Clause 62
Company Law Reform Bill [Lords]
9:30 am
James Brokenshire (Hornchurch, Conservative)
I beg to move amendment No. 58, in clause 62, page 25, line 2, leave out
‘, or any return of capital,’.
We return to an issue originally highlighted in the other place. Although I heard the comments made by the Minister for Industry and the Regions about returning to issues that were debated in another place, it is valid for this Committee to examine issues and ensure that the right conclusions were reached. It is our duty and responsibility to hold the Government to account, so I feel no compunction at all about raising issues on which there may have been some debate in the other place.
The clause makes provision for certain companies to continue to use a name that does not end with “limited” or any other permitted alternative. The clause sets out certain conditions, the first of which is that the object of the relevant company must be the promotion of certain things, such as art, science, religion or charity. There is a further requirement for companies’ articles to include certain provisions, including the prohibition of payment of any dividends and of any return of capital to its members. In the other place, my noble Friend Lord Hodgson rightly pointed out that the requirement prohibiting a return of capital is new and departs from the provisions of section 19 of the Companies Act 1985. That means that some companies would be required to change their articles to maintain compliance with the expanded requirement.
Although I recognise that there are very few companies still benefiting from a licence under section 19 of the 1985 Act, I was not persuaded by Lord McKenzie’s reply, in which he mentioned the deregulatory nature of the clause, as it seems clear that the companies concerned will be obliged to change their articles if they are to continue to rely on the clause. That may now be easier, as exempt companies no longer need to apply to the Department of Trade and Industry for approval when they amend their articles, but it is slightly peculiar to suggest that that is deregulatory, when the relevant companies will be required to take positive steps to retain their status and will potentially incur cost and expense.
Lord McKenzie said in Grand Committee that the change was justified
“to ensure that exempt companies do not act in a way that is inconsistent with their status”.—[Official Report, House of Lords, 30 January 2006; Vol. 678, c. GC51-52.]
Could the Minister give an example of an exempt company that has used its powers inappropriately? If not, why is an additional burden being placed on a small group of companies? Amendment No. 58 would delete the reference to the return of capital to bring clause 62 in line with section 19 of the 1985 Act.