Clause
33Constitutional
documents to be provided to
members
Mr.
Djanogly: I beg to move amendment No. 18, in clause 33,
page 13, line 18, after ‘company', insert ‘with a share
capital'.
The
Chairman: With this it will be convenient to discuss the
following: Amendment No. 20, in clause 33, page 13, line 18, after
‘member,', insert ‘within 7
days,'. Amendment No.
17, in clause 33, page 13, line 18, leave out from second ‘a' to
‘current' in line
32. Government
amendments Nos. 90 to
92. Amendment No. 19,
in clause 33, page 13, line 33, leave out from ‘capital;' to end
of line 35. Clause
stand
part.
Mr.
Djanogly: The clause relates to section 19 of the 1985
Act. I shall follow on from my remarks about the red tape requirements
of printing resolutions and physically binding them into the memorandum
and articles of association. The Minister moved on that issue, and
perhaps there will also be movement on this
clause. If somebody,
even a member of a company, wants to get a copy of its articles,
resolutions or certificate of incorporation, they do so by getting a
copy of the fiche from Companies House. The only benefit that I can
imagine if members could use the clause to receive documents would come
if they wanted to get them sooner than the 15 days that it takes for a
document to be put on public file. The only provision in the clause
that is worthy of retention is the ability to ask for a current
statement of capital, which could be usefulfor a member to
check against his or her own shareholding.
Amendment No. 20 reflects the
fact that no timetable is given for a company to comply with such a
request. I suggest that seven days is appropriate. Of course, if the
period is to be more than 15 days, the registrar of companies should
have the documents earlier than a member can get them from the company,
which would negate the value of the clause. I believe that Government
amendment No. 90 clarifies the wording rather than makes any change,
but I would appreciate the Minister’s comments on
it.
David
Howarth: I am sympathetic to amendment No. 18, although I
am not sure whether it has been drafted correctly and whether
shareholding is the right criterion to use. An example is Equitable
Life, which was an unlimited company without shares but which, as we
know, ran into certain difficulties. It would have been useful for
members of that organisation to have been able to obtain relevant
documents. I ask the Government and the hon. Member for Huntingdon to
reconsider the wording of their generally good
amendments.
Margaret
Hodge: I do not know whether the hon. Member for
Huntingdon wants to reconsider the wording of the amendment, but we are
not minded to accept it in its present form.
Clause 33 gives members of
companies the right to obtain from the companies various constitutional
documents free of charge. As the hon. Gentleman said, it replaces
equivalent provisions in section 19 of the 1985 Act. A company can
currently charge up to 5p a copy for any memorandums and articles that
members may request, although I understand that companies rarely make
that charge. The clause therefore updates
legislation to reflect the new approach to the provision of
constitutional information under the Bill. In particular, as we have
said a number of times, the memorandum will have a more limited
purpose, and information currently set out in it will instead be
contained in a company’s articles or other documents listed in
the clause. Amendments
Nos. 17 to 19 would restrict what can be provided to members by their
company on request. If they were to be accepted, clause 33 would apply
only to companies with a share capital, and members of such companies
would be entitled only to a copy of the most recent statement of
capital. As hon. Members know, such a statement is essentially a
snapshot of a company’s subscribed capital at a particular time.
While that information is of constitutional importance, the statement
does not necessarily encompass all the information set out in the
memorandum and articles to which we believe members are entitled and
should have access.
The hon. Gentleman is right to
say that it would be possible for members of those companies to obtain
those documents, including the statement of capital, elsewhere, for
example, from the registrar and
others.
Mr.
Djanogly: Will the Minister remind me whether there are
provisions in the legislation for companies to put their constitutional
documents on a website? I know that there are websites on which public
companies put their
accounts.
Margaret
Hodge: This morning, we discussed whether or not
constitutional information about a company could be released into the
public domain. The hon. Gentleman will correct me if I am wrong, but I
think that we said that we would look favourably on enacting such a
provision. The hon. Gentleman has pressed me on whether it will be
available in the form that he describes, and I have shown that I will
consider that favourably.
The question is whether members
should have to go elsewhere. There is no provision at the moment, but
in the debate this morning, we said that we would look at whether or
not we could have that provision. Given where we are the moment, the
question is whether an individual should have to go to the registrar or
elsewhere to access those documents or should they be able to go to the
company itself? Our view is that they ought to have the right to
request and access that information directly from the
company. There are
two reasons, one of which the hon. Gentleman accepted. The other is the
matter of having to pay. If people go to the registrar, they would have
to pay for something that they would get for free from the company. The
second matter—the delay in notifying the registrar—is one
that we have discussed in relation to the clauses on informing and
notifying the registrar of changes to constitutional arrangements. That
would be less satisfactory than current arrangements. I hope that the
hon. Member is persuaded to withdraw his amendment, on the basis that I
will consider whether we can open to the public more information that
is on the web.
Mr.
Djanogly: Having heard the debate, I think that it has
been a short but interesting
one—
Margaret
Hodge: I have not finished my
remarks.
The
Chairman: My apologies, I thought the right hon. Lady had
finished.
Margaret
Hodge: No, my apologies. I thought that the hon. Gentleman
was intervening. However, I have not spoken the Government amendments
in the group yet. Two are simple. One is slightly more
complicated.
Government amendment No. 90 is
purely a drafting amendment. Clause 33(1)(a) refers
to: “an up-to-date copy
of the company’s articles incorporating any alterations made to
them” If the copy is
up-to-date, one assumes that it has incorporated any alterations, so
the those words are superfluous and need not be included. Hence, we
suggest that they should be omitted. Similarly, as there is no need to
use the plural “copies” at the start of clause 33(1)(b),
in amendment No. 91 we are amending that to “a
copy”. No.92 is
a slightly more substantial amendment. It is rare that a
company’s laws are altered in any of the ways—by
legislation, or by order of a court, or by order of another
authority—contemplated in clauses 35 and 36. However, when such
alterations do take place, it is accepted that they are likely to be of
considerable constitutional significance to the company, so it is only
right that the company should be obliged to supply a copy of the
relevant piece of legislation to its members on request, just as it is
obliged to supply copies of resolutions and agreements of the types
listed in clause 29.
Finally, I will deal with the
seven-day period. Information should be provided as promptly as
possible, but I assure the hon. Gentleman that it would already be
incumbent on a company to provide information within a reasonable time
scale. Our concern is that the introduction of a statutory time scale,
with a specific deadline and the threat of criminal sanctions if it is
not met, could be disproportionate, especially for smaller firms. I am
not aware of any evidence that the absence of this limit in the current
legislation has caused problems. I hope, on that basis, that he will
not press the
amendment. 5.30
pm
Mr.
Djanogly: To take the last point first, I thought it
appropriate to ask for a statutory time scale because, in practice,
these provisions will very rarely be used. Most people now go to
Companies House and get a fiche and get the information from that, even
if it is a company of which they are a member. These provisions would
typically be used, and therefore rarely, in a situation in which there
is a shareholder conflict and one shareholder is perhaps trying to
pressurise the management by giving them lots of requests for documents
and so forth. In all such situations, the lack of a time period is used
by the company to delay matters. Perhaps the Minister would like to
think about that again.
On the wider issue, the key
point that has come out of the debate—and I apologise for ending
it early—is the potential use of a website for the release of a
company document. While the Minister was speaking, I had an idea that
she may wish to consider. It is not a tabled amendment, but it might be
a compromise. If a company has a website and files on it all the
documents that it would otherwise be required to hand out under the
clause, it could be assumed to have complied with the clause. However,
if it does not have a website, it would still be forced to comply with
the clause. It might be worth the Minister’s while to consider
that. On that basis, I beg to ask leave to withdraw the
amendment. Amendment,
by leave,
withdrawn. Amendments
made: No. 90, in clause 33, page 13,line 20, leave
out ‘incorporating any alterations
made to
them”. No.
91, in clause 33, page 13, line 22, leave out ‘copies' and
insert ‘a
copy'. No. 92, in
clause 33, page 13, line 29, at end
insert— ‘( ) a copy of any
document required to be sent to the registrar
under— (i) section 35(2)
(notice where company's constitution altered by enactment),
or (ii) section 36(2)(a)
(notice where order ofcourt or other authority alters
company's constitution);'.—[Margaret
Hodge.] Clause
33, as amended, ordered to stand part of the
Bill.
Clause
34Effect
of company’s
constitution
Mr.
Djanogly: I beg to move amendment No. 21, in clause 34,
page 14, line 8, after ‘part', insert ‘of the company
and'. This is a
lawyers’ fest amendment. We have not had any of those so far.
Amendments have been on practical issues, whereas this is the sort of
thing on which law books are written. Hon. Members will be pleased to
hear that I do not intend to read out a law book. The amendment is for
the hon. Member for Cambridge (David Howarth) and no doubt he will wish
to have his penny’s worth on it. It is covered by existing
legislation—section 14 of the Companies Act.
Lord Wedderburn of Charlton,
who has written a book on the subject, moved this amendment in the
other place. He debated with skill and no little experience and put
this vital clause into its historical context. He started at sections 7
to 10 of the Joint Stock Companies Act 1856. Simply put, no one now
believes that this clause means other than that the constitution binds
its members and the company as if they were covenants signed and sealed
on the part of the company and of each member.
Lord Grabiner accepted Lord
Wedderburn’s argument. Lord Sainsbury certainly did not disagree
with it, but ended the debate by saying:
“I say now that the
effect of a company’s constitution is not an area in which we
want to introduce substantive changes.” —[Official
Report, House of Lords, 30 January 2006; Vol. 678, GC.
37.] I found that somewhat
bizarre, not least considering the debates that we have had so far on
the Bill, which have mainly centred on that point. Also, this is not
what we should be doing in a 20-year reform of company law. If the
clause has implications for the Foss v. Harbottle rule, should
we not look at that now? I ask the Minister for her further
comments.
David
Howarth: I shall resist the temptation to rehearse my
entire one-hour lecture on the clause, but I can send the notes to
anyone who might request them. As the hon. Member for Huntingdon said,
this is an old chestnut in company law. My interest, which I should
declare, is that if I ever had to go back to teaching company law and
the amendment goes through, I would be denied the most obvious essay
title for the second week of the course that I ever
had. The
hon. Gentleman talked about the point that Lord Wedderburn
made in the Lords; Lord Wedderburn wrote a famous article about this in
the Cambridge Law Journal as long ago as 1957, so we are about
to mark the 50th anniversary of his interest in the matter. That the
clause has the meaning put forward in the amendment is widely accepted,
but there is another point to make. The case on which that assumption
rests is a first-instance judgment of Mr. Justice Astbury in 1915. The
Minister has already referred to the case, Hickman v. Kent or
Romney Marsh Sheep Breeders’ Association, with which she is now
fully familiar. The
serious point, to quote Professor Len Sealy, who is a leading and
eminent writer on company law, is quite how remarkable it is that so
shaky a first-instance decision has been tacitly accepted for the
greater part of a century. There are articles in the academic
literature that heavily criticise the decision—I seem to
remember an article by Gregory in the 1981 Modern Law
Review. It is an
extraordinary situation that something everyone assumes to be the law
rests on so flimsy a foundation. The reason why the Government should
give way and put these words into the statute is simply to give that
foundation the firmness that it
deserves.
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