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Lord Hodgson of Astley Abbotts: My Lords, I am extremely grateful to the Minister for his reassurance on the status of the new clauses that the Government are introducing. The fact that no new legal developments are intended, except in so far as he explained, is a critical reassurance to practitioners and to the country at large. I am also grateful for the Minister’s remarks on a private company purchasing its own shares and on the fact that the abolition of the “whitewash” procedure will not resurrect the common law prohibitions, which has been a cause of much concern externally.
Generally, we share the Minister’s view—indeed, we argued it in Grand Committee on 15 March—that there is a strong argument for consolidation. On that date we discussed pre-emption and allotment—a part of company law frequently considered by practitioners. We argued that to have it straddling two or three Acts was not helpful. However, the Government have sought to address a wider range of topics with these amendments, as the Minister explained. As the Minister pointed out, if this consolidation were to take place, account would have to be taken of the fact that commercial practice develops rather faster than the measured pace of primary statute law.
At an earlier stage the Minister listed three areas where it was believed that some mechanism for updating through secondary legislation would be needed, of which, as he said, capital maintenance was one. We accept the force of these arguments. Therefore, in these areas, which are covered by Amendments Nos. 432 and 512, we are prepared to accept the introduction of an affirmative procedure statutory-instrument-based system for interim reform. We do so, despite the misgivings expressed in the Delegated Powers and Regulatory Reform Committee’s report because of the relatively technical, fast changing nature of this section of company law.
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However, we share the view that the committee has a strong point with respect to the reform power in Amendment No. 671. That covers another area of the law—distributions—the implications of which, and the future policy principles for, have been much less discussed. Therefore, we are grateful to hear that the Government will not move Amendment No. 671.
On Question, Motion agreed to.
Lord Sainsbury of Turville: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 71 to 79.
Moved, accordingly, and, on Question, Motion agreed to.
Lord McKenzie of Luton: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 80.
Amendments Nos. 80, 109 to112, 158, 181 to184, 206, 207, 632 to 642 and 895 to 897 form a package of amendments requiring a company to make available for inspection various registers and records. This issue was raised in the context of the register of directors. Under the Companies Act, this must be made available for inspection at the company’s registered office.
The amendments recognise both that any increased flexibility as to places of inspection should apply to other registers and records to which there is a statutory right of inspection, and that there need to be safeguards against abuse. This package of amendments meets those concerns by providing a power for regulations to specify alternatives to a company’s registered office as the place where specified registers and records are to be made available for inspection. Amendments Nos. 86 to 93 combine provisions that have been in the Bill from the outset in relation to overseas branch registers with a restatement of relevant provisions from the 1985 Act. There is no change in substance. The other amendments in the group are minor and technical changes to improve the clarity and efficacy of the Bill.
Moved, That the House do agree with the Commons in their Amendment No. 80.—(Lord McKenzie of Luton.)
On Question, Motion agreed to.
Lord Sainsbury of Turville: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 81 to 96.
Moved, That the House do agree with the Commons in their Amendments Nos. 81 to 96.—(Lord Sainsbury of Turville.)
On Question, Motion agreed to.
Lord Sainsbury of Turville: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 97 to 104. I am pleased to be able to return to the House with a new package of clauses in Part 9 of the Bill that enables indirect
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As I made clear when we debated this part previously, the Government are firmly committed to promoting a long-term investment culture through the wide participation of shareholders and the responsible exercise of share ownership rights. That is one of the key themes consistent throughout the Companies Bill. It is right that everyone who invests in shares, whether directly in a company or through a nominee broker, should be able to enjoy and exercise much the same rights. If indirect investors—that is those holding shares through a nominee—wish to exercise shareholder governance rights, they should be able to do so. Our key concern has been that broader enfranchisement must be achieved in a way that is proportionate, offers flexibility and avoids imposing undue burdens on any parties involved, whether on issuers, investors or intermediaries.
That is why we resisted the amendments tabled by the noble Lord, Lord Hodgson, in Committee and on Report. As many business representatives will have told him, the amendments were burdensome, unworkable and created great uncertainties. However, we recognise that noble Lords reflected a view that we should go further in enfranchising indirect investors. I am pleased therefore that following a series of intense discussions in late spring and early summer with key interested parties, involving those both behind and against the original amendments, we were able to find consensus on a workable solution to strengthen the position of indirect investors in the Bill without imposing disproportionate burdens on business.
For the benefit of those who have not followed the debate on this part in the other place, let me just explain briefly how the new provisions will operate. Broadly, the new clauses provide that indirect investors can be nominated to receive company mailings. It is up to the registered member, typically a broker, to decide whether to nominate. The registered member will be able to appoint indirect investors as proxies under the provisions of Part 13 to exercise voting rights. Clauses at the end of the new Part 9 make it easier for registered members to exercise rights in different ways to reflect underlying holdings and allow indirect investors to participate in, for example, requests for resolutions at the AGM.
We think this is a balanced and fair package, which should lead to much greater involvement for the large proportion of small investors who hold shares through ISAs, PEPs or nominees. In short, the new Part 9 provisions are good news both for small investors and for quoted companies.
Moved, That the House do agree with the Commons in their Amendments Nos. 97 to 104.—(Lord Sainsbury of Turville.)
Lord Hodgson of Astley Abbotts: My Lords, I have two amendments in this group, Amendments Nos. 105A and 106A, and it may be helpful if I address them. The general topic of the rights of indirect investors has concerned us greatly, as the Minister explained. The position of ISAs and the increasing
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The amendments are in essence a tidying-up issue, because it is clear from the Bill that the clauses on information rights—Amendments Nos. 99 to 104—apply to traded companies only. We understand that at meetings of the stakeholder group that the Minister referred to, it was assumed that Amendments Nos. 105 and 106 were also being discussed with reference to the listed company environment. We are quite happy with the thrust of Amendment No. 105, as it would allow nominees to split their holding, for example, in a rights issue, when there was a choice between cash and shares to reflect the wishes of their underlying clients. We also support Amendment No. 106, as it would allow the indirect investor to get together with others to force the company to do the four things listed in subsection (1)(a) to (d) of the new clause introduced by Amendment No. 106 though three of those are relevant only to public or quoted companies anyway.
However, the way that the Bill is drafted makes Amendments Nos. 105 and 106 appear to apply to all companies. We are not arguing that this is necessarily wrong, but we would like a reassurance from the Government that their application to private companies has been thought through. For example, we wonder how Amendment No. 105 would work alongside the pre-emption clauses that private companies often have in their articles. The pre-emption clause may well state that where a member wants to sell his shares, the shares have to be offered to other members in proportion to their holdings, but that each member has to take either all or none of the shares offered to him. We wonder, as an example, whether Amendment No. 105 could be used by a member to take only a proportion of the shares offered, and whether that might have unintended consequences. Some clarification and reassurance from the Minister would be most helpful.
Lord Sainsbury of Turville: My Lords, I am grateful to the noble Lord, Lord Hodgson, for tabling his amendments, because they give us an opportunity to discuss Amendments Nos. 105 and 106 in more detail. The new clause introduced by Amendment No. 105 gives the member the right to split his holding and exercise rights attaching to shares in different ways. This is to accommodate members who hold shares on behalf of more than one person, each of whom may want to exercise rights attaching to those shares in a different way. For example, the
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The new clause introduced by Amendment No. 106 deals with four situations where the shareholder threshold required to trigger a right is 100 shareholders holding £100 each on average of paid-up capital. The clause allows indirect investors to count towards the total provided certain conditions are met. The condition is intended to ensure that only genuine indirect investors are allowed to count towards the total, but the same shares cannot be used twice, and that an indirect investor can use the procedure only if his contractual arrangements with the member allow the former to give voting instructions. The noble Lord’s amendments would limit the types of company to which these two new clauses apply. This goes entirely against the principle of facilitating the exercise of shareholders’ rights on behalf of others. We understand the concern that some private companies may have shareholder agreements containing provisions that are not consistent with the provisions of Amendment No. 105, but the clause applies to statutory rights and the rights attached to shares by the terms of allotment or the articles. Rights under shareholders agreements should not be affected, because they would not be transferred with the shares as a matter of law.
It has also been represented to us that some private companies’ articles provide for pre-emption rights to operate on an all-or-nothing basis. When the company wants to issue new shares, it will offer the shares to existing members in proportion to their shareholding. The articles would stop a member taking just some of the shares. We agree that Amendment No. 105 would cut across articles like this where the member holds shares on behalf of more than one person. However, that is not sufficient ground for exempting private companies from the general requirement.
After fully reconsidering the policy in this area over the summer we want to go as far as we can towards recognising the rights of underlying shareholders. Unless the potential cost burdens are prohibitive, and we do not think that they are in this case, we do not see why a right that is available in relation to public companies should not be available in relation to private companies as well. After all, some companies that are taken as private are left with a number of nominee shareholders that hold shares on behalf of others. It is also possible, although rare, to have a private company that is quoted.
For that reason, we cannot agree to the noble Lord’s amendment, but I hope that he realises that we have considered this matter thoroughly and have given it the attention that he was looking for. I hope that he will not press his amendment.
On Question, Motion agreed to.
2 pm
Lord Sainsbury of Turville: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 105.
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Moved, That the House do agree with the Commons in their Amendment No. 105.—(Lord Sainsbury of Turville.)
Lord Hodgson of Astley Abbotts had given notice of his intention to move, as an amendment to Amendment No. 105, Amendment No. 105A:
The noble Lord said: My Lords, I am extremely grateful for the Minister’s explanation and for the clear analysis of the situation. I shall not move Amendments Nos. 105A and 106A.
[Amendment No. 105A, as an amendment to Amendment No. 105, not moved.]
On Question, Motion agreed to.
Lord Sainsbury of Turville: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 106.
Moved, That the House do agree with the Commons in their Amendment No. 106.—(Lord Sainsbury of Turville.)
[Amendment No. 106A, as an amendment to Amendment No. 106, not moved.]
On Question, Motion agreed to.
Lord Sainsbury of Turville: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 107 to 155.
Moved accordingly, and, on Question, Motion agreed to.
Lord Sainsbury of Turville: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 156.
In moving the Motion, I shall speak also to Amendments Nos. 171, 173, 192 to 199, 202 to 204, 208, 214, 248 and 309. These amendments are designed to help improve the operation of the resolutions and meetings provisions in Part 13 and related provisions. Some of the amendments result from queries raised by the Opposition in another place, and we are grateful to the Law Society for the issues that it has raised. Other amendments arise from parliamentary counsel’s work to make the drafting of the Bill more consistent. I shall outline what these amendments achieve.
Amendment No. 192 to Clause 264, along with Amendments Nos. 156, 171, 173 214 and 309 to Clauses 208, 222, 230, 350 and 526, makes the drafting relating to requirements for a decision to be “by resolution” or “by ordinary resolution” consistent throughout the Bill. Where a resolution is required, but the type of resolution is not specified, the default will be an ordinary resolution unless the articles require a higher majority.
When a provision specifies that an ordinary resolution is required, the articles will not be able to specify a higher majority. That will apply in cases where, for example, we do not want the will of a simple majority to be frustrated by a blocking
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Government Amendments Nos. 193 and 194 respond to concerns raised in another place about the admissibility of votes. The amendments replace Clause 270 with a new clause to preserve the right for a company to require objections to votes to be made in accordance with procedures in their articles. We took the point that the old clause was too ambitious, so we are just preserving the current law. If an objection is overruled, the decision will be final, except in cases of fraud and certain other kinds of misconduct detailed in the case law where a court may intervene.
The amendments are about, on the one hand, certainty for the company by enabling the chairman to settle matters relating to the admissibility of votes in accordance with the articles and, on the other, sufficient remedies for members to challenge a decision if it was not reached properly. I think that we have now achieved the right balance.
Government Amendment No. 195 to Clause 286 is a minor amendment to tidy up the drafting of provisions about member requests for general meetings, resolutions and so on. They make the drafting consistent throughout the Bill.
Government Amendment 196 to Clause 288 relates to a situation where a company fails to hold a general meeting in response to a member request. It makes sure that the cost of the meeting can be recouped from the directors, whether they are engaged directly or via a service company.
Government amendments to Clause 290 improve the drafting by clarifying how AGMs can be called on short notice. Government Amendments Nos. 199, 202 and 203 to Clauses 297, 321 and 325 add a cross-reference to ensure that companies are aware of their potential obligations under Part 9. Amendment No. 204 to Clause 333 corrects a drafting error.
Amendment No. 208 inserts a new clause to ensure clarity and consistency in the calculation of time periods in relation to meetings and resolutions. It responds to concerns raised in another place about whether, in calculating periods of notice, the date of the notice and the date of the meeting are supposed to be excluded. Amendment No. 248 to Clause 406 is a drafting improvement on a similar point.
Moved, That that the House do agree with the Commons in their Amendment No. 156.—(Lord Sainsbury of Turville.)
On Question, Motion agreed to.
Lord Sainsbury of Turville: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 157 to 211.
Moved accordingly, and, on Question, Motion agreed to.
Lord McKenzie of Luton: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 212.
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