New Clause 16 — Names and addresses of members of companies: company application

Orders of the Day – in the House of Commons at 2:45 pm on 18th October 2006.

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'(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) At any time when a company member's confidentiality order is in force in relation to a company, the company must 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.

(8) The company may charge a reasonable fee for sending a message or documentation under subsection (7).

(9) Where the company has become bound to act under subsection (7) and has failed to so act, an offence is committed by—

(a) the company, and

(b) every officer of the company who is in default.

(10) 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.

(11) In the case of any such refusal or default as set out in subsection (9) 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.

(12) The Secretary of State may at any time revoke a company member's confidentiality order if he is satisfied that such conditions as may be prescribed are satisfied.'.— [Mr. Djanogly.]

Brought up, and read the First time.

Photo of Sylvia Heal Sylvia Heal Deputy Speaker

With this it will be convenient to discuss the following:

New clause 17— 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) At any time when an individual member's confidentiality order is in force in relation to a company, the company must 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.

(8) The company may charge a reasonable fee for sending a message or documentation under subsection (7).

(9) Where the company has become bound to act under subsection (7) and has failed to so act, an offence is committed by—

(a) the company, and

(b) every officer of the company who is in default.

(10) 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.

(11) In the case of any such refusal or default as set out in subsection (9) 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.

(12) 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.'.

Amendment No. 758, in clause 113, page 51, line 22 , at end insert

'to whom the beneficial rights and obligations of membership belong'.

Amendment No. 383, in clause 116, page 53, line 35 , at end insert—

'(5) Notwithstanding the foregoing provisions of this section, a shareholder in a quoted or publicly traded company who is an individual shall have the right to require that his home address is not set out in the register of members available for inspection or in the copy of the register supplied by the company pursuant to a request, nor in any record of the register of members supplied to the Registrar of Companies for the public file maintained by the Registrar.'.

Amendment No. 384, in clause 117, page 53, line 38, leave out 'five' and insert 'fifteen'.

Government amendment No. 222

Amendment No. 683, in clause 9, page 4, line 28, at end insert—

'(d) a statement setting out and verifying the identity of the initial shareholders.'.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice), Shadow Solicitor General

I congratulate my hon. Friend Justine Greening on her succinct and expert introduction at the Dispatch Box. She gave an excellent presentation and her experience showed through in the quality of her remarks.

We move on to the rights of shareholders and non-members to inspect and require copies of the register of members of a company. Although we believe that the Government have made good progress on protecting shareholders, we would like the Bill to be bolstered further. The initial Bill that was presented in the House of Lords contained little on the matter. However, after several thousand shareholders in GlaxoSmithKline, the pharmaceutical group, started to receive threatening letters from animal rights terrorists, Lord Sainsbury, on direct orders from above and urged on by a chorus of vocal peers, suddenly promised on Report to reconsider the Government's position before Third Reading in the Lords, when amendments were indeed tabled and slipped into the Bill.

We have been demanding increased protection for shareholders for several years. The Government rejected amendments that we tabled to the Serious Organised Crime and Police Bill that would have achieved that, so we are pleased that the matter is being addressed. My hon. Friends and the public wish to ensure that shareholders are protected from violence and intimidation.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme 3:30 pm, 18th October 2006

We have been round the houses on this in our six or seven weeks in Committee. I understand that the hon. Gentleman is interested in the matter as a constituency issue, principally because of Huntingdon Life Sciences. Does he agree that he is perhaps not the right person to front this debate—maybe Justine Greening should be doing so—because he is in danger of confusing a constituency problem about which he is rightly worried with measures that would have a broad-ranging effect on companies legislation affecting business as a whole, to which I hope to refer later?

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice), Shadow Solicitor General

I am pleased that the hon. Gentleman has given me the opportunity to put on record the fact that, although Huntingdon Life Sciences is in my constituency and I have been following its ongoing problems with animal rights terrorists, that introduction to the subject has probably given me an expertise that other hon. Members might not have, not least because I have seen at first hand what can happen and have spoken to the police and the companies affected—not only HLS, but dozens of its suppliers. I would say that my experience helps my cause, rather than gives me a problem. I appreciate that the hon. Gentleman was an investigative journalist in his previous career and some of his remarks might come from that perspective. However, I would not say that it is any worse to make them because of that. Perhaps that balances out the situation.

In any event, this is about more than protecting companies that practice animal testing, although that is the matter on which I have direct experience, as I explained to the hon. Gentleman. This is about the kind of environment that we offer for people who invest in business in this country. Just as the protection of the person must be a priority for the Government, the protection of companies and their shareholders must also be a priority. Without that protection, business will simply pick up and go.

I point out, with some irony, that several speakers in the Lords debate and several journalists have made out that the GSK letter incident was a new and dangerous development. That was not the case. Attacks on shareholders have become an established theme of anti-corporate activism. Although direct action, sometimes slipping into terrorist activity, is emanating from animal rights activists today, the same methods could be used tomorrow by other groups. If drug manufacturers, animal testing companies and furriers are affected now, meat importers, road builders, handbag manufacturers, furniture makers or mining companies could be affected tomorrow.

I emphasise the fact that countering criminal activity using shareholders' registers goes much further than dealing with extremists. Another significant example of such activity is the growth of foreign-based so-called boiler rooms. They harvest the personal details of individuals from members' registers and approach those shareholders to try to persuade them to buy investments that are often worthless, regularly by implying that there is a connection with the company concerned.

A court case recently revealed that fraudsters had been using registers to steal shares from overseas investors. The Financial Times reported in May that the company secretary of Balfour Beatty wrote to the company's 20,000 shareholders after receiving a significant number of complaints. I received a separate letter from Balfour Beatty that outlined the company's concerns about the situation. Diageo wrote to 110,000 shareholders after similar calls were made to its members.

Photo of Douglas Hogg Douglas Hogg Conservative, Sleaford and North Hykeham

I have a great deal of sympathy with the point that my hon. Friend is making, but I have a reservation about new clause 16. As far as I can tell, if the Secretary of State decided to grant the request of the applicant, there would be no process whereby his decision could be reviewed, say by judicial review. Does my hon. Friend think that, if new clause 16 were accepted, it should have an appeal mechanism against the decision of the Secretary of State?

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice), Shadow Solicitor General

My right hon. and learned Friend makes his important point well, although it is related not to new clause 16, but to the clause per se.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

I was going to raise exactly the same point that Mr. Hogg made so well. Mr. Djanogly is speaking rather more widely than to just new clauses 16 and 17 because he is addressing amendment No. 383. That amendment would make the new clauses redundant because it would confer on any shareholder the right to remove his name from the share register that is made publicly available.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice), Shadow Solicitor General

The hon. Gentleman pre-empts me because I have some way to go before I get on to amendment No. 383. The amendment was proposed by an outside body as an alternative suggestion. I thought that it was worth tabling the amendment so that we could hear the Minister's response to it, given that it is a sensible suggestion. However, it does not tally with our approach in the new clauses, which I will support.

I thank the Institute of Chartered Secretaries and Administrators for the action that it is taking on boiler rooms. The institute recently announced that it had produced a warning notice to be used by companies to raise awareness of boiler rooms. The notice can be distributed to shareholders with other mailings or via websites. We feel that that is a positive move against operators of boiler rooms.

We need to appreciate that many, if not most, of the companies affected by the problem are far from large companies such as GSK. They are usually small family businesses for which a civil injunction costing thousands of pounds against illegality or terror would often be unaffordable. More to the point, such companies are saying, "Is it not for the Government to defend us against terrorist activity, rather than our having to pay for an injunction?"

Where do shareholders fit into all this? I have tried to explain that the debate is multifaceted and highly interconnected. Activists will often look for weak points—the points at which with the minimum number of people they can inflict the maximum damage, be that to property, people or the company's economic prospects. Many companies will fold under such a concerted and multi-directional attack, but some companies that believe in what they are doing and refuse to be scared by intimidation will trade on—companies such as HLS and Montpelier, the company that is building the Oxford laboratories. In both those cases, the crisis was sparked by terrorists attacking the companies' shareholders via the register of members. 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 itself to Maryland, USA, and relisted on the US NASDAQ exchange. Why Maryland? Because in that state only holders of 5 per cent. or more of a company's shares have to be disclosed, and then only to other shareholders. We are not advocating that approach for the United Kingdom, but the case does show what will happen if we do not get on top of the problem: other companies will leave the country.

To amplify the importance of the issue, let us examine the case of Montpelier in Oxford. The company bravely resisted the attacks of the terrorists, but finally stopped work when its shareholders started to be 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 the company. Roughly the same tactics were used in the terrorist attack on GSK shareholders as in the HLS and Montpelier cases. The letters to GSK shareholders stated:

"The only way to hold GlaxoSmithKline to it's PROMISE"— not to use HLS—

"is to target it's financial vulnerability. We are therefore giving you this opportunity to sell your shares in GlaxoSmithKline. 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."

If we do not get on top of this problem, we will see many more Huntingdon Life Sciences—many more companies repatriating. We can have whatever tax regime we like; if a company's shareholders are going to be attacked physically, the company will be forced to consider moving. To put the pharmaceutical sector alone into perspective, it contributes more than £6.5 billion a year to Britain's GDP and £12 billion in exports, and employs 80,000 people directly and 250,000 indirectly. The issue is a serious one for this country.

I have attempted to explain the need to protect shareholders' details, so how should we now proceed? My first point is that, as things stand, a coach and horses can be driven through the Bill's provisions, because, in addition to the current register of members being accessible, copies of the register of members as at the return date need to be filed annually with the annual return, which is a publicly accessible document. In Committee in the Lords, Ministers said that they would consider introducing regulations to change that requirement, but why not simply add the relevant provisions to the Bill? We tabled an amendment for that purpose, which we hope to move when—or if—we reach part 25, which deals with annual returns, in the latter part of tomorrow.

Since that time, there has been Government confusion on the issue. In Committee, the Minister for Industry and the Regions suggested that our proposal on annual returns was too restrictive, but the Secretary of State has said that he intends to use regulations to ensure that a company need supply only details of shareholdings of 5 per cent. or more in its annual return. I shall be grateful if the Solicitor-General makes clear the Government's intentions.

The formula chosen by the Government is for the company to initiate an application to the court if it objects to a request to see the register. One problem that we have identified is that, although it may be possible for a large company to instruct lawyers—probably solicitors and barristers—to take the matter to court within five days to comply with the Bill's provisions, although it would probably be pushed to do so, it would be unrealistic to expect a smaller company to keep to such a tight and inconvenient timetable. That is why we tabled amendment No. 384, which would increase from five days to 15 the period in which a request that a person be deemed unsuitable to receive the register must be made.

In Committee, the Minister's response was that a company of any size should be aware of a suspect application straight away, and that if company directors were given too long, there would be a risk of abuse on the part of the company. However, in its brief of 2 October, the Confederation of British Industry stated that it did not regard an extension of the period as an invitation to abuse the application process, but as an opportunity for companies to consider whether requests were for a proper purpose or not, to take advice, and to respond appropriately. We continue to support the CBI's view, and that is another reason why we tabled amendment No. 384.

The Government intend to provide that people have to identify the purpose for which the information is to be used. We tabled a probing amendment in Committee stating that that information should be precise. For example, what if the reason given is that the applicant wants "to inform shareholders of an important matter for themselves, the company, humanity, or the environment" without stating that he or she intends to ask shareholders to sell their shares as a protest? As hon. Members can see, this could be a complicated matter. In Committee, the Minister did not accept that our proposed amendment would add much to the definition of proper purpose, but we think that it would be helpful if the Government at least issued some guidance.

A further approach, which we see as being complementary to the Government's approach, is to provide companies and individuals with the right to apply to the court to close the register if the availability of the register creates, or is likely to create, a serious risk that a member of the company or connected parties will be subject to violence or intimidation. In other words, not all companies would be thrown into the same basket. Some companies or individuals may be at such risk or under such pressure that they should be treated on a stand-alone basis. The provisions could be tacked on to the existing provisions as a further level of protection, which might be more realistic, more accessible and certainly cheaper for smaller companies that need protection.

Furthermore, the existing clause works only for a company to seek protection in respect of all its members. It does not provide for an individual member to seek to protect his or her details. We therefore tabled new clause 17 to allow for that. The theme of individual rights to allow people to protect themselves, rather than relying on the company to seek protection for them, has also been taken up by the CBI. Our final amendment, No. 383, as I mentioned earlier, was proposed by the CBI for that purpose.

The amendment is complementary to the issue of directors' home addresses and allows for the home address of a registered shareholder in a listed company or a company traded on a regulated market not to be disclosed if the shareholder does not wish it. In short, the shareholder has a legal right to require that his home address be omitted from the register of members which the company may be asked to supply to a third party, and from the public register of shareholders maintained at Companies House. In the past, the Government have told us that that is unnecessary because shareholders can use nominees. In practice, many smaller shareholders will not do that, so we see the CBI's point.

In Committee the Liberal Democrats provided a further option, which we thought was worthy of consideration. Their amendment provided for a company, by members' resolution, to stop inspections of the register of members, on the basis that it agrees to pass on lawful communications. Although we thought that was a step too far in terms of restricting access to the register, we can see the importance of the second strand of the Liberal Democrat amendment. If the register is closed, the company must take on the responsibility of passing on communications. We therefore tabled new clause 16, reflecting our joint proposal.

The Minister dismissed our comments on this point in Committee as "very wide ranging". She was concerned that we were restricting long-held principles on public access to the register of members. That is not the case. All we are doing is allowing a court in extremis to protect the small minority of companies whose details are highly sensitive, for whatever reason. That would never be an everyday occurrence and a court decision to close the register would be taken only on a company by company basis and, I imagine, very carefully.

Amendment No. 683 tabled by Jim Cousins deals with initial shareholders. I believe that is covered by the Bill as drafted, although the Minister may wish to elaborate on the point. With reference to amendment No. 358, the register is a register of legal owners. We have supported the concept of giving rights, votes and information in particular to beneficial owners of shares. We were delighted to see the Government move on the matter. However, we see no reason to change the underlying nature of ownership split between legal and beneficial owners. I look forward to hearing the Minister's views.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme 3:45 pm, 18th October 2006

I shall speak briefly against new clauses 16 and 17 and amendment No. 383. We spent six or seven weeks in Committee discussing the matter at great length, so I shall not repeat all the arguments against. Essentially, they have to do with regulation, law enforcement and the shareholder protection regime in the UK. However, I shall have to repeat some of the arguments, as the Conservatives clearly have not listened. I shall pay a compliment to David Howarth. The Liberal Democrats tabled similar amendments in Committee and it is to their credit that they have not advanced them again on the Floor of the House.

As I said in my intervention, I understand the constituency interest of Mr. Djanogly, arising from the position of Huntingdon Life Sciences, but with respect to animal rights terrorists, by advancing those new clauses, he is using a sledgehammer to crack a few nuts.

We had a similar situation at a guinea pig farm in Staffordshire, where the animal rights terrorists went as far as exhuming a body and kidnapping the bones, and they also occur elsewhere in the country. But the police have not been beating a path to my door saying that a clause such as this is essential to help them to prosecute the perpetrators. More fundamentally and importantly, investors, the Association of British Insurers, the British pension funds, City banks and the stock exchange are also not clamouring for clauses such as this in the Companies Act because they are aware of the wider consequences for shareholder protection and company regulation.

The reason for that is that new clauses 16 and 17 are drawn extremely widely. Amendment No. 383 institutes an absolute right to shareholder secrecy, and I note the comments of the hon. Member for Huntingdon on my intervention that he will not put that to a vote later. Like him, I do not take that amendment very seriously, but even the new clauses are drawn extremely widely. The test is that the company has to show that its members or their families run the risk of being subject to violence and intimidation.

In Committee, I gave an example from my days as an investigative journalist when I pursued a bank director in Russia whom I considered to be a dodgy stockbroker. He was pursuing various deals in Moscow, which in those days during liberalisation was the equivalent of the wild east. Because he had a grudge against a number of other people whom he came up against in negotiations, he let it be known that one particular director of a Dutch bank was the blocking point to a big deal with Gazprom. The Dutch bank director's house in Moscow was subsequently set on fire when his family was in it.

In such circumstances, a major bank might come to the Secretary of State and say that it operates in Russia or in a lawless country and that there is a severe danger that if the identities and addresses of not only their employees but their shareholders are disclosed, they may be subject to the risk of violence and intimidation. The companies that are most difficult to regulate and enforce laws against, and funnily enough that are most regularly involved in fraud, are the very same companies that operate offshore. They are usually small companies, operating in dangerous environments. To institute a right on their behalf of secrecy of membership would make regulation and shareholder protection much more difficult.

Photo of Douglas Hogg Douglas Hogg Conservative, Sleaford and North Hykeham

The hon. Gentleman makes a perfectly fair point, but if there was a reviewing mechanism whereby the reviewing body had to take account of public interest and proportionality, many of the objections that he has made against new clauses 16 and 17 would fall away.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

I accept the right hon. and learned Gentleman's point. My point is that the clause is drawn widely, and as he himself has pointed out there is no right of appeal against this for journalists such as myself or other agencies if the Secretary of State were to err on the side of caution and confer such a right.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice), Shadow Solicitor General

The hon. Gentleman makes a point in relation to dodgy directors operating through offshore companies, which of course will not be subject to the Companies Act in any event.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

I am illustrating the general point that companies operating in dangerous environments may make use of this sort of clause to try to confer, for illegitimate reasons, secrecy on their shareholder base. To summarise the arguments that I made in Committee, effectively, in many instances, that would be tantamount to a fraudster's charter, which would block the legitimate efforts of myself and former colleagues—I have spent far too many hours than I care to remember meticulously tracking down connections between shareholders on the basis of their addresses.

Photo of Elfyn Llwyd Elfyn Llwyd Shadow Spokesperson (Education and Skills), Shadow PC Spokesperson (Home Affairs), Shadow Chief Whip (Commons), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Environment, Food and Rural Affairs), Shadow Spokesperson (Foreign and Commonwealth Affairs)

The hon. Gentleman pursues an interesting line of thought, but does he appreciate that if the Secretary of State carefully looks at the whole matter at the beginning, he is unlikely to sanction a fraudulent operation such as the hon. Gentleman describes?

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

I will come to that point when I conclude my remarks, but the hon. Gentleman is perhaps conferring an omniscience on the Secretary of State that they may not possess at the time.

The bar to legitimate investigative journalism also applies to the activities of law enforcement agencies such as the Serious Fraud Office and the stock exchange. In Committee, I advised the hon. Member for Huntingdon to ask the Cambridgeshire constabulary fraud squad whether that approach would hamper its efforts.

More widely, new clause 16 will damage shareholder protection. If the rights of secrecy are granted to a company, which may have stocks on which people have taken a punt, the shareholders may not know who controls the company. A concert party could be legitimised through such shareholder secrecy.

Photo of David Howarth David Howarth Shadow Minister (Energy), Trade & Industry

The hon. Gentleman made a number of important comments in Committee, which have influenced thinking on both sides of the House. However, his point that the police and investigative journalists would be excluded has been taken into account in the drafting of new clause 16, which is very different from the provision that we discussed in Committee. New clause 16(5) would allow the Secretary of State to prescribe circumstances in which the information would be given to, for example, the authorities. The hon. Gentleman has made a serious point, but new clause 16 takes it into account.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

I take the hon. Gentleman's point, but the Secretary of State may not be in a position to foresee all sorts of circumstances, just as they may not know all the facts about a particular company behind a particular application. If the facts were known, there would be no impediment, because the company would already have been investigated.

On shareholder protection, one company may wish to take over another company, but if it is unable to access the share register, the conduit for takeovers or for any communications with shareholders would be the company itself. If there are question marks about a company, one would not want it to be the master of the information that goes to its shareholders, and similar arguments also apply to credit protection.

New clause 16 will put the Secretary of State in an impossible position. If an application is made, the likelihood is that the Secretary of State will err on the side of caution—in other words, they will be damned if they do and damned if they do not. If a company were to tell them that there was serious risk of violence and they said, "I do not believe it", if the violence were to occur, then the Secretary of State would be damned. Equally, if they were to grant an order and the company turned out to be fraudulent, they would be damned again.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice), Shadow Solicitor General

The application will be made to the court, so the issue would predominantly be dealt with by court process.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

I have listened carefully to the hon. Gentleman, who listened carefully to the debate in Committee because of his particular constituency interest. I suspect that taking a sledgehammer to crack a few nuts would drive a coach and horses through effective shareholder protection and company regulation in this country, which is why I oppose new clauses 16 and 17 and amendment No. 383.

Photo of David Howarth David Howarth Shadow Minister (Energy), Trade & Industry

Mr. Djanogly has described the circumstances that have given rise to new clauses 16 and 17. I agree with other hon. Members who have spoken that amendment No. 383 is far too draconian, which is why I cannot see any hon. Member supporting it. The issue therefore concerns new clause 16, which is a serious proposition that responds to the debate in Committee by combining the various proposals.

I freely admit to the House that the proposals that we put to the Committee were not perfect, by any means, and we listened to that debate carefully. The question is whether this composited new clause deals with the objections that were raised in Committee and again today. On the whole, I think that it does.

The key question is how far to go in a direction that the Government have already agreed on. Clauses 117 and 118 go a long way towards protecting shareholders in the circumstances of violence and intimidation that have been described. Paul Farrelly, who has made several important contributions to the debate, exaggerates rather when he says that this extra bit of protection is a fundamental threat, but the existing clauses are not. In fact, the distance between what the Government propose and what the new clause proposes is very small.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme 4:00 pm, 18th October 2006

One of the main points that I was trying to make is that the clauses put the matter in the hands of the Secretary of State, who will be put in an impossible position in being forced to err on the side of caution. That opens the door more widely to the aforementioned coach and horses.

Photo of David Howarth David Howarth Shadow Minister (Energy), Trade & Industry

I was going to come that later, but we may as well deal with it now. The hon. Gentleman refuted his own point as he made it. He said that the Secretary of State will face two possible errors, both of which would be equally embarrassing. His conclusion that they would always err on the side of caution was not shown by his remarks, because that would be true only if the error in one direction was more embarrassing than that in the other direction.

The issue before us is the extent to which the Government's proposal is enough to satisfy the legitimate concerns—not only constituency concerns—that have been raised by Opposition Members. The Government point to clause 117(4) as providing adequate protection, but what is crucial is whether it is as much as is necessary There is no doubt that it offers a lot of protection, because the register is effectively closed in the circumstances where it applies.

Photo of Douglas Hogg Douglas Hogg Conservative, Sleaford and North Hykeham

The problem with clause 117 is that the court must know what are the motives of the person seeking the inspection, yet they would often have a covert motive that would not be known to the court.

Photo of David Howarth David Howarth Shadow Minister (Energy), Trade & Industry

I thank the right hon. and learned Gentleman for his comment. That is a significant problem with the way in which clause 117 is drafted—namely, in terms of purposes. As he says, it is often difficult for courts to have access to the purposes of individuals. Subsection (4) makes use of that concept when it refers to

"requests made for a similar purpose".

It is difficult to get access to people's minds to find out whether their purpose is similar.

The other problem is that clause 117(4) says that the court

"may direct that the company is not to comply with any such request."

That means that the company could be subject to continued harassment in the courts whereby people could make a new request saying that it is not for similar purposes and is therefore not such a request. Even if the court had made an order under clause 117(4), the company, especially in the case of a small business or a business without much in the way of resources, could come under great pressure from organised campaigners working on behalf of people whose purposes were probably nefarious. There is therefore a problem with the protection that clause 117(4) provides. That leads to the question of what other protection might be offered in such circumstances.

Photo of Elfyn Llwyd Elfyn Llwyd Shadow Spokesperson (Education and Skills), Shadow PC Spokesperson (Home Affairs), Shadow Chief Whip (Commons), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Environment, Food and Rural Affairs), Shadow Spokesperson (Foreign and Commonwealth Affairs)

I appreciate that the hon. Gentleman is an expert in law and I am sure that that applies to company law, too. However, he describes circumstances in which someone was intent on taking a matter to court time after time to try to break through. Would not the court take the view that that constituted vexatious litigation, and would not such persons be ruled out?

Photo of David Howarth David Howarth Shadow Minister (Energy), Trade & Industry

As I understand the system, the Attorney-General would have to declare people to be vexatious litigants. That would lead to the problem that the hon. Member for Newcastle-under-Lyme outlined of putting Ministers in a difficult position.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice), Shadow Solicitor General

Many shareholders could buy one share each or many people could ask for access to the register, all with slightly different reasons for doing that, but with the same underlying vexatious purposes. That would mean a series of cases that would keep the company in court.

Photo of David Howarth David Howarth Shadow Minister (Energy), Trade & Industry

That is true. One cannot declare whole classes of people to be vexatious, only specific individuals.

The hon. Member for Newcastle-under-Lyme claimed that the new clause was too widely drawn. That is a serious accusation against it. However, I believe that it is narrowly drawn. It would provide that the Secretary of State had to find a specific set of facts to do with violence and intimidation before being allowed to close the register. If the Secretary of State failed to do that properly, there would be a possibility of judicial review. That is not the full system of independent review that Mr. Hogg mentioned; nevertheless it is an important safeguard.

Let me outline what makes the new clause much narrower than the proposal that was made in Committee and therefore acceptable. First, it would provide for the Secretary of State to prescribe circumstances in which, despite the closure of the register, information could be given out. That is an important difference between the proposal that was made in Committee and the new clause. As I said earlier, it deals with the problem of investigative authorities, perhaps even investigative journalists, being locked out of proper investigations.

Secondly, the new clause includes an important element of our original proposal. The closure of the register should not prevent people from getting legitimate, lawful information to shareholders. The purpose is to prevent the violent intimidation of shareholders, not stop information getting to them. We proposed that a company that wished to invoke the new procedure should undertake, at a reasonable fee, to direct to its shareholders any information sent to it for them. The new clause maintains the right balance. Often, there are legitimate campaigns, even in industrial relations, and it is important that people get information to shareholders, perhaps over directors' heads. An important point about openness and transparency was made in Committee. The new clause preserves at least the essence of the proposal that was made in Committee.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

Will the hon. Gentleman direct me to where the new clause would safeguard openness and transparency in circumstances in which the company constituted the block and had thus taken advantage of the measure to keep members secret? Secondly, will he direct me to provisions in new clauses 16 and 17 for a right of appeal against the Secretary of State's decision?

Photo of David Howarth David Howarth Shadow Minister (Energy), Trade & Industry

On the hon. Gentleman's second point, there is no right of appeal but there is always a right of judicial review. To answer his first point, I would draw his attention to subsections (7), (8) and (9), which provide for a system to be set up by which a company has to pass on information subject to the charging of a reasonable fee, and which determine that failure to do so is a crime.

It is ironic that some of us have been worried about the extent to which the Bill uses criminal penalties. It is perhaps a legitimate criticism of the Bill that it seems to go first to the criminal law, rather than using it as a last resort. Having listened to the views of the hon. Member for Newcastle-under-Lyme and others, however, I believe that it would be justified, if there were a serious risk that the provision would not be complied with, to back that right with a criminal penalty. The hon. Gentleman is right to think that there might be a connection between closing a register and not wanting information to be passed on.

The proposal in new clause 16 is worth while, but it will not be used very often. Indeed, it will be used only in the most extreme circumstances. The main safeguard against its being used too widely is the Secretary of State. The hon. Gentleman says that it puts too much pressure on the Secretary of State, but I disagree. I think that this is just the kind of decision that Secretaries of State are employed to make, and I am sure that if they did not do it very well, their decisions would be subject to judicial review and perhaps also to the scrutiny of the House.

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

I am trying to follow the hon. Gentleman's argument with care, but I am still not sure why he takes the view that the decision should be made not by the courts—as set out in clause 117—but by the Secretary of State, with the safeguard of having the courts in the background. What is the point of this? I cannot follow the nub of his argument as to why the Secretary of State should make this decision, rather than the court.

Photo of David Howarth David Howarth Shadow Minister (Energy), Trade & Industry

That is an interesting point. The question that I would ask in return is: if new clause 16 proposed that the court should make the decision, would the Solicitor-General accept the system as one that he would wish to adopt? Is it that important?

Photo of Douglas Hogg Douglas Hogg Conservative, Sleaford and North Hykeham

Perhaps the difference is that, under clause 117, the test is that of proper purpose, whereas under new clause 16, the question is one of risk. The two do not necessarily overlap.

Photo of David Howarth David Howarth Shadow Minister (Energy), Trade & Industry

That is absolutely correct. They are different concepts in terms of what has to be found, although either the Secretary of State or a judge could find in either instance. It is a close judgment between whether the Secretary of State or a court should do this. I have a preference for the Secretary of State, because the kind of circumstances that are likely to arise are so varied that the Secretary of State would be in a better position to judge all the different circumstances. He would also be in a slightly better position to gather all the evidence. If, however, one were to take the view that a court would be in a better position to gather the evidence and to take advice, one could establish the same system using a court. The question would then be: would the Government and the hon. Member for Newcastle-under-Lyme accept the new clause on those terms?

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

The question does not really apply, because the new clause does not say that. These are the new clauses that we shall be asked to vote on later. I find it odd that the proponents of smaller government on the Conservative Benches, and the Liberal Democrats, who are proponents of more devolved government, should believe that this is the kind of decision that should be taken by the Secretary of State, day in, day out, rather than by a court, where the case could be put in far more detail.

Photo of David Howarth David Howarth Shadow Minister (Energy), Trade & Industry

These decisions would not be taken day in, day out. One of the important aspects of the proposal is that it would be used only rarely and sparingly. There are also policy matters behind the proposal, as has been revealed in the debate. As I have said, it is a close judgment as to whether a court or the Secretary of State should make these decisions, but on the whole, I believe that the Secretary of State is in a better position to make them, subject to judicial review.

The proposal is far more narrowly drawn than the one that we discussed in Committee, and it meets a specific need. The provision in the Bill is good, but it is not quite enough. I urge the House to support the new clause.

Photo of Austin Mitchell Austin Mitchell Labour, Great Grimsby 4:15 pm, 18th October 2006

We are making heavy weather of a straightforward issue, although it was fascinating and quite a spectacle to see the Lib Dem spokesman, David Howarth, struggling to maintain a foot in both camps, in his usual fashion and in his lawyerly way. However, the issue is clear cut and we should not accept new clauses 16 and 17 because they conflict with something quite basic, which is access to information, openness and full accountability.

I, of course, have every sympathy with the shareholders of Huntingdon Life Sciences who were threatened, but to introduce such a complicated arrangement would mean invoking a sledgehammer to crack a few nuts, because those people were being persecuted by lunatics—there is no other word for them. There is no way to protect everybody who might be threatened by such lunacy and no reason in relation to such a threat to invoke secrecy of the kind that would be invoked by new clauses 16 and 17. An important principle of openness would be breached just to avert a few much exaggerated—although I am sure painful for the shareholders—incidents. We should oppose these proposals, and in doing so I commend my amendments Nos. 758 and 683, which run in the direction of openness and against the spirit of the new clauses.

Photo of Elfyn Llwyd Elfyn Llwyd Shadow Spokesperson (Education and Skills), Shadow PC Spokesperson (Home Affairs), Shadow Chief Whip (Commons), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Environment, Food and Rural Affairs), Shadow Spokesperson (Foreign and Commonwealth Affairs)

The hon. Gentleman has expressed sincere concern about those affected in relation to Huntingdon, and there are other examples as well, but he should not simply describe the people who are perpetrating such acts as lunatics. They are plausible and intelligent, they make up a network and they are an increasing danger. The next people to be eyed up will be those such as me, who enjoy fishing at the weekend. This is a growth area. I know that he is taking the point seriously, as I would expect of him, but there was a real risk in relation to Huntingdon, and the Cambridge example as well. I foresee many others in the coming months and years.

Photo of Austin Mitchell Austin Mitchell Labour, Great Grimsby

The principle the hon. Gentleman's invokes is that we should not publish any information about anything or anybody. In relation to his fishing activities, I picture him in his waders in the rivers of north Wales, which is a touching spectacle—but that that must be kept from the public eye, and that his name and address should not be published because he goes fishing, would be to go to extreme and silly lengths to avert something that is haphazard and low in incidence. The people we are discussing should be dealt with by the law for threatening behaviour, rather than by us closing down all access to information that they might use.

The same principles that are being used to invoke this closure of information could be used to close the electoral roll, which might be used by people to enable them to send out bumf, go out knocking on doors, check people's credit or even check their existence. Because the electoral roll could be used in that fashion, should we not publish it? We cannot negate a fundamental principle of shareholder democracy to avert the action of a few people, which is wrong and which can be prosecuted through other means.

The fundamental principle is that the list of shareholders should be published. That is what gives this corporate body that we have introduced an identity. For instance, my amendment No. 758 would stop the use of nominee names. Shareholders in Huntingdon Life Sciences could have used nominee names if they did not want their names to be known, but I would stop that practice entirely, because if people use nominee names, what is the use of a register?

The principle of a joint stock company is that there has to be a register, so we know who is investing, what the company is about and who supports it. If we remove that principle, we attack the fundamentals of the joint stock company and the principles on which such companies were granted their corporate identity in the 19th century. Anonymity will always be abused.

Under new clause 16, a company could designate itself as conducting undesirable activities. It could say, "We have something to hide. Let's keep our registers secret so that no one knows who is investing in us." That principle would apply not only to Huntingdon Life Sciences, but to the arms trade or the tobacco industry. It could be very wide ranging, and any company in an industry that is subject to public criticism could designate itself as doing something shady, so that it has to hide its operations. If we had legalised brothels, as in New Zealand, the companies running those brothels, which might indeed be indulging in nefarious activities, would want to hide in the same way.

We are obviating any principle of shareholder democracy. If shareholders want to mobilise and organise themselves, and want to try to gain some countervailing power to the power of the directors, they must be able to find out who the other shareholders are. That is a big job when the company is a multinational or a bank with thousands, or possibly millions, of shareholders. It is an enormous job for shareholders to organise themselves against directors, given the weight and strength that directors have as a result of all their proxy votes, which they accumulate and use, ad lib, to crush the emergence of any shareholder opinion. That is an impossible job unless the names of the shareholders are published.

If we want to encourage investigative journalism—there is not enough investigative journalism in this country; things are handled far better in America—journalists must be able to investigate who the shareholders of the company are, so that they know what the company is about and what it is doing.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

May I give my hon. Friend an example? I once investigated a publicly quoted company that was suspected of involvement in laundering money from one of the former Soviet republics in Asia. The investigation proceeded through an examination of the company's shareholder register, and the shareholder register of companies that were in turn its shareholders, and links to some rather unsavoury characters were found. If I were running such a company, and the new clauses were added to the Bill tonight, the first thing that I would do is apply under the scheme. I would say, "My company operates in a former Soviet republic where violence and torture go on all the time. There is a serious risk of my shareholders being targeted if you do not keep their identities secret."

Photo of Austin Mitchell Austin Mitchell Labour, Great Grimsby

I am grateful to my hon. Friend, who was of course in the investigative journalism trade—and a very good trade it is, too. I was in the electronic media, so we did not do any investigation. We just shouted at people, which was perhaps a mistake; perhaps we conducted ourselves at too low a level.

The principle is absolutely clear. We cannot accept either of the new clauses, because under new clause 17 the onus on companies is replaced by an onus on shareholders to say, "I am investing in something murky, please do not disclose my name." That does not apply only to people who want to hide from possible persecution. The ability to remain anonymous, which would be checked by my amendment No. 758, is also used by tax evaders, money launderers and criminals. Will they, too, on the same principle, have the ability to hide? Or will they put all their money in Huntingdon Life Sciences and then hide themselves?

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

My hon. Friend talks of criminals and fraudsters. David Howarth says that applications made under the new clauses would be scarce, but he tends to underestimate the ingenuity of fraudsters. If I were a fraudster, given this provision and certain precedents that may be set by decisions taken by the Secretary of State, I would wish to put my company in the position where I could claim that my shareholders were subject to the risk of violence and intimidation. For instance, I might have two people in an office putting drops in a rabbit's eyes, or I might set up a small subsidiary in a violent place. I could therefore close my shareholder register and prevent legitimate investigation of the various connections that my company has, if they are unsavoury.

Photo of Austin Mitchell Austin Mitchell Labour, Great Grimsby

I am grateful to my hon. Friend for making that point.

Photo of David Howarth David Howarth Shadow Minister (Energy), Trade & Industry

If what Paul Farrelly says is true, companies, by applying for this protection, would be fingering themselves as potential fraudsters, so the risks to them would be quite great. Therefore, they would not do it.

Photo of Austin Mitchell Austin Mitchell Labour, Great Grimsby

I am glad to see that the Liberal faith in human virtue and the virtue of companies lives on. Lots of organisations have something to hide, and lots choose to hide it. I do not want to provide any more opportunities for them to do so. New clauses 16 and 17 provide massive, unnecessary machinery to deal badly with something that, I am afraid, must just be accepted and can be dealt with in other fashions, and for which we should not breach the principle of full openness or full sunshine. My amendment No. 758 sustains the fundamental principles on which the new corporate identity was given to joint stock companies. If somebody is to be responsible, the legal personality created for the convenience of business must be rooted in identifiable shareholders whose names are known and whose interests can be investigated.

Amendment No. 683 is an effort to control the big trade in companies bought off the shelf. The technique is widely used by money launderers. Money laundering would be extremely difficult were it not for accountancy firms having the ability to set up shell companies in that way. I wrote an article about a money laundering racket by AGIP some years ago, in which Grant Thornton established shell companies in Jersey to launder money from that interest. It goes on all the time. Enron used it spectacularly on an enormous scale. If we are to deal with that issue, we need to know who the beneficial owners are, who is setting up the company and who is answerable. Currently, there is no requirement for third party agents such as accountancy firms who submit company formation papers to Companies House to collect and verify the ownership information for the company. Therefore, owners can conceal their identities and carry on their nefarious business. The principle of full openness, for which I am speaking, should therefore be extended to cover such shell companies. We should maintain that principle, not infringe it.

Photo of Douglas Hogg Douglas Hogg Conservative, Sleaford and North Hykeham

I shall confine myself to new clauses 16 and 17, and largely to new clause 16. I acknowledge that my hon. Friend Mr. Djanogly has a serious point and is right to put forward the new clause. In its present form, it is not satisfactory and needs adjustment, but I understand and agree with the general motive that lies behind it. The Government are right that clause 117 goes some way to address the problem, and they are to be congratulated on having put it into the Bill. There are at least three problems with clause 117, however, which cause me to think that an additional provision, along the lines of that put forward by my hon. Friend, is necessary.

The first problem with clause 117 is the proving of motive. Motive is often difficult to prove. In this instance, it is likely to be particularly difficult to prove and the courts may therefore be unable to determine what it is. A second, and quite different, problem is that even when it is possible to have an idea of the motive, it may not be so easy to show that it is not a proper motive. That takes me to my third point: what is a proper motive, or an improper motive? I can understand why the Government have not sought to define "proper purpose", but the phrase is pretty opaque, and an opaque phrase is not likely to be a terribly valuable safeguard.

Clause 117 is directed primarily at motive, while new clause 16 is directed primarily at consequence. They are not the same. A person may have a perfectly proper motive for finding out addresses, but if those addresses fell into the hands of a third party who was not so properly motivated, that might well constitute a serious risk. There is not the necessary overlap between clause 117, which is directed at motive, and new clause 16, which is directed at consequence—as, indeed, is new clause 17.

I think that there is room for something similar to what my hon. Friend the Member for Rutland and Melton has suggested in the new clauses, but I cannot support him all the way. I agree with Mr. Mitchell about the desirability of transparency and openness, and I well understand what was said by Paul Farrelly about investigative journalism. Those points are well founded.

I suggest something along these lines. First, along with the test of risk—and I have no particular objection to the Secretary of State exercising that power—there should be a test of proportionality and of public interest, which should apply in the first-instance test, the application to the Secretary of State. Secondly, there should be some mechanism, over and above judicial review, whereby the Secretary of State's decision could be reviewed in a court.

Let me make two points about that. First, the test of proportionality and public interest should be a test to which the appellate tribunal should be specifically directed. Secondly, the right to make an application to the appellate court should be open to third parties who feel aggrieved by it, such as the press. There is a precedent of a kind. As you will doubtless know, Madam Deputy Speaker, judges in criminal courts can make orders restricting the publicity given to parties to the proceedings. In those circumstances, third parties have a right to apply to the court for a change in the order. I have something rather similar in mind. If a third party felt that the order was unduly restrictive, that third party—although not party to the application to the Secretary of State—would have the right to lodge an appeal.

Finally, I would enlarge the subsection dealing with prescribed circumstances to include classes of person and organisation. "Circumstances" is a fairly narrowly defined word. I should like the definition to be widened so that the information could be given to persons and organisations specified by the Secretary of State and/or the court on appeal.

I think that there is a great deal of force in what my hon. Friend the Member for Huntingdon has said, but I am unhappy with the new clause as currently drafted. If my hon. Friend puts it to the vote I shall support it, but I shall do so on the basis that it will be amended in the other place along the lines that I have taken the liberty of describing.

Photo of Elfyn Llwyd Elfyn Llwyd Shadow Spokesperson (Education and Skills), Shadow PC Spokesperson (Home Affairs), Shadow Chief Whip (Commons), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Environment, Food and Rural Affairs), Shadow Spokesperson (Foreign and Commonwealth Affairs) 4:30 pm, 18th October 2006

Having listened carefully to all the arguments, I think that this has been a very interesting debate of the highest calibre. I hope that my few remarks will not detract from that quality.

I see the point of clause 117, and I see a great deal of merit in what the Government have done. I also commend what was said by Mr. Mitchell. There is a balance to be struck. On the one hand, there is the legitimate right of the public to know who the registered shareholders are. That relates to the veil of corporate liability that forms part of the history of company law. All that is fine and rightly understood, and we are all in favour of making everything as translucent and transparent as possible. The other side of the balance, as the Government recognise, is that we live in dangerous times. There are legitimate companies carrying out their business, yet their people are being threatened for no good reason.

I fully acknowledge what Paul Farrelly and Mr. Hogg said about investigative journalism. What they said is very important.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

I do not want to be thought of only as an old hack speaking up for my old trade, as the same points that can be made about investigative journalism apply to investigations more generally, including law enforcement and regulation. Another important point is that in these circumstances, speed is often of the essence, as any blocks can be used in the sense of buying time in either rectifying or forging the real situation.

Photo of Elfyn Llwyd Elfyn Llwyd Shadow Spokesperson (Education and Skills), Shadow PC Spokesperson (Home Affairs), Shadow Chief Whip (Commons), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Environment, Food and Rural Affairs), Shadow Spokesperson (Foreign and Commonwealth Affairs)

The hon. Gentleman makes that point again and I listen carefully to what he says.

One of my concerns about clause 117 is that it provides an open-ended invitation for applications to be made. As was observed earlier, a person making an application may have a friend who makes a slightly different one and so forth. Are we putting something of a legal treadmill in place? I do not know; time will tell. What I do know is that the provision represents an effort in a very difficult area to meet the genuine concerns of people who are desperately worried about terrorism from animal rights protesters, for example. I share that concern, but no doubt the Solicitor-General will advise us in due course that there will be some form of review of the court's decision along the usual lines. [Interruption.] I believe that he confirms that.

Speaking rather like a Lib Dem, I have reflected on both sides of the argument and I also have considerable sympathy with new clause 16, but I am not sure that leaving the matter for a judicial review is the right way forward. It is an imperfect appellate procedure. I defer to the right hon. and learned Member for Sleaford and North Hykeham on the points that he made, but the judicial review procedure would look into the reasonableness of how the decision was reached—the Wednesbury principles and so forth—rather than the quality of the judgment. That is essence the of the matter. That is why I say that it is an imperfect appellate procedure and why I do not feel able to support the new clause.

We have had an interesting and important debate. I hope that the Solicitor-General will deal with the several points that have been raised in what I view as a most invigorating debate.

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

I agree with the hon. Gentleman that we have had a very good and high-level debate. All the contributions have showed the great deal of seriousness with which the issues have been considered. I particularly thank my hon. Friends the Members for Newcastle-under-Lyme (Paul Farrelly) and for Great Grimsby (Mr. Mitchell) for setting out their strong objections to the Opposition new clauses. Both my hon. Friends are ex-journalists who are greatly concerned about the impact of the Conservative proposals on investigative journalists seeking to expose scandals in big companies, for example—a point that everyone will want to take account of.

Mr. Djanogly also made some important points about the dangers resulting from animal rights terrorists and others who seek to damage not just individuals, but the biotech industry itself. I share his concerns about Huntingdon Life Sciences, when individual employees of the company as well as other organisations that supply it have been subjected to attacks by animal rights terrorists. I have talked to employees of Huntingdon Life Sciences who have been the victims of having their cars blown up outside their homes with fire bombs.

The Government recognise the dangers of such activity and we have passed legislation in recent years to tackle the intimidation, harassment and other criminal acts that have been a feature of animal rights terrorism. The issues have been addressed to a considerable extent by the criminal law and the Government take them enormously seriously. Company law has a role, but it is a limited role. Clause 117 provides safeguards for those who may feel threatened, and it will enable the courts to intervene and provide some security for individuals who feel at risk. I shall return to that point in due course.

Let me deal more broadly with the new clauses and amendments. On new clauses 16 and 17, I begin by quoting the contribution of the hon. Member for Huntingdon in Committee. He said:

"There must be a balance and proportionality between access to a register and security for those on it."— [ Official Report, Standing Committee D; 22 June 2006; c. 183.]

I agree with that. The issue we need to consider is where that balance is struck. I fear that to deal with the real problem of animal rights terrorism his proposal is to change public access to the register of members—an issue deeply embedded in our company law—in a way that could well have adverse consequences.

Ever since it has been possible to set up a company with a separate legal identity, the law has required the names and addresses of both those who own the company and its directors to be on the public record. As long ago as the 1840s, when Gladstone's committee on joint stock companies reported, the lack of transparency about company shareholdings was seen as a major problem. By instituting a system of registered membership, Gladstone's committee wanted to suppress such practices as

"concealing the names or preventing the meeting of the Shareholders...falsifying the books containing transfers of shares" and

"the creation of fictitious votes, so as to secure the means of outvoting the bonafide Shareholders".

Of course, Mr. Gladstone and his colleagues did not have to contend with animal rights terrorists or "boiler room" investment scams, but the basic reasons for giving public access to the register, beyond those of investigative journalism, still hold good today.

It is fundamental to shareholder democracy that members can hold the management of their company to account. To do that, they need to be able to contact each other and, sometimes, to be contacted by the general public. Company law must ensure that shareholders can be contacted without any risk of interference or hindrance from the directors. The impact of the changes proposed by the Conservatives would run counter to that basic view of shareholder democracy. Indeed, some of the other amendments that they have put forward could have a profound effect on our company law.

New clause 16 would remove the essential underpinning of shareholder democracy. If a company were to have a "confidentiality order" under the new clause, all external communications to its members would be required to be "passed on" only by the company. How, and how quickly, is not specified, but speed is crucial if support is being sought, for example, for a resolution opposing one already tabled. How is someone seeking to convey a lawful message ever to know whether the company has complied with the request to pass the message to its members if he does not have the means to contact them? The enforcement mechanisms in subsections (9) to (12), and therefore the underlying obligation to pass on lawful messages, are worth nothing if a company's failure to pass on those messages is undetectable, and there is nothing in the new clause to show how it could be. However, under clause 117, courts could deal with that problem.

The new clauses do not substantially add to protection that can be achieved under clause 117 and that can be done be much more effectively by using the courts. The clause provides that, when a court directs a company not to comply with a request for access to its register of members, it may direct the company not to comply with similar requests. In other words, if it becomes clear that a company's register of members has become the target of animal rights extremists or fraudsters, it should be possible for the court to make an order in terms that permit it to refuse requests for access that appear to emanate from similar sources. That makes unnecessary the provision in new clause 16 for company confidentiality orders, unless there is some fundamental view that that has to be done via the Secretary of State in a particular way, rather than in the courts.

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

What I am saying is that, under clause 117, the court can enable—order, in fact—a company not to provide information requested. So the company will be in a position to make such order as it believes is appropriate when an application is made. The court would then be able to deal with concerns about shareholder democracy and other issues, which might properly be raised by shareholders. But there is nothing in new clauses 16 and 17 that would enable that to occur.

New clause 16 would also have unwarranted side-effects. Entry in the register of members is evidence of a member's entitlement. That would be lost for any company with a confidentiality order. The loss of the ability to check the register would create a risk that registers of private companies with confidentiality orders would not be properly maintained.

Photo of Douglas Hogg Douglas Hogg Conservative, Sleaford and North Hykeham

May I make a suggestion to the Solicitor-General that might meet his concern—and also, perhaps, that of my hon. Friend Mr. Djanogly? One could enlarge the test in clause 117(3) so that the court could make an order where the

"copy is not sought for a proper purpose", or where—we could use a phrase such as "disclosure"—it would expose individuals to unreasonable risk. So one could build into clause 117 some of the concepts put forward by my hon. Friend, but have the policing done by the courts.

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

I hear what the right hon. and learned Gentleman says. However, subsection (4) states:

"If the court makes such a direction and it appears to the court that the company is or may be subject to other requests made for a similar purpose...it may direct that the company is not to comply with any such request."

So there is a considerable amount of discretion for the court. The court is in a position to be able to make appropriate orders, as it thinks fit in the circumstances that it is facing.

Photo of Douglas Hogg Douglas Hogg Conservative, Sleaford and North Hykeham

Let me explain the point that I am trying to put to the Solicitor-General. There is a difference, and no necessary overlap, between not having a proper motive—that covers motive—and consequences. I think that one could get evil consequences in terms of risk, even if the application was made for a proper motive. So I think that the two tests should perhaps be incorporated into clause 117.

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

Let me consider for another time the idea put forward by the right hon. and leaned Gentleman. I do not dismiss it; it is a sensible suggestion. If we were currently in Committee, we might have had the opportunity to look into it in more detail.

New clause 17 provides that an individual member may apply for a confidentiality order so that particulars of his name and usual or business address are not publicly available. Everything that I have said about new clause 16 applies to new clause 17 as well. Transparency about membership is one of the conditions that a company and its members must observe in return for the privileges that come with incorporation. It would be fundamentally wrong for it to be possible for any individual to hide the extent of his control of a company. That said, we intend to use the power in clause 861 to reduce the information about members that companies with share capital have to send to Companies House each year as part of their annual return.

Subject to consultation, our intention in respect of public companies—the hon. Member for Huntingdon asked me to make a point of this—is to exempt them from the obligation to supply any details of those who hold less than 5 per cent. of any class of the company's shares, and for private companies not to require the addresses of their members. That is a practical way of ensuring that the protection provided to registers of members by clause 117 is not subverted by the availability of this information from Companies House. By way of contrast, new clause 17 is in our view wholly incompatible with the concept of a public record.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice), Shadow Solicitor General

I thank the Solicitor-General for clarifying that point; he has cleared up certain inconsistencies and his comments will be very well received by the business community. When are those regulations likely to be introduced?

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

We want to consult on and discuss them. We do not anticipate any substantial delay, but let us see what emerges from the consultation before I start giving time scales.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

Given what my hon. and learned Friend has just said, could he make it clear to me, as a former frequent user of Companies House, that what he has said would not preclude me or journalists from writing to a company asking for a shareholder register, as we currently can, if that information is not available from Companies House?

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

Yes, my hon. Friend could still write to a company requesting that information. It would then be a matter for the company to decide whether there was a good reason not to disclose it, and to make any court application that it might wish to make, should that be necessary.

On clause 117 and the question of motive, although I take the argument of Mr. Hogg against that clause very seriously, it is important that a court be able to examine whether the purpose of a person making such an application is "proper". That is not a vague concept; it gives some discretion to the courts, but it is not so vague that a court will be unable to identify that an improper purpose relates to, for example, animal rights terrorism or to an attempt somehow to damage the company in question. We need a provision that allows us to look at motive rather than mere risk, which was the distinction that the right hon. and learned Gentleman made. In my view, clause 117 gets the balance right.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

Does my hon. and learned Friend not recognise that Mr. Hogg has raised some fundamental objections to the provisions as drafted, which are additional to the basic objections raised by me, and by my hon. Friend Mr. Mitchell? The right hon. and learned Gentleman has said in an incisive contribution that, after six or seven weeks considering the Bill in Committee, these provisions are seriously flawed.

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

The right hon. and learned Member for Sleaford and North Hykeham damned with faint praise the new clauses proposed by the Conservatives, but some of the points that he made about the lack of an appeal process were damaged beyond all recovery by Mr. Llwyd, who made it very clear that if judicial review had to be relied on, we would be looking at "Wednesbury" unreasonableness and a whole series of other problems arising from the inadequacies of that form of appeal. To be fair, the right hon. and learned Gentleman suggested that the appeal issue would have to be dealt with in another place, and he identified the problems with the new clause very well.

Photo of Douglas Hogg Douglas Hogg Conservative, Sleaford and North Hykeham

In fact, Mr. Llwyd and I were in total agreement. Both of us said that judicial review was not an adequate mechanism and that we needed a specific appeal mechanism with stated criteria.

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

I note what the right hon. and learned Gentleman says.

Amendment No. 383 would give every shareholder of a quoted or publicly traded company the right for their home address not be publicly available either through the company or Companies House. That is simply not necessary. There is no requirement for the home address of any member of any company to be publicly available anywhere. All that clause 113 requires is

"the names and addresses of the members".

That is the same as the current requirement in section 352 of the Companies Act 1985. The Bill makes it clear elsewhere that an address for service, such as a PO box, is all that is required. We are talking about something for the purpose of communicating with the member and a way in which the member can be easily contacted. That is the objective of the exercise. In any event, a large and increasing proportion of individual investors in quoted companies and publicly traded companies hold their shareholdings through nominees so their names and addresses do not appear in the register at all.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

Does my hon. and learned Friend share my puzzlement that, at this stage, on the Floor of the House—we are not in Committee, using probing amendments to score debating points—the Conservative Opposition are advancing an amendment that would drive a coach and horses through any effective regulation or shareholder protection, having gone through all the processes of trying to refine and make acceptable their new clauses 16 and 17, which would be made redundant by this sort of approach?

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

I agree with my hon. Friend, and I would not seek to defend the patent inadequacies of the Conservatives' new clauses.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice), Shadow Solicitor General

May I help the Solicitor-General in his answer to Paul Farrelly? Frankly, these provisions came in at a late stage in the other place, and we have been fighting to make up for lost time.

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

After much complaining by the Conservatives that there was inadequate time to deal with the Bill, we managed to finish business early yesterday. We did not need all the time that was allowed under the programme motion. The Conservatives complain a lot about the time available, but when they are offered time they do not seem to use it very well. However, we should not let the debate degenerate. It has been a good debate. I want to focus on the real issues.

On boiler room scams, which were mentioned by Mr. Djanogly, under Government legislation introduced on 1 May 1999 and replaced on 11 December 2003 by the Privacy and Electronic Communications (EC Directive) Regulations 2003, it is unlawful to make unsolicited direct marketing calls to any individual who is registered with the telephone preference service. That is a whole lot easier than applying for an individual member's confidentiality order as suggested in the amendment. The Bill provides that a court may relieve a company from the obligation to allow access to its register if the court is satisfied that the access is not sought for a proper purpose. We consider that that strikes a balance between, on the one hand, protecting members from attempts to harass or defraud them, and, on the other hand, the right of the public and members to know who owns a company and to contact them. New clauses 16 and 17 would destroy that balance.

As for amendment No. 384, there was a debate on this issue in Committee, so I shall be brief. Fifteen days is too long a period to allow in all cases where a company is considering a request for access to the register. Let us suppose that a shareholder is trying to contact other members about a resolution that has already been tabled for a general meeting that has been called—particularly an extraordinary general meeting on 14 days' notice. In such a case, giving the company 15 days to process the request enables the management to frustrate the shareholder's purposes without even having to justify themselves in court. Moreover, the difficulties of assessing requests for access can be overstated. At the risk of generalising, I suspect that the assessment process will rarely involve detailed research or analysis. A request will either look suspect, or it will not. In our view, five days—remember, that is five working days—will be enough.

Amendment No. 758 addresses a rather different topic. It proposes that companies' registers of members should include details of not just the registered members, notably the legal owners of shares in companies limited by shares, but the holders of any underlying economic interests in the company that may stand behind its registered members. In other words, it would lead to a register not just of legal entitlements, but any related beneficial interests. I must tell my hon. Friend Mr. Mitchell that we would not be prepared to accept such a huge change at this stage. It would represent a huge change not only in company law, but to the way in which all sorts of perfectly legitimate businesses are run.

If one thinks about what the amendment would mean in practical terms, it soon becomes clear that however desirable it might be in certain circumstances as a matter of principle, it would have undesirable consequences in other cases. It would also probably fail to achieve many of its objectives, even if it did not simply prove to be unworkable. The first question is how on earth one would enforce a universal requirement to disclose beneficial interests in companies. A company will generally be unaware of the identity, or even existence, of those who hold such interests. Even the registered member may not have all the information if he is only the first link in a chain of intermediaries between the company and those with the underlying economic interest in its shares. If the requirement is unenforceable, it is likely that any criminal elements that might benefit from the limitations of the existing system will also be able to find a way round the proposed new system.

An equal worry is that compliance with the proposed new system would impose hugely increased costs on investors, companies and the financial services sector because of the capturing and processing of all the additional information required, without, I regret to say, delivering any benefits commensurate with those costs. If I give a single example of which my hon. Friend might not have thought that is taken from an everyday situation, it might illustrate the complexities involved.

People who live in flats often have a share in the company that owns the flats. They also often have mortgages, and it is common for the lender to be in a position to require the resident of a flat's share to be transferred to the lender. That gives the lender a beneficial interest in the share. The amendment would require the register to identify the lender's beneficial interest and to update that information every time the resident switched to a different lender, as often happens, or whenever the lender was taken over by another institution, which also often happens. None of that would serve any especially useful purpose. Okay, we could deal with that problem by way of a further amendment to exclude such situations, but the example shows us the sort of unforeseen consequences that might arise from the amendment.

Finally, it is worth pointing out that there are already powerful statutory mechanisms, at least for public companies, that enable companies to get to the bottom of who might be behind their registered members. These will shortly be supplemented by further measures under the transparency obligations directive. When such mechanisms are used, there is provision for records to be kept of the beneficial owners whose interests have been identified and for those records to be disclosed.

My hon. Friend also spoke to amendment No. 683. Clauses 10 and 11 contain powers that enable the Secretary of State to prescribe in regulations made under the Bill the types of identity information that must be provided in the statements that are to be included in the application for registration, which are the statement of capital and initial shareholding that is required when a company is to be formed as limited by shares and the statement of guarantee that is required when a company is to be formed as limited by guarantee. Given those circumstances, I think that the amendment is unnecessary, because we will achieve the result that my hon. Friend wants, albeit by a different route. We are not especially attracted by the particular wording of the amendment, although I appreciate that that could be altered. However, I hope that my hon. Friend will accept that we achieve the result that he wants through the route already provided for, rather than by using the route that he proposes.

Government amendment No. 222 is a minor amendment that will clarify the Bill. I do not think that it will give rise to any controversy, but I will be happy to answer questions on it if necessary.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice), Shadow Solicitor General 5:00 pm, 18th October 2006

We have had a full debate on this group of amendments, and unfortunately time is now short. The Solicitor-General mentioned the programming. I have just had a quick look and can advise him that under the timetable we have so far been unable to discuss even half of the groups of amendments tabled by the Government. He referred to finishing early last night, but failed to mentioned that one and a half hours had been provided for debate on a single group of amendments.

Mr. Mitchell says that we should support openness, transparency and access to registers. I do not disagree with any of that; however, in certain exceptional circumstances there will be a need to restrict access, and that need is not currently catered for.

Paul Farrelly repeated many of the arguments that we heard in Committee. He has acted as a good sounding board and we have learned from many of his comments, especially those in support of investigative journalism.

I thank my right hon. and learned Friend Mr. Hogg for his constructive remarks. We shall consider what he has said today as the legislation progresses.

To summarise, we believe that there will be circumstances in which companies and individuals should be able to ask for protection. The Secretary of State is mentioned in the new clause, but if the Government took a constructive approach, we could consider providing for a court process. Companies and individuals should be able to receive protection. That is why we shall press new clause 16 to a Division.

Question put, That the clause be read a Second time:—

The House divided: Ayes 208, Noes 300.

Division number 313

See full list of votes (From The Public Whip)

Question accordingly negatived.

Question, That amendments Nos. 209, 254, 210 to 212, 161, 222, 305, 223 and 306 be made, put and agreed to.