Industrial and Provident Societies Bill

Public Bill Committee, 13 February 2002.

Standing Committee G

Industrial and Provident Societies Bill

Gareth Thomas (Labour, Harrow West)

I beg to move,

That, if proceedings on the Industrial and Provident Societies Bill are not concluded at this day's sitting, the Committee do meet on Wednesday 27 February at half-past Ten o'clock and half-past Four o'clock.

I welcome you to the Chair, Mr. McWilliam. As a fellow Celt who also represents a constituency outside my Celtic background, I know that I am in safe hands.

Question put and agreed to.

Clause 1 - Requirements for conversion of a registered society into a company

Christopher Chope (Conservative, Christchurch)

I beg to move amendment No. 1, in page 2, leave out lines 17 to 21.

John McWilliam (Labour, Blaydon)

With this it will be convenient to take amendment No. 7, in clause 2, page 3, leave out lines 26 to 30.

Christopher Chope (Conservative, Christchurch)

I also welcome you to the Chair, Mr. McWilliam. It is a pleasure to know that we shall be guided by someone of such seniority and experience.

This is a probing amendment. We are all familiar with the principle that the chairman's decision is final, although in cricket that has been modified to include a third umpire. I am a little perplexed why a declaration by the chairman cannot be open to challenge. That seems to be the import of the provision and a similar measure under clause 2. Are there precedents for giving a chairman such power? If so, what are they? I should be grateful if the hon. Member for Harrow, West (Mr. Thomas), could explain the background to the provision.

Gareth Thomas (Labour, Harrow West)

The amendments tabled by the hon. Member for Christchurch (Mr. Chope) would remove that which is already in section 50(3) of the Industrial and Provident Societies Act 1965, which covers similar duties to be fulfilled by the chairman. One difference under the Bill is the inclusion of proposed subsection (3A)(a), the purpose of which is to impose a duty on the chairman to ensure that membership records of a society are sufficiently accurate for him or her to confirm that a high enough percentage of the membership has voted, and thus satisfy the requirement of a 50 per cent. turnout under clause 1. That is the substantive change to the current position.

As the hon. Member for Christchurch said on Second Reading, there are many different societies, with varying numbers of members and systems of record keeping. They range from major retail businesses with hundreds of thousands of members to a small club with few members. It is unwise to lay down specific steps to be taken in all instances. The courts would have no difficulty in applying the concept of what is ''reasonably practicable'' when judging whether the number of qualifying members and the number of votes were sufficient. The requirement on the chairman is necessary to protect the interests of all the members of a society. It also gives him sufficient protection. Under the provision, a chairman will consider carefully the consequences of the breach of duty of which he would be guilty should he fail to take ''all reasonably practicable steps'' to check that such safeguards are in place within the society.

The effect of the amendment would be to leave the decision making of societies on this one issue open to interminable disputes as the chairman's declaration would not be deemed conclusive. As I said in my opening remarks, that is in contrast with the general position with regard to the 1965 Act on similar decisions—transfers of engagements, amalgamations and so forth—for which section 50(3) already applies. It would clearly be unsatisfactory should that section not to be applicable and the requirement that reasonable steps should be taken to check to membership lists were deleted.

Christopher Chope (Conservative, Christchurch)

I am grateful to the hon. Gentleman for his comments, but could he explain why there is no specific duty on the chairman to ensure that there are reasonable

''steps . . . taken to ascertain the number of qualifying members of the society'',

because that is not what the clause states? As drafted, it states that at a meeting the chairman's declaration that such steps had been taken will be final. Would it not be better if there were a duty on him to ensure that all reasonable and practical steps had been taken?

John McWilliam (Labour, Blaydon)

Order. That is a clause stand part question, to which we shall come.

Gareth Thomas (Labour, Harrow West)

I have nothing further to add to my earlier comments other than to say that the effect of the hon. Gentleman's amendment would be to remove reasonable protection of members' interests and reasonable duties on the part of a chairman of a society to protect members' interests and to keep up-to-date records. It would also have the effect of causing considerable confusion as to the reasonableness of the chairman's declaration in a situation in which it is already widely accepted as appropriate under other aspects of the 1965 Act.

John McWilliam (Labour, Blaydon)

Order. Should the hon. Member for Christchurch think that I was unduly cruel, if he directs his thoughts to clause 1(3), he will see that his question is relevant to that subsection.

The Economic Secretary to the Treasury (Ruth Kelly): I take this opportunity to welcome you to the Chair, Mr. McWilliam. This is the first time that I have served under your chairmanship.

This is an important probing amendment and I thank my hon. Friend the Member for Member for Harrow, West for his comments, with which I am fully in sympathy. He put the case extremely well and articulately. The Government cannot support the amendment.

The purpose of clauses 1(3A) and 2(4) is to allow the chairman of the meeting held to consider a conversion proposal to determine by declaration that the resolution has been carried and that all reasonable steps have been taken to identify those eligible to vote. We believe that such requirements are an important incentive for societies and their members to attend to and scrutinise compliance with formal voting requirements in the context of meetings. That is especially so in this instance, because the effect of the Bill will be to impose a threshold turnout requirement of 50 per cent. of members eligible to vote. The provisions that the amendments seek to remove will draw the attention of the chairman and members to the importance of ensuring that any conversion vote is taken on the basis of accurate information.

The Government believe that the provisions will help ensure that all proper procedures are followed and that conversion votes are as fair as possible. It is also important for societies to have a mechanism available to ensure that proceedings for conversion have a degree of finality about them. Impairment of their ability to do so may open the way to frivolous or vexatious disputes about the results of conversion votes. That is why the Government support the clause as drafted.

Christopher Chope (Conservative, Christchurch)

I am grateful to the hon. Member for Harrow, West for his explanation and to the Minister for her comments. I shall withdraw my amendment, but the provision seems a slightly obscure way of imposing a requirement on a society to keep proper records. The provision imposes a power on the chairman only to make a declaration that all practicable and reasonable steps have been taken.

Gareth Thomas (Labour, Harrow West)

I understand what the hon. Gentleman is trying to achieve. The difficulty is that, because of wide differences in the types of society that exist and in the numbers of members, it would be difficult to place on societies more specific duties in terms of their membership records. What might be appropriate for a large society might not be appropriate for a small club.

The courts are familiar with the phrase ''reasonably practicable''. The drafting of proposed new subsection (3A) places a duty on the chairman that is not onerous. In the event of challenge, it will allow the court to judge whether reasonably practicable steps have been taken. The precedent for such a change is consideration by the courts under company law of the role and responsibility of directors.

John McWilliam (Labour, Blaydon)

Order. Interventions are supposed to be just that. That was a speech. I have been relaxed, because it is that sort of Committee. When the hon.

Member for Christchurch suggested that he wanted to withdraw the amendment I should have immediately put the Question, but I allowed him to continue.

Christopher Chope (Conservative, Christchurch)

I am grateful to you, Mr. McWilliam, for your indulgence, and for having allowed the hon. Member for Harrow, West to speak at such length in his intervention, because that has enabled me without further ado to beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Chris Grayling (Conservative, Epsom and Ewell)

On Second Reading and in subsequent discussions, the clause commanded general approval. The hon. Member for Harrow, West highlights an important issue. On Second Reading, we discussed extensively the benefits that such organisations have brought to a range of different areas and aspects of our country and society. I am happy to commend the clause as making a significant contribution and a real difference to the various organisations.

Question put and agreed to.

Clause 1 ordered to stand part of the Bill.

Clause 2 - Community benefit societies

Christopher Chope (Conservative, Christchurch)

I beg to move amendment No. 2, in page 2, line 28, leave out ', or is to be,'.

John McWilliam (Labour, Blaydon)

With this it will be convenient to take amendment No. 3, in page 2, line 29, after 'Act', insert

'after the commencement of this Act.'.

Christopher Chope (Conservative, Christchurch)

The amendments would restrict the scope of the clause to new community benefit societies created after the ''commencement of this Act''. It would confine the provisions to what is already good current practice.

It might benefit the Committee if I rely on the excellent Library note that is available on the subject. It states:

''It is normal practice today for the registration authority to require that community benefit societies include in their rules a provision that neither the assets of the society nor its profits may be distributed to members. The expectation is that any profits will either be ploughed back into the society to develop its business or that they will be used for another purpose similar to the society's main object (such as philanthropic or charitable purposes). This accords with the principle under which community benefit societies are registered, that their business exists not primarily for those who are members of the society, but for the interests of society at large.''

That is normal practice in registering new societies. I do not believe that it is the practice for existing societies and is a condition for their continuing registration. There is no reason why the provisions of the clause, which I should like to amend, should not be restricted in that way. Otherwise, there is a restriction on the rights of societies to continue to operate under

their rules. If a time comes when the registrar or Parliament wants to change that provision, they could, but it could also be changed back again.

This is a modest probing amendment, as I understand that the Government have concerns about clause 2, although not necessarily about subsection (1). I hope that we will be able to draw out the Government a little further.

Chris Grayling (Conservative, Epsom and Ewell)

I shall follow up on the thoughtful amendments tabled by my hon. Friend the Member for Christchurch. On Second Reading, I raised my concerns about aspects of the clause with the hon. Member for Harrow, West. Some of those concerns are addressed by the amendments.

I fear that by enacting the clause as drafted, we would place undue constraints on organisations throughout the sector without full knowledge of the implications of those constraints. For example, two clubs might choose to merge, dispose of the assets of one of them and redistribute those assets to their members. Equally—I am thinking of the case of the Co-operative Society a few years ago—one can imagine that a mutual organisation could be liable to attack by corporate raiders. There are pros and cons on both sides of the argument.

If we set in stone provisions to constrain the actions of organisations, we will place undue restriction on their development, change or evolution. An organisation might, for example, wish to dispose of its assets and become a virtual organisation, or choose totally to restructure the way that it operates. The constraints in the clause could hinder its actions. It would be helpful if the hon. Member for Harrow, West could set out in detail how the provision will work, and how he will ensure that the Bill does not place on organisations constraints that might hinder their development in circumstances that we cannot yet foresee.

Gareth Thomas (Labour, Harrow West)

I shall try not to stray as widely this time as I did before, Mr. McWilliam.

I endorse the remarks of the hon. Member for Christchurch, who quotes the excellent Library brief. He is absolutely right to say that it is common practice for sponsoring organisations to recommend to their member societies the use of particular rules in order to offer the type of protection that we are trying to put on the statute book. He will agree that protection is better if it is laid down in statute, rather than if it is provided under model rules. I draw his attention to the example of the Royal British Legion clubs, which were specifically attracted to clause 2. Although the Royal British Legion has the type of rules that the hon. Gentleman is talking about, it would prefer both new and existing societies to have the benefits of the statutory protection that the clause affords and that his amendment would take away.

The hon. Member for Epsom and Ewell (Chris Grayling) made some remarks about the breadth of the clause, which I shall try to address in the clause 2

stand part debate. I accept that there are concerns about the breadth, but the specific worries that he raised are not justified because subsection (1)(c) allows enormous flexibility for community benefit societies that wish to dispose of assets.

I shall use again the example of a Royal British Legion club. If the club wanted to sell its main building, it could do that under the provisions of the clause. If the club wanted to sell part of its land, it could do that under subsection (1)(c). It could not distribute the cash that it received from the sale of the building to its members because the money must be protected for the benefit of the community.

Chris Grayling (Conservative, Epsom and Ewell)

May I take that example further? Let us suppose that a Royal British Legion club's membership tails off as veterans become fewer in number—that will be inevitable over the next few years. The club may become no longer viable as a result, and the members may decide to liquidate the club's assets and distribute them to the surviving veterans as a contribution. Would the clause prevent that from occurring?

Gareth Thomas (Labour, Harrow West)

The hon. Gentleman is right. The clause would prevent the assets—the cash in the bank—from being distributed to the members of the society. However, it would not prohibit the members from giving the money to the Royal British Legion charity or giving it for another community-benefit purpose. The key to the clause is that it protects assets that may have built up over many generations from being given to only the members who are around.

I recognise that there are further worries about the breadth of the clause, and I shall allude to them during the stand part debate. However, I tell the hon. Gentleman that the clause offers flexibility for how a community-benefit society may act. It is designed to prevent assets built up over generations from being distributed to people who happen to be members only at a specific time.

Ruth Kelly (Labour, Bolton West)

I shall make some of my broader comments during the stand part debate. The hon. Member for Christchurch made some interesting suggestions when he moved his probing amendment. There is a case for examining the amendments in detail.

The clause's provisions state that we should be aware of proprietary claims of society members. If an irrevocable rule on asset lock-in featured in a society's constitution from the outset, its members and future members would be aware of their rights. However, the adoption of an unchangeable asset lock-in by an existing society, without a unanimous vote, could unwillingly deprive some members of rights. That could invoke article 1 of the European convention on human rights.

The question of when a society may take advantage of such lock-in provisions is important, but I am not sure whether the amendment would address that concern. It would prevent existing societies from adopting the clause's provisions, but it would not prevent a new society from adopting those provisions

after its first registration. Property rights could come into play at that time. We should consider such issues seriously during our debate.

Gareth Thomas (Labour, Harrow West)

I recognise the worries that have been expressed by the hon. Members for Christchurch and for Epsom and Ewell and the Minister about the clause, and the potential attraction that the amendment of the hon. Member for Christchurch offers. I recognise that there are other concerns about the breadth of clause 2, and I undertake carefully to examine the point that is addressed by the hon. Gentleman's amendment. I will propose amendments to clause 2. If they fail to satisfy the Government and Opposition Front Benches, it might be appropriate for discussion of the clause to be delayed.

Ruth Kelly (Labour, Bolton West)

I look forward to co-operating with my hon. Friend in future discussions of these issues.

Christopher Chope (Conservative, Christchurch)

This has been a useful debate.

I am a member of a Royal British Legion club. My hon. Friend the Member for Epsom and Ewell said that it is inevitable that Royal British Legion clubs will go out of business. I do not share his pessimism. There continue to be service men who are eligible to join Royal British Legion clubs, and most of the clubs—such as the one in Christchurch—offer associate membership, so that people who have not served in the armed forces can enjoy their hospitality, and cheap and good beer.

The Minister does not think that my amendments go far enough, because they do not cover the situation that she described of a new society whose assets are subsequently locked in, against the wishes of its original members. I am grateful to the hon. Member for Harrow, West for saying that, in the light of our debate, he will consider what to do. Therefore, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

John McWilliam (Labour, Blaydon)

I suppose that, as a matter of principle, I should declare that I am a member of the Crawcrook Royal British Legion club.

Christopher Chope (Conservative, Christchurch)

I beg to move amendment No. 4, in page 2, line 37, leave out paragraph (b).

John McWilliam (Labour, Blaydon)

With this it will be convenient to take the following amendments: No. 5, in page 2, line 40, leave out paragraph (c).

No. 6, in page 2, line 47, leave out 'paragraphs (a) to (c)'.

Christopher Chope (Conservative, Christchurch)

Amendments Nos. 4 and 5 propose to leave out paragraphs (b) and (c) of subsection (1), and amendment No. 6 is consequential upon that.

Paragraph (b) introduces the entrenchment of rules. I agree with the Minister that that undermines the sovereignty of members. No Parliament can bind its successors, so why should one group of members of a community benefit society be able to bind its successors for all time, and curtail their freedom of choice to reach a different view? If the regulator or the registrar adopts a policy on public interest grounds,

he—or a subsequent regulator or registrar—can change it. That must also be the case with regard to members of a society: they should be able to reach a different conclusion in different circumstances that we might not be able to foresee now. That is why I am concerned about the entrenchment provision in paragraph (b).

Paragraph (c) is the most severely restrictive part of the clause, because it restricts flexibility and undermines a provision in the Industrial and Provident Societies Act 1965. It entrenches assets, and that is unacceptable for the reasons that have been adduced in our debate. I hope that the hon. Member for Harrow, West, will adopt a similarly flexible approach to these amendments as he did to previous ones.

Gareth Thomas (Labour, Harrow West)

The hon. Gentleman is right that these amendments go to the heart of the proposals in the clause. He failed to acknowledge the flexibility that the provisions continue to make available to members of community benefit societies. Assets that have been built up to be used for the benefit of the community by many members over many generations should be protected. He is right, however, that members' different economic circumstances and interests may mean that it is appropriate to change the way in which the assets are used.

I shall return to the example of the Royal British Legion club that was used in the debate on amendments to clause 1. If a club's economic circumstances mean that it is timely for it to sell one of its main buildings, clearly, current members of the society should have the right to make that judgment. Clause 2 would not prevent that; it would simply prevent the money raised from such a sale from being handed out to current members of the society.

Another possibility is that, despite the opportunity for associate membership and for non-members of the armed forces to join, a club might be nearing the end of its useful life. If the society wanted to wind it up and the members were considering what to do with the assets in the bank after the sale of the club and other property, the only course of action that clause 2 would prevent would be their keeping the money. They could give it to a charity or to another community benefit society, or even to a company if it had appropriate limited purposes. Clause 2(1)(c) would still provide for considerable flexibility. The only thing that it would prevent the membership from doing would be distributing the assets among themselves.

Ruth Kelly (Labour, Bolton West)

As my hon. Friend rightly said, the amendments go right to the heart of clause 2. I am in continuing dialogue with him about aspects of the clause. The amendment would remove the provision to allow societies to adopt rules irrevocably, committing their assets to the benefit of the community. I can see potential benefits to the sector from clause 2, although at this stage I do not think that the arguments are clear cut. Such a change in the law should be considered

carefully. Locking-in a society's assets in perpetuity should not have unintended effects such as reducing the flexibility of the sector to consolidate and grow.

We need to consider some technical points. For example, provisions that would limit the use of a company's assets and that could not subsequently be altered would be highly unusual—perhaps even technically impossible in company law. Without such provisions, the clauses in the Bill to allow the transfer of assets from societies to companies do not seem appropriate. It may be possible to design powers to enable companies to make such unalterable commitments. However, that approach would be more far-reaching in scope than the current version of the clause. We need to examine the implications more carefully.

We also need to consider the framework provided in other sectors of the economy, such as the charity sector, where rules govern the use of assets. Clause 2(1)(b), which would allow industrial and provident societies to lock in their assets for the benefit of the community irrevocably, would produce consequences. We should be clear about whether that rule would benefit all societies, given the wide range of societies that operate for the benefit of the community. If so, should there be provision to overturn the rule in exceptional circumstances? For example, there may be occasions, such as on the dissolution of a society, when the redistribution of its assets might be impeded and less efficient if no suitable eligible society had adopted a similar lock-in rule. If it is appropriate for those asset lock-in rules to be reversed in special circumstances, we need to consider which body might be best placed to intervene, what powers it would require and in what circumstances it should exercise such powers. Those issues need further consideration.

If we accept the amendments, we will be left with little change to the present situation. In practice, limitations are already placed on the ability of community benefit societies to distribute assets outside of purposes that benefit the community. While I am sympathetic to the amendments in that they try to remove problematic provisions in the clause, I am not convinced that they leave us a useful basis for legislation.

Gareth Thomas (Labour, Harrow West)

As I suggested on the previous group of amendments tabled by the hon. Member for Christchurch, I recognise that there are still issues to resolve on the clause. My hon. Friend the Minister alluded to some of the difficulties that are still to be resolved. If the Committee is minded to reject the three amendments, I will consider further the comments of the Minister and the hon. Gentleman, with a view to tabling amendments on Report or recognising that another legislative opportunity might be more appropriate for such changes.

Ruth Kelly (Labour, Bolton West)

I very much welcome the commitment made by my hon. Friend and look forward to working closely with him on the issue.

Christopher Chope (Conservative, Christchurch)

Again, we have had a constructive debate and I am grateful to the hon. Member for Harrow, West for demonstrating his flexible approach. He prayed in aid the word ''flexible'' in relation to the drafting, but my problem with it is that the flexibility goes one way. True flexibility can flex in more than one direction, so I hope that he will provide additional flexibility if and when he revises the clause. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 ordered to stand part of the Bill.

Clause 3 - Power to modify, etc. to assimilate to company law

John McWilliam (Labour, Blaydon)

With this it will be convenient to take the following: New clause 5—Power to modify, etc. to assimilate to company law—

'(1) If at any time, whether or not on any modification of the statutory provisions in force in Great Britain relating to companies it appears to the Treasury to be expedient to modify the relevant statutory provisions for the purpose of assimilating the law relating to companies and the law relating to industrial and provident societies, the Treasury may, by order, make such modifications of the relevant statutory provisions as they think appropriate for that purpose.

(2) If, on any modification of the statutory provisions in force in Great Britain relating to companies, it appears to the Treasury to be expedient to modify any provisions of the Industrial and Provident Societies Act 1965 to 1978 for the time being in force for the purpose of assimilating the law relating to companies and the law relating to industrial and provident societies, the Treasury may, by order, make such modifications of those Acts for the time being in force as they think appropriate for that purpose.

(3) The ''relevant statutory provisions'' are the following provisions of the Industrial and Provident Societies Act 1978 as for the time being in force:

(a) the following sections of the Industrial and Provident Societies Act 1965: Section 1(1)(b) and Schedule 1 paragraphs 2 and 6 and section 14 so far as necessary to assimilate the law as to: limitations on the society's capacity;the power of its board of directors, officers or committee to bind the society or authorise others to do so; and remove any duty on parties to transactions with the society to enquire as to its capacity or those powers of the board of directors or committee; Section 3 in so far as it refers to a common seal, section 1(1)(b) and schedule 1 paragraph 13 (custody and use of seal); Section 5 (name of society); Section 29 (contracts); Section 39 (annual returns); Sections 41, 42 and 43 so far as necessary to assimilate the law as to the accountability of, and fair dealing by, directors, committee members and officers of societies with the equivalent provisions applicable to company directors and officers; Sections 47, 48 and 49 inspection of books by the Authority, production of documents and provisions of information, the appointment of inspectors,and the calling of special meetings; Paragraph (a) of section 55 (application of Insolvency Act 1986 to societies) to apply to societies of any provisions of that Act or of the Company Directors' Disqualification Act 1986 applicable to companies whether on or involving the dissolution of a society or not; Section 61, 62, 63, 64 and 65 (General offences by societies, officers, members or others); Sections 66, 67, 68 and 69 (Proceedings and costs) Section 74 (Interpretation);

(b) any section of the Industrial and Provident Societies Act 1967 (borrowing by registered societies and registration of charges); and

(c) any section of the Friendly and Industrial and Provident Societies Act 1968 (society accounts, audit and group accounts).

(4) The powers conferred by subsections (1) and (2) of this section include the power to modify the relevant statutory provisions or any provision of the Industrial and Provident Societies Acts 1965 to 1978 as the case may be so as to—

(a) confer power to make orders, regulations, rules or other subordinate legislation;

(b) create criminal offences; or

(c) provide for the charging of fees but not any charge in the nature of taxation.

(5) An order under this section may—

(a) make consequential amendments of or repeals in any provisions of the Industrial and Provident Societies Acts 1965 to 1978; or

(b) make such transitional or saving provisions as appear to the Treasury to be necessary or expedient.

(6) The power to make an order under this section shall be exercisable by statutory instrument and no order shall be made unless a draft of it has been laid before and approved by resolution of each House of Parliament.

(7) In this section—

''modification'' includes any additions and, as regards modifications of the statutory provisions relating to companies, any modification whether effected by any future Act or by an instrument made after the passing of this Act under an Act whenever passed; and

''statutory provisions'' except in the expression ''relevant statutory provisions'' includes the provisions of any instrument made under an Act.'.

And the following amendments thereto: (a), after first ''If'', leave out

'at any time, whether or not'.

(c), leave out paragraph (b) of subsection (4).

(d), in subsection(4)(c), at end insert—

'(3A) No power conferred by subsections (1) and (2) of this section shall extend to the creation of criminal offences.'.

Gareth Thomas (Labour, Harrow West)

The Committee should reject clause 3 and put in its place new clause 5. I have considered carefully the constructive criticism from those on both Front Benches and the new clause is the result. Instead of the apparently sweeping power under the clause to amend any piece of industrial and provident society law in line with company law, the new clause contains a specific list of aspects of I and P law in which change in line with company law would be permissible.

Both my hon. Friend the Minister and the hon. Member for Christchurch suggested that the Treasury would have too much power under the clause. Since I was elected, I have considered the Treasury to be a hugely beneficial and magnificent force. I have high regard for its officials and even higher regard for its Ministers. However, I recognise that the scenario may have been different before I was elected and unable to make such a judgment, and that the situation may not continue. Although I have confidence that it will continue for the foreseeable future, I recognise the need to limit the powers available under clause 3(1).

Clause 3(1) includes a power to modify by statutory instrument the relevant provisions to bring I and P law into line with company law. The clause defines the relevant provision by excluding those parts of the Industrial and Provident Societies Act 1965 that make I and P societies essentially different from companies.

Every other provision of the Act could be amended by statutory instrument under clause 3 if it was different from company law.

New clause 5 substantially changes that scenario by listing instead those provisions of I and P law that can be modified. In fact, consequential changes need to be made in only eight or nine areas. Whole areas of I and P law are therefore completely untouched by new clause 5. They would probably have been left untouched by clause 3, mainly because a suitable comparison with company law could not be made. For example, I have omitted from new clause 5 those parts that go to the essential nature of industrial and provident societies—for instance, sections 16 to 18 of the Industrial and Provident Societies Act 1965 that deal with cancellation, suspension or refusal of registration. I left them out because they can be changed only by primary legislation and they cannot be assimilated into company law. I have omitted also those parts that are merely permissive and those parts that are not substantially different from company law—or, if they are substantially different, those parts that do not cause issue on whether there is a level playing field.

Section 11 of the 1965 Act on funds for the purchase of Government securities is untouched by new clause 5 and so too is section 21 on advances to members. Similarly, section 14 on rules to bind members and section 44 on the register of members and officers are untouched. Potentially, of course, they could have been changed by clause 3. Similarly, section 58 of the 1965 Act on instruments for dissolution and section 60 on decisions on disputes are not at risk of being changed by new clause 5. Crucially, the new clause would not allow every change proposed in the Treasury consultation document that was published in 1998—the document to which the hon. Member for Christchurch and others alluded.

I draw the attention of the Committee to the excellent House of Commons Library brief that touched on the Treasury consultation document. That document listed five areas where change might be appropriate and it went out to consultation on them. It looked first at a set of measures designed to change registration procedures. That would require primary legislation and it is not, therefore, touched by the new clause.

The original Treasury consultation document appeared to want to change the provisions on the statutory definition of eligible societies contained in the 1965 Act, but that, too, would have required primary legislation and could not be achieved under the Bill or by new clause 5. I shall deal shortly with a particular area where I think a statutory instrument would be appropriate, but more general changes to the registrar's powers would require primary legislation and are therefore not included in new clause 5.

Nothing that could be proposed by statutory instrument under new clause 5 is new in principle. At the very minimum, it has to have been considered at least once by Parliament in the context of changes to

company law. In six of the eight areas that are listed, it is also being considered under reforms to either building society law or friendly society law, or both.

At the very least—in terms of the eight areas that might allow statutory instruments under the clause—inspiration will have come from a change to company law that has already been considered by Parliament. However, six of the eight cases might have been considered during Parliament's second or third opportunity for scrutiny of changes to building society law or friendly society law. The opportunity to change under the eight areas is relatively narrow, albeit important to industrial and provident societies. That narrowness is ensured by the requirement for assimilation with company law.

There is nothing in the list of provisions set out in new clause 5 that is radically different from anything in existing company law. Radical change to the rules and regulations under which I and P societies operate is not possible under a statutory instrument delivered under this clause. The net effect of the differences between I and P law and company law in the eight areas is that the legal form of I and Ps is significantly out of date and problematic.

Perhaps it will illustrate my point if I briefly go through the eight areas listed in new clause 5(3). Under section 1(1)(b) and schedule 1 paragraphs 2 and 6 and section 14 of the Industrial and Provident Societies Act 1965, the provisions seek to allow statutory instruments to be brought forward—if the Treasury is so minded—to bring industrial and provident society law into line with section 35, 35(a) and 35(b) of the Companies Act 1985. That is briefly sectioned for the benefit of third parties dealing in good faith with companies that do not need to be concerned whether under a company's constitution there is the capacity to enter into a transaction or not, or whether the power of the board of directors to bind the company is subject to any limitation.

I give the example of a rugby club that wants to borrow money from a bank in order to modernise its bar. There could be, under section 35 of the Companies Act, a scenario in which the rugby club does not have the provision of social facilities within the objects of its constitution. Under the changes that are being introduced for the Companies Act, that is not a problem for the bank lending the money because its loan is protected. However, if the rugby club is an industrial and provident society and the provision of social facilities is not included in its objects, that loan agreement is potentially ineffective, because the bank could lose its money. That is the issue of capacity—the ultra vires issue that company law reforms have already dealt with. Surely it is relatively straightforward to apply the solution that is appropriate for companies that have to deal with this question to industrial and provident societies.

I can offer assurance that the provision has not only been considered under reforms to company law, but has been considered by, and is incorporated under,

sections 8 and 9 of the Friendly Societies Act 1992. Section 5(8) and the second part of schedule 2 of the Building Societies Act 1986 achieve the same result for building societies.

There have been three occasions on which Parliament has had the opportunity to scrutinise these issues. Surely, therefore, it is sensible to allow the Treasury, if it so wishes, to amend the law governing I and Ps in this regard and to create that level playing field.

The reform proposed to section 3 involves assimilation with company law by allowing documents to be executed by the signature of officers rather than by seal. The equivalent reform was included in section 36(1)(a) of the Companies Act 1985 and the changes consequential on that provision.

Section 5 concerns the name of the society. No society can currently be registered with a name that is undesirable. The situation is extremely vague and unclear and the interpretation of the statute is unpredictable. Company law was changed in this regard by section 26 of the Companies Act 1985, which made the situation clear and straightforward. It would be sensible for the same principles to apply to industrial and provident societies. This is another part of creating a level playing field. Again, the innovation is not radical. Parliament has already considered it and it is a sensible update.

Section 29 concerns contracts, and the explanation for its inclusion in the new clause is similar to that for the inclusion of section 3 concerning the execution of documents by signature of officers.

The inclusion of sections 41 to 43 in the new clause is intended to allow assimilation with company law provisions that govern the accountability of and fair dealing by directors, committee members and officers. The issue relates to part X of the Companies Act 1985, and reflects the requirements that have applied to companies since 1980 concerning substantial property transactions involving loans, or certain other dealings with directors.

The inclusion of the sections ensures that beyond the existing common law duties of honesty, good faith and the avoidance of conflicts between duty and interest, which apply to both company and society directors already, certain specific transactions are prohibited under the Companies Act 1985 or require shareholder approval.

I shall give another hypothetical example concerning a rugby club. The club owns a large amount of land and wants to sell a couple of acres at the bottom of its fields, which it does not use and which are worth more than £150,000. One of the club's directors is a property lawyer. If the rugby club is a company, under company law such a transaction must be approved by its shareholders at a general meeting. If it is an industrial and provident society, however, such a transaction does not have to be approved by members.

The new clause offers the opportunity to ensure that there is appropriate transparency and that appropriate information is available to members. Similar provisions were brought into force for friendly

societies and building societies by section 27 and part II of schedule 11 of the Friendly Societies Act 1992 and sections 62 to 68 of the Building Societies Act 1986. There have been three opportunities for Parliament to debate this proposal. This is the one area of the provisions that is out of step with company law, and the new clause would allow the opportunity for sensible change by means of statutory instrument.

Sections 47 to 49 govern the power of the regulator to appoint inspectors or to investigate the running of a society or company, and are similar to those found in part XIV of the Companies Act 1985. The Department of Trade and Industry can investigate companies in cases of suspected fraud or some other form of wrongdoing to protect the interests of shareholders, creditors or others. The powers in the 1985 Act can be exercised by the DTI on its own initiative, or at the request of a proportion of members of a company. However, under I and P law, the opportunity to act on the regulators' initiative is not available to the regulator. That is the one difference between company law and the provisions governing I and P law, in this respect. It is surely a sensible area for change.

For some industrial and provident societies, the situation has already been rectified. Sections 17 to 20 of the Credit Unions Act 1979 changed that scenario, so changes have been considered under not only company law reforms but credit union reforms. The Financial Services Authority also has extensive powers under the Financial Services and Markets Act 2000 in respect of building societies and friendly societies. Substantial opportunities have been granted to Parliament to consider the principles at stake, or potentially at stake, under the new clause. We are discussing only that narrow difference—the fact that the regulator cannot act on his own initiative. The new clause would make that provision available if the Treasury wanted to propose change by statutory instrument.

Paragraph (a) of section 55 of the 1965 Act would apply sensible provisions in terms of rescue of industrial and provident societies. Here the focus is, again, on administrative receivership, administration orders and company voluntary arrangements, which were debated and reformed under the 1986 legislation. The provisions were also made available to building societies under part XI and schedule 15(a) of the Building Societies Act 1986. Already, therefore, the provisions have given two opportunities for parliamentary scrutiny. The new clause would simply allow a reading across of the provisions by statutory instrument.

Rather than going through all the other changes, which are even more minor, I should summarise the position that the new clause offers. By doing so, I shall hopefully persuade my hon. Friend the Minister, other Labour Members and Opposition Members, of the worthiness of the new clause.

Crucially, the new clause limits the Treasury's power to the provisions listed in subsection (3) alone, and to the eight areas that I mentioned. Under the original clause 3, the power of the Treasury was limited

by the provisions of the 1965 Act that it could not change. Therefore, there is a significant tightening of the opportunity for change.

Christopher Chope (Conservative, Christchurch)

Will the hon. Gentleman expand on the position in relation to sections 61 to 65 and the subsequent sections relating to general offences by societies, officers, members, proceedings and costs, as they may impact disproportionately on the very small industrial and provident societies? He has been so helpful in explaining all the other provisions that it would be a pity not to have a full list.

Gareth Thomas (Labour, Harrow West)

I am happy to oblige the hon. Gentleman. The sections to which he referred allow any necessary changes to the general provisions on offences and proceedings, and interpretation from them, that would flow from other possible changes that I have already set out.

New clause 5(3)(b) would allow the amendment of the Industrial and Provident Societies Act 1967 to bring the procedures for registering charges against societies' assets into line with the equivalent procedure applicable to companies. The type of charges that have to be registered obviously differ. For societies, it is only floating charges, but for companies, certain other charges are included. The details are entered on the register.

If a statutory instrument were made to bring about that change, and the provisions of the I and P Acts were consistent with those that apply to companies, societies obtaining finance would be facilitated because lenders would feel more secure. Again, that provision has been debated for building societies as well as for companies. Section 104A of the Building Societies Act 1986, inserted by section 42 of the Building Societies Act 1997, allows that change to be made for building societies by statutory instrument.

On the provisions for accounts, new clause 5(3)(c) would allow the amendment of the Friendly and Industrial and Provident Societies Act 1968, which governs the accounts and auditing requirements for societies. The purpose of permitting statutory instruments to do that is to apply a stricter regime, requiring the publication of more information, to larger societies as to larger companies, and to permit small and medium-sized societies to enjoy the exemptions and limited obligations that apply to companies of such size.

The hon. Member for Christchurch rightly made a virtue of recognising the differences between industrial and provident societies. The changes to accounts and auditing would mirror company law provisions and rightly introduce a stricter regime for the larger societies that compete with large companies but allow smaller societies to benefit from exemptions and limited obligations. I refer again to the analogy of the rugby club. Why should one rugby club, which is a company, have less rigorous auditing requirements than a rugby club of similar size that is an industrial and provident society?

These changes have also been considered for building societies. Part VIII of the Building Societies Act 1986 achieved that for building societies, and section 104(2)(c) of that Act allowed for further updating by statutory instrument as company law changed. The equivalent legislation for friendly societies is part VI of the Friendly Societies Act 1992, and section 102(2) of that Act permits updating by statutory instrument. I hope that that gives the additional information needed.

I shall summarise the case for accepting new clause 5 and for not allowing clause 3 to stand part of the Bill. There has been substantial modification to the areas where the Treasury can act. All these areas have already been considered by the House of Commons for company law reform. In six of the eight areas, changes to building societies or friendly societies have also been considered. I therefore suggest that the new clause is a sensible tightening of the provisions, reflecting the concerns aired on Second Reading.

Christopher Chope (Conservative, Christchurch)

I am grateful to the hon. Gentleman for setting out so clearly the detail of new clause 5, which is eminently preferable to the provisions that it would replace. It goes some way to addressing the concerns that I expressed on Second Reading. However, he has not addressed the concern that I flagged up in my amendment about the creation of new criminal offences. I cannot understand why we should contemplate the introduction of new criminal offences by secondary legislation that cannot be subject to amendment.

Gareth Thomas (Labour, Harrow West)

I am grateful for the opportunity to clarify that point. Crucially, only criminal offences that have been created by company law can be considered for industrial and provident societies. I give the hon. Gentleman the analogy of a Royal British Legion club, or better still a rugby club, which is a company. Criminal offences can be brought against the directors of such a rugby club, and a similar sized rugby club that is an industrial and provident society would currently be subject to the same offences. It is sensible to ensure that there is like provision across different sections.

Christopher Chope (Conservative, Christchurch)

Is not the hon. Gentleman getting into the dangerous area of unintended consequences of secondary legislation for small players and participants? At present, we are all familiar with lobbying from individual parish councils, the members of which are suddenly finding that they are subject to the same requirements for declarations of financial interests and keeping a register as councillors and Members. I am receiving information from my parish council that that may be appropriate for many councillors, but not for very small parish councils.

Gareth Thomas (Labour, Harrow West)

I cannot comment on the hon. Gentleman's example of parish councils because I do not represent an area with them.

Company law addresses different sizes of companies, which are as wide and various as industrial problems, if not more so, by drawing distinctions between those sizes. New clause 5 would allow, where appropriate, a read-across of those sections of company law for industrial and provident societies. To return to the rugby club analogy, provisions, and potentially criminal offences, are already in place for the directors of a rugby club that is a company. Those criminal offences are appropriate for rugby clubs that are similar in size but happen to use different models of industrial and provident society. The hon. Gentleman's concern has already been addressed by sensible differences in company legislation. We are simply seeking to read-across.

Mark Francois (Conservative, Rayleigh)

I use the opportunity to place on record the number of parish councils in the Rayleigh constituency that are equally unimpressed by the severity of the proposals.

Mr. Chope rose—

John McWilliam (Labour, Blaydon)

Order. We are not debating parish councils because they do not come under the Bill.

Christopher Chope (Conservative, Christchurch)

It is not my intention to debate parish councils, Mr. McWilliam, but there is an obvious analogy with the effect of secondary legislation on such organisations. In that instance, a power was given in primary legislation to the Government to introduce model rules. The implication of that primary legislation was that the model rules would allow flexibility, but in the end they did. My concern about the new clause is how can we contemplate what the implications of suddenly being liable for a range of new criminal offences might be for certain officers and committee members of friendly societies? At present, they are not liable because they are not directors of companies. If the hon. Gentleman wants to turn all friendly societies and industrial and provident societies into companies, that could be achieved through legislation.

There are important distinctions between industrial and provident societies and companies. I do not share the hon. Gentleman's belief that assimilation between industrial and provident societies and companies is, by definition, a good thing. The retention of the differences may be valuable.

Gareth Thomas (Labour, Harrow West)

I entirely agree that the retention of the key differences between industrial and provident society law and company law is essential. Under new clause 5, certain areas of the 1965 Act have been deliberately excluded from the Treasury's power to change by statutory instrument because they are fundamental to the difference of the industrial and provident society legal form.

I want to recognise the limited differences in eight areas that would be appropriate for inclusion in industrial and provident society law. I refer to the example that I used earlier of a rugby club director who is a property developer, and might want to buy up a couple of acres at the end of the rugby club's pitch that are worth £150,000. At present, if the rugby club

is a company, the director of that transaction would have to be reported to, and agreed by, the members of the rugby club. That is not the situation for a rugby club that is an industrial and provident society. There is no transparency for the members of the industrial and provident society rugby club, although there is for the club that is a company.

I will give the hon. Member for Christchurch an example of a new criminal offence that we envisage under the statutory instrument. If the property director of the industrial and provident society rugby club buys the property and does not report to the members of the society that the asset sale has taken place, a criminal offence would have been committed. That offence already exists for the rugby club that is a company. We are simply allowing a read-across from company law in a relatively narrow way.

John McWilliam (Labour, Blaydon)

Order. I assume that the hon. Member for Christchurch resumed his seat and that the hon. Member for Harrow, West was making an intervention. If that was an intervention, it must rate as the longest in parliamentary history, and it was completely disorderly.

Christopher Chope (Conservative, Christchurch)

I am grateful, Mr. McWilliam, for your flexibility. However, I am sure that the Committee is also grateful to the hon. Member for Harrow, West for expanding at such great length on that matter.

The Minister cites the example of the rugby club that is registered as an industrial and provident society, compared with one that is registered as a company. If there is a need to assimilate the criminal law relating to such circumstances, we can debate that in the House. We can introduce and discuss primary legislation. What has happened today is a demonstration of the House at its best. We have been able to amend primary legislation. In less than an hour and a half, we have considered and focused debate on a series of amendments.

If we had, instead, been discussing a statutory instrument dealing with a range of issues, we could have had a one-and-a-half-hour debate with no opportunity to amend the legislation. The many constituents and organisations concerned about the consequence of the change in the law would effectively not be heard and hon. Members would not have the flexibility to adjust to points made in the debate.

Joan Ryan (Labour, Enfield North)

I take it that the hon. Gentleman does not object to statutory instruments per se. I note that, when he was Parliamentary Under-Secretary of State at the then Department of the Environment for five years, approximately 100 per year were passed. During the three years that he was at the then Department of Transport, 335 were passed.

Christopher Chope (Conservative, Christchurch)

I keep those figures always at the forefront of my mind and I am delighted that the hon. Lady is so well briefed. If she is kind and generous enough to acknowledge that I have some experience of the issue as a Government Minister and as a Member of the House, it is that experience that guides me to the

belief that we should be concerned about giving too much power to produce statutory instruments that cannot be amended. Both the Government of which I was privileged to be a member and the present Government have got into difficulties with statutory instruments.

We must ensure that legislation does not have a disproportionate effect on small organisations—the little platoons, as the former Prime Minister, John Major, described them. We referred to the example of parish councils and I will not dwell on that again. However, the prospect of people who take on office as committee members and officers of a small industrial and provident society suddenly finding themselves unwittingly brought before the courts and subjected to criminal charges, fines and public humiliation might act as a deterrent to taking on a role in the best interests of the society.

There may be a case for assimilating the laws for companies and those for industrial and provident societies. If we want to do that, the Government are free to introduce primary legislation. It does not have to be discussed at tremendous length and, if the Modernisation Committee has its way, there will be scope for us to consider amendments and properly discuss primary legislation much more quickly than we have in the past. Primary legislation allows flexibility that statutory instruments do not.

I was concerned when the hon. Member for Harrow, West said that it would be appropriate to assimilate the criminal law relating to offences under company law and under industrial and provident law in the case of the rugby club—perhaps it was a slip of the tongue. I thought that the purpose of the new clause was to say that it might be appropriate, but he is already saying that it would be. If it would be appropriate, he can table a new clause on Report, so that we can debate the proposal on its merits.

Gareth Thomas (Labour, Harrow West)

On a couple of occasions, the Chairman has chastised me, and I am happy to be chastised by the hon. Gentleman. He is absolutely right. Such a proposal might be appropriate.

I am a member of a united services club in my constituency that is set up as a company. I aspire to be a member of the Tithe Farm social club, which is of a similar size but is an industrial and provident society. Their services and operations are virtually the same. If I seek office in the club that is a company, however, duties will be placed on me that would not apply in the case of the other club. If I seek office in the club that is an industrial and provident society, I can do things that, rightly, I could not do as an officer of the social club that is a company. New clause 5 would make it possible to read across for industrial and provident societies the protection that exists under company law for social clubs, which are companies.

Christopher Chope (Conservative, Christchurch)

I understand the purpose of the new clause, but my concern is that it is too wide-ranging, even in its restricted form. We should not introduce new criminal offences in secondary legislation, which

we cannot amend. As many officers are almost volunteers, industrial and provident societies might face new burdens of regulation.

I look forward to hearing the Minister's comments. She, too, expressed concerns on Second Reading about the scope of clause 3, which has effectively been withdrawn by the hon. Member for Harrow, West. I am still concerned that whatever changes may be desirable, which could be introduced in this or subsequent legislation, should be discussed fully rather than introduced on the quiet.

Ruth Kelly (Labour, Bolton West)

First, I congratulate my hon. Friend the Member for Harrow, West on comprehensively outlining how the new clause would work and where updating industrial and provident society legislation would be most useful. The Government fully sympathise with his aims in the clause, and although we have some concerns about its drafting, we recognise the need for the legislation on industrial and provident societies to be updated. My hon. Friend provided some useful examples of how that could be achieved. We shall carefully consider those issues, and I look forward to consulting with the movement about where changes are necessary. The useful exchange with the hon. Member for Christchurch brought out some of the details of the issue and the debate has been constructive.

I return to the argument that was put a little too strongly by the hon. Member for Christchurch about the appropriate checks and balances that Parliament would usually expect to be put in place in relation to such delegated powers. We have some concerns about the clause, but I can see the advantages of my hon. Friend's new clause. The Government would retain the flexibility to move quickly to update important areas of industrial and provident society legislation even where there had been no corresponding change in company law. The movement is likely to benefit most speedily from any modifications in primary legislation that occur as a result. However, it would remain out of line with provisions available under building society and friendly society legislation and it is clear that the Treasury can update legislation only once there has been a change in company law, and even then, only certain specified relevant provisions.

My hon. Friend and other Committee members may be worried about what changes might be possible after the review of company law has taken place. We expect the review to be far reaching—the most important reform of company law in a generation and, perhaps, the most important in 150 years or so. It is unlikely that the review would disqualify the Treasury from looking into particular areas of industrial and provident society legislation that might need to be updated, although we must wait for the results of the review to be absolutely sure.

I must express the Government's reservations. We would prefer a clause that tied industrial and provident society legislation more closely to that concerning other relevant mutuals.

Gareth Thomas (Labour, Harrow West)

I am grateful to my hon. Friend for giving way and for the opportunity of an exchange with the hon. Member for Christchurch. I hear the concerns of those on both Front Benches. If the Committee were minded to allow new clause 5 to make progress on this occasion, I should consult further on changes to it to try to deal with those concerns.

Ruth Kelly (Labour, Bolton West)

I thank my hon. Friend for his useful intervention, in the light of which I am happy to consider the clause further with him.

The hon. Member for Christchurch has tabled an amendment to new clause 5 that would move the Bill—as amended by the new clause—more closely into line with other mutual society legislation. However, it would not deal with all of our concerns about the scope of Treasury powers. I would like to consider the amendments further to see whether it is possible to offer additional flexibility to the movement to update legislation, while ensuring that power delegated to the Treasury is appropriate; it should be consistent with our relationship with Parliament and the role that Parliament needs to play in the consideration of what is proposed.

We have already had an interesting exchange about amendment (d), tabled by the hon. Member for Christchurch, which would deny the Government the power to create criminal offences when updating industrial and provident society legislation under clause 3 provisions. We are not prepared to accept the amendment. My hon. Friend has already fully responded to it. If a criminal offence exists for a certain action under company law, I do not see why it should not be considered for the equivalent area of industrial and provident society legislation. That does not mean that we would always be obliged to create a criminal offence. The clause as drafted would allow some discretion as to how company law was assimilated.

I hope that that provides some reassurance to the hon. Gentleman. However, enacting such a prohibition now would reduce the chances of maintaining a fair and level playing field in relation to companies, where we think it is appropriate. We might, for example, feel that the creation of a criminal offence in some contexts would be the most appropriate way to protect the interests of society members. At the moment, I would not like to prejudge the circumstances in which that might happen.

The provision to create criminal offences is present under the equivalent provisions in building society legislation and I see no reason why we should not have the option to treat industrial and provident societies similarly. I therefore ask that the amendment be withdrawn.

John McWilliam (Labour, Blaydon)

Order. The amendments have not yet been moved, so they cannot be withdrawn.

Christopher Chope (Conservative, Christchurch)

The Minister has dealt with two of my amendments, the first of which she said did not go far enough, so I look forward to hearing further comments about that in due course.

In response to what she said about amendment (d) on the power to create criminal offences, I remind her that she just said that the Government are on the threshold of introducing the most radical reform of company law for perhaps 100 years. That will be an enormous piece of legislation. There seems to be no reason why it should not cover industrial and provident societies and offences relating to those who hold office in them—or, indeed, in friendly and building societies and perhaps the new vehicles and not-for-profit companies. Who knows what may be in the legislation?

Surely it would be better for all that we are considering to be dealt with in primary legislation, rather than piecemeal through statutory instruments without sufficient consultation or discussion in public. The Minister spoke on Second Reading of the response that had been received to the consultation paper that was launched in 1998. Those responses have not yet been published, but when they are, perhaps they could lead to discussion of detailed measures to amend further the industrial and provident societies legislation. Surely that would be better dealt with through primary legislation. However, I do not want to press my amendments. If the Committee accepts new clause 5, the issue will be subject to review. I am grateful to the hon. Member for Harrow, West for his flexibility. New clause 5 is much preferable to the clause that it replaces.

Question put and negatived.

Clause 3 disagreed to.

Clause 4 ordered to stand part of the Bill.

New clause 5 - Power to modify, etc. to assimilate to company law

New Clause 1 - Application of Company Accounts and Audit Provisions to Societies

Andrew Love (Labour/Co-operative, Edmonton)

I beg to move, That the clause be read a Second time.

John McWilliam (Labour, Blaydon)

With this it will be convenient to take the following: New clause 2—Formalities of Carrying on Societies' Business and Pre-incorporation Contracts—

'Sections 36, 36A, 36B, 36C, 37, 38, 39 and 41 of the Companies Act 1985 as for the time being in force shall apply to any society registered under the Industrial and Provident Societies Act 1965 as if that society were a company.'.

New clause 3—A Society's Capacity—

'Sections 35, 35A, 35B and 322A of the Companies Act 1985 as for the time being in force shall apply to any society registered under the Industrial and Provident Societies Act 1965 as if that society were a company.'.

Andrew Love (Labour/Co-operative, Edmonton)

I understand that new clause 4, which has been printed on the amendment paper, has not been selected. I admit to some drafting inadequacies.

New clauses 1, 2 and 3 are probing measures which underpin why the Bill is long overdue. They illustrate just how out of date and out of line with modern practice industrial and provident society law has become. Indeed, there are now major differences between it and company law.

Although company law has developed over the past 20 to 30 years and, as the Minister suggested, will develop following the company law review, there has been little material change during that period in industrial and provident society law. There is a distinctly unlevel playing field between the two types of organisation, which is important for two reasons. First, when an organisation or business wants to incorporate and must decide whether to use company law or industrial and provident society law, industrial and provident society law has a significant disadvantage. Secondly, the two types of organisations must compete with each other, and, as I hope to show through the three new clauses, it is becoming increasingly difficult for industrial and provident societies to compete on a level playing field with companies.

New clause 1 deals with the accounts that must be produced, which are covered in the Friendly and Industrial and Provident Societies Act 1968, whereas the Companies Acts have been significantly and radically changed since that time in two particular ways. First, part VII of the Companies Act 1985, the provisions of which, including all its associated schedules, were amended by the Companies Act 1989, ensures that larger, public limited companies must provide a high level of public transparency, in order to protect investors and other stakeholders in the company. We need only look at the shenanigans on the other side of the pond, in the United States, to understand the importance of transparency and company accounts. That transparency is specifically intended to establish trust and confidence in the marketplace.

Secondly, at the other end of the scale, there are two types of generous exemptions for smaller firms. Small companies must comply with two of the three criteria of a turnover of up to £2.8 million, a balance sheet total of up to £1.4 million, and up to 50 employees. They face minimum requirements in the detail that they must provide in their returns. Companies are defined as medium sized if they comply with two of the three

criteria of a turnover of up to £11.2 million, a balance sheet total of up to £5.6 million, and up to 250 employees. They can substantially consolidate the accounts that they file with Companies House. Indeed, a further change was introduced last year that allows companies with a turnover of up to £1 million not to have their accounts audited if their members so agree.

That those important relaxations are provided for companies but not for industrial and provident societies gives companies a significant advantage. Industrial and provident societies must continue to provide a true and fair view, and set up accounts. Naturally, that true and fair view is interpreted by their advisers who have a specific interest in producing comprehensive accounts. Industrial and provident societies are exempted from producing accounts only if their total is up to £90,000. With a limit of up to £350,000, they can produce a less expensive set of accounts, and if they are over that limit they can produce a fully audited set of accounts.

Those limits are seriously out of date and completely inadequate in current circumstances. It is a serious injustice in the marketplace between companies and industrial and provident societies. I shall cite an example. Many small housing associations provide a detailed service to particular groups within our society. They face many pressures of consolidation, rent restructuring and harmonisation. Such limits seriously disadvantage them. The changes under new clause 1 would go some way towards ensuring a continuation of that specialist housing association market.

New clause 2 would reduce the current legal burdens on industrial and provident societies in respect of the use of the company seal. When companies are undertaking the usual formalities of Companies House of pre-incorporation contracts, under the Companies Acts they do not need to use the company seal or the legal requirements that surround that, but can simply require a director and the company secretary to sign the documents. However, industrial and provident societies have to continue to undergo the legal requirements that previously existed.People may say that that is not an onerous responsibility, but it adds to the red tape and burdens placed on industrial and provident societies. Given that such a change has been undertaken for companies, it is sensible that the same change is be made to the rules governing industrial and provident societies.

New clause 3 deals with the capacity of organisations. It would protect those outside the organisation who deal with the stakeholders from ultra vires activities of an industrial and provident society. Under the Companies Act 1989, that protection has been provided to those who deal with companies. Prior to that, if a person wanted to undertake a contract with a company, he had to decide whether or not that company had the legal capacity to undertake the contract. That took two different forms: whether that activity was included in the objects clause of the company, or whether the board of directors had the powers to undertake it. That was somewhat of a lottery, and the change in the Companies Act 1989 was

introduced to provide protection to those who had entered into contracts in the normal way. That still does not exist for industrial and provident societies, and if we want to increase confidence, trust and activity in the marketplace, industrial provident societies should have the same procedures and protections for those who enter contracts with them as companies.

We could examine the housing association movement. Primarily, the groups are community benefit societies that undertake specifically housing activities. However, we know that housing associations are moving into social and economic regeneration, working with communities and developing credit unions. Whether all those activities are undertaken according to the objects or powers of the board of trustees has not yet been resolved. The change under new clause 3 would give protection to those who deal with housing associations so that there would be no requirement for them to justify whatever activities they are undertaking.

New clauses 1, 2 and 3 illustrate clearly why we need the changes to allow a level playing field to develop between industrial and provident societies and companies.

Gareth Thomas (Labour, Harrow West)

I commend the way in which my hon. Friend the Member for Edmonton (Mr. Love) has introduced his new clauses. I agree with his view that there is a sensible case for aligning the law governing companies with that governing industrial and provident societies in the three matters. He is right to say that, in each case, societies operating as businesses suffer a significant disadvantage compared with companies, because of a failure to keep I and P law abreast of the changes and developments that have taken place in company law.

In each case, my hon. Friend's new clause points to the basic solution to the problems that exist by applying the appropriate company law provisions to societies. However, as my hon. Friend said, some further drafting work would be required to ensure that the new clauses could be appropriately applied to societies. It was that consideration that led me to propose the Bill in its original form and new clause 5 so as to omit the use of delegated legislation by Government, if they were so minded, to refine the application of company law to societies as we have already discussed.

The application of part VII of the Companies Act 1985 on accounts to societies, which my hon. Friend suggested in new clause 1, is a complex and technical point. Further work would be necessary before an appropriate and effective amendment to achieve that aim could be developed. If the Committee is convinced by the thrust of my hon. Friend's case, it may be that further down the line a new clause with more modest aims, such as the provision for societies of the exemptions and deregulatory advantages enjoyed by small and medium-sized companies, and an exemption from the need for a full audit on the same terms as companies, could be achieved without the need for delegated legislation and appropriately added to the Bill.

On the other two new clauses—and the one that was not accepted for debate—I believe that the application of company law rules to societies could be achieved more easily, but a clause to achieve that would clearly need some more refinement than is outlined in my hon. Friend's new clauses. If the Committee is so minded, I will consider whether incorporation of suitable provisions would be a useful and sensible addition to the Bill and consult on that. I may bring forward amendments on Report.

Ruth Kelly (Labour, Bolton West)

I congratulate my hon. Friend the Member for Edmonton on the way that he has set out his case for the inclusion of his new clauses. The provisions concern accounting and audit requirements, the capacity of societies, formal matters such as the execution and authentication of documents, and matters concerning contracts entered into by societies. The Government understand, and agree with the general objective of creating, so far as is appropriate, a ''level playing field'' between companies and industrial and provident societies. In that sense, we are sympathetic to the aims of these new clauses, which attempt to further that objective in the specific areas mentioned.

However, as my hon. Friend the Member for Harrow, West pointed out, there are drafting difficulties and technical issues with the new clauses. To take one example, the new clauses are silent on their relationship with existing provisions in the Industrial and Provident Societies Act 1965, with which they would appear to overlap. The result would be most unsatisfactory in terms of the coherence of the legislation, and could cause confusion. For example, section 36 of the Companies Act, which would be applied to industrial and provident societies by new clause 2, operates in the same areas as section 29 of the 1965 Act on the making of contracts by societies. The Companies Act provision refers to a wider range of contracts which appear to conflict with those of industrial and provident societies.

The Government are also concerned that we have not had time to think through the substantive implications of the effect of some of the new clauses and that those affected by the proposals contained in them have not had the opportunity to express their views. I therefore hope that my hon. Friend will withdraw the motion.

Christopher Chope (Conservative, Christchurch)

I waited to hear what the Minister would say about the new clauses because this debate deals with having an approximation of the law relating to industrial and provident societies and that relating to companies. If the Government are sympathetic to the hon. Gentleman's new clauses, it is disappointing that that they cannot use their resources to ensure that a new clause setting out the objectives can be brought forward on Report and that there cannot be a chance of some public consultation before then. The Government already had the opportunity to consult about general principles in 1998.

Ruth Kelly (Labour, Bolton West)

Perhaps I should point out to the hon. Gentleman and to the Committee that the performance and innovation unit is undertaking a report and is looking at the social enterprise sector. One of its objectives is to see how the industrial and provident societies might be helped to thrive and grow. I look forward to that report being published. In future, there will be ways of taking some of these projects forward, perhaps in a more considered context. I certainly look forward to discussing them with him in due course.

Christopher Chope (Conservative, Christchurch)

The Minister has now added to the technical objections to the drafting the old chestnut of prematurity. As the Government went out to consultation in 1998 on the subject and raised expectations among industrial and provident societies that something would be done, let us hope that the performance and innovation unit report is not long delayed and that, when it is published, it will lead to a speedy resolution of these issues. The hon. Member for Edmonton concentrates our minds on substantive changes that need to be made, rather than just the theoretical stuff that we were discussing on the previous new clause. I do not know what he is going to do with his new clauses. If the Minister is unwilling to amend them and make them suitable for incorporation

in the Bill, all the hon. Gentleman can do is hope that the performance and innovation unit will come up with the goods sooner rather than later.

Andrew Love (Labour/Co-operative, Edmonton)

I thank my hon. Friend the hon. Member for Harrow, West, the hon. Member for Christchurch and the Minister for their contributions. Those who contributed have recognised the drafting difficulties and the technical complexity of some of the issues, but I am pleased there was sympathy from hon. Members on both sides of the Committee for the thrust of what is to be achieved through the new clauses.

I accept that we have not tabled, and it would take considerable time to debate properly, adequate new clauses that would reflect what we are trying to achieve. I also accept that the PIU is undertaking a review of the social enterprise sector, and that will deal with some of the issues touched on in each of the three new clauses. It may be possible to introduce changes in the future, and I believe that there must be some urgency in ensuring that they are made. I accept what the Minister says, and I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Bill, as amended, to be reported.

Committee rose at twenty-one minutes past Twelve o'clock.