§ 3.25 p.m.
§ The Lord Advocate (Lord Mackay of Clashfern)
My Lords, I have it in command from Her Majesty the Queen and His Royal Highness the Prince of Wales to acquaint the House that they, having been informed of the purport of the Companies (No. 2) Bill, have consented to place their interests so far as they are affected by the Bill at the disposal of Parliament for the purposes of the Bill.
§ Moved, That the Bill be now read 3a.—(Lord Trefgarne).
The Minister of State, Ministry of Agriculture, Fisheries and Food (Earl Ferrers)
My Lords, before the amendments are called I should like to draw the 1277 attention of your Lordships to a procedural point. I do so strictly in my capacity as Deputy Leader and not as a Government Minister—I would emphasise this—and I do so with some hesitation, because I realise that the provisions of the Bill to which I am about to refer have raised considerable controversy on the Floor of the House.
Your Lordships will recall that the House recently agreed to the recommendations of the Procedure Committee which drew attention to and endorsed the practice of the House that an issue which has been fully debated and decided upon at a previous stage of a Bill should not be reopened on Third Reading. It is my view, and I fancy I am correctly interpreting the opinion of the House, that the noble Lord, Lord Mishcon, in his Amendment No. 2 reopens again the issue of the registration of business names. Although questions of order are, of course, for the House to decide, I feel that I should draw your Lordships' attention to this, as it has so recently been the subject of consideration both by the Procedure Committee and by the House as a whole, in order that the noble Lord, Lord Mishcon, may consider whether it is in accordance with the procedure of the House that he should move his amendment.
If I may, just to refresh your Lordships' minds, quote what the Procedure Committee said, it was:The principal purposes of amendments on Third Reading are to clarify any remaining uncertainties, to improve the drafting and to enable the Government to fulfil undertakings given at earlier stages of the Bill. It is considered undesirable that an issue which has been fully debated and decided upon at a previous stage of a Bill should be reopened on Third Reading".The committee then went on to say:The Committee wish to draw particular attention to the use of the word 'undesirable' and to remind Lords that in the context of a House where there is no Speaker with powers to rule on matters of order the word as used in this House is equivalent to the expression 'out of order' in the context of the House of Commons".
§ Lord Mishcon
My Lords, I wonder whether, with the leave of the House, I may be allowed to comment on what the noble Earl the Deputy Leader of the House has just said. In the first instance, may I assure him, if any assurance is necessary, that we on our side of the House will always to the best of our ability abide by the rules of procedure and the great traditions in this House. But I would most respectfully submit—although obviously we are all of us in the hands of the House itself—that the amendment to which the noble Earl referred in no way breaches the principle which he read out. May I also say that if in any way it is held to breach it—and, I repeat, I, like him, am in the hands of the House—the Government themselves have brought this upon their own shoulders.
I remind the House that the principle of whether there should be—and I am not going into the debate on this, obviously—a central Registry of Business Names and whether that should continue to exist, came before the House at the Committee stage. The Committee decided after a very full debate that it wanted to retain the principle of the central Registry of Business Names. Rather unusually, if I may say so, the Government decided not to abide by the decision of the House at Committee stage, in the sense that they decided to bring, it back before the House in 1278 precisely the same form by way of principle at Report stage.
On that occasion, and because they did it in that way, no alternative could be considered by the House at all. On the vote being taken, the Government on that occasion—I know the noble Earl will forgive my smile—called in the cohorts from various parts of the House, not always the Chamber; the House then decided against that principle. This House has never been able to consider, therefore, whether there is any alternative to a central registry once you take it for granted that the principle of the central registry not continuing to exist must be accepted. My amendment deals with an entirely alternative position which has never been considered before—that the registry goes but there is some other form of registration, not a central registry at all, and not the Registry of Business Names. I would only weary the House, and therefore not encourage other rules of procedure if I did so, by continuing. I repeat, I am in the hands of the House, but I hope that I have said sufficient to make it open possibly to other noble Lords, who might agree or disagree with me, to voice their opinions as to whether or not an alternative on this vital issue is this afternoon to be stifled.
§ Lord Maybray-King
My Lords, I am grateful to the noble Earl the Deputy Leader of the House for raising this matter, and I congratulate the noble Lord, Lord Mishcon, on the courteous way in which he has stuck by his position, and yet conceded at the beginning something of the principle at which the Procedure Committee is trying to aim.
History shows that year by year and century by century we have narrowed our methods of procedure. There was a time when there were six or seven readings of any Bill coming before Parliament. Now, in both Houses, the First Reading is formal; on Second Reading the whole Bill and anything approaching it or in connection with it is discussed—almost everything is in order. Then, in Committee, we go through a Bill with a toothcomb; every detail of the Bill that anyone wants to examine can be examined in Committee. The Report stage affords an opportunity to raise matters which have been raised in Committee and which have received a promise from the Government that they will do something about it at the next stage; some new aspects can be raised and all kinds of new terms can take place on Report. In the other place the debate on the Report stage is quite tightly drawn.
The Procedure Committee has tried to tighten a practice that has been growing tremendously on Third Reading: that of a series of almost Second Readings or Committee Readings on the Third Reading of a Bill on the Motion that the Bill do now pass. I hope that your Lordships will give serious consideration to what the noble Earl the Deputy Leader of the House has said, to see whether, together, we cannot tighten up the procedure—which is in our own hands—of making the Third Reading a stage when you talk about the Bill, the whole Bill and nothing but the Bill, apart from certain exceptional circumstances which the Procedure Committee has recommended.
My Lords, perhaps I could make one point to the noble Lord, Lord Mishcon, who said that 1279 the Government had brought this upon themselves. That is understandable—and I re-emphasise the fact that I speak in my capacity as Deputy Leader of the House and not as a Government Minister—and is a perfectly reasonable comment for the noble Lord to have made. He said that the Government did it rather unusually by bringing in on Report something that was identical to what was done in Committee. It might have been unwise to do that, but it was certainly in order.
The only point I would make to the noble Lord, Lord Mishcon, in addition to that, is that if one tries to interpret the spirit of the Report, one ought to try to do so by construing the Report and the Standing Orders as Standing Orders as opposed to Acts of Parliament. In trying to construe the spirit of the Report and what the House wants, once an issue has been debated and decided, it would be wrong to reopen that issue, whatever may be the nuances to it. There are stages in another place for this to be reconsidered. I shall merely leave the matter at that, for I only offer this advice to your Lordships' House to accept or reject as your Lordships see fit.
§ Lord Elwyn-Jones
My Lords, with great respect, would it not have been better if we could have discussed this matter when the second amendment was sought to be moved or considered? Then, among other matters, we could see the merit of the contention and the argument of my noble friend Lord Mishcon. With respect, I do not quite follow the procedure which we are adopting in this matter. I hear noises from the Woolsack, emanating in its own inimitable fashion, but I should like to hear the views of the Deputy Leader of the House on this.
My Lords, the purpose of bringing this matter up at this stage was twofold: first, I was advised that it was the appropriate moment and, secondly, in order precisely to avoid getting the principle of the amendment muddled up with the objectives of the amendment. That is why I thought it fit to produce it at this moment, in order that the noble Lord, Lord Mishcon, could take into account what had been said when he decides whether or not to move his amendment.
§ On Question, Bill read 3a.
§ 3.37 p.m.
Lord Mishcon moved Amendment No. 1:
After Clause 22, insert the following new clause:
§ ("Preparatory steps before registration of company
§ .—(1) Application shall not be made for registration of a company under the 1948 Act or for re-registration under that Act or the 1980 Act until 21 days after notice of intention to apply has been published in the Gazette, stating the proposed name of the company.
§ (2) Any person, being a body the name of which is entered on the index of names kept by the registrar in pursuance of section 23 of this Act, may make to the Secretary of State an objection in writing within 21 days after the publication in the Gazette of notice of intention to apply for registration or re-registration, but such objection shall be limited to an objection on the grounds that the proposed name of the company is so similar to the name of the person making the objection that confusion is likely to be caused.
§ (3) The Secretary of State shall take account of any objection 1280 under subsection (2) above before deciding whether to permit the registration or re-registration of a company by a name to which objection has been made.").
§ The noble Lord said: My Lords, with a feeling of complete propriety, I beg to move the amendment which stands in my name. It will be remembered that one of the matters which disturbed the House on a previous occasion in regard to this Bill was the fact that the protection which is given by the existing companies legislation in regard to the registration of a similar name of a company was absent from this Bill and, indeed, was intentionally removed from the Bill in the sense that the companies' registrar was no longer to have the jurisdiction and the duty of looking at the names of proposed companies and to decide whether, in his view, a name was objectionable on the ground that it had a similar ring to an already existing company.
§ I am sure that I do not have to emphasise to your Lordships, with all your Lordships' varied experience, the avenues that become open to people who recklessly or intentionally wickedly try to adopt a similar name to that of an existing company. As I understood it, the Government's answer was that it was a very difficult, if not impossible, task for the registrar to carry out in view of the number of registrations that now take place, and furthermore that it was giving to the registrar a judicial duty which it was more appropriate for a court to have. That meant two things; first, that the registrar was incapable to dealing properly with this matter and, secondly, that it was not suitable for him to do so.
§ Your Lordships were reminded that this is a duty that has been carried out by the registrar to the great satisfaction of the legal profession, the accountancy profession and all the other people interested in company registrations over a great number of years. We heard the statistic—which was rather interesting—that even if you looked at the number of applications for registration in recent years, there were only about 300 complaints that the registrar had gone wrong; and, of course, not all those complaints were in the end held to be justified. So there was a great body of opinion in your Lordships' House which came to the view that this duty of the registrar should be continued unless some other alternative, as efficacious, could be thought of. It was in that spirit that an amendment was put down at the Committee stage and again at the Report stage, and that is the amendment now before your Lordships.
§ What happened at the Committee stage was that the House was sitting extremely late. Although the quality of the House was, as always, very high, I am afraid that the quantity of the House was unfortunately very low. In those circumstances, it was thought only proper to postpone the debate until the Report stage. At the Report stage it was made perfectly clear in the speech that I made to your Lordships that this was not an alternative much to be desired; it was an alternative only because the Government would not concede the much more desirable course of retaining the registrar's powers and duties in this respect.
§ At Report stage—and I hope that I correctly paraphrase the noble Minister, Lord Trefgarne—when this amendment was reached, the Minister said that he accepted the principle behind the amendment, he accepted the spirit of the amendment, but that the 1281 Government might have to go a little further or possibly a little less far. If the amendment were withdrawn the Government would try at Third Reading to put forward their own amendment along these lines. If of course they were unable to do so, then that amendment would be before another place.
§ As your Lordships would expect, with the Minister's customary observance of his undertakings and his customary courtesy I heard from the Minister a little while ago—a matter of only days ago—that the Government had been thinking about this amendment and that there were certain difficulties in regard to it. The Government were therefore considering not a pre-registration procedure but a post-registration procedure. I emphasise the word, "considering", because it was made abundantly clear that the Government had not made up their mind.
§ I was invited to attend a meeting which the Minister chaired and at which some of his colleagues were present, and certainly some of his officials. At that meeting there was a full discussion in which I endeavoured, to the best of my ability, to tell the Minister and all those present that a post-registration procedure was certainly not within the principle of my amendment and within the spirit of my amendment. It walked into the obvious difficulty that after a company had been registered and after that company had got its name—because it was not the same name, and was not objectionable on other grounds and had therefore been admitted by the registrar—and after that company had prepared all its stationery, its advertising, its communication with its suppliers and its customers, the company would always have at the back of its mind, "Is there going to be an objection? If there is an objection to be considered by the Minister, I wonder what is going to happen? Am I going to be told that I can no longer have my name or not?"
§ Those of us in our professional and business dealings like always to be dealing with people who are as reputable as we think we are. But it is our experience, unfortunately, that in professional, business and industrial life we come across people who have less integrity than we think we have. Can your Lordships imagine the situation of a company that has gone to all that expense and suddenly has a telephone call, or a letter—it so happens that I read out such a letter at Committee stage to your Lordships—to say: "Look, it so happens we have got a company. We were going to commence business through it, but we could, I suppose, for a very good consideration decide not to. It bears a name very similar to yours, and our advisers have told us that we ought to object to your name. It is going to take an awful long time for the Minister to decide this. There will be cross-observations from both sides, and you will not know where you stand and we will not know where we stand. In those circumstances, we are prepared to waive our commencement of business through this company in consideration of your kindly letting us have a cheque, I would hope, by return."
§ These are situations which are obvious. I did not get, as I did not anticipate getting, an immediate decision of Government policy at that meeting, but the Minister well understood the objections that I made and further consideration, he said, was going to be given. I ought frankly to tell your Lordships that 1282 here are lots of views about this amendment. I must say that in all frankness. Everybody that I know of, all the professional organisations, say, "We would prefer the registrar to continue with his present functions, and we think he could do it, and there is no reason to doubt that he could do it." They are not worried about the question of his exercising some sort of judicial process. He has been doing it for goodness knows how many years, and doing it very well. Anyway, the Minister in a post-registration procedure would be exercising the self-same judicial function, or quasi-judicial function.
§ What they say is, "Of course we would want that to happen and that to continue; the registrar's present use of his functions. We would want that protection to be given to the whole community. But, if we have to look to an alternative, then we can see difficulties in this amendment". I must tell your Lordships frankly that my own Law Society has itself said, after a brief consideration of the alternative, that it can see difficulties in this amendment. The main difficulty it sees—and it said so in a memorandum sent both to the Minister, and, in its courtesy, to me, which arrived only this morning—from its point of view, is the burden that is cast upon people to have to look at lists of names in order to ensure that when they register a company they are not adopting a similar name.
§ I face the fact that there is that onus put upon people. I say—and I hope that this will commend itself to the House—that I think it is less of an onus than having no protection at all. What I say to your Lordships is this: I took the trouble to phone, just before I came to the House, the chairman of the Companies Committee of the Law Society, having received this memorandum. I have his permission to quote him, otherwise I would not be doing it.
§ I said to him, "Take it for granted that the pre-registration procedure that is suggested by this amendment does create some problems in the sense that it imposes upon people the duty, before they apply to register a company, looking through the Gazette week by week in order to see that there are no similar names. Would you say that it would be better, rather than have no protection at all of this nature, to have both the pre-registration procedure and then, if something is slipped through accicentally, you have always the right afterwards to go to the Minister? "
§ The chairman of the committee authorised me to say that he could see no objection at all to the joint procedure of pre-registration advertisement and looking through it—if something slipped through, then the Government were considering the post-registration procedure—provided, he said, that it was not looked upon as being an objectionable item so far as the applicant or respondent were concerned when they came to the post-registration appeal to the Minister: it had in fact slipped through the observation of somebody who had registered the company and who had not seen a name that had been advertised in the Gazette. I should not have thought that presented any difficulty at all. I therefore hope that the Law Society will not be quoted against one of its loyal members in this debate by the Minister, in that the sense that the main objection is one that I dealt with and the Law Society has said that if both were there they could see no objection to it at all.1283
§ This is the last time that this House will be able to consider the matter before this Bill goes to another place. I put the issue before the House very seriously because one can use exaggerated terms, although they do not go down very well in this Chamber; we are a very equable and moderate Chamber always. But, as I have said before, this is not only endangering those who value their good name and who have a right to their good name as a result of honest trading, who suddenly find that their name is being filched from them—either mistakenly or otherwise. They are people who do not want to go to the Law Courts, or they are small companies who cannot afford to go to the Law Courts over what is a complex passing-off action. We cannot leave them undefended, and this amendment comes before your Lordships this afternoon very properly on the basis that the amendment was here at Committee stage and at Report Stage and it was only withdrawn on the basis of the undertaking given by the Government which I hope I have fairly paraphrased and which I am sure the Minister will admit having given.
§ Lord Mottistone
My Lords, I support the tenor of the remarks made by the noble Lord, Lord Mishcon. I would also confirm to the noble Lord that the amendment which he has put before us is not ideal, but I am delighted to see it on the Marshalled List because I believe that it is indeed unfortunate that the Government have not managed to make up their minds about the amendment which, as has been stated, my noble friend Lord Trefgarne promised to us at Report stage. I hope my noble friend will allow me to say that I wrote to him suggesting that it would be a courtesy on the part of the Government if they were to allow this House to complete its business with this amendment rather than rely on the fact that the Bill will go to another place, so that we would have an opportunity to resolve the matter once and for all here. I consider it extremely unfortunate that for one reason or another—although we now hear about a meeting at which, perhaps, certain advances were made—nothing has been put before us.
Therefore, we find ourselves with the amendment tabled by the noble Lord, Lord Mishcon, which is not ideal—although I am advised by the CBI that they would certainly recommend its acceptance in default of anything better. As there is no alternative, we do not know whether the alternative is better. From what the noble Lord, Lord Mishcon, has said, it sounds as though the Government are not thinking along the same lines as business is, of pre-registration of names, but of post-registration—and I would implore my noble friend to forget that as an alternative.
Any solution that my noble friend produces needs to be on the lines of the amendment that is now before us and the ones which were similar to it which the House took at an earlier stage. I shall find it extremely difficult to decide whether to support the Government if this particular amendment comes to a Division.
§ 3.55 p.m.
§ Lord Somers
My Lords, may I just say from this Bench, as someone who is very ignorant of the matters of trade but who possesses a modicum of common 1284 sense, that I certainly support this amendment so far as it goes. I agree entirely with the noble Lord, Lord Mottistone, when he says that this matter should have been attended to but has not been attended to. This being our last chance to insert this amendment, I believe it should certainly be accepted. If there is anything undesirable about the amendment it is perfectly obvious that it could be put right in another place. I am not expert enough to say what is or what is not undesirable about the amendment, but I certainly believe that the basis of the amendment is very desirable and I do hope that your Lordships will support it.
§ Baroness Elliot of Harwood
My Lords, I have spoken in these debates because I have a very close association with consumer organisations—not with business as such but with all the consumer organisations which cover the whole country. It is a very wide spread of organisations and people who are deeply concerned with honesty and getting fair play for both the consumer and for the business person. I had hoped very much that the Government would put forward an amendment which we should all be able to support—including, I am sure the noble Lord, Lord Mishcon—and it is a disappointment to me that that has not happened.
I cannot express any further views on this amendment because it is a technical matter but it does seem to do something to continue the registration of business names so that people will be able to track down just what is happening. I think it would be a great pity if they could not do that.
§ Lord Trefgarne
My Lords, a good deal was said at the Committee and Report stages on this question of similarity between company names. I gave certain undertakings on behalf of the Government then and I should like to repeat them now. The Government are persuaded that there is a genuine problem here, and we accept that something has to be done. The noble Lord, Lord Mishcon, tabled his amendment at the Report stage. I said that the Government accepted the principle and I undertook,that the Government will bring forward amendments embodying the spirit … of what the noble Lord has proposed".Very rightly and properly, the noble Lord, Lord Mishcon, quoted what I said at that time in the terms which I have repeated today.
It may be helpful if I begin by reminding your Lordships of the rationale for making any change at all in the law on company names. Very simply, it is that the present provisions of the 1948 Companies Act require a subjective decision to be taken on the desirability or otherwise of every proposed company name. This reponsibility is one which has proved virtually impossible to discharge satisfactorily, given the very large number of names already registered and the steady growth in new company registrations and applications for change of name. Accordingly, Clause 22 was designed to put the whole question on a much more objective basis, so that companies and company promoters would be able to judge from the terms of the statute the names which were likely to be unacceptable.
I concede at once that this approach was inadequate in so far as it could not deal with the problem of association and similarities. The public concern on 1285 this matter has been emphasised while the Bill has been before your Lordships' House. I do not now believe that any objective formula could be devised which would indicate whether one name was so like that of another company that it should not be allowed. Inevitably this must be a subjective judgment. Therefore, the Government have—and I want to emphasise this—accepted the principle of the noble Lord's proposal that a judgment by the Secretary of State must be reintroduced into company law.
The noble Lord's scheme has the immediate attraction that this judgment would fall to be exercised in a very much smaller number of cases; only those in which someone had seen an advertisement and registered an objection to a proposed company name. Such a scheme would of course impose new responsibilities on the department, with corresponding demands on resources, but these should be less than those entailed in administering a comparable discretion in respect of every application.
I hope the noble Lord will accept that we took his scheme up in good faith to translate into statutory form. In so doing, the department sought advice, as is normal, from those who are professionally involved in the incorporaton of companies. Consultation on this matter was inevitably curtailed. My honourable friend the Parliamentary Under-Secretary for Trade was able to discuss the proposals with the Law Society's Standing Committee on Company Law on 14th April and representatives of the Bar Council. Officials of the department have also been in touch with the Association of Company Registration Agents and the Institute of Chartered Secretaries and Administrators. Such organisations are, rightly, concerned not so much with the streamlining of administration within the Department of Trade as with the practical implications for companies themselves and their professional advisers.
As I have already indicated privately to the noble Lord, Lord Mishcon, the response to the proposed scheme for the pre-advertisement of a company name has been far from encouraging. The Government have been strongly urged to reconsider the scheme and find some alternative means of dealing with the problem of similarities. It has been represented to us that the advertisement scheme would be rigid, costly, would provide inadequate protection for existing company names and would delay the incorporation of new companies to an unacceptable extent. The department has studied in detail the nature of the provisions which would be required; this certainly demonstrates the complexity of the statutory provisions that would be needed to introduce a pre-advertisement phase into the process of registration when filled out with the necessary procedural rules and provisions for exceptional cases. The Association of Company Registration Agents consider that the procedure would be "expensive, unfair, confusing and time-consuming".
The Law Society's Company Law Committee have pressed the Government to deal with this from the opposite tack, along the lines of the provisions in Clause 24 of the Bill, and only this morning I received a letter from them reiterating their views, which of course they copied to the noble Lord, Lord Mishcon. In other words, instead of the promoter having to advertise a name before the company was incorporated, 1286 he would be entitled to register a company by any name which did not offend against the general principles of Clause 22; for example, he could not adopt a name which was identical to that of another company. If thereafter the name was found to be too like that of another company, the Secretary of State would be empowered to direct a change of name. Just as in the noble Lord's advertisement scheme, a company which felt its name was prejudiced would he free to draw the facts to the attention of the Secretary of State, but its opportunity to do so would not be limited to a short pre-registration period.
In the light of the representations that have been received, I do not believe it would be a responsible act on the part of the Government or of this House to amend the Bill at this stage by introducing a procedure in respect of which so many doubts have been expressed, and without making a further attempt to improve it. So far, the time for consultation has been very short—there have been no more than 14 working days since the Bill was reported—and we need to obtain the views of a wider constituency before coming forward with considered proposals. I very much regret that in the circumstances it has not been possible to table amendments by Third Reading, but I gave warning on 6th April that this might be unavoidable. I repeat my undertaking that the Government will amend the Bill in another place in respect of "too like" company names.
The noble Lord, Lord Mishcon, has asked me to say whether the Government agree that proposed names should be scrutinised before the company is registered. There is little I can add to what I have already said on that point. The point of principle which the Government have accepted is that a company whose name is already on the index should be able to take the initiative in objecting to a new name and be entitled to a decision by the Secretary of State on whether, in his opinion, the new name is too close to its own to be allowed. I hope that with the repetition of an assurance I gave at an earlier stage and the further amplification of the Government's position which I have given, the noble Lord will not press the amendment.
§ Lord Mishcon
My Lords, I should be doing less than my duty were I to concede to that request by the Minister. I do not wish to repeat the argument. I have already said that we should not put at risk the business community of this country, including the small business which we are all anxious to look after, especially at this stage, in such a way that they must deal—after they have been incorporated and started business (I have been through the various stages)—with somebody who says, "Your name is very much like mine and I am already on the register. I am now communicating with the Minister". To allow that situation is, in my view, impossible.
Does the Minister agree that when you say you are in agreement with the principle of an amendment which deals with pre-registration procedures, that means you will produce an amendment which will have, as its main purpose, protection pre-registration and not post-registration? That is how I construed the noble Lord's remarks. If they are capable of any other construction, I am sure he will point to the English that he uses with such felicity and tell me where my interpretation of that language is wrong.
1287 I got no such offer. I did not receive an offer which could be communicated to your Lordships that there would be an amendment in another place which would provide for pre-registration protection. In those circumstances, I have no alternative but to try to protect our business community, in particular small businesses, and to ask the House to express its view.
§ 4.8 p.m.
§ On Question, Whether the said amendment (No. 1) shall be agreed to?
§ Their Lordships divided: Contents, 86; Not-Contents, 94.1288
|Airedale, L.||Lloyd of Hampstead, L.|
|Alport, L.||Longford, E.|
|Amulree, L.||McNair, L.|
|Ardwick, L.||Mais, L.|
|Aylestone, L.||Mersey, V.|
|Banks, L.||Meston, L.|
|Beaumont of Whitley, L.||Milne, L.|
|Beswick, L.||Mishcon, L.|
|Birk, B.||Morris of Grasmere, L.|
|Blease, L.||Mottistone, L.|
|Boothby, L.||O'Brien of Lothbury, L.|
|Briginshaw, L.||Oram, L.|
|Bruce of Donington, L.||Peart, L.|
|Byers, L.||Phillips, B.|
|Clancarty, E.||Ponsonby of Shulbrede, L.|
|Cooper of Stockton Heath, L.||Ritchie-Calder, L.|
|Cudlipp, L.||Robbins, L.|
|David, B.||Rochester, Bp.|
|Diamond, L.||Rochester, L.|
|Elwyn-Jones, L.||Rugby, L.|
|Gaitskell, B.||Sainsbury, L.|
|Gladwyn, L.||St. Davids, V.|
|Goronwy-Roberts, L.||Saint Oswald, L.|
|Gosford, E.||Seebohm, L.|
|Greenwood of Rossendale, L.||Sefton of Garston, L.|
|Hale, L.||Segal, L.|
|Hampton, L.||Shackleton, L.|
|Hanworth, V.||Shannon, E.|
|Henderson, L.||Simon, V.|
|Houghton of Sowerby, L.||Sligo, M.|
|Howie of Troon, L.||Somers, L.|
|Hylton-Foster, B.||Spens, L.|
|Ilchester, E.||Stamp, L.|
|Jacobson, L.||Stedman, B.|
|Jacques, L.||Stewart of Alvechurch, B.|
|Jeger, B.||Stewart of Fulham, L.|
|Kilbracken, L.||Stone, L.|
|Kinloss, Ly.||Underhill, L.|
|Lauderdale, E.||Wallace of Coslany, L.|
|Lawrence, L.||Wedderburn of Charlton, L.|
|Leatherland, L.||Wells-Pestell, L. [Teller.]|
|Listowel, E.||Whaddon, L.|
|Llewelyn-Davies of Hastoe, B. [Teller.]||Wilson of Langside, L.|
|Wootton of Abinger, B.|
|Alexander of Tunis, E.||Cottesloe, L.|
|Auckland, L.||Cranbrook, E.|
|Avon, E.||Crathorne, L.|
|Bellwin, L.||Cullen of Ashbourne, L.|
|Belstead, L.||Daventry, V.|
|Bessborough, E.||de Clifford, L.|
|Bolton, L.||De Freyne, L.|
|Broadridge, L.||De La Warr, E.|
|Caccia, L.||Denham, L. [Teller.]|
|Carrington, L.||Drumalbyn, L.|
|Chelwood, L.||Dulverton, L.|
|Chesham, L.||Ebbisham, L.|
|Cockfield, L.||Eccles, V.|
|Cork and Orrery, E.||Effingham, E.|
|Erroll of Hale, L.||Newall, L.|
|Exeter, M.||Noel-Buxton, L.|
|Faithfull, B.||Northchurch, B.|
|Falkland, V.||Nugent of Guildford, L.|
|Ferrers, E.||Orr-Ewing, L.|
|Ferrier, L.||Pender, L.|
|Fortescue, E.||Penrhyn, L.|
|Fraser of Kilmorack, L.||Redmayne, L.|
|Gainford, L.||Renton, L.|
|Gisborough, L.||Rochdale, V.|
|Glenarthur, L.||Romney, E.|
|Glenkinglas, L.||St. Aldwyn, E.|
|Gormanston, V.||St. Just, L.|
|Gowrie, E.||Sandford, L.|
|Greenway, L.||Sandys, L. [Teller.]|
|Gridley, L.||Selborne, E.|
|Hailsham of Saint Marylebone, L.||Selkirk, E.|
|Hawke, L.||Sherfield, L.|
|Henley, L.||Skelmersdale, L.|
|Home of the Hirsel, L.||Soames, L.|
|Long, V.||Stradbroke, E.|
|Lyell, L.||Strathspey, L.|
|Mackay of Clashfern, L.||Swansea, L.|
|Macleod of Borve, B.||Swinfen, L.|
|Mancroft, L.||Teviot, L.|
|Marley, L.||Thorneycroft, L.|
|Massereene and Ferrard, V.||Trefgarne, L.|
|Melville, V.||Trenchard, V.|
|Merrivale, L.||Vaux of Harrowden, L.|
|Milverton, L.||Vickers, B.|
|Morris, L.||Vivian, L.|
|Mowbray and Stourton, L.||Young, B.|
|Murton of Lindisfarne, L.|
§ Resolved in the negative, and amendment disagreed to accordingly.
§ Clause 29 [Disclosure of names of persons using business names]:
§ 4.16 p.m.
§ Lord Mishcon moved Amendment No. 2:
Page 37, line 16, at end insert:—
(c) lodge a copy of the information referred to in this subsection with the Local Authority in whose area the business is carried on.").
§ The noble Lord said: My Lords, having, I hope with sufficient respect, already expressed my views on the observations made by the Deputy Leader of the House, I propose, with your Lordships' leave, to proceed with my amendment. The existence and the continuance of the Registry of Business Names has been debated at great length in this Chamber, and I should not have thought that your Lordships would have welcomed another full debate involving precisely the same issues. Indeed, that would have broken the whole of the principle to which I was hoping to have adhered in the exchange that took place earlier.
§ For the purpose of the Third Reading debate I must accept that the Business Names Registry is to cease to exist. I must further assume that any central form of registration must cease to exist. The amendment now before your Lordships deals with an attempt to protect the public—to protect, above all, the consumer, and to protect creditors, and to do so by way of a procedure completely different from anything ever suggested in your Lordships' House in connection with the Bill up to this very moment.
§ The procedure is as follows. There having been imposed the duty upon a firm to have the particulars, 1289 including the addresses, of the proprietors displayed at the main place of business, under the amendment it would also be the duty of the firm to see that a copy of the particulars is sent to the local authority in whose area the business conducts itself. This is a very simple amendment. Instead of having to travel to the business concerned, hoping that the door will be open and that there will be a welcoming courtesy if one wishes to inspect the particulars that ought to be displayed somewhere on the wall, or taking it for granted that one might not get from the firm which is behaving suspiciously, for example, as expeditious a reply to a written request for those particulars as one might want, one now has the simple task, under this amendment, of applying to the local authority, which will have kept an index of the particulars which are registered with it—particulars very easy to supply, because they are merely a copy of what ought to be exhibited at the place of business.
§ One might have thought that this carried implications of a yet further burden of debt either upon local authorities or nationally. Your Lordships will see from this amendment that it does not, because the charge for that registration is to be left to the local authority, with the proviso that it must make such a charge as will make this service at least self-paying.
§ My Lords, I do not pretend for one moment that this has the same advantages as other matters and other procedures which have already been debated in your Lordships' House, and I am scrupulously avoiding any discussion in regard to those debates. Again, it will be the last opportunity that your Lordships will have in this House of protecting the public in the way that the Consumers' Association want it protected, as does every public body that I can think of connected with trade and industry, and every professional body; and I hope your Lordships will feel that a short speech on this subject is as effective as, if not more effective than, all the long ones we have had upon another matter, another procedure, which, as I have said, we are not debating today. I beg to move.
§ Lord Trefgarne
My Lords, these amendments—I am referring, of course, to this one and the following one—give rise to issues both of substance and of administrative detail. First, we on this Bench consider that the proposed requirement for registration of information about business names with local authorities is unnecessary, as our own proposals for disclosure by the traders concerned will provide all the information which the public and the trading community need. As a result, what is proposed involves an unnecessary and undesirable extension of local bureaucracy, imposing still further costs by the public sector on private industry and commerce. It would also, of course, increase local authority manpower and costs for work, which bears little relationship to the general duties of the local authority. I note that it is proposed that fees should be charged to cover these costs; but if the proposed fees turned out to be inadequate, the deficit would have to be borne by the ratepayers. It would have been of interest to know whether the noble Lord had any communication with local authorities and their representative organisations before proposing to impose this additional statutory duty upon them.
The costs of a service provided by a local authority 1290 is bound to vary from local authority to local authority, and thus a proposal that the cost to individual authorities should be recovered by an appropriate level of local fees is bound to lead to considerable local variation. This seems certain to be confusing and to cause resentment among the traders affected. On the other hand, there would be obvious difficulties in determining a nationally applicable scale of fees which could be guaranteed to meet the cost of all local authorities.
What is proposed would involve an extension of public sector activity. As your Lordships are well aware, a major objective of the present Government is to push back the frontiers of the state. The amendment is of course technically defective, as noble Lords with more experience than I have of local government will have already perceived, in that it does not specify which local authorities are to undertake these new duties. Or, perhaps, had the noble Lord envisaged that the new duties would be undertaken concurrently by the counties and the districts? Surely it would be even more undesirable to require traders to register twice or more where their business straddles boundaries. There are 66 counties (or regions) in England, Wales and Scotland (including the three island authorities), whereas there are 422 district authorities (including the London boroughs). Whichever tier of local authority were to be chosen, the Government departments responsible for local government as well as the Department of Trade would have to find additional staff in order to provide guidance to the local authorities concerned and advice on the inevitable representations to Ministers.
§ Lord Mishcon
My Lords, I wonder whether the noble Lord the Minister will forgive me, but it might make the discussion rather easier if I were to intervene. I especially did not define the local authority because I did not want to be hoist with my own petard by it being said, "The county councils cannot do it hut, of course, the district councils could". So I deliberately left it in general terms, trying to get the principle through, and I thought the Minister would understand that. The local authority could be decided upon quite easily thereafter.
§ Lord Trefgarne
My Lords, I understand that the noble Lord was trying to persuade us to accept the principle, but the fact is that he tabled specific amendments to this Bill, and it is those that we have to consider, not the principles which are in the back of the noble Lord's mind and which he hopes will cover the deficiencies of his amendments.
Again, the amendments require local registration in every area where business is "carried on". This will mean that where business is done by travelling salesmen or mail order, multiple registration seems to be required in each area where customers are approached and contracts made. This will impose an intolerable burden on small businesses. If the noble Lord responds that it is only meant to require registration where there is a place of business in an area (which is not, of course, the effect of the amendment), even that will require multiple registration for many businesses. And for what purpose, where the information will be available anyway on demand under the Government's 1291 own proposals and there will be no necessary connection between a creditor and the place of business in question? Given that we have evolved what we consider to be a fully satisfactory alternative to the present unsatisfactory registry, I would ask the noble Lords to think again as to whether they should continue to press their amendments, which would impose considerable expense on industry and commerce at large as well as upon the public.
§ Lord Ponsonby of Shulbrede
My Lords, if I may make just one brief comment on the remarks of the noble Lord opposite, I thought that, in raising the objections which he did to the amendment set down in my noble friend's name and in my own name, he in fact himself made a very good case for the establishment of a central registry of some sort, and I found him a very powerful advocate in that cause. Of course, this amendment is not concerned with the establishment of a central registry but with the establishment of a local registry. But what I would hope is that the Government would realise the very great concern by the business community as a whole that there should be some form of registry. We have accepted, as has been made clear by my noble friend Lord Mishcon, that the old Registry of Business Names under the 1916 Act is quite dead. We accept that situation, but I think there should be some form of registry. I would hope that the House would look with favour on the amendment which my noble friend Lord Mishcon has moved, as it attempts to establish the principle of some form of registry.
Earl De La Warr
My Lords, I should be very grateful if at this stage I could ask a question about practicality. The noble Lord has said that he does not want to go over old ground again, and I do not think it is necessary to do so, but from what the noble Lord, Lord Ponsonby, has said it appears that he is looking for a register of some sort, even though it be (if you like) departmentalised geographically and spread around the country. What is not clear to me is whether he is talking about an attempt to get a 100 per cent. registry—that is to say 100 per cent. of existing business names registered somewhere. This is where there is a link with past debates. If I may say so, what was dealt with inadequately in previous amendments was that those who argued them never said how they would attack the question of getting up-to-date the existing, tattered, probably only 50-per cent-accurate register. It was on the problems of updating that it seemed to me the arguments fell down in terms of practicality. I am seeking for comments from the noble Lord. Is he trying to finish up with a register, though it be a series of local registers all over the country, which is up-to-date? Is he, therefore, going to demand that there be a sort of process of re-registration of existing businesses right across the country; so that we may end up with a series of local registers which will add up to 100 per cent. instead of the 50 per cent. to which it adds up now? If he can answer that question, then I think the House would be in a better position to assess the validity of his case.
§ Lord Mishcon
My Lords, with the leave of the House—and I am not now answering the debate, but answering a question—may I tell the noble Earl that the idea of this amendment is, I think, precisely what he has in mind. Under the Bill there will be a requirement for certain particulars to be shown at the place of business. That will be an obligation of everybody conducting a firm because the old Register of Business Names will go under the Bill. We will start off with a new registration of those particulars. A precise copy of those particulars will go to the local authority. Therefore, throughout the country, there will be, or ought to be, observance of this new provision; and this will mean that there will be (although scattered throughout the country) 100 per cent. correct, up-to-date registration of the particulars of firms.
Earl De La Warr
My Lords, I am grateful to the noble Lord for elucidating that point. All that I can say is that the mind boggles at the amount of work that will have to go into creating this 100 per cent. re-registration of all the 2.6 million existing businesses. I am sure that this is a real objection.
§ Lord Mishcon
My Lords, I find that the short winding-up speech that I promised will deal largely with the last point made. If to send a carbon copy of something, which you are obliged by an Act of Parliament to prepare in any event, is so onerous, then we are, all of us, saddled in our daily life with obligations so onerous that one would have thought it almost impossible to attend this House at all as a result of them. All that I ask for is merely a copy of what is already there to be sent to the local authority. This is a straightforward issue. I do not intend to complicate it. It is the last opportunity of those who are fearful of doing away with all registration of business names available in any public place for people to search and apply for copies. It is the last opportunity that this House will have to try in some measure to protect the public in this way. I can put it no higher; but I certainly put it no lower. I regard it, if I may say so, as the duty of all those who have favoured this principle in past debates to decide to support this amendment now.
§ 4.35 p.m.
§ On Question, Whether the said amendment (No. 2) shall be agreed to?
§ Their Lordships divided: Contents, 67; Not-Contents, 101.1293
|Amulree, L.||Gaitskell, B.|
|Ardwick, L.||Galpern, L.|
|Aylestone, L.||Gladwyn, L.|
|Balogh, L.||Goronwy-Roberts, L.|
|Banks, L.||Gosford, E.|
|Beaumont of Whitley, L.||Greenwood of Rossendale, L.|
|Beswick, L.||Hale, L.|
|Boothby, L.||Hampton, L.|
|Briginshaw, L.||Hanworth, V.|
|Bruce of Donington, L.||Henderson, L.|
|Byers, L.||Houghton of Sowerby, L.|
|Cooper of Stockton Heath, L.||Howie of Troon, L.|
|David, B. [Teller.]||Jacobson, L.|
|Diamond, L.||Jacques, L.|
|Elliot of Harwood, B.||Jeger, B.|
|Elwyn-Jones, L.||Kilbracken, L.|
|Leatherland, L.||Sefton of Garston, L.|
|Listowel, E.||Segal, L.|
|Llewelyn-Davies of Hastoe, B.||Shackleton, L.|
|Lloyd of Hampstead, L.||Simon, V.|
|Longford, E.||Sligo, M.|
|Mais, L.||Somers, L.|
|Mishcon, L.||Stamp, L.|
|Morris of Grasmere, L.||Stewart of Alvechurch, B.|
|Nathan, L.||Stewart of Fulham, L.|
|Oram, L.||Stone, L.|
|Peart, L.||Strauss, L.|
|Phillips, B.||Wallace of Coslany, L.|
|Ponsonby of Shulbrede, L.||Wedderburn of Charlton, L.|
|Ritchie-Calder, L.||Wells-Pestell, L. [Teller.]|
|Robbins, L.||Whaddon, L.|
|Rochester, L.||Wilson of Langside, L.|
|Sainsbury, L.||Wootton of Abinger, B.|
|St. Davids, V.|
|Ailesbury, M.||Long, V.|
|Aldenham, L.||Lyell, L.|
|Alexander of Tunis, E.||Mackay of Clashfern, L.|
|Alport, L.||Macleod of Borve, B.|
|Avon, E.||Mancroft, L.|
|Balfour of Inchrye, L.||Marley, L.|
|Bellwin, L.||Massereene and Ferrard, V.|
|Belstead, L.||Merrivale, L.|
|Bessborough, E.||Milne, L.|
|Bolton, L.||Milverton, L.|
|Caccia, L.||Montague of Beaulieu, L.|
|Carrington, L.||Mottistone, L.|
|Chelmer, L.||Mowbray and Stourton, L.|
|Chelwood, L.||Murton of Lindisfarne, L.|
|Chesham, L.||Newall, L.|
|Cockfield, L.||Noel-Baker, L.|
|Cork and Orrery, E.||Noel Buxton, L.|
|Cottesloe, L.||Northchurch, B.|
|Craigavon, V.||Nugent of Guildford, L.|
|Craigton, L.||O'Brien of Lothbury, L.|
|Cranbrook, E.||Peel, E.|
|Crathorne L.||Pender, L.|
|Cullen of Ashbourne, L.||Penrhyn, L.|
|Daventry, V.||Redmayne, L.|
|de Clifford, L.||Renton, L.|
|De La Warr, E.||Rochdale, V.|
|Denham, L. [Teller.]||Romney, E.|
|Drumalbyn, L.||Rugby, L.|
|Dulverton, L.||St. Aldwyn, E.|
|Ebbisham, L.||St. Just, L.|
|Exeter, M.||Sandford, L.|
|Faithfull, B.||Sandys, L. [Teller.]|
|Falkland, V.||Seebohm, L.|
|Ferrers, E.||Selborne, E.|
|Fortescue, E.||Selkirk, E.|
|Fraser of Kilmorack, L.||Sempill, Ly.|
|Gainford, L.||Sherfield, L.|
|Gisborough, L.||Skelmersdale, L.|
|Glenarthur, L.||Soames, L.|
|Glenkinglas, L.||Spens, L.|
|Gormanston, V.||Strathspey, L.|
|Gowrie, E.||Swansea, L.|
|Greenway, L.||Swinfen, L.|
|Gridley, L.||Teviot, L.|
|Hailsham of Saint Marylebone, L.||Thorneycroft, L.|
|Hawke, L.||Trenchard, V.|
|Henley, L.||Vaux of Harrowden, L.|
|Home of the Hirsel, L.||Vickers, B.|
|Hylton-Foster, B.||Vivian, L.|
|Ilchester, E.||Young, B.|
§ Resolved in the negative and amendment disagreed to accordingly.
§ [Amendment No. 3 not moved.]
§ Clause 42 [Certain assistance for acquisition of shares prohibited]:1294
§ 4.43 p.m.
Lord Noel-Buxton moved Amendment No. 4:
Page 46, line 17, after ("acquisition") insert ("by another person").
§ The noble Lord said: My Lords, I am sure that the House is grateful to the noble Lord, Lord Wedderburn of Charlton, for drawing attention at the Report stage to the article entitled "Section 54 and all that" written by Mr. Ralph Instone of counsel. Mr. Instone has been kind enough to help me in the drafting of the amendments standing in my name on the Marshalled List. I hope that it will be for the convenience of the House if I address myself to all my amendments at once.
§ I move the first amendment standing in my name (Amendment No. 4) with a view to avoiding incompatibility with Clauses 44 and those that follow which empower a company to purchase its own shares, to which Clause 42 itself is complementary. The need for an express cross-reference to Clause 44 and those that follow (which for the first time empower a company to purchase its own shares, whether redeemable or not, as contrasted with mere redemption) is entailed by the substitution in what I shall call the new Section 54 of the generic term "acquisition" for the more specific "purchase or subscription". In the 1948 Act there could be no incompatibility between Section 54 and Section 58, whereas there plainly will be between the new Section 54 and Clause 44 and those that follow unless there is proper dovetailing together.
Regarding the second amendment, No. 6, subsection (2)(b) in particular is surely unsatisfactory as drafted, although the concept which appears to underline it is itself unobjectionable. Paragraph (b) begs the question of whether an "instrument or resolution" is required at all. What if a managing director of a large company authorises expenditure on a fixed asset within the limit which he is allowed to purchase on his own authority, knowing that the vendor intends to buy shares in the company? It would be reasonable to require two conditions of validity, but not those of paragraphs (b) and (c) as now drafted. The correct pair, I would submit, are those in my amendment. If, however, the Government are not insisting on express authorisation, an alternative formulation would be:
(b) the thing is done in good faith in the interests of the company; and
(c) the doing of it is a proper exercise of the power in pursuance of which it is done".
§ I now refer to the next amendment standing in my name, No. 7. The phrase "employed in good faith" at subsection (3)(c) is misconceived. What must be meant is that the person has a genuine job, not just a fancy label to qualify him as a borrower. "Employed in good faith" will surely not do as a translation of "bona fide in the employment of", the phrase used in Section 54 of the 1948 Act. It is the job and not the fact of being employed which has to be genuine. If we must use the vernacular in accord with the present conventions of parliamentary counsel, I would prefer "genuinely in the employment of".
§ I now address myself to Amendments Nos. 8 and 9. I drafted them as one amendment; the latter is consequential on the former. I now appreciate that the word "by" has been left out after the first word of 1295 line 43. Even so, I would suggest that my wording has the merit of brevity.
§ Addressing myself now to my Amendment No. 10, I accept that this subsection is in essence already on the statute book and implements a second directive obligation. I am disturbed, however, by the antithesis between "balance sheet net assets" and "actual net assets". Counsel is of the view that you do not have to undertake an assets revaluation every time you contemplate a distribution in order to see whether it is lawful under the 1980 Act. Such a view would be absurdly impracticable in the case of large companies, as Clauson, J. said in Drown's case in 1937. The use in Section 40(1)(a) of the 1980 Act of the word "amount" rather than "value" reinforces this view.
§ Coming now to reductions of capital confirmed by the court, I do not take the Government's view that there is no doubt but that reductions of capital should free amounts for distribution. With respect, I would suggest this is just plainly wrong. When a reduction of share capital or share premium account is confirmed, a capital reserve is created which is not distributable until it has been realised (Section 39(2) of the 1980 Act). I attach more importance to adding express references to confirmed reductions of capital and share premium account (and to lawful dividends in subsection (5)) in subsections (4) and (5) than to any others of my suggestions. This is absolutely crucial in my view.
§ May I now address myself to Amendment No. 12. This amendment addresses itself purely to the matter of express reference to confirmed reductions of capital and share premium account and to lawful dividend, about which I have already spoken. A dividend may be a gift for the purposes of subsection (5)(a)(i); it is certainly caught by (ii). Again, the subsection must cover confirmed reductions of capital and share premium account. It is essential that all legitimate dividends should be expressly freed from any taint of illegality; otherwise, for example, ICI could never pay a dividend without first satisfying itself that no shareholder was currently buying more ICI shares. I beg to move.
§ 4.52 p.m.
§ Lord Wedderburn of Charlton
My Lords, perhaps it would be useful if I say two or three sentences on these amendments, the noble Lord having made reference to my speech in Committee. I followed him with some sympathy in his early amendments from 4 through 6 to 7, but gradually as he came to what he himself called the most important part of the list of amendments he certainly lost my sympathy. My sympathy dwindles into opposition, if I may say so, when he comes to his amendment to subsection (5), because there he tries by way of a list to free certain specific transactions. One of the reasons why I wish to put this point is that I said in Committee that I thought the list approach—that is that financial assistance be unlawful except for a specific list of transactions—was still possibly an avenue to pursue. On reflection, I came to think it was not possible to pursue it, and that is why I have my name to the amendment which the noble Earl will move later.
The reason especially why I think one should not 1296 pursue it is that given in the noble Lord's Amendment No. 12, because if there were ever an easy way for the rogue to get round what he has understandably called the new Section 54, it would be a statute which allowed each of these transactions a dividend out of distributable profits or repayment of paid-up share capital or share premium account confirmed by the court, certainly in terms of the dividend paid by distributable profit. The rogue could plainly use that, in ways the noble Lord would not wish any more than I, as a way round the prohibition of financial assistance for the purchase of shares. I once thought the list would work. The noble Lord's list is really very short because it is all approved by the court except for the payment of the dividend. But that is his Achilles heel, and that is why I would oppose these amendments as a composite whole to the clause.
§ 4.54 p.m.
§ Lord Mackay of Clashfern
My Lords, I should first like to thank my noble friend Lord Noel-Buxton for bringing forward these amendments and for the great courtesy he afforded me in giving very considerable notice of them some time ago so that we have had a considerable opportunity to think them over.
Before I deal with the detail of the amendments my noble friend has proposed, it might perhaps be convenient if I explained our present position with regard to Clause 42. The matters covered by our new Clause 42 are of very considerable importance to the business community. On the one hand, it is important that innocent transactions should not be inadvertently struck at by the new clause, and it is equally important that transactions which might be used in a sinister way by crooks or rogues, to use the term of the noble Lord, Lord Wedderburn, should not be allowed either. Accordingly, to strike the correct balance is by no means easy, and we thought it right to present to your Lordships at Report stage the Government's present position as regards Clause 42; to bring it out so that your Lordships could see how far we have got in this difficult matter.
The Government had been consulting for some time upon this matter with the bodies principally concerned, with a view to amending Section 54 in this Bill. We certainly do not claim that Clause 42 as it stands at present is our final position upon this difficult subject. The various bodies which have an interest in this matter have seen Clause 42, and some have seen Clause 42 in an earlier draft before it was put into the Bill. They are still considering in some depth our proposals in these matters. For example, we are expecting to hear shortly the considered views of the Law Society on this. We think it would he premature to reach a final conclusion on the precise form of this clause until these views have been expressed, and I hope your Lordships may feel that discussions today as these matters have been further focused would be useful, and then it would be right to allow the Government to consider further what should be done.
To illustrate how difficult it is to reach final views on this matter, could I underline the fact that the noble Lord, Lord Wedderburn of Charlton, who is very experienced in this area, has indicated that since we last discussed this matter he has, on further reflection, felt that to pursue the list approach has turned out 1297 not to be a particularly good idea? If a person as expert as he finds it necessary to reconsider his point of view, it is no wonder that I should find it difficult to avoid reconsideration.
May I turn now to the particular amendments. It will be appreciated that a great deal of what I have said applies to the amendments to be spoken to later on the same clause. Amendment No. 4 seeks to make clear that a payment of the redemption of purchase price in respect of a company's own shares would not fall within the definition of "financial assistance" in the clause. Our present view is that this may be already clear, but so far as the result is concerned we have very much the same point of view about the matter, although the precise relationship between Clause 42 and the clauses on purchase of own shares is a matter which requires further consideration. So from that point of view there is not a great deal between us and, as at present advised, we think that the clause as it stands is probably all right; but we shall be happy to consider it further in the light of what my noble friend has said today.
Amendment No. 6 seeks to simplify the drafting of sub-section (2)(b) of the clause and to link the proper purpose doctrine of subsection (2)(b) with the requirement that an action be done in good faith in the interests of the company by requiring that the action be expressly authorised by a resolution of members or directors of the company. We fully acknowledge that the drafting of our Subsection (2)(b) has been found difficult. It is often easier to understand a clause if you started off knowing what the clause is aiming at than reaching a conclusion about it when it is presented to you as a reader. We have had quite a lot of reaction from readers suggesting that they have not found this easy. For example, my noble friend Lord Selkirk expressed that view on the last occasion. We shall certainly take account of that point of view.
I think my noble friend was asking: does one require an authority at all? He gave an illustration of a director making a transaction within the limit of his authority. I suppose that in that case the manner in which his authority was limited would be the relevant instrument. However, we believe that there is a distinction which is worth drawing between paragraphs (b) and (c) of subsection (2), as some actions could meet one condition but not the other. We consider that the clause requires all three conditions of subsection (2) to be met, if a transaction is to be treated as exempt. I found impressive the alternative suggestion that my noble friend made in the course of his remarks, and we should certainly like to consider further whether that would help us to improve the clause.
So far as Amendment No. 7 is concerned, there are obviously differences of view as to whether "good faith" or "bona fide" is the better expression. On the whole, we have tended to go for the vernacular or for simplicity in this area, and we agree with the view that the question is whether the job is genuine. But I think that is probably accurately expressed by saying that the person requires to be "employed in good faith"; in other words, there is a bona fide employment or the person is, in fact, employed in a genuine or good faith manner.
Amendments Nos. 8 and 9 seek to improve the drafting of the last line of subsection 3(c). At the 1298 moment, we are not convinced that this represents an improvement, though we are grateful for the suggestion and will continue to consider it along with all other suggestions that may be made in the course of the discussions.
As regards Amendments Nos. 10 and 12, I find myself very much in line with what the noble Lord, Lord Wedderburn, said about these. There is, perhaps, a difference of policy between my noble friend and ourselves on this matter. At present, the Government do not share my noble friend's view. As regards the cases that he described, we believe that the test of sole or principal purpose is the important determinant of the lawfulness of a proposed payment. Such payments were thought by the Jenkins Committee normally to be innocent—and I emphasise "normally"—based on their view that the dangers arising from a company giving financial assistance were for minority shareholders and creditors only. However, the Government believe that this view is mistaken, and that to allow such a payment would undermine very much of the function of the Section 54 prohibition and the matter at which the new clause is aimed.
Permitting otherwise lawful dividends would, for example, allow a "predator" to borrow sufficient funds to acquire control of a cash-rich company, in the knowledge that he could then declare a lawful, substantial dividend from the assets of the company and repay funds borrowed from this dividend. This might well be art extremely undesirable commercial activity and we think that the prohibition should be able to catch it in such circumstances. The Jenkins Committee concluded that if the acquirer had to rely on the assets of the company to achieve acquisition, it was likely that the interests of minority shareholders and creditors would, at least, have been put to unacceptable risk, or that the company would have been made to part with assets for illusory consideration. But the objections to such activities go wider than this. Breaches of Section 54 have been significant features of many cases of asset stripping or share puffing, revealed in a series of companies inspectors' reports which have been produced over the years.
I thought it right to give our present views on the amendments which my noble friend has very carefully proposed. But I hope, in view of that explanation, and in the light of our overall approach to this matter and the open-minded attitude which the Government are taking up upon the point, that my noble friend may feel able to withdraw his amendment.
§ Lord Noel-Buxton
My Lords, I am very much obliged to my noble and learned friend for that very full response to my series of amendments. I am particularly obliged to him for making the points on lawful dividends, which I had not fully appreciated; and, of course, for the remarks of the noble Lord, Lord Wedderburn of Charlton. In recognition of the desirability of keeping the basis of the Government's discussions with interested parties consistent, and, of course, in view of what my noble and learned friend has said, I have no hesitation in begging leave to withdraw my amendment.
§ Amendment, by leave, withdrawn.1299
§ The Deputy Speaker (Viscount Simon)
My Lords, I have to inform your Lordships that, if Amendment No. 5 is agreed to, I shall be unable to call Amendment No. 6.
§ 5.5 p.m.
§ The Earl of Selkirk moved Amendment No. 5:
Page 46, line 21, leave out subsection (2) and insert—
("(2) Subsection (1) above shall not prohibit a company from doing anything if—
(2A) (a) Where a person enters into a transaction with a company in good faith in reliance upon a declaration made in accordance with paragraph (d)(i) or a resolution passed in accordance with paragraph (d)(ii) of subsection (2) above, nothing in this section shall prevent that transaction being enforced by him unless he has reasonable cause to believe that the requirements of any of paragraphs (a), (b), (c) or (e) of that subsection have not been satisfied.
(b) Without prejudice to any liability imposed otherwise than by this section, where a company acts in contravention of this section a director who is in default shall be liable (jointly and severally with any other person so liable)—
The noble Earl said: My Lords, in moving Amendment No. 5, I should also like to speak to Amendment No. 11, which goes with it. I am grateful for what we have heard from the noble and learned Lord the Lord Advocate. He now tells us that this is an important subject. That is a very remarkable statement. It was not mentioned at all in the Bill as presented to the House. He now finds that it is important. I am delighted to hear that it is important, particularly when one remembers that what he said on the last occasion was that
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".—[Official Report, 7/4/81; col. 470.]
§ It strikes me as very odd that nothing amending that former Act was put into the original draft as presented here. Here is a clumsy piece of legislation, which is inhibiting the proper investment of money, because people are afraid of being caught up in business and the Department of Trade did nothing, nothing whatever 1300 to put that on a proper basis. We should congratulate ourselves that, at least, they are now alive to it and realise that they must do something about it, about which I am extremely glad.
§ I moved an amendment on this at Committee stage. The noble Lord said that the Government did not like it and would put in another clause at Report stage. The House was universal in saying that it did not like that either. So it seems to me that, as we are a revising Chamber, we ought to try to do something better. I, at least, encouraged the noble Lord, Lord Wedderburn, to have talks with the clearing banks in London to see whether those two sides could be brought together. There is nothing political about it. But it is foolish that perfectly legitimate loans in the ordinary course of business should not be made, without running into dangers which would lead into illegitimate channels. It ought to be within the wit of man to do that.
§ I felt that a combination of the very wide experience and deep study which the noble Lord, Lord Wedderburn, has done on those cases which came to court—in other words, the cases where something had gone wrong—and the London clearing banks, who are dealing with things which have gone right, would be valuable. There is no doubt whatever that the amendment which I put down, and which is also in the name of the noble Lord, Lord Wedderburn, is indeed very much better, and that it is a step forward.
§ May I explain what it does? It takes out a lot of the woolly words which were in the Government's amendment: words such as "principal purpose"; the astonishing word "contemplated" and "material extent" at the end. It lays down five fairly clear conditions. The first is that the company making the application must act in good faith, and say that it is in the interests of the company to borrow the money. Secondly, they must be empowered to do this. Thereafter, there must be a resolution by the company as to what they want to do, and they must not do anything which would be considered improper in the purchasing of shares. There could then be an interval of 14 days, which would follow either a general meeting of the company or a resolution of the directors, followed by a statutory declaration. This is to allow things to happen and, if necessary, objections to be raised.
One of the points which is particularly made by the Government is that they still want the banks and other lending organisations to be a kind of watchdog. They do not want to let them off at all. Therefore, we come to the next subsection to which I should like to draw the attention of your Lordships. It means that the banks should not get off the hook altogether. It makes it quite clear that if a situation arises in which the banks know or should know that any of the conditions laid down to which I have referred are being breached, they will not then get the benefit of the indemnity which would follow if all those conditions had been fulfilled. It places a very real responsibility upon them. These words are repeated in subsection 2(a):
… he has reasonable cause to believe that the requirements of any of paragraphs (a), (b), (c), or (e) … have not been satisfied".
This goes a very long way towards trying to make a clear distinction, which I believe is very necessary, to enable the banking system to work to its full extent.
§ The noble Lord has made a great deal of play about consultation. I will tell him my information about that. No consultations are proceeding at present; no consultations have taken place in the last year; in fact, no consultations worthy of the name have taken place in the last 10 years. I am not going to say that letters have not been exchanged, but the truth is that no serious efforts have been made by the Department of Trade to put this into proportion. They have allowed it to slide on. It may be a difficult question, but I really do think that something is required. In this amendment I believe we come very near to resolving what is always a very difficult decision. It is important for the economy of this country. I hope that the Government will be able to accept the amendment or that they will give a very full undertaking that they will bear in mind what we have said. I beg to move.
§ Lord Seebohm
My Lords, I support this amendment purely from a practical point of view, having been in the seat of lending money for very many years and having had to contend with Section 54 and its predecessor in the 1928 Act for a very great number of years. If a company decides to buy another company, it will very probably be necessary to borrow part of the purchase price from its bankers.
If Clause 42 remains in the Bill in its present form, the branch manager will still be in considerable difficulties. The branch manager will need to satisfy himself that repayment will not come from any transfer of assets from the new subsidiary. On the other hand, the usual reason for such a purchase is the rationalisation of a group to bring a new subsidiary into the scheme. If this happens and any money from the subsidiary is used to reduce or repay the group bank borrowing, then there will have been a breach of Section 54, or its successor.
No time limit is specified after which the purchasing company or the bank are in the clear. This must be contrary to public policy, which is surely to encourage rationalisation, as is demonstrated by the fact that one can transfer group assets from one company to another within a group with considerable concessions on stamp duty. We have heard today that the Government are not satisfied with Clause 42 as it stands. They said at the Report stage that they would introduce a new clause.
I am also under the impression that the Government believe that the kind of case which I have described occurs only occasionally. Let me say that there are many hundreds of cases every year when care has to be taken not to offend under Section 54, with the result that various tortuous schemes such as the liquidation of a subsidiary have to be adopted. I am not entirely satisfied that this amendment gives to the banks as much as they would like, but common-sense surely dictates that this minimal protection is in the national interest and in no way helps the criminal who will be even further deterred under our amendment than he would be under Clause 42 as it now stands. Therefore, I strongly recommend the amendment.
§ Lord Boothby
My Lords, I think that the arguments put forward by the noble Earl, Lord Selkirk, are quite unanswerable. He has proved convincingly that action is required now because it has not been taken for 1302 years and should have been, long ago.
§ Lord Mais
My Lords, I hope that the Government will give favourable consideration to this amendment. As the position is now, a finance institution or a clearing bank makes a loan quite innocently in a situation which may ultimately prove to be a prohibited transaction. As it stands now, if my interpretation is correct, they would not be able to recover their loan under any circumstances. This seems to me, quite apart from the effect on the financial institutions, not to be in the interests of industry as a whole. I should have hoped that the Government would have been able to accept the amendment.
§ 5.16 p.m.
§ Lord Wedderburn of Charlton
My Lords, before the noble and learned Lord replies to the mover of this clause, may I put to him that while I find it a compliment that he should put upon a slight emphasis of my mind the importance that he ascribed to it, nevertheless it cannot allow the Government—I say this without hostility to them, at least on this occasion—to escape from the fact that this is a legislative Chamber. If the Government come forward with a Companies Bill and say, "We haven't quite made up our minds", then they cannot ask this House not to make up its mind if it comes to a view.
Having heard the experience which lay behind the remarks of the noble Lords who have already spoken, I need say no more about the bad situation in which the law finds itself in terms of hitting the innocent, particularly when there is a case to be made (I am not sure it is a very big case) that this is some kind of legal impediment in the way of provision of capital that would otherwise be provided. I am not sure how big an impediment it is, nor of how much research has been done upon it. But that there are such cases I am sure the noble and learned Lord will not deny. That is why the Government decided, plus the fact that they had their purchase of own shares clauses, to do something with Section 54.
If I may touch upon one or two of the legal merits which would assist the innocent and which would be more likely to catch the guilty in regard to financial assistance for purchase of own shares, in my submission this would rest first upon the fact that although it uses the same definitional approach as the Government's subsection, the new subsection (2) contains many advantages, especially in relation to the new subsection (5). As the noble and learned Lord is obviously going to reply to this discussion, I submit that the omission of the words "to a material extent" in subsection (5)(a)(ii) is important.
Secondly, it drops the test—this the noble and learned Lord has already told us this afternoon is a central point of the Government's clause—of principal purpose. In dropping it, it inserts instead the test of knowledge, actual or constructive. In the phrase of the Master of the Rolls, Lord Denning, the directors are the very mind and will or nerve centre of a company. That is why I said that the rogue in the boardroom could manipulate the purpose but he cannot manipulate that which the company knows or ought to know, which is much more open to evidence attributable in terms of a prosecution.
1303 Thirdly, I believe that our clause is superior in replacing the Government's subsection (2)(b) relating to that which is contemplated. It is replaced by something which must be authorised but it is something which must be authorised before it is done. On that I would lay considerable stress, because it does not allow for any retrospective authorisation and it must be done in the interests of the company and not for a collateral purpose. Here I join with the noble Lord who spoke to the previous amendment, in that he wanted something which must be done in the proper exercise of a power. It is a well-known phrase in company law, accepted on all sides, that it must not be done for a collateral purpose other than the purpose of the best interests of the company, which includes the authority. Therefore, I would ask the Government whether they do not accept that this is a slight improvement.
Fourthly, there are the two requirements in regard either to the statutory declaration by the directors or to the special resolution with the fortnight cordon sanitaire, as it were—14 days in which people can object to this, be they shareholders or others. Lastly, there is in my submission a very important point which has not been mentioned to your Lordships this afternoon on this amendment. It tries to give some certainty to innocent third parties; as the noble Earl has suggested, and others with more experience of the banking world have suggested, the new subsection (2A) would allow the innocent third party to enforce transactions once he surmounts these hurdles. After all, what is he being asked to surmount? He is being asked to surmount a hurdle which says that he will rely upon the resolution or the declaration, and he has no reasonable cause to believe that any party to the transaction could know, or is likely to know, or ought to know, that it was likely to give rise to the prohibited effect. If we add subsection (2A) to subsection (2)(e)—I am sorry, the noble and learned Lord is looking at me in astonishment; the new subsection (2A) refers back, of course, to subsection (2)(e).
Finally, the new subsection (2A) also includes in paragraph (b) a civil remedy expressly—and this I would urge upon the Government as a reason for accepting this amendment this afternoon at the last moment. Why is it that Parliament constantly puts on the statute book sections which say, "Thou shalt not do" X, Y or Z, and if you do X, Y or Z you will be prosecuted, and then of course the courts have to look to see whether it was Parliament's intention that the person injured by the doing of X should have a civil remedy by injunction or damages. I know it has been said in your Lordships' House not too long ago that the tortious civil liability for doing damage by unlawful means does not really exist; but of course the courts are at it every day and developing that liability, and recently in the Court of Appeal, and only today in the Privy Council, the noble and learned Lord, Lord Diplock, delivered a fascinating judgment in The Times law reports on this very subject. So that it does exist, and of course the case in this area—the Belmont Finance Corporation case—was a conspiracy to use unlawful means; that is, to break Section 54 by giving financial assistance for the purchase of company's own shares, which gave rise to a civil action. 1304 It was a civil conspiracy to use unlawful means.
So while retaining, as we do, in this amendment all the existing civil liabilities without prejudice to them, why not say that the person (it may well be the bank) who has surmounted all the conditions in paragraph (a), lent the money and then found, despite all, that someone in the middle of it (after an inspector's report, no doubt) has broken the fundamental obligation not to allow his company to finance the purchase of these shares—a third party who has got himself into this position—has a civil remedy?
I should feel less strongly about this if we had a sensible and co-ordinated and coherent body of enforcement machinery for our company law, but of course we do not have that. It is not necessarily anybody's fault but from the Council for the Securities Industry, the Take-Over Panel, the Department of Trade, the fraud squad, the Director of Public Prosecutions, the inspectors to a host of other people, nobody quite knows what anybody else is up to. This is perhaps the odd case where the civil case in the courts ought to be encouraged, and I see no reason at all why this House should not express its view. Even on this particular point I would urge noble Lords to vote for this amendment, because this is something which urgently needs to be said, that people who break this sort of obligation in regard to the damage that they cause to that sort of innocent party ought to be obliged to compensate them in the courts. I hope that noble Lords will support this amendment.
§ Lord O'Brien of Lothbury
My Lords, I gave my strong support to an earlier amendment tabled by the noble and learned Earl, Lord Selkirk—an amendment which was not satisfactory to the Government. I was extremely pleased that that did not mean that the subject was then put to bed with what I would take to be the wrong answer and that further consultations and thoughts have been given to this very important subject, resulting in the amendment which is now before your Lordships. It seems to me to be no inconsiderable achievement to have an amendment put forward by the noble and learned Earl, Lord Selkirk, joined by the noble Lord, Lord Seebohm, and the noble Lord, Lord Wedderburn of Charlton, and I should have been very happy for my name to have been added to those. When we have the noble Lord, Lord Mais, also adding his voice in favour of this amendment I hope the Government will take it very seriously.
I was glad to hear from the noble and learned Lord the Lord Advocate that the Government's mind is not closed on this matter, as indeed on other matters in connection with this Bill, and certainly I should be sorry if satisfaction was not given to those who in my opinion, are justly concerned about the missing of an opportunity to put right a position which has prevailed for far too long under the Companies Act.
It is true, of course, that if the noble and learned Earl does not get satisfaction this afternoon he may put the matter to the vote, and possibly then party loyalty will overcome common sense and we may get the wrong answer. I hope, however, that the Government will at least keep the matter in being. I should like them to accept this amendment, but if they do not accept it I hope they will give assurances satisfactory to the noble and learned Earl which will enable the matter 1305 to be further considered, with a result which, in the end will give satisfaction at least to me and to others who feel strongly about it.
§ Lord Mackay of Clashfern
My Lords, I should like to join in the congratulations which have already been expressed in what I might call the assembly of this team—my noble friend Lord Selkirk, the noble Lord, Lord Seebohm, and the noble Lord, Lord Wedderburn of Charlton. I think we are all agreed about the importance of this subject. Certainly I have always taken the view that it was an important matter and a matter which the Government wish to take the earliest possible opportunity to deal with.
I should like to deal first with a matter raised by my noble friend, suggesting that there had been no consultation. The situation, as I understand it, is that the Committee of London Clearing Bankers—and I mention them particularly because I understood that he was in consultation with them—in February of this year received a very full account of the department's first thoughts on the scope for amending Section 54, which set out the view that an exemption should be provided for an action which did not have as its sole or principal purpose the giving of financial assistance.
The committee also received a first draft of the department's new clause, and comments from the committee were received. Consultations are still continuing with the various bodies that we have already consulted. I mentioned the committee particularly, but also the CBI, the Law Society of England and Wales and the Law Society of Scotland, among others, have been consulted. I should like to make it abundantly clear on behalf of my right honourable friend the Secretary of State for Trade and the other Ministers in his department that they would welcome any further consultation or representations upon this matter that the Committee of London Clearing Bankers would seek to put forward. What we are attempting to achieve is as much satisfaction to everybody as it is possible to achieve. There are, of course, difficulties in satisfying everyone, as we all know.
Therefore, my Lords, the situation is that the consultations are continuing and an open invitation is extended to anyone who wishes to participate in them on Clause 42, and as my noble friend Lord Noel-Buxton, said, there are advantages in a continuing consultation of this sort in keeping them on the same basis; in other words, that people know what they are referring to and can take account of new or different ideas as they are put forward.
§ Lord Boothby
Yes, my Lords, but may I ask the noble and learned Lord how long these consultations are going on? They could go on for years.
§ Lord Mackay of Clashfern
My Lords, the object of putting this clause forward at the Report stage in this House was so that the matter would be dealt with satisfactorily in the course of this legislation. Therefore, the consultations will certainly be concluded in the course of the completion of this legislation through its stages in the other place; hopefully, we will complete our consideration of this Bill this afternoon. So that the time limit is, as it were, the preparation of this legislation, and consideration of it now in the other 1306 place, with, of course, the opportunity for this House to consider again amendments which are made to the Bill in the other place. Therefore, I do not think that there is any force left, whatever force there may have been in the past in the point about delay on this matter. The department is certainly seeking to consult now and seeking to have the views of all interested parties as soon as possible in order that this matter should be finalised.
I turn from these more general matters to some of the matters about the amendment which has been proposed. My noble friend has explained his reasons for doing so. The first particular proposal that has caused us a certain amount of, perhaps I should say, surprise is the new provision at subsection (2)(e) at the top of page 3 of the Marshalled List:it is a transaction no party to which knows or ought to know that it is likely to be or to give rise to such assistance directly or indirectly".My noble friend explained that one of our concerns was that people might be able to close their eyes to difficulties, in relying, say, on a document. I certainly accept that this clause goes in the opposite direction to that, but it seems to go extremely far in that direction. How could a banker know that no other party to the transaction "knows or ought to know that it is likely to be or to give rise to such assistance directly or indirectly"?
§ Lord Wedderburn of Charlton
My Lords, if I may intervene, it would not be his job to surmount that burden of proof. Would the noble and learned Lord not agree that he would have to have, under the next subsection, (2A), no reasonable cause to believe that?
§ Lord Mackay of Clashfern
My Lords, I have tried in my general consideration of this matter to take account of (2A) to which the noble Lord is now referring. My difficulty is to see how one could form any reasonable view. Let us say the situation was the payment of a dividend by a company with a very large number of shareholders. If I am concerned in that transaction in some way, how have I got the remotest basis for finding out whether a shareholder who is going to receive the dividend may use it to purchase shares in the company? I quite understand that subsection (2A) is intended to deal with this point, but my great difficulty is understanding how it does so. I should certainly be glad to hear an explanation from anyone who wishes to offer it as to how this is supposed to work. That is a very fundamental matter.
Of course, I can see that the desire to make sure that this clause is sufficiently all-embracing to catch all the bad transactions has prompted something of this sort. If I were allowed to guess the authorship I could perhaps do that, but I will not press my luck too far. The difficulty about it is how does the other party in a transaction which involves perhaps hundreds, thousands of parties, have a way of starting up to find out whether or not there is any such thing?
If I can go on to say a little more about (2A)(a), it allows someone to rely either on a statutory declaration or on a resolution, because there are two branches to (d) on the previous page, (d)(i) dealing with a statutory declaration and (d)(ii) dealing with a resolution of the company. I can see the possible use of a statutory 1307 declaration in assuring people of a state of facts, because you have the oath of the person making the statutory declaration, and, depending on who he is, it might be worth something; it might be that you have something to rely on. But I have considerable difficulty in seeing how a resolution has anything to do with a state of facts; merely because a company resolves to say something does not make it a fact, unless we are dealing with Alice in Wonderland.
The third point I make about the amendment is on paragraph (2A)(b), and the noble Lord, Lord Wedderburn, attached importance to this provision. I have found it hard to understand how this provision works. Again I would be happy to have my difficulties resolved. First, it seems to assume the possibility of liability in relation to this matter apart from this section; it opens in that way. And then it talks about "a director who is in default". I have difficulty in being certain of what is meant by that, although I am able to form some view that it is somebody who is in some way participating in the transaction knowing that it is not right, or something of that sort. Then it says "shall be liable (jointly and severally with any other person so liable)". I cannot understand at the moment what the "so" refers to, how the other person is to have the same sort of liability as the director who is in default, unless he is also a director in default.
Then, if one comes to the second paragraph of (b), that is (b)(ii), there seems to be a liability "to indemnify a person who has entered into a transaction enforceable by reason of paragraph (a) above"; that is, that the man in question is entitled to enforce his transaction and get the benefit of the transaction. But if he has any loss at all this person responsible under (b)(ii) is going to be bound to indemnify him. Does that mean—because at first sight it would seem to mean—that if a person makes a bad bargain of this kind but he is entitled to enforce it, just because it happens to be a bad bargain commercially, he can pass the loss he has sustained on to the person who is to give this indemnity, because as far as I can see so far there is nothing to prevent that particular construction? It may well be that I have not understood it right, and if so I have to apologise for that. But these are our preliminary thoughts upon this particular matter.
There is also a matter with regard to the definition of transactions involving deferred payment—this is Amendment No. 11 particularly—which are to be treated as financial assistance under the clause. These would be extended to include transactions involving transfer of something other than cash as payment. This is a point which we approach with considerable sympathy. We shall certainly take it into account in our further consideration of the clause. The amendment would make explicit that the assistance to which sub-paragraph (ii) of paragraph (a) refers includes assistance given otherwise than by the payment of money. We consider the expression used in the clause as presently drafted—"other financial assistance"—is quite wide enough to include such assistance, and so we do not at present see that this change is necessary. But this is a matter which we shall certainly be glad to consider further.
Thirdly, such "other financial assistance" is to be 1308 extended to include any assistance which reduces the company's net assets. This is the most important of these changes because it eliminates a significant feature of the new element of the definition of "financial assistance" contained in Clause 42; that is, that the qualification that assistance other than those types of arrangement explicitly defined as financial assistance in paragraph (5)(a)(i) should be regarded as financial assistance only if it reduces net assets to a material extent.
As I explained in the debate on Report, the purpose of this provision, which would be frustrated by the amendment, as I think the noble Lord made clear, is to allow companies to rearrange their assets in order to facilitate a takeover or group reorganisation, or to provide assistance to someone wishing to acquire its shares by provision of information or payment of minor costs associated with the acquisition, so long as there is not a significant reduction of assets. This is a liberalisation of Section 54, which the Government believe will afford a useful degree of flexibility to companies without opening up new scope for abuse. It is consistent with Article 23 of the Second Directive on Company Law in that the net asset reduction test does not apply to financial assistance of the kind prohibited by Article 23. It might be worth adding that net assets in this context are not to be arrived at by reference to the balance sheet, but by reference to the actual value of the underlying assets and liabilities.
Having said all that—and I am sorry that it has taken a little time, but I do so out of respect for the amendment and to indicate that we have endeavoured to consider it—I should like to suggest to your Lordships, and particularly to those noble Lords who have supported this amendment, that the right course would be to allow us to continue with the process which I have outlined. I undertake to your Lordships that we shall take the fullest account of all that has been said today in support of the various aspects of these amendments, and we shall see whether, on balance of the consultation, we can incorporate all or any of the features which have been put forward as improvements in the approach that we have already taken.
§ Lord Wedderburn of Charlton
My Lords, before the noble and learned Lord sits down—and I intervene because I know that the noble Earl, Lord Selkirk, will reply to the debate and therefore this is the only way in which I can ask a question—will he perhaps reconsider his castigation of the subsection and paragraph on civil liability on page 3 in paragraph (b), in the light of the fact that any other liability plainly would include liability for conspiracy in the cases which I mentioned in my speech; that anyone otherwise so liable would obviously include such a conspirator or, indeed, a director who was liable as a constructive trustee; that the words "in default" are adopted because they are in the Government's own subsection (7), and this amendment adopts the words "a director who is in default" as the Government put them forward themselves?
The other point that the noble and learned Lord made, that this does not work, might well be answerable by simply saying that the transaction remains illegal even though enforceable under the new subsection (2A), and therefore anyone who suffered loss from it would receive compensation.
§ Lord Mackay of Clashfern
My Lords, perhaps I may answer that question. I should not like to have my remarks characterised as castigation; I certainly did not intend them to be construed in that light—not at all. I intended them simply to indicate difficulties that had occurred to me in a fairly preliminary consideration of the amendment. I am certainly glad to hear some of the explanations that the noble Lord, Lord Wedderburn, has given. So far they have not entirely satisfied me that I was completely wrong. For example, I do not think he has explained why it is "so" liable; indeed, his explanation would seem to be that it was not "so" liable but liable in some other way, but that is by the way. I certainly did not want to give any impression that I was treating these amendments in any way that could be appropriately described as castigation. I should perhaps also point out that "in default" in subsection (7) is in relation to criminal liabilty.
The Earl of Selkirk
My Lords, I should like very warmly to thank noble Lords who have supported this amendment. I should particularly like to thank the noble Lord, Lord Wedderburn, who I know has spent a great deal of time and trouble putting this amendment together. I am very grateful to him and I think that the House should be grateful to him.
The noble and learned Lord, Lord Mackay, has criticised this amendment in many ways. I would venture to think that any amendment dealing with this subject will always be open to some degree of criticism, and there is not much to be gained by arguing the points of law in detail. I am worried about this because the Department of Trade has shown a great deal of prevarication here. I am suddenly told that it is an important matter, but the department did nothing at all about it in the original Bill as it came to this House. With regard to consultation, there may be different interpretations; whether or not one letter makes a consultation is a matter which we can all consider. Let us be frank, this has been here for 50 years; it has remained untarnished on the statute book for 50 years. What was the Department of Trade doing during that time? They knew perfectly well the difficulties that were taking place. Will the noble and learned Lord give an unqualified undertaking that the Government will amend Section 42 before it comes back to this House? If he can give that unqualified undertaking, I shall not ask your Lordships to divide.
§ Lord Mackay of Clashfern
My Lords, it is a little difficult to give an absolutely unqualified undertaking, but it certainly seems to me to be in the highest degree likely that we shall have to amend this clause. I do not wish the House to think that I can say in what directions exactly, or to what extent exactly, the clause will be amended, but I certainly believe that the clause will be amended. I think I can undertake that the Government will propose an amendment to this clause in the other place.
The Earl of Selkirk
My Lords, I think we should accept that as an undertaking beyond belief that an amendment in another place will be proposed. In those circumstances, I think that we have brought the Government to a position to which they did not 1310 necessarily want to come, and I am extremely glad to have done so. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ 5.48 p.m.
§ Lord Noel-Buxton had given notice of his intention to move Amendment No. 6:
Page 46, line 27, leave out paragraphs (b) and (c) and insert—
("(b) the thing done is a proper exercise of the power in exercise of which it is done; and
(c) it is done in pursuance of a resolution of the company in general meeting or of the directors of the company passed in good faith in the interests of the company and which expressly authorises the thing or a class of things which includes it.").
§ The noble Lord said: My Lords, we have already dealt with this amendment.
§ [Amendment No. 6 not moved.]
§ [Amendments Nos. 7, 8, 9, and 10 not moved.
§ The Deputy Speaker (Baroness Wootton of Abinger)
My Lords, I have to point out that if Amendment No. 11 is agreed to, I shall not be able to call Amendment No. 12.
§ [Amendments Nos. 11 and 12 not moved].
§ 5.49 p.m.
§ Lord Trefgarne
My Lords, I now rise to move that this Bill do now pass. In commending this Bill to your Lordships on the occasion of its Second Reading, I referred to the significant contributions which it makes within the field of company law to a number of broad policy objectives: helping small firms; reducing unnecessary burdens on companies; streamlining Government administration; countering crime and misconduct. I venture to suggest that, tested against these objectives, the Bill to which your Lordships have just given a Third Reading is an even better Bill than the Bill which we first debated some two months ago.
We have made a number of valuable technical improvements to the accounting provisions. We have found a certain amount of common ground in the field of company names. We have had more than one vigorous debate on the question of business names, and, while I would not claim that we have identified so much in the way of common ground on that subject, the House has rightly subjected the issues and arguments to the closest scrutiny. We have made some useful amendments and additions to the miscellaneous and supplemental provisions of the Bill. I would mention in particular the new clause which is designed to achieve the good consolidation of the Companies Act that all concerned so earnestly wish. Above all, perhaps, we have incorporated into the Bill the clauses that will enable companies to purchase their own shares—a major advance in company law which will be of direct benefit to many companies in the future.
As is to be expected on a Bill such as this, the Government have also accepted the responsibility of tabling additions to the Bill in due course to meet points which have been made in debate in this House. Paramount among these commitments is the Government's declared intention to bring forward proposals to amend the law relating to the disclosure of interests 1311 in shares, including provisions to require disclosures by concert parties. My Lords, this is a large Bill, a wide-ranging Bill and indeed a reforming Bill. I beg to move that it do now pass.
§ Moved, That the Bill do now pass.—(Lord Trefgarne.)
§ 5.51 p.m.
§ Lord Ponsonby of Shulbrede
My Lords, in moving that this Bill do now pass the noble Lord said that he thought it was a better Bill than when it entered your Lordships' House. It is certainly a larger Bill than when it entered your Lordships' House. I think that our initial debate at the beginning of the Third Reading today showed one of the reasons for the dissatisfaction of the House at the way this Bill has proceeded through the House. The Bill which your Lordships have before you today is a Bill of 131 pages with 79 clauses. When it was brought before the House at Second Reading it had only 109 pages and 62 clauses. It has increased by 25 per cent. during its passage through this House. There have been 17 new clauses added to the Bill since the Second Reading.
I consider that there is an element of discourtesy to the House in bringing before your Lordships a Bill in a fairly undigested form, to the extent that it is necessary to table a large number of Government amendments during Committee stage and Report stage. Indeed, the noble Earl, Lord Selkirk, in moving the last amendment made specific reference to this. I should have thought that the Government should be the master of their own business, and should be able to treat this House with sufficient respect that when they bring business before the House that business is in the shape and form in which this House wishes to consider it, and on which the Government wish the House to do its duty in revising the legislation put before it. Only in this way can we in fact do our job properly.
However, having said that, I should like to take the opportunity of paying tribute to the courtesy of the Government Ministers involved in the passage of this Bill. I know that they have often found themselves labouring under great difficulties in a number of these fields. But so far as the Opposition is concerned, we have certainly received continuous courtesy from the Government Ministers, and I should like to thank them for that.
§ On Question, Bill passed, and sent to the Commons.