Clause 111

Company Law Reform Bill [Lords] – in a Public Bill Committee at 3:15 pm on 22nd June 2006.

Alert me about debates like this

The members of a company

Question proposed, That the clause stand part ofthe Bill.

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

We have now moved to part 8 of the Bill, which deals with members of a company. I shall make two points, on subsections (1) and (2).

First, in respect of subsection (1), Lord Hodgson tabled an amendment to the clause suggested by the  Law Society to seek to clarify whether a specific allotment of subscriber shares was required following the company’s registration. He proposed the amendment on the basis that there was confusion in the 1985 Act. He felt that the clause did not make it clear whether the shares in a company are allotted to the subscribers on the registration of the company or whether a formal allotment and the filing of the return of allotments was necessary, and he felt that that should be clarified.

The amendment was withdrawn as Lord Sainsbury agreed to consider the matter further. To be frank, he may have done so—I may have missed a proposal, as we have been swamped with Government amendments on this Bill—but in any event, I would appreciate the Minister’s clarification of the point.

Secondly, subsection (2) in many ways deals with the core of the concept of ownership. It states:

“Every other person who agrees to become a member of a company, and whose name is entered in its register of members, is a member of the company.”

When a share is transferred, the person who agrees to become a member needs to have the stock transfer form duty stamped before it can be entered in the register of members. Without that, beneficial ownership exists, but legal ownership cannot do so. To pay stamp duty, one would take the stock transfer form and a cheque down to Bush house, but now that service has been abolished and there is a postal period of supposedly up to 10 days before stamp duty can be paid and therefore entry made in the register under clause 11 too.

Why did I bring up this matter? I did so because solicitors and others who have to pay stamp duty before they can register the transfer have been complaining about it. A solicitor wrote to me and complained that they heard that delays of much more than five days are occurring. One lawyer told me that he had to chase a delayed transfer and was advised that Bush house had no mechanism for checking the progress of forms, as apparently it was inundated with stock transfer forms and had a huge backlog. He was told that his best option would be to call up his bank and check to see whether his cheque had cleared. That was not appropriate.

I wrote to the Secretary of State on this matter, and it was duly handed over to the Treasury, which I found inappropriate. I am not arguing from a tax point of view; I am arguing from the point of view of subsection (2), which relates to people wanting to transfer their shares and be entered as members of a company. I am not talking about whether they have paid the tax or about how they have done so. That is a mechanical issue that should be got out of the way as soon as possible so that people can comply with the provision.

Nevertheless, the matter was handed over to the Treasury, which was not the right thing to happen, and I received a reply from the Economic Secretary:

“Following the introduction of stamp duty land tax, there has been a significant reduction in the number of documents that require stamping, and the number of personal callers at the London counter has declined over recent years.”

The reply went on to explain that the office was therefore closed on 31 March, and it continued:

“Completed stock transfer forms, along with payment of the stamp duty, are all sent to the London Stamp Office at Bush House. HMRC has undertaken to process documents within its published five-day turnaround time provided that the correct payment is made at the time. Feedback so far under the new arrangements has been good, with customers happy with the level of service they are receiving. There have been very few complaints from customers affected by the counter service closure about the speed with which documents are handled and returned. You have been told that, in some cases, longer delays are occurring. Practitioners may have experienced turnaround times of more than five days after the London office counter closed, due to the unusually high volume of prepaid forms received. However, the resulting backlog of work is now being cleared and customers should no longer experience delays above the published turnaround time. HMRC has also put in place contingency plans to enable it to meet its published turnaround times for stock transfer forms should high volumes occur in future.”

On that basis, I thought that progress was being made, until on 19 June I received another e-mail from another solicitor, which I assure the Minister was totally unsolicited. It stated:

“The loss of the over the counter facility at Bush House is a nightmare—we sent the form on 1 June but have had no acknowledgment other than verbally that they ‘have a backlog’ and can’t even tell us they have received the transfer yet! I can’t register the transfer and finish off”

I deleted an expletive there. It continued:

“No doubt they have hundreds of people answering the phones to tell all the frustrated users similar things. Is something being done about this example of Government incompetence?”

That is the situation. While one arm of Government—in this Committee—is trying to deregulate, another arm, the Treasury, is slowing down the whole process. In practice, this arrangement is very inconvenient to practitioners, because it requires the buyer to have the sellers enter into a trust deed so that before registration of the transfer, the sellers, who remain as legal owners, promise to act as the buyer wishes in respect of the shares. That is not good practice. It is creating more red tape for companies and I ask the Minister to assure us that she will address the issue so that transfers and entry in the register can be speeded up.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions) 3:30 pm, 22nd June 2006

The purport of that contribution related not to whether the Bill is correctly drafted in the way that members of the Committee find acceptable, but to the running of the stock transfer system by the tax office. I assure the hon. Gentleman that he is doing the right thing in raising matters with the Economic Secretary and that he should continue to do so. Implementation is a matter for my hon. Friend and HMRC, not a matter for consideration under the Bill.

The only other point that I want to make is that the clauses were considered in another place andclause 16(5) now makes it clear that subscribers become the holders of shares that are taken by them on formation. That may sort out the position of those who have a transfer.

The hon. Gentleman’s point seemed to be one of implementation. It has not been raised with me, but it  clearly has been raised with the hon. Gentleman most recently. He should therefore take up the matter with the relevant Departments and Ministers.

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

I am talking about the practical implementation of the clause. In order to be registered as members of a company, people have to pay stamp duty before they are registered. People are paying stamp duty, but they cannot register because their payment is not being accepted. The Minister says that I should write to the appropriate person. I did that. I wrote to the Secretary of State for Trade and Industry. The fact that he took it upon himself to send my letter to the Treasury shows me that he did not understand the point that I was making. It is not a Treasury matter. It is a problem for the Department of Trade and Industry. The Treasury wants to do its own thing. I am saying that the problem is for the Minister’s Department. She must get a grip on it so that the practical implications of the clause can be realised and so that practitioners and those who want to be registered as members can do so.

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

The issue before the Committee is whether the process as we have defined it in the Bill is appropriate. Nothing in the hon. Gentleman’s contribution suggests that the process is anything other than correct. He described problems with implementation that have been drawn to his attention. Because in this instance implementation is a matter for the Treasury and HMRC, it is an issue that he must raise with appropriate Ministers. Obviously, in relation to the Bill we wish registration to take place as quickly as possible.

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

If the Minister would at least offer to approach the Treasury and move it along a little on the issue, that may be of great help to many companies and individuals who want to transfer their shares and register them.

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

The hon. Gentleman is referring to a tax issue, and I shall draw it to the attention of my hon. Friends who have responsibility for such matters.

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

We want registration to take place as quickly as possible. That is clearly in everyone’s interests. It seems that what has been drawn to the hon. Gentleman’s attention is a delay in the tax process, which, as much as I might love it to be my responsibility in some ways, as it would give me access to some of the revenue as well as collection responsibilities, is not a matter for my Department. I undertake to let the relevant Ministers in the Treasury have copies of the Hansard report of what the hon. Gentleman has said and see what response we receive from them.

Question put and agreed to.

Clause 111 ordered to stand part of the Bill.