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Lord Hodgson of Astley Abbotts: This is quite technical. The Minister said a lot which I need to read and on which I need to get advice. It seems that he is saying that the proposed amendments would set the balance, or draw the line, in the wrong place. We will take advice on that. I find myself least persuaded by his comments on Amendment No. A214 and the very indefinite definitions of Clause 762 on "Classes of shares". That seems to be an area where there could be useful tightening up, but we will have to think further about it. Perhaps, when we get to Clause 762, we will have had a chance to take further advice. In the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
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Lord McKenzie of Luton moved Amendment No. A33:
The noble Lord said: In speaking to government Amendment No. A33, I will speak also to government Amendments Nos. A41 and A69. The first amendment in the group, Amendment No. A33, relates to Clause 534. It removes the reference to the "deemed allotment" of shares to the subscribers and is designed to achieve consistency with other clauses which refer to the shares being "taken" by the subscribers to the memorandum on formation—for example, Clause 11(3).
Noble Lords will recall, however, that, in the context of the debate on Amendment No. 113, the Government agreed to consider whether the Bill should be amended to clarify whether the shares that are taken by the subscribers on formation are deemed to have been allotted to the subscribers. In light of the conclusions that we arrived at in relation to that opposition amendment, it may be necessary to revisit the reference to the subscribers' shares in that context also. I therefore put down a marker that we may need to return to this provision at a later stage, but for the moment we consider that this provision should be drafted in a way that is consistent with the terminology adopted in the current draft of the Bill.
The second amendment in the group, Amendment No. A41, relates to Clause 545, which replaces subsections (2) and (3) to (5) of Section 95 of the 1985 Act. Clause 545(1) carries forward the provisions of Section 95(2) of that Act, which refers to "equity securities". The amendment is required to achieve consistency with the terminology used in that section. Amendment No. A69, the third and final amendment in the group, relates to Clause 562. Like the first amendment in the group, it is designed to achieve consistency with other clauses—in particular, Clause 270, which prescribes the procedure for circulating written resolutions. Amendment No. A69 substitutes the formulation "served on" for the words used in Clause 270: namely, "sent or submitted to". These are minor amendments to improve the drafting of the Bill, which I hope will receive the Committee's support. I beg to move.
On Question, amendment agreed to.
Clause 534, as amended, agreed to.
Clause 535 [Power of directors to allot shares etc: private company with only one class of shares]:
Lord Hodgson of Astley Abbotts moved Amendment No. A33A:
The noble Lord said: I am pleased to tell the Committee that I shall be brief on this amendment. This refers to the one class of shares issue, again in Clause 535. The amendment is proposed for clarification. We want to insert the words,
after the word "shares" on line 35. It is possible that a company's articles of association may permit the issue of more than class of shares, but that, in fact, only one class of shares has been issued. Given the considerable power that this section gives to directors, one would expect it to apply in circumstances where only one class of shares has been or can be issued. I beg to move.
Lord McKenzie of Luton: Clause 535 empowers the directors of a private company to allot new shares in a company or to grant rights to subscribe for or to convert any security into such shares without the need to obtain prior shareholder approval. This power may be exercised only where the company has only one class of share, as we discussed previously, and the noble Lord's amendment seeks to clarify what is meant by this reference by providing that it is immaterial whether the shares are issued or unissued for the purpose of satisfying the "one class" test.
The problem that the Government have with this proposition is that in future there will be no such thing as unissued share capital, as the memoranda of companies formed under the Bill will not contain a ceiling on the number of shares that such companies are authorised to allot. This means that, for a company formed under the Bill, all the company's share capital will comprise issued shares, so the clarification that the noble Lord seeks will be unnecessary. If a company has only one class of share, which by definition will be issued shares, the directors will have the power to allot further shares of that class under Clause 535. If, however, they wish to allot shares of a different class, they will need to obtain an authority from the company's members under Clause 536.
This answer of course does not address the question which we thought this amendment might be probing—that of existing companies which may have authorised but unissued share capital on the date that this provision comes into force. However, we think that it would be confusing to suggest in the Bill that the power given to the directors by Clause 535 extends to any part of an existing company's authorised share capital that remains unissued at the time this clause comes into force.
I realise that this leaves the matter of the transitional arrangements that may need to be made for existing companies with authorised but unissued share capital that want to allot shares pursuant to the authority contained in Clause 535. As I said in relation to an earlier amendment, the Government are considering the arrangements that will be required to apply the provision to existing companies. For now, however, I should like to reassure the noble Lord that wherever possible we will ensure that transitional arrangements for existing companies cause minimum disruption to those companies.
Lord Hodgson of Astley Abbotts: I am grateful to the Minister. The transition issues were not in our mind when tabling the amendment, but it is clear that, in painting the Forth Bridge, we have forgotten what we were painting a couple of girders ago. I beg leave to withdraw the amendment.
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Amendment, by leave, withdrawn.
Lord Razzall moved Amendment No. A34:
Page 255, line 2, at end insert "or by a resolution of the company, or if to do so would be inconsistent with any such authority which is contained in the company's articles or in such a resolution (whether such authority was granted pursuant to this section or pursuant to section 80 of the Companies Act 1985 (c. 6) (authority of company required for certain allotments))"
The noble Lord said: This is a probing amendment which is quite technical in nature. I am grateful to the Law Society for bringing together the combined brain power of a large number of company law practitioners to advise us on the Bill. I fear that as I embark on the technical explanation, we shall be interrupted by the Division Bell, but I shall make a start. In looking at Clause 535, which at first seems very straightforward, the combined brain power has come up with at least five difficulties. Amendment No. A34 is designed to meet those difficulties. I shall list the potential problems and I look forward to the Minister's response.
First, we suspect that it needs to be made clear that the implementation of these proposals will not allow directors to exercise the power to allot shares to the extent that doing so would contravene an authority conferred under Section 80 that was subsisting on the day the new clause came into force. It would seem on the face of it that this clause would do that.
Secondly, there is an obvious lacuna. Subsection (b) states,
There does not appear to be any reason why authorities also conferred by an ordinary resolution should not be covered by the prohibition. Why should the prohibition be only in the company's articles and not in an ordinary resolution that has been passed by the company?
As an aside, there is an issue where the company's articles—or, if this amendment is accepted, an ordinary resolution—have contained an authority to allot shares up to a specified maximum. Does that constitute a prohibition against allotting shares beyond the scope of that authority, as defined by the words "prohibited from doing so" at the top of page 255 of the Bill? That is a technical, but important, point.
Third, by limiting Clause 535 to private companies with a single class of share, and repealing Section 80A of the Companies Act 1985, it appears that shareholders of private companies with more than one class of share—
As I feared. I think that I am two and a half points up, and two and a half points down.
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