| Previous Section | Back to Table of Contents | Lords Hansard Home Page |
Lord Hodgson of Astley Abbotts: I am grateful to the Minister. Of course I perfectly understand that we are not discussing rights attached to shares here. What we are trying to get at is that there may be an agreement between a company with two classes of shares which have different rights attaching to them, and the holders of class A shares are perfectly happy and wish to convert their shares into B shares. It is not a question of them being sold something; they want to do it. That is a matter of agreement. At present, we are told, to do that you have to go through a very elaborate procedure for consolidating into different values, and then subdividing it again, because the only way that you can comply with the requirements is by means of conversion—subdividing or consolidating.
We say: "We are not varying the rights in any way, but if it is understood and there is agreement between the shareholders that they want to convert, why are we going through this consolidation and subdivision exercise?". To which other people say, "No one is doing it anyway; they are just going ahead and doing the straight conversion in the absence of any statutory framework". This is a practitioner issue of trying to regularise a situation and recognising practice, which will not in any way undermine or change the rights of any shareholders.
7 pm
Lord McKenzie of Luton: It is an interesting point. We would like to take it away and think about it. Clearly, there is a distinction. If one is looking to change the rights of any shareholder by reference to an ordinary resolution, that must be guarded against. If it does not affect the rights, we would like to review what the noble Lord has said and possibly come back on it.
Lord Hodgson of Astley Abbotts: I am extremely grateful to the Minister for that offer; that would be very helpful. Perhaps the officials could consider
15 Mar 2006 : Column GC518
talking to people who practise the law in this area, because there are things such as the private equity exit where by agreement the investors, the managers, share the proceeds and therefore conversions take place, often following a shareholder agreement. There is no disagreement about that; no one is trying to put one past other people. It gets rid of the rather elaborate requirement that some firms follow and some appear not to follow. It would be helpful if we could take the opportunity to simplify things. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord McKenzie of Luton moved Amendment No. A53:
Page 262, line 22, at end insert "and may reduce its share capital in accordance with section 582 of this Act in connection with such a redenomination"
The noble Lord said: In moving Amendment No. A53, I shall speak also to Amendments Nos. A54, A55 and A56. I will set the scene for the four amendments by providing a short summary of the clause that we seek to amend. Clause 550 prohibits a limited company from altering its share capital except in the ways permitted under the Bill and under the provisions in the 1985 Act relating to alterations to company share capital that are retained. The clause is intended to constitute an exhaustive list of the ways in which a company may alter its share capital, whether under the Bill or under the 1985 Act, and the first and second amendments in the group are required to achieve that policy objective.
Amendment No. A53 incorporates a reference to a reduction of share capital in connection with a redenomination of share capital into subsection (4). Amendment No. A54 incorporates a reference to the power of a company to purchase shares in pursuance of an order of the court under Section 177 of the 1985 Act into subsection (5)(b). Amendment No. A55 removes the reference to Part 11 of the Bill from subsection (5)(b)(ii). On reflection, that reference is misconceived and its inclusion may cause confusion. Part 11 enables a member of a company to bring a derivative action—I am not sure whether I need to explain this as it was debated extensively at the time—to pursue a remedy on behalf of the company. The Government cannot envisage any circumstances in which the court would order the company to purchase the members' shares pursuant to such an action. Moreover, Part 11 does not confer a power on the court to make such an order.
Amendment No. A56 incorporates a reference to a compromise or arrangement made by a company with its creditors and members under Section 425 of the 1985 Act into subsection (5). The amendment is required since an arrangement as defined in Section 425 of the 1985 Act may include a reorganisation of the company's share capital, for example, by way of a consolidation or subdivision of the company's shares. In addition, Section 425 gives the court extensive powers to make such ancillary orders as are necessary to facilitate company reconstructions or amalgamations. Such an order may
15 Mar 2006 : Column GC519
make provision for the allotment or appropriation by the transferee company of any of its shares. I hope that noble Lords will agree that the amendments complete what we were seeking to achieve and improve the clause. I beg to move.
On Question, amendment agreed to.
Lord McKenzie of Luton moved Amendments Nos. A54 to A56:
"( ) section 177 of the Companies Act 1985 (powers of court on objection to certain payments out of capital), or"
Page 262, line 31, leave out from beginning to second "Part"
Page 262, line 37, at end insert—
"( ) the power of a company—
(i) to enter into a compromise or arrangement in accordance with section 425 of the Companies Act 1985, or
(ii) to do anything required to comply with an order of the court on an application under that section."
On Question, amendments agreed to.
Clause 550, as amended, agreed to.
Clause 551 [Sub-division or consolidation of shares]:
[Amendment No. A57 not moved.]
Lord Hodgson of Astley Abbotts moved Amendment No. A58:
"(3) The powers conferred by this section must be exercised by the company in general meeting."
The noble Lord said: We remain with Clause 551, "Sub-division or consolidation of shares". We wish to redraft and replace subsection (3). Clause 551(3) seems to require a two-stage process; that is, shareholder approval, followed by a board resolution to exercise the power so granted to the company. Existing Section 122(4) of the Companies Act 1985, which this clause replaces, effectively eliminates the need for the board resolution to exercise the company's powers. The existing route in Section 122(4) of the Companies Act 1985 is more efficient. There appears to be no reason to depart from it, as this clause does as currently drafted. The amendment merely seeks to return the process to that which currently exists and is laid out in Section 122(4) of the 1985 Act. I beg to move.
Lord McKenzie of Luton: The amendment would require companies which want to sub-divide or consolidate their shares under Clause 551 to pass a resolution authorising the company to do that at a general meeting of the company's members. This seeks to restore the position to that in Section 121(4) of the 1985 Act, which the noble Lord explained. For private companies that would clearly restrict the flexibility given to such companies in the Bill to use the written resolution procedure. In terms of public companies, the amendment would have no effect in so far as such companies are already required to hold
15 Mar 2006 : Column GC520
general meetings under the Bill and would need to do so in order to pass the ordinary resolution that is required.
I should add that in any event I am not attracted to the form of words used in Amendment No. A58, which is less helpful to companies than the formulation of words used in Clause 551(3). This subsection makes clear what is required of companies; namely, an ordinary resolution. Therefore, I am not persuaded by the amendment proposed by the noble Lord.
Lord Hodgson of Astley Abbotts: I am grateful to the Minister. I am not sure that we had taken on board the increased use of written resolutions and the impact on this. I suspect that we will accept the government's drafting. We will have a quick look at it, but it sounds okay to me. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
| Next Section | Back to Table of Contents | Lords Hansard Home Page |