COMMONS AMENDMENTS (Hansard, 7 November 1989)

§ 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.

§ 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 587 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.