Clause 39
Company Law Reform Bill [Lords]
5:45 pm
Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)
I shall read what I have been given on the purpose of clause 39, which I think gives the explanation that the hon. Gentleman seeks. If I get further information, I shall help him with it.
Clause 39 is about protecting third parties from the internal restrictions on a company’s capacity that may be contained in a company’s constitution. It provides that the validity of a company’s acts should not be questioned on the grounds of a lack of capacity because of anything in a company’s constitution. The clause replaces section 35(1) of the 1985 Act, which makes similar provision for restrictions on a company’s capacity contained in the memorandum. Under the Bill, the memorandum serves a more limited purpose, and the provisions in section 35(1) have been updated to reflect the fact that in future any restrictions on what a company can do—that is, restrictions on a company’s objects—will be set out in the articles of association.
The clause does not contain provisions corresponding to section 35(2) and (3) of the 1985 Act, which we are transposing, as the combination of the fact that under the Bill a company may have unrestricted objects and the fact that a specific duty on directors to abide by the company’s constitution is provided for in clause 157, renders those subsections unnecessary. Like section 35 of the 1985 Act, clause 39(2) makes it clear that special rules apply to charities. The provision is important and protects third parties that have dealings with companies. In that context, it should stand part of the Bill.