Clause 22
Company Law Reform Bill [Lords]
12:15 pm
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
If two owners were to set up a company and they owned 100 per cent. of it, they could put in place whatever provisions that they wanted at the outset. That is my point and my concern.
The Government said that they would review this matter on Report, but we heard nothing on Third Reading in the Lords. Now the Minister comes up with a compromise, saying that 100 per cent. of shareholders can end the entrenchment. That is an improvement but hardly, we would maintain, most people’s idea of democracy. It is interesting that, in opposition, Labour was happy to attack company director fat cats at every opportunity, but now it is proposing a method of entrenching fat cats’ rights and attacking shareholder democracy. The Government need to answer conceptually how they got to this position.
The Institute of Directors said in its June 2005 brief:
“In response to ‘Modernising Company Law’ we stated: ‘Entrenching provisions need to be approached with care. In commercial companies they could be dangerous as a company could be held to ransom by a single shareholder holding one share (if he has a genuine grievance, his remedy will normally be to apply to the courts). We think it is essential to make it explicit in the legislation that any entrenching provision (and any entrenched provision) may be changed by a scheme of arrangement approved by the court regardless of absence of unanimity (or other level of approval stipulated in the constitution). We consider that this will reduce the impact of companies happily introducing a requirement for unanimity then living to regret it when the business cannot move on. We also think that there should be no encouragement for commercial companies to adopt entrenching provisions—for instance, any model form of constitution for such a company should not include wording for entrenching provisions (even as an optional extra).’”
In relation to the latter point, I should be grateful if the Minister confirmed that the model articles that we have previously debated will not hold an automatic entrenching provision.
The clause is unnecessary, will lead to trouble and I suggest that the Minister considers dropping it. We should be considering ways to improve shareholder democracy, not restricting it with entrenchment provisions. I do not know what Cedric the Pig is up to these days, but the Government are looking more like “Animal Farm” every day. I shall recommend that my colleagues vote against the clause.