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. 14, in clause 29, page 11, line 42, at end insert—

‘(3) Reference to a resolution in subsection (1) above, shall not include any document referred to in such a resolution.'.

John Bercow (Buckingham, Conservative)

With this it will be convenient to discuss amendment No. 182, in clause 30, page 12,line 16, at end add—

‘(5) Resolutions or agreements under section 29(1)(b) to (d) shall not be enforceable unless recorded by the registrar.'.

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

I shall speak to amendment No. 14. as amendment No. 182 has been tabled by the Liberal Democrats.

I am not wholly sure that the drafting of the amendment is as finely tuned as it could be, but I shall make my point anyway. Sometimes there is confusion about what needs to be filed at Companies House and what does not. If the Companies Act 1985 states that a document needs to be filed, that is clear. For instance, if a resolution that changes a company’s articles is passed, the 1985 Act dictates that the resolution and a new copy of the article are to be filed. However, what would happen if the articles referred to some other document? Would that also have to be filed?

The typical example here is when the parties to a joint venture or a private equity investor wish to put the public on notice of the existence of a shareholders’ agreement by mentioning that fact in the articles of the investee company. My hon. Friend the Member for Hornchurch (James Brokenshire) is nodding avidly; he will have seen that in practice many times.

In such a situation, there seems to be a precedent that indicates that the joint venture agreement also needs to be filed. However, the agreement may contain confidential or price sensitive information that the parties do not wish to place on the public record—hence the reason for tabling the amendment.

David Howarth (Shadow Minister (Energy), Trade & Industry; Cambridge, Liberal Democrat)

May I add my own expression of delight at seeing you in the Chair, Mr. Bercow? I do not know what you have done to deserve it, but it must have been impressive.

Amendment No. 182 is largely probing. It seeks to establish whether the Government have thought through how the clauses work. My understanding of them is that if a shareholders’ agreement is not sent to the registrar, an offence is committed, but the agreement itself is still valid as between the parties. The purpose of the amendment is to ask the Government whether they intend that to be the case.

I am not sure how far to press it, but there is a case for the amendment, which is that making agreements unenforceable by the parties themselves would be a far more effective way to ensure their registration. Shareholders’ agreements are often constitutional documents of the company, and it is important for investors to be able to see them so that they are on notice that they exist, and to be able to see their terms—for instance, during due diligence.

My question for the Government is whether the wording of the Bill represents their intention. If so, why is that the case? If not, will they go away and think about it?

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

I shall address the amendments in the order in which they were spoken to, so I shall deal first with amendment No. 14, which would qualify and limit the meaning of references to “a resolution” in clause 29(1).

The amendment would restrict the information to be provided to the registrar under clause 30, which provides for copies of resolutions and agreements to be forwarded to and recorded by the registrar, and that to be provided to the company’s members under clause 33, which requires companies to provide various constitutional documents to their members free of charge on request—including the types of resolution listed in clause 29. It would also restrict what is to be embodied in or annexed to companies’ articles of association under clause 31.

The amendment would clearly cut down the amount of paper and information that companies would be required to produce when they were required to make available copies of certain resolutions, but the danger of such a restriction is that the recipient of the resolution in question would receive only half the story. When the meat of a resolution is contained in another document, which may be attached to the resolution, that restriction would clearly be undesirable.

A resolution might, for example, refer to two documents: A and B. Document A might set out the provisions altering the effect of the company’s articles, and if that were not supplied with the resolution, there would not be much point in receiving a copy of the resolution. Document B might have no real bearing on the resolution’s meaning, so that not much would be lost if it were not supplied. The amendment would result in companies not being obliged to supply either document, and we would have thrown out the baby with the bathwater.

Would the company be obliged to supply a copy of the irrelevant document B under clause 31 as drafted? If the document were not part of the resolution, the answer would be no. So, on joint venture agreements, if they were part of the resolution, they would have to be supplied; if not, they would not have to be supplied.

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

That is an interesting and helpful answer, which many practitioners will be pleased to hear, but I would like to clarify the point.

Using the Minister’s example, there are documents A and B. If either were mentioned in the resolution, she is saying, I believe, that they would need to be filed. However, if document C were mentioned in one of the documents mentioned in the resolution, it would not have to be filed.

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

I shall come back to the hon. Gentleman if I get the answer wrong, but my view is that any document that is relevant to the resolution would need to be filed. If it were not relevant to the resolution, it would not need to be filed.

If I am right—I hope that I am—the burden that the amendment would alleviate is illusory. In any event, the obligations relating to resolutions and agreement  mentioned in clause 29 are, essentially, the same as those mentioned in section 380 of the 1985 Act, save for the updating that has been required to reflect the changes brought in by the Bill. We are not aware that the obligations under the 1985 Act have caused difficulties for companies.

I turn to the probing amendment that the hon. Member for Cambridge (David Howarth) tabled. I am going to pass a note, on the relevant means of incorporation by a resolution, that may help in the debate.

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

That is okay.

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

Amendment No. 182 is a probing amendment. It is important that the resolutions and agreements that are listed in clause 29(1) are filed with Companies House, as required by clause 30, because they can be of considerable constitutional significance. Clause 30 signals that by making it a criminal offence to fail to file those documents. The amendment proposes that failure to file should result in what one might call a nuclear option—namely, the amendment would be unenforceable. That may be intellectually defensible. As I get to know the hon. Gentleman better, I realise that that is where he is coming from. However, we believe that, in the real world, it is a step too far. It would mean that members of a company might unanimously agree to something, then find out years later that their agreement is worthless because the company failed to file a copy of it. In other words, the members would potentially pay a heavy price for the company’s administrative slackness. We believe that that is going too far and that it is not entirely fair.

Let us consider a small family company’s articles that exclude the model of articles and make no provision about, for example, whether the chairman should have a casting vote in directors’ meetings. If the members subsequently reached a key clause 29-type agreement that he should, but that agreement were not filed, the company would have no rule about the casting vote and, in a dispute about the matter, the courts would have nothing with which to guide their decision. Obviously it is better if agreement is filed, hence the clause, but we think it is better, pragmatically, to let the an agreement that is not filed stand than to treat it as though it had not been made.

David Howarth (Shadow Minister (Energy), Trade & Industry; Cambridge, Liberal Democrat)

I thank the Minister for that explanation. I am glad that the Government have thought through the consequences of the measure. The central point, though, is about shareholders’ agreements and not about changes to the articles. If one were to put oneself in the position of an investor in a small company that is affected by the shareholders’ agreement, if that agreement were not registered and the people who subsequently controlled the company did not reveal the shareholders’ agreement to the investor, what should the effect be on the investment? In particular, would the fairness argument work with regard to third parties and not just those who are subject to the agreement?

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

I shall have to write to the hon. Gentleman on that point. If he remains dissatisfied, no doubt he will raise his dissatisfaction on Report. I hope that, given my explanation, hon. Members will not press their amendments.

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

The Minister said that she did not think it was too important an issue because no companies had complained. In practice, some companies file documents, some do not and the situation is pretty much laissez-faire. So far as I know, no one has ever been picked up for doing one or the other, which is why I was keen to discuss the amendment. On that basis, I think that we have got to where I wanted to be, but I would be grateful if, in the letter that she promised, the Minister also elaborated on the point that she made to me earlier and sent me the same letter.

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

I am happy to do so.

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

With that, I beg to ask leave to withdraw the amendment.