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Lord Hodgson of Astley Abbotts moved Amendment No. A59:
The noble Lord said: Amendment No. A59 to Clause 551 seeks to insert additional wording at the end of line 10, page 263. Clause 551(4)(c) seems to envisage the possibility of an element of conditionality being introduced into a resolution under Clause 551(3); that is, as the "specified circumstances" may or may not arise.
To be clear about the Government's thinking, it would be helpful if the Minister could give an example of what "specified circumstances" might be. If it is not the intention to have an element of conditionality, the provision should make that clear. However, if that is the intention, there should be a provision for a further filing as per Clause 78(2), which dealt with conditional changes of names by companies. The amendment follows the path of assuming that conditionality is intended, and provides that notice must be given to the registrar on the fulfilment of the conditional circumstances. That is the background to the wording that we wish to put at the end of line 10. I beg to move.
Lord McKenzie of Luton: Clause 551 prescribes how a company may subdivide all consolidated shares into shares of a different nominal amount. Amendment No. A59 appears to restrict the ability of a company's members to authorise an alteration of the company's share capital under the clause, where the company wishes to exercise the power at a specified time or in specified circumstances. In particular, it appears to provide that a resolution passed under subsection (3) would only give the company the authority envisaged in subsection (4) if the resolution, or possibly notice of the exercise of the power in question, is delivered to the registrar of companies.
Where a company makes any alteration to its share capital, that is a matter of public record, and it is clearly important that provision is made for appropriate notice to be given to the registrar. In the context of subdivision or consolidation of a company's share capital, provision for the notice is made in
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Clause 552. That replaces a similar requirement to notify the registrar contained in Section 122(1)(a) and (d) of the 1985 Act. It requires a company to give notice to the registrar within one month of the exercise of the power to subdivide or consolidate the shares. Criminal liability for any failure to comply with the procedural requirements as to notice is retained by Clause 552(4). The Government consider that the criminal sanction provides sufficient incentive to the company and its directors to ensure that the requirements as to notice are met. Therefore we are not persuaded by the amendment. For the purposes of clarity, the provision is intended to enable conditional resolutions to be passed, which is what the noble Lord sought to clarify.
Lord Hodgson of Astley Abbotts: I am grateful to the Minister. The word I picked up in his response was that the registrar must be told of the "power". It concerned us that you might have the power with a condition attached which might not be exercisable for some considerable period of time. The condition might not be fulfilled for weeks or months. Therefore, was there not a reason when the condition was fulfilled for the registrar to be told that the condition had now been fulfilled and the power had been exercised? The Minister may say that that is covered somewhere else, but I did not hear that in his response.
Lord McKenzie of Luton: I understand that notice has to be given within one month of the exercise of the power, if that helps.
Lord Hodgson of Astley Abbotts: So they have to give notification that they have the power and then they have to give notification again when the power is exercised?
Lord McKenzie of Luton: I feel a bit like a messenger here. It is not the existence of the power but the exercise of the power that is the subject of the notification. Perhaps I will review the record on this, and if I need to say anything further I will write.
Lord Hodgson of Astley Abbotts: I think that we have got to the bottom of that. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clauses 552 and 553 agreed to.
7.15 pm
Clause 554 [Notice to registrar of alteration of share capital]:
Lord Hodgson of Astley Abbotts moved Amendment No. A60:
Leave out Clause 554 and insert the following new Clause—
"NOTICE TO REGISTRAR OF ALTERATION OF SHARE CAPITAL
(1) If a company having a share capital has—
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(a) consolidated and divided its share capital into shares of larger amount than its existing shares;
(b) converted any shares into stock;
(c) re-converted stock into shares;
(d) sub-divided its shares or any of them;
(e) redeemed any redeemable shares;
(f) cancelled any shares (otherwise than in connection with a reduction of share capital under section 135 of the Companies Act 1985); or
(g) converted issued shares of one class into issued shares of another class with the same nominal values;
it shall within one month after so doing give notice in the prescribed form to the registrar of companies, specifying (as the case may be) the shares consolidated, divided, converted, sub-divided, redeemed or cancelled, or the stock re-converted.
(2) The notice must be accompanied by a statement of capital.
(3) The statement of capital must state with respect to the company's share capital immediately following the redemption or cancellation—
(a) the total number of shares of the company,
(b) the aggregate nominal value of those shares,
(c) for each class of shares—
(i) prescribed particulars of the rights attached to the shares,
(ii) the total number of shares of that class, and
(iii) the aggregate nominal value of shares of that class, and
(d) the amount paid up and the amount (if any) unpaid on each share (whether on account of the nominal value of the share or by way of premium).
(4) If default is made in complying with this section, the company and every officer of it who is in default is liable to a fine and, for continued contravention, to a daily default fine."
The noble Lord said: This amendment takes the scalpel to Clause 554, and seeks to replace it; I will not weary the Committee with its wording. This issue was again raised with us by practitioners, and is similar to the points I raised in speaking to Amendments Nos. A44 to A50.
As Sections 120 to 124 of the Companies Act 1985 are repealed and/or restated in this Bill, it seems strange to retain just Section 122 of the 1985 Act as amended, particularly as Clause 552 and Section 122(1)(a) both cover the same ground. It would be far clearer if Section 122 were restated, as amended, as Clause 554. The amendment seeks to give effect to this. Aside from a consolidation, the reasons for and purposes of which I will not repeat, there is one change in this amendment from the wording in the Bill or, as an alternative, the Companies Act 1985—the addition of subsection (1)(g):
"converted issued shares of one class into issued shares of another class with the same nominal values".
That simply makes provision for the conversion of shares, as we discussed in Amendments Nos. A52 and A57, even though the Government did not like those either. I beg to move.
Lord McKenzie of Luton: I am aware that this is going to be part of a wider debate about consolidation, to which we will return.
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Where a company makes an alteration to its share capital in any of the ways listed in Section 122 of the 1985 Act as amended by the Bill, it is required to give notice of the alteration to the Registrar of Companies in accordance with the provisions of that section. However, much of Section 122 is replaced by various provisions in the Bill, and will be repealed. For example, Clause 552 replaces Section 122(1)(a) and (d) in respect of the procedural notice requirements, where there has been a subdivision or consolidation of a company's share capital. In addition, the power to convert shares into stock will be repealed by the Bill, so the reference in Section 122(1)(b) to the obligation to notify the registrar following such a conversion will fall. The power to reconvert stock into shares is contained in Clause 553, together with an obligation to notify the registrar. So, similarly, the reference in Section 122(1)(c) to the reconversion of stock into shares will fall.
Clause 554 amends current Section 122 to update the notice requirements for those provisions of that section which remain; namely, the provisions which refer to an alteration of capital in connection with the redemption of shares contained in Section 122(1)(e), which were a cancellation of the company's share capital otherwise than in connection with the reduction of capital contained in Section 122(1)(f). The change introduced by Clause 554 is that, in future, a statement of capital will be required where the company gives notice under Section 122 of an alteration to its share capital in the circumstances to which I have referred.
Where a company fails to comply with the procedural notice requirements, it, and every officer of the company, is in default and commits an offence. The amendment restates Section 122 of the 1985 Act, as amended by Clause 554, save that it includes a new subsection, as was referred to, to reflect Amendment No. A57, which seeks to make a conversion of shares from one class to another, subject to the procedure for alterations to share capital in Clause 551. Presumably, the intention of this amendment is to bring the provisions amending Section 122 together and put them in the Bill. I see that it is.
The amendment does not, however, take account of other changes to Section 122; in particular, those made by Clauses 552, 553 and 733, and Schedule 4 to the Bill. These changes are required because the Bill makes substantive amendments to the ways in which a company may alter its share capital. For example, it will not possible for a company to create new stock in future, and the notice requirement in Section 122(1)(b) is therefore spent. The Government do not consider the addition to the restated Section 122, relating to class conversions, appropriate, as we have just discussed.
This has been a detailed explanation of the Government's reasons for resisting the amendment. I think it was necessary, and I hope that it has been helpful. I should add that the vast majority of people who have reasons to look at provisions in company law do not refer to the statutes themselves, but company law textbooks such as Butterworths. Such
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textbooks show the provisions of a statute, as amended, in one place. I am therefore not convinced that the amendments are necessary.
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