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§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth) rose to move, That the draft regulations laid before the House on 22nd November be approved. [5th Report from the Joint Committee.]
§ The noble Lord said: I beg to move the Motion standing in my name on the Order Paper. The regulations before the House today provide a relaxation of the requirements of the Companies Act 739 1948 as regards the setting up of share premium accounts in cases of group reconstructions. The Companies Act 1981 introduced extensive reliefs from the requirements of Section 56 of the 1948 Act, which deals with the setting up of share premium accounts.
§ Some noble Lords may recall that this was done as a result of demands for changes in the law following the High Court decision in the case of Shearer v. Bercain in 1980. In particular, Section 38 of the 1981 Act was designed to avoid an intra-group reconstruction resulting in a restriction of distributable profits. However, Section 38 applies only to group reconstructions which are effected by means of a share-for-share exchange. The possibility of extending Section 38 to cover group reconstructions involving exchanges of shares for assets was considered at the time of the passage of the 1981 Act. but other Bill priorities prevented its being included in the Act at the time. However, in Section 41 there was included a power for the Secretary of State to extend or restrict the relief from Section 56 if he considered it appropriate.
§ During 1983 the department was asked to consider the extension of Section 38 again on the grounds that there is little distinction in economic terms, or indeed in logic, between a group reconstruction achieved by means of an exchange of shares and one achieved by means of transfers of assets and liabilities. In August of last year a consultative document was issued to see if there was a general demand for such an extension of the relief. The responses were overwhelmingly in favour and these regulations have been drawn up accordingly.
§ Your Lordships will note that the regulations in fact substitute a new Section 38 for the existing one and that the new section refers to reconstructions brought about by the exchange of shares for non-cash assets. This will cover the transfer of shares in other subsidiaries, as provided for by the existing Section 38, but will exclude transfers of cash. This is important, since Section 41 expressly provides that the relief may not be extended to cash.
§ This is a complex subject, and I have sought in as short a time as I can and as simply as I can to set out the basic principles embodied in the regulations which I invite your Lordships to approve this morning.
§ Moved, That the draft regulations laid before the House on 22nd November be approved.—(Lord Lucas of Chilworth.)
§ Lord Stoddart of Swindon
My Lords, it is for me, I think, on behalf of the Opposition, merely to thank the noble Lord for the extremely concise manner in which he has explained these regulations, which certainly are complex but which, so far as we are concerned, seem to be sensible in all the circumstances. I have no questions to ask him, and, of course, we shall support the regulations.
§ Lord Lloyd of Kilgerran
My Lords, may I also congratulate the noble Minister on the very concise and helpful way in which he summarised, to use his words, a very complex arrangement. In my view, it is a useful arrangement which appears in these 740 regulations, but I have one question and I apologise for not having put it to the noble Lord before. He has indicated that this would mean an amendment of Section 38, to which he referred. I am a member of the Select Committee on the consolidation of Bills, and this Select Committee, under the chairmanship of the noble and learned Lord. Lord Brightman, has been doing the very difficult task of consolidating the Companies Acts ever since 1948. Magnificent work has been done by the draftsmen over the last four years in tackling this tremendously complex task.
With that introduction, I was wondering whether the noble Lord would be able to say whether these regulations, having regard to the fact that they amend Section 38 of the 1948 Act, will be put before that Select Committee before its deliberations are finished in order that the matter of consolidation may be considered. It may be that, although I am ignorant of it, the matter has already been put before the Select Committee, in which case I apologise; but the amount of matter which the Select Committee has had to consider is so great that at the present time I cannot recall whether the amendment of Section 38 is before it. If it is, I apologise to the Minister and to the House for having detained them for these few minutes.
§ Lord Lucas of Chilworth
My Lords, I am most grateful to both noble Lords for their acceptance of my explanation and of course of the regulations before your Lordships. I appreciate, and I am sure the House also appreciates, the work which the noble and learned Lord, Lord Brightman, does in regard to the Joint Committee on Consolidation Bills. May I thank the noble Lord, Lord Lloyd of Kilgerran, for his very kind remarks, and say that I appreciate the point that he has raised, because it was only late yesterday that the Joint Committee agreed that the new provision could be inserted into the consolidation Bill—provided of course that your Lordships approve (and I am quite optimistic that your Lordships will) these regulations. In that case the regulations will become effective when they have received the approval of both Houses of Parliament.
§ Lord Lloyd of Kilgerran
My Lords, I thank the noble Lord for giving that information. I should like to congratulate him on being so up to date in this matter of the consolidation of the Companies Acts.
§ On Question, Motion agreed to.