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In Committee, the Ministers response was that a company of any size should be aware of a suspect application straight away, and that if company directors were given too long, there would be a risk of abuse on the part of the company. However, in its brief of 2 October, the Confederation of British Industry stated that it did not regard an extension of the period as an invitation to abuse the application process, but as
an opportunity for companies to consider whether requests were for a proper purpose or not, to take advice, and to respond appropriately. We continue to support the CBIs view, and that is another reason why we tabled amendment No. 384.
The Government intend to provide that people have to identify the purpose for which the information is to be used. We tabled a probing amendment in Committee stating that that information should be precise. For example, what if the reason given is that the applicant wants to inform shareholders of an important matter for themselves, the company, humanity, or the environment without stating that he or she intends to ask shareholders to sell their shares as a protest? As hon. Members can see, this could be a complicated matter. In Committee, the Minister did not accept that our proposed amendment would add much to the definition of proper purpose, but we think that it would be helpful if the Government at least issued some guidance.
A further approach, which we see as being complementary to the Governments approach, is to provide companies and individuals with the right to apply to the court to close the register if the availability of the register creates, or is likely to create, a serious risk that a member of the company or connected parties will be subject to violence or intimidation. In other words, not all companies would be thrown into the same basket. Some companies or individuals may be at such risk or under such pressure that they should be treated on a stand-alone basis. The provisions could be tacked on to the existing provisions as a further level of protection, which might be more realistic, more accessible and certainly cheaper for smaller companies that need protection.
Furthermore, the existing clause works only for a company to seek protection in respect of all its members. It does not provide for an individual member to seek to protect his or her details. We therefore tabled new clause 17 to allow for that. The theme of individual rights to allow people to protect themselves, rather than relying on the company to seek protection for them, has also been taken up by the CBI. Our final amendment, No. 383, as I mentioned earlier, was proposed by the CBI for that purpose.
The amendment is complementary to the issue of directors home addresses and allows for the home address of a registered shareholder in a listed company or a company traded on a regulated market not to be disclosed if the shareholder does not wish it. In short, the shareholder has a legal right to require that his home address be omitted from the register of members which the company may be asked to supply to a third party, and from the public register of shareholders maintained at Companies House. In the past, the Government have told us that that is unnecessary because shareholders can use nominees. In practice, many smaller shareholders will not do that, so we see the CBIs point.
In Committee the Liberal Democrats provided a further option, which we thought was worthy of consideration. Their amendment provided for a company, by members resolution, to stop inspections of the register of members, on the basis that it agrees to pass on lawful communications. Although we thought that was a step too far in terms of restricting access to the
register, we can see the importance of the second strand of the Liberal Democrat amendment. If the register is closed, the company must take on the responsibility of passing on communications. We therefore tabled new clause 16, reflecting our joint proposal.
The Minister dismissed our comments on this point in Committee as very wide ranging. She was concerned that we were restricting long-held principles on public access to the register of members. That is not the case. All we are doing is allowing a court in extremis to protect the small minority of companies whose details are highly sensitive, for whatever reason. That would never be an everyday occurrence and a court decision to close the register would be taken only on a company by company basis and, I imagine, very carefully.
Amendment No. 683 tabled by the hon. Member for Newcastle upon Tyne, Central (Jim Cousins) deals with initial shareholders. I believe that is covered by the Bill as drafted, although the Minister may wish to elaborate on the point. With reference to amendment No. 358, the register is a register of legal owners. We have supported the concept of giving rights, votes and information in particular to beneficial owners of shares. We were delighted to see the Government move on the matter. However, we see no reason to change the underlying nature of ownership split between legal and beneficial owners. I look forward to hearing the Ministers views.
Paul Farrelly: I shall speak briefly against new clauses 16 and 17 and amendment No. 383. We spent six or seven weeks in Committee discussing the matter at great length, so I shall not repeat all the arguments against. Essentially, they have to do with regulation, law enforcement and the shareholder protection regime in the UK. However, I shall have to repeat some of the arguments, as the Conservatives clearly have not listened. I shall pay a compliment to the hon. Member for Cambridge (David Howarth). The Liberal Democrats tabled similar amendments in Committee and it is to their credit that they have not advanced them again on the Floor of the House.
As I said in my intervention, I understand the constituency interest of the hon. Member for Huntingdon (Mr. Djanogly), arising from the position of Huntingdon Life Sciences, but with respect to animal rights terrorists, by advancing those new clauses, he is using a sledgehammer to crack a few nuts.
We had a similar situation at a guinea pig farm in Staffordshire, where the animal rights terrorists went as far as exhuming a body and kidnapping the bones, and they also occur elsewhere in the country. But the police have not been beating a path to my door saying that a clause such as this is essential to help them to prosecute the perpetrators. More fundamentally and importantly, investors, the Association of British Insurers, the British pension funds, City banks and the stock exchange are also not clamouring for clauses such as this in the Companies Act because they are aware of the wider consequences for shareholder protection and company regulation.
The reason for that is that new clauses 16 and 17 are drawn extremely widely. Amendment No. 383 institutes an absolute right to shareholder secrecy, and I note the comments of the hon. Member for Huntingdon on my intervention that he will not put that to a vote later. Like him, I do not take that amendment very seriously, but even the new clauses are drawn extremely widely. The test is that the company has to show that its members or their families run the risk of being subject to violence and intimidation.
In Committee, I gave an example from my days as an investigative journalist when I pursued a bank director in Russia whom I considered to be a dodgy stockbroker. He was pursuing various deals in Moscow, which in those days during liberalisation was the equivalent of the wild east. Because he had a grudge against a number of other people whom he came up against in negotiations, he let it be known that one particular director of a Dutch bank was the blocking point to a big deal with Gazprom. The Dutch bank directors house in Moscow was subsequently set on fire when his family was in it.
In such circumstances, a major bank might come to the Secretary of State and say that it operates in Russia or in a lawless country and that there is a severe danger that if the identities and addresses of not only their employees but their shareholders are disclosed, they may be subject to the risk of violence and intimidation. The companies that are most difficult to regulate and enforce laws against, and funnily enough that are most regularly involved in fraud, are the very same companies that operate offshore. They are usually small companies, operating in dangerous environments. To institute a right on their behalf of secrecy of membership would make regulation and shareholder protection much more difficult.
Mr. Hogg: The hon. Gentleman makes a perfectly fair point, but if there was a reviewing mechanism whereby the reviewing body had to take account of public interest and proportionality, many of the objections that he has made against new clauses 16 and 17 would fall away.
Paul Farrelly: I accept the right hon. and learned Gentlemans point. My point is that the clause is drawn widely, and as he himself has pointed out there is no right of appeal against this for journalists such as myself or other agencies if the Secretary of State were to err on the side of caution and confer such a right.
Paul Farrelly: I am illustrating the general point that companies operating in dangerous environments may make use of this sort of clause to try to confer, for illegitimate reasons, secrecy on their shareholder base. To summarise the arguments that I made in Committee, effectively, in many instances, that would be tantamount to a fraudsters charter, which would block the legitimate efforts of myself and former colleaguesI have spent far too many hours than I care to remember meticulously tracking down connections between shareholders on the basis of their addresses.
Mr. Elfyn Llwyd (Meirionnydd Nant Conwy) (PC): The hon. Gentleman pursues an interesting line of thought, but does he appreciate that if the Secretary of State carefully looks at the whole matter at the beginning, he is unlikely to sanction a fraudulent operation such as the hon. Gentleman describes?
The bar to legitimate investigative journalism also applies to the activities of law enforcement agencies such as the Serious Fraud Office and the stock exchange. In Committee, I advised the hon. Member for Huntingdon to ask the Cambridgeshire constabulary fraud squad whether that approach would hamper its efforts.
More widely, new clause 16 will damage shareholder protection. If the rights of secrecy are granted to a company, which may have stocks on which people have taken a punt, the shareholders may not know who controls the company. A concert party could be legitimised through such shareholder secrecy.
David Howarth: The hon. Gentleman made a number of important comments in Committee, which have influenced thinking on both sides of the House. However, his point that the police and investigative journalists would be excluded has been taken into account in the drafting of new clause 16, which is very different from the provision that we discussed in Committee. New clause 16(5) would allow the Secretary of State to prescribe circumstances in which the information would be given to, for example, the authorities. The hon. Gentleman has made a serious point, but new clause 16 takes it into account.
Paul Farrelly: I take the hon. Gentlemans point, but the Secretary of State may not be in a position to foresee all sorts of circumstances, just as they may not know all the facts about a particular company behind a particular application. If the facts were known, there would be no impediment, because the company would already have been investigated.
On shareholder protection, one company may wish to take over another company, but if it is unable to access the share register, the conduit for takeovers or for any communications with shareholders would be the company itself. If there are question marks about a company, one would not want it to be the master of the information that goes to its shareholders, and similar arguments also apply to credit protection.
New clause 16 will put the Secretary of State in an impossible position. If an application is made, the likelihood is that the Secretary of State will err on the side of cautionin other words, they will be damned if they do and damned if they do not. If a company were to tell them that there was serious risk of violence and they said, I do not believe it, if the violence were to occur, then the Secretary of State would be damned. Equally, if they were to grant an order and the company turned out to be fraudulent, they would be damned again.
Paul Farrelly: I have listened carefully to the hon. Gentleman, who listened carefully to the debate in Committee because of his particular constituency interest. I suspect that taking a sledgehammer to crack a few nuts would drive a coach and horses through effective shareholder protection and company regulation in this country, which is why I oppose new clauses 16 and 17 and amendment No. 383.
David Howarth: The hon. Member for Huntingdon (Mr. Djanogly) has described the circumstances that have given rise to new clauses 16 and 17. I agree with other hon. Members who have spoken that amendment No. 383 is far too draconian, which is why I cannot see any hon. Member supporting it. The issue therefore concerns new clause 16, which is a serious proposition that responds to the debate in Committee by combining the various proposals.
I freely admit to the House that the proposals that we put to the Committee were not perfect, by any means, and we listened to that debate carefully. The question is whether this composited new clause deals with the objections that were raised in Committee and again today. On the whole, I think that it does.
The key question is how far to go in a direction that the Government have already agreed on. Clauses 117 and 118 go a long way towards protecting shareholders in the circumstances of violence and intimidation that have been described. The hon. Member for Newcastle-under-Lyme (Paul Farrelly), who has made several important contributions to the debate, exaggerates rather when he says that this extra bit of protection is a fundamental threat, but the existing clauses are not. In fact, the distance between what the Government propose and what the new clause proposes is very small.
Paul Farrelly: One of the main points that I was trying to make is that the clauses put the matter in the hands of the Secretary of State, who will be put in an impossible position in being forced to err on the side of caution. That opens the door more widely to the aforementioned coach and horses.
David Howarth: I was going to come that later, but we may as well deal with it now. The hon. Gentleman refuted his own point as he made it. He said that the Secretary of State will face two possible errors, both of which would be equally embarrassing. His conclusion that they would always err on the side of caution was not shown by his remarks, because that would be true only if the error in one direction was more embarrassing than that in the other direction.
The issue before us is the extent to which the Governments proposal is enough to satisfy the legitimate concernsnot only constituency concernsthat have been raised by Opposition Members. The Government point to clause 117(4) as providing adequate protection, but what is crucial is whether it is as much as is necessary There is no doubt that it offers a lot of protection, because the register is effectively closed in the circumstances where it applies.
Mr. Hogg: The problem with clause 117 is that the court must know what are the motives of the person seeking the inspection, yet they would often have a covert motive that would not be known to the court.
David Howarth: I thank the right hon. and learned Gentleman for his comment. That is a significant problem with the way in which clause 117 is draftednamely, in terms of purposes. As he says, it is often difficult for courts to have access to the purposes of individuals. Subsection (4) makes use of that concept when it refers to
requests made for a similar purpose.
may direct that the company is not to comply with any such request.
That means that the company could be subject to continued harassment in the courts whereby people could make a new request saying that it is not for similar purposes and is therefore not such a request. Even if the court had made an order under clause 117(4), the company, especially in the case of a small business or a business without much in the way of resources, could come under great pressure from organised campaigners working on behalf of people whose purposes were probably nefarious. There is therefore a problem with the protection that clause 117(4) provides. That leads to the question of what other protection might be offered in such circumstances.
Mr. Llwyd: I appreciate that the hon. Gentleman is an expert in law and I am sure that that applies to company law, too. However, he describes circumstances in which someone was intent on taking a matter to court time after time to try to break through. Would not the court take the view that that constituted vexatious litigation, and would not such persons be ruled out?
David Howarth: As I understand the system, the Attorney-General would have to declare people to be vexatious litigants. That would lead to the problem that the hon. Member for Newcastle-under-Lyme outlined of putting Ministers in a difficult position.
Mr. Djanogly: Many shareholders could buy one share each or many people could ask for access to the register, all with slightly different reasons for doing that, but with the same underlying vexatious purposes. That would mean a series of cases that would keep the company in court.
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