Clause 105
Company Law Reform Bill [Lords]
3:00 pm
David Howarth (Shadow Minister (Energy), Trade & Industry; Cambridge, Liberal Democrat)
Having listened to the debate, I believe that it comes down to how one sees the original deal between and unlimited company and the person who enters a contract with it. There is a sophisticated view of such a contract that the person lending the money does so on the basis of the specific provisions of company law and those in the 1986 Act. The answer to complaints would therefore be, “Well, you contracted on the basis of the existing statute law.” The powerful objection to that view is that it is too sophisticated a way to consider the contract for an ordinary person making a deal with a company to be forced to follow and that in reality nobody makes contracts on such a basis. Under such a view, we would require anyone dealing with unlimited companies to take sophisticated legal advice to allow them do so safely.
The other equally absolutist view of such contracts is the one expressed in the amendment—that they are agreed between the lender and the company on the basis that the company is unlimited. A change in the company’s status, from unlimited to limited, is, in a sense, a breach of that agreement, changing the basis on which the agreement is reached by the creditor.
That absolutist view gives rise to the drafting of the amendment, which I concede would put a veto power into the hands of the creditor. If one wanted to defend that approach, one could say that the contract was like any other contract, and that a person who enters into a contract with somebody else has a veto in the sense that the other side is not allowed to change their promise unless that person says so and gives them permission.
I accept that the view expressed by most hon. Members today has been a third view of the contract, which is that the parties agree on the basis that the company is an unlimited company, but that each side also allows the other reasonable leeway to change their status or basis of the deal, given ordinary commercial developments, including the desire of a company to go public, for example.
Given that that seems to be the most widespread view in the Committee, it seems that the best thing for me to do is ask leave to withdraw the amendment in its present form, but reserve the right to return on Report with an amendment that does not follow the other absolutist view of the contract, which appears to be the Government’s view.