§ 4.9 p.m.
§ The Parliamentary Under-Secretary of State, Department of Trade (Lord Trefgarne)
My Lords, I beg to move that this Bill be now read a second time. The Bill deals with a number of separate but important matters in the field of company law. It implements a European Community directive on company accounts. It changes the law on the registration of company and business names. It reinforces the company inspection system and the legal sanctions against fraud and misbehaviour. It includes a number of modest but valuable reforms of company law. The origins of these varied strands are very different—it is perhaps characteristic of Companies Bills that they deal with a number of apparently disparate issues in the field of company law. But underlying the provisions of this Bill are certain themes, themes which are characteristic of this Government's overall policies—their commitment to help small firms; to eliminate unnecessary administrative burdens on companies; to streamline their own administration; to strengthen the weapons available to counter crime and misconduct. The Bill makes significant contributions within the field of company law to each of these broad policy objectives and it is against those objectives that the Government are happy to be judged. This is particularly the case with a Bill which appears, as this one does, to contain a mass of technical and apparently complex provisions.
I turn straightaway to the contents of the Bill itself. Part I, together with Schedules 1 and 2, deals with company accounting and disclosure. To a large extent these parts of the Bill are required to implement the European Community's Fourth Directive on company accounts. Like the Second Directive, which, as your Lordships will recall, was implemented by the Companies Act 1980, the Fourth Directive is part of the programme for the harmonisation of company law within the Community. The Government have made it clear on a number of occasions that they believe that the case has not been made for action on a Community 1162 basis on some of the matters which are the subject of draft or proposed directives.
We have also expressed our concern at the burden which the existing programme imposes on national administrations, parliaments and those affected. However, as my right honourable friend the Secretary of State said recently, the Government are not opposed to the principle of the harmonisation of company law; and in the case of the Fourth Directive the Government consider that the harmonisation of accounting requirements will bring about a greater comparability of company accounts within the Community. This should be to the benefit of users of accounts, including shareholders, potential investors, creditors, companies themselves, commentators and others. The directive has also provided us with an opportunity to introduce greater flexibility into our own company law requirements for accounts, and in particular to reduce the demands made on small firms. It is against that background that the changes to our statutory requirements for accounts contained in this Bill should be considered.
Clauses 1 and 2 replace the provisions of the Companies Act 1948 and lay down the basic rules for the contents of company or group accounts. The Bill introduces new sections dealing with that central accounting concept of "true and fair view". The new sections represent a change of emphasis and give more explicit guidance to directors on how a true and fair view should be achieved. But the crucial point is that the concept, and overriding character, of a true and fair view has been retained. This is, of course, fundamental to the principles and practice of accounting in this country. In line with the view expressed by the report on the draft directive by your Lordships' Select Committee, the clauses make the true and fair view an overriding requirement; this reflects a major British contribution to the negotiations on the directive.
If I may digress for a moment, it is perhaps appropriate at this point to explain a particular feature of the structure of this legislation. The directive permits member states not to apply its provisions to banks and other financial institutions, or to insurance companies, pending forthcoming co-ordination, and to defer the date at which shipping companies are required to adopt the new requirements. For all these companies, therefore, we intend to keep virtually the status quo on the statute book for the time being. Hence the retention, renumbered, of existing sections of the 1948 Act, and Schedule 8. Under Clauses 1 and 2 accounts must, subject to the overriding "true and fair" requirement, comply with what is Schedule 1 to this Bill which will be the new Schedule 8 to the 1948 Act.
It is therefore appropriate if I say something at this point about Schedule 1, which contains the bulk of the accounting provisions of the directive. As was inevitable in any harmonisation of accounts, the Fourth Directive necessitates a more detailed and prescriptive approach than our existing legislation. In future, accounts will have to comply with statutory rules as to their form and content, including set formats. Some of your Lordships may regard Schedule 1 as formidably detailed and uncomfortably akin to an accounting textbook. I would, however, emphasise two points. First, the actual changes in accounting practice that Schedule 1 will require will be relatively modest. What 1163 is involved is primarily a shift from non-statutory to statutory regulation. For example, the accounting principles laid down in paragraphs 10 to 14 follow very closely what is already required by existing accounting standards. Secondly, the Government have sought to make the maximum use of the flexibility offered by the directive so that directors will be able to draw up accounts in the manner most appropriate to their particular circumstances within the overall framework. For example, the schedule provides for both historical cost and current cost accounting.
I referred just now to a shift to statutory from non-statutory regulation. When this Bill is enacted there will certainly be much more on the statute book concerning company accounts than is the case now. But in the Government's view the major and vital role in the developing of good accounting standards and practice will remain with the profession itself. In recent years admirable and effective self-regulatory arrangements, such as the Consultative Committee of Accountancy Bodies, the Accounting Standards Committee and the Auditing Practices Committee, have been developed by the profession, and I would like to take this opportunity to pay tribute to all those who devote so much time and energy to this activity. These arrangements are continuously evolving, as are the problems and questions to be tackled. The Government have sought in the Bill to ensure that so far as possible the legislation will not be an inhibiting factor in the continued evolution of accounting standards and practice, or detract from the authority of the profession in these matters. Clauses 5 to 10 deal with the exemptions from the accounting requirements and include the major structural innovations in this part of the Bill.
As permitted by the directive, the Bill creates two new classes of company for the purposes of accounts, medium-sized companies and small companies, and provides exemptions from the full accounting requirements for each class. In setting the size thresholds in Clause 8, the Government have gone virtually to the maximum levels permitted by the directive. This will enable as many companies as possible to take advantage of the exemptions. Under Clause 5 certain companies are not permitted to take advantage of the exemptions, even if they qualify under the size criteria.
Clause 6 sets out the exemptions for the accounts of small and medium-sized companies. The Government consider it right to retain full requirements for accounts prepared for shareholders, who are entitled to the fullest information about their company. Moreover, it would be doing no service to small companies to discourage the preparation by them of full accounts. The exemptions available accordingly apply only to accounts required to be filed with the registrar. In essence, small companies will need only to file an abridged balance-sheet; that is, they will not be required to file a profit and loss account or a directors' report. This represents a major reduction in the filing obligations of small companies. And medium-sized companies will be permitted to withhold information of their turnover and trading margins, thus preserving their competitive position, for example, vis-à-vis large groups.
In the Government's view, this combination of full 1164 information for shareholders and substantial exemptions for disclosure strikes a reasonable balance between the various interests of those for whom accounts are prepared and published. The Fourth Directive would permit us to end the statutory audit of the annual accounts of small companies. Views on this possibility were divided, but the weight of the comments sent to the Government was that continued audit was necessary for the protection of shareholders and creditors (who are often indeed small companies themselves). Even among those who are prepared to contemplate dispensing with audit, there is a strong feeling that something ought to take its place, for example, an independent review of the accounts. Yet there is no agreement among industry or the accountancy profession on the form or content of such a review, and indeed none seems likely. The Bill will, therefore, continue the audit requirement for small companies. But it will make an exception for dormant companies, where there is general agreement that the existing audit requirement is inappropriate. I believe that this will be generally welcomed.
Clauses 9 and 10 deal with holding companies and group accounts and allow small and medium-sized groups of private companies to take advantage of the accounting exemptions. Clause 11 introduces new requirements in respect of the publication of accounts to ensure that accounts are not published in a misleading form. Clauses 13 to 16 deal with the directors' report. They bring the legal requirements into line with the provisions of the directive, including a new requirement for auditors to verify the report for consistency with the accounts. They also remove one existing requirement, which has proved of little practical value; namely, that companies with a turnover exceeding a given amount give particulars of exports. Clause 18 widens the existing power in Section 454 of the 1948 Act under which the Secretary of State may make regulations to alter or add to certain of the requirements of the Act. The remaining clauses of Part I contain appropriate provisions for overseas and unregistered companies, and for the interpretation of Part I.
I turn now to Part II of the Bill which amends the law relating to the registration of companies and business names. The principle of company registration rests on the generally accepted proposition that, when persons join together to form a company and obtain the privileges which attend corporate personality, particularly limited liability, they accept certain minimum obligations, including the provision of certain basic information to the public by delivering documents to the Registrar of Companies for public inspection. The company law system that has evolved in this country has enabled businesses to develop within a relatively simple corporate structure with the minimum of control and regulation. Nevertheless, the relative ease with which companies may be incorporated within this system and the consequential growth of the register has posed increasing problems of administration for successive Governments.
The number of companies on the register has grown from about 530,000 to 800,000 between 1970 and 1980. Searches at the Companies Registration Office increased from 1.4 million in 1970 to 2.6 million in 1980. 1165 These functions are now a substantial call on the resources of the Department of Trade and it is right that this Government should have undertaken a searching look at company and business name registration when they took office. The proposals in this Bill will simplify some of those functions and thus enable the office to operate more efficiently. They will complement the steps that are being taken to improve public access to the information held by the registrar, which we consider to be a vital part of the regulatory system.
Clauses 22 to 27 deal with company names. Clause 22 provides that a company shall not be registered or re-registered by a name which includes certain statutory expressions elsewhere than at the end; which is the same as the one appearing on a statutory index to be maintained by the registrar; or which is, in the opinion of the Secretary of State, offensive or the use of which would in his opinion constitute a criminal offence. It also provides that a company should not, without the Secretary of State's approval, be registered or re-registered by a name which would be likely to give the impression that the company was connected with the Government or any local authority, or which includes any word or expression specified in regulations. These regulations, which will be subject to the approval of each House of Parliament, will list those words or expressions the inclusion of which in a name will require the Secretary of State's consent. In some cases, a preliminary approach by the company, or its promoters, to a designated Government department or other body will be required.
Subject to the above conditions, any name proposed by a company will be accepted by the regitsrar and it will be for the promoters of that company to ensure that their choice does not conflict with any prior rights to such a name by a previously registered body, whether in respect of trade marks (as at present) or for any other reason. These proposals will remove most of the present uncertainty that faces promoters as to whether the chosen name will be acceptable. Persons forming companies will be able to determine their choice of name by objective tests. This in turn will reduce the timescale for the actual registration of companies and remove the double-checking that in practice results from the present arrangements.
Clause 25 provides that private companies limited by guarantee, whose memoranda or articles of association include certain strict conditions, and which provide evidence in a statutory declaration of that fact, shall be exempt from the requirement to use "limited" as part of their name. This continues a privilege available under the 1948 Act and to which I know many charitable organisations attach value.
I turn now to Clauses 28 to 30, which deal with business names. The Bill repeals an Act originally passed to ensure that enemy nationals did not conceal their business activities in this country—the Registration of Business Names Act 1916. It thus abolishes the Registry of Business Names. This decision was taken not just on pure resource grounds, but because it is not, and cannot be, efficient on its own terms. It has neen estimated that between 35 and 40 per cent. of businesses do not comply with the Act by, for example, failing to notify the registrar of changes after their initial registration. But an effective, comprehensive 1166 system of registration would require not only a major change in the legislation affecting small businesses, but a considerable number of extra staff, not to mention the imposition of considerably higher registration charges upon the whole range of small businesses. In return for all that, a high proportion of businesses would see no advantage whatsoever. The fact is, and there appears to be considerable misunderstanding about this, that registration does not confer any of the benefits of incorporation that I referred to in relation to companies. Nor does it confer proprietorial rights to a particular name. The effect of registration is simply to put on public record the details of the proprietors of certain classes of businesses.
In the Government's view, therefore, the question is not whether or not the RBN should be abolished. It is—what is it now appropriate to require of businesses with regard to their names and disclosure of ownership? The basic need, which the Bill seeks to meet, is for provisions whereby persons dealing with businesses can find out details of their ownership. For the reasons I have given, a central register is not a practical option. The Bill therefore establishes a system under which businesses themselves will be required to make the information available, whether to their customers or suppliers or other interested persons, by display at places of business and on business letters and demands for payment.
Thus, under Clause 29, all businesses carried on under names other than the surnames or corporate names of their proprietors will be required to state on all business letters and written demands for payment of debts arising in the course of business, the name of each proprietor and an address at which service of any document will be accepted by or on behalf of each person so named. The same information will be required to be displayed prominently in any premises where the business is carried on and to which its customers have access. The proprietors of such businesses will also be required to ensure that the same information is made available, if requested, to any person with whom business is carried out otherwise than on the premises of the business concerned.
In response to representations made to the department, Clause 29 enables partnerships of more than 20 persons to omit all the partners' names provided the stationery states where a list of the partners' may be inspected. The Bill provides that businesses which seek to use names containing those words or expressions which will be subject to control if used by incorporated companies should obtain the Secretary of State's consent before using the name in question. Clause 30 enables the Secretary of State to sell or otherwise transfer any of the documents filed under the Registration of Business Names Act, or any information contained in them.
It is perhaps convenient if I refer briefly at this point to Clauses 50 to 53 in Part III. A prime function of the Registrar of Companies is to provide a public search service. As I mentioned earlier, demand for information relating to registered companies has grown considerably. It has only been possible to satisfy this increase in demand by the introduction, and very successful introduction, of a microfiche system from 1973 onwards. This microfiche record 1167 now comprises over 100 million photographs of documents delivered by companies and a number of the proposals in these clauses are designed to enable full advantage to be taken of this new technology. For example, Clause 53 permits the registrar to destroy the original documents comprising annual returns and accounts, once they have been reproduced in microfiche form, when they have been kept for over 10 years.
I turn now to Part III of the Bill. Clauses 35 to 41 deal with a problem which has arisen in the last year or so in relation to Section 56 of the 1948 Act. Following a judgment in the High Court in February 1980, representations were made to the Government that in the light of the judgment it appeared that a number of mergers and acquisitions in the past had been accounted for, in good faith, in a way which did not reflect the requirements of Section 56 as interpreted by the judgment. This raised questions as to the compilation of companies accounts and in some cases as to the propriety of distributions over many years in the past. So the sheer practical and commercial difficulties of restoring the position to what, in the light of the judgment, it should have been at the time and subsequently, were immense. Concern was also expressed that, in the light of the judgment, the requirements of Section 56 were inappropriate for certain classes of transaction.
It is against that background that, exceptionally, these clauses provide some retrospective relief from Section 56 as from the date of publication of the Bill, 4th February 1981, and certain prospective reliefs also as from that date. In the Government's view these reliefs should deal with most if not all of the cases in which some relief from Section 56 can be considered appropriate. However, the Government are fully aware that the application of the principles of Section 56 to merger situations is a matter of debate. Moreover, we have to take into account that relevant negotiations on the Seventh Directive are still in train. Here, therefore, as with the main accounting provisions in the Bill, the Government consider it appropriate to allow for developments on this subject. Clause 41, therefore, allows the Secretary of State to make regulations providing for further reliefs.
Clauses 43 to 47, with which it is appropriate to consider Clause 55, will contribute to the greater effectiveness of the companies inspection system. These proposals flow from the review of the inspection system put in hand when the Government took office. The clauses, while introducing no fundamental change in the system, are a necessary contribution to more rapid and more cost-effective investigations while still retaining the principles of fairness with which they must be conducted.
Clauses 43, 45 and 47 revise procedures relating to investigations. Clauses 44 and 46 extend the classes of persons who may be required to give evidence in the course of investigations. Clause 44 also gives inspectors power to examine directors' bank accounts where they have reason to believe that such accounts have been used in connection with certain offences under the Companies Acts, or with misconduct towards the company or its members. Clause 55 extends the circumstances in which, and the purposes for which, 1168 information obtained under Section 109 of the 1967 Act may be disclosed without the written authority of the company concerned. This will, for example, strengthen the powers available to fight organised fraud, as well as permit the provision of information to the police which might enable them to call off fruitless inquiries.
Coupled with the clauses that I have just described, Clauses 48 and 49 demonstrate the Government's commitment to search out and deal with company fraud and misbehaviour. Clause 48 simplifies and strengthens the existing provisions enabling persons to be disqualified from taking part in the management of companies. The clause will, for example, remove the present anomaly whereby for the more serious offences the maximum period of disqualification is less than the maximum period of imprisonment. Clause 49 extends the criminal remedy for fraudulent trading to situations other than windings-up. This will, for example, enable the department to present evidence of fraudulent trading in circumstances such as receivership. Other aspects of fraudulent trading are of course under consideration by the Insolvency Law Review Committee, under the chairmanship of Sir Kenneth Cork.
I have described the main provisions of this Bill. Much of it is technical; much of it is, I believe, noncontroversial. It contains much of real commercial benefit, particularly to small companies. These will be reinforced by clauses which the Government will be tabling very shortly to enable companies to purchase their own shares. The Government's Green Paper on this subject met with a very enthusiastic response and we are confident that legislation to remove the present company law restrictions will be widely welcomed.
Experience, correspondence received by Ministers, debates in your Lordships' House and in another place, all suggest that the scope for amending, reforming and extending company law is inexhaustible—certainly if we were to add together the candidates for action to which those with an interest in the subject, including certain noble Lords, attach importance. Some of these, in the Government's view, are quite inappropriate. The Companies Acts provide a framework of law in which management, employees and members can get on with the job of production, profit and enterprise. Some enthusiasts are inclined to forget that you cannot make people do that job more efficiently or sensibly by enacting more company law.
In any event, I am sure that your Lordships will agree that the Bill before us today is already a substantial Bill. The Government look forward to the constructive comment on what is in it, which I am confident will emerge as the Bill progresses. I very much hope that those of your Lordships who are tempted to bring us to account for sins of omission rather than commission will, before pressing us too hard, have regard to the already substantial scale and scope of the Bill. My Lords, I beg to move.
§ Moved, That the Bill be now read 2a—(Lord Trefgarne.)
§ 4.35 p.m.
§ Lord Ponsonby of Shulbrede
My Lords, first, I should like to thank the noble Lord, Lord Trefgarne, 1169 for his almost marathon effort in introducing this Bill and for explaining the complexities of the Bill, particularly those in Part I, which are of a technical and complex nature. But I should tell him at the outset that we are not happy with this Bill. Although it is basically aimed at enacting the EEC Fourth Directive on Company Accounts, as the noble Lord said, it has tacked onto it a series of clauses dealing with other matters. Some of these clauses are controversial; some are highly controversial and widely opposed.
The Bill is also notable for the absence of clauses on other matters on which legislation is needed. I understand that the Government—as, indeed, the noble Lord said—intend to remedy some of these matters as the Bill goes through its Committee and Report stages. But other matters are likely to be omitted altogether, despite Government promises in the past to tighten up the law in certain areas.
From what the noble Lord has said, it is clear that this Bill—as with other Bills introduced by the Government during this Session and the last Session—has come to the House in a fairly raw state in certain respects, and it will need considerable time and attention by your Lordships in order to get it into a fully-fledged state. I can tell your Lordships that, if this were an elected House of Parliament, we should today be registering our vote against the Second Reading.
At the outset of my comments on the Bill, I should like to apologise for the absence today of both my noble friends Lord Bruce of Donington and Lord Wedderburn of Charlton, who, for various reasons, are unable to be with us. I know that they have much interest in the content of this Bill and will be fully involved in the Committee and Report stages.
The noble Lord, Lord Trefgarne, explained the Bill in great detail and, first, I should like to refer to a number of retrograde proposals in the Bill. These include the virtual cessation of the process of screening company names, the abolition of the Business Names Registry, and the exemptions regarding the delivery of accounts to certain definitions of companies. My noble friend Lord Mishcon will be dealing with some of these proposals, so I should like to concentrate my remarks on the proposals to abolish the Business Names Registry.
The possibility of abolishing the Business Names Registry was first put forward by the previous Government in 1976, but was dropped in May 1977 when the then Parliamentary Under-Secretary of State, in reply to a Parliamentary Question, said that the Government had been persuaded by the arguments of those consulted to continue the register and promised that amending legislation would be introduced to enable fees to be charged to cover fully its costs of administration. The registry was first established in 1916 to ensure that aliens divulged their true identiy behind the name under which they were trading at that time. A provision in that Act was that fees to be paid to the registrar under it did not exceed the sum of five shillings for the registration of any one statement. The fees have been increased once since then to £1. I have been trying to ascertain what the value of a five shilling registration fee would be in current terms. I think it would be around £7.50.
Curiously, the Company Law Committee, under the chairmanship of Lord Jenkins, in June 1962 recommended 1170 a substantial increase in the fees charged to the public for the use of the Registry of Business Names and that a small annual registration fee should be imposed. This committee also recommended that the registry should be reorganised so as to provide more reliable information, and that more publicity should be given to the statutory requirements imposed by the 1916 Act, and that these should be more vigorously enforced. Ideally, these are the proposals which we should be discussing now and not the ones which the Government have placed in the Bill.
Your Lordships may ask why we need a registry. It provides a useful source of information for potential creditors, for those proposing to register new names, and for those who wish to avoid the risk of a passing off action. It is essential for consumers to have adequate information about the identity and status of those who provide them with goods and services. Consumers should be able to do business on the basis of reasonable trust, and it would be in no one's interest if consumers had to make a point of obtaining at the outset of a deal the names and addresses of the proprietors of a trading firm. The lack of trust that this process would imply would be wholly detrimental. It is when things go wrong, when a complaint or dispute arises, that it becomes really important for consumers to be able to find out the precise identity of the trader.
Why should the Government want to abolish the registry? The Government have suggested, although the noble Lord, Lord Trefgarne, said that this was not the primary reason, the deficit of some £350,000 arising out of the operation of the registry. This deficit is entirely due to the absurdly low level of fees charged at the present time, and it could be eliminated at a stroke if the fees were increased to £5 for a registration and £1 for a search. I cannot see that there would be any objection to fees of that size from small businesses. Indeed, there is great objection to the proposal to abolish the registry from small businesses.
The disclosure of names provisions in the Bill viewed as a whole are quite inadequate to protect potential creditors. Although we support the requirements for business letters, the names of proprietors of the firm, and that a notice to this effect should be displayed in a prominent place on the premises, these provisions should be complementary to and not in substitution for an effective system of the registration of business names. As a general comment it can be said that as presently drafted the proposals are quite inadequate particularly when a consumer needs to find out about a trader after things have gone wrong.
It can also be asked: who is going to police the new arrangements? How are those who evade them going to be traced? The existing law, as the noble Lord pointed out, does not have a very high level of compliance. However, I understand that the level of compliance is now approximately 80 per cent., up from some 50 per cent. a few years ago, since such time as the Department of Trade has had the assistance of the banking community in requiring the production of certificates of registration whenever banking facilities were being required by a firm. This substantial increase in the level of compliance over the last few years is something one would have thought would have persuaded the Government to put their shoulder towards improving the present registry rather than 1171 doing away with it. I must confess that it seems that taken on all counts this proposal is primarily designed to reduce the size of the civil service rather than to put forward an improved system.
Another major objection should be taken to Clause 30, which provides for the disposal of the records kept in the registry. Quite apart from the fact that there is no obligation imposed on the transferee to disclose information transferred on the request of a member of the public, there is a fundamental objection to a service of this kind being hived off to private enterprise, which presumably is the purpose of this particular clause.
May I now pass on from the question of business names. I said in my opening remarks that the Bill is deficient as it fails to deal with a number of problems. I take as one of the problems it fails to deal with the Consolidated Goldfields type of situation, where there are secret purchases through nominee holdings of shares in unsuspecting companies. This is left out despite a plea by the Stock Exchange for action, and despite the fact that the Government have previously said that they would look at ways of tightening up the law.
There is no provision for an employment statement within the scope of Section 18 of the 1967 Act, and in particular for divulging employment practices relating to disabled persons. Under the terms of the Employment Protection Act we have seen the growth of an obligation upon companies to give information, for example, for the purposes of collective bargaining. In other countries much more general information is required, and I understand that in France, as from 1984 onwards, employees can demand a social balance sheet from the company. It would seem that this Bill should be used for more information to be provided.
Another omission is that the Bill does not deal with the problem of the liability of a holding company for a defaulting subsidiary. The basis of current company law establishes that a holding company and its subsidiaries must be regarded as separate entities. That can be a difficult concept when translated into practice. It ignores the fact that a group of companies is often a single economic unit, and that profits can be transferred from one company to another. It can lead to misleading information being given and to creditors in a subsidiary being effectively defrauded. The Government have offered no solution to that problem, preferring to rely, as the Minister said, on the argument that the Court Committee on Insolvency had not yet finally reported. That argument is somewhat flawed by the Government having introduced proposals by consultative document to emasculate the Official Receiver's services in advance of the Court Committee report and in known defiance of the committee's opposition to the proposals.
The other omission from the Bill are provisions dealing with the right of companies to buy their own shares. That would give more flexibility to small companies requiring to raise capital and could help investment trusts. I understand the Government intend to introduce amendments on that matter during later stages of the Bill, or perhaps it would be truer to say I understand the Government are arranging for amendments to be introduced. I have dealt with 1172 some aspects of this very complex Bill. I know the House will want to scrutinise the measure in great detail in Committee because the Bill as it stands is not as satisfactory as it might be.
§ 4.52 p.m.
§ Lord Lloyd of Kilgerran
My Lords, I join the noble Lord, Lord Ponsonby, in congratulating the Minister on the comprehensive and lucid way in which he introduced this difficult Bill. I am looking forward to the maiden speech of the noble Lord, Lord Noel-Buxton, who has a family name which is extremely well-known in the history of politics and industry over the last century.
I am sure all noble Lords will agree with me on one proposition; namely, that it is essential sometimes to be very blunt about the law. Company law in this country is now so smudged and fudged that it is appallingly difficult for the average practitioner to see his way through the jungle of company laws, let alone the problems employees of companies have in deciding what to do about their actions. This Government have introduced rapidly a series of Bills making the difficulties of practitioners throughout the country a real disgrace and a profound hindrance and expense to commercial activities.
Yesterday I had the privilege of hearing the brilliant speech made by the Prime Minister to a luncheon given by the Parliamentary Scientific Committee in which she emphasised, as was emphasised in this House this afternoon, the desirability of innovation and encouraging the growth of new companies. The cost of dealing competently with the requirements under company law is now often prohibitive to the commercial development of new companies, particularly smaller ones.
At one time there was a civilised tradition in company law; major company Bills came only every 20 years, followed by a period of decent silence. Thus we had the 1929 Act, followed by the 1947 Act, which were consolidated in the 1948 Act and which remains the basic statute to this day. The complexity of present statute law is apparent from Clause 62 of this Bill, which lists eight Acts all or part of which, together with this measure when enacted, will cumulatively constitute the statute law on companies in Great Britain. Then in the schedules one finds other references to company law measures and business names Acts which are to be repealed in whole or in part. Then this Bill itself contains, if my arithmetic is correct, 17 amendments to the Companies Act 1980. Not the least plea of any practitioner on the subject must now be for a consolidating Act at the earliest possible opportunity, and I hope the Government will turn their mind to that immediately following the enactment of this measure.
This Bill, like its predecessor—now the Companies Act 1980—is largely spurred on by a directive of the European Economic Community; just as Parts I to III of the 1980 Act gave legislative effect to the EEC Second Directive on Company Law, so Part I of this Bill gives effect to the fourth such directive, particularly on company accounts. I welcome Clauses 5 to 10 of the Bill, which include, as the Minister indicated, an innovation in that at last a statute law recognises that there are small and medium-sized companies which have to be treated differently from the very large multinational type of company.
1173 These clauses include some accounting exemptions. They are intended, as the Minister explained, to reduce the amount of information which small companies must at present include in their accounts for filing with the Registrar of Companies. At present, an intolerable burden is placed on small companies in that regard. In my view, the burden of paper work has not been cut far enough by this measure, particularly in relation to the unnecessarily stringent rules relating to the auditing of small companies.
I shall also be considering amendments later asking the Government to relax the far too stringent limitations of Section 161 of the Companies Act 1980 in respect of the auditing of small and medium-sized companies. There are many professional bodies of high standing which should not be disqualified from acting as auditors for small and medium-sized companies now that those categories of companies have been recognised, and noble Lords may remember that I put forward a number of amendments to the Companies Act 1980 on that point.
As with the 1980 Act and as the noble Lord, Lord Ponsonby, indicated, the Government have taken the opportunity of dealing with a number of other matters apart from the harmonisation of laws with the EEC directive. My criticism of the Bill concerns those other parts in relation both to their contents and omissions. Part II of the Bill is innocently entitled "Company Names and Business Names ". In fact, it disguises yet another piece of alleged cost-saving by the Government which in my view will be detrimental to the wider interests of United Kingdom business. The noble Lord, Lord Ponsonby, elaborated on that point and I do not propose to deal with it in detail. But in my experience as a member of the Patent Bar, the Registry of Business Names was a very useful source of information for people doing business in various fields.
The second main objection we have to Part II, apart from the question of the closing of the Registry of Business Names, is the abolition of the present vetting procedures for new names of companies. This really is a serious matter. It is extremely undesirable and will almost inevitably lead to delays, chaos and confusion where companies adopt names which are extremely similar, though not quite the same, as those of existing companies.
In particular I would ask the Minister once again to take some account of the representations that have been made on behalf of the Institute of Trade Mark Agents, especially submissions that I believe have been made by the president, Mr. Havelock, indicating from a practical point of view the serious difficulties that could arise, notably in relation to the development of new companies.
I come now to Part III of the Bill. This is discreetly entitled "Miscellaneous and Supplemental", and it deals, first, with the difficulties on share premium accounts which seem to have arisen from the recent case of Shearer v. Bercain. These provisions are to be welcomed. I note with interest a significant and helpful administrative power that the Government have introduced in Clause 41. I ask noble Lords to note this interesting discretionary power that is to be given to the Secretary of State. Clause 41 empowers the Secretary of State, by statutory instrument, in effect to give relief in any situation which has not been 1174 anticipated by the substantive provisions of Clauses 35 to 40. I shall allude to the precedent contained in Clause 41 when later I refer to the abuses which arise from what are known euphemistically as "concert parties".
The remainder of the Bill deals with a number of minor matters on which I do not think I need detain your Lordships further, save to say once again that, not surprisingly, there are 17 minor amendments to the 1980 Act. I should perhaps apologise at this stage because I shall be troubling your Lordships later with an additional amendment to the 1980 Act on the point that the issue of shares under employee share option schemes is outside the ambit not only of the requirement to seek shareholders' authority under Section 14 of the 1980 Act, but also of the pre-emption provisions contained in Sections 17 and 18.
I now turn, as I earlier threatened, to matters omitted from the Bill. First, we do not yet have—although the noble Lord the Minister has given an indication in this regard—the Government's proposals for enabling a company to purchase its own shares. Such proposals flow from the Green Paper on this subject published in June of last year, and we shall look forward to seeing them. I should like to make a plea that they be available in good time for us to be able to consider them carefully before the Committee stage.
I turn next to another major omission from the Bill. There has been considerable concern recently about what are known as "concert parties". As your Lordships will be aware, it is at present required that any person or company whose equity shareholding in any listed company rises to 5 per cent. or more must notify the company concerned. However there is no statutory provision applying that limit to the aggregate holdings of persons who, while not being "connected" in a narrow, legalistic sense, are nevertheless partners in an enterprise to build up a strategic stake in a company, with a view to carrying out one of those "dawn raids" which we have seen develop over the last year. That means the sudden buying of a large quantity of shares, as happened in the case of Consolidated Gold Fields, as referred to by the noble Lord, Lord Ponsonby of Shulbrede, and in the Dunlop Holdings instance.
I recognise that, as the noble Lord the Minister indicated, the Stock Exchange is concerned to end the particular abuses of "dawn raids". Indeed last December the Council for the Securities Industry published formal rules on the matter. Nevertheless, the City of London seems almost unanimous in saying that legislation is required to extend the disclosure provisions to "concert parties", being parties acting with a common purpose to build up shareholdings above the 5 per cent. disclosure threshold while ensuring that no single individual, by crossing that threshold, is caught by the present disclosure provisions.
The Government may seek to excuse their failure to include appropriate provisions in this Bill by the usual argument about parliamentary time. Therefore, it might be helpful if I now indicate that at the Committee stage we shall be moving a new clause on this matter. The amendment will not contain detailed rules on disclosure as applied to "concert parties", because I recognise that that would be difficult. The 1175 new clause would give the Secretary of State power, by statutory instrument, to deal with the problem, very much in the way that Clause 41 (to which I referred earlier) gives power to the Secretary of State to deal with difficulties arising over share premium accounts.
I should also like to draw attention to what I understand will be interesting amendments, which we shall support, to establish a class of companies in effect owned only by those who work in them. The aim of such amendments would be to make available a simple form of business organisation, sometimes known as co-operative schemes, or job ownership companies. These organisations can have several important advantages. They would avoid in some areas the traditional, and often crippling, confrontation between capital and labour. They could also provide a vehicle for the conversion of family firms to worker ownership, as well as enabling former employees with redundancy money more readily to pool their resources in new enterprises.
I thought it appropriate at this stage to draw to the attention of the Government what we consider to be important omissions from the Bill, and, finally, I should like to say that my remarks should not be taken as in any way approving of the way in which the Government—and, to be fair, previous Governments of all parties—have shown themselves unable, and I suspect unwilling, to effect any radical change in company law to bring it into line with the commercial requirements of the last quarter of the 20th century. Included in such reforms we should of course wish to see a massive extension of employee participation in the running of their companies. However my criticisms of the Bill do not I think justify my recommending my colleagues to vote against it on Second Reading, although we reserve our position to vote against it when it comes back from Committee, depending in particular on the question of whether the Government are prepared to meet the very real concern that exists on the matter of company names and business names.
§ 5.8 p.m.
§ Lord Robertson of Oakridge
My Lords, I, too, look forward with interest to the maiden speech of the noble Lord, Lord Noel-Buxton. In his very clear introduction of the Bill the noble Lord, Lord Trefgarne, drew attention to the length of the Bill and to the undesirability of making further additions to it; and I appreciate that. However, I would crave the indulgence of your Lordships for a few minutes while I refer to one matter that has already been raised by the noble Lords, Lord Ponsonby of Shulbrede and Lord Lloyd of Kilgerran. I had hoped to see provisions to deal with the problems and the uncertainties that can be caused to companies when strategic stakes are built up in their share capital, in particular by parties acting in concert, when the company is not kept fully informed as to what is going on. As a stockbroker, I have a special interest in this matter, since uncertainties of this kind lead to disorderly markets and make it harder for me to advise my clients and to act for them to their best advantage.
I know that Her Majesty's Government are concerned about the matter, for in their consultative 1176 document The Disclosure of Interests in Shares, published last year, it was stated:The policy underlining the present provisions of company law is that a company, its members and the public at large should be entitled to be informed promptly of the acquisition of a significant holding in its voting shares …",and it goes on:… in order that existing members may protect their interests and that the conduct of the affairs of the company is not prejudiced by uncertainty over those who may be in a position to influence or control the company".Your Lordships may wish to be reminded of the two main legal provisions in this area. First, as the noble Lord, Lord Lloyd of Kilgerran, mentioned, there is the requirement under Section 33 of the 1967 Companies Act, as amended by the 1976 Act, for anyone who buys a stake of 5 per cent. or more in a company's share capital to declare himself publicly within five business days. Curiously—and I shall return to this point later—he does not have to say in whose name or names the shares are to be registered. The registrar may well therefore be unable to identify the holding on his share register.
The second provision is that under Section 27 of the 1976 Act a company may require any shareholder who is holding shares on behalf of other persons—for example, a nominee company—to declare within a reasonable time the names of the beneficial owners. What may not be fully realised, even by those who perhaps ought to know, is that this provision can be applied to overseas shareholders as well as to United Kingdom shareholders, and the sanctions apply to them equally.
The problem of the build-up of strategic stakes is understandably the subject of considerable press comment, especially since the acquisition by South African interests of a large stake in Consolidated Gold Fields last year. One of the unsatisfactory aspects of that affair was that it demonstrated that it was possible, in a case where apparently no 5 per cent. stake had built up, for a number of parties acting in concert to acquire shares amounting in all to some 12 per cent. without the company's knowledge; and more recently, of course, there has been the disconcerting build up of large stakes in Dunlop.
I understand that these problems have been the subject of discussions among the Department of Trade, the City Panel of Takeovers and Mergers and the Stock Exchange, but that it has not yet been possible to frame legislation. In the first place, there has been difficulty in producing a satisfactory definition to cover "parties acting, in association or concert"; and, secondly, there are obvious difficulties in enforcement—and, one would emphasise, prompt enforcement, because time is of the essence in these matters, especially in relation to persons outside this country.
Against this one would hope that the new Talisman computerised settlement system should facilitate the implementation of at least any new laws or administrative procedures. It would be helpful if the Minister were able to assure the House that discussions were continuing with the relevant authorities with a view to framing legislation and to tightening up administrative procedures where possible. Since clearly it may be some time before the next Companies Bill, I feel it is important that any legislation should be drawn up in time to be incorporated in this Bill before it completes 1177 its passage through your Lordships' House, and I believe that this is too important a matter for us merely to say that the Bill is already too long. I look forward with interest to seeing the proposed amendment on this subject by the noble Lord, Lord Lloyd of Kilgerran.
Meanwhile, there is one minor change in the law that could possibly be made to reduce uncertainty in this area, and this would be to require the buyer of a stake of 5 per cent. or more, not only to declare that he has acquired such a shareholding but also to give the details of how the shares are to be registered. As a registrar would then be able to identify holdings of 5 per cent. or more on the share register (rather than as at present, when they can be hidden, as it were, in perhaps several nominee companies) a company would be able to keep a closer watch on strategic shareholdings. My Lords, this is a question of detail, to which I may return at Committee stage.
§ 5.15 p.m.
§ Lord Noel-Buxton
My Lords, I rise to address your Lordships for the first time, and in adhering to the traditions of the House I would crave your Lordships' indulgence. I understand that when making your maiden speech you should not in fact speak on something which is too close to your heart. Although I am in fact a solicitor in private practice dealing largely with company and commercial matters, I cannot say that company law is that close to my heart. It is something that I must, as it were, live with and know something about in order to advise clients.
Following on, I think, from what the noble Lord, Lord Lloyd of Kilgerran, was saying, "Companies Bills", somebody once said, "are no longer as rare as coronations". The earliest Companies Act on the statute book, if we ignore the 1947 Act, or what is left of it, is the 1948 Act; 19 years later there comes the 1967 Act; then, nine years later, there is the 1976 Act; and then, four years later, there is the 1980 Act. Now we have the Companies (No. 2) Bill 1981. I think it is No. 2 because another Bill is emanating from another place. Goodness knows what it says; nobody seems to know. The hard-pressed company lawyer is beginning to have to gear himself up to new legislation nearly as highly as his tax specialist colleagues with annual (if not more frequent) Finance Acts. I appreciate the need to keep company law up to date. I also recognise the United Kingdom's obligation to implement Community directives, in this case the Fourth Directive on Company Accounts. However, as has been said, the Bill before your Lordships does not deal only with company accounts.
What concerns me is that what will, no doubt, in due course become the Companies Acts 1948 to 1981 will, even more so than now, be a principal Act, the 1948 Act, substantially altered and amended by subsequent Acts which, taken as a whole, is or are difficult to follow, apply and give advice upon. An additional difficulty is that considerations of company law often run counter, in particular, to considerations of tax law, never mind employment law. A client comes to me with reasoned and reasonable proposals for a commercial transaction. Usually the proposals have to be modified against the background of what can and cannot be done in compliance with company law, on the one hand, and, on the other hand, particularly, 1178 of what can best be done to pay as little tax as possible. The factors to be considered from a tax point of view often conflict with those from a company law point of view. The form of the resultant transaction often appears strained and artificial, and often is strained and artificial.
With regard to company law, I, too, joining with other noble Lords, should like to see the enactment of a consolidating Companies Bill. Such a Bill, in my view, should not simply consolidate extant provisions of the current statutes, but should also seek, by appropriate amendment and redrafting, to bring company law even more up-to-date and more closely in line with the taxing and other relevant statutes enacted years after 1948.
I would mention one section in particular of the Companies Act 1948—the dreaded Section 54—which prohibits the provision of financial assistance by a company in connection with the purchase of or subscription for its shares or the shares of its holding company. I should dearly like to see this section looked at again very closely in the light of the present day and current practice. This may have been done or may now be being done. After all, the Government will be putting down amendments to enable a company to purchase its own shares. I shall study these amendments with great interest.
In any event, I should like to record another plea for consolidation. I am confident that the vast majority of practitioners—never mind others—would welcome consolidation with open arms. I am of course well aware of the constraints of time placed on Parliament and on the parliamentary draftsmen. Even pure consolidation of the Companies Acts will prove no mean task. It will take a great deal of time, I suspect.
I am no accountant (even if I am a solicitor) and I do not think that I can therefore usefully comment on Part I of the Bill. Nor do I propose to say anything about Part III. I would however note that with regard to Part I the concessions for small and medium-sized companies and accounts relate to filing with the registrar of companies. The right of members and debenture holders to receive complete sets of audited accounts will not be affected except in the case of dormant companies—a useful exception I think.
With regard to Part II of the Bill, I was at first against the abolition of the Register of Business Names. Now having thought more, I am in favour of abolition in the circumstances contemplated by the Bill before your Lordships. I am convinced that businessmen and others have had scant regard to the Register of Business Names. Even if a businessman bothered to furnish particulars under the Act of 1916—which, after all, was passed in fear of the enemy trading in the United Kingdom under British names—he did not necessarily bother to keep the particulars filed up-to-date.
Further, what I think can be described as an inadequacy of the legislation is that the Registrar of Companies is not bound—and, no doubt, does not—to have regard to any name on the Register of Business Names when approving or refusing a proposed name for a company. The abolition of the Register of Business Names will mean, of course, that there will be no central index of business names under which 1179 individuals, partnerships or unincorporated associations carry on business.
It is proposed however that if a person carries on business in a name other than his own (and I use the word "person" almost in a taxing statute way) his name must be stated, together with an address for service, on all business letters and written demands for payment of debts. There is also a proposed requirement for display in premises where the business is carried on. I am of the view that these proposals are indeed an acceptable alternative to the Register of Business Names, having regard to the fact that the register has to a large extent been disregarded. Unless substantial funds are poured into the Registry, there is no hope that it will become an accurate and really useful record of business names in use from time to time and the users of such names. I would however take issue on one point. Why do the proposed requirements extend only tobusiness letters and written demands for payments of debts"?That is Clause 29. Should not at least the wording of Section 201(1) of the Companies Act 1948 be incorporated? Although this wording is surely out of date, should not the requirements extend also totrade catalogues, trade circulars and showcards"?Personally, I should like to see both Clause 29 and Section 201(1) extended to all promotional material so far as practicable, and I should like to see the words used brought up to date and expanded.
Turning now to companies and their names, I see at Clause 22 of the Bill that certain things are proposed to be disregarded in determining whether one name is the same as another. This seems fine; but I was taught that, for example, "John Smith & Co. Limited" was a different company from "John Smith and Company Limited". It had to be, it had a different name. I hope it will follow that it will no longer be necessary formally to pass a special resolution to change the name of a company from "John Smith & Co. Limited" to "John Smith and Company Limited". I am pleased to see noble Lords on the Government Front Bench nodding. I once had to insist that a public company client had to go through all the formalities of board meetings, an extraordinary general meeting, and so on, just to add a comma to its name.
What concerns me somewhat however is that the Secretary of State's discretion with regard to refusal of names or discretion to change a name will not, it is proposed, extend to names which are colourable imitations of names already on the register and which are likely to cause confusion. The Government have taken the view, as I understand it, that similar names, even colourable imitations likely to confuse, should not be the concern of the Secretary of State (except of course such names as "Royal", for example) or the Registrar of Companies. The parties aggrieved will have to rely on civil proceedings in passing off, trade mark or copyright infringement, or whatever. After all, a main object of the Bill is to reduce the functions of the Registrar of Companies.
I acknowledge two advantages in particular, however, of the proposal that a company should be registered (subject to certain considerations) in a name not already on the register even if the proposed name is similar to 1180 one on the register. First, new companies or changes of name of companies should be registered more speedily, and applicants should be more confident that the chosen name will be accepted. It is proposed that there will be only one search, not one for preliminary approval and a second on filing of the relevant documents. Secondly, the very real difficulty currently experienced on finding an acceptable and desirable name to the applicant for a company should be alleviated. My Lords, I give general support to the Bill.
§ 5.29 p.m.
§ Lord Boyd-Carpenter
My Lords, I am very happy that those mysterious forces that shape our order of speaking have produced a result which gives me the first opportunity of offering the congratulations which I know the whole House thinks are very merited to my noble friend Lord Noel-Buxton on a really very remarkable maiden speech. It is sometimes felt that to be, as he is, the bearer of a most distinguished name and the heir to a very considerable tradition, is something of a handicap on these occasions because so much is expected of one. Be that as it may, my noble friend has discharged the difficult performance of a maiden speech in such circumstances with such skill and authority that he can be assured it is one of those maiden speeches which will be very long remembered. He spoke with an expert grasp of a highly technical and very difficult subject, with complete authority and with what, if he will allow me to say so, is in his profession less frequent—that is, with very great clarity. The House certainly is indebted to him for this speech and I know that it hopes to be indebted to him for many more speeches in the near future.
I thought at the beginning of this debate that there was something of a contrast between the admirable speech with which my noble friend Lord Trefgarne presented this Bill and the physical presentation of the Bill itself. My noble friend's opening, if I may say so without presumption, was perfect in that he covered the whole area with great clarity. But the actual physical handling of this Bill I do not think is being done in a way which is fair to the House. It was accompanied by no fewer than three erratum slips covering five of its clauses and the Title, and even one of those erratum slips has a patent error in it; namely, an idiosyncratic rendering of the word "read". If one may make a comment on this, it is quite obvious that a proof reader in my noble friend's department finds that a difficult word.
It is now to be followed, we are told, by a string of further clauses on the extremely important issue of the right of companies to purchase their own shares. I wonder whether my noble friend's department understands—I am sure that my noble friend does—the problems which these methods of presentation bring, particularly in respect of a Bill of this character, to those people outside this House who have a very proper interest in this kind of legislation. As my noble friend knows, I have certain industrial and commercial interests and, like most noble Lords so placed, I have wished to consult those with whom I work and who have, like the noble Lord, Lord Noel-Buxton, a direct concern with the handling of these matters. This is made extraordinarily difficult if we 1181 are presented on Second Reading with a Bill followed by a string of erratum slips, then to be followed after Second Reading by a string of amendments.
No doubt this kind of thing could be justified if this were a matter of great urgency. My noble friend did not argue (and I am sure he would not do so because he never argues a bad point, at least not very often and only when it is in the departmental brief) that there is any urgency about this matter. I can assure him that, certainly in the industrial and commercial community, there is no excessive craving at the moment for further company legislation. We really have had quite a lot of it. As the noble Lord, Lord Noel-Buxton, reminded us, we have had the 1948 Companies Act, the 1967 Companies Act, the 1976 Companies Act, the 1980 Companies Act, and now we shall have at least two in 1981. It is perhaps a little sinister that the interval between them appears to be diminishing with rather alarming rapidity.
For those who have to handle these things, whether professionally like my noble friend or in connection with the administration of companies, this continual flow of alteration in the relevant legislation imposes a very real burden. I need hardly say to the House that those who are running companies at this moment have quite enough problems as it is in maintaining the viability and success of their companies, without having a steady flow of additional work of this kind.
This is made the worse by the method of legislation used in this Bill. If your Lordships look at the text of the Bill you will see it very largely consists of amendments to parts of clauses in earlier legislation. Take, for example, Clause 3, which simply puts a number of additional bits into Clause 4 of the 1947 Act. That method of legislation means that one has to piece the whole thing together to try to get any idea of what is the law that one is assumed to know.
I would remind your Lordships that all of us are presumed to know the law—except, as I understand it, the Court of Appeal, which can be put right by this House. This really does make things difficult, and I support strongly the plea made by my noble friend Lord Noel-Buxton for very early consolidation. This is not just the normal plea of the ordinary citizen for virtual simplicity in the law; it is a plea by those engaged in the economic life of this country to be given an opportunity to operate under a law which can be found clearly and in one place.
I wonder whether my noble friend Lord Lyell, when he replies, will tell us why it was not possible in these cases to repeal the clauses of earlier Acts and replace them fully amended, or why, if that were not possible, it was not possible to adopt the device sometimes used in statutory instruments of inserting what are called Keeling schedules—that is to say, schedules setting out an earlier Act, as it will be amended when this measure is passed. Anything of that kind would really be of the very greatest assistance.
I must say also that I had a great deal of sympathy with the noble Lord, Lord Ponsonby of Shulbrede, when he said that this Bill was presented in a raw state. There is surely something to be said, particularly with new clauses coming, for its being withdrawn and reintroduced, properly corrected where the erratum slips apply, and with the promised new clauses inserted. It would make for a very much more effective way of 1182 debating what I venture to suggest to the House, unless my noble friend contradicts me, is not a particularly urgent measure.
I want only to refer now to two other matters, because this kind of Bill does not lend itself to very effective Second Reading debate. That is because, despite what my noble friend Lord Trefgarne said, this Bill has no theme. It is a series of provisions—some very good, some very bad, some doubtful and not very closely related to each other—and it recalls to me the observation made by the late Sir Winston Churchill, who was once confronted at his dinner table with a pudding which he looked at with some distaste, and then said, "I do not like this pudding; it has no theme". I suggest that if we substitute this measure for that pudding, that observation would apply.
May I come, on the individual items, straight away to what seems to me a very unfortunate aspect of the measure, which was in fact referred to by my noble friend Lord Noel-Buxton: that is, the provisions of Clause 22 in respect of the Registry of Companies. Section 17 of the Act of 1948 provides that registration should be refused if there is a real risk, by reason of similarity, of confusion between the company sought to be registered and a company already on the register, and I have no reason to believe that that provision has worked badly. As I read the Bill, however, Section 17 of the 1948 Act is repealed and in lieu there is a provision that in order for registration to be refused the new name must be the same as the old.
I should be very grateful if my noble friend Lord Lyell would explain a little more fully how that works. If it is really the same—and I think that the words used in the statute have to be construed fairly strictly—does it mean that if I want to register a company as "Fortnam and Mason" or "Marks and Spence", I shall be able so to do without registration being refused because in neither case are they the same? Registrations of that kind would obviously be caught by Section 17 of the 1948 Act. Will they be caught by this provision if it goes unamended into the statute? I should be most grateful for a little elucidation on that.
I must admit that I am not at all happy either, although I am a little reassured by my noble friend Lord Noel-Buxton, by the provision dispensing with the Registry of Business Names in Clause 29. As my noble friend Lord Trefgarne must know very well, the consumer organisations in this country are very alarmed about this. Noble Lords are receiving very frequent representations on this and I think that some reassurance is required if this clause is to stand in its present form.
The only other specific point about which I feel very considerable doubt arises on Clause 18, which once again inserts substantially new provisions—in this case into Section 454 of the 1948 Act—instead of provisions standing on their own. This clause seems to give the Secretary of State very considerable powers to be exercised by statutory instrument. As I read it, it gives him power to add new classes of documents, both to those which must accompany company accounts and those which must be filed with the registrar; and, also in a following subsection, similarly by regulations, it gives the right to impose an obligation to add further items to those documents.
Those seem very sweeping powers indeed to be 1183 exercised by regulation. They are the kind of powers which have normally had to be sought by legislation. Although I have complete confidence, at the moment, that my noble friend and his Secretary of State would not abuse those powers, when legislating and conferring powers on one of Her Majesty's Ministers we always have to think that on some other day there may be some other Minister of a less benign and kindly nature. These are powers which, in all seriousness, a Government of extreme Left-wing tendencies could use very brutally indeed to upset the working of the free enterprise system.
I wonder whether, in the light of that consideration, my noble friend has some doubts and hesitations as to whether it is wise to take these powers in this measure. The history of tyranny throughout the ages is that oppressive Governments begin by, happily, operating the powers which have been taken by moderate Governments at an earlier stage, and which have been granted because everyone has known that those nice, kind, moderate Governments would not abuse them. But it is the function of Parliament, and perhaps particularly of this House, to scrutinise very carefully the details of legislation to make quite sure that we are holding the balance right—and it is, of course, the balance about which one can argue—between the powers of Ministers and the powers of the Legislature. So I ask my noble friend, during the later stages of this measure, to consider very carefully whether it is really wise to take such sweeping powers as Clause 18 would give him.
I have ventured to indicate to your Lordships a certain lack of excessive enthusiasm for this measure. I can assure my noble friend that in the areas of our life in which this legislation will have a direct effect there is no very great demand and no undue craving for companies legislation. We really have had a good deal of it. Therefore, if further changes are to be made there is a very heavy onus on the Government that seeks to make them to prove to the satisfaction of all concerned that there really is a need to make those changes.
Of course, I know about the European directive and I know, too, that the Government are not following it with any degree of completeness; on the contrary, they are making fewer relaxations, particularly for middle-size companies, than the directive would permit. But I ask my noble friend, in all seriousness, to be very careful of what further additional burdens, by way of the assimilation and application of new companies legislation, he imposes on an economy which really has quite enough to do at present in actually running its business.
§ 5.46 p.m.
§ Baroness Elliot of Harwood
My Lords, I speak in this debate with some diffidence, but I have been, and still am, chairman of a fairly large agricultural auction market and have had 20 or more years' experience of that. But I speak today more as the first chairman of the first Consumer Council. I have had a long association with consumer organisations, and it is really on their behalf that I should like to make a very few remarks in this debate.
I should like to support all that my noble friend Lord Boyd-Carpenter has said. He is very wise, he has had 1184 great experience in another place, and he has had great experience of legislation as a Minister. I entirely agree with all he has said about the way in which the Bill has been constructed, and I think that the Government should pay some very serious attention to what he said with regard to clauses which are not available to us at the Second Reading. The Second Reading of a Bill is the one opportunity for everybody to say in a general way what they think about the Bill. If three or four clauses are still to come, that is not a very good augury for the Bill.
Also, I should like to say that in your Lordships' House we very often have Bills which we do not treat as party political Bills, and this could qualify as one of them. I certainly agreed with all that the noble Lord, Lord Ponsonby of Shulbrede, said at the beginning of the debate, and if I say anything which repeats what he said it is only because I think that many of his remarks were very wise and very sensible. So on this occasion we are dealing with a Bill which we can treat on a practical basis, rather than on a party political basis.
I shall speak on only two matters, the first of which is the question of abolishing the Registry of Companies. I speak as—
§ Lord Mishcon
My Lords, I interrupt the noble Baroness for only one reason. The House always delights to hear her and she has just mentioned the abolition of the Registry of Companies. I know that she meant the Registry of Business Names and I do not want the House to misunderstand her.
§ Baroness Elliot of Harwood
I apologise, my Lords. The Registry of Business Names is what I meant. This proposal has caused alarm and despondency among many consumer organisations. The National Consumer Council, which is the consumer organisation that succeeded the council of which I was chairman, is a Government body which took the place of the first Consumer Council; the Consumers' Association, which has a large membership and of which I have the honour to be a vice-president, and which publishes admirable documents such as Which?, and the National Federation of Consumer Groups, representing voluntary consumer groups all over the country, are all very much alarmed at the abolition of the Registry of Business Names. The principal objection of these groups is to the restriction of the powers of the Department of Trade, which now prevent companies from registering under misleading or unsuitable names. This is extremely important, because it is something which should not be done. A company name would be refused if it was too like the name of an existing company or if it described the company as a large trading company when in fact it was a one-man show. This point has been mentioned by other Members of your Lordships' House in this debate. To prevent or to restrict the Department of Trade in controlling these names is very wrong.
The Government argue that to leave the powers as they are requires so much work and requires so many people to be engaged upon registration. That is why they want to economise and to have fewer people. However, I believe that the CBI and other organisations agree with the noble Lord, Lord Ponsonby of Shulbrede, 1185 that they should pay for the registration. This would mean only a very small sum of money and would make this into a perfectly economic proposition. Nobody wants to make money out of registration. On the other hand, why should it not be paid for by the people who apply for registration? Therefore it would be perfectly fair to invite companies which apply for registration to pay for the services which they require from the Department of Trade.
Schedule 46 to the Companies Act 1967 would enable the Secretary of State to intervene if a company name was misleading or would mislead the public. If the company disagreed, it would have to argue its case in the law courts. This would be very costly and would not have any advantage over the simple method of registration which exists today. Therefore, as both sides of the House are deeply concerned about this matter, I hope that the Government will consider what we are proposing.
May I say one word about unincorporated bodies? At present, unincorporated bodies have to register their trading names in the Registry of Business Names. They are, as we know, not companies. They are individuals and partnerships dealing with the public. If one of these businesses changed its name or went out of business, a client who had been dealing with it—getting it to do some work or to pay some money to him—would find it impossible to pursue his claim against that business or to track it down, because it would have disappeared. Therefore, the consumer, about whom I am concerned, could lose quite a lot of money. No longer would it be possible to track down these people. I consider this to be very unfair and very unwise. I do not think we should allow it to take place.
Turning to Clauses 11 and 13 which have already been mentioned, I should like to ask the Minister whether it will be obligatory to publish the full audited accounts and to hold a public annual general meeting of a company. I feel very strongly about this. In the interests of the shareholders and of the consumers of the product of a company, this rule should certainly continue to be enforced. It would be a very retrograde step to do away with it. It may be that under the Bill it will still be obligatory to do this, but having read the clauses it is a little obscure to me. I hope this matter can be cleared up and that there will be no relinquishment of a very sound principle, which I think has the support of everybody. More particularly, I think that the question of consumers' interests and of registering businesses is very important. I believe that we should make quite certain that what is proposed is not carried through in this Bill.
§ 5.55 p.m.
§ Lord Energlyn
My Lords, may I from these Benches extend our praise and congratulations to the noble Lord, Lord Noel Buxton, on a remarkable maiden speech? He gave me a lot of interesting side thoughts, especially concerning the names of companies. This was one of two items regarding the Bill that I wished to comment upon.
Changing the name of a company can have very serious implications in the world of inventors in which I live. I know of a case where an inventive idea was put forward which was incapable of being formulated into a rigid patent but which was viable under a trade 1186 name or a trade mark. This idea was communicated and the name of a non-trading sort of company was changed immediately to the system implied by this invention. Consequentially, the inventor lost the only commercial advantage he had of protecting his long and expensive episode of research. Therefore, I shall look with great care at the amendments which are to be put down concerning the names and the naming of companies. May I ask the Minister whether he can render me some assurance that my fellow inventors will derive from this Bill a greater measure of protection than they have at the moment?
My second point echoes one or two of the remarks made by the noble Lord, Lord Boyd-Carpenter, concerning the powers that are to be assumed by the Secretary of State. With some timidity and lack of knowledge I should like to bring to the attention of your Lordships the difficulty which people like myself have in reading company accounts. In reading the Fourth Directive it was interesting to find that after 10 years of trying to achieve some kind of harmonisation, as they call it, among the million odd companies they are dealing with, all they could do was to produce a kind of questionnaire which has to be filled up and signed.
Those standards are not acceptable in this country. We have a long tradition of institutes and bodies which have built up a reputation of integrity and which have tried, with great clarity, to project the accounts of a company honestly and simply to the people concerned. I understand that the Institute of Chartered Accountants is about to celebrate its centenary. Its antiquity and status give it its position in the world. Then there is the Association of Certified Accountants, which is recognised by the Secretary of State. Another body is called the Association of International Accountants. Apparently they are not recognised by the Secretary of State. Therefore, as an academic exercise, I took on the task of answering the question: why is it that this institution, which has been in existence from the early 1930s and which incorporates, I understand, over 1,000 accountants who operate all over the world, is not recognised by him? As I understand the history of the Association it emerged from the days of the Empire. That is the origin of the term "international".
I carried out an investigation, so far as I was able, into the criteria concerning membership of these bodies, which are referred to in the Bill as "relevant bodies" or "approved bodies". I found to my satisfaction that the examination papers set by these four bodies differ only in minor aspects. Therefore it seems to me to be odd that one of these bodies, which has this international characteristic, should be left out. Presumably we have gone international if we have entered the EEC.
I should like to ask the Minister whether it would be possible in this Bill to extend the definition under Clause 13 of the 1976 Act to include the Association of International Accountants. It seems to me that they have a very strong case. I am not, I declare, acquainted with or associated with them. I am not an accountant. I am just a plain, straight-down-the-middle scientist. However, it seems to me, looking at it from that point of view, that they have a claim for recognition in this Bill and that, by giving it, the ability of the Department of Trade to impose its will upon any accountant 1187 wishing to operate from the EEC inside this country would be strengthened, because the Department of Trade could say definitively, "If you do not match up to the standards of our four bodies, I am sorry, but you cannot operate with certification in Britain". May I ask the noble Lord, Lord Lyell, whether he can comment on that aspect of the Bill?
§ 6 p.m.
§ Viscount Caldecote
My Lords, I should like to make two points on this Bill. First, may I add my congratulations to the noble Lord, Lord Noel-Buxton, on his very authoritative and instructive maiden speech. I agreed with the great majority of it but on one point, which I shall mention in a moment, I very much prefer to support the noble Baroness, Lady Elliot of Harwood, in her opposition to the abolition of the registration of business names. This seems to me to be a retrograde step which will return to us the law of the jungle so far as business names are concerned. There will be no possibility of search, to see whether a new company name is appropriate, or indeed whether somebody else is starting a new company the name of which is so close to an existing company as to mislead the people who deal with it. It will make things much more difficult in every respect, and I understand from what the noble Lord, Lord Trefgarne, said in his opening speech that the abolition is mainly to save money.
§ Viscount Caldecote
All right, my Lords, partly to save money. Surely, as the noble Baroness made clear, it could be made to pay. I am told that the fees for searches are absurdly low. I believe they are only a few pence and have not been altered for years. If the fee was £5 for every search made it could be made to pay and surely, with the advent of micro-processors and data retrieval systems, it really would not be very difficult. I should have thought this problem would have been relatively easy to deal with as a result of modern techniques of that kind. It could easily be made a paying proposition of value to industry, as indeed it has been of value to industry for many years. I very much hope that the Government will look at the proposal to abolish the registration of business names completely and will see whether, at least for a trial period of a few years, it could not be made a paying proposition.
My second point relates to small companies. I very much welcome the proposal for a simplification of accounts. I submit that the Government have struck the right balance between making the accounts very much more simple and avoiding abuse, and I am glad that the annual audit requirement for small companies will be retained, otherwise again this could lead to a difficult and misleading situation.
Much attention has been paid recently, and is still being paid, to the formation and growth of small companies. I think I should declare an interest here as chairman of the Industrial and Commercial Finance Corporation, which is very much involved in investment in small companies. We have a very successful record of investment and particularly in one form of investment—in management buy-out. I am glad to say that 1188 these schemes are now being copied by many other investment companies. There is one quite substantial impediment to these successful operations and that is the prohibition on companies on buying their own shares, to which other noble Lords have already referred, under, I think, Section 54 of the present Companies Act. If this were allowed—and I very much agree with the noble Lord, Lord Noel-Buxton, on this—it would make it possible for entrepreneurs controlling and managing their companies who have sold off some of the equity in the early stages (which is very often highly desirable) to use the funds of their companies to buy back those shares and to recover 100 per cent. control of the company.
This is quite important because at the moment there is a tendency for entrepreneurs of this kind to resent any investing company which comes in to help them in the early stages; they resent those companies taking any share at all of the equity. Rather naturally, they want to have their cake and eat it. They want the investment company to give loans and to share in the risks, but they do not want them to share in the success. That is quite natural, and if I were an entrepreneur I think I should take exactly the same line. But an equity investment is a very good investment in the early stages of a small company because it is capital which does not require servicing until profits are made, whereas of course a loan does require servicing right from the outset. So I am glad to know that it is the intention of the Government to introduce amendments which will enable companies to buy their own shares. I welcome that and hope it is true.
With regard to the so-called management buy-outs, they have been successful and they have enabled new companies to arise from the ashes of failed, old, worn-out businesses, but they concern only a relatively few people in the management. The managers put up money, it may be by mortgaging their houses or something of that sort, and an investing company such as the Industrial Finance Corporation provides the balance of money required to enable those managers to buy the business and to retain a majority interest in it and to run it. That has been extremely valuable but it concerns only relatively few people—perhaps half a dozen of the managers.
There is another desirable variation, that these buy-outs should be extended to the whole workforce—a type of co-operative. The objective would be to establish a class of company owned by those who work in it and, in effect, only by those who work in it, and to enable such companies to purchase their own shares. The aim of any amendments that might be moved (as I hope they will be) would be to make available a simple form of business organisation which can be owned and directed by those who work in it.
There would be many advantages to such an organisation. It would have the advantage that it would escape the traditional confrontation between capital and labour, which sadly sometimes exists; it would assist in the spread of wealth and would avoid the disadvantages of absentee ownership. It would provide a vehicle for the conversion of family firms with problems of succession from the family to employee ownership, and that would be a kind of extension of the present schemes of management buy-outs. It would provide a convenient vehicle, similar to a partnership but with 1189 limited liability, for former employees with redundancy money to pool their resources in new enterprises. It would offer another practical solution when a big company decides to hive off a peripheral activity which can stand on its own feet as a profitable enterprise. Under present legislation, which provides for cooperative enterprises, I understand that all the capital must be held collectively and it cannot be held by the individual employees of a company in a way which would enable them to sell the shares for cash, if they so wished.
There are other practical difficulties (with which I will not bore the House tonight) to arranging the kind of businesses to which I have referred. So I very much hope that it may be possible to move amendments at the Committee stage for what might be called "employee buy-out schemes" rather than "management buy-outs" or, as some people have called it, "job ownership companies". This Bill seems to give an excellent opportunity to remove those obstructions to this kind of new company, and I hope that those amendments will be moved and that the Government will support them. Surely they should, for it has long been Conservative policy to have a property-owning democracy. Would it not be a very good thing to extend that to a company-owning democracy?
§ 6.10 p.m.
§ Viscount Hanworth
My Lords, there are two matters on which I should like to speak today: first, approval of company names, and, secondly, the abolition of the Registry of Business Names. These two matters have been dealt with already by a great number of speakers, and I am therefore faced with cutting down a fairly tight-drawn speech; otherwise I shall simply repeat what they said. But there are a few additional points I think I might make. May I first say that I agree with everything that has already been said on this subject. Approval of company names is a valuable Government service, and its abolition would mean that we would have to rely on the Secretary of State's power to direct a company to change its name, from which there is an appeal to the courts or an action under common law by anyone who is prejudiced.
Maybe in today's economic climate some sacrifice in the services to the public has to be made, but, of course, as has already been said, there is the alternative of making this a financially self-supporting registry and charging a larger fee. I gather that is the CBI's view. Surely with efficient organisation and the use of a computer it should take much less than a hour to consider and deal with the average case. Let us face it; the present system is a strong deterrent against the use of unacceptable names. Once again we find the Government off-loading a responsibility which, if effectively enforced in the courts, and I repeat "effectively", where there is a right of appeal, would cost far more. Most certainly many small concerns could not afford the cost of a court action, and the delay in getting the action heard is another deterrent. Even a company which has no intention of offending may well do so simply because they are unaware that another company with a rather similar name exists.
The second matter, in my view, is far more serious. It surely must be a principle that any consumer, or, for the matter of that, any member of the public or 1190 enforcement authority, should easily be able to find out the people responsible for any business, whether or not they have dealt with it. Nuisance could be one reason for someone not trading with the company wanting the information, but I am sure your Lordships can think of many other reasons. The Bill as it stands makes all sorts of restrictions and difficulties in the way in which persons can obtain the information. In this context do not let us forget that in the majority of cases, where the information will be needed to pursue agreements or a claim, it relates to a sharp practice trader who frequently moves his business address, and where legal action against the company is impossible or profitless. I simply cannot understand the present Government's thinking about putting restrictions on this information. Nothing said tonight has explained that. Even with amendments to make the information more readily available the position would still be unsatisfactory. In spite of what the noble Lord the Minister has said, I would urge the Government to continue with the present register, and if necessary make it financially self-supporting and more efficient.
Finally, I would ask that if the Government sincerely believe in promoting free enterprise and the success of our industry and economy, they will concentrate their efforts in simplifying legislation built up over the years, and not in producing the mass of undigested legislation which this House has already had to deal with.
§ 6.14 p.m.
§ The Earl of Onslow
My Lords, I believe it was said by Bertie Wooster that Jeeves was always fed on fish and was an extremely clever man. Listening to what my noble friend Lord Noel-Buxton has said, I suspect that he was never out of a fishmonger's. I welcome this Bill because I hope it will give us a chance to introduce some necessary provision in law, to ensure that member companies of associations with disciplinary powers can report fraud to those disciplinary bodies. This has been shown necessary by the Fisher Report on Lloyd's, and here obviously I must declare an interest because I am an underwriting name at Lloyd's. In the Lloyd's Bill, which will be read a second time in another place in March, it is hoped to introduce a duty on agents, brokers, and members of the Lloyd's community and their staffs, to report to the Committee of Lloyd's, and to enable them to investigate and discipline any knowing presentation of fraudulent claims or fraudulent introduction of business. There is agreement that a provision should be there. Whether it should be a duty or a permission is still to be agreed upon. It is something, however, that is necessary.
If it is necessary—I think the Fisher Report made sure it was necessary certainly to the Lloyd's community—should it not, therefore, be necessary to members of all other self-regulating bodies? Of those we have estate agents, doctors, accountants, solicitors, the Bar, the British Veterinary Association, the Baltic Exchange, the London Metal Exchange and the Stock Exchange. Of course, I am not saying that all these are riddled up to their ankles in corruption; I am not saying that. What I am suggesting is that fraud is now rather easier, with the volume of modern business, with computers, and with the complexity of modern life. It is essential, 1191 above all, that the reputations of these institutions be like Caesar's wife, which I think on the whole most of them are. I think this would be a necessary addition to their powers. It would make it reasonable for this to apply to all disciplinary bodies as opposed to a power confined only to one disciplinary body in the form of the Lloyd's community. I suspect that it is possible to put a clause or clauses to this effect between Clauses 48 and 49 of this Bill. I am sure my noble friend Lord Lyell will tell me extremely quickly if that is not so.
§ The Earl of Onslow
If it is not, perhaps my noble friends can go away and think about it, to see what other methods could be used to cover this point. The noble Lord, Lord Boyd-Carpenter, said that it was a Bill without form, and void, I think he said. Therefore, perhaps the noble Lord, Lord Trefgarne, may not be quite as right as he thought he was as he burbled from the Front Bench. So perhaps something like that would not be out of place.
§ 6.19 p.m.
§ Lord Mottistone
My Lords, I must start by adding my own congratulations to those extended to my noble friend Lord Noel-Buxton. He was, of course, very fully and expertly praised, and nicely praised, by my noble friend Lord Boyd-Carpenter; but there is one particular point, while endorsing all that, that I should like to make. Again it is somewhat unusual for somebody in his profession; the lightness of touch. With the greatest respect to any other solicitors who might be in the Chamber—if the noble Lord, Lord Mishcon, thinks I am referring to him, he, too, of course, has this delightful lightness of touch—it is relatively rare in their profession, if I may say so. I, too, say how we hope to hear our noble friend speaking to us many more times and giving us the benefit of his great wisdom and experience.
I should also like to congratulate my noble friend the Minister for his introductory speech, although I find in my notes: "This is not clear" written against the notes that I have on company and business names. With the greatest possible respect to my noble friend the Minister, it is the one area in which he was not his usual very clear self. It is not without significance that practically everyone in the Chamber has criticised that particular part of the Bill in one way or another. Therefore, I suggest to my noble friend the Minister that this is an area which requires much further study by him and his department in the very short space of time that we have before we reach the Committee stage.
But, of course, as has been pointed out, as this is a Bill which has come to us in an incomplete state at this stage—and Heaven knows why! because the Fourth Directive was agreed a long time ago and the Green Paper was issued last summer—one rather gets the impression that some people have been very dilatory about their labours. It seems to me to be quite disgraceful of the Government to produce a Bill which is incomplete on a subject which, as has been pointed out, is not that urgent. I think that we deserve more in 1192 your Lordships' House—particularly when we are the first people to receive the Bill—than being brushed off with something that is incomplete and, "We shall add a few amendments later". The least that the Government can do to put the situation right is to give us the amendments before we need to complete our amendments, if they be necessary. I think that the Government can recover lost ground, but quite frankly, as much as I support my Government, I am ashamed of them in this respect.
I shall turn quickly to other matters because practically all the ground has been covered. I very much endorse the point made by those of your Lordships who said that we must have a consolidating Act as soon as is practicable. Perhaps, I may add to what my noble friend Lord Noel-Buxton said. I remember that when I left the Navy in 1967 I did a business acquaintanceship course. The lecturer in company law—and this was 1967, which was significant—said, "There is a Companies Bill on the way", which was the 1967 Bill. He then said, "They only come up every 20 years. There was one in 1948 and there was one in 1929", which was not quoted but one can see that it was totally repealed in 1948, and he went on to say that there was one in, I think, 1909. He said, "Therefore, they are rare events and companies get a lot of time to study the law and learn about it." I remember the very phrases. That, as has been pointed out, is no longer the case.
In fairness to the Government, I should point out that that has been partially due to the EEC legislation which has had to be embodied in our legislation, and which is coming through in repeated directives on this sort of subject which come at rather awkward intervals of about a couple of years apiece, and there are some more in the pipeline. I am very fearful lest my noble friend Lord Lyell when he comes to reply will say, in answer to the point that I am making and which others have made before me, "We should love to consolidate the Bill but there are the 'X' and 'Y' directives to come and we must incorporate them, and it will take us a long time to do so". Have I hit the nail on the head?
§ Lord Mottistone
My Lords, my noble friend has another argument. If that be so—and I think it might be—I rather feel, from having studied what people have told me and from looking at the Bill and doing this terrible thing that my noble friend Lord Boyd-Carpenter mentioned (namely, trailing through I do not know how many different Acts of Parliament to get at the solution of what is actually intended by the Government) that it would be worth consolidating this now, regardless of what is to come in the future; to hell with that, consolidate it again in, shall we say, four years' time or whatever. I know that that means a lot of extra work for a lot of no doubt very clever lawyers—and I am sure that they have not got lightness of touch—who would resist that to the umpteenth degree. However, I really think the Government have got to take this bull by the horns, be firm with the people who provide a service to them and make sure that this particular point is dealt with, and dealt with quickly.
1193 I turn now to Part I of the Bill. I should like to make only one major point, and that is to endorse the comment that my noble friend Lord Boyd-Carpenter made; namely, that the Government have not really taken advantage of as many of the derogations open to them as perhaps they should do in the interests of small and medium firms. I know that my noble friend the Minister claimed to take advantage of several derogations, but I understand that there are others which could usefully be taken up. Therefore, I would hope that the Government would look favourably at any amendments that may come before them at a later stage to cover those points.
I should also like to refer briefly to the point made by my noble friend Lord Boyd-Carpenter regarding the really very wide powers that the Secretary of State is proposing to give himself under legislation by statutory instrument in Clauses 18 and 19. I think that it is extremely difficult for Governments to get the balance right as regards that. I recollect very strongly hearing splendid speeches from the Front Bench, when we had the misfortune to be sitting on the other side of the Chamber, criticising the then Government for the disgraceful totalitarian power that they were taking to themselves; and they were doing so, and the noble Lords on the Front Bench were right. However, what is sad is that we find it coming up again and we do not really find a diminution in the extensiveness of the powers given.
I honestly believe that we need to consider two matters. I shall not waste your Lordships' time, but I wish to float this idea for general consideration. I think that we need to have guidelines for departments about the desirability of fundamental rules coming into the Bill. Judgment will be needed as to how they are exercised in detail, but they need guidelines to encourage them to put more guidelines in primary legislation through the draftsmen of the statutory instruments.
The second matter that I think we should give thought to, although I am sure that it will be resisted by all sorts of people including Chief Whips, especially Government Chief Whips, is the proposal that we ought to have a third type of statutory instrument—not just an affirmative and a negative instrument, but an amendable one. Perhaps it would be used only rarely—perhaps it would be used in specific types of cases. But when one considers the matter one realises that a statutory instrument which appears before your Lordships in this House cannot be amended and by tradition is practically never rejected. Even in another place they are very reluctant to reject them. I should have thought that there was room for a procedure of a third type of statutory instrument, and I think that the Government might give thought to that matter. However, as to whether my noble friend Lord Lyell will comment upon the matter, I have my doubts.
I had a great deal to say about company names and, indeed, business names, but I shall not weary your Lordships with repeating it all except to mention two matters. The first is that I implore the Government—and I would not expect an immediate answer except perhaps a welcome comment—to consider charging. If their problem is to save money they should do the job and charge for it, as has been suggested. Secondly, I ask them to give consideration as my noble friend Lord Caldecote said—although I know that this means 1194 capital expenditure and I know that the Government are hard up—to a greater use of computers in order to be able to keep this information in a modern form which can be obtained at a charge when required. From reading the Bill and from hearing what my noble friend the Minister had to say, it sounds as though they had chaps with quill pens running this outfit, and that the problem was that they did not have enough quill pens—they probably had enough chaps! Therefore, I think that this is an area where the Government need to think again.
To be serious, the points raised by my noble friend Lord Boyd-Carpenter with regard to company names and the points raised by my noble friend Lady Elliot of Harwood with regard to business names, quite apart from the repetition of these by many other noble Lords in the House, must make the Government think again. I hope that when amendments are tabled the Government will give them the very best of a fair wind.
Finally, I should like to endorse the point made by my noble friend Lord Caldecote about the reluctance of entrepreneurial small companies to share control of their companies at all, let alone on the understanding that they can, as it were, get the shares back at a later stage; they might be prepared to take it on if that was the case. On a number of occasions I have had to talk to small companies with which I have been associated, which will not expand because they are fearful that to take just that next step, they must have Auntie Bank breathing down the back of their necks. I very much hope that the possible further amendments to the Bill which would cover this point are indeed brought forward, and brought forward quickly.
Having said all that, and having said how disgracefully the Government have behaved in presenting this inadequate—perhaps I should say "incomplete" rather than "inadequate"—Bill to us, I still, in the broad sense, commend it to the House as being worthy of progressing further through the parliamentary machine.
§ 6.32 p.m.
§ Lord Mishcon
My Lords, having heard the debate tonight, I do not think that the Government need any Opposition in this House. Therefore, out of sheer mercy, I shall try to use as kindly language as I can when dealing with this Bill. It is such a pleasure to be able to congratulate a professional colleague like the noble Lord, Lord Noel-Buxton, on his maiden speech. The noble Lord, Lord Boyd-Carpenter, said that it was a rare characteristic of the legal profession to have the clarity of speech—
§ Lord Boyd-Carpenter
My Lords, if the noble Lord will allow me, I did not say the "legal" profession; I said the "solicitors'" profession.
§ Lord Mishcon
My Lords, it is precisely that to which I wish to refer, because I listened to the noble Lord very carefully. He said that he belongs to a profession where clarity is not always the main characteristic; and the noble Lord, Lord Boyd-Carpenter, with his usual speed, has spoilt the whole purpose of my next comment, which was to refer to the fact that the noble Lord, Lord Noel-Buxton, belongs to a different branch of the profession from the one 1195 which the noble Lord, Lord Boyd-Carpenter, graces; and it is the pride of my branch that we are always clear and simple in our speech.
I believe it to be a fact that this is the first time that the noble Lord, Lord Trefgarne—who is so popular in this House—has moved the Second Reading of a Bill which is sponsored by his department when he is a Minister of that department. I think that all of us would want to congratulate him. He learned his diplomacy, with which he moved this Bill—and he must have had much trepidation in moving it—from the times when he has spoken so often and with such ability on behalf of the Foreign Office. As I said, we all find him a most agreeable Member of this House.
I should now like to deal with the Bill itself on its Second Reading. I believe that it must be the language of the Wildlife and Countryside Bill, which has almost filled this Chamber day after day, that prompted my noble friend Lord Ponsonby to say that one would have to exercise great care at the Committee stage in order to ensure that the fledgling came out properly. The noble Lord, Lord Boyd-Carpenter, seemed to wish that the egg, had never been created at all, and I can only say—carrying on this metaphor of the aviary—that it is certainly a legislative curate's egg that has been produced and, as has been said by other noble Lords, it is good in parts and had in parts.
I should like in my Second Reading speech quickly to refer to the parts of the Bill. Part I presents no real difficulty. I am not an accountant but I have an idea that some accountants are a little apprehensive about some of the aspects of this Bill, including in particular the way in which goodwill is written off by the requirements in this part of the Bill. However, quite obviously, these are matters with which we shall deal in Committee, and I have no doubt that those much more learned in accountancy matters will be moving amendments and discussing them in your Lordships' House.
Therefore, speedily, I pass to Part II. Without any question of doubt the Opposition welcome any set of provisions, especially in these economic times, which assist small businesses. If they can be assisted by the removal of unnecessary red tape and regulation, so be it; it must be welcomed. The only slightly cautious note that I want to sound is that on looking at the language of Part II and the definition of medium-sized and small companies in this three-tier set-up, one wonders whether the limitations and the definitions are adequately spelt out in order to ensure that we really are protecting those whom we mean to protect. I think that we may have to look at that during the Committee stage, especially where one notices that one of the ways of defining the medium and small-sized company is by reference to the number of employees. I think that that may be a little difficult from the point of view of such a definition, and again it is something that we may have to examine in Committee. However, there is no doubt that the principle is correct and from the point of view of principle we, on this side, welcome these exemptions.
On Part II of the Bill, I have an idea that the best way in which I can describe the reactions not only of my noble friends, but of so many of those who I like to call my friends but to whom in the language of this 1196 House, I have to refer as "noble Lords opposite", is to say that so much has been said already in regard to these matters that I do not think it would be becoming of me at this hour to repeat speeches that have already been made and which were much more able than any I could deliver. However, in the matter of the Registry of Business Names, for example, it is a case of being penny-wise and pound-foolish. There is no doubt that the real reason here is the economic reason, for there is not the slightest doubt that we could make the Registry of Business Names very much more effective and make it pay for itself by having proper charges. There is also no doubt—we just have to look at those who are up in arms about this—that no politics is involved here; because the Consumer Council, retail associations and my own Law Society (which has not yet been captured by the Left) have objected to this proposal in the strongest possible terms; so have the accountancy professions, and so on. Therefore, I very much hope that the Government will think again.
One has only to look at what the Government have tried to put in its place by way of a self-regulating system for finding out, if you are a consumer, exactly who is in charge of a business, who are the principals, and what are their names and addresses. I have an idea that if the parliamentary draftsman who was responsible for Clause 29(2)—to which I must refer if only for fun, but really it is a serious matter—were to compete for a prize in order that his clause might enter into the everlastingly glorious Alice in Wonderland, for sheer impracticability I assure your Lordships that in my judgment he would win that prize.
May I just refer your Lordships to Clause 29(2) only so that your Lordships will realise what a self-regulating system will do. This is the clause which says, "Well, you know, what you can do is, in certain circumstances, to call upon the business to reveal what are the particulars of the principals of the business and their addresses, and so on". The only persons who can do this are these—and I am going to read from Clause 29(2):Any person to whom section 28 of this Act applies shall secure that the names and addresses required by subsection (1)(a) above"—incidentally, there is no time limit with which one has to comply in order to do it—to be stated on his business letters are given, by written notice, to any person"—now you have to come within this category before you can get these particulars—(a) with whom anything is done or discussed in the course of the business hellip;".I am only, as the noble Lord, Lord Mottistone, was good enough to say, a humble and somewhat light-hearted, and at times I hope clear, as the noble Lord, Lord Boyd-Carpenter, would say, lawyer. But I am trying really to see who it is that is going to be entitled to ask for these particulars. It is,with whom anything is done or discussed in the course of the business …".Whether just a peremptory telephone call which says, "Please, do you sell tennis rackets or don't you?" is a discussion in the course of the business, I would not know.
1197 Now go on:elsewhere than on such premises …".So once you put a foot on the doorstep of the premises, no longer can you require to know who the principals are because you have made your inquiry on the premises, but not elsewhere than on the premises. I am not yet done. You look at (b):and (b) who, at the time that thing was done or discussed,"—that is the famous question: "Do you sell tennis rackets or cricket bats?"had neither visited any such premises …Stop there for a moment. What does that mean, "visited any such premises"? If he stood outside, has he visited? If he rang the bell and there was no answer, has he visited? If he just put a letter through the letter-box, has he visited? I could not tell you. I wish that the noble Lord who delivered that excellent maiden speech would now answer these rhetorical questions, because I know of nobody who could do it more ably.
Then,nor received any business letter or demand stating those names and addresses.What happens if he has received it and lost it? What happens if he once received it and destroyed it because he did not know that he wanted to have these particulars? Once he has received it, whether he has lost it or destroyed it, he can never avail himself of this section and ask for these particulars.
If the Government are trying to put something in the place of the Registry of Business Names, quite apart from the points that have been raised about who is going to regulate this and who is going to enforce it, how will anybody know, and all the rest of it? Really, something has to be done about this clause. I hope that the answer to the whole problem is that we get back to a stronger Registry of Business Names, properly paid for and with proper enforcement provisions in regard to it.
I go to the next point. The noble Lord, Lord Boyd-Carpenter, was, as he usually is, so eloquent on this matter in giving examples of what is Marks and Spence. I am thinking now of the companies registry and the removal under this Bill of the requirement that the name should be not an objectionable name. We all know that one of the objectionable characteristics would be if it were a similar name. Some pertinent questions were asked in the course of the debate. It has to be, before there can be a refusal, the same name. Properly defined in this Bill, the same name. Questions of punctuation, and if you put a little squiggle for "and" or write "a-n-d", have to count as the same name.
Really this is dreadful. Unfortunately, we do not live in times when everyone in this country can say that the consumer is properly protected. You have only to listen to what I regard as a very useful programme like "Checkpoint" on Radio 4, with the rather brave Mr. Cook and the rather brave BBC who, week after week, investigate and tell of consumers who have been defrauded by people who pretend to be what they are not.
Now most people will realise, unless Marks and Spencer have got into a state of impecuniousness (which I think was a word used earlier today) or 1198 possibly some of the lettering has fallen off the front of their shops, that Marks and Spence is not Marks and Spencer. But with medium-sized firms, and so on, the attempt that could be made quite fraudulently to pretend that they are the same firm by advertisements, by literature, by people calling, and so on, constitutes in my humble submission literally a licence to confidence tricksters.
What does this Bill say? If you happen to have the same name, do you know what you can do if you apply to the registrar and say, "Look, this is quite dreadful. You have registered a name which is the same name"? Forget the question of whether it is a confusing name; then he can do nothing at all. You are thrown up to the courts and a passing-off action, about which I have a word to say in a moment. The registrar, under this Bill, has 12 months from the time when the registration takes place. If he does not catch then, or nobody else does, that there is the same name on the register, he will be out of time. He has 12 months, and then he can require within another six months, or such further time as he may decide is just, that the same name be removed. That is a great deal of time for some naughty people to make a nice, handsome kill from using the same name as a reputable firm that has built up goodwill and has a decent name for trading. Are we protecting the public properly in this way? Is it sensible to give up the jurisdiction which the registrar had and exercised—maybe he took rather a long time over it, some of us thought—with great care to see that there was no name that would confuse? These are grave defects in the Bill.
May I move on to talk in terms of the only remedy that is left; the remedy about which it will be lightly said by the noble Lord, Lord Lyell, "Well, you know, if there is this confusion, you can bring a passing-off action". Here I look at my colleagues in the House and say to them, and possibly to others who have had some experience of passing-off actions (whether they be inventors, or others, such as the noble Lord, Lord Lloyd of Kilgerran, who advise people with inventions in such an expert way, or people who pride themselves on the names they have managed to register, and so on) that the requirements of a passing-off action were dealt with as recently as 1979 in Erven Warnick BV v. J. Townend and Sons.
To create a valid action for passing-off, your Lordships will be interested to know that one has to show first a misrepresentation; secondly, that it was made by a trader in the course of trade; thirdly, that it was made to prospective customers or ultimate customers of goods or services supplied by the trader; fourthly, that it is calculated to injure the business or goodwill of another trader in the sense that that is a reasonably foreseeable consequence; and fifthly, that it causes actual damage to a business or goodwill of the trader by whom the action is brought, or, in a quae timet action, will probably do so. That is quite a heavy onus, especially on small people, and a heavy cost is involved, and quite often there is a long delay before the remedy is obtained. We cannot leave the public, the consumer, in this way.
I have spoken for too long already. Earlier, my noble friend Lord Ponsonby mentioned that I would be dealing with an omission and he took it for granted—underestimating, as he seldom does, the ingenuity of 1199 other noble Lords—that I alone would be dealing with the question of "concert parties". In fact, that has been dealt with during the debate. Some of us expressed apprehension about the subject when we discussed the 1980 measure, when we talked about Consolidated Gold Fields, and now we have had Dunlop and an even more recent case. The financial community and the decent people in the City are crying out for legislation on this. I will give only one quotation because, as I say, the point has already been made. It is from the Financial Times, which said in the gentle language it always employs to the Conservative Government:Ducking the issue. One of the most striking things about the 1981 Companies Bill, which had its first reading in the Lords yesterday, is the absence of legislation outlawing 'concert parties'. There is wide agreement that disclosure rules need tightening to prevent anonymous parties secretly amassing a large stake in an unsuspecting company, as De Beers did in Consolidated Gold Fields. The Government's failure to introduce legislation in this Bill is unfortunate because the next opportunity may be a long way off".The Government must not duck this issue. They must have the courage to come forward with a legislative proposal, once we have this Bill, and I noticed what other noble Lords said about whether there is any necessity for a Bill of this kind at this stage. If we are to have another Companies Bill, we must not ourselves duck this issue and we must see that the Government provide for this omission.
There are others I could mention but the House would weary of me if I did. I conclude by saying "Yes" to inspectors' powers, to looking after the little trader and to some of the accountancy provisions; on those it is a sensible Bill. But as to an awful lot of the other provisions which have been dealt with by noble Lords in all parts of the House, I must call them silly provisions which have not been thought out properly, so that without doubt we shall have a very busy and onerous time in Committee if the Bill is to come out of the legislative process as of any use at all to the commercial community and the consumer public of this country.
§ 6.55 p.m.
§ Lord Lyell
My Lords, after the lengthy debate we have had today it falls to me to open my remarks by expressing my personal congratulations, and I believe I express them on behalf of the whole House, to my noble friend Lord Noel-Buxton on his outstanding maiden speech. I well remember my maiden speech. I was tempted to speak not on anything that was close to my heart or anything I had studied or dared look at, so I spoke about chemical warfare. Having spoken for five minutes, I discovered I had been speaking in a debate about biological warfare. My noble friend, seeing where such a speech got me, may feel that in due time he will be able to give us the benefit of his experience and advice from a similarly lofty position to that which I am occupying tonight.
Bringing forward the proposals for the reform of company law embodied in the Bill, the Government have had to do many things. First they have had to decide what it would be realistic to include in the measure, bearing in mind, as always, the constraint of time available to your Lordships. In doing that, the Government have had to apply a rigorous sense of 1200 priorities, reflecting their overall policies, including in particular commitments to help small firms—and we were particularly gratified to receive the eloquent support of the noble Lord, Lord Mishcon, in his belief that we were attempting to help small firms—and the resulting package of measures, including the clauses we have yet to introduce to enable companies to buy their own shares, makes up a very substantial Bill in which there is more than sufficient content to challenge fully the considerable resources of your Lordships' House.
The Bill does not—this will come as a surprise to some noble Lords—set out to reform the whole of company law, which would be a very ambitious task for one Bill. Rather, it seeks to amend important parts of company law. The Government accept that other parts of the Companies Acts could be improved, and noble Lords have referred to a need to reform other provisions not covered by the Bill. There is need to set about any improvements in a considered and deliberate manner because an apparently simple proposal, we always find—and I am sure our predecessors found this—can involve considerable unforeseen ramifications in terms of both commercial practice and consequential legislative provisions.
I would not want any noble Lord to infer from the remarks I have made that the Government are in any sense on the defensive in bringing forward this Bill. On the contrary, we attach great importance to its provisions. The fact that its content has already been subject to examination in the light of priorities reflecting the Government's overall policies has, in our view, ensured the importance of the initiatives in the Bill. Each of these initiatives has different objectives and implictaions for companies and commercial practice; the noble Lord, Lord Lloyd of Kilgerran, called them "commercial practitioners". Thus, while the Bill may not be characterised as fulfilling one overall policy objective, I hope its complexity will not dazzle your Lordships or obscure the importance of each of its provisions.
I should now like to turn to various points that have been raised, both in general and by individual noble Lords on all sides of the House. Perhaps I should start with one of the most contentious matters, that relating to what are known as "concert parties". I understand that the term has nothing to do with going to see Iolanthe or anything of that kind. The matter has a very gloomy term within the department; we call it "disclosure of interests". Nevertheless this problem has reared its head—
§ Lord Mishcon
My Lords, if the noble Lord wishes to continue his most elegant simile, may I say that it has to do with fiddling.
§ Lord Lyell
My Lords, at the operas or concerts which I attend the fiddlers remain somewhere in the pit, and are not in elevated positions—certainly not in your Lordships' House. But I take the legal point so eloquently put by the noble Lord, Lord Mishcon.
A number of your Lordships have referred to the very complicated questions which concern the disclosure of interests. As I have already explained, given the constraints regarding time in your Lordships' House, the Government do not believe that they should include in this already large Bill very complex and wide-ranging 1201 subjects that are candidates, even urgent candidates, for a Companies Bill.
The present law on disclosure of interests is effective in the vast majority of circumstances. The existing law is already complex and is certainly not capable of amendment on any piecemeal basis. However, I would not deny that there is scope for improvement in these particular laws, as in many other provisions of the Companies Acts.
The Government have already recognised that the Consolidated Gold Fields episode last year raised questions about the adequacy of the law, as indeed did the difficulty more recently encountered in establishing the beneficial ownership of Dunlop shares; and indeed in this regard the noble Lord, Lord Mishcon, today raised the question of another company. But your Lordships will recognise that there is a limit to what can be included in the Bill in the provisions on disclosure, in particular if an attempt were made in any legislation to deal with the so-called "concert parties". Any provisions to deal with them would be extremely complex and lengthy. However, the Government hope that the Council for the Securities Industry, and indeed the Stock Exchange, will consider the scope for strengthening the self-regulatory arrangements.
The second major point that has been raised this evening—
§ Lord Mishcon
My Lords, I apologise for interrupting the noble Lord again, and I promise not to keep on doing so, but this is an important point. Is the noble Lord saying that the Government are relying upon the self-regulatory procedure and that they have no intention whatsoever of coming forward with legislation?
§ Lord Lyell
My Lords, may I be brief and say, not yet. Certainly the Government have all these implications in mind. The Government's thought processes will be familiar to the noble Lord, Lord Mishcon. The Government do not wish to include such legislation in the Bill now before your Lordships because we believe that there remain many points to be discussed, certainly in relation to the Consolidated Gold Fields case. The Dunlop instance raises some of the same issues, as well as some different ones. The Government certainly recognise that these cases will not go away, and they are considering them. However, I can give no promise or undertaking that the Government will include in this Bill any provision to deal with these abuses.
The second major point that was raised in the debate —in all parts of the House, I think—was that regarding the Registry of Business Names. At no time have the Government advanced the problem of a financial deficit as a reason for closing the Registry of Business Names. Various Members of your Lordships' House have voiced their opposition to the varying fees. I understand that the fee for registration is £5 and that for a search it is £1, and various noble Lords pointed out that those fees would cover the estimated cost of the operation in the coming financial year. Well, we understand that that is in no way the case, because greater enforcement has been sought in respect of business names, trade marks, patents and other things, and certainly the existing fees of £5 and £1 would 1202 in no way cover the cost of such an operation. However, the Government accept that banks have helped with particular enforcement in this field. The level of compliance is still far too low and no Government, including previous Administrations, have been able to provide the resources that are needed to ensure a greater, more satisfactory level of enforcement—
§ Lord Ponsonby of Shulbrede
My Lords, may I interrupt the noble Lord? He referred to the fees for the registration of business names as currently being £5 and £1, but my proposal was that they should be increased to those figures. The present fees, which are quite inadequate, are £1 and I think 50p for a search.
§ Lord Lyell
I am sorry, my Lords; it was a slip of the tongue. I think that the noble Lord proposed those levels. What I should have said is that even the noble Lord's excellent and practical proposals would not cover the cost of greater enforcement. I apologise—
§ Lord Ponsonby of Shulbrede
My Lords, I wonder whether by the time we reach the Committee stage the noble Lord will be able to say what level of fees would cover the cost?
§ Lord Lyell
My Lords, perhaps the noble Lord would care to put down an amendment or possibly even challenge me at the Committee stage. I am sure that that would be the wish of your Lordships.
My noble friend Lady Elliot of Harwood raised a point about the Registry of Business Names in relation to consumer interests. I am given to understand that a detailed memorandum commenting on the proposed abolition of the Registry of Business Names has been received within the last few days from the National Consumer Council. I assure my noble friend that this is being very carefully considered, and I hope she will accept that the Government cannot make any detailed comments or put forward firm proposals after a period of only a week.
The noble Lord, Lord Lloyd of Kilgerran, raised a particular point regarding the Registry of Business Names. As he will be aware, many representations have been made in this regard. I can assure him, and indeed all your Lordships, that all the representations have been very carefully considered, including the representations from the Institute of Trademark Agents, and—the noble Lord will be glad to know, as I am—from the Institute of Patent Agents. That takes the noble Lord, Lord Lloyd, and myself back a mere four years to when we discussed at length the problems of patents, registration and trademarks.
Although many of your Lordships, as well as many of the representations, have been in favour of retaining the present system of business names, I would point out that all the opponents of the Government system overlook, perhaps naturally, the deficiencies of the existing system. The many decisions that are inherent in the present process inevitably cannot entirely avoid confusion, which many people fear will result from the changes that are now proposed. However, the Government's proposals recognise the reality of confusion in the current situation, and we seek to establish a simple framework in the terms of company law, 1203 beyond which companies should exercise a greater degree of caution to safeguard their own interests. We believe that that is also apposite to small businesses.
The noble Lord, Lord Lloyd, and my noble friend Lord Caldecote raised the question of employees' shares, and the noble Lord, Lord Lloyd, in particular referred to the question of job ownership companies. I appreciate the wish expressed by the noble Lord, Lord Lloyd, and my noble friend Lord Caldecote for a specific legal status for producer co-operatives of the type which we believe has been advocated by Job Ownership Limited. But such co-operatives can be formed and registered under the Companies Acts as they now stand. As a result there is no need, certainly in our view, for an amendment of the Acts at the moment, but we would certainly consider any amendments which might be tabled by the noble Lord, Lord Lloyd, or, indeed, any points that my noble friend Lord Caldecote may wish to raise at a later stage.
Then there were several points which were raised by my noble friend Lord Noel-Buxton. My noble friend, in the course of his outstanding speech, raised many points. He said, first of all, that he was a lawyer. I am only a quasi-lawyer, but some 20 years ago I had to read vast tracts of commercial law, and it is one of the sad things in my life that I no longer have the original copy of the 1948 Companies Act which enabled me to pass many of my exams as an apprentice accountant. But I am sure that my noble friend and the House will appreciate that it is still in force today; and there is a very great deal of literature, including these Acts, which I have had to bring with me in order to have everything here to deal with this matter.
My noble friend Lord Noel-Buxton raised one particular point initially. He suggested that the Bill should adopt the wording of Section 201 of the 1948 Act. I understand that the wording of Section 201 is out of date by reference to (to take one example) show cards. The wording in the Bill which we have before us today is designed to cover all practicable situations, but if my noble friend wishes to raise any more practical points at Committee stage we shall of course be very happy and very willing to consider anything that he might wish to put forward.
§ Lord Mishcon
My Lords, I wonder whether the noble Lord the Minister will forgive me for a moment, only because he has made the very proud claim that all practical documents are in fact covered, whereas the 1948 Act is out of date. Does he realise that the one thing of terrific interest to a supplier is an order form? When a supplier receives an order he wants to know who it is who is ordering, and whether he ought really to deal with the person. Does he know that an order form is not included in the Bill?
§ Lord Lyell
The 1948 Act, I said, was out of date. I am rather frightened that the noble Lord, Lord Mishcon, believes that the Bill is out of date already, but I was not aware of this. If the noble Lord will forgive me, indeed I shall look at this and I am sure we shall return to it on Report, if not even sooner.
1204 My noble friend Lord Noel-Buxton continued with a query about Section 54 of the 1948 Act. My noble friend mentioned the need for reconsideration of Section 54. As your Lordships will be aware, this relates to a company's provision of financial assistance in connection with purchasing its own shares. The Government, and indeed our department, are actively examining the need for amendment in this area, and we hope to be able to bring forward amendments, together with new clauses on the purchase of a company's own shares, at a later stage. We hope it may even be at Committee stage.
The noble Lord, Lord Lloyd of Kilgerran, referred to the problem of the cost of an audit, particularly so far as this concerns small companies. My noble friend the Minister explained in his speech earlier this afternoon the reasons why the Government are retaining the audit requirement. So far as the cost element is concerned, the little information which is available to the Government, and indeed to the general public, about the cost of the audit of small companies does not suggest that it is excessive in relation to its benefit to shareholders, to creditors and, indeed, to the small companies and small businesses themselves, which often benefit from the professional advice of the auditors. In one case, where audit might represent all the outgoings—that of dormant companies—we are indeed ending the audit requirement.
My noble friend Lord Boyd-Carpenter opened his very eloquent remarks by chastising the Whips and the Government with scorpions. Indeed, he criticised the printing of the Bill. My Lords, it is part of my duty to stand before your Lordships both as a spokesman for my noble friend at the Ministry and, indeed, as a Lord-in-Waiting. So I suppose that I have to accept the criticism from my noble friend, because I am given to understand that the errata slips are the responsibility of your Lordships' House, which indeed printed the Bill. I understand that this cannot be held against the department. Nevertheless, I would apologise, first of all to my noble friend and, indeed, to the whole House.
§ Lord Boyd-Carpenter
My Lords, in thanking my noble friend for that handsome apology, may I ask him whether it is not the duty of somebody in a department which is promoting complex legislation of this sort to read the proofs and be sure that the material laid before this House represents what the department accurately wants laid before it?
§ Lord Lyell
My Lords, assuming that the department is able to read and spell, I am sure that it will somehow obtain all the information which has been given so eloquently in that brief intervention by my noble friend. But certainly I will convey his feelings to the department, if need be personally.
My noble friend Lord Boyd-Carpenter raised a particularlystrong query on the purchase of a company's own shares. My noble friend expressed concern at the tabling at a subsequent stage of the Bill of new clauses on the purchase of a company's own shares, and he questioned the urgency for a new Companies Bill. I would express great sympathy with all your Lordships and, indeed, with those outside your Lordships' House who find it difficult to keep up with the recent flow of legislation; but I hope my noble friend will accept that 1205 to a large extent this legislation reflects the volume of activity in harmonising company law within the European Community. Indeed, that is the underlying basis of the Bill which is before your Lordships today.
My noble friend the Minister said earlier that the Government are concerned about the scale of this activity, and certainly my noble friend expressed their concern. But the Government hope that the speech of my noble friend Lord Boyd-Carpenter will be read in our department and elsewhere, and certainly it will be noted well beyond the confines of your Lordships' House.
The noble Lord, Lord Robertson of Oakridge, mentioned his fears about the possibility of requiring those who have to notify substantial shareholdings to identify the shares in the share register. I can see that this would have very considerable attraction, but I would repeat that these matters are very complex and very lengthy, and we believe the Bill is already very substantial. I hope the noble Lord would accept the point that I made to the noble Lord, Lord Mishcon, that certainly the Government recognise the great concern that is felt as to the malpractices that he and others of your Lordships have explained, but we feel that this particular Bill is not the best vehicle by which to legislate to stop these particular abuses.
My noble friend Lord Boyd-Carpenter, and indeed my noble friend Lord Mottistone, referred to Clause 18 of the Bill that is before us this evening. Clause 18 amends Section 454 of the 1948 Companies Act. All of us would share my noble friend's concern, but we hope that it is misplaced in this particular case. The reasons for taking the powers as expressed in Section 454 as it would be amended by Clause 18 of the Bill are fairly simple, but I wonder whether both my noble friends would be content if I were to write to them, since the explanations are fairly lengthy and I see that I have delayed your Lordships considerably already.
The noble Lord, Lord Energlyn, raised one interesting point about the recognition of varying bodies who carried out statutory audits. I would hasten to tell him that my institute, the Institute of Chartered Accountants, is not just 100 years old; we are 127 years old. Certainly one aspect that I would not wish to raise this evening is that of financial qualifications. Above all, the one factor that would cause me to duck, if need be, is war between varying accountancy bodies. Certainly the noble Lord, Lord Energlyn, and members of the professions—and I include the noble Lords, Lord Mishcon and Lord Noel-Buxton—will appreciate that matters concerning the statutory auditing bodies and other professions raise considerable feeling.
The noble Lord, Lord Energlyn, asked about one particular body, the Association of International Accountants, and why they were not recognised under Section 161 of the Companies Act 1948. The Department has received representations over the years from a very large number of bodies who seek recognition. These have all been very carefully considered. The criteria have to be very, very strict and as yet the Secretary of State has not been satisfied that anybody is of a particular standard to add to the present list of four recognised associations. The noble Lord, Lord Energlyn, and I am sure your Lordships, will appreciate that they are the Institutes of Chartered Accountants in England and Wales, in Scotland and in 1206 Ireland, together with the Association of Certified Accountants. The power to add to these bodies is already available, and certainly there is no need for further provision in the present Bill which is before us tonight.
My noble friend Lady Elliot of Harwood asked a very relevant question about whether the Bill affected the current company law relating to annual general meetings and information which has to be laid before them. I think she was speaking of public companies. I am very happy to assure my noble friend, and indeed the whole House, that the Bill does not affect these matters in any way subject to one exception which relates to dormant companies. These are dealt with under Clause 12 of the Bill. There are small companies which have not traded throughout the financial years in question or indeed since, and these are what we regard as dormant companies and they are dealt with in the Bill. I hope that my noble friend will be reassured on this particular point.
We have had a lengthy and very interesting debate on the Bill this evening. I entirely agree with the noble Lord, Lord Lloyd of Kilgerran, and my noble friend Lord Noel-Buxton, that there is a very great need for a consolidation Bill on company law. When the Bill which is before your Lordships' House this evening is enacted, there will be five main Acts of Parliament: the Acts of 1948, 1967, 1976, 1980 and 1981. These five Acts will comprise over 700 pages of legislation with a multitude of cross-references. We, above all, recognise that this has become a very severe problem for everybody who is affected and concerned. Therefore, I am pleased to report that work is already in hand on this particular matter with an experienced draftsman working under the auspices of the Law Commission. But the task is immense and we must recognise that it will be some time before we can be ready for a consolidation Bill. But the Government take pride in having embarked on this particular task. I am indeed advised that a substantial number of clauses have been drafted towards the start of this consolidation Bill, so I hope your Lordships will appreciate that this is a continuous process.
At last I should like to conclude and make very clear that the Government have considered the scope of this Bill thoroughly, with the availability of your Lordships' time and indeed parliamentary time especially in our minds. Given the Government's intention to introduce new clauses and provisions shortly to permit companies to purchase their own shares—these will be a substantial addition to the Bill—I am not able to hold out much hope that the Government can look sympathetically upon other attempts to extend the scope of the Bill. Instead, I urge your Lordships to use the considerable experience in your Lordships' House, together with the expertise that we have heard tonight—and we heard from the noble Lord, Lord Ponsonby, that he will be returning to us at later stages and indeed we have (I must not say our "first team") our legal experts returning to us, I understand, at the later stages—to ensure that the provisions which are in the Bill, and which we have discussed this evening, are subject to the most rigorous and thorough examination. This is the most valuable contribution which your Lordships can make at this time to the reform of company law. For that reason, 1207 I commend to the House the Second Reading of this Bill.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.