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Lord Hodgson of Astley Abbotts: I hesitate to say anything about the Law Society, but I wondered why this was so important, given that the voting powers attached to shares, not to the nominal amount of shares, are what is of concern. I could not see why the nominal amount of shares was critical, because, looked at from a non-legal point of view—and certainly not with the brain power of the Law Society—1,000 shares of £1 were going to be a great deal more powerful than one share of £1,000 of nominal value. It may be that I have misunderstood this, and I look forward to hearing what the Minister has to say about it, but it seems that it has missed the point slightly.
Lord Razzall: No. With respect—which, among lawyers, always means that we disagree—this clause relates to the power of directors to allot shares. That is its purpose; it is not to do with voting rights, but the actual amount of shares that can be allotted. Anyway, I will leave it to the Minister to deal with.
Lord McKenzie of Luton: An authority given to the directors under Clause 536, or resolution of the company's—
The Deputy Chairman of Committees: The Committee will adjourn again for 10 minutes.
[The Sitting was suspended for a Division in the House from 5.39 to 5.48 pm.]
The Deputy Chairman of Committees: We are slightly ahead of time, but if everyone who is involved is here, perhaps we could resume. The noble Lord, Lord McKenzie, was in train, I think.
Lord McKenzie of Luton: An authority given to the directors under Clause 536, or a resolution of the company's members which renews or further renews such an authority, must specify the "maximum number of shares" that the directors are authorised to allot.
The noble Lord, Lord Razzall, as my note says, has eloquently argued that this form of words may not be the most appropriate. In particular, there is a concern that the formulation does not take account of the fact that shares may be in different classes or in different denominations. We note that the formulation used in the relevant subsections of Section 80, which this clause replaces, refers to the "maximum amount" of shares that may be allotted under it, which may be closer to the formulation in the amendments. There was no intention on the part of the Government to change the requirements relating to the form that such
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authority should take, merely an attempt to clarify terminology that seemed a little ambiguous. In the circumstances, I agree that we need to look again at whether the various references to "number of shares" in Clause 536 produce the right results. I hope that the noble Lord will agree to reconsider these matters.
Lord Razzall: I thank the Minister. It is a very simple issue. I understand the point made by the noble Lord, Lord Hodgson, that this is about votes, but it is not just about votes. It is quite common for companies to issue shares at 1p or at £1. Therefore, it seems illogical that they should be restricting it to the maximum number of shares. Obviously, if they issue shares at 1p as opposed to £1, there are 100 shares at 1p or one share at £1, if my arithmetic is correct. I welcome the Minister's undertaking to look at it again. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. A37 and A38 not moved.]
Clause 537 [Public companies: allotment where issue not fully subscribed]:
Lord Razzall moved Amendment No. A39:
"( ) The Secretary of State may by regulations made under this section vary the interest rate specified in subsection (3)."
The noble Lord said: Again, I am grateful to the applied brain power of the Law Society for the amendment and for the historical background on the origins of the provisions, which I will share with the Committee.
The purpose of the amendment is to provide flexibility to vary the interest rate payable by directors on any money that they are personally liable to repay, when money is not repaid after an allotment of shares when the issue has not been fully subscribed. Clause 537 refers to the interest rate specified under Section 17 of the Judgments Act 1838, and we understand that it is currently 8 per cent, having last been fixed in 1993. It is only a discretionary rate for judgments, and clearly it seems very high in the light of interest rates which, I am sure the Minister will accept, have been low as a result of the macroeconomic policies pursued by his Government. We would have thought that the present rate of 5 per cent should probably remain, but it would seem sensible that the Secretary of State in the circumstances should have the power to vary it by statutory instrument. I beg to move.
Lord McKenzie of Luton: Clause 537 applies only to public companies. It prohibits the allotment of shares offered for subscription unless the requirements set out in subsection (1) are met. If the requirements are not met, the company must not allot the shares and must repay all the money that it receives from the applicants for the shares. If the company does not repay the money within 48 days after the making of the offer, the directors become liable to repay it with interest.
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The amendment would give the Secretary of State a power to make regulations varying the interest payable by the directors. At the moment, Section 84(3) of the Companies Act 1985 fixes the interest rate at 5 per cent, as has been recognised. We consider it undesirable for the Bill to impose a fixed rate of interest. That is why the change has been made to set the interest payable at the rate for the time being specified under Section 17 of the Judgments Act 1838. Again, as has been referred to, the rate of interest on judgment debt is currently at 8 per cent. The rate of interest is reviewed from time to time, and is capable of change by an order made under Section 44 of the Administration of Justice Act 1970. It was last changed in 1973, when interest rates were a lot higher than they are currently.
We recognise that the current rate of 8 per cent could be viewed as high when compared to the Bank base rate, and Her Majesty's Courts Service is currently reviewing the judgment rate in the light of the Law Commission's report Pre-Judgment Interest on Debts and Damages of 2004. I will certainly draw what has been said by noble Lords in today's debate to the attention of Her Majesty's Courts Service. As the interest rate will change whenever the rate set by the Judgments Act changes, we do not consider it necessary to take a specific power just to change the interest rate applicable for the purpose of the clause. I hope that will satisfy the noble Lord.
Lord Razzall: I thank the Minister for his comments. I think I am right that the interest rate was last changed in 1993, not 1973.
Lord McKenzie of Luton: I am sorry, it was 1993.
Lord Razzall: As I understand it, the Minister is saying that the effect of my amendment is dealt with by the power of the Government to make regulations under another order, and that it would be tied into the effect of the Administration of Justice Act. On that basis, I am happy to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Hodgson of Astley Abbotts moved Amendment No. A39A:
Page 256, leave out lines 19 to 21 and insert "This section applies to shares subscribed as wholly or partly payable otherwise than for cash as it applies to shares subscribed wholly for cash, with the following adaptations-"
The noble Lord said: Amendment No. A39A is also concerned with Clause 537. Various practitioners have approached us about the drafting of the first part of subsection (4) which intends to extend the scope of the provisions in Clause 537 to circumstances where the shares are not subscribed for wholly in cash. Representations we have had suggest that the drafting could be clearer. From what is currently drafted, the intention of subsection (4) is not immediately apparent. Our amendment offers an alternative to the Government which we hope they will consider as an attempt to improve the clarity and comprehensibility of the clause. I beg to move.
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