Clause 115
Company Law Reform Bill [Lords]
3:45 pm
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
I beg to move amendment No. 26, in clause 115, page 52, line 10, leave out from ‘inspection' to end of line 12 and insert
‘of any member of the company without charge, provided that each such member to whom the register is disclosed owns 5 per cent. or more of the issued share capital of the Company.'.
Eric Illsley (Barnsley Central, Labour)
With this it will be convenient to discuss the following: Amendment No. 27, in clause 115, page 52, line 21, after first ‘the', insert ‘precise'.
Clause stand part.
Amendment No. 29, in clause 116, page 52, line 32, leave out ‘five' and insert ‘fifteen'.
Amendment No. 168, in clause 116, page 52, line 34, leave out ‘apply to the court' and insert
‘inform the person making the request that it is refusing the request because it believes that the request is not made for a proper purpose'.
Amendment No. 30, in clause 116, page 52, line 34, after ‘court', insert
‘, unless an application for a confidentiality order has been made subject to section [Names and addresses of members of companies: company application] or [Names and addresses of members of companies: individual application]'.
Amendment No. 170, in clause 116, page 52, leave out line 35 and insert—
‘(2) The person making the report may apply to the court.'.
Amendment No. 171, in clause 116, page 52, line 36, after ‘is', insert ‘not'.
Amendment No. 172, in clause 116, page 52, line 37, leave out ‘not'.
Amendment No. 173, in clause 116, page 52, line 38, leave out
‘the company not to comply with'
and insert
‘that the company is permitted to refuse'.
Amendment No. 174, in clause 116, page 52, line 41, leave out from ‘request' to end.
Amendment No. 175, in clause 116, page 53, line 2, after ‘is', insert ‘permitted'.
Amendment No. 176, in clause 116, page 53, line 5, leave out from ‘if' to first ‘the' in line 6 and insert
‘the court does not make a direction that the company is permitted to refuse'.
Clause 116 stand part.
Amendment No. 169, in clause 117, page 53, line 12, leave out
‘accordance with an order of the court'
and insert
‘pursuance of a refusal under section 116(1)(b) (unless the court has decided that it is not satisfied that the request was for a proper purpose under section 116(3))'.
Clause 117 stand part.
New clause 2—Names and addresses of members of companies: company application—
‘(1) Subject to the provisions of this section, a company may make an application under this section to the Secretary of State where the condition in subsection (2) is satisfied.
(2) The condition referred to in subsection (1) above is that the company considers that the availability for inspection by members of the public of particulars of the names and usual residential or business addresses of the members of the company creates, or (if an order is not made under this section) is likely to create, a serious risk that a member of the company or a person who lives with or is an employee of a member of the company will be subjected to violence or intimidation (“a serious risk”).
(3) Where, on an application made by a company under this section, the Secretary of State is satisfied that the availability for inspection by members of the public of the particulars of that company's members' usual residential addresses creates or (if an order is not made under this section) is likely to create a serious risk that a member, or a person who lives with him, or an employee of his will be subjected to violence, intimidation or criminal activity, he shall make an order under this section (“a company member's confidentiality order”) in relation to the company.
(4) Where the Secretary of State is not satisfied under subsection (3) he shall dismiss the application.
(5) At any time when a company member's confidentiality order is in force in relation to a company, the name and address of any individual in the register of members of the company that is the subject of the confidentiality order, shall not be disclosed to any person who may request either company or Companies House disclosure of such names and addresses save in prescribed circumstances.
(6) The Secretary of State shall give the applicant notice of his decision under subsection (3) or (4); and a notice under this subsection shall be given within such period and shall contain such information as may be prescribed.
(7) The Secretary of State may at any time revoke a company members confidentiality order if he is satisfied that such conditions as may be prescribed are satisfied.'.
New clause 3—Names and addresses of members of companies: individual application—
‘(1) Subject to the provisions of this section, an individual may make an application under this section to the Secretary of State where the condition in subsection (2) is satisfied.
(2) The condition referred to in subsection (1) above is that the individual—
(a) is or proposes to become a member of a relevant company; and
(b) considers that the availability for inspection by members of the public of particulars of his name and usual residential or business address creates, or (if an order is not made under this section) is likely to create, a serious risk that he or a person who lives with him or an employee of his will be subjected to violence, intimidation or criminal activity (“a serious risk”).
(3) Where, on an application made by an individual under this section, the Secretary of State is satisfied that the availability for inspection by members of the public of the particulars of the individual's usual residential address creates or (if an order is not made under this section) is likely to create a serious risk that the individual, or a person who lives with him, or an employee of his will be subjected to violence, intimidation or criminal activity, he shall make an order under this section (“an individual member's confidentiality order”) in relation to him.
(4) Where the Secretary of State is not satisfied under subsection (3) he shall dismiss the application.
(5) At any time when an individual member's confidentiality order is in force in relation to an individual the name and address of the individual in the register of members of the company which is the subject of the confidentiality order shall not be disclosed to any person who may request either company or Companies House disclosure of such name and address save in prescribed circumstances.
(6) The Secretary of State shall give the applicant notice of his decision under subsection (3) or (4); and a notice under this subsection shall be given within such period and shall contain such information as may be prescribed.
(7) The Secretary of State may at any time revoke an individual member's confidentiality order if he is satisfied that such conditions as may be prescribed are satisfied.'.
New clause 22—Optional regime for membership register—
‘(1) A company may by special resolution exempt itself from any obligation under sections 115 to 117 to allow the inspection of its membership register or to supply a copy of the register or any part of it as long as it undertakes to pass on to all of its members any lawful message or documentation that a member of the company or a member of the public wishes to send to the company's members.
(2) The company may charge a reasonable fee for sending a message or documentation under subsection (1).
(3) Where the company has made an undertaking under subsection (1) and has failed to carry it out, an offence is committed by—
(a) the company, and
(b) every officer of the company who is in default.
(4) A person guilty of an offence under this section is liable on summary conviction to a fine not exceeding level 3 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 3 on the standard scale.
(5) In the case of any such refusal or default the court may by order compel an immediate inspection of the register or, as the case may be, direct that a copy of the register be sent to the person to whom the undertaking was made.'.
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
Hon. Members can probably tell from that list that the amendments in this group are somewhat more significant than many of the amendments that we have discussed so far. We are moving on, of course, to shareholders’ and non-members’ rights to inspect and require copies of the register of members.
It of interest that when the matter was first discussed in Grand Committee in the Lords, the question of denying access was not raised from the point of view of extremist activity. That is because the Opposition took the decision that that was a political issue that should be dealt with by this House, not least because the topic is one on which I have corresponded with the Government for several years in the interests of my constituents who work at Huntingdon Life Sciences. Subsequently, however, several thousand shareholders of GlaxoSmithKline, the pharma-group, received threatening letters from animal rights terrorists. Suddenly, on Report in the Lords, Lord Sainsbury, on direct orders from above and urged on by a chorus of vocal peers, promised to go away and reconsider the Government’s position before Third Reading, when amendments were indeed produced and added to the Bill.
Having demanded increased protection for shareholders for many years now, and the Government having rejected my amendments to the Serious Organised Crime and Police Bill to do that, I am pleased to see that the issue is now being addressed. I am aware, however, that reactive and on-the-hoof law can often turn into the worst law in practice. That is why we need to spend some time on the clauses.
The overriding concern of my hon. Friends is to ensure the protection of shareholders from violence and intimidation.
Kitty Ussher (Burnley, Labour)
Does the hon. Gentleman agree that the violence and intimidating behaviour is the offence and that we should deal with that, rather than restrict the centuries-old established convention that owning a share in a company means that the information should be public?
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
No, I disagree. If a person accesses the register of members for the purposes of using it for violence, that must be controlled.
Paul Farrelly (Newcastle-under-Lyme, Labour)
Does the hon. Gentleman agree that any measure that is enacted in legislation such as this has to be proportionate and should not cause wider harm, in particular to corporate governance? Throughout the corporate sector in the UK, we have striven for greater disclosure and greater transparency in corporate behaviour. The danger is that his amendments will set that back substantially.
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
The hon. Gentleman is absolutely right. There must be a balance and proportionality between access to a register and security for those on it. We totally accept that position. He talks about our amendments inhibiting that access, but he will hear me say that most of the amendments have been tabled on a probing basis, so that we can look at the different levels that currently exist in the world and debate them. I will not maintain that we should support all of the amendments. If he bears with me I will certainly cover in some depth the point that he quite rightly mentions.
My purpose is much more than protecting companies that practise animal testing, although that is the area directly within my experience, so I shall refer to it. The amendments are more about the type of environment that we are to offer people conducting business in this country. Just as the protection of the person must be a priority for the Government, so must be protection for companies and their shareholders. Without that protection business will, as I will show the Committee, simply pick up and go overseas. The other preliminary point that I make, with some irony, is that several speakers in the Lords debate on this issue and several journalists have made out that the GlaxoSmithKline letter incident was a new development. I shall show the Committee that that was not the case and that attacks on shareholders have become an established theme of anti-corporate activism.
On the basis that this is a general debate on shareholders, I do not intend to address the rights and wrongs of the underlying issues, much though I support animal testing, for example. My point is that although direct action, sometimes slipping into terrorist activity, emanates from animal rights activists today, the same methods could be used tomorrow by other groups. If drugs manufacturers, animal testing companies and furriers are affected now, meat importers, road builders, handbag manufacturers, furniture makers or mining companies could be affected tomorrow.
Kitty Ussher (Burnley, Labour)
Does the hon. Gentleman not agree that under the current legislation there is no requirement for an individual to put their home address? They could use a post office address or an address care of a bank or some other institution. Does that not solve the problem he identifies?
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
No it does not, for a variety of reasons. First, many small shareholders do not have service addresses that they can use. Secondly, if an individual shareholder wants to hold through a nominee, some companies will refuse to act as nominees. That happened with Huntingdon Life Sciences: not a single institution in the City now will act as nominee if someone wants to own HLS shares. The hon. Lady makes an important point, but the problem remains.
Justine Greening (Putney, Conservative)
We have just had an interesting exchange. The reality is that many shareholders will, for a variety of reasons, some of which have been outlined, put their home address. The very act of receiving a letter at home with the implicit warning, “We now know where you live,” and all the stress that may cause to family and friends visiting the house means that this is an important area to deal with.
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 fair point, which I was not going to make. If someone wants to use their home address why should they be intimidated into not doing so?
Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)
The hon. Member for Putney (Justine Greening) has taken us off in the other direction from the direction that the hon. Member for Huntingdon was taking us. There is no need for anyone to put their home address on to the shareholding. His point that some people may not have a service address is not really sufficient. If they need to create one, they can do so without necessarily having the shareholding held through a third party. It seems to me that the hon. Gentleman’s amendments are not just about opening up home addresses, but about hiding names in addition to the current provision, which can ensure that we do not have addresses.
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
With respect to the Minister, she mentions names. If one’s name is Smith it might not matter too much. But with a name like Djanogly or Vara accessibility is slightly easier. It is not just addresses; names are an issue too.
It is clear now that farmers and animal testing companies are the weathervane for such activity, and for too long the Government and many in the City have allowed such attacks to continue while hoping that the issue would just fade away. I have carefully followed the Government’s actions on the issue and it has been clear that the priorities of varying Home Secretaries have differed widely. I was, therefore, very pleased to hear the Prime Minister speak strongly against the animal rights extremists after the GSK incident. Likewise, in an important development, I was pleased and relieved to see the recent supportive letter from a good number of City institutions that appeared in the press recently. As the largest shareholders, the fact that they finally stood up jointly against the terrorists was an important development and they are to be congratulated on taking a stand.
The key message is that those terrorists are fanatics to their cause every bit as much as the fanatics behind the challenges we face elsewhere. The problem will not simply go away. Unless we counter it head on, it will fester, grow and become much more of a problem in a wider range of sectors. We have no choice but to act.
I recognise that the number of arrests of such terrorists has increased recently, but we must be aware that many of them wear their conviction record as a badge of pride within their own ranks. Furthermore, their tactics are often surreptitious in so far as they are fairly expert at getting the maximum publicity for their stunts and crimes using a very small number of activists. That is one of the things that is so frightening about this topic. No one has given me an accurate assessment of the number of extremist protestors, but we may be talking of little more than 100 or so who have crossed the line into out-and-out terrorism.
The important breakthrough in dealing with these people came about via the civil law, rather than the criminal law, when Huntingdon Life Sciences managed to secure a civil injunction under the Protection from Harassment Act 1997, which was originally intended to stop stalking. The court found that the injunction could cover all of the employees and at multiple locations, including their homes. As different companies have subsequently applied for injunctions, the courts have gradually extended the remit to cover activists who continually look for new victims related to the company who are not covered by the injunction. One granted to Oxford university was extended to cover third-party unnamed suppliers to the proposed research premises, and was then further extended to cover people who live or work in Oxford who may be negatively affected by noise and so on. Very recently GSK also used an injunction to protect its shareholders.
The Serious Organised Crime and Police Act 2005, passed in January last year, included provisions that made it easier to secure injunctions, as well as instituting other valuable measures concerning harassment of people in their own homes. That was important because when HLS shareholders were approached by the terrorists, many of them had their homes picketed, graffitied and so on. Injunctions tend to work quite well because breaching them can incur criminal penalties, and for the most part the terrorists work within or around the law, mainly saving criminal activity for the night or for when it is difficult to catch them. However, the use of injunctions has meant that the extremist campaign has become wider so the number of so-called home visits—that is for protest visits, not taking tea—has decreased for directors and employees, while anonymous activities such as abusive calls and hate mail has increased and the incidence of criminal damage, which takes place mainly at night, is high.
Importantly, as more farm and research companies take out injunctions, so the extremists look for easier targets. We have seen an increase in the number of secondary and tertiary target companies. Typically, the secondary target company will be a small family-owned supplier, possibly in the locality of the primary target. It will be sent a letter saying that it must sign a document promising not to trade with, for example, HLS, and that if it does not sign, it will be put on the Stop Huntingdon Animal Cruelty website. That threat is often enough to get a capitulation, as the extremists call it. For the brave traders who refuse to be intimidated, being placed on the SHAC website means that their company is game for visits from the thugs. That is when it starts to get really nasty. Normally, it starts with protestors invading the premises. Many small businesses in my constituency have called me about the torments they have suffered because of such thugs.
I was a member of the Committee that considered the Serious Organised Crime and Police Bill. We had been pushing for some time for new criminal laws to protect companies from economic terrorism and tabled amendments to deal with it. We were happy when the Government accepted the point and later introduced their own provision—clause 145—preventing animal testing companies from being forced to act in a certain way if contracts had terminated in circumstances of criminal activity.
At that time, the Conservatives wanted the provision being drafted to apply more widely than to animal testing companies alone. As Lord Sainsbury said in the other place, the protections given shareholders in the Bill need to be looked at in the context of protections given under the Serious Organised Crime and Police Act 2005. That being the case, we now think that section 145 provisions should be extended to all companies, as provided for in section 149 of the 2005 Act. Although the Government are acting, it seems to be always at the last minute and at the point of a gun. Can we please think a step ahead of the extremists?
Paul Farrelly (Newcastle-under-Lyme, Labour)
I appreciate that the hon. Gentleman has constituency concerns because of Huntingdon Life Sciences. Not far from my constituency in my county of Staffordshire, animal rights terrorists have attacked farmers and local people because of a guinea pig farm. However, companies such as Huntingdon Life Sciences can set up facilities for shareholders that do not involve giving addresses. Facilities to help the trading of shares are set up all the time. He says that the amendments are widely drafted and cover the whole corporate sector, but they are not proportionate and add nothing to a situation that can be resolved in other ways. The amendments would set back corporate governance and transparency in this country by a long way.
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
I explained myself to the hon. Gentleman before and shall do so again, because he obviously totally missed my point. The point of most of our amendments is that Parliament should have a debate on the extent to which access should be given to the register of members. Different countries and systems treat the issue in different ways. The provisions were rushed through by the Government in the other place, mostly on Third Reading and without debate. The hon. Gentleman may think that the issues therefore do not deserve debate. I am afraid that I disagree entirely; we will have that debate.
Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)
I should like to put something straight on the record. My noble Friend Lord Sainsbury, the Minister with prime responsibility for many of these issues, has been responsible for taking forward a whole raft of new legislation as the problem that we are discussing has emerged and developed. It is unfair to assert that that has not happened. I hope that the hon. Gentleman will withdraw his assertion. I know from my dealings with my noble Friend that what the hon. Gentleman says is not the case.
This Bill, as introduced in the House of Lords, included substantial protection of members. Further consideration was given to issues raised in the House of Lords and in the inclusive way in which we tried to devise the Bill. Indeed, I held a meeting with the hon. Gentleman, in which we sought to establish whether we could develop those clauses any further. We did. To suggest that—
Eric Illsley (Barnsley Central, Labour)
Order. The Minister is intervening. As I said, it would be far easier for Committee members to allow the hon. Gentleman to move the amendment. They could then make speeches, rather than long interventions.
Mr. Djanoglyrose—
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
No, I shall respond to the Minister and then come back to the hon. Gentleman if he can wait. You made an important point, Mr. Illsley. I am developing an argument, and it is not helpful when the Minister and the hon. Gentleman pre-empt me.
In response to the Minister’s point, I should say that I have not denied that there is previous legislation. I have just spent five minutes talking about recent legislation and how it has happened, so I am not denying it. I have said nothing about what Lord Sainsbury has or has not done. In fact, I think that he has been the pick of the bunch that the Government have offered on this issue. He has done a lot of good and I respect him for it. The Minister put the wrong words in my mouth.
Paul Farrelly (Newcastle-under-Lyme, Labour)
I fully understood the hon. Gentleman’s previous point that these are probing amendments, so he is not seriously considering pressing them to a Division. So far in our debate on funding life sciences, he has attacked the Government, who have bent over backwards to be helpful to shareholders and businesses, and the lead has been very well set by the Prime Minister. The hon. Gentleman is addressingthe matter of Huntingdon Life Sciences but not the amendment. If he were serious, he would table amendments that would affect the position of shareholders in that company.
Eric Illsley (Barnsley Central, Labour)
Order. Once again I ask hon. Members to make briefer interventions. There will be an opportunity to debate the whole clause under stand part.
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
Let me reassure the hon. Gentleman on two points. First, I shall be developing the argument way beyond Huntingdon Life Sciences. Secondly, I repeat that there must be a debate on the extent to which the provisions will work in practice and whether they are appropriate. That is a debate that we have not had and that I hope to begin now.
I return to the relationship between civil and criminal law in the context of shareholders. Many, if not most, of the companies that will be affected are not the size of GlaxoSmithKline—far from it. They will normally be small family businesses for which an injunction costing tens of thousands of pounds is unaffordable. More to the point, such companies are asking, “Is it not for the Government to defend us against terrorist activity rather than our having to pay for injunctions?”
Where do shareholders fit in? I have tried to explain that this debate is multifaceted and highly interconnected, mainly because activists will look for weak points where, with the minimum number of people, they can inflict the maximum damage, be it to property, people or a company’s economic prospects.
Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)
I want to make a point and ask a question that my hon. and learned Friend the Under-Secretary has just raised with me. First, injunctions do not necessarily cost as much as he has suggested. Secondly, he is looking at the matter simply from the point of view of the company. If a company will not disclose its membership to an individual with a perfectly proper and legitimate request, is it right that that individual should incur enormous litigation costs to seek access to its members? Would it be right and affordable by the individual, given that the hon. Gentleman has just said that it would not be affordable by the company?
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
I am not totally sure what point the Minister is making. If it is to ask whether an individual should have a personal right to get an injunction to defend themselves, I suppose that they should. That is not what I am suggesting.
Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)
I can help the hon. Gentleman. In new clause 2, he suggests that a company should apply to the Secretary of State to withhold the information. It would then be up to an individual to challenge that through a court process. The hon. Gentleman said that a company cannot afford a court challenge, but when there is a perfectly legitimate inquiry by an individual on the membership of a company, he expects the individual to afford it. That seems disproportionate.
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
I shall come on to this in detail in a moment. The Minister is pre-empting my argument, and if she looks a little more closely at the new clause, she will see that it would latch on to her existing provisions rather than remove them. I do, indeed, say that we need to examine whether a company having to make the first move through the courts is necessarily the right way to go.
Many companies will fold under what can be a concerted and multi-directional attack. Some that believe in what they are doing and refuse to be scared by intimidation will trade on—companies such as HLS and suppliers such as builders Montpellier, which is building the Oxford labs. In both those cases, the issue that sparked the crisis was when the terrorists attacked the respective companies’ shareholders. At that point HLS, unable to survive as a company registered in this country because of the hate mail and death threats being sent to its shareholders, repatriated to Maryland, USA, and re-listed on the US NASDAQ exchange. Why Maryland? Because in that state, only holders of5 per cent. or more of a company’s shares have to be disclosed, and then only to other shareholders. To answer the question asked earlier by the hon. Member for Newcastle-under-Lyme, I am not advocating the use of that approach in the UK. To that extent, amendment No. 26 has been tabled on a probing basis, so that the Government can put on the record their view of such a framework for shareholders.
To amplify the importance of the issue, let us look at the case of Montpellier in Oxford. It bravely resisted the attacks of the terrorists, but finally stopped work when its shareholders started being threatened and attacked. As a relatively small listed company, its share price was directly affected by that activity. So a direct link could be made between access to a register of members and impending disaster for that company.
The importance of the attack on GSK shareholders was of a different nature. I read the remarks of Jean-Pierre Garnier, the GSK chief executive officer, and I think that he should be thoroughly commended for standing up to the terrorists and defending his industry. The tactics for the terrorist attack on GSK shareholders were roughly the same as those on HLS and Montpellier. The letters to GSK shareholders stated:
“The only way to hold GSK to its promise [not to use HLS] is to target its financial vulnerability. We are therefore giving you this opportunity to sell your shares in GSK. Over the next two weeks every shareholder of GSK will be receiving this letter. If you have any doubts over the effectiveness of this action then keep a close eye on the GSK share price and watch it plummet.”
The difference between GSK, and HLS and Montpellier, is worth considering. This is not a formal analysis, but worth considering: in the event, the GSK share price held steady. GSK put that down to fewer than 5 per cent. of its shares being owned by private investors, and the remainder by institutions. Furthermore, this time, rather than cowering in the shadows, those institutions got together and spoke out in support of the industry. That made a big impact. At the same time, politicians spoke out against animal rights extremism and the media took it up as a big issue. They even conducted surveys showing that the vast majority of the British public accepted drug testing on animals. In other words, the terrorists were marginalised in a way that had not happened before.
The GSK chief executive officer said one thing, however, that I would like to question. He claimed that existing laws were sufficient, and specifically mentioned the existing option for shareholders to switch from personal to nominee accounts. To its great credit, GSK quickly put that in place and helped out small shareholders. I believe that that was the point that the hon. Member for Burnley (Kitty Ussher) made earlier.
I would point out, however, that that might be all well and good for a large company such as GSK, but let us be frank: with the number of people that it employs, its level of investment in British farming and the fees that it pays to City institutions, it could demand action from Government and pay for its own action more easily than could small companies such as HLS or Montpellier.
Having said that, I have long said and agreed that new laws will not in themselves be enough, and that Government time and money needs to go into prosecuting the offenders and co-ordinating a response around the country. At the same time, however, few City institutions are going to refuse to act as a nominee to hold GSK shares. The same is not the case with HLS where, in the most cowardly fashion, one institution after the next refused to act as nominee for its shares. That was in addition to banks refusing to do its banking and brokers refusing to handle its insurance. That is the potential and horrendous reality, not perhaps for GSK, but for smaller companies, particularly small listed companies, whose bottom line and share prices will be affected by the cost of injunctions and security arrangements, and where a concerted attack on its shareholders will have serious consequences.
Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)
I know that the hon. Gentleman rightly feels passionately about those issues, from his own experience, and many of us do too. However, I do not follow how that debate has an impact on whether a bank is prepared to lend money or companies do business with such a company. [Interruption.] Home addresses of the shareholders are not necessary under provisions in the Bill.
I put it to the hon. Gentleman that the rest of the debate is not relevant to the consideration of whether the names of members should be entered—the issue that we are talking about—or whether the provisions in the Bill, which enable a company to—
Eric Illsley (Barnsley Central, Labour)
Order. Interventions are becoming too long. It would be far easier to allow the hon. Gentleman, who is in order, to move his amendments and to respond afterwards.
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
I am not sure whether I heard the Minister right. Is she honestly saying that if a death threat to a shareholder is sent to their service address, rather than to their home address, it is okay?
Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)
Of course I am not saying that. The issue is about striking a balance between the accountability and the openness that are the basis of company law. I urge the hon. Gentleman to think widely about what he is proposing to the Committee. The issue is whether he has the balance right, given the other ways and mechanisms in place to deal with the horrors and unacceptability—there is unanimity about that here—of such terrorists.
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
That is exactly what the Minister will hear from me. Spending half an hour defending shareholders in this country is more worthy than spending half an hour talking about Eccles cakes. Perhaps she will give me a bit of latitude in developing my argument and we can then give her the chance to address my concerns.
If we do not get on top of the issue, we will see many more companies such as Huntingdon Life Sciences repatriating to the US. We can have whatever tax regime we like in this country, but if company shareholders are approached and attacked, the company will be forced to consider moving.
To put just the pharmaceutical sector in perspective, it contributes more than £6.5 billion a year to Britain’s GDP. It contributes £12 billion in exports. It employs 80,000 people directly and 250,000 indirectly. That is serious stuff for UK plc. I have attempted to explain the need to protect shareholder details and why that needs to be put in a wider context. It constitutes one aspect of the protection of business against extremism.
I emphasise, however, that countering criminal activity using shareholder registers goes much further than dealing with extremists. One other problem is the growth in foreign-based, so-called boiler rooms, which have been approaching individuals, whose personal details they harvest from members’ registers, to persuade them to buy investments that are often worthless and often imply a connection with the company whose register they are misusing.
A court case recently revealed that fraudsters were using registers to steal shares from overseas investors. The Financial Times reported on 6 May that the company secretary of Balfour Beatty wrote to the company’s 20,000 shareholders after receiving a significant number of complaints. Diageo wrote to 110,000 shareholders after similar calls to its members. Close Brothers Group, GSK, MFI and Majestic Wine have all complained of the same problem.
Kitty Ussher (Burnley, Labour)
The hon. Gentleman might be confusing two issues. The first is the original offence. He mentioned the word “fraudster” and talked about death threats. Those are, of course, criminal offences. Perhaps he is confusing that issue with the issue of where the information is obtained from. Does he agree with that?
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
I am not sure that I take the hon. Lady’s point. I say to her this: if someone takes details of a register of members—either by using the address, whether a service address or a home address, or by using the name, which in my case would enable people to track me down easily as they would get a telephone number quickly—and they are used either by an extremist who wants to send me a death threat or by a boiler-room fraudster who wants to do illegal cold calling to get me to buy shares in a company that does not exist, those shareholders deserve protection.
Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)
Will the hon. Gentleman turn the issue the other way round? In which circumstances is it legitimate for companies to have registers that give the names—not the addresses—of their members? He is talking about all these situations. Almost universal secrecy appears to be the thrust of his argument. When is it legitimate for companies to have a register of members?
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
I do not think that I have suggested that companies should get rid of registers of members. If the Minister thinks I suggested that, she must think again.
Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)
Perhaps I can help the hon. Gentleman. He suggested that there was wrongful exploitation of the names of members of companies by people other than extremists for the purposes of selling. There is a tradition that the names of members are openly available, for reasons of transparency. Given the thrust and direction of his argument, I ask him again, how does he define the circumstances?
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
Is the Minister now suggesting that we are talking about extremists operating from boiler rooms? Is that what she is implying?
Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)
Answer the question.
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
If the Minister lets me develop my argument, she will see where I am coming from.
Paul Farrellyrose—
Kitty Ussherrose—
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
I want to make progress and develop my argument, and then I will take further interventions. I have been fair so far.
The problem is clear, and we need to look at the Government proposals tabled on Third Reading in the other place and so far not reviewed in Committee. Lord Sainsbury made it clear that the Government want to strike a balance between disclosure and security. I appreciate that that is an important issue and that it is not straightforward.
Amendments were made on Third Reading in the other place to attempt to create both a trail of the records to stop companies being swamped with similar requests and new offences relating to misuse of the registers. Individually, those seem fine, but at this stage we need to consider the provisions in the round, conceptually.
First, as things stand, in practical terms a coach and horses can be driven through the provisions because details of shareholders as at the return date need to be filed annually with the annual return. The Companies House fiche, therefore, may not be accurate as at any other given moment, but it is certainly adequate for conducting a terror campaign against shareholders.
In Committee in the House of Lords, the Government said that they would consider introducing regulations to change that requirement. Why not simply add those provisions to the Bill? We have tabled an amendment to that purpose, which we hope will be selected when we consider part 23, which deals with annual returns.
In January, the Minister, Lord Sainsbury, said that he would act. On such a key issue, I ask this Minister please to explain why no Government amendments have been tabled specifically to remove the requirement for companies to identify individually their members in their annual return. The formula chosen by the Government is for the company to make the move if it objects to a request to see the register, and I want to make various points on that issue.
First, I want to discuss matters raised by the United Kingdom Shareholders Association in its briefing paper dated 30 May, which states:
“At Third Reading amendments were brought forward by Lord Sainsbury intended to meet the concerns expressed at the Report Stage. Lord Hodgson, while expressing appreciation, reserved his position and indicated that these matters would be for discussion in the Commons. Despite all the protestations to the contrary, Lord Sainsbury maintained his position that it is impossible to formulate a definition of a proper or an improper purpose and that a company and a court will instinctively know a purpose that is not proper when they see one.
This seems to be a case where the DTI have got themselves stuck in a mindset and cannot see an alternative way through. We still believe that it is unreasonable to leave the definition so vague and to expect companies to decide what the courts are likely to consider as ‘not a proper purpose’ and act accordingly. If, for example, we are talking about animal rights activists, the company will have to decide whether the level of communication intended is at an acceptable level, e.g. letters to ask shareholders to press the company to change its policy, or involves action of a more threatening or harassing nature. Equally if there is a request on behalf of some kind of investment organisation, the company will have to decide whether it is a reasonable use to try to gain clients or whether it is some kind of scam. There is no obligation on the company to contest the request by going to court. It would be very easy for them to decide that the trouble and cost are too much and just comply with the request.
In practice the lack of a clear definition will cause enormous difficulties both for companies in deciding whether to grant access to the register, and for organisations such as our own who occasionally request copies. We would also risk incurring considerable legal costs because of the lack of such clarity, and it could be very many years before legal practice was established by case law, if ever.
We believe that it would be quite possible to draft a clause with clear examples of an improper purpose but still leaving the courts a wide discretion to extend the list if they saw fit. This kind of approach has been adopted in The Unfair Terms in Consumer Contracts Regulations 1999...Another example is in Section 11(2) of the Unfair Contract Terms Act 1977.
The only place where we have been able to find ‘proper purpose’ used in connection with a criminal offence is in the Merchant Shipping and Fishing Vessels (Medical Stores) Regulations 1995. There, at Reg 12, it is a defence if medicines and medical stores have been used for their ‘proper purpose’; surely a situation where the meaning of the words is rather more obvious.”
That points to the fact that there is a great deal to be debated in relation to the Government’s proposals.
An article in The Times on 9 May begins by quoting Mr. John Roundhill of the Institute of Chartered Secretaries and Administrators:
“‘Under the new proposals, the company is obliged to deliver the register only if the person requesting it can prove that they require the information for a “fit and proper” purpose...We would urge the Department for Trade and Industry to look at this clause again as we are concerned that there is no definition of “fit and proper” purpose.’
Mr Roundhill is chairman of the registrars' group of the Institute of Chartered Secretaries and Administrators, which represents 97 per cent. of Britain’s shareholders. He said that it would be fairly easy for a person to give the impression that he intended to use the information for a ‘fit and proper’ purpose but that it would be difficult to know whether this was true.
He is also concerned that the company has only five days to determine whether or not the case is ‘fit and proper’.”
Justine Greening (Putney, Conservative)
My hon. Friend illuminates the issue. Unfortunately, companies will know that information has been used improperly only after it has happened, and because the asset is information, once it has been given it cannot be taken away again. Therefore, it is almost impossible for companies retrospectively to take action when something has already gone wrong.
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
My hon. Friend goes to the nub of the matter; that is what the debate is about. At the time the request comes in, it will be difficult to know whether it is valid. That is one of our main problems with the measure.
Paul Farrelly (Newcastle-under-Lyme, Labour)
I do not want to delay the Committee, but the hon. Gentleman has been discussing Huntingdon Life Sciences without advancing his cause and argument as he has not tabled sensible amendments. That is the point that my right hon. Friend the Minister was making. His amendments would set corporate governance in this country back by 100 years. It is not a solution for Huntingdon Life Sciences to move in the direction of Mickey Mouse tax havens with their secrecy, which he would rightly criticise.
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
The hon. Gentleman has said two or three times now that I intend to set about destroying corporate governance. Will he explain how?
Paul Farrelly (Newcastle-under-Lyme, Labour)
As my right hon. Friend the Minister said, through allowing a general presumption of secrecy, and in one of his amendments putting the company in the place of the court as the sole arbiter.
Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)
First, the hon. Gentleman does not know that I am suggesting a general presumption of secrecy. In fact, I specifically did not advocate the Maryland system. He is on the wrong track; perhaps he did not understand what I was saying. I would like to proceed with making my points.
We have an important problem in clause 115. It may be possible, at a push, for a large company to instruct lawyers, solicitors and barristers to take a case to court within five days, but it would be much more inconvenient, if not wholly unrealistic, to expect a smaller company to keep to that timetable. That is why we asked for the Minister’s comments on our amendment No. 29, which would increase the number of days from five to 15. For a small company, it would still be a tall order to go to court, particularly if it had to do so on a repeat basis.
Additionally, we must keep it in mind that smaller companies are more likely to be attractive targets of activism. The activists are not stupid. They will learn from their bruising GSK experience of fighting with the big boys and head back to the smaller and easier pickings. It has been pointed out to us that, because the share register is statutory, the information in it is outside the regulatory environment of the Information Commission. If the Government have examined that point, I would appreciate hearing the Minister’s views.
Clause 115 requires people to identify the purpose for which the information is to be used. Amendment No. 27—a probing amendment—proposes that the information should be precise. My hon. Friend the Member for Putney rightly asked what would happen if the reason given was, “To inform shareholders of an important matter for themselves, the company, humanity and the environment,” without any statement that shareholders will be asked to sell their shares as a protest. It could be complicated, and many complex and expensive court cases could arise. Do the Government intend to give any guidance on that?
Let us consider the alternatives. The first is the approach adopted in Maryland, USA, which I have discussed previously and have discounted for this country—although I should like to hear the Minister’s views on it, because Huntingdon Life Sciences felt that it was forced to adopt it because of terrorist activity. It would restrict access to members holding at least 5 per cent.
The second approach would be to define what constitutes a proper or improper purpose, as suggested by the UK Shareholders Association, among others. Lord Sainsbury said that he had specifically turned that down because in his view it would be impossible satisfactorily to formulate a definition to cover all situations. Other people have since disagreed, and I should be interested to hear whether the Minister has reassessed the position.
A third approach, which could be complementary to the Government’s, would be to provide companies and individuals with the right to apply to the DTI to, in effect, close the register if the availability of the register created, or was likely to create, a serious risk that a member of the company, or connected parties, would be subject to violence or intimidation.
Hon. Members will note that I am not calling for a general closure of the register; I am talking about closure in situations where it could be shown to the registrar that members would be subject to intimidation. That approach suggests that companies should not all be thrown into the same basket. Some companies or individuals may be at such risk that they should be treated on a stand-alone basis. The provisions could be tacked on to existing provisions and could provide a further level of protection that might be more realistic, accessible and certainly cheaper for smaller companies that believe that their shareholders need protection. The clause as it stands works only for a company seeking protection in respect of all its members and does not provide for individual members to seek to protect their details. New clauses 2 and 3 provide for that.
The Liberal Democrats have suggested another option which is worthy of consideration in the form of new clause 22. I shall not steal the thunder of the hon. Member for Cambridge, but from our point of view the proposal heads in the same direction as ours. It provides for the company to vote to close its register by special resolution of members, on the basis that the company would pass lawful communications on to interested parties. I can see the attractions of that, and I look forward to hearing his case. There are a number of approaches and the issue is important to the future of business in this country. I am pleased to have had the opportunity to debate it, although the debate is one that I believe we should have had years ago.
Finally, on clause 115 stand part, regulation 3(1) of the Companies (Inspection and Copying of Registers, Indices and Documents) Regulations 1991 says:
“This Regulation applies to an obligation to make a register, index or document available for inspection imposed ona company by sections 169(5)...175(6)...191(1)...219(1)... 288(3)...318(7)...356(1)...and 383(1)... of the Act, as well as to section 325 of, and paragraph 25 of Part IV of Schedule 13 to, the Act”.
The Act referred to is the Companies Act 1985.
Regulation 3(2) goes on to say:
“The company shall:
(a) make the register, index or document available for such inspection for not less than two hours during the period between 9 a.m. and 5 p.m. on each business day; and
(b) permit a person inspecting the register, index or document to copy any information made available for inspection by means of the taking of notes or the transcription of the information.”
One practical issue is that the inspector of the register will not know the number of company members at the time of the application for inspection. Therefore, he will not know what fee must be paid for the copy of the register. He will need to ask the company, which could delay in responding or in telling him, for instance, which two hours on any business day are available for inspection. Could that not be used as a delaying tactic in a takeover, and would it not be better to have fixed access hours, or at least fixed fees?
Also, I understand that the Court of Appeal in Pelling v. Families Need Fathers recently ruled that a court has the discretion not to order a company to allow a member to require a copy of its register. How does that tie in with the statutory instrument?
Debate adjourned.—[Steve McCabe.]