Clause 90

Company Law Reform Bill [Lords] – in a Public Bill Committee at 2:15 pm on 22nd June 2006.

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Re-registration of private company as public

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

I beg to move amendment No. 31, in clause 90, page 38, line 11, leave out ‘a special' and insert ‘an ordinary'.

The clause relates to sections 43(1) and 43(2) of the 1985 Act. I am not sure how long it has been since a special resolution has been needed to re-register a private company as a public company. The Minister may be able to advise me on that. It is one of those things that is lost in the mists of time. It is worth asking, on a probing basis, whether anyone has considered whether it should remain the case that such re-registration is required. I can see why minority shareholders may need protection if a public company is re-registered as a private company—in other words, the other way around—after a takeover or the like, but that is not the case. I wonder why an ordinary resolution should not, in the situation we are concerned with, be good enough.

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

As the hon. Gentleman rightly said, the amendment relates to a process by which a private company can change its status and become a public company. There is, of course, a substantial difference between the two company types. I understand that many companies will want to make that change at a certain point in their lives.

We have no interest in making that change unnecessarily difficult, but—I hope that this explanation satisfies the hon. Gentleman—it is important to bear in mind the position of existing shareholders in private companies. In some cases they will have become members of the company, whether at formation or at a later stage, with some expectation that it might sooner or later go public, but in other cases there may be no such expectation. A company going public has implications for existing members. The most obvious one is that it brings the prospect of dilution of their control, as the membership base becomes larger and more diverse. Existing shareholders need to be able to take a view on the matter through the special resolution provisions. The 1985 Act therefore provides that there must be a special resolution, which requires a 75 per cent. majority rather than the simple majority required by an ordinary resolution.

When it comes to significant decisions about the company’s status and future which would have important implications for the position of individual shareholders, it is right—I have reflected on this—that the bar should be set high and that something more  than an ordinary resolution should be required. That is why we have chosen to continue the existing requirement. I should add that I am not aware of any suggestion that that will cause difficulties in practice.

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

I have to agree with the Minister: I have not had a huge number of representations on the matter. However, I query what she said. The substantive point is that members might be concerned about dilution. That is dealt with separately in section 89 of the 1985 Act which is applied more toughly for public companies than for private companies. In fact, almost every aspect of the 1985 Act will be applied more favourably for minority shareholders of a public company than for those of a private company, with fewer exemptions to override shareholders’ interests. Indeed, after the Bill is passed, only public companies will have a company secretary. We shall debate that later, but let us assume that the Bill goes through in its current form.

I repeat that from the point of view of the minority shareholder, it can only be to their advantage for the company to become public. I understand that the protection of a special resolution is needed the other way around, but not for going up, as it were. I wanted the Minister to think about it, and on that basis I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 90 ordered to stand part of the Bill.

Clauses 91 to 97 ordered to stand part of the Bill.