LORDS AMENDMENT TO COMMONS AMENDMENT No. 223 (Hansard, 27 March 1980)

§ 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.