Lorely
Burt: I preface my questions with an admission that I am
not a lawyer—far from it—and as my hon. Friend the Member
for Cambridge has been unavoidably called away, I ask for the patience
of the Committee. I shall do my best to put the points that we wish to
make. We want to
understand the difference that amendments Nos. 4 and 47 would make to
what has been proposed. The intention appears to be to set up the
possibility that the distinction between companies required to have
company secretaries and those not so required should rest on something
other than the fact that the company is or is not a public company. Our
position is that it is right to remove the requirement from private
companies, but there may be an argument from other parties that very
large companies should have a secretary even if they are private
companies. The
Government amendments, including the new clauses, appear to create a
new authorised signature regime for companies, presumably in response
to the complaint that removing the need for company secretaries will
lead to confusion about who is authorised to sign documents on behalf
of the company. In effect, they will allow companies to say that people
other than directors are also authorised and to put those names on a
register that other people can see. We are not entirely convinced that
this is technically necessary, but people may genuinely be confused by
the new
situation. Amendment
No. 51, which would amend clause 44, continues the company secretary
debate, but it seems to conflict with clause 12. Amendment No. 52,
which could be a drafting amendment, would make it clear that a
document is associated with the company and not anyone else. We want to
understand why that is important if a single director could sign in the
presence of a
witness.
The
Parliamentary Under-Secretary of State for Constitutional Affairs (Vera
Baird): The hon. Gentleman argued that there will be some
difficulty for companies if the first secretary of a private company is
not included in the statement of proposed officers. There is a long
debate to come about that. However, as his amendment is consequential
to later amendments relating both to the execution of documents and to
private company secretaries, I shall start by addressing who can act
for a company in the execution of documents. I shall pause there, as
some specific points have been made.
First, let me be glad that the
hon. Gentleman has no problem with the concept of authorised
signatures, except in the caveat that he has put forward, and
apparently neither does the hon. Lady, who merely asked whether it
would be confusing. In fact, it is
probably a reasonably clear provision. Of the questions raised by Lord
Sainsbury, the three that are relevant were probably all answered. Who
can execute documents? If there is a company secretary in a private
company, there is case law to say that they can sign documents relating
to administrative matters, so that presents no problem. If the private
company makes their company secretary an authorised signatory, of
course they can sign in that capacity. The third question was whether
the company secretary has to go on record, to which the answer is yes
if they are an authorised signatory. I hope that is clear. I do not
think that the last point was relevant. Mr.
Djanogly: Looking at the remarks of Lord Sainsbury at
Grand Committee stage, most people would probably think that he wanted
to see how the concept of the company secretary could be built in,
whereas what came out of the mill, so to speak, was the total
cutting-out of company secretaries. That is the point that I was trying
to make.
Vera
Baird: I think that is probably an interesting item for
the later debate, says she who is hopefully not conducting it. Who may
enter into a contract on behalf of the company is really entirely a
matter for each company’s internal organisation, and it is
wholly a matter for the company how, and by whom, its official seal is
affixed for the purposes of contracts.
The ability to execute documents
by the signature of two directors, or one director and a secretary has
been available since 1989. The nub is the nature of the alternative
proposed in clause 44 to affixing the seal for execution of
documents—that is, signature by two directors, or by one and a
witness. The point of the provision was to grant new flexibility and
allow a signature by a single director—that, I think, was how it
went into the Lords—as long as that was duly witnessed, with no
restriction on who may witness it. However, it has been pointed
out—we have taken this on board—that that reduces
flexibility for private companies in certain, limited circumstances
since the witness and signatory have to be present together whereas the
directors, or the director and secretary, may sign
separately. As nobody
wants to restrict flexibility, and as the whole point is to improve it,
we have considered the matter further. By discussing it with
stakeholders—in particular, the City of London Law
Society—we discovered that some public companies would value
having the freedom to authorise who can sign on their behalf, just as
they value their existing freedom to authorise who can put their seal
on. That freedom would be of particular benefit to private companies
that have only one director. Hence, we have gone further to introduce
more flexibility. The
Government amendments will enable any company to appoint any number of
people to execute documents of any description on its behalf.
Directors, and in the case of public companies their secretaries, will
automatically be authorised signatories by virtue of their office,
although the company can appoint more such signatories if it wants. For
all companies executing deeds, the alternative to affixing their seal
will be either by the signature of two authorised signatories, or by
one in the presence of a witness. It is
important that third parties know whether someone is authorised to sign,
which may be relevant long after the event. As for directors, the Bill
already requires a company to keep a public register of its directors
and file the information with the registrar. The same is the case with
secretaries of public companies. Government amendments Nos. 76 to 78
and Government new clauses 17 to 20 ensure that the name and address of
any authorised signatory is similarly on the public record at formation
and thereafter.
James
Brokenshire (Hornchurch) (Con): I note that the Minister
said that it was important for third parties to know with whom they are
dealing, which obviously underpins the concept of authorised
signatories. I briefly return to the issue of company secretaries and
private companies. She said that case law states that company
secretaries could sign administrative documents. Does she accept that
third parties not familiar with case law may want something that is
more codified to assure third parties that a company secretary in a
private company is duly
authorised?
Vera
Baird: If the company secretary of a private company is an
authorised signatory, it will be on the
record.
James
Brokenshire: And if
not? 11
am
Vera
Baird: Then the hon. Gentleman probably makes a good
point, and I shall reflect upon it.
The amendments are intended to
enable a company to appoint any number of people to execute documents.
I am sorry to go back to this point, but it is important to make it
clear to third parties who can exercise that function: authorised
signatories will have to go on to the public record on formation of a
company and thereafter as they are appointed. The requirements of the
record will, I think, be the same as for public company secretaries,
except apparently it will not be necessary for a public company
secretary to be 16—although I doubt whether that will be
relevant terribly
often. The proposals
have real attractions both to private and public companies. Several
public companies have made it clear they would find it useful to have
such a facility, especially those that have to execute lots of
documents—for instance, banks issuing powers of attorney. It
will be possible for a private company appointing an individual to the
office of secretary to appoint the same individual as an authorised
signatory, but that would be entirely up to the company. On the other
hand, the abolition of the requirement to have a company secretary is
likely to lead to some private companies finding other ways to meet
their administrative
needs. In recommending
abolition of the requirement to appoint a company secretary, the
company law review argued that it would give greater flexibility. A few
large companies will of course continue to have secretaries; and it is
likely that such companies will use the facility
provided by this group of amendments to give the secretary the authority
to execute documents, so secretaries would have that authority as they
now do under the Act. However, about 1 million private
companies have only one director and a secretary, and more than half of
them have fewer than five shareholders. Such companies are likely to
use the flexibility provided by the Bill in other ways. It is possible
that people would appoint secretaries only to cover peak periods, and
in such situations they might not want them to be able to execute
documents. Others might divide the function between two or more people,
who may or may not be directors; or the directors might appoint a
secretary but not want that person to be an authorised signatory. We
want to give all companies the maximum freedom as to who can execute
documents. Such flexibility will be useful.
I do not know if this answers
the hon. Member for Hornchurch (James Brokenshire), but we are not
codifying who can sign. As an agent, that would be an immense and
unnecessary task. Companies enter into transactions at every level
every day, but we are talking about formal contracts, and the case law
relates to agencies. Does that help?
James
Brokenshire: I was seeking some transparency and clarity
about the role of the company secretary. If there is case law—if
there is some uncertainty as to whether the secretary of a private
company can sign a formal contractual document—it is important
to have clarity about the continuing role of the secretary. We need to
know whether such people are duly authorised to sign formal documents
without the need to go through the formality of becoming an authorised
signatory, and I am not sure that the Minister has addressed that
point.
Vera
Baird: I do not think the hon. Gentleman needs to worry.
It is plain that a company secretary can sign because, under the new
system, the signature will be tendered on the basis that the person is
an authorised signatory. I shall try to develop the argument, as the
hon. Gentleman is obviously not entirely happy.
Who may sign on behalf of a
company is a matter for the company. Who may sign as the
company—that is what we are dealing with—is limited by
statute and details will have to be on the record. A person can sign as
the company only if he is an authorised signature; it is for the
company to decide whether a person can sign day by day on its
behalf.
James
Brokenshire: Perhaps we can debate the subject more fully
when we come to part 12. A private company that has a company secretary
is now able to execute documents, under company seal or executed as
deeds, through the company director and the company secretary. Existing
private limited companies with secretaries who wish to retain them will
clearly face a further administrative burden inasmuch as the existing
secretary will now formally have to be appointed as an authorised
signatory. We are trying to raise such issues, and I shall develop that
point in more formal and further detail when we reach part
12.
Vera
Baird: I am grateful to the hon. Gentleman for
making it clear to what he was referring, but the increased flexibility
in the provisions overwhelmingly outweighs the need to appoint a
company secretary as an authorised signatory. The hon. Gentleman has
talked about formalities as if there is a great procedure to go
through, but I do not think so. Existing company secretaries of private
companies might or might not be allowed to be deemed authorised
signatories by virtue of their office—we are still considering
that—but new company secretaries and new private companies will
clearly follow the new regime of authorised signatories. Transitional
provisions are still a little up in the air, but I hope that that
satisfies the hon. Gentleman that we are still considering the
matter. In view of the
maximum flexibility in the amendments, I hope that the hon. Gentleman
will withdraw his amendments and support those tabled by the
Government.
Mr.
Djanogly: I said that we would need to look more closely
at the mechanics of the provisions—that will obviously be
important—rather than at the execution of the provisions per
se. As regards company
secretaries, we are concerned that the provision could give rein to
confusion on the part of companies and the people who deal with them.
Until the new system beds down, there will be a dangerous transitional
stage as company secretaries will look to change companies’
articles of association, as standard inserts will presumably be
prepared to go into articles to put back in place the powers that were
there under statute and under constitutions, and as different companies
will have different ways of doing things. The process of passing
resolutions and changing articles is regulatory by nature and will
involve costs to companies, as well as time.
I was certainly interested to
hear that the Minister would consider the issue of existing company
secretaries. I am sure that they will be pleased to hear that, but from
a rational point of view I am not entirely sure that to differentiate
between existing company directors and training company directors is
the right route to follow.
Margaret
Hodge: The hon. Gentleman alludes to a series of issues
that are part of the transition we shall have to reflect on as the Bill
moves towards becoming an Act. I hope he accepts our assurance that we
will be putting out regulations for the transitional arrangements.
There will be extensive consultation on the regulations, which will not
come into force until October 2007. We appreciate, as he does, that
there is a degree of complexity in getting the transition right for
existing companies. I hope he accepts that there will be extensive
consultation on our part with all interested
parties.
Mr.
Djanogly: I am certainly pleased to hear that there will
be extensive consultation. From what I saw in the Lords Committee
stage, and even through to today, with Government amendments being put
in regularly with little notice to the Opposition, there needs to be a
lot more thought.
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