AS AN AMENDMENT TO COMMONS AMENDMENT NO. 37 (Hansard, 7 November 1989)

§ 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.

§ 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.