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Lord Sharman: My Lords, I thank the noble and learned Lord the Attorney-General for responding to the concerns raised in the debate on this issue in Committee. I recognise that his approach is a little different from the one that we suggested, but I am content that it achieves the same ends. I will therefore not move Amendment No. 467.

On Question, amendment agreed to.

[Amendments Nos. 467 to 469 not moved.]

The Deputy Speaker: My Lords, if Amendment No. 470 is agreed to, I cannot call Amendments Nos. 471 or 472.

Lord Goldsmith moved Amendment No. 470:

On Question, amendment agreed to.
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[Amendments Nos. 471 to 473 not moved.]

Lord Goldsmith moved Amendment No. 474:

"( ) Where an offence is committed under subsection (2)(b) or (5) by a company or other body corporate ("the relevant body")—
(a) subsection (2)(b) has effect as if the reference to a director, officer or member of the person making the bid included a reference to a director, officer or member of the relevant body;
(b) subsection (5) has effect as if the reference to a director or other officer of the company referred to in subsection (1) included a reference to a director, officer or member of the relevant body."

On Question, amendment agreed to.

[Amendment No. 475 not moved.]

Clause 650 [Effect on contractual restrictions]:

Lord Hodgson of Astley Abbotts moved Amendment No. 476:

The noble Lord said: My Lords, in moving the amendment I shall speak also to Amendment No. 477. We return to a point on which, when we discussed it in Grand Committee, I received a slightly baffling response from the noble and learned Lord. The amendments that we proposed then, and indeed the amendments we propose now, replace what is currently in the Bill with the wording in the directive. The reason behind the change is the uncertainty of the words "in value". When we pressed for an explanation of the meaning, the noble and learned Lord the Attorney-General replied:

I could not understand that answer then. I said then, and I repeat now, that nominal value bears no relationship to market value. If adopted as the standard for this clause, it could provide a skewed result owing to the different nominal value attaching to different classes of shares. We could find that a very few people holding high nominal value shares with a low market value could effectively control the company, despite the other shareholders owning a far greater amount in market value simply because the nominal value allocated to their shares was low. I am sure that that cannot be right. It would mean that different voting weights would be attached to shares, which though having the same rights would have different nominal values. I hope that the noble and learned Lord has thought again on this question. I always give way on matters such as Foss v. Harbottle, but this is a practitioner City matter and I am sure that this cannot be the right way to approach it. Maybe we are at odds over nominal and real market values. I beg to move.

Lord Goldsmith: My Lords, I recall the debate in Grand Committee and the reaction when I answered the question in the way that the noble Lord quoted.
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I will try to explain where the difficulty lies. Article 11.4 of the takeover directive uses a concept unfamiliar to English company law in terms of its language; that is, it talks of the offeror holding 75 per cent or more of the capital carrying voting rights. It is the concept that the noble Lord wants to insert by way of amendment, but it is not in itself a concept that is presently familiar to the English companies market, if I may put it that way. So we have tried to use an expression that will be familiar to the English company market rather than using that phrase.

If one is looking to see what is 75 per cent of the capital carrying voting rights, I stand by saying that in the majority of cases normally one would find that by looking at the nominal value of the shares and seeing whether they hold 75 per cent or more. Plainly in the case where we have only one class of share, no difficulty at all arises. In the situation where one has more than one class of share, no real difficulty may arise; there may be some difference in the market value of the shares at a particular stage but the voting rights may still appear to be broadly comparable to the nominal value.

What will the court make of it? The Bill does not say "nominal value"; it says, "value". It has been left in that sense so that it will be for the court to interpret what is meant. I answered the question because I was asked and it is right that we should indicate what we think. How will the court interpret it? The court will need to interpret this provision in the same way as it would interpret other provisions in a statute where it is plain that the intention has been to implement a directive. So I have little doubt that they will look at the directive and say that in understanding it they need to understand that it is intended to implement the requirements of Article 11.4

I doubt whether it will make much difference in many cases. There may be some cases—this is where the concern may have arisen over what I said—where the structure of the company is such that the court would say that if we are really looking at 75 per cent of capital carrying voting rights, it is not appropriate on this occasion just to look at the nominal value because the structure of the company is extraordinary: someone has 90 per cent of the nominal value for virtually nothing and the rest of the shareholders, who have only 10 per cent of the nominal value, have the real bulk of the company. I can see that one could have such a company and in those circumstances the court may say that 75 per cent of value in that context is to be interpreted in a different way. But in many cases—perhaps the majority—75 per cent in value of all the voting shares would be taken to mean the nominal value for the reasons that I have given.

So it is not straightforward: we do not know what the European Court of Justice would make of capital carrying voting rights, or 75 per cent of those in any event. That could influence what the English court ultimately made of any of this. In most cases, whether the breakthrough provision is calculated on the basis of nominal or market value, the result would be exactly the same.
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The point is that the amendment proposed by the noble Lord does not add any greater clarity because it uses an expression that does not mean much in itself. The provision as we have it in the Bill will have to be interpreted against that background. So the noble Lord can feel reassured that when it comes to interpreting what is meant by value, what is going to matter is not what I have said about it but what the court makes of the clause against the background of the directive.

Lord Hodgson of Astley Abbotts: My Lords, I am grateful to the noble and learned Lord the Attorney-General for his considered response. I accept that capital carrying voting rights is not the wording that is familiar in English financial practice. I therefore accept that our amendments are deficient in that sense; they do not advance the arguments sufficiently. I am always reluctant to leave a situation where we could clarify matters beyond peradventure and say that the courts will sort that out. That may be helpful for lawyers but it is an unsatisfactory way of proceeding.

I shall reflect on that, take some advice and consider whether inserting the word "market" might not sort the whole thing out. Dealing with the market value of the voting shares might be another way of tackling the matter and making it clear for ever that that is what we are about.

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