Company Law Reform Bill [HL] (168-174)

House of Commons

Session 2005 - 06
Internet Publications
Other Bills before Parliament

Company Law Reform Bill [HL] (168-174)

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 15 — Control of political donations and expenditure
168

371
Meaning of “political expenditure”
(1)
In this Part “political expenditure”, in relation to a company, means
expenditure incurred by the company on—
(a)
the preparation, publication or dissemination of advertising or other
promotional or publicity material—
5
(i)
of whatever nature, and
(ii)
however published or otherwise disseminated,

that, at the time of publication or dissemination, is capable of being
reasonably regarded as intended to affect public support for a political
party or other political organisation, or an independent election
10
candidate, or
(b)
activities on the part of the company that are capable of being
reasonably regarded as intended—
(i)
to affect public support for a political party or other political
organisation, or an independent election candidate, or
15
(ii)
to influence voters in relation to any national or regional
referendum held under the law of a member State.
(2)
For the purposes of this Part a political donation does not count as political
expenditure.
Authorisation required for donations or expenditure
20
372
Authorisation required for donations or expenditure
(1)
A company must not—
(a)
make a political donation to a political party or other political
organisation, or to an independent election candidate, or
(b)
incur any political expenditure,
25

unless the donation or expenditure is authorised in accordance with the
following provisions.
(2)
The donation or expenditure must be authorised—
(a)
in the case of a company that is not a subsidiary of another company,
by a resolution of the members of the company;
30
(b)
in the case of a company that is a subsidiary of another company by—
(i)
a resolution of the members of the company, and
(ii)
a resolution of the members of any relevant holding company.
(3)
No resolution is required on the part of a company that is a wholly-owned
subsidiary of a UK company.
35
(4)
For the purposes of subsection (2)(b)(ii) a “relevant holding company” means
a company that, at the time the donation was made or the expenditure was
incurred—
(a)
was a holding company of the company by which the donation was
made or the expenditure was incurred,
40
(b)
was a UK company, and
(c)
was not a subsidiary of—
(i)
another UK company, or
(ii)
a body corporate which was itself a subsidiary of a UK
company.
45

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 15 — Control of political donations and expenditure
169

(5)
For the purposes of this section a “UK company” means a body corporate
that—
(a)
is a company as defined in section 1 of this Act, or
(b)
is registered under the Companies Acts by virtue of section 1006
(bodies not formed under Companies Acts but authorised to register).
5
(6)
The resolution or resolutions required by this section—
(a)
must comply with section 373 (form of authorising resolution), and
(b)
must be passed before the donation is made or the expenditure
incurred.
(7)
Nothing in this section enables a company to be authorised to do anything that
10
it could not lawfully do apart from this section.
373
Form of authorising resolution
(1)
A resolution conferring authorisation for the purposes of this Part may relate
to—
(a)
the company passing the resolution,
15
(b)
one or more subsidiaries of that company, or
(c)
the company passing the resolution and one or more subsidiaries of
that company.
(2)
A resolution may be expressed to relate to all companies that are subsidiaries
of the company passing the resolution—
20
(a)
at the time the resolution is passed, or
(b)
at any time during the period for which the resolution has effect,

without identifying them individually.
(3)
The resolution may authorise donations or expenditure under one or more of
the following heads—
25
(a)
donations to political parties or independent election candidates;
(b)
donations to political organisations other than political parties;
(c)
political expenditure.
(4)
The resolution must specify a head or heads—
(a)
in the case of a resolution under subsection (2), for all of the companies
30
to which it relates taken together;
(b)
in the case of any other resolution, for each company to which it relates.
(5)
The resolution must be expressed in general terms conforming with subsection
(2) and must not purport to authorise particular donations or expenditure.
(6)
For each of the specified heads the resolution must authorise donations or, as
35
the case may be, expenditure up to a specified amount in the period for which
the resolution has effect (see section 375).
(7)
The resolution must specify such amounts—
(a)
in the case of a resolution under subsection (2), for all of the companies
to which it relates taken together;
40
(b)
in the case of any other resolution, for each company to which it relates.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 15 — Control of political donations and expenditure
170

374
Majority required for authorising resolution
(1)
A resolution conferring authorisation for the purposes of this Part may be an
ordinary resolution.
(2)
This is subject to anything in the company’s articles requiring a higher majority
(or unanimity).
5
375
Period for which resolution has effect
(1)
A resolution conferring authorisation for the purposes of this Part has effect for
a period of four years beginning with the date on which it is passed unless the
directors determine, or the articles require, that it is to have effect for a shorter
period beginning with that date.
10
(2)
The power of the directors to make a determination under this section is subject
to any provision of the articles that operates to prevent them from doing so.
Remedies in case of unauthorised donations or expenditure
376
Liability of directors in case of unauthorised donation or expenditure
(1)
This section applies where a company has made a political donation or
15
incurred political expenditure without the authorisation required by this Part.
(2)
The directors in default are jointly and severally liable—
(a)
to make good to the company the amount of the unauthorised donation
or expenditure, with interest, and
(b)
to compensate the company for any loss or damage sustained by it as a
20
result of the unauthorised donation or expenditure having been made.
(3)
The directors in default are—
(a)
those who, at the time the unauthorised donation was made or the
unauthorised expenditure was incurred, were directors of the company
by which the donation was made or the expenditure was incurred, and
25
(b)
where—
(i)
that company was a subsidiary of a relevant holding company,
and
(ii)
the directors of the relevant holding company failed to take all
reasonable steps to prevent the donation being made or the
30
expenditure being incurred,

the directors of the relevant holding company.
(4)
For the purposes of subsection (3)(b) a “relevant holding company” means a
company that, at the time the donation was made or the expenditure was
incurred—
35
(a)
was a holding company of the company by which the donation was
made or the expenditure was incurred,
(b)
was a UK company, and
(c)
was not a subsidiary of—
(i)
another UK company, or
40
(ii)
a body corporate which was itself a subsidiary of a UK
company.
(5)
For the purposes of this section a “UK company” is a body corporate which—

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 15 — Control of political donations and expenditure
171

(a)
is a company as defined in section 1 of this Act, or
(b)
is registered under the Companies Acts by virtue of section 1006
(bodies not formed under Companies Acts but authorised to register).
(6)
The interest referred to in subsection (2)(a) is interest on the amount of the
unauthorised donation or expenditure, so far as not made good to the
5
company—
(a)
in respect of the period beginning with the date when the donation was
made or the expenditure was incurred, and
(b)
at such rate as the Secretary of State may prescribe by regulations.

Section 385(2) (construction of references to date when donation made or
10
expenditure incurred) does not apply for the purposes of this subsection.
(7)
Where only part of a donation or expenditure was unauthorised, this section
applies only to so much of it as was unauthorised.
377
Enforcement of directors’ liabilities by shareholder action
(1)
Any liability of any person under section 376 is enforceable by proceedings
15
brought under this section in the name of the company by an authorised group
of members of the company.

This is in addition to being enforceable by proceedings brought by the
company.
(2)
An “authorised group” means—
20
(a)
the holders of not less than 5% in nominal value of the company’s
issued share capital,
(b)
if the company is not limited by shares, not less than 5% of its members,
or
(c)
not less than 50 of the company’s members.
25
(3)
A group of members of a company may not bring proceedings under this
section unless—
(a)
the group has given written notice to the company stating—
(i)
the cause of action and a summary of the facts on which the
proceedings are to be based,
30
(ii)
the names and addresses of the members of the company
comprising the group, and
(iii)
the grounds on which it is alleged that those members
constitute an authorised group; and
(b)
not less than 28 days have elapsed between the date of the giving of the
35
notice to the company and the bringing of the proceedings.
(4)
Where such a notice is given to a company, any director may apply to the court
within the period of 28 days beginning with the date of the giving of the notice
for an order directing that the proposed proceedings shall not be brought, on
one or more of the following grounds—
40
(a)
that the unauthorised amount has been made good to the company;
(b)
that proceedings to enforce the liability have been brought, and are
being pursued with due diligence, by the company;
(c)
that the members proposing to bring proceedings under this section do
not constitute an authorised group.
45

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 15 — Control of political donations and expenditure
172

(5)
Where an application is made on the ground mentioned in subsection (4)(b),
the court may as an alternative to directing that the proposed proceedings
under this section are not to be brought, direct—
(a)
that such proceedings may be brought on such terms and conditions as
the court thinks fit, and
5
(b)
that the proceedings brought by the company—
(i)
shall be discontinued, or
(ii)
may be continued on such terms and conditions as the court
thinks fit.
(6)
The members by whom proceedings are brought under this section owe the
10
same duties to the company in relation to the proceedings as would be owed
by the directors of the company if the proceedings were being brought by the
company itself.

But proceedings to enforce any such duty may be brought by the company
only with the permission of the court.
15
(7)
Proceedings brought under this section may not be discontinued or settled by
the group except with the permission of the court, which may be given on such
terms as the court thinks fit.
(8)
Nothing in this section affects any right a member of a company may have to
bring or continue a claim under Part 11 of this Act (derivative claims or
20
proceedings by members).
378
Costs of shareholder action
(1)
This section applies in relation to proceedings brought under section 377 by an
authorised group of members of a company (“the group”).
(2)
The group may apply to the court for an order directing the company to
25
indemnify the group in respect of costs incurred or to be incurred by the group
in connection with the proceedings.

The court may make such an order on such terms as it thinks fit.
(3)
The group is not entitled to be paid any such costs out of the assets of the
company except by virtue of such an order.
30
(4)
If no such order has been made with respect to the proceedings, then—
(a)
if the company is awarded costs in connection with the proceedings, or
it is agreed that costs incurred by the company in connection with the
proceedings should be paid by any defendant, the costs shall be paid to
the group; and
35
(b)
if any defendant is awarded costs in connection with the proceedings,
or it is agreed that any defendant should be paid costs incurred by him
in connection with the proceedings, the costs shall be paid by the
group.
(5)
In the application of this section to Scotland for “costs” read “expenses” and for
40
“defendant” read “defender”.
379
Information for purposes of shareholder action
(1)
Where proceedings have been brought under section 377 by an authorised
group, the group is entitled to require the company to provide it with all
information relating to the subject matter of the proceedings that is in the
45

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 15 — Control of political donations and expenditure
173

company’s possession or under its control or which is reasonably obtainable by
it.
(2)
If the company, having been required by the group to do so, refuses to provide
the group with all or any of that information, the court may, on an application
made by the group, make an order directing—
5
(a)
the company, and
(b)
any of its officers or employees specified in the application,

to provide the group with the information in question in such form and by such
means as the court may direct.
Exemptions
10
380
Trade unions
(1)
A trade union is not a political organisation for the purposes of this Part.
(2)
For this purpose “trade union” has the meaning given by section 1 of the Trade
Union and Labour Relations (Consolidation) Act 1992 (c. 52) or Article 3 of the
Industrial Relations (Northern Ireland) Order 1992 (S.I. 1992/807 (N.I. 5)).
15
381
Subscription for membership of trade association
(1)
A subscription paid to a trade association for membership of the association is
not a political donation for the purposes of this Part.
(2)
For this purpose—
“trade association” means an organisation formed for the purpose of
20
furthering the trade interests of its members, or of persons represented
by its members, and
“subscription” does not include a payment to the association to the extent
that it is made for the purpose of financing any particular activity of the
association.
25
382
All-party parliamentary groups
(1)
An all-party parliamentary group is not a political organisation for the
purposes of this Part.
(2)
An “all-party parliamentary group” means an all-party group composed of
members of one or both of the Houses of Parliament (or of such members and
30
other persons).
383
Political expenditure exempted by order
(1)
Authorisation under this Part is not needed for political expenditure that is
exempt by virtue of an order of the Secretary of State under this section.
(2)
An order may confer an exemption in relation to—
35
(a)
companies of any description or category specified in the order, or
(b)
expenditure of any description or category so specified (whether
framed by reference to goods, services or other matters in respect of
which such expenditure is incurred or otherwise),

or both.
40

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 15 — Control of political donations and expenditure
174

(3)
If or to the extent that expenditure is exempt from the requirement of
authorisation under this Part by virtue of an order under this section, it shall
be disregarded in determining what donations are authorised by any
resolution of the company passed for the purposes of this Part.
(4)
An order under this section is subject to affirmative resolution procedure.
5
384
Donations not amounting to more than £5,000 in any twelve month period
(1)
Authorisation under this Part is not needed for a donation except to the extent
that the total amount of—
(a)
that donation, and
(b)
other relevant donations made in the period of 12 months ending with
10
the date on which that donation is made,

exceeds £5,000.
(2)
In this section—
“donation” means a donation to a political party or other political
organisation or to an independent election candidate; and
15
“other relevant donations” means—
(a)
in relation to a donation made by a company that is not a
subsidiary, any other donations made by that company or by
any of its subsidiaries;
(b)
in relation to a donation made by a company that is a
20
subsidiary, any other donations made by that company, by any
holding company of that company or by any other subsidiary of
any such holding company.
(3)
If or to the extent that a donation is exempt by virtue of this section from the
requirement of authorisation under this Part, it shall be disregarded in
25
determining what donations are authorised by any resolution passed for the
purposes of this Part.
Supplementary provisions
385
Minor definitions
(1)
In this Part—
30
“director” includes shadow director; and
“organisation” includes any body corporate or unincorporated
association and any combination of persons.
(2)
Except as otherwise provided, any reference in this Part to the time at which a
donation is made or expenditure is incurred is, in a case where the donation is
35
made or expenditure incurred in pursuance of a contract, any earlier time at
which that contract is entered into by the company.