Clause 28
Company Law Reform Bill [Lords]
4:30 pm

Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)

I beg to move amendment No. 13, in clause 28, page 11, line 7, at end insert—

‘(4) If there is a conflict between a provision which immediately before the commencement of this Part was contained in a company's memorandum of association and a provision contained in that company's articles of association, the former shall prevail.'.

The clause deals with existing companies and with provisions of memorandum treated as provisions of articles, and contains new provisions. When there is a conflict between the memorandum of association and  the articles of association, case law would dictate that the provisions in the memorandum of association would take precedent. Under clause 28(1), the parts of a company’s memorandum of association that do not constitute part of the new style memorandum will be treated as being in the articles. Clearly, it would be ideal for companies to change their articles at that point so that they can review all clauses in context and prioritise accordingly. However, life being what it is, it is likely that the vast majority of small private companies will not do that, mainly because it involves paying corporate lawyers fees for essentially non-productive work. The question of priority will be important in practice.

In the Lords Grand Committee, Lord McKenzie spoke of returning to the issue on clause 882. To be frank, I am not sure whether that was done; perhaps the Minister could put me right. On Report, the Government said that they would consult on the issue. Could she update us on when and how the consultation is likely to take place?

Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)

I am grateful for the amendment being tabled, because it raises an important issue:what happens when a provision in a company’s memorandum immediately before the commencement of the Bill comes into conflict with a provision in the same company’s articles? That is an important issue because, as the hon. Gentleman said, where there is conflict between provisions in the memorandum and those in articles, the provisions in the memorandum take precedence. We will need to make further proper and appropriate arrangements to ensure that the position regarding competing provisions is clear.

The hon. Gentleman referred to the debate in the other House where we gave an undertaking to look at that and other transitional issues. As we said this morning, transitional issues run through many clauses in the Bill, and there will be a round of consultation on that.

As it was in the other place, clause 882 has become clause 921 in the Bill before us. That is why I looked a little bewildered. If the hon. Gentleman were to look at clause 921, he would see that it provides for a power to make transitional arrangements. During the summer and early autumn, we hope to consult on what those transitional provisions should be. I hope he agrees that we should legislate after we have explored all the issues with interested parties. That is what we intend to do.

The clause is trying to provide a default position to give legal certainty when something goes wrong. We want to be careful about enacting a rule that could result in obsolete provisions being given more weight than was intended. For example, it might be that we should allow existing companies a transitional period in which to consider the effect of subsection (1) and whether each provision of their memorandum, which will be deemed part of their articles, should be retained as ordinary provision amended, removed altogether or entrenched.

We would rather decide how to deal with that substantive point on conflicts at the same time as we make rules on when, and in what circumstances,  the clause and other new rules on companies’ constitutional documents will apply to existing companies. So, in the spirit of that explanation, I hope the hon. Gentleman is content and will withdraw the amendment.

Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)

I appreciate the Minister’s answer and the general points that she made, although I must point out that that issue was raised in February in the Lords and again on Report in May, and here we are with it still outstanding. Perhaps she will give us an idea of when we are likely to hear that the issue is being moved forward.

I make also one general point: as the Minister said, a huge number of transitional issues are coming out of the Bill, and many relate to specific and technical matters of corporate law. Does she intend to put together a schedule of transitional issues, which would be of great help, not only to hon. Members, but to organisations such as the Law Society, which will have to gear up to thinking about such matters? It would be helpful if a table was put together.

Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)

That seems appropriate, so we will provide such a schedule.

In my previous contribution, I said that in the summer and early autumn, we will be consulting on our proposals for transitional arrangements. We will publish the final orders some time after Royal Assent has been given, but the consultation should take place in the summer and early autumn.

Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)

May I ask the Minister for one more round on this? I am concerned that things will happen very quickly when we come back from the summer recess. We have only one day for consideration on Report, when the Lords had four. Given that people will be away during the summer recess, it is important that the transitional arrangements are shown around the City as early as possible. We might have something to add as well. She should keep that in mind, because I have no doubt that consideration on Report and Third Reading will be upon us.

Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)

We are taking a power to make regulations, so we will not need to have finally determined those transitional arrangements by the time of Royal Assent. There will be plenty of consultation time to ensure that all stakeholders feel happy with the propositions that we put before them, and I give the hon. Gentleman the assurance that we want the transition between the old legislation and the new to be as seamless, comfortable and easy for companies as possible.

Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)

I have taken the issue as far as it can go. The Minister has heard my concerns, and I beg to ask leave to withdraw the amendment.