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Session 2005 - 06 Publications on the internet Standing Committee Debates Company Law Reform Bill [Lords] |
Company Law Reform Bill [Lords] |
The Committee consisted of the following Members:Alan Sandall, Committee
Clerk † attended the
Committee Standing Committee DThursday 29 June 2006[Mr. John Bercow in the Chair]Company Law Reform Bill [Lords]Clause 277Expenses
of
circulation Amendment
moved [this day]: No. 337, in clause 277, page 127, line 36, at end
add ‘as certified by the company's
auditors from time to time.’.—[James
Brokenshire.] 1
pm
The
Chairman: I remind the Committee that with this we are
discussing the following amendments:No. 240, in clause 299,
page 134, line 44, leave out
‘public’. No.
241, in clause 299, page 135, line 4, leave out ‘in
complying’ and
insert ‘incurred in printing and
distributing a statement so as to
comply’. No.
242, in clause 299, page 135, line 7, leave out paragraph
(b). James
Brokenshire (Hornchurch) (Con): I was debating the
slightly different approach to cost in clause 299, “Expenses of
circulating members’ statement”, in the context of a
general meeting. The costs in that clause appear to be tied to the
requirement to print and distribute the relevant statement.
In the context of clause 277,
what protection does there need to be in respect of expenses that might
be charged to a member for the cost of circulating the relevant
statement or resolution? In simple terms, the amendment would ensure
that there are checks and balances, that members are not taken
advantage of, and that costs that are not reasonable are not required
to be paid to or by members as a precondition of the circulation of a
resolution or a statement.
Clause 288
appears to contain the power of a member to call a meeting at the
company’s expense which, although I appreciate that it is not
the same, touches on similar issues in terms of the ability to require
the convening of a general meeting which could be used for the purposes
of considering a resolution. In relation to clause 288 the reverse
appears to apply, and shareholders may convene a meeting at the
company’s cost without having any expense in those
circumstances.
The amendment
seeks clarification of the issue of expense generally. If shareholders
are obliged to meet the costs—I can see that they might be, to
ensure that the company is not prejudiced or disadvantaged—there
should be appropriate methods of ensuring that they can be checked,
audited or measured so that shareholders do not have to bear
inappropriate
costs.
The
Minister for Industry and the Regions (Margaret Hodge):
The purpose of amendment No. 337 is to ensure that a company does not
ask the members requesting the circulation of a written resolution to
put in a bill for
what would be unreasonable expenses. The measure is unnecessary, and I
shall tell the hon. Gentleman why. First, as he knows, not all
companies need have auditors, and in the terms of the amendment as
drafted, such a company would have to appoint someone because its
members wanted to circulate a resolution. That would be a significant
burden on
business. Secondly,
if the directors asked for an unreasonable sum before circulating a
resolution, they would not be complying with the relevant provisions,
so they would be committing an offence. As that is within the framework
of the legislation, further protections and safeguards are unnecessary.
I am sure the hon. Gentleman would accept that the expenses incurred
are minimal or relatively small. They certainly do not justify the
costs of auditing, so I hope he will withdraw the
amendment. Clause
299 makes provisions for how the expenses for a members’
statement should be covered. Subsection (1) gives members of a company
a new right to have a statement relating to an annual general meeting
circulated at the company’s expense if their request is received
in appropriate time before the end of the financial year preceding the
meeting. The provision applies only to public companies, because only
public companies are required to hold AGMs. It would not be appropriate
to apply the requirement to private companies, as amendment No. 240
would do, as we will no longer require private companies to have a
statutory AGM. Clause
299(2) sets out what should happen when the criteria for a
members’ statement being circulated at the company’s
expense are not met. I am not sure from what the hon. Gentleman said
what costs he is seeking to prevent a company from claiming. The
expenses of complying with clause 298 are simply those of circulating
the statement. In any event, the amendment fails to take into account
electronic communications, which may mean that the company does not
incur printing costs but only relatively minor costs through e-mailing
people. An unintended consequence of the amendment could be to deter
companies from using cheaper forms of communication such as e-mail
because they want to be sure of claiming back
costs. Clause 299(2)
also contains a provision whereby if the criteria for a statement to be
circulated at a company’s expense are not met, the company is
let off circulating it if members have not tendered sufficient costs to
meet the expenses. To remove that provision would simply encourage the
occasional frivolous or disruptive request for the circulation of
material. Members requesting a statement will be able to claim back
their money if the general membership resolves that the company should
pay. The hon. Gentleman
referred to clause 288, which provides a remedy for members when
directors fail to call a meeting at their request. In those
circumstances it is appropriate to require the company to pay expenses
for members. I hope that, with those explanations, he will withdraw the
amendment.
James
Brokenshire: The Minister’s main point was that if
companies seek to misuse the provisions on members’ statements
by adding costs, they will be committing an offence. That was her most
powerful argument and a valid point, and it is good that it is on
the record. The message will be sent that if
somebody
seeks to use the provisions to add inappropriate costs as a means of
disincentivising shareholders from exercising their rights, that will
be an offence and will carry commensurate sanctions. In the light of
that powerful argument, it would be wrong for me to detain the
Committee
further. If
a company has a large shareholder base the cost of sending of hard
copies might not be huge but could be significant. I hear what the
Minister says about that and on sanctions. I beg to ask leave to
withdraw the
amendment. Amendment,
by leave,
withdrawn. Clause
277 ordered to stand part of the
Bill.
Clause 278Application
not to circulate members’
statement Question
proposed, That the clause stand part of the
Bill.
James
Brokenshire: I have just one small point on the clause. We
touched this morning on a company’s right to apply for relief in
the event that clause 275, on members requiring the circulation of a
written resolution, is abused. Such an application can be made by a
company or “another person
who claims to be
aggrieved”. How wide is
that intended to extend? Will anyone who feels aggrieved have locus
standi? What is the ambit of that
provision?
Margaret
Hodge: That reference in clause 278 mirrors the general
meetings provisions in clause 300, which is entitled
“Application not to circulate members’ statement”.
So those words are just a restatement of the provisions in clause 300.
But the answer to the hon. Gentleman’s specific question is
yes. May
I take a slight liberty? This morning, I made an error, which I would
like to correct, if I can. During the exchange on clause 271, there was
a slight confusion. The hon. Gentleman asked whether the Bill would
allow a company to use its articles to override the written resolution
procedures for statutory resolutions. I think that I answered yes, but
apparently the answeris no.
Margaret
Hodge: There were two possible answers, so I had a 50 per
cent. chance of getting it right, but I got it
wrong. It
is important for the decision-making procedures of a company that the
articles cannot create alternative written resolution procedures or
require meetings. That is the effect of clause 283. That is quite
different from the ability of companies to entrench provisions in their
articles, as we discussed earlier. For example, if a company wishes, on
the agreement of all its members, to entrench higher than the 75 per
cent. majority, it may do so. However, it is important for the
protection of minority shareholders that the articles cannot require
statutory resolutions to be taken in a meeting. Otherwise, it would
limit the rights of members to require the circulation of written
resolutions and accompanying statements on a number of key matters, and
remove a particularly important new right for a member of the
scheme.
James
Brokenshire: I am grateful for the clarification on clause
271. Outsiders watching these proceedings can be sure that we are clear
about the ambit and operation of that clause in the context of clause
283—the clause to which I was referring in our earlier
debate. I heard what
the Minister said about the ambit of clause 278. In essence, it covers
anybody who might be interested, and therefore is fairly wide-ranging.
I do not know whether further clarification is on offer, but it does
not sound like it. On that basis, I am content with what she said, and
shall not press the
matter. Question put
and agreed
to. Clause 278
ordered to stand part of the
Bill.
Clause 279Procedure
for signifying agreement to written
resolution
James
Brokenshire: I beg to move amendmentNo. 228, in
clause 279, page 128, line 4, leave out ‘acting’ and
insert ‘duly authorised to
act’. Clause 279
deals with the procedure for signifying agreement to a written
resolution. Again, this is a probing amendment seeking clarification on
how that would take effect. Under the provisions, a member is deemed to
be bound “when the
company receives from him (or from someone acting on his behalf) an
authenticated document...identifying the
resolution...and...indicating his
agreement”.
Authentication appears to relate to the
document, rather than to its execution. I therefore want to probe in
relation to the protections that might be afforded to ensure the
avoidance of any potential for fraud or for a person to intercept and
return an authenticated document—purportedly on the
shareholder’s behalf—on which, it appears, the company
could be automatically reliant.
1.15
pm Obviously, we
are entering a new and different world, with e-commerce and the use of
electronic signatures. Subsection (4)
says: “A written
resolution is passed when the required majority...have signified
their agreement”, but
subsection (3) says that once something is signified it “may not
be revoked.” The issue is
slightly technical, but the purpose of the amendment is to say that the
person is duly authorised to act on the member’s behalf, so as
to make it clear that there must be some formal
authorisation.
Traditionally,
that has been done through such means as power of attorney or other
appropriate legal methods. However, the company should not be able
merely to accept the receipt of a document on behalf of another person
without a requirement to check that that person has been duly
authorised to execute the document on the other person’s behalf.
We need to ensure that there is proper execution and that such
provisions are not capable of being misused. I hope that the Minister
can clarify the manner in which authorisation is to be provided and
give some reassurance that the system cannot be misused in some
way.
David
Howarth (Cambridge) (LD): Does the hon. Gentleman mean
through the amendment to exclude the possibility of the company taking
apparent authority to be enough? Is it his view that there should have
to be actual
authority?
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