Eric Illsley (Barnsley Central, Labour)

I remind the Committee that with this we are discussing 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 No. 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 dateof publication of the circular referred to insubsection (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 orderas 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,'.

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

I had dealt with amendment No. 129 and moved on to amendment No. 130, but I shall interpolate a comment on the matter of the twin-track clash between clauses 70 and 78 that the hon. Member for Hornchurch (James Brokenshire) asked me to address. If a company is not required to change its name under one provision, that will not affect the possibility of its being required to do so under another. The clauses cover separate situations.

The Opposition’s amendment No. 130 is on a difficult matter. It probes why we have included a paragraph covering not names that were on the register but those that should have been. Clause 752 states that the registrar’s index of company names must include names of various bodies other than companies, including limited partnerships, European economic interest groupings registered in the UK and industrial and provident societies. The rules relating to the names of such bodies are not exactly the same as those for companies, but they still appear on the registrar’s index. Whereas companies’ names appear on the index immediately upon being taken, that is not the case for the other bodies. That is becoming less of a problem thanks to electronic communication, but the fact remains that a name may have been adopted but not yet arrived on the index because of the different procedures. It helps the public if the registered names of a wide range of business organisations are unique, and if there are two very similar ones on the index it makes searching for information difficult. If a company takes a name very similar to one that should be on the register but is not yet, it is in the public interest that a change of name be required.

Such a situation arises rarely, but it is important that the facility to direct changes of name remains available, which is why the clause keeps the power in the Companies Act 1985. I agree that it is a pity that we still need that power, but removing it would make the situation worse because there could be two bodies called Whatever Ltd. I hope it deals with the hon. Gentleman’s point to say that there is a mismatch between the procedures for companies and those for non-companies that have to be on the register, creating the possibility of a name that should have been there being taken by someone else.

Amendment No. 131 relates to whether directions given under clause 69 should be in writing. We agree that it is better for all directions to be made in writing and I ask the hon. Gentleman not to press the amendment on the understanding that we will look again at the matter. Parliamentary counsel might advise that a wrapping-up clause be included at the end of the Bill to say that all directions must be in writing, or that the instruction should be added to clause 69. We accept the spirit and substance of the amendment.

On amendment No. 132, we intend that it will be possible under clause 70 to object to a name that incorporates another. Subsection (1)(b) covers the problem that the hon. Gentleman pinpointed in the  amendment. It is true that subsection (1)(a) states that it is intended to cover a name that is

“the same as a name associated with the applicant”

but subsection (1)(b) makes it clear that any name is included that is “sufficiently similar” that its use would be likely to mislead. We feel that the matter is adequately covered without the amendment, which does make a good point that needs emphasising. It need not be exactly the same words but just to have a very close similarity.

We are introducing the procedure in clauses 70 to 74 to address the problem of opportunistic registration, referred to by Opposition Members, by which I mean the sharp practice of registering a company in a name that the opportunist realises is about to be used by someone else.

I understand that when Glaxo and Wellcome plcs held merger negotiations someone registered a company in the name of Glaxo Wellcome Ltd and then sought to bargain with those plcs for the release of the name. Clearly, that was an abuse of the registration process. It would have been equally so had the registration been because the opportunist believed that a company big outside the UK was about to establish itself here.

Having explained the purpose of the clauses, I shall deal with amendments Nos. 133 and 134, which attempt to limit the application of the clauses to a name that had goodwill in the UK only. As I said, it would be equally opportunistic and an abuse of the procedure if someone registered the same name as one big outside the UK because he believed that it was about to establish itself here, under provisions in the clauses. If the owner of the big name were able to show that the main purpose behind that choice of name was to get money from him, or to prevent him from registering, the adjudicator may uphold his objection and require the other company to change its name. That is a pragmatic solution to a real problem.

I have been asked to make it plain that we are indebted to Mr. Mendelsohn, a lawyer, who suggested that solution to the company law review. It was a bright idea indeed.

Restricting the grounds for an objection to goodwill in the UK, as amendments Nos. 133 and 134 would do, would reduce the usefulness of the clause for no purpose. I hope that the hon. Gentleman will not press those amendments.

I turn to the time limit provision in amendmentNo. 135. If we set a time limit of one year, the canny opportunist would simply not approach the person whose goodwill he intends to exploit until the 366th day, the 367th day in a leap year. I understand that the hon. Gentleman is concerned that the absence of a time limit might expose an innocent company to an application under the clause. However, subsection (4) provides the appropriate protection. If a company is operating under a particular name, or has incurred substantial start-up costs, the objection to the name, in order to be upheld, would have to show that that name was chosen only to obtain money from the objector. That protection is better than a time limit, which is fallible, so we invite him to think that companies will be adequately protected against that danger, and not to press the amendment.

I turn to amendments. Nos. 252 and 253, proposed by the hon. Member for Grantham and Stamford(Mr. Davies), and supported in the Committee by his hon. Friends. The Bill is not intended to address wrongs to which there are remedies under other legislation. The amendments argue that there might be a problem with unscrupulous persons causing public harm by trading as a company registered in a name that misleadingly suggests a connection to someone more reputable. We are not sure that there is a gap or, if there was, that the amendment would be the right way to address it. However, we think that there is something for us to look at here.

We respectfully invite the hon. Member for Hornchurch, on behalf of his colleague, not to press amendments Nos. 252 and 253, which I think arrived on the scene fairly recently anyway—about a week ago—and to give us an opportunity to seek to plunge whether there is an issue, and how to tackle it if there is. Obviously, we would appreciate any help that Opposition Members can give us in that process.

Amendments Nos. 136, 138 and 139 introduce an interim procedure to protect plcs quoted in the amendment—I think—from the threat of such opportunism if they circulate their new name to their membership. The kind of plcs that would benefit from the amendments ought to incorporate a company in the relevant name before they send the circular out—they could just buy a Jordan’s company for £20—and thereby get away from the danger that they put themselves in by tackling it from the opposite point of view. If, however, that is not done, we do not see the need for the hon. Gentleman’s interim procedure, which gives a final outcome, because the whole of this section is intended to deal with the very problem that his procedure would address. He is offering an alternative, and we think that ours is better. The framework that we have set up provides the extra assurance that, in order to prevent their names from being poached companies simply need to incorporate.

On amendment No. 137, it might help if I explain the context in which goodwill is used in clause 73. The hon. Gentleman wanted a definition, and asked whether having a trademark would be sufficient to constitute goodwill. I omitted over luncheon to find out the answer to that. I shall either get one now or write to him. As it is used in clause 73, goodwill is about what happens when an application to an adjudicator is successful. He might order the company to change its name, but there will be restrictions on what it can change it to, because it will not be allowed to change to something that is just as bad, from the point of view of the objector, as the name that has just been disallowed. The restrictions are made by reference to, as clause 70 puts it, the

“name associated with the applicant in which he has goodwill”.

The circle is complete. It is evident from the legislation—I cannot find an alternative meaning—that what is intended is that somebody who is ordered to change a name because it is too close to the name associated with the applicant in which he claims goodwill cannot change it to something else that is associated with the applicant in which he claims goodwill. There is no need for any further clarity. I can  now tell the hon. Gentleman that it is intended that a trademark should be sufficient to trigger goodwill. I am glad that I remembered that.

Amendment No. 60 concerns the substantial start-up costs mentioned in clause 70(4)(b)(ii). It aims to define what substantial means in terms of start-up costs, and seeks to link them to the assets and annual revenue of a company. That is unlikely to be relevant to many start-ups. What will happen, as is evident from the legislation, will be that the adjudicator will consider whether the company in question has paid out substantial start-up costs. It would be silly if substantial meant £10,000 or any fixed definition. It is far better for the adjudicator to be free to look at the specific company and to say whether he considers that the start-up costs have been substantial in that context. The position is clear, and the Bill is long enough without adding anything extra to it.

The procedure is intended to address opportunistic registration. It is not intended to be an alternative to any existing remedy under the law on trade marks and passing off in relation to names that people might want because of a merger or because they are converting their business to a liability partnership. Amendment No. 264 would create an easy means of preventing a company from trading under a particular name in the context of passing off, and that is not what this measure is about. I have given clear undertakings on amendments Nos. 131, 252 and 253, and I hope that the hon. Gentleman is satisfied with my explanations and will not press his amendments.

James Brokenshire (Hornchurch, Conservative)

I am grateful to the Minister for that full response, and I note what she said in relation to clause 67 and amendment No. 129, and the fact that it is intended to stop companies getting on the register in the first place. In some ways, I was focusing on the word “registered”, which was deemed to mean both incorporation and change of name when we debated it earlier. I wanted to give the contextual position of it meaning both circumstances. A little reflection on that might avoid any confusion.

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

I am sorry that I had not realised that part of the thrust of the amendment is the same point that we debated on Tuesday. The same answer applies as applied then; this is about becoming registered. It is not about continuing to be registered.

James Brokenshire (Hornchurch, Conservative)

I am grateful to the Minister for that intervention, but in our debate on Tuesday we suggested that the point covers both circumstances. The thrust of my amendment is based on the fact that this is not just a pre-incorporation situation. It perhaps underlines the thrust of my original amendment, which suggested that the word “registered” might need to be looked at carefully in terms of the context in which it arises.

The same point that I made on amendment No. 129 arises in part on clause 68: we did not discuss the Secretary of State’s power to direct a company to change its name if it has been registered in a name that is the same or similar. There is some crossover between  that and clause 70 and the twin-track approach. The Minister says that there should not be a problem but I think it needs a further cold towel to ensure that the interrelationship between the clause 68 regime and the clause 70 regime works effectively and that there is no misuse.

I will not press amendments Nos. 129 and 130. I hear what the Minister says about the fact that non-companies could appear on the index and I am grateful for her explanation. I still feel that that should be speeded up and that any gap or potential issue is reduced as much as possible because clearly it is not in the interest of a company seeking to register if, having done its search of the index of names, discovered nothing, it then finds out that there was a problem. That would be unacceptable.

I am grateful for the Minister’s comments on amendment No. 131. I agree that it is a matter for the parliamentary draftsmen to look at the most effective way of dealing with the “in writing” point. If later in the Bill it could be stated that directions from the Secretary of State in all circumstances shall be in writing, it would save us having to put “in writing” in each context in which it arises. I respect the way that the Minister addressed that amendment.

I note what the Minister said about linkage with the UK. All I would ask is that the issue be kept under close scrutiny. I would not like to think that this power was misused or used in a way that was not currently anticipated and that a creditor from outside the United Kingdom could seek to use its powers to intimidate and put pressure on the smaller company in this country and use the sort of inequality of arms argument to which I alluded. Again, I am grateful for her response. We will need to keep the matter under close observation. I also note the Minister’s comments on amendments Nos. 252 and 253, which were prompted by concerns raised by the CBI. I am grateful for her assurance that this matter will be looked at in further detail and therefore I look forward to receiving further information and details in that regard.

The one area on which I am not satisfied relates to amendments Nos. 136, 138 and 139 and the proposal for an interim order. I hear what the Minister says about a company’s ability to protect its position by incorporating a limited liability company and undertaking the name swap that I mentioned.

This tranche of clauses is intended to protect against opportunistic registration in circumstances where the respondent’s main purpose in registering the name is to obtain money from the applicant or prevent him from registering the name. I find it extraordinary that having been presented with a serious problem that unfortunately occurs fairly frequently, the Government are not minded to consider the issues that I alluded to in my opening comments. Why should they not also address the problem of opportunistic registration instead of saying, “Sorry, you’ve just got to register a limited liability company and that’s it.”?

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

My hon. Friend makes a persuasive argument. The Minister spoke about the ability to set up another company and name swap, which is used daily throughout the country. Thousands of companies, if  not tens of thousands, exist simply because of a name swap. That distorts the picture of how many companies we have and for what purpose they exist, but it is also a huge waste of resource, and indeed civil service resource, to wind such things up when they are not needed.

James Brokenshire (Hornchurch, Conservative)

I am grateful to my hon. Friend for his intervention. The drafting of the amendments is quite narrow and meant to cover a specific problem. Therefore, it is surprising that the suggestion is, “You’ve just got to do what you should have been doing in the first place.” It is recognised that that is what companies could do to protect themselves, but if a company is being opportunistic and using this as a mechanism to extort money—it does happen—it is unfortunate that the Government will not take that serious issue on board. I am therefore minded to press the relevant amendment to a Division.

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

I did mention the potential that the hon. Member for Huntingdon talked about. It is used, and it is not very resource intensive—it costs about £20—but he has a point about winding up such affairs at some stage.

I also said that if that has not been done and there is a challenge, whether before or after a circular has been published, that is what the proceeding in the statute is all about. Nothing would be added by the amendments. To call this an interim procedure is not realistic, because if the adjudicator is satisfied that opportunism exists, he “shall” make an order

“requiring the respondent to change its name”.

It is a final law, just like the one in the statute. Why is the amendment better?

James Brokenshire (Hornchurch, Conservative)

I am grateful to the Minister for clarifying her thoughts. The concept that this is an interim measure would have ensured that it was shown to enable a formal challenge under the more general clause 70 regime, so that a plc in those circumstances could seek redress with the speed anticipated by the clause. A more wide-ranging debate on goodwill could happen thereafter. In terms of the balance of risk and harm, the interim order would work by addressing the larger evil in such circumstances.

I fear the Government’s good intentions to deal with opportunistic registration arrangements. I do not question or doubt the intent behind the proposals, but I fear that they will not resolve the issue. Unfortunately, deals involving brown envelopes will have to continue because of embarrassment and the speed that I alluded to in relation to the 21-day period. When we come to later debates on resolutions, we might consider a shorter notice period for general meetings.

I do not think that the Government’s structure, even with the best of intentions, will deal with the matter. It is a pity that opportunist registrations to extort cash out of companies will not be addressed if the amendments are rejected.

Amendment No. 137 relates to goodwill. I am grateful to the Minister for her comments on trademarks and clarification, which are much appreciated. I hear what she says about start-ups and the costs that have to be analysed, and I will not press the amendment to a  Division. However, amendments Nos. 136, 138 and 139 raise a significant issue, and I will divide the Committee on amendment No. 136, as it is the most important.

I beg to ask leave to withdraw the amendment.