House of Commons - Explanatory Note
Company Law Reform Bill [HL] - continued          House of Commons

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Clause 604: Companies to which this Part applies

1061.     This clause provides that this Part only applies to public companies, just as section 198 of the 1985 Act provides currently.

Clause 605: Shares to which this Part applies

1062.     This clause re-enacts in part the definition in section 198(2) of the 1985 Act of the type of shares concerning which a clause 606 notice may be issued, namely shares carrying the rights to vote in all circumstances at general meetings. However, shares held by a company "in treasury" following a purchase of its own shares, (as an alternative to cancelling such shares on purchase) are included in the definition.

Clause 606: Notice by company requiring information about interests in its shares

1063.     This clause re-enacts section 212(1)-(4) of the 1985 Act. It allows a public company to issue a notice requiring a person who it knows, or has reasonable cause to believe, has an interest in its shares (or to have had an interest in the previous 3 years) to confirm or deny the fact, and, if the former, to disclose certain information about the interest, including information about any other person with an interest in the shares.

1064.     Subsections (3) and (4) require details to be given of a person's past or present interests and to provide details of any other interest subsisting in the shares of which he is aware. This provision allows the company to pursue information through a chain of nominees by requiring each in the chain to disclose the person for whom they are acting. Under subsection (6), where the addressee's interest is a past one, a company can ask for information concerning any person by whom the interest was acquired immediately subsequent to their interest. Particulars may also be required of any share acquisition agreements, or any agreement or arrangement as to how the rights attaching to those shares should be exercised (clauses 631 and 632).

1065.     This clause serves a different purpose to the automatic disclosure obligations currently contained in sections 198 to 211 of Part 6 of the 1985 Act. It enables companies to discover the identity of those with voting rights (direct or indirect) that fall below the thresholds for automatic disclosure, and it also enables companies (and members of the company) to ascertain the underlying beneficial owners of shares.

1066.     In contrast to section 212 of the 1985 Act, the notice is not required to be in hard copy (under the general provisions on sending or supplying documents or information in Part 31 of the Bill). Notices, and responses thereto, may be given in electronic form. A response must be given in a reasonable time. What is reasonable has not been defined so as to allow flexibility according to the circumstances, but if the time given is not reasonable, the company will not have served a valid notice.

Clauses 607 and 608: Notice requiring information: order imposing restrictions on shares and offences

1067.     These clauses re-enact section 216(1)-(4) of the 1985 Act. They specify the penalties for failure to provide information within the specified time when served with a notice under clause 606. There are criminal penalties, (although a person does not commit an offence if he can show that the requirement to give information was frivolous or vexatious).

1068.     Additionally, application may be made to the court for a direction that the shares in question are to be subject to the restrictions of Part 15 of the 1985 Act. These prevent the exercise of voting rights, and preclude any transfer of the shares, or the issue of any further shares in right of them, or the payment of any dividend in respect of them. The court may protect the rights of third parties who would be unfairly affected by the order.

Clause 609: Notice requiring information: persons exempted from obligation to comply

1069.     This clause re-enacts section 216(5) of the 1985 Act. It provides that the Secretary of State may exempt a person from complying with a notice. The Secretary of State must consult the Governor of the Bank of England, and must be satisfied that there are special reasons for exempting the person (taking account of any undertaking given).

Clause 610: Power of members to require company to act

1070.     This clause re-enacts section 214(1) and (2) of the 1985 Act. It requires a company to exercise its powers under clause 606 on the request of members holding at least 10% of such of the paid up capital of the company as carries the right to vote at general meetings (other than voting rights attached to shares held in treasury). This provision, which has rarely been used under the 1985 Act, recognises that members of a company may have a legitimate reason for wanting the company to exercise its statutory powers to demand information even if the management does not want to. For example, the members might want to act where they suspect that the directors are involved in building a holding from behind the shelter of nominees.

1071.     Provision is made as to the form and the procedure in relation to requests. Unlike section 214, the 10% threshold may be met a series of requests from members that the company act, rather than one collective request. Those making a request must not only specify the manner in which they require the powers to be exercised, but must also give reasonable grounds for requiring the company to exercise the powers in the manner specified (subsection (3)(b)(ii) and (iii)).

Clause 611: Duty of company to comply with requirement

1072.     This clause re-enacts section 214 (4) and (5) of the 1985 Act. It specifies the criminal penalties arising if the company fails to act as required. In contrast to section 214, every officer in default is liable to a fine, but the company itself is not.

Clause 612: Report to members on outcome of investigation

1073.     This clause re-enacts section 215 of the 1985 Act. It specifies that on the conclusion of an investigation carried out by the company in pursuance of a members' request, it is the duty of the company to prepare a report of the information received. The report must be available at the company's registered office within a reasonable period (not exceeding 15 days) after the conclusion of the investigation. Where the company's investigation exceeds three months, it must make interim reports available at three monthly intervals. Those making the request must be notified of reports being available.

Clause 613: Report to members: offences

1074.     This clause re-enacts section 215(8) of the 1985 Act. It specifies the criminal penalties arising if the company fails to report as required on the outcome of the investigation under clause 612. Unlike section 215, every officer in default is liable to a fine, but the company itself is not.

Clause 614: Right to inspect and request copy of reports

1075.     This clause re-enacts provisions in section 219 of the 1985 Act. It requires the company to make any report prepared as a result of a request under clause 610 to be open to inspection by anyone without charge. Any person can request a copy of the report, on payment of the prescribed fee. Subsections (3) to (5) specify the criminal penalties arising if the company fails to disclose the report as required and make provision for the courts to compel disclosure.

Clause 615: Register of interests disclosed

1076.     The register currently required to be kept by section 211 of the 1985 Act covers all interests notified, whether under the automatic disclosure rules or in response to a notice served under section 212 of that Act (company investigations). The latter are currently kept as a separate part of the register of interests in shares. In future it will be for regulations made under the Financial Services and Markets Act 2000 (as amended by clause 895) to make provision as to how interests notified under the automatic disclosure rules will be made public.

1077.     This clause provides that if, as a result of a clause 606 inquiry, the company receives information relating to the present interests held by any person in relevant shares, it must within three days enter in a register of interests disclosed:

  • the fact that the requirement (to disclose information under the notice) was imposed and the date on which it was imposed; and

  • the information received in response to the notice under clause 606.

1078.     The clause provides that the information must be entered either against the name of the present holder of the shares in question (as under the current law), or if the present holder is not known or there is no present holder, then against the name of the person holding the interest. Subsections (6) and (7) provide for criminal penalties for any default in complying with this clause. Subsection (8) makes clear that information that a company receives under this Part does not mean that the company needs to be concerned with the existence of any trust over the shares.

Clauses 616 and 617: Register to be kept available for inspection; and associated index

1079.     These clauses re-enact section 211 of the 1985 Act. Clause 616 provides that the register of interests disclosed must be kept available for inspection at the company's registered office or at the place where the company's register of members is kept (if different). The company must advise the registrar where the register is kept (unless it has always been kept at the registered office). Subsections (4) and (5) provide for criminal penalties for any default in complying with this clause.

1080.     Clause 617 provides that the register should have an index unless it is in a form that itself constitutes an index (for example a searchable database).

Clause 618: Right to inspect and require copy of entries

1081.     This clause re-enacts section 219 of the 1985 Act. It provides that the register and index must be open to inspection by any person without charge. For a prescribed fee, any person is entitled to a copy of any entry on the register. A person seeking access to the register under this clause must provide the information specified in subsection (4), including his name and address and the purpose for which the information is to be used.

Clause 619: Court supervision of purpose for which rights may be exercised

1082.     This clause provides that the company must only allow the inspection of the register or the copy requested if satisfied that it is for a proper purpose. If it refuses, the person concerned may apply to the court for it to allow the inspection. If an application to the court is made, the person must notify the company, and the company must use its best endeavours to notify any persons whose details might be disclosed.

Clause 620 Register of interests disclosed: refusal of inspection or default in providing copy

1083.     This clause provides for court enforcement and criminal penalties for any default in complying with clause618.

Clause 621 Register of interests disclosed: offences in connection with request for or disclosure of information

1084.     This clause provides for criminal penalties for misleading, false or deceptive statements given when making a request under clause 618. It also makes it a criminal offence for the person who receives information under clause 618 to disclose it to another person, if he knows or has reason to suspect that it may be used for an improper purpose.

Clause 622: Entries not to be removed from register

1085.     This clause re-enacts section 218 of the 1985 Act. It provides that entries can only be removed from the register in accordance with clauses 623 and 624, and if wrongly deleted must be restored as soon as reasonably practicable. Subsections (3) and (4) provide for criminal penalties for any default in complying with this clause.

Clause 623: Removal of entries from register: old entries

1086.     Section 217(1) of the 1985 Act currently provides that a company may remove an entry against a person's name from the register of interests in shares if more than 6 years have elapsed since the date of the entry being made, and either:

  • the entry recorded the fact that the person in question had ceased to have an interest notifiable under Part 6 in the company's relevant share capital (in which case the person's name may also be removed from the register); or

  • the entry has been superseded by a later entry against the same person's name.

1087.     By contrast, this clause simply provides that a company is not required to keep information on the register if more than 6 years have elapsed since the entry was made.

Clause 624: Removal of entries from register: incorrect entry relating to third party

1088.     This clause re-enacts section 217 of the 1985 Act but does not include the requirement for the company to verify information relating to third parties supplied in response to a clause 606 notice. However, the third party retains the right to apply to have his name removed from the register if the information is incorrect. Subsection (4) provides for the courts to enforce removal of incorrect information.

Clause 625: Adjustment of entry relating to share acquisition agreement

1089.     This clause re-enacts section 217(4) and (5) of the 1985 Act. It provides that a person identified in the register as being party to a clause 632 share acquisition agreement (this may include a concert party agreement) may when he ceases to be party to the agreement, request that the register should be amended to record that information. Such entries may appear in several places on the register, as each member of the concert party is required in their individual notification to identify the other members of the concert party. If the company refuses an application, the court may order the company to comply if it thinks fit.

Clause 626: Duty of company ceasing to be public company

1090.     This clause re-enacts provisions in section 211(7) and (10) of the 1985 Act. It provides that a company ceasing to be a public company must continue to keep any register it has kept under clause 615 and any associated index for 6 years after it ceases to be a public company.

Clause 627: Interest in shares: general

1091.     This clause re-enacts the definition of "interest in shares" for the purposes of Part 22, as currently in section 208 of the 1985 Act. An "interest in shares" is widely defined as an interest of any kind whatsoever in the shares, and includes beneficial ownership as well as direct ownership. The courts have described this wide definition as being designed "to counter the limitless ingenuity of persons who prefer to conceal their interests behind trusts and corporate entities" (re TR Technology Investment Trust plc [1988] BCLC 256 at 261).

Clause 628: Interest in shares: right to subscribe for shares

1092.     This clause re-enacts section 212(6) of the 1985 Act. It provides that a notice under clause 606 applies in relation to rights to subscribe for shares.

Clauses 629 and 630: Interest in shares: family and corporate interests

1093.     These clauses re-enact section 203 of the 1985 Act. They provides for certain family interests to be attributed to persons for the purpose of disclosure, as well as certain interests held indirectly through a corporate body.

Clauses 631: Interest in shares: agreement to acquire interests in a particular company

1094.     This clause re-enacts section 204 of the 1985 Act concerning the obligation to give details of certain share acquisition arrangements in response to a notice under clause 606. It covers any agreement or arrangement, whether or not legally binding, which involves undertakings, expectations or understandings that interests in shares will be acquired and that they will be subject to relevant restrictions while the agreement subsists. This may include groups of persons acting in concert to prepare the way for a takeover offer for the company or to support a pending takeover offer.

Clause 632: Extent of obligation in case of share acquisition agreement

1095.     This clause re-enacts section 205 of the 1985 Act. Subsection (1) provides that one person's interest in a concert party agreement is to be attributed to another. Subsections (2) and (3) explain what an interest apart from the concert party is, and subsection (4) concerns the mechanics of notification of an interest in a concert party agreement.

Clause 633: Information protected from wider disclosure

1096.     This clause re-enacts provisions in section 211(9) and 215(4) of the 1985 Act. Under clause 391 the Secretary of State may make regulations exempting a company from the need to disclose information relating to its holdings in related undertakings in notes to its accounts, where that information would be seriously prejudicial to the business of the undertaking. The Secretary of State must agree that the information need not be disclosed. Where advantage is taken of this exemption, the fact must be stated in the company's annual accounts. This clause provides that this same information must not be included in a clause 612 report, (though its omission must be noted in the report), and must not be available for inspection under clause 618.

Clause 634: Reckoning of periods for fulfilling obligations

1097.     This provision re-enacts the provision of section 220(2) of the 1985 Act concerning the calculation of periods in the Part expressed as a number of working days (as defined in clause 813). In contrast to section 220(2), the definition of "working days" excludes bank holidays only in the part of the UK where the company is registered.

Clause 635: Power to make further provision by regulations

1098.     This clause re-enacts section 210A of the 1985 Act. It confers power on the Secretary of State to make regulations to amend the definition of shares to which this Part applies (subsection (1)(a) re-enacting section 210A(1)(a)). Power is also conferred to amend the provisions in clause 606 as to notice by a company requiring information about interests in its shares, (subsection (1)(b) re-enacting section 210A(1)(e)), and the provisions as to what is to be taken to be an interest in shares, (subsection (1)(c) re-enacting section 210A(1)(d)).


1099.     This Part replaces Chapter 3 of Part 11 of the 1985 Act. It applies to all companies (within the meaning of clause 1), whether public or private, limited (whether by shares or by guarantee) or unlimited. It applies to dormant companies (as defined by clause 785) but not to overseas companies. It is wholly separate from any accounting exemptions or obligations.

Clause 636: Duty to deliver annual returns

1100.     This clause replaces section 363(1) and (2) of the 1985 Act. It retains the existing requirement for every company to file each year an annual return containing the required information made up to a date not later than the company's return date. The return date is the anniversary of a company's incorporation or where a previous return was made up to a different date, the anniversary of that other date. An annual return must be delivered to the registrar within 28 days after the date it is made up to.

Clause 637: Contents of annual return: general

1101.     This clause replaces section 364 of the 1985 Act. It specifies what information the annual return must contain. It differs in one significant respect from what is presently required under the 1985 Act. Rather than specifying the information that must be provided in relation to a company's directors and public company secretaries, it instead requires "prescribed particulars" (prescribed by the Secretary of State) relating to them to be provided. It no longer requires information regarding private company secretaries to be provided, reflecting the general approach of the Bill.

Clause 638: Contents of annual return: information about share capital and shareholders

1102.     This clause replaces section 364A of the 1985 Act. It recasts the provision in the style of the Bill but without significant substantive change.

Clause 639: Contents of annual return: power to make further provision by regulations

1103.     This clause replaces section 365 of the 1985 Act. It confers power on the Secretary of State the power to make further provision as to the information to be provided in the annual return. It also provides a power to amend or repeal clauses 627

and 628 (about what the annual return must contain) and to make exceptions to the requirements those clauses impose.

Clause 640: Failure to deliver annual return

1104.     This clause replaces section 363(3) - (5) of the 1985 Act. It provides that it is an offence not to make an annual return in time. The offence continues after it is first committed until such time as the annual return is made. The offence is committed by the company. In the case of a public company, it is also committed by each director and secretary of the company, as well as by any other officer in default. In the case of a private company, the offence is also committed by every director and by any other officer in default. It is a defence for directors of both public and private companies, and for public company secretaries, in office at the time when the offence is first committed, to prove that they took all reasonable steps to avoid the commission or continuation of the offence. For all other officers, including those who take office after the offence is first committed, the standard "officer in default" regime of the Bill applies (see clause751).

Clause 641: Application of provisions to shadow directors

1105.     This clause provides that a shadow director is to be treated as a director for the purposes of the annual return.



1106.     This Part implements the European Directive on Takeover Bids (2004/25/EC, the "Takeovers Directive") which was adopted on 21 April 2004 and had to be implemented by 20 May 2006. It also contains a few minor amendments to the existing law not required by the Directive.

Summary and background

1107.     The principal body of draft clauses emerged from the consultation document, "Company Law - Implementation of the European Directive on Takeover Bids" published by the DTI in January 2005. Additionally, the CLR considered issues related to "squeeze-out" and "sell-out" (concerning the problems of, and for, residual minority shareholders following a successful takeover bid) in Chapter 11 and Annex B of "Completing the Structure" and presented their conclusions in Chapter 13 of the Final Report. Certain provisions in this Part have been developed in the light of these conclusions.

Overview of the Part

1108.     The Part is divided into 3 Chapters:

  • Chapter 1 deals with matters related to the Takeover Panel and its takeover regulatory functions;

  • Chapter 2 concerns matters related to barriers to takeovers; and

  • Chapter 3 contains amendments to the provisions in Part 7 of the 1985 Act about the reports of companies traded on a regulated market, and to Part 13A of the 1985 Act (often known as "squeeze-out and sell-out").



1109.     Since 1968, takeover regulation in the UK has been overseen by the Panel on Takeovers and Mergers (the "Takeover Panel") which administered rules and principles contained in the non-statutory City Code on Takeovers and Mergers. In order to bring UK takeover regulation within the requirements laid down in the Takeovers Directive, Chapter 1 places it within a statutory framework.

1110.     The Panel will supervise takeover activity and similar types of transactions. The Panel will retain considerable autonomy to provide for its own constitution and appointment procedures. However, a minimum constitutional structure is laid down, providing for the Panel to make arrangements for carrying out its functions and, in particular, to function through committees, sub-committees, officers and members of staff. It is envisaged that the Panel will continue to carry out its day-to-day activities through its Executive. Provisions underpinning the funding of the Panel's regulatory activities are also included.

1111.     Additionally, the Panel is placed under an obligation to make statutory rules giving effect to certain Articles of the Directive and is given a statutory rule-making power to make rules in relation to takeover activity and similar types of transactions, reflecting the current field of activity over which the existing Code lays down rules.

1112.     Clauses 645, 651, 655, 656 and 661 of the Bill are intended to limit litigation by: (a) channelling parties to seek decisions of the Panel (including the Panel's Hearings Committee and the independent Takeover Appeal Board) before having recourse to the courts; (b) excluding new rights of action for breach of statutory duty; (c) protecting concluded transactions from challenge for breach of the Panel's rules; and (d) exempting the Panel and its individual members, officers and staff from

liability in damages for things done in, or in connection with, the discharge of the regulatory functions of the Panel.

1113.     The Bill does not affect the availability of judicial review by the courts. In the takeovers field, in the Datafin case (R v Panel on Takeovers, ex parte Datafin plc [1987] QB 815) the Court of Appeal concluded that generally the courts should limit themselves only to reviewing the Panel's decision-making processes after the bid has been concluded.

1114.     The Bill confers on the Panel powers to make rulings and directions and to enforce these through the courts, to obtain information and documents from those involved in regulated activities and to impose sanctions on those who transgress its rules.

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Prepared: 26 May 2006