Clause
116Register
of members: response to request for inspection or
copy Amendment
proposed: No. 29, in clause 116, page 52, line 32, leave out
‘five' and insert ‘fifteen'.—[Mr.
Djanogly.]
The
Committee divided: Ayes 8, Noes
10.
Division
No.
7] Question
accordingly negatived.
Clause 116 ordered to stand
part of the
Bill. Clauses
117 to 119 ordered to stand part of the
Bill. 12.15
pm
Clause
120Removal
of entries relating to former
members
Mr.
Djanogly: I beg to move amendment No. 33, in clause 120,
page 54, line 16, leave out from beginning to end of line 18 and
insert— ‘(1) A company may
transfer to a separate register any entries relating to a former member
of the company; and the provisions of this Chapter apply to the
separate register as they apply to the register, with any necessary
modifications. (2) An entry
relating to a former member of the company may be removed from the
register, or from the separate register of former members, after the
expiration of ten years from the date on which he ceased to be a
member.'. The
clause relates to section 352(6) of the Companies Act 1985 on entries
regarding former members. Lord Hodgson proposed an amendment to insert
the Law Society’s recommended clause, which is largely
reproduced in amendment No. 33. The benefit of the amendment would be
greater privacy for those who are no longer members. Lord
Hodgson’s amendment would also have reduced the relevant time
period from 10 years to five years. He said that the 10 year period
would be burdensome on companies and that a reduction would provide
some deregulation and cost
savings. Lord
Sainsbury responded that such an amendment to separate the registers
would be unnecessary as clause 743 gives companies the power to arrange
their records as they wish, and that the time limit for keeping records
should be reduced to 10 years to take account of any claims arising
from errors in the
register. The
explanatory notes to the Bill state that the reduction to 10 years was
the result of a company law review recommendation. However, the company
law review also recommended that companies be permitted to keep entries
relating to former members on a separate register from that used for
current purposes. The Government seem to have ignored that
recommendation. The
provision has been reviewed in the Lords, but we ask the Government to
reconsider and we ask why they have ignored the company law review
recommendation.
Margaret
Hodge: We have not ignored it. Indeed, it is our
view—as I think was expressed in another place—that the
issue is covered by what is now clause 787(1)(b), which says that
company records “may be
arranged in such manner as the directors of the company think
fit”. That enables
companies to keep a separate register if they so wish. The opinion of
the commercial registrars whom we consulted on the issue was that that
provision covers the arrangement that the hon. Gentleman is proposing.
Therefore I hope that he will withdraw his
amendment.
Mr.
Djanogly: I thank the Minister for that explanation and I
apologise for not having clause 787(1)(b) to hand. The problem with the
Bill is that there are so many volumes to carry around, and sometimes
we do not need clause 787. On the basis of that explanation I beg to
ask leave to withdraw the amendment.
Amendment, by leave,
withdrawn. Clause
120 ordered to stand part of the
Bill.
Clause
121Share
warrants Question
proposed, That the clause stand part of the
Bill.
Mr.
Djanogly: The clause relates to section 355 of the
Companies Act 1985. Clause 121(1) removes the requirement of section
355(1) of the 1985 Act whereby the company must strike from the
register the name of members who have been issued with a share warrant.
The explanatory note says that the effect of the change to section 355
is to the effect of the change to section 355 is to make it clear that
shares need not first be issued in registered form, but can be issued
directly in warrant to bearer form. If there is no register, would not
the original requirement still be
relevant?
Margaret
Hodge: The hon. Gentleman has got me there. I will write
to him with an explanation as soon as
possible. Question
put and agreed
to. Clause 121
ordered to stand part of the
Bill.
Clause
122Single
member
companies Question
proposed, That the clause stand part of the
Bill.
Mr.
Djanogly: The clause relates to section 352A of the
Companies Act 1985. Section 352A(1) has been developed by the insertion
of clause 122(1), which requires a company at its formation to enter a
statement on its register stating it to be a single member company.
Section 352A refers only to a company whose quantity of members falls
to one having to make a statement. As a result of amendments agreed in
the House of Lords, clause 122 now refers to all limited companies.
Section 352A referred only to private
companies. Lord Sainsbury explained that the amendment is a result of
the company law directive. It requires that once a company becomes a
single member company, whether public or private, it should be
recorded. I believe
that there may be some element of European law which is the root of all
of this. Perhaps the Minister could explain. To our mind, this is
patently an unnecessary clause. If there is only one shareholder on the
register that is a self-evident fact seen by looking at a copy of the
register. What is the purpose conceptually of the clause and why is
having one shareholder, rather than two or three, going to be of
concern to
anyone?
Margaret
Hodge: Again, I am going to have to write to the hon.
Gentleman.
Question put and agreed
to. Clause 122
ordered to stand part of the
Bill. Clause
123 ordered to stand part of the
Bill.
Clause
124Power
of court to rectify
register
Mr.
Djanogly: I beg to move amendment No. 34, in clause 124,
page 56, line 22, at end
insert— ‘(5) Any amendment
to the register consequent upon an order for rectification shall be
deemed to have occurred at the time of the passing of the
order.'. The
clause relates to section 359 of the Companies Act 1985. Let us say,
for example, that there is a nasty shareholder dispute, typically over
a family company and the dispute leads to litigation and eventually the
court making a rectification order under these provisions so that
previously transferred shares need to be reregistered with the original
owner. In practice, the implementation of any change to the register,
say a share transfer to the rightful owners as dictated by the court
order, may be delayed between the time of the order and the upgrading
of the register.
Until the register is amended
the legal owner remains the old owner. In practice that can mean that
physical possession of the company books and the register of members
can dictate how quickly the order will be implemented. The books will
normally be held by professionals such as the family accountant or
solicitor. However, in practice, and I have seen this happen on a few
occasions, the professional will have taken sides. The professional
often has to take sides to avoid a conflict situation, which can mean
that the books are effectively held by the wrong person and so the
client will advise the professional not to comply with the order and
the professional must follow the client’s
wishes. The amendment
aims to deal with such a situation by saying that the order for
rectification shall mean that the following amendment to the
register “shall be
deemed to have occurred at the time of the passing of the
order.” In that way,
petty but often nasty disputes, sometimes needing extra orders to force
handover of the registers, could be
avoided.
Margaret
Hodge: I understand the hon. Gentleman’s point, but
as I understand the clause’s purposes, it might be appropriate
on some occasions for a member whose name was not on the register to be
engaged in decisions taken prior to his or her confirmation as a
legitimate member of the company. I am thinking of an example in which
somebody’s name might not have been accepted on the register on
a particular day because a resolution or vote was taken by the company
during a meeting at which he or she was not
present. I further
understand that case law in that instance demonstrates that courts
rarely exercise the power of retrospective rectification. In fact,
officials have told me that the case law informing the provisions is a
1904 case involving the Sussex Brick Company in the Court of Appeal,
which at that time was the Master of the Rolls. That decision was based
on an earlier decision of 1866. The case law tells us that very rarely,
and only in exceptional circumstances, do the courts suggest that
retrospective rectification of a mistake on the company register should
be made. That facility should remain in place.
The hon.
Gentleman alluded to the case of a dispute in a small company whose
members might be members of a family in dispute. I am told that in such
circumstances, the court can already make orders in the terms that he
suggested. The amendment is not necessary to deal with the
circumstances of concern to
him.
Mr.
Djanogly: I shall respond to the Minister’s points,
because I accept totally that the situation will be rare. It probably
has been very rare. However, if such circumstances do arise, it will
probably be a pretty fraught, nasty scenario in which people have
fallen out to the extent that they are unable to sort out among
themselves the register and who owns the shares. They will probably
have talked through solicitors and will have to go to court to sort out
whether the entry was made appropriately. Yes, the proposed provision
is unlikely to be used, but in those rare circumstances where such
events do happen, it is likely that an amendment such as amendment No.
134 will be useful after the court has made a decision to avoid a
prolongation of the
dispute. The Minister
rightly said that if the rectification is not made and the registers
are not handed over, the individual can return to the court and request
a further order to gain physical possession of the registers or speed
up rectification. Indeed, costs would probably be awarded. However, in
the case of a small company, if the individual must return to court to
obtain another order after having brought the court case, it will be a
dispiriting process in a situation where I maintain that there should
be no problem. Once the court has made a decision, there should be no
problem. That should be what is reflected on the register, even if the
registers have not been handed over. To that extent I hear what the
Minister has to say. I am not going to push the amendment to a vote,
but perhaps the Minister will have another
think. Amendment,
by leave,
withdrawn. Clause
124 ordered to stand part of the
Bill.
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