HL Deb 09 November 1989 vol 512 cc958-62

155A Page 49 of the Commons Amendments, line 12 leave out ("are entitled to") and insert ("may").

Lord Williams of Elvel

My Lords, l beg to move Amendment No. 155A. In introducing Amendment No. 155, the noble Lord, Lord Trefgarne, rightly repeated, and to a certain extent reordered, some of the provisions in the 1985 Act. We accept that. However, in reordering the provisions we open up the possibility of further debate on whether the provisions of the 1985 Act themselves should not be brought further up to date in the Bill that we now have before us.

I speak to my amendment and to Commons Amendments Nos. 155 and 175. The object of my amendment is to explore with the Government whether it would not be sensible to reinforce the powers of auditors to require information. The new Section 389A of the Commons amendment states: The auditors of a company have right of access at all times … and are entitled to require from the company's officers such information". It is the expression "are entitled to" that I find a little difficult to understand and I should like to be certain that it gives the auditors the essential powers required. The amendment that I propose provides that auditors have a right to require from the company's officers such information and explanation as they think necessary for the performance of their duties. I believe that to be a sensible method of expressing what auditors can do.

I turn from the specific amendment to the generality of Amendment No. 155. There are one or two questions that I wish to put to the noble Lord by way of seeking information rather than of objection. I fully understand that it is necessary to rewrite the Companies Act 1985 to take account of the new elective regime relating to small companies.

I refer your Lordships to page 52 of the Commons amendments, which is part of a long amendment that covers several pages. New Section 391 refers to the removal of auditors. As I said before, this gives us an opportunity to look at the provision and to see whether it is sensible and right to keep it within the companies legislation. New Section 391 states: A company may by ordinary resolution at any time remove an auditor from office, notwithstanding anything in any agreement between it and him". The removal of an auditor is a very dramatic event. I am simply wondering and questioning the noble Lord as to whether the Government have got it right in leaving it to be done by ordinary resolution rather than by something fiercer in the form of a special resolution. I assume that the company must have a general meeting in order to remove the auditor, because, as I understand it—the noble Lord will no doubt correct me if I am wrong—the ordinary resolution is an ordinary resolution in a general meeting rather than a ordinary resolution of the board. The company as such must have a general meeting to pass that resolution. If that is so, I do not quite understand why subsection (2) refers to, a general meeting of a company", because subsection (2) implies that the removal of the auditor could be achieved in some other manner. Can the noble Lord enlighten me on that point?

Moving on in this long amendment after Clause 104, we come to the statement by a person ceasing to hold office as an auditor. The statement has to be deposited by the auditor at the company's registered office when for any reason he ceases to hold office. In other words, if he is sacked by ordinary resolution of the company, he must deposit a statement, of any circumstances connected with his ceasing to hold office which he considers should be brought to the attention of the members or creditors of the company or, if he considers that there are no such circumstances, a statement that there are none". We discussed this point when the Bill was before the House prior to going to another place. It is slightly odd that an auditor, who is relieved of his contract as a result of an ordinary resolution in a general meeting of a company at which presumably all the issues are explained, must then produce a statement saying that there are no such circumstances which he thinks he ought to bring to the attention of the shareholders or the creditors.

Those are the points arising on Amendment No. 155. I should be grateful if the noble Lord could consider carefully what I have said about Amendment No. 155A. On our side of the House we wish the auditors to have as much power as possible to require from the officers of the company the information that they need. I beg to move.

Moved, That Amendment No. 155A, as an amendment to Amendment No. 155, be agreed to.—(Lord Williams of Elvel.)

Lord Lloyd of Kilgerran

My Lords, I congratulate the noble Lord, Lord Trefgarne, on the charming way in which, in a brief speech—I congratulate him too on his brevity—he disposed of an amendment of 13 pages. I feel that I should start some period of exploration in regard to this splendid 13 page amendment which covers, as the noble Lord said, seven new clauses. Do the new clauses in any way cover the position of small and medium sized companies? I hope that he can help me on that one point. I intended to raise an issue arising from new Section 391 on page 52 of the Marshalled List of Commons Amendments. However, the noble Lord, Lord Williams, in his competent manner, has saved me having to say anything further about that.

The Minister said that seven new clauses are to be found in this long amendment. The seven new clauses will, I suppose, replace a certain number of sections in the Companies Act 1985. In their amendments the Government have removed sometimes as many as 30 or 40 sections from the 1985 Act. They have then inserted a number of clauses, usually using far more words than were contained in the sections they have removed. They then ask us as a revising Chamber to accept those new wordings which are sometimes totally different from the original wordings in the 1985 Act. They have in effect amended a large number of sections. As a cautious lawyer, if somebody tells me that he will rewrite a section in different words but that it means the same thing I somewhat doubt whether that is always possible. It leads to tremendous confusion.

The Government are taking out "X" sections and inserting "Y" sections. They are then saying that the theme of the"X" sections equals the theme of the "Y" sections. In effect they are saying that the law as stated in the inserted "Y" sections is the same as the law as expounded in the "X" sections taken out. But their wording in the "X" sections is different. We are asked as a revising Chamber to take the say so of the Government that they can change the wording of sections, put them back and then maintain that they are the same in law as the earlier sections.

I have been trying to follow this argument. I wish to ask the Minister some specific questions. Several of the new clauses deal with punishment of offences. At the bottom of page 48 of the Marshalled List of Commons Amendments we see the words: In Schedule 24 to the Companies Act 1985 (punishment of offences) at the appropriate place insert". The punishment is then set out. Is the punishment set out there the same as the punishment in the old provision? If it is not the same punishment, why is it not the same punishment? In other words, are there any changes there?

The new clauses are so long that it is sometimes difficult to understand where they start and where they end. On page 50 under paragraph (3) we see the words: In Schedule 24 to the Companies Act 1985 (punishment of offences) at the appropriate place insert". There follow certain punishments. I could continue in this way for some time. There are two other such provisions. The first is to be found at the bottom of page 55 and the top of page 56, the second on page 57. The noble Lord may say that the punishments are the same in all cases, although they are set out in different words. On what basis can he tell the House—I am sure that he can, with all his charm and experience in the matter—that if a number of sections are removed and different words inserted the law in the new clauses will be the same as the law in the old sections? This is not semantics; it is a very serious matter. If the Government are proposing to take that kind of line and in effect to amend a huge section of the Bill without explaining why they are making such amendments, that is a policy that I should think requires further consideration by this House.

4 p.m.

Lord Trefgarne

My Lords, I must say that I was a little surprised to see this amendment on the Marshalled List. Rather than the auditors being entitled to require certain information and explanations from the company's officers, the noble Lord would have the Commons Amendment No. 155 read that the auditors may require such information and explanations.

I am not sure that it is right at this stage of the Bill's proceedings to be sensibly looking at such drafting points. It is all the more exasperating because there is nothing new in the provision in question as contained in the Commons amendment. I refer your Lordships to new Section 237(1) of the Companies Act 1985 contained in Clause 9 on page 16 of the Bill as it left this House. That subsection is reproduced exactly as new Section 384(3) of Commons Amendment No. 155.

The Commons amendment brings together various provisions relating to auditors which are contained in the Bill and in the Companies Act. As I mentioned, the substantive changes it makes are few. If the noble Lord had raised this point on Clause 9 at an earlier stage of the proceedings. I might have seen the merit of discussing the alternative wording. However, I think I would have concluded that I preferred the expression "entitled to". Incidentally, that is the wording which practitioners are used to. It is contained in the present Section 237 of the Companies Act. I do not believe that such an amendment put forward at this stage of the Bill's proceedings merits the degree of attention suggested.

I turn now to the remarks made by the noble Lord, Lord Lloyd of Kilgerran. The fairly minor changes I mentioned would have required extensive amendment to the auditors chapter of the Companies Act. We concluded that it would be better to replace the chapter rather than make a large series of opaque textual amendments to existing provisions.

We found it convenient to reorder some of the provisions so that, for example, the rights of auditors on removal from office follow the provisions of how auditors may be removed. We have also made a few drafting changes to existing provisions and incorporated into the amended chapter some of the other provisions affecting auditors which are at present scattered around the Bill and the Companies Act.

I hope your Lordships will agree that it would be helpful to users to have all the provisions on the appointment and removal of auditors and their rights in one place. The amendments were introduced and discussed in Committee in another place.

In answer specifically to the point made by the noble Lord, Lord Lloyd of Kilgerran, about the level of offences, I can confirm that these remain the same. However, we found it necessary to change some of the references because other amendments renumber the main provisions. I wish to emphasise the point that we are largely restating existing legislation in these amendments. I hope therefore that your Lordships will agree that the amendment put forward by the noble Lord, Lord Williams, is not appropriate.

Lord Williams of Elvel

My Lords, I fully understand what the noble Lord is saying: the Government are trying to restate what is in existing legislation. But restating it, as I pointed out, allows us to discuss it. If they had kept to the original wording and not bothered with any of the Commons amendments, we would not have had a chance to discuss the matter. It is the noble Lord's own fault if he receives such amendments from this side of the Chamber on matters which have already been before this House. I believe that the expression "may require" allows auditors much stronger powers than "entitled to require". I say that because to be entitled to do something does not necessarily achieve success. If the noble Lord is saying that he is not prepared at this stage to consider amendments of any kind whatever, we might as well be talking in a vacuum. However, if that is his view, either we divide on the issue or we let the matter go.

It is the privilege of this House to be a revising Chamber. I understood that the object of revising legislation was to ensure that it left this House in a better form than was the case when it arrived here. The noble Lord seems to disagree with me on that point. I shall not press the amendment to a Division because I do not feel strongly enough about the wording. Nevertheless, I hope that there will be some give from the Government when we put forward what we think are valid points and that we will not come up against a simple brick wall.

I also hope that when Government Ministers come to respond to amendments they will answer the questions which have been put to them. I do not believe that the noble Lord has answered all the questions raised by the noble Lord, Lord Lloyd of Kilgerran. Moreover, I do not believe that he has answered the point I made. As I said, I shall not press the matter further. I beg leave to withdraw the amendment.

Amendment No. 155A, as an amendment to Amendment No. 155, by leave, withdrawn.

On Question, Amendment No. 155 agreed to.