Clause 648

Company Law Reform Bill [Lords] – in a Public Bill Committee at 4:45 pm on 18th July 2006.

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Restrictions on disclosure

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

I beg to move amendmentNo. 452, in clause 648, page 318, line 13, leave out

‘has been authorised by the Panel and’.

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

With this it will be convenient to discuss amendment No. 526, in clause 648, page 318, line 15, leave out paragraph (a).

Mr. Djanoglyrose—

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

The hon. Gentleman is so used to rising to speak that he has risen to support a Government amendment. I thank him, but I can do that myself.

Amendments Nos. 452 and 526 are about the disclosure provisions relating to the takeover panel. I say at the outset that we recognise the difficult balance to be struck on provisions relating to the disclosure of confidential information held by regulatory authorities about businesses and private individuals. We are seeking to get right that difficult balance between ensuring that that information remains confidential and ensuring that other agencies and regulators that might properly receive some of that information are able to do so.

Clause 648 restricts the takeover panel’s ability to disclose information except through specific gateways. Government amendment No. 452 is enormously important in enabling us to do that. The clause was introduced to give effect to the provisions in article 4 of the takeovers directive. Let us be clear about what the provisions say:

Member States shall ensure that all persons employed or formerly employed by their supervisory authorities are bound by professional secrecy. No information covered by professional secrecy may be divulged to any person...except under provisions laid down by law”.

The starting point of the directive is that confidential information should be protected. That must be right. However, the directive also properly recognises the need in certain cases for information to be disclosed between regulators and other persons. If shareholders and others are to be adequately protected in an increasingly complex financial regulatory regime, such exchange of information is essential. That is why the directive permits certain avenues of disclosure in the law. Unless such avenues exist, the information cannot be disclosed; it is as simple as that.

I turn to the substance of the amendments. Amendment No. 452 would reverse an amendment, made in another place, that would impede the exchange of information. It relates to provisions that concern the onward disclosure of confidential information provided to the takeover panel when that information is subsequently passed to other persons or bodies. The clause as it now stands would require that any further onward disclosure of the information be authorised by the takeover panel. I will try to explain why we do not think that the subsequent control by the panel, once the information is effectively out of its hands, is either necessary or appropriate.

There are two reasons. First, we do not think that it is right to require the panel, in effect, to police the onward disclosure by another regulatory body. The panel would not be in a position to assess the relative merits of, say, onward disclosure of information by the pensions regulator to the Director of Public Prosecutions. It simply would not be appropriate for the takeover panel to do that. The takeover panel might  not be expected to weigh the respective public interest benefits of disclosure against the need for proper protection of confidential information in such a case and indeed—

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

Before the hon. Gentleman intervenes I should like to finish this because it may well be relevant.

Withholding such information, which may well be a crime, may not relate directly to the sort of issues that concern us in later clauses and may relate to a wider fraud. In those circumstances, it probably would be improper for that information to be withheld by the pensions regulator, having had it disclosed to the regulator by the takeover panel.

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

Is not the problem that if someone gives a document to the panel and it is in the public domain, the panel can then hand it to someone else who hands it to someone else and so on? Does not someone have to take responsibility? Does not the person who is handing the document over to the panel, normally on a friendly basis, have the right to know what will happen to that document once it has been handed over?

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

To some extent they do. The information that is passed to the takeover panel is often commercially quite sensitive. It is certainly information that many of the companies who pass it to the takeover panel would want kept confidential unless they had some level of control over it. I understand the point that the hon. Gentleman is making. However, where that information is passed to another regulator it would be passed only through a particular gateway and to a trusted regulator. It would not be passed into the public domain. That should not happen and we do not propose that it would happen.

We are seeking to ensure that there is a gateway for information to be passed to certain agencies. They can carry out regulatory or other prosecuting functions and would then be responsible for ensuring that, as far as possible, that information remained confidential. Judgments would have to be made, for example by the DPP, if certain commercially confidential information might be disclosed as a result of bringing a case. That would have to be a judgment that was made, of course, in the public interest. In each prosecution there are two tests: first, is the evidence there and does it stack up and, secondly, is it in the public interest to take this case? Those judgments would have to be made and it is not really possible for the takeover panel to be in a position to make those judgments. It is statutorily and otherwise appropriate for the DPP to make them.

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

On gateways, if a person were to hand a document to the takeover panel and the panel passed it on to someone else, would the panel have to advise the original person that their document had been passed on to a third party?

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

Normally if that information had been passed on to the DPP, the takeover panel would be aware of that. However, the question then arises whether in all circumstances the takeover panel  must inform the person about whom that information has been passed. A certain amount of caution needs to be applied here, although it is a perfectly valid question. If that information related to a possible prosecution of a company or individual who had disclosed information to the takeover panel, a judgment would have to be made as to whether it was appropriate for that person to be informed of the nature of the information and what would subsequently happen. Such a decision may have to be taken with great care and after consultation between the various regulatory agencies.

In some cases, there would not be a problem. The takeover panel might say that it had to pass the information to a pensions regulator, and the person would know that the information had been passed on. However, if there were a substantial investigation into a serious criminal offence, the takeover panel might have to exercise a degree of circumspection and caution in its response. It would have to judge, in discussion with others, whether it was appropriate to pass the information on.

Photo of Justine Greening Justine Greening Vice-Chair (Youth), Conservative Party 5:00 pm, 18th July 2006

Does the Solicitor-General agree that the legislation is analogous to the Freedom of Information Act 2000 and some of the rules around that? Normally, people would be asked for their consent before documents were released to third parties. The Government might consider using that template to give third parties some assurance.

On the broader point, have the Government assessed whether documents could fall within the scope of the 2000 Act? Would people be able to write to the takeover panel with freedom of information requests? Would they be able to get takeover panel documents by writing to third parties to which the documents had been passed on?

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

I do not think that the analogy with the FOI legislation is appropriate. This information is intended to be confidential, not freely disclosed. The clause is not about freedom of information. I cannot envisage any circumstances in which the documents would be made public through the granting of an FOI request. People can make requests about many things, but often the FOI legislation will not require that information be disclosed, as the hon. Lady knows. This is commercially sensitive information. Exceptions in the FOI Act ensure that such information can be kept confidential.

The panel itself does not fall under the FOI legislation. I believe that the hon. Lady is asking whether there would be an obligation to disclose information that was passed to another agency that is a public authority in the terms of the FOI Act. I cannot give an absolute assurance on that, but I can give a fairly strong one. It is difficult to imagine information that would be passed on in such circumstances. It would have to go through the various tests in the FOI legislation. Therefore, people can pass information to the takeover panel with a strong degree of reassurance that if it ever had to be passed on—normally, of course, it would not be—it is unlikely that it would be easy to disclose it publicly under FOI legislation.

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

We are dealing with restrictions on disclosure of information provided to the panel. In some ways, the provisions are more complicated than they look. The extent to which the consent of the individuals concerned will be required for the panel to disclose information was debated in the other place, and at one stage Baroness Noakes and Lord Hodgson both attempted to have the clause deleted. Lord Hodgson stated:

“It has been argued to us that this is a very broad statement, and that it seems to allow the panel to disclose information in any case so long as it can attribute it to facilitate the carrying out of its functions. That could be argued to cover almost any disclosure made by the panel at all in any circumstances. With that in mind I return to the purpose behind the amendment, which is not to hinder the workings of the panel, but rather to probe the Government on the drafting in this case. We see no compelling argument as to why this exclusion is so widely drafted.”—[Official Report, House of Lords, 28 March 2006; Vol. 680, c. GC291.]

Despite what has been said, I still have concerns.

The protections from disclosure of information about an individual or a business provided under the clause do not apply to disclosures

“made for the purpose of facilitating the carrying out by the Panel of any of its functions”.

To some extent, the provision was amended in the other place by including the phrase

“has been authorised by the Panel” and I am sorry that the Government wish to reverse that change in amendment No. 452.

Having heard the Solicitor-General, I am not entirely sure that he is totally on top of the situation; I think that items can still be teased out. It may be dealt with on Report, but the nightmare scenario of documents getting lost in the public system, going from one regulatory agency to the next without anyone being told, could cause fear among those who have heard our debates.

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

The hon. Gentleman is creating fear stories unnecessarily. We need to make it clear that the further onward disclosure would in any event remain subject to the same controls on disclosure that applied to the information when it was in the hands of the takeover panel. It can be further disclosed only under the same tightly controlled circumstances, laid down in clause 648, that applied to the panel.

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

Is the Minister saying that because equivalent clauses in other legislation apply to other regulatory authorities?

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

I am saying that it is passed on conditionally. For example, we do not want to enable a regulator to pass such information to the DPP or some other agency. Frankly, I do not think that the hon. Gentleman would want us to allow that information to go to such an agency. Confidential information should remain confidential, but it is also right that the proper regulatory authorities should be able to do their duty in the proper way.

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

I am not entirely sure on what basis the Solicitor-General says that the same restrictions would follow from one agency to the next. Perhaps he will enlighten me further. I still feel that it is a broad provision.

Photo of David Howarth David Howarth Shadow Minister (Energy), Trade & Industry

The confusion is that the words that the Government seek to remove seem to be those that they are now relying upon when saying that conditions can be imposed on further disclosures. The argument is becoming rather circular.

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

I agree; indeed, I was thinking that as the Minister was speaking. I thank the hon. Gentleman for bringing that to the notice of the Committee.

We feel that it is an important issue. The panel has always worked on the basis of trust. Now that the framework is to be put into statutory effect, we should recognise how sensitive is much of the documentation that it receives and how carefully the panel must consider its disclosure.

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

In the context of sensitivity, does my hon. Friend have any thoughts on the interrelationship between clauses 648 and 650 on the panel’s duty to co-operate—particularly, under clause 650(1)(c), with bodies outside the United Kingdom? Given that one of the panel’s functions is the duty to co-operate, and given the provisions of clause 648, would the panel therefore be obliged to provide information to overseas bodies without restriction?

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

That is very likely. My hon. Friend highlights another concern. We are assuming that the document going overseas will be misused. That may or may not be the case, but it broadens the scope of my point. I thank the hon. Gentleman for making his point.

Photo of Justine Greening Justine Greening Vice-Chair (Youth), Conservative Party

We are on an interesting topic because we have raised the hypothesis of an overseas, regulatory body which makes a fulfilled request for information and documents from the takeover panel with which it complies, and those documents then go into another jurisdiction, under the laws of which they might be able to be accessed as information. In the internet age, that would mean that they could be accessed by everyone.

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

My hon. Friend makes a good point. In times of the internet, once a document goes out of control, it really does go out of control and everyone tends to know about it.

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

It is important that those types of fear stories should not be given any credence at all. That was not a good point. In clause 648, the restrictions both on employees—those who receive documents within the takeover panel—and disclosure will continue to apply.

In future, there are likely to be greater safeguards on confidential information than there are now. Therefore, people can continue to treat the takeover panel with the degree of proper respect and confidentiality with which they currently treat it now.

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

It is certainly recognised by the panel that despite its role becoming enshrined in statute—from a day-to-day perspective—it still intends to operate in much the same way as it has in the past. That means working on the basis of trust. However, for that  to happen, people will have to have confidence in the confidentiality of what they hand over to the panel. One bad incident could undermine years of carefully built-up trust. It would not take much—

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

Why does the hon. Gentleman think that there is going to be even one bad incident? There has not been since 1968. Why does he suddenly think there is going to be one now? The risk of his comments—which are read outside this place—is that people will think that there are intentions in this legislation that are not there.

It is important that we maintain confidence in the takeover panel. It is fair and reasonable for him to put forward his amendment. There is not anything between us in terms of what we would like to see. The issue is whether the amendment that he is putting forward is necessary to achieve it, and I say that it is not, or whether the Government amendment is necessary to achieve what we would both want to see, and I believe it is.

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

We are starting to go round in circles. Having listened to the debate, I believe that the amendment put forward by our noble Friends in the other place was a correct one. I will be asking the Committee to oppose amendment No. 452.

Photo of Justine Greening Justine Greening Vice-Chair (Youth), Conservative Party

I rise to support my hon. Friend the Member for Huntingdon. In spite of the good intentions, there are some potential dangers fraught in clause 648. I have no doubt that the Government’s intentions are good. The question is how do they play out in practice?

Multi-billion pound deals are increasingly taking place across jurisdictions and borders. Only recently, in my own area, BAA was taken over by a Spanish company. It is increasingly likely that documents will be shared between international regulatory bodies. Therefore, between now and Report stage, it is incumbent on the Government to look at this matter more carefully and, if necessary, to take action within the Bill to assure companies that when they pass information on to the takeover panel that it is confidential, as intended.

One reason why the takeover panel has worked so successfully as a self-regulating independent body is that its high level of honesty has made it possible to raise difficult issues with the panel. If people were worried about the scrutiny that issues might receive outside, or about the possibility that documents might be passed to third parties and ultimately become public, they might just hesitate about disclosing them to the panel, which would not be good.

I raise those concerns mainly because, like the Solicitor-General, I want to ensure that the takeover panel retains such high integrity that people have no issues about fully disclosing potential information about their business deals.

Photo of Shailesh Vara Shailesh Vara Conservative, North West Cambridgeshire 5:15 pm, 18th July 2006

Does my hon. Friend agree that the European Union’s stated objective of creating “an ever closer Union” will increase the chances of documents being  disclosed? That is particularly true given that businesses are getting closer and that multinationals are co-operating on takeovers, as she said.

Photo of Justine Greening Justine Greening Vice-Chair (Youth), Conservative Party

Clearly, that is the way the business world is going. Many of us on the Committee have worked for international companies, and that is the way of international business today.

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

It is important that our comments in this place, and particularly on issues such as this, are made with care. In particular, it is important that we maintain confidence in the panel and that we do not get carried away discussing various speculative fear stories that might undermine that confidence. I am therefore happy to accept that we go back to the takeover panel to ask whether it is content with the position that we have arrived at. My officials advise me that it is, but given the hon. Lady’s concerns, I am happy to have a further word with the panel to ascertain its view on this matter.

Photo of Justine Greening Justine Greening Vice-Chair (Youth), Conservative Party

I am encouraged by the Solicitor-General’s comments, because these are important issues. They are also difficult issues, and I have no intention as an Opposition Back Bencher of creating fear stories, but it is the Opposition’s responsibility to raise potential loopholes. It is far better to raise them now than to find out about them when the provisions are in law and companies that could be performing well are being hindered purely because we did not do our scrutiny job well.

This is an important issue, and I am grateful that the Solicitor-General will look at it in more detail. I have some further comments on schedule 2, but I shall return to them at the appropriate time.

Question put, That the amendment be made:—

The Committee divided: Ayes 9, Noes 8.

Question accordingly agreed to.

Clause 648, as amended, ordered to stand part of the Bill.