Clause 12

Company Law Reform Bill [Lords] – in a Public Bill Committee at 10:30 am on 20th June 2006.

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Statement of proposed officers

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

With this it will be convenient to discuss the following:

Amendment No. 47, in clause 12, page 6, line 1,leave out

‘to be a public company' and insert

‘required or proposes to have a company secretary'.

Government amendments Nos. 76 to 79 and 93.

Amendment No. 51, in clause 44, page 18, line 34, leave out

‘In the case of a public company'.

Amendment No. 52, in clause 44, page 18, line 34, after ‘executed', insert ‘by a company'.

Amendment No. 53, in clause 44, page 18, line 36, at end insert

‘who shall not be the same person'.

Government amendments Nos. 94 to 96 and 100.

Amendment No. 56, in clause 48, page 20, line 5, after ‘director', insert ‘or secretary'.

Government amendments Nos. 112 and 113

Government new clause 14—Authorised signatories.

Government new clause 15—Appointment of authorised signatories.

Government new clause 16—Minimum age for appointment as authorised signatory.

Government new clause 17—Register of authorised signatories.

Government new clause 18—Particulars to be registered.

Government new clause 19—Particulars to be registered: power to make regulations.

Government new clause 20—Duty to notify registrar of changes.

Government amendment No. 114

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

It looks like the Government have something to say on this clause as well, but I shall kick off. The clause replaces section 10 of the 1985 Act. In  so far as it coincides with the question of authorised signatories, I note that the Chairman has chosen also to include amendments to clause 44.

There are two basic regulatory changes to consider. First, as recommended by the CLR, once the legislation is in force all directors will have the option of having their home addresses kept on a separate record to which access is restricted. To benefit from that option, a director will have to provide a service address for the public record. We will discuss that in detail under part 10.

Secondly, as recommended by the CLR, the Bill reflects the abolition of the requirement for private companies to have a secretary. We will debate that in further detail when we get to part 12. There is a consequential issue concerning company secretaries—I repeat that this will be debated in greater detail later—namely whether, if a private company decides to have a non-statutory company secretary, it should then have to notify particulars. Lord Sainsbury said emphatically in the Lords Grand Committee that it should not. On Report in the Lords, Lord Hodgson said:

‘“Our position on this is simple—where a company chooses to have a secretary, that secretary should be fully empowered to exercise all the functions and bear all the responsibilities of a legally required secretary.”—[Official Report, House of Lords,9 May 2006; Vol. 681, c. 782.]

I restate that as our position today. As Lord Hodgson said on Third Reading:

“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.”—[Official Report, House of Lords, 23 May 2006; Vol. 682, c. 710.]

Lord Sainsbury said that the only time third parties should need to know the information about a secretary is when executing documents. Technically, the Minister may have been right, although practically—particularly for larger companies and for corporate governance purposes—we do not think that he was. That will be the debate on part 12.

On Third Reading in the Lords, Lord Sainsbury addressed the question of secretaries and others signing documents in detail. He said that the Government would consult on four issues. He stated:

“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?” —[Official Report, House of Lords,23 May 2006; Vol. 682, c. 711.]

Those were fair questions and we looked forward to hearing the response to the results of the consultation. Unfortunately, it seems that the Government decided not to answer those questions or, rather, by coming out with their proposal for authorised signatories, said that  they were all answered. We do not think that that is adequate. I know that the Government have been under time pressure during the consultation but20 complicated Government amendments were filed a few days ago and we have not been able to consult on them. So, as far as we are concerned, it has not been a good start to consideration of this clause.

However, it is clear that the Government are moving on from the concept of the company secretary to that of the authorised signatory. We believe that there is room for both. Having made that clear, and on the basis that we want to return to this issue when considering part 12, let me move on to the provisions relating to authorised signatories.

I note the position of the Institute of Chartered Secretaries and Administrators, which put a strong case in its note of 15 June 2006. It said:

“The proposed authorised signatory regime may provide further flexibility to some companies, but this new regime will not suit all private companies. The authorised signatory, as proposed in the draft clauses from the DTI, is a different beast to a secretary and can sign any document on behalf of the company. This contrasts with the secretary’s automatic powers, which beyond their statutory powers, have been established in case law to be limited to signing documents of an administrative nature.”

The Secretary of State made clear on Second Reading that he supports the optional regime, but he and many others may not have realised that all the statutory power of a secretary of a private company has been completely stripped away by the Company Law Reform Bill as drafted. Where the board of a private company wants the secretary to continue in his position post the enactment of the Bill, it will find that all the secretary’s automatic statutory powers under the 1985 Act to certify and execute documents and file returns to Companies House will no longer exist. For any of the 2 million private companies that find their secretary useful and want to continue to employ such a person, there will be the confusing burden of having to set up appropriate authorisations to try to mimic the current statutory powers that are well understood. The new burden will bring complication, not simplification. A secretary remains an officer of the company, so his statutory powers should be clear along with his liabilities.

Should such a company want to appoint a secretary, there is no provision for it to register the appointment at Companies House. Registration is essential, as it provides an easy authorisation check for third parties dealing with the secretary. It is common sense that the automatic powers under the 1985 Act should continue to apply to those secretaries who continue in their position, and it should be possible to register future secretary appointments at Companies House. It is not difficult to amend the Bill to capture the idea that private companies have a choice as to whether to have a secretary, and that the existing powers will apply if they do have one. It will be far more burdensome and confusing for companies if the Bill is left as drafted.

These are important points. In fact, the more I consider the subject, the more I wonder why we need an either/or approach. Why not retain the secretary regime for those companies that have them, which admittedly will be far fewer after the Bill comes into effect, but also put in place an authorised signatory regime?

Having said that, we do not have a problem in principle with the concept of the new authorising signatory regime per se, but given the lack of time—those comments were received in the brief time since the amendments were tabled—I must reserve our right to come back on the detail of the provisions on Report. I look forward to hearing the Minister’s explanation of how the separate register and execution powers will work in practice.

Photo of Lorely Burt Lorely Burt Opposition Whip (Commons), Shadow Minister (Northern Ireland), Shadow Spokesperson (Northern Ireland)

I preface my questions with an admission that I am not a lawyer—far from it—and as my hon. Friend the Member for Cambridge has been unavoidably called away, I ask for the patience of the Committee. I shall do my best to put the points that we wish to make.

We want to understand the difference that amendments Nos. 4 and 47 would make to what has been proposed. The intention appears to be to set up the possibility that the distinction between companies required to have company secretaries and those not so required should rest on something other than the fact that the company is or is not a public company. Our position is that it is right to remove the requirement from private companies, but there may be an argument from other parties that very large companies should have a secretary even if they are private companies.

The Government amendments, including the new clauses, appear to create a new authorised signature regime for companies, presumably in response to the complaint that removing the need for company secretaries will lead to confusion about who is authorised to sign documents on behalf of the company. In effect, they will allow companies to say that people other than directors are also authorised and to put those names on a register that other people can see. We are not entirely convinced that this is technically necessary, but people may genuinely be confused by the new situation.

Amendment No. 51, which would amend clause 44, continues the company secretary debate, but it seems to conflict with clause 12. Amendment No. 52, which could be a drafting amendment, would make it clear that a document is associated with the company and not anyone else. We want to understand why that is important if a single director could sign in the presence of a witness.

Photo of Vera Baird Vera Baird Parliamentary Under-Secretary, Department for Constitutional Affairs

The hon. Gentleman argued that there will be some difficulty for companies if the first secretary of a private company is not included in the statement of proposed officers. There is a long debate to come about that. However, as his amendment is consequential to later amendments relating both to the execution of documents and to private company secretaries, I shall start by addressing who can act for a company in the execution of documents. I shall pause there, as some specific points have been made.

First, let me be glad that the hon. Gentleman has no problem with the concept of authorised signatures, except in the caveat that he has put forward, and apparently neither does the hon. Lady, who merely asked whether it would be confusing. In fact, it is  probably a reasonably clear provision. Of the questions raised by Lord Sainsbury, the three that are relevant were probably all answered. Who can execute documents? If there is a company secretary in a private company, there is case law to say that they can sign documents relating to administrative matters, so that presents no problem. If the private company makes their company secretary an authorised signatory, of course they can sign in that capacity. The third question was whether the company secretary has to go on record, to which the answer is yes if they are an authorised signatory. I hope that is clear. I do not think that the last point was relevant.

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

Looking at the remarks of Lord Sainsbury at Grand Committee stage, most people would probably think that he wanted to see how the concept of the company secretary could be built in, whereas what came out of the mill, so to speak, was the total cutting-out of company secretaries. That is the point that I was trying to make.

Photo of Vera Baird Vera Baird Parliamentary Under-Secretary, Department for Constitutional Affairs

I think that is probably an interesting item for the later debate, says she who is hopefully not conducting it. Who may enter into a contract on behalf of the company is really entirely a matter for each company’s internal organisation, and it is wholly a matter for the company how, and by whom, its official seal is affixed for the purposes of contracts.

The ability to execute documents by the signature of two directors, or one director and a secretary has been available since 1989. The nub is the nature of the alternative proposed in clause 44 to affixing the seal for execution of documents—that is, signature by two directors, or by one and a witness. The point of the provision was to grant new flexibility and allow a signature by a single director—that, I think, was how it went into the Lords—as long as that was duly witnessed, with no restriction on who may witness it. However, it has been pointed out—we have taken this on board—that that reduces flexibility for private companies in certain, limited circumstances since the witness and signatory have to be present together whereas the directors, or the director and secretary, may sign separately.

As nobody wants to restrict flexibility, and as the whole point is to improve it, we have considered the matter further. By discussing it with stakeholders—in particular, the City of London Law Society—we discovered that some public companies would value having the freedom to authorise who can sign on their behalf, just as they value their existing freedom to authorise who can put their seal on. That freedom would be of particular benefit to private companies that have only one director. Hence, we have gone further to introduce more flexibility.

The Government amendments will enable any company to appoint any number of people to execute documents of any description on its behalf. Directors, and in the case of public companies their secretaries, will automatically be authorised signatories by virtue of their office, although the company can appoint more such signatories if it wants. For all companies executing deeds, the alternative to affixing their seal will be either by the signature of two authorised signatories, or by one in the presence of a witness. It is  important that third parties know whether someone is authorised to sign, which may be relevant long after the event.

As for directors, the Bill already requires a company to keep a public register of its directors and file the information with the registrar. The same is the case with secretaries of public companies. Government amendments Nos. 76 to 78 and Government new clauses 17 to 20 ensure that the name and address of any authorised signatory is similarly on the public record at formation and thereafter.

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

I note that the Minister said that it was important for third parties to know with whom they are dealing, which obviously underpins the concept of authorised signatories. I briefly return to the issue of company secretaries and private companies. She said that case law states that company secretaries could sign administrative documents. Does she accept that third parties not familiar with case law may want something that is more codified to assure third parties that a company secretary in a private company is duly authorised?

Photo of Vera Baird Vera Baird Parliamentary Under-Secretary, Department for Constitutional Affairs

If the company secretary of a private company is an authorised signatory, it will be on the record.

Photo of Vera Baird Vera Baird Parliamentary Under-Secretary, Department for Constitutional Affairs 11:00 am, 20th June 2006

Then the hon. Gentleman probably makes a good point, and I shall reflect upon it.

The amendments are intended to enable a company to appoint any number of people to execute documents. I am sorry to go back to this point, but it is important to make it clear to third parties who can exercise that function: authorised signatories will have to go on to the public record on formation of a company and thereafter as they are appointed. The requirements of the record will, I think, be the same as for public company secretaries, except apparently it will not be necessary for a public company secretary to be 16—although I doubt whether that will be relevant terribly often.

The proposals have real attractions both to private and public companies. Several public companies have made it clear they would find it useful to have such a facility, especially those that have to execute lots of documents—for instance, banks issuing powers of attorney. It will be possible for a private company appointing an individual to the office of secretary to appoint the same individual as an authorised signatory, but that would be entirely up to the company. On the other hand, the abolition of the requirement to have a company secretary is likely to lead to some private companies finding other ways to meet their administrative needs.

In recommending abolition of the requirement to appoint a company secretary, the company law review argued that it would give greater flexibility. A few large companies will of course continue to have secretaries; and it is likely that such companies will use the facility  provided by this group of amendments to give the secretary the authority to execute documents, so secretaries would have that authority as they now do under the Act.

However, about 1 million private companies have only one director and a secretary, and more than half of them have fewer than five shareholders. Such companies are likely to use the flexibility provided by the Bill in other ways. It is possible that people would appoint secretaries only to cover peak periods, and in such situations they might not want them to be able to execute documents. Others might divide the function between two or more people, who may or may not be directors; or the directors might appoint a secretary but not want that person to be an authorised signatory. We want to give all companies the maximum freedom as to who can execute documents. Such flexibility will be useful.

I do not know if this answers the hon. Member for Hornchurch (James Brokenshire), but we are not codifying who can sign. As an agent, that would be an immense and unnecessary task. Companies enter into transactions at every level every day, but we are talking about formal contracts, and the case law relates to agencies. Does that help?

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

I was seeking some transparency and clarity about the role of the company secretary. If there is case law—if there is some uncertainty as to whether the secretary of a private company can sign a formal contractual document—it is important to have clarity about the continuing role of the secretary. We need to know whether such people are duly authorised to sign formal documents without the need to go through the formality of becoming an authorised signatory, and I am not sure that the Minister has addressed that point.

Photo of Vera Baird Vera Baird Parliamentary Under-Secretary, Department for Constitutional Affairs

I do not think the hon. Gentleman needs to worry. It is plain that a company secretary can sign because, under the new system, the signature will be tendered on the basis that the person is an authorised signatory. I shall try to develop the argument, as the hon. Gentleman is obviously not entirely happy.

Who may sign on behalf of a company is a matter for the company. Who may sign as the company—that is what we are dealing with—is limited by statute and details will have to be on the record. A person can sign as the company only if he is an authorised signature; it is for the company to decide whether a person can sign day by day on its behalf.

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

Perhaps we can debate the subject more fully when we come to part 12. A private company that has a company secretary is now able to execute documents, under company seal or executed as deeds, through the company director and the company secretary. Existing private limited companies with secretaries who wish to retain them will clearly face a further administrative burden inasmuch as the existing secretary will now formally have to be appointed as an authorised signatory. We are trying to raise such issues, and I shall develop that point in more formal and further detail when we reach part 12.

Photo of Vera Baird Vera Baird Parliamentary Under-Secretary, Department for Constitutional Affairs

I am grateful to the hon. Gentleman for making it clear to what he was referring, but the increased flexibility in the provisions overwhelmingly outweighs the need to appoint a company secretary as an authorised signatory. The hon. Gentleman has talked about formalities as if there is a great procedure to go through, but I do not think so. Existing company secretaries of private companies might or might not be allowed to be deemed authorised signatories by virtue of their office—we are still considering that—but new company secretaries and new private companies will clearly follow the new regime of authorised signatories. Transitional provisions are still a little up in the air, but I hope that that satisfies the hon. Gentleman that we are still considering the matter.

In view of the maximum flexibility in the amendments, I hope that the hon. Gentleman will withdraw his amendments and support those tabled by the Government.

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

I said that we would need to look more closely at the mechanics of the provisions—that will obviously be important—rather than at the execution of the provisions per se.

As regards company secretaries, we are concerned that the provision could give rein to confusion on the part of companies and the people who deal with them. Until the new system beds down, there will be a dangerous transitional stage as company secretaries will look to change companies’ articles of association, as standard inserts will presumably be prepared to go into articles to put back in place the powers that were there under statute and under constitutions, and as different companies will have different ways of doing things. The process of passing resolutions and changing articles is regulatory by nature and will involve costs to companies, as well as time.

I was certainly interested to hear that the Minister would consider the issue of existing company secretaries. I am sure that they will be pleased to hear that, but from a rational point of view I am not entirely sure that to differentiate between existing company directors and training company directors is the right route to follow.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

The hon. Gentleman alludes to a series of issues that are part of the transition we shall have to reflect on as the Bill moves towards becoming an Act. I hope he accepts our assurance that we will be putting out regulations for the transitional arrangements. There will be extensive consultation on the regulations, which will not come into force until October 2007. We appreciate, as he does, that there is a degree of complexity in getting the transition right for existing companies. I hope he accepts that there will be extensive consultation on our part with all interested parties.

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

I am certainly pleased to hear that there will be extensive consultation. From what I saw in the Lords Committee stage, and even through to today, with Government amendments being put in regularly with little notice to the Opposition, there needs to be a lot more thought.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

Any amendments—I am the first to admit this, having taken other Bills through the House—by Government at a late stage are always resisted by Ministers unless they are necessary. [Interruption.] No, unless they are absolutely essential and should have been thought through before.

Today’s Government amendments come out of debate with people in the legal profession and the associations we have consulted, as well as out of debate in the House of Lords. That has been part of the inclusive way in which we have tried to develop the Bill, and the hon. Gentleman should welcome that, but instead he laughed. When I have led on other Bills, I have been resistant to amendments because it would have been bad for the Government to accept them. In this instance, we are responding to legitimate concerns raised either in the debates elsewhere or by professional associations, and the hon. Gentleman should welcome that. The Government amendments reflect the debate elsewhere.

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

I hear the Minister’s explanation, but the proposals are not new. They went through the CLR and were consulted on for six or seven years in one way or another. Here we are seven years later and I think—the Minister will tell me if I get this wrong—that the amendments were tabled last week. To say that we have had a good period to review them is wrong.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

Is the hon. Gentleman therefore suggesting that the idea that we should not impose on private companies the obligation to have a company secretary has been disputed for the last seven or eight years, or that there has not been consensus? Does he not accept that that deregulatory move has been welcomed warmly by most of those with an interest, which was the original drive behind the proposal?

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

Warmly welcomed or not—and I shall not pre-empt a debate on part 12—the fact remains that the knock-on effects of policy decisions such as those we are debating on the signing of documents have not been thought through.

Margaret Hodgeindicated dissent.

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

I am afraid that that is the implication of the amendments having been produced in the past few days. We have concerns, and in the past two days I have received about 30 letters from concerned company secretaries. I feel it fair and just that these concerns be put.

Photo of Vera Baird Vera Baird Parliamentary Under-Secretary, Department for Constitutional Affairs

I hope that the hon. Gentleman does not feel that we are ganging up on him. We are keen to respond to problems that have arisen from measures that we saw as increasing flexibility, and to meet the concerns that have been expressed by increasing that flexibility even more. The thrust of the hon. Gentleman’s earlier argument was the difficulty of moving from a current situation in which duties are set out clearly to a new flexibility, and whether the transitional period will be confusing, particularly when mixed with any confusion that might arise from the provisions before us. However, the provisions are clear:  a company may appoint anybody it wishes to be an authorised signatory and they need only be registered. That cannot be something to complain about. My right hon. Friend has made it clear that because there will be an awkward transition period, we will consult heavily as we go along. The hon. Gentleman should be content.

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

I wish I could say that I was content. I am not, although I am grateful for the pledge of further consultation, which will be necessary. Company secretaries are valued and useful people, and we do not believe that they have been treated appropriately by the Government. Their views must be given a full airing, and we will make that point later in our proceedings. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 76, in clause 12, page 6,line 3, at end insert—

‘( ) any person who is to be appointed as an authorised signatory of the company.'.

No. 77, in clause 12, page 6, line 4, leave out from ‘stated' to end of line 7 and insert ‘—

( ) in the case of a director, in the company's register of directors and register of directors' residential addresses (see sections 147 to 151);

( ) in the case of a secretary of a public company, in the company's register of secretaries (see sections 260 to 262);

( ) in the case of a person appointed as an authorised signatory, in the company's register of authorised signatories (see sections (Register of authorised signatories) to (Particulars to be registered: power to make regulations).'.

No. 78, in clause 12, page 6, line 9, after ‘secretaries,' insert

‘or as an authorised signatory,'.—[Vera Baird.]

Clause 12, as amended, ordered to stand part ofthe Bill.