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Lord Hodgson of Astley Abbotts: Before the noble Lord decides what he is going to do with the amendment, I wish to ask the Minister a question. Does he agree that there is a difference between Clauses 528 and 529? Clause 528 concerns "proposing to act". That is an ex ante action. I understand that; it is the post-event that is so difficult. The Minister made a good case on why one needs to have strong potential deterrence where a company is proposing to act. My concern is where a company finds that it has done something ex post of a minor nature and it is then left in this very difficult circumstance that, no matter how minor, the court has no discretion to get the company off the hook on which it may inadvertently have impaled itself.
Lord McKenzie of Luton: Will the noble Lord give an example of the kind of minor issue that he has in mind?
Lord Hodgson of Astley Abbotts: One of the issues is the question of numbers. We might find that we have a number which subsequently might not apply. We are talking about businessmen whose lives comprise running companies. They may go to a reputable firm of solicitors, investment adviser or investment bank and get advice on what might happen, but then subsequently find that they have exceeded the permitted number. They have not sought to impale
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themselves; they have taken all reasonable care. However, the court might say, "We understand where you are but I am afraid that our hands are tied".
Lord McKenzie of Luton: I stress again to the noble Lord that there is no number which is allowed. We do not think that that is the right way to approach these tests, as we discussed earlier.
Lord Razzall: There are actually two separate groups of amendments here. On the first one, Amendment No A24, I shall need to read the Minister's arguments. I thought that he said that the substance of the amendment is already dealt with in the law and that the court has other remedies available. As I say, I shall read what he said in Hansard and think about it.
As regards Amendments Nos. A25 and A27, the noble Lord, Lord Hodgson, put the case extremely well. The point that we are trying to make—which does not seem to be taken on board by the Government—is that in these circumstances where you have a private company in which there are a number of shareholders, there is a difference of interest between the company itself and the shareholders. If shareholders for whatever reason, rightly or wrongly, have been induced to invest in the private company—and it will not be the shareholders who have contravened the law regarding private or public; it will be the directors of that company, probably advised by their merchant bank, their firm of lawyers or their firm of accountants—we are concerned that the clause is over-prescriptive in terms of the remedy.
The Minister says that it will all be very easy and that all the board of directors has to do is to re-register the company as a public company. However, it may well be that they cannot, because they do not have the money to do so. There is a cost involved in re-registering as a public company. The company may well have no particular asset value because all the assets are in goodwill and therefore it has a value only on a going concern basis. I do not see why the clause has to be so prescriptive that there is only one remedy available—either the private company re-registers as a public company or it has to be wound up. I cannot understand why the Government are not prepared to say that the court can have discretion regarding what available remedy may be used.
4.30 pm
Lord Hodgson of Astley Abbotts: Are we not also concerned that this is a new procedure? We are actually changing the law here to make it stricter than it has been until now. Perhaps the Minister can give us an example to show that in the past there has been a gap which has not been filled by the law, and say why the present powers have not proved to be adequate. I know of no examples where we are trying to provide a remedy for a breach made in the past.
Lord Razzall: Without wishing to labour the point made by the noble Lord, Lord Hodgson, I will withdraw the amendment not only because we are in the Moses Room but also because I want to read and
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take seriously what the Government have to say. However, there is uncertainty because the Government were not prepared to accept our earlier amendment regarding clarification on the number of shareholders in a private company to whom an offer can be made. Under the law if it is implemented in this form, there will always be uncertainty as to whether a company is or is not lawfully a private company and thus whether or not the offer to shareholders is lawful. I hope that the Government will think about the points that the noble Lord and I have made. In the mean time, I shall be happy to withdraw the amendment.
Lord McKenzie of Luton: Before the noble Lord does so, I should like to emphasise again that under the existing law, this would be a criminal offence. That is being changed. Further, certainly in the generality of cases, I struggle to understand why re-registration would not be possible, particularly if one is postulating circumstances in which a company is raising fresh capital from a range of people who may not be existing shareholders. It certainly would not be the norm that they would not be able to re-register. Obviously we will reflect on the points that have been made.
Lord Razzall: The answer to the Minister is straightforward. It is quite likely that, where companies have raised money, it will take a considerable time to establish whether the offer to the members of the public was valid or not valid, because of the uncertainties. By the time that moment is reached, the company has no money to re-register as a public company. That scenario is very likely to occur. In those circumstances, all we ask is this: should the only remedy available be that the company is wound up? That may not be in the interests of the shareholders who, in those circumstances, would be the innocent victims of the actions of the directors. We do not think it right that the only remedy should be that of winding up the company. For the time being, however, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 529 [Enforcement of prohibition: order for re-registration or winding up]:
[Amendments Nos. A25 to A27 not moved.]
Clause 531 [Public company: requirement as to minimum share capital]:
Lord McKenzie of Luton moved Amendment No. A28:
The noble Lord said: In moving government Amendment No. A28, I shall speak also to government Amendment No. A30. Clause 531 replaces subsections (1), (2), (4), (6) and (8) of Section 117 of the 1985 Act. It applies to public companies that are formed as such on their original
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incorporation, as opposed to companies that re-register from private limited to public under the provisions of Part 7 of the Bill, and retains the current requirement for such companies to obtain a trading certificate from the Registrar of Companies before commencing business.
As now, the registrar will issue a trading certificate only if she is satisfied that certain conditions are met. In particular, she must be satisfied that the authorised minimum share capital has been allotted. Currently, where a public company is required to obtain a trading certificate and enters into a transaction without first obtaining such a certificate, certain consequences flow. In particular, the directors may be held jointly and severally liable with the company for any loss or damage caused to the other party to the transaction as a result of the company failing to meet its obligations. In addition, the company and every officer of the company who is in default commits an offence.
Amendment No. A30 inserts a new clause into the Bill after Clause 533. The amendment is required to reinstate the penalty that is currently prescribed in Section 117(7) of the 1985 Act and corrects an omission in the drafting of the clauses in Chapter 2 of this Part. The amendment also reunites the criminal sanction with the civil penalty that is currently prescribed in Section 117(8) and ensures that the consequences of a company acting in contravention of Clause 531 can be found in one place. The proposed amendment to Clause 531—that is, Amendment No. A28—is a consequential amendment, which is required as a result of Amendment No. A30. I beg to move.
On Question, amendment agreed to.
Clause 531, as amended, agreed to.
Clause 533 [The authorised minimum]:
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