House of Commons Hansard Debates for 26 Oct 1989

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Question accordingly negatived.

Clause 139

Temporary restrictions on share dealing

Mr. Nicholas Baker (Dorset, North) : I beg to move amendment No. 310, in page 156, line 6, leave out any enterprise' and insert an enterprise'.

Madam Deputy Speaker : With this it will be convenient to consider also the following : Amendment No. 311, in page 156, line 8, leave out any such' and insert such an'.

Amendment No. 312, in page 156, line 15, after relates', insert other than the enterprise referred to in paragraph (a) above'.

Mr. Baker : I am glad of the opportunity to move these three simple amendments. Clause 139 is designed to prevent a bidding company from acquiring shares in the target while a Monopolies and Mergers Commission investigation is taking place. The effect of the clause as drafted--

Mr. Frank Haynes (Ashfield) : On a point of order, Madam Deputy Speaker. Could the conference taking place behind the Chair please be stopped?

Madam Deputy Speaker : I am sure that hon. Members are paying attention.

Mr. Baker : Thank you, Madam Deputy Speaker. The effect of the clause as drafted is to prevent a member of a group of persons who control the bidder from buying any further shares in the bidder. That does not seem to be what the clause should be aimed at. It goes beyond the original intention of the clause and those which drafted it. I hope that my hon. Friend the Minister will consider favourably my amendments which would put that matter right.

Mr. Redwood : The objective of the amendments appears to be to relax the temporary prohibition on share dealings following a reference so that parties on one side of a merger can continue to acquire one another's shares. Although we are not unsympathetic to the reasoning behind that, we consider that it would be a mistake to tackle the issue by amending the Bill rather than by using the Secretary of State's power to issue consents.

Clause 139 makes it unlawful for the duration of the MMC inquiry for any parties to propose a merger which is referred, or to acquire shares or interests in shares in any of the parties, except with the Secretary of State's consent. The prohibition extends to all those covered by the reference and their subsidiaries and associates. This prohibition puts on a permanent statutory basis the standard practice of making individual orders in each case under the Fair Trading Act 1973 to limit the holding which bidders can acquire.

The purpose of the prohibition is to prevent the outcome of MMC inquiry or any action necessary following it from being prejudiced by the merger going ahead in the meantime. The complexity of many merger arrangements has led us to make the prohibition in the Bill a general one which applies to all possible relevant parties to a merger. It would otherwise be very difficult to catch everyone whom we might conceivably wish to catch. Rather than have a complicated--

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It being Twelve o'clock, Madam Deputy Speaker-- proceeded, pursuant to the Order [26 October], to put forthwith the Question already proposed from the Chair.

Amendment negatived.

Madam Deputy Speaker-- then proceeded to put forthwith the Question on new clauses and new schedules relating to parts VI and VII of the Bill, standing in the name of, or moved by, a Member of the Government to that part of the Bill to be concluded at Twelve o'clock.

Amendment made : No. 151, New Schedule--

Company Contracts, Seals, &c. : Further Provisions--

Execution of deeds abroad

1.--(1) Section 38 of the Companies Act 1985 (execution of deeds abroad) is amended as follows.

(2) In subsection (1) (appointment of attorney to execute deeds), after "A company may" insert "under the law of England and Wales". (3) For subsection (2) (effect of deed executed by attorney) substitute--

"(2) A deed executed by such an attorney on behalf of the company has the same effect as if it were executed under the company's common seal."

Official seal for use abroad

2.--(1) Section 39 of the Companies Act 1985 (power to have official seal for use abroad) is amended as follows.

(2) In subsection (1), after "A company" insert "which has a common seal" and for "the common seal of the company" substitute "its common seal".

(3) For subsection (2) (effect of sealing with official seal) substitute--

"(2) The official seal when duly affixed to a document has the same effect as the company's common seal.".

(4) In subsection (3) (instrument authorising person to affix official seal), after "by writing under its common seal" insert "or, in the case of a company registered in Scotland, subscribed in accordance with section 36B,".

Official seal for share certificates, &c. 3.--(1) Section 40 of the Companies Act 1985 (official seal for share certificates, &c.) is amended as follows.

(2) After "A company" insert "which has a common seal" and for "the company's common seal" substitute "its common seal".

(3) At the end add--

"The official seal when duly affixed to a document has the same effect as the company's common seal.".

Authentication of documents 4. In section 41 of the Companies Act 1985 (authentication of documents), for the words from "may be signed" to the end substitute "is sufficiently authenticated for the purposes of the law of England and Wales by the signature of a director, secretary or other authorised officer of the company.". Share certificate as evidence of title 5. For section 186 of the Companies Act 1985 (certificate to be evidence of title) substitute-- "Certificate to be evidence of title 186.--(1) A certificate under the common seal of the company (or, in the case of a company registered in Scotland, subscribed in accordance with section 36B) specifying any shares held by a member is--

(a) in England and Wales, prima facie evidence, and

(b) in Scotland, sufficient evidence unless the contrary is shown, of his title to the shares.".

Share warrants to bearer 6. For section 188 of the Companies Act 1985 (issue and effect of share warrant to bearer) substitute-- "Issue and effect of share warrant to bearer 188.--(1) A company limited by shares may, if so authorised by its articles, issue with respect to any fully paid shares a warrant (a "share warrant") stating that the bearer of the warrant is entitled to the shares specified in it.

(2) A share warrant issued under the company's common seal (or, in the case of a company registered in Scotland,

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subscribed in accordance with section 36B) entitles the bearer to the shares specified in it ; and the shares may be transferred by delivery of the warrant.

(3) A company which issues a share warrant may, if so authorised by its articles, provide (by coupons or otherwise) for the payment of the future dividends on the shares included in the warrant.". Identification of company on common seal 7. In section 350 of the Companies Act 1985 (identification of company on company seal), for subsection (1) substitute- -

"(1) A company which has a common seal shall have its name engraved in legible characters on the seal ; and if it fails to comply with this subsection it is liable to a fine.".

Floating charges under Scots law 8. In section 462 of the Companies Act 1985 (power of company to create floating charge), for subsections (2) and (3) substitute--

"(2) In the case of a company which the Court of Session has jurisdiction to wind up, a floating charge may be created only by a written instrument which is presumed under section 36B to be subscribed by the company.".

9. In section 466(2) of the Companies Act 1985 (execution of instrument altering floating charge)--

(a) at the beginning of the subsection insert "Without prejudice to any enactment or rule of law regarding the execution of documents," ;

(b) omit paragraph (a) ;

(d) omit paragraph (d) and the word "or" preceding it.

10. In section 53(3) of the Insolvency Act 1986 (execution of instrument appointing receiver), in paragraph (a) for "in accordance with the provisions of section 36 of the Companies Act as if it were a contract" substitute "in accordance with section 36B of the Companies Act 1985".'.-- [Mr. Redwood.]

.--(1) The powers conferred by this section are exercisable in relation to a recognised UK investment exchange or recognised UK clearing house.

(2) Where in any case an exchange or clearing house has not taken action under its default rules--

(a) if it appears to the Secretary of State that it could take action, he may direct it to do so, and

(b) if it appears to the Secretary of State that it is proposing to take or may take action, he may direct it not to do so.

(3) Before giving such a direction the Secretary of State shall consult the exchange or clearing house in question ; and he shall not give a direction unless he is satisfied, in the light of that consultation--

(a) in the case of a direction to take action, that failure to take action would involve undue risk to investors or other participants in the market, or

(b) in the case of a direction not to take action, that the taking of action would be premature or otherwise undesirable in the interests of investors or other participants in the market. (4) A direction shall specify the grounds on which it is given. (5) A direction not to take action may be expressed to have effect until the giving of a further direction (which may be a direction to take action or simply revoking the earlier direction).

(6) No direction shall be given not to take action if, in relation to the person in question--

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(a) a bankruptcy order or an award of sequestration of his estate has been made, or an interim receiver or interim trustee has been appointed, or

(b) a winding up order has been made, a resolution for voluntary winding up has been passed or an administrator, administrative receiver or provisional liquidator has been appointed ;

and any previous direction not to take action shall cease to have effect on the making or passing of any such order, award or appointment.

(7) Where an exchange or clearing house has taken or been directed to take action under its default rules, the Secretary of State may direct it to do or not to do such things (being things which it has power to do under its default rules) as are specified in the direction.

The Secretary of State shall not give such a direction unless he is satisfied that it will not impede or frustrate the proper and efficient conduct of the default proceedings.

(8) A direction under this section is enforceable, on the application of the Secretary of State, by injunction or, in Scotland, by an order under section 45 of the Court of Session Act 1988 ; and where an exchange or clearing house has not complied with a direction, the court may make such order as it thinks fit for restoring the position to what it would have been if the direction had been complied with.'.-- [Mr. Redwood.]

Brought up, read the First and Second time, and added to the Bill.

New clause 36-- Applications to determine whether default proceedings to be taken--

.--(1) Where there has been made or passed in relation to a member or designated non-member of a recognised investment exchange or a member of a recognised clearing house--

(a) a bankruptcy order or an award of sequestration of his estate, or an order appointing an interim receiver of his property, or (

(b) an administration or winding up order, a resolution for voluntary winding up or an order appointing a provisional liquidator,

and the exchange or clearing house has not taken action under its default rules in consequence of the order, award or resolution or the matters giving rise to it, a relevant office-holder appointed by, or in consequence of or in connection with, the order, award or resolution may apply to the Secretary of State.

(2) The application shall specify the exchange or clearing house concerned and the grounds on which it is made.

(3) On receipt of the application the Secretary of State shall notify the exchange or clearing house, and unless within three business days after the day on which the notice is received the exchange or clearing house--

(a) takes action under its default rules, or

(b) notifies the Secretary of State that it proposes to do so forthwith,

then, subject as follows, the provisions of sections 148 to 155 above do not apply in relation to market contracts to which the member or designated non-member in question is a party or to anything done by the exchange or clearing house for the purposes of, or in connection with, the settlement of any such contract.

For this purpose a "business day" means any day which is not a Saturday or Sunday, Christmas Day, Good Friday or a bank holiday in any part of the United Kingdom under the Banking and Financial Dealings Act 1971.

(4) The provisions of sections 148 to 155 are not disapplied if before the end of the period mentioned in subsection (3) the Secretary of State gives the exchange or clearing house a direction under section (Powers of Secretary of State to give directions) (2)(a) (direction to take action under default rules).

No such direction may be given after the end of that period. (5) If the exchange or clearing house notifies the Secretary of State that it proposes to take action under its default rules forthwith, it shall do so ; and that duty is enforceable, on the application of the Secretary of State, by injunction or, in Scotland, by an order under section 45 of the Court of Session Act 1988.'.-- [Mr. Redwood.]

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Brought up, read the First and Second time, and added to the Bill.

New clause 37-- Certain money market institutions --

.--(1) The Secretary of State may by regulations provide that this Part applies to contracts of any specified description in relation to which settlement arrangements are provided by a person for the time being included in a list maintained by the Bank of England for the purposes of this section, as it applies to contracts connected with a recognised investment exchange or recognised clearing house. (2) The Secretary of State shall not make any such regulations unless he is satisfied, having regard to the extent to which the contracts in question--

(a) involve, or are likely to involve, investments falling within paragraph 2 of Schedule 5 to the Financial Services Act 1986 (money market investments), or

(b) are otherwise of a kind dealt in by persons supervised by the Bank of England,

that it is appropriate that the arrangements should be subject to the supervision of the Bank of England.

(3) The approval of the Treasury is required for--

(a) the conditions imposed by the Bank of England for admission to the list maintained by it for the purposes of this section, and (

(b) the arrangements for a person's admission to and removal from the list ;

and any regulations made under this section shall cease to have effect if the approval of the Treasury is withdrawn, but without prejudice to their having effect again if approval is given for fresh conditions or arrangements.

(4) The Bank of England shall publish the list as for the time being in force and provide a certified copy of it at the request of any person wishing to refer to it in legal proceedings.

A certified copy shall be evidence (in Scotland, sufficient evidence) of the contents of the list ; and a copy purporting to be certified by or on behalf of the Bank shall be deemed to have been duly certified unless the contrary is shown.

(5) Regulations under this section may, in relation to a person included in the list--

(a) apply, with such exceptions, additions and adaptations as appear to the Secretary of State to be necessary or expedient, such of the provisions of the Financial Services Act 1986 as he considers appropriate, and

(b) provide that the provisions of this Part apply with such exceptions, additions and adaptations as appear to the Secretary of State to be necessary or expedient.

(6) Before making any regulations under this section, the Secretary of State shall consult the Treasury and the Bank of England.

(7) In section 84(1) of the Banking Act 1987 (disclosure of information obtained under that Act), in the Table showing the authorities to which, and functions for the purposes of which, disclosure may be made, at the end add--

"A person included in the list maintained by the Bank for the purposes of section (Certain money market institutions) of the Companies Act 1989. Functions under settlement arrangements to which regulations under that section relate.".'.-[Mr. Redwood.]

Brought up, read the First and Second time, and added to the Bill.

New clause 38-- Settlement arrangements provided by the Bank of England --

(2) Regulations under this section may provide that the provisions of this Part apply with such exceptions, additions and adaptations as appear to the Secretary of State to be necessary or expedient.

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(3) Before making any regulations under this section, the Secretary of State shall consult the Treasury and the Bank of England.'.-- [Mr. Redwood.]

Brought up, read the First and Second time, and added to the Bill .

New clause 39-- Application of margin not affected by certain other interests --

.--(1) The following provisions have effect with respect to the application by a recognised investment exchange or recognised clearing house of property (other than land) held by the exchange or clearing house as margin in relation to a market contract. (2) So far as necessary to enable the property to be applied in accordance with the rules of the exchange or clearing house, it may be so applied notwithstanding any prior equitable interest or right, or any right or remedy arising from a breach of fiduciary duty, unless the exchange or clearing house had notice of the interest, right or breach of duty at the time the property was provided as margin.

(3) No right or remedy arising subsequently to the property being provided as margin may be enforced so as to prevent or interfere with the application of the property by the exchange or clearing house in accordance with its rules.

(4) Where an exchange or clearing house has power by virtue of the above provisions to apply property notwithstanding an interest, right or remedy, a person to whom the exchange or clearing house disposes of the property in accordance with its rules takes free from that interest, right or remedy.'. -- [Mr. Redwood.]

Brought up, read the First and Second time, and added to the Bill.

New clause 40-- Priority of floating market charge over subsequent charges- -

.--(1) The Secretary of State may by regulations provide that a market charge which is a floating charge has priority over a charge subsequently created or arising, including a fixed charge. (2) The regulations may make different provision for cases defined, as regards the market charge or the subsequent charge, by reference to the description of charge, its terms, the circumstances in which it is created or arises, the nature of the charge, the person in favour of whom it is granted or arises or any other relevant factor.'.-- [Mr. Redwood.] Brought up, read the First and Second time, and added to the Bill.

New clause 41-- Power to make further provision by regulations-- .--(1) The Secretary of State may by regulations make such further provision as appears to him necessary or expedient for the purposes of this Part.

(2) Provision may, in particular, be made--

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