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Lord Goldsmith: I really do not see a problem with the clause as it stands, in particular with the definition of "rule-based requirement", which the noble Lord's amendment goes to. He would insert after those words the phrase,

because, as I understand it, he wants to be clear that decisions or rulings of the panel can be rule-based requirements. But I cannot imagine what "rule-based requirement" would mean if it did not include a decision or ruling of the panel made pursuant to the rules. If that is right, the definition stands perfectly well as it is. The current definition is perfectly functional, so the court would enforce the rulings and decisions that have been made, as we both agree it ought to be able to.

As always, putting something else in to cure a supposed ambiguity—although I do not think there is one—always raises the risk that you will create a problem in another direction. In the light of what I have said about the Government's view, I invite the noble Lord to withdraw his amendment.

Lord Sharman: As I said at the outset, this amendment was tabled on the advice of the Law Society. I would like to consider carefully what the Attorney-General has said, and I may wish to return to it later. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 630 agreed to.

Clauses 631 to 638 agreed to.

Clause 639 [Amendments to Financial Services and Markets Act 2000]:
 
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Lord Goldsmith moved Amendment No. A156:


"(3A) Section 348 does not apply to—
(a) the disclosure by a recipient to which subsection (3B) applies of confidential information disclosed to it by the Authority in reliance on subsection (1);
(b) the disclosure of such information by a person obtaining it directly or indirectly from a recipient to which subsection (3B) applies."

On Question, amendment agreed to.

Lord Goldsmith moved Amendment No. A157:


"( ) In section 417(1) (definitions), insert at the appropriate place—
""Takeovers Directive" means Directive 2004/25/EC of the European Parliament and of the Council;"."

The noble and learned Lord said: For the purpose of certainty and clarity the definition of the takeovers directive is added to the definition provisions of the Financial Services and Markets Act 2000. The term is utilised in amendments to that Act made by Clause 639. I beg to move.

On Question, amendment agreed to.

Clause 639, as amended, agreed to.

Clause 640 agreed to.

Clause 641 [Opting in and opting out]:

Lord Sharman moved Amendment No. A158:

The noble Lord said: In moving the amendment I will speak also to Amendments Nos. A159, A160 and A161. Amendments Nos. A158 and A159 are designed to remove a provision that, again on the advice of the Law Society, we do not believe correctly implements the takeovers directive, and to highlight the need for an adequate provision to be drafted in its place.

Clause 641 is one of the provisions implementing—at least in part—Articles 11 and 12 of the takeovers directive. As it currently stands, the clause needs to be redrafted properly to implement the takeovers directive. Article 12 of the directive provides that member states must allow companies to opt in so that they are subject to the provisions of Article 11 if they wish. It does not allow member states to make this right subject to conditions, which Clause 641 does. The takeovers directive allows a company to opt in to the provisions of Article 11 on the basis that if the company becomes subject to a successful takeover bid, the successful bidder would pay compensation to a target shareholder whose special rights are overridden in accordance with Article 11. Clause 641 would not give sufficient flexibility to allow this. We are concerned that the takeovers directive will not be validly implemented without the provision being redrafted and consequential changes to the compensation provisions.

Amendment No. A160 and A161 in Clause 642 also seek to clarify the drafting and to bring this clause into line with the requirements of the takeovers directive. Clause 642 prescribes the date that opting-in and opting-out resolutions will take effect. The first
 
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amendment, therefore, is consequential to the amendments I have just outlined to Clause 641. The second amendment is purely of a clarificatory nature. Where the clause currently states,

it would be clearer if it stated,

I beg to move.

Lord Goldsmith: I am going to resist all of these amendments. We would have to rework our approach to implementation of Article 11 of the takeovers directive if we were to accept these amendments. I shall explain why.

Article 11 seeks to override, in certain circumstances relating to a takeover, a number of defensive devices that may be adopted by companies prior to a bid. I do not need to enumerate what those devices are; the Committee will well recognise them. If I understand correctly, the amendments seek to ensure that the provisions of Article 11 are implemented entirely by legislative provision so that the Bill would need to deal in substance with the consequences of override of articles of association as well as of contractual agreements. It would need to deal also then with matters such as the compensation to be paid.

There is force in that way of dealing with matters. Indeed, it was an implementing option about which the Government thought long and hard. It is the approach that has been taken in relation to the override of contractual rights. One sees that at Clause 643 of the Bill. The Government thought it was necessary to do that in relation to contractual rights because there is no existing means by which the override of private contractual rights as a result of a constitutional decision of a company can be made.

But the position as regards articles of association is, of course, different. The directive allows member states to implement the provisions of Article 11 on a voluntary basis. The decision is left to companies as to whether or not they opt in to the article. We propose to give companies the choice, not only as to whether they opt in but also as to how they opt in. For example, Article 11.3 of the directive provides that multiple vote securities shall carry only one vote each at a meeting to decide upon defensive measures. Companies might make such an express provision in their articles or they might decide to go further and ban multiple vote securities altogether. Either approach would be fully compliant with Article 11 of the directive and we do not see any reason to force a company down either of those routes.

5.45 pm

Our approach in implementation is to allow companies the maximum flexibility in opting in. All that is required by Clause 641 is that the articles of the company are altered to ensure that they are compatible with Article 11. Where does that lead? It leads me to answer two further questions. First, does this impose a burden on companies to have to amend their articles
 
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prior to opting in? It might do, but if it is an additional burden it is outweighed in our view by the additional advantage the company has of having the flexibility to determine which route it goes. I will say something about transparency. If the articles are not altered, the effect of an opting-in resolution is to make the articles of the company subject to Article 11. Put another way, the company has effectively altered its articles in any event. It is clearly better in terms of transparency that, as a condition of opting in, the articles be amended to reflect that.

The second question is the issue of shareholder protection, particularly compensation for those whose rights are overridden. Again, we think our approach lends flexibility to companies and their shareholders on how to deal with the issue of compensating those shareholders whose special rights are—or might be, in the event of a subsequent takeover, at least—overridden by a decision to opt in. The starting point is that any decision to opt in will have to be taken in accordance with the usual rules for changing the articles of association of a company. That will include the safeguards that will apply to classes of shareholders, where those exist, and to minority shareholders. These provisions would be available for those who oppose an opting-in decision that would adversely affect their rights. But with regard to the specific issue of compensation, Article 11.5 provides that equitable compensation must be provided to those whose rights are overridden by virtue of the operation of the article. Again, we have tried to preserve the room for manoeuvre for companies and shareholders.

It may be that in gaining the agreement of a shareholder with special rights to an opting-in resolution there has to be some form of financial settlement between the company and that shareholder or shareholders; or the articles of association might have to be amended to provide for compensation to be paid when any bid is made and the provisions of Article 11 take effect. The choice will be left to companies and their shareholders. That is the route the Government have chosen to take. I hope the noble Lord will see the reasons behind that and will withdraw his amendment.


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