The
Chairman: In accordance with precedent, the Chairman votes
for the extension of debate and votes with the
Noes. Question
accordingly negatived.
Clause 57 ordered to stand
part of the Bill.
Clause
58permitted
characters
etc Question
proposed, That the clause stand part of the
Bill.
James
Brokenshire: The clause gives the Secretary of State new
powers to restrict what letters and symbols may be used in the
company’s registered name and to specify a permitted format for
a name. It is a new provision and is not contained in the 1985 Act. I
would be grateful if the Minister clarifed why it was felt that the
additional clause was needed. I would also be grateful if she set out
the potential problems that the Government seek to address and what
marks and symbols she has in mind for the subsequent regulations.
Vera
Baird: The clause provides power to make regulations that
specify the characters that can be used in a company’s
registered name. The primary purpose of the restriction of the choice
of name is to make it easy for the public to find information about the
company on the record. Names that use unfamiliar characters, such as
those drawn from oriental languages, or that begin with a string of
characters that are not letters apparently create confusion. They are
difficult to remember and difficult to find in an index. So,
regulations made under the clause would be of great assistance to
people looking for information about companies. The restriction on
choice would impose no cost on companies.
We will consult on the use of
the power. That may reassure the hon. Gentleman. We intend to use it to
specify all the letters used in the official languages of the European
Union and the most familiar other characters such as currency symbols,
punctuation marks and, perhaps, the first few characters in a name
might be put in the regulations. It will also be possible to restrict
the formatting used in the name as registered. That would not affect
how companies display their name, so the use of things such as
superscript, subscripts, exotic font, mixtures of capital and
lower-case letters—and even names with their characters arranged
in a circle—would not be affected by the regulations. The point
is that the regulations will not make any difference to
logos. Why have
restrictions? That is the thrust of the hon. Gentleman’s
question. At present, they are none, but Companies House is apparently
coming under increasing pressure to accept names and characters that it
does not have the technology to handle, and the time has come for
company law to provide a power to restrict the characters that are
used. Such regulation is not unnecessary, because it is important to
distinguish between a company’s registered name and a trade
mark. There are no property rights in a registered name, which is only
an identifier, so obliging companies to go through this process really
is not much of an imposition. One might ask why companies should not be
allowed to use whatever names they want. However, there will be no such
restriction, because companies are not required to use their registered
names in the course of business in any event.
I hope that that
satisfies what I guess is the hon. Gentleman’s curiosity about
the need for the
provisions, and the point is, indeed, interesting. With that, I hope
that hon. Members will agree that the clause should stand part of the
Bill. James
Brokenshire: I am grateful to the Minister for that
explanation of the background and the requirements associated with the
clause. In the light of her comments, I recognise the need for the
provisions. My comments were really intended to gauge the background
and to gain a full understanding of the requirements, and I made them
in the spirit of seeking to avoid additional regulation where it is not
required. However, I have listened carefully to the Minister’s
comments about the problems that Companies House faces in dealing with
new names and about the way in which things are changing, and I shall
not be questioning the inclusion of the clause in the
Bill. Question put
and agreed to.
Clause 58 ordered to stand
part of the Bill.
Clause 59 ordered to stand
part of the Bill.
Clause
60Private
limited
companies
James
Brokenshire: I beg to move amendment No. 124, in clause
60, page 23, line 34, leave out subsections (1), (2) and (3) and
insert— ‘(1) Subject to
section 61, the name of a limited company that is a private company
must end with “limited” or “ltd” or, in the
case of a Welsh company, its name may instead end with
“cyfyngedig” or
“cyf.”.'.
The
Chairman: With this it will be convenient to discuss
amendment No. 125, in clause 60, page 24, line 1, leave out from
‘companies' to end of line
3.
James
Brokenshire: The clause requires that private limited
companies use a particular suffix to denote their status, and the
amendments are intended to simplify it. In the days when I was learning
how to draft contracts and other legal documents, I was always told not
to use three words when one would do. Applying that logic and that
adage to the clause, I wonder why we should use three subsections when
one will do, particularly when the Bill is intended to simplify company
legislation and slim down what might otherwise be an excessive burden
of regulation. Amendment No. 124 is largely a drafting amendment to
give effect to that approach.
Amendment No. 125 is slightly
different. Although I welcome the introduction of greater
cross-referencing in the Bill, I do not welcome the fact that it
sometimes adds confusion. Subsection (4) says that the clause
“does not apply to community
interest companies”, but
then invites the reader to see certain sections of the Companies
(Audit, Investigations and Community Enterprise) Act 2004. That leaves
the reader in some confusion as to whether community interest companies
are caught or not. Amendment No. 125 would make the position
definitive, but if it is not acceptable to the Minister, I hope that
she will consider an alternative formulation of subsection (4) to
ensure that there is some clarity about the scope and ambit of the
clause.
Vera
Baird: The existing clause is a very clear statement of
the requirement for a private company’s name to end in the
appropriate statutory indicator of its status. The formulation is the
same as that in the previous clause, which applies to public
companies’ names. I hesitate to agree to an amendment that just
restates the existing clause, which is what it does. I can compete with
the hon. Gentleman on the verbiage point; personally, I find the hon.
Gentleman’s sentence of 38 words less easy to understand than
three sentences of no more than 17 words. I hope that he is persuaded
that I have the trump card, that there really is not much point in
amendment No. 124, and that he should withdraw
it. On amendment No.
125, I can almost see the hon. Gentleman’s point, but not quite.
As he says, all that it does is to remove the cross-reference to the
Companies (Audit, Investigations and Community Enterprise) Act 2004. It
does not change the position at all; it just deletes a useful
cross-reference. Since the provision in the 2004 Act requires the name
of a community interest company that is not a public company to end in
CIC, I would have thought it quite useful, at this point of the Bill,
to have a pointer across to another piece of legislation. I am a bit
hopeful that I have persuaded him to withdraw that amendment,
too.
James
Brokenshire: I thank the Minister for her comments, and
although I hear what she says, there is the risk of some confusion;
that is why I tabled amendments Nos. 124 and 125. However, given the
time and the need to move on to other—perhaps more pressing and
significant—matters, I shall not put my amendments to a vote. I
beg to ask leave to withdraw the
amendment. Amendment,
by leave,
withdrawn. Clause
60 ordered to stand part of the
Bill. Clause 61
ordered to stand part of the Bill.
Clause
62Continuation
of existing exemption: companies limited by
shares
James
Brokenshire: I beg to move amendment No. 58, in clause 62,
page 25, line 2, leave out ‘, or
any return of
capital,’. We
return to an issue originally highlighted in the other place. Although
I heard the comments made by the Minister for Industry and the Regions
about returning to issues that were debated in another place, it is
valid for this Committee to examine issues and ensure that the right
conclusions were reached. It is our duty and responsibility to hold the
Government to account, so I feel no compunction at all about raising
issues on which there may have been some debate in the other
place. The clause
makes provision for certain companies to continue to use a name that
does not end with “limited” or any other permitted
alternative. The clause sets out certain conditions, the first of which
is that the object of the relevant company must be the promotion of
certain things, such as art, science, religion or charity. There is a
further requirement for companies’
articles to include certain provisions, including the prohibition of
payment of any dividends and of any return of capital to its members.
In the other place, my noble Friend Lord Hodgson rightly pointed out
that the requirement prohibiting a return of capital is new and departs
from the provisions of section 19 of the Companies Act 1985. That means
that some companies would be required to change their articles to
maintain compliance with the expanded
requirement. Although I recognise that there
are very few companies still benefiting from a licence under section 19
of the 1985 Act, I was not persuaded by Lord McKenzie’s reply,
in which he mentioned the deregulatory nature of the clause, as it
seems clear that the companies concerned will be obliged to change
their articles if they are to continue to rely on the clause. That may
now be easier, as exempt companies no longer need to apply to the
Department of Trade and Industry for approval when they amend their
articles, but it is slightly peculiar to suggest that that is
deregulatory, when the relevant companies will be required to take
positive steps to retain their status and will potentially incur cost
and expense. Lord
McKenzie said in Grand Committee that the change was
justified “to ensure
that exempt companies do not act in a way that is inconsistent with
their status”.—[Official Report, House of Lords,
30 January 2006; Vol. 678, c.
GC51-52.] Could the Minister
give an example of an exempt company that has used its powers
inappropriately? If not, why is an additional burden being placed on a
small group of companies? Amendment No. 58 would delete the reference
to the return of capital to bring clause 62 in line with section 19 of
the 1985
Act. 9.45
am David
Howarth (Cambridge) (LD): I just want to comment briefly
on this amendment. I have had a great deal of sympathy with the
Conservative amendments so far, but I have a problem with this one, and
I ask the hon. Gentleman to reply to the following point in his closing
remarks. The clause
is in line with a basic principle of company law: the protection of
creditors. If a company has the word “limited” after its
name, that puts potential creditors on notice that they might not get
their money and they cannot pursue shareholders for it. It is at least
arguable that a company that can return capital is one that puts at
risk the creditor’s position. Therefore, it is reasonable for
the clause to stand as it does, because it is protecting potential
creditors from that particular possible abuse, although to a small
extent only, because there are not many of these companies. I recognise
that it will not be a very important matter in practice, but in theory
this is the right thing to do.
Vera
Baird: I am grateful for that thoughtful contribution made
by the hon. Gentleman on behalf of the Liberal Democrats. He is correct
to say that the clause runs with the grain of company law generally.
Apparently, it is likely to affect 21 active companies—that is
the number I have been told—which represents a small group,
because most not-for-profit companies that are exempt from the
requirement to have the word “limited” are companies
limited by guarantee.
Under the Companies Act
1985—the present legislation—none of those 21 companies
can return
capital to their members, because they do not have the authority in
their articles to do so, and they cannot change their articles without
consent from the DTI. However, under part 19 of the Bill, it will no
longer be necessary for companies’ articles to authorise
reductions of capital or to authorise companies purchasing their own
shares. Furthermore, exempt companies will no longer need to apply to
the DTI for approval when they amend their articles, although the Bill
ensures that, as at present, companies limited by shares exempt from
the requirement for their name to end in “limited” may
not return capital to members. I broadly embrace the point made by the
hon. Gentleman that to allow them to do so would be wholly inconsistent
with the grounds for the exemption. The amendment would remove exactly
the safeguard that he has
pinpointed. I suppose
that it is a sort of trade-off. The company’s articles cannot
allow it to do inappropriate things with its money, so just as it is
inappropriate for not-for-profit companies to pay dividends it is
inappropriate for them to return money to their shareholders in other
ways, for instance by buying back the shares. There is a clear and
strong purpose for this provision to remain as it is, and I invite the
hon. Member for Hornchurch to withdraw his
amendment.
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