COMMONS AMENDMENTS (Hansard, 27 March 1980)

§ 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.

§ 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 1010 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 1012 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.