Company Law Reform Bill [Lords]
Mr. Djanogly: We have had a useful debate on clauses 115, 116 and 117. Having heard the various contributions and interventions relating to my speech last week, it might be helpful if I say a few words about what we are not proposing, as much as about what we are proposing.
We are certainly not ignoring previous legislation in this area. I appreciate that the Minister recognised our input and review of previous legislation, such as the Serious Organised Crime and Police Act 2005, and
We are certainly not ignoring the Governments willingness to improve the situation where that exists, and we appreciate that clause 115 as drafted moves the debate forward positively, although we believe that the clause needs to be refinedas it stands it will not work adequately or be totally fit for purpose. In interventions during my speech last week, the Minister noted that the hon. Member for Cambridge and I were invited to the Department of Trade and Industry to discuss the clausesI appreciated that offerand although we made our position clear at that meeting we also received draft clauses which I took away and looked at. Many of the comments that I made last week and today were based on my views of the Government amendments that were given to me at that time.
Furthermore, from our point of view, and as I explained to the hon. Member for Newcastle-under-Lyme, this is not just a debate about animal rights terrorists. I made the point that we believe that the attacks on pharma shareholders will be just the preliminaries of a wider campaign against other sectors, if we do not get on top of the issue. We recognise that registers are already being misused for a variety of illegal purposes. I gave the example of the offshore boiler-room criminal gangs.
Another important point is that the debate, to us, is not just a matter of protecting home addresses. The Minister said, in relation to new clause 3, that service addresses can be used, so that an individual can deal with the problem within the existing law. I made the point, in response to an intervention last week, that sending a threat to a service address can be just as bad as sending it to a home address. Furthermore, people may not want their names to be revealed.
Finally, to us the debate is not about ending public access to shareholder registers, as, I think, the Minister appreciated. The amendment that would restrict access to those who own a certain percentage of shares is not our policy; we tabled it on a probing basis so that that question could form part of the debate. I should point out that concerns have been raised by, for instance, credit agencies, that even the Governments proposals go too far. That aspect of the matter was debated in the House of Lords Committee. As the hon. Member for Cambridge said, the Government themselves propose through the clauses to restrict public access. The debate is therefore about not extremes but degrees, and about whether the provisions approach the right degree.
After giving no little time to his impressive CV, the hon. Member for Newcastle-under-Lyme described, but in a very unspecific way, how the amendments would affect investigative journalism and hurt corporate governance. I think that those were his main points. He will have to be a little more specific, although I agree, basically, with his comments about access not being allowed without 5 per cent. share
The debate should be about protecting individuals from the use of their names or addresses for illegal purposes. Now that we have heard the debate on the Governments proposals I shall set out our position. The Minister asked why we have, for instance, maintained that the Governments proposals do not go far enough, and I want to deal with her points.
We remain concerned that Companies House is being kept in the equation. We can see no need for double disclosure. We think that we should simply stop companies having to provide details of members to Companies House, and then debate the question of access to details attaching to the companies registers of members. We shall table amendments to that effect, and we still maintain that that should be set out in the Bill.
Margaret Hodge: Is the hon. Gentleman suggesting that the only access to details of the membership of particular companies should be through the company itself?
Mr. Djanogly: I am saying exactly that. Of course, Companies House has to publish details of members once a year. At any time the register as it is found at Companies House will be out of date. If the Minister is suggesting that people should use that register for any purpose requiring accuracy, that will not do. The only way to find out who the members of a company are is through the company.
Margaret Hodge: That is a dramatic change in the current transparency. I have two points to put to the hon. Gentleman. First, the discipline of having to provide an annual return to Companies House is a way of getting companies to keep their registers up to date. All our evidence, from all the stakeholders, is that without that discipline it would not happen.
Secondly, the hon. Gentleman must accept that on occasion perhaps an investigative journalist, or perhaps an existing member who thinks that the directors, in a private company where some of the members are also directors, are not working in the interest of the company, will want access. There will be such circumstances, in which people want to have access to the register of members without the directors of the company necessarily being aware. The hon. Gentleman must accept that.
Mr. Djanogly: I do not accept that at all. What is filed at Companies House is not the current register of members of a company but a copy of the register at a set date. An investigative journalist going to that copy of the register could well name people who are no longer shareholders of the company. The Minister also seems to miss the fact that the basic need is covered in the Companies Act 1985. If an entry in the register is not made, an offence has been committed. The annual return is simply a reflection of what should have been done under the law, it is not the law itself.
Paul Farrelly: The hon. Gentleman said previously that I had not been specific. I did not want to delay the Committee, but I can give him plenty of specific examples, from the Ostrich Farming Corporation to the Alchemy pyramid selling scheme to the Facia collapse that floored Stephen Hinchliffe, in which third-party access was vital not only for journalists but for those investigating financial crime. I suggest that the hon. Gentleman talks to the financial crime unit at Cambridgeshire police, the Serious Fraud Office and the stock exchange before he continues to advocate his current position.
Mr. Djanogly: I hear the points made by the hon. Gentleman and the Minister, but the fact remains that what is filed once a year in the annual return is a reflection of the register at that moment, not at any time afterwards. Access should therefore be granted to the register rather than to what is filed at Companies House.
Secondly, we are concerned that the Governments preferred mechanics will favour larger companies that can go to court and employ a solicitor and a barrister. The Minister raised that matter. It will be tougher for the smaller company, which is why we want to increase the period for going to court from five to 15 days. I found the Ministers explanation that she does not want to give people too much time to put together arguments somewhat strange. Perhaps I did not get that right, and she might like to elaborate. I did not really understand her point.
Margaret Hodge: My point was that companies need to give only 14 days notice of an annual meeting. The hon. Gentleman suggests a longer period for which they could withhold information, during which time they could pass all sorts of resolutions that might change the situation and inhibit access to proper information on the company and its members. That would be a risk if the period allowed were, in the example that I used, longer than the period for calling an annual meeting.
Mr. Djanogly: We would maintain that a small company with limited resources is unlikely to be able to appoint a solicitor and a barrister and prepare a court case in five days.
Clause 117 deals with the refusal of inspection. The Government have given us their idea of the balancing act that they believe should take place, and if access to a register of members is refused it will be a serious matter. However, the clause increases the potency of our argument that companies should have more time than the five days provided to approach a court for a non-disclosure order. As I have said, that is particularly important for small companies. The Minister said that she will consult with lawyers on the mechanics of how the process is likely to work. Will she drop hon. Members a line to explain what she will ask those lawyers? The provision is important and needs much further consideration.
Thirdly, the provisions would not be difficult to interpret. Companies would have to consider whether a normal-looking request for member details harboured a secret, illegal purpose, and courts would have to
Fourthly, we remain concerned that the only person who can seek protection is the company, not the shareholders who are individually at risk. Fifthly, the UK Shareholders Association, in its briefing to us on 30 May, said:
Clause 118 creating offences in connection with the obtaining of a copy of a register or of passing it on also seems unsatisfactory. The definition of the offence in connection with the passing on of the list would make it very difficult for anyone to decide whether they were entitled to pass it on or not. There seems a risk that the courts would feel oblige to construe the phrase more widely than might be intended. Moreover, we are not satisfied that all loopholes in connection with the chain of passing on a copy have been stopped up. It would seem far simpler to make the offence apply to the ultimate user of the list. The offence would then be to use information obtained from the register or index for an improper purpose, the latter having been defined as suggested above.
What do we propose to improve the situation? First, the existing provisions must be tightened up in the ways I have described. Secondly, the only access should be via the company register and not Companies House. Thirdly, there may be special circumstances in which the company or an individual should have the right to approach the DTI and say, We are under attack and we need protection. That should not be an everyday occurrence, and it should be undertaken only on a company-by-company basis. However, in such a situation, shareholder protection could be so important that the register of members should be made non-public.
Paul Farrelly: The hon. Gentleman again seriously suggests that the only portal for access to a share register should be the company itself. Has he considered that it would damage the economys efficiency? If somebody wishing to take over a companyand therefore do shareholders some goodcould access the share register only through the company itself, the company would be tipped off about the takeover in advance.
Mr. Djanogly: That would not be the case. One would ask for a copy of the register, and the company would have to provide it. I return to my basic point that what the hon. Gentleman describes as the register of members is a point in time: a shareholder might have sold half or three-quarters of their stake by the time the hon. Gentleman had got to Companies House and asked to see a copy of the register.
Paul Farrelly: Does not the hon. Gentleman agree that a useful guide is far better than no guide whatever?
Mr. Djanogly: The accurate guide is the register. The company maintains it, and the Companies Acts provide for people to access the register. We should debate the question of more or less access, about which
Todays debate has shown that new clauses 2 and 3 could be improved. For instance, they could provide for the company to circulate documents that shareholders would normally circulate. Despite the register being closed to inspection, access to other members could be retained. It was a feature of the Liberal Democrats new clause 22, and the composite approach mentioned by the hon. Member for Cambridge sounds attractive. It would address the issue that was quite properly raised by the hon. Member for Burnley (Kitty Ussher).
Some of the Labour attacks on new clauses 2 and 3 were a surprise, and hon. Members might not appreciate where the drafting derives from, so let me explain. A few years ago, there was growing concern about the abuse of directors arising from the requirement that their home addresses appear onthe public register at Companies House. The Companies (Particulars of Usual Residential Address) (Confidentiality Orders) Regulations 2002that is a mouthfulattempted to provide a remedy, which became clause 723B of the Companies Act 1985.
The provision, which will be superseded by that in the Bill, played an important role in advancing the debate on this issue. It provided that a person could ask the Secretary of State to make a privacy order if he could show that revealing his address would create, or would be likely to create, a serious risk that he or a person living with him would be subject to violence or intimidation. What is important is that the decision on privacy was to be an administrative, rather than a court decision.
In practice, the current system has worked fairly well. The Minister might wish to put me right on this, but I believe that there have been no accusations of democracy having been attacked. The current system could therefore form the basis for similar provisions for shareholders, possibly with enhanced appeal rights. Of course, new clause 22 provides for the decision to be taken by shareholders, rather than the DTI. At this stage, however, I feel that that is a step too far, although it was certainly important to bring the issue up for discussion.
The Opposition remain of the opinion that clause 115 does not go far enough and that new clause 2 would be a useful addition to the existing powers. That is why I shall ask for a Division on the new clause when we reach it at a later stage. For the moment, however, I shall ask for a Division on amendment No. 29, which,I believe, we shall be able to have today. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 115 ordered to stand part of the Bill.
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