Company Law Reform Bill [Lords] – in a Public Bill Committee at 9:15 am on 29th June 2006.

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Photo of James Brokenshire James Brokenshire Conservative, Hornchurch 9:15 am, 29th June 2006

I beg to move amendment No. 327, in clause 264, page 122, line 5, at end add

‘, save in the case of a public company not being a quoted company, which may pass a written resolution in accordance with Chapter 2 of this Part.’.

Photo of John Bercow John Bercow Conservative, Buckingham

With this it will be convenient to discuss the following amendments: No. 328, in clause 266, page 122, line 36, after ‘company’, insert

‘or a public company not being a quoted company’.

No. 329, in clause 268, page 123, line 41, leave out ‘a private company’s articles’ and insert

‘the articles of the relevant company’.

No. 332, in clause 271, page 124, line 33, after ‘company’, insert

‘or a public company not being a quoted company’.

No. 333, in clause 271, page 125, line 8, leave out ‘private’ and insert ‘relevant’.

No. 334, in clause 272, page 125, line 16, leave out ‘private’ and insert ‘relevant’.

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

We now move on to part 13 of the Bill, which deals with the procedures for convening meetings and for passing resolutions. Clause 264 incorporates general provisions regarding the ways in which private limited companies and public companies are permitted to pass resolutions. The clause makes it clear that while private companies are permitted to pass resolutions of shareholders by means of either general meetings of shareholders or through the mechanism of written resolution, public companies are not. The distinction reflects the approach taken in section 381A of the Companies Act 1985.

While this approach provides a clear dividing line between companies that are permitted to use the written resolution route and those that are not,the purpose of the amendment is to question whether the written resolution route could have wider application beyond private limited companies. This is particularly so as a number of public companies may have a small number of shareholders who are not listed. It would therefore seem more practical andless bureaucratic to extend the written resolution mechanism for these types of companies. I acknowledge that quoted plcs are likely to have a considerable number of shareholders. It may not be practicable, even if they wished to do so, for them to adopt the written resolution approach, certainly in a timely fashion. The general meeting approach may well be more appropriate to them.

From a public company perspective, and in order to ensure transparency, the ability for shareholders to attend a general meeting and to ask questions as appropriate is clearly important. I therefore understand the distinction drawn between the written resolution approach for private limited companies and the restriction to general meetings for public companies. However, it is worth examining that further in a deregulatory framework to see whether for non-quoted public companies the regime of written resolutions  might be extended. Under the amendment, quoted public companies would still not have the option of using the written resolution approach while non-quoted public companies would. The amendment is intended to reflect the intent to promote more flexible and efficient decision making within the companies.

Amendments Nos. 328, 329, and 332 to 334 are consequential amendments to further clauses as a result of this proposed change.

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

I understand the motivations behind the amendments, and it is true that the company law review recommended that public companies should be able to opt out of holding AGMs. However, the review was not clear about how such public companies were to take decisions. Its recommendations relating to written resolutions specifically concerned making it easier for private companies, so the focus was on think small first.

Our proposals are framed in the way that they are primarily because of EC regulations and EC law—specifically, the second company law directive, which requires a number of resolutions in relation to public companies and the maintenance and alteration of capital to be taken in general meetings. In addition, as for private companies, resolutions to remove a director or an auditor must be taken at general meetings. Some remaining resolutions could therefore be taken in other ways, but our view is that that would make things slightly more complex and difficult for companies to understand.

When we consulted on the company law review, in both the 2002 and the 2005 White Paper, it is fair to say that there was not much appetite for enabling public companies to opt out of holding AGMs. The general view was that meetings continue to serve a useful purpose for most public companies. For those reasons, we took the view that the written resolution procedure should continue, as under the 1985 Act, to be available for private companies only.

I hope that, in view of that explanation, the hon. Gentleman will feel able to withdraw the amendment.

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

I am grateful for the Minister’s comments, although they perhaps underline the debate that we had earlier in the week about the distinction between large and small, and how that is defined. The Department’s view is that the distinction is drawn between a public company and a private company. That is the dividing line that is adhered to, whereas we have advocated examining that rigid view more closely, to see whether it provides the think small first-type approach that the Minister mentioned. Hence my attempt in the amendments to distinguish a quoted company—a company whose shares are listed on a stock exchanges, for which the issues that the Minister highlighted, such as the need for meetings, transparency and the ability of shareholders to hold directors to account and ask questions, are proper and valid—from a non-quoted one.

I am disappointed that the Minister does not feel that there is sufficient appetite to examine the possibility of extending written resolutions to non-quoted plcs, with a smaller group of shareholders, or of  such companies’ processes and procedures being adhered to more closely. However, in the circumstances, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 264 ordered to stand part of the Bill.

Clauses 265 and 266 ordered to stand part of the Bill.