Company Law Reform Bill [Lords]

Public Bill Committee, 22 June 2006.

Standing Committee D

Clause 57

Eric Illsley (Labour, Barnsley Central)

I remind the Committee that with this we are taking the following amendments: No. 119, in clause 57, page 22, line 43, after ‘received', insert

‘or include a statement that no such response was received within the time period referred to in subsection (2)'.

No. 120, in clause 57, page 23, line 6, after ‘received', insert

‘or must include a statement that no such response was received within the time period referred to in subsection (2)'.

Vera Baird (Labour, Redcar)

This is my first opportunity to welcome you to the Chair, Mr. Illsley, and to tell you how pleased I am that such an experienced Chairman will be presiding over my first attempt at helping a Bill through Committee.

The. Member for Hornchurch (James Brokenshire) had put forward his argument on the amendments. Under the clause, anyone who wishes to use a sensitive name in their company’s name must apply to the Secretary of State, but to support that application he must ask any public body or Department whose sensitive words he wishes to use in his name to comment on his application. The hon. Gentleman feels that if a public body does not reply to such a request within 30 days, the presumption should be that it does not object to its words being used.

I have already said how sympathetic I am to people who get held back by bureaucracy, but the point of the clause is to prevent people from being misled by a company having a name that wrongly suggests a connection with a public body. The amendment would change the balance of the clause. Where a person is looking for exceptional permission to be allowed to use these sensitive words, public protection remains the most important thing. The immediate mischief is that it would be possible to send in the application for a response in a way that made it unlikely to get one back, perhaps by sending it to the wrong part of the relevant organisation or by couching it in a long letter about something else.

Let me set out what I think is a greater mischief. The process in the clause is in two stages. First, the person who wants the name writes to the body that holds the words he wants to use. Then he sends any response that comes back to the Secretary of State. The words “any response” specifically envisage that there may be no response. That is clear. It is the Secretary of State who is ultimately responsible for approving the name, and although he would be assisted if there were a response from the public body, the lack of response under the terms of the clause is not fatal to the application.

We are talking about words like “charity”, “nurse”, “police”, “Her Majesty”, which it would be extremely advantageous for someone to use in their company title to try to show some connection with totally virtuous organisations. What goes a little further than the mischief I have described is if the application has been with the public body for 30 days, and there is automatically a deeming of no objection and therefore approval, it would be extremely difficult for the Secretary of State to refuse because the public body that the provision was trying to protect would have raised no objection and would have been deemed to approve. How could he differ from that and not be subject to judicial review for being unreasonable?

The consequence, I fear, is that as we are talking about a public body that has had the application for 30 days and not responded, it probably has not considered it and the Secretary of State will not be able to do so. Consequently, public protection from the mischief would be seriously challenged by such a deeming provision.

The other specific difficulty that could be envisaged is that although at the end of the 30 days no response had been received and the body was deemed to have approved, a long and detailed objection might be received the day afterwards from a public body to the proposed use of its name and the Secretary of State would not be entitled to take it into account. That would be most undesirable, bearing in mind that the purpose is to protect the public.

Those are good reasons to invite the hon. Gentleman to think again. We hope that he will feel able to withdraw the amendment. I repeat that the Government will not tolerate bureaucratic inefficiency. Public bodies will be expected to respond as quickly as they realistically can. None the less, the emphasis has to be on protecting the public and not on facilitating people skilfully to get around the provision.

Keith Vaz (Labour, Leicester East)

Does the Minister know how long it takes for public bodies to respond? What gave rise to the concern that made the provision necessary?

Vera Baird (Labour, Redcar)

I am grateful to my hon. Friend for raising that point. I understand that it is a completely new provision, and I invite the Opposition to comment on it. However, it was not supported or buttressed by any pressure group—not by the Law Society or the Institute of Directors, the company secretaries of major companies or any list of people who might have been expected to respond if it was likely to be a problem. It is not clear to me where the thrust of the provision is coming from, and we have not received any submissions.

I shall probably serve the Committee better by setting out other words that could be sensitive—words that could imply national or international pre-eminence. For instance, the word “British” will need a significant amount of protection, and I see that Opposition members agree. Approval of that word in a company name would depend on how it was to be used. The Secretary of State would normally expect the company to be British owned—a realistic thing to think—and it would probably be necessary to show that the company was pre-eminent in its field in order to merit that epithet and description. The company would need to show that it was pre-eminent by providing supporting evidence from an independent source, such as a Department or trade association.

The same goes for the words “English” and “England”, and “Scotland” and “Scottish”. “Wales” and “Welsh” would probably fall into the same category. It would be hard it distinguish them in any realistic way from “British.” The same applies to “Ireland” and “Irish”. If a company wanted to use one of those words as a prefix to its name, similar conditions would have to apply as apply to the word “British”, and approval would have to be given for such use. The same would apply if the word were used as a suffix.

It will usually be possible to get approval only if the person can show that the company has its main business in the country concerned. It would be rather odd for a company to call itself “Welsh” if its factory was in my constituency of Redcar. I cannot think of a company in Redcar with “Welsh” or “Wales” in its name; that was just an example of how curious it would be.

One cannot rule out, however, the chance that somebody might want to use the word “Welsh,” perhaps to describe Welsh cakes or something of that kind, even if they are not made in Wales, but I imagine that one would have to go a long way before being able to register “Welsh” in the name of a company, if the business was in Redcar, or in the constituency of the hon. Member for Reigate (Mr. Blunt). For instance, in Reigate, it would be odd to call a company “Welsh”.

Crispin Blunt (Conservative, Reigate)

I am extremely grateful to the hon. and learned Lady for replying comprehensively to the amendments. However, I am slightly concerned that if Ministers are going to go into such exquisite detail, the Committee will struggle to get through the thousand or so amendments that we are likely to consider, as well as the 925 clauses.

Vera Baird (Labour, Redcar)

I know that the hon. Gentleman rightly, and compatibly with his job, has his hands on the accelerator and brakes in the Committee. I can assure him that I am quite succinct sometimes.

Margaret Hodge (Labour, Barking)

Does my hon. and learned Friend agree that we would make better progress if so many amendments were not identical to those discussed in another place? They were given considerable airing there, and little value is added by reconsidering them.

Vera Baird (Labour, Redcar)

As ever, my right hon. Friend makes a strong and important argument.

Paul Farrelly (Labour, Newcastle-under-Lyme)

I want to welcome the new approach outlined by the Opposition. Will my hon. and learned Friend join me in hoping that, throughout the course of the Committee, Opposition filibustering, nay hair-splitting, will be kept to a minimum?

Vera Baird (Labour, Redcar)

Hair-splitting sounds like a cruel sport.

Keith Vaz (Labour, Leicester East)

To take us back to the substance of the Under-Secretary’s comments, she made an important point about names because it causes a great deal of concern. Have Ministers seen any evidence of abuse by a company registering as British, with the word “British” in its name, but which subsequently was discovered not to be British, and to have no such connections, such as the fictional Welsh company in Redcar?

Vera Baird (Labour, Redcar)

I hesitate usually to express personal opinions, but it might be an abuse of the term “Welsh” if the company were in Redcar. As I have already mentioned, however, I do not think that there is such a company in Redcar. None of my constituents, or anyone linked with them, bear any responsibility for the misuse of the fine name of Wales. I shall tell you about my Welsh antecedents in a moment.

David Jones (Conservative, Clwyd West)

I am grateful to the Under-Secretary for allowing us to discuss the manufacture of Welsh cakes in Redcar. Will she comment on the possibility of a company obtaining registration to manufacture Eccles cakes in my constituency? Would they run into difficulty?

Vera Baird (Labour, Redcar)

My goodness, that is a shrewd point, and I hardly know how to deal with it. I believe that Eccles cakes are usually made in Eccles, but I am not sure where that is. [Interruption.] I am told that it is near Salford.

Justine Greening (Conservative, Putney)

I think that we have a similar situation with Pontefract cakes. They are made all over Yorkshire and enjoyed by many people. Perhaps the hon. and learned Lady will consider that alongside the Eccles cakes.

Vera Baird (Labour, Redcar)

And the Welsh cakes, although I am not sure that I know what a Welsh cake is. Can anybody assist?

Eric Illsley (Labour, Barnsley Central)

Order. We seem to be straying a little away from the amendment, in that Pontefract cakes are Pontefract cakes and Eccles cakes are Eccles cakes—they are not companies, they are products. Let us return to the amendments—all of which were selected by me, all of which are in order and all of which appear on the order paper—and, of course, there will be no filibustering.

Vera Baird (Labour, Redcar)

I am very grateful. I have indicated already, Mr. Illsley, how fortunate I am, on my first attempt to present a Bill in Committee, to have such a fair and firm Chair. Let me return to the words “English”, “Welsh”, “Scottish” and “Irish”. Although I do not want to tempt Opposition Members into too much of a frenzy, I should have thought that the word “European” might have to be equally protected. I am not sure whether they would agree with that. Names that include the word “European” would not normally be approved if they unjustifiably implied a connection with official bodies in the European Union. If there is a genuine connection with an official body, the name might—if the body supports the application—be a perfectly realistic one to use. It would be a question of getting support. In that and all other situations, I envisage that the support from the public body would have to be expressed rather than deemed, as the amendment would require it to be.

The same can probably be said about “Great Britain” and “the United Kingdom”. Presumably, one would use those expressions as a prefix, although I imagine that “Eccles Cake Company of the United Kingdom” might add kudos to the manufacturer of such cakes, as one likes to think that they are made in Britain, even if not in Eccles; I do not want to be unduly nationalistic. The question is whether there is a genuine connection with the official body and, if so, whether that body takes exception to the application to the extent that it is prevented from actively supporting the applicant or permitting him to successfully incorporate into his company the name that he requires.

Crispin Blunt (Conservative, Reigate)

On a point of order, Mr. Illsley. We really are going to struggle to get through this Bill if we continue at this pace. Can you give the Committee any assistance?

Eric Illsley (Labour, Barnsley Central)

At the moment, no. While the debate is in order and the Minister is in order, the debate has to continue. I am sure that the speakers have taken on board what the hon. Gentleman has said.

Vera Baird (Labour, Redcar)

I was about to give way to my hon. Friend the Member for Leicester, East (Keith Vaz).

Keith Vaz (Labour, Leicester East)

Presumably, if the term “European” were to be used to describe a company, it would be the European Commission that would make the objection. Would it be subject to the same time limits as a public body in this country?

Vera Baird (Labour, Redcar)

That is right. My hon. Friend may have put his finger on why, given that a time limit is probably inappropriate anyway, 30 days would be too short. We are to look at the list of possibilities, each of which makes a point against the amendment. Sending an application off to the European Commission with a dead time limit of only 30 days, after which it is deemed to support the application, is highly likely to produce a lot of litigation and confusion. In respect of the way in which business is conducted, it will create many of the problems that we are trying to exclude, because in a period as short as 30 days there will inevitably be non-responses from an organisation as big and as wide-ranging as the European Commission. The hon. Gentleman makes a very powerful point against the amendment, and I hope that I have made one or two myself.

Would the EC be the appropriate body? I am being given some helpful advice, which suggests that an application for the word European would not necessarily have to be sent to the Commission for approval. However, it does seem realistic that the Secretary of State would be bound to want to consult the European Commission, and arguably other bodies, if there were a serious suggestion that somebody’s company was of a sufficient status to justify calling it “European”. I am grateful to my hon. Friend for that point, and I am glad that he raised it just as I was moving on to consider the word “international”.

If one wants to use the word “international” as a prefix, one will probably have to show that the major part of the company’s activities is trading overseas. It is difficult to imagine what public body or bodies could be consulted to get approval of the word. There must be a large number of public bodies—I do not have a specific number in mind—that are international as part of their way of being and would therefore be able to express a view. Such bodies might take serious offence at having to give approval, and they might not want the kudos of the word “international” to be attached to some embryonic company dealing in Eccles cakes. The word suggests a major undertaking that operates across borders and has been working for some time to get such a status. It gives a false picture if a company is small, not international and operates only in Wales.

I am helpfully told that not all the words in the list of sensitive words have an automatically identifiable body whose views would be required. In a case such as the word “international” it would be hard to pin down which were the right bodies; the Secretary of State would simply have to consider the arguments for and against the registration. It might be easier, however, to consider the appropriate public bodies to be approached if the word “national” were used. That is the next word on the list of sensitive words that would fall under the provisions of the subsection. The criteria for the use of the word “national” for a British company would resemble those for the word “British”. If a British-registered company is called “National something” it implies heavily that it is British and has a certain status in the country.

One would hesitate to allow the use of the word “national” to a company operating in a small way, perhaps on one of the excellent industrial estates that have grown up thanks to the stabilising of the economy and the advent of regional development agencies, for instance in the north-east, where industry is beginning to take off again after all the years of decline in the steel and chemical industries. Happily, both of those are now secure. Such a company, perhaps supported by one of the excellent regional development grants or buttressed by EU moneys to help it get off the ground but operating only in a small way, would have inappropriate kudos attached to it if it were entitled to use the word “national”. There must be a careful screening process.

Keith Vaz (Labour, Leicester East)

What my hon. and learned Friend is saying is extremely helpful and will be important to companies wishing to register such names. Is it likely that officials acting on behalf of the Secretary of State will have a list of the organisations to which they will write when such names are proposed, but that the list will not be exhaustive in case other organisations emerge as needing to be written to?

Vera Baird (Labour, Redcar)

I am not sure whether there is likely to be a comprehensive list: as my hon. Friend suggested, it might be difficult to formulate one. As he has also observed, such a list would be fixed in time so that any new developments could not be accounted for. It is clearly important that the Secretary of State should have a list of sensitive words and names that need to be protected. I am going through some now, which, in my view, have a powerful claim to fall into that category and to be protected by the subsection.

There are words that probably also imply some business pre-eminence, or a representative status. I further understand that the regulations specify bodies in relation to particularly sensitive words; however, in the case of some sensitive words on a list such as the one referred to by my hon. Friend there would be no associated body. He is I think correct in saying that the regulations specify a list of sensitive words with a link to bodies. Clearly, there is likely to be an alarm-triggering system for sensitive words that might, without having an association to a body, still create a false impression in relation to the status, nature, age, capitalisation or spread of the business of one of the relevant companies.

Keith Vaz (Labour, Leicester East)

The thing that will really cause people concern is the use of the word “royal”, or any connotations of association with the Crown. Many people who set up companies would want to trade on that name to further their business. Shall we have very strict criteria for dealing with those important words, which, if adopted, would confer a great deal of kudos on companies?

Vera Baird (Labour, Redcar)

Let me just deal quickly with the words “association”, “federation” or “society”. A company wanting to use one of them would normally be limited by guarantee.

Crispin Blunt (Conservative, Reigate)

I know that the hon. and learned Lady will be as embarrassed as anyone else at what she is having to do. May I suggest, having done my best to listen to her arguments, that she should accept the amendments on behalf of the Government and, if the Government then think that it is appropriate to revisit the matter, return to it on Report, when there has been a chance to examine it? If we go on examining it at this length, we shall bring the Committee into serious disrepute.

Vera Baird (Labour, Redcar)

I am not in a position to accept the amendment. I think that I have made pretty forceful arguments against it and I hope that the hon. Gentleman will be persuaded to withdraw it. I must carry on, to try to meet the thrust of the hon. Gentleman’s argument—although he was able to put it more succinctly than I can reply to it. I do not feel embarrassed, so the hon. Gentleman is wrong.

As I was saying before the intervention, a company wanting to use one of the words in question would normally be limited by guarantee. Each member would have one vote and the constitution would contain a non-profit distribution clause. Such protection would be required before words of the kind in question could be used for a company limited by guarantee.

I have run through but a few of the many examples on the pages in my hand of words that might be used that would hit the sensitivity button.

Mr. Bluntrose in his place and claimed to move, That the Question be now put, but The Chairman withheld his assent, and declined then to put that Question.

Eric Illsley (Labour, Barnsley Central)

It is too early in the debate, although it does not seem like it.

Vera Baird (Labour, Redcar)

I was grateful for that suggestion. I will take it and say that I have completed my argument.

James Brokenshire (Conservative, Hornchurch)

I am grateful to the Minister for her response. While I was in mind of “Test Match Special” and the late Brian Johnston on certain occasions during her contribution, I listened with care to what she said. The main thrust of her argument is about whether a misleading situation could be created. I believe that that issue is addressed in clause 76, which gives the Secretary of State power on that type of provision. Therefore I want to test the Committee’s view on the amendment and put it to a vote.

Clause 58

James Brokenshire (Conservative, Hornchurch)

The clause gives the Secretary of State new powers to restrict what letters and symbols may be used in the company’s registered name and to specify a permitted format for a name. It is a new provision and is not contained in the 1985 Act. I would be grateful if the Minister clarifed why it was felt that the additional clause was needed. I would also be grateful if she set out the potential problems that the Government seek to address and what marks and symbols she has in mind for the subsequent regulations.

Vera Baird (Labour, Redcar)

The clause provides power to make regulations that specify the characters that can be used in a company’s registered name. The primary purpose of the restriction of the choice of name is to make it easy for the public to find information about the company on the record. Names that use unfamiliar characters, such as those drawn from oriental languages, or that begin with a string of characters that are not letters apparently create confusion. They are difficult to remember and difficult to find in an index. So, regulations made under the clause would be of great assistance to people looking for information about companies. The restriction on choice would impose no cost on companies.

We will consult on the use of the power. That may reassure the hon. Gentleman. We intend to use it to specify all the letters used in the official languages of the European Union and the most familiar other characters such as currency symbols, punctuation marks and, perhaps, the first few characters in a name might be put in the regulations. It will also be possible to restrict the formatting used in the name as registered. That would not affect how companies display their name, so the use of things such as superscript, subscripts, exotic font, mixtures of capital and lower-case letters—and even names with their characters arranged in a circle—would not be affected by the regulations. The point is that the regulations will not make any difference to logos.

Why have restrictions? That is the thrust of the hon. Gentleman’s question. At present, they are none, but Companies House is apparently coming under increasing pressure to accept names and characters that it does not have the technology to handle, and the time has come for company law to provide a power to restrict the characters that are used. Such regulation is not unnecessary, because it is important to distinguish between a company’s registered name and a trade mark. There are no property rights in a registered name, which is only an identifier, so obliging companies to go through this process really is not much of an imposition. One might ask why companies should not be allowed to use whatever names they want. However, there will be no such restriction, because companies are not required to use their registered names in the course of business in any event.

I hope that that satisfies what I guess is the hon. Gentleman’s curiosity about the need for the provisions, and the point is, indeed, interesting. With that, I hope that hon. Members will agree that the clause should stand part of the Bill.

James Brokenshire (Conservative, Hornchurch)

I am grateful to the Minister for that explanation of the background and the requirements associated with the clause. In the light of her comments, I recognise the need for the provisions. My comments were really intended to gauge the background and to gain a full understanding of the requirements, and I made them in the spirit of seeking to avoid additional regulation where it is not required. However, I have listened carefully to the Minister’s comments about the problems that Companies House faces in dealing with new names and about the way in which things are changing, and I shall not be questioning the inclusion of the clause in the Bill.

Clause 60

James Brokenshire (Conservative, Hornchurch)

I beg to move amendment No. 124, in clause 60, page 23, line 34, leave out subsections (1), (2) and (3) and insert—

‘(1) Subject to section 61, the name of a limited company that is a private company must end with “limited” or “ltd” or, in the case of a Welsh company, its name may instead end with “cyfyngedig” or “cyf.”.'.

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to discuss amendment No. 125, in clause 60, page 24, line 1, leave out from ‘companies' to end of line 3.

James Brokenshire (Conservative, Hornchurch)

The clause requires that private limited companies use a particular suffix to denote their status, and the amendments are intended to simplify it. In the days when I was learning how to draft contracts and other legal documents, I was always told not to use three words when one would do. Applying that logic and that adage to the clause, I wonder why we should use three subsections when one will do, particularly when the Bill is intended to simplify company legislation and slim down what might otherwise be an excessive burden of regulation. Amendment No. 124 is largely a drafting amendment to give effect to that approach.

Amendment No. 125 is slightly different. Although I welcome the introduction of greater cross-referencing in the Bill, I do not welcome the fact that it sometimes adds confusion. Subsection (4) says that the clause

“does not apply to community interest companies”,

but then invites the reader to see certain sections of the Companies (Audit, Investigations and Community Enterprise) Act 2004. That leaves the reader in some confusion as to whether community interest companies are caught or not. Amendment No. 125 would make the position definitive, but if it is not acceptable to the Minister, I hope that she will consider an alternative formulation of subsection (4) to ensure that there is some clarity about the scope and ambit of the clause.

Vera Baird (Labour, Redcar)

The existing clause is a very clear statement of the requirement for a private company’s name to end in the appropriate statutory indicator of its status. The formulation is the same as that in the previous clause, which applies to public companies’ names. I hesitate to agree to an amendment that just restates the existing clause, which is what it does. I can compete with the hon. Gentleman on the verbiage point; personally, I find the hon. Gentleman’s sentence of 38 words less easy to understand than three sentences of no more than 17 words. I hope that he is persuaded that I have the trump card, that there really is not much point in amendment No. 124, and that he should withdraw it.

On amendment No. 125, I can almost see the hon. Gentleman’s point, but not quite. As he says, all that it does is to remove the cross-reference to the Companies (Audit, Investigations and Community Enterprise) Act 2004. It does not change the position at all; it just deletes a useful cross-reference. Since the provision in the 2004 Act requires the name of a community interest company that is not a public company to end in CIC, I would have thought it quite useful, at this point of the Bill, to have a pointer across to another piece of legislation. I am a bit hopeful that I have persuaded him to withdraw that amendment, too.

James Brokenshire (Conservative, Hornchurch)

I thank the Minister for her comments, and although I hear what she says, there is the risk of some confusion; that is why I tabled amendments Nos. 124 and 125. However, given the time and the need to move on to other—perhaps more pressing and significant—matters, I shall not put my amendments to a vote. I beg to ask leave to withdraw the amendment.

Clause 62

James Brokenshire (Conservative, Hornchurch)

I beg to move amendment No. 58, in clause 62, page 25, line 2, leave out

‘, or any return of capital,’.

We return to an issue originally highlighted in the other place. Although I heard the comments made by the Minister for Industry and the Regions about returning to issues that were debated in another place, it is valid for this Committee to examine issues and ensure that the right conclusions were reached. It is our duty and responsibility to hold the Government to account, so I feel no compunction at all about raising issues on which there may have been some debate in the other place.

The clause makes provision for certain companies to continue to use a name that does not end with “limited” or any other permitted alternative. The clause sets out certain conditions, the first of which is that the object of the relevant company must be the promotion of certain things, such as art, science, religion or charity. There is a further requirement for companies’ articles to include certain provisions, including the prohibition of payment of any dividends and of any return of capital to its members. In the other place, my noble Friend Lord Hodgson rightly pointed out that the requirement prohibiting a return of capital is new and departs from the provisions of section 19 of the Companies Act 1985. That means that some companies would be required to change their articles to maintain compliance with the expanded requirement.

Although I recognise that there are very few companies still benefiting from a licence under section 19 of the 1985 Act, I was not persuaded by Lord McKenzie’s reply, in which he mentioned the deregulatory nature of the clause, as it seems clear that the companies concerned will be obliged to change their articles if they are to continue to rely on the clause. That may now be easier, as exempt companies no longer need to apply to the Department of Trade and Industry for approval when they amend their articles, but it is slightly peculiar to suggest that that is deregulatory, when the relevant companies will be required to take positive steps to retain their status and will potentially incur cost and expense.

Lord McKenzie said in Grand Committee that the change was justified

“to ensure that exempt companies do not act in a way that is inconsistent with their status”.—[Official Report, House of Lords, 30 January 2006; Vol. 678, c. GC51-52.]

Could the Minister give an example of an exempt company that has used its powers inappropriately? If not, why is an additional burden being placed on a small group of companies? Amendment No. 58 would delete the reference to the return of capital to bring clause 62 in line with section 19 of the 1985 Act.

David Howarth (Liberal Democrat, Cambridge)

I just want to comment briefly on this amendment. I have had a great deal of sympathy with the Conservative amendments so far, but I have a problem with this one, and I ask the hon. Gentleman to reply to the following point in his closing remarks.

The clause is in line with a basic principle of company law: the protection of creditors. If a company has the word “limited” after its name, that puts potential creditors on notice that they might not get their money and they cannot pursue shareholders for it. It is at least arguable that a company that can return capital is one that puts at risk the creditor’s position. Therefore, it is reasonable for the clause to stand as it does, because it is protecting potential creditors from that particular possible abuse, although to a small extent only, because there are not many of these companies. I recognise that it will not be a very important matter in practice, but in theory this is the right thing to do.

Vera Baird (Labour, Redcar)

I am grateful for that thoughtful contribution made by the hon. Gentleman on behalf of the Liberal Democrats. He is correct to say that the clause runs with the grain of company law generally. Apparently, it is likely to affect 21 active companies—that is the number I have been told—which represents a small group, because most not-for-profit companies that are exempt from the requirement to have the word “limited” are companies limited by guarantee.

Under the Companies Act 1985—the present legislation—none of those 21 companies can return capital to their members, because they do not have the authority in their articles to do so, and they cannot change their articles without consent from the DTI. However, under part 19 of the Bill, it will no longer be necessary for companies’ articles to authorise reductions of capital or to authorise companies purchasing their own shares. Furthermore, exempt companies will no longer need to apply to the DTI for approval when they amend their articles, although the Bill ensures that, as at present, companies limited by shares exempt from the requirement for their name to end in “limited” may not return capital to members. I broadly embrace the point made by the hon. Gentleman that to allow them to do so would be wholly inconsistent with the grounds for the exemption. The amendment would remove exactly the safeguard that he has pinpointed.

I suppose that it is a sort of trade-off. The company’s articles cannot allow it to do inappropriate things with its money, so just as it is inappropriate for not-for-profit companies to pay dividends it is inappropriate for them to return money to their shareholders in other ways, for instance by buying back the shares. There is a clear and strong purpose for this provision to remain as it is, and I invite the hon. Member for Hornchurch to withdraw his amendment.

James Brokenshire (Conservative, Hornchurch)

I thank the Minister and the hon. Member for Cambridge (David Howarth) for their comments.

Vera Baird (Labour, Redcar)

I owe the hon. Member for Hornchurch an apology, as he asked me whether there was an example. There is not, because there is no power to return capital at present without provision in the articles so the situation never arises.

James Brokenshire (Conservative, Hornchurch)

I am grateful to the Minister for that explanation of the rationale for this particular change in the law, which did not come out as clearly as it might have in the reading of the debate in the other place. I am also grateful for the clarification provided by the hon. Member for Cambridge. We raised this point to ensure that we were not entering into regulation where it was not required, particularly, as the Minister rightly said, because we are talking about only 20 companies. I know that a small number only would potentially be affected by this provision, but this is about ensuring that, in dealing with this type of problem, we are not using a sledgehammer to crack a nut. In light of the Minister’s comments, I beg to ask leave to withdraw the amendment.

Clause 63

James Brokenshire (Conservative, Hornchurch)

I beg to move amendment No. 59, in clause 63, page 25, line 26, after first ‘its', insert

‘profits (if any) or other'.

I shall be brief. Clause 63 tracks section 30(3)(b)(i) of the Companies Act 1985, except for the words

“profits (if any) or other”.

In another place, Lord McKenzie said that he had received advice from officials that the term “income” was sufficient to cover profits. Even though I am a lawyer, I do not wish to promote arcane debates unnecessarily, but there seems to be a difference. I think that there was some doubt in the mind of Lord McKenzie at that stage. In Grand Committee he said that he had doubts and would give the issue more thought. I wonder whether the Minister has given the matter more thought and come to a different conclusion.

Vera Baird (Labour, Redcar)

It is true that the extra words are in the 1985 Act, but where appropriate the Bill uses clearer and more succinct wording. The policy is that the companies to which the clause applies should use all the money they have available in promoting their objects, and it is our considered view—even our reconsidered view—that the word “income” is sufficiently general in the context to cover moneys received on the sale of assets, for instance. Indeed, it is better, because on a sale of, say, land, we would want all the money from the sale to be applied to a company’s charitable or similar purposes, not just the capital profit element.

My noble Friend Lord McKenzie wrote to Lord Hodgson on the subject. A copy of the letter is in the House Library and I will supply one to the hon. Gentleman if he would like. I apologise that that has not been done already. Lord McKenzie said:

“A company’s profit (or loss) for a financial year is the result of deducting expenses and other losses from the income of the company, i.e. it is a net figure. Take for example a profit on disposal of a fixed asset. FRS 3 defines this as ‘...the difference between the net sale proceeds and the net carrying amount, whether carried at historical cost (less any provisions made) or at valuation’. We do not think it is appropriate to restrict the duty to use money to promote the company’s objects to this net figure. The policy is that all the money from the sale should be used to promote the objects of the company”.

James Brokenshire (Conservative, Hornchurch)

I am grateful for the Minister’s clarification and her offer to supply that letter. In light of her comments, I beg to ask leave to withdraw the amendment.

Clause 64

James Brokenshire (Conservative, Hornchurch)

I beg to move amendment No. 126, in clause 64, page 25, line 36, leave out ‘section 62 or 63' and insert ‘section 61(1)(c)'.

This is a technical amendment relating to cross-referencing. In clause 64(1), reference is made to exemption from using the name “limited” being granted under clauses 62 or 63. From my reading of the clause—I would be grateful if the Minister would correct me if this is not the case—it would seem that the operative clause is clause 61, as clauses 62 and 63 merely state conditions that are required to be met in order to satisfy clause 61. Accordingly, amendment No. 126 confirms that exemption is granted by virtue of clause 61(1)(c).

Vera Baird (Labour, Redcar)

I think that we can all agree that the Bill should be as clear and accessible as possible. However, I do not think that the amendment adds to the clarity because the drafting makes the position reasonably clear. The restriction on changing the articles imposed by the clause applies to companies of the kinds described in clauses 62 and 63. I would venture to suggest that the existing wording makes it rather plainer than the suggested alternative. However, I am grateful that the issue has been raised as it meant that I read the sequencing again. I am satisfied that it is right as it is drafted.

James Brokenshire (Conservative, Hornchurch)

I am grateful to the Minister for that comment. I think that she used the words “getting it nearly right”, or something along those lines. I apologise if I misquote her. I should like to get the clause as right as we possibly can. Although I hear what she said about being satisfied that it reflects the situation accurately, I ask her and her team to give it further thought. I would rather not press such an issue to a Division, but I should be grateful for some further reflection. I beg to ask leave to withdraw the amendment.

Clause 65

James Brokenshire (Conservative, Hornchurch)

I beg to move amendment No. 127, in clause 65, page 26, leave out lines 44 and 45.

Clause 65 deals with a situation in which a company is no longer entitled to rely on an exemption permitting it to dispense with the word “limited” or an appropriate equivalent in its name. The clause gives the Secretary of State the right to give the relevant company a direction in writing—we shall return to this later—to change its name so that it ends with “limited”.

Subsection (3) states that a change of name to give effect to that requirement

“may be made by resolution of the directors.”

That is a departure from the normal approach, whereby a company changes its name by special resolution of its members, but reflects the existing regime under section 31 of the Companies Act 1985. However, the Companies Act did not see the need for the additional language that my amendment seeks to delete. The use of the words

“a change of name...may be made”

makes it clear that it is not an exclusive route and that a change of name by other means would still be allowed. Accordingly, I think that the additional words are otiose and can be safely deleted with the intent of slimming down this very large Bill.

Vera Baird (Labour, Redcar)

The amendment would create uncertainty, and the sentence that it seeks to delete is necessary. The company will be able to comply with a direction to change its name more quickly if the directors can change the name, as clause 65(3) provides, rather than having to go through the rigmarole of a special resolution.

The words that the amendment would remove will prohibit the change from being made by a special resolution, for instance. The clause says:

“A change of name in order to comply...may be made by resolution of the directors”,

but that is

“without prejudice to any other method”

of doing it. If we remove that, does it not become the case that it can only be done in that way? However, I see the argument that the word “may” is important in that context.

The amendment would remove the alternative methods of changing a name, and we want them to work for purposes of compliance with a direction. We shall come later, during debate on another amendment, to the point of principle whether a change of name should generally occur by special resolution, but the Government suggest that that part of the clause is important and that its removal would generate uncertainty. I invite the hon. Gentleman to withdraw the amendment.

James Brokenshire (Conservative, Hornchurch)

It sounds as though we are straying into a debate on “may” versus “shall”, which was debated in a different context in the other place. The word “shall” would have excluded other means of changing a name, whereas the word “may” is permissive and will not exclude, for example, the use of a special resolution. However, I hear what the Minister has said. In the interest of proceeding to other matters, I beg to ask leave to withdraw the amendment.

Clause 67

James Brokenshire (Conservative, Hornchurch)

I beg to move amendment No. 129, in clause 67, page 28, line 16, at end insert—

‘(6) Nothing contained in this section shall prohibit or inhibit an objection under section 70.'.

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to discuss the following: Clause stand part.

Amendment No. 130, in clause 68, page 28, line 22, leave out from ‘names,' to end of line 23.

Clause 68 stand part.

Amendment No. 131, in clause 69, page 28, line 42, after ‘be', insert ‘in writing and'.

Clause 69 stand part.

Amendment No. 132, in clause 70, page 29, line 18, after ‘name', insert ‘or incorporates a name'.

Amendment No. 133, in clause 70, page 29, line 19, after ‘goodwill', insert ‘in the United Kingdom'.

Amendment o. 134, in clause 70, page 29, line 22, after ‘applicant', insert

‘provided that the applicant was using such name in the United Kingdom at that time.'.

Amendment No. 135, in clause 70, page 29, line 23, at end insert

‘within twelve months of the company's registration with the relevant name'.

Amendment No. 252, in clause 70, page 30, line 2, after ‘upheld', insert —

‘(i)'.

Amendment No. 253, in clause 70, page 30, line 5, at end add

‘or

(ii) if the activities of the company using the registered name would be likely to deceive members of the public or to cause loss or damage to persons dealing with the company.'.

Amendment No. 136, in clause 70, page 30, line 6, at end insert—

‘(6A) Without prejudice to the foregoing provisions of this section, in the event that all of the circumstances contemplated in subsection (8) are satisfied, an applicant may apply to a company names adjudicator for an interim order under this subsection.

(6B) The circumstances referred to in subsection (7) are that—

(a) the applicant is a company whose shares are listed on a regulated market;

(b) the applicant has published a circular to shareholders incorporating a resolution proposing to change its name to a particular name (a “relevant name”); and

(c) a company (the “respondent”) has been incorporated with the relevant name or changed its name to the relevant name in either case on or after the date of publication of the circular referred to in subsection (8)(b).

(6C) If an application for an interim order is made and the adjudicator is satisfied that the provisions of subsection (8) are satisfied, the adjudicator shall make an order requiring the respondent to change its name to a name specified by the adjudicator.

(6D) The adjudicator must give notice of his interim order—

(a) to the applicant;

(b) to the respondent; and

(c) to the registrar.

(6E) Upon the presentation by the applicant to the registrar of an official copy of the interim order together with all other documents contemplated by section 78 (Change of name by special resolution), and the registrar is satisfied that—

(a) the relevant name complies with the requirements of this Part, and

(b) the requirements of the Companies Acts and any relevant requirement of the applicant's articles, with respect to a change of name are complied with,

the registrar must enter the relevant name as the new name of the applicant and enter the name set out in the interim order as the new name of the respondent on the register in place of the former names of the applicant and respondent respectively.

(6F) On the registration of the new names, the registrar must issue a certificate of incorporation to each of the applicant and the respondent altered to meet the circumstances of the case.

(6G) The making of an interim order shall be without prejudice to any other legal rights of the applicant or respondent or any application by the respondent under subsection (1).'.

Amendment No. 137, in clause 70, page 30, line 7, after ‘section', insert ‘and in section 73'.

Amendment No. 60, in clause 70, page 30, line 7, at end insert—

‘(8) In this section “start-up costs” shall be considered “substantial” in relation to the annual revenue and assets of the company.'.

Clause 70 stand part.

Amendment No. 138, in clause 73, page 31, line 20, after ‘application', insert

‘other than an application for an interim order'.

Amendment No. 264, in clause 73, page 31, line 20, leave out subsection (1) and insert—

‘(1) If an application under section 70 is upheld, the adjudicator shall make an order, either—

(a) requiring the respondent company to change its name to one that is not an offending name, and requiring all respondents—

(i) to take all such steps as are within their powers to make, or facilitate the making of that change, and

(ii) not to cause or permit any steps to be taken calculated to result in another company being registered with a name that is an offending name, or

(b) requiring the respondent company to undertake to the applicant and to the Secretary of State not to operate under the registered name in connection with such activities as may be specified in the order.'.

Amendment No. 139, in clause 74, page 32, line 6, at beginning insert

‘Other than in the case of an application for an interim order,'.

James Brokenshire (Conservative, Hornchurch)

I shall speak to amendmentNo. 129 and all the amendments that are grouped with it as they largely relate to the mechanism for objecting to a company’s name under the new procedure set out in clause 70 onwards. I shall also make some more general points about clause 70 as part of the stand part debate.

Clause 67 states at the outset:

“A company must not be registered under this Act by a name that is the same as another name appearing in the...index of company names.”

It then states:

“The Secretary of State may make...regulations supplementing this section”

so that certain words, symbols, signs and other matters can be disregarded for purposes of the section, and so that

“registration by a name that would otherwise be prohibited...is permitted”.

I am concerned that the Secretary of State’s approval of a name by virtue of this clause could be seen to override the rights, or question the ability of another person to have such rights, in connection with that name or a similar name, to challenge the granting of the name under clause 70. Accordingly, amendment No. 129 seeks to clarify the point to avoid any confusion.

Clause 68 gives the Secretary of State power to direct a company to change its name if it has been registered in a name that is the same as, or in the opinion of the Secretary of State, too like a name appearing on the register or a name that should have appeared on the register. My concern is the last point: which names should appear on the registrar’s index of companies that are not there? Amendment No. 130 seeks the deletion of those words, but I would in any event be interested to hear from the Minister the circumstances that are contemplated by them. It seems odd to legislate for something that should be there but is not. I certainly would not wish to set a dangerous precedent for other legislation by letting this pass me by; hence the reason for flagging up the point and tabling the amendment.

I would also be interested in the Minister’s views on how the clause would interrelate with clause 70 and the mechanism for the new company names adjudicator. Is it envisaged that a party could apply to the Secretary of State under clause 68 and to the adjudicator under clause 70 at the same time? Who would take precedence in such a situation? How would any issues or disputes be resolved if a twin-track approach were taken? It is worth gaining clarity on the issue so that we can best understand the interrelationship between the two different regimes. It appears that they could be used on the same occasion, and that could lead to confusion.

Amendment No. 131, the words of which are repeated in some subsequent amendments, seeks to impose uniformity on the form that a direction from the Secretary of State should take. I mentioned earlier that clause 65 makes it clear that a direction from the Secretary of State in that context should be in writing, and I note that clause 75 also specifies that a direction should be in writing, yet that requirement is missing here. I believe that all such directions should be written, given the potential sanction imposed for a breach. Amendment No. 131 would address that point.

Clause 70 relates to the new mechanism to enable a person to raise with one of the new company names adjudicators an objection to a company using a particular name. Before developing some points and discussing the amendments proposed to the clause, I want to say that I welcome the concept of creating a means of challenge and the ideas that lie behind the clause and the various provisions that feed into it. There are cases of names being used inappropriately and companies to a certain extent being held to ransom, so it is important that there is a means of more direct redress in the Bill. However, my comments will relate to the mechanics of the structure in the Bill. As currently drawn, that may be somewhat cumbersome and time consuming and may lead to unintended consequences.

Let me deal with a more technical point first. Amendment No. 132 is designed to clarify that, for a person to object, the company does not have to have exactly the same name, which is what the wording of clause 70(1)(a) seems to suggest. The amendment would make it clear that, if a company had incorporated a name associated with the applicant in which he had goodwill, that would give grounds for an objection. Another aspect that concerns me is that there appears to be no requirement for the applicant seeking to raise an objection to have any current or direct interest in the UK.

I shall give an example and I hope that you will excuse me, Mr. Illsley, if I take your name in vain for this limited purpose. Illsley Retailers could be a large international company that had not yet established a presence in the UK. Illsley Retailers Ltd. could be a small high street store—say on Hornchurch high street in my constituency—which has just set itself up, completely oblivious of the existence of Illsley Retailers, the large international concern. The international company is able to show that it has goodwill in its name and that the name of Illsley Retailers Ltd. is sufficiently similar to suggest a connection with the international company, thereby, in my view, satisfying clause 70(1) and enabling the large international company to argue that it is considering establishing a new chain of stores in the UK, giving it the potential right to raise an objection.

If that happened, the now quaking Illsley Retailers Ltd.—the new and small UK company with only limited resources available to demonstrate its situation under clause 70(4) so as to fend off the objection being upheld automatically—would have to try to demonstrate that it did not know of the large international company so as to deprive it if it subsequently wanted to register the name. The costs of that could be significant, and there might be an inequality of arms between the parties that could lead to the smaller firm being intimidated into changing its name, even though it did not intend to contravene clause 70 and even though that action would cause damage to its own goodwill.

I give that example with regard to ensuring that there is a direct link to the UK. I think that the intention behind the drafting is to deal with issues of uncertainty and with something that is misleading. However, the existing wording does not seem right to me, so amendments Nos. 133 and 134 are designed to make it clear that there has to be a strong connection between the applicant and its use of its name and goodwill in the UK.

It also seems odd that the right of objection is completely open ended. There is no limitation period at all, and I believe that an appropriate long-stop date for a challenge should be incorporated to provide certainty about this area of law and to facilitate speed of administration in respect of company names and their use. Amendment No. 135 therefore proposes a limitation period of 12 months from the date of registration of the offending company name.

Amendment No. 137 is a technical amendment to ensure that the definition of “goodwill” in clause 70(7) also applies to clause 73 where it is also used. However, it would be helpful if the Minister could tell us whether any further guidance will be forthcoming on the meaning of “goodwill” as referred to in this subsection as the CBI has stated that it would be useful to give a clearer indication as to the matters that would be covered. For example, would a registered trademark currently in use be regarded as meeting the definition? It would certainly be helpful if some further clarification or guidance could be offered.

Amendment No. 60 seeks to clarify the reference to “start-up costs” in clause 70(4)(b)(ii) and to give some context to the term by making reference to the company’s annual revenue and assets. Without this, it seems that the reference to start-up costs could be highly subjective and uncertain, and I note that the Secretary of State has not reserved a specific right to give guidance on this term under clause 72.

We come back to amendment No. 136 and the insertion of a new mechanism for seeking an interim order. These new provisions are intended to address what I see as one of the real loopholes that the current law allows and that the Government’s proposals appear to fail to address adequately and in a timely manner even though this is precisely the type of case that the mechanism is intended to address.

Let us take the example of a public company that is in the middle of a transaction, such as a reverse takeover where it is acquiring another company, part and parcel of which will incorporate a resolution approving that transaction. In the light of the different status of the new enlarged company, it might to seek to change its name at the same time and will therefore issue a circular to its shareholders seeking the permission to proceed with the transaction, but also seeking permission to change its name. Therefore a document is published, a circular is sent to shareholders giving the background to the transaction and also seeking their approval to pass a special resolution to change the name of the company.

In those circumstances what commonly happens is that a separate limited liability company is set up and the resolution is passed and a similar resolution is also passed in the new limited liability company. Both resolutions and the supporting documentation are filed at the same time with the registrar of companies so, in essence, there is a simultaneous change of name. There is therefore no doubt that the new plc seeking to change its name is not entitled to do so by virtue of an existing company having the self-same name on the index of companies maintained by the registrar.

However, that does not always happen. I am aware of circumstances from my experience before entering the House where the limited liability company may not have been established. There are people who monitor such issues quite carefully and who then establish a new limited liability company using the name that the public company was seeking to adopt following on from the change of name. Challenges have been brought through legal proceedings, but customarily in those circumstances, given the possible time constraints and the potential embarrassment to any parties involved, a commercial arrangement is reached to secure the name that the plc was seeking to adopt by virtue of its proposals.

Clearly, as the timetable for an EGM is 21 days, that does not give a huge amount of time to make any changes and to ensure that one can secure the new name after the successful passing of the resolution by the shareholders. Obviously when one is talking about a plc, one is talking about filing with the London stock exchange and therefore the high-profile nature of what is contemplated.

Under the current procedure, one is required to seek the permission of the company names adjudicator to change a name. It seems that one would have to go to court if the name was not changed; there is no automatic provision for an offending company to change its name. The risk is that it could be expensive for relevant companies, hence the proposal for an interim order procedure as proposed in amendment No. 136.

I do not intend to take up the Committee’s time going through the provisions of amendment No. 136 in detail, but in essence it would allow a plc to challenge the use or registration of the new name if it took place after the publication of the relevant circular. It would ensure a swift challenge. The mechanism would allow a means of addressing the ills that are likely to occur within the likely time scale.

It is a question of balancing the risk. Amendments Nos. 136, 138 and 139 would allow that to be done more effectively. It is worth noting that if there was a subsequent dispute about who has goodwill and so on, it would be possible to seek a challenge through other procedures contained in the Bill.

I appreciate that I have already taken some time, but I want to deal briefly with some concerns raised by the CBI in connection with clause 70, which are dealt with in amendments Nos. 252, 253 and 264. Amendments Nos. 252 and 253 seek to make a further addition to clause 70(5). That clause deals with a situation in which the main purpose of registering a name is to obtain money or other consideration from the applicant, or to prevent him from registering the name. In those circumstances, even if the relevant exemptions in paragraphs (a), (b) or (c) of subsection (4) would otherwise apply, an objection to a company names adjudicator would be upheld.

However, the CBI believes that further amendment is necessary to mitigate the impact of the exemption in clause 70(4)(b)(ii) that a company is already operating under a relevant name. Amendments Nos. 252 and 253 would provide for a situation where consumers and members of the public, and those actually dealing with or trading with a company, could be misled into thinking that they were receiving information about or dealing with a well-known company when they were not.

The CBI states that if such a change was adopted, it would save many well-known companies significant amounts of management time and costs often exceeding £100,000 each year in getting misleading company names withdrawn or changed. Although some remedies exist in law for passing off and for breach of trademark, companies will save significant sums if company law is brought to bear and made more effective. It would also help legitimate companies rightly concerned about damage to their reputation.

Amendment No. 264 makes a slightly different point, as it addresses the potential orders that a company names adjudicator could make. The CBI describes the current order-making power as “seriously inadequate”. In many cases, the goodwill attached to a name applies only in a particular field or area of business that reflects the type of activities undertaken by the relevant company. Except when a name is particularly well-known, the use of a name outside a specified area of activity may not be said to mislead.

Amendment No. 264 would therefore give the adjudicator discretion in appropriate cases to allow the respondent company to retain the disputed name as its own, but on the condition that it is required not to operate in the relevant fields of activity if confusion could arise as a result of the applicant’s goodwill in that particular business area. That seems a practical proposal which would address the concerns of the applicant, yet it would not unduly penalise a respondent company.

Quentin Davies (Conservative, Grantham and Stamford)

I want to speak to amendments Nos. 252 and 253 in my name. I am grateful to my Front-Bench colleagues for having added their names to those amendments.

As my hon. Friend said, clause 70 in its present form is somewhat inadequate. Subsection (1)(b) provides some protection for a company that finds someone else using its name or a name very close to it such that potential customers are easily deceived into believing that they are dealing with a company whose goodwill already exits, when in fact they are not. That is a real danger that we come across in many contexts, and which gets worse with the growth of internet trading. Company law should provide a protection or remedy against that.

Clause 70 is rather convoluted. It starts by stating that there will be some protection, but then withdraws a lot of that in subsection (4), which provides for six grounds—I think—on which a company complained against for having borrowed another company’s name or for trading under one that is excessively close to it, can raise an excuse. If they can do that, there is no such protection for the person complaining. That is not adequate.

Subsection (5) then adds a new protection against explicit intent to blackmail a company with substantial goodwill by setting up and trading under another with the same or similar name simply to force the first company to buy it in. It is in the public interest to exclude such blackmail or greenmail, which is the purpose of subsection (5).

The provisions do not, however, go to the heart of the real abuse or evil. They do not mention public protection. As my hon. Friend mentioned, the CBI inspired such an initiative. Protection of the public is our greatest concern and we must address it. My amendment No. 253 therefore adds the criterion:

“if the activities of the company using the registered name would be likely to deceive members of the public or to cause loss or damage to persons dealing with the company.”.

That is the essence of the abuse, against which the public need to be protected, and it needs to be in clause 70 explicitly and none of the potential excuses in subsection (4) should be able to override it.

I hope that the Committee agrees that the amendment is sensible and makes it clear what the main purpose of the protection should be. The clause does not mention public interest, and it should. So far, protection in company law against that form of abuse is inadequate.

Vera Baird (Labour, Redcar)

I am grateful for the clarity with which Opposition Members have reasoned their amendments. I shall start by separating the purposes of clauses 67 and 70. I think that that is where the hon. Member for Hornchurch started.

Clause 67 provides the rules under which a proposed name is to be compared with existing names to determine whether it is the same and thus should be prohibited. For example, “bricks and mortar” would be treated as being the same as “brick sand mortar”, and therefore the second name would not be permitted. It would not even make it on to the register. That is the important point.

Clause 70 provides for objections to a name already registered on the grounds that it either is the same as the name in which the objector has goodwill, or is so similar as to suggest a connection between the company and the objector. I agree that it would be wrong if the rules under clause 67 restricted the scope of objections under clause 70. However, the purpose of clause 70 is to provide for objections to names already permitted—it has got over the hurdles in clause 67—so I think that the drafting is clear.

Amendment No. 130 focuses on a real difficulty with rules on company names regarding names that should have been on the register, but were not. I was asked about how that situation could arise. I suppose the subtext could be, “Was it because of inefficiency?” Perhaps, that was implied in the question.

Standing Committee D

Clause 67

Eric Illsley (Labour, Barnsley Central)

I remind the Committee that with this we are discussing the following: Clause stand part.

Amendment No. 130, in clause 68, page 28, line 22, leave out from ‘names,' to end of line 23.

Clause 68 stand part.

Amendment No. 131, in clause 69, page 28, line 42, after ‘be', insert ‘in writing and'.

Clause 69 stand part.

Amendment No. 132, in clause 70, page 29, line 18, after ‘name', insert ‘or incorporates a name'.

Amendment No. 133, in clause 70, page 29, line 19, after ‘goodwill', insert ‘in the United Kingdom'.

Amendment No. 134, in clause 70, page 29, line 22, after ‘applicant', insert

‘provided that the applicant was using such name in the United Kingdom at that time.'.

Amendment No. 135, in clause 70, page 29, line 23, at end insert

‘within twelve months of the company’s registration with the relevant name’.

Amendment No. 252, in clause 70, page 30, line 2, after ‘upheld', insert —

‘(i)'.

Amendment No. 253, in clause 70, page 30, line 5, at end add

‘or

(ii) if the activities of the company using the registered name would be likely to deceive members of the public or to cause loss or damage to persons dealing with the company.'.

Amendment No. 136, in clause 70, page 30, line 6, at end insert—

‘(6A) Without prejudice to the foregoing provisions of this section, in the event that all of the circumstances contemplated in subsection (8) are satisfied, an applicant may apply to a company names adjudicator for an interim order under this subsection.

(6B) The circumstances referred to in subsection (7) are that—

(a) the applicant is a company whose shares are listed on a regulated market;

(b) the applicant has published a circular to shareholders incorporating a resolution proposing to change its name to a particular name (a “relevant name”); and

(c) a company (the “respondent”) has been incorporated with the relevant name or changed its name to the relevant name in either case on or after the dateof publication of the circular referred to insubsection (8)(b).

(6C) If an application for an interim order is made and the adjudicator is satisfied that the provisions of subsection (8) are satisfied, the adjudicator shall make an order requiring the respondent to change its name to a name specified by the adjudicator.

(6D) The adjudicator must give notice of his interim order—

(a) to the applicant;

(b) to the respondent; and

(c) to the registrar.

(6E) Upon the presentation by the applicant to the registrar of an official copy of the interim order together with all other documents contemplated by section 78 (Change of name by special resolution), and the registrar is satisfied that—

(a) the relevant name complies with the requirements of this Part, and

(b) the requirements of the Companies Acts and any relevant requirement of the applicant's articles, with respect to a change of name are complied with,

the registrar must enter the relevant name as the new name of the applicant and enter the name set out in the interim orderas the new name of the respondent on the register in place of the former names of the applicant and respondent respectively.

(6F) On the registration of the new names, the registrar must issue a certificate of incorporation to each of the applicant and the respondent altered to meet the circumstances of the case.

(6G) The making of an interim order shall be without prejudice to any other legal rights of the applicant or respondent or any application by the respondent under subsection (1).'.

Amendment No. 137, in clause 70, page 30, line 7, after ‘section', insert ‘and in section 73'.

Amendment No. 60, in clause 70, page 30, line 7, at end insert—

‘(8) In this section “start-up costs” shall be considered “substantial” in relation to the annual revenue and assets of the company.'.

Clause 70 stand part.

Amendment No. 138, in clause 73, page 31, line 20, after ‘application', insert

‘other than an application for an interim order'.

Amendment No. 264, in clause 73, page 31, line 20, leave out subsection (1) and insert—

‘(1) If an application under section 70 is upheld, the adjudicator shall make an order, either—

(a) requiring the respondent company to change its name to one that is not an offending name, and requiring all respondents—

(i) to take all such steps as are within their powers to make, or facilitate the making of that change, and

(ii) not to cause or permit any steps to be taken calculated to result in another company being registered with a name that is an offending name, or

(b) requiring the respondent company to undertake to the applicant and to the Secretary of State not to operate under the registered name in connection with such activities as may be specified in the order.'.

Amendment No. 139, in clause 74, page 32, line 6, at beginning insert

‘Other than in the case of an application for an interim order,'.

Vera Baird (Labour, Redcar)

I had dealt with amendment No. 129 and moved on to amendment No. 130, but I shall interpolate a comment on the matter of the twin-track clash between clauses 70 and 78 that the hon. Member for Hornchurch (James Brokenshire) asked me to address. If a company is not required to change its name under one provision, that will not affect the possibility of its being required to do so under another. The clauses cover separate situations.

The Opposition’s amendment No. 130 is on a difficult matter. It probes why we have included a paragraph covering not names that were on the register but those that should have been. Clause 752 states that the registrar’s index of company names must include names of various bodies other than companies, including limited partnerships, European economic interest groupings registered in the UK and industrial and provident societies. The rules relating to the names of such bodies are not exactly the same as those for companies, but they still appear on the registrar’s index. Whereas companies’ names appear on the index immediately upon being taken, that is not the case for the other bodies. That is becoming less of a problem thanks to electronic communication, but the fact remains that a name may have been adopted but not yet arrived on the index because of the different procedures. It helps the public if the registered names of a wide range of business organisations are unique, and if there are two very similar ones on the index it makes searching for information difficult. If a company takes a name very similar to one that should be on the register but is not yet, it is in the public interest that a change of name be required.

Such a situation arises rarely, but it is important that the facility to direct changes of name remains available, which is why the clause keeps the power in the Companies Act 1985. I agree that it is a pity that we still need that power, but removing it would make the situation worse because there could be two bodies called Whatever Ltd. I hope it deals with the hon. Gentleman’s point to say that there is a mismatch between the procedures for companies and those for non-companies that have to be on the register, creating the possibility of a name that should have been there being taken by someone else.

Amendment No. 131 relates to whether directions given under clause 69 should be in writing. We agree that it is better for all directions to be made in writing and I ask the hon. Gentleman not to press the amendment on the understanding that we will look again at the matter. Parliamentary counsel might advise that a wrapping-up clause be included at the end of the Bill to say that all directions must be in writing, or that the instruction should be added to clause 69. We accept the spirit and substance of the amendment.

On amendment No. 132, we intend that it will be possible under clause 70 to object to a name that incorporates another. Subsection (1)(b) covers the problem that the hon. Gentleman pinpointed in the amendment. It is true that subsection (1)(a) states that it is intended to cover a name that is

“the same as a name associated with the applicant”

but subsection (1)(b) makes it clear that any name is included that is “sufficiently similar” that its use would be likely to mislead. We feel that the matter is adequately covered without the amendment, which does make a good point that needs emphasising. It need not be exactly the same words but just to have a very close similarity.

We are introducing the procedure in clauses 70 to 74 to address the problem of opportunistic registration, referred to by Opposition Members, by which I mean the sharp practice of registering a company in a name that the opportunist realises is about to be used by someone else.

I understand that when Glaxo and Wellcome plcs held merger negotiations someone registered a company in the name of Glaxo Wellcome Ltd and then sought to bargain with those plcs for the release of the name. Clearly, that was an abuse of the registration process. It would have been equally so had the registration been because the opportunist believed that a company big outside the UK was about to establish itself here.

Having explained the purpose of the clauses, I shall deal with amendments Nos. 133 and 134, which attempt to limit the application of the clauses to a name that had goodwill in the UK only. As I said, it would be equally opportunistic and an abuse of the procedure if someone registered the same name as one big outside the UK because he believed that it was about to establish itself here, under provisions in the clauses. If the owner of the big name were able to show that the main purpose behind that choice of name was to get money from him, or to prevent him from registering, the adjudicator may uphold his objection and require the other company to change its name. That is a pragmatic solution to a real problem.

I have been asked to make it plain that we are indebted to Mr. Mendelsohn, a lawyer, who suggested that solution to the company law review. It was a bright idea indeed.

Restricting the grounds for an objection to goodwill in the UK, as amendments Nos. 133 and 134 would do, would reduce the usefulness of the clause for no purpose. I hope that the hon. Gentleman will not press those amendments.

I turn to the time limit provision in amendmentNo. 135. If we set a time limit of one year, the canny opportunist would simply not approach the person whose goodwill he intends to exploit until the 366th day, the 367th day in a leap year. I understand that the hon. Gentleman is concerned that the absence of a time limit might expose an innocent company to an application under the clause. However, subsection (4) provides the appropriate protection. If a company is operating under a particular name, or has incurred substantial start-up costs, the objection to the name, in order to be upheld, would have to show that that name was chosen only to obtain money from the objector. That protection is better than a time limit, which is fallible, so we invite him to think that companies will be adequately protected against that danger, and not to press the amendment.

I turn to amendments. Nos. 252 and 253, proposed by the hon. Member for Grantham and Stamford(Mr. Davies), and supported in the Committee by his hon. Friends. The Bill is not intended to address wrongs to which there are remedies under other legislation. The amendments argue that there might be a problem with unscrupulous persons causing public harm by trading as a company registered in a name that misleadingly suggests a connection to someone more reputable. We are not sure that there is a gap or, if there was, that the amendment would be the right way to address it. However, we think that there is something for us to look at here.

We respectfully invite the hon. Member for Hornchurch, on behalf of his colleague, not to press amendments Nos. 252 and 253, which I think arrived on the scene fairly recently anyway—about a week ago—and to give us an opportunity to seek to plunge whether there is an issue, and how to tackle it if there is. Obviously, we would appreciate any help that Opposition Members can give us in that process.

Amendments Nos. 136, 138 and 139 introduce an interim procedure to protect plcs quoted in the amendment—I think—from the threat of such opportunism if they circulate their new name to their membership. The kind of plcs that would benefit from the amendments ought to incorporate a company in the relevant name before they send the circular out—they could just buy a Jordan’s company for £20—and thereby get away from the danger that they put themselves in by tackling it from the opposite point of view. If, however, that is not done, we do not see the need for the hon. Gentleman’s interim procedure, which gives a final outcome, because the whole of this section is intended to deal with the very problem that his procedure would address. He is offering an alternative, and we think that ours is better. The framework that we have set up provides the extra assurance that, in order to prevent their names from being poached companies simply need to incorporate.

On amendment No. 137, it might help if I explain the context in which goodwill is used in clause 73. The hon. Gentleman wanted a definition, and asked whether having a trademark would be sufficient to constitute goodwill. I omitted over luncheon to find out the answer to that. I shall either get one now or write to him. As it is used in clause 73, goodwill is about what happens when an application to an adjudicator is successful. He might order the company to change its name, but there will be restrictions on what it can change it to, because it will not be allowed to change to something that is just as bad, from the point of view of the objector, as the name that has just been disallowed. The restrictions are made by reference to, as clause 70 puts it, the

“name associated with the applicant in which he has goodwill”.

The circle is complete. It is evident from the legislation—I cannot find an alternative meaning—that what is intended is that somebody who is ordered to change a name because it is too close to the name associated with the applicant in which he claims goodwill cannot change it to something else that is associated with the applicant in which he claims goodwill. There is no need for any further clarity. I can now tell the hon. Gentleman that it is intended that a trademark should be sufficient to trigger goodwill. I am glad that I remembered that.

Amendment No. 60 concerns the substantial start-up costs mentioned in clause 70(4)(b)(ii). It aims to define what substantial means in terms of start-up costs, and seeks to link them to the assets and annual revenue of a company. That is unlikely to be relevant to many start-ups. What will happen, as is evident from the legislation, will be that the adjudicator will consider whether the company in question has paid out substantial start-up costs. It would be silly if substantial meant £10,000 or any fixed definition. It is far better for the adjudicator to be free to look at the specific company and to say whether he considers that the start-up costs have been substantial in that context. The position is clear, and the Bill is long enough without adding anything extra to it.

The procedure is intended to address opportunistic registration. It is not intended to be an alternative to any existing remedy under the law on trade marks and passing off in relation to names that people might want because of a merger or because they are converting their business to a liability partnership. Amendment No. 264 would create an easy means of preventing a company from trading under a particular name in the context of passing off, and that is not what this measure is about. I have given clear undertakings on amendments Nos. 131, 252 and 253, and I hope that the hon. Gentleman is satisfied with my explanations and will not press his amendments.

James Brokenshire (Conservative, Hornchurch)

I am grateful to the Minister for that full response, and I note what she said in relation to clause 67 and amendment No. 129, and the fact that it is intended to stop companies getting on the register in the first place. In some ways, I was focusing on the word “registered”, which was deemed to mean both incorporation and change of name when we debated it earlier. I wanted to give the contextual position of it meaning both circumstances. A little reflection on that might avoid any confusion.

Vera Baird (Labour, Redcar)

I am sorry that I had not realised that part of the thrust of the amendment is the same point that we debated on Tuesday. The same answer applies as applied then; this is about becoming registered. It is not about continuing to be registered.

James Brokenshire (Conservative, Hornchurch)

I am grateful to the Minister for that intervention, but in our debate on Tuesday we suggested that the point covers both circumstances. The thrust of my amendment is based on the fact that this is not just a pre-incorporation situation. It perhaps underlines the thrust of my original amendment, which suggested that the word “registered” might need to be looked at carefully in terms of the context in which it arises.

The same point that I made on amendment No. 129 arises in part on clause 68: we did not discuss the Secretary of State’s power to direct a company to change its name if it has been registered in a name that is the same or similar. There is some crossover between that and clause 70 and the twin-track approach. The Minister says that there should not be a problem but I think it needs a further cold towel to ensure that the interrelationship between the clause 68 regime and the clause 70 regime works effectively and that there is no misuse.

I will not press amendments Nos. 129 and 130. I hear what the Minister says about the fact that non-companies could appear on the index and I am grateful for her explanation. I still feel that that should be speeded up and that any gap or potential issue is reduced as much as possible because clearly it is not in the interest of a company seeking to register if, having done its search of the index of names, discovered nothing, it then finds out that there was a problem. That would be unacceptable.

I am grateful for the Minister’s comments on amendment No. 131. I agree that it is a matter for the parliamentary draftsmen to look at the most effective way of dealing with the “in writing” point. If later in the Bill it could be stated that directions from the Secretary of State in all circumstances shall be in writing, it would save us having to put “in writing” in each context in which it arises. I respect the way that the Minister addressed that amendment.

I note what the Minister said about linkage with the UK. All I would ask is that the issue be kept under close scrutiny. I would not like to think that this power was misused or used in a way that was not currently anticipated and that a creditor from outside the United Kingdom could seek to use its powers to intimidate and put pressure on the smaller company in this country and use the sort of inequality of arms argument to which I alluded. Again, I am grateful for her response. We will need to keep the matter under close observation. I also note the Minister’s comments on amendments Nos. 252 and 253, which were prompted by concerns raised by the CBI. I am grateful for her assurance that this matter will be looked at in further detail and therefore I look forward to receiving further information and details in that regard.

The one area on which I am not satisfied relates to amendments Nos. 136, 138 and 139 and the proposal for an interim order. I hear what the Minister says about a company’s ability to protect its position by incorporating a limited liability company and undertaking the name swap that I mentioned.

This tranche of clauses is intended to protect against opportunistic registration in circumstances where the respondent’s main purpose in registering the name is to obtain money from the applicant or prevent him from registering the name. I find it extraordinary that having been presented with a serious problem that unfortunately occurs fairly frequently, the Government are not minded to consider the issues that I alluded to in my opening comments. Why should they not also address the problem of opportunistic registration instead of saying, “Sorry, you’ve just got to register a limited liability company and that’s it.”?

Jonathan Djanogly (Conservative, Huntingdon)

My hon. Friend makes a persuasive argument. The Minister spoke about the ability to set up another company and name swap, which is used daily throughout the country. Thousands of companies, if not tens of thousands, exist simply because of a name swap. That distorts the picture of how many companies we have and for what purpose they exist, but it is also a huge waste of resource, and indeed civil service resource, to wind such things up when they are not needed.

James Brokenshire (Conservative, Hornchurch)

I am grateful to my hon. Friend for his intervention. The drafting of the amendments is quite narrow and meant to cover a specific problem. Therefore, it is surprising that the suggestion is, “You’ve just got to do what you should have been doing in the first place.” It is recognised that that is what companies could do to protect themselves, but if a company is being opportunistic and using this as a mechanism to extort money—it does happen—it is unfortunate that the Government will not take that serious issue on board. I am therefore minded to press the relevant amendment to a Division.

Vera Baird (Labour, Redcar)

I did mention the potential that the hon. Member for Huntingdon talked about. It is used, and it is not very resource intensive—it costs about £20—but he has a point about winding up such affairs at some stage.

I also said that if that has not been done and there is a challenge, whether before or after a circular has been published, that is what the proceeding in the statute is all about. Nothing would be added by the amendments. To call this an interim procedure is not realistic, because if the adjudicator is satisfied that opportunism exists, he “shall” make an order

“requiring the respondent to change its name”.

It is a final law, just like the one in the statute. Why is the amendment better?

James Brokenshire (Conservative, Hornchurch)

I am grateful to the Minister for clarifying her thoughts. The concept that this is an interim measure would have ensured that it was shown to enable a formal challenge under the more general clause 70 regime, so that a plc in those circumstances could seek redress with the speed anticipated by the clause. A more wide-ranging debate on goodwill could happen thereafter. In terms of the balance of risk and harm, the interim order would work by addressing the larger evil in such circumstances.

I fear the Government’s good intentions to deal with opportunistic registration arrangements. I do not question or doubt the intent behind the proposals, but I fear that they will not resolve the issue. Unfortunately, deals involving brown envelopes will have to continue because of embarrassment and the speed that I alluded to in relation to the 21-day period. When we come to later debates on resolutions, we might consider a shorter notice period for general meetings.

I do not think that the Government’s structure, even with the best of intentions, will deal with the matter. It is a pity that opportunist registrations to extort cash out of companies will not be addressed if the amendments are rejected.

Amendment No. 137 relates to goodwill. I am grateful to the Minister for her comments on trademarks and clarification, which are much appreciated. I hear what she says about start-ups and the costs that have to be analysed, and I will not press the amendment to a Division. However, amendments Nos. 136, 138 and 139 raise a significant issue, and I will divide the Committee on amendment No. 136, as it is the most important.

I beg to ask leave to withdraw the amendment.

Clause 70

Clause 71

James Brokenshire (Conservative, Hornchurch)

The clause makes detailed provision for company names adjudicators, but raises a number of questions. How many company names adjudicators will be created? What will be their annual cost? How will that cost be met? Will the adjudicator service be met out of fees and costs charged to relevant companies or from another source? What functions will be assigned to the chief adjudicator? To whom will the chief adjudicator and the company names adjudicators be accountable? Will appointments be full-time or part-time? How many other staff will be employed? Whose offices will the adjudicators work from? Will the chief adjudicator have a separate office? Where will hearings be held—in court rooms or other buildings? What requirements are there for adjudicators to report on their work to Parliament or any other body?

I would be grateful for some clarification. The wording in clause 71 is brief and talks about the appointment, but we do not have the context or the information about what that will mean practically. I would be grateful for the Minister’s response on at least some of those issues.

Vera Baird (Labour, Redcar)

Does the hon. Gentleman want to know how tall they will have to be, or which gender? I do not know whether they will be full-time or part-time appointments, but it will be possible to job share, I am sure.

I can tell the hon. Gentleman whom the Secretary of State will appoint, if that was one of his questions—I have forgotten because they came out so fast and staccato. It is intended that Patent Office tribunal members will be appointed. The Patent Office will provide the tribunal staff and the costs will be recovered from fees. I shall write with more specific details.

James Brokenshire (Conservative, Hornchurch)

It would help the Committee to have a better understanding of how the clause will work in practice. I provided my shopping list of questions about the adjudicators, but they underline the serious problem of the lack of detail about the practical arrangements for the new adjudicator service, such as what type of person would be required and how many there would be. Such detail would allow us to get a feel of whether we are talking about a huge organisation or a small one and what precisely we are considering. We do not have that clarity at the moment, and although I will not vote against the clause, that clarification would be helpful. If the Minister writes to me, that will be extremely helpful for all parties.

Vera Baird (Labour, Redcar)

I certainly will write and supply all those details. If the hon. Gentleman wants such information in another case he should let me know prior to the Committee and I shall try to have it available at the right time.

James Brokenshire (Conservative, Hornchurch)

I am grateful for that. I look forward to receiving some of the details and I will be happy to give the Minister a shopping list as appropriate.

Clause 72

James Brokenshire (Conservative, Hornchurch)

I beg to move amendmentNo. 61, in clause 72, page 30, line 33, leave out ‘may' and insert ‘shall'.

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to discuss amendment No. 62, in clause 72, page 31,line 13, at end insert—

‘(l) requiring the publication of all decisions by the adjudicator within 90 days of the decision being given.'.

James Brokenshire (Conservative, Hornchurch)

I have two quick little points to make. The clause uses the word “may” in relation to the rules for adjudicators set down by the Secretary of State, and it would be better to give some definitive context by saying that they “shall” make provision for the relevant items in clause 72(2), as amendmentNo. 61 would do.

Amendment No. 62 raises a slightly different issue about the publication of the decisions of adjudicators. If we are to avoid problems arising, it is obviously as well to ensure that decisions are publicised so that people can understand them and avoid the need to get into such circumstances in the future, and to share best practice for all professional advisers. It would therefore be helpful to ensure that decisions are published to avoid the potential for future disputes. I appreciate that hardened individuals intent on extorting money will pay no regard to that, but it would be helpful to have transparency for the general commercial and corporate sector. This is a probing amendment to seek to promote that idea, as such knowledge would be in the interests of all parties.

Vera Baird (Labour, Redcar)

The hon. Gentleman has successfully promoted his amendment No. 62. It is clear that there should be a requirement for the adjudicators’ decisions to be published. One could argue that if they contain a point of law they will be reported anyway, but we agree with the proposal. If he withdraws the amendment, we will work out the best way of putting that together. The deadline might not be exactly as he has proposed, as it has to work out with other deadlines. If he is happy to withdraw the amendment, I shall undertake to consider it, as he makes a good point.

On including “shall” instead of “may”, the clause provides a power to make rules about proceedings before the adjudication and lists various matters that might be included in those rules. The Patent Office has advised on the issue because it has experience of operating similarly focused tribunals. Under the clause as drafted, a listed matter might be omitted and an unlisted matter might be included, so long as the clause says “may”. Alternatively, a matter could be left to be determined by the chief adjudicator. The point of putting “may” instead of “shall” is to give maximum flexibility, which is important because this is a new procedure and we want to make it as cost-effective as possible for users. Obviously, we will consult on the rules.

If the hon. Gentleman is content with that, I hope he will consider not pressing either amendment, given that he argued successfully on amendment No. 62.

James Brokenshire (Conservative, Hornchurch)

I do not know what the process is whereby I can quit while I am ahead. I am grateful for what the Minister said about amendment No. 62. That would be extremely helpful. I do not intend to press amendment No. 61 to a vote. It is obviously a technical drafting amendment and I hear what the Minister said. On that basis, I beg to ask leave to withdraw the amendment.

Clause 74

James Brokenshire (Conservative, Hornchurch)

I beg to move amendmentNo. 63, in clause 74, page 32, line 11, leave out subsection (3).

The clause deals with appeals from a company’s named adjudicator to the court. Subsection (3) deals with suspending the adjudicator’s order on appeal. The problem is highlighted by the CBI, which says:

“There should not be an automatic suspension of the adjudicator’s order on appeal...Otherwise this sub-clause is an encouragement to appeal and to continue trading under an offending name, damaging the applicant’s goodwill even further.

Rather, it should be open to the respondent to seek a court order suspending the order, as it should be open to an applicant to seek an order preventing the respondent company from trading under the name until the questions concerning the abuse by the respondent have been settled.”

I note that the matter was highlighted in another place. Lord McKenzie of Luton was not persuaded by a similar argument. He suggested that the concerns were unfounded, on the basis that registering a name does not confer a right to trade. If a company were forced to change its name immediately, someone else might take the name.

It is worth considering some of his specific comments in Grand Committee. Lord McKenzie said:

“If a company had to change its name immediately, its name might then be taken by anyone else. In particular, it is likely that the applicant would wish to register the name, if only as a precautionary measure. This means that the company would have lost the name even if the court were to reverse the adjudicator’s decision.”

He also said:

“the fact that the company has registered a particular name does not confer a right to trade under it.”—[Official Report, House of Lords, 1 February 2006; Vol. 678, c. GC121-22.]

I hear what the noble Lord said, but on the point about immediate change, there is surely a risk that that would happen in all circumstances covered by clause 70. If an order were made, a company would clearly want to protect its position immediately. How would that mechanism work? I was not persuaded by his comment.

We are not talking about trading names but corporate names. There is a fundamental distinction. For that reason, I tabled the amendment suggested by the CBI. I look forward to the Minister’s response.

Vera Baird (Labour, Redcar)

The hon. Gentleman correctly quotes my noble Friend and more or less correctly quotes his noble Friend—

David Howarth (Liberal Democrat, Cambridge)

Round we go again.

Vera Baird (Labour, Redcar)

Indeed, and for no particular reason, as far as I can see.

The amendment is misconceived. Its effect would be that even if a company’s appeal were successful, it could well be impossible for it to have the disputed original name as somebody else might have taken it. That is not a fanciful idea because it would be the sensible thing for the other party to do in the meantime. That would be wholly inequitable.

James Brokenshire (Conservative, Hornchurch)

I moved the amendment because the problem has again been highlighted by the CBI, so it is clearly of concern. While I recognise that we are covering ground that may have been covered before in another place, if something is of concern it is the duty of the Opposition to continue to highlight it in Committee. I note what the Minister said, but it is our duty to ensure that problems are properly highlighted. Although they have been discussed in another place, it is still important that we have an opportunity to debate them after reflecting on the changes that were made to the Bill there and in the context of debates on Second Reading in this House. While I note that the Minister is not prepared to give ground, it is important that we retain that opportunity and that I do not feel fettered in raising issues that have been raised elsewhere. I beg to ask leave to withdraw the amendment.

Clause 76

James Brokenshire (Conservative, Hornchurch)

I beg to move amendmentNo. 140, in clause 76, page 33, line 9, after ‘public', insert

‘or a section of the public'.

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to discuss amendment No. 141, in clause 76, page 33,line 10, at end insert

‘A direction under this section must be in writing.'.

James Brokenshire (Conservative, Hornchurch)

I will not speak to amendment No. 141, because of the assurance given by the Minister. However, amendment No. 140 is on a slightly different subject. Clause 76 provides a mechanism whereby if a misleading indication is given as to the nature of the activities of a company and it is

“likely to cause harm to the public, the Secretary of State may direct the company to change its name.”

The amendment is intended to clarify the use of the words “the public”. When looking through the Bill, I asked myself what would happen if only a section of the public were harmed—for example, the elderly or another vulnerable group.

In other companies legislation a distinction can be drawn between the public and a section of it. While the language in the clause repeats that in section 32(1) of the 1985 Act, the Bill gives us the opportunity to ensure that we adequately and properly address the problem. We are considering activities likely to cause harm, and even if harm is caused to only a section of the public, it is still harm. I appreciate that there is a balance to be drawn and that the amendment may not be as precise and elegant as it would need to be, but the point is still valid and worth further examination to ensure that we are clear as to when an order should be given. We must ensure that a person subject to such an order is not given the right to make a legal challenge by saying, “Well actually, we are not affecting the public. We are only affecting a section of the public.” That would clearly not be in the public interest, so it is worth examining.

Vera Baird (Labour, Redcar)

The hon. Gentleman does himself a disservice—this is an elegant amendment, except that we do not think it necessary. I understand the underlying concern, which he set out plainly, but the criterion

“likely to cause harm to the public”

does not require the whole population to be in danger. “Public” means anyone not related to the company.

The problem with the amendment is that it suggests that a risk must be either to all those or to a group—a section of the public—who share a characteristic, such as the elderly or the vulnerable, for example, as he said, that distinguishes them from the rest of the public. As the provision is drafted, all that would be required to trigger the power in the clause is the risk of harm to a substantial number of people, whether or not they could be described as a section of the public, according to the hon. Gentleman’s definition.

I hope that the hon. Gentleman is reassured and is able to withdraw the amendment. He is entirely right about amendment No. 141 and we will consider it, as we offered to do in relation to an earlier amendment.

James Brokenshire (Conservative, Hornchurch)

I thank the Minister for her comments. My amendment is intended not to limit scope, but to add clarity and afford protection to, for example, a vulnerable group being misled by how a company describes itself, and to allow the Secretary of State to act in such circumstances.

I hear what the Minister says about significant numbers of people. Perhaps that underlies my concern about the meaning of a “significant” number of people. It might mean a significant number of people covering all sorts of groups from the young to the very old. It might also mean a particular section of the public being targeted by a misleading term. I want to be clear about whether that is covered by the clause.

Vera Baird (Labour, Redcar)

It is pretty clear that a “section of the public” will not cease to be part of the public because it has a particular characteristic. I think that that is the reassurance the hon. Gentleman seeks.

James Brokenshire (Conservative, Hornchurch)

I thank the Minister for her intervention. The amendment has been tabled because “the public” and “section of the public” are legislative concepts; it would cover both angles and ensure sufficient protection. It is not fanciful, and this is a contextual use that has cropped up in other legislation. I call to mind the securities legislation in which an offer to “the public” can be made. However, a further distinction is drawn about what “the public” means. In that context, it means 50 people, potentially. I seek clarity. I see that the Minister might have some further information.

Vera Baird (Labour, Redcar)

I hope that I can help because I agree that that is an important point. Yes, there can be a difference. In some contexts, “section of the public” is the right terminology, but the Bill is clear that the public are harmed if anybody unconnected with the company is harmed.

James Brokenshire (Conservative, Hornchurch)

I thank the Minister for her further clarification on that point. In the light of her additional comments, I beg to ask leave to withdraw the amendment.

Clause 77

James Brokenshire (Conservative, Hornchurch)

I beg to move amendmentNo. 142, in clause 77, page 33, line 35, leave out from ‘78)' to end of line 36.

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to discuss the following: Amendment No. 143, inclause 77, page 33, line 41, at end insert

‘or section 74 (Appeal from adjudicator's decision)'.

Clause 79 stand part.

James Brokenshire (Conservative, Hornchurch)

We come to the change of name and the mechanism by which a company is able to do that.

In essence, clause 79 provides a new means by which a company can change its name, rather than by the customary means of a special resolution passed by the members of the company. I acknowledge that we considered a further example during our earlier discussions of a slight change in relation to the ability of directors to change a name where the Secretary of State has given a direction. That is a fairly narrowly defined arrangement, which is reflected in the 1985 Act.

The Bill appears to establish an entirely new mechanism that allows for a company to change its name in other ways, however. I am concerned that if the mechanism is allowed, the shareholders—who would normally be notified by virtue of the fact that their consent would be required through a special resolution—might be cut out of the process if, for example, a right existed in a company’s articles of association for the directors to change the name of the company by board resolution. Although that would give the company flexibility, it is important that shareholders should know the name of the company of which they are shareholders. Such a right, buried deep in a thick pile of articles, might not be picked up on by members of the company, but I would want to ensure that their rights were protected.

It is in that context that I seek the deletion of clause 79 and subsection (1)(b), because of the clarification needed and the lack of real feel about what the position of members is or precisely what situations the Government are contemplating. A very different step change is proposed and, although I recognise the need for flexibility and deregulation, it is also important that the interests of shareholders should be maintained and that they should be properly informed of any changes that might occur to the company of which they are members. That is the underlying reason for my amendment, which would delete subsection (1)(b), and my proposal that clause 79 should not stand part of the Bill.

Amendment No. 143 touches on a slightly different point. It proposes that companies’ names can be changed by order of the court, under clause 74, given that the court is given the power to make any order that the adjudicator might have made on appeal, which could include requiring a company to change itsname. Amendment No. 143 contemplates that circumstance—it does not block it off—and would ensure that the issue was properly addressed.

Vera Baird (Labour, Redcar)

May I deal with amendment No. 143 first? We agree that it would be better if the relevant clause contained a complete statement of the various ways in which a company’s registered name can be changed. I therefore agree to consider amendmentNo. 143, which is helpful, and we are grateful for it.

Amendment No. 142 would limit how a company could change its name, but the point of the provisions is to be deregulatory. The amendment would inhibit that purpose by removing part of subsection (1)(a) and all subsection (1)(b). Under subsection (1)(a) as drafted, a company will be able to decide for itself how to change its name. The current position—under which a special resolution is required, except in the circumstances that the hon. Gentleman mentioned, but which the Bill addresses—is unnecessarily regulatory. There is no statutory control on how a company changes the name under which it trades, so why do we need controls on how it changes its registered name?

What is important is that the registered name enables the public to find whatever information there is about the company on the public record, and that they are not misled. Other provisions ensure those desired outcomes, so there is no public need for restrictions on how the company changes its name. I confess that I struggle to understand the injustice that would be done to members who would not know that the name had been changed. I am not sure how realistic that is.

The deregulatory purpose of the Bill is best served by the clause as drafted. I am sure the hon. Gentleman agrees that all unnecessary regulation should be removed, so I hope he will withdraw the amendment.

James Brokenshire (Conservative, Hornchurch)

I hear what the Minister says about amendment No. 142, clause 79 and the deregulatory nature of the measure. As I said in my opening remarks, I am not against that deregulation and the requirement for flexibility. My concern is to ensure that there are no unintended consequences and that people are clear about which company they are a member of.

I listened carefully to the Minister and I note that she does not necessarily believe that there is an evil that needs curing. However, this is a matter that we should keep under review to ensure that no prejudice arises.

I am grateful to the Minister for her comments on amendment No. 143, which were most helpful in ensuring that matters are as clear as possible. I beg to ask leave to withdraw the amendment.

Clause 78

James Brokenshire (Conservative, Hornchurch)

I beg to move amendment No. 144, in clause 78, page 34, line 4, leave out from beginning to end of line 5 and insert—

‘(1A) Where a change of name by special resolution is unconditional, the requirement of subsection (1) shall be satisfied by forwarding a copy of the resolution to the registrar.'.

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to discuss amendment No. 145, in clause 78, page 34, line 9, at end insert

‘and the company shall forward a copy of the special resolution to the registrar.'.

James Brokenshire (Conservative, Hornchurch)

The clause provides the detail of what needs to be filed with the Registrar of Companies in the event of a company changing its name by special resolution. I note what the Minister said in the previous debate about the deregulatory approach, but the clause appears to impose an additional requirement on a company in respect of the change of name procedures.

A company need only forward a copy of the resolution, the requisite fee and a revised copy of its memorandum and articles of association in the event of a change of name, but the clause seems to require a new formal notice in addition. I can understand that where the resolution might be conditional—for example, when a company seeks to be listed on the stock exchange—a company might wish to change its name conditional on its shares being admitted to trading. Therefore, the resolution will not become active, or bite, until that condition is satisfied. In those circumstances, confusion might be caused with the Registrar of Companies as to whether the resolution is valid, hence the probable rationale for including the provision in the Bill.

However, when there is an unconditional resolution—for example, a simple proposal for a special resolution that the name of the company be changed to X Ltd.—I see no need for a formal notice as well as filing a copy of that resolution, which is the reason for tabling amendment No. 144.

Amendment No. 145, which is consequential, would ensure that in the circumstances of a conditional resolution, a copy of the resolution was filed, with an appropriate notice.

The amendments try to be as deregulatory as possible by not requiring an additional imposition on companies changing their names where that is not necessary, while recognising that the Registrar of Companies might be in difficulties in certain circumstances. Therefore, I understand where the original thought processes came from.

Vera Baird (Labour, Redcar)

We can only applaud the deregulatory purpose of amendment No. 144, but the Bill’s provision that the name change need not be by special resolution has a far greater deregulatory effect. The scheme of the Bill is to provide a simple system for notifying the change of name, whether or not it is done by special resolution. This will mean that changes of name will take effect more quickly than at present.

Under the current arrangements, Companies House needs to check every special resolution to see whether it includes a name change. That causes delays in processing that might lead to the mischiefs that we discussed this morning. Last year, 143,286 special and written resolutions were filed, of which 56,954 involved a change of name. Requiring this document to be sent in is a useful flag for Companies House showing that the name is being changed.

Amendment No. 144 would retain the existing arrangements for name changes by special resolution, which causes delays in processing because invariably special resolutions contain far more than just the change of name. It is Companies House’s experience that having to dig through a morass of other provisions in the resolution inevitably causes delay.

I hope that the hon. Gentleman will withdraw his amendment because, on balance, we are even more deregulatory than he is here, although I can see how at first sight it does not look that way. AmendmentNo. 145 would put in a requirement that a special resolution should be filed. I understand that that is already in clause 29 and the amendment would duplicate that requirement.

James Brokenshire (Conservative, Hornchurch)

I find the Minister’s comments on delay a little surprising in that, under the existing arrangement, it is entirely possible to do a same-day change of name. I had the dubious pleasure of having to do that on many occasions before I entered the House, so I would be delighted if it is possible to do it even quicker under this regime, but I find that surprising.

I hear what the Minister says and I look forward to the express, hour-long, pick-it-up-as-you-wait procedure. It sounds an excellent proposal and I look forward to seeing that working in practice through the mechanisms of Companies House. However, given her comments, I beg to ask leave to withdraw the amendment.

Clause 82

James Brokenshire (Conservative, Hornchurch)

The clause deals with the Secretary of State’s ability to make provisions by regulation to require companies to display specified information, to state specified information in certain documents and communications and to provide relevant information on request to those they deal with in the course of their business. To a certain degree, the provisions go further than the Companies Act 1985 and the Business Names Act 1985 as far as companies trading under their registered names are concerned. It is also unclear whether the existing requirements will be added to as a consequence of the regulations that are referred to in the clause. Will the Minister therefore provide some guidance on whether additional requirements not made under existing law and practice will be added to as a consequence of the clause and the regulations that will be applied to it?

Will the Minister also clarify the specified information that is to be provided to persons with whom a company deals? Further to my earlier comments, I think that there will be a slight extension of the requirements on companies trading under their corporate name rather than a trading name. Will she tell us why it was felt necessary to change the ambit in relation to such companies?

To what extent will there be further reviews of the regulations? The clause could be applied in a way that would make the system more regulatory and bureaucratic. Given the assurances on the deregulatory approach, I am sure that that is not the intention, but I am concerned that without some background or clarification on what the regulations are likely to include—we have not had sight of the regulations—we cannot look at the clause in much context. We need to know precisely what is intended and whether any further steps or requirements are being contemplated. Given the liability set out in clauses 83 and 84 for a failure to make the necessary disclosures, we must ensure that we do not set difficult or inappropriate targets and requirements on companies.

Vera Baird (Labour, Redcar)

The rules relating to trading disclosures are complex. They are set out in chapter I, part XI of the 1985 Act, section 693 of which applies similar rules to overseas companies. There is a separate set of rules in the Business Names Act 1985 that refer to a company trading under a name under than its registered name, even if the only difference is the suffix Ltd or plc. The rules are not identical: the information required and what premises and what documents are involved all vary.

As the company law review recommended, we intend to use the powers conferred by the clause and the similar power provided under clause 666 related to overseas companies to replace all the existing disclosure rules with a single set of regulations. We will consult on the matter and we intend to rationalise the requirements and make compliance simpler for companies. We will not extend the rules; we need the power to regulate in order to replicate sections 348, 349 and 351 of the Companies Act 1985. When we consult on the regulations, they will be subject to the affirmative resolution procedure, so there will be scope for debate on them.

James Brokenshire (Conservative, Hornchurch)

I am grateful for that clarification and the assurance that there is no intention to increase the scope of the current requirements. There is merit in seeking to put in one place the current requirements under the Business Names Act and the Companies Act so that we are all clear about what requirements apply. I have no objection to that approach, which has great merit in trying to simplify the situation. I made my points to gain clarification on the scope of the requirements. The assurance that the Minister has given satisfies me.

Clause 84

James Brokenshire (Conservative, Hornchurch)

I beg to move amendmentNo. 147, in clause 84, page 36, line 12, at end insert—

‘(3) For the purpose of this section a shadow director is treated as an officer of the company.'.

The clause deals with the situation that arises if a company is acting in accordance with the instructions of a person who is not a director—that is to say a shadow director—and those instructions include the non-provision of information under clause 82 on the requirement to disclose the company name and so on. I wish to question why a shadow director should not be liable in such circumstances.

In my review of the Bill, I noted that in other, similar circumstances a shadow director is liable. Why are they not covered by the clause? It is possible that I have missed something, but I wanted to flag up the point. The amendment would therefore make clear that a shadow director should be treated as an officer for the purposes of compliance and therefore of liability in the event of failure to comply. If a shadow director of a company, who is not stated as a director, effectively frustrates satisfaction of the clause 82 provisions, it would be a little strange for that shadow director not to be liable in accordance with the rest of the officers of the company given that, in other circumstances, they would normally be treated in the same way.

Vera Baird (Labour, Redcar)

Shadow directors are not liable for failures to make the required disclosures, and we see no reason to widen the clause as proposed. However, I have received a note, which says, “If he has a good argument, we will consider it”. We will consider it, if he agrees to withdraw the amendment; we will go through his points and decide if there should be a change.

James Brokenshire (Conservative, Hornchurch)

I am grateful for the Minister’s assurance. It was a question of consistency. In similar circumstances, elsewhere in the Bill, shadow directors are liable, but not here. That struck me as odd, and that issue might apply in other parts of the Bill. I am grateful therefore for her assurance because we might have to examine that matter in other cases to ensure that there is not some gap and that shadow directors cannot in some way squeak out of those provisions. I do not think that that is the Government’s intention, however, and in the light of her assurances, I beg to ask leave to withdraw the amendment.

Clause 86

Jonathan Djanogly (Conservative, Huntingdon)

We move on to part 6 of the Bill, and team No. 1 comes back into play. [Interruption.] No, I did not mean it like that. Before we kick off, may I congratulate my hon. Friend the Member for Hornchurch on his professional delivery, backed up by his extensive experience in the subject before us? That really showed, and totally hid the fact that it was his first outing on the Front Bench—the first of many, I am quite sure.

We move on to part 6 and clause 86 stand part. I would like to make a general point on the registered offices. It is important for a company to have a registered office, not least because it is a single registered location, of which other companies and persons have public notice. That is vital for deliveries, particularly of time-critical documents such as service of court documents, which require proof of service.

Most company documents are filed after an event, as a record of something that has happened, such as a change of director. However, that is not the case with a change of registered office, for which the filing of the notice itself triggers the timing of the date of the change. So it is an important form. The problem is that we hear more and more reports about people impersonating company directors—I brought that matter up last Tuesday. That involves little more than signing a form and sending it to Companies House, but once the fake directors have been established, they can send in a change of registered office form. That effectively means that the real directors stop getting notices of contracts signed in the name of the company by the fake directors using the fake registered office.

That seems to be a growing problem. Will the Minister let us know whether she has any details about the extent of the problem, whether she has plans for further security measures to stop it happening or whether she thinks that it might require further amendments?

Margaret Hodge (Labour, Barking)

I thank the hon. Gentleman for his contribution. I congratulate also my hon. and learned Friend on her valiant performance. This is her first Committee, and may there be many more.

The hon. Gentleman mentions something that has not been raised with me before. Companies House has a system by which it can register and receive notice by e-mail of a change of directors. I am not sure whether that helps. If he has ideas—perhaps from those with whom he has had contact—on how we can tighten the system to prevent such problems from arising, we will consider them. However, it has not been an issue recently and I have no plans to introduce further measures. I accept that it is a problem, but I am not sure what we can do other than introducing the clauses and other legislation relating to fraud and other such matters.

Jonathan Djanogly (Conservative, Huntingdon)

There is no doubt that the problem is growing. Some schemes have been put in place. I believe that there is a system whereby companies can register to receive notifications of when changes are made. The notification pops up and advises them that, for example, the registered office has been changed. If it were not the proper directors who made the change, the company would see that. The system is not widely used. Perhaps the Department could consider advertising the process more widely. Other measures are also required.

Margaret Hodge (Labour, Barking)

I have just received a note that may help the hon. Gentleman. It deals with another element. Under what is called “proof”, a company is notified of any change to its particulars. A fraudulent notification should be picked up by that mechanism immediately. Clearly, that depends on the notification being made.

Clause 90

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 31, in clause 90, page 38, line 11, leave out ‘a special' and insert ‘an ordinary'.

The clause relates to sections 43(1) and 43(2) of the 1985 Act. I am not sure how long it has been since a special resolution has been needed to re-register a private company as a public company. The Minister may be able to advise me on that. It is one of those things that is lost in the mists of time. It is worth asking, on a probing basis, whether anyone has considered whether it should remain the case that such re-registration is required. I can see why minority shareholders may need protection if a public company is re-registered as a private company—in other words, the other way around—after a takeover or the like, but that is not the case. I wonder why an ordinary resolution should not, in the situation we are concerned with, be good enough.

Margaret Hodge (Labour, Barking)

As the hon. Gentleman rightly said, the amendment relates to a process by which a private company can change its status and become a public company. There is, of course, a substantial difference between the two company types. I understand that many companies will want to make that change at a certain point in their lives.

We have no interest in making that change unnecessarily difficult, but—I hope that this explanation satisfies the hon. Gentleman—it is important to bear in mind the position of existing shareholders in private companies. In some cases they will have become members of the company, whether at formation or at a later stage, with some expectation that it might sooner or later go public, but in other cases there may be no such expectation. A company going public has implications for existing members. The most obvious one is that it brings the prospect of dilution of their control, as the membership base becomes larger and more diverse. Existing shareholders need to be able to take a view on the matter through the special resolution provisions. The 1985 Act therefore provides that there must be a special resolution, which requires a 75 per cent. majority rather than the simple majority required by an ordinary resolution.

When it comes to significant decisions about the company’s status and future which would have important implications for the position of individual shareholders, it is right—I have reflected on this—that the bar should be set high and that something more than an ordinary resolution should be required. That is why we have chosen to continue the existing requirement. I should add that I am not aware of any suggestion that that will cause difficulties in practice.

Jonathan Djanogly (Conservative, Huntingdon)

I have to agree with the Minister: I have not had a huge number of representations on the matter. However, I query what she said. The substantive point is that members might be concerned about dilution. That is dealt with separately in section 89 of the 1985 Act which is applied more toughly for public companies than for private companies. In fact, almost every aspect of the 1985 Act will be applied more favourably for minority shareholders of a public company than for those of a private company, with fewer exemptions to override shareholders’ interests. Indeed, after the Bill is passed, only public companies will have a company secretary. We shall debate that later, but let us assume that the Bill goes through in its current form.

I repeat that from the point of view of the minority shareholder, it can only be to their advantage for the company to become public. I understand that the protection of a special resolution is needed the other way around, but not for going up, as it were. I wanted the Minister to think about it, and on that basis I beg to ask leave to withdraw the amendment.

Clause 98

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 32, in clause 98, page 43, line 31, leave out ‘5' and insert ‘10'.

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to discuss amendment No. 38, in clause 98, page 43,line 35, leave out ‘5' and insert ‘10'.

Jonathan Djanogly (Conservative, Huntingdon)

These probing amendments are designed to test the relevance and adequacy of the clause, which is clearly a pressure-valve clause. The situation envisaged would typically be related to a bid for a public company. The acquirer will normally wish to acquire at least 75 per cent. of the shares of the target, because at that level of ownership a resolution can be passed to make the target a private company. That in turn is important, because only private companies can use their own assets to give bank security for the purchase of their own shares. In other words, the purchaser uses the assets of the target to finance the transaction.

The clause—I appreciate that the provision is in the 1985 Act—provides holders of at least 5 per cent. of the company with the right to apply to the court to have the resolution to re-register capital. Does the Minister think that the clause is still necessary? Can she provide us with details of how often it has been invoked and whether any assessment has been made of its effectiveness? Is 5 per cent. still considered the right number of shareholders who need to complain? I have suggested 10 per cent. on a probing basis, but maybe the figure could be less than 5 per cent. We would be interested to hear her views.

David Howarth (Liberal Democrat, Cambridge)

I want to add a short point in support of what the hon. Gentleman said. Setting the number at 5 per cent. as opposed to 10 per cent. gives rise to a temptation that it might be useful for the law to discourage. If the limit is set at only 5 per cent., people faced with a blocking minority of 5 per cent. might be tempted to use section 429 of the 1985 Act, which, as I understand it, will not be changed. There is a judicial interpretation of that section. It allows, on takeover, those with a 90 per cent. hold of the shares compulsorily to purchase the remaining 10 per cent. It can be used to clear minorities of less than 10 per cent.

Case law from re Bugle Press suggests that that provision cannot be used beyond its original purpose. However, even given that case law, people faced with a blocking minority of less than 10 per cent. might be tempted to use section 429, take their chances with the case law and produce litigation that it would be helpful for the law to avoid. That litigation could be avoided by raising the relevant percentage to 10 per cent., as in section 429.

Margaret Hodge (Labour, Barking)

I have been asked three questions and a supplementary question, although as I listened to the hon. Gentleman’s exposition I saw that section 429 might be consecutive rather than parallel to the issues that we are discussing. I am not sure that its existence prejudges the need for this provision. However, I shall answer the question to see whether I can satisfy him.

When a company is resolved to re-register from public to private, clause 98 enables the dissenting shareholders to apply to the court to cancel the resolution for re-registration. The application must be made within 28 days of the date on which the resolution is passed and the court will only entertain such an application when it is made by a qualifying number of shareholders and, when the company is not limited by shares, a qualifying number of members or, in either case, not fewer than 50 members.

The minimum thresholds for making such an application are set in subsections (1)(a), (b) and (c). When the company that proposes to re-register as private limited company has share capital, the application will be made by a single shareholder or by shareholders with a collective holding of at least 5 per cent. of the nominal value of the company’s issued share capital. The amendment would increase that threshold, and I appreciate that it is a probing amendment. Both amendments leave unchanged the 50 member option and the proposition in clause 98(1) that the members who voted in favour of the resolution for re-registration or consented to it do not count.

The reason behind the clause is that, as I am sure all Members accept, the re-registration of a company from public to private limited is a serious matter which has implications for all the shareholders, members and creditors of a company alike. In view of the significance of the change of status which will bring with it a lack of transferability for the individual’s share and the reduced marketability that is characteristic of shares in private companies, members should have the opportunity to object, subject, of course, to establishing that they represent a significant interest in the company. We accept that there is nothing magical about the thresholds that we made: all we have done, as hon. Members understand, is mirror those in the 1985 Act.

Jonathan Djanogly (Conservative, Huntingdon)

Can the Minister give us any idea how often the provision has been used?

Margaret Hodge (Labour, Barking)

Yes, I can. The thresholds have stood the test of time. We are not aware that they have caused companies, their shareholders and members any difficulties. In fact, we are advised by the registrar that only three such applications have been made in the previous year, two of which were rejected. In the circumstances, we are not persuaded that the amendments are either needed or helpful. The hon. Member for Cambridge (David Howarth) asked whether clause 98 was still necessary. The answer is yes, it is. As the hon. Gentleman said, there are special provisions on takeovers in section 429 of the Companies Act but the clause goes wider. Someone may have a majority shareholding by other means and the clause provides them with protection.

David Howarth (Liberal Democrat, Cambridge)

The point I was trying to make is that the question is not whether the clause is necessary—I think it is—but how it fits in with the existing law in section 429 of the Companies Act. If one sets up the two statutory provisions in different ways, the temptation will be to use one rather than the other. If they are set up with the same number, one can preserve the use of each.

Margaret Hodge (Labour, Barking)

I suppose that in the interests of protecting minority shareholders, the correct way forward if we want that consistency would be an amendment to section 429. I can take that away and think about it if the hon. Gentleman so wishes. Otherwise the provisions appear to work well. I am told they work in parallel. The one follows from the other, rather than the two having to be consistent overall. There is a lower threshold in section 429 because it covers a takeover so it is a slightly different situation from the one we are discussing. I am happy to reflect further on that and if necessary come back on Report if the hon. Gentleman considers that appropriate.

I hope that I have answered the questions that the hon. Member for Huntingdon (Mr. Djanogly) raised and that he will withdraw his probing amendment.

Jonathan Djanogly (Conservative, Huntingdon)

As the Minister said, this was a probing amendment. The contribution from the hon. Member for Cambridge opened up the debate and was a helpful addition. I must admit that I wandered into the question by looking at the Bill rather than precedent. The existence of the case he mentioned means that we should go away and have another look at the issue. I am not entirely convinced that the answer will be to amend section 429, particularly in relation to putting in any kind of percentage, but it might be worth looking again at the 5 per cent. threshold in the clause.

I thought that the provision would be used very little in practice, so I was not surprised to hear that it was used three times in the last year, nor was I surprised to hear that the majority of cases have been thrown out. I suppose that it would typically be people having a go. I am pleased that we have had the debate. I beg to ask leave to withdraw the amendment.

Clause 102

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 156, in clause 102, page 45, line 21, leave out from end ofline to ‘and' in line 22.

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to discuss amendment No. 66, in clause 102, page 45,line 27, leave out subsection (2).

Jonathan Djanogly (Conservative, Huntingdon)

This is a rerun of the debate in the House of Lords. I shall not read out what Lord Hodgson said, but shall instead quote what Lord McKenzie said and comment on it. Lord McKenzie said:

“The Bill reflects existing companies legislation in preventing this practice, and the Company Law Review considered carefully whether the bar should be maintained or removed. It concluded that it should be retained to prevent companies taking short-term advantage of a merely temporary change of status. The Company Law Review does not seem to have believed that this has placed any obstacle in the way of legitimate market developments; nor are the Government aware of any evidence to that effect. I therefore support the CLR’s conclusion that the bar should remain.

I should add that we are currently considering whether the condition in Clause 102(2)(b), which prevents a company beginning life as limited, re-registering as unlimited, then re-registering as limited and finally re-registering as unlimited again”—

complicated stuff, this—

“is strictly necessary given that Clause 105(2) prevents a limited company which has re-registered as unlimited reverting to limited status.”

I hope that people are with me so far. Lord McKenzie continued:

“These highly technical issues are complicated by the need to consider possible multiple re-registrations under earlier legislation. We are considering whether any change is needed.”—[Official Report, House of Lords, 1 February 2006; Vol. 678,cc. GC140-141.]

It is appropriate for me to ask whether the Minister can provide an update on the Government’s thinking on the issue.

Margaret Hodge (Labour, Barking)

The hon. Gentleman said that he would quote only Lord McKenzie. I shall quote the Opposition spokesperson in the House of Lords, Lord Hodgson of Astley Abbotts, who replied, “I surrender absolutely”.

Jonathan Djanogly (Conservative, Huntingdon)

That may have related to the complicated nature of the answer as much as to its justification.

Margaret Hodge (Labour, Barking)

The hon. Gentleman is right to suggest that in Grand Committee Lord Hodgson tabled a similar amendment. It was withdrawn, but it prompted us to look again at the conditions in subsection (2), and we put a marker down in Grand Committee that we intended to return to the issue. We subsequently amended the subsection on Report in the House of Lords to remove what amounted to a superfluous condition. If people can understand this one, they will be doing very well. The condition was that a private limited company could not re-register as unlimited if it had previously re-registered from unlimited to limited. Such a condition is unnecessary, as it is not possible for that eventuality to occur, given that clause 105(2), which is concerned with the re-registration of a company from unlimited private to limited, prevents a company that has previously re-registered as unlimited from reverting to limited status. However, we left in place the condition in the amended clause 102(2) which prevents a private limited company from re-registering as unlimited if the company has previously re-registered as limited. The amendments that we are debating would remove that subsection.

Subsection (2), as amended, carries forward the provisions of section 49(3) of the 1985 Act. Like its predecessor, it prevents companies from changing their status successively between limited and unlimited and back again. As the hon. Gentleman said, the issue was examined by the company law review, and it was concluded that it was necessary to keep the bar in place. The company law review did not accept that in practice the bar prevented legitimate market developments, nor are the Government aware of any evidence to that effect. That is why we support the review’s conclusion that the bar should remain in place.

Jonathan Djanogly (Conservative, Huntingdon)

On the basis of the Minister’s comprehensive response and what happened on Report in the Lords, I too surrender absolutely and beg to ask leave to withdraw the amendment.

Clause 103

Jonathan Djanogly (Conservative, Huntingdon)

We are now going on to a limited company becoming unlimited. Subsections (3) and (4) insert the need for a statement of compliance to replace the statutory declaration in section 49(8)(b) of the 1985 Act. Could the Minister please provide the reasoning behind that?

Margaret Hodge (Labour, Barking)

The clause prescribes the contents of the application for re-registration and the documents that must accompany it. It replaces sections 49(4) to 49(8)(a) of the 1985 Act. The current requirement for a statutory declaration made by the directors on application for re-registration as an unlimited company is replaced by a requirement for a statement of compliance. Unlike most other statements of compliance made under the Bill, the one made on application for re-registration as an unlimited company must contain a statement by the directors confirming that the persons by whom or on whose behalf the form of assent is authenticated constitute the whole membership of the company, and if any of the members have not authenticated the form themselves, that the directors have taken all reasonable steps to satisfy themselves that each person who authenticated it on behalf of a member was lawfully empowered to do so. The contents of the directors’ statement carry forward the provisions of section 49(8) of the 1985 Act, which requires a

“prescribed form of assent to company being registered as unlimited”.

On that basis, I urge Members to support clause stand part.

Jonathan Djanogly (Conservative, Huntingdon)

I am not entirely sure whether my question has been correctly answered. Perhaps it was, but it was not a very long response, so if the Minister would write to me on the point, I would appreciate that.

Clause 105

David Howarth (Liberal Democrat, Cambridge)

I beg to move amendment No. 221, in clause 105, page 47, line 9, at end insert—

‘and,

(d) the consent is obtained of all the company's creditors'.

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to discuss amendment No. 205, in clause 106, page 47, line 27, at end insert—

‘;

(d) a statement confirming that the company's creditors have given their consent'.

David Howarth (Liberal Democrat, Cambridge)

The subject of the clause sounds similar to the issues just discussed, but in fact it is fundamentally different. Clause 105 is about the re-registration of unlimited companies as limited. The clause changes the existing law, but only in respect of public companies. The point that I wish to raise is more fundamental.

Unlimited companies are not very common, but they do occur in the financial services sector. The point of an unlimited company is that its creditors have recourse to the private wealth of the shareholders in the event that the company cannot meet its debts, so unlimited status is a way of attracting customers to a business in certain circumstances, because, in effect, the shareholders are underwriting that business. Given equivalent circumstances it makes the company a more attractive body to deal with than a limited company in the same circumstances.

Clause 105 allows unlimited companies to re-register as limited companies, thereby reducing the liability of the shareholders—perhaps dramatically—without any consent from the creditors. The fundamental issue is the balance of interests between creditors and shareholders, and that balance is very different in an unlimited company compared with a limited company. The amendment is therefore intended to test the proposition that creditors’ interests must be taken into account when a company moves from unlimited to limited status.

I do not want to give the impression that there is a lot of malpractice or fraud in this area at the moment, but there is a risk. It might be argued that the provision has been in place for a long time without any particular problems. However, in Tuesday’s sitting I mentioned the case of Equitable Life, which was an unlimited company. The circumstances of that case were different in that Equitable Life did not have shareholders in the same way, so the issues did not arise in precisely the same manner as I am suggesting today. Nevertheless, that example shows that there are large undertakings that are unlimited companies. There is a serious potential problem, and it would be just as well for us to consider it and try to provide for it before it turns into a real-life case.

Jonathan Djanogly (Conservative, Huntingdon)

I have some sympathy with the Liberal Democrat amendments. People often deal with an unlimited company on the basis that there is no limit to the members’ liability. If they entered into the same transaction with a company that was limited, they would want to see other elements in the transaction, such as security, or a deposit, or a charge. If the company with which they have transacted subsequently becomes limited it would be fair to take their interests into consideration.

Margaret Hodge (Labour, Barking)

I understand the point that is being raised by the hon. Gentlemen, in that with an unlimited company liability is not defined—although I do not entirely accept that that would give the sort of comfort to which the hon. Member for Huntingdon referred—whereas limited companies, by definition, have a limit on their liability. I can understand, therefore, why the hon. Member for Cambridge believes that there might be a role for creditors when an unlimited company re-registers as an limited company. The amendment would ensure that they are consulted and given a role. However, I am informed that such issues are tackled in other ways, which we believe to be sufficient. I hope that that argument will be accepted.

At the moment, the law provides that when a company is wound up within three years of having been re-registered as a limited company, having previously been unlimited, the liability of its original members remains.

Paul Farrelly (Labour, Newcastle-under-Lyme)

We have seen such situations, although more often in the US than here. Will my right hon. Friend the Minister confirm that the amendments would allow a creditor to blackmail a company and resist its move to limited status, even if that was in the wider interests of the company and perhaps those of other creditors?

Margaret Hodge (Labour, Barking)

I entirely accept that that would also create difficulties and I am grateful to my hon. Friend for raising that valid point, which had not been brought to my attention.

Whether or not the company changes status, liability remains on the original member of the unlimited company, which remains unlimited in respect of any debts and liabilities contracted up to the point of re-registration. That provision is contained not in this complex bit of legislation, but in section 77 of the Insolvency Act 1986. We have no plans to change it, as it provides proper protection for creditors without the sort of danger exposed by my hon. Friend. Arguably, it is also simpler. I hope that, with that explanation, the hon. Member for Cambridge will withdraw the amendment.

Quentin Davies (Conservative, Grantham and Stamford)

I seek clarification. I have been following the debate with much interest and the Minister has made an interesting point. Is she saying that the details of the insolvency law to which she referred provide that if an unlimited company changes its status to limited, the existing shareholders retain their unlimited liability for all that company’s debts for three years?

The implication is that at the end of those three years, unlimited liability would fall away. Let us suppose that a company, when unlimited, had undertaken a loan agreement that matured after more than three years—say, after five or ten years—and had done so on the basis that it could look to the private capital of shareholders, beyond the paid-up capital of the company. The creditor would find that that assumption had been invalidated retrospectively. If he had been well advised, he would be covered by some kind of covenant and loan agreement. I accept that, and we anticipate that response. However, in making the law, we try to defend those who are not necessarily sophisticated or well advised.

Margaret Hodge (Labour, Barking)

I accept the issues and complexities raised by the hon. Gentleman. However, if a company changed from having unlimited liability to limited liability, I would have thought that most of its creditors would take appropriate advice to ensure that they secured their interests over time, as the hon. Gentleman suggested. I accept that the eventuality that he describes may arise, but that three-year limitation runs through most of the law.

Quentin Davies (Conservative, Grantham and Stamford)

With respect, the Minister has not satisfied my concern at all. She has simply confirmed that in my example the regime would have been changed retrospectively to the—perhaps significant—disfavour of the company creditor, who would be able to do nothing about it.

If the creditor had been sufficiently sophisticated and well advised in advance, he might well have insisted on an appropriate covenant in the loan agreement. However, if he had not, it would be too late for the creditor to protect himself once the unlimited company had declared its intention to go limited. The danger to which I have alluded is real and the law should be designed to protect those who are not necessarily sophisticated or properly and completely advised.

Margaret Hodge (Labour, Barking)

I do not know whether this is helpful to the hon. Gentleman, but if the loan was unlikely to be repaid, the company, having become limited, would presumably become insolvent.

Mr. Daviesindicated dissent.

Margaret Hodge (Labour, Barking)

The hon. Gentleman is shaking his head, but as I understand it, the three-year limitation runs through most legislation and would have an impact. I accept that, in the situation that he describes, he has a point, but I am not sure that, in framing the law, we can do anything that would better protect the interests of the individual beyond that limitation. I am not sure that the creditor having the right of veto on the change of status would be the best way forward. Presumably that is what the hon. Gentleman would suggest if he supports the hon. Member for Cambridge’s amendment.

Quentin Davies (Conservative, Grantham and Stamford)

There is another way forward that the Minister should consider. That is to stipulate that liabilities that are in existence and have been contracted on the assumption that shareholders are liable on an unlimited basis would remain indefinitely, or at least until the term of those liabilities as established in the relevant loan agreements or other contractual terms. That would mean that it would not be possible for someone who had made a loan or supply of credit in good faith to an unlimited liability company would subsequently find that the regime had been turned against them retrospectively and the quality of the asset in their hands had been degraded because the company decided to change its status from unlimited to limited. That would mean for existing liabilities that the regime that applied at the time that they were contracted would remain until the term of that liability. All new liabilities would be contracted with the company under its new status. That is another way forward.

It often happens in Committee that we come across problems that some of us had not anticipated. That is a good thing. I have not had a chance to prepare an amendment on this issue but, in light of the discussions taking place between the hon. Member for Cambridge and the Minister, I think it is a point worth pursuing. I have not just come forward with a problem; I have proposed a possible solution.

Margaret Hodge (Labour, Barking)

I appreciate the hon. Gentleman’s comments. This has been an interesting exchange. I am happy to consider the idea further if that is helpful, but let me try to reassure him. I am advised that if a creditor finds that the loan that he made has not been repaid, that creditor could seek the winding up of the limited company. In so doing, he would have priority over the remaining assets to get repayment of the loan. In those circumstances, there is a mechanism open to him.

If the hon. Gentleman is not happy with that explanation, I will write to him and we can have an exchange of correspondence on the issue and return on Report if necessary. I will copy Front Bench spokespeople into that correspondence. It strikes me that there are other provisions that would deal with the situation. Perhaps I am not explaining very well.

Quentin Davies (Conservative, Grantham and Stamford)

I can see no provision in the text before us providing for a creditor to seek the winding up of a company simply because that company is proposing to change its status from unlimited to limited. Nor should there be such a provision because it would open up exactly the possibility of blackmail that has been raised. We do not want that. We want merely to ensure that when a creditor and a debtor contract with each other—when two firms come together under a certain regime and, in good faith, draw up a contract that leads to an asset on one side and a liability on the other—the quality of that asset and liability should not be retrospectively changed in a way that cannot be predicted by the parties to the initial contract. That is why I suggest that the existing liabilities should continue to be unlimited.

Margaret Hodge (Labour, Barking)

I think that the hon. Gentleman misunderstands. I was not suggesting that the point of transfer of the company from an unlimited status to a limited status would be the point at which the creditor would attempt to exercise their rights under a contract that they had entered into. I was suggesting—to go back to where we were—that all creditors of companies that change from being unlimited to limited are protected for three years under the InsolvencyAct 1986. The issue that the hon. Gentleman raised was what would happen if the loan that the creditor gave to the originally unlimited company only required repayment in five years. I was trying to say that, in those circumstances, the company would have been established as a limited company and a creditor with a claim against it could seek the winding up of the then limited company, if that company refused to meet the loan.

Quentin Davies (Conservative, Grantham and Stamford)

With respect, the Minister has not followed me. Let me give a precise example. On day one, a creditor—for instance, a bank or supplier— contracts with a company to lend money or to deliver goods on credit. One year later, the company decides to change its status, and three years after that, that change of status is confirmed for all purposes, so that no liability can return to the shareholders on an unlimited basis.

Let us suppose that the term of the original liability is five years. In other words, the loan is not callable until one year after the end of the three-year grace period, which the Minister has just explained. In those circumstances, at the end of the three years, the creditor can do nothing. It cannot put the company into insolvency because the loan has not matured. Nor can it demand the prepayment of the loan. However, the credit status of the loan has been degraded by virtue of the fact that the shareholders are no longer liable for the loan on an unlimited basis.

A year later, the loan duly matures. The question then arises as to whether the company becomes insolvent, but at that point the shareholders are no longer liable for the loan on an unlimited basis. That is an enormous change and might mean that what would have been a good asset in the hands of the creditor has now become a bad asset, and what would have become a liability to be fulfilled on an unlimited basis will not be fulfilled on a limited basis a year after the end of the three-year grace period.

Margaret Hodge (Labour, Barking)

I understood that; clearly we are not reaching each other in our exchange. I have been passed a note that might be more helpful. I have not read it myself. It says that creditors will not have to wait for five years, if the company is insolvent.

Quentin Davies (Conservative, Grantham and Stamford)

It is not insolvent.

Margaret Hodge (Labour, Barking)

If a loan is due two years after a company changes its status to a limited company, the status of that loan will change.

Quentin Davies (Conservative, Grantham and Stamford)

What about four years after that?

Margaret Hodge (Labour, Barking)

It does not matter—the point is that it is after three years. At that point, although the status has of course changed from unlimited to limited, there is still a loan against that company. If the creditor does not receive the moneys due to him at that point, he can seek to have the company wound up. I accept that that is not the same comfort as with an unlimited company, but it is not like the creditor has no comfort at all.

Paul Farrelly (Labour, Newcastle-under-Lyme)

I would like to raise a different point that demonstrates why my right hon. Friend is absolutely right to resist the Liberal Democrat amendments. Any good lawyer—the hon. Member for Cambridge is an excellent lawyer—would wish to see at the end of such an amendment, “such consent not to be unreasonably withheld”. That is not there.

For example, a good reason to move from being an unincorporated to a limited liability company is to ease the path towards flotation. One reason to float on the stock exchange might be to pay off loans or liabilities with creditors. It is quite conceivable that a creditor who wished to have part of the action from a flotation, but was denied it, could veto a company’s progress and flotation. In those circumstances, consent would have been “unreasonably withheld”. Those words are not in the amendments.

Margaret Hodge (Labour, Barking)

I agree entirely. I shall have one last go with the advice that I have been given.

Let us imagine that a creditor, described in the terms that the hon. Gentleman described, is concerned that a limited company is unable to repay a loan. I am advised that that creditor, within the three years in which they are covered by the Insolvency Act 1986, could seek to have the company dissolved on the basis that it could become insolvent by not meeting the loan repayment terms. That might be the answer that the hon. Gentleman is looking for. If not, we will have to settle the matter through correspondence.

Quentin Davies (Conservative, Grantham and Stamford)

May I ask the Minister for the reference to the insolvency provision? Also, what criteria would need to be met for such a petition to be granted?

Margaret Hodge (Labour, Barking)

The provision is section 77 of the Insolvency Act 1986, and I am told that the criteria are as in any other case. I hope that the hon. Gentleman is happy with that. He has raised a valid point. He can write to me, and I will let hon. Members see it. We can return to it on Report if there is something that we have omitted.

Quentin Davies (Conservative, Grantham and Stamford)

I am conscious, Mr. Illsley, that you have been gracious in allowing me to intervene on the Minister on a number of occasions. I hope that that exchange has been useful in clarifying the issue. So as not to trespass too much on your patience, I thought that I would make it clear where I am coming from.

The exchange with the Minister has persuaded me not only that there is a problem but that it is probably more important than I first envisaged, and it is not adequately dealt with by the insolvency rules that she described. I think that the Committee would agree that it is important to provide a mechanism for companies to change their status from private to public without undue burdens or hindrance. An instance has already been mentioned of a company that wants to float. That is a sensible move, but we simply want to provide the maximum flexibility. We want not to inhibit but to encourage and nurture the growth of companies. That is the object of the Bill.

The Bill should not provide anybody—we have been conscious on many occasions of a difficulty in this context—with opportunities for greenmail or blackmail or to exert pressure to prevent people from doing what they seek to do in good faith and in their own rational business interests. It should not provide them with some toehold in the law that enables them subsequently to claim money from people engaged in ordinary business in good faith. We do not want the measures to form a basis for greenmail or blackmail, and we do not want to give creditors the opportunity vexatiously, perversely or exploitatively to prevent companies from changing their status. That is common ground.

This is where the Minister and I disagree. We do not want to solve the problem by creating a worse one. Above all, we do not want to create a situation in which companies are needlessly put into or threatened with insolvency. This is my central response to her: I do not believe that the insolvency rules are the right answer to my question. Nor do I think that a three-year carry-over—I shall use that word rather than the term “grace period”—of unlimited liability is adequate for the simple reason that three years is entirely arbitrary. Some of a company’s liabilities will be for longer than three years.

Equally, it does not make any sense to protect new creditors—that is, creditors who contract with a company after the company has changed its status to limited liability—which would not normally be available to the creditors of a company with limited liability. Three years does not make any sense for either group of creditors: those who are contracted with the company concerned before the change of status or those who contract with the company after the change of status or during the first three years.

It seems to me that the simple answer is to say that a company cannot change retrospectively its relationship with a creditor by changing its status as a company, changing the basis on which its suppliers, lenders or other creditors will deal with it in future. That answer would be fair, transparent and in accordance with a common-or-garden understanding of how things work. It should not be possible for shareholders, simply by changing the status of the company, to protect themselves against any liability that they find onerous or threatening to their private wealth outside the paid-in capital of the company in which they have invested.

I shall give some simple examples. There might well be a company with a net worth of, let us say, £1 million and liabilities of £4 million. That is quite a high leverage but creditors and suppliers may well be happy with it because they know that the shareholders are people of substance. They probably do not know their exact net worth but they know that it is many tens of millions of pounds. They therefore feel totally relaxed dealing with a company on that basis and they might enter long-term contractual lending arrangements with the company.

Then suddenly one day the company announces that it will change its status. Immediately the credit quality of all the assets in the hands of the creditors deteriorates markedly. The creditors may then have worries about their claims on the company once it has changed its status. There would then only be a net worth of £1 million of assets securing their claims of £4 million. Some deterioration in the company’s position could then make their claims worthless or discountable. In those circumstances, under the Minister’s proposed arrangements, the creditors would have some protection for three years. After that they would not, and they would be completely done for.

It may well be that people outside the Committee following our debates will ensure that they are thoroughly protected against such a possibility in whatever contractual or lending arrangement they enter and ensure that there is a contractual possibility of winding up a company in the event of its changing its status. That is an enormously heavy-handed type of protection to have to propose. We want protection that is fair and deals only with the liabilities incurred by a company before its change of status. It should also be unlimited in time, because any arbitrary limit would not cover longer-term contractual or lending arrangements.

I have set out the problem at slightly greater length than I intended. I hope that, rather than expect me to send her a copy of Hansard, the Minister will take my oral communication as an invitation to re-examine the matter and to see whether she can return with a better solution.

David Howarth (Liberal Democrat, Cambridge)

Having listened to the debate, I believe that it comes down to how one sees the original deal between and unlimited company and the person who enters a contract with it. There is a sophisticated view of such a contract that the person lending the money does so on the basis of the specific provisions of company law and those in the 1986 Act. The answer to complaints would therefore be, “Well, you contracted on the basis of the existing statute law.” The powerful objection to that view is that it is too sophisticated a way to consider the contract for an ordinary person making a deal with a company to be forced to follow and that in reality nobody makes contracts on such a basis. Under such a view, we would require anyone dealing with unlimited companies to take sophisticated legal advice to allow them do so safely.

The other equally absolutist view of such contracts is the one expressed in the amendment—that they are agreed between the lender and the company on the basis that the company is unlimited. A change in the company’s status, from unlimited to limited, is, in a sense, a breach of that agreement, changing the basis on which the agreement is reached by the creditor.

That absolutist view gives rise to the drafting of the amendment, which I concede would put a veto power into the hands of the creditor. If one wanted to defend that approach, one could say that the contract was like any other contract, and that a person who enters into a contract with somebody else has a veto in the sense that the other side is not allowed to change their promise unless that person says so and gives them permission.

I accept that the view expressed by most hon. Members today has been a third view of the contract, which is that the parties agree on the basis that the company is an unlimited company, but that each side also allows the other reasonable leeway to change their status or basis of the deal, given ordinary commercial developments, including the desire of a company to go public, for example.

Given that that seems to be the most widespread view in the Committee, it seems that the best thing for me to do is ask leave to withdraw the amendment in its present form, but reserve the right to return on Report with an amendment that does not follow the other absolutist view of the contract, which appears to be the Government’s view.

Quentin Davies (Conservative, Grantham and Stamford)

On a point of order, Mr. Illsley. I believe that we have made some progress this afternoon in clarifying the issue. In the light of the hon. Gentleman’s comments and his reference to a third way and to coming back on Report, my inclination is also to come back on Report with a third way enshrined in the form of a proper amendment. Would it be normal practice for such an amendment to be at least deemed acceptable—I cannot ask you to undertake to ensure that it is accepted—and therefore potentially debatable on Report, even though it would cover a point that we had debated extensively in Committee? Such an amendment could advance a solution that we have not been able to debate concretely, because we have not had the opportunity to table an appropriate amendment or new clause in Committee.

Eric Illsley (Labour, Barnsley Central)

It would be for the Speaker to determine whether that was acceptable. The question is hypothetical, so it is difficult to make a decision, but I take on board the hon. Gentleman’s point, and we will provide him with some advice privately before the end of the Committee stage to clarify the issue. I hope that that deals with his point of order.

David Howarth (Liberal Democrat, Cambridge)

On that basis, I beg to ask leave to withdraw the amendment.

Clause 107

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to discuss Government new clause 5—Statement of capital required where company already has share capital.

Margaret Hodge (Labour, Barking)

An issue arises here that we said we would return to following Report in the Lords, when we amended the Bill to remove the requirement for a statement of capital to be provided where an unlimited company that has not previously had a share capital re-registers as a company limited by shares. The requirement for a statement of capital was considered unnecessary in those circumstances, as the company will be required to make a return of allotments to the registrar under clause 545 when it makes an allotment of shares after its registration. That return must be accompanied by a statement of capital. In short, we removed the potential duplication of an information requirement.

We indicated then that we might need to return to the question of whether there were any circumstances in which an unlimited company should be required to provide a statement of capital on its re-registration as a limited company. The amendment is the outcome of our deliberations on that point.

The new clause requires unlimited companies that already have a share capital at the date of application for re-registration as limited to deliver a statement of capital to the registrar within 15 days of their re-registration as a limited company unless that information has already been provided in some other way.

The amendment is required to ensure consistency of treatment between companies that are already limited by shares on the one hand and unlimited companies having a share capital that re-registers companies limited by shares on the other hand. Companies limited by shares are required to file a statement of capital whenever they make an alteration to their share capital which affects their total subscribed capital and whenever they make a new allotment of shares. In other words, they are effectively required to keep the publicly accessible statement of capital up to date.

By contrast, unlimited companies that have a share capital are not subject to the same requirements for real-time reporting, so to speak, of their capital base. Instead, they must provide a statement of capital once a year with their annual return. That means that there is often a time lag. For example, the share capital information on an unlimited company with a share capital that provides an annual statement in January, allots new shares in July and re-registers as a company limited by shares in December, will be many months out of date when the company re-registers.

One option for addressing that difference would be to require all unlimited companies with a share capital to make statements of capital on the same basis as companies limited by shares. That seems an unnecessary burden.

Jonathan Djanogly (Conservative, Huntingdon)

Would not that take away one of the advantages of being unlimited?

Margaret Hodge (Labour, Barking)

I do not follow that point.

Jonathan Djanogly (Conservative, Huntingdon)

I make the point in so far as one of the advantages of being unlimited is not having to disclose things that limited companies have to disclose.

Margaret Hodge (Labour, Barking)

In this case, however, in relation to statements of capital, we suggest that such information should be disclosed. If the hon. Gentleman sees that as an advantage, then yes, the proposal would change the companies’ position.

The new clause requires companies that re-register to provide an updated statement of capital within 15 days unless the same information has already been provided in another way, thus ensuring that publicly available information remains up to date.

Jonathan Djanogly (Conservative, Huntingdon)

I am sure that some company out there will read the Minister’s comments and thank her for clarifying the issue. We have nothing to add, and will not oppose the new clause.

Clause 111

Jonathan Djanogly (Conservative, Huntingdon)

We have now moved to part 8 of the Bill, which deals with members of a company. I shall make two points, on subsections (1) and (2).

First, in respect of subsection (1), Lord Hodgson tabled an amendment to the clause suggested by the Law Society to seek to clarify whether a specific allotment of subscriber shares was required following the company’s registration. He proposed the amendment on the basis that there was confusion in the 1985 Act. He felt that the clause did not make it clear whether the shares in a company are allotted to the subscribers on the registration of the company or whether a formal allotment and the filing of the return of allotments was necessary, and he felt that that should be clarified.

The amendment was withdrawn as Lord Sainsbury agreed to consider the matter further. To be frank, he may have done so—I may have missed a proposal, as we have been swamped with Government amendments on this Bill—but in any event, I would appreciate the Minister’s clarification of the point.

Secondly, subsection (2) in many ways deals with the core of the concept of ownership. It states:

“Every other person who agrees to become a member of a company, and whose name is entered in its register of members, is a member of the company.”

When a share is transferred, the person who agrees to become a member needs to have the stock transfer form duty stamped before it can be entered in the register of members. Without that, beneficial ownership exists, but legal ownership cannot do so. To pay stamp duty, one would take the stock transfer form and a cheque down to Bush house, but now that service has been abolished and there is a postal period of supposedly up to 10 days before stamp duty can be paid and therefore entry made in the register under clause 11 too.

Why did I bring up this matter? I did so because solicitors and others who have to pay stamp duty before they can register the transfer have been complaining about it. A solicitor wrote to me and complained that they heard that delays of much more than five days are occurring. One lawyer told me that he had to chase a delayed transfer and was advised that Bush house had no mechanism for checking the progress of forms, as apparently it was inundated with stock transfer forms and had a huge backlog. He was told that his best option would be to call up his bank and check to see whether his cheque had cleared. That was not appropriate.

I wrote to the Secretary of State on this matter, and it was duly handed over to the Treasury, which I found inappropriate. I am not arguing from a tax point of view; I am arguing from the point of view of subsection (2), which relates to people wanting to transfer their shares and be entered as members of a company. I am not talking about whether they have paid the tax or about how they have done so. That is a mechanical issue that should be got out of the way as soon as possible so that people can comply with the provision.

Nevertheless, the matter was handed over to the Treasury, which was not the right thing to happen, and I received a reply from the Economic Secretary:

“Following the introduction of stamp duty land tax, there has been a significant reduction in the number of documents that require stamping, and the number of personal callers at the London counter has declined over recent years.”

The reply went on to explain that the office was therefore closed on 31 March, and it continued:

“Completed stock transfer forms, along with payment of the stamp duty, are all sent to the London Stamp Office at Bush House. HMRC has undertaken to process documents within its published five-day turnaround time provided that the correct payment is made at the time. Feedback so far under the new arrangements has been good, with customers happy with the level of service they are receiving. There have been very few complaints from customers affected by the counter service closure about the speed with which documents are handled and returned. You have been told that, in some cases, longer delays are occurring. Practitioners may have experienced turnaround times of more than five days after the London office counter closed, due to the unusually high volume of prepaid forms received. However, the resulting backlog of work is now being cleared and customers should no longer experience delays above the published turnaround time. HMRC has also put in place contingency plans to enable it to meet its published turnaround times for stock transfer forms should high volumes occur in future.”

On that basis, I thought that progress was being made, until on 19 June I received another e-mail from another solicitor, which I assure the Minister was totally unsolicited. It stated:

“The loss of the over the counter facility at Bush House is a nightmare—we sent the form on 1 June but have had no acknowledgment other than verbally that they ‘have a backlog’ and can’t even tell us they have received the transfer yet! I can’t register the transfer and finish off the...work.”

I deleted an expletive there. It continued:

“No doubt they have hundreds of people answering the phones to tell all the frustrated users similar things. Is something being done about this example of Government incompetence?”

That is the situation. While one arm of Government—in this Committee—is trying to deregulate, another arm, the Treasury, is slowing down the whole process. In practice, this arrangement is very inconvenient to practitioners, because it requires the buyer to have the sellers enter into a trust deed so that before registration of the transfer, the sellers, who remain as legal owners, promise to act as the buyer wishes in respect of the shares. That is not good practice. It is creating more red tape for companies and I ask the Minister to assure us that she will address the issue so that transfers and entry in the register can be speeded up.

Margaret Hodge (Labour, Barking)

The purport of that contribution related not to whether the Bill is correctly drafted in the way that members of the Committee find acceptable, but to the running of the stock transfer system by the tax office. I assure the hon. Gentleman that he is doing the right thing in raising matters with the Economic Secretary and that he should continue to do so. Implementation is a matter for my hon. Friend and HMRC, not a matter for consideration under the Bill.

The only other point that I want to make is that the clauses were considered in another place andclause 16(5) now makes it clear that subscribers become the holders of shares that are taken by them on formation. That may sort out the position of those who have a transfer.

The hon. Gentleman’s point seemed to be one of implementation. It has not been raised with me, but it clearly has been raised with the hon. Gentleman most recently. He should therefore take up the matter with the relevant Departments and Ministers.

Jonathan Djanogly (Conservative, Huntingdon)

I am talking about the practical implementation of the clause. In order to be registered as members of a company, people have to pay stamp duty before they are registered. People are paying stamp duty, but they cannot register because their payment is not being accepted. The Minister says that I should write to the appropriate person. I did that. I wrote to the Secretary of State for Trade and Industry. The fact that he took it upon himself to send my letter to the Treasury shows me that he did not understand the point that I was making. It is not a Treasury matter. It is a problem for the Department of Trade and Industry. The Treasury wants to do its own thing. I am saying that the problem is for the Minister’s Department. She must get a grip on it so that the practical implications of the clause can be realised and so that practitioners and those who want to be registered as members can do so.

Margaret Hodge (Labour, Barking)

The issue before the Committee is whether the process as we have defined it in the Bill is appropriate. Nothing in the hon. Gentleman’s contribution suggests that the process is anything other than correct. He described problems with implementation that have been drawn to his attention. Because in this instance implementation is a matter for the Treasury and HMRC, it is an issue that he must raise with appropriate Ministers. Obviously, in relation to the Bill we wish registration to take place as quickly as possible.

Jonathan Djanogly (Conservative, Huntingdon)

If the Minister would at least offer to approach the Treasury and move it along a little on the issue, that may be of great help to many companies and individuals who want to transfer their shares and register them.

Margaret Hodge (Labour, Barking)

The hon. Gentleman is referring to a tax issue, and I shall draw it to the attention of my hon. Friends who have responsibility for such matters.

Jonathan Djanogly (Conservative, Huntingdon)

There are implications for your Department.

Margaret Hodge (Labour, Barking)

We want registration to take place as quickly as possible. That is clearly in everyone’s interests. It seems that what has been drawn to the hon. Gentleman’s attention is a delay in the tax process, which, as much as I might love it to be my responsibility in some ways, as it would give me access to some of the revenue as well as collection responsibilities, is not a matter for my Department. I undertake to let the relevant Ministers in the Treasury have copies of the Hansard report of what the hon. Gentleman has said and see what response we receive from them.

Clause 112

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 23, in clause 112, page 50, line 17, after ‘addresses', insert

‘(which, for the avoidance of doubt, need not be a home address)'.

The clause relates to section 352 of the Companies Act 1985. Later I shall speak more fully on the problems caused by access to home addresses on the register of members. At this point, it is worth clarifying that there is no need to use a home address on a share transfer form or in the register of members. A service address can be used, such as that of a person’s accountant, bank or post office. Of course, having the name appear on the register, whatever the address, can create its own problems, particularly if the name is a rare one, which is why the ability to deny access is important, as we shall discuss later.

I would like to receive the Minister’s confirmation of one aspect of the matter. The July 2002 consultation document, “Regulatory Impact Assessment on Disclosure of beneficial ownership of unlisted companies” noted that the current registration system does not reveal any information regarding the beneficial ownership of shares. For that reason, the document noted, attempting to establish the ownership of the company by referring to the register has its limitations, as there is no means of discovering who beneficial shareholders are. To solve that problem, those responsible for the RIA were asked to consider a proposal put forward by the DTI and HM Treasury that a person must disclose to a private company, once their beneficial interest in shares exceeds 3 per cent.. The company would then be obliged to enter those details on a subsection of the register of members. Will the Minister confirm that that proposal will not now be proceeded with?

I would also appreciate the Minister’s clarification on a slightly different topic, which was raised in the Lords. I tabled a written question, to which I received a reply on 2 May. I asked:

“How many registered companies have issued stock?”

The response that I received from the then Minister was:

“Section 121(c) of the Companies Act 1985 permits a company to convert any or all of its paid-up shares into stock, and reconvert that stock into paid-up shares of any denomination. There are no available figures on the number of existing, registered companies that have used that procedure. However, the ability to convert shares into stock is to believed to be obsolete.” —[Official Report, 2 May 2006; Vol. 445, c. 1365W.]

Can we not now just get rid of stock?

Margaret Hodge (Labour, Barking)

On the last point, I asked the same question in preparation for various clauses in the Bill. I was told that while it was obsolete, we could not guarantee that there was none still around. We have to carry on with the provisions until we are certain that it has all disappeared from the face of the Earth. I know, it is one of those awful things. On the first point, I assure the hon. Gentleman that we are not proceeding with the proposal to which he alluded.

I will speak generally to amendment No. 23, which I think is similar to one that was tabled in another place. One way in which members of a company may wish to protect themselves against attempts to harass or defraud them is by giving the company a service, rather than a home, address. That is already possible. However, on Third Reading in the other place, when a number of amendments were made to part 8, which deals with company members, specific provision—clause 793—was inserted to draw attention to the point. As hon. Members know, clause 793 provides that

“Any obligation under the Companies Acts to give a person’s address is, unless otherwise expressly provided, to give a service address for that person.”

We recognise the importance of those matters, but we doubt that the addition of a second provision for the avoidance of doubt would serve any useful purpose. I hope on that basis, the hon. Member will withdraw his amendment.

Jonathan Djanogly (Conservative, Huntingdon)

On the basis that the Minister has explained where the provision is—somewhat later on in the Bill—I am happy to beg leave to withdraw the amendment.

Eric Illsley (Labour, Barnsley Central)

May I clarify with the hon. Gentleman, he referred to questions of stock in his remarks on amendment No. 23. Does he intend to move amendment No. 67?

Jonathan Djanogly (Conservative, Huntingdon)

No.

Clause 113

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 24, in clause 113, page 51, line 15, leave out ‘is registered' and insert

‘has its principal place of business'.

We are now dealing with what is currentlysection 353 of the Companies Act 1985, which deals with the location of registers. Subsection (1) and allows for the register to be kept at a location other than the company’s registered office in specific circumstances. Clause 113 requires the register to be available for inspection at a specified location, which can be the company’s office or another place in the part of the United Kingdom in which the company is registered.

The amendment is probing. It would change the clause to provide for the register to be kept available for inspection where the company has its principal place of business. The point is that that could help to prevent companies from getting up to no good. Let me explain. It might be attractive for a company based, say, in London that wanted to avoid inspections to use a company that was registered in Northern Ireland, for example, which would make access to registers a much more difficult business. The purpose of the amendment is to prevent that.

Margaret Hodge (Labour, Barking)

The hon. Gentleman is right to say that the clause differs from the existing provision in that it refers to where the register is kept available for inspection, rather than simply where it is kept. That is because where electronic registers are kept is debatable, and they may be updated from various locations; what matters is where they are kept available for inspection. We hope that the new formulation will remove any difficulty that might have arisen when, for example, a company with its registered office in Scotland employed a commercial registrar in England.

However, because the courts of a country in which a public register is kept have exclusive jurisdiction over entries in that register, it is essential that the jurisdiction in which a company’s register of members is kept available for inspection is not subject to change, as it would be if the amendment were agreed. I was slightly puzzled by the hon. Gentleman’s contribution in that respect. The jurisdiction over a company’s registered office is fixed on the company’s incorporation, and clearly that jurisdiction’s courts should always apply to its register of members.

I hope that that reply has alleviated the hon. Gentleman’s concerns, and that he will withdraw the amendment.

Jonathan Djanogly (Conservative, Huntingdon)

The Minister has confirmed the existing position, and I think that I have made my point. On that basis, I beg to ask leave to withdraw the amendment.

Clause 114

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 25, in clause 114, page 51, line 34, leave out ‘50' and insert ‘100'.

The clause relates to section 354 of the Companies Act 1985, which deals with the index of members. It was debated in the Lords, where Lord Hodgson proposed an amendment that only companies with more than 100 members, as opposed to the 50 currently specified in clause 114, need keep an index. He pointed out that

“Fifty is not such a large number that it requires an index. Up to 100 members...could easily be examined by an ordinary shareholder without needing an index.”

Lord Sainsbury responded that he doubted that

“many companies with more than 50 members do not currently keep their register of members electronically”—[Official Report, House of Lords, 1 February 2006; Vol. 678, c.GC148]

and that the amendment would therefore have little practical impact. To move the matter forward, I would add that Lord Sainsbury may well be right, but we still believe that the amendment would be a worthy deregulatory move, and we ask the Minister to reconsider.

Margaret Hodge (Labour, Barking)

For the sake of speed and trying to move us on this afternoon, I have to say that our view has not changed from the one expressed by Lord Sainsbury in the House of Lords. We think that the impact of the amendment will be minimal, and that the change is not a particularly sensible one that we ought to pursue.

Jonathan Djanogly (Conservative, Huntingdon)

In the same spirit of wanting to move on, I hear what the Minister has to say and on that basis I beg to ask leave to withdraw the amendment.

Clause 115

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 26, in clause 115, page 52, line 10, leave out from ‘inspection' to end of line 12 and insert

‘of any member of the company without charge, provided that each such member to whom the register is disclosed owns 5 per cent. or more of the issued share capital of the Company.'.

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to discuss the following: Amendment No. 27, in clause 115, page 52, line 21, after first ‘the', insert ‘precise'.

Clause stand part.

Amendment No. 29, in clause 116, page 52, line 32, leave out ‘five' and insert ‘fifteen'.

Amendment No. 168, in clause 116, page 52, line 34, leave out ‘apply to the court' and insert

‘inform the person making the request that it is refusing the request because it believes that the request is not made for a proper purpose'.

Amendment No. 30, in clause 116, page 52, line 34, after ‘court', insert

‘, unless an application for a confidentiality order has been made subject to section [Names and addresses of members of companies: company application] or [Names and addresses of members of companies: individual application]'.

Amendment No. 170, in clause 116, page 52, leave out line 35 and insert—

‘(2) The person making the report may apply to the court.'.

Amendment No. 171, in clause 116, page 52, line 36, after ‘is', insert ‘not'.

Amendment No. 172, in clause 116, page 52, line 37, leave out ‘not'.

Amendment No. 173, in clause 116, page 52, line 38, leave out

‘the company not to comply with'

and insert

‘that the company is permitted to refuse'.

Amendment No. 174, in clause 116, page 52, line 41, leave out from ‘request' to end.

Amendment No. 175, in clause 116, page 53, line 2, after ‘is', insert ‘permitted'.

Amendment No. 176, in clause 116, page 53, line 5, leave out from ‘if' to first ‘the' in line 6 and insert

‘the court does not make a direction that the company is permitted to refuse'.

Clause 116 stand part.

Amendment No. 169, in clause 117, page 53, line 12, leave out

‘accordance with an order of the court'

and insert

‘pursuance of a refusal under section 116(1)(b) (unless the court has decided that it is not satisfied that the request was for a proper purpose under section 116(3))'.

Clause 117 stand part.

New clause 2—Names and addresses of members of companies: company application—

‘(1) Subject to the provisions of this section, a company may make an application under this section to the Secretary of State where the condition in subsection (2) is satisfied.

(2) The condition referred to in subsection (1) above is that the company considers that the availability for inspection by members of the public of particulars of the names and usual residential or business addresses of the members of the company creates, or (if an order is not made under this section) is likely to create, a serious risk that a member of the company or a person who lives with or is an employee of a member of the company will be subjected to violence or intimidation (“a serious risk”).

(3) Where, on an application made by a company under this section, the Secretary of State is satisfied that the availability for inspection by members of the public of the particulars of that company's members' usual residential addresses creates or (if an order is not made under this section) is likely to create a serious risk that a member, or a person who lives with him, or an employee of his will be subjected to violence, intimidation or criminal activity, he shall make an order under this section (“a company member's confidentiality order”) in relation to the company.

(4) Where the Secretary of State is not satisfied under subsection (3) he shall dismiss the application.

(5) At any time when a company member's confidentiality order is in force in relation to a company, the name and address of any individual in the register of members of the company that is the subject of the confidentiality order, shall not be disclosed to any person who may request either company or Companies House disclosure of such names and addresses save in prescribed circumstances.

(6) The Secretary of State shall give the applicant notice of his decision under subsection (3) or (4); and a notice under this subsection shall be given within such period and shall contain such information as may be prescribed.

(7) The Secretary of State may at any time revoke a company members confidentiality order if he is satisfied that such conditions as may be prescribed are satisfied.'.

New clause 3—Names and addresses of members of companies: individual application—

‘(1) Subject to the provisions of this section, an individual may make an application under this section to the Secretary of State where the condition in subsection (2) is satisfied.

(2) The condition referred to in subsection (1) above is that the individual—

(a) is or proposes to become a member of a relevant company; and

(b) considers that the availability for inspection by members of the public of particulars of his name and usual residential or business address creates, or (if an order is not made under this section) is likely to create, a serious risk that he or a person who lives with him or an employee of his will be subjected to violence, intimidation or criminal activity (“a serious risk”).

(3) Where, on an application made by an individual under this section, the Secretary of State is satisfied that the availability for inspection by members of the public of the particulars of the individual's usual residential address creates or (if an order is not made under this section) is likely to create a serious risk that the individual, or a person who lives with him, or an employee of his will be subjected to violence, intimidation or criminal activity, he shall make an order under this section (“an individual member's confidentiality order”) in relation to him.

(4) Where the Secretary of State is not satisfied under subsection (3) he shall dismiss the application.

(5) At any time when an individual member's confidentiality order is in force in relation to an individual the name and address of the individual in the register of members of the company which is the subject of the confidentiality order shall not be disclosed to any person who may request either company or Companies House disclosure of such name and address save in prescribed circumstances.

(6) The Secretary of State shall give the applicant notice of his decision under subsection (3) or (4); and a notice under this subsection shall be given within such period and shall contain such information as may be prescribed.

(7) The Secretary of State may at any time revoke an individual member's confidentiality order if he is satisfied that such conditions as may be prescribed are satisfied.'.

New clause 22—Optional regime for membership register—

‘(1) A company may by special resolution exempt itself from any obligation under sections 115 to 117 to allow the inspection of its membership register or to supply a copy of the register or any part of it as long as it undertakes to pass on to all of its members any lawful message or documentation that a member of the company or a member of the public wishes to send to the company's members.

(2) The company may charge a reasonable fee for sending a message or documentation under subsection (1).

(3) Where the company has made an undertaking under subsection (1) and has failed to carry it out, an offence is committed by—

(a) the company, and

(b) every officer of the company who is in default.

(4) A person guilty of an offence under this section is liable on summary conviction to a fine not exceeding level 3 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 3 on the standard scale.

(5) In the case of any such refusal or default the court may by order compel an immediate inspection of the register or, as the case may be, direct that a copy of the register be sent to the person to whom the undertaking was made.'.

Jonathan Djanogly (Conservative, Huntingdon)

Hon. Members can probably tell from that list that the amendments in this group are somewhat more significant than many of the amendments that we have discussed so far. We are moving on, of course, to shareholders’ and non-members’ rights to inspect and require copies of the register of members.

It of interest that when the matter was first discussed in Grand Committee in the Lords, the question of denying access was not raised from the point of view of extremist activity. That is because the Opposition took the decision that that was a political issue that should be dealt with by this House, not least because the topic is one on which I have corresponded with the Government for several years in the interests of my constituents who work at Huntingdon Life Sciences. Subsequently, however, several thousand shareholders of GlaxoSmithKline, the pharma-group, received threatening letters from animal rights terrorists. Suddenly, on Report in the Lords, Lord Sainsbury, on direct orders from above and urged on by a chorus of vocal peers, promised to go away and reconsider the Government’s position before Third Reading, when amendments were indeed produced and added to the Bill.

Having demanded increased protection for shareholders for many years now, and the Government having rejected my amendments to the Serious Organised Crime and Police Bill to do that, I am pleased to see that the issue is now being addressed. I am aware, however, that reactive and on-the-hoof law can often turn into the worst law in practice. That is why we need to spend some time on the clauses.

The overriding concern of my hon. Friends is to ensure the protection of shareholders from violence and intimidation.

Kitty Ussher (Labour, Burnley)

Does the hon. Gentleman agree that the violence and intimidating behaviour is the offence and that we should deal with that, rather than restrict the centuries-old established convention that owning a share in a company means that the information should be public?

Jonathan Djanogly (Conservative, Huntingdon)

No, I disagree. If a person accesses the register of members for the purposes of using it for violence, that must be controlled.

Paul Farrelly (Labour, Newcastle-under-Lyme)

Does the hon. Gentleman agree that any measure that is enacted in legislation such as this has to be proportionate and should not cause wider harm, in particular to corporate governance? Throughout the corporate sector in the UK, we have striven for greater disclosure and greater transparency in corporate behaviour. The danger is that his amendments will set that back substantially.

Jonathan Djanogly (Conservative, Huntingdon)

The hon. Gentleman is absolutely right. There must be a balance and proportionality between access to a register and security for those on it. We totally accept that position. He talks about our amendments inhibiting that access, but he will hear me say that most of the amendments have been tabled on a probing basis, so that we can look at the different levels that currently exist in the world and debate them. I will not maintain that we should support all of the amendments. If he bears with me I will certainly cover in some depth the point that he quite rightly mentions.

My purpose is much more than protecting companies that practise animal testing, although that is the area directly within my experience, so I shall refer to it. The amendments are more about the type of environment that we are to offer people conducting business in this country. Just as the protection of the person must be a priority for the Government, so must be protection for companies and their shareholders. Without that protection business will, as I will show the Committee, simply pick up and go overseas. The other preliminary point that I make, with some irony, is that several speakers in the Lords debate on this issue and several journalists have made out that the GlaxoSmithKline letter incident was a new development. I shall show the Committee that that was not the case and that attacks on shareholders have become an established theme of anti-corporate activism.

On the basis that this is a general debate on shareholders, I do not intend to address the rights and wrongs of the underlying issues, much though I support animal testing, for example. My point is that although direct action, sometimes slipping into terrorist activity, emanates from animal rights activists today, the same methods could be used tomorrow by other groups. If drugs manufacturers, animal testing companies and furriers are affected now, meat importers, road builders, handbag manufacturers, furniture makers or mining companies could be affected tomorrow.

The rest of the debate is in Hansard.