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House of Commons

Friday 19 April 2002

The House met at half-past Nine o'clock


[Mr. Speaker in the Chair]

Orders of the Day

Industrial and Provident Societies Bill

As amended in the Standing Committee, considered.

New Clause 1

Power to modify, etc. to assimilate to company law

'(1) If, on any modification of the statutory provisions in force in Great Britain relating to companies, it appears to the Treasury to be expedient to modify the relevant statutory provisions for the purpose of assimilating the law relating to companies and the law relating to industrial and provident societies, the Treasury may, by order, make such modifications of the relevant statutory provisions as they think appropriate for that purpose.
(2) The "relevant statutory provisions" are the provisions of the Industrial and Provident Societies Acts 1965 to 1978 as for the time being in force except the following provisions of the 1965 Act—
(a) section 1 (societies which may be registered);
(b) section 10(1) (amendments of registered rules);
(c) sections 16 to 18 (cancellation, suspension or refusal of registration of society or rules);
(d) sections 23 to 27 (nominations, provision for intestacy, payment in respect of mentally incapable persons and validity of payments);
(e) sections 50 to 54 (amalgamation, transfer of engagements and conversions);
(f) section 55(b) (dissolution of registered society by instrument);
(g) section 56 (power of registrar to petition for winding up);
(h) section 58 (instrument of dissolution); and
(i) section 59 (restriction on dissolution or cancellation of registration of society).
(3) The power conferred by subsection (1) of this section includes power to modify the relevant statutory provisions so as to—
(a) confer power to make orders, regulations, rules or other subordinate legislation;
(b) create criminal offences; or
(c) provide for the charging of fees but not any charge in the nature of taxation.
(4) An order under this section may—
(a) make consequential amendments of or repeals in the provisions listed in subsection (2) of this section; or
(b) make such transitional or saving provisions as appear to the Treasury to be necessary or expedient.
(5) The power to make an order under this section shall be exercisable by statutory instrument and no such order shall be made unless a draft of it has been laid before and approved by a resolution of each House of Parliament.
(6) In this section—

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"modification" includes any additions and, as regards modifications of the statutory provisions relating to companies, any modification whether effected by any future Act or by an instrument made after the passing of this Act under an Act whenever passed; and
"statutory provisions" except in the expression "relevant statutory provisions" includes the provisions of any instrument made under an Act.'.—[Mr. Gareth R. Thomas.]

Brought up, and read the First time.

9.33 am

Mr. Gareth R. Thomas (Harrow, West): I beg to move, That the clause be read a Second time.

Mr. Speaker: With this it will be convenient to discuss amendment No. 4, in clause 3, page 3, line 35, leave out clause 3.

Mr. Thomas: I am grateful that so many Members have chosen to be present this morning hopefully to complete the House of Commons stages of the Bill—I emphasise the word "hopefully".

The new clause and amendment No. 4 would replace clause 3 as it emerged from Committee. If the House will bear with me, I shall explain the effect of the new clause, and then set out the reasons for tabling it. New clause 1 narrows the power to amend industrial and provident society law by statutory instrument to assimilate it into company law to circumstances in which changes have already been made to company law. However, it broadens the range of sections that can be changed in that way while, as in the version presented on Second Reading, protecting those provisions that are central to the nature and identity of an industrial and provident society and which distinguish such societies from companies.

Subsection (1) of new clause 1 makes only one change to the text of the current clause 3(1). It limits the circumstances in which the Treasury would be empowered to use the statutory instrument procedure to amend industrial and provident society law to assimilate it into company law to times when there has been modification of company law. It does that by removing the words

which appear in clause 3 before the reference to modifications of company law. The equivalent line in new clause 1 gives power only on any modification of company law.

That change makes the original version of clause 3(2) as it came out of Committee unnecessary, as it promoted the possibility of any historical modifications of company law being read across into industrial and provident society law almost immediately if the Government were so minded.

Subsection (2) of the new clause performs the role of the current clause 3(3), as amended in Committee, in that it deals with the provisions that can be amended by statutory instrument under subsection (1) of new clause 1. In that subsection, what can be modified by statutory instrument is described as "the relevant statutory provisions". Subsection (2) of the new clause defines those relevant statutory provisions by referring to the Industrial and Provident Societies Acts 1965 to 1978, and excluding those sections that define the nature of an

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industrial and provident society or that are essential to the nature of such societies. It differs from the version approved in Committee, which provided a list of those sections that could be amended rather than allowing amendment to any section other than the ones listed.

I would not want the House to run away with the idea that whole new areas of change are possible as a result of this slight change in approach. That would be a misplaced concern, as I shall show later.

A choice of sections to be excluded from the power by subsection (2) of the new clause was made on the following basis. Section 1 of the Industrial and Provident Societies Act 1965 defines the essential nature of industrial and provident societies as either co-operatives or community benefit organisations—bencoms as they are commonly known. They are excluded from change by subsection (2)(a).

Subsection 10(1), sections 16 to 18 and section 56 of the 1965 Act provide powers needed by the Financial Services Authority, as the regulator with which societies are registered, to vet rule amendments, to refuse, cancel or suspend registration of a society or its rules, to deal with petitions for winding up, and to ensure that the requirement that the society must be a co-operative or a bencom is adhered to. As a result, they are excluded from this power by subsection (2)(b), (c) and (g).

The other excluded sections provide specific and well-tried procedures for mutuals, building societies and friendly societies, and now for industrial and provident societies. Sections 23 to 27 of the 1965 Act deal with people nominating others to receive on their death property up to a limited value that they hold in a society, such as shares or loan stock. Sections 50 to 54, subsection 55(b) and sections 58 and 59 deal with reorganisations or dissolutions of societies by transfer of engagements, amalgamation or conversion to a company using procedures that are cheaper and easier than those otherwise available. They are excluded by subsection (2)(d), (e), (f), (h) and (i).

Subsections (3) to (6) are much the same as subsections (4) to (7) of the version of clause 3 that emerged from Committee. The limits of the power conferred to new statutory instruments are set out in subsections (3) and (4). Subsection (5) provides for the use of the affirmative procedure for any statutory instruments made under that power. Subsection (6) defines the key terms "modification" and "statutory provisions". Some minor alterations to the wording of subsections (1) and (2) have been made to accommodate the changes made to the previous version of the clause.

I have introduced the new clause, because, as I acknowledged in my response on Second Reading and in Committee, concerns were raised by hon. Members on both sides of the House about the breadth of the previous two versions of the clause, despite the provision for the use of the affirmative procedure and my willingness to include a defined list of sections that might be amended. Since Committee, I have also benefited from further advice and assistance on the technical issues and on some drafting problems that emerged.

Several points were highlighted. I was advised that the interpretation of the word "modification" in the earlier version of clause 3 was open to dispute. It was suggested

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that, when linked to a list of sections that might be modified, it might be possible to achieve only minor changes; for example, if the Treasury were minded to use statutory instruments in future, they would not deal with capacity issues for societies, or with problems in the ability of their committee or officers to contract for them or to apply rescue regimes for insolvent societies. Such avenues are available to companies and would represent a sensible modernisation of the industrial and provident society legal form.

In essence, the list agreed in Committee was too narrow. The latest advice is that it would not allow us to introduce additional concepts in industrial and provident society law, such as the possibility of using statutory instruments to deal with capacity problems. It would allow us only to modify existing concepts in the law. Members will recall that that gives rise to particular problems, as industrial and provident society law has not been substantially amended for an extremely long time—unlike the law for companies, with which many hon. Members will be familiar, and for friendly and building societies.

That situation is inadequate, as several of the sensible amendments that could be made to assimilate industrial and provident society law with company law would involve the introduction of additional concepts to I and P law, which have been incorporated in company law during the past 20 to 30 years. For example, company law was changed in 1989 so that third parties lending money have sensible protection if the company acts ultra vires.

In Committee, I used a rugby club as an example. A rugby club that is a company and uses company legal form borrows money to modernise its social facilities—perhaps for that glorious time when Wales again beat England in the Six Nations, which will happen fairly soon—[Laughter.] I cannot understand why that remark provokes such mirth. The provision of such social facilities may not be covered by the club's constitution, but if it is a company, the bank's investment is protected. On the other hand, if the club used the industrial and provident society legal form, the bank's investment might not be protected. The bank could lose its investment even though it had done nothing wrong.

I am advised that, technically, the reform in respect of capacity introduces an additional concept in industrial and provident society law. The current clause 3 would prevent that sensible reform, which is already standard for most other legal forms—certainly for companies and for friendly and building societies. The new provision could be implemented by statutory instrument, if the House and the Government are so minded, should an opportunity arise at a later stage when company law is amended.

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