§ 3 p.m.
§ Further considered on Report.
§ Clause 23 [Index of names]:
Lord Lloyd of Kilgerran moved Amendment No. 56:
Page 30, line 32, leave out ("and").
The noble Lord said: My Lords, I beg to move Amendment No. 56, and with the leave of the House, I should at the same time like to speak to Amendment No. 58. In so far as these two amendments are concerned I am acting somewhat as a proxy because they were initiated at the Committee stage by the noble Lord, Lord Mottistone. He has written to the noble Lord the Chairman of Committees stating that he is quite unable to attend today and he has asked me whether I would in particular propose Amendment No. 58. As your Lordships will recall, the question of registering societies under the Industrial and Provident Societies Act 1965 was discussed and I declared an interest as chairman of one of the societies registered under the legislation. As reported at column 879 of the Official Report of 19th March, the noble and learned Lord the Lord Advocate was good enough to say:
We can see the merit of this amendment"—
which is now couched in Amendment No. 58—
which the noble Lord has proposed and we should like to consider it further".
§ It seems as though the Government have accepted that amendment and so when we come to Amendment No. 58 there will be no problem about it. It is quite clear from the Marshalled List that the Government have accepted that amendment. It is made clear to your Lordships in a somewhat curious way that they have accepted the amendment which I proposed at the Committee stage regarding the registration of industrial and provident societies. I say that because the Government have included that proposal in the second amendment on the Marshalled List, together with their proposal to delete the part of the subsection which is concerned with business names and which was inserted by your Lordships at the Committee stage.
§ Therefore in proposing this first amendment, which is a paving amendment for Amendment No. 58, I should like to say only that I am sure that it would assist the business of the House immensely if in dealing with their Amendment No. 57, the Government were to limit that amendment precisely to the question of whether or not the business names registry should be abolished, rather than to dilute it, or to affect it in any way by a reference to the Industrial and Provident Societies Act, which is now proposed in the amendment. My Lords, I beg to move.
§ Lord Trefgarne
My Lords, I am of course in the hands of the House on this matter, but I had expected that this amendment would be the one upon which the noble Lord deployed his arguments and I deployed mine on the general question of the Register of Business Names, but I am—
§ Lord Lloyd of Kilgerran
My Lords, I am sorry to interrupt the noble Lord, but I made quite clear to the Government Chief Whip that that was not the position as of yesterday. I understood that by our side it had been made quite clear that we were to deal with the business names matter on the next amendment, Amendment No. 57, which the Government are to propose.
§ Lord Trefgarne
My Lords, I am happy that that should be so, if that is the wish of the noble Lord. But on the question of Amendment No. 57, to which we shall come in a moment, the principle that we propose in that amendment, which is clear from the Marshalled List, is one with which I think the noble Lord knows we have some sympathy. Therefore in respect of this amendment I should like to deploy my arguments on that narrow point, and we can consider the wider point of the Register of Business Names in a moment.
As I understand it, the amendment seeks to require the registrar to include in the index the names of the bodies registered under the Industrial and Provident Societies Act 1965, as was proposed earlier in our proceedings by the noble Lord, and by the noble Lord, Lord Mottistone. I should explain that the bodies which fall within the present scope of this clause, and whose names are to be included in the statutory index, are all ones in respect of which the registrars of companies within the United Kingdom have statutory responsibilities. It was for that reason that societies 440 registered under the Industrial and Provident Societies Act 1965 were then omitted, as they are the responsibility of the Registrar of Friendly Societies.
However, on further consideration, the Government recognise that for many years it has been found convenient that the names of bodies registered under the Industrial and Provident Societies Act have appeared on the present, non-statutory index maintained by the registrar, and that it has not been the practice to allow a company to be registered in the name of such a body. This amendment will ensure that that will continue to be the case. Therefore I accept the principle of the amendment, and I shall ensure that that provision is included in the Bill at an appropriate moment.
§ Lord Lloyd of Kilgerran
My Lords, I am very much obliged to the noble Lord for his assurance about what he is proposing to do regarding the registration of the societies. In those circumstances I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ 3.7 p.m.
§ Lord Trefgarne moved Amendment No. 57:
§ The noble Lord said: My Lords, with your Lordships' permission I now propose to move this amendment, and I hope that it will be for the convenience of your Lordships if we take it that this amendment is related to the principle of the Register of Business Names. I hope to persuade your Lordships to take a view that is different from the one at which you arrived during the Committee stage of the Bill, when on a slightly obscure amendment your Lordships reached a decision, as I understood it, on the principle that was then contained in the Bill. Therefore I hope that your Lordships will agree that this same procedure will be appropriate now, though I admit that it is a little difficult to deduce that from the wording of the amendments on the Marshalled List.
§ Lord Ponsonby of Shulbrede
My Lords, I should like to say that from our point of view we accept that whatever be the decision on this amendment, it will follow on in relation to Amendments Nos. 62 and 63 and later amendments. However, I must say that I think the Government are very unwise to reintroduce this amendment at this time.
§ Lord Trefgarne
My Lords, of course I appreciate that the noble Lord and, I believe, noble Lords on the Liberal Benches do not agree with the proposal that was originally contained in the Bill and no doubt regret that the Government are now seeking to persuade your Lordships to reconsider the matter. However, we shall all have to take our chances in the Division Lobby in due course, if that be necessary.
When an issue has been thoroughly debated and determined in Committee, I would not lightly invite your Lordships to reconsider it. In this case, however, I believe that the merits of the Government's proposals have not been fully appreciated. I shall be inviting your Lordships to endorse the Government's 441 amendments, Nos. 62, 63 and 106, which would restore the structure of the Bill to that in which it was introduced. Similarly, on the clause which your Lordships are now discussing, I shall invite your Lordships to accept this amendment, and indeed to reject certain other amendments.
Let me now address myself to the case for retaining a central register of business names. I would remind your Lordships that the present register has nothing to do with company law or company registration; nor, incidentally, is it a register of all businesses. It is merely a register of businesses trading under names other than their proprietors' names. Even to that extent, it is clearly deficient. A principal requirement of the Registration of Business Names Act is that the certificate of registration should be exhibited in a conspicuous position at the principal place of business. I have here an example of such a certificate. Possibly this is not as familiar to your Lordships as it would have been if the present law had been better observed.
Throughout the country, there are innumerable examples of businesses which should have registered but which have failed to do so. For example, in Cardiff a recent spot-check indicated that only 10 out of a random sample of 28 businesses had registered, and of those only four displayed a certificate in their principal places of business. In Edinburgh, 11 out of 33 had registered, but only two displayed a certificate. In London, samples showed roughly the same picture: in one area, 10 out of 24 had registered, with only four certificates displayed; and in another, six out of 13, with two certificates displayed.
This situation is clearly illustrated also by some recent statistics relating to the register to which the noble Lord, Lord Lloyd of Kilgerran, referred in our debate on 19th March. He pointed out that there had been an increase during 1980 in the number of registrations, either initially or on a change of ownership. But what do these figures actually demonstrate? Only just over 23,000 businesses notified a change in their ownership, and just under 20,000 notified that they had ceased trading. I suggest that when compared with a register purporting to contain details of some 2.6 million businesses, these figures, showing only a tiny percentage of people actually complying with the Act, clearly confirm the extent to which the requirements of the law are manifestly ignored.
Even when registration has indeed taken place at the start of trading, there can be no guarantee that the information is up-to-date. I was struck by a recent press article which described a situation where out-of-date information at the business names register led to a court order being served on an individual who had nothing whatever to do with the business in question. The register is far from perfect, and there must be many such situations in which the information that it contains is positively misleading.
The Registration of Business Names Act does not set up a general licensing or registration system before one can engage in business. It has the much more modest objective of enabling the public to discover who is the proprietor of a given business in circumstances where that information would otherwise be difficult to ascertain. So far as the requirements are properly observed, the register should then answer the question: in a dispute, who should I sue?
442 It is disappointing that the debate over the register has diverted attention from the Government's alternative. The clause which was in the Bill as introduced, and which we are asking your Lordships to restore by Amendment No. 63 in what we believe to be an acceptably improved form, will enable customers to have this key question answered on the spot. There will be no need to visit a central register, or to pay an agent to do so. The relevant information will be displayed at business premises themselves and on business documents, and business contacts will have a right to ask for it to be supplied in writing. They will no longer be dependent on the imperfections of the present system. I suggest to your Lordships that this is by no means a second best. In many respects it is superior to the present imperfect arrangements.
Since I have inevitably been drawn to say something on Amendment No. 63, I trust that I shall not unduly weary your Lordships if I draw your Lordships' attention to some significant changes and improvements which the Government propose to make to these provisions in the light of comments made during the earlier proceedings and the constructive suggestions, which we welcome, from the National Consumer Council. First, subsection (2) includes a very important change. We were asked by the National Consumer Council to confer on any person a right to require the relevant information on demand. At Second Reading, the noble Lord, Lord Mishcon, also commented on what he felt to be the rather restrictive definition in the Bill as introduced. It seems to the Government that this proposal goes a little too far. But we agree that any person in a business relationship with a firm should be entitled, immediately and on the spot, to the information he needs to answer my "Who to sue?" question, and this is now achieved by our proposed new clause.
Secondly, we have accepted that the class of business documents on which the relevant information is to be stated should be extended to specify invoices and receipts. We considered carefully the representations made by the noble Lord, Lord Mishcon, that order forms should be included in the specified documents. I think it must be recognised, however, that that phrase is very wide-ranging; it should include, for example, any cut-out coupon in a newspaper advertisement placed by the business. It could be difficult and costly for a business to be required to publish lengthy material about its proprietors' names and addresses in such a case, and I am not at present persuaded that it would be right to go so far.
Some noble Lords wanted us to go further and include, for example, trade cards, catalogues and other promotional material. I think one must consider what is reasonable for a possibly small business to be expected to print, bearing in mind that some of these documents— for example, classified advertisements in local papers— may be quite small, and that the information to be disclosed may be extensive. I believe that in subsection (1)(a) we now have the balance about right, hearing in mind that customers and others will have the separate right to ask for information to be disclosed at any time. I should stress again that this entirely new right to free and immediate access to the information concerned is seen by the Government as a valuable safeguard to consumers. Thirdly, we are proposing to extend the class of business premises at 443 which information must be displayed, with a view to the interests of suppliers as well as customers. This is in subsection (1)(b).
To sum up, the Government continue to see an overwhelming case for scrapping the central register and replacing the whole registration system by the proposals in our Amendments Nos. 62 and 63.
Perhaps I should finally say a word about the particular amendments to Clause 23 which are before the House. Clause 23 requires an index to be maintained, against which the Registrar of Companies will check proposed company names before registration. Even if we were to maintain the present Register of Business Names I should have to advise the House strongly against retaining the particular provision in paragraph (f).
As I attempted to explain in Committee, it would be virtually impossible to amalgamate the present registers of companies and of business names. The first is computerised, the second is manually maintained. An amalgamation would mean putting the two indices on to the same basis; it would take many man-years to accomplish; and the result would be of very doubtful benefit, if only because of the omissions and errors in the present Register of Business Names. Furthermore, the effect of accepting the amendments set down by the noble Lord, Lord Lloyd of Kilgerran, in place of the Government's Amendment No. 57 would be to preclude any company in future from being registered by the same name as that of a business. No such ban has ever operated or been contemplated. Such a ban, indeed, would throw the whole system relating to company names into considerable confusion. I hope that what I have said will persuade the House to endorse the Government's amendment which we are debating now, and that your Lordships will see fit not to persist in the line which was agreed at Committee stage. I beg to move.
§ 3.19 p.m.
§ Lord Ponsonby of Shulbrede
My Lords, we have accepted that the debate on this amendment is a debate on the whole principle of the retention of the Registry of Business Names. As I understand it— and I speak as a relative new boy to this House— it is a convention of your Lordships' House that the same amendment, or virtually the same amendment, is not introduced in the House at Report stage when it has been decided by noble Lords, and in this case by a vote of all your Lordships, at Committee stage. It would appear to me that the Government are ignoring that convention. I accept that the Government would wish to seek to reverse the decision of your Lordships at some later stage in the progress of the Bill. I believe that the Government have been badly advised to seek to do this in this House because inevitably they will be faced with a further problem on this amendment when the Bill goes to another place. Indeed, as I see it, the effect of their seeking a further vote from your Lordships on this particular amendment is to waste further Government time. I had thought that the intention of the Government was to seek to get their programme through as quickly as possible and not to waste time.
§ Lord Denham
My Lords, on this limited point I wonder if the noble Lord will forgive me. I would not want to make too much of it, but there are precedents for this being done. I could quote a precedent when the noble Lord's party were in power of something being reversed on Report stage when the decision had already been taken in Committee. There is, which so often happens on Report stage, a marginally different package presented to your Lordships from that which was debated on Committee.
§ Baroness Llewelyn-Davies of Hastoe
My Lords, if the House will forgive this intervention, the highly marginal difference is a little irrelevant. We have been harried by the Government for the whole of this Session to get their programme through. Time after time the noble Lord the Chief Whip has urged the House to get everything through. He is now going to have an immense debate in this House and will face the same thing, win or lose in this House, in the other place. I do not think that this is getting the Government legislative programme through.
§ Lord Ponsonby of Shulbrede
My Lords, if I may revert to the question of the principle of the Registry of Business Names, the noble Lord, Lord Trefgarne, has given the Government view as to why they believe the registry should be abolished. The fact is— and I am in danger of repeating what I said on Committee— that without the Registry of Business Names there will be no central register of unincorporated businesses; there will be no access to information about a business other than from the business itself— and objective information is vital to trade creditors to protect them from the risk of dealing on open credit terms with businesses that they know nothing about. As we said at Committee stage, abolition of the registry is unnecessary because it can easily become self-financing. There are many indications (and we had some debate about this in Committee) that if the search fee were increased from 5p to £1 and if the registration fee were increased from £1 to £5 or £10 it would bring the registry into a solvent position. Therefore from the point of view of the cost of the running of the registry, that side of the problen could easily be solved by the Government being prepared to increase the fees which are charged.
The noble Lord, Lord Trefgarne, made much in his speech of the question of lack of compliance at the present time with the provisions of the 1916 Act. It is also clear that there has been considerable improvement in compliance over recent years and there is no reason why that level of compliance could not be further improved. As is generally known, a business registered under this Act is now required by any bank with which it may bank to produce its certificate of registration, and this semi-self-regulating feature has been one of the factors which have enabled there to be very improved compliance with the Act. That the level of compliance with an Act is not 100 per cent. is in itself no reason to do away with the Act. Indeed, we are well aware that many of us, I fear, from time to time exceed the 40–mile an hour or 70–mile an hour speed limit, but because we know there is not 100 per cent. compliance with the speed laws the Government do not suggest that these particular laws be abolished.
445 I should have thought that serious consideration should be given to the institution of an annual fee for a business registered under the Act because this would have the effect of ensuring that the information was very much more up to date than it is at present. I think that I should also underline the fact that from the point of view of the consumer it is very important that the registry should be maintained, because it is often only through the existence of the registry that a consumer can find out who is behind a particular business with which he trades. Often it is inappropriate to ask for this sort of information when a consumer is initially carrying out a transaction. I think that when this question was debated by your Lordships in the initial stages I quoted a number of cases where the existence of the registry was something which was of very beneficial use to the consumer. I hope that your Lordships will decide this afternoon to reaffirm your decision to retain the Registry of Business Names.
§ 3.28 p.m.
§ Lord Lloyd of Kilgerran
My Lords, I am grateful to the noble Lord, Lord Trefgarne, for agreeing with me that the discussion on Amendment 57 is solely concerned with the principle of having a business names registry. Like the noble Lord, Lord Ponsonby, but for other reasons, I fail to understand why the Government have brought in this amendment. I should have thought that a discussion of a business names registry dealing with small firms would have best been left to the other place, to the elected House, rather than taking up your Lordships' time. The noble Lord, Lord Trefgarne, started off his speech by saying that the merits of the Government's case had been fully understood. My post indicates that countless representations have been made to the Government, in writing and orally on the matter. Let me say that the intended abolition of the Registry of Business Names by the Government has drawn howls of anguish from such users of the service as companies, banks, accountants, credit organisations, the Institute of Trade Marks Agents and the Institute of Patent Agents— and I pause here to say that often inadequate tribute is paid to those two institutes in regard to the efforts they make for industry and the creation of wealth. They know what is the position in regard to business interests of the community. Then we have the protests of the Institute of Directors and the Law Societies and other institutions. There was even a letter from the Consumers' Association, which publishes Which? and an article there recently saying that the business names registry, imperfect though it is, fulfils a useful purpose.
It is often said that company law is an engine of fraud. That is a cliché, but so frequently clichés are realistic and correct. It is fair to say that if this business names register is not accepted in some form or another, then we are letting in the con-man and it is a boon to those who wish to deceive the consumer public. It will make it easier for firms to hide behind their real identity.
The noble Lord or his department, without giving any details, has recently made certain inquiries of its own at public expense. Not satisfied with the mass of information, the mass of evidence, that came from 446 these institutions to which I have referred, they went down to Cardiff for a spot check. I wonder why they chose Cardiff. I wonder what kind of reception they received. We do not know whom they visited. I know Cardiff very well. I wonder whether they went into Chez Myfanwy, a series of milk bars run by a friend of mine— at least I know him— named Jim Davies, a reformed alcoholic and known locally as the holy and blessed man.
Apparently only four displayed notices in Cardiff. That is put against the volume of evidence that came from the CBI and all the other institutions. They went up to Edinburgh, again at public expense, and then they went to somewhere in London. They did not say where in London. I am sure that if they went just behind their offices in Victoria Street to the small shops there (where years ago a relative of mine opened up a shop as he was expelled from Wales because of unemployment) they could have found evidence. They did not need to go all round the country in the way they have done. That is the kind of evidence, without any details whatsoever, that is being presented to your Lordships this afternoon on this important matter.
The principles are quite clear. Anyone who sets up in business has a duty to say who he is and where he can be reached. The Registry of Business Names— imperfect as it is— is a useful and inexpensive tool as at present administered. If I may refer to the speech made yesterday by the noble and learned Lord the Lord Advocate, he said that the Government were very interested in helping small firms. Indeed, he referred to the Green Paper introducing a new form of incorporation. I should have thought that that policy of the Government demands a central registry for the performance of the duties that it has been doing, however inadequately, in the past.
The noble Lord, Lord Morris, made a most significant speech yesterday when he said how surprised he was that the Government should be obsessed with the difficulties of administration. This afternoon the noble Lord the Minister has told your Lordships that the Register of Companies Names is run by a computer whereas the Registry of Business Names is "manhandled". I think that was the word he used. I agree with the noble Lord, Lord Morris. I have had correspondence since the defeat of the Government on this issue telling me how cheap and easy it would be to arrange for this central registry.
What is really being substituted by the Government for this useful central Registry of Business Names? I agree that the proposed amendments that are to follow, to which the noble Lord referred, Nos. 62 and 63, will improve the matter. But those amendments do not go to the issue which is now before your Lordships. Of course, it is better for people to put up notices in more legible characters in their shops. Of course, it is a good thing for the names of the partners to be put up inside or outside the business premises. But does that help greatly? Suppose one of your Lordships went into a small firm, perhaps in Cardiff, to make a purchase. Suppose that, back home in the North of Scotland, he lost the invoice. If there was dissatisfaction with the goods, how would it be possible to find out the name of that business from which they had been purchased? The first thing that an agent 447 or solicitor would do would be to get in touch with the business names registry. A visit back to Cardiff might disclose that the firm had disappeared.
I agree with the noble Lord when he said that there is a large percentage of people that have not used the register and have not registered their names. But as the noble Lord, Lord Ponsonby, said, that is no adequate reason for getting rid of this registry. The Minister in the other place, Mr. Eyre, is reported as having said on the radio, when taxed with the question of how this policing of business names should be undertaken, that the trading standards officers and the police would go about their daily duties and, in the course of that, would look to see whether a business was complying with the regulations. If not, the Department of Trade had power to commence proceedings.
Think of it, my Lords. Notices are to be put up, according to the Government, in all these businesses and shops. Officials would be going round to the firms to see whether they are complying with Amendments Nos. 62 and 63. The police, according to the Minister from the other place, are being expected to see whether the names of the partners are displayed. The police and the trading standards officers do a splendid job and are already terribly overloaded. It seems to me very strange indeed that a Government Minister should be advocating the use of those gentlemen for the purposes of seeing whether persons are complying with the business names regulations as set out in these amendments.
In conclusion, it is plain business common sense to allow a business registry to exist, and for the Government to apply their mind to simplifying and bringing up to date the administration, as by the use of computer arrangements, to make the business names registry a little better in its registration than it has been in the past. I strongly ask your Lordships to vote against this amendment.
§ 3.39 p.m.
§ Lord Wigoder
My Lords, may I say one word in support of the observations made by the noble Lord, Lord Ponsonby, and the noble Baroness, Lady Llewlyn-Davies, as to the desirability of your Lordships' House supporting the Government in this amendment. It ought to be placed on record that this amendment seeks to omit two lines which were originally inserted at Committee stage as the result of an amendment moved by my noble friend Lord Lloyd of Kilgerran. The debate on that amendment took place not on a Friday, not late at night, but at an ordinary working hour on a Thursday afternoon. There was a very full attendance; no fewer than 186 Members voted in the Division. It was an amendment which, many days in advance when it has been tabled, was known would be one upon which there was going to be a Division. It was therefore, in so far as any Division can be in this House, clearly one which reflected the considered wishes of a very substantial number of your Lordships. In addition to that, it was a Division which took place on a Bill which is originating in your Lordships' House and has still to go to the elected Chamber for their consideration.
I do venture to ask your Lordships to consider, 448 without any regard at the moment to the merits of whether or not there should continue to be a Registry of Business Names, whether it is in the best interests of your Lordships' House that the Government should now seek on Report stage to overthrow an amendment introduced and debated in those circumstances. I am pleased to see that the noble Lord, Lord Denham, is just taking his seat, like the deus ex machina. I was hoping to ask him, if I may, whether he can give me any precedent in recent years for a Government seeking to overthrow on Report an amendment carried against them on Committee, where 200 Peers had voted on a Bill which had been introduced in your Lordships' House and still had to go to the elected Chamber. I take it from the silence of the noble Lord, Lord Denham, that the Government are now in fact inviting the House to embark on a step without precedent in recent years.
§ Lord Denham
My Lords, the noble Lord is really laying down almost impossible conditions in the criteria which he is suggesting for this question. If he would like to give me two or three hours in the Library, I am sure I could come back with the information he wants but, according to his question, it has to be a Bill started in your Lordships' House and a Bill where a Division took place on behalf of the Government. There are many precedents that could be found for not absolutely reversing, but suggesting a slightly parallel line which could be adopted on Report stage to one which has not been accepted earlier. I have in mind one particular occasion when that was done by the party opposite when they were in power. I daresay, if I looked hard enough, I could find occasions when Members of the Liberal Party voted in such a position; but I do not think it is really useful to take it further than that. There are many times when the Opposition of the day seek to change the mind of the House on Report from what it was on Committee and I see no reason why, if the Government feel particularly strongly about an incident, they themselves also should not have this opportunity.
§ Lord Wigoder
My Lords, may I just add that the noble Lord, Lord Denham, has had more than two or three hours, because he knows perfectly well from the discussion he had with me yesterday that the question arose as to whether there were any precedents in these circumstances, and no such precedent has been forthcoming.
I entirely accept that the Government have this right in theory and that there have been occasions in the past when unrepresentative Divisions taken late at night, and things of that sort, have reached a certain decision so that Governments have felt strongly that they must come back on Report; but when a Bill is on its way through your Lordships' House and is about to go to where there is an elected Conservative majority which can put the matter straight if they want to, I want to ask noble Lords opposite to reflect on this matter just for one moment.
In recent years your Lordships' House has always been in some danger of falling into disrepute as one of the two Chambers of a democratic Parliament because it happens to have in its midst a very substantial hereditary Conservative majority. Your 449 Lordships' House has not fallen into that disrepute precisely because noble Lords opposite have always been led in recent years with great skill, great judgment, great courage and great restraint. In the result, that overwhelming majority which exists inevitably has not been used, as it might have been when the Labour Government were in power, to defeat them on every possible occasion; and when a Conservative Government have been in power, as they are now, we have seen on a number of occasions Conservatives on the Benches opposite behaving again with restraint and from time to time accepting defeat graciously and responsibly. I should have thought that this was one of the occasions when that ought to apply and when the Government now, by seeking to call in their supporters from all parts of the country on a three-line Whip in order to seek to overthrow a decision made by your Lordships freely— I see noble Lords opposite saying "Not a three-line Whip!" and I accept that. Perhaps it was two lines— what's in a line?
§ Lord Denham
My Lords, before the noble Lord comes on to the point of the amendment, I should just like to point out— I see no reason why I should divulge this to the noble Lord but I am quite happy to do so— that I did not send out a three-line Whip on this occasion.
§ Lord Wigoder
My Lords, I have the clear impression from the Benches behind the noble Lord, Lord Denham, that my guess as to that was clearly wrong. But the situation is this, is it not?— there is an issue here of very real importance that has nothing to do with the merits of whether or not there should be a Registry of Business Names. I hope that noble Lords on the Conservative Benches who believe that there should be a registry, for the reasons put forward by the noble Lord, Lord Ponsonby, and by my noble friend Lord Lloyd of Kilgerran, will oppose this amendment which seeks to remove that registry. I hope, equally, that noble Lords opposite, who may feel convinced by the Government's own arguments that there ought not to be a Registry of Business Names, will nevertheless hesitate a very long time before going into the Lobbies in support of this amendment, on the ground that the reputation of your Lordships' House is of far more importance than the future of the Registry of Business Names.
§ 3.48 p.m.
§ Lord Robbins
My Lords, I do not intend to expatiate on these doubtless procedural arcanae, but I do wish in a few sentences to express my perplexity at the Government's attitude in this respect. I do not think it will be any secret to those of your Lordships who have observed my humble behaviour in your Lordships' House, that I understand and support the Government's intention to create a more efficient and competitive economy. Having listened to statements from the Government Front Bench on the reasons for supporting the original proposal and for rejecting the proposal which was successfully carried in opposition to that original proposal, I confess that I am completely perplexed. The reasons given have been that at present the business register is not specially up to date. I am quite sure those Members of your Lordships' House 450 who have had anything to do with upright, critical structures on the behaviour of certain types of business will agree that the register is not particularly efficient. But if one discovers that a register— which all common sense suggests should be efficient— is inefficient, the right way to proceed is surely to make it efficient.
We were told that this register is hand-written and that it would take years and years to convert it to computational methods. Again, I am professionally totally perplexed. Why should it take years and years to convert a hand-written register— doubtless improved— to a register on a computer? I certainly could recommend to Her Majesty's Government various computational experts, who could probably arrange for this to be done in a few months rather than years—
§ Lord Trefgarne
My Lords, I wonder whether the noble Lord and the House will allow me to intervene. I did not say "years". I said "man-years". The noble Lord really must not distort what I said.
§ Lord Robbins
My Lords, I apologise to the noble Lord, if my imperfect hearing of his case deprived me of understanding of his main argument. But with all the apologies which are due, I submit that, to me, the argument is implausible. In any case, I return to my main point: why oppose the existence of a business register, however imperfect it may be, when all considerations of common sense, publicity and the maintenance of decent competition suggest that you should have one?
My Lords, I am a hereditary Peer and I do not sit on the Government Benches. In fact, I believe that yesterday I voted against the Government five times. But, today, I am going to support the Government on the merits of the case. I consider that to impose the Register of Business Names on to the Companies Registry would make bad matters absolutely chaotic. The Register of Business Names itself is chaotic. The Companies Registry is a bit better. But if you suddenly land it with this awful Register of Business Names to take over as well, the Companies Registry will get very much worse. I therefore support the Government.
§ Baroness Elliot of Harwood
My Lords, at the Committee stage of this Bill, I spoke with some strong feeling on the subject of a central Register of Business Names. I promised my noble friend Lord Trefgarne that would listen very carefully to what he said about the current proposals which the Government are making, and which he explained with great lucidity and simplicity. I have listened, I have studied the question and I have been in touch with a variety of different agencies and organisations which are all interested in this matter; and, as your Lordships know, I am particularly interested in it, because was the first person to be chairman of the first Consumer Council. It has now passed into much bigger hands and is backed by the Government, and paid for by the Government, but I still remain extremely interested in this subject.
I do not think that the proposals, which my noble friend Lord Trefgarne has put forward extremely brilliantly, meet the point about a central business 451 register. I know that, in all probability, it could be much better run. Lots of things in life could be much better run, but you do not do away with them because they are badly run; you do away with them because you think that they are wrong. I happen to think that this is right. I happen to think that it is right to have this register. It is available for anyone who wants to consult it. The fact is that there are a number of names which are not on the register, because of inefficiency, because it is not properly run, or— and this is really the key to the matter— because it is far too cheap for people to register.
It so happens that, after the last debate during the Committee stage, I went home and had to ring up my accountant in a neighbouring town, Kelso. He does all my business accounts, as well as everybody else's accounts. He had just been registering a new, small business company and he said to me with amazement, "It cost me £1." I said that it was ridiculous. It costs a great deal more than that to do anything. It is too unfortunate for words that this organisation has not kept up with the times and does not charge what it should, when we all have to pay the economic price in every other sphere. However, that is just a small point.
The need for a register was very well expressed in a letter which Mr. Jeremy Mitchell, the director of the National Consumer Council, wrote to The Times. I shall quote just one small passage. He wrote:Consumers, creditors, enforcement officials, other businesses and journalists, all for differing reasons, share the need to be guaranteed access to adequate information about the true identity of traders. Anyone who sets himself up in public as a trader should say who he is".That puts it in a nutshell, and I hope that we shall still support the Register of Business Names. I do not say that the proposals which the Government will make if we lose this will not be an improvement on what has been suggested beforehand, but I still think that a central register is essential to the organisation of businesses in this country.
§ Baroness Burton of Coventry
My Lords, may I just follow the noble Baroness, Lady Elliot of Harwood, because she and I have fought for many years on behalf of the consumer, although I never attained the honour that she did in being chairman of the Consumer Council. But I should like very much to support what she has said. I have talked lately to many people in various consumer organisations who are most distressed at the thought that what the Government are proposing now may be carried into effect. With great temerity, I must say that I really did not agree with the noble Lord, Lord Spens, who, I am sure, knows a lot more about accountancy than I do. As I understood what he said, it was that because something was in a chaotic condition you should not then add on something and, presumably, have two things in a chaotic condition. That does not seem to me to be a very progressive outlook. So I should like very much to support what the noble Baroness, Lady Elliot, has said and I hope that the amendment proposed by the noble Lord, Lord Trefgarne, will not receive the support of this House.
Viscount Colville of Culross
My Lords, I am sorry 452 that the noble Lord, Lord Lloyd of Kilgerran, spoke so soon in reply to the amendment. But I hope that he will forgive me if I revert again for a moment to the merits as a number of others of your Lordships have done. It seems to me, leaving aside the procedural point, into which I should not like to insert any observations— it has been very widely discussed— that there remains the question of the merits. My noble friend Lady Elliot and the noble Baroness opposite have been talking about the protection of the consumer. What is particularly noticeable in the debate that is before your Lordships at the moment, is that there is a great deal of common ground about the way in which the consumer can be protected. Clause 28 of the Bill and Amendment No. 63 both have in them a very clear requirement that people who trade other than under their own names shall set out their names on their documentary material— their invoices, their letters and so on— and at the same time shall display them in their premises so that everybody can see them. That appears to be common ground. The noble Baroness I am sure would agree that this would be an improvement— I think she said so— over what was originally in the Bill before it came to the Committee. Therefore one does not have to argue the question whether that would or would not be a good thing, because everybody is agreed that it would be.
For myself, I can see the immediate advantage to somebody who is dealing with a non-incorporated organisation that they should know exactly who the people are by looking either at the invoice or at the notice on the place of business. The noble Lord, Lord Lloyd of Kilgerran, said that if you go home to Scotland from Cardiff having lost your invoice, what is easier than to get your agent to go to the Registry of Business Names? True, but it is equally easy to get your agent to go along to the shop in Cardiff, which is about the same distance away. There you would find what would be an up-to-date, one would hope, list of the people concerned.
This is a matter which, apart from the procedural question, has boiled down to the protection of the individual. It is very interesting to see that when the 1916 Act was before another place it was not entirely a matter, as the noble Lord, Lord Noel-Buxton, suggested in his maiden speech, of protecting people from trading with unknown Germans who were masquerading under aliases in this country. It had apparently been a very lively issue for some 15 years before that, on a purely consumer protection basis which existed even in those days. There was one honourable Member of another place who suggested exactly what is now both in the Bill and in the amendment of my noble friend Lord Trefgarne: that the names of the people concerned should be on the writing paper and put up on the premises.
What therefore, it seems to me, we are debating on the merits is whether, in addition to that— because all that is quite agreed— one should retain the Registry of Business Names. I take the point made by the noble Lord, Lord Robbins, that any competent, modern technologist would be able to convert the existing register in next to no time into something which went on to a computer. Of course he would. However, that I do not think is the point. The point is this: would people in the future, any more than they have 453 done in the past, either register themselves in the first place, thereby feeding the computer with accurate information or, if the membership of a particular firm were to change, would they register that change? Human nature being what it is, the shadier you are the less likely you are to register it. And that, I suppose, is part of the trouble. It must be much more difficult to enforce if there is a single register in one place, or in perhaps three places, than if the enforcing authority can go and look at the premises where the trade is carried on to see whether or not a list of names is displayed as required and whether or not the names are also on the documentation.
Supposing the fees were increased, which is what has been suggested by noble Lords who wish to cure the defect at the moment which relates to the financing of this affair, the shadier you are the less likely you are to wish to pay a vastly increased sum of money. There would therefore be an added disincentive for registering yourself in the first place, and an added disincentive for changing the registration if you took over a business which previously had been registered under somebody else's name and having it transferred into your own.
What does the register add in these circumstances? What does it genuinely add, first to the consumer who wishes to know with whom he is dealing— and that has always been the point of this legislation— and, secondly, to those who are in a position to try to enforce it, either in the local authority or in the police? It must be easier for the local authority and the police— and, I should have thought, the consumer who usually does not buy his goods in Cardiff when he lives in Edinburgh— to find out, either in the shop or by getting a piece of paper, who it is who is in charge than to have to send an agent, as the noble Lord suggested, to a central register to do it for them.
For those reasons, it seems to me that what we have in the Bill, and what is agreed by everybody to be of advantage to the consumer, is on balance all that is practicable or sensible to require. If we do any more and we put up the fees to a large extent in order to cover costs, we shall merely add to the disincentives for those who do not want to co-operate, anyway, and we shall do nothing but harm to the "goodies" who are perfectly prepared in any case to register either the initiation of their business or the change of names in it. It seems to me, therefore, that the Government have come forward, on the merits of this case quite apart from the procedure, with a very proper compromise which takes account not only of the history of the Bill and its origin but of very real, current term activities and attitudes of mind.
My Lords, I believe that my noble friend has put forward a very poor case indeed. The first rule that he must obey is that he must find himself a first-class counsel. In this respect Her Majesty's Government, in your Lordships' House at any rate, have done extremely well in obtaining the services of the noble Viscount, Lord Colville of Culross, who argued the case so ably for them.
Naturally! I believe, however, that the case which has been put forward by the noble Lord, Lord Lloyd of Kilgerran, and by his noble colleague is unanswerable. Anybody who has done any search at Companies House or at the Registry of Business Names will be able to determine very easily indeed, purely by the date upon which the information is placed upon the central registry, whether a particular business or whether a particular point should be followed up any further. Secondly, the main tenet of the Government's case, so far as I can make out, is the hideous administrative difficulties imposed. This raises the question of penalties under their two amendments. Despite the merits or otherwise of the penalties themselves, which do not bear too much examination, I should dearly love to know how the Government are going to administer these sanctions. I believe that in the end this will be either totally ignored or, in the long run, hideously expensive.
§ 4.8 p.m.
Lord Bruce of Donington
My Lords, this is a nonparty question. I think your Lordships will agree that there is no question of party politics being involved. It is a question of plain common sense. There have been few occasions over the past few years when there has been such unanimity among the accountancy profession, the legal profession, the business organisations, the consumer organisations, all of which have put forward views which are firmly against the abolition of the Registry of Business Names. In fact, among organised expressions of opinion in this country I would say that at present about 90 per cent., or possibly even more, are in favour of the retention of the Registry of Business Names.
This afternoon the Government have put forward a very novel doctrine: that because a law is not complied with to quite a considerable extent, and the point has been conceded many times, the law itself serves no useful purpose and should be abolished. My noble friend Lord Ponsonby instanced the whole question of the traffic regulations. I myself could bring forward an illustration even more apposite to the matter we are discussing. It concerns Section 12 of the Companies Act 1976, which requires in some detail all companies, whether they be large or small, to retain proper records of each of their transactions and there are very heavy penalties for non-compliance. In the experience of the accountancy profession and in my own personal experience, there are numerous instances where firms do not keep proper books of account and do not record the individual transactions in the way that is required under Section 12 of the Companies Act 1976. Indeed, in response to a Parliamentary Question which I tabled some months ago, it was revealed that in the five years since the passing of the Act there had been only four prosecutions. The profession knows perfectly well that there are hundreds of firms up and down the United Kingdom that are in breach of the requirements of Section 12 about keeping proper sets of accounts, but would anybody dream that precisely because that is the case one should abolish the requirement of Section 12 that proper accounts should be kept?
The advantage of the existing system is that it provides for some measure of deterrence. This was 455 touched upon by my noble friend Lord Ponsonby when he mentioned the requirements of the joint stock banks. I should like to venture to emphasise to your Lordships the importance of that. It is the policy of the joint stock banks that when anyone goes along to them to open an account in a name other than their own the banks require the production of a certificate under the Registration of Business Names Act 1916. This is undoubtedly a step which secures considerable compliance with the Act itself and in fact extends some measure of protection to the public and indeed to creditors.
In fact on the merits of the case there can be very little argument at all. The noble Lord, Lord Lloyd of Kilgerran, said that after all the matter could be referred to another place. I am quite content to have it resolved in this place because I believe that the majority of your Lordships, when you are faced with a proposition that has no party political connotations whatsoever, are quite capable, right across the party ranks, as they have done on so many occasions before, of arriving at what after all is a sensible conclusion.
The noble Lord, Lord Robbins, expressed some perplexity as to why the Government should have persisted in their present course of action. I share that perplexity but I have an explanation and, in giving that explanation, I have to cast the noble Lord, Lord Trefgarne, in the very amiable role of Rumpole of the Bailey— who will of course be known to the majority of your Lordships. Rumpole of the Bailey from time to time complained that he had to comply with the wishes of "She-who-must-be-obeyed". Now, we know perfectly well that the edict has gone forth from No. 10 that there have to be economies in manpower in all Government departments. We know perfectly well that the Department of Trade has its quota. We know perfectly well that in the Department of Trade consultations have taken place— very much, I fear, after the style of "Yes, Minister"— as to where the economies should be made, and that it has eventually been decided that the least offensive way of complying with the requirement would be to eliminate the 100 to 150 people in the register.
The House has been confronted with a package deal. It has already been agreed inter-departmentally that 150 people must go, which makes us wonder what is going to happen when it comes to ensuring compliance with subsection (7) in both Amendments No. 62 and Amendment No. 63, which require individuals to do a number of things. Who is going to wander the little streets of Britain to make quite sure that there is full compliance with the measures that the Government propose as an alternative? They will need far more than the 100 to 150 that they are economising with by the abolition of the Register of Business Names.
We know quite well that it is a package deal. We know quite well that because of the package deal the Government have to seek to bring their own party majority into operation in the Lords in defiance of the well known convention in this place that on nonparty matters these questions can be judged entirely on their merits. As a number of noble Lords have said, the amendments proposed by the noble Lord amount to nothing more than a crooks' charter, as indeed has been proved from time to time on a Saturday 456 morning by "Checkpoint". I invite the House and every Member of the House, regardless of party, to retain the Register of Business Names and to reject the Government's amendment.
Earl de la Warr
My Lords, I am always rather suspicious when the noble Lord, Lord Bruce of Donington, starts by saying, "This is a non-party matter". Nevertheless he did not leave us in much doubt for very long as to how he really felt about it. I think we should be quite clear that for years the operation of this Register of Business Names has been making an ass of the law, and that is something which I know none of us likes at all. We have spoken about a rogues' charter; I should have thought that noble Lords would know very well that if a chap is out to cheat you then, my goodness! he will do it in a more subtle way than by dodging this Register of Business Names. It is not there to stop the rogue; it never has and it never will.
The noble Lord, Lord Ponsonby of Shulbrede, asked why it had to go just because it was a bit less than 100 per cent. complete. Surely it is hardly the way to describe a register which has become tattered over the years to say that it is a little bit less than 100 per cent. I will not mention any figure but he must know that the implication that it is very nearly 100 per cent. is perhaps a doubtful one. He has assured us that it has been much improved lately. I wonder how he knows? He has assured us that in his opinion no doubt it will get better. I wonder how? The Opposition and the noble Lord, Lord Lloyd of Kilgerran, seem to be investing this tattered old register with a sort of saintliness and an effectiveness which quite certainly it does not have. If we were talking about something that was really good and really doing its job then of course we should be talking about quite a different subject.
My noble friend Lord Colville of Culross drew the attention of the noble Lord, Lord Robbins, to what he said about computers. Of course we all know that it would be easy to get the present register computerised and he knows just as well as anybody else that the information you get out of a computer is only as good as the information you put into it and if you put in something that is so half-baked as to be nearly rubbish then that is what you will get out.
I urge your Lordships to look at this in a practical sort of way and not to talk as though this were a matter of sacred principle because we are losing a tool which will leave the small businessman and the consumer absolutely naked of a piece of protection which they had previously. That is not the case. My noble friend Lord Trefgarne has argued the case very adequately indeed and I fully support him.
§ Lord Ponsonby of Shulbrede
My Lords, before the noble Lord sits down, may I say this. I know that the compliance levels have improved from conversations with a former Minister at the department, because procedures instituted by the previous Government have increased the level of compliance.
§ Lord Trefgarne
My Lords, your Lordships may think the time is now approaching when we ought to make up our minds on this matter. I want for a few moments 457 to pull the strings of the debate together. If we come to divide at that point, as I believe we shall, I hope your Lordships will be able to agree to the amendments which I propose. I want to remind your Lordships of the present position. We have a register containing 2,600,000 names at least, of which about half are thought to be out of date, inaccurate, or to record the names of businesses that have for one reason or another ceased to trade. Of course the register never sought to be a complete list of unincorporated businesses; it seeks only to be a register of unincorporated businesses where they are trading under other than the name of the proprietor. They have never sought, certainly not in recent times, to offer any sort of protection to the name itself. For example, there are, I am told, a very great many "Ann's Pantrys" listed on the register, which are presumably tea shops of one sort or another dotted up and down the land. The present arrangement, as I have said, has 2,600,000 names on it, and one of the proposals put forward by the noble Lord, Lord Ponsonby, was that each of those 2,600,000 names should reregister each and every year. Well, my initial mental arithmetic suggests that there is about half a million pounds worth of postage stamps there, let alone the actual administration of recording all those new registrations.
§ Lord Ponsonby of Shulbrede
My Lords, one would have an annual registration fee which would pay for that.
§ Lord Trefgarne
Well, my Lords, I am aware of that, but that simply adds to the burden; the registration fee is adding to the burden of the small unincorporated businesses which I am seeking to protect in this way. The new enhanced proposals which are contained in the amendments in my name which follow, I believe, provide a precise and accurate means of conveying to consumers, to suppliers, and to those who have a legitimate business with the enterprise concerned, precisely the information they require, precisely at the place they require it and precisely at the time they require it. That I believe is a very substantial improvement on the existing out-of-date and inadequate arrangements.
A number of points have been made during the debate. I will not seek to cover all of them. The noble Lord, Lord Ponsonby, for example, suggested that in making the registry self-financing we would achieve some partial solution to this problem, but even if we did increase the fee to say £6— and this point was also raised by my noble friend Lady Elliot— we would still leave the question of compliance unattended to and still have the same out-of-date and inaccurate register. It is true that the rate of compliance may have been assisted by the banks, but as the samples I mentioned earlier have shown, we still have, despite the assistance of the banks in this matter, a substantially unsatisfactory register. In any event, the banks, when they look at the certificate of registration prior to opening a bank account, only require to see evidence of registration; they do not insist, indeed they have no means of checking, whether the details recorded on the certificate are accurate.
The noble Lord, Lord Lloyd of Kilgerran, made what I thought was a somewhat superficial point about 458 going all over the country to find our evidence. I think he was referring to the samples I mentioned in opening. The evidence was discovered in Edinburgh, Cardiff and London, because, as those of your Lordships who are familiar with the system may be aware, the Registrar of Companies maintains facilities in those places, so local staff were asked to do the surveys to which I referred.
I pay tribute to the sincerity of my noble friend Lady Elliot in this matter; indeed, I would pay tribute to the assistance we have received from consumer bodies in formulating the proposals. I confess that they do not agree with the first point, abolishing the register itself, but they have made a number of useful proposals for the alternative régime contained in the amendments I am proposing, and I should like to thank them for the assistance they have given. My noble friend Lady Elliot said that anybody who sets himself up in public as a trader should say who he is. I entirely agree with that and that is what the Governments proposals provide for. Not only do they do what my noble friend wants but they require anyone who sets himself up in public as a trader to say in public, and indeed whenever asked by a customer or supplier, exactly who he is. At the moment the customer or supplier has only a 60 per cent. or even less chance of finding out with any degree of certainty precisely who are the proprietors of the business he wishes to do business with.
May I turn finally to the general policy point. It has been raised by at least one noble Lord. It is the general policy of this Administration, for which we were indeed elected, to roll back the apparatus of government and seek to reduce the incidence of the Government machine in the affairs of small businesses and indeed our commercial life in general. To achieve these aims we have to make a number of changes, some of which will seem to some people to be uncomfortable. But I have to say, particularly to some of my noble friends behind me, that this proposal forms part, albeit a small part, of the main thrust of the Government's policy to which I have referred. I hope, therefore, that your Lordships will agree that it is right to put an end to this charade, if I can call it such, of a Register of Business Names.
§ 4.28 p.m.
§ On Question, Whether the said amendment (No. 57) shall be agreed to?
§ Their Lordships divided: Contents, 121; Not-Contents, 107.460
|Airey of Abingdon, B.||Chelwood, L.|
|Allerton, L.||Cockfield, L.|
|Alport, L.||Colville of Culross, V.|
|Atholl, D.||Colwyn, L.|
|Auckland, L.||Cork and Orrery, E.|
|Avon, E.||Cottesloe, L.|
|Balfour of Inchrye, L.||Craigmyle, L.|
|Bellwin, L.||Cromartie, E.|
|Belstead, L.||Cullen of Ashbourne, L.|
|Boardman, L.||Dacre of Glanton, L.|
|Bolton, L.||de Clifford, L.|
|Boyd-Carpenter, L.||De Freyne, L.|
|Bradford, E.||De La Warr, E.|
|Caccia, L.||Denham, L.— [Teller.]|
|Cawley, L.||Derwent, L.|
|Drumalbyn, L.||Mowbray and Stourton, L.|
|Dundee, E.||Moyne, L.|
|Eccles, V.||Moyola, L.|
|Effingham, E.||Newall, L.|
|Ellenborough, L.||Noel-Buxton, L.|
|Elphinstone, L.||Norfolk, D.|
|Elton, L.||Northchurch, B.|
|Falkland, V.||Nugent of Guildford, L.|
|Ferrers, E.||O'Neill of the Maine, L.|
|Ferrier, L.||Onslow, E.|
|Fortescue, E.||Orkney, E.|
|Fraser of Kilmorack, L.||Orr-Ewing, L.|
|Gage, V.||Portland, D.|
|Gainford, L.||Rawlinson of Ewell, L.|
|Garner, L.||Redmayne, L.|
|Gibson-Watt, L.||Reigate, L.|
|Glendevon, L.||Rochdale, V.|
|Gowrie, E.||Romney, E.|
|Gridley, L.||St. Aldwyn, E.|
|Hailsham of Saint Marylebone, L.||Sandys, L.— [Teller.]|
|Hankey, L.||Shannon, E.|
|Hawke, L.||Sharples, B.|
|Hillingdon, L.||Skelmersdale, L.|
|Hives, L.||Soames, L.|
|Home of the Hirsel, L.||Spens, L.|
|Hornsby-Smith, B.||Strathclyde, L.|
|Hunt of Tanworth, L.||Strathspey, L.|
|Keith of Castleacre, L.||Sudeley, L.|
|Kemsley, V.||Swansea, L.|
|Kinnaird, L.||Swinfen, L.|
|Lauderdale, E.||Swinton, E.|
|Linlithgow, M.||Thorneycroft, L.|
|Long, V.||Tranmire, L.|
|Lonsdale, E.||Trefgarne, L.|
|Luke, L.||Trenchard, V.|
|Lyell, L.||Trumpington, B.|
|McAlpine of Moffat, L.||Vaizey, L.|
|McFadzean, L.||Vaux of Harrowden, L.|
|Mackay of Clashfern, L.||Vickers, B.|
|Macleod of Borve, B.||Vivian, L.|
|Mancroft, L.||Ward of Witley, V.|
|Mansfield, E.||Westbury, L.|
|Marley, L.||Willoughby de Broke, L.|
|Massereene and Ferrard, V.||Wolverton, L.|
|Mills, V.||Young, B.|
|Ailesbury, M.||Gladwyn, L.|
|Airedale, L.||Glenamara, L.|
|Allen of Fallowfield, L.||Greene of Harrow Weald, L.|
|Amherst, E.||Grey, E.|
|Amulree, L.||Hale, L.|
|Ardwick, L.||Hanworth, V.|
|Bacon, B.||Hatch of Lusby, L.|
|Banks, L.||Hayter, L.|
|Barrington, V.||Henderson, L.|
|Beaumont of Whitley, L.||Hood, V.|
|Beswick, L.||Hooson, L.|
|Blease, L.||Houghton of Sowerby, L.|
|Blyton, L.||Howie of Troon, L.|
|Boothby, L.||Hylton-Foster, B.|
|Bowden, L.||Ilchester, E.|
|Braye, L.||Jacques, L.|
|Brooks of Tremorfa, L.||Janner, L.|
|Bruce of Donington, L.||Jeger, B.|
|Burton of Coventry, B.||Kilmarnock, L.|
|Caradon, L.||Leatherland, L.|
|Chitnis, L.||Lee of Newton, L.|
|Cledwyn of Penrhos, L.||Listowel, E.|
|Collison, L.||Llewelyn-Davies of Hastoe, B.— [Teller.]|
|Cooper of Stockton Heath, L.|
|David, B.||Lloyd of Hampstead, L.|
|Davies of Penrhys, L.||Lloyd of Kilgerran, L.— [Teller.]|
|De Ramsey, L.|
|Donaldson of Kingsbridge, L.||Lucas of Chilworth, L.|
|Elliot of Harwood, B.||McNair, L.|
|Elwyn-Jones, L.||Maelor, L.|
|Gardiner, L.||Milne, L.|
|George-Brown, L.||Mishcon, L.|
|Morris, L.||Shinwell, L.|
|Nathan, L.||Simon, V.|
|Northfield, L.||Sligo, M.|
|O'Brien of Lothbury, L.||Stamp, L.|
|Ogmore, L.||Stewart of Alvechurch, B.|
|Oram, L.||Stewart of Fulham, L.|
|Pargiter, L.||Stone, L.|
|Parry, L.||Strabolgi, L.|
|Peart, L.||Strauss, L.|
|Phillips, B.||Taylor of Gryfe, L.|
|Ponsonby of Shulbrede, L.||Taylor of Mansfield, L.|
|Redcliffe-Maud, L.||Underhill, L.|
|Ritchie-Calder, L.||Wallace of Coslany, L.|
|Robbins, L.||Walston, L.|
|Roberthall, L.||Wedderburn of Charlton, L.|
|Robson of Kiddington, B.||Wells-Pestell, L.|
|Rochester, L.||White, B.|
|Ross of Marnock, L.||Wigoder, L.|
|Sainsbury, L.||Wilson of Langside, L.|
|St. Davies, V.||Winstanley, L.|
|Seear, B.||Wootton of Abinger, B.|
|Seebohm, L.||Wynne-Jones, L.|
|Sefton of Garston, L.|
§ Resolved in the affirmative, and amendment agreed to accordingly.
§ 4.37 p.m.
§ Lord Lloyd of Kilgerran moved Amendment No. 58:
§ The noble Lord said: My Lords, I beg to move Amendment No. 58. I can be quite brief about this amendment. It deals with the introduction, with Government consent, of registration under the Industrial and Provident Societies Act 1965. I beg to move. I am sorry, my Lords, I am at fault and I apologise. I should not have moved Amendment No. 58 because of the success of the Government's own amendment, No. 57.
§ The Deputy Speaker (Baroness Wootton of Abinger)
My Lords, the noble Lord did move the amendment. Does he now wish to withdraw it?
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 59 to 61 not moved.]
§ Clause 28 [Certificate of registration]:
§ Lord Trefgarne moved Amendment No. 62:
§ Leave out Clause 28 and insert the following new clause:
§ ("Control of business names
§ .— (1) This section applies to any person who has a place of business in Great Britain and who carries on business in Great Britain under a name which—
- (a) in the case of a partnership, does not consist of the surnames of all partners who are individuals and the corporate names of all partners who are bodies corporate without any addition except an addition which is permitted by subsection (3) below;
- (b) in the case of an individual, does not consist of his surname without any addition except an addition so permitted;
- (c) in the case of a company, being a company which is capable of being wound up under the 1948 Act. does
461 not consist of its corporate name without any addition except an addition which is so permitted.
§ (2) Subject to subsections (4) and (5) below, a person to whom this section applies shall not, without the written approval of the Secretary of State, carry on business in Great Britain under a name which—
- (a) would be likely to give the impression that the business is connected with Her Majesty's Government or with any local authority; or
- (b) includes any word or expression for the time being specified in regulations made under section 30 of this Act.
§ (3) The following are permitted additions for the purposes of subsection (1) above—
- (a) in the case of a partnership, the forenames of individual partners or the initials thereof or, where two or more individual partners have the same surname, the addition of "s" at the end of that surname; or
- (b) in the case of an individual, his forename or the initial thereof;
- (c) in any case, any addition merely indicating that the business is carried on in succession to a former owner of the business.
§ (4) Subsection (2) above shall not apply to the carrying on of a business by any person—
- (a) to whom the business has been transferred on or after the appointed day; and
- (b) who carries on the business under the name which was its lawful business name immediately before that transfer;
§ (5) Subsection (2) above shall not apply to the carrying on of a business by any person who—
- (a) carried on that business immediately before the appointed day; and
- (b) continues to carry it on under the name which immediately before that day was its lawful business name.
(6) In this section—
initial" includes any recognised abbreviation of a name; and
lawful business name", in relation to any business, means a name under which the business was carried on without contravening subsection (2) above or the Registration of Business Names Act 1916.
§ (7) Any person who contravenes subsection (2) above shall be guilty of an offence and liable on summary conviction to a fine not exceeding one-fifth of the statutory maximum or on conviction after continued contravention to a default fine not exceeding one-fiftieth of the statutory maximum.
§ (8) Where an offence under this section committed by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any director, manager, secretary or other similar officer of the body corporate, or any person who was purporting to act in any such capacity, he as well as the body corporate shall be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
§ (9) Where the affairs of a body corporate are managed by its members, subsection (8) above shall apply in relation to the acts and defaults of a member in connection with his functions of management as if he were a director of the body corporate.").
§ On Question, amendment agreed to.
Lord Trefgarne moved Amendment No. 63:
After Clause 28, insert the following new clause:
§ ("Disclosure of names of persons using business names
§ .— (1) Any person to whom section (Control of business names) of this Act applies shall—
- (a) subject to subsection (3) below, state in legible characters on all business letters, invoices and receipts issued in the course of the business and written demands for payment of debts arising in the course of the business—
- (i) in the case of a partnership, the name of each partner;
- (ii) in the case of an individual, his name;
- (iii) in the case of a company, its corporate name; and
- (iv) in relation to each person so named, an address at which service of any document relating in any way to the business will be effective; and
- (b) in any premises where the business is carried on and to which the customers of the business or suppliers of any goods or services to the business have access, display in a prominent position so that it may easily be read by such customers or suppliers a notice containing such names and addresses.
§ (2) Any person to whom section (Control of business names) of this Act applies shall secure that the names and addresses required by subsection (1)(a) above to be stated on his business letters are immediately given, by written notice to any person with whom anything is done or discussed in the course of the business and who asks for such names and addresses.
§ (3) Subsection (1)(a) above shall not apply in relation to any document sent out by a partnership of more than twenty persons which maintains at its principal place of business a list of the names of all the partners if—
- (a) none of the names of the partners appears in the document otherwise than in the text or as a signatory; and
- (b) the document states in legible characters the address of the partnership's principal place of business and that the list of the partners' names is open to inspection at that place.
§ (4) Where a partnership maintains a list of the partners' names for the purposes of subsection (3) above, any person may inspect the list during office hours.
§ (5) The Secretary of State may by regulations require notices under subsection (1)(b) or (2) above to be displayed or given in a specified form.
§ (6) Any person who without reasonable excuse contravenes subsection (1) or (2) above or any regulations made under subsection (5) above shall be guilty of an offence and liable on summary conviction to a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, to a default fine not exceeding one-fiftieth of the statutory maximum.
§ (7) Where an inspection required by any person in accordance with subsection (4) above is refused, any partner of the partnership concerned who without reasonable excuse refused that inspection or permitted that inspection to be refused shall be guilty of an offence and liable on summary conviction to a fine not exceeding one-fifth of the statutory maximum.
§ (8) Subsections (8) and (9) of section (Control of business names) of this Act shall have effect in relation to offences under this section as they have effect in relation to offences under that.").
§ On Question, amendment agreed to.
Lord Lloyd of Kilgerran moved Amendment No. 64:
After Clause 33, insert the following new clause:
§ ("Disclosure of substantial individual interests in share capital carrying unrestricted voting rights: parties acting in concert
§ .— (1) The Secretary of State may by regulations made by statutory instrument make and from time to time vary such provisions as appear to him to be appropriate for ensuring that the obligation of a person under section 33 of the 1967 Act (obligation of persons to notify company of acquisition, changes in amounts of, and disposal of shares in the company carrying unrestricted voting rights) shall apply to any one or more persons who are (or, under such regulations, are deemed to be) acting with a common purpose as if such one or more persons were a single person.
§ (2) Regulations under this section may make provisions for different cases or classes of case and may contain such incidental and supplementary provisions as the Secretary of State thinks fit.
§ (3) No regulations shall be made under this section unless a draft of the instrument containing the regulations has been laid before Parliament and has been approved by resolution of each House of Parliament.").463
§ The noble Lord said: My Lords, this is an amendment which was discussed very fully at the Committee stage in regard to concert parties; that is, groups of people who were combining together not to disclose their ownership in the shares of incorporated companies. Since the Committee stage I have received a number of letters asking me to draw the department's attention to certain acts of concerting together which have affected various companies. But at this stage I have not done so.
§ I also understand that amendments will be tabled in another place, and if that is the position, I shall withdraw the amendment. Simply to put the matter on the record, I beg to move this amendment
§ Lord Trefgarne
My Lords, I think that it was in reply to the same amendment moved at the Committee stage that I announced that the Government now intend to bring forward their own proposals to amend the law relating to the disclosure of interests in shares, and that these proposals would cover concert parties. Had we been ready to do so, we would, of course, have tabled our clauses for this debate, and I am sorry that we have not yet been able to do that. I hope that the noble Lord and the House will be patient. We are working intensively on this matter, and we shall bring forward our proposals just as soon as possible, but f fear that it may not be possible to do so before the Bill leaves your Lordships' House.
I have nothing further to add to that matter, except to take up one point which the noble Lord, Lord Lloyd of Kilgerran, made when he said that he had received a number of representations from various people about what these clauses ought to contain. I would ask the noble Lord to let us have whatever views have been represented to him, so that we can take them into account in reaching our final conclusions on this matter.
§ Lord Lloyd of Kilgerran
My Lords, I am very grateful to the noble Lord the Minister for his statement. In view of his reference to the large amount of work that has been done, I should like to take this opportunity to congratulate him and his staff on the vast amount of work that they have undertaken in preparing and dealing with the amendments put forward in this Bill. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 34 [Preliminary provisions]:
Lord Bruce of Donington moved Amendment No. 65:
Leave out Clause 34 and insert the following new clause:
§ ("Exceptions for s. 56 of 1948 Act
§ 34.— (1) Section 56 of the Companies Act 1948 shall not apply and shall be deemed never to have applied where a company ("the issuing company") issues or has issued shares in pursuance of a share-for-share arrangement—
- (a) to members of another company which thereby becomes or became a subsidiary of the issuing company; or
- (b) to members of a company which is, or was at the time of the arrangement, its subsidiary or a subsidiary of its holding company.
§ (2) In this section "share-for-share arrangement" means any agreement, scheme or arrangement (including an arrangement under section 206 of the 1948 Act) providing for the allotment 464 of shares in the issuing company on terms that the shares in question are to be paid up by the issue or transfer to the issuing company of shares or securities carrying the right to conversion to shares in another company.").
§ The noble Lord said: My Lords, with the permission of the House, I should also like to speak to Amendments Nos. 66, 67, 68 and 69. Perhaps I should explain at the outset that Amendment No. 65 is in essence a probing amendment. If it were to be tabled in its final form about 20 consequential amendments would be needed in later clauses of the Bill. My purpose in raising this matter this afternoon is to deal with the situation that arose from the case of Shearer (Inspector of Taxes) v. Bercain, which was heard in the Chancery Division on 19th and 20th February and 7th March 1980, and which starts at page 359 of Simon's Tax Cases. This may provide yet another example of an instance where tax legislation very often raises matters of importance in so far as they affect company legislation. Indeed, yesterday I ventured to give some illustrations of that linkage when we came to discuss the whole question of realised or earned profits, when your Lordships enabled me to refer to certain tax cases where points of importance and interpretation had arisen.
§ The effect of the Bercain case was simply that when a company acquired shares in another company and the consideration, whether in cash or otherwise, was smaller than the actual value of the assets that were transferred and comprised in the shares that were taken over by the new company, a share premium account had to be taken; and from that share premium account nothing could be paid out by way of distributable dividends to the company which acquired the other company, notwithstanding the fact that the company taken over had certain distributable reserves at its disposal at the date of acquisition.
§ The whole purpose behind this amendment is designed to remedy that state of affairs, to produce the state of affairs that when a company takes over another company and it is forced, by the ordinary process of Section 56 of the old Companies Act, to create a share premium account, the proportion of that share premium account which relates directly to the amount of distributable reserves in the company that was taken over shall, in fact, be available for distribution as distributable dividends in the hands of the company taking over. The Government have already gone a considerable way towards meeting the situation that has arisen from the case of Shearer v. Bercain, but in the opinion of many bodies— including the Consultative Committee of Accountancy Bodies, the Confederation of British Industries, and others— they have not gone far enough.
§ The amendment itself may be imperfectly worded, and I have already pointed out to your Lordships that it is in the nature of a probing amendment and that if moved seriously, as it may well be in another place, a whole string of consequential amendments would be required to the Bill. So the Government are quite at liberty to point out the imperfections of the amendment as it stands; these are freely admitted.
§ The Government have been quite co-operative with the professions and with the Confederation of British Industries, in discussing the practical problems that arise from mergers and acquisitions, bearing in mind 465 not only the taxation aspects but the desirability that where the effective capital of a company is, in fact, reduced, the procedures in the Bill obtaining to a reduction in capital shall apply. I am given to understand— and I am, of course, quite open to correction— that there have been discussions by the interested bodies with the Department of Trade. I am also given to understand— and this may not be entirely accurate, but the noble Lord can correct me if I am wrong— that it is proposed to set up a working party to examine in detail all these problems.
§ Therefore, the amendment has been moved as a probing amendment in order that the Government can state quite clearly at this stage, before the Bill goes to another place, just exactly what is their attitude towards the principal problem that I have raised. I am quite sure that they will be mindful of the taxation considerations, with which I have already dealt and which were dealt with in the case itself. There is the wider question as to whether it is desirable when one company acquires another, or when a merger takes place between companies and as part of the merger or the acquisition distributable reserves are in fact taken over, that the acquiring company or the new holding company should be entitled to distribute reserves which, had the company taken over or merged been a completely free agent it would have been entitled to distribute anyway. Perhaps the point is a little academic, but I make no apology for that. There are experts in commerce and industry throughout this House— in fact, one might say that the House is replete with experts upon this subject— and it is in the spirit of acquiring further information rather than raising an issue of contention that I beg to move the amendment.
§ 4.52 p.m.
§ The Lord Advocate (Lord Mackay of Clashfern)
My Lords, I am very content to take this amendment with Amendments 66 to 69, and I am also content to look at the matter as one of principle and not examine the details of the amendment that the noble Lord has proposed, and rather to approach the questions by giving the background to the Government proposals and our attitude so far as we have gone.
The background is this: Section 56 of the 1948 Act deals with the treatment of premiums on issues of shares for cash or otherwise. In certain forms of acquisitions or mergers, shares are issued for shares, and these clauses seek to resolve certain difficulties which have arisen in the application of Section 56 in such cases. Over the years, as the noble Lord said, two distinct accounting methods have developed. They are known as "acquisition accounting"— based on an interpretation that Section 56 required a share premium account to be created in all such cases, and pre-acquisition profits to be locked up; and "merger accounting", based on an interpretation that Section 56 permitted the recording of shares acquired at their nominal value, thus avoiding the necessity of creating a share premium account or the locking up of pre-acquisition profits. The Jenkins Committee in 1962 considered Section 56 and concluded that acquisition accounting should be, and was regarded as, the norm, but that a form of merger accounting should be permitted in certain defined cases. These cases included, in particular, mergers affected by formation 466 of a new holding company, and intra-group reconstructions. These recommendations were not implemented but attention has been focused on the problem in the United Kingdom and Europe in the past two years.
First, Europe. The Seventh Directive on Group Accounts is now under negotiation in Brussels. If the present draft of Article 12 were to be in the final version of the directive, it would effectively stop the use of certain aspects of the merger accounting method. The Department of Trade issued a consultative document early in 1980 which sought views in particular on the relative merits of merger and acquisition accounting, and on the efficacy of the Jenkins recommendations as a means of removing any unfairness caused by the general application of acquisition accounting through a strict interpretation of Section 56.
At about the same time came the very relevant decision in the High Court in the case to which the noble Lord referred. The decision in this case confirmed that Section 56 required an approach based on so-called acquisition accounting. In other words, merger accounting was now, and had since 1948 been, inconsistent with Section 56. In consequence, all past failures to recognise share premiums accounts would have to be rectified, and acquisition accounting would be required in all cases in the future of mergers such as I have mentioned. So far as the past is concerned, the Government accept that for companies not only to recast their accounts as required by Section 56 but also to reconsider all distributions subsequent to the amalgamation in question to see whether pre-acquisition profits have been distributed, would give rise to severe practical and commercial problems. Exceptionally, therefore, the Bill provides in Clause 38 in effect for a retrospective amnesty. I think up to this point there is probably a fairly general agreement that this is the correct approach. What the régime should be for the future is a different matter. The responses to the department's consultations indicate that there is at least a minimum of consensus among those concerned that the exemptions to Section 56 proposed by the Jenkins Report are justified, and in practice cover many of the cases where so-called merger accounting would be appropriate. The Government have also had to bear in mind that the outcome of the negotiations on the Seventh Directive is by no means certain at this stage.
These, then, are the general considerations which underlie the Government's proposals in Clauses 34 to 40. The noble Lord's proposed amendments have as their starting point the conviction that this Bill should do no more than establish a legal framework within which accounting practice should be free to determine the most appropriate treatment of business combinations. This is a view which has been strongly represented to the Government by the Confederation of British Industry. However, I have to say to your Lordships that at this stage the Government have yet to be convinced that this is a feasible solution to the problems.
The Government must have regard to the fact that this is one of those matters on which, at least so far, there is no standard accounting practice. The profession itself has tried once to agree upon a standard, but was unsuccessful. Practice has diverged. The responses 467 to the department's consultative document revealed that very different views were held— and your Lordships will not be surprised in this area— and held rather strongly. I say this not by way of criticism but just to recognise the state of fact. The Government are by no means dogmatic on this matter. Clause 40, providing for extension of the reliefs by regulations, testifies to this. But having regard to the lack of consensus and the uncertain position in the Seventh Directive, they are bound to be moved by a certain caution, and that is the keynote of what we have proposed so far.
As the noble Lord, Lord Bruce, said, the Department has been in touch with the CBI and we understand that the CBI is consulting urgently with the legal and accountancy professions in an effort to identify some common ground which allows more flexibility than the Government's present proposals. This, I think, may be the working party arrangement to which the noble Lord referred. The CBI, as we understand it, had in view consulting the CCAB and the Law Society, and a working party may be the best method of bringing that forward. The department as such is not involved at this stage in that particular part of the initiative, but we await with interest the results of the study.
We welcome this initiative, and obviously the Government would be willing to consider amending the Bill if any generally agreed proposals came forward from this initiative. I hope your Lordships will recognise from what I have said— unfortunately at rather great length— that the Government's proposals for relief from Section 56, as set out in the present clauses, reflect in our view, on the basis of information at the moment, a reasonable basis for dealing with a very difficult problem. The results of any initiative such as I have mentioned will of course be carefully considered, and we shall remain anxious to consider carefully what effect they might have on the Bill's proposals. I hope that, in the light of that explanation, the noble Lord will be able to withdraw these amendments.
§ Lord Boyd-Carpenter
My Lords, before the noble Lord, Lord Bruce, responds to that invitation, may I, as one who suffers from the disadvantage of not having accountancy qualifications, ask my noble and learned friend to clarify the position on the Bill as it stands? Am I right in understanding him to say that although the Bill as drafted, in Clauses 34 to 40, reverses the effect of Shearer v. Bercain in so far as past cases are concerned, for the present and future the Bill leaves that decision in full effect? If so, does that mean that without some of the possible amendments— which I was glad to hear my noble and learned friends suggest the Government were considering— it will not be possible in future in a take-over situation for the company taking over to distribute assets of the company taken over even though they be assets which, prior to the take-over, would have been distributable? If that be the effect, which I thought I understood my noble and learned friend to say, I should be grateful if he would confirm it. If so, I find it very disturbing because it seems that the decision in Shearer v. Bercain was unworldly to a point even beyond the normal level of unworldliness of the Chancery Division.
§ Lord Mackay of Clashfern
My Lords, it would be inappropriate for me to comment on the unworldliness of the Chancery Division. The present proposals of the Government are, first, to give a retrospective amnesty so far as past mergers are concerned— that is Clause 38— but also to provide for the future specific exemptions on the lines of those which commended themselves to the Jenkins Committee. We believe there is a minimum of consensus for exemptions going that far, so the answer to my noble friend's question is that we are not leaving Shearer v. Bercain in full effect for the future but are modifying it in certain respects. The proposals of the noble Lord, Lord Bruce, would go very much further.
We understand that the present proposals have support from the CCAB and the Law Society as proposals that could be acceptable to them. That does not mean of course that they might not be prepared to agree to more ample proposals, and that is the purpose of the CBI initiative. Therefore, we have moved forward from the Chancery Division decision to some extent, and I think the only question between the noble Lord and ourselves is whether we should move further for the future.
Lord Bruce of Donington
My Lords, I thank the Minister for his informative and detailed response, which will be welcomed by those concerned. Am I to understand from him that in the event of the three bodies to which he referred coming to an agreed and reasoned conclusion while the Bill is still in progress in another place, he or his department will be able to have consultations with them with a view to ensuring that, if their agreed solution finds favour with the Minister, an appropriate amendment could be made in another place so that this question may be resolved while the Bill is going through its normal parliamentary process? If the noble and learned Lord would give that assurance it would undoubtedly convey a sense of urgency to the three bodies concerned— the lawyers, accountants and the CBI— who I am sure would get down to energetic discussions with a view to its being accomplished.
I cannot forbear commenting on the remarks of the noble Lord, Lord Boyd-Carpenter, on the lack of worldliness of Mr. Justice Walton in Shearer v. Bercain. If the noble Lord will read the judgment he will find— I am sure that noble Lords who are familiar with this subject will agree with me— that it is a very clear judgment, couched in impeccable terms, and endorses fully the case stated by the Special Commissioners, whose views on the question were equally clear.
§ Lord Mackay of Clashfern
My Lords, the whole purpose of encouraging this initiative is in the hope that we could give effect to an agreed solution. I know the lawyers are very forward in these consultations, and I hope the others involved will be equally quick, because obviously the sooner an agreed solution comes forward the easier it will be to incorporate it in the Bill during its passage through another place.
§ Amendment, by leave withdrawn.
§ [Amendments Nos. 66, 67, 68 and 69 not moved.]
§ The Deputy Speaker
My Lords, in calling Amendment No. 70, I have to call your Lordships' attention to the fact that No. 71 is an amendment to that amendment. Immediately No. 70 has been moved, the House will proceed to consider No. 71.
§ 5.6 p.m.
Lord Mackay of Clashfern moved Amendment No. 70:
After Clause 40, insert the following new clause:
§ ("Financial assistance for purchase of own shares, etc.
§ .— (1) Subject to the following provisions of this section, it shall not be lawful for a company to give any financial assistance for the acquisition of any shares in the company or, where the company is the subsidiary of another company, in its holding company, whether the financial assistance is given before, at the same time as or after the acquisition.
§ (2) Subsection (1) above shall not prohibit a company from doing anything if—
- (a) the company's purpose or principal purpose is not to give financial assistance for the acquisition of any shares in the company or, if it is a subsidiary, in its holding company; and
- (b) the thing done is contemplated by the instrument or resolution conferring the power in exercise of which it is done; and
- (c) it is done in good faith in the interests of the company.
§ (3) Subsection (1) above shall not prohibit—
- (a) where the lending of money is part of the ordinary business of the company, the lending of money by the company in the ordinary course of its business;
- (b) the provision by a company in accordance with an employees' share scheme of money for the acquisition of fully paid shares in the company or its holding company by the trustees of the scheme;
- (c) the making by a company of loans to persons, other than directors, employed in good faith by the company with a view to enabling those persons to acquire fully paid shares in the company or its holding company to be held themselves by way of beneficial ownership.
§ (4) Subsection (3) above 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 distributable profits.
§ (5) References in this section to a company's giving financial assistance for the acquisition of any shares shall be construed—
- (a) as references only to—
- (i) the company's giving such assistance by way of loan or gift, guarantee or security or by way of any transaction under which the company transfers (whether absolutely or not) or provides anything (of any character whatsoever) to or for any other person on terms that payment for that thing is to be deferred; or
- (ii) the company's giving any other financial assistance being assistance which reduces the company's net assets to a material extent; and
- (b) as including the giving of such assistance, directly or indirectly, for the purpose of or in connection with any such acquisition.
§ (6) In this section, "employees' share scheme" and "net assets" have the same meanings as they have for the purposes of the 1980 Act.
§ (7) If a company acts in contravention of this section the company and any officer who is in default shall be liable—
- (a) on conviction on indictment, to a term of imprisonment not exceeding two years or a fine or both;
- (b) on summary conviction, to a term of imprisonment not exceeding six months or a fine not exceeding the statutory maximum, or both.
§ (8) Section 54 of the 1948 Act, which is superseded by the preceding provisions of this section, shall cease to have effect.").
§ The noble and learned Lord said: My Lords, it might be convenient if, in moving this amendment, I gave some explanation of the matter and dealt to some extent with the amendments which affect it. I am sorry that it will be rather a lengthy story, but it is a complicated subject, as those who are familiar with it will be aware.
§ This amendment proposes the introduction of a new clause to replace Section 54 of the Companies Act 1948. Noble Lords will recall that in urging my noble friend Lord Selkirk to withdraw the amendment to Section 54 which he moved in Committee, I referred to consultations which were in train between the Department of Trade and a range of bodies, including the Law Societies of Scotland and of England and Wales and the Committee of London Clearing Bankers. I also undertook to bring forward an amendment to deal with the problem which Section 54 now presents for financial institutions and legal and other professional advisers. The amendment now before the House reflects the conclusions reached by the Government on the scope for amending the provision of Section 54 in the light of comments received from the bodies whom we have been consulting.
§ Section 54 prohibits financial assistance by a company to a third party for the purchase or subscription of its shares. The original purpose of the provision currently contained in Section 54 of the 1948 Act, when it was introduced in 1928, was to prevent a person relying on the assets of a company in order to assist his acquisition of shares of the company. The extension of the prohibition to financial assistance given by a subsidiary company for the purchase of or subscription for shares of its holding company in the Companies Act 1947 took this provision of the law further into the area of transactions within groups of companies.
§ Section 54 has been criticised over the years as an unnecessary inconvenience to the honest and as being widely ignored or circumvented by the unscrupulous. The Jenkins Committee in 1962 made that criticism and pointed out that some transactions which it regarded as innocent were prohibited. The committee put forward alternative provisions based on the view that the danger involved in permitting a company to give financial assistance for the acquisition of its shares was that minority shareholders and creditors might be prejudiced. That recommendation was rejected in the White Paper published by the Conservative Government in 1973 on the ground that Section 54 in its current form fulfilled a useful purpose in preventing unscrupulous transactions and that the Jenkins Committee proposals would not be effective in preventing such transactions.
§ The present Government maintain that view, based on the continuing evidence of the relevance of Section 54 to unscrupulous conduct revealed by a series of company inspectors' reports published during the 1970s. We also take account of the fact that Article 23 of the ECC Second Directive on Company Law prohibits a public company from advancing funds, or making loans, or providing security with a view to the acquisition of its shares by a third party. It was with those considerations in mind that we significantly increased the penalty for breach of Section 54 in the Companies Act 1980.471
§ Since the decisions of the Court of Appeal last year in the case of Belmont Finance Corporation v. Williams Furniture, there has been intensified concern among financial institutions and legal advisers about the effect of Section 54. Those decisions have caused uncertainty about the application of the section, and have led to the conclusion that the definition of financial assistance must be interpreted very much more widely than had been generally assumed previously. That has had the effect of impeding some types of transaction which the Government acknowledge might he entirely innocent of unscrupulous intent, and which may indeed be desirable from the point of view of commercial efficiency and effective management of resources. As I have said, we have therefore been consulting interested bodies with a view to amending the provision of Section 54 to clarify its intent following those decisions. The resulting proposal not only is intended to achieve that result, but will also have the effect of exempting some, but not all, of those transactions which the Jenkins Committee thought to be innocent.
§ The new clause before your Lordships' House takes a somewhat different form from that of Section 54, but its basic purpose is to restate the prohibition against the giving of financial assistance by a company, while maintaining existing exemptions and also providing new exemptions. These new exemptions are as follows. First, the prohibition is not to prevent a company from doing anything if its sole or principal purpose is not to give financial assistance for the acquisition of its shares or those of its holding company, if it has one. In order to be exempt, such action must be a proper exercise of the powers of the company and done in good faith in the interests of the company. That will allow companies to undertake transactions which may have the incidental effect of putting someone in funds which are used to purchase its shares but which do not have this outcome as their sole or principal purpose.
§ Secondly, a company will not be considered to have given financial assistance if it provides assistance which does not reduce its net assets to a material extent and which does not take the form of a loan, gift, guarantee, security, or transaction involving deferred payment. That will allow companies to rearrange or change the form of their assets in order to facilitate a takeover, or group reorganisation, if the rearrangement or change does not involve a significant reduction of assets. It will also allow a company to provide assistance to someone wishing to acquire its shares by provision of information or payment of minor costs associated with the acquisition not already permitted by other provision of company law.
§ The proposed provision applies the prohibition and exemptions to "acquisition" of shares rather than, as in Section 54, to "purchase of or subscription for" shares. The term "acquisition" is preferred because, while it includes purchase and subscription, which are generally taken to apply only when payment is in cash, it clearly also includes subscription and transfers when payment is not in cash. The difficulty arises, for example, in the case of share exchange transactions, in which similar abuses could arise as in cash transactions, and to which it is therefore considered appropriate to extend the coverage of the provisions.472
§ I am sorry to have spoken at such length on the amendment, but this is a matter of considerable commercial significance and of great difficulty. It is important that the Government's position should be made clear, and I hope that I have succeeded in doing that. There is just one other aspect of the proposal with which I should like to deal, if your Lordships will allow me. The amendment to Section 54 moved in Committee by my noble friend Lord Selkirk proposed that an exemption from the prohibition should depend upon the directors of a company having made a statutory declaration confirming certain expectations. I know that one consideration which my noble friend had in mind was that lenders to a company would be able to rely on the declaration as having the effect that any loan provided could not he made void. At present, if it subsequently comes to light that a transaction was in breach of Section 54, a bank or other lender to a company may find that a loan made to facilitate the transaction is irrecoverable. The precise form of the declaration proposed by my noble friend was unacceptable to the Government for reasons which I explained in Committee.
§ However, the Government believe that the form of a proposal now before your Lordships' House would provide a basis on which banks and other lenders could seek assurances in an appropriate form from companies which would normally ensure that the duties of the lender were satisfied, safeguarding the validity of a loan. We believe therefore that our proposal would provide the banks, who expressed support for my noble friend's amendment, with a similar degree of assurance in commercial lending. When my noble friend speaks to his amendment perhaps we can look at the matter in a little more detail. But our view is that the present law, with its provisions for statutory declaration, would go as far as it is reasonable to go in dealing with this matter. My Lords, I beg to move.
§ The Deputy Speaker
My Lords, amendment proposed, after Clause 40 to insert the clause as printed on the Marshalled List. We now proceed to take the amendment to this amendment, Amendment No. 71, in the name of the Earl of Selkirk.
§ 5.18 p.m.
§ The Earl of Selkirk moved, as an amendment to Amendment No. 70, Amendment No. 71:
After subsection (6) insert—
("( ) Where any thing is proposed to be done by a company in reliance upon subsection (2) the directors, or in the case of a company having more than two directors the majority of the directors, may, at a meeting of the directors make a statutory declaration to the effect that the requirements of paragraph (a) and (b) of that subsection have been complied with and that in their opinion the thing will be done in good faith in the interests of the company; and any person dealing with a company shall be entitled to rely upon such a declaration and any transaction entered into by any such person in reliance on such a declaration shall be valid and enforceable by him.").
§ The noble Earl said: My Lords, I should like to thank the noble and learned Lord for putting forward the amendment, which without doubt is a very great improvement on the previous position. I am very glad that he recognised quite frankly that Section 54, as it previously existed, was a very considerable 473 restraint on trade, contrary to the interests of the economy of this country, and no doubt prevented certain perfectly legitimate transactions from taking place. At a time when we want development, in particular in the capital market, it is wrong, and it is a pity, that that should be the case.
The problem that I have with regard to the new amendment is as follows. A company can accept advances if its principal purpose is right, and it can do so if it is acting in good faith. That is covered by paragraph (c) of subsection (2) of the proposed new clause. However, I regret to say that I find it quite impossible to understand what paragraph (b) of the subsection is trying to say. Paragraph (b) states:
…the thing done is contemplated by the instrument or resolution conferring the power in exercise of which it is done …".
I do not know what is the instrument that is referred to; it might be simply something in writing. I do not know what the resolution is. I presume that it is a resolution of the board of directors, though I do not know that for certain.
§ I have here sought to make it abundantly clear that the situation as it involves the company is fully covered. First, there is a requirement for two directors at least. Well I should not mind if it were to be a universal acceptance by all the directors. The directors then have to make a statutory declaration of what they propose to do, and it must be done in good faith in the interests of the company— not contrary to the interests' of the shareholders, whether minority or majority shareholders, the creditors, or for that matter the employees. When the directors have done that they will be assured that they can make an advance without having redress and possibly losing the money that they have advanced.
§ If the noble and learned, Lord is refusing to accept what I propose, I would ask him to understand the implication of what he is saying. He is saying that perjury is taking place; if following the statutory declaration the proposed procedure is not followed, then perjury is taking place. But the noble and learned Lord is going farther than that. He is saying that the banks are actually conniving at perjury. If he is not in fact saying that, then he should accept my amendment. Those are the two implications that the Government are putting forward in refusing to accept my amendment. I can see no justification for that. If the banks in this country really are to connive at perjury, then goodness knows where we shall end up. I ask the Government to consider very carefully whether this is really a fair proposition to put forward.
§ But primarily I am saying that I do not know what subsection (2)(b) really means, and if this is going to be effective then the meaning if what is required in subsection (2)(b) should be carefully spelled out. It is possible that some parts of the amendment that I am moving could be included in subsection (2)(b). That may be possible— I do not know— or there might be some other way. But I think that the banks and others who do this work should have no doubt whatever as to what those words mean. I myself find them extremely difficult, and it is possible that that is my defect, but it may be that other people do not find them easy, either. It is in those terms that I move this amendment to the amendment.474
§ Lord O'Brien of Lothbury
My Lords, I should like to follow the noble Earl, Lord Selkirk, in thanking the noble and learned Lord the Minister for the changes which he has proposed in place of the nefarious Section 54 of the 1948 Act, which has long been a thorn in the flesh of bank lenders— to no good purpose, as I see it. However, I also agree with the noble Earl, Lord Selkirk, in what he said about the new proposals, which I observe followed consultation with many parties, including the Committee of London Clearing Bankers, although the noble and learned Lord the Minister did not say whether they give satisfaction to the clearing bankers. I should doubt whether they do. I think it is important that the bankers should receive satisfaction on this point, and I believe they would do so if the amendment to the amendment proposed by Lord Selkirk were accepted.
As is well known, I have spent more than half a century in the company of bankers, and I may be thought to express their view without sufficient detachment; but I do not express these views so much on behalf of bankers as on behalf of a more sensible approach to a problem which concerns industry and commerce in the country. It is not an enormously important matter, perhaps, but it impedes to some extent the successful development and creative evolution of our industry and commerce if banks are to be inhibited from making loans in these circumstances because of the excessive fears of the legal premises and indeed, the loss which they may suffer. I urge it upon the Government to give satisfaction to the banking community here, which will be to the wider benefit of industry and commerce. Therefore, I very strongly support the noble Earl's amendment.
§ Lord Mishcon
My Lords, there is not the slightest doubt but that Section 54, whether coming before the judges of the Chancery Division (to whom the noble Lord, Lord Boyd-Carpenter, made such a touching reference a moment ago) or whether coming before lawyers who are endeavouring to advise those who lend and those who borrow, has been a devastating section— not necessarily devastating for the legal profession, but certainly for their clients. It has been extremely difficult to advise on what transactions are caught by Section 54 and what are not; and the decisions which have so far come down to us have, if anything, added a tortuous element to what is already an extremely difficult clause to interpret.
I equally have no doubt that the total removal of the protections which Section 54 was supposed to give would be quite wrong. What I find myself in some difficulty about at this moment is that, not having been a party to the consultations which have taken place— and this I think refers also to many of my noble friends who would like to take a view upon this matter— and this amendment having come upon us, very understandably, at a rather late hour, I think it is not quite possible without further consideration to say that this has our entire blessing. I think it has to be looked at further. I share with the noble Earl, Lord Selkirk, some dubiety as to the clear English meaning of subsection (2)(b) of Amendment No. 70, to which the noble Lord, Lord O'Brien, also referred. Indeed, cannot believe that the Government are not capable of introducing clearer wording, one hopes, at Third 475 Reading, whatever be our general view about this amendment, instead of the rather extraordinary terms of subsection (2)(b), which not only are vague but, again, are capable of various interpretations, I would have thought, in exactly the same way as the old Section 54 was bad for that very good reason.
So I give a cautious welcome to the fact that Section 54 is not to go in its entirety and in regard to the protections it was supposed to give. I give it, again, a cautious welcome because Section 54 was so incomplete and, as the noble and learned Lord said, capable of being used with such care by those who were honourable that, indeed, transactions which were never meant, one assumes, to have been stopped by Section 54 were being stopped because of the very proper caution which was being used, and it was also giving rise to a lot of trickery by those who were endeavouring, most improperly, to evade the principle behind which Section 54 stood. So, as I said, I want further time to consider all the implications of this; and, indeed, of the amendment which was so eloquently moved by the noble Earl. At the moment I must satisfy myself with those observations, at least on behalf of myself and my noble friends on these Benches.
§ Lord Seebohm
My Lords, I must say that I welcome this Amendment No. 70 to remove Section 54, which has always been such a nuisance, but I find paragraphs (a) and (b) of subsection (2), although incomprehensible, entirely subjective, and I would have thought that that was had law. From the discussions that I have had with the CLCB, they believe it will make the situation so far as the banks are concerned even worse than it is now; and I believe that the amendment put forward so eloquently by the noble Earl, Lord Selkirk, is in fact really justified and should be adopted. There may be some other way of dealing with it, by altering subsection (2)(a) and (b). I do not know; but unless they are altered I think it is going to be extremely difficult for the clearing banks to operate.
§ Lord Wedderburn of Charlton
My Lords, this is an amendment which in my submission your Lordships should treat as one of the most important that is being made to this Bill. For many decades it has been accepted by practitioners and writers alike that the financing of the acquisition of its own shares is one of the most objectionable features of company malpractice. It has been known for many years that Section 54 of the 1948 Act, which attempted to ban it, was inadequate: and, indeed, that it sometimes hit the innocent and failed to deter the guilty. But that it should be thought of as a nuisance is a novel concept. It is a necessary protection for those who put their trust in a company, be it as investors or creditors; and when the noble and learned Lord the Lord Advocate suggested that this amendment on the part of the Government was introducing satisfactory barriers to misuse of the practice, I would submit to your Lordships that that is the opposite of the truth.
The Jenkins Report in 1962 (Cmnd. 1749) considered Section 54 very carefully, and in paragraph 187 put forward a scheme of reform for Section 54 which would keep the overall ban, as the Government's clause does, upon financing the acquisition of shares 476 but would create exceptions under five very special conditions: there should be a special resolution passed by the general meeting; there should be a declaration of solvency; there should be a right for the dissident minority of shareholders to apply to the court and a 28-day period for them to do it; and, most important of all, there should be a presumption that financial assistance should be deemed to be given by a company if within 12 months of acquisition of a controlling interest any asset were purchased by the company from the controllers.
It may be said that the Second Directive prohibited the Government from putting forward what I might call a modern version of the Jenkins scheme. If that argument is to be used— and I notice that the noble and learned Lord the Lord Advocate did not use it, if I understood his opening remarks— I would ask this. Are the Government sure that their scheme is permitted by the Second Directive, anyway? I do not find in Article 23, at least, of the Second Directive, a clear indication of the conditions for legality which this clause includes in the directive to which I would like to come. But Section 54, rendering with the normal exceptions which are expressed in subsection (3) of Amendment No. 70— which are common ground and approved by the directive and not controversial— appears to prohibit what subsection (1) prohibits; financial assistance for the acquisition of shares.
The courts have interpreted that provision of the 1948 Act very strictly in the cases to which the noble and learned Lord the Lord Advocate refers: in the Belmont Corporation and Williams Furniture cases which went to the Court of Appeal twice, a strict interpretation was placed. Indeed, in a subsequent judgment in the High Court (the case of Ulner Hick Northern Limited v. Whitehouse this year) such a strict interpretation was placed that it was the vendor of the shares who, paradoxically enough, was found giving financial assistance to the purchaser to whom financial assistance was given in the respect of the shares. But it is not true, in my interpretation of the judgment, that these interpretations by the judges are tortuous.
It is sometimes said that I have an inclination to suggest that the judgments of the High Court are tortuous. In this respect, I would decline to make that judgment. It is true that certain points are left open. It is true that Lord Justice Buckley in the Belmont Finance Corporation case leaves open the question whether if a company buys from someone else assets in its own commercial interest, knowing that the money may be used to purchase shares, that offends against the present Section 54. If it does, then the matter should be clarified in favour of the company because the section plainly does not aim at a mischief within that compass. The question becomes how to keep Section 54 and yet at the same time allow for ordinary commerce and no improper burdens being placed upon those who, by any standards, are innocent.
The idea that the present Section 54 and the Government's proposal are the only two ways to do it, or even that the present Section 54, the Government's proposal and an update of Jenkins are the only ways to do it, is surely fallacious. When one compares the spectrum of possible approaches, the Government's 477 comes out very badly. Let me add a fourth to the Jenkins updated, 54 as it is, and the Government proposal. It is a fourth derived, to some extent, from the article of Mr. Ralph Instone, a practitioner of authority in this field, in the Journal of Business Law for 1980. In an interesting article on Section 54 he concludes (on page 108):There is therefore no real case for a repeal of Section 54. It is unsatisfactory that the question whether or not a contravention of the section as occurs should depend upon a court's view of a director's intentions or dominant intentions or on the suitability of an asset to the company's business. I consider that there should be exempted from the scope of the section by means of additional provisos, first, applications of the funds of the company before consideration received by it and, secondly, the discharge of a liability repayment of capital or distribution of dividend not otherwise unlawful".That is obviously a plan, but one which would have to be filled in in detail. It is a plan of retaining the prohibition, spelling out specific transactions which are clarified by statute as clearly not falling within it.
That is not the Government's plan. The Government's plan is to put forward three conditions of legality, having first enacted the illegality. What are they? In this respect I have deep sympathy with the noble Earl, Lord Selkirk, although I disagree with his amendment. The Government's proposals are, I would submit, first of all, difficult to understand; but, much more important, they are a much easier hurdle for the crook to surmount than the present law or any of the other options. What do they depend on? Subsection (2)(a): that the company's purpose or principal purpose is not to give financial assistance for the acquisition of shares. The company's principal purpose! Everybody who has any acquaintance with company law knows that finding out the purpose of a company or the intention of a company is a very difficult matter, because it has no mind and no body to be kicked, at least in England, as Chief Justice Cooke called it once. It is only to the directors you can usually look and, as Lord Justice Denning made clear in a famous judgment in 1957, you can look at them outside the boardroom as much as in.
What is the reality of these situations where Section 54 frequently becomes important? It is a reality where certain persons within the boardroom have acquired a dominant position. A director or a group of directors are, in fact, controlling affairs with the unduly passive acquiescence of others. I come to the case in a moment but it is true. It is so very important in terms of company administration, and, indeed, of the reputation of company administration, in this jurisdiction. Who is going to show what the purpose of the company is? Who is going to have control of the minutes? Who is going to have the best evidence on what the purpose of the company is— and not just the purpose but the principal purpose? Of course, the people controlling the boardroom, the people controlling the corporate machinery.
So, on the first hurdle, those who at the moment might find it difficult will find it easier. And they include a large number of people who feature in the reports of the Department of Trade. I do not expect him to answer now, but I invite the noble and learned Lord to say on Third Reading of this Bill whether it would have been easier or more difficult for Mr. Selham in the report of the inspectors on Ferguson and General Investment, the Dowgate case, under 478 this clause or under the present law. What would have been the comparison of Dr. Wallersteiner in the Hartley Baird case? What would have been the position in three of the six cases in 1974. The average involving Section 54 is about two a year. This year there were three. In the Burnholme case, in the Land and General Developments and Neppit Securities case and the London Capital and British Bangladesh case, would it have been easier or not so easy for the miscreants to engage in corporate malpractice? I suggest, in respect of paragraph (a), it is sometimes clear that it would have been easier.
Then we come to paragraph (b). Paragraph (b) requires that the thing done is contemplated by the instrument or resolution conferring the power, add my voice to those who ask, what resolution? Is it a general meeting resolution, directors' resolution? I concentrate on one of the six or seven points in paragraph (b) which could be contemplated. The thing done, not authorised— it does not say that— not referred to, not described, but contemplated. The cases which deal with contemplation, be they in labour law or anywhere else, are just in the mind; they may not be on paper. How easy for someone to say, "Oh, well, we did not actually describe it but, of course, it is contemplated". It may be said that all of this is being governed by it being done in good faith in the interests of the company. If that is true, why have the others? It may be enough, if that is the fallback position.
Again, I say that today when the interests of the company include the interests of the shareholders, of the employees, as the Government's excellent Section 46 of the Companies Act 1948 insisted, and now, according to the noble and learned Lord, Lord Diplock, in a recent case, quite properly no doubt, the creditors, the test of what is done in the interest of the company paradoxically is easier for those who engage in malpractice than when we thought the interest of the company was to be judged by the shareholders alone. If you tell me that I must look at the interests of the shareholders, sometimes I make a mistake, I get it wrong, the minutes are wrong; but if you tell me I can just engage in a balancing act between the interests of three or four groups of people, it is very much harder to shake in the witness box. And it is a question of witness box, as the noble and learned Lord knows. The crime is being committed under subsection (7) and the defendant will get away with it if he satisfies the three paragraphs I have described.
It is my contention that the defence will be easier in respect of the mischief which is aimed at here under this clause than it was before. I cannot support the noble Earl's amendment because, as he will have noticed, coming to the matter in a different way I find it defective in two ways. If my premise is true, one of the problems with the Government's clause is that the miscreant will be controlling what goes on inside the company and then of course the noble Earl's amendment does not give me enough protection against that.
§ Lord Wedderburn of Charlton
My Lords, the noble Earl's amendment does not satisfy me because the 479 whole matter is in the hands of the directors. I understand that that is a sensible way of doing things if the premise is that the whole transaction is innocent— and I accept that Section 54 at the moment attacks some transactions which are innocent— and makes the position of some third parties undesirable. I accept that and it deals with that in a certain way. But it does not help me because it relies even more than the Government's clause upon what the directors say is happening. Indeed, more than that: what the majority of the directors say is happening. It therefore does not deal with my type of case. In other words, I say to the noble Earl that we are not necessarily in disagreement because he is dealing with the case where everyone is innocent; I am trying to make the clause deal with the case where those are indeed engaging in the mischief at which one should aim.
I applaud the sentiment of his amendment in the sense that I hope that the Government will take this clause back again. If they do not take it back again— I understand what my noble friend Lord Mishcon said about the short time that we have had to consider this— I hope that my honourable and right honourable friends in another place will give this clause a rough ride because it is not good enough in 1981.
In 1962, the Jenkins Report in paragraph 176, spoke about the scandalous malpractices which have this feature in common: that an acquirer finds himself in control of a company with large liquid assets when he is under an obligation to pay for that control and has no prospect of paying for it except out of the company's funds. That was the 1960's style. The idea that that problem has gone away, the idea that it does not still exist but has got rather more complex and rather changed its style, is absurd.
Section 54 should be kept. It should be kept in a strict form. Subject to what is allowed under the second directive, there should be a clear and controlled list of situations such as the payment of a dividend where it is stated by statute that that transaction is not included within the prohibition. Subject to that, Section 54 should clearly be absolute. The list would no doubt grow over the years. I suspect there would be much common ground about such a list which would not offend the directive and would still keep the mischief under surveillance.
We are asked to operate with this clause put forward by the Government with no civil remedy for breach— and why not?— and with nothing said about the status of securities in respect of loans, and so on, a large number of matters. This is on Report; it is not Committee stage, but it will obviously have to be looked at. This is a clause put forward on the basis of an acceptance that Section 54 must be retained, as the noble and learned Lord put to us, yet including subsection (2), which is a back door through much of what is meant to be kept out will enter into corporate malpractice.
It is I believe, if it is passed in this form, a clause which will slip the legal leash from the fleet-footed fiddler and the corporate poacher. It is not strong enough to put it in those terms. This is an area where the Government have been called by the bad logic of some of the provisions of their clauses on a company buying its own shares. It was not necessary, as the 480 Gower Report made clear, to go this far or anything like this far in reforming Section 54.
Those of us who in Committee said that the Government must be thinking of reforming Section 54 in certain respects as consequent upon the new clauses, reversing the case of Trevor v. Whitworth, had no idea that the Government would come up with this. I join with the noble Earl in this respect: it does not do enough in a sense for the innocent. But I add to it— and I hope that he will agree with me after my remarks— that it also does not do enough to deter the guilty.
§ 5.45 p.m.
§ Lord Mackay of Clashfern
My Lords, as I understand the situation at the moment, we are dealing with Amendment No. 71, and whether it should be incorporated in what we are proposing in our Amendment No. 70. If I may deal first of all with the question raised by the noble Lord, Lord O'Brien of Lothbury, I said that this clause that the Government proposed had resulted from consultations. I am not of course claiming that the Government have been able to please everyone whom they consulted; but they feel that they have gone as far as it is reasonable to go to meet these in the light of the consultations so far. But we are open to consider further the points which have been raised this afternoon.
May I direct my attention to the point on subsection (2) which my noble friend Lord Selkirk raised. The intention of subsection (2)(b) is this: the Act in question must be something which is done in exercise of a power which the company has. Therefore one looks to see where that power is contained. That power must be contained in an instrument or resolution either in the constituting documents of the company or possibly in a resolution of the company giving this power in exercise of more general powers contained in its constituting documents. So one looks back into the source of the power and one identifies it in that way.
What this subsection is saying is that once one has identified the power, the act which is done and which one is testing must be an act which is contemplated in that instrument or resolution. In other words, the mere fact that it happens to be in a literal sense within the terms of the power or resolution will not be good enough if it is not something which is contemplated by that particular instrument or resolution. This is just an attempt to express the test of proper purpose which is reasonably well known in the field of company law. That is to say that the exercise in question must be an exercise of the power of the company as that power is properly understood.
§ Lord Wedderburn of Charlton
My Lords, is the noble and learned Lord saying then that the Bill wants to say that the thing is implicitly or expressly authorised by the constitutional documents or resolutions?
§ Lord Mackay of Clashfern
Yes, my Lords, that is putting the matter reasonably, I would say. That is to say, on a true construction of the instrument of resolution, this particular exercise is a proper exercise of the power contained in that instrument or resolution.
§ Lord Mishcon
My Lords, I hesitate to be a nuisance to the noble and learned Lord, but, following upon the 481 answer which he has just given so clearly to my noble friend, and following upon the plea made by various people— including myself— about the necessity to have clear language here, is there any reason why the wording is not the thing about to be done instead of the thing done, for example? It is the thing about to be done which has to be authorised. Is there any reason why the plain English word "authorised" is not used instead of "is contemplated" by the instrument or resolution conferring the power? There is one simple word, I would have thought, and that is "authorised". Is not the present wording capable of being misunderstood and misinterpreted?
§ Lord Mackay of Clashfern
My Lords, it is always possible to consider that one's own formulation is better than that of another. So far as I am concerned at the moment, I prefer the formulation of Parliamentary Counsel to any that I might attempt myself and, with all respect to the suggestion made by the noble Lord, I also hold that view so far as his proposal is concerned.
The other matter I should like to go on to, assuming I have satisfied my noble friend on that point is this: the main point which his amendment covers is the manner in which a financial institution may be satisfied upon this question. Of course the Government are aware of the concern felt in the financial community, and particularly by the clearing banks, about the combined effect of decisions in the courts on the application of the provisions of Section 54 of the 1948 Act. That is one of the reasons why we put forward our Amendment No. 70, but we have stopped short of going to quite the lengths of my noble friend for this reason. in so far as the steps he wants to take is desirable, we consider it to be unnecessary. The reason is because under Section 18 of the Statutory Declarations Act 1835 anyone may already make a voluntary declaration. Section 5 of the Perjury Act 1911 provides a penalty of imprisonment for up to two years, with the addition or alternative of an unlimited fine for anyone who makes such a declaration falsely. The provision proposed by the noble Earl's amendment would in principle duplicate those provisions, and duplication in the law is at best unnecessary and, I should have thought, not a thing to be encouraged. In other words, there are already provisions of the law which could allow, for example, a lender to a company to seek assurances in an appropriate form from companies which would normally ensure that the duties of the lender or banker were satisfied, so safeguarding the validity of the loan; so, if the bank wishes to be cautious and asks for a voluntary statutory declaration from its customer, it will have this measure of protection.
To that extent we agree that the protection sought in the amendment is desirable, but we say that it already exists. In so far as the amendment would go beyond that, we have reservations about it. First, it is proposed that anyone dealing with a company should be able to rely on a declaration made by a majority of the directors of a company having more than two directors. This might be intended for administrative convenience. I see the force of that perfectly, but is it also intended that a person dealing with a company should be absolved from any responsibility if they have 482 ignored the views of a minority of directors which suggested, for example, that declaration was false?
The exemption from responsibility conferred upon anyone entering into a transaction with a company would in our view be unacceptably wide. It would appear to relieve him of any duty to take account of any information he might have which tended to cast doubt on the truth of a declaration, and we would not think that correct. We take the view that a lender or other person who has anxieties about a particular transaction should not be able to rely on such a sweeping provision but should be required at least to judge the transaction on its merits and seek whatever assurances seemed necessary in the circumstances. I have said that one of these is by way of statutory declaration, if that is what they wish to do.
The noble Lord, Lord Wedderburn, has pointed out that certain abuses in company administration may consist of infringements of the existing Section 54, and might consist of infringements of the new provision, if that is passed. In our view it is very undesirable, with that background, to go the full length proposed by my noble friend's amendment. Accordingly, we feel, on the basis of our consultations and of what we have heard so far, that we have gone as far as is reasonably possible to meet the administrative difficulties to which the noble Lords, Lord O'Brien and Lord Seebohm, referred.
§ Lord O'Brien of Lothbury
My Lords, may I ask the noble and learned Lord, why, if the statutory declaration gives complete protection to the lender, he feels that the protection afforded by the amendment put forward by the noble Earl, Lord Selkirk, is excessive?
§ Lord Mackay of Clashfern
My Lords, I did not say that it afforded complete protection but that I thought it afforded the protection that is desirable. In other words, if a bank could show that it had investigated the matter to the extent of requiring a statutory declaration from the borrower and had no reason to doubt the accuracy of that, then it would be protected. If, on the other hand, one is thinking of a situation where all the pointers are against the transaction and all tend to suggest that the transaction is a bad one, but all the bank has to do is to hold it up and say, "We have a statutory declaration: we are all right. It does not matter how many doubts there may be, this statutory declaration which we have is the answer to them all", we say that that goes too far and we have concluded that our amendment goes far enough to deal with that or with any reasonable requirement that a lending institution might have. So far as—
§ Lord Seebohm
My Lords, may I ask for a little more clarification on that? If as a banker, which I used to be, I am lending money in the ordinary course of business to a company and they then use it for improper purposes, am I in the clear?
§ Lord Mackay of Clashfern
My Lords, I would refer the noble Lord to subsection (3) of the new clause, which provides—Subsection (1) above shall not prohibit—483(a) where the lending of money is part of the ordinary business of the company, the lending of money by the company in the ordinary course of its business".If the bank is lending money in a situation which does not itself constitute a breach of Section 54, or of that section as amended by this provision, then I would not see how it could be struck at by the provisions we are dealing with.
Turning to the observations of the noble Lord, Lord Wedderburn, which I think for the most part are related more to Amendment No. 70 than to Amendment No. 71, I would say first that we have looked at this in relation to Article 23 of the Second Directive and, as our views have gone so far— and nothing that the noble Lord has yet said has persuaded me that we are wrong about this— this is in accordance with the provisions of Article 23.
So far as concerns his series of questions to me, which he kindly allowed me time to answer in full, I would say that his analysis does not take full account of the cumulative effect of (a), (b) and (c). I think it is particularly important to bear in mind the first part of (c)—it is done in good faith in the interests of the company".As I read this clause, subsection (1) is a general prohibition and subsection (2) is an exception to that; so in accordance with the ordinary rules of interpretation it would be for the person asserting that to bring himself outside the prohibition. Accordingly, we have considered this matter as carefully as we can in the light of the consultations, and we consider that we have struck a reasonable balance. We are certainly open to consider the matter further, and I hope that in the light of that consideration my noble friend Lord Selkirk will feel able to withdraw his amendment and that your Lordships will be prepared to approve Amendment No. 70.
The Earl of Selkirk
My Lords, I should like very much to thank the noble Lords, Lord O'Brien and Lord Seebohm, who have supported me, and I am grateful to the noble Lord, Lord Mishcon, for referring to the wedding— he always speaks in such clear and forceful language— on subsection (2)(b). Of course he is absolutely right and I quite agree. The noble and learned Lord is rather obstinate, in that he will not go any further. But he made a number of points; for instance, he said that the majority of the directors would be against the proposition. Why not make it unanimous? There is no reason why we should not do that, and I should be perfectly happy. All the directors could sign the document and that would not cause any difficulty.
The noble and learned Lord gave an answer to the noble Lord, Lord Seebohm. I wonder whether he has considered the case of Belmont. So far as I know, that is exactly what happened in the ordinary course of business. I am told that nothing was lent, but the interpretation of constructive trusteeship brought in other people who had not even lent any money. I think that the noble and learned Lord must try to go a little further; at least, to make it clear that there is support from a statutory declaration. There is no reason why that should not be referred to in paragraph (b).
484 I was interested to listen to the noble Lord, Lord Wedderburn. I felt overwhelmed by his learning. I could not follow all his points, but I think he is correct in saying that he was looking after the crooks and I was looking after legitimate business. I realise that there is a division between the two which we are seeking, as best we can, to correct.
May I ask the noble and learned Lord to do this? I do not think that the situation is satisfactory as it stands. I shall not press this amendment today, but will he give us the opportunity of considering all that he has said today and see whether we can either incorporate this into his amendment, or put down an amendment ourselves? May I ask him to do that— because I do not think we are going far enough— in order to meet the point and to enable legitimate business to be conducted in the interests of the economy of this country, and to take away the frustration to trade which exists at the present time? That is important. May I ask the noble and learned Lord to do that, because, at the moment, I do not want to press this amendment to a Division?
§ Lord Mackay of Clashfern
My Lords, I think I have said already that this is a rather difficult area, and we are certainly not closing our minds to any progress we can make in improving this matter further. If that is the undertaking that my noble friend has in mind, then, of course, I am very content to give it. We are very open-minded on this matter, and anything that we see as a reasonable improvement on what we have done, we shall be very glad to consider for incorporation.
§ Lord Wedderburn of Charlton
My Lords, before the noble and learned Lord resumes his seat, may I just intervene? In keeping his and his colleagues' minds open in respect of the innocence of the noble Earl— and, again, I have great sympathy— will he consider, with a tiny chink of an open mind, the introduction of a rather more objective test in subsection (2), in view of what I believe we shall find when we read his remarks— which I shall do with care— which is the great reliance which he placed upon the subjective test of subsection (2)? Perhaps he could do that in that respect in regard to the guilty, as well as to the innocent.
§ Lord Mackay of Clashfern
Certainly, my Lords, the openness of our minds is not directed in any particular way. It is a very general kind of openness. However, I have to say to the noble Lord that, before putting down this form of the amendment, we considered fairly carefully the broad choices that were open to us, and the list idea, which I think is what the noble Lord has in mind, did not commend itself to us as being particularly satisfactory.
The Earl of Selkirk
My Lords, I am going to take the noble and learned Lord's interpretation as being that he agrees with the House— every noble Lord has said so— that subsection (2)(b) is unsatisfactory. The noble and learned Lord may not say that explicitly, but I am assuming that that is incorporated in his words. It is with that thought that I beg leave to withdraw the amendment.
§ Amendment to the amendment, by leave, withdrawn.
§ On Question, amendment agreed to.485
§ Clause 41 [Power of Company to issue redeemable shares]:
§ 6.5 p.m.
§ Earl Grey moved Amendment No. 72:
Page 42, line 27, at end insert—
("(6A) Notwithstanding any provisions of the articles of the company, any partial redemption must be either—
§ The noble Earl said: My Lords, the purpose of this amendment is to ensure that, where any redeemable shares are redeemed, all shareholders are treated alike. It therefore provides— overriding pro tanto the provisions of the articles of association of the company concerned— that such redemption should be either pro rata to holdings, or by drawing or ballot. This seems to me an appropriate provision to safeguard the interests of the redeemable shareholders against selective treatment by the directors, and I am advised that it is, in fact, in accordance with current practice. My Lords, I beg to move.
§ Lord Mackay of Clashfern
My Lords, the noble Earl, Lord Grey, has done a service to the House in speaking to an amendment which draws attention to an important aspect of a company's power to issue and redeem redeemable shares. The purpose of his amendment is to prevent a company from being able to give deliberately preferential treatment to particular holders of redeemable shares. This is an objective with which the Government have every sympathy. However, we doubt that this is a matter which need be dealt with in statute.
It has, of course, been possible since 1929 for a company to issue and redeem redeemable preference shares, and I am not aware that there has ever been any suggestion that such redemptions need to be regulated by statute in the way that the amendment proposes. The provisions of Clause 41 correspond very closely to those of Section 58 which the Bill repeals, as to the aspects of redeemable shares which are to be regulated by statute. In particular, Clause 41 provides for the terms and manner of redemption to be set out in the articles of association of a company, as is required under Section 58.
The detailed procedures to be adopted when shares are to be partially redeemed are often determined by the articles providing for such matters as drawing of tickets to decide which shares shall be redeemed against payment of an annual instalment of a sinking fund. But it is by no means unusual for the terms on which shares may be redeemed to allow for market purchases. The effect of the amendment would be to prevent such purchases, which would involve excessive restriction of commercial activity. Such purchases do not necessarily involve deliberately preferential treatment of particular holders.
Accordingly, our view is that the basis on which redeemable shares are issued constitutes a contract between the company and a shareholder. We believe, in principle, that it can and should be left to the parties to that contract to determine its terms for themselves. No one is obliged to buy redeemable shares if he does not like the terms on which they are issued. Accord- 486 ingly, our view is that this amendment is not a desirable addition to the Bill.
My Lords, I thank the noble and learned Lord for his answer to the amendment. I shall refer what he has said to my noble friend Lord Lloyd and see what he says. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 73 not moved.]
§ Clause 43 [Authority for off-market purchase]:
Lord Bruce of Donington moved Amendment No. 74:
Page 46, line 36, leave out ("concluded") and insert ("entered into").
§ The noble Lord said: My Lords, it may be for the convenience of the House if I speak to Amendments Nos. 74, 75, 76, 77, 78 and 79 together, although, depending on the noble and learned Lord's attitude, these amendments may have to be moved separately. These are purely drafting amendments. The Consultative Committee of Accountancy Bodies have considered Clause 43 and the words which they propose to insert are ones which, after having taken legal advice, they consider to be more appropriate. This is not at all a controversial matter and we are just trying to be helpful. My Lords, I beg to move.
§ Lord Lyell
My Lords, we are very grateful to the noble Lord, Lord Bruce, for moving this amendment. I hope that it will be to the convenience of the House and the noble Lord, Lord Bruce, if I attempt to deal with the six amendments— three to Clause 43 and three to Clause 44— together. I noted what the noble Lord, Lord Bruce, said about taking legal advice. As he is no doubt aware, the Government also took legal advice. Once both the noble Lord and the Government take legal advice, there is no knowing where we might end up. The noble Lord said these are plain drafting amendments and that he hopes they will clarify some aspects, in particular Clauses 43 and 44 of the Bill. Our legal advice is that, for reasons which I think I should briefly explain to the noble Lord, the existing drafting is to be preferred.
The first amendment which was moved by the noble Lord, Lord Bruce of Donington, Amendment No. 74, together with Amendments Nos. 76 and 77, seeks to substitute the two words "entered into" for the one word "concluded" in relation to the references in both Clauses 43 and 44 to the point in time at which a contract becomes binding. Our legal advice is that a contract is "concluded" where a settlement is reached and the terms are agreed between the parties.
We understand that the two words proposed by the noble Lord, "entered into", give the wrong flavour because they stress the unilateral step which is taken by each party to the contract. We believe that it is more appropriate in a case where taking steps to enter into a contract is an offence. The expression is used with this meaning in Part IV of the Companies Act 1980. The idea of "conclusion" of the contract is used elsewhere in the clauses with the same meaning. I would draw the attention of the noble Lord to Clause 45(4) which he will find at line 37 on page 48. We 487 believe that "conclusion" in that reference is correct.
The noble Lord also spoke to Amendments Nos. 75 and 79 which seek to substitute the word "completed" for "executed" in relation to the references to the carrying out or performance of the contract in Clauses 43 and 44. "Executed" is in fact the correct term here to refer to performance. But in both Clauses 43 and 44 the reference is to executed "wholly or partly". We believe that a contract is "completed" only where the final act of performance takes place. Moreover, there is considerable ambiguity as to whether "completion" of the contract has the same meaning as its "conclusion". We believe that "completed" would on that ground be inappropriate.
The last amendment which was spoken to by the noble Lord is Amendment No. 78 which seeks to substitute the two words "enter into" for "make". The expression "enter into" is, in our opinion, every bit as good as "make" in this context where of course what is at issue is the unilateral position of the company making the contract. But we would suggest to the noble Lord that there is nothing to choose between the two words in this context.
If the noble Lord feels particularly strongly about the matter— I hope that he does not because we do not want tonight to go into legal cases without further advice— we would be happy to consider again his views. Nevertheless, I hope I have been reasonably convincing and that the noble Lord will feel we have taken his suggestions to heart. I hope that on balance he will agree that the present wording which the legal advisers on this side of the House have suggested is better.
Lord Bruce of Donington
My Lords, I am most grateful to the noble Lord. Having listened to him, he is halfway towards persuading me. I should need to call in aid the wisdom of my noble friend Lord Mishcon in order to be able to come back to him on such a matter. As I say, he has half convinced me. My problem now is to convince the legal people who sought to convince me in the first place! In the circumstances, I think it would be entirely judicious— I use that word advisedly— to ask for the leave of the House to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 75 to 79 not moved.]
§ 6.15 p.m.
Earl Grey moved Amendment No. 80:
After Clause 44, insert the following new clause:
§ ("Offer to purchare own shares
§ .— (1) Any offer by a company to purchase its own shares must, other than in the circumstances permitted by subsection (2) of this section, be made to all holders of the class concerned either—
- (a) pro rata to their holdings; or
- (b) by tender.
§ (2) The circumstances referred to in subsection (1) of this section are where the terms of the proposed purchase shall have been authorised by an extraordinary resolution of the holders of the shares of the class concerned (to which resolution the provisions of subsection (8) of section 43 of this Act shall mutatis mutandis apply) and the notice convening the meeting to consider such resolution shall have been accompanied by a statement mutatis mutandis in the form required by subsection (1) of section 207 of the 1948 Act.").488
§ The noble Earl said: My Lords, this amendment is parallel to that which I moved to Clause 41. In that case, in relation to redeemable shares I argued that all shareholders should be treated alike. I wish to extend that principle to the power of a company to purchase as opposed to redeem its own shares. Therefore, I propose that in principle any offer to purchase must be either proportionate to holdings or by tender. I recognise, however, that there may be circumstances where this is not necessarily desirable and that a specific purpose may be served by another method. While I would not wish to impede flexibility, nevertheless I think it important that shareholders of the class concerned should have effective control.
§ Subsection (2) of my proposed new clause therefore provides that the requirements of an offer which is either proportionate or by tender can be waived only with the sanction of an extraordinary resolution of the holders of the class of shares concerned, with a disfranchisement for this purpose of the shares proposed to be purchased. This follows the Government's own provisions in subsection (8) of Clause 43, and after the provision of the information comparable to that required by virtue of Section 207 of the 1948 Act in relation to a similar arrangement. Again the purpose of the amendment is to ensure fair treatment of shareholders and I commend it to your Lordships' House accordingly. I beg to move.
§ Lord Mackay of Clashfern
My Lords, the questions raised by this amendment, I regret to say, are fairly complicated and the explanation will take me some little time because we have had to examine the matter in some detail. In prescribing authorisation procedures for a purchase by a company of its own shares, we have distinguished an off-market purchase from a market purchase. For this purpose, a market purchase is confined to one effected through the listed or unlisted securities markets of the Stock Exchange. Our distinguishing transactions in this way is primarily determined by a practical consideration: that it is impracticable for the precise terms of a deal effected through these markets to be determined in advance of the time at which the deal must be concluded. In other words, it is not possible to deal on the listed or unlisted securities markets on a conditional basis.
In this amendment the noble Earl is concerned to ensure fairness between one shareholder and another in a purchase of a company's own shares, whether or not this is effected through a market. This is a concern which in principle the Government share. We have anticipated the possibility of making a selective purchase, treating differently shareholders of the same class of shares, in our authorisation procedure for an off-market purchase contained in Clause 43. Such purchases would involve preferential treatment of some shareholders as regards distribution of profits, so it is clearly important that there should be proper safeguards for shareholders not benefiting from preferential treatment. In providing an appropriate procedure we have had in mind particularly private companies, which have the greater need of a power to purchase their own shares, and which are more likely to wish to exercise such a power by making selective purchases to buy out particular shareholders.
489 However, the off-market procedure is also available to public companies, including those with listed shares or shares traded on the unlisted securities market. The off-market procedure requires that the terms of a proposed purchase be authorised by a special resolution of votes attaching to shares other than those proposed to be purchased. I am pleased to note that in this amendment the noble Earl shares our conclusion on a difficult question of principle, that it would be wrong for shares proposed to be purchased to have votes on such a resolution.
The only additional requirement which would be imposed by the noble Earl's new clause in such off-market purchases would be that a statement of directors' interests in such purchases would be sent to shareholders. The existing provisions of the 1948 Act which the noble Earl has invoked as a basis for this obligation is concerned with a much broader class of transactions than that of a purchase by a company of its own shares: that provision concerns compromises reached with creditors and members in connection with rearrangements or reconstructions, in which directors of a company may be interested as members or creditors or in other ways. We are concerned here only with the narrower conception of a purchase by a company of its own shares. A director of a company must already disclose any interest in its shares under Section 27 of the 1967 Act and this information must be available on a special register to members and other persons. So the information which the noble Earl's new clause would seek to provide is already available to those who would be able to vote on the resolution.
As regards market purchases, under Clause 44 a company would be able to obtain a general authority to carry out purchases of its own shares over a period of up to 18 months within certain prescribed limits as to quantity of shares purchased and price paid. The authority thus given would be for an entirely different type of purchasing operation. The authority would be given by ordinary resolution and no shareholder would be disqualified from voting, because it is not envisaged that the company would have identified from which shareholders it might buy over that period. No doubt the question in the noble Lord's mind is whether the market purchase procedure could be used to circumvent the more stringent authorisation procedure prescribed for off-market purchases which will typically be selective purchases.
There are certain existing provisions of the law which have a bearing on this question. First, the insider dealing provisions of the 1980 Act will apply. If a planned market purchase is sufficiently large to be likely to influence market price, the company would be well advised to disclose the fact that it was about to buy. If it then excluded some shareholders wishing to sell from participating, those shareholders would have grounds for application to the court under Section 75 of the 1980 Act on the ground of unfair prejudice. Even if the size of the purchase were not significant enough to require prior disclosure, a shareholder might well have grounds for an application tinder Section 75 if it was apparent from subsequent disclosure of purchases required under Clause 45 that a purchase had been clearly deliberately selective, rather than a simple purchase in the market in the normal way. And a director who was party to a 490 purchase giving deliberately unfair preference to one shareholder over another would be in breach of his fiduciary duties.
However, the Government acknowledge that, while these safeguards are appropriate company law measures for regulating market purchases, they are not necessarily as stringent as those applied to off-market purchases in safeguarding the interests of shareholders other than sellers. But we feel able to rely on The Stock Exchange and the Council for the Securities Industry to provide additional guidance or regulation to ensure the proper conduct of market purchases. These will after all be dealings in securities, and the normal pattern of supervision of such dealings is for those aspects concerning market practices to be controlled by self-regulation. The noble Earl's new clause, in prescribing particular market practices, would extend the purview of statute law into matters which the Government believe should properly be the preserve of the market authorities.
Officials of the Department of Trade have already met officials of the administration of The Stock Exchange and of the Council for the Securities Industry to discuss aspects of market purchases, with the risk of deliberately preferential purchases being effected through the market particularly in mind. The Stock Exchange in submitting its comments in response to our consultative document on the purchase by a company of its own shares assured the Government of its vigilance in respect of market transactions. We are therefore confident that the authorisation and disclosure procedures prescribed in our clauses, together with proper vigilance on the part of shareholders and the market authorities, will be sufficient to prevent the sort of abuse which the noble Earl has in mind in moving this new clause. I hope that he will share our confidence and, in the light of these assurances, that he will be prepared to withdraw this new clause.
My Lords, t am most grateful to the noble and learned Lord for going to great lengths to explain his thinking with regard to our amendment. I should like to read his answer carefully, because I must admit I am not an expert in this matter. It is a technical amendment, and in view of that I should like to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 47 [Power of private companies to redeem or purchase own shares out of capital]:
Earl Grey moved Amendment No. 81:
Page 50, leave out line 23.
§ The noble Earl said: My Lords, with the leave of the House I should like to speak also to Amendment No. 82. In moving Amendment No. 81 I think it would be helpful if I were to suppy a certain amount of background information. The Green Paper, Cmnd. 7944, at paragraph 37, referred to the possibility of shares which had been redeemed or purchased not being cancelled but being available for re-ssue— what are known as Treasury shares— and in its evidence on the Green Paper the Liberal Party supported this proposal, not least in the context of the profit-sharing 491 schemes approved under legislation in the Finance Act 1978.
§ We also urged that, to the extent of the actual net proceeds of a re-utilisation of Treasury shares, profits previously transferred to a non-distributable reserve should be released back to distributable reserves. Unfortunately, the Government have not seen fit to take the Treasury shares approach. Accordingly, the provisions of Clause 47 mean that in the event of a redemption or purchase of shares a private company which wishes, within the stringent safeguards laid down by the present Bill, to effect such purchase or redemption out of capital must, as a precondition of so doing, first utilise all its distributable reserves. This will inevitably have a detrimental effect on private companies by reducing their distributable profits and to that extent will reduce the impact of what the Government are trying to achieve.
§ The purpose of my amendment therefore is to remove this restriction in other words to give private companies the power themselves to decide in the case of a purchase or redemption to what extent to utilise capital. Given, as I say, that shareholders and creditors will be subject to the protection accorded by Clauses 48 to 51 in the present Bill, I believe this to be an appropriate course to take. I beg to move.
§ Lord Mackay of Clashfern
My Lords, the question of whether or not the provisions for purchase of own shares should allow for shares in Treasury is a matter that was discussed in connection with the job ownership companies and I think we were able to satisfy the noble Lord, Lord Lloyd of Kilgerran, at the meeting that we had with him and with the noble Lord, Lord Seebohm, that that was an unnecessary complication in the Bill and that so far as job ownership companies were concerned he would be able to achieve his objectives by using our procedures without that additional complication.
So far as the present amendment is concerned, it seeks to remove the restriction which in our view is necessary in the interests of creditors. The company ought not to be allowed in effect to reduce its capital without going through the procedures for the reduction of capital which are prescribed in Section 66 of the 1948 Act, which of course requires a special resolution and is subject to confirmation by the court. In our view this provision, which this amendment seeks to remove, is a necessary provision for that protection. I hope that in the light of that explanation the noble Earl will feel able to withdraw the amendment.
My Lords, I cannot totally answer for my noble friend Lord Lloyd of Kilgerran. Perhaps in view of the fact that he has tabled his amendment he may still not be satisfied but it will be up to him to decide, and in the meantime I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 82 not moved.]
§ Clause 48 [Requirements for redemption or purchase out of capital: Special resolution approving payment]:492
Lord Bruce of Donington moved Amendment No. 83:
Page 52, line 26, leave out ("any of the matters") and insert ("the matter").
The noble Lord said: My Lords, with the leave of the House I should like to discuss Amendments Nos. 83 and 84 together. It will be recalled that Clause 47 of the Bill deals with the powers of private companies to redeem or purchase their own shares out of capital and that Clause 48, against which these amendments have to be set, sets out the requirements for redemption or purchase out of capital and of the special resolution approving payment. Clause 48 provides in subsection (3):
The directors of the company must make a statutory declaration specifying the amount of the permissible capital payment for the shares in question and stating that, having made a full inquiry into the affairs and prospects of the company, they have formed the opinion—
Those are the requirements which are laid upon the directors. Subsection (5) of the same clause states this:
The statutory declaration made by the directors must have annexed to it a report addressed to the directors by the auditors of a company stating that—
This is a crucial point so far as the auditors are concerned—
(c) they are not aware of anything to indicate that the opinion expressed by the directors in that declaration as to any of the matters mentioned in subsection (3)(a) to (e) above is unreasonable in all the circumstances".
§ All this amendment seeks to do is to leave subsection (3)(b) and (c) out of the consideration of the auditors. That means to say that if this amendment is carried the auditors would not be required to state that they are aware of nothing that conflicts with, or to cast any opinion on, subsection (3)(b) and (3)(c). This arises because of the anxiety in the accountancy profession that they should be required to state, by the report annexed to the declaration, that they are not aware of something of which presumably they ought to be aware. What the auditors would prefer would be to be given a specific responsibility rather than merely to state, in regard to the intentions of the management of the company's business during the year following, that according to the company it will be able to pay its debts as they fall due throughout the year. They prefer to be directed to pass a positive opinion as to that and to be given powers to investigate that, rather than required to state that they are not aware of anything in conflict with those two particular requirements.
§ If an auditor, for example, is not informed about these 493 matters— he may be kept deliberately uninformed— he certainly is not aware and can quite cheerfully say he is not aware of these particular circumstances. Of course, the initial part of the certificate states that he shall certify that they have inquired into the company's state of affairs and that the amount specified is correct. That is perfectly all right so far as the auditors are concerned. But to ask the auditors, in regard to the remainder of the matters which are concerned with the directors' intentions and the future fortunes of the company, merely to state that they are unaware of anything in conflict with what the directors say is, we feel, not the right way of laying the responsibilities on the auditors. If, for example, subsection (5)(a) had stated as a requirement: "having inquired fully into the affairs and prospects of the company", instead of merely "inquired into the company's state of affairs", that would present a completely different situation. But the accountancy profession generally does not really ever like to be placed in the position where it has to say that it is not aware of anything to the contrary. We regard that as rather a negative approach. My profession is at all times prepared to undertake full responsibility for anything it is required to do positively. It merely does not like the negative approach which has been adopted in this subsection (5).
§ For that reason, and purely for the purpose of eliciting the Government's response to what I have said, these amendments are put down. I feel that since I have voiced this matter here, if noble Lords opposite think it worth while, it may be a matter that ought to be the occasion for further consultation between the Department of Trade and the Consultative Committee of Accountancy Bodies, in order that the doubt which has been voiced in the profession may be resolved. I beg to move.
§ Lord Lyell
My Lords, I can hardly be surprised that there is no Member of your Lordships' House who wishes to follow into the intricate discussion the noble Lord, Lord Bruce, has set before us as to the duties of auditors, although all that he said was very relevant. I wonder whether he is correct in thinking that the auditors' risk is any less in carrying out a positive duty as opposed to a negative duty. If an auditor expresses an opinion and his opinion is found to be ill-founded, as the noble Lord knows, and indeed I know, the legal profession are on to him fairly quickly.
The Government's view of the two amendments which the noble Lord has moved is that they do not regard as unreasonably burdensome the matters to which the auditors of the company must address their minds under Clause 48. Of course, we acknowledge that the auditors would have to look ahead for a period of up to one year in including in their report the matters which the noble Lord in his persuasive way seeks to remove. The noble Lord did mention positive and negative attitudes. The only assurance the auditors are required to give under subsection (5)(c) is a negative one. The assurance is that they are not at that time aware of anything to indicate that the opinion expressed by the directors under subsection (3) about the future of the business over the next year is unreasonable in all the circumstances. That is all we propose.
We certainly do not suggest that the company's auditors are supposed to be some form of wonderful 494 prophets or indeed to gaze into a crystal ball. But the purpose of paragraph (c), and indeed paragraph (b), of subsection (3) is that we believe that if the auditors come to know something about the company— through their discussions with the directors; through their examination of the books; though their methods of accountancy and, indeed, through carrying out their duties as auditors— which casts doubts in their minds on its stated expectations about its ability to carry on business in the following year, then that should be brought into account in determining whether or not the company should be allowed to reduce its capital reserves in order to purchase its shares. That is all that we are asking.
It is at the time when a company might foresee failure that controlling shareholders or indeed wicked men might be tempted to withdraw funds from a company and just leave it. Indeed, we believe that in such cases persons might be willing to run the risk of criminal penalties, but of course their auditors would have no reasons to be similarly tempted and, indeed, are not subject by this particular section to a criminal penalty for any negligence in this particular matter.
The judgment which the auditors would have to exercise in deciding whether a particular piece of knowledge was relevant would be entirely within their competence and consistent with their existing duties as auditors to the company. In practice, we believe that any decisions of this nature which have to be made by the auditors would be as clear cut as any of the other decisions which are required of auditors in their normal duties, quite apart from Clause 48(3) or, indeed, (5). So it is for that particular reason that we do not see the entire merits of Amendments Nos. 83 and 84.
However, I would assure the noble Lord and indeed the House— I hope that I could assure the accountancy profession— that the Department of Trade will be having further discussions of this and of other aspects of the proposals with representatives of the accountancy profession who we hope will have, and will seek to use, every opportunity to express their views on this rather risky matter.
The department had preliminary discussions of this matter with the representatives of the accountancy profession, but I understand that it was only last Friday that the considered and detailed views of the profession were received. But we shall certainly seek to convince the accountancy profession that this is a matter in which that profession can reasonably be expected to express a view on the basis of the terms which are set out in the clause. Above all, we believe that it would be in the wider commercial and public interest that the auditors should accept this responsibility and that the public would indeed expect them to carry out the additional duties that we have set out. I hope that that last point is one which would commend itself to the noble Lord and I hope that I have been as encouraging as I can be.
Lord Bruce of Donington
My Lords, I am most grateful to the noble Lord for his response. I should like to emphasise that the accountancy profession is never reluctant to be put into a position where it has to express a positive opinion, because in expressing a positive opinion it means that it is required to make a detailed investigation of all these matters in order that 495 it is put into a position where it can give positive approval. For example, circumstances arise on public flotation where it is well known that investigating accountants have not only to go through the company's affairs in the past, but to examine very carefully the directors' forecasts of the future, the sales projections, the projected cash flows and so on. They have to be satisfied positively before their names go on the prospectus.
The only anxiety that we have in this particular case is that we are asked, in a way, to express a view by default— not a positive opinion, but to say that we are not aware of something. Of course, although what the noble Lord says is a completely accurate and sincere version of what the Government believe as regards this matter, we must bear in mind that, if these matters ever come before the courts— as, indeed, I mentioned yesterday— the courts are not entitled to take into account Governmental explanations reproduced in Hansard. The courts look only to the words of the Act itself. That is why we are very anxious that the point may be clarified.
However, I should like to emphasise that the accountancy profession generally is anxious to be of as much assistance as possible as regards the correct working of these particular sections. It does not shrink from having any positive responsibilities enthrust upon it: it merely has a disinclination to give, as it were, approval by default by saying, "We are not aware of anything that makes something unreasonable". That is all. However, in view of the noble Lord's assurance and in the light of discussions that are taking place or will shortly take place, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 84 not moved.]
§ Clause 61 [Disqualification of directors and others from managing companies, etc.]:
Lord Lyell moved Amendment No. 85:
Page 67, line 9, leave out ("No application shall be made under").
§ The noble Lord said: My Lords, I beg to move Amendment No. 85 and I hope that it will be for the convenience of the House if I speak also to Amendments Nos. 86 and 112. The House will be aware that we have come now to Clause 61 which deals with the disqualification of persons from participating in the management of companies which is currently provided for by Section 188 of the Companies Act 1948 as well as Section 28 of the Companies Act 1976.
§ Section 28 of the 1976 Act enables the High Court on the application of the Secretary of State to disqualify a person who is persistently in default in submitting returns to the registrar. Clause 61 of the Bill would transfer this power to magistrates— and we find that in the new subsection 188(1A)— and also to courts with jurisdiction to wind up (and we find that in new subsection 188(1) paragraph (b)). Section 28 would therefore become redundant and as currently drafted subsection (5) of Clause 61 would prevent further applications being made under it.496
§ We had further reflections about the drafting of the Bill which suggested to the Government that it would be better to repeal the whole of Section 28 with a saving to preserve the effect of current orders and indeed of any orders made after repeal as a result of applications which had been made beforehand. That is what the two amendments to Clause 61 are designed to achieve.
§ Amendment No. 112 is consequential upon Amendment No. 85 and merely includes Section 28 in the list of repeals in Schedule 4 to the Bill. I must apologise if the subject-matter is a little obtuse, but I have done my best to clarify the situation. I beg to move.
§ On Question, amendment agreed to.
Lord Lyell moved Amendment No. 86:
Page 67, line 12, leave out ("after the appointed day") and insert ("shall cease to have effect; but any order made by virtue of section 28 on an application made before the appointed day shall have effect as if made under section 188 of the 1948 Act.").
§ The noble Lord said: My Lords, I beg to move Amendment No. 86. I have already spoken to this amendment.
§ On Question, amendment agreed to.
§ 6.49 p.m.
Lord Monson moved Amendment No. 87:
After Clause 62, insert the following new clause:
§ ("Amendment of s. 136 of 1998 Act
Section 136 of the 1948 Act shall be amended as follows— after subsection (2) insert the following new sub-section—
(2A) A reply-paid form of proxy shall be enclosed with every notice calling a meeting of a Public Limited Company; and if default is made in complying with this subsection as respects any meeting, every officer of the company who is in default shall be liable to a fine not exceeding fifty pounds."").
§ The noble Lord said: My Lords, I beg to move Amendment No. 87 and with the leave of the House I should like to speak at the same time to Amendment No. 88. Your Lordships will have noticed that the latter is an alternative to Amendment No. 87. I have put it down, although with some hesitation, because it May possibly be more acceptable to those of your Lordships who were woried about the paper-work that this proposed requirement would impose upon the very smallest quoted companies.
§ Against this it could, of course, be argued that shareholders in the smaller companies are those who are most at risk, although I do not believe that this is actually so, having investigated 12 companies whose shareholders, and in some cases their loan stockholders lost virtually all the money that they had invested following the traumatic events of 1974 and 1975. Of those 12, only two had an issued share capital of less than £500,000; another two had an issued capital just exceeding the £500,000 mark, while most, including such well-known names as Court Line and Fairey, had an issued share capital of between £5 million and £20 million.
§ That then is the background to, and the raison d'être of, Amendment No. 88. It is for your Lordships to indicate which of the two you prefer. As for the rest, I have taken note of the very minor criticisms voiced in Committee by the noble Lord, Lord Lyell, and also of the helpful and constructive advice proffered 497 by the noble Lord, Lord Bruce of Donington. Accordingly, I have altered the amendment so that it directly amends Section 136 of the 1948 Act, which seems logical, as it is Section 136 which already imposes penalties upon companies which fail to fulfil certain requirements in relation to shareholders' proxies. I have taken the advice of the noble Lord, Lord Bruce, to confine the obligation to public limited companies. Of course, the concept of a public limited company, or at any rate the title "public limited company", did not exist in 1948, but I am assured by parliamentary draftsmen that this is no barrier to amending that Act in this way in this Bill.
§ Finally, the noble Lord, Lord Lyell, rather implied in Committee that my previous subsection (2), which would have deferred the implementation of the amendment for six months after the passing of the Act, was in some way rather sinister or Machiavellian. I can assure the noble Lord that I had no sinister intent. That subsection was simply meant to be helpful to company secretaries and to registrars who might welcome the extra time in order to make arrangements and set things in motion. However, in order to smooth the path for this amendment, I am happy to defer to the Government's suspicions and have accordingly deleted that subsection.
§ I do not want to bore the House by repeating all those arguments which I advanced in Committee in favour of making reply-paid proxies obligatory. Suffice it to say, in my view, that it would provide a modest and useful extra element of shareholder protection. The practical consequences might be limited; it might increase only marginally the number of occasions on which an undesirable or in some way unsatisfactory resolution was defeated at a meeting of the shareholders, given the general tendency towards institutional apathy, particularly if the directors' own shareholdings happen to be substantial.
§ However, the really important effect would be the symbolic one. It would demonstrate to the small, individual shareholder, who has come very much at the end of the queue in recent years, that Parliament, after all, cares about him or her; that Parliament does not want to see shares, shareholders' votes and, therefore, power concentrated into Fewer and fewer hands; but that instead Parliament believes in the widest possible spread of ownership and decision-making, without which a free enterprise system must have less and less validity in the eyes of the public.
§ The Stock Exchange has told me today that it is adopting a neutral attitude to this amendment; it is not prepared publicly to endorse it, but nor does it oppose the amendment. It points out that there could be a slight snag as regards overseas shareholders; but this is no more than a technical difficulty that could easily be remedied on Third Reading or, indeed, in another place.
§ If the sending of reply-paid proxy forms was the exception rather than the rule, my amendment would be a highly radical one and I would certainly have thought twice before introducing it into this Bill. But this is very much the reverse of the case. I have compiled a list— which I should be delighted to show to any of your Lordships who are interested— of 67 large and medium-sized public companies chosen at random, including nine investment trusts, or invest- 498 ment companies, as they now prefer to be called, which reveals that no fewer than 53 of those companies— that is, 79 per cent.— send reply-paid proxy forms to their shareholders of their own free will, because they consider it a fair and proper thing to do. I am not implying for a moment that the other 21 per cent.— the other 14 names— are bad companies which ride roughshod over the interests of their shareholders— not at all. But I think that in this one respect they are not being as fair as they might be. I believe that they should take the not very onerous step of falling into line with the vast majority of public companies. For that reason, I beg to move Amendment No. 87.
§ Lord Lyell
My Lords, I fear to tread down the same path as we trod at the Committee stage, but we have certainly been over some of these arguments before, although, as the noble Lord, Lord Monson, will remember, at an earlier stage we had all sorts of extraneous discussions as to whether glossy reports should or should not be sent out at the company's expense to the shareholders each year.
However, the noble Lord has moved this amendment, which he hopes that the Government might look at, and has spoken to the second, alternative, slightly longer amendment. He has done so with admirable clarity this evening. One understands that the amendments seek to require public limited companies to send out reply-paid proxy forms with every notice calling a meeting of the companies. I must say to the noble Lord that his tremendous diligence in examining the records in this respect of 67 varying— sized companies has not yet persuaded the Government to do other than to give the same answer as we gave last time. When speaking to the noble Lord's previous amendment at an earlier stage, it was our contention that regulation of a company's administration in this albeit small but important detail was not the business of the statute book.
To forestall any argument that the Bill already goes into considerable detail— and one example would certainly be in setting out the precise form of company accounts— we might accept that Part I is very detailed. But Part I fulfils obligations which are laid upon the Government by the Fourth Directive of the European Community. Indeed, the details in Part I are concerned with questions of public disclosure of details of company affairs. We submit that this is a different matter from using statute law to determine the detailed internal administration of company affairs, which, after all, is the entire matter which is at the heart of the amendment in the name of the noble Lord, Lord Monson.
The noble Lord and, indeed, the House may believe that company law already obliges a company to issue proxy forms, but I must tell the noble Lord that that is not so. Section 136 of the Companies Act 1948 provides a member of a company with a right to appoint a proxy. Section 136 also ensures that this right is advertised and that the right may not be improperly infringed by the company's articles or, indeed, any actions by the company.
All these are proper functions of the law in conferring and in securing rights. The law certainly allows for the fact that companies may issue instruments of proxy, and Table A of the 1948 Act offers examples of such 499 instruments which may be adopted in a company's articles. But these are merely permissive; they are in no way obligatory. The form of a company's articles is a matter for its members, but of course it would be unusual if even these regulated the day-to-day conduct of the company in such detail as both of these amendments propose for the statute book.
The only external obligation on a company to issue a form of proxy in any particular form is that which arises under The Stock Exchange conditions of listing agreement, and of course this obligation arises only as a result of an agreement which is freely entered into between the company and the Council of The Stock Exchange. We heard from the noble Lord what I think he called the neutral opinion of The Stock Exchange. I am afraid that it remains the Government's view that the law has no business in determining how this matter shall be determined within companies, and above all in imposing what we believe to be a burden on companies with certainly significant cost consequences for the larger companies.
We do not regard what the noble Lord, Lord Monson, is advocating as necessarily bad practice, nor are we any less enthusiastic than he is about encouraging active participation by the small shareholders in the conduct of company affairs however large or small that company. Our attitude, which may disappoint the noble Lord, is based on a view of the proper functions of state law in a field which your Lordships will already have found to be subject to a vast and elaborate system of regulation. I hope I have said enough to show why I am afraid that we continue to resist Lord Monson's amendment.
The noble Lord informed the House in Committee that a large proportion of companies— indeed he mentioned a sample of, I think, 53 out of 67— already send out reply-paid proxy forms. We believe that this seems to be as good an argument for leaving the matter to companies themselves to decide as it is for the noble Lord's amendment in either of its forms. I have stated the Government's objection in general terms. This is a small but of course important detail of company administration which we do not consider the function of company law to enforce. I am sorry to disappoint the noble Lord a second time, but I really cannot recommend the amendment tonight.
§ Lord Monson
My Lords, I am grateful to the noble Lord, Lord Lyell, for that full reply. He implied that I was ignorant of the law as it stands; that I was under the impression that the law required the sending out of proxy forms. If he cares to check with my speech made in Committee he will see that I specifically mentioned that I was well aware that it was not the law, and that it was merely a Stock Exchange requirement. The noble Lord went on rather to contradict himself by referring in some detail to Section 136 of the 1948 Act which, as he said, imposes obligations upon companies as regards proxies. It makes it an offence punishable by a fine of £50 to send a proxy form to some shareholders but not to others, so to that extent the law already concerns itself with, to quote the noble Lord, "the detailed administration of company affairs".
The noble Lord also spoke of the significant cost consequences on companies if an amendment such as 500 this were to pass into law. To take companies undertaking the same business of a comparable size: if Trust House Forte can send out reply-paid proxy forms without worrying about the cost then surely Grand Metropolitan can. If one chemical company, Croda, can do so, why not Holt Lloyd? I think I have said all I could say. I had hoped to receive a great deal more support from various quarters of the House, and had I done so I think I would have pressed this. The amendment may be imperfect as it stands, but it is a matter which ought to be examined by the other place. With the pressure of business it is unlikely that anyone would have time to press an amendment of their own there, and it would have been better to have come from this House and the other place could then have accepted it or rejected it as they wished. However, in view of the rather disappointing lack of support on this matter, all I can do is beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 88 not moved.]
§ Clause 67 [Identification in register of different classes of shares]:
§ 7.5 p.m.
§ Lord Trefgarne moved Amendments Nos. 89 to 93:
§ Page 68, line 17, leave out ("(a)")
Page 68, line 19, after ("members)") insert—
("(a) in paragraph (a)—
Page 68, line 21, leave out from second ("class",") to ("after") in line 22 and insert—
("(ii) the following words shall be added at the end, "and, in any other case, where the company has more than one class of members, the class to which each member belongs;"; and
(b) in the proviso to that subsection,")
§ Page 68, line 24, leave out first ("subsection") and insert ("subsections")
Page 68, line 29, at end insert—
("(6) Any liability incurred by a company by virtue of the making or deletion of an entry in its register of members or debenture holders or any failure to make or delete any such entry shall not be enforceable more than twenty years after the date on which the entry was made or deleted or, in the case of any such failure, the failure first occurred.
This subsection is without prejudice to any lesser priod of limitation.".").
§ The noble Lord said: My Lords, I beg to move Amendment No. 89, and I should like at the same time to speak to Amendments Nos. 90, 91, 92, 93 and 94. Indeed, as they are concurrent I think I am in order to move them en bloc. It may be for the convenience of your Lordships if I move the amendments that I have described because they bear a very close relationship with each other. Amendments 89 to 93 amend Clause 67, which itself amends Section 110 of the Companies Act 1948, on a company's register of members. The first four amendments deal with companies without a share capital, and the fifth with a company's liabilities in respect of its register. But the sixth, Amendment No. 94, the new clause, also concerns companies not having a share capital and has the effect of rounding off the provisions of an amended Section 110. I shall deal first with the issues relating to companies not having a share capital, and secondly with the question of a company's liabilities with respect to its register of members.501
§ Section 110 requires that a company shall keep a register of members containing prescribed particulars. But in its present form it does not clearly require that the register shall have the effect of disclosing the class to which individual members belong. A particular register may indeed have this effect, but if it does this will be only an incidental consequence of the section's provisions. Your Lordships will remember that this is the reason for the amendment to Section 110 provided in the first part of Clause 67: that in the case of companies with a share capital shares held by members must be identified in the register inter alia by the class to which they individually belong.
§ The importance of disclosing the classes of shareholdings lies in the fact that different rights attach to different classes. A person inspecting the register, which is open to the public, will with this information be able to discern such important features of the membership structure as its voting pattern. He can do this because the Registrar of companies will have, for public inspection, documents disclosing the rights attaching to the company's different classes of membership. But these provisions are comprehensive only in the case of companies with a share capital.
§ The amendments now under consideration have the effect that a similar régime will be imposed on companies not having a share capital. An example of such a company is the Performing Rights Society, interest in whose activities has stimulated consideration of certain amendments in Section 110. Amendments 89 to 92 provide that a company without a share capital must include in its register of members a statement of the class of membership to which individuals belong, if the company has more than one class of members. Amendment 94 provides that a company without a share capital must deliver to the registrar details of class rights when these are not contained in documents already in his keeping, as required elsewhere in the legislation. It is drafted on the lines of Section 33 of the Companies Act 1980, which requires registration of the same details in the case of companies with a share capital. It therefore covers the creation of new classes of members, the variation of rights attaching to existing classes, and the naming or re-naming and designation or re-designation of a class of membership. It will apply to existing companies with more than one class of member as well as the future new creations of classes.
§ The combined effect of these provisions if enacted will be that an interested person will be able to inspect documents containing material relating to a company without a share capital which is effectively the same as the material available to a person interested in making his own investigations into a company with a share capital. This is therefore a useful rationalisation of this aspect of company law.
§ The remaining amendment, No. 93, concerns the liability of a company with respect to obsolete entries on the Section 110 register of members. At present no termination of liability is provided for, although Clause 67 already follows the general recommendation of the Jenkins Committee that obsolete entries on the register should be allowed to be deleted after a statutory period. This amendment follows up that provision and implements a related but separate recommendation 502 of the Jenkins Committee. It provides that a company's liability in respect of entries and deletions made or not made, as the case may be, on the Section 110 register will not be enforceable after a period of 20 years. The 20-year period is deemed to have started when an entry or deletion is made or from the first occasion on which a failure to make or delete an entry occurred. The Jenkins Committee was convinced, as are we, after hearing evidence on this matter, that it was necessary to give this element of relief to companies in order to enable them to take advantage of the main provision enabling them to destroy old records relating to the register of members. This provision also covers a company's register of debenture holders, in the case of which the same considerations apply. I beg to move.
§ On Question, amendments agreed to.
Lord Trefgarne moved Amendment No. 94:
After Clause 67, insert the following new clause:
§ ("Registration of particulars of members' class rights
§ .— (1) Where a company which does not have a share capital (referred to below as "the company") creates a class of members with rights which are not stated in its memorandum or articles or in any resolution or agreement to which section 143 of the 1948 Act (registration of certain resolutions, etc.) applies, the company shall deliver to the registrar of companies within one month from the date on which the new class is created a statement in the prescribed form containing particulars of the rights attached to that class.
§ (2) Where the rights of any class of members of the company are varied otherwise than by an amendment of the company's memorandum or articles or by any resolution or agreement to which section 143 applies the company shall within one month from the date on which the variation is made deliver to the registrar a statement in the prescribed form containing particulars of the variation.
§ (3) Where a company (otherwise than by any such amendment, resolution or agreement as is mentioned in subsection (2) above) assigns a name or other designation, or a new name or other designation, to any class of its members it shall within one month from doing so deliver to the registrar a notice in the prescribed form giving particulars thereof.
§ (4) Where a company has on the appointed day more than one class of members the company shall within three months from that day deliver to the registrar a statement in the prescribed form containing particulars of the rights of each class of its members.
§ (5) If a company fails to comply with this section, the company and every officer who is in default shall be liable on summary conviction to a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum for each day until the statement or notice in question is delivered to the registrar.").
§ On Question, amendment agreed to.
§ The Earl of Selkirk moved Amendment No. 95:
After Clause 67, insert the following new clause—
(".Section 187 of the 1948 Act shall be amended as follows—
§ The noble Earl said: My Lords, I moved an amendment in these terms in Committee and I move it again 503 because I did not get a satisfactory answer at that stage. It is decided law that an undischarged bankrupt in England has not committed an offence in Scotland. That is unquestionably unsatisfactory. The decision in this matter was reached by the High Court of Judiciary, from which there is no appeal on a criminal matter to the House of Lords. The decision was unanimous by three judges, as a result of which there is only one course— namely, statutorily to correct the situation. The only question I am asking tonight is: how do we correct the situation?
§ One may argue that it should be corrected in a separate Bill or I may be told that this Bill is not a satisfactory vehicle for dealing with the matter. If that is said, then I ask your Lordships to look at Clause 61, with which we have just dealt, in which it is clear that having been convicted of an indictable offence is a disqualification for acting as a director. Does that mean that an undischarged bankrupt in England who receives credit in Scotland has not committed an indictable offence? If so, he is fully entitled to be a director of a company, and if that is the case, it appears appropriate that this matter should be dealt with under a Companies Bill. Clearly something must be done by means of some statute. If this is not an appropriate statute, another must be used. I beg to move.
§ Lord Mackay of Clashfern
My Lords, my noble friend has raised a question which is particularly dear to my heart because the case on which he is founding was one in which I appeared as junior counsel for Mr. Kaye, who managed triumphantly to defeat the Lord Advocate of that time. However, the point in that case was whether an undischarged bankrupt in England— that is, a person who was made bankrupt in England and remained undischarged— on coming to Scotland was breaching a provision of the Scottish Bankruptcy Act by obtaining credit in Scotland. After careful consideration, as my noble friend said, the High Court of Judiciary, which is the Supreme Court of Criminal Appeal in these matters in Scotland, decided that he was not. But that case arose on a consideration of the Scottish Bankruptcy Act 1913 and did not arise on a consideration of the Companies Act 1948, and I believe that, cogent as the argument for Mr. Kaye was in the context of the 1913 Act, it would not have run on the 1948 Act.
To answer my noble friend's question, a person who obtained credit in Scotland, being an undischarged bankrupt in England, would not, I think, be guilty of an indictable offence, but that does not mean that this is the Bill in which that should be altered. Certainly I can see that the matter requires the attention of the legislature, but I respectfully suggest to my noble friend that the matter is one for the Scottish bankruptcy statute to deal with in due course. It may be relevant to remember that the Scottish Law Commission is engaged now in a quite extensive exercise on the reform of Scottish bankruptcy law, and I should think that consideration of its report, and possibly of the EEC bankruptcy convention, if it comes to be agreed, might provide a suitable legislative vehicle for dealing with this matter. I do not feel this is an appropriate 504 Bill for that purpose and I hope that, with that explanation, my noble friend will feel able to defer consideration of the issue to another occasion.
The Earl of Selkirk
My Lords, in a matter which is obviously dear to the heart of my noble and learned friend, I should not want to press him unduly. If it is true, as it surely is, that an undischarged bankrupt in England cannot be convicted in Scotland, then although he is an undischarged bankrupt he can remain a director of a company, because he cannot be convicted of an indictable offence. My noble and learned friend says it is not a matter for a Companies Bill. It is, however, very much a matter concerning companies; if you have an undischarged bankrupt in England who is a director of a company, I should have thought that would be a gross breach of the principles on which this Bill is founded. However, I shall not press the matter, though I am sure my noble and learned friend will draw it to the attention of the appropriate department when the time comes. In the meantime, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ 7.17 p.m.
The Lord Chancellor (Lord Hailsham of Saint Marylebone) moved Amendment No. 96:
After Clause 72, insert the following new clause:
§ ("Amendment of Companies Acts in connection with their consolidation
§ .— (1) Her Majesty may by Order in Council make such amendments of the Companies Acts and of any other enactment relating to companies, whenever passed, as may be jointly recommended by the Law Commission and the Scottish Law Commission as desirable to enable a satisfactory consolidation of the whole or the greater part of the Companies Acts to be produced.
§ (2) An Order in Council under this section—
- (a) shall not be made unless a draft of the Order has been laid before and approved by a resolution of each House of Parliament;
- (b) shall not come into force unless there is passed either a single Act consolidating the whole or the greater part of the Companies Acts (with or without other enactments relating to companies) or a group of two or more Acts which between them consolidate the whole or the greater part of those Acts (with or without other enactments so relating); and
- (c) if such an Act or group of Acts is passed, shall by virtue of this paragraph come into force on the day on which that Act or group of Acts comes into force.
§ (3) No Order in Council shall be made under this section after any Order in Council so made has come into force.
§ (4) In this section "the Companies Acts" means the Companies Acts 1948 to 1981 and any enactment passed after this Act for the citation of which together with those Acts provision is made by any enactment so passed.").
§ The noble and learned Lord said: My Lords, this is an important amendment and for that reason I am eager to explain it in perhaps a little more detail than I otherwise should. I hope that, when I have done so, although highly technical, it will prove uncontroversial. Because it is so technical, I took the liberty of consulting and explaining its objectives to the noble and learned Lord, Lord Elwyn-Jones, the noble Lord, Lord Wigoder, and the Law Lords, and I am now anxious to explain its purpose to the House.
§ In a sentence, its purpose is to pave the way to a consolidation of the Companies Acts when, and if, 505 the present Bill comes into effect. The preparation for the consolidation is already in hand under a most distinguished retired parliamentary draftsman. The Companies Acts are urgently in need of consolidation, but the jungle of legislation which requires to be amalgamated into a consolidation Act is such that it cannot be accommodated within the ordinary framework of our present consolidation procedure.
The point was drawn to my attention in a general form originally by the Law Commission, one of whose principal functions, as your Lordships will be aware, is the consolidation of our statute law, as has been the case from the beginning. It is drawn to the attention of Parliament in its current annual report, and the point that it made was discussed and endorsed by the Statute Law Committee, a most distinguished body which meets once a year under the chairmanship of the Lord Chancellor. I should like to quote a sentence or two of what the Law Commission said. Among other things, it said:
Work on the consolidation of Statute Law on a particular subject often brings to light anomalies and inconsistencies which cannot be remedied in a Consolidation Bill. Such Bills have the great procedural advantage that they are considered in depth only once, by the Joint Select Committee on Consolidation Bills. But they must not incorporate any changes in the law beyond those which result from the special procedures for amendment which are available".
These include the "minor amendments" which are allowed under the Act of 1949, or the analogous procedure involving recommendations made by either of the two Law Commissions, and which are referred to in the First Programme of the English Law Commission published in 1966.
I shall now once more quote the words of the Law Commission's report:
If changes are necessary which cannot be effected … schedule of the necessary amendments is drafted for inclusion in an appropriate programme Bill and the Consolidation Bill is prepared on the assumption that the amendments have already been enacted".
Having gone on to draw attention to the difficulty of finding a suitable programme Bill as a vehicle for such amendments, the Law Commission go on to recommend— and I quote a third passage:
In our view, this matter of the prior enactment of necessary but uncontroversial amendments in order to enable Consolidation Bills incorporating these to proceed through Parliament under the special procedure of the Joint Committee is one which requires serious consideration, and we therefore think that this is a matter which you may wish to draw to the attention of both Houses of Parliament".
Armed with the support of that recommendation of the Law Commission and the support of the Statute Law Committee, I have in fact already put general proposals before the Leaders of both Houses with a view to their consulting their opposite numbers and the Procedure Committees, because such proposals could not in fact be introduced without a general consensus.
§ In the meantime, before the general proposals can be enacted, the general problem has come forward in a particular form in relation to this Bill, and to meet it the retired parliamentary draftsman who is undertaking the consolidation work has, with the support of the Law Commission, put forward an ingenious solution which I hope will commend itself to the House and which I trust your Lordships will think is protected by adequate safeguards against abuse.506
§ Good progress is being made with the consolidation, but the task is truly formidable; from the point of view of sheer bulk, the existing legislation covers more than 750 pages of the ordinary edition of the statutes. Its character is highly complex and technical. The styles in which it has been drafted and the problems which it has been designed to solve range from the antique, such as the regulation of tin mining companies in Cornwall, to more contemporary concerns with "insider dealing", "concert parties", and "shadow directors".
§ So your Lordships will see that the draftsman is faced with a herculean task, and while this body of law is not at all an Augean stable, it is clear to the draftsman that if a satisfactory consolidation, fit for use for many years to come, is to be made, a number of changes to the Acts will be desirable to remove anomalies and to reframe or dispense with provisions which have been found to be obsolete in form or substance. Otherwise, the consolidation when it comes would be a rather second-best affair.
§ When account is taken of the resources which will require to be involved in this work, I am sure that noble Lords will agree that a second-best consolidation would be rather a pity. In my mind it is difficult in this narrow field to exaggerate the importance of the matter. For practitioners, even with many years of experience in the field, the present law is complex, difficult to apply, and difficult to present; and to the uninitiated it is a maze. This is not the form in which to maintain our central law on business corporations.
§ It is also important, from the international point of view, that we should set out our law in a presentable shape. Our own company law is one of the most developed and sophisticated systems of business regulation in the world. Our method and care in implementing our Community obligations in this field are widely admired by our partners in the Community. But our methods and solutions will not influence our colleagues in the Community and elsewhere unless our law is in a form which is comprehensible, coherent, and up-to-date.
§ The orthodox solution to the problem of pre-consolidation paving amendment would be yet another Companies Bill later in the course of this Parliament, introduced by the Government as a programme Bill. But I fear that a Bill for this purpose would be likely to contain a series of minor but complex and recondite technical amendments. Other amendments, while of real substance, would not be controversial in a political or parliamentary sense. In view of the fact that over the last 24 years there has been such prolonged parliamentary debate on successive pieces of company legislation, I doubt whether my right honourable friend the Secretary of State for Trade would be able to obtain a legislative vehicle other than the present one, in the foreseeable future. Yet we wish to have consolidation on our statute book as soon as possible, and in the best possible shape, and therefore with the necessary amendments drafted and approved.
§ The existing procedures which I have described— namely, the 1949 Act procedure, and the more frequently used joint committee procedure— are unfortunately inadequate to achieve the purpose which we have in mind. The new clause which is the subject of this amendment is designed to deal with the difficulties 507 subject, I hope, to adequate safeguards, by enabling the necessary amendments to be made by Order in Council on Affirmative Resolution. As is fitting when powers, however narrow, are taken to amend primary legislation by order, the safeguards, which are four in number, are fairly stringent.
The first is that the amendments which may be made are only such as are jointly recommended by the two Law Commissions (the English Commission and the Scottish Commission) as
desirable to enable a satisfactory consolidation to be produced".
The scope is thus very severely limited. It is proper to assume that the Law Commissions will not recommend any amendment without first satisfying themselves that it would be unlikely to give rise to substantial controversy; and in order to satisfy themselves on that they would no doubt consult the Department of Trade as well as outside interests. If there should be any significant opposition from any quarter to a particular amendment, think it is hardly to be expected that the Law Commissions would persist in recommending it.
§ The second safeguard is as follows. It is provided in the new clause that the amendments are to come into effect only at the same time, or rather momentarily before then, to be exact, as the Consolidation Act itself. This is provided for by subsection (2)(c). This means that the Joint Select Committee will be able to scrutinise them when the consolidation goes through. In the third place the power lapses, and may not he exercised, after the Consolidation Act has come into force. Fourthly, as I have already indicated, any amendment made under this procedure will be subject to Affirmative Resolution in both Houses. That is contained in subsection (2)(a).
§ This is of course a legislative innovation. As I have said, before bringing it forward I have taken care to seek the views of a number of distinguished noble Lords, and I am happy to report to the House that their views were overwhelmingly in favour of the proposal. Certain points of detail have been raised. I have undertaken to consider them, and if necessary take account of them by amendments on Third Reading.
§ I am sorry to have taken up so much time on what is a highly complex matter, but I am very anxious to avoid any charge of putting through a legislative innovation by any form of constitutional impropriety. But I feel that this is more or less watertight; I believe it will be useful, and I hope it will commend itself to the House. I beg to move.
§ Lord Elwyn-Jones
My Lords, the House will be grateful to the noble and learned Lord for enlightening the darkness of the technicalities with which this matter abounds. I confess that when I first read the proposed new clause it filled me with more uncertainty than conviction, because I had a feeling that the process of consolidation has worked well, we have had a whole flow of consolidation measures through Parliament without difficulty, and I am reactionary enough not to want to disturb that which works well. But I very much see the force of the difficulties to which the consolidation procedures which we now have give rise. Of the value of consolidation there is no doubt. Unhappily, a great deal of our legislation is piecemeal and spasmodic— necessarily so, in a way, because it is 508 a response to new developments in a changing society, in a changing economy, and particularly in the field of company law in respect of new practices and procedures in business and in commerce.
In respect of the Companies Acts, there is undoubtedly, as the noble and learned Lord the Lord Chancellor has said, a clear need for consolidation. Therefore, I think that any measure to make that task easier and more effective is to be welcomed. However, I think it is right— and, indeed, the noble and learned Lord has indicated that we are treading new constitutional ground here in some respects— that we should take note of the new procedures.
I venture to ask the noble and learned Lord this. Is this not the first time that statutory status and authority has been given to the recommendations of the Law Commissions? Since they were set up, of course, the Law Commissions' reports have carried very great weight, and often their draft Bills have been reproduced almost without modification, quite frequently as Government Bills or Bills taken up by Private Members, and I know we are all very grateful.
That procedure of Private Members being able to take up reform measures has been of great value, and they have been greatly assisted in that process by accepting the Law Commissions' reports, the immense value of which to Parliament, at any rate, has been that they have always contained, or almost always contained, a draft Bill. But whereas previously we have accepted the value and weight to be attached to the draft Bills and the recommendations of the Law Commissions, I do not think we have gone so far as to say, as does the clause, that a recommendation by one or other of the Law Commissions is a condition precedent to the acceptability of the type of Order in Council which is mentioned in subsection (1) of the new clause. I am not saying that by way of criticism, but it is worth noting that it effects a great step in acknowledgement of the authority of recommendations of the Law Commissions, at any rate in this field.
Now subsection (2)(b) of the clause provides that the Orders in Council shall not come into force unless there is passed one or more Acts consolidating the Companies Acts, and I should like to know— I am not clear in my mind about this— whether that means that the relevant Order in Council will have no effect until that point of major consolidation is reached. I imagine that that must be so; that, so to speak, they lie dormant until activated by the ultimate Companies (Consolidation) Act.
Then I should like perhaps a little more enlightenment on subsection (3), which reads:No Order in Council shall be made under this section after any Order in Council so made has come into force".Does that mean that it is to be a once only Order in Council, and that after an Order in Council under the section has been made there can be no more? That I am not clear about, but perhaps the noble and learned Lord will enlighten us about it.
I ventured in my discussion with the noble and learned Lord the Lord Chancellor, who has been kind enough to take note of the views of others before bringing this before the House, to ask whether he was convinced that this would really serve a helpful purpose in assisting the process of consolidation. He is strongly of that opinion, and I have come round to the view that it 509 may well achieve a beneficial effect. I am sorry to have sounded so hesitant about accepting change. On the contrary, I think that where change of this kind is beneficial we should accept it; but the restraints that there have been, and the confidence we have placed in the relevant parliamentary committees in this field in the past, are not unimportant. But the situation in the case of Companies Acts consolidation— and, as I understand it, this clause applies only to Companies Acts consolidation and to the consolidation of no other Acts— is that this is a clause which in my opinion merits the confidence of the House, and I certainly have no intention to oppose it.
Viscount Colville of Culross
My Lords, it is a long time since I was the chairman for a brief period of the Joint Consolidation Bills Committee, but during that period— and, indeed, beforehand, when I was an ordinary member— I appreciated very distinctly what an exceptionally important job was done, largely by the parliamentary draftsmen, in the process of consolidation of the law. I do not wish to depart in any way whatever from the comments which have been made by the noble and learned Lord, Lord Elwyn-Jones, in saying that this sort of innovation is something that one should certainly look at with benevolence. The existing systems are fraught with difficulty. Perhaps the last time there was a paving Bill for a general consolidation that I can remember was the process which concerned land drainage, which was a particularly technical and barren, if not and (which would be the wrong word), subject for such a matter.
So my noble and learned friend certainly has my support on the principle of introducing an innovation here, but I wonder whether he could tell me the answer to one question. He said that the result of the way in which this new clause is drafted would be to enable the Joint Committee on Consolidation Bills to look at the substance of the Order in Council. This is something which would mean this in practice, I think— and perhaps he would help me on this. The Joint Consolidation Bills Committee would of course not be seized of a Bill until after an Order in Council had been made and, I assume, approved by resolution of both Houses under subsection (2)(a). Of course, it would not conic into force at that stage. It would wait until the group or the single consolidation Bill was ready for the Royal Assent. But how is the Joint Committee on Consolidation Bills going to exert any influence over the amendments that are put forward, albeit as the result of the consultation with the two Law Commissions? The fact is— and I see the noble and learned Lord, Lord Simon, there; and I am sure that he will bear me out— that sometimes the technical problems do not surface until a comparatively late stage in the process of the draftsman's preparation and presentation of the Bill to the chairman and, later, to the Joint Committee itself.
The noble and learned Lord, Lord Elwyn-Jones, has pointed out that under subsection (3) no Order in Council shall be made after the initial Order in Council has come into force. Am I to think that what is meant by that is that if the Joint Committee, or, conceivably, Parliament, on recommittal of the Bill, comes to the conclusion that, after all, there is an error or an omission in the Order in Council that has been laid and approved, 510 the Government are prepared under this new procedure to withdraw that Order in Council— because it will not yet have come into force; the Bill still being in the stage where it is before Parliament— and to lay a new Order in Council to take account of the defect discovered in the course of the deliberations of the Consolidation Bill Committee?
I should have thought that that followed from the way in which this is drafted; but also I would suggest that it is absolutely necessary that there should remain a degree of flexibility under this new procedure whereby, if some quite small technical mistake which has been dealt with by that time in the Order in Council is discovered, there should, as Orders in Council cannot be amended, be a method by which we should be able to go back and obtain a new Order in Council in time before the Bill comes up for Royal Assent. In that way, the technicality could be properly presented and then we should have a new and flexible procedure which would do justice to this important system. It seems to be an important qualification; and if my noble and learned friend can help, I shall be grateful.
§ The Lord Chancellor
My Lords, I am grateful to both noble Lords who took part in this debate for the great care with which they have scrutinised the matter. One should not lightly embark on legislative innovation and it is quite right that this should be closely examined. In fact, I invited that in advance. If I may deal in inverse order with the two speakers, I think that the first point raised by my noble friend Lord Colville was an extremely valid one. Probably what I did in presenting the amendment— and it may have been an error— was to telescope two different stages in the procedure.
Before Affirmative Resolution is sought for the Order in Council, it will be scrutinised by the Joint Select Committee on Statutory Instruments and they will make their comments to the House, in the light of which the House, or both Houses, will come to their conclusions. That would be an additional safeguard to those I enumerated. Therefore in response to my noble friend's second point, obviously, if there were an error— and I shall turn to that when dealing with some of the noble and learned Lord's points— which became apparent, one hopes that it would be detected at that stage and, if it could be put right, one could withdraw the Order in Council and substitute one in an amended form.
The Joint Consolidation Committee will examine the amendments only after the Order in Council has been passed; and when the consolidation Bill comes before the committee in the ordinary way, it will only be able to verify that the Bill consolidates the existing law, which, in that case, would include the Order in Council, and then it will be entitled to agree to minor amendments in the accepted sense. It is precisely because the Committee can agree only minor amendments in the accepted sense that one needs this procedure at all. In many ways, it would be much more convenient to put technical amendments of this kind straight to the Joint Consolidation Committee and let it scrutinise them in that way, but I am advised that this would probably not be practicable without primary legislation. However, there will be a double check on it. I certainly wish to give an undertaking that, should 511 mistakes be found in an Order in Council and pointed out, then clearly one would withdraw it and substitute the same thing in an amended form with the mistakes cured.
I come to the careful speech of the noble and learned Lord, Lord Elwyn-Jones. The first thing he asked was this. Is it the first time that statutory status and authority are given to Law Commission reports? I think the strict answer is, no, because, under the minor amendments procedure, which has been known since 1966, the same kind of precondition is insisted upon— namely, that, before a minor amendment can be inserted in a consolidation Bill, it has first to go through the Law Commissions. What is new— it is an innovation that I am not trying to gloss over— is the fact that the Law Commission (not to give its recommendation statutory form, but as a precondition to the Government putting the amendments before the House of Lords or Commons at all) would have to recommend those amendments. That is an innovation or, rather, an extension in principle— not merely in detail— of the earlier procedure.
The next point he raised is this. Are the changes in the law dormant until momentarily before the Consolidation Act itself comes into force? The answer is, Yes. The intention, and, I think, the language, of the clause insists that they do not change the law until the commencement date, and that date will be the same but, I hope, prior by a few moments to the actual commencement of the Consolidation Act.
A third and very interesting point he raises is as to subsection (3). This brings me back to my noble friend Lord Colville. It is our intention to have only one Order in Council. Subsection (3) does not, as a matter of fact, so provide. What it provides is that the whole power lapses on the coming into effect of the Consolidation Act. It is our intention to have only one Order in Council. But, because of the kind of point which my noble friend is suggesting, one could conceive of circumstances where mistakes had been made or new difficulties appeared when more than one was necessary. But it is our intention to have only one and that very shortly before the consolidation legislation is introduced.
I am grateful to the House for the careful consideration they have given to this amendment. If anyone were to think that we were guilty of some grave constitutional error, I should have withdrawn it, but I believe what we have done is to take, perhaps in advance, notice of what the Law Commission has recommended in its annual report, applied to a particular and rather important statute.
§ On Question, amendment agreed to.
§ [Amendments Nos. 97 and 98 not moved.]
§ Schedule 3 [Minor and consequential amendments]:
§ 7.50 p.m.
Lord Lyell moved Amendment No. 99:
Page 115, line 17, after ("1980") insert (", in each place where they occur,").
§ The noble Lord said: My Lords, this is a minor and clarifying amendment which provides that in each place where the words "the Companies Act 1948 512 to 1980 "appear there shall be substituted the words "The Companies Act 1948 to 1981". It takes account of the fact that in certain of the sections and regulations of the 1948 Act referred to in paragraph 2 of Schedule 3 the words "the Companies Act 1948 to 1980" appear more than once and need to be updated by references to the 1981 Act. I beg to move.
§ On Question, amendment agreed to.
Lord Lyell moved Amendments Nos. 100 and 101:
Page 116, line 47, leave out ("the Welsh equivalent of those words") and insert ("cwmni cyfyngedig cyhoeddus")
Page 117, line 7, leave out ("the Welsh equivalent of that word") and insert ("cyfyngedig").
§ The noble Lord said: My Lords, if I may, I shall take Amendments 100 and 101 together. I was hoping that my noble friend Lord Trefgarne was going to address himself to these, particularly in view of his eminent position in what I understand is the Montgomeryshire Society. I understand that these amendments seek to clarify the Welsh wording which has to be used for what we in English say is "public limited company". I understand that the words in brackets are pronounced: "kumni kuff-ungedig kur-heed-us". I believe that singing is forbidden in your Lordships' House, but I have attempted to give a little of the rising and falling tone of the Welsh tongue. I understand that Amendments Nos. 100 and 101 will prevent the possibility of incorrect translation, although I am given to understand that "cwmni cyfyngedig cyhoeddus" translates from English as: "limited company public". This must be due to some peculiarities of Welsh syntax with which— it may surprise your Lordships— I am not yet familiar. I beg to move.
§ Lord Elwyn-Jones
My Lords, I always thought the noble Lord had courage; but I wish that he had taken more pains about this! It is perfectly obvious that those words, when spoken publicly, read "cwmni cyfyngedig cyhoeddus". It is very simple and so obvious! He has the noble Lord, Lord Trefgarne, beside him— another Welshman. I confirm that the translation from the English into Welsh is accurate and I say this: "yn gyhoeddus", which means "in public", too. I have no opposition to the amendment.
§ On Question, amendments agreed to.
Lord Lyell moved Amendment No. 102:
Page 118, line 3, after ("and"") insert ("the").
§ The noble Lord said: My Lords, this is a minor amendment. It inserts the word "the" before the words "Eighth Schedule" in paragraph 20 of Schedule 3. I understand that the English translation would be better if we include the word "the". I beg to move.
§ On Question, amendment agreed to.
§ Lord Trefgarne moved Amendment No. 103:
Page 119, line 31, at end insert—
("35A. In section 17(11) (interpretation of provisions relating to pre-emption rights)—
(b) shares which are held by a person who acquired them in pursuance of an employees' share scheme or, in the case of shares which have not been allotted, are to be allotted in pursuance of such a scheme;".").
§ The noble Lord said: My Lords, we are bringing this amendment forward in response to the amendment moved in Committee by the noble Lord, Lord Lloyd of Kilgerran, as Amendment No. 153. The noble Lord withdrew his amendment in response to our undertaking that we would bring forward our own amendment to meet his objectives.
§ This amendment will remove doubts which have arisen in some quarters about the effect of the section as presently drafted. Section 17 sets out the preemption rights of shareholders in a company when the company allots equity securities. Shares and share options allotted in pursuance of any scheme for promoting employee shareholding are intended to be exempt from such pre-emption rights. The definition of "relevant shares" may leave uncertain whether shares acquired under a share option scheme for employees are considered to be exempt, since it is drafted in terms of shares "held" under a scheme. Doubts have arisen from the fact that shares acquired under an option scheme are held, after the exercise of the option, as normal shares, free and clear of any connection with the scheme.
§ The amendment therefore makes it clear in paragraph (b) that all shares allotted in pursuance of an employees' share scheme, including a share option scheme, are excluded from the definition of "relevant shares"; so the allotment of all such shares is outside the ambit of the pre-emption provisions of Section 17. The amendment in paragrah (a) ensures that references to "relevant employee shares" which may benefit from pre-emption rights include shares allotted in pursuance of a share option scheme. I beg to move.
§ On Question, amendment agreed to.
§ Lord Lyell moved Amendments Nos. 104 and 105:
Page 120, line 37, leave out from the beginning to ("shall") and insert—
("(a) the words "or filed" in both places where they occur").
§ Page 120, line 43, at end insert ("and the words from "or, as" to "applicable)" shall cease to have effect.").
§ The noble Lord said: My Lords, I shall, if I may, take Amendments Nos. 104 and 105 together. They are consequential upon a series of amendments to which I spoke yesterday, beginning with Amendment No. 51. Unless any Member of your Lordships' House would wish to receive any further opinions from the Government upon these minor technical amendments, I beg to move.
§ On Question, amendments agreed to.
§ Schedule 4 [Repeals]:
§ Lord Trefgarne moved Amendment No. 106:
§ Page 124, line 3, at end insert—
|("1916 c. 58.||Registration of Business Names Act 1916.||The whole Act.|
§ The noble Lord said: My Lords, this amendment is consequential. I beg to move.514
§ Lord Ponsonby of Shulbrede
My Lords, we do not object to this amendment today— it is consequential upon the passing of an earlier amendment today by your Lordships' House— without any commitment that we may not wish to return to this again at a later stage.
§ On Question, amendment agreed to.
§ [Amendment No. 107 not moved.]
§ Lord Mackay of Clashfern moved Amendment No. 108:
§ Page 124, line 7, column 3, at end insert—
§ The noble and learned Lord said: My Lords, this is a technical, consequential amendment. I beg to move.
§ On Question, amendment agreed to.
Lord Lyell moved Amendment No. 109:
Page 124, leave out line 35.
§ The noble Lord said: My Lords, I spoke to this amendment yesterday. It is part of a series of amendments commencing with Amendment No. 48 to which I spoke. It is consequential. I beg to move.
§ On Question, amendment agreed to.
Lord Lyell moved Amendment No. 110:
Page 124, line 44, leave out ("11") and insert ("12(1)").
§ The noble Lord said: My Lords, this is a consequential amendment caused by the retention of Section 11 of the 1967 Act. Since Section 11 is being retained for Schedule 8A accounts— these are the accounts which will be permissible in the existing form for businesses like insurance companies, shipping companies and banks— it will continue to apply to unregistered companies by Section 54 of the 1967 Act. However, as Section 12 of the 1967 Act is to be repealed, the reference to Section 12(1) in Section 54 must also be repealed in order to disapply the measure from unregistered companies. I beg to move.
§ On Question, amendment agreed to.
§ Lord Lyell moved Amendment No. 111:
§ Page 124, line 46, column 3, at beginning insert—
|("In section 9(1) the words "(subject to any prescribed exceptions or modifications).".").|
§ The noble Lord said: My Lords, this technical and consequential amendment results from the repeal of certain words in Section 9 of the 1976 Companies Act made by Clause 19 (a) of the Bill before us tonight. I beg to move.
§ On Question, amendment agreed to.
Lord Lyell moved Amendment No. 112:
Page 124, line 47, column 3, at end insert ("Section 28").
§ The noble Lord said: My Lords, this is a consequential amendment to Amendment No. 43, to which I spoke last night. I beg to move.
§ On Question, amendment agreed to.
§ Lord Lyell moved Amendment No. 113:
§ Page 125, line 2, column 3, at end insert—
§ The noble Lord said: My Lords, this is consequential upon a number of amendments. I spoke to it last night and I beg to move.
§ On Question, amendment agreed to.
§ Lord Lyell moved Amendment No. 114:
§ Page 125, leave out lines 6 and 7 and insert—
|("In section 43, the words "or filed", wherever occurring, and in subsection (8) the words from "or, as" to "applicable)".").|
§ The noble Lord said: My Lords, this is consequential upon Amendment No. 51. I beg to move.
§ On Question, amendment agreed to.
Lord Lyell moved Amendment No. 115:
Page 125, line 13, leave out from ("Act") to end of line 14.
§ The noble Lord said: My Lords, this is also consequential, and I beg to move.
§ On Question, amendment agreed to.
Lord Lyell moved Amendment No. 116:
Page 125, line 15, leave out from ("paragraphs") to end of line 16, and insert ("2, 5, 13, 14, 19, 20(a), 24, 30, 36(6) and 46.").
§ The noble Lord said: My Lords, I hope I may speak briefly to Amendments Nos. 116 and 117 together. These are technical minor amendments and repeal the paragraphs of Schedule 3 to the 1980 Act which I have already specified. These have been superseded as a result of the provisions of this particular Bill. I beg to move.
§ The Lord Chancellor
My Lords, the noble Lord referred to Amendments Nos. 116 and 117. On my list No. 117 does not exist. Is that right or wrong?
§ Lord Elwyn-Jones
My Lords, perhaps I might say to the noble and learned Lord that in his absence the noble Lord had to engage in a certain amount of Welsh. It has obviously confused his mind!
§ On Question, amendment agreed to.
Lord Lyell moved Amendment No. 118:
Page 125, line 28, leave out ("section 41(11)") and insert ("sections 39(8) and 41(11)").
§ The noble Lord said: My Lords, before moving Amendment No. 118, I must first apologise to my noble and learned friend. Against Amendment No. 117 there is a series of stars which normally in literature conveys the use of obscene or otherwise undesirable language. My noble and learned friend was entirely right: No. 117 does not exist. I regret to say I was speaking from the notes which arrived from the winged messengers and I am afraid I did not check. I beg to move Amendment No. 118. This is consequential upon a series of amendments, with No. 43, which I moved yesterday. I beg to move.
§ On Question, amendment agreed to.516
Lord Lyell moved Amendment No. 119:
Page 125, line 30, leave out from first ("The") to second ("of") and insert ("repeals by this Act in section 43").
§ The noble Lord said: My Lords, this amendment is consequential upon a series of amendments with Amendment No. 51, which I moved yesterday. I beg to move.
§ On Question, amendment agreed to.