Company Law Reform Bill [Lords]

Public Bill Committee, 29 June 2006.

Standing Committee D

Clause 260

James Brokenshire (Conservative, Hornchurch)

I beg to move amendment No. 198, in clause 260, page 120,line 26, leave out ‘instead of’ and insert ‘in addition to’.

John Bercow (Conservative, Buckingham)

With this it will be convenient to discuss the following amendments: No. 199, in clause 260, page 120, line 27, leave out

‘or in addition to either or both of them'.

No. 200, in clause 260, page 120, line 38, leave out ‘18’ and insert ‘16’.

No. 201, in clause 260, page 120, line 40, leave out sub-paragraph (ii).

James Brokenshire (Conservative, Hornchurch)

The clause relates to the particulars of secretaries that are to be registered, and amendments Nos. 198 and 199 are largely probing amendments designed to obtain clarification on the names to be provided to the registrar. Subsection (2) says that

“For the purposes of this section ‘name’ means a person’s Christian name (or other forename) and surname, except in that in the case of—

(a) a peer, or

(b) an individual usually known by a title,

the title may be stated instead of his Christian name (or other forename) and surname or in addition to either or both of them.”

My question is about certainty, more than anything else. If a title is used, should not it be provided in addition to the Christian name or surname, rather than instead of them? That would facilitate due diligence and checking of company secretaries to identify whether they were previously a company secretary or similar officer, and would permit that investigation still to be undertaken even if they had changed their name.

Amendment No. 200 concerns consistency. Under the proposals in the Bill, it is now possible to standardise registration of particulars for names that have not been used for 20 years. That is in subsection (4): if somebody has changed their name or if the name has been disused for 20 years, the previous details need not be provided on the register. However, my question is whether, for the purposes of checking and due diligence, a disused name should still be provided even though it may have been disused for 20 years. Obviously that is a significant period, but there may still be a need to check for bankruptcy orders or the like—matters that may be relevant in the context of good corporate governance.

I note that if a name is

“changed or disused before the person attained the age of 18”

the name need not be provided. Directors can now be appointed at the age of 16, and the amendment would harmonise the age at 16, for the sake of consistency. If, during the two years between the ages of 16 and 18, a person uses a name and is the director of a company that goes bust or suffers some other unfortunate occurrence, but can then disuse their name on reaching 18, that hardly provides for the good corporate governance and due diligence to which I have alluded in relation to the other amendments. My approach is one of transparency and good corporate governance and I am testing why the Bill has been drafted as it has.

Nick Palmer (Labour, Broxtowe)

I have just a short point on amendment No. 201. The hon. Gentleman suggested that it might be relevant if a person had committed some sort of fraud 20 years ago. Is it not the case that, in that situation, the period in which such offences could have been mentioned would have expired? We would know the person’s name but we would not know about minor financial offences that they had committed 25 years ago.

James Brokenshire (Conservative, Hornchurch)

I think the hon. Gentleman alludes to the fact that there is a time limit after which offences effectively expire for employment purposes. It is a fair point, but when, for example, there is about to be a flotation or suchlike, questions are often asked as to whether a director or potential director of a listed company has committed any offence in the past. Clearly, in that greater public exposure environment, it would be damaging to a company if that information were to be provided at a later date, once a company was on the market. That is why those due diligence investigations are undertaken and why, in these probing amendments, I am attempting to see whether we will have sufficient clarity for those types of investigations after the introduction of the Bill.

Mike O'Brien (Labour, North Warwickshire)

The hon. Gentleman pointed out that these were probing amendments. He made some sensible, arguable points. The approach that we have taken to the provision is largely to maintain the current situation. We could have gone for a different kind of consistency. At this stage, we thought that there was no need to change it.

The approach taken to both directors and secretaries in the early part of the clause is long-standing. It has not caused problems so we decided to leave it as it is. We feel that that is the better approach but do not feel particularly strongly about it.

As far as peers are concerned, this reflects the long-standing arrangements. The right hon. and learned Member for Devizes (Mr. Ancram) is an interesting example, if I may use his name for illustrative purposes. He comes within subsection (2)(b), because Ancram is a courtesy title. His title, as I understand it, is now Lothian. However, his family name has always been Kerr. Everyone knows him by a particular title, so no one would think it inappropriate for him to use the title by which he is commonly known. That approach is allowed for in subsection (2)(b). It would then be up to him as to which title he chose to be known by, providing that there was nothing misleading in the way in which it was done.

Amendments Nos. 200 and 201 relate to the requirements on former names. The Bill retains the requirement in the current Act only for former names back to the age of 18, rather than the lower age of 16 that applies to directors and authorised signatories.

Our view was that one could go for consistency either with the old Bill or with directors and authorised signatories. There is an argument for either. It is a matter of taking a choice. For secretaries of public companies, the qualification requirements in clause 256 mean that there is little need for a minimum age. I cannot imagine that many of the people achieving that qualification are likely to be 16, so it seems unnecessary to change the arrangements for the age and information about former names.

Section 290 of the Companies Act 1985 requires a former name for a secretary. In that it differs from the rule for directors in section 289 of excluding a former name that has been changed or disused for 20 years or more. We do not see any reason for applying a longer period to secretaries’ former names than to directors’.

Those are broadly the reasons. If the hon. Gentleman feels particularly strongly—I suspect that he does not—that the requirements need to be changed, we will be happy to consider that, but that is the approach we have taken.

James Brokenshire (Conservative, Hornchurch)

I am grateful for the Solicitor-General’s comments. As I said in my opening remarks, these were largely probing amendments, to help us understand the basis on which these approaches had been developed.

The situation for company secretaries is at a less heightened level than that of directors, where there has traditionally been greater sensitivity about the information. Indeed, the information about company secretaries has been less full than the information provided by directors on the public record under section 288 of the 1985 Act. I take on board what the Solicitor-General said about the longstop of 20 years on former names and the approach taken on whether to specify an age of 18 or 16.

As the Solicitor-General helpfully pointed out, there is an issue of consistency on which we might reflect a little further. It is not likely that there will be huge numbers of directors aged 16 and 17, but in this increasingly entrepreneurial world in which young people are rightly encouraged to take a healthy interest in business and perhaps set up their own companies, this might become more important, so some further reflection on that point would be helpful as the Bill proceeds.

Mike O'Brien (Labour, North Warwickshire)

I am grateful to the hon. Gentleman. We are certainly happy to reflect on the matter. If he has strong views on it, I am happy for him to come back to me.

I have reflected on another matter that the hon. Gentleman raised in our last sitting. He mentioned his concerns that people might seek to increase the fee to restrict access to the register of secretaries. I asked for some work to be done on the matter, and it seems that the fee is £2.50 for each hour during which the right of inspection is exercised. The making of that fee is enabled by the Companies (Inspection and Copying of Registers, Indices and Documents) Regulations 1991 and therefore set by the Secretary of State. If somebody wants to go along and have a look at a name it does not cost much, and there is no option to put up the price unnecessarily. That rule will be introduced through regulations and therefore promulgated by the Secretary of State. It would be useful if the registrar made clear the situation on the Companies House website.

I am happy to reflect on the point that the hon. Gentleman just raised, which is a matter of preference. I do not think that it will make much difference, because the work of company secretaries means that they are likely to have to comply with certain requirements. I doubt that they will be 16 years old, because of the nature of the work.

James Brokenshire (Conservative, Hornchurch)

I am grateful for that further clarification, in particular on the point that we discussed about fees, which is helpful in terms of transparency. I am grateful also for the Solicitor-General’s comments on making the information more visibly accessible on the Companies House website. That would be helpful, so that everybody can be clear precisely what the situation is when exercising their rights and that they are not in any way fobbed off or given a false impression. On the basis of his comments, I beg to ask leave to withdraw the amendment.

Clause 262

James Brokenshire (Conservative, Hornchurch)

I seek clarification on whether there is any intent to use the regulation-making power under the clause to add or remove items to be registered, or whether the provision is intended to cover reviews in the future if it is thought appropriate to add information or modify requirements to cover circumstances not currently contemplated.

Mike O'Brien (Labour, North Warwickshire)

The aim is to ensure that we are in a position to make regulations should we be of a mind to. We have no intention of making these regulations, but it is appropriate to keep this clause in the Bill to enable us to review the provisions at some stage in the future, and keep them up to date.

Resolutions

James Brokenshire (Conservative, Hornchurch)

I beg to move amendment No. 327, in clause 264, page 122, line 5, at end add

‘, save in the case of a public company not being a quoted company, which may pass a written resolution in accordance with Chapter 2 of this Part.’.

John Bercow (Conservative, Buckingham)

With this it will be convenient to discuss the following amendments: No. 328, in clause 266, page 122, line 36, after ‘company’, insert

‘or a public company not being a quoted company’.

No. 329, in clause 268, page 123, line 41, leave out ‘a private company’s articles’ and insert

‘the articles of the relevant company’.

No. 332, in clause 271, page 124, line 33, after ‘company’, insert

‘or a public company not being a quoted company’.

No. 333, in clause 271, page 125, line 8, leave out ‘private’ and insert ‘relevant’.

No. 334, in clause 272, page 125, line 16, leave out ‘private’ and insert ‘relevant’.

James Brokenshire (Conservative, Hornchurch)

We now move on to part 13 of the Bill, which deals with the procedures for convening meetings and for passing resolutions. Clause 264 incorporates general provisions regarding the ways in which private limited companies and public companies are permitted to pass resolutions. The clause makes it clear that while private companies are permitted to pass resolutions of shareholders by means of either general meetings of shareholders or through the mechanism of written resolution, public companies are not. The distinction reflects the approach taken in section 381A of the Companies Act 1985.

While this approach provides a clear dividing line between companies that are permitted to use the written resolution route and those that are not,the purpose of the amendment is to question whether the written resolution route could have wider application beyond private limited companies. This is particularly so as a number of public companies may have a small number of shareholders who are not listed. It would therefore seem more practical andless bureaucratic to extend the written resolution mechanism for these types of companies. I acknowledge that quoted plcs are likely to have a considerable number of shareholders. It may not be practicable, even if they wished to do so, for them to adopt the written resolution approach, certainly in a timely fashion. The general meeting approach may well be more appropriate to them.

From a public company perspective, and in order to ensure transparency, the ability for shareholders to attend a general meeting and to ask questions as appropriate is clearly important. I therefore understand the distinction drawn between the written resolution approach for private limited companies and the restriction to general meetings for public companies. However, it is worth examining that further in a deregulatory framework to see whether for non-quoted public companies the regime of written resolutions might be extended. Under the amendment, quoted public companies would still not have the option of using the written resolution approach while non-quoted public companies would. The amendment is intended to reflect the intent to promote more flexible and efficient decision making within the companies.

Amendments Nos. 328, 329, and 332 to 334 are consequential amendments to further clauses as a result of this proposed change.

Margaret Hodge (Labour, Barking)

I understand the motivations behind the amendments, and it is true that the company law review recommended that public companies should be able to opt out of holding AGMs. However, the review was not clear about how such public companies were to take decisions. Its recommendations relating to written resolutions specifically concerned making it easier for private companies, so the focus was on think small first.

Our proposals are framed in the way that they are primarily because of EC regulations and EC law—specifically, the second company law directive, which requires a number of resolutions in relation to public companies and the maintenance and alteration of capital to be taken in general meetings. In addition, as for private companies, resolutions to remove a director or an auditor must be taken at general meetings. Some remaining resolutions could therefore be taken in other ways, but our view is that that would make things slightly more complex and difficult for companies to understand.

When we consulted on the company law review, in both the 2002 and the 2005 White Paper, it is fair to say that there was not much appetite for enabling public companies to opt out of holding AGMs. The general view was that meetings continue to serve a useful purpose for most public companies. For those reasons, we took the view that the written resolution procedure should continue, as under the 1985 Act, to be available for private companies only.

I hope that, in view of that explanation, the hon. Gentleman will feel able to withdraw the amendment.

James Brokenshire (Conservative, Hornchurch)

I am grateful for the Minister’s comments, although they perhaps underline the debate that we had earlier in the week about the distinction between large and small, and how that is defined. The Department’s view is that the distinction is drawn between a public company and a private company. That is the dividing line that is adhered to, whereas we have advocated examining that rigid view more closely, to see whether it provides the think small first-type approach that the Minister mentioned. Hence my attempt in the amendments to distinguish a quoted company—a company whose shares are listed on a stock exchanges, for which the issues that the Minister highlighted, such as the need for meetings, transparency and the ability of shareholders to hold directors to account and ask questions, are proper and valid—from a non-quoted one.

I am disappointed that the Minister does not feel that there is sufficient appetite to examine the possibility of extending written resolutions to non-quoted plcs, with a smaller group of shareholders, or of such companies’ processes and procedures being adhered to more closely. However, in the circumstances, I beg to ask leave to withdraw the amendment.

Clause 267

James Brokenshire (Conservative, Hornchurch)

I beg to move amendment No. 222, in clause 267, page 123, line 23, after ‘member’, insert

‘, whether voting in person or by proxy,’.

John Bercow (Conservative, Buckingham)

With this it will be convenient to discuss the following amendments: No. 223, in clause 267, page 123, line 25, after ‘member’, insert

‘,whether voting in person or by proxy,’.

No. 224, in clause 268, page 124, line 3, after ‘member’, insert

‘,whether voting in person or by proxy,’.

James Brokenshire (Conservative, Hornchurch)

The clause makes general provisions in relation to the manner in which votes are to be conducted, in the context of a written resolution, a resolution on a show of hands at a general meeting of shareholders and a resolution taken on a poll at a meeting of shareholders.

Subsection (2) makes it clear that, on a vote on a show of hands at a general meeting, each member and validly appointed proxy present has one vote. However, subsection (3) states that, on a vote on a poll,

“every member has one vote.”

That wording could be construed as limiting the operation of subsection (3) to members only, rather than including proxies as well. I do not believe that that is the intention and I think it would be helpful to put this beyond doubt by stating that every member, whether voting in person or by proxy at a general meeting, has one vote in respect of each share or £10 of stock held. Amendments Nos. 223 and 224 would make consequential changes.

Margaret Hodge (Labour, Barking)

The hon. Gentleman is right. Clause 267 sets out the general rules relating to votes and members. The specific requirements are set out in clause 268 and cannot be overridden by the articles. Our view is that the Opposition’s amendments make no improvement to the operation of these two clauses. I draw his attention to clause 307, which entitles a member to appoint one or more proxies to exercise the voting rights attached to a member’s shares. When a poll on the resolution is called it is the votes conferred by each share that are counted. At that point it is irrelevant whether the member is voting in person or by proxy and nothing is added to the provision by stating that explicitly in clauses 267 and 268. I hope that after that explanation the hon. Gentleman will feel able to withdraw the amendment.

James Brokenshire (Conservative, Hornchurch)

The reason for tabling the amendments was to seek clarification that the phrase “every member” in clauses 267 and 268 is intended to mean every member voting in person or by proxy. In the light of the Minister’s confirmation of that, I beg to ask leave to withdraw the amendment.

James Brokenshire (Conservative, Hornchurch)

Subsection (2)(b) states that on a vote on a resolution on a show of hands at a meeting:

“every proxy present who has been duly appointed by a member entitled to vote on the resolution has one vote.”

Could the Minister confirm the intention behind this wording in the context of a member’s ability to appoint multiple proxies? Surely the intention should not be that a member is entitled to appoint more than one proxy, each of whom would be entitled to vote, as a member voting by proxy in these circumstances would have more votes than a member voting in person at the meeting, which cannot be right. I am sure that there is some explanation, as that is clearly not the intention behind the drafting.

Clause 268(2) makes specific provision in circumstances where the articles of association of the company seek to differentiate between the rights of members and the rights of proxies in a negative way. The language appears to apply only to clause 268(1). These are technical comments, but it would be helpful to have some clarification.

Margaret Hodge (Labour, Barking)

This is complicated stuff. I am trying to come to grips with it. I hope that I can help the hon. Gentleman here. If there are multiple proxies attending a meeting where the voting is on a show of hands there is a common law duty on the chairman to demand a poll on a vote if he considers the outcome would be different from that reached by a show of hands. Many companies, particularly quoted companies, count all votes on a poll as a matter of practice, and an appropriate requirement is usually set out in their articles. Some companies still allow participants, whether members voting in person or by proxy, to demonstrate—I am not sure that this helps much—

James Brokenshire (Conservative, Hornchurch)

Perhaps this is something for later on.

Margaret Hodge (Labour, Barking)

Yes. The problem with votes on a show of hands is that members may appoint several proxies. I accept the point that the hon. Gentleman has made. The Bill deliberately facilitates that, because it is a mechanism for allowing pool nominees, of the kind we will discuss when we come to part 9, to give the underlying owners of shares the right to turn up to meetings. However, if the proxies between them have the same rights on a show of hands as the member, they should have one vote between them. Owing to the policy on underlying shareholders, we prefer the default position to be that proxies have one vote each on a show of hands. Consequently, we need to refer specifically to proxies in clause 267(2), because we are departing from the general rule. I accept that that is complex. Perhaps the quicker companies come to proper polls the easier life will get.

James Brokenshire (Conservative, Hornchurch)

I am not sure that I necessarily did get the clarification that I was hoping for. I understood that the fundamental issue on multiple proxies and proxies having one vote was about what happens if a member appoints more than one proxy. I appreciate the flexibility arguments on that. For example, if a shareholder has 10 shares and can therefore appoint, say, 10 proxies, it would not be desirable for that person to have 10 votes on a show of hands when someone with 10 shares who attends in person would only have one vote. That was the approach that I want to deal with, because it is clearly not fair or appropriate and could lead to absurd situations.

I do not think that that is what the Minister was setting out. I take it that a member appointing proxies cannot effectively usurp their position and, by virtue of the mechanism in question, get more votes than they would have been entitled to had they turned up at the meeting, but that is what concerns me.

Margaret Hodge (Labour, Barking)

The issue is complicated, which is why I said that we hope that more companies move to proper polling of their members. The problem relates to proxies for pool nominees, where there are multiple underlying interests. We want to reflect that, which is why a show of hands would be allowed in those circumstances. I accept that it is a difficult matter. I am advised that there could not be a challenge, but presumably if a member were unhappy in some way, the matter might presumably be subject to a challenge by the chairman.

James Brokenshire (Conservative, Hornchurch)

I am grateful for that clarification. The question of pool nominees is a valid one, and we will debate in more detail how it is possible for nominee shareholders to gain their rights and enforce them effectively at a general meeting. That is a wider debate and I do not want to stray on to it now.

If there is a dispute, it is open to someone to seek a poll in the relevant circumstances to even out the situation, because voting would then be tied to the individual holding of shares. We need to keep the issue under review. I understand what the Minister said, and the complexities of always proceeding on a poll may not necessarily be desirable and may add cost. I think she is right about public companies. In essence, the information is provided because of the proxy information that comes from institutional shareholders who appoint the chairman as their proxy. It is possible, with reference to the number of shares, to see how many votes were cast for and against and how many abstentions there were. However, I am thinking about smaller or medium-sized companies that could fall between the two. However, I hear what the Minister says.

Jonathan Djanogly (Conservative, Huntingdon)

In a general meeting, it is now best practice in corporate governance—I think it is also a combined code requirement—that the chairman reads out the proxy situation. Typically, that would be done after the show of hands. However, in circumstances where the vote might be tight or complicated, there is no reason why the chairman should not read out the proxy situation before the show of hands. In that case, members would have an idea which way the wind was blowing, so in practice I think the problem would sort itself out.

James Brokenshire (Conservative, Hornchurch)

I concur with my hon. Friend’s comments, which relate to quoted companies. However, some of my comments concerned smaller companies, which could be opened up to a situation in which the provision is misused. That would not be so much of an issue for quoted companies. We might reflect on the clause, but in the light of comments made this morning, I shall not press the matter further.

Clause 269

James Brokenshire (Conservative, Hornchurch)

The clause makes provision for joint holders of shares. In particular, it states:

“only the vote of the senior holder who votes (and any proxies duly authorised by him) may be counted by the company.”

Subsection (2) states:

“the senior holder...is determined by the order in which the names of the joint holders appear in the register”.

That could be read in two ways: first, that only the senior holder—the person named first in the register of members—is entitled to vote, or, secondly, that the vote of the most senior named shareholder who votes should be counted. In other words, if the first named person does not vote, but the second and third named ones do, the second named person takes priority. That is the understood way in which joint shareholdings have operated up until now, and it would be helpful if it could be confirmed that no change is contemplated.

On a separate matter, was any contemplation given to limiting the maximum number of joint holders who may hold a single share, as that requirement is commonly inserted into many companies’ articles of association? From my brief review of the draft model table A articles, inserted in the large bundle of documents that I received recently, it appears that it contains no such specific provision. Was any thought given to streamlining the approach or will companies still have to reserve on a case-by-case basis such a provision in their articles of association?

Margaret Hodge (Labour, Barking)

We are not introducing any change, but simply putting on a statutory footing what was a default regulation under table A. There is no change on the issue of the senior holder. We did not look at limiting that. Our view was that limiting the number of joint holders of shares should be down to the companies themselves to put into their articles. They will be able to do that after the Bill is enacted.

Clause 270

James Brokenshire (Conservative, Hornchurch)

I beg to move amendment No. 330, in clause 270, page 124, line 22, after ‘deemed', insert ‘not'.

John Bercow (Conservative, Buckingham)

With this it will be convenient to discuss amendment No. 331, in clause 270, page 124, line 22, leave out ‘if' and insert ‘notwithstanding that'.

James Brokenshire (Conservative, Hornchurch)

The clause is an entirely new provision. It states that if a person is not entitled to vote on a resolution, but does so, and if the articles of association of that company provide a mechanism for objecting to an improper vote, and if an objection is made and rejected, or if no objection is made within the relevant time period, the unauthorised voter

“is deemed to have been entitled to vote”.

The explanatory notes state that the provision is intended to ensure that other provisions in the Bill do not interfere with

“the operation of provisions in the articles which impose a procedure for objecting to and determining the admissibility of a vote.”

Although that is true, the clause appears to go a stage further by stating that a person not entitled to vote

“is deemed to have been entitled to”

do so in such circumstances. Even if it could be shown that a chairman erred in law, was negligent, made a manifest error or was fraudulent, the clause seems to protect him. That is the sort of thing on which I am trying to glean clarification.

It is also unclear how statutory minority shareholder protection might operate in such situations because not only is the decision of the chairman treated as being upheld, but, from my reading of the clause, any errors are deemed to be corrected. How will the rights of minority and other shareholders who have a grievance about that decision be treated?

I recognise the need for certainty in the context of decisions taken at meetings and the need for that to be done efficiently, effectively and quickly, but it would be extraordinary if shareholders could be prejudiced without any apparent method of challenging a decision that is irrational, unreasonable or even unlawful. Amendments Nos. 330 and 331 seek to clarify the Government’s intention. If shareholders’ rights are undermined by the clause, the balance of convenience should be weighed in favour of shareholders whose rights might be prejudiced.

Margaret Hodge (Labour, Barking)

The hon. Gentleman raises a difficult point and his amendment gave me cause for thought. The conflict is that we want to provide commercial certainty for the company. The ability constantly to question decisions taken after a meeting would undermine that commercial certainty. We also want to ensure that those who take decisions have a legitimate role and an appropriate locus. I am sure he agrees that, in the interests of the company, it is better that objections are dealt with at a meeting and that the chairman takes a view on whether people are entitled to vote so that the matter is settled there and then. If things go badly wrong, other remedies should be open to members if they feel that the chairman was in breach of his duties in public law. If they believe that they suffered unfair prejudice, they should be able to challenge that and the court has discretion to make a wide range of orders.

However, we think we have got it right. We may be able to tweak this at the edges. Perhaps the hon. Gentleman will allow us to consider his amendments and return to the matter on Report to ensure that we have the proper balance between certainty for members and ensuring that the right people vote at meetings.

James Brokenshire (Conservative, Hornchurch)

I am grateful to the Minister for agreeing to reflect on the provision in greater detail. It is a sensitive issue and needs to be examined carefully. My fundamental concern is the need for commercial certainty and the desire to have things settled quickly and effectively by the chairman in accordance with the articles of association.

My concern relates to the latter point that the Minister highlighted on remedies that might be available to shareholders. The phrase:

“deemed to have been entitled to vote as he did”,

in subsection (2) gave me cause for thought, hence my amendments, and should not in any way invalidate or undermine the remedies that might otherwise lie open to a particular shareholder. If there is deemed to be prejudice, the company or directors could say, “Even if there was prejudice, on the face of it and by virtue of allowing someone to vote who should not have been allowed to vote, that is remedied and cured as a consequence of clause 270(2).”

In the light of the Minister’s agreement to reflect on those thoughts and to return to the matter on Report, I beg to ask leave to withdraw the amendment.

Clause 271

James Brokenshire (Conservative, Hornchurch)

Clause 271(5) refers to the effectiveness of written resolutions, and states that

“references in enactments passed or made before this section comes into force...at which a resolution is passed or to members voting in favour of a resolution shall be construed accordingly.”

Although I recognise the use of the clause to allow shareholders in companies with articles of association predating the new Bill to have the benefit of its written resolution provisions, if a company had deliberately opted for meetings to approve resolutions, for whatever reason, what impact would the provision have in that context?

Clause 283 suggests that that cannot be done, but I would be grateful for the Minister’s confirmation, as it seems to me that a company, for whatever reason, might wish to entrench something in its articles to ensure that a general meeting is held, rather than relying on a written resolution provision. I would appreciate clarification and perhaps some thoughts about why that particular approach has been taken.

Margaret Hodge (Labour, Barking)

I do not quite understand which point the hon. Gentleman is not clear about.

James Brokenshire (Conservative, Hornchurch)

Clause 283 states:

“A provision of the articles of a private company is void in so far as it would have the effect that a resolution that is required by or otherwise provided for in an enactment could not be proposed and passed as a written resolution.”

I therefore take it that if the article said that something had to be passed at a general meeting, clause 283 would override it. I raise the matter in the context of clause 271 because it makes provision in respect of written resolutions of private companies. I want to be sure that my reading of the proposal is correct in terms of how clause 271(5) will apply to the moving of written resolutions and what protection might be afforded to companies in that respect. I hope the Minister can clarify the point.

Margaret Hodge (Labour, Barking)

I hope that I can help the hon. Gentleman. We will look at clause 283 when we consider transition arrangements and we may wish to return to the matter then. Clause 271(5) applies only to enactments, so in relation to Acts, regulations and so on, existing articles are offered the transitional consideration. I am not sure that that deals with the point, but I hope it does.

James Brokenshire (Conservative, Hornchurch)

I do not think it does. The Minister has already mentioned statutory provisions in relation to the removal of directors and auditors. My point is about what will happen if a company wants to entrench within its articles a particular issue—for example, the right to deal with something in a general meeting rather than a written resolution. Will it be entitled to do so in those circumstances?

Margaret Hodge (Labour, Barking)

I shall stop listening to my officials and just try to understand what the hon. Gentleman is saying. I think the answer is yes.

James Brokenshire (Conservative, Hornchurch)

In the light of the Minister’s confirmation, for which I am very grateful, I shall sit down.

Clause 272

James Brokenshire (Conservative, Hornchurch)

During discussions in Grand Committee in the other place, there was a short debate on what is now clause 275 about the time of the circulation of notices and whether time should run from the distribution of the last of the written notices to shareholders or the first, when notification of written resolutions is sent out at different times.

A similar point arises in the context of this clause. In Grand Committee, Lord Sainsbury said that he would look at this matter again. I see that there are competing arguments, but I would be grateful if the Minister confirmed that the matter is settled.

Margaret Hodge (Labour, Barking)

On this point I have a clear brief. We did look at the matter again and the answer is no, but I do not have a copy of what precisely Lord Sainsbury said.

James Brokenshire (Conservative, Hornchurch)

I am grateful for that clarification.

Clause 274

James Brokenshire (Conservative, Hornchurch)

I beg to move amendmentNo. 335, in clause 274, page 126, line 9, leave out subsections (5) and (6).

John Bercow (Conservative, Buckingham)

With this it will be convenient to discuss the following amendments: No. 344, in clause 324, page 144, line 18, leave out subsections (3) and (4).

No. 347, in clause 340, page 152, line 4, leave out subsections (3) and (4).

James Brokenshire (Conservative, Hornchurch)

We move on to clause 274, which deals with the circulation of written resolutions proposed by directors and, in particular, the sanctions and provisions that might apply in those circumstances. Subsection (7) refers clearly to what happens in the event of a defect:

“The validity of the resolution, if passed, is not affected by a failure to comply with this section.”

In other words, notwithstanding the defect and the fact that a shareholder has not been notified of the written resolutions, if a resolution is still passed by the appropriate majority, it will stand.

In many respects, we have in this subsection a codification of the errors and omissions-type provisions that have been common in the articles of association of companies up to now in respect of general meetings or general written resolutions to provide the certainty in the outcome of resolutions that we have discussed more generally today. However, there is a criminal sanction on directors for failure to comply, even though a minor issue, an error or an oversight might be involved and there was no deliberate intention to arrive at that situation.

It is interesting that in clause 270, which we have discussed in relation to the chairman’s role in determining the outcome of meetings, there is no specific sanction on the chairman if the chairman gets it wrong. I am highlighting a consistency argument.

Perhaps the other relevant provision to consider in that context is clause 296, which in some ways reflects a similar approach. It talks about

“accidental failure to give notice”

of a resolution or meeting, and says that such an accidental failure

“shall be disregarded for the purpose of determining whether notice of the meeting or the resolution...is duly given.”

In many ways, it reflects the approach of the written resolution route. However, there is no criminal sanction in that context, so that if there is a general meeting and failure to give notice to a shareholder, the resolution is ultimately still held to be valid, although there is no criminal sanction for failing to give notice. However, if there is a failure to give a copy of a written resolution to a shareholder, there is a criminal sanction. This is a question whether that is the right approach.

Jonathan Djanogly (Conservative, Huntingdon)

My hon. Friend is making an important point. The fact of the matter is that if a written resolution is not circulated to one of 50 shareholders, it might simply be a mistake. These things happen in real life. On the other hand, it might be a serious attempt at fraud, and an effective one in terms of disrupting the business of the company. As things stand, the clause does not provide for that balance to be taken into account.

James Brokenshire (Conservative, Hornchurch)

My hon. Friend makes the right point about fraud. In tabling the amendments, I was not in any way seeking to downplay the need for compliance and ensuring that shareholders receive proper notification in such circumstances. This is about genuine error.

Written resolutions, as we have discussed this morning, are limited to private companies, not public. However, it is still possible for private companies to have a considerable number of shareholders. In many respects, it is possible to have a private offering that is not on offer to the public and still gain a large number of shareholders.

In my experience, I have encountered private companies that surprisingly have 100 members. An administrative error might occur under such circumstances in relation to ensuring that all shareholders are given proper notification of meetings or written resolutions.

This is a matter of how to strike the right balance. Interestingly, in other contexts—for example, under the Financial Services and Markets Act 2000—there is the concept of a civil penalty, which is almost like a civil fine. With that sanction, it is possible to bring some financial penalty against a person for failing to comply with the regulation without giving them the criminal record that the clause refers to.

Amendment No. 344 makes a similar point in the context of disclosing the results of a poll under clause 324, and amendment No. 347 makes it about the records of decisions by a sole member for the purposes of clause 340. In that last case, it is difficult to see whom the provision is trying to protect, as the sole member is the person who has taken the decision and that decision can affect only his or her interests. It is therefore interesting to wonder who needs to be protected by the criminal sanctions.

How do we ensure compliance? How do we ensure that shareholders are properly protected, that there is no fraud and that companies are administered appropriately, effectively and in accordance with the law, without at the same time unduly penalising directors who make a genuine and minor mistake resulting in failure to notify?

I question whether the approach to written resolutions and notification of general meetings strikes the right balance. What factors underlie the Government’s decision to treat written resolutions differently from general meetings of shareholders?

Margaret Hodge (Labour, Barking)

The hon. Gentleman has raised several issues. First, he mentioned the fact that whatever happens and whatever sanctions exist, the resolution remains valid if passed. That relates to the point that we discussed earlier: the company must have certainty to be able to pursue its business effectively and efficiently. That is why that part of clause 276 has been included.

The hon. Gentleman’s second issue was that our approach to sanctions is inconsistent. During debate on an earlier clause, we talked about the possibility of taking action if it is felt that the chairman has abused his powers in considering the company’s business and resolutions. Members can take action in that context. The chairman could be in breach of his duties under common law, or a member could claim to have suffered unfair prejudice. In such circumstances, the courts have a wide range of orders, so there is some consistency.

The hon. Gentleman’s third issue dealt with giving notice. I say to him simply that there is a sanction. It is a civil sanction, not a criminal sanction, and I accept the difference.

The Government’s view is that resolutions are particularly important because of their potential impact on how the company proceeds in running its affairs, and it is therefore right that there should be a tougher sanction for that. It would be slightly excessive to assume that simply failing to give a notice, which may or may not be deliberate, requires the same sort of criminal sanction to be attached to it.

The fourth issue that the hon. Gentleman raised was sole members, but of course if a resolution is not circulated to a sole member, it will not happen, so there is no need for us to cover that case.

Let me talk about the sanctions generally. This issue was discussed in the context of the work undertaken by the company law review, and the hon. Gentleman may have read the report arising from that. The review suggested that it was better to bring into the legal provision a clear, accessible and consistent approach. The CLR recommended that, in future, company law should as a general principle state clearly in relation to every rule what the consequences of a breach should be. When we reviewed the minor criminal offences used to enforce regulatory requirements in current law, the CLR concluded that those were justified by the cost-effectiveness achieved, compared with the relative inefficiency of any alternative approach.

In clauses 274, 324 and 340, we set out the consequences of failing to comply with the requirements of those clauses. We consider that the offences represent proportionate and effective sanctions and appropriate enforcement. I hope that, with that explanation and the response to the various issues that he raised, the hon. Gentleman will feel able to withdraw the amendment.

James Brokenshire (Conservative, Hornchurch)

I am not happy with the Minister’s response on this issue. It is interesting that she drew a distinction between resolutions and notices and suggested that a default in relation to the provision of a notice was considered perhaps a slightly lesser issue than one in relation to providing a copy of the written resolution. That misses the point. The purpose of a notice to a shareholder is to inform them of a general meeting at which a resolution is to be passed. Therefore, if they do not receive such a notice, they will be unable to exercise their vote on the resolution and have their say. In the same way, if a shareholder does not receive a copy of the written resolution, they are unable to cast their vote on the resolution. They are two means of achieving exactly the same thing.

It is peculiar to draw a distinction between not supplying a notice of a general meeting and not receiving a copy of the written resolution, because the result is exactly the same for the shareholder. In both circumstances, the shareholder is denied their right to vote, whether by putting their squiggle on the bottom of a piece of paper, by physically attending a meeting, putting their hand up and voting, or by voting by proxy.

I do not accept that distinction. I do not see why one action is treated as a criminal offence, with everything that that entails, and the other is treated as a civil offence. I do not see the fundamental distinction drawn between the two. There should be broad equivalence. Either both should be criminal offences, or both should be subject to civil sanction. The fact that minority shareholder protection rights are available in relation to a breach of the notice provisions is fine, but we are still talking about a civil sanction, not a criminal sanction.

It is worth noting that directors and officers may seek to rely on third parties, whether they be solicitors, agents or registrars, in sending out notices of meetings or written resolutions. If there is a default in one case, the director is potentially criminally liable, but in the other case, they are not. Circumstances may be outside the control of the director. A minor error may occur. It therefore seems strange, to say the least, that the director should be criminally liable in one set of circumstances, but not the other. That is why I feel discomfort at the approach taken in the Bill.

In making those comments, however, I should re-emphasise that I in no way wish to indicate that there should not be compliance—there clearly should be. We have talked about a situation in which there might be fraud, and it is absolutely right that protections should be adopted. All that I am saying is that we need greater consistency in the treatment of the two routes for passing a resolution. They both have the same end result, and I am trying to test the inconsistency in their treatment through the amendment.

Margaret Hodge (Labour, Barking)

If the hon. Gentleman looks at clause 296, he will see that it relates to a different set of circumstances. It talks about the

“Accidental failure to give notice of resolution or meeting”,

not the deliberate or fraudulent failure to which he alluded. If the failure is accidental, it is much more appropriate to have a civil, not a criminal remedy. I cannot remember whether the hon. Gentleman is a lawyer or an accountant, but let me simply give him the legal advice that I have received: there can be no equivalent civil remedy with written resolutions; otherwise, the mechanism does not work. That is the legal advice, and it is another reason for going down the route proposed in the Bill. The hon. Gentleman looks puzzled, but all I can say is that that is the legal advice I have received.

James Brokenshire (Conservative, Hornchurch)

I am grateful to the Minister for that intervention, but as my furrowed brow suggested, I did not quite follow the legal argument. If she could write to me with that legal advice on the written resolution route, that would certainly help to provide clarification as to why that route has been adopted.

The Minister makes an interesting distinction in relation to clause 296. She says that it relates to

“Accidental failure to give notice of resolution or meeting”,

and that is perhaps the right way to address the issue. There might be an accidental failure to give a shareholder a written resolution notification, and it seems strange and inconsistent that such a provision could not be adopted for use with a written resolution approach. The Government seem to accept that a mistake could be made in one set of circumstances, but not in the circumstances that we are discussing.

It would be appropriate for the Minister to reflect on my comments, and I genuinely look forward to seeing the legal statements that she has received on the legal basis for the provisions. It would be helpful to reflect further because, although she might not be entirely persuaded now, this is a serious issue. A minor error could result in a director suffering a significant criminal penalty, and I find it strange that that is the intention.

Margaret Hodge (Labour, Barking)

I will write to the hon. Gentleman and I look forward to his musings on the legal advice that the Government are getting. I certainly hope that that will give him some comfort that the provisions are correct. Otherwise, we can return to the issue on Report.

James Brokenshire (Conservative, Hornchurch)

In response to the Minister’s comment that she will provide the legal advice, and in the context of what she so eloquently described as my musings—I hope that they were more substantive and cogent than mere musings—I beg to ask leave to withdraw the amendment.

Clause 275

James Brokenshire (Conservative, Hornchurch)

I beg to move amendment No. 336, in clause 275, page 126, line 28, at end insert

‘, provided that such statement is not defamatory of any person.'.

John Bercow (Conservative, Buckingham)

With this it will be convenient to discuss amendment No. 341, in clause 297, page 134, line 3, at end insert

‘provided that such statement is not defamatory of any person'.

James Brokenshire (Conservative, Hornchurch)

The clause deals with the members’ power to require the circulation of a statement or written resolution, particularly the requirement in clause 275(3):

“Where the members require a company to circulate a resolution they may require the company to circulate with it a statement of not more than 1,000 words on the subject matter of the resolution.”

The amendments seek to probe the protection of the company. If the statements that the members seek to include in the 1,000-word document that goes out with the written resolution are defamatory, what happens?

If a member requires a company to circulate such a written resolution, that would suggest that something has gone wrong, that there has been some sort of breakdown within the company and some significant issue has arisen that necessitates the member insisting that the company of which they are a member circulates a written resolution. The mechanism is intended to provide for and to protect in that sort of circumstance, so that a shareholder or group of shareholders is able to require that the company is at least bound to consider a particular course of action.

Against that backdrop, the situation is likely to be tense and difficult. There are various allegations that may or may not be asserted in such circumstances to justify the fact that a written resolution is sought. Against that backdrop, it is important that the statements that are contained in any accompanying document are not defamatory. The company, in receiving those statements and circulating them to a wider audience, could be putting itself in a difficult legal position. By that method the company could be exposing itself to an action for defamation.

The amendments seek merely to clarify. I note that the Minister is flicking through the Bill at the moment—I know that there are certain provisions that allow court challenges and so on and so forth. However, in speaking to the amendments I am seeking to ensure that there is clarity in the Bill and that the company has the ability, where something clearly is defamatory, not to have to circulate the statement. It would clearly be damaging to the interests of the company as a whole if in doing so the company exposed itself to liability for defamation action from a third party, even if that was not something that the company itself was advocating. However, by publishing that defamatory statement the company itself would incur a liability. Therefore, the amendment would allow a company to reject a statement if it was defamatory.

Amendment No. 341 makes the same point about clause 297 and the ability of shareholders to require that the company circulate a statement in connection with a resolution proposed to be dealt with at a general meeting. It is the same point as in the circulation of notices, information and statements to shareholders more generally, whether they be in the context of the written resolution or of a resolution proposed to be taken at a general meeting.

Margaret Hodge (Labour, Barking)

The hon. Gentleman is correct to say that the circumstances in which one might want to circulate such a statement are likely to be pretty tense and contentious. Equally, what we have to do is to balance the right of shareholders to put their point of view and to have that discussed in relation to particular resolutions at the meetings. That right is what we are trying to protect.

There is a problem with the company itself determining whether a resolution is defamatory. As the hon. Gentleman was speaking, I was thinking of the times that I have thought that the press has defamed me, only to be told by eminent lawyers that I am completely and utterly wrong and that I just have to take it as perfectly valid criticism. There is a tendency for the injured party to think that a statement is defamatory when it is not.

It is difficult for us to provide directors or the company itself with the authority to determine whether to circulate a statement in those circumstances. That is why clause 278(1) provides for a company to apply to the court not to circulate a statement if it feels that the statement is defamatory. We must enhance shareholder engagement. The hon. Gentleman has raised a difficult issue, but if an individual shareholder wishes to have a statement distributed, the appropriate way of determining whether it is defamatory is through the courts rather than through those who feel defamed.

James Brokenshire (Conservative, Hornchurch)

The Minister has raised two points about the amendment. First, the company itself could take the view that something was defamatory; that is a fair point. In the situations under discussion, allegation and counter-allegation would probably prompt a challenge to the statement, which might be about the running of the company and a shareholder’s belief that the directors were being negligent and not fulfilling their duties appropriately. I have some sympathy with the Minister’s argument. For that reason, the amendment was drafted so that it was objective, not subjective. It says, provided that the

“statement is not defamatory of any person”,

not provided that “in the view of the company, the statement is defamatory.” That was the rationale behind drafting the amendment in that way. The Minister raised a fair point, and for the company to assert and rely on that, there would at least need to be the appropriate legal back-up, which in all likelihood would be by way of a legal opinion to justify the claim that a statement was defamatory. By tabling the amendment, I did not seek to ride roughshod over the valid and important perspective that the Minister adopted, nor override a shareholder’s freedom of speech. The point has been considered in the context of the amendment.

Margaret Hodge (Labour, Barking)

If that is the case, the hon. Gentleman’s point is covered by clause 278(1).

James Brokenshire (Conservative, Hornchurch)

My second point relates to clause 278(1). The Minister adopts the argument that it would cover the circumstances of a defamatory statement, but I did not read that approach into it. It says that

“the court is satisfied that the rights conferred by section 275 and that section are being abused.”

It does not say that the statement being circulated is incorrect; it says that the section is being abused. That somewhat unclear language prompted me to table the amendments, because in talking about the section being abused, it was not clear to me that the language in clause 278(1) would cover the circumstances under discussion.

Clause 275, which the subsection specifically refers to, provides for the requirement to circulate a written resolution. I think that the provision is getting at the idea that the statement might be frivolous or an abuse of the process—in other words, that a shareholder might merely use it as a method of being abusive to the company directors.

I entirely understand how clause 278(1) is intended to cover a vexatious use of the provision, but I am concerned that such usage could be perfectly valid in relation to clause 275. A shareholder might have a legitimate complaint about the company’s operations, and therefore a legitimate right to require the circulation of a written resolution, but in the statement that is adopted with it, they overstate their case in some way and it becomes defamatory, injurious or capableof causing some other loss. The amendments were tabled because of my uncertainty as to the ambit of clause 278(1) by virtue of the reference to:

“the rights conferred by section 275 and that section are being abused.”

There is a question of whether they are being abused here.

Margaret Hodge (Labour, Barking)

I think we are slightly dancing on the head of a pin. I accept that this is in relation to the resolution not the statement, but clause 275 states:

“Any resolution may properly be moved as a written resolution unless... it is defamatory of any person, or... it is frivolous or vexatious.”

I genuinely believe that we have covered the point, in how we articulate it in clause 275, in how we set it out in clause 276 and in how we give the power in clause 278 to go to the courts.

James Brokenshire (Conservative, Hornchurch)

Perhaps it is the caveat on that issue which causes me the problem—it refers only to the written resolution. Perhaps the Minister will reflect on that point and on the fact that the extension is not also applied to the statement itself. I do not think that that is the intention. I take on board what the Minister has said. It is one of those legal points that we need to get right. That is what the Committee is here to do.

If the Minister would reflect on that issue in the context of the statement and give it some further consideration that would address my concerns. I do not know whether she is prepared to do that. She rightly pointed out the distinction between the written resolution and the statement that goes alongside it. That is the point at issue. I would be prepared to seek the Committee’s leave to withdraw the amendment in those circumstances.

Margaret Hodge (Labour, Barking)

I am a really willing person. I genuinely think on this one that there is not a point to be pursued; otherwise I would pursue it. The hon. Gentleman has not convinced me this morning. I think that we have covered the point. I am conscious of not wanting to overburden myself and my officials, but if he wishes to write to me I undertake to look at the matter seriously.

James Brokenshire (Conservative, Hornchurch)

In light of the Minister’s undertaking, I beg to ask leave to withdraw the amendment.

Clause 277

James Brokenshire (Conservative, Hornchurch)

I beg to move amendment No. 337, in clause 277, page 127, line 36, at end add

‘as certified by the company's auditors from time to time.'.

John Bercow (Conservative, Buckingham)

With this it will be convenient to discuss the following amendments: No. 240, in clause 299, page 134, line 44, leave out ‘public'.

No. 241, in clause 299, page 135, line 4, leave out ‘in complying' and insert

‘incurred in printing and distributing a statement so as to comply'.

No. 242, in clause 299, page 135, line 7, leave out paragraph (b).

James Brokenshire (Conservative, Hornchurch)

The clause relates to the cost of circulating a written resolution requisitioned by shareholders. A company is not bound to comply unless there is deposited or tendered a sum reasonably sufficient to meet its expenses in so doing. Protection for shareholders is therefore provided in respect of this issue. What is the cost likely to be? The company appears to have an upper hand in negotiation. It is not bound to comply unless it has received the requisite sum. The amendment seeks to ensure that there is some sort of audit protection of the amount. The company should not be able to abuse its position by stating that it needs a certain sum to comply with the relevant requirements and in so doing prevents the shareholders from exercising their rights.

There is a slightly different approach with regard to the members’ statements at the annual general meeting in clause 299.

Standing Committee D

Clause 277

John Bercow (Conservative, Buckingham)

I remind the Committee that with this we are discussing the following amendments:No. 240, in clause 299, page 134, line 44, leave out ‘public’.

No. 241, in clause 299, page 135, line 4, leave out ‘in complying’ and insert

‘incurred in printing and distributing a statement so as to comply’.

No. 242, in clause 299, page 135, line 7, leave out paragraph (b).

James Brokenshire (Conservative, Hornchurch)

I was debating the slightly different approach to cost in clause 299, “Expenses of circulating members’ statement”, in the context of a general meeting. The costs in that clause appear to be tied to the requirement to print and distribute the relevant statement.

In the context of clause 277, what protection does there need to be in respect of expenses that might be charged to a member for the cost of circulating the relevant statement or resolution? In simple terms, the amendment would ensure that there are checks and balances, that members are not taken advantage of, and that costs that are not reasonable are not required to be paid to or by members as a precondition of the circulation of a resolution or a statement.

Clause 288 appears to contain the power of a member to call a meeting at the company’s expense which, although I appreciate that it is not the same, touches on similar issues in terms of the ability to require the convening of a general meeting which could be used for the purposes of considering a resolution. In relation to clause 288 the reverse appears to apply, and shareholders may convene a meeting at the company’s cost without having any expense in those circumstances.

The amendment seeks clarification of the issue of expense generally. If shareholders are obliged to meet the costs—I can see that they might be, to ensure that the company is not prejudiced or disadvantaged—there should be appropriate methods of ensuring that they can be checked, audited or measured so that shareholders do not have to bear inappropriate costs.

Margaret Hodge (Labour, Barking)

The purpose of amendment No. 337 is to ensure that a company does not ask the members requesting the circulation of a written resolution to put in a bill for what would be unreasonable expenses. The measure is unnecessary, and I shall tell the hon. Gentleman why. First, as he knows, not all companies need have auditors, and in the terms of the amendment as drafted, such a company would have to appoint someone because its members wanted to circulate a resolution. That would be a significant burden on business.

Secondly, if the directors asked for an unreasonable sum before circulating a resolution, they would not be complying with the relevant provisions, so they would be committing an offence. As that is within the framework of the legislation, further protections and safeguards are unnecessary. I am sure the hon. Gentleman would accept that the expenses incurred are minimal or relatively small. They certainly do not justify the costs of auditing, so I hope he will withdraw the amendment.

Clause 299 makes provisions for how the expenses for a members’ statement should be covered. Subsection (1) gives members of a company a new right to have a statement relating to an annual general meeting circulated at the company’s expense if their request is received in appropriate time before the end of the financial year preceding the meeting. The provision applies only to public companies, because only public companies are required to hold AGMs. It would not be appropriate to apply the requirement to private companies, as amendment No. 240 would do, as we will no longer require private companies to have a statutory AGM.

Clause 299(2) sets out what should happen when the criteria for a members’ statement being circulated at the company’s expense are not met. I am not sure from what the hon. Gentleman said what costs he is seeking to prevent a company from claiming. The expenses of complying with clause 298 are simply those of circulating the statement. In any event, the amendment fails to take into account electronic communications, which may mean that the company does not incur printing costs but only relatively minor costs through e-mailing people. An unintended consequence of the amendment could be to deter companies from using cheaper forms of communication such as e-mail because they want to be sure of claiming back costs.

Clause 299(2) also contains a provision whereby if the criteria for a statement to be circulated at a company’s expense are not met, the company is let off circulating it if members have not tendered sufficient costs to meet the expenses. To remove that provision would simply encourage the occasional frivolous or disruptive request for the circulation of material. Members requesting a statement will be able to claim back their money if the general membership resolves that the company should pay.

The hon. Gentleman referred to clause 288, which provides a remedy for members when directors fail to call a meeting at their request. In those circumstances it is appropriate to require the company to pay expenses for members. I hope that, with those explanations, he will withdraw the amendment.

James Brokenshire (Conservative, Hornchurch)

The Minister’s main point was that if companies seek to misuse the provisions on members’ statements by adding costs, they will be committing an offence. That was her most powerful argument and a valid point, and it is good that it is on the record. The message will be sent that if somebody seeks to use the provisions to add inappropriate costs as a means of disincentivising shareholders from exercising their rights, that will be an offence and will carry commensurate sanctions. In the light of that powerful argument, it would be wrong for me to detain the Committee further.

If a company has a large shareholder base the cost of sending of hard copies might not be huge but could be significant. I hear what the Minister says about that and on sanctions. I beg to ask leave to withdraw the amendment.

Clause 278

James Brokenshire (Conservative, Hornchurch)

I have just one small point on the clause. We touched this morning on a company’s right to apply for relief in the event that clause 275, on members requiring the circulation of a written resolution, is abused. Such an application can be made by a company or

“another person who claims to be aggrieved”.

How wide is that intended to extend? Will anyone who feels aggrieved have locus standi? What is the ambit of that provision?

Margaret Hodge (Labour, Barking)

That reference in clause 278 mirrors the general meetings provisions in clause 300, which is entitled “Application not to circulate members’ statement”. So those words are just a restatement of the provisions in clause 300. But the answer to the hon. Gentleman’s specific question is yes.

May I take a slight liberty? This morning, I made an error, which I would like to correct, if I can. During the exchange on clause 271, there was a slight confusion. The hon. Gentleman asked whether the Bill would allow a company to use its articles to override the written resolution procedures for statutory resolutions. I think that I answered yes, but apparently the answeris no.

Mark Hunter (Liberal Democrat, Cheadle)

It was close.

Margaret Hodge (Labour, Barking)

There were two possible answers, so I had a 50 per cent. chance of getting it right, but I got it wrong.

It is important for the decision-making procedures of a company that the articles cannot create alternative written resolution procedures or require meetings. That is the effect of clause 283. That is quite different from the ability of companies to entrench provisions in their articles, as we discussed earlier. For example, if a company wishes, on the agreement of all its members, to entrench higher than the 75 per cent. majority, it may do so. However, it is important for the protection of minority shareholders that the articles cannot require statutory resolutions to be taken in a meeting. Otherwise, it would limit the rights of members to require the circulation of written resolutions and accompanying statements on a number of key matters, and remove a particularly important new right for a member of the scheme.

James Brokenshire (Conservative, Hornchurch)

I am grateful for the clarification on clause 271. Outsiders watching these proceedings can be sure that we are clear about the ambit and operation of that clause in the context of clause 283—the clause to which I was referring in our earlier debate.

I heard what the Minister said about the ambit of clause 278. In essence, it covers anybody who might be interested, and therefore is fairly wide-ranging. I do not know whether further clarification is on offer, but it does not sound like it. On that basis, I am content with what she said, and shall not press the matter.

Clause 279

James Brokenshire (Conservative, Hornchurch)

I beg to move amendmentNo. 228, in clause 279, page 128, line 4, leave out ‘acting’ and insert ‘duly authorised to act’.

Clause 279 deals with the procedure for signifying agreement to a written resolution. Again, this is a probing amendment seeking clarification on how that would take effect. Under the provisions, a member is deemed to be bound

“when the company receives from him (or from someone acting on his behalf) an authenticated document...identifying the resolution...and...indicating his agreement”.

Authentication appears to relate to the document, rather than to its execution. I therefore want to probe in relation to the protections that might be afforded to ensure the avoidance of any potential for fraud or for a person to intercept and return an authenticated document—purportedly on the shareholder’s behalf—on which, it appears, the company could be automatically reliant.

Obviously, we are entering a new and different world, with e-commerce and the use of electronic signatures. Subsection (4) says:

“A written resolution is passed when the required majority...have signified their agreement”,

but subsection (3) says that once something is signified it “may not be revoked.”

The issue is slightly technical, but the purpose of the amendment is to say that the person is duly authorised to act on the member’s behalf, so as to make it clear that there must be some formal authorisation.

Traditionally, that has been done through such means as power of attorney or other appropriate legal methods. However, the company should not be able merely to accept the receipt of a document on behalf of another person without a requirement to check that that person has been duly authorised to execute the document on the other person’s behalf. We need to ensure that there is proper execution and that such provisions are not capable of being misused. I hope that the Minister can clarify the manner in which authorisation is to be provided and give some reassurance that the system cannot be misused in some way.

David Howarth (Liberal Democrat, Cambridge)

Does the hon. Gentleman mean through the amendment to exclude the possibility of the company taking apparent authority to be enough? Is it his view that there should have to be actual authority?

James Brokenshire (Conservative, Hornchurch)

I am probing on that issue more than anything else, in trying to ensure that we are clear on whether a company can rely on the power of authority or whether it should have to rely on actual authority and be under a duty to check. Having received a document that is purported to carry the authority of the member, can the company rely on that automatically? That is intent of the existing drafting of the Bill, but the purpose of the amendment is to probe that and ensure that we are striking the right balance.

Margaret Hodge (Labour, Barking)

I am reflecting on what on earth apparent as opposed to actual means—no doubt I am going to get a lesson in law, as I presumably have less than a 50 per cent. chance of getting that one right.

An amendment on evidence was raised in another place, albeit in relation to companies’ communication, so I shall respond in a similar way. The clause sets out the procedures for signifying agreement to a written resolution. The provision allows for either the member or someone acting on their behalf to signify that agreement. The problem that the amendment tries to address is that people could try to signify agreement on someone else’s behalf without having the proper authority.

In fact, we have dealt with the issue elsewhere in the Bill. We considered those points when the Opposition raised a similar theme in another place and as a result we clarified the requirements for authentication. Clause 798(4) allows companies to make provisions in their articles for requiring reasonable evidence of the authority of someone acting on behalf of a member. Given that position, I hope that the hon. Gentleman will withdraw the amendment.

James Brokenshire (Conservative, Hornchurch)

I thank the Minister for her response. In essence, companies are to deal with the matter case by case, as they decide whether to put relevant provisions into their articles under clause 798(4), which states that

“nothing in this section affects any provision of the company’s articles under which the company may require reasonable evidence of the authority of the former to act on behalf of the latter.”

The point that I could make on that is that there has to have been entrenchment in the articles. A different approach would have been codification, whereby companies would automatically have that right. Nevertheless, I understand where the Minister is coming from, and if there is the flexibility to ensure that companies can take such steps, that is helpful in answering the point that I flagged up. On the basis of her response, I beg to ask leave to withdraw the amendment.

Clause 286

James Brokenshire (Conservative, Hornchurch)

I beg to move amendmentNo. 231, in clause 286, page 129, line 30, leave out from ‘10%' to end of line 37.

Clause 286(3) states that 10 per cent. of members are needed to require directors to call a general meeting. The clause then states a number of exemptions that appear to apply to private companies, which are not currently reflected in section 368 of the Companies Act 1985. Essentially those exemptions seem to allow the lower percentage of 5 per cent. in the event that someone has already used the right in clause 286(4) in the 12 months since the end of the previous general meeting. I am trying to understand the thought processes behind those provisions and to ascertain whether there is a risk that the additional provisions in subsections (3)(a) and (b) may in any way encourage continual requisition by shareholders.

Obviously, there are provisions relating to relief, but the question is whether the additional language could in any way be misused to encourage continual requisition. I should also appreciate clarification on what paragraph (b) is actually driving at, and on the problems, errors or risks that it seeks to address. It was the absence of such clarification that led us to table the amendment.

Margaret Hodge (Labour, Barking)

I was hoping to cover these issues this morning in relation to an earlier amendment, but that was withdrawn. This is a flip-floppy bit of amending by the Opposition. I say that particularly because their representative in the House of Lords, Lord Hodgson of Astley Abbotts, moved amendments at every stage to reduce the thresholds from 10 to 5 per cent. To pick just one quote, he said:

“The Government are wrong not to accept a 5 per cent. threshold because, if a company has nothing to hide, there is nothing to fear. In the circumstances, 5 per cent. is still a pretty high barrier.”—[Official Report, House of Lords, 27 February 2006; Vol. 679, c. 59.]

I could give other quotes, but in the interests of speed and getting through the business before us, let us leave it at that.

The amendment would reverse the one that was pressed for in another place. The rationale behind that amendment was that, in the absence of a statutory annual general meeting, we needed to make it easier for members of a private company to call a general meeting to hold their directors to account. Opposition Members in the House of Lords attached great importance to that on the grounds of

“shareholder rights, shareholder democracy and protection of minority shareholders.”—[Official Report, House of Lords, 27 February 2006; Vol. 679, c. 59.]

We understood those concerns and felt that members should have a voice in the company’s decision making, but we saw no justification for imposing potentially significant administrative and cost burdens on public companies, given that it will be a statutory requirement for them to continue to have a voice at the AGM. That is why we introduced the alternative threshold for private companies and reduced it from 10 to 5 per cent. of voting rights. In that context, members will have that right only once a year—it is not a continuing right—and 12 months must elapse before they can reconvene on the 5 per cent. basis.

I am not quite sure where Conservative Members are coming from, but I hope that they will continue to champion for shareholder rights, shareholder democracy and the protection of minorities, which we shall be discussing later, and that they will not pursue the amendment.

James Brokenshire (Conservative, Hornchurch)

I am always delighted to debate the protection of shareholder rights and I look forward with alacrity and interest to further debates on the subject.

As I said, the purpose behind the amendment is to obtain clarification of the intent behind the wording of clause 286(3) to ensure that it cannot be open to abuse and that it strikes the right balance, ensuring that the interests of shareholders and members are properly protected, while not inappropriately disadvantaging the company. The Minister’s comments are helpful in assuring us that the provisions are not open to abuse, that they will provide private limited companies and their shareholders with flexibility, and that minority shareholders’ interests will be protected. In the light of that clarification, I am pleased to say that I beg to ask leave to withdraw the amendment.

Clause 288

James Brokenshire (Conservative, Hornchurch)

The clause relates to the power of members to call a meeting at the company’s expense, thus enabling shareholders to requisition a general meeting. My question is about subsection (7), which deals with the provision under which reasonable expenses must be reimbursed by the company. The subsection refers to “fees or other remumeration” and states:

“Any sum so reimbursed shall be retained by the company out of any sums due or to become due from the company by way of fees or other remuneration in respect of their services to such of the directors as were in default.”

In other words, if the company has to pay money to shareholders, it can then deduct such sums from the defaulting directors who did not comply with the clause. Again, reference is made to fees or other remuneration, so the provision appears to relate to sums that may be payable directly to individual directors.

My question is what happens in the circumstances of a contract for services, such as when the services of a director are provided through a service company, and therefore payment is directed to that company rather than directly to the individual. Are such circumstances covered, so that the company could deduct the relevant sums from any charges that might be payable by the service company, as contrasted with any “fees or other remuneration”, a term that relates to an employment-type arrangement? Really my question is about whether the clause is wide enough to cover such eventualities.

Margaret Hodge (Labour, Barking)

I think that the answer is that I shall write to the hon. Gentleman.

Clause 290

James Brokenshire (Conservative, Hornchurch)

I beg to move amendmentNo. 338, in clause 290, page 131, line 33, at end insert—

‘(2A) In calculating the time periods referred to in subsections (1) and (2), the date of issuance or publication of the notice and the date of the general meeting shall be disregarded.'.

John Bercow (Conservative, Buckingham)

With this it will be convenient to discuss amendment No. 340, in clause 295, page 133, line 23, at end add—

‘(5) In calculating the time periods referred to in this section, the date of issuance or publication of the notice and the date of the general meeting shall be disregarded.'.

James Brokenshire (Conservative, Hornchurch)

We now move on to the notice periods required for general meetings. Under clause 290, general meetings can be convened on 14 days’ notice, or, in the case of an annual general meeting, at least 21 days’ notice. The amendments raise the exciting point, which is often debated in relation to time periods for general meetings, of what we mean by days. I know that it sounds all very arcane, but corporate lawyers have such esoteric debates about meanings in the articles. I can see that hon. Members are rapt by the potential of the debate.

David Howarth (Liberal Democrat, Cambridge)

Sad but true.

James Brokenshire (Conservative, Hornchurch)

The hon. Gentleman is right. The not necessarily happy hours spent on having these sometimes awkward debates are, thankfully, nearly expunged from my memory.

Normally a company—particularly a plc, for which the issue is significant—must provide in its articles that in calculating x days’ notice, no account will be taken of the day of the sending out of the notice, or the following day, which relates to receipt of the notice, or the date of the meeting itself. I recognise that there appears to be nothing in the Bill to deny a company the great pleasure of having a lawyer draft such provisions into its articles. Indeed, clause 290(3) specifically contemplates that possibility.

I want to know whether we can save companies the cost and expense of the extremely exciting process of encapsulating such provisions in their articles by being very specific and clear about setting out the notice period of 14 or 21 days, although I recognise that my amendment may not be perfect. This obviously becomes more germane in as much as the normal notice period of full resolutions is now being reduced to 14 days in almost all circumstances. Therefore the time periods may become more critical.

Jonathan Djanogly (Conservative, Huntingdon)

My hon. Friend makes a good and practical point. Clause 292 refers to 21 and 14 days. In practice, it is 24 days and 17 days, and so it is unclear without the amendment.

James Brokenshire (Conservative, Hornchurch)

My hon. Friend makes a fair point. It is these detailed and practical issues that practitioners on the ground have to get to terms with. Therefore, the amendment aims to give some clarity and to ensure that these rather detailed provisions are simplified in some way. We are codifying the provision on the face of the Bill. It is entirely possible that there is a subsection buried in its remaining parts which I have yet not discovered during my bedtime reading. I am sure that the Minister will point it out to me with great alacrity if there is. Indeed, I hope that that is the case. Amendment No. 340 makes the same point in the context of clause 295 in respect of special notices. I look forward with excitement to the Minister’s response.

Margaret Hodge (Labour, Barking)

I know that the issue is dear to the hearts of many lawyers, some of whom are members of the Committee. Table A mentions notices of meetings and refers to clear days. That means that its wording is certainly in line with what the amendment suggests. The Companies Acts, by contrast, have never referred to clear days. I am told that this has been settled law in England and Wales since a case in 1935. In that very leading case, the judge said that he did not think there was any doubt about the position. Consequently, we did not think that the amendments were necessary. However, just to make the hon. Gentleman feel really good, if he feels strongly and thinks that they substantially clarify the point, I do not have a problem with taking them away and seeing whether we can put them in the Bill.

James Brokenshire (Conservative, Hornchurch)

I am actually quite excited by the Minister’s response, sad lawyer that I am.

Jonathan Djanogly (Conservative, Huntingdon)

My hon. Friend has invoked a memory from the back of my head that if one follows the clear days’ path in the articles, it is three extra days, and if one follows the path through the statutory route, it is two extra days. I see nods from civil servants. I think my hon. Friend is saying that it would be easier if we simply said what it was and then everybody would be clearer.

James Brokenshire (Conservative, Hornchurch)

I am grateful to my hon. Friend for that timely, learned and detailed intervention. While it may seem a trivial point, quite a lot of time can be taken up during a flotation, or something like that, finding out what the admission date is likely to be to ensure that things have been properly adhered to. There may be some merit in trying to put something in the table A articles. That might be the most appropriate way to clarify what is meant by clear days.

Jonathan Djanogly (Conservative, Huntingdon)

Another memory is triggered: I do not have the statistics to prove this, but it is probably the most common way in which notices are got wrong. It happens frequently with great embarrassment for all parties.

James Brokenshire (Conservative, Hornchurch)

Again, I am grateful to my hon. Friend. In light of that and in view of the Minister’s generous offer to look at this point, which appears to be quite minor, but can have various consequences in practice, I beg to ask leave to withdraw the amendment.

Clause 292

James Brokenshire (Conservative, Hornchurch)

I beg to move amendmentNo. 238, in clause 292, page 132, line 25, at end insert—

‘(d) be communicated directly to the member either in electronic form or in hard copy form.'.

The clause provides flexibility for a notice of a meeting of shareholders to be provided in a different way from the common method of sending out a hard copy notice through the post to members of a company. I welcome the flexibility that is now embodied in the Bill. Its recognition that practice has moved on and that the way business is undertaken more generally has changed with the use of e-commerce to facilitate notifications, trade and so on is to be applauded.

The purpose of the amendment is to gain some clarification on the concept of publication of notice of a meeting on a website. There is some residual concern—I know that this issue was touched on in the other place—about members needing to receive a physical notification that something has gone up on a website. An additional step has to be undertaken so that shareholders are not expected to have to go to a company’s website on a daily basis to see whether something has been put there.

The Investment Management Association states that clause 292(2)

“indicates that the company has a duty to notify its members of the existence of the notice on its web site but it is not clear how such a notification is to take place. We believe it is important that companies notify their members directly that they have published the notice and that it should be clarified how this should be effected. We would be concerned if it was merely sufficient to put the notice of the meeting on the web.”

The purpose of amendment No. 238 is to probe and seek some further clarification for all interested parties of what is envisaged in practice here. Notification is understood, but some clarity is needed to ensure that members are properly notified and that there is no lacuna. I do not think there is, but some clarification is needed.

Margaret Hodge (Labour, Barking)

As the amendment stands, there would be an unintended consequence, which is that members could not be notified by telephone. The amendment would limit the flexibility. I agree entirely with the hon. Gentleman’s sentiment that members should be notified by a company when a resolution or a notice of a meeting is put on a website. Members cannot be expected to check the website just in case the company has suddenly called a meeting or if information has suddenly been posted. That is why we have imposed a requirement in the communications provisions.

Clause 795(2) and paragraph 13 of schedule 6, or paragraph 16 of schedule 7, place a requirement for companies to notify intended recipients directly of the presence of documents and information as sent, in the Bill’s language, by means of a website. That includes all written resolutions, notices and meetings, so we think that there is no need to double bank it.

James Brokenshire (Conservative, Hornchurch)

I am grateful to the Minister for placing on the record the direct cross-references to which the point relates, because with a Bill of this length I wonder whether the reader, who might already be nodding on reaching the clause, would make it through the schedules—he might be struggling somewhat. Therefore, a direct cross-reference to those provisions is helpful.

Indeed, I know that in other parts of the Bill provisions state, “See section x,” so in that context might it be considered appropriate to carry out cross-referencing of some sort to the schedule so that it is absolutely clear for the reader that those more detailed provisions are in the schedule to give some assurance?

I note that the Minister referred to notification by telephone in relation to posting a notice on the website, which is an interesting development that needs some consideration. It is a different approach from the manner in which business has been undertaken in that regard. I see the arguments in terms of flexibility. The only cautionary note that I would sound is as to whether, evidentially, there may be issues such as someone saying, “Well, we telephoned you,” whereas no record may have been left of whether such a notice or a telephone call had been made.

I understand that the need for flexibility is laudable in terms of providing that basis and background, because we clearly want to ensure that businesses are not unnecessarily prescribed in how they conduct their business while at the same time ensuring that appropriate protections are put in place to ensure that provisions cannot be misused.

I do not know whether the Minister, who is clutching a piece of paper, wants to say anything further in that regard.

Margaret Hodge (Labour, Barking)

If it helps the hon. Gentleman, a telephone could be used with the member’s consent, but I was using that illustration to show the flexibility that we want to retain rather than prescribe. While I can look at cross-referencing, it has rightly been drawn to my attention that the Bill has already grown in length beyond anything we all envisaged when we embarked on the review eight years ago. We can provide cross-referencing. The problem is that there would probably be cross-referencing right across the Bill, which would add hugely to the number of pages.

I can look at the issue, but reflecting even on our discussion this morning, there are probably instances where we have already missed the potential for cross-referencing. There will always be that difficulty in a Bill of this size.

James Brokenshire (Conservative, Hornchurch)

I am grateful for the Minister’s reply. Yes, the Bill has grown, but we had hoped that it would be the appropriate length when we began, rather than growing through the process. However, I shall put that issue to one side.

The Minister’s comments on shareholders consenting to receive notification by telephone is the key issue: if consent has been provided, the important thing is that there is an understanding almost by contract between the company and its shareholders as to how, individually, notification should be received to cover such issues.

I hope that that clarification and debate are helpful to people outside the room who have expressed concerns as to what this will mean in practice for the notification provisions. In the context of the Minister’s comments, I beg to ask leave to withdraw the amendment.

Clause 293

James Brokenshire (Conservative, Hornchurch)

I beg to move amendmentNo. 339, in clause 293, page 132, line 32, at end insert

‘and

(c) any auditors of the company.'.

This is another probing amendment. Section 381 of the 1985 Act contemplates auditors being notified of a written resolution. There was thought to be merit in the auditors being involved in the process, given that they will want to be actively engaged with the company in the context of their audit. They should know when resolutions are sought to be passed, particularly when we are talking about issues such as share capital reorganisations. From an audit perspective, there is a need to know that a meeting has been properly held or convened and that a resolution has been properly passed. The amendment probes why it was felt that such a notification requirement might not be appropriate.

I acknowledge that auditors are not required to receive formal notification of meetings, although in practice I think that they probably would, but they are under the written resolution approach in the section that I mentioned. This is a general point about continuing engagement by the auditors to ensure good standards of corporate governance. I shall not press the amendment to the vote, as it is probing and intended to find out why the auditor’s requirement to be notified has been relaxed in certain provisions. I look forward to the Minister’s response.

Margaret Hodge (Labour, Barking)

I do not think that the hon. Gentleman’s bedtime reading has got him to clause 492(2). When he gets there, this is what he will find:

“A company’s auditor is entitled to receive all notices of, and other communications relating to, any general meeting which a member of the company is entitled to receive, to attend any general meeting of the company, and to be heard at any general meeting”.

So really, there is no need for the amendment as it would simply duplicate provisions that we have elsewhere.

James Brokenshire (Conservative, Hornchurch)

I am grateful for the Minister’s response. As I said in an earlier debate, it is entirely possible with a 900-clause Bill, which we are all spending happy hours reading, that a clause might occasionally pass one by. I am grateful for the confirmation of the importance and continuing role of auditors in this context. I am delighted that that has been properly reflected and acknowledged in the Bill. I beg to ask leave to withdraw the amendment.

Clause 294

James Brokenshire (Conservative, Hornchurch)

The clause deals with what needs to be included in the notice of meeting. Obviously, that is the time, place and date and so on. The issue that I raise concerns proxies. Other provisions deal with the requirement to give notification of proxies and of the right to appoint one to attend the meeting in one’s stead, which is an appropriate thing to be pointed out to shareholders. I therefore want to be clear that the clause and the provisions relating to proxies are to be read together, rather than in isolation, and that stating that the contents of a notice of meeting are as set out in the clause in no way overrides or undermines the following-on provisions that relate to the appointment of proxies, the requirement for companies to specify that right and the last time for appointment of that right.

Margaret Hodge (Labour, Barking)

That is the intent, and on the basis that we have translated the intent into the provisions, the answer must be yes.

Clause 295

James Brokenshire (Conservative, Hornchurch)

One small point: subsection (1) refers to “the Companies Acts”. There was a small debate in the other place about that reference, in which Lord Sainsbury said:

“This is referring not to any previous Companies Act, but to the Companies Act which we are talking about.”—[Official Report, House of Lords, 1 March 2006; Vol. 679, c. GC122.]

I was slightly lost when I read that reference. My reading is that “Companies Acts”, the plural, would under normal circumstances suggest previous legislation. If what Lord Sainsbury said is correct—it is possible that this was picked up on later in the Lords debate, but unfortunately I have obviously not picked up on it—the reference should be to the Bill. If it means previous Acts, it should be somewhat clearer. I would be grateful for clarification.

There is also an issue concerning consolidation. I would hope that the phrase is a reference to “the Act”—as it will grow and be consolidated—so that there is no need to cross-refer back. I would therefore appreciate some clarification from the Minister on whether we are talking about Acts in the plural or an Act, singular.

Margaret Hodge (Labour, Barking)

I have a copy of the Hansard of the debate that took place on that issue in Grand Committee in the Lords. I understand the confusion that arose from it, so let me clarify that we are talking about the Bill, which will become an Act. For clarification, there is no duplication at all.

James Brokenshire (Conservative, Hornchurch)

In the light of the Minister’s comment, might I prevail on her to talk to her officials about whether it is possible to table a minor amendment on Report—I am happy to draft it, if appropriate—to indicate that the Act is meant, rather than the Companies Acts? Although I appreciate the clarification that she has given, not everyone picking up the Bill, which might become an Act, will have that insight, so some further clarification and detail would be helpful.

Margaret Hodge (Labour, Barking)

I look forward to the hon. Gentleman’s drafting, which will be known—I am not sure that I am allowed to use names—as the Brokenshire amendment.

Clause 303

James Brokenshire (Conservative, Hornchurch)

I beg to move amendmentNo. 243, in clause 303, page 136, line 7, at end insert—

‘(1A) The chairman must demand a poll when he considers that the outcome would be different from that reached on a show of hands.'.

The amendment would insert additional wording into the clause so that the chairman must demand a poll when he is aware that the outcome of the decision or vote will be different from that reached on a show of hands. Its purpose is to clarify that the chairman’s duty is always to demand a poll when he or she is aware that the outcome would be different from that reached on a show of hands.

We touched on that briefly en passant this morning in relation to other clauses. Under regulation 46 in table A of the Companies (Tables A to F) Regulations 1985, a resolution voted at a company meeting is decided on a show of hands—one vote per member for each shareholder present or, in the case of a corporate shareholder, represented, but not proxies, unless the articles provide for that—unless a poll, which is a ballot of members on the basis of one vote per share, is called. Common law has clarified that the chairman’s duty is to ascertain the true sense of the meeting. When the chairman’s proxy is aware that if a poll were called the outcome would be different from that reached on a show of hands, he has a duty to demand a poll if he can do so under the company’s articles of association. Guidance from the Institute of Chartered Secretaries and Administrators emphasises that duty.

The Investment Management Association highlighted a case when that approach was not followed. It cited the annual general meeting of GoshawK Insurance Holdings, a re-insurer, when an advisory resolution on the remuneration of the chairman was decided on a show of hands and a poll would have defeated it. The Investment Management Association suggests that in such circumstances the chairman would have been more appropriately advised to call a poll. I cannot comment on that in detail, nor can I say whether that was appropriate, but I am sure that the company sought appropriate legal advice and that it acted in a way that it thought was appropriate.

That raises an issue of when claims or counter-claims might be made in that context, and whether something was done appropriately or whether a poll should have been called. The amendment seeks to clarify and codify. It is interesting that the Investment Management Association stated in its briefing note:

“We consider it important that the law in this area is clarified and that the current Company Law Reform Bill is an opportunity to address this. As proposed...it should be clarified that the chairman’s duty is always to demand a poll when he is aware that the outcome would be different from that reached on a show of hands, regardless of whether the vote is binding on the company.”

Against that backdrop, I commend the amendment to the Committee.

Margaret Hodge (Labour, Barking)

There is a common law duty on the chairman to demand a poll on a vote if he considers that the outcome would be different from that reached on a show of hands. We do not see any justification or advantage in attempting to codify that in the way suggested. Let me explain why. The Bill sets out the rules for how companies take decisions, but it does not claim to be a comprehensive code. Some things are still dealt with under the general common law of meetings, which applies to all sorts of meetings, not only company ones.

Part 13 also leaves a lot of flexibility for companies to deal with such matters in their articles. I am sure members of the Committee accept that that flexibility is an important feature of the United Kingdom corporate governance structure—all the more so for the large majority of small private companies to which the provisions also apply. The whole issue of voting at general meetings was subject to extensive consultation by the company law review. Despite the view of the Investment Management Association, which clearly has advised some members of the Committee, we found that there was not a consensus on change under the existing provisions.

The company law review found that practice can evolve rapidly. It saw a case for developing good practice guidance in polls, but noted that there was already a common law requirement governing the calling of a poll on resolutions likely to prove contentious. It is for the chairman to control the meeting and for the shareholders at the meeting to approve his appointment as chairman. There is no good reason for legislative intervention in the relationship between the chairman who, most likely, is also a director or a shareholder, and the other shareholders at the meeting.

All shareholders, whether voting in person or by proxy, have the right—under clause 304(2), it only requires five of them—to demand a poll on resolution. Furthermore, if the shareholders consider that the chairman has acted improperly or out of order, they may seek remedy under clause 157, which requires the directors to act in accordance with the company’s constitution. Section 459 of the 1985 Act would enable a member or group of members to claim against the company on the grounds that the company’s affairs had been conducted in a manner that was unfairly prejudicial to their interests.

James Brokenshire (Conservative, Hornchurch)

Obviously, the issue in dispute is whether a different legal approach is developing as a matter of law or practice in respect of advisory resolutions compared with resolutions that are not advisory. As I said earlier, and to which the Minister responded, the common law duties on a chairman are clear in circumstances in which he or she is aware that a poll may lead to a different result. I understand the right hon. Lady’s reluctance to intervene by codifying things when that common law duty is understood.

The position that concerns us relates to advisory resolutions, because the law on that is still developing, but in the light of the Minister’s comments and the need to obtain consensus and general practice on what is appropriate in developing law, it would not be right for me to pursue the amendment. I am sure that there will be continuing debate among practitioners and corporates as a whole on whether advisory resolutions have different status in the context of corporate law. If there were a dispute, I am sure that the courts would rule on it appropriately in due course. I beg to ask leave to withdraw the amendment.

Clause 304

James Brokenshire (Conservative, Hornchurch)

I beg to move amendmentNo. 244, in clause 304, page 136, line 18, leave out paragraph (b).

The clause touches on the issues that we have just debated and relates to the right to demand a poll. Clause 304(1) states that a company’s articles will be void if they seek to exclude the right to demand a poll save in two circumstances, which are

“the election of the chairman of the meeting”

or

“the adjournment of the meeting”.

Amendment No. 244 questions the latter point. The adjournment of a meeting can be an important issue, and I can think of cases when the subject of whether a highly-charged meeting should adjourn has been quite significant. In those circumstances where things are in the press and the situation is volatile or charged, delaying something by virtue of granting an adjournment can have a significant impact on public companies. Its share value might be affected if the delay and uncertainty continue, and so an adjournment, if granted, could tilt the balance in favour of one outcome or the other.

The amendment questions the right for a poll to be refused for the adjournment of a meeting if that is encompassed within the articles of association. It is obviously possible in practice that a company, as a public company, might not take that provision in any event, because of procedure and the general practice that arises in the corporate world. It is worth underlining that point about the potential impact that might arise if an adjournment is called and is successful, or, indeed, if it is unsuccessful. There is certainly some merit in allowing a poll to be called in such circumstances.

Margaret Hodge (Labour, Barking)

I am afraid that I cannot agree with the Conservatives. The amendment is identical to one that was tabled in the House of Lords, and I shall repeat what was said there. I think they are worried that a company could frustrate a group of shareholders who might have made special arrangements to attend a general meeting by proposing an adjournment of the meeting and forcing it through.

The effect of the amendment would be that enough members acting together could require a poll on a vote to adjourn the meeting. In our view, that would be a disruptive change for the broad range of companies that have taken advantage of the current position, and it could well frustrate the majority of members who turn up to attend the meeting. There is nothing to stop members appointing proxies to attend meetings in their place if it is difficult for them to attend in person. We have discussed that already. As the hon. Gentleman knows, we have used the Bill to extend proxy rights so that proxies always have the right to speak, and not only at private company meetings. We feel that the amendment is unnecessarily cumbersome and bureaucratic, and urge the hon. Gentleman to pay heed to the debate that took place in the other place and withdraw his amendment.

James Brokenshire (Conservative, Hornchurch)

I am aware that the subject was debated in the other place, and I have revisited the point because it is important in achieving certainty in the corporate arena. It sits somewhat unhappily with our previous debate about the chairman’s duty in normal circumstances under case law to call a poll if he or she believes that the outcome of a poll would be different from the outcome on a show of hands. I hear what the Minister has said and I note that the matter was debated in the other place. She has indicated clearly that she will not give ground and it would therefore be inappropriate for me to delay the Committee further. I beg to ask leave to withdraw the amendment.

Clause 307

James Brokenshire (Conservative, Hornchurch)

I seek a couple of points of clarification. The first is on a matter which we touched on earlier, but I am not sure whether I couched it in the form of a question. Will it be possible for a company member to attend a general meeting and appoint a proxy at the same time by splitting his entitlement to allow the proxy to use some of his shares? If so, a member could bring along his professional advisory team by appointing them as proxies, which would give them speaking rights and so on at the meeting. That is not currently the case.

The other issue, to which I am sure we will come back when we debate nominee shareholders, is the number of proxies that can be appointed in relation to one shareholding. I assume that if someone holds 100 shares, he should technically be able to appoint as many proxies as he likes based on the reference in clause 307(2) to the number of shares or £10 multiples of stock held. There is therefore the potential for a large number of proxies to be appointed under one shareholding. That may be appropriate in the context of the debate that we will have on nominee shareholders and their rights, but it could be subject to abuse. Does the Minister have any thoughts on that?

Margaret Hodge (Labour, Barking)

I look forward to our discussions on nominee shareholders. As I told Conservative members of the Committee outside the Room, we are trying to resolve the matter with all parties concerned so that we can suggest a way of operating that commands broad consensus from those involved. We are close to doing so.

There is nothing to stop a member appointing a proxy and attending a meeting himself. If there were a vote, the member’s vote would override that of the proxy. I hope that that covers the hon. Gentleman’s concern. I believe that he also tabled an amendment that was not selected.

James Brokenshire (Conservative, Hornchurch)

It dealt with a separate issue: the ability of members to split their holding, not to vote, but to give their professional advisers speaking rights. From what the Minister said, I think that it would be possible for a member to split his entitlement to appoint a proxy and entitle him to attend to speak but not to vote.

Margaret Hodge (Labour, Barking)

That is correct. On the other issue, which we will have to discuss further, under the current law an activist could buy 100 shares in the names of 100 different people to enable him to attend an AGM. If he were intent on disrupting a meeting, he could do so, but he might find an easier way without having to buy 100 shares and appoint proxies. I am not sure about appointing proxies, but in those circumstances, as in the House or wherever similar meetings are held, it is up to the chairman to take a view on how to control any disruption, whether it is caused by members, by proxies or by anyone else.

Clause 310

James Brokenshire (Conservative, Hornchurch)

I beg to move amendmentNo. 342, in clause 310, page 138, line 19, leave out subsection (3).

Subsection (2) sets out the appropriate time periods to appoint a proxy. In normal circumstances, that is 48 hours before the meeting or the adjourned meeting is held. The purpose of the amendment is to clarify subsection (3), which states:

“In calculating the periods mentioned in subsection (2) no account shall be taken of any part of a day that is not a working day.”

My concern is that that may lead to confusion. The practice at present is that 48 hours means what it says. Therefore, if a shareholders’ meeting were to take place at 10 o’clock on a Monday morning, the proxy form would have to be back by 10 o’clock on the Saturday morning—in other words, 48 hours before the meeting. The registrars of plcs are geared up to receive notifications of such matters at the weekend, and although it may not be the most convenient time, it is practical and it can be achieved.

From my reading of clause 310(3), it appears that no account should be taken of any part of a day that is not a working day. Therefore, to take my example of a general meeting at 10 o’clock on a Monday morning, that seems to suggest that the 10 hours before the meeting on Monday morning could be taken into account, but not the hours of Saturday and Sunday, so the remaining 38 hours would have to be calculated counting back from 23.59 on the Friday night.

I wonder whether that is the intention behind the provision as drafted, because it adds complexity to companies’ assessments of the time allowed for the receipt of a notification of a proxy. Indeed, it may also limit the amount of time that a shareholder may legitimately have to arrange for a proxy to be appointed.

The issue becomes even more relevant in the context of our debate on time periods for general meetings. Most general meetings, other than annual general meetings, are held on 14 days’ notice. The time available in which to appoint a proxy is therefore quite tight because the proposal limits even further the time that a shareholder has to identify an appropriate proxy who can attend the meeting on their behalf and to complete and return the appropriate document.

My concern is that the provision appears to change current practice and has the potential to disadvantage shareholders of a company as it affects their ability to get an appropriate appointment notification to the company within the time allowed. I would appreciate clarification as the proposal seems to add complexity.

Margaret Hodge (Labour, Barking)

The purpose and intent of the clause are to do entirely the opposite. The clause is meant to simplify matters. It reflects an implementation of recommendations from the shareholder voting working group, which was conciliated by Paul Myners. We introduced the measure on his recommendation.

The working group’s concern was to alleviate companies and their registrars of the unnecessary burden of having to receive and process proxy appointments over a weekend. The hon. Gentleman understands that under current law, a company must take receipt of a proxy appointment up to, for example, 11 am on a Saturday and process it in time for a general meeting held at 11 am on the Monday. I understand that he wants to protect investors by ensuring that they can appoint their proxies as close as practicable to the time of the general meeting, but we believe that it is not unreasonable, given the working group’s recommendations, to require that proxy appointments are made on working days.

I point out again that the recommendation had the support of the wide group of interests represented in the working group, including investors, brokers, custodians, registrars and companies. Therefore, we believe that this is a sensible measure to decrease the burdens on business.

James Brokenshire (Conservative, Hornchurch)

I am grateful for the Minister’s response. In my comments, I recognised that companies, in conjunction with their registrars, would have to bear some administrative burdens to be able to process proxies received at the weekend. Therefore, I understand the sense of the proposal and why it is being advocated. There is always a question of balancing ease of administration for the company with the rights of the shareholders. I again wave my flag for the rights of shareholders. I am delighted to stand up for them.

However, it is clear from what the Minister said that consideration has been given to how to strike the balance and whether the proposal goes too far in one direction. I am gratified that she said that the problem had been examined, considered and consulted on with a wide group of stakeholders. Therefore, in determining whether the proposal is appropriate and in taking account of potentially conflicting interests, I appreciate her clarification. We have also clarified the workings of the clause. In the light of her comments, I beg to ask leave to withdraw the amendment.

Clause 317

Clause 318

Clause 319

James Brokenshire (Conservative, Hornchurch)

I beg to move amendmentNo. 245, in clause 319, page 142, line 20, at end add—

‘(5) A private company is not required to hold an annual general meeting but section 320 shall apply to a private company if it decides to call an annual general meeting.'.

John Bercow (Conservative, Buckingham)

With this it will be convenient to discuss

New clause 31—Annual General Meeting Of Private Company—

‘A private company is not required to hold an annual general meeting but section 312 shall apply to a private company if it decides to call an annual general meeting.'.

James Brokenshire (Conservative, Hornchurch)

Clause 319 makes provision for the procedure to be adopted by public companies when holding annual general meetings. Under the revised provisions, there is no requirement on private companies to hold or convene annual general meetings at all. Traditionally, a private company under the existing regime set out in the Companies Act 1985 can opt out by virtue of the elective resolution route.

Clause 319 will effectively reverse that requirement so that in essence a private company has to opt in when deciding whether to hold an AGM. I note that when that matter was discussed in the Grand Committee debate in the other place, Lord Sainsbury said:

“Our approach in the Bill has been to make no statutory provision concerning AGMs held by private companies. This does not mean that private companies cannot hold AGMs; it means only that the Bill does not provide a statutory regime. The intention is that private companies could write AGM provisions into their articles.”—[Official Report, House of Lords, 1 March 2006; Vol. 679, c. GC128.]

That is obviously absolutely true; private companies could do that.

I am trying to save the legal costs of recreating those provisions in the articles of association of a private company. The Bill might be able to mirror the language referring to public companies by stating that if a private company requires an AGM, the provisions for public companies can apply equally to private companies that elect to take that approach. That would not compel or require private companies to do so, but would avoid the need for them to mirror those procedures or provisions in their own articles of association, which could require some expenditure if they were different from what is contained in table A. The amendment therefore seeks effectively to deem the notice period within the Bill to cover the eventuality of private companies still needing to hold an AGM.

I do not intend to press new clause 31 and therefore will not speak to it.

Margaret Hodge (Labour, Barking)

As the hon. Gentleman confirmed, that issue was dealt with in the House of Lords. As he will know, we see it as part of the Bill’s deregulatory proposals, particularly for small companies, to lift some of the burden that comes with the statutory requirement to hold an AGM.

During our White Paper consultation in July 2002, we published some draft provisions for opting into and out of AGMs. The responses to that consultation showed that people viewed the provisions as confusing and overly complex, which was the opposite of the “think small first” approach that we were attempting to adopt in the Bill. The Government’s view is that we should not legislate for small companies in that regard.

However, to reassure the hon. Gentleman, I will say that procedures for resolutions at general meetings under chapter 3 will apply to both private and public companies. If a private company wishes to call a general meeting, the notice of meeting provisions under clauses 290 and 296 will apply. Whether it refers to such a meeting as annual is irrelevant for the purposes of the requirements; notice will be given to members. On that basis, and in the spirit of attempting to deregulate a bit and to help lift the burden on small businesses, I urge the hon. Gentleman to withdraw his amendment.

James Brokenshire (Conservative, Hornchurch)

I note what the Minister said about not wishing to burden small companies. The amendment would not burden them, because it would not impose any additional requirement on them. It merely seeks to clarify things and make life easier by not requiring companies to reflect such provisions in the articles of association or to incur related costs. However, I know that I am unlikely to obtain any further movement from the Minister on the matter, so I beg to ask leave to withdraw the amendment.

Clause 325

John Bercow (Conservative, Buckingham)

With this it will be convenient to discuss the following: Clauses 326 to 334 stand part.

Amendment No. 207, in clause 335, page 149, line 34, leave out from ‘website)' to end of line 35.

Amendment No. 246, in clause 336, page 150, leave out lines 8 and 9.

James Brokenshire (Conservative, Hornchurch)

Thus far this afternoon, we have had some interesting debates on quite detailed and narrow issues of law and practice. They have been of interest, but this matter has provoked wider discussion.

This debate relates to clause 325 and subsequent clauses, which will provide a mechanism for shareholders representing not less than 5 per cent. of the voting capital of a quoted company to demand an independent report on any poll taken or to be taken at a general meeting of the company. The request must be made no later than within one week of the poll being taken, and the directors must appoint an independent assessor within one week of the requirement to prepare a report for the company on the poll or polls.

The Institute of Directors said of the arrangement:

“These provisions are onerous and unnecessary. The Government has provided no evidence of any abuse it is trying to redress. They will place increased costs and burdens on companies for no discernable gain. In addition, in spite of the statement that an adverse report on a poll will not affect the validity of a decision, it is likely that companies would delaythe implementation of the decision until the time for a challenge has expired. In the case of decisions taken at EGMs this could have a seriously detrimental effect on companies’ ability to complete major transactions and would undermine the competitiveness of UK companies.

The procedure of calling for an independent report would be open to serious abuse from those who were opposed to a transaction, but knew that they would be defeated on a poll. They would hope to achieve their desired aim by the back door rather than through the legitimate democratic process of the poll”.

That is a long quote from the IOD. The Minister will be pleased to hear that the CBI is somewhat more succinct and to the point in its comments. It says:

“Clauses 325-334 are excessive and unnecessary and will place increased burdens and costs on companies. They are also contrary to the Government’s aim for deregulation and the principles of better regulation”.

The provisions highlight some strong feelings within the business community as to their need, requirement or necessity and the evil that they are seeking to prevent.

One of the points that was raised by the Institute of Directors was the impact of delay. It makes the point that companies may seek to wait a week before implementing a change for fear that a demand for some sort of report may be required. If that were to be the case it may impose some considerable costs and burdens on the companies. I am minded in that regard of companies that may be doing a share offering where the longer the share offering waits to be completed, the more the company may be required to pay in subscription costs or placement charges to agents or underwriters. That could increase the costs associated with companies’ placement of new shares, which is not particularly desirable.

Even if we do not take that point of view, there is another issue: what will be the sanction if a report is received that is unfavourable and says that something has not been done appropriately? As we have already discussed, the chairman’s ruling in relation to a particular matter is fairly conclusive. If a report is called for there may be some further delay to enable it to be undertaken. If a report is called for after the general meeting has taken place it may be difficult for the expert who has been appointed to provide the report to assess it and conclude whether matters were conducted appropriately.

Jonathan Djanogly (Conservative, Huntingdon)

Looking at the clause, that is the crux of the matter: I am not sure how the expert could do that if he was not there.

James Brokenshire (Conservative, Hornchurch)

This is clearly an issue. There are provisions that allow the independent assessor to be present if a call for a report has been made before the general meeting, but emphasis is given to the seven-day period after the poll has been taken. I know that that has been stressed by the Government almost as a cooling-off period to allow shareholders to consider properly what they should do and what is appropriate. I can see that argument from one side, but if one allows that it makes it difficult for the independent assessor to properly assess what has taken place because they were not at the meeting.

Jonathan Djanogly (Conservative, Huntingdon)

I presume that in order to make that decision we will have to have someone at the meeting who is qualified to make it, so this will be a regulatory measure and add cost.

James Brokenshire (Conservative, Hornchurch)

The cost and burden issue is clearly of concern to the industry groups. The comments of the CBI and the Institute of Directors are germane to and support my hon. Friend’s point. It is difficult to assess what evil the provision is designed to cure. Is there a huge demand outside the House for an independent right to make a challenge in this way? It appears to be regulatory and burdensome, particularly as we have debated the operation of section 459 of the Companies Act 1985 in relation to unfair prejudice. That civil remedy may be available if something is prejudicial to minority shareholders. It is difficult to understand what lies behind this provision; what problem it is designed to solve.

David Howarth (Liberal Democrat, Cambridge)

It might be difficult for a public company or a company in which it is easy for members to sell their shares to obtain a remedy under section 459. That route would not really help in such a case.

James Brokenshire (Conservative, Hornchurch)

I am grateful for that intervention, but the problem is that there is no remedy under this provision either. It does not lead anywhere. There is the right to an independent report, and that is it. It could be open to people to take the reverse approach to the approach that I highlighted initially, when I talked about a delay occurring and companies not implementing a transaction or share offering. People could say, “Well, we’ve got the shareholder consent. We can rely on the fact that the chairman’s view is conclusive and binding. Therefore, we are going to complete the transaction.” It cannot be unscrambled after the event, because no remedy underlies the calling for a report in any event. It is therefore difficult to understand how the provision will operate in practice.

Jonathan Djanogly (Conservative, Huntingdon)

In practice, if the meeting is going to be a difficult one, with a lot of points made and many people speaking, people will be put on notice of that, so the registrars will probably send a better team than they would have sent otherwise. The chairman will be on notice, and there will probably be lots of lawyers in the room, who will ensure that things happen. I just do not see how the provision adds anything.

James Brokenshire (Conservative, Hornchurch)

My hon. Friend makes a valid point. In practice, for most plcs, the registrars will normally be present at a general meeting in any event to check in shareholders and to check the holding of shares that they have. Therefore, to an extent, there is someone external to the company ensuring that the appropriate procedures are adopted in respect of the way in which votes are undertaken at the general meeting.

Jonathan Djanogly (Conservative, Huntingdon)

My hon. Friend is very kind to allow me to make so many interventions. The converse is that if it is a small company, it probably will not have any of that, but it also will not have someone who, under this clause, will be good enough to check on whether things are being done. Therefore, there will be an extra cost, because the company will have to bring such a person in. In effect, it will probably have to bring the registrars in, whereas in the past it would not have had to do that.

James Brokenshire (Conservative, Hornchurch)

There is the issue of cost. That point has been made clearly by the groups that I cited at the outset. The noble Lord Sainsbury of Turville said in Grand Committee that

“we believe that the clauses provide sufficient flexibility to avoid imposing unnecessary burdens on companies and that the benefits to be gained in investor confidence justify the new requirements.”—[Official Report, House of Lords, 1 March 2006; Vol. 679, c. GC135.]

I just do not see that. I do not believe that there is the real issue of investor confidence suggested by Lord Sainsbury to justify the provision. It seems too burdensome and bureaucratic and not to have any clear outcome. We believe that, as such, it is unnecessary and should be removed from the Bill. As a consequence, our amendments would delete clauses 325 to 334. Amendments Nos. 207 and 246 would make consequential changes to clauses 335 and 336 respectively.

Margaret Hodge (Labour, Barking)

This is the fourth time that the Opposition have sought to remove these provisions from the Bill. There were three debates on this precise issue that were designed to test opinion in the other place. After the last debate, there was a division that, even though it was in the other place, was lost by the resounding margin of 175 to 128. Nevertheless, the Opposition want to revisit the point again today.

James Brokenshire (Conservative, Hornchurch)

I should make it clear that, since that debate, we have received further representations from the Institute of Directors and from the CBI, emphasising that they were deeply unhappy with these provisions. It is entirely appropriate, therefore, for the Opposition to listen to those concerns and reflect them in today’s debate.

Margaret Hodge (Labour, Barking)

Indeed. It is odd how representations go, however, because the Government too have had representations—from active institutional shareholders’ groups, in whose interests these provisions are included in the Bill. Those groups included the Co-operative Insurance Society and Pensions and Investment Research Consultants, who argued that the clauses were appropriate. As Members of Parliament and as members of the Committee, all of us are lobbied on a whole range of issues.

Crispin Blunt (Conservative, Reigate)

I am reflecting on the logic of the right hon. Lady’s argument. It seems extraordinary that the House of Commons and a House of Commons Committee should be precluded from examining issues because they have been considered up the other end. If the Government accepted every amendment that was made up the other end, I am quite sure we could come to some sort of arrangement, but I am sure that the hon. Lady is not suggesting that.

Margaret Hodge (Labour, Barking)

One reason why the Bill was considered first in the House of Lords was that we recognised, as I hope Opposition Members accept, that this was a detailed and technical Bill, and that there was an enormous amount of expertise in the other place that could properly be applied to examining the necessary detailed amendments. It behoves us, however, to use our time sensibly. On Second Reading the key issue raised by hon. Members from all parties, and on which we want to spend time—though we are getting close on time—was directors’ duties. The more we revisit issues that have been debated, not once but on three separate occasions in the House of Lords, the less time we shall have to deal with the non-technical, fundamental issues that have been raised and which hon. Members from all parties wish to debate.

Mr. Shailesh Vara (North-West Cambridgeshire) (Con) rose—

Margaret Hodge (Labour, Barking)

I am not tempted to give way any further because I want to proceed. I accept that the amendments are properly tabled, but I am not going to debate procedure. There is just a difference of view between the Government and the Opposition on how the time should be used. I hope that Opposition Members will recognise that when sensible amendments are tabled we consider them.

Shailesh Vara (Conservative, North West Cambridgeshire)

Will the Minister give way on that point?

Margaret Hodge (Labour, Barking)

No I will not. The arguments put forward by the Opposition simply do not stack up. First, they have said that there is no mischief that needs remedying, but that is not so. The company law review recommended a new right for shareholders to acquire an independent report on a poll, and for a good reason. The review received evidence to suggest that the registering and counting of votes was accident prone, and that there were problems between institutional investors executing votes and registrars recording and counting them on behalf of companies.

Jonathan Djanogly (Conservative, Huntingdon)

Will the Minister give way on that point?

Margaret Hodge (Labour, Barking)

I will on that point.

Jonathan Djanogly (Conservative, Huntingdon)

The Minister makes an important point, but I am not sure that it relates to the way in which the meeting is conducted. There is a problem in the way institutions vote—by the time that votes go through the levels of people who would actually turn up and cast a vote, there can be a problem. That is a different issue, however, from attending and taking the poll at the meeting itself.

Margaret Hodge (Labour, Barking)

That may be the case in some instances. However, an example that was drawn to my attention was the much-publicised vote at GlaxoSmithKline to approve the directors’ remuneration report, which was defeated by just half a per cent. Those circumstances do not really reflect the way in which institutional investors cast their votes, but it might have been sensible to have had a poll.

Jonathan Djanogly (Conservative, Huntingdon)

On that point, the Minister will appreciate that if the vote had gone the other way, it would only have been indicative.

Margaret Hodge (Labour, Barking)

Yes; I accept that. Nevertheless, there may have been a shareholder interest in having a poll on the outcome of that vote. That is my point about shareholder engagement.

Paul Myners’ report, “A Review of the Impediments to Voting UK Shares”, which was published in January 2004 and fully endorsed by a City-wide group of institutional investors, registrars, issuers and other industry bodies, noted the continuing concern that the system for recording proxy votes in company meetings was not as efficient as it should be. The report highlighted a problem with lost votes at Unilever plc, when institutional investors were given instructions to vote and the issuer never received them.

I have mentioned the GlaxoSmithKline case, and there was the case of a directors’ remuneration report at BAE Systems, which Institutional Shareholder Services recommended voting against. The concern was about whether the company had voted the shares, held in American depository receipts where no voting instructions had been given, to ensure that the report was approved.

Jonathan Djanogly (Conservative, Huntingdon)

All the Minister’s examples appertain not to the meeting itself but to the passing of votes from the institution to the person who turns up at the meeting. She needs to find better evidence to prove her point.

Margaret Hodge (Labour, Barking)

I do not accept that assertion. The issue that we are debating is whether there ought to be a right to ask for a report on a poll. How that poll is taken, how individuals vote, or whether they vote on behalf of other shareholders are secondary points. The point is whether shareholders in the round are satisfied about the accuracy of the poll-taking.

The independent report of a poll seeks to remedy real mischiefs. The Opposition have asked what value the provisions will add. As many have noted, polls are increasingly used at general meetings, particularly those of listed companies. The provisions enable members to require the company to commission an independent report on the poll. Most polls are conducted by the registrar who acts on behalf of the issuer, so it is important that shareholders in their own right can require that the report on the poll be conducted by a third party. As Paul Myners set out in his report, if we are to have shareholder confidence, a comprehensive action programme is required to address the inefficiencies and obstacles in the process by which votes are transmitted.

The provisions are an important part of that programme, enhancing the confidence in the integrity and effectiveness of the voting process in quoted companies.

Jonathan Djanogly (Conservative, Huntingdon)

Who does the Minister think that the third party would be in practice?

Margaret Hodge (Labour, Barking)

Somebody who was appointed and whose business it would be. The appropriate person might be another registrar—not the registrar to the company—with the sort of qualifications to which we have referred. It might be somebody such as a third party with appropriate experience in the conduct of polls.

I get the feeling that in this context, although we will have different debates later, Opposition Members’ concerns are more with the boardroom than the rights of shareholders. That is the strong feeling I get in this fourth attempt to strike out the clauses before us. The Opposition contend that the potential burdens of the provisions outweigh the possible benefits, but it is quite the opposite: the provisions empower shareholders with an additional tool to hold the directors to account. Shareholders are not an external body; they own a share in the company. Those interested in stronger shareholder participation cannot have it both ways. If they support moves to help shareholders exercise their rights, they must also support the right of those shareholders to challenge if it is appropriate.

There is no burden on a quoted company unless the shareholders exercise the right to require an independent report. The cost-benefit analysis in the regulatory impact assessment, to give an indicative cost across the range of companies, suggested a cost of between £350,000 and £4.2 million per annum. That is not an enormous cost across the board.

Jonathan Djanogly (Conservative, Huntingdon)

How does the Minister know?

Margaret Hodge (Labour, Barking)

It is obviously an assessment.

Shailesh Vara (Conservative, North West Cambridgeshire)

On what basis does the Minister come up with those figures?

Margaret Hodge (Labour, Barking)

That is an assessment and an estimate based on one or two independently assessed polls—

Shailesh Vara (Conservative, North West Cambridgeshire)

Will the Minister give way?

Margaret Hodge (Labour, Barking)

No, I will answer the question. It is an estimate based on one or two independently assessed polls for between 50 and 100 per cent. of the AGMs of the 1,400 or so quoted companies at a cost of £500 to £3,000 per report. I suggest that the hon. Gentleman ought to look at the regulatory impact assessment, which we provide, if he wishes to question whether those costs are accurate. Those costs were laid out when we produced the 2005 White Paper and consulted on the specific issue.

David Howarth (Liberal Democrat, Cambridge)

The debate so far turns on the accuracy of a cost-benefit analysis that has to be to some extent speculative, because we have never had a provision like this before. The Minister is right that there is a feeling that there is a mischief to be addressed. She has given some examples, although they were perhaps not exactly on the point. However, there is an accurate feeling that there is a problem with polls and with investor confidence which might grow, especially because the use of polls appears to be increasing. The Government are right on that point.

The Opposition have a legitimate point about precisely how much this will cost. It is legitimate to raise the potential problem of the abuse of the rights that are put forward in these clauses. It seems to me that the only rational way forward is for the Government to undertake to keep the area under review and to come back after an appropriate number of years. The Department should study what happens after four or five years and undertake to come back to Parliament to remove or amend these provisions if they turn out to have caused a higher cost than the cost-benefit analysis has suggested.

This is a perfect occasion to raise the issue of post-legislative review. In these debates in Committee we are bound to make a decision now, but it is always possible to come back to those decisions later. If the Minister could give us an assurance along those lines, I would be happy not to oppose the clauses.

Margaret Hodge (Labour, Barking)

I am grateful for that intervention. All good legislation needs to be constantly reassessed and reviewed; there are a number of new provisions in the Bill, including those that we will come to when we consider shareholder voting rights—the contentious issue that we have kept to the end. If we are proposing anything new, it makes sense to review it. We always keep new provisions under review to test whether they meet their purpose.

Jonathan Djanogly (Conservative, Huntingdon)

The Minister is making a point that the clauses are there to right a wrong. Can she explain how the provisions will right the wrong?

Margaret Hodge (Labour, Barking)

I was going to come to that point. The Opposition’s only valid question is whether the procedure is a sufficient sanction when we are also trying to meet another objective of our company law framework, which is to avoid creating uncertainty for companies. We do not want resolutions passed in meetings to be open to challenge; we want companies to have certainty. However, openness is useful in so much of life and in so much legislation. In this case, the facility to make a challenge and have an independent report will provide one vehicle, if not an entirely failsafe one, for the threat of accountability to ensure proper practice in the exercise of polls so that reports on them will rarely be required. Often, opening up to public account and ensuring public accountability is in itself a powerful weapon in ensuring the proper conduct of business.

I say to the hon. Gentleman that without these provisions there is a problem when there is unhappiness and a challenge is made. He might not accept that, but there is certainly a problem of perception. Alternative remedies such as section 459 of the 1985 Act, which was brought to our attention by the hon. Member for Cambridge (David Howarth), would be far more difficult for shareholders to exercise. They would be costly routes—not ones that shareholders would want to take. We are trying to balance shareholder engagement and the interests of a company, and I think that we have got it about right. It is not perfect and I accept that the remedy is not as strong as we would like, but opening up to public account is a sensible way to ensure that companies act appropriately.

The provisions are intended to deliver greater transparency and enhance shareholder engagement, which are corporate governance objectives that we should surely all support. Voting is the bedrock of corporate governance and the means by which companies’ boards are held to account. If we want to encourage more people to exercise their votes we need to empower them with the tools to ensure that their votes really count. I therefore urge hon. Members to allow the clause to stand part of the Bill and I urge the hon. Member for Hornchurch (James Brokenshire) not to press the amendments.

James Brokenshire (Conservative, Hornchurch)

This has been an interesting debate. The Minister makes assertions about the Opposition’s contention. It is not the Opposition but the Institute of Directors and the CBI that contend that the provisions are burdensome and unnecessary. The key question was asked by my hon. Friend the Member for Huntingdon (Mr. Djanogly) when he asked the Minister how the clauses on independent reports will right wrongs.

Margaret Hodge (Labour, Barking)

That was my slight concern. I understand that the IOD and the CBI have raised the matter again, which is presumably why there were three debates on it in the House of Lords. Shareholder groups—the Co-operative Insurance Society, Pensions Investment Research Consultancy and others—have expressed the opposite view. The hon. Gentleman has often said that he is in favour of shareholder interest. Is he in fact putting the boardroom before the shareholder?

James Brokenshire (Conservative, Hornchurch)

I hear the Minister’s reference, but it is interesting that, as far as I am aware, none of the groups that she has mentioned have made representations to us on the matter. If they felt as strongly as the Minister suggests, I would have thought that they would have done so to explain why they feel the provisions are required. I respect their point of view and the fact that they have made representations to the Department. However, I remain unconvinced that the wrong that has been identified by the groups that I mentioned will be addressed by the cumbersome, expensive system proposed.

The Minister has given an assurance that the system will be kept under review. The problem is that once something like that is in place, it is virtually impossible to take it out. As far as I can see, the provisions will not really cure anything, because at the end of the day there is no remedy and nothing to stop a company from implementing the transaction that might be under question as a consequence of the provisions of the poll. On the contrary, the clause might also lead to delays and uncertainty, and therefore cost to the company.

I would be interested to know whether the additional subscription and placement costs that might be charged to a company for delaying the closing or implementation of the placement were taken into account when the Minister arrived at the figure of £4.2 million in the regulatory impact assessment. I suspect that the figure relates only to the direct cost of having somebody there at the meeting or of conveying a report on the conduct of the poll, and does not take account of the indirect costs that could arise as a consequence of the delay that might be occasioned by a company wishing to await the outcome of the meeting.

I am not persuaded that, on the balance of probabilities and risk, the clause will promote and enhance shareholder participation—which I believe in—and on that basis it is appropriate to test the Committee’s view by pressing the matter to a Division.

Clause 335

Clause 346

James Brokenshire (Conservative, Hornchurch)

We now come to part 14 of the Bill, which provides the mechanism for the control of political donations and expenditure and the means by which a company can approve the making or incurring of such donations or expenditure.

Clause 346 provides the definition of political donation for the purposes of this part of the Bill. The Law Society is critical of the breadth and uncertainty associated with the definition. It suggests that the lack of clarity in the provisions of part 14 and their enormous complexity impose considerable burdens and costs on companies, especially those with large groups that include overseas companies. It is likely that many companies will continue to pass precautionary resolutions. In this area, according to the Law Society, the Bill can hardly be said to be deregulatory. It requested guidance on exchange rate valuation to assist the valuation of non-sterling donations for the purposes of the Bill.

During the Grand Committee stage of the Bill, Lord McKenzie of Luton said:

“We will consider further in consultation with the Electoral Commission whether additional guidance might be provided to companies on the definition of political donation.”—[Official Report, House of Lords, 1 March 2006; Vol. 679, c. GC144.]

I should be grateful if the Minister could provide an update on the situation and whether further guidance will be provided to ensure greater clarity and certainty of the scope and ambit of the definition.

Margaret Hodge (Labour, Barking)

I have to get my head around this. The funding of political parties is important and clearly something that rightly concerns hon. Members on both sides of the House. I hope that we all recognise during the debate on this set of clauses this afternoon that we are looking at the matter from the perspective of companies and their members, and how and when directors of companies need to obtain authorisation from their members to do something that either subsidises a political organisation or, as clause 347(1)(a)(ii) says,

“is capable of being reasonably regarded as intended to affect public support for a political party or other political organisation, or an independent election candidate”.

The reason for that control is simply to prevent directors from subsidising a political organisation for personal reasons rather than in the interests of the company. Effectively, the question we ask when considering whether to burden a company—I recognise that aspect of what the hon. Gentleman is saying—with a requirement to seek a resolution is simply, “Is there a risk of the directors using the company’s money for their own interests rather than for those of the company?” When considering whether to use company funds directly or indirectly to support a political party, there is a risk that directors will be swayed by their preference rather than the interests of the company. Therefore, I believe—I think we all agree on this—that it is right to regulate in this area. Understanding that, the substance of the amendments—I am slightly unclear whether we are taking amendments, Mr. Bercow.

John Bercow (Conservative, Buckingham)

We are considering clause 346. This is a stand part debate.

Margaret Hodge (Labour, Barking)

I am talking about the wrong clause.

John Bercow (Conservative, Buckingham)

If it would be helpful, I can assure the Minister that it is on the subject of political donations. [Laughter.]

Margaret Hodge (Labour, Barking)

Thank you, Mr. Bercow. My apologies for losing my place this Thursday afternoon. As I now have the answer to the question, the most sensible thing to do might be to answer it.

Lord McKenzie said in Committee in another place that the Government would have discussions with the Electoral Commission about whether it would be appropriate to issue additional guidance on the definition of political donation. I am happy to write to all members of the Committee on the outcome of those discussions, which have not yet been had.

James Brokenshire (Conservative, Hornchurch)

I am grateful that we got there in the end, at least in relation to my question. There seems to be a need for guidance, given what the Law Society said, and obviously Lord McKenzie’s comments in Grand Committee in the other place recognised that. It is important that the Minister provides us with at least an update and clarification on what further guidance is to be provided before the Committee concludes its consideration of the Bill so that we can properly assess it while the Committee is still sitting. I am grateful for that further assurance from the Minister.

Clause 347

James Brokenshire (Conservative, Hornchurch)

I beg to move amendmentNo. 311, in clause 347, page 154, line 29, leave out

‘that, at the time of publication or dissemination,'

and insert

‘where the primary purpose at the time of such publication or dissemination'.

John Bercow (Conservative, Buckingham)

With this it will be convenient to discuss the following amendments: No. 312, in clause 347, page 154, line 33, leave out ‘that are' and insert

‘where the primary purpose of such activities is'.

No. 260, in clause 347, page 154, line 38, at end insert—

‘(iii) to persuade a member of either House of Parliament, a member of the Scottish Parliament, a member of the Welsh Assembly or a member of any local authority to take or to refrain from taking any action in connection with their duties either as such a member or as the member of a government or executive.'.

No. 313, in clause 347, page 154, line 40, at end add—

‘(3) For the purposes of this Part, political expenditure does not include activities intended to influence policy making or public debate on issues directly affecting the business or other commercial activities of the relevant company and provided further that such activities have been approved by the company's board of directors.'.

James Brokenshire (Conservative, Hornchurch)

We come to clause 347, which provides the definition for political expenditure. It sets out what expenditure incurred by a company would need to be approved in accordance with part 14 to be treated as lawful. The definition in the clause is wide-ranging and includes

“the preparation, publication or dissemination of advertising or other promotional or publicity material”

but notes that the activities must be

“intended to affect public support for a political party or other political organisation, or an independent election candidate”.

The issue is the breadth of the definition. Again, I would like certainty and clarification. It seems that the definition could capture activities the primary intention of which is to achieve some other means and potentially limit the company’s freedom of speech on key issues affecting its business or operations. It is not entirely fanciful to imagine a situation in which a Government policy might seek to limit or curb the activities of a company or area of business.

It may be entirely legitimate for companies in such a situation to exercise their right to object, to highlight to a wider audience why they object and to argue robustly why the Government’s view is possibly wholly mistaken. It is clear that if the Government have made some fundamental error or misjudged the situation, the outcome of the company’s activities could reasonably be said to affect public support for the relevant governing party. One then gets into a debate about whether that outcome was the intention. Clearly, there is a balance to be struck.

The Minister will no doubt argue that it is entirely inappropriate to use shareholders’ money on advertising campaigns that promote policies with which the directors personally agree rather than political policies that will benefit the company, as there is a clear conflict of interest. I note that in her preamble on the previous clause, which may have been intended to be addressed to this clause, she made that point clearly. I entirely agree, and it is right that there should be protections governing such situations that reflect the October 1998 recommendations of the Committee on Standards in Public Life. They were the precursor to the provisions in the Companies Act 1985, which were inserted by way of later amendment.

However, the example that I gave is about political policies that benefit the company and its shareholders and are nothing to do with the personal political predilections of the directors. They directly affect and directly relate to the business interests of the company. My point is that legitimate business operations should not be subject to the burden and cost of an approval mechanism that may result in delay at a critical time in the company’s future and could therefore be damaging to the company’s interests.

Nick Palmer (Labour, Broxtowe)

I take the hon. Gentleman’s point, but let us take a specific example. An oil company might regard a proposed tax on oil as undesirable and wish to campaign against it. Does he not agree that practically anything in public life affects in some way practically every major company, and that we give licence to companies to campaign on virtually anything if we do not require some approval process?

James Brokenshire (Conservative, Hornchurch)

The hon. Gentleman makes a valid point that we sought to encapsulate in our amendments. He is absolutely right. The purpose of the expenditure should not be to influence a political party or seek a political outcome in so far as it relates to a partisan issue; in other words, to influence whether somebody should vote for one party or another. That is why we have taken a twin-track approach and provided two amendments that could be viewed in isolation. The first takes a purposive approach; in other words, the positive purpose should have to be that that was the intended outcome, in other words the political outcome. The alternative amendment is amendment No. 347, under which

“political expenditure does not include activities intended to influence policy making or public debate on issues directly affecting the business or other commercial activities of the relevant company”,

provided that those activities have been properly sanctioned in advance by the directors. We are being very focused and saying that a company cannot take an approach willy-nilly and incur political expenditure that is intended to affect the outcome of an election. It must be related to its business activities, which is what the amendments would achieve.

The hon. Gentleman rightly made the point about proper tests whereby a company can ensure that its shareholder interests are protected properly and the directors are not running off on some whim relating to their own political aspirations or feelings. That is entirely appropriate and right, and it is why the existing provisions in the Companies Act 1985 are reflected in the Bill. We certainly agree with the necessity and the importance of that approach. The amendments make it clear that the activities intended to influence policy making or debate must be on issues that directly affect the business or its other commercial activities. There is an additional provision in respect of the board approving the related matter, so that an employee or another person cannot simply incur expenditure and the matter has to be properly considered by the board to give a further level of protection in that regard.

Paul Farrelly (Labour, Newcastle-under-Lyme)

I see from amendment No. 313 what the Conservative Front-Bench spokesman is trying to achieve. The amendment is much too wide. For example, could not a company, when an election was called, highlight the fact thatMr. Smith, the hon. Member for x constituency, supported the policy that affected its business at some stage and then put out a lot of negative publicity that was tantamount to running a negative campaign against that person? That would be the potential effect during an election period. The amendment would strike too wide.

James Brokenshire (Conservative, Hornchurch)

I understand the hon. Gentleman’s point, but I argue that that is something intended to affect the support for the political party. The purpose of that action would be to affect the outcome of the election, so it would not satisfy the tests under the purposive amendment nor those in respect of the other amendment. He has made a valid point, but I do not accept his line of argument because the point is covered.

Paul Farrelly (Labour, Newcastle-under-Lyme)

The hon. Gentleman is setting two tests that may, especially during or running up to an election period, come into conflict. There could be one hell of a battle in the courts in some circumstances and a great deal of uncertainty about an election outcome.

James Brokenshire (Conservative, Hornchurch)

There are remedies in such circumstances, but I maintain that the amendments recognise the correct point made by the hon. Gentleman about influencing the outcome of an election. It would be entirely inappropriate for a company to use expenditure of corporate money in that way without the proper sanction of its shareholders. Let us be honest: it would still be open to a company in such circumstances to say to its shareholders, “Well, we disagree with the approach that that particular person is taking and seek your sanction for this expenditure.” If there were a particular interest that the company and its shareholders felt strongly about—even on the basis of the protections afforded under existing or proposed legislation with the appropriate shareholder sanction—the company could do that.

We do not want to inadvertently to catch situations when the company is genuinely seeking to have its say on an issue that directly affects a specific business interest. It would seem unnecessarily burdensome in those circumstances. Speed might be important if a business of a company were being undermined, but it should be able to argue and lobby quite firmly about why the Government were wrong on a particular issue. The amendment seeks to address that freedom of speech argument. We do so without cutting across the point that the hon. Gentleman has made. The amendments seek to provide further clarity to help companies in deciding whether an approval resolution is required, and to address the Law Society’s point about unnecessary precautionary resolutions.

I will be interested to hear what the hon. Member for Cambridge will say in relation to amendment No. 260 in the name of the Liberal Democrats. I may have misunderstood, but the amendment seems to cut across the ability of a company to lobby on matters of direct concern to its legitimate business activities. However, that might be acceptable in the context of our amendments, and I shall listen with interest to what he has to say on that matter.

David Howarth (Liberal Democrat, Cambridge)

I shall speak to amendment No. 260, the purpose of which is to extend the definition of “political expenditure” beyond the realm of trying to influence political parties and into lobbying as a whole. The purpose of the amendment is to cut across business activities and to raise the issue of whether we should be doing more about lobbying itself—attempting to influence Government policy and votes in Parliament. I suppose that the fundamental issue here is the power of money in politics.

There are three separate reasons for tabling amendment No. 260. The first refers back to the interests of company members: the reputation of the company itself. Company members will have a legitimate interest in political donations by that company. Presumably, if a company were to make donations to a particular political party, its reputation could be affected, especially in this new era of transparency, and the company members might be unwilling to be associated with a particular political view.

Amendment No. 260 proposes merely that lobbying activities can have the same sort of effect on a company’s reputation. For example, if a company with shareholders were to lobby for the loosening of environmental regulation, of social protection or of controls on foreign bribery, its reputation could be affected. That would be of legitimate concern to the members of that company—its shareholders.

I concede that the second point has a wider intent: a more transparent lobbying regime would help to create a market for ethical investment and consumption. Investors who want to invest responsibly and ethically, and consumers who want to act similarly in respect of their purchasing decisions, will want to know about the degree of corporate lobbying. Having more of that sort of information will help to create an ethical market.

The third point is the broadest and concerns simply the effect of lobbying on politics and the economy. The view behind the amendments is that lobbying in itself is not a good thing and that it has a corrosive effect on the political process. Yes, it is legitimate for information to pass from civil society to politicians about the possible effects of politicians’ decisions, but that is not really what is going on. We know that. What is going on are attempts to influence politicians by groups privileged by their economic power.

Paul Farrelly (Labour, Newcastle-under-Lyme)

The success of the university in the hon. Gentleman’s constituency has blessed Cambridge with myriad new, spin-off companies. He must be rushed off his feet. I can well understand his interest in cutting down the amount of post that comes in his mailbag, but is he seriously suggesting that every time a company writes to its Member of Parliament it needs to have a shareholder ballot and a resolution?

David Howarth (Liberal Democrat, Cambridge)

The hon. Gentleman should understand that we are not attempting to change the basic structure of the law, which does not require a company to pass a resolution for each act or donation. The basic structure, as the Bill says, is that an authorising resolution is passed. That authorises the activity, which is what we want for this part of the definition of political expenditure as well.

Finally we come to the economic argument for discouraging lobbying. There are attempts at lobbying that genuinely try to reduce the inefficiency of the economy, when a regulation is objectively costly for the whole of society. Economic actors, including companies, may want to bring that sort of regulation to the attention of the authorities. However, I think that is a rare sort of lobbying. Normal lobbying is when one company, group of companies or economic interest is trying to profit at the expense of another. What they are trying to do is to shift burdens from one part of the economy to another.

Let us take the obvious example of taxation. Interest groups lobby for tax breaks, for the reduction of taxation on their particular industry. What is the effect of that, if successful? Well, the tax burden on other parts of the economy will rise or government services will fall. The burden of that lobbying effort on tax falls on other people. The question that we should ask ourselves is whether that is the sort of activity that we should be encouraging companies to engage in, because it is merely shifting money from one part of the economy to another. It is not making anything new.

Nick Palmer (Labour, Broxtowe)

I am not sure that the hon. Gentleman realises just how wide the scope of his proposalwould be.

Like many members of the Committee, I am trying to multi-task a bit, following the arguments in detail while also doing other things. I have here a letter from Greenpeace Ltd, which claims that the UK energy review, the terms of reference for which were published a few months ago, is asking the wrong questions. There are two pages and a substantial document. Now, Greenpeace organises itself as a limited company, because, in order to campaign, it cannot operate as a charity.

John Bercow (Conservative, Buckingham)

Order. The intervention is lengthy. Would the hon. Gentleman bring himself to the gravamen?

The rest of the debate is in Hansard.