James Brokenshire (Hornchurch, Conservative)

I beg to move amendment No. 129, in clause 67, page 28, line 16, at end insert—

‘(6) Nothing contained in this section shall prohibit or inhibit an objection under section 70.'.

Eric Illsley (Barnsley Central, Labour)

With this it will be convenient to discuss the following: Clause stand part.

Amendment No. 130, in clause 68, page 28, line 22, leave out from ‘names,' to end of line 23.

Clause 68 stand part.

Amendment No. 131, in clause 69, page 28, line 42, after ‘be', insert ‘in writing and'.

Clause 69 stand part.

Amendment No. 132, in clause 70, page 29, line 18, after ‘name', insert ‘or incorporates a name'.

Amendment No. 133, in clause 70, page 29, line 19, after ‘goodwill', insert ‘in the United Kingdom'.

Amendment o. 134, in clause 70, page 29, line 22, after ‘applicant', insert

‘provided that the applicant was using such name in the United Kingdom at that time.'.

Amendment No. 135, in clause 70, page 29, line 23, at end insert

‘within twelve months of the company's registration with the relevant name'.

Amendment No. 252, in clause 70, page 30, line 2, after ‘upheld', insert —

‘(i)'.

Amendment No. 253, in clause 70, page 30, line 5, at end add

‘or

(ii) if the activities of the company using the registered name would be likely to deceive members of the public or to cause loss or damage to persons dealing with the company.'.

Amendment No. 136, in clause 70, page 30, line 6, at end insert—

‘(6A) Without prejudice to the foregoing provisions of this section, in the event that all of the circumstances contemplated in subsection (8) are satisfied, an applicant may apply to a company names adjudicator for an interim order under this subsection.

(6B) The circumstances referred to in subsection (7) are that—

(a) the applicant is a company whose shares are listed on a regulated market;

(b) the applicant has published a circular to shareholders incorporating a resolution proposing to change its name to a particular name (a “relevant name”); and

(c) a company (the “respondent”) has been incorporated with the relevant name or changed its name to the relevant name in either case on or after the date of publication of the circular referred to in subsection (8)(b).

(6C) If an application for an interim order is made and the adjudicator is satisfied that the provisions of subsection (8) are satisfied, the adjudicator shall make an order requiring the respondent to change its name to a name specified by the adjudicator.

(6D) The adjudicator must give notice of his interim order—

(a) to the applicant;

(b) to the respondent; and

(c) to the registrar.

(6E) Upon the presentation by the applicant to the registrar of an official copy of the interim order together with all other documents contemplated by section 78 (Change of name by special resolution), and the registrar is satisfied that—

(a) the relevant name complies with the requirements of this Part, and

(b) the requirements of the Companies Acts and any relevant requirement of the applicant's articles, with respect to a change of name are complied with,

the registrar must enter the relevant name as the new name of the applicant and enter the name set out in the interim order as the new name of the respondent on the register in place of the former names of the applicant and respondent respectively.

(6F) On the registration of the new names, the registrar must issue a certificate of incorporation to each of the applicant and the respondent altered to meet the circumstances of the case.

(6G) The making of an interim order shall be without prejudice to any other legal rights of the applicant or respondent or any application by the respondent under subsection (1).'.

Amendment No. 137, in clause 70, page 30, line 7, after ‘section', insert ‘and in section 73'.

Amendment No. 60, in clause 70, page 30, line 7, at end insert—

‘(8) In this section “start-up costs” shall be considered “substantial” in relation to the annual revenue and assets of the company.'.

Clause 70 stand part.

Amendment No. 138, in clause 73, page 31, line 20, after ‘application', insert

‘other than an application for an interim order'.

Amendment No. 264, in clause 73, page 31, line 20, leave out subsection (1) and insert—

‘(1) If an application under section 70 is upheld, the adjudicator shall make an order, either—

(a) requiring the respondent company to change its name to one that is not an offending name, and requiring all respondents—

(i) to take all such steps as are within their powers to make, or facilitate the making of that change, and

(ii) not to cause or permit any steps to be taken calculated to result in another company being registered with a name that is an offending name, or

(b) requiring the respondent company to undertake to the applicant and to the Secretary of State not to operate under the registered name in connection with such activities as may be specified in the order.'.

Amendment No. 139, in clause 74, page 32, line 6, at beginning insert

‘Other than in the case of an application for an interim order,'.

James Brokenshire (Hornchurch, Conservative)

I shall speak to amendmentNo. 129 and all the amendments that are grouped with it as they largely relate to the mechanism for objecting to a company’s name under the new procedure set out in clause 70 onwards. I shall also make some more general points about clause 70 as part of the stand part debate.

Clause 67 states at the outset:

“A company must not be registered under this Act by a name that is the same as another name appearing in the...index of company names.”

It then states:

“The Secretary of State may make...regulations supplementing this section”

so that certain words, symbols, signs and other matters can be disregarded for purposes of the section, and so that

“registration by a name that would otherwise be prohibited...is permitted”.

I am concerned that the Secretary of State’s approval of a name by virtue of this clause could be seen to override the rights, or question the ability of another person to have such rights, in connection with that name or a similar name, to challenge the granting of the name under clause 70. Accordingly, amendment No. 129 seeks to clarify the point to avoid any confusion.

Clause 68 gives the Secretary of State power to direct a company to change its name if it has been registered in a name that is the same as, or in the opinion of the Secretary of State, too like a name appearing on the register or a name that should have appeared on the register. My concern is the last point: which names should appear on the registrar’s index of companies that are not there? Amendment No. 130 seeks the deletion of those words, but I would in any event be interested to hear from the Minister the circumstances that are contemplated by them. It seems odd to legislate for something that should be there but is not. I certainly would not wish to set a dangerous precedent for other legislation by letting this pass me by; hence the reason for flagging up the point and tabling the amendment.

I would also be interested in the Minister’s views on how the clause would interrelate with clause 70 and the mechanism for the new company names adjudicator. Is it envisaged that a party could apply to the Secretary of State under clause 68 and to the adjudicator under clause 70 at the same time? Who would take precedence in such a situation? How would any issues or disputes be resolved if a twin-track approach were taken? It is worth gaining clarity on the issue so that we can best understand the interrelationship between the two different regimes. It appears that they could be used on the same occasion, and that could lead to confusion.

Amendment No. 131, the words of which are repeated in some subsequent amendments, seeks to impose uniformity on the form that a direction from the Secretary of State should take. I mentioned earlier that clause 65 makes it clear that a direction from the Secretary of State in that context should be in writing, and I note that clause 75 also specifies that a direction should be in writing, yet that requirement is missing here. I believe that all such directions should be written, given the potential sanction imposed for a breach. Amendment No. 131 would address that point.

Clause 70 relates to the new mechanism to enable a person to raise with one of the new company names adjudicators an objection to a company using a particular name. Before developing some points and discussing the amendments proposed to the clause, I want to say that I welcome the concept of creating a means of challenge and the ideas that lie behind the clause and the various provisions that feed into it. There are cases of names being used inappropriately and companies to a certain extent being held to ransom, so it is important that there is a means of more direct redress in the Bill. However, my comments will relate to the mechanics of the structure in the Bill. As currently drawn, that may be somewhat cumbersome and time consuming and may lead to unintended consequences.

Let me deal with a more technical point first. Amendment No. 132 is designed to clarify that, for a person to object, the company does not have to have exactly the same name, which is what the wording of clause 70(1)(a) seems to suggest. The amendment would make it clear that, if a company had incorporated a name associated with the applicant in which he had goodwill, that would give grounds for an objection. Another aspect that concerns me is that  there appears to be no requirement for the applicant seeking to raise an objection to have any current or direct interest in the UK.

I shall give an example and I hope that you will excuse me, Mr. Illsley, if I take your name in vain for this limited purpose. Illsley Retailers could be a large international company that had not yet established a presence in the UK. Illsley Retailers Ltd. could be a small high street store—say on Hornchurch high street in my constituency—which has just set itself up, completely oblivious of the existence of Illsley Retailers, the large international concern. The international company is able to show that it has goodwill in its name and that the name of Illsley Retailers Ltd. is sufficiently similar to suggest a connection with the international company, thereby, in my view, satisfying clause 70(1) and enabling the large international company to argue that it is considering establishing a new chain of stores in the UK, giving it the potential right to raise an objection.

If that happened, the now quaking Illsley Retailers Ltd.—the new and small UK company with only limited resources available to demonstrate its situation under clause 70(4) so as to fend off the objection being upheld automatically—would have to try to demonstrate that it did not know of the large international company so as to deprive it if it subsequently wanted to register the name. The costs of that could be significant, and there might be an inequality of arms between the parties that could lead to the smaller firm being intimidated into changing its name, even though it did not intend to contravene clause 70 and even though that action would cause damage to its own goodwill.

I give that example with regard to ensuring that there is a direct link to the UK. I think that the intention behind the drafting is to deal with issues of uncertainty and with something that is misleading. However, the existing wording does not seem right to me, so amendments Nos. 133 and 134 are designed to make it clear that there has to be a strong connection between the applicant and its use of its name and goodwill in the UK.

It also seems odd that the right of objection is completely open ended. There is no limitation period at all, and I believe that an appropriate long-stop date for a challenge should be incorporated to provide certainty about this area of law and to facilitate speed of administration in respect of company names and their use. Amendment No. 135 therefore proposes a limitation period of 12 months from the date of registration of the offending company name.

Amendment No. 137 is a technical amendment to ensure that the definition of “goodwill” in clause 70(7) also applies to clause 73 where it is also used. However, it would be helpful if the Minister could tell us whether any further guidance will be forthcoming on the meaning of “goodwill” as referred to in this subsection as the CBI has stated that it would be useful to give a clearer indication as to the matters that would be covered. For example, would a registered trademark currently in use be regarded as meeting the definition? It would certainly be helpful if some further clarification or guidance could be offered.

Amendment No. 60 seeks to clarify the reference to “start-up costs” in clause 70(4)(b)(ii) and to give some  context to the term by making reference to the company’s annual revenue and assets. Without this, it seems that the reference to start-up costs could be highly subjective and uncertain, and I note that the Secretary of State has not reserved a specific right to give guidance on this term under clause 72.

We come back to amendment No. 136 and the insertion of a new mechanism for seeking an interim order. These new provisions are intended to address what I see as one of the real loopholes that the current law allows and that the Government’s proposals appear to fail to address adequately and in a timely manner even though this is precisely the type of case that the mechanism is intended to address.

Let us take the example of a public company that is in the middle of a transaction, such as a reverse takeover where it is acquiring another company, part and parcel of which will incorporate a resolution approving that transaction. In the light of the different status of the new enlarged company, it might to seek to change its name at the same time and will therefore issue a circular to its shareholders seeking the permission to proceed with the transaction, but also seeking permission to change its name. Therefore a document is published, a circular is sent to shareholders giving the background to the transaction and also seeking their approval to pass a special resolution to change the name of the company.

In those circumstances what commonly happens is that a separate limited liability company is set up and the resolution is passed and a similar resolution is also passed in the new limited liability company. Both resolutions and the supporting documentation are filed at the same time with the registrar of companies so, in essence, there is a simultaneous change of name. There is therefore no doubt that the new plc seeking to change its name is not entitled to do so by virtue of an existing company having the self-same name on the index of companies maintained by the registrar.

However, that does not always happen. I am aware of circumstances from my experience before entering the House where the limited liability company may not have been established. There are people who monitor such issues quite carefully and who then establish a new limited liability company using the name that the public company was seeking to adopt following on from the change of name. Challenges have been brought through legal proceedings, but customarily in those circumstances, given the possible time constraints and the potential embarrassment to any parties involved, a commercial arrangement is reached to secure the name that the plc was seeking to adopt by virtue of its proposals.

Clearly, as the timetable for an EGM is 21 days, that does not give a huge amount of time to make any changes and to ensure that one can secure the new name after the successful passing of the resolution by the shareholders. Obviously when one is talking about a plc, one is talking about filing with the London stock exchange and therefore the high-profile nature of what is contemplated.

Under the current procedure, one is required to seek the permission of the company names adjudicator to  change a name. It seems that one would have to go to court if the name was not changed; there is no automatic provision for an offending company to change its name. The risk is that it could be expensive for relevant companies, hence the proposal for an interim order procedure as proposed in amendment No. 136.

I do not intend to take up the Committee’s time going through the provisions of amendment No. 136 in detail, but in essence it would allow a plc to challenge the use or registration of the new name if it took place after the publication of the relevant circular. It would ensure a swift challenge. The mechanism would allow a means of addressing the ills that are likely to occur within the likely time scale.

It is a question of balancing the risk. Amendments Nos. 136, 138 and 139 would allow that to be done more effectively. It is worth noting that if there was a subsequent dispute about who has goodwill and so on, it would be possible to seek a challenge through other procedures contained in the Bill.

I appreciate that I have already taken some time, but I want to deal briefly with some concerns raised by the CBI in connection with clause 70, which are dealt with in amendments Nos. 252, 253 and 264. Amendments Nos. 252 and 253 seek to make a further addition to clause 70(5). That clause deals with a situation in which the main purpose of registering a name is to obtain money or other consideration from the applicant, or to prevent him from registering the name. In those circumstances, even if the relevant exemptions in paragraphs (a), (b) or (c) of subsection (4) would otherwise apply, an objection to a company names adjudicator would be upheld.

However, the CBI believes that further amendment is necessary to mitigate the impact of the exemption in clause 70(4)(b)(ii) that a company is already operating under a relevant name. Amendments Nos. 252 and 253 would provide for a situation where consumers and members of the public, and those actually dealing with or trading with a company, could be misled into thinking that they were receiving information about or dealing with a well-known company when they were not.

The CBI states that if such a change was adopted, it would save many well-known companies significant amounts of management time and costs often exceeding £100,000 each year in getting misleading company names withdrawn or changed. Although some remedies exist in law for passing off and for breach of trademark, companies will save significant sums if company law is brought to bear and made more effective. It would also help legitimate companies rightly concerned about damage to their reputation.

Amendment No. 264 makes a slightly different point, as it addresses the potential orders that a company names adjudicator could make. The CBI describes the current order-making power as “seriously inadequate”. In many cases, the goodwill attached to a name applies only in a particular field or area of business that reflects the type of activities undertaken by the relevant company. Except when a name is particularly well-known, the use of a name outside a specified area of activity may not be said to mislead.

Amendment No. 264 would therefore give the adjudicator discretion in appropriate cases to allow the  respondent company to retain the disputed name as its own, but on the condition that it is required not to operate in the relevant fields of activity if confusion could arise as a result of the applicant’s goodwill in that particular business area. That seems a practical proposal which would address the concerns of the applicant, yet it would not unduly penalise a respondent company.

Quentin Davies (Grantham & Stamford, Conservative)

I want to speak to amendments Nos. 252 and 253 in my name. I am grateful to my Front-Bench colleagues for having added their names to those amendments.

As my hon. Friend said, clause 70 in its present form is somewhat inadequate. Subsection (1)(b) provides some protection for a company that finds someone else using its name or a name very close to it such that potential customers are easily deceived into believing that they are dealing with a company whose goodwill already exits, when in fact they are not. That is a real danger that we come across in many contexts, and which gets worse with the growth of internet trading. Company law should provide a protection or remedy against that.

Clause 70 is rather convoluted. It starts by stating that there will be some protection, but then withdraws a lot of that in subsection (4), which provides for six grounds—I think—on which a company complained against for having borrowed another company’s name or for trading under one that is excessively close to it, can raise an excuse. If they can do that, there is no such protection for the person complaining. That is not adequate.

Subsection (5) then adds a new protection against explicit intent to blackmail a company with substantial goodwill by setting up and trading under another with the same or similar name simply to force the first company to buy it in. It is in the public interest to exclude such blackmail or greenmail, which is the purpose of subsection (5).

The provisions do not, however, go to the heart of the real abuse or evil. They do not mention public protection. As my hon. Friend mentioned, the CBI inspired such an initiative. Protection of the public is our greatest concern and we must address it. My amendment No. 253 therefore adds the criterion:

“if the activities of the company using the registered name would be likely to deceive members of the public or to cause loss or damage to persons dealing with the company.”.

That is the essence of the abuse, against which the public need to be protected, and it needs to be in clause 70 explicitly and none of the potential excuses in subsection (4) should be able to override it.

I hope that the Committee agrees that the amendment is sensible and makes it clear what the main purpose of the protection should be. The clause does not mention public interest, and it should. So far, protection in company law against that form of abuse is inadequate.

Vera Baird (Parliamentary Under-Secretary, Department for Constitutional Affairs; Redcar, Labour)

I am grateful for the clarity with which Opposition Members have reasoned their amendments. I shall start by separating the purposes of clauses 67 and 70. I think that that is where the hon. Member for Hornchurch started.

Clause 67 provides the rules under which a proposed name is to be compared with existing names to determine whether it is the same and thus should be prohibited. For example, “bricks and mortar” would be treated as being the same as “brick sand mortar”, and therefore the second name would not be permitted. It would not even make it on to the register. That is the important point.

Clause 70 provides for objections to a name already registered on the grounds that it either is the same as the name in which the objector has goodwill, or is so similar as to suggest a connection between the company and the objector. I agree that it would be wrong if the rules under clause 67 restricted the scope of objections under clause 70. However, the purpose of clause 70 is to provide for objections to names already permitted—it has got over the hurdles in clause 67—so I think that the drafting is clear.

Amendment No. 130 focuses on a real difficulty with rules on company names regarding names that should have been on the register, but were not. I was asked about how that situation could arise. I suppose the subtext could be, “Was it because of inefficiency?” Perhaps, that was implied in the question.