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Lord Hodgson of Astley Abbotts moved Amendment No. A40D:
The noble Lord said: Clause 544 forms part of what will replace Section 95 of the Companies Act 1985. Section 95(2)(b) states that that subsection,
The wording in the Bill makes no provision for the words,
Paragraph 924 on page 154 of the Explanatory Notes to the Bill states:
"This clause sets out ways in which members may give the directors power to allot shares without complying with the statutory pre-emption provisions".
The Explanatory Notes do not say whether this is an intended change; that is, the omission of the words,
Therefore, the amendment seeks to return the meaning of Clause 544 in this respect to what it is under current law.
The Minister may argue that including the articles in the amendment goes further than the current law. That is true, but we argue that it is just as reasonable for the articles to specify this as it is for a resolution.
Why have the relevant words been missed out in the reformulation? We think that is important. What is the Government's thinking on that? I beg to move.
Lord Sainsbury of Turville: My Lords, where the directors of a company are authorised to allot shares in a company, pursuant to an authority given to the directors by the company's members under Clause 536, the directors may be given a further power to modify statutory pre-emption rights in respect of a proposed allotment of shares. This requires a special resolution of the company's members or authorisation in the articles of association.
Clause 544 sets out the conditions that must be met where it is proposed that the directors should be given this further power to disapply statutory pre-emption rights. Under the provisions of the clause, the members may empower the directors to disapply statutory pre-emption rights entirely, or to apply those rights with such modifications as the directors may determine. I should explain that Clause 544 applies to public companies and to private companies that will have more than one class of share after the proposed allotment.
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The proposed amendment would make it clear, in the body of Clause 544, that where it is proposed that the statutory pre-emption rights should apply but with modifications, the company's members, as well as the directors, may determine what those modifications are to be.
It may help if I set out the provenance of the Bill's provisions on the disapplication of pre-emption rights. Clause 544 restates the provisions of Section 95(1) of the 1985 Act and Clause 545 restates Section 95(2) of that Act. Section 95 is derived from Section 18 of the Companies Act 1980, which was introduced to give effect to the provisions on the exclusion of pre-emption rights contained in Articles 29(4) and 29(5) of the Second Company Law Directive.
The directive establishes, so to speak, a presumption in favour of rights of pre-emption, but recognises that an irrebuttable presumption could cause unnecessary problems for the company and its shareholders. The directive naturally enough requires shareholders' consent to the restriction or withdrawal of pre-emption rights; shareholders' consent is also required for the issue of shares by directors—the two are obviously closely linked in practice. The directive builds on this connection by linking the procedures for restricting or withdrawing pre-emption rights with the procedures for authorising the issue of shares.
Clauses 544 and 545 contain two procedures whereby a company can disapply or modify the pre-emption rights set out in Section 89 of the Companies Act 1985. As I have already mentioned, these derive from paragraphs 4 and 5 of Article 29 of the directive. Both are related to circumstances in which the directors are authorised for the purposes of Clause 536 to allot securities in the company. A distinction is drawn between an authority for a particular exercise of the power to issue shares and an authority for the exercise of that power generally. The directive similarly distinguishes between cases where the right of pre-emption is restricted or withdrawn in a particular case or where it is restricted or withdrawn generally.
Clause 544 applies where the directors of a company are generally authorised for the purposes of Clause 536. The authority for this provision is Article 29(5) of the Second Company Law Directive. This provides that the laws of a member state may provide that the statutes, the instrument of incorporation or the general meeting, may give the power to restrict or withdraw the right of pre-emption,
"to the company body which is empowered to decide on an increase in subscribed capital within the limits of the authorised capital".
The relevant "company body" under Clause 536 is the board of directors. This is as far as the directive permits us to go, so we are unable to accept an amendment to extend Clause 544 in the manner which the noble Lord seeks.
That said, where the power to disapply statutory pre-emption rights is linked to an authority to allot shares given under Clause 536, the authority itself may be expressed to be conditional or unconditional. We
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consider that members may impose conditions on the allotment by the directors which may impact on the application of the pre-emption provisions. Such conditions should bind the directors with regard to any allotment made pursuant to the power.
The Committee will, of course, be aware that the provisions of the Second Company Law Directive only require to be applied to public companies and yet Clause 544—as does the current Section 95(1)—applies to both public and private companies. We are not aware that the current provisions as they apply to private companies have given rise to difficulties in practice such as to necessitate a parallel regime for such companies.
I should also add that Section 91 of the 1985 Act contains a wide-ranging power for private companies to exclude the provisions of Section 89 and Sections 90(1) to (5) in their articles of association. That is retained under the Bill, so we consider that no further statutory exclusion from the pre-emption rights is necessary for private companies. The words,
are covered in Clause 545(1)(b).
In summary, we consider that we are constrained by the Second Company Law Directive for public companies and that Clause 544 goes as far as it can in the power which may be conferred on the directors to apply modified pre-emption rights. For private companies, we are not convinced that the proposed amendments are necessary.
When you cut through all that, the answer is simply that that is what the Second Company Law Directive enables us to do.
Lord Hodgson of Astley Abbotts: I am grateful to the Minister. Once I saw the Second Company Law Directive coming over the horizon, I knew that I was in dangerous territory.
I believe the Minister said that through the omission of the words,
there is no intention on the Government's part to change the law, but that the Government's hand is being forced by the Second Company Law Directive. Therefore, there is no underlying sinister intent—if I may use that phrase—through the omission of those words. In passing, one wonders what the purpose of the words was in the previous Act—I refer to the many years for which the Second Company Law Directive has been in force—and whether it was beyond the power of the Government to use them.
However, that said, we have probably taken this matter as far as we can today. Therefore, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 545 [Disapplication of pre-emption rights by special resolution]:
Lord Sainsbury of Turville moved Amendment No. A41:
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On Question, amendment agreed to.
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