HL Deb 11 April 1989 vol 506 cc210-38

House again in Committee (on recommitment) in respect of Part V.

Lord Monson moved Amendment No. 69:

After Clause 98 insert the following new clause:


In section 372 of the Companies Act 1935 (proxies), after subsection (3) insert— ( ) Whenever a public company with an issued and fully paid share capital in excess of £2.5 million issues any notice to its shareholders calling a meeting of the company, such notice shall be accompanied by a reply-paid form of proxy." ")

The noble Lord said: This is another adaptation of an amendment which I moved at Committee stage, but it is a much less drastic variation this time round. Some 15 or 20 years ago quite a few companies, even including a number of blue chip companies, failed to send their shareholders reply-paid proxy forms in advance of company meetings, thereby discouraging them from exercising their democratic rights, except on those very rare occasions when a shareholder thought that his vote might tip the scales and so make it worthwhile for him to stand in a long Post Office queue for a stamp to put on a proxy card.

I first started to raise the matter 12 or 13 years ago and, probably more through coincidence than as a result of any agitation on my part, virtually every blue chip company and most smaller public companies now send out reply-paid cards or envelopes. This makes even less excusable a refusal of a tiny minority to fall into line with the great majority. At the previous Committee stage, the Government opposed my amendment on the ground that it was unfair to that small minority of public companies which did not have business reply facilities. That was a valid and reasonable objection, and therefore this time I have confined the provisons of the amendment to public companies with an issued share capital in excess of £2.5 million.

Very few companies of that size do not have or could not easily secure business reply facilities. Yet, since the first Committee stage I have received the annual reports of two BES companies in which I have invested, one with an issued share capital of more than £65 million and the other with an issued share capital of almost £10 million, yet no reply-paid cards were included with the documentation. I have also received similar documents from a public company with an issued share capital of about £50 million. While I have reservations about the latter—it is a Bermuda-based company and therefore is able to get away with things which a UK-based company would not be able todo—I have no quarrel with the way in which the two BES businesses are being run. They produce very good results; but I believe that I and my fellow shareholders should be able to vote for or against the re-election of directors, the re-appointment of auditors, the adoption of accounts and so on without putting ourselves to trouble or expense, given the substantial size and worth of the companies concerned.

When he was speaking to Amendment No. C15 the other day, the noble Lord, Lord Williams of Elvel, reminded us of what is legally the essentially democratic nature of a company. He emphasised that directors are elected and not appointed. In any democratic election the higher the number of votes cast the more truly democratic the vote is. I beg to move.

Lord Williams of Elvel

I should like to support this amendment. As the noble Lord, Lord Monson, has said, the general practice is to send out reply-paid proxies, but there are exceptions to the rule. I believe that it is sensible for the Companies Act to ensure that there can be no illegal exceptions. The whole business of the shareholding democracy gains greater importance as we consider the possibility that building societies will convert themselves into plcs. If the Abbey National converts itself into a plc, according to the estimates—I have no idea whether the estimates are right, but let us assume that they are—5 million extra shareholders will be entitled to express an opinion on matters arising at any general meeting of the company. This presumably will continue, if wider share ownership (whatever that really means) continues to spread. I should have thought that the noble Lord has a serious and genuine point in saying that it is no good having shareholders—this returns to the theme that we were discussing earlier this afternoon—unless those shareholders participate in the affairs of the company. Small shareholders especially find it annoying to receive proxy forms which they have to stamp themselves. In my view it is a legitimate expenditure of shareholders' money to ensure that shareholders have a right to express their opinion without extra expense.

Lord Lloyd of Kilgerran

I too support the amendment, and I apologise to the noble Lord, Lord Monson, for not being in my place at the beginning of his speech. For the same reasons as those given by the noble Lord, Lord Williams, it is my belief that this is an important amendment because, if shareholders receive a reply-paid form, it will encourage them to take some interest in the company. I know several shareholders. If they receive a proxy which is accompanied by a reply-paid form they will read the papers, make up their minds and post the form. If it is not pre-paid, they do not bother about it and do not reply. I support the amendment.

Lord Grantchester

I support the amendment. I have just one reservation in relation to the wording, however. I believe that the notices sent out by a company should be accompanied by a reply-paid form of proxy for posting only in the case of those shareholders who are entitled to attend and vote at meetings. Notices are normally sent out to shareholders generally, but that is a minor point.

Lord Strathclyde

I can add not a great deal to what I said to the noble Lord in the course of the Committee stage debate on this Bill when he moved a similar amendment which would have imposed this obligation on all public companies, as opposed to the more limited number exceeding the threshold which he has specified in the present amendment.

As I said on that occasion, the law presently provides that every notice calling a meeting of the company must contain a statement, with reasonable prominence, that a member entitled to attend and vote is entitled to appoint a proxy. Moreover, the Stock Exchange listing requirements stipulate that listed companies should send all persons entitled to vote at meeetings proxy forms with provision for two-way voting. The only effective addition therefore is that a reply-paid form should be included.

As the noble Lord said in the earlier debate, the large majority of public companies already follow this practice. Indeed, it could be said to be in the interest of the management of the company to do so because in that way it receives a better response to the proxies it seeks. But even if a company does not voluntarily do this, it is not easy to visualise circumstances in which a shareholder who is sufficiently interested to want to appoint a proxy would be deterred from doing so by the cost of a second class postage stamp or by the necessity of having to go out and buy one. I must therefore conclude, as I did on the last occasion, that the substance of this proposal seems to be entirely a matter for the internal organisation and running of the company's affairs and its relationship with its own shareholders. I am sorry to say that I still do not consider that this is a matter for legislation.

Lord Williams of Elvel

But are not the Government committed to shareholder democracy? Are not the Government committed to the idea that shareholders should take an interest in the affairs of their company? Is it not a proper use of shareholders' funds to promote that?

The Earl of Kinnoull

I should like to ask the Minister whether, under company law, there is a definition of a small shareholder. The noble Lord, Lord Williams, cited the case of the Abbey National. Under the rules of that society a member must hold either £100 or £250 in order to vote. I do not know whether, when the society is converted to a company, the same rule will apply or whether the member with an investment of £10 will be able to vote.

Lord Strathclyde

I thank my noble friend for that interjection. The noble Lord, Lord Williams of Elvel, asked whether the Government are fully committed to shareholder democracy. Of course they are. We can see that by the massive increase in the number of shareholders of all types over the past 10 years.

The noble Lord says that this is a proper use of shareholders' funds. Surely it must be for the company to decide whether that is the case. If a large or small company wishes to interest its shareholders as much as possible in its proceedings, it can decide whether to issue a reply-paid proxy form. If the shareholder wishes to receive reply-paid forms he can change company and buy shares in one which offers them. On the other hand, if he is satisfied with the present situation, that is good enough.

I still maintain that if a shareholder has sufficient interest to become involved in a company to read the report and accounts and wishes to send a proxy vote, it cannot be too much to ask him to buy a stamp in order to do so.

Lord Lloyd of Kilgerran

I hesitate to criticise the Minister in relation to his brief. He has borne a great deal very well during the course of the Bill. He has done a splendid job in many ways. However, he says that if a shareholder does not receive a reply-paid proxy form he should give up his shareholding and find a company which does. How does he do so? How can he find out whether a company supplies reply-paid forms? Surely it is difficult to do so. I believe that in this case the noble Lord's approach has been most unrealistic from a commercial point of view.

Lord Dormand of Easington

The Government frequently boast about the increase in the number of shareholders, and the Minister has done so once again. Surely it follows that shareholders must take an interest in the company's affairs. In other words, it is "a good thing" that shareholders should do so. Therefore, ought not the Government to take an initiative in encouraging that trend and support the amendment? Does the Minister find any illogicality in my suggestion?

8.45 p.m.

Lord Strathclyde

The Government genuinely support all companies which wish to send shareholders reply-paid proxy forms. But we shall not legislate for that because it must be a matter for the internal management of the company. If the company wishes to encourage more shareholders by providing reply-paid forms—as the noble Lord, Lord Lloyd, believes theycan—that is a decision for the company. The Government have made a commitment to a shareholder democracy by privatising certain companies and running the economy in a certain way during the past 10 years. That is their commitment to shareholder democracy. I am not convinced that reply-paid proxy forms is a further commitment to shareholder democracy.

Lord Williams of Elvel

The noble Lord must recognise that simply privatising British Gas, TSB, water or electricity is not a commitment to shareholder democracy. It certainly is a commitment to wider share ownership but not to shareholder democracy. If you are a government committed to shareholder democracy you must follow that through by providing shareholders with the ability and the means to take advantage of the facilities offered by the company in exercising their proper right in interesting themselves in the affairs of the company. That is a commitment to shareholder democracy and not wider share ownership per se. One can have wider share ownership with millions of passive shareholders.

If the Government are serious about the issue they should encourage the noble Lord in his amendment. If they are not, and wish simply to have wider share ownership without proper democracy, they will refuse the amendment. However, they cannot claim that they are encouraging shareholder democracy by privatisation or wider share ownership unless they follow through. If the noble Lord argues that it is not a subject for legislation I must say that, my goodness! the Bill legislates on practically everything else and it is about time that we legislated on shareholder democracy.

Lord Mottistone

Are we really talking about a 14p stamp? This seems to be a most ridiculous argument! I have a great deal of respect for the noble Lord, Lord Monson, in other ways, more so than I respect many other noble Lords.

I believe that it is rubbish to argue about a 14p stamp as though it will make the Government's view about shareholder democracy real. Democracy lies inhaling many people being able to take part in various activities, such as being shareholders and being able to post a proxy form if they wish. Whether or not that is paid for by the company is a matter for the company. One cannot put that into legislation; it is an abuse of legislation. It is absolute rubbbish. I am sorry, but do not let us continue to argue. One of the reasons why I am speaking is to try to stop other noble Lords from speaking, because this is so silly!

Lord Williams of Elvel

The noble Lord started us all! Who pays for a postal vote in a general election?

Lord Lloyd of Kilgerran

The noble Lord, Lord Mottistone, is wrong; we are not arguing about a 14p stamp. We are arguing about the fundamental principle of encouraging people to respond to papers which they have received by saying, "Here is a stamp. It must not be wasted". Therefore they will take an interest. I am afraid that I must differ strongly from the noble Lord, Lord Mottistone.

The Earl of Kinnoull

Does the Committee agree that the real principle is about democracy or overdemocracy? I believe that the amendment seeks overdemocracy. It is the right of every shareholder to attend a meeting, raise issues and table a resolution on which he can vote. Shareholders have a perfect right to do so, and we are not interfering with that principle. What my noble friend is seeking is that the rights of companies and those in charge of them should be a litte more flexible.

The noble Lord, Lord Williams, particularly mentioned the Abbey National. The cost of sending out circulars to all its members is absolutely vast. I am not sure that any real democracy is achieved by that. What happens with overdemocracy is chaos and nothing is achieved at all. In a democracy, shareholders who feel strongly about something can attend the annual general meeting; they can, and indeed do, raise resolutions. We can all recall annual general meetings going on for seven or eight hours while democracy was having its say. Therefore, at this time of night, I do not believe that that argument is very forceful.

Lord Williams of Elvel

I am grateful to the noble Earl. I am not sure that I recognise the expression "overdemocracy". That is a new one on me. However, I shall read what the noble Earl said.

The point about Abbey National is that that seems to me to be a proper expenditure of shareholders' funds. The shareholders are the owners of the company. Therefore, the 14p stamp is not paid for by the Government or anybody other than the shareholders themselves. That is the point. Why should the shareholders not spend that money on informing themselves?

Lord Lloyd of Kilgerran

Perhaps I may also cross swords with the noble Earl, Lord Kinnoull, in what he said about overdemocracy. I suppose that there exists something called "underdemocracy" in his argument. He says that any shareholder can go along to a meeting, and of course he can. We know that. However, it may be a long way and very expensive for the shareholder to go there. He may be committed to other things. But if the shareholder has a proxy vote with a stamped addressed reply he will feel that he is participating in the functioning of the company, and surely that is of national interest.

Lord Carter

Is the Minister aware that there is an area of corporate activity which is a true democracy, and I refer to the co-operative movement. I am involved in a number of agricultural co-operatives where there is a genuine shareholder democracy, namely, one man one vote.

Baroness Lockwood

What about women?

Lord Carter

I do beg my noble friend's pardon. I should have said that it is one person one vote. It is standard practice always to include a reply-paid form for the member to return, and as a result of that there is a very high response.

Lord Monson

I am extremely grateful to the many Members of the Committee who have spoken in favour of this amendment. The noble Lord, Lord Williams, in particular has got to the heart of the matter and to the true definition of "shareholder democracy", which the Government and their supporters have not. With all respect to the Government, they have not grasped the reality of this.

The Minister asked whether it is too much to ask shareholders to go out and buy a stamp. Yes, it is too much: unless they believe that there is a genuine chance of their vote having some practical effect. However, if a shareholder owns 500 shares in a company capitalised at £100 million, he knows perfectly well that his vote is extremely unlikely to have any such effect. He may be able to register a protest, but there is no point spending hours waiting in a post office queue in order to register a protest which has no practical effect.

The noble Lord, Lord Mottistone, asked whether or not we are talking about a 14p stamp. We are not talking about the stamp butte time and trouble of queueing. Not everyone is fortunate enough to work in the Palace of Westminster where there are two post offices within 50 paces or so which are open until late in the evening.

The Government also talk about this being a matter of the internal organisation of companies. The Government do not have a laissez-faire attitude towards company law; otherwise, as the noble Lord, Lord Williams, said, there would not be this Companies Bill at all. They regulate companies' attitude and behaviour towards shareholders in a number of ways. This amendment merely adds very slightly to that burden, if burden it can truly be called. After all, we are talking about democracy. It is rather as if the Government are saying that in a General Election in some constituencies the polling booths should be impelled to close at 5 p.m. and others at 10 p.m.; that there should be one polling station for one area of 400 square miles but 20 polling stations in another and so on. If you truly believe in a democracy you regulate matters so that the democracy functions smoothly.

The real question is: why cannot the tiny minority of people who do not behave well in this matter—and I believe they are down to about 1 per cent.—bring themselves into line with the rest'? Ninety-nine per cent. of companies find reply-paid proxies no trouble to send out. Why cannot the remaining 1 per cent. be brought into line?

I am extremely tempted to divide the Committee but I have drawn the short straw by moving the amendment which comes up immediately after dinner, and there are not many people in the Chamber to hear the argument. Also, as my noble friend reminded me, there is one slight technical imperfection in the amendment. It might therefore be better to reintroduce a finely honed and polished amendment at the next stage; perhaps with more names to it. I may then seek a decision when there are more people in the Chamber. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Lockwood moved Amendment No. C70:

Before Clause 99 insert the following new clause:

("Private company proxies

In section 372(1) of the Companies Act 1985 (proxies) leave out "in the case of a private company".").

The noble Baroness said: This amendment was considered at an earlier Committee stage. Since that time the Department of Trade and Industry has undertaken a process of consultation and no doubt the Minister will be advising us of the extent of the consultation as well as the results of his reply.

As Members of the Committee will no doubt appreciate, the purpose of this amendment is to extend to shareholders of public companies the same rights as exist in private companies; that is, when appointing a proxy, the proxy will have the right both to vote and speak at a general meeting. That would also put the individual shareholder on the same footing as the corporate shareholder because when a corporate shareholder appoints a representative to attend at a general meeting, that representative has the right both to speak and vote.

I was interested to hear the Minister reaffirm on the previous amendment that the Government are committed to shareholder democracy. At the earlier stage when speaking to this amendment I said that I was conscious of the changes which are taking place in the sense that more and more small shareholders are coming on the scene, and it is important to ensure that their views are put to the general meetings of the company.

I also pointed out at the time that very often within a family, if there are family shares the name of the husband is the name on them. Even if he wanted to appoint his wife to attend the general meeting if he was unable to do so, she as a proxy would not be able to speak although she could vote. That would be so even if the shares were family shares.

In some cases that could apply to joint shareholders. The department's consultative document which says that both joint shareholders could attend and speak at company meetings states: unless there are specific provisions to the contrary in the articles of association of the particular company concerned". In other words, the junior partner in the shares (that is, the woman, as "Mrs." invariably follows "Mr." when names are being entered) could be prevented from speaking at such meetings.

Building societies have already been referred to. That is certainly the case with many building societies where the principal shareholder, where there are joint shareholders, has the right to attend meetings and to speak. A second shareholder does not have such a right. Conversely, we are thinking in terms of women shareholders. Many may also want to appoint another woman as their proxy to put a point of view at a general meeting. That is not possible in all cases in the present situation. This is not just a women's isue; it is a general issue. Nevertheless, it affects women more than it affects men. As I said in the earlier Committee stage, many women's organisations are increasingly concerned about this problem. I hope that some of them have indicated their views to the Minister.

In his response to the previous discussion the Minister made much of the problems that could be experienced by chairmen at meetings, perhaps caused by organised pressure groups. I believe the Fawcett Society, in its response to the consultative document, pointed out that the control of meetings is very much a matter which a competent chairman should have no difficulty in handling. I also suggest that in any case the problem could be minimised by limiting the number of shareholders for whom a proxy could speak.

I understand that the Institute of Chartered Secretaries and Administrators sees no insuperable problems in this amendment. Indeed, the institute supports it. According to some of its members, plcs which follow a policy of giving proxies the right to speak have encountered no difficulties. On those grounds, I hope that the Minister will on this occasion see fit to accept the amendment. I beg to move.

9 p.m.

Lord Mottistone

The noble Baroness has made some good points about family and joint shares but I do not think this amendment deals with that as such. Presumably private companies are limited in what they can do. Whether or not that is so, this amendment goes too far.

I am interested to note the clause heading in the amendment. It is, I believe, misconceived because it refers to "Private company proxies" but we are in fact speaking about company proxies generally. The amendment is adding public companies to private companies. It is a small point, but— —

Lord Williams of Elvel

Perhaps the noble Lord will allow me to intervene. The present Companies Act allows proxies to speak at meetings of private companies but not public companies.

Lord Mottistone

That is the point I make. The word "private" should therefore be removed from the clause heading. It is misleading. However, I do not want to waste time as we have already wasted far too much time.

The point at issue, as we have been reminded and as has been made clear to us, is that public companies are a more natural target than are private companies, primarily because they are more in the public eye. As a result, they are more liable to be abused by interest groups who may "proxy shop". I have never heard the term before. These groups send letters to persons listed on the register as shareholders, inviting them to assign their proxy to the person in pursuit of a certain objective which might be political or for a special interest.

That procedure can upset the whole purpose of the meeting to the detriment of the shareholders who are attending for the purpose of ascertaining how the company is progressing. Companies are vulnerable to such treatment. We all know that it happens. I am talking about old history, but it could happen where companies are operating in South Africa. An abuse could occur where people holding proxies could intervene, if allowed to, in the board meetings of such companies and promote the view that it is bad to trade in South Africa. That maybe a genuine view but it is nothing to do with the orderly meeting of a public company. That is not the purpose of the meeting. Therefore, it is important not to have this misuse of proxies, particularly for public companies. Private companies are not so vulnerable, for obvious reasons.

I can see the argument put by the noble Baroness about families and I have sympathy for it, but perhaps we can find another formula. It is much better, at the moment at any rate, that public companies are protected from such abuse, which is an abuse of democracy. It is all very well to speak about the importance of democracy for shareholdings, and so on, provided it is not abused. The amendment will provide an opening if it is accepted without qualification. Therefore, I very much hope that the noble Baroness will withdraw the amendment and consider an improvement which she, or perhaps someone on her behalf, can try in another place.

Baroness Lockwood

By proxy.

Lord Mottistone

That is right, but in the meantime I hope that the Committee will resist the amendment.

Baroness Seear

I am sure that I am one of the people for whom the noble Lord, Lord Mottistone, has less respect. He will certainly have less respect after I have finished, as I am going greatly to disagree with what he said. The noble Lord's idea of democracy seems to be that it is genuine democracy provided it agrees with the powers that be. I can well undertstand that some of these proxies make a considerable nuisance of themselves, but that is the price that one pays in democracies.

If a person is a shareholder or speaking with the consent of one as his proxy and the shareholder is worried about the way the company is being run, I cannot see that there is anything wrong or that there is an abuse of democracy in raising the point. It is a funny kind of democracy that does not allow someone to say he or she does not like what is going on. That is what democracy is all about. It is perfectly absurd to put this forward as a reason why one should not pursue the main purpose of this amendment, which is to deal with a very out-of-date matter; namely, where there is "Mr. and Mrs." the "Mrs." is not allowed to act as a proxy though they are joint shareholders.

It may well be, in modern circumstances, that she put up more of the money for the shareholding than he did. If that is the case it is perfectly absurd that she cannot vote because of the convention in this country that you do not say "Mrs. and Mr." but "Mr. and Mrs." I hope that the Committee will overlook this extraordinary personal view of democracy held by the noble Lord, Lord Mottistone, and support the amendment.

Lord Strathclyde

I undertook at an earlier stage of the Committee to consider and consult further on the amendment then moved by the noble Baroness and the noble Lord, Lord Peston, that proxies should be permitted to speak at meetings of public companies as well as those of private ones. I believe that at the time I indicated a certain amount of sympathy with what the noble Baroness was saying. Perhaps I have become less sympathetic since then. I shall try to explain why by answering at some length.

In the time available since then we have taken the opportunity to sound opinions from industry and other major organisations interested in company law and considered the matter in the light of the results and the views already expressed by Members of the Committee. Prior to 1947 there were no specific provisions in legislation concerning the rights of proxies to speak. One of the recommendations of the Cohen Committee on company law amendments that reported in June 1945 was that for all companies limited by shares a proxy should have the right to speak as well as vote on behalf of his principal. Otherwise the right to appoint a proxy would lose a good deal of its value. However, during the Committee stage of the Bill that became the 1947 Act the right of the proxy to speak was limited to private companies in response to representations that the character of public companies' meetings might be entirely changed and business delayed by speeches from professional agitators or counsel briefed on their behalf.

Private companies were treated differently because it was felt that there was less risk of such an eventuality and partly because it was thought more likely in the case of a private company that an individual shareholder might need to make his or her voice heard, but would find it difficult to attend the meeting in person. At the time of the Cohen Committee the position of war widows who had inherited shares in private companies was also an influential factor. In Committee I also said that I was interested in the noble Baroness's expression of concern on behalf of women's groups. I was certainly impressed by the case that the noble Baroness made.

However, on doing some research I find that the situation is not as unfavourable as the noble Baroness implied. I understand that where there are joint shareholders—for example, husband and wife—unless there are specific provisions to the contrary in the articles of association of the company concerned, each of the joint shareholders (the noble Baroness, Lady Seear, also mentioned this) is entitled in his or her own right to attend and speak at meetings of public and private companies. In those circumstances there will be no need for one of the joint shareholders to appoint the other as his or her proxy to enable that joint holder to speak.

We have had a chance to consider the position of women further with the Fawcett Society, which the noble Baroness mentioned, besides other women's interests groups. There is some support for the idea that the proposed change may encourage women to play their part in the running of companies because it would allow women whose husbands are sole shareholders in public companies to get themselves appointed as proxies to attend and speak at meetings. That may be so, but at the moment it remains a matter for conjecture. I would far rather rely on the more direct encouragement that the Government are giving through their policy initiatives on privatisation, taxation and employee share ownership to women and all other individuals to own shares in their own right.

I have listened carefully to the further debate in Committee today. I acknowledge the strong feelings that exist on this issue on both sides of the Chamber. However, during our consultation following discussion at the earlier stage we learnt that major companies continue to regard the risk of increased delay and disruption to the business of meetings as a very real one. We have concluded therefore that the case for a change in the law has not been conclusively made and that the change proposed would not necessarily be in the interests of shareholders as a whole.

The noble Baroness made a specific point about corporations being allowed to appoint proxies who could speak on their behalf. However, corporations are artificial and can appear at meetings only through their representatives. Therefore I believe that the comparison is not fully justified.

I have sought to answer as fully as possible the call made by the noble Lord, Lord Peston, in Committee for an explanation by the Government of the present position. The fact that he needed to inquire and that I could not immediately enlighten him strongly demonstrates that this subject has not been the focus of any pressure for change in recent years either from within or outside the Government. I also note that successive governments since 1947 have been content with the law as it stands.

Nothing here affects the key right of a proxy to tender a vote. There will always be a range of views on the matter. I regret that the Government find the case for change insufficiently persuasive. Therefore, I hope that the noble Baroness will feel able to withdraw her amendment.

9.15 p.m.

Lord Williams of Elvel

Leaving aside the party political broadcast about privatisation helping women, which I find rather extraordinary, is the noble Lord not aware that the Law Society has communicated with the Department of Trade and Industry saying that it is neutral with regard to this subject? The society is perfectly happy with the present law but would be perfectly happy if the amendment were accepted.

Secondly, speaking as a professional agitator, perhaps I may tell the noble Lord that if I want to agitate the simplest thing for me to does to buy one share in a company and go to a meeting and agitate. That is what I should do. All this stuff about proxies and proxy shopping has nothing to do with the real world.

Baroness Lockwood

I am very disappointed with the Minister's response. I think that he and the noble Lord, Lord Mottistone, made very heavy weather of the question of abuse of shareholders' rights. As I indicated, I believe that it is possible to cope with any such situation. A "proxy shop", as the noble Lord, Lord Mottistone, put it, would obviously go to all shareholders. If one made it clear that one person could speak for perhaps only two or three proxies the situation could be contained and the problems which the noble Lord mentioned could be mitigated. Therefore, I feel that that issue has been exaggerated in the arguments against the amendment.

Secondly, I was disappointed but not at all surprised when the Minister said that he had consulted industry and major organisations interested in company law. When I saw the consultation paper I expected that that would be the extent of the consultation. I do not think that the Minister made a point of consulting women's organisations, but perhaps I do him an injustice.

Lord Strathclyde

Perhaps I may intervene very briefly. We did not have a great deal of time for full consultation and therefore the department did not contact the full consultation list. However, we contacted 12 of the more important of the representative bodies and organisations as well as women's groups with an interest in promoting the involvement of women in business. I am not sure whether or not that answers the noble Baroness's question fully, but we did our best in the time allowed.

Lord Lloyd of Kilgerran

Before the noble Lord sits down, perhaps I may ask him whether he consulted the Fawcett Society. On 21st February the noble Baroness, Lady Lockwood, said: In particular the Fawcett Society is campaigning for qualifying women to take up their rights at meetings of companies and alerting them to the problems they face if they are joint shareholders within the family".—[Official Report, 21/2/89; col. 624.] Did the Minister consult the Fawcett Society?

Lord Strathclyde


Baroness Lockwood

The response to the consultation represents the status quo and comes largely from companies which may be perfectly satisfied with the present arrangements and which, perhaps like the Law Society, would be neutral and have no objections to changes. I feel that the points that I have made have not been taken fully into account.

I was also disappointed when the Minister said that the research that he had undertaken had made him more unfavourably disposed to my amendment than he had been previously. I saw nothing in his argument which warranted any further disaffection towards my amendment. He did not say anything of substance, he merely reiterated the point that I had made about joint shareholders having the right to attend and speak and vote at meetings provided there were no specific provisions in the articles of incorporation of the particular company. That is the whole point. If a company decides that it will not accept the right of joint shareholders to full participation, that is what will happen.

Therefore, I do not think that the Minister has thrown any new light on the subject. I am most disappointed at his response. However, I shall read carefully what has been said before deciding what action to take at a later stage of the Bill's proceedings. In the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 99 [Statement by person ceasing to hold office as auditor]:

Lord Williams of Elvel moved Amendment No. C71: Page 98, line 23, after (") insert ("customers").

The noble Lord said: We embark here upon a statement which could be made by a person ceasing to hold office as an auditor. In the Bill as drafted, under the new Section 390A, the auditor may, or shall, make a statement, if he is removed from office, about anything which he considers should be brought to the attention of members of the company. The provision goes on to state that the auditor should also bring to the attention of the creditors of the company anything which he wishes. Therefore, in the Bill as drafted, the Government have already moved away from the idea that auditors are only responsible to the members of the company—and rightly so. I say that because auditors, if they are removed, have a responsibility not just to members of the company, but also on a wider canvas. Moreover, the Government have included creditors in that wider canvas.

The reasons for the removal of the auditor could easily be sinister; but of course they could equally be benign. It seems to us that if an auditor makes a statement about matters which should be brought to the attention of the members and the creditors there may be some difficulty. For example, there may be some problem with the company's products, with the company's production mechanisms or with the company's ability to sell its products without infringing the law, perhaps the Consumer Protection Act 1987, which the auditor points out to the company, whereupon he is removed from office. Thereafer, however, he wishes to bring such matters to the attention of the customers. I say "customers" because that is the widest expression which comes to my mind. It seems to me that the people who buy the products of a company, as well as the people who lend money to the company and those who own the company, have a right to be informed if the auditor who is being removed thinks that there is something which ought to be brought to their attention. I beg to move.

Lord Strathclyde

I am not sure that it would be entirely apt to add customers to the persons whose interests an auditor must bear in mind when considering whether the circumstances of his ceasing to hold office as auditor should be brought to their attention. Auditors are not normally regarded as having a duty to customers of a company. Of course, many customers of a company will be creditors of it as a result of their dealings with it and the existing provisions will ensure that the auditor will consider them when deciding whether to make a statement

If a person is neither a creditor nor a member of a company but merely a customer of it, I find it difficult to see what matters of particular interest to him an auditor could reasonably be expected to be aware of as a result of carrying out his functions as auditor. Moreover, by adding the word "customers" to this provision, we would be implying that an auditor ought to know of things which were relevant to persons other than members or creditors.

Contrary to what the noble Lord, Lord Williams of Elvel, said, the Government have not in fact moved away from this idea. Indeed, creditors are already included in the existing Section 390. Section 390A in effect merely applies the existing provision in Section 390 relating to resigning auditors.

Lord Williams of Elvel

The Minister will no doubt have read the Consumer Protection Act with great care.

Lord Strathclyde

No doubt.

Lord Williams of Elvel

That Act deals with pricing, misleading price indications and product liability. It can have a massive effect upon a company's finances. That is something in which auditors will have an interest. If they do not have an interest, they are not being very good auditors. With the arrival of the Consumer Protection Act, which follows the European directive and so I agree that we must have it, there are interested parties other than members and creditors. I still maintain that it would be appropriate, if an auditor feels that there is something that someone who is buying a company's product needs to know which the company is not doing and which results in the auditor's removal, that the auditor should be entitled to speak out.

Lord Strathclyde

I am not sure that I have much to add to what I have already said. The Government do not agree with the noble Lord's point of view. We have stated from where we started and what we are doing with the clause.

Lord Williams of Elvel

I am sorry that the Government do not agree with my point of view. I do not believe that the Government have even started to understand the argument. I hope that the Government will think again and look at this matter, because the Consumer Protection Act changes the role of auditors. Auditors are policemen in the Banking Act and the Building Societies Act and, to a certain extent, in the Companies Act. However much one may not like that situation, nevertheless they are. A company's finances can be affected dramatically by the Consumer Protection Act. Auditors should be able to report upon that matter. Does the Minister have anything else to say?

Lord Strathclyde

Auditors may have interests in many things, but they do not need to be added to the statutory duty. Matters of general interest will often be of interest to creditors. I believe that I have said enough now.

Lord Williams of Elvel

I hear what the Minister says. There is clearly a disagreement. Nevertheless, at this time of night I shall not pursue the matter. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Williams of Elvel moved Amendment No. C72: Page 99, line 11, after ("(4)") insert ("a").

The noble Lord said: I am afraid that I failed to move the amendment at an earlier stage in Committee. It seems to rectify a drafting point in the Bill. I beg to move.

Lord Strathclyde

I am delighted to accept the amendment.

On Question, amendment agreed to.

Clause 99, as amended, agreed to.

Clause 100 agreed to.

Lord Strathclyde moved Amendment No. C73:

After Clause 100 insert the following new clause:

("Extended period for application to declare dissolution of company void.

—(1) Section 651 of the Companies Act 1985 power of court to declare dissolution of company void) is amended as follows.

(2) In subsection (1) omit the words "at any time within 2 years of the date of the dissolution".

(3) After subsection (3) add—"

(4) Subject to the following provisions, an application under this section may not be made after the end of the period of two years from the date of the dissolution of the company.

(5) An application for the purpose of bringing proceedings against the company—

  1. (a) for damages in respect of personal injuries (including any sum claimed by virtue of section 1(2)(c) of the Law Reform (Miscellaneous Provisions) Act 1934 (funeral expenses)), or
  2. (b) for damages under the Fatal Accidents Act 1976 or the Damages (Scotland) Act 1976,
may be made at any time within the period of 20 years from the date of the dissolution; but no order shall be made on such an application if it appears to the court that the proceedings would fail by virtue of any enactment as to the time within which proceedings must be brought.

(6) Nothing in subsection (5) affects the power of the court on making an order under this section to direct that the period between the dissolution of the company and the making of the order shall not count for the purposes of any such enactment.

(7) In subsection (5)(a) "personal injuries" includes any disease and any impairment of a person's physical or mental condition.".

(4) The above amendments do not apply in relation to a company which was dissolved more than two years before the commencement of this section.").

The noble Lord said: I should like to speak also to Amendments Nos. 151A and 152A. The amendment to Section 651 of the Companies Act 1985 will enable the courts on a relevant application to declare void the dissolution of a company within a period of 20 years after the date of dissolution, rather than two years as is presently the case.

I believe that there has been some confusion. I understood that the amendments were grouped. They do not have to be. I shall move Amendment No. C73 only this evening. We can discuss the other amendments on another day, or we can assume that they have been spoken to. I shall do whatever the noble Lord wants.

Lord Williams of Elvel

I am afraid that I was unaware of the grouping that the Minister announced. I should be grateful if he would speak to Amendment No. C73 tonight, and speak to the other amendments on another day.

Lord Strathclyde

I am always eager to please the noble Lord. I shall do as he suggests.

We have become aware that persons who might have a claim against a company, and consequently its insurers, for damages as a result of personal injuries or under the Fatal Accidents Act 1976 or the Damages (Scotland) Act 1976 have had difficulties in pursuing their claim where following its liquidation the company has been dissolved. For instance the person may have contracted a disease in the course of his employment which may take many years to become apparent. At present an application for the dissolution to be held void must be made within two years, and we are concerned about the restrictive nature of the current provisions.

The amendment seeks to overcome the present problem by extending the existing two-year time period to 20 years for applications to be made by those suffering personal injury. I am certain that your Lordships will approve the steps we are taking. I beg to move.

Lord Williams of Elvel moved, as an amendment to Amendment No. C73, Amendment No. C74: Line 4, leave out subsection (2).

The noble Lord said: I am grateful to the noble Lord for introducing his Amendment No. C73. It seems to us that the provision in the Government's new amendment raises all sorts of difficulties in the period of dissolution. There must be a cut-off point and our view is that the original Act had got it just about right. I cannot see that the noble Lord has very persuasive arguments for amending or omitting the words, At any time within 2 years of the date of dissolution". If the noble Lord could expand on what he said, perhaps we might be persuaded. However, his argument does not seem to be very persuasive at the moment.

Lord Lloyd of Kilgerran

I agree that there seems to be no case yet made out for removing the phrase, At any time within 2 years of the date of dissolution". It may be that I am not up to date with the law on this matter, there may be some recent case which the noble Lord has in mind. Perhaps he would explain a little further why it is necessary to omit these words.

Lord Strathclyde

I am faintly astonished by the comments of the noble Lords who have just spoken. I thought that they would probably welcome the proposal as protecting those who might have been injured or have contracted a disease which has taken a long time to become apparent.

The noble Lord wished me to expand but I am not really sure what more I can say. To me it was perfectly clear what we were trying to do—to extend the period from two to 20 years. That seems to me to be perfectly sensible, almost humanitarian. Rather than my going again through everything I have already said, perhaps the noble Lord will read my remarks.

If I may go on a little further, briefly, Section 651 of the Companies Act 1985 presently empowers the court, upon the application of a liquidator or any other interested person, to make an order within two years of the dissolution of a company declaring the dissolution to be void. The two-year time limit has proved to be very restrictive in cases where persons (often former employees) seek to take proceedings against the company (with a view to pursuing its insurers) in an action for personal injury, where for instance they have contracted a disease (as I have already said) in the course of their employment and wish to have the company restored for that purpose.

I hope that that answers the question of the noble Lord, Lord Lloyd. The amendment will help to cater for the problems that currently exist in this area, which were highlighted in the recent decision of Bradley v Eagle Star Insurance Co. Ltd, where the House of Lords held that, because through lapse of time a dissolved company could not be restored to the register, it could not be sued. Since the establishment of the company's liability was a necessary prerequisite before a claim under the company's insurance policy could be made, it was impossible for the injured party to pursue the company's insurers. I hope that that settles the matter for the time being.

Lord Williams of Elvel

I see now what the noble Lord and the Government are driving at. Far be it for me to oppose any humanitarian instincts of the Government, rare as they are, but it seems to me to pose certain administrative problems if the period is extended from two to 20 years. That is the only point I am making. We are, after all, dealing with a Companies Bill.

Lord Strathclyde

That is true, but the administrative changes or problems will be sorted out in Amendments Nos. 151A and 152A when we get to them.

Lord Lloyd of Kilgerran

I am grateful to the noble Lord for having told me about the case of Bradley v Eagle Star. I suppose that is a recent case although I have no knowledge of it. But for what reason has the period been extended to 20 years? There must be some particular cases concerning certain classes of personal injury involved. Are we talking about miners' injuries? What kind of injuries have arisen to lead to this extension to 20 years?

Lord Strathclyde

The example I used was that of an employee contracting a disease which perhaps had not made itself apparent. I must say that I am not entirely sure why a period of 20 years has been chosen, but that seems to be a reasonable length of time, and I find it totally acceptable.

Lord Lloyd of Kilgerran

However, as the noble Lord, Lord Williams, said, it would give rise to tremendous administrative difficulties.

Lord Strathclyde

Sometimes we have to allow for greater administrative difficulties in order to make something slightly more humanitarian.

Lord Williams of Elvel

It is always welcome when the Government are prepared to face administrative problems for humanitarian reasons. I certainly do not quarrel with that and I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

On Question, Amendment No. C73 agreed to.

Clause 101 [Abolition of doctrine of deemed notice]:

Lord Strathclyde moved Amendment No. C75:

Page 101, line 5, at end insert—

("(4) Nothing in this section affects the operation of section 198 of the Law of Property Act 1925 as it applies by virtue of section 3(7) of the Land Charges Act 1972 (under which the registration of certain land charges under Part XII, or Chapter III of Part XXIII, of this Act is deemed to constitute actual notice for all purposes connected with the land affected).").

The noble Lord said: This amendment is the same in effect to one aspect of the amendment to new Section 397(5) in Clause 81 that was agreed on Report. As in new Section 397(5) it is necessary to ensure that the change in the doctrine of notice in Clause 101 does not affect Section 198 of the Law of Property Act 1925. I beg to move.

Lord Carter

I believe that I dealt with this amendment or the relative amendment in Part IV of the Bill. We understand that it runs on from that amendment, so we welcome it.

On Question, amendment agreed to.

The Deputy Chairman of Committees (Lord Grantchester)

The Question is that Clause 101, as amended, stand part of the Bill. I believe that the noble Lord, Lord Mottistone, is to speak to that.

Lord Mottistone: moved Amendment No. C76:

Leave out Clause 101.

The noble Lord said: I thought I was going to be done out of it!

The Government introduced this clause when we were really in Committee. It outlines that: A person shall not be taken to have notice of any matter merely because of its being disclosed in any document kept by the registrar of companies (and thus available for inspection) or made available by the company for inspection". The clause concerns the abolition of the doctrine of deemed notice. This abolition derives from the recommendations of the Diamond Report on Security Interests which has recently been issued by the Department of Trade and Industry. I am advised that the CBI believes that it is premature to introduce this clause prior to full consultation on the Diamond Report which forms the basis of a radical restructuring of the law of security interests.

It is believed that the doctrine of deemed notice is a fundamental concept in English law and should only be abolished, if at all, when the full consultation process on the Diamond Report has been completed. I hope very much, therefore, that my noble friend the Minister will agree that the Government should withdraw the clause at this stage in order that the consideration of the Diamond Report will not commence with the Government having already decided on the outcome of the consultation. It seems illogical, hurried and unnecessary.

Although at this late stage my noble friend may not be able to tell me that he will agree to this amendment, I hope that he might undertake to tell the Secretary of State that this is a matter of concern and that, on reflection, the Government might feel able to follow the advice that I am seeking to give them and deal with the Diamond Report properly without trying to sneak this into the Bill. I beg to move.

Lord Strathclyde

I thank my noble friend Lord Mottistone for his words. I sincerely hope that he will not press his amendment. I will take a great deal of note of what he has said in support of it. He might be reassured to know—and I sincerely hope he is—that we are continuing to discuss the topic of notice with the Law Society both in relation to new Section 397(5) in Part IV of the Bill and to Clause 101. I shall ensure that his concerns are considered in the context of those discussions. This is a very complex area of law, and we are fully aware of the need to get it right. I hope that my noble friend will seek to withdraw his amendment.

On Question, amendment negatived.

Clause 101, as amended, agreed to.

Clause 102 [Rights of inspection and related matters]:

Lord Hacking moved Amendment No. C77:

Page 101, line 37, at end insert—

(" "Members' rights to damages.

723B.— (1) No member of a company shall be debarred from obtaining damages or other compensation from the company in respect of a relevant claim by reason only of his being or having been a member of the company.

(2) In this section "relevant claim" means a claim for damages arising either in contract or in tort (including a claim for an indemnity under any agreement for an indemnity in respect of loss resulting from a breach of warranty or misrepresentation) in connection with the subscription or purchase by the member, or by any other person from whom the member acquired the shares in question, of any shares in the company," ").

The noble Lord said: I beg to move the amendment standing in my name on the Marshalled List. It is a little time since I sought from your Lordships the abolition of the rule in Houldsworth v. City of Glasgow Bank. The last time I sought the abolition of this rule was rather late on a July night in 1986 during the passage of the Financial Services Bill.

In case the noble Lord, Lord Williams, or other noble Lords have forgotten what the rule is, let me very briefly remind them. It is usually expressed in terms that a subscriber for shares in a company cannot claim for damages for misrepresentation or breach of warranty against the company unless he rescinds his contract of allotment. This rule was applied against the unfortunate Mr. Houldsworth after the bankruptcy of the City of Glasgow Bank and it prevented him from claiming some very substantial damages—somewhere in the region of £200,000, which must have been a lot of money in those days. As a result of the application of that rule, because the unfortunate Mr. Houldsworth had not rescinded his contract of allotment he was prevented from getting damages before the court.

When I last sought from your Lordships the abolition of the rule of Houldsworth v. City of Glasgow Bank, supported, as I like to recall, by the noble Lords, Lord Williams and Lord Morton of Shuna, who then carried the cause from the Opposition Benches during the passage of the Financial Services Bill, I was successful in persuading the Government to abolish the rule in Houldsworth v. City of Glasgow Bank in so far it applied to certain aspects of the Financial Services Bill. In particular, the amendment was accepted by the Government under which the rule did not apply to mis-statements in listing particulars or prospectuses under Parts IV and V of the then Financial Services Bill. There are many documents which are not covered by that. Shareholders are offered shares in all sorts of documents which are neither listing particulars nor prospectuses, and it is for that reason that I have come back to your Lordships to ask for a more extensive abolition of the rule in Houldsworth v. City of Glasgow Bank.

The full argument in support of that case has already been presented to the Minister in a long memorandum from the Law Society. I shall not read that memorandum to the Committee, nor shall I attempt to summarise it. I have tried to explain the main issue and I think that I can leave the matter there.

At this stage of the evening, I have a very modest request for the Minister. I do not ask him to accept my amendment or to give any undertaking to produce his own amendment during the passage of the Bill in this Chamber or in another place. I merely ask him to confirm that the Government are willing to enter into full consultation on that problem with the good hope that it can be resolved, and that an amendment can be moved at a later stage during the passage of the Bill, either in this Chamber or in another place.

If the Minister is prepared—as I understand he is—to give that confirmation, I need not trouble the Committee any further, unless any noble Lord wishes to address the Committee further on the unfortunate circumstances of Mr. Houldsworth in 1980, when he was unable to gain the substantial damages that he sought from the courts.

9.45 p.m.

Lord Mottistone

Interestingly, the CBI has advised me about another case, not the case quoted by the noble Lord, Lord Hacking. The CBI believes that it raises a number of questions that go to the heart of the ruling in Foss v. Harbottle and would like to review that question after hearing the reasons advanced, with the intention of coming back at a later stage. This amendment is obviously a lawyer's paradise. They will have lots of fun in another place, even if we do not have all the fun here.

Lord Strathclyde

We are all indebted to the noble Lord, Lord Hacking, for dealing both clearly and much more briefly than he might have done with the complexities of a case that not only continues to provoke articles in the learned journals, but to exercise the minds of lawyers advising companies. I shall try to be similarly clear and brief.

First, I say to my noble friend Lord Mottistone that we shall no doubt look into the case that he mentioned. Secondly, to deal with the point raised by the noble Lord, Lord Hacking, all I shall say for the moment is that the case for the amendment is sufficient to justify further consideration and discussion which, as the noble Lord indicated, has already been embarked upon.

Lord Hacking

In the circumstances, I am most happy to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 102 agreed to.

Clause 103 ["Subsidiary", "holding company" and "wholly-owned subsidiary']:

Lord Williams of Elvel moved Amendment No. C78: Page 103, line 2, after ("remove") insert ("either").

The noble Lord said: In moving this amendment, I shall also speak to Amendment No. C79.

This is a relatively small point in the definition of a subsidiary. I believe—and this is my experience—that certain boards have the rule that, if there is a split 50-50 vote, the chairman will have a casting vote. It seems to me that paragraph (b) as drafted at the top of page 103 of the Bill, would make a little more sense if that position were recognised. Clearly, a company which has the ability to appoint half the board of directors of whom one is chairman, and therefore has the casting vote in the event of a 50-50 split, is a company that controls the subsidiary. I beg to move.

Lord Strathclyde

The noble Lord has suggested that the amendments are needed because the existing definition of a subsidiary does not provide for the case where one company has the right to appoint half the board of directors of another company, including the chairman who has a casting vote in the event of a tied vote. We agree that one company should be a subsidiary of another in such circumstances since this gives effective control. However, we believe that the Bill as drafted already achieves this end and I shall go on to describe how.

New Section 736 (1)(b) provides that one company is the subsidiary of another where that other is a member of it and has the right to appoint or remove a majority of the board of directors. If the Bill gave no further interpretation of this expression I would agree that an amendment on the lines proposed by the noble Lord would be helpful. However, new Section 736(3) explains that, in this context, the right to appoint or remove a majority of a board of directors is not simply a question of counting heads but means: the right to appoint or remove directors holding a majority of the voting rights at meetings of the board". Take the case therefore of a board of directors of four members, one of whom is the chairman with a casting vote. A company which has the right to appoint or remove the chairman and one other director will meet the condition in subsection (3) and will therefore be the holding company and the other its subsidiary. In the light of that explanation, I ask the noble Lord to withdraw his amendment.

Lord Williams of Elvel

I am grateful to the noble Lord. If the DTI lawyers think that the Bill satisfies my point, I am not unreasonably happy that that should be the case. It will be interesting to see whether they are right. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. C79 not moved.]

Lord Strathclyde moved Amendments Nos. C80 and C81:

Page 104, line 15, after ("company") insert ("—(i)").

Page 104, line 16, at end insert (", or

(ii) if any shares in that other company are held by a person acting on behalf of the company or any of its subsidiaries.").

The noble Lord said: These amendments parallel exactly a minor change made to the definition of a subsidiary undertaking in Part I of the Bill. They close a possible loophole in new Section 73(6). I beg to move Amendments Nos. C80 and C81 en bloc.

On Question, amendments agreed to.

Lord Strathclyde moved Amendments Nos. C82 to C84:

Page 104, line 24, leave out from second ("any") to ("to") in line 25 and insert ("enactment (including any enactment contained in subordinate legislation within the meaning of the Interpretation Act 1978)").

Page 104, line 26, leave out from ("shall") to ("be") in line 27 and insert (", subject to any express amendment or saving made by or under this Act,").

Page 105, line 5, leave out subsection (5).

The noble Lord said: With the agreement of the Committee I shall move these amendments en bloc. These are highly technical amendments but, as I shall explain, one of them is of some importance.

The first two amendments clarify the wording of Clause 103(2). This provides that references to "subsidiary" or "holding company" in other enactments are to be taken as references to those terms as defined in the Bill rather than as originally enacted in the Act—except where there is an express amendment or saving provision in the Bill or in regulations made under subsection (4).

Amendment No. C84 is important for the interpretation of private agreements which use the expressions "subsidiary" and "holding company" by reference to their meaning in companies' legislation. These terms are used widely in articles of association and in commercial agreements.

The changes to the definition of a subsidiary made by the Bill mean that there will be a significant number of cases where companies will be subsidiaries of another company under the new definition but not under the old definition, and vice versa. One issue which this raises is the interpretation of private agreements which pick up on these Companies Act definitions. Our aim is to leave existing private instruments to be interpreted according to their tenor on an individual basis. Specifically, we do not wish to make a presumption in legislation that the new definition should automatically be substituted for the old in interpreting such agreements. I beg to move Amendments Nos. C82 to C84.

On Question, amendments agreed to.

Clause 103, as amended, agreed to.

Lord Monson moved Amendment No. C85:

After Clause 103, insert the following new clause:

("Shareholder protection.

. Monies owing to a shareholder of a company shall not, without his prior consent in writing, be retained by the company for its benefit, whether on the ground that the cost of distribution might exceed the value of the sum distributed or otherwise, unless the sum so owing is less than one pound.").

The noble Lord said: This is the last of my shareholder protection amendments. It is also one that we did not have time to discuss in depth previously because of the lateness of the hour, although the noble Lord, Lord Williams of Elvel, indicated briefly his sympathy for it. Once again, alas, the hour is relatively late but that is the way it goes.

It has been quite a long time since the earlier Committee stage. I think that I had therefore better spell out the arguments again. The Committee will be aware that when a company makes a rights issue the new shares that are not taken up are normally sold by the company making the rights issue on a nil-paid basis, and the proceeds after the expenses of sale are then distributed to the shareholders concerned. They are distributed unless the proceeds amount to less than a certain figure, in which case they tend to be retained for the benefit of the company.

Exactly the same thing can and does happen when companies are taken over, or when there is a capital reorganisation of one kind or another. This did not matter so much when the cut-off point below which the moneys owing to the shareholder which were not sent to him was £1 or less. Latterly we find that all sums of less than £2, and often £2.50, are being withheld. Soon no doubt this minimum will rise to £4 or £5.

The excuse for this is alleged to be the benefit of the company. However, I remind the Committee that the company belongs to its shareholders. This means that some shareholders are being robbed for the benefit of others: it does not matter that the theft is only a petty one. Furthermore, it sets an extremely dangerous precedent. If it is too costly to the company to send out small capital sums which are due to the shareholders then it must equally be too costly to the company to send out small amounts of income due to the shareholders.

Many net dividend payments amount to less than £2.50. For example, if one held £1,000 worth of Racal Telecom shares-305 shares at today's price of 328 pence—one's net dividend for the entire year including both interim and final dividends would be £3.90. The same applies to other high-flying companies mainly involved in the business of technology. Would the Government, I wonder, suggest that these companies should be entitled to withhold these dividend payments because it is too costly to send them out to the shareholders.

What about annual reports? These weighty and usually glossy tomes must generally cost well over £2.50 to print, bind, package and post. Shall we next see boards of directors deciding to stop sending these to any shareholder who cannot prove that he or she has a university degree or at least an A-level in English and maths on the grounds that it would otherwise be wasted on the uncomprehending recipient and that the money would be better retained for the benefit of the company?

We should remember that most public companies are actively seeking a greater number of small, individual shareholders because they know that the Tatters' well-known loyalty and inertia will help to protect the company and its directors from the acquisitive instincts of predatory institutions. That is fine, but the companies concerned must take the rough with the smooth and not try to deprive these new shareholders—convenient and yet at the same time inconvenient, from the point of view of the company—of what is theirs for the sake of saving a few pence. I beg to move.

10 p.m.

Lord Williams of Elvel

As I said at an earlier stage in Committee, before recommitment, I believe that this is an interesting and quite important point. It may be a minor point in terms of the whole corpus of company legislation, but we should do well to pay attention to it. I am not convinced that the drafting of the amendment is wholly to my taste. Nevertheless we certainly support the thrust of the amendment.

Lord Strathclyde

I have listened with interest to the words spoken. In fact it was not until this amendment was tabled for the Committee stage debate that the Government were even aware that there was any concern about this issue. Since then we have looked at the different categories of payments which are made to shareholders by companies, and if one leaves aside the question of dividends, most occasions which lead to funds accruing to the account of shareholders seem likely to be the subject of resolutions at general meeting, when shareholders would have a chance to consider this aspect of any proposals and vote on them accordingly. There're also general safeguards in Section 459 of the Companies Act which enable a member of a company to apply to the court for an order on the grounds that the company's action is unfairly prejudicial to some of the members. The Government are accordingly doubtful as to whether it is appropriate to initiate legislation in this area, particularly as it has not been established that there is any real problem concerning abuse of sums retained by companies.

Turning to the question of the treatment of dividend payments, the proposal is not so straightforward as it may initially appear to be. Before any change could be justified it would be necessary to establish the impact of such a proposal on the way tax on dividends is treated in the hands of the company and the shareholder, and on the ranking of members vis-à-vis creditors in a winding-up. Again, in the absence of any evidence that there is a problem with respect to dividends, the Government do not consider legislation to be the appropriate step to take.

Lord Monson

Once again I am grateful to the noble Lord, Lord Williams, for indicating his assent for the principle of the amendment, even if not for its precise detail. I shall study what the Mnister has said, but I do not think he can seriously expect that a shareholder who is aggrieved at not receiving £2.50 will go to the trouble of applying to a court under Section 459, whether on his own behalf or that of others. It is not as if the company and the shareholder are on a level playing field—a term much used nowadays. The shareholder is in a weak position compared with the director of a company.

I have cited dividend payments as an example of what might happen if this precedent became established. Far be it from me to say that dividend payments should be withheld, on any account. I do not think they should: I believe that the noble Lord has misunderstood me. I am suggesting that capital distributions be brought into line with dividend payments, not the other way round. Nevertheless I shall study what the noble Lord has said. I agree with the noble Lord, Lord Williams, that the drafting is probably imperfect, but I am glad that everybody understands what I am trying to get at: that was the point of my tabling this amendment. It needs more work, but I warn the Government that I may return again at the next stage with another amendment along these lines. With that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 104 agreed to.

House resumed.

Bill reported (in respect of Part V) with amendments.

10.5 p.m.

Report received.

Schedule 14 [Minor amendments of the Companies Act 1985]

Lord Strathclyde moved Amendment No. 147:

Page 206, line 7, at end insert—

("Removal of restriction on transfer of shares

.—(1) In section 456(3) of the Companies Act 1985 (removal of restrictions by order of court), in paragraph (b) (order where shares to be sold) —

  1. (a) for "sold" substitute "transferred for valuable consideration", and
  2. (b) for "sale" substitute "transfer".

(2) In section 454(2) and (3) (which refer to section 456(3)0)) for "sell" and "sale" substitute "transfer".").

The noble Lord said: My Lords, the amendment relates to Part XV of the Companies Act 1985 which concerns orders made to restrict the transfer of specified shares and the exercise of other rights relating to those shares. I beg to move.

On Question, amendment agreed to.

Lord Strathclyde moved Amendment No. 147A:

Page 206, line 21, at end insert:

("Companies' registered numbers

For section 705 of the Companies Act 1985 (companies' registered numbers) substitute:

"Companies' registered numbers.

705.— (l) The registrar shall allocate to every company a number, which shall be known as the company's registered number.

(2) Companies' registered numbers shall be in such form, consisting of one or more sequences of figures or letters, as the registrar may from time to time determine.

(3) The registrar may upon adopting a new form of registered number make such changes of existing registered numbers as appear to him necessary.

(4) A change of a company's registered number has effect from the date on which the company is notified by the registrar of the change; but for a period of three years beginning with the date on which that notification is sent by the registrar the requirement of section 351(1)(a) as to the use of the company's registered number on business letters and order forms is satisfied by the use of either the old number or the new.

(5) In this section "company" includes—

  1. (a) any oversea company which has complied with section 691 (delivery of statutes to registrar, &c.), other than a company which appears to the registrar not to have a place of business in Great Britain; and
  2. (b) any body to which any provision of this Act applies by virtue of section 718 (unregistered companies).".").

The noble Lord said: My Lords, I should like to speak also to Amendments Nos. 147B and 147C. The amendment enables the registrar of companies to adopt a new form of companies' registered numbers and to change a company's registered number on the introduction of a new form. The purpose, to which subsections (2) and (3) of new Section 705 gives effect, is simply to enable the registrar to add to existing numbers by computer, additional figures or letters, commonly referred to as "check digits", in order to improve the speed and accuracy with which information can be retrieved and correlated. This will help enable Companies House to spot when someone searching for information is given the number of a company incorrectly and will result in a better service being given to the public.

The amendment takes into account that changing existing numbers in this way could cause expense and inconvenience to companies which are required to show their registered number on all business letters and order forms. Subsection (4) therefore allows for a three-year period during which a company can use either the old or the new number on its stationery. There is nothing magical about three years. The period needs to be long enough for the vast majority of companies to use up existing stationery stocks but should be no longer than necessary. In our judgment three years strikes the right balance.

One of the amendments to this amendment, tabled by the noble Lords, Lord Williams of Elvel and Lord Peston, would increase that period to five years. I should, however, listen to the noble Lord's arguments before commenting further. I hope that he does not comment at too great a length.

[Amendments Nos. 147B and 147C, as amendments to Amendment No. 147A, not moved.]

On Question, Amendment No. 147A agreed to.

Lord Strathclyde moved Amendment No. 147D:

Page 206, line 21, at end insert—

("Meaning of "office copy" in Scotland

In Part XXVI of the Companies Act 1985 (interpretation), after section 743 insert— 743A. References in this Act to an office copy of a court order shall be construed, as respects Scotland, as references to a certified copy interlocutor.".").

The noble Lord said: My Lords, in a number of places the 1985Companies Act provides for an office copy of a court order to be produced or delivered. In Part IV of the Bill two further such provisions have been added on Report. We are taking this opportunity to provide for the correct Scots equivalent of the term "office copy", which is "certified copy interlocutor". I beg to move.

On Question, amendment agreed to.

Lord Strathclyde

My Lords, I beg to move that further consideration on Report be now adjourned.

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

House adjourned at ten minutes past ten o'clock.