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Session 2005 - 06
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Standing Committee Debates
Company Law Reform Bill [Lords]

Company Law Reform Bill [Lords]

The Committee consisted of the following Members:

Chairmen: Mr. Eric Illsley, †John Bercow
Baird, Vera (Parliamentary Under-Secretary of State for Constitutional Affairs)
Blunt, Mr. Crispin (Reigate) (Con)
Brokenshire, James (Hornchurch) (Con)
Burt, Lorely (Solihull) (LD)
Davies, Mr. Quentin (Grantham and Stamford) (Con)
Djanogly, Mr. Jonathan (Huntingdon) (Con)
Ellman, Mrs. Louise (Liverpool, Riverside) (Lab/Co-op)
Ennis, Jeff (Barnsley, East and Mexborough) (Lab)
Farrelly, Paul (Newcastle-under-Lyme) (Lab)
Greening, Justine (Putney) (Con)
Hall, Patrick (Bedford) (Lab)
Hodge, Margaret (Minister for Industry and the Regions)
Howarth, David (Cambridge) (LD)
Hunter, Mark (Cheadle) (LD)
Jones, Mr. David (Clwyd, West) (Con)
Joyce, Mr. Eric (Falkirk) (Lab)
McCabe, Steve (Birmingham, Hall Green) (Lab)
O'Brien, Mr. Mike (Solicitor-General)
Palmer, Dr. Nick (Broxtowe) (Lab)
Singh, Mr. Marsha (Bradford, West) (Lab)
Ussher, Kitty (Burnley) (Lab)
Vara, Mr. Shailesh (North-West Cambridgeshire) (Con)
Vaz, Keith (Leicester, East) (Lab)
Alan Sandall, Committee Clerk
† attended the Committee

Standing Committee D

Thursday 29 June 2006

[Mr. John Bercow in the Chair]

Company Law Reform Bill [Lords]

Clause 277

Expenses of circulation
Amendment moved [this day]: No. 337, in clause 277, page 127, line 36, at end add
‘as certified by the company's auditors from time to time.’.—[James Brokenshire.]
1 pm
The Chairman: I remind the Committee that with this we are discussing the following amendments:No. 240, in clause 299, page 134, line 44, leave out ‘public’.
No. 241, in clause 299, page 135, line 4, leave out ‘in complying’ and insert
‘incurred in printing and distributing a statement so as to comply’.
No. 242, in clause 299, page 135, line 7, leave out paragraph (b).
James Brokenshire (Hornchurch) (Con): I was debating the slightly different approach to cost in clause 299, “Expenses of circulating members’ statement”, in the context of a general meeting. The costs in that clause appear to be tied to the requirement to print and distribute the relevant statement.
In the context of clause 277, what protection does there need to be in respect of expenses that might be charged to a member for the cost of circulating the relevant statement or resolution? In simple terms, the amendment would ensure that there are checks and balances, that members are not taken advantage of, and that costs that are not reasonable are not required to be paid to or by members as a precondition of the circulation of a resolution or a statement.
Clause 288 appears to contain the power of a member to call a meeting at the company’s expense which, although I appreciate that it is not the same, touches on similar issues in terms of the ability to require the convening of a general meeting which could be used for the purposes of considering a resolution. In relation to clause 288 the reverse appears to apply, and shareholders may convene a meeting at the company’s cost without having any expense in those circumstances.
The amendment seeks clarification of the issue of expense generally. If shareholders are obliged to meet the costs—I can see that they might be, to ensure that the company is not prejudiced or disadvantaged—there should be appropriate methods of ensuring that they can be checked, audited or measured so that shareholders do not have to bear inappropriate costs.
Secondly, if the directors asked for an unreasonable sum before circulating a resolution, they would not be complying with the relevant provisions, so they would be committing an offence. As that is within the framework of the legislation, further protections and safeguards are unnecessary. I am sure the hon. Gentleman would accept that the expenses incurred are minimal or relatively small. They certainly do not justify the costs of auditing, so I hope he will withdraw the amendment.
Clause 299 makes provisions for how the expenses for a members’ statement should be covered. Subsection (1) gives members of a company a new right to have a statement relating to an annual general meeting circulated at the company’s expense if their request is received in appropriate time before the end of the financial year preceding the meeting. The provision applies only to public companies, because only public companies are required to hold AGMs. It would not be appropriate to apply the requirement to private companies, as amendment No. 240 would do, as we will no longer require private companies to have a statutory AGM.
Clause 299(2) sets out what should happen when the criteria for a members’ statement being circulated at the company’s expense are not met. I am not sure from what the hon. Gentleman said what costs he is seeking to prevent a company from claiming. The expenses of complying with clause 298 are simply those of circulating the statement. In any event, the amendment fails to take into account electronic communications, which may mean that the company does not incur printing costs but only relatively minor costs through e-mailing people. An unintended consequence of the amendment could be to deter companies from using cheaper forms of communication such as e-mail because they want to be sure of claiming back costs.
Clause 299(2) also contains a provision whereby if the criteria for a statement to be circulated at a company’s expense are not met, the company is let off circulating it if members have not tendered sufficient costs to meet the expenses. To remove that provision would simply encourage the occasional frivolous or disruptive request for the circulation of material. Members requesting a statement will be able to claim back their money if the general membership resolves that the company should pay.
The hon. Gentleman referred to clause 288, which provides a remedy for members when directors fail to call a meeting at their request. In those circumstances it is appropriate to require the company to pay expenses for members. I hope that, with those explanations, he will withdraw the amendment.
James Brokenshire: The Minister’s main point was that if companies seek to misuse the provisions on members’ statements by adding costs, they will be committing an offence. That was her most powerful argument and a valid point, and it is good that it is on the record. The message will be sent that if somebody seeks to use the provisions to add inappropriate costs as a means of disincentivising shareholders from exercising their rights, that will be an offence and will carry commensurate sanctions. In the light of that powerful argument, it would be wrong for me to detain the Committee further.
If a company has a large shareholder base the cost of sending of hard copies might not be huge but could be significant. I hear what the Minister says about that and on sanctions. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 277 ordered to stand part of the Bill.

Clause 278

Application not to circulate members’ statement
Question proposed, That the clause stand part of the Bill.
James Brokenshire: I have just one small point on the clause. We touched this morning on a company’s right to apply for relief in the event that clause 275, on members requiring the circulation of a written resolution, is abused. Such an application can be made by a company or
“another person who claims to be aggrieved”.
How wide is that intended to extend? Will anyone who feels aggrieved have locus standi? What is the ambit of that provision?
Margaret Hodge: That reference in clause 278 mirrors the general meetings provisions in clause 300, which is entitled “Application not to circulate members’ statement”. So those words are just a restatement of the provisions in clause 300. But the answer to the hon. Gentleman’s specific question is yes.
May I take a slight liberty? This morning, I made an error, which I would like to correct, if I can. During the exchange on clause 271, there was a slight confusion. The hon. Gentleman asked whether the Bill would allow a company to use its articles to override the written resolution procedures for statutory resolutions. I think that I answered yes, but apparently the answeris no.
Mark Hunter (Cheadle) (LD): It was close.
Margaret Hodge: There were two possible answers, so I had a 50 per cent. chance of getting it right, but I got it wrong.
It is important for the decision-making procedures of a company that the articles cannot create alternative written resolution procedures or require meetings. That is the effect of clause 283. That is quite different from the ability of companies to entrench provisions in their articles, as we discussed earlier. For example, if a company wishes, on the agreement of all its members, to entrench higher than the 75 per cent. majority, it may do so. However, it is important for the protection of minority shareholders that the articles cannot require statutory resolutions to be taken in a meeting. Otherwise, it would limit the rights of members to require the circulation of written resolutions and accompanying statements on a number of key matters, and remove a particularly important new right for a member of the scheme.
James Brokenshire: I am grateful for the clarification on clause 271. Outsiders watching these proceedings can be sure that we are clear about the ambit and operation of that clause in the context of clause 283—the clause to which I was referring in our earlier debate.
I heard what the Minister said about the ambit of clause 278. In essence, it covers anybody who might be interested, and therefore is fairly wide-ranging. I do not know whether further clarification is on offer, but it does not sound like it. On that basis, I am content with what she said, and shall not press the matter.
Question put and agreed to.
Clause 278 ordered to stand part of the Bill.

Clause 279

Procedure for signifying agreement to written resolution
James Brokenshire: I beg to move amendmentNo. 228, in clause 279, page 128, line 4, leave out ‘acting’ and insert ‘duly authorised to act’.
Clause 279 deals with the procedure for signifying agreement to a written resolution. Again, this is a probing amendment seeking clarification on how that would take effect. Under the provisions, a member is deemed to be bound
“when the company receives from him (or from someone acting on his behalf) an authenticated document...identifying the resolution...and...indicating his agreement”.
Authentication appears to relate to the document, rather than to its execution. I therefore want to probe in relation to the protections that might be afforded to ensure the avoidance of any potential for fraud or for a person to intercept and return an authenticated document—purportedly on the shareholder’s behalf—on which, it appears, the company could be automatically reliant.
1.15 pm
Obviously, we are entering a new and different world, with e-commerce and the use of electronic signatures. Subsection (4) says:
“A written resolution is passed when the required majority...have signified their agreement”,
but subsection (3) says that once something is signified it “may not be revoked.”
The issue is slightly technical, but the purpose of the amendment is to say that the person is duly authorised to act on the member’s behalf, so as to make it clear that there must be some formal authorisation.
Traditionally, that has been done through such means as power of attorney or other appropriate legal methods. However, the company should not be able merely to accept the receipt of a document on behalf of another person without a requirement to check that that person has been duly authorised to execute the document on the other person’s behalf. We need to ensure that there is proper execution and that such provisions are not capable of being misused. I hope that the Minister can clarify the manner in which authorisation is to be provided and give some reassurance that the system cannot be misused in some way.
David Howarth (Cambridge) (LD): Does the hon. Gentleman mean through the amendment to exclude the possibility of the company taking apparent authority to be enough? Is it his view that there should have to be actual authority?
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