Margaret
Hodge: Will the hon. Gentleman turn the issue the other
way round? In which circumstances is it legitimate for companies to
have registers that give the names—not the addresses—of
their members? He is talking about all these situations. Almost
universal secrecy appears to be the thrust of his argument. When is it
legitimate for companies to have a register of
members?
Mr.
Djanogly: I do not think that I have suggested that
companies should get rid of registers of members. If the Minister
thinks I suggested that, she must think
again.
Margaret
Hodge: Perhaps I can help the hon. Gentleman. He suggested
that there was wrongful exploitation of the names of members of
companies by people other than extremists for the purposes of selling.
There is a tradition that the names of members are openly available,
for reasons of transparency. Given the thrust and direction of his
argument, I ask him again, how does he define the
circumstances?
Mr.
Djanogly: Is the Minister now suggesting that we are
talking about extremists operating from boiler rooms? Is that what she
is implying?
Margaret
Hodge: Answer the
question.
Mr.
Djanogly: If the Minister lets me develop my argument, she
will see where I am coming
from.
Mr.
Djanogly: I want to make progress and develop my argument,
and then I will take further interventions. I have been fair so
far. The problem is
clear, and we need to look at the Government proposals tabled on Third
Reading in the other place and so far not reviewed in Committee. Lord
Sainsbury made it clear that the Government want to strike a balance
between disclosure and security. I appreciate that that is an important
issue and that it is not
straightforward. Amendments
were made on Third Reading in the other place to attempt to create both
a trail of the records to stop companies being swamped with similar
requests and new offences relating to misuse of the registers.
Individually, those seem fine, but at this stage we need to consider
the provisions in the round, conceptually.
First, as things stand, in
practical terms a coach and horses can be driven through the provisions
because details of shareholders as at the return date need to be filed
annually with the annual return. The Companies House fiche, therefore,
may not be accurate as at any other given moment, but it is certainly
adequate for conducting a terror campaign against
shareholders.
In Committee in the House of
Lords, the Government said that they would consider introducing
regulations to change that requirement. Why not simply add those
provisions to the Bill? We have tabled an amendment to that purpose,
which we hope will be selected when we consider part 23, which deals
with annual returns.
In January, the Minister, Lord
Sainsbury, said that he would act. On such a key issue, I ask this
Minister please to explain why no Government amendments have been
tabled specifically to remove the requirement for companies to identify
individually their members in their annual return. The formula chosen
by the Government is for the company to make the move if it objects to
a request to see the register, and I want to make various points on
that issue. First, I
want to discuss matters raised by the United Kingdom Shareholders
Association in its briefing paper dated 30 May, which
states: “At
Third Reading amendments were brought forward by Lord Sainsbury
intended to meet the concerns expressed at the Report Stage. Lord
Hodgson, while expressing appreciation, reserved his position and
indicated that these matters would be for discussion in the Commons.
Despite all the protestations to the contrary, Lord Sainsbury
maintained his position that it is impossible to formulate a definition
of a proper or an improper purpose and that a company and a court will
instinctively know a purpose that is not proper when they see
one. This seems to be
a case where the DTI have got themselves stuck in a mindset and cannot
see an alternative way through. We still believe that it is
unreasonable to leave the definition so vague and to expect companies
to decide what the courts are likely to consider as ‘not a
proper purpose’ and act accordingly. If, for example, we are
talking about animal rights activists, the company will have to decide
whether the level of communication intended is at an acceptable level,
e.g. letters to ask shareholders to press the company to change its
policy, or involves action of a more threatening or harassing nature.
Equally if there is a request on behalf of some kind of investment
organisation, the company will have to decide whether it is a
reasonable use to try to gain clients or whether it is some kind of
scam. There is no obligation on the company to contest the request by
going to court. It would be very easy for them to decide that the
trouble and cost are too much and just comply with the
request. In practice
the lack of a clear definition will cause enormous difficulties both
for companies in deciding whether to grant access to the register, and
for organisations such as our own who occasionally request copies. We
would also risk incurring considerable legal costs because of the lack
of such clarity, and it could be very many years before legal practice
was established by case law, if
ever. We believe that
it would be quite possible to draft a clause with clear examples of an
improper purpose but still leaving the courts a wide discretion to
extend the list if they saw fit. This kind of approach has been adopted
in The Unfair Terms in Consumer Contracts Regulations
1999...Another example is in Section 11(2) of the Unfair Contract
Terms Act 1977. The
only place where we have been able to find ‘proper
purpose’ used in connection with a criminal offence is in the
Merchant Shipping and Fishing Vessels (Medical Stores) Regulations
1995. There, at Reg 12, it is a defence if medicines and medical stores
have been used for their ‘proper purpose’; surely a
situation where the meaning of the words is rather more
obvious.” That points to
the fact that there is a great deal to be debated in relation to the
Government’s proposals.
An article
in The Times on 9 May begins by quoting Mr. John Roundhill of
the Institute of Chartered Secretaries and
Administrators: “‘Under
the new proposals, the company is obliged to deliver the register only
if the person requesting it can prove that they require the information
for a “fit and proper” purpose...We would urge the
Department for Trade and Industry to look at this clause again as we
are concerned that there is no definition of “fit and
proper”
purpose.’ Mr
Roundhill is chairman of the registrars' group of the Institute of
Chartered Secretaries and Administrators, which represents 97 per cent.
of Britain’s shareholders. He said that it would be fairly easy
for a person to give the impression that he intended to use the
information for a ‘fit and proper’ purpose but that it
would be difficult to know whether this was
true. He is also
concerned that the company has only five days to determine whether or
not the case is ‘fit and
proper’.”
Justine
Greening: My hon. Friend illuminates the issue.
Unfortunately, companies will know that information has been used
improperly only after it has happened, and because the asset is
information, once it has been given it cannot be taken away again.
Therefore, it is almost impossible for companies retrospectively to
take action when something has already gone
wrong.
Mr.
Djanogly: My hon. Friend goes to the nub of the matter;
that is what the debate is about. At the time the request comes in, it
will be difficult to know whether it is valid. That is one of our main
problems with the
measure.
Paul
Farrelly: I do not want to delay the Committee, but the
hon. Gentleman has been discussing Huntingdon Life Sciences without
advancing his cause and argument as he has not tabled sensible
amendments. That is the point that my right hon. Friend the Minister
was making. His amendments would set corporate governance in this
country back by 100 years. It is not a solution for Huntingdon Life
Sciences to move in the direction of Mickey Mouse tax havens with their
secrecy, which he would rightly
criticise.
Mr.
Djanogly: The hon. Gentleman has said two or three times
now that I intend to set about destroying corporate governance. Will he
explain
how?
Paul
Farrelly: As my right hon. Friend the Minister said,
through allowing a general presumption of secrecy, and in one of his
amendments putting the company in the place of the court as the sole
arbiter.
Mr.
Djanogly: First, the hon. Gentleman does not know that I
am suggesting a general presumption of secrecy. In fact, I specifically
did not advocate the Maryland system. He is on the wrong track; perhaps
he did not understand what I was saying. I would like to proceed with
making my points. We
have an important problem in clause 115. It may be possible, at a push,
for a large company to instruct lawyers, solicitors and barristers to
take a case to court within five days, but it would be much more
inconvenient, if not wholly unrealistic, to expect a smaller company to
keep to that timetable. That is why we asked for the Minister’s
comments on our amendment No. 29, which would increase the number
of days from five to 15. For a small company, it would still be a tall
order to go to court, particularly if it had to do so on a repeat
basis. Additionally,
we must keep it in mind that smaller companies are more likely to be
attractive targets of activism. The activists are not stupid. They will
learn from their bruising GSK experience of fighting with the big boys
and head back to the smaller and easier pickings. It has been pointed
out to us that, because the share register is statutory, the
information in it is outside the regulatory environment of the
Information Commission. If the Government have examined that point, I
would appreciate hearing the Minister’s
views. 4.30
pm Clause 115
requires people to identify the purpose for which the information is to
be used. Amendment No. 27—a probing amendment—proposes
that the information should be precise. My hon. Friend the Member for
Putney rightly asked what would happen if the reason given was,
“To inform shareholders of an important matter for themselves,
the company, humanity and the environment,” without any
statement that shareholders will be asked to sell their shares as a
protest. It could be complicated, and many complex and expensive court
cases could arise. Do the Government intend to give any guidance on
that? Let us consider
the alternatives. The first is the approach adopted in Maryland, USA,
which I have discussed previously and have discounted for this
country—although I should like to hear the Minister’s
views on it, because Huntingdon Life Sciences felt that it was forced
to adopt it because of terrorist activity. It would restrict access to
members holding at least 5 per
cent. The second
approach would be to define what constitutes a proper or improper
purpose, as suggested by the UK Shareholders Association, among others.
Lord Sainsbury said that he had specifically turned that down because
in his view it would be impossible satisfactorily to formulate a
definition to cover all situations. Other people have since disagreed,
and I should be interested to hear whether the Minister has reassessed
the position. A third
approach, which could be complementary to the Government’s,
would be to provide companies and individuals with the right to apply
to the DTI to, in effect, close the register if the availability of the
register created, or was likely to create, a serious risk that a member
of the company, or connected parties, would be subject to violence or
intimidation. Hon.
Members will note that I am not calling for a general closure of the
register; I am talking about closure in situations where it could be
shown to the registrar that members would be subject to intimidation.
That approach suggests that companies should not all be thrown into the
same basket. Some companies or individuals may be at such risk that
they
should be treated on a stand-alone basis. The provisions could be tacked
on to existing provisions and could provide a further level of
protection that might be more realistic, accessible and certainly
cheaper for smaller companies that believe that their shareholders need
protection. The clause as it stands works only for a company seeking
protection in respect of all its members and does not provide for
individual members to seek to protect their details. New clauses 2 and
3 provide for
that. The Liberal
Democrats have suggested another option which is worthy of
consideration in the form of new clause 22. I shall not steal the
thunder of the hon. Member for Cambridge, but from our point of view
the proposal heads in the same direction as ours. It provides for the
company to vote to close its register by special resolution of members,
on the basis that the company would pass lawful communications on to
interested parties. I can see the attractions of that, and I look
forward to hearing his case. There are a number of approaches and the
issue is important to the future of business in this country. I am
pleased to have had the opportunity to debate it, although the debate
is one that I believe we should have had years
ago. Finally, on
clause 115 stand part, regulation 3(1) of the Companies (Inspection and
Copying of Registers, Indices and Documents) Regulations 1991
says: “This
Regulation applies to an obligation to make a register, index or
document available for inspection imposed ona company by
sections 169(5)...175(6)...191(1)...219(1)...
288(3)...318(7)...356(1)...and 383(1)... of the Act, as
well as to section 325 of, and paragraph 25 of Part IV of Schedule 13
to, the Act”. The Act
referred to is the Companies Act
1985. Regulation 3(2)
goes on to
say: “The
company shall: (a)
make the register, index or document available for such inspection for
not less than two hours during the period between 9 a.m. and 5 p.m. on
each business day;
and (b) permit a
person inspecting the register, index or document to copy any
information made available for inspection by means of the taking of
notes or the transcription of the
information.” One
practical issue is that the inspector of the register will not know the
number of company members at the time of the application for
inspection. Therefore, he will not know what fee must be paid for the
copy of the register. He will need to ask the company, which could
delay in responding or in telling him, for instance, which two hours on
any business day are available for inspection. Could that not be used
as a delaying tactic in a takeover, and would it not be better to have
fixed access hours, or at least fixed
fees? Also, I
understand that the Court of Appeal in Pelling v. Families Need
Fathers recently ruled that a court has the discretion not to order a
company to allow a member to require a copy of its register. How does
that tie in with the statutory
instrument? Debate
adjourned.—[Steve
McCabe.] Adjourned
at twenty-four minutes to Five o’clock till Tuesday 27 June at
half-past Ten
o’clock.
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