HL Deb 19 March 1981 vol 418 cc932-53

8.2 p.m.

House again in Committee.

Clause 40 agreed to.

Clause 41 agreed to.

Lord Mackay of Clashfern moved Amendment No. 110: After Clause 41, insert the following new clause:

("Power of company to issue redeemable shares

.—(1) Subject to the following provisions of this Part of this Act, a company limited by shares or limited by guarantee and having a share capital may, if authorised to do so by its articles, issue shares which are, or at the option of the company are to be liable, to be redeemed.

(2) No redeemable shares may be issued at any time when there are no issued shares of the company which are not redeemable.

(3) Redeemable shares may not be redeemed unless they are fully paid.

(4) The terms of redemption must provide for payment on redemption.

(5) Subject to section (Power of private companies to redeem or purchase own shares out of capital) of this Act—

  1. (a) redeemable shares may only be redeemed out of distributable profits of the company or out of the proceeds of a fresh issue of shares made for the purposes of the redemption; and
  2. (b) any premium payable on redemption must be paid out of distributable profits of the company.

(6) Subject to the provisions of this Part of this Act, the redemption of shares under this section may be effected on such terms and in such manner as may be provided by the articles of the company.

(7) Shares redeemed under this section shall be treated as cancelled on redemption, and the amount of the company's issued share capital shall be diminished by the nominal value of those shares accordingly; but the redemption of shares under this section by a company shall not be taken as reducing the amount of the company's authorised share capital.

(8) Without prejudice to subsection (7) above, where a company is about to redeem any shares under this section it shall have power to issue shares up to the nominal amount of the shares to be redeemed as if those shares had never been issued.

(9) For the purposes of section 47 of the Finance Act 1973 the issue of shares by a company in place of shares redeemed under this section shall constitute a chargeable transaction if, and only if, the actual value of the shares so issued exceeds the value of the shares redeemed at the date of their redemption; and where the issue of the shares does constitute a chargeable transaction for the purposes of that section, the amount on which stamp duty on the relevant document relating to that transaction is chargeable under subsection (5) of that section shall be the difference between—

  1. (a) the amount on which that duty would be so chargeable if the shares had not been issued in place of shares redeemed under this section; and
  2. (b) the value of the shares redeemed at the date of their redemption.

(10) Subject to subsection (11) below, for the purposes of subsection (9) above shares issued by a company—

  1. (a) up to the nominal amount of any shares which the company has redeemed under this section; or
  2. (b) in pursuance of subsection (8) above before the redemption of shares which the company is about to redeem under this section;
shall be regarded as issued in place of the shares redeemed or (as the case may be) about to be redeemed under this section.

(11) Shares issued in pursuance or subsection (8) above shall not be regarded for the purposes of subsection (9) above as issued in place of the shares about to be redeemed unless those shares are redeemed within one month after the issue of the new shares.").

The noble and learned Lord said: It might be helpful if I were to take this opportunity to describe the objectives of Amendments Nos. 110 to 122 taken together. The general legal prohibition in this country of a company buying its own shares is very nearly 100 years old, as it was established by a case in 1887. In this particular aspect of company law we have been somewhat out of step with the position in the United States and in Europe, where the purchase of own shares is generally permitted.

When the Jenkins Committee considered this matter in 1962 it reported that it would be possible to devise effective safeguards to protect both creditors and shareholders if it were considered appropriate to permit the purchase of own shares. But, they said, they had received no evidence that British companies needed the power, and most witnesses were against it. They therefore recommended that the general prohibition should remain.

Since then, opinion has developed remarkably on this subject. A growing number of representations have been made in recent years that this was a facility that should be available to companies in the United Kingdom, as to their counterparts in the European Community. The Government indicated during the passage of the Companies Act 1980 that they believed that the present prohibition should be relaxed. A Green Paper was published in June 1980 discussing the main issues involved. Much of this Green Paper comprised a paper by the department's research adviser on company law, Professor Gower, and I should like to take this opportunity to express the Government's appreciation of the contribution that he has made on this and other company law matters in the period since his appointment, which has (I do not need to remind noble Lords) been a particularly active period for company law.

The Government made their position in principle clear on this matter last year, and the Green Paper was launched on a very fair wind. But the Government were delighted and impressed by the scale and warmth of the response which it evoked. Whatever the position in 1962, it is certainly the case in 1981 that there is a widely-felt demand among companies for this facility and a keen interest in the Government's proposals, particularly, but not exclusively, among small companies.

In the light of this response, the Government are confident that your Lordships will welcome these amendments to the Bill. I know that your Lordships' welcome would have been even warmer had we been able to incorporate the clauses in the Bill on introduction. But I think it is apparent from the scope and content of these clauses that in providing this facility to companies we have had to take considerable care to ensure that the legitimate interests of companies themselves, of shareholders and of creditors are not prejudiced. In other words, we felt it better to table clauses that have been thought over, rather than inadequate clauses earlier. But I understand that noble Lords will wish to have time to reflect on these provisions, and may well wish to return to them in greater detail.

With the leave of the Committee, I shall briefly describe each of the clauses at this stage, and for convenience I shall refer to them by their amendment number. Amendment 110 enables companies to issue redeemable shares. This will replace Section 58 of the 1948 Act, under which companies could issue only redeemable preference shares. Your Lordships will remember that earlier in this Committee stage I moved amendments to delete the word "preference" now and again. That was in consequence of this change, where the phrase "redeemable preference" had previously been used. Subject to Amendment 116, which I shall refer to shortly, shares must be redeemed out of distributable profits or the proceeds of a fresh issue. Shares redeemed are to be treated as cancelled on redemption.

Amendment No. 111 has the virtue not only of brevity but of providing the key new power for companies to purchase their own shares. Similar conditions apply as to redeemable shares. I should draw the attention of noble Lords to the fact that this facility will be available to both public companies, including investment trust companies, and to private companies.

Amendment No. 112 contains the requirements for the authorisation of purchases of own shares off a market. It should be considered in conjunction with Amendment No. 113, which deals with the procedures for the authorisation of purchases of shares on a market. The Government's approach here has been to devise arrangements for the authorisation of purchases which are practicable in the circumstances of a share purchase, which nevertheless provide due opportunity for the approval of shareholders to be given to purchases, and which meet the requirements of the European Community Second Directive, which lays down a régime for public companies. The effect of the clauses is to provide one procedure for purchases of shares listed on a recognised stock exchange or dealt in on a market such as the unlisted securities market, where it is not practicable to require authorisation of particular purchases, and a different procedure for other purchases.

Amendment No. 114 provides for the disclosure of purchases and contracts to purchase as part of the safeguards I referred to earlier. Amendment No. 115 provides for the creation of a capital redemption reserve to ensure that, subject again to Amendment 116, capital is maintained in the event of a redemption or repurchase. This is clearly one of the most important safeguards for creditors.

Amendments Nos. 116 to 119, however, provide for the situation in which a private company wishes to effect a redemption or a repurchase, but has insufficient distributable profits or is unable to raise the amount required by way of a fresh issue. As proposed in the Green Paper, we are in these clauses providing a procedure for capital reduction which avoids the need for the company to apply to the court under the appropriate provisions of the 1948 Act. Of course, we have had to build in adequate safeguards for shareholders and for creditors, including requirements as to special resolutions, publicity, declarations and the right for them ultimately to take the matter to the court. But we would expect the new arrangements to have considerable advantages for private companies in terms of time and expense.

Amendments Nos. 120 and 121 deal with circumstances which we all hope will be rare but which we must provide for, where the provisions in the clauses which I have briefly described earlier are not fulfilled because the company goes into liquidation at an early date or because an agreement to redeem or purchase is not carried through. Amendment No. 122 contains miscellaneous and supplemental provisions of the type normally associated with provisions of this sort.

I apologise for taking up so much of your Lordships' time on these amendments, but I hope noble Lords will have found this indication of the background and our objectives helpful. I would accordingly move Amendment No. 110, which I have briefly described.

Lord Ponsonby of Shulbrede

May I thank the noble and learned Lord for explaining the purposes of Amendments Nos. 110 to 122? He rightly anticipated the views of the Committee in moving the amendments in saying that the Committee would have been much happier if these amendments had been included in the Bill when published. As it is, tonight we are virtually engaged in a Second Reading debate on these 12 clauses, because they are very substantial in their effect. We have no particular objection to the purpose of these clauses but shall want to examine each of them carefully and possibly come back with amendments of detail at Report stage.

Lord Mishcon

I entirely echo the words of my noble friend Lord Ponsonby, but I want to ask two questions which could help in considering the two clauses. Although the Committee could not be consulted before now on these clauses because they have only just been put in as amendments, can the noble and learned Lord inform us whether the Stock Exchange, the Institute of Chartered Accountants, the Law Society and the Bar Council have had the opportunity of making representations on the clauses? I think that the answer to that may facilitate our own consideration of the situation before reaching Report stage. I confess to the noble and learned Lord that my second question might result from my foolishness and, if it is so, I would ask him to be merciful. In Amendment No. 110, there is a requirement in subsection (2): No redeemable shares may be issued at any time when there are no issued shares of the company which are not redeemable". We seem to have gone in draftsmanship from double negative to triple negative. I see what it means. It means, I assume, that unless you have got a share issued which is not a redeemable share, you cannot issue any more redeemable shares. I should like the noble and learned Lord to explain the purpose of this and whether, whatever the purpose may be, it has any practical effect when presumably all that you need to do is to issue an ordinary share which is not redeemable—one insignificant share to some insignificant shareholder—and the whole subsection is completely worthless from the point of view of saving or preventing anything that this subsection is supposed to prevent. It may be that there is something very simple which will explain all this. I should be grateful if the noble and learned Lord could clarify the matter.

Lord Mackay of Clashfern

So far as the first point is concerned, there has been extensive consultation with all the bodies mentioned in connection with the formulation of these clauses. I am not saying that they have seen the precise detail of the clauses, but there has been extensive consultation with them about what was proposed. The object of subsection (2) is to ensure that there is always some non-redeemable equity issued in the form of ordinary shares before this redeemable share is possible. It is true that the equity can be small but it is still necessary to have that as a starting point for the company; otherwise the position would be that a company would be able to redeem its whole capital and wipe itself out. Even a small, rather insignificant share of the type the noble Lord referred to would have that effect, although the resulting company would be a modest one.

Lord Lloyd of Kilgerran

May I apologise for the fact that I was not in my place when the noble and learned Lord the Lord Advocate recommenced the proceedings. I should like to say, to save time, that so far as these Benches are concerned, we agree in principle with all the amendments in the 16 to 17 pages of amendments which are now put in by the Government regarding the purchase of shares? Also, may I apologise, in view of another commitment that I have 200 miles away tomorrow morning, for the fact that I shall not be staying for as long as I ought on this occasion? I am obliged to your Lordships for allowing me to say those few words.

Lord Mackay of Clashfern

My Lords, I should like to thank the noble Lord for his remarks. I sympathise with him in his journey. I am in somewhat the same position myself; but, for me, the journey will be first thing tomorrow morning.

The Deputy Chairman of Committees (Lord Alport)

I understand that the noble and learned Lord the Lord Advocate spoke to Amendments Nos. 110 to 122. Is it the desire of the Committee that I put these amendments to the Committee en bloc?

Lord Wedderburn of Charlton

No.

On Question, Amendment agreed to.

8.15 p.m.

Lord Mackay of Clashfern moved Amendment No. 111: After Clause 41, insert the following new clause—

("Power to purchase own shares

Purchase by a company of its own shares

.—(1) Subject to the following provisions of this Part of this Act, a company limited by shares or limited by guarantee and having a share capital may, if authorised to do so by its articles, purchase its own shares (including any redeemable shares).

(2) Section (Power of company to issue redeemable shares) of this Act shall apply in relation to the purchase by a company under this section of any of its own shares as it applies in relation to the redemption of redeemable shares by a company unde that section, save that the terms and manner of purchase need not be determined by the articles as required by subsection (6) of that section.

(3) A company may not purchase any of its shares under this section if as a result of the purchase of the shares in question there would no longer be any member of the company holding shares other than redeemable shares.").

Lord Wedderburn of Charlton

If the noble and learned Lord the Lord Advocate is of the opinion that he has moved this amendment which I understand is the position in this Committee, I did not speak to the last amendment for the reason that that amendment did not change company law in a fundamental way; it extended the ability to have redeemable shares—which already exists—to some degree. This amendment, I would submit, is the very centre of the new structure which, as the noble and learned Lord has suggested, will be entirely novel, albeit we have for centuries been out of step with many European legal systems and with the United States jurisdiction in certain respects as well. Nevertheless, since the noble and learned Lord, I am sure, has relied a great deal upon the most interesting report by Professor Gower, The Purchase by a Company of its own Shares, it is right to judge the proposals which the Government have brought forward perhaps by some other words of Professor Gower ill his Textbook of Modern Company Law—words which, since I am now associated with it, I hasten to assure the noble and learned Lord were there in the edition long before the assistant editors had anything to do with it. Professor Gower described in Trevor v. Whitworth of 1887, to which the noble and learned Lord referred, the rule that a company may not purchase its own shares, in the following way: Such acquisitions are dangerous, not only because they might result in the reduction of the capital yardstick to the detriment of creditors, but also because, if the company paid more than the true worth of the shares, it would dilute the value of the remainder, while, if it paid too little, it would increase the value of the remainder and might be used by the directors to enhance the value of their own holdings. Moreover, such purchases might be used by the directors to maintain themselves in control". That, I suggest, is a reasonable summary of some of the problems to which the Green Paper (to which Professor Gower so admirably contributed) addressed its mind. But the subsequent pages of the book, pages 226 and 227, relate to that issue the other parts of our company law especially in the statute of 1948. The noble and learned Lord will know that I am referring in particular to Section 27 of the 1948 Act, which bears a very close proximity in purpose with the long-established rule which it is now proposed to change—namely, that the subsidiary cannot be a member of its holding company.

Also I refer to Section 54 of the same Act which, although somewhat amended in the 1980 Act, is still substantially and correctly described, I think, as the section which prohibits financial assistance for the purchase or subscription of a company's shares. The most recent judicial decision has put the most strict interpretation on that section. It is, therefore, highly odd that the Government come forward with clauses which they could not put into the Bill on first publication because they had not then made up their mind exactly how they should be framed; odd to produce clauses relating to a company purchasing its own shares as against the previous clause in relation to redeemable shares, which is a minor useful enhancement of company law, and yet not have any conclusions about clauses of that kind. I apprehend that I have not given the noble and learned Lord a full list; he can make one for himself, or, if he is off early in the morning, perhaps one of his advisers will do it for him. But there is a large hinterland of company law which I submit is not dealt with at all in these amendments, some of which must be dealt with.

Indeed, in approaching these amendments, for all the warmth with which the noble and learned Lord said companies have displayed towards their publication—and I think that is not, as it were, an unblemished canvas—there are some who have evinced fears; those who know far more than I do about open-ended funds have not had un-mixed feelings, as I am sure the noble and learned Lord will tell us. But when the noble and learned Lord speaks to this clause as opposed to the last one, which allowed him to give us a wider panorama, I hope he will tell us just what the position will be in his understanding in regard to such funds.

It is very strange to come forward and say we are going to change company law and that a company can buy its own shares, and then not add whether or not a company can provide financial assistance for the purchase of its own shares. I am aware that the noble and learned Lord will tell me that in the last paragraph of Professor Gower's report on the purchase of own shares, where he makes proposals to which I should like to come in a moment, Professor Gower says that the view is held that to retain Section 54 while giving companies the right to purchase their own shares appears to be anomalous. Then, at the end of paragraph 66, Professor Gower says, and I quote: This, however, is not the view taken by the second directive (sec Article 23) and it is thought that that view is correct. The abuses which can flow from the latter practice, as many inspectors' reports have shown, both prevalent and likely, are more dangerous than an open purchase by the Company itself. This is not to suggest that the section is not indeed a clarification and amendment". I think that is a fair quotation. It seems to me that what Professor Gower is saying is that the view to do nothing in Section 54, but to pass these amendments, is indeed to introduce an anomaly, but it will not be a very big or dangerous one because while breaches of Section 54 are very serious and dangerous the open purchase of shares by the company itself is not as dangerous as that.

It seems to me that the Government must tell us a little more about its ultimate intentions. I cannot believe that the noble and learned Lord is going to tell us that these clauses are in their final form. To take five matters almost at random: first, which of the purposes in paragraph 11 of the Green Paper are being pursued by these amendments? I immediately add that of course it is not headings J to K; that is to say, in effect allowing companies to rig the market or to traffic in their shares—but it is interesting that Professor Gower had to take account of that. if it is not market rigging and it is not trafficking in shares, which of the other purposes—all of them arguable but very different—are being pursued? And are the ones which are being pursued for private companies exactly reflected in these clauses or not?

That leads me to a second question. Where there is to be permission to purchase own shares, are the Government fully satisfied that in regard to both public and private companies the three problems mentioned especially in the report are dealt with? The first is that of disclosure. There is a lot about disclosure in the subsequent clauses, but when we come to them later there may perhaps be cause for looking at them a little more carefully. More importantly, and much more worrying, is the question of the executory contract; the problem which is sometimes illustrated by the right to buy shares in instalments, which is dealt with to some extent in Clause 119—the noble and learned Lord will tell me if that is wrong—but not, I think, in regard to all matters.

Lastly under this heading, there is the requirement that members' approval must be obtained. Why is it that sometimes it is by a special resolution but in other cases—and particularly in one case we are coming to—it is by an ordinary resolution? What is the logic behind the structure of the approval mechanism? Thirdly, there is the problem of the protection of the minority which is discussed in paragraphs 40 and 44 of the Green Paper. There, one suggestion is that one should stop those who are interested in having an improper effect on the voting on those resolutions, which is somewhat reflected in the clauses that follow. The other proposal (one which Professor Gower rather prefers) is to allow the dissident minority to petition the court. I appreciate that there is that right in one clause—unless I misunderstood it, the clause dealing with the permissible capital reduction—in regard to private companies, but have the Government considered the proposals rather more widely than that, if not to apply to both private and public companies then at any rate to apply to private companies outside the ambit of the clause wherever it appears.

Lastly, and this is something I hope we shall come back to on Report stage, because I do not quite understand the clauses as I have been able to read them, what is the relationship to the structure that the Government is putting before us and the problem of insider dealing? Because of course all the protections which are being built in are fine so far as they go, but is it not the case that to allow a company which in effect means the directors, to purchase its own shares, is to open up a new front in the battle on insider dealings? It may be that it has escaped me in the clauses, but I have not found in the clauses themselves any great bulwark against the practice, which now, as a legislature, we condemn; we made it criminal under the 1980 Act (Part V) and surely it must be right that something should be done to apply Part V to the rather wide area which has now opened up.

I immediately hasten to say that I am not suggesting that the companies which will make use of these provisions are all chaired and run by rogues who wish to take part in insider dealing, but insider dealing does exist and that is why we made it a crime. However much it exists, here is a new opportunity to engage in it. What is the Government's response? Is it not right that they should take these clauses away and relate them to insider dealing, to match their own statutes which they passed last year and which appear to be reflected not at all in these clauses? I have taken the opportunity in regard to this clause, because this is the central clause, to open up some questions for the Government to answer.

Lord Robertson of Oakridge

May I follow the noble Lord, Lord Wedderburn of Charlton, on his last point dealing with possible insider dealing. Section 68(6) of the 1980 Companies Act provides that persons in possession of non-published price-sensitive information are unable not only to deal themselves but also to counsel and procure another person to deal in the securities concerned. I should be grateful if the noble and learned Lord could say whether it is the Government's opinion that that section covers directors acting collectively as a board, and if he would give an assurance that this particular point will be the subject of further discussions which will take place with the relevant bodies.

8.30 p.m.

Lord Mackay of Clashfern

Noble Lords have opened up a wide range of matters. May I answer by identifying what the Government feel are the advantages that will result from the new clauses, first of all so far as private companies are concerned. It can often be very difficult to transfer shares at present, with the result that shareholders can become "locked in"; that is, unable to sell their shares and recover their investment in a company. It is considered that the availability of a power of the company itself to use its funds to purchase its own shares will in many cases afford companies the means of releasing such investments. This will increase the attraction of investment in private companies from the point of view of the investor, who will have greater assurance that he will be able to recover his investment. Also the power to purchase own shares should make entrepreneurs and family companies less reluctant to accept participation of outside capital as equity capital, as they will have the assurance that there need be no long-term dilution of control.

The power may also contribute to improved management of small companies as such companies will be able to use their funds to purchase by agreement the shares of persons not closely involved with the conduct of their affairs or the shares of dissenting shareholders. Small family companies will find it easier to maintain family control, as they will be able to use the funds of the company to purchase shares of deceased or retiring family members. The power should also make it easier for capital transfer tax liabilities arising on the transfer of shares between members of such companies to be met.

If I may bring this to a particular example, the job ownership companies—if I can use their full title—referred to in the amendments proposed by the noble Lord, Lord Seebohm, are a good example of the particular way in which companies of this type would benefit from having this power.

The advantages which have been identified for public companies, in the case of which shares may well be found more readily transferable, are somewhat less clear cut. However, some large companies and financial institutions have asserted that a power to purchase own shares could provide a means for such companies to return surplus funds to shareholders, thus allowing financial resources to be deployed more usefully within the economy. The evidence of experience in other countries, most nobably the USA, is that large companies find advantage in a power to purchase their own shares as affording flexibility in ordering their capital structure and matching that structure to their needs at a particular stage in the development of a company. It has been suggested that the power will facilitate what has come to be called "demergers", and, in the special case of investment trust companies, that a reduction of issued share capital achieved by a purchase of own shares will enable market prices of shares to be more properly related to asset value. There is no doubt that the risk of abuse of a power to purchase own shares is greater in the case of public companies with shares actively traded on a market, but the Government consider that adequate safeguards can be provided against abuse. While acknowledging that the arguments for a power are less compelling in the case of public companies, the Government do not consider that the possible objections to provision of the new power for such companies are sufficiently strong to justify denying it under the safeguards which have been proposed.

May I turn now to the question which has been asked specifically on insider dealings? The insider dealings of the 1980 Act will apply to market purchasers of own shares as defined in the proposed clauses, and to transactions effected through licensed dealers. The Government take the view that no amendments are needed to these provisions. It is unnecessary to provide a remedy against insider dealing in transactions effected directly between a company and a shareholder such as will normally be the case in private companies. All such transactions will be undertaken only with the consent of the seller under the terms of the Government Amendment No. 121A, who will be well aware of the advantage that the company has in this respect.

If, on the other hand, the seller seeks to use some confidential information which he has at the expense of the company, he will be in breach of his duty to the company and a remedy will lie accordingly. In those cases, we believe that it can be left to the prudence of the company, on the one hand, and the seller, on the other, to make necessary inquiries of one another whenever a purchase is suggested and to take such steps as the circumstances indicate would be justified to ensure that they comply with the general law.

In answer to the question raised about instalment contracts by the noble Lord, Lord Wedderburn, that I would refer him to subsection (4) of the new clause provided by Amendment No. 110, which provides for payment on redemption and this also applies to purchase. Amendment No. 121 deals with the possible questions of breach of executive contracts to redeem on their own shares. These are the main provisions which deal with the problems of the instalment contract. I hope that, in the light of these explanations, the Committee will agree to Amendment No. 111.

On Question, amendment agreed to.

Lord Mackay of Clashfern moved Amendments Nos. 112 to 120: After Clause 41 insert the following new clause:

("Authority for off-market purchase.

.—(1) This section applies to an off-market purchase by a company of any of its own shares.

(2) A purchase by a company of any of its own shares is an off-market purchase for the purposes of this section if either—

  1. (a) the shares are purchased otherwise than on a recognised stock exchange; or
  2. (b) the shares are purchased on a recognised stock exchange but are not subject to a marketing arrangement on that stock exchange.

(3) For the purposes of this section shares of a company are subject to a marketing arrangement on a recognised stock exchange if either—

  1. (a) they are listed on that stock exchange; or
  2. (b) the company has been accorded facilities for dealings in those shares to take place on that stock exchange without prior permission for individual transactions from the authority governing that stock exchange and without limit as to the time during which those facilities are to be available.

(4) A company shall not make an off-market purchase of its own shares unless the purchase of those shares and the terms of the contract of purchase have first been authorised by a special resolution of the company.

(5) The authority conferred by any such resolution may be varied or revoked by special resolution of the company.

(6) In the case of a public company an authority for an off-market purchase of any of its own shares must specify a date on which the authority is to expire; but, subject to the preceding requirement, any such authority may be renewed from time to time by special resolution of the company.

(7) The date specified in accordance with subsection (6) above in any special resolution of a public company to confer or renew authority for an off-market purchase shall not be later than eighteen months after the date on which the resolution is passed.

(8) A special resolution of a company to confer, vary, revoke or renew authority for an off-market purchase of any of its own shares shall not be effective for the purposes of this section if any member of the company holding shares to which the resolution relates votes on the resolution, otherwise than—

  1. (a) on a poll; and
  2. (b) in respect only of shares other than shares to which the resolution relates;
and the resolution would not have been passed if he had not done so; and, notwithstanding anything in a company's articles, any member of the company may demand a poll on the question whether any such resolution shall be passed.

(9) Any such resolution shall not be effective for the purposes of this section unless (if the proposed contract of purchase is in writing) a copy of that contract or (if it is not in writing) a written memorandum of its terms is available for inspection by members of the company both—

  1. (a) at the registered office of the company for not less than the period of fifteen days ending with the date of the meeting at which the resolution is passed; and
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  2. (b) at the meeting itself.

(10) A public company may make a purchase of its own shares in accordance with this section after the expiry of any time limit imposed by virtue of subsection (6) above in any case where the contract of purchase was concluded before the authority expired and the terms of the authority permitted the contract to be executed wholly or partly after the authority expired provided that it was concluded before it.

(11) Where a company proposes to agree to a variation of an existing contract for the purchase of any of its own shares the references in subsection (9) above to the proposed contract of purchase shall be read as referring to the orginal contract together with the proposed variation (and any variations previously made).

(12) For the purposes of this section a vote and a demand for a poll by a person as proxy for a member shall be the same respectively as a vote and a demand by the member.")

After Clause 41 insert the following new clause:

("Authority for market purchase.

.—(1) This section applies to a market purchase by a company of any of its own shares.

(2) A purchase by a company of any of its own shares is a market purchase for the purposes of this section if it is a purchase made on a recognised stock exchange, other than a purchase which is an off-market purchase for the purposes of section (Authority for off-market purchase) of this Act by virtue of subsection (2)(b) of that section.

(3) A company shall not make a market purchase of its own shares unless the purchase has first been authorised by the company in general meeting.

(4) A resolution authorising market purchases of a company's own shares in accordance with this section may confer general authority for that purpose or authority limited to the purchase of shares of any particular class or description, and the authority conferred may be unconditional or subject to conditions.

(5) Any such authority must—

  1. (a) specify the maximum number of shares authorised to be acquired;
  2. (b) determine both the maximum and the minimum prices which may be paid for those shares; and
  3. (c) specify a date on which the authority is to expire.

(6) Subject to subsections (5) above, any such authority may be varied, revoked or from time to time renewed by the company in general meeting.

(7) The date specified in accordance with subsection (5)(c) above in any resolution of a company to confer or renew authority for market purchases shall not be later than eighteen months after the date on which the resolution is passed.

(8) A company may make a purchase of its own shares in accordance with this section after the expiry of any time limit imposed by virtue of subsection (5)(c) above in any case where the contract of purchase was concluded before the authority expired and the terms of the authority permitted the company to make a contract of purchase which would or might be executed wholly or partly after the authority expired.

(9) A resolution of a company to confer or vary authority for market purchases of its own shares may determine either or both of the prices mentioned in subsection (5)(b) above by—

  1. (a) specifying a particular sum; or
  2. (b) providing a basis or formula for calculating the amount of the price in question without reference to any person's discretion or opinion.

(10) Section 143 of the 1948 Act (registration of copies of certain resolutions and agreements) shall apply to any resolution of a company conferring, varying, revoking or renewing any such authority.")

After Clause 41 insert the following new clause:

("Disclosure of particulars of purchases and contracts of purchase.

.—(1) Within the period of twenty-eight days beginning with the date on which any shares purchased by a company under section (Power to purchase own shares) of this Act are transferred to the company the company shall deliver to the registrar of companies for registration a return in the prescribed form stating with respect to shares of each class purchased the number and nominal value of those shares and the date on which they were transferred to the company.

(2) In the case of a public company the return required by this section shall also state—

  1. (a) the aggregate amount paid by the company for the shares; and
  2. (b) the maximum and minimum prices paid in respect of shares of each class purchased.

(3) Particulars of shares transferred on different dates and under different contracts of purchase may be included in a single return under this section; and in any such case the amount required to be stated by subsection (2)(a) above shall be the aggregate amount paid by the company for all the shares to which the return relates.

(4) Where by virtue of section (Power to purchase own shares) of this Act a company enters into a contract to purchase any of its own shares the company shall keep at its registered office—

  1. (a) if the contract is in writing, a copy of that contract; or
  2. (b) if it is not in writing, a memorandum of its terms;
from the conclusion of the contract until the end of the period of ten years beginning with the date on which the transfer of shares under the contract is completed.

(5) Every copy and memorandum required to be kept by subsection (4) above shall, during business hours (subject to such reasonable restrictions as the company may in general meeting impose, provided that not less than two hours in each day are allowed for inspection) be open to the inspection—

  1. (a) of any member of the company without charge; and
  2. (b) if the company is a public company, of any other person on payment of such reasonable fee for each inspection as the company may prescribe.

(6) If default is made in delivering to the registrar of companies any return required by this section, every officer of the company who is in default shall be liable—

  1. (a) on conviction on indictment to a fine;
  2. (b) on summary conviction to a fine not exceeding the statutory maximum or, on conviction after continued contravention, to a default fine not exceeding one-tenth of the statutory maximum.

(7) If default is made in complying with subsection (4) above or if an inspection required under subsection (5) above is refused, the company and every officer of the company who is in default shall be liable on summary conviction to a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, to a default fine not exceeding one-fiftieth of the statutory maximum.

(8) In the case of a refusal of an inspection required under subsection (5) above of a copy or memorandum, the court may by order compel an immediate inspection of the copy or memorandum.

(9) In relation to any contract for the purchase by a company of any of its own shares, the obligation under subsection (4) above to keep a copy of the contract or (as the case may be) a memorandum of its terms until the end of the period there mentioned shall apply to any variation of the contract as it applies to the contract.")

After Clause 41, insert the following new clause:

("The capital redemption reserve Maintenance of capital on redemption or purchase of own shares otherwise than out of capital

.—(1) Where in pursuance of section (Power of company to issue redeemable shares) or (Power to purchase own shares) of this Act any shares of a company are redeemed or purchased wholly out of the profits of the company the amount by which the company's issued share capital is diminished in accordance with subsection (7) of section (Power of company to issue redeemable shares) of this Act on cancellation of the shares redeemed or purchased shall be transferred to a reserve, to be called "the capital redemption reserve".

(2) Subject to subsection (6)(b) of section (Power of private companies to redeem or purchase own shares out of capital) of this Act, where in pursuance of either of those sections any shares of a company are redeemed or purchased wholly or partly out of the proceeds of a fresh issue and the aggregate amount of those proceeds is less than the aggregate nominal value of the shares redeemed or purchased, the amount of the difference shall be transferred to the capital redemption reserve.

(3) The provisions of the 1948 Act relating to the reduction of the share capital of a company shall apply as if the capital redemption reserve were paid up share capital of the company, except that the reserve may be applied by the company in paying up unissued shares of the company to be allotted to members of the company as fully paid bonus shares.").

After Clause 41, insert the following new clause:

("Power of private companies to redeem or purchase own shares out of capital

Redemption or purchase of own shares out of capital

.—(1) Subject to the following provisions of this Part of this Act, a private company limited by shares or limited by guarantee and having a share capital may, if authorised to do so by its articles, make a payment out of capital in respect of the redemption or purchase under section (Power of company to issue redeemable shares) or (as the case may be) under section (Power to purchase own shares) of this Act of any of its own shares.

(2) The payment which may (if authorised in accordance with the following provisions of this Part of this Act) be made by any company out of capital in respect of the redemption or purchase of any of its own shares shall be such an amount as, taken together with—

  1. (a) any available profits of the company; and
  2. (b) the proceeds of any fresh issue of shares made for the purposes of the redemption or purchase;
is equal to the cost of redemption or purchase (including any premium payable on redemption or purchase).

(3) The payment permissible in accordance with subsection (2) above in respect of the redemption or purchase by a company of any of its own shares is referred to below in this Part of this Act as the permissible capital payment for the shares.

(4) Subject to subsection (6) below, if the permissible capital payment for any shares redeemed or purchased by a company is less than their nominal amount, the amount of the difference shall be transferred to the capital redemption reserve.

(5) Subject to subsection (6) below, if the permissible capital payment for any shares redeemed or purchased by a company is greater than their nominal amount, the amount of any capital redemption reserve, share premium account or fully paid share capital of the company may be reduced by a sum not exceeding (or by sums not in the aggregate exceeding) the amount by which the permissible capital payment exceeds the nominal amount of those shares.

(6) In any case where the proceeds of a fresh issue are applied by a company in making any redemption or purchase of its own shares in addition to a payment out of capital under this section—

  1. (a) the references in subsections (4) and (5) above to the permissible capital payment shall be read as references to the aggregate of that payment and those proceeds; and
  2. (b) subsection (2) of section (The capital redemption reserve) of this Act shall not apply.

(7) Subject to subsection (8) below, the reference in subsection (2)(a) above to available profits of the company is a reference to the company's distributable profits, determined in accordance with Part III of the 1980 Act as if for the purpose of determining whether a distribution within the period of three months ending with the date on which the resolution approving the payment out of capital in accordance with section (Requirements for redemption or purchase out of capital; special resolution approving payment) of this Act is passed would contravene section 39 of that Act.

(8) The relevant accounts for the purpose of determining in accordance with section 43 of that Act whether the company has any available profits and the amount of any such profits shall be such accounts, prepared as at any date within the period mentioned in subsection (7) above, as are necessary to enable a proper judgment to be made as to the amounts of any of the relevant items (within the meaning of that section), and subsection (2) of that section shall not apply.").

After Clause 41 insert the following new clause:

("Requirements for redemption or purchase out of capital: special resolution approving payment.

.—(1) Subject to any order made by the court under section (Objections by members or creditors) of this Act a payment out of capital by any company for the redemption or purchase of any of its own shares shall not be lawful by virtue of section (Power of private companies to redeem or purchase own shares out of capital) of this Act unless the requirements of this section and section (Publicity for proposed payment out of capital) of this Act are satisfied.

(2) The payment out of capital must be approved by a special resolution of the company (referred to below in this section and in section (Publicity for proposed payment out of capital) of this Act as the resolution for payment out of capital.)

(3) The directors of the company must make a statutory declaration specifying the amount of the permissible capital payment for the shares in question and stating that, having made full inquiry into the affairs and prospects of the company, they have formed the opinion—

  1. (a) that there will be no ground on which the company could be found to be unable to pay its debts immediately after the date on which the payment out of capital is proposed to be made; and
  2. (b) that, having regard to their intentions with respect to the management of the company's business during the year immediately following that date and to the amount and character of the financial resources which will in their view be available to the company during that year, the company will be able to continue to carry on business as a going concern throughout that year; and
  3. (c) that accordingly the company will be able to pay its debts as they fall due throughout that year.

(4) In forming their opinion for the purposes of subsection (3)(a) above the directors shall take into account any liabilities of the company which the court would be required by section 223(d) of the 1948 Act to take into account in determining for the purposes of section 222(e) of that Act (circumstances in which a company may be wound up by the court) whether the company was unable to pay its debts.

(5) The statutory declaration made by the directors must have annexed to it a report addressed to the directors by the auditors of the company stating that—

  1. (a) they have inquired into the company's state of affairs; and
  2. (b) the amount specified in that declaration as the permissible capital payment for the shares in question is in their view properly determined in accordance with section (Power of private companies to redeem or purchase own shares out of capital) of this Act; and
  3. (c) they are not aware of anything to indicate that the opinion expressed by the directors in that declaration as to any of the matters mentioned in subsection (3)(a) to (c) above is unreasonable in all the circumstances.

(6) The resolution for payment out of capital must be passed within the week immediately following the date on which the directors make the statutory declaration required by subsection (3) above, and the payment out of capital must be made not earlier than five nor more than seven weeks after the date of the resolution.

(7) A special resolution of a company to approve a payment out of capital for the redemption or purchase of any of its own shares shall not be effective for the purposes of this section if any member of the company holding shares to which the resolution relates votes on the resolution, otherwise than—

  1. (a) on a poll; and
  2. (b) in respect only of shares other than shares to which the resolution relates;
and the resolution would not have been passed if he had not done so; and, notwithstanding anything in a company's articles, any member of the company may demand a poll on the question whether any such resolution shall be passed.

(8) Any director of a company who makes a declaration under this section knowing it to be false or misleading or without reasonable cause to believe in its truth shall be liable—

  1. (a) on conviction on indictment to imprisonment for a term not exceeding two years or a fine or both; and
  2. (b) on summary conviction, to imprisonment for a term not exceeding six months or a fine not exceeding the statutory maximum, or both.

(9) For the purposes of this section a vote and a demand for a poll by a person as proxy for a member shall be the same respectively as a vote and a demand by the member.")

After Clause 41, insert the following new clause:

("Publicity for proposed payment out of capital

.—(1) Within the week immediately following the date of the resolution for payment out of capital the company must cause to be published in the Gazette a notice—

  1. (a) stating that the company has approved a payment out of capital for the purpose of acquiring its own shares by redemption or purchase or both (as the case may require);
  2. (b) specifying the amount of the permissible capital payment for the shares in question and the date of the resolution for payment out of capital;
  3. (c) stating that the statutory declaration of the directors and the auditors' report required by section (Requirements for redemption or purchase out of capital: special resolution approving payment) of this Act are available for inspection at the company's registered office; and
  4. (d) stating that any creditor of the company may at any time within the five weeks immediately following the date of the resolution for payment out of capital apply to the court under section (Objections by members or creditors) of this Act for an order prohibiting the payment.

(2) Within the week immediately following the date of that resolution the company must also either cause a notice to the same effect as that required by subsection (1) above to be published in an appropriate national newspaper or give notice in writing to that effect to each of its creditors.

In this subsection "an appropriate national newspaper" means a newspaper circulating throughout England and Wales in the case of a company registered in England and Wales and a newspaper circulating throughout Scotland in the case of a company registered in Scotland.

(3) References below in this section to the first notice date are references to the day on which the company first publishes the notice required by subsection (1) or first publishes or gives the notice required by subsection (2) above (whichever is the earlier).

(4) Not later than the first notice date the company must deliver a copy of the statutory declaration of the directors and the auditors' report required by section (Requirements for redemption or purchase out of capital: special resolution approving payment) of this Act to the registrar of companies.

(5) The statutory declaration and auditors' report shall, during business hours on any day during the period beginning with the first notice date and ending five weeks after the date of the resolution for payment out of capital, be open to the inspection of any creditor of the company without charge.

(6) If an inspection required under subsection (5) above is refused, the company and every officer of the company who is in default shall be liable on summary conviction to a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, to a default fine not exceeding one-fiftieth of the statutory maximum.

(7) In the case of a refusal of an inspection required under subsection (5) above of a declaration or report, the court may by order compel an immediate inspection of that declaration or report.").

After Clause 41 insert the following new clause:

("Objections by members or creditors.

.—(1) Where a private company passes a special resolution approving for the purposes of this Part of this Act any payment out of capital for the redemption or purchase of any of its shares—

  1. (a) any member of the company other than one who consented to or voted in favour of the resolution; and
  2. (b) any creditor of the company;
may within five weeks of the date on which the resolution was passed apply to the court for the cancellation of the resolution.

(2) An application under this section may be made on behalf of the persons entitled to make the application by such one or more of their number as they may appoint in writing for the purpose.

(3) If an application is made under this section, the company shall—

  1. (a) forthwith give notice in the prescribed form of that fact to the registrar of companies; and
  2. (b) within fifteen days from the making of any order of the court on the hearing of the application, or such longer 948 period as the court may by order direct, deliver an office copy of the order to the registrar.

(4) On the hearing of an application under this section the court may, if it thinks fit, adjourn the proceedings in order that an arrangement may be made to the satisfaction of the court for the purchase of the interests of dissentient members or for the protection of dissentient creditors, as the case may be, and the court may give such directions and make such orders as it thinks expedient for facilitating or carrying into effect any such arrangement.

(5) Without prejudice to its powers under subsection (4) above, on the hearing of an application under subsection (1) above, the court shall make an order on such terms and conditions as it thinks fit either confirming or cancelling the resolution; and, where the court confirms the resolution, it may in particular by order alter or extend any date or period of time specified in the resolution or in any provision of this Part of this Act which applies to the redemption or purchase of shares to which the resolution refers.

(6) Subsections (7) to (9) of section 11 of the 1980 Act (provision in orders of the court for purchase of shares and alterations in memorandum and articles) shall apply in relation to orders under this section as they apply in relation to orders under section 11.

(7) A company which fails to comply with subsection (3) above and any officer of the company who is in default shall be liable on summary conviction to a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.")

After Clause 41, insert the following new clause:

("Liability of past shareholders and directors

.—(1) This section applies where a company has made a payment out of capital in respect of the redemption or purchase of any of its own shares otherwise than out of the proceeds of a fresh issue of shares, referred to below as the "relevant payment".

(2) Where the company is being wound up and the aggregate of the amount of its assets and the amounts paid by way of contribution to its assets (apart from this section) and by its debtors is not sufficient for payment of its debts and liabilities and the costs, charges and expenses of the winding up, then, if the winding up commenced within one year of the date on which the relevant payment was made—

  1. (a) the persons from whom the shares were redeemed or purchased; and
  2. (b) the directors of the company who signed the statutory declaration made in accordance with section (Requirements for redemption or purchase out of capital: special resolution approving payment) (3) of this Act for the purposes of the redemption or purchase, except a director who shows that he had reasonable grounds for forming the opinion set out in the declaration;
shall, so as to enable that insufficiency to be met, be liable to contribute to the assets of the company to the extent specified in subsection (3) below.

(3) A person from whom any of the shares were redeemed or purchased shall be liable to contribute to the assets of the company an amount not exceeding the amount of so much of the relevant payment as was made by the company in respect of his shares and the directors of the company shall be jointly and severally liable with that person to contribute that amount to the assets of the company.

(4) Any person who has contributed an amount to the assets of a company in pursuance of this section may apply to the court for an order directing any other person jointly and severally liable in respect of that amount to pay to him such amount as the court thinks just and equitable.

(5) Section 212 of the 1948 Act (liability of contributories) shall not apply in relation to any liability accruing by virtue of this section.

(6) Any reference in the articles of any company to a contributory shall not unless the context requires include a reference to any person who is a contributory only by virtue of this section.

(7) A person who is liable by virtue of this section to contribute to the assets of any company in the event of its being wound up may by petition apply to the court for the winding up of the company on either of the grounds set out in paragraphs (e) and (f) of section 222 of the 1948 Act (inability of company to pay its debts and the "just and equitable" ground) and paragraph (a) of the proviso to section 224(1) of that Act (restrictions on right of contributory to present petition) shall not apply in relation to a petition made by any such person; but unless he is a contributory otherwise than by virtue of this section he may not in his character as contributory present such a petition on any other ground.").

On Question, amendments agreed to.

8.35 p.m.

Lord Mackay of Clashfern moved Amendment No. 121: After Clause 41 insert the following new clause:

("Effect of company's failure to redeem or purchase own shares, Miscellaneous and supplemental

.—(1) This section shall apply where a company—

  1. (a) has issued shares on terms that they are to be redeemed; or
  2. (b) has agreed to purchase any of its own shares.

(2) Any failure on the part of the company to redeem any shares in accordance with the terms on which they were issued shall be treated (if it would not otherwise be) as a breach of contract by the company, actionable by the shareholder accordingly.

(3) Where at the commencement of the winding up of any company, any shares in the company which were to have been redeemed or purchased by the company before that time have not been transferred to the company, those shares shall on the commencement of the winding up be cancelled; but the holder of the shares at the time of their cancellation may (notwithstanding their cancellation) claim in the winding up in respect of any loss resulting from the fact that the shares have not been redeemed or purchased by the company, as the case may be.

(4) Where at the commencement of the winding up of any company, the company is obliged (contingently or otherwise) to redeem or purchase any shares in the company at a date subsequent to the winding up, those shares shall not thereafter be transferred to the company; and, subject to any provision to the contrary contained in the terms of redemption or purchase, the company shall thereupon be taken to be in breach of its obligations to the shareholder to purchase or redeem his shares.

(5) There shall be paid in priority to any amount which the company is liable to pay (whether by virtue of this section or otherwise) in respect of any failure on its part to fulfil any of its obligations to redeem or purchase any of its shares all other debts and liabilities of the company; and the provisions of Part V of the 1948 Act (winding up) shall have effect accordingly.

(6) For the purposes of section 212(1)(g) of the 1948 Act (postponement of debts, etc. due to members) any amount due from a company to a member the payment of which is postponed by this section shall be taken to be a sum due to him otherwise than in his character of a member.

(7) Where by virtue of section 66 of the Bankruptcy Act 1914 (payment of interest on debts) as applied by section 317 of the 1948 Act (application of bankruptcy rules to insolvent companies) a creditor of a company is entitled to payment of any interest only after payment of all other debts of the company, the company's debts and liabilities shall for the purposes of subsection (5) above include the liability to pay that interest.

(8) Subsections (3) to (7) above shall not apply in relation to any winding up which commenced before the appointed day.")

Lord Wedderburn of Charlton

I think that it is necessary to put on record the fact that at twenty-five minutes to nine o'clock this evening your Lordships have just passed over amendments in Committee—true we can come back to them on Report which no doubt is the assumption in everybody's mind. As has been said by my noble friend on this side of the Committee from the Front Bench, these are very important clauses. Some of us have not looked at them for very long. As my noble friend Lord Mishcon said, they have not been with us very long. I now cannot advert to the matters that I wished to discuss with those Members of the Committee who are present, and the noble and learned Lord who was going to speak to them on Amendment Nos. 112 to 119. There are a very large number of at least drafting points in these clauses. This is supposed to be a revising House. The Government treat it as though it was a conduit pipe through which one could throw clauses after dinner at as rapid a rate as they can be consumed.

May I address myself to Amendment No. 121? I failed to get up in time for Amendment No. 120. Let me ask a small question of the Government on this matter. In subsection (2) it is said, in dealing with the question of a company's failure to redeem or purchase its own shares, that failure on the part of the company to redeem them in accordance with the terms on which they were issued is treated as a breach of contract by the company if it would not otherwise be—which in many cases I would have thought it would. But were it not so, then the subsection makes it clear. But then it continues: actionable by the shareholder accordingly". I want to know what the Government understand by that last phrase. Is it meant to indicate that all the remedies that flow from a breach of contract, at any rate in the English jurisdiction, will flow from it; and whatever the Scots' jurisdiction remedies may be, that they flow? If it is, it is quite an important little subsection stuck away in the back. It is normally understood that the shareholder cannot claim damages from his company whether for misrepresentation, fraud or breach of contract—according to the cases still extant on the matter—while he remains a shareholder.

In regard to this matter, the particular shares involved are being redeemed or purchased and it will not be in respect of them that he can be alleged to be a shareholder. But he may of course have other shares; he may even have shares of the same class; it depends how the company have arranged their purchase and redemption.

Is this a part of a remedy? It may well be that it is the correct remedy. It may well be this is the right thing to introduce into English company law. But if it is right, then the Government must have thought very carefully about the very large number of judicial interpretations and other arguments as to why we have this principle that a shareholder is not allowed to claim damages from his company and remain a shareholder—even, it appears, in the face of fraud, subject to statutory remedy. But this is not a statutory remedy; this is statute saying, "You are deemed to have the ordinary contractual remedy at common law."

So is this in effect saying to the courts that those decisions must now be put aside? If that is what the clause is saying—and it may be what the clause ought to say—then I suggest that the Government should take it away and tell us in so many words that that is the case for the clarity and certainty of the law, which I know the noble and learned Lord and I have very much at heart. They should not leave it to the vicissitudes of the courts—I am sure the Court of Session is safe, but at any rate of the English courts—but should say not merely what the remedies are but also, if damages are to be available, what the measure of damages is to be. It may be that it is obvious in the average case, but there could be difficulties, and if we are coming back to this on Report I would invite the noble and learned Lord to tell us that this matter and perhaps a few previous matters we have passed over will be examined rather more carefully.

Lord Mackay of Clashfern

So far as this matter is concerned, the intention is to provide that the failure on the part of a company to redeem shares, that is to let the shareholder out, in accordance with the terms on which they were issued is to be treated as a breach of contract. In other words, the shareholder and the company will be treated as if they had a contract in these terms and the ordinary remedies will apply. If I am not mistaken—and if I am I shall be corrected—the situation is that a shareholder under the present law may have an action in respect of breach of contract where that contract is with the company and is not simply a matter of the arrangements that are contained in the memorandum and articles. Therefore I do not at the moment see that the problems that the noble Lord has suggested will flow from this will actually do so. However, I shall be happy to consider the matter further though that is the view I have formed in listening to him now.

Lord Wedderburn of Charlton

It would be unfair of me not to substantiate a slightly wider area of difficulty than the noble and learned Lord has suggested. Of course he is right in saying in the situation he has suggested that, where there is a clear breach of contract and no other problem emerges, then if you apply this clause to that situation, yes, that is as far as you get. But there is another area of difficulty. If you take cases such as Houldsworth v. The City of Glasgow Bank in 1880 and more particularly the case of re Addlestone Linoleum Limited in the 1880s in the Court of Appeal, which dealt with the question of breach of contract in regard to prospectus, subscription and so on, one there has a general principle where the courts lean against damages. If the Government wish damages to be available, then, because of those cases and not the situation to which the noble and learned Lord adverted, I think it would be wise to say so and in doing so to spell out some of the things he has just mentioned.

Lord Mishcon

I do not want to detain the Committee and I shall not do so for more than a second or so; but what the noble Lord, Lord Wedderburn, has said conveys the feeling of a number of Members, that it is awfully difficult to carry out our duties properly in the circumstances, which I do not intend to repeat or to complain about again. May I make this respectful suggestion? Normally when you have got a complicated Bill of this kind you have notes on the clauses. I am wondering whether, between now and Report stage, your Lordships would not be greatly convenienced by having some notes on clauses produced, purely and simply covering the provisions we have had to deal with so hurriedly tonight, and which do in fact re-make and indeed create new law. If a document, however roughly prepared, could be issued to the Members of the Committee, and especially those who are interested in this, I think it would make our task easier for the Report stage. I do hope, that, having placed the Committee in the difficulty which the noble Lord, Lord Wedderburn, so correctly talked about, the noble and learned Lord can at least help us in this respect.

Lord Mackay of Clashfern

I shall certainly consider what we may be able to do in that particular respect, and I am happy to consider further the suggestions made by the noble Lord, Lord Wedderburn.

On Question, amendment agreed to.

Lord Mackay of Clashfern moved Amendment No. 121A: After Clause 14, insert the following new clause:

("Restriction on company's powers to require members to sell back shares

.—(1) Subject to subsection (2) below, a company which has power to alter its memorandum or articles of association to require any person in any circumstances to transfer to the company or to any other person any share in the company shall not without the written consent of the Secretary of State exercise that power in relation to any share which has been allotted before the alteration takes effect.

(2) Subsection (1) above shall not prevent any company from altering its memorandum or articles of association (without the Secretary of State's consent) to require a member who is proposing to transfer any of his shares in the company to any person other than the company or another member, to offer the shares first to the company or another member, either on the same terms as or on terms more favourable to him than the terms on which that transfer is proposed to be made.

(3) Where a company alters its memorandum or articles of association for the purpose mentioned in subsection (1) above by resolution made with the written consent of the Secretary of State, it shall send with the copy of that resolution forwarded to the registrar in compliance with section 143 of the 1948 Act a copy of that consent; and subsection (5) of section 143 (criminal penalties) shall apply in relation to a failure to comply with the requirements of this subsection as it applies in relation to a failure to comply with the requirements of section 143(1).").

On Question, amendment agreed to.

Lord Mackay of Clashfern moved Amendment No. 122: After Clause 41, insert the following new clause:

("Interpretation, repeal of section 58 of the 1948 Act and savings

.—(1) In this Part of this Act— distributable profits", in relation to any company, means those profits of the company which are available for distribution (within the meaning of Part III of the 1980 Act); and permissible capital payment" has the meaning given by section (Power of private companies to redeem or purchase own shares out of capital) (3) of this Act.

(2) Section 58 of the 1948 Act (which is superseded by sections (Power of company to issue redeemable shares) and (The capital redemption reserve) of this Act) shall cease to have effect; but any preference shares issued by a company before the appointed day which could but for the repeal of section 58 have been redeemed under that section shall be subject to redemption in accordance with the provisions of this Part of this Act.

(3) In any case to which section (Power of company to issue redeemable shares) applies by virtue of this section—

  1. (a) any premium payable on redemption may, notwithstanding the repeal by this Act of the words in section 56(2) of the 1948 Act which enabled such premiums to be paid out of the share premium account, be paid out of that account instead of out of profits or partly out of that account and partly out of profits (but subject to the provisions of this Part of this Act so far as the payment is out of profits); and
    2. 953
  2. (b) to the extent that the premium is paid out of the company's share premium account it shall not be a distribution for the purposes of Part III of the 1980 Act (restrictions on distributions of profits and assets).

(4) Until 22nd June 1982 (that is to say, until the expiry of the period which is the transitional period for the purposes of Part I of the 1980 Act) any reference in this Part of this Act to a public company shall include a reference to an old public company within the meaning of section 8(1) of the 1980 Act and any reference to this Part to a private company shall be construed accordingly.

(5) Any capital redemption reserve fund established before the appointed day by any company for the purposes of section 58 of the 1948 Act shall be known as the company's capital redemption reserve and be treated as if it had been established for the purposes of section (The capital redemption reserve) of this Act; and, accordingly, any reference in any enactment or in the articles of any company or in any other instrument to a company's capital redemption reserve fund shall be construed as a reference to the company's capital redemption reserve.").

On Question, amendment agreed to.

Lord Lyell

I understand it has been agreed through the usual channels that this would be a convenient adjournment point for this evening. I beg to move that the House be now resumed.

Moved accordingly and, on Question, Motion agreed to.

House resumed.