HL Deb 23 March 1981 vol 418 cc983-1027

4.11 p.m.

House again in Committee.

Lord Wedderburn of Charlton moved Amendment No. 125:

After Clause 41, insert the following new clause:

("Obligations of persons abroad to notify company of interests in shares carrying unrestricted voting rights .—(1) The Secretary of State may by regulations made by statutory instrument make such provisions as appear to him necessary for the purpose of ensuring that the obligation of a person under section 33 of the 1967 Act (obligation of persons to notify a company of acquisition, changes in amounts of and disposal of shares in the company carrying unrestricted voting rights) shall apply to a person who is not resident in the United Kingdom and to any other person or persons acting or deemed under such regulations to be acting with that person in pursuance of a common purpose, whether that purpose be their predominant purpose or not, as if that person and each of such other persons is interested in such shares to the extent of the aggregate interest of all of them. (2) For the purposes of this section the Secretary of State may make regulations under section 26 of the 1976 Act (Duty to notify company of acquisition etc. of voting shares) prescribing a lower percentage for persons falling within subsection (1) above than that at any time prescribed under subsection (2) of that section for the purposes of section 33 of the 1967 Act. (3) Regulations under subsection (1) above may make different provisions for different classes of case and may contain such incidental and supplementary provisions as the Secretary of State thinks fit, and the Secretary of State may by regulation under this section vary or revoke such regulations. (4) No regulations shall be made under this section unless a draft of the instrument containing the regulations has been laid before Parliament and has been approved by resolution of each House of Parliament. (5) For the purposes of this section a person (including a body corporate) is not resident in the United Kingdom if he is not so resident for the purposes of the Income and Corporation Taxes Act 1970 subject to such further provision in this regard as the Secretary of State may make by order under this section.").

The noble Lord said: This amendment to the Companies (No. 2) Bill was, in a sense, an addition to the amendment tabled by the noble Lord, Lord Lloyd of Kilgerran. In view of the Government's statement on the matter of concert parties, with which of course it deals, it is a little difficult to know how to make the proper and profitable use of the time of your Lordship's Committee. But it seemed to me and my noble friends that in view of the statement of the noble Lord the Minister, Lord Trefgarne, that the Government intend at some stage or other to bring forward proposals on the issue of the disclosure of interests by those acting in concert or in agreement, it was worth probing whether they can tell us anything about the aspect of the matter to which this amendment relates.

Perhaps I could preface a few short remarks upon that aspect by saying that in our view the disclosure philosophy, which is fundamental to company law, has never been as important as it is today. In 1962 in its report, Cmnd. 1749, the Jenkins Committee stated the principles simply and boldly in paragraph 142: The directors and other shareholders, and indeed the employees, of a company ought to be able to ascertain the identity of any substantial shareholder". That seems to us to be right, and it seems to us to be right not only in regard to persons acting in concert generally—in respect of which we strongly supported the amendment of the noble Lord, Lord Lloyd of Kilgerran—but also in regard to the aspect of interests in shares, which is of particular concern to those who have recently looked at some of the less acceptable practices in company affairs.

It is, of course, true that the Consolidated Gold Fields affair, and the report of the inspectors upon it, have brought into new prominence the problem of the foreign holder or foreign beneficiary of shares. It is frequently a problem because it is a foreign nominee; otherwise it is sometimes a problem because it is a foreign beneficiary; and sometimes, of course, because it is such a long string of transactions in interests in securities outside the jurisdiction, it is a problem because the trail is lost even by the best of inspectors appointed by the Department of Trade. The Department of Trade consultative document—which, as I am about to criticise it, I wish to say in my opinion was a most helpful and useful document—issued in 1980 on disclosure of interests in shares in my view did less than justice to the problem when it cast aside the problem of foreign interests in shares by simply stating that: British company law can properly be applied to all parties interested in a Stock Exchange transaction involving securities in a British company, although in some cases involving foreign interests creates difficulty in enforcement".

The problem of foreign interests is more important than that, and it is not a question of any exercise in xenophobia that made us put amendments concerning this problem down on the Marshalled List. The problem is that it is twice as difficult to fulfil the fundamental principle of disclosure where the interests become scattered abroad. As was said in the inspector's report on Ashbourne Investments Limited in 1979 at paragraph 1257: The present legal machinery to enable the identification of the true owner of a British registered company where those shares are held by a nominee resident abroad"— is inadequate. Those last two words summarise the rest of the statement. That was the nub of the matter. in other words, if concert parties are in general a problem—and the Government now accept that they are a problem, and it seems that they are a problem which should be met by legislation—then we would hope that the Government would give particular attention to the problem within that problem of foreign interests in shares.

The amendment which we have put on the Marshalled List for your Lordships' consideration follows, in the first part, the structure of the drafting of the noble Lord, Lord Lloyd, where we, too, were of the opinion, in slightly different words, that the problem of common purpose—which seems to us to be the right test—should be one that should be enacted in general terms, to which exceptions could then be made by regulation.

Although understanding the general sentiment of his remarks, I should like to interpose that I am a little surprised that the noble Lord, Lord Trefgarne, dealt with the question of legislation by secondary or delegated legislation in this area in the way he did; because, although accepting that the fundamental liabilities—and, in particular, where they are penal and criminal liabilities—must be spelt out in the primary statute and that perhaps these clauses that we have put forward are inadequate in that respect, I should have thought that in regard to company administration the principle that derogations or exceptions can be made by way of statutory instrument is sufficiently established for it to be worthy of consideration here. That is how we think the matter should ultimately be dealt with.

However, there is a second point in our Amendment No. 125 in subsection (2). That relates to the trigger for disclosure in listed shares. Section 33 of the 1967 Act began with the trigger at 10 per cent. The 1976 Act reduces that to 5 per cent. and makes it clear that it applies to any class. But it is worth remembering that the Cohen Committee as far back as 1943 was asking for a I per cent. disclosure. It is not obvious or written on tablets of stone that the level of disclosure should necessarily be the same in respect of all classes of interests and holders. Subsection 2 would give the Secretary of State power to adjust the level of interest in regard to foreign holdings so that the trigger is different in number from the figure which applies to holdings in general, where that is thought to be necessary.

It may be said that the power can be used in a flexible way at the moment, but in our view that is not clear and it is worth having legislation of this sort upon it. In other words, because there is a special difficulty in operating the disclosure principle in respect of foreign holdings—as the inspectors' reports have discovered not merely in Consolidated Gold Fields but also in the Dunlop Holdings interim report, which has been mentioned this afternoon, where it has become quite impossible to trace the reality of control—in this area it is necessary for the new structure of the law, whatever it is to be in Government thinking, to pay particular attention to holdings outside the jurisdiction, and to include a sufficient power for the Secretary of State, where it is necessary, to make special provision in regard to those holdings if there is in effect a refusal or unwillingness to operate and satisfy the disclosure principle.

While I am commending this amendment to the Committee, perhaps I may mention one other matter which derives from the same Department of Trade document. It is said there that the legislation ought not to take the form of a statute and the use of the voluntary codes—that is to say, the Takeover Panel, the Council for the Securities Industries—by way of a highway code. There is the suggestion—I hope I am not summarising unfairly—that this would risk confusion between what is law and what is the self-regulation area.

I would hope that the Government would not take that approach either. Indeed, the whole point of having a wide power to take necessary action by regulation of statutory instrument would go in the opposite direction. I say this to the Government for this reason, and it is particularly relevant to foreign holdings; the line between self-regulation and legislation has already been blurred. The Stock Exchange appears in many places in the legislation, and not least in the 1976 Act, where of course it has the power to obtain and to purvey information about directors' holdings and interests in a company's shares. Of course the Stock Exchange is now the competent authority by law under, I believe, two—about to be three—of the European Economic Community regulations in respect of the listed securities and the informal ion to be given in that respect.

Therefore, the line between the code of self-regulation and statute and its regulations is already blurred. It would seem to us that this area of foreign holdings would be an area for profitable co-operation between the two without bothering about the risk of blurring the borderline, because the borderline between self-regulation and statutory order does not really matter. What matters is to have a system which operates correctly, well and efficiently, and satisfies fundamental criteria, especially the disclosure principle. It is with those thoughts in mind that I commend this amendment to your Lordships' Committee. I beg to move.

4.24 p.m.

Lord Trefgarne

I must say that I had hoped that, in the light of what I had to say on a previous amendment moved by the noble Lord, Lord Lloyd of Kilgerran, the noble Lords in whose names this amendment stands might have felt able not to move it. Be that as it may, they are quite entitled to do so.

I have already explained that the Government do not consider that this is an appropriate matter to deal with by regulations. But I have announced that the Government propose to bring forward their own provisions. I am not in a position at this stage to be specific about the character of our provisions. I can say, however, that this amendment contains a number of unacceptable features. For example, we find it surprising that the noble Lords should seek to confine regulations, as I understand the amendment, to persons resident outside the United Kingdom. In a purely formal sense, of course, such a discriminatory provision would appear to be contrary to the Treaty of Rome. But, leaving that aside, do noble Lords believe that concert parties comprising United Kingdom residents are in order, but concert parties comprising non-residents are not? Surely if the law is to make provision for the disclosure of concert parties, a concert party is a concert party wherever it may be. Why differentiate between them on the basis of the residence of participants? Of course, concert parties involving overseas residents pose particular problems of enforcement. But the same might be said of the existing disclosure requirements. And the question of enforcement is quite separate from that of the nature of the requirement.

There are other aspects of this amendment that indicate to me that noble Lords have not begun to get to the roots of the problems of defining a concert party disclosure requirement. Take the question o common purpose. "Common purpose" is itself a remarkably vague phrase for defining a statutory requirement. What purpose? In respect of whom? In accordance with what criteria would the regulations "deem" a person to be acting in pursuance of a common purpose?

I do not want to take too much of your Lordships' time on this amendment, but I should just like to make one final point before asking the noble Lord to withdraw it. The regulations are to require disclosure by persons interested in shares of a particular kind. The present disclosure requirements, in Section 37 of the 1967 Act, which this amendment purports to apply, impose an obligation on those who know that they are interested in shares of the relevant amount. I wonder how the noble Lord who has moved this amendment would propose to deal with the problem of knowledge. Is ignorance to be a defence? If not, are persons covered by the amendment to be required to take steps to ensure that they know every interest of other members of the concert party? What if they do not know of an interest of another member of the party? These are important matters which any proposals for legislation must address.

I hope I have given some indication, in explaining why this amendment is not acceptable, of the importance and complexity of the issues that must be grappled with in dealing with this subject. I hope that your Lordships will be content to wait for the Government amendments on this topic.

Lord Wedderburn of Charlton

The Minister has dealt with so many interesting points that I am tempted to follow them, but I suspect in view of his tone that he would not wish me to do so, and I shall limit myself to this: it is not my understanding that this amendment is contrary to any treaty to which the United Kingdom is party. Nor do I believe that there is great difficulty in matching its words to Section 37, although I appreciate that the problem of interest needs further definition.

I merely conclude with this: if, whatever his criticisms of the amendment—and they may be justified, the tone of the noble Lord's reply is the tone that we are going to get in the Government's prososals on concert parties, then indeed we are not likely to get them for quite a time. Of course it is a difficult area to define common purpose. But if the Government are suggesting, just to take his one point, that the definition of common purpose that is necessary, which would be done here partly by regulation, is so difficult that it cannot possibly be addressed, then their proposals are going to be a long time in coming.

Having discussed the matter with the noble Lord, Lord Lloyd of Kilgerran, to whose amendment this is a supplementary amendment because it follows the same lines, we thought it worth seeing if the Government had anything to offer about their own thinking. I take all the negative points that the Minister has made as criticsm of this amendment. We shall see what criticisms we have to make of their amendments with no further knowledge this afternoon about what they are likely to be. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clauses 42 to 46 agreed to.

4.30 p.m.

Lord Wedderburn of Charlton moved Amendment No. 126:

After Clause 46, insert the following new clause:

("Extension of power to impose restrictions on securities and on companies

  1. .—(1) In subsection (1) of section 174 of the 1948 Act (Power to impose restrictions on shares or debentures) for the words "wholly or mainly to the unwillingness" there shall be substituted the words "to a substantial degree to the inability or the unwillingness".
  2. (2) In any case where an inspector has been appointed under section 164, 165 or 172 of the 1948 Act or section 32 of the 1967 Act or when a notice has been served by a company pursuant to section 27 of the 1976 Act, the Secretary of State may without prejudice to the exercise of any powers under section 174 of the 1948 Act, direct or permit the company to cancel on a date specified, being not less than seven days from the date of the direction or permission any shares or debentures in which a person has an interest where it appears to him that that person has shown substantial unwillingness to assist the investigation or to comply with the notice in that he has failed to reveal or to take reasonable steps to acquire any information relevant to the investigation or notice.
  3. (3) A person whose shares have been cancelled under this section shall cease to be a member in respect of the cancelled shares, but shall, notwithstanding, remain liable to pay the company all monies which, at the date of cancellation, were payable by him to the company in respect of the shares, but his liability shall cease if and when the company shall have received payment in full of all such monies in respect of the shares.
  4. (4) A person having an interest in shares or debentures in respect of which a direction or permission has been made or given as the case may be under subsection (2) of this section may apply to the Court for the direction or permission to be quashed on the ground that he has taken all reasonable steps to reveal or acquire such relevant information.
  5. (5) The Secretary of State may by regulations made by statutory instrument under this section provide for the disposition of that part of a company's capital relating to any shares cancelled by a direction or under permission arising under 989 subsection (2) above, whether by way of credit to an undistributable reserve fund or otherwise, and may provide for such other incidental and supplementary matters as he sees fit.
  6. (6) Where any provision in a company's memorandum or articles conflicts with or is inconsistent with a provision in a direction or permission made under this section, the latter provision shall prevail to the extent of such conflict or inconsistency.
  7. (7) A person is interested in shares or debentures under this section where he has an interest within the meaning of section 28 of the 1967 Act, subject to such modifications made by regulation by the Secretary of State for the purpose of applying the provisions of that section to this section.
  8. (8) No regulations shall be made under this section unless a draft of the instrument containing the regulations has been laid before Parliament and has been approved by resolution of each House of Parliament.
  9. (9) Where the Secretary of State makes a direction or gives a permission under subsection (2) above or places any other restriction on shares or debentures pursuant to the powers in section 174 of the 1948 Act, he shall cause a notice to be published in the Gazette of such directions or permission.
  10. (10) Any person who fails to give effect to a direction made by the Secretary of State under this section shall be liable to imprisonment to a term not exceeding two years or a fine or both; and in the case of default by a company every officer of the company who is in default shall be liable to a default fine.").

The noble Lord said: This involves a separate but similar matter. The amendment falls into two parts, both relating to the powers of the Secretary of State under Section 174 of the 1978 Act whereby he can place restrictions of varying kinds on shares and the use of people's interests in shares in respect of voting, transfer and the like. The first part of the amendment deals with a technical and small point but one which we believe to be of importance. At present, restrictions may be placed only where there is an unwillingness on the part of a person to provide information. Briefly, the problem arose in a number of recent investigations, especially in the Dunlop Holdings investigations, where it was discovered that there might be some unwillingness but also that other people might be unable to provide the information. We would add to Section 174 "inability" as an alternative to the requirement of "unwillingness" to allow the Secretaty of State to exercise his power of restriction.

It is said that sometimes the inability to provide information derives from the local law beyond our jurisdiction preventing a person from disclosing what we here would seek to know. But it is our contention that that response cannot be allowed to determine the contours of British company law because it means that simply by moving out of the jurisdiction, the person who is the holder or beneficiary of the shares in question can evade the requirements which we would otherwise place on him. In the Consolidated Gold Fields report, the inspectors make it clear in paragraph 144 that it is a requirement which cannot be allowed to dominate the operation of our system. Thus, our first proposal is that the Government should accept the increased power of the Secretary of State to deal with cases where there is inability as well as unwillingness to provide information. That does not mean that in every such case the Secretary of State would exercise his powers to place restrictions on the voting on or the transfer of shares or the like.

The second part of the amendment also aims at the strengthening of the hand of the Secretary of State under Section 174. Power would be given to the Secretary of State to cancel shares as an act, as it were, of final resort, subject to the availability of an appeal to the courts by the person concerned for the quashing of such a direction of cancellation because he had taken all reasonable steps to acquire or reveal the information required.

Suggestions have long been made for the Section 174 powers to have the remedy of cancellation of the shares available to the parties investigating or controlling the matter, but they have usually required an application to the courts for an order for cancellation. In the view of this amendment, the burden should be the other way round. Where there is a case where the Secretary of State could have exercised his powers under Section 174, he should also have the right, if the need arises, to cancel shares, and the necessary provisions relating to that cancellation are in some of the subsections of the amendment; if the Government suggest there should be more, they could easily be added in that they are a matter of machinery.

The essential principle is that at present the difficulty of obtaining a proper degree of disclosure is so great that there is a need for strengthening Section 174 and the powers of the Secretary of State. Those powers should not only be exercisable where the information that is required is not given, but there should also be a right to cancel shares. The reason why that ultimate deterrent is required is that in the very worst cases the holder of beneficiary of the shares can sit tight, sit out a restriction on dividends, on transfers or on voting rights, and the only thing he cannot sit out is cancellation of his shares. I therefore hope the Government will consider with some sympathy the concept that an additional power is needed under Section 174 and that what is here proposed may be worthy of consideration. I beg to move.

Lord Trefgarne

As was evident from the speech of the noble Lord, Lord Wedderburn, when moving the new clause, the amendment contains so many significant features that it is difficult to know where to begin, and I hope the Committee will forgive me, therefore, if I deal with the points he raised at some length. Our starting point must however be the announcement, which I made earlier this afternoon, that the Government intend to bring forward their own proposals for amendments to the law relating to the disclosure of interests. As I have said on an earlier amendment, I am not in a position to foreshadow the Government's proposals in any detail. I would however expect them to cover some, but not all, of the matters covered by this new clause.

Subsection (1) of the new clause seeks to amend Section 174 of the 1948 Act in order to broaden the circumstances in which restrictions may be imposed by the Secretary of State on shares or debentures in connection with an investigation under Sections 172 or 173. The Government accept that the wording of the existing Section 174(1) can be unduly restrictive. At present, for example, where shares are held overseas and the member can refer to local laws as a restriction on the information he can provide, the imposition of restrictions cannot be considered; similarly where a person can assert that he has sold on shares that are still registered in his name and does not know what has happened to them. There may, therefore, in the Government's view, be circumstances where it is appropriate for the Secretary of State to consider imposing restrictions where the failure to disclose is due to other reasons than unwillingness.

The noble Lord seeks to replace the existing criterion by a new formula which introduces the criterion of inability but is qualified by the very subjective test "to a substantial degree". Such a test could cause considerable difficulties in practice, not just for the Secretary of State but for holders of shares; how is "substantial" to be interpreted or applied? The Government will be bringing forward their own amendment to deal with this problem. In order to avoid the kind of difficulties which this subsection raises, we have in mind a more extensive amendment corresponding to the existing capacity of companies themselves, if authorised by their articles, to impose restrictions in all cases of failure to discover the information required.

Subsection (2) would enable the Secretary of State to cancel shares where a person interested in them has in the view of the Secretary of State shown substantial unwillingness to assist Department of Trade investigations under Sections 164, 165 or 172 of the 1948 Act or Section 32 of the 1967 Act or a company's own inquiries under Section 27 of the 1976 Act. Subsection (4) provides for an appeal to the court and subsection (5) provides for the Secretary of State to deal with the accounting problems.

The first point to note is that subsection (2) goes well beyond the sphere of disclosure of interests. It would enable shares to be cancelled in respect of investigations into matters other than the membership of a company. Indeed, for some reason it would not apply to one of the sections under which inquiries as to who is interested in shares take place, namely Section 173. Nor is cancellation confied to questions concerning the ownership of shares. It would apparently be available in respect of any apparent substantial unwillingness to co-operate with investigations under, for example, Sections 164 or 165.

Yet there are already provisions in Section 167 of the 1948 Act to ensure that inspectors appointed under Sections 164 or 165 can obtain all the information and assistance that they require in the course of their investigation. We are strengthening those provisions in this Bill, but we do not believe that it is appropriate to contemplate a power to cancel shares in order to facilitate investigators in their inquiries into matters which may well not at all be connected with share ownership.

In any event, even were the power confined to the field of the disclosure of interests in shares, the Government do not consider that a power to cancel shares is appropriate, and they certainly do not think appropriate a power for the Secretrary of State to cancel shares. Such a power would involve expropriation of the property of the shareholder, who could avoid such expropriation only if he could prove to the court that he had taken all reasonable steps to co-operate with the investigation or inquiry. There is a range of sanctions already available to the Secretary of State, and they will be effective in most situations.

However, in the context of their decision to bring forward measures to strengthen the law on disclosure, the Government are reviewing the strength of these sanctions and, for example, the question of whether they provide an effective deterrent to concealment of interests, in particular perhaps in the case of an overseas holder. But we do not believe that in this, or indeed in any other area, expropriation can be right in principle; nor do we consider that cancellation is necessary in order to provide an effective deterrent. An alternative, for example, would be for the courts to have the power to require a sale of the shares and to hold the proceeds for the original owner. As I say, the Government are considering this area carefully, and will be making their own proposals.

Before inviting the Committee to reject the new clause, I should like briefly to refer to subsection (9). It would require the Secretary of State to publish in the Gazette a notice of any restrictions imposed under Section 174, or by virtue of the new clause. However, if I may end on a constructive note, I would say that the Government agree that restrictions on shares should be publicised. We shall bring forward appropriate amendments to that end.

In view of what I have said, and in particular in view of the Government's decision to bring forward their own proposals, I hope that the noble Lord will feel able to withdraw the amendment.

Lord Wedderburn of Charlton

I am sure that your Lordships' Committee will have been very interested in the reply of the noble Lord the Minister in one particular; namely, that the Government accept that Section 174 may well be too restrictive and that they are to bring forward proposals which relate more to companies' powers to effect the necessary remedies via their own articles rather than via other action. I can say only that that seems to me not to be the most fruitful road down which the Government should go. I suspect that many of my noble friends will feel the same and will consider that in a sense it is a rather dogmatic assertion that one should stick to the area of traditional company practice, to boost company articles by the force of law, but not to use the force of law behind investigations and inspections.

In passing I say to the Minister that Section 173 plainly was not included in the amendment because the situations in which the Secretary of State can act are described as situations involving reference to persons other than himself, whereas under Section 173 he is, of course, his own trigger. I did not include that provision because I knew that the noble Lord the Minister would castigate me if he saw a provision whereby the Secretary of State was able to trigger himself, rather than be triggered by some extraneous circumstances.

My last point relates to the Minister's terminology. There have been many debates, involving many professional bodies and many persons (many of whom have rejected the idea) about the possibility of a power—usually a power in the court, I accept; which is not true in this amendment—to cancel shares. That debate has been carried on, in regard to reform of company law, without expressions such as "expropriation" and the Government really must get their terminology up-to-date. It is not expropriation; it is seizure of property without proper compensation; and if that were to be found, of course one would reject it.

With regard to the possibility of cancelling shares in very carefully defined areas of the law the Minister and ourselves are agreed in one respect. He said that in the vast majority of cases Section 174 powers are quite sufficient. I accept that. But we should have thought that an ultimate possibility of shares being cancelled would have been desirable. In the light of the Government's response, we look forward to their proposals, and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 47 [Powers of Secretary of State under Section 334 of the 1948 Act]:

4.44 p.m.

Lord Ponsonby of Shulbrede moved Amendment No. 127:

Page 49, line 45, at end insert— ("(3) In subsection 6 of that section for the words "or Lord Advocate" there shall be substituted the words ", Lord Advocate or the Secretary of State"").

The noble Lord said: Clause 47(2) amends Section 334(5) of the 1948 Companies Act inter alia to include the possibility of criminal proceedings being instituted by the Secretary of State. Arising from that, a consequential amendment should be made to Section 334(6) to include the Secretary of State among those on whose application the court may make the directions permitted by that subsection. I beg to move.

Lord Trefgarne

We accept the amendment.

On Question, amendment agreed to.

Clause 47, as amended, agreed to.

[Amendment No. 128 not moved.]

Clause 48 [Disqualification of directors and others from managing companies, etc.]:

Lord Wedderburn of Charlton moved Amendment No. 129:

Page 50, line 21, at end insert ("; or (d) in the report of an inspector appointed under section 164, 165 or 172 of the 1948 Act or section 32 of the 1967 Act, the inspector states that for the purposes of this section a person has been guilty of culpable malpractice in relation to the promotion, formation, management or liquidation of a company;").

The noble Lord said: I hope that this is a less contentious area of the Bill. The clause to which the amendment relates is that which revises the situations in which a court can make an order for disqualification of a person, barring him from the management of a company for a relevant period. It is to some extent a measure of consolidation and reform, with most of which we have no quarrel. However, as long ago as 1962, the Jenkins Committee made various recommendations for the revision and reform of the powers of various courts to disqualify persons from the management of companies. If the clause went through as the Government have it, we should be left with a situation involving various types of conviction, or default in satisfying statutory requirements. The default would have to amount to a person having had three or more convictions in five years, which seems to us perhaps too high a hurdle for the law to have to jump. Nevertheless, they are requirements that are broadly along the same lines as they have been in the past.

In 1962 the Jenkins Committee also proposed, in paragraph 85 of Command 1749, that persons who had shown themselves to have acted in an improper, reckless or incompetent manner in relation to the companies' affairs should be added to the list where a court might—of course this is a discretionary matter—make an order of disqualification. After the report in 1962, it was argued on many sides that that list of epithets—reckless, incompetent or improper activity—was too wide. It was said not to be one which a court should have as the basis of such discretionary jurisdiction to disqualify a person from the board, or indeed from management. Personally, I always found that an odd argument, since Lord Justice Jenkins was no mean authority in company law matters, as I am sure the noble and learned Lord would agree. That he felt fit to put his name to a proposal of that kind struck me as being an encouragement to regard the formula as one which might be followed.

This being one of the few occasions on which since 1962 the list of conditions under which the director may be barred from management has been put under legislative review, it seemed to myself and my noble friends a suitable time to press the Government a little to add to their list. Indeed, we felt that we should press them again on the footing of their forebears in 1973. In the progressive Companies Bill of 1973 the Conservative Government of the day would have enacted a provision, in Clause 38, which would have given the court power to make a disqualification order where a person was convicted on indictment of an offence, whether or not in connection with the promotion, formation or management of a company—and that, of course, is an extension compared with the present Bill, being convicted on indictment of an offence—which necessarily involved a finding that he acted fraudulently or dishonestly. Compared with the palsied prose of the present Bill, that was a strong move indeed.

In the Notes on Clauses kindly provided by the present Administration in relation to this Bill it is suggested that the provisions in the Bill as they stand cover as much of the Jenkins recommendations as are clearly justified. We do not see that it is that clear. We might have proposed that the wider area of criminal liability—that is, offences which are fraudulent or dishonest, whether or not they have to do with the company—should be considered as a disqualifying event; we might have proposed the Jenkins formula of recklessness or incompetence. But, again, these might have been thought by the noble Lord, who seems to find our amendments rather extreme, to be extreme measures; but, of course, we on these Benches are extreme only in our moderation, and we therefore put forward our usual moderate amendment.

What we have done is to propose to the Government that a very clear point of reference should be taken; namely, the point of reference of one of those who is set up by the Department of Trade to inspect the affairs of companies. I am one of those who believe it is time for a full-time inspectorate, but the Department of Trade clearly does not, or at least the Administration clearly do not, and they go on appointing people who are highly qualified and respected in their fields of accountancy and the legal profession. These are people who will not make a judgment without good grounds, but these are people who frequently face a situation where there is not a clear criminal offence, may be or may be not some civil liability, but certainly a company malpractice; certainly one known in the City or in reputable circles and in commercial circles generally.

It is therefore our submission that the Jenkins proposal can be put into effect at any rate partially, and along the lines of the 1973 Bill, looking to the same object at which that was obviously targeted, by saying that today we have inspectors appointed to investigate company affairs who are sufficiently respected and who are sufficiently good at their jobs that, if they are given a clear phrase which is on their part a request to the courts to consider disqualification, they will know when to use it and when not to use it. This is a flexible guideline. We have chosen the phrase, "culpable malpractice". From his previous replies to my amendments I have the feeling that if the noble Lord, Lord Trefgarne, replies to this one he will find something wrong with that. I am sure there is something wrong with it, but if he likes to call it XYZ then we will put in XYZ. The point is to have a phrase in a statute which an inspector knows is the phrase that he uses when he is in effect asking any court before which the matter conies to consider disqualification irrespective of actual prosecution for a criminal offence.

It would not seem very extreme in 1981 to go that little teetering step down the path along which the Jenkins Committee bounded just a decade ago. I hope that on this matter the Government will meet our reasonable pleas by at any rate considering the matter, to take this clause a little further, especially in light of the fact that it is rare for such a matter to get parliamentary time. Meeting the noble Minister's point about parliamentary time, when we have Companies Bills we do not often have a debate on disqualification orders. Here it is, at the Government's suggestion. On that suggestion I move this amendment in the hope that they will feel able to consider it before Report stage. I beg to move.

Lord Lyell

The noble Lord, Lord Wedderburn, has moved his amendment in. I think, considerable hope, at length and in considerable detail, as we have come to expect from the noble Lord; but I wonder whether I could put to the Committee one or two parallel thoughts that were not mentioned by the noble Lord, Lord Wedderburn. First of all, the purpose of Clause 48, which we are considering, is not necessarily to introduce new grounds for disqualification. I am sure that if the noble Lord will consider Clause 48 he will see that it covers much of the ground that is already stated in Section 188 of the 1948 Act. Also, we hope that Clause 48 will streamline the existing procedures for disqualifying those persons who are already liable under Section 188 of the 1948 Act and under Section 28 of the 1976 Companies Act.

The grounds covered by these sections are restated in Clause 48 in the form of the new subsections (1) and (1A) to Section 188 of the original 1948 Act; but the amendment which has been moved by the noble Lord, Lord Wedderburn, would, we believe, introduce a wholly new ground for disqualification if an inspector were to state in his report that a person had been guilty of "culpable malpractice"—this marvellous phrase that the noble Lord, Lord Wedderburn, has thought up, and which seems to me to be something akin to "My Fair Lady", saying a hundred times daily, "culpable malpractice". It is a bit of a tongue-twister, and I wonder whether the noble Lord, Lord Wedderburn, and his noble friends believe this particular jolly phrase to be a "catch-all" for misdemeanours of any sort so far as Clause 48 and, indeed, Sections 188 and 28 are concerned.

The effect of this amendment would be to make possible the initiation of disqualification proceedings on the basis of a judgment by a non-judicial officer—and that would be an inspector—who was engaged in a procedure of inquiry when that particular judgment taken by the inspector (or perhaps there might be two of them) involved the inevitably broad assessment of an individual's performance in order to take a view as to whether, in the words of the amendment, the individual had been, guilty of culpable malpractice in relation to the promotion, formation, management or liquidation of a company". The primary purpose of an investigation under the Companies Acts is, first, to establish the facts where prima facie some irregularity has been shown in the way that a company has been run, and, secondly, to report those facts to the department. I hope that the noble Lord, Lord Wedderburn, would take heart from the words of Lord Justice Buckley in the very well known case concerning the Pergamon Press. Lord Justice Buckley said this: The function of an inspector is an inquisitorial function. His duty"— that is, the inspector's duty— is to investigate the affairs of the company and report on them to the Board of Trade. It is not a judicial function". I think those words are very relevant. It seems to us, following from what Lord Justice Buckley had to say, that the assessment of guilt is the job of the courts, and not of the inspectors. Also, the expression "culpable malpractice" is one which it is certainly not very easy to define. We think it goes a little way towards the "catch-all" phrase.

But of course we agree with what the noble Lord, Lord Wedderburn, had to say, that inspector's reports can be used for purposes of instituting proceedings. Indeed, very often, and in almost all cases, they are. But it is one thing to use these reports as a basis for proceedings, and quite another to permit an application to a court for disqualification from taking part in the management of companies from that report alone. Of course, under Section 188 of the 1948 Act, in subsection (1)(b)—and this enables an application for disqualification to be made because of the appearance of guilt in the course of a winding-up—the assessments contained in an inspector's report could be used under paragraph 1(b). I hope the Committee will bear with me when I suggest that such assessments would be far narrower and far more closely related to specific evidence which had come up or been made available to an inspector. One example could be that the evidence might suggest, on the face of things, a breach of a particular prohibition of the Companies Acts on loans to directors of the company concerned. That is one example. We think these assessments would be far narrower than the view as to whether any individual's conduct, no doubt over the course of some time, could be regarded as demonstrating the fairly broad phrase of the noble Lord, "culpable malpractice".

There is one final point which I would also mention to the Committee. The proposals in the amendment moved by the noble Lord, Lord Wedderburn of Charlton, would greatly handicap inspectors for this reason. The risk that witnesses would not co-operate with the inspectors would be greatly increased, we think, as they might fear that the chance of attracting such a generalised and arguably subjective criticism as that of guilt of "culpable malpractice" would outweigh the consequences of silence. That is the detailed argument. It is lengthy and I hope it has gone some way to explain our misgivings to the noble Lord, Lord Wedderburn.

Lord Wedderburn of Charlton

It is necessary to say something more on the Minister's reply. He was kinder to our drafting than was the noble Lord, Lord Trefgarne, but I have to be less than kind in my response to the rest of what he says because this is not an occasion where the Bill is simply consolidating previous law. It is making changes and we wish to make a few more. It is not true that investigations are only to establish facts. The noble Lord cannot have been reading any since the Savoy Hotel report of 1954. It was once the view that they should establish facts, but Mr. Milner-Holland broke through that in 1954 in the remarkable report on the Savoy and Berkeley Hotel Company. Since then, inspectors have roundly stated matters of law and consequence and conviction and value judgments. It is true, not irresponsibly—and that is why this amendment has so much virtue. It attaches to people who make these statements a great deal of responsibility. When Lord Justice Buckley was quoted in the Pergamon Press case as saying that an inspector is not exercising a judicial function, the noble Lord knows as well as I do that that is in relation to a doctrine that lawyers invent, like the doctrine of natural justice. Whether or not they get into that area of judicial or quasi-judicial power, it has nothing to do with the fact that inspectors do not make judgments. Of course they make judgments where they think it right; and they will go on doing so. They will not be prevented from using even the phrase "culpable malpractice" by knowing that the phrase might carry certain consequences. On the contrary, they would know when and when not to use it.

When the noble Lord says that the present clause in 1(b) allows the court to act where it appears that a person has been persistently in default, he is right. When he says that that would require evidence, he is right. He would also be right if he added that under this amendment, the court would act in its discretion only when it thought that the judgment of the inspector in saying that there was culpable malpractice was based on his report and, secondly and further than that, that it was culpable malpractice that ought to lead to the decision to disqualify.

I have to say, with all respect that I have for the vast majority of those who conduct the affairs of companies in Britain, that this debate in your Lordships' Committee is going on as though there were not a great deal of maladministration and malpractice in company affairs. It is well known to those who investigate these matters that there is a very undistinguished penumbra of sordid malpractices to the general properly-administered, excellent area of commercial, City and other company life in this country. It is our contention that, whether Ministers like it or not, they have to recognise the fact that there must be new statutory remedies and avenues in order to deal with that area of malpractice if it is not to infect many other areas of perfectly reputable commercial life. The areas of remedy and sanction at the moment are quite inappropriate. In this context, when I say that, faced with a mild and meagre little amendment of this sort, a tiny step to make it possible to say to the inspector, a respected QC or an accountant of many years' standing, "If you say it is culpable malpractice then the court could consider disqualification", the Government run a mile, what hope do we have, if that is their approach to dealing with dawn raids and concert parties and all the rest? That we shall see later. We are not allowed to see it today. In asking leave to withdraw this amendment, I express astonishment at the Government's attitude.

Amendment, by leave, withdrawn.

5.7 p.m.

Lord Lyell moved Amendment No. 130:

Page 53, line 12, at end insert— (" (3A) After subsection (6) of section 188 there shall be inserted the following subsection— (7) The power under section 193(2) of the Criminal Procedure (Scotland) Act 1975 to substitute a fine for a period of imprisonment shall in relation to a conviction on indictment under subsection (6) of this section be construed as including a power to impose such fine in addition to that period of imprisonment.".").

The noble Lord said: I beg to move the amendment standing in the name of my noble friend. When the Companies Act 1948 was passed, the maximum penalty for conviction on indictment for contravention of a disqualification order was two years' imprisonment. Section 30 of the Powers of Criminal Courts Act 1973 (which applied only to England and Wales) gave the crown court in England and Wales a general power to impose a fine without limit instead of or in addition to any other penalty on anyone whom they convicted on indictment. Section 193(2) of the Criminal Procedure (Scotland) Act 1975, however, gave Scottish courts which convicted a person on indictment the power to impose a fine without limit instead of a period of imprisonment.

Thus in England and Wales the penalty for the same misdemeanour is up to two years' imprisonment or a fine or both, and in Scotland it is up to two years' imprisonment or a fine—one or the other, but not both. Our policy is to bring these provisions into line. This amendment will therefore enable Scottish courts which convict someone of participating in the management of a company in contravention of a disqualification order to impose both the fine and the imprisonment. I beg to move.

On Question, amendment agreed to.

Clause 48, as amended, agreed to.

The Earl of Selkirk moved Amendment No. 131:

After Clause 48, insert the following new clause:

("Amendment of s. 187 of 1948 Act

.Section 187 of the 1948 Act shall be amended as follows—

  1. (a) in subsection (1) after the word "bankrupt" where it appears in the first line, insert the following words "under the law of any part of Great Britain"; and
  2. (b) in subsection (4) delete the word "to" where it appears in the first line and substitute the words "in respect of a person who is an undischarged bankrupt under the law of ".").

The noble Earl said: To some extent, the purpose of this amendment is the same as what we have just heard from the noble Lord, Lord Trefgarne. The purpose is to ensure that an undischarged bankrupt can be prosecuted in Scotland on that account. At the present time the decided case Kay v. Lord Advocate makes it clear that a bankrupt in England who purports to be a director in Scotland cannot be prosecuted. That is clearly ridiculous and extremely undesirable. This was carefully examined by the presiding judge at the time and it is relatively clear what can be done. How this situation arose, I do not know; but I know that the earlier Acts of 1884 and 1913 were purely Scots Acts. The 1948 Act was supposed to bring it together, but in certain respects it failed to do so. The answer is simple, in that if, after the word "bankrupt" in Section 187 of the 1948 Act, one adds, under the law of any part of Great Britain", it will make it quite clear that if the bankruptcy is in England prosecution in Scotland can proceed. Vice versa, it may be true that a bankrupt in Scotland cannot be prosecuted in England. I am not going to say whether that is true, because I do not know. In the meantime, I think that it is desirable that this addition to the 1914 Act should be made. I beg to move.

Lord Trefgarne

I understand that my noble friend's amendment has the backing of the Law Society of Scotland, which has suggested that the expression "undischarged bankrupt" in Section 187(1) of the Companies Act 1948 would extend to such a person regardless of whether the bankruptcy procedure was in an English or a Scottish court, were it not for the terms of subsection (4) of that section. Since that subsection amends subsection (1) so that the undischarged bankrupt in Scotland must seek the leave of the appropriate Scottish court, and as an English bankrupt cannot obtain such leave, it is argued that the effect of Section 187 is to enable an English undischarged bankrupt to act as a director of a company despite the law and courts of Scotland. It may also have the opposite effect—geographically speaking—that a Scottish undischarged bankrupt may be able to act as a director in England.

We believe that there are substantial arguments which suggest that Section 187 does not contain these alleged loopholes. The application to Scotland of subsection (1)—which is provided by subsection (4)—appears to be in relation only to the leave which may be sought by an undischarged bankrupt of the court to manage a company and the effect therefore seems to be that, as far as an undischarged Scottish bankrupt is concerned, the appropriate court is that by which sequestration of his estate was awarded. Thus the offence itself—of taking part in the management of a company—would, if in relation to a company in Scotland, lend itself to proceedings being taken in Scotland if the defendant were an undischarged bankrupt acting without leave from the appropriate court, whether that court be English or Scottish.

I am advised that a similar view would be taken in relation to an undischarged Scottish bankrupt managing a company in England. The 1948 Act is, after all, an Act applying both in England and Scotland and, where no provisions for leave of the court are included, the same term—"undischarged bankrupt"—is used, as for example in the disqualification of such a person from being a manager or receiver in Section 367 of that Act. Section 122 of the Bankruptcy Act 1914 provides that the courts in England and Scotland are to be auxiliary to each other. Moreover—and, personally, I find this a compelling argument—Section 187 and its predecessor in the Companies Act 1929 has not been challenged in the way suggested at any time. I hope that I have succeeded in laying the fears of my noble friend to rest and that he will see fit not to press his amendment.

The Earl of Selkirk

The difficulty is that what the noble Lord has said is not correct. It has been challenged on the only occasion that I know—I expect the noble and learned Lord the Lord Advocate can tell me a lot more than I know about this—and it has been decided that a prosecution could not proceed. I shall give the noble Lord the case. It occurred a few years ago. It was the case of Kay v. The Lord Advocate, which I am told was very carefully examined by a distinguished judge (Lord Mackintosh) at great length, and at the end of the day he came to the conclusion that he could not maintain the prosecution. He suggested that these words were essential. This is an academic point; I do not want to press it further. But I must sincerely ask the noble Lord to look at it again. It would be clearly absurd if anyone as an undischarged bankrupt acted in Scotland or vice versa. He must be capable of prosecution. I ask the noble Lord to look very carefully at that again.

Lord Trefgarne

I must confess that I do not have in front of me all the details of the case to which my noble friend refers. With my noble and learned friend sitting beside me on the Bench (and either he or his predecessor were apparently concerned in the case to which my noble friend refers), it would be right if we considered carefully what my noble friend has said, and, if necessary, returned to this point at a later stage. I shall undertake to do that and I hope therefore that my noble friend will not press the amendment now.

The Earl of Selkirk

I am grateful to the noble Lord. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 49 agreed to.

5.16 p.m.

Lord Monson moved Amendment No. 132:

After Clause 49, insert the following new clause:

("Shareholders' Proxies .—(1) In all instances where a Company sends forms of proxy to its shareholders for use at a meeting of the shareholders, such forms shall be reply-paid. (2) This section shall come into force six months after the passing of this Act").

The noble Lord said: First of all, let me say that do not intend to press this amendment as it stands. For one thing, I found the drafting somewhat difficult and it is almost certainly imperfectly drafted. For example, no penalty is provided for non-compliance with the provisions of the suggested new clause. Furthermore, I want to hear the views of the Committee, both on the principle and on the detail of this amendment, before deciding on how best to proceed. On the other hand, I must stress that this is a good deal more than just a probing amendment. I have been concerned with this matter for some years now. Companies Bills with a Long Title flexible enough and all-embracing enough to permit an amendment such as this one do not come before Parliament so often that one can afford to neglect an opportunity of putting things right.

The purpose of the amendment is to provide a very modest degree of extra protection for small shareholders. It has long been my contention that the small shareholder gets something of a raw deal. This is not only bad for him or for her but bad for the country. The more the equity of public companies becomes concentrated into fewer and fewer hands—which, by the nature of things, must be institutional hands—the more the whole free enterprise system becomes endangered.

The small shareholder tends to be regarded by unions and by most of the Left as a tiresome irrelevance deserving of very few rights and very little consideration. He tends to be neglected by the institutional shareholders, with a few honourable exceptions. He tends to be surreptitiously looked down upon by management and boards of directors for his gullibity and ignorance. It is true that many shareholders are somewhat naïve and not well versed in financial or commercial matters, but that is no reason for depriving them of their rights.

Since the early 1960s, his dividends are very unlikely to have kept pace with inflation; and certainly the capital value of his shareholdings is extremely unlikely to have kept pace with with inflation unless he has been exceptionally clever or exceptionally lucky. Futhermore, since the debacle of 1974 and 1975—largely consequent upon the secondary and tertiary bank boom of 1973—many shareholders will have lost every single penny that they have invested in certain publicly quoted companies.

The larger shareholders are likely to have got wind of how things are going wrong before a company finally collapses and to have got out before this event. The small shareholder, on the other hand, has in many cases been left with a pile of share certificates quite worthless for anything other than wall papering the "loo". It is sometimes argued that shareholders who are unhappy with the way that their company is run should attend the annual general meetings or extraordinary general meetings in person. That is all very well if one happens to live on the spot. For anyone who lives, say, in Yorkshire, to come to London to attend an annual general meeting or any other meeting is likely to cost at least £25—if the meeting is held at a reasonable hour. That figure is probably more than likely to be in excess of the total net dividend received during the course of the year. If the meeting is at an inconvenient hour, the shareholder will have to spend the night in London, and Members of the Committee know how much that will cost him.

The next argument goes something like this. If he cannot afford to attend in person, at least you cannot seriously claim that he could not afford the cost of a stamp to register his protest by means of a proxy. Of course that is technically correct, and if there were a genuine chance of his vote tipping the balance and forcing the company to act in a way other than the way in which it intended to act, no other course could be urged upon him. But where that possibility is remote or non-existent, let us think of the practical difficulties. If he has no stamp available, is it really worth his while walking a mile or half-a-mile to a post office or, if he lives in the north of Scotland or in mid-Wales, driving perhaps 20 miles to the post office, with petrol at £1.50 per gallon and queuing for 20 minutes to buy a stamp?—knowing full well that because of institutional apathy and substantial director shareholdings his protest can be no more than a token one, having no effect on the outcome of the vote.

I would submit that even though his vote may be only a token one—a protest, as it were—he should be given by law every facility for registering a protest against, for example, empire building, where he sees a company making an acquisition on far too high an earnings multiple merely for the purpose of aggrandisement, as happens in many cases to my certain knowledge. Or for registering a protest against the directors' remuneration rising by 50 per cent. in a year when they have pegged the dividend—that has also happened, to my certain knowledge. Or for registering a protest against a company buying a house in Belgravia for the use of the chairman at a rent of £5 a week, in a year when the dividend has actually been cut. That, or something very similar, has happened in one case, to my certain knowledge.

It is a curious thing that under the 1948 Companies Act there is no absolute obligation to send proxy forms at all. Section 136 of that Act merely stipulates that if a company sends proxy forms to some shareholders it must send them to all shareholders, and a fine of £50 is prescribed for non-compliance. The requirement to send proxy forms to all shareholders of quoted companies is not a statutory requirement but a Stock Exchange requirement, which is why I have made no reference to the 1948 Act in my amendment, though it may yet be thought desirable to do so when tabling my amendment at Report stage.

I think things have reached the stage when shareholders in public companies do need the protection of the law and not only the partial protection conferred by the Stock Exchange. Here I want to make it clear that I am not for a moment suggesting that the minority of companies which do not send reply-paid proxies necessarily treat their shareholders badly and that the majority who do invariably treat them well. I am not suggesting that is the case at all, but it does not alter the principle of the thing.

The most compelling reason for agreeing to the principle, if not to the precise wording of this amendment, is that at least 75 per cent. of companies do send reply-paid proxies of their own free will. To take a dozen household names at random, if Debenhams, European Ferries, Guardian Royal Exchange Assurance, Hawker-Siddeley, ICI, Lonhro, the Rank Organisation, Shell and Standard and Chartered Bank, feel they can voluntarily send reply-paid proxies without any harm to the smooth running of their businesses or to their profits, surely Dunlop, GEC and Grand Metropolitan should be able to do the same. I beg to move.

Lord Lloyd of Kilgerran

I should like briefly to support the general theme of the noble Lord, Lord Monson, on this matter. I think he is wrong about one of the companies when he referred to a very large company which when they send out proxies, send out pre-paid postcards. I had one from ICI, if I may declare an interest, only a few days ago and that was not prepaid. If the answer by the company is that this is a costly method and increases the cost of the matter, may I respectfully suggest that many of these companies could save a lot of money in the advertising they circulate with the annual reports. These glossy reports they issue indicate that they have lots of money to spare when sometimes the contrary is true. I should think, as a matter of courtesy, that if a big company wants a reply it ought to stamp the postcard which is sent out.

Lord Lyell

In replying to the noble Lord, Lord Monson, far be it from me to curtail his tour of the major companies of our economy, nor indeed to take issue with the noble Lord, Lord Lloyd, about what he calls glossy advertisements. He seems to regard these company reports as somewhat wasteful. The noble Lord is, of course, an expert in wading through page after page of detailed legal submissions over patents and so on, but I would suggest the average investor is pleased to see the performance of his company set out in detail and in pictorial form which is easily visible and easily digestible. I wonder whether the noble Lord, Lord Lloyd, is right in criticising any company, whatever its size, for making its affairs more legible and more agreeable to the public and indeed to its shareholders—

Lord Lloyd of Kilgerran

Is the noble Lord saying that it is a matter of Government policy and that they are supporting the actions of these large companies in sending out these glossy things?

Lord Lyell

May I respectfully suggest to the noble Lord just one word: patience. I am coming to his views, and especially when I am allowed to proceed in replying to the noble Lord, Lord Monson. In considering this amendment I hope the Committee will allow the Government to state their view on whether it really is a proper function of company law to regulate such details of the administration of companies. Very often these details may be important, as the noble Lord, Lord Monson, said. Nevertheless they are details and of course a company may already, at its own discretion, encourage shareholders to take part in decision-making by sending reply-paid proxies. We support that, but I must say that the Government see no good reason why the law should compel a company to do so.

I am afraid that the amendment does not explain how this provision would be enforced. For example, would the provision which is set out in the new clause be subject to a criminal sanction, to be enforced by some investigative agency or possibly even the police? Also, would a shareholder, if by some misfortune he did not receive his reply-paid proxy form, be entitled to have the vote made void if he applied to the court? These two examples are not necessarily very far-fetched, especially as I not infrequently have to speak about the British Telecom and Post Office services—what happens if something goes astray in the mail? These examples illustrate the difficulties of using the law in the way which is proposed by the noble Lord, Lord Monson, to promote more active participation by shareholders. The Government are all in favour of encouraging an effective shareholding democracy, but we wonder whether this new clause is the proper way to go about it.

In addition, there is a provision that this section should not come into effect until six months after the enactment of the Bill. We wonder whether this is intended to allow companies time to get through all those proposals which they believe would encounter strong opposition from shareholders who were unable to pay the price of postage. I hope that subsection (2) of the proposed new clause is not intended to become a "rogues' charter" before the laudable intentions expressed in the clause would come into effect. We accept that the underlying intention of the new clause is indeed honourable and we support it, but we would point out that the proposal to put his views into law is not necessarily appropriate in the Companies Act as we have it today.

Lord Bruce of Donington

The noble Lord, Lord Lyell, has been a little ungenerous to the noble Lord, Lord Monson, who, as I recall, explained at the outset that the clause was far from finally drafted and described this as a kind of probing amendment. I should not have expected the noble Lord, Lord Lyell, to go into such full documentation concerning all the technical defects of the Bill, in view of the very tentative way in which the amendment was proposed. Moreover, the noble Lord reacted a little sharply to the suggestion of the noble Lord, Lord Lloyd of Kilgerran, that company reports tended to be a little on the lush side. His reaction that it is unwise to go into the minutiae in a clause of this kind comes a little oddly from him. After all, in Part I of the Bill the Government went into enormous detail in actually setting out the precise form in which company accounts should in future appear. It does not really lie in the mouth of the noble Lord, Lord Lyell, to accuse the noble Lord, Lord Monson, of trying to legislate in too much detail. The Government are already guilty, and over-guilty, on that score in their treatment of Part I of the Bill.

The suggestion of the noble Lord, Lord Monson, is a perfectly reasonable one. But there is another technical defect to which, with all due respect, I should like to refer. The amendment says "a company" but I should have been far more satisfied had the noble Lord used the words "public limited company" rather than covering all companies. But, again, that is a purely technical matter. I should have thought that the general principle that companies should send out proxies—and, in the main, these tend to be public limited companies; the PLCs as they will eventually become—was a very good thing for the Government to take seriously. As the noble Lord, Lord Monson, said—and I shall probably remind him of this in some future economic debate—the control of most companies tends to be concentrated in fewer and fewer hands. I may use that point later in another political or economic context. But that is undoubtedly true and the small shareholder is entitled to a little consideration.

Therefore, I should like the noble Lord, Lord Lyell, and the Government to take the suggestion of the noble Lord, Lord Monson, a little more seriously with a view to seeing whether something can be done about it. It could easily be done within this Bill. It is not beyond the ingenuity of parliamentary draftsmen, however overworked they are in other spheres in producing scores of more and more detailed amendments, to produce a short series of clauses covering this point. I therefore hope that the noble Lord will give this matter rather more consideration than it appears to have been given in the brief which was provided for him.

Lord Mancroft

Before we leave this point, may I make a short comment on the observation of the noble Lord who was speaking from the Liberal Front Bench about glossy brochures in annual reports? There has always been criticism of these and it is very easy to criticise. Companies do not do this lightheartedly; they go into it very carefully. Shareholders know perfectly well that these reports must be expensive to produce, take time and trouble and cost considerable postage. On the other hand, speaking from my own experience, I can assure the noble Lord that many shareholders welcome detailed information about their companies in language which they can understand and with pictures showing what is going on, rather than a piece of paper which only a qualified accountant can possibly explain to them. As the noble Lord, Lord Monson, suggested, they may live 25 miles, if not 250 miles, from the nearest qualified accountant.

There is one more virtue of those glossy reports which the noble Lord so despised, as they enable a company to remind its shareholders what it sells, what its commodity is, and also helps to encourage them to buy those goods or services, and to pass that information to their friends. The noble Lord would be very much surprised if he asked any average shareholder "You are a shareholder in X and Company. What do you make? What do you sell? What are your goods?" If your Lordships look at the Financial Times on any morning you like, you will find at least half a dozen reports of companies which give no indication whatever of what each company sells, what goods it has to offer or what services it has to offer. You could not tell whether it was ships, shoes, or sealing wax. Though I discourage unnecessary waste or flamboyance, I therefore believe that we should think very carefully before wholly agreeing with the noble Lord's attack on these glossy pieces of advertising. They sometimes do a lot of good.

Lord Lloyd of Kilgerran

I am sorry if I disturbed the noble Lord who has just sat down. But at this time of economic stringency, I am satisfied that many of the glossy reports which are issued by large companies could be curtailed in the function which they set out to perform. I agree that a company must disclose what it is making, but there are other ways of doing that. The noble Lord and I must differ in our views about these reports which are issued from time to time.

Lord Lyell

I hope that I shall not take any time from the noble Lord, Lord Monson, but the noble Lord, Lord Bruce, made various criticisms of my reply. I have nothing to add. My case rests. As regards the glossy brochures, the noble Lord, Lord Mancroft, is far more eloquent than I. As regards the amendment of the noble Lord, Lord Monson, the Government do not treat the noble Lord's views with flippancy, but I hope I managed to suggest to the noble Lord that we believe that company law, and this Bill, is not necessarily the best method of achieving what he wants. We believe that the law should not compel companies, but it should not go out of its way to make difficulties for any companies which wish to aid their shareholders.

Lord Monson

First, let me say how grateful I am to the noble Lord, Lord Lloyd of Kilgerran, and the noble Lord, Lord Bruce of Donington, for their support. The noble Lord, Lord Lyell, asked: Is it a proper function of company law to go into such detail in connection with shareholder protection? If it is not a proper function of company law, why, then, was Section 136 of the 1948 Act, which deals with proxies in a slightly broader sense, ever passed? And I think it is generally accepted that since 1948 things have started to go wrong, so far as small shareholders are concerned.

I accept one or two of the criticisms of detail made by the noble Lord, Indeed, I said at the outset that the amendment was defective and that it lacked any provision for penalty. The answer there is probably to produce an amendment which refers back to Section 136 of the 1948 Act, which provides for a fine of £50. That would meet that particular criticism, and would be an appropriate penalty. I cannot believe that any public company—and here I take the point of the noble Lord, Lord Bruce, that the amendment ought to refer to public companies only—would fail to do its duty in this regard, if Parliament so decided.

This is a legitimate matter for Parliament. I think all parties are agreed on the general need for consumer protection. This is, in a way, a measure of consumer protection—or even producer protection. If shareholders had not produced their money in the first place for the fixed and working capital of companies, the companies would never have reached their present size and shape. But this is not the moment to proceed with this matter. It requires a little more examination. Therefore, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clauses 50 to 53 agreed to.

5.40 p.m.

The Earl of Selkirk moved Amendment No. 133:

After Clause 53, insert the following new clause:

("Amendment of s. 106 of 1948 Act . In section 106 of the Companies Act 1948 delete the word "England" where it appears for the third time and substitute the words "United Kingdom".").

The noble Earl said: This amendment is intended to put Scotland in a pari passu position in regard to charges on companies. Part III of the 1948 Act deals with the manner in which charges can be created against companies. This makes it quite clear that unless a charge is registered, it will become void. If we look at this carefully, in particular at Section 106, we see that any property in England which is acquired by a company which is incorporated outside England has to be registered in England. In point of fact, many companies in Scotland have property in England. This has arisen through the practice in Scotland of having what are called floating charges covering the whole of the assets of a company, whereas in England I understand that fixed charges are much more used.

What it means in effect is that if a charge is registered in England, whether the property be in Scotland or elsewhere, that is enough, whereas if a charge is registered in Scotland and includes any property in England, it has to be registered in England at the same time. I submit that this is quite unnecessary. It should be on an equal basis for both countries. This can very easily be brought about by the amendment to Section 106 which I have moved.

But there is a still more important point which could lead to difficulty. It arises particularly in relation to what is called Section 106K, which was brought in under the 1972 Act. If a foreigner comes to this country, does business in Scotland, and takes a charge against it, he may not know that if there is property in England it must also be done in England. This is an unsatisfactory situation which I believe can very easily be put right by my amendment. It means changing the word "England to" "United Kingdom". In most cases when we talk about a foreign country we do not really mean Scotland, so "United Kingdom" is very much more suited to this part of Section 106 than "England". I beg to move.

Lord Trefgarne

As my noble friend has explained, the purpose of this amendment is to remove an inconsistency in the present law relating to the registration of charges. By virtue of Section 106K of the 1948 Act, a non-British company which has a place of business in Scotland is required to register charges on Scottish property. I emphasise non-British because the point here is that the requirements do not apply to English companies. By virtue of Section 106, in contrast, a non-English company which has a place of business in Scotland is required to register charges on English property. I emphasise non-English because, as my noble friend has pointed out, the requirement accordingly rests on Scottish companies. Hence the certain sense in Scotland of being discriminated against which my noble friend has eloquently expressed.

Let me say straight away that the Government accept that my noble friend has identified an anomaly in the Acts which it would be right to amend. We therefore accept in principle that the two provisions to which I have referred should be brought into line. However, we cannot accept my noble friend's amendment as dealing adequately with the problem. For example, it would create a new anomaly since Section 106 would refer to non-United Kingdom companies whereas Section 106K would still refer to non-British companies. If there is to be a change—and as I say the Government are sympathetic in principle—it should be to put Section 106 on a par with Section 106K in applying the requirements to companies incorporated outside Great Britain. The Government see no reason to disapply either provision to Northern Ireland companies, who are not in other respects subject to the Companies Acts. I hope that in the light of what I have said my noble friend will see fit not to press his amendment. The Government will table an appropriate amendment to deal with this point at a later stage of the Bill.

The Earl of Selkirk

I can only thank my noble friend very much. I look forward to seeing the amendment in due course. I beg leave to withdraw this amendment.

Amendment, by leave, withdrawn.

Clause 54 agreed to.

Lord Robertson of Oakridge moved Amendment No. 134:

Before Clause 55, insert the following new clause:

("Disclosure of names in which shares are to be registered . The following section shall be inserted after section 33 of the 1967 Act— 33A.—(1) Any obligation under section 33 of this Act to notify the acquisition of shares shall not be regarded as having been discharged unless the name or names in which the shares are or are to be registered is included in the notification. (2) Any obligation under section 33 of this Act to notify the disposal of shares shall not be regarded as having been discharged unless the name or names in which the shares are registered is included in the notification.".").

The noble Lord said: I was very grateful to the noble Lord, Lord Trefgarne, for his assurance earlier this afternoon that later on the Government would be introducing amendments to the Bill to cover the questions of disclosure and concert parties. My amendment is concerned with an aspect of disclosure which has some bearing on the question of concert parties, and is very similar to Amendment No. 152 which was referred to by the noble Lord, Lord Lloyd of Kilgerran.

I hope the Committee will not think that I am presuming on their time if I speak about my amendment. It seems to me that discussion of the Government's amendments is inevitably going to be telescoped. Therefore, it is right and proper that points such as this should be aired at this stage. I should say that I have a special interest in it as a stockbroker.

The aim of the amendment is that a person making a notification of an acquisition or disposal of shares under Section 33 of the 1967 Act, as amended by Section 26 of the 1976 Act, should be obliged to declare not only that he has made the acquisition or disposal but also the name or the names in which the shares are to be registered or, in the case of a disposal, the name or names in which they are registered at the moment. The notifications to which I refer relate to shareholdings carrying 5 per cent. or more of the company's voting rights.

Under the existing law, it is possible by the use of nominee names for a company to be aware of a shareholding of over 5 per cent. but not to be able to identify it on its register of members, which it is required by Section 110 of the 1948 Act to keep. The over 5 per cent. shareholdings will appear on the register of substantial holdings kept under Section 34 of the 1967 Act. But it may very well not be possible for the company to link the two registers together. Inability to make this link will hinder a company from readily identifying those who may be building up a position from which to influence or, indeed, to control the affairs of a company. Of course, a company can use its powers under Section 27 of the 1976 Act to get nominees to declare the names of the beneficial owners of the shares in their name, but such a procedure, first, can be slow—and in many instances time is at a premium—and, secondly, does not always work, as we have seen in the case of the Dunlop situation.

To give an example of what I mean, you could have a situation where, say, the Section 34 register showed several large holdings while the register of members showed a number of nominee holdings accounting for a slightly larger number of shares than the total of the Section 34 holdings. The company might well want to try to find out who owns the balance of the shares in the nominee holdings. Under the present law of being unable to link up the two registers, it might well have to serve notices on all the nominees, which would take time and involve extra work.

If the amendment were agreed, most of the nominee holdings would be able to be linked with the Section 34 register and perhaps only one notice might be needed. I maintain—and I believe that this view is shared by the Stock Exchange and by the Council for the Securities Industry—that my amendment would reduce uncertainty to companies, to their shareholders, to their customers and to the public at large and would be a step towards avoiding the kind of situation which we saw with Consolidated Gold Fields. It would be very helpful if the Minister could say that serious consideration will be given to this point in drawing up the amendments to provide legislation on disclosure and concert parties. I beg to move.

Lord Trefgarne

The noble Lord has done the Committee a considerable service by drawing this particular point to your Lordships' attention. I readily give the assurance for which the noble Lord, Lord Robertson of Oakridge, asks—namely, that this matter will be taken carefully into consideration in the drafting of the Government's new proposals which I announced earlier this afternoon. I hope that, with that assurance, the noble Lord will feel able to withdraw his amendment.

Lord Robertson of Oakridge

I am very grateful for the reply given by the Minister and I readily beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 55 [Further disclosure of information permitted in certain cases]:

5.50 p.m.

Lord Lyell moved Amendment No. 135:

Page 54, line 39, leave out from ("circumstances)") to end of line 41 and insert ("the following paragraphs shall be substituted for paragraphs (c) to (f)—").

The noble Lord said: In moving this amendment, I hope it may be convenient for me to speak to Amendments Nos. 136 and 137 as well. These are drafting amendments. Clause 55(1) adds further paragraphs to Section 111(1) of the 1967 Act, which sets out the circumstances in which information obtained under Section 109 of that Act may be disclosed other than to a competent authority without the prior written consent of the company concerned. As drafted, Clause 55(1)(b) could be construed as deleting Clause 55(1)(a). This is a point which has been made by both the Law Society and the Consultative Committee of Accountancy Bodies.

The amendments therefore redraft Clause 55(1) to cure this defect. As redrafted, Clause 55(1) substitutes two new paragraphs, identified as (da) and (c), in Section 111(1) of the 1967 Act for paragraphs (c) to (f) of that subsection. Paragraph (da) enables information or documents obtained under Section 109 of that Act to be disclosed by an inspector appointed under Sections 164, 165 or 172 of the 1948 Act or Section 32 of the 1967 Act in the course of his investigation for the purpose of the examination of any person. Paragraph (c) of the clause enables information or documents to be disclosed for the purpose of enabling the Secretary of State to exercise, in relation to the company concerned or any other body, any of his functions under the Companies Acts 1948 to 1981 and certain other Acts mentioned in Clause 55(1). This includes disclosure of such information when it is incorporated in a report of an inspector which is published or disclosed by the Secretary of State in the exercise of his functions under Section 168(2) of the 1948 Act, which section refers to the publication and disclosure of inspectors' reports. Disclosure in these circumstances is already provided for in Section 111(1)(d), which accordingly is no longer required. I am afraid that that is a rather complicated explanation. I beg to move.

The Deputy Chairman of Committees (Lord Derwent)

If the noble Lord, Lord Ponsonby of Shulbrede, is going to speak to Amendments Nos. 135, 136 and 137, perhaps at this stage I ought to point out that if Amendment No. 137 is passed I shall not be able to call Amendment No. 138.

Lord Ponsonby of Shulbrede

I am sure it is for the convenience of the Committee to speak to these three amendments at the same time. They cover the same point as my Amendment No. 138 and we certainly agree to Amendments Nos. 135, 136 and 137 being made.

On Question, amendment agreed to.

Lord Lyell moved Amendments Nos. 136 and 137:

Page 55, line 4, leave out (" and ").

Page 55, leave out lines 5 and 6.

The noble Lord said: I beg to move these two amendments en bloc.

On Question, amendments agreed to.

[Amendment No. 138 not moved.]

Clause 55, as amended, agreed to.

Lord Seebohm moved Amendment No. 139:

After Clause 55, insert the following new clause:

("Amendment of 1967 Act

.—(1) The following subsection shall be inserted after subsection (4) of section 28 of the 1967 Act— (4A) A person shall be deemed to be interested in shares of a company if the interest has been acquired pursuant to an agreement or arrangement (whether legally binding or not) to which that person was a party and which includes an understanding as to the exercise, holding or disposal of the interest by the person to whom the shares are transferred in the first instance.

(2) Section 33(5) of the 1967 Act is amended by the addition at the end of the following words— It shall not be open to the promoter of an agreement or arrangement to say that he was not aware of the acquisition of an interest under the agreement or arrangement.".").

The noble Lord said: I am sorry to raise this matter again. We have discussed it at some length when dealing with Amendments Nos. 123 and 125 and I do not mean any discourtesy to the noble Lord, Lord Trefgarne, who, I am glad to say, has been very kind in suggesting that he will bring forward Government amendments to cover the various points that we raised earlier this evening. The Council of Security Industries is in fact sitting in a minefield and they are extremely worried about the situation. This clause says, quite simply, that where you are interested in shares you must report their acquisition if you are a party to an agreement or understanding under which shares are acquired and the agreement or understanding provides what can happen to the shares after they come into the hands of the first recipient. A clear obligation to report is placed upon the promoter or organiser of such a scheme.

Noble Lords are no doubt aware of other problems in this field. Fertile minds are always at work to devise means of concealing who are the beneficial owners of shares. My own view is that we must tackle these questions one by one and not wait to pursue the rainbow end of a comprehensive solution to all outstanding problems in this field. I make no claim for my clause beyond saying that it plugs an obvious and important gap in the reporting requirements and I cannot see that it could conflict with any further legislation put forward by the Government. I beg to move.

Lord Trefgarne

I am prepared to reply to the noble Lord's amendment at some length but it may be for the convenience of your Lordships at this particular juncture if I do not do that and ask for the noble Lord's understanding in respect of the future clauses that we have undertaken to bring forward. They will be as comprehensive as we can make them in the circumstances. Some of the points raised by the noble Lord in his amendments are very pertinent ones of which we shall certainly wish to take account in the drafting of our amendments. Really very much the same arguments apply as those which I offered to the noble Lord, Lord Robertson of Oakridge, just now. I hope that, on receipt of that assurance, the noble Lord will not wish to press his amendment.

Lord Seebohm

I want to make only one more comment and that is that, in view of the strong feeling that has been expressed by a number of people, I hope that every effort will be made by the Government to bring forward the amendments to your Lordships' House so that we may perhaps see them at the Report stage. If that can happen I shall be very happy.

Lord Trefgarne

I undertake to use my best endeavours to that end, but we are in the hands of parliamentary draftsmen and others and I cannot give a categorical assurance.

Lord Seebohm

Perhaps all priority will be given to it and, in that case, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

5.58 p.m.

Lord Wedderburn of Charlton moved Amendment No. 140:

Insert the following new clause:

("Disclosure of information concerning contracts of employment of directors

.The following provisions shall cease to have effect:

  1. (a) section 54(6)(b) of the 1980 Act (substantial contracts etc. with directors and others to be disclosed in accounts);
  2. (b) section 26(3A) of the 1967 Act (directors' service contracts or memorandum thereof to be open to inspection by company's members); and
  3. (c) section 61(3) of the 1980 Act (extension of s. 26 of the 1967 Act) insofar as it relates to subsection (3A) of section 26 of the 1967 Act.").

The noble Lord said: This takes us away from the area of concert parties into a small attempt at clarification and adjustment of the Companies Acts of 1967 and 1980. The amendment has two parts: the first deals with directors' employment contracts and the relationship of Section 26 of the 1967 Act and Section 47 of the 1980 Act. I am sure your Lordships will be aware that under the 1967 Act directors' contracts of service with their company have to be placed on a register kept by the company under Section 26.

This of course requires a feat of judgment on the part of those who are administering the company in order to keep distinct the directors' contract of service—contract of employment in the strictest technical sense—as opposed to the directors' contract for services with his company; for example, usually a contract of consultancy, or something of that sort, where he might be regarded not as an employee of the company (which despite the older legal authorities he can now be under certain types of contract) but as a consultant or independent contractor or self-employed person in respect of that contract, whichever of the many different legal terms are used.

The distinction between the contract of service and the contract for services has become more and more mysterious as the law has progressed. It now requires a feat of judgment equal only to the Court of Appeal, or indeed, since the noble and learned Lord the Lord Advocate is with us, the Court of Session. Cases are being heard every month where—to take one example of last year—a sheet metal worker who had worked for many years in a factory on the basis that he was a self-employed person was found, to the interest and astonishment of the Inland Revenue, to be an employee after all.

It cannot be very easy for those who are administering company affairs to be sure they are putting on the right register only contracts of service of the directors. It was made more difficult for them to fulfil their task in 1980, when Section 47 of the 1980 Act was passed, because then if there were any agreement in respect of which the director can be in a relationship of employment with his company for five years or more, then the contract has to be approved by the general meeting. "Employment" here includes contracts for services as well as of service. So there was an overlap between the two provisions.

But the third part of the jigsaw that makes it a crazy paving was Section 54(6)(b) of the 1980 Act, which it would be the ambition of paragraph (a) of this amendment to delete, because that paragraph exempts from the normal requirement to make disclosure in the accounts of material contracts, which normally include employment contracts in the wider sense, the contract of service. So those who administer the company have yet again to get it right. As is suggested by Professor Gower in the supplement to his 1981 textbook on company law—he is an adviser to the department, so I live in hopes for this part of the amendment—these provisions are inconsistent and confusing. Indeed they are. Section 47 requires prior approval of both types of contract where there is five years' employment in both senses at issue, but Section 54 requires disclosure in the accounts of all material contracts, including those contracts, unless they happen to be technically contracts of service. And Section 26 of the 1967 Act requires contracts of service alone to be put on the register of contracts of service of the directors with the company's office.

It seems to me that the Government can resist paragraph (a) only if they can tell your Lordships' Committee why a contract involving six years of service as opposed to six years of services is so much more insignificant that it need not be put in the accounts. That is the only question I put to the Government, and it is for once a very simple question and I hope I shall receive a very simple reply, that they accept it.

The second part of the amendment is a rather different matter, but also caused by the 1980 Act. In a sense this is a genuine request for information on the part of my noble friends and myself in regard to the register kept by a company of the contracts of service of directors. The 1980 Act, in our opinion, made an admirable amendment, an extension, by requiring the register to include contracts of service with subsidiaries. That would be untouched by the rest of the amendment. But the 1980 Act went on to state that where the contract of service of the director involved him in working wholly or mainly abroad, then it need only state the parties to the contract and its duration. We tried at the time to find out why it should be that the contract of service of a director who was working within the United Kingdom should state all its relevant or material terms, but not that of the director working abroad.

Indeed, there is a simple question to be answered by the Government on this matter, too. Is it not the case that a shareholder in a shareholders' meeting is equally entitled to know the material terms, and especially remuneration, of a director who works mainly abroad, where the shareholders' meeting wishes to assess whether or not to use its power to dismiss him under Section 184 of the Companies Act 1948? Surely one of the most important facts in respect of control of the directors by the shareholders' meeting—which is very much the model of the 1980 Act, however materially real or significant it may be—is that the shareholders' meeting has a right to know these things, because it is the body which controls the directors. Why should it be that the material terms of a director's contract abroad should be totally obfuscated so far as the general meeting of shareholders is concerned? That we find difficult to accept. Since we genuinely feel that paragraph (a) is just a matter of law reform, which we hope the Government will accept, in a sense in paragraphs (b) and (c) we are putting the question again to the Government as to why they insisted on this provision in the 1980 Act, to see if some explanation can be given now of what was not explained then. I beg to move.

Lord Mackay of Clashfern

So far as the first point is concerned, I accept, of course, that at the margin it is sometimes difficult to tell when you have finished with a contract of service and entered into the area of a contract for services. Where there is difficulty of that sort—and it is in a comparatively small proportion of the total number of cases to which these provisions would apply—it seems fair to conclude that the company would be prudent to disclose such a contract in both ways; that is to say, the way appropriate for a contract for service, which is in effect a disclosure to the shareholders of the company, and in the way appropriate to a contract for services, which is part of the accounts. We believe that this general distinction is sufficiently important to merit maintaining the separate treatment of the two types of contract, in view of the desirability of preserving the details of a director's contract for service from the inquisitiveness of others while preserving those details for the shareholders themselves.

So far as the overseas contract is concerned, which is the subject of paragraphs (b) and (c) of this proposed new clause, the matter was gone into with considerable care before these proposals were put into the Act of 1980. I think they were the subject of considerable discussion in your Lordships' House when these clauses came back here. I seem to remember hearing the noble Lord, Lord Wedderburn, posing rather similar questions on that occasion to those he has posed today. The situation so far as the Government are concerned is that, after careful study, and taking into account the difficulties which might be created by full disclosure of overseas contracts, we came to the conclusion that political or commercial embarrassment of sufficient importance could arise if such full disclosures were made. It was in the light of that consideration that it was decided on balance—and I accept it is quite a difficult balance—that these provisions should be put forward.

The noble Lord asked what the situation would be, for example, in relation to a proposal to dismiss a director. This, of course, is dealing only with statutory obligations of disclosure. It could well be that the company in general meeting would be given further information apart altogether from the statutory provisions; the company might think it wise in particular circumstances to give such information and take account of any possible difficulty for the company's business overseas that such disclosure might involve. These are the explanations, and in effect the situation as we see it has not changed from that in which these proposals were originally put into the legislation.

Lord Wedderburn of Charlton

I am very grateful to the noble and learned Lord for his response. I must admit that I am still not at all clear about the second part of the matter. I am posing the same questions and I seem to be getting the same answers. No doubt we shall come to it again on another occasion. As to the first part, I and my noble friends have to remain in disagreement with the noble and learned Lord. It does not seem to us that it is right that all the long-term contracts of service should necessarily be kept from the inquisitiveness of others whereas the long-term contracts for services are exposed in the accounts. We do not see the logic of that. But, in view of the position in the Committee, I beg to leave withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 56 [Revival of dissolved companies]:

6.10 p.m.

Lord Lyell moved Amendment No. 141:

Page 56, line 7, at end insert ("or, if no consideration was received, an amount equal to the value of the property, right or interest disposed of, as at the date of the disposition.").

The noble Lord said: I beg to move Amendment No. 141. I hope that the Committee will bear with me if I briefly explain the purpose of Clause 56 to the Bill around which certainly this amendment and others to follow are framed. The effect of Clause 56 will be that in future anybody who revives a company which has previously been dissolved will be entitled to receive a cash payment which is equivalent to its assets, rather than the assets themselves, from the Crown, the Duchy of Lancaster or indeed the Duchy of Cornwall, to whom assets of a company may pass on its dissolution.

The change that I seek to outline will be in the public interest in two respects. First, it enables those to whom assets of dissolved companies pass when nobody else has a good title to sell those assets without risk that they will be subsequently reclaimed. The assets will be freed to be put to good use. The effect of the law at present can be, for example, to prevent redevelopment of derelict land and buildings for up to 20 years. Secondly, we believe that the change will benefit the public by allowing the administration of such assets, while they are the responsibility of the Crown or the Duchies, to be simplified.

Amendment No. 141 extends the provisions of Clause 56 which can cause a company which is revived within the statutory period after its dissolution, to receive due compensation for any of its assets which, after becoming what we attractively call bona vacantia on the dissolution, have been disposed of by the Crown or the Duchy of Cornwall under the general provisions of the clause Amendment No. 141 deals with assets which have been disposed of for no consideration. That may not be a particularly frequent occurrence, but it is a real possibility. I hope that your Lordships will agree that in such cases the company should receive compensation. The amount due to the company is expressed to be the equivalent of the value of the assets in question. I beg to move.

On Question, amendment agreed to.

Lord Lyell moved Amendment No. 142:

Page 56, line 11, leave out ("Chancellor") and insert ("Attorney General").

The noble Lord said: I beg to move Amendment No. 142. This is the second amendment to the clause which is labelled "bona vacantia"—Clause 56. This amendment provides that the appropriate person will represent Her Majesty the Queen in proceedings arising in connection with any liability which accrues to the Duchy of Lancaster under the main provision of Clause 56. The Chancellor of the Duchy has no standing in the courts, so the proper officer of Her Majesty in right of Her Duchy of Lancaster is the Attorney-General of the Duchy. This amendment seeks to correct that small point. I beg to move.

On Question, amendment agreed to.

Lord Lyell moved Amendment No. 143:

Page 56, line 21, at end insert— ("(3A) This section applies in relation to the disposition of any property, right or interest on or after the appointed day, whether the company concerned was dissolved before, on or after that day.").

The noble Lord said: I beg to move Amendment No. 143. This is the third amendment to Clause 56. Of course there will be assets which have already accrued as bona vacantia to the Crown or to the Duchy of Cornwall and are now vested in the Treasury Solicitor. This amendment makes it clear that those assets may be disposed of under the general provisions of the clause. I hope that your Lordships will agree that it would be pointless and indeed arbitrary in the case of this clause to restrict its provisions only to cases where the company is dissolved after the enactment of the Bill. I beg to move.

On Question, amendment agreed to.

Clause 56, as amended, agreed to.

Clause 57 [Channel Islands and Isle of Man companies]:

Lord Trefgarne moved Amendment No. 144:

Page 57, line 15, leave out ("or").

The noble Lord said: I beg to move Amendment No. 144 and with the permission of the Committee I wish to speak to Amendment No. 145. In commending this amendment, I wish to explain that British company law does not extend to companies registered in the Channel Islands or in the Isle of Man, which, for convenience, I shall refer to as "island companies". In the 1948 Act they are generally treated as oversea companies but, because of the personal relationship of those territories to the Crown, separately identified in Section 416 as companies which, if they have a place of business in England and Wales or in Scotland, are required to deliver documents to the appropriate British Registrar, as if they were companies which he had registered. Nevertheless, they are oversea companies and this amendment by adding Section 1(7) of the Companies Act 1976 to the exceptions set out in subsection (3) of the clause, clarifies that "island companies" are required to deliver accounts to the registrar as oversea companies as provided for in Section 9 of the Companies Act 1976 and not as companies incorporated in Great Britain under the provisions of Section 1(7) of the Companies Act 1976. I beg to move.

On Question, amendment agreed to.

Lord Trefgarne moved Amendment No. 145:

Page 57, line 16, at end insert ("or section 1(7) of the 1976 Act.").

The noble Lord said: I beg to move.

On Question, amendment agreed to.

Clause 57, as amended, agreed to.

Clauses 58 to 62 agreed to.

Schedules 1 and 2 agreed to.

Schedule 3 [Minor and consequential amendments]:

Lord Lyell moved Amendment No. 146:

Page 101, line 6, after ("5") insert ("10").

The noble Lord said: I beg to move Amendment No. 146. This minor amendment to Schedule 3 is consequential on the introduction of the earlier clauses that we were discussing relating to the purchase by a company of its own shares. The amendment provides that Section 10 of the Companies Act 1948—which provides for the amendment of a company's articles by a special resolution—will be subject to the provisions of the Bill which we are now discussing. Amendment No. 121A and, above all, subsection (6) of Amendment 119 which we discussed earlier in Committeee, restrict a company's powers to amend its articles by special resolution and so Section 10 of the 1948 Act should be made subject to these provisions. I beg to move.

On Question, amendment agreed to.

[Amendment No. 147 not moved.]

Lord Trefgarne moved Amendment No. 148:

Page 101, line 20, at end insert—

("5A. In section 170(1) (liability to pay expenses of investigations)—

  1. (a) in paragraph (c), after the words "shall be liable" there shall be inserted the words "except where it was the applicant for the investigation and"; and
  2. (b) in paragraph (d) for the words "the applicants" there shall be substituted the words "the applicant or applicants").

The noble Lord said: I beg to move Amendment No. 148. Clause 43 of the Bill repeals the requirement of Section 165(a)(i) of the 1948 Act that the Secretary of State must appoint inspectors to investigate the affairs of a company, if the company itself so resolves by special resolution and instead permits a company itself (in addition to prescribed minima or more of members) to apply to the Secretary of State to have its affairs investigated under Section 164(1) of the 1948 Act.

These amendments deal with the consequences of Clause 43 for Section 170(1)(c) and (d) of the 1948 Act, amended and introduced respectively by Section 40 of the 1967 Act which provides for the expenses of and incidental to investigations under Sections 164 and 165(a) to be recovered in certain circumstances.

Under Section 170(1)(c) as amended by the 1967 Act, any body corporate dealt with by the report, where the inspectors were appointed other than of the Secretary of State's own motion, that is to say, following an application by members under Section 164(1), a special resolution of the company pursuant to Section 165(a)(i) or an order of court pursuant to Section 165(a)(ii), are liable for expenses of and incidental to an investigation except so far as the Secretary of State otherwise directs. Under Section 170(1)(d) the applicants for an investigation under Section 164 (as distinct from the company itself) are liable to such extent, if any, as the Secretary of State may direct.

As I have said Clause 43 of the Bill brings to an end the requirement that the Secretary of State must appoint inspectors following a special resolution to that effect by the company, and replaces it with a provision enabling a company to apply to have its affairs investigated under Section 164(1) of the 1948 Act. Recovery of costs from bodies corporate under Section 170(1)(c) will henceforth be limited to those cases where inspectors are appointed following an application under Section 164(1) or an order of the court and the body corporate in question is not itself the Section 164(1) applicant. The amendments provide that where a company is an applicant for an investigation under Section 164(1), it shall be liable for the costs of the investigation under Section I 70(1)(d) in the same way as member applicants, and not under Section 170(1)(c) as a body corporate dealt with by the report. Admittedly, the point is a fine one and perhaps of only limited importance, but it is best avoided if it can be. I beg to move.

On Question, amendment agreed to.

Lord Lyell moved Amendment No. 149:

Page 102, line 9, at end insert— ("9A. In section 365(1) (winding up rules) for the words "this Act", in both places where they occur, there shall be substituted the words "the Companies Acts 1948 to 1981".").

The noble Lord said: This amendment is a minor drafting amendment and is consequential upon the provisions of Amendment No. 121, which I think we discussed at an earlier stage. Amendment No. 121 provides for the treatment of liabilities which arise in the winding-up of a company in respect of redeemable shares or shares which are subject to contract to purchase own shares of a company. The amendment allows the winding up rules which are made under Section 365(1) of the 1948 Act to reflect the provisions of subsequent Companies Acts, including this Bill when it has become an Act. It is a minor drafting amendment. I beg to move.

On Question, amendment agreed to.

Lord Lyell moved Amendment No. 150:

Page 103, line 10, at end insert— ("15A. In Schedule 1, in regulation 3 of Table A for the words "section 58 of the Act, any preference shares" there shall be substituted the words "Part III of the Companies Act 1981, any shares".").

The noble Lord said: This amendment is consequential upon Clause 41A in Part III of the Bill, which deals with the power of a company to issue redeemable shares. The amendment provides that Table A of the Companies Act 1948—which sets out a model form of articles for companies which have a share capital—will reflect the power given to companies to issue redeemable shares which need not necessarily carry preferential rights. This is a minor new departure. I beg to move.

On Question, amendment agreed to.

[Amendment No. 152 not moved.]

Lord Lyell moved Amendment No. 151:

Page 103, line 47, at end insert— ("22A. In section 44(2) of the 1967 Act (requirements of 1967 Act relating to registration to be satisfied in case of unlimited company re-registering as limited) for the words "this Act", in both places where they occur, there shall be substituted the words "the Companies Acts 1948 to 1981".").

The noble Lord said: This is a small technical amendment which seeks to correct a faulty provision of the 1980 Act and ensures that the provisions of the 1980 Act relating to unlimited companies which re-register as limited companies are properly applied. I beg to move.

On Question, amendment agreed to.

6.25 p.m.

Lord Lloyd of Kilgerran moved Amendment No. 153:

Page 104, line 39, at end insert—

(". In subsection (11) of section 17 (pre-emption rights)—

  1. (a) in the definition of "relevant employee shares", after the word "held" there shall be inserted the words "or have been acquired"; and
  2. (b) in the definition of "relevant shares", for the words "held, or to be held" there shall be substituted the words "held or acquired, or to be held or acquired".").

The noble Lord said: The purpose of this amendment is to make it clear that the issue of shares under the employee share option scheme is outside the ambit not only of the requirement of the shareholders' authority under Section 14 of the 1980 Act, but also of the pre-emption provisions contained in Section 17 and Section 18 of that Act.

I must admit at once that this is a highly technical matter and I hope that your Lordships will bear with me in setting it out. The precise difficulty arises because, under Section 17(11) of that Act, the exclusion of employees' shares, where an employee share scheme is involved, is drafted in terms that the shares concerned must be held under such a scheme. The operative word with which I am dealing is the word "held".

Under an option scheme the employee obtains an option, but once he exercises the option the shares that he then receives are held by him as normal shares, free and clear of any connection with the scheme. It may be that even the Government at this stage may think that this is a lawyer's technicality, but it raises certain real difficulties in practice. Supporting this amendment I have the views of many experienced practitioners in company law, and they are virtually unanimous in saying that in this respect the drafting of the 1980 Act is defective on this very point.

The new paragraph contained in the amendment which I now move gives clear and unambiguous effect to the purpose of the 1980 Act, and that is the sole purpose of the amendment. I beg to move.

Lord Trefgarne

This amendment has been the subject of correspondence between my department and various people including the noble Lord's honourable friend, the honourable Member for Dearne Valley. While believing that the grounds for doubt over the application to share option schemes of the exemption for employee share schemes in Section 17 of the 1980 Act have been exaggerated, the Government are willing to accept that amendments to remove any doubt should be included in the Bill. However, we do not believe that the amendments proposed by the noble Lord would be completely effective for their intended purpose. The proposed references to acquisition of shares under an employee share scheme may not include shares allotted in pursuance of a share option scheme if the basic premise of the doubters is accepted.

If the noble Lord will withdraw his amendment, the Government will undertake to bring forward an amendment better suited to achieving his objective.

Lord Lloyd of Kilgerran

I am very much obliged to the noble Lord for the reply that he has given, and, in the circumstances and in view of his undertaking, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Mackay of Clashfern moved Amendment No. 154:

Page 105, line 4, at end insert—

("In section 35 (acquisition of own shares by companies)—

  1. (a) in subsection (1) for the words "Except as provided by subsection (2) below" there shall be substituted the words "Subject to the following provisions of this section";
  2. (b) in subsection (2) the words from "and any company" to the end shall cease to have effect;
  3. (c) in subsection (4)—

(i) for the words from the beginning to "purchasing" in paragraph (b) there shall be substituted the words "Subsection (1) above shall not apply in relation to—

(a) the redemption or purchase of any shares in accordance with Part III of the Companies Act 1981;

(aa) the acquisition of any shares in a reduction of capital duly made;

(b) the purchase of any"; and

(ii) for the words "by forfeiting shares or accepting a surrender" there shall be substituted the words "the forfeiture of any shares or the acceptance of any shares surrendered".

In section 37(1)(b) (treatment of shares acquired by company) after the words "acquired by the company" there shall be inserted the words ", otherwise than by any of the methods mentioned in section 35(4) above,".").

The noble and learned Lord said: This amendment updates references to own shares purchased by companies or held by them in Part II of the Companies Act 1980. This amendment is, therefore, minor and consequential to the clauses on the purchase of own shares. I beg to move.

On Question, amendment agreed to.

Lord Mackay of Clashfern moved Amendment No. 155:

Page 105, line 23, leave out ("In section 45(4)") and insert— ("In section 45—

  1. (a) in subsection (2) (meaning of "distribution") for paragraph (b) there shall be substituted the following paragraph—
  2. "(b) the application of capital (including the proceeds of any fresh issue of shares) in the redemption or purchase of any of the company's own shares;"; and
(b) in subsection (4).").

The noble and learned Lord said: This is also a minor amendment, consequential on the previous amendments dealing with the purchase of own shares. I beg to move.

On Question, amendment agreed to.

The Deputy Chairman of Committees (Lord Ampthill)

I have to point out that, if Amendment No. 156 is agreed to, I cannot call Amendment No. 157.

Lord Ponsonby of Shulbrede had given notice of his intention to move Amendment No. 156:

Page 106, leave out line 31, and insert ("or a contract of service between a director of the company and its subsidiary").

The noble Lord said: Essentially, Amendment No. 156 covers the same point as Amendment No. 157. It is essentially a drafting amendment to clarify this particular paragraph. As the Government will inevitably prefer their own wording to my wording, I think that probably the simplest thing is for me not to move Amendment No. 156.

Lord Lyell moved Amendment No. 157: Page 106, line 31, leave out ("of its subsidiary".") and insert ("or between a director of a company and any of that company's subsidiaries"."). The noble Lord said: In the spirit of reciprocity of the noble Lord, Lord Ponsonby, I beg to move Amendment No. 157. We are very grateful to the noble Lord for his kind words. I understand that Amendment No. 157 should meet the points which were raised by the noble Lord, Lord Ponsonby. It is our belief that there are two improvements in the Government amendment. First, the Government amendment covers a holding company which might have more than one subsidiary, and we understand that that is a point which needs to be clarified. Secondly, especially for the benefit of my noble friend Lord Boyd-Carpenter who, alas! is not in his place tonight, the Government amendment has a full stop at the end, which would be very much according to the wishes of my noble friend Lord Boyd-Carpenter. With due thanks for the words of acceptance of the noble Lord, Lord Ponsonby, I beg to move.

On Question, amendment agreed to.

Schedule 3, as amended, agreed to.

Schedule 4 [Repeals]:

Lord Ponsonby of Shulbrede moved Amendment No. 158:

Page 108, leave out lines 4 and 5.

The noble Lord said: This amendment is consequential upon the passing of Amendment No. 62. Last Thursday evening we passed the amendment concerning the Registry of Business Names, and there were a number of amendments which were consequential to that amendment, and this amendment deletes the reference to the relevant sections of the 1916 Act from the Bill, and therefore reinstates those sections in law. I beg to move.

Lord Trefgarne

I had an awful feeling that the noble Lord was not going to move his amendment. This may be an appropriate moment to state the Government's position in response to the Division last Thursday on Amendment No. 62, moved by the noble Lord, Lord Lloyd of Kilgerran. In moving and speaking to that amendment, noble Lords made it clear that they were concerned not so much with the detail of that amendment as with the issue of principle of the retention of the Registry of Business Names. The amendment was of course agreed to, and, in the light of that decision, the Government would not think it right, or in accordance with our normal conventions, to divide the Committee again on the same point during this stage of our proceedings. Accordingly, the Government will not seek to divide on Amendment No. 158.

May I make it absolutely clear, however, that the Government remain firmly committed to the abolition of the registry. We have suffered a tactical reverse—if I can put it that way—not a defeat. Let there be no misapprehension; we shall be returning to this question at a later stage in the Bill's progress.

Lord Ponsonby of Shulbrede

It does not surprise me to hear from the noble Lord that it is the intention of the Government to return to this matter on Report stage. I hope, however, in view of the wide support for the principle of this series of amendments that the Government will seriously think how best to tackle this problem. The Government will no doubt be very much aware of the wide range of organisations which have reacted adversely to the Government's proposals to abolish the registry. In returning to this again at Report stage, I hope that the Government will take this very much to heart.

Lord Lloyd of Kilgerran

May I briefly support what the noble Lord, Lord Ponsonby, has said. There has been, and still is, wide support throughout industry about the maintenance of the business names registry. My telephone has been ringing constantly from firms and professional people saying that they are so pleased that this amendment that I put forward was accepted by your Lordships. I should have thought that the Government would wish to be flexible in their attitude towards industry, having regard to the great support that has been put forward in regard to the business names registry.

I noted from what the noble Lord the Minister said that he is going to take this matter up again at, I presume, Report stage. I think that was made clear in Saturday's Times when a considerable part of a column was included to indicate that your Lordships will hear more of the Government's view on this matter, and that they very much hope to reverse the decision of your Lordships on the amendment which I tabled. If the Government are proposing to put forward amendments which will deal with this situation and they are to be considered at Report stage, I hope that they will table these amendments as soon as possible. It is quite unfair, certainly for persons like myself who have not got the wealth of talent behind them to advise on these matters, that amendments on important matters like this should come up at the last minute. This is a plea from the heart for the early tabling of any amendment the Government put down in regard to this matter.

Lord Trefgarne

I ought to make it clear that while tabling of corrective amendments, if I can call them that, at Report stage is a possibility that we are examining, it is not necessarily the one that we shall follow because the Bill has yet to go through the other place. It may be that we shall prefer to correct the position, or seek to correct the position, in the other place rather than at the Report stage in your Lordships' House. I do not think in this context that we can be subject to the strictures that we have been subjected to in respect of the other matters on which we have tabled amendments. The proposals to abolish the RBN were indeed contained in the Bill when it was first presented to your Lordships.

Lord Lloyd of Kilgerran

I am grateful for the helpful announcement which the noble Lord has just made. I would support any procedure by which the Government would endeavour to raise this matter again in the other place rather than in this House.

Lord Ponsonby of Shulbrede

I entirely accept the last point that the noble Lord, Lord Trefgarne, made; that this is quite a different situation from all the other new amendments which the Government have been tabling during the course of this Bill. The concern of your Lordships' House was that a Bill presented to your Lordships' House at Second Reading, one would have thought, reflected the Government's opinion in a fairly advanced stage of what should be in the Bill. No sooner have we had Second Reading than we have 16 pages of amendments being tabled to the Bill. Subsequently we learn this afternoon that other vast new amendments are to be tabled to the Bill. The Government should have crystallised their views on this situation before the Bill came to Second Reading in your Lordships' House. With regard to these amendments, this is quite a different situation because the Government are reacting to a view of your Lordships' Committee which, maybe, they could not have anticipated in advance.

Lord Trefgarne

I doubt that this is the moment to pursue this interesting dialogue. Let me simply rest on saying that I do not agree with everything that the noble Lord has said. Perhaps the noble Lord may now see fit to withdraw this amendment.

Lord Ponsonby of Shulbrede


On Question, amendment agreed to.

The Deputy Chairman of Committees

Before calling Amendment No. 159, I should point out to the Committee that if it is agreed to I cannot call Amendment No. 160.

6.38 p.m.

Lord Lloyd of Kilgerran moved Amendment No. 159:

Page 108, line 9, leave out ("sections 17, 18 and 19").

The noble Lord said: We have now approached Schedule 4 which contains a list of the sections of previous Acts which are to be repealed. At page 108, line 9 it is proposed to repeal Sections 17, 18 and 19 of the Companies Act 1948. Section 17 of the Companies Act 1948 I have found, in my experience at the patent bar, a useful section. It is a section which is concerned with the prohibition of registration by companies of names which are undesirable. Section 18 is a helpful section dealing with the changes of names of companies and also if, from inadvertence or otherwise, there has been a first registration which is wrong there is a simple procedure whereby such mistakes can be rectified. Section 19 deals with the position where the use of the word "limited" after the name of an organisation or a company can be left out. That has been very useful for charitable and other companies which conform with the procedures.

I must inform the Committee—and here I am echoing the words of the noble Lord, Lord Boyd-Carpenter—that I find myself in difficulty to know where I am in relation to amendments which have or have not been accepted by the Government and such amendments as they are proposing to reconsider, and therefore having over the weekend read through the Official Report of our proceedings in Committee, I am not clear whether there will be in the Bill something equivalent to Sections 17, 18 and 19. As I have found those three sections of the Companies Act 1948 of considerable importance in my activities, I am taking the precaution of moving this amendment so as to delete from Schedule 4 the references to those sections.

Lord Trefgarne

The Government's proposals for the reform of the legislative requirements governing company names, whether as an initial registration or a subsequent change, which are contained in Clauses 22, 23 and 24 of the Bill, recognise the real difficulties which have been experienced since 1947 in seeking to apply, on an equitable basis, the wide discretionary powers contained in Section 17 of the 1948 Act. With over 800,000 names now on the register, to which over 60,000 are being added each year, it would be impossible frankly to ensure, for example, that there was no possible confusion between names, even if more staff could be provided. On the other hand, it is important to put this issue into perspective. As I said, the annual rate of registration exceeds 60,000, as has been the case for some years. Nevertheless, the number of objections received by the registrar in the last year was only just over 300, despite some necessary relaxation in the last 18 months of the criteria within the present wide discretion against which new names are compared with those already registered. It is against that background that one should assess the arguments—on the one hand, that the translation of the present discretion will create a "rogues charter" and, on the other, that the present cumbersome and time-consuming system should be simplified.

The provisions of Section 18 of the 1948 Act, under which companies are permitted to change their names voluntarily or may be directed to do so in certain circumstances, are reflected in Clause 24 of the Bill, although the powers of the Secretary of State to direct a change of name are related, of necessity, to the criterion set out in Clause 22 by reference to which a name may be allowed. To do otherwise would mean, in effect, changing the rules half way through the game, which clearly would not be equitable.

Section 19 of the 1948 Act allows companies which meet certain strict criteria to be licensed to omit the word "limited" from their names, for example, charities which constitute the majority of the companies which have taken advantage of this provision. Although the Government virtually suggested that this privilege should be withdrawn—as being no longer as relevant in a situation where, under the European Communities Act 1972, all limited companies are required to reveal that status on their notepaper—they have taken account of representations received. Clause 25 of the Bill now provides for this privilege to be retained by companies which meet the criteria set out therein, thus retaining the effect of the existing Section 19, but without a requirement for specific licensing. I hope that, in the light of that explanation, the noble Lord will not press the amendment.

Lord Lloyd of Kilgerran

I am obliged to the Minister for that answer, particularly his comments about the position on Section 19 of the Companies Act 1948. I confess that I could not understand his comments about Sections 17 and 18. He introduced some figures and spoke about administrative inconvenience arising from the operation of the Companies Registry. The procedure could readily be simplified without increasing the staff greatly. It could be done by normal administrative arrangements; for instance, to reduce the number of names on the register, registration could be for, say, five years, unless people ask for renewal, and I am of course talking now about the Register of Business Names. Simple administrative factors could be introduced to make the register more workable and manageable. I will consider what the Minister said, and on the understanding that I may return to the subject at a later stage, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 160 not moved.]

Lord Lyell moved Amendment No. 161:

Page 108, line 9, column 3, at end insert—

("In section 56(2) the words from "of any" to "or".
Section 58.
In section 62(1)(e) the word "preference".").

The noble Lord said: This is a minor technical amendment to Schedule 4 and is consequential to Amendment No. 110 which we discussed earlier and which deals with the power of a company to issue redeemable shares. No. 161 provides for the repeal of Section 58 of the Companies Act 1948. That section provides for the issue of redeemable preference shares. The amendment also amends Sections 56 and 62 of the 1948 Act. Those two sections deal respectively with the application of premiums received on the issue of shares and with the delivery of specified documents to the Registrar of Companies.

On Question, amendment agreed to.

Lord Lyell moved Amendment No. 162:

Page 108, line 17, column 3, at end insert—

("Section 188(5).").

The noble Lord said: This amendment corrects a small technical error. Clause 48(3) repeals Section 188(5) of the Companies Act 1948. That section should be included in Schedule 4, and for that reason I beg to move.

On Question, amendment agreed to.

Lord Trefgarne moved Amendment No. 163:

Page 108, line 36, leave out ("the") and insert ("that").

The noble Lord said: The words for repeal in Section 16 of the Companies Act 1948 which are quoted in Schedule 4 contain a misprint. The phrase "activities in the year" should read "activities in that year", and this amendment corrects that error.

On Question, amendment agreed to.

Lord Trefgarne moved Amendment No. 163A:

Page 108, leave out line 42.

The noble Lord said: This is a minor technical drafting amendment. The repeal of Schedules 1 and 2 of the 1967 Act which amend, and restate in its amended form, Schedule 8 to the 1948 Act, gives the impression that Schedule 8 is to stand in its unamended form. That is not so. Schedule 8 as amended and renumbered Schedule 8A will be required for the interim period before the new accounting régime comes into force and for banks and insurance companies. The amendment makes that clear.

On Question, amendment agreed to.

Lord Lyell moved Amendment No. 164:

Page 108, line 42, at end insert—

("1972 c. 68. European Communities Act 1972. In section 9(3)(dh) the word "preference".").

The noble Lord said: This technical amendment to Schedule 4 is consequential on the power provided in Amendment No. 110, which provides powers for a company to issue redeemable shares. We seek to allow companies to issue redeemable shares which need not carry preferential rights. The amendment provides that a reference in the European Communities Act 1972 to redeemable preference shares is altered, so that it becomes a reference merely to redeemable shares. I beg to move.

On Question, amendment agreed to.

[Amendments Nos. 165 to 169 not moved.]

Lord Lyell moved Amendment No. 170:

Page 109, line 2, column 3, at beginning insert—

("In section 40(2)(b) and (3) the word "fund".
Section 41(11).
In section 43(2)(a) the words "or filed".
In section 45(3) the word "fund".").

The noble Lord said: This amendment is in substitution for Amendments Nos. 165 to 169, which I think your Lordships will find represented by rows of merry stars in today's Marshalled List of Amendments. It is a minor and technical drafting amendment, and it is consequential to Amendments Nos. 3, 4, 21, 22, 43 and 44, which have already been spoken to and agreed.

On Question, amendment agreed to.

Lord Trefgarne moved Amendment No. 171:

Page 109, line 19, at end insert— ("(e) The repeal by this Act of section 41(11) of the 1980 Act shall have effect subject to the saving in paragraph 6(1A) of Schedule 2 to this Act. (f) The partial repeal by this Act of section 43(2)(a) of the 1980 Act shall have effect subject to the saving in paragraph 6(3) of Schedule 2 to this Act.").

The noble Lord said: This is a very minor and technical drafting amendment, consequential to Amendments Nos. 21 and 22, which your Lordships' Committee has already agreed. I beg to move.

On Question, amendment agreed to.

Schedule 4, as amended, agreed to.

House resumed: Bill reported with the amendments.