Clause 540

Company Law Reform Bill [Lords] – in a Public Bill Committee on 20th July 2006.

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Exercise by directors of power to allot shares etc

Question proposed, That the clause stand part of the Bill.

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

With this it will be convenient to discuss the following: clauses 541 to 592 stand part, Government new clauses 45 to 160, Government new clauses 162 to 240 and Government new clauses 412 to 416.

Photo of Vera Baird Vera Baird Parliamentary Under-Secretary, Department for Constitutional Affairs

Good morning, Mr. Illsley. We propose that parts 18 and 19, which deal with the allotment of shares and share capital generally, should be completely replaced as part of the restatement exercise. Assuming that the Committee agrees to the changes, I intend to oppose clause 540 standing part, and similarly to oppose the Question on clauses 541 to 592.

The Government new clauses replace clauses 540 to 592, with the following exceptions: those elements of clause 583 relating to the allotment of debentures and the transfer of shares in debentures; clause 584, which will be restated in the new clauses dealing with debentures and transfer of securities; and clause 585, which is being restated in the new clause dealing with distributions.

In addition, the new clauses restate various provisions of the Companies Act 1985. Without exhaustively listing them, they relate to the allotment of shares, alterations to a company’s share capital, variations of class rights, reductions of share capital, shares no bar to damages, serious loss of capital, general rule against acquisition of own shares, financial assistance, redeemable shares, purchase of own shares, Treasury shares, capital redemption reserves and various associated provisions, and provisions relating to the persons who may be appointed to conduct valuation of non-cash assets.

As we explained when debating clause 675 stand part, this restatement exercise has necessarily resulted in some reordering and restructuring of parts 18 and 19. In some cases, the new clauses are different in structure from their counterparts in the Bill, but our starting point is the restatement exercise. We are not making substantive changes in the law unless they are needed to ensure that the restated provisions are compatible with the other provisions of the Bill.  However, a small number of changes to provisions that are restated have been required to ensure compatibility with European Union law. A very small number of changes are also required to give effect to what would have been Government amendments to existing clauses had the clauses in question not been restated in the new clauses in this group. I shall turn to those and take hon. Members through them.

First, we have removed the requirement imposed in clause 582 for a private company that makes a purchase of own shares out of capital to file a statement of capital with the registrar. It is unnecessary because such a company is already under an obligation to file a statement of capital when buying its own shares; there is no need for an additional requirement.

Secondly, we have taken the opportunity in the restatement of what are currently clause 561 about the reconversion of stock into shares and clause 589 concerned with the form of notice that must be given to the registrar, when a company has redenominated its share capital, to clarify that the requirement applies only to limited companies.

Finally, clauses 414 and 415 restate the law on the independence of persons required to value non-cash assets, for example in connection with an allotment of shares by a public company. The new clauses have the same effect as section 108 of the 1985 Act, but spell out the full statutory auditor qualification requirement rather than cross-referring to the statutory auditor provisions to be restated in part 35 of the Bill.

We are seeking power to make changes to some of the restated provisions in the group, in particular the provisions on capital maintenance, which have been foreshadowed in debates in the other place. I shall say more about that when we debate clauses 161, 241 and 306. It is the largest group of restated provisions and we are clearly not expecting members of the Committee to consider the issue in detail now. As we said during the debate on clause 675, we shall be consulting interested parties on the new clauses during the summer with the limited purpose of making sure that we have not made any unintended changes to the law. None the less, it is an important job that must be done and we are grateful that the Law Society, in particular, has offered its assistance.

On the basis that there will be further opportunities to amend the restated provisions, if necessary, will members of the Committee lend their support to our approach to the restatement exercise and vote in favour of the amendments in new clauses 45 to 160, 160 to 240 and 412 to 416 when we reach them? On the assumption that that will happen, I ask them to oppose clause 540 and clauses 541 to 592 standing part of the 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 reached part 18 and the Minister has set out how the Government intend to deal with the new clauses. I have set out our party’s position and I shall not repeat our general stance. It will, in effect, equate to our abstaining on the votes on the basis that we shall need the summer to consider the new clauses and take advice on their implications.

As for part 18, of all the various parts, consolidation is as welcome there as anywhere. There is no doubt that, when practitioners complained about the lack of  consolidation it was often the fact that the allotment provisions would be in one piece of legislation and the pre-emption provisions would be in another piece of legislation that was the upsetting aspect of non-consolidation. To that extent, the general move is welcomed and we can discuss some more specific aspects as we proceed.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

On a point of order, Mr. Illsley. I am confused about how we are to proceed this morning. If the Government intend to vote against clauses 540 to 592 standing part, are we to debate the amendments to them first and then vote on the clauses standing part in a block at the end? Is that to be the procedure?

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

The Government intend to negative clauses 540 to 592. The selected amendments will be debated as we progress through the morning.

Question put and negatived.

Clause 540 disagreed to.

Clause 541 disagreed to.

Clauses 542 to 553 disagreed to.