Clause 538
Company Law Reform Bill [Lords]
9:15 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. 513, in clause 538, page 259, line 24, leave out ‘£50,000’ and insert

‘the sterling equivalent of 25,000 euros’.

Eric Illsley (Barnsley Central, Labour)

With this it will be convenient to discuss amendment No. 514, in clause 538, page 259, line 24, at end insert

‘, or an equivalent amount in another currency calculated by reference to the appropriate exchange rate prevailing on, or on such date as the company may select being not more than 28 days preceding—

(a) for the purposes of section 91, the date of the relevant special resolution under section 90,

(b) for the purposes of section 536 and 537, the date of the application for a certificate under section 536, or

(c) for the purposes of section 139 of the Companies Act 1985 (cl. 6) (public company reducing capital below authorised minimum), the date of the relevant court order under section 138 of that Act (registration of order and minute of reduction)’.

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

Section 118 of the 1985 Act provides for public companies to have a minimum share capital of £50,000. The clause implements article 6 of the second company law directive, 77/91/EC, although the directive provides only for a minimum of 25,000 ecu, expressed in local currency. Clearly, that minimum is significantly less than the £50,000 requirement in the UK.

Amendment No. 513 is probing and it has been tabled for two reasons. First, if the Bill is deregulatory, why should we not make it easier for companies to go public, and why is the £50,000 requirement being retained? What good comes of it? Secondly, we have just been debating the possibility that a court may force re-registration of a private company that offers shares to the public. Would that not become more palatable if the statutory minimum capitalisation figure were reduced?

Amendment No. 514 is intended to cater for the new provisions that facilitate adoption by companies of share capital denoted in a foreign currency. That process requires a date to be set for the prevailing exchange rate to be determined, and our suggestion is the one proposed in the amendment.

Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)

On the first question, we have merely taken forward the company law review’s propositions and conclusions. It thought, and we saw no reason to disagree, that a minimum share capital of £50,000 is commensurate with the benefits that flow from plc status. If the authorised minimum needed to be increased or reduced as a result of amendments to the second company law directive, the change could be made by regulations under section 2(2) of the European Communities Act 1972.

The subject matter of amendment No. 514 was considered when the Bill was dealt with in Grand Committee. Reference was made to the case of re Scandinavian Bank Group plc, in which Mr. Justice Harman took the view that article 6 seemed to require EU member states to impose on public companies incorporated within the EU a minimum share capital in their own currency.

When there is a redenomination, people can re-denominate into euros. Therefore, the only aspect of the amendment with which I have some sympathy is the question whether people should be able to denominate in the first instance in either pounds sterling or euros. Both would have to be provided for, and we shall examine that on Report.

James Brokenshire (Hornchurch, Conservative)

I am grateful to the Minister for agreeing to consider that. For the record, that is a practical matter that comes up quite frequently, particularly when companies account in a currency other than sterling. It therefore makes sense to have their share capital denominated in the accounting currency as well. I have seen absurd situations in which a company has created classes of share to deal with that, reserving a £50,000 share capital in sterling merely to comply with this measure. I am gratified and welcome the right hon. Lady’s comment.

Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)

I should make it clear that we are not talking about all currencies. There can be denomination either in sterling or in euros. Otherwise, there are problems with exchange rate definitions.

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

I thank the Minister for her response. The £50,000 amendment was probing and her comments on different currencies being used have been helpful. We look forward to seeing what the Government come up with in due course. On that basis, I beg to ask leave to withdraw the amendment.