Company Law Reform Bill [Lords]


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James Brokenshire: I am probing on that issue more than anything else, in trying to ensure that we are clear on whether a company can rely on the power of authority or whether it should have to rely on actual authority and be under a duty to check. Having received a document that is purported to carry the authority of the member, can the company rely on that automatically? That is intent of the existing drafting of the Bill, but the purpose of the amendment is to probe that and ensure that we are striking the right balance.
Margaret Hodge: I am reflecting on what on earth apparent as opposed to actual means—no doubt I am going to get a lesson in law, as I presumably have less than a 50 per cent. chance of getting that one right.
An amendment on evidence was raised in another place, albeit in relation to companies’ communication, so I shall respond in a similar way. The clause sets out the procedures for signifying agreement to a written resolution. The provision allows for either the member or someone acting on their behalf to signify that agreement. The problem that the amendment tries to address is that people could try to signify agreement on someone else’s behalf without having the proper authority.
In fact, we have dealt with the issue elsewhere in the Bill. We considered those points when the Opposition raised a similar theme in another place and as a result we clarified the requirements for authentication. Clause 798(4) allows companies to make provisions in their articles for requiring reasonable evidence of the authority of someone acting on behalf of a member. Given that position, I hope that the hon. Gentleman will withdraw the amendment.
James Brokenshire: I thank the Minister for her response. In essence, companies are to deal with the matter case by case, as they decide whether to put relevant provisions into their articles under clause 798(4), which states that
“nothing in this section affects any provision of the company’s articles under which the company may require reasonable evidence of the authority of the former to act on behalf of the latter.”
The point that I could make on that is that there has to have been entrenchment in the articles. A different approach would have been codification, whereby companies would automatically have that right. Nevertheless, I understand where the Minister is coming from, and if there is the flexibility to ensure that companies can take such steps, that is helpful in answering the point that I flagged up. On the basis of her response, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 279 ordered to stand part of the Bill.
Clauses 280 to 285 ordered to stand part of the Bill.

Clause 286

Members’ power to require directors to call general meeting
James Brokenshire: I beg to move amendmentNo. 231, in clause 286, page 129, line 30, leave out from ‘10%' to end of line 37.
Clause 286(3) states that 10 per cent. of members are needed to require directors to call a general meeting. The clause then states a number of exemptions that appear to apply to private companies, which are not currently reflected in section 368 of the Companies Act 1985. Essentially those exemptions seem to allow the lower percentage of 5 per cent. in the event that someone has already used the right in clause 286(4) in the 12 months since the end of the previous general meeting. I am trying to understand the thought processes behind those provisions and to ascertain whether there is a risk that the additional provisions in subsections (3)(a) and (b) may in any way encourage continual requisition by shareholders.
Obviously, there are provisions relating to relief, but the question is whether the additional language could in any way be misused to encourage continual requisition. I should also appreciate clarification on what paragraph (b) is actually driving at, and on the problems, errors or risks that it seeks to address. It was the absence of such clarification that led us to table the amendment.
Margaret Hodge: I was hoping to cover these issues this morning in relation to an earlier amendment, but that was withdrawn. This is a flip-floppy bit of amending by the Opposition. I say that particularly because their representative in the House of Lords, Lord Hodgson of Astley Abbotts, moved amendments at every stage to reduce the thresholds from 10 to 5 per cent. To pick just one quote, he said:
“The Government are wrong not to accept a 5 per cent. threshold because, if a company has nothing to hide, there is nothing to fear. In the circumstances, 5 per cent. is still a pretty high barrier.”—[Official Report, House of Lords, 27 February 2006; Vol. 679, c. 59.]
I could give other quotes, but in the interests of speed and getting through the business before us, let us leave it at that.
The amendment would reverse the one that was pressed for in another place. The rationale behind that amendment was that, in the absence of a statutory annual general meeting, we needed to make it easier for members of a private company to call a general meeting to hold their directors to account. Opposition Members in the House of Lords attached great importance to that on the grounds of
“shareholder rights, shareholder democracy and protection of minority shareholders.”—[Official Report, House of Lords, 27 February 2006; Vol. 679, c. 59.]
We understood those concerns and felt that members should have a voice in the company’s decision making, but we saw no justification for imposing potentially significant administrative and cost burdens on public companies, given that it will be a statutory requirement for them to continue to have a voice at the AGM. That is why we introduced the alternative threshold for private companies and reduced it from 10 to 5 per cent. of voting rights. In that context, members will have that right only once a year—it is not a continuing right—and 12 months must elapse before they can reconvene on the 5 per cent. basis.
I am not quite sure where Conservative Members are coming from, but I hope that they will continue to champion for shareholder rights, shareholder democracy and the protection of minorities, which we shall be discussing later, and that they will not pursue the amendment.
James Brokenshire: I am always delighted to debate the protection of shareholder rights and I look forward with alacrity and interest to further debates on the subject.
As I said, the purpose behind the amendment is to obtain clarification of the intent behind the wording of clause 286(3) to ensure that it cannot be open to abuse and that it strikes the right balance, ensuring that the interests of shareholders and members are properly protected, while not inappropriately disadvantaging the company. The Minister’s comments are helpful in assuring us that the provisions are not open to abuse, that they will provide private limited companies and their shareholders with flexibility, and that minority shareholders’ interests will be protected. In the light of that clarification, I am pleased to say that I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 286 ordered to stand part of the Bill.
Clause 287 ordered to stand part of the Bill.

Clause 288

Power of members to call meeting at company’s expense
Question proposed, That the clause stand part of the Bill.
1.30 pm
James Brokenshire: The clause relates to the power of members to call a meeting at the company’s expense, thus enabling shareholders to requisition a general meeting. My question is about subsection (7), which deals with the provision under which reasonable expenses must be reimbursed by the company. The subsection refers to “fees or other remumeration” and states:
“Any sum so reimbursed shall be retained by the company out of any sums due or to become due from the company by way of fees or other remuneration in respect of their services to such of the directors as were in default.”
In other words, if the company has to pay money to shareholders, it can then deduct such sums from the defaulting directors who did not comply with the clause. Again, reference is made to fees or other remuneration, so the provision appears to relate to sums that may be payable directly to individual directors.
My question is what happens in the circumstances of a contract for services, such as when the services of a director are provided through a service company, and therefore payment is directed to that company rather than directly to the individual. Are such circumstances covered, so that the company could deduct the relevant sums from any charges that might be payable by the service company, as contrasted with any “fees or other remuneration”, a term that relates to an employment-type arrangement? Really my question is about whether the clause is wide enough to cover such eventualities.
Margaret Hodge: I think that the answer is that I shall write to the hon. Gentleman.
Question put and agreed to.
Clause 288 ordered to stand part of the Bill.
Clause 289 ordered to stand part of the Bill.

Clause 290

Notice required of general meeting
James Brokenshire: I beg to move amendmentNo. 338, in clause 290, page 131, line 33, at end insert—
‘(2A) In calculating the time periods referred to in subsections (1) and (2), the date of issuance or publication of the notice and the date of the general meeting shall be disregarded.'.
The Chairman: With this it will be convenient to discuss amendment No. 340, in clause 295, page 133, line 23, at end add—
‘(5) In calculating the time periods referred to in this section, the date of issuance or publication of the notice and the date of the general meeting shall be disregarded.'.
James Brokenshire: We now move on to the notice periods required for general meetings. Under clause 290, general meetings can be convened on 14 days’ notice, or, in the case of an annual general meeting, at least 21 days’ notice. The amendments raise the exciting point, which is often debated in relation to time periods for general meetings, of what we mean by days. I know that it sounds all very arcane, but corporate lawyers have such esoteric debates about meanings in the articles. I can see that hon. Members are rapt by the potential of the debate.
David Howarth: Sad but true.
James Brokenshire: The hon. Gentleman is right. The not necessarily happy hours spent on having these sometimes awkward debates are, thankfully, nearly expunged from my memory.
Normally a company—particularly a plc, for which the issue is significant—must provide in its articles that in calculating x days’ notice, no account will be taken of the day of the sending out of the notice, or the following day, which relates to receipt of the notice, or the date of the meeting itself. I recognise that there appears to be nothing in the Bill to deny a company the great pleasure of having a lawyer draft such provisions into its articles. Indeed, clause 290(3) specifically contemplates that possibility.
I want to know whether we can save companies the cost and expense of the extremely exciting process of encapsulating such provisions in their articles by being very specific and clear about setting out the notice period of 14 or 21 days, although I recognise that my amendment may not be perfect. This obviously becomes more germane in as much as the normal notice period of full resolutions is now being reduced to 14 days in almost all circumstances. Therefore the time periods may become more critical.
Mr. Jonathan Djanogly (Huntingdon) (Con): My hon. Friend makes a good and practical point. Clause 292 refers to 21 and 14 days. In practice, it is 24 days and 17 days, and so it is unclear without the amendment.
James Brokenshire: My hon. Friend makes a fair point. It is these detailed and practical issues that practitioners on the ground have to get to terms with. Therefore, the amendment aims to give some clarity and to ensure that these rather detailed provisions are simplified in some way. We are codifying the provision on the face of the Bill. It is entirely possible that there is a subsection buried in its remaining parts which I have yet not discovered during my bedtime reading. I am sure that the Minister will point it out to me with great alacrity if there is. Indeed, I hope that that is the case. Amendment No. 340 makes the same point in the context of clause 295 in respect of special notices. I look forward with excitement to the Minister’s response.
Margaret Hodge: I know that the issue is dear to the hearts of many lawyers, some of whom are members of the Committee. Table A mentions notices of meetings and refers to clear days. That means that its wording is certainly in line with what the amendment suggests. The Companies Acts, by contrast, have never referred to clear days. I am told that this has been settled law in England and Wales since a case in 1935. In that very leading case, the judge said that he did not think there was any doubt about the position. Consequently, we did not think that the amendments were necessary. However, just to make the hon. Gentleman feel really good, if he feels strongly and thinks that they substantially clarify the point, I do not have a problem with taking them away and seeing whether we can put them in the Bill.
 
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