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Lord Freeman: I am content with that response, which has clarified the position, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 212B not moved.]
4.15 pm
Clause 196 [Amounts taken to be payments for loss of office]:
On Question, Whether Clause 196 shall stand part of the Bill.
Lord Sainsbury of Turville: Clause 196 treats certain payments to be payments for loss of office. These are payments where, if in connection with a transfer of the shares or undertaking of the company, the director gets given more for the shares than other holders of like shares, or the director receives other valuable consideration. The clause is derived from Section 316(2) of the Companies Act 1985.
As currently drafted, Clause 196 applies in those cases where the director is losing or retiring from office. However, in this form it is not consistent with Clause 195. Under Clause 195(1) payments for loss of office include payments on loss of office as director and on retirement from office as director. They also include payments on loss of, or retirement from, any
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other office or employment in connection with the management of the affairs of the company or any subsidiary undertaking of the company.
We therefore seek to replace Clause 196 with a new clause which is consistent with the approach taken in Clause 195. It will remove any doubts on whether Clause 196 applies to the same set of circumstances as Clause 195. Therefore, I oppose the question that Clause 196 stand part of the Bill.
Lord Sainsbury of Turville moved Amendment No. 213:
"AMOUNTS TAKEN TO BE PAYMENTS FOR LOSS OF OFFICE
(1) This section applies where in connection with any such transfer as is mentioned in section 198 or 199 (payment in connection with transfer of undertaking, property or shares) a director of the company—
(a) is to cease to hold office, or
(b) is to cease to be the holder of—
(i) any other office or employment in connection with the management of the affairs of the company, or
(ii) any office (as director or otherwise) or employment in connection with the management of the affairs of any subsidiary undertaking of the company.
(2) If in connection with any such transfer—
(a) the price to be paid to the director for any shares in the company held by him is in excess of the price which could at the time have been obtained by other holders of like shares, or
(b) any valuable consideration is given to the director by a person other than the company,
the excess or, as the case may be, the money value of the consideration is taken for the purposes of those sections to have been a payment for loss of office."
Lord Freeman: I am content with the new clause proposed in Amendment No. 213. However, those who could have an interest in this have not yet had a chance to offer their detailed comments. Although I make no point of principle, I should like more time to seek advice on the new clause and its precise implications. Otherwise, I have no reason to oppose Amendment No. 213.
On Question, amendment agreed to.
Clause 197 [Payment by company: requirement of members' approval]:
Lord Freeman moved Amendment No. 214:
The noble Lord said: The noble Lord, Lord Sainsbury, should be greatly relieved that the Chief Whip, who was here for a short time, has just left. If the noble Lord, Lord Grocott, who, perhaps, is not familiar with the proceedings of the Bill had heard the Minister—I anticipate what he will say—saying that he would accept this amendment, he would probably demand a conversation about loss of office.
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In all seriousness, I am grateful to the professional bodies, particularly the chartered secretaries, who have been through the Bill. There are still one or two typographical errors to which we might draw the attention of the officials. In the mean time, I beg to move.
Lord Sainsbury of Turville: After a great deal of debate and discussion we have agreed to accept this amendment.
On Question, amendment agreed to.
Clause 197, as amended, agreed to.
Clause 199 [Payment in connection with share transfer: requirement of members' approval]:
Lord Freeman moved Amendment No. 215:
Page 90, line 9, leave out from "unless" to end of line 10 and insert "particulars of the proposed payment (including its amount) are included in or sent with any notice of the offer made for their shares which is given to any shareholders"
The noble Lord said: Amendment No. 215 is a probing amendment. It would be helpful if the Minister could explain why it is now necessary for payments to a director in connection with a share transfer to be approved rather than disclosed to target shareholders. This new approval requirement does not add significantly to shareholder protection, provided that there is a clear requirement to disclose the payment, and may be a significant additional burden for companies. I beg to move.
Lord Sainsbury of Turville: Clause 199 applies to payments for loss of office made by any person to a director in connection with a transfer of shares in the company or a subsidiary of the company resulting from a takeover bid. The clause requires the payment to be approved by the holders of the class of shares to which the bid relates. This requirement is derived from Sections 314 and 315 of the Companies Act 1985. Currently these sections require any payment made to a director of the company by way of compensation for loss of office or as a consideration for or in connection with retirement from office in connection with the transfer to any person of all or any of the shares in a company resulting from certain kinds of offers to be approved by the holders of the class of shares to which the offer relates. It is therefore already a requirement that the holders of the class of shares to which the offer relates must approve the payment to the director. The reason for this is clear: it is to avoid the risk that directors may obtain advantageous payments from the persons launching the takeover bid which should in fact go towards the members in return for their shares. The Bill retains this requirement.
However, the Bill does make a number of changes to the current regime in Sections 315 and 316 of the 1985 Act. In particular, the Bill does not retain the duty placed on the director to take all reasonable steps to secure that particulars of the proposed payment are sent with any notice of the offer made for the shares. The criminal offence of failing to comply with that duty has also been dropped. There are a number of
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reasons for this. First, the requirement seems over-regulatory, given that the shareholders must approve the payment in any event. The clause ensures that they are informed of the payment either by details being available at the meeting and for inspection at the company's registered office, or by the details being circulated with a written resolution to approve the payment.
Secondly, we have removed all the criminal offences applying in this chapter as the civil consequences of breach seem sufficient. For example, in this case if a payment is made to a director without the required approval from the shareholders, the payment is held on trust for those persons who have sold their shares as a result of the offer made, and the expenses incurred by the director in distributing that sum among those persons are to be borne by the director. Another change made by the clause is that neither the person making the offer, nor any associate of his, may vote on the resolution to approve the payment to the director. This implements a recommendation of the Law Commissions. We believe that this is the right approach as it provides essential protection for shareholders.
Lord Freeman: I am grateful for that explanation in response to my probing amendment. The Minister's response to an extent leaves unanswered a number of issues which have been raised with us, not only by the Law Society but also by the CBI. I should like to reflect on those. However, I am bound to say that I sympathise strongly with the principle that a payment to a director for loss of office as a result of an offer for shares to another company should be subject to certain approvals. That is quite right. But the law already requires certain steps to be taken. I shall certainly read the record, but for the moment I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 200 [Exception for payments in discharge of legal obligations etc]:
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