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
286Members’
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
288Power
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
290Notice
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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