Mr.
Djanogly: I remember you, Mr. Bercow, as a student looking
for trouble. Thinking back to those days, I could hardly have thought
that here we would be some 20 years later, but such is life. It could
have been worse. I
hear what the Minister has to say. I am not sure that I entirely agree,
but then again I do not think that this is a die-in-the-ditch point. I
beg to ask leave to withdraw the amendment.
Amendment, by leave,
withdrawn.
Clause 27 ordered to stand
part of the Bill.
Clause
28Existing
companies: provisions of memorandum treated as provisions of
articles
Mr.
Djanogly: I beg to move amendment No. 13, in clause 28,
page 11, line 7, at end
insert— ‘(4) If there is a
conflict between a provision which immediately before the commencement
of this Part was contained in a company's memorandum of association and
a provision contained in that company's articles of association, the
former shall
prevail.'. The
clause deals with existing companies and with provisions of memorandum
treated as provisions of articles, and contains new provisions. When
there is a conflict between the memorandum of association and
the articles of association, case law would dictate that the provisions
in the memorandum of association would take precedent. Under clause
28(1), the parts of a company’s memorandum of association that
do not constitute part of the new style memorandum will be treated as
being in the articles. Clearly, it would be ideal for companies to
change their articles at that point so that they can review all clauses
in context and prioritise accordingly. However, life being what it is,
it is likely that the vast majority of small private companies will not
do that, mainly because it involves paying corporate lawyers fees for
essentially non-productive work. The question of priority will be
important in practice. In the Lords Grand Committee,
Lord McKenzie spoke of returning to the issue on clause 882. To be
frank, I am not sure whether that was done; perhaps the Minister could
put me right. On Report, the Government said that they would consult on
the issue. Could she update us on when and how the consultation is
likely to take
place? 4.45
pm
Margaret
Hodge: I am grateful for the amendment being tabled,
because it raises an important issue:what happens when a
provision in a company’s memorandum immediately before the
commencement of the Bill comes into conflict with a provision in the
same company’s articles? That is an important issue because, as
the hon. Gentleman said, where there is conflict between provisions in
the memorandum and those in articles, the provisions in the memorandum
take precedence. We will need to make further proper and appropriate
arrangements to ensure that the position regarding competing provisions
is clear. The hon.
Gentleman referred to the debate in the other House where we gave an
undertaking to look at that and other transitional issues. As we said
this morning, transitional issues run through many clauses in the Bill,
and there will be a round of consultation on
that. As it was in the
other place, clause 882 has become clause 921 in the Bill before us.
That is why I looked a little bewildered. If the hon. Gentleman were to
look at clause 921, he would see that it provides for a power to make
transitional arrangements. During the summer and early autumn, we hope
to consult on what those transitional provisions should be. I hope he
agrees that we should legislate after we have explored all the issues
with interested parties. That is what we intend to
do. The clause is
trying to provide a default position to give legal certainty when
something goes wrong. We want to be careful about enacting a rule that
could result in obsolete provisions being given more weight than was
intended. For example, it might be that we should allow existing
companies a transitional period in which to consider the effect of
subsection (1) and whether each provision of their memorandum, which
will be deemed part of their articles, should be retained as ordinary
provision amended, removed altogether or
entrenched. We would
rather decide how to deal with that substantive point on conflicts at
the same time as we make rules on when, and in what
circumstances,
the clause and other new rules on companies’ constitutional
documents will apply to existing companies. So, in the spirit of that
explanation, I hope the hon. Gentleman is content and will withdraw the
amendment. Mr.
Djanogly: I appreciate the Minister’s answer and
the general points that she made, although I must point out that that
issue was raised in February in the Lords and again on Report in May,
and here we are with it still outstanding. Perhaps she will give us an
idea of when we are likely to hear that the issue is being moved
forward. I make also
one general point: as the Minister said, a huge number of transitional
issues are coming out of the Bill, and many relate to specific and
technical matters of corporate law. Does she intend to put together a
schedule of transitional issues, which would be of great help, not only
to hon. Members, but to organisations such as the Law Society, which
will have to gear up to thinking about such matters? It would be
helpful if a table was put
together.
Margaret
Hodge: That seems appropriate, so we will provide such a
schedule. In my
previous contribution, I said that in the summer and early autumn, we
will be consulting on our proposals for transitional arrangements. We
will publish the final orders some time after Royal Assent has been
given, but the consultation should take place in the summer and early
autumn.
Mr.
Djanogly: May I ask the Minister for one more round on
this? I am concerned that things will happen very quickly when we come
back from the summer recess. We have only one day for consideration on
Report, when the Lords had four. Given that people will be away during
the summer recess, it is important that the transitional arrangements
are shown around the City as early as possible. We might have something
to add as well. She should keep that in mind, because I have no doubt
that consideration on Report and Third Reading will be upon
us.
Margaret
Hodge: We are taking a power to make regulations,
so we will not need to have finally determined those transitional
arrangements by the time of Royal Assent. There will be plenty of
consultation time to ensure that all stakeholders feel happy with the
propositions that we put before them, and I give the hon. Gentleman the
assurance that we want the transition between the old legislation and
the new to be as seamless, comfortable and easy for companies as
possible.
Mr.
Djanogly: I have taken the issue as far as it can go. The
Minister has heard my concerns, and I beg to ask leave to withdraw the
amendment. Amendment,
by leave,
withdrawn. Clause
28 ordered to stand part of the Bill.
Clause
29Resolutions
and agreements affecting a company’s
constitution
Mr.
Djanogly: I beg to move amendment No. 14, in clause 29,
page 11, line 42, at end
insert— ‘(3) Reference to a
resolution in subsection (1) above, shall not include any document
referred to in such a
resolution.'.
The
Chairman: With this it will be convenient to discuss
amendment No. 182, in clause 30, page 12,line 16, at end
add— ‘(5) Resolutions or
agreements under section 29(1)(b) to (d) shall not be enforceable
unless recorded by the
registrar.'.
Mr.
Djanogly: I shall speak to amendment No. 14. as amendment
No. 182 has been tabled by the Liberal Democrats.
I am not wholly sure that the
drafting of the amendment is as finely tuned as it could be, but I
shall make my point anyway. Sometimes there is confusion about what
needs to be filed at Companies House and what does not. If the
Companies Act 1985 states that a document needs to be filed, that is
clear. For instance, if a resolution that changes a company’s
articles is passed, the 1985 Act dictates that the resolution and a new
copy of the article are to be filed. However, what would happen if the
articles referred to some other document? Would that also have to be
filed? The typical
example here is when the parties to a joint venture or a private equity
investor wish to put the public on notice of the existence of a
shareholders’ agreement by mentioning that fact in the articles
of the investee company. My hon. Friend the Member for Hornchurch
(James Brokenshire) is nodding avidly; he will have seen that in
practice many
times. In such a
situation, there seems to be a precedent that indicates that the joint
venture agreement also needs to be filed. However, the agreement may
contain confidential or price sensitive information that the parties do
not wish to place on the public record—hence the reason for
tabling the
amendment. David
Howarth (Cambridge) (LD): May I add my own expression of
delight at seeing you in the Chair, Mr. Bercow? I do not know what you
have done to deserve it, but it must have been
impressive. Amendment
No. 182 is largely probing. It seeks to establish whether the
Government have thought through how the clauses work. My understanding
of them is that if a shareholders’ agreement is not sent to the
registrar, an offence is committed, but the agreement itself is still
valid as between the parties. The purpose of the amendment is to ask
the Government whether they intend that to be the
case. I am not sure
how far to press it, but there is a case for the amendment, which is
that making agreements unenforceable by the parties themselves would be
a far more effective way to ensure their registration.
Shareholders’ agreements are often constitutional documents of
the company, and it is important for investors to be able to see them
so that they are on notice that they exist, and to be able to see their
terms—for instance, during due diligence.
My question for the Government
is whether the wording of the Bill represents their intention. If so,
why is that the case? If not, will they go away and think about
it?
Margaret
Hodge: I shall address the amendments in the order in
which they were spoken to, so I shall deal first with amendment No. 14,
which would qualify and limit the meaning of references to “a
resolution” in clause
29(1). The amendment
would restrict the information to be provided to the registrar under
clause 30, which provides for copies of resolutions and agreements to
be forwarded to and recorded by the registrar, and that to be provided
to the company’s members under clause 33, which requires
companies to provide various constitutional documents to their members
free of charge on request—including the types of resolution
listed in clause 29. It would also restrict what is to be embodied in
or annexed to companies’ articles of association under clause
31. The amendment
would clearly cut down the amount of paper and information that
companies would be required to produce when they were required to make
available copies of certain resolutions, but the danger of such a
restriction is that the recipient of the resolution in question would
receive only half the story. When the meat of a resolution is contained
in another document, which may be attached to the resolution, that
restriction would clearly be
undesirable. A
resolution might, for example, refer to two documents: A and B.
Document A might set out the provisions altering the effect of the
company’s articles, and if that were not supplied with the
resolution, there would not be much point in receiving a copy of the
resolution. Document B might have no real bearing on the
resolution’s meaning, so that not much would be lost if it were
not supplied. The amendment would result in companies not being obliged
to supply either document, and we would have thrown out the baby with
the bathwater. Would
the company be obliged to supply a copy of the irrelevant document B
under clause 31 as drafted? If the document were not part of the
resolution, the answer would be no. So, on joint venture agreements, if
they were part of the resolution, they would have to be supplied; if
not, they would not have to be
supplied.
Mr.
Djanogly: That is an interesting and helpful answer, which
many practitioners will be pleased to hear, but I would like to clarify
the point. Using the
Minister’s example, there are documents A and B. If either were
mentioned in the resolution, she is saying, I believe, that they would
need to be filed. However, if document C were mentioned in one of the
documents mentioned in the resolution, it would not have to be
filed.
Margaret
Hodge: I shall come back to the hon. Gentleman if I get
the answer wrong, but my view is that any document that is relevant to
the resolution would need to be filed. If it were not relevant to the
resolution, it would not need to be
filed. If I am
right—I hope that I am—the burden that the amendment
would alleviate is illusory. In any event, the obligations relating to
resolutions and agreement
mentioned in clause 29 are, essentially, the same as those mentioned in
section 380 of the 1985 Act, save for the updating that has been
required to reflect the changes brought in by the Bill. We are not
aware that the obligations under the 1985 Act have caused difficulties
for
companies. 5
pm I turn to the
probing amendment that the hon. Member for Cambridge (David Howarth)
tabled. I am going to pass a note, on the relevant means of
incorporation by a resolution, that may help in the
debate.
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