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The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): Subject to some exceptions under Section 89(1) of the 1985 Act, a company proposing to allot shares must offer those shares to existing shareholders first—that is, on a pre-emptive basis. The statutory pre-emption provisions are very important and the basic principle behind them, which is unchanged by the Bill, is that shareholders should be able to protect their proportion of the total equity of a company by having the opportunity to subscribe for any new issue of shares for cash.
Section 90(6) of the 1985 Act provides that the offer to shareholders must state a period of not less than 21 days during which the offer may be accepted and that the offer may not be withdrawn before the end of the period. Clause 542 gives the Secretary of State the power to vary the time period for the acceptance of pre-emption offers or rights issues upwards as well as down, but regulations made under Clause 542 may not prescribe a period of less than 14 days for the acceptance of pre-emptive offers. The clause amends Section 90 of the 1985 Act by inserting the power I have referred to into that section.
Clause 542 implements a recommendation of the Company Law Review, which was also endorsed by the recent Paul Myners' review. I should perhaps also add at this juncture that in his review of pre-emption rights, Paul Myners concluded that a shareholder's right to pre-emption is a valuable one which should not be removed or eroded, while at the same time acknowledging that there are situations where some disapplication of statutory pre-emption rights is necessary.
The amendment would enable the Secretary of State, in regulations made under Clause 542, to specify such conditions as to the acceptance of pre-emptive offers by existing members as the Secretary of State may see fit to specify. Under the Bill, the Secretary of State may make regulations under Clause 542 only if a decision is taken to vary the time period for the acceptance of pre-emptive offers from 21 days. If, for example, 21 days is considered to be too long a period in that it is seen to be having a detrimental impact on the ability of companies to raise new capital, the power may be exercised to reduce the period to, say, 14 days. The amendment appears to extend that power and could be used either to require companies to take extra steps to ensure that existing members were able to take up the pre-emptive offer if they wish to do so or to stipulate conditions that members must satisfy before they may accept the offer.
To be clear, this is about conditions relating to the members taking it up, not to anyone giving permission for the shares to be allotted. This is on conditions of members. Clearly the powers conferred on the
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Secretary of State under Clause 542 do not go that far, but I am not convinced that they should. In particular, the Government can see no reason for imposing further conditions on pre-emptive offers than those that already exist such as would justify the extension of the regulation power in the clause. In those circumstances, the Government are not minded to accept the amendment tabled by the noble Lord.
Lord Hodgson of Astley Abbotts: It is astonishing when a Minister says that he does not want an additional power when he is being offered one; usually Ministers grab every possible power.
Lord Sainsbury of Turville: I forbore to say that I was surprised to see the noble Lord wanting to give more regulatory powers, so I thought that that was an unhelpful comment.
Lord Hodgson of Astley Abbotts: That is a perfectly fair point. We will talk again to the UK share association to see whether it has specific examples with which to rebut the general point made by the Minister that the power is not necessary. I need to get further briefing. If it has further briefing, we will come back; if it does not, we will not. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 543 [Disapplication of pre-emption rights: private company with only one class of shares]:
Lord Hodgson of Astley Abbotts moved Amendment No. A40A:
The noble Lord said: This group of amendments is concerned with the disapplication of pre-emption rights for private companies with only one class of shares. This is the first of a series of issues on which we have been briefed by Rosalind Nicholson, a barrister specialising in this rather technical area of the law, at 4 Stone Buildings. The clause effectively places restrictions on companies with more than one class of shares. What is the obvious, or logical, reason to confine the powers under the clause to companies with only one class of shares? Simply, the amendments would widen the remit of the clause and extend the potential powers to all private companies, thereby adding flexibility for private companies as a whole. That is achieved by the two amendments to lines 27 and 29 on page 258. I beg to move.
Lord Sainsbury of Turville: The provisions in Clause 543 are new. They are required as a result of the changes introduced by Clause 535, which empowers the directors of a private company with only one class of share to make an allotment of shares or to grant rights to subscribe for shares or convert any security into shares. In these circumstances, there is no requirement for the directors to obtain authorisation from the members—that is, a resolution of the company's members or authorisation in the articles of association—before they may allot such shares.
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Where the directors propose to make an allotment of shares pursuant to the power given to them in Clause 535, the provisions of Section 89(1) of the 1985 Act, which require shares to be offered on a pre-emptive basis to existing shareholders, will apply to the proposed allotment unless the directors are given a further authority under Clause 543 to disapply statutory pre-emption rights.
Section 95 of the 1985 Act sets out the provisions that allow a company to disapply the operation of the statutory pre-emption requirements in Section 89(1) and to allot shares for cash on a non-rights basis. The method of disapplication depends on the nature of the authority to allot shares granted to the directors under Section 80. Clauses 544 and 545 follow the format adopted in Section 95 by linking the method of disapplication to the authority to allot shares granted to the directors under Clause 536, which replaces Section 80.
Clause 543 applies only to private companies that will have only one class of share after the proposed allotment. The amendments proposed by the noble Lord—that is, Amendments Nos A40A and A40B—would broaden the scope of the clause to cover the scenario where a private company has more than one class of share after the proposed allotment.
6.15 pm
Provision for the disapplication of pre-emption rights in companies that will have more than one class of share after the proposed allotment is already made in Clauses 544 and 545. Those clauses apply where the directors have been given an authority to allot shares, or grant rights to subscribe for or convert securities into shares under Clause 536, which applies to private companies with more than one class of shares. The amendment is, therefore, unnecessary.
I hope that I have reassured the noble Lord that we have not forgotten about private companies which will have more than one class of share after a proposed allotment. To summarise, there are two powers to allot shares here. One is for private companies that have only one class of shares; they are covered by Clause 535. Under those circumstances, directors can allot unless the articles forbid. All other companies are covered by Clause 536, where companies can allot shares only on the basis of articles or resolution. Clause 543 relates to Clause 535, and Clauses 544 and 545 relate to Clause 536.
Lord Hodgson of Astley Abbotts: I am certainly grateful to the Minister for that very full response. I believe that the core of his objection to the amendments is that they are not necessary. We shall need to read carefully what he has said to see whether, on mature reflection—I shall not try to shuffle Clauses 535, 542 ad 543 around while I am on my feet—we agree with that. Of course, if we do we shall not bring the measure back, but if we feel that there is further juice in this orange we may return to it at a later date. In the mean time, I beg leave to withdraw the amendment.
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Amendment, by leave, withdrawn.
[Amendment No. A40B not moved.]
[Amendment No. A40C had been withdrawn from the Marshalled List.]
Clause 544 [Disapplication of pre-emption rights: directors acting under general authorisation]:
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