Companies Bill [H.L.]

HL Deb 21 April 1989 vol 506 cc988-1009

11.27 a.m.

Lord Strathclyde

My Lords, I beg to move that the Bill be now further considered on Report.

Moved, That the Bill be further considered on Report. — (Lord Strathclyde.)

On Question, Motion agreed to.

Clause 128 [Listed money market institutions] (continued):

Lord Strathclyde moved Amendment No. 148M(64):

Page 125, line 40, leave out from ("contracts") to ("as") in line 42 and insert ("of any specified description in relation to which settlement arrangements are provided—

1. (a) by a person for the time being included in a list maintained by the Bank of England for the purposes of this section (a "listed institution"), or
2. (b) by the Bank of England itself,").

The noble Lord said: My Lords, Amendment No. 148M(64) does two things. First, it makes it clearer that the clause is concerned with contracts where settlement arrangements are provided by a person on a list kept by the bank. That was not immediately apparent from the earlier wording, which made no reference to settlement arrangements. Secondly, it extends the scope of the clause to contracts in relation to which settlement arrangements are provided by the Bank of England itself. The arrangements for the Central Money Markets Office, currently under development, will be of that kind. The amendment is therefore necessary to ensure that it will be possible to make regulations under the clause in connection with the Central Money Market Office and any other arrangements which the bank might operate in the future, if that is thought appropriate. I beg to move.

Lord Williams of Elvel

My Lords, I wonder whether the Minister will answer the questions that he was unable to answer yesterday evening? Who will be on that list? What are the criteria for getting on the list? Will the Government bring forward amendments spelling out the criteria?

Lord Strathclyde

My Lords, I was unaware that I had not answered a question yesterday. Perhaps I may give the noble Lord a more specific answer now. He asked whether the Government intended to bring forward a new amendment in respect of the criteria for admitting settlement arrangements to the list. The clause provides for the Bank of England to draw up those criteria, subject to approval by the Treasury. That approach is similar to that in Section 43 of the Financial Services Act, which concerns the wholesale money markets. Those are the markets with which the clause is primarily concerned. They are supervised by the bank. We do not propose to amend that approach to set any criteria. However, the clause will apply only if the Secretary of State exercises his discretion to make regulations. We are contemplating an amendment on how he might exercise his discretion so that he would have regard to whether it was appropriate that the bank would supervise settlement arrrangements in the market concerned.

As for who will be on the list, the only system currently under development will be operated by the bank itself. So we have no specific person in mind to be put on the list. However, in the future a system operator may come forward with suitable proposals and we wish to provide for that possibility.

11.30 a.m.

Lord Williams of Elvel

My Lords, before the noble Lord sits down, can he tell us whether the same criteria as are in the Financial Services Act, which stipulates a cut-off in terms of size for a listed institution, will operate here?

Lord Strathclyde

My Lords, first perhaps I may say why the criteria cannot in fact be specified in the Bill. It is because the clause is concerned with systems which do not yet exist. I think it is important to get this point across. We do not know what systems may be devised in the future and it is therefore not possible to specify at this stage what criteria will be appropriate. However, the grey book, the regulation of the wholesale markets in sterling foreign exchange and bullion, sets out the criteria for admitting institutions to the list kept under Section 43 of the Financial Services Act. To the extent that a system is concerned with the wholesale money markets, the grey book gives some indication of the ground the system would cover.

When it comes to the criterion itself, it has not yet been decided which criterion will apply. The Section 35 criterion might be relevant but we cannot yet say for certain.

On Question, amendment agreed to.

Lord Strathclyde moved Amendments Nos. 148M(65) to 148M(67):

Page 125, line 43, after ("or") insert ("recognised").

Page 126, line 18, leave out paragraph (b) and insert— ("(b) provide that the provisions of this Part apply with such exceptions, additions and adaptations as appear to the Secretary of State to be necessary or expedient.").

Page 126, line 21, leave out subsection (6).

The noble Lord said: My Lords, I beg to move Amendments Nos. 148M(65) to 148M(67) en bloc.

On Question, amendments agreed. to.

Clause 129 [Market charges]:

Lord Strathclyde moved Amendment No. 148M(68):

Page 126, line 25, leave out ("to 132") and insert ("and 131").

The noble Lord said: My Lords, with the leave of the House I should like to speak also to Amendments Nos. 148M(70), 148M(83), 148M(93) and 148M(95). The key amendment in the group is Amendment No. 148M(93), which substitutes for the old Clause 132 (which is deleted by Amendment No. 148M(83)) a new clause dealing with proceedings against market property by unsecured creditors. Amendments Nos. 148M(68), 148M(70) and 148M(95) make consequential changes to cross-references.

The new clause is an amended version of the old Clause 132 concerning property subject to a market charge. The main differences are, first, that its application has been extended to property put up as cover for margin. Secondly, the wording has been clarified to make it plainer that the proceedings restricted by the clause are those relating to the enforcement of a judgment or order. This was not entirely clear from the wording of the original clause. Thirdly, the clause provides that injunctions or other remedies granted in connection with such a judgment or order do not apply to property protected by the clause.

The purpose of the clause is to ensure that the effective enforcement of a market charge and the prompt and effective realisation of property provided as cover for margin are not disrupted by proceedings by a third party seeking to enforce a judgment or order against the person granting the charge or providing the property in question as cover for margin. The Insolvency Act contains provisions with similar effect in respect of proceedings against the property of an insolvent person without the prior leave of the court. I beg to move.

On Question, amendment agreed to.

Lord Strathclyde moved Amendment No. 148M(69):

Page 126, line 37, leave out ("with the payments") and insert ("therewith").

The noble Lord said: My Lords, with the leave of the House, in speaking to this amendment I should also like to speak to Amendments Nos. 148M(71), 148M(72), 148M(73), 148M(74), 148M(76), 148M(77), 148M(78), 148M(79), 148M(80), 148M(84), 148M(85), 148M(86), 148M(87), 148M(89), 148M(90), 148M(104), 148M(106) and 148M(108). This group of amendments makes mostly minor technical and drafting amendments to Clauses 129, 130 and 133 which deal with market charges. In particular, we have sought to make it clearer than it was before how the regulation-making powers in these three clauses interact. Noble Lords may recall my explaining at Committee stage that it was proposed to use the regulation-making powers in these clauses to define more closely than it is possible to do on the face of the Bill just which assets may be subject to a market charge and just what obligations may be secured by such a charge. I hope the amendments make it easier to see how this will work. I beg to move.

Lord Williams of Elvel

My Lords, the amendments make it easier to understand what the Government's intentions are. I am afraid that they do nothing to allay our worry about market charges as a concept. The problem of what a market charge really is—because it is a new kind of instrument—still remains. I very much hope that as the Bill goes through further stages and through another place the Government will think hard about the clause.

On Question, amendment agreed to.

Lord Strathclyde moved Amendments Nos. 148M(70) to 148M(75):

Page 126. line 41, leave out ("to 132) and insert ("and 131").

Page 126, line 44, leave out from ("In") to end of line 46 and insert ("subsection (1)(c)").

Page 127, line 3, at end insert ("; and

"transfer", in relation to any such securities or right, means a transfer of the beneficial interest.").

Page 127, line 5, leave out from ("charges") to ("and") and insert ("granted in favour of any such person as is mentioned in subsection (1)(a), (b) or (c) which are to be treated as "market charges" for the purposes of sections 130 and 131").

Page 127, line 7, at end insert— ("(4A) Regulations under this section in relation to charges granted in favour of a body within subsection (1)(c) shall not be made without the concurrence of the Bank of England; and before making any such regulations the Secretary of State shall consult the Treasury.").

Page 127, line 8, leave out subsection (5).

On Question, amendments agreed to.

Clause 130 [Modifications of the law of insolvency]:

Lord Strathclyde moved Amendments Nos. 148M(76) to 148M(80):

Page 127, line 12, leave out ("following provisions of this Part") and insert ("provisions of section 131").

Page 127, line 15, leave out from ("insolvency") to end of line.

Page 127, line 17, leave out from second ("the") to end of line 20 and insert ("provisions mentioned in subsection (1), and any other provision of this Part as it applies for the purposes of those provisions or provide that those provisions have effect with such exceptions, additions or adaptations as are specified in the regulations.").

Page 127, line 21, leave out from ("may") to end of line 27 and insert ("make different provision for cases defined by reference to the nature of the charge, the nature of the property subject to it, the circumstances, nature or extent of the obligations secured by it or any other relevant factor.").

Page 127, line 27, at end insert— ("( ) Regulations under this section in relation to charges granted in favour of a body within section 129(1)(c) shall not be made without the concurrence of the Bank of England; and before making any such regulations the Secretary of State shall consult the Treasury.").

On Question, amendments agreed to.

Clause 131 [Administration orders, &c]:

Lord Strathclyde moved Amendments Nos. 148M(81) and 148M(82):

Page 128, line 4, leave out ("has the same") and insert ("ranks for").

Page 128, leave out line 6 and insert ("immediately before preferential debts").

On Question, amendments agreed to.

Clause 132 [Proceedings against property subject to a market charge]:

Lord Strathclyde moved Amendment No. 148M(83):

Leave out Clause 132.

On Question, amendment agreed to.

Clause 133 [Power to make provision about certain other charges]:

Lord Strathclyde moved Amendments Nos. 148M(84) to 148M(90):

Page 128, line 27, leave out from ("specified") to end of line 28 and insert ("are those granted in favour of—").

Page 128, leave out line 29.

Page 128, line 35, at end insert ("for the purpose of securing debts or liabilities arising in connection with or as a result of the settlement of contracts or the transfer of any asset, right or interest on any financial market.

Where a charge is granted partly for that purpose and partly for other purposes, the power conferred by this section is exercisable in relation to the charge so far as it has effect for that purpose.").

Page 128, line 38, leave out ("this Part") and insert ("sections 130 and 131").

Page 128, line 40, leave out paragraph (b) and insert— ("(b) apply any of those provisions with such exceptions, additions or adaptations as are specified in the regulations.").

Page 129, line 1, leave out subsection (4) and insert— ("(4) Regulations under this section relating to charges in favour of a body falling within subsection (2)(c) shall not be made without the concurrence of the Bank of England; and before making any such regulations the Secretary of State shall consult the Treasury.").

Page 129, line 7, leave out subsections (5) and (6) and insert— ("( ) Regulations under this section may make different provision for cases defined by reference to the nature of the charge, the nature of the property subject to it, the circumstances, nature or extent of the obligations secured by it or any other relevant factor.").

The noble Lord said: My Lords, I beg to move Amendments Nos. 148M(81) to 148M(90) also en bloc.

On Question, amendments agreed to.

Lord Strathclyde moved Amendment No. 148M(91):

After Clause 133, insert the following new clause:

"Application of margin not affected by subsequent interest.

Where property has been provided in accordance with the rules of a recognised investment exchange or recognised clearing house as cover for margin in relation to market contracts, no right or remedy arising by virtue of any subsequent act of the person so providing it may be enforced so as to prevent or interfere with the application of the property in accordance with the rules of the exchange or clearing house, and any person to whom the exchange or clearing house disposes of the property in accordance with its rules shall take free of any such right or remedy."

The noble Lord said: My Lords, Amendment No. 148M(91) introduces a new clause designed to ensure that an exchange or clearing house's ability to realise property provided as cover for margin in relation to market contracts cannot be frustrated in the event that the person who has provided the property as cover for margin subsequently acts in such a way as to confer a right over, or remedy against, the property on another person. The clause provides that such a right or remedy may not be enforced so as to prevent or interfere with the application of the property in accordance with the rules of the exchange or clearing house. It also provides that any person to whom the exchange or clearing house disposes of the property in accordance with its rules shall take the property free of any such right or remedy.

The margin system is designed to operate so that once property has been handed to an exchange or clearing house as margin, it should be available to protect that body. The body has in effect taken over the liabilities of the member to his counterparty in the market. The system cannot operate effectively if there is uncertainty about the body's right to use the property. I beg to move.

On Question, amendment agreed to.

Lord Strathclyde moved Amendment No. 148M(92):

After Clause 133, insert the following new clause:

("Priority of market charge over unpaid vendor's liens

. Where property subject to an unpaid vendor's lien becomes subject to a market charge, the charge has priority over the lien unless the chargee had actual notice of the lien at the time the property became subject to the charge.").

The noble Lord said: My Lords, some concern has been expressed that the effectiveness of some market charges may be threatened by the possibility of action to enforce an unpaid vendor's lien over property subject to the charge in circumstances in which the taker of the charge was not aware of the lien. The issue which has arisen in connection with the Central Gilts Office System is rather complicated, though I can expand on it if noble Lords wish me to. It relates essentially to the possibility that an unpaid vendor's lien over stock bought from a non-member and introduced into the system might remain enforceable against a subsequent purchaser without notice of the lien until the subsequent purchase was reflected on the gilts register several days later. In the meantime the subsequent purchaser's settlement bank's security over the stock in respect of its assured payment with the system might be at risk.

The precise position in law is slightly uncertain, but the Government accept that there is sufficient doubt to warrant a provision to remove the uncertainty altogether. The clause accordingly provides that where property subject to an unpaid vendor's lien becomes subject to a market charge, the charge has priority over the lien unless the chargee had actual notice of the lien at the time this property became subject to the charge. I beg to move.

On Question, amendment agreed to.

Lord Strathclyde moved Amendments Nos. 148M(93) and 148M(94):

After Clause 133, insert the following new clause:

("Proceedings against market property by unsecured creditors

.—Where property has been provided as cover for margin in relation to market contracts or is subject to a market charge, no execution or other legal process for the enforcement of a judgement or order may be commenced or continued, and no distress may be levied, against the properly by a person not seeking to enforce any interest in or security over the property, except with the consent of—

1. (a) in the case of property provided as cover for margin, the investment exchange or clearing house in question, or
2. (b) in the case of property subject to a market charge, the person in whose favour the charge was granted.

1. (2) Where consent is given the proceedings may be commenced or continued notwithstanding any provision of the Insolvency Act 1986 or the Bankruptcy (Scotland) Act 1985.
2. (3) Where by virtue of this section a person would not be entitled to enforce a judgement or order against any property, any injunction or other remedy granted with a view to facilitating the enforcement of any such judgement or order shall not extend to that property.
3. (4) In the application of this section to Scotland, the reference to execution being commenced or continued includes a reference to diligence being carried out or continued, and the reference to distress being levied shall be omitted.").

After Clause 133, insert the following new clause:

("Power to apply provisions to other cases

.—(1) The power of the Secretary of State to make provision by regulations under—

1. (a) section 127 or 128 (contracts connected with certain overseas exchanges and clearing houses or listed institutions), or
2. (b) section 133 (charges given in favour of certain institutions in connection with operation of financial market),

includes power to apply sections (Application of margin not affected by subsequent interests), (Priority of market charge over unpaid vendor's lien) and (Proceedings against market property by unsecured creditor) to any description of property provided as cover for margin in relation to contracts in relation to which the power is exercised or, as the case may be, property subject to charges in relation to which the power is exercised.

(2) The regulations may provide that these sections apply with such exceptions, additions and adaptations as may be specified in the regulations.").

On Question, amendments agreed to.

Clause 134 [Powers of court in relation to certain proceedings begun before commencement]:

Lord Strathclyde moved Amendment No. 148M(95):

Page 130, leave out line 22 and insert— (section 131, section (Proceedings against market property by unsecured creditor), so far as it relates to property subject to a market charge,").

On Question, amendment agreed to.

Lord Strathclyde moved Amendment No. 148M(96):

After Clause 134, insert the following new clause:

("Insolvency proceedings in other jurisdictions

.—(1) The references to insolvency law in section 426 of the Insolvency Act 1986 (co-operation with courts exercising insolvency jurisdiction in other jurisdictions) include, in relation to a part of the United Kingdom, the provisions made by or under this Part and, in relation to a relevant country or territory within the meaning of that section, so much of the law of that country or territory as corresponds to any provisions made by or under this Part.

(2) A court shall not, in pursuance of that section or any other enactment or rule of law, recognise or give effect to—

1. (a) any order of a court exercising jurisdiction in relation to insolvency law in a country or territory outside the United Kingdom, or
2. (b) any act of a person appointed in such a country or territory to discharge any functions under insolvency law,

which in the case of a court in the United Kingdom or a relevant office holder would be prohibited by provisions made by or under this Part.").

The noble Lord said: My Lords, there is no United Kingdom-wide code of insolvency law itself: different provisions exist as between England and Wales, Scotland and Northern Ireland. Section 426 of the Insolvency Act 1986 therefore provides for a court exercising insolvency jurisdiction in one part of the United Kingdom to be able to enforce an order made in another part of the United Kingdom. It also provides for courts exercising insolvency jurisdiction in the United Kingdom to assist certain foreign courts in exercising their own insolvency legislation, and vice versa. This clause ensures that such co-operation both in the United Kingdom and in relation to certain foreign jurisdictions shall extend to orders made under the special provisions made in Part VII in relation to the financial markets by ensuring that proceedings under Part VII of the Bill are included within the scope of Section 426 of the Insolvency Act 1986.

However, the purpose of Part VII is to achieve certainty in the settlement of contracts. Given the international nature of financial markets and their operations, we do not want to allow Part VII to be ignored by a United Kingdom court where it is asked to assist in the enforcement of foreign insolvency proceedings. Subsection (2) of the new clause therefore specifically prevents this from occurring.

This new clause is desirable to ensure the successful operation of Part VII, and to take account of the United Kingdom-wide and international aspects of insolvency law. I beg to move.

On Question, amendment agreed to.

Clause 135 [Indemnity for certain acts, &c]:

Lord Strathclyde moved Amendments Nos. 148M(97) and 148M(98):

Page 131, line 11, after ("or") insert ("recognised").

Page 131, leave out lines 33 to 36 and insert— ('5) No person exercising any functions by virtue of arrangements made pursuant to paragraph 5 or 14 of Schedule 16 (delegation of functions in connection with default procedures), nor any officer or servant of such a person, shall be liable in damages for anything done or omitted in the discharge or purported discharge of those functions unless the act or omission is shown to have been in bad faith.").

On Question, amendments agreed to.

Lord Strathclyde moved Amendment No. 148M(99):

After Clause 135, insert the following new clause:

("Supplementary provisions as to regulations.

(1) Regulations under this Part may make different provision for different cases and; may contain such incidental, transitional and other supplementary provisions as appear to the Secretary of State to be necessary or expedient.

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

On Question, amendment agreed to.

Clause 136 [Meaning of "default rules" and related expressions]:

Lord Strathclyde moved Amendment No. 148M(100):

Page 131, line 37, leave out from ("means") to end of line 41 and insert ("rules of a recognised investment exchange or recognised clearing house which provide procedures for dealing with the consequences of a person being unable, or likely to become unable, to meet his obligations in respect of one or more market contracts connected with the exchange or clearing house").

On Question, amendment agreed to.

Clause 137 [Meaning of "relevant office-holder"]:

Lord Strathclyde moved Amendments Nos. 148M(101) to 148M(103):

Page 132, line 7, leave out ("a deceased debtor") and insert ("any debtor within the meaning of the Bankruptcy (Scotland) Act 1985").

Page 132, line 13, leave out subsection (2).

Page 132, line 20, leave out ("a company") and insert ("any entity").

On Question, amendments agreed to.

Clause 138 [Minor definitions]:

Lord Strathclyde moved Amendments Nos. 148M(104) and 148M(105):

Page 132, line 25, at end insert— (" "charge" means any form of security, including a mortgage and, in Scotland, a heritable security,").

Page 132, line 42, at end insert— ("(4) References in this Part to the law of insolvency include references to every provision made by or under the Insolvency Act 1986 or the Bankruptcy (Scotland) Act 1985.").

On Question, amendments agreed to.

Clause 139 [Index of defined expressions]:

Lord Strathclyde moved Amendments Nos. 148M(106) to 148M(108):

Page 133, line 1, column 2, leave out ("129(3)") and insert ("138(1)").

Page 133, line 5, at end insert— ("insolvency law (and section 138(4)") similar expressions).

Page 133, leave out line 15.

On Question, amendments agreed to.

Lord Strathclyde moved Amendment No. 148M(109):

After Clause 140, insert the following new clause:

("Directions to secure compliance with international obligations

In the Financial Services Act 1986, for section 192 (international obligations) substitute—

"International obligations.

192.— (1) If it appears to the Secretary of State—

1. (a) that such action proposed to be taken by an authority or body to which this section applies would be incompatible with Community obligations or any other international obligations of the United Kingdom, or
2. (b) that any action which that authority or body has power to take is required for the purpose of implementing any such obligation,

he may direct the authority or body not to take or, as the case may be, to take the action in question.

(2) The authorities and bodies to which this section applies are the following—

1. (a) a recognised self-regulating organisation,
2. (b) a recognised investment exchange (other than an overseas investment exchange),
3. (c) a recognised clearing house (other than an overseas clearing house),
4. (d) a designated agency,
5. (e) a transferee body,
6. (f) a competent authority.

(3) this section also applies to an approved exchange within the meaning of Part V of this Act in respect of any action which it proposes to take or has power to take in respect of rules applying to a prospectus by virtue of a direction under section 162(3) above.

(4) A direction under this section may include such supplementary or incidental requirements as the Secretary of State thinks necessary or expedient.

(5) Where the function of making or revoking a recognition order in respect of an authority or body to which this section applies is exercisable by a designated agency, any direction in respect of that authority or body shall be a direction requiring the agency to give the authority or body such a direction as is specified in the direction given by the Secretary of State.

(6) A direction under this section is enforceable, on the application of the person who gave it, by injunction or, in Scotland, by an order under section 45 of the Court of Sessions Act 1988".").

The noble Lord said: My Lords, there is, if I may say so, rather less to government Amendment No. 148M(109) than meets the eye. Although it deletes and replaces a complete section of the Financial Services Act, its substantive effect is rather limited.

Section 192 of the Financial Services Act permits the Secretary of State to give a direction to any of the bodies listed when it appears to him that, in order to comply with the UK's international obligations, it is necessary for that body either to take, or to desist from taking, any action which the body has the power to take.

Part VII of this Bill gives new functions to RIEs and RCHs, some of which might, in certain circumstances, have implications for international obligations.

11.45 a.m.

Lord Williams of Elvel

My Lords, I am sorry to interrupt the noble Lord, but is he also speaking to Amendment No. 148M(110)?

Lord Strathclyde

My Lords, Amendment No. 148M(110) is grouped with Amendment No. 148M(109), so, yes, I am speaking to it.

It is thought necessary that the Secretary of State should only be able to give directions in this connection. The only substantive effect of the amendment is to add RIEs and RCHs to the list already in Section 192. However, the opportunity has also been taken to re-order the section so as to avoid an excessively long list in subsection (1).

Amendment No. 148M(110) in the name of the noble Lord, Lord Lloyd of Kilgerran, would put an obligation on the Secretary of State to give a direction in the circumstances specified. Now I do not think that there is any difference of substance between us and the noble Lord on the importance of ensuring that action by the regulatory authorities does not cut across the UK's international oblibations. But, in the main, we would expect to be able to secure this without having to give formal enforceable directions. The power to give such a direction should, in our view, be one to be kept in reserve, only to be used if persuasion fails. For that reason we think it preferable that it should be a discretionary power, as in the Government amendment, rather than a mandatory power, as the noble Lord proposes. I hope that the noble Lord will feel able, with that explanation, not to move his amendment. I beg to move.

Lord Tordoff moved, as an amendment to Amendment No. 148M(109), Amendment No. 148M(110):

In the proposed new section 192(1), line 10, leave out ("may") and insert ("shall").

The noble Lord said: My Lords, I must apologise for the absence of my noble friend Lord Lloyd of Kilgerran. In the unusual circumstances of last night with the House collapsing beneath our feet—I see that today the electricity is collapsing over our heads—he was unable to re-order his programme to be here and move the amendment.

I listened to what the noble Lord, Lord Strathclyde, said in relation to this amendment. However, although I cannot move it with the eloquence or the experience which my noble friend Lord Lloyd of Kilgerran would bring to it, it seems to me that if one is saying that in certain circumtances it is possible for the Secretary of State to direct an authority or body not to take, or, as the case may be, to take, action there is no alternative between those two options. The Secretary of State cannot take action, and therefore it seems to me quite clear, in terms of simple English apart from anything else, that in these circumstances he either has to direct the body to take action., or not to take action. Therefore, the word should be "shall" and not "may". I beg to move.

Lord Williams of Elvel

My Lords, I support the amendment for two reasons, first, because it shows to the outside world, if it is accepted, that we are absolutely clear that we are going, to meet our international obligations. It is not a question of the Secretary of State "may" do this, he shall do this, and Parliament has decided that is what he is to do. Secondly, I do not quite understand the argument used by the noble Lord, Lord Strathclyde, that there may be virtue in persuasion. If regulatory bodies are going to do things, they will do them as a result of the powers that Parliament has given them, either directly or indirectly. Therefore, persuading them not to use those powers seems to me a rather odd concept. I support the amendment.

Lord Strathclyde

My Lords, I, too, am sorry that the noble Lord, Lord Lloyd of Kilgerran, is not here. However, the noble Lord, Lord Tordoff, explained his intentions admirably. I hope that he did not misunderstand what I said. I think I made it clear that the point is that it is preferable that we should have a discretionary power. In much of this part of the Bill flexibility is required. That is why we have created the amendment in this way.

The power is to direct the body and to take action if it is necessary that action be taken. It is also to desist if action would be contrary to the United Kingdom's obligations. The objection, as I understand it, to "shall" is simply to avoid the implication that direction is necessary in every single case.

Lord Tordoff

My Lords, I listened to that explanation with some astonishment because it seems to me that if there is to be persuasion, it will take place before we get to the point at which direction would be necessary, unless, presumably, as the noble Lord, Lord Williams, has said, there comes a point where our international obligations are not being met. At that stage, the Secretary of State surely must make his mind up whether he wants to direct or does not want to direct a certain action to be taken or not to be taken.

I am quite staggered that the word "may" is still being left in. Frankly, it would be of no great help to divide the House on this occasion. I shall ask my noble friend to read what has been said and perhaps come back at a later stage on this matter. I beg leave to withdraw the amendment.

Amendment to the amendment, by leave, withdrawn.

On Question, Amendment No. 148M(109) agreed to.

Lord Hacking moved Amendment No. 149:

After Clause 142, insert the following new clause:

("Offers of securities on admission to approved exchange

In section 159 of the Financial Services Act 1986 (offers of securities on admission to approved exchange), after subsection (2) insert— (3) Subsection (1) above does not apply to an advertisement issued or caused to be issued in connection with a bona fide invitation to a person to enter into an underwriting agreement with respect to the securities." ").

The noble Lord said: My Lords, during the passage of the Financial Services Bill the noble Lords, Lord Williams of Elvel and Lord Morton of Shuna, many other noble Lords as well as myself, did our best to offer guidance to the Government and to the noble Lord, Lord Lucas of Chilworth, who seems to have suddenly left the Chamber, on the drafting of the provisions of the Financial Services Bill. One of the areas of the Bill where the noble Lord, Lord Williams of Elvel, myself and other noble Lords did our best to offer guidance to the Government, concerned Part V. Although it is now nearly three years since this guidance was offered to the Government, the provisions of Part V have not been brought into force. I understand the present plan is that they are not to be brought into force any earlier than January of next year. The purpose of this amendment is, therefore, to offer further guidance and help to the Government before those provisions have been brought into force and tested in the market place.

Part V of the Financial Services Act, as it now is, deals with offers of unlisted securities and in particular with the circumstances in which prospectuses are required to be filed with the Registrar of Companies. The equivalent provisions are currently contained in Sections 64 onwards of the Companies Act 1985. In Section 56(3) of the Companies Act there is an exemption concerning underwriters. That exemption is not contained in Part V of the Financial Services Act. The purpose of the amendment is to bring in that exemption under Section 159.

Let me try to explain the problem. The usual procedure in relation to an issue of securities is that shortly before the issue is offered to the general public (or in the case of a rights issue to the company's shareholders) the issue is underwritten. In those circumstances the underwriters agree to take up the issue if members of the public (or in the case of a rights issue the shareholders) do not do so. The underwriters are sent an "underwriting proof" of the prospectus which will have been almost finalised but which may contain blanks relating to such questions as the price at which the securities are to be offered.

Because of the exemption in the Companies Act, to which I have referred, it is not necessary to file the "underwriting proof" of the prospectus before the offer is made to the underwriters. The prospectus is required to be filed only in its final form before the offer is made to the public. The result of not having in Section 159 the exemption to which I have drawn your Lordships' attention is that invitations cannot be made to underwriters to participate in the underwriting without a prospectus first being filed. A further prospectus then has to be filed before the offer is made to the public.

This creates a number of practical difficulties. I therefore ask the Government if they would be kind enough to accept the amendment. If they cannot accept the terms of the amendment perhaps they would accept the purport of the amendment in principle. I beg to move.

Lord Williams of Elvel

My Lords, this seems to us to be a perfectly sensible amendment. I remember the noble Lord, Lord Hacking, and I and my noble friend—as he then was—Lord Morton of Shuna dwelling on the point three years ago when we considered the Financial Services Bill.

In answering, perhaps the noble Lord, Lord Strathclyde, will take the opportunity to tell the House how far the Government have got with their general amendments to the Financial Services Act as a result of the consultation that has taken place.

Lord Lloyd of Kilgerran

My Lords, I should like to support the amendment of the noble Lord, Lord Hacking. I have here a long brief on the matter but I shall not read it. I shall merely apologise for not being in my place at the right time this morning after last night's debacle. I had anticipated having a day off and I heard nothing about this debate until half past ten this morning. I was going to make some complaints about the usual channels, but I understand that I was wholly in the wrong. I ought to have known that it is constitutional procedure that when anything curious happens, such as happened last night, and the House is adjourned the business continues immediately the next time the House meets. I was not aware of that and I apologise for not being in my place.

Lord Strathclyde

My Lords, it is very nice to see the noble lord, Lord Lloyd of Kilgerran, in his place. I hope that he will not regret missing a day off, but I am sure there will be plenty of other opportunities.

Turning to the amendment, I am grateful to the noble Lord, Lord Hacking, for the clarity with which he spoke to the amendment, I can be brief. If Section 159(1) of the Financial Services Act—which I might remind your Lordships is not yet in force—has the effect implied by the noble Lord's amendment, those acting for a company over a new issue would be unable to solicit potential underwriters, or obtain binding commitments from them, before a prospectus had been prepared, approved and delivered to a registrar of companies. This would be intolerable, for, in the normal course, the preparation of a prospectus would not even be set in hand without firm underwriting commitments. Section 159(1) was not intended to have that effect, and one can argue that it does not. But I have to agree with the noble Lord, Lord Hacking, but that the matter is best put beyond doubt to the effect envisaged by the noble Lord.

Accordingly, I can accept the noble Lord's amendment, but only in principle because I shall need to consider the actual drafting more closely. The problem identified by the noble Lord may go wider than underwriting and a wider exemption may be desirable in order to cover existing marketing techniques and to allow for new developments. I hope, therefore, that the noble Lord will be satisfied with an assurance that the Government will bring forward an amendment at a later stage to deal with his point and will not press his amendment.

The noble Lord, Lord Williams of Elvel, asked me about the other amendments to the Financial Services Act. I cannot at the moment say any more than has already been said at other stages of the Bill. The replies to the consultation process are being actively considered. In any case, the question does not arise in relation to this amendment. However, I hope that that sets the scene as to where we are in relation to the other Financial Services Act amendments.

Lord Williams of Elvel

My Lords, before the noble Lord sits down, can he say whether that means that the amendments will not come to this House but will be tabled in another place?

Lord Strathclyde

My Lords, consultation is still taking place. We shall have to wait and see whether or not we are able to bring forward any amendments at Third Reading, but it appears unlikely that we shall be able to do so. However, we shall make every effort, as we have done with so many other amendments, to bring them forward to your Lordships' House.

Lord Hacking

My Lords, I have heard what the Minister has said. In the circumstances, I am happy to withdraw the amendment.

Amendment, by leave, withdrawn.

12 noon

Lord Hacking moved Amendment No. 149A:

After Clause 142, insert the following new clause:

("Proprietary interest and debt

(". A person ("the first person") may create in favour of another ("the second person") a proprietary interest by way of security over all or part of the property of the first person in a debt of other thing in action claimable by him from the second person and such creation shall not have the effect that the proprietary interest so created merges with the debt or thing in action or that the debt or thing in action is extinguished or released.").

The noble Lord said: My Lords, in speaking to the amendment I wish to bring good cheer to your Lordships, particularly to the noble Lord, Lord Williams. The thesis behind the amendment is that bankers are good people. Bankers lend us money for buying nice chattels like our houses. Bankers lend us money (and I am referring to professional men) when clients do not pay our professional fees. Bankers support our industry on a massive scale. In my submission to your Lordships, it is therefore not unreasonable that bankers should have the opportunity to have security over chattels and credit balances in return for the massive help which they give us personally, professionally and commercially.

It has always been understood by bankers that it was wholly appropriate and right to take a charge over a customer's credit balance with them. That form of security was easy and inexpensive to arrange. It also had a number of advantages, like the advantages associated with charges over land. First, the deposit was not available to a liquidator until the liabilities had been charged; secondly, the asset charge, if in the currency of the liability, would not fluctuate in value and was under the control of the bank; thirdly, it was unimpeachable against subsequent assignees of the debt or judgment creditors seeking to garnish it; fourthly, the deposit could be used as security where there was no covenant to pay. That type of transaction is everyday business and provides everyday support to industry in particular.

All was well until upon that tranquil and sensible scene the voice of a learned judge broke. The voice of the learned judge was heard in 1986 in the Charge Card Services case, and the voice was that of Mr. Justice Millett. In that case, the learned judge said—and I should point out obiter dicta—that a charge taken by a bank over a customer's credit balance was "conceptionally impossible". Since then, there has been considerable uncertainty over the right of banks to place a charge over a customer's credit balance. As I have indicated, that practice is widely used and there are omnibus letters of set-off to enable—when, for example, a company wishes to obtain a large overdraft facility from the bank on a group basis—arrangements to be made so that the individual credit balances of the individual companies can have a charge over them and the company can therefore benefit—that is the word to emphasise—from the large support that the bank gives the company.

The purpose of the amendment is therefore to clarify the law following the decision of the Charge Card Services case. The transaction of a creditor creating a security over a debt owed to him back in favour of the debtor is, as I have explained, extremely common in commercial and financial affairs. A typical example is where a policy holder mortgages the benefit of his policy back to the insurance company in order to secure a loan. Moreover, this transaction is widely used in order to give a party security in circumstances where there would be no set-off.

Even in England, where the mandatory set-off under English insolvency law is one of the widest in the world, there are cases where set-off is not available or is hazardous; for example, where a customer places a deposit with a bank as cover for a reimbursement liability of the customer to the bank in circumstances where the bank has issued a guarantee, performance bond or letter of credit on behalf of the customer. Because of the technicalities of the rule against double proof—I shall not explain that now; I have the learned textbook here and, if any noble Lords wish to borrow it, it will explain the problems about double proof—I am told that the bank's right of set-off on the insolvency of a customer could be defeated. I am also told, as I have already indicated, that large sums of money are tied up in these arrangements.

Further, this transaction—the charge back—can be used to prove the priority of the security against assignees, attaching creditors and the like. Another significant aspect is that voluntary arrangements newly introduced by the Insolvency Act can prejudice legitimate set-offs, but not valid security. More importantly, insolvency set-off is highly restricted in a significant bloc of commercial jurisdictions, such as France, Luxembourg, Belgium, Spain and certain other states whose law is based upon the Napoleonic Code. Because of the international nature of many commercial and financial transactions centred in London, it was considered helpful that an alternative to set-off should be available. English law, of all systems, is not an island.

Prior to the 1986 decision in the Charge Card Services case, there were a number of English decisions which tended to support the availability of that transaction and, in other senior common law, Napoleonic and Germanic jurisdictions, there is no objection to the creation of security by that method. There can be no policy objections to the creation of a security over an asset of a party in order to secure his liability. It would therefore seem a pity that one of the most mature and important legal systems of the world should fall behind in that respect.

I am told that charge-backs are used in a variety of transactions. At retail level, it has been used for tenants' caution money and, as I have already indicated, insurance policies. It has also been of important use to banking transactions, in the reinsurance industry and in relation to the financial securities, commodities and money markets where it may be desired to create security over margin deposits.

I cannot overemphasise the importance of the efficacy of the security in order to maintain the integrity of the financial system. As explained earlier, the tabled amendment, which has been settled by leading counsel, is intended to clarify the law and to confirm that there is no objection to a creditor creating security over his debt back to the debtor. As such, the amendment is not intended to define how the security should be created but merely to confirm its availability and to leave it to case law to develop the consequences of the security. There is considerable support for the amendment, for example, in the report of the review committee under the chairmanship of Professor Jack. Having identified the problem and its various aspects, the committee concluded: Our conclusion, then, is that, as the issues raised are important and the problems are in need of urgent resolution, the Government should be invited to institute a process of consultation canvassing possible solutions to the problems mentioned, with a view to initiating (possibly in the Companies Bill which has just been presented to Parliament) any necessary amending legislation". I understand that the consultation period for the Jack Committee's proposals is due to expire at the end of the month, so we are close to the end of the consultation period. I therefore assume that the Government have now had an opportunity to undertake sufficient consultation to deal with this difficult matter.

The amendment also has the support of the Law Society in its memorandum of January 1989, copies of which several noble Lords have received and know to be carefully and closely argued document. In this regard, the memorandum states: We request that urgent consideration be given to legislation to permit such changes". I would have had support this morning from noble Lords who are members of the Judicial Committee. I have had letters from the noble and learned Lords, Lord Oliver of Aylmerton and Lord Templeman, indicating their support. The noble and learned Lords, Lord Oliver of Aylmerton and Lord Goff of Chieveley, would have been present in the House last night but for a Grand Night Dinner at Lincoln's Inn. As far as I know, that Grand Night Dinner has now been completed, but the noble and learned Lords have judicial business this morning which prevents them from attending the House. I hope that the Government will accept that the amendment has their support and that they would have been in the House to support it.

Therefore, within my theme that bankers are good people who deserve this support, I commend the amendment to the House. I beg to move.

Lord Williams of Elvel

My Lords, I suppose that I should respond on behalf of the banking community to thank the noble Lord for his kind remarks. There is undoubtedly a problem here. There is some confusion in the law and the thrust of the amendment certainly has the support of bankers, and certainly makes sense. I believe that the Government would do well to pay attention to the words of Professor Jack and adopt the amendment.

The Earl of Selkirk

My Lords, it is my knowledge that bankers, both in Scotland and in England, very strongly support what has been said.

Lord Lloyd of Kilgerran

My Lords, I should like to support the amendment which was moved so comprehensively by the noble Lord, Lord Hacking. It may be of interest to noble Lords to know that the amendment has the support of the Committee of London and Scottish Bankers. I have before me an indication from Mr. Whittle of the TSB group supporting this amendment most strongly. I believe that it would be useful to put on record the fact that the amendment has been drafted by leading counsel, Mr. Richard Sykes, QC.

Lord Strathclyde

My Lords, Professor Robert Jack's report, to which reference has been made, contains 83 recommendations covering a broad range of issues concerning banking law and practice. One of the recommendations addressed the question of set-off, with the review committee recommending that: the Government should institute a process of consultation with a view to introducing legislation to clarify the right of set-off, and the validity of a charge over a credit balance in favour of the person with whom the balance is held". My honourable friend in another place, in announcing the publication of the review committee's report, said: the Government welcome the committee's report. In considering their response to the recommendations, they will wish to take account of the views of those who will be affected by the proposals, and will consider carefully the implications for bankers, their customers and the general public interest".—[Official Report, Commons, 23/2/89; col. 784.] The Treasury has asked for comments on the recommendations contained in the review committee's report by the end of April.

The amendment today seeks to pre-empt that consultation period and offer a solution to the uncertainties highlighted by one part of the Charge Card Services case before all interested parties have had an opportunity to make representations to the Treasury on these uncertainties and what, if any, remedy they favour.

The case for amending legislation on this particular point has yet to be proved. Full consultation with interested parties has not yet taken place and they should be given the opportunity to offer a detailed response on the issue. As the review committee's report pointed out, any consideration of this question needs to be, in the context of the overall scheme of priorities between secured and unsecured creditors". Although this amendment is permissive, if made use of it would undoubtedly affect the interests of persons other than the lenders concerned. For that reason the Government believe that more widespread and considered consultation is required. I should also mention that, although the judgment was handed down in 1986, we are not aware of any specific measurable damage that it has subsequently caused to the banking community.

Furthermore, this is not a new issue. There has been for many years considerable academic discussion about whether it is or is not possible to take a charge over a credit balance. Since the judgement of Mr. Justice Millett, the debate has persisted, with articles appearing in legal journals supporting both points of view. That is why we believe that it would be premature to accept the amendment until further consideration has been given to whether or not amending legislation is required, and if so what it should say.

I hope that the noble Lord, Lord Hacking, will recognise these difficulties and will feel able to withdraw his amendment.

Lord Hacking:

My Lords, before the noble Lord sits down I wonder whether he can help me on a few matters. The noble Lord said that what was required was "more widespread and considered consultation" and he also spoke of "interested parties". Will he indicate the interested parties that the Government need to consult and say how widespread those consultation processes should be? Will he further indicate whether it is proposed to have an extension to the consultation period of the Jack Committee? There are only nine days to go before the end of this consultation period. It would be most helpful if the noble Lord could assist on those points.

Lord Strathclyde:

Certainly, my Lords. First, perhaps I should say what we intend to do after consultation. If it becomes clear that legislation is desirable we would seek the earliest opportunity to introduce such measures. In a more general sense I believe that it would be quite wrong to reach conclusions on an issue on which consultation has taken place before the consultation period has finished. I know that noble Lords are aware that the issue goes far wider than Professor Jack's review.

As to an extension of the consultation period, at the moment there is no question of extending it further than the date already mentioned. The Government believe that that is sufficient for as full a consultation process as possible to take place.

Lord Hacking:

My Lords, I hope that I am not straining the patience of the House too much. However, the noble Lord said that the Government would take the earliest opportunity after consultation to do something about this problem if they judged that action needed to be taken. Is he able to say whether the Government would be prepared to use this Bill as a vehicle during its progress through another place?

Lord Strathclyde

Very briefly, my Lords, I am sure the noble Lord, Lord Hacking, will understand that it is not possible to give any particular commitment that action would be taken in the context of the Companies Bill.

Lord Hacking

My Lords, I am not wholly happy, but in the circumstances I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

12.15 p.m.

Clause 144 [Building societies: miscellaneous amendments]:

Lord Strathclyde moved Amendment No. 149B:

Leave out Clause 144.

The noble Lord said: My Lords, in moving this amendment I should like to speak also to Amendments Nos. 149C and 152B. The existing Clause 144 applies to building societies and their directors and officers, the restrictions on unqualified persons acting as liquidators etc., and the provisions on disqualification of directors contained in insolvency legislation.

Clause 144(2) as it stands excludes shadow directors of building societies from the provisions of the Company Directors Disqualification Act 1986. Certain provisions of the companies winding-up legislation are applied to building societies by virtue of Schedule 15 to the Building Societies Act 1986 but not in so far as they relate to shadow directors.

It is desirable that building societies and companies legislation should be consistent on this point. Clause 144 has therefore been redrafted so that, in addition to the provisions in the existing clause, it applies the relevant provisions of the Insolvency Act 1986 and the Company Directors Disqualification Act 1986 to shadow directors of building societies.

Amendment No. 152B is a consequential amendment which makes a minor addition to the extent of the repeals of the Building Societies Act 1986 in Schedule 17. I beg to move.

On Question, amendment agreed to.

Lord Strathclyde moved Amendment No. 149C:

After Clause 144, insert the following new clause:

("Building Societies: Miscellaneous amendments.

.—(1) In Schedule 15 to the Building Societies Act 1986 (application of companies winding-up legislation)—

1. (a) in paragraph 1(a) (provisions of Insolvency Act 1986 applied) for "and XII" substitute ", XII and XIII";
2. (b) in paragraph 3(2)(b) (adaptations: references to be omitted), omit ", a shadow director".

(2) In the Company Directors Disqualification Act 1986, after section 22 insert:

"Application of Act to building societies.

22A.—(1) This Act applies to building societies as it applies to companies.

(2) References in this Act to a company, or to a director or an officer of a company include, respectively, references to a building society within the meaning of the Building Societies Act 1986 or to a director or officer, within the meaning of that Act, of a building society.

(3) In relation to a building society the definition of "shadow director" in section 22(5) applies with the substitution of "building society" for "company".

(4) In the application of Schedule 1 to the directors of a building society, references to provisions of the Insolvency Act or the Companies Act include references to the corresponding provisions of the Building Societies Act 1986.".").

On Question, amendment agreed to.

Clause 147 [Commencement and transitional provisions]:

Lord Strathclyde moved Amendment No. 149D:

Page 137, line 15, leave out from ("(1)") to ("provisions") in line 17 and insert ("The").

The noble Lord said: My Lords, as presently drafted Clause 147 provides for Part VII to come into force on Royal Assent. The amendment provides for the part to be brought into force by a commencement order in the same way as the other parts of the Bill. I beg to move.

On Question, amendment agreed to.

Schedule 17 [Repeals]:

Lord Strathclyde moved Amendment No. 149E:

Page 214, line 41, marked as line 33, column 3, at beginning insert—

("Section 36(4) In section 41, the words from "and need not" to the end.".

The noble Lord said: My Lords, this amendment makes a small consequential change to Section 41 of the Companies Act 1985 on company seals. I spoke to the substantive changes on Amendment No. C55 to Part V of the Bill. I beg to move.

On Question, amendment agreed to.

Lord Strathclyde moved Amendment No. 150:

Page 215, leave out line 33.

On Question, amendment agreed to.

Lord Strathclyde moved Amendment No. 151: Page 215, line 46, column 3, at end insert ("In section 460(1), the words "(inspection of company's books and papers)" and "under section 440".").

The noble Lord said: My Lords, in moving this amendment I should like to speak also to Amendment No. 153. These are minor technical amendments. I beg to move.

On Question, amendment agreed to.

Lord Strathclyde moved Amendment No. 151A: Page 215, line 55, column 3, at end insert ("In section 651(1), the words "at any time within 2 years of the date of the dissolution".").

The noble Lord said: My Lords, these amendments arise and are consequential upon the Amendment No. C73 to Section 651 of the Companies Act 1985 which was debated in Committee on recommittal of Part V and was accepted by this Chamber. The new Amendment No. C73 to Section 651 achieves in a better way the aim of the earlier provision and these amendments arise and are consequential upon that new amendment. I beg to move.

On Question, amendment agreed to.

Lord Strathclyde moved Amendments Nos. 152 to 153:

Page 215, line 55, column 3, at end insert ('In section 733(3), the words from "then" to "216(3)".").

Page 216. line 29. at end insert— ("1985 c. 65. Insolvency Act 1985. In Schedule 6, paragraph 45.").

Page 216, line 21, column 3, at beginning insert ("In Schedule 15, in paragraph 3(2)(b), the words ", a shadow director".").

Page 216, line 47, column 3, at end insert ("In section 199(9), the words from "and, in relation" to the end.").

On Question, amendments agreed to.