Clause 600
Company Law Reform Bill [Lords]
12:45 pm

John Bercow (Buckingham, Conservative)

With this it will be convenient to consider clauses 601 to 603 stand part and Government new clauses 259 to 280.

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

I turn now to the part of the Bill that relates to the holding and transfer of shares and other securities. The Government have welcomed the work of industry groups that are examining options for greater use of paper-free holding and transfer. The response to the March 2005 White Paper showed strong support for the initiative, but it is also clear that more information is needed on the costs and benefits of using a paper-free approach more extensively. At this stage the Government do not wish to rule out any option. We therefore propose to extend the existing power relating to evidencing of transfer of securities without a written instrument under section 207 of the Companies Act 1989, so that the power will be capable of use not just to permit, but to require, paper-free holding and transfer of company shares. If the power were used in that way, the Government would want to ensure that the new arrangements for paperless holding and transfer did not deprive individual shareholders of existing rights that might be important to them.

Amendments were tabled in another place to clarify the relationship between section 207 and the provisions in part 21 of the Bill, which make further provision in respect of section 207, and extend it. The Government said that they would seriously consider addressing those concerns by some form of consolidating amendment to part 21, and that is achieved through new causes 270 to 280. We are satisfied that section 207 can be repealed and the new clauses brought into force without in any way affecting the existing regulations made under section 207, or the systems that rely on them.

Finally, clauses 259 to 273 restate provisions of section 183 to 189 of the 1985 Act, which relate to certification and transfer of shares and other securities.

James Brokenshire (Hornchurch, Conservative)

I am grateful for that explanation, because the issue is sensitive. At the moment, there is the facility for public companies whose shares are traded on the market to trade through the CREST mechanism, under the Uncertificated Securities Regulations 1995. Part 21 obviously envisages a move towards all such holdings being uncertificated.

I recognise what the Minister has said about protecting existing rights, and it is important that the provisions are not introduced in a way that would cause any problems in that regard. Although some 85 per cent. of shares are held in uncertificated form, taking advantage of the CREST arrangements, there are still some 9 million small shareholders who hold their shares in certificated form, so it would be helpful to have a further explanation of how the provisions might be introduced and, in particular, how they will interrelate with the provisions in part 9 on nominee shareholders and their rights, which we shall discuss shortly.

It would seem logical for the part 9 rights to be introduced first and given an opportunity to bed down, so that if the certificated regime later no longer applies, the range of alternative ways of holding shares is clear to the individuals affected. That aspect ties in clearly with the shareholder democracy issues that we shall debate shortly. In connection with that, further provisions in this part deal with regulations that may affect certain types of company.

It would be helpful if the Minister could elaborate on, or explain the thinking behind, the references to specific types of company and individual or specified companies. Are we talking about the size of the company or would that type of provision be used in other ways? It would be helpful to receive further clarification on the thought behind the regulation and the order-making process, which refers to certain companies perhaps being exempting, and on how things would work in practice.

Such procedures are valuable and important in ensuring greater deregulation, facilitating trade and reducing the burdens on companies in respect of how they relate to their shareholders. However, we need a proper opportunity to ensure that any details are  properly consulted on, that shareholders are properly presented with their choices and that, for shareholder democracy, their rights are protected under the new regime that would operate if and when part 21 is brought into effect.

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

I do not think that there is much difference between us on that. There are about 10,000 paper transactions a day, so a lot of people clearly still prefer to use that method. We need to see what comes out of the consultation paper that the Institute of Chartered Secretaries and Administrators produced in April. We are committed to making any necessary cost-benefit calculations before taking any step forward. All that we are doing at this stage is taking a power that will enable us—of course, after appropriate consultation with all parties and ensuring that all shareholder rights are firmly entrenched—to move from a voluntary to a compulsory paperless transaction environment.

The hon. Gentleman made a perfectly valid point about various forms of different companies. As we take the consultation forward and move in that direction, we need to ensure that we look at the specific requirements, depending on the company form, so we are with him on that one.