Lords Sitting of 7 November 1989

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Manchester.

Prison Visiting: Arrangements
The Lord Bishop of Manchester The Lord Bishop of Manchester asked Her Majesty's Government:
Whether they are satisfied with the adequacy of arrangements for the comfort of wives and other relatives waiting to visit prisoners.
The Minister of State, Home Office (Earl Ferrers): My Lords, a number of establishments now have visitors' reception centres. Funds will be available from next year to help with the running costs of new centres. We are also looking to the voluntary sector to make a major contribution. All new establishments in the prison building programme will include a purpose-built visitors' reception area.
The Lord Bishop of Manchester: My Lords, I thank the Minister for that slightly encouraging reply, but I am sure that he is aware that the list of prisons produced by the Prison Reform Trust shows very few prison visitors' centres with adequate facilities. Will he confirm that only £60,000 is available for the support of such centres in the current year? Will he give an indication as to how much that figure will be improved in the sum that he mentioned? Is he further aware that Strangeways Prison has a visitors' centre which has been used by 325,000 visitors and families in the last couple of years or since it was opened in 1986, that its future is in jeopardy because of underfunding and that an estimated £50,000 is needed to secure its future?
Earl Ferrers: My Lords, I am grateful to the right reverend Prelate for saying that the Answer was at least slightly encouraging. I thought that it was rather more than that. I can tell him that up to £15,000 for each of five new centres in each of the next four years has been allocated, which allows a total of £464,000 earmarked for visitors' centres over the next three years.
I understand the difficulties which the visitors' centre at Strangeways Prison is experiencing. I understand too that the Selcare Trust, which manages the centre and whose president is the noble Lord, Lord Dean of Beswick, is looking for new sources of funding. I am bound to tell the right reverend Prelate—I am not inviting them; I am simply telling him—that we have not yet received any requests for funding.
Lord Dean of Beswick: My Lords, is the Minister aware that unless the £57,000 is forthcoming the centre will be in jeopardy? The sad fact is that if such a centre were to close we should be unable to predict with any certainty whether anything would
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be able to take its place. Surely we do not want to go back to the appalling situation that existed before where wives and girlfriends of inmates of Strangeways on remand were asked to queue outside in the rain and had to change their babies there. I ask the Minister to look at the immediate funding of the Strangeways centre as a matter of urgency and to give it sympathetic consideration.
Earl Ferrers: My Lords, I appreciate the difficulties which surround the visitors' centre in Strangeways, but the noble Lord will realise that an emergency grant of £15,000 was made this year out of a total of £37,000 which was given in emergency grants to centres which were seriously short of funds. I realise that the Selcare Trust takes an interest in the visitors' centre, as do the Save the Children Fund and the local probation service. One of the difficulties is that the cost of running Strangeways visitors' centre is a good deal higher than for most visitors' centres.
Lord Hunt: My Lords, will the Minister assure the House that visiting conditions at Brixton Prison have been greatly improved in the last two years? Is he aware that at about that time, when I last made a visit there, the conditions for visitors to Brixton were quite disgraceful? There was no shelter for visitors, let alone a visitors' centre. They waited outside in all weathers and when they went inside it was bedlam. There was no privacy. All the visitors were together with all the prisoners. Have things greatly improved since then? It is all the more disgraceful because Brixton is a remand prison.
Earl Ferrers: My Lords, I must confess that there is a great deal of ground to make up until we reach a position in which we can all take pride and with which we can be satisfied. About 20 prisons now have visitors' reception centres and all new prisons have reception centres designed in them. As funds and time permit, we try to update the existing buildings when refurbishment is carried out.
Baroness Sharples: My Lords, will my noble friend tell me how many railway vouchers prisoners' wives or other relatives are now entitled to per month?
Earl Ferrers: My Lords, I am afraid that I cannot give my noble friend the answer to that question, but I shall see whether I can find it out and let her know.
Baroness Blackstone: My Lords, is the Minister aware that the time available for wives and relatives to visit remand prisoners is restricted in nearly all prisons to only 15 minutes? Does he agree that it is highly desirable that contact between prisoners, especially those on remand, and their families should be maintained? Does he also agree that 15 minutes is an absurdly short time for any wife or relative who has any distance to travel? Will he look into the matter?
Earl Ferrers: My Lords, I quite agree with the noble Baroness. It is very important that prisoners should be able to keep contact with their relatives

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and families. I shall look into the point which she raised about the length of time that they are allowed to talk to each other.
Lord Morris: My Lords, does my noble friend care to comment on the view held by many people that the very depressing sight of wives, children and other relatives waiting in the rain outside prisons in order to visit prisoners is a critically important sanction to those with felonious intent?
Earl Ferrers: My Lords, I quite agree that it is highly undesirable. That is the reason why in all new prisons we are making arrangements for visitors' centres to be incorporated in the buildings. It is why we are trying to refurbish those existing prisons which are due for renovation and include within them visitors' centres. We are spending a lot of money on prisons. About £230 million is for new prisons, and it is a question of whether one spends that money on visitors' centres or on the care of the prisoners themselves.
Lord Mishcon: My Lords, does the Minister agree that it is not just a question of it being desirable that families should be able to visit prisoners and prisoners see their families? When trying to keep the family together that is about the one hope of some rehabilitation. In those circumstances is it not quite disgraceful that the Government are relying on voluntary contributions for a matter of this kind? Does the Minister further agree that it is not just a question which concerns the prisons that happen to have been mentioned today; namely, Manchester and Brixton? Leeds Prison is also in a dreadful position. One of the officers described to me the situation when relatives turned up to visit prisoners as something like a zoo.
Earl Ferrers: My Lords, I quite agree with the noble Lord that rehabilitation is very important. But he will be the first to realise that visitors' centres are outside the prison buildings. They are centres used by the families of the prisoners. While it is highly desirable to make them better—we are doing all that we can to do so—I think it is more important that government funds should be spent on improving the state of the prisons themselves, for which the noble Lord and many others have frequently criticised all governments. We are spending our money on that and we are doing our best to incorporate the visitors' centres as well.
Lord Donaldson of Kingsbridge: My Lords, that is a most distressing answer. We have said for years that the expenditure on new prisons, while desirable, can only be accepted in terms of bad prisons being closed down and existing prisons being made better. Does the Minister not agree that after all these years it is quite incredible to answer the very serious questions of this House about a number of different prisons by saying that the money will be spent elsewhere because it is more important?
Earl Ferrers: My Lords, I know that the noble Lord feels very concerned about this matter because
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he has frequently spoken about it. However, I ask him to recall that this year we are spending £70 million on refurbishing our existing prisons. That is a point on which the noble Lord and many of his friends have constantly pressed the Government. We are spending £230 million on new prisons. The noble Lord would like to have all the cake and the icing on top but it is not always possible to have it.
Lord Donaldson of Kingsbridge: My Lords, I should like, if necessary, £30 million of the £230 million to be spent putting right the visiting arrangements in all our three or four hundred prisons.
Earl Ferrers: My Lords, if I understood the noble Lord correctly he suggests that we should spend more money on visitors' centres and less on refurbishing the prisons and getting rid of slopping out. However, that is what we have put our attention to.
Baroness Darcy (de Knayth): My Lords, is the Minister aware of my concern about the existing patchy provision in relation to access and facilities for disabled visitors? The Prison Reform Trust tells me that there is little improvement in the situation in newly built prisons.
Earl Ferrers: My Lords, I recognise that there are difficulties for those who are disabled, particularly at the older prisons. We take the needs of the disabled into account both when refurbishing the old prisons and when designing new ones. Facilities are improved as and when the opportunity arises.

Nuclear Weapons Tests: Policy
2.48 p.m.
Lord Jenkins of Putney Lord Jenkins of Putney asked Her Majesty's Government:
Why they resisted a nuclear test ban at Geneva, in view of the probability that a Labour Government would immediately support such a ban.
The Minister of State, Foreign and Commonwealth Office (Lord Brabazon of Tara): My Lords, for the foreseeable future our security will depend on deterrence based in part on the possession of nuclear weapons. That will mean a continuing requirement to test our nuclear weapons in order to ensure that they remain effective and up to date. A comprehensive test ban therefore remains a long-term goal, to which progress can only be made on a step by step basis.
Lord Jenkins of Putney: My Lords, I thank the Minister for that Answer. He will recall that at the September meeting in Geneva the debate between the parties interested seemed to be between the desirability of revising the present partial test ban treaty and drafting a completely new comprehensive test ban treaty. As I understand it from the Geneva note on the subject, the American representative (who I think was Mr. Friedensdorf) replied that

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the US and the UK opposed the convening of an amending conference. Does that mean that they are prepared to consider the possibility of a complete comprehensive test ban treaty or that they are not?
Secondly, Mr. Friedensdorf went on to say that the US, the UK and the USSR intend to hold such a conference. That seems rather contradictory. On the one hand, he is against revising the existing treaty but, on the other hand, he says that those three countries intend to go ahead with it. Will the Minister be good enough to explain to the House the present situation?
Lord Brabazon of Tara: My Lords, the noble Lord refers to the proposed amendment to the partial test ban treaty. The United Kingdom cannot support this amendment given our continuing requirement to conduct underground nuclear tests to ensure that our nuclear weapons remain effective and up to date. Since an amendment would require the support of all three original parties—ourselves, the United States and the Soviet Union—in order to be approved, an amendment conference would be futile and costly. But we shall fulfil our duties as a depository of the treaty. That means that a conference would have to be convened.
Lord Jenkins of Putney: My Lords, with respect, the noble Lord has not answered my question. Will he inform the House of the present situation? Has the conference between the USA, the USSR and the UK been arranged? Will it take place? Can he add to our information on this?
Lord Brabazon of Tara: My Lords, we have held initial discussions with the other depositories—the two other countries to which the noble Lord referred—in order to begin preparations for convening the conference. We are now discussing with the other parties the best way forward. The depositories believe that the conference should be held in January 1991.
Lord Harmar-Nicholls: My Lords, since noble Lords are responsible for the accuracy of any Question that they put down, has my noble friend evidence to demonstrate the fact that even now the Official Opposition would support a ban, irrespective of the effect that it would have upon our defence capabilities during this period of change?
Lord Brabazon of Tara: My Lords, I cannot answer that question. The noble Lord, Lord Jenkins of Putney, will have his views and the Opposition (the Labour Party) their views on whether they would have a test ban. It is not for the Government to say. We would wish to continue testing. Our long-term goal is a comprehensive test ban. It is also our goal that there should not be a Labour Government either in the short or the long term.
Lord Cledwyn of Penrhos: My Lords, in his early days in his new position—and I congratulate him upon it—the noble Lord has made a very considerable mistake, but no doubt he will learn as time goes on. Can he say what progress is being made in the START talks? Is he aware that the policy
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of Her Majesty's Opposition is to proceed in concert and in agreement with our allies, including the United States and France? In view of the damage to the environment that has been caused by continuing testing, is there a possibility of negotiating a moratorium with the United States, the USSR and France, which are the countries that are continuing to test to the damage of the environment?
Lord Brabazon of Tara: My Lords, I am grateful to the noble Lord for the first part of his question. I am not sure of the mistake that I made to which he referred. I am grateful also for his explanation of the official policy of the party opposite.
On a moratorium on testing, we are not interested in such a moratorium. We need to test at a minimum level and will continue to do so in order to make sure that our deterrent is effective.
Lord Mayhew: My Lords, it is refreshing to hear the Government's opposition to a test ban treaty explained not in terms of the unverifiability of such tests—they have been verifiable for many years—but that they wish to be able lo test our new warhead for Trident and no doubt the new warhead for the short-range nuclear missiles. However, do I understand from the noble Lord's original Answer that the Government's position is that in order to deter aggression by the Warsaw Pact this country now needs a major increase in its nuclear capability?
Lord Brabazon of Tara: My Lords, I do not think that I said anything along those lines in my original Answer. I said that a comprehensive test ban remains our long-term goal but progress can be made only by a step-by-step approach. This must take account of technical advances on verification as well as progress elsewhere on arms control and the attitude of other states.
Lord Hailsham of Saint Marylebone: My Lords, as the one who negotiated the test ban treaty in 1963, perhaps I may ask my noble friend this question. Is it possible still to take the view that, so long as nuclear weapons exist, there is not the slightest possibility whatever of the major powers agreeing to a total ban on tests underground, and that even if there were, there are other powers which are not members of that treaty and have not adhered to it who would continue to do so, whatever we said?
Lord Brabazon of Tara: My Lords, my noble and learned friend, who obviously has experience going back to the negotiation of this treaty, makes very good points.
Lord Mellish: My Lords, to put the record straight, is the Minister aware that some of us on this side of the House believe that there is no point in having a nuclear weapon unless one tests it to find out whether it goes off? That is the first point. Secondly, one does not abandon such tests until all the countries in the world agree to do so.
Lord Brabazon of Tara: My Lords, I am grateful to the noble Lord for his support of our policies.
Lord Zuckerman: My Lords, what evidence can be given that nuclear warheads are in fact tested before they go off?
Lord Brabazon of Tara: My Lords, I am afraid that I cannot answer that question. I am not quite sure exactly what happens in these tests.
Lord Jenkins of Putney: My Lords, is the noble Lord aware that on this point he is mistaken in believing that there is a difference between the Front Bench and other Benches in the Labour Party? We are at one in our desire to ban all nuclear weapons. There may be some slight divergence on exactly how we do it, but we are at one in the aim that we seek.
Lord Brabazon of Tara: My Lords, I do not think that I said that I detected a difference. I said that I was looking forward to an explanation. I now have it.

Strike Pay and Income Tax
2.56 p.m.
Lord Boyd-Carpenter Lord Boyd-Carpenter asked Her Majesty's Government:
Whether income tax is collected in respect of strike pay paid by a trade union to members who are on strike.
The Paymaster General (The Earl of Caithness): My Lords, no.
Lord Boyd-Carpenter: My Lords, does that Answer mean that a man who is doing his job suffers deduction of tax from his pay but that if he goes on strike he obtains tax-free emoluments? How long can he go on doing so?
The Earl of Caithness: My Lords, the position is that strike pay is not taxable because it is not income for any tax purpose since it is classified as effectively return of trade union subscriptions, which are generally paid out of taxed income.
Lord Molloy: My Lords, in instances where Ministers of the Crown, in particular in another place, are unable to continue with their financial transactions and independent agencies do so on their behalf, are those transactions also subject to income tax from each and every Minister?
The Earl of Caithness: My Lords, the noble Lord veers quite a long way from the Question on the Order Paper.
Lord Bruce of Donington: My Lords, if the noble Earl believes that the tax reforming zeal of his noble friend Lord Boyd-Carpenter needs encouragement, will he consider asking his right honourable friend the Chancellor of the Exchequer to amend the existing tax law? Under the current arrangements executives earning £1 million a year are enabled so to arrange their affairs that they pay no tax.
The Earl of Caithness: My Lords, that also is another question.

Electricity Privatisation and AGRs
2.58 p.m.
Lord Hatch of Lusby Lord Hatch of Lusby asked Her Majesty's Government:
Whether they will now take the advanced gas reactors out of the electricity privatisation programme.
Viscount Ullswater: My Lords, negotiations are taking place with all parts of the electricity industry on the future arrangements for the supply of nuclear power.
Lord Hatch of Lusby: My Lords, is the Minister aware that during the debates on the Electricity Bill, some of us pressed his predecessor, the noble Baroness, Lady Hooper, to inform the House whether all the costs of nuclear energy were being taken into account? Has it not become apparent since then that that was not done? Do the Government agree with the estimate made by Large and Associates, the engineering consultants, that the decommissioning of AGRs would cost between £50 billion and £60 billion? If the Government do not agree, what is their figure for the cost of decommissioning?
Viscount Ullswater: My Lords, the Government have never denied the fact that nuclear power is more expensive than fossil-generated power. However, nuclear has a vital strategic role to play in security of supply. It is because of these additional costs that we need the non-fossil fuel obligation. Electricity customers benefit from diversity of supply that nuclear provides.
Lord Hatch of Lusby: My Lords, will the Minister answer my question? Does he agree with my figure of £50 billion to £60 billion for decommissioning the AGRs? If not, what is the Government's figure?
Viscount Ullswater: My Lords, the costs mentioned by the noble Lord, Lord Hatch, are still subject to negotiations between the generating companies and the supply companies.
The Earl of Lauderdale: My Lords, will my noble friend inform his right honourable friend the Secretary of State that as the Government have already agreed to take back into the public sector 27 Magnox reactors they may as well take back the other five reactors which are AGRs?
Viscount Ullswater: My Lords, my noble friend may have the number wrong. I believe that we have only eight Magnox stations although we may have more reactors. However, I take his point and I shall pass on his comments to my right honourable friend the Secretary of State.
Lord Mason of Barnsley: My Lords, does the Minister recall that the paper prepared by the

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Department of Energy, and submitted to a sub-committee of Cabinet on the privatisation of electricity, stated that the cost of nuclear-produced electricity will be roughly double that of coal-fired stations? Will the Minister confirm that assessment? Secondly, will he confirm that before Her Majesty's Government can go ahead with the privatisation of electricity they must seek exemptions from the Common Market competition law?
Viscount Ullswater: My Lords, I shall not comment on every speculative figure which is bandied about. Many of the figures which are quoted and requoted in the press—
Lord Mason of Barnsley: My Lords, they are in the paper.
Viscount Ullswater: My Lords, they are wild guesses and others certainly manifest errors and inaccuracies. The level of fossil and non-fossil fuel prices, and as a consequence the rate of any levy, are the subject of negotiations now taking place.
Lord Molloy: My Lords, what information does the Minister have to support the statement that some articles appearing in responsible sections of the British press contain wild calculations or statements? What information does he have on which to base that statement?
Viscount Ullswater: My Lords, I said that what is quoted in the paper may be one thing but I am not prepared to speculate on it.
Lord Hailsham of Saint Marylebone: My Lords, is it not the case that the Question relates to taking out of the privatisation programme certain gas cooled reactors and are we not straying wildly beyond that Question when we start arguing about the merits of coal and the relative costs of decommissioning? If those questions are to be asked, would it not be better if they were put down on the Order Paper?
Viscount Ullswater: My Lords, I am always grateful to my noble and learned friend for his wise counsel.
Lord Williams of Elvel: My Lords, would the Minister care to explain to his noble and learned friend that it is a question of putting together a prospectus for National Power, that the costs of decommissioning—whether £7 billion, £10 billion or more—are substantial and that they must be properly verified when making out a prospectus for National Power? If the AGRs are taken out of National Power the prospectus is relatively easy to write. If they are not taken out of National Power then, in my view, the prospectus is impossible to write and I said so in this House on Second Reading of the Electricity Bill. Will the Minister therefore explain to his noble and learned friend that questions on the costs of decommissioning and the Government's precise figures are supremely relevant?
Viscount Ullswater: My Lords, I have already said that negotiations are taking place on the future
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supply of nuclear power. I really cannot pre-empt their outcome.
Lord Hatch of Lusby: My Lords, is the Minister aware that the figures that I gave came from a company whose representatives gave evidence to the House of Commons Environment and Energy Committee and that they are not figures thrown about in the press? He has still not answered the question as to whether the figures are accurate. If they are, does he agree that privatisation of the nuclear programme becomes totally impossible?
Viscount Ullswater: My Lords, I have already said to the noble Lord that the figures which he quotes may contain some truth. However, what is important is that there is nothing which I shall say to confirm or deny them. They are subject to negotiations between the power generators and the suppliers.
Viscount Hanworth: My Lords, for a long time many of us have thought that the only sensible answer is to retain the nuclear power stations temporarily under Government control. Can the Minister say why the Government are not prepared to take that sensible action?
Viscount Ullswater: My Lords, I can only repeat what I have already said; negotiations are taking place and I cannot pre-empt their outcome.

Business
3.6 p.m.
Lord Denham Lord Denham My Lords, at a convenient moment after 3.30 this afternoon my noble friend Lord Davidson will, with the leave of the House, repeat a Statement that is to be made in another place on the Clapham Junction Inquiry Report.
It may be for the convenience of the House if I announce that consideration of Commons amendments to the Companies Bill will be adjourned at about 7.30 p.m. for about one hour and that during this adjournment the Northern Ireland (Emergency Provisions) Act 1978 (Amendment) Order 1989 and the Youth Service (Northern Ireland) Order 1989 will be taken.

Southampton Rapid Transit Bill [H.L.]
The Chairman of Committees (Lord Aberdare): My Lords, I beg to move the first Motion standing in my name on the Order Paper.
Moved, That the promoters of the Bill have leave to suspend any further proceedings thereon, in order to proceed with the Bill, if they shall think fit, in the next Session of Parliament, provided that notice of their intention to do so be lodged in the Office of the Clerk of the Parliaments not later than three o'clock on the day before the close of the present Session, and that all fees due thereon up to that period shall have been paid.
That such Bill shall be deposited in the Office of the Clerk of the Parliaments not later than three

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o'clock on the third day on which the House shall sit after the commencement of the next Session of Parliament, with a declaration annexed, signed by the agent, stating that the Bill is the same in every respect as the Bill at the last stage of the proceedings thereon in this House in the present Session;
That the proceedings on such Bill shall in the next Session of Parliament be pro forma only in regard to every stage through which the same shall have passed in the present Session, and that no new fees be charged to such stages;
That the Standing Orders by which the proceedings on Bills are regulated shall not apply in the next Session of Parliament to such Bill in regard to any of the stages through which the same shall have passed during the present Session;
That all petitions relating to the Bill presented in the present Session which stand referred to the Select Committee on the Bill, together with any minutes of evidence taken before the Select Committee, shall stand referred to the Select Committee on the Bill in the next Session;
That no petitioners shall be heard before the Select Committee on the Bill, unless their petition has been presented within the time limited within the present Session or deposited pursuant to paragraph (b) of Standing Order 109 relating to Private Business;
That in relation to the Bill, Standing Order 110 relating to Private Business shall have effect as if the words "under Standing Order 109" were omitted.—(the Chairman of Committees.)
On Question, Motion agreed to, and it was ordered that a Message be sent to the Commons to acquaint them therewith.

Heathrow Express Railway Bill [H.L.]
The Chairman of Committees: My Lords, I beg to move the second Motion standing in my name on the Order Paper.
Moved, That the promoters of the Bill have leave to suspend any further proceedings thereon, in order to proceed with it if they shall think fit, in the next Session of Parliament, provided that notice of their intention to do so be lodged in the Office of the Clerk of the Parliaments not later than three o'clock on the day before the close of the present Session, and that all fees due thereon up to that period shall have been paid;
That such Bill shall be deposited in the Office of the Clerk of the Parliaments not later than three o'clock on the third day on which the House shall sit after the commencement of the next Session of Parliament, with a declaration annexed, signed by the agent, stating that the Bill is the same in every respect as the Bill at the last stage of the proceedings thereon in this House in the present Session;
That the proceedings on such Bill shall in the next Session of Parliament be pro forma only in regard to every stage through which the same shall have passed in the present Session, and that no new fees be charged to such stages;
That the Standing Orders by which the proceedings on Bills are regulated shall not apply in the next Session of Parliament to such Bill in regard
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to any of the stages through which the same shall have passed during the present Session;
That all petitions relating to the Bill presented in the present Session which stand referred to the Select Committee on the Bill, together with any minutes of evidence taken before the Select Committee, shall stand referred to the Select Committee on the Bill in the next Session;
That no petitioners shall be heard before the Select Committee on the Bill, unless their petition has been presented within the time limited within the present Session or deposited pursuant to paragraph (b) of Standing Order 109 relating to Private Business;
That in relation to the Bill, Standing Order 110 relating to Private Business shall have effect as if the words "under Standing Order 109" were omitted.—(the Chairman of Committees.)
On Question, Motion agreed to, and it was ordered that a Message be sent to the Commons to acquaint them therewith.

Companies Bill [H.L.]
3.7 p.m.
The Minister of State, Department of Trade and Industry (Lord Trefgarne): My Lords, I beg to move that the Commons amendments be now considered.
Moved, That the Commons amendments be now considered—(Lord Trefgarne.)
Lord Williams of Elvel: My Lords, in considering the Motion we must take into account that the Bill left this House containing 240 pages and that we have received 531 amendments from the Commons. In those amendments there are 23 mistakes.
I am glad to see many noble Lords opposite whose faces, I am ashamed to say, I do not recognise. I hope that they will stay after Amendments Nos. 1 and 1A so that we can become involved in the technicalities of accountancy.
The Commons amendments consist of 180 pages of printed text. In addition, there is a great deal of new material in all sections of the Bill. Many government amendments were not discussed in another place because the Report stage was guillotined. As I said on Second Reading, we could have handled a Bill containing Parts I and II which were fulfilling our obligations under the Community directive; but an omnibus Bill of this type, more or less made up as we go along, is not one that this House as a revising Chamber can easily handle. We on these Benches are tired of this House being used as a sort of legislative sausage machine and I hope that I speak for the whole House when I lodge the strongest objection.
The Lord Privy Seal (Lord Belstead): My Lords, as this is really a business management matter perhaps I may say a few words in answer to the noble Lord, Lord Williams. I would not deny for one second to your Lordships that this Bill has been very greatly amended in another place. However, I briefly say to the House that it deals with very complex matters. These matters, as the noble Lord, being an expert, knows very well, reflect swift developments in company legislation. Therefore, I do not believe, as

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the noble Lord implied, that it is so much a matter of the Government getting matters wrong as Parliament doing its job.
The reason I have risen to my feet is to add that through the usual channels we took the unprecedented step of setting aside three days for the consideration of Commons amendments which on this side of the House will be dealt with by my noble friend Lord Trefgarne. We also took steps to ensure that a clear week elapsed between the completion of the House of Commons amendments and their consideration today. Therefore, while as always—and I make no secret of this—I do not wish to see undue burdens fall on your Lordships' House, I think that in the case of this particular Bill, Parliament is giving full consideration to very complex legislation, as I believe is appropriate.
Lord Lloyd of Kilgerran: My Lords, the noble Lord the Leader of the House rose to his feet rather more speedily than I had anticipated. I wanted to support most strongly what the noble Lord, Lord Williams, said. I hope that it will not be considered presumptuous if I speak briefly but sincerely and positively on behalf of the multitude of men and women outside this House—those in the professions, academics and employees of small and medium sized companies—who, for the benefit of UK industry, have to do their best to understand company law as it is eventually passed by this House. They have to interpret what your Lordships, as a revising Chamber, determine will be company law.
The Government seem to me to be unmindful of the practical realities associated with company law. We were all becoming familiar with the four centimetre depth of the Companies Act 1985. However, government amendments now delete 42 clauses and seven schedules of this Bill. Over 200 pages have been deleted at the last minute in one fell swoop and replaced by pages and pages of new clauses.
Not satisfied with that savage attack on the Bill, the Government guillotined many amendments before the other place. Your Lordships are therefore presented with 531 new amendments, many of which have not been considered in the other place. Some of the amendments are of extraordinary length. Amendment No. 129 extends to just under 16 pages, Amendment No. 155 has 13 pages and Amendment No. 494 covers 24 pages. Sometimes I feel that one is always hitting one's head against the inevitable brick wall when trying to put forward frankly and sincerely the difficulties encountered by men and women working for the benefit of industry when so little time is given for the study of this mass of new material.
To use a well known word or phrase, in spite of what the Leader of the House has said, I believe that my complaints are unassailable. To put in all these amendments so hurriedly without adequate notice rather blows the cover off the Government's assertions that their aim is to help, in particular, small and medium sized businesses.
Lord Belstead: My Lords, I meant to show no discourtesy to the noble Lord, Lord Lloyd of
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Kilgerran. I apologise for rising to my feet before he did. With respect, whereas I think that the noble Lord has a good point in wanting to protect the rights and privileges of your Lordships' House, I believe that he neglected the fact that we are dealing with highly complex legislation. I think it would be a brave man, even in your Lordships' House, who suggested that another place did not have the right to amend—and amend quite extensively—a Bill of this nature. That is what has happened and the business managers in this House have tried to protect its rights and privileges by doing the one thing open to us; namely, we have allowed plenty of time to look at the myriad of amendments—and the noble Lord is quite right in that—by setting aside an unprecedented number of days so that we can have proper debate.
Lord Cledwyn of Penrhos: My Lords, in supporting my noble friend Lord Williams of Elvel and the noble Lord, Lord Lloyd of Kilgerran, I must say to the noble Lord the Leader of the House that he has not really met the points that have been made. The two noble Lords have registered a protest. It is a protest made continually against this Government over the past few years; namely, that Bills have been presented to Parliament which have not been properly drafted or thought through by Ministers and their advisers.
The noble Lord the Leader of the House says that the other place has a perfect right and indeed a duty to amend legislation as it sees fit. Of course, we accept that: it has always been the case. However, in the history of this Government it is happening time and time again. Shoals of amendments are being heaped on to Bills creating a most difficult position for this House and for noble Lords on all sides.
We accept immediately what the noble Lord said about the complexity of this legislation. I am personally grateful to my noble friend Lord Williams, the noble Lord, Lord Lloyd, and others who have taken part in the debates and who have sought to cast light upon what is a very difficult piece of legislation. That does not do away with the central point made by my noble friend; namely, that this Government stand charged with bringing forward legislation which they have not properly thought out.
That is a matter which is being criticised not only by noble Lords in this House and honourable Members on all sides in the other place but by interested parties outside this House in the fields of industry and accountancy. I hope that the noble Lord will accept that point and convey it to his right honourable friends in the Cabinet, especially the Prime Minister.
Lord Harmar-Nicholls: My Lords, there is one point which I believe should be kept in mind. Noble Lords, in their strictures, talk about the Government having done this and having done that. These alterations are the result of what Parliament—the other place—thinks about it. On a question such as this, the House of Commons has a greater authority, or should have, for putting its point of view as to

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what will eventually be the legislation. I do not believe that we should reach the position where noble Lords in this House, which is a very important part of Parliament, should pit their own authority against that of the House of Commons whose Members are elected and who have to answer to the people affected at the ballot box every four to five years.
Lord Belstead: My Lords, perhaps I may say a few final words from this side of the House in answer to the noble Lord the Leader of the Opposition, and I am grateful to my noble friend Lord Harmar-Nicholls for his intervention. The noble Lord the Leader of the Opposition has a perfectly fair point and I shall indeed ensure that my Cabinet colleagues are aware of what the noble Lord said. However, I think that enough is enough and that we have a task ahead of us on which we should now embark.
On Question, Motion agreed to.

MOTIONS AND AMENDMENTS MOVED ON CONSIDERATION OF COMMONS AMENDMENTS
[References are to Bill 130 as first printed for the Commons.]
COMMONS AMENDMENT
1 Clause 1, page 1, line 11, at end insert 'and'.

MOTION MOVED ON CONSIDERATION OF COMMONS AMENDMENT
1A The Lord Williams of Elvel to move, That this House do disagree with the Commons in their Amendment No. 1.
Lord Williams of Elvel: My Lords, I beg to move Amendment No. 1A standing in my name on the Marshalled List, That this House do disagree with the Commons in their Amendment No. 1. It will be for the convenience of the House if I also speak to Commons Amendments Nos. 2 and 14 which are consequential and to my Amendments Nos. 2A and 14A which are equally consequential.
When the Bill was in Committee, the first amendment that your Lordships accepted—against the advice of the Government—related to political contributions. We return to this theme again since Commons Amendments Nos. 1, 2 and 14 seek to negate the amendment that your Lordships passed.
The amendments deal with the rights of shareholders over political contributions made by companies. When the Bill came back to us on Report it was pointed out to me that there was a potential defect in the amendments that had been passed in Committee. It was pointed out by the noble Lord, Lord Young of Graffham, who was then the Secretary of State dealing with the Bill, that it might be difficult for a company to reclaim funds from a political party if shareholders decided against making that particular contribution. Although I do not believe that that was a serious defect—because if there is a majority against a given political contribution there is an equal majority to instruct the board of directors not to make political contributions of that nature in the future—nevertheless my Amendments Nos. 2A and 14A seek to remove that possible defect.
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The present system is set out in the Companies Act 1985. It is that political contributions and charitable contributions have to be reported, over a certain amount, in the director's report and the director's report has to be submitted to shareholders along with the accounts. The report and the accounts are approved of or disapproved of by shareholders in ordinary resolution.
The system that we have proposed would single out political contributions in such a manner that shareholders would be able to vote before the contribution was made, whether or not they wished it to be made. The arguments against this which have been deployed both in this House and in another place seem to me to be as follows. First, shareholders can talk to directors. That is an argument that has been advanced; that they can write to directors, that directors are reasonable chaps and if a shareholder writes to a director he will certainly take notice of that. I know of many people who have written to directors and talked to directors and I am afraid not much notice has been taken.
The second argument is that shareholders can pass an ordinary resolution instructing directors not to do this, that or thus. Again that is true in theory, but is it truly possible in practice, because 60 per cent. of all equities are held by institutional shareholders? Institutional shareholders do not move such resolutions. Pension funds, unit trusts and investment trusts do not make those sorts of initiatives. They are passive investors unless they are required to take a view, which would be the case if my proposal were to be accepted.
The third argument is that if shareholders do not like the political contributions made by their company they can sell their shares. That seems to me to be a bizarre argument since a shareholder does not necessarily invest in a company simply because it does or does not make contributions to a given political party. Shareholders do not have the right that trade union members have to contract out and say, "I want to be a member of this organisation and a full participating member, but I do not want to have anything to do with political contributions". That, therefore, seems to be an odd argument.
The last argument deployed in another place was that the directors should decide what is in the best interests of the company. That may be so, but directors are under a responsibility to decide according to the memorandum and articles of association of their companies. By definition, political contributions cannot be commercial because if they are commercial then, my goodness me, we have much more of a problem than I thought we had. They may be designed to get a knighthood for the chairman of a company, but they cannot be designed to get a contract from the Conservative Government—at least I hope they cannot.
Assuming, therefore, that these are not commercial decisions—the Companies Act 1985 makes clear why there is a separation—the directors can only decide what is in the best interests of the company by reference to the task that is laid on them in the articles of association of the company. They cannot spend money on a project because they

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happen to feel it is in the best interests of their company. They cannot spend money on their local hospital, on their local sewers—whatever it might be—simply because they think it might be a good thing for the company.
In all the debates that have taken place on these amendments I have not heard any serious arguments against them. The arguments in favour seem to me to be very strong. First, there is the argument of transparency. At least if shareholders are given the opportunity to vote prior to contribution everybody knows that the shareholders agree to their funds being used in that manner. There can be no difficulty and no problem. In support of that—I am trying to help the Conservative Party—I quote from Charter News, which is published by the Charter Movement, which I understand supports the Conservative Party. It says:
Over 90 per cent. of the Party's income in 1987–88 came from donations. No information is given in the accounts about these donations, which makes it all too easy for our political opponents to allege improprieties, which it is then impossible for Conservative supporters to counter".
The first argument in favour of my amendment is that it would help the Conservative Party to clean up its act. The second argument is that it would be popular. According to a MORI poll, 82 per cent. of those interviewed said that they would favour greater shareholder participation in the decision to make political contributions. The third argument is that it would make it easier for boards of directors. There would no longer be any question of smoke-filled rooms or lunches in Smith Square, or wherever it might be, to ask for funds. It would all be out in the open. The board of directors would say, "This is what we propose and if shareholders like it they can have it. If shareholders do not like it they may not have it".
Lastly, it would encourage shareholder democracy, to which I thought the party opposite was committed. It would encourage shareholders taking a positive decision that they wanted their money spent in a particular manner.
It is not often that I personally and my party wish to challenge the decisions of the Commons in Commons amendments, because we generally subscribe to the view expressed by the noble Lord, Lord Harmar-Nicholls, that the elected House should have supremacy and that amendments, if they are passed by another place, should have earnest attention and, we hope, the agreement of your Lordships. But in this case I am not reluctant to press for your Lordships to disagree with the Commons amendment because however parties are to be funded the system must be fair and must be seen to be fair. Giving other people's money to finance political parties cannot be fair unless the other people agree in advance that that should be so. That is the nub of it. It is as simple as that. I beg to move.
Moved, That the House do disagree with the Commons in their Amendment No. 1.—(Lord Williams of Elvel.)
3.30 p.m.
Lord Boyd-Carpenter: My Lords, when your Lordships' House—I think with a sigh—discussed
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this matter for the first time as long ago as 30th January, I was the only speaker, other than my noble friend the Minister, against the amendment. I have not lacked kind friends to say that that is the explanation of the carrying of the amendment.
I have been following this issue with some interest ever since. I congratulate the noble Lord, Lord Williams of Elvel, on introducing a new argument at this stage. That is in itself a very remarkable achievement. He introduced the argument that this would be a means of helping the Conservative Party. To his credit he said that without a smile on his face. The noble Lord seems to make an enormous mountain out of what is, from the point of view of practically every company, a molehill. The contributions have not always been by way of subscription to the Conservative Party. Some companies in recent years, however misguidedly, have contributed to the parties below the Gangway on the other side.
When these contributions are made they are absolutely trivial in proportion to the revenues and accounts of the company concerned. I speak as one who has served on a great many boards of directors and I have also been the chairman of one or two companies. Contributions are made because it is thought by the board, rightly or wrongly, either that it is in the interests of the company that a particular political party should prevail or sometimes because it is equally strongly thought that it would be disastrous for that company if another political party prevailed. In other words, it is a judgment similar to innumerable others which boards of directors have to make as to what is in the interests of their company.
That is the basis for the decision, as it is of all the hundreds of other decisions which fall to be made by the board of directors of a company. Yet it is this one generally financially quite trivial item that noble Lords opposite and their honourable friends in another place have sought to pick out and subject to very peculiar and special treatment. The noble Lord, Lord Williams, did not even spell out fully what that treatment was. The amendment which another place has rejected introduced the rule that the authorisation of a political contribution should not be included in the general report and accounts of the company, but should be the subject matter of a special resolution taken at the annual general meeting separately from all the other expenditures of the company. Does the noble Lord wish to intervene?
Lord Williams of Elvel: My Lords, perhaps I may correct the noble Lord: it is not a special resolution but just an ordinary resolution.
Lord Boyd-Carpenter: My Lords, I am much obliged. In the technical and commercial sense it is not a special resolution, but it is a separate resolution and, as the noble Lord knows, that is the point. It is separate from the whole general motion that the report and accounts be adopted.
This procedure would give the matter a peculiar and special importance. When dealing with the affairs of a company whose expenditure runs into tens of millions of pounds, to solemnly hold up the

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annual general meeting with a resolution authorising a donation of £250 to a political party is really wholly disproportionate and is apt to give an impression of undue importance to this one item of expenditure.
The noble Lord said that such a contribution was outside the normal expenditures of the company. So are gifts to charities and no amendment has been put forward to apply this special treatment to such contributions. There are also contributions to trade associations, and no suggestion has been made here of a separate resolution. Only party political contributions are singled out. Frankly, one would be very naive if it were not perfectly obvious to every one of your Lordships why that has been done and what is the reality of the feeling behind the proposal.
This elaborate treatment would introduce one area of practical difficulty in the case of a board of a company that desired to make a political contribution when a general election has been announced. Unless that general election were announced a little time before the annual general meeting, the board would have no power to make a contribution at the material time when such a contribution could be of significance; namely, in the immediate pre-election period. That would be not a wholly accidental restriction, but quite a serious one, on the rights and capacity of the board to make that contribution.
The noble Lord referred to the position of the shareholders. Under the present procedure they can question and object to political contributions being made. The shareholders can speak at the annual general meeting and, if they so desire, they can put forward proposals to cancel the contribution. It is not only that the making of a contribution is disclosed at the annual general meeting, because under the present law it is put into the annual report and accounts which are circulated well in advance of the annual general meeting, as the noble Lord knows. Therefore any shareholder who wishes to object to this payment has the opportunity to consider it, to discuss it with others of like mind and, if necessary, raise the question at the annual general meeting.
I anticipate the noble Lord because he will say that the shareholders will not go to the extent of seeking to reject the motion that the report and accounts be adopted. Of course they will not. The noble Lord has experience of business and he knows perfectly well that any board which knew that a substantial number of shareholders was unhappy about this or any other expenditure would pay very serious attention to that situation.
I come back to the fact that, though the board will pay very serious attention to the matter, it still has responsibility for the wellbeing of the company. I ask the House and the noble Lord opposite to consider the position of a board which believes that the declared policy of a political party would be disastrous for the company. Is the noble Lord really suggesting that the board is wrong in taking such steps as it can by way of a political contribution to avert the coming into power or the defeat of a government, where the consequences would be disastrous to the company for which the board is responsible?
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Placed in that position himself I cannot believe that the noble Lord would do other than say that, on the facts, the success of one political party or the other is of major importance to the company and therefore the company must support it. Therefore, this apparently small amendment involves eroding in one particular the clear general responsibility of members of a board of directors for the wellbeing of the company.
The noble Lord referred to the different treatment of trades unions from the point of view of political contributions. It is a totally different system. A ballot has to be taken and then for ten years a political fund can operate very largely at the discretion of the executive of the union. There is the distinction, in the case of trades union contributions to the Labour Party, that in proportion to the resources of the unions they are very much larger than any political contribution made by a company in relation to the resources of that company.
There is also the point, which was made on a previous occasion but never answered, that if a shareholder passionately disagrees with the board's decision to contribute to a political party, he can sell his shares and buy some others. Indeed, shareholders sometimes do that. Some shareholders who disapprove of a company's dealings in, for example, South Africa, have done precisely that, whether misguidedly or not, but honourably and honestly. Equally, if a shareholder is seriously upset because a £100 million company gives £500 to the Conservative Party, he is perfectly free to sell his shares and invest in a company that does not.
The same is by no means wholly true of members of a trade union. Either there is a closed shop, though mercifully that has been diminished as a result of the sensible measures of this Government in recent years, or there is a strong pressure in many cases and in many employments for a worker to remain in his union. Therefore he has not anything like the same freedom and discretion that a shareholder has to clear out from a body of whose actions he disapproves. It is a false argument to suggest that, because of legislation some years ago to deal with the political contributions of trade unions, one should introduce a measure of this kind.
It is wholly disproportionate to the importance of the matter to companies. It would involve some erosion of a director's responsibility. On the question of timing, it could involve considerable inconveniences in a general election year. I hope therefore that noble Lords, having discussed the matter and having no doubt speculated in their own minds as to the motives and reasons behind the amendment, will reject it.
Lord Dormand of Easington: My Lords, before the noble Lord sits down, will he comment on what appears to be a parallel? If I understand him correctly, he seems to omit it as the logical conclusion of his argument. He knows that the Government compelled trade unions to have ballots about the establishment of political funds. Most contributions were going to the Labour Party. The Government did that because they felt quite sure that there would be a change. If I follow the noble Lord correctly, the

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board of directors has the responsibility for deciding whether a contribution should be made to a political party. Does he not feel that there is a parallel between the national executive of a union and a board of directors in that respect? After all, the national executive of a union deals with 99·9 per cent. of a union's business, though there has to be a ballot for a strike. Is there not a parallel between the work of the national executive in this respect and a company's board of directors?
Lord Boyd-Carpenter: My Lords, the proposal in this amendment is quite distinct and different from the state of the law as regards political contributions to trade unions. It does not propose the same arrangements as Parliament has laid down for trade unions. I do not wish to weary the House with my next point because I spent a little time on it during the course of my speech. A union has to have a ballot if it is to have a political fund. But having succeeded in a ballot to establish such a fund, for 10 years afterwards political contributions can be and are made, and can be and are made on a much larger scale in proportion than political contributions are made by companies. Therefore there is no comparison. These are totally different situations. There is also the point—I repeat it if the noble Lord did not take it on board—that, whereas in many cases a member of a trade union cannot without sacrificing his job leave a union of whose policy in this respect he disapproves, shareholders can.
3.45 p.m.
Lord Lloyd of Kilgerran: My Lords, on these Benches we strongly support the amendment so ably and comprehensively moved by the noble Lord, Lord Williams of Elvel. I shall be brief as I was in supporting similar amendments at earlier stages of the Bill. For the purposes of brevity I hope that the noble Lord, Lord Boyd-Carpenter, will forgive me if I do not follow him in his historical account of ages past. I say to him with the greatest respect that in his speech he clearly enunciated fly-blown phylacteries of an age that is past.
We must come up to date in these matters. Under this Government there has been a great extension of share ownership and this course is bound to continue. Consequently, responsibilities must arise from that course, responsibilities which did not arise so clearly in the past. Shareholders should now be allowed to have their say in how funds are spent by their boards of directors when those funds are being used for other than commercial matters.
Party political contributions, whatever the noble Lord says, are clearly a special case in this age of shareholder democracy. It is therefore bordering on being contrary to public policy that companies should be permitted to make contributions for political purposes to whatever party—without shareholders having the right to consider the matter carefully and clearly in a specific resolution before that political contribution is made. It is no use the noble Lord saying that shareholders can come along and complain. That is not sufficient. All we ask is that in order to bring company law up to date shareholders should be allowed to consider a specific resolution before a political contribution is made.
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I submit that the proposals are simple and fair. Above all, they are necessary to bring the law up to date.
Baroness Oppenheim-Barnes: My Lords, I congratulate the noble Lord, Lord Williams of Elvel, on resisting on this occasion the temptation to turn this debate into a full-scale political one. He was extremely generous in offering the Conservative Party the opportunity to clean up its act. I return the compliment and, equally generously, offer the Labour Party the opportunity to clean up its act by turning down the trade union contributions that it receives. They are far larger than any contributions companies receive.
I do not intend to make a political speech. It is not necessary. A number of technical and practical points arise from the amendments to which I should like to draw the House's attention. The first point is an extremely technical one. It relates to the date of the annual general meeting of the company in which the special resolution is to be put before the shareholders and the financial year of the company itself. In many companies these will not coincide. Even if it were possible to achieve a completely democratic decision from the shareholders at the annual general meeting, it might be nearly a year before that decision was implemented. Anything might have happened in order to change their minds, because it would no longer be a retrospective decision. That is just one technical difficulty.
I now turn to what I see as an insurmountable practical obstacle to the stated objective of these amendments; namely, to widen shareholders' democractic power. There has been a great extension of share ownership under this Government. The noble Lord, Lord Williams, was kind and generous enough, once again, to pay tribute to this factor on the first day of the Committee in this Chamber.
Of course there is much wider share ownership under this Government, but, I fear, not enough for the purposes of these amendments. I say that because what they overlook, but what the noble Lord, Lord Williams, has not overlooked, is that whereas it is perfectly practical and possible to circulate separate resolutions before an annual general meeting and to get the proxies returned in good time as well as taking account of the views of those shareholders who actually attend the meeting, the fact is—I personally regret this—as the noble Lord so rightly said, a very substantial shareholding will often be in the hands of the institutions. It is they who will vote, stating their case, as the noble Lord said, not on behalf of their investors but on behalf of their contributors, but without consulting them and without knowing what are their views on the matter.
Therefore where are we as regards shareholders' democracy if that is to be the case and if a substantial vote is to be placed without any consultation? I do not think that travelling down that track will get us very far. Moreover, there may be a predator with a substantial shareholding who just wants to make things difficult for the board and who has therefore voted either for or against a political contribution and who held a substantial enough shareholding to

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make sufficient waves so that the board felt it had to take note of such votes.
There is another objection to these amendments of equal importance. For example, why has the noble Lord stopped at extending the shareholders' democracy to political contributions? What about all the other political matters to which my noble friend referred? What about the people who feel most strongly about their company's practices in relation to environmental matters, to South Africa and to animal experimentation? Would they want separate resolutions on each of those items at an annual general meeting? They may consider that such issues were as important as, if not more important than, political contributions. They would therefore want separate resolutions on each of the issues.
Thank goodness, in our democracy people with strong feelings on any matters, including political contributions, can influence companies most effectively. The two factors which will influence a company most are the investors who will not buy its shares and the consumers who will not buy its goods. That will influence companies more than any resolution which is passed at an annual general meeting.
But above all those considerations is the one to which my noble friend referred. It is a substantial one. It is the responsibility of the directors and the board to run the company in the best interests of the company and its shareholders. They must do so in their judgment. The responsibility is theirs and if they fail in their duty they will have to answer for it.
Companies cannot be run by referenda any more than can countries. These amendments, if carried, will not achieve their stated objective for the practical reasons which I have given. I urge your Lordships to resist them.
Lord Hatch of Lusby: My Lords, there have been some remarkable descriptions of what the party opposite considers to be shareholding democracy. Shareholding—yes; but where is the democracy? Neither the noble Lord, Lord Boyd-Carpenter, nor the noble Baroness, Lady Oppenheim-Barnes, said anything about the democratic rights of shareholders. That is something about which the party opposite has boasted. It is accorded to the public by widening, as we have agreed, the number of shareholders in our community. What relationship has the holding of shares to the determination of company policy? Is that not the nub of democracy?
In this amendment, which follows along the lines of an amendment which was passed previously in this House, we are stating that democracy involves the shareholders having the right to play a part in influencing company policy before—not after—it is put into operation. When the noble Lord, Lord Boyd-Carpenter, brushes aside the comparison with the position in the trade unions, he obviously does not know his trade unions. He said that a trade unionist who goes along to a meeting and takes part
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in a ballot for a political levy cannot then get out of paying such levy. Has the noble Lord never heard of opting out?
Lord Boyd-Carpenter: My Lords, perhaps I may intervene at this point. I said absolutely nothing of the sort suggested by the noble Lord. I rather resent his trying to attribute such a foolish remark to me. I ask him to refer to Hansard.
Lord Hatch of Lusby: My Lords, I am sorry, but according to the noble Lord the difference between a shareholder and a trade union is that whereas the shareholder can move his shares to another company the trade union member is unable to get out of paying the political levy if he does not like it. However, he is entitled to do so. There has been a system of contracting out since 1913. Any trade union member who disapproves of the political levy is fully entitled to refuse to pay it. That has been trade union law since 1913. Therefore, whether or not the noble Lord considers the accusation I made to be a foolish suggestion, that is the full implication of what he said regarding the comparison between shareholders and trade union members.
Lord Boyd-Carpenter: My Lords, I do not wish to take up any more of the time of the House, but the noble Lord persists in misrepresenting me. I said nothing about contracting out. I said that whereas a shareholder could sell his shares and get out, in many cases a trade unionist could not leave the union, however much he disapproved of what it was doing, because that might endanger his job. Has the noble Lord got the point now?
Lord Hatch of Lusby: Yes, my Lords. I got the point that the noble Lord did not mention contracting out. He did not do so because that would destroy his case. It is not a question of moving from one union to another. The member of the trade union is fully entitled to refuse to pay a political levy. The member would be concerned about the political levy. However, he would still keep his job and his membership of the union; but he would not have to pay the political levy. The shareholder, on the other hand, if he stays within the company—and many shareholders will wish to remain within the company for reasons quite different from political levies—is compelled to contribute to the political levy because the directors have decided that the company shall pay such a levy.
The noble Lord, Lord Boyd-Carpenter, expressed some surprise that my noble friend Lord Williams should suggest that this amendment would be good for the Conservative Party. It would. But much more important, it would be good for the political health of this country. That is a non-party political statement. Moreover, it is supported by members of the party opposite. I shall prove my point presently.
I am not certain that I agree completely with my noble friend Lord Williams. He said, in answer to the continued claim from the opposite side of the House that directors have the responsibility of making decisions for their company, that the political levy has no commercial significance. It

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depends upon how one defines "commercial". It is commercial interest when a government remove the top 20 per cent. of income tax. It is a commercial interest for those who benefit from having that tax removed. It is a commercial interest when company directors and executives see their remuneration increased by over 20 per cent. in a year when the Government are trying to keep wage claims down below the 7 to 8 per cent. rate of inflation. That is a commercial interest for those involved—in that case, the directors.
Is the party opposite then saying that the directors should be left in charge of company policy with respect to the political support that that company gives to different political parties; that the directors have no interest; that they are interested only in the companies' welfare? They have a personal interest in government policy, and that is not good for this country's political health. That has been commented upon from all sides and from no side. It is not good because, whether it is true or not, that is what the public perceives to be happening. What the public perceives is happening with the amendment is that the Government have double standards.
Under the 1984 law, the Government insist that trade unions ballot as to whether there should be a political fund but that companies should not be forced to follow the lines laid down by the shareholders with regard to political funds. That perception by the public is bad for this country's political health. It is bad when those political donations are made furtively and in a murky way through British United Industrialists or the river companies. It is far better for the Conservative Party and the country's political health for companies to decide as trade unions do.
The Government thought that they were undermining the Labour Party when they enforced the ballot, but they were not. They strengthened the Labour Party. If it is confident, the Conservative Party will see that open debate and decision by shareholders will be in its own interests and, as I say and what is much more important, in the interests of this country's political health. That is not just a partisan view. It was put forward in another place by the honourable Member for Aldridge-Brownhills who said, and I quote—
Noble Lords: Order, order!
4 p.m.
Lord Trefgarne: My Lords, I apologise for interrupting the noble Lord but I am afraid that he is out of order in quoting a Back-Bench Member of another place.
Lord Hatch of Lusby: My Lords, all right, then I shall paraphrase. The honourable Member for Aldridge-Brownhills said in another place that it would look partisan if rules and regulations were imposed by the Government on the Government's political opponents which would not apply to the government party. Later in the same speech he addressed himself to the Conservative Party and said that it was important that it should be seen to be fair-minded. He warned the Government of the
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danger that, by rejecting the measure that we had passed here, they would be seen to be unfair and that the public perception would be that the Conservative Party had become so particular in that affair that all it wanted was to reinforce its own finances.
That view was repeated in the debate in another place. So I suggest to those Members of the House who query whether my noble friend Lord Williams of Elvel was being sincere when he said that the amendment was good for the Conservative Party that there are members of their own party who think the same. There are many of us who think that the measure would be good for the cleanliness of British politics, and that only when it is seen that Parliament is using the same set of values for companies that support the Conservative Party as it uses for trade unions that support the Labour Party will the public consider that the Government are acting fairly and in a non-partisan way.
The alternative is public funding for political parties on both sides or, as was pointed out by the honourable Member for Aldridge-Brownhills, the Conservative Party will be seen to be the party of big business receiving underhand handouts, whereas the Labour Party, although it obtains much of its finance from the trade union movement, does so above board with the full consent of the members of those unions. Such consent is essential if we are to talk with any sincerity of a shareholding democracy. It is essential that the rules should apply also to company shareholders.
Lord Chelmer: My Lords, I shall refer briefly to the last remarks made by the noble Lord, Lord Hatch, about the public funding of political parties. The noble Lord, Lord Houghton, will remember that about 12 years ago he was chairman of a committee set up by Parliament to consider that point. I was then treasurer of the Conservative Party. We presented to the committee a complete breakdown of our income. It might put this debate into some perspective if one recalls that at that date—I feel sure now, too—about two-thirds of our party's income came from private subscriptions or ladies doing bring-and-buy sales and all those other worthy things one does to raise money. One-third came from corporate gifts.
One should bear those figures in mind when considering the proportion of its income which the Labour Party produces and that which it receives from the trade unions. One should consider them more carefully before being over-impressed by what the noble Lord, Lord Williams, said.
Lord Hatch of Lusby: My Lords, before the noble Lord sits down, will he tell the House how he knows those figures when the Conservative Party does not publish a breakdown of its finances?
Lord Chelmer: My Lords, I believe that I explained to the noble Lord that we openly produced the figures to the committee.
Baroness Seear: My Lords, there is a great sense of unreality about the debate. The truth of the matter is that of course the Conservative Party wants to

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keep things as they are because they bring it in a great deal of money. I do not blame any political party for wanting to obtain a great deal of money. I should like a lot of money for my political party but we do not get it. Perhaps that is why I feel rather strongly about what is going on at present.
All this arguing about the detail of how it is done and how practical or unpractical it is is so much pie in the sky, if I may use a rather unparliamentary phrase. The Conservatives want the money, of course they do. We on these Benches, no doubt partly because we do not get the money, think that that is a bad way of doing things. We thought and still think that the trade union contributions to the Labour Party are not particularly healthy either. The members have a right to contract out, that is perfectly true. For myself, I would rather they could contract in since it would give members a much better opportunity of not subscribing if they did not wish to do so.
This is an unhealthy way of financing both the parties. We all know that to be true. The Conservatives want to hang on to it because they want the money. We think that they ought not to have it and fund-raising ought to be carried out in a more democratic way. I shall repeat, before somebody else does, that that is in part no doubt because we do not obtain it.
For those reasons I support the amendment of the noble Lord, Lord Williams. I would do so with more enthusiasm if he believed in contracting in instead of contracting out, but as the lesser of the two evils on this occasion, I support the amendment.
4.15 p.m.
Lord McAlpine of West Green: My Lords, as treasurer of the Conservative Party, I have an obvious interest in this debate which I am happy to declare to your Lordships. I believe that the Opposition's proposals are not compatible with the normal principles of company law.
It would be absurd to require shareholders at their annual general meetings to vote for the disbursement of sums of money so insignificant in comparison with the turnover of their businesses. It would also conflict with the directors' freedom to run companies in the interests of the shareholders. Management actions can already be questioned at a company's annual general meeting.
The 1967 Companies Act makes such questions as political donations easier by requiring that companies identify their political donations. That seems to me to be a sensible arrangement. Surely no serious and detached observer of British company law can believe that it needs any amendment in this area. I wish to address the question of why a measure so obviously incompatible with the principles of company law should be put forward at all. With respect, is it not a little disingenuous for the noble Lord, Lord Williams, to claim that his proposals are driven by a high-minded desire to improve company law?
The real motives seem to lie elsewhere. First, the measure is a response to the legislation passed in
564
1984 requiring trade unionists to vote on the political levy for the Labour Party. Secondly, it is a step towards state funding of political parties. Thirdly, it arises from a series of mischievous reports on Conservative Party fund-raising.
I hope that your Lordships will permit me to consider each of these arguments briefly in turn. It may appeal to the fair-minded instincts of noble Lords to assert that the Labour Party depends for its funds on trade unions, that the Conservative Party depends in the same way on big companies and that if the law on trade union political levies was changed in 1984, so company law should also be changed.
However, such apparent even-handedness is an illusion. For most trade unionists the political levy is large in relation to the value of the benefits they receive from their trade unions. A political levy totalling 5 per cent. of a member's contribution is not unusual. By contrast, if a company makes a donation to the Conservative Party, it is likely to be trivial in relation to the shareholders' dividends, perhaps 10p for every £100 of dividend or 0·1 per cent. of the dividend.
Trade unions have an explicit constitutional position in the Labour Party. Their established role as the paymasters of the Labour Party is matched by their power as king-makers, electing the leader and voting on policy at conference. We are proud that companies have no such role in the Conservative Party. I do not therefore believe that there is any comparison between the measures in the 1984 Trade Union Act on political levy and company contributions to the Conservative Party.
I now turn to the second concern which may be driving those who support this measure—a desire to see state funding for political parties. If the Opposition's proposals were ever passed, and if they succeeded in their objective of reducing the flow of company donations to the Conservative Party, it would move us one step closer to state funding for political parties. We have always been opposed to that and would remain so, whatever the financial circumstances of the Conservative Party. However, the fact is that the Labour Party's proposal would put such an idea back on the political agenda. We should not find ourselves being pushed towards it by this measure, cynically tacked on to a Bill intended for quite another purpose.
Thirdly, I wish to reject as strongly as possible the disgraceful slurs cast on Conservative finances in another place. It shocked me that Labour spokesmen debating this measure referred to a murky and somewhat grubby relationship between the companies and the Conservative Party, great subterfuges and clandestine procedures. These are outrageous allegations, and I hope that nobody will be moved to support this ill-conceived clause as a result of such false charges.
We in the Conservative Party know that our financial arrangements must be clear and above board, as anything else would damage our party's reputation. We scrupulously follow all our obligations on disclosure of information. We conscientiously publish audited accounts of the party every year.

565
One charge is that the so-called river companies were set up after the war as some sort of cover for fund-raising operations. Not so, my Lords; not so. They were established because it was necessary to have a proper corporate framework to enable people to bequeath money to the party in their wills without fear of challenge. They were also necessary for the party to hold leases or own property. That is why the river companies were set up. To claim that it was a secret operation is frankly rubbish. The details were released to the press by Central Office and reported by the Daily Telegraph when the companies were originally set up in 1949. The river companies have always filed their annual audited accounts at Companies House, as they were obliged to do.
Another charge is that the Conservative Party is somehow encouraging companies to hide the true scale of their donations. The Labour Party research department claimed to have identified company donations of about £5·75 million, as against £15 million total party income during 1987. I cannot vouch for the accuracy of the Labour Party research department's figures but the Companies Act is quite clear on the obligation to reveal company donations.
Of course we also receive funds from many tens of thousands of people from all over the country. They support us because they believe that it is essential that the Conservative Government continue to remain in power. We have not and will not disclose the names of those people. If they wish to announce that they are supporters of the Conservative Party and indicate how much they have given to the party, that is entirely up to them. The Opposition are in such a muddle that they claim that British United Industrialists is some sort of Tory front organisation. It is not; absolutely it is not. It is an independent organisation with a charter, supporting parties and organisations that believe in free enterprise.
The Opposition think that Aims of Industry is a cover for Tory Party donations. It is not. It is an independent pressure group and think-tank. What is more, the Opposition claim that our bank account called the Free Enterprise Account is some sort of special concealed fund. It is not. It is the name on our cheque book. It stands there because free enterprise is what the Government stand for. It is what my right honourable friend the Prime Minister stands for.
We are clearly committed to the creating of conditions in which business can thrive and we can all become more prosperous. Many businessmen who have seen their companies grow and prosper during the past 10 years know that this is due to the economic and industrial policies of this Government. That is why they give money to the Conservative Party. They are serving the interests of their shareholders and their employees and they are quite right to do so.
Lord Houghton of Sowerby: My Lords, if there were any members of the parliaments of Europe listening to our debate, they would think that we were still in the primary stage of our political development. I am glad that reference has been made to the committee of which I had the honour to
566
be chairman—alas, now 20 years ago—which was formed to study in depth for the first and last time the financing of our political parties. Where do our political parties get their money from? How do they get it? Is it desirable that they should continue to be financed in that way? We produced a report. It was not a unanimous one, but I doubt whether anyone on the committee was satisfied with what was discovered about the financing of our political parties, whether from one side of industry or the other.
In regard to my first comment, when we travelled round Europe to find out what other countries were doing concerning the financing of their political parties, speaking from memory I believe we failed to discover any country whose activities could give rise to such a debate as this. Corporate donations to political parties in Europe are banned, and ours should be too. In West Germany it was found that tax-deductible contributions to political parties by industry had become so unhealthy an influence in the financing of politics generally that they were banned altogether in return for a measure of state aid to all political parties which qualified for a certain measure of public support.
When we went to Austria we discovered that the Austrians had banned a practice which had long been established there apparently, whereby government contractors always made by tradition a donation to the governing party. The Austrians banned those donations in return for state aid to their political parties. We are just simply out of date. We are discussing the microscopic end of a thoroughly ramshackle piece of machinery. Financing our political parties in this way cannot be justified on any grounds whatsoever. For one thing it perpetuates the class and industrial division between one section of the community and another, as the donations are financed by two enormous sectional interests: the boss class on one side and the worker class on the other.
I know that it is too late in this long study of this long Bill to begin to go back to first principles. We have an amendment in front of us. We are fiddling about with this matter and playing tiddly-winks without looking at the major rules of the game. We have a system now which fails to give any public support to new elements in our political organisation. It is all left, so to speak, to the voluntary effort. All money going into political parties whether from trade unions or from industry is tainted money. It all springs from self-interest. It is not there in the national interest.
The noble Lord, Lord Boyd-Carpenter, referred to the fact that a particular political party might best serve the interests of a company and that a company may consider whether there was anything in the programmes of other political parties which might harm its interests. It is a matter of putting one's money where one's interests lie. The trade unions do the same. But who will say that the political levy can be justified? It is corrupt. It is as corrupt as all the rest of the financing of our political parties for the simple reason that it is organised and canvassed for. It certainly has a measure of control on the trade union side but very little on the company side.

567
However, it is not good going on like this. If we are to face the future in Europe I believe that we must bring some of our political and parliamentary institutions up to date. It is astonishing how backward we are. The report that we produced, challenging as it was for the majority, aroused no interest in the political parties. As far as I recall, there has been no debate on the report in either House. No one wanted to touch it. They were all afraid that if they began to give public money to political parties, the public would say, "Ah, such and such a party is going to use public money to finance its politics". But the proper financing of political parties goes to the very root of our parliamentary democracy.
Some assistance should be provided to political parties apart from the large sums of money they obtain from particular sources. Who is studying the present financing of some of our smaller political parties at this moment? There are indications of substantial support coming from one quarter. That is thoroughly unhealthy, as the noble Baroness said a moment or two ago. However, we must get on with the amendment.
Noble Lords: Hear, hear!
Lord Houghton of Sowerby: My Lords, I know that noble Lords opposite will dodge this subject whenever it is raised. Whenever an opportunity occurs, they try to get on with the tiddly-winks. That is what we are doing again this afternoon. From my point of view, it is not of profound importance whether we stick to what is in the Bill or whether we put something else in its place. That is the smallest beer in relation to the major issue of who is financing our politics. This measure is one little nudge forward to get one little bit more democracy into the method of financing political parties from public companies when we should not receive money from that source of vested interest at all.
I support the amendment moved by my noble friend on the Opposition Front Bench because it is a little nudge forward. However, that is all it is. One day, however, we shall come round to this matter because I do not believe we can continue financing political parties in the way we do, especially when we are trying to free trade unions on one hand and companies on the other from the incubus of being expected to support the political parties which may or may not satisfy the aspirations of their members.
I thank noble Lords for listening to a lecture. Why is it that I have to try to precipitate our debates into the future, look at the time ahead, look at where we are going and how we are going to fulfil our obligations in Europe? Can the House not find someone younger to do that?
Lord Young of Graffham: My Lords, I have two interests to declare this afternoon. First, I wish to say that I have the honour to be the deputy chairman of the Conservative Party. For that reason alone I doubt whether I would have intervened in your Lordships' deliberations this afternoon. However, I have a second interest which I believe overrides that.
568
The noble Lord, Lord Williams of Elvel, has already this afternoon confessed that these days he has difficulty in recognising noble Lords opposite. I should remind him that until a few months ago I had the privilege to sit where my noble friend the Minister sits now. During that time I was able to conclude our first major review of company law since the Companies Act 1981. That was a very full review. This Bill embodies the results of that review and contains, for example, Community directives that impinge on company law. It amends the law relating to insolvency, insurance and building societies. It even covers insider dealing. It is a very serious measure, and one that in its present shape is welcomed by all in industry.
The amendment proposed by the noble Lord, Lord Williams of Elvel, has nothing to do with this serious review of company law. It is, I fear, only a mischievous attempt to gain party political advantage and is not motivated by any desire to improve the workings of a company. Indeed, if it were carried out, it would make the conduct of business more difficult and not less. The procedure which the noble Lord proposes for voting at an annual general meeting to give retrospective approval to political donations would create no more than a time-wasting model.
The whole concept of part of a directors' report being sent to shareholders and to the annual general meeting without the directors having signed it is, to say the least, curious. It is hardly surprising that the advocates of this rather silly measure have tied themselves into knots because it conflicts with the existing principles and practices of our company law. Directors must be free to manage companies in the interests of their shareholders. That is the clear principle on which our whole system of company law is based. Shareholders must have the information that enables them to question the performance of directors. That is why we have accounts and that is why earlier companies legislation specified that information on charitable and political giving should be specified, and it is on each occasion. But if we have to start identifying individual commercial transactions, no matter how small, then we are on the edge of a slippery slope. We shall end with the directors losing their power to act commercially in the interests of their shareholders. The whole of our company law is based on the differing roles played by shareholders and by directors. Let us not, pray, for some shortsighted political gain, confuse the two and undermine the commercial structure on which the wealth of this country is based.
4.30. p.m.
Lord Trefgarne: My Lords, as your Lordships may recall, the amendments that were originally accepted by this House would require that where a political donation was disclosed in the directors' report, that part of the report should not be signed, but should be put to the general meeting retrospectively for approval by ordinary resolution. We made clear our opposition to the original amendments at the time and we accordingly supported the back-bench amendment in another place which resulted in their reversal.

569
Our reasons for taking this position are quite straightforward. The existing Companies Acts have required companies since 1967 to disclose in the directors' report any gifts of money for political purposes that exceed a specified sum, currently £200. Both the amount of the donation and the name of the recipient must be shown. The directors' report of course has to be sent to shareholders before the company's general meeting.
Shareholders who are concerned at the nature or scale of such donations can raise the subject in the discussion of the accounts at the annual general meeting. Moreover, shareholders have the right to put an ordinary resolution to the general meeting under the normal procedures to give voice to any worries that they may have on the subject. The Government think that these existing safeguards of the shareholders' interests are wholly adequate. If shareholders do not want their company donating money to political parties, they have the chance to say so at the annual general meeting.
As I have said, we believe that these arrangements are adequate. Accordingly, we do not agree with the amendment proposed by the noble Lord, Lord Williams of Elvel. I hope that the House will agree to the amendments proposed by the other place.
Lord Williams of Elvel: My Lords, I am most grateful to noble Lords who have taken part in this debate. It has been a very lengthy debate but, as I remember, the last time we discussed the subject there was a fairly short debate and it seemed sensible for us now to go over this topic in some detail. I must say at the outset of my wind-up that, in essence, I agree with what the noble Baroness, Lady Seear, said. There can be arguments technically one way or the other, but ultimately—I see the faces ranged opposite me, and I congratulate the noble Lord the Government Chief Whip on his efforts—I can understand that it is in the interests of the Conservative Party that these amendments that I am proposing should not go through.
On the technical points, if I may answer these, the noble Lord, Lord Boyd-Carpenter, and a number of other noble Lords made the point that the directors should manage a company in the best interest of their shareholders, their workforce and others in accordance with the Companies Act. That is true, as I said in my opening speech, provided the directors stick to the memorandum and articles of association.
Certain companies have had votes on political contributions; for example, the Rank Organisation had a vote and Marks and Spencer and British and Commonwealth also had a vote. I do not remember the directors of those companies saying that they were in any way derogating their responsibilities of managing the companies commercially in the interests of their shareholders. So that is not a very forceful argument.
So far as the political levy is concerned —I think there has been an exchange between the noble Lord, Lord Boyd-Carpenter, and my noble friend Lord Hatch—it seems to me perfectly clear that trade unionists can contract out of the political levy. Shareholders cannot contract out of political
570
donations. That is the law as it stands. So there is not a comparison between the two.
The noble Baroness, Lady Oppenheim-Barnes, raised what I thought was one of the most interesting technical subjects about the date of the AGM. I do not think it is a very serious point—
Baroness Oppenheim-Barnes: Oh!
Lord Williams of Elvel: I will argue about that, if that is what the noble Baroness wants, but I shall have to go on for 10 minutes; I know about dates of AGMs. But the argument is about institutional investors and whether they would have the opportunity to consult their trustees. Once the question is put they would have to consult their trustees, and the trustees of the institutions would have to take a view. I remind the noble Baroness that many pension funds have trade union trustees and it would be very interesting to see, were the question put, which way the trustees of pension funds would instruct their managers to vote. They might decide that they all wanted to give money to the Conservative Party. Alternatively, they might not. That would introduce a very important element of democratisation of institutional investors. I believe that institutional managers should contact their trustees more often, and trustees should consult their members. I am all in favour of that.
In, I thought, a slightly defensive manner, the noble Lord, Lord McAlpine, took us through the river companies and the other great things that the Conservative Party stands for. I was not making the points that he was trying to answer. The only point I would make is that I do not think the amendments I am proposing are contrary to company law. The legal advice I have had does not indicate that they are. They are perfectly in order and perfectly consonant with existing company law and could be incorporated quite easily into the Companies Act.
So far as other contributions are concerned, my noble friend Lord Houghton of Sowerby came back to the very important study which he made, and talked about state funding. I see a certain amount of virtue in this. I would go a long way with what he said, because I believe we are very primitive in our funding of political parties at the moment. We shall have more to say on that as we get closer to the next general election.
Ultimately, may I assure the noble Lord, Lord Young of Graffham, that I did recognise him, because I had the honour to stand opposite him when he was in his place as Secretary of State, and I remembered his features as he walked into the Chamber this afternoon. But I must say that I do not think his contribution today was up to the standard of the previous contributions he made when he was at that Dispatch Box. I hope that he will not mind my making that remark.
The noble Baroness, Lady Seear, is right. The Conservative Party want the money and they think that the effect of these amendments might be to diminish the amount of money coming to the Conservative Party. If they vote against my amendment, then noble Lords will be demonstrating

571
the noble Baroness's argument that they have no serious interest in shareholder democracy or fairness or honourable behaviour. They will simply troop into the Lobby in blind obedience to their Whip, because the Conservative Party needs the money, and I hope that they will be suitably ashamed. My Lords, I beg to move.
4.38 p.m.
On Question, Whether this House do disagree with the commons in their Amendment no.1.
Their Lordships divided: Contents, 110; Not-Contents, 223.

DIVISION NO. 1

CONTENTS

Addington, L.

Jenkins of Putney, L.

Airedale, L.

John-Mackie, L.

Amherst, E.

Kearton, L.

Ardwick, L.

Kilmarnock, L.

Attlee, E.

Kirkhill, L.

Aylestone, L.

Leatherland, L.

Banks, L.

Listowel, E.

Beaumont of Whitley, L.

Llewelyn-Davies of Hastoe, B.

Birk, B.

Blackstone, B.

Lloyd of Kilgerran, L.

Blease, L.

Lockwood, B.

Bonham-Carter, L.

Longford, E.

Boston of Faversham, L.

Lovell-Davis, L.

Bottomley, L.

McIntosh of Haringey, L.

Broadbridge, L.

Mackie of Benshie, L.

Brooks of Temorfa, L.

Mayhew, L.

Bruce of Donington, L.

Meston, L.

Callaghan of Cardiff, L.

Milner of Leeds, L.

Campbell of Eskan, L.

Molloy, L.

Carmichael of Kelvingrove, L.

Mountevans, L.

Mulley, L.

Carter, L.

Nicol, B.

Cledwyn of Penrhos, L.

Northfield, L.

Cocks of Hartcliffe, L.

Ogmore, L.

Crook, L.

Oram, L.

Cudlipp, L.

Parry, L.

David, B.

Perry of Walton, L.

Davies, L.

Peston, L.

Dean of Beswick, L.

Pitt of Hampstead, L.

Diamond, L.

Ponsonby of Shulbrede, L. [Teller.]

Donaldson of Kingsbridge, L.

Donoughue, L.

Rochester, L.

Dormand of Easington, L.

Sainsbury, L.

Falkender, B.

Seear, B.

Falkland, V.

Sefton of Garston, L.

Fisher of Rednal, B.

Shackleton, L.

Foot, L.

Shepherd, L.

Gallacher, L.

Soper, L.

Galpern, L.

Stallard, L.

Gladwyn, L.

Stedman, B.

Glenamara, L.

Stewart of Fulham, L.

Grey, E.

Stoddart of Swindon, L.

Grimond, L.

Strabolgi, L.

Hampton, L.

Taylor of Gryfe, L.

Hanworth, V.

Taylor of Mansfield, L.

Harris of Greenwich, L.

Tordoff, L. [Teller]

Hatch of Lusby, L.

Underhill, L.

Hirshfield, L.

Wallace of Coslany, L.

Houghton of Sowerby, L.

Walston, L.

Hughes, L.

Wedderburn of Charlton, L

Hunt, L.

Whaddon, L.

Hutchinson of Lullington, L.

Wigoder, L.

Irving of Dartford, L.

Williams of Elvel, L.

Jacques, L.

Willis, L.

Jay, L.

Wilson of Rievaulx, L.

Jeger, B.

Winterbottom, L.

Jenkins of Hillhead, L.

572

NOT-CONTENTS

Airey of Abingdon, B.

Goold, L.

Alexander of Tunis, E.

Gormanston, V.

Alexander of Weedon, L.

Gray of Contin, L.

Allenby of Megiddo, V.

Greenway, L.

Allerton, L.

Gridley, L.

Alport, L.

Grimston of Westbury, L.

Annaly, L.

Grimthorpe, L.

Arran, E.

Haig, E.

Ashbourne, L.

Hailsham of Saint Marylebone, L.

Astor, V.

Auckland, L.

Halifax, E.

Barber, L.

Halsbury, E.

Beaverbrook, L.

Hardinge of Penshurst, L.

Belhaven and Stenton, L.

Harlech, L.

Beloff, L.

Harmar-Nicholls, L.

Belstead, L.

Harvington, L.

Benson, L.

Havers, L.

Bessborough, E.

Henley, L.

Biddulph, L.

Hertford, M.

Birdwood, L.

Hesketh, L.

Blake, L.

Hives, L.

Bolton, L.

Holderness, L.

Borthwick, L.

Home of the Hirsel, L.

Boyd-Carpenter, L.

Hood, V.

Brabazon of Tara, L.

Hooper, B.

Braye, B.

Huntly, M.

Brentford, V.

Hylton-Foster, B.

Brookeborough, V.

Ingrow, L.

Brougham and Vaux, L.

Jenkin of Roding, L.

Buccleuch and Queensberry, D.

Johnston of Rockport, L.

Joseph, L.

Butterworth, L.

Kaberry of Adel, L.

Caithness, E.

Kemsley, V.

Camden, M.

Kimball, L.

Campbell of Alloway, L.

Kimberley, E.

Campbell of Croy, L.

Knutsford, V.

Carnegy of Lour, B.

Lauderdale, E.

Carnock, L.

Layton, L.

Carr of Hadley, L.

Lindsey and Abingdon, E.

Chelmer, L.

Liverpool, E.

Clanwilliam, E.

Lloyd of Hampstead, L.

Colnbrook, L.

Long, V.

Constantine of Stanmore, L.

Lonsdale, E.

Cork and Orrery, E.

Lothian, M.

Cottesloe, L.

Lucas of Chilworth, L.

Cowley, E.

Luke, L.

Crathorne, L.

Lurgan, L.

Crawshaw, L.

Lyell, L.

Crickhowell, L.

McAlpine of Moffat, L.

Cullen of Ashbourne, L.

McAlpine of West Green, L.

Dacre of Glanton, L.

McColl of Dulwich, L.

Daventry, V.

Mackay of Clashfern, L.

Davidson, V. [Teller.]

Macleod of Borve, B.

De Freyne, L.

Macpherson of Drumochter, L.

Denham, L. [Teller]

Dilhorne, V.

Malmesbury, E.

Dundee, E.

Mancroft, L.

Eccles, V.

Manton, L.

Elibank, L.

Margadale, L.

Ellenborough, L.

Marley, L.

Elles, B.

Marshall of Leeds, L.

Elliot of Harwood, B.

Masham of Ilton, B.

Elliott of Morpeth, L.

Merrivale, L.

Elton, L.

Middleton, L.

Erne, E.

Morris, L.

Erroll of Hale, L.

Mottistone, L.

Faithfull, B.

Mountgarret, V.

Fanshawe of Richmond, L.

Mowbray and Stourton, L.

Ferrers, E.

Munster, E.

Forbes, L.

Murton of Lindisfarne, L.

Forester, L.

Nelson, E.

Forte, L.

Norfolk, D.

Fortescue, E.

Norrie, L.

Fraser of Carmyllie, L.

Nugent of Guildford, L.

Fraser of Kilmorack, L.

Onslow, E.

Gainford, L.

Oppenheim-Barnes, B.

Gardner of Parkes, B.

Orkney, E.

Gibson-Watt, L.

Orr-Ewing, L.

Gisborough, L.

Oxfuird, V.

Glenarthur, L.

Peel, E.

573

Pender, L.

Southborough, L.

Platt of Writtle, B.

Stanley of Alderley, L.

Plummer of St. Marylebone, L.

Stevens of Ludgate, L.

Stockton, E.

Polwarth, L.

Stodart of Leaston, L.

Porritt, L.

Strange, B.

Portman, V.

Strathclyde, L.

Pym, L.

Strathcona and Mount Royal, L.

Quinton, L.

Rankeillour, L.

Strathmore and Kinghorne, E.

Reay, L.

Redesdale, L.

Suffield, L.

Rees, L.

Swinfen, L.

Renton, L.

Swinton, E.

Renwick, L.

Terrington, L.

Rippon of Hexham, L.

Teviot, L.

Rochdale, V.

Thomas of Gwydir, L.

Rockley, L.

Thomas of Swynnerton, L.

Rodney, L.

Thurlow, L.

Romney, E.

Torphichen, L.

Rootes, L.

Tranmire, L.

Rotherwick, L.

Trefgarne, L.

Sackville, L.

Ullswater, V.

Sainsbury of Preston Candover, L.

Vaux of Harrowden, L.

Waldegrave, E.

St. Aldwyn, E.

Watkinson, V.

St. Davids, V.

Wedgwood, L.

St. John of Fawsley, L.

Whitelaw, V.

Saltoun of Abernethy, Ly.

Windlesham, L.

Sanderson of Bowden, L.

Wise, L.

Sandys, L.

Wolfson, L.

Sempill, Ly.

Wyatt of Weeford, L.

Shannon, E.

Wynford, L.

Shrewsbury, E.

Young, B.

Skelmersdale, L.

Young of Graffham, L.

Resolved in the negative, and Motion disagreed to accordingly.
4.47 p.m.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 1.
Moved, That the House do agree with the Commons in their Amendment No. 1.—(Lord Trefgarne.)
On Question, Motion agreed to.
[Amendment No. 2A not moved.]

COMMONS AMENDMENT
2 Clause 1, page 1, line 13, leave out from 'Schedules' to end of line 4 on page 2.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 2.
Moved, That the House do agree with the Commons in their Amendment No. 2.—(Lord Trefgarne.)
On Question, Motion agreed to.

Clapham Junction Inquiry Report
4.49 p.m.
Viscount Davidson: My Lords, with the leave of the House, I shall now repeat a Statement made in another place by my right honourable friend the Secretary of State for Transport on the Clapham Junction Inquiry Report. The Statement is as follows:
"With permission, Mr. Speaker, I would like to make a Statement about the results of the inquiry
574
into the Clapham Junction rail disaster of December 1988.
"I am publishing today as a Command Paper the report by Sir Anthony Hidden on his investigation under the Regulation of Railways Act into the causes and circumstances of the accident.
"I know that I speak for the whole House in expressing my deepest sympathy for the relatives and friends of the 35 people who died as a result of the accident. Our sympathies go too to the many people who were injured, some of them seriously and some of whom are permanently disabled, and to the many others, both passengers and rescuers, who bear the mental scars of that harrowing day.
"Equally I speak for the whole House in paying tribute to the many people who gave unstintingly of their skills, courage and kindness that day; policemen, ambulancemen and firemen, doctors and nurses, railwaymen and local authority staff, and members of the public. As Sir Anthony Hidden comments, a deep debt of gratitude is owed to them all.
"Sir Anthony Hidden concludes that the accident was caused by faulty wiring work carried out on Sunday 27th November 1988 during a major investment programme to modernise signalling on the lines into Waterloo. That faulty work could and should have been discovered through routine checks, but the wiring was not checked and the fault was not found. During later resignalling work on Sunday 11th December a wire that should have been removed two weeks before was accidentally moved. This made an electrical connection into the Clapham Junction signal box which passed false messages to one of the signals on the main line into Waterloo.
"The investigation has revealed major defects in the way in which British Rail's Southern Region signalling and telecommunications department organised resignalling work and supervised and tested completed wiring. The report makes 93 recommendations. Some are directed towards preventing a recurrence of an accident of this type. Others are addressed to securing improvements in BR's management and organisational systems for safety. Others are directed to the emergency services; and some to the Government.
"I am asking BR to deal promptly with all the recommendations addressed to it and to report to me on its implementation within three months. Many of the recommendations are based on BR's suggestions or on the conclusions of BR's own internal inquiry. BR has already taken action to implement these, although in some cases Sir Anthony Hidden recommends faster implementation. In particular, BR is already committed to two important new developments —automatic train protection and the installation of cab radios.
"BR has anticipated some of the additional cost of implementing the report in its current spending plans. I have endorsed this provision in full. BR will need to consider what further expenditure will be required. I can assure the House that finance will not stand in the way of the implementation of the report.
"I have today written to the chairmen of London Regional Transport and the passenger transport executives asking them, where appropriate, to consider their own systems carefully in the light of the report, and to report to me on their proposals for implementing the relevant recommendations within three months.
"While the inquiry was sitting two further railway accidents took place: at Purley on 4th March 1989 and at Bellgrove two days later. Separate inquiries into those two accidents have been carried out by the Railway Inspectorate and the reports will be published in due course. At my predecessor's request, Sir Anthony Hidden and his team considered whether there were any common issues between the accidents. His report does not suggest that there was any single underlying cause. His wider recommendations were made in the light of all three accidents.
"As I have said, some of Sir Anthony Hidden's recommendations are addressed to the Government. The report recommends that railway legislation should be reviewed and the powers of the Railway Inspectorate widened and clarified. We will introduce the necessary legislation as soon as a suitable opportunity arises. Meanwhile, most of the changes can be implemented by administrative action. Where this has not already been done, I have asked that action should be taken urgently by my department and British Railways.
"The report asks me to ensure that the Railway Inspectorate is adequately staffed to implement the report. Additional inspectors are being recruited and their numbers will be expanded as necessary.
"The report recommends a thorough study of appraisal procedures for the safety elements of investment proposals. All investment submissions which come to me for approval already include a specific section on safety issues. My department will discuss with BR what further improvements can be made.
"The report asks the Government to ensure that BR is allocated sufficient frequencies to operate cab radios effectively. We have now allocated five new frequencies to BR and given it access to two others. This fully meets its requirements.
"My right honourable friend the Secretary of State for Health has considered the recommendations addressed to his department. He has already introduced a review of the health services' response to major incidents with a view to preparing revised guidelines. His department has accepted the remaining recommendations which affect it.
"I have considered Sir Anthony Hidden's recommendations on the costs of representation at the investigation and have accepted them in full.
"Finally, I am very grateful to Sir Anthony Hidden and his assessors for their thorough investigation and their clear and constructive report. I know that Sir Robert Reid and his board
576
are determined to make sure that the lessons of this tragedy are throughly learnt and properly implemented. The necessary action will have the fullest support of the Government."
My Lords, that concludes the Statement.
4.56 p.m.
Lord Underhill: My Lords, the House will be grateful to the noble Viscount for repeating that very important Statement arising from a most tragic accident. At the outset I should like to join in the expression of sympathy to the families and friends of the 35 people who lost their lives and to those who suffered injuries, some of them, as the Statement says, most grievous.
From press reports during the investigation it is clear that Sir Anthony Hidden conducted a most searching inquiry. I am certain that the House will share my expression of gratitude to Sir Anthony for the tribute paid to the emergency services and others, to which reference is made in the Statement. Some of the recommendations are made to the emergency services; some relate to BR's own emergency plans. On reading that section my mind went back to the debate we had last week when reference was made to the need for attention to be given to our peacetime emergency services.
I am grateful for the arrangements made for me and, I believe, one or two others to receive an advance copy of the report. However, as I received the report, which consists of over 200 pages, only about an hour and a half or two hours ago, it will be understood that I have not read it in full. However, I note at the outset that Sir Anthony expresses his gratitude for the splendid assistance given to him throughout the investigation by his three outstanding assessors.
The report must be studied very carefully before a final decision is made on the investigation but I note the important chapters on wiring which caused the accident and how the errors came to be made. I should like to read just three lines from Chapter 8.46 of the report:
"There was incompetence, ineptitude, inefficiency and failure of management in the way it came about that on Sunday, 27 November 1988, that particular workforce were engaged in doing those particular jobs".
The 93 recommendations will require detailed consideration. I do not criticise the Statement or the noble Viscount for not detailing them but the fact that there are 93 recommendations means that it would be very unwise to comment on them except in somewhat general terms. I believe that noble Lords will share my opinion, which is also that of others, that travel by rail is safe. I was particularly impressed by the three comments made by Sir Anthony at the start of the chapter in which he detailed the 93 recommendations. He said that lessons have to be learned,

"(i) most importantly, to seek to prevent another such accident happening by addressing both the immediate and underlying causes;

(ii) to promote a better safety culture within British Rail; and

(iii) to mitigate the effects of any future accident".

The House will be pleased to learn that those are the only two references that I shall make from the

577
report. It may be suggested that I picked them out especially but in fact as I flipped over the pages of the report they seemed to me to be outstanding comments.
Paragraph 17.10 of the report offers very strong criticism of the failures in the discharge of management responsibilities. Some of the recommendations stress the importance of the proper organisation of signalling work, and the need for improved training, supervision and testing of completed work. I note also the strong emphasis placed on BR improving its management and organisational systems for safety. Paragraph 17.13 lists no less than 16 failures in procedures followed out. I am pleased that British Rail has already moved to implement matters that arose from its own internal inquiry, in particular the installation of cab radios and the automatic train protection.
I note also with satisfaction that the Secretary of State accepted all 93 recommendations and has asked British Rail to report within three months on those addressed to BR. Can the noble Viscount inform us whether the House will have a report in due course on the response received from BR to those very important recommendations addressed in particular to it?
Can the Minister add to the assurance that adequate finance will be available to implement the report? What will such finance cover? Have the Government decided what matters will be covered by the additional finance? If expenditure is required for more resignalling work, and possibly track work, will it be available? Have the Government yet considered in what ways the powers of the Railway Inspectorate should be widened and clarified?
I note with satisfaction the acceptance of the recommendation to ensure that the inspectorate is adequately staffed. The statement says that some additional staff have already been recruited. It would be interesting to know how many additional staff have been recruited and what might be the ultimate number.
The answer to one question appears to be missing from the Statement. Is there adequate staff available for the important rewiring work? There is also the question of satisfactory working conditions. I note that the report refers to the low level of wages and the considerable amount of overtime that is being worked. I hope that the Government will seriously consider paragraph 16.80 of the report on which the Statement is completely silent. The paragraph refers to three matters that are not the fault of any individual. They are:
"(i) deferment of projects involving large capital expenditure; (ii) the method and frequency of reorganisation within BR; and (iii) the control of the execution of major projects".
I have been a little selective in picking out the items from the report. However, those were outstanding. The report requires the most serious consideration. On the whole I believe that we can be satisfied with the attention that the Government have given to the 93 recommendations.
5 p.m.
Lord Tordoff: My Lords, I also thank the noble Viscount for repeating the Statement. Our first thoughts go to the relatives of the 35 dead, to the 500 people who were injured, 69 of them seriously, and to the many people outside that small scene on that December morning last year whose lives have been affected by what was an awful tragedy.
I also join in thanking Sir Anthony Hidden and all those who assisted him in carrying out this excellent inquiry. We are very well served, as we were served by Mr. Fennell in the King's Cross fire disaster, by people who are prepared to give their professional expertise in these inquiries. One only wishes that such inquiries were not necessary.
On reading the report in the short time since we received copies, one has a strong feeling for the old saying that for want of a nail the shoe was lost, for want of a shoe the horse was lost, and so on. A chain of accidents occurred here. However, from what I have read, the report deals not only with the technical aspects of the accident which led up to the disaster but of the culture that lies behind it and the failures of individual people and management as a whole.
It is impossible to go in detail through the 93 recommendations. I have not had time to read them all myself. However, the Government's attitude to those recommendations is to to be commended, as is that of British Rail. I am pleased that the Minister has seen fit to draw these recommendations to the attention of LRT and the PTEs at the earliest possible moment. I welcome too the statement that finance will not stand in the way of ensuring safety in the future. There must be a question on how far finance stood in the way of safety in Ole past. But that is a matter we may discuss another day.
I feel sad that British Rail's management has not been able to create a climate within its organisation that might have avoided the disaster occurring. There is no doubt that at the top management level of British Rail for many years there has been a desire to run a safe railway. Sir Robert Reid made it clear in his evidence that that was the standard that British Rail senior management expected to be set. At paragraph 13.12 he assured the inquiry that British Rail Board was committed to "absolute safety" and indeed had appointed a director of safety in November, the month before the accident. However, the report continues:
"In this case the target of absolute safety was not met. The causes were a combination of bad practice and mismanagement … I am satisfied that the errors which were made did not result from any deliberate decision to to cut corners on safety".
Nevertheless, at an earlier point the report states:
"Sadly, that regime did not exist and management at all levels within the S&T Department of BR's Southern Region failed abysmally, irrespective of any good intentions, to see that such a regime was developed, cultivated and enforced".
I do not intend to name names from the report today. It would not be right. However, the report goes into considerable detail about individual responsibilities. With reference to one of the testers, it states:
"He was, in fact, at much too junior a level to have the responsibility for such a task, which, while it was certainly not

579
thrust upon him, slipped down the levels of authority until it came to rest on his desk".
One begins to see a picture emerging of a degree of sloppiness in middle management.
Later, at paragraph 16.26 the report states:
"The problem, yet again, was that [he] was left to his own devices by higher management and his devices were neither adequate nor safe".
The report does not point the finger only at management, but in other directions also. It states:
"The situation is not the fault of BR alone. The unions too must bear their share of responsibility for attitudes of entrenched resistance to change which are out of place in a modern world. It was a matter of regret to the Court to see during the evidence how obvious and how deep was the mistrust and suspicion employer had for union and union had for employer".
It goes much deeper than one accident on one day. It goes to the whole culture of this great nationalised industry. The report continues:
"The comments I have made on recruitment and promotion and on payment of wages apply with equal force to the level of overtime working tolerated in British Rail. It is an outdated and wasteful system which by reason of the unsocial hours involved inevitably has a resultant adverse effect on recruiting. Constraints on recruiting are constraints on safety and have to be removed".
With those slightly selective quotations I hope that I have been able to indicate to the House that within the report there is much that we should consider in great detail.
Like the noble Lord, Lord Underhill, I wish to hear the Government's reply as regards the Railway Inspectorate. How far is it up to establishment and how far do they consider that to be adequate? One is glad that the Government are taking steps to increase the numbers. However, recently there have been a number of occasions on which the question of safety has arisen. Often it is the level of inspection and investigation which is not up to what we consider to be adequate. Is it thought that any matters will be referred to the Director of Public Prosecutions and is further action in that direction anticipated?
This matter is far too complex to deal with in a short exchange such as this. I have already spoken for too long but there are many other points that I should like to make. I hope that the usual channels can find time between now and Christmas to set a debate on this important topic.
Viscount Davidson: My Lords, I am grateful to the noble Lords, Lord Underhill and Lord Tordoff, for their positive reaction to the Statement. I certainly take note of their comments. In answer to the noble Lord, Lord Tordoff, criminal prosecutions is a matter for the prosecuting authorities. I agree with him that this is not the time to enter into lengthy or detailed discussions on the report. They can be left for a future occasion should the noble Lord wish to arrange for a debate through the usual channels.
The noble Lord, Lord Underhill, asked about BR's future response to my right honourable friend's request for a three monthly report on progress. I shall certainly take up his point with my right honourable friend. As regards the noble Lord's other two points, in May my right honourable friend's predecessor told the chairman that he would give sympathetic attention to any proposals for authority for major
580
investments to enhance safety. That is recorded in the report at Chapter 14, paragraph 14, and it remains the position. My right honourable friend cannot give blanket assurance that any safety proposal will be approved however great the cost and however small the benefit. The report recommends that the cost effectiveness of safety measures should be explored and he has accepted that.
As regards the important question of the Railway Inspectorate, referred to by the noble Lord, Lord Tordoff, more inspectors have been recruited. Since last year there has been an increase by almost half the number. The chief inspector's current assessment is that he will need another three inspectors to implement the Hidden Report in full but he will recruit more if necessary. At present the Railway Inspectorate's professional staff is 23 strong. It was recruiting up to a level of 31 but as a result of the report, the number will be increased by three to a total of 34.
At this stage I cannot go into too much detail. I remind your Lordships that the accident occurred while a major modernising programme was taking place to improve signalling on the line to Waterloo. Therefore, the argument put forward in some quarters that under-investment was a contributory factor is totally unjustified.
Lord Carmichael of Kelvingrove: My Lords, I wish to ask the noble Viscount —
Noble Lords: Order!
Lord Taylor of Gryfe: My Lords, I believe that the order of the House is that occasionally members of the SDP have an opportunity to contribute. On behalf of these Benches I thank the noble Viscount. Like other noble Lords I have not had the opportunity of studying the report in detail. However, from a quick perusal I can see that it is most searching. I add my thanks to the authors and assessors.
The photographs in the report bring back to us the real horror of the events as we witnessed them on the day of the terrible accident. For obvious reasons it is unfortunate that the accident took place, not least because it is bound to diminish the reputation of public transport at a time when we need to re-emphasise its importance in solving environmental problems and so forth.
I was the longest-serving member of the British Rail Board before I retired. As such I wish to say that, while the report makes comment on the incompetence and inefficiency in this instance, we should keep in mind the large number of passengers carried by British Rail, particularly in the South-East. I assure noble Lords that the question of safety on the railways has not been overlooked or neglected in the proceedings of the board. This particular case is unfortunate but, considering the volume of traffic carried, British Rail is to be congratulated on having a safety record higher than that of most other railways in the world.
Inspection of the annual reports of British Rail and the Department of Transport shows that every

581
year the details of the number of accidents are revealed. While in this case British Rail has lamentably fallen short of its usual standards we must remember that it observes high safety standards. That is particularly important at a time of increasing automatic signalling and devices and of high speed trains. Every week I travel for six hours on a high speed train to London. I am always comfortable in the knowledge that nothing will happen. In considering the responsibilities of British Rail we have a right to condemn its inefficiencies and incompetence in this case but we have no right to cast a general condemnation on British Rail as a whole.
The noble Lord, Lord Tordoff, pointed out the words in the Statement:
"Finance will not stand in the way of the necessary impovements".
There is almost an implication that to some extent finance contributed to the lack of the necessary standards of safety. I am delighted to have the Minister's firm assurance in the Statement that finance will not stand in the way.
Viscount Davidson: My Lords, I am grateful to the noble Lord, Lord Taylor of Gryfe. The best way in which I can respond is to stress that in terms of deaths per passenger mile travel by rail is far safer than by car. Rail accidents stay etched in out minds because there are so few and when they occur they are so horrific. However, we must not allow ourselves to forget how rare they really are. I assure the House that safety is my right honourable friend's top priority. It is certainly BR's and LRT's. Sad though it is, we cannot have completely safe railways because risk can never be entirely eliminated. We must identify the risks and try to minimise them. It is in that respect that the report is so useful and constructive.
Lord Auckland: My Lords, will my noble friend accept that for 36 years I have travelled from my home in Surrey through Clapham Junction Station at least 10 times a week? Cynical as it may seem, is he aware that many people believe that it is a miracle that this is the first time such a major accident has occurred in the area? Will he also accept that it is due largely to the skill of the railway workers, even though the report—which I have not had an opportunity to see—makes obviously justifiable criticisms which we must debate at a later date?
Is the Minister further aware that I was on a train just an hour after this accident and it was of course some time before anybody quite realised what had happened? Two acquaintances of mine were on the train from Poole; and fortunately, neither was seriously injured.
I have one question to ask the Minister having, as I say, not seen the report. What priority is given to the training of those operating the signals at busy places like Clapham Junction where enormous skill is needed? Can he give any indication as to whether the training will be elaborated upon as a result of this awful tragedy?
Viscount Davidson: My Lords, on the latter point I advise my noble friend to read the report. I believe that he will find the answer better stated there than any I am able to give. I should like to emphasise that money was not the cause of the accident. I have travelled through Clapham Junction on a number of occasions over the years and, with the number of trains which go through that particular part of the line—hundreds per day—in all directions, I agree with my noble friend that it is a miracle that there has not been a previous accident. I give due praise to those who control that line. The whole point is that this new investment should make it safer in the future than it has been in the past.
Lord Carmichael of Kelvingrove: My Lords, perhaps I could first apologise to the noble Lord, Lord Taylor of Gryfe, for jumping up too quickly. The Minister referred to the Bellgrove accident. I have not yet had an opportunity to see the report but I hope that the Minister will convey to the Secretary of State that part of the worry in Scotland is a belief that the accident may have been caused because of the singling of the line and the lack of adequate signalling. The difficulty for Scottish people is that it seems to be part of British Rail's policy to continue with this singling of certain lines, believing that the signalling can be improved. There is a very heavily used part of the line on the outskirts of Glasgow at Milngavie where they are talking of doing the same thing. I merely want to register that I hope a lesson will be taken from the accident at Bellgrove.
Viscount Davidson: My Lords, I certainly take note of what the noble Lord says. I do not believe that he would expect me to comment in advance of the report. I can tell him that the completion of the Bellgrove report has been delayed because until very recently a key witness was too ill to give evidence.
Lord Brougham and Vaux: My Lords, I also thank my noble friend. He may be aware and no doubt the House would like to know that since a safety officer has been appointed, British Rail is now in consultation with RoSPA on general safety matters on the railways.
Viscount Davidson: My Lords, I am most grateful to my noble friend for making that point.
Earl Attlee: My Lords, I asked my noble friend Lord Taylor of Gryfe to speak because not only am I in receipt of a pension from British Rail but I worked for seven years on Southern Region. I should however like to thank the noble Viscount for his considerate words regarding British Rail.
Viscount Davidson: My Lords, I am most grateful to the noble Earl.

Companies Bill [H.L.]
5.24 p.m.

COMMONS AMENDMENTS
3 Clause 3, page 4, line 39, leave out 'Part I' and insert 'section 3'
4 Page 4, line 42, leave out 'Part' and insert 'section'.
The Parliamentary Under-Secretary of State, Department of Employment (Lord Strathclyde): My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 3 and 4. I shall also speak to Amendments Nos. 6, 7, 11, 16, 17, 19, 35, 43, 44, 323, 324 and 344.
These amendments make minor changes to Part I. Amendments Nos. 3 and 4 replace a reference to the commencement of Part I of the Bill with a reference to the specific provision in question, to allow for the possibility that different provisions in the part are brought into force at different times. Amendments Nos. 6 and 11 improve the clarity of the part. Amendments Nos. 7 and 344 correct minor errors. Amendments Nos. 16 and 17 make references to "accounts" more precise and Amendment No. 19 makes clear how references to the day on which accounts are sent to shareholders and others are to be interpreted. Amendments Nos. 43 and 44 make minor change to the order-making power in new Section 257. They ensure that the power includes the power to make consequential amendments elsewhere in the 1985 Act and in other enactments and to make transitional provisions. The other amendments are consequential.
Moved, That the House to agree with the Commons in the said amendments. —(Lord Strathclyde.)
Lord Williams of Elvel: My Lords, I am grateful to the noble Lord, Lord Strathclyde, for moving these amendments and for speaking to the comprehensive group which we have on our list. I am also extremely pleased to see the noble Lord, Lord Strathclyde, taking part in this debate.
Lord Trefgarne: My Lords, so am I!
Lord Williams of Elvel: My Lords, he did carry the heat and burden of the day when the noble Lord, Lord Young of Graffham, was absent.
In this group, which I believe was agreed with the Government Whips Office, is included Amendment No. 43A. Therefore, in addition to speaking to the grouping which the noble Lord mentioned, I shall also speak to that amendment.
I have no particular quarrel with any amendments in this grouping other than Amendment No. 43. I thought it appropriate to mark my disapproval of that amendment by introducing my amendment. When the appropriate time comes I shall have to decide whether or not I wish formally to move that.
Amendment No. 43 introduces a feature into this legislation which is sometimes known as the Henry VIII feature. That introduces into Clause 18 a provision that the Secretary of State shall make regulations, which is already in the clause, to alter
584
accounting requirements. However, in the words of the Commons amendment he may:
"make consequential amendments of or repeals in other provisions of this Act, or in other enactments, and".
In other words, in making his regulations the Secretary of State may, by secondary legislation, change primary legislation. That has always been a principle which your Lordships have opposed.
As the noble Lord will know, on previous occasions we have had many debates about this. I believe that it is an undesirable principle that the Secretary of State can change Acts of Parliament by orders which are subject to whatever procedure one likes to name. It does not really matter what is the procedure because, even under the affirmative resolution procedure, orders cannot be amended. It is in that spirit that I wish to oppose Amendment No. 43 unless the noble Lord, Lord Strathclyde, can give me good reasons why I should not do so.
Lord Strathclyde: My Lords, perhaps it would save time later if I gave a rough guide to the Government's thoughts on Amendment No. 43. That deals with new Section 257 and gives the Secretary of State the power to alter the accounting requirements of Part VII of the 1985 Act by statutory instrument.
We discussed, as did the noble Lord, Lord Williams, the order-making powers at some considerable length at all stages of the Bill as it went through this House. Amendment No. 43 merely ensures that the order-making power includes a power to make consequential—and only consequential—amendments elsewhere, both in the 1985 Act and in other enactments, and the power to make transitional provisions.
We had thought that new Section 257(4)(c), which we have already discussed, gave adequate powers, but on reflection and considering an equivalent provision in the Building Societies Act, we have concluded that it should give the Secretary of State such powers. I know we have not reached Amendment No. 43A, but I hope that explanation gives the noble Lords some idea of our thinking.
5.30 p.m.
Lord Lloyd of Kilgerran: My Lords, I should like also to say how glad I am to see the noble Lord, Lord Strathclyde, taking up the cudgels again on this matter after his brilliant appearances on many occasions on a previous Bill. Do I understand him to say that, when we are supposed to construe the words "or in other enactments", the enactments referred to must be associated company law matters, or is it any old Bill? I am not sure whether the noble Lord was saying that there are enactments concerned with company law. If they are not limited to enactments dealing with company law, I agree entirely with the noble Lord, Lord Williams.
Lord Strathclyde: My Lords, may I very briefly say that these amendments would only be consequential amendments under the power already given under the section.
On Question, Motion agreed to.

COMMONS AMENDMENT
5 Clause 4, page 6, line 43, leave out 'the special circumstances of the company' and insert 'special circumstances'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons Amendment No. 5. I apologise that I am not Lord Strathclyde who is so widely acclaimed, and rightly so when speaking from this Dispatch Box. Nevertheless I hope your Lordships will allow me to move this amendment. Removing the words "of the company" from Section 226(5) widens the application of that provision in a way which we believe would help ensure that the detailed accounting requirements of the Act are overridden in appropriate cases in the interests of accounts showing a true and fair view. It is therefore no more than a technical point and a clarification. I hope your Lordships will agree with it. I beg to move.
Moved, That the House do agree with the Commons in the said amendment.—(Lord Trefgarne).
Lord Williams of Elvel: My Lords, I certainly do not regret that the noble Lord, Lord Trefgarne, is not the noble Lord, Lord Strathclyde. I think the two characters mesh very easily. We are very glad to see the noble Lord taking part for the first time in a Companies Bill. I am sure it will not be the last time because nowadays we have a Companies Bill more or less every Session.
Can the noble Lord very kindly explain, given that the expression "the special circumstances of the company" is to be left out and "special circumstances" put in instead, what sort of special circumstances the Government have in mind? Will these special circumstances be defined in any way? Will they not be defined in any way? Who is to say? Will it be for the court to say whether they are special circumstances? Can he illuminate the discussion a little more?
Lord Lloyd of Kilgerran: My Lords, can the Minister go a little further? In defining "special circumstances" is it proposed to have some regulations in relation to this matter?
Lord Trefgarne: My Lords, I am able to explain in more detail what is meant. I had hoped my earlier shorter observations would have been sufficient for your Lordships, but I am happy to go further.
New Section 226(5) gives primacy to the true and fair requirement in new Section 226(2). At present it states that if, in the special circumstances of the company, compliance with other detailed rules is inconsistent with the requirement to show a true and fair view, then the directors must depart from those rules to the extent necessary to give a true and fair view.
We have looked at this very carefully and have concluded that we should bring the wording into line with the corresponding provisions on group accounts by removing the restriction that the special circumstances must be those of the company. The effect is that where there are special circumstances
586
of a general nature—or indeed special circumstances which apply to a particular class of companies, and as a result accounts prepared strictly in accordance with the detailed rules in the Act do not show a true and fair view—then companies must depart from the detailed rules to ensure that a true and fair view is given.
I hope that clarifies the matter for the noble Lord and that he will now agree that the amendment should form part of the Bill.
On Question, Motion agreed to.

COMMONS AMENDMENTS
6 Clause 4, page 7, line 4, at end insert 'to this Act'.
7 Clause 5, page 7, line 16, leave out 'and' and insert 'or'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 6 and 7.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
8 Page 10, line 15, leave out 'was acquired and'.
9 Page 10, line 17, at end insert 'and the undertaking has not previously been included in consolidated group accounts prepared by the parent company'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 8 and 9.
These amendments concern the circumstances in which a company can exclude a subsidiary from its consolidated accounts, specifically where shares are acquired with the sole intention of reselling them. I gave a commitment to the noble Lord, Lord Bruce of Donington, at an earlier stage of consideration of this Bill that the Government would look very carefully at subsection (3)(c) of new Section 229. This was in the light of concern that had been expressed by the Law Society and the British Bankers' Association that this might require banks, for example, to consolidate bodies where there would be general agreement that this was inappropriate. These amendments meet the point without opening up a loophole for companies which seek deliberately to keep subsidiaries out of consolidated accounts. I beg to move.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Strathclyde.)
Lord Williams of Elvel: My Lords, we are grateful to the noble Lord for responding to the concerns expressed by my noble friend Lord Bruce of Donington. The problem, if I may say so, arises with the wording that the Government have now introduced.
Commons Amendment No. 9 is odd in that any undertaking, any investment or the interest of the parent company—to use the words in Clause 5 of the Bill—is bound to be included in the consolidated group accounts prepared by the parent company. It may not be consolidated, but it is bound to be

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included as an investment if it is not consolidated. I am therefore confused by the wording that the Government have adopted. I hope the noble Lord will be able to say that, contrary to my accounting advice, what the Government are putting in the Bill is clear.
The second problem concerns leaving out the expression "was acquired and", because if we read the Bill as drafted with the Commons amendment consolidated into it—if I may use the expression—new Section 229(3)(c) in Clause 5(3) would read:
"the interest of the parent company is held exclusively with a view to subsequent resale".
In its original form —
"the interest of the parent company was acquired and is held exclusively with a view to subsequent resale"—
it defined the word "subsequent". It was obviously subsequent to the acquisition. The acquisition was made for subsequent resale. If you leave out, as Commons Amendment No. 8 does, the words "was acquired and", there is no definition of the word "subsequent". It now reads:
"the interest of the parent company is held exclusively with a view to subsequent resale".
We have to ask: subsequent to what? It may or may not have been, at certain times, the idea that it could be resold. It was perfectly clear in the original version, and I am worried that in striving to meet the legitimate concerns of my noble friend the noble Lord may have opened up all sorts of complicated problems. I shall be happy to hear the Minister's explanation.
Lord Strathclyde: My Lords, it is a pity that the noble Lord, Lord Bruce of Donington, is not here. I am sure he would have explained the point quite admirably, since it was he who pointed out in Committee that there might be a problem. Perhaps I should make clear to the noble Lord, Lord Williams, that the expression "included in consolidated group accounts" is a defined term. I should point the noble Lord to new Section 262 of the Bill. It means that the undertaking is included in the accounts by way of full consolidation. Therefore that is correct in this context. It means subsequent to the acquisition. We have gone into the wording with a great deal of thoroughness and we are very happy with what we have put forward in that the wording does not create any further problems or loopholes.
On Question, Motion agreed to.

COMMONS AMENDMENT
10 Clause 6, page 11, line 33, at end insert—
'(3A) Where advantage is not taken of subsection (3), that fact shall be stated in a note to the company's annual accounts.'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 10. Clause 6 of the Bill includes a provision re-enacting existing exemptions from disclosure of the names of certain subsidiaries and
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related undertakings which date back to the Companies Act 1967 and were introduced by the then Labour Administration.
This amendment would require a company to disclose in its accounts the fact that it had taken advantage of those exemptions from disclosure. The Government brought it forward in response to a commitment given in another place to the honourable gentleman the Member for Norwich, South, who moved a similar amendment in the Standing Committee. We have considered this carefully in the light of our obligations under the fourth and seventh company law directives. The amendment is needed to give proper effect to Article 45(1)(b) of the fourth directive and Article 35(1)(b) of the seventh directive. I beg to move.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENT
11 Page 12, line 46, at end insert 'to this Act'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 11.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
12 Clause 7, page 13, line 16, at end insert —
'(4A) If annual accounts are approved which do not comply with the requirements of this Act, every director of the company who is party to their approval and who knows that they do not comply or is reckless as to whether they comply is guilty of an offence and liable to a fine.
For this purpose every director of the company at the time the accounts are approved shall be taken to be a party to their approval unless he shows that he took all reasonable steps to prevent their being approved.'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 12. With the permission of your Lordships, I should like to speak at the same time to Amendment No. 23.
These amendments relate to a recommendation in the Dearing Report on the making of accounting standards that the criminal sanction in Section 245 of the Companies Act for laying or delivering defective account should go. This change is closely linked to other Commons amendments which give effect to recommendations in the Dearing Report. This is perhaps therefore the most suitable opportunity to outline progress towards establishing the new structure for the making and enforcement of accounting standards since this Bill was last before your Lordships' House in April. Although the new structure proposed by Dearing does not require legislation it is fundamental to an understanding of the whole. With permission, I should like to do so before I turn directly to these amendments.

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The Government and the accounting profession are in agreement that the structure proposed in the Dearing Report is the right way forward and that the need is to set that structure in place as soon as possible. We have acknowledged a role for government in bringing this about though, equally, we are clear that government should not at the end of the day dominate the arrangements for setting and enforcing standards.
Following consultations with interested parties we concluded that the best way to make rapid progress was to appoint an implementor to negotiate with interested parties and finalise the arrangements for setting up the new structure. As noble Lords will be aware, my honourable friend the Under-Secretary of State for Corporate Affairs announced on 25th October that Sir Ronald Dearing had accepted an invitation to take on that role, as chairman designate of the Financial Reporting Council. His task is to carry forward negotiations with all concerned so that the new arrangements for accounting standards will be in place next summer. He has already announced the formation of a small task group to negotiate the finance and to develop detailed proposals. We can think of no one better than Sir Ronald to carry through this task. His appointment was warmly welcomed on both sides in another place and I am sure noble Lords will join me in doing so again and wishing him well in the task of enhancing the role of accounting standards and improving company reporting.
As my honourable friend also announced, once the body is established it is the intention of my right honourable friend the Secretary of State for Trade and Industry, acting jointly with the Governor of the Bank of England, to appoint Sir Ronald formally as chairman of the council.
I turn now to the legislative aspects of the Dearing Report. Noble Lords will recall that my noble friend the then Secretary of State for Trade and Industry, Lord Young of Graffham, welcomed the Dearing Report on behalf of the Government in our earlier debate on this Bill. He gave a commitment that, following analysis of responses to the consultative document which my department issued in January, the Government would bring forward the necessary amendments to give effect to the recommendations which required legislation following the completion of consultation. This group of amendments —and two further groups which we will come to shortly—fully meet that commitment.
Turning to the amendments before us, these concern the criminal sanctions where annual accounts are approved which do not comply with the requirements of the Act. They must be seen as part of a slightly larger package of changes which includes the introduction of a new civil procedure for requiring companies to revise defective accounts. We shall come to that when we reach Amendment No. 24.
The Dearing Report recommends that the criminal sanction in its existing form should go. The Government agree. There has, I believe, only ever been one, though successful, prosecution. Moreover, we are concerned that retention of the criminal
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offence might make a court less ready to make an order under the proposed new civil procedure. The only question is whether anything should replace it. We consider that there are situations where a criminal sanction remains appropriate where there is a deliberate intention to prepare defective accounts or recklessness as to the obligation to prepare accounts which comply with the Act.
However, Amendment No. 12 makes it a criminal offence for a director to be party to the approval of accounts knowing that they do not comply with the requirements of the Act or being reckless as to whether they do so.
I hope that I have given an adequate description of the purposes of these amendments. I beg to move.
Moved, That the House do agree with the Commons in the said amendment —(Lord Trefgarne.)

AS AN AMENDMENT TO COMMONS AMENDMENT NO. 12
12A Leave out lines 6 to 8.
5.45 p.m.
Lord Williams of Elvel: My Lords, I beg to move Amendment No. 12A. It seeks to leave out the second paragraph of Amendment No. 12. We basically approve of the action that the Government have taken as regards the Dearing Report. We argued in Committee that, broadly speaking, the conclusions should be supported. I am glad that the Government have taken action. We do not believe that the Government are right in saying that Dearing can be divorced from public responsibility. We believe that the Government have a responsibility to make sure that accounting standards are properly observed. Therefore the Financial Reporting Council which is to be set up should be funded and supported by the Department of Trade and Industry. That point has been argued in another place and I do not want to pursue it. As the noble Lord said, we welcome the appointment of Sir Ronald Dearing as chairman of the council and wish him every success.
The question that my amendment addresses itself to is the definition of a party to false accounts, if I may use a shorthand expression. Amendment No. 12 states:
"For this purpose every director of the company at the time the accounts are approved shall be taken to be a party to their approval unless he shows that he took all reasonable steps to prevent their being approved".
This applies not only to public companies but to private companies as well. I speak with some feeling as I am a director of a number of private companies. There may easily be occasions when accounts are put forward and a director is told that there will be a meeting in Room 6 —it may be in a committee room of your Lordships' House—when the accounts will be approved.
The director may not be aware that something has been put into the accounts by the managing director or the chairman which he, as a director, should properly know about. It worries me that this proposal is too harsh. Normally I am in favour of having harsh penalties for directors, but I believe that we

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are going a little too far on this occasion. When the noble Lord comes to reply to my amendment I hope that he will be able to convince me that this measure is not as harsh as I think it is. I beg to move.
Moved, That amendment No. 12A, as an amendment to Commons Amendment No. 12, be agreed to. —(Lord Williams of Elvel.)
Lord Lloyd of Kilgerran: My Lords, I also welcome the Government's attitude to the Dearing Committee, but, like the noble Lord, Lord Williams of Elvel, I am a little anxious that the clause goes too far. I declare an interest as a director of some private companies. The amendment says:
"For this purpose every director of the company at the time the accounts are approved shall be taken to be a party to their approval".
I can understand that. But the amendment goes on to say:
"unless he shows that he took all reasonable steps to prevent their being approved".
What reasonable steps in practice would a man be expected to take in those circumstances?
The director may have a number of clients—I am glad to see that one or two noble Lords opposite are nodding in agreement. How can somebody show that he took all reasonable steps to prevent their being approved? What facilities has he to try to see whether they are approved? Must he say, being a cautious fellow in a private company, "I do not like these accounts. I can't approve them". Must he then ask for an adjournment so that he can examine the papers in relation to the matter? This seems to be too harsh a load to be put onto a normal director.
Lord Peston: My Lords, as the noble Lord, Lord Lloyd of Kilgerran, has already raised the matter, I seek some clarification on the word "reasonable". If the director concerned were an accountant, I could see the word "reasonable" having some meaning apropos that qualification. However, the director may be an ordinary person. Frequently in a private company a director may have no knowledge of or interest in the accounts. He has some knowledge of and interest in what the company does, whether it be in publishing books or selling antiques. Would "reasonable" then be interpreted as "reasonable" for that person? That is the clarification we require. It must be borne in mind that while in many of these companies the people concerned certainly have no knowledge of accounting or of company law, they are anxious to be as honest as they possibly can. "Reasonable" would mean one thing to a fully qualified accountant but it would mean something quite different to somebody else. The clause does not seem to differentiate according to person.
Lord Trefgarne: My Lords, the amendment moved by the noble Lord, Lord Williams, would weaken substantially the provision proposed by the Commons in Amendment No. 12. The amendment strikes a careful balance between the need to preserve the rights of the director and to be effective.
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The new offence is much more carefully targeted than that in existing Section 245 of the 1985 Act, which makes any person who is a director at the relevant time guilty of laying or delivering defective accounts unless he can prove that he took all reasonable steps for securing compliance. The wording which the noble Lord wishes to delete is an essential part of that targeting. I shall explain why. Two conditions will have to be met for a director to be guilty of the new offence. First, it must be proved against him that he either knew that the accounts were defective or was reckless as to whether they were defective.
Secondly, the director must be a party to the approval of those accounts. If no further explanation of that term is given for this purpose, a director could be fully aware that the accounts are defective, could take no action to bring this to the notice of the other directors, and yet escape responsibility simply by making sure that he was not present or did not vote when the time came for formal approval of the accounts. For without the additional words a director would not be taken to be a party to the approval unless he had positively voted for their approval. We think that a director who is aware that the accounts do not comply should be required to take his responsibilities more seriously than that.
Amendment No. 12 achieves this in a way which does not put directors in an impossible position. A director who is aware that the accounts are defective is not required to take every possible step to prevent the accounts being approved. He is required only to take reasonable steps. That is no more than the shareholders have a right to expect. Of course, in the end it will be for the courts to determine whether the director concerned had taken all reasonable steps in the circumstances. But I believe that the wording before us is right without the benefit of the noble Lord's amendment. I hope that noble Lords will agree.
Lord Williams of Elvel: My Lords, I am grateful to the noble Lord for explaining the amendment further. I cannot say that I am entirely satisfied with the explanation. The noble Lord has not responded to the question asked by the noble Lord, Lord Lloyd, about what "reasonable steps" can reasonably be said to be.
Lord Trefgarne: Yes, my Lords, I have.
Lord Williams of Elvel: My Lords, we have not had a satisfactory explanation. I do not think that every director of a company who is party to their approval is properly, if I construe the amendment correctly, followed through into the second half of the amendment. Does the noble Lord wish to correct me? I am happy for him to intervene. We have a procedural problem. I am allowed to speak only twice. If the noble Lord wishes to intervene, he is entitled to do so.
I am unhappy that the definition of "reasonable" is not clear. I am unhappy that it goes further than Dearing and others would have liked. Although I accept the point that the director of the company in question has to be aware that something is going on,

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I find that the amendment leads me in a completely different direction. The direction is the one which I reflect in my amendment.
I do not want to divide the House. It is not a matter on which we should divide because it is a technical point more than a point of principle. If the noble Lord could respond to any of my points it would help me.
Lord Trefgarne: My Lords, with the permission of the House, I do not think there is much that I can add to what I have already said. The essence of the reasonableness is to be determined by a court in the event that it was challenged. If a director was held not to have acted reasonably, the courts would be able so to determine. Equally, it would be open to him to defend himself by persuading the court that he had acted reasonably in all the circumstances. Circumstances in every case will vary. The extent to which the director has acted reasonably or otherwise will vary according to the circumstances. It is therefore not possible, I fear, for me to define the circumstances further.
Lord Williams of Elvel: My Lords, in the circumstances I do not think that it is an issue on which I want to divide the House. If this is what the Commons have decided, they are entitled to decide it. I do not find it satisfactory, but I beg leave to withdraw my amendment.
Amendment No. 12A, as an amendment to Commons Amendment No. 12, by leave, withdrawn.
On Question, Amendment No. 12 agreed to.

COMMONS AMENDMENT
13 Clause 8, page 14, line 18, leave out 'this section or Schedule 7' and insert 'this Part'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 13. I shall also speak to Amendments Nos. 15 and 366. These amendments change provisions relating to the directors' report. Amendments Nos. 15 and 366 extend the disclosure in the directors' report of a director's interests in a company's shares and in the shares of other group companies so as to cover rights and obligations to subscribe to shares—principally share options which are increasingly granted to directors. Amendment No. 13 corrects a small defect in the offence provisions in new Section 234. I beg to move.
Moved, that the House do agree with the Commons in their Amendment No. 13.—(Lord Strathclyde.)
On Question, Motion agreed to.
[Amendment No. 14A not moved.]

COMMONS AMENDMENT
14 Page 14, line 30, leave out from 'company' to end of line 34.
Lord Trefgarne: My Lords, I beg to move that the House do agree wih the Commons in their Amendment No. 14.
Moved, That the House do agree with the Commons in the said amendment.—(Lord Trefgarne.)
On Question, Motion agreed to.
6 p.m.

COMMONS AMENDMENTS
15 Page 15, line 5, leave out subsection (2) and insert—
'(2) Schedule 7 to the Companies Act 1985 (matters to be included in directors' report) is amended in accordance with Schedule (Matters to be included in directors' report) to this Act.'.
16 Clause 9, page 15, line 36, after 'the'. insert 'annual'.
17 Page 16, line 38, after first 'the', insert 'annual'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 15 to 17.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENT
18 Page 16, line 42, leave out from beginning to end of line 31 on page 17.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 18. I should like, at the same time, to speak also to Amendments Nos. 32, 33, 34, 77 and 152, 153 and 154. These amendments form part of a restructuring of Chapter 5 of Part XI of the Companies Act 1985 which concerns the appointment of, the powers of and the dismissal of auditors.
The restructuring is necessary as a consequence of the new provisions on auditors in Part II of the Bill and in order to complete the provisions made in the Bill for the new elective regime for private companies. The amendments essentially pave the way for Amendment No. 155 which largely replaces that chapter of the Companies Act with amended provisions. As the noble Lord, Lord Williams, has asked that we speak to this amendment when we reach Part V of the Bill, I must ask your Lordships to accept these amendments on trust.
Moved, That the House do agree with the Commons in the said amendment.—(Lord Strathclyde.)
Lord Williams of Elvel: My Lords, I am delighted to accept anything on trust from the noble Lord, Lord Strathclyde. I shall speak to Amendment No. 155 in some detail when we reach that stage in our deliberations. It is the substantive amendment in the whole matter. However, in the meantime I am happy that the noble Lord should speak to these amendments. We have no problem in that respect.
On Question, Motion agreed to.

COMMONS AMENDMENT
19 Clause 10, page 18, line 21, at end insert —
'(6) Where copies are sent out under this section over a period of days, references elsewhere in this Act to the day on which copies are sent out shall be construed as references to the last day of that period.'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 19.
Moved, That the House do agree with the Commons in the said amendment.—(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
20 Page 19, line 8, at end insert 'or contained a statement under section 236(2) or (3) (accounting records or returns inadequate, accounts not agreeing with records and returns or failure to obtain necessary information and explanations)'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 20. At the same time I should like to speak to Amendment No. 36 and perhaps also make reference to Amendment No. 36A, tabled in the name of the noble Lord, Lord Williams, which is an amendment to Amendment No. 36.
We believe it is right, for the two purposes specified by these Commons amendments, that there should be disclosure of the fact that the auditors' report contains a statement under new Section 236(2) or (3). These are statements which the auditors are required to make but which stop short of a formal audit qualification.
Amendment No. 20 has this effect in relation to the publication of non-statutory accounts under new Section 240. Under this amendment such accounts would have to be accompanied by a statement saying not only whether the company's statutory accounts have been qualified but also whether or not the auditors' report contained a statement under Section 236. Amendment No. 36 has a similar effect in relation to summary financial statements in Clause 14.
I turn now to Amendment No. 36A, tabled in the name of the noble Lord, Lord Williams. If I understand the noble Lord correctly, he is not opposed to the requirement to disclose and set out in the summary financial statements any statement in the auditors' report made under Section 236(2) or (3) but questions the need to make a statement in the summary accounts where there are no such statements in the audit report, as in the majority of cases.
I believe the noble Lord's point is one of detail. Amendment No. 36 in its present form need not cause the sort of difficulties the noble Lord envisages, either for the company preparing the summary financial statement or indeed the reader. I accept that it would not be particularly informative to most readers of summary statements to read that the auditors' report on the full accounts does not contain a statement under Section 236(2) or (3) of the 1985 Act. But such a requirement is, in our view, the necessary obverse to the requirement that when such a statement has been made in relation to the full accounts the fact should be noted in the summary financial statement. We believe that companies should be able to meet this requirement without undue difficulty or expense. We hope that, on reflection, the noble Lord will agree. I beg to move.
Moved, That the House do agree with the Commons in the said amendment.—(Lord Trefgarne.)
Lord Williams of Elvel:My Lords, perhaps I may speak to the amendment tabled in my name, which is an amendment to Amendment No. 36, since it is in the same grouping. We have some procedural problems here. I have no particular problem with Amendment No. 12, but I have a problem with Amendment No. 36 Therefore, since they are all in the same grouping perhaps I may speak to Amendment No. 36A on the basis that I shall be moving the amendment. I am most grateful to the House.
The problem with Amendment No. 36, which refers to Clause 14, is that it does not rectify what I and certain of my advisers believe to be a problem about the expression contained in subsection (4)(b) of the clause. It is therefore for procedural reasons—because we can only amend Commons amendments —that I have tacked on Amendment No. 36A to Amendment No. 36. In reality it refers to subsection (4)(b), which I am not allowed to amend because it has passed through all its stages and has not been amended in another place.
The problem is that a summary financial statement is required by subsection (4)(b) of the clause to be,
"consistent with those accounts and that report".
It is the word "consistent" which bothers me and other people. What does it mean? If I could have amended the subsection in question I should have put the words "properly extracted from" in place of the word "consistent", thereby making absolutely clear that the summary financial statement was an extract of the full form report and accounts. I am not allowed to do so and therefore I must tack on an amendment to try to achieve the same effect.
This is, however, an important point. Under the new regime many shareholders will be asked to affirm positively whether they wish to receive a full report and accounts. Many of them will not answer the letters and will simply say, "We shall not bother", and so on. Therefore they will receive summary financial statements. If those summary financial statements are consistent, as they must be under the statute, with the full long form report and accounts, that will mean whatever it means. However, if they are not properly extracted they can still be consistent and the shareholder may well be misled.
Perhaps I may give an example. A company has a turnover, it has a trading profit, it has a profit pre-tax and a profit post-tax. Let us consider the profit and loss account of the company. It would be consistent with the report and accounts for the summary financial statement to show the turnover and the profit after tax. That would be perfectly consistent. However, it may be that there is a large tax credit which has been shown in the full report and accounts but which is not shown in the summary financial statement. In that case, although the summary financial statement is consistent with the full report and accounts it has not been properly extracted, and hence, in such a situation, it would be misleading.

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I should like to see an amendment along the lines of the one I have put forward being accepted by the Government to ensure that "consistent" means "properly extracted from" so that there can be no doubt that the auditors will say, "Yes, this summary financial statement is a proper extract of the full report and accounts". That is the object of my amendment.
Lord Lloyd of Kilgerran: My Lords, I too am anxious about the inconsistency of the word "consistent" in the context of subsection (4)(b). I should have thought that it was inevitable, having regard to the ordinary understanding of the word "consistent", that a further explanation is necessary along the lines of Amendment No. 36A. It should state that the statement is not merely consistent but that the information has been properly extracted from the company's annual accounts. I was a little worried about the word "properly" in the amendment. I do not, however, want to differ with the noble Lord, Lord Williams, on a fundamental point. It might have been a better amendment to leave out the word "properly". In any event, I do not know whether I am being procedurally improper in making such a suggestion. In the circumstances, I support what the noble Lord, Lord Williams, has said.
Lord Trefgarne: My Lords, I hope that I can set the noble Lord's mind at rest on this matter. I am informed that the term "consistent with" is already used in the Companies Act in the context that requires auditors to judge the consistency of information in the directors' report with the accounts. With aid from suitable guidance from the APC, I do not believe that consistency is a concept which would cause auditors any degree of difficulty. I understand that the APC has already set up a working group to consider what guidance might be necessary. I hope that that will meet the noble Lord's concern.
I agree that there needs to be some guidance in this area. The APC is the right body to give that guidance. I am happy to reassure the noble Lord that it is already at work and ready to do just that.
Lord Williams of Elvel: My Lords, I am grateful to the noble Lord for that information. It was not conveyed to me yesterday afternoon by a member of the APC, but if he tells me that that is the case I have no doubt that he is properly advised. It is one thing to say in statute that the report is consistent with another set of documents, which are accounts. It is another thing to say that a précis, which is the summary financial statement, is consistent with the full version. There are two different concepts of consistency.
I was most grateful for the support of the noble Lord, Lord Lloyd of Kilgerran. I used the expression "properly" so as to lay the onus on the auditors to say that the summary financial report had been properly extracted; in other words, it was for the auditors to say, "Yes, we take the responsibility for saying that the thing had been properly extracted". If the auditors merely say, "It has been extracted",
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that is less strong than the auditors saying, "Yes, we are absolutely satisfied that it is not merely consistent but has been properly extracted".
Lord Lloyd of Kilgerran: My Lords, I am grateful to the noble Lord, Lord Williams, for his explanation.
Lord Williams of Elvel: My Lords, the question arises as to what we do, because this is the last occasion on which we can do anything. I am not happy about the expression "consistent". I am not happy that we can just leave the matter to the APC (the auditors) to decide whether the guidance that it issues is the type of guidance that we should accept under the Act. I am afraid that I shall have to press the amendment.
On Question, Motion agreed to.

COMMONS AMENDMENTS
21 Clause 11, page 20, leave out lines 28 to 44.
22 Page 21, line 11, at end insert —
'Civil penalty for failure to deliver accounts.
242A.—(1) Where the requirements of section 242(1) are not complied with before the end of the period allowed for laying and delivering accounts and reports, the company is liable to a civil penalty.
This is in addition to any liability of the directors under section 242.
(2) The amount of the penalty is determined by reference to the length of the period between the end of the period allowed for laying and delivering accounts and reports and the day on which the requirements are complied with, and whether the company is a public or private company, as follows:—

Length of period

Public company

Private company

Not more than 3 months

£500

£100

More than 3 months but not more than 6 months

£1,000

£250

More than 6 months but not more than 12 months

£2,000

£500

More than 12 months

£5,000

£1,000

(3) The penalty may be recovered by the registrar and shall be paid by him into the Consolidated Fund.
(4) It is not a defence in proceedings under this section to prove that the documents in question were not in fact prepared as required by this Part.'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 21 and 22.
The amendments change the level of civil penalties to which companies are liable for the late delivery of accounts and reports. My honourable friend the Under-Secretary of State for Corporate Affairs brought forward the amendments in response to an undertaking given in Committee in another place. As was explained in a short, harmonious debate in Committee in another place, the Government were sympathetic to the view that the penalties proposed in the Bill were too low in relation to public companies.
The amendments therefore introduce different penalties depending upon whether a company is public or private, the level of penalty being substantially increased for public companies. There is one other change: a separate band of penalties for where accounts are filed less than one month late is removed. There is now merely a single band where

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delivery is not more than three months after the due date.
Moved, That the House do agree with the Commons in the said amendments.—(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENT
23 Clause 11, page 23, leave out lines 10 to 19.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 23.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.
6.15 p.m.

COMMONS AMENDMENT
24 After Clause 11, insert the following clause—
Remedies for failure to comply with accounting requirements 1985 c.6
The following sections are inserted in Part VII of the Companies Act 1985—
"Revision of defective accounts and reports Voluntary revision of annual accounts or directors' report.
245.—(1) If it appears to the directors of a company that any annual accounts of the company, or any directors' report, did not comply with the requirements of this Act, they may prepare revised accounts or a revised report.
(2) Where copies of the previous accounts or report have been laid before the company in general meeting or delivered to the registrar, the revisions shall be confined to —

(a) the correction of those respects in which the previous accounts or report did not comply with the requirements of this Act, and

(b) the making of any necessary consequential alterations.

(3) The Secretary of State may make provision by regulations as to the application of the provisions of this Act in relation to revised annual accounts or a revised directors' report.
(4) The regulations may, in particular —

(a) make different provision according to whether the previous accounts or report are replaced or are supplemented by a document indicating the corrections to be made;

(b) make provision with respect to the functions of the company's auditors in relation to the revised accounts or report;

(c) require the directors to take such steps as may be specified in the regulations where the previous accounts or report have been —

(i) sent out to members and others under section 238(1),

(ii) laid before the company in general meeting, or

(iii) delivered to the registrar,

or where a summary financial statement based on the previous accounts or report has been sent to members under section 252;

(d) apply the provisions of this Act (including those creating criminal offences) subject to such additions, exceptions and modifications as are specified in the regulations.

(5) Regulations under this section shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.
Secretary of State's notice in respect of annual accounts.
254A.—(1) Where copies of a company's annual accounts have been sent out under section 238, or a copy of a company's annual accounts has been laid before the company in general meeting or delivered to the registrar, and it appears to the Secretary of State that there is, or may be, a question whether the accounts comply with the requirements of this Act, he may give notice to the directors of the company indicating the respects in which it appears to him that such a question arises, or may arise.
(2) The notice shall specify a period of not less than one month for the directors to give him an explanation of the accounts or prepare revised accounts.
(3) If at the end of the specified period, or such longer period as he may allow, it appears to the Secretary of State that no satisfactory explanation of the accounts has been given and that the accounts have not been revised so as to comply with the requirements of this Act, he may if he thinks fit apply to the court.
(4) The provisions of this section apply equally to revised annunal accounts, in which case the references to revised accounts shall be read as references to further revised accounts.
Application to court in respect of defective accounts.
254B.—(1) An application may be made to the court—

(a) by the Secretary of State, after having complied with section 245A, or

(b) by a person authorised by the Secretary of State for the purposes of this section,

for a declaration or declarator that the annual accounts of a company do not comply with the requirements of this Act and for an order requiring the directors of the company to prepare revised accounts.
(2) Notice of the application, together with a general statement of the matters at issue in the proceedings, shall be given by the applicant to the registrar for registration.
(3) If the court orders the preparation of revised accounts, it may give directions with respect to—

(a) the auditing of the accounts,

(b) the revision of any directors' report or summary financial statement, and

(c) the taking of steps by the directors to bring the making of the order to the notice of persons likely to rely on the previous accounts,

and such other matters as the court thinks fit.
(4) If the court finds that the accounts did not comply with the requirements of this Act it may order that all or part of—

(a) the costs (or in Scotland expenses) of and incidental to the application, and

(b) any reasonable expenses incurred by the company in connection with or in consequence of the preparation of revised accounts,

shall be borne by such of the directors as were party to the approval of the defective accounts.
For this purpose every director of the company at the time the accounts were approved shall be taken to have been a party to their approval unless he shows that he took all reasonable steps to prevent their being approved.
(5) Where the court makes an order under subsection (4) it shall have regard to whether the directors party to the approval of the defective accounts knew or ought to have known that the accounts did not comply with the requirements of this Act, and it may exclude one or more directors from the order or order the payment of different amounts by different directors.
(6) On the conclusion of proceedings on an application under this section, the applicant shall give to the registrar

601
for registration an office copy of the court order or, as the case may be, notice that the application has failed or been withdrawn.
(7) The provisions of this section apply equally to revised annual accounts, in which case the references to revised accounts shall be read as references to further revised accounts.
Other persons authorised to apply to court.
245C.—(1) The Secretary of State may authorise for the purposes of section 245B any person appearing to him —

(a) to have an interest in, and to have satisfactory procedures directed to securing, compliance by companies with the accounting requirements of this Act,

(b) to have satisfactory procedures for receiving and investigating complaints about the annual accounts of companies, and

(c) otherwise to be a fit and proper person to be authorised.

(2) A person may be authorised generally or in respect of particular classes of case, and different persons may be authorised in respect of different classes of case.
(3) The Secretary of State may refuse to authorise a person if he considers that his authorisation is unnecessary having regard to the fact that there are one or more other persons who have been or are likely to be authorised.
(4) Authorisation shall be by order made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.
(5) Where authorisation is revoked, the revoking order may make such provision as the Secretary of State thinks fit with respect to pending proceedings.
(6) Neither a person authorised under this section, nor any officer, servant or member of the governing body of such a person, shall be liable in damages for anything done or purporting to be done for the purposes of or in connection with —

(a) the taking of steps to discover whether there are grounds for an application to the court,

(b) the determination whether or not to make such an application, or

(c) the publication of its reasons for any such decision,

unless the act or omission is shown to have been in bad faith.".'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 24.
The amendment gives effect to one of the central recommendations of the Dearing Report on the Making of Accounting Standards —that there should be a new power for the Secretary of State, or a body authorised by him, to apply to the courts for an order requiring the revision of accounts which do not comply with the requirements of the Act. It inserts important new sections into the 1985 Act which result in a stronger framework within which companies must prepare accounts giving a true and fair view. The sections form a logical sequence.
First, in considering the Dearing recommendations, we reached the conclusion that the directors of a company who realised that their accounts were defective should be able to prepare revised statutory accounts without any more ado. That is the purpose of new Section 245.
The second step is more formal but still stops short of an application to the courts. New Section 245A gives the Secretary of State the power to issue
602
a formal notice to the directors of a company where he suspects that accounts prepared by them do not comply with the requirements of the Act. Companies will have to explain why they believe the Secretary of State is wrong; alternatively, they can simply prepare revised accounts using the voluntary procedures and satisfy the Secretary of State in that way.
The new civil procedure itself is the third step and is set out in new Section 245B. The Government strongly agree with the Dearing Committee that that is the appropriate form of reserve power. It should be available to the Secretary of State, and he should also be able to authorise other bodies, as Dearing recommends. The civil procedure enables the court not only to declare that a company's accounts do not comply with the requirements of the Act but to require the directors to prepare revised accounts. Like Dearing, we see the power as one to be used sparingly. Nevertheless, it provides the underpinning of the whole framework and is extremely important on that count.
I referred a moment ago to the proposal that the civil sanction should also be available to a person authorised by the Secretary of State. New Section 245C sets that out: it does not in itself prescribe such persons; it is permissive. I believe that it is the right approach.
These are important changes. I believe that Sir Ronald has already made clear that he envisages that the review panel, when it is set up, should be given the power to apply to the courts to require a large company to revise its accounts where they do not provide a true and fair view.
I hope that with those explanations your Lordships will agree to the proposals.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)

AS AN AMENDMENT TO COMMONS AMENDMENT NO. 24
24A Line 7, after ("report") insert ("or any summary financial statement prepared under the provisions of section 252 below").
Lord Williams of Elvel: My Lords, 1 beg to move Amendment No. 24A. I gave notice to the noble Lord, Lord Trefgarne, that I was worried about this situation. In general, Amendment No. 24 is acceptable, but whereas Section 245 of the Companies Act gives directors of a company the ability to revise accounts or reports, they have no ability under that section to revise the summary financial statement. If they find it to be out of order, apparently they can do nothing. It has occurred to my advisers —and it seems to me to be a strong point —that the insertion of summary financial statements as being something which the directors could revise, if for some reason they find them out of order, would be sensible. For that reason I have put down the amendment.
It may be for the convenience of the House if I also speak to Amendments Nos. 24C and 24D, all in my name, which are purely consequential on Amendment No. 24A. I do not wish at this stage to

603
speak to Amendment No. 24B in the name of the noble Lord, Lord Lloyd of Kilgerran, because I wish to hear what he himself has to say before responding. I beg to move.
Moved, That Amendment No. 24A, as an amendment to Commons Amendment No. 24, be agreed to.—(Lord Williams of Elvel.)
Lord Trefgarne: My Lords, I shall reply, if I may, to Amendments Nos. 24A, 24C and 24D, but specifically at this point to Amendment No. 24A. These amendments would extend the provisions of the voluntary revision of accounts, as the noble Lord has explained, to summary financial statements. I shall explain why I believe that the change would lead to no improvement at all in the Bill.
As I explained in moving Amendment No. 24, the reason for providing for the voluntary revision of the full accounts and the directors' report in the statute is to enable such documents to be filed at Companies House as statutory accounts and to require such filing, to correct the public record. Without such a provision, the revised accounts would be left in limbo since it would not be possible for the registrar lawfully to substitute them for the accounts which have already been filed.
Summary financial statements are different in that they are not required by law to be sent to the registrar of companies. They are sent to those members who do not wish to receive the full accounts. The full accounts are still filed. There is nothing in the Bill which would prevent the directors of a company from revising and reissuing summary financial statements where, for example, they are concerned lest they are defective. They would of course have committed an offence by preparing defective summary statements in the first place.
These amendments are therefore not necessary to enable the provisions on summary financial statements to work properly. I hope that the noble Lord will, on reflection, agree with that. In essence that is the difficulty I see with the noble Lord's amendments, and I therefore hope that he will not press them.
Lord Williams of Elvel: My Lords, I am disappointed with the noble Lord's reply. Although summary financial statements do not have to be filed, and I understand that, nevertheless they will be sent out to many thousands of shareholders. Again, those shareholders may fail to opt for the full report and accounts. It should be brought to the attention of directors of the company that they may have the facility under the present legislation to change the summary financial accounts as they see fit.
However, if they see that the annual accounts of the company or the directors' report are defective in the Companies House filing sense of the term, they ought to change the summary financial accounts if they are inconsistent. I think that the amendment is needed to draw people's attention to the fact that shareholders will rely on information. It may not be wholly conclusive in making sure that the directors
604
do it, but it will certainly draw their attention to the matter if that happens.
Lord Trefgarne: My Lords, I was not proposing to intervene again but I hope that I have your Lordships' permission to do so, if I need it. The point is that if directors have to prepare new full accounts and to file them with the registrar, then it stands to reason that if a change is needed in the summary statement, they should make that change.
Lord Williams of Elvel: My Lords, with the leave of the House, is the noble Lord telling me that directors are obliged to change the summary financial statement, if they have to prepare new accounts for the registrar?
Lord Trefgarne: My Lords, again with the permission of the House, presumably in the circumstances which the noble Lord envisages, the summary financial statement would, by virtue of the new accounts, become inconsistent with the new accounts, and therefore the directors would wish to prepare a new one.
Lord Williams of Elvel: My Lords, again with the leave of the House—I apologise if there is a procedural problem but these are very important matters—the accounts may not be inconsistent. There may be defects in the annual report and accounts which are defects so far as the law is concerned, but they do not make the annual report and accounts inconsistent with the summary financial statement. That is the burden of my last amendment. They could be perfectly consistent but they may contain some mistakes which the directors might like to correct in the summary financial statement and which were not previously included, and therefore it was a defect in the report and accounts. I commend the amendment to your Lordships.
6.26 p.m.
On Question, Whether Amendment No. 24A, as an amendment to Amendment No. 24, shall be agreed to?
Their Lordships divided: Contents, 62; Not-Contents, 136.

DIVISION NO. 2

CONTENTS

Airedale, L.

Hutchinson of Lullington, L.

Amherst, E.

Irving of Dartford, L.

Ardwick, L.

Jay, L.

Aylestone, L.

Jeger, B.

Broadbridge, L.

Jenkins of Hillhead, L.

Callaghan of Cardiff, L.

Jenkins of Putney, L.

Carmichael of Kelvingrove, L.

Kennet, L.

Kilbracken, L.

Cledwyn of Penrhos, L.

Kirkhill, L.

Cocks of Hartcliffe, L.

Listowel, E.

Dean of Beswick, L.

Llewelyn-Davies of Hastoe, B.

Dormand of Easington, L.

Falkender, B.

Lloyd of Kilgerran, L.

Gallacher, L. [Teller.]

Lovell-Davis, L.

Galpern, L.

McIntosh of Haringey, L.

Glenamara, L.

Mackie of Benshie, L.

Grey, E.

Monson, L.

Hampton, L.

Nicol, B.

Hatch of Lusby, L.

Northfield, L.

Hirshfield, L.

Ogmore, L.

Houghton of Sowerby, L.

Oram, L.

605

Peston, L.

Taylor of Gryfe, L.

Ponsonby of Shulbrede, L. [Teller.]

Turner of Camden, B.

Underhill, L.

Prys-Davies, L.

Wallace of Coslany, L.

Rea, L.

Walston, L.

Rochester, L.

Wedderburn of Charlton, L

Seear, B.

Whaddon, L.

Serota, B.

White, B.

Shackleton, L.

Williams of Elvel, L.

Shepherd, L.

Willis, L.

Stoddart of Swindon, L.

Winstanley, L.

Strabolgi, L.

NOT-CONTENTS

Allenby of Megiddo, V.

Johnston of Rockport, L.

Alport, L.

Joseph, L.

Arran, E.

Kenilworth, L.

Ashbourne, L.

Killearn, L.

Astor, V.

Kimball, L.

Barber, L.

Kimberley, E.

Belstead, L.

Knutsford, V.

Blake, L.

Lindsey and Abingdon, E.

Blyth, L.

Liverpool, E.

Borthwick, L.

Long, V. [Teller.]

Boyd-Carpenter, L.

Lonsdale, E.

Brabazon of Tara, L.

Lucas of Chilworth, L.

Brookeborough, V.

Lyell, L.

Brougham and Vaux, L.

McColl of Dulwich, L.

Bruce-Gardyne, L.

Mackay of Clashfern, L.

Butterworth, L.

Macleod of Borve, B.

Caithness, E.

Mancroft, L.

Campbell of Alloway, L.

Margadale, L.

Campbell of Croy, L.

Marley, L.

Carnegy of Lour, B.

Merrivale, L.

Carnock, L.

Mersey, V.

Chelmer, L.

Morris, L.

Coleraine, L.

Mottistone, L.

Colnbrook, L.

Munster, E.

Colville of Culross, V.

Murton of Lindisfarne, L.

Colwyn, L.

Nelson, E.

Constantine of Stanmore, L.

Oppenheim-Barnes, B.

Cork and Orrery, E.

Orkney, E.

Crathorne, L.

Oxfuird, V.

Crawshaw, L.

Pender, L.

Crickhowell, L.

Peyton of Yeovil, L.

Davidson, V. [Teller.]

Rankeillour, L.

Denham, L.

Reay, L.

Dilhorne, V.

Redesdale, L.

Dundee, E.

Rees, L.

Eden of Winton, L.

Renton, L.

Elibank, L.

Rippon of Hexham, L.

Elles, B.

Rochdale, V.

Elliot of Harwood, B.

Rodney, L.

Elliott of Morpeth, L.

Rootes, L.

Elton, L.

Saltoun of Abernethy, Ly.

Faithfull, B.

Sanderson of Bowden, L.

Fanshawe of Richmond, L.

Shannon, E.

Fortescue, E.

Sharples, B.

Fraser of Carmyllie, L.

Shrewsbury, E.

Gardner of Parkes, B.

Skelmersdale, L.

Gibson-Watt, L.

Southborough, L.

Gisborough, L.

Stanley of Alderley, L.

Glenarthur, L.

Stockton, E.

Gormanston, V.

Stodart of Leaston, L.

Gray of Contin, L.

Strange, B.

Greenway, L.

Strathclyde, L.

Gridley, L.

Strathcona and Mount Royal, L.

Grimston of Westbury, L.

Haig, E.

Strathmore and Kinghorne, E.

Hailsham of Saint Marylebone, L.

Suffield, L.

Halsbury, E.

Swinfen, L.

Hardinge of Penshurst, L.

Thomas of Gwydir, L.

Harlech, L.

Thomas of Swynnerton, L.

Harmar-Nicholls, L.

Torphichen, L.

Harvington, L.

Tranmire, L.

Henley, L.

Trefgarne, L.

Hives, L.

Ullswater, V.

Hooper, B.

Vaux of Harrowden, L.

Hylton-Foster, B.

Wedgwood, L.

Ingrow, L.

Westbury, L.

606

Whitelaw, V.

Wynford, L.

Willoughby de Broke, L.

Young, B.

Wise, L.

Resolved in the negative, and Amendment No. 24A disagreed to accordingly.
6.34 p.m.

AS AN AMENDMENT TO COMMONS AMENDMENT NO. 24
24B Line 10, leave out inserted subsections (2) to (4).
Lord Lloyd of Kilgerran: My Lords, I wish, with the leave of the House, to make a personal statement in regard to Amendment No. 24B which stands in my name. Prior to hearing the noble Lord the Leader of the House, I had intended to move this amendment which suggests that certain parts of the new Clause inserted in the Bill should be put into the regulations rather than into the main Bill. I should say for the purposes of the record that there is a mistake in this amendment as it appears on the Marshalled List. I wish to delete subsections (2) to (4) and not subsections (2) to (5). I beg leave to withdraw the amendment.
Amendment No. 24B, as an amendment to Amendment No. 24, by leave, withdrawn.
[Amendments Nos. 24C and 24D not moved.]
On Question, Amendment No. 24 agreed to.

COMMONS AMENDMENTS
25 Clause 12, page 23, line 27, after 'year' insert —

(a) is exempt from the requirements of paragraph 36A of Schedule 4 (disclosure with respect to compliance with accounting standards), and

(b)'.

26 Page 23, line 36, leave out 'those exemptions' and insert 'the exemptions mentioned in subsection (1)'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 25 and 26. I shall speak at the same time to Amendments Nos. 41, 42 and 322.
This is the second group of amendments relating to the Dearing Report to which we have already referred. In line with the Dearing proposals the amendments require that the directors of public companies and large private companies state in their accounts whether those accounts have been drawn up in accordance with applicable accounting standards, to identify any material departures and to explain the reasons for such departures.
My department's consultation since the publication of the Dearing Report a year ago has shown an overwhelming majority of the 40 responses in favour of the proposal that there should be such a requirement, at least in relation to all large companies. Thirty-three gave outright support and three qualified approval. Well over half the responses favour applying this to all public companies and all large companies and this is the approach followed in the amendments. The requirement is expressed to apply to all companies that are not eligible to deliver modified accounts.
Amendment No. 41 also provides the basis on which the Government will be able to make grants to a body such as the Financial Reporting Council.

607
While it is principally for Sir Ronald to secure the commitment, financial and otherwise, to put the new structures into place, we have made clear that part of the cost will be met by a levy on companies, via the fee charged for the filing of the annual return. This amendment enables a grant equivalent to the proceeds of a levy to be paid to a body such as the Financial Reporting Council. I hope that I have adequately explained the amendments. I beg to move.
Moved, That the House do agree with the Commons in the said amendments.—(Lord Trefgarne.)
Lord Mottistone: My Lords, I wish to speak to Amendment No. 322. Your Lordships will be aware that I have been advised on this amendment by the CBI. I welcome the Government's proposals which I believe are fully in accord with the views of the CBI. I am told that the CBI welcomes the Government's undertaking to consult with the relevant interested parties on the issue of the funding of the Financial Reporting Council. The CBI looks forward to future discussions. It is considered that those who prepare and use accounts, not least the Government as a major preparer and user, should bear the cost.
Lord Peston: My Lords, these are obviously sensible amendments, but I have one question for the Minister. I speak as one who is not an accountant. We have accounting standards. Essentially, the requirement is to produce disclosure with respect to compliance with accounting standards. However, as a layman, I fail to understand what kind of circumstance would cause someone not to comply. Why is the requirement not mandatory, and why is there not a simple statement that everyone should produce accounts that comply with accounting standards full stop? Is there some subtle reason for voluntarism which I do not understand?
Lord Trefgarne: My Lords, this matter was discussed at great length at an earlier stage of the Bill. I am not sure whether the noble Lord took part at that time; I am afraid that I did not. I believe the House would be unduly wearied if I were to repeat all the arguments that were then deployed. However, if the noble Lord wishes, I shall be happy to write to him.
On Question, Motion agreed to.

COMMONS AMENDMENTS
27 Page 26, line 20, leave out '£2·4 million' and insert '£2 million net (or £2·4 million gross)'.
28 Page 26, line 21, leave out '£1·2 million' and insert '£1 million net (or £1·2 million gross)'.
29 Page 26, line 26, leave out '£9·6 million' and insert '£8 million net (or £9·6 million gross)'.
30 Page 26, line 27, leave out '£14·7 million' and insert '£3·9 million net (or £4·7 million gross)'.
31 Page 26, line 33, leave out from 'group' to end of line 35 and insert —
'In In relation to the aggregate figures for turnover and balance sheet total, "net" means with the set-offs and other adjustments required by Schedule 4A in the case of group accounts and "gross" means without those set-offs and
608
other adjustments' and a company may satisfy the relevant requirement on the basis of either the net or the gross figure.'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 27 to 31. This group of amendments gives companies two alternative ways of calculating whether or not they meet the conditions for a small-size or medium-size group under new Section 249, instead of one way as at present. I beg to move.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Strathclyde.)
Lord Peston: My Lords, I again have another layman's question. This seems to make sense, but I have a question. Although on and off I took part in the proceedings on this Bill, I become more and more convinced that I do not understand any of it. Can the noble Lord explain to me, net or gross of what?
Lord Trefgarne: My Lords, the original sum.
Lord Peston: My Lords, that leaves me even more mystified.
Lord Strathclyde: My Lords, if I may briefly explain: in order to qualify a group must meet two of three tests of size. These relate to the aggregate group figure for turnover and balance sheet totals and the number of group employees. The Bill in its original form would require those aggregate figures to be calculated on a gross basis—that is, without making the adjustments which would otherwise be required to prepare statutory consolidated accounts; in other words, without the usual elimination of intra-group transactions. This method has the attraction of simplicity. It should be permitted where the question is whether or not a group is exempt. The alternative of using a net basis would be wholly inappropriate in most cases. The noble Lord talks of gross or net; basically it is gross or net of intra-group transactions.
On Question, Motion agreed to.

COMMONS AMENDMENTS
32 Clause 13, page 27, line 1, leave out 'sections are' and insert 'section is'
33 Page 27, line 5, leave out from 'the' to 'in' in line 6 and insert 'provisions of this Part relating to the audit of accounts'.
34 Page 27, line 38, leave out from beginning to end of line 26 on page 28 and insert—
'(4) Where a company is, at the end of a financial year, exempt by virtue of this section from the provsiions of this Part relating to the audit of accounts —

(a) sections 238 and 239 (right to receive or demand copies of accounts and reports) have effect with the omission of references to the auditors' report;

(b) no copies of an auditors' report need be laid before the company in general meeting;

(c) no copy of an auditors' report need be delivered to the registrar, and if none is delivered, the copy of the balance sheet so delivered shall contain a statement by the directors, in a position immediately above the signature required by section 233(4), that the company was dormant throughout the financial year; and

609

(d) the company shall be treated as entitled in respect of its individual accounts for that year to the exemptions conferred by section 246 on a small company, notwithstanding that it is a member of an ineligible group.

(5) Where a company which is exempt by virtue of this section from the provisions of this Part relating to the audit of accounts—

(a) ceases to be dormant, or

(b) would no longer qualify (for any other reason) to make itself exempt by passing a resolution under this section,

it shall thereupon cease to be so exempt.".'.
35 Clause 14, page 28, line 39, leave out 'Great Britain and' and insert 'the United Kingdom and the Republic of.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 32 to 35 en bloc. I should point out that Amendment No. 33 has been corrected.
Moved, That the House do agree with the Commons in the said amendments.—(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
36 Clause 14, page 29, line 15, at end insert—
'(d) state whether the auditors' report on the annual accounts contained a statement under —

(i) section 236(2) (accounting records or returns inadequate or accounts not agreeing with records and returns), or

(ii) section 236(3) (failure to obtain necessary information and explanations),

and if so, set out the statement in full;'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 36. I have already spoken to this amendment.
Moved, That the House do agree with the Commons in the said amendment.—(Lord Trefgarne.)
[Amendment No. 36A, as an amendment to Commons Amendment No. 36, not moved.]
On Question, Amendment No. 36 agreed to.

COMMONS AMENDMENTS
37 Clause 17, page 31, line 45, leave out from beginning to end of line 39 on page 32 and insert—
'Special provisions for banking and insurance companies.
255.—(1) A banking or insurance company may prepare its individual accounts in accordance with Part I of Schedule 9 rather than Schedule 4.
(2) Accounts so prepared shall contain a statement that they are prepared in accordance with the special provisions of this Part relating to banking companies or insurance companies, as the case may be.
(3) In relation to the preparation of individual accounts in accordance with the special provisions of this Part relating to banking or insurance companies, the references to the provisions of Schedule 4 in section 226(4) and (5) (relationship between specific requirements and duty to give true and fair view) shall be read as references to the provisions of Part I of Schedule 9.
(4) The Secretary of State may, on the application or with the consent of the directors of a company which prepares individual accounts in accordance with the special
610
provisions of this Part relating to banking or insurance companies, modify in relation to the company any of the requirements of this Part for the purpose of adapting them to the circumstances of the company.
This does not affect the duty to give a true and fair view.
Special provisions for banking and insurance groups.
255A.—(1) The parent company of a banking or insurance group may prepare group accounts in accordance with the provisions of this Part as modified by Part II of Schedule 9.
(2) Accounts prepared shall contain a statement that they are prepared in accordance with the special provisions of this Part relating to banking groups or insurance groups, as the case may be.
(3) References in this Part to a banking group are to a group where —

(a) the parent company is a banking company, or

(b) at least one of the undertakings in the group is an authorised institution under the Banking Act 1987 and the predominant activities of the group are such as to make it inappropriate to prepare group accounts in accordance with the formats in Part I of Schedule 4.

(4) References in this part to an insurance group are to a group where —

(a) the parent company is an insurance company, or

(b) the predominant activity of the group is insurance business and activities which are a direct extension of or ancillary to insurance business.

(5) In relation to the preparation of group accounts in accordance with the special provisions of this Part relating to banking or insurance groups, the references to the provisions of Schedule 4A in section227(5) and (6) (relationship between specific requirements and duty to give true and fair view) shall be read as references to those provisions as modified by Part II of Schedule 9.
(6) The Secretary of State may, on the application or with the consent of the directors of a company which prepares group accounts in accordance with the special provisions of this Part relating to banking or insurance groups, modify in relation to the company any of the requirements of this Part for the purpose of adapting them to the circumstances of the company.
Modification of disclosure requirements in relation to banking company or group.
255B.—(1) In relation to a company which prepares accounts in accordance with the special provisions of this Part relating to banking companies or groups, the provisions of Schedule 5 (additional disclosure; related undertakings) have effect subject to Part III of Schedule 9.
(2) in relation to a banking company, or the parent company of a banking company, the provisions of Schedule 6 (disclosure: emoluments and other benefits of directors and others) have effect subject to Part IV of Schedule 9.
Directors' report where accounts prepared in accordance with special provisions.
255C.—(1) The following provisions apply in relation to the directors' report of a company for a financial year in respect of which it prepares accounts in accordance with the special provisions of this Part relating to banking or insurance companies or groups.
(2) The information required to be given by paragraph 6, 8 or 13 of Part I of Schedule 9 (which is allowed to be given in a statement or report annexed to the accounts), may be given in the directors' report instead.
Information so given shall be treated far the purposes of audit as forming part of the accounts.
(3) The reference in section 234(1)(6) to the amount proposed to be carried to reserves shall be construed as a reference to the amount proposed to be carried to reserves within the meaning of Part I of Schedule 9.
(4) If the company takes advantage, in relation to its individual or group accounts, of the exemptions conferred

611
by paragraph 27 or 28 of Part I of Schedule 9, paragraph 1 of Schedule 7 (disclosure of asset values) does not apply.
(5) The directors' report shall, in addition to complying with Schedule 7, also comply with Schedule 10 (which specifies additional matters to be disclosed).'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 37. I shall speak also to Amendments Nos. 38 to 40 and Nos. 367 to 372.
This series of amendments is perhaps more fearsome in length than in the nature of the changes it makes to the Bill. I shall comment briefly. Following the introduction of the Bill in your Lordships' House, my department held discussions with representatives of banking and insurance companies and the Bank of England on the detailed requirements of Clause 17 and the related Schedule 6. These followed earlier consultation in the course of the preparation of the Bill. Almost inevitably, on a topic such as this, a number of points of detail were raised. In making a relatively small number of changes in response to this, however, it was clear that the structure of this part of the Bill could be improved. The length of the amendments is very largely explained by that restructuring. I hope that that clear explanation will convince your Lordships.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)

AS AN AMENDMENT TO COMMONS AMENDMENT NO. 37
37A Leave out line 24.
6.45 p.m.
Lord Peston: My Lords, I beg to move Amendment No. 37A. There may be some confusion here in terms of counting lines, because the piece of paper that we have before us does not have the lines numbered. But I assert, until someone contradicts me, that line 24 is the line which states:
"This does not affect the duty to give a true and fair view".
I pause in case anybody counts in a different way, but that is my view. I hope that we are in agreement as to which line this amendment is about. At some time, I shall inquire of the great experts why we do not have line numbering on this occasion; but there we are.
Essentially the amendment is put down interrogatively. It seems to us that it is inconceivable that the purpose of Amendment No. 37, when it was introduced in another place by the Government, could in any way be interpreted to mean that it affects the duty to give a true and fair view. It is simply impossible that that could be the case. Therefore I can put it interrogatively. Although I find it inconceivable, I smell a rat. So may I be told, if it does affect the issue, why?
However, if I am right that it is impossible for this amendment, as the Government are introducing it, to affect the duty to give a true and fair view, then on our old principle of not having sentences in Bills which do not need to be there, particularly a sentence of this sort, my view is that it simply should not be
612
there. In other words, it seems to me something that the word processor left in the clause and somebody forgot to press the erase button. So I put it to noble Lords that either the sentence has a role which I do not believe it to have, or, much more significantly, it does not have a role and might just as well not be there.
Moved, That Amendment No. 37A, as an amendment to Commons Amendment No. 37, be agreed to. —(Lord Peston.)
Lord Lloyd of Kilgerran: My Lords, I can see the difficulty of the noble Lord, Lord Peston, because this amendment deals wih a clause providing special provisions for banking and insurance companies. Surely there is no suggestion that they are unlikely to give a true and fair view of anything in relation to these matters. What amazes me is that these matters have apparently been discussed very fully since we last met on this matter and this clause has been put in.
Subsection (3) of the amendment states, after the reference four lines down to Section 226(4) and (5),
"(relationship between specific requirements and duty to give true and fair view)".
Having regard to those words in parenthesis, I cannot for the life of me see why it is necessary to put this other line in the Bill.
Lord Williams of Elvel: My Lords, I apologise for not being here when my noble friend Lord Peston moved this amendment. I was at the birthday party of my noble friend Lady White. I hope that noble Lords will excuse me if I intervene on this amendment.
The problem is that either this sentence is otiose or it means something. If it means something, then it means that banks and insurance companies which make up their accounts, and have made up their accounts, by reference to certain schedules which allow them to put profits in reserve are duty bound to give a true and fair view. If that is the case, I do not understand how that can happen because, having been a director of a bank for a long time, I know perfectly well that any bank and some insurance companies can —we argued this point in Committee when the noble Lord, Lord Strathclyde, was present —put profits in reserve.
If that is the case, I do not see how a true and fair view can be presented. Normally, the audit report of a bank consists of a simple statement that the accounts of that banking company have been established in accordance with Companies Acts, and so on. If we now say that not only are such companies allowed to put profits in reserve and not disclose them to their shareholders, but are also to give a true and fair view, the two sentences are inconsistent.
Perhaps I may give an example. Let us suppose that a bank makes a profit of £100 million and decides quite reasonably under the provisions for banking and insurance companies to put £99 million into special reserve which it does not have to disclose. It discloses a profit of £1 million. By any reasonable standards, that is not a true and fair view; indeed, there has never been a true and fair view

613
requirement. This sentence either means something or it means nothing. If it means nothing, it should be taken out. If it means something, I shall be happy to hear what it means.
Lord Trefgarne: My Lords, I apologise if I was a little slow in rising to my feet. I hope that I can satisfy the noble Lord on this matter.
There is no connection between new Section 255(4), from which the noble Lord wishes to delete the words,
"This does not affect the duty to give a true and fair view,"
and the provisions of the 1985 Act which permit banks to maintain so-called hidden reserves. I should make it clear that new Section 255(4) simply re-enacts in slightly different words the provisions in Section 258(4) of the 1985 Act.
The provisions on hidden reserves are quite separate. They are not to be found in the Bill because we have not disturbed the 1985 Act on this point pending implementation of the bank accounts directive. They are contained in paragraph 27 of Schedule 9 of the 1985 Act which varies certain accounting requirements in the case of banks which satisfy the Secretary of State. The Bill does not amend those provisions. The noble Lord will see that there is a specific provision at sub-paragraph (4) which ensures that hidden reserves do not result in a banking company breaching the true and fair requirement. I hope I have satisfied the noble Lord on the point, and that he will not press his amendment.
Lord Williams of Elvel: My Lords, will the noble Lord refer me to the subsection that he mentioned? I did not quite catch what he said.
Lord Trefgarne: Of which Act, my Lords?
Lord Williams of Elvel: Of the Companies Act 1985, my Lords.
Lord Trefgarne: My Lords, with your Lordships' permission, perhaps I may say that I was referring to Section 258(4) of the 1985 Act.
Lord Williams of Elvel: My Lords, Section 258(4) of the 1985 Act refers to the Secretary of State who:
"may, on the application or with the consent of the company's directors, modify in relation to that company any of the requirements of this Chapter … (except the requirements of subsection (1) above)".
Section 258(1) states:
"Where a company's individual accounts are special category, section 228 and Schedule 4 do not apply, but —

(a) the balance sheet shall give a true and fair view of the state of affairs of the company as at the end of the financial year, and

(b) the profit and loss account shall give a true and fair view of the company's profit or loss for the financial year."

I cannot see where subsection (4) is relevant. I can see that subsection (1) may be relevant, but the definition of a true and fair view is quite different under this provision from what it is, so far as I can see, in normal working accounts. Given the example that I mentioned to the noble Lord, I cannot see how
614
putting £99 million out of £100 million in a reserve and not disclosing it can comply with the true and fair view requirement.
Lord Trefgarne: My Lords, if your Lordships will permit me to intervene yet again on this matter, perhaps I may be allowed to say that this is not a Committee stage and I fear that I shall unduly trespass on noble Lords' time if I intervene too frequently. If the noble Lord will forgive me, I do not think that I can embark upon a critique of a section of some other Act. I have referred the noble Lord to the section in question which I can confirm is the right one.
Amendment No. 37A, as an amendment to Amendment No. 37, negatived.
On Question, Amendment No. 37 agreed to.

COMMONS AMENDMENTS
38 Clause 17, page 32, line 39, at end insert—
'(2) The following section is inserted in Part VII of the Companies Act 1985 —'.
39 Page 33, line 6, leave out 'Part I of'.
40 Page 33, line 8, leave out subsections (3) to (5) and insert — '(3) In the Schedule—
Part I contains amendments relating to the form and content of accounts of banking and insurance companies and groups,
Part II contains provisions with respect to the group accounts of banking and insurance groups,
Part III contains provisions adapting the requirements of Schedule 5 to the Companies Act 1985 (additional disclosure: related undertakings), and
Part IV contains provisions relating to the requirements of Schedule 6 to that Act (additional disclosure: emoluments and other benefits of directors and others)'
(4) Schedule (Directors' report where accounts prepared in accordance with special provisions for banking and insurance companies and groups) to this Act (directors' report where accounts prepared in accordance with special provisions for banking and insurance companies and groups) is substituted for Schedule 10 to the Companies Act 1985.'.
41 After Clause 17 Under the heading 'Supplementary provisions' in page 33, line 17, insert the following Clause —
Accounting standards. 1985 c.6.
'The following section is inserted in Part VII of the Companies Act 1985, as the beginning of a Chapter III—
"CHAPTER III
SUPPLEMENTARY PROVISIONS
Accounting standards
255E. —(1) In this Part "accounting standards" means statements of standard accounting practice issued by such body or bodies as may be prescribed by regulations.
(2) References in this Part to accounting standards applicable to a company's annual accounts are to such standards as are, in accordance with their terms, relevant to the company's circumstances with—

(a) issuing accounting standards,

(b) overseeing and directing the issuing of such standards, or

(c) investigating departures from such standards or from the accounting requirements of this Act and taking steps to secure compliance with them.

(4) Regulations under this section may contain such transitional and other supplementary and incidental provisions as appear to the Secretary of State to be appropriate.".'.
42 Clause 18, page 33, line 19, leave out from '1985' to end of line 21.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 38 to 42 en bloc.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
43 Clause 18, page 34, line 6, leave out 'and' and insert —
'(bb) make consequential amendments of or repeals in other provisions of this Act, or in other enactments, and'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 43. I have already spoken to this amendment.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Strathclyde.)
On Question, Motion agreed to.
[Amendment No. 43A not moved.]

COMMONS AMENDMENT
44 Clause 18, page 34, line 7, after 'such' insert 'transitional and other'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 44.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
45 Clause 18, page 34, line 10, leave out '258' and insert `Schedule 10A'.
46 Clause 19, page 34, line 14, leave out 'sections are' and insert 'section is'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 45 and 46 en bloc. I shall speak also to Amendments Nos. 338, 345, 357 and 372A.
These amendments make one change to the definition of a subsidiary undertaking and related changes to the interpretation provisions presently found in Section 258 and now recast into a new schedule. Clause 19 and related provisions are a technical and complex part of the Bill, but nonetheless important since they determine whether or not a body falls to be treated as a subsidiary undertaking for the purposes of the accounting provisions in the Companies Act. A number of detailed points on the provisions were discussed when the Bill was last before the House.
The amendments remove ambiguities and close loopholes in the definition of a subsidiary undertaking to prevent companies from excluding bodies which they control from the consolidated accounts without justification. In doing that, care is taken not to bring within the definition bodies which
616
quite rightly should not be caught. I recognise that it is not easy to meet those twin objectives perfectly; but the clause, with those changes, goes a long way to meeting that objective. The result is certainly a significant improvement to an important provision within the Bill.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Strathclyde.)
Lord Lloyd of Kilgerran: My Lords, I thank the noble Lord quite simply but sincerely for his explanation because it helps to define subsidiary undertakings.
On Question, Motion agreed to.
7 p.m.

COMMONS AMENDMENT
47 Clause 19, page 34, line 18, leave out 'Act' and insert Tart'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 47. At the same time I shall speak to Amendments Nos. 51 to 75 en bloc. These amendments simply tidy up the minor definitions and index of defined terms in Clause 20. They do not make substantive changes to any of the definitions.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne).
Lord Peston: My Lords, I have a simple query which I think may be answered in a very straightforward way in reference to the definitions. Am I to understand that these are not changes in definitions in any way that is significant? However am I also to understand that where these definitions appear, they are all definitions that are known to and fully accepted by the accounting profession?
I ask the question because as an economist most of them seem fairly nonsensical in economics terms. I never expect economics and accounting to coincide; but it would be of some interest to me at least to be assured that the accounting profession has been fully consulted and that in its view the definitions make sense even though, as an economist, I could have a great deal of fun exposing their meaninglessness.
Lord Trefgarne: My Lords, I am happy to confirm for the noble Lord that these amendments are fully understood by the relevant experts.
On Question, Motion agreed to.

COMMONS AMENDMENTS
48 Clause 19, page 34, line 28, leave out from 'to' to 'the' in line 29 and insert 'exercise a dominant influence over'.
49 Page 35, line 9, at end insert —
'(6) Schedule 10A contains provisions explaining expressions used in this section and otherwise supplementing this section.'.
50 Page 35, line 10, leave out from beginning to end of line 45 on page 36 and insert —
'(2) Schedule (Parent and subsidiary undertakings: supplementary provisions) to this Act (parent and

617
subsidiary undertakings: supplementary provisions) is inserted after Schedule 10 to the Companies Act 1985, as Schedule 10A.'.
51 Clause 20, page 38, line 37, leave out 'Act' and insert 'Part'.
52 Page 39, line 8, at end insert —
"capitalisation", in relation to work or costs, means treating that work or those costs as a fixed asset;'.
53 Page 39, line 11, at end insert —
"'fixed assets" means assets of a company which are intended for use on a continuing basis in the company's activities, and "current assets" means assets not intended for such use;'.
54 Page 39, line 20, at end insert —
' "purchase price", in relation to an asset of a company or any raw materials or consumables used in the production of such an asset, includes any consideration (whether in cash or otherwise) given by the company in respect of that asset or those materials or consumables, as the case may be;'.
55 Page 39, line 33, at end insert —
' "turnover", in relation to a company, means the amounts derived from the provision of goods and services falling within the company's ordinary activities, after deduction of —

(i) trade discounts,

(ii) value added tax, and

(iii) any other taxes based on the amounts so derived'.

56 Page 39, line 35, leave out 'Act' and insert 'Part'.
57 Page 39, line 39, at end insert —
'(2A) References in this Part to "realised profits" or "realised losses", in relation to a company's accounts, are to such profits or losses of the company as fall to be treated as realised in accordance with principles generally accepted, at the time when the accounts are prepared, with respect to the determination for accounting purposes of realised profits or losses.
This is without prejudice to—

(a) the construction of any other expression (where appropriate) by reference to accepted accounting principles or practice, or

(b) any specific provision for the treatment of profits or losses of any description as realised.'.

58 Page 39, line 44, column 1, after 'accounting', insert 'reference' date and accounting'.
59 Page 39, line 44, at end insert—

'accounting standards and applicable accounting standards

section 255E'.

60 Page 39, leave out line 45 and insert—

'annual accounts (generally) (includes notes to the accounts)

section 262(1)

section 261(2)'.

61 Page 39, line 48, at end insert—

'balance sheet (includes notes)

section 261(2)'.

62 Page 39, leave out line 50 and insert—

'banking group

section 255A(3)'.

63 Page 39, line 50, at end insert—

'capitalisation (in relation to work or costs)

section 262(1)'

64 Page 39, leave out lines 52 and 53 and insert—

'current assets fellow subsidiary undertaking

section 262(1)

section 259(4)'.

65 Page 40, leave out lines 2 to 4 and insert—

'fixed assets

section 262(1)'.

66 Page 40, leave out lines 12 and 13 and insert—

'insurance group

section 255A(4)'.

67 Page 40, leave out lines 14 to 20 and insert—

'land of freehold tenure and land of leasehold tenure (in relation to Scotland)

—in Schedule 4

paragraph 93 of that Schedule

—in Schedule 9

paragraph 36 of that Schedule

lease, long lease and short lease

—in Schedule 4

paragraph 83 of that Schedule

—in Schedule 9

paragraph 34 of that Schedule

listed investment

paragraph 84 of that Schedule

—in Schedule 4

—in Schedule 9

paragraph 33 of that Schedule'.

68 Page 40, line 21, leave out '261' and insert '261(1)'
69 Page 40, line 22, column 2, leave out 'section' 257 and 258' and insert 'section 257 and Schedule 10A'
70 Page 40, leave out lines 29 to 32 and insert—

'profit and loss account (includes notes)

section 261(2)

(in relation to company not trading for profit) provision

section 262(2).

—in Schedule 4

paragraphs 88 and 89 of that Schedule

—in Schedule 9

paragraph 32 of that Schedule

purchase price

section 262(1).'.

71 Page 40, leave out lines 34 and 35 and insert—

'realised losses and realised profits

section 262(2A)'.

72 Page 40, line 35, at end insert—

'reserve (in Schedule 9)

paragraph 32 of that Schedule'.

73 Page 40, line 38, at end insert—

'special provisions for banking and insurance companies and groups

sections 255 and 255A'.

74 Page 40, line 39, column 2, leave out 'sections 257 and 258' and insert—

'section 257 and Schedule 10A'.

75 Page 40, leave not lines 41 and 42 and insert—

'turnover

section 262(1)'.

Lord Strathclyde: My Lords, I beg to move that this House do agree with the Commons in their Amendments Nos. 48 to 75 en bloc.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Strathclyde).
On Question, Motion agreed to.

COMMONS AMENDMENT
76 Clause 22, page 41, line 4, leave out from first 'The' to 'that' in line 5 and insert 'main purposes of this Part are to secure'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 76. At the same time I shall speak to Amendments Nos. 78, 79, 83 and 449.
These amendments adjust the boundary between matters which are subject to the special competition regime for auditing which is set up by the Bill and matters which remain subject to the general provisions of competition law. They were produced by the Government to meet concern that it was not

619
always as clear as might be what was covered by the Bill's regime and that in some respects the coverage of the Bill's regime seemed too wide. The chief effect of the amendments is that the competition regime in the Bill will no longer cover matters which are properly dealt with under competition law generally.
Moved, That the House do agree with the Commons in the said amendment —(Lord Strathclyde).
Lord Peston: My Lords, I take it that we are right in looking at the whole group of amendments and not just at Amendment No. 76. Again, I rise simply for my own interest and enlightenment. The noble Lord did not say why Amendment No. 78 was as it is. Since I cannot work out why it is as it is, I should simply like to know what Amendment No. 78 does. I take it that it does not do anything at all but I should like to be reassured on that point.
Lord Strathclyde: My Lords, I am delighted to enlighten the noble Lord. I am sure that none of our amendments does nothing at all. This amendment is no exception. It provides that the matters with which Clause 28(1) says that a supervisory body is concerned should include the eligibility of persons for company audit work rather than the persons so eligible. Clause 28(3) provides that references to rules of a supervisory body in Part II are to be interpreted as references to rules on, among others, the matters specified in Clause 28(1), and rules on these matters therefore fall to be considered under the competition regime. However, a body may have a rule which applies in relation to a person who is eligible for appointment as a company auditor but which has no bearing on his initial or continuing eligibility, and it is only rules on this narrower front which we think are relevant to the competition regime in the Bill.
I am sure that the noble Lord, Lord Peston, will wish to reflect on my words.
On Question, Motion agreed to.

COMMONS AMENDMENTS
77 Clause 22, page 41, line 10, leave out from beginning to first 'and' in line 11 and insert 'Chapter V of Part XI of the Companies Act 1985;'.
78 Clause 28, page 43, line 40, leave out 'persons eligible' and insert 'eligibility of persons'.
79 Page 44, line 3, leave out from 'enforce' to end of line 5 and insert 'and which are 'relevant for the purposes of this Part.
This includes rules relating to the admission and expulsion of members of the body, so far as relevant for the purposes of this Part.'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 77 to 79 en bloc.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
80 Clause 29 page, 44, line 15, leave out from 'was' to end of line 18 and insert 'by virtue of membership of a body recognised for the purposes of section 389(1)(a) of the Companies Act 1985 qualified for appointment as auditor of a company under that section immediately before 1st January 1990, and immediately before the commencement of section 23 above,'.
81 Page 44, line 24, leave out from 'before' to end of line 26 and insert '1st January 1990, and immediately before the commencement of section 23 above, was qualified for appointment as auditor of a company under section 389 of the Companies Act 1985 otherwise than by virtue of membership of a body recognised for the purposes of section 389(1)(a)—'.
82 Page 44, line 44, at end insert
'(4A) A person who—

(a) began before 1st January 1990 a course of study or practical training leading to a professional qualification in accountancy offered by a body established in the United Kingdom, and

(b) obtained that qualification on or after that date and before 1st January 1996,

shall be treated as holding an appropriate qualification if the qualificaton is approved by the Secretary of State for the purposes of this subsection.
(4B) Approval shall not be given unless the Secretary of State is satisfied that the body concerned has or, as the case may be, had at the relevant time adequate arrangements to ensure that the qualification is, or was, awarded only to persons educated and trained to a standard equivalent to that required in the case of a recognised professional qualification,'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 80 to 82 en bloc. These amendments concern the persons on whom the eighth directive allows us to confer approval to carry out audits. The directive, in Article 12, permits us to confirm the right to practise of those with existing rights, and this was provided for in Clause 29. However, we can only confer these so-called "grandfather rights" on persons who had the right to practise at the date at which the directive is to come into force; namely, 1st January 1990. Amendments Nos. 80 and 81 restrict the right to those persons.
The directive also allows us to approve persons who were in the course of studying for a qualification at the time the directive is to come into force. Amendment No. 82 now takes up this option in the directive. It follows the directive in limiting the concession to persons who obtain the qualification on or after 1st January 1990 and before 1st January 1996.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Trefgarne.)
Lord Peston: My Lords, again I wish simply to clarify Amendment No. 82. As I understand it, essentially the amendment deals with people who are in process of becoming qualified. Am I then to understand that after 1996 we revert to what one might call the normal way of doing things; namely, fully qualified people from then on will be capable of meeting these conditions? To put the question differently: there must be a significance to January 1996 but the world goes on after 1996. So does what happens after 1996 just become a normal arrangement, as it were?
Lord Trefgarne: My Lords, with the permission of the House, the new arrangement appears to confirm that one cannot be a student for ever.
On Question, Motion agreed to.

COMMONS AMENDMENT
83 Clause 30, page 45, leave out lines 6 to 12 and insert 'which the body has power to enforce and which are relevant for the purposes of this Part.
This includes rules relating to —

(a) admission to or expulsion from a course of study leading to a qualification,

(b) the award or deprivation of a qualification, or

(c) the approval of a person for the purposes of giving practical training or the withdrawal of such approval,

so far as relevant for the purposes of this Part.'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 83.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENT
84 Clause 30, page 45, line 15, leave out from beginning to 'to' in line 16 and insert 'all or any class of persons holding or seeking to hold a qualification, or approved or seeking'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 84. This brings the definition of what is "guidance" issued by a qualifying body into line with the definition of a supervisory body's "guidance" in Clause 28.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
85 Clause 33, page 46, line 24, leave out from first 'The' to 'a' in line 25 and insert 'Secretary of State shall make regulations requiring the keeping of.
86 Page 46, line 26, leave out 'under their rules'.
87 Page 46, leave out line 30 and insert 'The regulations shall provide that each person's entry in the register shall give —'.
88 Page 46, line 34, leave out from 'as' to end of line 35 and insert 'may be specified by the regulations'.
89 Page 46, line 36, leave out subsections (3) to (5) and insert— '(3) The regulations may impose such obligations as the Secretary of State thinks fit —

(a) on recognised supervisory bodies,

(b) on persons eligible for appointment as company auditor, and

(c) on any person with whom arrangements are made by one or more recognised supervisory bodies with respect to the keeping of the register.

(4) The regulations may include provision —

(a) requiring the register to be open to inspection at such times and places as may be specified in the regulations or determined in accordance with them,

(b) enabling a person to require a certified copy of an entry in the register, and

622

(c) authorising the charging of fees for inspection, or the provision of copies, of such reasonable amount as may be specified in the regulations or determined in accordance with them;

and may contain such other supplementary and incidental provisions as the Secretary of State thinks fit.
(5) Regulations under this section shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.
(6) The obligations imposed by regulations under this section on such persons as are mentioned in subsection (3)(a) or (c) are enforceable on the application of the Secretary of State by injunction or, in Scotland, by an order under section 45 of the Court of Session Act 1988.'.
90 Clause 34, page 47, line 1, leave out from beginning to first 'the' in line 2 and insert 'The Secretary of State shall make regulations requiring recognised supervisory bodies to keep and make available to the public'.
91 Page 47, line 3, leave out 'its' and insert 'their'.
92 Page 47, line 7, at end, insert 'and such other information as may be specified in the regulations'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 85 to 92 en bloc. At the same time I should like to speak to Amendments Nos. 94, 104, 107 and 425. These amendments concern the information which recognised supervisory bodies are to be required to make available to the public. Noble Lords criticised the original approach in the Bill, which was that the bodies should be under a joint duty to maintain a register of company auditors. Some of the prospective recognised bodies felt that difficulties might arise if the bodies failed to agree. They suggested that each of the recognised supervisory bodies should be required to maintain a register.
The amendments replace the existing provisions in Clauses 33 and 34 with a power enabling the Secretary of State to make provision for the matters with which the clauses are concerned by regulations. In view of the professional bodies' responsibility for maintaining the register, we intend to make regulations along the lines that the Institutes of Chartered Accountants propose; that is to say, each recognised supervisory body will be required to maintain a register, required to co-operate in sharing the information in their possession, and required to make available the information described in Clause 34 in respect of those company auditors who are their members. We also intend that the regulations should require persons eligible for appointment as company auditor to use the title of registered auditor when signing company audit reports. This requirement would be enforced through the rules of a recognised supervisory body.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Trefgarne.)
Lord Williams of Elvel: My Lords, have the Government given up on the idea of a joint register? It is a matter that occupied our attention for some time when the Bill was before your Lordships' House. Have the institutes failed to find any formula? If not, how are the Government proposing to make regulations to achieve a joint register, which is obviously the right system to have?

623
We had discussions on the name, registered auditor, in Committee. Is this a requirement of the directive or have the Government in their regulatory mood decided to put it in the Bill?
Lord Trefgarne: My Lords, before making regulations we shall of course discuss the matter further with professional bodies to see whether a way acceptable to the professional bodies could be found whereby they could share the task of maintaining the register. However, for the present such agreement is not apparent and therefore we must make the provision for the individual registers as these clauses do.
On Question, Motion agreed to.

COMMONS AMENDMENT
93 Page 47, line 8, leave out subsections (2) to (4) and insert—
'(2) The regulations may impose such obligations as the Secretary of State thinks fit —

(a) on recognised supervisory bodies,

(b) on persons eligible for appointment as company auditor, and

(c) on any person with whom arrangements are made by one or more recognised supervisory bodies with respect to the keeping of information.

(3) The regulations may include provision —

(a) requiring that the information be open to inspection at such times and places as may be specified in the regulations or determined in accordance with them,

(a) requiring that the information be open to inspection at such times and places as may be specified in the regulations or determined in accordance with them,

(b) enabling a person to require a certified copy of the information or any part of it, and

(c) authorising the charging of fees for inspection, or the provision of copies, of such reasonable amount as may be specified in the regulations or determined in accordance with them;

and may contain such other supplementary and incidental provisions as the Secretary of State thinks fit.
(4) The regulations may make different provision in relation to different descriptions of information and may contain such other supplementary and incidental provisions as the Secretary of State thinks fit.
(5) Regulations under this section shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.
(6) The obligations imposed by regulations under this section on such persons as are mentioned in subsection (2)(a) or (c) are enforceable on the application of the Secretary of State by injunction or, in Scotland, by an order under section 45 of the Court of Session Act 1988.'.
Lord Trefgarne: My Lords, I beg to move.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
Lord Williams of Elvel: My Lords, will the noble Lord first answer the question that I asked about the name of registered auditors? He did not answer it. I asked a question when we were discussing the last group of amendments. It was whether the name "registered auditors" was required by the directive or whether it was a matter that the Government had put in.
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I find Amendment No. 93 gives governments enormous powers. I know that the Government are intent on regulating everything. But I cannot understand why the Government should produce an amendment which allows the Secretary of State under negative procedure to impose obligations as he thinks fit,
"on recognised supervisory bodies, on persons eligible for appointment as company auditor, on any person with whom arrangements are made",
and so on. I find the procedure another cop out.
I am speaking to Amendment No. 93. However, I should perhaps have waited until the noble Lord the Deputy Speaker had asked me to speak to Amendment No. 93A.
7.15 p.m.

AS AN AMENDMENT TO COMMONS AMENDMENT No. 93
93A Leave out lines 23 to 25 and insert —
("(5) Regulations under this section shall not be made unless a draft of them has been laid before and approved by resolution of each House of Parliament.").
Lord Williams of Elvel: My Lords, I apologise to the House and to the noble Lord the Deputy Speaker for being out of order. I hope that the House will forgive me. It is extremely difficult when we have these very complex grouped amendments to follow the right procedure. I thought that I was reasonably expert in the procedure of the House. However, I apologise that I was out of order.
I beg to move Amendment No. 93A standing in my name and which requires the affirmative procedure for the provisions mentioned under Commons Amendment No. 93. I do not wish to go over the arguments that I have deployed previously. As a matter of principle, the concept of regulations which the Secretary of State may issue as he thinks fit, simply because the Government have nothing that they can put into the primary statute, is one to which I object. The powers under negative procedure to impose obligations on the Institute of Chartered Accountants, or anybody else who is eligible for appointment as company auditor, or regulations which may include provision for anything whatsoever—including the kitchen sink —are a matter to which noble Lords, as Members of a revising House, ought to pay a little more than passing attention. It is for that reason that I put down my amendment. I beg to move.
Moved, That Amendment No. 93A, as an amendment to Commons Amendment No. 93, be agreed to. —(Lord Williams of Elvel.)
Lord Rippon of Hexham: My Lords, I intervene briefly —usually hopelessly —simply to say that I entirely endorse what the noble Lord, Lord Williams of Elvel, has said about the excessive use of regulations because the Government are unable to draft the primary legislation in a satisfactory form, although it runs into hundreds of pages.
This is a matter of principle which is objected to by many people on both sides of the House. It arises time after time. I do not know what we are going to do about it. We are getting very close to a government

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of which either Oswald Mosley or Stafford Cripps might well have been very proud.
Lord Lloyd of Kilgerran: My Lords, whenever one sees that regulations are to be produced by the Secretary of State one is at least naturally cautious. I follow the noble Lord, Lord Rippon, in supporting what the noble Lord, Lord Williams, has said.
Lord Trefgarne: My Lords, I hope my noble friend will not mind my saying that I did not too much care for the last sentence of his intervention a moment ago.
The Government are always ready to consider arguments from your Lordships that regulation-making powers should be subject to the positive rather than the negative resolution procedure. I have already explained that our present intention is that the regulations and the register covered by Clause 33 should be along the lines that the Institute of Chartered Accountants have proposed. It may be helpful if I say why we think that it would be better not to set down the precise arrangements in the Bill, but rather give some scope for a different approach to be adopted, if that were thought to be desirable by those responsible for maintaining the register and the information mentioned in Clause 34.
It may be that once the potential, recognised supervisory bodies get down to the detailed arrangements for maintaining the register they will decide that it would be better if they worked together in running a single register or perhaps set up a single body to run it on their behalf. As we know, the Institute of Chartered Accountants had difficulty with our original suggestion that the maintenance of the register ought to be a joint responsibility. However, I think that everyone recognises that it would be best if we could avoid the duplication which the institute's alternative suggestion involves.
If that were so, it may be that they would wish the body also to hold in one place the information presently covered by the requirements in Clause 34. I note that it is only regulations under that clause, and not Clause 33, which the noble Lord wishes to make subject to the negative resolution procedure. In order to permit this change of approach we have also decided to make the requirements as to information in Clause 34 equally capable of being prescribed in regulations.
It will be apparent from what I have said that all that we are concerned with in these regulations is essentially the form and place of holding the information. On this, we are ourselves happy to be guided by what is the consensus among the potentially recognised bodies. After all, they will be responsible for maintaining the information. I cannot believe that each House should automatically have to give positive resolution in favour of regulations merely setting out the mechanics of exactly how the bodies are to maintain the information. It is surely right that the presumption should be that the regulations will be approved unless a noble Lord or a Member of another place wishes to object. I hope therefore that your Lordships will
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not be persuaded by the arguments that we have heard.
I hope that my noble friend will now recognise that there is no sinister purpose in the regulation-making powers that we propose in this case and that indeed the last sentence of his earlier intervention was inappropriate.
Lord Williams of Elvel: My Lords, the noble Lord was critical of the fact that I did not seek to make the regulations under Clause 33 subject to affirmative procedure, but concentrated on Clause 34.
Clause 34 has as it rubric:
"Information about firms to be available to the public".
The clause as drafted states:
"A recognised supervisory body shall keep available at its registered or principal office the following information with respect to the firms eligible under its rules for appointment as a company auditor".
If the Secretary of State is to be allowed to make whatever regulations he feels fit regarding the disclosure of information about firms to be available to the public, it is quite a different matter to that of whether they should be on the register of auditors. We are talking about information about firms. It may happen that the Secretary of State decides to publish the names of all the divorced wives of the partners. If he thinks fit, he is entitled to do so under negative procedure. I find that offensive.
I am grateful to the noble Lord, Lord Rippon of Hexham, because for some time he and I have seen eye to eye on this type of matter. Amendment No. 33 is fine because we can argue about whether it should be subject to affirmative or negative resolution. However, the subject of this amendment needs discussion in this House and in another place before any Secretary of State issues regulations regarding information about firms to be made available to public. That is the point that I am making.
Lord Rippon of Hexham: My Lords, I may have spoken strongly and offended my noble friend. However, he will recall that both Sir Oswald Mosley and Sir Stafford Cripps believed strongly that there should be skeletal legislation and as much government by order and regulation as conceivably possible. It may be that his particular regulation is not unduly sinister, but it is the generality of such provisions in statute after statute that I find objectionable. It is on that principle that I support the comments of the noble Lord, Lord 'Williams of Elvel.
7.22 p.m.
On Question, Whether Amendment No. 93A, as an amendment to Commons Amendment No. 93, shall be agreed to?
Their Lordships divided: Contents, 39; Not-Contents, 86.

DIVISION NO. 3

CONTENTS

Airedale, L.

Monson, L.

Blease, L. [Teller.]

Nicol, B.

Blyth, L.

Ogmore, L.

Butterfield, L.

Peston, L.

Carmichael of Kelvingrove, L.

Prys-Davies, L.

Ripon, Bp.

Cocks of Hartcliffe, L.

Rippon of Hexham, L.

David, B.

Seear, B.

Dean of Beswick, L.

Serota, B.

Dormand of Easington, L.

Shepherd, L.

Ewart-Biggs, B.

Strabolgi, L.

Gallacher, L. [Teller.]

Taylor of Blackburn, L.

Galpern, L.

Taylor of Gryfe, L.

Hanworth, V.

Taylor of Mansfield, L.

Hatch of Lusby, L.

Underhill, L.

Houghton of Sowerby, L.

Wedderburn of Charlton, L.

Jenkins of Putney, L.

Whaddon, L.

Kinloss, Ly.

White, B.

Lloyd of Kilgerran, L.

Williams of Elvel, L.

Mackie of Benshie, L.

Winstanley, L.

NOT-CONTENTS

Arran, E.

Kimball, L.

Astor, V.

Lindsey and Abingdon, E.

Barber, L.

Lonsdale, E.

Belstead, L.

Lucas of Chilworth, L.

Blake, L.

Lyell, L.

Borthwick, L.

McColl of Dulwich, L.

Brabazon of Tara, L.

Mackay of Clashfern, L.

Brookeborough, V.

Macleod of Borve, B.

Brougham and Vaux, L.

Merrivale, L.

Butterworth, L.

Mersey, V.

Caithness, E.

Morris, L.

Carnegy of Lour, B.

Mottistone, L.

Carnock, L.

Mountevans, L.

Carr of Hadley, L.

Munster, E.

Colville of Culross, V.

Murton of Lindisfarne, L.

Colwyn, L.

Nelson, E.

Cork and Orrery, E.

Oxfuird, V.

Cox, B.

Rankeillour, L.

Crathorne, L.

Reay, L.

Davidson, V. [Teller.]

Redesdale, L.

Denham, L. [Teller.]

Rochdale, V.

Dundee, E.

Sharples, B.

Elles, B.

Shrewsbury, E.

Elliott of Morpeth, L.

Skelmersdale, L.

Faithfull, B.

Southborough, L.

Ferrers, E.

Stanley of Alderley, L.

Fortescue, E.

Stockton, E.

Fraser of Carmyllie, L.

Strange, B.

Gibson-Watt, L.

Strathclyde, L.

Gisborough, L.

Strathmore and Kinghorne, E.

Glenarthur, L.

Gray of Contin, L.

Suffield, L.

Gridley, L.

Swinfen, L.

Grimston of Westbury, L.

Thomas of Gwydir, L.

Haig, E.

Thomas of Swynnerton, L.

Hardinge of Penshurst, L.

Torrington, V.

Harlech, L.

Tranmire, L.

Harmar-Nicholls, L.

Trefgarne, L.

Harvington, L.

Ullswater, V.

Henley, L.

Vaux of Harrowden, L.

Hives, L.

Vinson, L.

Home of the Hirsel, L.

Westbury, L.

Johnston of Rockport, L.

Wynford, L.

Joseph, L.

Resolved in the negative, and Amendment No. 93A disagreed to accordingly.
7.29 p.m.
On Question, Amendment No. 93 agreed to.
Viscount Ullswater: My Lords, I beg to move that further consideration of Commons amendments be adjourned until 8.30 p.m.
Moved accordingly and, on Question, Motion agreed to.

Northern Ireland (Emergency Provisions) Act 1978 (Amendment) Order 1989
7.30 p.m.
The Parliamentary Under-Secretary of State Northern Ireland Office (Lord Skelmersdale): rose to move, That the order laid before the House on 23rd August be approved. [28th Report from the Joint Committee]
The noble Lord said: My Lords, I beg to move the first Motion standing in my name on the Order Paper.
The effect of this order is to make blackmail a scheduled offence under the Northern Ireland (Emergency Provisions) Act 1978. It is unusual in that the order came into effect on 24th August by executive action of my right honourable friend but under the 1978 Emergency Provisions Act it has to be approved by both Houses of Parliament within 40 days otherwise it lapses.
The House will be aware of the background. The authorities in Northern Ireland face a very serious problem, additional but also related to that of terrorism, of paramilitary and other kinds of racketeering. It takes a variety of forms, and affects a range of industries and occupations. The building and entertainment industries have been particular targets. We know only too well that building contractors are regularly intimidated by paramilitaries seeking to extort financial benefit from their contracts.
Your Lordships may recall the 1987 "Cook Report" programme "Worse than the Mafia" in which the journalist Roger Cook, posing as a business financier, was approached by two men in a car park in Craigavon who sought to extort so-called "protection" money from him; their conversation was recorded by Mr. Cook and as a result of his considerable courage—to which the trial judge justly paid tribute—those individuals, and a number of others, were arrested and successfully prosecuted with conspiracy to intimidate and blackmail. The witnesses in that case gave exceptionally strong evidence against the accused at great personal risk to themselves.
In the entertainment industry, Northern Ireland has recently seen a number of serious instances where visiting entertainment groups have been approached by paramilitaries seeking to extort money from them. At the end of October, for instance, a large Hallowe'en funfair, which was due to be held in Belfast, had to be cancelled when paramilitaries demanded protection money from the organisers. The organisers I believe lost a considerable amount of money and the enjoyment of thousands of families was ruined.
That is the general background to this order. Indeed, new instances of this particularly vicious type of activity, which casts such a serious blight over whole sectors of Northern Ireland's economy,

629
come to light almost every week. But there is also another kind of intimidation with which Northern Ireland is only too familiar: that is the intimidation of jurors and witnesses more widely. It has been a matter of considerable concern to the prosecuting authorities that cases which involve blackmail should be open to trial before juries, so exposing jurors to considerable personal risk and jeopardising prosecutions. It was in view of that concern, and following a number of recent court cases involving charges of blackmail and intimidation, that the Secretary of State for Northern Ireland made the order on 17th August by the urgent procedure laid down by Section 32(3) of the Emergency Provisions Act 1978. That procedure allows an order to come into effect immediately, but it is then subject to approval by both Houses within 40 sitting days. The Secretary of State believed that further delay in ending this legislative anomaly would be wrong and would be contrary to the public interest.
In one respect, the order simply remedies an anomaly in the legislation and follows the recommendations of my noble friend Lord Colville in his reports on the operation of the emergency provisions Acts in 1987 and 1988. As your Lordships will be aware, scheduled offences are those offences which are tried in Northern Ireland by the Crown Court sitting without a jury, unless they are certified out by the Attorney-General. The intention was to make blackmail a scheduled offence back in 1987. For technical reasons the relevant legislation has however never been commenced, and until August this year, blackmail remained unscheduled. The prosecuting authorities in Northern Ireland have therefore been faced either with bringing cases of blackmail before a jury, or of dropping the blackmail charge altogether, and charging intimidation instead. The offence of intimidation —which was and is a scheduled offence —carries a maximum penalty of five years' imprisonment; that of blackmail, 14 years. There is of course a very real difference between the deterrent and practical effects of these sentences.
The order removes an anomaly which was giving real difficulties to the authorities in dealing with blackmail cases. Although the offence of blackmail is now scheduled, individual cases may be certified out by the Attorney-General where there appears to be no terrorist or paramilitary involvement. I beg to move.
Moved, That the order laid before the House on 23rd August be approved. [28th Report from the Joint Committee] —(Lord Skelmersdale.)
Lord Prys-Davies: My Lords, as the Minister has explained, this brief order gives effect to a recommendation made by the noble Viscount, Lord Colville of Culross, when he reviewed in 1987 and again in 1988 the operations of the emergency provisions Act.
I read the report of the noble Viscount. He tells us how the police complained to him that blackmail was not an offence specified in Schedule 4 of the emergency provisions Act 1978 and the noble Viscount thought that was really absurd. In the result, the police in Northern Ireland had to use that substitute and lesser charge of intimidation.
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By virtue of this order the offence of blackmail will be inserted in Schedule 4. With that amendment we are entirely in accord. However, we recall that the noble Viscount, Lord Colville, also recommended in the 1988 review that a procedure for handling scheduled offences should be reversed. The Minister has touched upon the procedure of certifying out rather than certifying in. The noble Viscount recommended that the Attorney-General should adopt a system of certifying cases in for trial. When we say that, we mean in for trial by a Diplock court rather than the present arrangement of certifying out, provided of course that there is no evidence of a paramilitary connection.
The noble Viscount (who I see is in his place) argued that such a change would have a value as a statement of priorities. It would be a signal that the Government were committed to returning to as much judicial normality as possible so that the emergency provisions should be limited to the minimum essential.
We on these Benches deeply regret that that recommendation has not as yet been accepted by the Government. I wonder whether the Minister can give the House an indication of why it has not been accepted or whether it is still under active consideration. However, with those few comments on behalf of these Benches we warmly support the order.
Lord Skelmersdale: My Lords, I shall just respond to that specific point made by the noble Lord, Lord Prys-Davies. We have no plans at present to allow an order allowing certifying in. I have no doubt that my noble friend Lord Colville will be considering scheduled offences, Diplock courts and so on in his enhanced review of the emergency provisions Act. We are still giving active serious consideration to certifying in as my right honourable friend the previous Secretary of State said in the emergency provisions Act renewal debate back in March of this year. However, there is no decision yet as to the result of that active serious consideration.
On Question, Motion agreed to.

Youth Service (Northern Ireland) Order 1989
7.40 p.m.
Lord Skelmersdale Lord Skelmersdale rose to move, That the draft order laid before the House on 25th July be approved.
The noble Lord said: My Lords, this draft order makes provision for the creation of a Youth Council for Northern Ireland with advisory functions and executive powers. It will replace the existing Youth Committee and, together with the existing Youth Forum and Standing Conference of Youth Organisations, representing the interests of young people and major voluntary youth organisations in Northern Ireland, will combine to provide an effective top tier of management for the youth service.
The decision to create a Youth Council with these functions was one of a package of measures announced by government in response to a major review of the youth service, which was launched in 1986. The review was initiated by the Department of Education at the request of the youth service community, whose lobbying had encouraged the Education Committee of the Northern Ireland Assembly to report on some aspects of the service. During the extensive consultative stage of the review, there was a wide degree of support from both statutory and voluntary youth organisations, among other issues, that a restructured upper tier of the service offered the most effective means by which the service could be developed through the 1990s and beyond. The draft order seeks to create that structure.
The new Youth Council will benefit greatly from the important contribution made by the Youth Committee, whose term of office expired on 30th June 1989. I should like to take this opportunity to pay my own tribute to the valuable service which the chairmen and members of that committee have given over the years and in particular to their keen interest in the welfare of young people.
The House may find it helpful if I briefly outline the structure and extent of the youth service and the respective roles which the Youth Council and government will play in the future.
The youth service in Northern Ireland is composed of a statutory and voluntary sector. The statutory sector is under the control of education and library boards and consists of some 190 youth clubs and 21 residential centres. The main roots of the youth service are, however, firmly embedded in the voluntary sector, which comprises over 2,000 youth units attracting a membership in the order of 150,000 young people. These are supported by about 275 full-time youth workers and about 2,000 part-time paid workers and 12,000 volunteers. In financial terms the overall cost of support given by government to the youth service amounted, in the last financial year, to over £10 million.
Within the revised structure the Department of Education will retain overall responsibility for youth service policy in Northern Ireland. It will make an annual grant to the Youth Council and will make grants available to voluntary organisations for capital provision and persons undertaking approved courses of training or retraining. The Youth Council will take on the advisory and co-ordinating roles of the existing Youth Committee and will assume, from the department, responsibility for the payment of grants to various youth headquarter bodies. As part of its managerial role it will promote and encourage cross-community activity within the new curriculum of the youth service and will take the lead in encouraging enterprise, self-help and self-determination among young people.
While I do not think it would be very profitable to go through the articles one by one I should like to highlight a change —if I did not, I am sure that the noble Lord, Lord Prys-Davies, would —which has been made to Article 5 of the proposal, as a
632
result of recommendations from interested bodies thrown up during the consultation period.
Article 5 of the proposal contemplated that the net approved expenditure of the Youth Council would be met by the department after it had been incurred. A number of respondents to the published proposal took the view that this level of financial control could serve to limit the council's effectiveness of action. The department has accepted the representations and Article 5 of the draft order confers on the Youth Council grant-in-aid status. This will enable it to determine its own financial priorities within a total annual grant and to carry forward to the following financial year, within limits, unexpended balances of grant and funds attracted from other sources.
The provision of a Youth Council with its own secretariat marks a significant step forward in the central management of the youth service in Northern Ireland and I commend the draft order to the House. I beg to move.
Moved, That the draft order laid before the House on 25th July be approved. —(Lord Skelmersdale.)
Lord Prys-Davies: My Lords, I thank the Minister for explaining the provisions of this order. Although we welcome the order, I propose to spend a little time in commenting on some of its provisions. I do so partly in order to obtain clarification and information, and partly in order to illustrate once again the inadequacy of the Order in Council procedure.
This order, we submit, is long overdue. Can the Minister explain why it was not introduced well before last June when the advisory committee for Northern Ireland was wound up? The Province has been without a central youth forum for almost five months. Why should that be so? Is that fair to the youth organisations in Northern Ireland?
The Minister has not given the House an indication of when this order will be implemented. Can he tell the House when the Youth Council will be set up and when the members will be appointed? Can he give us an indication of the approximate date when the council will hold its first meeting? Are we thinking of next January, next March or next June on the anniversary of the winding up of the Youth Committee? There is considerable unease in Northern Ireland that they have been left without a central youth forum for five months and even now they do not know when the Youth Council will be operational.
I turn to the provisions of the order. We are pleased on this side of the House to agree and to go along with the functions which are to be vested in the council. We note that it will not be a purely advisory body. We welcome in particular a duty to encourage cross-community activity by the youth services in Northern Ireland.
Having said that, there are a number of puzzling features about this order. For example, I am puzzled that the Youth Council may only receive donations with the approval of the department. That is an odd state of affairs. If the council is offered a donation —perhaps 1,000 or even £1,000 —free of

633
conditions, why can that not be accepted without first having to obtain the prior approval of the Department of Education? It seems to me to be a pretty absurd requirement. If the donation were made subject to conditions there might be a case for obtaining approval; but the order makes clear that the consent of the department must be obtained before the council can accept a donation.
If this order had been introduced as a Bill, we would have tested the wording of, for example, Articles 4(3)(b) and 4(3)(c). It seems to me to have been too narrowly drawn. Thus, we would have attempted to insert the word "lectures" or the words "fund raising activities" in Article 4(3)(b).
Lord Skelmersdale: My Lords, I do not want to interrupt the noble Lord, but did he say "lecherous"?
Lord Prys-Davies: My Lords, I said "lectures". I am not lecturing the House on that. Again, we would have attempted to insert the word "film" in Article 4(3)(c). These are small points but they are matters that we could have tested had this order been subject to a Bill procedure.
Turning to the constitution of the council which is to be found in the schedule, I cannot help observing that the duration in office of the chairman and vice-chairman is not specified. Why is that? Why should it not be specified? Will the Minister help us and the people of Northern Ireland by telling the House for how long they are to hold office? These are pretty straightforward questions. Are they to hold office for three, four, five or 10 years or otherwise? I would not expect this point to be covered in the order, but it is something on which we could seek guidance in Committee. Can the Minister tell us what salaries will be paid to the chairman and vice-chairman respectively?
I turn to the membership of the council. There is nothing in the order about the total membership. Can the Minister tell the House what it will be? We are also particularly interested to learn what proportion of the total membership will be drawn from the district councils, the education and library boards and from the voluntary sectors respectively. Is it envisaged that at least one-half of the membership will be drawn from the voluntary sector? Would that be a reasonable assumption to make? We would welcome guidance on the membership and the sectors from which it is to be drawn.
I very much welcome what the Minister had to say about Article 5. Nevertheless, we on this side of the House are still uneasy about the relationship between the Youth Council, the Department of Education and the Civil Service head of that department as set out in the order. There is no reference in the order to the poor Minister; the relationship is between the department and the Civil Service head of that department.
I have gone very quickly through the order and I cannot help but observe that at least the following powers have been reserved to the department or the head of the department. There is the right to veto a candidate on the shortlist for the key post of chief officer of the council. Is it fair to the council that
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the department should have the right to veto a candidate for the shortlist regarding this, key post? Again, I cannot help but observe that the department has reserved to itself the right to make directions relating to the employment of staff by the council. Will there be a direction about the appointment of the doorman or the secretaries? How wide will this reservation be and why should it be necessary?
The department has even reserved to itself the right to make directions governing the appointment of a committee. I have already noted that this council cannot accept a donation without the approval of the department. These powers limit considerably the powers of the council. It appears to me that it will be no more than a proxy for the Department of Education or the head of that department. If we were in Committee we would have pressed the department jolly hard to justify each one of these limitations but we are deprived of that opportunity.
If the council is to discharge its duty of assisting in the co-ordination and efficient use of the resources of the youth services which is placed on it by Article 4, should not all applications to the department by voluntary organisations for financial support be approved by the council? If not, why should they not be approved by this body if it is to play an effective role in giving guidance and a steer to the youth services in Northern Ireland?
I appreciate that Article 7(3) provides that in certain cases the department will "refer" —that is the key word —an application to the council. Can the Minister tell us what is meant by "refer"? Is the application referred for information or approval? What does the department mean by the use of that word? Can the Minister tell the House what will be the criteria for deciding which applications are to be referred to the council?
We on these Benches believe it is important that the relationship between the council and the department should be right. It seems to us that the department has not been given a sufficient degree of independence. That being so, we are concerned that the order does not contain machinery for resolving any dispute which may emerge between the council on the one hand and the department or the Civil Service head of it, on the other.
It has always been my experience when drawing up a constitution for a body which stands in the relationship of dependency to another body, that it is always wise to provide within the constitution a machinery for resolving disputes between the two bodies. On that matter the order is silent. We believe that time may well show that omission to be a flaw in the document which depends entirely on trust. Of course we want trust and goodwill, but from time to time there will be disputes. In that event you normally look to the constitution to see how to resolve it. As I have said, that is a flaw in the document.
What is sad about this order which invests so much in the youth service of Northern Ireland is that there is no opportunity of correcting that flaw in this House.

635
I now refer to Article 8 which empowers the department to recover a charge from the proceeds of the sale of land or a building in respect of which the department has given financial assistance to the organisation which owns the land or property and which is now selling. We accept that there is full justification for the principle of Article 8. As we all know, there are considerable calls on Northern Ireland funds so we believe that the department is perfectly right to impose a charge when land or premises are sold so that it can recover the grant or assistance that was initially made available to the organisation.
The formula is set out in Article 8(3) and it appears to be fair. However there are two questions that I wish to put to the Minister in seeking information. I note that interest is to be paid on the sum to be recovered. But it is not clear to me, unless I have missed a line, from what date the interest is to be calculated. If it is to run from the date when the premises are sold, that would be fair. If, however, it is to run from the date when the grant was originally made, that would be unfair. Perhaps the Minister can enlighten us.
The formula refers to the current value of the land or building. That will generally be the amount it might be expected to realise if sold on the open market. That is fair enough. But if the building or the land is no longer required by the voluntary organisation which owns it, will the noble Lord confirm that it can be transferred by that organisation to another youth organisation at a price below current market value? I ask that question because some of us in England and Wales have spent a good deal of time seeking (but unsuccessfully) to persuade the Charity Commission to allow property of a charity to be transferred to another charity at a price below market value. That is our experience. I wonder what would be the position in Northern Ireland. It is not clear to me from the order.
I should be grateful if the Minister can reply to my questions, and if not tonight then by letter. We on these Benches sincerely hope that the order will be of immense value to the young people of Northern Ireland. I hope that the noble Lord can tell us this evening that it will be speedily implemented.
8 p.m.
Lord Skelmersdale: My Lords, the noble Lord's list of questions took me a little by surprise in their detail. I am perfectly happy to be called to account for any order I put before the House. However, the noble Lord will remember that I said only the other day that the Government as a whole would welcome advice on a better system than the Order in Council route of legislating for Northern Ireland. I do not believe there is any dispute between us on that. As much as the noble Lord dislikes it, I have yet to see any concrete proposals from him on what route we could take.
Lord Prys-Davies: My Lords, the noble Lord misunderstands the position. It is not just the case that a Northern Ireland spokesman on these Benches is desperately unhappy about the procedure. There
636
is a consensus that the procedure is totally inadequate. I took the course this evening of going through the order in some detail merely to reinforce the point that the procedure is inadequate. For as long as we do not have devolved government in Northern Ireland I suggest that legislation should proceed by way of a Bill and not by Order in Council.
Lord Skelmersdale: My Lords, I take the point. The noble Lord represents a widely held view from which I do not totally dissociate myself, as I have made clear on several occasions. However, the fact remains that, in this uncertain world in Northern Ireland, legislation has to be arrived at by one route or another. To have no legislation at all —I do not think that even in his most pessimistic mood the noble Lord would suggest that —would cause a political vacuum, which is what we are all trying to avoid.
The noble Lord asked about the reason for delay. The delay was due to the alteration of the draft Order in Council to give the Youth Council grant-in-aid status. The order will become operative one month from Royal Assent, which I would anticipate means around 19th January 1990. The Youth Council itself will be constituted by mid-January. The first meeting is expected at the end of January or early in February.
The noble Lord asked who will be meeting at that time. Members will be appointed according to their individual contribution to the council. It is not intended that they shall be representative of any sectors. Nonetheless, most sectors will be covered by the appointments. What we are interested in is the appointment of people rather than the appointment of representatives. We want whoever is there to do a good job. Their term of office will be for four years. But we have to roll this on a little or the whole council will come up for renewal at the same date, which is not very sensible. Therefore it is anticipated that half the members will be appointed for two years and the other half for four years. It will have a chairman and a vice chairman who will be paid £3,600 and £2,300 respectively.
The noble Lord asked more detailed questions about the individual articles. The Youth Council will assume advisory functions and in addition will be given executive powers under which it will assess and pay block grants to voluntary headquarters organisations. The powers being retained by the department, about which the noble Lord slightly complained, are exactly the same as those which apply in relation to its other educational responsibilities. Therefore there is consistency in this matter.
The noble Lord mentioned departmental approval, especially with regard to appointments. The departmental approval is required merely for the chief executive.
Lord Prys-Davies: No, my Lords. I understand from the order that the Youth Council will require the approval of the department for its scheme for appointing staff generally.
Lord Skelmersdale: My Lords, I shall come back to that point in a moment. As I understand the position, departmental approval is required only to guard against the appointment of an unqualified or unfit person. That refers particularly to the chief executive. It would be quite wrong to have such persons in the two positions which I have just mentioned.
The noble Lord will have noticed Article 7(4), which explains that the council will make recommendations to the department on the applications. The department will consider these recommendations before deciding on those applications. The noble Lord talked about paragraph (5) of Article 8. If he casts his eye a little further, he will discover that paragraph (8) defines the term "relevant date" for the purpose of paragraph (5) as the date of disposal of the land or building where this is done prior to the department serving notice on the voluntary organisation of the determination of the date, and in any other case, the date determined by the department.
I think that what I have said covers at least some of the points made by the noble Lord. I shall look carefully at the Official Report because he produced quite a phalanx of questions for me to answer. I assure the noble Lord that if I find any inaccuracies in my answers, or any questions which I have left unanswered, I shall be delighted to put the matter right.
On Question, Motion agreed to.
Viscount Long: My Lords, I beg to move that the House do now adjourn during pleasure until 8.30 p.m.
Moved accordingly, and, on Question, Motion agreed to.
[The Sitting was suspended from 8.11 to 8.30 p.m.]

COMMONS AMENDMENT
94 Clause 39, page 48, line 38, leave out 'maintained' and insert, 'kept under regulations'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 94.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
95 Clause 40, page 49, line 17, after first 'of, insert', or to be attributable to any neglect on the part of,'.
96 Page 49, line 25, leave out subsections (3) and (4) and insert—
'(3) Where an offence under this Part committed by a partnership is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, a partner, he as well as the partnership is guilty of the offence and liable to be proceeded against and punished accordingly.
638
(4) Where an offence under this Part committed by an unincorporated association (other than a partnership) is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any officer of the association or any member of its governing body he as well as the association is guilty of the offence and liable to be proceeded against and punished accordingly.'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 95 and 96, as corrected.
The amendments bring the provisions in Part II of the Bill on the circumstances in which a partner in a partnership or an officer or member of a governing body of any other unincorporated association is to be regarded as having committed an offence into line with the treatment of officers in bodies corporate. Noble Lords may recall that the noble Lord, Lord Benson, argued at an earlier stage that the provisions be consistent.
Moved, That the House do agree with the Commons in the said amendments.
Lord Monson: My Lords, as the noble Lord was good enough to draw our attention to the correction to Amendment No. 96, I in turn take the opportunity to draw his attention to the fact that at least one of the corrections in a long list of corrections that has been supplied to us is itself in need of correction; that is, the correction to Amendment No. 413. I merely take the opportunity to mention that point now so that the Government can correct the correction before we arrive at Amendment No. 413 later this week.
Lord Strathclyde: My Lords, I am most grateful to the noble Lord.
On Question, Motion agreed to.

COMMONS AMENDMENTS
97 Clause 41, page 49, line 39, after 'tried' insert 'an information laid'.
98 Page 50, line 4, after 'information' insert 'laid'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 97 and 98.
The amendments bring the period in Clause 41, within which prosecution in England and Wales of a person who has committed an offence under Part II of the Bill must take place, into line with the standard provisions on time limits for the prosecution of offences.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Trefgarne.)
Lord Lloyd of Kilgerran: My Lords, if the amendments bring English law into line with Scottish law, we are on safe ground.
On Question, Motion agreed to.

COMMONS AMENDMENTS
99 Clause 44, page 51, line 6, leave out 'made by statutory instrument'.
100 Page 51, line 10, after 'by', insert 'it, subject to such exceptions and reservations as may be specified in'.
101 Page 51, line 19, leave out subsections (3) to (6) and insert—
'(3) Any transfer of the functions under the following provisions shall be subject to the reservation that they remain exercisable concurrently by the Secretary of State—

(a) section 36 (power to call for information), and

(b) section 38 (directions to comply with international obligations);

and any transfer of the function of refusing to approve an overseas qualification, or withdrawing such approval, on the grounds referred to in section 31(3) (lack of reciprocity) shall be subject to the reservation that the function is exercisable only with the consent of the Secretary of State.
(4) A delegation order may be amended or, if it appears to the Secretary of State that it is no longer in the public interest that the order should remain in force, revoked by a further order under this section.
(5) Where functions are transferred or resumed, the Secretary of State may by order confer or, as the case may be, take such other functions supplementary or incidental to those transferred or resumed as appear to him to be appropriate.
(6) The provisions of Schedule 10 have effect with respect to the status, constitution and proceedings of a body established by a delegation order, the exercise by it of certain functions transferred to it and other supplementary matters.
(7) An order under this section shall be made by statutory instrument.
(8) An order which has the effect of transferring or resuming any functions shall not be made unless a draft of it has been laid before and approved by resolution of each House of Parliament; and any other description of order shall be subject to annulment in pursuance of a resolution of either House of Parliament.'.
102 Clause 46, page 52, line 34, leave out 'the order' and insert 'an order under section 44'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 99, 100 to 102, and 433 to 444.
The amendments concern the statutory body and the transfer of functions to it. As the Bill left your Lordships' House, a delegation order had the effect of transferring to the body established by it all the functions of the Secretary of State, subject to the exceptions and qualifications in Clause 44(2) and 44(3), and any supplementary or incidental functions which appeared to the Secretary of State at the time to be appropriate.
An order resuming functions had the effect of transferring back to him all the functions transferred or conferred. The chief effect of the amendments is to enable the Secretary of State to transfer only some of the functions; to enable the transfer of any function to be made subject to any exceptions or reservations he wishes to make; and to enable him to make further orders transferring, conferring or resuming functions or otherwise amending earlier orders. Most of the amendments are simply consequentials upon those changes. However, Amendment No. 435 provides that the statutory body itself, rather than the Secretary of State, is to pay the remuneration and other payments received by members of the body.
Moved, That the House do agree with the Commons in the said amendments.
Lord Williams of Elvel: My Lords, perhaps I may refer the noble Lord to Amendment No. 101 of which subsection (4) states:
640
"A delegation order may be amended or, if it appears to the Secretary of State that it is no longer in the public interest that the order should remain in force, revoked by a further order under this section".
Is the implication that the Secretary of State only can amend an order, or can Parliament amend the order?
Lord Strathclyde: My Lords, the key subsection of Amendment No. 101 is subsection (4) which allows the Secretary of State to amend a delegation order by a further order. The rest of the amendment is concerned with adapting certain of the existing provisions of Clause 44 to the possibility that there may be several orders transferring or resuming functions or otherwise amending an earlier order. The Secretary of State only is responsible for making or amending the order.
Lord Williams of Elvel: My Lords, with the leave of the House, before the noble Lord sits down, do I understand that those orders are made under the negative procedure?
Lord Strathclyde: My Lords, yes.
On Question, Motion agreed to.

COMMONS AMENDMENT
103 Clause 48:
Leave out Clause 48 and insert —
'Power to make consequential amendments.
(1) The Secretary of State may by regulations make such amendments of enactments as appear to him to be necessary or expedient in consequence of the provisions of this Part having effect in place of section 389 of the Companies Act 1985.
(2) That power extends to making such amendments as appear to the Secretary of State necessary or expedient of—

(a) enactments referring by name to the bodies of accountants recognised for the purposes of section 389(1)(a) of the Companies Act 1985, and

(b) enactments making with respect to other statutory auditors provision as to the matters dealt with in relation to company auditors by section 389 of the Companies Act 1985.

(3) The provision which may be made with respect to other statutory auditors includes provision as to—

(a) eligibility for the appointment,

(b) the effect of appointing a partnership which is not a legal person and the manner of exercise of the auditor's rights in such a case, and

(c) ineligibility on the grounds of lack of independence or any other ground.

(4) The regulations may contain such supplementary, incidental and transitional provision as appears to the Secretary of State to be necessary or expedient.
(5) The Secretary of State shall not make regulations under this section with respect to any statutory auditors without the consent of —

(a) the Minister responsible for their appointment or responsible for the body or person by, or in relation to whom, they are appointed, or

(b) if there is no such Minister, the person by whom they are appointed.

(6) In this section a "statutory auditor" means a person appointed auditor in pursuance of any enactment authorising or requiring the appointment of an auditor or auditors.
(7) Regulations under this section shall be made by statutory instrument which shall be subject to annulment in pursuant of a resolution of either House of Parliament.
Power to make provision in consequence of changes affecting accountancy bodies.
(1) The Secretary of State may by regulations make such amendments of enactments as appear to him to be necessary or expedient in consequence of any change of name, merger or transfer of engagements affecting—

(a) a recognised supervisory or qualifying body under this Part, or

(b) a body of accountants referred to in, or approved, authorised or otherwise recognised for the purposes of, any other enactment.

(2) Regulations under this section shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 103. Associated with Amendment No. 103 are Amendments Nos. 103A and 103B which I dare say the noble Lord will move in a moment.
The amendment concerns the revision of provisions in other enactments which define the right to audit or carry out other accountancy functions in specified circumstances. In almost all cases eligibility is linked to the eligibility to conduct company audits which is dealt with in Section 389 of the Companies Act 1985. Since the Bill repeals Section 389 and replaces it with a new system, consequential changes need to be made to the other enactments. In the Bill as it left your Lordships' House, Schedule 12 contained some of the amendments to other Acts consequential on the provisions of Part II. Later amendments remove Schedule 12 and the amendment replaces it with a power to make all the necessary consequential amendments by regulations.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)

AS AN AMENDMENT TO COMMONS AMENDMENT No. 103
103A Leave out lines 35 to 37 and insert —
("(7) Regulations under this section shall not be made unless a draft of them has been laid before and approved by resolution of each House of Parliament.").
Lord Williams of Elvel: My Lords, I beg to move Amendment No. 103A, and it may be for the convenience of the House if I speak also to Amendment No. 103B. They are essentially the same point.
Yet again we have in the Bill powers granted to the Secretary of State to make amendments to enactments. I am not so worried about what is marked as subsection (7) of the amendment; I am more worried about subsection (2) and the power to make provisions in consequence of changes affecting accountancy bodies.
It seems to me reasonable that the Secretary of State should have the power to make consequential amendments, although, together with the noble Lord, Lord Rippon of Hexham, I believe that enactments, primary legislation, should not be amended by order. Nevertheless, if we accept that
642
basic principle—which I do with great reluctance—it seems reasonable that it should be accepted in this case.
What worries me is that the Secretary of State may, under the proposed Commons amendment,
"make such amendments of enactments as appear to him to be necessary or expedient in consequence of any change of name, merger or transfer of engagements".
I do not see why, just because one body merges with another body, the Secretary of State should have unlimited powers to make any amendments of enactments as appear to him to be expedient. I find that a very curious expression. Yet again, I am trying to assert the supremacy of Parliament rather than the supremacy of the Executive. I beg to move.
Moved, That Amendment No. 103A, as an amendment to Commons Amendment No. 103, be agreed to.—(Lord Williams of Elvel.)
Lord Lloyd of Kilgerran: My Lords, once again we are dealing with enactments by regulations. I suppose that one must still make the statutory objection from these Benches to the wide powers given to the Secretary of State to deal with legislation, subject once again to the negative resolution procedure. I am sorry that the noble Lord, Lord Rippon, is not in his place. He would strongly support what I am saying. However there is very little we can do except to make the objection. I support the amendment of the noble Lord, Lord Williams.
Lord Trefgarne: My Lords, I have already deployed the arguments as to why we do not agree with the concern expressed by noble Lords on this matter. I do not intend to repeat those arguments in detail. Perhaps I may address my reply to Amendment No. 103B, to which the noble Lord referred.
This amendment concerns the regulation-making power in the second new clause. Would the positive resolution procedure be appropriate there, the noble Lord wondered. The power in this new clause is a power to make by regulations such amendments of enactments as appear to the Secretary of State to be necessary or expedient in consequence of a change of name, merger or transfer of engagements affecting accountancy bodies recognised under statutes. Perhaps I may take a hypothetical example. The Institute of Chartered Accountants in England and Wales and the Chartered Institute of Public Finance and Accountancy are both bodies recognised under statute. Suppose they were to decide to merge. There have in fact been suggestions to this effect. If that were to happen, this power would enable the Secretary of State to make amendments replacing the references to the old bodies with references to the new body. I am sure that the noble Lord would accept that as being a reasonable and sensible way of proceeding. I hope that by expressing that as an example, he will be persuaded not to press his amendments.
Lord Williams of Elvel: No, my Lords, I am afraid that the noble Lord exactly demonstrates my point. These should not be negative procedures but affirmative procedures. In this House of Parliament we should have a chance to discuss these matters. I am sorry, I must press the amendment.
8.44 p.m.
On Question, Whether Amendment No. 103A, as an amendment to Commons Amendment No. 103, shall be agreed to?
Their Lordships divided: Contents, 21; Not-Contents, 70.

DIVISION NO. 4

CONTENTS

Airedale, L.

Serota, B.

Bonham-Carter, L.

Shepherd, L.

David, B.

Strabolgi, L.

Hacking, L.

Taylor of Blackburn, L.

Jenkins of Putney, L.

Taylor of Gryfe, L.

Lloyd of Kilgerran, L.

Wedderburn of Charlton, L. [Teller.]

Monson, L.

Peston, L.

White, B.

Pitt of Hampstead, L.

Williams of Elvel, L.

Ponsonby of Shulbrede, L. [Teller.]

Winchilsea and Nottingham, E.

Seear, B.

Winstanley, L.

NOT-CONTENTS

Alport, L.

Kimball, L.

Arran, E.

Lindsey and Abingdon, E.

Barber, L.

Long, V.

Belstead, L.

Lucas of Chilworth, L.

Blake, L.

Lyell, L.

Borthwick, L.

McColl of Dulwich, L.

Brabazon of Tara, L.

Mackay of Clashfern, L.

Brentford, V.

Macleod of Borve, B.

Brougham and Vaux, L.

Masham of Ilton, B.

Butterfield, L.

Morris, L.

Butterworth, L.

Mottistone, L.

Caithness, E.

Mountevans, L.

Carnegy of Lour, B.

Oppenheim-Barnes, B.

Carnock, L.

Oxfuird, V.

Cork and Orrery, E.

Polwarth, L.

Crathorne, L.

Reay, L. [Teller.]

Davidson, V. [Teller.]

Rochdale, V.

Dundee, E.

Saltoun of Abernethy, Ly.

Elliott of Morpeth, L.

Sharples, B.

Ferrers, E.

Skelmersdale, L.

Fortescue, E.

Southborough, L.

Fraser of Carmyllie, L.

Stanley of Alderley, L.

Gisborough, L.

Stodart of Leaston, L.

Gray of Contin, L.

Strange, B.

Grimston of Westbury, L.

Strathcarron, L.

Haig, E.

Strathclyde, L.

Hardinge of Penshurst, L.

Strathmore and Kinghorne, E.

Harlech, L.

Harvington, L.

Thomas of Gwydir, L.

Henley, L.

Torrington, V.

Hives, L.

Tranmire, L.

Home of the Hirsel, L.

Ullswater, V.

Hooper, B.

Vaux of Harrowden, L.

Jenkin of Roding, L.

Vinson, L.

Johnston of Rockport, L.

Wynford, L.

Joseph, L.

Resolved in the negative, and Amendment No. 103A disagreed to accordingly.
8.52 p.m.
[Amendment No. 103B not moved.]
On Question, Amendment No. 103 agreed to.

COMMONS AMENDMENT
104 Clause 50 page 54, line 1, at end insert
'"address" means—

(a) in relation to an individual, his usual residential or business address, and

(b) in relation to a firm, its registered or principal office in Great Britain;'.

Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 104.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
105 Clause 50, page 54, line 9, at end insert—
"'enactment" includes an enactment contained in subordinate legislation within the meaning of the Interpretation Act 1978;'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 105.
Moved, That the House do agree with the Commons in the said amendment—(Lord Strathclyde.)
Lord Williams of Elvel: My Lords, will the noble Lord explain to the House why he is moving Amendment No. 105 and speaking to Amendment Nos. 108 and 450?
Lord Trefgarne: My Lords, they are consequential to Amendment No. 103.
On Question, Motion agreed to.

COMMONS AMENDMENT
106 Clause 50, page 54, line 18, at end insert—
'(2) For the purposes of this Part a body shall be regarded as "established in the United Kingdom" if and only if—

(a) it is incorporated or formed under the law of the United Kingdom or a part of the United Kingdom, or

(b) its central management and control is exercised in the United Kingdom;

and any reference to a qualification "obtained in the United Kingdom" is to a qualification obtained from such a body.'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 106. I shall also speak to Amendment No. 109.
These amendments provide a meaning for the expressions in Part II that a body must be established in the UK, and a recognised professional qualification must be obtained in the UK.
The Bill as it left your Lordships' House provided that supervisory and qualifying bodies must be established in the UK, and a recognised professional qualification must be obtained in the UK. The present amendments define these expressions. They provide that a body is to be regarded as established in the UK if it is incorporated or formed under our law, or is managed and controlled from here. The obtaining of a qualification in the UK is to be construed accordingly.
Moved, That the House do agree with the Commons in the said amendment.—(Lord Strathclyde.)
Lord Williams of Elvel: My Lords, I wish to take issue with the noble Lord, Lord Trefgarne, on Amendments Nos. 105, 108 and 450. The noble

645
Lord moved Amendment No. 105; but the groupings list I have groups Amendment No. 105 with Amendments Nos. 108 and 450. The noble Lord said that they were consequential on Amendment No. 103. I do not believe that to be the case as regards the definitional clause. I do not believe that Amendments Nos. 106 and 109 are consequential on anything.
Lord Trefgarne: My Lords, I am not saying that they are.
Lord Williams of Elvel: My Lords, if I may continue my sentence, I should add that groupings are suggested by the Government to ensure that the task of noble Lords in this House who have to deal with this complicated legislation at this complicated stage is made easier and not more difficult.
On Question, Motion agreed to.

COMMONS AMENDMENT
107 Clause 51, page 54, line 21, at end insert—

'address

section 50(1)'.

Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 107. I have already spoken to this amendment.
Moved, That the House do agree with the Commons in the said amendment.—(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
108 Page 54, line 30, at end, insert—

'enactment

section 50(1)

established in the United Kingdom

section 50(2)'.

Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 108. I have already spoken to this amendment.
Moved, That the House do agree with the Commons in the said amendment.—(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
109 Clause 51, page 54, line 37, at end, insert—

'obtained in the United Kingdom

section 50(2)'.

Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 109.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
110 Clause 60, page 58, line 19, at end insert —
'(1A) Omit subsection (1) (bodies in relation to which powers exercisable), and—

(a) in subsections (2) and (3) for "any such body" substitute "a company",

(b) in subsections (4) and (5) for "any body" and "a body" substitute "a company", and

646

(c) in subsections (5) and (6) for "the body" substitute "the company".'.

111 Clause 62, page 60, line 44, at end insert—
'(aa) in the opening words for "body" (twice) substitute "company"'
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 110 and 111. I wish also to speak to Amendments Nos. 114 and 115. As a consequence of certain repeals of provisions in the Companies Act 1985 by the Financial Services Act 1986, unregistered companies, which at present fall within the scope of Section 447 of the 1985 Act, would no longer be covered. Section 447 gives the Secretary of State power to require documents for inspection. These amendments will ensure that Section 447 powers continue to apply to unregistered companies. The purpose of this amendment is therefore to preserve the status quo: there will be no widening or narrowing of the powers.
Moved, That the House do agree with the Commons in the said amendments.—(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
112 Clause 62, page 61, line 8, leave out 'III' and insert 'II, III or VII'.
113 Page 61, line 11, at end insert—
'(ee) after that paragraph insert —
"(hh) for the purpose of enabling or assisting a body established by order under section 44 of the Companies Act 1989 to discharge its functions under Part II of that Act, or of enabling or assisting a recognised supervisory or qualifying body within the meaning of that Part to discharge its functions as such;";'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 112 and 113. I wish to speak also to Amendments Nos. 116 to 119 and 122 to 124. These amendments are by way of being consequential on other provisions in Parts II, III and VII of the Bill. They amend the Companies Act 1985, the Financial Services Act 1986, the Building Societies Act 1986, the Banking Act 1987 and Clause 81 of the Bill to provide gateways for disclosure of restricted information for the purpose of enabling or assisting the carrying out of functions under Parts II, III and VII of the Bill.
Moved, that the House do agree with the Commons in the said amendments. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
114 Clause 63, page 62, line 22, at end insert —
'(1A) In subsection (1) for the opening words down to "insurance company" substitute "An officer of a company, or of an insurance company", for "body's" substitute "company's" and for "the body" substitute "the company".'.
115 After Clause 67, insert the following new clause:
Investigation of unregistered companies.
'. In Schedule 22 to the Companies Act 1985 (provisions applying to unregistered companies), for the entry relating to Part XIV substitute—

"Part XIV (except Section 446)

Investigation of companies and their affairs; requisition of documents.

—".'.

Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 114 and 115. I spoke to these amendments earlier.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
116 Clause 71, page 67, line 2, leave out 'III' and insert 'II, III or VII'.
117 Page 67, line 3 at end insert—
'(aa) for paragraph (e) substitute —
"(e) for the purpose—

(i) of enabling or assisting a designated agency to discharge its functions under this Act or Part VII of the Companies Act 1989,

(ii) of enabling or assisting a transferee body or the competent authority to discharge its functions under this Act, or

(iii) of enabling or assisting the body administering a scheme under section 54 above to discharge its functions under the scheme;";

(ab) after paragraph (h) insert—
"(hh) for the purpose of enabling or assisting a body established by order under section 44 of the Companies Act 1989 to discharge its functions under Part II of that Act, or of enabling or assisting a recognised supervisory or qualifying body within the meaning of that Part to discharge its functions as such;";'.
118 After Clause 75, insert the following new Clause—
'Amendment of the Building Societies Act 1986.
In section 53 of the Building Societies Act 1986 (confidentiality of information obtained by the Building Societies Commission), in subsection (7)(b) (functions of Secretary of State for purposes of which disclosure may be made) after sub-paragraph (ii) insert—
, or
(iii) Part II, III or VII of the Companies Act 1989;".'
119 Insert the following new Clause—
'Amendments of the Banking Act 1987.
1.—(1) In section 84(1) of the Banking Act 1987 (disclosure of information obtained under that Act), the Table showing the authorities to which, and functions for the purposes of which, disclosure may be made is amended as follows.
(2) In the entry relating to the Secretary of State, in column 2, for "or the Financial Services Act 1986" substitute ", the Financial Services Act 1986 or Part II, III or VII of the Companies Act 1989".
(3) For the entry relating to inspectors appointed by the Secretary of State substitute—

"An inspector appointed under Part XIV of the Companies Act 1985 or section 94 or 177 of the Financial Services Act 1986.

Functions under that Part or that section.".

(4) For the entry beginning "A person authorised by the Secretary of State" substitute—

"A person authorised to exercise powers under section 44 of the Insurance Companies Act 1982, section 447 of the Companies Act 1985, section 106 of the Financial Services Act 1986 or section 78 of the Companies Act 1989.

Functions under that section.".

(5) For the entry relating to a designated agency or transferee body or the competent authority (within the meaning of the Financial Services Act 1986) substitute—

"A designated agency (within the meaning of the Financial Services Act 1986)

Functions under the Financial Services Act 1986 or Part VII of the Companies Act 1989.

A transferee body or the competent authority (within the meaning of the Financial Services Act 1986.)

Functions under the Financial Services Act 1986.".'.

Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 116 to 119.
Moved, That the House do agree with the Commons in the said amendments.—(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
120 Clause 79, page 73, line 28, leave out subsections (3) to (5).
Lord Trefgarne: My Lords, these amendments and new clauses have the purpose of broadening the categories of organisation which will commit an offence—
Lord Williams of Elvel: My Lords, is the noble Lord speaking to Amendments Nos. 120, 126, 127 and 128?
Lord Trefgarne: My Lords, the answer is, yes. I apologise for not making that clear. I beg to move that the House do agree with the Commons in their Amendment No. 120 and will speak also to Amendments Nos. 126, 127 and 128.
These amendments and new clauses have the purpose of broadening the categories of organisation which will commit an offence if they fail to comply with requirements to give information imposed on them under Clause 77, or if they wrongfully disclose information safeguarded under Clause 80.
Non-compliance offences under Clause 79 may be committed at present by any person, which includes either individuals or "bodies corporate". Subsection (3) deals specifically with offences by bodies corporate; its provisions are also applied by Clause 80(b) to wrongful disclosure offences under that clause. The aim is to replace the subsections with Amendment No. 127 (a new clause), which provides for cases in which partnerships and unincorporated associations, as well as bodies corporate, are proceeded against in respect of such offences. This new clause also ensures that personal liability in

649
the event of offences being committed by these organisations is defined in the same way for each one, thus maintaining consistency.
There are additional, consequential changes. Clause 79(4) defines restrictions on proceedings in England, Wales, and Northern Ireland in the event of a non-compliance offence by a body corporate. This is replaced and expanded by Amendment No. 126, which covers restrictions on proceedings for offences under Clauses 79 and 80 by bodies corporate, partnerships, and unincorporated associations. Likewise, Clause 79(5) defines the place and time at which summary proceedings for non-compliance may be brought against a body corporate. Amendment No. 128 replaces and expands these provisions to cover unincorporated associations and, where appropriate, proceedings under Clause 80 (there is no mention of Clause 80 in subsection (1) of this new clause, because the offences in question are triable either way.)
Amendment No. 120 (which operates together with Amendment No. 121) is introduced purely to delete subsections (3) to (5) of Clause 79, and subsection (6) of Clause 80, to make way for the new, expanded clauses. I beg to move.
Moved, that the House do agree with the Commons in the said amendment.—(Lord Trelgarne.)
On Question, Motion agreed to.

MOTION MOVED ON CONSIDERATION OF COMMONS AMENDMENT
121A The Lord Williams of Elvel to move, That this House do disagree with the Commons in their Amendment 121 but propose the following Amendment in lieu hereof—
Clause 80, page 74, line 31, leave out subsection (6) and insert—
("(6) The Secretary of State may by order impose such restrictions as he sees fit on the disclosure of information relating to a person where such disclosure might damage unfairly the reputation of that person.
(7) An order under this section shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.').
Lord Peston: My Lords, on behalf of my noble friend Lord Williams, I beg to move Amendment No. 121A, and I draw your Lordships' attention to the fact that it involves leaving out subsection (6) of Clause 80, which the Government's Amendment No. 121 does as well; so there is nothing between us on that matter. The content of Amendment No. 121A, which stands in the name of my noble friend Lord Williams of Elvel, is a subject that we have raised on more than one occasion earlier in discussing this Bill. But we do not apologise for coming back to it. It is our last chance to make the point and to plead with the Government to take seriously the problem here.
Our concern is that although, of course, where the need arises, various bodies will have to investigate companies in one form or another, it appears that in doing that certain individuals are not merely named—I shall not on this occasion mention cases, but we have all read about them in the financial press —but have their careers ruined, even though, so far as one can see, they are entirely innocent.
650
Our concern is not of course in any way to protect the guilty, but we do not believe that the Government have addressed themselves sufficiently to what we refer to here, which is the disclosure of information which might unfairly damage certain reputations.
We know that we live in an imperfect world, and that in the pursuit of certain offences it may well be that people who involve themselves with companies of one sort or another have to take the rough with the smooth. Nonetheless, we are not convinced that the balance here is right. We are not convinced that there is sufficient concern with the smooth, and we are not convinced that there is sufficient antipathy to the rough.
Several noble Lords have pushed this matter for some months now and have not got anywhere. It was our hope that the Government would have found a way. We appreciate that it is technically rather difficult, because we do not want investigations per se to be held back. But we are not happy with the current state of affairs or with the fact that this Bill does not seem to do anything about improving matters.
We have pressed the point several times. All the amendment says, quite specifically, is that it gives the Secretary of State power to intervene here. I shall not press this amendment, because my noble friend Lord Williams of Elvel has made the point about regulations on more than one occasion today. We do not back down from the fact that we think our view of this matter is entirely correct. But I, at least, have never believed in banging my head against a brick wall for more than a couple of hours, and we are past that couple of hours.
That is the reason why the second part is in the amendment. We want the Secretary of State to have the possibility of intervening, but of course we would still like to have what we regard as proper parliamentary control. That is what lies behind this amendment. I fully accept that we have been over the ground before and that this is our last chance. We think that it is an important matter, and that is why we commend the amendment to your Lordships.
Moved, That Amendment No. 121A, in lieu of Commons Amendment No. 121, be agreed to. —(Lord Peston.)
Lord Williams of Elvel: My Lords, if I may just reinforce what my noble friend Lord Peston said, the problem since our discussion in Committee has arisen on County NatWest and there have been serious criticisms of what the inspectors have revealed and of how careers have been affected in that case. I believe that the Secretary of State, whoever he may be at any particular time, has to take very seriously the problem of people's reputations. There are public figures in industry and in banking whose careers could be affected by reports which are issued by people who may not be qualified to issue those reports. I also happen to believe, as an addendum, that the 1948 system of DTI investigations of one QC and one accountant is now largely out of date. If there was one change that I should like to have seen in the Bill, it would have been a change in how the DTI conducts its investigations, which, I recognise, it must do.

651
However, failing that —that reform should have been contained in the Bill—reputations have been and will be affected. I hope that natural justice will prevail in the Government and that the amendment will be accepted in the spirit in which it is offered. The reputation of people in high places in banking, commerce and industry should not be affected—if I may again have the noble Lord's attention —by extraneous comments from inspectors who are not necessarily qualified and do not necessarily know what they are talking about.
Lord Lloyd of Kilgerran: My Lords, we strongly support the amendment. I spoke at considerable length in the earlier stages of the Bill pointing out that natural justice demands that there should be a safeguard for individuals against extraneous statements made in good faith. This is a proper safeguard in those circumstances.
Lord Trefgarne: My Lords, I assure the noble Lord, Lord Williams of Elvel, that even if I do not look at him I still listen to him most carefully. My ears are tuned in his direction and I can hear him in whatever direction I happen to be looking.
I wish to say at the outset that the amendment applies only to information from or to a foreign regulator and, therefore, the example that the noble Lord gave was not a particularly appropriate one. The Government have already made clear their firm commitment to dealing fairly with those whose activities are scrutinised in any of the investigations and inspections dealt with in the Bill and elsewhere.
Clause 80 deals specifically with information obtained from, or on behalf of, other countries' regulatory authorities. Together with Clause 81, it already controls tightly the disclosure of such information without the consent of the person to whom it relates. Those to whom information is disclosed are themselves also subject to exactly the same constraints on any further disclosure. The disciplinary and other non-judicial proceedings for which information may be disclosed are not public, and information disclosed for such purposes will therefore continue to be protected by Clause 80. So, in practice, it will be impossible for such information to become public except when it is used publicly in court or tribunal proceedings. I am sure that it is not the noble Lord's intention to restrict the use of information in court, in accordance with all the relevant rules of evidence.
The amendment therefore does not add anything to the strong protection already provided in Clauses 80 and 81. I hope that the noble Lord will see fit not to press it.
Lord Peston: My Lords, on the technical point that the noble Lord made about the precise nature of the amendment relative to the clause or, rather, the other amendment to which it is attached, he is right to say that the reason for that is a procedural reason; namely, that we can amend only what comes back to us from the other place. One has used that point to establish the general principle. We are in no doubt
652
that the amendment is somewhat artificial in the way it is tabled, but it is the general principle that concerns us.
As such, I am not reassured by the noble Lord's answer. It does not seem to me that when the Bill becomes an Act it will protect the innocent in the sense in which we want it to do. It seems to me that the Government are essentially not willing to move on this matter, or have not been willing, for reasons which somewhat escape me. The noble Lord has not even argued in the way that I thought he would—to the effect that, if we gave the innocent too much protection, we would also protect the guilty. That was at least a possible argument, although it is not an argument that one would necessarily accept.
Having said that, I do not think that it would be appropriate to divide the House, much as I disagree with the Government on the matter. I hope that we can rely on the point made by my noble friend Lord Williams of Elvel; namely, that as we seem to have a Companies Bill every year, I assume that one will appear in the coming year, one way or another. I can only say that we shall come back to this theme again. Having expressed my disappointment, we shall leave the matter at that. I beg leave to withdraw the amendment.
Motion, by leave, withdrawn.

COMMONS AMENDMENT
121 Clause 80, page 74, line 31, leave out subsection (6).
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 121.
Moved, That the House do agree with the Commons in the said amendment.—(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
122 Clause 81, page 75, line 29, column 2, leave out 'this Part' and insert 'Part II, this Part or Part VII'.
123 Page 75, leave out lines 48 to 51 and insert—

'A designated agency within the meaning of the Financial Services Act 1986

Functions under that Act or Part VII of this Act.

A transferee body or the competent authority within the meaning of the meaning of the Financial Services Act 1986

Functions under that Act.'.

124 Page 76, line 23, at end insert—

'A body established by order under section 44 of this Act.

Functions under Part II of this Act.

A recognised supervisory or qualifying body within the meaning of Part II of this Act.

Functions as such a body.'.

Lord Trefgarne: My Lords, with your Lordships' permission, I beg to move that the House do agree with the Commons in their Amendments Nos. 122 to 124 en bloc.
Moved, That the House do agree with the Commons in the said amendments.—(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
125 After Clause 81, insert the following new clause—
'Exercise of powers in relation to Northern Ireland
.—(1) The following provisions apply where it appears to the Secretary of State that a request for assistance by an overseas regulatory authority may involve the powers conferred by section 77 being exercised in Northern Ireland in relation to matters which are transferred matters within the meaning of the Northern Ireland Constitution Act 1973.
(2) The Secretary of State shall before deciding whether to accede to the request consult the Department of Economic Development in Northern Ireland, and if he decides to accede to the request and it appears to him —

(a) that the powers should be exercised in Northern Ireland, and

(b) that the purposes for which they should be so exercised relate wholly or primarily to transferred matters,

he shall by instrument in writing authorise the Department to exercise in Northern Ireland his powers under section 77.
(3) The following provisions have effect in relation to the exercise of powers by virtue of such an authority with the substitution for references to the Secretary of State of references to the Department of Economic Development in Northern Ireland—

(a) section 78 (exercise of powers by officer, &c.),

(b) section 449 of the Companies Act 1985, section 53 or 54 of the Building Societies Act 1986, sections 179 and 180 of the Financial Services Act 1986, section 84 of the Banking Act 1987 and sections 80 and 81 above (restrictions on disclosure of information), and

(c) section (Prosecutions) (authority for institution of criminal proceedings);

and references to the Secretary of State in other enactments which proceed by reference to those provisions shall be construed accordingly as being or including references to the Department.
(4) The Secretary of State may after consultation with the Department of Economic Development in Northern Ireland, revoke an authority given to the Department under this section.
(5) In that case nothing in the provisions referred to in subsection (3)(b) shall apply so as to prevent the Department from giving the Secretary of State any information obtained by virtue of the authority; and (without prejudice to their application in relation to disclosure by the Department) those provisions shall apply to the disclosure of such information by the Secretary of State as if it had been obtained by him in the first place.
(6) Nothing in this section affects the exercise by the Secretary of State of any powers in Northern Ireland—

(a) in a case where at the time of acceding to the request it did not appear to him that the circumstances were such as to require him to authorise the Department of Economic Development in Northern Ireland to exercise those powers, or

(b) after the revocation by him of any such authority;

and no objection shall be taken to anything done by or in relation to the Secretary of State or the Department on the ground that it should have been done by or in relation to the other.'
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 125. The new clause deals with the need to ensure that the new powers to assist overseas regulators conferred by Clauses 76 to 81 can be exercised in Northern Ireland within the Northern Ireland constitution.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENT
126 After Clause 81, insert the following new clause —
'Prosecutions.
'Proceedings for an offence under section 79 or 80 shall not be instituted—

(a) in England and Wales, except by or with the consent of the Secretary of State or the Director of Public Prosecutions;

(b) in Northern Ireland, except by or with the consent of the Secretary of State or the Director of Public Prosecutions for Northern Ireland.'

Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 126.
Moved, That the House do agree with the Commons in the said amendment.—(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
127 After Clause 81, insert the following new clause—
'Offences by bodies corporate, partnerships and unincorporated associations.
.—(1) Where an offence under section 79 or 80 committed by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, a director, manager, secretary or other similar officer of the body, or a person purporting to act in any such capacity, he as well as the body corporate is guilty of the offence and liable to be proceeded against and punished accordingly.
(2) Where the affairs of a body corporate are managed by its members, subsection (1) applies in relation to the acts and defaults of a member in connection with his functions of management as to a director of a body corporate.
(3) Where an offence under section 79 or 80 committed by a partnership is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, a partner, he as well as the partnership is guilty of the offence and liable to be proceeded against and punished accordingly.
(4) Where an offence under section 79 or 80 committed by an unincorporated association (other than a partnership) is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any officer of the association or any members of its governing body, he as well as the association is guilty of the offence and liable to be proceeded against and punished accordingly.'
128 After Clause 81, insert the following new clause—
'Jurisdiction and procedure in respect of offences.
.—(1) Summary proceedings for an offence under section 79 may, without prejudice to any jurisdiction exercisable apart from this section, be taken against a body corporate or unincorporated association at any place at which it has a place of business and against an individual at any place where he is for the time being.
(2) Proceedings for an offence alleged to have been committed under section 79 or 80 by an unincorporated association shall be brought in the name of the association (and not in that of any of its members), and for the purposes of any such proceedings any rules of court relating to the service of documents apply as in relation to a body corporate.
(3) Section 33 of the Criminal Justice Act 1925 and Schedule 3 to the Magistrates' Courts Act 1980 (procedure on charge of offence against a corporation) apply in a case in which an unincorporated association is charged in England and Wales with an offence under section 79 or 80 as they apply in the case of a corporation.
(4) In relation to proceedings on indictment in Scotland for an offence alleged to have been committed under section 79 or 80 by an unincorporated association, section 74 of the Criminal Procedure (Scotland) Act 1975 (proceedings on indictment against bodies corporate) applies as if the association were a body corporate.
(5) Section 18 of the Criminal Justice Act (Northern Ireland) 1945 and Schedule 4 to the Magistrates' Courts (Northern Ireland) Order 1981 (procedure on charge of offence against a corporation) apply in a case in which an unincorporated association is charged in Northern Ireland with an offence under section 79 or 80 as they apply in the case of a corporation.
(6) A fine imposed on an unincorporated association on its conviction of such an offence shall be paid out of the funds of the association.'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos.127 and 128 together.
Moved, That the House do agree with the Commons in the said amendments.—(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
129 Leave out Clauses 83 to 94 and insert—
'Charges requiring registration
.The following sections are inserted on Part XII of the Companies Act 1985—
"Registration in the company charges register Introductory provisions.
395.—(1) The purpose of this Part is to secure the registration of charges on a company's property.
(2) In this Part—
"charge" means any form of security interest (fixed or floating) over property, other than an interest arising by operation of law; and
"property", in the context of what is the subject of a charge, includes future property.
(3) It is immaterial for the purposes of this Part where the property subject to a charge is situated.
(4) References in this Part to "the registrar" are—

(a) in relation to a company registered in England and Wales, to the registrar of companies for England and Wales, and

(b) in relation to a company registered in Scotland, to the registrar of companies for Scotland;

and references to registration, in relation to a charge, are to registration in the register kept by him under this Part.
Charges requiring registration
396.—(1) The charges requiring registration under this Part are—

(a) a charge on land or any interest in land, other than—

(i) in England and Wales, a charge for rent or any other periodical sum issuing out of the land,

(ii) in Scotland, a charge for any rent, ground annual or other periodical sum payable in respect of the land;

(b) a charge on goods or any interest in goods, other than a charge under which the chargee is entitled to possession either of the goods or of a document of title to them,

(c) a charge on intangible movable property (in Scotland, incorporeal moveable property) of any of the following descriptions —

(i) goodwill,

(ii) intellectual property,

656

(iii) book debts (whether book debts of the company or assigned to the company),

(iv) uncalled share capital of the company or calls made but not paid,

(d) a charge for securing an issue of debentures, or

(e) a floating charge on the whole or part of the company's property.

(2) The descriptions of charge mentioned in subsection (1) shall be construed as follows—

(a) a charge on a debenture forming part of an issue or series shall not be treated as falling within paragraph (a) or (b) by reason of the fact that the debenture is secured by a charge on land or goods (or on an interest in land or goods);

(b) in paragraph (b) "goods" means any tangible movable property (in Scotland, corporeal moveable property) other than money;

(c) a charge is not excluded from paragraph (b) because the chargee is entitled to take possesion in case of default or on the occurance of some other event;

(d) in paragraph (c)(ii) "intellectual property" means—

(i) any patent, trade mark, service mark, registered design, copyright or design right, or

(ii) any licence under or in respect of any such right;

(e) a debenture which is part of an issue or series shall not be treated as a book debt for the purposes of paragraph (c)(iii);

(f) the deposit by way of security of a negotiable instrument given to secure the payment of book debts shall not be treated for the purposes of paragraph (c)(iii) as a charge on book debts;

(g) a shipowner's lien on subfreights shall not be treated as a charge on book debts for the purposes of paragraph (c)(iii) or as a floating charge for the purposes of paragraph (e).

(3) Whether a charge is one requiring registration under this Part shall be determined—

(a) in the case of a charge created by a company, as at the date the charge is created, and

(b) in the case of a charge over property acquired by a company, as at the date of the acquisition.

(4) The Secretary of State may by regulations amend subsections (1) and (2) so as to add any description of charge to, or remove any description of charge from, the charges requiring registration under this Part.
(5) Regulations under this section shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.
(6) In the following provisions of this Part references to a charge are, unless the context otherwise requires, to a charge requiring registration under this Part.
Where a charge not otherwise requiring registration relates to property by virtue of which it requires to be registered and to other property, the references are to the charge so far as it relates to property of the former description.".
The Companies charges register.
The following section is inserted in Part XII of the Companies Act 1985—
The Companies charges register.
397.—(1) The registrar shall keep for each company a register, in such form as he thinks fit, of charges on property of the company.
(2) The register shall consist of a file containing with respect to each charge the particulars and other information delivered to the registrar under the provisions of this Part.
(3) Any person may require the registrar to provide a certificate stating the date on which any specified particulars of, or other information relating to, a charge were delivered to him.
(4) The certificate shall be signed by the registrar or authenticated by his official seal.
(5) The certificate shall be conclusive evidence that the specified particulars or other information were delivered to the registrar no later than the date stated in the certificate; and it shall be presumed unless the contrary is proved that they were not delivered earlier than that date.".
Delivery of particulars for registration.
The following sections are inserted in Part XII of the Companies Act 1985—
"Company's duty to deliver particulars of charge for registration.
398.—(1) It is the duty of a company which creates a charge, or acquires property subject to a charge—

(a) to deliver the prescribed particulars of the charge, in the prescribed form, to the registrar for registration, and

(b) to do so within 21 days after the date of the charge's creation or, as the case may be, the date of the acquisition;

but particulars of a charge may be delivered for registration by any person interested in the charge.
(2) Where the particulars are delivered for registration by a person other than the company concerned, that person is entitled to recover from the company the amount of any fees paid by him to the registrar in connection with the registration.
(3) If a company fails to comply with subsection (1), then, unless particulars of the charge have been delivered for registration by another person, the company and every officer of it who is in default is liable to a fine.
(4) Where prescribed particulars in the prescribed form are delivered to the registrar for registration, he shall file the particulars in the register and shall note, in such form as he thinks fit, the date on which they were delivered to him.
(5) The registrar shall send to the company and any person appearing from the particulars to be the chargee, and if the particulars were delivered by another person interested in the charge to that person, a copy of the particulars filed by him and of the note made by him as to the date on which they were delivered.
Effect of failure to deliver particulars for registration
399.—(1) Where a charge is created by a company and no prescribed particulars in the prescribed form are delivered for registration within the period of 21 days after the date of the charge's creation, the charge is void against—

(a) an administrator or liquidator of the company, and

(b) any person who for value acquires an interest in or right over property subject to the charge,

where the relevant event occurs after the creation of the charge, whether before or after the end of the 21 day period.
This is subject to section 400 (late delivery of particulars).
(2) In this Part "the relevant event" means—

(a) in relation to the voidness of a charge as against an administrator or liquidator, the beginning of the insolvency proceedings, and

(b) in relation to the voidness of a charge as against a person acquiring an interest in or right over property subject to a charge, the acquisition of that interest or right;

and references to "a relevant event" shall be construed accordingly.
(3) Where a relevant event occurs on the same day as the charge is created, it shall be presumed to have occurred after the charge is created unless the contrary is proved.
Late delivery of particulars
400.—(1) Where prescribed particulars of a charge created by a company, in the prescribed form, are delivered for registration more than 21 days after the date of the charge's creation, section 399(1) does not apply in relation to relevant events occurring after the particulars are delivered.
(2) However, where in such a case —

(a) the company is at the date of delivery of the particulars unable to pay its debts, or subsequently becomes unable to pay its debts in consequence of the transaction under which the charge is created, and

(b) insolvency proceedings beging before the end of the relevant period beginning with the date of delivery of the particulars,

the charge is void as against the administrator or liquidator.
(3) For this purpose—

(a) the company is "unable to pay its debts" in the circumstances specified in section 123 of the Insolvency Act 1986; and

(b) the "relevant period" is —

(i) two years in the case of a floating charge created in favour of a person connected with the company (within the meaning of section 249 of that Act),

(ii) one year in the case of a floating charge created in favour of a person not so connected, and

(iii) six months in any other case.

(4) Where a relevant event occurs on the same day as the particulars are delivered, it shall be presumed to have occurred before the particulars are delivered unless the contrary is proved.".
Delivery of further particulars
The following section is inserted in Part XII of the Companies Act 1985—
"Delivery of further particulars
401.—(1) Further particulars of a charge, supplementing or varying the registered particulars, may be delivered to the registrar for registration at any time.
(2) Further particulars must be in the prescribed form signed by or on behalf of both the company and the chargee.
(3) Where further particulars are delivered to the registrar for registration and appear to him to be duly signed, he shall file the particulars in the register and shall note, in such form as he thinks fit, the date on which they were delivered to him.
(4) The registrar shall send to the company and any person appearing from the particulars to be the chargee, and if the particulars were delivered by another person interested in the charge to that other person, a copy of the further particulars filed by him and of the note made by him as to the date on which they were delivered.".
Effect of omissions and errors in registered particulars
The following section is inserted in Part XII of the Companies Act 1985—
"Effect of omissions and errors in registered particulars
402.—(1) Where the registered particulars of a charge created by a company are not complete and accurate, the charge is void, as mentioned below, to the extent that rights are not disclosed by the registered particulars which would be disclosed if they were complete and accurate.
(2) The charge is void to that extent, unless the court on the application of the chargee orders otherwise, as against—

(a) an administrator or liquidator of the company, and

(b) any person who for value acquires an interest in or right over property subject to the charge,

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where the relevant event occurs at a time when the particulars are incomplete or inaccurate in a relevant respect.

(3) Where a relevant event occurs on the same day as particulars or further particulars are delivered, it shall be presumed to have occurred before those particulars are delivered unless the contrary is proved.
(4) The court may order that the charge is effective as against an administrator or liquidator of the company if it is satisfied—

(a) that the omission or error is not likely to have misled materially to his prejudice any unsecured creditor of the company, or

(b) that no person became an unsecured creditor of the company at a time when the registered particulars of the charge were incomplete or inaccurate in a relevant respect.

(5) The court may order that the charge is effective as against a person acquiring an interest in or right over property subject to the charge if it is satisfied that he did not rely, in connection with the acquisition, on registered particulars which were incomplete or inaccurate in a relevant respect.
(6) For the purposes of this section an omission or inaccuracy with respect to the name of the chargee shall not be regarded as a failure to disclose the rights of the chargee.".
Memorandum of charge ceasing to affect company's property
. The following section is inserted in Part XII of the Companies Act 1985—
"Memorandum of charge ceasing to affect company's property
403.—(1) Where a charge of which particulars have been delivered ceases to affect the company's property, a memorandum to that effect may be delivered to the registrar for registration.
(2) The memorandum must be in the prescribed form signed by or on behalf of both the company and the chargee.
(3) Where a memorandum is delivered to the registrar for registration and appears to him to be duly signed, he shall file it in the register, and shall note, in such form as he thinks fit, the date on which it was delivered to him.
(4) The registrar shall send to the company and any person appearing from the memorandum to be the chargee, and if the memorandum was delivered by another person interested in the charge to that person, a copy of the memorandum filed by him and of the note made by him as to the date on which it was delivered.
(5) If a duly signed memorandum is delivered in a case where the charge in fact continues to affect the company's property, the charge is void as against—

(a) an administrator or liquidator of the company, and

(b) any person who for value acquires an interest in or right over property subject to the charge,

where the relevant event occurs after the delivery of the memorandum.
(6) Where a relevant event occurs on the same day as the memorandum is delivered, it shall be presumed to have occurred before the memorandum is delivered unless the contrary is proved.".
Further provisions with respect to voidness of charges
The following sections are inserted in Part XII of the Companies Act 1985—
"Further provisions with respect to voidness of charges Exclusion of voidness as against unregistered charges
404.—(1) A charge is not void by virtue of this Part as against a subsequent charge unless some or all of the relevant particulars of that charge are duly delivered for registration—

(a) within 21 days after the date of its creation, or

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(b) before complete and accurate relevant particulars of the earlier charge are duly delivered for registration.

(2) Where relevant particulars of the subsequent charge so delivered are incomplete or inaccurate, the earlier charge is void as against that charge only to the extent that rights are disclosed by registered particulars of the subsequent charge duly delivered for registration before the corresponding relevant particulars of the earlier charge.
(3) The relevant particulars of a charge for the purposes of this section are those prescribed particulars relating to rights inconsistent with those conferred by or in relation to the other charge.
Restrictions on voidness by virtue of this Part
405.—(1) A charge is not void by virtue of this Part as against a person acquiring an interest in or right over property where the acquisition is expressly subject to the charge.
(2) Nor is a charge void by virtue of this Part in relation to any property by reason of a relevant event occurring after the company which created the charge has disposed of the whole of its interest in that property.
Effect of exercise of power of sale
406.—(1) A chargee exercising a power of sale may dispose of property to a purchaser freed from any interest or right arising from the charge having become void to any extent by virtue of this Part

(a) against an administrator or liquidator of the company, or

(b) against a person acquiring a security interest over property subject to the charge;

and a purchaser is not concerned to see or inquire whether the charge has become so void.
(2) The proceeds of the sale shall be held by the chargee in trust to be applied —

First, in discharge of any sum effectively secured by prior incumbrances to which the sale is not made subject;

Second, in payment of all costs, charges and expenses properly incurred by him in connection with the sale, or any previous attempted sale, of the property;

Third, in discharge of any sum effectively secured by the charge and incumbrances ranking pari passu with the charge;

Fourth, in discharge of any sum effectively secured by incumbrances ranking after the charge;

and any residue is payable to the company or to a person authorised to give a receipt for the proceeds of the sale of the property.
(3) For the purposes of subsection (2)—

(a) prior incumbrances include any incumbrance to the extent that the charge is void as against it by virtue of this Part; and

(b) no sum is effectively secured by a charge to the extent that it is void as against an administrator or liquidator of the company.

(4) In this section—

(a) references to things done by a chargee include things done by a receiver appointed by him, whether or not the receiver acts as his agent;

(b) "power of sale" includes any power to dispose of, or grant an interest out of, property for the purpose of enforcing a charge (but in relation to Scotland does not include the power to grant a lease), and references to "sale" shall be construed accordingly; and

(c) "purchaser" means a person who in good faith and for valuable consideration acquires an interest in property.

(5) The provisions of this section as to the order of application of the proceeds of sale have effect subject to any other statutory provision (in Scotland, any other statutory provision or rule of law) applicable in any case.
(6) Where a chargee exercising a power of sale purports to dispose of property freed from any such interest or right as is mentioned in subsection (1) to a person other than a purchaser, the above provisions apply, with any necessary modifications, in relation to a disposition to a purchaser by that person or any successor in title of his.
(7) In Scotland, subsections (2) and (7) of section 27 of the Conveyancing and Feudal Reform (Scotland) Act 1970 apply to a chargee unable to obtain a discharge for any payment which he is required to make under subsection (2) above as they apply to a creditor in the circumstances mentioned in those subsections.
Effect of voidness on obligation secured.
407.—(1) Where a charge becomes void to any extent by virtue of this Part, the whole of the sum secured by the charge is payable forthwith on demand; and this applies notwithstanding that the sum secured by the charge is also the subject of other security.
(2) Where the charge is to secure the repayment of money, the references in subsection (1) to the sum secured include any interest payable.".
Additional information to be registered.
. The following sections are inserted in Part XII of the Companies Act 1985 —
"Additional information to be registered Particulars of taking up of issue of debentures.
408.—(1) Where particulars of a charge for securing an issue of debentures have been delivered for registration, it is the duty of the company—

(a) to deliver to the registrar for registration particulars in the prescribed form of the date on which any debentures of the issue are taken up, and of the amount taken up, and

(b) to do so before the end of the period of 21 days after the date on which they are taken up.

(2) Where particulars in the prescribed form are delivered to the registrar for registration under this section, he shall file them in the register.
(3) If the company fails to comply with subsection (1). the company and every officer of it who is in default is liable to a fine.
Notice of appointment of receiver or manager, &c.
409.—(1) If a person obtains an order for the appointment of a receiver or manager of a company's property, or appoints such a receiver or manager under powers contained in an instrument, he shall within seven days of the order or of the appointment under those powers, give notice of that fact in the prescribed form to the registrar for registration.
(2) Where a person appointed receiver or manager of a company's property under powers contained in an instrument ceases to act as such receiver or manager, he shall, on so ceasing, give notice of that fact in the prescribed form to the registrar for registration.
(3) Where a notice under this section in the prescribed form is delivered to the registrar for registration, he shall file it in the register.
(4) If a person makes default in complying with the requirements of subsection (1) or (2), he is liable to a fine.
(5) This section does not apply in relation to companies registered in Scotland (for which corresponding provision is made by sections 53, 54 and 62 of the Insolvency Act 1986).
Notice of crystallisation of floating charge, &c.
410.—(1) The Secretary of State may by regulations require notice in the prescribed form to be given to the registrar of—

(a) the occurrence of such events as may be prescribed affecting the nature of the security under a floating charge of which particulars have been delivered for registration, and

(b) the taking of such action in exercise of powers conferred by a fixed or floating charge of which
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particulars have been delivered for registration, or conferred in relation to such a charge by an order of the court, as may be prescribed.

(2) The regulations may make provision as to—

(a) the persons by whom notice is required to be, or may be, given, and the period within which notice is required to be given;

(b) the filing in the register of the particulars contained in the notice and the noting of the date on which the notice was given; and

(c) the consequences of failure to give notice.

(3) As regards the consequences of failure to give notice of an event causing a floating charge to crystallise, the regulations may include provision to the effect that the crystallisation—

(a) shall be treated as ineffective until the prescribed particulars are delivered, and

(b) if the prescribed particulars are delivered after the expiry of the prescribed period, shall continue to be ineffective against such persons as may be prescribed,

subject to the exercise of such powers as may be conferred by the regulations on the court.
(4) The regulations may provide that if there is a failure to comply with such of the requirements of the regulations as may be prescribed, such persons as may be prescribed are liable to a fine.
(5) Regulations under this section shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.
(6) Regulations under this section shall not apply in relation to a floating charge created under the law of Scotland by a company registered in Scotland.".
Copies of instruments and register to be kept by company.
The following sections are inserted in Part XII of the Companies Act 1985—
"Copies of instruments and register to be kept by company Duty to keep copies of instruments and register.
411.—(1) Every company shall keep at its registered office a copy of every instrument creating or evidencing a charge over the company's property.
In the case of a series of uniform debentures, a copy of one debenture of the series is sufficient.
(2) Every company shall also keep at its registered office a register of all such charges, containing entries for each charge giving a short description of the property charged, the amount of the charge and (except in the case of securities to bearer) the names of the persons entitled to it.
(3) This section applies to any charge. whether or not particulars are required to be delivered to the registrar for registration.
(4) If a company fails to comply with any requirement of this section, the company and every officer of it who is in default is liable to a fine.
Inspection of copies and register.
412.—(1) The copies and the register referred to in section 411 shall be open to the inspection of any creditor or member of the company without fee; and to the inspection of any other person on payment of such fee as may be prescribed.
(2) Any person may request the company to provide him with a copy of —

(a) any instrument creating or evidencing a charge over the company's property, or

(b) any entry in the register of charges kept by the company, on payment of such fee as may be prescribed.

This subsection applies to any charge, whether or not particulars are required to be delivered to the registrar for registration.
(3) The company shall send the copy to him not later than ten days after the day on which the request is received or, if later, on which payment is received.
(4) If inspection of the copies or register is refused, or a copy requested is not sent within the time specified above—

(a) the company and every officer of it who is in default is liable to a fine, and

(b) the court may by order compel an immediate inspection of the copies or register or, as the case may be, direct that the copy be sent immediately.".

Power to make further provision by regulations.
The following section is inserted in Part XII of the Companies Act 1985—
"Supplementary provisions
Power to make further provision by regulations.
413.—(1) The Secretary of State may by regulations make further provision as to the application of the provisions of this Part in relation to charges of any description specified in the regulations.
Nothing in the following provisions shall be construed as restricting the generality of that power.
(2) The regulations may require that where the charge is contained in or evidenced or varied by a written instrument there shall be delivered to the registrar for registration, instead of particulars or further particulars of the charge, the instrument itself or a certified copy of it together with such particulars as may be prescribed.
(3) The regulations may provide that a memorandum of a charge ceasing to affect property of the company shall not be accepted by the registrar unless supported by such evidence as may be prescribed, and that a memorandum not so supported shall be treated as not having been delivered.
(4) The regulations may also provide that where the instrument creating the charge is delivered to the registrar in support of such a memorandum, the registrar may mark the instrument as cancelled before returning it and shall send copies of the instrument cancelled to such persons as may be prescribed.
(5) The regulations may exclude or modify, in such circumstances and to such extent as may be prescribed, the operation of the provisions of this Part relating to the voidness of a charge.
(6) The regulations may require, in connection with the delivery of particulars, further particulars or a memorandum of the charge's ceasing to affect property of the company, the delivery of such supplementary information as may be prescribed, and may—

(a) apply in relation to such supplementary information any provisions of this Part relating to particulars, further particulars or such a memorandum, and

(b) provide that the particulars, further particulars or memorandum shall be treated as not having been delivered until the required supplementary information is delivered.

(7) Regulations under this section shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.".
Other supplementary provisions.
. The following sections are inserted in part XII of the Companies Act 1985—
"Date of creation of charge.
414.—(1) References in this part to the date of creation of a charge by a company shall be construed as follows.
(2) A charge created under the law of England and Wales shall be taken to be created—

(a) in the case of a charge created by an instrument in writing, when the instrument is executed by the company or, if its execution by the company is conditional, upon the conditions being fulfilled, and

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(b) in any other case, when an enforceable agreement is entered into by the company conferring a security interest intended to take effect forthwith or upon the company acquiring an interest in property subject to the charge.

(3) A charge created under the law of Scotland shall be taken to be created—

(a) in the case of a floating charge, when the instrument creating the floating charge is executed by the company, and

(b) in any other case, when the right of the person entitled to the benefit of the charge is constituted as a real right.

(4) Where a charge is created in the United Kingdom but comprises property outside the United Kingdom, any further proceedings necessary to make the charge valid or effectual under the law of the country where the property is situated shall be disregarded in ascertaining the date on which the charge is to be taken to be created.
Prescribed particulars and related expressions.
415.—(1) References in this Part to the prescribed particulars of a charge are to such particulars of, or relating to, the charge as may be prescribed.
(2) The prescribed particulars may, without prejudice to the generality of subsection (1), include—

(a) whether the company has undertaken not to create other charges ranking in priority to or pari passu with the charge, and

(b) whether the charge is a market charge within the meaning of Part VII of the Companies Act 1989 or a charge to which the provisions of that Part apply as they apply to a market charge.

(3) References in this Part to the registered particulars of a charge at any time are to such particulars and further particulars of the charge as have at that time been duly delivered for registration.
(4) References in this Part to the registered particulars of a charge being complete and accurate at any time are to their including all the prescribed particulars which would be required to be delivered if the charge were then newly created.
Notice of matters disclosed on register.
416.—(1) A person taking a charge over a company's property shall be taken to have notice of any matter requiring registration and disclosed on the register at the time the charge is created.
(2) Otherwise, a person shall not be taken to have notice of any matter by reason of its being disclosed on the register or by reason of his having failed to search the register in the course of making such inquiries as ought reasonably to be made.
(3) The above provisions have effect subject to any other statutory provision as to whether a person is to be taken to have notice of any matter disclosed on the register.
Power of court to dispense with signature.
417.—(1) Where it is proposed to deliver further particulars of a charge, or to deliver a memorandum of a charge ceasing to affect the company's property, and—

(a) the chargee refuses to sign or authorise a person to sign on his behalf, or cannot be found, or

(b) the company refuses to authorise a person to sign on its behalf.

the court may on the application of the company or the chargee, or of any other person having a sufficient interest in the matter, authorise the delivery of the particulars or memorandum without that signature.
(2) The order may be made on such terms as appear to the court to be appropriate.
(3) Where particulars or a memorandum are delivered to the registrar for registration in reliance on an order under this section, they must be accompanied by an office copy of the order.
In such a case the references in sections 401 and 403 to the particulars or memorandum being duly signed are to their being otherwise duly signed.
(4) The registrar shall file the office copy of the court order along with the particulars or memorandum.".
Interpretation, &c.
. The following sections are inserted in Part XII of the Companies Act 1985—
"Regulations.
418. Regulations under any provision of this Part, or prescribing anything for the purposes of any such provision—

(a) may make different provision for different cases, and

(b) may contain such supplementary, incidental and transitional provisions as appear to the Secretary of State to be appropriate.

Minor definitions.
419.—(1) In this Part—

"chargee" means the person for the time being entitled to exercise the security rights conferred by the charge;

"issue of debentures" means a group of debentures, or an amount of debenture stock, secured by the same charge; and

"series of debentures" means a group of debentures each containing or giving by reference to another instrument a charge to the benefit of which the holders of debentures of the series are entitled pari passu.

(2) References in this Part to the creation of a charge include the variation of a charge which is not registrable so as to include property by virtue of which it becomes registrable.
The provisions of section 414 (construction of references to date of creation of charge) apply in such a case with any necessary modifications.
(3) References in this Part to the date of acquisition of property by a company are—

(a) in England and Wales, to the date on which the acquisition is completed, and

(b) in Scotland, to the date on which the transaction is settled.

(4) In the application of this Part to a floating charge created under the law of Scotland, references to crystallisation shall be construed as references to the attachment of the charge.
(5) References in this Part to the beginning of insolvency proceedings are to—

(a) the presentation of a petition on which an administration order or winding-up order is made, or

(b) the passing of a resolution for voluntary winding up.

Index of defined expressions.
420. The following Table shows the provisions of this Part defining or otherwise explaining expressions used in this Part (other than expressions used only in the same section)—

charge

sections 395(2) and 396(6)

charge requiring registration

section 396

chargee

section 419(1)

complete and accurate (in relation to registered particulars)

section 415(4)

creation of charge

section 419(2)

crystallisation (in relation to Scottish floating charge)

section 419(4)

date of acquisition (of property by a company)

section 419(3)

date of creation of charge

section 414

further particulars

section 401

insolvency proceedings, beginning of

section 419(5)

issue of debentures

section 419(1)

memorandum of charge ceasing to affect company's property

section 403,

prescribed particulars

section 415(1) and (2)

property

section 395(2)

registered particulars

section 415(3)

registrar and registration in relation to a charge

section 395(4)

relevant event

section 399(2)

series of debentures

section 419(1).".

Charges on property of overseas company.
Application of provisions to unregistered companies.
. The provisions set out in Schedule (Charges on property of oversea company) are inserted in Part XXIII of the Companies Act 1985 (overseas companies), as a Chapter III (registration of charges).'.
. In Schedule 22 to the Companies Act 1985 (provisions applying to unregistered companies), at the appropriate place insert—

"Part XII

Registration of company charges; copies of instruments and register to be kept by company.

Subject to section 718(3).".

Consequential amendments.
. The enactments specified in Schedule (Amendments consequential on Part IV) have effect with the amendments specified there, which are consequential on the amendments made by the preceding provisions of this Part.'.
Lord Trefgarne: My Lords, I think it is now my duty to move that the House do agree with the Commons in their Amendment No. 129.
Moved, That the House do agree with the Commons in the said amendment.—(Lord Trefgarne.)

AS AN AMENDMENT TO COMMONS AMENDMENT NO. 129
129A Page 25, line 25, leave out ("intangible movable").
Lord Lloyd of Kilgerran: My Lords, we now come to an amendment to the long Commons Amendment No. 129. As I glanced through that long amendment my eye caught on the words "intellectual property" and "goodwill". It was inevitable that I should study the amendment rather carefully. The object of my amendment is to ask the Minister whether he can explain what is meant by "intangible moveable property" in relation to goodwill or even intellectual property.
In my view, those words are confusing and totally unnecessary. It is rather late in the evening to start a consideration of what is meant by "goodwill". I had the privilege of discussing in the courts at great length what is meant by "goodwill". I remember appearing before the late Mr. Justice Dankwerts when he interrupted me. He said that he used to buy his cigarettes in a tobacconist's shop where there was a very charming girl who served him. He asked me what part of the goodwill that lady represented in relation to the sale of cigarettes in the shop.
I can understand a charge requiring registration in relation to goodwill alone but I do not understand it when goodwill is defined as "intangible movable property" and I believe that some confusion arises. The same goes for intellectual property. Intellectual property is property. Why call it "intangible movable property"? In the hope that I shall be

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shown to be wrong or have misunderstood the meaning of those words, I beg to move.
Moved, That Amendment No. 129A, as an amendment to Commons Amendment No. 129, be agreed to.—(Lord Lloyd of Kilgerran.)
9.15 p.m.
Lord Williams of Elvel: My Lords, I too have the same problem as the noble Lord, Lord Lloyd of Kilgerran, on the new Section 396 in the Companies Act. I have an even greater problem than he does because as a banker I have never understood how one can charge goodwill. I have asked various banking and accounting friends about this and nobody has come up with a satisfactory answer to how one can charge goodwill.
If one cannot charge goodwill, which is a concept that varies depending upon which accounting procedure and which method of writing off are adopted, clearly it cannot be registrable as a charge. My Amendment No. 129B seeks a government explanation of how on earth anybody can charge goodwill and therefore register that charge.
I do not wish to bore your Lordships with an explanation of how goodwill is treated in accounting terms in various conventions in various parts of the world including the European Community. I do not wish to bore your Lordships with the normal definition of goodwill that is used by bankers when they charge assets. I just wish that the Government would come forward with some definition that any serious banker, accountant or corporate lawyer can accept.
Lord Trefgarne: My Lords, the phrase "intangible movable" is straightforward if read in context. Section 396(1) deals first in paragraph (a) with land or immovable property. It then deals in paragraph (b) with goods, which are defined as tangible movable property. Finally, in paragraph (c) it deals with intangible movable property of certain specified sorts. It therefore makes clear that the primary categorisation in logical sequence is into immovable and movable property. Movable property is in turn divisible into tangible movables and intangibles. We believe that practitioners will find this definition useful in ascertaining which types of property are subject to the requirements of these provisions. As I understand it, practitioners are also content with this form of words. I do not think that we should spend too much time on points that might have been made at Committee stage but were not.
The noble Lord referred to Amendment No. 129C during his remarks. If he prefers that I do not deal with it now, I am happy not to do so.
Lord Lloyd of Kilgerran: My Lords, before the noble Lord sits down, can he help me further? So far he has made me more confused than I was as to the meaning of the words. Has he an example of what is an intangible movable property?
Lord Trefgarne: My Lords, these are very difficult items to define. However, if the noble Lord will refer
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to the careful words that I produced a few moments ago, I hope that he will find the matter rather clearer.
Lord Lloyd of Kilgerran: My Lords, before the noble Lord sits down again, he expressed the hope that I may find the matter clearer, but he is very optimistic. I am even more confused. However, I am very glad that at this late stage I was able to produce a laugh in the Chamber.
There is little further that I can say, except to say to the noble Lord, Lord Williams, that in my experience I have heard of charges being made on goodwill. In that way one estimates what one's goodwill is. The estimate may be wrong by a factor of several hundred per cent. but one can say, "My goodwill is an asset of £x million". Let us take the example of Pepsi Cola, with which I was involved. We had to try to assess what its goodwill was. It was in millions of dollars. Having assessed it, one can then put it in the accounts as a charge. I do not know whether the noble Lord, Lord Williams, wishes to say anything before I sit down.
Lord Williams of Elvel: My Lords, before the noble Lord sits down, I crave the leave of the House as always. I am afraid that in a sense we have to adopt Committee procedure.
Lord Trefgarne: Order!
Lord Mottistone: My Lords, why do we have to adopt Committee procedure? This is not the Committee stage of a Bill. For a long time I have been hearing noble Lords opposite putting points across as though we were in Committee. We are not; we are considering Commons amendments. As I understand it, the procedure in this House is that we do not spend our time bothering about small details when we are doing that. Such consideration comes earlier in the Bill in both Houses of Parliament. We waste time if we do so.
Lord Lloyd of Kilgerran: My Lords, before the noble Lord, Lord Mottistone, sits down, he referred to wasting time. This is the first time that goodwill and intellectual property have been mentioned in the Bill, so far as I understand.
I have looked at the old Section 396 in the 1985 Act and those words do not appear. The wording is totally different. The Government have taken out 42 or 43 clauses, inserted other clauses and said, "They are just summarising; they are pretty well the same as the original". But the wording is totally different. In my view it is therefore perfectly proper that when the noble Lord, Lord Williams, says that he has never heard of a charge in this context I should say that I have heard of a charge. We are trying to be helpful on a very important matter. Goodwill and intellectual property are very valuable assets in companies. We must be at least pragmatic and practical at some time during the course of the evening.
I do not quite know where I stand on my enthusiasm for intellectual property. However, as the Minister cannot give any examples, I must await yet another Bill before we amend this provision. In

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these circumstances, I beg leave to withdraw the amendment.
Amendment No. 129A, as an amendment to Commons Amendment No. 129, by leave, withdrawn.
[Amendment No. 129B not moved.]

AS AN AMENDMENT TO COMMONS AMENDMENT No. 129
129C Page 36 of the Commons Amendments, leave out the proposed new clause (Power to make further provision by regulations).
Lord Williams of Elvel: My Lords, I beg to move Amendment No. 129C. It relates to Commons Amendment No. 129. At the outset, Amendment No. 129 states:
"Leave out Clauses 83 to 94 and insert"
15 pages of material. Therefore, Amendment No. 129C has nothing to do with the discussions which the noble Lord, Lord Lloyd, and I have had with the Minister. This morning I discussed the groupings at length with the Government Whips' Office because it is impossible to discuss amendments to Amendment No. 129 without grouping them together.
The object of Amendment No. 129C is to leave out the proposed new clause dealing with the power to make further provision by regulations. It appears on page 36 of the Marshalled List of Commons amendments and it is a new Section 413 of the Companies Act 1985. If the Bill is passed as the Commons wish us to pass it, provision is made that,
"The Secretary of State may by regulations make further provision as to the application of the provisions of this Part in relation to charges of any description specified in the regulations.
Nothing in the following provisions shall be construed as restricting the generality of that power".
In other words, the Secretary of State can change the whole ball of wax as and when he wishes. He can change the Act, the nature of the charges, the memoranda and the nature of the registrar's certification. In fact, he can change anything he wishes under negative procedure. Leaving aside the point argued ad nauseam and ad infinitum by the noble Lords, Lord Rippon and Lord Lloyd, and myself, that appears to be extraordinary. In the whole registration charges why not have one simple clause providing that the Secretary of State can say what he likes, when he likes?
Moved, That Amendment No. 129C, as an amendment to Commons Amendment No. 129, be agreed to.—(Lord Williams of Elvel.)
Lord Trefgarne: My Lords, I recognise the concern expressed about the inclusion of enabling powers in the Bill. But the Government have sought to include such powers only where they are thought to be appropriate. The powers in new Section 413 are not remarkable. They follow the example of other similar provisions in statutes that establish registers. The noble and learned Lord the Lord Chancellor has very wide powers to make rules in respect of the land register under the Land Registration Act. Other registers, such as those for aircraft mortgages and fishing boats, are largely set up by secondary legislation. The use of secondary legislation recognises the fact that there are many detailed
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provisions relating to registration systems that are properly dealt with outside primary legislation. These mainly concern matters of procedure, not fundamental principles of law.
We have been careful in drawing up the power in as narrow a manner as possible. The Secretary of State will be able to make further provision only as to the operation of the primary legislation. Unlike other powers he cannot amend, repeal or replace the primary legislation. He will not be able to make wide-ranging amendments to the legislation as it affects all categories of charge.
It is interesting to note the view expressed by the Inspector of Companies when the original provisions on the registration of charges were introduced as far back as the Companies Act 1900. The inspector then said:
"Considering the complicated character of this clause, and the inconvenience which may arise should it be defective, would it not be well to give power to modify the machinery of registration and the Acts incidental to it by rules".
Unfortunately, that suggestion was not taken up; but it reinforces the point that we are not suggesting anything radically new in recommending that the House approve the provisions of the new Section 413. Indeed, the power in that new section does not go so far as that suggested by the Inspector of Companies. I hope that your Lordships will agree that it is entirely appropriate for the Secretary of State to be able to complement legislation which establishes a machinery of legislation by additional provisions made by regulations.
Lord Williams of Elvel: My Lords, I am grateful to the noble Lord for his explanation of what this is about. That does not seem to me to answer the point which I am trying to make. If this amendment is accepted, the Secretary of State may make regulations as to the application of the provisions of this part. As we have already discussed, the whole part dealing with the registration of charges is fairly vague in its application at present. A number of lawyers, companies and banks still do not know quite how it will all work. Either we have primary legislation which sets out what will happen and sets out the basis on which it will happen or we have an alternative; namely, that there is a one clause part which says that there will be a registration of charges and regulations will be made by the Secretary of State to define what those are.
To be honest, I do not believe that the powers of the noble and learned Lord the Lord Chancellor in respect of the registers which the noble Lord cited are quite as important as the registration of charges in the corporate sector, if I may speak without disrespect to the noble and learned Lord on the Woolsack.
This is a very, very important matter. Banks can live or die by registration of charges. For the Secretary of State to be able to make regulations when he feels like it about the provisions and applications of this part seems to me a very curious way of going about the business.

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However, yet again we are up against this brick wall that the Government wish to regulate everything in sight. They do not know how they will do that and so they say that they will have a sort of Henry VIII system whereby they can do whatever they like. I am afraid that I shall continue to protest every time that this matter comes before your Lordships.
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However, I shall not divide the House and I beg leave to withdraw the amendment.
Amendment No. 129C, as an amendment to Amendment No. 129, by leave, withdrawn.
On Question, Amendment No. 129 agreed to.
9.30 p.m.

COMMONS AMENDMENT
130 Clause 95, page 93, line 26, leave out from 'of' to end of line 28 and insert, 'anything in the company's memorandum.'.
The Lord Advocate (Lord Fraser of Carmyllie): My Lords, I beg to move that this House do agree with the Commons in their Amendments Nos. 130, 135, 136, 137, 138. These amendments and the following five groups reflect comments we have received from interested parties including the Law Society and the Law Society of Scotland, since Clauses 95 to 99 were inserted into the Bill in our Committee consideration. We are very grateful to consultees for the comments they have given us. The amendments which have resulted do not represent any change in the substance of the policy on ultra vires. But they do clarify a few issues, improve the drafting and make some changes of detail.
Amendment No. 130 extends the protection in new Section 35 against a company's lack of capacity from the case of any limitation flowing from the objects clause to any limitation there may be in the company's memorandum of association. It may be that in practice this change will make no difference; nobody has been able to point to a case in which any limitation on a company's capacity has definitely been held to arise from any provision in the memorandum other than the objects clause. However, arguments have been put to us that such limitations could in theory arise, and the present Section 35 of the Companies Act does contain a general reference to the company's memorandum.
Since our policy is one of conferring complete protection on third parties from lack of capacity of a company, we have thought it right to make it crystal clear that challenges on grounds of lack of capacity to a completed transaction by reference to the terms of the memorandum are no longer to be possible in any shape or form.
Although there are a number of other amendments coupled with this one, they are in essence minor. I beg to move.
Moved, That the House do agree with the Commons in the said amendment.—(Lord Fraser of Carmyllie.)
Lord Wedderburn of Charlton: My Lords, I thank the noble and learned Lord for his explanation. We can say at once that we welcome some of the changes in these particular amendments that were made in the other place. Perhaps I may go a little further with the noble and learned Lord's introduction of these amendments. Now that we come to Part V of the Bill I am sure the noble and learned Lord will agree that we must remember the importance of this area. It was the noble Lord, Lord Strathclyde, who, on 21st November at col. 509 said that this matter went to the heart of the operation of the limited liability company.
In the other place the Under-Secretary of State for Corporate Affairs, Mr. Maude, said in Committee, that,
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"it is vital that the drafting of the clause is correct because it is essential to the concept of the limited liability, company, its legal personality and the balance between the board and the shareholders".—[Official Report, Commons, Standing Committee D, 20/6/89; col. 415.]
I do not think anything divides us from the Government on that.
What we would stress, now that we come to these amendments—and although we welcome some of the changes in Amendments Nos. 130 and 135, when we go a little further the harmony which has broken out will not, I fear, last—is that we think it right that this debate on these matters here tonight, because of the importance of the matter, should not be unnecessarily hasty.
The noble and learned Lord mentioned the Government's policy on this. I take it, as he said, that that has not changed and therefore what we are facing is a series of amendments dealing with clauses which, if I may use the words of the Minister in another place, again in Committee at col. 418, aims to abolish the external aspects of the ultra vires principle, as he put it, and,
"to provide greater protection for third parties, but to retain the possibility of internal control by shareholders".
I am not clutching at a mere phrase that the noble and learned Lord threw out, but I noticed that he spoke of "complete" protection for third parties. That is a slight difference of emphasis, and after these non-controversial changes—which we welcome—we come to the question whether the Government have that balance right. It is important because these clauses were not debated elsewhere. The Government gave notice of their intention in Committee, laid them on Report, whereupon they were passed on a guillotine timetable on 26th October. We can therefore welcome these particular amendments that the noble and learned Lord moves.
On Question, Motion agreed to.

COMMONS AMENDMENT
131 Clause 95, page 93, leave out lines 29 to 36 and insert—
'(2) A member of a company may bring proceedings to restrain the doing of an act which but for subsection (1) would be beyond the company's capacity; but no such proceedings shall lie in respect of an act to be done in fulfilment of a legal obligation arising from a previous act of the company.
(3) It remains the duty of the directors to observe any limitations on their powers flowing from the company's memorandum; and action by the directors which but for subsection (1) would be beyond the company's capacity may only be ratified by the company by special resolution.
A resolution ratifying such action shall not affect any liability incurred by the directors or any other person; relief from any such liability must be agreed to separately by special resolution.
(4) The operation of this section is restricted by section 30B(1) of the Charities Act 1960 and section 99(3) of the Companies Act 1989 in relation to companies which are charities; and section 322A below (invalidity of certain transactions to which directors or their associates are parties) has effect notwithstanding this section.'.
Lord Fraser of Carmyllie: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 131. This amendment concerns the provisions on the objects of a company and its legal capacity. The amendment has several effects. It

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expressly enacts the right of a shareholder to bring proceedings to restrain the committing of an ultra vires act, instead of merely saving it as at present. Secondly, it expressly enacts that it remains the duty of the directors to observe any limitation on their capacity flowing from the company's memorandum.
At present the Bill is expressed as preserving any such liability of the directors. For the similar reason of not wishing to exonerate directors from liability, the amendment also makes clear that ratification by the company of an ultra vires act which would otherwise not bind the company on the grounds of lack of authority of the directors, does not affect any liability incurred by the directors or any other person.
It is provided that the company may by special resolution provide relief, but this must be agreed to separately from the ratification of the act itself. That is to prevent directors only putting forward one resolution on the agenda thereby giving the shareholders—if they want to ratify the act and take advantage of it—no option other than to absolve the persons concerned of their liability for any loss suffered. I recall that at an earlier stage the noble Lord, Lord Wedderburn, indicated, as he did concerning an earlier matter, that he would give this point a welcome also.
On Question, Motion agreed to.

AS AN AMENDMENT TO COMMONS AMENDMENT No. 131
131A Line 5, leave out ("a previous act of the Company") and insert ("an act of the Company done before the Company receives written notice from the member stating that there are grounds for such proceedings").
Lord Wedderburn of Charlton: My Lords, I beg to move Amendment No. 131A. We welcome the noble and learned Lord's introduction to Amendment No. 131 and the changes as regards the liability of directors in subsection (3) as it now is. However, I have heard many different views already from those who are in the field, as it were, of the meaning of the need to have relief for the directors agreed to separately by special resolution rather than by separate special resolution.
I do not pursue that matter because I believe it is a small point which may make for difficulty in practice. It is my task to move this amendment, which goes to a very important and difficult matter. I shall try to observe the advice that a noble Lord once gave me in this place. He said, "Please make your points quickly but speak more slowly".
It is not an easy matter. The Government intend to abolish the external effects of ultra vires but not its internal effects. The noble and learned Lord has repeated that the Government intend to give the shareholder a right to bring proceedings. From these Benches we have never quarrelled with the view that the ultra vires doctrine needed further legislative reform. We would have preferred more of the features of the Prentice Report which the Government have rejected.
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We do not propose that the new section should do anything other than fully comply with our obligations under the Community's first directive on company law. We have doubts, which we have already put to the Government, that even these clauses comply as regards Article 2 (1) (d) of the directive. What we question here is whether the balance struck by the Government's new version is adequate or workable for the purposes of the internal aspect. The Minister, Mr. Maude, in Committee in the other place, as reported at col. 418 of Hansard, spoke of retaining the possibility of internal control by the shareholders.
Unless the right of action that is purported to be given to the shareholder in the new Section 35 is a reality, that balance is upset. We all know that these clauses will create on the statute book a situation where directors will have further power in addition to that which they have at the moment under the Companies Act. If a company is formed in Kent by shareholders who subscribe their funds solely for the purpose of opposing the bulldozing of their village for a proposed new railway line, and it so states in the memorandum, and if the directors dispose of the funds by contract or—I believe that the noble and learned Lord will agree—by gift in view of the definition of "act" in the clauses, or any other legally binding transaction, the third party takes good title.
It is true that the directors will remain liable for breach of duty. But they may be men of straw and unable to restore the company's funds. The issue therefore arises as to what chance a shareholder has of operating as an accountable control within the company concerning these matters, for there is no other control at this point. I ask the noble and learned Lord whether he can help us on the way to this very difficult balance by saying what the Government mean. They have spoken a number of times; for example, in Committee in another place, as reported at col. 415 of Hansard, and also at Committee stage in this House on 21st February —col. 512 of the Official Report. I quote from Mr. Maude speaking in the other place:
"We do not want to impair shareholders' ability to obtain damages from directors who breach their duties".
The duties of directors are owed to the company and not, in the normal case, to the shareholders. The shareholder will normally be able to operate only by way of a derivative action, suing on behalf of the company, if one likes to put it that way. But even in that instance there is a division. In the most recent English authority, Mr. Justice Knox, in the case of Smith v. Croft in 1987, distinguished the case of a shareholder suing derivatively to recover for loss suffered by the company after an ultra vires transaction and the case of a shareholder suing personally to prevent an ultra vires transaction.
Most people seem to read this clause as preserving only the second type of shareholder action, where proceedings are brought to restrain the doing of an ultra vires act. There is therefore a possible loss. Where the gain is not made by the directors or where they cannot in any way restore the loss by some third party, obviously the company loses out there. It is to the improvement of the possibility of the shareholder moving in as a piece of internal control, to use the

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words Ministers have used themselves, that this amendment is directed. I hope that on this point the noble and learned Lord and I can be on common ground. We did not move in Committee to amend the new Section 35 because a subsection in new Section 35A gave the shareholder a much wider power to bring legal proceedings without the litigation that he could sue only, as it is now put, in respect of an act to be done in fulfilment of a legal obligation arising from a previous act of the company. What is now amended by Amendment No. 134 in the old Section 35A(2) gave him a much wider right. But now, both in respect of vires and in respect of directors' authority, the shareholder is limited to bringing proceedings in respect of an act to be done in fulfilment of a legal obligation arising from a previous act of the Company.
The question arises: an act "previous" to what? I have heard various arguments. Some have said that the clause might mean "an act previous to the obligation arising". Others have said, "an act previous to the commencement of the proceedings". The majority view seems to be "an act previous to the other act to be done"—an act creating a legal obligation before the act which the shareholder seeks to restrain. That seems to be the meaning of the clause. If it means that, as a matter of common sense, the shareholder will almost never have the chance to restrain the act to be done. The act which is done before it by the directors creates a legal obligation which, under Section 35A, is immediately binding in favour of the third party, provided he is acting in good faith. The shareholder cannot upset the transaction. There is nothing for him to restrain. He cannot restrain the execution of the executory contract because the company is bound to the contract under Section 35A. I take it that the noble and learned Lord agrees with that analysis.
When can the shareholder sue? Under the clause as it now stands, lacking the power that he used to have under the change to be made under Amendment No. 134 (we do not seek to upset that change in Amendment No. 134 because, having looked at it again, we think it is probably in accordance with the first directive to which I shall come in a moment) the shareholder can retain his right of action only where he gets to know of the act which creates the legal obligation. If on a Monday he believes that an impending transaction is arguably ultra vires—if a Kent shareholder gets wind of the coming transfer of the company's assets to the bulldozer company—by the time he has seen his solicitor (albeit that, under the reforms of the profession, solicitors are now more speedy than they used to be) and had him issue a writ on the Wednesday, the directors will, in the average case, have signed the contract on the Tuesday because the directors believe in what they are doing.
Our amendment is not a large one but it is important in practice. It proposes that the matter should not depend precisely on that legalism, if I may put it that way, but on whether the shareholder notifies the company formally that there are grounds for believing that the transaction is outwith the capacity of the company. In other words, it shifts
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the boundary, the cut-off point, between the external and the internal slightly in favour of the shareholder.
I should make one last point because I must pre-empt the question of whether our amendment is not only better—and we think it is—but that it is also within the terms of the first directive. Here of course we must look to the first directive of the Community all the time. I say to the noble and learned Lord quite straightforwardly that I hope he will not just tell us that our amendment is outwith the directive—if he thinks that it is—without putting forward careful grounds. We believe that the grounds for including our amendment within the directive are as good as those in respect of the Government's new subsection (2) as set out in Amendment No. 131.
The first directive requires the company to be bound to third parties by,
"acts done by the organs of the company",
even though those acts may be outside the company's objects. However, it is subject to a proviso. In fact it is subject to two provisos, but the Government have always refused to use the second one which is that the third party is not bound if he has knowledge, providing certain formalities are observed, of the ultra vires transaction. Many member states have such a proviso in their commercial law. But the Government will not use it. Nevertheless, they cannot escape the other proviso which reads as follows:
"unless such acts exceed the powers that the law confers or allows to be conferred on those organs".
Those words are contained in Article 9, paragraph 1, which is about ultra vires. Paragraph 2 of Article 9—about which there has been some confusion during previous debates—is not about ultra vires; it is about authority, and we cannot use that proviso in this case. That is why we do not oppose Commons Amendment No. 134.
We are not concerned here with the powers of directors—that is, the organs—we are concerned with the ultra vires transaction. We say that that proviso is well wide enough to allow for our amendment. The amendment ensures that the law shall not confer on the board of directors—as the corporate organ—the power to dispose of the company's assets beyond the stated purpose of the enterprise, after it has received formal notice from the shareholder that there are grounds for saying that it is outside the purposes for which they invested their money. That seems to us to be a reasonable proposition. It is one which is contained in the first directive. Perhaps I may, yet again, quote the Minister who said in another place: Of course it will remain possible for restrictions to be placed on a company by its shareholders. We believe that the ambition is better achieved by our amendment than it is by what has arisen—and we recognise this fact—from a very complex and difficult set of deliberations on the matter by the Government. However, at this last stage of the proceedings we would urge them to consider our amendment favourably.
Lord Mottistone: My Lords, I support Amendment No. 131—that is, without the refinements just

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referred to by the noble Lord, Lord Wedderburn. The CBI advises me quite simply that this amendment will codify the common law position whereby a minority shareholder may take proceedings to restrain the doing of an ultra vires act. I am assured that it is really quite simple and straightforward and not perhaps as elaborate as has been portrayed to us.
The CBI also advised me that it believes the wording,
"powers flowing from the company's memorandum",
contained in subsection (3) of the amendment to Clause 95 could more accurately be expressed by the words,
"the powers flowing from a company's articles".
It was not thought necessary to put this forward as an amendment but it is worthy of the Government's consideration. Perhaps there may be time for them to make such a correction if it proves to be necessary.
Lord Fraser of Carmyllie: My Lords, I shall respond as briefly as I can to what has been said. If I understood the argument of the noble Lord, Lord Wedderburn, correctly, he appeared to be suggesting that the provisions now provided are essentially exhaustive of the remedies available to a shareholder derivatively or otherwise. It is essentially a provision with a more restricted purpose. In order to protect that third party, acting in good faith, subsection (2) clearly illustrates the restrictions on his ability to bring proceedings to restrain the doing of an act. It is not intended to cover any other remedies that there might be.
As the noble Lord will appreciate, it is all being done in the context of establishing a balance between what is done internally in the company and how it affects those who are outwith it and operate with it in good faith.
In answer to my noble friend Lord Mottistone, originally we were dealing with what were essentially the objects of the company, but, as I sought to indicate in relation to the earlier amendment, what was said to us—it may at least in part be what is being said by the CBI—was that we should not deal just with the matter in relation to the articles or the objects, but ensure that any provision in the memorandum is covered rather than restricted in any way. That essentially reflects the present position under the Companies Act.
I turn now to Amendment No. 131A. I listened carefully to what the noble Lord, Lord Wedderburn, said about the first EC directive and, in particular, Article 9 thereof. It is the Government's view that if the noble Lord's amendment were to be introduced it would put us in breach of our international obligation, because the article provides that the acts of a company are to be binding on it, even if they are not within the objects, subject to the member state's option to provide that knowledge of the objects by the third party renders void a transaction with him which is beyond the objects. By allowing ultra vires acts to be set aside where a member of a company has given certain written advice to the company, without even introducing an element of knowledge on the part of the third party, it would
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appear to the Government that the amendment would be contrary to the article of that first directive.
Lord Wedderburn of Charlton: My Lords, I am grateful to the noble and learned Lord. I apologise for interrupting him, but I want to make clear the ground between us on the issue of the first directive. He read the opening words, but I shall read the whole of the first sentence. Article 9 paragraph 1 reads:
"Acts done by the organs of the company shall be binding upon it, even if those acts are not within the objects of the company, unless such acts exceed the powers that the law confers or allows to be conferred on those organs".
The article continues with the point about knowledge, which is not between us, and which the Government do not wish to use. It is an option that they reject. However, it is clear that there is a proviso, which needs no exercise of any option, before we come to the second proviso. It is that upon which we rely, as do some other member states.
Lord Fraser of Carmyllie: My Lords, despite what the noble Lord has just said, he seems to agree with me that an ultra vires act can be set aside where the third party has no knowledge of it. The amendment would be contrary to the article of the first directive. That, I understand, the noble Lord agrees. If it is flawed in that respect, he must necessarily concede that his whole amendment must fail.
In any event, the amendment that he proposes would extend the circumstances in which a member of a company may bring proceedings to restrain the doing of an act which would be beyond the company's capacity. As I understand it, under the noble Lord's amendment, rather than no right to bring proceedings being effective where an act is in fulfilment of a legal obligation arising from a previous act of the company, no proceedings are to lie where the legal obligation arises from an act of the company done before the company receives written advice from the member stating that there are grounds for such proceedings.
I should like to suggest that this amendment would reintroduce an unnecessary degree of uncertainty on the part of third parties. Let us take a specific example of a company which, without having the legal capacity under its memorandum, has entered into a contract to purchase land but the conveyance has not yet been completed. Under the amendment the other party to the contract could not be certain of its being honoured, for a member of the company may have advised the company before it entered into the contract that there were grounds for restraining the doing of the act. The other party may be entirely unaware that the act was beyond the company's capacity and may have no idea that a member has advised the company of that effect. Yet under the amendment he could not enforce the contract and could face considerable losses in the course of its unravelling.
This is all the more objectionable because the Government Amendment No. 131 allows a member to take effective action in the circumstances with which we are concerned. The noble Lord's amendment concerns the case, and only the case, where a member is aware that a proposed act is

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beyond the member's capacity and wishes to prevent it. With respect, it seems to me that there is more than one ground for taking exception to this amendment. I hope that the noble Lord now understands the Government's position.
10 p.m.
Lord Wedderburn of Charlton: My Lords, I must not pursue this argument because I shall have to withdraw the amendment. I understand the Government's position. I had not realised that it was as wrong as I now think it is. While we are discussing the directive, I must say that the noble and learned Lord has not engaged with me upon it. It is not a question of the third party's knowledge. Of course the case that I am out for is where the third party may lose out. But that is the whole point: that there may be some cases where a third party loses out and where a shareholder stops the ultra vires transaction.
What is wrong with the Government's new formula is that there will almost never—I shall not say never—be a case where the proposed right of the shareholder to sue can be operated. There will always have been an act which creates some legal obligation under Section 35A. The shareholder will never have an action, except possibly in the case of a gift. There, there is no previous act to the act which creates the obligation, and no subsequent act. It is all one and the clause does not seem to cover it. However, that is a strange point about the drafting. Other than that, the shareholders lose out completely.
The directive allows us to give, and member states have given, to the organs of the company a restricted power under the proviso of Article 9(1). Every time we have legislation on the matter, what is put forward, with great respect, appears to misunderstand the first directive. This is well known in Brussels to be one of the Achilles' heels of the British. There are not many of them—most are largely unassailable—but this is one of them.
The Government are making a great mistake here. After this comes into operation—I am surprised at the constituency which the Government will be offending—what will be seen is that there is no balance between internal and external, except in regard to directors' liabilities. I must of course add that; and I agree that directors' liabilities remain. But apart from that, the shareholder will in effect have no right of action at all. However, the Government insist on enacting that. Therefore I must beg leave to withdraw the amendment.
Amendment No. 131A, as an amendment to Commons Amendment No. 131, by leave, withdrawn.
On Question, Amendment No. 131 agreed to.

COMMONS AMENDMENT
132 Page 94, line 4, at end insert—
'(c) a person shall be presumed to have acted in good faith unless the contrary is proved.'.
Lord Fraser of Carmyllie: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 132, and coupled with that, Amendment No. 134. The government amendments resolve certain questions which have arisen on the
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drafting of the new Section 35A. That section protects a person dealing with a company in good faith from limitations under the company's constitution on the power of the board of directors to bind the company or to authorise others to do so.
Amendment No. 132 provides for it to be presumed that a person is to be regarded as acting in good faith unless the contrary is proved. Such a presumption was inserted in the existing Section 35 of the Companies Act. If, as we wish, we are to protect persons dealing with a company, we think the onus should be on the person seeking to challenge the validity of an act to show that the other party was acting in bad faith.
Amendment No. 134 brings new Section 35A into line with the parallel provision in new Section 35 by providing that proceedings cannot be brought to restrain the doing of an act which is beyond the powers of the directors if the act is in fulfilment of a legal obligation arising from a previous act of the company. An example of such an act, as I have already indicated, might be one where a conveyance is carried out in fulfilment of an agreement to sell land.
Moved, That the House do agree with the Commons in the said amendment.—(Lord Fraser of Carmyllie.)
Lord Wedderburn of Charlton: My Lords, I wish to ask the noble and learned Lord a question. We have no great objection to Amendment No. 132, unless it be that the last few words are surplus. The words,
"shall be presumed to have acted in good faith",
seem enough. However, the paragraph which does not appear on the Marshalled List but which will remain in the Bill states:
"(b) a person shall not be regarded as acting in bad faith by reason only of his knowing that an act is beyond the powers of the directors under the company's constitution".
The third party receives a double bonus. Once again all the presumptions are for the third party. He has the presumption of good faith, and even if he knows that the directors are acting contrary to their authority he is not thereby regarded as being in bad faith. On the new structure of the clause, will the noble and learned Lord give us art example of a third party who was in bad faith given that he is presumed to be in good faith and his knowledge of the lack of authority is not bad faith itself, other than someone who is merely out maliciously to injure the enterprise? The latter is not a very interesting situation. However, in an ordinary commercial situation, can the noble and learned Lord give me an example of bad faith?
Lord Fraser of Carmyllie: No, my Lords. I do not think I can give the noble Lord an answer to that. I think it is quite clear that there will be a large number of circumstances where there is bad faith. What is more important to determine are those circumstances in which a person is acting in good faith. I had anticipated that the noble Lord would be concerned about the fact that just because someone knows something it is not automatically to be assumed that he is acting in bad faith. An example

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of that is where a person has been given some assurance that a necessary authorisation will be obtained, but it has not yet arrived, and ultimately it is not forthcoming.
Similarly, there may be circumstances where a large organisation is involved, although the term "a person" is used. One branch of that organisation may be presumed to have knowledge of the powers because it has a copy of the memorandum of the company, whereas it is another branch of the same organisation which is contracting. It would seem to me that rather than try to range extensively over what may amount to bad faith, it is more important to establish the limitations of good faith.
Lord Williams of Elvel: My Lords, before the noble and learned Lord sits down, will he answer the question that my noble friend put to him on why the last few words in Amendment No. 132 are necessary?
Lord Fraser of Carmyllie: My Lords, with the leave of the House, I should say that the provision states:
"a person shall be presumed to have acted in good faith unless the contrary is proved".
I see what the noble Lord is driving at, but I should think in any circumstances it cannot be said that that creates any difficulty. It certainly does not cause any obscurity. However, I think that is a matter for the draftsmen. I cannot believe that the noble Lord is in any sense confused by what is provided.
On Question, Motion agreed to.

COMMONS AMENDMENT
133 Page 94, leave out lines 5 to 9 and insert—
'(2A) The references to limitations on the directors' powers under the company's constitution include limitations deriving—

(a) from a resolution of the company in general meeting or a meeting of any class of shareholders, or

(b) from any agreement between the members of the company or of any class of shareholders.'.

Lord Fraser of Carmyllie: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 133. Amendment No. 133 adds some clarification to the meaning of limitations on the directors' powers under the company's constitution. It makes clear that the limitations include any deriving from a resolution of a class of shareholders. It has been pointed out to us that the articles of association may confer special rights in favour of the members of a class of shareholders, and we thought it right to make clear that a person would be protected from limitations imposed by a resolution of such a class.
Moved, That the House do agree with the Commons in the said amendment.—(Lord Fraser of Carmyllie.)
10.15 p.m.

AS AN AMENDMENT TO COMMONS AMENDMENT NO. 133.
133A At end insert ("but do not include limitations concerning the quorum of the board of directors").
Lord Wedderburn of Charlton: My Lords, I beg to move Amendment No. 133A. In many ways, we regard our amendment as raising the most important matter in this whole part. Our amendment is possible because there is the new subsection going some way to define, or indicate, what is meant by limitations on the directors' powers. We believe there is a central point which has caused uncertainty since the legislation of 1972, which this is an opportunity to put right. It is a nettle which no government previously have been prepared to grasp.
The main objective of the directive, on which the Government have centred very strongly, was to remove uncertainty from commercial transactions. We are now into the area not of ultra vires, but of the excess of authority by the directors or organs of a company. A special problem arose for Britain and Ireland in this respect, and it is necessary to indicate what it was because it is such an important matter.
The directive speaks in terms—I quote Article 9—of,
"the powers of the organs of the company".
That language is quite specific. It is language known to many systems of company law in member states; certainly to all those which were member states in 1972. But it was not known to British or Irish company law. Those systems know of agents, at any rate in commercial transactions.
In some delictual situations, in torts and crimes, British company law knows of the directors as the alter ego of the company, but not in commercial transactions. There they are agents, and they are still agents and the concept of an organ is materially different from the concept of an agent. The organ operates for and as the organisation, without primary reference to authority and excess of authority, and the directive is drafted in terms of the organic concept of the company.
What the Republic of Ireland did in 1973 was to pass legislation which stated that the acts of the organs of the company should bind the company to third parties acting in good faith, and it defined the organs of the company as the board of directors and other persons registered under its regulations. We have always refused to have regulations under the first directive—and I have adverted to that matter previously—so we have no register on which to put the names of the other organs of the company as the Irish legislation envisages.
But what we have done since 1972 is to limp along pretending that you can treat agents in terms of organs of the company in the directive. Now we are doing it again, because the final version which comes to us now still speaks of the organs of the company being the board of directors.
In Committee, in your Lordships' recommitment of this matter to a Committee, we failed to convince the Government that they should take out those aspects of the new Section 35A that allow for the board of directors to act along with anyone ostensibly, impliedly or expressly authorised by it. But with this more limited amendment, we can also grasp a more central nettle.
The sheet anchor of the scheme is the board of directors; and the board of directors in our law,

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acting in excess of authority under the constitution, is a body which is not otherwise regulated at all. Unlike the company law in most member states, there is no definition in our legislation of the board of directors. Of course, most articles of association contain provision for meetings of the directors. But they are all limitations which must be ignored in deciding whether the company is bound to the third party acting in good faith. It is proposed that we merely enact that the power of the board of directors to bind the company should be free of any limitation. Our limitations are spelt out in the amendment.
However, as the Bill stands, it will be highly arguable—those with whom I have discussed the matter regard it as obvious—that all the limitations must be ignored. That includes the quorum of the board itself. Let us assume that there is a board with three members, two of whom favour one policy while the third favours another policy. A formal, proper board is called, but the first two members are injured on the way to it and the third member then executes a contract for the company—in the company's name on behalf of the company, acting as the board, when the quorum is two. How will it be possible to establish that the company is not bound? One must not look at the limitations in the articles. One must not look—I understand this point in the new subsection—at the limitations in any agreement between the members of the company or any class, as the noble and learned Lord explained.
We have the Government's word for it that that astonishing result is not what they intend. In Committee in another place Mr. Maude, the Parliamentary Under-Secretary of State for Corporate Affairs, was taxed on this very matter. When he was asked what was meant by a decision of the board of directors, he said:
"It means a decision by a quorate meeting of directors, and what a quorate meeting is will depend on the constitution of the company… the decision… by the directors… refers to a quorate meeting of the board of directors". —[Official Report, Commons Standing Committee; 20/6/89, col. 419.]
That makes a great deal of sense. It is very sensible, but it is not what the Bill states. When I read what had been said in Committee in another place I was sure that, when we came to the Report stage with the amendments which were tabled and were never debated, I would find a provision just like our amendment but better drafted.
The Government should surely do that now and realise that there is no problem with this amendment about the first directive. I am sure that we agree on that. It is for the domestic law to define the organ of the company. We would define the primary organ of the company as a quorate meeting of the board of directors. That would seem to be common sense. But, if the Bill goes through in this form, any meeting—or at any rate any meeting called by those purporting in some way to be the board of directors—may act for the company irrespective of any limitations. That includes its quorum and a number of other matters. It may be arguable that the board of directors should be defined with rather more exactitude, with the proper notice and a proper quorum, but we have simply concentrated on the one simple core point; namely, that surely the board
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of directors must have a quorum and, therefore, that the notion of quorum must be taken out of the notion of limitation.
There is no problem with the directive. Surely it is something with which we can deal. It would not take a great deal of legislative time. It need only go down the Corridor. I hope that this deliberation on the modest uncertainty which is left in the Bill will be acceptable to the Government. I beg to move.
Moved, That Amendment No. 133A, as an amendment to Commons Amendment No. 133, be agreed to.—(Lord Wedderburn of Charlton.)
Lord Fraser of Carmyllie: My Lords, the noble Lord has built an elaborate edifice on what is a very small amendment. I do not entirely follow the reasoning behind it.
New Section 35A(1) provides that, in favour of a person dealing with a company in good faith, the power of the board of directors to bind the company or authorise others to do so is to be deemed to be free of any limitations under the company's constitution. Subsection (2), with which we are concerned here, is concerned with specifying certain limitations on the power of the board of directors to which subsection (1) is to extend. The rules as to how many directors are needed to form a quorate board are not limitations on the power of the board of directors. They deal with the logically prior question of what constitutes a board of directors. Subsection (1) has nothing to say in that respect. It was no slip by the Minister in another place. It is concerned with the limitations on the powers of a quorate board. As drafted, the noble Lord's amendment would lead to some confusion as to when an honest third party was protected, but, on a better view, it has little or no effect.
Lord Wedderburn of Charlton: My Lords, this matter becomes more and more serious. I am sorry that it has arisen now. We have already said—and I thought that the noble and learned Lord agreed—that this is the last time that Parliament will speak on the matter. It is also the first time that we speak on it except for what was said by the Minister in the other place as to the Government's intentions. He did not say what the noble and learned Lord said. He did not say that the quorum was not a limitation.
Let us take that proposition. Where does one find limitations? They are in the articles. The quorum provision is in the articles. Where does one find the other limitations on authority? They are in the articles. Why are they in the articles? The answer is because they are all part of the contract. Where does one find the requirement for notice of the board meeting? It is in the articles. Where does one find all the other procedures, if there are any, concerning the directors, shareholders and board meetings? They are in the articles. The articles contain all those limitations.
With the greatest respect to the noble and learned Lord I predict that a court will not take the noble and learned Lord's view unless it is an extremely novel interpretation. Of course we have novel

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statutory interpretation these days but in this instance it would have to be very novel.
I want to ask him some questions and I hope the noble and learned Lord will have the leave of the House to answer. A quorum is not limitation. Is, then, proper notice for the board meeting a limitation? Is the place where the board meeting must be held a limitation? Are any of the other requirements relating to the procedures of the board limitations? If they are not, when does a limitation start? There is of course excess of authority. If the board meets in the wrong place, presumably that is an excess of authority. I do not understand the division. The noble and learned Lord is doing what our law should do and I have the greatest respect for his agility in doing it. What he called this "elaborate edifice" which was in fact the shortened version of the case has pushed him to create an organ. He has created the organ of the company: the quorum board of directors.
I hope that he will intervene. I want to know the Government's view. I have given him a few moments' notice of the question. Are the proper notice for the board meeting, the proper place for the board meeting and other proper requirements for the board meeting proper requirements for limitations, or are they not? I shall willingly give way to him. I see that he does not wish to say anything. It is an astonishing thing to do to company law. We get to this point and we do not know whether or not the notice of the board meeting is a limitation.
What are we saying? What will my noble friend Lord Williams carry back to his banks in the City? Seriously, what will he say to them? They will say to him, "We understand that being a quorum is very important. But what about our articles which say that we have a meeting in Lloyds Bank's central headquarters—or whatever bank it is? Is that important?" He will say, "We do not know. They would not tell us". Yet they have had since November 1988. We have all had since 1972. Let us be serious. The noble and learned Lord knows perfectly well that we have had terrible difficulty with this area of the law. We have evaded doing what is necessary. The Government are edging up to it. Why cannot they accept a statement in our amendment which is apparently what is intended, namely that quorum is not a limitation?
The noble and learned Lord said so himself, and that is what our amendment says. So why cannot he accept it? If he does not wish to intervene we shall have to press the amendment. We must say something to the outside world to show that we are serious about this matter, and we are very serious indeed.
10.24 p.m.
On Question, Whether Amendment No. 133A, as an amendment to Amendment No. 133, shall be agreed to?
Their Lordships divided: Contents, 7; Not-Contents, 39.

DIVISION NO. 5

CONTENTS

Bonham-Carter, L.

Ponsonby of Shulbrede, L. [Teller.]

Hacking, L.

Lockwood, B.

Wedderburn of Charlton, L. [Teller.]

Peston, L.

Williams of Elvel, L.

NOT-CONTENTS

Arran, E.

Kimball, L.

Belstead, L.

Long, V.

Borthwick, L.

Lucas of Chilworth, L.

Brougham and Vaux, L.

Mackay of Clashfern, L.

Caithness, E.

Morris, L.

Cork and Orrery, E.

Mountevans, L.

Davidson, V. [Teller.]

Oppenheim-Barnes, B.

Denham, L. [Teller.]

Oxfuird, V.

Dundee, E.

Reay, L.

Ferrers, E.

Skelmersdale, L.

Fraser of Carmyllie, L.

Southborough, L.

Gisborough, L.

Stodart of Leaston, L.

Hardinge of Penshurst, L.

Strathclyde, L.

Harlech, L.

Strathmore and Kinghorne, E

Harvington, L.

Thomas of Gwydir, L.

Henley, L.

Torrington, V.

Hives, L.

Trefgarne, L.

Hooper, B.

Ullswater, V.

Johnston of Rockport, L.

Wynford, L.

Joseph, L.

Resolved in the negative, and Amendment No. 133A disagreed to accordingly.
10.32 p.m.
On Question, Amendment No. 133 agreed to.

COMMONS AMENDMENTS
134 Clause 95, line 12, leave out from 'directors' to end of line 14 and insert 'but no such proceedings shall lie in respect of an act to be done in fulfilment of a legal obligation arising from a previous act of the company.
(3A) Nor does that subsection affect any liability incurred by the directors, or any other person, by reason of the directors' exceeding their powers.'.
135 Page 94, leave out lines 15 to 24.
136 Page 94, line 24, at end insert—
'(4) The operation of this section is restricted by section 30B(1) of the Charities Act 1960 and section 99(3) of the Companies Act 1989 in relation to companies which are charities; and section 322A below (invalidity of certain transactions to which directors or their associates are parties) has effect notwithstanding this section.'.
137 Page 94, line 26, leave out from 'is' to 'or' in line 27 and insert 'permitted by the company's memorandum'.
138 Page 94, line 29, at end insert—
'(1A) In Schedule 21 to the Companies Act 1985 (effect of registration of companies not formed under that Act), after sub-paragraph 6 (general application of provisions of Act), after sub-paragraph (5) insert—
"(6) Where by virtue of sub-paragraph (4) or (5) a company does not have power to alter a provision, it does not have power to ratify acts of the directors in contravention of the provision.".'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 134 to 138.
Moved, That the House do agree with the Commons in the said amendments.—(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENT
139 Clause 96, page 94, leave out from beginning of line 35 to end of line 12 on page 95 and insert—
'322A.—(1) This section applies where a company enters into a transaction to which the parties include—

(a) a director of the company or of its holding company, or

(b) a person connected with such director or a company with whom such a director is associated,

and the board of directors, in connection with the transaction, exceed any limitation on their powers under the company's constitution.
(2) The transaction is voidable at the instance of the company.
(3) Whether or not it is avoided, any such party to the transaction as is mentioned in subsection 1(a) or (b), and any director of the company who authorised the transaction, is liable—

(a) to account to the company for any gain which he has made directly or indirectly by the transaction, and

(b) to indemnify the company for any loss or damage resulting from the transaction.

(4) Nothing in the above provisions shall be construed as excluding the operation of any other enactment or rule of law by virtue of which the transaction may be called in question or any liability to the company may arise.
(5) The transaction ceases to be voidable if—

(a) restitution of any money or other asset which was the subject-matter of the transaction is no longer possible, or

(b) the company is indemnified for any loss or damage resulting from the transaction, or

(c) rights acquired bona fide for value and without actual notice of the directors' exceeding their powers by a person who is not party to the transaction would be affected by the avoidance, or

(d) the transaction is ratified by the company in general meeting, by ordinary or special resolution or otherwise as the case may require.

(6) A person other than a director of the company is not liable under subsection (3) if he shows that at the time the transaction was entered into he did not know that the directors were exceeding their powers.
(7) This section does not affect the operation of section 35A in relation to any party to the transaction not within subsection (1)(a) or (b).
But where a transaction is voidable by virtue of this section and valid by virtue of that section in favour of such a person, the court may, on the application of that person or of the company, make such order affirming, severing or setting aside the transaction, on such terms, as appear to the court to be just.
(8) In this section "transaction" includes any act; and the reference in subsection (I) to limitations under the company's constitution includes limitations deriving—

(a) from a resolution of the company in general meeting or a meeting of any class of shareholders, or

(b) from any agreement between the members of the company or of any class of shareholders.".'.

Lord Fraser of Carmyllie: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 139. It reworks the provisions in the Bill on transactions with directors or connected persons where the board has exceeded any limitation on their powers under the company's constitution.
Moved, That the House do agree with the Commons in the said amendments.—(Lord Fraser of Carmyllie.)
Lord Wedderburn of Charlton: My Lords, again I put it to the Government that this is the first time that many of these matters have been debated.
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Although the noble and learned Lord said that it is a reworked section—and that is true—it is an important matter. For example, it is not clear why the section is now formulated in terms of its being voidable at the instance of the company instead of void unless ratified. No explanation is given anywhere else so the point must be put. It may mean that the benefit of corporate inertia went to a deliquent director. I choose the most important points.
Secondly, where the parties to the transaction are a director and persons connected with a director, is it correct to say that the new section still permits the connected person and the director, if they are shareholders, to cast their votes at a general meeting on a resolution not to rescind the transaction to themselves? The Government have a model in the Companies Act, as in Section 174, and in two other areas where votes are not allowed by some shareholders who are interested.
Thirdly, does the section apply to shadow directors? It may be that I have missed the answer because the measure is complicated. However, I looked through the schedules and I could not find a provision applying the new Section 322A to shadow directors. That would be very odd since most of Part X of the 1985 Act does apply to shadow directors. If I am wrong on that, I should like the reassurance of the noble and learned Lord.
Again, where the directors decide to do anything—that is, where there is a transaction between the board of directors exceeding its authority and another director or connected person —to enforce the rights of indemnity for the company and that is accountability for gains to the company is it envisaged that the shareholder has the right to bring derivative proceedings? The Government never face up to those derivative actions. However, that is an important matter because a company may then only have as a refuge a shareholder of a derivative action. It would be more reassuring, if he has that right, for the right to be put into the section.
Is it really fair to the company what the intervention of a bona fide third party for value without actual notice always totally bars the right to avoid the transaction? I appreciate that this is a point to which the Government have given great thought. However, one wonders whether it would not have been right to give the court the power in that case, as it has in other cases under subsection (7), to determine the justice of the case. It has the power to make terms under subsection (7) protecting the interest of the third party but also severing the transaction if it thinks just. One wonders why that provision is not applied at all when the hypothesis is that the transaction against the company is so wrong on the part of the board of directors exceeding their authority and the other director. Those are some questions which arise and which I put to the noble and learned Lord for the record.
Lord Peston: My Lords, before the noble and learned Lord replies, in addition to what my noble friend Lord Wedderburn said, I slightly missed what the noble and learned Lord said in his opening

691
remarks. I heard his remark that "this amendment reworks" but missed what he then said. Did he say that it reworks the clause in the Bill as it left this House? If that is what he said, does "reworks" mean that this says the same thing but with improved wording? Or does it say something additional of a substantive nature? I do not believe we can let this go through without clarifying what is reworked and in what way it is reworked. I should like an answer that a layman—namely, not a lawyer—can understand.
Lord Fraser of Carmyllie: My Lords, perhaps I can respond briefly to the noble Lord, Lord Wedderburn. He says that this has not been considered elsewhere. In fact, we are at a stage when amendments have indeed been considered elsewhere. That is the very purpose of this part of the proceedings.
The Government's principal concern in putting forward this amendment has been to protect the position of innocent persons who have acquired an interest in an asset from a person who has himself acquired it in contravention of the new Section 322A. In doing so we are also safeguarding the position of the Land Registry and the registers in Scotland which indemnify the purchase of land for any defect in the title and where there is no way of ascertaining with complete accuracy whether a transaction has been rendered void by the new Section 322A. Rather than making the transactions covered by the new section void from inception unless ratified by the company, the transactions are to be voidable at the instance of the company.
I respond to the query of the noble Lord, Lord Peston, regarding the word "reworking" and whether that means merely putting the essential idea into different words. It is not. It moved from a concept of being void to voidable.
Lord Wedderburn of Charlton: My Lords, before the noble and learned Lord sits down, perhaps I may say this. I am sure he would not wish any formal point to be between us. What I said was—and I hope that he will accept it from me—that this new clause, which is now an amendment before us, had not been debated elsewhere. The intentions of the Government were expressed in Committee but the matter was not debated. It was put to the House of Commons on Report under a guillotine Motion and it was not debated at all.
If I am wrong, I shall apologise profusely to the noble and learned Lord. However, I believe I am right, as I look very carefully at the debates in another place. I hope that the noble and learned Lord will accept from me that that is so.
On Question, Motion agreed to.

COMMONS AMENDMENT
140 Clause 97, page 95, line 19, leave out from 'formation),' to 'A' in line 29 and insert `after section 3 (forms of memorandum) insert—
("Statement of company's objects: general commercial company
3A. Where the company's memorandum states that the object of the company is to carry on business as a general commercial company—

692

(a) the object of the company is to carry on any trade or business whatsoever, and

(b) 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.".

(2) In the same Chapter, for section 4 (resolution to alter objects) substitute—
Resolution to alter objects.
4.—(a)'.
Lord Fraser of Carmyllie: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 140.
The effect of the amendment is to delete the provision in the current Bill that the objects of a company may be stated in any manner. That provision in fact does no more than set out the present position at common law; that is to say that the draftsman of a company's objects clause is not constrained by the content—as opposed to the form—of the model memoranda laid down by the Secretary of State under the Act. The content will depend on what objects the company's founders wish to pursue. However, the provision was being misunderstood in some quarters. Given this misunderstanding and since, as I say, this provision was doing no more than setting out the position at common law, we have thought it best to delete the provision and rely on the common law.
Moved, That the House do agree with the Commons in the said amendment.—(Lord Fraser of Carmyllie.)
Lord Wedderburn of Charlton: My Lords, I ask the noble and learned Lord one question on the new amendment as it stands. That concerns not the dropping of the words that he spoke to but the ability of the company to adopt the status of a general commercial company. There is some confusion about the Government's intention on one small point which could be important. If the company adopts what one might call the general commercial clause as its objects, can it do so with exceptions? Can it do so with provisos or must it take the offer 100 per cent.? I have no particular view as to which is better, but there is a question-mark against this. It looks as though the company has to take it 100 per cent.
Lord Fraser of Carmyllie: My Lords, at the heart of an operation of a limited liability company lies a balance between directors and shareholders—a matter which frequently vexes the noble Lord. In my view, giving a general commercial company power to do anything at all, even if it were subject to whatever express limitations were in the memorandum, would shift the balance too far away from the shareholders and place them too much at risk. The provision as it is would enable shareholders to give their company a wide-ranging power to carry on any trade or business, but if still wider powers are required it will be open to them to set them out in the memorandum. The onus should not be on the shareholders to set out limitations on an absolute power. I hope that answers the noble Lord.
On Question, Motion agreed to.

COMMONS AMENDMENTS
141 Clause 98, page 96, leave out lines 20 to 44 and insert—
'30B.—(1) Sections 35 and 35A of the Companies Act 1985 (capacity of a company not limited by its memorandum; power of directors to bind company) do not apply to the acts of a company which is a charity except in favour of a person who—

(a) gives full consideration in money or money's worth in relation to the act in question, and

(b) does not know that the act is not permitted by the company's memorandum or, as the case may be, is beyond the powers of the directors,

or who does not know at the time the act is done that the company is a charity.
(2) However, where such a company purports to transfer or grant an interest in property, the fact that the act was not permitted by the company's memorandum or, as the case may be, that the directors in connection with the act exceeded any limitation on their powers under the company's constitution, does not affect the title of a person who subsequently acquires the property or any interest in it for full consideration without actual notice of any such circumstances affecting the validity of the company's act.
(3) In any proceedings arising out of subsection (1) the burden of proving—

(a) that a person knew that an act was not permitted by the company's memorandum or was beyond the powers of the directors, or

(b) that a person knew that the 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 35(3) of the Companies Act 1985, or the ratification of a transaction to which section 322A of that Act applies (invalidity of certain transactions to which directors or their associates are parties), is ineffective without the prior written consent of the Commissioners.'.
142 Page 97, line 5, after 'company,' insert—
'(cc) in all conveyances purporting to be executed by the company,'.
143 Page 97, line 7, at end insert—
'(1A) In subsection (1)(cc) "conveyance" means any instrument creating, transferring, varying or extinguishing an interest in land.'.
144 Clause 99, page 97, line 35, leave out subsections (3) to (5) and insert—
'(3) Sections 35 and 35A of the Companies Act 1985 (capacity of a company not limited by its memorandum; power of directors to bind company) do not apply to the acts of a company which is a charity except in favour of a person who—

(a) gives full consideration in money or money's worth in relation to the act in question, and

(b) does not know that the act is not permitted by the company's memorandum or, as the case may be, is beyond the powers of the directors,

or who does not know at the time the act is done that the company is a charity.
(4) However, where such a company purports to transfer or grant an interest in property, the fact that the act was not permitted by the company's memorandum or, as the case may be, that the directors in connection with the act exceeded any limitation on their powers under the company's constitution, does not affect the title of a person who subsequently acquires the property or any interest in it for full consideration without actual notice of any such circumstances affecting the validity of the company's act.
(5) In any proceedings arising out of subsection (3) the burden of proving—

(a) that a person knew that an act was not permitted by the company's memorandum or was beyond the powers of the directors, or

(b) that a person knew that the company was a charity, lies on the person making that allegation.'.

145 Page 98, line 14, after 'company,' insert—
`(cc) in all conveyances purporting to be executed by the company,'.
146 Page 98, line 15, at end insert—
'(6A) In subsection (6)(cc) "conveyance" means any document for the creation, transfer, variation or extinction of an interest in land.'.
Lord Fraser of Carmyllie: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 141 to 146. Amendments Nos. 141 and 144 are as corrected. These amendments concern the special rules relating to charitable companies.
Like the previous group, Amendment Nos. 141 and 144 also have as their origin a desire to protect innocent third parties who might be affected by a transaction being void. Where a person dealing with a charitable company is protected under new Section 30B(1) or Clause 99(3), there is no difficulty for subsequent purchasers. The difficulty arises where the person dealing with the company is not protected—in which case he does not have a good title to pass on to subsequent purchasers. Amendments Nos. 141 and 144 therefore provide that in that case the title of a person who subsequently acquires the property or any interest in it is to be protected if he has given full consideration and had not had actual notice of any circumstance affecting the validity of the company's act. The burden of proving that he had such notice is to rest on the person alleging it in any proceedings.
Noble Lords may recall that I mentioned, in discussing the previous group of amendments, the liability which would arise for the Land Registry and the registers of Scotland if transactions affecting land were voided. Although, as I have said, the position of persons who subsequently acquire an interest in property is to be protected, under the amendments transactions with a charitable company which were ultra vires or otherwise outwith the authority of the directors will still be void unless the person concerned does not fall within the circumstances set out in new Section 30B(1) or Clause 99(3), as the case may be. In order to protect their own position, the land registries will be requiring charities to warrant that transactions are intra vires. To assist them in identifying charitable companies, the amendments add conveyances to the list of documents on which a charitable company which does not include the words "charity" or "charitable" in its name must disclose its charitable status.
Moved, That the House do agree with the Commons in the said amendments.—(Lord Fraser of Carmyllie.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
147 Clause 100, page 99, line 13, leave out from beginning to 'which' in line 14 and insert '(6) A resolution may be agreed to in accordance with this section'.
148 Page 99, leave out lines 19 to 28.
149 Page 99, line 29, leave out 'Section 381A' and insert 'This section'.
150 Page 99, line 31, leave out 'that' and insert 'this'.
151 Page 100, line 12, at end insert—
'Written resolutions: supplementary provisions.
381D.—(1) Sections 381A and 381C have effect notwithstanding any provision of the company's memorandum or articles.
(2) Nothing in those sections affects any enactment or rule of law as to—

(a) things done otherwise than by passing a resolution, or

(b) cases in which a resolution is treated as having been passed, or a person is precluded from alleging that a resolution has not been duly passed.'.

10.45 p.m.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 147 to 151 inclusive. The purpose of the amendments is to ensure beyond doubt that the provisions in the Bill setting out a formal process for substituting unanimous written resolutions for resolutions at meetings do not cast doubt on informal procedures which the courts have previously recognised.
Moved, That the House do agree with the Commons in the said amendments.—(Lord Strathclyde.)
Lord Wedderburn of Charlton: My Lords, I believe that there is something to be said about this; namely, to ask the Government for their opinions about this clause as it goes on to the statute book. This is the last time we shall see it. Rather without precedence in a Companies Bill, it is part of what is called the deregulation provisions of the private company that allows it to operate without the normal company law procedures by signed resolutions.
I direct the Minister's attention to Amendment No. 151, a matter already in the Bill but not put as well or as prominently. An informal unanimous agreement is one measure that the courts have already accepted over a very wide area. In 1980 the High Court in the English jurisdiction accepted that a 100 per cent. agreement informally among shareholders was sufficient to change the articles even without a special resolution.
There has been some doubt as to the extent of that doctrine. The new prominence of Section 381D (2) in Amendment No. 151 will give greater credence—I have no objection to this—to the idea that resolutions are treated as having been passed by unanimous agreement informally. That is what is obviously referred to. If that is right it appears to apply to anything that falls within the Government's new Section 381C. In fact, it might apply to anything within their rather long Schedule 15A. It appears to apply to a very number of matters put into about eight pages of the Bill.
If that is right then a great deal of parliamentary time, and even some government money—Ministers will have to be careful on this—has been wasted because perhaps all that the Government want done could have been achieved by a unanimous, 100 per cent. informal assent by the shareholders even without the written resolution on which the Government and my noble friend Lord Williams and I at one time exchanged different views.
This delphic Section 381D may well contain the nub of the thought that perhaps all this could have been done in private companies without these long and laborious sessions of Parliament. Is that perhaps the effect of the government prominence now for
696
Section 381D (2)? I suspect it may be, and it may be a very good way of ending the evening by realising that some of these matters are not necessary.
Lord Hacking: My Lords, before the noble and learned Lord puts the question to the House, as we are considering the last group of amendments perhaps I may say that having listened very carefully to much of the argument I believe that the House has been placed in a most unsatisfactory position in considering the amendments.
It has been put in this position not because the Government have not yet tuned into their new role as a listening government. They certainly have not listened to the arguments presented by noble Lords on the Opposition Front Benches. They have not listened to the arguments presented by the Law Society or the Institute of Arbitrators. A large number of amendments has been taken without proper debate and without proper consideration in another place.
We are in an unsatisfactory position, not because the Government are not in tune with their new listening posture but because they are not in control at this stage of their own legislation. This has produced a highly unsatisfactory state of affairs. We should be dealing with these amendments as if we were in Committee. The Government should have given themselves an opportunity to consider the points raised by noble Lords and to deal with them in an orderly fashion. They could have done so if these amendments had been considered properly in Committee in another place and properly in Committee in this Chamber, and not with the straps of the legislative programme, with the Government being quite unable to manoeuvre.
Lord Strathclyde: My Lords, I am amazed by the noble Lord's words. First, those are the kind of comments which he could easily have made when we opened the proceedings this afternoon. They could have been made far better there than at this stage of the evening. Secondly, to say that the Government have not listened is simply to ignore all the amendments before the House. It is purely because there has been so much consultation and so much acceptance of arguments from noble Lords on both sides of the House and from Members in another place that we are bringing back so many amendments. It is no good saying that we have not been listening. Part of the problem is that we have been listening too much and therefore we have made some changes.
The noble Lord, Lord Wedderburn, made a mountain out of a molehill on this amendment. The point of the provisions is to have a statutory procedure which less sophisticated directors can follow instead of relying on common law. Therefore all we are doing is making sure that the provisions are not put beyond doubt.
On Question, Motion agreed to.

COMMONS AMENDMENT
152
Clause 101, page 100, line 43, leave out '386' and insert '391'.
153 Clause 103, page 104, line 44, leave out 'or'.
154 Page 104, line 46, at end insert 'or
(e) section 386 (election to dispense with appointment of auditors annually)'
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 152 to 154 en bloc.
Moved, That the House do agree with the Commons in the said amendments.—(Lord Strathclyde.)
On Question, Motion agreed to.
Viscount Ullswater: My Lords, I beg to move that further consideration of Commons Amendments be now adjourned.
Moved accordingly, and, on Question, Motion agreed to.
House adjourned at seven minutes before eleven o'clock.