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Documents to be incorporated in or accompany copies of articles issued by company

‘(1) Every copy of a company’s articles issued by the company must be accompanied by—

(a) a copy of any resolution or agreement relating to the company to which Chapter 3 applies (resolutions and agreements affecting a company’s constitution),

(b) where the company has been required to give notice to the registrar under section 35(2) (notice where company’s constitution altered by enactment), a statement that the enactment in question alters the effect of the company’s constitution,

(c) where the company’s constitution is altered by a special enactment (see section 35(4)), a copy of the enactment, and

(d) a copy of any order required to be sent to the registrar under section 36(2)(a) (order of court or other authority altering company’s constitution).

(2) This does not require the articles to be accompanied by a copy of a document or by a statement if—

(a) the effect of the resolution, agreement, enactment or order (as the case may be) on the company’s constitution has been incorporated into the articles by amendment, or

(b) the resolution, agreement, enactment or order (as the case may be) is not for the time being in force.

(3) If the company fails to comply with this section, an offence is committed by every officer of the company who is in default.

(4) A person guilty of an offence under this section is liable on summary conviction to a fine not exceeding level 3 on the standard scale for each occasion on which copies are issued, or, as the case may be, requested.

(5) For the purposes of this section, a liquidator of the company is treated as an officer of it.’.— [Margaret Hodge.]

Brought up, and read the First time.

19 Oct 2006 : Column 1086

Margaret Hodge: I beg to move, That the clause be read a Second time.

Madam Deputy Speaker: With this it will be convenient to discuss the following:

Government new clause 78— Resolutions to be forwarded to registrar.

Government new clause 79— Obligations of company with respect to articles etc.

Government new clause 80— Supplementary provisions where company’s constitution altered.

Government new clause 99— Notice to registrar of existence of restriction on amendment of articles.

Government new clause 100— Statement of compliance where amendment of articles restricted.

New clause 89— Unamendable articles—

‘(1) Notwithstanding anything in section 22, a company’s articles may provide that specified provisions of the articles may not be amended or repealed—

(a) except with the unanimous consent of the members, or

(b) in any circumstances.

(2) Provision for unamendable articles under this section may only be made in the company’s articles on formation.

(3) Provision for unamendable articles shall count for the purposes of this Chapter as provision for entrenchment.’.

Government amendments Nos. 688 and 206.

Amendment No. 790, in page 9, line 13, leave out Clause 22.

Government amendments Nos. 837 to 841 and 791.

Amendment No. 378, in page 9, line 31, Clause 23, leave out subsection (2).

Government amendment No. 792.

Amendment No. 379, in page 10, line 7, Clause 24, at end insert ‘by unanimous consent less one vote.’.

Amendment No. 380, in page 10, line 7, at end insert

Amendment No. 381, in page 10, line 7, at end insert

Government amendments Nos. 689 to 697.

Amendment No. 4, in page 15, line 23 , Clause 36, at end insert

‘or such longer time as the court allows’.

Amendment No. 3, in page 15, leave out lines 26 to 30 and insert—

‘(b) if the order—

(i) amends the company’s articles, or

(ii) amends a resolution or agreement to which Chapter 3 applies (resolutions and agreements affecting the company’s constitution), or

(iii) gives leave for the company to make any, or any specified, alteration in its articles,’.

Government amendments Nos. 698 to 702.

Amendment No. 93, in page 461, line 21, Clause 963, at end insert—

‘(f) make provision for entrenchment as referred to under section 22.

(3) The court’s order must be embodied in or annexed to every copy of the company’s articles issued by the company.’.

Government amendments Nos. 703 and 704.

19 Oct 2006 : Column 1087

Margaret Hodge: This series of clauses and amendments relates to a company’s constitution. Government new clauses 77 to 80 and amendments Nos. 206, 688 to 695 and 699 to 705 are drafting or minor technical amendments. They also make amendment No. 67, which is grouped with other amendments to part 19, unnecessary. Many of the changes made by these amendments have been prompted by Law Society comments or by amendments tabled by Opposition Members. They tidy up the drafting of various clauses that refer to documents of constitutional significance for companies, and we hope that some potential overlaps or ambiguities have been removed. Some cross-references have been added and some points of procedure clarified. We hope that the overall result is more internally consistent and user-friendly.

Amendment No. 696 has a long history, but its purpose is simply to tidy up the drafting of clause 34, following its amending in Committee, so that it states explicitly that the provisions of a company’s constitution take effect as if it was a contract between the company and its members. We are not changing the law—we are simply making it clearer that it means what it has been recognised to mean for many years, and we have removed an outdated reference to signing and sealing. We are all grateful to Lord Wedderburn for raising this issue in another place, and to the hon. Member for Huntingdon (Mr. Djanogly) for proposing in Committee the amendments that, as evidenced today, prompted us to think again about the clause.

James Brokenshire: I will largely confine my comments to amendment No. 790 and clause 22. This must be one of the most bizarre concepts in the Bill. Historically, members have been able to change their articles of association or amend their memorandums if they get 75 per cent. of the votes in a general meeting. The Government seem fixated with the concept of shareholders being able to entrench their rights, so that future members are unable to change the company’s constitution. The foremost question is why the Government want that to happen. We have seen no representations asking for the provision, but plenty of criticism. My hon. Friend the Member for Huntingdon (Mr. Djanogly) put that point in Committee, and the Minister replied:

It seems strange that the Government should base the entrenchment provisions on the requirements of the roughly 300 community interest companies in existence. There is neither interest in nor demand for entrenchment from large companies, small family companies, venture capital companies, or from any of the tens of thousands of other companies that exist.

In Committee, the Minister agreed that CICs would have separate legislation and would not be consolidated. However, if she wants to present arguments for entrenchment in relation to CICs, surely separate legislation is the best place to do that?
19 Oct 2006 : Column 1088
Amendments Nos. 790, 791 and 792 together would provide for those provisions to be deleted from the Bill. If I am given leave to do so, I should like to press amendment No. 790 to a Division, in order to test the House’s opinion on the matter.

I turn now to amendments Nos. 379 and 380. If the entrenchment clauses have to remain in the Bill, better provision should be made for removing them. I recognise that the Government have gone some way to accepting that through their introduction at an earlier stage of an amendment allowing entrenchment to be reversed by a unanimous vote. That was a step in the right direction. Furthermore, they propose to extend the provision to court orders that counter the entrenchment, and that is another welcome improvement. However, the Opposition believe that there is a need to go further, so amendment No. 379 allows for the fact that public companies always have more than one shareholder and that private companies, before 1989, had to have at least two. Many private companies still do have at least two shareholders, as they never got rid of the spare shareholder after 1989.

Public holding companies got around the provision by finding an individual—normally one of the directors—who would hold the second share, subject to a declaration of trust. That declaration meant that the director promised to act in accordance with the holding company’s wishes. In practice, those declarations were not always made, depending on the efficiency of the company secretary. Sometimes they get lost in the mists of time, and sometimes old forms get thrown away when a director leaves a company. As a result, getting unanimity can often be tough, and that is why we suggest that articles should be removed by unanimous resolution, less one vote.

Additionally, amendment No. 380 brings back into play a proposal originally put forward by Lord Hodgson. It would reduce to 90 per cent. the level of agreement required for the removal of entrenched articles. That 90 per cent. level would tie in with the amount required to buy out minorities in a takeover, and I also point out that 10 per cent. is the level needed to call a general meeting.

My main concern about the Government’s position in Committee was that if two individuals owned 100 per cent. of a company that they set up, they could at the outset put in place whatever provisions they wanted. The Minister came up with a compromise, saying that 100 per cent. of shareholders can end the entrenchment. That is an improvement, but we maintain that it is hardly most people’s idea of shareholder democracy. The Government need to make clear the concept behind their approach, as they have not yet done so.

We have tabled amendment No. 381 in accordance with the brief from the Institute of Directors in respect of the modernisation of company law. It states:

That is another option that the Government could use to replace their restrictive provisions to reflect the wishes of many small and large companies.

Turning to amendment No. 378, clause 23 provides for a notice of entrenchment to be filed, but if an entrenchment resolution is passed, surely the resolution filed at Companies House, together with the revised version of the articles filed, should be adequate. I cannot think of any other compliance provisions, so I question the purpose of the extra piece of paper, particularly given our desire to be deregulatory. Furthermore, the measures will increase regulation. The director must ask a lawyer to confirm that the new notice is compliant. Even if it is blatantly the case that it is compliant, doing so is a belt-and-braces safeguard. The Government measure is unnecessary and will lead to trouble, so I urge the Minister to drop it. We should consider how we can improve shareholder democracy, not restrict it with entrenched provisions.

I note the Minister’s comments on the contractual arrangement between companies and their members. I certainly welcome that clarification of the law, given the history of such measures. Unfortunately, time does not allow me to discuss the matter in greater detail, or to talk about Lord Wedderburn and various other learned, legal minds, but we certainly welcome that aspect of the Minister’s proposals.

David Howarth: I shall be brief, and shall refer only to amendment No. 790, which the hon. Member for Hornchurch (James Brokenshire) mentioned, and new clause 89, which I tabled with my hon. Friends and which takes exactly the opposite direction from his amendment. Our view, at least on formation, is that companies should be allowed to entrench provisions. We would allow them to set up an organisation in which people had certain rights that only the court could take away, and which could not be removed even by agreement of all the members.

There is no ideological difference between the hon. Gentleman and me. We simply have a different perspective on what the law is for. Some lawyers think that their job is to create new organisations and institutions for people, and to do so in the way that their client wants. That is largely my view—the law should allow such institutions to be created according to the wishes of the people setting them up. The hon. Gentleman and the hon. Member for Huntingdon (Mr. Djanogly) view the law from the opposite perspective, and are concerned with legal professionals who think that it is their job to sort out problems that have been set up by lawyers for other people. There is conflict in the law between those who create and those who dismantle, and I am in favour of the creation lobby, not the dismantling lobby. I urge the Government to choose our way forward rather than theirs, although I suspect that they may stick with their middle way.

19 Oct 2006 : Column 1090

Mr. Gummer: I would like to speak at length on this group of amendments, as some important issues are involved. However, I cannot do so because we have only two minutes before the guillotine falls, resulting in our failure to discuss the rest of the Bill. I shall just make the major point that the Government have failed, throughout proceedings on the Bill—I have looked at the record—to find anybody of any standing whatever who wants to include such a measure. I am always suspicious of Governments who want to regulate when no one wants them to do so. I am not suspicious of this Minister in particular, but I am suspicious of all Ministers. I am more suspicious of Labour Ministers, but I am suspicious of Ministers from all parties. I believe that Ministers have been led by the nose by civil servants in this case.

Someone, somewhere has decided that the provision is a good idea, and no one has discovered any reason why we should include it. We should not regulate if we do not need to do so. The Better Regulation Commission should look at the Bill, because we do not need this piece of regulation. No one has asked for it, and the House has not had a chance to debate it properly. It is another regulation that will pass into law without having been properly debated. The Minister will not even have time to answer me properly.

Margaret Hodge: I do not have time to answer the right hon. Gentleman properly, but the issue has been discussed many times—probably about five times. I simply draw his attention to the fact that the proposition before us was not invented by civil servants, but emerged from the company law review. It has been debated and discussed with all stakeholders over a very long period, and on that basis has some credibility. We debated it in Committee. We have one view from the Liberal Democrats and a completely opposite view from the Conservatives, while Labour Members stand where they always do—representing the vast majority of people in this country—

It being Four o’clock, Madam Deputy Speaker put forthwith the Questions necessary for the disposal of business to be concluded at that hour, pursuant to Order [17 October].

Question put and agreed to.

Clause read a Second time, and added to the Bill.

Question, That new clauses 78 to 80, 84, 85, 87, 88A, 92 to 96 and 98 to 100 be brought up, read the First and Second time and added to the Bill, put and agreed to.

Question, That amendments Nos. 470, 471, 823, 472, 764, 718, 765, 719, 720, 473, 721, 766, 722, 688 and 206 be made, put and agreed to.

Amendment proposed: No. 790, in page 9, line 13, leave out clause 22.— [James Brokenshire.]

Question put, That the amendment be made:—

The House divided: Ayes 116, Noes 304.
Division No. 318]
[4.02 pm


Ainsworth, Mr. Peter
Amess, Mr. David
Atkinson, Mr. Peter
Bacon, Mr. Richard
Barker, Gregory
Baron, Mr. John
Bellingham, Mr. Henry
Blunt, Mr. Crispin
Bone, Mr. Peter
Bottomley, Peter

Brady, Mr. Graham
Brazier, Mr. Julian
Brokenshire, James
Burns, Mr. Simon
Burrowes, Mr. David
Burt, Alistair
Butterfill, Sir John
Carswell, Mr. Douglas
Clappison, Mr. James
Clark, Greg
Clarke, rh Mr. Kenneth
Clifton-Brown, Mr. Geoffrey
Curry, rh Mr. David
Davies, David T.C. (Monmouth)
Davies, Philip
Davies, Mr. Quentin
Davis, rh David (Haltemprice and Howden)
Dorries, Mrs. Nadine
Duddridge, James
Duncan, Alan
Dunne, Mr. Philip
Evans, Mr. Nigel
Evennett, Mr. David
Fabricant, Michael
Garnier, Mr. Edward
Gauke, Mr. David
Gibb, Mr. Nick
Goodman, Mr. Paul
Goodwill, Mr. Robert
Gove, Michael
Gray, Mr. James
Grayling, Chris
Green, Damian
Greening, Justine
Grieve, Mr. Dominic
Gummer, rh Mr. John
Hague, rh Mr. William
Hands, Mr. Greg
Hayes, Mr. John
Heald, Mr. Oliver
Hendry, Charles
Herbert, Nick
Hoban, Mr. Mark
Hogg, rh Mr. Douglas
Hollobone, Mr. Philip
Holloway, Mr. Adam
Horam, Mr. John
Howarth, Mr. Gerald
Hunt, Mr. Jeremy
Hurd, Mr. Nick
Jack, rh Mr. Michael
Jackson, Mr. Stewart
Johnson, Mr. Boris
Jones, Mr. David
Key, Robert
Lait, Mrs. Jacqui
Lancaster, Mr. Mark
Leigh, Mr. Edward
Letwin, rh Mr. Oliver
Lewis, Dr. Julian
Lilley, rh Mr. Peter
Loughton, Tim
Luff, Peter
Mackay, rh Mr. Andrew
Main, Anne
Malins, Mr. Humfrey
Maples, Mr. John
Mates, rh Mr. Michael
Miller, Mrs. Maria
Milton, Anne
Moss, Mr. Malcolm
Murrison, Dr. Andrew
Newmark, Mr. Brooks
O'Brien, Mr. Stephen
Osborne, Mr. George
Ottaway, Richard
Paice, Mr. James
Pelling, Mr. Andrew
Penning, Mike
Penrose, John
Pickles, Mr. Eric
Prisk, Mr. Mark
Randall, Mr. John
Redwood, rh Mr. John
Rifkind, rh Sir Malcolm
Rosindell, Andrew
Ruffley, Mr. David
Scott, Mr. Lee
Simmonds, Mark
Spicer, Sir Michael
Spring, Mr. Richard
Stuart, Mr. Graham
Swayne, Mr. Desmond
Turner, Mr. Andrew
Tyrie, Mr. Andrew
Vaizey, Mr. Edward
Vara, Mr. Shailesh
Walker, Mr. Charles
Wallace, Mr. Ben
Watkinson, Angela
Whittingdale, Mr. John
Wiggin, Bill
Willetts, Mr. David
Wilson, Mr. Rob
Yeo, Mr. Tim
Young, rh Sir George
Tellers for the Ayes:

Andrew Selous and
Mr. Tobias Ellwood

Abbott, Ms Diane
Ainger, Nick
Ainsworth, rh Mr. Bob
Alexander, Danny
Allen, Mr. Graham
Anderson, Janet
Atkins, Charlotte
Austin, Mr. Ian
Bailey, Mr. Adrian
Baird, Vera
Balls, Ed
Banks, Gordon
Barlow, Ms Celia
Barrett, John
Barron, rh Mr. Kevin
Battle, rh John
Bayley, Hugh
Begg, Miss Anne
Beith, rh Mr. Alan
Benn, rh Hilary
Benton, Mr. Joe
Berry, Roger
Betts, Mr. Clive
Blackman-Woods, Dr. Roberta
Blizzard, Mr. Bob
Borrow, Mr. David S.

Bradshaw, Mr. Ben
Brooke, Annette
Brown, Lyn
Brown, rh Mr. Nicholas
Brown, Mr. Russell
Bruce, rh Malcolm
Bryant, Chris
Buck, Ms Karen
Burden, Richard
Burgon, Colin
Burnham, Andy
Burstow, Mr. Paul
Burt, Lorely
Butler, Ms Dawn
Byrne, Mr. Liam
Cairns, David
Campbell, Mr. Alan
Campbell, Mr. Ronnie
Caton, Mr. Martin
Cawsey, Mr. Ian
Chapman, Ben
Chaytor, Mr. David
Clapham, Mr. Michael
Clark, Ms Katy
Clark, Paul
Clarke, rh Mr. Charles
Clarke, rh Mr. Tom
Clelland, Mr. David
Coaker, Mr. Vernon
Coffey, Ann
Cohen, Harry
Connarty, Michael
Cooper, Yvette
Corbyn, Jeremy
Cousins, Jim
Crausby, Mr. David
Creagh, Mary
Cruddas, Jon
Cummings, John
Cunningham, Mr. Jim
Cunningham, Tony
Davey, Mr. Edward
David, Mr. Wayne
Davidson, Mr. Ian
Dean, Mrs. Janet
Devine, Mr. Jim
Dhanda, Mr. Parmjit
Dismore, Mr. Andrew
Dobbin, Jim
Donohoe, Mr. Brian H.
Doran, Mr. Frank
Dowd, Jim
Drew, Mr. David
Dunwoody, Mrs. Gwyneth
Eagle, Angela
Efford, Clive
Ellman, Mrs. Louise
Engel, Natascha
Ennis, Jeff
Farrelly, Paul
Featherstone, Lynne
Field, rh Mr. Frank
Fisher, Mark
Fitzpatrick, Jim
Flello, Mr. Robert
Flint, Caroline
Flynn, Paul
Follett, Barbara
Foster, Mr. Michael (Worcester)
Foster, Michael Jabez (Hastings and Rye)
Francis, Dr. Hywel
Gardiner, Barry
George, Andrew
George, rh Mr. Bruce
Gerrard, Mr. Neil
Gibson, Dr. Ian
Godsiff, Mr. Roger
Goggins, Paul
Goodman, Helen
Griffith, Nia
Griffiths, Nigel
Grogan, Mr. John
Gwynne, Andrew
Hall, Mr. Mike
Hall, Patrick
Hamilton, Mr. David
Hamilton, Mr. Fabian
Harman, rh Ms Harriet
Harris, Mr. Tom
Harvey, Nick
Healey, John
Heath, Mr. David
Hendrick, Mr. Mark
Heppell, Mr. John
Hesford, Stephen
Hewitt, rh Ms Patricia
Heyes, David
Hill, rh Keith
Hillier, Meg
Hodge, rh Margaret
Hodgson, Mrs. Sharon
Hoey, Kate
Hood, Mr. Jimmy
Hoon, rh Mr. Geoffrey
Hope, Phil
Hopkins, Kelvin
Horwood, Martin
Howarth, David
Howarth, rh Mr. George
Howells, Dr. Kim
Hoyle, Mr. Lindsay
Hughes, rh Beverley
Hughes, Simon
Humble, Mrs. Joan
Hutton, rh Mr. John
Iddon, Dr. Brian
Ingram, rh Mr. Adam
Irranca-Davies, Huw
Jackson, Glenda
James, Mrs. Siân C.
Jenkins, Mr. Brian
Johnson, Ms Diana R.
Jones, Lynne
Jones, Mr. Martyn
Jowell, rh Tessa
Joyce, Mr. Eric
Keeble, Ms Sally
Keeley, Barbara
Keen, Alan
Keen, Ann
Kelly, rh Ruth
Kemp, Mr. Fraser
Kennedy, rh Jane
Khabra, Mr. Piara S.
Khan, Mr. Sadiq
Kidney, Mr. David
Knight, Jim
Kumar, Dr. Ashok
Lamb, Norman
Lammy, Mr. David
Laws, Mr. David
Laxton, Mr. Bob

Lazarowicz, Mark
Lepper, David
Levitt, Tom
Linton, Martin
Lloyd, Tony
Love, Mr. Andrew
Lucas, Ian
Mackinlay, Andrew
MacShane, rh Mr. Denis
Mahmood, Mr. Khalid
Malik, Mr. Shahid
Mallaber, Judy
Mann, John
Marris, Rob
Marsden, Mr. Gordon
Marshall, Mr. David
Marshall-Andrews, Mr. Robert
McAvoy, rh Mr. Thomas
McCabe, Steve
McCafferty, Chris
McCarthy, Kerry
McCarthy-Fry, Sarah
McDonagh, Siobhain
McFall, rh John
McGovern, Mr. Jim
McGuire, Mrs. Anne
McIsaac, Shona
McKechin, Ann
McKenna, Rosemary
McNulty, Mr. Tony
Meacher, rh Mr. Michael
Meale, Mr. Alan
Merron, Gillian
Michael, rh Alun
Miliband, Edward
Miller, Andrew
Mitchell, Mr. Austin
Moffatt, Laura
Mole, Chris
Moran, Margaret
Morden, Jessica
Morgan, Julie
Morley, Mr. Elliot
Mountford, Kali
Mudie, Mr. George
Mullin, Mr. Chris
Munn, Meg
Murphy, Mr. Jim
Naysmith, Dr. Doug
O'Brien, Mr. Mike
O'Hara, Mr. Edward
Olner, Mr. Bill
Osborne, Sandra
Palmer, Dr. Nick
Pearson, Ian
Plaskitt, Mr. James
Pope, Mr. Greg
Prentice, Bridget
Prentice, Mr. Gordon
Price, Adam
Prosser, Gwyn
Pugh, Dr. John
Purchase, Mr. Ken
Purnell, James
Raynsford, rh Mr. Nick
Riordan, Mrs. Linda
Robertson, John
Robinson, Mr. Geoffrey
Rooney, Mr. Terry
Rowen, Paul
Ruane, Chris
Ruddock, Joan
Russell, Bob
Russell, Christine
Ryan, Joan
Salter, Martin
Shaw, Jonathan
Sheridan, Jim
Simon, Mr. Siôn
Simpson, Alan
Singh, Mr. Marsha
Skinner, Mr. Dennis
Slaughter, Mr. Andrew
Smith, rh Mr. Andrew
Smith, Geraldine
Smith, rh Jacqui
Smith, John
Snelgrove, Anne
Southworth, Helen
Spellar, rh Mr. John
Starkey, Dr. Phyllis
Stewart, Ian
Stoate, Dr. Howard
Strang, rh Dr. Gavin
Straw, rh Mr. Jack
Stringer, Graham
Stuart, Ms Gisela
Stunell, Andrew
Sutcliffe, Mr. Gerry
Swinson, Jo
Tami, Mark
Taylor, Ms Dari
Taylor, David
Teather, Sarah
Thornberry, Emily
Timms, rh Mr. Stephen
Tipping, Paddy
Todd, Mr. Mark
Touhig, rh Mr. Don
Trickett, Jon
Truswell, Mr. Paul
Turner, Dr. Desmond
Turner, Mr. Neil
Ussher, Kitty
Vis, Dr. Rudi
Walley, Joan
Waltho, Lynda
Wareing, Mr. Robert N.
Watson, Mr. Tom
Watts, Mr. Dave
Weir, Mr. Mike
Whitehead, Dr. Alan
Wicks, Malcolm
Williams, Mrs. Betty
Williams, Mr. Roger
Willott, Jenny
Wills, Mr. Michael
Winterton, rh Ms Rosie
Wood, Mike
Woolas, Mr. Phil
Wright, Mr. Anthony
Wright, David
Wright, Mr. Iain
Wright, Dr. Tony
Wyatt, Derek
Younger-Ross, Richard
Tellers for the Noes:

Mr. Frank Roy and
Liz Blackman
Question accordingly negatived.
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