Company Law Reform Bill [Lords]

Public Bill Committee, 27 June 2006.

Standing Committee D

Clause 115

Eric Illsley (Labour, Barnsley Central)

I remind the Committee that with this we are taking 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.'.

Crispin Blunt (Conservative, Reigate)

On a point of order, Mr. Illsley. Over the weekend the Minister honoured her undertaking to circulate the draft clauses relating to the consolidation Bill and I thank her for that. However, I have identified 254 new clauses that the Government will introduce in Committee. There are a number of identified changes to those clauses to reflect the new language in which they are being introduced and the Committee will not have an opportunity to do anything other than simply insert those into the Bill under the Government’s plans.

When writing to the Committee, the Minister stated:

“I said that we hoped to do so as far as possible during Committee stage while noting that this was a considerable task”—

that is, consolidation—

“We would then intend to seek the view of the Law Societies and others over the summer, in particular to ensure that no unintended changes to the law had been made by the restatement. We could then reflect any comments in amendments brought forward at Report stage.”

My point of order is that that is inherently unsatisfactory and should be done by the Committee. With 254 new clauses and more to come, as the Minister promised, it will take an hour simply for the Chair to put the motions on those if we do not get around to considering them in detail by 5 o’clock on Thursday 13 July, which is the current outdate of the Committee.

I seek from you, Mr. Illsley, some form of protection for us as legislators to do our job. The Minister made an offer to the Committee when she said that she would be

“very happy for any interested Committee members to be involved in discussions in September”

when, as the Committee will cease to exist in July, its members will have no more status than other right hon. and hon. Members of the House. I urge you, Mr. Illsley to recommend that the Committee sits into October after the summer recess so that we can do our job properly or, if the Government are not prepared to do that, to recommend that sufficient time—it will be a long time—is provided for consideration on Report on the Floor of the House.

Eric Illsley (Labour, Barnsley Central)

I listened to the hon. Gentleman who obviously has a legitimate point of order, but the matter is outside the remit of the Chair and I cannot make the recommendations that he requests. They are a matter for the usual channels and, if there is agreement, they can return with a further motion for the Programming Sub-Committee.

Margaret Hodge (Labour, Barking)

Further to the point of order, Mr. Illsley. I can provide clarification. Hon. Members will recall that the reason for our further consolidating other aspects of company law is that there was consensus between all political parties, when the Bill was considered in the House of Lords, that it would make sense to put in one place all the legislation that had an impact. It was decided on the basis of that consensus and with the recognition that the new clauses in question are not ready in the same way as the rest of the clauses are.

We have given an undertaking that we are not, by the consolidation, changing the law, except to make it fit with other clauses. There is no change to existing legislation except in so far as it makes sense to do it in that way. Clearly, there is a limited time frame and we want to get the Bill on the statute book. We think we are being helpful in explaining to hon. Members of all parties that we are introducing the new clauses in Committee; that we want discussions with experts outside the House—particularly the Law Society—and any members of the Committee who want to participate, all through the coming period; and that if, on Report in the House of Commons before the Bill returns to the House of Lords in October, in the spill-over phase, any amendments that have arisen from that discussion can be tabled at that point, in the spirit of consensus. That is the practical way of going ahead, unless we put the new clauses into a new piece of legislation.

I hope that hon. Members will work with us in the spirit of co-operation that we have tried to engender. I am happy to meet Opposition Members of whatever party in the period in September and early October, before we return for Report and Third Reading in the House of Commons, and before the Bill’s subsequent return to the House of Lords, to try to reach agreement on the new clauses. We are not trying to pull a fast one. We are simply trying to make sense of the current legislation and put all company law legislation in one place.

David Howarth (Liberal Democrat, Cambridge)

Further to that point of order, Mr. Illsley. We share the concerns of the official Opposition about the time scale that is appropriate for the consolidation, but we have listened to what the Minister said and will reflect carefully on it. However, it seems to us that our original proposal, made by my hon. Friend the Member for Kingston and Surbiton (Mr. Davey) on Second Reading, is the appropriate approach and that the Committee should sit briefly after the recess, simply to deal with the consolidation clauses, in case there are problems and errors.

There is an old saying among French lawyers that to codify is to modify. Some change always happens when an attempt is made at codifying, simply because of the different context. I think that the summer will be needed for thought about that.

Crispin Blunt (Conservative, Reigate)

Further to that point of order, Mr. Illsley. I have reflected on what the Minister said. I think that the difference between Conservative Members and the Government is whether the matter should be considered in Committee or on Report. We are firmly of the view that it is appropriate for examination by the Standing Committee. We shall all be tediously familiar with it by July and would thus have the opportunity to use our knowledge for the benefit of the House in October, rather than having to deal with the matter on the Floor of the House on Report.

I have another request to make of the Government: that we have a consolidated, newly printed Bill, however matters are to go forward, ready for the return of the House in October.

Margaret Hodge (Labour, Barking)

Further to that point of order, Mr. Illsley. I want to be helpful. We shall certainly try to produce a new consolidated Bill in time for that consideration; it certainly makes sense and we shall try to act accordingly. I understand the point made by the hon. Member for Cambridge (David Howarth) about the possibility of our inadvertently amending provisions in the process of consolidating. That is not our intent. We shall all have the entirety of the summer recess to examine the amendments. We are introducing them in Committee now so that we can look at them in detail in consultation with the Law Society and others to see whether we have inadvertently made a mistake. Of course, we are consolidating existing law, which has been subject to full consideration under all the due processes of the House, and we are not introducing new laws, which it would be legitimate to discuss in Committee and beyond.

Eric Illsley (Labour, Barnsley Central)

To confirm the issues raised by the hon. Member for Reigate (Mr. Blunt) in his point of order, the Committee will dissolve and report to the House on 13 July. It will not meet after then. If hon. Members are given any information after that, it will be in their role as Members of the House of Commons, not as members of the Standing Committee.

David Howarth (Liberal Democrat, Cambridge)

We return to the question that we debated at the end of last week—the balance between two issues, on which I think both sides of the Committee share the same outlook. On the one side, there is the principle that there should be transparency in share ownership and that people who own shares should be prepared to be contacted by other members of the company and perhaps by members of the public to debate and defend positions in the company. On the other side, there is the problem, which has arisen largely because of animal rights terrorism, of shareholders sometimes being intimidated and threatened with, or actually suffering, physical violence as a result of their shareholding.

We became slightly overheated, and the debate gave the impression that there was a fundamental difference between the parties, but I do not think that there is. The Government’s position is that the principle of absolute transparency must be compromised because of the problem of threats and the intimidation of shareholders. They have rightly introduced a proposal to deal with the problem and to balance the two issues that I mentioned. A company faced with a request for a list of its shareholders is to have the option of complying with that request or going to the court, in which case the court would determine whether the request was made for a proper purpose. The Government have included the additional protection that any person who passes information on for improper purposes commits a crime. Let it not be said, therefore, that their position does not compromise the principle of absolute transparency, because it does.

The question raised by the amendments is simply whether the Government have got the balance between the two things right. The hon. Member for Huntingdon (Mr. Djanogly) proposed a further, although not major shift in the direction of protecting shareholders. He would allow companies to protect their lists of shareholders when there is a threat to those shareholders and when the Secretary of State can be persuaded that that threat is sufficient to close the list.

The Liberal Democrat amendments offer slightly different approaches, but pursue basically the same direction of change. They would slightly shift the degree of protection in favour of shareholders and slightly close the opportunities available to people who want to intimidate shareholders. We offer two possibilities. The first, which is rather simple, is encapsulated in amendment No. 168 and consequential amendments Nos. 170 to 176. All the proposal would do is reverse the burden of proof. Under the Government’s proposal, the company can either comply with the request to hand over its list of shareholders or go to the court. Under our proposal, the slight change would mean that the company could refuse on the ground that the request is improper, and the applicant would have to go to the court. The other amendments are drafting amendments to ensure that the proposal works within the statute.

The reason why we propose the amendments is that there is a legal principle—I guess the court would follow it to interpret the clauses—that the person who asserts something has to prove it, unless the statute says that the burden of proof lies elsewhere. In the normal course of events, he who asserts must prove. The Government have established a system under which, at least initially, the company will have to prove that the purpose is improper. With repeat applications, the Government’s proposal reverses the burden of proof. When people repeatedly go to the court with requests, the Government propose that they are batted back without further argument. Our change is minor, as we propose to change the burden of proof for the first application, too.

Paul Farrelly (Labour, Newcastle-under-Lyme)

Does the hon. Gentleman agree that in this country a powerful bulwark against over-mighty government isa free press? Under his proposal, can he imagine what a fraudulent company would do to every journalist who asked legitimate questions of its shareholder register? His proposal would force them to go to court time and again. Can he imagine what effect that would have on proper investigative journalism?

David Howarth (Liberal Democrat, Cambridge)

The burden of proof that we propose is exactly the same as that in libel law, so if the hon. Gentleman wants to engage in a debate about the entirety of media law, he is perfectly at liberty to do so. However, we do not propose anything unusual or more restrictive on press freedom than already exists in law. If a newspaper were to go to a court to explain its purposes, that in itself would be even more embarrassing for the company. It would have to take that into account when it refused the application.

Paul Farrelly (Labour, Newcastle-under-Lyme)

In advance of remarks that I shall make later, let me say that the hon. Gentleman is entirely wrong on that point.

David Howarth (Liberal Democrat, Cambridge)

I am not too sure on which of my various points I am entirely wrong, so I shall give way again to enable the hon. Gentleman to be more specific.

Paul Farrelly (Labour, Newcastle-under-Lyme)

The hon. Gentleman is wrong on every point that he has made. His amendment to reverse the burden would result in a major change and a major restriction on press freedom in financial investigations.

David Howarth (Liberal Democrat, Cambridge)

I fear that neither of us has any great experience in financial journalism, so I do not know which angle he is coming from.

Paul Farrelly (Labour, Newcastle-under-Lyme)

If the hon. Gentleman would like to see me after class, I shall take him to my office to show him the 12 years of clippings that culminated in my position as City editor on The Observer.

David Howarth (Liberal Democrat, Cambridge)

I shall be glad to look at the hon. Gentleman’s clippings. However, perhaps also after class, I can show him my 20 years of experience teaching libel law. I assure him that my amendment would make no great difference.

Returning to the point, the question that we are trying to ask the Government is precisely why they have chosen that particular balance. Contrary to what the hon. Gentleman says, it seems that they have gone a long way towards the position that we propose, especially on second, third and subsequent applications. The question we are trying to ask is why, in the first application only, do the Government put the burden of proof on the company, not the applicant? That is the only difference between us and the Government.

The second proposal that we are offering the Government is new clause 22, which would allow a company to close its list by special resolution. Such a company would, however, come under a new obligation to circulate, for a reasonable fee, any lawful information or documentation that an outsider or a member wanted to circulate to those on the list of shareholders. In making such a proposal, we are trying to preserve the right of members of the company and people in general to approach shareholders and to put their views on, for example, the ethical standards to which the company is or is not adhering. We are trying to do that in a way that does not require the company to reveal the shareholders’ names and addresses, because that would provide added protection from intimidation and threats of violence, without closing down debate with members of the company or the public. Members of the company would still receive information that they might or might not find helpful in holding the company’s directors to account and in deciding whether to continue investing in the company.

We offer new clause 22 as a third possibility, so there are three alternative proposals on the table.

Nick Palmer (Labour, Broxtowe)

As the MP for an area with a pharmaceutical company, I appreciate the issues that the hon. Gentleman raises, but does he not agree that the long-term concern is more about improper financial holdings? Although new clause 22 would allow people to lobby a company’s shareholders, it would completely rule out the possibility of journalists or others investigating peculiar shareholdings, as my hon. Friend suggested.

David Howarth (Liberal Democrat, Cambridge)

I accept that that is a danger of the new clause. I was going to say that there might be a case for a composite amendment that combined new clause 22 and the corresponding new clauses tabled by the hon. Member for Huntingdon. I accept that the new clause is defective in that it does not require outside control over the use of the power involved, and the new clauses tabled by the hon. Member for Huntingdon have the merit of requiring the permission of the Secretary of State, who would presumably take any danger into account in deciding whether to grant the company’s request to close its list. Another possibility, of course, is that one should go to the court, rather than to the Secretary of State. All those possibilities are on the table, although they all have defects.

Margaret Hodge (Labour, Barking)

Going to court is precisely what is suggested in our proposal.

David Howarth (Liberal Democrat, Cambridge)

That is precisely right, which is why there are three possibilities on the table. However, the question before the Committee is simply whether to go slightly further than the Government have gone so far.

Kitty Ussher (Labour, Burnley)

Does the hon. Gentleman agree that the problem with the Opposition’s proposals is that a decision would be made to close the list, but there would be no monitoring of what happened after that? Unusual shareholdings or shareholdings that involved a conflict of interest might arise, but there would be no way of monitoring such things after the event.

David Howarth (Liberal Democrat, Cambridge)

Yes, that is a defect of our proposals, but the hon. Lady’s point does not address the issue of principle, which is whether the Government have gone far enough. In a way, the question could occur under the Government’s scheme if people who went to court were told that they were there for an improper purpose, and if the court considered subsequent applications by the same journalist simply as repeat applications and threw them out immediately, even though the situation might have changed. Those dangers arise under all the schemes. As soon as a scheme for closing the list of shareholders is adopted, that sort of danger will exist, regardless of the sort of scheme that is chosen.

Margaret Hodge (Labour, Barking)

The hon. Gentleman is coming to the end of his remarks, I think. Perhaps he can explain what principles underpin his approach and his belief that our amendments, which we think are very strong, do not go far enough. He has admitted the flaws in his amendments, but he has not justified his belief that the Government have not achieved the right balance and not gone far enough.

David Howarth (Liberal Democrat, Cambridge)

The debate started with a strong statement by the hon. Member for Huntingdon about the extent and seriousness of the problem. His constituents in Huntingdon, like mine in Cambridge—and the constituents, in fact, of all south Cambridgeshire MPs—have faced the problem of intimidation and threat in a very personal way. I suppose that the hon. Gentleman and I have a slightly different starting point from that of other hon. Members. We are trying to find ways to maximise protection for people in that situation, without compromising the other principle. We are, therefore, trying to push matters a little further.

The problem is a serious one from our point of view, and we have seen it for ourselves, but we accept that the Government have come a long way along the route. Their proposal is a serious attempt to take into account both the relevant principles. We are not here to condemn what the Government have done; we are here to try to push a little further along the path of protection, because we see that as so important.

I do not want to repeat the examples provided by the hon. Member for Huntingdon; they are all very familiar to me, and to everyone in my part of the country. The question for the Government to answer is why they have stopped where they have and why they should not go a little further along the protective line. The hon. Member for Newcastle-under-Lyme (Paul Farrelly) said last Thursday that the proposals of the hon. Member for Huntingdon were a fundamental threat to the openness of corporate governance. I do not think that they are. They would be so only if the Government of the day were themselves determined to undermine those principles by acceding to too many requests. Whether that happened would be within the control of the Government.

Our proposals—the shift of the burden of proof and the optional regime—are merely attempts to go a little further and balance the two interests in a slightly different way. They are not fundamentally different from the Government’s proposals; we accept that. However, we should like the Government to consider why they should not go a little further along the route.

Paul Farrelly (Labour, Newcastle-under-Lyme)

I have been so excited by the probing amendments that I have taken the opportunity to scribble a few notes. I want to speak about amendment No. 26 and new clause 22 in particular. I shall also make plain my concerns about amendment No. 168.

As a result of the activities of animal rights extremists, I would be more sympathetic to the Opposition approach in new clauses 2 and 3 if that were an alternative approach, with safeguards, rather than a belt-and-braces approach. However, I have serious reservations about the wider implications of those clauses, too.

Jonathan Djanogly (Conservative, Huntingdon)

New clauses 2 and 3 are complementary to the Government’s approach. They are not an alternative.

Paul Farrelly (Labour, Newcastle-under-Lyme)

I said that I have more sympathy for those new clauses. I have received many representations about the Bill, but I have not received a representation from the assorted constabulary of Staffordshire police, beating a path to my door and saying, “We must have these amendments in the Company Law Reform Bill to combat the sort of activities that we saw at Darley Oaks farm,” where on the basis of good intelligence and investigation, they successfully prosecuted four of the people involved. Neither Staffordshire nor any other police force has beaten a path to our door crying out for those amendments. The unacceptable behaviour of animal rights extremists is well known, but any response enshrined in law has to be proportionate. It should not produce other harmful consequences, whether foreseeable or not. The amendments, the new clause and that sort of approach might do so. They are sledgehammers to crack a few nuts.

For the record, I should declare that before entering the House, I was the City editor of The Observer, and I am still a paid-up member of the National Union of Journalists, so I have a drum to beat. I can safely say that during a career spanning a dozen years, much of it taken up with investigative journalism, I was involved in almost every major corporate fraud during that time—journalistically speaking. Before that, I worked in the City of London. I have the perfect CV for a Conservative MP, as many people point out. I was a corporate finance adviser handling flotations, mergers and takeovers with the investment bank Barclays de Zoete Wedd, of whose parent company I am still a customer. I have hands-on experience of corporate governance and due diligence from the business side of the fence.

If amendment No. 26 and new clause 22 were agreed to, it would be tantamount to introducing a rogue’s charter to British company law. It would be manna from heaven for crooks and fraudsters. That is clearly not the proposals’ intention, but they would have that effect. They would apply to companies across the board, not just the few that extremists target. They would seriously impede effective corporate governance, investigative journalism, and proper and legitimate due diligence carried out by honest companies into firms and individuals with whom they propose to trade, or in which they might invest. The proposals would certainly lessen the transparency of companies not only tothe outside world, but importantly to existing shareholders. They might also hamper the ability of the Government, law enforcement agencies and other regulators such as the stock exchange to carry out their functions in a timely and expeditious manner in the eternal fight against fraud and market manipulation.

Amendment No. 26 would deny to the public, to the vast majority of shareholders in public companies and to a significant number of minority investors, or any other legitimately interested party, the right to attend a company’s registered office to inspect its shareholder register, unless they owned more than 5 per cent. of the company. Anyone with experience of investigating possible fraud or manipulation, or carrying out legitimate due diligence, knows that when speed is essential, it is often the quickest way to get answers about the make-up of a company’s shareholder register.

Amendment No. 168 would remove the hurdle whereby a company must apply to the court before refusing a written application for a copy of the share register. It would leave refusal in the hands of the company, and it would leave the company with the discretion—in the first instance at least—to decide what it believes is a proper purpose. The amendment is also poorly drafted, because having removed the requirement to apply to the court, it does not seek to delete subsections (2) to (5) of clause 116 regarding the court procedure that it would make redundant.

David Howarth (Liberal Democrat, Cambridge)

The courts must still have a procedure, no matter who applies to them.

Paul Farrelly (Labour, Newcastle-under-Lyme)

Clearly they must, and the hon. Gentleman is a learned lawyer, but he will agree that if the hurdle to apply to the court were removed, the rest of the clause would be redundant.

The vast majority of companies are honestly run, and people rarely have the need to inspect or request a share register. However, there will always be a few rotten apples in the barrel, and I have known a few.

Let us consider the effect of the amendments from the vantage point not of a journalist such as me, but of a small shareholder who owns less than 5 per cent. of a company and wishes legitimately to ask questions about co-investors. By the way, the five per cent. threshold that a shareholder must cross to qualify is higher than the minimum disclosure threshold of 3 per cent., and the incongruity looks very odd. That aside, the 4.9 per cent. shareholder will have no right to inspect the register.

Under amendment No. 168, such shareholders could also be barred and would have no further simple means of recourse if the company was determined to hide the identity of fellow shareholders. A company that was so determined—fraudsters, crooks and manipulators are clever, determined people—could conceivably deem any reasons to inspect the list as improper if someone sought to cast aspersions on the company and fellow shareholders. A fraudulent shareholder or main director could quite possibly do that to block legitimate investigation.

In short, the Opposition proposals would not guarantee that shareholders, let alone anyone else with good reasons for doing so, could check the identities and bone fides of other investors. Quite apart from any malpractice, the proposals would not allow small shareholders to determine whether a company was comprised of a bone fide array of fellow small shareholders.

David Howarth (Liberal Democrat, Cambridge)

The hon. Gentleman makes some good points, but he conflates the various provisions. There is no 5 per cent. bar in amendment No. 168, which would simply reverse the burden of proof in terms of going to court. The situation would be similar to that under the Government’s proposal. The only difference relates to who would have to apply.

Paul Farrelly (Labour, Newcastle-under-Lyme)

The amendments are clearly probing provisions, as has been said, but I am trying to demonstrate their cumulative effect in cases where someone is determined to run a company fraudulently. The Opposition provisions would not allow a small shareholder to determine whether there was a secret concert party that guaranteed that certain investors always exercised control over the company. That is clearly a legitimate interest for any investor in a company, and the provisions would seriously erode shareholder rights.

On some of the other issues involved, shareholder registers and company returns to Companies House are the bread and butter of investigative journalists or investigators conducting legitimate due diligence. Indeed, I remember numerous occasions on which I painstakingly built a true picture of a dodgy company by tracking down shareholders and contacting them to ask questions. The Opposition provisions would, however, constitute a serious attack on good investigative journalism and legitimate due diligence.

Having made those arguments, I hardly need repeat them in respect of new clause 22, tabled by the hon. Member for Cambridge. Again, the new clause could apply across the board—it would be a sledgehammer to crack a few nuts. It would allow any fraudster, crook or manipulator to exempt a company early in its life from any semblance of transparency. The safeguard that the company undertakes to pass on lawful messages and documentation to shareholders is the proverbial chocolate fireguard. It would allow the company—in effect, the fraudster or manipulator—to be in the driving seat all the time.

Let me give an example that does not involve any of the more racy frauds that we have seen in this country. In a publicly quoted company, it could be argued that investor pressure would prevent a special resolution from being passed or force its lifting on flotation or afterwards. A great part of the stock exchange yellow book of listing requirements and part 10 of the Bill governs the disclosure requirements that apply when companies and directors deal with connected parties. Quite properly, boards of directors and shareholders always like to know whether the company is trading with companies that are owned or part-owned by, or connected with, fellow directors or employees. In practice, new clause 22 would make it much more difficult for boards of directors or investors in public companies ever to find out whether they were being ripped off. That would make good governance more difficult to achieve and police and it would undermine large portions of part 10.

New clauses 2 and 3 would set up a confidentiality regime for directors, employees or shareholders following an application to the Secretary of State. As I mentioned at the outset, I have some sympathy with the motives behind the new clauses, given the antics of animal rights activists, but I am concerned that they would have serious across-the-board consequences. Again, they are general in their application and are not confined to companies involved in animal testing. Even if the scope were narrowed, it would not satisfy all my concerns.

Jonathan Djanogly (Conservative, Huntingdon)

It is important that, serious as threats against animal testing are, we do not base this debate on animal testing. I made it clear that whether it is boiler rooms or other sectors, even if it does not exist now, it could exist. That is important.

Paul Farrelly (Labour, Newcastle-under-Lyme)

I appreciate the hon. Gentleman’s concerns, given his constituency interest in Huntingdon Life Sciences. However, I repeat that the police have not beaten a path to our door to argue that this is the way to tackle that sort of crime.

New clauses 2 and 3 would put the Secretary of State in an impossible position, as well as becoming, by other means, a crook’s charter. I shall give a couple of examples. If a precedent were set whereby any company involved in animal testing, however defined, were allowed this sort of confidentiality, the first thing a determined fraudster might do within a group of companies is to set up one involved or purporting to be involved in animal testing. The new clauses are clearly drafted much wider and refer to any situation in which there is a serious risk of violence, intimidation or criminal activity. In my experience, some of the most fraudulent companies and those with criminal links trade overseas, launder money or are involved in business in unpredictable and lawless countries. They are already among the least transparent to investigate with legitimate due diligence. The procedures in the clauses could make them more so. The Secretary of State, without conducting his own investigations in the first place, would be in no position to know the real purpose for which a confidentiality order was being applied. He would be in an impossible position. He would be blamed for granting an order when there was fraud, money laundering or other criminal activity, and blamed for not granting an order when the application was for legitimate reasons, such as the occurrence of violence or criminal damage. There would also be a danger that all sorts of companies would apply for such orders across the board. Put simply, companies would simply take advantage of such an approach to company law.

A senior bank executive in Moscow had his family house burned down as a warning against opposing a huge loan for one of the country’s biggest businesses. That came to light in specific circumstances when I was investigating alleged insider dealing and fraudulent practice by a banker with a rival. That banker let it be widely known that the rival was the fly in the ointment, which was a dangerous assertion in what was the wild east in Russia, and his house, with his family in it, was burned down. That had nothing to do with names and addresses, whether of directors, employees or shareholders, being available in any public record. Yet it is conceivable that the risk of doing business in places such as Russia and other parts of the wild east could be used as the basis for an application for confidentiality under the new clauses. What grounds would the Secretary of State have to resist?

In short, new clauses 2 and 3 run the risk of being abused and allowing a coach and horses to be put through legislation to lessen the transparency of business generally. Like amendments Nos. 26 and 168 and new clause 2, that sort of approach would be damaging to good corporate governance and could allow crooks and fraudsters to drive a coach and horses through company law and stock exchange regulations. They are a crook’s charter and should be resisted.

Margaret Hodge (Labour, Barking)

The debate has been more measured than it was last Thursday and I start by setting out what we agree on, which might be helpful. We all agree that the appalling outrages committed by a few animal rights extremists cannot and must not be tolerated. We all condemn unreservedly any attempt to harass or intimidate anyone who holds shares or engages in business with any company that is acting lawfully, particularly if it is involved in activities as important as testing the safety of medicines and other products. As the hon. Member for Cambridge and my hon. Friend said, we are all in one place on that objective.

I hope that we all also agree with what the hon. Member for Huntingdon said in response to an intervention last week: that there must be a balance and proportionality between access to a register and security for those on it. The argument is about where that balance lies. Certainly, we do not want on-the-hoof, reactive legislative responses to real dangers, which is what I think the hon. Member for Huntingdon accused us of doing and what he, too, may be in danger of edging towards.

The hon. Member for Huntingdon spoke last week about the support that has been coming from City institutions and others that are standing up against terrorists and seeking to marginalise them. We agree that that is a development for the good, and we should all support it. It reflects developments that we all approve of. Something else on which we can all agree is that the laws in themselves will not be enough to tackle the problems that have arisen in recent years. Individuals, companies and communities must show self confidence and stand up to extremist thugs if we are to ensure that such incidents do not happen in future.

I hope that we can all agree that the Government have now put in place a criminal law infrastructure that provides a proper framework for dealing with the abuses that can happen once a register of members has fallen into the wrong hands. Last week the hon. Gentleman referred to the possible extension of section 145 of the Serious Organised Crime and Police Act 2005. However, as he will appreciate, that question cannot be considered by this Committee.

The issue that we are debating, on which we consulted Opposition Members, is whether we can strengthen the prevention side. We are concerned not with the action taken once criminal activity has happened, but with trying to prevent terrorists and fraudsters from carrying out such activity. That was the subject of our amendments in the House of Lords, as well as of the further amendments that have been tabled by hon. Members.

I want to return to the principles, which are important. My hon. Friend the Member for Newcastle-under-Lyme emphasised them as I should want to do. Why do we want companies to keep publicly accessible registers of members? It is important to be clear about that when we come to limit the basic right, and to understand what we are interfering with. Moreover, as I shall explain, the justifications for the right of public access will be at the heart of any court’s assessment of whether a person is seeking to exercise the right for a proper purpose. The idea of the proper purpose underpins our approach.

When something is as deeply embedded in our company law as the public right of access to registers of members is, we should be extremely careful before we start diluting it or significantly altering its character. Transparency of membership is one of the conditions that a company and its members must observe in return for the privileges that come from incorporations. Companies are given a separate legal personality from their members, but the law requires that they state who those members are, not least because in the end it is the company’s members who are its ultimate decision-making body. It may well be that in the articles of a company, considerable power is given to directors, but it is the members who have the inalienable right to pass a resolution, such as one to remove the directors from office.

A company’s members themselves have a clear interest in the ability to gain access to information about other members of that company, and the entry of names on the register is evidence of the entitlement and rights of individual members. We can all think of endless examples of the sort raised in the debate about members’ need to contact each other, perhaps because of concerns about the management of a company or because they want to check details of a company’s holdings. That might be even truer for a private than for a public company.

In my opinion—I hope that this view is shared across the Committee—the requirement to make the register available on request is probably the best check that we have on the obligation to keep the register up to date. That was certainly the response that we received when we consulted on the clauses in the Green and White Papers and during the company law review. That openness will prevent companies from getting the bad name that they may have had in the first part of the 19th century. Openness is the best way of ensuring probity and honesty.

As my hon. Friend the Member for Newcastle-under-Lyme demonstrated by drawing on his experience, it is not only members of a company who may want access to the register of members; third parties may also want to consult it to find out who the company’s members are. The clauses before us deal with directors’ duties and the review that companies will have to undertake of their business, and we know from those who lobbied us that a range of people might be interested in the way in which a company pursues its objectives.

When is it legitimate to deny access to the register? I hope that hon. Members accept that the right of access to the register is important. If that is the case, it follows that any limitations on that right should not be capable of being manipulated in a way that enables companies to undermine the basic principle of transparency. Nevertheless, we in no way underestimate—I cannot remember the phrase that the hon. Member for Huntingdon used—

Jonathan Djanogly (Conservative, Huntingdon)

It was economic damage.

Margaret Hodge (Labour, Barking)

We in no way underestimate the economic damage that can result from information falling into the wrong hands, and neither do we underestimate the threat, which the hon. Gentleman also mentioned, of other groups or fraudsters abusing our open access and transparency rules. However, in seeking to eliminate opportunities for a small number of people—it is always a small number—to use access to the register to damage companies and harm or intimidate individuals and members, we need to be clear that we should not end up downgrading or devaluing access to the register for the vast majority of people who avail themselves of it with no malign intent. We should not discount the adverse impact that the loss of member transparency could have.

The hon. Gentleman said last week that the debate on these provisions was partly about the type of environment that we are to offer people who conduct business. Of course we want that environment to be as safe and free as possible, but we also want it to be open and transparent. We try to achieve that proper balance between openness and security through the concept of proper purpose, which is central to the clauses. In a moment, I shall say a little more about defining proper purpose, which is the subject of several amendments, but I can say that our concept was informed by the work of the company law review. Our view has always been that people should not gain access to the register if they do not have a proper purpose for doing so. Conversely, the clauses assume that companies should not be able to refuse access to the register to people who have a proper purpose.

The key question is how to find out whether a person’s purposes are indeed proper. The gap in thinking between the Government and the Opposition probably relates to who should make that judgment. Should it be the company itself? Would that open the way to companies that might well abuse that judgment? Alternatively, would the court be the most appropriate place to smoke out bogus applicants and vindicate bona fide applicants? The judge can make a more impartial assessment informed by evidence that is formally and openly given in court and applicants can be cross-examined by both sides. That is why we give companies that do not want to grant access to their registers the option of applying to a court.

The argument has been made that that arrangement might be particularly difficult for smaller companies. We are aware of that issue, but as I tried to say last week on an intervention, an individual who tries to exercise their right faces difficulties equal to those facing small companies that try to ensure their safety.

Jonathan Djanogly (Conservative, Huntingdon)

I do not think that I am wrong in saying that the clause as drafted gives no rights to individuals and that only companies would have the right to block access.

Margaret Hodge (Labour, Barking)

What I mean is that if that situation were turned around, the company could make a decision and the individual would have to challenge it in court. The individual would then face the same difficulties as companies. One can argue about whether a company or an individual would be more powerful and competent to challenge the court. On the balance of that argument, we have come down on the side of companies, although I believe that Opposition Members come down on the other side of that argument.

However, we accept that we must make the rules as simple and straightforward as possible, particularly in the interests of smaller companies whose resources and expertise will always be more limited. We are talking to colleagues in the Department for Constitutional Affairs about how applications should be structured and provided for within civil procedure rules and the associated protocols. We want to ensure a streamlined but rigorous procedure that will be as easy and cheap as possible. That procedure will be subject to consultation, so Members of the House will again be able to comment.

Jonathan Djanogly (Conservative, Huntingdon)

In that regard, has the Minister considered our amendment that seeks to extend the period from five days to 15 days, which we believe would be advantageous to smaller companies, which need more time to get to court than larger companies?

Margaret Hodge (Labour, Barking)

I will come to that amendment later and explain why I believe that it is not appropriate.

The amendments that the Government moved on Third Reading in the Lords were not knee-jerk overreactions, and I rather resented the comment to that effect. We took the opportunity to look at sensible amendments. I am acutely conscious of the need to avoid legislating in undue haste on the back of particular cases. In fact, when the issues were first raised with me, I said that we must be really careful that we do not go down the route taken in dangerous dogs legislation and legislate in haste only to realise later that that legislation does not work.

Jonathan Djanogly (Conservative, Huntingdon)

The Minister will appreciate that the Government amended the clause significantly on Report or Third Reading in the Lords. My point is that that took place at the last minute, which I gave as a justification for the need for the Committee to consider these clauses thoroughly. I was not saying anything too controversial.

Margaret Hodge (Labour, Barking)

I am glad of that. That description of what was said was not how it was interpreted in the press last week. We were responding not at the last minute, but to the new situation that arose from the action that had been taken in the middle of the previous week, before Third Reading. That action was taken in the middle of consideration of the Bill.

Jonathan Djanogly (Conservative, Huntingdon)

Does the Minister mean that she was responding to the Prime Minister, who told the Department the week before to get its act together?

Margaret Hodge (Labour, Barking)

No. We were responding to a new situation that had arisen and to which the Prime Minister had also responded. It was a coming together of minds, and I had thought that it was a coming together of minds throughout the House. It arose from the GlaxoSmithKline issue and the intimidating letters that members of that company received.

Paul Farrelly (Labour, Newcastle-under-Lyme)

I find it strange that the hon. Gentleman is coming over all sweetness and light on this issue. My right hon. Friend the Minister and I have made the point that his approach to the issue is controversial because it plays fast and loose with company law.

Margaret Hodge (Labour, Barking)

That is the danger of trying to legislate without thinking through the wider implications of any propositions that one tables. I agree with my hon. Friend that we must be wary of legislating in haste only to regret in the long term our creation of a much more closed infrastructure, which, as we have tried to describe, would have enormous defects.

From the point of view of companies, we have introduced two changes. Those who seek to access the register must identify themselves or those for whom they act. We have created a set of offences relating to when they act improperly. It will be an offence to seek or gain access to a company’s register with a view to acting in a way that is detrimental to the company and its members; for persons other than the company to fail to take steps to ensure that the information from the register does not fall into the hands of those who may try to harass or defraud; and to make a statement that is false and misleading, if a statement of reasons is required when applying for access to the register. We have toughened up that area.

As the hon. Member for Cambridge said, we have relieved the company of the need to make repeated applications to the court when it faces repeated requests. Many of the amendments were tabled after we held discussions with the Institute of Chartered Secretaries and Administrators, which suggested some of them to us.

David Howarth (Liberal Democrat, Cambridge)

I fully appreciate what the Government are trying to do with those new crimes. I am just surprised that there have been no interventions from Government Back Benchers about the danger of them chilling investigative journalism. Clause 118 makes it an offence to pass on names on the register for a purpose that is not a proper purpose. As the Minister said, the Bill does not define proper purpose at any great length.

Margaret Hodge (Labour, Barking)

The hon. Gentleman is an eminent lawyer, and I am sure he does not suggest that it is proper for the Bill to define proper purpose, because were we to attempt so to do, it would be a limiting feature of the Bill.

David Howarth (Liberal Democrat, Cambridge)

I appreciate that, but the danger is that newspapers will not know how the courts define “proper purpose”. The hon. Member for Newcastle-under-Lyme made claims about the effects of other amendments, and they will surely be a danger in this case, too.

Margaret Hodge (Labour, Barking)

We can take a common-sense approach to the definition of proper purpose. Look it up in the “Oxford English Dictionary” if one likes, but it is not a hugely complex task. If one defines “proper purpose” in law, one loses a heck of a lot of flexibility. I think that a judge, or whoever will consider those issues in court, will be able to distinguish between legitimate investigative journalism, which we wish to protect, and illegitimate haranguing of members by extremist thugs.

Paul Farrelly (Labour, Newcastle-under-Lyme)

My friends and colleagues in the National Union of Journalists can live with the Government’s approach, but they would find it very hard to live with that of the Opposition.

Margaret Hodge (Labour, Barking)

When the hon. Member for Cambridge has spent 15 or 20 years teaching journalists libel law, perhaps a different perspective will emerge.

Amendment No. 27 would insert “precise”. It would not add very much, because proper purpose is well understood and it does not need further definition. Further, under the new regime it will not be harder for small companies to deal with requests for access to the register. For such businesses, requests from non-members are not the norm, and they can legitimately be viewed with suspicion if they are not supported by a statement of reasons that is manifestly above board and if they are not from a plausible applicant. We do not think that amendment No. 27 adds anything.

Amendment No. 29 deals with the number of working days that a company would have in which to take a decision. We do not think it unreasonable to require companies of any size to decide within five working days what to do with a request for access. If an application gives rise to suspicion it is likely to do so straight away. Moreover, if we give companies too long there is a real risk that directors of some companies may abuse the procedure, to delay the members’ attempts to communicate their legitimate concerns about the way a company is being run.

Bearing in mind the fact that an extraordinary general meeting can be called with 14 days’ notice, amendment No. 29 would make it possible for a company, without even going to court, to frustrate its members’ attempts to organise themselves before the meeting. Five days—and hon. Members should remember that that means five working days—from the receipt of a complete application under clause 115 is long enough to enable a company to decide whether a request looks suspicious.

David Jones (Conservative, Clwyd West)

Would a request under subsection (4) be made using a prescribed form, and, if so, would that form draw the attention of the recipient to the need to make an application to the court in appropriate circumstances within five working days?

Margaret Hodge (Labour, Barking)

We are not giving precise forms. We are saying that the request needs to comply with the information. When someone requested access to the register, it would be the company that would make an application to the court—not the person requesting the information.

I want to deal with the other amendments and some of the other criticisms that have been raised. The hon. Member for Huntingdon said that amendment No. 26 was moved largely in a probing spirit. For reasons that I have already given, we do not think it right to restrict access to the register of members to members only. The public should have access for proper purposes. We do not think that it would be reasonable to restrict access to the members of a company who individually hold at least 5 per cent. of its share capital. A threshold of that kind pays too little regard to the principles of transparency and shareholder democracy which I said underpinned our approach to be acceptable.

I have probably dealt with amendments Nos. 168 and 176, about circumstances in which the applicant rather than the company should go to court in disputed cases. We considered those options when we drafted the clauses, and again when we amended the Bill in another place. Our concern is, again, about the balance of access. I think that I have probably described that already in response to an Opposition intervention.

Is it better that a company should seek to limit access or that an individual should seek access? In relation to the balance of access and security, we believe that the company is much better placed to protect itself against improper requests for access than an individual is to take on litigation, with its expense and complexity, in order to exercise the right to find information about members of a company. The question is how to balance the matter; we have balanced it in another direction, and I think that we have chosen the right one, with respect to who is more able and competent to pursue litigation.

David Howarth (Liberal Democrat, Cambridge)

That is certainly one factor; the other is the seriousness of the situation if the decision goes the wrong way. The question that I want the Minister to address is: what is the balance between the two different risks? On the one hand, there is the risk of intimidation and violence. How frequently might that arise? On the other hand, there is the risk of fraud, to which the hon. Member for Newcastle-under-Lyme referred. The first question, therefore, is how often these risks arise The second is how serious the two risks are. How serious is the risk of physical violence on the one side and financial loss on the other? The balance involves all three of those things, not just the question of access to the court, which the Minister mentioned.

Margaret Hodge (Labour, Barking)

The answer, if I have understood that intervention properly, is that I cannot imagine a court that would not swiftly and properly decide in favour of a company in the exceptional circumstances—and they are exceptional—in which a group of shareholders wished to access information about members for an improper purpose, such as harassing or intimidating them. I discussed the issue with, dare I say it, my own husband when I was preparing for the debate, and the view among judges in our courts is that they would take a pretty sensible, fast decision. Everyone in the Committee would support that, and we should have confidence that the court system will work in that way.

David Howarth (Liberal Democrat, Cambridge)

The Minister’s legal advice is, of course, impeccable, but will she consider the scenario outlined by the hon. Member for Newcastle-under-Lyme, who suggested that companies could set themselves up so that they could make a claim and commit a fraud? If that point can be accepted for the purposes of criticising the amendments, it could, unfortunately, also apply to the Government’s proposal. My view is that it applies to neither and that that fear is exaggerated, in which case that point cannot be used against amendment No. 168, for example.

Margaret Hodge (Labour, Barking)

Whatever we prescribe in legislation, it will clearly be open to companies and individuals to attempt to abuse it. On the whole, however, it is easier for companies than for individuals to access the court processes should they need to. In the interests of transparency, therefore, we should protect the rights of individuals in this context and ask companies to go through the court processes, rather than having the rights the other way round. That is the Government’s judgment, and we believe it to be a proper judgment. I also believe that the courts will act appropriately, swiftly and in a simple and direct manner if a company—be it Huntingdon Life Sciences or any other company—makes representations to it about not disclosing its list of members.

Jonathan Djanogly (Conservative, Huntingdon)

I am sure that the Minister had excellent legal advice from her husband, although someone once told me that one should always beware of legal advice for which one has not paid. Perhaps the Minister did pay for it—I do not know. That aside, the problem is that case law could build up around the provisions in the Bill. Whether a hearing is short or long often depends on the applicant’s funding, the quality of their legal advice and the extent to which they want to make a long case of it. A protest group might want to use the opportunity of a court case to promote its cause, so it might put more money into it than the individual whom the Minister mentioned. Circumstances might therefore dictate how the court case panned out. They might also dictate the rationale, because slight changes could be made to the reason for wanting to see the register, and a court case could be made on the back of each of them.

Margaret Hodge (Labour, Barking)

I am sure that the hon. Gentleman would accept that one could make the argument entirely the other way. A company with more substantial resources could use them to litigate to prevent access by an individual or group of individuals with a legitimate request to access the register of members under the rights of transparency. I hope that the hon. Gentleman accepts that the argument can go both ways. On the whole, companies tend to have more resources at their disposal than individuals and on the basis of that assertion we took the view that it is for companies to go to court and demonstrate that a request for access is not for a proper purpose. That is better than an individual having to go to court and prove that their request for access is for a proper purpose. That is the view that we have taken.

I shall deal briefly with the proposals in the other new clauses. New clause 2 would allow the Secretary of State to exempt a company from the rules about making its register of members available because its members would face a risk of violence and intimidation. New clause 3 would allow exemption for individual members on similar grounds. I really think that those exemptions would be very wide ranging and a step too far.

We propose to deal with information on the register of members that applies to Companies House in the regulations covering companies’ annual returns. We will consult on those issues, but, as hon. Members know, we intend to exempt private companies from the obligation to supply their members’ addresses and to exempt public companies from the obligation to supply any details of those who hold less than 5 per cent. of a company’s shares.

Last week, the hon. Gentleman suggested that that should be in the Bill rather than in secondary legislation. Our view is simply that that is a practical matter and best set out in secondary legislation which, as is always the case, provides greater flexibility to amend the legislation if circumstances change. I genuinely think that it is more in the interests of the people whom he is trying to protect to have that flexibility retained.

On the registers of members kept by companies, it seems unlikely to us that shareholders who were prepared to apply to the Secretary of State under new clause 3 would not be willing also to take steps to protect themselves, either by not using their residential addresses or by holding shares through a nominee or in a different name. More generally, I am not sure why, if a company’s activities make it a target for extremist activities, any one of its members is more likely than others to need the protection of anonymity.

On new clauses 2 and 22 we simply do not see why any company should be capable of being wholly exempted from what will be a much more qualified obligation to provide public access to the register of members. The idea in new clause 22 that a company could simply opt out of its own volition is very wide ranging. There is no suggestion that that power could be exercised only when members faced the threat of violence or intimidation. Perhaps the hon. Member for Cambridge deliberately did not limit it in that way, but it seems to be a very widely drawn power and it is not clear to me what action members, particularly minority shareholders, could take to ensure that a company complied with an undertaking to pass on lawful messages or documentation. That is not clear in the amendment.

David Howarth (Liberal Democrat, Cambridge)

In fact, we followed the Government’s strategy of adding a crime which would be committed by persons who failed to do so.

Margaret Hodge (Labour, Barking)

As I read the amendment, there would be no way in which anyone could inspect or check the register if a company chose to opt out.

David Howarth (Liberal Democrat, Cambridge)

That is correct. All I am saying is that further amendments would put in a crime of failing to pass on information. Inserting a crime of that sort is precisely the same strategy that the Government are following in clause 118. We are simply imitating or mimicking the Government’s approach. If it is not good in our amendment, it is not good in their provision.

Margaret Hodge (Labour, Barking)

I hear that, but the amendment is so widely drawn that there would be a huge range of situations in which people could assert that a criminal activity had been engaged in. I just think it is too widely drawn. That is our view.

I think and hope that I have covered the main issues and I apologise if I have not. It has been a long debate and I want to end by saying that we have tried to strike the right balance between transparency and the protection of members. I accept that that is not easy to do and that the damage done by extremists has been serious in many cases, so it is a legitimate issue to discuss. We do not think that that brand of terrorism should drive us into tilting the balance decisively away from transparency. If we were to do so we would endanger a cornerstone of UK company law and corporate governance.

We think that the basic approach to be adopted from the start—focusing on the concept of proper purposes—is sound in principle. We believe that the changes made in the other place will make the provision more workable in practice. We are not complacent about the issues. We welcome the opportunity that the debate has provided to test our thinking, but I hope that what I and all hon. Members have said shows how seriously we all take the issues. I genuinely believe that our amendments in another place set that balance appropriately and that the amendments that were tabled for debate in the Committee would take it too far. In light of what I have said, I hope that the amendment will be withdrawn.

Jonathan Djanogly (Conservative, Huntingdon)

We have had a useful debate on clauses 115, 116 and 117. Having heard the various contributions and interventions relating to my speech last week, it might be helpful if I say a few words about what we are not proposing, as much as about what we are proposing.

We are certainly not ignoring previous legislation in this area. I appreciate that the Minister recognised our input and review of previous legislation, such as the Serious Organised Crime and Police Act 2005, and other aspects of economic terrorism. The hon. Member for Newcastle-under-Lyme accused us of playing fast and loose with company law. I can only say that we believe that it was important to raise those issues in Committee with the specific aim of having a full debate to cover the ground and to ensure that the issues, including both extremes as well as the bits in the middle, have been discussed.

We are certainly not ignoring the Government’s willingness to improve the situation where that exists, and we appreciate that clause 115 as drafted moves the debate forward positively, although we believe that the clause needs to be refined—as it stands it will not work adequately or be totally fit for purpose. In interventions during my speech last week, the Minister noted that the hon. Member for Cambridge and I were invited to the Department of Trade and Industry to discuss the clauses—I appreciated that offer—and although we made our position clear at that meeting we also received draft clauses which I took away and looked at. Many of the comments that I made last week and today were based on my views of the Government amendments that were given to me at that time.

Furthermore, from our point of view, and as I explained to the hon. Member for Newcastle-under-Lyme, this is not just a debate about animal rights terrorists. I made the point that we believe that the attacks on pharma shareholders will be just the preliminaries of a wider campaign against other sectors, if we do not get on top of the issue. We recognise that registers are already being misused for a variety of illegal purposes. I gave the example of the offshore boiler-room criminal gangs.

Another important point is that the debate, to us, is not just a matter of protecting home addresses. The Minister said, in relation to new clause 3, that service addresses can be used, so that an individual can deal with the problem within the existing law. I made the point, in response to an intervention last week, that sending a threat to a service address can be just as bad as sending it to a home address. Furthermore, people may not want their names to be revealed.

Finally, to us the debate is not about ending public access to shareholder registers, as, I think, the Minister appreciated. The amendment that would restrict access to those who own a certain percentage of shares is not our policy; we tabled it on a probing basis so that that question could form part of the debate. I should point out that concerns have been raised by, for instance, credit agencies, that even the Government’s proposals go too far. That aspect of the matter was debated in the House of Lords Committee. As the hon. Member for Cambridge said, the Government themselves propose through the clauses to restrict public access. The debate is therefore about not extremes but degrees, and about whether the provisions approach the right degree.

After giving no little time to his impressive CV, the hon. Member for Newcastle-under-Lyme described, but in a very unspecific way, how the amendments would affect investigative journalism and hurt corporate governance. I think that those were his main points. He will have to be a little more specific, although I agree, basically, with his comments about access not being allowed without 5 per cent. share ownership. Even then, however, as the hon. Member for Cambridge noted, the hon. Gentleman mixed up his amendments.

The debate should be about protecting individuals from the use of their names or addresses for illegal purposes. Now that we have heard the debate on the Government’s proposals I shall set out our position. The Minister asked why we have, for instance, maintained that the Government’s proposals do not go far enough, and I want to deal with her points.

We remain concerned that Companies House is being kept in the equation. We can see no need for double disclosure. We think that we should simply stop companies having to provide details of members to Companies House, and then debate the question of access to details attaching to the companies’ registers of members. We shall table amendments to that effect, and we still maintain that that should be set out in the Bill.

Margaret Hodge (Labour, Barking)

Is the hon. Gentleman suggesting that the only access to details of the membership of particular companies should be through the company itself?

Jonathan Djanogly (Conservative, Huntingdon)

I am saying exactly that. Of course, Companies House has to publish details of members once a year. At any time the register as it is found at Companies House will be out of date. If the Minister is suggesting that people should use that register for any purpose requiring accuracy, that will not do. The only way to find out who the members of a company are is through the company.

Margaret Hodge (Labour, Barking)

That is a dramatic change in the current transparency. I have two points to put to the hon. Gentleman. First, the discipline of having to provide an annual return to Companies House is a way of getting companies to keep their registers up to date. All our evidence, from all the stakeholders, is that without that discipline it would not happen.

Secondly, the hon. Gentleman must accept that on occasion perhaps an investigative journalist, or perhaps an existing member who thinks that the directors, in a private company where some of the members are also directors, are not working in the interest of the company, will want access. There will be such circumstances, in which people want to have access to the register of members without the directors of the company necessarily being aware. The hon. Gentleman must accept that.

Jonathan Djanogly (Conservative, Huntingdon)

I do not accept that at all. What is filed at Companies House is not the current register of members of a company but a copy of the register at a set date. An investigative journalist going to that copy of the register could well name people who are no longer shareholders of the company. The Minister also seems to miss the fact that the basic need is covered in the Companies Act 1985. If an entry in the register is not made, an offence has been committed. The annual return is simply a reflection of what should have been done under the law, it is not the law itself.

Paul Farrelly (Labour, Newcastle-under-Lyme)

The hon. Gentleman said previously that I had not been specific. I did not want to delay the Committee, but I can give him plenty of specific examples, from the Ostrich Farming Corporation to the Alchemy pyramid selling scheme to the Facia collapse that floored Stephen Hinchliffe, in which third-party access was vital not only for journalists but for those investigating financial crime. I suggest that the hon. Gentleman talks to the financial crime unit at Cambridgeshire police, the Serious Fraud Office and the stock exchange before he continues to advocate his current position.

Jonathan Djanogly (Conservative, Huntingdon)

I hear the points made by the hon. Gentleman and the Minister, but the fact remains that what is filed once a year in the annual return is a reflection of the register at that moment, not at any time afterwards. Access should therefore be granted to the register rather than to what is filed at Companies House.

Secondly, we are concerned that the Government’s preferred mechanics will favour larger companies that can go to court and employ a solicitor and a barrister. The Minister raised that matter. It will be tougher for the smaller company, which is why we want to increase the period for going to court from five to 15 days. I found the Minister’s explanation that she does not want to give people too much time to put together arguments somewhat strange. Perhaps I did not get that right, and she might like to elaborate. I did not really understand her point.

Margaret Hodge (Labour, Barking)

My point was that companies need to give only 14 days’ notice of an annual meeting. The hon. Gentleman suggests a longer period for which they could withhold information, during which time they could pass all sorts of resolutions that might change the situation and inhibit access to proper information on the company and its members. That would be a risk if the period allowed were, in the example that I used, longer than the period for calling an annual meeting.

Jonathan Djanogly (Conservative, Huntingdon)

We would maintain that a small company with limited resources is unlikely to be able to appoint a solicitor and a barrister and prepare a court case in five days.

Clause 117 deals with the refusal of inspection. The Government have given us their idea of the balancing act that they believe should take place, and if access to a register of members is refused it will be a serious matter. However, the clause increases the potency of our argument that companies should have more time than the five days provided to approach a court for a non-disclosure order. As I have said, that is particularly important for small companies. The Minister said that she will consult with lawyers on the mechanics of how the process is likely to work. Will she drop hon. Members a line to explain what she will ask those lawyers? The provision is important and needs much further consideration.

Thirdly, the provisions would not be difficult to interpret. Companies would have to consider whether a normal-looking request for member details harboured a secret, illegal purpose, and courts would have to determine what was a fit and proper purpose, about which we have had some debate. An amendment made on Third Reading in the Lords tried to address our concern that many activists could buy one share each and keep the company perpetually in court with requests. That amendment, now clause 116(4), is still open to broad interpretation, and presumably it would not stop further applications on grounds other than the similar purpose test.

Fourthly, we remain concerned that the only person who can seek protection is the company, not the shareholders who are individually at risk. Fifthly, the UK Shareholders Association, in its briefing to us on 30 May, said:

“Clause 118 creating offences in connection with the obtaining of a copy of a register or of passing it on also seems unsatisfactory. The definition of the offence in connection with the passing on of the list would make it very difficult for anyone to decide whether they were entitled to pass it on or not. There seems a risk that the courts would feel oblige to construe the phrase more widely than might be intended. Moreover, we are not satisfied that all loopholes in connection with the chain of passing on a copy have been stopped up. It would seem far simpler to make the offence apply to the ultimate user of the list. The offence would then be to use information obtained from the register or index for an improper purpose, the latter having been defined as suggested above.”

What do we propose to improve the situation? First, the existing provisions must be tightened up in the ways I have described. Secondly, the only access should be via the company register and not Companies House. Thirdly, there may be special circumstances in which the company or an individual should have the right to approach the DTI and say, “We are under attack and we need protection.” That should not be an everyday occurrence, and it should be undertaken only on a company-by-company basis. However, in such a situation, shareholder protection could be so important that the register of members should be made non-public.

Paul Farrelly (Labour, Newcastle-under-Lyme)

The hon. Gentleman again seriously suggests that the only portal for access to a share register should be the company itself. Has he considered that it would damage the economy’s efficiency? If somebody wishing to take over a company—and therefore do shareholders some good—could access the share register only through the company itself, the company would be tipped off about the takeover in advance.

Jonathan Djanogly (Conservative, Huntingdon)

That would not be the case. One would ask for a copy of the register, and the company would have to provide it. I return to my basic point that what the hon. Gentleman describes as the register of members is a point in time: a shareholder might have sold half or three-quarters of their stake by the time the hon. Gentleman had got to Companies House and asked to see a copy of the register.

Paul Farrelly (Labour, Newcastle-under-Lyme)

Does not the hon. Gentleman agree that a useful guide is far better than no guide whatever?

Jonathan Djanogly (Conservative, Huntingdon)

The accurate guide is the register. The company maintains it, and the Companies Acts provide for people to access the register. We should debate the question of more or less access, about which I fully accept there are valid points to be made. I maintain that access should be gained through the register, rather than through an old record at Companies House.

Today’s debate has shown that new clauses 2 and 3 could be improved. For instance, they could provide for the company to circulate documents that shareholders would normally circulate. Despite the register being closed to inspection, access to other members could be retained. It was a feature of the Liberal Democrats’ new clause 22, and the composite approach mentioned by the hon. Member for Cambridge sounds attractive. It would address the issue that was quite properly raised by the hon. Member for Burnley (Kitty Ussher).

Some of the Labour attacks on new clauses 2 and 3 were a surprise, and hon. Members might not appreciate where the drafting derives from, so let me explain. A few years ago, there was growing concern about the abuse of directors arising from the requirement that their home addresses appear onthe public register at Companies House. The Companies (Particulars of Usual Residential Address) (Confidentiality Orders) Regulations 2002—that is a mouthful—attempted to provide a remedy, which became clause 723B of the Companies Act 1985.

The provision, which will be superseded by that in the Bill, played an important role in advancing the debate on this issue. It provided that a person could ask the Secretary of State to make a privacy order if he could show that revealing his address would create, or would be likely to create, a serious risk that he or a person living with him would be subject to violence or intimidation. What is important is that the decision on privacy was to be an administrative, rather than a court decision.

In practice, the current system has worked fairly well. The Minister might wish to put me right on this, but I believe that there have been no accusations of democracy having been attacked. The current system could therefore form the basis for similar provisions for shareholders, possibly with enhanced appeal rights. Of course, new clause 22 provides for the decision to be taken by shareholders, rather than the DTI. At this stage, however, I feel that that is a step too far, although it was certainly important to bring the issue up for discussion.

The Opposition remain of the opinion that clause 115 does not go far enough and that new clause 2 would be a useful addition to the existing powers. That is why I shall ask for a Division on the new clause when we reach it at a later stage. For the moment, however, I shall ask for a Division on amendment No. 29, which,I believe, we shall be able to have today. I beg to ask leave to withdraw the amendment.

Clause 116

Clause 120

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 33, in clause 120, page 54, line 16, leave out from beginning to end of line 18 and insert—

‘(1) A company may transfer to a separate register any entries relating to a former member of the company; and the provisions of this Chapter apply to the separate register as they apply to the register, with any necessary modifications.

(2) An entry relating to a former member of the company may be removed from the register, or from the separate register of former members, after the expiration of ten years from the date on which he ceased to be a member.'.

The clause relates to section 352(6) of the Companies Act 1985 on entries regarding former members. Lord Hodgson proposed an amendment to insert the Law Society’s recommended clause, which is largely reproduced in amendment No. 33. The benefit of the amendment would be greater privacy for those who are no longer members. Lord Hodgson’s amendment would also have reduced the relevant time period from 10 years to five years. He said that the 10 year period would be burdensome on companies and that a reduction would provide some deregulation and cost savings.

Lord Sainsbury responded that such an amendment to separate the registers would be unnecessary as clause 743 gives companies the power to arrange their records as they wish, and that the time limit for keeping records should be reduced to 10 years to take account of any claims arising from errors in the register.

The explanatory notes to the Bill state that the reduction to 10 years was the result of a company law review recommendation. However, the company law review also recommended that companies be permitted to keep entries relating to former members on a separate register from that used for current purposes. The Government seem to have ignored that recommendation.

The provision has been reviewed in the Lords, but we ask the Government to reconsider and we ask why they have ignored the company law review recommendation.

Margaret Hodge (Labour, Barking)

We have not ignored it. Indeed, it is our view—as I think was expressed in another place—that the issue is covered by what is now clause 787(1)(b), which says that company records

“may be arranged in such manner as the directors of the company think fit”.

That enables companies to keep a separate register if they so wish. The opinion of the commercial registrars whom we consulted on the issue was that that provision covers the arrangement that the hon. Gentleman is proposing. Therefore I hope that he will withdraw his amendment.

Jonathan Djanogly (Conservative, Huntingdon)

I thank the Minister for that explanation and I apologise for not having clause 787(1)(b) to hand. The problem with the Bill is that there are so many volumes to carry around, and sometimes we do not need clause 787. On the basis of that explanation I beg to ask leave to withdraw the amendment.

Clause 121

Jonathan Djanogly (Conservative, Huntingdon)

The clause relates to section 355 of the Companies Act 1985. Clause 121(1) removes the requirement of section 355(1) of the 1985 Act whereby the company must strike from the register the name of members who have been issued with a share warrant. The explanatory note says that the effect of the change to section 355 is to the effect of the change to section 355 is to make it clear that shares need not first be issued in registered form, but can be issued directly in warrant to bearer form. If there is no register, would not the original requirement still be relevant?

Margaret Hodge (Labour, Barking)

The hon. Gentleman has got me there. I will write to him with an explanation as soon as possible.

Clause 122

Jonathan Djanogly (Conservative, Huntingdon)

The clause relates to section 352A of the Companies Act 1985. Section 352A(1) has been developed by the insertion of clause 122(1), which requires a company at its formation to enter a statement on its register stating it to be a single member company. Section 352A refers only to a company whose quantity of members falls to one having to make a statement. As a result of amendments agreed in the House of Lords, clause 122 now refers to all limited companies. Section 352A referred only to private companies. Lord Sainsbury explained that the amendment is a result of the company law directive. It requires that once a company becomes a single member company, whether public or private, it should be recorded.

I believe that there may be some element of European law which is the root of all of this. Perhaps the Minister could explain. To our mind, this is patently an unnecessary clause. If there is only one shareholder on the register that is a self-evident fact seen by looking at a copy of the register. What is the purpose conceptually of the clause and why is having one shareholder, rather than two or three, going to be of concern to anyone?

Margaret Hodge (Labour, Barking)

Again, I am going to have to write to the hon. Gentleman.

Clause 124

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 34, in clause 124, page 56, line 22, at end insert—

‘(5) Any amendment to the register consequent upon an order for rectification shall be deemed to have occurred at the time of the passing of the order.'.

The clause relates to section 359 of the Companies Act 1985. Let us say, for example, that there is a nasty shareholder dispute, typically over a family company and the dispute leads to litigation and eventually the court making a rectification order under these provisions so that previously transferred shares need to be reregistered with the original owner. In practice, the implementation of any change to the register, say a share transfer to the rightful owners as dictated by the court order, may be delayed between the time of the order and the upgrading of the register.

Until the register is amended the legal owner remains the old owner. In practice that can mean that physical possession of the company books and the register of members can dictate how quickly the order will be implemented. The books will normally be held by professionals such as the family accountant or solicitor. However, in practice, and I have seen this happen on a few occasions, the professional will have taken sides. The professional often has to take sides to avoid a conflict situation, which can mean that the books are effectively held by the wrong person and so the client will advise the professional not to comply with the order and the professional must follow the client’s wishes.

The amendment aims to deal with such a situation by saying that the order for rectification shall mean that the following amendment to the register

“shall be deemed to have occurred at the time of the passing of the order.”

In that way, petty but often nasty disputes, sometimes needing extra orders to force handover of the registers, could be avoided.

Margaret Hodge (Labour, Barking)

I understand the hon. Gentleman’s point, but as I understand the clause’s purposes, it might be appropriate on some occasions for a member whose name was not on the register to be engaged in decisions taken prior to his or her confirmation as a legitimate member of the company. I am thinking of an example in which somebody’s name might not have been accepted on the register on a particular day because a resolution or vote was taken by the company during a meeting at which he or she was not present.

I further understand that case law in that instance demonstrates that courts rarely exercise the power of retrospective rectification. In fact, officials have told me that the case law informing the provisions is a 1904 case involving the Sussex Brick Company in the Court of Appeal, which at that time was the Master of the Rolls. That decision was based on an earlier decision of 1866. The case law tells us that very rarely, and only in exceptional circumstances, do the courts suggest that retrospective rectification of a mistake on the company register should be made. That facility should remain in place.

The hon. Gentleman alluded to the case of a dispute in a small company whose members might be members of a family in dispute. I am told that in such circumstances, the court can already make orders in the terms that he suggested. The amendment is not necessary to deal with the circumstances of concern to him.

Jonathan Djanogly (Conservative, Huntingdon)

I shall respond to the Minister’s points, because I accept totally that the situation will be rare. It probably has been very rare. However, if such circumstances do arise, it will probably be a pretty fraught, nasty scenario in which people have fallen out to the extent that they are unable to sort out among themselves the register and who owns the shares. They will probably have talked through solicitors and will have to go to court to sort out whether the entry was made appropriately. Yes, the proposed provision is unlikely to be used, but in those rare circumstances where such events do happen, it is likely that an amendment such as amendment No. 134 will be useful after the court has made a decision to avoid a prolongation of the dispute.

The Minister rightly said that if the rectification is not made and the registers are not handed over, the individual can return to the court and request a further order to gain physical possession of the registers or speed up rectification. Indeed, costs would probably be awarded. However, in the case of a small company, if the individual must return to court to obtain another order after having brought the court case, it will be a dispiriting process in a situation where I maintain that there should be no problem. Once the court has made a decision, there should be no problem. That should be what is reflected on the register, even if the registers have not been handed over. To that extent I hear what the Minister has to say. I am not going to push the amendment to a vote, but perhaps the Minister will have another think.

Clause 125

Jonathan Djanogly (Conservative, Huntingdon)

The clause deals with trusts not to be entered on a register and relates to section 360 of the Companies Act 1985.

The legal owner of shares is the person who is stated on the register—physically written there—no matter what the status of that so-called legal owner is. There may be underlying ownership; in this situation the ownership of the person on the register may be as a trustee. They may own the shares not on their own behalf but as the beneficial owner for someone else. However, it is common in practice for people to note their status as a trustee in their entry on the register of members.

I was surprised that the clause existed. I have so often seen people make an entry in the register of members saying, for instance, “Mr. Smith, as trustee of Miss Smith”. That is a common occurrence. Even after many years of practice, it is amazing how such little things spring up with the Companies Act when one goes through it in a little bit more detail than one otherwise might. Although I appreciate that the trustees individually would be the legal owners, I am not sure why it would matter that notification of the trustee’s position should appear on the register.

James Brokenshire (Conservative, Hornchurch)

Will my hon. Friend give way?

Jonathan Djanogly (Conservative, Huntingdon)

I give way to my hon. Friend, who I am sure will fascinate me with his contribution.

James Brokenshire (Conservative, Hornchurch)

Whether I fascinate my hon. Friend or not will remain to be seen. My point is that often where a shareholder is registered, for example, as trustee of the X settlement, that information is often helpful to a company, so that one can have an understanding of the manner in which that shareholder might exercise his rights. Therefore, from the company’s perspective, having that detail on the register can be beneficial for the administration of the company’s affairs.

Jonathan Djanogly (Conservative, Huntingdon)

My hon. Friend has pre-empted my next point. I was going to say that it is quite the opposite of being a problem. Like my hon. Friend, I consider that knowing from the register who is the underlying owner would be helpful for the company. Not that it has to be done, but it is helpful for that information to be provided. Also, building on the debate on clause 115, it would be helpful for third parties to be able to see who the underlying owner was. Again, not that the information has to be provided, but if it exists I do not see any harm being done and, quite the opposite, it is generally be helpful for those making investigations.

James Brokenshire (Conservative, Hornchurch)

My hon. Friend will be aware of the section 212 notice provisions currently contained in the Companies Act 1985, which in essence allow for investigations to be undertaken to establish who is the ultimate beneficial holder of the underlying shares. Clearly this sort of information, if volunteered, is helpful in those types of investigations.

Jonathan Djanogly (Conservative, Huntingdon)

That is absolutely the case. We are talking not about mandatory provisions but about allowing people to put on the register those details that they want to appear.

My final point is that rights and obligations follow being a trustee. By notifying the fact that someone is on the register as a trustee, third parties are being put on notice that the legal owner has a different status, not in terms of his capacity as a member, but in terms of his relationship with a third party. That arises most often in relation to the sale of a company, when it is very important to know that someone is selling as a trustee, because the covenants that they will be prepared to give to the purchaser will be of a very different nature from those of a registered shareholder who is holding shares in his or her own right. For that reason, it would be helpful as a matter of course, if not on a mandatory basis, if people were able to put on the register their capacity as trustees.

Margaret Hodge (Labour, Barking)

This is a very technical issue, and I hope that I will deal with it properly. First, hon. Members referred to section 212 procedure, which applies only to public companies. The clause is concerned with all companies, so that procedure is not necessarily relevant.

Secondly, as far as trusts are concerned, the hon. Gentleman said that clause 125 reflects section 360 of the 1985 Act. It is, as he says, very common for people to make their entry “as trustee”. The effect of the clause is not to prevent that but to avoid the company having to consider whether the trust is operating in a proper way—that is, if any transfer that is made in a trust is proper.

Jonathan Djanogly (Conservative, Huntingdon)

I apologise, as I had not read the clause in that way. To be clear, is the Minister saying that the clause does not stop someone mentioning “as trustee” or make that illegal?

Margaret Hodge (Labour, Barking)

No, it does not. It may be helpful to explain that the clause replaces section 360 of the 1985 Act, which dates back—the Committee will be amazed at this—to the Joint Stock Companies Act 1856. That is probably why Opposition Members, who deal with these things on a day-to-day basis, have not heard of it. I hope that everyone is familiar with that Act. The intention behind it is to ensure that a company’s register of members only lists those who are the legal owners of its shares rather than anyone else who may have a beneficial interest in them without being the legal owners.

The difference between clause 125 and section 360 is simply that it applies to Northern Ireland as well as to England and Wales and does not apply to Scotland.

Opposition Members have given reasons why companies may wish to keep records of beneficial interests in their shares. Indeed, in some circumstances other provisions in the Bill require them to do so, for example, when they have information about such interests as a result of serving a notice under clause 606. However, it is the view of those who drafted the Bill that it is desirable that any such information is kept separate from the register of members. In short, we do not see any reason to change what is a long-established provision of company law. That is why the clause is in the Bill.

Jonathan Djanogly (Conservative, Huntingdon)

I am grateful to the Minister for that explanation and clarification.

Clause 127

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 36, in clause 127, page 56, line 34, leave out ‘ten' and insert ‘fifteen'.

The clause relates to section 352(7) of the Companies Act 1985, and reduces the limitation period from 20 to 10 years. The explanatory notes say that the reduction was recommended by the company law review. Will the Minister please explain the rationale for the change and why 10 years was settled on? Will she also please explain subsection (2)? Are there lesser periods of limitation that might be relevant? This should be seen as a probing amendment.

Margaret Hodge (Labour, Barking)

I hope that I can help the hon. Gentleman. The clause reduces the period for which a company is liable for errors in its register of members. The reduction is greater by two years than was originally recommended by the company law review. The current period is 20 years.

There is a good reason for reducing the period. In the 2001 report on limitation of actions, the Law Commission recommended that the long-stop limitation period for claims for a remedy for a wrong be 10 years, and on that basis we settled on 10 years in the clause. The Bill provides that a liability arising from an error in a company’s register should not be enforceable more than 10 years after the error, whether it was an error to make an entry or a failure to delete an entry. I hope that the hon. Gentleman will withdraw the amendment on that basis.

James Brokenshire (Conservative, Hornchurch)

The right hon. Lady referred to the Law Commission recommendations to reduce the limitation period of liability to 10 years. Is she able to clarify why the Law Commission resolved on reducing it to 10 years? I am not familiar with the report, but it would be interesting to know the basis on which 10 years was arrived at, given that it appears to be the underpinning reason for putting the figure in the Bill.

Margaret Hodge (Labour, Barking)

There is a lot of shaking of heads. I have no doubt that there is a good explanation for it. All we did was follow a principle that had been established elsewhere. If it does not take too much of my officials’ time, I will be happy to help the hon. Gentleman and will write to him if we manage to get an answer. However, as this is a DTI matter, I hope that he will bear with us if we do not spend a lot of time on it.

James Brokenshire (Conservative, Hornchurch)

I am grateful to the Minister for giving way again. The point that I am trying to make is that the reduction from 20 years to 10 is significant, and there may well be good and valid reasons for it. If the Minister is unable to set them out in Committee, it would be helpful if we could get clarification later so that we can understand the rationale for the figure and the basis on which it was arrived at.

Margaret Hodge (Labour, Barking)

I am happy to try to oblige Opposition Members. Of course, the reduction in the length of time that companies have to keep registers will save costs, so I hope that the hon. Gentleman will welcome the clause as another deregulatory measure in the Bill.

Jonathan Djanogly (Conservative, Huntingdon)

On the basis of that clarification and the Minister’s kind offer of further assistance to my hon. Friend, I beg to ask leave to withdraw the amendment.

Clause 128

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to discuss the following:

Government new clause 6—Overseas branch registers.

Government new clause 7—Notice of opening of overseas branch register.

Government new clause 8—Keeping of overseas branch register.

Government new clause 9—Register or duplicate to be kept available for inspection in UK.

Government new clause 10—Transactions in shares registered in overseas branch register.

Government new clause 11—Jurisdiction of local courts.

Government new clause 12—Discontinuance of overseas branch register.

Government new clause 13—UK branch registers of overseas companies.

Government amendment No. 115.

Margaret Hodge (Labour, Barking)

We propose that the Committee oppose clause 128 and instead accept the Government new clauses, which comprise the first series of consolidation clauses that we are bringing forward.

The group of amendments brings into the Bill the provisions in the 1985 Act that relate to overseas branch registers. They retain the powers, set out in clause 128, for regulations to be made on the circumstances in which a company is to be regarded as keeping an overseas branch register, but seek to modify the provisions relating to registers of members in their application to overseas branch registers.

The provisions in the 1985 Act have been reorganised, with a view to making them clearer. They have also been updated, so that they fit in with changes made elsewhere in the Bill. As an example of that, under the 1985 Act one of the criteria for a company to have an overseas branch register was for its objects to comprise a transaction of business in one of the relevant countries or territories. That has been changed in the light of our new rules on objects in part 3, so that the criterion is now for a company to be transacting business in the relevant country or territory. Changes made to part 8 have also been reflected.

The amendments will ensure that overseas branch registers can continue to be maintained and deemed to be part of a company’s register of members, so that rules relating to registers of members apply to them.

Jonathan Djanogly (Conservative, Huntingdon)

I have a couple of points on which I would be grateful for the Minister’s comments. First, she mentioned that the purpose of the changes introduced by transporting the remaining sections from the 1985 Act into the Bill was only to modify the language, but is it not the case that what she described changes the meaning of the Act, as well as introducing a modification? If that is the case, I hope that it is not a sign of things to come. The point is worth making, because the Minister said that the remaining provisions to be transported would be moved pretty much in their current format.

Secondly, the Secretary of State has the power under the clause to introduce regulations on the circumstances in which a register may be kept and to modify any provision of chapter 2 of the Bill in relation to overseas branch registers. Do the Government have plans to review the current regulations relating to the keeping of a branch register, other than those that the Minister mentioned in connection with the amendments? If there are such proposals, could she please advise the Committee on the timetable for them and when the consultation will take place?

Margaret Hodge (Labour, Barking)

To deal with the latter point, there are no plans to review those regulations. I accept that there are slight changes, but they are minor differences to ensure consistency with the new provisions elsewhere in the Bill. That is a sensible way of consolidating the new legislation, so that it is clear to those who will have to use it.

James Brokenshire (Conservative, Hornchurch)

I have a couple of quick technical points for the Minister. I note that section 362 of the 1985 Act refers to the Foreign Jurisdiction Act 1890. As no reference to the 1890 Act appears in the amending provisions, I presume that it is no longer relevant, but I would be grateful for her comments.

Also, I note that new clause 11 refers to schedule 14 to the 1985 Act and the jurisdictions listed therein, to which section 362 of that Act also refers. If we are looking at consolidating the provisions into a single piece of legislation, would it not be appropriate to ensure that schedule 14 was stated in the Bill so that there was no further cross-referencing? The reference in new clause 11 to the

“countries and territories to which paragraph 3 of Schedule 14 to the Companies Act 1985...extended immediately before the coming into force of this Chapter”

may have been superseded by the list of countries in new clause 6. I do not know whether there is a relationship between the two lists. If the Minister could clarify that, I would be grateful.

Margaret Hodge (Labour, Barking)

I will have to write to the hon. Gentleman. He referred to the 1890 Act, which I am told, thank goodness, is no longer relevant. I will write to him on the other points.

Clause 129

Jonathan Djanogly (Conservative, Huntingdon)

The clause relates to section 23(1) of the 1985 Act. The Department of Trade and Industry consultation paper asked whether the prohibition on a subsidiary holding shares in its holding company should be extended to entities other than a body corporate. Most respondents stated that there should be an extension, but the question was raised whether that would be workable in practice, as any extension would probably require a new set of complex rules. If there is an extension, it should only be to those entities that the parent controls—with the problem of defining control. It should not be so wide as to catch employee share ownership trusts. Can the Minister confirm whether there have been any developments on that analysis?

Margaret Hodge (Labour, Barking)

Not that I am aware of. Again, this is one of those clauses with a long history. It dates back to the Trevor v. Whitworth case in the 19th century, in which the House of Lords held that a company could not purchase its own shares as that would result in a reduction in capital. That principle has long been enshrined in company law. We are dealing with section 143 of the 1985 Act. This clause is one of a group of clauses that reinforce that rule. The prohibition is not total because if it were it would make it impossible for companies to do a number of things that are perfectly unobjectionable, such as holding shares in their parent companies as trustees or in the course of a securities dealing business, as permitted by the second EC company law directive. I am not aware of any other issues that have been raised with me.

Jonathan Djanogly (Conservative, Huntingdon)

I thank the Minister for that clarification. On the basis that I have not been the subject of any lobbying on this matter either, it is probably true to say that this is one of those things that are best left alone unless there is another reason for consideration.

Clause 130

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 37, in clause 130, page 57, line 25, leave out paragraph (a).

The clause ties in with section 23(4) of the 1985 Act. Clause 130(2)(b) introduces a relevant date for Northern Ireland, in relation to when the provisions came into force. The second half of section 23(4) has been converted into the provision introducing a restriction on members’ use of their shares to vote on a written resolution. Currently, the restriction relates just to voting in general meetings when holding shares as an exception to clause 127, as allowed by the clause.

Lord Hodgson proposed an amendment in the other place to remove subsection (1)(a)—an exception to the restriction on a subsidiary being a member of its holding company. That exception applies to situations where the shares were bought prior to the relevant date—1 July 1948. It was pointed out that there can be only a handful of situations in which a subsidiary owns such shares and that those concerned have been on notice of the prohibition for nearly half a century. Lord Hodgson proposed that there should be a transitional phase towards eliminating that historical anomaly—quite rightly, in my view.

Lorely Burt (Liberal Democrat, Solihull)

I am slightly confused because the hon. Gentleman’s amendment would remove the relevant date in paragraph (a) but leave in the reference to that date in paragraph (b), where it would have no obvious meaning.

Jonathan Djanogly (Conservative, Huntingdon)

I thank the hon. Lady for that astute observation, which clearly necessitates a further amendment to negate that effect. She makes an important point, which I am sure the Minister will take on board.

Lord Sainsbury said in the House of Lords that there is a curtailment of the relevant shareholder rights in subsections (3) and (4), but I should be grateful if the Minister would give further observations on the matter, as it would be nice to clarify the issue and to avoid encountering it again the next time the Companies Acts are looked at in 20 years.

Margaret Hodge (Labour, Barking)

This seems to be one of those matters which has us dancing on the head of a pin. The advice that I have been given by officials is that there could well be companies that were around before 1948 and that we have no evidence of any implications of retaining the provision, so why upset the situation that exists? I share much of the scepticism of Opposition Members, but this is one of those things on which it appears that it is better to retain the provision in question just in case, rather than to remove it as redundant. I am happy to write further to the hon. Gentleman on that very technical issue. Although I think that hon. Members made good and valid points, that is my advice.

Jonathan Djanogly (Conservative, Huntingdon)

I just want to remark that several hangovers from times gone by seem to come up throughout the Bill. The dreaded issue of stock comes to mind. One cannot help feeling that at a time when we are clearing up the Companies Acts and moving ahead on a consolidated basis it would be nice to clear all the junk from the yard. However, I hear what the Minister says and do not entirely disagree, and on that basis, I beg to ask leave to withdraw the amendment.

Standing Committee D

Clause 253

James Brokenshire (Conservative, Hornchurch)

I beg to move amendment No. 185, in clause 253, page 117, line 27, after ‘company', insert

‘which is entitled to the exemption conferred by subsection (1) or (2) of section 249A of the 1985 Act (exemptions from audit) in respect of its current financial year'.

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to discuss the following: Amendment No. 248, in clause 253, page 117, line 27, at end insert—

‘( ) A sole director of a private company shall not also be secretary.

( ) No private company shall—

(a) have as secretary to the company a corporation, the sole director of which is secretary to the company;

(b) have as sole director of the company a corporation, the sole director of which is secretary to the company.'.

Amendment No. 186, in clause 253, page 117, line 28, after ‘company' insert

‘which is not required to have a secretary.'.

Amendment No. 249, in clause 253, page 117, line 28, after ‘company', insert

‘that does not have a secretary'.

Amendment No. 187, in clause 253, page 117, line 38, at end add—

‘(2A) In the case of a private company which does not have a secretary, if the company has more than one director, all of the directors shall have joint and several responsibility for complying with the requirements of the Companies Acts in relation to the company.'.

Clause stand part.

Amendment No. 188, in clause 254, page 117, line 40, after ‘company', insert

‘and a private company which is not entitled to the exemption conferred by subsection (1) or (2) of section 249A of the 1985 Act (exemptions from audit) in respect of its current financial year'.

Amendment No. 189, in clause 255, page 118, line 2, leave out ‘public'.

Amendment No. 192, in clause 257, page 119, line 14, leave out ‘public company' and insert

‘company which is required by section 254 to have a secretary'.

Amendment No. 204, in clause 263, page 121, line 30, leave out ‘public company' and insert

‘company which is required by section 254 to have a secretary'.

James Brokenshire (Conservative, Hornchurch)

We move on to part 12 of the Bill and the important issue of company secretaries and their continuing role as a consequence of the provisions in part 12. May I welcome the Solicitor-General, as I understand he will debate and respond to various issues in relation to company secretaries? As Members will be aware, there has been considerable debate on this issue, particularly in the context of the continuing role of company secretaries in private companies as compared with public companies where the role of company secretary would be retained. I am sure that all members of the Committee will have received a number of e-mails and letters from various interested parties with their views.

The clause is central to that issue and I note the decision to incorporate the stand part debate intothe group of amendments that stand in my name and the names of my hon. Friends the Members for Huntingdon (Mr. Djanogly) and for Reigate (Mr. Blunt). That obviously gives us an opportunity to have a fairly wide-ranging debate on the current role of company secretaries and how the proposed regime would operate as currently contemplated in the Bill. Public company secretaries are to be recognised under the Bill, but not private company secretaries. We can therefore debate the practical implications of that and why we believe that it is not the best way to proceed because of all the issues that would flow from it.

It is helpful to give some context as to where company secretaries currently sit in terms of the corporate governance and corporate structures contained in companies up and down the country. The company secretary has an established and understood role in the context of English company law through a combination of statute, case law and years of custom and practice. A company secretary is an officer of the company by virtue of section 744 of the Companies Act 1985, is recognised and identifiable through notifications to the registrar of companies by virtue of section 288 of the 1985 Act and as an officer can be held to be criminally liable for defaults permitted by the company. The secretary may also have to make out a statement of the company’s affairs if an administrative receiver or a provisional liquidator is appointed or if a winding-up order is made by virtue of sections 47, 66 and 131 of the Insolvency Act 1986.

Although not formally prescribed by statute, company secretaries have responsibility for a range of administrative matters within the company for which they may be held liable in the event of default. Those include maintaining the statutory registers of the company, such as the register of shareholders, the register of directors’ interest and the register of charges, ensuring that the company keeps it statutory filings with the registrar of companies up to date, and ensuring that appropriate filings are made within the prescribed statutory time limits. I know that that is one of the key functions provided by company secretaries. It is important in ensuring that companies comply with their ongoing obligations under the Companies Act in terms of their relevant filings with Companies House, so that the filings are in order, and so that third parties can see precisely what is happening at the company.

Company secretaries are also responsible for co-ordinating the maintenance of the company’s internal records, such as minutes of meetings of the board of directors kept under section 382 of the 1985 Act, and minutes of general meetings of shareholders. They provide appropriate notification for convening board meetings and shareholder meetings, and they compile and circulate supporting documentation. Their role is very much that of ensuring that directors are properly up to speed with all board papers and of presenting and compiling board packs, so that directors are properly informed on what will happen at forthcoming board meetings. Secretaries in both public and private companies fulfil an essential role.

Secretaries are also involved in the quasi-legal situation of ensuring general legal compliance by the company with its statutory and legal requirements and adherence to its memorandum and articles of association. They co-ordinate the publication and distribution of the company’s annual report and accounts in conjunction with internal and external advisers and are involved in preparation and liaison with executive and non-executive directors to ensure that all appropriate statements are included and correct, and that all information is provided to the auditors.

Finally, secretaries process share transfers and the issuance of new share certificates, including signing of share certificates that are in hard copy format—though as we move to electronic means for holding and transferring shares that may decline in importance. They ensure that people who are entitled to do so can inspect company records.

I have taken some time to run through that background because it shows the breadth of the work in which company secretaries are involved and the importance within the general corporate structure of the role that they play in public and private companies in the UK. The point to stress is their position as formal office holders, which allows them to attend board meetings and gives them the added responsibility of the liabilities that attach to their office. Their position gives them a clear status and an ability to ensure that there is proper adherence by the company to its statutory and legal requirements. It enables them to have an important foothold in the board through their status and position, allowing them to be heard and to insist that compliance is maintained, whereas someone who was just an employee or an authorised signatory in a very defined role might not have the status and the role in the company necessary to ensure compliance.

The company law review recognised that position. It said:

“We do not doubt that company secretaries can provide a valuable service to private companies”

but proposed removing the mandatory requirement for a company secretary in private companies. It stated that the decision whether to use the services of a secretary would be made by the market rather than by law. It also said:

“We believe that private companies should be able, if they wish, to appoint a company secretary to carry out those functions that are ascribed to a director or secretary in the alternative in the Act, or performed by the secretary as a matter of practice. When appointed the secretary will be able to carry out these functions with the full authority that he has under the current Act.”

My understanding is that that scene-setting, in terms of the company law review and the views that were taken as a consequence of it, formed the basis of the provisions in part 12. The review proposed dispensing with the requirement for a company secretary for private companies. On my understanding, that was on the basis of deregulation—without any other justification—while recognising that removing the requirement to have a company secretary would not remove any responsibility of the company to carry out the functions that a company secretary would normally carry out. That approach was also reflected in both White Papers on the company law review.

However, that does not seem to be quite what we have in the wording of the Bill, which includes a subtle but vital difference from the suggestion that the secretary would have the full authority that he or she currently has under the 1985 Act. An article by Andy Hamer writing in the June edition of the Company Secretary summarises the point quite well. He states:

“Most public companies were fairly relaxed about the proposal to abolish the requirement for private companies to appoint a secretary on the basis that they continue to do so for their subsidiaries if they wish. Well nothing has changed in this regard. You will still be able to do that. The problem is that it will be a totally pointless exercise. The legal status of the person you appoint will not change one iota as a consequence of doing so. As far as the Company Law Reform Bill is concerned, that person will have no more power than your receptionist.”

That is one view. It is an extreme view, but it summarises the angst and concern that clearly exist in various corporate organisations throughout the country. Having just an authorised signatory role will not give existing company secretaries the standing and status that they have at present. Their ability to procure compliance on the various issues that I alluded to in my initial comments will be affected.

The approach that I outlined, which is reflected in Mr. Hamer’s comments, seems also to have been taken by Lord Sainsbury on Third Reading in the other place when he said that

“private companies will still be able to have a company secretary, but whether they so choose will not be material to third parties. That is why the Bill does not provide for them to have statutory recognition nor for their identity to be on the public record, either on formation of the company or thereafter.”—[Official Report, House of Lords, 9 May 2006; Vol. 681, c. 785.]

On the basis of what is in the Bill, the proposal, rather than being deregulatory, will impose additional regulatory burdens and confusion as existing company secretaries continuing in their role will have to be specially authorised to carry out their existing functions. As they are not recognised, they would have to become authorised signatories to do what they do today. For example, company secretaries have authority to authenticate documents under section 41 of the 1985 Act, but clause 48 of the Bill would require them to be authorised to do that.

Third parties will not wish to rely on a company secretary’s merely saying that they are authorised, and, in the absence of a continuing notification of secretaries at Companies House, presumably will wish to obtain a copy of the board resolution authorising the secretary to certify documents. However, a director would have to provide that duly certified evidence to the third party, as clearly the authorised signatory cannot self-certify.

Almost automatically there is the additional step of having a document executed by a director to give evidence to third parties that they can rely on the signature certifying the document. That will necessitate some additional step, but we will come on to that in further detail. The Under-Secretary said that her officials were examining methods of dealing with the situation in transitional arrangements. We touched on that point briefly last week when we talked about authorised signatories, and how—to paraphrase the Under-Secretary—that approach was being considered in the context of a transitional method under which existing company secretaries would be deemed as authorised signatories. She said, in general terms, that the proposal was still being considered by officials.

That approach does not address the fundamental weakness of the proposals set out in the Bill, however. It goes so far, but not far enough. The Institute for Chartered Secretaries and Administrators says in its briefing note for the Committee, which has been endorsed by the Association of Corporate Treasurers, the CBI, the Institute of Directors and the Law Society:

“Where the board of a private company wants the secretary to continue in his position post the enactment of the Bill, it will find that all the secretary’s automatic statutory powers under the Companies Act 1985 to certify documents, execute documents and file returns to Companies House will no longer exist. For any of the 2 million private companies which find their secretary useful, and want to continue employing such a person, there will be the confusing burden of having to set up appropriate authorisations to try and mimic the current statutory powers that are well understood. This new burden will bring complication not simplification. A secretary remains an officer of the company so his statutory powers should be clear along with his liabilities.”

The last point in that quotation, to which I alluded earlier, is the continuing status of the secretary in a private company as an office holder. I have referred to section 744 of the 1985 Act, which currently prescribes a secretary as being an officer of the company, although the continuing effect of that section is somewhat vague and I would appreciate any clarification from the Solicitor-General about it. What the table of destinations provided by the Department says about section 744 of the 1985 Act is quite interesting:

“Partially repealed, partially left in the Act without substantial amendment and partly replaced with substantive amendment by Various”.

It is quite difficult to track where the bits have gone or work out precisely what will happen to section 744, so some clarification of what will happen and how the Bill will apply to secretaries moving forward would be helpful.

What the Bill will mean for the status of a company secretary in the context of liability is a little confusing. The Bill raises the question whether the legal status of the post of secretary has been abolished from a statutory perspective for private companies. If someone was appointed as a new company secretary under the current wording of the Bill, but was apparently unable to notify their appointment to the registrar of companies under the new regime, third parties would not be put on notice of their position, so would they be an office holder or not?

By the contrary, if someone is shown in the records of Companies House to be a secretary of an existing company but there is no ongoing notification procedure for appointments or changes, how would they get themselves off the record, in order to avoid potential claims against officer holders of the company in the event of something calamitous happening to the company many years subsequent to their having relinquished their position as company secretary?

Practically, how do people ensure that notification is given to third parties, to ensure that they are not inadvertently and improperly drawn into a claim for default that might ultimately arise in criminal liability? The issue could be serious, so it would be helpful to have some clarification of what is intended in the Bill for the notification regime for private companies. I hope that we shall be able to shed some light on the issue.

My mystification about all this was heightened when I had as my bedtime reading further aspects of the Bill.

Mike O'Brien (Labour, North Warwickshire)

Happy bedtime reading.

James Brokenshire (Conservative, Hornchurch)

I am sure that we all have happy bedtime reading at the moment because of this weighty Bill. Clause 640 deals with annual returns. Clearly, filing annual returns and ensuring that they have been appropriately prepared is one role of a company secretary at the moment. Subsection (1) states:

“If a company fails to deliver an annual return before the end of the period of 28 days after a return date, an offence is committed by—

(a) the company,

(b) subject to subsection (4)—

(i) every director of the company, and

(ii) in the case of a public company, every secretary of the company, and

(c) every other officer of the company who is in default.”

If one assumes that the secretary of a private company remains an officer of the company, one could end up in quite a perverse situation, because subsection (4) states:

“It is a defence for a director or secretary charged with an offence under subsection (1)(b)”—

in other words, the provisions relating to secretaries of a public company—

“to prove that he took all reasonable steps to avoid the commission or continuance of the offence.”

The bizarre point is that that defence would not be available to secretaries of private companies if they remained officer holders of the company.

I will table an amendment about that, as we have not yet discussed the issue, but that lacuna or potential issue in terms of liability makes it extremely important that we are clear about whether a secretary of a private company, whether recognised on the statutory register or not—we shall come to that issue—is, as an office holder, liable and the extent to which they are liable. If there are occasions on which some form of additional defence is offered to public company secretaries, it will be perverse if that defence is not available also to private company secretaries, given that they will be fulfilling the self-same duties, although one group will be doing so in public companies and the other in private companies.

Any light that can be shed on the general issue—I have given a specific example—would be appreciated not only by me but, I am sure, by company secretaries up and down the country, who are concerned about the implications of what is happening.

I hope that the Solicitor-General can also respond to the comments of Andy Hamer in the latest edition of Company Secretary:

“The most embarrassing thing about this whole episode for the Government is the way that it went about securing the support of (or avoiding opposition from) listed companies and then moved the goalposts without consultation. I sincerely hope that it will be made to defend itself against such accusations.”

That goes back to the fundamental point, which is that the review seemed to suggest that the statutory rights of company secretaries would be preserved and therefore in the Bill, whereas we do not have that at the moment. An explanation or clarification as to why there has been a difference between the CLR, the White Paper and what we have now is important, because the reason certainly has not come out for me in reading the record of the debates in the other place. Perhaps I have missed it, but clarification as to why the subtlety that I have talked about was altered is important.

What about where we are now and the proposals in the Bill? What has been the response from companies up and down the country? I suspect that hon. Members will have received many letters and e-mails on the subject, and I think that it is worth commenting on some of the ones that I have seen. I appreciate that this is by no means the full list of representations that may have come into the Department and to other members of the Committee.

Elizabeth Richardson, company secretary of Reckitt Benckiser plc, a FTSE 100 company, said:

“While Reckitt Benckiser is a public company so will still be required to appoint a secretary, we have a hundred or so UK private companies within our group. If the Bill becomes law I will have no power to administer these companies for our group.”

She adds:

“The proposed changes will disenfranchise me and cause enormous administrative headaches for people in my position.”

A similar point is made by Tania Stoat, assistant company secretary of GKN plc, who says:

“In GKN, as is the case for most large UK-listed groups, the secretarial administration for subsidiary private companies is carried out centrally through the appointment of individual or corporate secretaries, thereby ensuring good corporate governance throughout the Group. The Bill as currently drafted will render such secretaries devoid of all statutory powers and require the imposition of unnecessary bureaucracy to delegate existing authorities in other ways.”

Finally, Hilary Lowe, company secretary to the investment trust of JPMorgan Asset Management, which obviously has to cope with a lot of administration, emphasises a similar approach and says:

“I appreciate that for small, simple companies the role of secretary is not necessarily needed, but there still may be instances where the Directors of these companies may wish to appoint a secretary in order to complete, lodge and explain the routine forms on their behalf...More worryingly is that there are large private companies where the role of secretary is vital and it is also important to note that within plc companies the majority of the work is done through subsidiary companies, which tend to be private companies, as the umbrella plc is merely the listed entity. Furthermore, if the Bill remains as drafted it is likely that companies will find themselves in the confusing position of having to delegate authorities in other ways.”

The point that Ms Lowe makes is crucial. For example, a listed company whose shares are traded on the London stock exchange would, as a public company, be required under the Bill to have a company secretary, but in essence it may be a shell or a holding company that holds the shares of various subsidiary limited liability companies.

In many ways the role of company secretary in that instance would be fairly limited in scope if it was ring-fenced at that level in terms of continuing compliance with the Companies Act 1985 as far as the plc is concerned and in terms of meeting the UK Listing Authority’s ongoing requirements. Yet in all likelihood, as some of the examples show, there may be hundreds of subsidiaries sitting underneath that holding company, all requiring accounts, forms and registration documents to be filed and updated and all trading. That would bring a different level of activity and the need for legal requirement and compliance. It is easy to see that the need for company secretaries and someone to be in charge of such activity is at subsidiary, private company level rather than being ring-fenced within the plc. That is important. Limited liability subsidiaries in such circumstances are likely to be considerable companies in their own right as the main trading companies for the listed group and may have turnovers of hundreds of millions of pounds, so the need for compliance is significant. Perhaps that aspect has not come across clearly enough in terms of the importance of maintaining compliance at that limited liability perspective.

Jonathan Djanogly (Conservative, Huntingdon)

My hon. Friend makes an important point about the Government’s application of company secretaries who are often undervalued. There could be a flotation of a series of foreign operating companies in London. A listed company may exist in London but it may be a shell and the operating companies, some of which may be English constituents, may operate overseas. That is when the clause will not work.

James Brokenshire (Conservative, Hornchurch)

We could also have the perverse situation of a foreign-listed company—a holding company that is incorporated outside the UK—being the listed entity that holds shares in a subsidiary which is a trading company in the UK. Clearly the listed holding company would be outside the UK, under no obligation to have a secretary at all. Under the new regime, the subsidiary company would have no responsibility or liability to have a secretary. That seems a rather strange situation to have arrived at in ensuring good corporate governance at a time when there are huge sensitivities about such issues and about ensuring that companies are in compliance with their regulatory obligations.

Jonathan Djanogly (Conservative, Huntingdon)

My hon. Friend uses the word “strange”. With respect—he is making an excellent case—should he not be a little stronger? Rather than strange, is not the situation unacceptable?

James Brokenshire (Conservative, Hornchurch)

I am grateful to my hon. Friend. I suppose I was using the word “strange” to mean peculiar, bizarre and extremely ridiculous in terms of the guidance that we set for corporate entities across the globe. I shall come later to the international aspect. The situation is not acceptable, and when we turn to the amendments, we shall see that different approaches can be taken. I know that the various bodies have had their views, discussions and debates on the right way forward, which clearly needs to be focused on. I do not think that it has yet been properly addressed.

As a further example, I have one final comment from Sue Jenner, director and company secretary at the Thomson Corporation plc:

“MPs would appear not to be aware of the seriousness of this issue and I urgently request that you seek to redress this anomaly. Does the Government not realise how damaging this could be to large private companies with numerous operating subsidiaries, who rely on their secretaries to ensure good governance and, in particular, to facilitate the day to day legal administration of these entities. Stripping away their powers could cause untold difficulties, especially where certifying/authenticating documents, executing documents with a director and filing returns at Companies House are concerned”.

She adds:

“It will be far more burdensome and crippling for companies if the Bill is left as drafted. In the cause of good governance, it is absolutely critical that company secretaries not be stripped of their powers.”

It is interesting that under the proposed arrangements it would be possible for many subsidiaries to sit underneath and not to have the corporate powers behind the secretary in that context.

I was looking at the list of representations that I have received through e-mail and correspondence during the past week or so, and it makes for interesting reading: GKN plc; Anglo American plc; the Association of Women Chartered Secretaries; Harbottle and Lewis solicitors; JPMorgan asset management; First Choice Holidays; the Thomson Corporation; Hamilton Downing Quinn solicitors; Argos Retail Group; Mothercare UK Ltd; Vocus Europe Ltd; Mayer, Brown, Rowe and Maw solicitors; National Express Group; Virgin Group Ltd; Taylor Wessing solicitors; Renew Holdings plc; Mitchells and Butlers plc and Lovells. Various other companies and individuals have expressed their concern, too. There is considerable angst and worry about the implications of what is happening and the practical difficulties that might be posed to such companies by the structural change between the private and public company settings.

It is also interesting to work out how Companies House will respond in all such circumstances, given what I have said about the fact that company secretaries’ names would appear to remain on the register going forward. If secretaries in private companies were not authenticated and authorised to deal with the filing of forms after the introduction of the Bill, how would Companies House deal with the situation? I know that transitional provisions are still being considered, but there could be a nightmare at Companies House if that is not followed through properly. I believe that changing our current position is the best way in which to achieve a sensible arrangement and settlement.

My hon. Friend talked about the international aspect. At a time when we appear to be seeking to downgrade the position of the company secretary, certainly in limited liability companies, other jurisdictions appear to be embracing the corporate model that we have created and adopted for many years. Certainly, in developed and emerging markets, the adoption of our corporate governance structures and business behaviour are seen as key elements in the drive to attract investment.

It is therefore interesting to note that jurisdictions such as Spain and Dubai have gone in the other direction and are seeking to adopt a requirement for a company secretary. I have been provided with some correspondence from Transeuropean Centre Ltd, which is in discussion with the Institute of Chartered Secretaries and Administrators, stating:

“The UK corporate law is highly regarded in Russia, especially the role of company secretaries within large companies.”

The suggestion is that Russia is examining our corporate model and structure. Although it is seeking to adopt secretaries at the moment, the suggestion is that it might be trying to find ways in which to codify and structure company secretaries within Russian corporate law. It is great to see that that wonderful benefit in English corporate law is being exported far and wide. It is one of the great benefits in this country, and it is a hidden export. That is great to see. Our corporate governance structures, in which the company secretary plays a pivotal role, should be promoted.

Mike O'Brien (Labour, North Warwickshire)

I have listened carefully to the hon. Gentleman’s points. I think that he has covered the representations of just about every lobby group that has deluged the Committee. However, I have not yet heard him say anything about his amendments, and I would be grateful if he could tell me about what they propose.

James Brokenshire (Conservative, Hornchurch)

As the Solicitor-General is well aware, we are in the midst of a clause stand part debate, as well as discussions on the amendment. I am using the stand part debate as an opportunity to set out a number of important concerns expressed by company secretaries and corporate organisations up and down the country. I therefore think that we should use this opportunity to set out that context, but I shall come on to the amendments; he can be assured of that.

Jonathan Djanogly (Conservative, Huntingdon)

May I say how pleased I was to hear the Solicitor-General refer to the many concerns shown by lobbyists, the CBI and company secretaries? We have all been inundated with letters from company secretaries who are concerned about the proposals, and I congratulate my hon. Friend on dealing with those concerns so thoroughly.

James Brokenshire (Conservative, Hornchurch)

I am grateful for my hon. Friend’s comments.

Shailesh Vara (Conservative, North West Cambridgeshire)

May I remind the Committee that last week, it was the Minister who was keen to emphasise that, because so many people had contributed and she had taken their views on board, we should not be engaging in that debate? I hope that the Solicitor-General will take that point on board. I mention it because I am mindful that at that time he was engaged in another Committee. We are doing only what the Minister asked us to do—take on board the various views given to us by various bodies.

James Brokenshire (Conservative, Hornchurch)

I have sought to take a bit of time and care in Committee this afternoon because the representations are so recent. That is why it is important that we have the chance to give them a proper airing. In many cases, the representations arrived only in the past few days—indeed, the last few hours. Even as I came to the Committee this afternoon, my I was still receiving e-mails from people concerned about the issue.

I want to finish on the international aspects. I was interested to read the letter from the Hong Kong Institute of Chartered Secretaries, especially as Hong Kong corporate law is historically modelled on English company law and largely remains so today. The letter, which is from Mr. Richard Leung, the president, reaffirms that

“if the abolition of the requirement for private companies to appoint secretaries is to go ahead, secretaries of those companies which choose to appoint or retain them should continue to be given the statutory powers and their appointment should be a matter of public record at Companies House.”

We will come to the last point in discussing another group of amendments, but the letter gives some further international context by noting the potential influence and impact that the UK reforms will have on other jurisdictions, including Hong Kong. Although I fully recognise that we are talking about UK corporates and the UK situation—and rightly so in terms of the UK remaining an example that we hope will be followed by others—it is worth putting it in that international context.

Margaret Hodge (Labour, Barking)

I am just wondering if that reference was the hon. Gentleman’s Eccles cake moment, and which Opposition Member he is waiting for to come here and vote this afternoon. We are now 40 minutes into the afternoon’s proceedings and we have not yet touched on any of the amendments.

James Brokenshire (Conservative, Hornchurch)

To be honest, Mr. Illsley, that comment was ill judged and inappropriate. We have had to put up with all sorts of filibustering by the Government because they have not been able to get Members to attend this Committee. I am in no way filibustering; I am making a genuine attempt to run through extremely important issues that deserve proper debate. I will take no lectures from the right hon. Lady on issues of that nature.

Last week, the Minister indicated that existing company secretaries—

Shailesh Vara (Conservative, North West Cambridgeshire)

The various bodies that have taken the trouble to contact all members of the Committee will no doubt form their own opinion of what the Government think of their view, in view of what the Minister has just said.

James Brokenshire (Conservative, Hornchurch)

I thank my hon. Friend for his intervention. This is a very important issue, as is evidenced by the amount of correspondence we have received on it.

Nick Palmer (Labour, Broxtowe)

As a relatively new member of the Committee, replacing my hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins), who has a medical problem, I have had no correspondence on the matter. I wonder whether the hon. Gentleman can quantify his remarks. How many lobbyists have contacted him on the subject? His hon. Friend the Member for Huntingdon said that there had been numerous lobbyists.

James Brokenshire (Conservative, Hornchurch)

Whatever the Minister may think, I do not intend to run through in great detail the number of groups that have contacted the Minister and other members of the Committee. I went through the list of companies, company secretaries, plcs and other limited liability company secretaries and accountants who had contacted us. That is clear evidence of the situation.

Nick Palmer (Labour, Broxtowe)

My question was specifically about lobbyists, as that is what the hon. Member for Huntingdon referred to. How many lobbyists have contacted him on the subject?

James Brokenshire (Conservative, Hornchurch)

I am not aware of any lobbyists. I do not know what the hon. Gentleman means by using that term in such a context. I was contacted by the companies that I mentioned, and the Institute of Chartered Secretaries and Administrators made its representations very clear. I can only imagine that my hon. Friend the Member for Huntingdon may have been alluding to them. It is interesting to note that the view of the ICSA is endorsed by the Institute of Directors, the Confederation of British Industry and various other organisations, as I am sure the Solicitor-General is aware from the briefing materials that he has received.

Mike O'Brien (Labour, North Warwickshire)

That is an organisation that I know reasonably well, and it is a very reputable one. We have had representations from every lobby group, varying from interests in Hong Kong to those in Russia. It is emerging that the Conservative party is the party of various lobbyists who, at some stage, have written a letter to Conservative Members, who are just reading out parts of that letter. It is fine to make sensible points—the hon. Gentleman has raised several, and I am happy to deal with them—but I am concerned that he seems to be going through his list of lobbyists as though he wanted to check off with them that he has mentioned them all.

James Brokenshire (Conservative, Hornchurch)

I have never heard anything so ridiculous in my life. We are trying to debate a sensible and serious issue. The suggestion that in some way—

Eric Illsley (Labour, Barnsley Central)

Order. I think that it is time that we returned to the serious issue.

James Brokenshire (Conservative, Hornchurch)

I am grateful for that guidance, Mr. Illsley.

Last week the Under-Secretary said that existing company secretaries of private companies might or might not be deemed to be authorised signatories by virtue of their office, while appearing to rule out such an approach for new company secretaries, saying that transitional provisions were still a little up in the air. Her comments maintain the view that secretaries of private companies should effectively be phased out. That is mistaken and potentially confusing, particularly in large groups of companies where new subsidiaries may be formed regularly, some of which might fall within transitional provisions while others—new ones—might not. A more fundamental approach needs to be taken.

Amendment No. 185 proposes that private companies not entitled to an exemption from audit for the purposes of subsections (1) or (2) of section 249A of the Companies Act 1985 should be required to have a company secretary. The subject was debated at length in the other place and I do not propose to rehearse the arguments again. Amendments Nos. 186, 188, 192 and 204 make further consequential changes.

Amendments Nos. 248, 249, 187 and 189 make what might be termed “flexibility changes” to enable the continuing statutory recognition of the private company secretary. They reflect the views adopted by the CLR and backed by the Institute of Chartered Secretaries and Administrators.

The role of the company secretary is well understood, and it is welcome that as far as plcs are concerned, it will be retained. However, it is bizarre that the concept has been completely cast aside, as far as statutory recognition is concerned, for any private company. The secretary supports the board and the executive team in their primary objective of wealth creation, and allows the sophisticated obligations and functions of companies of all sizes to be discharged effectively. Importantly, the secretary’s role is widely understood and enables third parties, via Companies House, to know not only that the secretary has power to sign on behalf of the company, but that that person is at the heart of the board process.

The Bill’s most worrying message is that compliance is in some way being downgraded. ICSA says that it is already receiving reports of smaller companies misinterpreting the proposals as a reduction in obligations to comply, to complete returns and to fulfil a wide range of functions. To amend the Bill either to require large private companies to maintain a company secretary or to give all private companies the ability to appoint or retain company secretaries to whom the existing statutory powers would be available does not appear to be overly difficult. I am happy to accept any suggestions or improvements to the drafting of our amendments. To do so would avoid placing the costly compliance and bureaucratic burdens on companies throughout the country which will result from adhering, without any change, to the current arrangements and structure.

In our first sitting, the Minister for Industry and the Regions said:

“the Government are very open-minded in our approach to the Bill. The provisions are in good shape, but we are always anxious to improve them. Certainly, during the discussions that I had in the past month with my officials, we found that there is always room for improvement in a Bill of such an enormous size.”—[Official Report, Standing Committee D, 15 June 2006; c. 3.]

Providing greater structure for the role of company secretaries would provide such an improvement.

To date, the Government appear, for whatever reason, to have approached the matter with a closed mind. I hope that today they will open their eyes and finally recognise the important continuing role of company secretaries in private companies.

Mark Hunter (Liberal Democrat, Cheadle)

May I say what a pleasure it is to make my first but, I hope, not my last contribution to this marathon Bill under your chairmanship, Mr. Illsley? Right hon. and hon. Members will be delighted to know that my contribution will not take 45 minutes; it will be more like four and a half minutes. I hope that we can proceed somewhat quicker than we have done so far.

If I understand the hon. Gentleman, the basic point of the Conservative amendments is that only small companies should be exempt and it should be made clear that private companies are allowed to have secretaries if they want to. We are not unsympathetic to that view. The key question is whether the company secretary’s function is solely to protect the interest of potential investors or to go further than that, and for example protect the interests of creditors, too. If the function is to protect only potential investors, the Bill is right to draw the distinction between companies that need a secretary and those that do not, as between public and private companies. However, if the function goes beyond that and the protected interests go beyond those of investors, it might be appropriate to use other criteria. The argument for using the size of the company is that one of the main functions of the company secretary is to maintain the integrity of the company’s system of governance.

In practice, the company secretary’s job is to hold the ring between the directors, the shareholders and the creditors of the company, with creditors including employees. Their job is to represent the interests of the company as a whole, which might include reminding the directors that they are supposed to act in the interests of the company as a whole, not their personal interests, and take account of the interests of company members. In small companies, the distinction between the interests of the directors, or the director and the shareholders, can be theoretical, but as soon as it is meaningful to speak of shareholders as a separate interest from that of directors, it makes sense to require companies to have company secretaries. The key issue is how that idea is put into practice.

The distinction between companies that are required to undertake an audit and those that are not might make some sense in that context. It relates to the difference between companies in which the members are so closely connected with the management that they can be assumed to understand what is going on, and those in which members are likely to be a separate interest and unconnected with the management of the business.

Admittedly, there is a problem about whether the criteria in the 1985 Act are right. The amendment sets the limit at £5.6 million or more in turnover or £2.8 million or more in gross assets for private companies not involved in insurance or financial services. Do those criteria set the limits of concern about corporate governance, and is £5.7 million so different from £5.5 million in that sense? There must be a limit somewhere, and all numerical limits are arbitrary to some extent. The real question is whether exemption from a requirement to audit is in principle the same as an exemption from a guarantee of rectitude in corporate governance. Arguably at least, they are the same, and the requirement for an audit takes hold when the company’s affairs are complicated enough that an outsider is needed to help maintain trust between the various interests. That seems close enough to the situation in which a guarantee of the integrity of the company’s governance system is needed.

For those reasons, we support the amendments tabled by the hon. Member for Hornchurch (James Brokenshire) and his colleagues.

Nick Palmer (Labour, Broxtowe)

I draw attention to my entry in the Register of Members’ Interests for a very small family company in which I am involved.

Some of the arguments advanced in favour of the amendments suggest that the Bill would make it illegal for private companies to have secretaries. That is not true. It is a deregulatory proposal so that companies that do not feel the need for a secretary do not have one imposed by legislative fiat. I find it strange, the Conservative party urging that life be made more difficult and complicated for private companies. That is my only point.

Shailesh Vara (Conservative, North West Cambridgeshire)

I declare an interest as a member of the all-party group on corporate governance—I mention that to the extent that it is relevant and in case anyone should ask. I want to thank all the contributors who have taken the trouble to contact me and other Committee members. I, for one, make no apology for referring to some of those contributions.

Where a private company wishes to have a company secretary, then it should be allowed to have one, and with the existing powers in statute. [Interruption.] The Government Whip, the hon. Member for Birmingham, Hall Green (Steve McCabe), says that they are still allowed to do so but, he will note, not with the existing powers. That is one of the two fundamental issues under consideration.

Eric Joyce (Labour, Falkirk)

The hon. Gentleman is missing the point. Of course private companies are allowed to do that. Company secretaries can be given the powers by the company. The powers are not being taken away; there is still a requirement. It is quite clear. They can still do the same thing, but not by virtue of having that professional qualification.

Shailesh Vara (Conservative, North West Cambridgeshire)

I hear what the hon. Gentleman says. If he will allow me to continue, I will cover why it is important to continue with the existing powers rather than for the 2 million companies that have company secretaries to face an additional burden by having to decide whether they should have a company secretary and, if so, what powers, if any, they would give to them.

Margaret Hodge (Labour, Barking)

We are completely astounded by the odd use of the word “burden” in what is essentially a deregulatory measure. I know that we all have to be careful in our use of English, but will the hon. Gentleman for heaven’s sake explain how taking away a regulatory requirement for companies to have a company secretary—by deregulating and leaving it as an option—can in any way be described as a “burden”?

Shailesh Vara (Conservative, North West Cambridgeshire)

I am more than happy to enlighten the Minister on the so-called deregulatory measure. The company secretary has statutory duties—various administrative duties—which my hon. Friend the Member for Hornchurch so clearly expressed. If one removes company secretaries, the company will have to delegate those responsibilities to some other body or individual, which will create more work.

Mike O'Brien (Labour, North Warwickshire)

The hon. Gentleman seems to be arguing that we need more statutory regulation of private companies, even small ones, and we should not give them the choice to decide who should have the authority to do the various tasks. The Government are on the side of allowing private companies to have the choice. It appears that the Conservative party wants more regulation.

Shailesh Vara (Conservative, North West Cambridgeshire)

I am not talking about the corner shop, which has a small revenue and for which there might well be more burden, but about a large number of private companies. Indeed, it has been mentioned that it could include many listed companies, where effectively the bulk of their business is carried out by various subsidiaries which carry out a substantial amount of business. The business of the company secretary is fundamental. I am referring to such companies, not necessarily to the small company where it can be a burden. I do not deny that for some companies the company secretary is perhaps superfluous—

Margaret Hodge (Labour, Barking)

Hear, hear.

Shailesh Vara (Conservative, North West Cambridgeshire)

Would the Minister like to contribute?

Margaret Hodge (Labour, Barking)

I absolutely agree with that assertion. If the hon. Gentleman accepts that there are situations which are inappropriate for a company secretary to deal with, why on earth is he not supporting the proposition that we deregulate this particular burden on companies?

Let me ask the hon. Gentleman another question. [Interruption.] It is not a speech; it is an intervention. To which statutory duties is he referring? Which duties is a company secretary responsible for that will have to be passed to somebody else should the necessity for a company secretary no longer exist? I am unclear that there are any.

Shailesh Vara (Conservative, North West Cambridgeshire)

The Minister obviously missed a large part of the speech by my hon. Friend the Member for Hornchurch and has clearly not quite got the thrust of where I am going. Indeed, it is ironic that the Government accuse the Opposition of procrastination, yet Labour Members’ questions all seem to indicate that they have not paid any attention to anything that we have said so far. My argument is that companies should have the option to have a company secretary if they want one, and the majority of companies will probably want one. Yet the Minister seems to be basing her argument on the strength of a small number of companies for which company secretaries may not be relevant.

Nick Palmer (Labour, Broxtowe)

Will the hon. Gentleman give way?

Shailesh Vara (Conservative, North West Cambridgeshire)

I should like to make progress.

There is merit in the Government’s argument that there should not be a blanket requirement for all private companies to have a company secretary, which in some cases is a mere box-ticking exercise, but we should allow for companies to have and to appoint a company secretary if they so wish, with the existing powers as they are. It is interesting that Labour Members were happy to nod their heads in agreement when I said that private companies should be allowed to have a company secretary, but as soon as I mentioned that they should be allowed to have company secretaries with the existing powers there was a blank look on their faces and no nodding of heads.

Mike O'Brien (Labour, North Warwickshire)

I should be grateful if the hon. Gentleman would enlighten us by setting out precisely the statutory powers that he claims currently exist for company secretaries.

Shailesh Vara (Conservative, North West Cambridgeshire)

There is the authentication of documents. Statute provides that a company secretary is an office holder and as such has responsibilities and liabilities. There is also the requirement—I do not know whether it is a statutory requirement—that there is a register of secretaries at Companies House.

Justine Greening (Conservative, Putney)

I am impressed by my hon. Friend’s ability to respond to questions from Ministers. I hope that we will have no more writing of notes when our questions cannot be answered, and perhaps we will get similarly factually correct and exhaustive responses from Ministers.

Shailesh Vara (Conservative, North West Cambridgeshire)

It does seem that the Government are happy to fire salvos in our direction knowing that we do not have the back-up of civil servants eagerly writing notes to us. It is ironic that they are constantly being supplied with notes. I take it on the basis of their contributions so far that Ministers will dispense with all advice, jottings and notes and rely on their own knowledge and experience.

Mike O'Brien (Labour, North Warwickshire)

The hon. Gentleman is trying valiantly to defend his position and I respect him for that. He has a good record in the House. He is seeking to defend virtually the indefensible in the sense that there is a claim that there are statutory powers that he cannot ascribe, and nobody else can either. I appreciate that we have advice from others, but he is making a strong point and accusing the Government of doing something. We are merely trying to get him to be precise about that. We do not think that he can be, and I think he accepts that. The thing to do now is to move on. Once in a hole, it is best to stop digging.

Shailesh Vara (Conservative, North West Cambridgeshire)

I am grateful to the Solicitor-General for those comments. I do not agree with them. In the interests of making some progress, I should like to continue. I hold to my original view. Those who listen to my speech or read the record will doubtless form their own opinion as to which one of us is correct.

Having a company secretary also has the benefit of giving certainty to third parties about who specifically in a company is charged with the responsibility of complying with statutory requirements, dealing with corporate governance and ensuring co-ordination between directors, shareholders and various departments within the company, and so on. The notion that anyone who wishes to contact a company should simply write to a director negates the argument for proper corporate governance. It is important that there is a specified individual who is an officer of the company and that third parties know with whom they are dealing.

If there were not a company secretary, the directors would be burdened with the responsibility of form filling and dealing with changes in shares, changes in directors, changes of address and so on. The job of directors is to run a business and develop it. They do not wish to be bogged down with the detailed requirements for the proper efficient running of a company, so it is important that a company secretary can take on the responsibility of the administrative duties while the company directors get on with the business of developing the company and expanding it in what is a cut-throat and competitive business world.

My understanding is that the aim of the Bill is to simplify matters and to allow people to get on with running businesses. By putting the additional burden of dealing with administrative duties on directors, as opposed to a specific individual, it will act as a hindrance to proper business efficiency. My hon. Friend the Member for Hornchurch referred to plcs, which have many subsidiaries that are private companies and, thus, need company secretaries. There are also many large private companies that would qualify for listing, if so they wished, in which the role of the company secretary is vital. We must not forget that. If a company secretary’s duties were dispensed with, authority would need to be delegated to other individuals to fulfil the company secretarial role. It is important that third parties know who that person is.

Nick Palmer (Labour, Broxtowe)

Does the hon. Gentleman accept that, if a private company feels, as he does, that it would be burdensome not to have a secretary, and takes no action and maintains its existing secretary with the existing corporate duties, there will be no additional burden?

Shailesh Vara (Conservative, North West Cambridgeshire)

That may be the case for companies that wish to do that, but we are in the business of providing for new companies, too. The purpose of the Bill is to consolidate and ensure that, since 1985, company law is up to date. It is our duty to take into account new companies that will be set up in the next 20 or so years, which is why it is important to have certainty and not necessarily deal exclusively with existing companies and their current frameworks.

Margaret Hodge (Labour, Barking)

The hon. Gentleman makes an interesting point. We are genuinely in some difficulty. ICSA has put forward some good arguments, so I am not sure that he has done it justice. Given his political party, I find it odd that he might seriously be suggesting that the Government should prescribe precisely how new small companies administer their business and meet the regulations by insisting that certain of their functions are carried out by specified named individuals, be they company secretaries or otherwise.

Shailesh Vara (Conservative, North West Cambridgeshire)

I was happy to give way to the Minister, as always, but it is regrettable that, as usual, she has missed the point. When legislators are in the business of setting out legislation, it is important that they try as best as possible to cover future eventualities. I am not saying that we should deal with the minutiae, but we should cover the future, to the extent that that is possible.

Only when companies get over the appropriate threshold should proper auditing come into operation. That is the answer: only when companies exceed the proper audited limits should the rules kick in. No doubt some legal and accountancy practices would welcome the additional work that will be created for them, not to mention the additional costs that companies will have to bear in giving them the work and paying their extortionate rates.

My hon. Friends the Members for Hornchurch and for Huntingdon referred to the importance of being able to deal with company secretaries based in Britain when company directors are overseas. In an increasingly international business environment, we must recognise the need to have a specific person in the UK to whom third parties can turn to ensure proper corporate governance of a company, as well as proper service of notices, proper filing of documentation, and so on. There are many private companies, and company secretaries are crucial in ensuring their compliance with the proper requirements.

Company secretaries also have an important role as co-ordinators of internal company departments. As the hon. Member for Cheadle (Mark Hunter) mentioned, they are a link, and we must not overlook their importance in that role. As a former practising solicitor, I remember that on occasions I used to speak to company secretaries. We would not necessarily discuss a particular issue ourselves, but the company secretary was the one person with whom I could liaise, and he would agree to speak to the various departments in the company and give me the answer that I wanted. In the business world it is important that banks, lawyers, accountants, architects and so on have an individual whom they trust and with whom they can develop a working relationship to progress business.

Let us not overlook the role of non-executive directors in recent years. A number of reports have emphasised the importance of having independent non-executive directors, and we regularly see very able directors with a large portfolio of non-executive directorships. It is important that in that context a company secretary can advise each of them properly on the relevance of business practice for the company with whom that secretary is concerned, rather than the eight or nine other companies with which they have non-executive directorships. If the burdens and responsibilities of non-executive directors are to be increased—as they are—it is important that they are properly monitored and that there is an individual to do that monitoring. That should be the company secretary, who does it now and should continue to do so.

Mike O'Brien (Labour, North Warwickshire)

The hon. Gentleman repeatedly uses words such as “vital” and “crucial”. Is he saying that in no case, when one is dealing with medium-sized private companies, should the company have the choice of whether it wishes to have a company secretary? A corporation that controls a private company of the sort described may choose not to have a company secretary, but instead to have others authorised to do the tasks. Would he deny them that choice because it is “vital” and “crucial” that they should not have that choice?

Shailesh Vara (Conservative, North West Cambridgeshire)

The Solicitor-General makes a valid point. As long as all the administrative duties that a company secretary fulfils are carried out by the company, I have no problem. The problem, however, is that many companies need to have the option, rather than have company secretaries dispensed with, as is proposed. The Solicitor-General looks perplexed.

Mike O'Brien (Labour, North Warwickshire)

I am listening carefully and I am indeed a little perplexed. Let me repeat my point. The hon. Gentleman believes that no choice should exist for medium-sized private companies. We are dealing with SMEs, and Opposition amendment No. 185 relies on section 249A of the 1985 Act, which essentially distinguishes between small and medium-sized companies in accountancy terms.

James Brokenshireindicated assent.

Mike O'Brien (Labour, North Warwickshire)

The hon. Member for North-West Cambridgeshire (Mr. Vara) will see that the hon. Member for Hornchurch is nodding. Essentially, the hon. Member for North-West Cambridgeshire is making a distinction and saying that medium-sized private companies should not have choice set out in the Bill. Is that his point or is it not?

Shailesh Vara (Conservative, North West Cambridgeshire)

I stand corrected. To clarify, I am saying that we should have company secretaries for medium-sized companies. When I say that there should be an option not to have a company secretary, I have in mind small companies and the corner shop, which already have enough burdens.

Mike O'Brien (Labour, North Warwickshire)

That is precisely the issue on which I want to narrow down the hon. Gentleman’s argument. Is he saying that there is no situation in which he would allow medium-sized private companies the choice of whether to appoint a company secretary? That seems to be the argument that his Front-Bench colleagues have made, but is he seriously saying that he would insist on regulation and deny such companies the freedom to choose how they appoint people and regulate themselves?

Shailesh Vara (Conservative, North West Cambridgeshire)

The criteria for qualification as a medium-sized company are that turnover should not be more than £22.8 million, that the balance sheet total should not be more than £11.4 million and that the number of employees should no be more than 250.

Mike O'Brien (Labour, North Warwickshire)

I know the criteria, but what I want to know is whether the hon. Gentleman is saying that there is no circumstance in which he would allow private companies that exceed those levels to have the choice set out in the Bill. Is he saying that they should be denied that choice?

Shailesh Vara (Conservative, North West Cambridgeshire)

That is the way that the amendment reads, so, yes, that is the case.

It is not in the public interest—[Interruption.] The hon. Member for Falkirk (Mr. Joyce) is very keen on making comments that are just below the audible level. If he has anything credible or valid to say, I hope that he will make his contribution audible so that it can be put on the record, rather than constantly muttering so that it falls just below the radar. As I was saying, it is not in the public interest to create an additional administrative burden on directors, who have other duties and who do not need to be filling in forms, co-ordinating departments and so on. It is important that we let companies decide whether they want a company secretary, and we need a register of secretaries at Companies House so that it is clear to all third parties who is responsible for the various administrative duties and whom they can contact immediately.

There is an increasing focus on transparency and good corporate governance in business, but that is undermined when we seek to diminish the role of the one person who can be held accountable for high principles of corporate governance. As I mentioned earlier, there are 2 million private companies, all of which are subject to statutory requirements, proper corporate governance codes and guidelines issued by various company bodies. Company secretaries play a useful role in such companies, and doing away with that role will mean confusion and will impose the burden of setting up appropriate authorisations to duplicate the current statutory responsibilities.

To conclude, company secretaries play a vital role—I repeat the word “vital”—in the efficient running of companies and in our legal framework. We should seek to retain them and give them the necessary authority and power properly and effectively to do their job.

David Jones (Conservative, Clwyd West)

I do not propose to detain the Committee too long, because on the general thrust of the arguments there is little separating the Government and the Opposition. The Opposition are just as much—possibly more—in favour of deregulation than the Government. By the same token, I imagine that the Minister and the Solicitor-General recognise the importance of company secretaries to good corporate governance.

Mike O'Brien (Labour, North Warwickshire)

I am struck by the curiousness of the hon. Gentleman’s comment that his party, in proposing the amendments, which would insist on more private company regulation than the Government’s proposal, are more deregulatory than the Government. Will he clarify that? On the face of it, it does not make any sense.

David Jones (Conservative, Clwyd West)

I shall expand on my argument later. My point is that the Opposition and the Government are in favour of greater deregulation. [Interruption.] Does the Minister want to intervene?

Margaret Hodge (Labour, Barking)

For the sake of time, I shall not.

David Jones (Conservative, Clwyd West)

We will touch on that issue later.

The Government recognise the importance of company secretaries to good corporate governance. Were that not true, the Government would not have made it necessary for public companies to appoint company secretaries. I shall not rehearse at length the benefits of company secretaries; my hon. Friend the Member for Hornchurch and other contributors have already touched on them adequately. Save to say, company secretaries fulfil an important role to ensure that directors toe the line and operate within the bounds of their responsibilities and duties, and to assure persons such as creditors and shareholders who deal with the company.

We are not a million miles apart, but we need increased regulation of private companies with an annual turnover of £5.6 million or more. They are not small, although they only just exceed the definition of small enterprise. A company that has a turnover of £5.6 million a year is by any stretch of the imagination a significant enterprise. It probably has a large number of employees, it will undoubtedly enter into obligations, and creditors and others will deal with it regularly. The existence of a company secretary who fulfils their statutory duties, and other duties not so closely defined by statute in this Bill, would be a huge reassurance to those individuals.

Many private companies are very large. Theexample given on Second Reading was John Swire and Sons, which is an enormous company with morethan 130,000 employees and a turnover of about£2.3 billion. It is inconceivable that such a company would not appoint a company secretary.

Margaret Hodgeindicated assent.

David Jones (Conservative, Clwyd West)

I see the Minister nods as if to say, “All such companies are quite at liberty to appoint such an individual.” However, I find it hard to understand why such a large and significant enterprise—with a huge turnover, thousands of employees and, presumably, obligations that run into millions of pounds—is not required by the Bill to appoint a company secretary, whereas a public company that may have a significantly smaller turnover is. That is the nub of the argument between the Government and the Opposition in this Committee.

Lorely Burt (Liberal Democrat, Solihull)

Would the hon. Gentleman not agree that there is a balance to be struck among not only the interests of the company and its directors but, for a certain size of company, the interest of others, which should be differentiated? Although none of us on this side of the Committee desires to introduce or allow any more regulation than is required, we still think that a balance that acknowledges the interests of the different parties should be represented in a regulatory sense.

David Jones (Conservative, Clwyd West)

The hon. Lady is entirely right: it is a question of the size of the company. Again, to take the Swire example, it would be extraordinary for a company with 133,000 employees not to have a company secretary.

I fully understand that the Government will say that it is open to such companies to employ secretaries. In the case of such a large enterprise, where so many interests are at stake, it should be mandatory for a company secretary to be appointed. That is not regulation for the sake of regulation, but simple logic. It is ridiculous that a small public company should be obliged to appoint a secretary, whereas a huge private company should not. That is the nub of the argument, which I think is unanswerable. I can see no good reason for the argument, which Lord Sainsbury advanced in another place, that a private company of that size should not be required to appoint a company secretary. That is the main thrust of the Opposition’s amendment.

Nick Palmer (Labour, Broxtowe)

The argument has moved a little more in the direction of rationality because the hon. Gentleman is not arguing, as his colleagues did, that being forced to give up secretaries would be a burden on companies, because he accepts that they would not be forced to do so. He is saying that companies should be required to have secretaries in the wider interest if they are of a certain size, but is he arguing that there should be no difference in law between the duties placed on private and those on public companies?

David Jones (Conservative, Clwyd West)

Clearly that is not what I am arguing, because I am supporting the amendment. I openly acknowledge that a small company—what my hon. Friend the Member for North-West Cambridgeshire referred to as a corner-shop company—should not have the same degree of onerous obligations as a larger company. However, by the same token, it seems quite illogical that enormous private companies, of which there are many, should not be subject, in the interests of good corporate governance, to the appointment of a company secretary. That is the simple basis of the amendment and it is on that basis that I support it. That is also the simple point that I look forward to the Solicitor-General answering.

Mike O'Brien (Labour, North Warwickshire)

It is a great pleasure to appear before you for the first time, Mr. Illsley. I am sure that we will have a number of interesting debates in the coming weeks, although I hope not too many weeks. I appreciate that some people might like Committees to go on for longer than I would, but provided that we make progress I see no reason why we cannot enjoy each other’s company before it becomes too stale.

I begin by endorsing many of the points that the hon. Member for Hornchurch made in praise of the benefits of company secretaries. They provide an enormously valuable instrument for the protection of members in particular and, in certain circumstances, of the public. In the case of public companies, company secretaries perform a role that it is necessary and desirable that they should continue to perform. Private companies should have a greater degree of freedom and choice. We believe that that will not lead to any significant problems, and that this deregulatory approach is the better one.

The hon. Gentleman said that there was a great deal of angst, worry and concern among members of ICSA and other organisations about the proposals. I appreciate that ICSA, an organisation that I have had some contact with in the past as a lecturer in law and for which I have the greatest respect, will want to reassure its members. I read the briefing paper with interest, and I hope during the course of my comments to be able to provide some reassurance that its members need not have the concern, angst and worry that he identified.

The essential issue is not, as the hon. Gentleman said, about additional regulation. He was corrected by the hon. Member for Clwyd, West (Mr. Jones), who rightly said that the Conservatives were proposing more regulation than the Government want. The Conservatives want to regulate medium-sized private companies—for want of a better description—rather than small companies. We agree that we should give more freedom to small companies, so the issue between us is in respect of medium-sized private companies. It was correctly identified by my hon. Friend the Member for Broxtowe (Dr. Palmer), who said that it was not about confusion, as the hon. Member for Hornchurch said, but about whether we give greater choice and freedom.

We also want to deal with issues such as subsidiaries that are owned by larger corporations that may be public corporations and subject to obligations to have a secretary. Large public corporations that own private companies should be able to determine the internal management of those companies, provided they comply with the requirements on audit and so on.

David Jones (Conservative, Clwyd West)

I hear what the Solicitor-General says, but does not more than the internal organisation of the company have to be considered? Is there not also the company’s dealings with the wider world, and the point that I made earlier about Swire, which has 133,000 employees? Do not companies of that size need the reassurance of a company secretary at the helm?

Mike O'Brien (Labour, North Warwickshire)

Unlike the hon. Gentleman, I believe that there should be an element of choice for companies. I suspect that most companies of that size will choose to have a company secretary because it is the appropriate thing to do, and because it will provide the reassurance that they choose to give to those who deal with them and to their members. It is right that they should have that choice.

Justine Greening (Conservative, Putney)

Will the Solicitor-General give way?

Mike O'Brien (Labour, North Warwickshire)

I will give way to the hon. Lady, but I would like to advance the argument and perhaps give way later. However, if she wishes me to give way now, I will.

Justine Greening (Conservative, Putney)

I want to ask the Solicitor-General what the difference is between an unlisted private company and a similar sized or smaller public limited company in that context of choice. I do not understand how the transaction basis on which shares are traded or not traded on a stock exchange has any bearing on the corporate governance levels that are required in the company and in its dealings with external stakeholders on a day-to-day basis.

Mike O'Brien (Labour, North Warwickshire)

I was hoping that the hon. Lady would not intervene, as I wanted to come to precisely that point. Let me deal with it briefly now.

Everyone understands the difference between public and private companies—at least everyone who deals with these legal issues. If one creates within that distinction a further distinction—an important one—based on internal financial thresholds of private companies, they create new categories and therefore new consequences and problems. Section 249A as a dividing line adds complexity to these issues.

Jonathan Djanogly (Conservative, Huntingdon)

Will the Solicitor-General give way?

Mike O'Brien (Labour, North Warwickshire)

May I just deal with the intervention from the hon. Member for Putney (Justine Greening)? I will then give way happily, but I want to make progress with my argument.

In my view section 249A provides a basis on which auditors and accountants can look at companies, but the hon. Lady wants to make a distinction in company law, instead of having the present distinction between private and public companies which is straightforward. Most people understand it, as the hon. Lady obviously does and all members of the Committee do. She wants to create a new category for the purposes of company secretaries to identify that there is a particular new requirement that she wishes to introduce.

Justine Greeningindicated dissent.

The rest of the debate is in Hansard.