House of Lords - Explanatory Note
Political Parties, Elections And Referendums Bill - continued          House of Lords

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New section 347B : Prohibition on donations and political expenditure by companies

227.     New section 347B prohibits a company from making a donation or incurring political expenditure unless the transaction or the expenditure is authorised under, or by virtue of, a resolution of the company in general meeting.

228.     An approval resolution must be one passed by the company in general meeting which authorises the making of donations and incurring of expenditure for a period of not more than four years commencing with the date of the passing of the resolution up to a value specified in the resolution. The resolution must not identify a specific transaction or the names of recipients or classes of recipients etc., but must simply seek approval for the global amount to be spent on donations and political expenditure.

229.     Subsection (6) provides that nothing in new clause 347B is to be taken as authorising a company to make political donations etc. where its constitution does not permit it. Similarly any such approval will not override the provisions of Part IV of the Bill in respect of the acceptance of donations by political parties. The approval will only permit the company to do what it could do lawfully in any event.

New section 347C : Special rules for subsidiaries

230.     New clause 347C specifies special rules in relation to a company incorporated in Great Britain which is a subsidiary of a holding company. (The terms "subsidiary", "holding company" and "wholly-owned subsidiary" each have the meaning given by section 736 of the Companies Act 1985.)

231.     Subsection (2) provides that, when the subsidiary company is not a wholly-owned subsidiary, it may not lawfully make any donation or incur any expenditure which has not been approved in general meeting by both the holding company and the subsidiary company itself.

232.     Subsection (3) provides that, when the subsidiary is a wholly owned subsidiary of its holding company, then the subsidiary need not pass its own resolution but the resolution of the holding company will still be required.

233.     Subsections(4), (5) and (9) provide that the resolution of the holding company must be in the same terms as those required for the subsidiary itself.

234.     Subsection (7) provides that, where donations or expenditure by a number of subsidiaries are required to be approved by the holding company, there must be separate resolutions dealing with each subsidiary.

New section 347D : Special rule for parent company of non-GB subsidiary undertaking

235.     New section 347D places an obligation on the directors of the holding company to take all such steps as are reasonably open to them to secure that any "subsidiary undertaking" (as defined in section 258 of the Companies Act 1985) which is incorporated or otherwise established outside Great Britain only makes a political donation or incurs political expenditure authorised by a prior resolution of the holding company in general meeting. The holding company resolutions are to be in the same form as required for GB subsidiaries.

New section 347E : Remedies for breach of prohibitions on company donations etc.

236.     New section 347E sets out civil remedies in relation to the making of donations or the incurring of political expenditure without the required approval of shareholders ("unauthorised transactions"). The remedies are to be available to a company and are to be pursued in the normal manner by the company; i.e. they will be pursued by the directors in the exercise of the management powers conferred by the articles of association, who will be subject to the various fiduciary and other duties applicable to directors in the conduct of the company's business.

237.     Subsections (2) and (4) provide that, where a company has engaged in an unauthorised transaction, the company is to have a statutory right to recover the amount of the donation or expenditure jointly and severally from the directors of the company (including for this purpose shadow directors) in office at the time the transaction was entered into. The company is also to have a statutory right to recover damages for any harm caused to the company by the unauthorised transaction e.g. if it is established that the unfavourable publicity surrounding an unauthorised transaction caused a loss of business to the company. Under subsection (3), the company is also entitled to interest on that amount from the time of the unauthorised transaction until the amount is repaid, at a rate to be prescribed by the Secretary of State by regulations subject to the negative resolution procedure.

238.     Subsection (6) provides that, where the company entering into an unauthorised transaction is a subsidiary of a holding company incorporated in Great Britain, that holding company is to have equivalent rights of action to those of the subsidiary itself against the directors of the holding company at the time the subsidiary entered into the unauthorised transaction. Again the liability is to be joint and several and is to include shadow directors and to be on the same terms as in relation to the subsidiary company itself.

New section 347F : Remedy for unauthorised donation or expenditure by non-GB subsidiary

239.     New section 347F provides that, where the unauthorised transaction is entered into by a subsidiary incorporated outside Great Britain, the holding company, if incorporated in Great Britain, is to have the rights of action set out in new section 347G against the directors of the holding company at the time the transaction was entered into, jointly and severally, where the directors are shown to have failed to take all such steps as were reasonably open to them to secure authorisation.

New section 347G : Exemption of directors from liability in respect of unauthorised donations or expenditure

240.     New section 347G provides that, when proceedings are brought against a director or former director in respect of unauthorised dealings or expenditure, it is a defence for the director to show that:

         a)     the amount involved in any unauthorised transaction has been repaid to the relevant company, together with any interest on that amount up to the date of repayment;

         b)     the repayment has been approved by the company in general meeting;

         c)     the notice of the resolution to be submitted to that meeting disclosed in full the circumstances in which the unauthorised transaction occurred and the circumstances and source of the repayment made to the company.

241.     Subsection (2) provides that, in the case of directors of a holding company, it is a defence to show in relation to unauthorised transactions by a subsidiary company that:

         a)     the unauthorised amount has been repaid, together with any interest on that amount up to the date of repayment;

         b)     the repayment has been approved by both the subsidiary and the holding company in general meeting;

         c)     the notice of the resolution to be submitted to each of those meetings disclosed in full the circumstances in which the unauthorised transaction occurred and the circumstances and source of the repayment made to the company.

242.     Subsection (3) provides that, in the case of a wholly-owned subsidiary of the holding company, it is not necessary for the repayment to be approved by the subsidiary company in general meeting.

243.     Subsection (4) provides that, in the case of directors of a holding company, it will be a defence to show that proceedings have been commenced by the subsidiary against its directors and are being pursued with due diligence by that company. Under subsection (5), this defence will not be available where the subsidiary is wholly owned and may only be raised with the leave of the court which may make, on such application for leave, such order as the court thinks fit, including an order adjourning or permitting the continuance of the action on such terms and conditions as the court thinks fit.

244.     Subsection (6) provides that it is a defence for directors of a holding company of a subsidiary incorporated outside Great Britain to show that:

         a)     the unauthorised amount has been repaid to the subsidiary undertaking, together with any interest on that amount up to the date of repayment;

         b)     the repayment has been approved by the holding company in general meeting;

         c)     the notice of the resolution to be submitted to that meeting disclosed in full the circumstances in which the unauthorised transaction occurred and the circumstances and source of the repayment made to the company.

New section 347H : Enforcement of directors' liabilities by shareholder action

245.     New section 347H provides that there is to be made available an action under which shareholders may enforce on behalf of the company any of the remedies outlined in new section 347E above.

246.     Under subsection (2), the shareholder action is only to be available when brought by one of the groups of shareholders described in section 54(2) of the Companies Act 1985; i.e. those groups entitled to challenge the re-registration of a public company as a private company. No shareholders other than those comprised in any one of such groups ("an authorised group") will be able to bring the shareholder action.

247.     Under subsection (3), an authorised group can only commence an action after:

         a)     serving a notice on the company which sets out the cause of action, a summary of the facts on which it is based, the identity of the authorised group proposing to bring the action and evidence that the shareholders making up the group qualify as an authorised group; and

         b)     a period of 28 days has elapsed since the service of the notice.

248.     Under subsections (4), (5) and (6), any director may apply to the court during the period of 28 days to bar the shareholder action on any of the following grounds:

         a)     repayment of the amounts claimed has been made in accordance with the procedures described in new section 347G above;

         b)     the company has itself commenced proceedings and is pursuing those proceedings with due diligence. If the company makes an application on this basis, the court has a full discretion under subsection (6) not only to bar the shareholder action but to permit it to continue on such terms and conditions as the court thinks fit or to require the company's action to be discontinued in favour of the shareholder action or for the company's action to be continued on such terms and conditions as the court may think fit;

         c)     the members proposing to bring the shareholder action do not constitute an authorised group.

249.     Subsection (7) provides that, if proceedings are brought by an authorised group of members, the group is to conduct the action on behalf of the company as if they were the directors of the company bringing an action on its behalf in the normal manner. The members are, in so far as they are acting on behalf of the company, to be subject to the same duties in relation to their acting on behalf of the company as would be owed by the directors themselves when conducting the action. No action by the company to enforce such a duty is to be brought without the leave of the court.

250.     Under subsection (8), the authorised group is to require the leave of the court to discontinue or compromise a shareholder action, and the court may give such leave on such terms as it thinks fit.

New section 347I : Costs of shareholder action

251.     New section 347I provides that the authorised group of members of a company are not to be entitled as of right to have the cost of the shareholder action met from the funds of the company. Under subsection (2), however, they have the right to apply to the court for an indemnity out of the company's assets in respect of costs incurred or to be incurred in a shareholder action. The court would have full discretion to grant such an indemnity on such terms as it thinks fit.

New section 347J : Information for purposes of shareholder action

252.     New section 347J provides that the authorised group of members of a company is entitled, once the action is commenced, to be provided by the company with all information possessed by it, in the control of it or obtainable by it relating to the subject matter of the action. Under subsection (2), this right may be enforced by the authorised group by application to the court for an order directing the company and any officers or employees specified in the application, to disclose to the group all such information in such form and by such means as the court may direct.

Clause 133 : Disclosure of political donations and expenditure in directors' report

253.     Clause 133 establishes separate disclosure regimes for donations and expenditure within the UK/EU area and for monetary donations or contributions to political parties in the rest of the world. Both regimes are embodied under the clause in Schedule 7 to the Companies Act 1985, which sets out the matters on which directors have to provide information in the directors' report.

254.     The existing provisions relating to political gifts in paragraphs 3 to 5 of Schedule 7 to the Companies Act are replaced by the following-

"Donations and expenditure within the UK/EU area

255.     A company which makes political donations or incurs political expenditure which, in aggregate, exceed £200 in the financial year to which the directors' report relates is required to make the disclosures described below in the directors' report. Where the company is a holding company, its directors' report should include, separately identified by reference to each subsidiary, the donations made and expenditure incurred by that subsidiary.

256.     The content of the disclosure is as follows:-

         i)     the name of each political party or body which has been the recipient of a donation;

         ii)     the total amount of the donation to that party or body; and

         iii)     the amount actually expended by the company in that financial year on advertising or other promotional material which could reasonably be regarded as likely to affect public support for a political party or body.

Monetary donations or contributions to political parties in the rest of the world

257.     In relation to the "rest of the world" disclosure regime, a company is required to disclose only a single aggregate figure covering monetary donations or contributions made to political parties which carry on activities wholly outside the UK or any other EU member state. It is intended that this disclosure should provide a warning flag to investors if companies are making substantial overseas donations. Where the company is a holding company the single aggregate figure is to include contributions both by the holding company itself and by any of its subsidiaries wherever incorporated. There is no threshold in relation to the "rest of the world" disclosure requirement."

Part X : Miscellaneous and general

Clause 134 : Reduction of qualifying period for overseas electors

258.     Clause 134 amends sections 1 and 3 of the Representation of the People Act 1985 so as to reduce the qualifying period for registration as an overseas elector from twenty years to ten years. The qualifying period was initially set at five years by the 1985 Act. It was subsequently raised to twenty years by the Representation of the People Act 1989.

Clause 135 : General function of Commission with respect to monitoring compliance with controls imposed by the Act etc.

259.     Clause 135 confers on the Electoral Commission the general function of monitoring compliance by registered political parties, recognised third parties and permitted participants in a referendum with the restrictions and other requirements set out in Parts III to VII of the Bill. In addition, the Commission is also to monitor compliance with the restrictions on candidates' expenses imposed by the Representation of the People Act 1983 and other enactments relating to elections.

Clause 136 : Supervisory powers of Commission

260.     Clause 136 empowers the Electoral Commission to require registered political parties, recognised third parties, permitted participants in a referendum campaign, regulated donees and candidates at an election to provide information to the Commission relating to their financial affairs. A person authorised by the Commission may also enter the premises of a registered party, recognised third party or permitted participant to inspect their financial records.

Clause 137 : Civil penalty for failure to deliver documents etc.

261.     Clause 137 creates a civil penalty for failure to deliver specified documents to the Electoral Commission as required under Parts III to VII. Subsections (3) and (4), which are modelled upon the financial penalties to which public companies are liable for failure to submit accounts under section 242A of the Companies Act 1985, provide for a scale of penalties based upon the length of the period during which the party has failed to comply with the relevant requirements. However, unlike the equivalent penalties under the Companies Act, which are recovered administratively, the Commission will, under subsection (5), recover the penalties as a debt through the courts.

Clause 138 : General offences

262.     Clause 138 creates general offences intended to guard against the evasion of the requirements of any provisions of the Bill through the alteration or suppression of relevant documents or through the withholding or supply of false information. An offence is only committed if the alteration etc. was intentional with a view to evading any of the provisions of the Bill.

Clause 139 : Inspection of Commission's registers etc.

263.     Subsection (1) provides for public access to the various registers maintained by the Electoral Commission, namely the registers of:

     a)     political parties;

     b)     recordable donations;

     c)     recognised third parties; and

     d)     permitted participants in a referendum campaign.

264.     Subsection (6) makes similar provision for public access to documents which are required to be deposited with the Commission, namely:

     a)     political parties' annual statements of accounts;

     b)     political parties' returns as to campaign expenditure;

     c)     recognised third parties' returns as to controlled expenditure; and

     d)     permitted participants' returns as to referendum expenses.

265.     The Electoral Commission will be required to make the registers and documents available for public inspection during ordinary office hours and, in addition, may make other arrangements for access to their contents (for example, it might make a copy of the registers available on the Internet). Clause 139, in its application to the register of political parties, replaces section 11 of the Registration of Political Parties Act 1998 which provides for public rights of access to the register to be determined by regulations. The regulations made under section 11 (the Registration of Political Parties (Access to the Register) Regulations 1998 (SI 1998/2875)) will be revoked.

Clauses 140 to 144 : Provisions relating to offences

266.     Clause 140 and Schedule 19 set out the penalties for all the criminal offences created by the Bill.

267.     Clauses 141 to 143 are concerned with summary proceedings and offences committed by bodies corporate and unincorporated associations. Clause 144 requires the courts to notify the Electoral Commission of the conviction of any person under the provisions of the Bill or under any enactment relating to elections. Such notifications will enable the Commission to check whether a person registered as a party's treasurer or as the treasurer of an accounting unit, or as a deputy treasurer, is disbarred from holding such office by virtue of clauses 22(7), 24(3) and 69(3) respectively.

Clause 145: Power to vary specified sums

268.     Clause 145 confers a power on the Secretary of State (for these purposes the Home Secretary) to vary any sums set out in the Bill (save those specified in clauses 11(8) and 32(5)). Save where any sum is simply being uprated to allow for inflation, any variation must be on the recommendation of the Electoral Commission.

Clauses 146 to 151 : Supplementary

269.     Clause 146 provides for the Secretary of State's powers to make orders and regulations.

270.     Clause 147 sets out requirements in respect of documents.

271.     Clause 148 gives effect to Schedules 20 and 21 which set out minor and consequential amendments and repeals. Subsection (4) provides for the continuation in force of the Registration of Political Parties (Prohibited Words) Order 1998 (SI 1998/2873) and thereby avoids the need for a replacement order to be brought forward under clause 25(2)(f) of this Bill.

272.     Paragraph 8 of Schedule 20 amends section 13 of the Local Government Act 1992 which sets out the functions of the Local Government Commission for England. Sub-paragraph (2) substitutes new subsections (1), (1AA) and (1A) in section 13 for the existing subsections (1) and (1A). The effect of this change is to enable the Secretary of State to direct the Local Government Commission for England (or its successor) to conduct a review of an area he specifies and to make either structural, boundary or electoral recommendations or any combination of the three he may direct. (As section 13(1) and (1A) stand, it is not possible for the Secretary of State to direct the Commission to carry out a review of any specified area which is limited only to structural or boundary or electoral changes; a review must at present embrace all three types of possible changes.)

273.     Paragraph 8(4) of Schedule 20 omits subsections (3) and (4) of section 13 of the 1992 Act. The effect of this change is to remove the current obligation on the Local Government Commission to conduct periodic electoral reviews at ten to fifteen-year intervals. Henceforth it would be a matter for the Commission (and its successor) to determine when to conduct periodic electoral reviews.

274.     Paragraph 10 of Schedule 20 amends the Government of Wales Act 1998. Sub-paragraph (3) adds a new section 34A to the 1998 Act which enables the National Assembly to make payments to groups of Assembly members for the purpose of assisting Assembly members in the groups to perform their function as Assembly members. Such financial support to party groups in the Assembly is equivalent to that paid to Opposition parties represented in the House of Commons (under a scheme known as 'Short money'), although in the case of the Assembly payments may be made to all parties. (Section 97 of the Scotland Act 1998 already contains provision in connection with the Scottish Parliament equivalent to the new section 34A.)

275.     Paragraph 12 of Schedule 20 amends the Northern Ireland Act 1998. Sub-paragraph (3) substitutes a new paragraph 13 of Schedule 2 to the 1998 Act. The existing paragraph 13 provides that the registration of political parties is an excepted matter. The revised paragraph 13 makes the whole subject matter of this Bill an excepted matter, with the exception of Part IX (political donations and expenditure by companies). Under the 1998 Act the regulation of companies is a devolved matter.

276.     Paragraphs 14 and 15 of Schedule 20 amend sections 10 and 11 of the Representation of the People Act 2000. The amendments to section 10 of the 2000 Act (together with clause 8) provide for the Electoral Commission's involvement in pilot schemes to test new electoral procedures. In particular, the amendment to section 10(6) of the 2000 Act will require the Electoral Commission, rather than the relevant local authority, to prepare a report on a pilot scheme. The amendment to section 11 of the 2000 Act provides that the order-making power in subsection (1) of that section (which enables successfully piloted electoral procedures to be rolled-out to local government elections generally) may only be exercised on the recommendation of the Electoral Commission.

277.     Clause 149 makes financial provision in respect of expenditure arising from the provisions of the Bill.

278.     Clause 150 is the interpretation clause.

279.     Clause 151 provides for commencement. The clause also provides that the provisions of the Bill extend throughout the United Kingdom, save for certain exceptions in respect of Northern Ireland.

FINANCIAL EFFECTS OF THE BILL

The Electoral Commission

280.     The Bill provides for the establishment of a new independent public body, the Electoral Commission. To an extent the Electoral Commission will assume responsibility for functions, including the review of electoral law and the provision of advice to electoral administrators, which are at present the responsibility of the Home Office. However, the greater part of the Commission's functions, such as administering controls on political parties' income and expenditure, will be entirely new.

281.     It is estimated that, once fully established (excepting the transfer to it of the electoral boundary functions set out in clauses 13 to 18), the Electoral Commission's annual running costs will be some £2.6m, around 70 per cent of which will be staff costs. In addition to its annual running costs, clause 11 of the Bill provides for the Commission to allocate up to £2 million per annum to political parties in policy development grants and clause 12 provides for the Commission to conduct voter education programmes (in doing so they will take over the budget of £700,000 held by the Home Office for an annual voter registration campaign).

282.     The establishment of the Electoral Commission will also attract some 'start-up' costs - for example, costs of administering the procedure for the selection and appointment of the Electoral Commissioners, the procurement of telecommunications and information technology equipment and other administrative costs connected with the setting up of the Commission. These are estimated to cost around £0.85m. In addition to the Commission's own 'start up' costs, clause 32 provides for the Commission to award grants to registered political parties in order to assist them with costs incurred in making the necessary arrangements for compliance with the provisions of Parts III and IV of the Bill. The Commission may allocate grants to registered parties totalling £0.5m for this purpose.

283.     The Parliamentary Boundary Commissions and the Local Government Boundary Commissions are presently funded from departmental votes and the transfer of their functions to the Commission will involve no more than the transfer of existing departmental funding to the Commission's budget. The funding of the Parliamentary Boundary Commissions fluctuates depending on whether they are engaged in periodic reviews. The budget for the four Parliamentary Boundary Commissions is £1.145 million in 1999/2000 rising to an estimated £2.376 million in 2002/2003. The Local Government Commission for England's budget for 1999/2000 is £2.63 million rising to an estimated £2.93 million in 2003/03. The budget of the Local Government Boundary Commission for Wales is £0.5 million in 1999/2000, falling to an estimated £0.25 million in 2002/03.

284.     Clause 105 of the Bill provides for grants of up to £0.6m to be made available by the Commission to each designated referendum campaign organisation. Each designated referendum campaign organisation would also be entitled to free mailing facilities. A mailing by the two sides in a United Kingdom-wide referendum to every elector would cost some £13.2 million. One to every household would cost some £7.2 million.

285.     The Commission will be funded through its own parliamentary vote along similar lines to the National Audit Office. Paragraph 5(4) of Schedule 1 to the Bill provides for the salaries, allowances and superannuation benefits of the Electoral Commissioners to be met direct from the Consolidated Fund (in line with the salaries of Judges, the Comptroller and Audit General, and certain other office-holders).

 
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Prepared: 17 March 2000