COMMONS AMENDMENT (Hansard, 7 November 1989)

§ 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.

§ 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, 674 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.