Company Law Reform Bill [HL]

– in the House of Lords at 5:43 pm on 16 May 2006.

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Further consideration of amendments on Report resumed.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary, Department of Trade and Industry, Parliamentary Under-Secretary (Trade and Industry) (Science and Innovation) 5:47, 16 May 2006

moved Amendment No. 443:

After Clause 623, insert the following new clause—

"PART 21 A COMPANY'S ANNUAL RETURN

DUTY TO DELIVER ANNUAL RETURNS

(1) Every company must deliver to the registrar successive annual returns each of which is made up to a date not later than the date that is from time to time the company's return date.

(2) The company's return date is—

(a) the anniversary of the company's incorporation, or

(b) if the company's last return delivered in accordance with this Part was made up to a different date, the anniversary of that date.

(3) Each return must—

(a) contain the information required by or under the following provisions of this Part, and

(b) be delivered to the registrar within 28 days after the date to which it is made up."

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary, Department of Trade and Industry, Parliamentary Under-Secretary (Trade and Industry) (Science and Innovation)

My Lords, in moving Amendment No. 443, I shall speak also to Amendments Nos. 444 to 448, 495 and 497.

The proposed new clauses in Amendments Nos. 443 to 448 replace the provisions in the 1985 Act which deal with the annual returns companies must make to the Registrar of Companies. The clauses retain the existing requirement for a company to file every year a return that, in effect, updates key information required for the public record. It is a relatively simple and effective way of ensuring that the public record is kept up-to-date. To minimise the burden on companies, Companies House provides most companies with a provisional return which already includes much of the current information held by the registrar and which is required to be included in the annual return. This helps the company concerned because it simply needs to check and amend its information, either on a computer screen or by marking up changes on a paper form. The majority of companies now perform this task on line.

The clauses do not change the existing requirements as to what information is required, and they retain the power for regulations to change these requirements. However, this power differs from the existing power in that it specifically provides for regulations to make exceptions from the general requirements.

At present, the annual returns of companies with shareholders are required to provide the names and addresses of all who hold shares in the company or did so during the year covered by the return, together with details of their holdings. When in future, as the Bill provides, companies will be able to apply to the courts to be relieved from the obligation to provide a copy of their register of members if it is not sought for a proper purpose, I fear it is inevitable that those who want members' addresses for other purposes will look elsewhere and probably seek to get them from Companies House instead. We intend to use the power taken in Amendment No. 446 to prevent that.

Subject to consultation, we propose that for private companies with a share capital, the prescribed details to be included in the annual return should exclude addresses of members. That information will still be available from the company, but only if it is sought for a proper purpose. For public companies, we propose that there be an exemption from the requirement for all members' details to be included in the annual return if the prescribed information is provided for those who have held a significant holding during the year in question. Our consultation will also seek views on what the prescribed information should be.

Amendments Nos. 495 and 497 are consequential to Amendments No. 443 to 448 and ensure the cross references are correct. I beg to move.

On Question, amendment agreed to.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary, Department of Trade and Industry, Parliamentary Under-Secretary (Trade and Industry) (Science and Innovation)

moved Amendments Nos. 444 to 448:

After Clause 623, insert the following new clause—

"CONTENTS OF ANNUAL RETURN: GENERAL

(1) Every annual return must state the date to which it is made up and contain the following information—

(a) the address of the company's registered office;

(b) the type of company it is and its principal business activities;

(c) the prescribed particulars of—

(i) the directors of the company, and

(ii) in the case of a public company, the secretary or joint secretaries;

(d) if the register of members is not kept available for inspection at the company's registered office, the address of the place where it is kept available for inspection;

(e) if any register of debenture holders (or a duplicate of any such register or a part of it) is not kept available for inspection at the company's registered office, the address of the place where it is kept available for inspection.

(2) The information as to the company's type must be given by reference to the classification scheme prescribed for the purposes of this section.

(3) The information as to the company's principal business activities may be given by reference to one or more categories of any prescribed system of classifying business activities."

After Clause 623, insert the following new clause—

"CONTENTS OF ANNUAL RETURN: INFORMATION ABOUT SHARE CAPITAL AND SHAREHOLDERS

(1) The annual return of a company having a share capital must also contain—

(a) a statement of capital, and

(b) the particulars required by subsections (3) to (6) about the members of the company.

(2) The statement of capital must state with respect to the company's share capital at the date to which the return is made up—

(a) the total number of shares of the company,

(b) the aggregate nominal value of those shares,

(c) for each class of shares—

(i) prescribed particulars of the rights attached to the shares,

(ii) the total number of shares of that class, and

(iii) the aggregate nominal value of shares of that class, and

(d) the amount paid up and the amount (if any) unpaid on each share (whether on account of the nominal value of the share or by way of premium).

(3) The return must contain the prescribed particulars of every person who—

(a) is a member of the company on the date to which the return is made up, or

(b) has ceased to be a member of the company since the date to which the last return was made up (or, in the case of the first return, since the incorporation of the company).

The return must conform to such requirements as may be prescribed for the purpose of enabling the entries relating to any given person to be easily found.

(4) The return must also state—

(a) the number of shares of each class held by each member of the company at the date to which the return is made up,

(b) the number of shares of each class transferred—

(i) since the date to which the last return was made up, or

(ii) in the case of the first return, since the incorporation of the company, by each member or person who has ceased to be a member, and

(c) the dates of registration of the transfers.

(5) If either of the two immediately preceding returns has given the full particulars required by subsections (3) and (4), the return need only give such particulars as relate—

(a) to persons ceasing to be or becoming members since the date of the last return, and

(b) to shares transferred since that date.

(6) Where the company has converted any of its shares into stock, the return must give the corresponding information in relation to that stock, stating the amount of stock instead of the number or nominal value of shares."

After Clause 623, insert the following new clause—

"CONTENTS OF ANNUAL RETURN: POWER TO MAKE FURTHER PROVISION BY REGULATIONS

(1) The Secretary of State may by regulations make further provision as to the information to be given in a company's annual return.

(2) The regulations may—

(a) amend or repeal the provisions of sections (Contents of annual return: general) and (Contents of annual return: information about share capital and shareholders), and

(b) provide for exceptions from the requirements of those sections as they have effect from time to time.

(3) Regulations under this section are subject to negative resolution procedure."

After Clause 623, insert the following new clause—

"FAILURE TO DELIVER ANNUAL RETURN

(1) If a company fails to deliver an annual return before the end of the period of 28 days after a return date, an offence is committed by—

(a) the company,

(b) subject to subsection (4)—

(i) every director of the company, and

(ii) in the case of a public company, every secretary of the company, and

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

(2) A person guilty of an offence under subsection (1) is liable on summary conviction to a fine not exceeding level 5 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 5 on the standard scale.

(3) The contravention continues until such time as an annual return made up to that return date is delivered by the company to the registrar.

(4) It is a defence for a director or secretary charged with an offence under subsection (1)(b) to prove that he took all reasonable steps to avoid the commission or continuation of the offence.

(5) In the case of continued contravention, an offence is also committed by every officer of the company who did not commit an offence under subsection (1) in relation to the initial contravention but is in default in relation to the continued contravention.

A person guilty of an offence under this subsection is liable on summary conviction to a fine not exceeding one-tenth of level 5 on the standard scale for each day on which the contravention continues and he is in default.

(6) References in this section to delivery of a return to the registrar are to the delivery of a return in relation to which all the requirements mentioned in section 693(1) (requirements for proper delivery) are complied with."

After Clause 623, insert the following new clause—

"APPLICATION OF PROVISIONS TO SHADOW DIRECTORS

For the purposes of this Part a shadow director is treated as a director."

On Question, amendments agreed to.

Clause 625 [Rules]:

Photo of Lord Goldsmith Lord Goldsmith Attorney General, Law Officers' Department, Attorney General (Law Officers)

moved Amendment No. 449:

Page 304, line 35, leave out from beginning to "had" in line 38 and insert "in the City Code on Takeovers and Mergers as it"

Photo of Lord Goldsmith Lord Goldsmith Attorney General, Law Officers' Department, Attorney General (Law Officers)

My Lords, I shall also speak to Amendments Nos. 462 and 463. The noble Lord, Lord Hodgson, will recognise the substance of Amendment No. 449. It follows an amendment he proposed in Committee to delete the reference to the rules governing substantial acquisitions of shares, the SARs, from the description of the proposed rule-making power to be provided to the Takeover Panel by Clause 625. We could not accept the amendment at that time, not because of any substantive difference of opinion between us but because the Takeover Panel was still in the process of considering the responses received to its own consultation on the relevance of the SARs. The panel announced the outcome of its deliberations on 21 April and the SARs will go from 20 May, so the reference to them in Clause 625 becomes redundant.

There is still latitude within Clause 625 to enable the panel, should they so choose in the future, to make rules having statutory effect about the sort of matters that were subject to the SARs. I draw attention to that because Clause 625(2)(c) enables the panel to make rules about cases where a takeover bid or other similar transaction is or has been contemplated or apprehended, but that is for the future.

So far as Amendments Nos. 462 and 463 in this group are concerned, they are simply minor tidying-up exercises as a result of changes we agreed in Committee. I beg to move.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Shadow Minister, Home Affairs, Shadow Minister, Trade & Industry

My Lords, we are very grateful to the noble and learned Lord for making this change. A number of practitioners were saying what a shame it was that we were beginning with a Bill that was already slightly out of date. It is therefore good news that we can remove that particular line.

On Question, amendment agreed to.

Clause 630 [Restrictions on disclosure]:

[Amendment No. 450 not moved.]

Photo of Baroness Noakes Baroness Noakes Shadow Minister, Treasury, Shadow Minister, Work & Pensions

moved Amendment No. 451:

Page 307, line 13, at end insert "has been authorised by the Panel and"

On Question, amendment agreed to.

[Amendments Nos. 452 to 456 not moved.]

[Amendment No. 457 had been withdrawn from the Marshalled List.]

[Amendment No. 457A not moved.]

Schedule 2 [Specified persons, descriptions of disclosures etc for the purposes of section 630]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary, Department of Trade and Industry, Parliamentary Under-Secretary (Trade and Industry) (Science and Innovation)

moved Amendment No. 458:

Page 438, line 32, leave out "Commissioners to exercise their" and insert "Commission to exercise its"

On Question, amendment agreed to.

Photo of Lord Goldsmith Lord Goldsmith Attorney General, Law Officers' Department, Attorney General (Law Officers)

moved Amendment No. 459:

Page 439, line 35, leave out "1995 (S.I. 1995/3272)" and insert "2001 (S.I. 2001/3755)"

Photo of Lord Goldsmith Lord Goldsmith Attorney General, Law Officers' Department, Attorney General (Law Officers)

My Lords, this is a minor technical amendment to the disclosure gateways list that applies to information held by the Takeover Panel. The present reference to the gateway with regard to enabling or assisting a person approved under the Uncertificated Securities Regulations 1995 is updated. Those regulations make a provision regarding the transfer of securities in accordance with a computer-based system. All procedures have now been repealed and replaced by a 2001 instrument. I beg to move.

On Question, amendment agreed to.

[Amendments Nos. 460 and 461 not moved.]

Clause 633 [Hearings and appeals]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary, Department of Trade and Industry, Parliamentary Under-Secretary (Trade and Industry) (Science and Innovation)

moved Amendments Nos. 462 and 463:

Page 309, line 18, leave out "625(4)" and insert "625(5)"

Page 309, line 21, leave out "625(4)" and insert "625(5)"

On Question, amendments agreed to.

Clause 634 [Sanctions]:

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Shadow Minister, Home Affairs, Shadow Minister, Trade & Industry

moved Amendment No. 464:

Page 309, line 28, at end insert ", or

( ) failed to comply with rules about documentation by virtue of section 635"

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Shadow Minister, Home Affairs, Shadow Minister, Trade & Industry

My Lords, I rise to move Amendment No. 464 and speak to Amendments Nos. 465, 468, 471, 472, 473 and 475, which concern Clauses 634 and 635. I must apologise to the House, as Amendment No. 469 somehow got tabled in error. I do not think it should be in this group at all, and we will not be seeking to move it.

This takes us to a proposal that we believe still looks suspiciously like gold-plating of the EU takeovers directive. We have just discussed this in Grand Committee, and the noble and learned Lord the Attorney-General said:

"The starting point is Article 17 of the takeovers directive, which requires member states to put in place sanctions which are 'effective, proportionate and dissuasive'. That is to ensure the rules of the directive are complied with".—[Official Report, 28/3/06; col. GC 304.]

The directive therefore requires that a failure to comply with the rules about bid documentation must be subject to sanctions of the kind that satisfy Article 17. The Government have so far taken the approach that only a criminal offence will do, stating that they do not believe the panel will otherwise have sufficient power to take effective action, in directive terms, against any such failure.

The sanctions attributed to the panel, which the Government believe are insufficient for this purpose, are these: public and private censure or reporting of conduct to another regulatory body, as well as action to issue directions to those responsible to put the matter right. This list has overlooked a further power the panel has under the Bill that I believe would adequately satisfy the requirements of Article 17: the power to order a person to pay compensation under Clause 636. In conjunction with the sanctions I have just listed, that seems to be ample penalty to provide an adequate deterrent as required by Article 17 of the directive.

There is another reason why we on these Benches say this is not an appropriate area for a criminal offence. The proposed offence would be for failing to comply with offer document rules. Those rules are made by the Takeover Panel itself. As we discussed at length in Grand Committee, the panel is now to become a statutory body, with all the associated powers that come with that status. However, it will retain much of its independence. We will have a situation where an independent body, subject to very little formal parliamentary scrutiny, will be able, by altering its rules, to create new forms of criminal offences. We wonder whether that is a desirable outcome.

For those noble Lords who were not present in Grand Committee, I am not arguing for greater control of the panel. As I said then, the panel has been a great success, and we do not wish to clip its wings with unnecessary bureaucracy. We would therefore argue strongly against limiting the independence of the panel simply to permit a criminal offence for failure to meet the rules about bid documentation in order to comply—or, in our view, to over-comply—with the EU takeovers directive. Surely, the simpler and correct approach is to allow the panel to deal with such a breach by means of the sanctions under the Bill, which more than adequately meet the requirements of Article 17.

Since Grand Committee, we have carried out a little research into how other European states have implemented the directive. Our advisers tell us that in Ireland, for example, where they already have a statutory framework, when rules on offer document contents are breached it appears to be a civil liability. We are told that the same is true in Germany. If these states, which are subject to the same directive as this country, do not see the need to implement this as a criminal offence, there is no reason why the Government should feel so compelled. Therefore, in light of this new information, I beg to move Amendment No. 464, which I hope the Government will feel able to accept.

Photo of Lord Patten Lord Patten Conservative 6:00, 16 May 2006

My Lords, one should be properly cautious when rising from one's place to intervene if one has not been present at a Grand Committee, where complex issues such as this one were discussed fully. However, I have spoken in other parts of your Lordships' proceedings, and while I plead guilty to not having been present in Grand Committee when this issue was debated, I rise in strong support of what my noble friend Lord Hodgson of Astley Abbotts has just said. Governments of both political colours—not only the present Government, but earlier Conservative Administrations—have been accused, sometimes rightly, of going too far down the road of fulfilling what they see as the outcomes desired by an EU directive, or—to use the excellent phrase of my noble friend—of gold-plating.

That is not desirable in this case. We now have far too many new potential criminal offences being introduced, hand over hand, in this country. I do not speak of the 43 criminal justice Acts we have seen in the last nine years. One should proceed very cautiously before bringing into law new potential criminal offences which may never be used, may frighten practitioners, and may lie unnoticed on the statute book. That is not good legislation. My noble friend has put his finger on it: we should leave it to the panel. If other European jurisdictions can manage perfectly well without going this far, why on earth should this Administration go to the lengths of gratuitously introducing new and unnecessary criminal offences?

Photo of Lord Goldsmith Lord Goldsmith Attorney General, Law Officers' Department, Attorney General (Law Officers)

My Lords, in introducing his amendment, the noble Lord, Lord Hodgson of Astley Abbotts, rightly identified the starting point in Grand Committee. The Government believe that the requirements of Article 17 of the takeovers directive will not be satisfied simply by relying on the sanctions which the panel has at its disposal and is likely to be prepared to use. The noble Lord referred to what is happening in Ireland and Germany. I do not have details of that, so I cannot respond specifically to what he says. I certainly do not have details of, for example, the sanctions available to the pertinent bodies, or their practice in using them. There may be differences in practice that justify taking a different approach to the necessity of having a criminal offence.

I shall briefly summarise the points I made in Grand Committee and then pick up those raised by the noble Lords, Lord Hodgson and Lord Patten. There has been detailed discussion of, and consultation on, this matter. It is not intended to prevent the panel exercising its own powers, but—this is an important point, dealing with the issue of compensation, raised by the noble Lord—my understanding is that the panel does not want to police breaches after the event. The panel operates, during the course of a bid, by calling somebody in, requiring them to change the terms of their document so as to comply with the rules, and so forth. That is why, in particular, the power to order compensation does not appear to be an adequate sanction. I can also envisage circumstances in which the power to order compensation would not, in itself, be adequate because it would be difficult to identify just what the compensation ought to be. Certainly, given the time involved, the panel would not want to police breaches after the event in this way.

The second concern raised by the noble Lord was the possibility that the panel might, by changing the contents of the rules, enlarge the effect of a criminal offence. That theory is wrong because the offence relates to failures—I shall return to the terms of those failures—to comply with the rules about bid documentation. It identifies the relevant rules in Clause 635 by reference to the directive itself. "Offer document" means rules designated, or rules that give effect to Article 6.3 of the directive. "Response document" means a document required to be published by rules giving effect to Article 9.5 of that directive. The relevant documents, which are the subject matter on which a criminal offence can be founded, must meet the requirements of Articles 6 and 9 of the directive. No doubt, because these are directives, there is some scope for the precise content, but they still have to meet the requirements of Articles 6 and 9. They are limited by the boundaries of Articles 6 and 9, so it is not possible simply to extend them in that way.

A further point I want to emphasise is that we have looked carefully at whether the scope and clarity of the offence is sufficient. When I come to government amendments relating to this clause, we want to refine those in light of comments made in Grand Committee. When that is done we should see two things. The first is an offence that is clearly defined. The second is a light-touch approach to a criminal offence. I say this because we have not focused on it before: breach of the only rule giving rise to an offence arises, as subsection (3) says, only where the person knows that the offer document did not comply or was reckless about compliance.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Shadow Minister, Home Affairs, Shadow Minister, Trade & Industry

My Lords, could the noble and learned Lord foreshadow—without firing his ammunition in respect of these later amendments—which amendments he is referring to when he speaks of refining the offence under this clause?

Photo of Lord Goldsmith Lord Goldsmith Attorney General, Law Officers' Department, Attorney General (Law Officers)

My Lords, we have discussed the persons subject to the offence, and we will come back in the amendments to the position of those who are directors of corporate bodies standing behind a bid. We debated this in Grand Committee. I emphasise that we have looked at that. I hope noble Lords will recognise that in this area, as in others, we have listened very carefully to what has been said by Members opposite, those on the Liberal Democrat Benches, and others who have participated. Where we have seen that there is a point, we have responded to it. We responded very substantially earlier today to the amendments I have been dealing with concerning auditors' liability and directors' duties. We have looked at this and seen that there is a need to make some refinements to those who are subject to it. As the Government responsible for implementing the directive, we take the view that unless we have an offence—albeit a light-touch offence—we will not be meeting the terms of the directive.

There are good reasons why the panel's powers would not be adequate if it was not prepared to exercise those powers after the event. That area needs to be met. Where the Government have taken the view that they need to do something to meet their international obligations, the House should be very slow indeed not to accept that, particularly given that, at the end of the day, the only person at risk would be somebody who knew that an offer document did not comply and was reckless as to whether it complied, but went ahead with it anyway.

The noble Lord, Lord Patten, was concerned that this might frighten practitioners. Someone who knows that he is putting forward a document that is non-compliant or is reckless about doing so should, in a sense, be frightened. He ought to be doing it right. I am sure that those participating in this debate have been personally involved in offer documentation, as I have, and know the huge amount of attention that all practitioners pay to what is going on. Only someone who is really reckless or intent on breaking the rules will find themselves in breach of this provision.

Photo of Lord Patten Lord Patten Conservative

My Lords, the noble and learned Lord the Attorney-General is quite right that people—practitioners, or whoever they are—should be fearful of the criminal law when it has been passed into statute. However, I genuinely seek education from him. I am self-evidently not a lawyer, but I know that words spoken by Ministers and reported in Hansard—particularly those spoken by noble and learned Lords such as the Attorney-General—can be carefully studied in future years. I have never heard the term "light-touch offence" before. I thought an offence was an offence was an offence. What does "light touch" mean in this context?

Photo of Lord Goldsmith Lord Goldsmith Attorney General, Law Officers' Department, Attorney General (Law Officers)

My Lords, I am happy to respond to that invitation. I meant that we could have said, "We need a criminal offence, so we will make it one that is committed not only where someone acts in a sharp, deliberate way to break the rules, or is reckless, but if someone breaks the rules through negligence". Someone could be careless and put forward an offer document which does not comply. We could even have said that people are guilty of criminal offences where there is no fault but they have broken the rule. It happens from time to time and we call those offences of strict liability. We could have done all those things; there are other ways in which this could have been a much more onerous criminal responsibility. That is what I meant by "light touch". We have taken the view that, to meet our international obligations, we need to have something which provides the possibility of a criminal offence, but we have put it as narrowly as possible. That is the response to the accusation of gold-plating. Once upon a time, gold-plating used to be rather a good thing to do, but in this context it is not.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Shadow Minister, Home Affairs, Shadow Minister, Trade & Industry

My Lords, the noble and learned Lord the Attorney-General is always very persuasive. I begin, as he ended, by talking about gold-plating. He said that there has been extensive consultation. He said that Clause 636, which deals with compensation, is not good enough because the panel will not use the power—it does not want to. But the power exists.

Photo of Lord Goldsmith Lord Goldsmith Attorney General, Law Officers' Department, Attorney General (Law Officers)

My Lords, I also said that I could envisage cases in which the power to provide compensation would not meet the problem. There are certain requirements for the provision of information in which other people are interested, such as employees; the rules may require arrangements in relation to employees to be provided in an offer document. I am doubtful whether a power to provide compensation would meet a failure in that respect.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Shadow Minister, Home Affairs, Shadow Minister, Trade & Industry

My Lords, I understand that there were two barrels to that argument. One was that although the panel had the power, it would not want to use it. The noble and learned Lord said that we need not be concerned because the panel could not enlarge the offences. My concern was not about enlarging but altering them. As the nature of what is required in the offer document changes, so does the nature of the offence. In addition, my noble friend Lord Patten mentioned the issue of the light touch.

We read very carefully what the noble and learned Lord said in Committee, which is why we tried to find out what other people were doing about this. We have been unable to find any other country that has found it necessary to introduce a criminal offence to cover this point. We on these Benches are very concerned about gold-plating. We admire what the panel has done; we do not wish to see it dragged any further into the criminal justice system. Its success in the past has been its light touch. We understand that it cannot continue to be a self-regulatory body because of the EU takeovers directive. However, I think that this is a step in the wrong direction and I wish to test the opinion of the House.

On Question, Whether the said amendment (No. 464) shall be agreed to?

Their Lordships divided: Contents, 54; Not-Contents, 123.

Division number 1 Private Parking: Ports and Trading Estates — Company Law Reform Bill [HL]

Aye: 52 Members of the House of Lords

No: 121 Members of the House of Lords

Aye: A-Z by last name

Tellers

No: A-Z by last name

Tellers

Resolved in the negative, and amendment disagreed to accordingly.

Clause 635 [Failure to comply with rules about bid documentation]:

[Amendment No. 465 not moved.]

Photo of Baroness Pitkeathley Baroness Pitkeathley Deputy Chairman of Committees, Deputy Speaker (Lords) 6:26, 16 May 2006

My Lords, I should point out that if Amendment No. 466 is agreed to, I shall not be able to call Amendment No. 467 for reasons of pre-emption.

Photo of Lord Goldsmith Lord Goldsmith Attorney General, Law Officers' Department, Attorney General (Law Officers)

moved Amendment No. 466:

Page 310, line 18, leave out paragraph (b) and insert—

"(b) where the person making the bid is a body of persons, any director, officer or member of that body who caused the document to be published."

Photo of Lord Goldsmith Lord Goldsmith Attorney General, Law Officers' Department, Attorney General (Law Officers)

My Lords, in moving Amendment No. 466, which stands in the name of my noble friend Lord Sainsbury, I wish to speak also to government Amendments Nos. 470 and 474 and to Amendment No. 467.

In Committee the noble Lords, Lord Hodgson and Lord Sharman, proposed amendments in relation to the proposed bid documentation offence at Clause 635, which was the subject of the previous debate. Certain of those matters are being pursued further today. If I understood the purpose behind those amendments correctly, they sought both to provide greater certainty as regards those potentially liable for the bid documentation offence and to narrow the scope of such persons.

As I foreshadowed in what I said in the previous debate, we have reflected further on the scope of the bid documentation offence in the light of those amendments and those concerns. We have also discussed the coverage of the bid documentation offence with lawyers responsible for advising bidders on the preparation of offer and response documents. The present amendments result from those discussions and deliberations.

Amendments Nos. 466, 470 and 474 seek to do two things. The first is to restrict liability for the offence in respect of offer documents to the bidder or any director, officer or member of the bidder who caused the bid document to be published. This has the important consequence of relieving employees and agents of the bidder from potential liability for the offence and the additional costs that might have arisen from this; for example, to professional advisers.

Secondly, we have sought to clarify the intention behind the provision related to the liability of officers where the offence is committed by a corporate body. This aims to ensure that where, for instance, a corporate director is liable, then the directors of that corporate body can also be pursued. The intention has never been to make the directors of the corporate body strictly liable, which was a concern expressed in Committee.

Amendment No. 467, which stands in the names of the noble Lords, Lord Sharman and Lord Razzall, proposes a different approach. It aims to link liability for the offence to the person responsible for the offer document in accordance with the rules of the Takeover Panel. We carefully examined this approach. I recognise that it has merits but we decided to pursue the formulation that we have taken as the panel rules do not provide absolute clarity as to the person responsible in all cases and there is an element of discretion available to the panel. For instance, the panel may consent to certain directors not being responsible in exceptional circumstances. We think that our solution produces a similar result to that proposed by this amendment in most cases, but has the advantage of greater certainty.

I very much hope that noble Lords will agree that our amendments meet the concerns which have been expressed. I hope that they will find support. I beg to move.

Photo of Lord Sharman Lord Sharman Spokesperson in the Lords, Trade & Industry 6:30, 16 May 2006

My Lords, I thank the noble and learned Lord the Attorney-General for responding to the concerns raised in the debate on this issue in Committee. I recognise that his approach is a little different from the one that we suggested, but I am content that it achieves the same ends. I will therefore not move Amendment No. 467.

On Question, amendment agreed to.

[Amendments Nos. 467 to 469 not moved.]

Photo of Baroness Pitkeathley Baroness Pitkeathley Deputy Chairman of Committees, Deputy Speaker (Lords)

My Lords, if Amendment No. 470 is agreed to, I cannot call Amendments Nos. 471 or 472.

Photo of Lord Goldsmith Lord Goldsmith Attorney General, Law Officers' Department, Attorney General (Law Officers)

moved Amendment No. 470:

Page 310, line 24, leave out subsection (4).

On Question, amendment agreed to.

[Amendments Nos. 471 to 473 not moved.]

Photo of Lord Goldsmith Lord Goldsmith Attorney General, Law Officers' Department, Attorney General (Law Officers)

moved Amendment No. 474:

Page 310, line 32, at end insert—

"( ) Where an offence is committed under subsection (2)(b) or (5) by a company or other body corporate ("the relevant body")—

(a) subsection (2)(b) has effect as if the reference to a director, officer or member of the person making the bid included a reference to a director, officer or member of the relevant body;

(b) subsection (5) has effect as if the reference to a director or other officer of the company referred to in subsection (1) included a reference to a director, officer or member of the relevant body."

On Question, amendment agreed to.

[Amendment No. 475 not moved.]

Clause 650 [Effect on contractual restrictions]:

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Shadow Minister, Home Affairs, Shadow Minister, Trade & Industry

moved Amendment No. 476:

Page 317, line 24, leave out "in value of all the voting shares" and insert "of the capital carrying voting rights"

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Shadow Minister, Home Affairs, Shadow Minister, Trade & Industry

My Lords, in moving the amendment I shall speak also to Amendment No. 477. We return to a point on which, when we discussed it in Grand Committee, I received a slightly baffling response from the noble and learned Lord. The amendments that we proposed then, and indeed the amendments we propose now, replace what is currently in the Bill with the wording in the directive. The reason behind the change is the uncertainty of the words "in value". When we pressed for an explanation of the meaning, the noble and learned Lord the Attorney-General replied:

"Regarding the specific question of the words 'in value' in the clause, we think it is clear what they mean: they refer to the nominal value of shares, so to achieve the breakthrough threshold the bidder must reach 75 per cent of the nominal value of the company's voting shares".—[Official Report, 28/3/2006; col. GC318.]

I could not understand that answer then. I said then, and I repeat now, that nominal value bears no relationship to market value. If adopted as the standard for this clause, it could provide a skewed result owing to the different nominal value attaching to different classes of shares. We could find that a very few people holding high nominal value shares with a low market value could effectively control the company, despite the other shareholders owning a far greater amount in market value simply because the nominal value allocated to their shares was low. I am sure that that cannot be right. It would mean that different voting weights would be attached to shares, which though having the same rights would have different nominal values. I hope that the noble and learned Lord has thought again on this question. I always give way on matters such as Foss v. Harbottle, but this is a practitioner City matter and I am sure that this cannot be the right way to approach it. Maybe we are at odds over nominal and real market values. I beg to move.

Photo of Lord Goldsmith Lord Goldsmith Attorney General, Law Officers' Department, Attorney General (Law Officers)

My Lords, I recall the debate in Grand Committee and the reaction when I answered the question in the way that the noble Lord quoted. I will try to explain where the difficulty lies. Article 11.4 of the takeover directive uses a concept unfamiliar to English company law in terms of its language; that is, it talks of the offeror holding 75 per cent or more of the capital carrying voting rights. It is the concept that the noble Lord wants to insert by way of amendment, but it is not in itself a concept that is presently familiar to the English companies market, if I may put it that way. So we have tried to use an expression that will be familiar to the English company market rather than using that phrase.

If one is looking to see what is 75 per cent of the capital carrying voting rights, I stand by saying that in the majority of cases normally one would find that by looking at the nominal value of the shares and seeing whether they hold 75 per cent or more. Plainly in the case where we have only one class of share, no difficulty at all arises. In the situation where one has more than one class of share, no real difficulty may arise; there may be some difference in the market value of the shares at a particular stage but the voting rights may still appear to be broadly comparable to the nominal value.

What will the court make of it? The Bill does not say "nominal value"; it says, "value". It has been left in that sense so that it will be for the court to interpret what is meant. I answered the question because I was asked and it is right that we should indicate what we think. How will the court interpret it? The court will need to interpret this provision in the same way as it would interpret other provisions in a statute where it is plain that the intention has been to implement a directive. So I have little doubt that they will look at the directive and say that in understanding it they need to understand that it is intended to implement the requirements of Article 11.4

I doubt whether it will make much difference in many cases. There may be some cases—this is where the concern may have arisen over what I said—where the structure of the company is such that the court would say that if we are really looking at 75 per cent of capital carrying voting rights, it is not appropriate on this occasion just to look at the nominal value because the structure of the company is extraordinary: someone has 90 per cent of the nominal value for virtually nothing and the rest of the shareholders, who have only 10 per cent of the nominal value, have the real bulk of the company. I can see that one could have such a company and in those circumstances the court may say that 75 per cent of value in that context is to be interpreted in a different way. But in many cases—perhaps the majority—75 per cent in value of all the voting shares would be taken to mean the nominal value for the reasons that I have given.

So it is not straightforward: we do not know what the European Court of Justice would make of capital carrying voting rights, or 75 per cent of those in any event. That could influence what the English court ultimately made of any of this. In most cases, whether the breakthrough provision is calculated on the basis of nominal or market value, the result would be exactly the same.

The point is that the amendment proposed by the noble Lord does not add any greater clarity because it uses an expression that does not mean much in itself. The provision as we have it in the Bill will have to be interpreted against that background. So the noble Lord can feel reassured that when it comes to interpreting what is meant by value, what is going to matter is not what I have said about it but what the court makes of the clause against the background of the directive.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Shadow Minister, Home Affairs, Shadow Minister, Trade & Industry

My Lords, I am grateful to the noble and learned Lord the Attorney-General for his considered response. I accept that capital carrying voting rights is not the wording that is familiar in English financial practice. I therefore accept that our amendments are deficient in that sense; they do not advance the arguments sufficiently. I am always reluctant to leave a situation where we could clarify matters beyond peradventure and say that the courts will sort that out. That may be helpful for lawyers but it is an unsatisfactory way of proceeding.

I shall reflect on that, take some advice and consider whether inserting the word "market" might not sort the whole thing out. Dealing with the market value of the voting shares might be another way of tackling the matter and making it clear for ever that that is what we are about.

Photo of Lord Goldsmith Lord Goldsmith Attorney General, Law Officers' Department, Attorney General (Law Officers)

My Lords, of course I am content for the noble Lord to do that, but perhaps I may invite him to consider this. The problem with the suggestion is, first, whether one would then be against the meaning of the directive. Secondly, I can see real difficulties in identifying at any moment what is 75 per cent of the market value. Do you take the value of the shares on day 1 or on the Wednesday? The fact that a breakthrough has, has not or may have taken place can in itself affect the value of the shares, and during a bid there might be a considerable movement in the value of the shares. The noble Lord's suggestion would be difficult in practice, but I invite him to take that into account when he takes his advice.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Shadow Minister, Home Affairs, Shadow Minister, Trade & Industry

My Lords, I am always ready to learn from the Attorney-General and to follow the avenues that he has already travelled. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 477 not moved.]

Photo of Lord Goldsmith Lord Goldsmith Attorney General, Law Officers' Department, Attorney General (Law Officers)

moved Amendment No. 478:

Page 318, leave out lines 10 to 14 and insert—

"(b) shares that, under the company's articles of association, do not normally carry rights to vote at its general meetings (for example, shares carrying rights to vote that, under those articles, arise only where specified pecuniary advantages are not provided)."

Photo of Lord Goldsmith Lord Goldsmith Attorney General, Law Officers' Department, Attorney General (Law Officers)

My Lords, these amendments take up discussions we had during Committee as to the precise meaning of some of the other complex provisions of the takeovers directive. We have returned to Article 11. The provisions of that directive are given effect to by chapter 2 of Part 22 of the Bill. The amendments are concerned with the types of "securities" falling within the scope of the directive.

On its face, the takeovers directive is relatively explicit on this point. It states at Article 2 that "securities" means,

"transferable securities carrying voting rights".

That short definition cannot be expected to cover in detail a whole range of different security instruments that exist across the EU. We must work out what principles it lays down. For the purposes of the domestic implementing legislation, we talk of "shares" rather than "securities", as we think that that is more natural in terms of existing companies legislation..

So, we need to capture the concept of "shares carrying voting rights". There is a long-standing argument as to whether that means voting rights in all circumstances, or whether it includes voting rights that arise only in exceptional circumstances. For example, with some "preference shares", there will be a right to vote, but that will arise only when the dividend has not been paid. There will be other categories of shares that carry no voting rights, except on specific matters, such as any variation of the class rights relating to those shares.

In the UK, different types of shares are not defined. Instead, the voting rights and the other rights attributable to the shares are generally prescribed, in the first instance at least, by the articles of association. The inevitable result is that there are many variations on the types of shares that can exist.

By these amendments, we seek to cut the Gordian knot. They would provide that, in determining the breakthrough threshold and the mechanics of the operation of breakthrough, where the different interpretation has real practical effect, shares that do not normally carry rights to vote at general meetings will be excluded. We think that that drafting reflects the policy intent of the directive. It benefits from being absolutely clear whether a share is a voting share or not, at least in the vast majority of cases. In the most exceptional cases, that matter might have to be determined by the court; but we would have gone a long way to avoid the need for that. Parallel amendments on this matter are also proposed regarding Clauses 651 and 654.

Perhaps I may conclude with two further observations. First, companies can help themselves. Breakthrough has not been imposed on UK companies and we have left companies considerable flexibility as to the structure of their articles where they choose to opt in to the breakthrough regime. Secondly, we understand that the majority of UK companies falling within the scope of the takeovers directive have only one class of share, which generally has voting rights. Such shares will be caught by the breakthrough provisions and by the definition that we propose. I beg to move.

On Question, amendment agreed to.

Clause 651 [Power of offeror to require general meeting to be called]:

Photo of Lord Goldsmith Lord Goldsmith Attorney General, Law Officers' Department, Attorney General (Law Officers) 6:45, 16 May 2006

moved Amendment No. 479:

Page 318, leave out lines 24 to 28 and insert—

"(b) shares that, under the company's articles of association, do not normally carry rights to vote at its general meetings (for example, shares carrying rights to vote that, under those articles, arise only where specified pecuniary advantages are not provided)."

On Question, amendment agreed to.

Clause 654 [Transitory provision]:

Photo of Lord Goldsmith Lord Goldsmith Attorney General, Law Officers' Department, Attorney General (Law Officers)

moved Amendment No. 480:

Page 320, leave out lines 14 to 18 and insert—

"(b) shares that, under the company's articles of association, do not normally carry rights to vote at its general meetings (for example, shares carrying rights to vote that, under those articles, arise only where specified pecuniary advantages are not provided)."

On Question, amendment agreed to.

Clause 656 [Matters to be dealt with in the directors' report]:

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

moved Amendment No. 481:

Page 322, line 29, leave out from second "7" to end of line 31.

On Question, amendment agreed to.

Schedule 3 [Amendments to Part 13A of the Companies Act 1985]:

Photo of Lord Sharman Lord Sharman Spokesperson in the Lords, Trade & Industry

moved Amendment No. 482:

Page 442, line 2, at end insert—

:TITLE3:"Section 425: Power of company to compromise with creditors and members

"(1) Section 425 of the Companies Act 1985 (c. 6) is amended as follows.

(2) In subsection (2) (arrangement or compromise to be binding) for "majority in number" substitute "creditors or members".

(3) After subsection (2) insert—

"(2A) The court will have the power to sanction a compromise or arrangement under subsection (2) notwithstanding any defect in the constitution of any class, provided that the court is satisfied that such defect has not affected the fairness of the compromise or arrangement.""

Photo of Lord Sharman Lord Sharman Spokesperson in the Lords, Trade & Industry

My Lords, we return to a matter that we debated in Grand Committee; namely, the ability of the courts to exercise discretion in terms of sanctioning schemes of arrangements. The purpose of the amendment is to grant that discretion to the court even if the relevant classes have not been correctly constituted, provided that the fairness of the scheme is not affected in any way. The amendment also seeks to dispense with the requirement that a majority in number of the creditors or members must agree to a scheme of arrangement for it to be binding.

The Law Society advised us that the amendment to Section 425 of the Companies Act on the lines recommended by the Company Law Review would enable the court to sanction a scheme of arrangement notwithstanding a technical defect in the constitution of classes, provided that the defect would not affect the fairness of the arrangement. We took note of the comments made by the noble and learned Lord, Lord Goldsmith, in Grand Committee, and the proposed new arrangement would allow the court to sanction the scheme only where the court was satisfied that the defect did not affect the fairness of the scheme—that is, if it was only a technical defect.

In addition, we are pressing for the removal of the requirement for the approval of a scheme by a majority in number of those voting, as well as three-quarters by value. The majority in number test is not, as far as I am aware, contained anywhere else in company law and there is no special reason why such protection should be required for schemes of arrangement, but not for other corporate transactions. Indeed, the majority in number, focusing on a majority of registered holders is an anachronism, now that most retail holders hold through the CREST nominees, where one registered holder may represent many thousands of beneficial owners. It is also open to abuse by shareholders who could subdivide their holding through a number of nominee companies. I beg to move.

Photo of Lord Goldsmith Lord Goldsmith Attorney General, Law Officers' Department, Attorney General (Law Officers)

My Lords, as the noble Lord said, there are two parts to the amendment. The part that he has just referred to would dispense with the requirement that a majority in number of the creditors or members must vote in favour of a scheme for it to be binding. The noble Lord's amendment provides that it would be enough if three-quarters by value did so. The Company Law Review observed that that would mean that larger creditors and members could impose their will unfairly on smaller creditors and shareholders. Protection would be removed by this part of the amendment.

It could be said, "Well, we could rely upon the court's discretion to protect those members". That is not a satisfactory answer—why should the court have a better view of the interests of those persons than they have themselves? So, in principle, I could not accept the amendment. The noble Lord tempts us by painting a picture of abuse taking place, with people splitting their shareholdings up into a series of nominee companies. It may be that he has evidence that that takes place; if so, it is not evidence that has reached me and I note that the noble Lord shakes his head—so it seems that he does not have evidence of that, either. That theoretical possibility is not a good enough reason to do away with the protection which this provides.

I turn now to the second part of the amendment. We have some doubts as to whether this is really necessary. As the noble Lord has made clear, the point is to allow the courts to approve a scheme of arrangement even if relevant classes have not been correctly constituted, provided—and this is an important condition—that the fairness of the scheme is not affected.

Companies have been given quite a lot of guidance to make sure that the problem does not arise. The courts have issued a practice statement in 2002 reminding companies for example that, in case of doubt, they should take all reasonable steps to notify any person who may be affected by the scheme, and requiring them to identify any issues as to composition of classes at an early stage of the court procedure. Those steps should already prevent most of the problems of wasted time and effort that the noble Lord's amendments are targeted at. Having said that, we are not convinced that the amendment is necessary in practice, or that it would serve a useful purpose. But if the noble Lord will not press his amendment now we will discuss the question of the court's discretion further with interested parties to see if there are practical difficulties that such an amendment could address. That is as far as I can go in relation to that part of the amendment today.

Photo of Lord Sharman Lord Sharman Spokesperson in the Lords, Trade & Industry

My Lords, I am grateful for the reply given to this part of the debate by the noble and learned Lord the Attorney-General. In the light of his reply, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 677 [Disclosure of individual's residential address:non-disclosure certificate]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary, Department of Trade and Industry, Parliamentary Under-Secretary (Trade and Industry) (Science and Innovation)

moved Amendment No. 483:

Page 333, line 32, leave out "non-disclosure certificates" and insert "protection from disclosure"

On Question, amendment agreed to.

Clause 678 [Requirement to identify persons to accept service of documents]:

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

moved Amendment No. 483A:

Page 333, line 35, leave out from "to" to end of line 37 and insert "register—

"( ) particulars identifying every person resident in the United Kingdom authorised to accept service of documents on behalf of the company, or

( ) a statement that there is no such person."

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, in moving this amendment, I shall speak also to Amendments Nos. 483B, 483C, and 483D. Together the regulations to be made under this part of the Bill will determine the registration, reporting and disclosure requirements imposed by our company law on overseas companies, including the range of overseas companies to which the requirements apply and the offences for their breach. This part, together with the regulations to be made under it, replace the provisions made by Part 23 of the Companies Act 1985.

Clause 678 imposes a disclosure requirement based on paragraph 3(e) of Schedule 21A to the Companies Act 1985 to disclose those persons resident in the UK authorised to accept service on the company's behalf. Amendment No. 483A makes clear that the clause does not impose a requirement on the overseas company to have anyone resident in the UK able to accept service on its behalf. If there are no such persons, the company must simply make a statement to that effect. Amendment No. 483B deletes Clause 679. The provision made by that clause is replaced by the new clause to be inserted by Amendment No. 483C.

Where an overseas company has registered particulars with the registrar following the opening of a branch in the United Kingdom, the new clause will enable regulations to require the overseas company to give notice to the registrar if it subsequently closes that branch. These disclosures are a requirement of the 11th company law directive. In addition, an overseas company that has registered particulars in other circumstances specified by regulations under Clause 669 may be required by regulations made under the new clause to give notice to the registrar if those circumstances cease to obtain. The regulations will require the notice to be delivered to the registrar for the part of the United Kingdom in which the branch was registered and may set deadlines for sending the information to the registrar.

Finally, Amendment No. 483D makes clear that the relocation of a branch from one part of the United Kingdom to another is to be treated as the closing of the branch in one part and the opening in another. Such provision is currently made by Section 695A(4) of the Companies Act 1985, which is being repealed. I beg to move.

On Question, amendment agreed to.

Clause 679 [Duty to give notice of ceasing to have registrable presence in the UK]:

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

moved Amendment No. 483B:

Leave out Clause 679.

On Question, amendment agreed to.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

moved Amendments Nos. 483C and 483D:

After Clause 680, insert the following new clause—

"DUTY TO GIVE NOTICE OF CEASING TO HAVE REGISTRABLE PRESENCE

(1) The Secretary of State may make provision by regulations requiring an overseas company—

(a) if it has registered particulars following the opening of a branch, in accordance with regulations under section 669(2)(a) or (b), to give notice to the registrar if it closes that branch;

(b) if it has registered particulars in other circumstances, in accordance with regulations under section 669(2)(c), to give notice to the registrar if the circumstances that gave rise to the obligation to register particulars cease to obtain.

(2) The regulations must provide for the notice to be given to the registrar for the part of the United Kingdom to which the original return of particulars was delivered.

(3) The regulations may specify the period within which notice must be given.

(4) Regulations under this section are subject to negative resolution procedure."

After Clause 680, insert the following new clause—

"APPLICATION OF PROVISIONS IN CASE OF RELOCATION OF BRANCH

(1) For the purposes of this Part the relocation of a branch from one part of the United Kingdom to another counts as the closing of one branch and the opening of another.

(2) The relocation of a branch within the same part of the United Kingdom does not."

On Question, amendments agreed to.

Clause 682 [The registrar's functions]:

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

moved Amendment No. 483E:

Page 334, line 37, leave out from "registrar" to second "and" in line 38 and insert—

"(i) under the Companies Acts, and

(ii) under the enactments listed in subsection (2)"

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, in moving this amendment, I shall speak also to Amendments Nos. 483F, 483G, 487G and 528. These amendments relate to other enactments beyond the Companies Acts which confer functions on the registrar. Three of the amendments—Amendments Nos. 483E, 483F and 487G—make no real change of substance but are designed to introduce a little more clarity. At the moment the provision of the functions of the registrar in Clause 682, at the start of Part 26, refers generally to "other enactments" but does not list those enactments. In Clause 739, at the end of this part of the Bill, a list is provided, but it is arguably unclear what the effect is of the list in respect of some individual provisions. It is also not entirely clear whether the Bill or the existing enactments should apply to matters already covered by existing enactments. The amendments clarify the position.

Amendments Nos. 483G and 528 do, however, make a change of substance to one of those enactments—the Limited Partnerships Act 1907. At the moment, enshrined in that Act is the provision that Companies House, when performing its functions, may only charge amounts varying from 2p to £2. The effect is that it is uneconomic for the registrar to offer certain optional services in respect of Limited Partnerships to customers, even where they have a need and are more than willing to pay the legitimate costs of the service being provided; other, mandatory, services have to be provided at a loss. This is creating difficulties in practice. In removing the statutory caps, the amendments will allow Companies House to develop services to meet customer demand and to charge for them in the normal way under Clause 684 of the Bill. I beg to move.

On Question, amendment agreed to.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

moved Amendment No. 483F:

Page 335, line 3, at end insert—

"(2) The enactments are— the Joint Stock Companies Acts; the Newspaper Libel and Registration Act 1881 (c. 60); the Limited Partnerships Act 1907 (c. 24); section 53 of the Industrial and Provident Societies Act 1965 (c. 12) or, for Northern Ireland, section 62 of the Industrial and Provident Societies Act (Northern Ireland) 1969 (c. 24 (N.I.)); the Insolvency Act 1986 (c. 45) or, for Northern Ireland, the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)); section 12 of the Statutory Water Companies Act 1991 (c. 58); sections 3, 4, 6, 63 and 64 of, and Schedule 1 to, the Housing Act 1996 (c. 52) or, for Northern Ireland, Articles 3 and 16 to 32 of the Housing (Northern Ireland) Order 1992 (S.I. 1992/1725 (N.I. 15)); sections 2, 4 and 26 of the Commonwealth Development Corporation Act 1999 (c. 20);

Part 6 and section 366 of the Financial Services and Markets Act 2000 (c. 8); the Limited Liability Partnerships Act 2000 (c. 12); section 14 of the Insolvency Act 2000 (c. 39) or, for Northern Ireland, Article 11 of the Insolvency (Northern Ireland) Order 2002 (S.I. 2002/3152 (N.I. 6)); section 121 of the Land Registration Act 2002 (c. 9); section 842 of this Act."

On Question, amendment agreed to.

Clause 684 [Fees payable to registrar]:

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

moved Amendment No. 483G:

Page 335, line 37, at end insert—

"( ) The Limited Partnerships Act 1907 (c. 24) is amended as follows—

(a) in section 16(1) (inspection of statements registered)—

(i) omit the words ", and there shall be paid for such inspection such fees as may be appointed by the Board of Trade, not exceeding 5p for each inspection", and

(ii) omit the words from "and there shall be paid for such certificate" to the end;

(b) in section 17 (power to make rules)—

(i) omit the words "(but as to fees with the concurrence of the Treasury)", and

(ii) omit paragraph (a)."

On Question, amendment agreed to.

Clause 685 [Public notice of issue of certificate of incorporation]:

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

moved Amendment No. 483H:

Page 336, line 5, after "name" insert "and registered number"

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, in rising to move Amendment No. 483H, I shall also speak to Amendments Nos. 483J, 483K, 483L and 487F. Amendments Nos. 483H and 483K are identical to two which were tabled in Grand Committee by the noble Lord, Lord Sharman. His intention was to ensure that where the registrar gives notices about a particular company in, for example, the Gazette, the company should be identified not just by its name but by its registered number. I said at the time that I had a great deal of sympathy with the idea, but wanted first to check with Companies House that there would be no technical problems. I am pleased to say that we are now confident that the idea is workable in practice, and I am therefore putting the amendments that he suggested back to the House for agreement. I am grateful to the noble Lord for suggesting what is undoubtedly an improvement to the Bill.

In looking at the drafting of these clauses, we have also unearthed a few small omissions and infelicities which the other amendments in this group correct. The Bill already includes provision in Clause 698 to ensure that public notice is given where certain documents are placed on the register. Amendment No. 487F ensures that similar notice must be given where such documents are removed; without this the story as seen by third parties could risk being misleading.

Amendment No. 483L makes clear that the registrar need not give public notice before a company is actually incorporated. She will often receive documents in advance of, and in preparation for, the incorporation of a company, but it will be confusing to publicise these documents unless and until the company in fact exists and can be identified by a name and registered number.

Finally, Amendment No. 483J is a minor drafting change which clarifies that the "Directive disclosure requirements" to which the clause refers, are the requirements as they apply in respect of a particular company at the time that documents relating to that company are received. I beg to move.

On Question, amendment agreed to.

Clause 698 [Public notice of receipt of certain documents]:

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

moved Amendments Nos. 483J to 483L:

Page 341, line 33, after "document" insert "that, on receipt, is"

Page 341, line 35, after "name" insert "and registered number"

Page 341, line 36, at end insert—

"( ) The registrar is not required to cause notice of the receipt of a document to be published before the date of incorporation of the company to which the document relates."

On Question, amendments agreed to.

Clause 699 [Documents subject to Directive disclosure requirements]:

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip 7:00, 16 May 2006

moved Amendment No. 483M:

Page 342, line 26, at end insert—

" 1. Any statement of capital and initial shareholdings."

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, in moving government Amendment No. 483M, I shall speak also to Amendments Nos. 483N to 483U.

As noble Lords may be aware, the EC company law directives impose obligations on the registrar to publish various matters in the Gazette or an equivalent. The Bill changes the law on how companies are required to set out details of their share capital. This means that some "statements of capital" are subject to directive disclosure requirements. The additions to Clause 699 reflect that.

These amendments are required to enable us to fulfil our obligations under EC law and I therefore trust that noble Lords will have no objections. I beg to move.

On Question, amendment agreed to.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

moved Amendments Nos. 483N to 483U:

Page 342, line 34, at end insert "and the statement of capital accompanying it"

Page 342, line 36, at end insert—

" . Statement of capital accompanying order delivered under section 138 of that Act (order of court confirming reduction of capital)."

Page 342, line 36, at end insert—

" . Statement of capital accompanying return delivered under section 169 of that Act (return of details of company's purchase of own shares)."

Page 342, line 36, at end insert—

" . Statement of capital accompanying notice given under section 586 of this Act (notice by company of redenomination of shares)."

Page 342, line 36, at end insert—

" . Statement of capital accompanying notice given under section 588 of this Act (notice by company of reduction of capital in connection with redenomination of shares)."

Page 342, line 37, at end insert "and the statement of capital accompanying it"

Page 342, line 42, at end insert—

"( ) Where a private company re-registers as a public company (see section 96)—

(a) the last statement of capital relating to the company received by the registrar under any provision of the Companies Acts becomes subject to the Directive disclosure requirements, and

(b) section 698 (public notice of receipt of certain documents) applies as if the statement had been received by the registrar when the re-registration takes effect."

On Question, amendments agreed to.

Clause 703 [Allocation of unique identifiers]:

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Shadow Minister, Home Affairs, Shadow Minister, Trade & Industry

moved Amendment No. 484:

Page 345, line 5, at end insert—

"( ) is a statutory auditor of a company,"

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Shadow Minister, Home Affairs, Shadow Minister, Trade & Industry

My Lords, we now come to Clause 703, which concerns the allocation of unique identifiers. Amendment No. 484 would insert the statutory auditor into the list of people for whom the Secretary of State may make provision for the use of these identifiers.

In Grand Committee, when I first raised this point, I said that it was something that the Institute of Chartered Accountants in England and Wales was anxious about, but I am afraid that the reply given by the noble Lord, Lord McKenzie, has done little to ease its nerves. He said:

"We do not think there is the same interest in finding a list of all the companies whose accounts have been audited by a particular firm. Even if there were, there is probably less scope for confusion between firms than for confusion between individuals with similar names".—[Official Report, 28/3/06; col. GC 354.]

I am afraid that I think that that response in large measure misses the point that we were trying to make. Therefore, we have again tabled the amendment, which seeks to include in the Bill an enabling power to introduce unique identifiers for auditors in addition to directors. We acknowledge that unique identifiers for directors are to be introduced primarily to enable the registrar to distinguish between directors of a similar name, given that they can now opt to provide service addresses. However, we believe that these unique identifiers will also enable directors to track information filed about them on the record. If that is the case, in our assumption unique identifiers would also enable auditors to monitor the public record to pick up instances where they are falsely claimed to be the auditor of a company.

The accountancy trade press claimed in September 2005 that it had been notified of more than 100 incidences of auditor identity where auditors' names were erroneously used to legitimise bogus company accounts. Auditors will often become aware of such fraudulent filings only when approached by credit agencies to explain discrepancies in the accounts that they have allegedly audited; for example, where the accounts do not balance or subsidiaries do not exist. This could lead to damaged reputations for auditors and also to fraudulent filings going unnoticed, as it is currently not possible for auditors to check the register for filings in their name.

We understand that in response to this problem Companies House has committed to improving its online filing security with electronic passwords and the introduction of PROOF—a protected online filing service that aims to reduce the possibility of fraud—in order to crack down on auditor identity theft, among other things. However, even if such systems were introduced for online filings by auditors, electronic security is not always able to stay one step ahead of the fraudsters. For example, we are told by the institute that it is aware of at least one case of a fraudulent record falsely claiming an individual as a director of a company that was filed using what is supposed to be secure electronic filing.

According to the accountancy trade press, the Metropolitan Police have advised businesses not to rely on Companies House records when determining whether to issue goods on credit. We think that that is unacceptable, and so anything that we can do to improve the security of the register would be beneficial. Therefore, we argue that a system enabling auditors to see whether they have been fraudulently cited—akin to "Monitor", the monitoring system in place for companies, which results in an e-mail alert when filings are made—would be beneficial. At this stage, we seek only an enabling power by this amendment, and we propose that a regulatory impact assessment should be conducted before implementation to ensure that the potential benefits outweigh the costs.

That was rejected by the Government in Committee on the basis that they,

"do not think that allocating a number to every registered audit firm would be particularly helpful. It is unlikely to make it any easier to root out false claims that a particular firm has audited a company's accounts. The idea is that unique identifiers will be available to the public; they will not be like some authentication code or password used in electronic communications".—[Official Report, 28/3/06; col. GC 355-56.]

However, as I have already mentioned, improvements in the security of online filing will always be vulnerable to fraud and so such security systems alone will not solve this issue. We think that monitoring should therefore be available, in addition to improvements to such security systems, and so it would not matter that such unique identifiers were available to the public.

If the Government decide that unique identifiers should not be allocated to auditors, as our amendment proposes, we would, as a fallback position, suggest that the registrar be obliged to maintain the legal name of the audit firm as a searchable field on the record. Any audit firm could then, if it so wished, search Companies House records to gain a complete list of audits credited to it on the record and could cross-check for any areas of concern. I emphasise that at this stage we seek only to provide the ability for the Secretary of State to set up a unique system of identifiers for auditors, perhaps at some date in the future. I beg to move.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, Clause 703 provides that the Secretary of State may make regulations so that a unique identifier can be allocated to anyone who is a director of a company, or a secretary of a public company, or the UK representative of an overseas company. It will help the system for protecting directors' home addresses and it will prevent third parties confusing different individuals with the same name or being confused by different names being used by a single director.

We do not intend that unique identifiers should be allocated to statutory auditors for filing purposes; nor do we believe that it is justified. I listened carefully to the noble Lord's presentation on this matter. We are aware of the concern that the name of a registered audit firm might be fraudulently added to a company's accounts. Companies should not claim to have been audited by a particular firm if that is not the case. Such a false statement would be an offence, and we believe that this is a sufficient protection.

Unlike in the case of directors' names, the problem is not one of confusing people with the same name. While there are many John Smiths, different audit firms do not share the same name. So if a company claims that it has been audited by, say, KPMG, it should be fairly easy to demonstrate that it has not without needing a unique identification number.

I understand that firms may also be concerned to detect when a company takes their name in vain. This would not require allocation of a unique identification number but, rather, a facility to search on the basis of the audit firm's name on the register at Companies House. Indeed, if it had a unique identification number and that search facility were available, I suspect that the firm would almost certainly search the number as well as the name, so I do not see that the number adds anything. This could involve considerable expense and we would need to explore whether there was a problem on a scale to justify that expense. In any case, it would certainly not require primary legislation.

I appreciate that there is concern about companies falsely claiming to have been audited by certain audit firms but, for the reasons that I have set out, I do not think that allocating unique identifiers to audit firms would do anything to resolve the problem.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Shadow Minister, Home Affairs, Shadow Minister, Trade & Industry

My Lords, I am grateful to the Minister for his reply, and he has clearly thought about this issue. I have two things to say. First, this was only a proposal for enabling legislation; we were not suggesting that it should happen. It would just give the Secretary of State another arrow in his quiver, so to speak. I think that the Minister was moving towards the fallback position of encouraging Companies House to have the legal name of the audit firm as a searchable record. We felt that that was a good fallback position and probably less complicated, and possibly less expensive, than a unique identifier.

It would be helpful if the Minister could do all that he can to assuage the concerns of the audit profession by encouraging Companies House to introduce that searchable field facility, which presumably can be done at relatively little cost, and that would probably solve the problem. I think that we have probably gone about as far as we can on this matter and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

moved Amendments Nos. 485 and 486:

Page 345, line 6, at end insert "or"

Page 345, line 9, leave out from second "section" to end of line 14.

On Question, amendments agreed to.

Clause 708 [Material not available for public inspection]:

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

moved Amendment No. 487:

Page 347, line 4, leave out paragraphs (a) and (b) and insert—

"( ) protected information within section (Protected information: restriction on use or disclosure by registrar)(1) (directors' residential addresses: restriction on disclosure by registrar) or any corresponding provision of regulations under section 669 (overseas companies);"

On Question, amendment agreed to.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

moved Amendment No. 487A:

Page 347, line 19, at end insert—

"( ) any application or other document delivered to the registrar under section (Application to registrar to make address unavailable for public inspection) (application to make address unavailable for public inspection) and any address in respect of which such an application is successful;"

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, I move Amendment No. 487A and speak to Amendment No. 487C.

During our debate last week about the new scheme for protecting directors' residential addresses, my noble friend Lord Sainsbury explained that the Government intended to lay an amendment that would provide a power to make regulations specifying circumstances in which a director's—or indeed anyone's—address may be removed from the public record. These amendments fulfil that promise.

Under the new scheme introduced by our earlier amendments, a new director's home address will be protected. But there will continue to be an historic record with the home addresses of most of those who are directors when the Bill comes into force—and indeed of those who have previously been directors.

In the vast majority of cases, removing an address from the record held by Companies House would serve little purpose: once an address has been placed on the public record, it immediately becomes widely available through a myriad of secondary sources. What has once been published cannot be made secret. The genie cannot be put back in the bottle. Nevertheless, we do recognise that there may be circumstances in which the continued appearance of a person's address on the public record held by Companies House is undesirable, possibly because it puts those who live there at serious risk. In reality this is only likely if, for some reason, the address is not also easily available elsewhere from other sources. On the other hand, those at risk are not only directors. For example, former directors and the families of deceased directors may be equally at risk. Therefore the amendments provide power to specify who may apply for their address to be taken off the public record.

We intend to consult over draft regulations later this year so that they can be brought into force at the same time as the provisions providing protection for directors' home addresses.

I am grateful to the noble Lords, Lord Freeman, Lord Hodgson and Lord Jenkin, for their withdrawing Amendments Nos. 112 to 114 and 117. 1 hope they agree that this amendment meets their concerns. I beg to move.

On Question, amendment agreed to.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

moved Amendment No. 487B:

Page 347, line 19, at end insert—

"( ) any application or other document delivered to the registrar under section (Rectification of register on application) (application for rectification of register);"

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, I beg to move Amendment No. 487B and speak to Amendments Nos. 487D and 487E. These amendments relate to an issue which was raised by the noble Lord, Lord Hodgson, in Committee, based, as he mentioned, on suggestions from the Institute of Chartered Accountants in England and Wales.

I am very grateful for the prompt this has given us to consider the issue and I hope the noble Lord will be pleased at the outcome. It is time for action.

The question is the ability of the registrar to correct the register where clearly inaccurate, perhaps fraudulent, material has been placed on it. Under the Bill, it is not possible except under very narrow circumstances indeed for the registrar to remove material unless there has first been a court order to that effect.

Our debate in Committee there was a good degree of consensus between us that a power for the registrar to remove material without court order could well be useful, but that if so there would need to be strict limits and controls built into it. Amendment No. 487E therefore introduces a power for the Secretary of State to make regulations to set out a regime on these lines.

We have ensured that certain of the safeguards which were mentioned are set out in the primary legislation itself. For example, the new clause makes clear that the registrar must only remove information on application, and that the regulations will require the registrar to remove the material where the application is in order and there are no objections to it. In other words, we have minimised the scope for the registrar to exercise discretion or make judgments, particularly judgments between individuals with competing claims. If there is an objection, the remedy will be to apply to the court.

But the clause does not attempt to set out all the new details of the new scheme. It is a power, and other elements of the system—for example the matters covered in broad terms under subsection (2)—will be set out in the secondary legislation. I can assure the House that there will be full and public consultation on the precise composition of the regulations before they are made.

Finally, for completeness, I should mention Amendment No. 487B, which is consequential on the new scheme and ensures that an application under it does not in itself constitute a publishable document; and Amendment No. 487D, which removes what would now be a misleading statement in the Bill suggesting that the new non-court process did not exist. I beg to move.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Shadow Minister, Home Affairs, Shadow Minister, Trade & Industry 7:15, 16 May 2006

My Lords, I thank the noble Lord, Lord McKenzie, for bringing forward these amendments which meet our concerns. Amidst all the meetings of the Committee, he had the one of the most difficult lines to speak. His speaking notes said,

"It is not inconceivable that it would be better for the information"— that is, the wrong information,

"to remain, perhaps with an appropriate annotation of the warning that it is simply being deleted".—[Official Report, 30/3/06; col. GC 362.]

That was a tough thing to try to defend and I am glad that he has moved.

On Question, amendment agreed to.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

moved Amendment No. 487C:

After Clause 708, insert the following new clause—

"APPLICATION TO REGISTRAR TO MAKE ADDRESS UNAVAILABLE FOR PUBLIC INSPECTION

(1) The Secretary of State may make provision by regulations requiring the registrar, on application, to make an address on the register unavailable for public inspection.

(2) The regulations may make provision as to—

(a) who may make an application,

(b) the grounds on which an application may be made,

(c) the information to be included in and documents to accompany an application,

(d) the notice to be given of an application and of its outcome, and

(e) how an application is to be determined.

(3) Provision under subsection (2)(e) may in particular—

(a) confer a discretion on the registrar;

(b) provide for a question to be referred to a person other than the registrar for the purposes of determining the application.

(4) An application must specify the address to be removed from the register and indicate where on the register it is.

(5) The regulations may provide—

(a) that an address is not to be made unavailable for public inspection under this section unless replaced by a service address, and

(b) that in such a case the application must specify a service address.

(6) Regulations under this section are subject to affirmative resolution procedure."

On Question, amendment agreed to.

Clause 714 [Administrative removal of material from the register]:

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

moved Amendment No. 487D:

Page 350, leave out line 11.

On Question, amendment agreed to.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

moved Amendments Nos. 487E and 487F:

After Clause 714, insert the following new clause—

"RECTIFICATION OF REGISTER ON APPLICATION TO REGISTRAR

(1) The Secretary of State may make provision by regulations requiring the registrar, on application, to remove from the register material of a description specified in the regulations that—

(a) derives from anything invalid or ineffective or that was done without the authority of the company, or

(b) is factually inaccurate, or is derived from something that is factually inaccurate or forged.

(2) The regulations may make provision as to—

(a) who may make an application,

(b) the information to be included in and documents to accompany an application,

(c) the notice to be given of an application and of its outcome,

(d) a period in which objections to an application may be made, and

(e) how an application is to be determined.

(3) An application must—

(a) specify what is to be removed from the register and indicate where on the register it is, and

(b) be accompanied by a statement that the material specified in the application complies with this section and the regulations.

(4) If no objections are made to the application, the registrar may accept the statement as sufficient evidence that the material specified in the application should be removed from the register.

(5) Where anything is removed from the register under this section the registration of which had legal consequences as mentioned in section 714(3), any person appearing to the court to have a sufficient interest may apply to the court for such consequential orders as appear just with respect to the legal effect (if any) to be accorded to the material by virtue of its having appeared on the register.

(6) Regulations under this section are subject to affirmative resolution procedure."

After Clause 716, insert the following new clause—

"PUBLIC NOTICE OF REMOVAL OF CERTAIN MATERIAL FROM THE REGISTER

(1) The registrar must cause to be published—

(a) in the Gazette, or

(b) in accordance with section 734 (alternative means of giving public notice), notice of the removal from the register of any document subject to the Directive disclosure requirements (see section 699) or of any material derived from such a document.

(2) The notice must state the name and registered number of the company, the description of document and the date of receipt."

On Question, amendments agreed to.

Clause 739 [Application of Part to functions under other enactments]:

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

moved Amendment No. 487G:

Leave out Clause 739.

On Question, amendment agreed to.

Schedule 4 [Amendments of remaining provisions of the Companies Act 1985 relating to offences]:

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

moved Amendment No. 488:

Page 455, line 12, at end insert—

:TITLE3:"Refusal of inspection of directors' statement and auditors' report relating to payment out of capital

13A For section 175(7) of the Companies Act 1985 (c. 6) (refusal of inspection of directors' statement and auditors' report relating to payment out of capital) substitute—

"(7) If an inspection under subsection (6) is refused, an offence is committed by—

(a) the company, and

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

(8) A person guilty of an offence under subsection (7) 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.".