Companies Bill [H.L.]

HL Deb 21 February 1989 vol 504 cc528-84

House again in Committee.

Lord Strathclyde moved Amendment No. 227Z (80E):

Before Clause 91, insert the following new clause (".Invalidity of certain transactions involving directors.

—(I)In Part X of the Companies Act 1985 (enforcement of fair dealing by directors), after section 322 insert—

"Invalidity of certain transactions involving directors, etc.

322A.—(1) Where in relation to a transaction entered into by the company the board of directors exceed their authority to bind the company, or to authorise others to do so, and the parties to the transaction include—

1. (a)a director of the company or of its holding company, or
2. (b)a person connected with such a director or a company with whom such a director is associated,

the transaction is void as between the company and any such party, unless ratified by the company.

(2)This does not affect the operation of section 35A in relation to any other party to the transaction who deals with the company in good faith within the meaning of that section.

(3)Where a transaction is void by virtue of subsection (1) as against one person and valid by virtue of section 35A in favour of another, the court may, on the application of the latter or of the company, give such directions as to the severance of the transaction or its setting aside, on such terms, as appear to the court to be just.

(4)In this section "transaction" includes any act.

(5)Nothing in this section shall be construed as excluding the operation of any other enactment or rule of law by virtue of which any such transaction as is mentioned in subsection (I) may be called in question.".

(2)In Schedule 22 of the Companies Act 1985 (Provisions applying to unregistered companies) in the entries relating to Part X, insert—

"section 322A

Invalidity of certain transactions involving directors, etc.

Subject to section 718(3).".").

The noble Lord said: This amendment deals with a new clause which provides an exception in a specified case to the provisions in the earlier clause which relate to the validity of transactions which exceed the authority of the directors. If a transaction involving as a party a director of the company or its holding company or a person connected or associated with such a director exceeds the board's power to bind the company, it is to be void as between the company and any such party unless it is ratified by the company. The clause makes provision for the interests of other parties to the transaction to be safeguarded.

The reason for this new clause is to discourage new Section 35A being used as a vehicle for fraud. It would otherwise be quite easy for a dishonest director to misuse his power to bind the company without limitation. The new clause will assist a company to recover any property or other moneys which have been transferred fraudulently. I beg to move.

Lord Lloyd of Kilgerran had given notice of his intention to move, as an amendment to Amendment No. 227Z(80E), Amendment No. 227Z(80F):

In section 322A, leave out subsections (2) and (3).

The noble Lord said: I was going formally to move this amendment but in the interval in the Committee stage of this Bill I have had the opportunity of discussing it with the noble and learned Lord, Lord Brightman. In view of the suggestions which he has made and the advice he has given, I shall not move the amendment.

[Amendment No. 227Z(80F) not moved.]

Lord Williams of Elvel

To adopt the language used by the noble Lord, Lord Strathclyde, Amendment No. 227Z(80E) deals with the invalidity of certain transactions involving directors. Once again, I am in a position of not being able to move specific amendments and instead I am commenting on government amendments. I hope very much that the Government will pay attention to those comments. No doubt they will also receive comments on the proposed new clause from other parties.

New Section 322A specifies at the end of subsection (1) that, transaction is void as between the company and any such party, unless ratified by the company". I am concerned that the other party should not be involved in the process of voiding the transaction. It is the company which has the right to void rather than there being a joint agreement of some kind between the two parties.

Subsection (2) starts with the word "This". It is not clear what the word "This" refers to. The noble Lord says "again", but there are certain syntactical rules in the English language which govern what the word "This" means when used at the beginning of a sentence: it refers to the last point in the previous paragraph. If the parliamentary draftsman insists on using the word "This", we must interpret it as referring to what happened in the previous paragraph unless there is indication to the contrary. In traditional drafting we should have had the words "subject to subsection" this, that or the other. In this case, subsection (1) represents this, that and the other. "This" is an expression which is vague in its application.

Subsection (3) states: "Where a transaction is void". Either a transaction under subsection (1) is voided by the procedures mentioned in subsection (1) or it is not voided by those procedures. I believe that the word in subsection (3) should be "voidable", because subsection (1) provides an option which allows the transaction either to be voided or not to be voided. I think that the draftsman may well have used the wrong expression.

Subsection (4) states that the word "transaction" includes any act. It is my understanding that an act, in the legal definition of that word, is wider than a transaction. A transaction is a specific deal involving two parties. In order to have a transaction one has to have two parties. An act can be a unilateral act. Therefore to say that a transaction includes any act is to say that an event which takes place between two contracting parties includes something which may be done by one party without the intervention of a second party. It would probably be better if the subsection were to read "'ace includes any transaction". I leave that point for the consideration of the noble Lord when he comes to reply.

I wonder why the draftsman has used the word "transaction" in this new clause rather than using it throughout. We are dealing mostly with arrangements between two parties, and, if we are talking about "acts", those include acts which are not transactions. I am sorry to niggle about the wording, but I believe that the language must be right. I hope that the noble Lord will consider what I have said.

Lord Strathclyde

Again, the noble Lord, Lord Williams, has made numerous points in connection with the new clause. Perhaps I may repeat what I said in reply to an earlier point. I am very happy to listen to his words and to look further at areas which he has suggested need to be changed.

The noble Lord referred to the words in Section 322A(1): unless ratified by the company". The third party has no role in ratifying transactions. It is the company which is limited by its capacity and not the outside party. Therefore the question does not arise.

Lord Williams of Elvel

I am sorry to interrupt the noble Lord. What happens if the other party decides that the transaction is void?

4.15 p.m.

Lord Strathclyde

Perhaps I may come to the question of what is void or voidable in a moment. Turning briefly to the question of ratification, if the company ratifies a transaction the third party cannot back out. That is that.

The noble Lord made a strong point about the syntactical use of the word "This". He also raised the point earlier in connection with the previous amendment. In this context the word "This" clearly refers to new subsection (1) as a whole. The noble Lord said that in the past there was a traditional way of drafting this kind of clause. Even parliamentary counsel have to keep up with modern values, and this is the modern style of drafting. Again, therefore, the noble Lord's question does not arise.

Lord Williams of Elvel

I am most grateful to the noble Lord. I accept that parliamentary counsel have to keep up with colloquialisms. That does not mean that they have to use slang.

Lord Strathclyde

We do not regard this as slang. However, it is an issue that we are quite happy to look at. This is the modern style of drafting and for the time being we shall continue to use it.

The noble Lord also spoke at some length as to why a transaction is void rather than voidable. I say "at length" because he spent some time in his speech, which was not long—he is speaking very quickly today—on the matter. Why is a transaction void rather than voidable? It is because the onus should be on the directors to justify a transaction to their shareholders. If the transaction were merely voidable dishonest directors could not exercise their right to void it. Therefore the shareholders might not learn of the transaction. The very word "transaction" provides a special definition which helps the section. The draftsman has used the word "transaction" because it is difficult to speak of parties to an act. Therefore the word "transaction" is more suitable. I hope that that reply has answered all the noble Lord's questions.

Lord Williams of Elvel

I am grateful to the noble Lord. I am sure that he will look very carefully at what I have said, and I shall look very carefully at what he has said. I am sure that he will receive certain representations on these matters between now and Report stage. However, I do not wish to hold up the Committee's business.

On Question, amendment agreed to.

Lord Strathclyde moved Amendment No. 227Z(80G):

Before Clause 91, insert the following new clause:

("Statement of company's objects.

—In Chapter I of Part I of the Companies Act 1985 (company formation), for section 4 (resolution to alter objects) substitute—

"Statement of company s objects.

4.—(I) The objects of a company may be stated in any manner.

(2) A statement that the object of the company is to carry on business as a general commercial company means that the object of the company is to carry on any trade or business whatsoever, and in such a case the company has power to do all such things as are incidental or conducive to the carrying on of any trade or business by it.

(3) A company may by special resolution alter its memorandum with respect to the statement of the company's objects.

(4) If an application is made under the following section, an alteration does not have effect except in so far as it is confirmed by the court.".)

The noble Lord said: The main changes introduced by this new clause allow the objects of a company to be freely amended by special resolution. It provides that if the object of a company is stated to be to carry on business as a general commercial company, that is to mean that the object of the company is to carry on any trade or business whatsoever, and the company is to have powers to do all such things as are incidental or conducive to that end. The adoption of objects as a general commercial company will mean that the company will effectively have opted out of the ultra vires rule for internal purposes. That will be a matter for the shareholders, as it properly should be. I beg to move.

Lord Lloyd of Kilgerranhad given notice of his intention to move, as an amendment to Amendment No. 227Z(80G), Amendment No. 227Z(80H):

In section 4, leave out subsection (2).

The noble Lord said: As the noble Lord, Lord Williams, will no doubt want to clamber through this clause, giving us a careful analysis of what parts of it mean, I do not think it is appropriate for me to move my amendment at this stage, particularly as I understood the noble Lord to say that a number of representations will be made to the Government in this area.

[Amendment No. 227Z(80H) not moved.]

Lord Williams of Elvel

The Committee will be most grateful to the noble Lord, Lord Lloyd of Kilgerran, for explaining at length why he is not moving his amendment. Perhaps I may turn to the substantive government amendment. This is more important than the noble Lord, Lord Strathclyde, in his slightly brief introduction implied. If the objects of a company may be stated in any manner, this allows me or any other noble Lord, or any two noble Lords, to found a company with limited liability, which as we have previously agreed is a privilege, and to state the objects of the company in any manner.

This would allow this new company that perhaps the noble Lord, Lord Strathclyde, and I are about to form to express its objects as follows: "The objects of this company are to exist", or alternatively to say: "The objects of this company are to do anything, whether trading or not". I understand the first directive requires an objects clause but, as the noble Lord, Lord Morris, pointed out during our previous discussions, it is rather odd that we are having in legislation the ability to produce a company with objects which mean absolutely nothing at all.

There is a point of substance here, because traditionally, as I say, limited liability being a privilege, shareholders investing in a company are entitled to know what the company is meant to be doing, and if the company is meant to be doing anything and if it can just be there to exist, this is a very odd expression of a company.

We may have in subsection (3) a special resolution—incidentally, I believe that subsection (2) is otiose because once you accept subsection (1) it means that subsection (2) is included almost de facto—which says: A company may by special resolution alter its memorandum with respect to the statement of the company's objects". Suppose the noble Lord, Lord Strathclyde, and I have formed a company whose object is to exist: we then sell our shares to the public on that basis and they invest on that basis but we together hold 75 per cent. of the company. We may then change the objects of that company by the provision of new Section 4(3) to whatever we want. We may change it in any direction and the minority shareholders may be wholly unable, and indeed are wholly unable, subject to the court, to impede us in what we want to do.

This is a point of substance. It is not simply a point of drafting. Either we have companies that have certain objects which may be changed by resolutions of shareholders or we have companies whose objects are to do anything—in which case you might as well do away with the objects clause—and shareholders do not know what they are dealing with. It is important for shareholders, for creditors and for consumers to know what the objects of a company are. It is also important for the general public to know what the objects of a company are. Just to have something which says: The objects of a company may be stated in any manner", in order that the first directive may be complied with so that we have objects, seems to me to be rather extraordinary. So I ask the noble Lord whether he would be kind enough to explain exactly how the Government respond to my points and what he believes a company of the future should consist of. Should it be a company which sets out to say, "We shall do this, that and thus and not a lot of other things"? Should it perhaps be a company which says, "We are here to exist and that is the end of it"?

Lord Peyton of Yeovil

I recognise that one has to he somewhat brazen to interfere in the dialogue, not all of it very thrilling, which is proceeding not all that fast between my noble friend on the Front Bench and the noble Lord, Lord Williams. My noble friend told us at an earlier stage that the Government had benefited from the advice of many interested parties.I wonder whether my noble friend would be good enough to explain to me—because I fail absolutely to understand it—what has happened which has made this new clause necessary since the Bill was originally printed. It does not seem to me to contain any really original ideas and I can only imagine that he must have had some very powerful representations, pointing out why this on the face of it not very exciting clause is so urgently necessary.

Lord Strathclyde

Perhaps I could reply to the various comments made on this clause. First, subsection (1) states: The objects of a company may be stated in any manner". It is concerned, in other words, with form and not with substance. That particular subsection is also subject to Section 3 of the 1985 Act. It does not permit no objects to be stated, which I think is very relevant to what the noble Lord, Lord Williams, was saying.

To have the object of pursuing any activity which the company may think is profitable is of course entirely legitimate. Therefore when the noble Lord raised the example of a company whose object was simply to exist, as I said, it is entirely legitimate to carry out that activity which the company thinks is profitable. That would be fair enough.

The noble Lord, Lord Williams, said that shareholders would be prejudiced if there was no objects clause, but of course it will be up to the shareholders to decide what they should be doing. Therefore, I think that point is covered. The effective abolition of the Ultra vires rule will mean anyway that third parties will be unaffected. Objects therefore matter only in internal terms.

The noble Lord, Lord Williams, gave the example of a company of which he and I owned 75 per cent. after selling our shares to members of the unknowing, trusting public which would be in trouble if we changed the memorandum. However, permitting any change of objects is not detrimental to minority shareholders. They have a right to apply to the courts under Section 459 on grounds of minority prejudice and, therefore, their rights are reserved.

My noble friend Lord Peyton asked about this section as a whole, which is part of an overall package of ultra vires introduced today. There has been, as I am sure the noble Lord is aware, substantial negotiation with interested parties which will continue over the next few months as this Bill continues its passage through this House and another place. I hope that the noble Lord will not look too unfavourably on it at this very early 51 age.

4.30 p.m.

Lord Williams of Elvel

I am sure that we are grateful to the noble Lord for his explanation of the Government's present position. I am sorry that the noble Lord, Lord Peyton of Yeovil, does not find this discussion thrilling; it is unfortunately part of the working of the House that we have to go through amendments that the Government have tabled. There is no answer to the question of the noble Lord, Lord Peyton, other than to say that consultations are still taking place and no doubt further amendments will be brought forward. That comes back to what I said during Second Reading; that the Government will write the Bill as it goes along but this is something that we have come to accept and will no doubt continue to accept.

On Question, Amendment No. 227Z(80G) agreed to.

Lord Strathclyde moved Amendment No. 227Z(80J):

Before Clause 91, insert the following new clause:

("Charitable companies.

(1) In the Charities Act 1960, for section 30 (charitable companies) substitute—

"Charitable companies: winding up

30. Where a charity may be wound up by the High Court under the Insolvency Act 1986, a petition for it to be wound up under that Act by any court in England or Wales having jurisdiction may be presented by the Attorney General, as well as by any person authorised by that Act.

Charitable companies: alteration of objects clause

30A.—(1) Where a charity is a company or other body corporate having power to alter the instruments establishing or regulating it as a body corporate, no exercise of that power which has the effect of the body ceasing to be a charity shall be valid so as to affect the application of—

1. (a) any property acquired under any disposition or agreement previously made otherwise than for full consideration in money or money's worth, or any property representing property so acquired,
2. (b) any property representing income which has accrued before the alteration is made, or
3. (c) the income from any such property as aforesaid.

(2) Where a charity is a company, any alteration by it of the objects clause in its memorandum of association is ineffective without the prior written consent of the Commissioners; and it shall deliver a copy of that consent to the registrar of companies under section 6(1)(a) or (b) of the Companies Act 1985 along with the printed copy of the memorandum as altered.

(3) Section 6(3) of that Act (offences) applies in relation to a default in complying with subsection (2) as regards the delivery of a copy of the Commissioners' consent.

Charitable companies: invalidity of certain transactions

30B.—(1) Where a company is a charity, section 35 of the Companies Act 1985 (capacity of company not limited by its objects), and section 35A(1) to (3) of that Act (power of directors to bind company) so far as relating to an act of the company which goes beyond its objects, do not apply except in favour of a person who—

1. (a) gives full consideration in money or money's worth in relation to the act in question, and
2. (b) does not know at the time the act is done that it is beyond the objects of the company.

(2) Subsection (1) does not apply where the person does not know at the time the act is done that the company is a charity.

(3) In any proceedings arising out of subsection (1) or (2) the burden of proving

1. (a) that a person did know that an act was beyond the objects of a company, or
2. (b) that a person did know that a company was a charity, lies on the person making that allegation.

(4) Where a company is a charity, the ratification of an act under section 35A(4)(a) of the Companies Act 1985, or the ratification of an act which would otherwise be void by virtue of section 322A(I) of that Act, is ineffective without the prior written consent of the commissioners.

Charitable companies: status to appear on correspondence, etc.

30C.—(1) Where a company is a charity and its name does not include the word "charity" or the word "charitable", the fact that the company is a charity shall be stated in English in legible characters—

1. (a) in all business letters of the company,
2. (b) in all its notices and other official publications,
3. (c) in all bills of exchange, promissory notes, endorsements, cheques and orders for money or goods purporting to be signed by or on behalf of the company, and
4. (d) in all its bills of parcels, invoices, receipts and letters of credit.

(2) Section 349(2) to (4) of the Companies Act 1985 (offences in connection with failure to include required particulars in business letters, &c.) apply in relation to a contravention of subsection (I) above.".

(2) In section 46 of the Charities Act 1960 (definitions), at the appropriate place insert— company' means a company formed and registered under the Companies Act 1985, or to which the provisions of that Act apply as they apply to such a company,".").

The noble Lord said: With the leave of the Committee I should like to speak also to Amendment No. 227Z(80K). These clauses qualify in the case of charitable companies the provisions in the earlier clauses on capacity and the power of directors to bind their companies. They also make related and incidental provision. The main effect is that the relevant provisions in the earlier clauses are in the case of a charitable company only to apply in favour of a person who gives full consideration in relation to the act in question and who does not know at the time the act is done that it is beyond the objects of the company. As will be apparent, there will be no protection in the case of gratuitous acts.

The purpose of these provisions is to protect honest third parties who deal with charitable companies for value, while at the same time both maintaining the system of supervision and control of charitable companies by the courts and facilitating the recovery of properties and moneys misapplied by the directors of charitable companies. They have been drafted in close consultation with the Charities Commission.

Ultra vires is of particular importance to charitable companies, for the control of them by the Charities Commission and the Attorney-General through the courts is based on the limitations on their capacity and powers set out in their object clauses. We wish to disturb this system as little as possible, but at the same time we want to continue to protect honest third parties who provide valuable consideration, as indeed they are already protected under the existing Section 35.

We have therefore constructed a special regime for charitable companies. An honest third party who has given full consideration and does not know that an act is beyond the objects of the company will be protected. However, the Attorney-General will still be able to go to the courts to overturn an ultra vires act and recover property where the third party has not given full consideration or knows that the act is beyond the company's objects. Noble Lords will appreciate that people who donate money to a charity expect it to be used for the charity's expressed purposes and not misapplied or put to some other purpose, whether charitable or not. These provisions will help protect their wishes and thereby help to preserve the public interest in charitable giving.

In order to prevent this special regime undermining the main regime affecting companies in general, the provisions of the main regime will apply where a third party does not know that a company is a charity, and a person is to be presumed not to know this unless the contrary is proved. However, there are provisions in the clause which require a charitable company to make clear that it is charitable, and this should assist the operation of the charitable regime and both prevent it threatening the benefits of the main regime and make it easier to recover misapplied property. I beg to move.

Lord Peston

I should like to ask two questions about this new clause. Like other noble Lords, I have great difficulty in following any of it. I am asking for enlightenment. Could the noble Lord explain more clearly than he has what it is about charities that requires their aims or objects to be set out in this very definite and clear way that does not apply to other companies? I was totally lost at that point in the noble Lord's contribution as to what was special about charities, he having said earlier that all other companies were not required to say anything other than, "We are in business as companies".

My second question is, do we have evidence that this clause is needed? Does the department have many examples of problems that have arisen from charitable companies which would have been solved if these clauses were already enacted in statute? In particular I am most intrigued by Section 30C(1), which concerns the situation when the word "charity" does not appear in the name. It states that: The fact that the company is a charity shall be stated in English in legible characters". I assume that "legible characters" is a concept known to the law. Then there are set out all these different paragraphs. Do we have evidence that up to now, because such companies have not explained that they were charities or explained it in illegible characters, various difficulties have arisen? Does this clause have any purchase on a real problem or is it included for some theoretical reason?

Lord Strathclyd

e: The noble Lord, Lord Peston, made some interesting comments. I am sorry that he did not understand what I was trying to explain in my initial speech as to why we were treating charities differently. Perhaps I could repeat a little of what I said without wishing to bore the rest of the Committee. It is important. Ultra vires is of particular importance to charitable companies in their control by the Charities Commission and the Attorney-General through the courts, based on limitations on their capacity and powers set out in their object clauses. This system has worked extremely well in the past and we do not wish to disturb it any more than we have to. However, we must protect honest third parties who provide valuable consideration, as indeed they are already protected under the existing Section 35.

Lord Peston

I am most indebted to the noble Lord. I follow that part of the argument. I entirely accept the fact that for all sorts of control purposes one wants to know why a charitable company is in existence. However, earlier the noble Lord said that we did not need to know why other companies were in existence. I cannot see the consistency of that position. I should have thought that for all sorts of reasons it would be worth while to know precisely what business a company was in. If I were a potential creditor of any company I would not find it satisfactory to be told that this is a general commercial company that can do anything it likes.

If I may say so, I find the argument on charities entirely cogent. However, I do not see how it fits in with the earlier clause where we were being persuaded that we could get rid of ultra vires. I am merely probing for some consistent position.

Lord Strathclyde

I apologise to the noble Lord, Lord Peston, if I have misunderstood what he was trying to say. We feel that charities in this context should be treated differently from all other sorts of companies. The noble Lord said that we are being inconsistent in this approach. We are not being inconsistent; we are being very consistent in treating charities in very much the same way as they have been treated in the past, but simply allowing non-charitable companies to be able to change their rules for the reasons that I have already outlined.

The noble Lord asked why we had listed various requirements under Section 30C. The Government will be bringing forward legislation on charities at some stage because there is a certain amount of evidence of misappropriation of funds. There are some problems.

Without the requirement that we have proposed here, having two sets of provisions—one conferring a great deal of protection on third parties in relation to companies other than charities, the other conferring a lesser degree of protection on third parties dealing with charitable companies—is likely to undermine the utility of the former. In order to know what protection they have, third parties will have to investigate whether the company with which they are dealing is charitable or not.

There is a danger that third parties will be obliged to base themselves on the lowest common denominator and some of the advantages of our main reforms would be lost. We therefore propose a requirement which will make it easy to tell whether a company is charitable or not.

Lord Peston

Perhaps I may briefly pursue the point. I understand that argument. However, my question went further. I was asking for evidence. I can accept theoretically that some difficulty may arise. In rather a throw-away remark the noble Lord referred to "misappropriation of funds". That is a new idea which has emerged here. I understood him to be saying that it will be dealt with in other legislation. My question was this: are we discussing a logical possibility in order to clean things up but one which has no connection with what goes on in the real world, or has the department some evidence of problems that emerge in the real world that this provision would have solved if they had been in existence? So far as I can gather from the noble Lord, either he does not have any evidence or is not ready to give us the evidence. I have heard nothing of an evidential as opposed to an analytical nature in answer to my question.

Lord Coleraine

Like my noble friend Lord Peyton, I am reluctant brazenly to interrupt or intervene in this long-standing conversation between the noble Lord, Lord Peston and my noble friend. However, surely the question that the noble Lord, Lord Peston, asked, whether there is evidence that these provisions are needed, is not apt. This clause is surely needed because the previous clause abolished the ultra vires rule. It is a question of whether certain elements of the ultra vires rule should be preserved for charities. It is not a question of where evidence arises. It is an entirely new situation.

Lord Williams of Elvel

There is a question as to whether it should be an amendment of the Charities Act or an amendment of the Companies Act.

Lord Strathclyde

Perhaps I may briefly answer that point. We are dealing with company law where we are changing the rule of ultra vires. Therefore it is perfectly apt to deal with the aspects of charities that we are not changing under this Bill under the clauses that we have introduced here.

The noble Lord, Lord Peston, asked about abuses and what evidence we had. Perhaps I may refer him to the Woodfield Report. The Government will be bringing forward a White Paper on the control of charities very shortly.

Lord Williams of Elvel

Will the noble Lord answer my question? Why is it an amendment of the Companies Act and not the Charities Act? It could perfectly easily be done in the Charities Act.

Lord Strathclyde

I think that the noble Lord is confusing himself with the Bill with which we are dealing at the moment and the Charities Act. We are bringing forward these amendments to the Companies Bill because we have already changed the ultra vires provisions in the clauses with which we have been dealing. The Charities Act is probably the most appropriate place for these rules but Sections 30 and 30A(1) are redrafts of provisions already in that Act.

Lord Williams of Elvel

I am grateful that the noble Lord has the right answer in the end. There has been a lot of discussion on whether this should be an amendment to the Companies Act or to the Charities Act. I ask this simple question. Why have the Government come down on one side rather than the other?

On Question, amendment agreed to.

Lord Strathclyde moved Amendment No. 227Z(80K):

Before Clause 91, insert the following new clause:

("Charitable companies (Scotland).

—(1) In the following provisions (which extend to Scotland only)—

1. (a) "company" means a company formed and registered under the Companies Act 1985, or to which the provisions of that Act apply as they apply to such a company; and
2. (b) "charity" means a body established for charitable purposes only (that expression having the same meaning as in the Income Tax Acts).

(2) Where a charity is a company or other body corporate having power to alter the instruments establishing or regulating it as a body corporate, no exercise of that power which has the effect of the body ceasing to be a charity shall be valid so as to affect the application of—

1. (a) any property acquired by virtue of any transfer, contract or obligation previously effected otherwise than for full consideration in money or money's worth, or any property representing property so acquired,
2. (b)any property representing income which has accrued before the alteration is made, or
3. (c)the income from any such property as aforesaid.

(3) Where a company is a charity, section 35 of the Companies Act 1985 (capacity of company not limited by its objects), and section 35A(1) to (3) of that Act (power of directors to bind company) so far as relating to an act of the company which goes beyond its objects, do not apply except in favour of a person who—

1. (a) gives full consideration in money or money's worth in relation to the act in question, and
2. (b) does not know at the time the act is done that it is beyond the objects of the company.

(4) Subsection (3) does not apply where the person does not know at the time the act is done that the company is a charity.

(5) In any proceedings arising out of subsection (3) or (4) the burden of proving—

1. (a) that a person did know that an act was beyond the objects of a company, or
2. (b) that a person did know that a company was a charity, lies on the person making that allegation.

(6) Where a company is a charity and its name does not include the word "charity" or the word "charitable", the fact that the company is a charity shall be stated in English in legible characters—

1. (a) in all business letters of the company,
2. (b) in all its notices and other official publications,
3. (c) in all bills of exchange, promissory notes, endorsements, cheques and orders for money or goods purporting to be signed by or on behalf of the company, and
4. (d) in all its bills of parcels, invoices, receipts and letters of credit.

(7) Section 349(2) to (4) of the Companies Act 1985 (offences in connection with failure to include required particulars in business letters, &c.) apply in relation to a contravention of subsection (6) above.").

On Question, amendment agreed to.

4.45 p.m.

Lord Ezra moved Amendment No. 227Z(81):

Before Clause 91, insert the following new clause:

("Dividend deemed not to be paid.

. The following is added at the end of paragraph 3 of Part IV of Schedule 1 to the Trustee Investments 1961—

"For the purposes of sub-paragraph (b) of this paragraph a company shall not be deemed not have paid a dividend on all its issued shares merely because in respect of some or all of them it pays a stock dividend which is treated as income pursuant to section 249 of the Income and Corporation Taxes Act I988."").

The noble Lord said: On behalf of my noble friend I should like to put this amendment forward. It is of a purely technical nature. Its objective is to make it clear that, a company shall not be deemed not to have paid a dividend on all its issued shares merely because in respect of some or all of them it pays a stock dividend which is treated as income pursuant to section 249 of the Income and Corporation Taxes Act 1988". We believe that this would be a helpful amendment. I beg to move.

Lord Strathclyde

Initially I was rather surprised and little puzzled to see this amendment down on the Marshalled List. As I understand it, it is seeking to change the Trustee Investments Act to allow trustees who are covered by the Act to invest in a slightly wider range of companies—those which have paid dividends to some shareholders in shares rather than cash at some time in the past five years. Setting aside for a moment the complex rights and wrongs of this issue—on which I shall touch in a moment—I do not regard this as an appropriate subject necessarily to be dealt with in the context of this Bill.

Members of the Committee are aware of the many important subjects covered by the Bill and the limited time available for debate. This amendment can be regarded only as tangential to the substance of this Bill. There is further reason why it would not be right to take a decision on the amendment here. The Trustee Investments Act has provided valuable guidelines for prudent investment by trustees for nearly 30 years. Inevitably, as financial markets have developed, there are parts of the Act which have not fully kept pace and we believe that it will be necessary to subject the Act to a thorough review in due course in the context of a wider review of trustee investment powers in general. Accordingly we are reluctant to consider piecemeal amendments to the Act before such a review takes place.

These arguments might not be decisive if this part of the Trustee Investments Act was causing serious and unnecessary inconvenience or harm to trustees, to beneficiaries of trusts, to companies or to their shareholders. I have no evidence that it does so. It is normal practice for trustees to be given a wider investment power than those prescribed in the Act. Therefore most trustees would not be affected by this amendment. Many companies offer shareholders the option of a stock dividend instead of cash and are not constrained by this paragraph of the Trustee Investments Act in doing so.

Accordingly, for all these reasons I ask the noble Lord to withdraw this amendment.

Lord Ezra

From what the noble Lord has said, I take it that he feels this would not be a relevant amendment to consider in the present circumstances but that it could arise on a later occasion in other circumstances. On that basis I withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Williams of Elvel moved Amendment No. 227A:

Before Clause 91, insert the following new clause: ("Financial assistance to employees to acquire shares . Part V, Chapter VI of the Companies Act 1985 is amended as follows— In section 152(a)(iv) at end insert except for assistance given for the purposes of an employees' share scheme designed to enable employees to acquire fully-paid shares in a company or its holding company.".").

The noble Lord said: In my Second Reading speech I mentioned that one of the major gaps in the Bill was a provision to encourage employee ownership of shares in companies. There are many ways of doing so. I wish to distinguish between the amendment that I am moving and Amendment No. 228 in the names of the noble Lords, Lord Lloyd of Kilgerran and Lord Lucas of Chilworth. That amendment is on the narrow point, if I may put it that way without disrespect, of employee share ownership programmes, otherwise known in the jargon as ESOPs.

The principle of employee share ownership is one that we are seeking to establish in the Bill and also that that principle should be supported by the use of company funds to encourage share ownership. Experience in the United States has shown that by that method, if employees own a substantial part of a company by which they are employed, morale and productivity go up. Together, if they decide to combine, they could exercise influence over the general shareholding and, indeed, the management of the company that in our view could have a substantial impact on the ability of employees to respond when their company is the subject of an offer in a takeover bid.

Employee share ownership has a chequered history. In 1978 we saw the introduction of profit-sharing schemes in the Finance Act 1978, which introduced the idea that shares could be distributed out of a certain proportion of the distributable UK profits to employees. The next major step was in the Finance Act 1982, which made stock options much more tax efficient for senior executives because it was geared essentially to top management and senior executives. In some privatisation issues we have had a proportion of the issue reserved to employees on favourable terms. Nevertheless in our view there has not been any sustained programme to enable employees to acquire shares in the company which employs them.

At this stage I do not wish to go into the type of scheme that we on these Benches might favour, I hope that the noble Lord, Lord Lloyd of Kilgerran, will be moving his amendment which favours a particular type of scheme. My objective is to ensure that we implant the principle in the Bill that companies' funds may be used to enable employees to acquire fully paid shares in a company or its holding company. The argument has been adduced against my amendment that it would constitute a reduction in net assets and the use of undistributable profits. I reject those arguments because they fail to distinguish between liability on the capital side and on the asset side of the balance sheet. If a company uses its cash to fund employees' acquisition of fully paid shares, it substitutes as an asset its cash for a loan to its employees. The security it has for that loan would be the shares that the employees have bought with the use of those funds. In my view that is consistent with Sections 151 to 158 of the Companies Act 1985 which make provision for the use of company funds in certain circumstances.

I do not believe that the use of company funds, for whatever scheme there might be—whether for an ESOP or for any other scheme that may be devisedis an improper matter. Indeed I believe that we should encourage it. The shares end up in the hands of employees. The assets will be the loans, or whatever is made, to individual employees, to trusts or to any other scheme that may in the future be invented. I am seeking to achieve, however we may amend or modify this amendment, the establishment in the Bill of the basic principle that company funds may be used to enable employees to acquire fully paid shares in the company that employs them. That is why my amendment is much wider in scope than that of the noble Lord, Lord Lloyd. I believe it is essential to have in the Bill support for what we on these Benches believe will be the main movement in the 1990s, as I said in my Second Reading speech, to involve employees as shareholders in the companies which employ them. I beg to move.

Lord Lloyd of Kilgerran

I entirely agree with the noble Lord, Lord Williams of Elvel. This is a very important area from an industrial relations point of view. As the noble Lord, Lord Williams, said, my amendment is narrower in scope than his. He confessed that he was seeking a wide amendment and by moving it he was seeking to insert the principle of ESOPs into the Bill. However, I feel that I should present a case to the effect that the noble Lord's amendment can be criticised on the ground that it does not properly provide safeguards for shareholders or creditors of public companies. In effect it would create a worrying carte blanche for quoted companies to do as they wished.

The noble Lord touched on the difficulties that he realised his amendment would raise. I feel that I should analyse the difficulties for him to answer so that I can make up my mind whether we shall support it or not. As the Committee may know, Section 151 of the Companies Act prohibits the giving of financial assistance for the acquisition of its own shares by a company or any of its subsidiaries. Section 152 defines the term "financial assistance". Section 153 describes certain situations, including financial assistance for employees' share schemes, to which the Section 151 prohibition does not apply. However Section 153 remains subject to special safeguards in the case of public companies and these are contained in the following section, Section 154. In my submission the amendment of the noble Lord, Lord Williams, appears to transgress the field of Section 154, because that section prevents a public company from using capital or non-distributable profits to finance the purchase of its own shares. In other words the same basic restrictions apply to the giving of lawful financial assistance as apply to the payment of dividends.

The problem therefore with the amendment is that it would amend the definition of "financial assistance" and that it would not apply to assistance given to employees' share schemes. I am always reluctant to try to analyse at any length a clause in any Bill, but this is such an important matter. I may be wrong in what I am submitting, but I should like to have the advice of the noble Lord, Lord Williams, or his comments on the rather full explanation I have given about the amendment.

Lord Strathclyde

I fully appreciate the noble Lord's desire to find means of encouraging the wider spread of employee share ownership schemes. That is an objective which is shared by the Government and much has already been achieved in that direction through various aspects of government policy. I believe that there are presently very few significant obstacles to the introduction of effective and worthwhile schemes. I understand the points which the noble Lord has made about the limitation which the specific reference to "money" in Section 153(4)(b) can be said to produce. However, I believe that the amendment would go much too far in opening the matter up.

A general exclusion of all forms of financial assistance to employee share schemes from the general prohibition on financial assistance by companies for acquisition of their own shares would increase the risk of manipulation of such provisions. For example, during a takeover the company might lend money to an employee share scheme to enable it to buy the company's shares at an artificially high price and help to fight off a takeover bid. I would remind the Committee that an employee share scheme might cover only selected employees. We think that it would be rather unwise to open up such possible areas for abuse. We believe that it would be much better to attempt to tackle this question—if it needs to be tackled at all—through a direct amendment to Section 153(4)(b).

Members of the Committee will be well aware that Amendment No. 228, which we shall be discussing shortly, contains proposals to amend that section. Although I do not wish to anticipate the debate on that amendment, I feel that the intention behind the noble Lords' suggested change would be better considered in that context. I shall have something a little more encouraging to say in connection with Amendment No. 228, if it is moved, and I hope in these circumstances that the noble Lord will withdraw Amendment No. 227A.

Lord Williams of Elvel

I am grateful to the noble Lords, Lord Lloyd and Lord Strathclyde. Is the Minister saying that he is prepared to accept Amendment No. 228?

Lord Strathclyde

I do not wish to pre-empt any discussions which the Committee may have on Amendment No. 228. The noble Lord, Lord Lloyd, has yet to move it, and it would be wrong for me to go into detail. However, I expect to be able to offer to discuss the matter further with the advocates of the changes with a view to identifying a solution which would avoid the pitfalls I have mentioned. The noble Lord will be aware that Amendment No. 227A is technically deficient as it stands in that it does not apply to the types of financial assistance mentioned in paragraphs (ii) and (iii) of Section 152(1)(a).

Lord Williams of Elvel

I am grateful to the Minister. If he can assure me that he is prepared to adopt what I regard to be the lesser position—which is to take away Amendment No. 228, assuming that the noble Lord moves it—it will affect my decision on Amendment No. 227A.

Lord Strathclyde

I do not wish to pre-empt any discussion on Amendment No. 228. There are aspects of it which we find interesting and to which we would seek to find a solution. However, the Government will not accept Amendment No. 228 in exactly its present form.

Lord Lloyd of Kilgerran

Perhaps I may help the noble Lord, Lord Williams, and Members of the Committee and so shorten the proceedings. I am grateful for the applause accorded that statement. I understand that the noble Lord, Lord Williams, moved his amendment in order to put on record the fact that he, his party and the public are in favour of wider share ownership. In replying to the noble Lord, the Minister has been good enough to say that he is more sympathetic to my amendment than to the noble Lord's amendment. There are some difficulties with his amendment. I shall be obliged if the Minister will say that he is sympathetic, and that in moving my amendment I need not speak at length beyond a few preliminary remarks.

Lord Strathclyde

I reiterate that we agree with Amendment No. 228 in principle. However, we must reserve our position and take account of any pitfalls which may emerge on further consideration.

Lord Lloyd of Kilgerran

I thank the Minister for that reply. I hope that it will satisfy the noble Lord, Lord Williams, and that we need not divide on this amendment.

Lord Williams of Elvel

I am grateful to the noble Lords, Lord Lloyd and Lord Strathclyde. Indeed, the Minister's reply does satisfy me. I was determined to put the provision into the statute but I recognise that I was arguing a point of principle. The noble Lord, Lord Lloyd, has tabled amendments in detail. Although they may be somewhat defective, they are aimed at the same cause.

If the Government accept our joint position I am happy to withdraw my amendment. I understand the Minister to have said to the noble Lord, Lord Lloyd, that the Government will take away his amendment, look at it and on Report bring forward a provision containing the same principle which is technically right. In the light of that undertaking, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

5 p.m.

Lord Lloyd of Kilgerran moved Amendment No. 228:

Before Clause 91, insert the following new clause: ("Financial assistance hr company for acquisition of its shares. . Part V, Chapter VI, of the Companies Act 1985 (financial assistance by a company for acquisition of its own shares) is amended as follows— In section I53(4)(b)— (i) delete the words "in accordance with" and insert the words "for the purposes of"; and

(ii) delete the words "money for" and insert the words "financial assistance in connection with- ").

The noble Lord said: I can be brief in moving the amendment. Employees' shares ownership plans (ESOPs) have become increasingly popular in recent years. The Secretary of State for Trade and Industry has publicly expressed his sympathy with such plans. Amendment No. 228 modifies Section 153(4)(b) in a technical way and overcomes many difficulties. In drafting the amendment I am grateful to the firm of Clifford Chance. I am instructed by ESOPs that the noble and learned Lord, Lord Oliver, who is unable to be present, has expressed support for it.

The amendment is of a probing nature. I understand that the Minister will be sympathetic and reflect upon the text that I have produced, although there may be technical difficulties. Perhaps the Government will bring forward their own amendment in this connection. I beg to move.

Lord Williams of Elvel

We are grateful to the noble Lord, Lord Lloyd, for bringing forward the amendment. When the Government take it away for consideration and bring forward a proposal on Report, I ask that in their drafting they consult both the noble Lord, Lord Lloyd, and myself so that we can reach all-party agreement on this important matter.

Lord Strathclyde

As I indicated in my response to Amendment No. 227A, the Government firmly believe in the wider spread of employee share ownership. They are not unsympathetic to the objective of the amendment. Nevertheless, the subject needs to be handled with considerable care in order not to provide the opportunity for abuse which the basic provisions of this part of the Bill are intended to avoid.

In the light of the arguments advanced today we are prepared to consider the removal of the limitation in respect of money. However, we first need to be convinced that the legislative changes necessary to enable the schemes to operate are practical and would be effective without increasing the risk of abuse; for example, manipulation during takeovers.

With that in mind we are prepared to discuss the matter further with the advocates of the changes, including the noble Lords, Lord Lloyd and Lord Williams. However, given the potential complications involved, I cannot give any assurance that the work will be completed by Report stage. Obviously, we shall do our best. I assure both noble Lords that we shall deal with the matter sympathetically and as expeditiously as practical. In those circumstances, 1 hope that the noble Lord will withdraw the amendment.

Lord Williams of Elvel

Before the noble Lord, Lord Lloyd, decides what action to take, I should like to say that 1 am grateful to the Minister for going that far. However, we on these Benches believe that we have a firm assurance from the Government that a provision will be forthcoming either on Report or, if it is delayed, at Third Reading and that it will pick up exactly the principles of the noble Lord's amendment. We also have the assurance that the noble Lord, Lord Lloyd, and myself will be consulted on the drafting, and if there is a problem with the timing we can perhaps consult our diaries and fix a date. We wish to proceed quickly with this matter.

Lord Strathclyde

I assure the noble Lord, Lord Williams, that there is no lack of enthusiasm for finding a satisfactory way forward on this concept. It is far more a matter of the complexity of the issue and limited resources. We have already had an example of that complexity in that the noble Lord, Lord Williams, brought forward an amendment which had substantial technical defects. We do not wish to do that.

As Members of the Committee will readily appreciate, this is a substantial Bill and there are many other issues on which the department's officials are working as a result of the deliberations in Committee. There seems to be no real need to give this item any greater priority than the other matters. The important point that I am trying to convey to the noble Lord is that in dealing with this very important issue we have to find the right solution rather than a quick one.

Lord Lucas of Chilworth

Perhaps I may intervene since I have my name down to Amendment No. 228. I have listened very carefully and I was rather heartened by the response of the Minister to the earlier amendment of the noble Lord, Lord Williams of Elvel. One was much encouraged by what he said then. However, in nearly everything else that he has said, he has drawn further backwards. That is the impression I received. If one is to look at matters sympathetically, one does not say that there is a resource implication. We must try to find a solution to something which arouses fairly strong feelings.

I am the only one who has spoken on this side of the Committee on Amendment No. 228, but I put my name to it, which reflects concern right across the Committee. I believe that the Minister has rather encouraged us to do our own thing and to come back ourselves to see what the House feels about this matter as distinct from the Committee.

It is not for me to suggest to my noble friend what he should or should not do. To avoid the possibility that the noble Lords, Lord Williams of Elvel and Lord Lloyd of Kilgerran and myself may take our own action in a fortnight or three weeks, I should like my noble friend to withdraw some of the reservations that he subsequently made to his earlier remarks.

Lord Williams of Elvel

Perhaps I may reinforce what the noble Lord, Lord Lucas, said. On this side of the Committee and I know that I also speak for the noble Lord, Lord Lucas, although we have not discussed it—we do not regard this as a matter of similar priority to other matters in the Bill. I mentioned on Second Reading that we regard this as a fundamental issue and a fundamental lacuna in this Bill. I should like an assurance from the Minister that this will be treated as a top priority by his department rather than merely being allocated priority No. 25 on the general list.

5.15 p.m.

Lord Morris

I did not receive that impression from my noble friend Lord Strathclyde. I thought he was trying to convey that it is infinitely more important to have it right than to have expedition. It is worth remembering that this Bill started in this Chamber and there is a lot of time for the Government to bring forward an amendment to give effect to the principle of the amendment of the noble Lord, Lord Lloyd of Kilgerran. It is absolutely essential that this area of the law should be right rather than that it should be dealt with quickly. This is a very difficult drafting point and many fine minds will be working on it for a long time. I suggest that that is what my noble friend said.

Lord Strathclyde

I should like to thank my noble friend Lord Morris for his remarks. I am glad that he felt encouraged by what I said. My noble friend Lord Lucas of Chilworth talked about resource limitations. He knows perfectly well that time is generally short, that there are priorities and that time will be taken up in discussing this matter. That is because it is complicated and not because we do not have enough officials to look at the matter or that there are not enough parliamentary counsel to deal with it. It is just that it is complicated and needs to be given a great deal of thought.

Before the noble Lord stands up, I believe that when he reads what I said in Hansard tomorrow he will see exactly what I meant. What I have said reflects the Government's position. Nothing that I say now can, as if by magic, remove any difficulties which may emerge. I do not say that we shall be looking for difficulties, but there are detailed difficulties in dealing with this important issue. As I said, we shall talk to both noble Lords to see how this matter can be dealt with most efficiently.

Lord Williams of Elvel

I am grateful to the noble Lord. What worried me and I believe provoked the intervention of the noble Lord, Lord Lucas, was his mention of the question of priorities. I should like an assurance from the noble Lord that this matter will be given the highest priority.

Lord Strathclyde

I believe that we have talked sufficiently on this subject, and it will be given the highest priority. I must add that that is no guarantee that we shall come back with something on Report.

Lord Lloyd of Kilgerran

As far as I understand the Minister, in the jargon which lawyers use, he has undertaken to use his best endeavours to produce an amendment in the shortest possible time. We realise that he is heavily pressed, but he now says that he has given this matter the highest priority. I understand that a meeting is being arranged with the Minister in about 10 days' time.

I also hope that the Minister will be able to bring back something, if not on Report then certainly at Third Reading and at any rate before the Bill leaves this Chamber. In the circumstances, unless the noble Lord, Lord Williams of Elvel, wishes to add anything further, I believe that it is almost my duty to beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Lloyd of Kilgerran moved Amendment No. 229

Before Clause 91, insert the following new clause: ("Transferred registration. . In Part V of the Companies Act 1985 (miscellaneous provisions about shares and debentures), after section 183(1) (which deals with transferred registration) insert (IA) Where the instrument of transfer relates to shares greater than 0.05 per cent. of the total equity of the company or is not a transfer on behalf of a number of small investors having less than 0-05 per cent. of the total equity of the company, the company may refuse to register the transfer unless the name and address of the beneficial owner of the shares is disclosed." ").

The noble Lord said: With the leave of the Committee, I shall speak also to Amendment No. 231. The object of these amendments is to deal with the practical difficulty experienced by many advisers to companies, whether the secretary or administrator of the company, to ascertain who is the beneficial owner of the shares at some stage. It has always been rather difficult to discover in certain transactions who is the beneficial owner of the shares. Inquiries may have to be pursued in the form of letters from one company to another before that is discovered. The object of these amendments— -and they are in effect probing amendments—is to attempt to bring finality to the discovery procedure to find out who is the beneficial owner of the shares.

My amendment states: Where the instrument of transfer relates to shares greater than 0.05 per cent. of the total equity of the company". If the shares exceed that figure and it is difficult to find out who is the beneficial owner, then the company may refuse to register the transfer unless the name and address of the beneficial owner of the shares is discovered.

I have been encouraged to put forward this amendment by what I read in the Economist of 21st January, which states: Investors and raiders have so many tricks up their sleeves that there is no easy way to ensure transparency and fairness. Still, the companies bill now before Parliament could he amended to make it harder for investors to hide a 'concert party'. When it registers shares, a company should he allowed to insist that the beneficial owner be revealed". Later the article suggests that to minimise the problems relating to small shareholders the extent of the proposed transfer should be greater than 0.05 per cent. of the total equity.

I have had some interesting correspondence in regard to my amendments. One organisation has written to me to say that the amendments are totally unnecessary because these conditions, or conditions like them, will be incorporated or are being incorporated in a code of practice. I am not sure that that is adequate in relation to the trouble experienced by many people in ascertaining who are the beneficial owners of shares when a transfer is to be effected. I beg to move.

Lord Peyton of Yeovil

I support this amendment. I believe that as matters stand at the moment the balance of advantage overwhelmingly lies with the bidder for a company's shares. The time has come when that balance should be redressed. I see no reason why, as the noble Lord, Lord Lloyd, said, a bidder should have the advantage of secrecy to the extent that he presently does. Even if the amendments are not entirely satisfactory from the Government's point of view, I hope that my noble friend the Minister will at least concede the principle and agree to bring forward an amendment covering the point on Report.

I have also received the same letter from the Association of British Insurers. I take it that was the correspondence referred to by the noble Lord. I understand why the association prefers a code of practice but I agree with the noble Lord, Lord Lloyd, in the opposite view.

I should also like to add that for many years I have been a part-time director of an insurance company—one which subscribes to the Association of British Insurers. There are times when I have felt that the association and its predecessors have not always faithfully represented the views of all those who subscribe to it.

Lord Strathclyde

This amendment could not, I believe, actually be made to operate in practice. Nor do I believe, even if it were practicable, that it would help significantly the identification of those with interests in shares.

The main reason the amendment would not work is that it is often impossible to identify a beneficial owner of shares. Very often different people will hold varying interests in the same shares. In some cases it might not be possible to say with certainty which of them is the beneficial owner. An investment manager might have the discretion to exercise the voting and transfer rights of shares in respect of which his client is entitled to receive the dividend; or, by virtue of Section 203 of the 1985 Act, members of the same family, or parts of the same group of companies, may be said to hold the same interest in shares by attribution. The potentially wide-ranging number of interests in the same shares is the reason Part VI of the 1985 Act is drafted to apply to any interest whatsoever. The term "beneficial owner", while familiar in everyday use, will often simply be meaningless in relation to the provisions of Part VI.

A further difficulty is that of verification. What is a company to do when it receives the purported name and address of a beneficial owner? The only means of verifying the information would be to send that person a notice under Section 212 of the 1985 Act. This would get companies no further than they are under the present law.

Even if the provision included in the amendment could be made to operate, it would not give companies a continuing picture of those with interests in their shares. A company might learn of the identity of the person who was the beneficial owner at the time of the transfer of the shares. But interests in shares can and do change hands frequently without there being any formal transfer. The picture disclosed by the provision would be frozen in time. Those who wished to evade it would only have to avoid a formal transfer and the company would be none the wiser.

I should add that a system similar to that put forward by this amendment was discussed in the DTI's consultative document of August 1988. It attracted very little support even from those companies who responded to the document. In addition to the practical difficulties that I have outlined, there was considerable concern about the burden that the proposal might place not only upon shareholders but also upon companies who would receive a large number of notifications giving information much of which they would regard as of little use.

I believe that the steps the Government are taking to lower the notifiable percentage and to reduce the period of disclosures are the right way to proceed on this matter. Therefore, I hope that the noble Lord will withdraw his amendment.

Lord Peyton of Yeovil

In my brief remarks I entered a plea to my noble friend not to do what he has just done. The noble Lord, Lord Lloyd, can speak for himself, but he is asking for the veil to be taken away from the whole business of nominees' names.

It may be that the precise proposal put forward is unworkable for the reasons given by my noble friend, but I hope he will accept that some of us are concerned about this point. The Government have a far greater machinery at their disposal than we have to consider these matters. Therefore, I hope that my noble friend will not be content to turn down this amendment but will agree to look again to see whether this question of nominees can be dealt with in some other way. If not, I should be very much disposed to support the noble Lord, Lord Lloyd, on the basis that it is better to have something bad in the Bill than the vacuum that presently exists.

Lord Williams of Elvel

I add a few words from these Benches in support of the noble Lord, Lord Lloyd of Kilgerran, and the noble Lord, Lord Peyton. It is a matter that the Government should take seriously. We like to think that we reflect the opinion in all parts of the Committee that it is a major problem. Perhaps the noble Lord, Lord Strathclyde, will reconsider.

Lord Strathclyde

There is no question of throwing out the general principle behind what was said by the noble Lord, Lord Lloyd of Kilgerran, and my noble friend Lord Peyton of Yeovil. The Government's position is that there are alternative ways to create the transparency or lift the veil, as my noble friend Lord Peyton put it, to see who are the owners behind shares.

My noble friend suggested that with the Government's massive resources we should be able to come up with a workable amendment. We have given this matter a great deal of thought. We genuinely believe that the principles underlying this amendment, though produced for all the right reasons, would not help companies one single bit. As I said in my initial reply to the noble Lord, companies could easily evade it by working out various schemes. It would create a bureaucracy which was completely unnecessary. A question concerning the abolition of nominees was raised in the consultation exercise that I mentioned. It was not generally supported.

What we are seeking is to strike a balance. We feel that the balance proposed by the noble Lord, Lord Lloyd, is tipped in the wrong direction.

5.30 p.m.

Lord Rippon of Hexham

I do not feel that the Minister has met the serious point of principle that has been raised. I have no doubt that there are practical difficulties: there always are. There are practical difficulties in the Football Spectators Bill. Sometimes the Government wish to remove or ignore practical difficulties; at other times they wish to rely on them. Here, I believe that the Government are seeking to rely on them. As I understand it my noble friend the Minister indicated that he was not averse to the principle. If he agrees with the principle then he should find some way of putting it into practice.

Lord Ezra

I find the Minister's answer rather puzzling. When we consider Clause 91(2) the question will arise of shareholders declaring an interest when their holding reaches 3 per cent., I do not see the inconsistency of such proposals coming forward at any other stage. Alternatively, if there are ways to evade what is now proposed, then presumably there will be ways to evade what is later proposed. There seems a contradiction in the thinking here.

Lord Strathclyde

I hope the Committee does not feel that there is any contradiction of principle in anything I have said. My noble friend Lord Rippon of Hexham spoke about the principle. My noble friend said that he did not understand why I was arguing in this direction. The principle I am dealing with is that of transparency of the owners of shares. We feel that this amendment does not go any further than the suggestions we have already put forward. The noble Lord, Lord Ezra, has mentioned the 3 per cent. benchmark. The amendment tabled by the noble Lord, Lord Lloyd of Kilgerran, is no better than that.

As regards practical difficulties, the practicalities are the substance of these measures. The principle of transparency is totally accepted; it is just the measure of how we do it.

Lord Peston

To follow the logic of the noble Lord, is he agreeing with Members of the Committee that we all favour transparency but telling us that we cannot do it? Is the Minister simply making the bald statement that it is impossible to draft a clause that will achieve the end that we want; namely, that the facts in this case should be known and seen to be known?

Lord Strathclyde

We are seeking transparency. It is perhaps more the degree of it that we disagree upon and also the practicalities of the amendment.

Lord Morris

I am sure that my noble friend draws great comfort in recalling that some weeks ago, in answer to a question concerning the Barlow-Clowes affair and the subject of registration, his noble friend the Secretary of State for Trade and Industry clearly stated that Her Majesty's Government were very close to agreement with countries in the Community as regard obtaining some kind of order in this matter. I believe that reiterates the point he has just made; namely that Her Majesty's Government are wedded to the principle of acquiring as much transparency—I do not like that word—as possible.

Lord Jay

Can the Minister answer more clearly the question asked by the noble Lord, Lord Ezra? Why do these difficulties apply at 0.05 per cent. but not at 3 per cent.?

Lord Strathclyde

Perhaps I may remind the Committee that in my initial answer I said that we had had a major consultation in August 1988. Considerable difficulties were pointed out by a variety of people. The proposals that now come forward in the shape of this Bill were generally accepted. That is one of the reasons why we have been unable so far to accept the amendments tabled by the noble Lord, Lord Lloyd of Kilgerran.

The noble Lord, Lord Jay, has reiterated the question that the noble Lord, Lord Ezra, asked concerning the 3 per cent. threshold. That is an entirely different question, but perhaps I can answer it at some length. The Government believe that a reduction of the threshold for disclosure from 5 per cent. to 3 per cent. is the most appropriate step to improve transparency in share dealings. At 3 per cent. the United Kingdom would have the lowest threshold imposed by any major financial centre. The requirements of other nations, where they exist at all, range from 5 per cent. in the United States and France to 20 per cent. in the Netherlands, and 25 per cent. in West Germany. An EC directive adopted in December last year has a 10 per cent. threshold which must be implemented by member states by January 1991.

The arguments against opting for a threshold lower than 3 per cent. are powerful, as I have already pointed out. Above all, it is necessary to strike the correct balance between the desire for transparency in share dealing and the need to avoid imposing unacceptable burdens upon shareholders and the financial services industry. It must be stressed that the objective of the Government in requiring disclosure is to make information about significant interests in a company available to the market as a whole. This allows other investors to assess the information and make their investment decisions accordingly. It is no part of government policy to require disclosure solely for the purpose of allowing company management to entrench its position.

The Government believe that a requirement for disclosure of interests smaller than 3 per cent. could not be seen as serving a pressing need of the market for information. It would be extremely rarely that any potential shareholder would adjust his decision about acquiring shares in the light of information about a particular holding below 3 per cent. On the other hand, the burden for those having to disclose would be considerable. Large shareholders such as institutional investors and investment managers would probably have to disclose all their holdings. For a diversified group, where separate interests may be held in different parts of the group, identifying whether or not a disclosable interest is held is already a substantial task. A further reduction of the threshold would create an impossible one.

The Committee is well aware that there is concern that the financial services sector is already under a significant burden of regulation. To require the disclosure of what by its standards are small investments would only add to that burden. The Government believe therefore that a reduction in the disclosure threshold to 3 per cent. is as far as it is wise or necessary to go at present in the search for greater transparency.

Lord Lloyd of Kilgerran

I am grateful to the Minister for his lengthy explanation of the matter. On the basis of his reply, is his main objection to my amendment that the threshold of 0.05 per cent. is too low? In his sympathy for transparency and for unveiling the position of the shareholding, is the low threshold in the amendment the main difficulty?

Lord Strathclyde

That is partly what I said, but the noble Lord will remember the other aspect about which I was worried. I refer to beneficial ownership. On the low threshold, there was the thought that it was an impracticable mechanism that would not work.

Lord Lloyd of Kilgerran

I do not understand what is meant by a practical mechanism that will not work. Most practical mechanisms will work. I agree that in my amendment the term "total equity" is not fully defined. That is a technical matter that can soon be resolved. There is also the objection that when the company has the information it has no means of knowing that the name and address disclosed is correct. That is an objection but surely it is a surmountable one.

I am glad that the Minister has not said that these provisions should be put in the Yellow Book or in some code of practice. The amendment has received support from both sides of the Committee. I am grateful to the noble Lords, Lord Rippon, Lord Peyton, Lord Jay, Lord Williams of Elvel and Lord Peston, as well as to my noble friend Lord Ezra for their support. I cannot remember whether the noble Lord, Lord Morris, supported my amendment. In its basic theme I think he did.

Nevertheless, is this not an occasion on which the Minister, without difficulty and without confusing those colleagues of his who worked so hard to bring these matters to the Committee, could give an assurance that he will see whether the Government can produce an amendment to increase transparency and to raise the veil, or perhaps that he will look again at the amendment so that I can bring it back at Report stage if necessary?

Lord Strathclyde

Perhaps I may quickly ask the noble Lord a question. Is he saying that our proposal to increase transparency by lowering the threshold to 3 per cent. is unacceptable? Is that too high? The noble Lord is shaking his head.

5.45 p.m.

Lord Lloyd of Kilgerran

I am prepared to accept whatever threshold seems to be practical. I agree that 0.05 per cent. seems rather low because it is likely to cause a disproportionate volume of work for shareholders who for administrative convenience choose to register holdings in nominee names. That may be a difficulty. I should be prepared to accept the 3 per cent. limit. If the noble Lord is saying that 3 per cent. would be a sensible limit for the threshold, I would gladly withdraw my amendment. I am a little reluctant to divide the Committee at this late hour though I have the support of a number of noble Lords. If the Minister could help me a little further 1 should be most grateful.

The Earl of Harrowby

I do not think the noble Lord, Lord Lloyd, should assume that he has such wide support as he imagines. I certainly would not give it. I do not see the need for two levels of transparency. The Government's proposal to reduce it to 3 per cent. is perfectly adequate in my experience.

One aspect of the matter has not yet been raised. If one comes down to a level of 0.05 per cent. one is likely to involve a great many people who manage their own investments. Small investors in small companies can easily have 0.05 per cent. Are we to impose a legal burden on them to comply with an Act of which they may have little knowledge, though that is no excuse not to do so? One is moving out of big business and towards the small man. I submit that that is a dangerous thought which requires further consideration.

Lord Strathclyde

I am grateful to my noble friend for saying that. He is absolutely correct. In the past few minutes, and throughout our proceedings in Committee, I have tried to please the noble Lord, Lord Lloyd of Kilgerran, and have tried to explain why we are taking certain stands. I thought I had explained clearly in my opening remarks that his proposal simply would not work and would not be any better than what we are proposing. I hope he will not feel that I am being rude if I say that there is no point in the Government considering further something which we believe will not work.

Lord Lloyd of Kilgerran

I am grateful to the noble Earl who preceded the Minister. He pointed out something which I thought I had tried to explain. The threshold of 0.05 per cent. is probably too low. The Minister is always kind in these matters and does his best to meet the difficulties being raised. I shall read what has been said today. I see that the Minister is giving a sigh of relief. I shall relieve him completely by asking leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 230 had been withdrawn from the Marshalled List.]

Clause 91 [Disclosure of interests in shares]:

The Deputy Chairman of Committees (Lord Aylestone)

On Clause 91 the first two amendments have been printed in reverse order. I propose to call Amendment No. 230ZA.

Lord Peyton of Yeovil moved Amendment No. 230ZA:

Page 88, line II, leave out from beginning of line to end of line 4 on page 89 and insert (4) Section 210 is repealed.").

The noble Lord said: This is a brief amendment and it need not take up too much of the Committee's time. I put forward this series of amendments because of a growing concern prompted in particular by two recent bids—that of Nestle for Rowntree and that of Minorco for Consolidated Goldfields. Both have lent further force to my conviction that the balance of advantage lies unduly in favour of the bidder and to the prejudice of the company whose shares are bid for. I see no reason why a company should not be made aware easily and without difficulty of the adversary who is stalking it and what are his intentions towards it.

This amendment is directed towards suggesting that any change in the disclosure provisions, which to my mind are of the greatest importance, should not be made by anything other than primary legislation. My confidence in governments varies from time to time. Indeed, there are occasions when, I am bound to say—I hope my noble friend will not take this too personally—I feel that Ministers tend to take a very relaxed view of problems which to other people are intensely serious. In fact they leave them rather comfortably to what are described by some people as market forces. Such market forces deserve varying degrees of respect from time to time. However, they are not always the objects of admiration which Ministers sometimes suggest.

Therefore I ask the Government to give serious consideration to the amendment. I say that the disclosure provisions laid down in the Act should not be changed by secondary legislation. I certainly have the gravest doubts about them being changed merely by codes of practice and less formal methods. I hope that the Government will see their way to giving kindly and favourable consideration to this modest amendment. I beg to move.

Lord Williams of Elvel

I agree with the noble Lord. Lord Peyton, in his arguments. It may be for the convenience of the Committee if I follow him and speak also to Amendments Nos. 230AZA, 230ZA, 230ZAA and 230ZB. We had an exchange between the two Front Benches and certain other noble Lords in Committee the other day about the number of times the Government are proposing that primary legislation can be changed by a statutory instrument. Here, indeed, is a case in point.

In replying to the debate that we have just had, initiated by the noble Lord, Lord Lloyd of Kilgerran, the noble Lord, Lord Strathclyde, referred to the 3 per cent. threshold as being the one which the Government had decided upon. That may be so. However, at any stage if the Bill is enacted in its present form the 3 per cent. can become 2 per cent., 1-5 per cent., 4 per cent., 5 per cent., or, indeed, any other percentage which the Secretary of State decides upon. Moreover, any regulations made under the provisions of the Bill are by negative rather than affirmative procedure.

The noble Lord, Lord Mottistone, has tabled an amendment, Amendment No. 230ZAA, changing it to the affirmative procedures. At least that is a step in the right direction. If I may say so, I agree wholeheartedly with what the noble Lord, Lord Peyton, said. If we are to have the 3 per cent. threshold, let it be 3 per cent. enshrined in the primary legislation, not to be changed by a statutory instrument. I shall say again what I said before. Every time the Government produce such a clause which allows them to change primary legislation by statutory instrument they will face opposition from these Benches.

Lord Lloyd of Kilgerran

I should like to express my support for the amendment moved by the noble Lord, Lord Peyton. I support it for the reasons he gave and also for those just mentioned by the noble Lord, Lord Williams of Elvel.

Lord Mottistone

In speaking to Amendment No. 230ZAA, upon which 1 have been advised by the CBI, I must say that it does not go as far as the other amendments, as the noble Lord, Lord Williams, just pointed out. However, I should like to emphasise why the CBI believes that the many sections which are covered by subsection (1)(a), (c) and (d) of this new clause need to be dealt with, if they are going to be dealt with by regulation, by the affirmative rather than the negative procedure.

The sections concerned go to the heart of the disclosure obligation and cover respectively the definition of relevant share capital, the notification period for disclosure and exemptions relating to interest in shares. It would be quite wrong for those sections to be amended without proper parliamentary debate. In the 1985 Act and its predecessor that power was strictly circumscribed, but now the Bill greatly widens the part of the legislation which can be amended by regulation.

I should like to say to my noble friend the Minister that even if he cannot go the whole way, as other Members of the Committee with amendments in this group have tried to persuade him, he needs to think about the amendment tabled in my name as being pretty well as far as it would be reasonable to ask the Committee to go. I should have thought that it would be better if he were to go for one of the more resolute amendments. However, if that is not the case, it would be quite wrong for him also to throw away Amendment No. 230ZAA.

Lord Lucas of Chilworth

I rise to support my noble friend Lord Peyton of Yeovil on the grounds which he put forward. However, I think that there is an additional one. Over the past four or five years the Government have, quite properly, been looking at and amending the Insolvency Acts, the Companies Acts and the Financial Services Act 1986 which has to a certain extent thrown the marketplace into an expensive confusion.

If we are to make further changes but leave the door wide open to changes by regulation, I should find it most difficult, were I in those markets, to feel that I was living and working in a stable environment; that is, an environment which could be changed because something happened elsewhere. For example, my noble friend mentioned the case of Nestle/Rowntree. Indeed, that might prompt someone on some occasion to make a regulation. In those circumstances, where is the market planning and where is the company planning? Let us leave aside the poacher and the stalker.

Therefore I think that what my noble friend Lord Peyton is suggesting in principle is something to which we should address ourselves most seriously to try to find a solution to what is a very difficult problem.

Lord Rippon of Hexham

Perhaps I may join in the chorus of support in favour of the observations made by my noble friends Lord Peyton and Lord Mottistone. I wonder whether the Minister can tell the Committee if he has read the discussion which took place on a rather similar issue during a debate on the Children Bill. Further, can he say whether he has studied what was said by the noble and learned Lord, Lord Simon of Glaisdale, and the response given by the noble and learned Lord the Lord Chancellor? Does he agree that the noble and learned Lord the Lord Chancellor is right in what he said on that Bill as regards amendment by regulation? If there is to be amendment by regulation, I agree that one should put it in the primary legislation when it is what the Government really intend to do if that is possible. If it is to be done by regulation, will he agree, as in the case of the Children Bill, that it should be done by affirmative resolution? I understand that where there is negative resolution only, it is not the practice of this place to divide. However, in the debate on the Children Bill the noble and learned Lord the Lord Chancellor appeared to indicate that that practice may be changed but stated that it would not be very satisfactory because of the pressure on parliamentary time and such matters. Therefore I hope that the Minister will at the very least agree to accept the amendment put forward by my noble friend Lord Mottistone.

Lord Williams of Elvel

Perhaps I may come back into the debate in response to the remarks made by the noble Lord, Lord Rippon. In the negative procedure in this place it is only possible to pray against an order, and that is an extremely difficult procedure. As regards the affirmative procedure, we have no power of amendment and by convention we do not divide. I should prefer to see the whole matter in primary legislation. I regard the amendment tabled by the noble Lord, Lord Mottistone, as being very much the bottom line that we could accept.

6 p.m.

Lord Strathclyde

The first thing to say about new Section 210A is that it does not confer unrestricted new regulation-making powers on the Secretary of State to amend Part VI of the 1985 Act. It allows him to change three specific provisions in Part VI which at present he cannot change. It extends an existing power and it re-enacts another.

Under Section 201 of the 1985 Act, the notifiable percentage may already be altered by regulations. My noble friend Lord Lucas of Chilworth was worried that, if we pass the Bill, he might be working in an unstable atmosphere when working in the financial area, but I must point out to him that he is already living in an unstable atmosphere.

Lord Lucas of Chilworth

That is why I want it changed.

Lord Strathclyde

The figure can already be changed by regulation. I do not believe that my noble friend has felt worried that the existing power to make regulations has been used in an unwholesome way.

Lord Williams of Elvel

If that is the case, why are the Government amending the Bill to reduce the figure to 3 per cent. in the first place? Why not do it by statutory instrument?

Lord Strathclyde

That is a different question that we have already dealt with at considerable length in our earlier debate about transparency. Perhaps I may continue to deal with the points raised in this debate.

Section 201 of the 1985 Act is re-enacted in new Section 210A(1)(b). Under Section 209(1)(j) of the 1985 Act, the Secretary of State may add to the list of types of interest exempted from the requirements of Sections 198 to 202. That is subject to no parliamentary procedure. That provision is repeated in substance in new Section 210A(1)(c), but the new section also allows the Secretary of State to take away or amend existing exemptions and to alter what is to be taken to be an interest in shares under Section 208. The new section gives the Secretary of State the ability to change two further provisions which cannot be altered under the 1985 Act. Those are the definition of "relevant share capital" and the deadline for notifications in Part VI of the 1985 Act. Like the existing Section 201, different provisions may be made by the regulations for different cases.

Those are, therefore, precisely drawn powers, focused on specific provisions in Part VI. The Secretary of State will not be able significantly to extend the scope of Part VI or impose broad new requirements upon companies or those with interests in shares. I know that noble Lords opposite are doubtful when the Government argue that it is necessary to be able to be flexible in applying detailed regulations, and after the debate we have just had I understand that some of my noble friends too are concerned. Sometimes, however, flexibility is desirable in order to deal with fast changing market practice in the financial services sector. That is certainly true in relation to the disclosure of interests in shares. For example, the term "interest" is drawn widely in Section 208, which says that, a reference to an interest in shares is to be read as including an interest of any kind whatsoever in the shares". There are, nevertheless, a number of rights which would not amount to an interest. For that reason, Section 208 deems certain rights (such as a right to purchase shares) to be interests for the purposes of Part VI. New cases, however, can raise questions about what is or what should be taken to be an interest in shares. As the practices of the market develop it may be necessary to amend Section 208 to deem further rights as interests. It is important that the Secretary of State should be able to close loopholes as they appear. We must ensure that those who are determined to conceal their identity are not able to devise methods of avoiding with impunity the obligation to disclose.

There is also a more general need to be able to adapt the detailed provisions within a framework laid down by primary legislation. Under the 1985 Act, the Secretary of State may impose a single notifiable percentage and period for disclosure across the board. All types of interest must either be subject to that regime or they must be completely exempted. That restricts the possibility of imposing different requirements to meet different needs. The Government believe that Clause 91 strikes the correct balance to meet the needs of the market in 1989. But they are conscious that, when the provisions of Part VI were first introduced the threshold for disclosure was 10 per cent. It has since been reduced to 5 per cent., and Clause 91 would lower it further to 3 per cent.

It would be unwise, in the light of that history, rigidly to set the detailed requirements without the possibility of any further development. The structure and the nature of the market have changed considerably since the disclosure requirements were originally introduced. They will continue to change rapidly in the future. It would be unfortunate if we had to watch that change take place without being able to meet quickly any new demands for disclosure it makes upon the system.

I do not accept the position of those who argue against regulation-making powers as a matter of principle. A large number of statutes confer such powers. It is entirely proper for legislation such as the Companies Act to provide the framework for a system of supervision, allowing changes of detail to be made by the Secretary of State. If we adopt the approach that everything must be in primary legislation, the system will become too rigid, imposing unnecessary burdens on those carrying out their normal business and permitting evasion by those who wish to frustrate attempts to supervise their activities.

My noble friends Lord Peyton and Lord Rippon of Hexham, made the point about not trusting Ministers or governments. My noble friend Lord Rippon mentioned the debate that we had in Committee on the Children Bill; but the Children Bill deals with an entirely different issue. It goes wider and is larger. If I remember correctly, the word "repeal" was referred to and my noble and learned friend the Lord Chancellor said that he would look at the point again. That was a major issue. We are talking about detail, not vast principles which may or may not be argued several times. I hope that, in the light of my comments, my noble friend Lord Peyton will withdraw his amendment and my noble friend Lord Mottistone and other noble Lords will not feel it necessary to move their amendments.

Lord Mottistone

I was not arguing against regulations. I was saying that they should be made by affirmative and not negative procedure. My noble friend has not addressed that point.

Lord Strathclyde

My noble friend is correct. I am afraid that I was carried away. I was going to deal with his amendment. I recognise the concern of the Committee that even the specific provisions referred in new Section 210A should not be subject to amendment without careful parliamentary scrutiny. In the light of that, if my noble friend Lord Peyton were to withdraw his amendment and my noble friend Lord Mottistone and other noble Lords chose not to move theirs, I would agree to return on Report with an amendment making the exercise of all the powers contained in new Section 210A subject to affirmative resolution.

I should prefer to bring forward a government amendment because the drafting of the amendment tabled by my noble friend Lord Mottistone would leave us with two subsections providing for the affirmative procedure. I hope that that explanation will clear up the issue.

Lord Mottistone

I am so glad that I asked my noble friend to comment specifically on my amendment. I am grateful to him for accepting the point of what I had to say. I fully accept that there may be drafting errors in my amendment and I look forward to seeing a government amendment on exactly the same lines when we come to Report stage.

Lord Peston

I do not wish to pursue the remarks of noble Lords on the constitutional side where I am somewhat out of my depth. I am however worried about the economics of all this and the behaviour of markets. I feel that the point raised by the noble Lord, Lord Lucas of Chilworth, was not properly answered. Standing back from the debate, I am very puzzled that on the whole a government regarding themselves as non-interventionist and essentially laying down a set of rules should now produce an argument about reacting rapidly to circumstances in a most interventionist manner.

The Government ought to take a view of the kind of rules they want. I do not deny that I am more of an extremist on transparency than most noble Lords, I go, for instance, for the 0'05 per cent. rule rather than 3 per cent., let alone 10 per cent. It seems to me that the key point raised by the noble Lord, Lord Lucas, is that there ought to be a rule. Broadly speaking, markets ought to assume that governments, except in very special circumstances, will stick to the rule. After all, that is what markets are about. The market mechanism should work within a fixed set of rules rather than giving Secretaries of State a chance to come in at exactly the point where they might well destabilise the situation.

I was delighted to hear the response of the noble Lord, Lord Mottistone, and I do not wish us to be sidetracked. However, it seems to me that when the Government are thinking about the matter, particularly within companies' legislation which affects financial markets, they ought to be biased on the side of rules, as the noble Lord, Lord Lucas, mentioned. I say this as a very strongly interventionist economist generally. I am not seeking simply to make a debating point. I believe that in markets of this kind there should be a set of rules which could be changed if there were drastic changes in circumstances. But the rules ought not to be changed apart from that. I thought that that was what the noble Lord, Lord Lucas, was saying. I wish to add my support to what he said. I hope that the Government might think a little more about his remarks before later stages of the Bill.

Lord Aldington

Can my noble friend enlighten me? I understand what he says about the importance of regulations, but I do not understand how any noble friend of mine can believe in a system which gives to Ministers by regulation a power to alter primary legislation. I simply do not understand that. I had thought this the great point of principle, something which we stood for

. I have to say that the Opposition are not the only ones to have made the point. I have been in opposition at some time: all oppositions always make that point. It is well known. I simply cannot understand why, in the same clause of the Bill, we have the alteration of primary legislation so that 5 per cent. becomes 3 per cent. as the percentage for notifiable interest. Then in the next subsection there is a power for the Minister to alter it again. I do not understand that.

It is quite intolerable that we should be leaving to the Secretary of State, almost the day after we pass the Bill, the power to alter 3 per cent. back to 5 per cent. I should be most unhappy if that were what was proposed. Perhaps I have misunderstood the Bill, but I do not think so. There is something basically wrong. I ask my noble friend to apply his mind, between now and the Report stage, to the general point of principle about the alteration by Ministers by regulation of primary legislation.

Lord Peyton of Yeovil

I wish to express my genuine and sincere sympathy for my noble friend. I was not trying to raise a laugh but saying something which I profoundly mean. I find that Ministers who have not been all that long in this place—I have not been here long myself—seem to find themselves in singularly invidious positions at times. This is one of them. Personally, I am very sorry that my noble friend the Secretary of State is not present—I am sure he has a very good reason for being absent—to take some ofthe heat himself.

I wish to make four points. First, the disclosure provisions seem to some of us to be very important. Secondly, while we have the greatest respect for our colleagues on the Front Bench, the garments of Vol. 504omniscience and infallibility do not always seem to fit them quite as well as they suppose. Thirdly, the Minister—rather surprisingly to my mind— influenced by my noble friend's charm and eloquence, which I manifestly lack, has already moved in the right direction. Would it not be possible for him to move just that much further and accept what he seems to brush aside as a point of no principle—except that for us it is a point of principle. And it is important.

I do not think that the Minister understands how profoundly irritating some of us find it when arguments which we put forward as strongly as we can are lightly brushed aside.

6.15 p.m.

Lord Morris

One must always remember the principle that one should watch very carefully gifts borne by junior spokesmen. Section 201 of the Companies Act 1985 is repealed in its entirety under the repeals section of the Bill. Section 201 clearly states that: No regulations shall be made under this section unless a draft of the instrument containing them has been laid before Parliament and approved by a resolution of each House". I am suggesting we are offered absolutely nothing at all. This provision was not contained in the original draft of this part of the Bill in order that it should be given back subsequently as an Aunt Sallie for the much more important and substantial amendment of my noble friend Lord Peyton which I heartily support. I shall not try to argue further because no one could have put it better than he did.

Lord Rippon of Hexham

Perhaps I may briefly comment on what my noble friend the Minister had to say about the discussion which took place on the Children Bill. It arose originally out of a power to repeal by regulation. I think he will accept that the debate went far wider than that. It was pointed out that "amend" can mean something very close to "repeal". It is not an excuse for leaving out of primary legislation what clearly ought to be in.

Lord Peyton of Yeovil

In the circumstances and in view of my noble friend's silence in response to what I have just said, I wish to press the amendment.

6.18 p.m.

On Question, Whether the said amendment (No. 230ZA) shall be agreed to?

Their Lordships divided: Contents, 90; Not-Contents, 94.

DIVISION NO. 1
CONTENTS
Ailesbury, M.	Blease, L.
Airedale, L.	Bruce of Doninglon, L.
Aldington, L.	Caldecote, V.
Allenby of Megiddo, V.	Carmichael of Kelvingrove, L.
Alport, L.	Carr of Hadley, L.
Ampthill, L.	Carter, L. [Teller]
Ardwick, L.	Cledwyn of Penrhos, L.
Aylestone, L.	Cocks of Hartcliffe, L.
Birk, B.	Craigavon, V.
David, B.	Morris, L.
Davies of Penrhys, L.	Mountevans, L.
Dean of Beswick, L.	Nicol, B.
Dormand of Easington, L.	Onslow, E.
Elwyn-Jones, L.	Oram, L.
Ennals, L.	Pender, L.
Evans of Claughton, L.	Pennock, L.
Ewart-Biggs, B.	Perry of Walton, L.
Ezra, L.	Peston, L.
Falkender, B.	Peyton of Yeovil, L. [Teller.]
Fisher of Rednal, B.	Ponsonby of Shulbrede, L.
Gallacher, L.	Rea, L.
Galpern, L.	Rippon of Hexham, L.
Graham of Edmonton, L.	Ritchie of Dundee, L.
Greenway, L.	Robson of Kiddington, B.
Grey, E.	Rochester, L.
Halsbury, E.	Roskill, L.
Hampton, L.	Russell, E.
Harris of Greenwich, L.	Russell of Liverpool, L.
Hatch of Lusby, L.	Seear, B.
Houghton of Sowerby, L.	Seebohm, L.
Howie of Troon, L.	Serota, B.
Jay, L.	Shackleton, L.
Jeger, B.	Shannon, E.
Kagan, L.	Shepherd, L.
Kilmarnock, L.	Shrewsbury, E.
Kinloss, Ly.	Stewart of Fulham, L.
Listowel, E.	Stoddart of Swindon, L.
Llewelyn-Davies of Hastoe, B.	Swinfen, L.
Lloyd of Kilgerran, L.	Taylor of Blackburn, L.
Lockwood, B.	Taylor of Mansfield, L.
Lovell-Davis, L.	Turner of Camden, B.
Lucas of Chilworth, L.	Underhill, L.
McNair, L.	Whaddon, L.
Mason of Barnsley, L.	Williams of Elvel, L.
Mishcon, L.	Winstanley, L.
NOT-CONTENTS
Abinger, L.	Hanson, L.
Arran, E.	Harmar-Nicholls, L.
Ashbourne, L.	Harrowby, E.
Astor, V.	Harvington, L.
Belhaven and Stenton, L.	Henley, L.
Beloff, L.	Hesketh, L.
Belstead, L.	Hives, L.
Blatch, B.	Holderness, L.
Blyth, L.	Home of the Hirsel, L.
Boardman, L.	Hooper, B.
Borthwick, L.	Kaberry of Adel, L.
Boyd-Carpenter, L.	Lauderdale, L.
Brabazon of Tara, L.	Long, V.
Bridgeman, V.	Lyell, L.
Brookeborough, V.	Mackay of Clashfern, L.
Brougham and Vaux, L.	Malmesbury, E.
Bruce-Gardyne, L.	Margadale, L.
Butterworth, L.	Marley, L.
Buxton of Alsa, L.	Marshall of Leeds, L.
Caithness, E.	Merrivale, L.
Campbell of Croy, L.	Mersey, V.
Carnegy of Lour, B.	Milverton, L.
Carnock, L.	Mowbray and Stourton, L.
Cathcart, E.	Munster, E.
Chelwood, L.	Nelson, E.
Coleraine, L.	Newall, L.
Constantine of Stanmore, L.	Orkney, E.
Cork and Orrery, E.	Oxfuird, V.
Cottesloe, L.	Penrhyn, L.
Crickhowell, L.	Reay, L.
Cross, V.	Renwick, L.
Davidson, V. [Teller.]	Rochdale, V.
Denham, L. [Teller.]	Rodney, L.
Dilhorne, V.	St. Davids, V.
Elliot of Harwood, B.	Sanderson of Bowden, L.
Elliott of Morpeth, L.	Skelmersdale, L.
Ferrers, E.	Somerset, D.
Geddes, L.	Strathclyde, L.
Gibson-Watt, L.	Sudeley, L.
Gisborough, L.	Swansea, L.
Gridley, L.	Swinton, E.
Grimston of Westbury, L.	Terrington, L.

Thomas of Gwydir, L.	Vaux of Harrowden, L.
Trafford, L.	Westbury, L.
Tranmire, L.	Windlesham, L.
Trefgarne, L.	Wise, L.
Trenchard, V.	Young, B.

Moved accordingly and, on Question, Motion agreed to.

6.26 p.m.

[Amendments Nos. 230AZA and 230ZAA not moved.]

The Deputy Chairman of Committees (Lord Alport)

I think that I am right in calling Amendment No. 230ZB now. Not moved?

Lord Peyton of Yeovil had given notice of his intention to move Amendment No. 230ZB:

Page 89, leave out lines 5 to 8.

The noble Lord said: Indeed it is moved. I apologise for the slight delay in moving the amendment. I shall do so briefly. The point at issue is that in my view a company which is bid for does not know and cannot easily find out who its adversary is or what he intends.

As the position stands at the moment, if a person on whom a Section 212 notice is served does not comply with the notice within a reasonable time the company can go to court. The amendment would have the effect that if a person upon whom a Section 212 notice is served does not comply with it within seven days, the company could itself apply those sanctions which are laid down in Part XV of the 1985 Act. That would have the effect of freezing the shares, disfranchising them and rendering them nontransferable.

I realise that there are those who would have reservations about so radical a move. I am certainly not wedded to any of the details contained in the amendment or to the precise way in which it is drafted. It is a probing amendment designed to attract the Government's attention to a problem in the hope that, if they are not content with the solution contained in the amendment, they will themselves bring forward an amendment at a later stage of the Bill.

Lord Strathclyde

I am slightly confused. I thought that Amendment No. 230ZB had been grouped with Amendment No. 230ZA, on which we have just voted. I may be wrong and the noble Lord may have spoken to another amendment. If that is so I am not sure which amendment that is. Am I right in thinking that the amendment to which the noble Lord spoke is amendment No. 230ZB: Page 89, leave out lines 5 to 8"? If that is the case I have already replied to the amendment.

Lord Peyton of Yeovil

I am sorry if I am at fault. I am referring to Amendment No. 231A, which is the next amendment that stands in my name.

[Amendment No. 230ZB not moved.]

Lord Lloyd of Kilgerran moved Amendment No. 230A:

Page 89, line 8, at end insert ("(6) After section 211 (register of interests in shares) insert—"Duty to bid for remaining shares

211 A.—(1) When a person has acquired more than 15 per cent. of the nominal value of the share capital of a company he shall come under an obligation to make an offer for the remaining share capital of that company.

(2) When a person comes under an obligation to make an offer as required under subsection (1) above, he shall make a public statement of his intentions for the future management of that company."").

The noble Lord said: We are dealing here again with a register of interest in shares. This raises a policy matter and I think the simplest course for me to take is to read out the proposed amendment: When a person has acquired more than 15 per cent. of the nominal value of the share capital of a company he shall come under an obligation to make an offer for the remaining share capital of that company-. I should like to make it clear that this is a probing amendment and your Lordships will recognise the public interest surrounding these matters. The second subsection of the amendment is probably more important as regards basic principle than the first one. I quite agree that there may be some discussion possible in relation to whether 15 per cent. of the nominal value is the correct figure. As this is a probing amendment, I am quite flexible as to the figure. The second subsection of the amendment says: When a person comes under an obligation to make an offer as required under subsection (1) above whatever may be the percentage concerned he shall make a public statement of his intentions for the future management of that company-

As I have said, this is a probing amendment and I understand there are some general discussions in progress at the present time with the Government on these matters. I beg to move.

Lord Roskill

Before I deal with the point which the noble Lord, Lord Lloyd of Kilgerran, mentioned last, may I declare an interest? I have for the last 18 months or so been chairman of the appeal committee of the Takeover Panel. The noble Lord, Lord Alexander of Weedon, as your Lordships know, is the chairman of the panel but he is out of the country at the moment and I have not been able to make contact with him. However, I have very little doubt that had I been able to do so or were he here he would say, much more eloquently, what I am about to say.

The noble Lord, Lord Lloyd of Kilgerran, is absolutely right, if he will allow me to say so. The 15 per cent. question, if I may put it in that rather succinct way, is at the moment under discussion with the panel and also with the CBI. I see that the noble Lord, Lord Boardman, who is in his place and who knows much more about this than I do, is nodding assent to what I have just said. Therefore it would be undesirable, I respectfully suggest, that this matter should be pursued by way of an amendment to the Bill at this moment.

There is a wider question involved and perhaps I might just touch on it for a moment, and no more. As your Lordships know, the whole operation of the Takeover Panel is a voluntary non-statutory one. I venture to say at the moment that it would be most unfortunate if a single part of the function of the panel suddenly and, as it were, by a side wind by means of an amendment of this kind became statutory. I do not want to say any more about that issue: it is a controversial one. It may arise in future in connection with European Community directives: one cannot speculate as to the future. I hope in view of what I have said that the noble Lord, Lord Lloyd, will think it right not to press this amendment.

Lord Peston: If it will help the noble Lord when he comes to reply in a moment, the position from these Benches is that we strongly support the two principles involved in this amendment. In the first subsection there is the obligation to acquire the share capital, which is important, but I think that the principle contained in the second subsection is of overwhelming importance as regards the making of a public statement about the future management of the company. We certainly do not want to muddy the waters in regard to how it should be done, whether by the Takeover Panel or in any other way. What we would like to hear, as no doubt would the noble Lord, Lord Lloyd of Kilgerran, is a sympathetic response from the Minister saying that the Government also accept the principle—I find it hard to believe that they would not, particularly the second one on management—and that they will see to it one way or another that progress will be made. We would wish to support the amendment in terms of its content although we fully understand the point which has just been raised, particularly about whether putting it into statute at the present time is the correct way to deal with this.

Lord Boardman

The noble and learned Lord, Lord Roskill, referred to me, and therefore I should like to say that I strongly endorse the remarks he made. I believe that his speech on this was absolutely correct and it is fully supported by me.

Lord Carr of Hadley

I do not for one moment wish to press the point as to whether this is the right place or the right way in which to take action on this but I want to add my support to the principles contained in the amendment. The amendment covers two points which I made in my speech on the Second Reading of this Bill. Although I am quite prepared to accept that it would not be right to do it now and in this way, I think we ought to have from the Government—if not now, certainly before the Bill completes its progress here—some statement of their feelings on this matter. Very important matters of policy are concerned. As many of us made clear on Second Reading when we were talking about mergers and monopolies, all is far from well in this field. If efforts are not made in whatever may be the appropriate way to clean up what is going on at the moment the whole market economy system could be brought into serious and growing disrepute.

Viscount Caldecote

I should like most strongly to support what my noble friend Lord Carr has said. I believe that the principles of this amendment are very important. As regards subsection (1) it would seem appropriate for it to apply only to limited companies. I expect the noble Lord would accept that. I also believe that subsection (2) is very important indeed and I hope that the Government will give it due consideration.

Lord Hanson

I would not want to interfere in any way with what the CBI and the panel are discussing at this time but I am not entirely sure that the provision here for the 15 per cent. figure has not overlooked investments of a greater figure than those which are made. When a company is being formed, for example, many people will invest in it on a fairly large scale, which they may reduce at some time. They have no intention or wish to take over that company or to make an offer for it. In my company there are many examples where we have taken a 25 per cent. or 20 per cent. share in a company in order to help it on its way.

I may not have this right, but I think it should be looked at, certainly in the circumstances that there should be no obligation: I do not understand that. If this is on a gradual basis of acquiring capital on the market in a company under threat, that is one thing. I believe the amendment should make that clear. As everybody knows who is in business, the intentions are always made clear in regard to the second subsection there. The Companies Act already requires anybody making an offer for a company to state in some considerable detail what his intentions are for the company. I repeat that I have no wish whatever to interfere with the panel's handling of this matter at the moment, but I feel that this point should be borne in mind.

Lord Marshall of Leeds

While I fully understand what the noble Lord has said and have every respect for what my noble friend Lord Boardman had to say, I am just wondering whether your Lordships' Chamber should have to defer or wait upon the deliberations of anyone, even of the Takeover Panel or indeed of the CBI.

Lord Morris

I hope what I say will not be taken amiss, but I think it might be worth while in the rather broader aspect of this amendment which was raised by the noble and learned Lord, Lord Roskill, to wait for Part VI of the Bill where the whole subject of mergers will be debated. Indeed we would have the benefit of the presence of the noble Lord, Lord Alexander of Weedon, who I hope will be back from abroad, and also the noble and learned Lord, Lord Wilberforce. If there are two men in this country who know more about this than anybody else I would suggest that it is those two. Notwithstanding that, these are matters of the greatest concern, not least of great political concern. I think that we should wait until Part VI of the Bill, which I understand is to be debated on 2nd March.

Lord Strathclyde

I have listened with interest to this debate. I should like to say at the outset that the Government are not prepared to accept these proposals. There are a number of reasons for this, which I shall deal with in turn. Many noble Lords have said that this is a difficult, complex and highly-charged issue and therefore I shall have to speak at length. However, I hope that the Committee will be forgiving and understand the reasons for doing so.

First, we need to distinguish between merger policy and takeover regulation. Although they both deal with take-over bids, they are quite distinct had have different objectives. Merger policy is concerned with identifying those mergers which give rise to issues of public policy, notably in relation to their effects on competition, and taking action where necessary to protect the public interest. The Committee is familiar with the system and the roles of the Director General of Fair Trading, the Monopolies and Mergers Commission and my noble friend the Secretary of State. Some changes to the statutory system of merger control are to be made by Part VI of the Bill, which your Lordships will soon be considering in great detail.

Takeover regulation, on the other hand, is concerned not with the result, but with the process by which control in a company passes from one set of shareholders to another. In the UK, responsibility for regulation of takovers rests with the Panel on Takeovers and Mergers, which administers rules set out in the City Code on Takeovers and Mergers. The introduction to the code states that it is not concerned with the financial or commercial advantages or disadvantages of a takeover, which are matters for the company and its shareholders. Instead, the code and panel operate principally to ensure fair and equal treatment of all shareholders in relation to takovers, and to provide an orderly framework within which takeovers are conducted.

I have made the distinction between merger control and takeover regulation at some length because their respective objectives are quite distinct, and proposals concerning each must be considered against the appropriate objectives. Thus, in relation to the amendment which the noble Lord has proposed, there is an argument, which I shall return to in a moment, that the threshold for a mandatory bid should be reduced from its current level of 30 per cent. in the interests of takeover regulation. As I have said, I shall deal with that argument shortly. But proposals of this sort also appeal to those who believe that takeovers should be made intrinsically more difficult, so as to protect the incumbent management of companies. I wish to say that this Government are completely opposed to such ideas. Issues of public policy apart—and we shall be considering them under Part VI of the Bill—the Government believethat it is perfectly proper for shareholders, in a fair and properly informed market, to decide whether control of a company should pass to a new bidder. We believe that it is not in the interests of the process of wealth creation nor in the longer term interests of the employees of a company themselves for an existing management to barricade itself inside a company and thus avoid the consequences of its own shortcomings.

The first effect of the noble Lord's amendment would be to set at 15 per cent. the threshold at which a bid for all a company's shares must be made and to enshrine that threshold in statute. I think there is general support in the Committee for the concept of a mandatory bid itself. Such a concept is already contained in Rule 9 of the City Code on Takeovers and Mergers. Its purpose is to fulfil the first general principle of the City Code, which is that all shareholders of the same class of an offeree company must be treated similarly by an offeror. The rule is accordingly designed to prevent people obtaining effective control of a company without giving other shareholders the opportunity to sell their shares to the new controller at a price which reflects the cost of obtaining control.

The point at which effective control is obtained will obviously vary from case to case. At present the City Code sets this at 30 per cent. Some suggestions have been made, notably by the CBI, that effective control may be obtained at a lower point. This is why the Takeover Panel has set up a working party to consider certain topics related to takover practices. I understand that the question of a reduction of the threshold at which a requirement to make a full bid arises is one of the topics to be considered by that working party: indeed I should not be surprised if it were very close to the top of the list of topics to be considered.

I should say, however, that the Government, while supporting the concept of the mandatory bid, are not convinced that a reduction in the 30 per cent. level is required. We are not compelled to conclude that take over regulation has been less than effective because the threshold is set where it is. But we shall await the conclusions of the working party with interest.

It will come as no surprise to noble Lords that the Government do not support the idea of enshrining the mandatory bid in statute. The noble Lord, Lord Williams of Elvel, referred at Second Reading to his party's view that takeover regulation should be put on to a statutory basis. It may be that the noble Lord will table an amendment to this effect at some suitable point; if so, I look forward to debating the wider principle. I should like at this juncture to remind the Committee of my remarks at Second Reading, when I referred to the significant advantages of the present system of a non-statutory code. This system enables the panel to apply its rules with the flexibility which is necessary to ensure that the principles of the code are maintained in each case. This is vital in an area of fast-changing market practice. Moreover, a statutory system would inevitably lead to greater use of litigation for tactical reasons in contested takeovers, which would lead to delay and might result in the outcome being determined by legal tactics rather than by the shareholders who are the proprietors of the companies bid for. I note in passing that Rule 9 of the code, with its explanatory notes, runs to 17 pages. The noble Lord's amendment covers the ground in four lines. I know that this is a probing amendment and I recognise that the noble Lord intended to debate the principle, not the drafting. But, even with the advantages of flexible application, the code finds it necessary to cover the subjects of persons acting in concert, of a series of transactions, of acquisitions by directors, of shares held by groups some of whose members may increase their holdings, of preference shares with voting rights, of convertible securities, warrants and options, and of the distinction of shareholdings, among other matters. If the noble Lord really wants the mandatory bid enshrined in legislation, then he is expecting someone to deal with all these matters and others, which may give rise to substantial loopholes.

The second part of the noble Lord's amendment would require an acquirer, at the point at which the mandatory bid is triggered, to make a public statement of his intentions for the future management of the company. As with the first part of the noble Lord's amendment, this would put into statute a provision at present contained in the City Code. Rule 24 of the Code requires an offeror, whether the bid is voluntary or mandatory, to cover in his offer document his intentions regarding the continuation of the business of the offeree company, any major changes to be introduced, including redeployment of fixed assets, the long-term commercial justification of the offer, and his intentions regarding the continued employment of the employees of the offeree company and its subsidiaries, as my noble friend Lord Hanson pointed out.

I believe that the requirement to make such a statement of intention has its proper place in the City Code, and I understand that the question of whether bidders should be required to issue a detailed prospectus setting out their plans for the development of the company they seek to buy is one of the topics being considered by the working party. For the reasons I have outlined in relation to the first part of the noble Lord's amendment, the Government are opposed to putting such requirements on to a statutory footing.

I have spoken at some length because the amendment put down by the noble Lord, Lord Lloyd of Kilgerran, raises some fundamental issues. I am sure that we shall debate some of these issues further when we come to later parts of the Bill. However, in view of the arguments that I have advanced, I hope that the noble Lord will feel able to withdraw his amendment.

Lord Ezra

Perhaps the noble Lord would kindly clarify a point that he made in his long and informative statement. He made it clear that he confirmed the view already expressed that i:his issue is being considered by the Takeover Panel. At the same time, I thought that the noble Lord said that the Government would not accept that the threshold should be reduced below 30 per cent. Is this therefore an instruction to the Takeover Panel?

Viscount Caldecote

I should like to ask the Minister one question. He rightly referred to the importance of the efficient management of companies. Would he not agree that the uncertainty resulting from a substantial minority holding of around 25 per cent. of a company over a long period is extremely detrimental to the efficient management of that company because it creates uncertainty in the minds of management and all employees, and that something needs to be done to reduce the number of occasions when that happens?

Lord Strathclyde

Perhaps I may briefly reply to my noble friend's point. My noble friend Lord Hanson answered that when he said that in his experience companies very often welcomed shareholdings of 20 per cent. or 25 per cent. and that the management did not feel under any threat whatsoever. Furthermore, in some cases perhaps it may be a very good thing for some companies to feel slightly threatened from a bid. It is ultimately the shareholders who ought to decide these matters and not the managers.

The noble Lord, Lord Ezra, asked me to clarify the point about the 30 per cent. level. The Government's view is that the threshold should not necessarily be reduced. We wish to see what the working party finds. We certainly have no desire to issue any instructions to the working party, either publicly in a Committee such as this or privately in a smoke-filled room.

Lord Peston

I am extremely disturbed by the replies that we have had. It is quite wrong to raise the question of merger at this stage. This is not about mergers. The noble Lord will see me in an extremely fierce mood because he knows I am extremely antipathetic to the merger movement, which I think has been mostly detrimental to the British economy over the past few years. However, that is for another day.

This is about takeover procedure, on the one hand. Although my noble friend Lord Williams of Elvel has mentioned the statute point, one is trying with regard to this amendment to have an open mind and to listen to wise thoughts. That is what we are doing. One is holding back from insisting on a statutory approach. I was doing that in the hope that I would hear some sense from the government side. However, I have heard nothing of the kind.

I am rather staggered at the cavalier approach to the management of companies. What matters is the operating side of the company. Management has to manage and produce goods, services, and so on. One is concerned that financial shenanigans of one kind or another will get in the way of that consideration. I regard as preposterous the notion that it will be a good thing to threaten management. Management ought to be raising the efficiency of the company. It ought not to be looking over its shoulder. That is exactly what is wrong with the British economy. It should not be looking over its shoulders at these financial activities.

I cannot speak too strongly of my view about this matter. It is not my amendment. However, I do not like the reply that we have received. I find it most discouraging. I cannot believe that it is in the interests of the Government that this reply should be on the record. I am sorry to have to speak to the noble Lord in these strong terms so close to the dinner hour, but I do not think that his answer is acceptable.

Lord Carr of Hadley

I should like to add a word of my own concern on this. The Minister quite rightly drew a distinction between merger control and regulation of takeovers. That is a very valid and important distinction to make. For that reason I would not wish to press this amendment tonight. Nor would I agree necessarily with the 15 per cent. figure in the first clause. However, having made that distinction, the Minister did in one sense what we wished him to do but in a way that was disturbing. Having said that takeover regulation is nothing to do with Parliament, this Chamber, or the Government, but is fairness between shareholders, he then gave a pretty strong government steer—to put it no higher—as to how he wanted that working party to report. If that is the idea, I find it immensely disturbing.

It is the Takeover Panel's regulatory role above all to ensure fairness between shareholders. That is a matter we can best leave to it. However, fairness between shareholders can be achieved in different ways. It can be achieved in the way that encourages very short-term thinking in the industry—I know that I am oversimplifying, but I believe that I have to tonight—or it can be achieved in the way that does not press such short-term considerations.

Some of us are concerned that it should be done in a way which helps efficient enterprise and management and does not hinder enterprising, efficient, long-term thinking management. Many of us are not satisfied that the present situation exerts the right pressure. It concerns me if the Government believe that the way in which matters progress at the moment is encouraging the right management. Some of our best and most enterprising management leaders in this country think exactly the reverse and are very concerned about it. The matter needs very deep consideration and I do not like to see the Government taking what seems to be parti pris attitude to it without first giving it that consideration. I hoped that we might make some contribution to such consideration in the debates in this Chamber without pressing amendments to be put on the statute book.

Lord Boardman

I should declare an interest as a member of the Takeover Panel. This amendment shows the enormously wide range of considerations that come into fixing a statutory limit in the way that the amendment suggests. My noble friend Lord Caldecote produced factors to argue for a lower limit; and my noble friend Lord Hanson debated why a lower limit could be disadvantageous to shareholders. I believe that this debate shows the need for retention of flexibility. I believe also that it is very effectively attained by the Takeover Panel as it operates at the moment.

I am sure that the working party will take into account many more considerations than could possibly have been discussed by Members of the Committee in the 26 minutes that we have been debating this amendment. It raises an issue which has been useful to the debate. However, I hope that it will not be pressed. I hope that the Takeover Panel and the working party will have an opportunity to take into account the many factors that have been debated this evening, and many other factors that arise, and that we shall do nothing to try to limit the flexibility which in my experience has worked so well to date.

Lord Strathclyde

Perhaps I may briefly comment on what has been said, especially by my noble friend Lord Carr. I do not feel that I gave any steer whatsoever to the Takeover Panel or the deliberations of its working party. I mentioned that we were not prejudging the issue by saying that the case for reducing the threshold had already been made and that therefore anything else is entirely up to them.

I agree with the noble Lord, Lord Peston. Today we are not discussing the great issue of takeovers and mergers. As Members of the Committee are fully aware, there will be another full day in which to discuss this issue at some length. I know that the noble Lord, Lord Peston, is greatly looking forward to that. I hope that the noble Lord will feel able to withdraw his amendment.

Lord Lloyd of Kilgerran

This has indeed been a very interesting debate on a matter of considerable public policy. To use the happy phrase of the noble Lord. Lord Strathclyde, it is a highly charged issue. I agree with the noble Lord, Lord Hanson, that 15 per cent. is too low having regard to practical matters in relation to businesses, on which he is such an expert.

I was very much impressed by the noble Lord, Lord Marshall of Leeds, when he asked why this Committee should wait for the Takeover Panel to come to a decision. Why should we wait, in particular having regard to the debate that we have had this evening? Before I come to any decision on what to do about this matter, are the noble Lord, Lord Boardman, and the noble and learned Lord, Lord Roskill, able to say when they expect this matter to be dealt with by the Takeover Panel? Has it been given high priority?

The noble Lord, Lord Carr, mentioned the point very strongly at Second Reading. The Government have had great opportunity to consider the matter. They do not wish to press any matters or to give any strong indications of their view at this stage. Therefore we are waiting for the Takeover Panel. Does either the noble and learned Lord, Lord Roskill, or the noble Lord, Lord Boardman, know when the panel is likely to take on this matter?

Lord Roskill

I am very sorry to disappoint the noble Lord, Lord Lloyd of Kilgerran. I am afraid I am in no position to give any date at all. Whether Lord Boardman can I do not know.

Lord Boardman

1 am afraid I can give no help either, except that I know that the panel is considering this together with all those other issues with considerable urgency. I hope that it will not be too long before it comes to a conclusion or a recommendation.

Lord Lloyd of Kilgerran

As the Takeover Panel has this matter under its wing, if that is the correct expression, and some priority is being given to those considerations, having regard to this debate I see that the noble Lord, Lord Boardman, is nodding his head in agreement with what I am saying—I imagine that it will be considered as a matter of urgency. In those circumstances and as I said at the outset that this was a probing amendment, the matter has in my view been probed long enough this evening and I ask leave to withdraw the amendment.

Amendment, by leave, withdrawn. [Amendment No. 231 not moved.]

7 p.m.

Lord Peyton of Yeovil moved Amendment No. 231A:

Page 89, line 8, at end insert ("(7) After section 216 insert

"Notice under s.2I2.

216A—(1) Where any notice is served by a company under section 212 on a person who is or was interested in shares of the company or on whom the company has reasonable cause to believe to be or to have been interested in shares of the company and that person (not being a person not obliged to comply with the notice by virtue of section 216(5)) fails to give the company any information required by the notice the company may at the expiry of seven days from the date of the notice declare that the shares in question shall be subject to the restrictions of Part XV of this Act.

(2) Upon the making of any such declaration the company shall forthwith

1. (a) give notice thereof to any person upon whom the relevant notice under section 212 had been served; and
2. (b) shall publish such notice in the Gazette and thereupon such declaration shall be of immediate effect.").

The noble Lord said: I should like to take the opportunity of apologising to the Committee for the fact that I was mistakenly induced to speak to this amendment when another number was called. 1 got my numbers muddled up.

Let me make it clear that the purpose of my three amendments is not to prevent or frustrate takeover bids, but merely to ensure that the company bid for has a reasonable opportunity to ascertain what is going on, who is involved on the other side and what he intends to do, and when. At present, if a person on whom a Section 212 notice is served does not comply within a certain period, then under the law the company must go to the court, which is free to impose sanctions. The effect of my amendment would be that if a person fails to comply within seven days then the company could itself apply those same sanctions, which would amount to freezing the shares.

I am slightly comforted by the knowledge that the Stock Exchange issued a statement on 20th February saying that, following changes to be made in the listing rules, companies will be permitted to make provision in their articles of association for the imposition of sanctions against the shareholder 14 days after a Section 212 notice has been served if the shareholder fails to comply. That is a useful step forward, but I should still like to hear what my noble friend the Minister has to say about this amendment. I commend it to him for serious and sympathetic consideration, remembering the exchange that we had just now. I beg to move.

Viscount Bridgeman

Perhaps I may intervene in the debate as an active member of the Stock Exchange. I am afraid that I do not find my noble friend's amendments very attractive, though I note that he gives measured approval to the 14-day period imposed by the Stock Exchange. I readily accept that the management of companies have the right to know the identity of their shareholders and that they should be able to take steps against shareholders who fail to reveal their identity. But shareholders also have rights. There is no fundamental conflict between these rights, but where conflict occasionally arises a balance must be struck.

] Through its rules the Stock Exchange attempts to strike such a balance. Its requirements on listed companies allow them to disenfranchise by provisions in their articles shareholders who fail to respond adequately to a Section 212 notice within 28 days. As many members of the Committee may be aware—indeed the noble Lord, Lord Peyton, has already referred to this—the Stock Exchange has been considering whether this requirement needs amendment. The results were announced yesterday and under the proposals the time limit will be reduced from 28 days to 14 days. The new limit will not apply to shareholders who hold less than 0-25 per cent. of a company's stock. However, I am confident that this latter category of small shareholders is not the target of the amendments.

This period, in the Stock Exchange's opinion, correctly balances the interests of investors with the interests of the company. Investors should not have their rights automatically curtailed after too short a period. The company needs to know promptly who its shareholders are and to take appropriate action if not informed. I believe that after the rule change announced by the Stock Exchange this balance has been properly struck.

The Exchange consulted widely before making the change and it is especially interesting to note that several members of the Listed Companies Advisory Committee, which includes representatives of many of the leading UK companies, suggested that a seven-day period would be too short even for well-intentioned shareholders

. My noble friend should pause to consider the implications of this period of seven days. He should ask himself whether the UK, as an attractive financial centre in which companies can easily raise capital, will benefit. His proposals would make those who invest in this country very open to having their rights restricted. I take it that my noble friend is agreeing to the 14 days and that he will not therefore press his amendment

Lord Morris

I have listened very carefully to what my noble friend Lord Peyton said, as I did to my noble friend who has just spoken. I suspect that he would have absolutely no objection to this amendment becoming part of the general public law of England and reflecting entirely the intentions of the Stock Exchange. It seems to me to be a very good idea and no doubt we could count on his support.

I have put my name to this and indeed to all the amendments of my noble friend Lord Peyton, but I think the Clerks must be using invisible ink in regard to all of them. However, that is de minimis. It would not be my intention to throw out the baby with the bathwater. I consider that the term of 14 days as opposed to seven days would be a great improvement on the current position. if my noble friend the Minister will consider the merits of this amendment in a slightly different form, I shall look forward very much to hearing what he has to say.

Lord Hanson

I feel that it should be mentioned at this time that this amendment refers to very few people in this country and to very few companies. It will certainly create employment. That will be good because to produce the information as requested within seven days a large number of people will be needed in the business of recording share ownership. Section 212 inquiries to large diversified companies, especially if they have in-house pension funds, cannot always be answered immediately. If more and more power is given to demand such information at short notice, equal attention should perhaps be given to what constitutes reasonable cause for making the inquiry.

A company of our size, for example, receives inquiries very soon after small purchases of shares, less than 1 per cent. or perhaps 2 per cent. Usually that information is given immediately to the inquirer by the company secretary of the company whose shares have been acquired. There is no particular problem from the point of view of companies like ours in providing this information. One suspects that the time limit is being reduced. I hope that my noble friend has this number muddled up as well and that he will follow the example of the chairman of the Stock Exchange. For example, on occasion as a result of what has appeared in the press my company receives inquiries about whether we hold shares. If the inquirers follow the press they will be busy all the time because the press takes a great deal of interest in such matters.

It is unreasonable to ask for seven days. Everyone knows of the difficulties about mail deliveries, and seven days is not possible. I oppose it, I oppose 14 days and I believe that 30 days is all right. Nevertheless, a requirement of 14 days is fairer than seven days and I hope that I can persuade my noble friend that it is a more reasonable figure.

Lord Peston

It may be useful if this side of the Committee is allowed to join in the debate, even though I have never obtained a substantial interest in any company or been in the position of threatening to take one over. I agree with the noble Lord, Lord Morris; it is fundamental that a company should know who its shareholders are. I should like to add a second fundamental principle. 1 believe that financial markets exist for the sake of industrial and commercial firms and not the other way round. In other words, what matters is what industry does.

We are sympathetic to the spirit of the amendment. It appears to be in the spirit of several earlier amendments connected with the style of activity in such markets. I prefer seven days to 14 days but I follow the point made by the noble Lord, Lord Morris; 14 days is a substantial step forward from 30 days. In that connection we are moving forward in a sensible direction. I do not know whether the noble Lord, Lord Peyton, will press for the provision of seven days but he should know that we are sympathetic towards what he has said.

Lord Peyton of Yeovil

The noble Lord, Lord Peston, most charmingly apologised for intruding into our debate on this side of the Committee. Had he been present earlier he would have heard me apologise for intruding into what I regarded as a nightmarish debate between the Front Benches. I can compare it only with a dull game of tennis in which the ball is lobbed very slowly from one side to the other and in which there is no prospect of anyone killing the ball. Even worse, there is no prospect of either side giving up as a result of exhaustion because the effort involved in the game is so small.

The amendments were tabled in order to reflect a profound and widespread unease among many companies about the possibility of an immense amount of effort being deflected to expensive and unnecessary defence operations. They spring from nothing more than that and were never intended to frustrate and prevent takeover bids.

Furthermore, there is no magic attached to the drafting. It may well be that, if accepted, the amendments will require certain safeguards. If my noble friend on the Front Bench makes a positive and constructive reply I shall withdraw them on that basis.

In reply to my noble friend Lord Bridgeman I welcome the move made by the Stock Exchange. However, we in Parliament are not obliged to accept a decision of the Stock Exchange as being the same as a provision contained in an Act of Parliament. I still wish to see inserted into the Bill a provision which shortens the period.

My noble friend Lord Hanson has great experience in such matters. I am not muddled in my numbers and nor shall I be unreasonable or greedy. I should look favourably on the provision of 14 days with any necessary safeguards. I do not wish to create unnecessary labour; we already have enough in this country. However, I should like to hear the Minister's reaction to what has been said and a promise that at a later stage he will bring forward a generally acceptable amendment.

Lord Strathclyde

In an earlier debate my noble friend Lord Peyton offered to me his sympathy for being on the Front Bench. He suggested that the Secretary of State should be present to take the heat. I should like to point out to him that whenever I see the Secretary of State I pass on any heat that I have received.

My noble friend also said that he was disappointed because his arguments about the problems he faces were dealt with lightly. That is not the case. We take seriously all amendments, particularly when the noble Lord speaks, and a great deal of deliberation takes place in deciding our response. It is most unfair to accuse my officials of dealing lightly with any problem that he raises.

Lord Peyton of Yeovil

I am sorry to intervene. I have never mentioned my noble friend's officials and I do not accuse them of dealing lightly with anything. I intended to convey the fact that I do not believe my noble friend has any idea of the irritation caused to Back-Benchers when they have to listen endlessly to governments saying that they know better.

7.15 p.m.

Lord Strathclyde

I do not wish to make a great song and dance about the issue and I accept what my noble friend has said.

As regards Amendment No. 231A, I do not believe that it is either desirable or necessary for companies Vol. 504to be given by statute the powers described in it. Under existing company law, there are two possible ways for companies to obtain the imposition of restrictions to the rights of shares. The first is provided for in Section 216 of the 1985 Act, where companies may apply to the court for an order imposing the restrictions of Part XV of the Act if information requested by a notice is not given in such reasonable time as the notice requires. Secondly. companies may take powers in their articles of association allowing them to impose restrictions. The ability of listed companies to take such powers is constrained by the listing rules. As the Committee is aware, the Stock Exchange proposed to relax those constraints and made an announcement yesterday. My noble friend Lord Bridgeman has already spoken of the effect of the Stock Exchange's proposals.

The present range of sanctions available to companies through the court procedure and through the adoption of powers in their articles is adequate to meet their requirements. Where a company needs to take swift action to discover the identity of a person holding an interest in its shares, the courts are prepared to impose restrictions quickly. They have indicated that they would probably regard a period of two days as a reasonable time in which to require a person to respond to a Section 212 notice, even when that person is resident overseas. Orders under Section 216 have been imposed by the courts on an ex parte basis, and there is no suggestion that the procedure leads to any delay. Moreover, the involvement of the courts ensures that the rights of shareholders are not arbitrarily or unfairly attacked.

Where a company exercises its own powers to apply sanctions other safeguards are necessary to protect shareholders. The first of these is that shareholders themselves should approve the inclusion of the powers in the company's articles of association. In addition, the listing rules currently provide that only voting rights may be restricted and that sanctions may be applied only 28 days after the issuing of a Section 212 notice. The package of proposals announced yesterday by the Stock Exchange will give companies significantly wider powers in respect of holdings above 0 25 per cent. Dividend and transfer rights will be subject to restrictions, and instead of the 28-day period, a 14-day period will apply.

Furthermore, companies will he able to keep restrictions in place for a set period after disclosure has been made. Shareholders will not be able to sit on their restricted shares until the last moment and then regain their rights by disclosing at the last moment, save before an AGM, when the information is too late to be of use to other investors.

The changes proposed by the Stock Exchange go a long way towards meeting the aims of my noble friend's amendment. It is possible to argue that a period of 14 days is too long. Indeed, the Government suggested that seven days might be appropriate when discussing this subject in their consultative document. But I believe that we must accept the judgment of the Stock Exchange on this matter. As the competent authority for listing rules under Part IV of the Financial Services Act, the Stock Exchange has been delegated the responsibility for

balancing the interests of company management and shareholders. The Government welcome the changes proposed by the Stock Exchange as representing a significant step towards improved transparency even though they do not go so far as the amendment in respect of the period within which sanctions may be imposed.

I hope therefore that my noble friend will agree that, with the proposed changes to the listing rules and the willingness of the courts to act when greater speed is required, companies do not require the new powers that his amendment is designed to give. The Government do not believe that this is an area where legislation is now required, and I ask him to withdraw his amendment.

Lord Peyton of Yeovil

I hope that my noble friend will accept that I am accustomed to acting with great moderation. In those circumstances and with a sense of considerable self-sacrifice, I am prepared to accept the rather meagre bone offered by my noble friend in the name of the Stock Exchange instead of something written into the Bill. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Peyton of Yeovil moved Amendment No. 231B:

Page 89, line 8, at end insert—(6) After section 212 insert— "Interest in shares before date of notice

. 212A—(l) Where a notice is served upon any person under section 212 and any other interest in the shares comprised in the company's relevant share capital to which such notice relates subsists or has subsisted at any time during the 3 years immediately preceding the date on which that notice was issued the person upon whom such notice is served shall forthwith transmit a copy of that notice to any other person who (so far as lies within his knowledge) has or had an interest in such shares.

(2) Any such other person to whom such notice is transmitted shall thereupon be required to give the company (so far as is within his knowledge) the information regarding all interests in such shares comprised in the relevant share capital of the company which he would he required to give if he had received a notice under section 212 relating to such shares so comprised requiring him to give such particulars of interests therein as may be the subject of a request under that section (for which purpose the information requested under section 212(2)(a) and (b) shall be that as is referred to in section 2 I2(3))."").

The noble Lord said: This amendment is very short. And, again, it is a probing amendment. The drafting has no particular magic for me. I should not object if safeguards were required.

A Section 212 notice now affects only the person upon whom it is served. My amendment has the effect of putting a duty on the person upon whom it is served to acquaint any others whom he knew to be interested in the shares of the fact that notice had been served upon him. Those other people will then be affected by the notice in the same way as the original person who had received it. I hope that I have made my relatively simple point clearly. 1 shall be interested to hear what my noble friend says. I beg to move.

Lord Strathclyde

This amendment is designed to reduce potential delays when the recipient of a Section 212 notice identifies other persons as holders of interests in the shares of a company. I would not wish to argue against that objective. The amendment would not, however, reduce delays significantly, and it would create serious technical difficulties which I do not think could be overcome.

The new section that would be inserted by the amendment is an attempt to require a person who receives a copy of a notice issued to another person to give information regarding interests in shares which he would be required to give if sent the notice direct from the company. This would be neither practicable nor fair. It would not be practicable because a company has to draw up each notice to meet both its own needs and the circumstances of the recipient. Companies have a certain discretion under Section 212 as to the information they request.

Questions that it might be appropriate to direct at, say, the registered holder of the shares might be less than helpful to the company when directed at a broker who is holding the shares on behalf of a client. A registered holder might be asked in general terms about any present or past interests of other persons within his knowledge. But a well drafted notice sent to a broker might ask specific questions about other interests, perhaps even asking whether particular people have an interest in the shares, or in what capacity the broker holds his interest. It is not possible therefore, simply to refer, as the proposed new section does, to, such particulars of interests therein as may be the subject of a request", under Section 212.This would not be helpful to the company, and it would impose a vague requirement upon the person to whom the notice was transmitted. It might not be clear to what extent he should answer the questions in the original notice, and he might not be able to satisfy himself with any certainty that he was complying properly with the requirement.

For these reasons, I do not think that it would be in the interests of companies themselves to create what would be a cumbersome and potentially burdensome new requirement. I ask my noble friend to withdraw his amendment.

Lord Peyton of Yeovil

I very much anticipated that reply. It was, if I may say so, much longer than my very short point deserved. I merely ask my noble friend to recognise that there might be a point here. Will he look at the amendment again before Report stage? That is a very modest request.

Lord Strathclyde

I am sorry that my noble friend feels that 1 am speaking too long in reply to his comments. I shall gladly cut down my meagre words. As to his point about the notice principle, we have already looked at that. At the start of my remarks I said that I should not wish to argue against the objectives. In the light of that, I am happy to reinspect the issue, but I cannot give any guarantee that the Government will come back on Report with an amendment to cover the matter. However, we shall consider it.

Lord Peyton of Yeovil

I am so profoundly grateful to my noble friend. I had to work terribly hard for that comparatively small fish but I have caught it and I am glad to have it on the bank at last. In the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Peyton of Yeovil moved Amendment No. 231C:

Page 89, line 8, at end insert— ("(8) In section 204(2) for the words "acquired in pursuance of the agreement" there shall be substituted "the subject of this agreement" and the words "and, (b) any interest in the company's shares is in fact acquired by any of the parties in pursuance of this agreement" shall be deleted.").

The noble Lord said: I am sorry to pester the Committee with so many amendments, but I shall move this one with the same brevity as the others. At present, provisions governing concert parties apply only to shares acquired after the party was entered into. The amendment includes shares which were acquired before the person concerned entered the concert party. That is very simple. I am sure that my noble friend can answer briefly. I beg to move.

Lord Strathclyde

Again, this is an interesting proposal which my noble friend brings forward. I should like to remind the Committee of the reason why the provisions on concert parties were introduced in the 1981 Companies Act. It had become apparent that it was possible to evade the obligation to disclose by distributing interests in shares among a number of people acting in concert, none of whom individually held an interest as large as 5 per cent. Consequently, groups of people acting in concert to acquire shares are now required to aggregate their separate interests for the purpose of disclosure. Groups of shareholders should be able to adopt a common strategy towards the conduct of a company without being obliged to show their hand in advance to the management. This is a perfectly proper activity for the owners of a company to pursue.

In the light of what 1 have said, I hope that my noble friend will withdraw his amendment. We obviously reserve our position on Report but we shall consider what my noble friend said.

Lord Peyton of Yeovil

Overflowing with gratitude, perhaps I can thank my noble friend and beg leave to withdraw the amendment.

Amendment by leave, withdrawn.

Lord Peyton of Yeovil moved Amendment No. 213D:

Page 89, line 8, at end insert— ("(9) After section 220 insert

("Aggregate interest in shares.

220A—(1) This section shall apply to the acquisition of interests in shares comprised in a company's relevant share capital which result in that person so acquiring any such interest having an aggregate interest in shares so comprised in excess of the following percentage levels of the nominal value of the share capital of that company, namely: 3 per cent., 10 per cent. and 15 per cent. (each such percentage level being referred to as a trigger level).

(2) No acquisition of an interest in shares in a company's relevant share capital which would cause the interest of the acquiror in shares so comprised to exceed the next higher trigger level above his then current percentage interest in shares so comprised may be made, unless the acquiror had not acquired any such interest in shares so comprised in the ten days preceding the date of such acquisition.

(3) Where any person acquires or a company has reasonable cause to believe that a person has acquired any interest in shares comprised in the company's relevant capital in breach of the provisions of this section the company may declare that any shares so comprised in which such person has or had an interest or in which the company has reasonable cause to believe that the person to have or to have had an interest shall be subject to the restrictions of Part XV of this Act.

(4) Upon the making of any such declaration the company shall forthwith—

1. (a) give notice thereof to any person in respect of whom the company has made a declaration under sub-section (3); and
2. (b) shall publish such notice in the Gazette and thereupon such declaration shall be of immediate effect.").

The noble Lord said: I again apologise for wearying Members of the Committee. This is another short but important point. Under the present law, the bidder is free to make the running in two stages. He can acquire as much as 29'9 per cent. of the shares of a company. In doing so, in many cases he need speak to only relatively few large institutional shareholders. This makes it possible for a bidder to acquire with very great haste a large proportion of the bid for a company's shares and thus preclude the effective operation of the disclosure provisions.

This amendment proposes a breathing space for 10 days after each of three points: that is, after 3 per cent. of the shares have been acquired there should be a breathing space during which no further acquisitions can be made for 10 days; likewise after 10 per cent. and 15 per cent. I hope that my noble friend has rewarded my brevity by taking into his mind what I have attempted to say, and I look forward to hearing from him. I beg to move.

7.30 p.m.

Viscount Bridgeman

I am sorry to be so ungrateful to my noble friend Lord Peyton after his generous treatment of me earlier, but I am not attracted by this proposal to prevent levels in shareholdings being crossed without a 10-day pause for reflection.

That proposal appears to be an invitation for a share price to be pushed up against a potential bidder, with money pouring into the acquisition of that company's shares and the potential buyer proceeding to buy up to the next trigger level at stated intervals. I doubt whether such a proposal would make a bid situation any less volatile. I doubt whether it would make companies more bid-proof, if that is the intention. I am sure that the Committee would rightly view such an intention with some suspicion. The bid-proof company is not always the best run company. I hope that my noble friend Lord Peyton will withdraw his amendment.

Lord Lloyd of Kilgerran

I should like to support at least the theme of the amendment. However, I should very much like to know what the noble Lord's answer is to the observations made by the noble Viscount, Lord Bridgeman. I should like also to know why, with a theme that the noble Lord, Lord Peyton, has put so briefly, it is necessary to have almost a whole page for the amendment.

The noble Lord, Lord Peyton, has had some fun this evening in pressing the noble Lord, Lord Strathclyde, about his brevity. Therefore, why has the noble Lord, Lord Peyton, put such a long message in an amendment which he says is so simple?

Lord Peyton of Yeovil

I can easily answer that question. I cannot claim that this marvellous piece of drafting is my own work. It was drafted by someone far more skilled than I. It was drafted by an expert who has grown up and has been nurtured in a world where simplicity is regarded almost as odious as is brevity. That being the case, he has been obliged, in order to conform with modern practice and what is known as respectability, to spread himself over a whole page. To be fair, he was seeking to amend a Bill which is not in itself a monument of simplicity or brevity; hence any tendency to bad habits was thereby encouraged and is therefore to be forgiven.

My noble friend Lord Bridgeman suggested, I believe, that I was in favour of bid-proof companies. That is precisely the opposite of my position.

Lord Strathclyde

The previous amendments tabled by my noble friend Lord Peyton have contained technical proposals which could be said to fall broadly within the scope of Part VI of the 1985 Act even if, in the Government's view, they would not actually further the objectives of Part VI. This amendment, however, raises a major issue of principle which goes beyond Part VI and runs counter to the Government's policy on takeovers.

I have listened to the brief points made by my noble friend. The Government will not be persuaded, however, that there is a case for allowing the management of a company to restrict the rights of shares acquired by a potential offer or simply because he is acquiring those shares faster than is convenient for the directors. It is entirely proper for a person to acquire an initial stake in a company so long as he discloses his acquisition. Furthermore, other shareholders should not be prevented by management from selling their interests to a potential offeror. This would be an unwarranted limitation of their freedom to dispose of their shares on the best terms available.

I hope that in this case my noble friend will read carefully what I have said and decide whether or not he wants to bring forward an amendment at another stage of the Bill.

Lord Peyton of Yeovil

I always read what my noble friend says, particularly (if I may say so) when he says it with relative brevity, as he did.

I am sorry my noble friend has concluded that the amendment is unacceptable, but the point I want to leave with him at the end of the day is that there is great unease among many people that a company under attack has very few means of ascertaining who precisely is against it and what he is proposing. Those are not empty words. I hope that the Government will consider it their duty to digest them. If not, it will be necessary for me to come back at a later stage and not be as reasonable and delightfully withdrawing as I am today positively shy. I beg leave to withdrawthe amendment.

Amendment, by leave, withdrawn.

Viscount Davidson

This may be a convenient moment to break for dinner. I suggest that we do not resume the Committee stage before 8.35 p.m. I beg to move that the House do now resume.

House resumed.