Companies Bill [H.L.]

HL Deb 11 April 1989 vol 506 cc131-210

2.55 p.m.

Lord Strathclyde

My Lords, I beg to move, pursuant to the Resolution of the House of Tuesday last, that the House do now again resolve itself into a Committee upon the Bill in respect of Part V.

Moved, That the House do now again resolve itself into a Committee upon the Bill in respect of Part V.—(Lord Strathclyde.)

On Question, Motion agreed to.

House in Committee (on Recommitment) accordingly.

[The LORD ABERDARE in the Chair.]

Lord Strathclyde moved Amendment No. C18:

After Clause 96 insert the following new clause:

("Written resolutions of private companies.

.—

1. (1) Chapter IV of Part XI of the Companies Act 1985 (meetings and resolutions) is amended as follows.
2. (2) After section 381 insert—

"Written resolutions of private companies

381A.—

1. (1) Anything which in the case of a private company may be done—
   1. (a) by resolution of the company in general meeting, or
   2. (b) by resolution of a meeting of any class of members of the company,
   may be done, without a meeting and without any previous notice being required, by resolution in writing signed by or on behalf of all the members of the company who at the date of the resolution would be entitled to attend and vote at such meeting.
2. (2) The signatures need not be on a single document provided each is on a document which accurately states the terms of the resolution.
3. (3) The date of the resolution means when the resolution is signed by or on behalf of the last member to sign.
4. (4) A resolution agreed to in accordance with this section has effect as if passed—
   1. (a) by the company in general meeting, or
   2. (b) by a meeting of the relevant class of members of the company,
   as the case may be; and any reference in any enactment to a meeting at which a resolution is passed or to members voting in favour of a resolution shall be construed accordingly.
5. (5) Any reference in any enactment to the date of passing of a resolution is, in relation to a resolution agreed to in accordance with this section, a reference to the date of the resolution, unless section 381C(4) applies in which case it shall be construed as a reference to the date from which the resolution has effect.

Written resolutions: supplementary provisions.

381B.—

1. (1) A resolution may be agreed to in accordance with section 381A which would otherwise be required to be passed as a special, extraordinary or elective resolution; and any reference in any enactment to a special, extraordinary or elective resolution includes such a resolution.
2. (2) Nothing in section 381A affects any enactment or rule of law as to—
   1. (a) things done otherwise than by passing a resolution, or
   2. (b) cases in which a resolution is treated as having been passed or a person is precluded from alleging that a resolution has not been duly passed.
3. (3) Section 381A has effect notwithstanding any provision of the company's memorandum or articles.
4. (4) Section 381A has effect subject to the exceptions specified in Part I of Schedule 15A; and in relation to certain descriptions of resolution under that section the procedural requirements of this Act have effect with the adaptations specified in Part II of that Schedule.

Rights of auditors in relation to written resolution.

381C.—(1) A copy of any written resolution proposed to be agreed to in accordance with sections 381A shall be sent to the company's auditors.

(2) If the resolution concerns the auditors as auditors, they may within seven days from the day on which they receive the copy give notice to the company stating their opinion that the resolution should be considered by the company in general meeting or, as the case may be, by a meeting of the relevant class of members of the company.

A written resolution shall not have effect unless—

1. (a) the auditors notify the company that in their opinion the resolution—
   1. (i) does not concern them as auditors, or
   2. (ii) does so concern them but need not be considered by the company in general meeting or, as the case may be, by a meeting of the relevant class of members of the company, or
133
2. (b) the period for giving a notice under subsection (2) expires without any notice having been given in accordance with that subsection.

(4) A written resolution previously agreed to in accordance with section 381A shall not have effect until that notification is given or, as the case may be, that period expires.".

(3) After section 382 insert—

"Recording of written resolutions.

382A.— (1) Where a written resolution is agreed to in accordance with section 381A which has effect as if agreed by the company in general meeting, the company shall cause a record of the resolution (and of the signatures) to be entered in a book in the same way as minutes of proceedings of a general meeting of the company.

(2) Any such record, if purporting to be signed by a director of the company or by the company secretary, is evidence of the proceedings in agreeing to the resolution; and where a record is made in accordance with this section, then, until the contrary is proved, the requirements of this Act with respect to those proceedings shall be deemed to be complied with.

(3) Section 382(5) (penalties) applies in relation to a failure to comply with subsection (1) above as it applies in relation to a failure to comply with subsection (1) of that section; and section 383 (inspection of minute books) applies in relation to a record made in accordance with this section as it applies in relation to the minutes of a general meeting.".").

The noble Lord said: This is the first of a series of new clauses which aim to simplify the procedures under which private companies operate. Their basic aim is deregulatory, but we have taken care to ensure that there are safeguards to prevent abuse.

There are two central planks to the reforms. First, new provisions make it clear that a private company has the right to substitute the unanimous written agreement of its shareholders for resolutions of shareholders made at a general meeting. Secondly, a private company is enabled to opt out by unanimous resolution—either written or at a meeting—of as many of certain company law requirements as it chooses. This latter option has come to be described as the "elective regime".

The reforms originated in proposals worked out by the Institute of Directors' working group on company law reform, and I should like to put on record the Government's appreciation for the group's work. The present proposals also benefit from comments made on the original proposals by such bodies as the Law Society, the Law Society of Scotland, the Institutes of Chartered Accountants, the Chartered Association of Certified Accountants and organisations representing many small firms. All of these bodies supported the main thrust of the Institute of Directors' proposals and made some valuable comments on the way that they night be put into practice. In the event, we have decided, at least at this stage, not to allow the opting out of as many of the provisions of company law as the Institute of Directors originally thought might be desirable. But we do propose to give all private companies the option of entering the elective regime, and not just owner-managed companies as was originally proposed.

The basic propositions behind the reforms are that certain of the requirements of company law are not necessarily apt for the circumstances of every company and that the members of some companies may welcome the opportunity to dispense with certain requirements which may, in their case, have little meaning or utility and may for them be no more than unnecessary formalities. This might perhaps be most often the case for small companies where the management is the same, or nearly the same, as the owners. We fully accept that not all the members of private companies will be happy that their company should take advantage of these freedoms, and that when there is not so close an identification between members and management, the requirements which could be dispensed with can play an important role in protecting members' interests. Every member will, however, effectively have a veto for both the written resolution procedure and entry into the elective regime will require the unanimity of members. Other safeguards are also provided in the new clauses to protect members' interests.

I shall have more to say on the elective regime when I introduce the relevant new clauses. I think that it might be helpful to the Committee if I say a few words about the broad effect of this first new clause. I shall have some more detailed comments to make in response to the amendments which Members opposite have put down to the new clause.

The new clause concerns the manner in which shareholders may make resolutions. It provides that anything which may be done by resolution of the company in general meeting, or by resolution of a meeting of a class of shareholders of the company, may be done by a resolution in writing signed by or on behalf of all the members of the company entitled to attend and vote at the meeting. The Committee will want to know that in several decisions the courts have ruled that such decisions are valid in place of resolutions at meetings, so what we are doing here is scarcely novel. We propose to legislate to make the position clear so as to remove any doubts about resolutions in particular cases where the courts have not yet had to make a decision, and in order to reassure owners of small companies about the lawfulness of such procedures.

There is a particular safeguard in this new clause to protect shareholders' interests. Essentially the clause preserves the rights of auditors under Section 387 of the Companies Act to be heard at a general meeting on business which concerns them as auditors. A copy of all proposed written resolutions must be sent to the company's auditors and if a resolution concerns them as auditors, they may give notice that in their opinion the resolution should be considered by the company in general meeting. If the auditors did give such notice, the resolution would not have effect. Other safeguards are provided in the next new clause.

I hope that the Committee will agree with us that this is a worthwhile deregulatory reform for private companies. I beg to move.

3 p.m.

Lord Williams of Elvel moved, as an amendment to Amendment No. C18, Amendment No. C19:

Subsection (2), in the proposed new section 381 A, in subsection (1), line 7, leave out ("and without any previous notice being required").

The noble Lord said: The Committee will be grateful to the noble Lord, Lord Strathclyde, for explaining the general thrust behind the two sections, if I may call them that, that we are to deal with this afternoon. The first is the written resolution procedure and the second is the selective regime procedure. Almost all the amendments that I and my noble friends will be moving are probing amendments. The reason we asked for a recommitment of this set of new government amendments was that we felt that it would not be sensible for this Chamber to deal with this matter on a Report basis.

We have no particular difficulty about the concept of written resolutions. Nevertheless there are some difficulties about the details. I hope that as we go through our proceedings this afternoon the Government will be able to reassure the Committee that our worries are unfounded. I address myself now to Amendment No. C19. The question arises on a written resolution as to whether there should be any previous notice. The government amendment as drafted suggests that there should not necessarily be any previous notice but that a written resolution can be moved, adopted and signed as set out in the amendment and there it is. Nobody is any the wiser. It can all be done in 30 seconds. The problem is that a company does not only consist necessarily of ordinary shareholders. It may consist of a variety of classes of shareholder and also, if it is trading, a company will have creditors in the normal course of business. It would be odd if the creditors, to take that class, were to be faced by a written resolution which would normally be the cause of notice in a general meeting, without having had the opportunity to comment. It would equally be odd if some of the shareholders in another class were to be faced with such a resolution without any previous notice.

Let me give an example of what I mean. In many cases over the past 10 years we have had rescue operations of companies, sometimes public companies which have been turned into private companies as a result of the rescue operation. A bank or a rescuing financial institution has taken preference shares in the company and at the same time has lent a lot of money. It has done so to preserve the company's balance sheet. As the amendment stands, in such a case the ordinary shareholders could, as long as they do not affect the class of preference shareholder, without any previous notice being required pass a resolution in written form as long as it is properly accomplished according to the amendment which might in certain circumstances prejudice the interests of the preference shareholders and the bank as creditor. The same is true not on rescue operations but on management buy-outs. In such cases, as the Committee will know, there may be many varieties of financing and what is known as "mezzanine financing" (to use the jargon) which involves an equity element where the mezzanine financier could be prejudiced if he does not have proper notice of what the ordinary shareholders propose to do by written resolution. I hope that the Government will think very carefully before proceeding with this, or at least produce arguments to show that they have considered the various difficulties that might arise. I beg to move.

Lord Lloyd of Kilgerran

I too thank the Minister for his introductory remarks about the amendments which have been showered upon us during the last few days. I have no difficulty about the general scene of these amendments dealing with private companies. As the Minister mentioned the action of the Institute of Directors, perhaps I should declare an interest in that for many years I have been a member of the Institute of Directors, and I am also on the management committee of the Welsh branch of the Institute of Directors.

I have put my name to all these amendments and therefore it may save time if I say that I agree with all the amendments from Amendment No. C19 to Amendment No. C29. I agree especially with the explanation given by the noble Lord, Lord Williams, who has such great experience in these matters, that it would be going too far in the regulatory activities of the Government in the new Section 381A(1) that action could be taken, without any previous notice being required". In these circumstances, I support the amendment to delete those words.

Lord Mottistone

I am told that these amendments have been considered by the Small Businesses Council of the CBI, in the sense that it considered the DTI's consultative document based on the Institute of Directors' proposals. As a result of that consideration, the CBI tells me that it agrees in principle with the introduction of written resolutions for private companies and with the elective regime for private companies as outlined in the original consultative document. However, this is in part due to the lack of time to consider these amendments, and the CBI would like to examine the reasons put forward in today's debate to see what action, if any, to take in relation to recommending any other amendments in the future. In principle the CBI and I agree with the kind of amendments that the Government have put before us.

Lord Strathclyde

I thank all noble Lords who have spoken on the introductory new clause to our new procedure. I do not believe that we ought to insist, as does the amendment of the noble Lord, Lord Williams, on prior notice being given of a resolution. Given the procedures already laid down in the new clause, that appears to be unnecessary.

By virtue of new Section 381A(2), a member has to have given to him a document which accurately states the terms of the resolution, so that he can consider it. He is not then forced by the procedure to make a decision by a particular time, as he would be, in the nature of things, if the procedure were a resolution in a meeting. Because the procedure itself does not impose a particular limit on the period of the members' consideration, it need not itself require a period of notice of the resolution. Moreover, a requirement of prior notice would prejudice the ability of companies to pass resolutions under this procedure at short notice.

The noble Lord, Lord Williams, gave as a specific example the case of a preference shareholder. Where preference shareholders are entitled to vote they will be able to sign a written resolution under this section. Otherwise shareholders do not have the right to vote on a resolution at a meeting and, therefore, they are not required to sign a written resolution.

Furthermore, the noble Lord, Lord Williams, raised the question of creditors. There is nothing odd in that because creditors would not receive the notice as under existing law they do not receive the notice of meetings.

Lord Williams of Elvel

I do not believe that the noble Lord has addressed the points that I made. I accept that under his amendment preference shareholders will be able to vote on matters affecting their rights. That is perfectly clear; I can read the amendment. But where ordinary shareholders pass resolutions which may affect not the rights of preference shareholders—because they are enshrined in a document setting out the terms of the preference—but the rights of certain general interests of the company they may affect the value of the preference shareholders' investment.

Equally, where there is notice, creditors of a company make certain that they receive the notice and they may be the same people. That is why I specifically put forward the rescue operation where a preference shareholder is also a lender to the company on a secured or unsecured basis. Even if he is not a preference shareholder, he will still keep his eyes open and make sure that he receives the notice.

I should like to give the noble Lord another example. Any banker operating in any organisation up and down the country will make sure that, as part of the loan agreement with the company, he receives the document relating to general meetings. That is normal procedure because he is a creditor and is entitled to do so. For the ordinary shareholder to be able to pass resolutions in general meetings without prior notice could—I do not say that it will—easily prejudice the interests of both preference shareholders and creditors. That is the point that I am trying to make.

Lord Strathclyde

I believe that the noble Lord, Lord Williams, misunderstands the position. There is no desire to change the existing law; we are merely changing the procedure. Therefore, the existing rights of preference shareholders, creditors or bankers will still exist under the new procedures.

Lord Williams of Elvel

I understand that there is no question of changing the existing law and that the same rights will apply. All that concerns me is that creditors and different classes of shareholders should have proper notice of what the ordinary shareholders decide to do. That does not appear to be difficult to achieve. It would help to ensure that, when written resolutions are finally agreed, they would not upset the creditor or preference shareholder.

I am not trying to change the law relating to the rights of such people and I understand that the Government are not trying to do so. I should merely like the procedure to be tempered by a regard for the other class of shareholders and the creditors.

Lord Strathclyde

I do not believe that this is a matter to be put in statute. As the noble Lord has said, creditors can insist, as a matter of contract, on receiving copies of the proposed resolutions. Existing contracts can be changed. Ultimately this must be a matter for the creditors and not for Parliament.

3.15 p.m.

Lord Wedderburn of Charlton

Before the Minister sits down, I should like to ask whether his argument is not an odd one. We shall come to the new Section 381B(3) later in the Marshalled List, but it is relevant now. The legislation will change the law because, notwithstanding what has been agreed in the articles, the rule of such resolutions as that in new Section 381A being allowable without previous notice will be a rule of law. It stands, notwithstanding any provision in the articles of association, and therefore there will be a serious and important change in the law. Perhaps the Minister can give a good reason for that, other than that it is deregulatory.

Lord Strathclyde

The subsection referred to by the noble Lord does not affect any contract that the creditor may have with those to whom he lends money or with the company. Secondly, the noble Lord asked for more justification for not accepting the amendment. Ultimately the prior notice will negate the whole purpose of the reform in that it will delay the procedure. One of the aims is to make procedures quicker and more efficient for companies.

Lord Lloyd of Kilgerran

Perhaps I may intervene and give a further example because I do not believe that the Minister has dealt with the points raised by the noble Lord, Lord Williams. In private companies it often happens that somebody lends money to the company. There are no debentures or preference shares; merely a loan to the company. I ask rhetorically whether that person's position would be jeopardised if action was taken without real notice of his position.

I do not know whether that is an example which the noble Lord, Lord Williams, had in mind when he referred to creditors. I believe that the Minister has in mind a creditor similar to someone from a grocer's shop. I am concerned about the man who has helped the company by lending money without requiring a contract or shares. His position is perfectly understood by the directors.

Lord Strathclyde

Surely, it is for the person who has lent the money to decide on what conditions he will do so. If he says that he must have a copy of all written resolutions which arise, that is, fair enough. However, that is his decision and not one which needs to be set down in law.

Lord Lloyd of Kilgerran

The Minister is describing a caveat emptor position for the person who lends the money. It often happens that a company is in a difficult situation and a wealthy member of the company lends money without any contracts, lawyers and so forth. Everyone understands the position and it is a gentlemen's agreement. As a lawyer I know that gentlemen's agreements cause a great deal of trouble. However, in this case the person involved should not be prejudiced.

Lord Strathclyde

The noble Lord spoke of a "member of the company" lending money. If he were a company member he would have received the resolution in the first place. If he did not wish to agree to it he would not need to do so. Again, that would be a decision entirely for him.

Lord Williams of Elvel

The Minister has given away his position by saying that what would happen in the event would be that, by contract, the creditor would require notice of any written resolution before it came up. That is exactly what would happen. It does not help to have in a statute the phrase "without any previous notice" when by contract the whole matter will be rendered null.

I advise the Government to reconsider the amendment. I see that they are not prepared to reconsider. We have had an interesting debate but I do not believe that the Government have a shred of a case. Nevertheless, we shall look at the matter again. I beg leave to withdraw the amendment.

Amendment to the Amendment, by leave, withdrawn.

Lord Williams of Elvel moved, as an amendment to Amendment No. C18, Amendment No. C20: Subsection (2), in the proposed new section 381A, subsection (1), at end insert ("if the same had been held at the time such resolution has effect").

The noble Lord said: This is a somewhat complex amendment. We notice that the government amendment provides that the written resolution may be signed by the member or on his behalf. The government amendment does not make clear who is to have authority to sign on behalf of a member. Is it intended to be limited to persons in whose favour a member has given a power of attorney or, in the case of a corporation, to a duly authorised representative? Who is empowered to sign on behalf of a member?

It may take quite a long time to obtain the signatures of all members because many private companies have large numbers of shareholders. If a new member appears on the register after the resolution has been circulated, presumably that member's signature will have to be obtained. That position would be made quite clear if the terms of this amendment were accepted. I beg to move.

Lord Strathclyde

I do not believe that there is any problem with the existing wording of the government amendment, and I think that the noble Lord's amendment could only cause confusion.

I confirm that our policy is that the resolution has to be signed by all of the members of the company, including those who become members after the process of signature of the resolution has commenced, but before it is finished. This is achieved by the existing wording of the government amendment.

New Section 381A(1) provides that those who must sign are those who are entitled to attend and vote at the date of resolution. New Section 381A(3) tells us that that date is when the last member signs it. It follows that the resolution cannot have effect until all the members of the company at that date who are entitled to attend and vote have signed it.

As to the question of authority to sign, that is determined by general law and it is not necessary to spell out anything here. The Government believe that this section is crystal clear.

Lord Williams of Elvel

Again, I do not find those arguments convincing. I do not understand that the words "on behalf of" mean in general law what the Government seem to think they mean. "On behalf or means someone who is specifically empowered. I am unhappy that the Government do not accept this amendment, which does not come from me but from outside advisers. I very much hope that the Government will look again at the arguments and perhaps consult more widely to see whether their position is as strong as they think it is. I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

Lord Williams of Elvel moved, as an amendment to Amendment No. C18, Amendment No. C21: Subsection (2), in the proposed new section 381A, subsection (1), at end insert ("and no resolution shall have effect until it has been so signed").

The noble Lord said: Again, this is to make sure that the resolution has been signed and that it does not have any effect until such time as it has been signed. The reality of the matter in commercial terms is that information will become known once a written resolution is circulated—and as I said before, it may take quite a long time to obtain the signatures of all shareholders whether of one class or of ordinary shareholders only. People might start to take action on the basis that the resolution was concluded. I believe that to clarify the proposed government amendment, it would be useful to include the words of my amendment. I beg to move.

Lord Strathclyde

Again, we feel that these words are a wholly unnecessary addition to the Bill. The first part of new Section 381A(1) sets out the effect of what a resolution in this form is to have. The second part defines the form of the resolution which is to have that effect. The resolution is one in writing signed by or on behalf of all the members of the company who at the date of the resolution would be entitled to attend and vote at the relevant meeting. Since, by definition, the resolution has to be signed in the prescribed manner and by the prescribed people, it must be apparent that a resolution cannot have the consequences provided in the first half of the subsection if it has not been so signed. Therefore, I believe that the situation described by the noble Lord, Lord Williams, would never arise and that, therefore, the amendment is redundant.

Lord Williams of Elvel

We are having an argument about what happens in the real commercial world. My own belief is that once a written resolution has begun to circulate among members of a private company, many other people will start to take measures if it were a relevant resolution such as to affect the creditors of the company, which is what I am concentrating on in this series of amendments. I believe that this amendment is necessary to make sure that creditors of the company realise that nothing can be done until the resolution is properly signed in the manner suggested by the government amendment. I do not believe that the amendment is unnecessary but I believe that it is helpful and clarificatory.

Lord Strathclyde

With leave, perhaps I can briefly say that directors are not entitled to act on the basis of the resolution unless they know that all relevant signatures have been obtained, and neither is anyone else allowed to act on that resolution. People do not take commercial decisions on the basis of pure rumour.

Lord Williams of Elvel

The noble Lord says that other people are not allowed to act but, commercially, other people will act. For example, the bank might pull the plug if it sees a resolution, written and signed by nine out of 10 members, affecting its interest. While awaiting the last signature, the bank might say that it will call in its loan and that will be the end of it.

Lord Strathclyde

With great respect, how does that differ from the present situation, where a resolution has to be circulated well in advance? I do not believe that the noble Lord understands exactly what we are trying to do here which, as I said earlier, is to make it easier and more efficient for companies to run their internal affairs. The provision is perfectly clear, and we do not believe that the amendment is necessary.

Lord Williams of Elvel

I will tell the noble Lord how it differs from what happens at present. When a resolution is circulated well in advance the bank—if I may use that as an expression for the general creditor—has an opportunity to go to the ordinary shareholders and say that if they pass a resolution which affects the bank's interest, it will pull the plug. That is why the first amendment was so very important. At present, without previous notice, there will be written resolutions circulating and the bank may well say that it will take that action. My amendment is helpful and clarificatory, but if the Government are going to refuse all amendments and all suggestions from this side of the Committee then there is nothing we can do other than to have debates of this nature.

Lord Strathclyde

I should just like to make a very brief point. It is most kind of the noble Lord to bring these points to the attention of the Government and we try to discuss them in a fair manner. Later on we shall reach amendments with which the Government will agree. However, this amendment does not seem to add very much to the Bill.

Lord Williams of Elvel

We have had a discussion and I believe that the noble Lord has registered my points, as I have registered his. I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

Lord Williams of Elvel moved, as an amendment to Amendment No. C18, Amendment No. C22: Subsection (2), in the proposed new section 38 IA, in subsection (2), line 2, leave out ("a") and insert ("an identical").

The noble Lord said: This, again, is a small amendment. The document to which signatures are to be applied, need not in the words of the government amendment, be on a single document, provided that each is on a document which accurately states the terms of the resolution. In these days of photocopying, I should have thought it perfectly in order to say that the document on which the signatures should appear should be identical between all members of the company.

In my view, when a written resolution is produced by a private company, it would not be out of order to insist that it should be photocopied, that the photocopy should be certified by an appropriate officer of the company—the chairman of the board, or whoever it is—and that that is the copy which should be signed. To have a document which may be a manuscript document which says, "well, other members have decided", may accurately state the terms, but to have that signed does not seem to be good enough. Therefore, again as a clarificatory amendment, I offer this to the Government. I beg to move.

3.30 p.m.

Lord Strathclyde

The noble Lord, Lord Williams of Elvel, has obviously put an enormous amount of thought and work into bringing forward these amendments. Again, it is no disrespect to the noble Lord that the Government do not see them as being entirely necessary. I am afraid that the same has to be said for this amendment.

I doubt that we should prescribe that the documents which members sign must be identical in every respect. The purpose of the reform is to allow for more flexibility and informality in the proceedings of private companies, and it would seem to impose an unnecessary degree of rigidity to insist that the documents are identical. I imagine that in many cases private companies will, as the noble Lord said, wish to use the one document or photocopies of the one document, but I am not convinced that we need to insist on that if companies find other documents more convenient or that they should not be allowed to do so.

I give an example. A company may well want to write a letter to each of its shareholders. It may have only half a dozen shareholders. It may want the letter to go also to, say, the noble Lords, Lord Williams and Lord Lloyd. It may say further down the letter that it is a resolution. Under the noble Lord's amendment, that would not be possible.

Lord Williams of Elvel

No, but it would be perfectly possible to append to the letter a copy of an identical document. It will need just one extra piece of paper to give an absolute guarantee that members know exactly what they are signing. I see the noble Lord objects to one extra piece of paper, which seems rather odd because that does not seem to impose a great burden.

Lord Strathclyde

It is not a great burden, but the very fact that it is an unnecessary burden surely must be enough to accept that we do not need it. It is important that the member is made fully aware of what the resolution says. That is already achieved by the requirement in this subsection that the document accurately states the terms of the resolution. That is what counts.

Lord Lloyd of Kilgerran

The practical reality of the situation has been emphasised and I hesitate to keep rising when the Government seem to have no idea of what actually happens. Therefore, I should have thought that this amendment in particular is justified for practical purposes.

Lord Wedderburn of Charlton

Before the Minister responds, may I put forward an example? I know that the Government have given enormous thought to this clause, so they have perhaps thought of this example. Take the case of shareholder No. 1 who signs version "A" on Monday, and then the case of shareholder No. 2 on whose behalf perhaps, we must remember, version "B" is signed on Tuesday. If shareholder No 1 does not like the look of his version, can he withdraw his signature from the first version in favour of the second? What procedures are there in respect of the differences that are put to shareholders?

Lord Strathclyde

The noble Lord, Lord Kilgerran, is beating the Government over the head about being out of touch with reality, but I am not sure what practical realities the noble Lord has in mind that the Government have not already addressed.

In reply to the noble Lord, Lord Wedderburn, a requirement that the document is identical would mean that the resolution could not be changed where there is any significant discrepancy in the form of the documents; otherwise, this would lead to a field day for lawyers.

Lord Williams of Elvel

It cannot be changed. That is presumably what the Government wish—to have two pieces of paper, one of which may state the resolution and the other a version of the resolution not significantly changed. Can the Minister answer my noble friend's question on whether a shareholder can withdraw a signature on the first document in favour of the second, both of which accurately state the terms of the resolution?

Lord Strathclyde

If both documents accurately state the terms of the resolution, once a shareholder has agreed to it presumably there would be no reason for him to want to withdraw that agreement. Likewise, in the existing situation of a meeting, once a vote is taken the matter is decided. There is no question of a shareholder saying, "Sorry, I did not mean to do that".

Lord Williams of Elvel

Let me give the noble Lord an example from real life. There is a resolution which states this, that and thus. It is in specific form. That will be one document. There may be a letter from the chairman of the company to the members saying, "Here is the resolution and appended below is an explanation of what this resolution is all about and why we are doing it".

Shareholder No. 1 may sign the first resolution but he may see the second piece of paper—the chairman's letter—and say, "I would rather sign that, because by doing so I endorse what the chairman says, and I understand that by doing so I will commit the chairman to his explanation of the resolution". Therefore, the two documents are different, though both accurately state the resolution.

Lord Strathclyde

The noble Lord, Lord Williams, gives an example that he says is indicative of the real world. I am not sure that that is entirely true. The example suggested by the noble Lord would not in any way affect the original government amendment.

I must point out again that we are introducing reforms for small companies. Generally speaking, these reforms are widely and fully supported. Their purpose is to reduce paper shuffling and unnecessary procedures. All the Opposition amendments are complicating what are essentially simple and voluntary proposals for companies to do that.

Lord Williams of Elvel

On the contrary, the Opposition's amendments are designed to make sure that the law in its final form does not give rise to endless disputes and to make the procedure perfectly simple and clear. However, if the Government are determined not to accept the amendment, then the Government are determined. I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

Lord Williams of Elvel moved, as an amendment to Amendment No. C18, Amendment No. C23: Subsection (2), in the proposed new section 381A, in subsection (3), line 2, leave out ("last") and insert ("first").

The noble Lord said: This is a probing amendment designed to ascertain the exact timetable that the Government have in mind for the signing of resolutions and what happens if, for example, a shareholder is incapacitated or the shareholders register changes in the middle of the whole procedure. I should be grateful if the Minister could kindly let the Committee know what the Government intend in this respect. I am sure that he has a brief which will explain. I beg to move.

Lord Strathclyde

It is apparent from new Section 381A(1) that a proposed resolution does not become a resolution until it is signed by or on behalf of all the relevant members. It seems to us unsatisfactory to enact that such a resolution be dated prior to its fulfilling the conditions of being such a resolution. That is what the amendment states. I know that the noble Lord says that it is simply a probing amendment. Given the examples mentioned by the noble Lord, Lord Williams of Elvel, perhaps I may briefly explain. If a shareholder has moved or cannot be reached in order to sign the document, then the resolution cannot take effect. It can only do so when all the relevant members have signed the document. I believe that that generally explains what we are trying to say.

Lord Williams of Elvel

Can the Minister tell me what will happen if a shareholder has signed a power of attorney to a third party and then revokes that power of attorney during the course of the passage of the resolution?

Lord Strathclyde

So long as the resolution was not signed by the attorney before the power of attorney was revoked, then he will retain his right as being the original shareholder and without the power of attorney. If it were signed first of all, then the original power of attorney would remain.

Lord Williams of Elvel

If the last member does not sign, does the resolution carry on in vacuo?

Lord Strathclyde

Whatever happens, if one member does not sign the resolution, then it cannot be carried.

Lord Williams of Elvel

I do not understand how this will work. What is the time limit? This is a technical matter but it is important to get it right. A shareholder may sign a power of attorney. He is spoken to by other shareholders and the attorney may have signed the resolution. What are the possibilities? Other shareholders may say to him, "It is a very bad resolution and your attorney has signed it on your behalf". What are the shareholders's powers to withdraw the signature if he feels that he does not like the situation but his attorney, who has been given the power to sign, has done so? If the resolution is held up because of the failure of one shareholder to sign, does that mean that the resolution is in vacuo for all eternity?

Lord Strathclyde

As I understand it, the situation is that once a shareholder has signed the resolution, whether through the power of attorney or not, then he has committed himself to the resolution. It needs just one shareholder not to agree to it. In those circumstances the resolution simply does not occur. As the noble Lord said, it is in vacuo until such time as that final shareholder accepts the resolution. Then it can carry on in the normal way. Alternatively, the company can call a meeting and carry out the procedure under the existing system.

Lord Williams of Elvel

I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

3.45 p.m.

Lord Williams of Elvel moved, as an amendment to Amendment No. C18, Amendment No. C24. Subsection (2), in the proposed new section 38I B, leave out subsection (3).

The noble Lord said: It seems that here there is a serious change in the law. A written resolution can take place even though the articles of association of a company specifically forbid it. As regards articles of association I have always understood that it is for the shareholders to define how they wish their company to be regulated and governed. To apply a new amendment of this kind to override the articles of association is going beyond what the Government intend. I beg to move.

Lord Lloyd of Kilgerran

As a lawyer, I am most surprised by the wording of the subsection of the new clause which reads: Section 38IA has effect notwithstanding any provision of the company's memorandum or articles". That is overriding. I console myself at this stage with the thought that the amendment before the Committee is one with which the Minister will have some sympathy.

Lord Strathclyde

I rise to oppose this amendment. First, it would leave the law unclear as to whether a company is to be able to act by unanimous written resolution even if its memorandum or articles forbid it. Secondly, I believe we should allow the unanimous agreement of the members to override any contrary provision in the memorandum or articles. If we make no provision, then the courts would have no clear indication as to whether Section 381A is to have effect notwithstanding any provisions of the company's memorandum or articles. The courts would have to balance the statutory freedom granted by the new Section to act in this way against any contrary private law restrictions of the company's. This is a question which we ought to decide and then give a clear indication to the courts as to our intentions. I think this subsection decides the question in the right direction.

The important thing to bear in mind is that the resolutions in question have to be agreed by every single and relevant member of the company. That being so, why should the unanimous view of the current members as to the procedures under which the company operates be overriden by provisions in the company's memorandum or articles which were perhaps inserted many years ago by different members? I am fortified in this view by the thought that it would be within their powers for all of the members to decide to amend the articles by written resolution and that is clearly what they would favour given their agreement to a written resolution which does not comply with the provision of the articles.

Lord Wedderburn of Charlton

Like the noble Lord, Lord Lloyd of Kilgerran, I find this a strange clause. I find it even more strange having heard the Minister's explanation. In trying to get rid of this subsection, in his customary way my noble friend is on the side of freedom. On the other hand, the Government's so-called deregulation becomes yet another nanny state provision. There is a perfectly clear way of meeting every point that the Minister has put forward. If the company wishes, it can change, through a vote comprising three-quarters of its shareholders, the articles in order to adopt this way of proceeding.

The Minister said that the Government can see no good reason why anyone should wish to change anything in the articles or memorandum of association. I do not believe that we can be so wise. Commercial parties either in the past or today, may have very good reason why they wish to say in their memorandum or articles of association, "We do not wish to proceed in this manner". I am not terribly fond of family companies, but even in that instance I do not see why they cannot say so if they wish. The section should make it clear that the articles can be altered to adopt this way of proceeding from now until Domesday if it is so wished. There is no lack of clarity if it is made elective. Seventy five per cent. of the members can always alter the articles and there is no problem about doing that. The Government will not allow a company that has articles in this form. I cannot understand why they should wish to prohibit that in a regulatory manner. It does not seem to be sensible for commerce; nor is it a sensible set of principles to put forward. The Minister should look much more carefully at my noble friend's amendment.

Lord Strathclyde

I have two objections to leaving it to the members to delete the provisions in the articles or the memorandum and relying on them to do so. This new procedure is about doing away with bureaucracy. Given the evident views of the members of the company, altering the memorandum and the articles would be an unnecessary formality. We have to bear in mind the kind of companies that this reform is particularly designed to help. The owners of small private companies may not appreciate that there are provisions in the articles or memorandum which will need altering if their unanimous and written resolutions under this new procedure are to be effective. They may not have ready access to good legal advice. We should remove this trap for them and the requirement for unanimity is a more than adequate safeguard.

Lord Williams of Elvel

I become more astonished than ever by the arguments which the Government put forward in the name of deregulation. It seems to me that amending the articles of association of private companies is the simplest thing in the world. If there has to be unanimous agreement to a resolution, to obtain unanimous agreement to amending the articles seems to me to be a piece of cake. However the Government have a majority here and in another place and if they are determined to have that procedure I have no doubt that they will succeed in getting it.

I should like the Minister, if he would be so kind, to look at the matter more carefully in the light of the arguments which my noble friend Lord Wedderburn and the noble Lord, Lord Lloyd of Kilgerran, have advanced. In the meantime, while he is looking at it, I beg leave to withdraw the amendment.

Amendment to the amendment by leave, withdrawn.

Lord Williams of Elvel moved, as an amendment to Amendment No. C18, Amendment No. C25: Subsection (2), in the proposed new section 381C, in subsection (2), line 1, leave out ("as auditors").

The noble Lord said: This amendment is also a probing amendment intended to discover the intentions of the Government. I understand the meaning of the word "auditor". I find difficulty in understanding the meaning of the words "auditor as auditor." They imply that there is somebody called an auditor who is not an auditor in certain circumstances but is an auditor in other circumstances. I am not clear in what circumstances the resolution may or may not concern, and what the criteria are for deciding whether the resolution concerns, the auditors as auditors. Is it simply that they are accountants to the company? In many private companies the auditor is the accountant as well as the auditor. Or is it because they have some statutory position? Can the noble Lord explain?

Furthermore, the reference to auditors: stating their opinion that the resolution should be considered by the company in general meeting, seems rather vague. If auditors, as auditors, are required to state their opinion, in what form are they required to state that opinion? Are they required to make a telephone call, to write a letter or a document, or to move a Motion in your Lordships' House? What is the appropriate procedure? Those are points on which I should be grateful for some clarification from the noble Lord. I beg to move.

Lord Strathclyde

Perhaps I may first make a general point concerning the remarks of the noble Lord, Lord Williams, before he withdrew the previous amendment. Of course we listen, and continue to look at all the words which noble Lords have spoken in the course of the debate. The process of examining legislation we put forward does not change because we happen to approve an amendment now.

As regards Amendment No. C25, we do not think that auditors should be put in the position of having some more general veto, going beyond matters which concern them as auditors, over whether or not a resolution should have to be considered in a general meeting. We have no reason to believe that auditors are especially fitted for that task or that they would be happy to take it on. Such a more general veto might even deter companies from using the unanimous written resolution procedure, and that would frustrate our purpose.

We are making a purely mechanical adaptation of the present right of auditors to be heard in a general meeting contained in Section 387 of the 1985 Act. That right extends only to parts of the business of the meeting which concerns the auditors as auditors. I do not believe that we ought to give auditors a wider role in the context of the new procedure. I should also remind the Committee that here we are only recognising, formalising and clarifying a procedure which companies may use at present. Auditors do not have a general veto over it. For example, if it is a resolution affecting the appointment of the auditors as auditors, then it affects them as auditors. I think that the noble Lord understands the point I am trying to make. I hope that he will withdraw his amendment.

Lord Williams of Elvel

I fully understand the point that the noble Lord is trying to make because it appears in Schedule 15. That is quite clear. However, I have still not received an answer to my question as to when auditors are auditors and when they are not auditors. I do not understand the situation. I am sorry to reiterate a question, but perhaps I may do so regarding my question: how are the auditors as auditors—whatever that means—to state their opinion?

Lord Strathclyde

In answer to the question as to who decides what auditors are or what auditors are not, it is for auditors themselves to decide whether they are affected as auditors. After all, they are in the best position to do so.

Lord Williams of Elvel

Perhaps I may explore that point further. So it is the auditors who have to decide; it is up to the auditors to decide whether or not they are affected in some way as auditors. Therefore they might well say, "we think that this resolution affects the creditors of the company and, as auditors, we are bound to say that that could affect the company's solvency". That is in their position as auditors, is it? It is rather different from what the Minister said about the auditors' right of audience at a general meeting.

Lord Lloyd of Kilgerran

I invite the noble Lord to look at that part of the Act, in this splendid volume which I have in my hands and in particular Chapter 5 which concerns the position of auditors. The noble Lord referred to one of the sections in this Part of the Act. I thought that the argument of the noble Lord, Lord Williams, supports the amendment very strongly. It seems to me that the words "as auditors" are totally unnecessary.

Lord Strathclyde

The words "auditors as auditors" are taken from Section 387. There is nothing new in them. Auditors have experience of their duties. The auditors' decision is subject to test in the court.

Lord Wedderburn of Charlton

The noble Lord is relying on a parallel with Section 387 of the Companies Act 1985. Is it not a fact that the phraseology of matters which concern the auditors as auditors comes at the end of the first subsection, so that there are two parts? The first part relates to the fact that they shall receive all notices and communications relating to a general meeting. If they have the notice then, under the second part, they can go to the meeting and concern themselves with matters which concern them as auditors. Now that they do not receive notices the position is quite different. Therefore, in relation to Section 387, my noble friend's amendment has renewed force because the first part is not included in the new regime.

Lord Strathclyde

I think that we are widening the discussion. I am keen to bring it back to the amendment. If the auditors object to the written resolution the company can put the resolution to a meeting under the existing procedure. The point about written resolutions is that they go to the auditors in the first place for the auditors to decide whether anything needs to be done.

Lord Williams of Elvel

That is contrary to the provision in the amendment "without any previous notice".

Lord Strathclyde

I do not see how that follows.

Lord Williams of Elvel

Because the auditors have previous notice.

Lord Strathclyde

No, they do not have previous notice. They receive the resolution at the start of the procedure for all the members of the company to receive the resolution. It is not prior notice.

Lord Williams of Elvel

I do not understand how they can give seven days' notice that the matter should be considered at a meeting without having had seven days in which to consider the matter. This is an odd amendment.

This is the third time I have put the question: can the noble Lord say in what form auditors should state their opinion?

Lord Strathclyde

The auditors can state their objections in a number of ways, almost in any way they want. The noble Lord used the examples of by telephone or by letter, or by inclusion in a resolution. I think I am correct in saying that it can be in any form which the auditors find appropriate.

Lord Williams of Elvel

I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

4 p.m.

Lord Williams of Elvel moved as an amendment to Amendment No. C18, Amendment No. C26: Subsection (2), in the proposed new section 381C, in subsection (3), leave out paragraph (a).

The noble Lord said: Assuming that we understand the expression "auditors as auditors"—and that is a fairly large assumption—it seems to us odd that they should be entitled to have the resolution considered at a meeting, whatever the nature of the resolution may be. I say that because taken literally—indeed, we must take the statute as proposed literally—it could mean that auditors could require a resolution on any matter to be considered at a meeting. In the spirit of deregulation, is that not perhaps going a little too far? It may be that the intention is that subsection (3) should refer to resolutions concerning auditors as auditors. If that is so, then the Government should clarify that point. I beg to move.

Lord Strathclyde

The effect of this amendment is that, even if the auditors do not consider that the resolution concerns them as auditors, or that it does not need to be considered in the relevant meeting, nevertheless the resolution will not have effect until the period of seven days from the day the auditors receive the resolution expires. That is because the new Section 381C(3) provides that a written resolution shall not have effect unless the period for giving a notice under subsection (2) expires without any notice having been given in accordance with that subsection, and the notice that subsection refers to is notice of their opinion that the resolution should be considered by the company in the appropriate meeting.

I cannot believe that any purpose would be served by requiring this delay. The only purpose of the seven-day period is to enable the auditors to consider the resolution and, if necessary, demand that it go before a meeting of the company, at which they have the right to be heard. There is no need for any further delay once the auditors have indicated that the resolution does not concern them as auditors or that they do not consider that it need be considered by the company.

Perhaps I may continue and say that auditors can only require resolutions which concern them as auditors to be considered at a meeting. If Members of the Committee would kindly look at the words "does so concern them", contained in subsection (3)(a)(ii), they will see that they refer back to subsection (3)(a)(i).

Lord Williams of Elvel

I am not sure that the noble Lord is right in thinking that auditors do not have, under his drafting, a general right to ensure the effect of any resolution, whether or not it concerns them as auditors. If, as auditors, they decide that a resolution—for example, in regard to the selling of a factory, or whatever it may be—is something in which they as auditors can properly take an interest, they can, within literal interpretation of what the Government have put forward in the amendment, ensure that it is put into a general meeting. The noble Lord seemed to imply that my interpretation, and that of my advisers, of what the Government propose is wrong. If that is the case, I should be grateful if he would look carefully at what I have said. I suggest that subsection (3)(a) could be reworded along the following lines: It does not concern them as auditors; or, if in their opinion, the resolution does concern auditors but need not be considered", and so on. Indeed, there is some wording which one could propose. Moreover, I think that there is probably a need for a similar provision in Section 381A(5). However, having alerted the Government as to our concerns, I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

Lord Williams of Elvel moved, as an amendment to Amendment No. C18, Amendment No. C27: Subsection (3), in the proposed new section 382A, in subsection (1), line 4, leave out ("(and of the signatures)").

The noble Lord said: Again, by way of clarification, we cannot quite see why the record of the signatures should be put into the minute book. If the resolution is properly carried—presumably, it will be certified as so carried—then why should there be evidence that all the signatures have been put in? I beg to move.

Lord Strathclyde

The reason for the requirement that a record of the signatures be kept is that it should provide some check against fraud. Under the unanimous written resolution procedure the directors will be responsible for drawing up the resolution, distributing copies of it and checking the responses. There is an obvious opportunity for misconduct here which we think would be discouraged by a requirement that records of the signatures are kept. A parallel provision is not necessary when decisions are taken in general meeting because the procedure then is inherently more open. I hope that the noble Lord will agree that deterring misconduct of this sort should be our objective.

Lord Williams of Elvel

Of course, I am all in favour of deterring misconduct. However, I do not quite follow the noble Lord's argument. If the resolution is properly signed, sealed and delivered, why should it be necessary to record the names of the people who signed and the signatures, bearing in mind that they are all, possibly, signing different documents which may accurately reflect the terms of the resolution. Surely one cannot have the actual signatures in the book; one just has a record of the names of the people who have signed. I cannnot see how that provision really helps matters very much.

Lord Strathclyde

The point is that there is a requirement to maintain the signatures in the book — —

Lord Williams of Elvel

I am sorry to interrupt the noble Lord, but perhaps I may ask him this. Does that mean, as regards these signatures, that each member must sign the book? Or, does it mean that there is a record of the names of those members who did in fact sign the resolution?

Lord Strathclyde

Yes, it is a record of the members who signed the resolution.

Lord Williams of Elvel

With the greatest respect to the noble Lord, that does not constitute signatures.

Lord Strathclyde

No, it does not. The way the provision is worded is as follows: The company shall cause a record of the resolution (and of the signatures)". Perhaps there is a drafting point here which we have not quite got right. A record is necessary as evidence in the event of a dispute as to whether all the members did in fact sign the resolution. The requirement is not to keep a record of who signed the resolution. Indeed, the text does not stipulate names of signatories; it is the actual signatures, or a true copy of them, which must be kept.

As I said, perhaps there is a problem here with the drafting. Obviously it has caused a certain amount of confusion. I shall look again at the matter but, in the meantime, I hope that the noble Lord will feel able to withdraw the amendment.

Lord Williams of Elvel

I am most grateful that the noble Lord has finally accepted that there is a problem in this respect. In my view there is a real problem here. We do not know whether it is the signatures themselves; a record of who signed the resolution; whether they must be original signatures or where all the documents must be kept. However, the noble Lord has been kind enough to say that he will look again at the matter. I think that he is right to do so. In the circumstances, I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

Lord Williams of Elvel moved, as an amendment to Amendment No. C18, Amendment No. C28: Subsection (3), in the proposed new section 382A, in subsection (I), line 5, leave out ("a book") and insert ("the same book and").

The noble Lord said: Again, this amendment is almost in the nature of a drafting point, but nevertheless it is a point of some importance in that what normally happens in companies is that there is a minute book. Indeed, that is so, but there is one minute book; there are not five or six of them. It seems to me that if we have "the same book" in the same way as we do in respect of minutes of proceedings, it would really clarify exactly what the Government intend to introduce here. I beg to move.

Baroness Phillips

As a hard-working company secretary of a trade association, I begin to wish that I had not come this afternoon because I have a feeling that I have been breaking the law. I have carefully studied the Companies Act, but I must confess that I had never thought of my accountant as also my auditor. They are two separate people. At the annual general meeting my accountant has a definite role which is not necessarily confined to the figures that he presents as an auditor and in sending out notices. I am in the throes of changing the articles of association. I have given the 21 days' notice. I thought that I had done all the right things. I now have to go back to find out whether I have been doing the right things under the existing law, because the penalties for not doing the right things are frightening. I have no wish to be arraigned in court and tried, no doubt, by one of their Lordships whom I condemned last week and therefore be condemned to the Tower, presumably.

We are talking about a book. That surely cannot be right because, as my noble friend Lord Williams said, one is always meticulous about one's minute book. It is vital and goes with the company documents. I find it strange that we are now to have a book. The chances are that that book will be lost. At some later stage there will be an opportunity for someone to do something that is confusing. I find the proposal misleading.

Lord Rippon of Hexham

I find myself in the same position as the noble Baroness. When I first entered the other place I was advised that it was easy to vote for the Government if one did not know what one was voting for, and that, above all, one should never listen to the arguments. I have rather dropped in this afternoon, and I think that I shall quickly drop out. I feel that this is a great deal of unnecessary rigmarole. It will be extraordinarily difficult for company secretaries to be sure that they understand the law. I am afraid that we may once again be making criminals out of honest men for no good purpose.

Lord Strathclyde

I hope that we have not frightened off the noble Baroness, Lady Phillips, so that she leaves. I enjoyed her intervention. I do not believe that she is breaking the law in any way so far, but she should perhaps not take my word for it. The matter is complicated. Perhaps I may now bring in my noble friend Lord Rippon. As I have already said, with these amendments we are 1rying to make life easier for companies and auditors. The amendments tabled by the Opposition raise complexities which the Government do not feel exist.

Perhaps I may clarify the point on the amendment. The reason the existing text says "a book" is that Section 382 of the Companies Act, which deals with minutes of meetings, says that they are,

to be entered in books kept for that purpose". A company could keep different books for proceedings of general meetings, meetings of directors and meetings of managers. Thus there is no same book in which to keep the record of the resolutions and signatures. The important point is that they should be kept in a book and kept in the same way as minutes of proceedings. That is achieved by the present word.

Lord Peyton of Yeovil

I wish to echo the words of my noble friend Lord Rippon. I wonder where all this stuff emerged from. After the 78 minutes during which we have been discussing these matters, I am left with one or two great regrets. First, the Government should be much more careful in how they amend their own Bills. Secondly, I am sorry that they are not more careful when agreeing to recommittals on a wide scale, because that invites trouble. I cannot say that I am anything other than depressed at—I take the word used by my noble friend—the rigmarole that we have in front of us. I can only say that it is extraordinary that having listened to the Government's arguments, the noble Lord, Lord Williams, has been unable, despite all that is going for him, to enlist my sympathy.

I find myself somewhere between the two. I am betwixt and between—lost—but with no sympathy for any of this. We are being plunged into a massive rigmarole. I cannot but feel profound sympathy for those in small companies who have to wade through the rigmarole in practice.

Lord Chelmer

Perhaps I may add, as someone who for many years practised as a solicitor, that those private companies which have got round to keeping minutes—they are considerably in the minority—have for many years just signed the minutes at the end of the day without any further to-do.

4.15 p.m.

Lord Williams of Elvel

Those companies to which the noble Lord referred, which merely sign the minutes at the end of the day, were infringing the Companies Act. They were obviously unaware of what the Companies Act 1985 said. The Minister referred to Section 382 of the Companies Act. Subsection (1), as he rightly said, allows for books, but, as Section 382 says, they are different books of meetings that take place. It is only reasonable that one should have different types of books for different types of meetings. It is perfectly clear when one reads the provision that minutes of proceedings at general meetings are, as is normal practice, kept in a minute book. Companies generally keep a minute book for the purpose. Although I am sorry that I do not have the support of the noble Lord, Lord Peyton, the amendment is one which the Government would do well to consider.

Lord Strathclyde

I shall be brief. I thank my noble friends who have spoken. I do not know whether my noble friend Lord Peyton was here at the start of the recommittal proceedings 80 minutes ago, but I said that the proposals had come from the Institute of Directors, which had spent an enormous amount of time consulting various companies so as to make the procedures relating to small private companies far easier and less complicated than they have been. I believe that we have done that. If we have spent some time discussing the proposals, it is purely to ensure that all noble Lords taking part in the Committee understand what we are trying to do. I hope that I have been able to do that. I have explained my reservations about the amendment. We shall obviously read what the noble Lord has said, but at the moment I do not mean to change what I have said.

Lord Williams of Elvel

I am grateful to the Minister for at least reading what noble Lords have said about this amendment in Committee. This is the last amendment that I have tabled to the government amendment. In speaking generally to the government amendment, I say that we have no objection to the principle of the matter, but, on the other hand, as the noble Lord, Lord Rippon, said, it is extremely complex. I do not understand how private companies will understand what it all says and what it all means. I hope that my noble friend Lady Phillips will not contravene the law in future. She has had an assurance from the Minister that she is not contravening the law at the moment. With that, I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

Lord Williams of Elvel moved, as an amendment to Amendment No. C18, Amendment No. C29: Subsection (3), in the proposed new section 382A, in subsection (2), line 1, leave out ("purporting to be").

The noble Lord said: I apologise to the Committee for saying that Amendment No. C28 was the last amendment. There is of course Amendment No. C29, which, again, is almost a drafting amendment. Should it not be that the record is signed by the director of a company or the company secretary rather than purport to be signed? It is odd to have in a statute a provision for a record which is not properly signed, and a provision for a record which may be signed by somebody quite different who has nothing to do with the company but who purports to be that director or secretary. I beg to move.

Lord Strathclyde

I think that the noble Lord is trying to make this more complicated than it is. The purpose of the provision is to remove possible doubts about the status of the record of resolutions and signatures. A record purporting to be signed by a director or by the company secretary is to be evidence of the proceedings in agreeing to the resolution. But it is only evidence. It can of course be shown that the record is false.

Lord Williams of Elvel

I shall have to read what the noble Lord has said. Perhaps we can discuss these matters outside the Chamber: there is no point in continuing the argument. I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

On Question, Amendment No. C18 agreed to.

Lord Strathclyde moved Amendment No. C30:

After Clause 96, insert the following new clause: ("Adaptation of procedural requirements in relation to written resolution. .—(1) In the Companies Act 1985 the following Schedule is inserted after Schedule 15—

"SCHEDULE 15A

WRITTEN RESOLUTIONS OF PRIVATE COMPANIES

PART I

EXCEPTIONS

1. Section 381A does not apply to—

1. (a) a resolution under section 303 removing a director before the expiration of his period of office, or
2. (b) a resolution under section 386 removing an auditor before the expiration of his term of office.

PART II

ADAPTATION OF PROCEDURAL REQUIREMENTS

Introductory

2.—(1) In this Part of this Schedule (which adapts certain requirements of this Act in relation to proceedings under section 381(A) —

1. (a) a "written resolution" means a resolution agreed to, or proposed to be agreed to, in accordance with that section, and
2. (b) a "relevant member" means a member by whom, or on whose behalf, the resolution is required to be signed in accordance with that section.

(2) A written resolution is not effective if any of the requirements of this Part of this Schedule are not complied with.

Section 95 (disapplication of pre-emption rights)

3.—(1) The following adaptations have effect in relation to a written resolution under section 95(2) (disapplication of pre-emption provisions), or renewing a resolution under that provision.

(2) So much of section 95(5) as requires the circulation of a written statement by the directors with a notice of meeting does not apply, but such a statement must be supplied to each relevant member at or before the time at which the resolution is supplied to him for signature.

(3) Section 95(6) (offences) applies in relation to the inclusion in any such statement of matter which is misleading, false or deceptive in a material particular.

Section 155 (financial assistance for purchase of company's own shares or those of holding company)

4. In relation to a written resolution giving approval under section 155(4) or (5) (financial assistance for purchase of company's own shares or those of holding company), section 157(4)(a) (documents to be available at meeting) does not apply, but the documents referred to in that provision must be supplied to each relevant member at or before the time at which the resolution is supplied to him for signature.

Sections 164, 165 and 167 (authority for off market purchase or contingent purchase contract of company's own shares)

5.—

1. (1) The following adaptations have effect in relation to a written resolution—
   1. (a) conferring authority to make an off-market purchase of the company's own shares under section 164(2).
   2. (b) conferring authority to vary a contract for an off-market purchase of the company's own shares under section 164(7), or
   3. (c) varying, revoking or renewing any such authority under section 164(3).
2. (2) Section 164(5) (resolution ineffective if passed by exercise of voting rights by member holding shares to which the resolution relates) does not apply; but for the purposes of section 381A(I) a member holding shares to which the resolution relates shall not be regarded as a member who would be entitled to attend and vote.
3. (3) Section 164(6) (documents to be available at company's registered office and at meeting) does not apply, but the documents referred to in that provision and, where that provision applies by virtue of section 164(7), the further documents referred to in that provision must be supplied to each relevant member at or before the time at which the resolution is supplied to him for signature.
4. (4) The above adaptations also have effect in relation to a written resolution in relation to which the provisions of section 164(3) to (7) apply by virtue of—
   1. (a) section 165(2) (authority for contingent purchase contract), or
   2. (b) section 167(2) (approval of release of rights under contract approved under section 164 or 165).

Section 173 (approval for payment out of capital)

6.—

1. (1) The following adaptations have effect in relation to a written resolution giving approval under section 173(2) (redemption or purchase of company's own shares out of capital).
2. (2) Section 174(2) (resolution ineffective if passed by exercise of voting rights by member holding shares to which the resolution relates) does not apply; but for the purposes of section 381A(1) a member holding shares to which the resolution relates shall not be regarded as a member who would be entitled to attend and vote.
3. (3) Section 174(4) (documents to be available at meeting) does not apply, but the documents referred to in that provision must be supplied to each relevant member at or before the time at which the resolution is supplied to him for signature.

Section 319 (approval of director's service contract)

7. In relation to a written resolution approving any such term as is mentioned in section 319(1) (director's contract of employment for more than five years), section 319(5) (documents to be available at company's registered office and at meeting) does not apply, but the documents referred to in that provision must be supplied to each relevant member at or before the time at which the resolution is supplied to him for signature.

Section 337 (funding of director's expenditure in performing his duties)

8. In relation to a written resolution giving approval under section 337(3)(a) (funding a director's expenditure in performing his duties), the requirement of that provision that certain matters be disclosed at the meeting at which the resolution is passed does not apply, but those matters must be disclosed to each relevant member at or before the time at which the resolution is supplied to him for signature.".

(2) The Schedule inserted after Schedule 15 to the Companies Act 1985 by the Companies (Mergers and Divisions) Regulations 1987 is renumbered "15B"; and accordingly, in section 427A of that Act (also inserted by those regulations), in subsections (1) and (8) for "15A" substitute "15B".").

The noble Lord said: This new clause introduces a new schedule into the 1985 Companies Act. The new schedule essentially falls into two parts. The first part provides that two kinds of resolution are not to be capable of being dealt with under the unanimous written resolution procedure. They are a resolution to remove a director and a resolution to remove an auditor before their respective terms of office have expired. It is probably best if I forswear detailed comments upon these two exemptions until we have heard why the noble Lord, Lord Williams of Elvel, opposes them.

The second part of the new schedule adapts certain requirements of the Companies Act to the procedure for unanimous written resolution. The adaptations are various but one thread in them is that they require the disclosure of certain matters to relevant members before or at the time the resolution is sent to them for signature. We see these as rather mechanical adaptations to the Companies Act which are consequential on the underlying policy to allow unanimous written resolutions. They have been supported by those who commented on the unanimous written resolution procedure, and indeed we are grateful to some of these commentators, the Law Society in particular, for suggesting them. I beg to move.

Lord Williams of Elvel moved, as an amendment to Amendment No. C30, Amendment No. C31. Subsection (1), in the proposed new Schedule 1 5A, leave out Part I (EXCEPTIONS).

The noble Lord said: Amendment No. C31 deals with the exceptions in Part I of the new schedule. It seems to us in looking at the amendment that this part is not necessary. The phrase "auditors as auditors"—an expression which I do not clearly understand, but it is in the government amendment which the Committee has now adopted—allows auditors to make sure that the written resolution shall not have effect unless they notify the company that everything is in order and that it does not concern them as auditors.

Therefore paragraph 1(b), the removal of auditors in the schedule, clearly has something to do with "auditors as auditors". It cannot be anything else. Paragraph 1(a), regarding the resolution removing a director before the expiration of his period of office, I should have thought automatically concerned auditors as auditors. That is because they will want to know, if they are auditors, exactly what the reasons are and they will take note of them.

Our view is that these two exceptions are covered by the government amendment which the Committee previously adopted. I beg to move.

Lord Strathclyde

Our purpose in excluding these resolutions from the general permissive power for the company to decide matters by unanimous written resolution was to ensure certain safeguards for shareholders.

The two resolutions which are exempt from the unanimous written resolution procedure are those which the noble Lord, Lord Williams, pointed out provide for the removal before the expiry of their terms of office of directors or auditors respectively. We feel that there is always the possibility in those cases that there may be matters relating to the circumstances of their removal from office which ought to be brought to the attention of the members. This is especially so in the case of the auditors, but a director who is dismissed may also have information bearing on his dismissal which members would like to be aware of. If the resolutions were put before a meeting of the company, existing provisions of company law would give a director and the auditors the right to be heard.

Notwithstanding what the noble Lord, Lord Williams, said about the rights of auditors as auditors, they may not necessarily feel that, when it comes to the removal of a director, shareholders should be made aware of that fact. That is why this exception has been made, as a safeguard for shareholders.

Lord Williams of Elvel

Even accepting the noble Lord's argument for paragraph (a), surely paragraph (b) must be of concern to auditors as auditors if they are to be removed. So is that really necessary?

Lord Strathclyde

It is accepted that there is some overlap between these provisions. However we regard a decision by a company to remove its auditors before the expiry of the term of office to be such an important step that it is not appropriate for it to be done by a written resolution. That is the message of this provision. It should not lie with the auditor himself to decide whether a meeting should be held though in most cases he could have required one under Section 381C.

Lord Williams of Elvel

It seems to me that certainly paragraph 1(b), and almost certainly paragraph 1(a), are redundant. However, if the Government wish to have them in the Bill, then they will do so. I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

Lord Williams of Elvel moved, as an amendment to Amendment No. C30, Amendment No. C32: Subsection (1), in the proposed new Schedule 15A, in paragraph 2(1)(a), line 1, leave out ("or proposed to be agreed to").

The noble Lord said: Amendment No. C32 challenges the definition of a written resolution. As I understood the discussion that took place on the matter, a "written resolution" is a resolution which is signed in the appropriate manner in accordance with the new government amendments, but not one which is, as it were, in draft because it has no particular effect. The words or proposed to be agreed to", would seem to imply that a draft is also included in the definition of "written resolution". I wonder whether that is right. I beg to move.

Lord Strathclyde

The drafting of Part II of the new schedule does not work unless a written resolution is to include a resolution proposed to be agreed to in accordance with the new Section 381A.

A number of the adaptations of the procedural requirements in the Companies Act concern information which is to be supplied to relevant members in lieu of them being given it at or before a meeting of the company. To take the example of the adaptation of Section 95 made by paragraph 3 of the schedule, this provides that the requisite statement by directors in connection with the disapplication of pre-emptive rights must be supplied to the relevant members. If we look at sub-paragraph (2), we can see that the information must be supplied, at or before the time at which the resolution". It is apparent from the earlier references in this paragraph that that means the written resolution, is supplied to him for signature". Since by definition the written resolution cannot at that point be one agreed by the members, the definition of "written resolution" needs to encompass one proposed to be agreed in accordance with the new Section 381A. I hope that the noble Lord finds this explanation helpful.

4.30 p.m.

Lord Williams of Elvel

Does this mean that a written resolution includes a draft, which may change?

Lord Strathclyde

I shall go a little further by explaining why this particular wording has been adopted. It was not necessary that this approach was adopted, but the draftsman found it convenient to do so. This definition applies only to Part II of the schedule. As I said, it simplifies the drafting of the schedule.

Lord Williams of Elvel

As I understand it, for the purposes of Part II of the schedule, a written resolution can include a draft which can subsequently be changed. Will the noble Lord confirm that I am correct?

Lord Strathclyde

That question was one that had previously escaped me. In looking at my notes perhaps I should say that when a draft is proposed it is not a draft which, in itself, may be proposed as the ultimate wording. A draft is a draft and a firm proposal is a firm proposal. So I am not sure that the question of the noble Lord arises, because I think there is confusion here between what a final resolution is and whether or not there can be a draft resolution. A draft resolution is, of course, not a final resolution. The final resolution would go out to each of the members.

Lord Williams of Elvel

There certainly is confusion. I shall read the terms of the Government amendment. It states that: 'a written resolution' means a resolution agreed to, or proposed to be agreed to". In other words the Government are talking about a draft which can be modified and changed and then is finally agreed to. There may be three shareholders in a private company, for example, who sit around a table, without prior notice, and decide they do not like paragraphs one and two and that they will amend paragraph three of a resolution. They decide that that is what they will agree to finally, but the original proposal was a draft. Am I right or am I wrong?

Lord Strathclyde

Provided the draft is ultimately proposed, that is fair enough.

Lord Williams of Elvel

I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

Lord Williams of Elvel moved as an amendment to Amendment No. C30, Amendment No. C33: Subsection (1), in the proposed new Schedule 15A, in paragraph 2(1)(b), line 2, leave out ("in accordance with that section").

The noble Lord said: Again, in terms of pure drafting points, we cannot quite understand why these words are necessary. If it would simplify the legislation at all, we would rather have words out than in. I beg to move.

Lord Strathclyde

As the noble Lord just said, this is a mere question of drafting. But we prefer to include in the Bill the words that the noble Lord would have omitted. They paint the full picture, and establish beyond doubt that it is the requirements in new Section 381A which govern who is to sign the resolution and thus who is a "relevant member".

Lord Williams of Elvel

Is the noble Lord simply saying that it is necessary to include these words to make the definition of "relevant member" clear, or is he saying that the Government would rather have these words in simply in order to make the legislation a bit fatter than it would otherwise be?

Lord Strathclyde

No, not at all. Their inclusion is simply to make things clearer. The schedule states that certain persons are not to be regarded as being entitled to attend to vote at meetings, therefore they are not to sign. If the suggestion is that the reference should be to, "that section and this schedule", the provisions of the schedule the noble Lord mentioned, such as those of paragraph 5(2), would operate by way of adaptation of new Section 381A(1). Therefore, it is only necessary for paragraph 2(1)(g) to refer to that section. I hope that has made the matter clearer.

Lord Williams of Elvel

It has just about made it clearer. I am grateful to the noble Lord for his comments. I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

Lord Williams of Elvel moved, as an amendment to Amendment No. C30, Amendment No. C34: Subsection (1), in the proposed new Schedule 15A, in paragraph 3(1), line 3, leave out ("provisions") and insert ("rights").

The noble Lord said: This is entirely a drafting amendment. It seems to us that the Government's amendment has the rubric of the new clause wrong here. I beg to move.

Lord Strathclyde

At last I am happy to accept this correction to the short title for Section 95. I am grateful to the Committee for spotting the error.

On Question, amendment to the amendment agreed to.

Lord Williams of Elvel moved, as an amendment to Amendment No. C30, Amendment No. C35: Subsection (1), in the proposed new Schedule 15A, in paragraph 3(2), line 3, leave out ("at or").

The noble Lord said: I suppose that if, on average, I can win one amendment out of 20 or so, we are not doing too badly. In moving this amendment, it may be for the convenience of the Committee if I speak also to Amendments Nos. C38, C40 and C42. The concern is that at the time at which the written resolution is supplied, a member may be faced with the resolution and with the proposition that all other members have signed it, and he is asked for his signature. There could be some undue pressure, which I think would be undesirable, put on the remaining member to sign the resolution.

I shall speak to the different parts of the Bill which these amendments seek to change. This factor is not so important in our view in paragraph 4, because it is presumably in the interests of all members that there should be financial assistance for the purchase of the company's own shares. It is perhaps not so very important for paragraph 5(3), but in our view it becomes quite important in sub-paragraph 7 which deals with the approval of the director's service contract. In our view it would be wrong to have a written resolution presented to all members without notice, if a service contract is to be approved. In many private companies directors are members and members are directors, and the question of service contracts is quite a sensitive one. We shall come to another amendment on this matter later on.

We should like to see sufficient notice given for approval of a resolution, particularly on directors' service contracts. We suggest that 15 days' notice should be given, as this occurs elsewhere in the Government's amendment. However, as I said, all these amendments are grouped and the same point is relevant in all cases. I beg to move.

Lord Strathclyde

There is no need to require that the appropriate statement or documents are sent to a relevant member before the time at which the resolution is supplied to him for signature. In the case of a resolution dealt with at a meeting, there is a fixed occasion at which a member has to cast his vote, so it has been thought necessary to provide for a period of notice to give him time to consider all the relevant information. However, in the case of the unanimous written resolution procedure under Section 381A there is no set time by which the member must decide one way or the other. Perhaps at this point I should say that, with the permission of the Committee, I am speaking to Amendments Nos. C35, C38, C40 and C42. I hope that that will be in order.

The member may spend as much time as he likes examining the information and considering his position under the unanimous written resolution procedure. If the resoluton itself must be passed by the company within a certain period of time, as is the case with Section 155, then there is an existing incentive on the directors to supply members with information in advance in case the members delay in signing. In the circumstances, all that the legislation need provide is that he is supplied with the statement or documents at or before the time at which the resolution is supplied to him for signature. I hope that the noble Lord, Lord Williams of Elvel, will therefore accept what I have said and see that his amendments are unnecessary.

Lord Willams of Elvel

Can the noble Lord, Lord Strathclyde, respond specifically to the point about directors' service contracts, which I think is really the most important amendment? In our view, it is quite wrong that the written resolution should be presented to a member at the time at which the signature is required when it relates to directors' service contracts. This is the most important point and I should be very grateful if the noble Lord could comment on that.

Lord Strathclyde

I believe I am right in thinking that we shall discuss service contracts and directors on Amendment No. C43, but that does not matter at the moment.

Lord Williams of Elvel

This one is not about whether there is a conflict of interest, which is the object of Amendment No. C43. It is the timing when the resolution is presented to members about directors' service contracts.

Lord Strathclyde

The essential point to make here is that there is no need to provide for notice of a resolution under that provision. If the shareholder is not happy, he need not sign. He can take as long as he likes to make up his mind and can ultimately consult his legal advisers. The main point is that nobody has to sign a resolution, whether it affects directors' contracts or anything of greater importance. It does not need to be agreed.

Lord Williams of Elvel

I understand the noble Lord's point. I am still concerned that in real life what will happen is that a service contract will form the object of a resolution which will be presented and members' signatures will be required at a particular time. It will be very difficult in the context of a private company for the last shareholder not to sign. However, perhaps the noble Lord will kindly read what I have said. I do not think we need carry this argument any further at this moment. I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

Lord Williams of Elvel moved, as an amendment to Amendment No. C30, Amendment No. C36: Subsection (2), in the proposed new Schedule 15A, leave out paragraph 3(3) and insert— (3) A person who knowingly or recklessly authorises or permits the inclusion in a statement supplied under subparagraph 2 above of any matter which is misleading, false or deceptive in a material particular is liable to imprisonment for a term not exceeding 2 years, or to a fine, or both.").

The noble Lord said: This amendment is in substitution for sub-paragraph 3(3) of the schedule on the question of disapplication of pre-emption rights. The amendment simply attracts the wording of the Companies Act 1985. It seems to us that, where it is possible to use wording that is used in previous legislation, it is wiser than inventing new wording. I beg to move.

Lord Strathclyde

I presume that this change is intended to have no substantive effect. Although I understand the noble Lord's concern that the offence and penalty are set out on the face of the provision rather than by reference, I would not favour this amendment. It is important to recognise that the substantive provision is Section 95. This paragraph is just concerned with adapting that section to the circumstances of the unanimous written resolution. In the circumstances, it is quite right that the penalties and offence are applied by reference to the relevant subsection. That is the normal way of applying provisions like this and it is adopted throughout this schedule.

Lord Williams of Elvel

Again, I shall have to read what the noble Lord has said in response to our amendment. I am afraid that I was a bit distracted. I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

4.45 p.m.

Lord Williams of Elvel moved, as an amendment to Amendment No. C30, Amendment No. C37: Subsection (2), in the proposed new Schedule 15A, in paragraph 4, line 5, after ("supplied") insert ("individually").

The noble Lord said: Again, this is a small drafting point but it seems to us that in the case of joint shareholders, which occur quite frequently in private companies, each of the joint shareholders should themselves be individually supplied with the documents in question. There is a complication where there are joint shareholders, and if there is to be just one copy to the relevant member, who could be husband and wife, there is something not quite right. I beg to move.

Lord Strathclyde

I understand from what the noble Lord, Lord Williams, has said that his intention is that each relevant member must receive an individual copy of the appropriate documents. I can see no reason why we should insist on that. The important thing is that the appropriate documents are supplied to the relevant member, and that is provided by the text of the government amendment. I imagine that in most instances the company will supply individual copies of the documents, but I can also see that in a small closely-knit company it might on occasion be convenient for the company to pass round the documents attached to the resolution which the members sign. I do not think we ought to lay down too precise and bureaucratic a procedure for the circulation of the documents.

Lord Williams of Elvel

I am not sure that it is a bureaucratic procedure. It is simply making sure that everybody who is relevant in a broad sense should at least have a copy of the document. If the noble Lord and the Government feel that they do not wish to ensure that, they are entitled to feel that. But it seems to me that the whole question in written resolutions of joint shareholders or shares in joint names is one which has not been properly addressed. I am sure that the Government will be giving thought to that whole problem, because they will be receiving representations on the issue from a number of bodies outside this Chamber. I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

[Amendment No. C38 not moved.]

Lord Williams of Elvel moved, as an amendment to Amendment No. C30, Amendment No. C39: Subsection (2), in the proposed new Schedule 15A, in paragraph 5(2), line 3, leave out from ("apply") to end of line 5.

The noble Lord said: This amendment seeks, as it were, to put back into the voting, members who may be beneficiaries of payments out of capital. It may be for the convenience of the Committee if I speak also to Amendment No. C41, which is broadly the same point. It seems to us to be somewhat unfair to exclude members who may benefit from voting on the resolution or from signing the resolution. After all, in a general meeting, as I understand it, if there is a case of approval of payments out of capital or repurchase of shares it is possible for members to vote at that meeting. Unless the noble Lord corrects me on that point, as he may do, I do not see why they should be prohibited from signing a written resolution if they are allowed to vote when such a matter arises at a general meeting. I beg to move.

Lord Strathclyde

With permission, I, too, should like to speak to this amendment and Amendment No. C41.

We see the provisions which the noble Lord's amendment would partly delete as straighforward, mechanical adaptations of existing sections in the Companies Act relating to resolutions at a meeting. The sections in question make a resolution ineffective if it is passed as a result of the exercise of voting rights by a member holding shares to which the resolution relates. Our new schedule disapplies that rule in respect of the unanimous written resolution procedure—otherwise such a resolution could never be passed here—but provides that, for the purposes of that procedure, a member holding shares to which the resolution relates shall not be counted as one whose signature is needed to obtain unanimity on a written resolution. The noble Lord's amendment would delete the latter part of that adaptation.

Lord Williams of Elvel

Have I understood the noble Lord correctly? Does that mean that that person is entitled to sign the resolution and that his signature qualifies, but that his signature is not necessary? Is that the right interpretation?

Lord Strathclyde

I appreciate what the noble Lord says, but, for example, in a case where unanimity, not a majority, is required, it is not a question of an interested party's vote swaying the decision. Therefore, it does not matter if an interested party has a vote. However, I think that one needs to consider two points. First, since, inevitably, the person with the interest in the shares will vote in favour of the resolution, is it necessary for the company to have to obtain his signature? We are, after all, seeking to create a simplified, less trouble-some procedure. Secondly, is it appropriate that a person with an interest in the shares should be seen to be voting on a resolution that affects him. I suggest that the Committee ought at least to pause before accepting that idea. As to the noble Lord's specific question, the individual concerned may sign, but his signature is not entirely necessary.

Lord Williams of Elvel

But his signature is valid. If he signs for, say, 30 per cent. of the company, he may sway the vote, as the noble Lord said. It seems to me that, if the signature is valid, we are back to the problem—the noble Lord's second point—of whether he should be able to sign in the first place. I believe that he should be able to do so. When the noble Lord replies to that point, will he reply to my question; namely, whether, if a general meeting were held on such a matter, any shareholder could vote or whether an interested shareholder is precluded from voting at that meeting?

Lord Strathclyde

On the point of a general meeting, I believe it is right that any shareholder can vote whether or not he has an interest.

As for the noble Lord's first point about whether or not someone can sign and whether a signature is valid, that goes back to the crux of the matter. No one can swing the vote by signing, because it is unanimity that is important. That is what is required and there is not, therefore, the possibility of swaying a vote either one way or the other.

Lord Williams of Elvel

Is the noble Lord's belief that a shareholder is entitled to vote at a general meeting on this subject confirmed?

Lord Strathclyde

Yes.

Lord Williams of Elvel

I thank the noble Lord for that reply. He talked about the crux of the matter. As I understand it, we now reach the point at which, because it is a question of unanimity, whether someone has 30 per cent. or 1 per cent. does not in fact make any difference.

Lord Strathclyde

Yes; I believe that, in principle, that is correct.

Lord Williams of Elvel

I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

[Amendments Nos. C40 to C42 not moved.]

Lord Williams of Elvel moved, as an amendment to Amendment No. C30, Amendment No. C43: Subsection (2), in the proposed new Schedule 15A, after paragraph 7 insert— ("7A. For the purposes of a written resolution under paragraph 7 above, a director whose service-contract is the object of the resolution shall not be regarded as a member who would be entitled to attend and vote.").

The noble Lord said: This amendment addresses itself to possible conflicts of interest between a member, who may at the same time be a director and negotiating a service contract, and other members of the company. The purpose of the amendment is to make sure that the director in question, whose service-contract is the object of the resolution, shall not be considered as part of that group which constitutes unanimity on a written resolution. I believe that the arguments for that are quite self-evident and I hope that the Government will feel able to consider the amendment favourably. I beg to move.

Lord Lloyd of Kilgerran

It seems to me that the objectives of the amendment are perfectly clear. They are very reasonable, and common sense should prevail with regard to this amendment. Section 319 of the Companies Act 1985, a copy of which I have in my hand, deals with: Director's contract of employment for more than 5 years. So far as I understand it, the Government's amendment in relation to paragraph 7 is headed: Section 319 (approval of director's service contract)". In those circumstances, it seems to me perfectly right, just and proper—to use as many synonyms as I can introduce—that a director whose service contract will be for a period of employment of more than five years and who is the object of the resolution:

shall not be regarded as a member who would be entitled to attend and vote". It seems to me that, when a man has a service contract of that type, he should not be able to attend proceedings dealing with those matters, or to vote.

Lord Strathclyde

In the provisions in this schedule we have simply been adapting provisions in the Companies Bill, which deal with resolutions in a meeting, to the particular circumstances of the unanimous written resolution procedure. In the case of Sections 164 and 174 of the Companies Act, there are provisions which render ineffective resolutions passed in reliance on the exercise of voting rights—

Lord Lloyd of Kilgerran

The noble Lord is reading very quickly from his brief. To which sections of the Companies Act did he refer? I am trying to follow.

Lord Strathclyde

I apologise if I skipped past the relevant sections a little too quickly. I mentioned Sections 164 and 174 of the Companies Act. Perhaps I may remind the noble Lord that they are provisions that render ineffective resolutions passed in reliance on the exercise of voting rights by a member holding shares to which the resolution relates. The noble Lord, Lord Williams of Elvel, has modelled his amendment on the adaptations that we have made to the procedures in those sections. However, in the case of the subject of his amendment, a resolution approving a contract of employment of more than five years for a director, there is no analogous provision in the underlying law. Section 319 does not render ineffective resolutions passed by the exercise of voting rights held by interested directors. I suggest that it would be unhappy to enact that interested directors are not to be counted as entitled to attend and vote when there is no analogous provision in the underlying law. I hope that that explains the position fully and that the noble Lord, Lord Lloyd of Kilgerran, has been able to look up the reference in the volumes next to him and may be able to agree with what I have said.

5.p.m.

Lord Lloyd of Kilgerran

I should very much like to agree with the noble Lord on certain matters. It would certainly save a lot of time if I could do so. He mentioned Section 164 of the Companies Act 1985. I see from a quick reading of that section that in the margin it notes that it is dealing with "authority for off-market purchase". I do not quite see the relevance of Section 164 in relation to the brief read out by the noble Lord so far as concerns this amendment. That may of course be entirely due to my ignorance.

I do not wish to embarrass the noble Lord by asking difficult questions at this stage of the proceedings and I see that there is some difficulty about receiving an answer. I see that there is close consultation going on among his advisers. Perhaps the noble Lord would like to think about the matter and bring it up on another occasion. I am quite happy to continue speaking in an attempt to save him some trouble, but perhaps I have raised a difficult point. I apologise. I should have given notice of a difficult question but I had no idea that the answer would be concerned with authority for off-market purchase. It is very easy for someone like myself to continue talking in order to save the noble Lord some embarrassment but perhaps he can now answer my query.

Lord Strathclyde

It is very kind of the noble Lord, Lord Lloyd, to speak in that way. Certainly he normally gives me notice of a difficult question but occasionally he asks difficult questions to which I do not have the answers immediately to hand. Perhaps I may explain what I meant in the case of Sections 164 and 174.

Lord Lloyd of Kilgerran

I did not ask what the noble Lord meant. I should like to know what is the relevance of Section 164 of the Companies Act 1985 in regard to this matter. Perhaps I am somewhat premature in asking this question but that is the information I am seeking.

Lord Strathclyde

The relevance is that we adopted Section 164(5) in paragraph 5. To say that more fully, in Sections 164 and 174 there are provisions which render ineffective resolutions placed in reliance on voting rights by a member holding shares to which the resolution relates. We have adapted these in earlier parts of the schedule concerning the written resolution procedure. There is an equivalent power to adopt in Section 319.

I hope that that answers the query of the noble Lord. If for some reason it does not do so I shall be delighted to look further into the matter. Obviously it is an issue that has raised a certain amount of discord.

Finally, perhaps I may say that if the noble Lord would look at paragraphs 5(2) and 5(3) of the government amendment he will see that they are explanatory.

Lord Williams of Elvel

Explanatory of what?

Lord Lloyd of Kilgerran

I regret having to raise this matter but it is entirely the Minister's fault for having mentioned this section. So far he has not indicated which part of the section is relevant. Four notes have come to him on this matter. Is this not really a matter on which we should ask him to consider further? We also shall consider the matter further. Without any commitment this is a matter that should be dealt with at a later stage. I do not know whether the noble Lord, Lord Williams, agrees with this course. I shall be guided by him as to the precise course to be taken.

Lord Strathclyde

Perhaps I may, for a moment or two, pre-empt both Members of the Committee who wish to speak. I am sorry about this confusion. If one turns to paragraphs 5(2) and 5(3) of the amendment I believe that one will see that the situation is self-explanatory.

Lord Williams of Elvel

As I understand it, and my understanding may be quite wrong, the Government are saying that where there are provisions in the Companies Act 1985 for certain procedures in general meeting of members, those procedures are being adapted for the written resolution regime; but where there are no procedures laid down in the Companies Act 1985 the Government are effectively making them up. So when the noble Lord refers to Section 164 of the Companies Act 1985, he means that there are procedures there which have been adopted for the written resolution regime but there are no procedures for voting on directors' service contracts in the Companies Act 1985 and there are no analogous procedures, so they have to make them up. I understand that that is what the Government are trying to do.

That does not in any way affect my point about a director whose service contract is being voted on at a general meeting of shareholders. It is not illegal for him to vote, but if he is a shareholder he would normally abstain from voting through a conflict of interests, and quite correctly so. It seems to me that my amendment which takes him out of the procedure for written resolution would be founded on practice if not on actual legality, as explained in the Companies Act 1985.

Lord Strathclyde

I thank the noble Lord, Lord Williams, for clarifying what I had originally been trying to say earlier. He put it very well. With regard to his second point, if there is widespread concern in the Committee about the position of interested directors—and I feel that probably there is such concern—I should be prepared to examine without commitment the case for amending Section 319 itself.

That would also involve looking at other provisions in Part X of the Act but I repeat that it would not be right to put this provision in the paragraph which adapts the law to the circumstance of the unanimous written resolution procedure when there is no corresponding provision in the underlying law. I said that I shall look again at this point without commitment. For the time being I hope that that will satisfy the Committee.

Lord Williams of Elvel

I am grateful to the noble Lord for that reply. When looking at this problem he might also consider the Companies Act 1985 itself and the provisions for public companies and whether interested directors should be allowed to vote in this matter as shareholders. As he rightly says, there is nothing in that Act at the moment. It may be something that the Government may wish to introduce at a later stage and perhaps in another place. However, I am grateful to the noble Lord for accepting that there are worries on this side of the Committee about the conflicts and for his assurance that he will look again at this matter.

Amendment to the amendment, by leave, withdrawn.

Amendment No. C30, as amended, agreed to.

Lord Strathclyde moved Amendment No. C44: After Clause 96, insert the following new clause:

("Election by private company to dispense with certain requirements.

—(1) In Part IV of the Companies Act 1985 (allotment of shares and debentures), in section 80(1) (authority of company required for certain allotments) after "this section" insert "or section 80A"; and after that section insert—

"Election by private company as to duration of authority.

80A.— (1) A private company may elect (by elective resolution in accordance with section 379A) that the provisions of this section shall apply, instead of the provisions of section 80(4) and (5), in relation to the giving or renewal, after the election, of an authority under that section.

(2) The authority must state the maximum amount of relevant securities that may be alloted under it and may be given—

1. (a) for an indefinite period, or
2. (b) for a fixed period, in which case it must state the date on which it will expire.

(3) In either case an authority (including an authority contained in the articles) may be revoked or varied by the company in general meeting.

(4) An authority given for a fixed period may be renewed or further renewed by the company in general meeting.

(5) A resolution renewing an authority—

1. (a) must state, or re-state, the amount of relevant securities which may be allotted under the authority or, as the case may be, the amount remaining to be allotted under it, and
2. (b) must state whether the authority is renewed for an indefinite period or for a fixed period, in which case it must state the date on which the renewed authority will expire.

(6) The references in this section to the maximum amount of relevant securities that may be allotted shall be construed in accordance with section 80(6).

(7) If an election under this section ceases to have effect, an authority then in force which was given for an indefinite period or for a fixed period of more than five years—

1. (a) if given five years or more before the election ceases to have effect, shall expire forthwith, and
2. (b) otherwise, shall have effect as if it had been given for a fixed period of five years.".

(2) In Chapter IV of Part XI of the Companies Act 1985 (meetings and resolutions), after section 366 (annual general meeting) insert—

"Election by private company to dispense with annual general meetings.

366A.—(1) A private company may elect (by elective resolution in accordance with section 379A) to dispense with the holding of annual general meetings.

(2) An election has effect for the year in which it is made and subsequent years, but does not affect any liability already incurred by reason of default in holding an annual general meeting.

(3) In any year in which an annual general meeting would be required to be held but for the election, and in which no such meeting has been held, any member of the company may, by notice to the company not later than three months before the end of the year, require the holding of an annual general meeting in that year.

(4) If such a notice is given, the provisions of section 366(1) and (4) apply with respect to the calling of the meeting and the consequences of default.

(5) If the election ceases to have effect, the company is not obliged under section 366 to hold an annual general meeting in that year if, when the election ceases to have effect, less than three months of the year remains.

This does not affect any obligation of the company to hold an annual general meeting in that year in pursuance of a notice given under subsection (3).".

(3) In the same Chapter, in sections 369(4) and 378(3) (majority required to sanction short notice of meeting) insert.—

"A private company may elect (by elective resolution in accordance with section 379A) that the above provisions shall have effect in relation to the company as if for the references to 95% there were substituted references to such lesser percentage, but not less than 90%, as may be specified in the resolution or subsequently determined by the company in general meeting.".").

The noble Lord said: This new clause introduces a new procedure for private companies to elect to dispense with or modify certain internal procedural requirements. Two of the permitted modifications of the existing statutory requirements are relatively minor but the proposed right to dispense with the holding of annual general meetings is a significant new facility.

The first change (Section 80A) is a modification to Sections 80(4) and 80(5) of the 1985 Act. The new provision permits private companies by election to cease to be subject to the present statutory maximum duration of an authority to allot shares—namely; five years—and instead to take authority for longer fixed periods or for an indefinite period.

The second change (Section 366A) concerns an election to dispense with the holding of annual general meetings under Section 366 of the 1985 Act. This reform, together with the dispensation from laying accounts in general meetings already contained in new Section 253(1), as introduced in Clause 15 of the Bill, are the two most significant reforms in this package.

In many small private companies where all the shareholders may be directors the holding of an annual general meeting may be something of an unnecessary formality. The elective regime recognises that and provides alternative arrangements for dealing with the business of general meetings.

For many companies, the business conducted at an annual general meeting will consist of the appointment of directors, the laying and discussion of accounts, the appointment of auditors, the declar- ation of dividends and any special resolutions. For many small companies the appointment of directors does not require discussion and they will in future be able to be appointed by unanimous written resolution. We have already dealt with the alternative arrangements for laying and consideration of the accounts in Clause 15 of the Bill. Further provisions will be introduced during later stages of the Bill to deal with the appointment of auditors. It is intended that arrangements will be made to enable appointments to last indefinitely until either party seeks to revoke the arrangement. Other resolutions normally taken at general meeting will be able to be dealt with by unanimous written resolution.

The other dispensation concerns the arrangements for calling meetings at short notice. At present the consent of 95 per cent. of members is needed for a meeting called on notice shorter than the period provided by statute to be regarded as having been duly called. In future it is proposed that private companies may elect that this figure be reduced to a lesser percentage of the members, which can be between 90 per cent. and 95 per cent.

The Government believe that these measures will introduce a valuable element of flexibility into the management of small companies. A further objective is to bring the law into line with commercial reality. We must face the fact that for many small companies some of the requirements affected by these new clauses may either be disregarded or be meaningless rituals. There is no value in retaining a fiction which does not correspond with what actually happens.

We have taken care, and have listened hard to advice from outside, to protect the interest of individual minority shareholders. There is no reason to suppose that small, family controlled, companies are exempt from temptations for some shareholders to put undue pressure on others or disregard their interests. We have therefore inserted a number of safeguards through which individual shareholders can protect their own interests. We do not believe that our proposals leave minority shareholders any worse off than does the existing law. I beg to move.

5.15 p.m.

Lord Williams of Elvel moved, as an amendment to Amendment No. C44, Amendment No. C45: Subsection (1), in the proposed new section 80A, leave out subsection (1).

The noble Lord said: I hope that the Committee will understand that my amendments were tabled before the re-committal decision was taken. Therefore in a sense they are Report style amendments. The objective of C45 was to elicit a debate on the general principle of the election by private company on the duration of authority. It was not intended in any way as a substantive amendment to leave out subsection (1) of the new Clause 80A because that would make nonsense of the clause.

I was grateful to the noble Lord for spending time on this new proposal. In his introduction he said that in the Government's view the minorities would not be disadvantaged by the elective regime. I wonder whether that can be sustained as a serious argument. The problem arises when a private company, such as we have here, wishes to issue securities. It may issue securities for the purposes of an acquisition or for other means. It may do so under an ordinary resolution. That is all very well so long as the minorities are not opposed to that. Normally if it were a new issue of securities, rather than one which was authorised already, it would require a special resolution to increase the capital of the company.

The issuance of securities under ordinary resolutions is always a matter of difficulty, in particular when they are issued to third parties for acquisition or, in some cases, simply for cash. The pricing of those securities is always a matter of controversy. I am wondering aloud whether the fixed period is not a sensible arrangement: that every five years there is a procedure, in public and private companies, to make sure that the minorities have an opportunity to say, "No, we really wish to maintain our position" in such cases where there is a problem—as there frequently is—between minority and majority shareholders.

I should be grateful if the noble Lord could alleviate my concerns on the question of minorities. In general we have no great problem with what the Government are proposing. I beg to move.

Lord Strathclyde

I hope that I shall be able to alleviate the concern of the noble Lord, Lord Williams. I have already explained that new Section 80A permits private companies to elect to alter the statutory maximum duration of an authority to allot shares from five years to a longer fixed period or an indefinite period. This section has been included in the package because it is a measure which affects only the internal procedures of a company.

For private companies we see that there is no particular case for limiting the authority to allot shares beyond five years. Arguably it represents a not entirely satisfactory compromise between the need to protect investors from the subsequent dilution of the value of their shareholdings and the wish to limit statutory constraints by allowing the authority to remain valid over a period. This proposal will enable companies to make their own choice of how long to fix the period.

Lord Lloyd of Kilgerran

I congratulate the Minister on his wishes to make these matters much more flexible for small companies. I should like to read what the noble Lord has said in reply to the noble Lord, Lord Williams, and to see whether the matter should be brought up at a later stage.

Lord Williams of Elvel

I am grateful to the noble Lord, Lord Strathclyde. I am sure he recognises that this is a quite difficult problem and that there is an uneasy balance. I shall consider again, as will the noble Lord, Lord Lloyd, what he has said. If necessary we can come back to the matter later. In the meantime, I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

Lord Williams of Elvel moved, as an amendment to Amendment No. C44, Amendment No. C46: Subsection (2), in the proposed new section 366A, leave out subsection (1).

The noble Lord said: Amendment No. C46 deals with election by private companies to dispense with annual general meetings. This is a much more substantive provision in our view than the duration of authority for issuing securities. What is the point of having an annual general meeting? It is to allow all shareholders—be they majority, minority or minuscule shareholders—to raise matters, to move resolutions as appropriate, to discuss with their board of directors the conduct of the company, and indeed to call the board of directors to account.

There are many private companies in this country which have a number of shareholders. It is not simply the case that a private company is a two, three or four shareholder company. There are many very large private companies with a great number of shareholders. The removing by majority vote—that is the meaning of the word "election"—of the right for shareholders to come along at an annual general meeting and to complain about their directors seems a fairly major step. I beg to move. The noble Lord wishes to correct me?

Lord Strathclyde

I wished to remind the noble Lord that to get into the elective regime is still a unanimous procedure. Therefore all shareholders must agree to the proposal that there need not be annual general meetings.

Lord Williams of Elvel

I am sorry. I stand corrected. Nevertheless shareholdings change in private companies. Whereas there might have been unanimity among a group of shareholders in year one, by year three, with a totally different group of shareholders, that unanimity may not be there. Can the election be cancelled? Does it have to be cancelled by unanimity? How will all that work?

Lord Strathclyde

I do not want to speak at too great length. This is clearly an important point concerning annual general meetings. New Section 366A introduced by the clause permits an election by private companies to dispense with the holding of an AGM. The Government believe that this new provision will relieve many small companies of an unnecessary burden, and the proposal has been widely welcomed. Careful consideration has been given so as to ensure that there are other means to deal with the business previously conducted at AGMs and also safeguards to permit any individual member to call for an AGM to be held in any particular year. That covers the point that the noble Lord raised; I point him to new Section 379A. Similarly if auditors are concerned that there is reason to call an AGM, they will have power to do so.

We have reflected carefully on what function an AGM may serve, particularly to small private companies, where the directors may often also be the only shareholders. As I mentioned earlier, all the business conducted can be undertaken by other means. We accept that some companies may consider the meeting to be an opportunity to reflect on each year's performance, but that is a matter for them to choose. Some may argue that it provides a discipline in encouraging the completion of annual accounts, but there are already other provisions in company law to ensure that this is done and the department has been taking other steps to ensure better compliance.

I return briefly to the point made by the noble Lord, Lord Williams, concerning the elective regime and its unanimity. Election is removable by ordinary resolution; that is, it needs only a bare majority, and that is outlined in new Section 379A(3).

Lord Lloyd of Kilgerran

I raise one point in relation to the proposed amendment. The Committee will see that under new Section 366A, A private compant may elect (by elective resolution in accordance with Section 379A)", but there still exists in new Section 379A the suggestion that that may be done not only without a meeting but without any previous notice being required. Consequently in those circumstances it is going rather a long way in deregulation to dispense with the holding of annual general meetings where no notice had been given.

Lord Strathclyde

There is no need for notice to be given for an annual general meeting which is not to take place. Where the matters that would normally be dealt with by an annual general meeting are already being dealt with by a written resolution, as we already discussed earlier—I believe that the noble Lord perhaps was not in the Chamber when we discussed it—there is no need for prior notice.

Lord Lloyd of Kilgerran

I believe that the noble Lord, Lord Williams, had a winner while I was absent. That might encourage me to go away again.

Lord Williams of Elvel

I am grateful to the noble Lord, Lord Strathclyde, for clearing up one or two matters. I now see that he is quite right in pointing me to new Section 379A, which we are about to discuss. Nevertheless the new minorities, if there is a change of circumstances, will not be able to carry an ordinary resolution to defeat the elective resolution, so the problem still remains on the table. I do not believe that there is much virtue in pursuing this argument. The noble Lord has been kind enough to give us a full justification of what the Government intend, so we can move on to other matters. I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

Lord Williams of Elvel moved, as an amendment to Amendment No. C44, Amendment No. C47: Subsection (3), line 7, leave out ("90%") and insert ("5%").

The noble Lord said: The noble Lord, Lord Strathclyde, alluded to the object of this amendment. If the whole exercise is designed to make it easier to give short notice for meetings, I cannot see that reducing from 95 to 90 per cent. is of any significance whatsover. However, the Government no doubt have come down on the side of 90 per cent. and I should be grateful if the noble Lord will tell us why. I beg to move.

Lord Strathclyde

Being a great deregulator, there is a temptation to agree with what the noble Lord proposes in his amendment. However, it might be helpful if I were to explain some of the background to this proposal. The original suggestion from the Institute of Directors was that the proportion of members required to consent to the calling of a shareholders' meeting at short notice should be reduced from 95 per cent. to a lower figure. The institute did not specify the figure. In the public consultation exercise, the Government proposed that the proportion required should still be a substantial majority, and suggested 75 per cent. However, several of the bodies consulted felt that 75 per cent. was too low: 90 per cent. is therefore the proposed compromise figure. I believe that it was proposed by the Law Society. We are therefore talking of companies moving—by unanimous vote, let us remember—from a situation where one shareholder in nineteen can unaided block a proposal to hold a meeting at short notice, to one where one shareholder in nine can do so unaided. Given the safeguards surrounding the whole regime, I do not consider that to be unreasonable. That is why the Government chose 90 per cent.

Lord Lloyd of Kilgerran

The noble Lord said that certain organisations had suggested to the Government that 95 per cent. was too high and that 75 per cent. was too low, but the noble Lord has not given us any reason why that figure has been adopted by the Government. Is it just one of these occasions where a number has been picked out of the sky with no reason? I should have thought that 75 per cent. was still too high and that we should go much lower. Nevertheless, perhaps the noble Lord will tell us why that figure has been chosen as a result of recommendations from outside organisations.

Lord Strathclyde

I could perhaps answer that in the shape of a question to the noble Lord, Lord Lloyd of Kilgerran. Does he feel that it is important that whatever figure is chosen it should reflect a majority of the shares?

Lord Lloyd of Kilgerran

I have put my name to this amendment and I shall stick to the 5 per cent., unless the noble Lord can change my mind on the matter.

Lord Strathclyde

If it is the wish of the Committee, we shall be happy to look again at this figure. But the Government feel that it is important that there should be a majority of members of companies in favour. A reduction would open up the possibility of ordinary resolutions being passed at meetings called at short notice in circumstances where proper notice had not been given permitting further attendance and where a simple majority in favour would not have been obtainable. Given that, I hope that noble Lords will be able to withdraw their amendment.

Finally, we wish to move by consensus in this area, as the Government so often do. Ninety per cent. is a figure upon which we have found consensus. In the light of our discussion, that appears not to be the case, so perhaps we should discuss the matter further.

5.30 p.m.

Lord Tordoff

Can the noble Lord explain why the figure of 75 per cent. was thought to be too low? He said that, according to representations they had received, that appeared to be the case.

Lord Strathclyde

I cannot say exactly why the bodies consulted considered it to be too low. I am not sure of their reasoning. However, I shall look into the matter to see whether the Government believe their suggestions to be fully justified.

Lord Williams of Elvel

I am grateful to the noble Lord. I am glad that he will look at the matter again because the present amendment as drafted does not appear to take us very far.

The noble Lord has announced that the Government frequently wish to achieve consensus. That is a new political doctrine about which I have not previously heard in relation to the Government. No doubt things will change according to the noble Lord's statement. I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

On Question, Amendment No. C44 agreed to.

Lord Strathclyde moved Amendment No. C48: After Clause 96, insert the following new clause:

("Elective resolution of private company

— (1) Chapter IV of Part XI of the Companies Act 1985 (meetings and resolutions) is amended as follows.

(2) After section 379 insert—

"Elective resolution of private company

379A.—(1) An election by a private company for the purposes of—

1. (a) section 80A (election as to duration of authority to allot shares),
2. (b) section 253 (election to dispense with laying of accounts and reports before general meeting),
3. (c) section 366A (election to dispense with holding of annual general meeting), or
4. (d) section 369(4) or 378(3) (election as to majority required to authorise short notice of meeting),

shall be made by resolution of the company in general meeting in accordance with this section.

Such a resolution is referred to in this Act as an "elective resolution".

(2) An elective resolution is not effective unless—

1. (a) at least 21 days' notice in writing is given of the meeting, stating that an elective resolution is to be proposed and stating the terms of the resolution, and
2. (b) the resolution is agreed to at the meeting, in person or by proxy, by all the members entitled to attend and vote at the meeting.

(3) The company may revoke an elective resolution by passing an ordinary resolution to that effect.

(4) An elective resolution shall cease to have effect if the company is re-registered as a public company.

(5) An elective resolution may be passed or revoked in accordance with this section, and the provisions referred to in subsection (1) have effect, notwithstanding any contrary provision in the company's articles of association.".

(3) In section 380 (registration of resolutions), in subsection (4) (resolutions to which the section applies), after paragraph (b) insert— (bb) an elective resolution or a resolution revoking such a resolution;".").

The noble Lord said: The new clause inserts a new Section 379A after Section 379 of the Companies Act. The new section provides the procedural framework to enable private companies to elect to modify or dispense with statutory requirements mentioned in the previous new clause and also in Clause 15 of the Bill.

The new provisions provide for election to be made by a resolution (referred to as an "elective resolution") which is passed by all the members entitled to attend and vote. It is necessary to give 21 days' notice in writing of an elective resolution. An elective resolution may, however, be revoked by ordinary resolution. Elective resolutions are to be registered in the same manner at Companies House as are the other resolutions mentioned in Section 380(4). I beg to move.

Lord Williams of Elvel moved, as an amendment to Amendment No. C48, Amendment No. C49: Subsection (2), in the proposed new section 379A, subsection (2), line 5, leave out ("and").

The noble Lord said: I should like to speak also to Amendment No. C50. The amendments are designed to ensure that the elective resolution has proper legitimacy. The first paragraph of Amendment No. C50 is designed to ensure that the board of directors of the company recommend what is about to take place. The second paragraph provides that there should be a confirmatory meeting to ensure that everyone in the company has fully understood the issue and has the right of exercising some kind of impeding action if, after reflection, the majority of members disagree with what took place at the original meeting.

I believe that the first paragraph of Amendment No. C50 is more important than the second. Nevertheless, it did not appear to be worth drafting two separate amendments and I rolled them into one. I beg to move.

Lord Strathclyde

I should like to speak to the same amendments as the noble Lord. The effect of these amendments would be that two additional conditions are required before an elective resolution becomes effective. The first is that the resolution be recommended by the board of directors. In the type of small owner-managed company for whom the new clauses are intended to benefit, in many instances the board of directors may also be all, or virtually all, of the members. We therefore consider that in many cases the condition will be an unnecessary complication.

But where a resolution is proposed by a person who is not a director and has the support of all the members of the company who are entitled to vote, it is difficult to see why the directors should have a right to block the resolution even if this could be seen as consistent with their duty to act in the interests of shareholders.

The whole purpose of the elective regime is to give the company greater autonomy in determining its own procedures, and "the company" for this purpose, as for any purpose, means its members.

The second condition—that an elective resolution be confirmed 21 days later at a further general meeting—would, in our view, introduce a more serious obstacle which could well make the elective regime less attractive to small companies and frustrate the whole subject of the exercise. The purpose of these new clauses is to dispense with the holding of unnecessary meetings so that companies can get on with their real business. Their purpose is also to avoid fictional or meaningless meetings which nobody actually wants. We do not want to end up by replacing one fiction with another. We do not think much would be gained by such a meeting. An elective resolution can only be passed unanimously. Why should it be supposed that the members were unable to know their own minds on the first occasion and be obliged to reconsider? There are already other safeguards to allow calling meetings in special circumstances and it would take only an ordinary majority resolution to revoke or modify the regime. I therefore ask the noble Lord to withdraw these amendments.

Lord Lloyd of Kilgerran

I am grateful to the Minister for that explanation. I entirely agree that we should endeavour to remove fictional matters as far as possible. However, I do not understand his reasons for dismissing paragraph (c) of Amendment No. C50. Perhaps he will explain.

Lord Strathclyde

Let us suppose that there was an instance where the shareholders of a company wanted to act in a particular way but it would be feasible for the board of directors not to agree. I believe that it would be wrong if, under the amendment, the board of directors was able to stop the resolution coming forward. I am sure that basically the noble Lord, Lord Lloyd, agrees with me.

Lord Williams of Elvel

I find the argument difficult to sustain. The directors of a company, private or public, are appointed or elected in order to serve the interests of the shareholders and to run the company. They are entrusted with the conduct of the company. I believe that in such matters it would be normal to have a board recommendation on a resolution and that shareholders should properly be suspicious if there is no such recommendation.

If a majority of shareholders disagree with the board of directors, the remedy is easy and close to hand; they can change the board of directors. Therefore I do not believe that paragraph (c) of Amendment No. C50 poses a great problem for the Government. I am surprised that the Minister dismissed it in such a manner.

Lord Strathclyde

It does not create a great problem for the Government but, for the reasons which the noble Lord pointed out, it is unnecessary. I can add no more to what I have already said. We are creating a situation in which shareholders ultimately have the power. There is no requirement for the board of directors to agree a resolution. Directors are entrusted with the conduct of companies because shareholders cannot do everything themselves. The noble Lord, Lord Williams, spoke of normality, but I do not think that the amendment necessarily deals with that. In an extraordinary situation where shareholders may be unanimous, why should the board of directors have a veto on that unanimity?

Lord Williams of Elvel

If the shareholders are unanimous then they can remove the board of directors, but when shareholders are not unanimous, which is normally the case, it would help to have a recommendation from the board of directors. However, I see that the noble Lord has set his face against this amendment and I do not wish to prolong our discussions further. Therefore, I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

[Amendment No. C50 not moved.]

On Question, Amendment No. C48 agreed to.

Lord Strathclyde moved Amendment No. C51: After Clause 96, insert the following new clause:

("Power to make further provision by regulations.

.—(1) The Secretary of State may by regulations make provision enabling private companies to elect, by elective resolution in accordance with section 379A of the Companies Act 1985, to dispense with compliance with such requirements of that Act as may be specified in the regulations, being requirements which appear to the Secretary of State to relate primarily to the internal administration and procedure of companies.

(2) The regulations may add to, amend or repeal provisions of that Act; and may provide for any such provision to have effect, where an election is made, subject to such adaptations and modifications as appear to the Secretary of State to be appropriate.

(3) The regulations may make different provision for different cases and may contain such supplementary, incidental and transitional provisions as appear to the Secretary of State to be appropriate.

(4) Regulations under this section shall be made by statutory instrument.

(5) No regulations under this section shall be made unless a draft of the instrument containing the regulations has been laid before Parliament and approved by a resolution of each House.").

The noble Lord said: This provision is included so that the list of provisions set out in new Section 379A introduced by the previous clause may be further extended. I should emphasise that this power only permits the inclusion of such provisions as appear to the Secretary of State to relate primarily to the internal administration and procedure of companies. I beg to move.

Lord Williams of Elvel

This new clause is again one which allows the Secretary of State, by order, to vary primary legislation. We might just as well have had a new clause saying that the Secretary of State, by regulations, may make any provisions which he feels fit to relate primarily to the internal administration of companies and not even bother with government Amendments Nos. C48, C44 and so on.

I said before, and will say again, that we object to this type of clause going into the statute. If the Government wish to amend the statute then they should come forward with primary legislation to do so and not leave it to a Secretary of State, however well intentioned he may be, to issue an order which is discussed in your Lordships' House but on which no amendments are allowed and no Division is taken. I feel that the Government should withdraw this new clause which allows the Secretary of State to amend primary legislation.

5.45 p.m.

Lord Lloyd of Kilgerran

I strongly support that suggestion. Whenever one sees a clause in a Bill saying that the Secretary of State may do something by regulations, one is always suspicious of the position arising from that. I believe that this is a very poor way of amending primary legislation. The procedures which occur when regulations come before the House make it very difficult to amend them. Primary legislation should be included in the Act.

Lord Peyton of Yeovil

I know that some of my noble friends have misgivings and distaste about giving Ministers the power to change primary legislation by regulation. In this instance, I am not quite clear about the effect of this new clause. Am I right in thinking that the operation of subsection (2) is governed entirely by subsection (1), and that the freedom given to the Secretary of State to add to, amend or repeal provisions is not so wide as it appears if taken on its own? I should be obliged to my noble friend if he can confirm that thought.

Lord Strathclyde

I thank my noble friend Lord Peyton for that intervention and for giving me the opportunity to clarify the point he raised. What he said was correct. The regulations in subsection (2) are governed by subsection (1).

The noble Lord, Lord Williams of Elvel, suggested that we would be able to change the procedures for entering the regime by this order. That is not the case. This regulation-making power only enables a change of the contents of the regime. Why do we need that regulation-making power? The IOD working party suggested that a small number of other provisions might be included. The department asked for opinions from other bodies when we consulted, but views were expressed that, for the time being, those provisions should not be included. Nevertheless, it would be a pity if further changes could not be made until there was another opportunity for primary legislation. Therefore, I hope that Members of the Committee will agree with the situation that I have outlined. In the next few years there may be very good sense in adding slightly more scope to the regime, and that can be done easily and neatly and with discussion on an affirmative resolution.

Lord Tordoff

Perhaps I may ask for further clarification of subsection (2) because that refers to: May add to, amend or repeal provisions of that Act It may be governed by subsection (1) but the wording seems to me to go much wider than that.

Lord Strathclyde

I am sorry if the noble Lord, Lord Tordoff, feels that that is the case. That is not my reading of it. Subsection (2) is governed by subsection (1). The power is not to amend the whole regime or Act, only to add to those parts of the Act to which the regime itself applies.

Lord Tordoff

Is there any possibility that the Government could put those words on the face of the Bill, because it does not say that? I accept that that is the intention of the Government. However, we on this side are constantly being accused of using strange words in amendments; and this does not seem to me to be as specific as the noble Lord said it was.

Lord Strathclyde

I shall certainly look at the clause again to see whether it needs any clarification, but my noble friend Lord Peyton seemed to understand it as did I. I shall certainly look at ways of clarifying exactly what it is we are trying to do; but at present my feeling is that the clause is clear and no amendment is needed.

Lord Williams of Elvel

I object to the principle of this clause and not merely to the drafting, although I believe that the noble Lord, Lord Tordoff, is quite right in what he said. However, the principle is objectionable. Just because the Institute of Directors has some more ideas and wishes to persuade the Secretary of State that it is right, so that that can be translated into a new part of the Companies Act seems to me objectionable. That is why I object to it.

5.48 p.m.

On Question, Whether the said amendment (No. C51) shall be agreed to?

Their Lordships divided: Contents, 121; Not-Contents, 61.

DIVISION NO.1
CONTENTS
Airey of Abingdon, B.	Buckinghamshire, E.
Alexander of Tunis, E.	Buckmaster, V.
Allenby of Megiddo, V.	Butterfield, L.
Allerton, L.	Campbell of Croy, L.
Alport, L.	Carnegy of Lour, B.
Ampthill, L.	Carnock, L.
Arran, E.	Cathcart, E.
Ashbourne, L.	Chelmer, L.
Bauer, L.	Clitheroe, L.
Belstead, L.	Colnbrook, L.
Blake, L.	Constantine of Stanmore, L.
Blatch, B.	Cottesloe, L
Blyth, L.	Craigavon, V.
Borthwick, L.	Craigmyle, L.
Boyd-Carpenter, L.	Davidson, V. [Teller.]
Brabazon of Tara, L.	Denham, L. [Teller.]
Broadbridge, L.	Digby, L.
Brougham and Vaux, L.	Dundee, E.

Elibank, L.	Mostyn, L.
Elliot of Harwood, B.	Mottistone, L.
Elliott of Morpeth, L.	Mountevans, L.
Ferrers, E.	Munster, E.
Ferrier, L.	Napier and Ettrick, L.
Fortescue, E.	Nelson, E.
Fraser of Carmyllie, L,	Newall, L.
Fraser of Kilmorack, L.	Norfolk, D.
Gray of Contin, L.	Nugent of Guildford, L.
Greenway, L.	Onslow, E.
Halsbury, E.	Oppenheim-Barnes, B.
Harmar-Nicholls, L.	Orkney, E.
Harvington, L.	Pender, L.
Havers, L.	Peyton of Yeovil, L.
Henley, L.	Piatt of Writtle, B.
Hertford, M.	Rankeillour, L.
Hesketh, L.	Redesdale, L.
Hives, L.	Rees, L.
Holderness, L.	Richardson, L.
Home of the Hirsel, L.	Rochdale, V.
Hooper, B.	Rodney, L.
Hunter of Newington, L.	St. Davids, V.
Hylton-Foster, B.	Saltoun of Abernethy, Ly.
Ingrow, L.	Sanderson of Bowden, L.
Joseph, L.	Shannon, E.
Kaberry of Adel, L.	Skelmersdale, L.
Kimball, L.	Stockton, E.
Knutsford, V,	Stodart of Leaston, L.
Lauderdale, E.	Strange, B.
Lawrence, L.	Strathclyde, L.
Long, V.	Strathcona and Mount Royal, L.
Lucas of Chilworth, L.
McFadzean, L.	Suffield, L.
Malmesbury, E.	Swinton, E.
Margadale, L.	Terrington, L.
Marley, L.	Thomas of Gwydir, L.
Marshall of Leeds, L.	Trafford, L.
Masham of Ilton, B.	Trefgarne, L.
Maude of Stratford-upon-Avon, L.	Trumpington, B.
	Tryon, L.
Merrivale, L.	Vaux of Harrowden, L.
Middleton, L.	Wise, L.
Monk Bretton, L.	Wynford, L.
Montagu of Beaulieu, L.
NOT-CONTENTS
Attlee, E.	Jenkins of Putney, L.
Aylestone, L.	John-Mackie, L.
Barnett. L.	Kennet, L.
Birk, B.	Kirkhill, L.
Blease, L.	Lloyd of Kilgerran, L.
Brooks of Tremorfa, L.	Lockwood, B.
Bruce of Donington, L.	Longford, E.
Butterworth, L.	McNair, L.
Carmichael of Kelvingrove, L.	Mishcon, L.
	Molloy, L.
Cledwyn of Penrhos, L.	Mowbray and Stourton, L.
Cocks of Hartcliffe, L.	Nicol, B.
David, B.	Ponsonby of Shulbrede, L. [Teller.]
Dean of Beswick, L.
Dormand of Easington, L.	Rea, L.
Ennals, L.	Seear, B.
Ezra, L.	Sharpies, B.
Galpern, L.	Shepherd, L.
Glenamara, L.	Simon, V.
Graham of Edmonton, L.	Somers, L.
Gregson, L.	Stoddart of Swindon, L.
Grey, E.	Taylor of Gryfe, L.
Grimond, L.	Tordoff, L. [Teller.]
Hacking, L.	Turner of Camden, B.
Hampton, L.	Underhill, L.
Hanworth, V.	Walston, L.
Harris of Greenwich, L.	Whaddon, L.
Houghton of Sowerby, L.	White, B.
Hughes, L.	Williams of Elvel, L.
Hunt, L.	Winchilsea and Nottingham, E.
Jay, L.
Jeger, B.	Winstanley, L.

Resolved in the affirmative, and amendment agreed to accordingly.

5.56 p.m.

Lord Williams of Elvel moved Amendment No. C52:

After Clause 96, insert the following new clause:

("Composition of Boards

. At the end of Part IX of the Companies Act 1985 (Companies' Management; Directors and Secretaries, their Qualifications. Duties and Responsibilities) insert the following new section—

Composition of Board

310A. At least one-third of the directors of a public company shall be non-executive, nominated for election by members of the company representing in aggregate not less than 10% of the voting capital; the role of non-executive directors shall be defined in the company's Articles of Association." ").

The noble Lord said: At a previous Committee stage on this Bill we had a discussion about non-executive directors. It was argued at the time that it would be a mistake to put the position of non-executive directors into statute, not least because the definition of a non-executive director was unclear. The amendment seeks to deal with that argument.

The amendment also introduces what I think is a somewhat novel element which I should like to explain. We on this side of the Committee believe that there is only one real advantage in the present system of takeover bids. The threat of a takeover bid—I believe there are a number of cases which one could cite in evidence—sharpens the management of the company. If a company feels that it is threatened by a bidder certain things happen and, in practice, the company becomes rather better managed.

The evidence also shows that if the takeover bid goes ahead the resulting merger is not necessarily successful. Therefore, we are seeking a method to ensure that the management of a company can be affected by the same sort of sanctions, or sanctions of the same strength, as a threatened takeover bid. Consequently, I have introduced the notion of non-executive directors not simply being appointed by the existing chairman and board but being nominated for election by substantial bodies of shareholders. Clearly, by so nominating and, indeed, removing nominations if they felt it necessary, shareholders would be exercising a proper control over non-executive directors.

The non-executive director would therefore have as his power base in the company the fact that he was nominated by a large group of shareholders and subsequently elected. He would not have as his power base the fact that he was a friend of the chairman or of the present board of directors. That is a new element that I should like to put before the Committee.

My second point is that every company will have a different view of what non-executive directors should do. I do not believe there is a clear definition of the functions of non-executive directors. Indeed, I doubt whether there can be a clear definition which ranges across all industries and all sectors of the market. I have therefore included in the amendment a provision that the function of non-executive directors should be defined by the company itself—that is, by the shareholders—by writing a definition into the articles of association of the company. That would allow great flexibility for the shareholders to decide what sort of non-executive directors they need, what their functions should be and how they should perform them. The non-executive directors would be guided by those articles.

I have chosen the figure of one-third of the directors of a public company not because I am wedded to that figure. I do not believe it makes very much difference whether it is one-quarter or one-half. I am also aware that the directors of every company have general responsibilities as directors ad not responsibilities to individual groups of shareholders. I do not in the least ignore the problems of the proportion of non-executive directors and of the general responsibility that directors have to a public company. Nevertheless, I feel that our system of governance of companies will be substantially advanced if we can ensure that groups of shareholders representing not less than 10 per cent. of the capital, but, important shareholders, can be more directly involved, They will be nominated and elected by people to whom they can talk directly concerning the management of the company. The present situation would be substantially advanced by that procedure and also if the role of a non-executive director can be defined by the shareholders themselves and by the company when the articles of association are written.

I believe that this is an important amendment. The problem of whether companies should have non-executive directors will not go away. That is something we shall be considering not only as this Bill goes through the Committee stage but as we deal with the Report stage and also when the Bill goes to another place. It is a matter that we shall have to come to terms with in our system. I advance this formulation as being one way of doing so. I beg to move.

6 p.m.

Lord Lloyd of Kilgerran

It is widely accepted that non-executive directors can be useful to a company. I recall the discussions that we have had previously. The Government said that it was not a good thing to have non-executive directors included in any kind of statutory form. I am attracted to this amendment. As the noble Lord, Lord Williams, said, he is not wedded to the fact that one-third of the directors should be non-executive. In my view the following part of the amendment will ensure, in the noble Lord's happy phrase, that the system of government of companies will be strengthened. Non-executive directors will be nominated for election by members of the company and not, as happens these days, by the chairman of the company alone. I should have declared an interest in that at the present time I am a non-executive director of three companies.

The other attraction is that there is a minimum percentage of those who will be capable of voting. It will be not less than 10 per cent. of the voting capital. The most important part of the amendment is that the role of these non-executive directors will be defined in the company's articles of association. As I said earlier, the management of companies will be greatly strengthened by an amendment of this kind.

Lord Mottistone

I agree with one point only raised by the noble Lord, Lord Williams. He said that this is an important amendment. I believe that it is extremely dangerous. It is yet another attempt similar to those that we have seen in recent months to strike at the effectiveness of the unitary board. I shall direct my remarks particularly to the noble Lord, Lord Williams. I shall endeavour not to speak to a brief but to what he said. Does he not believe that having some people on a unitary board who are selected by statute and nominated by a group of shareholders, as he explained it, is dangerous for the cohesion, co-operation and efficiency of the board?

Like the noble Lord, Lord Lloyd of Kilgerran, I have to declare an interest. I am non-executive director of two companies and the chairman of one. The members of the boards of those two companies are there because each has something to contribute. They are not there because they are old school chums of the chairman or anything like that. I believe that was faintly suggested. No doubt the noble Lord, Lord Williams, will not press that point. I wish to dispel that idea because there is no question of it. We want efficency. The point that worries me is that if this amendment is accepted as it is proposed, there is a risk that non-executive directors may become stooges of the shareholders who have nominated them.

It may be argued that that will not be so and that they will be independent members of the board. The board has a comprehensive and joint responsibility for its own actions. The noble Lord said that not only can the shareholders concerned nominate somebody, but they can also have him removed from the board. That is a very serious risk. In trying to achieve this—though I hope he will not proceed with it—I trust that the noble Lord, Lord Williams, will seriously try to avoid the risk of people becoming the stooges of other people. That is the fatal flaw in this amendment.

As regards the question of whether the proportion of non-executive directors should be one-third, all the people who have advised me over a period of time concerning companies that I have worked for or companies of which I have been a member of the board agree with the noble Lord that one-third non-executive directors is about right. In the past 20 years I have never met anybody who has not said that we should have that kind of figure. But I do not see why it needs to be in the statute because it is not essential. There must be some companies for which it is not suitable to have a third, but more or less. To include a figure is probably unwise. There is not a tremendous advantage in it. It seems that the creation of the statutory non-executive director is almost entirely designed to arrange for some other kind of control of the company other than with the shareholders exercising control in the present way.

At the moment shareholders control the company in the traditional way by what they do at the annual general meeting. More importantly, they control it by selling the shares of the company if they believe that it is no good. The question of trying to manipulate by whatever means what is really an executive body for making a success of a company strikes me as something that only creates greater inefficiency. Therefore it would not be good for British business.

I hope that the Committee will agree with me that the amendment is extremely dangerous and should be rejected. I hope very much that the efforts on the part of the Opposition to control the non-executive directors and move in the Vredeling direction in due course will be dropped and that the Opposition will help us try to make sure that British business becomes even more efficient than it already is.

Lord Lloyd of Kilgerran

In view of the noble Lord's great experience in this matter, and particularly as he tells us that he represents the CBI, can he explain what he means when he says that the amendment is dangerous? I did not gather what the danger was. Perhaps he was referring to the unitary position of the board. Perhaps the noble Lord does not quite appreciate what happens at many board meetings. Matters may be resolved eventually but many board decisions are majority decisions rather than unitary ones.

Lord Mottistone

The danger I see is that the proposal would make the ordinary unitary board more inefficient. There is a risk that some of its members would be stooges of the people who nominated them. That is what I believe is dangerous. I believe the whole concept to be dangerous. But the real danger in this way of proceeding is that the people concerned would not, or could not, be independent in the true sense. Some of them will be, but they could be subject to manipulation from outside.

Lord Lloyd of Kilgerran

I am grateful to the noble Lord for clarifying his position.

Lord Williams of Elvel

Before the noble Lord, Lord Stratchlyde, explains the government position, perhaps I can respond to the contribution of the noble Lord, Lord Mottistone. I accept it as a very serious contribution to what is a very important debate. No doubt he and I have differences of opinion—clearly so on this matter. I do not believe that my amendment is a danger to companies. As I have said, I believe that it would improve companies' management. I am seeking that end. It may be a danger to what I call—if there any—establishment boards of directors, which are cosy and stitched up. The noble Lord, Lord Motttistone, says that there are not; but there may be one or two from time to time.

Perhaps I should declare an interest. Like the noble Lord, Lord Lloyd of Kilgerran, I am a non-executive director of a number of companies. In the case of at least two of those companies, which are public companies, I am appointed by a controlling shareholder. That fact does not relieve me of my responsibilities as a director of a public company. However, it means that the shareholder in question can ask me how the company is doing, what is going on, how the management is performing and how the conduct of the company is being handled. It seems to me wholly desirable that shareholders should take much more interest in the conduct of companies which they own than they do at present. I hope that the noble Lord and I are at one in saying that shareholders should take more interest in the management of companies. I believe that this amendment represents one way of doing so.

Lord Mottistone

Perhaps I may respond to that point. The best advice that I ever received concerning a large public company was that its board should be made up of about one third executive directors, one third non-executive directors with wide experience of many businesses—like the noble Lord—and one third principal shareholders. That is the best balance, but God forbid that that should be laid in statute. That formula happens to suit several companies but not every one.

Lord Peyton of Yeovil

I understand what the noble Lord, Lord Williams, is seeking. He would like shareholders to take more interest in the affairs of a company and how it is managed. I believe that that applies with particular force to institutional shareholders, who far too often are absent and detached and who take an excessively short-term interest. They ought to take a longer-term view. However, I doubt very much whether the proposal put forward by the noble Lord will achieve that end.

I share the view of my noble friend Lord Mottistone. For a section of the board to be indebted for their positions to a group of shareholders would be very wrong and very dangerous. There is a temptation—of which politicians should be the first to be aware—to trim sails to popular winds. A director who owed his place on a board to a particular section of shareholders would be placed in a very dangerous position. He could, unnecessarily and wrongly, be a thorn in the flesh of his colleagues in order to draw attention to himself and his qualities, about which there might be serious doubts.

6.15 p.m.

Lord Williams of Elvel

I accept that it is matter for serious discussion whether this is the way to achieve what I wish. However, I hope that the noble Lord, Lord Mottistone, will accept that nothing sinister is intended; there is no question of "reds under the bed".

Lord Mottistone

Not yet.

Lord Williams of Elvel

The noble Lord says, "Not yet". Here we go again. That is a classic reaction. Almost anything that is moved by the Opposition is thought to have some sinister motive. This is a perfectly ordinary attempt, as the noble Lord, Lord Peyton, has said, to make large and institutional shareholders more responsive to their companies and board directors more responsive to their shareholders. As I said in my introductory remarks, I believe that we should have some better method, other than mergers and takeovers, of ensuring that managers are kept up to the mark. This is one of the ways of doing that.

Lord Strathclyde

The amendment of the noble Lord, Lord Williams, is interesting. He has obviously put a great deal of hard work into its drafting. However, I do not think that it will come as any surprise to the noble Lord if I tell him that we shall not accept it. Perhaps I may also say to the noble Lord, Lord Lloyd of Kilgerran, who, in his opening remarks, referred to the Government's view of this type of amendment as discussed in Committee, that fortunately the noble Lord, Lord Williams, withdrew his amendment before the Government had an opportunity to respond. Nevertheless, he is quite correct as to the general gist of how we would have responded.

The effect of this proposal would be to establish a legal distinction between the executive and non-executive directors of public limited companies by requiring the appointment of individuals to serve specifically in the latter capacity on the boards of all public companies. It would also, as the noble Lord has explained, set the number of such directors at one-third of those on the board in each case.

The Government are opposed to these proposals and it may more readily help the Committee to understand the reasons for our opposition if I explain the background to our thinking on the subject. We are well aware that in recent years there has been growing tendency to advocate the appointment of non-executive directors. They are seen as being able to provide an objective view on many of the issues which are put before the board for its consideration. They are also seen as being in some circumstances better placed than executive directors to carry out certain tasks, not least because they can often bring a wider breadth of experience and knowledge to the decision-making process than can their executive colleagues.

The Government are fully in favour of those developments and would encourage companies to make greater use of non-executive directors. Nevertheless, it is a far cry from advocating the voluntary adoption of such measures to imposing them on companies through legal compulson. Companies must be given the freedom to decide for themsleves what structures, appointments and allocations of responsibility are appropriate to their particular circumstances. To attempt to take these decisions for them will result in some cases in hindering them in the proper pursuit of their activities and will in many other cases result only in a half-hearted and ineffectual compliance. The mere existence of non-executive directors will not, for example, guarantee that they will be independent figures, in a position of genuine influence, even if specific responsibilities are allocated to them.

The final point that I should like to put before the Committee for consideration is this. Company law in this country has traditionally made no distinction between non-executive and executive directors. It has laid equally upon them both the fundamental requirement to operate with care and skill and in good faith. If the board abuses its position the law already provides remedies to the shareholders to whom it is responsible. I appreciate that this amendment is aimed at improving the management of companies, not at remedying defects in the present law, but it is a simple fact that you cannot legislate for good management in business matters any more than you can in other fields.

I hope, therefore, in the light of what I and my noble friends behind me have said, that the noble Lord will feel able to withdraw the amendment.

Lord Williams of Elvel

I am most grateful to the noble Lord for what he said. Indeed, as he said, the response he gave was not unexpected. I hope that he and the Government accept the fact that we are trying to address a problem which does exist. Moreover, I think that the noble Lord, Lord Peyton, indicated that there was a genuine problem in getting shareholders to be more interested in the conduct of the companies which they own rather than simply selling their shares and walking away, taking a short-term view of the matter.

I hope that Members of the Committee on the opposite side will also recognise that within the context of the unitary board, it is possible to have different interests represented. Indeed, it happens on many occasions. It is still a unitary board. Directors are still responsible for the whole company and also responsible to the body of shareholders. Nevertheless, there are different interests represented.

The concept of defining a non-executive director seems to me most happily placed in the company's articles of association. I say that because I believe that the role of a non-executive director will vary from company to company. Indeed, there is no way that you can define across the board what a non-executive director is. In my view shareholders should have the right to ask particular tasks of non-executive directors.

However, having launched this issue, I do not intend to press the amendment to a vote. I believe that the debate has been useful. I hope that Members of the Committee on the opposite side will recognise that I moved the amendment in an attempt to be constructive rather than destructive. the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Strathclyde moved Amendment No. C53: Before Clause 97, insert the following new clause:

("Form of articles for partnership company

In Chapter I of Part I of the Companies Act 1985 (company formation), after section 8 (Tables A, C, D and E) insert—

"Table G.

8A—(1) The Secretary of State may by regulations prescribe a Table G containing articles of association appropriate for a partnership company, that is, a company limited by shares whose shares are intended. to be held to a substantial extent by or on behalf of its employees.

(2) A company limited by shares may for its articles adopt the whole or any part of that Table.

(3) If in consequence of regulations under this section Table G is altered, the alteration does not affect a company registered before the alteration takes effect, or repeal as respects that company any portion of the Table.

(4) Regulations under this section shall be made by statutory instrument which shall be subject Lo annulment in pursuance of a resolution of either House of Parliament.".").

The noble Lord said: With leave, in moving this amendment I shall speak also to the related amendment, Amendment No. C54 tabled in the names of the noble Lords, Lord Williams of Elvel and Lord Peston. Noble Lords will remember that previously in Committee strong support was expressed for the idea of making enabling provision for a table G, which was put forward in an amendment tabled by my noble friend Lord Onslow. I promised to consider the matter further, with a view to bringing forward suitable enabling proposals at a later stage.

As I said then, the Government have done a great deal, especially through their privatisation and tax policies, to foster the greater involvement of employees in their companies. Nine of the last 10 Budgets have improved the financial regime by applying to employee share ownership arrangements; indeed, in the last Budget there was an important proposal for a new corporation tax relief for a company's contributions to an employee benefit trust. So this amendment to facilitate the development of partnership companies should be seen against the background of an accelerating movement by the Government to provide conditions where the benefits of employee ownership can emerge freely.

The amendment makes provision for the Secretary of State to have express powers to bring forward a new model set of articles of association which would be appropriate for a partnership company. This model set of articles would be known as table G. As Members of the Committee will know, the existing model set for ordinary companies is known as table A. A partnership company would be free to have table G or to modify it to its own preference—or indeed to have a version of table A as at present if it wished. As advocates of the idea have pointed out, the main advantage to companies is that the availability of a model set saves them substantial cost when drawing up their articles of association.

It would be the Government's intention, once this enabling provision is enacted—assuming the provision receives the support indicated for it—to consult with interested parties on the drafting of an appropriate table G, and to bring the resultant proposals before Parliament under the secondary legislation proposals set out in the Government's amendment.

There is one point of detail I should like to mention on the eventual content of table G itself. Those who have expressed support for the provision of such a table have suggested that it should cater specifically for companies where a majority of its shares are held by, or on behalf of, its employees. I do not envisage any particular difficulty about including that point in the table. But we have deliberately avoided using the word "majority" or any other specific proportion in the definition of a partnership company in the enabling power in the amendment before us.

Members of the Committee will see that we have referred to "a substantial extent". This is because we consider that a specific proportion in the definition in the enabling legislation would be unduly restrictive on the operative of a partnership company if, for example, the level of employee ownership of its shares inadvertently fell below the specified level. It is in the interests of partnership companies not to have this enabling definition too tightly drawn.

The noble Lords, Lord Williams and Lord Peston, have suggested that the Government's proposals for using the negative resolution procedure for obtaining Parliament's approval of the detailed wording of table G in due course should be replaced by the affirmative resolution procedure. It has long been the practice that regulations prescribing table A—and for that matter tables C, D and E—are subject to the negative resolution procedure. It would seem quite out of proportion for the proposed new table G to be subjected to affirmative resolution, especially when it is bound by its very nature to be applicable to comparatively few companies and is purely optional for them.

I believe that the most effective course for getting the detail right is full prior consultation with interested parties. I have already undertaken that such consultation will take place and, accordingly, I hope the noble Lords will withdraw their amendment in order to permit progress on the Government's amendment. I beg to move.

Lord Williams of Elvel moved, as an amendment to Amendment No. C53, Amendment No. C54: In the proposed new section 8A, leave out subsection (4) and insert— ("(4) No regulations under this section shall be made unless a draft of the instrument containing the regulations has been laid before and approved by a resolution of each House of Parliament.").

The noble Lord said: The noble Lord, Lord Strathclyde, began his presentation of Amendment No. C53—to which I shall also speak—with a somewhat discursive paragraph on the Government's commitment to employee shareholdings. We noted when the Companies Bill was first published that it contained no such commitment. However, thanks to the persuasive efforts of the Opposition, and also noble Lords on all sides of the Committee, the Government have now conceded that amendments will be brought forward for employee share ownership plans. Moreover, as the noble Lord rightly pointed out, in the Budget the Chancellor of the Exchequer decided to make such arrangements more tax efficient than they would otherwise be.

The Government are slightly dragging their feet and are being pushed along by those of us on this side of the Committee. We welcome that fact. Indeed, we think that that is the right way for the Government to go. Again, this is an amendment which has been brought forward by the Government—I refer to Amendment No. C53—in response to pressure from noble Lords in this Chamber, including the Opposition, and we are glad that they have succumbed to that pressure.

The reason I am moving Amendment No. C54 while speaking to Amendment No. C53, is that table G, as it turns out, will be a rather particular sort of table. The noble Lord quite rightly pointed out that the procedure for regulations under Section 8 of the Companies Act 1985 is by negative resolution.

I accept that logically one might expect new table G to be under the same formula. Nevertheless, it will be a rather special table, and the object of making the procedure affirmative rather than negative is to ensure that we have a chance to have a look at it to ensure that the Government have lived up to their word before the table is finally in law.

If the Government can give us some sort of undertaking, as the Minister seemed to be verging on, that all interested parties will be consulted—interested parties include the Opposition—that becomes a rather different matter. We have had some difficulty in obtaining consultations from the Government. We are an interested party before legislation is introduced into this place. I should like to feel that there is middle ground between my amendment and the pure negative procedure, because table G is much more important than the other tables mentioned in Section 8 of the Companies Act 1985. I beg to move.

6.30 p.m

The Earl of Onslow

I must congratulate the noble Lord, Lord Williams of Elvel, on taking credit for the amendment that I moved in Committee. Nicking one's opponent's clothes is normally a Conservative Party habit, but at least we have tried to do it when they have been bathing and not standing watching. On this occasion I have been standing watching. However, that does not stop me from being grateful for the noble Lord's support in Committee. In Committee I said, "Yippee". On this amendment I say, "Yippe". I have knocked one "e" off the word "yippee" because of the introduction of the word "substantial".

When the Government write the articles, I hope that they will include the word "majority" because "substantial" is a word that can be argued over. It is peradventure, Lord, that there be 99 just men in all of Sodom and Gomorrah. We know how good Abraham was at arguing about the substantiality of the just men in Sodom and Gomorrah. "Substantial" is a word which lacks definition. "Majority" is clearer to everyone. Apart from that minor cavil, I thank my noble friend for giving so much support to the Opposition's amendment.

Lord Peyton of Yeovil

One minor point which arises from my noble friend's remarks is that I believe the search for the just men applied to Nineveh rather than Sodom and Gomorrah. If my noble friend cares to check, I believe he will find that I am right.

My aversion to and distaste for the introduction of the power to regulate applies to and arises from its use to change primary legislation. I feel no inclination to support the amendment, because I dislike the prospect of this place combing through the draft of table G. It will be a painful and prolonged occupation. If I may say this without giving offence to anyone, experience this afternoon has been some indication of just how painful a detailed discussion in this place on a draft of table G might be. I am pleased that it will not be part of primary legislation. I take the point made by the noble Lord, Lord Williams, at some earlier stage in the Bill, that affirmative procedures are of limited use and small comfort to us in this place.

Lord Tordoff

I do not wish to enter into a theological argument with noble Lords opposite. It is perhaps sad that the Bench of the right reverend Prelates is not occupied. A question that I should like to ask the noble Earl, Lord Onslow, privately on some occasion is that I know what went on in Sodom but I never found out what they were doing in Gomorrah.

Once again, we have secondary legislation coming. We should have a chart on the wall to clock up the number of times the Government put secondary legislation onto the statute book.

Lord Strathclyde

I am grateful to all noble Lords who have taken part in the debate. I was surprised at the tone of the noble Lord, Lord Williams, who I felt was being rather self-righteous. As my noble friend Lord Onslow pointed out, the bringing forward of the amendment is a result or the considerable hard work that he put into it rather than that of the noble Lord, Lord Williams. He accused the Government of dragging their heels with a certain amount of pride. He made it sound as though we were being dragged forward kicking and squealing to the Dispatch Box on a whole range of proposals which he believes we should enact.

There is no pride on our part. When we feel that we have done something wrong or that the Bill could be improved, we take the proper steps. We feel that that is the correct way to govern. The noble Lord said that he had not been getting very much consultation. If he does not believe that the consultation that we have so far had has been worth while— —

Lord Williams of Elvel

Perhaps I may clarify one point. I do not mean to criticise the noble Lord. He has been courteous on the Bill. Nevertheless, many things were going around before the Bill was published. None of them came to the Opposition. The same happened with the Copyright, Designs and Patents Bill, the Consumer Protection Bill and the Financial Services Bill.

Lord Strathclyde

That all happened before I became involved. The noble Lord asked whether we would consult him in advance about any further amendmends to table G. Yes, our proposals for the form of the amendment have already been discussed. When we have a text available for further consultation, a copy will be sent to the noble Lord. We shall be more than happy to discuss it further if he so wishes, and, likewise, with the noble Lord, Lord Lloyd of Kilgerran, who I know is equally interested.

My noble friend Lord Onslow questioned the word "substantial" as opposed to "majority". In my opening remarks I said that I did not envisage any particular difficulty about including that point in the table. At the moment we do not wish to be any more precise than the word "substantial". I am sorry that my noble friend Lord Peyton and the noble Lord, Lord Tordoff, disagreed with the secondary legislation that we were introducing to make that provision possible. Again, as I said in my opening remarks, the point is that with table G we are pursuing— —

Lord Peyton of Yeovil

Will my noble friend forgive me for interrupting? He has totally misunderstood me. I am sorry if I was obscure. I have obviously caught the habit from someone. I was saying that I believed table G to be wholly appropriate for secondary legislation. My objections to primary legislation apply here. I thought I went so far as to say that to introduce table G into this place for detailed amendment would be a nightmare from which I would resile with horror.

Lord Strathclyde

I apologise. I completely misunderstood what my noble friend said. He has clarified the point. Perhaps I should say no more on that matter except to refer the noble Lord, Lord Tordoff, to what my noble friend just said.

Lord Williams of Elvel

I am grateful to the Minister for his response to my amendment. I look forward to being consulted on the draft of table G as I look forward to being consulted, as he promised, on the draft of the ESOP amendments, which, as I understood from Committee, are being given the highest priority. I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

On Question, Amendment No. C53 agreed to.

Lord Strathclyde moved Amendment No. C55:

Insert the following new clause:

("Abolition of requirement to have company seal

—(1) In Chapter III of Part I of the Companies Act 1985 (a company's capacity; the formalities of carrying on business), after section 36 insert

"Sealing of documents.

36A.—(1) A company need not have a common seal.

(2) The following provisions apply to a company whether or not it has a common seal.

(3) A document signed by a director and the secretary of the company and expressed (in whatever form of words) to be executed by the company has the same effect as if it were under the company's common seal.

(4) A document so executed which—

1. (a) is intended by the person or persons making it to be a deed, and
2. (b) makes that fact clear upon its face (in whatever form of words),

has effect, upon delivery, as a deed; and it shall be presumed, unless a contrary intention is proved, to be delivered upon its being so executed.

(5) In favour of a purchaser a document signed by persons purporting to be persons holding the offices of director and secretary of a company shall be deemed for the purposes of subsection (3) to have been so executed and, if the conditions specified in subsection (4)(a) and (b) appear to be satisfied, to have been delivered upon its being so executed.

For this purpose a "purchaser" means a purchaser in good faith for valuable consideration and includes a lessee, mortgagee or other person who for valuable consideration acquires an interest in property.

(6) Subsections (2) to (5) of this section do not extend to Scotland.".

(2)After section 37 insert—

"Pre-incorporation contracts and obligations.

37A.—(1) Where a contract or obligation purports to be entered into or undertaken on behalf of a company, or by a person as agent for a company, at a time when the company has not been formed, then, subject to any agreement to the contrary, the contract or obligation has effect as one entered into or undertaken by the person purporting to act for the company or as agent for it and he is personally liable on the contract or obligation accordingly.

(2) As respects England and Wales "obligation" in subsection (1) means an obligation arising by virtue of an instrument under seal or having effect, by virtue of section 36A above, as if under seal.".

(3)In section 39(1) of the Companies Act 1985 (power of company to have official seal for use abroad), after "A company" insert "which has a common seal and" and for "the common seal of the company" substitute "its common seal".

(4) In section 40 of the Companies Act 1985 (power of company to have official seal for sealing securities, &c.), after "A company" insert "which has a common seal" and for "the company's common seal" substitute "its common seal".

(5) In section 41 of the Companies Act 1985 (authentication of documents), omit the words from "and need not" to the end.

(6) In section 350 of the Companies Act 1985 (company seal), for subsection (1) substitute—

"(1) A company which has a common seal shall have its name engraved in legible characters on the seal; and if it fails to comply with this subsection it is liable to a fine.".").

The noble Lord said: The new clause is deregulatory. It enables all companies to dispense with the obligation to have a company seal to execute certain documents. Under the new provision a document signed by a director and the secretary and expressed to be executed by the company will have the same effect as if it were under seal. The Government are committed to reducing unnecessary burdens on business and there are no good arguments for retaining the formality of the use of a physical seal. However, if any company wants to continue using its common seal, it may of course do so. I beg to move.

Lord Williams of Elvel moved, as an amendment to Amendment No. C55, Amendment No. C56: Subsection (1), in the proposed new section 36A, leave out subsection (1).

The noble Lord said: The Committee will appreciate that, as before, these amendments were tabled when we thought we were going to be discussing the Report Stage, so some of them are in the nature of a clause stand part debate. That is the case with Amendment No. C56.

When moving Amendment No. C55, the noble Lord said that the Government could see no point in companies having common seals, if I understood him correctly. In that case, why should companies continue to have common seals at all? Why not simply say, "Let's do away with common seals". Why do we have to have the possibility that they may or may not have a common seal; that there is an alternative? It depends how they go about it. Why not abolish the whole thing altogether? I beg to move.

Lord Strathclyde

I am not quite sure what point the noble Lord was trying to make. He asked why we should allow some companies to retain the seal. Is that right?

Lord Williams of Elvel

The point that I was making was that if the Government believe that a common seal is not necessary and that documents can be properly verified and properly established without the use of a common seal, why have common seals at all. Why do we have the alternative, "You can have one if you want or you needn't have one if you don't want"? That is what I understand the amendment to mean.

Lord Strathclyde

The amendment is quite plain. It is an abolition; there is no need to have a common seal. Maybe I am being very stupid; I do not understand what the noble Lord is trying to say. There is no requirement to have a company seal; therefore companies can cease to use one unless they particularly want to.

Lord Williams of Elvel

But companies can still have a seal if they want apparently. My question is very simple. Why not do away with the whole idea of company seals in one go?

Lord Strathclyde

It is just that we allow people to make a choice. Some people are very fond of their seals and may feel it is part of their tradition. There is no good reason for taking seals right out of the legislation. All we are doing is to allow companies that do not wish to use them any more not to do so.

Lord Prys-Davies

Does that mean that if a document is presented to a lawyer, he must obtain a copy of the articles of the company in order to be sure whether or not a document needs to be sealed?

Lord Strathclyde

Generally speaking, that is absolutely correct, except that I should point out that the situation is slightly different in Scotland, where the seal is not being abolished yet.

Lord Prys-Davies

But henceforth if a document is presented to a lawyer, in each and every case he will have to have access to the articles of that company to know how the company is to authorise the document. That is the problem which I see if we abolish the need for the seal.

Lord Strathclyde

The Government do not see that the problem arises at all. It does not seem to be a significant part of any difficulties arising out of the amendment.

Lord Williams of Elvel

Then how does the lawyer to whom my noble friend referred identify whether the company has properly executed a document?

Lord Strathclyde

As I said in my opening remarks—and perhaps this is the cause of the confusion—where the seal would have been used, the document must be signed now by a director and the secretary.

6.45 p.m.

Lord Williams of Elvel

Therefore, we have to know whether the director and the secretary are properly authorised to do so by the company.

Lord Strathclyde

The director and the secretary are authorised to do so by virtue of this Bill. The new Section 36A(3) is a complete protection for third parties. Third parties have no need to inspect the articles. Provided the new formulations are satisfied, the document will be properly executed.

Lord Williams of Elvel

I think that we must examine this further because it does not seem to be quite right. In the meantime I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

Lord Williams of Elvel moved, as art amendment to Amendment No. C55, Amendment No. C57: Subsection (1), in the proposed new section 36A, in subsection (3), line 1, leave out ("a director and the secretary") and insert ("two directors").

The noble Lord said: We had a discussion earlier at the Committee stage about the role of the secretary. We decided, and I think the Government accepted, or the Government decided and we accepted, that the secretary would not in future be entitled to sign accounts in the way in which the Government originally proposed when the Bill was printed. I was concerned to make sure that the secretary, whose powers are still undefined or whose role is undefined, was the proper person to sign one of these documents. It is an important function. I think we should probably prefer it to be two directors rather than the secretary. I beg to move.

Lord Strathclyde

There are several reasons why the Government intend that documents executed as if they were under seal should be signed by a director and the secretary. The first is that in Section 282(3) of the Companies Act 1985 a private company need only have one director, whereas every company is required by Section 283 to have a company secretary who is distinct from the directors. In many companies the secretary is also the company's legal adviser and is often entrusted with the company seal. But the essential point is that the requirement to have a signature by a director and the company Secretary is the only way of ensuring two signatures, and for this reason I hope that the noble Lord will withdraw the amendment.

Lord Williams of Elvel

Yes, I think that the argument about the single director company is probably conclusive in this case. I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

[Amendments Nos. C58 and C59, as amendments to Amendment No. C55, not moved.]

On Question, Amendment No. C55 agreed to.

Lord Hacking moved Amendment No. C59A:

Before Clause 97, insert the following new clause:

("Exemptions from liability

.—

1. (1) Section 310 of the Companies Act 1987 (provisions exempting officers and auditors from liability) is amended as follows.
2. (2) In section 310(2) for "sub-section" substitute "sub-sections".
199
3. (3) After section 310(3) insert—

• "4(4) This section does not apply to any policy of insurance in indemnifying any officer or auditor of the company against any liability referred to in subsection (1) whether the policy is effected or the premium thereunder is paid by the company or any subsidiary." ").

The noble Lord said: In moving this amendment, I should point out that the wrong year has been given; it should be the Companies Act 1985 and not the Companies Act 1987. Section 310 of the Companies Act 1985 renders void any provision which exempts any officer or auditor of a company from, or indemnifies him against, any liability which would otherwise attach to him in respect of any negligence, default, breach of duty or breach of trust of which he may be guilty in relation to the company.

It is common for insurance cover to be effected to cover directors against liabilities which they may incur in their capacity as directors. The need for such insurance has increased greatly in recent years as a result of both the increase in the number of statutory provisions which impose personal liability on directors and in the amount of litigation, particularly for companies involved in the United States. Such insurance is, therefore, commonly effected by companies to cover both their directors and the directors of their subsidiaries.

Therefore, one can approach the matter in this manner. It must be against the public interest for officers or auditors of companies to seek to avoid the consequences of their negligence or breach of statutory duty or breach of trust. However, it must be in the public interest that when a director, for example, has committed an act of negligence, he should be insured so that the person who suffers damage as a result of the negligence of that director may have a better opportunity to obtain compensation.

Unfortunately, since this provision reached the statute book, there has been doubt as regards whether insurance cover falls into that prohibited exemption which is now set out in Section 310. There has been concern particularly that Section 310 may invalidate such insurance insofar as it relates to the company's own directors, if the company effects the cover in this country, and pays the premium and the cover includes liabilities of the kind referred to in the section.

These doubts have caused serious practical difficulties over the years. In July 1986 the Law Society's Company Law Committee submitted a memorandum to the Department of Trade and Industry which summarised the difficulties and suggested that the law should be clarified so as to make it clear that the section did not apply to the effecting of insurance cover by companies for the benefit of their directors. Although the department issued a consultative document in February 1988 on possible changes to the law, it appears, certainly at this stage, that the Government have decided that no action should be taken. This is causing concern, as I have already indicated, to the Law Society's Company Law Committee. It is also causing concern in some quarters in the CBI. In those circumstances, it is thought to be desirable for the law to be clarified. That is why I have tabled this amendment.

In considering this amendment, the noble Lord, Lord Williams of Elvel, kindly drew to my attention a factor about it and expressed his concern. The noble Lord was concerned that if insurance cover also extended to cover acts of wrongdoing by the director—that is to say when he was acting wrongfully in breach of duty or dishonestly in breach of trust—it would clearly be wrong in those circumstances for the law to validate an insurance policy covering that form of wrongdoing. I am happy, therefore, to tell the Committee that public policy and the noble Lord, Lord Williams, stand together and that it would be in breach of public policy for an insurance policy to be valid in those circumstances, and in particular for it to cover a director against his own fraud or a criminal act.

The amendment therefore does not affect the possibility that the ground of public policy may invalidate an insurance policy, as the ground is independent of Section 310. All the amendment does is to make it clear that Section 310 does not apply. As I have already said, it remains the case that the policy may be voidable on some other ground. I hope I have managed to explain the issues clearly. I beg to move.

The Deputy Chairman of Committees (Lord Ampthill)

Amendment proposed, to insert the new clause as printed on the Marshalled List with the exception of the misprint "1987", which should be "1985".

Lord Mottistone

The CBI advised me on this matter. I feel that the legislation needs to be altered here, as the noble Lord, Lord Hacking, said. However, the CBI finds it difficult to decide on exactly the form that an amendment to alter the legislation should take. I should be grateful to hear the comments of my noble friend on the Front Bench to show the Government's thinking on this matter at the moment. All one can say definitely is that some changes are necessary. It is another matter whether the changes in this amendment are the precise changes that are needed.

Lord Williams of Elvel

I understand there is some kind of an inquiry taking place into this matter at the moment. I believe the inquiry is either within the CBI or between the CBI and the Government. I have heard about that inquiry, although I do not know the details of it.

I agree with the noble Lord, Lord Mottistone, that something needs clarifying here. It would be absurd if a company could not pay insurance premiums for the protection of its directors from the results of negligence. The noble Lord, Lord Hacking, kindly sought my view on this amendment before speaking to it. He correctly summed up my view. The problems of breach of duty or breach of trust, for which insurance may be voidable on public policy grounds, seem to me to be that breach of duty or breach of trust, as I understand it, are not defined in a totally clear manner in jurisprudence; that is by the courts. There is some residual confusion about what the terms really mean. Therefore, the circumstances under which an insurance policy may be voidable are not, to my mind, entirely clear.

However, generally I support the position taken by the noble Lord, Lord Hacking, that directors should be protected and companies should be allowed to use their own funds in order to provide that protection, as long as the protection is for reasonable purposes and not for any criminal or fraudulent activity. Perhaps the amendment of the noble Lord, Lord Hacking, is the right one to deal with this matter. But, if not, if another amendment could be formulated along those lines it would certainly carry our support.

Lord Strathclyde

I have listened with considerable interest to the points made by the noble Lord, Lord Hacking, and those other Members of the Committee with an interest in this subject.

The Government have been aware for some time that there is said to be a degree of uncertainty regarding aspects of the interpretation of Section 310 of the Companies Act, particularly as regards the potential voidability of insurance policies taken out by, or on behalf of, the officers or auditors of a company against the liabilities specified in the section.

For this reason, my department went out to public consultation on this section last year, both to clarify how it is interpreted in practice and also to determine what changes, if any, were thought appropriate given that the business climate has, in some respects, changed considerably since the section was enacted in 1928, particularly as regards the frequency of litigation.

In the light of our analysis of the responses to this consultation exercise, we concluded that the case for an amendment to the Act on this subject was less strong than other matters which were competing for space in the Bill. However, having listened to the comments which Members of the Committee have made, I can give an undertaking that the Government will re-examine this question sympathetically. Given appropriate safeguards, we accept that some relaxation could be helpful towards facilitating the provision of insurance cover for directors at a reasonable cost, thus avoiding the situation in which the threat of litigation deters able people from accepting appointments as directors.

The reason that we are not prepared to accept this amendment as it stands is that there are sound arguments for including certain safeguards where it is proposed that the insurance payment should be made by the company itself. This is because in such circumstances it would ultimately be the shareholders' money that would be used to insure the directors against claims which might be made against them for failure in a duty to the shareholders. Against this background we consider it wholly reasonable that company funds should only be used to pay for such policies where the prior approval of the shareholders, given annually at the general meeting, has been obtained. We also believe that such payments come within the category which should receive full disclosure in the directors' report.

As I have said, the Government would be prepared to consider the question before deciding whether to bring forward an amendment in another place.

Lord Williams of Elvel

Will the noble Lord clarify that matter? Is he undertaking to bring forward an amendment in another place?

Lord Strathclyde

No, I am not giving a commitment. I am simply saying that we shall consider the matter further, having regard to the discussion that has taken place today in this recommitment.

7 p.m.

Lord Hacking

I confess that I should have liked the Government to be a little more positive. There is no disagreement about the proper purport of Section 310 and there is no disagreement about the proper role of insurance to cover directors in the right circumstances—as discussed in our short debate. There is also no disagreement now from any side of the Committee that there is a certain amount of uncertainty. All that this provision is seeking to do is to create clarity in the law. In those circumstances, it is somewhat disappointing—though I am grateful to the noble Lord the Minister for agreeing to consider this matter further—that he could not go further and say, at least in principle, that—defective though this amendment may be—the Government are prepared nonetheless at some stage in the passage of this Bill to bring forward their own amendment. Having expressed my disappointment, which I hope has been noted by the Minister, I beg— —

Lord Williams of Elvel

Before the noble Lord decides what to do with the amendment, I wonder whether the noble Lord, Lord Strathclyde, would like to say anything more about the Government's intention on this matter. Is it merely to consider without any commitment? Is it to consider with commitment?

Lord Strathclyde

Since the noble Lord, Lord Williams, has asked me so directly and so nicely, perhaps I can say, no, we do not guarantee to bring forward an amendment at the next stage in this House, but we will look at the situation very sympathetically. It is likely that we will be able to bring forward an amendment in another place, when the Bill goes there. But we cannot at this moment make an unconditional commitment to take it any further.

Lord Hacking

I have heard what the Minister said. I shall not delay noble Lords further, and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 97 [Disclosure of interests in shares]:

The Deputy Chairman of Committees

The next amendment is No. C60, and I should like to remind the Committee that if it is agreed to I cannot call Amendments Nos. C61 to C63.

Lord Peyton of Yeovil moved Amendment No. C60: Page 93, line 40, leave out from beginning of line to end of line 34 on page 94 and insert ("( ) Section 210 is repealed.").

The noble Lord said: No one who has listened to our debates on this Bill would dream of saying that our legislative procedures were dictated by a desire for expedition. I do not think anybody could deny that they are fairly slow moving. There is therefore some room for surprise that the quality of the end result very often leaves a great deal to be desired. It is, I suppose, less surprising that on these occasions the parents of these Bills—that is, the senior Ministers whose names are attached to the Bills and whose names appear as sponsors of amendments—are not always there parading their pride of parenthood. That is something which one must regret. Nor is it altogether surprising that governments, having exprienced these slow moving procedures of Parliament, tend to look with favour upon other more convenient methods of achieving their ends, and regulations are a very easy short cut.

It will be within the recollection of noble Lords that in February I moved a precisely similar amendment to this and it was narrowly defeated on a Division. I hope therefore that that fact—my optimism remains almost eternal—will have prompted my noble friend on the Front Bench to give further consideration to the dislike which has been expressed by many noble Lords towards altering primary legislation by regulations. The disclosure provisions contained in the Bill have been thoroughly discussed, aired and decided and I would very much regret it if now the Government, given the power of regulations, were to alter the decisions in that manner.

My noble friend adduced three arguments in favour of this regulatory power. First, he said that these provisions were currently alterable by regulation. That is not an argument which commends itself to me, nor, I think, to many in the Chamber, because I very much regret it. My noble friend also pleaded that similar powers existed in many other statutes. Again, that is of no comfort to me. I regret that the power is as widespread as it is. The third argument which my noble friend put before noble Lords in favour of this power was that of flexibility. In most contexts, I would very warmly welcome a plea by Ministers in favour of the virtues of flexibility. It is not one that they are always in the habit of practising with the utmost assiduity, but I am glad to hear that my noble friend regards flexibility as a virtue. But I wonder how, and to what extent, the Government have it in mind to practise it in this instance.

The most important point about these disclosure provisions is that the percentage, which has been changed now under this Bill—in primary legislation, in other words—to 3 per cent., has, I think generally been found to be satisfactory. I ask my noble friend how he justifies having a power to alter that. I imagine it very unlikely that the Government would want to lower it further to, say, 2 per cent. Therefore I wonder how he justifies the existence of this power.

As regards the next amendment, which provides for affirmative resolution by both Houses of Parliament, as I have already said this afternoon I endorse the comment made by the noble Lord, Lord Williams of Elvel, that affirmative procedures are not of much use to us here, because it is not customary for us to divide upon them, nor could we amend them or do anything of the kind. Therefore it seems to me that the Government are merely giving a very inexpensive power to an important principle, whereas I had hoped that they would go further in this instance and say that they did not need, and ought not to have, the power of secondary legislation where Parliament had already made its intentions very clear. I beg to move.

Lord Marshall of Leeds

I ask the Committee to oppose this amendment on the basis that the amendment deletes the new Section 210A, which confers a power on the Secretary of State to amend certain provisions of Part VI of the Companies Act 1985; that is, on the question of the disclosure of interests in shares. It also repeals Section 210 of the Act. I do not want to elevate it to the seriousness with which my noble friend referred to it just now, but I am opposed on the grounds that the existing provisions for disclosure are quite satisfactory in most respects, and that the new Section 210A is unobjectionable in all respects. For those reasons, I hope that my noble friend will withdraw his amendment.

Lord Mottistone

I understand that we are speaking to Amendments Nos. C61, C62 and C63 as well as to Amendment No. C60. Amendment No. C63 stands in my name. To comment upon the amendment of my noble friend Lord Peyton, I must confess that I, too, am of the opinion that it is much too sweeping and goes much too far in taking out both Sections 210A and 210. I shall not seek to comment further except to say that there seems no good reason for sweeping away so much. It is not just a bit of regulation here and there.

As to my amendment, I am delighted to see that, in his Amendments Nos. C61 and C62, my noble friend the Minister has achieved, in a slightly more elegant way, exactly the same results. I am most grateful.

Lord Williams of Elvel

I share the views of the noble Lord, Lord Peyton, on Section 210A, as he will be aware from our discussion in Committee. As he has pointed out, I also referred earlier this afternoon to the affirmative procedure and said that I did not think that it was very useful for us at present. I wonder whether—I speculate aloud—the usual channels might try to make the affirmative procedure a little more useful for us than it is at the moment. I intend to raise that matter from this side. I am sure that the usual channels will operate. I do not know whether that will be by allowing possible amendment or possible Division, and I do not take a position on that at the moment. However, I believe that, if we are to have an affirmative procedure, it must be more than just a talking shop or a debate. We must be able to influence what goes in the order.

In so far as something can be achieved, I welcome the government amendment. In so far as it is a question of substituting one debate for a non-debate, the government amendment does not seem to achieve all that much, but I suppose that we must be grateful for small mercies.

Lord Strathclyde

I am grateful to all who have taken part in this brief debate, particularly my noble friends, Lord Marshall of Leeds and Lord Mottistone. I am particularly grateful for the thanks of my noble friend Lord Mottistone for our amendments.

With permission, I too should like to speak to Amendments Nos. C60, C61, C62 and C63. My noble friend Lord Peyton referred to the slowness of legislative procedure. He has a far greater knowledge and experience of those sorts of parliamentary procedure than I have; so I am sure that he is correct in what he says. However, I am sorry that he felt it necessary to criticise, in a very nice way, my noble friend the Secretary of State Lord Young of Graffham who, I know, would very much have liked to be here to listen to my noble friend's proposals. However, I am afraid that he is in China, trying to win more business for British industry. I hope that my noble friend will feel that that is a perfectly correct way for him to behave as Secretary of State.

Lord Tordoff

Perhaps the noble Lord will forgive me for intervening. He made an interesting comment about the purpose of the Secretary of State's visit to China. I thought that the Government always insisted that they did not interfere in business matters.

Lord Strathclyde

The noble Lord is quite correct. However, the Government sometimes ease the path of industry to make sure that it can do what it says it can do.

As my noble friend Lord Peyton pointed out, this amendment is identical to one upon which there was a Division in Committee on 21st February. I do not intend to take up the Committee's time by repeating the points which I have already made on this matter and which my noble friend mentioned. I simply ask him not to call upon the Committee to decide twice upon the same matter, particularly in the light of the amendments tabled in the name of my noble friend the Secretary of State which appear next on the Marshalled List.

The separate amendments tabled in the names of my noble friends the Secretary of State and Lord Mottistone would have precisely the same effect. They would make all the regulation-making powers in new Section 210A subject to the affirmative procedure. The Government amendments fulfil a commitment made in Committee. At that time we said that we would prefer to table our own amendments since the one tabled by my noble friend Lord Mottistone would leave us with two subsections making different provisions in new Section 210A subject to the affirmative procedure. The same argument applies to the amendments before us today. It is not a great point of principle, but, since the government amendments will leave us with fewer words, I hope that, as my noble friend has suggested, he will agree with us.

The noble Lord, Lord Williams of Elvel, made a point about the affirmative resolution procedure. He said that he would discuss it further through the usual channels. I hope that he will do so, but, as a general point, I hope that he does not feel that the affirmative procedures that we have at the moment are quite as useless as I felt he was trying to indicate.

Lord Peyton of Yeovil

In view of the remarks of my noble friend and the wonderful way that he performs his heavy duty, I offer, by way of gratitude and appreciation, my withdrawal of the amendment. At the same time, I should say that my remarks concerning our noble friend the Secretary of State should not be interpreted as a criticism. When I come to criticism, I mean something a little more powerful than anything I said this afternoon. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Strathclyde moved Amendments Nos. C61 and C62:

Page 94, line 27, leave out ("subsection (1)(b)") and insert ("this secti6n").

Page 94, leave out lines 31 to 34.

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

On Question, amendments agreed to.

[Amendments Nos. C63 to C65 not moved.]

Clause 97, as amended, agreed to.

7.15 p.m.

Clause 98 [Annual Returns]:

Lord Strathclyde moved Amendment No. C66: Page 96, line 19, leave out from ("elected") to ("a") in line 20 and insert ("—

1. (i) to dispense under section 253 with the laying of accounts and reports before the company in general meeting, or
2. (ii) to dispense under section 366A with the holding of annual general meetings,").

The noble Lord said: This amendment is consequential on the provisions introducing the elective regime that we have already considered. It requires the annual return of a company that has passed an elective resolution to dispense with the holding of annual general meetings to state that fact. The amendment also tidies up the existing requirement in the Bill for the return to state that, if it be the case, the company has elected to dispense with the laying of accounts in general meeting. We envisage that, when the shuttle document which is proposed by Companies House is introduced, it will contain boxes which a company can tick in order to give the required information. The reason why this information should be contained in the annual return is that it enables new members of a private company to easily establish if an elective resolution has been passed. I beg to move.

On Question, amendment agreed to.

[Amendment No. C67 not moved.]

Lord Monson moved Amendment No. C68: After Clause 98 insert the following new clause:

("General provisions as to meetings and votes.

In section 370 of the Companies Act 1985 (general provisions as to meetings and votes), at end insert— ("(7) No meeting of a public company shall take place on Easter Sunday or on the 24th, 25th December in any year".".

The noble Lord said: I have three amendments tabled in the Marshalled List. Only one of them—the last—has the marginal note "Shareholder Protection" against it. Nevertheless, all three amendments are concerned with the protection of shareholders. Small shareholders have lacked adequate protection for a long time. Their numbers have been swollen by a whole host of new and—in shareholding terms —smaller shareholders as a result of the privatisation issues that have taken place over the past few years. Most of those new shareholders are effectively locked into their holdings as a result of the massive increase in minimum commissions that has occurred since the Big Bang, a phenomenon that shows no signs of abating.

The new regulatory organisations, cumbersome and bureaucratic though they are, provide a good deal of protection but there are still too many loopholes. The object of these modest amendments is to plug up a few of the smaller loopholes. Amendment No. 68 is a very much more modest version of an amendment that I moved at the first Committee stage. Its object was to prevent the tiny minority of unscrupulous companies—and I acknowledge that it is a tiny minority—from calling general meetings of the company at awkward and inconvenient times in order to minimise attendance and minimise the possibility of uncomfortable questions being asked by shareholders and above all by the press.

By "unscrupulous companies" I do not mean only those which are positively dishonest but also those which stay just within the law but where, for example, the directors have awarded themselves massive increases in salary, bonuses and perks at the same time as having mismanaged the company to such an extent that the profits are halved or even disappear altogether and the dividend is passed.

In such cases it is obviously in the directors' interests to hold the annual general meeting, or the EGM if such is required, at a time when as few as possible of the shareholders can attend and the eagle eye of City editors is diverted elsewhere. Christmas Eve is a prime example of such a time, bearing in mind that no newspapers are published on Christmas Day and those published on Boxing Day do not normally carry City pages.

Earlier I mentioned privatisation issues. I freely acknowledge that the directors of British Telecom, British Steel, British Gas, British Airways, and so on, would never be guilty of such sharp practice. But even if fewer of them—perhaps only one in 500 or one in 1,000 quoted companies—behave in this way, it is still a loophole that ought to be plugged.

The amendment which I moved at the first Committee stage went much wider than this one, attempting to forbid public company meetings on or immediately preceding Bank Holidays, or in the very late or very early hours of other days, particularly on Sundays, and so on. Various Members of the Committee expressed the view that this was much too restrictive. I took on board what they said and accordingly made this amendment approximately one-tenth as ambitious, seeking only to ban public company meetings from being held on Christmas Eve, Christmas Day, Boxing Day or Easter Sunday.

Let me emphasise that this amendment applies only to public companies. Private companies—which I suppose include the vast majority of family companies, in particular those in which the majority of members might be of non-Christian faiths; let us say Jewish, Moslem, Hindu or Buddhist—would be free to hold their meetings at any time they wished, even at 3 a.m. on Christmas Day if they so desired it.

This amendment applies strictly to public companies, which is as it should be. When this Chamber and the other place debated the various shops Bills, we were constantly told by the bishops, most of the Opposition and a substantial section of the Conservative Party, that certain days should be kept special and sacrosanct so that families could assemble together. For the great majority of people in this country, if there are any days of the year that fall into the category that I have just mentioned, they are the four days that I have chosen for this amendment. I beg to move.

The Deputy Chairman of Committees

I must apologise to the Committee. I omitted to ask the Committee if it would care to agree that Clause 98, as amended, should stand part of the Bill. I put that Question now. Is it the Committee's pleasure that Clause 98, as amended, stand part of the Bill?

Clause 98, as amended, agreed to.

Lord Williams of Elvel

Whereas the amendment moved by the noble Lord, Lord Monson, in Committee was indeed rather wide, I suspect that his present amendment is rather too narrow. I should like to find a compromise between the two. I believe that it is right to stop public companies from holding meetings on Bank Holidays and Easter Sunday. However, I think that one has to be consistent and take all Bank Holidays into the list of prohibited days as well as those mentioned by the noble Lord.

The line has to be drawn somewhere. I believe that the Government will need to think rather carefully, if they decide to accept the principle of the amendment that there should be prohibited days, before deciding where that line is drawn and which days should be prohibited. I feel that there is a case for having some form of prohibited day but I am bound to say that I am not quite sure where the line should be drawn.

Lord Grantchester

I remember that when I was in practice one public company convened an important meeting for Christmas Day, to be held somewhere in Greenland. The court had no difficulty at all in holding that that was an invalid convening of the meeting because the directors are under a duty at all times to act bona fide in the interests of the company as a whole. Therefore I suggest that that underlying principle imposed upon directors—namely, to act bona fide in the interests of the company as a whole —should prevent them from convening meetings on impossible dates at impossible places.

Lord Strathclyde

As I indicated when the noble Lord moved a very similar amendment in the earlier stage of the Committee, the Government are not convinced that the present legal arrangements regarding notice for meetings and their conduct are inadequate or should be subject to more detailed regulation. In particular, it should be borne in mind that on occasion there may well be pressing and valid reasons for holding a meeting on a date which would be proscribed by this amendment.

I have in mind, for example, the very tight deadlines which sometimes have to be imposed in connection with takeover proposals. In such situations we believe that the minimum period of notice required for such meetings and the right to appoint a proxy provide adequate safeguards forth shareholder. This amendment would make it necessary for all public companies to take specific powers in their articles of association to provide for the emergency situation.

In general, for this type of proposed change to company law there needs to be serious consideration of the position and views of all involved parties and, if change is to be contemplated, it should be on the basis of evidence of real and widespread abuse. The Government do not believe that those criteria have been met on this amendment.

Lord Monson

I am very grateful to the noble Lord, Lord Williams, for his support. It is true that the amendment is probably drawn too narrowly. Unfortunately, one often has to draw amendments narrowly in order to have any chance whatsoever of having them accepted. I am grateful also to my noble friend for his very interesting contribution. However, whether the court would make the same finding in every case, one cannot be certain. One hopes that it would do so, but nothing can be guaranteed in this world.

I must say that I am disappointed in the noble Lord's reply. He spoke of pressing and valid reasons. That might apply to extraordinary general meetings; it could not possibly apply to an AGM. There is no pressing and valid reason for an AGM suddenly to be held on Christmas Day. Frankly, I do not think that that is a convincing argument.

There is abuse. It does not happen very often but it does occur. It is true that meetings are not often held on Christmas Day itself but they are sometimes held late on Christmas Eve when it is known that the directors have something to hide or something about which to feel ashamed. It would be an interesting exercise if, over the next year or so, the noble Lord's department could monitor how many companies hold meetings on the days that I have mentioned and how those companies fare in terms of performance compared with the majority of companies.

However, this is not the amendment about which I feel most strongly. Perhaps it will be taken up by someone in another place, and therefore I beg leave to withdraw it.

Amendment, by leave, withdrawn.

Viscount Long

I beg to move that the House do now resume. In moving this Motion, I propose that we do not return to this business until 8.30.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.