David
Howarth: I want to add a short point in support of what
the hon. Gentleman said. Setting the number at 5 per cent. as opposed
to 10 per cent. gives rise to a temptation that it might be useful for
the law to discourage. If the limit is set at only 5 per cent., people
faced with a blocking minority of 5 per cent. might be tempted to use
section 429 of the 1985 Act, which, as I understand it, will not be
changed. There is a judicial interpretation of that section. It allows,
on takeover, those with a 90 per cent. hold of the shares compulsorily
to purchase the remaining 10 per cent. It can be used to clear
minorities of less than 10 per cent.
Case law from re
Bugle Press suggests that that provision cannot be used beyond its
original purpose. However, even given that case law, people faced with
a blocking minority of less than 10 per cent. might be tempted to use
section 429, take their chances with the case law and produce
litigation that it would be helpful for the law to avoid. That
litigation could be avoided by raising the relevant percentage to 10
per cent., as in section 429.
Margaret
Hodge: I have been asked three questions and a
supplementary question, although as I listened to the hon.
Gentleman’s exposition I saw that section 429 might be
consecutive rather than parallel to the issues that we are discussing.
I am not sure that its existence prejudges the need for this provision.
However, I shall answer the question to see whether I can satisfy
him. When a company
is resolved to re-register from public to private, clause 98 enables
the dissenting shareholders to apply to the court to cancel the
resolution for re-registration. The application must be made within 28
days of the date on which the resolution is passed and the court will
only entertain such an application when it is made by a qualifying
number of shareholders and, when the company is not limited by shares,
a qualifying number of members or, in either case, not fewer than 50
members. The minimum
thresholds for making such an application are set in subsections
(1)(a), (b) and (c). When the company that proposes to re-register as
private limited company has share capital, the application will be made
by a single shareholder or by shareholders with a collective holding of
at least 5 per cent. of the nominal value of the company’s
issued share capital. The amendment would increase that threshold, and
I appreciate that it is a probing amendment. Both amendments leave
unchanged the 50 member option and the proposition in clause 98(1) that
the members who voted in favour of the resolution for re-registration
or consented to it do not
count.
2.30
pm The reason
behind the clause is that, as I am sure all Members accept, the
re-registration of a company from public to private limited is a
serious matter which has implications for all the shareholders, members
and creditors of a company alike. In view of the
significance of the change of status which will bring with it a lack of
transferability for the individual’s share and the reduced
marketability that is characteristic of shares in private companies,
members should have the opportunity to object, subject, of course, to
establishing that they represent a significant interest in the company.
We accept that there is nothing magical about the thresholds that we
made: all we have done, as hon. Members understand, is mirror those in
the 1985 Act. Mr.
Djanogly: Can the Minister give us any idea how often the
provision has been
used?
Margaret
Hodge: Yes, I can. The thresholds have stood the test of
time. We are not aware that they have caused companies, their
shareholders and members any difficulties. In fact, we are advised by
the registrar that only three such applications have been made in the
previous year, two of which were rejected. In the circumstances, we are
not persuaded that the amendments are either needed or helpful. The
hon. Member for Cambridge (David Howarth) asked whether clause 98 was
still necessary. The answer is yes, it is. As the hon. Gentleman said,
there are special provisions on takeovers in section 429 of the
Companies Act but the clause goes wider. Someone may have a majority
shareholding by other means and the clause provides them with
protection.
David
Howarth: The point I was trying to make is that the
question is not whether the clause is necessary—I think it
is—but how it fits in with the existing law in section 429 of
the Companies Act. If one sets up the two statutory provisions in
different ways, the temptation will be to use one rather than the
other. If they are set up with the same number, one can preserve the
use of
each.
Margaret
Hodge: I suppose that in the interests of protecting
minority shareholders, the correct way forward if we want that
consistency would be an amendment to section 429. I can take that away
and think about it if the hon. Gentleman so wishes. Otherwise the
provisions appear to work well. I am told they work in parallel. The
one follows from the other, rather than the two having to be consistent
overall. There is a lower threshold in section 429 because it covers a
takeover so it is a slightly different situation from the one we are
discussing. I am happy to reflect further on that and if necessary come
back on Report if the hon. Gentleman considers that
appropriate. I hope
that I have answered the questions that the hon. Member for Huntingdon
(Mr. Djanogly) raised and that he will withdraw his probing
amendment.
Mr.
Djanogly: As the Minister said, this was a probing
amendment. The contribution from the hon. Member for Cambridge opened
up the debate and was a helpful addition. I must admit that I wandered
into the question by looking at the Bill rather than precedent. The
existence of the case he mentioned means that we should go away and
have another look at the issue. I am not entirely convinced that the
answer
will be to amend section 429, particularly in relation to putting in any
kind of percentage, but it might be worth looking again at the 5 per
cent. threshold in the clause.
I thought that the provision
would be used very little in practice, so I was not surprised to hear
that it was used three times in the last year, nor was I surprised to
hear that the majority of cases have been thrown out. I suppose that it
would typically be people having a go. I am pleased that we have had
the debate. I beg to ask leave to withdraw the
amendment. Amendment,
by leave,
withdrawn. Amendment
made: No. 102, in clause 98, page 44,line 14, leave
out ‘alterations in' and insert ‘amendments
to'.—[Margaret
Hodge.] Clause
98, as amended, ordered to stand part ofthe
Bill. Clauses
99 to 101 ordered to stand part of the
Bill.
Clause
102Re-registration
of private limited company as
unlimited
Mr.
Djanogly: I beg to move amendment No. 156, in clause 102,
page 45, line 21, leave out from end ofline to ‘and' in
line
22.
The
Chairman: With this it will be convenient to discuss
amendment No. 66, in clause 102, page 45,line 27, leave out
subsection
(2).
Mr.
Djanogly: This is a rerun of the debate in the House of
Lords. I shall not read out what Lord Hodgson said, but shall instead
quote what Lord McKenzie said and comment on it. Lord McKenzie
said: “The Bill
reflects existing companies legislation in preventing this practice,
and the Company Law Review considered carefully whether the bar should
be maintained or removed. It concluded that it should be retained to
prevent companies taking short-term advantage of a merely temporary
change of status. The Company Law Review does not seem to have believed
that this has placed any obstacle in the way of legitimate market
developments; nor are the Government aware of any evidence to that
effect. I therefore support the CLR’s conclusion that the bar
should remain. I
should add that we are currently considering whether the condition in
Clause 102(2)(b), which prevents a company beginning life as limited,
re-registering as unlimited, then re-registering as limited and finally
re-registering as unlimited
again”— complicated
stuff, this— “is
strictly necessary given that Clause 105(2) prevents a limited company
which has re-registered as unlimited reverting to limited
status.” I hope that
people are with me so far. Lord McKenzie
continued: “These
highly technical issues are complicated by the need to consider
possible multiple re-registrations under earlier legislation. We are
considering whether any change is needed.”—[Official
Report, House of Lords, 1 February 2006; Vol. 678,cc.
GC140-141.]
It is appropriate for me to ask
whether the Minister can provide an update on the Government’s
thinking on the
issue.
Margaret
Hodge: The hon. Gentleman said that he would quote only
Lord McKenzie. I shall quote the Opposition spokesperson in the House
of Lords, Lord Hodgson of Astley Abbotts, who replied, “I
surrender absolutely”.
Mr.
Djanogly: That may have related to the complicated nature
of the answer as much as to its
justification.
Margaret
Hodge: The hon. Gentleman is right to suggest that in
Grand Committee Lord Hodgson tabled a similar amendment. It was
withdrawn, but it prompted us to look again at the conditions in
subsection (2), and we put a marker down in Grand Committee that we
intended to return to the issue. We subsequently amended the subsection
on Report in the House of Lords to remove what amounted to a
superfluous condition. If people can understand this one, they will be
doing very well. The condition was that a private limited company could
not re-register as unlimited if it had previously re-registered from
unlimited to limited. Such a condition is unnecessary, as it is not
possible for that eventuality to occur, given that clause 105(2), which
is concerned with the re-registration of a company from unlimited
private to limited, prevents a company that has previously
re-registered as unlimited from reverting to limited status. However,
we left in place the condition in the amended clause 102(2) which
prevents a private limited company from re-registering as unlimited if
the company has previously re-registered as limited. The amendments
that we are debating would remove that
subsection. Subsection
(2), as amended, carries forward the provisions of section 49(3) of the
1985 Act. Like its predecessor, it prevents companies from changing
their status successively between limited and unlimited and back again.
As the hon. Gentleman said, the issue was examined by the company law
review, and it was concluded that it was necessary to keep the bar in
place. The company law review did not accept that in practice the bar
prevented legitimate market developments, nor are the Government aware
of any evidence to that effect. That is why we support the
review’s conclusion that the bar should remain in
place.
Mr.
Djanogly: On the basis of the Minister’s
comprehensive response and what happened on Report in the Lords, I too
surrender absolutely and beg to ask leave to withdraw the
amendment. Amendment,
by leave, withdrawn.
Clause 102 ordered to stand
part of the Bill.
Clause
103Application
and accompanying
documents Question
proposed, That the clause stand part ofthe
Bill.
Mr.
Djanogly: We are now going on to a limited company
becoming unlimited. Subsections (3) and (4) insert the need for a
statement of compliance to replace the statutory declaration in section
49(8)(b) of the 1985 Act. Could the Minister please provide the
reasoning behind
that?
Margaret
Hodge: The clause prescribes the
contents of the application for re-registration and the documents that
must accompany it. It replaces sections 49(4) to 49(8)(a) of the 1985
Act. The current requirement for a statutory declaration made by the
directors on application for re-registration as an unlimited company is
replaced by a requirement for a statement of compliance. Unlike most
other statements of compliance made under the Bill, the one made on
application for re-registration as an unlimited company must contain a
statement by the directors confirming that the persons by whom or on
whose behalf the form of assent is authenticated constitute the whole
membership of the company, and if any of the members have not
authenticated the form themselves, that the directors have taken all
reasonable steps to satisfy themselves that each person who
authenticated it on behalf of a member was lawfully empowered to do so.
The contents of the directors’ statement carry forward the
provisions of section 49(8) of the 1985 Act, which requires
a “prescribed form of
assent to company being registered as
unlimited”. On that
basis, I urge Members to support clause stand
part.
Mr.
Djanogly: I am not entirely sure whether my question has
been correctly answered. Perhaps it was, but it was not a very long
response, so if the Minister would write to me on the point, I would
appreciate
that. Question put
and agreed to.
Clause 103 ordered to stand
part of the Bill.
Clause 104 ordered to stand
part of the Bill.
Clause
105Re-registration
of unlimited company as
limited 2.45
pm
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