'Nothing in this Chapter affects—

(a) any provision of a company's articles—

(i) requiring an objection to a person's entitlement to vote on a resolution to be made in accordance with the articles, and

(ii) for the determination of any such objection to be final and conclusive, or

(b) the grounds on which such a determination may be questioned in legal proceedings.'.— [Margaret Hodge.]

Brought up, and read the First time.

I beg to move, That the Clause be read a Second time.

With this it will be convenient to discuss the following: Government new Clause 14— Computation of periods of notice etc: clear day rule.

Government Amendment No. 643

Amendment No. 682, in clause 291, page 137, line 1, at end insert—

'(3A) Directors of the company shall be ineligible to cast any proxy votes.'.

Government amendment No. 301

Amendment No. 355, in clause 307, page 142, line 23 , at end insert—

'( ) Nothing in this Chapter affects a provision of a company's articles which provides for a resolution in writing executed by or on behalf of each member who would have been entitled to vote upon it if it had been proposed at a general meeting, or at a meeting of any class of members of the company, at which he was present (whether such resolution consists of one instrument executed by or on behalf of each such member or of several instruments in the like form each executed by or on behalf of one or more such members) to be as effectual as if it had been passed at a general meeting, or at a meeting of any class of members of the company, duly convened and held. A resolution in writing passed in accordance with such a provision of the company's articles shall be treated as if it were a "written resolution" for the purposes of this Chapter.'.

Government amendments Nos. 443, 302, 348 and 349.

Amendment No. 418, in clause 316, page 146, line 2, at end insert 'and

(d) be communicated directly to the member either in electronic form or in hard copy form'.

Government amendment No. 444

Amendment No. 419, in clause 327, page 149, line 30 , at end insert—

'(1A) The chairman must demand a poll when he is aware that the outcome would be different from that reached on a show of hands.'.

Amendment No. 420, in page 149, line 30, at end insert—

'(1A) The chairman must announce the number of proxy votes in favour and against each resolution, before such a resolution is put to a vote of members in general meeting.'.

Government amendment No. 445

Amendment No. 421, in page 158, line 13, leave out Clauses 349 to 352.

Government amendments Nos. 446 and 350.

Despite the number of Government amendments and new clauses, I can assure you that I will be brief, Mr. Deputy Speaker. These are all designed to help to improve the operation of the resolutions and meetings provisions in part 14 and related provisions. I will take Members through some of the key points.

Government new Clause 13 and Government Amendment No. 301 respond to concerns raised by James Brokenshire in Committee about the admissibility of votes. Clause 294 is replaced with a new clause to preserve the right of a company to require objections to votes to be made in accordance with procedures in the articles. We took the point that the old clause was too ambitious so we are just preserving the current law. If an objection is overruled, the decision will be final, except in the case of fraud and certain other kinds of misconduct detailed in case law, where a court may intervene.

New clause 14 is intended to ensure clarity and consistency in the calculation of time periods in relation to meetings and resolutions. That was also an issue raised by the hon. Gentleman in Committee. His point related to whether, in calculating periods of notice, the date of the notice and the date of the meeting are supposed to be excluded.

Government amendment No. 643 to clause 288 and Government amendments Nos. 644 to 650 ensure that when a resolution is required, but the type of resolution is not specified, the default will be an ordinary resolution unless the articles require a higher Majority. When a provision specifies that an ordinary resolution is required, the articles will not be able to specify a higher majority. That will be the case when, for example, we do not want the will of a simple majority to be frustrated by a blocking minority.

As the Minister implied, we are considering something of a hotch-potch of new provisions to finish off the day. Just in case we end up with a problem with time, I shall start by speaking to Amendment No. 355, which we believe to be the most important element of the group.

Amendment No. 355 originated from the Law Society. It would enable a company to make provision in its articles on the passing of unanimous written resolutions that were not subject to the procedures laid down in chapter 2 of part 14. The provisions in chapter 2 are less flexible than those in section 381C of the Companies Act 1985, which permits a company's articles to make provision for written resolutions to be passed pursuant to the articles as an alternative to following the statutory procedure. The amendment would preserve that flexibility when the written resolution is agreed unanimously by members. That reflects a principle of common law, as expounded in the case of re Duomatic, 1969, which hon. Members will remember was mentioned in Committee.

Such flexibility was incorporated in Clause D18 in the white paper of March 2005. Subsection (2) provided:

"This section does not affect any power of a company to make provision in its articles for its members to pass resolutions without a meeting other than in accordance with this Chapter."

We think that the flexibility needs to be retained, but only for written resolutions that are passed unanimously. We do not consider that clause 288(3) achieves that flexibility.

Such flexibility is needed for not only private companies, but public companies that cannot avail themselves of the statutory written resolution procedure that exists in the Bill. It is not uncommon for newly incorporated public companies to pass written resolutions pursuant to a provision of their articles, and if that ceased to be possible it would create extra work and cost.

Two examples come to mind in relation to the provision. First, following the formation of a public company, it is common to adopt new articles. That can be done by a written resolution pursuant to regulation 53 of table A when that is incorporated in the articles of a company on its formation. Secondly, when a public company is a wholly owned subsidiary of another company, it is common to pass written resolutions in accordance with the outcomes. However, the Bill does not allow that practice to continue. The consequence will be that a resolution of a public company will require a meeting of members in all circumstances. That would involve additional expense, but it would give no benefit in the circumstances that I have mentioned.

We welcome Government amendment No. 301 and new clause 13. We tabled amendments to clause 294 in Committee and my hon. Friend James Brokenshire expressed his justifiable concerns about the effect of the clause as drafted. It allowed that if a person was not entitled to vote, but did so, and if the articles of association of that company provided a mechanism for objecting to an improper vote, and if an objection was made and rejected, or if no objection was made in the relevant time period, the unauthorised voter would be deemed to have been entitled to vote. My hon. Friend stated that that would unfairly prejudice shareholders who could not challenge a decision that was irrational, unreasonable or even unlawful. The Government amendments return us to the existing common-law position. If the result of a poll is declared, a court should now be able to question it, rather than having no power to change it. That is sensible and to be welcomed.

New clause 14 is the Government's welcome response to amendments that we tabled in Committee. Currently, companies insert into their articles a provision that when giving a notice period for meetings, no account will be taken of the day of sending of the notice, or the following day, or the date of the meeting itself. However, that can be drafted as two extra days or three extra days, which can cause confusion. In the worst instances, circulars have been sent out illegally to members, causing great embarrassment to all concerned. The point might be slightly technical and one that only practitioners and company secretaries will be happy to see made, but we thank the Government for reconsidering that grey area, which we highlighted, tabling new clause 14 and thus providing clarity to all concerned.

In amendment No. 682, Jim Cousins suggests that directors should be ineligible to cast proxy votes. I would look forward to hearing his reasons were he here to state them, but he is not. However, most proxy forms give power of proxy to the chairman or such other person as the shareholder nominates. No one is forcing shareholders to support the chairman in order to cast their vote; it is simply convenient for many shareholders. For that reason, we cannot support the amendment. The amendment stands in the name of Mr. Mitchell as well, so perhaps he will speak to it in due course.

Amendments Nos. 348 and 349 would reserve the original position in the Bill, such that an AGM of a public company will be capable of being called on short notice where all shareholders consent. That will make public company AGMs—mainly where there is a handful of shareholders—provide the formality that shareholders normally require. It is a deregulatory measure and, as such, we support it.

The purpose of amendment No. 418 is to clarify how a company should notify its members of the publication on a website of the notice of the meeting. Clause 316 makes provision in that respect, and subsection (2) states that the company has a duty to notify its members of the existence of the notice on its website, but it is not made clear how such notification is to be given. We agree with the Law Society that it is important that companies notify their members directly when they have published a notice. How that should be effected requires clarification. We would be concerned if it was sufficient merely to put the notice of the meeting on the website.

Amendment No. 419 is a probing amendment that we received from the Investment Management Association. In a previous debate, it was said that now is not the time to be proposing probing amendments, but I am sure that the Minister will forgive us on this occasion, given the nature of the Bill and the way in which everything seems to be crammed in at the last minute.

Under regulation 46 of table A to the Companies (Tables A to F) Regulations 1985, a resolution voted on at a company meeting is decided on a show of hands—one vote per member for each shareholder actually present or represented in the case or a corporate shareholder, but not proxies unless the articles so provide—unless a poll is called. Common law clarified the chairman's duty to

"ascertain the true sense of the meeting".

If the chairman as proxy is aware that if a poll was called the outcome would be different from that reached on a show of hands, he has a duty to demand a poll, if he is able to do so under the company's articles of association. Guidance from the Institute of Chartered Secretaries and Administrators re-emphasises that duty.

We were therefore concerned to learn that at the AGM in July of GoshawK Insurance Holdings, the reinsurer, an advisory resolution on the remuneration of the chairman was decided on a show of hands when a poll would have defeated it. We understand that GoshawK's lawyers had advised that, because votes on remuneration are advisory and not binding on the company—that is certainly the case in relation to the combined code—the chairman was not obliged to call a poll. It is considered important by the Investment Management Association that the law in this area is clarified, and the Bill is an opportunity to do that. It would be helpful if the Minister set out the Government's position in that regard.

Amendment No. 420 deals with the related issue of votes at general meetings. On the question whether a chairman should be forced to call a poll, transparency would be a key issue. To that end, the amendment suggests that the chairman announce the number of proxy votes before the resolution is put, rather than after the resolution is put, as is usually the case with listed companies. In that way, members will know to call a poll in the usual way. Such transparency would make the IMA amendment unnecessary. The provision may be more suited to the compliant code for listed companies, but I shall be interested to hear the Minister's views and whether she will look into the matter in more detail.

Finally, on amendment No. 421, which would remove clauses 349 to 352, the CBI's updated view is rather blunt. It believes that the provisions dealing with independent reports on a poll are

"excessive and unnecessary and will place increased burdens and costs on companies" and that they are

"contrary to the Government's aim for deregulation and the principles of better regulation."

We debated the matter in Committee and it has been debated in Another place. The Government have still not got the position right.

The debate relates to clauses 349 and 350, which provide a mechanism for shareholders representing not less than 5 per cent. of the voting capital of a quoted company to demand an independent report on any poll taken or to be taken at a general meeting of the company. The request must be made no later than within one week of the poll being taken, and the directors must appoint an independent assessor within one week of the requirement to prepare a report for the company on the poll or polls.

The Institute of Directors said of the arrangements:

"These provisions are onerous and unnecessary. The Government has provided no evidence of any abuse it is trying to redress. They will place increased costs and burdens on companies for no discernable gain. In addition, in spite of the statement that an adverse report on a poll will not affect the validity of a decision, it is likely that companies would delay the implementation of the decision until the time for a challenge has expired. In the case of decisions taken at EGMs this could have a seriously detrimental effect on companies' ability to complete major transactions and would undermine the competitiveness of UK companies.

The procedure of calling for an independent report would be open to serious abuse from those who were opposed to a transaction, but knew that they would be defeated on a poll. They would hope to achieve their desired aim by the back door rather than through the legitimate democratic process of the poll."

That was a quote from the IOD, and earlier I quoted the CBI, so there we have the views of a section of the business community. The provisions highlight some of the strong feelings that exist, and we believe that the Government could address those concerns in a more significant way than they have done to date.

One of the points that has been raised is the impact of the delay. It has been pointed out to us that companies may seek to wait a week before implementing a change, for fear that a demand for some sort of report may be required. If that were the case, it would impose a considerable cost and burden on companies. In that regard, we could have a situation where companies are making a share offering and the longer that the share offering waits to be completed, the more the company may be required to pay in subscription costs or placement charges to agents or underwriters. That could increase the costs associated with companies' placement of new shares, which is not desirable.

Even if we do not take that point of view, there is another issue. What will be the sanction if a report is received that is unfavourable and says that something has not been done appropriately? As we have already discussed, the chairman's ruling in relation to a particular matter is fairly conclusive, in much the same way as Mr. Speaker's decision is conclusive. If a report is called for, there may be some further delay to enable it to be undertaken. If a report is called for after the general meeting has taken place, it may be difficult for the expert who has been appointed to provide the report to assess it and conclude whether matters were conducted appropriately.

I have mentioned several issues in relation to these provisions and I would be grateful if the Minister addressed them.

I was interested in the speech of Mr. Djanogly because it is fairly typical of the Opposition's approach throughout the Bill, which is to trot behind the Government, nagging and niggling, trying to turn themselves into the political arm of the Law Society—which is a powerful position—but not answering the crucial question, which is: do the Opposition feel so strongly that they will push any of the matters to a vote? That is what everybody has been waiting to hear and what the hon. Gentleman failed to tell us. We will not have such a clear answer from the Liberals, because they will be saying that they will vote for it and against it, in their usual way.

As the only author of an Amendment that is at all controversial in this group of amendments, amendment No. 682, I felt that I should reply to some of the aspersions that the hon. Gentleman cast on it to give some substance to his speech. This is an issue of shareholder democracy. There are three ways of managing and regulating corporations and bringing them under some degree of accountability so that they fulfil the corporate purposes that we would like. One is openness in reporting, which we have argued for in previous amendments. The second is effective regulation of the kind that the Securities and Exchange Commission offers in the United States, and which we should offer here, and for which I will continue, as will my hon. Friend Jim Cousins, to push. The third is shareholder democracy.

The main weakness of shareholder democracy, which we all want to encourage, is essentially that it is vetoed by the enormous power of the directors in casting proxy votes, because that puts the directors in a position of intolerable power. It is a steamroller driving over and crushing shareholder democracy. The enormous power of the proxy is used to suppress discontent; to force through higher rewards for the people at the top of the company—the increasing shower of money that is falling on them; and to prevent the shareholders asserting any power in the company, where, even when things are going wrong, it is very difficult for the shareholders to do anything about it.

Why should we accept the fact that directors should have the power of the proxy, which they can mobilise, when it is difficult for shareholders to mobilise against them? Why not simply do as our amendment says, and that is proscribe the power of holding proxy votes that is held by the directors at present? Stop them using proxy votes. Give the shareholders a real voice; a real alternative. That is the purpose of the amendment.

Amendment No. 355 raises a difficult point that we have considered in correspondence with the Law Society, as hon. Members know. The procedure for written resolutions in the Bill is very different from that of the 1985 Act. Unanimity is no longer required. This is a very significant measure of deregulation. However, because unanimity is not required, certain procedural safeguards are not needed in the context of unanimous procedures. The argument behind the amendment is that companies with written resolution procedures in their articles, whether public or private, should be able to evade those procedural requirements, if the articles require unanimity.

That is superficially attractive, but we believe that it is wrong in principle. First, for a number of resolutions in the Bill, there is a particular procedure to be followed, and we do not want those procedures to be avoided because of provisions that companies may have in their articles. Secondly, for public companies certain decisions need to be taken in a meeting rather than by written resolution, because of the second company law directive. In essence, the amendment is about avoiding statutory procedural requirements, but we do not think that the procedural requirements imposed by the written resolution clauses are onerous. There is nothing in the Bill that stops non-statutory resolutions from being passed in whatever way the articles envisage. If the articles require members' agreement, there is no need to comply with the statutory procedures.

My hon. Friend the Member for Great Grimsby has discussed amendment No. 682. I hope that he has picked up that the Bill includes a range of clauses to strengthen shareholder engagement. Indeed, I expect that we will debate institutional shareholder voting tomorrow. However, amendment No. 682 is not right, because it would prevent a director from acting as a proxy. In an ideal world, we might wish that all shareholders would attend general meetings, but that will not always happen. If shareholders want to appoint somebody in their stead, be it a director to act as a proxy or be it somebody else, they should be free to appoint somebody to represent them and to vote on their behalf. It is better for them to have a say in a particular thing rather than not including that power in the Bill. My hon. Friend's amendment would make it more difficult for members to exercise their votes.

Would it not be extremely damaging if that Amendment were to get through? It would mean that even if people are perfectly happy with how a company is being run, a very small number of people who decide arbitrarily to turn up at a meeting might make decisions, which would be very serious for other members of the company, who would not have the means to ensure that their voice was heard.

I do not take that point, because any system would try to ensure that every shareholder has the right to engage in deliberations around resolutions that a company might take. Indirect shareholders, who may hold shares through pension funds or mechanisms such as personal equity plans, should have those rights, which is a point addressed elsewhere in the Bill. The extent to which their views will influence the ultimate decision of the company depends on the extent of their shareholding. We want to extend shareholder engagement, and it is important to do so through indirect shareholder engagement, particularly because more than half of shares are held indirectly.

James Brokenshire first raised Amendment No. 418 in Committee, and it would remove an element of flexibility for no good reason. We discussed whether notice could be given by phone rather than in writing, although I accept the point made by Conservative Members that notice needs to be provided to members of a resolution being tabled or of a meeting being held. We have taken that point, but the issue is flexibility.

I thank the Minister for taking the point, but how does she intend to deal with it?

As we have in the Bill, not as phrased in the Amendment.

Amendments Nos. 419, 420 and 421 would put us in an odd position. Amendments Nos. 419 and 420 suggest that we are against regulation and legislation while the Conservatives are for it, whereas amendment No. 421 suggests that we are for it and they are against it. That shows the oddity of political decision making. We do not think it necessary to legislate in the way that the hon. Gentleman suggests. However, I am happy to ensure that his views about the combined code on corporate governance go to the Financial Reporting Council, which is responsible for ensuring that the code is in place.

Amendment No. 421 is the Opposition's fifth attempt to remove the provisions giving members the power to require an independent report on a poll. Let me address the key objections that Conservative Members have expressed before. I hope that they will, at this eleventh hour, accept what I say, which is still valid. First, they express concern about the impact of a delay between the meeting and the completion of the independent report on the poll. In my view, that is overstated. The report is not intended to delay company action arising from the meeting. It cannot in itself undo resolutions passed or rejected at a meeting—its purpose is to satisfy shareholders about the accuracy and integrity of the polling process.

Secondly, Conservative Members question the sanction that the company could suffer if the report is unfavourable. The provisions are intended to deliver the greater transparency that my hon. Friend the Member for Great Grimsby seeks and to enhance shareholder engagement. The facility to challenge and to have an independent report provides a vehicle for openness. It allows shareholders to expose any problem in the company's voting processes. It is not entirely fail-safe, but this level of accountability to shareholders should ensure proper practice in the exercise of polls.

Thirdly, Conservative Members raise the regulatory and cost burdens. The provisions are entirely consistent with our deregulation and better regulation agenda. They empower shareholders with an additional tool by which to hold directors to account. The provisions apply only to quoted companies—around 1,300 or 1,400 in all. Shareholders of companies with good, transparent voting processes in place are less likely to ask for independent reports.

Has the Minister had any indication that these provisions will be used? Has anyone requested them?

If they are not used, the objection to them will never become reality, but they remain a tool that could be used. The hon. Gentleman should accept the existence of this mechanism, which will ensure that the conduct of directors in pursuing issues is above board and in order. If it is not, shareholders can employ the mechanism, should they so desire, to ensure that they are properly dealt with. We have put this measure in place to ensure much better shareholder engagement in the processes of a company undertaking its business. I am rather surprised that Conservative Members feel that they have to come back to this time and again and at the final hurdle say, "Actually, we do not think this provision is going to be used at all, so why are you putting it into the Bill?" That is a rather weak argument against a measure that will ensure that shareholders have the rights that we wish them to have in engaging in a proper way. If those rights are ever challenged, they can take advantage of the provisions in this part of the Bill. I ask hon. Members to reject Amendment No. 421.

The Government new clauses and amendments would deliver greater transparency, enhance shareholder engagement and ensure the realisation of the corporate governance objectives that we all support. If we want to encourage more shareholders to exercise their vote, we need to empower them with the necessary tools so that their vote counts.

I therefore urge hon. Members to accept the Government new clauses and amendments and reject the others.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

It being Seven o'clock, Mr. Speaker, put forthwith the Questions necessary for the disposal of business to be concluded at that hour, pursuant to Order [17 October].

Question, That new clause 14 be brought up, read the First and Second time, and added to the Bill, and that Government amendments Nos. 643 and 301 be made, put and agreed to.

Amendment proposed: No. 355, in clause 307, page 142, line 23 , at end insert—

'( ) Nothing in this Chapter affects a provision of a company's articles which provides for a resolution in writing executed by or on behalf of each member who would have been entitled to vote upon it if it had been proposed at a general meeting, or at a meeting of any class of members of the company, at which he was present (whether such resolution consists of one instrument executed by or on behalf of each such member or of several instruments in the like form each executed by or on behalf of one or more such members) to be as effectual as if it had been passed at a general meeting, or at a meeting of any class of members of the company, duly convened and held. A resolution in writing passed in accordance with such a provision of the company's articles shall be treated as if it were a "written resolution" for the purposes of this Chapter.'.— [Mr. Djanogly.]

Question put, That the amendment be made:—

The House divided: Ayes 203, Noes 288.

Question accordingly negatived.

Question, That Government amendments Nos. 443, 302, 348, 349, 444 to 446, 350 and 269 be made, put and agreed to.

Bill, as amended in the Standing Committee, to be further considered tomorrow.

Will hon. Members please leave the Chamber quietly?