COMMONS AMENDMENT (Hansard, 27 March 1980)

§ 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, 1002 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 1003 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.

§ 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.