like to explain briefly why we chose to formulate the clause in the way it now stands.
First, we wanted to make sure that the clause stated quite unambiguously that directors have a duty—that is, a mandatory and not a permissive requirement—to consider the interests of employees. Secondly, we consider that this new duty on directors should be seen as part of, not in conflict with, the directors' general fiduciary duties to the company; the new duty is therefore expressed along with the general duty that the directors have to

1019
regard the interests of the members. The new duty is provided to be enforceable in the same way as any other fiduciary duty owed to a company by its directors.
The clause therefore serves to emphasise that a company's best interest can properly be served if the directors, in addition to the other factors they consider, do take into account the interests of the company's employees. Although such considerations will not imply any uncritical acceptance by directors of employees' demands, it will mean that the contribution that both employees and members make to the success of each enterprise will now be recognised in company law. It will therefore remove any legal impediment that directors might have felt themselves to be facing in taking employee involvement seriously and, as such, will provide a general encouragement to companies to devise, in ways appropriate to their own circumstances, means of ensuring that the interests of the employees are adequately considered.
I have been pleased to note that the Law Society—whose point of view the noble Lord, Lord Mishcon, has advanced in this House from time to time—concluded in a memorandum they produced on the Bill that this clause should raise the standard of care of directors in the regard which they have to the interests of employees. This conclusion by an independent body such as the Law Society is very much in line with the intentions we had in drafting the clause.
I hope noble Lords will allow me briefly to look at another amendment which would be viewed in conjunction with this one—namely Amendment No. 221, which enables a company on ceasing or transferring all or part of its business to provide for its employees or ex-employees. Both amendments have a common link in that they relate to the subject matter of the case of Parke v. Daily News to which I have already referred. Amendment No. 221, however, expressly reverses the decision in that case, in which it was found that the company was acting ultra vires in seeking to make ex gratia payments to its employees on the cessation of the major part of its business.
Amendment No. 221 therefore enables a company to make provision for its employ-
1020
ees in any circumstances, including liquidation. The power so to act, will, however, be subject to the mechanism of approval provided for in the company's articles, or if not so provided for, subject to an ordinary resolution of the company. This is a long overdue measure which, but for the loss on Dissolution of previous Bills, would have been in force some time ago. Perhaps I should add that the position of creditors is not prejudiced in any way by this provision as any payments made under the provision may only be made out of sums which would otherwise be available for distribution.
Moved, That this House doth agree with the Commons in the said amendment —(Lord Mackay of Clashfern.)
Lord MISHCON: My Lords, those who do not have an esoteric interest in the Companies Bill now before this House in regard to the amendments of the Commons may have wondered at the calm which has fallen upon the House so far, interrupted by a few ripples from the noble Lord, Lord Lloyd of Kilgerran, and my noble friend Lord Wedderburn of Charlton. May I immediately say that some of the calm is now going to cease to exist because we are coming to clauses in this Bill which have nothing to do with the EEC Directive requirements as such and which relate to matters which were debated in this House at the Committee stage, when the Opposition had some very definite views which it ventured to place before this House.
It is a matter of gratification that the duties to employees—and there were several speeches made in this House when this matter was being dealt with—now feature in this Bill, and indeed, if my recollection is correct, in the Committee stage in this House an undertaking was wrested from the Government that this matter would be dealt with by an amendment in this Bill, and now it appears before us.
It might be a matter of convenience to the House if, with your Lordships' permission, I were to deal with Amendment No. 193A which stands in my name. I have nothing to say about subsection (1) except praise that this matter is now being incorporated into the Bill and that there will be a clear statement of law that part of the duties of directors is to their em-

1021
ployees—that they shall take those duties into account. I could, but I do not intend to, deal with various alternative ways of seeing that directors keep in mind that duty and indeed that they carry it out. I observed that certain amendments were moved in another place which gave rights to associations representing employees to enforce the duties in subsection (1). That in another place was not agreed to, and I do not think that from my point of view any useful purpose would be served by my endeavouring to go over ground already covered elsewhere, whether or not—if I may dare to say this—I personally agreed with some of the stands that were taken in another place.
What I want to do is to clarify the law we are now legislating regarding these duties to employees, and to make sure that when the Bill leaves this House the amendment we are now considering is one which in its wording makes the legal situation positively clear. I am in doubt in regard to subsection (2). The reason for my amendment calling for the deletion of subsection (2) is to seek some clarification, at all events, from the Government in regard to the way in which the Government see the enforceability of subsection (1).
In the 1978 Bill, the Bill of the previous Administration, the matter was, in my submission, made very clear, because in Clause 46(2) of that Bill, having set out the duty to take into account the interests of employees, the Bill said:
"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 function 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".
I think it was put rather picturesquely by a then member of the Government, I think a Minister then, Mr. Meacher. He said that this was, if I may paraphrase, deemed to be a shield for the directors and not a spear. In other words, what he was saying was that if a director is criticised, indeed is attacked in the courts, for not having fulfilled duties to the members of the company solely in their interests because he has taken into account the interests of employees, which may slightly or substantially derogate in a certain case from the interests of the
1022
members, it shall be taken into account that the director had this statutory duty. I repeat that it was a shield, in the language of Mr. Meacher, and was not meant to be a spear.
What creates doubt in my mind is what this subsection (2) of this clause is supposed to do. It says that it is a duty to the company. The precise wording of the subsection is that it shall be a duty owed by the directors
"to the company (and the company alone) and is enforceable in the same way as any other fiduciary duty owed to a company by its directors ".
Does this mean that a member of the company who also, it may be, is an employee is able, as a result of this subsection to petition the court and to bring some sort of derivative action? We all of us who are lawyers are acquainted with the famous case of Foss v. Harbottle and its exceptions. Is the meaning of subsection (2) that it is enforceable in the same way as any other duty of a director? If directors fail to observe, in the opinion of an employee-shareholder, what ought to be the duty of the directors to the company's employees, is it the idea that this can be brought before the court?
In the Committee stage in another place the Minister, if I may be allowed to say so, when trying to deal with this point, which was raised in rather a different way, used the somewhat pedantic phrase of saying that this was a subsumed duty. So far as I know, "subsumed" means that it is put in a particular category, and that phrase, too, led me into confusion. Is this is a particular category of duty which can be enforced? There are many of us who believe—and this is the importance, I believe, of the point I am trying to raise—that industrial relations are best dealt with and industrial disputes best handled in the normal way which has traditionally grown up in this country. Many of us hope they will in the future be rather sweeter than they are at the moment; they are not being helped at the present moment, and possibly will not be in the near future, by Her Majesty's Government. But whatever our views about industrial relations in this country, there are many of us who feel very deeply that the field for argumentation in regard to them is certainly not in our courts. Does this subsection (2) bring it within our courts?

1023
The reason for my amendment calling for the deletion of subsection (2) is not that I want to take any rights away from employees or to derogate from the duty in subsection (1). What I want to do is to see that the law is clear, so that one knows that this is a duty imposed upon directors which directors can partially use as a reason why, for example, they did not recommend a takeover bid—it was because they knew that it would lead to many employees losing their employment if that particular takeover bid succeeded, however attractive in price it might be. There are other ways in which one can see this clause being of use, and there I am referring to subsection (1). In seeking clarification I would hope that we do not leave this Commons amendment in a way which, instead of clarifying the law, clouds it in a most undesirable fashion.
Lord LLOYD of KILGERRAN: My Lords, may I support the noble Lord, Lord Mischon, in his amendment. I am also seeking clarification, but for a totally different reason. I am certainly not going to enter into exemptions to that celebrated case of Foss v.Harbottle, because I have always felt that the exemptions to that case have taken the matter into the realms of near incomprehensibility. The point I have in mind is a specific case of great importance to industry in this technological age, if I may make use of a phrase so often used these days. There may be a conflict between the interests of an employee and the interests of the company. In my view, subsection (1) will, as the noble and learned Lord said, no doubt raise the standard of care with which directors must deal with their employees.
However, I hope that the House will have patience with me as regards one specific matter. These days the Minister of State for Industry is doing a great deal to encourage innovation and the exploitation of inventions by employees. There are sections of the Patents Act which now give rights to employees in relation to inventions. In my view there may arise a case of an employee with a splendid invention which the company does not feel it ought to exploit, but which, if the employee could exploit it or if the company exploited it for him, would bring great
1024
advantage to the employee and to the company. Therefore, it is difficult in my view to substantiate the terms of subsection (2). It says:
"Accordingly, the duty imposed by subsection (1) above on the directors of a company is owed by them to the company"—
then come, in parenthesis, the important words—
"(and the company alone)".
That differs entirely from the general principle, as it seems to me, laid down in subsection (1), where the directors have to have regard to:
"the interests of the company's employees in general".
Therefore, as regards the present terms of subsection (2), I can see a conflict arising between the interests of the employees and the interests of the company. Moreover, in those circumstances, what is the duty of the directors both to the company and to the employee who has invented something of consequence to industry, in general, in this country?
Lord MACKAY of CLASHFERN: My Lords, the intention of this amendment has been clearly explained by the noble Lord, Lord Mishcon. I must confess that I doubt whether leaving out subsection (2) would, of itself, produce clarification. I rather suspect that it would go in the opposite direction. Indeed, the amendment which is in the name of the noble and learned Lord, Lord Elwyn-Jones, and others, seems to go in the opposite direction from that presently proposed by the noble Lord, Lord Mishcon.
It is clear that the method by which the duty of directors to have regard to the interests of the members of the company, is the root which has been dealt with in the case of Foss v. Harbottle and the considerable number of cases which have followed it. Perhaps the exceptions to the rule in Foss v. Harbottle are best summed up in the reference to the Master of the Rolls in Foss v. Harbottle which was made by Mr. Justice Vinelott in, I think, the most recent case of the Prudential Assurance Company Limited, in February this year. He said:
"The words of Sir George Jessel in Foss v. Harbottle indicated that the exception might apply not only where the wrongdoers were a majority, but where it could be shown that, unless the minority were allowed to sue on the company's

1025
behalf, the interests of justice would be defeated in that an action which ought to be pursued on behalf of the company could not be pursued".
That, in my view, is a very clear and easily understood principle, although it may not always be easy to apply.
The intention in this particular formulation is that the interests of the members are laid alongside the interests of the employees in subsection (1). As the noble Lord, Lord Lloyd of Kilgerran, has pointed out, there is a possibility that these two interests might not always point in the same direction. But we believe that it is the responsibility of the directors of the company to try to resolve any differences that there may be between these and to do their best to ensure that these interests are pursued both in the interests of the members and of the employees. That is really the idea which lies behind the formulation in subsection (1).
Something was said about the present state of industrial relations, although I do not know that it was compared with the situation, say, a year ago. It was said that it might not be wise to bring them into the courts and so on. I do not think that the particular formulation in subsection (2) is meant to bear very directly on that particular problem, but what we have said is that the duty in regard to the company's employees should be regarded in much the same way as the duty in regard to the members, and that accordingly, like the duty to the members, it should be regarded as owed to the company, and to the company alone. That being the basic principle, the method of enforcement will be the same method as is available when a duty is owed to the company, and the company alone, in the general situation with which subsection (1) deals. Accordingly, the intention is that normally it should be only the company, and only in the special circumstances such as illustrated in the exceptions from Foss v. Harbottle, might there be an action by the members or a member of the company.
It seems to us that that is the correct way in which to approach the matter. The result is not very different from that set out in the language of Mr. Meacher, to which the noble Lord referred. The result will be that the interests of the employees will fall to be considered, and
1026
the regard which the directors have had to them will fall to be considered, in the context of an action to enforce a duty due to the company, and enforceable in the way in which such a duty is normally enforced, taking account of the special circumstances which may give rise to particular methods of enforcement in particular cases. I hope that, with that explanation, the noble Lord will be able to withdraw this amendment.
Lord MISHCON: My Lords, with the leave of the House, I am not quite sure that I am clearer about the situation. I know that the noble and learned Lord has done his best to help me and for that I am grateful. However, this is so important that I would beg him, unless he thinks that I am merely repeating myself and requiring him to repeat himself, to deal with the specific question that I raised because I thought that it would interest the House. Could he please envisage the situation under subsection (2), of an employee who was also a shareholder in the company? Could he envisage circumstances in which, within the rules or exceptions of Foss v.Harbottle, a derivative action could be brought in the courts on subsection (1)? What arc the circumstances in which he envisages that it might be brought? The House will then be able to consider—if I may say so with humility—as I shall also, what the House is agreeing to in the enforceability—and that is the word that is used in subsection (2) of subsection (1).
Lord MACKAY of CLASHFERN: My Lords, with leave, I would seek to answer that question, by saying that the duty in subsection (1) is placed into the general functions of the directors. Therefore, if the noble Lord can envisage any case in which it will be necessary or desirable to enforce these duties owed by the directors, that is the sort of case to which subsection (2) will apply. In some cases and some circumstances it is possible for that to be done, not by the company itself, but byperhaps a minorityof members of it on the principles that I have sought to explain. As I have said, it is not always easy to apply these principles to particular cases and I do not think that it would be very wise for me to try to do that. However, I think the principles are reasonably plain and I do not believe that to leave out subsection (2) would make the task

1027
of the courts, in deciding this matter if it came before them, any easier.
Lord MISHCON: My Lords, again, with the leave of the House, it will be a very short intervention. I must confess still to be in grave doubt, but having regard to what the Minister has said—and I am sure that he and his advisers have given this matter the greatest of consideration—I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 193
193B Leave out subsection (2) and insert—
("(2) Accordingly, the duty imposed by subsection (1) above on the directors of a company is owed by them to the company (and the company alone) and is enforceable as a fiduciary duty owed by its directors to a company by way of either an action brought by the company itself or a derivative action brought by a member of the company.").
6.1 p.m.
Lord WEDDERBURN of CHARLTON: My Lords, I beg to move as an amendment to Commons Amendment No. 193, Amendment No. 193B. It falls to me to move this amendment in the name of myself and my noble and learned friend Lord Elwyn-Jones. This is one of a series of amendments which I hope noble Lords will accept as being an attempt, even at this eleventh hour, to improve the Bill in the sense—which I mentioned to your Lordships earlier this afternoon—of removing the type of ambiguities which would make the Bill pregnant with litigation when it need not be so. In saying that, I would say at once the I shall not be swayed by an argument that merely says that the Bill is roughly the same as the 1978 Bill, because it may be possible to improve upon that as well.
At last the noble and learned Lord the Lord Advocate's advisers and the advisers to the noble Viscount have the prosect of a Companies Bill actually going on to the statute book, having seen two founder in the last decade through the misfortunes of various parties at elections. Now that we are to have a Companies Act, it will be my submission to your Lordships' House that this House must do every
1028
thing it can to clarify, and not leave it to the litigant, whoever he may be—be it shareholder or company—to sort it out.
May I preface my substantive remarks on this amendment by saying that, in my own opinion at least, subsection (2) has nothing to do with industrial democracy or employee participation? The noble Viscount will have noticed that already this afternoon I and my noble friends have exercised great restraint in regard to the matter of political contributions, although the noble Lord, Lord Lloyd of Kilgerran, dangled the bait before our eyes. We are also being very restrained, compared with our honourable and right honourable friends in another place, in not entering into the field of worker participation through this clause. Indeed, much more importantly, were I moving amendments to deal with worker participation, they would take up a much greater space on the Marshalled List than this very brief amendment.
Of course, technically at least, this clause does nothing to alter the status of the employee as a litigant on the company law stage. I accept what the noble and learned Lord the Lord Advocate has said, that to allow, and indeed require, directors to take into account employees' interests in discharging their basic duties, leaves them with the problem of balancing those duties against the interests of the shareholders in rather the same way as today, when, as it were, the hard core of their duty is to consider the best interests of the company, meaning thereby the best interests of shareholders, in their direct considerations, and to balance the interests of, say, the ordinary shareholders against those of preference shareholders or any other group.
The employee does not enter the company stage as a litigant unless he becomes something else. If he buys a share, then he may bring a shareholder's action where that is permitted, just as if a hank buys a share it comes in as a shareholder and not a bank. Therefore, if I may, I shall approach this amendment with that initial consideration.
The noble and learned Lord the Lord Advocate has allowed me to abbreviate one part of my argument, in which I am glad to concur with him. It is that this

1029
clause in the Bill deals with what I have called the "hard core" of the directors' duty, just as did the same clause, although in slightly different terms, in the 1978 Bill. There is nothing more fundamental—and the case law bears this out—than the overall duty of directors of the company to act in what they consider—not what the court considers, to use the phrase in the leading case—to be the best interests of the company. That is fundamental to all the aspects of directors' duties.
The right honourable friend of the noble Lord, Mr. Parkinson, made it quite clear in Committee on 27th November, at columns 362 to 363,—just as the noble Lord, the Lord Advocate has made it plain today—that the Government's view is that this clause in its entirety goes to reshape the fundamental duty of directors, a duty which they owe to the company. On that, I believe that we are on common ground. The trouble with the clause as it stands concerns the very words which the noble and learned Lord the Lord Advocate read out:
"…is enforceable in the same way as any other fiduciary duty owed to a company by its directors".
Those words assume that there is only one way in which fiduciary duties are enforceable; or, in another respect, that there is only one type of fiduciary duty It is my submission that that is not a correct view of the law; that there are two distinct areas of fiduciary duty, although the commentators argue as to where exactly the boundary should be drawn.
Perhaps I may speak of them in this way. The first area is the lower duty or the normal duty—the duty of the fiduciary to act in the best interests of the recipient of his duty, and take the correct interests into account and other aspects; not to make a secret profit out of his office and not to allow a conflict of duty and interest. Those points are fundamental and they then lead us to the rule in Foss v. Harbottle in 1843 in the first volume of Hare's Reports, with which I have had the pleasure of living in company law for some 20 or 30 years. The basis of the case of Foss v. Harbottle is, of course, that in enforcing the ordinary fiduciary duty, the company is the only possible plaintiff. One concomitant and result of that is that in the ordinary way the general meeting of shareholders can absolve the directors from a breach of the ordinary fiduciary duty.
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I should like to quote Lord Justice Harman in the case of Bamford v. Bamford in 1970 in the Chancery Reports at page 211. He says that where directors have broken their duties to the company:
"such directors can, by making a full and frank disclosure and calling together the general body of shareholders, obtain absolution and forgiveness of their sins".
In that colourful way Lord Justice Harman was clearly referring to the nature of the normal fiduciary duty enforceable only by the company, ratifiable and validated by a general meeting of the shareholders.
But there is a second category, a higher fiduciary duty, going to what I have already called the core of the fiduciary duty of directors. In respect of that, the duty to act in the best interests of the company—which is reshaped by this clause, as it would have been reshaped by Clause 46 of the 1978 Bill—brings into play a number of further considerations. First, what are the areas of this higher or more important area of fiduciary duties? I should like to quote the three instances given by Professor Gower's book, Modern Company Law, in the fourth edition last year. In quoting it, may I say although I was a co-editor and had the privilege of working with Professor Gower, I am sure that noble Lords will know better than I that the text is what Professor Gower approved in the end? We were all equal, but he was more equal than the other co-editors. The three instances which Gower's Modern Company Law gives at page 648 are these:
"

(a) Expropriation of the property of the company …

(b) Breach of the directors' duties of subjective good faith, and

(c) Voting for company resolutions not bona fide in the interests of the company as a whole".
I venture to suggest that none of the authorities and commentaries would disagree with that very succinct summary of the hard core of the higher fiduciary duty.
Where the director breaks, or the directors break, that higher duty the position in regard to litigation is very different. First, if the plaintiff can show that the directors have broken their duty and acted in that fundamentally wrongful way and are in control of the company, then today the cases have at last made clear that he may bring a derivative action if he falls into the category of a minority shareholder; may bring it, that is, with the leave of the court.

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I pause to comment that in law it is quite clear that the words "derivative action" today imply all the necessary conditions being met, in that the words "derivative action" have been made quite clear by the Court of Appeal in the case of Wallersteiner v. Moir (No. 2) in 1975 in the Queen's Bench Reports at page 373. It has been made quite clear by the Court of Appeal in that case that English law today does know of what the United States courts have for many years called the derivative action.
If I may summarise the words on page 647 of Gower's Modern Company Law, he there sets out—I shall not quote it but I refer to it for authority, which I am sure the noble and learned Lord will accept—that one of the exceptions to the rule in Foss v. Harbottle is just this situation where a fundamental hard core duty has been broken, where the director defendants are in control of the company, the plaintiff is a minority shareholder, and the court gives leave and allows the derivative action to go ahead. Indeed, in Wallersteiner v. Moir itself the passage on page 647 of Gower on which I have relied was expressly approved by two members of the Court of Appeal.
What therefore it comes to is that the words "any fiduciary duty" in subsection (2) just will not do because that leaves it to the courts, in what will undoubtedly be great and important litigation, to decide into which category Parliament thought that this duty lay. It is always amusing for lawyers, as the noble and learned Lord will know better than I, to come across, in the words of the judge, "What was the intention of Parliament?" because usually if we go back to the debates we find that Parliament did not think about the question at all. What I am trying to do today is to ensure that Parliament has thought about this question and does not pass what is a phrase which will undoubtedly give rise to expensive litigation in a major case.
What my amendment would do would be, in effect, to add to the clause what I believe to be only a declaratory provision. To quote the words of Amendment No. 193B, the duty would be:
"enforceable as a fiduciary duty owed by its directors to a company by way of either an action brought by the company itself or a derivative action brought by a member of the company".
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That last phrase, as I have suggested, fits precisely the legal category which has now been clearly established by the Court of Appeal in the Wallersteiner decision.
If that were put in, it would make the clause clear. Above all, at the moment it is obfuscated by a failure to make the distinction. I must say to noble and learned Ministers that albeit academic commentators are not always the best guide, there is already a school of thought among them which takes a rather poor view of this clause—a much poorer one than I do myself, because I believe it to be wholly beneficial to the state of our company law, which is why I and my noble friends would wish to improve it.
If the noble and learned Lord looks in the new journal, the Company Lawyer for 1980, at page 73 he will find the author, a Mr. Birds, of a quite interesting and challenging article stating:
"In conclusion one wonders whether this clause has any really effective meaning at all, and whether it was not in fact intended merely as window-dressing".
I make it plain immediately that I do not share that criticism, but I accept some of the reasoning which led Mr. Birds to his conclusion, one of which was that it is not clear how the duty is to be enforce; whether it is by derivative action or not.
I wish to stress that the words in the amendment "by way of…a derivative action do not suggest that the minority shareholder would always have the right to bring an action to enforce the company's rights, because of course a derivative action is an action to enforce not his rights but the company's rights by way of exception to the rule in Foss v. Harbottle. A derivative action lies only where the defendants are in control of the company and where the court gives leave, as an exception to the normal rule in Foss v. Harbottle, and where the defendants are directors and a fundamental duty is broken.
The noble and learned Lord will know that I have had some discussion with the noble Viscount about this, although briefly, and I would be very disappointed if noble Ministers felt it necessary to resist this amendment. It may be that the words are not precisely right, although as at present advised I would defend them. I would defend them on the ground that

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it is the most concise way to describe some animal which has been placed firmly in the legal zoo by the Court of Appeal, to use precisely the words that the Court of Appeal has used, and the words "derivative action" now have a legal meaning which carries the concomitants that I have advanced. I very much hope that the noble and learned Lord will at least give us some expression of sympathy for this amendment, because I believe it to be one which will avoid litigation, which is I believe part of the job of your Lordships' House.
Moved, That this House doth agree to the said amendment to the Commons Amendment No. 193.—(Lord Wedderburn of Charlton.)
Lord LLOYD of KILGERRAN: My Lords, it has to be said that relative brevity is a novel concept in the area of discussions on company law. I propose now to disprove this generalisation by saying very briefly that I support the submission of the noble Lord, Lord Wedderburn, that at least the words "a derivative action" should be included somehow in this clause.
6.18 p.m.
Lord MACKAY of CLASHFERN: My Lords, I think it would be right for me to say that I appreciate very much the manner in which the noble Lord, Lord Wedderburn, has explained his point of view, and particularly for the observation that he made in relation to the article in Company Lawyer, that he does not accept the view that this clause is merely window-dressing but is an important clause as it reshapes the fundamental duty which directors have to perform. I certainly also appreciate his desire to make the matter as clear as it is possible to make it, and to avoid unnecessary litigation.
Perhaps I should say also, to make the matter plain, that this clause would apply in Scotland as well as in England. Therefore, the fact that the Court of Appeal in England has used the phrase "a derivative action", only I think fairly recently, is not perhaps a very secure foundation for making provisions for the United Kingdom as a whole. However, I am sure that the courts in Scotland, if this clause came before them, in the words of the noble Lord would be able to at least get some im
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pression of what it was driving at. However, I feel that the analysis which the noble Lord has put before us demonstrates plainly that the question whether or not a derivative action is available depends not so much on an analysis of the nature of the duty owed, as on the particular circumstances in which the question has arisen.
I agree that there is a good deal of discussion in the text books, and that of Professor Gower prints a very clear discussion of the matter, but notwithstanding that, I believe that when one looks at it closely one discovers that the question whether derivative action is to be available is a matter of whether it is just in particular circumstances to allow a minority of shareholders in effect to use the name of the company as the only way to achieve justice. I submit that the words proposed by the noble Lord in this clause at least suggest that a derivative action would be open in all circumstances, either at the option of the person seeking to take it, the company itself, which could raise this action, or persons entitled to derivative action could do so.
I know he has said—and I have taken this into account in what I have just said—that the Court of Appeal has described derivative action as one available in particular circumstances where the right was derived in effect from the company, but I believe that the clause as drafted contains that particular difficulty. Also, I believe that the phrase "derivative action" is used in the United States, as I think the noble Lord said, but I am not certain that the conditions under which it is available are necessarily the same as they are here.
Accordingly, although I appreciate we are a difficult area, we are trying to arrive at as precise an anser as possible. I believe that the answer contained in the Government Amendment—which I assure the noble Lord has been very carefully considered—is the best answer in the present circumstances; and therefore I regret that I am not able to accept the noble Lord's amendment.
Lord WEDDERBURN of CHARLTON: My Lords, I thank the noble and learned Lord, Lord Mackay of Clashfern, for his patient resistance. I have to admit, as an English lawyer, that as soon as I heard him say that this would have to apply in Scotland, my heart sank. That

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is always a problem for an English lawyer, but in reply I would say that those who have spent some time with the areas of company law with which this is involved have always felt the most heartfelt gratitude to the Scottish courts because, with respect to the English courts, they have always been more sensible—for example, in regard to the oppression of minority shareholders. I am sure that the nobe and learned Lord would agree that the Scottish courts would have fewer problems than the English courts in dealing with derivative actions.
However, before I deal with the amendments I have two points to make in reply to the noble and learned Lord. First, he said that derivative action depends only on the circumstances: whether it is just in the circumstances to allow the plaintiff minority shareholder to sue, and not on the nature of the duty. I suggest that that is wrong, that there is no case, although there are some dicta that suggest that justice may allow an exception to Foss v. Harbottle. The only decisions which exist show that the nature of the wrongdoing is essential, and that the three categories given in Gower's Modern Company Law are quite clearly the authorities at the moment and they indicate that that is the area in which the derivative action would apply.
Lastly, I must say that the noble and learned Lord's argument really does not lead him to resist this amendment. As I understand it, what he is saying is that the clause as it stands, as the Government would have it, would allow for derivative action if the court were to allow it. He may correct me if I have misunderstood him. As I understood it, the duty is to be enforceable by the company, that is, normally in the company's name, but where the court allows, an exception to the rule of Foss v. Harbottle then a derivative action may lie at the instance of a minority shareholder. If that be right, then all my amendment would need would be a manuscript addition, because what the noble and learned Lord has really said is that my amendment should read,
"enforceable either by way of action brought by the company itself or a derivative action brought with the leave of the court by a member of the company".
That would spell it out and say exactly
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What the noble and learned Lord has said. It appears that that would say what I have said, effectively. But it would not say what the clause says, that is, that it is only enforceable by the company. That would leave open the question, on its text at least, where the derivative action lies. I cannot understand why the noble and learned Lord resists this amendment when all it needs, on his own argument, is the addition of the words, "with the leave of the count".If,however, it be his wish,and he does not ask your Lordship' leave to interven again in this clause even now,then I shall ask your Lordship for permission withdraw it.
Amendment, by leave, withdrawn.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 193
193C At end insert —
("(3) The functions of the Directors shall at all times include the provision of advice facilities, opportunities or other reasonable assistance for the making developing and working of invention and innovations having regard to the nature of the duties and responsibilities of their employees.").
6.27 p.m.
Lord LLOYD of KILGERRAN: My Lords, I beg to move. I move this amendment quite unashamedly as supporting the tasks of inventors in companies and innovation by companies, and the general problem of creating wealth in industry at the present time. First of all, I must strongly endorse the views of the Minister in the other place when he said in respect of this new clause, in the Official Report of Standing Committee A, that the Government wished,
"to see company law state quite unambiguously that directors have a duty that is mandatory and not a permissive requirement to consider the interests of employees".
As I said before, subsection (1) of this clause raises the question of standard of care which directors must have in dealing with their employees. But in my view it does not go far enough in this age. So often companies and their directors, educated in fields other than science and technology, do not realise the advantage to the company in encouraging invention by their employees. I fully realise that there are many companies with which this Bill is concerned that have no research

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facilities and are not concerned with inventions. However, a large number of companies are, and, as the Secretary of State for Industry and the Conservative Party have said so frequently, they wish to encourage innovation.
All that this amendment does is to make it clear, in the exceptional case, that this is concerned with inventions and innovation; that the functions of the directors shall at all times include the provisions of advice, facilities, opportunities or other reasonable assistance for the making, developing and working of inventions and innovations, having regard to the nature of the duties and responsibilities of their employees.
I frequently find myself in the company of distinguished criminal laywers and chancery lawyers, but very rarely do I find myself in this House in the company of lawyers who have any knowledge of intellectual property, the law that relates to inventions and innovations. In this House generally, of course, there are a great number of noble Lords who in their business activities and in their scientific and technological experience know how valuable it is that inventions and innovations should be encouraged in the course of the activities of their employees.
It will he said that the words "interests of employees" in subsection (1) covers this aspect on my amendment. In my view that is not enough. There should be a declaratory statement in this Companies Bill dealing with the encouragement of invention and innovation, clearly set out as one of the duties of the directors when the company's business is such that research and development takes place, and therefore invention and innovations may also occur.
It is not enough merely to say that of course the interests of the employees will be looked after. The words I have chosen in the amendment, which are concerned with questions of advice, facilities, opportunities and other reasonable assistance, are taken out of Section 41 of the Patents Act which deals with compensation which a company can now pay to an employee whose invention has been of advantage to the company. It is quite easy these days for an employee to make inventions which are worth £1 million to that company. It would be quite easy
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for companies to encourage their employees to invent and make improvements in a way which is declared in the Bill as a duty of the directors.
I know that the company lawyers, most of whom know nothing about intellectual property—they are not scientists and some of them have no knowledge of the position of employees who are inventing or working in an ordinary company—will say it is not right to legislate for details in a broad Bill of this kind. I am dealing with a most important and notable exception, and that is the encouragement these days of innovation in industry. And, in my submission, the inclusion of a mandatory statement of this kind, to use the words of the Secretary of State, and not a permissive requirement, would do a great deal for British industry at the present time. I beg to move.
Moved, That this House doth agree with the said amendment to Commons Amendment No. 193.—(Lord Lloyd of Kilgerran.)
Lord MACKAY of CLASHFERN: My Lords, the noble Lord, Lord Lloyd of Kilgerran, has certainly put before us an interesting amendment which needs careful consideration. The noble Lord played a most important part in creating the climate of opinion which led to that part of the Patents Act 1977 which provides for an employed inventor to receive a fair share of the benefit for an invention of his which is patented, and that is from the passage to which the noble Lord referred. What is being proposed in this amendment to Commons Amendment No. 193 is that directors should furnish the assistance necessary to the activities of those engaged at various levels in the company in the making, developing and working of invention and innovation.
I would point out, as I am sure your Lordships will accept, that directors have a duty to act in good faith in the best interests of the company, and to the extent that they consider the company's interests as served by providing assistance to its research staff, then they already have an obligation to do so. To the extent that the company or a member thought the company was suffering damage from the failure of its directors to give such assistance, as the law stands they could

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seek to bring an action against the directors for breach of their general fiduciary duty. More generally, however, I think the present policy to encourage innovation in industry, and therefore to encourage directors to take a broad view of the company's interests, is satisfactory in that it allows patents to be acquired by companies and individuals as a protection from competition for 20 years.
The noble Lord referred to company lawyers who know nothing about patents and so on. One of the advantages of having been a Scottish lawyer is that one has to attend to a number of different matters, and I think I can claim to have had some experience in company litigation and have also managed to get an odd reference to my name in the reports of patents cases, so I have every sympathy with the noble Lord's point of view and would desire to do my very best to advance it in the appropriate way. That is really what I have to say here; namely, that company legislation is concerned with the protection of creditors and members and with the rights of employees, not with the specification of particular details of the way in which directors should discharge their business and other functions.
Companies Bills are concerned with the general functions of companies and of those directing them and with clarifying those points which over the years have become obscure, and the case I referred to obscured the matter that is dealt with in this amendment. Amendment No. 193 therefore is concerned with such a lack of clarity in regard to directors' duties to have regard to the interests of employees in general. The Government have very much at heart the interests which the noble Lord is seeking to advance, but we do not feel this is an appropriate place in which to insert his proposal, and I must therefore invite the noble Lord to withdraw his amendment.
Lord LLOYD of KILGERRAN: My Lords, I am grateful to the noble and learned Lord for his kind personal remarks about me, and I am glad to hear he has had some experience of patent matters, and that fortifies me in the action I am about to take. When the noble and learned Lord refers to company law generally,
1040
as is set out in his brief—that company law must be concerned with particular details and general functions—that kind of statement seems to belong to the category of flyblown phylacteries of an age that is past. In my view, we and industry are concerned with encouraging innovation, and I must express my deep disappointment that the noble and learned Lord did not, with his ingenuity, find some way of introducing into the Bill something more than particular details and general functions and be a little more precise in the interests of British industry than the Bill can be. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
On Question, Motion agreed to.

COMMONS AMENDMENTS
194 After Clause 45, insert the following new clause:
"Contracts of employment of directors
.—(1) Subject to subsection (6) below, a company shall not incorporate in any agreement a term to which this section applies unless the term is first approved by a resolution of the company in general meeting and, in the case of a director of a holding company, by a resolution of that company in general meeting.
(2) This section applies to any term by which a director's employment with the company of which he is the director or, where he is the director of a holding company, his employment within the group is to continue, or may be continued, otherwise than at the instance of the company (whether under the original agreement or under a new agreement entered into in pursuance of the original agreement), for a period exceeding five years during which the employment—

(a) cannot be terminated by the company by notice: or

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

(3) In any case where—

(a) a person is or is to be employed with a company under an agreement which 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 or is to be so employed, the company enters into a further agreement (otherwise than in pursuance of a right conferred by or by virtue of the original agreement on the other party thereto) under which he is to be employed with the company

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or, where he is a director of a holding company, within the group,

subsection (2) above shall apply as if to the period for which he is to be employed under that further agreement there were added a further period equal to the unexpired period of the original agreement.
(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 proposed agreement incorporating the term is available for inspection, by members of the company both—

(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 an agreement in contravention of this section shall to the extent that it contravenes this section be void; and that agreement and in a case where subsection (3) above applies the original agreement shall be deemed to contain a term entitling the company to terminate it 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 or if it is, for the purposes of section 150 of that Act, a wholly owned subsidiary of any body corporate, wherever incorporated.
(7) In this section—

(a)"employment" includes employment under a 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."

195 After Clause 45, insert the following new clause:
"Substantial property transactions involving directors, etc.
.—(1) A company shall not enter into an arrangement—

(a) whereby a director of the company or its holding company or a person connected with such a director is to acquire one or more non-cash assets of the requisite value from the company; or

(b) whereby the company acquires one or more non-cash assets of the requisite value from such a director or a person so connected;

unless the arrangement is first approved by a resolution of the company in general meeting and, if the director or connected person is a director of its holding company or a person connected with such a director, by a resolution in general meeting of the holding company.
(2) For the purposes of this section a non-cash asset is of the requisite value if at the time the arrangement in question is entered into its value is not less than £1,000 but, subject to that, exceeds
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£50,000 or ten per cent. of the amount of the company's relevant assets, and for those purposes the amount of a company's relevant assets is—

(a) except in a case falling within paragraph (b) below, the value of its net assets determined by reference to the accounts prepared and laid under section 1 of the 1976 Act in respect of the last preceding accounting reference period in respect of which such accounts were so laid;

(b) where no accounts have been prepared and laid under that section before that time, the amount of its called-up share capital.

(3) An arrangement entered into by a company in contravention of this section and any transaction entered into in pursuance of the arrangement (whether by the company or any other person) shall be voidable at the instance of the company unless—

(a) restitution of any money or any other asset which is the subject matter of the arrangement or transaction is no longer possible or the company or the person nominated by it has been indemnified in pursuance of subsection (4)(b) below by any other person for the loss or damage suffered by it; or

(b) any rights acquired bona fide for value and without actual notice of the contravention by any person who is not a party to the arrangement or transaction would he affected by its avoidance; or

(c) the arrangement is, within a reasonable period, affirmed by the company in general meeting and, if it is an arrangement for the transfer of an asset to or by a director of its holding company or a person who is connected with such a director, is so affirmed with the approval of the holding company given by a resolution in general meeting.

(4) Without prejudice to any liability imposed otherwise than by this subsection but subject to subsection (5) below, where an arrangement is entered into with a company by a director of the company or its holding company or a person connected with him in contravention of this section, that director and the person so connected, and any other director of the company who authorised the arrangement or any transaction entered into in pursuance of such an agreement, shall (whether or not it has been avoided in pursuance of subsection (3) above) be liable—

(a) to account to the company for any gain which he had made directly or indirectly by the arrangement or transaction; and

(b) (jointly and severally with any other person liable under this subsection) to indemnify the company for any loss or damage resulting from the arrangement or transaction

(5) Where an arrangement is entered into by a company and a person connected with a director of the company or its holding company in contravention of this section, that director shall not be liable under subsection (4) above if he shows that he took all reasonable steps to secure the company's compliance with this section, and, in any case, a person so connected and any such other director as is mentioned in that subsection shall not be so liable if he shows that, at the time the arrangement was entered into, he did not know the relevant circumstances constituting the contravention.
(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 or, if it is, for the purposes of section 150 of that Act, a wholly-owned subsidiary of any body corporate, wherever incorporated."
196 After Clause 45, insert the following new clause:
"Prohibition of loans, etc., to directors and connected persons.
.—(1) Except as provided by section (Exceptions from s. (Prohibition of loans, etc., to directors and connected persons)) below—

(a) a company shall not—

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

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

(b) a relevant company shall not—

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

(ii) ake a loan or a quasi-loan to a person connected with such a director;

(iii) enter into a guarantee or provide any security in connection with a loan or quasi-loan made by any other person for such a director or a person so connected.—

(2) Except as provided by that section, a relevant company shall not

(a) enter into a credit transaction as creditor for such a director or a person so connected;

(b) enter into any guarantee or provide any security in connection with a credit transaction made by any other person for such a director or a person so connected.

(3) A company shall not arrange for the assignment to it or the assumption by it of any rights, obligations or liabilities under a transaction which, if it had been entered into by the company. would have contravened subsection (1) or (2) above; but for the purposes of this Part of this Act the transaction shall be treated as having been entered into on the date of the arrangement.
(4) A company shall not take part in any arrangement whereby—

(a) another person enters into a transaction which, if it had been entered into by the company, would have contravened subsection (1), (2) or (3) above; and

(b) that other person, in pursuance of the arrangement, has obtained or is to obtain any benefit from the company or its holding company or a subsidiary of the company or its holding company".

6.37 p.m.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 194 to 196 en bloc. We come now to Part IV of the Bill, the effect of which is to reduce the scope for unscrupulous directors to take undue advantage of their position in the company. Noble Lords will recall that proposals with this intention were put forward by the previous Administration two or three years ago. In a review last summer of the ideas contained in their Bill, which was lost on Dissolution, we concluded that although a good deal of technical work was still then required both on directors' conflicts of interest and on insider dealing, progress was sufficiently well advanced to merit the tabling of proposals on both of those subjects at the Committee stage of the Bill in another place.
These amendments lay down new rules on the length of directors' employment, on property transactions between a director and his company and, among other things, on the provision of loans and other forms of credit by a company to its director. They represent a pretty comprehensive response to the weaknesses in the existing statutory provisions which have been exposed in a number of inspector's reports in recent years. I think I see some approval from the noble Lord, Lord Wedderburn, and I seem to remember that early last year he and I had an interesting dialogue about one particular report. The guiding spirit behind these innovations is to legislate for more power and information to the shareholders, and we have in particular been careful to ensure that the disclosure provisions, which I shall come to later, will require details of all significant transactions, arrangements and agreements involving directors and the company to be shown annually, and breach of these provisions will carry a criminal penalty.

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Quite apart from ensuring that shareholders can carry out an effective watchdog role, we have further laid down that the general meeting must affirm positively any property transaction between a company and its director of more than £50,000—your Lordships will find that provided for in Amendment No. 195—and any agreement, or series of agreements, which would enable a director to be employed for more than five years on his own terms. That is the gist of Amendment No. 194.
As regards the provision of credit from the company or others to a director, we propose, in Amendment No. 196, to do two things. The first is to retain the existing provisions of the 1948 Act which prohibit non-moneylending companies, whether public or private, from lending to their directors. The second objective is to tighten up these provisions in a number of ways. The prohibition on such loans is extended to members of the director's immediate family and companies with which he is associated. However, more importantly, the prohibition on loans is extended, for public companies only, to include what we call "quasi-loans", which consist of the provision of credit by an outside creditor who pays, or agrees to pay, on behalf of a borrower who is liable to repay him. In this way we hope that we have put a stop to the sort of deals and machinations which came to light in the Peachey Report. In that report there were examples of how a director can use his company to provide him with a wide range of goods and—dare I say?—services. For other forms of credit transactions, such as hire purchase agreements and leases, we simply require that public companies enter into them for their directors on third party terms and in the ordinary course of business.
I think that I have gone as far as your Lordships would wish me to go in trying to explain Amendments Nos. 194 to 196.
Moved, That this House doth agree with the Commons in the said Amendments.—(Lord Lyell.)
Lord MISHCON: My Lords, some general observations have been made in introducing this Part of the Bill, and I feel that on behalf of my noble friends and myself I cannot allow them to pass without making our position quite clear.
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Obviously we are very pleased to see these provisions in the Bill. We dealt in detail with them when these questions were discussed in the House in July last year. As my noble and learned friend Lord Elwyn-Jones has made apparent, we were then told that in the view of the Government much more investigation had to be undertaken before there could be an enactment on these matters. Let us consider what has in fact happened.
There is nothing new in what is provided in the Bill in this respect; credit transactions and so on, with which the noble Lord, Lord Lyell, has been dealing, were brought before the House by us last July. I recall that in a speech that I had the privilege of making on that occasion I actually mentioned all the matters that the noble Lord has been talking about, and I quoted from the report and said that the Bill would obviously have to provide for such situations. However, following a quite unnecessary interval of time since last July, there now comes before the House some provisions which, with great respect, are half-baked, and which a matter of weeks ago came before another place at the Report stage, in the form of new amendments, in circumstances which did not enable the Opposition, nor indeed members of the Government, properly to consider the points involved.
I feel it only right to make this clear to the House, because in the amendments that my noble friends and I shall move, and in our discussions, we shall say time and time again that some of these provisions are indeed deficient and show a sore lack of thought, deliberation and investigation. We shall also say that it is quite wrong for them to be brought before the legislature in this way, when we are dealing with a Bill—which we hope will become an Act—which is to govern the administration and management of great institutions in our country and is to be binding upon them as a matter of law. I make these observations merely to ensure that the reaction of the Opposition is clear to the House, and I have a feeling that in this we may be joined by the noble Lord, Lord Lloyd of Kilgerran.
6.45 p.m.
Lord LLOYD of KILGERRAN: My Lords, I wholly support the objectives of the Government in introducing clauses

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that are intended to impose stricter regulations on company directors, especially in situations of potential conflict of interest. Of course I also welcome the Government's change of mind and their thesis—and this is not a party political matter—that company law must be strengthened in the light of the many abuses that have been committed in the past decade and which have been reported upon by inspectors. The public are much concerned about these matters.
However, I must place on record the fact that I am not happy with the scope of these long clauses of great complexity. I had hoped that, with all the facilities available to the Government, it would have been possible to improve both efficiency and control over the conduct of directors in a more simple way than is to be found in these extraordinary clauses. I am also very unhappy about the clauses because of the hardship which they may inflict upon small businesses. Again, these clauses, unhappily, will certainly bring great profit to lawyers, and despite the good intentions of the Government, I doubt whether the clauses will tighten up many of the present loopholes. Therefore I support the noble Lord, Lord Mishcon, in his submissions to your Lordships.
Viscount TRENCHARD: My Lords, the noble Lord, Lord Mishcon, forces me to my feet. I do not want to speak for long, nor to make this a political matter. I do not think it fair to describe these clauses and the Bill as half-baked. Nor, as I said earlier in reply to the noble and learned Lord, Lord Elwyn-Jones, do I consider that it is entirely accurate to accuse us of a change of mind. We have always felt these particular areas to be highly important, and it has simply been a question of the order in which to bring them forward.
Bearing in mind what has already been said in speaking to various amendments, I think it is clear that progress has been made since the time of the Bill drafted by the last Administration. A number of learned bodies have commented on various aspects of the Bill being simplified. As a non-lawyer I have learnt that this is an area in which very few people agree completely; lawyers have different views on it. Furthermore, I have learnt to my sorrow, that it is a highly complicated
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area. However, I believe that progress towards simplification in a number of areas has been acknowledged by authorities.
This part of the Bill forms what was Part IV as the Bill went through the other place. I understand that the key elements of the Bill were brought before the other place at Committee stage. I have already mentioned that a certain warning about a change of Government tactics went out as early as October. The key elements of this Part of the Bill did not go out at Report stage, I am advised.
With those answers to the noble Lord's rebuke, may I once more suggest that in this complicated area it is a question of steady progress being enshrined in Bills from time to time—
Lord LLOYD of KILGERRAN: My Lords, before the noble Viscount sits down may I ask him a question about small businesses? Are the Government really satisfied that small businesses will not suffer as a result of the hardships which will result? Surely small businesses are finding this matter extremely difficult to deal with.
Viscount TRENCHARD: My Lords, I do not know whether in this case the noble Lord, in mentioning small businesses is referring to businesses which are private companies—
Lord LLOYD of KILGERRAN: My Lords, I am talking about companies which perhaps have fewer than 1,000 employees. That is the category of company with which I am concerned—the type of company which does not have a large legal staff as the multinational companies do. There are large numbers of companies with 500 to 1,000 employees.
Viscount TRENCHARD: My Lords, I was about to say that many parts of the Bill do not apply to private companies. With regard to the smaller public company, there obviously is a hardship in this very complicated area; but I say again that I believe that we have managed to get it a little simpler in a number of areas, and I hope that their trade associations and others will be able to help them with it.
Lord LLOYD of KILGERRAN: I thank the noble Viscount very much.
On Question, Motion agreed to.
197 Insert the following new clause—
"Exceptions from s.
.—(1) Where a director of a relevant company or of its holding company is associated with a subsidiary of either of those companies, subsection (1)(b)(ii) and (iii) of section (Prohibition of loans, etc., to directors and connected persons) above shall not be reason only of that fact prohibit the relevant company from—

(a) making a loan or quasi-loan to that subsidiary; or

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

(2) Subsection (1)(b) of that section shall not prohibit a relevant company ("the creditor") from making a quasi-loan to one of its directors or to a director of its holding company if—

(a) the quasi-loan contains a term requiring the director or a person on his behalf to reimburse the creditor his expenditure within two months of its being incurred; and

(b) the aggregate of the amount of that quasi-loan and of the amount outstanding under each relevant quasi-loan does not exceed £1,000.

For the purposes of this subsection, a quasi-loan is relevant if it was made to the director by virtue of this subsection by the creditor or by its subsidiary or, where the director is a director of the creditor's holding company, any other subsidiary of that company; and "amount outstanding" has the same meaning as in section (Particulars of amounts outstanding to be included in accounts) (6) below.
(3) Subsection (2) of that section shall not prohibit a company's entering into —

(a) any transaction for any person if the aggregate of the relevant amount does not exceed £5,000; or

(b) any transaction for any person if—

(i) the company enters into the transaction in the ordinary course of its business; and

(ii) the value of the transaction is not greater, and the terms on which it is entered into, are no more favourable in respect of the person for whom the transaction is made than that or those which it is reasonable to expect the company to have offered to or in respect of a person of the same financial standing as that person but unconnected with the company.

(4) Subject to the following provisions of this section, each of the following is excepted from the prohibitions in section (Prohibition of loans, etc., to directors and connected persons) above, that is to say—

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

(b) a company's entering into a credit transaction as creditor for its holding company or entering into a guarantee or providing any security in connection with any credit transaction made by any other person for its holding company;

(c) 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 or a company's doing anything to enable any of its directors to avoid incurring such expenditure;

(d) a loan or quasi-loan made by a money-lending company to any person or a money-lending company's entering into a guarantee in connection with any other loan or quasi-loan.

(5) The exception specified in subsection (4)(c) 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 the expenditure incurred or to be incurred or which would otherwise be incurred by the director and the amount of the funds to be provided by the company and the extent of the company's liability under any transaction which is or is connected with that thing 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 loans shall be repaid or any other liability arising under any such transaction discharged within six months from the conclusion of that meeting;

but that exception does not authorise a relevant company to enter into any transaction if the aggregate of the relevant amounts exceeds £10,000.
(6) The exception specified in subsection (4)(d) above operates only if both the following conditions are satisfied, that is to say

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

(b) the amount of the loan or quasi-loan or the amount guaranteed is not greater, and the terms of the loan, quasi-loan or guarantee are not more favourable, in the case of the person to whom the loan or quasi-loan is made or in respect of whom the

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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 but unconnected with the company;

but that exception does not authorise a relevant company which is not a recognised bank to enter into any transaction if the aggregate of the relevant amounts exceeds £50,000.
In determining for the purposes of this subsection the aggregate of the relevant amounts, a company which a director does not control shall be deemed not to be connected with him.
(7) The condition specified in subsection (6)(b) above shall not of itself prevent a company from making a loan to one of its directors or a director of its holding company—

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

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

if loans of that description are ordinarily made by the company to its employees and on terms no less favourable than those on which the transaction in question is made, and the aggregate of the relevant amounts does not exceed £50,000."
6.50 p.m.
Lord LYELL: My Lords, I beg to move that this [louse do agree with the Commons in their Amendment No. 197. This amendment deals with a clause which was installed in the Bill at Committee stage in another place, and it follows on from some of the comments that I was making earlier and which, indeed, were made by my noble friend Lord Trenchard. It is unfortunate that we live in an age which makes detailed regulations necessary, not least because the drafting required to implement any of the policies that we have been discussing is very complex. It is a matter of some regret that the simpler provisions of the 1948 Act have been so much abused in recent years, albeit by a tiny majority of directors.
Part of this complexity derives from the fact that we have provided in Amendment No. 197 a few exemptions in recognition of special circumstances. Although we
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specify that the rules on loans and quasi-loans apply equally to moneylending companies—which is important, because many of the abuses have occurred among these moneylending companies—we enable them to make loans and quasi-loans of up to £50,000 to each director and connected person. But for recognised banks, mainly high street clearing banks, we impose no limit in recognition of the fact that clearing bank directors are typically also involved in the direction of a number of other companies. Indeed, the banks seek out such persons as directors by virtue of their experience in just such positions.
My Lords, we require both that loans and quasi-loans by recognised banks to their directors be made on third party terms and in. the ordinary course of business, and also, as your Lordships will see in Amendment No. 204, that all such credit be disclosed in an annual statement which is available for inspection by shareholders. Then, again, we have accepted the need to provide exemption for house loans of up to £50,000 as part of a company scheme to directors of moneylending companies. Such companies are, after all, in the business of lending money, and we do not consider that such lending within the limit specified will make significant inroads into the shareholders' assets. But the prohibition on house loans by non-moneylending companies dating from 1948 will not be lifted because of the risk of abuse which we find in small and medium-size companies.
It must be remembered that if a director's move of house is in the company's interest, his company may directly pay the interest on, say, a bridging or a supplementary mortgage on the grounds that it is a bona fide company expense. I should like to emphasise here the general point that payments or advances made for the purpose of defraying expenses incurred by directors acting as agents of the company are entirely legitimate, and are not caught by our new provisions, which are aimed at credit which is liable to be reimbursed.
We have also enabled companies to make quasi-loans to directors of up to £1,000 for a period of two months. This limited exemption recognises that many goods and services are provided to companies on account, and also that as a convenience a director may ask his company to arrange for some of his personal requirements (an example would

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be an airline ticket for a spouse who may be accompanying him on a trip abroad on company business) at the same time as the company is booking the director's own trip. This sort of thing frequently happens in practice, and entirely innocently, in that the director will subsequently reimburse the money to his company. The exemption will enable companies to continue to enter into such transactions on behalf of their directors, and, therefore, suppliers of goods and services—for instance, credit card companies and travel agencies—would be able to provide their services to client companies. The limit which we have in the Bill of' £1,000 will prevent the director's company from being liable to pay for the director's personal expenditure in excess of that sum, thus meeting the objective of providing protection for shareholders. My Lords, that is all I would wish to say on Amendment No. 197, and I beg to move.
Moved, That this House doth agree with the Commons in their Amendment No. 197.—(Lord Lyell.)

LORDS AMENDMENT TO COMMONS AMENDMENT No. 197
197A In subsection (7), last line, leave out ("£50,000") and insert ("£75,000").
Lord SELSDON: My Lords, at the risk of being accused of nit-picking, I have put this amendment down because subsection (7) of Amendment No. 197 is intended to permit a company to make a loan to one of its directors, or a director of its holding company, for the purpose of purchasing a house, among other things. The figure of £50,000, which is the upper limit permitted for such loans, was first mentioned in a White Paper dated November 1977, since which time we have enjoyed a substantial level of inflation and an escalation in the price of houses to such an extent that a figure of £50,000 in 1977 is equivalent to £75,000 today. I should therefore like to ask my noble friends, if they are unwilling to accept this amendment—and I would not propose to press it—first of all whether they will say it was their deliberate intention to reduce effectively the purchasing power of the maximum amount which could be permitted for a loan by about 25 to 30 per cent.; or whether they would perhaps make the statement that, as one
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can increase the limit by order in accordance with the Bill, they would propose to increase that limit in line with inflation. Or, if my noble friends are unwilling to say that, perhaps they would point out, in line with their economic policies, that they would not expect £50,000 to purchase any less by the time this Government come to the end of their period than it does now. My Lords, I beg to move my amendment to Amendment No. 197.
Moved, That this House doth agree with the amendment to Commons Amendment No. 197.—(Lord Selsdon.)
Lord WEDDERBURN of CHARLTON: My Lords, I shall be very brief, but perhaps I may address two sentences to the noble Viscount the Minister. There are thousands of ways through these sections. Of course, the Government must have our sympathy, because the matter is one which demands complexity; but my prediction is that within three or four years there will be a number of reports which get through the holes in these sections. Our 1978 Bill was not sufficient, and this Bill is not sufficient. We shall need a better system of mobile administrative control than these clauses, which get more and more complex as company law continues. The second comment I would make is in relation to the amendment moved by the noble Lord, Lord Selsdon. Of course the Government will be pressed to raise this figure as inflation increases. If this were not a non-party debate, almost, at the moment, I would say they could expect it very much in view of their other policies.
Of course, the figure will have to be increased; and it is the problem of clauses of this sort that you cannot really therefore trap the malpractices, because the malpractices are sometimes forced upon companies by directors who demand more than the statutory limits. These clauses are good as far as they go, but in five years' time we shall see that they are not suitable in their structure to modern company law. We need administrative agencies which have powers, not necessarily draconian powers but some powers of this sort, backed by law. That is the only way we shall ever deal with these problems.
Lord LYELL: My Lords, I should first of all like to thank my noble friend Lord

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Selsdon for moving this amendment so clearly, so briefly and so succinctly. I think the House would be happy if I replied to both my noble friend and to the brief and, may I say, helpful comments from the noble Lord, Lord Wedderburn. Indeed, the Government believe that this is an attempt to be reasonably realistic at this level in regard to the type of house which, overall, a company director might need or might be concerned with in this part of the legislation. In reply to the noble Lord, Lord Wedderburn—and I hope it will assist my noble friend Lord Selsdon —one point i would ask them to consider comes in Amendment No. 209, which is a fairly short new clause to which we shall be coming.
Amendment No. 209 has a heading, "Power to increase financial limits". This is a very wide-ranging power which enables the Secretary of State to raise the limits which are provided for where we have made an attempt to set what we believe to be realistic limits in this part of the Bill. This power is necessary and I have it clearly that the Secretary of State will not refrain from using this power where any figures which have been suggested by my noble friend are seen to be unrealistic.
I wonder if my noble friend would agree that we should see how this Bill operates in practice before assuming that the limits provided for it now are not high enough. Would he accept that we have adequate power in Amendment No. 209? I see that my noble friend has further amendments down which probably deal with the realism of the figures which we have made an attempt at. The Secretary of State will not be waiting for five years; he will be looking at these limits as a matter of urgency.
Lord SELSDON: My Lords, I am grateful to my noble friend for that reply. I understand why he is unwilling to comment on the level of inflation in the United Kingdom over the next few years. I would ask, as we have a Government of action, why cannot they act now rather than in the future? Since he shows his reluctance to act, then, in withdrawing the amendment, may I remind my noble friend that there are many employees in companies who have beneficial loans fro m their employers which would, in effect
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be greater than those permitted for directors? Thus, there would be a disincentive for people to become directors. I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
On Question, Motion agreed to.

COMMONS AMENDMENT
198 After Clause 45, insert the following new Clause:
"Relevant amounts.
.—(1) The following provisions of this section shall have effect for the purpose of defining the amounts relevant for determining whether any transaction or arrangement (a "proposed transaction or arrangement") falls within the exception provided by subsection (3)(a) or (4)(c) or (d) of section (Exceptions from s. (Prohibitions of loans, etc., to directors and connected persons)) above, and for that purpose" the relevant exception"in subsection (2) below means that exception.
(2) The relevant amounts in relation to a proposed transaction or arrangement are—

(a) the value of the proposed transaction or arrangement;

(b) the value of any existing relevant arrangement falling within subsection (3) or (4) of section (Prohibitions of loans, etc., to directors and connected persons) and entered into by virtue of the relevant exception by the company or by a subsidiary of the company or, where the proposed transaction or arrangement is to be made for a director of its holding company or a person connected with such a director, by a subsidiary of its holding company;

(c) the amount outstanding under any other relevant transaction made by virtue of the relevant exception by the company or by a subsidiary of the company or, where the proposed transaction or arrangement is to be made for a director of its holding company or a person connected with such a director, by a subsidiary of its holding company.

(3) For the purposes of this section, a transaction is relevant if it was made

(a) for the director for whom the proposed transaction or arrangement is to be made or for any person connected with that director; or

(b) where the proposed transaction or arrangement is to be made for a person connected with a director of a company, for that director or any person connected with him;

and an arrangement is relevant if it relates to a relevant transaction.
(4) For the purposes of this section, a transaction entered into by a company which is (at the time that transaction was entered into) a subsidiary of the company

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which is to make the proposed transaction or is a subsidiary of that company's holding company, is not a relevant transaction if at the time of the determination referred to in subsection (1) above it no longer is such a subsidiary.
(5) The amount outstanding under any transaction within subsection (2)(c) above is the value of the transaction less any amount by which that value has been reduced.
7.2 p.m.
Lord LYELL: My Lords, I wonder whether it would be for the convenience of the House—and it might save a lot of time—if I did not make lengthy speeches on those Commons amendments to which amendments have not been tabled by your Lordships. I wonder whether your Lordships would care to proceed in this way. There is one amendment, No. 231, on which I have a note. None of your Lordships wishes to table amendments to No. 198. Can we propose it formally?
Lord MISHCON: My Lords, I am sure it would meet with the convenience of the House if the noble Lord proceeded in that way. We can always rely on Ministers to point out whether any amendment that they move on which there is not an amendment is other than a purely textual or slight one. So far as I and my noble friends are concerned, I think this is a most convenient procedure which will lead to the expediting of business.
Lord LLOYD of KILGERRAN: My Lords, I agree that this will be a useful procedure. I can give an undertaking not to speak to any amendment on which I have not produced an amendment to the Commons amendment.
Lord LYELL: My Lords, I am grateful for that. I beg to move that this House doth agree with the Commons in their Amendment No. 198.
Moved, That this House doth agree with the Commons in the said amendment. —(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
199 After Clause 45, insert the following new Clause:
"Civil remedies for breach of s. (Prohibition of loans, etc. to directors and connected persons).
.—(1) Where a company enters into a transaction or arrangement in contravention of section (Prohibition of loans, etc., to directors and connected persons) the transaction or arrangement shall be voidable at the instance of the company unless—

(a) restitution of any money or any other asset which is the subject matter of the arrangement or transaction is not longer possible, or the company has been indemnified in pursuance of subsection (2)(b) below for the loss or damage suffered by it; or

(b) any rights acquired bona fide for value and without actual notice of the contravention by any person other than the person for whom the transaction or arrangement was made would be affected by its avoidance.

(2) Without prejudice to any liability imposed otherwise than by this subsection but subject to subsection (3) below where an arrangement or transaction is made by a company for a director of the company or its holding company or person connected with such a director in contravention of section (Prohibition of loans, etc.. to directors and connected persons), that director and the person so connected and any other director of the company who authorised the transaction or arrangement shall (whether or not it has been avoided in pursuance of subsection (1) above) be liable—

(a) to account to the company for any gain which he has made directly or indirectly by the arrangement or transaction; and

(b) (jointly and severally with any other person liable under this subsection) to indemnify the company for any loss or damage resulting from the arrangement or transaction.

(3) Where an arrangement or transaction is entered into by a company and a person connected with a director of the company or its holding company in contravention of section (Prohibition of loans, etc., to directors and connected persons), that director shall not be liable under subsection (2) above if he shows that he took all reasonable steps to secure the company's compliance with that section, and, in any case, a person so connected and any such other director as is mentioned in that subsection shall not be so liable if he shows that, at the time the arrangement or transaction was entered into, he did not know the relevant circumstances constituting the contravention.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 199. This amendment and other amendments deal with civil and criminal remedies which shall apply to breaches of the provisions

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on loans and credit. The civil remedies in this amendment are largely based on the remedies available under common law and equitable principles where a fiduciary is in breach of his duty. We believe that they strike a fair balance between the need of the company to be able to recover the resources it has lost and the avoidance of injustice to parties who, although involved in a contravention, are involved only in good faith. We also believe that, where larger companies are involved, additional criminal safeguards are necessary. We shall be coming to Amendment No. 200, but perhaps I may speak to that when we come to it.
Moved, That this House doth agree with the Commons in the said amendment. —(Lord Lyell.)

LORDS AMENDMENT TO COMMONS AMENDMENT No. 199
199A Subsection (2)(b) at end insert ("; and (c) (jointly and severally with any other person or company liable under this subsection) to indemnify any other person by way of payment, restitution or transfer of any asset for any loss or damage resulting from the arrangement or transaction.")
Lord LLOYD of KILGERRAN: My Lords, I beg to move as an amendment to Commons Amendment No. 199, Amendment No. 199A. As Lord Lyell indicated, Amendment No. 199 deals with civil remedies for breach of the section on prohibition of loans, et cetera, to directors and connected persons. It is common ground that breaches of statutory provisions must be dealt with in some way in this Bill. I agree that it is difficult to delineate who should have to be punished (if that is the correct word) if there is a contravention. But I find it difficult to follow the effect of a civil remedy as included in Amendment No. 199. It has subsections 2(a) and 2(b), but they do not go far enough. When dealing with civil remedies, I should have thought it would have been helpful to have had a clause in this Part of the Bill which, even if it were merely symbolic, indicated that somebody would have to pay up if there were a contravention of the terms of the Bill. Therefore, my amendment is to add to subsection (2) this declaratory statement:
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"(jointly and severally with any other person or company liable under this subsection) to indemnify any other person by way of payment, restitution or transfer of any asset for any loss or damage resulting from the arrangement or transaction".
I agree that the words may not be perfect, but the general theme of the amendment is to make it clear in this clause dealing with civil remedies that any person or company who contravenes the provisions of this clause will be liable to have to make some payment or to transfer some assets by way of indemnification or restitution for any loss or damage arising. I agree that it is often difficult in such circumstances to decide who should pay up or transfer his assets, but it seems to me that a declaratory statement of this kind would help to reduce litigation in this matter and, more than that, could help to reduce the number of attempts being made by people to get past this clause.
Moved, That this House doth agree with the said amendment to Commons Amendment No. 199.—(Lord Lloyd of Kilgerran.)
Lord WEDDERBURN of CHARLTON: My Lords, I should like to support this amendment. It seems a most important matter to which the hour and the Government's legislative timetable must not necessarily be an obstacle. The proposed provision would be extremely useful. These transactions have been an engine of malpractice in company affairs for many years. I would ask, in support of the amendment: Why should a third party not recover his loss? The Commons amendment already says that the company do so. Using the same words, the noble Lord, Lord Lloyd of Kilgerran, asks: Why not give the third party the same rights? This would lead to a lot of litigation, it may be said. I suspect not, because any adviser to a third party would naturally find it difficult in many cases to prove the chain of causation. The difficulty for a plaintiff in Lord Lloyd's amendment would be the word "resulting". He would have to show loss or damage resulting from the arrangement or transaction. But when he can show that loss why on earth should he not have a remedy as well?
Lord LYELL: My Lords, we have heard a clear explanation by the noble Lord, Lord Lloyd of Kilgerran, of his amendment. We believe the purpose is to

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give an express remedy to third parties involved in prohibited transactions and arrangements between companies and their directors. We are not clear why the noble Lord has tabled this amendment, since remedies are already available to such third parties—we hope without too much litigation. The Commons Amendment No. 199 already provides remedies for the company against the director who has abused his fiduciary position with respect to the company by misappropriating any of the company's resources. We thought it necessary to spell out these remedies as the common law rules are not at present entirely clear. There may be third parties involved in the prohibited transaction: where a company guarantees a loan between its director and a third party, for example.
In subsection (1) of Commons Amendment No. 199, we have clearly provided that the company cannot avoid the transaction if any person other than the beneficiary to the transaction has acquired bona fide rights for value. Similarly, your Lordships will see subsection (2), which makes the director (or indeed a person connected with that director) liable to account to the company for any gain or to indemnify the company for any loss resulting from the transaction. This expressly preserves any other remedies that would otherwise be available. Hence, if a third party suffered damage in the cases which have been explained by the noble Lords, Lord Lloyd and Lord Wedderburn, as a result of any transaction or arrangement—although it is not easy to think of many likely circumstances in which this would happen, given the restrictions placed on the company's rights to avoid that transaction—the rights of a third party would be in no way diminished by Amendment No. 199. We do not consider that this amendment adds to the powers already in Amendment No. 199. For that reason, we ask the noble Lord whether he will withdraw it.
Lord LLOYD of KILGERRAN: My Lords, it is perfectly clear, with great respect, that the noble Lord's brief has missed the point of my amendment. The earlier part of the clause which the noble Lord quoted so accurately deals with indemnifying the company, the director and persons so connected and any other director of the company involved.
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It does not introduce the third party who could suffer loss and therefore is entitled to be indemnified. It may be that when we study the reply of the noble Lord in Hansard we may be able to cull from that the indication that the rights of third parties are covered in the way that I anticipated should take place. At this late hour, I am not going to press my amendment to a Division. But I record that the point I have made has—so far as I understand the noble Lord—been completely misunderstood. I beg leave to withdraw the amendment.
Amendment to the amendment, by leave, withdrawn.
On Question, Motion agreed to.

COMMONS AMENDMENT
200 Insert the following new clause:
"Criminal penalties for breach of s. (Prohibition of loans, etc., to directors and connected persons)
.—(1) A director of a relevant company who authorises or permits the company to enter into a transaction or arrangement knowing or having reasonable cause to believe that the company was thereby contravening section (Prohibition of loans, etc., to directors and connected persons) above shall be guilty of an offence.
(2) A relevant company which enters into a transaction or arrangement for one of its directors or for a director of its holding company in contravention of section (Prohibition of loans, etc., to directors and connected persons) above shall be guilty of an offence.
(3) A person who procures a relevant company to enter into a transaction or arrangement knowing or having reasonable cause to believe that the company was thereby contravening section (Prohibition of loans, etc., to directors and connected persons) above shall be guilty of an offence.
(4) A relevant company shall not be guilty of an offence under subsection (2) of this section if it shows that, at the time the transaction was entered into, it did not know the relevant circumstances.
(5) A person guilty of an offence under this section shall be liable—

(a) on conviction on indictment, to a term of imprisonment not exceeding two years or a fine, or both; and

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

7.12 p.m.
Lord LYELL: My Lords, I beg to move that this House do agree with the Commons in their Amendment No. 200. This deals

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with criminal penalties for breaches. In Amendment No. 200 we make it an offence for a director of a public company to authorise or permit any contravention, or for a person to procure such a transaction in contravention of any of the prohibitions. It is the company itself which may also be liable to a fine. I should stress that only deliberate conduct in the full knowledge of relevant circumstances, or on the basis of a wilful rejection of that knowledge, can be the subject of any prosecution under Amendment No. 200.
Moved, That this House doth agree with the Commons in the said amendment.—(Lord Lyell.)

LORDS AMENDMENT TO COMMONS AMENDMENT No. 220
200A At end insert—
("(6) The Court by or before which the person is convicted of an offence under this section shall on application or otherwise make an order requiring payment by way of compensation restitution or otherwise in respect of any gain, loss or damage resulting from the offence.")
Lord LLOYD of KILGERRAN: My Lords, we are dealing with criminal penalties for breach of prohibition of loans, et cetera to directors and connected persons. I suggest to the Government that they should have regard to the fact (as they have indicated) that these clauses are very complex. There are likely to be a large number of loopholes. The attempt of this amendment is to close to some extent any of the loopholes. The Government have a duty to the public in ensuring as far as possible that contraventions of these prohibitions shall be punished in some way. The only way in this clause that punishment can take place is that on conviction on indictment there shall be a term of imprisonment not exceeding two years or a fine, or both. On summary conviction, the punishment would be a term of imprisonment of six months or a fine, or both, not exceeding the statutory maximum.
It is quite easy in these insider dealings for somebody to make £250,000, and he will happily go to prison for a period of two years—less remission—and he able then to pick up his spoils thereafter. This addition to this clause is that the court by or before which the person is convicted of an offence under this section shall on appli-
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cation or otherwise make an order requiring payment by way of compensation, restitution or otherwise in respect of any gain, loss or damage resulting from the offence.
I agree that it is often difficult to find out who it is that suffered the loss and who should pay. In many circumstances it will be clear who should pay, particularly when the fellow has been convicted. Again, there is a difficulty of deciding to whom restitution should be made. Perhaps the Government can say that once the person has been convicted on indictment, for example, before a court dealing with criminal matters, then the court has power under some of the criminal administration Acts to make such an order as I have indicated. If the Government can say that is the position, then I will withdraw the amendment. Not many people dealing or proposing to deal in insider dealings who contravene these sections on which there are criminal sanctions will be aware of the scope of the criminal administration. It would be helpful in discouraging these people from contravening the clause if a simple clause of this kind were introduced.
Moved, That this House doth agree with the amendment to the Commons Amendment No. 200.—(Lord Lloyd of Kilgerran.)
Lord LYELL: My Lords, may I thank the noble Lord, Lord Lloyd, for moving this amendment so clearly. The purpose of this amendment is to give the court power to award compensation or restitution in cases where persons are convicted of an offence under Commons Amendment No. 200. The noble Lord mentioned some criminal provision. The criminal courts do, in fact, already have powers to make compensation orders against convicted persons, described by the noble Lord, who have been in breach of the criminal law in matters which he has set before your Lordships. Under the powers of the Criminal Courts Act 1973, I understand that the courts do make compensation orders against convicted persons in such cases as the noble Lord explained. Under the provisions of the 1973 Act, the court has discretion to make an order, and in exercising its discretion it must take into account the means of the person against whom the order is proposed to be made.

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I think that really answers the noble Lord's question, in that if it can be shown quite clearly that someone has amassed a very large amount against which the criminal court can act, that is possible under the 1973 Act. But the criminal courts have made it quite clear that the power should be exercised only where the legal position is relatively straightforward. Obviously, it would be very unsatisfactory to use powers of this kind in complex situations involving more than one party. Situations of the kind that we are dealing with in Amendment No. 200 are likely to be very complex indeed. We would not wish to impose on the courts an obligation to grant compensation without giving them any guidelines, first, on how to decide compensation; secondly, who is to request them to do so and, thirdly, what sort of compensation is to be envisaged—is it to be in money or, as we heard earlier, in non-cash assets?
We believe the normal civil procedure is much more suitable for dealing with litigation arising out of situations such as have been described by the noble Lord, Lord Lloyd. In regard to Amendment No. 199 we did clarify civil remedies, and Amendment No. 200 expressly preserves any other remedies, including remedies for third parties, that may be available. I hope that my reply has been of some help to the noble Lord. We are not altogether in agreement that his amendment is likely to be helpful in compelling the criminal courts to award compensation where situations may be very complex. We believe that in these complex situations the civil procedures would be far more effective and more appropriate.
Lord LLOYD of KILGERRAN: My Lords, I am very much obliged to the noble Lord for his full explanation of the Government's position; but I should have thought that if the Government were undertaking seriously the task of discouraging this kind of contravention of sections, they would have accepted some clause which would have indicated that if a company or a person has contravened these sections, apart from fines or imprisonment, there was the clear right for compensation or restitution to be made. In the circumstances, I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
On Question, Motion agreed to.

COMMONS AMENDMENT
201 After Clause 45 insert the following new clause:
Substantial contracts, etc., with directors and others to be disclosed in account.
.—(1) Subject to subsections (5) and (6) and to section (Transactions, etc., excluded from ss. (Substantial contracts, etc., with directors and others to be disclosed in accounts) and (Further provisions relating to recognised banks)) below, group accounts prepared by a holding company in accordance with the requirements of section 1 of the 1976 Act in respect of a financial year (the"relevant period ") ending on or after the appointed day shall contain the particulars specified in section (Particulars required to be included in accounts by s. (Substantial contracts, etc., with directors and others to be disclosed in accounts)) below of—

(a) any transaction or arrangement of a kind described in section (Prohibition of loans, etc., to directors and connected persons) above entered into by the company or by a subsidiary of the company for a person who at any time during the relevant period was a director of the company or was connected with such a director;

(b) an agreement by the company or by a subsidiary of the company to enter into any such transaction or arrangement for a person who at any time during the relevant period was a director of the company or was connected with such a director; and

(c) any other transaction or arrangement with the company or with a subsidiary of the company in which a person who at any time during the relevant period was a director of the company had, directly or indirectly, a material interest.

(2) Subject as aforesaid, accounts so prepared by any company other than a holding company in respect of a financial year (the "relevant period") ending on or after the appointed day shall contain the particulars specified in section (Particulars required to be included in accounts by s. (Substantial contracts, etc., with directors and others to be disclosed in accounts)) below of—

(a) any transaction or arrangement of a kind described in section (prohibition of loans, etc.. to directors and connected persons) above entered into by the company for a person who at any time during the relevant period was a director of the company or of its holding company or was connected with such a director;

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(b) an agreement by the company to enter into any such transaction or arrangement for a person who at any time during the relevant period was a director of the company or of its holding company or was connected with such a director; and

(c) any other transaction or arrangement with the company in which a person who at any time during the relevant period was a director of the company or of its holding company had, directly or indirectly, a material interest.

(3) Where by virtue of section 150(2) of the 1948 Act a company does not produce group accounts in relation to any financial year, subsection (I) above shall have effect in relation to the company and that financial year as if the word - group"were omitted.
(4) For the purposes of subsections (1)(c) and (2)(c) above—

(a) a transaction or arrangement between a company and a director of the company or of its holding company or a person connected with such a director shall (if it would not otherwise be so treated) be treated as a transaction, arrangement or agreement in which that director is interested; and

(b) an interest in such a transaction or arrangement is not material if in the opinion of the majority of the directors (other than that director) of the company which is preparing the accounts in question it is not material (hut without prejudice to the question whether or not such an interest is material in any case where those directors have not considered the matter).

(5) Subsections (1) and (2) above do not apply, for the purposes of any accounts prepared by any company which is or is the holding company of a recognised bank, in relation to a transaction or arrangement of a kind described in section (Prohibition of loans, etc., to directors and connected persons) above, or an agreement to enter into such a transaction or arrangement, to which that recognised bank is a party.
(6) Subsections (1) and (2) above do not apply in relation to the following transactions, arrangements and agreements—

(a) a transaction, arrangement or agreement between one company and another in which a director of the first or of its subsidiary or holding company is interested only by virtue of his being a director of the other;

(b) a contract of service between a company and one of its directors or a director of its holding company;

(c) a transaction, arrangement or agreement which was not entered into during the relevant period for the account in question or which did not subsist at any time during that period;

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(d) a transaction, arrangement or agreement which was made before the appointed day and which does not subsist on or after that day.

(7) Subsections (1) and (2) above apply whether or not—

(a) the transaction or arrangement was prohibited by section (Prohibition of loans, etc., to directors and connected persons) above;

(b) the person for whom it was made was a director of the company or was connected with a director of the company at the time it was made;

(c) in the case of a transaction or arrangement made by a company which at any time during a relevant period is a subsidiary of another company, it was a subsidiary of that other company at the time the transaction or arrangement was made."

7.24 p.m.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 201. I have spoken earlier about this amendment when I dealt with Amendments Nos. 194 to 214.
Moved, That this House doth agree with the Commons in the said amendment. —(Lord Leyll.)
Lord WEDDERBURN of CHARLTON Lord WEDDERBURN of CHARLTON moved, as an amendment to Commons Amendment No. 201, Amendment No. 201A:
201A In subsection (6) leave our paragraph (b).
The noble Lord said: My Lords, the amendment standing in the names of my noble friends and myself is directed towards retaining within the scope of the section contracts of service entered into between a director and his company. This amendment is part of a series of amendments which arise from the fact that the Government chose to do something quite extraordinary; that is, to go beyond the provisions even of the 1978 Act and to be daring enough on Report in another place to introduce amendments to Section 26 of the 1967 Companies Act. I applaud the objective, but the route taken by the Government has made Section 26 of the 1967 Act much worse than it is already.
That section requires contracts of service between a director and his company to be registered on a register kept by the company. All lawyers know, as indeed do most people, that there is a distinction

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between contracts of service and contracts for services. As the right honourable gentleman the Minister for Trade agreed on 4th December in Committee in another place (column 518):
"The company must disclose in its accounts under this clause contracts in which the director has a material interest directly or indirectly which would include consultancies and other contracts for services; but according to sub-clause (6)(b), it must not include contracts of service."
I shall be returning to that distinction later, in connection with Amendment No. 208. The reason for excluding contracts of service under this clause was given by the Minister for Trade on 4th December at column 505, when he said:
"Paragraph (b) exempts contracts of service because separate provision is already made for their disclosure in Section 26 of the 1967 Act."
In other words, there is a register of contracts of service, and because of that it need not be mentioned in a note in the accounts.
For that there are three answers. First, there is no inherent reason in nature why a contract of service should not appear in the accounts and on the company's register at the company's office. Secondly, is it not the case—and I would ask the noble Lord to answer this point—that it would fit in much better, as would our later amendments on Section 26 (which originated in the Government's choice to put Section 26 on the agenda) with the Stock Exchange's listing requirements in Schedule 8, paragraph 11 of which deals with service contracts which have to be disclosed beyond a certain period. They do not make this distinction between "service" and "services". Thirdly, the Government cannot be right on this answer if it is right in another way, because the Government themselves go in for double disclosure, quite properly, on contracts for services: for example, consultancies which go on over five years.
A contract for services which extends beyond five years has to be disclosed and approved by the general meeting under the clause in Amendment No. 194, which we have already approved. Also, it has to be disclosed and approved in the accounts under this clause. Therefore a contract for services is subject to double disclosure; and yet the Government say in another place—I am sure they will not be so illogical in this House—that contracts for services are subject to double disclosure,
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but contracts of service must not be subject to double disclosure. What is sauce for the goose of "services" is sauce for the gander of "service".
The right honourable gentleman Mr. Parkinson said on 4th December in another place, at column 509, in respect of this clause dealing with consultancies:
"For some time it has seemed to me that shareholders ought to have the right to know what other rights or income the directors are obtaining from the company".
I agree with the right honourable gentleman. I hope that the noble Lord will agree with me, and that he will not put contracts of service outside this clause, because shareholders who do not choose to go to the company's office and look at the register still have the right to have contracts of service as much as contracts for services drawn to their attention when they receive the accounts. I hope very much that the Government will seriously consider accepting this amendment.
Moved, That this House doth agree with the amendment to Commons Amendment No. 201.—(Lord Weddederburn of Charlton.)
Lord LYELL: My Lords, the noble Lord, Lord Wedderburn, fired three very quick service balls at me and I shall attempt to answer them. I hope that my answers will be satisfactory, because I believe that two of his questions are already covered. The effect of the noble Lord's amendment seems to be to require double disclosure of these arrangements in respect of contracts for services; the amendment deletes the exemption in the Commons amendment for the disclosure of contracts of service. Therefore, it seems to have the effect of requiring double disclosure of this more conventional type of service contract as well—that is, the contract of service. This seems to be a logical extension of the position, but we are not entirely convinced of the wisdom of extending Section 26 of the 1967 Act in this manner.
This amendment raises the wider question of the most appropriate way of disclosing matters pertaining to a director's interest in his company's contracts. The 1967 Act requires the disclosure of contracts other than those of employment on the directors' report, while it seems that ordinary contracts of service are dis-

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closed in a special register kept at the company's registered office, or other "appropriate place". What we hope we have done in Amendment No. 201 is to strengthen this provision by widening the notion of "contract" to any "transaction, arrangement or agreement", by requiring the disclosure of their principal terms, and by stipulating that the details must appear in the accounts themselves. We have not therefore made any innovation in the separate treatment of contracts for service, but simply continued a distinction made in Section 26 of the 1967 Act. This amendment, in seeking to end this distinction, raises various important issues to which the noble Lord alluded relating to methods of disclosing matters pertaining to directors' personal benefits.
These matters require very careful study, and I hope that the noble Lord will agree that they need much further consultation. I also consider that, in the absence of any great advantage in putting on the Section 26 register information which will anyway be required to be disclosed in the company's accounts, it would be unnecessary to impose on companies this double burden.
The method of disclosure required in Amendment No. 201 is a much more "open" one than the Section 26 method, as the accounts are distributed automatically to members and are available to members and non-members alike, while the Section 26 register is available to members only at a specified place and time. We believe that there is some merit in the noble Lord's amendment, but we regret that for the moment the obstacles to accepting it as it stands are too great.
Lord WEDDERBURN of CHARLTON: My Lords, while thanking the Minister for his intervention, I find his response little less than extraordinary. Perhaps I might make three points. First, let me point out that the basis of our company law has honourably and traditionally been that of disclosure. Disclosure is breaking down as a basis of our company law. I personally believe that in 10 years' time we shall see it broken down, and it will have to be replaced by greater administrative control. I may be wrong, hut at least the Government should try to use disclosure to the limit rather than illogically.
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Secondly, the Minister put his case on the basis of a distinction between service and services; the distinction between having a contract for consultancy and a contract, say, as a managing director or executive who is wholetime with the company. Why should that make a difference as to what is put into the accounts? Why should the lawyer's distinction—which I hope to show to your Lordships on Amendment No. 208 has become somewhat absurb—between contracts of service and for services govern what the shareholders know?
I was disturbed by the Minister's third reason, which was to suggest that the accounts were much more open, were available to members and non-members alike, and that therefore the service contract of employment of a director should remain on a register to he seen only by shareholder members. I cannot believe that directors are that afraid of the non-members seeing what contracts they have with their company—or is that the Government's view? I do not believe it. I find such a suggestion quite extraordinary. I hope that my right honourable and honourable friends in another place will take note of this point. But in view of the circumstances in this House I have no alternative, very reluctantly, to ask leave to withdraw the amendment.
Amendment to the amendment, by leave, withdrawn.
On Question, Motion agreed to.

COMMONS AMENDMENTS
202 After Clause 45, insert the following new clause:
"Particulars required to be included in accounts by s. (Substantial contracts, etc., with directors and others to be disclosed in accounts).
".—(1) The particulars of a transaction, arrangement or agreement which are required by section (Substantial contracts, etc., with directors and others to be disclosed in accounts) to be included in the annual accounts prepared by a company are particulars of the principal terms of the transaction, arrangement or agreement and (without prejudice to the generality of the foregoing provision)—

(a) a statement of the fact either that the transactions, arrangement or agreement was made or subsisted, as the case may be, during the financial year in respect of which those accounts are made up;

1073

(b) the name of the person for whom it was made, and, where that person is or was connected with a director of the company or of its holding company, the name of that director;

(c) in any case where subsection (1)(c) or (2)(c) of section (Substantial contracts, etc. with directors and others to be etc., in accounts) applies, the name of the director with the material interest and the nature of that interest;

(d) in the case of a loan or an agreement for a loan or an arrangement within section (Prohibition of loans, etc., to directors and connected persons) (3) or (4) above relating to a loan—

(i) the amount of the liability of the person to whom the loan was or was agreed to be made, in respect of principal and interest, at the beginning and at the end of that period;

(ii) the maximum amount of that liability during that period;

(iii) the amount of any interest which, having fallen due, has not been paid; and

(iv) 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;

(e) in the case of a guarantee or security or an arrangement within section (Prohibition of loans, etc., to directors and connected persons) (3) above relating to a guarantee or security—

(i) the amount for which the company (or its subsidiary) was liable under the guarantee or in respect of the security both at the beginning and at the end of the financial year in question;

(ii) the maximum amount for which the company (or its subsidiary) may become so liable; and

(iii) any amount paid and any liability incurred by the company (or its subsidiary) for the purpose of fulfilling the guarantee or discharging the security (including any loss incurred by reason of the enforcement of the guarantee or security); and

(f) in the case of any other transaction, arrangement or agreement, the value of the transaction or arrangement, or, as the case may be, the value of the transaction or arrangement to which the agreement relates."

203 After Clause 45, insert the following new clause:
"Particulars of amounts outstanding to be included in accounts.
.—(1) This section applies in relation to the following classes of transactions, arrangements and agreements—
1074

(a) loans, guarantees and securities relating to loans, arrangements of a kind described in subsection (3) or (4) of section (Prohibition of loans, etc., to directors and connected persons) relating to loans and agreements to enter into any of the foregoing transactions and arrangements;

(b) quasi-loans, guarantees and securities relating to quasi-loans, arrangements of a kind described in the said subsection (3) or (4) relating to quasi-loans and agreements to enter into any of the foregoing transactions and agreements;

(c) credit transactions, guarantees and securities relating to credit transactions, arrangements of a kind described in the said subsection (3) or (4) relating to credit transactions and agreements to enter into any of the foregoing transactions and arrangements.

(2) The group accounts of a holding company and the accounts of any other company prepared in accordance with the requirements of section I of the 1976 Act in respect of a financial year (the relevant period") ending on or after the appointed day, shall contain a statement in relation to transactions, arrangements and agreements made by the company and, in the case of a holding company, by a subsidiary of the company for persons who at any time during the relevant period were officers of the company (but not directors) of the aggregate amounts outstanding at the end of the relevant period under transactions, arrangements and agreements within paragraphs (a), (b) and (c) respectively of subsection (1) above, and the numbers of officers for whom the transactions, arrangements and agreements falling within each of those paragraphs were made.
(3) Subsection (2) above shall not apply in relation to any transaction, arrangement or agreement made by a recognised bank for any of its officers or for any of the officers of its holding company.
(4) The group accounts of a company which is, or is the holding company of, a recognised bank, and the accounts of any other company which is a recognised bank, prepared in accordance with the requirements of section 1 of the 1976 Act in respect of a financial year (the "relevant period") ending on or after the appointed day, shall contain a statement in relation to transactions, arrangements and agreements made by the company preparing the accounts, if it is a recognised hank, and (in the case of a holding company) by any of its subsidiaries which is a recognised bank, for persons who at any time during the relevant period were directors of the company or were connected with a director of the company, of the aggregate

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amounts outstanding at the end of the relevant period under transactions, arrangements and agreements within paragraphs (a), (b) and (c) respectively of subsection (1) above, and the numbers of persons for whom the transactions, arrangements and agreements falling within each of those paragraphs were made.
(5) For the purpose of the application of subsection (4) above in relation to loans and quasi-loans made by a company to persons connected with a person who at any time is a director of the company or of its holding company, a company which a person does not control is not connected with him.
(6) Where by virtue of section 150(2) of the 1948 Act a company does not produce group accounts in relation to any financial year, subsections (2) and (4) above shall have effect in relation to the company and that financial year as if the word "group" were omitted.
(7) Subsections (2) and (4) above do not apply in relation to a transaction, arrangement or agreement which was made before the appointed day and which does not subsist on or after that day.
(8) For the purposes of this section, "amount outstanding" means the amount of the outstanding liabilities of the person for whom the transaction, arrangement or agreement in question was made, or, in the case of a guarantee or security, the amount guaranteed or secured."
7.36 p.m.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in Amendments Nos. 202 and 203.
Moved, That this House doth agree with the Commons in the said amendments. —(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
204 After Clause 45, insert the following new clause:
"Further provisions relating to recognized banks.
.—(1) Subject to section (Transactions, etc., excluded from ss. (Substantial contracts, etc., with directors and others to be disclosed in accounts) and (Further provisions relating to recognised banks)) below, a company which is, or is the holding company of, a recognised bank shall maintain a register containing a copy of every transaction, arrangement or agreement of which particulars would, but for subsection (5) of section (Substantial contracts, etc., with directors and
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others to be disclosed in accounts) above be required by subsection (1) or (2) of that section to be disclosed in the company's accounts or group accounts for the current financial year and for each of the preceding ten financial years or, if such a transaction or arrangement is not in writing, a written memorandum setting out its terms.
(2) Subject to section (Transactions, etc., excluded from ss. (Substantial contracts, etc., with directors and others to be disclosed in accounts) and (Further provisions relating to recognised banks)) below, a company which is, or is the holding company of, a recognised bank shall before its annual general meeting make available, at the registered office of the company for not less than the period of 15 days ending with the date of the meeting, for inspection by members of the company a statement containing the particulars of transactions, arrangements and agreements which the company would, but for subsection (5) of section (Substantial contracts, etc., with directors and others to be disclosed in accounts) above, be required by subsection (1) or (2) of that section to disclose in its accounts or group accounts for the last complete financial year preceding that meeting, and such a statement shall also be made available for inspection by the members at the annual general meeting.
(3) It shall be the duty of the auditors of the company to examine any such statement before it is made available to the members of the company in accordance with subsection (2) above and to make a report to the members on that statement; and the report shall be annexed to the statement before it is made so available.
(4) A report under subsection (3) above shall state whether in the opinion of the auditors the statement contains the particulars required by subsection (2) above and, where their opinion is that it does not, they shall include in the report, so far as they are reasonably able to do so, a statement giving the required particulars.
(5) Subsection (2) above shall not apply in relation to a recognised bank which is for the purposes of section 150 of the 1948 Act the wholly-owned subsidiary of a company incorporated in the United Kingdom.
(6) Where a company fails to comply with subsection (1) or (2) above, every person who at the time of that failure is a director of the company shall be guilty of an offence and liable on conviction on indictment to a fine and on summary conviction to a fine not exceeding the statutory maximum.
(7) It shall be a defence in proceedings against a person for an offence under subsection (6) above for him to prove that he took all reasonable steps for securing compliance with subsection (1) or (2) above, as the case may be.
(8) For the purposes of the application of this section in relation to loans and quasi-loans made by a company to persons connected with a person who at any time is a director of the company or of its holding company, a company which a person does not control is not connected with him."
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in Amendment No. 204.
Moved, That this House doth agree with the Commons in the said amendment.—(Lord Lye11.)
7.37 p.m.
Lord SELSDON Lord SELSDON moved, as an amendment to the amendment, Amendment No. 204A:
204A In subsection (2), line 6, after ("available") insert ("during business hours").
The noble Lord said: my Lords, I beg to move, as an amendment to Commons Amendment No. 204, Amendment No. 204A. This subsection would require a recognised bank to make available at its registered office for a period of at least 15 days prior to the company's annual general meeting a statement summarising certain transactions with directors and others. That is perfectly laudable and acceptable, but there is no limitation of the hours of the day during which the statement must be made available for inspection.
It therefore appears that the statement must be made available to members of the company throughout all 24 hours of the day, although this obviously is not the Government's intention. Unfortunately, there is a precedent in earlier companies Acts dealing with comparable provisions —for example, Section 57(2) of the 1948 Act and Section 26(4) of the 1967 Act. These state that inspection shall take place:
"during business hours (subject to such reasonable restrictions as the company in general meeting may impose so that not less than two hours in each day may be allowed for inspection)".
With such provisions in earlier Acts, the omission of a daily time limit in this subsection of the Bill may be taken to indicate a deliberate intent that the statement should be available throughout the whole of each relevant day. Thus, this amendment seems desirable in order to limit availability at least to business hours.
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I do not propose to press this amendment if the Government make it clear that it is not their intention that the information should be available throughout the 24 hours.
Lord LYELL: My Lords, I thank my noble friend Lord Selsdon for outlining his amendment so clearly. But I hope that he and the House will consider the drafting of subsection (2) of Amendment No. 204. It is clear from that provision that it is the company which is required to make the statement available. It states in line 6 that this availability is to be:
"at the registered office of the company".
I am advised that the provision as constructed implies that a statement will be available each day for the period during which business is usually transacted. That is the advice I have been given, and for that reason it would appear that my noble friend's amendment is superfluous. However, I give him the assurance that I shall check the situation and let him know.
Lord SELSDON: My Lords, as my noble friend Lord Lyell is, like me, an hereditary Peer, I hope that we are not "superfluous". My advisers disagree with his advisers, but in view of the respect I have for my noble friend and the way in which he has conducted this Bill today, I beg leave to withdraw the amendment.
Amendment to the amendment, by leave, withdrawn.
On Question, Motion agreed to.

COMMONS AMENDMENT
205 After Clause 45, insert the following new clause:
"Transactions, etc., excluded from ss. (Substantial contracts, etc., with directors and others to be disclosed in accounts) and (Further provisions relating to recognised banks)).
.—(1) Subsections (1) and (2) of section (Substantial contracts, etc., with directors and others to be disclosed in accounts) above do not apply, in relation to the accounts prepared by a company in respect of a relevant period, to transactions of the kind mentioned in subsection (2) below which are made by the company or by a subsidiary of the company for a person who at any time during the relevant period was a director of the company or of its holding company or was connected with such a director, if the aggregate of the values

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of each transaction, arrangement or agreement so made for that director or any person connected with him, less the amount (if any) by which the liabilities of the person for whom the transaction or arrangement was made has been reduced, did not at any time during the relevant period exceed £5,000.
(2) The said transactions are—

(a) credit transactions;

(b) guarantees provided or securities entered into in connection with credit transactions;

(c) arrangements within subsection (3) or (4) of section (Prohibition of loans, etc., to directors and connected persons) above relating to credit transactions;

(d) agreements to enter into credit transactions.

(3) Subsections (1)(c) and (2)(c) of section (Substantial contracts, etc., with directors and others to be disclosed in accounts) above do not apply, in relation to the accounts prepared by a company in respect of a relevant period, to any transaction or arrangement made by the company or by a subsidiary of the company for a person who at any time during the relevant period was a director of the company or of its holding company or was connected with such a director, if the aggregate of the values of each transaction or arrangement within the said subsection (1)(c.) or (2)(c), as the case may be, so made for that director or any person connected with him, less the amount (if any) by which the liabilities of the person for whom the transaction or arrangement was made has been reduced, did not at any time during the relevant period exceed £1,000 or, if more, did not exceed £5,000 or one per cent. of the value of the net assets of the company which is preparing the accounts in question as at the end of the relevant period for those accounts, whichever is the less.
(4) Section (Further provisions relating to recognised banks) above does not apply in relation to transactions or arrangements made or subsisting during a relevant period by a company or by a subsidiary of a company for a person who at any time during that period was a director of the company or of its holding company or was connected with such a director, or to any agreement made or subsisting during that period to enter into such a transaction or arrangement, if the aggregate of the values of each transaction or arrangement made for that person, and of each agreement for such a transaction or arrangement, less the amount (if any) by which the value of those transactions, arrangements and agreements has been reduced, did not exceed £1,000 at any time during the relevant period.
7.40 p.m.
Lord LYELL: My Lords, I beg to
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move that this House doth agree with the Commons in their Amendment No. 205. I have already spoken to this amendment. My Lords, I beg to move.
Moved, That the House doth agree with the Commons in the said amendment.—(Lord Lyell.)
Lord SELSDON Lord SELSDON had given notice of his intention to move Amendment No. 205A, as an amendment to Commons Amendment No. 205:
205A In subsection (4), line 12, leave out ("£1,000") and insert ("£2,000").
The noble Lord said: My Lords, in view of the comments of my noble friend on Amendment No. 197A, I propose not to move this amendment.
On Question, Motion agreed to.

COMMONS AMENDMENTS
206 After Clause 45, insert the following new clause:
"Duty of auditors of company in breach of s. (Substantial contract, etc., with directors and others to be disclosed in accounts) or (Particulars of amounts out-standing, to be included in accounts).
s. If in the case of any group or other accounts of a company the requirements of section (Substantial contracts, etc., with directors and others to be disclosed in accounts) or (Particulars of amounts outstanding to be included in accounts) above are not complied with, it shall be the duty of the auditors of the company by whom the accounts are examined to include in their report on the balance sheet of the company, so far as they are reasonably able to do so, a statement giving the required particulars."
207 After Clause 45, insert the following new clause:
"Disclosure by directors of interests in contracts, etc.
.—(1) Any reference in section 199 of the 1948 Act (disclosure by a director of a company of his interest in a contract with the company) to a contract shall be construed as including a reference to any transaction or arrangement (whether or not constituting a contract) made or entered into on or after the appointed day.
(2) For the purposes of the said section 199, a transaction or arrangement of a kind described in section (Prohibition of loans, etc., to directors and connected persons) above made by a company for a director of the company or a person connected with such a director shall, if it would not otherwise be so treated (and whether or not prohibited by that section), be treated as a transaction or arrangement in which that director is interested."
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 206 and 207. My Lords, I beg to move.
Moved, That the House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
208 After Clause 45, insert the following new clause:
"Extension of section 26 of 1967 Act.
—(1) In subsection (1) of section 26 of the 1967 Act (disclosure of director's service contract with company) the following paragraph shall be inserted after paragraph (b)—
"(c) in the case of each director who is employed under a contract of service with a subsidiary of the company, a copy of that contract or, if it is not in writing, a written memorandum setting out the terms of that contract;".
(2) The following subsection shall be inserted after subsection (3) of that section—
"(3A) Subsection (1) above shall not apply in relation to a director's contract of service with the company or with a subsidiary of the company if that contract required him to work wholly or mainly outside the United Kingdom, but the company shall keep a memorandum—

(a) in the case of a contract of service with the company, setting out the name of the director and the provisions of the contract relating to its duration;

(b) in the case of a contract of service with a subsidiary of the company, setting out the name of the director, the name and place of incorporation of the subsidiary and the provisions of the contract relating to its duration,

at the same place as copies and the memorandums are kept by the company in pursuance of subsection (1) above.".
(3) Each reference in subsections (4), (5) and (7) of that section to subsection (1) shall be construed as including a reference to subsection (3A) of that section; the reference in subsection (7) of that section to a contract of service with a company shall be construed as including a contract of service with a subsidiary of a company; and in subsection (8) of that section, paragraph (a) shall cease to have effect."
Lord LYELL: My Lords, I beg to move that this House doth agree with the
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Commons in their Amendment No. 208. I have already spoken to the main amendment. My Lords, I beg to move.
Moved, That the House doth agree with the Commons in the said amendment.—(Lord Lyell.)
Lord MISHCON Lord MISHCON moved, as an amendment to Commons Amendment No. 208, Amendment No. 208A.
208A Leave out subsection (2).
The noble Lord said: My Lords, I said earlier that there were unfortunate examples of where, as a result of the Government not having taken advantage of the advice of the Opposition in this House in July last, material and important clauses were being hurriedly prepared and put before Parliament. It is only right that I should cite examples of this, having made that statement, and I certainly come to one now. Amendment No. 208 is, as we have prevously heard, an extension of Section 26 of the 1967 Act. Very sensibly, in subsection (1) of the new clause there is a provision that,
"in the case of each director who is employed under a contract of service with a subsidiary of the company "—
that means, as if it were the company itself—
"a copy of that contract or, if it is not in writing, a written memorandum setting out the terms of that contract "
shall be duly disclosed and registered. Your Lordships will appreciate that the words"terms of that contract"obviously mean the duration of it, the remuneration and the various duties under the service contract into which the director and the company have entered.
It had not been thought of by the Government at the Committee stage of this Bill—and we are dealing with a very important matter of disclosure of service contracts of directors—but at the Report stage a few weeks ago there was suddenly flung before another place subsection (3A) of this new clause, which provides:
"Subsection (1) above shall not apply in relation to a director's contract of service with the company or with a subsidiary of the company if that contract required him to work wholly or mainly outside the United Kingdom".
May I pause there for a moment, in regard to clear thinking about the wording of a clause in a Bill dealing with a very important matter. It is not the main

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gravamen of my dislike, and the dislike of my friends, of this new subsection, but it is an illustration, in my respectful submission, of the way in which this matter has been hurried. Does this clause mean that if there is a service contract, which provides that the company can require the director wholly or mainly to carry out duties outside the United Kingdom, it is supposed to be free of the requirements of subsection (1)? Without any doubt at all, this clause is capable of that interpretation.
There are many contracts which, I assume, if that interpretation is correct, could now be worded by companies to provide that the company most certainly required the director to carry out his services wholly or mainly outside the United Kingdom. In fact, he will not be doing it, but if the contract requires that he may do it there is certainly doubt as to whether the company would have to register the contract. That is an example of not very clear thought or very clear wording, but it is not my main objection.
My main objection and that of my friends is that we see no reason whatsoever for there not being as frank a disclosure in regard to the terms of such a contract, as there is in regard to an ordinary service contract for carrying out work in the United Kingdom. Shareholders ought to know and the public ought to know, because there can be very extraordinary arrangements made for such conduct of a director's services abroad, which may operate in a way which it suits the company and the director concerned to conceal. What can be the reason for excluding such a contract from proper disclosure?
I may be wrong about this, but I tried to discover whether anybody had observed the very essential differentiation which occurred in this subsection. This was so hurried when it was thrown in at the Report stage, and nobody seems to have commented upon the fact that there is no requirement for the terms of the contract of a director, who is serving wholly or mainly abroad, to be registered. If your Lordships will look very closely at paragraph (a) you will see that it provides as follows:
"in the case of a contract of service with the company, setting out the name of the director and
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the provisions of the contract relating to its duration".
That is the requirement in regard to the memorandum which must be kept. In other words, not even if a shareholder wishes to go to the registered office of the company and look at the memorandum, can he see anything else but the name of the director and how long the contract will last. Much joy may that inspection give him, in regard to the proper disclosure of the circumstances!
If your Lordships look at paragraph (b), you find that it is exactly the same in regard to the subsidiary company. The reason why I move for the deletion of subsection (2), and the consequential words that follow in subsection (3), is that all these contracts ought to be subject to precisely the same provisions in regard to disclosure and registration; namely, the terms of the contract should be there for all the world to see. My Lords, I beg to move.
Moved, That this House doth agree with the said amendment to the Commons Amendment No. 208.—(Lord Mishcon.)
Lord WEDDERBURN of CHARLTON: My Lords, I hope that the noble Lord's reply will not be, in effect. "Look at Section 26(7)(a)". Section 26(7)(a) already says that this section shall not require there to be kept a copy of the terms of the contract
"so long as the contract requires him "—
that is, the director—
"to work wholly or mainly outside the United Kingdom".
My noble friend's amendment would perhaps require some reconsideration of of that. What we on this side of the House are saying is that this loophole is now so enlarged, via the contracts with subsidiaries, just by mentioning their duration, that it has become such a serious matter, like so many other things in Section 26, that it has to be reconsidered. If this matter goes back to another place, as now it has to do, then the whole of Section 26 should be reconsidered. Therefore I support my noble friend's amendment as one which the Government ought to accept in the knowledge that Section 26(7)(a) will also need amendment in another place.
Lord LYELL: My Lords, I should like to thank the noble Lord, Lord Mishcon, for very clearly spelling out his amendment. I tried to follow the noble Lord, Lord Wedderburn of Charlton, but I must admit that he was very swift. I think, though, that I followed some parts of what he said. If I could attempt to reply to the noble Lord, Lord Mishcon, I hope he is not arguing that the Government's Amendment No. 208 as it stands is relaxing in any way the provisions—not necessarily the provisions of subsection (7) but any of the provisions of Section 26 of the 1967 Act. We believe that Amendment No. 208 imposes new requirements in relation to overseas service contracts which did not apply under the 1967 Act, whether by Section 26 or by any other section. We believe that there is not this doubt. We hope that Amendment No. 208 removes any doubt about the spread of Section 26. However, the amendment which has been tabled by the noble Lord, Lord Mishcon, would delete the exemption which is provided for directors' contracts of service overseas from this particular requirement in Section 26.
Your Lordships will have noticed that Commons Amendment No. 208 is a very technical clause. It deals with the disclosure of directors' contracts of service. It brings these into line with the substantive provisions of the Bill. However, the important change which Amendment No. 208 makes is to require merely the duration term of overseas contracts to be placed on the register so that it can be ascertained whether the provisions of Amendment No. 194 have been respected.
I would quickly remind your Lordships that Commons Amendment No. 194 deals with the duration of any agreement relating to a director's employment, whether at home or overseas. In particular, if it cannot be terminated by the company by notice after a period of five years, it must have been approved by the company in general meeting. That is the exact scope of Amendment No. 208. Rut we have not sought to alter the exemption in Section 26, as was spelled out by the noble Lord, Lord Mishcon, for terms relating to matters other than duration. The main policy that lies behind the exemption already in existence in Section 26 is to prevent any details emerging on the other side of disclosure, a point which has
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been raised by the noble Lord, Lord Wedderburn of Charlton, and, indeed, by the noble Lord, Lord Mishcon, which might, and, indeed, would, be embarrassing either to the director or to the company in its dealings with customers, or any prospective customers abroad.
I am sure that your Lordships will be aware of at least two directors who are at this moment in custody in countries around the world. Whether they did or did not do anything which was against the law of this country for which they are at present incarcerated remains to be seen. However, we envisage circumstances in which the details of various contracts of service in certain parts of the world ought to be kept confidential. I think the noble Lord, Lord Mishcon, might agree with me upon that point. We take his point that Section 26 is fairly wide—
Lord MISHCON: My Lords, before the noble Lord turns to another point, I wonder whether he will permit an intervention. He said that I would no doubt agree with him in a proposition that I thought he was putting before the House; namely, that certain directors are incarcerated abroad for certain offences. I do not know to which directors the noble Lord is referring. I learned only a few days ago that one of them had been released. There is no need to mention names in this House. If, however, the noble Lord is trying to associate me or my friends with the suggestion that we ought to try to protect people who have breached the laws of a foreign country, I want to dissociate both myself and my friends from this immediately. I do not know what point the noble Lord was trying to make.
Lord LYELL: My Lords, that is the brief: that there are certain parts of the world where details ought to be kept confidential. That is the point I was making.
Lord MISHCON: My Lords, I wonder whether the noble Lord would give an example to the House.
Lord LYELL: No, my Lords; I think it would be better that I should not give an example to the House, because it could be embarrassing. I would much rather not do that. I think the noble Lord will understand that there are certain cases of this type—
Lord LLOYD of KILGERRAN: My Lords, surely the noble Lord can give us some examples. If he continues to say that there are these cases, surely he should reply to the noble Lord, Lord Mishcon, by giving an example.
Viscount TRENCHARD: My Lords, I think the analogy was unfortunate; in fact, it forms no part of the Government's answer. The noble Lord, Lord Lyell, is aware of a number of details going on in this kind of area. What I want to say is that the policy lying behind the exemption in Section 26 is to prevent details—not the kind of details that we may have put into your Lordships' minds—from emerging that could be embarrassing to the director or the company in its dealings with customers or prospective customers abroad. One can, in that situation, imagine circumstances in which details of contracts of service in various parts of the world, like the Middle East, are best kept confidential. I cannot give examples, but I do need to withdraw the kind of example that we introduced into this debate.
Lord MISHCON: My Lords, the noble Viscount has brought a breath of fresh and clean air into the House. I was wondering what sort of atmosphere we were walking into before he did so; but he has done it, and I will not take any more advantage of the point. The point I was trying to make was specifically related to remuneration. For the life of me, I cannot see for the moment how the question of the remuneration of a director could in any way be adverse to the interests of any company in regard to its directors' operations abroad, but no doubt I shall be enlightened by the noble Lord, Lord Lyell, when he comes to deal with a different sort of point from the one he was trying to make before.
The DEPUTY SPEAKER: (Lord Nugent of Guildford): My Lords, does the noble Lord wish to press his amendment?
Lord MISHCON: My Lords, I hoped that the noble Lord, Lord Lyell, would answer the amendment in full.
Lord LYELL: My Lords, we are getting a little out of order. I have spoken at least twice so far and there have been interruptions. With leave, may I com
1088
plete my comments. I understand that one example that I am authorised to give of such details, where we believe that they ought to be kept confidential, covers the Arab-Israeli boycott. I am told that that would be an example of where such remuneration might well be kept confidential. The noble Lord, Lord Mishcon, asked for an example, and I have given him one. He may not regard it as satisfactory, but that is the best I can do so far.
Lord WEDDERBURN of CHARLTON: My Lords, may I be quite sure that I am clear about what the noble Lord is saying?
Lord LYELL: Yes, my Lords, by leave.
Lord WEDDERBURN of CHARLTON: The noble Lord is speaking about remuneration which would be a matter of some delicacy in relation to the particular international situation which he described. I hope the noble Lord will assure the House that he is not talking of anything in the nature of association with "slush funds" or the like. I think the Government had better give that assurance because when we come to read Hansard this debate so far will read as a very extraordinary one.
Lord LYELL: My Lords, by leave I really think it is the noble Lord, Lord Wedderburn, who is introducing what he calls "slush funds" and that is not a term, I am sure, that he would approve of being used in his examination papers or even being bandied around your Lordships' House in a debate of this kind. No, my Lords, let us leave it there and I do not think I can go further than I have already gone, which is to say that we believe that Amendment No. 208 covers the duration of any agreement under 194 and it does not seek to go any further. That is just one example of where we believe that remuneration should be kept confidential. I hope the noble Lord, Lord Mishcon, may accept it and I do not think we can go much further than that, apart from mentioning that we have altered Section 26 only so far as is necessary for the effective functioning of this Part of this Bill which is dealing with directors' conflicts of interest. We do not think that a wider revision of Section 26

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and the various other provisions relating to statutory disclosure of the terms of a director's relationship with his company is a matter for this Bill.
Lord BRUCE of DONINGTON: My Lords, I must apologise for detaining the House on this particular point and also for a slight inaudibility which I think for me, the House will agree, is not quite customary. I am still a little mystified by the situation with regard to this amendment that has been revealed by the noble Lord, Lord Lyell. Let us take a circumstance where a director whose terms of contract or whose contract of service does not explicitly state that his work lies mainly overseas. Let us say that he is in the position of an executive director, a sales director or a managing director and be goes abroad to negotiate a very large deal. Let us say that he takes with him a director who, because his duties are explicitly within his agreement, is required to perform his duties wholly or mainly overseas. Here we are then with a circumstance where two directors are involved in negotiations, presumably with an important foreign customer. The agents of the company concerned can go hack to London and, if they happen to know a shareholder, they can of course get full particulars of the managing director's contract, including the salary, the duration and everything else, but in respect of the other director accompanying him they simply cannot get that information.
That does not seem to me to make any logic at all and certainly the reply which the noble Lord, Lord Lyell, has given so far I regret to say does not help to elucidate the position. I am hopeful, particularly after the lucid comments made by my noble friend Lord Mishcon and my noble friend Lord Wedderburn, that the Government can give the House some assurance that this aspect of the matter can be looked at again because quite clearly some rather more convincing explanation has to be given than that which the noble Lord has given to the House so far.
Lord LYELL: My Lords, I am sorry that I cannot elucidate further and especially on the point raised by the noble Lord, Lord Bruce of Donington. I think that is going a little way off. As I have said several times, as we understand
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it, Amendment No. 208 is dealing with the duration of the contract of service and especially on the conflict of any interests which might occur between the director and the company and I cannot see how further details that the noble Lord has raised in these interesting examples logically need be put into this particular Part of this Bill. I see that there is merit in what the noble Lord is saying, but not necessarily in this Part of the Bill. That is why I am afraid I cannot go further than I have already done. Indeed, as your Lordships will see, I have been in trouble already in attempting to help and I regret that I cannot go further.
Viscount SIMON: My Lords, I really do not follow the logic of the noble Lord's argument.
Lord DENHAM: My Lords, I wonder whether I may come in at this point because I think we are getting very much out of order on this. This is not a Committee stage. I know it is difficult because some of these points are new. My noble friend has the ability to speak again by leave of the House, but I do not think he can do it again and again, and again and again. I wonder whether it would not be possible after this amendment—when we come on to the other amendments—for noble Lords to make all their points together, so that my noble friend does not have to speak too often, because at this stage we are rather going beyond the rules of order.
Viscount SIMON: My Lords, perhaps I may continue what I was saying—and this is the first time that I have spoken on this amendment. It is rather hard to say that we cannot speak after the noble Lord has expressed the Government's view, as we do not know what the Government's view is until we hear it. On this occasion I merely wanted to say that I did not follow the logic of his argument. In paragraph I it is provided that these particulars about the directors' remuneration will be made known and then there follows a clause which says that they need not be made known if his work is principally abroad. I think the noble Lord, Lord Lyell, said that this had nothing to do with remuneration, but is that not exactly the case?
Lord MISHCON: My Lords, I think I had better save the Government from further embarrassment by merely saying that I propose to divide the House.
8.5 p.m.
On Question, Whether the said amendment (No. 208A) to the amendment shall be agreed to?
[Amendment No. 208B not moved.]

LORDS AMENDMENT TO COMMONS AMENDMENT No. 208
208C At end insert—
(" (4) The following subsection shall be inserted after subsection (8) of that section:
" (9) Subsection (1) above shall apply to a contract for services as it applies to a contract of service ".").
8.14 p.m.
Lord WEDDERBURN of CHARLTON: My Lords, I beg to move as an amendment to Commons Amendment No. 208, Amendment No. 208C. This amendment is also a very serious matter which is caused by the same events as those which my noble friend Lord Mishcon described. It arises from the very unsatisfactory discussion on 26th February in another place at cols. 1162 to 1165, where this issue of Section 26 was put on the agenda by the Government. As I have suggested to your Lordships in speaking to a previous amendment, it
Their Lordships divided; Contents, 20; Not-Contents, 46.

CONTENTS

Boston of Faversham, L.

Howie of Troon, L.

Ross of Marnock, L.

Bruce of Donington L.

Lloyd of Kilgerran, L. [Teller.]

Simon, V.

Collison, L.

Lovell-Davis, L.

Stone, L.

Galpern, L.

Mishcon, L.

Wade, L.

Gregson, L.

Pitt of Hampstead, L.

Wedderburn of Charlton, L.

Hale, L.

Ponsonby of Shulbrede, L. [Teller.]

Whaddon,L

Houghton of Sowerby, L.

Wynne-Jones, L.

NOT-CONTENTS

Airey of Abingdon, B.

Kinnaird, L.

St. Just, L.

Bellwin, L.

Long, V.

Sandys, L. [Teller.]

Belstead, L.

Lyell, L.

Selkirk, E.

Caithness, E.

Mackay of Clashfern, L.

Selsdon, L.

Cork and Orrery, E.

Macleod of Borve, B.

Sharples, B.

Cullen of Ashbourne, L.

Mansfield, E.

Strathclyde, L.

Denham, L. [Teller.]

Margadale, L.

Sudeley, L.

Falkland, V.

Merrivale, L.

Torphichen, L.

Fortescue, E.

Morris, L.

Trefgarne, L.

Galloway, E.

Mottistone, L.

Trenchard, V.

Glasgow, E.

Mowbray and Stourton, L.

Tweedsmuir, L.

Gowrie, E.

Nugent of Guildford, L.

Vickers, B.

Greenway, L.

Redesdale, L.

Vivian, L.

Hampden, V.

Renton, L.

Wardington, L.

Hives, L.

Rochdale, V.

Young, B.

Hornsby-Smith, B.

Resolved in the negative, and amendment disagreed to accordingly.

raises the whole question of the difference between a contract of service, sometimes described as a contract of employment, which is registrable under Section 26 of the 1967 Act, and a contract for services, which is in most people's opinion not registerable under Section 26 of the 1967 Act. I say "most people" advisedly because this is not just a technical legal point. Section 26 does speak of "a contract of service" between the director and the company, and to a lawyer that clearly excludes contracts for services. If we may make the distinction, an executive contract is one whereby the director works whole time for the company. A consultancy contract is a contract for services. But businessmen, like the Stock Exchange, tend to talk about "service contracts".
I had no reply on the previous occasion when I touched on this matter in regard to the Stock Exchange listing requirements in Schedule 8 speaking of "service contracts". I can only hope that the noble Lord has now taken advice and has some reply to make on it, because it is this business term "service contracts" which leads to what I am advised is a variation in practice between companies. Some believe that "contract of service" in the

1093
1967 Act does not mean what it says and that they have to register contracts for services. I think in policy those companies are right, but they are a very small minority. Most keep to the letter of the law, disclosing on the register contracts of service.
Having raised Section 26 of the 1967 Act on Report in another place, the Government have a responsibility to get it as right as possible. The contention of myself and my noble friends is that having put Section 26 on the agenda the Government have not fulfilled their obligation to the House and to the country and especially to the business community by getting Section 26 into a proper state. They have certainly not fulfilled their obligation to the country as a whole, in the respect that our company law demands disclosure properly and fairly and fully made, and there is absolutely no reason why the technicalities of a distinction between contracts of service and contracts for services should be the metes and bounds of the obligation, even in the face of the other obligations which are exposed by the amendments from another place which we have already passed.
There is no reason why this distinction should be made in Section 26 in policy. There is even less reason if one turns to the law. How does a lawyer recognise a contract of service rather than a contract for services? I quote from the leading book three little sentences or episodes; Hepple and O'Higgins on Employment Law, the third edition; they give the following as the possible tests of a contract of service. As the noble and learned Lord the Lord Advocate will know, even in Scotland the practice is somewhat similar and the difficulties somewhat similar to those in England, though the Scottish answer is no doubt superior. In England, the traditional test—and here I quote Hepple and O'Higgins—is control:
"An employee works under the control of another not only as to what he must do but how and when he must do it".
Then there arose the difficulty of the difference between the taxi driver who drives his employer from one place to another as an independent contractor and the taxi driver who is an employee. So the cases were not enough, especially in regard to skilled workers, and the
1094
courts introduced a different test. I quote again from Hepple and O'Higgins:
"Did the alleged servant form part of the alleged master's organisation?"
What a test to apply to a director! Whether he is a consultant as well as a director, and a chief executive as well as a director, he is obviously part of the organisation.
How do we use that test? Lastly, I should like to quote again from Hepple and O'Higgins. They say:
"The courts have come in recent times to prefer a more flexible, multiple or mixed test. At its most casuistic level this is simply said to be a common sense approach of the reasonable man".
When you get to the common sense approach of the reasonable man in the mouths of lawyers you know that they have reached the end of their tether and cannot really give you a definition at all. Indeed, Hepple and O'Higgins say:
"Recently it has been suggested that a multiple of tests should be applied".
It has been suggested that they should all be mixed up.
This is a matter that has come to the attention of the courts in the case of Parsons v. Albert Parsons and Sons Limited, reported in 1979 Industrial Cases Reports at page 271. The Court of Appeal had to deal with the case where a director was dismissed and claimed unfair dismissal. This he could do, of course, if he was an employee under a contract of service; but not if he was not an employee, but merely acting by way of rendering services to his company as well as being a director in office. The industrial tribunal thought that he was not an employee. The employment appeals tribunal thought that he was or might well be, even though there was no express contract. The Court of Appeal thought that the industrial tribunal had the better view.
If a learned tribunal, a learned employment appeal tribunal and the Court of Appeal take three distinct views of the same transaction upon which a director is engaged with his company, how can it be right to place upon company secretaries and businessmen, albeit with advice, the responsibility to decide what to put and what not to put upon the register? It is, in policy, a bad formulation in Section 26. I say that in the full knowledge that the noble Lord will probably say that it was passed by a Labour

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Government, but that would never inhibit me from saying that something was bad. It was very bad in 1967. I believed that it should cover services then, and so did many other people; including many businessmen; and I believe that it should cover services now. It is bad in policy and it has been shown to be absurd.
Case law has shown it to be ridiculous. Any company secretary who is to deal with this matter must read all the cases, including the case last year concerning whether the principal oboist of the London Philharmonic Orchestra was a servant or a consultant—and he turned out to be a consultant. It is quite absurd to keep Section 26 in its present form if the Government have put it on the agenda. In view of the difficulty that they ran into with the last amendment—although they will not run into the same embarrassment, I hope, over this amendment (albeit they won—that is not the point; it is when they read Hansard, that they will be embarrassed, not with the"verb ")—I hope that their embarrassment on this clause can be a little less and that they can give us some comfort and idea that they are prepared to look at it again.
I hope that the noble Lords and Ministers opposite will take this matter seriously. What has happened is that a very important area of commercial law—and I say this seriously to the noble Lord, Lord Lyell—is being legislated upon on the basis of 10 minutes in another place, on Report, and a refusal of the Government to answer the arguments in this House. If that is the basis for bicameral government, then unicameralism may have something to be said for it. Noble Lords are not doing themselves justice in paying attention to these important matters of commercial law on the basis of things, put in at Report at the last moment in another place, which will never be properly debated. I say for the record that if the Government refuse to consider this matter seriously, as they did the last amendment, and as they perhaps will our future amendments concerning Amendment No. 208, then they will have a lot to answer for when some poor litigant or poor person who could have received justice with a proper registration of director's contracts, comes knocking at their door after they have left office. I beg to move.
Moved, That this House doth agree with the said amendment to Commons Amendment No. 208.—(Lord Wedderburn of Charlton.)
Lord MACKAY of CLASHFERN: My Lords, I entirely appreciate the point which the noble Lord, Lord Wedderburn of Charlton, is making, and I think that I should be right in saying that most of the cases to which he has referred in respect of which difficulty has arisen in distinguishing between contracts of service and contracts for services, have not arisen in relation to Section 26 of the Companies Act 1967. If what we could do by accepting his amendment tonight would be to rid the law of that difficulty in all circumstances, then I think that it would be well worthy of very serious consideration. However, that is not to say that the point is not worthy of serious consideration.
The position so far as we are concerned is as follows. Section 26 of the 1967 Act has been on the statute book for some time. What we have sought to do so far—the noble Lord speaks about putting Section 26 on the agenda—is to put into Section 26 those amendments which are consequential upon the policy which has been promoted in the rest of these amendments.
I certainly agree that the situation is not by any means happy, but I do not feel that simply to accept the amendment would solve the matter. I think that the view that Section 26 requires independent consideration, consideration independently of these policy considerations which have led to some amendment to Section 26, is the correct course and that the Government should take time to do that. It looks as though—and again one must be careful about prophesying—an opportunity might present itself in due course.
So far as the listing agreement is concerned and so on, one can approach the matter in the following way. Section 26 contains stipulations as to what must be recorded. There is no harm, if one is in doubt, in erring on the side of safety, and that may well be the wise practice. So, while I appreciate the point that the noble Lord is making, I would respectfully submit to your Lordships that this is not the time to give effect to it.
Lord MISHCON: My Lords, the noble and learned Lord talks about looking at this matter "in due course" and he regarded it as a matter which certainly ought to be looked into for the reasons that were advanced so cogently by my noble friend. Did he mean in the course of this Bill, or did he mean in the course of time? If he meant in the course of this Bill, he will make everybody happy. However, if he meant in the course of time, then we may be postponed to eternity.
Lord MACKAY of CLASHFERN: My Lords, with the leave of the House, I distinguish between time and eternity, but it is in the course of time that I had in mind, but I hope not such time that it might trespass on eternity, as I hope this debate will not. I think that there are reasonable prospects of a fairly early reconsideration of company law. I think that enough has been said to show that Section 26 is quite a difficult area in that it requires proper consideration. I would respectfully submit that due time—not in this Bill—would be the correct time in which to do it.
Lord WEDDERBURN of CHARLTON: My Lords, I thank the noble and learned Lord for what he has said, although I cannot agree with it. I should like to make two points in reply. First, the Government's attitude—and I think this ought to be said this evening because one should be frank about it—seems to be that they are determined not to accept any amendment, however reasonable, albeit that there are arguments for and against—there are always such arguments. But they are not really seriously concerned to accept any amendment to this Bill, obviously because they want it on the statute book before Easter.
I cannot understand what is so magical about getting a Companies Bill. At long last we shall have one that will reach the statute book. It failed in 1973 and it failed in 1978. Now we shall have one. The 1976 measure was, after all, not a very big reform. Now we shall have a major Bill and little bits and pieces are put in amending previous Acts. I cannot understand why, for the sake of a week and getting it on the statute book before Easter, the Government are taking this obdurate attitude.
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Secondly, I do not find in my breast the same incorrigible optimism as that in the noble and learned Lord's, that the Government will be here to present any further Companies Bill to this or any other House. Indeed, events may make it very difficult for them, even if they are here, to put it in their parliamentary timetable. I am most disappointed that the Government will not put right what could so easily be put right, but in view of the circumstances I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 208
208D At end insert—
(" (4) There shall be added to that section the following subsection:
"( ) Where a director is a partner in or other member of a firm or a member, director or shadow director of a company instructed or employed by his company as stockbrokers, there shall be attached to the copy required by subsection (1)(a) above or to the memorandum required by subsection (1)(b) above, as the case may be, a note stating that fact." ").
Lord BRUCE of DONINGTON: My Lords, I beg to move, as an amendment to the Commons amendment, Amendment No. 208D. This amendment arises within the context of the Government's expressed intentions to introduce at some future time a further Companies Bill dealing with the EEC Fourth Directive, which implies that the next Bill will deal largely with accounting matters, with the standardisation of a form of accounts, and so on. It also takes place at a time when the country, in so far as it has been informed, has had an opportunity of considering the implications of the Dowgate Report, a report which your Lordships will recall was made by Mr. Joseph Jackson, QC, and Mr. Young, a chartered accountant, appointed by the Board of Trade under Section 165B to investigate the affairs of a group of companies, which for the moment we shall call the Dowgate group.
This report disclosed—and I do not think it is any exaggeration to say this—a degree of lying, cheating, double-dealing, concealment from shareholders of transactions that had actually taken place affecting the directors personally, breaches of trust

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and refusal by some of the witnesses summoned to co-operate with the inspectors themselves. One is happy to say that this is not typical of the City as a whole. One accepts the view that it is the exception. But it makes bloodcurdling reading, as the noble Lord opposite will know if he has read through it.
Quite clearly, the current Bill before your Lordships makes no pretence of dealing with any of the matters that have been revealed in the Dowgate Report; the Government have taken very little account of its conclusions and certainly have not acted specifically on any of its recommendations. That being so, and in view of the fact that the next important Companies Bill will deal largely with matters of account stemming from the Communities Fourth Directive, and the very dubious likelihood of yet a further Bill dealing, to some extent, with the evils revealed in the Dowgate Report, we on this side of the House think that we should persuade the Government to take one tentative step towards the recommendations made by the inspectors in this particular report.
Those of your Lordships who have read the very comprehensive report of the inspectors will recall that there was a firm of stockbrokers acting for one of the companies within the group and that certain members of that firm of stockbrokers were also members of the board of the particular company with which they were having dealings. I do not want to recite any names, just the principles involved. It was revealed in the evidence, and accepted by the inspectors, that certain directors of the company had used the firm of stockbrokers, of which their colleagues were members, in order to conduct a series of transactions that would not stand up to the very high standards that are normally in force in the City of London.
Briefly, the stockbrokers would buy shares on behalf of one of the directors. If the shares went up. they would be put down to the directors' account; on the other hand, if they went down, they would be charged to the company's account. That is the broad outline of it. I shall not go into any further details of the report, but at paragraph 7 of their recommendations the inspectors say:
"Consideration should be given to the prohibit
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tion of a company instructing or employing a firm or company of stockbrokers, one of whose members or directors is also a director of the company in question".
This amendment does not go as far as that. We take the view that at some future time we hope soon—some legislative action will be taken to implement those detailed recommendations that were made by the inspectors appointed by the Board of Trade. However, as an interim, with a Government that will certainly be beset with many problems as the years roll on, within that context, we think that as a minimum and preliminary step it would be proper at this stage for Section 26 to be amended in such a way that information about the relationships between a director and a firm of stockbrokers, of which he is also a member, ought to be available to the members of that particular company by its entry on a register in the form set out in Section 26 of the Companies Act 1967.
This is a very modest amendment which will enable the Government to find out the extent of the problem. Of course, it is no answer to say that the provisions of the Companies Acts already require directors to disclose their directorships in other limited companies. That is, of course, so, but stockbrokers operate very largely as firms, and where this is so there would be no requirement for them to disclose that information at the present time, whether in a form in which it can be apprehended only by members of the company or whether, as in the case of those particulars that are registrable anyway on the company file, in a form open to the public.
This modest amendment provides the Government with an opportunity to consider the matter. I sincerely hope that they will not reject it on the grounds that it does not go far enough, that it does not go as far as the comprehensive legislation that they may have in mind on some future date, on the assumption that they will have the parliamentary time to deal with it. At any rate, acceptance of this amendment would be an earnest that they take the problem seriously and that they are prepared to ensure that members of public companies covered by this Bill are in a position to be informed as to those of their colleagues who happen to be members of stockbroking firms with which the company is in a contractual relationship. I beg to move.
Moved, That this House doth agree with the said amendment to the Commons Amendment No. 208.—(Lord Bruce of Donington.)
Lord LYELL: My Lords, the noble Lord, Lord Bruce of Donington, has gone into this amendment in considerable detail, and in support of his amendment has quoted the Dowgate Report. The Government have consulted widely on the recommendations made by the inspectors in the report which the noble Lord, Lord Bruce, mentioned. Comments have been sought from the Stock Exchange, and indeed from every other form of organisation. As regards this particular recommendation, it seems that the general feeling in the City is that it is far the best thing to rely on the Stock Exchange's disciplinary control over its members in this particular aspect of the Dowgate Report. Certainly the Government have not, and are not, brushing aside any of the inspectors' other recommendations. We hope that there will be action to implement any of the inspectors' powers which need to be strengthened.
I am advised that Section 199 of the Companies Act 1948, which has been strengthened by the Bill before your Lordships today, already requires directors to disclose their interests in contracts with the company including their interests by virtue of the fact that they are members of partnerships which are party to such contracts. I think that Section 199 is still on the statute book, and I believe that that is a valuable safeguard.
It is already recognised, in regard to the noble Lord's amendment, in the Stock Exchange guidance for brokers—and these are its own members—that when a broker is also a director of a quoted company problems arise in relation to dealings with the securities of that company. We do not think that there is any purpose in requiring disclosure of that relationship to members of the company itself if the object is to strengthen the insider dealing provisions which already cover this problem by preventing any person with inside information, as we heard in the Dowgate Report, from dealing as an agent either as a director or a member of the Stock Exchange. We do not think that this amendment is relevant for this particular part of the Bill.
Lord BRUCE of DONINGTON: My Lords, I am grateful to the noble Lord for his reply. What he has said reinforces my view that it ought to be incorporated in the Bill. If it is so unexceptional that it commends itself to the Stock Exchange in terms of their voluntary approval, then there does not seem to be any reason why it should not be incorporated in the Bill itself. I do not think that the provisions of Section 199 of the old Act at all cover the situation which is described here, otherwise there can be no doubt that the inspectors would have referred specifically to that fact. It is precisely because the inspectors appointed by the noble Lord's department thought that extra action was necessary over and above that which was incorporated in the existing legislation, that they made the recommendations they did.
Talking of insider dealing, I entirely agree that where a rigid contractual relationship exists between a firm of stockbrokers and a company which can be reduced to written form, or which might even in certain circumstances be under seal, these are things for disclosure. But, as anybody who has read the Dowgate Report knows, the relationship was a completely unofficial one. The transactions were carried out over the telephone. There was perfect amity between the directors involved and those in the company concerned. There was a relationship that could not be expressed in terms of any contract that was in fact disclosable within the provison of any Act. There was, if you like, what is euphemistically termed "an understanding". That understanding expressed itself in the whole series of events which were reported in detail, and with great clarity, by the inspectors appointed by the Board of Trade.
We on this side of the House would take it as a sign of good faith, and a sign that, so far as noble Lords opposite and we are concerned, these are not profoundly party political matters but are matters essentially of firm purpose in establishing good faith and honour within this great commercial and industrial centre, if the noble Lord, on behalf of the Government, would accept this amendment, and certainly on the basis that they will pursue far more vigorous action afterwards when they next bring a Companies Bill before this House.
On Question, amendment negatived.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 208
208E At end insert—
(" (4) Subsection (1) above shall apply to a contract whether the director is to perform his obligations under it in his capacity as a director of the Company or in any other capacity.").
Lord WEDDERBURN of CHARLTON: My Lords, I beg to move as an amendment to Commons Amendment No. 208, Amendment No. 208E. This is an amendment which can be expressed briefly in three points. Prefacing them, I should like to say to the Minister that this really seems to me something which is justifiably moved as an amendment to this Bill. It is something on which the Government must have an attitude, and I hope it will be to accept this amendment. It arises because Section 26 is put on the agenda by the Government's move at Report in another place. Section 26 of the 1967 Act has an ambiguity in it. Because it has an ambiguity in it this amendment is a consequential amendment upon the Government's own amendment in another place.
It is consequential because the new subsection (3)(a) which the Government wish to put in Section 26 will also contain the ambiguity as to the registration of the duration of a contract where the work is abroad, unless the Government cure that ambiguity in Section 26 as a whole. This is a golden opportunity to do some law reform. Having had time to ponder it, I say in reply to the Lord Advocate's point that no cases have arisen under Section 26, and certainly none of any magnitude or of report. I accept that, but it is my contention that in commercial and company law whether there has been a lot of litigation is not the test of whether there is a problem. Businessmen may have varying practices, and different companies with a register like this may adopt different practices which are in fact unfair on the directors of one, or the shareholders of the other. It is on standard practice in disclosure, which is where the law intervenes, that the law ought at least to insist.
My second point is what the ambiguity
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is. I can put it no better than by quoting two passages, again from text books, but that is quicker than doing it by reference to case law. In the fourth edition of Professor Gower's Modern Company Law, at page 589, it is stated:
"The intention"—
that is, the intention of Section 26 dealing with contracts of service—
"was presumably to cover all service contracts with someone who was a diector, but it is arguable that only contracts for service as a diector are caught."
My second quotation is from a book which is not yet published, but I have had the privilege of seeing the page proofs of a book by Mr. Joffe on this very Act before it has become an Act. It is an interesting work. In the course of it he says in Chapter 10:
"It is uncertain whether ' contract of service ' includes a contract of service in some capacity other than director"—
That is, under Section 26,
"or whether it is restricted to directors' contracts of service qua director".
That is not a point of mere technicality because I know of a company where directors take the view that it is only their contracts of service which they conclude qua director with the company that they will put on the register. I know of that happening in one case.
The noble and learned Lord may tell me that it is not very widespread, but there is an uncertainty. Other companies I am sure take the view, which I believe must be the intention of the section, that where the director has a contract of service—now that we have even lost contracts for services—having gone through that horrible morass he surely does not get into another one in asking himself, "Am I required to register the contract because I perform my obligations qua director rather than as anything else?" The noble and learned Lord, without the Lord Advocate, will allow me to advert to the decision of the Privy Council since it is not technically an English law in Lee v. Lee's Air Farming 1961, in the Appeal Cases, which I am sure he will know, where the person who held 99 per cent. of the shares was also the chief director and chief pilot of the aeroplane which the company ran, and that was more or less its business; he was held to be both director and employee in another capacity. In

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fact, he was employing himself, in layman's language, but we lawyers know that there is more to it than that. I say that in such a case, in English, in Scottish and in British law he should be obliged to register his contract on the register at Companies House. That is what this amendment is designed to do.
The Government must have a view about it. I hope their view is what is stated here, because if they resist this amendment a great many companies are going to have to take in their lawyers rather more often to decide which contract is a contract qua director and which is not. I cannot believe that that is the Government's view, so I hope that for once they will accept this amendment. This Bill has to go to another place. Why can we not cure a minor defect in our law of this kind?
Moved, That this House doth agree with the said amendment to Commons Amendment No. 208.—(Lord Wedderburn of Charlton.)
Lord LYELL: My Lords, the noble Lord believed that there was some ambiguity. I am advised that it seems that the amendment is designed to specify that the register of director service contracts, which is kept in accordance with Section 26, should include the contracts whether the director is to perform his obligations under it in his capacity as director of the company or not. I am advised that the reference in Section 26 to contracts of service is open-ended. Therefore, it would apply to contracts of service qua employee, manager, and so on, in just the same way as it applies to contracts of service qua director. I hope that that will go some way to answering the noble Lord in his amendment.
Lord WEDDERBURN of CHARLTON: My Lords, I am filled with nothing but delight to learn that the noble Lord's advisers are in agreement with me. I am mystified as to why the Government will not adopt this little clause in this important Bill. If there is a doubt about it, I could cite many other works and discussions where the ambiguity has been referred to. This is a legislature. It will probably create litigation, or if it does not it will cause expense, because people will have to go to their solicitors to get the advice which the Minister receives for free from his advisers. Why should he put the
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business community, merely because of the Government's obduracy this evening, to the expense of going to see their solicitors every week to decide on this matter?
It is quite extraordinary how if this Government, who are supposed to favour enterprise, and wanted to remove obstacles from the way of the businessman, saying that employment legislation must go, and all sorts of other rights must go before the small business, are posed with a little ambiguity, a nasty, nagging little thing which the small businessman with a company may come up against—like our chief pilot in the Lee case any week—they say that it is much too dfficult; although they agree with me that it is right, they will not put it in the Bill.
When one reads these debates on Amendment 208, I think the Government may well consider, when this Bill goes to another place, that their right honourable friends ought perhaps—as they did before—to take another look at these matters. The Government were wrong in this House before, and are wrong in this House tonight, on a large number of the matters that we have debated. I only hope that they will be put right in another place, as to some extent they were put right before. As the Government are obdurate, I beg to withdraw the Amendment.
Amendment, by leave, withdrawn.
On Question, Motion agreed to.
COMMONS AMENDMENTS
209 After Clause 45, insert the following new clause:
"Power to increase financial limits.
.—(I) The Secretary of State may by order made by statutory instrument substitute for any sum of money specified in this Part of this Act a larger sum specified in the order.
(2) An order under this section shall be subject to annulment in pursuance of a resolution of either House of Parliament.
(3) An order under this section shall not have effect in relation to anything done or not done before the coming into force of the order and, accordingly, proceedings in respect of any liability (whether civil or criminal) incurred before that time may be continued or instituted as if the order had not been made."
210 After Clause 45, insert the following new clause:
"Shadow directors.
.—(1) Subject to subsections (2) and (5) below, a person in accordance with whose directions or instructions the directors of a company are accustomed to act (" a shadow director ") shall be treated for the purposes of this Part of this Act as a director of the company unless the directors are accustomed so to act by reason only that they do so on advice given by him in a professional capacity.
(2) A shadow director shall not be guilty of an offence under section (Further provisions relating to recognised banks) (6) above by virtue only of subsection (1) above.
(3) Section 199 of the 1948 Act (disclosure by a director of a company of his interests in a contract, transaction or arrangement with the company) shall apply in relation to a shadow director of a company as it applies in relation to a director of a company, except that the shadow director shall declare his interest, not at a meeting of the directors, but by a notice in writing to the directors which is either—

(a) a specific notice given before the date of the meeting at which, if he had been a director, the declaration would be required by subsection (2) of that section to be made; or

(b) a notice which under subsection (3) of that section (general notices) falls to be treated as a sufficient declaration of that interest or would fall to be so treated apart from the proviso;

and section 145 of that Act (minutes of proceedings of meetings) shall have effect as if the declaration had been made at the meeting in question and had accordingly formed part of the proceedings at that meeting.
(4) A shadow director of a company shall be treated for the purposes of section 26 of the 1967 Act (directors' service contracts, etc., to be open to inspection by a company's members) as a director of the company.
(5) A body corporate shall not be treated as the director of any of its subsidiary companies by reason only of subsection (1) above."
8.55 p.m.
Viscount TRENCHARD: My Lords, there are no amendments to these two Commons amendments—Nos. 209 and 210—and therefore I should like to move their adoption formally. I beg to move.
Moved, That this House doth agree with the Commons in the said amendments.— (Viscount Trenchard.)
On Question, Motion agreed to.

COMMONS AMENDMENT
211 After Clause 45 insert the following new clause:
"Connected persons.
.—(1) For the purposes of this Part of this Act, a person is connected with a director of a company if, but only if, he is—

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

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

(c) a person acting in his capacity as the trustee (other than as trustee under an employees' share scheme or a pension scheme) of any trust the beneficiaries of which include the director, his spouse or any of his children or step-children or a body corporate with which he is associated 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 any such body corporate; or

(d) a person acting in his capacity as partner of that director or of any person who, by virtue of paragraph (a), (b) or (c) above, is connected with that director;

unless that person is also a director of the company.
(2) In subsection (1) above a reference to the child or step-child of any person includes a reference to any illegitimate child of that person, but does not include a reference to any person who has attained the age of 18 years.
(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, together, are interested in shares comprised in the equity share capital of that 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 is interested in any part of the equity share capital of that body or is entitled to exercise or control the exercise of any part of the voting power at any general meeting of that body; and

(ii) that director, the persons connected with him 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.

For the purposes of this subsection, a body corporate with which a director is

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associated and a trustee of a trust the beneficiary of which is or may be such a body corporate shall be regarded as if they were not connected with that director.
(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.

Viscount TRENCHARD: My Lords, I do not intend to describe Amendment 211. My noble friend Lord Lyell mentioned it in his general introduction to this section. It covers connected persons, family and otherwise. I am aware that there are amendments tabled to it, and that will give me an opportunity to speak to those points which I know Members of the House wish to press. I beg to move.
Moved, That this House doth agree with the Commons in the said amendment. —(Viscount Trenchard.)

LORDS AMENDMENT TO COMMONS AMENDMENT No. 211
211A In subsection (2), line 3, leave out from first ("person") to the end of subsection.
Lord WEDDERBURN of CHARLTON: My Lords, I beg to move Amendment No. 211A to the Commons amendment. The object of the new section is to define the persons connected with directors, to stop up loopholes and prevent them from escaping from their obligations in what would be Part IV of the Bill. We have already come across the "connected person" in a large number of clauses that we have adopted this evening, among them Amendments Nos. 196 and 201: the director must or must not do certain things, and a connected person must not be the loophole, or way out.
The first obvious loophole is the family. Company law is now well adapted to using phrases to stop the family from being used as the method of evasion of a
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director's duties. It was done quite well in the 1967 Act for certain purposes, but the 1967 Act was rather different from this statute and does not have the equivalent of the Part IV obligations, as I have called them; that is, the clauses with which this has just dealt. Into the stopping up of loopholes, the obstacles to evasion, naturally come the spouse, child or stepchild in this clause. But then we find in subsection (2) that the evasion is stopped only if the child or stepchild is not over 18 years of age. This was criticised in another place on 4th December, especially in cols. 537 to 538 of the Official Report. The answer of the right honourable friend of the noble Lords, the Under-Secretary of State for Trade, was first of all that it was in the same form as in the 1978 Bill. That, as I explained to noble Ministers, does not deter me at all—nor indeed any of my noble friends—because we are always willing to improve on our own work. The Government should take a lesson from that. That is no deterrent.
Secondly, the Under-Secretary of State for Trade, Mr. Eyre, said this:
"I am advised that the connection is only a matter of the nuclear family. Once the children are over 18 in law they are no longer dependent".
Later he said:
"The child over 18 has reached maturity".
But it was put to him that this part of the Bill was not to protect the child. It was to protect the company, the shareholders, the employees, the creditors and the public. The last person it is there to protect is the child. It may be even to protect the director against his sinful wishes to evade his obligations, but certainly not to protect the child, except I suppose, from exploitation by the father when it is under the age of 18. If the object is to stop up a loophole, why should the protection be afforded only when the child is under 18? Why should it not be afforded merely because the director has found in his family a child of 19 who might be able to make rather more sympathetic suggestions about loopholes and evasions to his father than a child of six? Why should an evasion by a child of 21 be all right when an evasion by someone between the age of nought and 18 is all wrong?
It seems that it is impossible for the Government to accept anything tonight, but the Minister in another place made

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noises of the kind that indicated he might be prepared to consider this matter. I hope that noble Ministers tonight will answer the question. Are they refusing this amendment because it is wrong and there is a good reason why a loophole through someone of nought to 18 is not all right, but after 18 it is all right, or are they refusing it simply because they cannot amend the Bill because it will hold up the Government's timetable?
Viscount TRENCHARD: My Lords, the straight answer to the noble Lord is that all the reasons given in the other place have a bearing, but particularly that a child over 18, certainly in the experience of Members on this Front Bench, is fully independent, has no more dependency or connection or likely connection or likelihood to do wrong with his father than almost any other acquaintance. As we know, in the whole of this area of the Bill we have a problem against the determined criminal acting in a collusive way. But I believe it is quite unfair to single out an adult child who in many cases will have left his family home, and I cannot see there is any more likelihood of problems from a grown-up child than from any other person.
Lord WEDDERBURN of CHARLTON: My Lords, the answer to my question is really that the Government will not accept any amendments, and I say that with respect to the noble Viscount. He says it is unfair to single out the grownup child who has left home. The Bill says nothing about him leaving home. Children over 18 are fully independent and the likelihood to do wrong is less. Is that so? I know some people over 18 who are crooks and would do wrong at the drop of a hat, much sooner than children under 18. Children over 18 are fully independent, the noble Viscount says, but the spouse is in the clause. The loophole via the wife or husband is blocked up, whatever the age. Why do the Government not restrict the loophole relating to wives under 18? Or have they not heard of women's lib? Wives over 18 can be very independent, more independent than a son or daughter of 19 living at home, who has perhaps never left home or who may not be well. The line taken by the Minister is quite astonishing. Given that the object of the Bill—
1112
and the noble Viscount did not challenge this—in this case is to protect the company, shareholders, employees, the public and creditors, and not to protect the director or the child, it is quite astonishing that the Government cannot accept an amendment which seems to have logic with it all the way. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
LORDS AMENDMENTS TO COMMONS AMENDMENT No. 211
211B In subsection (3)(b)(ii), line 3, leave out ("more than one-half") and insert ("one-third or more")
211C In subsection (4), line 3, leave out from ("above") to ("and") in line 5.
Lord WEDDERBURN of CHARLTON: My Lords, I beg to move these amendments formally, simply to get them on the record.
Moved, That this House doth agree to the said amendments to Commons Amendment No. 211.—(Lord Wedderburn of Charlton.)
On Question, amendments negatived.
On Question, Motion agreed to.
The DEPUTY SPEAKER (Viscount Simon): I understand that Amendments Nos. 212 to 214 can be taken en bloc.
Viscount TRENCHARD: My Lords, I an not sure whether I can move those amendments en bloc because of an amendment to No. 213 down in the name of the noble Lord, Lord Lloyd of Kilgerran.
Lord LLOYD of KILGERRAN: There is a misprint in the list of amendments, my Lords, and it is not my fault.
Viscount TRENCHARD: I stand corrected, my Lords. I understood that the noble Lord had an amendment down to Amendment No. 213. That must have been withdrawn.

COMMONS AMENDMENTS
212 After Clause 45 insert the following new clause:
"Interpretation
.—(1) In this Part of this Act—
"guarantee" includes indemnity, and

1113
cognate expressions shall be construed accordingly;
"money-lending company" means a company the ordinary business of which includes the making of loans or quasi-loans or the giving of guarantees in connection with loans or quasi-loans;
"recognised bank" means a company which is recognised as a bank for the purposes of the Banking Act 1979;
"relevant company" means any company which—

(a) is not a private company; or

(b) is a subsidiary of a company which either is itself not a private company or has another subsidiary which is not a private company; or

(c) has a subsidiary which is not a private company;

"services" means anything other than goods or land.
(2) For the purposes of this Part of this Act

(a) a quasi-loan is a transaction under which one party ('the creditor') agrees to pay, or pays otherwise than in pursuance of an agreement, a sum for another ('the borrower '), or agrees to reimburse, or reimburses otherwise than in pursuance of an agreement, expenditure incurred by another party for another ('the borrower ')—

(i) on terms that the borrower or a person on his behalf) will reimburse the creditor; or

(ii) in circumstances giving rise to a liability on the borrower to reimburse the creditor;

(b) any reference to the person to whom a quasi-loan is made is a reference to the borrower; and

(c) the liabilities of a borrower under a quasi-loan include the liabilities of any person who has agreed to reimburse the creditor on behalf of the borrower.

(3) For the purposes of this Part of this Act, a credit transaction is a transaction under which one party ("the creditor"
under which one party ("the creditor"),—

(a) supplies any goods or sells any land under a hire-purchase agreement or conditional sale agreement;

(b) leases or hires any land or goods in return for periodical payments;

(c) otherwise disposes of land or supplies goods or services on the understanding that payment (whether in a lump sum or instalments or by way of periodical payments or otherwise) is to be deferred.

(4) For the purposes of this Part of this Act, the value of a transaction or arrangement is—

(a) in the case of a loan, the principal of the loan;

(b) in the case of a quasi-loan, the amount, or maximum amount, which the person to whom the quasi-loan is made is liable to reimburse
1114
the creditor;

(c) in the case of a transaction or arrangement, other than a loan or quasi-loan or a transaction or arrangement within paragraph (d) or (e) below, the price which it is reasonable to expect could be obtained for the goods, land or services to which the transaction or arrangement relates if they had been supplied at the time the transaction or arrangement is entered into in the ordinary course of business and on the same terms (apart from price) as they have been supplied or are to be supplied under the transaction or arrangement in question;

(d) in the case of a guarantee or security, the amount guaranteed or secured;

(e) in the case of an arrangement to which subsection (3) or (4) of section (Prohibition of loans, etc., to directors and connected persons) above applies, the value of the transaction to which the arrangement relates less any amount by which the liabilities under the arrangement or transaction of the person for whom the transaction was made have been reduced.

(5) For the purposes of subsection (4) above, the value of a transaction or arrangement which is not capable of being expressed as a specific sum of money (because the amount of any liability arising under the transaction is unascertainable, or for any other reason) shall, whether or not any liability under the transaction has been reduced, be deemed to exceed £50,000.
(6) For the purposes of this Part of this Act, a transaction or arrangement is made for a person if—

(a) in the case of a loan or quasi-loan, it is made to him;

(b) in the case of a credit transaction, he is the person to whom goods or services are supplied, or land is sold or otherwise disposed of, under the transaction;

(c) in the case of a guarantee or security, it is entered into or provided in connection with a loan or quasi-loan made to him or a credit transaction made for him;

(d) in the case of an arrangement within subsection (3) or (4) of section (Prohibition of loans, etc., to directors and connected persons) above, the transaction to which the arrangement relates was made for him; and

(e) in the case of any other transaction or arrangement for the supply or transfer of goods, land or services (or any interest therein), he is the person to whom the goods, land or services (or the interest) are supplied or transferred.

(7) This Part of this Act, except sections (Substantial contracts, etc., with directors and others to be disclosed in accounts), (Particulars of amounts out-

1115
standing to be included in accounts) and (Further provisions relating to recognised banks), does not apply to arrangements or transactions entered into before the appointed day but, for the purposes of determining whether an arrangement is one to which section (Prohibition of loans, etc., to directors and connected persons) (3) or (4) applies, the transaction to which the arrangement relates shall, if it was entered into before the appointed day, be deemed to have been entered into after that day.
(8) For the purposes of this Part of this Act it is immaterial whether the law which (apart from this Act) governs any arrangement or transaction is the law of the United Kingdom, or of a part of the United Kingdom, or not."
213 After Clause 45, insert the following new clause:
"Consequential repeals and savings
'.—(1) Section 190 of the 1948 Act (prohibition on loans to directors) shall cease to have effect.
(2) Section 197 of the 1948 Act (particulars in accounts of loans to officers, etc.) and section 16(1)(c) of the 1967 Act (particulars in the director's report of contracts in which a director has a significant and material interest) shall, except—

(a) in relation to accounts and directors' reports prepared in respect of any financial year ending before the appointed day; and

(b) in relation to accounts and director's reports prepared in respect of the first financial year ending after the appointed day but only in relation to loans and contracts entered into before the appointed day which do not subsist on or after that day, cease to have effect."

214 After Clause 45 insert the following new clause:
"Application of ss. (Substantial contracts, etc., with directors and others to be disclosed in accounts) to (Transactions, etc., excluded from ss. (Substantial contracts, etc., with directors and others to be disclosed in accounts) and (Further provisions relating to recognised banks)) and (Power to increase financial limits) to (consequential repeals and savings) to unregistered companies
. Section 435 of and Schedule 14 to the 1948 Act (which provide for the application of certain provisions of that Act to unregistered companies) shall have effect as if sections (Substantial contracts, etc., with directors and others to be disclosed in accounts) to (Transactions, etc., excluded from ss. (Substantial contracts, etc., eith directors and others to be disclosed in accounts) and (Further provisions relating to recognised banks)) and (Power to increase financial limits) to (Consequential repeals and savings) above were provisions of that Act and were included among the provisions of that Act specified in that Schedule which relate to accounts
1116
and audit; and the reference in the last entry in column 3 of that Schedule to provisions applied by virtue of the foregoing entries in that Schedule shall be construed accordingly.
Viscount TRENCHARD: My Lords, I beg to move that the House doth agree with the Commons in Amendments Nos. 212 to 214 en bloc.
Moved, That this House doth agree with the Commons in the said amendments. —(Viscount Trenchard.)
On Question, Motion agreed to.

COMMONS AMENDMENT
215 After Clause 45 insert the following new clause:
"Prohibition on stock exchange deals by insiders, etc.
.—(1) Subject to subsection (8) 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 securities of that company if he has information which—

(a) he holds by virtue of being connected with the company;

(b) it would be reasonable to expect a person so connected and in the position by virtue of which he is so connected not to disclose except for the proper performance of the functions attaching to that position; and

(c) he knows is unpublished price sensitive information in relation to those securities.

(2) Subject to subsections (8) and (10) below, an individual who is, or at any time in the preceding six months has been, knowlingy connected with a company shall not deal on a recognised stock exchange in securities of any other company if he has information which—

(a) he holds by virtue of being connected with the first company;

(b) it would be reasonable to expect a person so connected and in the position by virtue of which he is so connected not to disclose except for the proper performance of the functions attaching to that position;

(c) he knows is unpublished price sensitive information in relation to those securities of that other company; and

(d) relates to any transaction (actual or contemplated) involving both the first company and that other company or involving one of them and securities of the other or to the fact that any such transaction is no longer contemplated.

(3) Subject to subsections (8) and (10) below, where—

(a) any individual has information which he knowingly obtained (directly or indirectly) from another

1117
individual who is connected with a particular company, or was at any time in the six months preceding the obtaining of the information so connected and who the former individual knows or has reasonable cause to believe held the information by virtue of being so connected; and

(b) the former individual knows or has reasonable cause to believe that, because of the latter's connection and position, it would be reasonable to expect him not to disclose the information except for the proper performance of the functions attaching to that position;

then, the former individual—
(i) shall not himself deal on a recognised stock exchange in securities of that company if he knows that the information is unpublished price sensitive information in relation to those securities; and
(ii) shall not himself deal on a recognised stock exchange in securities of any other company if he knows that the information is unpublished price sensitive information in relation to those securities and it relates to any transaction (actual or contemplated) involving the first company and the other company or involving one of them and securities of the other or to the fact that any such transaction is no longer contemplated.
(4) Subject to subsections (8) and (10) below, where an individual is contemplating, or has contemplated, making, whether with or without another person, a take-over offer for a company in a particular capacity, that individual shall not deal on a recognised stock exchange in securities of that company in another capacity if he knows that information that the offer is contemplated or is no longer contemplated is unpublished price sensitive information in relation to those securities.
(5) Subject to subsections (8) and (10) below, where an individual has knowingly obtained (directly or indirectly), from an individual to whom subsection (4) above applies, information that the offer referred to in subsection (4) is being contemplated or is no longer contemplated the former individual shall not himself deal on a recognised stock exchange in securities of that company if he knows that the information is unpublished price sensitive information in relation to those securities.
(6) Subject to subsections (8) and (10) below, an individual who is for the time being prohibited by any provision of this section from dealing on a recognised stock exchange in any securities shall not counsel or procure any other person to deal in those securities, knowing or having reasonable cause to believe that that person would deal in them on a recognised stock exchange.
(7) Subject to subsections (8) and (10) below, an individual who is for the time being prohibited as aforesaid from
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dealing on a recognised stock exchange in any securities by reason of his having any information, shall not communicate that information to any other person if he knows or has reasonable cause to believe that that or some 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.
(8) The provisions of this section shall not prohibit an individual by reason of his having any information from—

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

(b) 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) doing any particular thing if 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 in the ordinary course of that business;

and he does that thing in good faith in the course of that business.
(9) In subsection (8) 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.
(10) An individual shall not, by reason only of having information relating to any particular transaction, be prohibi-ted—

(a) by subsection (2), (3)(ii), (4) or (5) above from dealing on a recognised stock exchange in any securities; or

(b) by subsection (6) or (7) above from doing any other thing in relation tion to securities which he is prohibited from dealing in by any of the provisions mentioned in paragraph (a) above;

if he does that thing in order to facilitate the completion or carrying out of the transaction.
(11) Where a trustee or personal representative, or, where a trustee or personal representative is a body corporate, an individual acting on behalf of that trustee or personal representative, who, apart from subsection (8)(a) above, would be prohibited by this section from dealing, or counselling or procuring any other person to deal, 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—

1119

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

(b) did not appear to him to be prohibited by this section from dealing in those securities."

9.5 p.m.
Viscount TRENCHARD: My Lords, I beg to move that the House doth agree with the Commons Amendment No. 215. I will, with the permission of the House, speak at the same time to Amendment No. 216. These are the first two clauses, perhaps the most important of the first of the clauses, in the insider dealing section of the amendments, which was Clause 5 in the other place, and to Amendment No. 215 a number of amendments have been tabled. These two clauses are, as I say, concerned with insider dealing and there is wide agreement, both in this House and outside, that insider dealing should be made a criminal offence.
Noble Lords will no doubt recall that when this Bill was last before us we said that the Government's view was that insider dealing was wrong and should be discouraged and condemned in every way possible. We pointed out, however, that the task of sorting our the problems was not a straightforward one and that the dangers involved in getting the legislation wrong were very great. We therefore resisted the attempt of noble Lords opposite to include in this Bill provisions on insider dealing which we considered carried with them a real risk of doing damage to desirable market functions and normal investment functions. We said we would be reconsidering the topic and undertaking further consultations before bringing forward legislation. That we have done. We issued a Consultative Document in October of last year which took the form of draft clauses. These commanded considerable support and, as a result, as I have said, the clauses were introduced, with minor modifications, during the Committee stage in another place.
They are different in a number of respects from the 1978 Bill. One of the central issues is, of course, the definition of what we can loosely term inside information. The 1978 Bill contained a very wide definition: it was simply information which the individual knew was not generally available but which would, if it were
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so available, be likely materially to affect the price of those securities. "Generally available" was at that time to be defined by an amendment put forward by the Government as:
"available on request to those members of the public likely to take an interest in it".
We felt that this was imprecise, and that it would have hindered, or prevented entirely, legitimate activities. Indeed, this was the view of a considerable number of bodies who criticised the definition, among them the Council for the Securities Industry, the Confederation of British Industry, the Engineering Employers' Federation, the Industrial Society, and the Law Society.
We have therefore drawn the definition much tighter in our new clauses; in particular in subsection (1)(a),(b) and (c) of the new clause contained in Amendment No. 215. There are three elements, all of which have to be met. First, there is information which the individual holds by virtue of being connected with the company. We are therefore focusing now on insiders, and their tippees, who receive certain information because of their employment, or connection with the company. The second element is that it is information which it would be reasonable to expect a person in the position by virtue of which he is connected with the company not to disclose, except for the proper performance of the functions attaching to that position. What this means is that we are talking of information which should be kept in confidence, or used only for the purposes of the company, for example, information which could quite properly be made available generally would therefore not be inside information. The third part of the definition is that it is information which the individual knows is unpublished price-sensitive information. The key elements here are a restriction to specific matters and a better test of price sensitivity.
I should like to say one or two things about subsequent clauses relating to insider dealing. The definition is set out in the interpretation clause, which is contained in Amendment No. 220, which we shall be considering shortly. We have omitted the requirement in face-to-face transactions of disclosure of an insider's connection with a company. We felt that that was an unsatisfactory approach,

1121
and instead we have extended the prohibitions to cover certain off-market deals. This is provided for in Commons Amendments Nos. 217 and 218. Finally we have dropped the powers to appoint inspectors to investigate suspected insider dealing cases. We do not believe that such special powers are necessary or justified.
These are significant changes from the previous Act. However, we should not overlook the common ground, the central issue of which is of course that these clauses will make insider dealing a criminal offence. The penalties are spelt out in Commons Amendment No. 219. I believe that these clauses deserve the support of the House, and I trust that they will receive it. I beg to move.
Moved, That this House doth agree with the Commons in the said amendment.—(Viscount Trenchard.)

LORDS AMENDMENT TO COMMONS AMENDMENT No. 215
215A In subsection (6), line 6, leave out ("would") and insert ("might").
Lord MISHCON: My Lords, I beg to move, as an amendment to Commons Amendment No. 215, Amendment No. 215A. I imagine that there is complete agreement on all sides of the House as to the necessity for legislation to deal with insider dealings. I also imagine that there is no difference of opinion within the House on whether insider dealings should be made criminal offences. The Opposition previously took that view, and we agree with the Government now. If one is to legislate in regard to insider dealings, and to legislate properly, one must be quite sure that those who have cast upon them the duty of deciding whether or not a prosecution would lie under the clauses of a Bill, should have their task made clear and their duty made equally clear where certain facts emerge. Those responsible for initiating a prosecution cannot be expected to protect the public by bringing charges where they are given a completely impossible task.
I make those preparatory remarks before drawing your Lordships' attention to subsections (6) and (7) of the new clause proposed in Commons Amendment No. 215. Subsection (6) deals with the individual who is connected with a company,
1122
and who is in receipt of information, where dealing takes place in the shares of that company. Subsection (7) deals with the other case of the individual who is connected with the company, who is in receipt of information, and who is prohibited from dealing in shares of any other company. Thus there is the necessity for the two subsections.
I should like to direct your Lordships' attention to what a prosecution would have to prove, as the Bill now stands, in regard to subsections (6) and (7). Before I do that may I draw your Lordships' attention to, and ask for your sympathy in relation to, Amendment No. 215C. I think that it would be for the convenience of the House if I spoke to Amendments Nos. 215A, 21513, and 215C.
The amendments that I put down under Amendment No. 215C have unfortunately suffered torture, if not complete decimation, in the offices of your Lordships' House. Indeed, while 215C is moved as one amendment, I ask for your Lordships' leave to regard it as being two amendments and to their being in manuscript form. I therefore ask to withdraw Amendment No. 215C and to have the manuscript amendments substituted. What I asked for was that the word "will" should be left out in subsection (7), line 6, and for the substitution of the word "may". Then, at the end of the clause I asked for these words to appear,
"and the burden of proof that the individual did not know or had no reasonable cause to believe as aforesaid shall be on that individual".
I think it was pretty clear from the wording of the amendment to subsection (6), and I apologise to the House for having to waste time clarifying the matter.
My Lords, I was discussing the question of a prosecution concerning subsections (6) and (7). The offence we are dealing with is the imparting of information to a third party, and of counselling or procuring that third party or any other person to deal in those securities. Your Lordships will find that, as the Bill now stands, what the prosecution would have to prove is that the individual concerned counselled or procured the other person,
"to deal in those securities, knowing or having reasonable cause to believe that that person would deal in them on a recognised stock exchange."
It does not require a lawyer to see how difficult (if not impossible) it would be to

1123
bring any prosecution where a statement was made by the person concerned: "I know I was in receipt of information which I should not have passed on and that I did pass it on, but I had not got the slightest idea that the individual to whom I spoke would use that information in this way and would in fact deal on the Stock Exchange. I thought he was highly respectable; or, indeed, I thought that as a matter of conviction and principle he never dealt on the Stock Exchange at all".
In those circumstances, I ask your Lordships to consider that in this clause as it is now worded we will be presenting an impossible case for any prosecutor to prove. I am therefore asking, not for vicious language to be incorporated into this clause, but for common sense language, to deal with the offence that we have in mind. I have therefore asked for the words "would deal in them on a recognised stock exchange" to be altered to "might deal in them on a recognised stock exchange". I have further made it clear that the burden of proof, instead of being on the prosecution in a case of that kind, shall be planted firmly on the person who has parted with that information which he ought not to have imported to any third person. It would be perfectly reasonable for that person to discharge the burden of proof that he was not guilty of counselling or procuring by showing, the onus being cast upon him, that he had no reasonable cause for thinking that that person, after receipt of the information, would deal with the matter by dealing in shares on the Stock Exchange in relation to the information which had been given.
As the noble Viscount said, we are dealing here with a very important matter which has worried the City of London and has worried the public. There have been reports and there have been investigations. There have been worrying circumstances which, we all know, concern a minority of people in the City who behave in this way; but they have caused a great deal of damage, and if we are dealing with this matter of insider dealing we ought to be legislating in a proper, comprehensive manner. I was amazed, and so were my noble friends, that when this matter was dealt with at a pretty late stage by the Government they had before them a quite
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dreadful instance of what can occur in the City. I am referring to the case of Consolidated Goldfields and De Beers. If ever there was a case of an outsider trying to become an insider, I suppose it was the case of Consolidated Goldfields and De Beers.
I do not intend to use my own language in order to describe what happened a matter of some weeks ago. It was a set of circumstances, as your Lordships will remember, when some 25 per cent. of one of our most important companies was brought by a company which is a foreign company from our point of view. It became almost a controlling shareholder, if not completely a controlling shareholder, even by holding 25 per cent.; because my information is that there was no other holder of anything more than 5 per cent. in the whole company. Your Lordships will realise, therefore, that someone who has bought in 25 per cent. has a very important interest in the company, if not a controlling interest in the company. After that, some activities took place in the shares of this company which certainly relate to the question of insider dealing.
I quote, if I may, not my own words, but, as I said, words quoted in another place from the Financial Times:
"' De Beers bought its shares on a first come first served basis, which inevitably meant that the institutions got the lion's share of the action. Rowe and Pitman told the four jobbers in the stock what was happening at 8.30 a.m., but it was not until nearly an hour later that many leading brokers heard what was going on.
'"For an hour and a half, the City telephones were humming with specific, privileged, price sensitive information. It would be challenging to explain to anyone not wise in the ways of the Square Mile why this does not count as insider trading ".'"—[Official Report (Commons); col. 1390; 27/2/80.]
The Government had their opportunity in this clause, at the Committee stage and at the Report stage. We all know that an investigation was ordered by The Stock Exchange; we all know that until an inquiry was ordered at the instance of the Department of Trade no disclosure was made by De Beers as to what had happened in regard to their acquisition, and so on.
It is with great regret that my noble friends and I note that no opportunity has been taken in the insider dealings clause, in this clause we are dealing with, and in the criminal offences and so on connected with this matter, to deal with

1125
a most serious situation which arose in the City and which can destroy--and I use the word advisedly—some of the great commercial and industrial institutions in this country, jeopardise their shareholders and jeopardise their employees. I beg to move.
9.24 p.m.
Lord WEDDERBURN of CHARLTON: My Lords, I should like to support my noble friend's cogently-argued amendment. I am sure that the Government once again will not give way, but that is no reason for not placing on record certain facts which should be placed on record in this House. The amendment is only one example of the weakness of Part V of this Bill in the face of what I might call traditional insider trading which, however much it be a minority practice in the City—and I am sure it is—is nevertheless one that all now agree should be met by legislation creating a criminal offence.
Those of us who have been calling for legislation of this kind since the 1960s rejoiced when the City was converted in 1972; and one remembers the remarkable speech by Lord Shawcross. We rejoiced when the Government, too, were converted in another place after explaining here why it was impossible to legislate this year on this matter. But our rejoicing ceased when we saw Part V of the Bill because, as my noble friend has suggested, in so many ways— in this way and in many others—in relation to the prosecution's burden in prosecutions relating to tippees, in relation to lack of civil remedies or the definition of price-sensitive information, insiders and tippees; in all these matters this is a weak Bill which might have been all right in the 1960s but which after the debate of the last 15 years, is unsatisfactory on insider dealings generally. As my noble friend suggested, it is not only a Bill which is out of date by modern standards of the debate on insider trading; it has failed to take the opportunity to deal with a new form of insider trading which threatens the heart of British industry. My right honourable and honourable friends in another place raised this issue with the Government on the Committee and Report stages. The Minister at one point (on 22nd February, at col. 1419 of Hansard) took the matter very seriously. He said:
"we shall be legislating fairly regularly on company law. That will include next Session and,
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I am sure, the Session after that. There will be opportunities therefore, and these problems will be dealt with."
But by the Session after next large parts of the heart of British industry may be owned abroad. If there is no risk of ownership from abroad why did the Government insist on putting an article into the now incorporated British Aerospace Limited'? They conveniently placed a copy of this article in the Library on 6th February. This article will form part of the standard articles of British Aerospace Limited, which will become a private company because of the Government's dogmatic denationalisation of industry, and will prevent British Aerospace from being owned by anyone other than United Kingdom interests in terms of its control. They have an admirably drafted article. I read it and my heart went out to the hours that the draftsman must have spent on it. It is an admirable article. But what is good for British Aerospace is also good for a large number of other British companies. What the Government should have done is not only put before the House an updated provision on insider dealing of the traditional kind; they should have done for a number of other British companies what they have done for British Aerospace; and, not having done it, the Government and the country may live to regret their failure.
Lord LLOYD of KILGERRAN: My Lords, briefly, may I support the noble Lord's amendments and congratulate the Government that they have recognised the great public concern about insider dealing matters and that self-regulation is not enough. That is a view which has been widely held in the City, in industry and in commerce for a long time. My fear is that these prodecures which the Government have set up will be extremely difficult to enable a conviction to be obtained. They have set up so many hurdles to be overcome in the prosecution that it would be difficult to persuade the Director of Public Prosecutions that a conviction should be sought. Your Lordships know that the DPP (as he is affectionately called) will not usually bring a case unless there is something like a 50 per cent. chance of success. In my view, the hurdles that have been introduced into this clause are too severe and these amendments should be allowed.
Viscount TRENCHARD: My Lords, I should like to deal first with the Amendments Nos. 215A, 215B and 215C; and, secondly, to make a brief remark arising out of the remarks on the Consolidated Goldfields case, which I do not believe bears on these amendments, and I do not think that the noble Lord thinks it does, either. He was kind enough to explain the purpose of it.
The purpose of the amendments, as we understand it, is to reverse the onus of proof so far as one element of the offences in subsections (6) and (7) of Amendment 215 is concerned. Subsection (6) prohibits insiders who are prohibited from dealing on a recognised stock exchange from counselling or procuring someone else to deal when they know or have reasonable cause to believe that the person would deal on a recognised stock exchange. As drafted, as the noble Lord said, it is for the prosecution to establish that the insider knew that or had reasonable cause to believe it. The noble Lord's amendment would mean that it was no longer for the prosecution to establish that the individual had such knowledge or had such reasonable cause for belief.
Perhaps I may depart from my brief for a second to say that the situation, if I understand it correctly—and I am speaking as a non-lawyer to lawyers—is that one would not expect, if after dinner one told a bishop a piece of information in confidence that he would immediately be dealing in the shares on a recognised stock exchange—at least, I would not anyway, and I might have a very confidential relationship. I give that only as an example. On the other hand, to complete the analogy, if I were dealing with someone with whom I was not very well acquainted, someone whose background I did not know but who worked somewhere in the City, then I would have considerable difficulty in not being convicted under this clause.
Instead, therefore, as we have this clause, once it has been established that the individual had been prohibited from dealing and had counselled or procured another person, it would be for the defence to raise and establish that the individual did not know, and did not have reasonable cause to believe, that the person might—not would—deal on a recognised stock exchange.
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Similar issues arise in respect of subsection (7), which is concerned with the passing of inside information. The issues are the same and, if I may, I shall concentrate on subsection (6). The amendments therefore make the prosecution's job easier and place greater burdens on the defence. One is concerned here with a difficult and delicate balance. In principle, in offences it is right that the prosecution should have to prove guilt and that the accused should not have to establish his innocence: a man is presumed innocent until he is found guilty. But, where the unqualified application of that principle would make successful prosecutions impossible or undesirably difficult, the law sometimes relieves the prosecution of establishing all the elements, and leaves it open to the accused to establish a defence. Of course, that should only be done where it is really necessary, since the cardinal principle, as I have said, is innocence until guilt is proved.
The question in subsection (6) is this: is one placing too great a burden on the prosecution if they have to prove that the individual knew that a person would deal on a recognised stock exchange or had reasonable cause to believe that? It does not seem to me that this is too great a burden to place on the prosecution. The facts of the case would be there: a listed security which, by its very nature, has a ready market freely available for dealings on the stock exchange and the vast majority of deals taking place in all probability on the stock exchange. Those facts will serve to demonstrate clearly what was in mind. One should not overlook the fact that the test which the prosecution has to meet is proof of knowledge or proof of a reasonable cause for belief. The latter is an objective test and deals not with the subjective appreciation of that particular individual or of the particular situation. Rather it is an objective test of what a reasonable man would believe in all the circumstances.
We are anxious, and indeed determined, to provide firm and effective criminal sanctions against insider dealing, but equally they must be fair and balanced. I believe that the clause as drafted meets those criteria and I am therefore opposed to the changes proposed by the noble Lord. Of course, we are breaking new ground with this legislation and we shall closely watch its operation to ensure that

1129
it is fair and effective. If weaknesses emerge in practice we shall seek to remedy them; but I urge the House at this time to maintain the delicate balance on the terms presently set out in Amendment No. 215. I hope that in the light of what I have said the noble Lord will not press his amendment.
Perhaps I may now, for reasons of courtesy and also to make a comment from the Government, mention the Consolidated Goldfields case, which really would not be affected by these amendments at all. We accept that the circumstances surrounding the acquisition by Anglo-American of a 25 per cent. shareholding in Consolidated Goldfields raises a number of issues of legitimate concern both to the statutory and the non-statutory authorities. I believe that the Government could not have acted more rapidly in appointing Section 172 inspectors within 24 hours of the company approaching the department. The Stock Exchange and the Council for the Securities Industry subsequently set up their own inquiries. We can all speculate as to what happened in this case and what lessons we should draw. It would be wrong to come to conclusions or to rush into legislation when inquiries into the particular case are still in train. Those inquiries will be completed as rapidly as possible. We shall then all wish to consider the reports.
The Government for their part will certainly lose no time in considering what lessons are to be learned, including lessons for legislation. To have rushed into any legislation in this Bill within a week or two of the episode and without knowing exactly who has done what would have been absurd.
Noble Lords on the Opposition Benches appear to want it both ways. They criticised us for suggesting that we should leave certain matters and take time to examine current instances to make sure that we improved the position. However, when we adopt the course which they recommend they then want us to include measures to cover a case that is still under inquiry. I am referring mainly to Lord Wedderburn's support for the noble Lord, Lord Mishcon. I hope that the House will not accept thse amendments to Commons Amendment No. 215.
Lord MISHCON: My Lords, the
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Minister has spoken with his usual courtesy and clarity. He believes that this matter could be re-examined in the light of experience. We believe that the prosecution's task is being made impossible but the Minister takes a different view. Let us see what experience we have; in those circumstances I shall not proceed with the amendment.
The Minister was kind enough to deal with my observations on Consolidated Goldfields. I appreciate that I was testing the patience of the House in regard to matters of order when I raised the matter, but I regarded it as essential. The quick observation I wish to make is that the Minister was not quite fair to say that one was pushing at a recent event and that the Government could not be expected to deal with this in connection with insider dealings. We have all known, ever since exchange control regulations were lifted, that there was a possibility of transfers of shares being made without the old certificate being giventhat they were not transfers outside the sterling area. That risk has been apparent to the Government ever since they decided to lift those regulations. However, I must not take that point any further. We have all heard what the Minister has said, and can only hope that some steps will be tak,:n at a fairly early date to deal with what is obviously a most serious matter. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 215B, 215C and 215D not moved.]

LORDS AMENDMENT TO COMMONS AMENDMENT No. 215
215D In subsection (8), in line 3 of paragraph (b), leave out (" or ").
Lord ROBERTSON of OAKRIDGE: My Lords, I beg to move, as an amendment to Commons Amendment No. 215, Amendment No. 215D. I wish also to speak to Amendments Nos. 215E and 215F.
I wish first to declare an interest as a partner in a firm of stockbrokers. As a stockbroker, I in general welcome the proposed rules on insider dealing. I doubt whether, in fact, they will make it easier to catch people who try to act unfairly, but the deterrent will be there. On the whole, they reflect current practice,

1131
but I believe that it will enhance public confidence in the securities market to move from self-regulation to regulation by means of the criminal law. Such a move is bound to produce problems in certain areas; and may I confess to a certain element of unease that the revising work of your Lordships' Chamber has had to be compressed into this one evening.
However, I am grateful to note that those responsible for framing the new rules have been at pains not to damage the market, by creating conditions that might lead to the frustration of legitimate business or to disorderly markets. To this end, the other place in considering the Bill gave special recognition to the position of jobbers and also to that of dealers in international bonds. The amendment in my name seeks to remove difficulties that are foreseen in another area; that of stockbrokers who act in the capacity of broker to a listed company and therefore fall under subsection (1)(a).
The amendment proposes that such a broker should not be precluded from accepting unsolicited orders to deal in the securities of a company, on account of his being in possession of price-sensitive information on a capital issue, a takeover or a large market transaction affecting the company. When capital issues or takeovers arise, there comes a stage—perhaps seven or 10 days beforehand—when the corporate finance side of the firm has to pass through what I believe is always a green baize door, to consult and inform certain other partners who are in daily contact with institutional clients: partners who have the requisite knowledge of the requirements of those clients. Those partners advise on the size and terms on which the operation can be successfully carried out and they construct the list of proposed underwriters and participants in the operation.
The tasks involving these partners might include, first the underwriting or placing of issues of shares or debentures in the market; secondly, the underwriting or placing of large lines of existing securities—and one has only to cast one's mind back to last October to think of the sizeable sale by the Bank of England of shares in BP; thirdly, the preliminary
1132
arrangements for a share or cash offer for the whole or part of another company's share capital and, lastly, the underwriting of cash alternatives to such share offers.
The amendment also covers a situation where the broker to a company has information about a substantial market transaction in the company's shares. Depending on the size of the transaction, and of course the circumstances, such a transaction may very well be highly price-sensitive from the time at which it is decided upon to the moment, not later than five days after completion, when it has to be publicly disclosed.
The kind of problem that is foreseen is that brokers, in any of the situations that I have described, might well feel that under the legislation now proposed it would be imprudent for them to deal in the shares of the company concerned, even to carry out unsolicited orders from other clients. If brokers felt this way in situations of this kind, it could lead to a number of undesirable results. First, they would have to turn away legitimate business. Secondly, what reason would they give to their clients for so doing—that they were in possession of price-sensitive information? That would certainly set the tongues wagging and would lead to unruly markets. Thirdly, the job of broker to a company, now much sought after, might become unwanted. Lastly, the raising of capital by industry might be made that much more difficult.
It may be asked: Why should a broker have these fears? Does not the defence in paragraph (a) of Commons Amendment No. 215 give adequate protection? May I, however, read it out, starting at (8):
"The provisions of this section shall not prohibit an individual by reason of his having any information from—(a) doing any particular thing otherwise than with a view to the making of a profit or the avoidance of a loss (whether for himself or another person) by the use of that information;".
Whatever one thinks of the wording of this subsection—and it must certainly have been difficult to draft—the advice I have been given is that it would be a difficult defence upon which to rely.
By the very nature of his business, a broker is almost always trying to make a profit or to minimise a loss for his client, so the broker might well find himself in the position of having to establish his own innocence by proving that although he was

1133
in possession of price-sensitive information, he did not allow it to colour his actions. Like other people, brokers do sometimes have to have split personalities, but certainly they would rather not have to prove it.
I shall await with interest the comments of the noble Viscount on the question of this defence in subsection (8)(a), particularly following his remarks when we considered the last block of amendments on the question of burden of proof. However, I should like to remind your Lordships that if this kind of case came before the courts they would have to disregard what was said in your Lordships' Chamber. The only thing that would matter, so I understand, is how the court interpreted the wording of the law.
May I stress that the amendment concerns only compliance with an unsolicited order. It would of course be quite wrong for a broker to give to a client advice that was based on privileged information. Such action is already naturally prohibited under Stock Exchange practice. I think it is relevant to state that the City code on takeovers and mergers prohibits brokers to companies involved in a takeover from dealing in the shares of either company when in possession of price-sensitive information, yet the takeover panel has never regarded the bona,fide execution of an unsolicited order as a breach of their rules.
Your Lordships will therefore realise that my amendment is designed to ensure that a broker to a listed company will feel free to act in accordance with current practice as now recognised under the new law and that the market should continue to fulfil its role both in the primary and the secondary capital markets without unnecessary hindrance. My Lords, I beg to move.
Moved, That this House doth agree with the said amendment, as an amendment to Commons Amendment No. 21 5—(Lord Robertson of Oak ridge.)
9.49 p.m.
Viscount TRENCHARD: My Lords, the noble Lord, Lord Robertson of Oak-ridge, was kind enough to give us advance warning of these amendments and to explain the worries that he and his colleagues on the Stock Exchange have about the effect of this Commons Amendment
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on the cases which he has so very clearly described. In the interests of saving time, I shall not go over the details of the cases he has already described to the House. I found myself wondering when first we discussed this suggested amendment just how possible it was to have a totally unsolicited order, but I am assured by people who know and work on the Stock Exchange that this does happen. Therefore, I must accept it. I know that, as the noble Lord said, the advice and the rules of the Stock Exchange cover the point or making sure that a partner in such circumstances, put in this situation, does not give advice or any counsel.
This leads me to feel that it must be—and indeed from a little experience as a client I know that it is so—that in quite a large number of cases a particular partner of a broker firm (not cases such as the noble Lord has raised, but cases generally) refuses to advise and passes the client on to a partner. Therefore, I think that the remarks he made about not wanting to start speculation (which I can understand is a case in point) should be taken against the background that there is an established practice, I understand, of brokers passing on business from one partner to another. The Whole of this part of the Bill deals with the position of the individual.
There are two protections for brokers in this position which the noble Lord has mentioned. One has to look at all the clauses in the Bill but in particular I think one should say that it is essential, if the charge is to be raised, or prosecuted at all, for Amendment No. 215, subsection 1(b) to be met. I will just read that to the House again:
"it would be reasonable to expect a person so connected and in the position by virtue of which he is so connected not to disclose except for the proper performance of the functions attaching to that position".
All those elements in that sentence taken together seem to us to present a situation where, in the case of the second client coming on with an unsolicited order, and the broker's information had come not from the company concerned but from the fact that there had been a previous order, the function would be one of loyalty to the client who gave an unsolicited order. So we suggest that taking those three elements together the charge would not stand up in most of the circumstances to which the noble Lord has referred.

1135
He himself further referred to the defence which is found in Amendment No. 215, subsection 8(a), and since he has read it to the House, I shall not repeat it. But we also believe that this is a strong and general defence and there would be problems in putting in any particular specific defence, including the ones that are suggested in the noble Lord's amendments, in terms of the possible weakening in law of the general defence, which is covered by those terms.
The Government really have given a lot of consideration to these amendments and the thoughts behind them. I am perfectly prepared to continue the dialogue with the noble Lord, but I do not believe that the defences that he suggests will make the position of brokers in the circumstances which he outlines any stronger than they are under the two parts of this Part of the Bill which I have quoted. Therefore, I would say to the noble Lord that I believe these circumstances are covered as things are written at the moment and the Government must resist this amendment.
Lord ROBERTSON of OAKRIDGE: My Lords, I am grateful to the noble Viscount for his comments on my amendment. I think one small point is worth mentioning. It might be a case if the worse came to the worst not of passing from one partner to another but of one lirm of brokers having to pass the business over to another broker. I would like to study the noble Viscount's other remarks further. In the circumstances I beg leave to withdraw my amendment.
Amendment to the amendment, by leave, withdrawn.
[Amendments Nos. 215E and 215F not moved.]
On Question, Motion agreed to.

COMMONS AMENDMENTS
216 After Clause 45 insert the following new clause: "Prohibition on abuse of information obtained in official capacity.
.—(1) This section applies to any information which—

(a) is held by a Crown servant or former Crown servant by virtue of his position or former position as a Crown servant or is knowingly
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obtained by an individual (directly or indirectly) from a Crown servant or former Crown servant who he knows or has reasonable cause to believe held the information by virtue of any such position;

(b) it would be reasonable to expect an individual in the position of the Crown servant or former position of the former Crown servant not to disclose except for the proper performance of the functions attaching to that position; and

(c) the individual holding it knows is unpublished price sensitive information in relation to securities of a particular company (relevant securities).

(2) This section applies to a Crown servant or former Crown servant holding information to which this section applies and to any individual who knowingly obtained any such information (directly or indirectly) from a Crown servant or former Crown servant who that individual knows or has reasonable cause to believe held the information by virtue of his position or former position as a Crown servant.
(3) An individual to whom this section applies—

(a) shall not deal on a recognised stock exchange in any relevant securities;

(b) shall not counsel or procure any other person to deal in any such securities, knowing or having reasonable cause to believe that that other person would deal in them on a recognised stock exchange; and

(c) shall not communicate to any other person the information held or, as the case may be, obtained by him as mentioned in subsection (2) above if he knows or has reasonable cause to believe that that or some other person will make use of that information for the purpose of dealing, or of counselling or procuring any other person to deal, on a recognised stock exchange in any such securities.

(4) Section (Prohibition on stock exchange deals by insiders, etc.) (8) and (11) above shall apply for the purposes of this section as they apply for the purposes of that section.
(5) An individual shall not, by reason only of having information relating to a particular transaction, be prohibited by any provision of this section from doing anything if he does that thing in order to facilitate the completion or carrying out of the transaction.
217 After Clause 45 insert the following new clause:
Off-market deals
(1) Subject to section (International bonds) below, sections (Prohibition on

1137
stock exchange deals by insiders, etc.) and (Prohibition on abuse of information obtained in official capcity) above shall apply in relation to—
(a) dealing otherwise than on a recognised stock exchange in the advertised securities of any company—
(i) through an off-market dealer who is making a market in those securities, in the knowledge that he is an off-market dealer, that he is making a market in those securities and that the securities are advertised securities; or
(ii) as an off-market dealer who is making a market in those securities or as an officer, employee or agent of such a dealer acting in the course of the dealer's business;
(b) counselling or procuring a person to deal in 'advertised securities in the knowledge or with reasonable cause to believe that he would deal in them as mentioned in paragraph (a) above;
(c) communicating any information in the knowledge or with reasonable cause to believe that it would be used for such dealing or for such counselling or procuring,
as they apply in relation to dealing in securities on a recognised stock exchange and to counselling or procuring or communicating any information in connection with such dealing.
(2) An individual who, by reason of his having any information, is for the time being prohibited by any provision of section (Prohibition on stock exchange deals by insiders, etc.) or (Prohibition on abuse of information obtained in official capacity) above from dealing in any securities shall not—

(a) counsel or procure any other person to deal in those securities in the knowledge or with reasonable cause to believe that that person would deal in the securities outside Great Britain on any stock exchange other than a recognised stock exchange; or

(b) communicate that information to any other person in a knowledge or with reasonable cause to believe that that or some other person will make use of the information for the purpose of dealing or of counselling or procuring any other person to deal in the securities outside Great Britain on any stock exchange other than a recognised stock exchange.

Sections (Prohibition on stock exchange deals by insiders, etc.) (8) and (11) and (Prohibition on abuse of information obtained in official capacity) (5) shall have effect as if any reference therein to either of those sections included a reference to this subsection.
(3) In this section—
"advertised securities", in relation to
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a particular occurrence, means listed securities or securities in respect of which, not more than six months before that occurrence, information indicating the prices at which persons have dealt or were willing to deal in those securities has been published for the purpose of facilitating deals in those securities
"off-market dealer" means a person who—

(a) holds a licence under section 3 of the Prevention of Fraud (Investments) Act 1958 (principals' and representatives' licences for dealers in securities); or

(b) is a member of a recognised stock exchange or recognised association of dealers in securities within the meaning of that Act; or

(c) is an exempted dealer within the meaning of that Act.

(4) For the purposes of this section an off-market dealer shall be taken to deal in advertised securities if he deals in such securities or acts as an intermediary in connection with deals made by other persons in such securities; and references in this section to such a dealer's officer, employee or agent dealing in such securities shall be construed accordingly.
(5) For those, purposes an individual shall be taken to deal through an off-market dealer if the latter is a party to the transaction, is an agent for either party to the transaction or is acting as an intermediary in connection with the transaction."
Viscount TRENCHARD: My Lords, I do not know whether I may move these two amendments formally. I have spoken very briefly to them. If noble Lords wish me to expand I will, but otherwise I beg to move that this House doth agree with the Commons in their Amendments Nos. 216 and 217.
Moved, That this House doth agree with the Commons in the said amendments.—(Viscount Trenchard.)
On Question, Motion agreed to.

COMMONS AMENDMENT
218 Insert the following new clause:
"International bonds
.—(1) Section (Prohibition on stock exchange deals by insiders, etc.) above shall not by virtue of section (Off-market deals) above prohibit an individual from doing anything in relation to any debenture if—
(a) that thing is done by him in good faith in connection with an international bond issue—
(i) not later than three months after the issue date, or,
(ii) in a case where the international bond issue is not proceeded with, before the date on which it is decided not to proceed with the issue, and he is an issue manager for that issue or is an officer, employee or agent of an issue manager for that issue; or
(b) he is or was an issue manager for an international bond issue who is making a market in that debenture, or is an officer, employee or agent of such an issue manager, and that thing is done by him in good faith as a person making a market in that debenture or as an officer, employee or agent of such a person;
and in either case the unpublished price sensitive information by virtue of which section (Prohibition on stock exchange deals by insiders, etc.) would but for this section apply in relation to that thing is information which he holds by virtue of his being (or having been) such an issue manager or an officer, employee or agent of such an issue manager, and is information which it would be reasonable to expect him to have obtained as an issue manager, or as such an officer, employee or agent.
(2) In subsection (l) above—
"international bond issue" means an issue of debentures of a company (the "issuing company")—

(a) all of which are offered or to be offered by an off-market dealer to persons (whether principals or agents) whose ordinary business includes the buying or selling of debentures, and

(b) where the debentures are denominated in sterling, not less than 50 per cent. in nominal value of the debentures are so offered to persons who are neither citizens of the United Kingdom and Colonies nor companies incorporated or otherwise formed under the law of any part of the United Kingdom;

"issue date" means the date on which the first of those debentures is issued by the issuing company; and
"issue manager" means—

(a) an off-market dealer acting as an agent of the issuing company for the purposes of an international bond issue; or

(b) where the issuing company issues or proposes to issue the debentures to an off-market dealer under an arrangement in pursuance of which he is to sell the debentures to other persons, that off-market dealer."

9.57 p.m.
Viscount TRENCHARD: My Lords, the noble Lord, Lord Mishcon, wishes to
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move amendment, No. 218A, so I will make no initial statement except to move that this House doth agree with the Commons in their Amendment No. 218.
Moved, That this House doth agree with the Commons in the said amendment.—(Viscount Trenchard.)

LORDS AMENDMENT TO COMMONS AMENDMENT No. 218
Lord MISHCON: My Lords, I beg to move, as Amendment 218A, that this House do disagree with the Commons in their amendment No. 218. It is a method or lodging a protest as to the manner in which yet another important clause in this 13111 has been dealt with by the Government. I made a general observation at the very commencement when these parts of the Bill were being dealt, that as a result of the use of extraordinary speed, which need not have happened if the Government had dealt with this matter as we wanted them to do last July, there are half-baked, unexamined measures coming before this House in this way.
If I may immediately ask your Lordships to turn to the subject of this amendment, it is that Eurobonds, international bonds, should be excluded from insider dealing in regard to certain activities which would be carried on by managers of the Eurobond market. This is an important exemption to insider dealing, and your Lordships may be interested to know that it was a clause that was tabled as late as 20th February of this year, a mere few weeks ago. and it came before the Standing Committee of another place on 26th February, less than a month ago. I think I ought in sheer duty to read to your Lordships—and I am reading from col. 1171 of the Official Report of the other place for Tuesday. 26th February—what my honourable friend Mr. Anderson had to say when this clause came before the Committee:
"Clearly, we have had insufficient time as an Opposition to appraise the matter and to make the relevant consultations among the affected bodies and among those who could be of assistance to us. As a result, we cannot carry out our job to scrutinise and to improve Government legislation. We cannot obtain in time properly considered responses. It is asking too much of an Opposition when contrasted with the veritable army of advisers available to the Minister.
"Hence the need for the other place. Their Lordships will not recognise the Bill that we shall eventually return to them. It is of a wholly

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different character from the minor Bill which left them in July last year ".—[Official Report, Commons, 26/2/80; col. 1171.]
I close the quotation, at all events for my honourable friend Mr. Anderson. I shall go on to quote Sir Brandon Rhys Williams, an honourable Member of the Government. I am quoting from column 1174. Mr. Brandon Rhys Williams said:
"I should like to echo the grumble of the hon. Member for Swansea, East (Mr. Anderson) that a new clause of this complexity has been tabled so recently. It does not give hon. Members the opportunity to study the implications. It is really beyond the majority of us in the House, even those who take an active interest in company law, to be perfectly certain about the implications of this and similar clauses".
I cannot over-emphasise in sheer genuineness the complexity of a clause which deals with international bonds in the international market. It is supposed to deal with Eurobonds. Eurobonds are not mentioned at all, and the reason why Eurobonds are not mentioned was again given at that stage in the other place, only a few weeks ago, as being that the Government found it rather difficult, if not impossible, to describe precisely what is a Eurobond. It gives exemptions to managers, to agents, and to employees in certain circumstances dealing in international bonds; and it would be laughable, if it were not so sad and serious, that a clause of this type, with a total exemption, should have been thrust before the legislature literally only a few weeks ago, and before your Lordships' House without the Opposition here being able to get any sort of technical advice on the matter.
It may be a criticism generally of the way in which we deal with matters that when we have to have a discussion upon technical matters of this type, obstruse matters of this type with which only a few of your Lordships' House are at all acquainted, it may be a criticism of our procedure generally that we do not have the ability to call evidence, as it were, and to examine things in some specialised committee. However, that may be a general observation. As regards this clause, as I have said, placed before Parliament literally only a few weeks ago with this House now being asked to pass it, I have put down my amendment to register a protest so that it is on the official record that the Opposition here can accept no responsibility whatsoever for this clause or for clauses like it which are of a technical nature and as regards which no proper
1142
opportunity has been given for examination or consultation.
It is in that spirit that I move my amendment and your Lordships will not be surprised to know that, in due course, after having heard the Minister in reply, I shall ask your Lordships' leave to withdraw it. I beg to move.
Moved, That this House doth disagree with the Commons in their Amendment No. 218.
Viscount TRENCHARD: My Lords, I have quite a lot of information on the degree to which the Government believe that they have thought out pretty clearly, admittedly in some hurry, the necessary exemptions which are the subject of Amendment No. 218. But I do not think that I shall weary the House in going through them in great detail. If I may, I shall commit myself to writing to the noble Lord, Lord Mishcon, at some length as to how we see the difference in Eurobonds, and other similar dealers, and the needs for this exemption in full.
The Law Society of England and Wales pointed out—
WEDDERBURN of CHARLTON: My Lords, if the noble Viscount is to deal with these very important matters by way of a letter to my noble friend which I thought I heard him say, would he make a copy of that letter available in the Library? This is a most important matter. Albeit my noble friend no doubt deserves a letter for putting down the amendment, but some of the rest of us would like to know the reasoning which the noble Viscount is going to put forward.
Viscount TRENCHARD: Yes, my Lords. The Law Society of England and Wales pointed out to us that certain well-established practices in the Eurobond market seemed to come within the off-market dealing provision, and that the clause did not seem to be intended to affect that market. This is where the information and suggestion came from originally.
The Eurobond market is, of course, a highly professional market and is not in need, to anything like the same extent as other markets, of the protection offered by the insider-dealing clauses. The lead managers in an issue will have, as the market

1143
will be aware, a wide range of information which is not available to others. But equally the market is much more affected by such things as currency movement and interest rate fluctuations than it is by news about particular companies.
It should also be remembered that the Eurobond market is highly international. In view of these factors, we think that it is right to exclude activities by Eurobond issue managers from the operation of the off-market deals clause. The defence is not exactly simple. Noble Lords will appreciate that it is a very difficult task to define Eurobond operations, for which we wish to provide the defence. However, it could not be simplified without providing a much wider defence than is necessary to meet the particular points of difficulty. For those reasons and with the promise that I shall put in the Library of the House a much longer statement as to the fuller considerations that the Government went into, I hope that the noble Lord will not press his amendment.
Lord MISHCON:My Lords, the House has heard the protest from the Opposition, and I shall merely say, therefore, that I ask the leave of the House to withdraw my amendment.
Amendment, by leave, withdrawn.
On Question, Motion agreed to.

COMMONS AMENDMENT
219 After Clause 45, insert the following news Clause:
"Contravention of ss. (Prohibition on stock exchange deals by insiders, etc.) anti (Prohibition on abuse of information obtained in official capacity).
.—(1) An individual who contravenes the provisions of section (Prohibition on stock exchange deals by insiders, etc.) or (Prohibition on abuse of information obtained in official capacity) above shall be liable—

(a) on conviction on indictment to imprisonment for a term not exceeding two years or a fine, or both; and

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

(2) 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
1144
consent of, the Director of Public Prosecutions.
(3) No transaction shall be void or voidable by reason only that it was entered into in contravention of section (Prohibition on stock exchange deals by insiders, etc.) or (Prohibition on abuse of information obtained in official capacity) above".
10.7 p.m.
Viscount TRENCHARD: My Lords, I beg to move that this House doth agree with the commons in their Amendment No. 219.
Moved, That this House doth agree with the Commons in the said amendment.—(Viscount Trenchard.)
Lord LLOYD of KILGERRAN Lord LLOYD of KILGERRAN had given notice of his intention to move an amendment to Commons amendment No. 219:
219A After subsection (1)(b) insert ("; and (c) The Court by or before which the individual is convicted of a contravention under this clause shall on application or otherwise make an order requiring payment by way of compensation, restitution or otherwise in respect of any gain, loss or damage resulting from the contravention.").
The noble Lord said: My Lords, in view of the answer given by the Government to Amendment No. 200A, which was in somewhat similar terms to this one and intended to be an increase in the deterrent effect on insider dealers, I do not propose to move this amendment.
On Question, Motion agreed to.

COMMONS AMENDMENT
220 After Clause 45, insert the following new Clause:
"Interpretation.
.—(1) For the purposes of this Part of this Act, an individual is connected with a company if, but only if,—

(a) he is a director of that company or a related company; or

(b) he occupies a position as an officer (other than director) or employee of that company or a related company or a position involving a professional or business relationship between himself (or his employer or a company of which he is a director) and the first company or a related company which in either case may reasonably be expected to give him access to information which, in relation to securities of either company, is unpublished price sensitive information, and which it would be

1145
reasonable to expect a person in his position not to disclose except for the proper performance of his functions.

(2) Any reference in this Part of this Act to unpublished price sensitive information in relation to any securities of any company is a reference to information which—

(a) relates to specific matters relating or of concern (directly or indirectly) to that company, that is to say, is not of a general nature relating or of concern to that company; and

(b) is not generally known to those persons who are accustomed or would be likely to deal in those securities but which would if it were generally known to them be likely materially to affect the price of those securities.

(3) For the purposes of this Part of this Act a person deals in securities if (whether as principal or agent) he buys or sells or agrees to buy or sell any securities; and references in this Part of this Act to dealing in securities on a recognised stock exchange shall include references to dealing in securities through an investment exchange.
(4) In this Part of this Act, except where the context otherwise requires—
"company" means any company, whether a company within the meaning of the 1948 Act or not;
"Crown servant" means an individual who holds office under, or is employed, by the Crown;
"debenture" has the same meaning in relation to companies which were not incorporated under the 1948 Act as it has in relation to companies which were so incorporated;
"investment exchange" means an organisation maintaining a system whereby an offer to deal in securities made by a subscriber to the organisation is communicated, without his identity being revealed, to other subscribers to the organisation, and whereby any acceptance of that offer by any of those other subscribers is recorded and confirmed;
"listed securities", in relation to a company, means any securities of the company listed on a recognised stock exchange;
"related company", in relation to any company, means any body corporate which is that company's subsidiary or holding company, or a subsidiary of that company's holding company;
"securities" means listed securities and, in the case of a company within the meaning of the 1948 Act or a company registered under Part VIII of that Act or an unregistered company, the following securities (even if they are not listed securities), that is to say, any shares, any debentures
1146
or any right to subscribe for, call for or make delivery of a share or debenture;
"share" has the same meaning in relation to companies which were not incorporated under the 1948 Act as it has in relation to companies which were so incorporated;
"take-over offer for a company"means an offer made to all the holders (or all the holders other than the person making the offer and his nominees) of the shares in the company to acquire those shares or a specified proportion of them, or to all the holders (or all the holders other than the person making the offer and his nominees) of a particular class of those shares to acquire the shares of that class or a specified proportion of them; and
"unregistered company" means any body corporate to which the provisions specified in Schedule 14 to the 1948 Act apply by virtue of section 435 of that Act (application of provisions to unregistered companies)."
10.8 p.m.
Viscount TRENCHARD: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 220. Although there are amendments to this Commons amendment, I shall move it formally at this stage and try to deal with the main points on the next amendment.
Moved, That this House doth agree with the Commons in the said amendment.—(Viscount Trenchard.)

LORDS AMENDMENT TO COMMONS AMENDMENT No. 220
220A Line 5, after ("he") insert ("is a member of or").
Lord WEDDERBURN of CHARLTON: My Lords, I beg to move as an amendment to Commons Amendment No. 220, Amendment No. 220A. May I say in respect of Amendments Nos. 220A, 220B and 220C that there is a limited amount of powder and shot available to any of us at this time of night? If the House will permit it, I would like to move these amendments formally, because then they will appear in the Official Report. May I, therefore, move them formally in the knowledge that at this late hour and in view of the Government's attitude to amendments, there is no point in doing very much more? However, I should like them to appear on the record.
On Question, amendment negatived.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 220
220B Line 10, leave out ("which in either case") and insert ("and thereby he").
Lord WEDDERBURN of CHARLTON: My Lords, I beg to move as an amendment to Commons Amendment No. 220, Amendment No. 220B.
On Question, amendment negatived.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 220
220C Line 11, leave out ("give him") and insert ("have").
Lord WEDDERBURN of CHARLTON: My Lords, I beg to move as an amendment to Commons Amendment No. 220, Amendment No. 220C.
On Question, amendment negatived.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 220
220D In subsection (2), line 4, leave out ("specific").
10.10 p.m.
Lord MISHCON: My Lords, I beg to move as an amendment to Commons Amendment No. 220, Amendment No. 220D. I hope to be brief. With your Lordships' permission, it may be for the convenience of the House if I speak to Amendments Nos. 220D to 220G. I have moved these amendments in order once again to draw the attention of the House to the half-baked way in which some of these new clauses have come before the House from the other place. Perhaps I can use the examples that are incorporated in these amendments. I do not suppose that it is necessary for any of us to legislate in the purest possible prose, but unless the noble Viscount, for whom we have so much respect, wishes to go down in some Trenchard Thesaurus of the English language with a certain amount of shame, he will accept at least one of these amendments.
I ask your Lordships to refer to the English of subsection (2) of this Amendment No. 220. Would your Lordships bear in mind the words "relates" and "relation" and imagine the comments of any judge of our courts before whom this clause may come? I quote:
"Any reference in this Part of this Act to unpublished price sensitive information in relation to any securities of any company is a reference to information which—
1148
(a) relates to specific matters relating or of concern (directly or indirectly) to that company".
If any one of our children, whether going to an assisted place or not in any one of our schools, were to turn out a phrase of that kind before any English master, one can imagine how many marks he would get. It is quite disgraceful that in a responsible and serious Act of Parliament such clumsy language should occur. With great humility and respect, and never pretending that I am a master of the language, that I love I have at least asked that one "relating" be turned into "in connection with" or something of that kind.
The clumsiness of the wording and the half-baked approach is a little more seriously shown in the other amendments I have tried to draft. The first example is in subsection (2)(a). Please forget all the things I said about the words "relate" and "relating" when I repeat those words. It reads:
"relates to specific matters relating or of concern … to that company. …"
Obviously the draftsman meant matters specifically relating, not specific matters relating, because a specific matter relating to a company is that it happens to have a share capital. The specific matter relating to a company is that it happens to have had so many shares issued.
What is meant here when talking about secret information is matters specifically relating to that company and therefore not relating to any other company at all. That is obviously the information which is sought to be protected here in this so called interpretation clause.
My last example is not of tautology but of the sheer lack of clarity that is imparted into the language of this subsection by words which are completely otiose. May I read subsection (2)(a) for your Lordships' delight? It reads:
"relates to specific matters relating or of concern (directly or indirectly) to that company".
Leave it at that, and one would know what one was talking about, and any learned judge trying to interpret it would at least know what he was supposed to be dealing with, especially if you provided that "specifically" takes the place of "specific" and succeeds the words "matters relating". But the clause then goes on:
"that is to say, is not of a general nature relating or of concern to that company".

1149
What is the point of confusing the whole of that clause when the word "specifically" is there? Why is it necessary to acid words which only import confusion into the section and nothing more—not clarity—by saying that"that is to say, is not of a general nature relating or of concern to that company"?
I merely give these as examples of hurried, clumsy phraseology in legislation which is of the utmost importance and which will have to be interpreted for our courts. Again I say for the official record that the Opposition takes no responsibility for the clumsy way in which some of these clauses have been worded and the unclear way in which they have been imported into the Bill.
My Lords, again you will not be surprised to know that, after having heard the noble Viscount's reply, which I am sure will be in much better English than is contained in this clause, I shall be asking the House's leave to withdraw the amendment.
Lord MACKAY of CLASHFERN: My Lords, I think it would be difficult to say that some of the language in some parts of this Bill could not, if one had much more time to think about it, be somewhat improved. However, I do not accept all that the noble Lord has said in criticism of this clause and in particular I take serious issue with the idea that the word "specific" should be replaced by" matters specifically relating to"or"of concern to a particular company". The idea here is that the information must be about specific matters, not, for example, what one learns by general acquaintance with the company, such as having been associated with it for a while, getting an idea of its general standards of management and that sort of thing. It is specific matters relating to the company such as. for example, that it has landed a particular contract or something of that sort.
If instead of that the word "specifically" were put in in the way suggested by the noble Lord, it would mean information which affected all of the companies in a particular industry, like the construction industry, for example. If a Minister of the Crown knew that the tax treatment of construction companies was to be altered, that information would not relate specifically to a particular company. It
1150
would be a specific matter relating to a number of companies. Obviously that kind of information could be very highly price sensitive, so the change from "specific" in the place that we have it to "specifically" in the place that the noble Lord is proposing it would make a considerable and to our mind very damaging change. That is the essence of the matter.
I have no doubt that with a lot of thought it might be possible to improve this. I do not know that it would, but at any rate we consider the substance to be right and I hope that the noble Lord will carry out his intention of withdrawing the amendment.
Lord MISHCON: My Lords, the intention is carried out. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Lords Amendments Nos. 220E, 220F and 220G to Commons Amendment No. 220 not moved.]

LORDS AMENDMENT TO COMMONS AMENDMENT No. 220
220H After subsection (3) insert—
(" (3A) For the purposes of this Part of this Act, an off-market dealer shall be taken to make a market in any securities if in the course of his business as an off-market dealer he holds himself out both to prospective buyers and to prospective sellers of those securities (other than particular buyers or sellers) as willing to deal in them otherwise than on a recognised stock exchange.").
Viscount TRENCHARD: My Lords, may I formally move Amendment No. 220H, which is strictly to define the off market dealer.
Moved, That this House doth agree with the said amendment.—(Viscount Trenchard.)
On Question, Motion agreed to.
On Question, Commons Amendment No. 220, as amended by Lords Amendment No. 220H, agreed to.

COMMONS AMENDMENT
221 Clause 46, page 57, line 1, leave out from "subsidiary" to end of line 10 and insert—
"(2) The power conferred by subsection (1) above to make any such provision may be exercised notwithstanding that its exercise is not in the best interests of the company.
(3) The power which a company may exercise by virtue only of subsection (1) above shall only be exercised by the company if sanctioned—

(a) in a case not falling within paragraph (b) or (c) below, by an ordinary resolution of the company; or

(b) if so authorised by the memorandum or articles, a resolution of the directors; or

(c) if the memorandum or articles require the exercise of the power to be sanctioned by a resolution of the company of some other description for which more than a simple majority of the members voting is necessary, with the sanction of a resolution of that description;

and in any case after compliance with any other requirements of the memorandum or articles applicable to its exercise.
(4) On the winding up of a company (whether by the court or a voluntary winding up) the liquidator may, subject in the case of a winding up by the court to section 245(3) of the 1948 Act as applied by subsection (7) below, make any payment which the company has, before the commencement of the winding up, decided to make under subsection (3) above.
5) The power which a company may exercise by virtue only of subsection (1) above may be exercised by the liquidator after the winding up of the company has commenced if, after the company's liabilities have been fully satisfied and provision has been made for the costs of the winding up, the exercise of that power has been sanctioned by such a resolution of the company as would be required of the company itself by subsection (3) above before that commencement if paragraph (b) of that subsection were omitted and any other requirement applicable to its exercise by the company has been met.
6) Any payment which may be made by a company under this section may—

(a) in the case of a payment made before the commencement of any winding up of the company, be made out of profits of the company which are available for dividend; and

(b) in the case of any other payment be made out of the assets of the company which are available to the members on its winding up.

(7) On a winding up by the court section 245(3) of the 1948 Act (powers of the liquidator to be subject to the control of the court on winding up by the court) shall apply to the exercise by the liquidator of his powers under subsection (4) or (5) above as it applies to the exercise of his powers under that section.
(8) Subsections (4) and (5) above shall have effect notwithstanding anything in any rule of law or in section 302 of the 1948 Act (property of company after satisfaction of liabilities to be distributed among members)."
Lord MACKAY of CLASH FERN: My Lords, I spoke of this amendment earlier and I believe the detail of it is reasonably self-explanatory. I beg to move.
Moved, That this House doth agree with the Commons in the said amendment.—(Lord Mackay of Clashfern.)
On Question, Motion agreed to.

COMMONS AMENDMENT
222 Clause 47, page 57, line 13, after "being" insert "or have been".
10.20 p.m.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in the said amendment. I hope the amendment is self-explanatory.
Moved, That this House doth agree with the Commons in the said amendment. —(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
223 Clause 47, page 57, line 24, leave out from "that" to end of line 26 and insert "the affairs of the company are being or have been conducted in a manner which is unfairly prejudicial to the interests of some part of the members 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,"
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in the said amendment.
Moved, That this House doth agree with the Commons in the said amendment.—(Lord Lyell.)

LORDS AMENDMENT TO COMMONS AMENDMENT No. 223
223A Line 4, after ("members") insert ("debenture holders, creditors, directors or officers").
Lord WEDDERBURN of CHARLTON: My Lords, in moving this amendment I must say that this clause is such a rare and tender plant that it is cherished by my noble friends and I because it took root in this Bill on that rare occasion on its passage through this House last July when the Government actually gave way.

1153
They introduced a clause, which went to the other place, to replace and strengthen the present Section 210 of the 1948 Act, which provides a remedy, or has tried unsuccessfully to provide remedies, in the case of oppression of minority shareholders. It is true that the present clause put forward to your Lordships' House represents an advance, especially in regard to the recommendations of the Jenkins Committee of 1962. However, my amendment attempts to nudge the Government a little further, and I feel I should comment on it because it is a rather important matter in terms of bringing our company law up to date. I mentioned it in my speech on Second Reading in this House and it was adverted to, albeit briefly, but now that the Government have amended the Bill in so many other ways, I was a little surprised they did not go in our direction here.
It is true that my amendment would require consequential amendments if the Government accepted it, but I need not go into those because they are purely drafting matters. The effect of the amendment would be, if incorporated properly into the clause, to allow persons other than shareholders to make application to the court in the case of acts or courses of conduct which are unfairly prejudicial to them, and in particular debenture holders, creditors, directors or officers. Again, my noble friends and I have been more restrained than our honourable and right honourable friends in another place, who also put forward the possibility of employees being complainers. But we have not done that. In our usual modest manner, we are merely trying to nudge the Government a little more in the direction of a modern stance instead of one of 1962, because the Jenkins Report was rather a long time ago.
It was suggested in another place by the Under-Secretary of State that these amendments or amendments like them:
"represent a radical departure from the broad measure of agreement in the country which has prevailed on the strengthening of Section 210 ".— (Official Report, Commons, 3/3/79, col. 160).
He also mentioned the Jenkins Committee. However, that was 18 years ago, and since then the Canada Corporations Act, in particular Section 234(2), allows for applications to the courts in Canada in the case of oppressive or unfairly prejudicial conduct disregarding the interests of
1154
security holders, creditors, directors or officers. The Singapore Companies Act as long ago as 1967 allowed shareholders or debenture holders eqaul access to the courts in cases of unfairly prejudicial conduct.
Even before the Jenkins Committee, undoubtedly under the influence of Professor Gower, the Ghanaian Companies Ordinance of 1961 provided that shareholders, officers or debenture holders could bring a complaint. There are other company law systems in the world which allow for complaint outside this very narrow area from which the British system seems unable to escape. It is that the complainant who alleges unfairness must appear not only by virtue of being a shareholder, but also in his capacity as a shareholder, as is shown by the cases, which would still apply to this clause when it is enacted, if he is a shareholder, and is said by the court to be suing as a debenture holder because he is both, he fails at the very outset of his case.
This cannot be right in a modern system. The difference between the preference shareholder and the debenture holder, to take one example, is not now of interest to many persons in many companies, other than the lawyers, and it surely cannot be right to be so out-of-date. I ask the Government whether they would not at least consider bringing our company law as up-to-date as the Ghanaian code of 1961.
Moved, that this House doth agree to the said amendment to the Commons Amendment No. 233—(Lord Wedderburn of Charlton).
Lord LYELL: My Lords, we believe that this amendment, which has been lucidly explained by the noble Lord, Lord Wedderburn of Charlton, would extend very considerably the power of the Secretary of State, following an investigation of a company, to apply to the court under Clause 47, which is what we are dealing with at the moment. At present the Secretary of State is empowered to apply, when it appears to him that the interests of the members of the company are being unfairly prejudiced. We believe that the amendment would empower the Secretary of State to apply when the interests of debenture holders, creditors, directors or

1155
officers of the company who are being unfairly prejudiced.
As was pointed out by the noble Lord, Lord Wedderburn, Clause 47 as it now stands in the Bill was moved by noble Lords opposite on Committee, and indeed was accepted by your Lordships. The noble Lord, Lord Wedderburn, explained that there was a precedent in Canadian legislation, as well as in the legislation of many other members of the Commonwealth. Indeed, in another place earlier this month an amendment similar to that of the noble Lord's was withdrawn at Report stage.
The position of the Government is that Clause 47, as it now stands, is both a long-considered and much welcomed attempt to remedy the shortcomings of Section 210 of the Companies Act 1948, by providing a more effective remedy for the protection of minority shareholders. We believe that that is an important concept. Clause 47 follows the recommendations of the Jenkins Committee on company law, and was contained in the Conservative Companies Bill of 1973, and in the Companies Bill put forward in 1978 by noble Lords opposite. Thus we believe that this clause is both thoroughly considered and widely supported.
We wonder whether the same can be said about the noble Lord's amendment, because it seems that the Canadian precedent has attracted little attention world-wide, and we do not have much evidence of how it works in practice. To seek to improve the existing provision under which the Companies Court is intended to have wide powers to settle disputes between shareholders is one thing; to provide a parallel jurisdiction when, for instance, the manager or director of a company complains that he is being unfairly prejudiced, is quite a different question. This new point raises all sorts of queries, as indeed does the idea of debenture holders or creditors having similar rights. Is it intended to provide them with rights that they do not have at present? Does this mean that contracts freely negotiated can be rewritten by the courts to provide more extensive benefits to creditors?
These are just two of the much wider questions, and we believe that they
1156
deserve much fuller consideration, and indeed wide consultation. In another place my honourable friend the Parliament Under-Secretary of State for Trade gave an undertaking on behalf of the Government that we would consult on the merits of the proposals and discuss them with a wide range of interested parties, and we would also seek to discover how the Canadian provisions are working in practice. This would form part of the consideration of proposals for inclusion in the next Companies Bill, though I would stress that no commitment is given about the eventual conclusions to be reached on the merits of this present proposal.
I am happy to report this assurance to your Lordships, though I have no doubt that the noble Lord, Lord Wedderburn, will have seen and will have taken in the report of the proceedings in the other place. I hope that, in the light of what I have said and, in particular, of the assurance that I have given, the noble Lord will see no need to press this particular amendment.
Lord WEDDERBURN of CHARLTON: My Lords, I thank the Minister for his reply. I am naturally glad that the Government will consult and consider this matter further. I accept that to allow the director to sue under such a clause would be a large step; to allow the creditor to bring a complaint would be a middling step; to allow the secured debenture holder to bring a complaint would not in most cases involve the renegotiation of a contract any more than giving a special remedy to the minority shareholder in very many cases. But I am glad the Government will consider this. I only note that where they have to consult, when it comes to matters of this kind—a minority shareholder or tidying up, with all they have put on the agenda—they move rather slowly, but when it comes to exempting the Eurobond market from insider dealing, they move like the wind.
Amendment, by leave, withdrawn.
On Question, Motion agreed to.

COMMONS AMENDMENTS
224 Clause 47, page 58, line 3, leave out from "section" to end of line 13, and insert requires the company not to make any, or any specified, alteration in its

1157
memorandum or articles then, notwithstanding anything in the Companies Acts, the company shall not have power without the leave of the court to make any such alteration in breach of that requirement.
(5A) Any alteration in the memorandum or articles of the company made by virtue of an order under this section shall be of the same effect as if duly made by resolution of the company and the provisions of the Companies Acts shall apply to the memorandum or articles as so altered accordingly."
225 Clause 47, page 58, line 15, leave out
"or adding to"
226 Clause 47, page 58, line 15, leave out
"or add to".
10.32 p.m.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 224 to 226. We have already spoken to these. I beg to move them formally.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
227 Clause 48, page 59, line 2, leave out from "if" to end of line 4 and insert "in circumstances in which the fact that it is a public company is likely to be material to any person, it uses a name which may reasonably be expected to give the impression that it is a private company."
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 227. We have already discussed this on an earlier amendment.
Moved, That this House doth agree with the Commons in the said amendment.—(Lord Lyell.)
Lord MOTTISTONE: My Lords, before we go any further, and having waited a long time, I wish to thank the Government very much for these amendments, which they kindly promised when this Bill was before this House and put into the Bill in another place.
Lord LYELL: My Lords, I thank my noble friend. I think it was I who, at an earlier stage, dealt with these amendments, and we are very glad that there is some approval on our side of the House, at least, for them.
On Question, Motion agreed to.

COMMONS AMENDMENT
228 Clause 48, page 59, line 7, leave out from "then" to "as" in line 18 and insert—

"(a) during the twelve months following the re-registration, any provision of section 108(0(0 or (c) of the 1948 Act (publication of name of company), and

(b) during the three years following the re-registration, section 108(1)(a) of the i948 Act or any provision of any other Act or subordinate instrument requiring or authorising the name of the company to be shown on any document or other object,

shall apply"
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 228.
Moved, That this House doth agree with the Commons in the said amendment.—(Lord Lyell)
[Amendment No. 228A not moved.]
On Question, Motion agreed to.

COMMONS AMENDMENTS
229 Clause 48, page 59, line 20, leave out from first "name" to "its" in line 21 and insert "which either is its name or was".
230 Clause 50, page 60, line 1, leave out from "and" to end of line 4 and insert "any reference in those Acts to the name of a company or to the inclusion of any of those words in the name of a company shall include a reference to the name of the company including (in place of any of the words so specified) the appropriate alternative, or to the inclusion of the appropriate alternative, as the case may be."
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 229 and 230.
Moved, That this House doth agree with the Commons in the said amendments. (Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
231 After Clause 50 insert the following new clause:
"Qualifications of company secretaries.
It shall be the duty of the directors of a public company to take all reasonable steps to secure that the secretary or each joint secretary of the company is a person who appears to them to have the requisite knowledge and experience to discharge the functions of secretary of the company and who—

1159

(a) on the appointed day held the office of secretary or assistant or deputy secretary of the company; or

(b) for at least three years of the five years immediately preceding his appointment as secretary held the office of secretary of a company other than a private company; or

(c) is a member of any of the bodies specified in subsection (2) below; or

(d) is a barrister, advocate or solicitor called or admitted in any part of the United Kingdom; or

(e) is a person who, by virtue of his holding or having held any other position or his being a member of any other body, appears to the directors to be capable of discharging those functions.

(2) The bodies referred to in subsection (1)(c) above are:—

(a) the Institute of Chartered Accountants in England and Wales;

(b) the Institute of Chartered Accountants of Scotland;

(c) the Association of Certified Accountants;

(d) the Institute of Chartered Accountants in Ireland;

(e) the Institute of Chartered Secretaries and Administrators;

(f) the Institute of Cost and Management Accountants;

(g) the Chartered Institute of Public Finance and Accountancy."

Lord MACKAY of CLASHFERN: My Lords, this clause was moved into the Bill in another place, and provides some indication of the manner in which a company secretary should be appointed. There are some amendments to this amendment, and perhaps I can reserve what I have to say until we hear what is said on those amendments. I beg to move that this House doth agree with the Commons in their Amendment No. 231.
Moved, That this House doth agree with the Commons in the said amendment. (Lord Mackay of Clashfcrn.)

LORDS AMENDMENT TO COMMONS AMENDMENT No. 231
231A In subsection 1, line 15, leave out from ("Kingdom") to end of subsection.
Lord MISHCON: My Lords, I am going to ask the House to bear with me yet once again—I promise it will be for only a short time—to listen to an example of the manner in which this serious Bill has come before the House from the Commons, and of the rush and the unpreparedness with which this Bill is drawn. Your Lordships may or may not agree with me, but this is a clause which imposes for the first time, so far as I am
1160
aware, a duty upon directors to select a person who is defined as "a qualified person "as a secretary of the company—a very important administrative position because the secretary is the officer who, as a rule, has to carry out many of the formal requirements of the Companies Act.
I asked for your Lordships' patience because the new clause starts in this way:
"It shall be the duty of the directors of a public company to take all reasonable steps to secure that the secretary or each joint secretary of the company is a person who appears to them to have the requisite knowledge and experience to discharge the functions of secretary of the company and who…".
Your Lordships will have gathered so far, since I have ended the quotation, that the person who is to be considered as secretary must, prior to appointment, have had the sort of experience and knowledge that appears to the directors to be suitable. On top of that the clause provides, from paragraphs (a) to (d), certain additional qualifications.
Then, at the Report stage, only a few weeks ago, something was thrown into this clause. It was paragraph (e). You will remember what I quoted of the first part: that he has to have had experience and the sort of qualifications the directors think suitable. Then there is an "and" —and your Lordships may think that you will hear something very different from the first part of the clause. Your Lordships will not do so because (e) reads:
"[and who] is a person who, by virtue of his holding or having held any other position or his being a member of any other body, appears to the directors to be capable of discharging those functions."
I have tried hard to be as tolerant and understanding as I can; but I fail to see the difference between the first part of the qualifications and the additional qualifications. There is none. In that circumstance, I put this before the House purely as yet another example of something thrown into the Bill at Report stage (only a few weeks ago) which comes to this House in a half-baked condition and which, in my respectful submission would make your Lordships ashamed when a clause like this comes before any court of law and a judge as trenchant as some of our learned judges can be comments on the wording of the clause and the sense of those who passed it. I beg to move.
Lord MACKAY of CLASHFERN: My Lords, it appears clear that the intention of this clause is to give some guidance on persons who will be qualified to hold the office of company secretary. I think I may have misheard the noble Lord. He said that (e) was preceded by "and". I think it is "or" in the version before the House.
Lord MISHCON: My Lords, if the noble and learned Lord will read from the beginning of the new clause, he will see that the words are "and who" has any of these qualifications. The or is at the end of (d). My reference was to the "and" at the beginning. I pointed out that the beginning is precisely the same as the end. I do not know why both are there.
Lord MACKAY of CLASHFERN: My Lords, at least it makes for consistency. I am obliged to the noble Lord for pointing out the "and" to which he was referring. I think that (e) is somewhat different from the first part, the opening part, of the clause because it gives an indication of the way in which the requisite knowledge and experience is to be had—that is, by virtue of his holding or having held any other position or his being a member of any other body and so on. These are types of qualifications by reference to which the directors would be entitled to take the view that the requisite knowledge and experience was possessed.
Lord MISHCON: My Lords, if the noble and learned Lord is content to allow (e) to stand, having read it once again; and if the House feels at this time of night that it does not want to debate the matter further, I shall understand; but at least the protest will be on record. I ask leave of the House to withdraw my amendment.
Amendment, by leave, withdrawn.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 231
231B Leave out subsection (2).
10.40 p.m.
Lord LLOYD of KILGERRAN: My Lords, I beg to move, as an amendment to the Commons amendment, Amendment No. 231B. My attack on this clause is far more serious than that of Lord Mishcon. He explained how Amendment No. 231 imposes duties
1162
upon directors of a public company to take reasonable steps to secure that the secretary shall be qualified and, as he has pointed out, there are certain subsections indicating the type of person who would be suitable as a secretary. What the noble Lord did not do was to read out subsection (1)(c) which says that in order to qualify as the secretary of a public company the secretary shall be a member of any of the bodies specified. In subsection (2) there are set out seven institutes or associations of which this gentleman or lady should be a member before he or she becomes a secretary of a company.
I ask rhetorically: Why is it the duty of the Government to select certain professional bodies for notice at the expense of other equally reputable societies? From the correspondence I have had—no doubt other noble Lords have had a lot of correspondence—many reputable associations not listed in this clause have protested. I will read the words from one which has written to me:
"It is most invidious for such names to be included, and it is not the duty of Government to select certain professional bodies for notice at the expense of other equally reputable societies".
Therefore, my amendment is to leave out subsection (2) and the consequential amendment is to leave out subsection (1)(c) where it refers to subsection (2).
May I also speak to my Amendment No. 231C? If the Government refuse to accept Amendment No. 231B, the second amendment is that there should be added at least three other societies, institutes or associations to the list which has been set out in subsection (2). I am told that foreign firms would come to the conclusion, reading this clause, that it is only these seven institutes or associations that are named that are proper to have men or women as their members suitable to become secretaries.
In my amendment I add three others. In this connection, so far as paragraph (i) in Amendment 231C is concerned, I must declare an interest. i have suggested that there should be included there the Institute of Management Services. I am an honorary fellow of that institute. It has over 26,000 members and is an institute of the highest respectability. The honorary president is Sir Monty Finniston, and

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there are a number of very distinguished vice-presidents and other honorary fellows.
I am fully aware that that institute arranges courses for members of the highest order, in order to get qualifications as suitable, so I am told, as some of the qualifications that can be given by the other listed institutes and associations. I must repeat that it is most invidious for a Government department—does the noble Lord, Lord Lyell, want to speak?
Lord LYELL: No, my Lords.
Lord LLOYD of KILGERRAN: I thought he wanted to say something from a sedentary position. This is a serious matter, if I may say so, although the noble Lord, Lord Lyell, appears to consider it amusing. When the Government decide to pick out about seven institutes and associations, one immediately inquires: Why should they do that, leaving out other reputable institutions that could give qualifications just as suitable as some of those specified? I beg to move.
Lord MACKAY of CLASHFERN: My Lords, I appreciate the noble Lord's feelings in this matter. I have no doubt that the association of which he has spoken is well qualified to be included in the list. On the other hand, the clause is designed to give guidance to company directors on the obligations that they have to select a suitable person or persons to be the secretary or secretaries of the company. The purpose of the list is simply to give an indication of the nature of the bodies that might be regarded as suitable. These indications are, I agree, not by any means exhaustive, and the subsection to which the noble Lord, Lord Mishcon, particularly referred —(1) (e)—makes that perfectly plain, because it talks about the person being a member of"any other body". The various bodies to which the amendment of the noble Lord, Lord Lloyd, referred would obviously come into that category as being "just and generous" as the bodies mentioned in Clause 2.
The situation is that guidance is being given here. It would be very difficult without undue length to mention every possible body whose qualifications are
1164
suitable, and the line has been drawn at the bodies from which a very substantial proportion, at least, of company secretaries are drawn. I appreciate what the noble Lord has said, but I hope that in the light of that explanation he will feel able to withdraw his amendment.
Lord LLOYD of KILGERRAN: My Lords, as always, the noble and learned Lord is very persuasive and very courteous; but to say that the introduction of subsection (2) with its references to seven institutes is a matter of guidance is not to appreciate the attitude which, as I have indicated, people abroad will adopt on reading this section. They will at once say that the Government in this Bill have stated quite categorically that the bodies referred to are those which will give suitable qualifications for people who wish to become secretaries. And that is totally untrue. In my Amendment No. 231C, I have given the names of three other reputable bodies which ought to be added to that list.
On Question, amendment negatived.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 231
231C Subsection (2) at end insert—
(" (h) The Society of Company and Commercial Accountants;
(i) The Institute of Management Services;
(j) The British Association of Accountants and Auditors.").
Lord LLOYD of KILGERRAN: My Lords, I beg to move as an amendment to Commons Amendment No. 231, Amendment No. 231C.
On Question, amendment negatived.
On Question, Motion agreed to.

COMMONS AMENDMENT
232 After Clause 51, insert the following new Clause:
"Amendment of s. 454 of the 1948 Act.. In section 454(1) of the 1948 Act (power of Secretary of State to alter or add to requirements of 1948 and 1967 Acts relating to balance sheets and accounts) after the words "group accounts there shall be inserted the words" and a report of the directors of a company which is required by section 157 of this Act to be attached to the company's balance sheet "."
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 232.
Moved, That this House doth agree with the Commons in the said amendment. —(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
233 After Clause 52, insert the following new clause:
"Continued application of provisions of Protection of Depositors Act 1963.
.—(1) The repeal by the Banking Act 1979 (the "1979 Act") of the Protection of Depositors Act 1963 (the "1963 Act") shall not affect, and shall be deemed never to have affected, the application of the following provisions of the 1963 Act to unexempted companies on and after the commencement of Parts I and III of the 1979 Act, that is to say—

(a) sections 6 to 17; and

(b) so far as relevant to the operation of those sections, sections 5 and 22 to 27.

(2) In this section "unexempted company" means any company within the meaning of the 1963 Act which is not excepted by section 2(1) of the 1979 Act from the prohibition on the acceptance of deposits imposed by section I of the latter Act".
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amemndent No. 233.
Moved, That this House doth agree with the Commons in the said Amendment. —(Lord Lyell.)

LORDS AMENDMENT TO COMMONS AMENDMENT No. 233
233A In subsection 1(a), leave out ("17") and insert ("19")
Lord M1SHCON: My Lords, I beg to move an amendment to Commons Amendment No. 233, Amendment No. 233A. This is the last time I shall burden your Lordships with any remarks of mine. I can be very brief in regard to this manuscript amendment. It deals with a situation which has to be covered by a clause in this Bill. The Bankers Act revoked the protection of the Depositors Act, because the Bankers Act had in mind that there would be licensed people who would hold deposits from the public. What was overlooked was the fact that there were people who might have deposits with a company which either did not apply for a licence, or which, having applied, didnot obtain one. Therefore, if all the provisions of the Protection of Depositors Act went, depositors with the unlicensed company would have no protection at all.
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Very correctly, the power which was contained in Section 17 of the Protection of Depositors Act is by retrospective action reinstated.
It is obviously necessary, as the Government have recognised, to protect such depositors. Section 18 of that Act gave very necessary powers to require the production of documents, and Section 19 gave a power of entry and search. Both powers may be very necessary in order to protect depositors in such cases. Therefore, the purpose of my amendment is merely to revive not only Section 17 of that Act but also Sections 18 and 19 as well.
Moved, That this House doth agree with the said amendment to Commons Amendment No. 233. (Lord Mishcon).
Lord LYELL: My Lords, the manuscript amendment of the noble Lord, Lord Mishcon, would have the effect of extending the powers reserved to the department. It would include the powers of inspection and search set out in Sections 18 and 19 of the 1963 Act. But I assure the noble Lord that his amendment is unnecessary because both those sections were repealed by Schedule 3 to the 1976 Companies Act. The reason for that repeal was that the department had already been given adequate powers in this respect under Section 109 and following sections in the 1967 Companies Act. I hope the noble Lord will accept that explanation.
Lord MISHCON: My Lords, I have no opportunity of checking what the Minister has said, but I am quite sure that if he has said it on advice, it has been said very correctly. On that basis, I am happy to beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
On Question, Motion agreed to.

COMMONS AMENDMENTS
234 Clause 54, page 62, line 8, leave out from "section" to end of line 23 and insert "which increases the authorised minimum may—

(a) require any public company having an allotted share capital of which the nominal value is less than the amount specified in the order as the authorised minimum to increase that value to not less than that amount or make an application to be re-registered as a private company;

1167

(b) make, in connection with any such requirement, provision for any of the matters for which provision is made by any enactment in the Companies Acts relating to acorn-patty's registration, re-registration or change of name, to payment for any share comprised in a company's capital and to offers of shares in or debentures of a company to the public, including provision as to the consequences (whether in criminal law or otherwise) of a failure to comply with any requirement of the order; and

(c) contain such supplemental and transitional provision as the Secretary of State thinks appropriate, make different provision for different cases and, in particular provide for any provision of the order to come into operation on different days for different purposes."

235 Clause 56, page 63, line 13, at end insert—
" "conditional sale agreement" has the same meaning as in the Consumer Credit Act 1974;"
10.52 p.m.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 234 and 235.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENT
236 Clause 56, page 63, line 15, after "shares" insert "or debentures"
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 236. This is a complicated clause, but I think your Lordships would wish me to move it formally because I understand there is an amendment to it.
Moved, That this House doth agree with the Commons in the said amend-men t.—(Lord Lyell.

LORDS AMENDMENT TO COMMONS AMENDMENT No. 236
236A After ("or") insert (", where any employee within the scheme is, or any former employee within the scheme was at the time of employment a member of an independent trade union recognised by the employer within the meaning of section 11 of the Employment Protection
1168
Act 1975, with the agreement of that trade union,")
Lord WEDDERBURN of CHARLTON: My Lords, I beg to move, as an amendment to Commons Amendment No. 236, Amendment No. 236A. It is unfortunate that this amendment is the last on the Marshalled List, but sometimes as the field crowds round the last man has to play a few extra overs. I hope that as the last man in I shall have the sympathy of the House, because this is the only point in the Bill where this point can be raised.
With great respect to the noble Lord, Lord Lyell, I do not think it is a very complicated matter. This is the definition clause of an employees' share scheme. We have never had a definition of this sort before, but it has always been understood that an employees' share scheme covered cases in which employees got shares. But in this Bill we are introducing the wholly new element that an employees' share scheme can include a scheme to encourage or facilitate the holding of shares and, as this amendment would have it, or debentures. I am not making the semantic point that an employees' share scheme should not include debentures, but the substantive point that this is a break of a very serious kind.
Again, without labouring the point, I note that it was moved in Committee on 22nd November, met with doubt and some opposition by the right honourable friends in another place of noble Lords opposite and by some of their Back-Bench Members; then was said to be coming back on Report and was never brought back on Report; was, in effect, nodded through in Committee on 11th December and, finally, on Report on 4th March. So there were no substantive discussion and arguments from the Government in support of this addition.
Instead, if one reads the reports of the speeches of noble Lords' honourable friends on the Back-Benches, one finds Sir Brandon Rhys Williams, on 22nd November, at column 340 of the Official Report, being very doubtful as to whether debentures should be allowed in. I must read to your Lordships what Sir Brandon said, because I cannot put it any better. He suggested that he would not welcome—and I quote, if I may—
Lord LYELL: My Lords, will the noble Lord give way? I understand that it is against the Standing Orders of your Lordships' House to quote a Member of another place who is not a Minister. I am sorry, but I understand that that is the Standing Order.
Lord WEDDERBURN of CHARLTON: My Lords, I thank the noble Lord for bringing to my attention the Standing Orders. I had rather reflected as the evening went on, having heard of that Standing Order, that perhaps the number of times on which it had been broken had meant it to be in some form of obsolescence. However, if the noble Lord is so afraid of the point that he wants me to put it in my own words, I will put it in my own words, which happen to agree precisely with the sentiments generally expressed by Sir Brandon Rhys Williams on 22nd November. I am sorry that the noble Lord should hold up your Lordships in this way, and I have no alternative. He hurries me.
I, too, like Sir Brandon, do not particularly welcome the use of employees' share schemes, if they are primarily seen by management as a way of providing a new source of capital which is so dispersed that it does not threaten the controlling interest of the directors, or where rights of employees are strictly limited. I, too, feel that, at present, debentures are not a popular form of investment, for the obvious reason that inflation steadily erodes the asset, and most people prefer to put their savings into equities which give them some reasonable hope that their income and capital will move along with the depreciation in the value of money, of which the Government are very aware, and that they will not suffer too badly. I, too, feel like Members of another place, that if employees' share schemes are to invest in debentures, there will be friction when employees discover the character of the asset which their employers have given to them. I quite understand that it must embarrass noble Lords on the Front Bench opposite, but these are sentiments which I share with their honourable friends in another place and there are—
Lord DENHAM: My Lords, if the noble Lord will forgive me, it is a rule that noble Lords do not quote, and my noble friend was quite right to say so.
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I hope that the noble Lord will not take exception to that.
Lord WEDDERBURN of CHARLTON: Not at all, my Lords. I take the point of the noble Lord, which he put courteously to me, and I put courteously back to him that I share precisely the sentiments of Sir Brandon Rhys Williams, and that if he had been in the House earlier this evening he would have heard, time and time again from both sides of the House, reference made to sentiments expressed in another place. If we have all been out of order for the whole evening, I trust that those on the Front Benches and the usual channels will take steps to correct noble Lords on their own Back-Benches. It would, of course, be necessary for almost the whole debate.
I have established that I agree with the sentiment that to introduce debentures into an employees' share scheme introduces a novel element, which is, at least, to introduce something very different from equity shares, which in days of inflation could lead to friction if employees are at all misled about the nature of the security which they are being offered. Having established that somewhat more laboriously than I hoped to do, since I took the course that I did only in order to quote quickly something that somebody else had put better than I could, and having established that in six rather than two minutes, I wish to touch upon the areas of the Bill to which this definition is important.
I will do this very quickly by noting that the definition is important to Clause 15 and Schedule 13 by Amendment No. 315, to which we are coming in relation to the definition of "offer of shares to the public". Secondly, it is important to Clause 4. I spoke in your Lordships' House on Amendment No. 8 to Clause 4, about the allotment of share capital and the nominal value of a company's allotted share capital. Third, it is important to Section 54 of the 1948 Act in relation to financial assistance given by a company for the purchase or cash acquisition of its own shares. The fourth important part is Clause 22, which your Lordships have already dealt with. This deals with placing conditions on the right of a public limited company to allot its shares.
The clear intention of the Government and their advisers is to use the same

1171
definition in all fourplaces. Mysuggestion to the noble Lords opposite is that they may have been misled by a desire for tidiness, in that the same definition may not be wholly appropriate to all four places.
In view of the lateness of the hour, I will not extend my argument on this matter. However, I am perfectly willing, as other noble Lords have suggested, to put documents in the library if anyone should be interested. But there are very serious arguments whereby it could easily be established that this very serious new intervention could perhaps lead to different definitions in different parts of the Bill of an employees' share scheme. And it certainly leads to the point which was made in another place, that employees who are asked to take debentures might be in need of advice in a way which would be quite different if it were an offer of equities. They may be in need of advice on equities, but I think they certainly would need advice on debentures. In many cases they will not understand the difference unless it is explained to them.
My noble friends and I are suggesting in this amendment that the right people to give that advice, if there is a trade union recognised for consultation by the employer, is the trade union. The amendment does not in any way force an employer to recognise a union; it merely says that where there are good industrial relations and consultation with the union, what could be better than to explain to the employees concerned, through their union channel, that these are debentures and not shares. No doubt the union, in doing so after consultation, will explain why in this case it is a good buy. At least the workers will not afterwards be able to turn round and say, "You misled us; we thought this was an employees' share scheme. We know about shares. They go up when inflation goes tip, but debentures do not''.
I suggest that the Government should consider very seriously the need for advice for employees in their introduction of this new element into employee share schemes. I have taken a moment or two longer than I intended, and I trust that because it is the last amendment the Government will show a somewhat more relaxed attitude towards it than was possible earlier in the evening.
Moved, That this House cloth agree with the amendment to the Commons
Amendment No. 236.—(Lord Wedderburn of Charlton.)
11.3 p.m.
Lord LYELL: My Lords, the noble Lord, Lord Wedderburn of Charlton, has given a fairly lengthy and detailed explanation of his amendment. I have listened as carefully as I can to what he has had to say. There are two points which I should like to make. The Government are of the firm opinion that there is no reason at all why debentures should in any way be a more wise or unwise investment for employees than anything else. We believe that employees are perfectly capable of having such share schemes, debenture schemes or investment schemes in their own company explained to them, and that they are quite capable of making up their own minds.
I understand that there were problems about the possibility of trade union members in private companies, but this is not likely to be a major problem, especially in view of what I had to say about debentures as against shares. The Government certainly do not take the view that there is any difference in investment, as an investment medium, between debentures and shares just because debentures have a fixed rate of interest. There might be other attractive conditions attached to those debentures. They might carry conversion rights—indeed, many of them do—at a later stage. But I do not think that there is any outstanding reason to accept the noble Lord's amendment tonight. I am sorry to disappoint him and not to be more flexible, but I am afraid that is as far as I can go.
Lord WEDDERBURN of CHARLTON: My Lords, I thank the noble Lord for his reply. One point I omitted was the point on conversion and I am glad that he has mentioned it, because that does show one point on which employees might well need advice; but whereas he says that the company could give it, the company might not. However, in view of the circumstances, I naturally ask leave to withdraw this amendment.
Amendment, by leave, withdrawn.
On Question, Motion agreed to.

COMMONS AMENDMENTS
237 Clause 56, Page 63, line 22, after "children" insert "or step-children"
238 Clause 56, Page 63, line 23, at end insert
" "hire-purchaser agreement" has the same meaning as in the Consumer Credit Act 1974; "
239 Clause 56, Page 63, line 28, at end insert
"(including foreign currency)"
240 Clause 56, Page 63, line 46, at end insert—
"(1A) In relation to an allotment of shares in a company, the shares shall be taken for the purposes of the Companies Acts to be allotted when a person acquires the unconditional right to be included in the company's register of members in respect of those shares.
(1B) For the purposes of the Companies Acts—

(a) a share in a company shall be taken to have been paid up (as to its nominal value or any premium on it) in cash or allotted for cash if the consideration for the allotment or the payment up is cash received by the company or is a cheque received by the company in good faith which the directors have no reason for suspecting will not be paid or is the release of a liability of the company for a liquidated sum or is an undertaking to pay cash to the company at a future date; and

(b) in relation to the allotment or payment up of any shares in a company, references in the Companies Acts, except in section 17 of this Act, to consideration other than cash and to the payment up of shares and premiums on shares otherwise than in cash include references to the payment of, or an undertaking to pay, cash to any person other than the company;

and for the purposes of determining whether a share is or is to be allotted for cash or paid up in cash, "cash" includes foreign currency."
241 Clause 56, Page 64, line 2, after "sheet" insert "or to a profit and loss account"
242 Clause 56, Page 64, line 6, after "transfer" insert" or acquisition "
243 Clause 56, Page 64, line 8, leave out "land" and insert"any property
244 Clause 59, page 65, line 28, leave out from "purposes" to end of line 30 and insert" of this Act or for different purposes of the same provision; and references in this Act to the appointed day shall be construed accordingly."

COMMONS AMENDMENTS
In the Schedules
245 Schedule 2, page 68, line 8, leave out "£25" and insert "£10"
246 Schedule 2, page 68, line 14, leave out "£25" and insert "£5"
247 Schedule 2, page 68, line 20, leave out "£25" and insert "£5"
248 Schedule 2, page 69, line 25, leave out "£25". and insert "£5"
249 Schedule 2, page 71, line 16, leave out "£25" and insert "£5"
250 Schedule 2, page 71, line 22, leave out "£25" and insert "£5"
251 Schedule 2, page 72, line 21, leave out "£25" and insert "£5"
252 Schedule 2, page 72, line 27, leave out "£25" and insert "£5"
253 Schedule 2, page 73, line 6, leave out "£25" and insert "£5"
254 Schedule 2, page 73, line 28, leave out "£25" and insert "£2"
255 Schedule 2, page 74, line 27, leave out "£25" and insert "£5"
256 Schedule 2, page 75, line 13, leave out "£25" and insert "£2"
257 Schedule 2, page 76, line 12, leave out "£25" and insert "£2"
258 Schedule 2, page 76, line 24, leave out "£25" and insert "£5"
259 Schedule 2, page 77, line 11, leave out "£25" and insert "£5"
260 Schedule 2, page 77, line 17, leave out "£25" and insert "£5"
261 Schedule 2, page 77, line 25, leave out "£25" and insert "£2"
262 Schedule 2, page 77, line 30, leave out "£25" and insert "£5"
263 Schedule 2, page 78 line 6, leave out "£25" and insert "£5"
264 Schedule 2, page 78 line 12, leave out "£25" and insert "£5"
265 Schedule 2, page 78 line 18, leave out "£25" and insert "£5"
266 Schedule 2, page 78 line 24, leave out "£25" and insert "£5"
267 Schedule 2, page 79, line 16, leave out "£25" and insert "£2"
268 Schedule 2, page 80, line 6, leave out "£25" and insert "£2"
269 Schedule 2, page 80 line 17, leave out "£25" and insert "£5"
270 Schedule 2, page 80 line 25, leave out "£25" and insert "£2"
271 Schedule 2, page 81, line 16, leave out "£25" and insert "£5"
272 Schedule 2, page 81, column 3, leave out lines 24 to 28 and insert "on conviction on indictment, a term of imprisonment not exceeding six months or a fine or both."
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their amendments.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
273 Schedule 2, Page 82, column 3, leave out lines 5 to 9 and insert "on conviction on indictment, a term of imprisonment not exceeding six months or a fine or both".
274 Schedule 2, Page 82, column 3, line 16, leave out "£25" and insert "£5"
275 Schedule 2, Page 82, column 3, line 27, leave out "£25" and insert "£5"
275A Schedule 2, Page 83, line 21, leave out "£25" and insert "£5"
276 Schedule 2, Page 84, line 23, leave out "£25" and insert "£5"
277 Schedule 2, Page 85, line 6, leave out "£25" and insert "£10"
278 Schedule 2, Page 85, column 3, leave out lines 24 to 28 and insert "on conviction on indictment, a term of imrpisonment not exceeding six months or a fine or both."
279 Schedule 2, Page 86, line 12, leave out "£25" and insert "£5"
280 Schedule 2, Page 86, line 18, leave out "£25" and insert "£5"
281 Schedule 2, Page 87, line 9, leave out "£25" and insert "£5"
282 Schedule 2, Page 87, line 15, leave out "£25" and insert "£5"
283 Schedule 2, Page 87, line 24, leave out "£25" and insert "£5"
284 Schedule 2, Page 90, line 24, leave out "£25" and insert "£5"
285 Schedule 2, Page 91, line 9, leave out "£25" and insert "£5"
286 Schedule 2, Page 91, line 15, leave out "£25" and insert "£10"
287 Schedule 2, Page 91, line 21, leave out "£25" and insert "£5"
288 Schedule 2, Page 92, line 13, leave out "£25" and insert "£5"
289 Schedule 2, Page 93, line 6, leave out "£25" and insert "£5"
290 Schedule 2, Page 93, line 13, leave out "£25" and insert "£5"
291 Schedule 2, Page 93, line 18, leave out"£25" and insert "£5"
292 Schedule 2, Page 93, line 25, leave out"£25" and insert "£5"
293 Schedule 2, Page 94, line 6, leave out "£25" and insert "£5"
294 Schedule 2, Page 95, line 12, leave out "£25" and insert "£5"
295 Schedule 2, Page 95 line 18, leave out "£25" and insert "£5"
296 Schedule 2, Page 96, line 12, leave out "£25" and insert "£5"
297 Schedule 2, Page 96, line 19, leave out "£25" and insert "£5"
298 Schedule 2, Page 97, line 19, leave out "£25and insert "£5"
299 Schedule 2, Page 97, line 23, leave out "£25" and insert "£5"
300 Schedule 2, Page 99, line 17, leave out "£25" and insert "£5"
301 Schedule 2, Page 99, line 26, column 4, leave out paragraph (a).
302 Schedule 2, Page 100, line 27, column 3, leave out from "continues" to end of line 29.
303 Schedule 2, Page 101, line 6, leave out "£25" and insert "£5"
304 Schedule 2, Page 101, line 17, column 3, leave out from "continues to end of line 19.
305 Schedule 2, Page 101, line 25, leave out "£25" and insert "£5"
306 Schedule 2, Page 102, line 8, leave out "£25" and insert "£5"
307 Schedule 2, Page 102 line 21, column 3, leave out from "continues" to end of line 23.
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their amendments.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
308 Schedule 3, page 103, line 21, leave out "and additions to"
309 Schedule 3, page 103, line 24, leave out from beginning to "notwithstanding" in line 26 and insert "Where an order under this section requires the company not to make any, or any specified, alteration in its memorandum or articles, then"
310 Schedule 3, page 103, line 29, leave out "or addition"
311 Schedule 3, page 103, line 30, leave out "or addition to"
312 Schedule 3, page 103, line 36, leave out "or added to"
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their amendments.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
313 Schedule 3, page 103, line 37, leave out paragraph 5.
314 Schedule 3, Page 104, line 33, at end insert—
"10A. In section 54 (prohibition on company providing financial assistance for purchase of own shares, etc.)—
(a) the following paragraph shall be substituted for paragraph (b) of subsection (1)—
"(b) the provision by a company in accordance with an employee share scheme (within the meaning of the Companies Act 1980) of money for the purchase of, or subscription for, fully-paid shares in the company or its holding company by the trustees of the scheme; ";
(b) after subsection (1) there shall be inserted the following subsections—
"(1A) The proviso to the foregoing subsection shall authorise a public company to give financial assistance to any person only if the company's net assets are not thereby reduced or, to the extent that those assets are thereby reduced, if the financial assistance is provided out of profits which are available for dividend.
(1B) In this section, "net assets" in relation to any company, mean the aggregate of that company's assets less the aggregate of its liabilities: and"liabilities"includes any provision (within the meaning

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of Schedule 8 to this Act) except to the extent that that provision is taken into account in calculating the value of any asset to the company."."
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their amendments.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
315 Schedule 3, page 104, line 36, leave out from "following" to end of line 47 and insert"subsections—
(3) For the purposes of this section an offer of shares in or debentures of a private company or an invitation to subscribe for such shares or debentures shall, if it is of any of the following descriptions—

(a) an offer or invitation made to any member of a relevant class;

(b) an offer or invitation to subscribe for shares or debentures to be held under an employees' share scheme;

(c) an offer or invitation falling within paragraph (a) or (b) above and made on terms which permit the person to whom the offer or invitation is made to renounce his right to the allotment of shares or issue of debentures, but only in favour of a member of a relevant class or, where there is an employees' share scheme, of a person entitled to hold shares or debentures under the scheme;

be regarded, unless the contrary is proved, as being a domestic concern of the person or persons making and receiving the offer or invitation.
(4) In this section—
"employees' share scheme" has the same meaning as in the Companies Act 1980;
"family" means, in relation to a person, that person's husband or wife, widow or widower and children (including step-children) and their descendants and any trustee (acting in his capacity as such) of a trust the principal beneficiary of which is that person or any of those relatives; and
"member of a relevant class" means an existing member of the company making the offer or invitation, or an existing employee of that company, or a member of the family of such a member or employee, or an existing debenture holder."
316 Schedule 3, page 104, line 36, after the words last inserted, insert—
"11A. In section 56(2) (application of
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share premium account in paying up bonus shares, etc.) for the word "issued" there shall be substituted the word "allotted".
317 Schedule 3, Page 105, line 4, at end insert—
"12A. In section 58(5) (application of capital reverse redemption in paying up bonus shares) for the word "ssued" there shall be substituted the word "allotted"."
318 Page 105, line 20, at end insert—
"15A. In section 149(6) (accounts not complying with requirements of Act)

(a) for the words "this Act" there shall be substituted the words "the Companies Acts 1948 to 1980"; and

(b) for paragraphs (a) and (b) there shall be substituted the following paragraphs:—

"(a) on conviction on indictment, to a fine;
(b) on summary conviction, to a fine not exceeding the statutory maximum (within the meaning of the Companies Act 1980) "."
319 Page 105, line 23, after the words last inserted—
"16A. In section 150(3) (group accounts not complying with requirements of Act)—

(a) after the word "Act" there shall be inserted the words "and with the other requirements of the Companies Acts 1948 to 1980 as to the matters to be stated in group accounts"; and

(b) for paragraphs (a) and (b) there shall be substituted the following paragraphs:—

"(a) on conviction on indictment, to a fine;

(b) on summary conviction, to a fine not exceeding the statutory maximum (within the meaning of the Companies Act 1980)".

320 Page 105, line 23, after the words last inserted—
"16B. In section 165 (circumstances in which Secretary of State may appoint inspectors to investigate affairs of company)—

(a) at the beginning there shall be inserted the word "(1)";

(b) for paragraph (b)(i) there shall be substituted the following sub-paragraph:—

"(i) that its affairs are being or have been conducted with intent to defraud its creditors or the creditors of any other person or otherwise for a fraudulent or unlawful purpose or in a manner which is unfairly prejudicial to some part of its members, 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, or that it was

1179
formed for any fraudulent or unlawful purpose; or "; and
(c) at the end there shall be added the following subsection—
"(2) The power conferred by subsection (1)(b) above shall be exercisable with respect to a body corporate notwithstanding that it is in course of being voluntarily wound up; and the reference in sub-paragraph (i) of that paragraph to the members of a company shall have effect as if it included a reference to any person who is not a member but to whom shares in the company have been transferred or transmitted by operation of law."."
321 Page 105, line 37, at end insert—
'"19A. In section 199(3) (general notice of director's interest in contract made with a specified company or firm) for all the words before the proviso there shall be substituted the following provision—
"For the purposes of this section, a general notice given to the directors of a company by a director to the effect that—

(a) he is a member of a specified company or firm and is to be regarded as interested in any contract which may, after the date of the notice, be made with that company or firm; or

(b) he is to be regarded as interested in any contract which may after the date of the notice be made with a specified person who is connected with him (within the meaning of section (Interpretation of Part IV) of the Companies Act 1980);

shall be deemed to be a sufficient declaration of interest in relation to any such contract.".'
322 Page 105, line 37, after the words last inserted, insert—
"19B. In section 205(b) (exclusion of prohibition on indemnifying officers of company against liabilities) after the words "this Act" there shall be inserted the words or section 36 of the Companies Act 1980"."
323 Page 105, line 38, leave out paragraph 20 and insert.—
"20. In section 222 (grounds for winding up), for paragraph (b) there shall be substituted the following paragraphs—
"(b) being a public company which was registered as such on its original incorporation, the company has not been issued with a certificate under section 4 of the Companies Act 1980 and more than a year has expired since it was so registered;
(bb) after the end of the transitional period, within the meaning of that
1180
Act, the company is an old public company within the meaning of that Act".
21. In section 224(1) (persons who may apply for winding up), for paragraph (b) of the proviso, there shall be substituted the following paragraph—
"(b) if the ground of the petition is that in section 222(6) or (bb) of this Act, a winding up petition may be presented by the Secretary of State; and"."
324 Schedule 3, page 106, line 37, leave out or add to"
325 Schedule 3, page 107, line 26, at end insert—
"(8) In the proviso to regulation 128 (power to apply reserve funds in paying up bonus shares) for the word "issued there shall be subtsituted the word "allotted".
(9) The following regulation is added after regulation 128:
"128A. The company in general meeting may on the recommendation of the directors resolve that it is desirable to capitalise any part of the amount for the time being standing to the credit of any of the company's reserve accounts or to the credit of the profit and loss account which is not available for distribution by applying such sum in paying up in full unissued shares to be allotted as fully paid bonus shares to those members of the company who would have been entitled to that sum if it were distributed by way of dividend (and in the same proportions), and the directors shall give effect to such resolution."
(10) In regulation 129 (duties of directors on resolutions under regulation 128) for the words from the beginning to "have been passed" there shall be substituted the words "Whenever a resolution is passed in pursuance of regulation 128 or 128A above."."
326 Schedule 3, page 107, line 46, leave out from "a" to first "or" in line 3, on page 108 and insert "public company, other than an old public company within the meaning of the Companies Act 1980 (the "1980 Act") are acquired by the company by forfeiture or surrender in lieu of forfeiture or in pursuance of section 35(1A) of the 1980 Act or are acquired by another person in circumstances where paragraph (c) or (h) of section 37(1) of the 1980 Act applies"
327 Schedule 3, page 108, line 5, leave out "the Companies Act 1979" and insert "the 1980 Act"
328 Schedule 3, page 108, line 7, leave out "such a person" and insert "another person in such circumstances"
329 Schedule 3, page 108, line 11, leave out "such a person" and insert "another person in such circumstances"
330 Schedule 3, page 108, line 13, after "company" insert "or that other person"
331 Schedule 3, page 108, line 15, leave out "such a person" and insert "another person in such circumstances"
332 Schedule 3, page 108, line 17, after "of" insert "by the company or that other person"
333 Schedule 3, page 108, line 27, leave out "such a person" and insert "the person who acquired them in such circumstances"
334 Schedule 3, page 109, line 12, at end insert—
" 33A. In section 23(1) (penalties for default in relation to directors' report) for paragraphs (a) and (b) there shall be substituted the following paragraphs:—

"(a) on conviction on indictment, to a fine;

(b) on summary conviction, to a fine not exceeding the statutory maximum (within the meaning of the Companies Act 1980)."."

335 Schedule 3, page 109, line 15, at end insert—
"34A. In section 44 (unlimited companies may be re-registered as limited), for subsection (2) there shall he substituted the following subsection—
"(2) The said requirement is that the resolution must state whether the company is to be limited by shares or by guarantee and—

(a) if it is to be limited by shares, must state what the share capital is to be and provide for the making of such alterations in the memorandum as are necessary to bring it, both in substance and in form, into conformity with the requirements of this Act with respect to the memorandum of a company so limited, and such alterations in the articles as are requisite in the circumstances;

(b) if it is to be limited by guarantee, must provide for the making of such alterations in its memorandum and articles as are necessary to bring them, both in substance and in form, into conformity with the requirements of this Act with respect to the memorandum and articles of a company so limited."."

336 Schedule 3, page 110, line 4, leave out "certified as such under section 41(7)" and insert "within the meaning of Part III"
337 Schedule 4, page 111, line 6, column 3, at end insert—
"In section 10, in subsection (1) the words "or add to" and in subsection (2) the words "or addition"."
338 Schedule 4, page 111, line 29, at end insert—
"Section 190.
Section 197.
In section 198, in subsection (1) the words from "and of" to the end, and in subsection (3), paragraph (a) and in paragraph (6) the words "and the last foregoing section"."
339 Schedule 4, page 111, line 31, leave out "paragraph (b) and"
340 Schedule 4, page 111, line 43, leave out and paragraph (b)"
341 Schedule 4, page 111, line 47, column 3, at end insert—
"In section 454(2)(b) the words "or add to"."
342 Schedule 4, page 112, line 25, column 3, at end insert—
"Section 16(1)(c).
Section 26(8)(a)."
343 Schedule 4, page 112, line 25, column 3, leave out lines 26 to 29 and insert—
"Section 35(2).
Section 38.
In section 43, in subsections (2)(b) and (3)(d) the words "and additions thereto" and in subsection (4)(b) the words "and additions" and or added to"."
344 Schedule 4, page 112, line 33, column 3, at end insert—
"In Schedule 4, the entry relating to section 149(6) of the Companies Act 1948."
345 Schedule 4, page 113, line 8, at end insert—
"(bb the repeal by this Schedule of section 197 of the 1948 Act and section 16(1)(c) of the 1967 Act shall have effect subject to the saving in section (Consequential repeals and savings) (2) above."
Lord LYELL: My Lords, I beg to move that this House doth agree with the Commons in their amendments.
Moved, That this House doth agree with the Commons in the said amendments.—(Lord Lyell.)
On Question, Motion agreed to.
House adjourned at seven minutes past eleven o'clock.