Vera
Baird: The rules relating to trading disclosures are
complex. They are set out in chapter I, part XI of the 1985 Act,
section 693 of which applies similar rules to overseas companies. There
is a separate set of rules in the Business Names Act 1985 that refer to
a company trading under a name under than its registered name, even if
the only difference is the suffix Ltd or plc. The rules are not
identical: the information required and what premises and what
documents are involved all vary.
As the company law review
recommended, we intend to use the powers conferred by the clause and
the similar power provided under clause 666 related to overseas
companies to replace all the existing disclosure rules with a single
set of regulations. We will consult on the matter and we intend to
rationalise the requirements and make compliance simpler for companies.
We will not extend the rules; we need the power to regulate in order to
replicate sections 348, 349 and 351 of the Companies Act 1985. When we
consult on the regulations, they will be subject to the affirmative
resolution procedure, so there will be scope for debate on
them.
James
Brokenshire: I am grateful for that clarification and the
assurance that there is no intention to increase the scope of the
current requirements. There is merit in seeking to put in one place the
current requirements under the Business Names Act and the Companies Act
so that we are all clear about what requirements apply. I have no
objection to that approach, which has great merit in trying to simplify
the situation. I made my points to gain clarification on the scope of
the requirements. The assurance that the Minister has given satisfies
me. Question put
and agreed
to. Clause 82
ordered to stand part of the
Bill. Clause 83
ordered to stand part of the
Bill.
Clause
84Criminal
consequences of failure to make required
disclosures
James
Brokenshire: I beg to move amendmentNo. 147, in
clause 84, page 36, line 12, at end
insert— ‘(3) For the purpose
of this section a shadow director is treated as an officer of the
company.'.
The clause deals with the
situation that arises if a company is acting in accordance with the
instructions of a person who is not a director—that is to say a
shadow director—and those instructions include the non-provision
of information under clause 82 on the requirement to disclose the
company name and so on. I wish to question why a shadow director should
not be liable in such circumstances.
In my review of the Bill, I
noted that in other, similar circumstances a shadow director is liable.
Why are they not covered by the clause? It is possible that I have
missed something, but I wanted to flag up the point. The amendment
would therefore make clear that a shadow director should be treated as
an officer for the purposes of compliance and therefore of liability in
the event of failure to comply. If a shadow director of a company, who
is not stated as a director, effectively frustrates satisfaction of the
clause 82 provisions, it would be a little strange for that shadow
director not to be liable in accordance with the rest of the officers
of the company given that, in other circumstances, they would normally
be treated in the same
way.
Vera
Baird: Shadow directors are not liable for failures to
make the required disclosures, and we see no reason to widen the clause
as proposed. However, I have received a note, which says, “If he
has a good argument, we will consider it”. We will consider it,
if he agrees to withdraw the amendment; we will go through his points
and decide if there should be a
change.
James
Brokenshire: I am grateful for the Minister’s
assurance. It was a question of consistency. In similar circumstances,
elsewhere in the Bill, shadow directors are liable, but not here. That
struck me as odd, and that issue might apply in other parts of the
Bill. I am grateful therefore for her assurance because we might have
to examine that matter in other cases to ensure that there is not some
gap and that shadow directors cannot in some way squeak out of those
provisions. I do not think that that is the Government’s
intention, however, and in the light of her assurances, I beg to ask
leave to withdraw the
amendment. Amendment,
by leave,
withdrawn. Clause
84 ordered to stand part of the
Bill. Clause 85
ordered to stand part of the
Bill.
Clause
86A
company’s registered
office Question
proposed, That the clause stand part ofthe
Bill.
Mr.
Djanogly: We move on to part 6 of the Bill, and team No. 1
comes back into play. [Interruption.] No, I did not mean it like
that. Before we kick off, may I congratulate my hon. Friend the Member
for Hornchurch on his professional delivery, backed up by his extensive
experience in the subject before us? That
really showed, and totally hid the fact that it was his first outing on
the Front Bench—the first of many, I am quite
sure. We move on to
part 6 and clause 86 stand part. I would like to make a general point
on the registered offices. It is important for a company to have a
registered office, not least because it is a single registered
location, of which other companies and persons have public notice. That
is vital for deliveries, particularly of time-critical documents such
as service of court documents, which require proof of
service. Most company
documents are filed after an event, as a record of something that has
happened, such as a change of director. However, that is not the case
with a change of registered office, for which the filing of the notice
itself triggers the timing of the date of the change. So it is an
important form. The problem is that we hear more and more reports about
people impersonating company directors—I brought that matter up
last Tuesday. That involves little more than signing a form and sending
it to Companies House, but once the fake directors have been
established, they can send in a change of registered office form. That
effectively means that the real directors stop getting notices of
contracts signed in the name of the company by the fake directors using
the fake registered
office. That seems to
be a growing problem. Will the Minister let us know whether she has any
details about the extent of the problem, whether she has plans for
further security measures to stop it happening or whether she thinks
that it might require further
amendments? 2.15
pm
The
Minister for Industry and the Regions (Margaret Hodge): I
thank the hon. Gentleman for his contribution. I congratulate also my
hon. and learned Friend on her valiant performance. This is her first
Committee, and may there be many
more. The hon.
Gentleman mentions something that has not been raised with me before.
Companies House has a system by which it can register and receive
notice by e-mail of a change of directors. I am not sure whether that
helps. If he has ideas—perhaps from those with whom he has had
contact—on how we can tighten the system to prevent such
problems from arising, we will consider them. However, it has not been
an issue recently and I have no plans to introduce further measures. I
accept that it is a problem, but I am not sure what we can do other
than introducing the clauses and other legislation relating to fraud
and other such matters.
Mr.
Djanogly: There is no doubt that the problem is growing.
Some schemes have been put in place. I believe that there is a system
whereby companies can register to receive notifications of when changes
are made. The notification pops up and advises them that, for example,
the registered office has been changed. If it were not the proper
directors who made the change, the company would see that. The system
is not widely used. Perhaps the Department could consider advertising
the process more widely. Other measures are also
required.
Margaret
Hodge: I have just received a note that may help the hon.
Gentleman. It deals with another element. Under what is called
“proof”, a company is notified of any change to its
particulars. A fraudulent notification should be picked up by that
mechanism immediately. Clearly, that depends on the notification being
made. Question put
and agreed
to. Clause 86
ordered to stand part of the
Bill. Clauses
87 to 89 ordered to stand part of the
Bill.
Clause
90Re-registration
of private company as
public
Mr.
Djanogly: I beg to move amendment No. 31, in clause 90,
page 38, line 11, leave out ‘a special' and insert ‘an
ordinary'. The clause
relates to sections 43(1) and 43(2) of the 1985 Act. I am not sure how
long it has been since a special resolution has been needed to
re-register a private company as a public company. The Minister may be
able to advise me on that. It is one of those things that is lost in
the mists of time. It is worth asking, on a probing basis, whether
anyone has considered whether it should remain the case that such
re-registration is required. I can see why minority shareholders may
need protection if a public company is re-registered as a private
company—in other words, the other way around—after a
takeover or the like, but that is not the case. I wonder why an
ordinary resolution should not, in the situation we are concerned with,
be good enough.
Margaret
Hodge: As the hon. Gentleman rightly said, the amendment
relates to a process by which a private company can change its status
and become a public company. There is, of course, a substantial
difference between the two company types. I understand that many
companies will want to make that change at a certain point in their
lives. We have no
interest in making that change unnecessarily difficult, but—I
hope that this explanation satisfies the hon. Gentleman—it is
important to bear in mind the position of existing shareholders in
private companies. In some cases they will have become members of the
company, whether at formation or at a later stage, with some
expectation that it might sooner or later go public, but in other cases
there may be no such expectation. A company going public has
implications for existing members. The most obvious one is that it
brings the prospect of dilution of their control, as the membership
base becomes larger and more diverse. Existing shareholders need to be
able to take a view on the matter through the special resolution
provisions. The 1985 Act therefore provides that there must be a
special resolution, which requires a 75 per cent. majority rather than
the simple majority required by an ordinary resolution.
When it comes to significant
decisions about the company’s status and future which would have
important implications for the position of individual shareholders, it
is right—I have reflected on this—that the bar should be
set high and that something more
than an ordinary resolution should be required. That is why we have
chosen to continue the existing requirement. I should add that I am not
aware of any suggestion that that will cause difficulties in
practice. Mr.
Djanogly: I have to agree with the Minister: I have not
had a huge number of representations on the matter. However, I query
what she said. The substantive point is that members might be concerned
about dilution. That is dealt with separately in section 89 of the 1985
Act which is applied more toughly for public companies than for private
companies. In fact, almost every aspect of the 1985 Act will be applied
more favourably for minority shareholders of a public company than for
those of a private company, with fewer exemptions to override
shareholders’ interests. Indeed, after the Bill is passed, only
public companies will have a company secretary. We shall debate that
later, but let us assume that the Bill goes through in its current
form. I repeat that
from the point of view of the minority shareholder, it can only be to
their advantage for the company to become public. I understand that the
protection of a special resolution is needed the other way around, but
not for going up, as it were. I wanted the Minister to think about it,
and on that basis I beg to ask leave to withdraw the
amendment.
Amendment, by leave,
withdrawn.
Clause 90 ordered to stand
part of the Bill.
Clauses 91 to 97 ordered to
stand part of the Bill.
Clause
98Application
to court to cancel
resolution
Mr.
Djanogly: I beg to move amendment No. 32, in clause 98,
page 43, line 31, leave out ‘5' and insert
‘10'.
The
Chairman: With this it will be convenient to discuss
amendment No. 38, in clause 98, page 43,line 35, leave out
‘5' and insert
‘10'.
Mr.
Djanogly: These probing amendments are designed to test
the relevance and adequacy of the clause, which is clearly a
pressure-valve clause. The situation envisaged would typically be
related to a bid for a public company. The acquirer will normally wish
to acquire at least 75 per cent. of the shares of the target, because
at that level of ownership a resolution can be passed to make the
target a private company. That in turn is important, because only
private companies can use their own assets to give bank security for
the purchase of their own shares. In other words, the purchaser uses
the assets of the target to finance the transaction.
The clause—I appreciate
that the provision is in the 1985 Act—provides holders of at
least 5 per cent. of the company with the right to apply to the court
to have the resolution to re-register capital. Does the Minister think
that the clause is still necessary? Can she provide us with details of
how often it has been invoked and whether any assessment has been made
of its effectiveness? Is 5 per cent. still considered the right number
of shareholders who need to complain? I have
suggested 10 per cent. on a probing basis, but maybe the figure could be
less than 5 per cent. We would be interested to hear her
views. | 
