Amendment made: No. 22, in page 5, line 7, leave out from beginning to end of line 11 and insert—
I beg to move amendment No. 25, in page 5, line 17, at end insert:
'(but the right to participate in distributions need not extend to a dividend declared out of profits earned during any period falling wholly or partly before the date of acquisition of the shares).
(2A) The Secretary of State may not dispose of any shares or other securities or rights acquired under this section without the consent of the Treasury.'.
This amendment deals with two separate points and it will be helpful if I explain them separately.
The purpose of the first part of the amendment, which inserts the words in brackets at the end of subsection (2) is to modify the definition of ordinary voting shares so that it does not impose unduly onerous restrictions on the ability of the Secretary of State to subscribe for rights issues or to acquire shares in other ways.
It is perhaps worth reminding the House that the essential characteristics of ordinary voting shares are that they carry voting rights at general meeting and carry an unlimited right to participate in any distribution of dividend or of capital. These are the criteria embodied in the present definition in clause 5(2)(b).
However, the criterion of an unlimited right to participate in dividends is in one small but important respect unnecessarily restrictive. It is quite usual for an issue of ordinary shares to be made at the same time as the dividend or interim dividend for the year is declared. In these circumstances, it is common practice for the new shares to be issued on terms which entitle the holder to participate in any dividend except the dividend which is declared contemporaneously with the issue. It may help the House if I give an example.
There could be an issue of shares in November, but the terms of the issue would not entitle the holder to participate in the dividend to be declared at the end of the year, in respect of the period ending 31 December. It would be inconsistent with the general policy of the clause for the Secretary of State to be debarred from subscribing for such shares. The amendment will ensure that he can subscribe for them, and by providing that for shares to qualify as ordinary voting shares the right to participate in distributions need not extend to a dividend declared out of profits during any period falling before the date of acquisition.
The second part of the amendment inserts a new subsection (2A). It is intended to bring this part of the Bill into line with other parts of the Bill. It is customary for legislation to provide that decisions which have financial implications are made either after consultation with, or with the consent of the Treasury. In general, this practice is followed in the Bill. In clause 5, for example, the power to acquire shares, securities or rights is subjected to Treasury consent. The power in clause 3 to dispose of shares or rights is similarly subject to Treasury consent. It is entirely consistent with those examples to include a provision requiring Treasury consent before shares, securities and rights acquired under clause 5 are disposed of. This part of the amendment is intended to promote consistency. In reality, through administrative practice, the Treasury would be consulted and its consent obtained.