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Lord Hodgson of Astley Abbotts: I am extremely grateful to the Minister for that full response. I am particularly grateful for his acknowledgement that, wherever possible, the terms should match up. The greater the difference in terms, the more difficulties we are likely to have.
I accept that the Companies Act and the Financial Services and Markets Act are different and have different objectives. However, when you are talking about the prohibition of public offers by private companieswhich is what we are discussing at the momentthey come very close indeed because you are running parallel with a company that is coming into contact with the financial markets. While I accept the point, I am not sure that this section of the Bill is the one area where the definitions collide or should collide.
The Minister has said a great deal and I am grateful for that. I had better read what he saidI shall not try to respond to it nowand when we have thought about it and taken expert advice, we may wish to come back and tackle the matter again. The Minister said the Financial Services and Markets Act is about protecting the unwary; so must this be about protecting the unwary. I beg leave to withdraw the amendment.
The noble Lord said: I am still working my way through Clause 526 on the "Meaning of 'offer to the public'". This is a probing amendment which we have tabled following representations from a City law firm.
So, coming back to my IPO point, it is difficult to see how fund-raising, where the exit strategy is to pursue an offering of the shares to the public in the short to medium term, can be regarded other than as indirectly making the securities available to the public.
An example of where this part of the Bill lacks certainty is where a private company is bought by a private equity house with the view of turning it into a more successful business and then selling it to realise its investment. Obviously it may do this by means of a direct sale to a corporate inquirer but very often it may be by means of an IPO. We would like a little more detail from the Government as to whether such an action is caught by the clause. If it is, it will make a huge difference to the way in which the industry
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operates. Clearly it will have to consider its funding and the basis on which investments are made. This is a probing amendment. I beg to move.
Lord McKenzie of Luton: The exemptions set out in subsections (3) to (5) are not exhaustive. This means that an offer will not necessarily be an offer to the public even if it does not fall within one of those exemptions. But the exemptions provide comfort that an offer falling within them will not be regarded as an offer to the public. Offers which might otherwise be prohibited are excluded from the public offer prohibition as long as the requirements imposed under the various subsections are met.
Subsection (3), which is the subject of this amendment, is derived from Section 742A of the Companies Act 1985. In order to fall within the exemption in subsection (3) all the circumstances need to be taken into account. Under subsection (3)(a), the shares or debentures must not be calculated to become available to persons other than those to whom the offer is made. This imposes an objective test of the intentions of the company. The words "directly or indirectly" capture offers of shares or debentures by whatever means they are made.
Subsection (3)(b) expands the exemption to include any other offers that are the private concern of the persons involved. The exemption is not available where the intention is that the shares are to become available to other persons. Of course, the shares may be transferable, but the transfer to other persons should not be part of the arrangements or motivation for the offer by the company.
Subsection (3) emphasises that if an offer is private in nature, it will not be an offer to the publicfor example, where an offer is made to particular individuals and the company does not intend anyone other than them to take up the shares. In contrast, if an offer is made to an investment manager with the intention that he will sell the shares to a range of investors, that could involve an offer to the public. We believe that this subsection is necessary and I hope that the noble Lord will not press his amendment.
Specifically in relation to an IPO with an exit strategy in the short to medium term, we believe that that is capable of being an offer to the public. As ever, the easy answer is to have a public company to start with or to convert to a public company, as these issues would not then arise. Again, obviously it depends on the specific circumstances but, if there is a clear exit strategy at the point of the offer, there has to be a clear risk.
Lord Hodgson of Astley Abbotts: Again, I am grateful to the Minister for that response. These are pretty technical points and I should like to look at what he said. In the mean time, I beg leave to withdraw the amendment.
The noble Lord said: This amendment concerns subsection (3) of Clause 526. We want to highlight another issue that has been brought to our attention by the City firm. The clause defines what is meant by an "offer to the public" so as to facilitate the interpretation of the prohibition of such offers by private companies contained in Clause 525.
The intention of subsection (3)(a) appears to be to carve out of the prohibition offers to possibly large numbers of people who have been specifically identified by a companyperhaps a group of known or selected investors or business associates. I think that the Minister partly touched on this in his response to my previous amendment.
The concern that has been put to us is that the drafting is now so wide that it risks rendering the principal prohibition ineffective. For example, it is argued to us that a specifically addressed mailshot to a large number of unknown people, not selected for any particular reason, would almost certainly be calculated to result in securities not becoming available to anyone other than them. Surely it is not the Government's intention that such an action should be exempt from the prohibition, but that is one interpretation of the Bill as currently drafted.
Lord McKenzie of Luton: As we have been discussing, subsection (3)(a) is an exemption for offers made only to particular persons. This is recognised by Amendment No. A9A, which would replace the paragraph with different words. However, the amendment does not recognise the further requirements that are imposed before the exemption can apply. It is not enough that the offer is made only to the particular persons receiving the offer; what matters is that the offer to the specifically selected persons should not be done with the aim of making the shares or debentures of the company available to other people.
We believe that, rather than seek to narrow it as the noble Lord intends, the amendment would greatly widen the exemption, making it easier for a private company to evade the public offer prohibition and make its shares available to the public. For example, the specifically selected person might be a financial adviser, proposing to offer the shares to his clients specifically selected by him. I believe the current wording of subsection (3) is appropriate, and that that will satisfy the noble Lord. I do not believe we have changed the existing position.
With regard to the mailshot and whether that would be covered, I struggle to see why Clause 526(3) would deal with that situation, because it is necessary to look at the persons who are receiving the offer and to
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prohibit it going beyond those persons. I do not think a mailshot to non-identified persons comes within that, although I am probably going to be corrected by the people behind me. The key, or otherwise, is in paragraph (b), which makes clear that the selected persons have to be of private concern.
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