HL Deb 27 October 1981 vol 424 cc946-50

31 Clause 35, page 40, line 33, leave out ("36 to") and insert ("(merger relief), 38 and").

32 Clause 35, page 40, line 35, leave out from ("account)") to end of line 39 and insert ("in the circumstances mentioned below in this section").

33 Clause 35, page 40, line 40, leave out ("sections 36 to") and insert ("section (merger relief)or").

34 Clause 35, page 40, line 41, leave out from ("company") to ("only") in line 43 and insert— ("issues or has issued shares in circumstances to which either of those sections applies, but in the case of an issue which took place before the section in question came into operation").

35 Clause 35, page 41, line 4, at end insert— ("(4) References in sections (merger relief), 38 and 39 of this Act to the issuing company are references to the company issuing the shares as mentioned in subsection (2) or (3) above.")'

36 After Clause 35, insert the following new clause:

("Merger relief

.—(1) Subject to section 38(5) of this Act, this section applies where the issuing company has secured at leaset a ninety per cent. equity holding in another company in pursuance of any arrangement providing for the allotment of equity shares in the issuing company on terms that the consideration for the shares allotted is to be provided by the issue or transfer to the issuing company of equity shares in that other company or by the cancellation of any such shares not held by the issuing company.

(2) Where the equity shares in the issuing company allotted in pursuance of the arrangement in consideration for the acquisition or cancellation of equity shares in the other company are issued at a premium, section 56 of the 1948 Act shall not apply to the premiums on those shares.

(3) Where the arrangement also provides for the allotment of any shares in the issuing company on terms that the consideration for those shares is to be provided by the issue or transfer to the issuing company of non-equity shares in the other company or by the canellation of any such shares in that company not held by the issuing company, the relief from section 56 provided by subsection (2) above shall extend to any shares in the issuing company allotted on those terms in pursuance of the arrangement.

(4) Subject to subsection (5) below, the issuing company shall be regarded for the purposes of this section as having secured at least a ninety per cent. equity holding in another company in pursuance of any such arrangement as is mentioned in subsection (1) above if in consequence of any acquisition or cancellation of equity shares in that company in pursuance of that arrangement it holds equity shares in that company (whether all or any of those shares were acquired in pursuance of that arrangement or not) of an aggregate nominal value equal to ninety per cent. or more of the nominal value of that company's equity share capital.

(5) Where the equity share capital of the other company in question is divided into different classes of shares this section shall not apply unless the requirements of subsection (1) above are satisffied in relation to each of those classes taken separately.

(6) Shares held by a company which is the issuing company's holding company or subsidiary or a subsidiary of the issuing company's holding company, or by its or their nominees, shall be regarded for the purposes of this section as held by the issuing company.

(7) In this section "equity share capital" has the meaning give by section 154(5) of the 1948 Act; and, in relation to any company, "equity shares" means shares comprised in that company's equity share capital and "non-equity shares" means shares in that company of any class not so comprised.").

37 Clause 36, page 41, line 5, leave out Clause 36.

38 Clause 37, page 42, line 18, leave out Clause 37.

39 Clause 38, page 43, line 25, at end insert: (5) Section (Merger relief) of this Act shall not apply in any case to which this section applies.").

40 Clause 39, page 43, line 26, after ("Act") insert ("and subsection (1A) below").

41 Clause 39, page 43, line 27, leave out from ("issued") to end of line 37 and insert: ("at a premium shares which were allotted in pursuance of any arrangement providing for the allotment of shares in the issuing company on terms that the consideration for the shares allotted was to be provided by the issue or transfer to the issuing company of shares in another company or by the cancellation of any shares in that other company not held by the issuing company. (1A) The other company in question must either have been at the time of the arrangement a subsidiary of the issuing company or of any company which was then the issuing company's holding company or have become such a subsidiary on the acquisition or cancellation of its shares in pursuance of the arrangement.").

42 Clause 39, page 43, leave out lines 41 to 44.

43 Clause 39, page 44, line 5, leave out subsection (3).

44 Clause 40, page 44, line 13, leave out ("37 to") and insert ("(Merger relief), 38 and").

45 Clause 40, page 44, line 15, leave out second ("the") and insert ("any").

46 Clause 40, page 44, line 16, leave out from first ("shares") to ("to") and insert ("or other consideration provided for the shares issued is").

47 Clause 40, page 44, line 26, leave out ("36 to") and insert ("Merger relief), 38 and ").

48 Clause 40, page 44, line 36, leave out subsections (4) to (6).

49 Clause 40, page 45, line 18, leave out ("36 to") and insert ("Merger relief), 38 and").

50 Clause 40, page 45, line 30, after ("sections") insert ("(Merger relief)").

51 Clause 40, page 45, line 33, at end insert— ("(8A) in sections (Merger relief) and 39 of this Act "arrangement" means any agreement, scheme or arrangement (including an arrangement sanctioned in accordance with section 206 or 287 of the 1948 Act).").

52 Clause 40, page 45, line 34, leave out ("36 to") and insert ("(Merger relief), 38 and").

53 Clause 40, page 45, line 36, leave out from ("corporate") to end of line 38.

54 Clause 41, page 46, line 3, after ("appropriate") insert ("(a)").

55 Clause 41, page 46, line 5, at end insert ("or (b) for restricting or otherwise modifying any relief from those requirements provided by sections 35 to 40 and (Merger relief) of this Act.").

Lord Mackay of Clashfern

My Lords, with your Lordships' permission I should like to deal with Amendments Nos. 31 to 55 together. Your Lordships may recall that at Report stage on 7th April I explained at some length the rationale behind the Government's intention, on the basis we were then able to establish in this complicated area, to give somewhat restricted relief, certainly as to future transactions, from Section 56 of the 1948 Act. I also gave an assurance in response to a question from the noble Lord, Lord Bruce of Donington, that the Government would give very careful consideration to any generally agreed proposals which might emerge from a joint working party, formed at the initiative of the CBI and comprising, besides, representatives of the Law Society and the CCAB, whose objective was to ascertain whether a consensus in favour of a somewhat broader measure of relief from Section 56 than that put forward by the Government at that time could be established.

In June the joint working party established such a consensus and submitted recommendations to the Government. Briefly, it recommended that Section 56 should not apply: in the case of any share-for-share transaction involving the issue of equity shares by one company as a result of which it becomes the holder of 90 per cent. of the equity shares in another company". This recommendation was intended to replace Clauses 36 and 37 (prospective relief) with a much broader exemption from the requirements of Section 56, and was supported by a number of detailed recommendations. Your Lordships will remember that Clauses 36 and 37 concerned reliefs for the future, and it is with these that I am dealing at the moment.

The joint working party further recommended that within the legal framework which it proposed accounting standards should define the appropriate accounting treatment for particular types of acquisitions and mergers. Finally, the working party recommended that where a merger or acquisition qualified for relief from Section 56 the issuing company should be required to disclose in its accounts, after the transaction, certain information about the names of the combining companies, the form of the transaction, the accounting treatment adopted for the combination and certain other, financial information concerning the previous and subsequent performance and actions of the companies. The working party suggested that this information might be required by the law or by an accounting standard.

These recommendations were fully supported by the CBI and the Law Society. The CCAB as a body also supported the recommendations while indicating that it had certain reservations concerning the accounting treatment of different types of business combination. It accepted that the applicability of so-called merger accounting, as distinct from relief from Section 56, would be a matter for an accounting standard rather than the law. The chairman of the accounting standards committee expressed his support for the recommendations as the basis for a legislative framework within which an appropriate accounting standard could be developed, and work on such a standard has already begun.

I should like to pause at this point to repeat the Government's tribute, already paid in another place, to the skill and rapidity with which the joint working party conducted its deliberations and reported its conclusions to the Government. I think everyone concerned was very anxious that a consensus should be reached on this extremely difficult and technical problem. The joint working party hastened to that, and I believe it is outstanding work that it was able to reach such a fairly simple consensus.

I should like to say just a little more about this. The Government were satisfied that the joint working party had made significant progress in this difficult area by identifying this much broader consensus, and in recognition of this the Government felt able to bring forward amendments based on the joint working party's recommendations. In broad terms, the Government propose to implement the spirit of the working party's main recommendation so as to broaden significantly the scope of the relief from Section 56. The substance of the new proposals, which replace the prospective relief provided at present in Clauses 36 and 37, is contained in the new clause, Amendment No. 36.

I should perhaps draw your Lordships' attention to two particular aspects of the new clause. First, the relief is to be available in the future in respect of any transaction which secures the necessary 90 per cent. holding in an acquired company. In other words, in contrast to the Government's original proposals, there is no longer any requirement that the issuing company should have been formed for the express purpose of acquiring, or have been dormant until acquiring, the acquired company.

Second, again in contrast to the earlier clauses, there is no requirement for a "general offer for equity shares on a share-for-share basis". This concept was regarded as too restrictive and has been replaced by that of a broadly defined "arrangement" which, in response to representations made to the Government, includes an arrangement sanctioned in accordance with Section 206 or 287 of the 1948 Act. Clause 38, which deals with intra-group reconstructions, is to be retained as providing necessary additional scope for relief in respect of certain transactions outside the terms of the new clause. The clause provides slightly more restricted relief than the new clause in order to take account of the special characteristics of intra-group reconstructions. Amendments in another place therefore made clear that all such reconstructions, even those which would also fall within the terms of the new clause, are to be subject to Clause 38.

Clause 39, which deals with retrospective relief from Section 56, has been amended slightly to take account of the principles underlying the new clause, as has Clause 40, which makes necessary supplementary provisions. Clause 41 has been slightly amended with an eye on negotiations in Brussels on the draft seventh directive on group accounts. The directive will contain provisions which bear on the treatment of business combinations in group accounts, and we cannot be sure that the terms of the directive, as it finally emerges, will be exactly congruent with the proposals in these clauses. We think it wise to amend just to cover the possibility that further action will be required, which possibility would not be covered without such an amendment.

Last, but by no means least—and I am grateful for your Lordships' patience—I should refer again to the recommendations of the joint working party in respect of disclosure of information. The Government accept that the new broad prospective relief from Section 56 should be complemented by disclosure provisions. However, in order to allow further consultation on the detail of these provisions, and to provide flexibility for the future, it is proposed to legislate on this matter by means of regulations under Section 454 of the 1948 Act, as amended by the Bill.

I trust that your Lordships will now feel that I have reasonably explained the Government's revised proposals on relief from Section 56. This was a problem which I think was one felt on all sides of the House to be an important problem which the Government should, if possible, try to solve in the course of this Bill, and I believe that we have satisfactorily solved it. I beg to move that this House doth agree with the Commons in their Amendments Nos. 31 to 55 inclusive.

Moved, That this House doth agree with the Commons in the said amendments.—(Lord Mackay of Clashfern.)

Lord Wedderburn of Charlton

My Lords, I had hoped to put something to the noble and learned Lord before he sat down, and it may be that perhaps I am out of order, but it might make for speed if I ask him to clarify a simple point. Is it the case that the relevant clauses or sections will not be brought into effect until the regulations on the disclosure of information are in effect as well?

Lord Mackay of Clashfern

My Lords, I think that, so far as prospective relief is concerned, the situation is that we have provided a date for that, which I think is 4th February 1981, which is the date on which the proposals were first made. 1 would hope that the regulations will come along sufficiently quickly to give an effective follow-up to that, because the regulations are to affect work which proceeds from the merger rather than making it permissible.

Lord Bruce of Donington

My Lords, the noble and learned Lord has been kind enough to refer to the assistance he has received from the consultative committee and accountancy bodies. I should like to reiterate their general support for the proposals which he has sought to incorporate in his amendments, but on their behalf I should like to reserve their position until they have had an opportunity to examine them in detail.

On Question, Motion agreed to.

5.50 p.m.