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Lord Goldsmith: My Lords, of course I am content for the noble Lord to do that, but perhaps I may invite him to consider this. The problem with the suggestion is, first, whether one would then be against the meaning of the directive. Secondly, I can see real difficulties in identifying at any moment what is 75 per cent of the market value. Do you take the value of the shares on day 1 or on the Wednesday? The fact that a breakthrough has, has not or may have taken place can in itself affect the value of the shares, and during a bid there might be a considerable movement in the value of the shares. The noble Lord's suggestion would be difficult in practice, but I invite him to take that into account when he takes his advice.
Lord Hodgson of Astley Abbotts: My Lords, I am always ready to learn from the Attorney-General and to follow the avenues that he has already travelled. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 477 not moved.]
Lord Goldsmith moved Amendment No. 478:
"(b) shares that, under the company's articles of association, do not normally carry rights to vote at its general meetings (for example, shares carrying rights to vote that, under those articles, arise only where specified pecuniary advantages are not provided)."
The noble and learned Lord said: My Lords, these amendments take up discussions we had during Committee as to the precise meaning of some of the other complex provisions of the takeovers directive. We have returned to Article 11. The provisions of that
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directive are given effect to by chapter 2 of Part 22 of the Bill. The amendments are concerned with the types of "securities" falling within the scope of the directive.
On its face, the takeovers directive is relatively explicit on this point. It states at Article 2 that "securities" means,
That short definition cannot be expected to cover in detail a whole range of different security instruments that exist across the EU. We must work out what principles it lays down. For the purposes of the domestic implementing legislation, we talk of "shares" rather than "securities", as we think that that is more natural in terms of existing companies legislation..
So, we need to capture the concept of "shares carrying voting rights". There is a long-standing argument as to whether that means voting rights in all circumstances, or whether it includes voting rights that arise only in exceptional circumstances. For example, with some "preference shares", there will be a right to vote, but that will arise only when the dividend has not been paid. There will be other categories of shares that carry no voting rights, except on specific matters, such as any variation of the class rights relating to those shares.
In the UK, different types of shares are not defined. Instead, the voting rights and the other rights attributable to the shares are generally prescribed, in the first instance at least, by the articles of association. The inevitable result is that there are many variations on the types of shares that can exist.
By these amendments, we seek to cut the Gordian knot. They would provide that, in determining the breakthrough threshold and the mechanics of the operation of breakthrough, where the different interpretation has real practical effect, shares that do not normally carry rights to vote at general meetings will be excluded. We think that that drafting reflects the policy intent of the directive. It benefits from being absolutely clear whether a share is a voting share or not, at least in the vast majority of cases. In the most exceptional cases, that matter might have to be determined by the court; but we would have gone a long way to avoid the need for that. Parallel amendments on this matter are also proposed regarding Clauses 651 and 654.
Perhaps I may conclude with two further observations. First, companies can help themselves. Breakthrough has not been imposed on UK companies and we have left companies considerable flexibility as to the structure of their articles where they choose to opt in to the breakthrough regime. Secondly, we understand that the majority of UK companies falling within the scope of the takeovers directive have only one class of share, which generally has voting rights. Such shares will be caught by the breakthrough provisions and by the definition that we propose. I beg to move.
On Question, amendment agreed to.
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Clause 651 [Power of offeror to require general meeting to be called]:
Lord Goldsmith moved Amendment No. 479:
"(b) shares that, under the company's articles of association, do not normally carry rights to vote at its general meetings (for example, shares carrying rights to vote that, under those articles, arise only where specified pecuniary advantages are not provided)."
On Question, amendment agreed to.
Clause 654 [Transitory provision]:
Lord Goldsmith moved Amendment No. 480:
"(b) shares that, under the company's articles of association, do not normally carry rights to vote at its general meetings (for example, shares carrying rights to vote that, under those articles, arise only where specified pecuniary advantages are not provided)."
On Question, amendment agreed to.
Clause 656 [Matters to be dealt with in the directors' report]:
Lord McKenzie of Luton moved Amendment No. 481:
On Question, amendment agreed to.
Schedule 3 [Amendments to Part 13A of the Companies Act 1985]:
Lord Sharman moved Amendment No. 482:
"(1) Section 425 of the Companies Act 1985 (c. 6) is amended as follows.
(2) In subsection (2) (arrangement or compromise to be binding) for "majority in number" substitute "creditors or members".
(3) After subsection (2) insert—
"(2A) The court will have the power to sanction a compromise or arrangement under subsection (2) notwithstanding any defect in the constitution of any class, provided that the court is satisfied that such defect has not affected the fairness of the compromise or arrangement.""
The noble Lord said: My Lords, we return to a matter that we debated in Grand Committee; namely, the ability of the courts to exercise discretion in terms of sanctioning schemes of arrangements. The purpose of the amendment is to grant that discretion to the court even if the relevant classes have not been correctly constituted, provided that the fairness of the scheme is not affected in any way. The amendment also seeks to dispense with the requirement that a majority in number of the creditors or members must agree to a scheme of arrangement for it to be binding.
The Law Society advised us that the amendment to Section 425 of the Companies Act on the lines recommended by the Company Law Review would enable the court to sanction a scheme of arrangement
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notwithstanding a technical defect in the constitution of classes, provided that the defect would not affect the fairness of the arrangement. We took note of the comments made by the noble and learned Lord, Lord Goldsmith, in Grand Committee, and the proposed new arrangement would allow the court to sanction the scheme only where the court was satisfied that the defect did not affect the fairness of the scheme—that is, if it was only a technical defect.
In addition, we are pressing for the removal of the requirement for the approval of a scheme by a majority in number of those voting, as well as three-quarters by value. The majority in number test is not, as far as I am aware, contained anywhere else in company law and there is no special reason why such protection should be required for schemes of arrangement, but not for other corporate transactions. Indeed, the majority in number, focusing on a majority of registered holders is an anachronism, now that most retail holders hold through the CREST nominees, where one registered holder may represent many thousands of beneficial owners. It is also open to abuse by shareholders who could subdivide their holding through a number of nominee companies. I beg to move.
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