Clause 62
Company Law Reform Bill [Lords]
9:45 am
Vera Baird (Parliamentary Under-Secretary, Department for Constitutional Affairs; Redcar, Labour)
I am grateful for that thoughtful contribution made by the hon. Gentleman on behalf of the Liberal Democrats. He is correct to say that the clause runs with the grain of company law generally. Apparently, it is likely to affect 21 active companies—that is the number I have been told—which represents a small group, because most not-for-profit companies that are exempt from the requirement to have the word “limited” are companies limited by guarantee.
Under the Companies Act 1985—the present legislation—none of those 21 companies can return capital to their members, because they do not have the authority in their articles to do so, and they cannot change their articles without consent from the DTI. However, under part 19 of the Bill, it will no longer be necessary for companies’ articles to authorise reductions of capital or to authorise companies purchasing their own shares. Furthermore, exempt companies will no longer need to apply to the DTI for approval when they amend their articles, although the Bill ensures that, as at present, companies limited by shares exempt from the requirement for their name to end in “limited” may not return capital to members. I broadly embrace the point made by the hon. Gentleman that to allow them to do so would be wholly inconsistent with the grounds for the exemption. The amendment would remove exactly the safeguard that he has pinpointed.
I suppose that it is a sort of trade-off. The company’s articles cannot allow it to do inappropriate things with its money, so just as it is inappropriate for not-for-profit companies to pay dividends it is inappropriate for them to return money to their shareholders in other ways, for instance by buying back the shares. There is a clear and strong purpose for this provision to remain as it is, and I invite the hon. Member for Hornchurch to withdraw his amendment.