Company Law Reform Bill [HL]

– in the House of Lords at 3:43 pm on 23rd May 2006.

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Photo of Lord Grocott Lord Grocott Chief Whip (House of Lords), HM Household, Captain of the Honourable Corps of Gentlemen-at-Arms (HM Household) (Chief Whip, House of Lords) 3:43 pm, 23rd May 2006

My Lords, I have it in command from Her Majesty the Queen and His Royal Highness the Prince of Wales to acquaint the House that they, having been informed of the purport of the Company Law Reform Bill, have consented to place their Prerogative and Interest, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.

Read a third time.

Clause 12 [Statement of proposed officers]:

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 Amendments Nos. 2 to 6 and 19 to 26. When this issue was raised on Report on 9 May, the Minister agreed to consider the execution of documents by company secretaries. Since then, the Minister has been kind enough to send a letter to us, stating that the Government are, in fact, inclined to go further than we asked and to allow execution of documents by a "named other person". Sadly, as the letter then says, it has not proved possible to produce the amendments in time for the proceedings of this House, which is indeed a pity, but we are pleased that the Government are in a receptive mode and grateful for that further assurance from the Minister. Indeed, Amendments Nos. 5 and 6 in this group, amending Clause 44 on the execution of documents, take that proposal a stage further.

However, we still harbour some concerns that the Government do not seem to have fully appreciated the thrusts of our amendments in Committee and on Report. The execution of documents point that they have agreed to consider was only part of our argument. The bigger picture was about the empowerment of company secretaries where they are not legally required; that is, secretaries who private companies choose to have even though the law does not oblige it. That is why we have tabled a further group this afternoon. The position of such secretaries under the Bill is unclear. There are no requirements for them to be registered, nor to be fit for their role; there are none of the requirements that secretaries of public companies must fulfil.

We do not argue with the deregulatory intent behind that approach, which is obviously aimed at easing the burden on smaller companies, but it has drawbacks. The lack of any requirement for the registration of secretaries will leave those that still exist in limbo, with no official recognition of their status. For example, how will an outsider to the company know, or be able to check, that such a person is a company secretary? The role is, currently, one that helps encourage the spread of good corporate governance; yet, by removing the need for any registration and denying them any legal status, the Government have cut the ground from under the feet of all secretaries of private companies, no matter how large.

Now, we agree that many companies welcome the removal of the need to have a secretary and the Bill will result in a decreased regulatory burden for them. Yet, there will remain some private companies, especially the larger ones, for whom a secretary adds value. Those companies who want to keep a person in that role should not then see the legal status of that secretary eroded or weakened. The Government seem, to us, to have missed that point and we now ask them to reconsider it. The amendment will impose no burdens on those companies that choose not to have a secretary, which will be unaffected. It will give strength to those companies which wish to preserve the status quo by keeping a secretary, probably because they believe that such a person adds value to their corporate governance processes. In that spirit, I beg to move.

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, the Bill abolishes the requirement for private companies to appoint a company secretary. This is a major deregulatory measure. The Company Law Review recommended that as, it argued, the decision on whether to use the services of a secretary should be made by the market rather than by law. Removing the requirement to appoint a company secretary does not prevent a private company appointing one; it leaves the decision entirely to the company, giving it the freedom to choose. If it chooses not to appoint a secretary, the approach of the Bill is that the appointment is not subject to any regulatory requirements. If, on the other hand, the company chooses to appoint a secretary, the company is completely free to decide what its secretary's function will be.

The Bill gives greater flexibility to companies in their internal administrative arrangements. For example, some companies might choose to appoint someone as secretary just for peak periods, with the director or directors doing whatever else was necessary between times. To require such a company to notify the registrar of the appointment and its termination each time, and to keep a register of such short-term appointments, would be over-burdensome. Surely, the only justification for imposing such a burden would be if the information is genuinely needed by third parties. At present, third parties only ever need that information when the secretary is participating in the execution of documents. That is why it is sensible to discuss together the amendments relating to a company secretary's details being on the public record and those relating to the execution of documents.

There are four questions that need to be addressed with this group of amendments. First, who should be able to execute documents for a company? Secondly, and related to the first, if private companies appoint a secretary, should that secretary be able to participate in the execution of documents for the company? Thirdly, should the details of any secretary voluntarily appointed by a private company be on the public record? Fourthly, and finally, if private companies appoint a secretary, should the directors be under an express duty, imposed by the Bill, to secure that the secretary is a person who appears to them to have the requisite knowledge and experience to discharge the functions of a secretary?

I shall address these questions in that order, although not in the order of their appearance in the Bill. First, who should be able to execute documents for a company? At present, for any company executing documents, the alternative provided under the law of England and Wales to affixing its common seal is execution by signature of either two directors or a director and the secretary. Importantly, these two signatures can be made at different times and places. As many noble Lords have pointed out, this flexibility can be very useful to companies. Yet this flexibility will not be available under the Bill as presently drafted, particularly for those private companies that have only one director. Neither does the new provision introduced by the Bill, that a director may execute a document in the presence of a witness, wholly solve the problem, because the witness must be present at the moment the director places his signature. We accept that this is a weakness.

As indicated on Report, we therefore propose to implement the recommendation made to us by the Law Society and the City of London Law Society that the provisions which set out who is able to execute a document for a company should be less restrictive than either under the present law or as in the Bill. Instead, every company is to be able to designate whoever it chooses to execute documents for it, but only if it so wishes. This new option will be entirely voluntary. There will not be a requirement on any company to use this new facility and companies will be able to designate as many individuals in this capacity as they wish, provided that they are an individual who is 16 or over.

Directors and public company secretaries will remain able to execute documents, by virtue of their office. Any designated signatories will be in addition to them. It is expected that many private companies that choose to appoint secretaries will want to give the role as a designated signatory to their secretaries, but this may not always be the case and it is not to be a requirement. We are also considering whether transitional provisions for existing secretaries of private companies should be made, automatically designating them for this role, at the first instance. So we are looking at the transitional arrangements. There will need to be a public record of designated signatories for the benefit of third parties with whom the company deals. We are consulting over draft amendments to implement this proposal with a view to introducing amendments to this effect in another place. I will place a copy of the consultation letter in the Library.

The second issue is, if private companies appoint a secretary, should that secretary automatically be able to participate in the execution of documents for the company? In company law there is a distinction between private companies and public companies, even though many private companies are big by any measure, whether number of shareholders, turnover, capitalisation, or whatever. Similarly, many public companies are small. The crucial difference between private and public is not a matter of size but a matter of governance and ownership. That is why we have argued, for example, that it makes sense for the requirement to have a company secretary to adopt this criterion. That is not to say that big private companies may not benefit from having a secretary and giving that secretary a particular role and function within the company. Rather, it is to say that in a private company, all decisions, including whether to have a secretary or not, and what functions to give any secretary appointed, should be left to the company alone—in other words, to those who will be directly affected by the decision. This should include the decision as to whether the secretary can execute documents.

My third question is whether private companies' secretaries should be on the public record. The purpose of the public record is to ensure that those who deal with the company know who has the necessary authority. But the Bill and the present law make this a real issue only in relation to secretaries with regard to execution of documents. In the case of private companies, it is therefore considered be an unnecessary and over-burdensome regulation to require entries on a company register and the notification requirements to the registrar, with the associated criminal offences, in the case of anyone except those able to execute documents. Details of all such persons must be on the public record, so that third parties can check and see. Under our proposals, when a private company has a secretary who is authorised to sign for it, that individual's particulars will need to be on the public record; if not, then not.

I accept that if private company secretaries, as the amendments propose, are automatically to be able to execute documents, their details ought to be on the public record. Where I take issue with the noble Lord is that it should be provided that private company secretaries should automatically be able to execute documents. I consider this a decision that should be left to the company, even though I expect that the vast majority of private companies that appoint a secretary will choose to designate them to execute documents.

The fourth point that arises under the proposed amendments in this group is, when a private company has chosen to appoint a secretary, whether the directors of that company should be subject to a new duty to secure that the secretary appears to them to have the requisite knowledge and experience to carry out the role. This would extend the extent to which the present law regulates the position of private company secretaries, rather than deregulate it, as we are proposing to do in this Bill following on from the Company Law Review recommendations. We would be going in exactly the other direction and increasing regulation. For the reasons expressed earlier, there are differences in approach to the governance and regulation of private companies, and in my view this proposal would lead only to unwarranted and unnecessary further regulation.

I regret that it has not been possible to table amendments that would provide that companies may designate one or more individuals who would be able to be signatories for the execution of documents under Clause 44 and who may authenticate under Clause 48. There are complications, to which I alluded earlier. But in the light of our clear intentions, I hope that the noble Lord will feel able to withdraw his amendments on the issues he has raised in this group.

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

My Lords, I am extremely grateful to the Minister for that very full response. Clearly, a great deal of thought has been given to this issue. I am grateful for the half—or is it a third?—of a loaf in regard to the change of approach as to who can execute documents and their appearance on the register. I think that we have gone as far as we can on this issue and, therefore, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 2 not moved.]

Clause 16 [Effect of registration]:

[Amendments Nos. 3 and 4 not moved.]

Clause 44 [Execution of documents]:

[Amendments Nos. 5 and 6 not moved.]

Clause 115 [Rights to inspect and request copies]:

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. 7:

Page 52, line 15, leave out subsections (3) to (8) and insert—

"( ) A person seeking to exercise either of the rights conferred by this section must make a request to the company to that effect.

( ) The request must contain the following information—

(a) in the case of an individual, his name and address;

(b) in the case of an organisation, the name and address of an individual responsible for making the request on behalf of the organisation;

(c) the purpose for which the information is to be used; and

(d) whether the information will be disclosed to any other person, and if so—

(i) where that person is an individual, his name and address,

(ii) where that person is an organisation, the name and address of an individual responsible for receiving the information on its behalf, and

(iii) the purpose for which the information is to be used by that person."

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, I shall speak to Amendments Nos. 7 to 10, which relate to the register of members, and also to Amendments Nos. 51 to 65 and to Amendments Nos. 81 and 99.

Recent activities of animal rights activists have once again focused attention on the risks associated with shareholders' names and addresses being publicly available. Last week, noble Lords made clear that they wanted the Bill to provide greater protection for members. We were very sympathetic to that. Clearly, there is a balance to be struck between, on the one hand, protecting members from attempts to defraud or to harass them and, on the other hand, members' and the public's right to know who a company's members are and how to contact them. As the UK Shareholders Association points out,

"easy access to share registers is important to maintain shareholder democracy".

I do not think that it is possible, while retaining the principle that the register is a public document, to draft provisions that will make it impossible for anyone ever to abuse the information it contains. However, I believe that this group of amendments strikes as fair a balance as possible between the various competing interests.

Before I deal with the amendments in detail, it is perhaps worth explaining the Government's general approach to this problem. We start from the position that the existing law, which has been amended several times in recent years, particularly by the Serious Organised Crime and Police Act 2005, is entirely adequate to deal with cases of the sort recently exemplified by the attempted harassment of GlaxoSmithKline shareholders. Once someone is putting information from the register to malicious or fraudulent use, they will be committing an offence under the existing law. Moreover, the existing law on aiding and abetting, counselling and procuring and conspiring to commit criminal offences deals with those who deliberately assist campaigns of fraud or intimidation without participating in them directly. What we are therefore concerned with here is to try to ensure that when these crimes are committed, there is a paper trail leading from the primary offenders back to the requests made to the company for access to the register. By introducing further safeguards and offences at the top end of this paper trail, we aim to assist companies in exercising their rights and generally to encourage much tighter management of information from registers of members by all concerned.

In framing these amendments, we have, of course, considered a broad range of possible provisions. We are grateful to the Opposition and other interested parties for having suggested some of these. I will come later to why we have not adopted some of the suggestions that they have made.

I turn now to the amendments themselves. Clause 115 provides that access to the register of members will be denied if, but only if, the court, on the company's application, is satisfied that it is not being sought for a proper purpose. The first three amendments expand this clause. Amendment No. 7 makes it easier for companies to identify those requests for access to their registers of members that may be damaging to members' interests and ensures that companies will have a record of who has requested access and why they have said they want it. It also makes it easier for companies to decide whether or not to comply with such a request.

Amendment No. 8 protects companies from improper requests in two ways. It provides the power for the court to order that the costs of the application to the court be paid by the person making the request. It also addresses the risk of companies being swamped by co-ordinated campaigns in which, for example, activist organisations might generate hundreds of similar access requests. In this context it provides the court with the power to make an order prospectively, relieving the company of any obligation to grant access to its register in response to a specified class of further requests. Amendment No. 9 simply replicates subsections (6) and (7) of current Clause 115.

Amendment No. 10 introduces two new offences relating to abuse of the public right of access to registers of members. As I have already mentioned, we are satisfied that the existing criminal laws of theft and harassment deal adequately with substantive misuse of information from registers of members. However, we consider that it would afford useful extra protection if it were an offence to make a misleading, false or deceptive statement when applying for access to the register, or to do, or fail to do, things that may lead to the information coming into the hands of someone who may use it for an improper purpose. Amendment No. 10 provides for such offences. These amendments fulfil my promise at Report to bring forward amendments to strengthen this clause.

I turn now to some of the suggestions made in this area which we have not followed. We were urged to define what constitutes a proper or improper purpose. In our view this is a case where it is impossible to formulate a definition satisfactory in all situations. In this case that does not matter, because a court or company will instinctively know a purpose that is not proper when it sees one. Any definition we put in the Bill would either restrict the discretion of the courts in a way that would be unhelpful in the future, or fail in its purpose. For example, we could talk in terms of purposes relevant to members' holdings or the exercise of their interest, and clearly most such purposes would be proper. On the other hand, it would be easy to present a letter-writing campaign by animal rights activists as falling within such a definition. Even giving examples could narrow the perception of what is thought of as proper, and so risk diminishing the protection this clause affords to members.

It is not an undue burden to place on companies who have a suspicion that a request for access to its register may be misused to ask them to decide that it may not be for a proper purpose, and so apply to the court. It could be argued that the burden should be the other way around: that those requesting access be obliged to prove that their request is for a proper purpose and apply to the court if it is turned down. However, this would be a step too far away from a public right of access to a register.

I return now to the other amendments in this group. It is not sufficient only to protect members. There are similar rights of access to any register of debenture holders that a company may keep. New Part 19A, introduced by Amendments Nos. 54 to 60, moves Clauses 581 to 583. These did not sit comfortably in Part 19, and are thus removed by Amendments Nos. 51 to 53. These amendments also introduce further provisions to ensure that debenture holders have the same protection that the earlier amendments provide for the register of members.

A public company that investigates the interests in its shares using the powers conferred under Part 21 is required also to keep a register of interests in shares. There are significant differences between these registers and registers of members, not least the absence of a time limit for the company's compliance with a request for access. As the risks listed are similar to those affecting members, Amendments Nos. 61 to 65 provide similar protection, while retaining the effect of the previous clauses. We have been mindful of the need to strengthen existing safeguards without overreacting to recent events. I hope noble Lords will agree that these amendments increase protection for companies' shareholders while retaining the ability for anyone to contact the owners of any company.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Shadow Minister, Home Affairs, Shadow Minister, Trade & Industry 4:00 pm, 23rd May 2006

My Lords, the whole House will be grateful to the Minister for the amendments he has tabled. As he says, there is a delicate balance to be struck between shareholder democracy and shareholder tyranny. On these Benches we welcome these changes, which are clearly an important and worthwhile step in the right direction. Events involving GlaxoSmithKline have given them urgency. We have not yet had much time to study them or to think through their implications. That will probably be for debate in the other place, during Committee stage. We wonder whether further tightening-up will be needed as consultation takes place.

Three thoughts have occurred to us, which I offer to the Minister this afternoon. First, we have not heard the end of the issue of proper purpose and the definition thereof. If a company—particularly in the early months and years of the legislation without any court guidance on what the court thinks is proper or improper—has to go to the trouble and expense of going to court, there must be a risk that, because of the time, money and the risk to reputation of going to court and being turned down, it will be inclined to hand over the register rather than go through that hurdle. The "not a proper purpose" issue will have to be further probed as consultation takes place.

The second question is whether the amendments prevent the chain request; that is where I persuade someone who is perfectly legitimate to use a legitimate purpose to get the register for someone else. Therefore, will there be a proper trace back to the person who is improper, even if the sequences in the chain are perfectly proper? The last thought is whether there is an alternative route that might provide a more effective way of preventing this situation in the Data Protection Act or equivalent legislation, which would achieve the purpose that we entirely share in a way that shuts off the issue more completely than it is possible to do in what is, after all, a company law reform Bill.

Those are our thoughts, on which I hope the Minister may be able to give some preliminary comments. For the time being, from these Benches, we welcome the Government's prompt attention to this important matter and entirely support the amendments.

Photo of Lord Clinton-Davis Lord Clinton-Davis Labour

My Lords, as far as one can see, the Government have dealt with the mischief that we had the misfortune to witness the other day, but only experience will tell. I hope that what the Minister said will satisfactorily deal with the situation, but if the Act is not performing well, would he be prepared to look at it again with an open mind? I am not saying that it will happen, but it might.

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

My Lords, I share the thanks of the Conservative Benches to the Government for the amendments. I have a couple of points to make. First, there should be no doubt about the seriousness of the issue that the amendments are attempting to address. Anyone who heard the chief executive of GlaxoSmithKline on the radio the other day will have taken heed of his warning that there is a danger that significant chemical and scientific research will be exported outside the United Kingdom if the actions of extremists continue. He even suggested that those decisions were already being taken by multinational companies, so it is in the interests of UK plc that the Government get this right.

It was slightly unfortunate that the chief executive went on to say that he did not think that any change in the law was necessary. Although he was making the technical point that the Minister also made that existing statutes could be used to prosecute such people, he gave the impression that this was not a serious issue requiring a change of the law, which does not reflect the Government's position. I share the Government's concern.

Secondly, we had 13 days in the Moses Room in Committee on this Bill, which are forever etched in our memories, and we had three days on Report. However, because of the events triggered by GlaxoSmithKline, the Government are being forced at this very late stage of the Bill to bring forward these amendments for the first time. What would have happened had this process started at the beginning of the Bill? This is no criticism of anyone; this is just what has been provoked by recent events. Had this come at the beginning of the Bill, the Conservative and Liberal Democrat Opposition and the Government would have had the benefit of extensive consultation and input from all those people who have given us input on all sides, which has enabled this Bill to be significantly improved as it has passed through its various stages.

I just hope that when the Bill goes to another place, the Government will take heed of the fact that that consultation exercise will probably need to take place without the benefit of the two experts sitting on the Government Front Bench here. The other place does not have a serious record of imposing detailed scrutiny on these sorts of points in technical Bills of this kind, so I urge the Minister to impress on his colleagues in another place that, when the Bill goes into Committee, they should concentrate on the clauses that have not received the detailed scrutiny given to some other clauses in the Bill.

Photo of Viscount Bledisloe Viscount Bledisloe Crossbench

My Lords, I want to make a couple of observations related to those made by the noble Lord, Lord Hodgson. Unlike the noble Lord, I do not think that it is viable to try to define "a proper purpose". You can be absolutely guaranteed that the one thing you leave out of the definition will be the one thing that happens.

On the other hand, I am a little unhappy that the test for the court is still the motive of the person making the request—what he seeks it for—rather than the way that the information is likely to be used. Perhaps I may illustrate what I mean. A very worthy, but perhaps somewhat naive, person genuinely wants to write to those who have shares in animal research companies and wants to get the names to do so. However, the person is associated with, or is a member of, one of the extremist organisations. From experience in relation to other companies, it is well known that if this worthy person gets the list, he will pass it on to the activists, who will then use it for an improper purpose.

Although the motive of the person seeking the information is perfectly proper, surely the fact that the court is convinced that the information will be used thereafter for an improper purpose should require it to refuse the application. I accept that the people misusing the information may be committing offences and so on, but that has never daunted them in the past and it will not daunt them in the future. Surely the purpose of the provision is to ensure that the names and addresses do not get into their hands. I suggest that the other place considers adding words such as "is not sought or is unlikely to be used for an improper purpose". I am not trying to draft on my feet but I hope that the Minister sees what I am getting at.

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, obviously we will keep an open mind on this issue, should it not work in the future. However, the problem is that you can have an open mind and make decisions but then there is always a time-lag in getting changes made in the legislation. Therefore, we want to make every effort to get it right on this occasion.

I think that we dealt with the problem of what the noble Lord, Lord Hodgson, described as the chain-letter situation, to which the noble Viscount, Lord Bledisloe, also referred. That is covered by Amendment No. 10, which states:

"It is an offence for a person in possession of information obtained by exercise of either of the rights conferred by that section . . . to do anything that results in the information being disclosed to another person, or . . . to fail to do anything with the result that the information is disclosed to another person, knowing or having reason to suspect that person may use the information for a purpose that is not a proper purpose".

So we are trying to put a block on the chain-letter situation, which would be a way round the problem.

This clause was already in the Bill. Therefore, the Government had thought about this point and wanted to act on it. I am delighted that the Opposition and other noble Lords pointed out that it could be strengthened, and we think that it now is. Finally, Ministers on these Benches and in the other place work together as a team, whatever may happen to other parties.

Photo of Lord Jenkin of Roding Lord Jenkin of Roding Conservative 4:15 pm, 23rd May 2006

My Lords, I apologise profusely for not being here at the start of the debate. I want to express my thanks to those who have been briefing me on the question, and to say that the Government have made a fair attempt to deal with this problem. I have studied Amendment No. 8, which seems to me to meet the case. The court will no doubt be able to decide what is or is not "a proper purpose". It has probably already been said, and I apologise, but this needs to be examined carefully, and I hope that the Minister will not rule out the possibility of amendments being moved in another place.

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. 8 to 10:

After Clause 115, insert the following new clause—

"REGISTER OF MEMBERS: RESPONSE TO REQUEST FOR INSPECTION OR COPY

(1) Where a company receives a request under section 115 (register of members: right to inspect and require copy), it must within five working days either—

(a) comply with the request, or

(b) apply to the court.

(2) If it applies to the court it must notify the person making the request.

(3) If on an application under this section the court is satisfied that the inspection or copy is not sought for a proper purpose—

(a) it shall direct the company not to comply with the request, and

(b) it may further order that the company's costs (in Scotland, expenses) on the application be paid in whole or in part by the person who made the request, even if he is not a party to the application.

(4) If the court makes such a direction and it appears to the court that the company is or may be subject to other requests made for a similar purpose (whether made by the same person or different persons), it may direct that the company is not to comply with any such request.

The order must contain such provision as appears to the court appropriate to identify the requests to which it applies.

(5) If on an application under this section the court does not direct the company not to comply with the request, the company must comply with the request immediately upon the court giving its decision or, as the case may be, the proceedings being discontinued."

After Clause 115, insert the following new clause—

"REGISTER OF MEMBERS: REFUSAL OF INSPECTION OR DEFAULT IN PROVIDING COPY

(1) If an inspection required under section 115 (register of members: right to inspect and require copy) is refused or default is made in providing a copy required under that section, otherwise than in accordance with an order of the court, an offence is committed by—

(a) the company, and

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

(2) A person guilty of an offence under this section is liable on summary conviction to a fine not exceeding level 3 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 3 on the standard scale.

(3) In the case of any such refusal or default the court may by order compel an immediate inspection or, as the case may be, direct that the copy required be sent to the person requesting it."

After Clause 115, insert the following new clause—

"REGISTER OF MEMBERS: OFFENCES IN CONNECTION WITH REQUEST FOR OR DISCLOSURE OF INFORMATION

(1) It is an offence for a person knowingly or recklessly to make in a request under section 115 (register of members: right to inspect or require copy) a statement that is misleading, false or deceptive in a material particular.

(2) It is an offence for a person in possession of information obtained by exercise of either of the rights conferred by that section—

(a) to do anything that results in the information being disclosed to another person, or

(b) to fail to do anything with the result that the information is disclosed to another person, knowing or having reason to suspect that person may use the information for a purpose that is not a proper purpose.

(3) A person guilty of an offence under this section is liable—

(a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both);

(b) on summary conviction—

(i) in England and Wales, to imprisonment for a term not exceeding twelve months or to a fine not exceeding the statutory maximum (or both);

(ii) in Scotland or Northern Ireland, to imprisonment for a term not exceeding six months, or to a fine not exceeding the statutory maximum (or both)."

On Question, amendments agreed to.

Clause 158 [Duty to avoid conflicts of interest]:

Photo of Lord Freeman Lord Freeman Conservative

moved Amendment No. 11:

Page 69, line 41, at end insert "; or

(c) if the matter has been lawfully authorised by the company's constitution."

Photo of Lord Freeman Lord Freeman Conservative

My Lords, in moving Amendment No. 11 in my name and that of my noble friend Lord Hodgson of Astley Abbotts, I shall also speak to Amendments Nos. 12 and 13.

The purpose of Amendment No. 11 is to enable the articles of a company to authorise a matter that would otherwise give rise to a breach of duty under the clause in so far as it is permitted by law. The matter has been raised by the Law Society, and there have been constructive discussions for which I am very grateful. I shall therefore be briefer than I would otherwise be because I am anticipating government Amendments Nos. 14 and 15.

On Report, we tabled an amendment to the then Clause 159(4) that was designed to enable the company's articles of association to authorise a matter that otherwise would constitute a conflict of interest, provided it did not contravene a common law rule or equitable principle. The noble and learned Lord the Attorney-General said on Report at col. 866 that the Government would consider the general point made at that stage.

The amendment to Clause 158(4) is narrower, but it is again designed to achieve a similar objective by enabling a company's articles of association to authorise a matter which otherwise would constitute a conflict of interest provided that it is lawful.

On Report, the Minister acknowledged that this was a difficult area. He also acknowledged that because old Clauses 159 and 160 characterised the obligations contained in those clauses as duties, the analysis in the Movitex case, to which the noble and learned Lord the Attorney-General referred, might no longer be available. The Minister objected to our amendment on Report because in his view it appeared to permit the company's constitution to provide a very wide exemption from liability, with the result that the only limits when it would not be possible to exempt directors' liability would be when actual fraud or dishonesty were involved.

However, the Minister stated that the point raised ought to be considered and that the Government would consider it further before Third Reading. On that basis the amendment was withdrawn. I note government Amendments Nos. 14 and 15, to which the Minister will speak shortly. I ask him to confirm my understanding that those amendments refer to new Clauses 158 and 159. I beg to move.

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, my noble and learned friend the Attorney-General set out our approach to this important but technically complex issue on Report. Two major principles have guided our approach. The first is that we cannot agree to return to the pre-1928 position, under which companies were able to include widely drafted exemption clauses in their articles. The current law sets the balance. It is acceptable for the articles to exempt directors from liability for certain conflicts. But for the necessary protection of the company, it is not acceptable for articles to exempt the directors from others.

The second principle is that we do not want to prevent the articles doing what they can now do in relation to these matters, which fall within Clauses 158 or 159. Clause 163(4) already enables companies to give authorisation in all the ways that they may do so at the moment. Our amendment to this provision expands it to make clear that the company's articles may authorise conflicts of interest. The articles may contain provisions for dealing with conflicts of interest, and the directors will not be in breach of duty if they act in accordance with those provisions. Examples might include arrangements whereby the directors withdraw from any board meeting at which the matters relating to conflict of interest are discussed. Clause 213 imposes limits on what the articles may do. Our amendment ensures that the articles are not prevented from doing anything currently possible in relation to conflicts of interest.

The result of these two government amendments is that everything that may currently be done in the articles for authorising or dealing with conflicts of interest will remain valid and can continue to be done in the future. The Bill will leave the law unchanged in this area. Our amendments will allow all the normal, perfectly acceptable, lawful ways in which companies and their directors deal with conflicts of interest through their articles to continue.

We accept that these issues are extremely difficult and delicate. We are prepared to continue to look with stakeholders to see whether more can be done to achieve greater clarity without opening up the possibility of widely drafted exemption clauses in companies' constitutions. We hope, on the basis of our amendments, that the noble Lord will feel able to withdraw his. It is also true that the amendments apply to Clauses 158 and 159.

Photo of Lord Freeman Lord Freeman Conservative

My Lords, I am grateful to the Minister; this is a real advance. The government amendments should be commended and, on that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 159 [Duty not to accept benefits from third parties]:

[Amendments Nos. 12 and 13 not moved.]

Clause 163 [Consent, approval or authorisation by members]:

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. 14:

Page 72, line 6, leave out subsection (4) and insert—

"( ) The general duties—

(a) have effect subject to any rule of law enabling the company to give authority, specifically or generally, for anything to be done (or omitted) by the directors, or any of them, that would otherwise be a breach of duty, and

(b) where the company's articles contain provisions for dealing with conflicts of interest, are not infringed by anything done (or omitted) by the directors, or any of them, in accordance with those provisions."

On Question, amendment agreed to.

Clause 213 [Provisions protecting directors from liability]:

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. 15:

Page 97, line 17, at end insert—

"( ) Nothing in this section prevents a company's articles from making such provision as has previously been lawful for dealing with conflicts of interest."

On Question, amendment agreed to.

Photo of Lord Freeman Lord Freeman Conservative

moved Amendment No. 16:

Page 97, line 17, at end insert—

"( ) This section does not apply to a provision made by a company ("Company A") in respect of a director of an associated company of Company A—

(a) if the associated company is a wholly owned subsidiary of Company A, or

(b) to the extent that the associated company is acting or, otherwise than in bad faith, purporting to act as a trustee of an occupational pension scheme."

Photo of Lord Freeman Lord Freeman Conservative

My Lords, this amendment brings back an issue which we discussed, on which the Government indicated that further consultation would be required. It stems from concerns of the Confederation of British Industry and others.

The amendment was previously tabled in Grand Committee, and seeks to meet concerns that the Bill goes too far in preventing parent companies indemnifying directors of their subsidiary companies and, in particular, employing companies indemnifying the directors of corporate trustees of their occupational pension schemes. The problem is particularly acute given the limited protection afforded to such employee directors by directors and officers' liability insurance policies currently available.

The amendment will aid recruitment of and provide appropriate protection for employee directors of subsidiary companies, including company secretaries, who frequently act as directors of subsidiary companies to aid company administration and compliance requirements, and for employees who agree to act as directors of pension trustee subsidiary or associated companies. In Grand Committee, at Hansard cols. GC 366 and GC 367 on 9 February, the noble and learned Lord the Attorney-General seemed sympathetic to my amendment, and sought further consultations on the problems highlighted.

While my amendment may require some further development in due course, we are keen to see the Government accept the principle that parent companies and subsidiary parent undertakings are able to indemnify the directors of subsidiary companies. We do not see any issue as to the possible scope for abuse in providing such an indemnity, which has apparently been one of the Government's concerns. We look forward to the Government addressing companies' concerns in this area. I am therefore sure that your Lordships would appreciate a progress report from Government on where consultation has got to. I beg to move.

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, this amendment deals with two distinct issues: first, exempting or excluding from these provisions the case of an indemnity by a parent company to directors of its wholly owned subsidiaries; and secondly, dealing with pension trustees. I will deal with these separately.

As my noble and learned friend the Attorney-General explained in Grand Committee, the Companies (Audit, Investigations and Community Enterprise) Act 2004 closed an important loophole concerning the indemnification of directors by third parties. It used to be the practice in some groups of companies for one group company to indemnify a director of another company in the same group. That is not acceptable. If one company in the group is not permitted to provide indemnification, we do not think it is right for another group company to do so.

It is also important to remember that, at the same time as the loophole was closed, important reforms were introduced that permit all companies to indemnify directors against third-party claims, subject to the requirements in Clause 215. Although we agree that indemnification by a parent company of the directors of its wholly owned subsidiaries is less likely to result in attempts at circumvention of the prohibition than indemnification by a wholly owned subsidiary company of the director of a holding company, we still believe there is scope for potential mischief. We cannot, therefore, accept this aspect of the amendment.

The amendment also raises the possibility of indemnification by an associated company of a director of a company acting as a trustee of an occupational pension scheme. We made clear in Committee that the Government attach great importance to the work of such directors, and that we are aware that it can sometimes be difficult to recruit high-quality directors for such companies. In view of that, we said that we would look further at the issue, and we have sought the views of key stakeholders.

The responses were broadly supportive. It was, for example, suggested that there is only a limited market for indemnity insurance in this area, which in turn is expensive. It was also argued that, in principle, there is no reason to prevent indemnification of trustees by reason of the structure adopted for the trust vehicle. In the light of the comments that we have received, we accept that indemnification of trustees is not otherwise a controversial practice and that there are reasonable grounds for concluding that there are concerns that deserve to be addressed. We are, therefore, willing to accept in principle this aspect of the amendment. We will, however, need to consider the drafting of the amendment carefully. I invite the noble Lord, Lord Freeman, to withdraw the amendment with a view to the Government tabling their own in another place.

Photo of Lord Freeman Lord Freeman Conservative

My Lords, I am grateful to the Minister for addressing the second part of the amendment. I accept entirely what he says and I am grateful to him and the Government for considering the point. I think we must beg to differ on the first point, but this is not the time or place to press my amendment. My colleagues may wish to discuss it again in another place. In the mean time, I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

Clause 220 [Protected information]:

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. 17:

Page 101, line 2, at end insert—

"( ) Information does not cease to be protected information on the individual ceasing to be a director of the company.

References in this Chapter to a director include, to that extent, a former director."

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, the amendment ensures that the Bill's protection of directors' home addresses will continue when an individual ceases to be a director. I am grateful to the noble Lord, Lord Jenkin, for prompting us to check that the protection does not end with employment. I beg to move.

Photo of Lord Jenkin of Roding Lord Jenkin of Roding Conservative

My Lords, I am very grateful that the noble Lord has taken the point made in an amendment that I moved on Report. There is a related problem that I hope may be addressed: if a director of a company that is likely to be targeted by animal terrorists is also a director of other companies, those companies are obliged to disclose his address unless the court has made an order. Terrorists could get hold of a director's address through that avenue. Can a director of an entirely independent company apply to the court for his address to be withheld? Many people are directors of a number of companies and are all the more valuable for it. Can a director say that he does not want his address to be disclosed, not because of anything that that company may be doing—it may have nothing to do with animal research—but to prevent harassment and intimidation of him via his family? Will that be open to a director in the circumstances that I have envisaged?

Photo of Lord Freeman Lord Freeman Conservative 4:30 pm, 23rd May 2006

My Lords, I join my noble friend Lord Jenkin in congratulating the Government on bringing forward this amendment. Perhaps I may put down a marker with the Minister. I raised a point in Committee and on Report which is, as yet, unanswered and to which my noble friend Lord Jenkin now refers. I should be grateful if the Government could give it further consideration. It is a procedural matter but an important one. There may well be a small number of circumstances in which the current address of a director who has protection under a current filing could be discovered in past filings. His address could be discovered because those applying for information from Companies House can simply apply for the disclosure of a current address from other filings. I accept that this is a technical matter but it could be an important issue. It is not impossible for the registrar at Companies House to expunge previous records, both on microfiche and paper filings. I ask the Government to continue to consider that point.

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, for once, the Government are ahead of the game. Of course, as a director one can now use a service address and one does not have to use one's residential address. Assuming one has done that, one is covered. The new clause inserted after Clause 708, which we agreed last week, already deals with the point made by the noble Lord, Lord Freeman.

On Question, amendment agreed to.

Clause 243 [Whether permission to be given]:

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

moved Amendment No. 18:

Page 111, line 20, at end insert—

"( ) whether any alternative remedy is available to the member"

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

My Lords, Amendment No. 18 brings us to Part 11, whether permission be given. This is concerned with derivative claims, an issue which has given rise to a great deal of concern and about which we have had lengthy debates. We are very grateful to the Government for the important changes that they made to Part 11 at Report stage. They went a long way towards easing concerns on this issue. However, there are still misgivings over the effect that the enactment of this part will have if left as drafted. One should not underestimate the impact of possible threats under this part on the readiness of people to serve as non-executive directors.

Amendment No. 18 inserts into Clause 243(3) a clear provision requiring a court, in considering whether to give permission to continue a derivative claim, to take into account,

"whether any alternative remedy is available to the member".

That is not clear from the Bill as drafted.

In its report, Shareholder Remedies, published in 1997, the Law Commission, referring to the case of Barrett v Duckett—1995 1 BCLC 243—recommended that the court should take into account the availability of alternative remedies. Consistently with that recommendation, it included as a factor for a court to take into account whether a remedy is available as an alternative to a derivative claim.

In the context of contributory winding-up petitions, it has long been held that "alternative remedy" is not confined to an alternative cause of action available to the petitioner, but includes a fair offer to buy the petitioner's shares. That was the situation in Re a Company in 1983, Re a Company in 1987 and Re Cyracuse Ltd in 2001. An alternative remedy has also always been a potential bar to a derivative action, as in the case of Barrett v Duckett where the alternative remedy on which the court relied was a liquidation offered by the defendant, which the claimant opposed; in other words, this was an alternative means provided by the defendant for the claimant to receive a fair value for her shares. The policy behind this approach is that it would be wrong for the claimant or petitioner to continue with proceedings that will affect shareholders generally if his grievance can be met in some other way, which may include receiving a fair value for his shares. Whether this is an answer to his grievance on the facts of a particular case will be a matter for the court to decide in the exercise of its discretion.

Clause 243, "Whether permission to be given", as it stands, does not incorporate this recommendation of the Law Commission. Clause 243(3)(f), as it now stands, partly addresses the point, but imposes a limit on the concept of alternative remedy by confining it to an alternative cause of action that a member could pursue in his own right. We cannot see any good policy reason for confining the concept of alternative remedy in this way. Nor is the point satisfactorily addressed by Clause 243(3)(a) which requires the court to take into account whether the member is acting in good faith since the requirement of good faith for a claimant in a derivative action has always been treated as a separate hurdle from that imposed by the availability of an alternative remedy. Our amendment would give effect to the Law Commission's recommendation and would finally achieve a fair and proper balance in this very difficult area. I beg to move.

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, my noble and learned friend the Attorney-General has said that the provisions relating to derivative claims in Part 11 of the Bill have their origin in the Law Commission's 1997 report on shareholder remedies. I readily acknowledge this and also acknowledge the argument that this amendment reflects a Law Commission recommendation, although I have to say that I am not wholly persuaded that it is what it intended. Either way, as noble Lords opposite have frequently reminded us, we have to consider proposals on their merits in the context of today.

There are two important reasons why we cannot support this amendment. In the first place, it seems to us that an offer to buy the petitioner's shares is not an appropriate remedy in the circumstances of a derivative claim. Such a remedy derives from provisions relating to winding up, and it is a perfectly fair and reasonable remedy in that context where some members want the business to continue and others do not. However, we are dealing here with claims which are brought in the name of the company against a director for breach of duty. The court may in due course find that the director has been negligent or has put his own interests ahead of those of the company. In such circumstances, we believe that the appropriate remedy would be one of the usual consequences of breach of duty, such as damages or compensation where the company has suffered loss or restoration of the company's property. It is the company that has suffered as the result of the director's breach of duty and we therefore do not believe that the court should be required to take account of an alternative remedy available essentially between the members, such as an offer to buy the petitioner's shares.

Secondly, we do not think that the proposed amendment is in the interests of companies or of their shareholders as a whole. Noble Lords have in previous debates in this House rightly drawn attention to the activities of vulture funds. Their arrival is a new element that needs to be taken into account. We believe that there is a strong possibility that the insertion of this additional factor in the list of matters of which the court must take account might encourage such funds to tell companies that they must either buy them out or face a possible derivative claim. In short, we fear that it would be open to abuse.

I hope that the noble Lord, Lord Hodgson, will be willing to withdraw his amendment in the light of these concerns. In inviting him to do so, I put on record again our gratitude to all those who have commented on the clauses in this important part of the Bill and have helped to ensure that we have got the balance right.

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

My Lords, I thank the Minister for that answer. I accept the point he made about vulture funds and how this could be an incentive to them. Our amendment was concerned with a situation where the value of the company for the shareholders as a whole might be diminished by prolonged public struggle over some derivative claim that could more easily be solved by the passage of money. We accept that there is the countervailing argument that the Minister has properly put forward. I think we have taken this as far as we can this afternoon. I am grateful to the Minister for his response. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 253 [Qualifications of secretaries of public companies]:

[Amendments Nos. 19 and 20 not moved.]

Clause 255 [Duty to keep register of secretaries]:

[Amendment No. 21 not moved.]

Clause 256 [Duty to notify registrar of changes]:

[Amendment No. 22 not moved.]

Clause 257 [Particulars of secretaries to be registered: individuals]:

[Amendment No. 23 not moved.]

Clause 258 [Particulars of secretaries to be registered: corporate secretaries and firms]:

[Amendment No. 24 not moved.]

Clause 259 [Particulars of secretaries to be registered: power to make regulations]:

[Amendment No. 25 not moved.]

Clause 260 [Acts done by person in dual capacity]:

[Amendment No. 26 not moved.]

Clause 307 [Notice required of appointment of proxy etc]:

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, this is a group of minor technical amendments. The Bill defines a working day in Clause 789. The definition could have been used in Clauses 307, 310 and 624, but was not, so the amendments tidy up the drafting. There is no substantive change. However, I am delighted we have found this error at this late stage. I beg to move.

On Question, amendment agreed to.

Clause 310 [Notice required of termination of proxy's authority]:

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. 28:

Page 138, line 32, leave out from "a" to end of line 34 and insert "day that is not a working day"

On Question, amendment agreed to.

Clause 322 [Members' power to require independent report on poll]:

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

My Lords, in moving Amendment No. 29, I also speak to Amendments Nos. 32 to 38, by which we seek to strike out 10 clauses from this already overlong Bill. The amendments would remove the new provisions in the Bill relating to members' powers to require an independent report on a poll. We discussed this issue, too, in Grand Committee and on Report. Each time, we asked the Government a number of questions, which frankly still remain unanswered. The first question is: what mischief are the provisions supposed to remedy? The Minister justified them by saying that they were there because of a recommendation by the Company Law Review. He went on to say:

"The problem they were seeking to put right was a lack of confidence in the integrity and effectiveness of the voting processes in quoted companies. Their"— that is, the Company Law Review's—

"objective was to deal with what was perceived to be a problem in registering voting instructions".—[Hansard, 9/5/06; col. 896.]

My understanding of that reply is that no mischief needs remedying. The problem is a perceived one, as the Minister himself put it. We have not heard a single example or been given any evidence of cases where there has been an actual problem. We would therefore say that introducing these clumsy and burdensome requirements is an over-reaction. Surely there are less expensive and less restrictive ways of challenging this perception than by forcing this type of burden on all public companies.

A second unanswered question is: what value will these provisions add? Again, the Minister's reply on Report was that the benefit was improving confidence in investors. He also said:

"If an independent report found the poll to have been carried out improperly, the chairman's declaration made at the time could still stand. The company would be able to ensure through its articles that this would be the outcome of any report on a poll. What such a report would do, of course, is to put the directors on notice that the company's polling processes needed improving".—[Hansard, 9/5/06; col. 897.]

It seems to me that, with this response, the Minister has shot his own fox. The report will not, apparently, have sufficient authority to challenge the result of an improperly conducted poll; nor will it require the directors to change procedures. Instead, it will put them "on notice". This seems to be an awfully expensive and time-consuming way of achieving a minor objective. Surely directors will be on notice of any problem, perceived or real, by complaints from shareholders. The directors can authorise an independent poll themselves if the complaints appear to be valid, but to give members the right always to require such a poll is simply asking for abuse by minority interests.

Finally, the clauses do not reflect the reality of present-day company meetings. Resolutions used to be carried out almost exclusively on the basis of a show of hands, but no longer. Today, polls are increasingly used—a trend that must be expected to intensify in the future. As the noble Lord, Lord Sharman, pointed out in his powerful contribution on Report:

"It is important to understand that current practice is for most annual general meetings of shareholders to be conducted by poll. This is not something that happened under the 1948 Act or preceding Acts. The notion of a poll under those pieces of legislation was of something that happened when the board was in trouble and not supported by a show of hands".—[Hansard, 9/5/06; col. 895-6.]

So we are not talking about hypothetical rare cases where polls might be demanded and where an independent assessment might be needed.

The Minister concluded:

"These new provisions form part of the Government's wider objective to promote greater transparency and improve shareholder engagement".—[Hansard, 9/5/06; col. 897.]

We do not disagree with the importance of those objectives, but these clauses do nothing to achieve them. The potential burdens of these provisions far outweigh any possible benefits. The Minister, valiantly though he has tried, has failed to provide a compelling argument for us to support the new provisions in this Bill. I beg to move.

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) 4:45 pm, 23rd May 2006

My Lords, I will not repeat the arguments that we discussed in Committee and on Report about why these provisions are justified and the support from organisations—City representatives and practitioners—which are concerned with improving voting practice across UK quoted companies. I will just emphasise the key point made to us last week by the Investment Management Association. It said:

"An independent scrutiny of a poll would add critically to confidence in the integrity of the voting process and company law should require a scrutiny if requested by shareholders".

On Report, I addressed noble Lords' concerns about the practical operation of these provisions, how the poll report should not change the outcome of a meeting and why bringing an action under Clause 459 does not provide a satisfactory, cost-effective means of remedy for the shareholders. However, the noble Lord, Lord Hodgson, pressed further for evidence of the problem that we seek to cure. Inspired by his words that I should take an axe to these clauses and hack them out as an example of deregulation, I returned to the fray to see whether there was evidence and support from the City community on whether this was valuable or necessary. We had a rather strong reaction that this continues to be necessary and is valuable in practical terms today.

Let me give some examples that have been cited to us. In 2003, there was the much-publicised vote at GlaxoSmithKline to approve the directors' remuneration report, which was defeated by just half a per cent. Then there was a directors' remuneration report at BAE Systems, which the Institutional Shareholder Services had recommended voting against. The concern was whether the company had voted the shares held in American depositary receipts where no voting instructions had been given in order to ensure that the report was approved. Further examples that we have been given are mostly around where the vote has been contentious in nature, whether the count has been very close or questions about how shares held in ADRs have been voted. In each case, we are told that the right for shareholders to require an independent report would have helped allay concerns about the reputations of the companies in question.

The noble Lord, Lord Sharman, has suggested that since most polls are conducted by the registrar, who—perhaps I may quote the noble Lord—"is usually pretty independent", there is no need for these provisions. Earlier evidence to the Company Law Review suggested that that is exactly where the problems lie. It had evidence to suggest that the registering and counting of votes was accident-prone and that there were problems between registrars recording the votes on behalf of companies and those seeking to execute votes, in particular the institutional investors. Thus, the independent report is intended to scrutinise relations between those casting and those recording the votes and to act as a stick to ensure that rigorous voting systems are in place.

Noble Lords say that these provisions are unjustifiably regulatory and burdensome. We disagree. These provisions are giving shareholders, not some outside regulatory body, an additional tool by which to hold the directors to account. There is no burden on a quoted company unless shareholders exercise the right to require an independent report. Companies will not need to invest in setting up complex systems in advance just in case and, as I said on Report, shareholders of companies with good, transparent voting processes are less likely to ask for independent reports. These provisions are aimed at those with less reliable processes.

Noble Lords cannot have it both ways. If they voted recently to ensure that shareholders, by whatever means—nominee or otherwise—they hold their shares, can exercise their votes, then they should be in favour of empowering shareholders with this right to ask for the poll to be scrutinised. To remove these provisions from the Bill would be a backward step in terms of promoting greater transparency and enhancing shareholder engagement. I therefore urge the noble Lord to withdraw his amendment.

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

My Lords, I am very disappointed by the Minister's response, although I congratulate him on having dug up GlaxoSmithKline and BAE Systems, which are two important examples. I do not think that he should drag the nominee issue into this. This is quite different. The nominee issue was about empowering people to exercise their votes. This is about how their votes will be cast.

Frankly, there are probably a couple of cases, but the reality is that now, if institutional shareholders wished to obtain an independent poll, it would be an extremely brave company that said that it did not want an independent assessment of a poll. If a group of institutions said that they wanted it independently assessed, the company would say fine, because the damage to its reputation and its positioning in the City would be so great as to be incalculable if it did not agree.

We have here a huge piece of legislation: 10 clauses and five pages, which could be used by people such as the GlaxoSmithKline animal rights activists to cause a great deal of trouble and expense for investing companies. I do not think that the minor trouble that the Minister has managed to identify justifies the insertion of 10 clauses. I seek to test the opinion of the House.

On Question, Whether the said amendment (No. 29) shall be agreed to?

Their Lordships divided: Contents, 128; Not-Contents, 175.

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

Aye: 126 Members of the House of Lords

No: 173 Members of the House of Lords

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Resolved in the negative, and amendment disagreed to accordingly.

Clause 323 [Appointment of independent assessor]:

[Amendment No. 30 not moved.]

Clause 324 [Independence requirement]:

[Amendment No. 31 not moved.]

Clause 325 [Meaning of "associate"]:

[Amendment No. 32 not moved.]

Clause 326 [Effect of appointment of a partnership]:

[Amendment No. 33 not moved.]

Clause 327 [The independent assessor's report]:

[Amendment No. 34 not moved.]

Clause 328 [Rights of independent assessor: right to attend meeting etc]:

[Amendment No. 35 not moved.]

Clause 329 [Rights of independent assessor: right to information]:

[Amendment No. 36 not moved.]

Clause 330 [Offences relating to provision of information]:

[Amendment No. 37 not moved.]

Clause 331 [Information to be made available on website]:

[Amendment No. 38 not moved.]

Clause 396 [Contents of directors' report: business review]:

Photo of Baroness Northover Baroness Northover Spokesperson in the Lords, International Development, Liberal Democrat Lords Spokesperson (International Development)

My Lords, I rise to speak to Amendments Nos. 39 to 41, which stand in my name and that of my noble friend Lord Razzall. We discussed in Committee and at Report stage the genesis of these amendments. We originally welcomed the DTI's proposal of the OFR as a significant move toward greater corporate transparency and accountability, including in relation to the physical and social environment in which a company works. As the Minister knows, we regretted the Chancellor's commitment in November 2005, in a speech to the CBI, to abandon the OFR. At Report, we welcomed the improvements to the business review, which incorporated a number of the original OFR provisions. However, we feel that the Government have still not gone far enough, and I thank the Trade Justice Movement and CORE for their help in focusing on these extremely important issues.

Amendments Nos. 39 and 41 seek to expand the number of companies that would have to include information about their impact on the environment, the company's employees and social and community issues in their business review. The Bill currently requires quoted companies to include in their business review assessments of that same information, although it is,

"to the extent necessary for an understanding of the development, performance or position of the company's business", however that might be interpreted.

Surely, it is right that a larger number of companies—not just those that are publicly quoted—should be required to disclose information on social and community issues and the impact of the company's business on the environment. As highlighted on Report by my noble friend Lord Phillips of Sudbury, many companies responsible for the worst abuses around the world—for example, those named in the OECD report on operations in the DRC—are not publicly quoted companies. It therefore seems appropriate that all companies which have to produce a business review, not just the approximately 1,500 publicly listed companies, should be required to report on the full range of their impacts in a manner consistent with the size and complexity of their business operations.

These amendments seek to achieve that. Amendment No. 39 would extend the provision beyond listed companies and Amendment No. 41 would extend the provision to include medium-sized businesses to report as is appropriate to their complexity. I would note—and this may need to be addressed in the other place—that with subsection (5), which we welcome as far as it goes, added into Clause 396, there is some overlap between that and subsection (6), leading to a certain lack of clarity about where the additional provisions apply. I mentioned before, on Report, that the Government should produce guidelines about what they have mind; perhaps that should be done, as well as clarifying the clause, when this Bill reaches the other place.

Amendment No. 40 addresses another area. As well as information on social and environmental issues, an understanding of the treatment of suppliers is pertinent to the understanding of the company's business and the principal risks and uncertainties that it faces. It therefore makes sense that supplier issues—that is to say contractual or other arrangements with individuals that the business is dependent on—should be added to the list of factors on which directors should have to provide information in the business review. We therefore seek to add this.

In all, these amendments are about transparency, accountability and wider corporate social responsibility. Last night I attended the global business coalition on HIV/AIDS where major companies—Unilever, Merck, Amex and L'Oreal—won awards for what they are doing to help combat AIDS in Africa. They should be commended for that and would, I am sure, be happy to have their track record in these areas in the public domain. This is a chance to spread good practice, and I therefore commend the amendments to the House. I beg to move.

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

My Lords, I support the amendments standing in the name of my noble friend Lady Northover and my own. If my noble friend Lord Phillips of Sudbury had been here he would have wanted to make one specific point. Sadly, he cannot be here as he is on the Joint Committee on Consolidation, &c., Bills, the lucky fellow.

The obvious response to my noble friend's amendment is that an unnecessary burden would be put on small and medium-sized businesses. From our point of view, the sting is taken out of that opposition by reference to the words in the clause,

"to the extent necessary for an understanding of . . . the company's business".

Clearly, by definition, the smaller the company, the less information will have to be provided, because it will not be necessary for an understanding of the company's business. That provides an overarching protection to meet the necessary concerns that a number of people have, especially the NGOs, about the depredations by non-listed companies in the Third World, and getting the balance right between ensuring that they are caught by having to put the necessary information in the business review while, at the same time, not imposing excessive burdens on small businesses.

Photo of Lord Shutt of Greetland Lord Shutt of Greetland Chief Whip, Liberal Democrat Lords Chief Whip

My Lords, I support my noble friend on this, as there is a very serious issue here. In recent years, there has been this movement of the cult of private equity. We should look at the size of companies and not necessarily at the ownership of companies. Indeed, without this, that cult of private equity could go even further. It is actually a way of avoiding all sorts of regulation that some might think of as onerous but others may well think of as very proper. So looking at the size of company is a far better approach than looking at the particular method of ownership.

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, the noble Baroness tabled some amendments on Report that were similar in effect although slightly different in detail. As before, the effect of the amendments would be to strengthen the requirements of the business review and reintroduce elements of the operating and financial review.

Amendment No. 39 would be significant gold-plating of the EU accounts modernisation directive and would impose unduly onerous narrative reporting burdens on unquoted companies. Subsection (5) of Clause 396 sets out certain information that quoted companies will need to ensure that their business review includes, to the extent necessary to understand the development, performance or position of the company's business.

There was little evidence from the Government's recent consultation on narrative reporting to suggest that any requirements to report on specific information should apply to a different set of companies. We see no justification for imposing all the business review requirements on non-quoted companies. It is quoted companies, which trade shares on the open market, for which additional reporting and scrutiny is justified. To do otherwise would be to impose undue cost burdens on business and risk hindering the competitiveness of UK companies. It is always difficult to draw the correct line in determining what classes of entities should be subject to obligations, but these are the lines we believe appropriate to draw for company law. It does not help the situation to say that for a smaller company a smaller amount of information would be involved. The proposed requirements would be onerous for companies.

Amendment No. 40 would in a different way make the provisions of Clause 396 more onerous than the EU directive requires. Subsection (5) currently requires quoted companies, where necessary to understand the business, to report on certain environmental, employee, social and community matters and policies relating to these matters. In determining what specific elements to require quoted companies to include, we took careful account of the issues respondents to the recent consultation on narrative reporting pressed.

We understand that reporting on contractual or other arrangements essential to the business was regarded as important to some respondents to the Government's recent consultation. However, we have to weigh up their concerns with those of others pressing to ensure that no undue reporting burdens on business are imposed. We believe that what we have proposed is a balanced package which reflects the outcome of the consultation and our discussions with interested parties. Clearly, where contractual and other arrangements are essential to the business, such information is required by subsection (4) to be included for a balanced and comprehensive analysis consistent with the size and complexity of the business.

Amendment No. 41 would remove the exemption for medium-sized companies from reporting non-financial key performance indicators. As I explained at Report, the exemption is an option that the EU directive allows member states in implementing the business review requirements. Again, we see no justification for not granting this exemption in the UK.

We have limited to quoted companies the requirement for specific information relating to environmental, employee, social and community issues to be included in the business review for a better understanding of the business. But if the directors of other companies consider that such information is necessary for an understanding of the company's business, they may, of course, include it. This is a matter for the directors' judgment.

At Report, your Lordships, including those on the same Benches as the noble Baroness, congratulated the Government on getting the balance on the narrative reporting package about right. Our overriding objective has been to ensure effective and appropriate narrative reporting without imposing unnecessary burdens on companies. We believe that to change the package we have developed in the way that the noble Baroness seeks will be to risk altering the balance towards putting undue reporting obligations on business and impeding the competitiveness of UK companies. I therefore urge the noble Baroness to withdraw her amendments.

Photo of Baroness Northover Baroness Northover Spokesperson in the Lords, International Development, Liberal Democrat Lords Spokesperson (International Development)

My Lords, I thank the Minister for that reply. However, he did not address some of the points that I and my noble friends made, especially in relation to non-quoted large companies and their effect in developing countries. However, the Bill will now go to another place. These issues cause considerable concern and we need to get them right. I am not yet convinced that we have them quite right. There are few opportunities for this extensive review.

As I say, I am sure that there will further discussion on the matter in another place. Therefore, in the expectation that that will occur, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 40 and 41 not moved.]

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

moved Amendment No. 42:

After Clause 443, insert the following new clause—

"DATA PROTECTION

Nothing in sections 440 to 443 authorises the making of a disclosure in contravention of the Data Protection Act 1998 (c. 29)."

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

My Lords, Amendment No. 42 inserts a new clause after Clause 443. This says that nothing in Sections 440 to 443, which deal with the obtaining and disclosure of information by a body—expected to be the Financial Reporting Review Panel—authorises a disclosure that contravenes the Data Protection Act. This is a modest amendment, designed to ensure that, as a minimum, this Bill is internally consistent about the disclosure of confidential information. The application of the Data Protection Act is explicitly referred to in Clause 638, which deals with information disclosure provisions relevant to the Takeover Panel.

At Report I tabled an amendment which referred to both the Data Protection Act and the Regulation of Investigatory Powers Act. The Minister said that he had sympathy with the element relating to the Data Protection Act, and said that he would consider it before Third Reading. Imagine my disappointment on finding that no such amendment had been tabled by the Government. I felt it necessary to re-table the amendment in so far as it relates to the Data Protection Act to see why the Government resist this important reference to that Act, and also why the Act is relevant to the Takeover Panel's disclosure, but not to the FRRP's. I beg to move.

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) 5:15 pm, 23rd May 2006

My Lords, at Report I said that we had some sympathy with this amendment. Given that there is such specific reference to the Data Protection Act in other disclosure gateway provisions—for example in Clauses 638 and 639 of the Bill—we agreed to bring forward an amendment relating to the Data Protection Act at Third Reading. Unfortunately, other amendments have been given a higher priority and we have therefore been unable to table an amendment as promised. However, I can assure the noble Baroness that it is our firm intention to bring forward an amendment relating to the Data Protection Act in another place to mirror similar provisions in this Bill and in the Companies Act 1985. I hope the noble Baroness will, despite her disappointment, withdraw her amendment accordingly.

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

My Lords, I am marginally less disappointed than I was when I first saw the tabled amendments. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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. 43:

Before Clause 444, insert the following new clause—

"Liability for false or misleading statements in reports

LIABILITY FOR FALSE OR MISLEADING STATEMENTS IN REPORTS

(1) The reports to which this section applies are—

(a) the directors' report,

(b) the directors' remuneration report, and

(c) a summary financial statement so far as it is derived from either of those reports.

(2) A director of a company is liable to compensate the company for any loss suffered by it as a result of—

(a) any untrue or misleading statement in a report to which this section applies, or

(b) the omission from a report to which this section applies of anything required to be included in it.

(3) He is so liable only if—

(a) he knew the statement to be untrue or misleading or was reckless as to whether it was untrue or misleading, or

(b) he knew the omission to be dishonest concealment of a material fact.

(4) No person shall be subject to any liability to a person other than the company resulting from reliance, by that person or another, on information in a report to which this section applies.

(5) The reference in subsection (4) to a person being subject to a liability includes a reference to another person being entitled as against him to be granted any civil remedy or to rescind or repudiate an agreement.

(6) This section does not affect—

(a) liability for a civil penalty, or

(b) liability for a criminal offence."

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, I rise to speak to the two amendments in my name in this group. At Report I told the House that we would bring forward amendments to clarify the position on the liability of directors and issuers, relating to narrative reporting and transparency directive disclosures, as soon as possible. I could not commit firmly to doing so at Third Reading. Much depended on the responses of interested parties to the draft clauses, issued for comment on 3 May, as to what measures the Government might introduce. I am pleased therefore that we have been able to table these new clauses in time to give the House the opportunity for debate before the Bill passes to the other place. In doing so, I would like to record our appreciation for those who commented on the original draft clauses so quickly. This helped us address initial concerns and refine the clauses accordingly into what we have introduced to the House.

I note that the noble Baroness, Lady Noakes, tabled our original draft clause as an amendment, but has now withdrawn it; she will have seen that we have moved forward somewhat since the draft in light of comments received. I am happy that the noble Baroness seems to be in agreement with our approach. Let me now expand on that approach before setting out clause details. These provisions provide directors and companies with a degree of certainty about the extent of their liability, so as not to inhibit transparent and meaningful narrative reporting. The clauses should be read and understood as part of the wider provisions in the Bill, dealing with directors' duties and companies' reporting obligations. They deal only with directors' liability for the content of narrative reporting and with issuers' liability to investors for the content of reports or statements required to be made public under the transparency directive. They do not deal with any liability that may arise in respect of the underlying matters covered by the report. In other words, it is about what is said in the reports, not about liability for the underlying actions of directors. Further, it is addressed to issues of compensation and does not affect regulatory sanctions which may be relevant, such as those of the Financial Reporting Review Panel and the Financial Services Authority.

In developing a civil liability regime, the Government seek to ensure that the scope of liability is reasonable in relation to expectations, the existing law and the law as it will be after the implementation of the transparency directive. The purpose of doing so is to encourage meaningful and open reporting. The Government are also anxious not to extend unnecessarily the scope of any duties which might be owed to investors or wider classes of third party, in order to protect the interests of company members, employees and creditors.

I turn now to the detail of both clauses. The key differences between them concern the kind of reporting that is covered, who should be liable—the directors or the company—and to whom they are liable. Thus the new clause before Clause 444 is concerned with liability for reporting under this Bill. It specifies that the liability provisions only apply to statements made in the directors' report, the directors' remuneration report, or summary financial statements derived from them. The clause limits the directors' liability to the company only. In other words, directors will not be liable to individual investors or third parties. This in effect codifies the Caparo principle. That principle is reinforced by Clause 396(2), which specifies that the purpose of the business review is to inform the members of the company and help them assess how the directors have performed their duty under Clause 155 to promote the success of the company.

The clause also specifies that the directors will only be liable in certain circumstances; that is, for untrue or misleading statements or omissions made in bad faith or recklessly, or where there is deliberate and dishonest concealment. It is the liability for reliance on the report that the clause is concerned with not, for example, liability for defamation. Subsection (4) makes clear that third parties such as auditors will remain liable to the company for negligence in preparing their own report.

I now turn to the second amendment in the group. We propose to insert a series of revised clauses in a new Part 33A, including other provisions which comprehensively implement all transparency obligations. Within those provisions, we propose to insert a new Section 90A into the Financial Services and Markets Act 2000, establishing a regime for civil liability to third parties by companies admitted to trading on a regulated market in respect of disclosures under the transparency directive.

No liability on the part of issuers or their directors has been found to shareholders and other investors in respect of information communicated to them and subsequently made public by the issuer. Substantial changes in recent years to the law relating to the operation of financial markets and the obligations of the issuer to the market, culminating in Articles 4 to 7 of the transparency directive, have cast doubt on that position and lead to a position of uncertainty as to whether there is any liability and, if so, what and to whom any relevant duty is owed.

The transparency directive requires that member states must ensure that their laws, regulations and administrative provisions on liability apply to issuers, or the persons responsible in the issuers, for the information required to be disclosed. Read with the relevant recital, those provisions give considerable flexibility to member states. As the wording of the directive implies a presumption towards liability to a wider class of people than the position in the UK under Caparo, it is desirable that this uncertainty be clarified now in respect of obligations arising from the transparency directive.

The clause makes issuers admitted to trading on a regulated market liable in respect of the periodic information required to be disclosed under Articles 4, 5 and 6 of the directive as given effect by FSA rules. That would include annual and half-yearly financial statements and management reports, the sign-off by directors or other responsible parties, as well as interim management statements. Issuers would be liable where the disclosures contained statements that were misleading, false or deceptive at the time the statements were made, and such statements were made in bad faith or recklessly. Issuers would only be liable to holders of securities in the issuer who had reasonably relied on the statements for investment purposes and suffered loss as a result.

As I said earlier, we are grateful to the people who have commented on the earlier draft of these clauses. They raised a number of concerns, some of which resulted in us making changes to the clauses. Let me address some of the key points raised with us. First, have we set the right bar for liability? The Government's objective is to encourage meaningful, strategic narrative reporting. We need to ensure appropriate standards of care and discipline in drawing up the directors' report. Taken together with the directors' duty to exercise reasonable care, skill and diligence under Clause 157, which applies equally to the way in which directors fulfil their duty in reporting, we believe that we have done so.

Secondly, several commentators have asked about liability for information included in voluntary operating and financial reviews. We see no reason why information that would have been in a voluntary OFR could not be included in the statutory business review, on the basis that it contributes to a balanced and comprehensive analysis of the company's business performance. If companies include voluntary OFR information by clear cross reference, the intention is that this would be covered by the new clauses. As now, directors may put their own disclaimers on any reporting that goes beyond statutory requirements.

Thirdly, business and legal interests have suggested that the scope of the liability regime should be expanded to cover the liability of issuers in respect of non-transparency directive disclosures, such as disclosures under the market abuse regime. As I indicated only moments ago, the purpose of these clauses is to establish the civil liability position of issuers arising from disclosures required by the transparency directive, which is why we have focused only on reports required under the directive. This is not intended to affect the regime for the enforcement of the market abuse directive.

Representations have been made that liability in damages in respect of disclosures required by the market abuse regime, which will be included shortly afterwards in the material protected by the transparency directive regime, needs to be treated in a similar way. At this stage, we are not convinced that that must be addressed, but there is time for further representations to be made.

The fourth concern is the risk of issuers in UK-regulated markets being sued in other EU jurisdictions under the national law implementing the transparency directive. The Government's preference is that issuers should be sued primarily in the jurisdiction for which they have opted as their home member state for the purposes of the prospectus directive and transparency directive. The Government will continue to examine how such an outcome might be achieved, recognising that this matter is governed by EC law.

We have worked hard to produce these clauses in a very short time and we think that they are in reasonably good shape. We appreciate that people have had only a very short time to comment on them and we are grateful for the comments received. We thought it important for this House to have the opportunity to debate the clauses before passing the Bill to the other place. Of course, if anyone has further comments, we will give them very careful consideration as the Bill progresses. I beg to move.

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

My Lords, we appreciate very much the fact that the Government have tabled these new clauses dealing with the liability of directors. Noble Lords who have followed the passage of the Bill will know that on these Benches we have argued throughout for provisions of this nature to protect directors in order to allow narrative reporting to flourish.

I knew that I was pushing at an open door; nevertheless, I was pleasantly surprised to see that the Government were able to bring the amendments forward so that the Bill could go to another place with the clauses inserted. Perhaps I may explain that I tabled the draft clauses put forward by the Government because I was under the impression that the Government were not going to table them in time for Third Reading. When I discovered that they had tabled them, of course I immediately withdrew the earlier draft amendments. I tabled them so that the Government could tell us where they had got to.

I want to raise one point for clarification. The Minister talked about additional OFR-type disclosures coming within the directors' review. Let us suppose that a non-quoted company chooses to comply with Clause 396(5)—an area covered by amendments in a previous group—extending beyond quoted companies the additional requirements which deal with the future development of the business. If a company chooses to include something in its directors' report which it is not required to do, will the directors continue to be protected, even though there is no requirement for them to cover future prospects if it is not a quoted company?

Subject to that one point of clarification, we believe that the clauses—in particular, in relation to the business review—will have a massive impact on enabling better narrative reporting, and we are pleased to support the amendments.

Photo of Viscount Bledisloe Viscount Bledisloe Crossbench

My Lords, I am sure that these clauses go very much in the right direction but I want to ask the noble Lord one question about the different treatment of the two paragraphs of subsection (3). In subsection (3)(a), the director is to be liable either if he knew that the statement was untrue or misleading or if he was reckless as to whether it was untrue or misleading. So if, when he reads a positive statement, he says to himself, "Crumbs, that seems to me pretty odd. I can't think why on earth the finance director is saying that. He may well be trying to mislead somebody but I don't know and I can't be bothered to ask him", then he is reckless and liable.

However, in subsection (3)(b), he is liable only if he knew that an omission was a dishonest concealment of a fact. So if he says to himself, "This is pretty odd. The finance director hasn't told us anything about contingent liabilities. That may well be because he's very worried about that guarantee we gave and he doesn't want anyone to know about it. But I don't know whether that is so and I can't be bothered to ask", then he is not liable. I do not see why recklessness applies to something that is said, but does not apply to something that is omitted which causes equal suspicions in the director's breast but which he does not bother to elucidate and recklessly allows to go forward. I find the distinction odd and would be grateful for some enlightenment.

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) 5:30 pm, 23rd May 2006

My Lords, the answer to the question posed by the noble Baroness, Lady Noakes, about what happens if a non-quoted company includes OFR-type information is that it is covered for these purposes if it is included in the business review. I shall check the point and come back if that is not the correct answer.

It would be best if I come back to the noble Viscount, Lord Bledisloe. I have an answer to his question but I am not certain that it covers his point, so I shall write to him.

On Question, amendment agreed to.

Clause 479 [Disclosure of terms of audit appointment]:

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

moved Amendment No. 44:

Page 230, line 1, leave out "negative" and insert "affirmative"

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

The amendment would convert the negative statutory instrument procedure into an affirmative one for Clause 479, which will allow the Government to require companies to disclose the terms on which auditors are appointed. The power is pure bureaucracy and red tape. There is no demand from shareholders to see auditors' terms of appointment. The Financial Reporting Council, which has consulted recently on the matter, has the power to require companies to disclose them but has chosen not to do so for the time being for lack of demand. Anyone who has seen terms of appointment will know that they are highly legalistic and contain no decision-useful information.

The noble Lord, Lord Sharman, who I am sad to see is not in his place today, brought in for the education of the Minister last week some examples of terms of appointment. I hope that the Minister now understands what this side of the House has been trying to say throughout our consideration of the Bill.

We would like to see the clause deleted but recognise that the very existence of red tape powers is important to Ministers and their officials, and we would not want to deprive them of this small pleasure. If Ministers ever decide that they want to activate that power, it is incumbent on them to come to Parliament and make their case for using it. That is what the affirmative procedure involves. The negative procedure compels Ministers to justify their decisions only if the Opposition are eagle-eyed and pray against the order. The CBI thinks that the affirmative procedure is the right one, and so do we. I beg to move.

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

My Lords, Clause 479 is one of the small number of new provisions relating to the appointment of auditors. It provides a power to require companies to disclose the terms on which a company engages its auditors. Perhaps I may say how grateful I am to the noble Lord, Lord Sharman, for sending me in confidence a copy of an audit engagement letter. I certainly understand his view that few shareholders would be interested in reading all of it. On the other hand, shareholders are a large and diverse group, and I can imagine that some might be interested in various aspects. Personally, I thought it a good read. Perhaps the noble Lord, Lord Razzall, will pass on to his noble friend Lord Sharman the message that I am a bit light of holiday reading next week. If there is any more going, he might bear me in mind.

There was information in the letter that could be of interest to shareholders, particularly if they are shareholders of more than one company, because it gives them a source of comparison. In any case, having considered the arguments of the noble Baroness and the noble Lord at earlier stages, I am happy to accept the amendment so that the power will be subject to affirmative resolution, and so that we can justify bringing it forward in due course.

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

My Lords, I am grateful to the Minister. It has saved us a little diversion through the Lobbies.

On Question, amendment agreed to.

Clause 489 [Signature of auditor's report]:

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

moved Amendment No. 45:

Page 235, leave out lines 10 and 11 and insert—

"( ) Where the auditor is an individual, the report must be signed by him.

( ) Where the auditor is a firm, the report must be signed by the senior statutory auditor in his own name, for and on behalf of the auditor."

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

This is a clarifying amendment along the lines proposed by the noble Baroness, Lady Noakes, at earlier stages. It makes it clear that a senior statutory auditor signs an audit report with his own name and on behalf of his firm. Having thought about it some more, we agreed that this is needed. I beg to move.

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

My Lords, I think that I am on a winning streak. I am so glad to hear what the Minister said.

On Question, amendment agreed to.

Clause 493 [Offences in connection with auditor's report]:

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

moved Amendment No. 46:

Page 236, line 28, at end insert—

"( ) A person shall not commit an offence under subsection (1) if he did not know that there was a significant risk that through his deliberate omissions or acts he would cause the report to include a matter that was misleading, false or deceptive in a material particular."

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

My Lords, my winning streak might come to an end. In moving Amendment No. 46, I shall speak also to Amendment No. 49. These add two new subsections to Clause 493, the clause which creates for the first time a statutory criminal offence for a particular profession.

It is often said that hard cases make bad law. With regard to the offence created by Clause 493, there are no cases that have led to this provision, and I do not believe that that is the basis for good law. The Government have adduced only hypothetical examples of auditor behaviour that they seek to penalise by this offence. In the many discussions with those still actively engaged in my former profession, everyone has struggled to work out who in practice the new offence would catch beyond those dealt with in the existing criminal code and the current Fraud Bill.

Noble Lords might think that this simply means that we will have an ineffective law rather than bad law on the statute book. The trouble is that the Government's chosen weapon of terror to use against those hypothetical auditors in their sights is an offence based on recklessness. I am no lawyer but I know that offences involving recklessness are notoriously difficult to define with precision. The Government know that too, because in Clauses 494 and 495 they have gone to great lengths to ensure that the effect of Clause 493 will be moderated by guidance issued by the Secretary of State. The Government need that guidance because they know that the new offence will play havoc with the professional disciplinary arrangements that exist for auditors. Those who are the guardians of those arrangements have given warning of this.

The uncertain nature of this offence is likely to lead the auditing profession to retreat into risk-averse and costly audit procedures to provide auditors with as much certainty as possible that they will not fall foul of the new law. This will not be box-ticking, as has occasionally been suggested. It will be additional layers of review and duplication of processes. It will add no value but it will add cost to British industry. As noble Lords will be aware, my preferred solution would be the elimination of Clauses 493 to 495. It remains my hope that the Government will reach that conclusion when the Bill is considered in another place. For today, I am seeking to explore the meaning that the Government intend for the offences set out in Clause 493(1) and (2).

My Amendment No. 46 introduces a new subsection which says that an offence is not committed under subsection (1) if a person did not know that there was a significant risk that through his deliberate omissions or acts he would cause a misleading, false or deceptive report to be issued. That means that there has to be knowledge and it should be judged subjectively. Amendment No. 49 has a similar effect in relation to the subsection (2) offence.

In these amendments I am seeking to set out that I understand what the Minister and his officials mean by "recklessly" in the context of Clause 493. I thank the Minister for the helpful meeting that he arranged last week to discuss this. But some in the auditing profession have been advised by counsel in an opinion that I saw only this morning that such a criminal offence will require proof of dishonesty. The Minister appears to think not, as he has said:

"It has been suggested that changing to 'fraudulently or dishonestly' is the only way of reassuring auditors that they will not be prosecuted for an honest mistake. That is wrong, not because prosecutors would have to prove dishonesty—they would not—but because these offences cannot be committed as a genuine mistake or through negligence".—[Hansard, 10/05/06; cols. 1031-32.]

The Government say that it will not be necessary to prove dishonesty, and the auditing profession has been advised of the opposite. There is a potentially harmful gulf in understanding.

The Minister knows that I have no intention of pressing my amendments today, and wish to use the debate to get greater clarity over the Government's intentions. I therefore hope that the Government will say, first, precisely in what ways the formulation in my new subsection departs from the Government's intentions for the clause. If, as the Minister has said at the Dispatch Box, dishonesty will not have to be proved, I hope he will also give an undertaking that further discussions will take place with the auditing profession—possibly also involving the noble and learned Lord the Attorney-General—as to the real meaning of "recklessness" in the Clause 493 offence. The Minister will be aware that the importance of this goes beyond Clause 493, because the Bill is littered with recklessness offences, including those in the amendments that we have just debated.

Unless Clause 493 is radically changed in another place, I anticipate that the blunderbuss nature of the offence will need to be refined by the guidance anticipated under Clauses 494 and 495. I hope that the Minister will also say something about that guidance: what form it will take, how and when it will be prepared and who will be involved in its preparation. I beg to move.

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

My Lords, I support the comments of the noble Baroness. It is a pity that, as we passed through our period of purdah in the Moses Room and on Report, we on the Conservative and Liberal Democrat Benches were not able to persuade the Government that there was a problem with "knowingly or recklessly" for the purposes of this clause. As the noble Baroness has indicated, this is important because, if the Government are wrong in their interpretation of the clause, it potentially criminalises negligence by auditors for the first time. It would be the first time a professional individual has been subject to criminal prosecution for negligence where there is no damage to life or limb—there is obviously health and safety legislation, et cetera.

The difficulty is that the words "knowingly or recklessly" are rather different in common parlance from the way in which they have been interpreted by the courts and the House of Lords. When the Prime Minister went into Iraq, he clearly did it knowingly; he might or might not have done it recklessly; he would certainly argue that he did not do it dishonestly, although others might have taken a different view. Had the question of whether he had knowingly or recklessly gone into Iraq been subject to the interpretation of the top court in our land, the definition would have required him to have been dishonest to have done it knowingly or recklessly, as case law has consistently indicated. The problem, as the noble Baroness indicated, is that, in his remarks on Second Reading, the Minister—presumably speaking from notes provided by his officials—indicated that, in his view, "knowingly or recklessly" in this context went further than the requirement accepted by the House of Lords in endless litigation, which is that to act knowingly or recklessly requires dishonesty.

Wherever we get to on these amendments—I know that the noble Baroness is not pressing them—it is vital for accountancy practice that the Minister makes clear what the government interpretation of "knowingly or recklessly" is. Does it or does it not require, as up until now the law has required, that definition to include dishonesty?

Photo of Viscount Bledisloe Viscount Bledisloe Crossbench 5:45 pm, 23rd May 2006

My Lords, with her Amendments Nos. 46 and 49, the noble Baroness, Lady Noakes, obviously and properly intends to increase an auditor's protection against being prosecuted. I entirely agree that Amendment No. 49 is necessary and helpful to protect an auditor. On the other hand, I am worried that Amendment No. 46 in fact weakens subsection (1) rather than strengthening it. This is dependent on how you read subsection (1). The words are,

"knowingly or recklessly causes a report . . . to include any matter that is misleading, false", and so on. One interpretation would be that the only question governed by "knowingly or recklessly" is, "Did he cause that matter to be included?". He did, so is it misleading? If it is, he has committed an offence. I do not think that that is the proper interpretation of this clause, or the interpretation that a court would come to. I think a court would say, "Did he knowingly or recklessly cause the report to include misleading matter?"; that is, did he know or was he reckless as to whether the matter was misleading, not whether it was included? However, I agree that that is open to doubt.

If the second interpretation, which I prefer, is right, then the amendment of the noble Baroness weakens the clause, because it says that,

"he did not know that there was a significant risk that through his omissions", et cetera. That is much lower than reckless. An amendment to subsection (1) is needed—although I approve of the amendment of the noble Baroness to subsection (2)—saying, "if he is knowing or reckless in causing misleading matter to be included", so that it is quite clear that "knowingly and recklessly" governs the inclusion of misleading matter, not the inclusion of matter which is then found to be objectively misleading.

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, we have now debated this new offence a number of times, and these discussions have been helpful in achieving a clearer common understanding about the purpose and effect of these provisions.

The Government attach importance to this offence. Reliable audit reports are an essential assurance for the proper working of financial markets. There should be criminal penalties available for auditors who give assurance about a company's accounts when they know it is not justified, or when they are reckless as to whether it is justified.

Most would agree with the proposition that we should be able to prosecute the auditor who issues a false audit report with actual knowledge. The key concern is "recklessly". Even those who themselves understand clearly what "reckless" means in criminal law are concerned that auditors may none the less believe that it means something more, along the lines of "carelessness" or "negligence", and that that would have serious and adverse effects on their behaviour.

I shall try to address that concern this afternoon in three ways. First, I shall explain, by means of an example, what "recklessly" means in the context of this offence. I shall then say something about the guidance that the Secretary of State will issue under Clause 494, and how that will make clearer what will and will not be prosecuted. Finally, I shall say something about the amendments.

In legal terms, "recklessness" does not mean negligence. Negligence in auditors is a serious matter, falling short of auditors' high professional standards but, in itself, it does not amount to recklessness. To prove recklessness, a prosecutor will have to persuade a jury that the individual auditor decided not to do something that he knew he should do; for example, that he was aware that there was an issue that he should investigate further, that failure to do so could prejudice the truth of the audit report and that he consciously did not do so.

Let us take the example of a company whose year-end assets on paper largely consist of an amount of valuable stock held in a distant warehouse. Even though he has no reason to doubt its existence and condition, a good auditor will ensure that someone checks the stock. An incompetent or careless auditor might not, and might issue a clean audit report. That could be negligence. If the stock turned out not to exist, and the company suffered loss as a result, the auditor might be sued. If it was more than a simple error and involved failure to observe professional standards, he might well be brought before one of the disciplinary bodies and have sanctions imposed. But he has not caused the audit report to be wrong knowingly or recklessly, so he will not be at risk of prosecution under that offence.

However, let us consider a similar scenario, where the auditor receives some evidence that there are doubts about the existence of the stock. If he now concludes that there is a risk around the stock, and that that might undermine the validity of the accounts, obviously he ought at that stage to check the stock. If in those circumstances he decides not to, he may well be reckless. On the other hand, if he had received such evidence, had considered it in accordance with his firm's practice and had reached the view as a matter of professional judgment that that there was no real risk to the validity of the accounts, and so did not check the stock, he would not be behaving recklessly. He might be guilty of extremely bad judgment, but not recklessness, which involves a positive decision not to act despite awareness of the risk.

If he had not received such evidence, but knew—actually knew, not merely ought to have known—as an experienced auditor that it was standard professional practice to check stock when it is material to the accounts and decided not to check it in this case, for whatever reason, despite knowing the risk that the stock did not exist and that that was the reason for the practice, again he would be reckless. That goes beyond incompetence or bad judgment and is recklessness because it involves a deliberate decision despite awareness of the risk. In practice, however, we would not expect prosecutions to be brought that were based merely on an inference of recklessness from failure to comply with standards, as I shall explain shortly when I talk about the guidance under Clause 494.

The prosecutor would have to demonstrate that the auditor was aware of the risk surrounding the stock, that he knew it could call the accounts into question, and that he had decided not to check it. That is not easy to prove beyond reasonable doubt. The sort of circumstances in which it is possible to prove recklessness in this way are different from what is required to prove negligence. The normal, good, competent auditor will naturally seek to avoid mistakes that could be considered negligent, but he need not worry about being prosecuted under the new offence.

Let me now say something about the guidance that the Secretary of State will issue under Clause 494 which, I think, will further assure auditors. We do not yet have draft guidance, and the final version will involve careful legal consideration, requiring the consent of the noble and learned Lord the Attorney-General. But I hope it will help if I indicate what we have in mind. The power to give guidance exists precisely because there is overlap between the most serious cases subject to professional discipline and the conduct that this offence is intended to cover. The guidance will not be legally binding, in the sense that prosecutors and regulatory authorities are not rigidly compelled to follow it whatever the circumstances of the individual case. But it is intended to ensure that there is a decision at a very early stage whether to go down the prosecution route or the professional discipline one.

Our intention is that prosecution would be used for the most serious cases: those where the conduct is most blameworthy. Such cases may include, for example, ones where the risk of a problem was obvious and the auditor made no checks at all. In less serious cases, even where there might arguably be knowing or reckless behaviour, the appropriate procedure is likely to be the existing professional disciplinary system. Theoretically, it would be open to a prosecutor to seek to persuade a jury that an auditor must have been aware of the risks because he was highly experienced and was acting contrary to standard professional practice of which he must have been well aware. But proving recklessness is a high test, and it is highly unlikely that it would be appropriate to prosecute in the absence of clear evidence to support the contention that the auditor was aware of the risk he was running. That might, for example, be documentation that it can be proved the auditor has seen, or oral evidence from people in the company to show that he had been made aware of the risk and was therefore culpable. We expect the guidance to prosecutors and regulators under Clause 494 to reflect the importance of a clear evidential basis for proving recklessness.

The amendments tabled by the noble Baroness, Lady Noakes, express the conditions for recklessness as I have explained it: there must be knowledge of a significant risk and then a deliberate decision none the less to do or not to do something. I confirm that the words in those amendments correctly capture the nature of recklessness in this context. But, as the noble Baroness anticipated, I do not agree that these words should be added to Clause 493. "Recklessness" is a standard term in criminal law, and in this context has a clear meaning. It is not our practice in statute to supplement well established legal terms with explanatory glosses. To do so in one case, such as this, could cast doubt on the meaning of the term in other statutes in which it is not explained in this way.

I note that the noble Baroness has now received legal opinion to the effect that recklessness implies some measure of dishonesty. As noble Lords will realise, my legal advice was that in this context recklessness need not involve dishonesty. If we receive new legal arguments, we will consider them carefully, and if it proves necessary the Government could return to the matter in another place. As a non-lawyer, I am not certain that it would help auditors if recklessness did involve dishonesty, because that would set the bar even higher. I say it with some trepidation, but the noble Baroness's argument does not destroy what we are saying; in fact, it says that the bar is even higher. If I am wrong, I will write to correct that.

We can look at the further legal advice. I am very happy to have a meeting. On that basis, I hope that the noble Baroness will withdraw the amendment.

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

My Lords, this has been another useful debate on an extremely difficult topic. I thank the noble Lord, Lord Razzall, for his comments, and the noble Viscount, Lord Bledisloe, for an interesting take on my amendment to subsection (1), in which he raised important issues that, as a non-lawyer, I could argue with much less eloquence than he did.

I thank the Minister for what he said. The issue of dishonesty is important to auditors because they are concerned that they could be caught by the new offence in circumstances where they made some form of honest mistake. As noble Lords can imagine, honesty is extremely important for professional people such as auditors. It is very important to establish whether it is a part of the offence.

I am very grateful to the Minister for setting down the elements involved in the offence as the Government believe they have drafted it, through the examples and his comments on my amendments. I am well aware that he has not seen the legal opinion, a copy of which I saw only this morning, but I hope that there can be an exchange between those in the profession who hold this opinion and the Minister, his officials and, as I suggested, the noble and learned Lord the Attorney-General. It is an important issue. I could have tried to divide the House on the matter; I thought that it was important to seek the truth on it. I was encouraged by the Minister's comments that the department was still in "receive" mode on this. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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. 47:

Page 236, line 31, leave out paragraph (a) and insert—

"(a) section 484(2)(b) (statement that company's accounts do not agree with accounting records and returns),"

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, the new offences for auditors in Clause 493 are aimed at auditors' responsibility for providing assurance on the reliability of annual accounts, a matter of great significance to the wider economy. The amendments remove from the scope of the new offence in subsection (2) two aspects of the auditor's duties: first, the auditor's duty to make a statement if the company does not keep adequate accounting records; and, secondly, the statement of shortcomings in the directors' remuneration report.

Following debates at earlier stages we have considered those aspects and agree that it is inappropriate to apply the criminal offence to either of them. I beg to move.

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

My Lords, we are pleased that the Government have listened to the detailed points that we made in the wider discussion on this clause. We are very happy to agree to the amendment.

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 Amendment No. 48:

Page 236, line 35, leave out paragraph (c).

On Question, amendment agreed to.

[Amendment No. 49 not moved.]

Clause 527 [Meaning of "offer to the public"]:

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip 6:00 pm, 23rd May 2006

moved Amendment No. 50:

Page 254, line 39, leave out subsections (4) and (5) and insert—

"( ) An offer is to be regarded (unless the contrary is proved) as being a private concern of the person receiving it and the person making it if—

(a) it is made to a person already connected with the company and, where it is made on terms allowing that person to renounce his rights, the rights may only be renounced in favour of another person already connected with the company; or

(b) it is an offer to subscribe for securities to be held under an employees' share scheme and, where it is made on terms allowing that person to renounce his rights, the rights may only be renounced in favour of—

(i) another person entitled to hold securities under the scheme, or

(ii) a person already connected with the company."

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

My Lords, in Grand Committee amendments were put forward to delete subsections (4)(c) and (5)(c) of Clause 527, which we agreed to consider. This amendment addresses the concern that those subsections imposed new requirements. The amendment replaces subsections (4) and (5) with a single subsection. The provision contained in subsections (4)(c) and (5)(c) has been deleted. The exemptions contained in subsections (4) and (5) have also been rewritten so that it is clear that there is no change from the current position under the Companies Act 1985. I beg to move.

On Question, amendment agreed to.

Clause 581 [Register of debenture holders]:

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. 52:

Leave out Clause 582.

On Question, amendment agreed to.

Clause 583 [Time limit for claims arising from entry in register]:

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. 54 to 60:

After Clause 591, insert the following new clause—

"PART 19A DEBENTURES

:TITLE3:REGISTER OF DEBENTURE HOLDERS

(1) Any register of debenture holders of a company that is kept by the company must be kept available for inspection—

(a) at the company's registered office, or

(b) at another place in the part of the United Kingdom in which the company is registered.

(2) A company must give notice to the registrar of the place where any such register is kept available for inspection and of any change in that place.

(3) No such notice is required if the register has, at all times since it came into existence, been kept available for inspection at the company's registered office.

(4) If a company makes default for 14 days in complying with subsection (2), an offence is committed by—

(a) the company, and

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

(5) A person guilty of an offence under this section is liable on summary conviction to a fine not exceeding level 3 on the standard scale and in the case of continued contravention to a daily default fine not exceeding one-tenth of level 3 on the standard scale.

(6) References in this section to a register of debenture holders include a duplicate—

(a) of a register of debenture holders that is kept outside the United Kingdom, or

(b) of any part of such a register."

After Clause 591, insert the following new clause—

"REGISTER OF DEBENTURE HOLDERS: RIGHT TO INSPECT AND REQUIRE COPY

(1) Every register of debenture holders of a company must, except when duly closed, be open to the inspection—

(a) of the registered holder of any such debentures, or any holder of shares in the company, without charge, and

(b) of any other person on payment of such fee as may be prescribed.

(2) Any person may require a copy of the register, or any part of it, on payment of such fee as may be prescribed.

(3) A person seeking to exercise either of the rights conferred by this section must make a request to the company to that effect.

(4) The request must contain the following information—

(a) in the case of an individual, his name and address;

(b) in the case of an organisation, the name and address of an individual responsible for making the request on behalf of the organisation;

(c) the purpose for which the information is to be used; and

(d) whether the information will be disclosed to any other person, and if so—

(i) where that person is an individual, his name and address,

(ii) where that person is an organisation, the name and address of an individual responsible for receiving the information on its behalf, and

(iii) the purpose for which the information is to be used by that person.

(5) For the purposes of this section a register is "duly closed" if it is closed in accordance with provision contained—

(a) in the articles or in the debentures,

(b) in the case of debenture stock in the stock certificates, or

(c) in the trust deed or other document securing the debentures or debenture stock.

The total period for which a register is closed in any year must not exceed 30 days.

(6) References in this section to a register of debenture holders include a duplicate—

(a) of a register of debenture holders that is kept outside the United Kingdom, or

(b) of any part of such a register."

After Clause 591, insert the following new clause—

"REGISTER OF DEBENTURE HOLDERS: RESPONSE TO REQUEST FOR INSPECTION OR COPY

(1) Where a company receives a request under section (Register of debenture holders: right to inspect and require copy) (register of debenture holders: right to inspect and require copy), it must within five working days either—

(a) comply with the request, or

(b) apply to the court.

(2) If it applies to the court it must notify the person making the request.

(3) If on an application under this section the court is satisfied that the inspection or copy is not sought for a proper purpose—

(a) it shall direct the company not to comply with the request, and

(b) it may further order that the company's costs (in Scotland, expenses) on the application be paid in whole or in part by the person who made the request, even if he is not a party to the application.

(4) If the court makes such a direction and it appears to the court that the company is or may be subject to other requests made for a similar purpose (whether made by the same person or different persons), it may direct that the company is not to comply with any such request.

The order must contain such provision as appears to the court appropriate to identify the requests to which it applies.

(5) If on an application under this section the court does not direct the company not to comply with the request, the company must comply with the request immediately upon the court giving its decision or, as the case may be, the proceedings being discontinued."

After Clause 591, insert the following new clause—

"REGISTER OF DEBENTURE HOLDERS: REFUSAL OF INSPECTION OR DEFAULT IN PROVIDING COPY

(1) If an inspection required under section (Register of debenture holders: right to inspect and require copy) (register of debenture holders: right to inspect and require copy) is refused or default is made in providing a copy required under that section, otherwise than in accordance with an order of the court, an offence is committed by—

(a) the company, and

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

(2) A person guilty of an offence under this section is liable on summary conviction to a fine not exceeding level 3 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 3 on the standard scale.

(3) In the case of any such refusal or default the court may by order compel an immediate inspection or, as the case may be, direct that the copy required be sent to the person requesting it."

After Clause 591, insert the following new clause—

"REGISTER OF DEBENTURE HOLDERS: OFFENCES IN CONNECTION WITH REQUEST FOR OR DISCLOSURE OF INFORMATION

(1) It is an offence for a person knowingly or recklessly to make in a request under section (Register of debenture holders: right to inspect or require copy) (register of debenture holders: right to inspect or require copy) a statement that is misleading, false or deceptive in a material particular.

(2) It is an offence for a person in possession of information obtained by exercise of either of the rights conferred by that section—

(a) to do anything that results in the information being disclosed to another person, or

(b) to fail to do anything with the result that the information is disclosed to another person, knowing or having reason to suspect that person may use the information for a purpose that is not a proper purpose.

(3) A person guilty of an offence under this section is liable—

(a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both);

(b) on summary conviction—

(i) in England and Wales, to imprisonment for a term not exceeding twelve months or to a fine not exceeding the statutory maximum (or both);

(ii) in Scotland or Northern Ireland, to imprisonment for a term not exceeding six months, or to a fine not exceeding the statutory maximum (or both)."

After Clause 591, insert the following new clause—

"TIME LIMIT FOR CLAIMS ARISING FROM ENTRY IN REGISTER

(1) Liability incurred by a company—

(a) from the making or deletion of an entry in the register of debenture holders, or

(b) from a failure to make or delete any such entry, is not enforceable more than ten years after the date on which the entry was made or deleted or, as the case may be, the failure first occurred.

(2) This is without prejudice to any lesser period of limitation (and, in Scotland, to any rule that the obligation giving rise to the liability prescribes before the expiry of that period)."

After Clause 591, insert the following new clause—

"RIGHT OF DEBENTURE HOLDER TO COPY OF DEED

(1) Any holder of debentures of a company is entitled, on request and on payment of such fee as may be prescribed, to be provided with a copy of any trust deed for securing the debentures.

(2) If default is made in complying with this section, an offence is committed by every officer of the company who is in default.

(3) A person guilty of an offence under this section is liable on summary conviction to a fine not exceeding level 3 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 3 on the standard scale.

(4) In the case of any such default the court may direct that the copy required be sent to the person requiring it."

On Question, amendments agreed to.

Clause 610 [Right to inspect and request copy of entries]:

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. 61:

Page 301, line 41, leave out subsections (3) to (6) and insert—

"( ) A person seeking to exercise either of the rights conferred by this section must make a request to the company to that effect.

( ) The request must contain the following information—

(a) in the case of an individual, his name and address;

(b) in the case of an organisation, the name and address of an individual responsible for making the request on behalf of the organisation;

(c) the purpose for which the information is to be used; and

(d) whether the information will be disclosed to any other person, and if so—

(i) where that person is an individual, his name and address,

(ii) where that person is an organisation, the name and address of an individual responsible for receiving the information on its behalf, and

(iii) the purpose for which the information is to be used by that person."

On Question, amendment agreed to.

Clause 611 [Court supervision of purpose for which rights may be exercised]:

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. 62 and 63:

Page 302, leave out lines 13 to 17 and insert—

"( ) Where a company receives a request under section 610 (register of interests disclosed: right to inspect and require copy), it must-"

Page 302, line 29, leave out subsection (6) and insert—

"( ) If the court is not satisfied that the inspection or copy is sought for a proper purpose, it shall direct the company not to comply with the request.

( ) If the court makes such a direction and it appears to the court that the company is or may be subject to other requests made for a similar purpose (whether made by the same person or different persons), it may direct that the company is not to comply with any such request.

The order must contain such provision as appears to the court appropriate to identify the requests to which it applies.

( ) If the court does not direct the company not to comply with the request, the company must comply with the request immediately upon the court giving its decision or, as the case may be, the proceedings being discontinued."

On Question, amendments 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. 64 and 65:

After Clause 611, insert the following new clause—

"REGISTER OF INTERESTS DISCLOSED: REFUSAL OF INSPECTION OR DEFAULT IN PROVIDING COPY

(1) If an inspection required under section 610 (register of interests disclosed: right to inspect and require copy) is refused or default is made in providing a copy required under that section, otherwise than in accordance with an order of the court, an offence is committed by—

(a) the company, and

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

(2) A person guilty of an offence under this section is liable on summary conviction to a fine not exceeding level 3 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 3 on the standard scale.

(3) In the case of any such refusal or default the court may by order compel an immediate inspection or, as the case may be, direct that the copy required be sent to the person requesting it."

After Clause 611, insert the following new clause—

"REGISTER OF INTERESTS DISCLOSED: OFFENCES IN CONNECTION WITH REQUEST FOR OR DISCLOSURE OF INFORMATION

(1) It is an offence for a person knowingly or recklessly to make in a request under section 610 (register of interests disclosed: right to inspect or require copy) a statement that is misleading, false or deceptive in a material particular.

(2) It is an offence for a person in possession of information obtained by exercise of either of the rights conferred by that section—

(a) to do anything that results in the information being disclosed to another person, or

(b) to fail to do anything with the result that the information is disclosed to another person, knowing or having reason to suspect that person may use the information for a purpose that is not a proper purpose.

(3) A person guilty of an offence under this section is liable—

(a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both);

(b) on summary conviction—

(i) in England and Wales, to imprisonment for a term not exceeding twelve months or to a fine not exceeding the statutory maximum (or both);

(ii) in Scotland or Northern Ireland, to imprisonment for a term not exceeding six months, or to a fine not exceeding the statutory maximum (or both)."

On Question, amendments agreed to.

Clause 624 [Reckoning of periods for fulfilling obligations]:

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. 66:

Page 307, line 22, leave out from second "is" to "shall" in line 24 and insert "not a working day"

On Question, amendment agreed to.

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

moved Amendment No. 67:

After Clause 670, insert the following new clause—

"PART 24A DISSOLUTION AND RESTORATION TO THE REGISTER

Voluntary striking off

VOLUNTARY STRIKING OFF: EXTENSION TO PUBLIC COMPANIES

In section 652A of the Companies Act 1985 (c. 6) (power of registrar to strike private company off register on application)—

(a) in the heading to the section, and

(b) in subsection (1), omit the word "private"."

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

My Lords, in moving Amendment No. 67 I shall speak also to the other amendments in the group. With these amendments we turn to the subject of the restoration of companies to the register. Companies can be removed from the register for a number of reasons: for example, when they are wound up under the Insolvency Act, or because they are struck off by the registrar after failing to provide evidence of their continuing to be in operation; for example, failing to submit annual returns. Companies may also apply voluntarily to be struck off the register when they want to end their own life, and Amendment No. 67 extends this route of voluntary strike-off—which is of course subject to strict conditions—to public as well as private companies.

Sometimes it is necessary for companies which have been struck off the register to be restored to it. This could be because they were struck off, so to speak, in error in the first place, and they had in fact always continued to operate. On other occasions, even where the company is genuinely defunct, it may be necessary to resurrect it as a legal person so that it can play a part in litigation, for example.

At the moment there are two different mechanisms in law for applying to restore a company to the register, as set out in Sections 651 and 653 of the Companies Act 1985. Both require application to the court. The Company Law Review looked carefully at this subject and concluded that there was a risk of confusion between the two and that it would be more sensible to provide a single, unified scheme. This is what Amendments Nos. 74 to 78 do.

In setting out the new single procedure, largely based on that which previously existed under Section 653 of the Companies Act, a few changes of substance have been made. The time limit for applying to the court under the old Section 651 procedure was two years, and under the Section 653 procedure 20 years. The new clause, in line with a Company Law Review recommendation, harmonises the time limit at six years. It does, however, preserve a dispensation from this time limit in cases where an applicant is seeking to revive the company in order to pursue a case for personal injury against it. This is important where, for example, an industrial disease does not become apparent for some time after a company is wound up. Without this dispensation it could be more difficult for a victim to pursue a valid claim.

The new unified procedure still requires an application to be made to the court, and in many circumstances this is clearly a necessary and appropriate step. However, in some instances the company will have been struck off by the registrar because it appears that the company is no longer in business—for example, because it has failed to submit necessary and timely returns—but in fact the company has continued to operate. If it is clear that the company is in practical terms in continued existence, and if nobody can and does object, then it may be unnecessarily onerous to provide that the only route by which it may be restored to the register is a court order.

The Company Law Review therefore recommended that a new, administrative procedure be introduced whereby the registrar herself can, in tightly defined circumstances, reinstate a company to the register, and Amendments Nos. 69 to 73 implement this scheme. I believe this provision is fully in line with changes we have made in related areas of the Bill, where we have now provided that, in certain circumstances, the registrar should be able to amend the register without the need for a court order.

Finally, I should confirm that the Treasury Solicitor (in England, Wales and also Northern Ireland, where the Crown Solicitor acts as the Treasury Solicitor's agent), the Queen's and Lord Treasurer's Remembrancer (in Scotland), or the representatives of the Royal Duchies (as the case may be), will continue to be involved in the court procedure and will also have a role in the new administrative procedure. No company will be restored by the Registrar of Companies without the appropriate representative's consent. Amendment No. 68 makes small changes to the related process by which these interested parties may disclaim bona vacantia—the unclaimed property of a defunct company which would otherwise pass to them. As well as making some consequential changes, Amendment No. 78 includes a change regarding the costs incurred by the various representatives. If a company is restored after its property has been sold off, it must be given the proceeds of sale. The amendment allows the costs of sale to be deducted from the amount handed back to the company. 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 grateful to the Government for having circulated an explanatory note about these fairly technical changes. We have no problem with them even though they have come quite late in the day. We have had no representations about them. I am grateful to the Government for introducing me to bona vacantia, a concept which, with Foss v Harbottle, will be my abiding memory of the Company Law Reform Bill.

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. 68 to 79:

After Clause 670, insert the following new clause—

"Crown disclaimer of property

TIME FOR MAKING CROWN DISCLAIMER OF PROPERTY VESTING AS BONA VACANTIA

In section 656 of the Companies Act 1985 (c. 6) (Crown disclaimer of property vesting as bona vacantia), for subsections (3) and (4) (time within which notice of disclaimer must be executed) substitute—

"(3) A notice of disclaimer must be executed within three years after—

(a) the date on which the fact that the property may have vested in the Crown under section 654 first comes to the notice of the Crown representative, or

(b) if ownership of the property is not established at that date, the end of the period reasonably necessary for the Crown representative to establish the ownership of the property.

(3A) If an application in writing is made to the Crown representative by a person interested in the property requiring him to decide whether he will or will not disclaim, any notice of disclaimer must be executed within twelve months after the making of the application or such further period as may be allowed by the court.

(3B) A notice of disclaimer under this section is of no effect if it is shown to have been executed after the end of the period specified by subsection (3) or (3A)."."

After Clause 670, insert the following new clause—

"Administrative restoration to the register

APPLICATION FOR ADMINISTRATIVE RESTORATION TO THE REGISTER

(1) An application may be made to the registrar to restore to the register a company that has been struck off the register under section 652 of the Companies Act 1985 (c. 6) (power of registrar to strike off defunct company).

(2) An application under this section may be made whether or not the company has in consequence also been dissolved (see section 652(5)).

(3) An application under this section may only be made by a former director or former member of the company.

(4) An application under this section may not be made after the end of the period of six years from the date of the dissolution of the company.

For this purpose an application is made when it is received by the registrar."

After Clause 670, insert the following new clause—

"REQUIREMENTS FOR ADMINISTRATIVE RESTORATION

(1) On an application under section (Application for administrative restoration to the register) the registrar shall restore the company to the register if, and only if, the following conditions are met.

(2) The first condition is that the company was carrying on business or in operation at the time of its striking off.

(3) The second condition is that, if any property or right previously vested in or held on trust for the company has vested as bona vacantia, the Crown representative has signified to the registrar in writing consent to the company's restoration to the register.

(4) It is the applicant's responsibility to obtain that consent and to pay any costs (in Scotland, expenses) of the Crown representative—

(a) in dealing with the property during the period of dissolution, or

(b) in connection with the proceedings on the application, that may be demanded as a condition of giving consent.

(5) The third condition is that the applicant has—

(a) delivered to the registrar such documents relating to the company as are necessary to bring up to date the records kept by the registrar, and

(b) paid any penalties under section 434 or corresponding earlier provisions (civil penalty for failure to deliver accounts) that were outstanding at the date of dissolution or striking off.

(6) In this section the "Crown representative" means—

(a) in relation to property vested in the Duchy of Lancaster, the Solicitor to that Duchy;

(b) in relation to property vested in the Duke of Cornwall, the Solicitor to the Duchy of Cornwall;

(c) in relation to property in Scotland, the Queen's and Lord Treasurer's Remembrancer;

(d) in relation to other property, the Treasury Solicitor."

After Clause 670, insert the following new clause—

"APPLICATION TO BE ACCOMPANIED BY STATEMENT OF COMPLIANCE

(1) An application under section (Application for administrative restoration to the register) (application for administrative restoration to the register) must be accompanied by a statement of compliance.

(2) The statement of compliance required is a statement—

(a) that the person making the application has standing to apply (see subsection (3) of that section), and

(b) that the requirements for administrative restoration (see section (Requirements for administrative restoration) are met.

(3) The registrar may accept the statement of compliance as sufficient evidence of those matters."

After Clause 670, insert the following new clause—

"REGISTRAR'S DECISION ON APPLICATION FOR ADMINISTRATIVE RESTORATION

(1) The registrar must give notice to the applicant of the decision on an application under section (Application for administrative restoration to the register) (application for administrative restoration to the register).

(2) If the decision is that the company should be restored to the register, the restoration takes effect as from the date that notice is sent.

(3) In the case of such a decision, the registrar must—

(a) enter on the register a note of the date as from which the company's restoration to the register takes effect, and

(b) cause notice of the restoration to be published—

(i) in the Gazette, or

(ii) in accordance with section 746 (alternative means of giving notice).

(4) The notice under subsection (3)(b) must state—

(a) the name of the company or, if the company is restored to the register under a different name, that name and its former name,

(b) the company's registered number, and

(c) the date as from which the restoration of the company to the register takes effect."

After Clause 670, insert the following new clause—

"EFFECT OF ADMINISTRATIVE RESTORATION

(1) The general effect of administrative restoration to the register is that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register.

(2) The company is not liable to a penalty under section 434 or any corresponding earlier provision (civil penalty for failure to deliver accounts) for a financial year in relation to which the period for filing accounts and reports ended—

(a) after the date of dissolution or striking off, and

(b) before the restoration of the company to the register.

(3) The court may give such directions and make such provision as seems just for placing the company and all other persons in the same position (as nearly as may be) as if the company had not been dissolved or struck off the register.

(4) An application to the court for such directions or provision may be made any time within three years after the date of restoration of the company to the register."

After Clause 670, insert the following new clause—

"Restoration to the register by the court

APPLICATION TO COURT FOR RESTORATION TO THE REGISTER

(1) An application may be made to the court to restore to the register a company—

(a) that has been dissolved under Chapter 4 of Part 9 of the Insolvency Act 1986 (c. 45) or Chapter 9 of Part 5 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)) (dissolution of company after winding up),

(b) that is deemed to have been dissolved under paragraph 84(6) of Schedule B1 to the Insolvency Act 1986 (c. 45) or paragraph 85(6) of Schedule B1 to the Insolvency (Northern Ireland) Order 1989 (dissolution of company following administration), or

(c) that has been struck off the register—

(i) under section 652 of the Companies Act 1985 (c. 6) (power of registrar to strike off defunct company), or

(ii) under section 652A of that Act (voluntary striking off), whether or not the company has in consequence also been dissolved (see section 652(5) or 652A(5)).

(2) An application under this section may be made by—

(a) the Secretary of State,

(b) any former director of the company,

(c) any person having an interest in land in which the company had a superior or derivative interest,

(d) any person having an interest in land or other property—

(i) that was subject to rights vested in the company, or

(ii) that was benefited by obligations owed by the company,

(e) any person who but for the company's dissolution would have been in a contractual relationship with it,

(f) any person with a potential legal claim against the company,

(g) any manager or trustee of a pension fund established for the benefit of employees of the company,

(h) any former member of the company (or the personal representatives of such a person),

(i) any person who was a creditor of the company at the time of its striking off or dissolution,

(j) any former liquidator of the company,

(k) where the company was struck off the register under section 652A of the Companies Act 1985 (c. 6), any person of a description specified by regulations under section 652B(6)(f) or 652C(2)(f) of that Act (persons entitled to notice of application for voluntary striking off), or by any other person appearing to the court to have an interest in the matter."

After Clause 670, insert the following new clause—

"WHEN APPLICATION TO THE COURT MAY BE MADE

(1) An application to the court for restoration of a company to the register may be made at any time for the purpose of bringing proceedings against the company for damages for personal injury.

(2) No order shall be made on such an application if it appears to the court that the proceedings would fail by virtue of any enactment as to the time within which proceedings must be brought.

(3) In making that decision the court must have regard to its power under section (Effect of court order for restoration to the register)(3) (power to give consequential directions etc) to direct that the period between the dissolution (or striking off) of the company and the making of the order is not to count for the purposes of any such enactment.

(4) In any other case an application to the court for restoration of a company to the register may not be made after the end of the period of six years from the date of the dissolution of the company, subject as follows.

(5) In a case where—

(a) the company has been struck off the register under section 652 of the Companies Act 1985 (c. 6) (power of registrar to strike off defunct company),

(b) an application to the registrar has been made under section (Application for administrative restoration to the register) (application for administrative restoration to the register) within the time allowed for making such an application, and

(c) the registrar has refused the application, an application to the court under this section may be made within 28 days of notice of the registrar's decision being issued by the registrar, even if the period of six years mentioned in subsection (4) above has expired.

(6) For the purposes of this section—

(a) "personal injury" includes any disease and any impairment of a person's physical or mental condition; and

(b) references to damages for personal injury include—

(i) any sum claimed by virtue of section 1(2)(c) of the Law Reform (Miscellaneous Provisions) Act 1934 (c. 41) or section 14(2)(c) of the Law Reform (Miscellaneous Provisions) Act (Northern Ireland) 1937 (1937 c. 9 (N.I.)) (funeral expenses)), and

(ii) damages under the Fatal Accidents Act 1976 (c. 30), the Damages (Scotland) Act 1976 (c. 13) or the Fatal Accidents (Northern Ireland) Order 1977 (S.I. 1977/1251 (N.I. 18))."

After Clause 670, insert the following new clause—

"DECISION ON APPLICATION FOR RESTORATION BY THE COURT

(1) On an application under section (Application to the court for restoration to the register) the court may order the restoration of the company to the register—

(a) if the company was struck off the register under section 652 of the Companies Act 1985 (c. 6) (power of registrar to strike off defunct companies) and the company was, at the time of the striking off, carrying on business or in operation;

(b) if the company was struck off the register under section 652A of that Act (voluntary striking off) and any of the requirements of section 652B or 652C of that Act was not complied with;

(c) if in any other case the court considers it just to do so.

(2) If the court orders restoration of the company to the register, the restoration takes effect on a copy of the court's order being delivered to the registrar.

(3) The registrar must cause to be published—

(a) in the Gazette, or

(b) in accordance with section 746 (alternative means of giving notice), notice of the restoration of the company to the register.

(4) The notice must state—

(a) the name of the company or, if the company is restored to the register under a different name, that name and its former name,

(b) the company's registered number, and

(c) the date on which the restoration took effect."

After Clause 670, insert the following new clause—

"EFFECT OF COURT ORDER FOR RESTORATION TO THE REGISTER

(1) The general effect of an order by the court for restoration to the register is that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register.

(2) The company is not liable to a penalty under section 434 or any corresponding earlier provision (civil penalty for failure to deliver accounts) for a financial year in relation to which the period for filing accounts and reports ended—

(a) after the date of dissolution or striking off, and

(b) before the restoration of the company to the register.

(3) The court may give such directions and make such provision as seems just for placing the company and all other persons in the same position (as nearly as may be) as if the company had not been dissolved or struck off the register.

(4) The court may also give directions as to—

(a) the delivery to the registrar of such documents relating to the company as are necessary to bring up to date the records kept by the registrar,

(b) the payment of the costs (in Scotland, expenses) of the registrar in connection with the proceedings for the restoration of the company to the register,

(c) where any property or right previously vested in or held on trust for the company has vested as bona vacantia, the payment of the costs (in Scotland, expenses) of the Crown representative—

(i) in dealing with the property during the period of dissolution, or

(ii) in connection with the proceedings on the application.

(5) In this section the "Crown representative" means—

(a) in relation to property vested in the Duchy of Lancaster, the Solicitor to that Duchy;

(b) in relation to property vested in the Duke of Cornwall, the Solicitor to the Duchy of Cornwall;

(c) in relation to property in Scotland, the Queen's and Lord Treasurer's Remembrancer;

(d) in relation to other property, the Treasury Solicitor."

After Clause 670, insert the following new clause—

"Restoration to the register: supplementary provisions

COMPANY'S NAME ON RESTORATION

(1) A company is restored to the register with the name it had before it was dissolved or struck off the register, subject to the following provisions.

(2) If at the date of restoration the company could not be registered under its former name without contravening section 67 (name not to be the same as another in the registrar's index of company names), it must be restored to the register—

(a) under another name specified—

(i) in the case of administrative restoration, in the application to the registrar, or

(ii) in the case of restoration under a court order, in the court's order, or

(b) as if its registered number was also its name.

References to a company's being registered in a name and to registration, in that context, shall be read as including the company's being restored to the register.

(3) If a company is restored to the register under a name specified in the application to the registrar, the provisions of— section 80 (change of name: registration and issue of new certificate of incorporation), and section 81 (change of name: effect),. apply as if the application to the registrar were notice of a change of name.

(4) If a company is restored to the register under a name specified in the court's order, the provisions of— section 80 (change of name: registration and issue of new certificate of incorporation), and section 81 (change of name: effect),. apply as if the copy of the court order delivered to the registrar were notice of a change a name.

(5) If the company is restored to the register as if its registered number was also its name—

(a) the company must change its name within 14 days after the date of the restoration,

(b) the change may be made by resolution of the directors (without prejudice to any other method of changing the company's name),

(c) the company must give notice to the registrar of the change, and

(d) sections 80 and 81 apply as regards the registration and effect of the change.

(6) If the company fails to comply with subsection (5)(a) or (c) an offence is committed by—

(a) the company, and

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

(7) A person guilty of an offence under subsection (6) is liable on summary conviction to a fine not exceeding level 5 on the standard scale and, for continued contravention, to a daily default fine not exceeding one-tenth of level 5 on the standard scale."

After Clause 670, insert the following new clause—

"RESTORATION TO THE REGISTER: OTHER AMENDMENTS

(1) In section 654 of the Companies Act 1985 (c. 6) (property of dissolved company to be bona vacantia), in subsection (2) for "any order made by the court under section 651 or 653" substitute "the possible restoration of the company to the register under sections (Application for administrative restoration to the register) to (Effect of court order for restoration to the register) of the Company Law Reform Act 2006".

(2) For section 655 of that Act (effect of s. 654 on company's revival after dissolution) substitute—

"655 EFFECT OF RESTORATION TO THE REGISTER WHERE PROPERTY HAS VESTED AS BONA VACANTIA

(1) The person in whom any property or right is vested by section 654 may dispose of, or of an interest in, that property or right despite the fact that the company may be restored to the register under sections (Application for administrative restoration to the register) to (Effect of court order for restoration to the register) of the Company Law Reform Act 2006.

(2) If the company is restored to the register—

(a) the restoration does not affect the disposition (but without prejudice to its effect in relation to any other property or right previously vested in or held on trust for the company), and

(b) the Crown or, as the case may be, the Duke of Cornwall shall pay to the company an amount equal to—

(i) the amount of any consideration received for the property or right or, as the case may be, the interest in it, or

(ii) the value of any such consideration at the time of the disposition, or, if no consideration was received an amount equal to the value of the property, right or interest disposed of, as at the date of the disposition.

(3) There may be deducted from the amount payable under subsection (2)(b) the reasonable costs of the Crown representative in connection with the disposition (to the extent that they have not been paid as a condition of administrative restoration or pursuant to a court order for restoration).

(4) Where a liability accrues under subsection (2) in respect of any property or right which before the restoration of the company to the register had accrued as bona vacantia to the Duchy of Lancaster, the Attorney General of that Duchy shall represent Her Majesty in any proceedings arising in connection with that liability.

(5) Where a liability accrues under subsection (2) in respect of any property or right which before the restoration of the company to the register had accrued as bona vacantia to the Duchy of Cornwall, such persons as the Duke of Cornwall (or other possessor for the time being of the Duchy) may appoint shall represent the Duke (or other possessor) in any proceedings arising out of that liability.

(6) In this section the "Crown representative" means—

(a) in relation to property vested in the Duchy of Lancaster, the Solicitor to that Duchy;

(b) in relation to property vested in the Duke of Cornwall, the Solicitor to the Duchy of Cornwall;

(c) in relation to property in Scotland, the Queen's and Lord Treasurer's Remembrancer;

(d) in relation to other property, the Treasury Solicitor."."

On Question, amendments agreed to.

Clause 717 [Material not available for public inspection]:

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. 80:

Page 354, line 30, at end insert—

"( ) any application to the registrar under section (Application for administrative restoration to the register) (application for administrative restoration to the register) that has not yet been determined or was not successful;"

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 Amendment No. 81:

After Clause 769, insert the following new clause—

"REQUIREMENT TO GIVE SERVICE ADDRESS

Any obligation under the Companies Acts to give a person's address is, unless otherwise expressly provided, to give a service address for that person."

On Question, amendment agreed to.

Clause 833 [Appointment of the Independent Supervisor]:

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

moved Amendment No. 82:

Page 402, line 37, at end insert—

"( ) The order has the effect of making the body appointed under subsection (1) designated under section 5 of the Freedom of Information Act 2000 (c. 36) (further powers to designate public authorities)."

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

My Lords, in moving Amendment No. 82 I shall speak also to Amendment No. 83. These amendments make the Freedom of Information Act apply to the two bodies to which the Secretary of State will delegate his functions. Amendment No. 82 relates to the independent supervisor and, more importantly, Amendment No. 83 relates to a body that we believe will be the Public Oversight Board.

Only yesterday, the noble and learned Lord the Lord Chancellor made a speech in which he said that he was proud of the implementation of the Freedom of Information Act. His department issued a report on the progress that has been made in implementation. That showed that while there is still more to do—for example, on the timetable taken to reply to requests—the implementation has, in general, been without problems. However, the Government continue to say that they are still reviewing the implementation of the Act before extending it beyond government departments and the bodies initially included.

We believe that when a Minister delegates his functions to a body, whether a public sector body or not, it is right that the Freedom of Information Act rights and responsibilities also follow. Put another way, it would be wrong if a government department could avoid the operation of the Act by choosing to delegate functions in a particular way rather than carry them out directly. So as a matter of principle we think that the Act should apply to cases such as the delegation of functions to the independent supervisor and the Public Oversight Board.

More substantively, we have a very real belief that the performance of audit firms, which will be a function of the Public Oversight Board, ought to be in the public domain. If we are to have confidence in the role of auditors underpinning the strength of our capital markets, it makes no sense at all to keep auditor performance behind the closed doors of the Public Oversight Board.

As the noble Lord, Lord Sharman, and I have explained in Grand Committee and on Report, audit committees of listed companies bear a big responsibility to oversee the appointment of auditors and their work. How can audit committees discharge that responsibility if important information is kept from them? How can they rationally carry out a tender for an audit if they cannot compare the relative performance of auditors as judged by a knowledgeable external body? These two amendments are in the public interest. I beg to move.

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

My Lords, I support these amendments and the comments made by the noble Baroness. As she rightly indicated, this is an issue that she and my noble friend Lord Sharman have pursued all the way through our deliberations. We are still at it at Third Reading. However, this is an appropriate Third Reading amendment. Some of the discussions we have had today have been inevitable because amendments have necessarily been tabled late because of events. However, this amendment raises a fundamental principle.

The noble Baroness explained why, with the increased obligations and responsibilities being taken on by audit committees, it is important that those committees are given the necessary tools to enable them to fulfil their functions. However, the real Third Reading point is simple. We in the Opposition have a sense that whenever it is suggested that freedom of information should be applied, the Government—or, I suspect, not so much the Government as those who advise them—immediately throw their hands up in horror at the concept that the public or, in this case, company directors who need access to this information should be provided with it. That is an issue of principle that this House ought to take on board. If the noble Baroness is minded to divide the House, I have no doubt that the Liberal Democrats will be behind her, if not in front of her.

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

My Lords, noble Lords have argued that extending the level of public reporting, particularly by the Audit Inspection Unit, might offer a greater level of transparency and decision-useful information to companies and their audit committees on the performance of individual audit firms. During the debate last week on Report, I set out the reasons why the Government, in implementing the recommendations of the Review of the Regulatory Regime of the Accountancy Profession, concluded that Audit Inspection Unit reports on individual audit firms should not be public. At the same time I also acknowledged that there were counter-arguments and I explained that the Public Oversight Board is currently undertaking a review of its approach with a view to consulting more widely.

Perhaps I may rehearse briefly the arguments against the publication of individual reports. The main concern is that to do so would encourage a rules-driven, litigious approach rather than having the desired effect of creating an inspection regime designed to improve the quality of firms' practices and internal processes through constructive dialogue. In particular, we run the risk of reports becoming more legalistic as the burden of proof required before matters can be made public would arguably increase. The resulting reports would be in danger of becoming anodyne and thus of little real value to audit committees. Ultimately, there must be the risk that such an approach would drive the inspection regime towards a tick-box approach to compliance, which would certainly be undesirable to regulators and companies.

I have reflected carefully on the noble Lord's point that access to individual reports would help audit committees meet their obligations under the combined code to assess the effectiveness of the external audit. Although I accept that the AIU reports on individual audit firms might be an interesting read for audit committees, I am not persuaded that anything other than an individual report on their particular audit would provide the sort of decision-useful information that the noble Lord perhaps is seeking.

The concerns and risks that I have outlined again today are important and weighty. Again, however, I do not deny that there are alternative views and I accept that the balance of arguments is one that may be revisited. It is for these reasons that I feel strongly that the right course of action is to allow the Public Oversight Board to conduct a public consultation, as it has committed to do, on extending the level of public reporting, considering precisely what information should be published and when. That is not something that we should decide here. There must be open discussion and debate with all interested parties, in particular with the auditing profession and companies themselves.

As to whether the Government are shy about the Freedom of Information Act, we introduced that legislation and are proud of it. I caution noble Lords that if the purpose of the amendment is to get the individual audit firm reports out into the open, going down the route of the Freedom of Information Act would not necessarily produce that result. Several exceptions might apply if an FOI request were made for the AIU reports that are currently made only to the firm and the Audit Registration Committee. In particular, Section 43(3) of the Freedom of Information Act provides an exception to the requirements of the Act in cases where the information is prejudicial to a person's commercial interest. Furthermore, the Freedom of Information Act provides an exception for information that is held in order to monitor compliance with the law. In any such case where an exemption applied, the information would be discloseable only if the public interest in maintaining the exemption did not outweigh the public interest in disclosing it.

I stress again that if the import of the amendment is to try to get more public information about the performance of audit firms, surely the best route is to go through this consultation with the POB so that all those who are engaged in this process can input properly into it. For example, the AIU itself could input on how it might recast its reports so that matters might be brought more fully into the public domain. That is the best route forward on this matter rather than the route of the Freedom of Information Act. That really might not produce the result that the noble Baroness and the noble Lord are seeking.

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

My Lords, the Minister disappoints me. What we are proposing with the Freedom of Information Act is a fundamental principle. We should have access to the information, and when public duties are delegated, Freedom of Information Act rights and responsibilities go with them. That is not inconsistent with a separate consultation by the Public Oversight Board. We are simply saying that the Freedom of Information Act, with all of the safeguards that it contains, should apply. I read the Act again this week and it seemed to me entirely sensible to have those safeguards alongside disclosure in the event of cases where information should not be disclosed on those grounds. I wish to test the opinion of the House on this.

On Question, Whether the said amendment (No. 82) shall be agreed to?

Their Lordships divided: Contents, 147; Not-Contents, 125.

Division number 2 Private Parking: Ports and Trading Estates — Company Law Reform Bill [HL]

Aye: 145 Members of the House of Lords

No: 123 Members of the House of Lords

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Resolved in the affirmative, and amendment agreed to accordingly.

Clause 857 [Delegation of the Secretary of State's functions]:

Photo of Baroness Noakes Baroness Noakes Shadow Minister, Treasury, Shadow Minister, Work & Pensions 6:28 pm, 23rd May 2006

moved Amendment No. 83:

Page 415, line 25, at end insert—

"( ) A delegation order has the effect of making the body designated by the order designated under section 5 of the Freedom of Information Act 2000 (c. 36) (further powers to designate public authorities)."

On Question, amendment agreed to.

Clause 870 [Transparency and corporate governance rules]:

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

My Lords, in moving Amendment No. 84, I shall speak also to the other amendments in the group. I gave an undertaking in the debate on Part 21 on Report last week to table on Third Reading further amendments to Clauses 859 to 861. I shall now set out the detail of these amendments.

The amendment removes the three clauses that are currently in the Bill which give power to the competent authority—at present, the Financial Services Authority— to make rules for the purposes of the transparency directive and connected regulatory purposes. The clauses also make provision for the inclusion of a power for the competent authority to make corporate governance rules, and for the Secretary of State to make corporate governance regulations to implement, to enable the implementation of, or to deal with matters arising from or relating to any community obligation.

The amendment replaces the three clauses with nine new clauses, which recast and supplement the clauses proposed for removal. There are two reasons for this. First, the amendment will ensure that the provision for rule-making in the clauses is clearer. The clauses will fit better with the approach adopted in surrounding provisions in the Financial Services and Markets Act 2000. As part of that, we have incorporated the two amendments proposed by noble Lords in Committee to the definitions of issuer's relevant information and voteholder information respectively.

Secondly, the amendments include supplementary provisions. The first substantive additions incorporate provisions for additional regulatory powers of the competent authority. These powers are to suspend or prohibit trading of an issuer's shares if there are breaches or suspected breaches of transparency obligations and to censure publicly an issuer who breaches the transparency obligations.

There is also a supplementary provision to determine how the competent authority is to exercise its enforcement powers where the issue is from another member state. The transparency directive requires member states to have those powers. That is Articles 24.4 and 26. The second addition includes provisions to amend the powers of the Secretary of State in Section 14 of the Companies (Audit, Investigations and Community Enterprise) Act 2004 to appoint a body to oversee accounts and financial reporting functions. That will enable the functions overseen by the Secretary of State's appointed body to extend to the accounts and reports required to be produced by quoted companies in accordance with obligations arising from implementation of the transparency directive. The changes will also provide for the inclusion of a further clause clarifying issuers' liability in relation to disclosures required under the transparency directive. That is part of the implementation of Article 7 of the directive. 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. 85 to 93:

After Clause 870, insert the following new clause—

"PART 33A TRANSPARENCY OBLIGATIONS AND RELATED MATTERS

Introductory

THE TRANSPARENCY OBLIGATIONS DIRECTIVE

In Part 6 of the Financial Services and Markets Act 2000 (c. 8) (which makes provision about official listing, prospectus requirements for transferable securities, etc), in section 103(1) (interpretation), at the appropriate place insert—

""the transparency obligations directive" means Directive 2004/109/EC of the European Parliament and of the Council relating to the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market;".

After Clause 870, insert the following new clause—

"Transparency obligations

TRANSPARENCY RULES

After section 89 of the Financial Services and Markets Act 2000 (c. 8) insert—

"Transparency obligations

89A TRANSPARENCY RULES

(1) The competent authority may make rules for the purposes of the transparency obligations directive.

(2) The rules may include provision for dealing with any matters arising out of or related to any provision of the transparency obligations directive.

(3) The rules may include provision requiring—

(a) the provision of voteholder information to issuers or others (see section 89B), and

(b) the provision of information by issuers to the public or to the competent authority (see section 89C).

(4) The competent authority may also make rules—

(a) for the purpose of ensuring that voteholder information in respect of voting shares traded on a UK market other than a regulated market is made public or notified to the competent authority;

(b) providing for persons who hold comparable instruments (see section 89D(1)(c)) in respect of voting shares to be treated, in the circumstances specified in the rules, as holding some or all of the voting rights in respect of those shares.

(5) Without prejudice to subsections (1) to (3), rules under subsection (4) may, in particular, make provision—

(a) specifying how the proportion of—

(i) the total voting rights in respect of shares in an issuer, or

(ii) the total voting rights in respect of a particular class of shares in an issuer, held by a person is to be determined;

(b) specifying the circumstances in which, for the purposes of any determination of the voting rights held by a person ("P") in respect of voting shares in an issuer, any voting rights held, or treated by virtue of subsection (4)(b) as held, by another person in respect of voting shares in the issuer are to be regarded as held by P;

(c) specifying the nature of the information which must be included in any notification;

(d) about the form of any notification;

(e) requiring any notification to be given within a specified period;

(f) specifying the manner in which any information is to be made public and the period within which it must be made public;

(g) specifying circumstances in which any of the requirements imposed by rules under subsection (4) does not apply.

(6) Rules under this section are referred to in this Part as "transparency rules".

89B PROVISION OF VOTEHOLDER INFORMATION

(1) Transparency rules may make provision for voteholder information in respect of voting shares to be notified, in circumstances specified in the rules—

(a) to the issuer, or

(b) to the public, or to both.

(2) In this Part "voteholder information" in respect of voting shares means information relating to the proportion of voting rights held by a person in respect of the shares.

(3) Transparency rules may require notification of voteholder information relating to a person—

(a) initially, not later than such date as may be specified in the rules for the purposes of the first indent of Article 30.2 of the transparency obligations directive, and

(b) subsequently, in accordance with the following provisions.

(4) Transparency rules under subsection (3)(b) may require notification of voteholder information relating to a person only where there is a notifiable change in the proportion of—

(a) the total voting rights in respect of shares in the issuer, or

(b) the total voting rights in respect of a particular class of share in the issuer, held by the person.

(5) For this purpose there is a "notifiable change" in the proportion of voting rights held by a person when the proportion changes—

(a) from being a proportion less than a designated proportion to a proportion equal to or greater than that designated proportion,

(b) from being a proportion equal to a designated proportion to a proportion greater or less than that designated proportion, or

(c) from being a proportion greater than a designated proportion to a proportion equal to or less than that designated proportion.

(6) In subsection (5) "designated" means designated by the rules.

89C PROVISION OF INFORMATION BY ISSUERS

(1) Transparency rules may make provision requiring the issuer of voting shares, in circumstances specified in the rules—

(a) to make public information to which this section applies, or

(b) to notify the competent authority of information to which this section applies, or to do both.

(2) This section applies to the following information—

(a) the information required by Articles 4 to 6 of the transparency obligations directive;

(b) voteholder information—

(i) notified to the issuer, or

(ii) relating to the proportion of voting rights held by the issuer in respect of voting shares in the issuer;

(c) information relating to the issuer's capital;

(d) information relating to the rights attached to the shares or other securities issued by the issuer (including the total number of voting rights in respect of shares or of shares of a particular class);

(e) information about new loan issues and about any guarantee or security in connection with any such issue.

(3) Transparency rules may require notification of voteholder information relating to the proportion of voting rights held by an issuer in respect of voting shares in the issuer—

(a) initially, not later than such date as may be specified in the rules for the purposes of the second indent of Article 30.2 of the transparency obligations directive, and

(b) subsequently, in accordance with the following provisions.

(4) Transparency rules under subsection (3)(b) may require notification of voteholder information relating to the proportion of voting rights held by an issuer in respect of voting shares in the issuer only where there is a notifiable change in the proportion of—

(a) the total voting rights in respect of shares in the issuer, or

(b) the total voting rights in respect of a particular class of share in the issuer, held by the issuer.

(5) For this purpose there is a "notifiable change" in the proportion of voting rights held by a person when the proportion changes—

(a) from being a proportion less than a designated proportion to a proportion equal to or greater than that designated proportion,

(b) from being a proportion equal to a designated proportion to a proportion greater or less than that designated proportion, or

(c) from being a proportion greater than a designated proportion to a proportion equal to or less than that designated proportion.

(6) In subsection (5) "designated" means designated by the rules.

89D TRANSPARENCY RULES: INTERPRETATION ETC

(1) For the purposes of sections 89A to 89E—

(a) the voting rights in respect of any voting shares are the voting rights attached to those shares,

(b) a person is to be regarded as holding the voting rights in respect of the shares—

(i) if, by virtue of those shares, he is a shareholder within the meaning of Article 2.1(e) of the transparency obligations directive;

(ii) if, and to the extent that, he is entitled to acquire, dispose of or exercise those voting rights in one or more of the cases mentioned in Article 10(a) to (h) of the transparency obligations directive;

(iii) if he holds, directly or indirectly, a financial instrument which results in an entitlement to acquire the shares and is an Article 13 instrument, and

(c) a person holds a "comparable instrument" in respect of voting shares if he holds, directly or indirectly, a financial instrument in relation to the shares which has similar economic effects to an Article 13 instrument (whether or not the financial instrument results in an entitlement to acquire the shares).

(2) Transparency rules under section 89A(4)(b) may make different provision for different descriptions of comparable instrument.

(3) For the purposes of sections 89A to 89E two or more persons may, at the same time, each be regarded as holding the same voting rights.

(4) In those sections—

"Article 13 instrument" means a financial instrument of a type determined by the European Commission under Article 13(2)(a) of the transparency obligations directive;

"UK market" means a market that is situated or operating in the United Kingdom;

"voting shares" means shares—

(a) to which voting rights are attached, and

(b) which are shares of an issuer whose shares have been admitted to trading on a market (whether a regulated market or not).

89E TRANSPARENCY RULES: OTHER SUPPLEMENTARY PROVISIONS

(1) Transparency rules that require a person to make information public may include provision authorising the competent authority to make the information public in the event that the person fails to do so.

(2) The competent authority may make public any information notified to the authority in accordance with transparency rules.

(3) Transparency rules may make provision by reference to any provision of any rules made by the Panel on Takeovers and Mergers under Part 23 of the Company Law Reform Act 2006.

(4) Sections 89A to 89D and this section are without prejudice to any other power conferred by this Part to make Part 6 rules."."

After Clause 870, insert the following new clause—

"COMPETENT AUTHORITY'S POWER TO CALL FOR INFORMATION

In Part 6 of the Financial Services and Markets Act 2000 (c.8) after the sections inserted by section (Transparency rules) above insert—

"Power of competent authority to call for information

89F COMPETENT AUTHORITY'S POWER TO CALL FOR INFORMATION

(1) The competent authority may by notice in writing given to a person to whom this section applies require him—

(a) to provide specified information or information of a specified description, or

(b) to produce specified documents or documents of a specified description.

(2) This section applies to—

(a) an issuer of securities in respect of whom transparency rules have effect;

(b) a voteholder;

(c) an auditor of—

(i) an issuer to whom this section applies, or

(ii) a voteholder;

(d) a person who controls a voteholder;

(e) a person controlled by a voteholder;

(f) a director or other similar officer of an issuer to whom this section applies;

(g) a director or other similar officer of a voteholder or, where the affairs of a voteholder are managed by its members, a member of the voteholder.

(3) This section applies only to information and documents reasonably required in connection with the exercise by the competent authority of functions conferred on it by or under sections 89A to 89E (transparency rules).

(4) Information or documents required under this section must be provided or produced—

(a) before the end of such reasonable period as may be specified, and

(b) at such place as may be specified.

(5) If a person claims a lien on a document, its production under this section does not affect the lien.

89G REQUIREMENTS IN CONNECTION WITH CALL FOR INFORMATION

(1) The competent authority may require any information provided under that section to be provided in such form as it may reasonably require.

(2) The competent authority may require—

(a) any information provided, whether in a document or otherwise, to be verified in such manner as it may reasonably require;

(b) any document produced to be authenticated in such manner as it may reasonably require.

(3) If a document is produced in response to a requirement imposed under this section, the competent authority may—

(a) take copies of or extracts from the document; or

(b) require the person producing the document, or any relevant person, to provide an explanation of the document.

(4) In subsection (3)(b) "relevant person", in relation to a person who is required to produce a document, means a person who—

(a) has been or is a director or controller of that person;

(b) has been or is an auditor of that person;

(c) has been or is an actuary, accountant or lawyer appointed or instructed by that person; or

(d) has been or is an employee of that person.

(5) If a person who is required under this section to produce a document fails to do so, the competent authority may require him to state, to the best of his knowledge and belief, where the document is.

89H POWER TO CALL FOR INFORMATION: SUPPLEMENTARY PROVISIONS

(1) In sections 89F and 89G (power of competent authority to call for information)—

"control" and "controlled" have the meaning given by subsection (2) below;

"specified" means specified in the notice;

"voteholder" means a person who—

(a) holds voting rights in respect of any voting shares for the purposes of sections 89A to 89E (transparency rules), or

(b) is treated as holding such rights by virtue of rules under section 89A(4)(b).

(2) For the purposes of those sections a person ("A") controls another person ("B") if—

(a) A holds a majority of the voting rights in B,

(b) A is a member of B and has the right to appoint or remove a majority of the members of the board of directors (or, if there is no such board, the equivalent management body) of B,

(c) A is a member of B and controls alone, pursuant to an agreement with other shareholders or members, a majority of the voting rights in B, or

(d) A has the right to exercise, or actually exercises, dominant influence or control over B.

(3) For the purposes of subsection (2)(b)—

(a) any rights of a person controlled by A, and

(b) any rights of a person acting on behalf of A or a person controlled by A, are treated as held by A."."

After Clause 870, insert the following new clause—

"POWERS EXERCISABLE IN CASE OF INFRINGEMENT OF TRANSPARENCY OBLIGATION

In Part 6 of the Financial Services and Markets Act 2000 (c. 8), after the sections inserted by section (Competent authority's power to call for information) above insert—

"Powers exercisable in case of infringement of transparency obligation

89I PUBLIC CENSURE OF ISSUER

(1) If the competent authority finds that an issuer of securities admitted to trading on a regulated market situated or operating in the United Kingdom is failing or has failed to comply with an applicable transparency obligation, it may publish a statement to that effect.

(2) If the competent authority proposes to publish a statement, it must give the issuer a warning notice setting out the terms of the proposed statement.

(3) If, after considering any representations made in response to the warning notice, the competent authority decides to make the proposed statement, it must give the issuer a decision notice setting out the terms of the statement.

(4) A notice under this section must inform the issuer of his right to refer the matter to the Tribunal (see section 89L) and give an indication of the procedure on such a reference.

(5) In this section "transparency obligation" means an obligation under—

(a) a provision of transparency rules, or

(b) any other provision made in accordance with the transparency obligations directive.

(6) In relation to an issuer whose home state is a member state other than the United Kingdom, any reference to an applicable transparency obligation must be read subject to section 100A(2).

89J POWER TO SUSPEND OR PROHIBIT TRADING OF SECURITIES

(1) This section applies to securities admitted to trading on a regulated market situated or operating in the United Kingdom.

(2) If the competent authority has reasonable grounds for suspecting that an applicable transparency obligation has been infringed by the issuer, it may require the market operator to suspend trading in the securities for a period not exceeding 10 days.

(3) If the competent authority has reasonable grounds for suspecting that an applicable transparency obligation has been infringed—

(a) by an issuer whose home state is not the United Kingdom, or

(b) by voteholders of an issuer whose home state is the United Kingdom, it may require the market operator to prohibit trading in the securities.

(4) If the competent authority finds that an applicable transparency obligation has been infringed, it may require the market operator to prohibit trading in the securities.

(5) In this section "transparency obligation" means an obligation under—

(a) a provision contained in transparency rules, or

(b) any other provision made in accordance with the transparency obligations directive.

(6) In relation to an issuer whose home state is a member state other than the United Kingdom, any reference to an applicable transparency obligation must be read subject to section 100A(2).

89K PROCEDURE UNDER SECTION 89J

(1) A requirement under section 89J takes effect—

(a) immediately, if the notice under subsection (2) states that that is the case;

(b) in any other case, on such date as may be specified in the notice.

(2) If the competent authority—

(a) proposes to exercise the powers in section 89J in relation to a person, or

(b) exercises any of those powers in relation to a person with immediate effect, it must give that person written notice.

(3) The notice must—

(a) give details of the competent authority's action or proposed action;

(b) state the competent authority's reasons for taking the action in question and choosing the date on which it took effect or takes effect;

(c) inform the recipient that he may make representations to the competent authority within such period as may be specified by the notice (whether or not he had referred the matter to the Tribunal);

(d) inform him of the date on which the action took effect or takes effect;

(e) inform him of his right to refer the matter to the Tribunal (see section 89L) and give an indication of the procedure on such a reference.

(4) The competent authority may extend the period within which representations may be made to it.

(5) If, having considered any representations made to it, the competent authority decides to maintain, vary or revoke its earlier decision, it must give written notice to that effect to the person mentioned in subsection (2).

89L RIGHT TO REFER MATTERS TO THE TRIBUNAL

A person—

(a) to whom a decision notice is given under section 89I (public censure), or

(b) to whom a notice is given under section 89K (procedure in connection with suspension or prohibition of trading), may refer the matter to the Tribunal.

After Clause 870, insert the following new clause—

"Other matters

"CORPORATE GOVERNANCE RULES

In Part 6 of the Financial Services and Markets Act 2000 (c. 8), after the sections inserted by section (Powers exercisable in case of infringement of transparency obligation) above insert—

"Corporate governance

89M CORPORATE GOVERNANCE RULES

(1) The competent authority may make rules ("corporate governance rules")—

(a) for the purpose of implementing, enabling the implementation of or dealing with matters arising out of or related to, any Community obligation relating to the corporate governance of issuers who have requested or approved admission of their securities to trading on a regulated market;

(b) about corporate governance in relation to such issuers for the purpose of implementing, or dealing with matters arising out of or related to, any Community obligation.

(2) "Corporate governance", in relation to an issuer, includes—

(a) the nature, constitution or functions of the organs of the issuer;

(b) the manner in which organs of the issuer conduct themselves;

(c) the requirements imposed on organs of the issuer;

(d) the relationship between the different organs of the issuer;

(e) the relationship between the organs of the issuer and the members of the issuer or holders of the issuer's securities.

(3) The burdens and restrictions imposed by rules under this section on foreign-traded issuers must not be greater than the burdens and restrictions imposed on UK-traded issuers by—

(a) rules under this section, and

(b) listing rules.

(4) For this purpose—

"foreign-traded issuer" means an issuer who has requested or approved admission of the issuer's securities to trading on a regulated market situated or operating outside the United Kingdom;

"UK-traded issuer" means an issuer who has requested or approved admission of the issuer's securities to trading on a regulated market situated or operating in the United Kingdom.

(5) This section is without prejudice to any other power conferred by this Part to make Part 6 rules.".

After Clause 870, insert the following new clause—

"LIABILITY FOR FALSE OR MISLEADING STATEMENTS IN CERTAIN PUBLICATIONS

In Part 6 of the Financial Services and Markets Act 2000 (c. 8), after section 90 insert—

"90A COMPENSATION FOR STATEMENTS IN CERTAIN PUBLICATIONS

(1) The publications to which this section applies are any reports and statements published in response to a requirement imposed by a provision implementing Article 4, 5 or 6 of the transparency obligations directive.

(2) The issuer of securities traded on a regulated UK market is liable to pay compensation to a person who has—

(a) acquired such securities issued by it, and

(b) suffered loss in respect of them as a result of—

(i) any untrue or misleading statement in a publication to which this section applies, or

(ii) the omission from any such publication of any matter required to be included in it.

(3) The issuer is so liable only if a person discharging managerial responsibilities within the issuer in relation to the publication—

(a) knew the statement to be untrue or misleading or was reckless as to whether it was untrue or misleading, or

(b) knew the omission to be dishonest concealment of a material fact.

(4) A loss is not regarded as suffered as a result of the statement or omission in the publication unless the person suffering it acquired the relevant securities—

(a) in reliance on the information in the publication, and

(b) at a time when, and in circumstances in which, it was reasonable for him to rely on that information.

(5) Except as mentioned in subsection (7)—

(a) the issuer is not subject to any other liability than that provided for by this section in respect of any such loss as is mentioned in subsection (2), and

(b) a person other than the issuer is not subject to any liability, other than to the issuer, in respect of any such loss.

(6) Any reference in subsection (5) to a person being subject to a liability includes a reference to another person being entitled as against him to be granted any civil remedy or to rescind or repudiate an agreement.

(7) This section does not affect—

(a) the powers conferred by section 382 and 384 (powers of the court to make a restitution order and of the Authority to require restitution);

(b) liability for a civil penalty;

(c) liability for a criminal offence.

(8) For the purposes of this section—

(a) the following are persons "discharging managerial responsibilities" in relation to a publication—

(i) any director of the issuer (or person occupying the position of director, by whatever name called),

(ii) in the case of an issuer whose affairs are managed by its members, any member of the issuer,

(iii) any senior executive of the issuer having responsibilities in relation to the publication;

(b) "regulated UK market" means a regulated market situated or operating in the United Kingdom;

(c) references to the acquisition by a person of securities include his contracting to acquire them or any interest in them."

After Clause 870, insert the following new clause—

"EXERCISE OF POWERS WHERE UK IS HOST MEMBER STATE

In Part 6 of the Financial Services and Markets Act 2000 (c. 8), after section 100 insert—

"100A EXERCISE OF POWERS WHERE UK IS HOST MEMBER STATE

(1) This section applies to the exercise by the competent authority of any power under this Part exercisable in case of infringement of—

(a) a provision of prospectus rules or any other provision made in accordance with the prospectus directive, or

(b) a provision of transparency rules or any other provision made in accordance with the transparency obligations directive, in relation to an issuer whose home state is a member state other than the United Kingdom.

(2) The competent authority may act in such a case only in respect of the infringement of a provision required by the relevant directive.

Any reference to an applicable provision or applicable transparency obligation shall be read accordingly.

(3) If the authority finds that there has been such an infringement, it must give a notice to that effect to the competent authority of the person's home state requesting it—

(a) to take all appropriate measures for the purpose of ensuring that the person remedies the situation that has given rise to the notice, and

(b) to inform the authority of the measures it proposes to take or has taken or the reasons for not taking such measures.

(4) The authority may not act further unless satisfied—

(a) that the competent authority of the person's home state has failed or refused to take measures for the purpose mentioned in subsection (3)(a), or

(b) that the measures taken by that authority have proved inadequate for that purpose.

This does not affect exercise of the powers under section 87K(2), 87L(2) or (3) or 89J(2) or (3) (powers to protect market).

(5) If the authority is so satisfied, it must, after informing the competent authority of the person's home state, take all appropriate measures to protect investors.

(6) In such a case the authority must inform the Commission informed of the measures at the earliest opportunity."."

After Clause 870, insert the following new clause—

"TRANSPARENCY OBLIGATIONS AND RELATED MATTERS: MINOR AND CONSEQUENTIAL AMENDMENTS

(1) Schedule (Transparency obligations and related matters: minor and consequential amendments) to this Act makes minor and consequential amendments in connection with the provision made by this Part.

(2) In that Schedule—

Part 1 contains amendments of the Financial Services and Markets Act 2000 (c. 8);

Part 2 contains amendments of the Companies (Audit, Investigations and Community Enterprise) Act 2004 (c. 27)."

After Clause 870, insert the following new clause—

"CORPORATE GOVERNANCE REGULATIONS

(1) The Secretary of State may make regulations—

(a) for the purpose of implementing, enabling the implementation of or dealing with matters arising out of or related to, any Community obligation relating to the corporate governance of issuers who have requested or approved admission of their securities to trading on a regulated market;

(b) about corporate governance in relation to such issuers for the purpose of implementing, or dealing with matters arising out of or related to, any Community obligation.

(2) "Corporate governance", in relation to an issuer, includes—

(a) the nature, constitution or functions of the organs of the issuer;

(b) the manner in which organs of the issuer conduct themselves;

(c) the requirements imposed on organs of the issuer;

(d) the relationship between different organs of the issuer;

(e) the relationship between the organs of the issuer and the members of the issuer or holders of the issuer's securities.

(3) The regulations may—

(a) make provision by reference to any specified code on corporate governance that may be issued from time to time by a specified body;

(b) create new criminal offences (subject to subsection (4));

(c) make provision excluding liability in damages in respect of things done or omitted for the purposes of, or in connection with, the carrying on, or purported carrying on, of any specified activities.

"Specified" here means specified in the regulations.

(4) The regulations may not create a criminal offence punishable by a greater penalty than—

(a) on indictment, a fine;

(b) on summary conviction, a fine not exceeding the statutory maximum or (if calculated on a daily basis) £100 a day.

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

(6) In this section "issuer", "securities" and "regulated market" have the same meaning as in Part 6 of the Financial Services and Markets Act 2000 (c. 8)."

On Question, amendments agreed to.

Clause 871 [Consequential amendments of the Financial Services and Markets Act 2000]:

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

moved Amendment No. 94:

Leave out Clause 871.

On Question, amendment agreed to.

Clause 872 [Corporate governance regulations]:

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

moved Amendment No. 95:

Leave out Clause 872.

On Question, amendment agreed to.

Clause 876 [Institutional investors: information about exercise of voting rights]:

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

My Lords, Amendment No. 96 seeks to leave out Clause 876. Despite our tabling amendments to this clause in Committee and on Report, there are still many uncertainties over how the Government propose to implement any regulations to be made under this clause and there are grave concerns over the whole approach taken. In Grand Committee, the Minister said:

"Greater transparency of voting can be expected to improve the confidence of savers in the stewardship exercised on their behalf by institutional investors".

However, it has to be said that public disclosure could undermine and generally dumb down the voting process due to the sensitivity of the issues and the confidentiality necessary. In particular, public knowledge of a disagreement with an investee company's management could have an adverse effect on shareholder value without any solution to the disagreement.

Furthermore, where an institution has a general policy not to vote, to be distinguished from votes consciously withheld where an active decision is taken not to vote on a particular resolution, a mandatory requirement to disclose the non-exercise of voting rights in each and every situation may drive firms simply to vote without giving due consideration to the issues at stake in order to be seen to be doing something. That could potentially skew the result by diluting the impact of those votes which have been exercised in a considered manner.

The Minister went on to say that,

"the very existence of the power will encourage institutional investors not currently disclosing this kind of information to respond and adopt best practice".—[Official Report, 25/4/06; col. GC 80.]

However, the existence of this power could result in a corporate equivalent of planning blight. Institutions will hold fire on their own voluntary disclosure regimes until secondary legislation makes it clear what is needed to be disclosed. Why make an investment in IT and skilled personnel to implement a system which may be rendered completely redundant by a statutory system?

On Report, the Minister said:

"The increasing trend towards voluntary disclosures suggests that more institutional investors recognise their clients' right to this information and that its disclosure is of benefit to clients".—[Hansard, 16/5/06; col. 248.]

Again, that reveals the Government's muddled thinking. We have repeatedly made it clear from these Benches that we have no issue with financial institutions reporting to their clients. But that is not what Clause 876 is about. The regime under the clause can require the information to be disclosed to the world at large, which is a completely different matter. We are aware that the hit rates for those who disclose are very low. One manager who disclosed had no questions raised as a result, which indicates a low level of interest, if any. But, as the Minister said, there is an increasing trend to disclosure being undertaken voluntarily, so there is no need to take the heavy-handed approach that Clause 876 proposes.

A number of other issues have not been adequately answered by the Government. First, what evidence do the Government have that this information is of benefit to the public or that the public want it? Secondly, are the Government aware that the Institutional Shareholders' Committee, whose membership comprises the Investment Management Association, the Association of British Insurers, the National Association of Pension Funds and the Association of Investment Trust Companies, is developing its own guidance on public disclosure?

Finally, I hope that the Minister—whichever Minister it is—will not fall back on the argument that this is a reserve power and unlikely to be used. Governments, particularly this Government, love command and control devices, of which this is a classic example. A commensurate regulatory touch has been one of the keys to the incredible success of the UK's financial services industry. This clause does no one anywhere any favours. I beg to move.

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

My Lords, as on the previous amendment, my noble friend Lord Sharman supported the Opposition on this point throughout the deliberations in the Moses Room and on Report. We certainly do not intend to renege on that support today. The fundamental point which my noble friend would have made had he been able to be here was made by the noble Lord, Lord Hodgson. There is now extensive development of a voluntary code, which, as the noble Lord, Lord Hodgson, said, if we have to wait for regulations to come in from the Government, is likely to be frozen. As a result, this is an unnecessary regulatory step too far. This is the one that can be confined to the bonfire of regulations which the Government have so often promised but have so often failed to deliver.

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, Clause 876 confers a power on the Secretary of State and the Treasury to make regulations requiring certain categories of institutional investor to provide information about the exercise or non-exercise of their voting rights. I am pleased that we have reached agreement—confirmed by the noble Lord, Lord Hodgson, on Report—on the important principle underpinning this clause. Beneficiaries and clients are entitled to know what is being done with the shares that they beneficially own. Disclosure of voting information is an important part of the transparency of the exercise of corporate governance functions. I would have thought that the Liberal Democrat Party in its noble traditions of supporting democracy and transparency would also agree to that simple proposition.

We are also in agreement that the increasing disclosures by institutional investors, either to their clients directly or more publicly—for example, as the noble Lord, Lord Hodgson, noted, the recent decisions by Fidelity Standard Life Investments and Newton Investment Management to disclose voting—are a positive change. We agree that the voluntary approach to disclosures by institutional investors should be allowed to evolve further before any consideration is given of implementing a mandatory disclosure regime. The idea that because we have back-up powers, but are allowing a voluntary approach that will somehow produce a wonderful thing called "planning blight", seems to be one of the more far-fetched arguments that has been produced in this House, which has not as a whole produced fanciful arguments. However, I must say that the argument of "planning blight" is somewhat fanciful.

One suggested point of disagreement raised on Report was the extent of disclosure: should it just be to the beneficiaries, or to some wider class, or to the public at large? The clause does not prescribe that a particular approach must be adopted. It leaves the options open. That approach seems the best at this early stage. It cannot be that there is a great matter of principle; clearly if one divulges how one votes to a wide range of shareholders, it will be public information anyway. It may be that doing so publicly on a public website is the quickest way to give out the information. So I cannot believe that that is a serious issue.

As I emphasised on Report, the choice with this clause is not between the voluntary and mandatory approaches but whether the Government should have effective backup in the event that the voluntary approach does not deliver or should have no lever to address the problem. On that point we appear to differ. The taking of power is intended to underpin the good progress being made voluntarily, not undermine it as some noble Lords seem to fear. The taking of power makes it clear that the Government value increasing levels of disclosure. By taking a power now, rather than creating a mandatory regime in the Bill, it also shows that the Government are willing to see how market practice evolves before choosing whether and how to exercise the power.

I simply do not accept that taking the power has the negative consequences that noble Lords suggest. I have no hesitation in repeating the assurances that we have given, because they are important safeguards, not to be made light of. The Government will consult extensively before taking the power and it will be subject to a rigorous cost-benefit analysis. Those factors, combined with further scrutiny in both Houses, will ensure that any use of the powers will be proportionate. I return to our common ground. If noble Lords believe that we are right to encourage the voluntary approach, they should support the taking of a power that will serve to underpin that good progress.

Photo of Lord Forsyth of Drumlean Lord Forsyth of Drumlean Conservative

My Lords, would it have been more sensible to carry out the cost benefit analysis before introducing the legislation in the first place?

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)

No, my Lords, there is a matter of principle here about which we feel strongly. It is not possible to carry out the cost benefit analysis of all those things unless one has the principle established and is looking at detailed consultations. That is the sensible moment to carry out the cost benefit analysis. That is the common situation throughout the Bill: where we are taking some back-up powers it is on the basis that we would carry out the cost benefit analysis when considering whether to introduce the regulatory power. I return to the common ground. If noble Lords believe that we are right to encourage the voluntary approach, they should support the taking of power that will serve to underpin this good progress. If noble Lords believe that individual investors are entitled to know what is being done with the shares they beneficially own and that that disclosure is beneficial, they should support the clause. Liberal of all parties who believe that people should know how companies do it should be right there supporting us on the last lap of the Bill. They should never be allowed to forget it. I therefore hope, but do not expect, that the noble Lord will withdraw the amendment.

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

My Lords, as the Minister will realise, that is a disappointing response after the evidence that we have given him. I am extremely grateful to the noble Lord, Lord Razzall, for his support. Trying to talk about clients is confusing the issue, because Clause 876(9) states,

"The regulations may require the information to be provided, in such manner as may be specified, to such persons as may be specified, or to the public, or both".

There is nothing to do with clients; it is about the world at large. When the Minister starts trying to confuse that with talking about clients, with the greatest respect, on this last lap, he is slightly edging the truth. Clients are a different matter; this is about the public at large.

We do not accept that this provision is needed at this stage for the reasons I explained. I hope that when the Minister goes back to his office he will look at today's Financial Times, which contains an interview with Mr Ed Balls on his new role. He says that the City of London must retain its light touch and risk-based regulatory regime. This is neither light touch nor risk-based; it is a complete red herring. I intend to finish off the Bill with a bang rather than a whimper and I beg leave to seek the opinion of the House.

On Question, Whether the said amendment (No. 96) shall be agreed to?

*Their Lordships divided: Contents, 125; Not-Contents, 120.

Division number 3 Private Parking: Ports and Trading Estates — Company Law Reform Bill [HL]

Aye: 124 Members of the House of Lords

No: 118 Members of the House of Lords

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Resolved in the affirmative, and amendment agreed to accordingly.

[*The Tellers for the Contents reported 125 votes; the Clerks recorded 126 names.]

Photo of Lord Geddes Lord Geddes Conservative 6:56 pm, 23rd May 2006

My Lords, before calling Amendment No. 97, I must advise the House that there was a printing error in the Marshalled List. The page reference should be 441 rather than 440.

Clause 896 [Commencement]:

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. 97:

Page 440, line 25, at end insert—

"( ) Part 33A (transparency obligations and related matters), except the amendment in paragraph 11(2) of Schedule (Transparency obligations and related matters: minor and consequential amendments) of the definition of "regulated market" in Part 6 of the Financial Services and Markets Act 2000,"

On Question, amendment agreed to.

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

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. 99 and 100:

Page 491, leave out lines 21 and 22 and insert—

"address—generally—in the company communications provisions section (Requirement to give service address) section 776(1)"

Page 497, leave out line 8.

On Question, amendments 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 Amendment No. 101:

After Schedule 14, insert the following new schedule—

"TRANSPARENCY OBLIGATIONS AND RELATED MATTERS:CONSEQUENTIAL AMENDMENTS PART 1 AMENDMENTS OF THE FINANCIAL SERVICES AND MARKETS ACT 2000

1 Part 6 of the Financial Services and Markets Act 2000 (listing and other matters) is amended as follows.

2 In section 73 (general duty of competent authority), after subsection (1) insert—

"(1A) To the extent that those general functions are functions under or relating to transparency rules, subsection (1)(c) and (f) have effect as if the references to a regulated market were references to a market."

3 In section 73A (Part 6 Rules), after subsection (5) insert—

"(6) Transparency rules and corporate governance rules are not listing rules, disclosure rules or prospectus rules, but are Part 6 rules."

4 For the cross-heading before section 90 substitute "Compensation for false or misleading statements etc".

5 For the heading to section 90 substitute "Compensation for statements in listing particulars or prospectus".

6 (1) Section 91 (penalties for breach of Part 6 rules) is amended as follows.

(2) For subsection (1) substitute—

"(1) If the competent authority considers that—

(a) an issuer of listed securities, or

(b) an applicant for listing, has contravened any provision of listing rules, it may impose on him a penalty of such amount as it considers appropriate.

(1ZA) If the competent authority considers that—

(a) an issuer who has requested or approved the admission of a financial instrument to trading on a regulated market,

(b) a person discharging managerial responsibilities within such an issuer, or

(c) a person connected with such a person discharging managerial responsibilities, has contravened any provision of disclosure rules, it may impose on him a penalty of such amount as it considers appropriate."

(3) After subsection (1A) insert—

"(1B) If the competent authority considers—

(a) that a person has contravened—

(i) a provision of transparency rules or a provision otherwise made in accordance with the transparency obligations directive, or

(ii) a provision of corporate governance rules, or

(b) that a person on whom a requirement has been imposed under section 89J (power to suspend or prohibit trading of securities in case of infringement of applicable transparency obligation), has contravened that requirement, it may impose on the person a penalty of such amount as it considers appropriate.".

(4) In subsection (2) for "(1)(a), (1)(b)(ii) or (1A)" substitute "(1), (1ZA)(a), (1A) or (1B)".

7 In section 96B (persons discharging managerial responsibilities and connected persons)—

(a) for the heading substitute "Disclosure rules: persons responsible for compliance";

(b) in subsection (1) for "For the purposes of this Part" substitute "for the purposes of the provisions of this Part relating to disclosure rules".

8 In section 97(1) (appointment by the competent authority of persons to carry out investigations), for paragraphs (a) and (b) substitute—

"(a) there may have been a contravention of—

(i) a provision of this Part or of Part 6 rules, or

(ii) a provision otherwise made in accordance with the prospectus directive or the transparency obligations directive;

(b) a person who was at the material time a director of a person mentioned in section 91(1), (1ZA)(a), (1A) or (1B) has been knowingly concerned in a contravention by that person of—

(i) a provision of this Part or of Part 6 rules, or

(ii) a provision otherwise made in accordance with the prospectus directive or the transparency obligations directive;".

9 In section 99 (fees) after subsection (1B) insert—

"(1C) Transparency rules may require the payment of fees to the competent authority in respect of the continued admission of financial instruments to trading on a regulated market.".

10 In section 102A(3) (meaning of "transferable securities") for "the investment services directive" substitute "Directive 2004/39/EC of the European Parliament and of the Council on markets in financial instruments".

11 (1) Section 103(1) (interpretation of Part 6) is amended as follows.

(2) In the definition of "regulated market" for "Article 1.13 of the investment services directive" substitute "Article 4.1(14) of Directive 2004/39/EC of the European Parliament and of the Council on markets in financial instruments".

(3) At the appropriate place insert—

""voteholder information" has the meaning given by section 89B(2);".

:TITLE3:PART 2 AMENDMENTS OF THE COMPANIES (AUDIT, INVESTIGATIONS AND COMMUNITY ENTERPRISE) ACT 2004

12 Chapter 2 of Part 1 of the Companies (Audit, Investigations and Community Enterprise) Act 2004 (accounts and reports) is amended as follows.

13 (1) Section 14 (supervision of periodic accounts and reports of issuers of listed securities) is amended as follows.

(2) In subsection (2)(a)—

(a) for "listed" substitute "transferable";

(b) for "listing" substitute "Part 6".

(3) In subsection (3)(a)—

(a) for "listed" substitute "transferable";

(b) for "listing" substitute "Part 6".

(4) In subsection (7)(b) for "listed" substitute "transferable".

(5) In subsection (12)—

(a) for ""listed securities" and "listing rules" have" substitute ""Part 6 rules" has";

(b) for the definition of "issuer" substitute—

""issuer" has the meaning given by section 102A(6);";

(c) in the definition of "periodic" for "listing" substitute "Part 6";

(d) at the end add—

""transferable securities" has the meaning given by section 102A(3) of that Act.".

14 (1) Section 15 (application of certain company law provisions to bodies appointed under section 14) is amended as follows.

(2) In subsection (5)(a)—

(a) for "listed" substitute "transferable";

(b) for "listing" substitute "Part 6".

(3) In subsection (5B)(a)—

(a) for "listed" substitute "transferable";

(b) for "listing" substitute "Part 6".

(4) In subsection (6)(b) for ""listing rules" and "security"" substitute ""Part 6 rules" and "transferable securities"".

On Question, amendment agreed to.

Schedule 15 [Repeals]:

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. 102 and 103:

Page 524, leave out line 24 and insert—

"Section 651.
In section 652A(1), the word "private"."

Page 524, line 30, at end insert—

"Section 653."

On Question, amendments agreed to.

An amendment (privilege) made.

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

My Lords, a long and winding road takes us back to Second Reading on 11 January. I would like to take this opportunity to express my personal thanks to the two Ministers, the noble Lords, Lord Sainsbury and Lord McKenzie, and, in his absence, to the noble and learned Lord the Attorney-General, for their good humour, only occasionally strained during the past few months. I thank also the noble Lords, Lord Sharman and Lord Razzall, for their help on the Bill and, of course, my noble friends Lady Noakes and Lord Freeman for their assistance on these Benches. I thank the Bill team, which has been most helpful in enabling us to get to the bottom of what is required. I express my thanks also to those who have advised, briefed and, occasionally, criticised us. That is as it should be in a vibrant democracy. It is a long list of people and I cannot therefore name them all, but we are grateful to them for their help. I thank also the Government for being, in large measure, open and receptive to reasoned arguments. As a result, we have been able to refine and sharpen the Bill so that it better serves its purpose of helping UK plc, because, whatever our political colour, the success of UK plc is essential to this country's future.

I began to doubt that I would ever see a day when a Marshalled List of amendments for the Company Law Reform Bill contained fewer than 100, but today we almost got there. Today's list contained 102 or 103 amendments. As we wave this gargantuan Bill on its way, I echo the prayer of the Minister at an earlier date: that either we may have been sacked or some other act of God may have intervened before we see its like again.

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

My Lords, I echo the comments of the noble Lord, Lord Hodgson. I know that I speak for my noble friend Lord Sharman, who manfully spent the best part of 13 days in the Moses Room. If I may add a personal note, I have often freely commented that I am disappointed that a number of noble Lords who have significant experience in company matters and business, and are appointed to your Lordships' House because of their expertise, do not then bother to attend occasions such as this Bill when their expertise could have been so welcome.

My noble friend Lord Sharman is an absolute exception to that rule and I know that he is sorry not to have been here today. He has been here on virtually every other occasion, notwithstanding his other significant business responsibilities. I know that my noble friend's former colleague, the noble Baroness, Lady Noakes, has enjoyed how he has instructed her on what she should say on many occasions.

Finally, I thank the ministerial team. In the nine years that I have been in this House and involved in DTI Bills, this has been an absolute paradigm of how Bills should be conducted. There has been no point made by the Liberal Democrats or the Conservative Benches that has not been carefully considered—and when the Government or their advisers feel that we have made a good point, they have come back either to say that they agreed, or with an amendment improving our wording. Enormous credit ought to go to the two Ministers for the way that they have conducted this Bill.

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) 7:00 pm, 23rd May 2006

My Lords, as we send this Bill on its way to another place, it may be appropriate to say a few words about the discussions that we have had in this House.

At the beginning of our proceedings in Committee, I expressed the hope that we would all work together to produce a Bill that would provide the best possible conditions for the success of British industry, and said that we would be willing to listen to any suggestions on how the Bill could be improved technically. The noble Lord, Lord Hodgson, said that serious issues were raised by the Bill and threatened a high level of public scrutiny. At the end, we can claim to have delivered on our promises—both his on detailed scrutiny and ours on a receptive and constructive approach.

Of course, it has been no small exercise. By my reckoning, we have considered over 1,000 amendments in Committee and a further 600 or so on Report, in addition to our discussions today. In fact, we have made over 400 changes to the Bill as introduced. I am sure that there will be further refinements to the Bill in another place, and it may be worth highlighting a few areas where we already know that changes may be made.

Amendments will be needed as a consequence of our decision to drop the general reform power in what was Part 3, particularly through the introduction of specific new powers in the areas of capital maintenance and company charges, as we have already outlined. An area which we have discussed in some detail is that of consolidation of the law. I am particularly grateful for the suggestions that noble Lords opposite have made in raising this issue, and for the commitment they have given to tackling it as constructively as possible as we proceed. As I have said, it will not be possible or appropriate to take up all the remaining areas of the existing Companies Act into the new Bill. In particular, we do not wish to bring up provisions which go wider than companies, such as provisions on investigations, or specific, self-contained provisions such as on community interest companies.

However, we intend—subject to finding no insuperable problems, and provided that it can be done in the time available—to bring up the rest. That would include pre-emption rights, arrangements and reconstructions, provisions on squeeze-out and sell-out in takeovers, and the protection of minority rights against unfair prejudice. The effect will be to make the new legislation much closer to a complete code of company law for the majority of users. That will, I know, be widely welcomed both inside and outside your Lordships' House.

There are a number of other areas where the Government have been persuaded that further changes to the Bill are appropriate by the debates that we have had here. It has not been possible in all these areas to introduce the amendments themselves while the Bill has been in this House, but I hope that wherever possible I have been able to make clear what the government plans are.

The House agreed some amendments on Report which we opposed, and we will consider whether we wish to amend the Bill when it is in another place. We have received in particular a number of representations that provisions relating to rights of indirect shareholders in Clause 135 could cause considerable problems in practice. In principle, as I made clear in debate, we very much want to strengthen shareholder engagement, but we also want to ensure that it is done in a not unduly burdensome way. Together with interested parties we will, therefore, be looking at the possible costs and practical implications to see whether amendments in another place would be desirable.

I conclude by thanking everyone who has contributed to our debates, which have been extremely productive. In particular, I thank the noble Lord, Lord Hodgson, and the noble Baroness, Lady Noakes, who have done a fantastic job in criticising the Bill, while the noble Lords, Lord Razzall and Lord Sharman, have also played a major part. I thank my colleagues, the noble and learned Lord, Lord Goldsmith, and the noble Lord, Lord McKenzie, for the enormous help that they have given me in taking the Bill through the House. I also want to thank the Bill team, for it is a considerable organisational and intellectual feat to push a Bill of this scale through, and deal with so many points of detail on it, without at any time stopping the debate from happening or going out to get people's views through consultation. I place on record my appreciation of the job that they have done, not only in guiding us but in talking to the various business communities about the problems, and getting a constant feed-in from what they have done.

I believe the constructive spirit in which we have engaged in what have sometimes been controversial and often extremely technical issues has contributed greatly to the quality of debate. That is one key reason why the Bill leaves this House in such good shape. Ultimately, it is a Bill that will greatly help the success of British industry. However, all good things must come to an end.

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

My Lords, I think that the Minister may have been anxious about the good news that he was able to give us on consolidation. That is something these Benches have been very keen on. If he is able to bring consolidation forward, we are happy to repeat our assurance that it is not our intention to take up those clauses that have just been moved, without any other change in the law. Provided that he is able to give us that assurance, and that we are not told by the Law Society or some outside body that a lacuna here has been waiting to be tackled for 20 years, in the interest of getting a better and more comprehensible Companies Act we are happy to make sure that we do not delay the Bill's passage through the House when the Minister brings it back. We all feel that consolidation is a good thing, and I am delighted that the Government are able to move in that direction.

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

My Lords, as the Minister is aware, the Liberal Democrats have given the same undertaking.

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, I thank the noble Lords for those comments and, in that mood of warm self-congratulation and agreement, I commend the Motion to the House.

On Question, Bill passed, and sent to the Commons.