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Lord Brooke of Sutton Mandeville: My Lords, the remarks I made about Killarney apply to this amendment as much as to the previous one. In particular, in appreciation of the kind words uttered by the Minister about my absence on that occasion,
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perhaps I should stress that I was there for the meeting of the British-Irish Interparliamentary Body rather than for any other frivolous reasons.
As on the London Olympics Bill, where the Minister was extremely helpful from Second Reading, I concur with the noble Lord, Lord Clement-Jones, that he has been equally understanding on this occasion, although it has taken him a little longer. However, we are extremely appreciative. He will recall that we indicated at Second Reading that the Government in 1993 had thrown down the challenge to the Opposition to produce a better definition of "additionality" than was contained in the original Bill. The Minister threw back that challenge to us late at night in his winding-up speech at Second Reading and said that it was up to the Opposition to meet the challenge. However, he accepted the spirit if not the letter of the various attempts which the Opposition made and has now, with great skill, come up with the final solution. That is much appreciated.
In the 1997 Parliament, there was a Member of Parliament whose election to the House of Commons was challenged on the grounds of their election expenses. I am afraid that the jury found against the Member of Parliament concerned, but the Member of Parliament was reprieved by the noble Baroness, Lady Boothroyd, on the grounds that their dismissal from the House of Commons would effectively have been on a technicality. The Member of Parliament never came to be known in the House by the soubriquet "Technicality Jones", though had they lingered longer, they might have been. However, they left the House. As with Capability Brown, who would have inspired Technicality Jones, there has to be possibility that, despite the Minister's skill, he will still go down in parliamentary history as Additionality Davies. I hope that he will treat it as the compliment that all of us intend.
Lord Davies of Oldham: My Lords, that challenge was laid down in appropriate fashion. I noticed during the passage of the Bill that the gauntlet was not picked up effectively on the other side, otherwise it would not be a government amendment that we would be considering today. I am grateful for the kind words of the noble Lord, Lord Clement-Jones, and the noble Viscount, Lord Astor, although I am sure that the noble Lord, Lord Brooke, would recognise that I am still part of that old school which says basically: Timeo Danaos et dona ferentes. Therefore, I am not so sure that I accept this as a wholly satisfactory occasion, but suffice it to say that the challenge that was laid down over additionality is exceedingly difficult. That is why noble Lords opposite were not able to respond to the challenge which I laid down. We have, however, recognised the obvious public concern about these issues and that lottery expenditure should be different from, and additional to, government funding. It is exceedingly difficult to define in law. We have given it our best shot. It is not a definition of additionality. I do not therefore deserve the epithet or soubriquet which the noble Lord, Lord Brooke, suggested, but I welcome him back from the haunts of Killarney. Lest
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he thought for one moment that I thought he was there for anything other than a deeply serious purpose, I assure him that that was not the case.
On Question, amendment agreed to.
Viscount Astor moved Amendment No. 6:
On Question, amendment agreed to.
Lord Davies of Oldham: My Lords, I beg to move that this Bill do now pass.
Moved, That the Bill do now pass.—(Lord Davies of Oldham.)
On Question, Bill passed, and returned to the Commons with amendments.
Company Law Reform Bill [HL]
3.43 pm
Lord Grocott: My Lords, I have it in command from Her Majesty the Queen and His Royal Highness the Prince of Wales to acquaint the House that they, having been informed of the purport of the Company Law Reform Bill, have consented to place their prerogatives and interests, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.
Clause 12 [Statement of proposed officers]:
Lord Hodgson of Astley Abbotts moved Amendment No. 1:
The noble Lord said: My Lords, in moving the amendment, I shall speak also to Amendments Nos. 2 to 6 and19 to 26. When this issue was raised on Report on 9 May, the Minister agreed to consider the execution of documents by company secretaries. Since then, the Minister has been kind enough to send a letter to us, stating that the Government are, in fact, inclined to go further than we asked and to allow execution of documents by a "named other person". Sadly, as the letter then says, it has not proved possible to produce the amendments in time for the proceedings of this House, which is indeed a pity, but we are pleased that the Government are in a receptive mode and grateful for that further assurance from the Minister. Indeed, Amendments Nos. 5 and 6 in this group, amending Clause 44 on the execution of documents, take that proposal a stage further.
However, we still harbour some concerns that the Government do not seem to have fully appreciated the thrusts of our amendments in Committee and on Report. The execution of documents point that they have agreed to consider was only part of our argument. The bigger picture was about the empowerment of company secretaries where they are not legally required; that is, secretaries who private
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companies choose to have even though the law does not oblige it. That is why we have tabled a further group this afternoon. The position of such secretaries under the Bill as currently drafted is unclear. There are no requirements for them to be registered, nor to be fit for their role; there are none of the requirements that secretaries of public companies must fulfil.
We do not argue with the deregulatory intent behind that approach, which is obviously aimed at easing the burden on smaller companies, but it has a number of drawbacks. The lack of any requirement for the registration of secretaries will leave those that still exist in limbo, with no official recognition of their status. For example, how will an outsider to the company know, or be able to check, that such a person is a company secretary? The role is, currently, one that helps encourage the spread of good corporate governance; yet, by removing the need for any registration and denying them any legal status, the Government have cut the ground from under the feet of all secretaries of private companies, no matter how large.
Now, we agree that many companies welcome the removal of the need to have a secretary and the Bill will result in a decreased regulatory burden for them. Yet, there will remain some private companies, especially the larger ones, for whom a secretary adds value. Those companies who want to keep a person in that role should not then see the legal status of that secretary eroded or weakened. The Government seem, to us, to have missed that point and we now ask them to reconsider it. The amendment will impose no burdens on those companies that choose not to have a secretary, which will be unaffected. It will give strength to those companies which wish to preserve the status quo by keeping a secretary, probably because they believe that such a person adds value to their corporate governance processes. In that spirit, I beg to move.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, the Bill abolishes the requirement for private companies to appoint a company secretary. This is a major deregulatory measure. The Company Law Review recommended that as, it argued, the decision on whether to use the services of a secretary should be made by the market rather than by law. Removing the requirement to appoint a company secretary does not prevent a private company appointing one; it leaves the decision entirely to the company, giving it the freedom to choose. If it chooses not to appoint a secretary, the approach of the Bill is that the appointment is not subject to any regulatory requirements. If, on the other hand, the company chooses to appoint a secretary, the company is completely free to decide what its secretary's function will be.
The Bill, as drafted, gives greater flexibility to companies in their internal administrative arrangements. For example, some companies might choose to appoint someone as secretary just for peak periods, with the director or directors doing whatever else was necessary between times. To require such a
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company to notify the registrar of the appointment and its termination each time, and to keep a register of such short-term appointments, would be over-burdensome. Surely, the only justification for imposing such a burden would be if the information is genuinely needed by third parties. At present, third parties only ever need that information when the secretary is participating in the execution of documents. That is why it is sensible to discuss together the amendments relating to a company secretary's details being on the public record and those relating to the execution of documents.
There are four questions that need to be addressed with this group of amendments. First, who should be able to execute documents for a company? Secondly, and related to the first, if private companies appoint a secretary, should that secretary be able to participate in the execution of documents for the company? Thirdly, should the details of any secretary voluntarily appointed by a private company be on the public record? Fourthly, and finally, if private companies appoint a secretary, should the directors be under an express duty, imposed by the Bill, to secure that the secretary is a person who appears to them to have the requisite knowledge and experience to discharge the functions of a secretary?
I shall address these questions in that order, although not in the order of their appearance in the Bill. First, who should be able to execute documents for a company? At present, for any company executing documents, the alternative provided under the law of England and Wales to affixing its common seal is execution by signature of either two directors or a director and the secretary. Importantly, these two signatures can be made at different times and places. As many noble Lords have pointed out, this flexibility can be very useful to companies. Yet this flexibility will not be available under the Bill as presently drafted, particularly for those private companies that have only one director. Neither does the new provision introduced by the Bill, that a director may execute a document in the presence of a witness, wholly solve the problem, because the witness must be present at the moment the director places his signature. We accept that this is a weakness.
As indicated on Report, we therefore propose to implement the recommendation made to us by the Law Society and the City of London Law Society that the Bill provisions which set out who is able to execute a document for a company should be less restrictive than either under the present law or as in the Bill as presently drafted. Instead, every company is to be able to designate whoever it chooses to execute documents for it, but only if it so wishes. This new option will be entirely voluntary. There will not be a requirement on any company to use this new facility and companies will be able to designate as many individuals in this capacity as they wish, provided that they are an individual who is 16 or over.
Directors and public company secretaries will remain able to execute documents, by virtue of their office. Any designated signatories will be in addition to
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them. It is expected that many private companies that choose to appoint secretaries will want to give the role as a designated signatory to their secretaries, but this may not always be the case and it is not to be a requirement. We are also considering whether transitional provisions for existing secretaries of private companies should be made, automatically designating them for this role, at the first instance. So we are looking at the question of the transitional arrangements. There will need to be a public record of designated signatories for the benefit of third parties with whom the company deals. We are consulting over draft amendments to implement this proposal with a view to introducing amendments to this effect in another place. I will place a copy of the consultation letter in the Library.
The second issue is, if private companies appoint a secretary, should that secretary automatically be able to participate in the execution of documents for the company? In company law there is a distinction between private companies and public companies, even though many private companies are big by any measure, whether number of shareholders, turnover, capitalisation, or whatever. Similarly, many public companies are small. The crucial difference between private and public is not a matter of size but a matter of governance and ownership. That is why we have argued, for example, that it makes sense for the requirement to have a company secretary to adopt this criterion. That is not to say that big private companies may not benefit from having a secretary and giving that secretary a particular role and function within the company. Rather, it is to say that in a private company, all decisions, including whether to have a secretary or not, and what functions to give any secretary appointed, should be left to the company alone—in other words, to those who will be directly affected by the decision. This should include the decision as to whether the secretary can execute documents.
My third question is whether private companies' secretaries should be on the public record. The purpose of the public record is to ensure that those who deal with the company know who has the necessary authority. But the Bill and the present law make this a real issue only in relation to secretaries with regard to execution of documents. In the case of private companies, it is therefore considered be an unnecessary and over-burdensome regulation to require entries on a company register and the notification requirements to the registrar, with the associated criminal offences, in the case of anyone except those able to execute documents. Details of all such persons must be on the public record, so that third parties can check and see. Under our proposals, when a private company has a secretary who is authorised to sign for it, that individual's particulars will need to be on the public record; if not, then not.
I accept that if private company secretaries, as the amendments propose, are automatically to be able to execute documents, their details ought to be on the public record. Where I take issue with the noble Lord is that it should be provided that private
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company secretaries should automatically be able to execute documents. I consider this a decision that should be left to the company, even though I expect that the vast majority of private companies that appoint a secretary will choose to designate them to execute documents.
The fourth point that arises under the proposed amendments in this group is, when a private company has chosen to appoint a secretary, whether the directors of that company should be subject to a new duty to secure that the secretary appears to them to have the requisite knowledge and experience to carry out the role. This would extend the extent to which the present law regulates the position of private company secretaries, rather than deregulate it, as we are proposing to do in this Bill following on from the Company Law Review recommendations. We would be going in exactly the other direction and increasing regulation. For the reasons expressed earlier, there are differences in approach to the governance and regulation of private companies, and in my view this proposal would lead only to unwarranted and unnecessary further regulation.
I regret that it has not been possible to table amendments that would provide that companies may designate one or more individuals who would be able to be signatories for the execution of documents under Clause 44 and who may authenticate under Clause 48. There are complications, to which I alluded earlier. But in the light of our clear intentions, I hope that the noble Lord will feel able to withdraw his amendments on the issues he has raised in this group.
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