Clause 270

Company Law Reform Bill [Lords] – in a Public Bill Committee at 9:30 am on 29th June 2006.

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Effect of provision in company’s articles as to admissibility of votes

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

I beg to move amendment No. 330, in clause 270, page 124, line 22, after ‘deemed', insert ‘not'.

Photo of John Bercow John Bercow Conservative, Buckingham

With this it will be convenient to discuss amendment No. 331, in clause 270, page 124, line 22, leave out ‘if' and insert ‘notwithstanding that'.

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

The clause is an entirely new provision. It states that if a person is not entitled to vote on a resolution, but does so, and if the articles of association of that company provide a mechanism for objecting to an improper vote, and if an objection is made and rejected, or if no objection is made within the relevant time period, the unauthorised voter

“is deemed to have been entitled to vote”.

The explanatory notes state that the provision is intended to ensure that other provisions in the Bill do not interfere with

“the operation of provisions in the articles which impose a procedure for objecting to and determining the admissibility of a vote.”

Although that is true, the clause appears to go a stage further by stating that a person not entitled to vote

“is deemed to have been entitled to” do so in such circumstances. Even if it could be shown that a chairman erred in law, was negligent, made a manifest error or was fraudulent, the clause seems to protect him. That is the sort of thing on which I am trying to glean clarification.

It is also unclear how statutory minority shareholder protection might operate in such situations because not only is the decision of the chairman treated as being upheld, but, from my reading of the clause, any errors are deemed to be corrected. How will the rights of minority and other shareholders who have a grievance about that decision be treated?

I recognise the need for certainty in the context of decisions taken at meetings and the need for that to be done efficiently, effectively and quickly, but it would be extraordinary if shareholders could be prejudiced without any apparent method of challenging a decision that is irrational, unreasonable or even unlawful. Amendments Nos. 330 and 331 seek to clarify the Government’s intention. If shareholders’ rights are undermined by the clause, the balance of convenience should be weighed in favour of shareholders whose rights might be prejudiced.

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

The hon. Gentleman raises a difficult point and his amendment gave me cause for thought. The conflict is that we want to provide commercial certainty for the company. The ability constantly to question decisions taken after a meeting would undermine that commercial certainty. We also want to ensure that those who take decisions have a legitimate role and an appropriate locus. I am sure he agrees that, in the interests of the company, it is better that objections are dealt with at a meeting and that the  chairman takes a view on whether people are entitled to vote so that the matter is settled there and then. If things go badly wrong, other remedies should be open to members if they feel that the chairman was in breach of his duties in public law. If they believe that they suffered unfair prejudice, they should be able to challenge that and the court has discretion to make a wide range of orders.

However, we think we have got it right. We may be able to tweak this at the edges. Perhaps the hon. Gentleman will allow us to consider his amendments and return to the matter on Report to ensure that we have the proper balance between certainty for members and ensuring that the right people vote at meetings.

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

I am grateful to the Minister for agreeing to reflect on the provision in greater detail. It is a sensitive issue and needs to be examined carefully. My fundamental concern is the need for commercial certainty and the desire to have things settled quickly and effectively by the chairman in accordance with the articles of association.

My concern relates to the latter point that the Minister highlighted on remedies that might be available to shareholders. The phrase:

“deemed to have been entitled to vote as he did”,

in subsection (2) gave me cause for thought, hence my amendments, and should not in any way invalidate or undermine the remedies that might otherwise lie open to a particular shareholder. If there is deemed to be prejudice, the company or directors could say, “Even if there was prejudice, on the face of it and by virtue of allowing someone to vote who should not have been allowed to vote, that is remedied and cured as a consequence of clause 270(2).”

In the light of the Minister’s agreement to reflect on those thoughts and to return to the matter on Report, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 270 ordered to stand part of the Bill.