Company Law Reform Bill [Lords]

Public Bill Committee, 4 July 2006.

Standing Committee D

Clause 356

Eric Illsley (Labour, Barnsley Central)

I remind the Committee that with this we are discussing amendment No. 220, in clause 356, page 159, line 33, at end insert—

‘(3) In addition to the other requirements set out in this Part, a donation may only be made to a trade union if such trade union currently has in force a political resolution authorising the trade union to apply its funds in the furtherance of political objects and such political resolution authorised donations or expenditure under one or more of the following heads—

(a) donations to political parties or independent election candidates;

(b) donations to political organisations other than political parties; or

(c) political expenditure

in each case up to a specified amount in the period for which the resolution has effect.

(4) For the purposes of subsection (3), “political expenditure” shall have the meaning set out in the Trade Union and Labour Relations (Consolidation) Act 1992 (c.52) and “political resolution” shall have the meaning set out in the Trade Union and Labour Relations (Consolidation) Act 1992 (c.52) save that the reference in section 73(3) of that act to “ten years” shall be deemed to be “four years”.

(5) A donation to a trade union shall not be a political donation for the purposes of this Part to the extent that it is made—

(a) to provide or facilitate the provision of education and training of employees of a relevant company;

(b) to assist the trade union in representing employees of a relevant company;

(c) to assist the trade union in consulting with and meeting employees of a relevant company;

(d) to facilitate the investigation of any matter relating to the terms and conditions of any employee of a relevant company;

(e) to assist or to facilitate negotiations between the trade union and a relevant company and any of its representatives in connection with any complaint or dispute between the company and its employees (or any of them); or

(f) to otherwise promote good employment relations between a relevant company and its employees.

For this purpose a relevant company includes the company by which the donation was made, any holding company of the company by which the donation was made, any subsidiary of such holding company or any subsidiary of the company by which the donation was made.’.

David Howarth (Liberal Democrat, Cambridge)

The subject matter is the regulation of donations by trade unions and its relationship to donations by companies. The amendments created a certain amount of heat in our previous sitting, but I am not sure how much light was cast on the issue.

The amendments would take action on a potentially important problem: the possibility of donations to political parties from companies being laundered through trade unions so that a company evaded the requirement for its shareholders to pass a resolution authorising such donations.

The opposition to the amendments comes from the view that has been expressed by the TUC that such donations would undermine the independence of trade unions and get them into trouble with the certification officer. I would like to make some points on those matters, to which I hope the Minister will reply.

Amendment No. 219 has one deeply unattractive aspect: it states something that is simply not the case and goes into legal fiction. It says that

“a trade union is a political organisation for the purpose of this Part.”

We all know that that is not quite right. Trade unions that have not passed resolutions to set up political funds are not allowed to be political organisations; they are barred from such activities. Even unions that have passed such resolutions are in reality industrial organisations, but with a political aspect to their work. Their main work will always be industrial.

The wording is unattractive and flows from the drafting of the clause, which could have been more elegant. I hope that the Committee will take into account the fictional aspect, which is intended to make amendment No. 220 work rather than to cast aspersions on unions.

On the central point about the laundering of donations via unions, the first question to ask is whether it is possible for political funds to receive donations from non-members of the union. If not, there is no route by which a company can launder a gift to a political party by the method in question. From a superficial reading of section 83 of the Trade Union and Labour Relations (Consolidation) Act 1992, it seems that it is possible for people who are not members of a union to make donations to its political fund. Section 83(1)(a) states:

“There may be added to a union’s political fund only...sums representing contributions made to the fund by members of the union or by any person other than the union itself”.

The Minister might have further comments to make, but at first sight that seems to establish that a company could make a donation to a union’s political fund. Some unions, by their internal rules, rule out that possibility and allow political funds to come only from members’ contributions. However, nothing in the law requires a union to have such a rule.

The second question is whether a donation would undermine the independence of a trade union and therefore make it completely implausible for it to take part in such a scheme. Section 5 of the 1992 Act defines “independent trade union” as

“a trade union which—

(a) is not under the domination or control of an employer or group of employers or of one or more employers’ associations, and

(b) is not liable to interference by an employer or any such group or association (arising out of the provision of financial or material support or by any other means whatsoever) tending towards such control”.

So, we are talking about “domination or control” or liability to interference “tending towards such control”. The question is whether a donation by a company to a union’s political fund—separate from its general fund—would threaten that union’s independence.

I cannot see how that could be, because a donation to a political fund for the purposes of payment on to a political party would by that fact not involve union management, negotiations with employers or any other aspect of the union’s activities as an independent body. It does not threaten, in any way that I can see, the independence of the union as defined in the 1992 Act.

Given those two statutory measures, I conclude that there is a problem: there is a route by which a company can evade the provisions of the Bill. It could give money to a political party through a trade union, and so undermine the law. Although I find the drafting of the amendments unattractive, I ask the Government to consider seriously whether that loophole should be closed through an amendment—if not the one before us, then some other amendment to the Bill or to the underlying legislation.

Margaret Hodge (Labour, Barking)

I want to start by going back to the genesis of the clause and the reason that it is in the Bill. During our extensive consultation, companies asked specifically that trade unions not be treated as political organisations when companies decide on political donations. That is the reason for the clause on trade unions.

Crispin Blunt (Conservative, Reigate)

This is an inquiry, Mr. Illsley. Is membership of a trade union a registrable or declarable interest in the context of this debate?

Eric Illsley (Labour, Barnsley Central)

That question is a matter for the register, not the Chair.

Margaret Hodge (Labour, Barking)

I do not want any doubt to enter the debate. If the hon. Member for Reigate (Mr. Blunt) so wishes, I shall declare the fact that I am a member of the Transport and General Workers Union. I have no doubt that probably all Members on the Government Benches are members of one union or another, but in no way does that have an inference in relation to what I just said. I hope the hon. Gentleman will have the grace to accept that.

Crispin Blunt (Conservative, Reigate)

It was a question to the Chair.

Margaret Hodge (Labour, Barking)

I do not want any doubt to enter a debate on such an important issue.

We put a clause in the Bill around trade unions because we were asked to do so by companies. That is because we all know—this is accepted, even in the amendment tabled by Opposition Members—that companies provide a range of crucial facilities to trade unions ranging from meeting rooms to employee time off, which should not be regarded as a donation to a political party. I think that is accepted by Opposition Members.

Shailesh Vara (Conservative, North West Cambridgeshire)

Were the trade unions part of the consultation process and did they proffer advice as to whether they agreed with the line proposed in legislation?

Margaret Hodge (Labour, Barking)

I was not the Minister at the time, but my information is that the clause was inserted at the behest of companies, the CBI and others—I am getting lots of nods. But of course, during an inclusive consultation, we had contact with the trade unions as well, so they will have had the chance to comment on those issues and we will listen to their representations.

Shailesh Vara (Conservative, North West Cambridgeshire)

I would be grateful if someone informed me what was the exact advice from the trade unions, as they were part of the consultation process. The Minister has been kind in pointing out the CBI’s position, but as a balance it would be useful to know what was the advice given by the trade unions. If not now, I am happy to receive that later.

Margaret Hodge (Labour, Barking)

To be honest, the hon. Gentleman misunderstands the purpose. I have a TUC briefing here. I have no doubt that it was sent to him as well, as will be the case with the Law Society briefings and everything else. If he reads that briefing, he will see that the view of the trade unions collectively expressed—

Shailesh Vara (Conservative, North West Cambridgeshire)

Actually, we have not received it.

Margaret Hodge (Labour, Barking)

As a broad-church party, I would have hoped that the Conservative party was talking to trade unionists as much it talks to business. That is what its leader would wish. It is most interesting that Conservative Members still see themselves as a partisan group.

Shailesh Vara (Conservative, North West Cambridgeshire)

This is to do with membership rather than consultation.

Margaret Hodge (Labour, Barking)

Let others judge that; it is not a matter for me. All I am doing is commenting on how Conservative Members think it appropriate to carry out business. If the hon. Gentleman so wishes, I shall send him my copy of the TUC briefing.

We have consultation with a huge range of people as we develop advice. I am not even sure that there are minutes of those meetings, but I am not going to undertake to provide them. The hon. Gentleman should consult the TUC direct and I am happy to share with him the briefing that I received. I have received briefings from all sorts of people—the CBI, the TUC, individual companies, corporate lawyers, et al—as we have developed the Bill.

I have to say to the hon. Member for Hornchurch (Mr. Brokenshire), who moved the amendment, that in setting out the issues on which he believes it legitimate that there should be funding from companies for facilities for trade unions, he has accepted, in conflict with what he is asserting, that trade unions are essentially Labour party organisations. That is not the case.

Trade unions can and do undertake political activity, although it may interest Conservative Members to know that of the about 170 trade unions, only 29 have a political fund, so there is no such general capacity across the trade union movement. I was surprised by what a small proportion of trade unions have a political fund. However, if the hon. Gentleman accepts that those are issues, he cannot then define trade unions as party political organisations and—as insinuated by everything that has been said, and even the body language this morning—Labour party organisations.

As in a company, the core business of trade unions is to act in the interests of their members, whether in negotiations on wages and salaries or on conditions for their members, around health and safety issues or on training, education and personal development issues. I am thinking in particular of the impact that trade unions have had in supporting the development of workers through trade union learning representatives, which the Government introduced.

Unions might look after the individual interests of members if they fall into dispute with their employers at tribunals or get compensation if they are injured at work. All that is the core business on which a trade union will spend its time.

Justine Greening (Conservative, Putney)

I must apologise for not being here on Thursday for the start of the debate. I agree with what the Minister is saying about what trade unions can do to assist members in the modern workplace, but she must be aware of the traditional relationship between the Labour party and trade unions.

In the context of the Prime Minister’s statement that the Government were going to be purer than pure and whiter than white, does the Minister not accept that however reasonable her arguments may seem in this room, outside they will be perceived as a Labour Government giving trade unions extra leeway that they are not giving to other organisations? That is important to take into account too, because the clause will not be perceived as whiter than white.

Margaret Hodge (Labour, Barking)

To be honest, and with the greatest respect to the hon. Lady, that statement completely misunderstands what the clause is all about. I really rather regret it. Most companies that have a trade union with which they do business within the purview of the public company recognise that there are huge benefits in getting maximum value from and having a good relationship with their work force. If part of that relationship is giving facilities to trade union representatives for all the reasons that I have just enunciated and will not repeat, that is good business practice.

The genesis of this has nothing to do with partial political interest. It is entirely a response to representations that we received from companies, which, with the greatest respect to the hon. Lady, do not see this as party political in any way. It is nothing, nothing, nothing at all to do with her insinuations. If I may say so, they demonstrate the political prejudice that too many Conservative Members have against a very important, long-established way of organising workers in the workplace, which benefits not just those individuals, but collectively ensures that the business maximises its value and best serves the interests of its members. I am really sorry that she takes this very prejudiced approach to trade union activity in the workplace.

Shailesh Vara (Conservative, North West Cambridgeshire)

I note that the Minister said that this has nothing to do with partial political interest. Does she honestly believe that a contribution by trade unions of £42 million to the Labour party in the last parliamentary Session—

Eric Illsley (Labour, Barnsley Central)

Order. We are not debating the relationship between the Labour party and trade unions; we are debating the clause. I am not going to allow a debate on party political funding.

Margaret Hodge (Labour, Barking)

Thank you for that ruling, Mr. Illsley. I just hope that hon. Members will remember what we are here to consider in the context of the Bill. This is not a cheap attempt to score party political points. The contribution made by the hon. Member for Hornchurch from the Front Bench was not quite in the same vein as those made from the Back Benches, but in view of the serious nature of a measure that will affect companies over time and the fact that we are trying to respond to a legitimate issue that has been raised—not by the trade unions, but by companies—I regret that Conservative Members are trying to develop the debate into a cheap political diatribe.

To return to the issue that we are trying to debate, the list demonstrates that some Conservative Members understand that this is not a party political issue. However, it is limiting in that it spells out activities but does not get close to capturing the wide range of non-political activities undertaken by trade unions, which are often of benefit to and supported by companies.

The purpose of the clause is to make things simpler for companies to reduce their administrative overheads. That is an underlying theme of the Bill, and I hope that it is supported by Opposition Members. Providing companies with a long list of approved trade union activities that they must cross-reference before deciding whether they can legitimately expend resources or time, or allow rooms to be used, would be inconsistent with the principle that runs through the Bill. In restating part XA of the Companies Act 1985, we have responded to requests from business to provide clarity and simplicity.

Crispin Blunt (Conservative, Reigate)

On a point of order, Mr. Illsley. I apologise for interrupting the Minister, but I have been reflecting on the ruling that you gave to my hon. Friend the Member for North-West Cambridgeshire (Mr. Vara). We are debating the amendments that stand in the name of my hon. Friend the Member for Hornchurch, which are specifically on the issue of donations to political parties and organisations, and political expenditure. The Government, who are resisting the amendments, happen to be from the Labour party, which received £42 million from trade unions in the previous political cycle. I would have thought that a legitimate point to introduce to the debate. I am sorry to challenge you, but will you explain why we are not allowed to refer to that?

Eric Illsley (Labour, Barnsley Central)

It is simply outside the scope of the Bill. The hon. Member for North-West Cambridgeshire and the Minister were debating the relationship between the Labour party and trade unions. The clause talks about the relationship involving trade unions for the purposes of a Government Bill, not the Labour party. Of course, the Government are formed from the Labour party, but that link is not strong enough to enable the Committee to debate political party funding and the relationship between trade unions and the Labour party, so the ruling stands.

Crispin Blunt (Conservative, Reigate)

Further to that point of order, Mr. Illsley. Of course we will abide by your ruling, but will we be entitled to draw attention to the link in the clause stand part debate?

Eric Illsley (Labour, Barnsley Central)

The hon. Member for North-West Cambridgeshire and the Minister have already drawn attention to the relationship. I do not see the point of a long, detailed debate on the relationship between the Labour party and trade unions in relation to funding. The relationship referred to in the Bill is that between the Government and trade unions, and briefing papers on that are available to members of the Committee. It is not relevant to have a long debate, or any debate, on the funding relationship between the Labour party and trade unions.

Margaret Hodge (Labour, Barking)

Right. I shall try to make progress on the Bill.

Shailesh Vara (Conservative, North West Cambridgeshire)

On a point of order, Mr. Illsley. I note your comments and welcome your guidance. We are trying to establish the fact that trade unions are politically motivated. Unions are responsible for electing the leader of a political party, who can then become Prime Minister. I would welcome your advice on why such organisations cannot be deemed political.

Eric Illsley (Labour, Barnsley Central)

I think that is a matter for debate. As far as I am concerned, the matter is too far removed from the clause. There is a debate to be had on the TUC and trade unions, but to debate the financial relationship between the Labour party and trade unions is too far removed from the scope of the Bill.

Margaret Hodge (Labour, Barking)

Thank you, Mr. Illsley. I return to the clause and its relevance to companies. I have said two things—that we are responding to a request from business and that the purpose is to simplify processes for business. I am not going to discuss the matter endlessly, because motivations other than those to do with the clause are at the heart of the Opposition amendments.

I would like to put it on record that we know of no evidence to suggest that political donations to trade unions constitute a real-world problem. My hon. Friend the Member for Burnley (Kitty Ussher) observed last week in interventions on the hon. Member for Hornchurch that any trade union that accepted a political donation from a company could jeopardise not only its status as an independent trade union, but the trust of its members.

James Brokenshire (Conservative, Hornchurch)

The hon. Member for Burnley made some relevant points, and I am glad that the Minister has addressed them, but will she confirm whether that is the view of the TUC or whether it has been challenged in court so that we are clear about the law?

Margaret Hodge (Labour, Barking)

I do not have a clue. I do not know whether there has been a challenge in the courts. Perhaps, being a lawyer, the hon. Member for Cambridge (David Howarth) knows, but I do not. Has it been?

David Howarth (Liberal Democrat, Cambridge)

Not as far as we know.

Margaret Hodge (Labour, Barking)

Right, that is interesting. Perhaps Opposition Members would like to launch such a challenge. I am sure that everybody would want to engage with it.

I shall answer some questions asked by the hon. Member for Cambridge, who made a more considered contribution. I am sure he understands that there are disclosure requirements associated with trade unions’ political funds. They have to file annual returns with the trade union certification officer as set out in section 32 of the 1992 Act. Those must contain the specified accounts, including revenue accounts and

“such other accounts as the Certification Officer may require”.

So, it is difficult to envisage a hidden donation going through the route that the hon. Gentleman suggested and not coming out in the accounts or being visible to us all, whatever political party we come from.

David Howarth (Liberal Democrat, Cambridge)

I understand the Minister’s point—the union has to make a return to the certification officer giving a view of what has gone in and out of the fund in a particular year. The problem is that the company making such a donation could avoid having to go to its own shareholders to get a resolution to permit a political donation. The question is not whether there is transparency for union members, but whether there is transparency for shareholders. My initial view is that not many shareholders will read reports of trade union political fund declarations to the certification officer.

Margaret Hodge (Labour, Barking)

I take that point, but I hope that the hon. Gentleman accepts also that those trade union accounts are pretty open to inspection. Section 30 of the 1992 Act provides for an elaborate right to inspect all accounting records, so I think it would be difficult to hide a contribution from a company to a trade union’s political fund.

I am sure we all agree that we do not want to put in place a system that would make it unnecessarily burdensome for companies to fund what most in the Committee agree are non-partisan activities. However, in the light of what the hon. Gentleman has said, I accept that the wording of the clause could give rise to some confusion. I am prepared to look at that so that our intent is carried out absolutely and, if necessary, I shall introduce that further wording on Report.

James Brokenshire (Conservative, Hornchurch)

We have had a helpful debate on the amendments that I spoke to at the end of last week. The contribution from the hon. Member for Cambridge was considered and supported my argument that there is some doubt as to the treatment of donations from a company to a trade union and whether the protections afforded in the context of more political donations would apply in those circumstances.

The Minister’s comments appear to support that and recognise the fact that the amendments might have raised a valid point and highlighted a potential problem. Clearly, the explanatory notes on the clause state that the exemption is intended to cover the issues she talked about—the use of company vehicles by and paid time off for trade union officials. The term “donation” might capture such donations.

It is also interesting that the notes say that this provision is intended to cover trade unions in countries other than the UK. While our debate has focused heavily on the legal treatment of and relationship with trade unions in this country, we must bear it in mind that this provision is intended to have wider effects. While we have debated some issues and legalities that might arise around the treatment of trade unions, we have not touched on whether there are any wider issues in relation to trade unions outside the United Kingdom that may and will have separate legal and regulatory standing in that context.

Our debate has recognised that there is a valid issue. I acknowledge that the Minister has said that the driving force behind that change to the law has come from the companies, that no issue has been raised by the trade unions and that the Government have in no way introduced the change as a consequence of any lobbying by trade unions.

The point at issue is that we have to balance ease of administration, which is a valid point, against the consequences of the actions that have been included. Therefore, we must also take into account the interests of shareholders, which is why we want to ensure that shareholders are properly protected, and the fact that, whether by design or inadvertence, these provisions cannot be, theoretically or otherwise, used in a manner that might allow for a political donation to be made in the way we have discussed this morning. I welcome the fact that the Minister is prepared to consider the consequences.

We also debated the second part of the clause—the broad equivalence argument in the interests of shareholders and those of members of trade unions. The amendment would in many ways impose a level playing field as between the requirement for trade unions and for companies to have a ballot on donations: there is a four-year rule on one and a 10-year rule on the other. We also want to highlight the broad equivalence argument in the context of the amendment.

This relevant and important issue is a question of clarity and simplification, but it would also ensure that we had a clear understanding of the law and regulations that apply to trade unions. I note that hon. Members have said that there is some issue as to the context of the use of trade unions being described as political, but clearly there was some doubt in the minds of the draftsmen in that they felt it necessary to specify that trade unions are not political.

I do not claim praise or credit for the drafting—I note the comments of the hon. Member for Cambridge—but clearly there is some doubt in that the initial drafting had to say that trade unions are not political organisations in the first place. We are not seeking to give greater emphasis to that point through the amendment, as this is a question of legal drafting more than anything else. On the one hand, it is being said that something is not a political organisation; on the other, we have introduced the amendment as a mechanism to address the concern that we have debated this morning and to undo the balance and ensure that the protections are afforded.

The Minister says that that represents an additional complication of some sort, but I do not see it that way. All the issues that we have highlighted in terms of the important work that trade unions do in education and properly representing employees involve promoting good working relationships and protecting employees’ best interests. That is properly encapsulated in the drafting that we propose. It is also important to state clearly the many issues that the trade unions undertake for the best interests of employees.

In the context of what I have heard from the Minister this morning, while I note that she is prepared to reconsider the issue and come back on Report, I want to press the amendment to the vote to emphasise the importance that we place on it and our belief that companies and businesses should indeed have clarity, but not at the cost of shareholders being prejudiced by how the clause could be used.

Clause 357

David Howarth (Liberal Democrat, Cambridge)

I beg to move amendment No. 261, in clause 357, page 159, line 36, at end insert

‘provided that the association itself makes no political donations or political expenditure as defined in sections 346 and 347 in the relevant year.’.

This is a very short point that relates to trade associations, which are largely associations made up of employers, rather than unions. The clause proposes that subscriptions to trade associations should not count as political donations and leaves it at that. The amendment says that that should be the case as long as the trade association itself makes no political donation. That is important because otherwise it would be an easy way to evade the provisions of the Bill. It is also an easy way to get moneys to particular political parties by way of trade associations.

I do not want to mention particular cases, but there are certain trade associations in the centre of the country that make rather large donations to particular political parties. They can easily be found on the Electoral Commission’s website.

The point of the amendment is quite simple: why should a donation to a trade association, which will be passed on to a political party, not count as a political donation just because it is a called a subscription? The clause goes on to say that subscription does not include any payment to the association made for a special purpose.

If the members of an association were asked for particular donations for the election, that would count as a political donation, but what would happen if a trade association were simply to increase its annual subscription by a substantial amount in a year that just happened to be the one that constituted the run-up to a general election? That is a loophole, and I would be grateful for the Minister’s comments on it.

James Brokenshire (Conservative, Hornchurch)

The hon. Gentleman has made an interesting point, and the matter bears closer examination, but I am not entirely convinced that the amendment represents the right way to proceed. The clause states that a trade association must further relevant trade interests, thereby making a direct connection with trade and business. However, he has raised an interesting point that needs to be considered, and I look forward to the Minister’s comments.

Margaret Hodge (Labour, Barking)

While it appears that the hon. Member for Cambridge is trying to fix a problem, I am not sure that the problem exists. A great deal of the work of trade associations is to lobby Ministers, councillors and so on, but they do not do so in a party political way. We have constantly tried to frame our clauses in a way that makes things as simple as possible for companies, but if the amendment were accepted they would have to check before paying money to a trade association that its business was not party political as defined elsewhere in the Bill in relation to companies making donations to political parties. It would add complexity.

In the real world, we know that trade associations are there to lobby; that is why companies get together and form them. If they suddenly upped their subscription massively to pay money to a political party or to individuals standing for a party in an election, that would be so obvious that it would quickly be shown up and seen by companies. The amendment is an unnecessary complication that would make things more difficult by trying to deal with a problem that does not exist.

David Howarth (Liberal Democrat, Cambridge)

I hear what the Minister says. The matter should be raised in debates on other legislation, but the real problem is the lack of transparency of trade associations and their political activities. We have discussed whether lobbying should count as a political activity, on which the Committee did not agree with my view. I accept that this amendment is partly consequential on the amendments that I tabled on that matter, but there is nevertheless a potential problem. Will the Minister undertake to keep the matter under review should particular instances arise in which that problem causes difficulties?

Margaret Hodge (Labour, Barking)

As with all legislation, we will keep it under constant review. If, as the hon. Gentleman says, a problem arises and his judgment is right and mine wrong, we will have to return to the matter.

David Howarth (Liberal Democrat, Cambridge)

I thank the Minister. In the light of that comment, I beg to ask leave to withdraw the amendment.

Clause 358

David Howarth (Liberal Democrat, Cambridge)

I beg to move amendment No. 262, in clause 358, page 160, line 5, leave out ‘not’.

All hon. Members will be familiar with this subject: the status and function of all-party groups. The clause simply states:

“An all-party parliamentary group is not a political organisation for the purposes of this Part.”

I said that there was a certain amount of fiction in the drafting of amendment No. 219 on trade unions, tabled by the hon. Member for Hornchurch. There is also a certain amount of fiction in the drafting of the clause. We are all members of such groups and recognise that the purpose of some of them—not all of them—is to facilitate lobbying and access by interest groups to Members of Parliament. That was discussed at great length by the Committee on Standards in Public Life and written about in various articles in The Times.

There have been instances of what now is generally regarded as an abuse of the process in which all-party groups have had their reports written for them by lobbyists or have issued statements or reports that are clearly connected with the interests of the people funding the group. For example, just before Christmas, the all-party group on identity fraud issued a report saying that there was a danger of identity fraud from Christmas cards being left out with the ordinary rubbish and that people should shred them instead. It turned out that one of the sponsors of that group was a manufacturer of shredding machines. It is obvious to all concerned that such groups have political purposes.

The view of Sir Philip Mawer is well-balanced. He said that there was no evidence that all-party groups were being “suborned by outside interests”, but that they were

“not neutral surveyors of a particular area of public policy, but conduits...for pressure to change public policy”.

My view is that that is close to a definition of political.

Patrick Hall (Labour, Bedford)

What the hon. Gentleman is saying is serious indeed because it strikes at the heart of a great deal of good that goes on in this place. He has been here for only a year. He needs to be careful about what he says. The purpose of all-party groups is to inform parliamentarians, and well informed parliamentarians are better able to ask questions. That goes to the heart of democracy. If by asking questions, policies change, fine, but that does not mean that the primary purpose of an all-party group is to campaign on particular issues in the sense that he implies. He should reflect carefully on what he is going to say on such matters.

David Howarth (Liberal Democrat, Cambridge)

I thank the hon. Gentleman for his warning, but I was quoting Sir Philip Mawer. There has been an investigation by the Committee on Standards in Public Life and complaints have been made to the Committee on Standards and Privileges regarding that matter. The findings to which I am referring are those, effectively, of the House itself. All Members should recognise the risks and dangers associated with all-party groups. The key point is that we should recognise the truth, which is that the purpose of many such groups is to organise access to parliamentarians by particular interests. If we do not recognise that, we will not be able to regulate them properly.

I accept that the amendment, in many ways, is consequential on the one that we tabled last week on lobbying. Our view remains that lobbying is a political activity and should be covered by the Bill. However, if Members are not prepared to go as far as we attempted to go last week—the Minister said that that amendment was somewhat extreme—they might be more favourable towards an amendment dealing with matters with which we are all familiar and about which we know the facts.

Quentin Davies (Conservative, Grantham and Stamford)

The Liberal Democrats have got it completely wrong, and the Government, for once, are absolutely right. I am shocked by what the hon. Gentleman says. He states that the purpose of all-party groups is to arrange access by lobbyists or members of business to Members of Parliament. The purpose is exactly the other way around. These groups can be set up only by parliamentarians. Their purpose is to provide parliamentarians with access to information, contacts, discussion and professional advice.

We are all subject to the crooked timber of humanity. None of us is perfect. We all make mistakes. There could be an instance when hon. Members—it does not matter whether they are Conservative, Liberal or Labour—have naively allowed themselves to be deluded. Although I sincerely hope that this is not the case, a colleague may have been corrupted and consciously allowed his judgment to be overridden by a financial interest, and come to a conclusion that is not genuinely in the public interest, but which is designed simply to promote some individual commercial interest. Those are serious charges, and the hon. Gentleman should not be making them as a generalised charge. If such things have occurred, he should document them and, if necessary, report the individuals concerned to Sir Philip Mawer.

Some parliamentary group at some stage may have, either naively or, as is much less likely, corruptly, allowed a financial interest to override the judgment of the parliamentarians in the report it produces. If that is the case, we want to know the details and we need to know them this morning. We cannot get away with a generalised accusation of that kind. To suggest that the totality and generality of all-party groups are simply designed at the initiative of outsiders to override our proper judgment is a monstrous distortion of reality.

I have greatly benefited from all-party groups since I have been in the House. I have not taken an interest in them in terms of being an officer of one, except in the rather specialised all-party groups, such as the British-French and the British-German groups, which are groups with foreign Parliaments. But I have often been to meetings of all-party groups on the subjects in which I was interested. I have greatly benefited from the discussions. I have often told colleagues that I disagreed with them but that I valued the opportunity to talk the matter through with them. It has been an essential element of my preparation for the work of this place, and I believe it has been for many others, too. I deeply resent what the hon. Gentleman said. His suggestions are thoroughly misconceived and I hope that he will think again before he addresses the Committee on this subject again.

James Brokenshire (Conservative, Hornchurch)

My hon. Friend makes an interesting contribution and puts a number of relevant points forcefully. I should declare my own interest as a member of an all-party group, something that other Committee members will probably also do. I will not seek to advance the interest of any of the groups to which I belong. The hon. Member for Cambridge made an interesting point about the use and structure of all-party groups. He is right to highlight individual cases where that may have been questioned, but I am not convinced that an amendment is the right mechanism to address the problem.

It is right and proper for us as parliamentarians to debate the purpose of all-party groups, how they should be funded, constituted and structured, and who should provide the secretarial support, but that is a slightly different issue from our debate on the regulation of donations by companies to all-party groups and whether shareholder consent should be required for such donations.

All-party groups, by their nature, have to be all party, so it is not a question of directors seeking to promote the party they personally favour, which is very much the tenor of the protections afforded in the Bill and which are reflected in the provisions of the 1985 Act. Therefore, I believe that many all-party groups provide, and continue to provide, good and valuable services to Parliament to inform debate. To be fair to the hon. Gentleman, I do not think that he is denigrating that or suggesting otherwise. His arguments belong in a separate debate and I am not convinced that his amendment allows properly for the level of discussion that we would appreciate and value.

Margaret Hodge (Labour, Barking)

In the interests of speed, I shall make just three short points. First, by definition, those groups are all-party, and there is no danger of directors using their money to pursue their political interests. Secondly, the Committee on Standards and Privileges deals with issues on all-party groups. As a result of the investigations in The Times, it is considering whether there should be more transparency. I am sure that we all want it to look into that.

Thirdly, we are considering the interaction between companies and all-party groups. I return again, and perhaps not for the last time, to our simple test: is there a risk of directors using a company’s money for their own party political interests, rather than for those of the company? In this case, that risk is so small that regulation would not be justified.

David Howarth (Liberal Democrat, Cambridge)

Those hon. Members who have expressed outrage at my comments on all-party groups misheard me. I was quoting a report by Sir Philip Mawer. There are reports not only by the Committee on Standards in Public Life, but by the Committee on Standards and Privileges, which upheld complaints against three all-party groups—the intellectual property group, the patient safety group and the pharmacy group. Investigations and consultations are still going on in the House about those matters. I hope that hon. Members who expressed outrage and surprise will refer to those reports, which I am sure are available in the Library.

Quentin Davies (Conservative, Grantham and Stamford)

The hon. Gentleman is saying that there have been one or two abuses. Surely he is not saying that, as a result, we should stop the funding of all-party groups by outsiders. We should not be making laws on the basis of occasional abuses. As he was drawing conclusions for the law, it was reasonable to assume that he was attacking the whole system of all-party groups. There is no justification for abolishing that system just because of one or two isolated cases.

David Howarth (Liberal Democrat, Cambridge)

I accept fully what the hon. Gentleman says: there is no need to abolish the entire system. The amendment would not do that. Instead, it would produce more transparency and openness when companies fund all-party groups. The effect would be merely to bring such funding within the ambit of the Bill, which does not stop donations or political expenditure by companies, but requires them to obtain the consent of their shareholders and members before doing so.

I accept that there is no need to end the entire concept of all-party parliamentary groups, but there does need to be more transparency. That view is widely accepted in the House. As the hon. Member for Hornchurch said, we are all members of those groups, and I am not claiming any virtue for myself or for my right hon. and hon. Friends. As one commentator said, the House needs to look to and protect its reputation.

I accept that the debate is subsidiary to last Thursday’s debate on whether lobbying should count as political expenditure. I accept that my view on that was not widely shared, but I still hold it. The essence of politics is not elections but Government policy. Groups that seek to influence policy and decision making by Ministers are engaged in political activity.

The Bill confines “politics” specifically to electoral activity. That is not my view of what its scope should be, for the reasons that I gave on Thursday. However, in the light of the Committee’s decisive vote then, and because this is in many ways the same issue, I beg to ask leave to withdraw the amendment.

Clause 359

David Howarth (Liberal Democrat, Cambridge)

I beg to move amendment No. 263, in clause 359, page 160, line 23, at end add—

‘(5) No order under this section shall discriminate in favour of or against any political party or parties.’.

The amendment is probing, but it would do no harm if it were accepted. The clause relates to the power of the Secretary of State to exempt political expenditure under this part of the Bill. The Secretary of State is to be given what seems a reasonable power to declare particular types of expenditure not political. Such powers are often required in Bills such as this to allow the Government to deal with new situations that arise after they become law. I said that it would be a reasonable use of the power in the clause to exempt very small expenditure, such as the expense and time taken in writing a letter.

I do not object to the existence of the power, but the clause as drafted would allow that power to be used in a political way. It allows certain types of company and not others to make political expenditure. I do not wish to predict the behaviour of the current Government, but a hypothetical future Government might be tempted, having seen the lie of the political land, to make exceptions in a way that favoured themselves. I am sure that that is not the Government’s intention, and the amendment, which would ban discrimination in the use of the power, is largely intended to allow the Minister to say so, which I hope she will.

James Brokenshire (Conservative, Hornchurch)

The hon. Gentleman’s amendment touches on an important point. I originally intended to raise the subject in the stand part debate, but the amendment provides me with the opportunity to do so now.

Although the language in the clause reflects the existing wording of section 347B(8) to (11) of the Companies Act 1985, it appears to allow wide discretion on the part of the Secretary of State. While I am sure that the current office holder would in no way want to use the power in an inappropriate or partisan way, we must legislate for the future. Who knows when we will have an opportunity to consider the matter again? It is therefore important to consider how protection can be provided against the eventualities and circumstances that the hon. Gentleman highlighted. His amendment states that the power should not be used in a discriminatory way, and he puts forward a fair and powerful argument, particular considering that clause 359(2) covers political expenditure and situations in which a company could produce literature or take out advertisements in support of a political campaign.

The Government have defended rigidly the need for political expenditure to be controlled, and they are right to maintain that. However, if through this power there is a means of exemption, the question that is raised is in what circumstances would that be used: could it be used to favour one argument or another? By its nature it must favour one side, otherwise we would not, in the first place, be making the expenditure that is viewed to be political.

It is important that the hon. Gentleman has raised the issue. I am certainly sympathetic to the desire to address the potential mischief that may arise, and I look forward to the Minister’s comments.

Margaret Hodge (Labour, Barking)

I shall give a brief history of why we have the provision and set out three arguments to show that it is appropriate. It was originally inserted because we recognised that the definition in the Political Parties, Elections and Referendums Act 2000 could inadvertently catch activities that could not reasonably be considered as political. The power has been used once, and an order was made, before the 2000 Act came into force, exempting from the need for prior shareholder approval political expenditure by

“Any company or subsidiary undertaking whose ordinary course of business includes, or is proposed to include, the preparation, publication or dissemination to the public, or any part of the public, of material relating to news, and to public and political affairs and events, and to views, opinion and comment on the news and on public and political affairs and events”.

A company putting out press cuttings or whatever would be able to do so under that order.

I hope that my three specific points give Opposition Members the assurances that they seek. First, I do not think that the amendment targets a substantive issue. The order-making power has never been used in a way that discriminates in favour of one political party or against another. Indeed, the exemption that I have described is the only time that we have ever used that order-making power, and we have retained it only to correct similar unforeseen problems were they to arise in the future.

Secondly, the amendment would not make the order-making power any less partisan as it stands. I think the hon. Gentleman would accept that the interpretation of

“No order under this section shall discriminate in favour of or against any political party or parties”,

would be highly subjective and will probably have the effect of making it very difficult to use the order-making power should we ever need to do so.

Finally and perhaps most importantly, clause 359(4) ensures that if any order under the section is proposed, it is subject to the affirmative resolution procedure, so Parliament would have the opportunity to reject or accept any order that is made. That gives the added protection that the hon. Gentleman seeks.

David Howarth (Liberal Democrat, Cambridge)

I cannot say that I am particularly reassured by the Minister’s remarks. The point about the requirement for non-discrimination being subjective is not well made. The concept of discrimination is well known legally and the amendment would restrict the validity of orders that were discriminatory. If a discriminatory order were put into operation, it would be open to any person who so wished to challenge it in the courts and to have it set aside. The purpose of that would be to deter the Government from making discriminatory orders. That would be the object of the exercise.

Margaret Hodge (Labour, Barking)

I am no lawyer, but I know that there has been a great deal of litigation on the concept of discrimination and that the definition is not, of itself, clear and straightforward.

David Howarth (Liberal Democrat, Cambridge)

It is possible that people might have different standards of what counts as clear and what does not. Nevertheless, there is a long history of legal discussion about the meaning of the term “discrimination”. It has been subject to a degree of contestation. The issue to be dealt with is the degree to which those outside this place can challenge orders that discriminate against them. The use of the affirmative resolution procedure is a safeguard, but not for political parties that are not represented in the House. The Green party, for instance, would not be protected by the procedure.

However, in the interests of the efficient dispatch of business, I beg to ask leave to withdraw the amendment.

Clause 360

James Brokenshire (Conservative, Hornchurch)

I beg to move amendmentNo. 318, in clause 360, page 160, line 25, after ‘donation’, insert

‘by a company or a subsidiary of a UK company (as defined in section 352(5))’.

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to discuss the following amendments: No. 319, in clause 360, page 160, line 30, at end insert—

‘(1A) Authorisation under this Part is not needed for donations satisfying the provisions of section 52(2)(b) of the Political Parties, Elections and Referendum Act 2000.’.

No. 320, in clause 360, page 160, line 36, after ‘subsidiary,’, insert ‘any other’.

No. 321, in clause 360, page 160, line 39, after ‘subsidiary,’, insert ‘any other’.

James Brokenshire (Conservative, Hornchurch)

The clause restates the exemption in section 347B(4) of the 1985 Act under which authorisation for donations is not required unless the donation or aggregate amount of donations by a company exceeds £5,000 in a 12-month period. It provides that donations by other companies in a group, including subsidiaries, must be taken into account in calculating whether the £5,000 threshold has been exceeded.

From my reading of section 347B(4), it did not seem to limit the £5,000 to a group-wide basis, but related instead to an individual-company basis. The amendment is probing and is intended to seek confirmation of whether a change is taking place. Did the £5,000 limit relate to an individual basis before or to a group-wide basis? If there is a change, why did the Government feel it necessary to take that line of approach?

Amendment No. 319 raises the matter of small donations, which was highlighted by the Law Society. It points out that section 52(2)(b) of the 2000 Act provides that donations of less than £200 are exempt from the requirements of that Act. However, because of the drafting of clause 360(3), it suggests that it is not clear whether they can also be disregarded for the purposes of the Bill. The amendment would make it clear that they can be.

Amendments Nos. 320 and 321 raise a small technical drafting point, because the current language might, on one interpretation, allow for double counting. The clause states that

“In this section...‘donation’ means a donation to a political party”

or similar, and that “other relevant donations” means

“in relation to a donation made by a company that is not a subsidiary,”

and “donations”—that seems to include the donation itself—made by that company or by any of its subsidiaries. If there is an initial donation of, for instance, £1,000, and a subsequent donation of £4,000, taking the total to £5,000, there should not be double counting of the initial donation. A donation is to be considered as an aggregate of what the clause calls the “donation” and “other relevant donations”, which might lend itself to an interpretation allowing such double counting. Even if the Minister does not agree with my analysis, which I am sure she will not, it is helpful to put the point on record so that we have clarity and certainty.

Margaret Hodge (Labour, Barking)

The hon. Gentleman draws our attention to the difference in the amounts, and he is correct to do so. The amounts are different in the two Acts. In raising the level to £5,000, we wanted to ensure that minor activities, such as meetings with local councillors or MPs, did not count as political donations. Am I correct in thinking that that was the point that the hon. Gentleman was making?

James Brokenshire (Conservative, Hornchurch)

If I may just clarify, my point was that the £5,000 limit applied on a company-by-company basis under the original Act. I wanted to test whether a holding company’s three subsidiaries would each have a £5,000 limit, or—this is certainly clear in the Bill and this is how I interpret it—whether the group as a whole would have a £5,000 limit. The point on which I was seeking clarification, therefore, was whether £15,000 or £5,000 would be the group-wide limit in my example.

Margaret Hodge (Labour, Barking)

I shall give the hon. Gentleman the clarification that I have been given. In earlier clauses, we have tightened up provisions relating to subsidiaries to ensure that directors of holding companies do not circumvent their obligations. In the same spirit, we now include subsidiaries in the annual total, so the annual total for all companies is £5,000; it cannot be £15,000, and one cannot tot it up, with the subsidiaries underneath. I hope that that answers the hon. Gentleman’s query on amendment No. 318.

James Brokenshire (Conservative, Hornchurch)

I understand the Government’s desire not to allow the provisions to be overly manipulated by, say, a group with 100 subsidiaries. Each subsidiary might make a donation of £5,000, and each donation would be within the limit, so one would be looking at quite a significant amount. However, it is the interests of the holding company and its shareholders, which own those subsidiaries, that would be directly affected by the change. Will the Minister examine whether the £5,000 limit is appropriate in all circumstances for such a large group, given the liability that holding company directors would be under for a breach and given that a large group might not be able to police matters as effectively as a smaller group?

Margaret Hodge (Labour, Barking)

To be honest, I cannot quite see where the £5,000 limit originated. If it would be helpful, I shall write to the hon. Gentleman to explain how that figure was reached in earlier consultations. We can return to the issue on Report if he feels unhappy with that letter.

On amendment No. 319, clause 346 provides that the definition of “political donation” is the same as that in the Political Parties, Elections and Referendums Act 2000. Authorisations under this part of the Bill are not needed for donations that fall outside the scope of that definition, including donations that, in the words of the amendment, satisfy

“the provisions of section 52(2)(b) of”

the Act. Amendment No. 319 therefore does nothing more than restate the existing provision and is not required.

On a conciliatory note, the two final amendments provide additional clarity. I thank the hon. Gentleman for his drafting, and we shall accept them.

James Brokenshire (Conservative, Hornchurch)

I am grateful to the Minister for accepting those amendments. As I said, they were suggested to provide greater clarity, and I appreciate the manner in which she has accepted them.

On the previous point about section 52(2)(b) of the Act, the Government believe that the issue is adequately and appropriately addressed, so I shall not push the matter further.

I look forward to the clarification that the Minister will provide as regards the basis on which the £5,000 limit was arrived at. I think that it reflects the existing arrangements under the Companies Act 1985, and I was seeking to put on record the issue of whether that fits in all circumstances. Without wishing in any way to undermine the rightful intent that lies behind the drafting in the Bill, for a large group, from a practical and operational perspective, could that be considered further? I look forward to the Minister’s response. Given the helpful point that she made, I beg to ask leave to withdraw the amendment.

Clause 637

Clause 640

James Brokenshire (Conservative, Hornchurch)

I beg to move amendment No. 400, in clause 640, page 314, line 12, leave out

‘in the case of a public company,’.

We return to a point that I highlighted last week. Clause 640 provides certain sanctions if a company fails to comply with its obligations to file an annual return in accordance with provisions laid out in part 23 of the Bill. Subsection (1) states:

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

(a) the company,

(b) subject to subsection (4)—

(i) every director of the company, and

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

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

The broad liability of company directors and secretaries of public companies is qualified by subsection (4) which states:

“It is a defence for a director or secretary charged with an offence under subsection (1)(b) to prove that he took all reasonable steps to avoid the commission or continuation of the offence.”

The purpose of my amendment is to highlight the status of a secretary in a private company that has chosen to have a company secretary. In those circumstances, if a potential claim is laid against the secretary, an offence under subsection (1)(b) cannot arise as the secretary is neither a director nor a secretary of a public company. As such, to my view, such an offence could be asserted against that secretary only under subsection (1)(c) as

“an officer of the company”.

Yet that distinction is important as the defence under subsection (4) would not cover the secretary of a private company.

In my view, that approach is erroneous. In an attempt to expunge rigorously from the Bill the concept of a private company secretary, a potential injustice appears to arise from the fact that the defence under subsection (4) is not available. Indeed, a secretary of a public company, and also of a private company subsidiary, could find themselves in the bizarre situation of being able to defend an action in relation to the holding company by virtue of subsection (4), but not in relation to the subsidiary. The amendment seeks therefore to deal with that lacuna by ensuring that the defence under subsection (4) is available to all secretaries, whether of public or private companies.

Margaret Hodge (Labour, Barking)

Where an annual return is not made in time, the amendment would expose private company secretaries to a greater risk of prosecution than is currently provided for in the Bill.

Under the Bill, a private company secretary is liable only if she or he is in default—if he or she

“authorises or permits, participates in, or fails to take all reasonable steps to prevent”,

an offence being committed. That is the usual position of officers of a company by virtue of clause 774. It might help if the hon. Gentleman referred to that clause. That is distinct from the liability for that offence of all company directors and plc secretaries. They are liable to prosecution for failure to deliver an annual return by virtue of their office. For those officers, the only defence is that they

“took all reasonable steps to avoid the commission or continuation of the offence”.

That is a stricter liability than that under the default provision which applies to all other officers, including the secretary of a private company. We do not consider it appropriate for the stricter liability to be imposed on officers whose appointment is voluntary.

With that explanation, I hope that the hon. Gentleman will be willing to withdraw his amendment.

James Brokenshire (Conservative, Hornchurch)

I am grateful for the Minister’s explanation. Obviously, we return to the distinction between public and private company secretaries. In the context of the Government proposals, the position of private company secretary should be voluntary. I still reserve my position and I intend to revisit the point, given the wider debate that is going on about private company secretaries and the need for them to be treated, to a large degree, equivalently, when they are appointed. It seems slightly strange, even going by what the Minister has said, that if a private company secretary is appointed, a distinction should be drawn between the two. I hear what the Minister has said, and suspect that we may return to the issue later, but in the interest of speed, and not wanting to detain the Committee further, I beg to ask leave to withdraw the amendment.

None

Jonathan Djanogly (Conservative, Huntingdon)

We come now to company investigations, which are dealt with as additions to the 1985 Act provisions, to be inserted after section 446. That Act gives the Secretary of State the power to appoint inspectors to carry out inspections in relation to the affairs of companies, their membership or control, and dealings in share options by directors and their families. Clause 676(1) inserts new sections 446A and 446B into the 1985 Act, providing new powers for the Secretary of State to give directions to inspectors. The explanatory notes state:

“Directions...can either relate to the investigation itself or the inspectors’ reports of the results of their investigations. Regarding the former, such directions can take two forms: a direction as to the subject matter of an investigation (whether by reference to a specified area of a company’s operation, a specified transaction, a period of time or otherwise); or a direction which requires an inspector to take or not to take a specified step in his investigation.”

Those are fairly significant additions to the provisions of the Companies Act 1985. Will the Minister please provide the background to explain how they came about and why they were thought necessary? Is it intended that the existing provisions of the Companies Act 1985 should be consolidated into the Bill? I believe that that will happen, but I should like her to confirm that. Will she also please specifically explain why, under new section 446B(3),

“any direction...given to the inspector under section 437(1) to produce an interim report...shall cease to have effect”?

Margaret Hodge (Labour, Barking)

May I make a general point? I am very happy to answer detailed questions such as that last one, but it would be helpful to have a little notification. I cannot answer the hon. Gentleman on that point, but I can explain the background to the clause and why we are introducing the power for the Secretary of State to give greater guidance to inspectors. That reflects our experience of recent inspections, and the hon. Gentleman will probably be more familiar with those than I am. The Queens Moat House plc inspection apparently took 10 years, and there were no powers to obtain an interim report or any information before that time. The Mirror Group Newspapers inspection was also prolonged, and that drew our attention to the lack of any powers to speed things up and prevent inspections from going on endlessly.

At the time in question the Prime Minister, I think, commented that when the opportunity should arise we would need to amend current legislation to enable the Secretary of State to terminate an investigation when it was no longer in the broader public interest to continue with it. That is the answer to the question why we have introduced the clause.

As to whether the existing 1985 Act provisions on investigations will be restated as part of consolidation of the Bill, the answer is no—they go wider than Companies Act provisions. That is not to say that they could not be consolidated separately in a free-standing Act. That is the advice that I am given. Probably, those provisions fall outside the terms of reference of this Bill.

Jonathan Djanogly (Conservative, Huntingdon)

Is the Minister saying, therefore, that company investigations will at some point be pulled out of this Act and put into another piece of legislation, with the existing Companies Act legislation?

Margaret Hodge (Labour, Barking)

Clearly, if there is a separate Act on investigations, we will have to consider the position then.

I have not got an answer to the hon. Gentleman’s third, technical question, which was—as I understand it—why it was proposed to delete 437(1B) and (1C).

Jonathan Djanogly (Conservative, Huntingdon)

The question was why, under new section 446B(3), it says:

“any direction already given to the inspector under section 437(1)”,

Margaret Hodge (Labour, Barking)

Yes, I am catching up. The answer is that we have subsumed the powers that were previously in that section within the general power of the Secretary of State to issue directions. That is why that provision is there.

Jonathan Djanogly (Conservative, Huntingdon)

I make the general point that where there have been significant issues to do with the Bill, we have given the Minister early notice of them, have had meetings about them, and so forth. As for the minor issues, to be absolutely frank, if I spent as much time on them as they required, there would be so many letters to send to the Minister before we met that it would make the Opposition’s role virtually impossible. It would be rather unusual for me to have to do that, too.

I thank the Minister for her explanation.

Clause 678

Jonathan Djanogly (Conservative, Huntingdon)

The clause provides the Secretary of State with powers to force an inspector who resigns, or whose appointment is revoked, to produce documents generated by them during the course of their investigation. Does the inspector own papers that he or she produces during the investigation? Presumably, that applies to sub-contracted investigators, rather than civil servants. Has there been a problem with that in the past, and have the Government considered producing terms and conditions under which inspectors transfer their rights in investigation documents to the state? Essentially, I am asking whether it is necessary to legislate on that point.

Margaret Hodge (Labour, Barking)

At present, the Secretary of State has, apparently, very limited powers to give directions to inspectors. Although the Secretary of State can require inspectors at any time to inform him of any matters that come to their knowledge as a result of their investigation, it is only when inspectors uncover fraud or other potential offences, and when that discovery is referred to the appropriate prosecuting authority—for example, to the Serious Fraud Office—that the Secretary of State can direct the inspector to take no further steps in an investigation or such further steps as specified.

There are examples of cases in which that almost unfettered independence has led to protracted inspections and where, having completed the actual investigations, the inspectors have difficulty in agreeing their conclusions and recommendations. The challenge is to widen the powers sufficiently to allow the Secretary of State to intervene to enable the efficient completion of the inspection.

On the details, the clause adds new section 446E to the 1985 Act. When an inspector has resigned, had his appointment revoked or is given a direction under section 446B, the Secretary of State may direct him to produce documents obtained or generated during the course of the investigation to either the Secretary of State or an appointed inspector. It is not that the inspector owns the papers, but that he has control over them which is why it has been necessary to take this power.

Jonathan Djanogly (Conservative, Huntingdon)

I query who owns the papers. Normally if someone produces a paper, they own it. I assumed that the clause dealt with situations in which people could maintain that they owned the paper. Perhaps the Minister could explain.

Margaret Hodge (Labour, Barking)

Again, I can come back to the hon. Gentleman if I have got this wrong, but if an inspector is working under a contract to undertake an investigation into a particular issue, I should have thought that the terms of the contract would ensure that the ownership of any papers that emerged from it was vested in the person who made the contract, in this case the Secretary of State.

Jonathan Djanogly (Conservative, Huntingdon)

That was precisely my point. On that basis, I am asking why the clause is needed.

Margaret Hodge (Labour, Barking)

What I am told is that the clause makes ownership clearer—I suppose that one could litigate or something—and ensures that there is a rapid transfer of papers. That is the only thing that I can think of. If there is anything more to it than that, I will come back to the hon. Gentleman. But I think that it is probably just a question of being absolutely clear, turning to the clause and saying, “Thou shalt return those papers immediately.”

Clause 679

Jonathan Djanogly (Conservative, Huntingdon)

The clause introduces a new definition for documents in hard-copy form. The notes explain that this

“ensures that there is a consistent approach in existing investigation provisions where there is a requirement to produce documents.”

Is a consistent approach also taken in relation to the definition of hard copy throughout the Bill as a whole?

Margaret Hodge (Labour, Barking)

I think I have the answer to that question. Clause 807 contains a new provision to cover the meaning of the terms “electronic form”, “hard copy” and related expressions that are used for all the purposes of the Bill. So the answer is yes.

Jonathan Djanogly (Conservative, Huntingdon)

I am most grateful to the Minister for that explanation. When, or if, we get to clause 807, all will be revealed.

Clause 680

Jonathan Djanogly (Conservative, Huntingdon)

The notes explain that this clause extends

“the Company Directors Disqualification Act 1986 so that decisions on whether to take action to disqualify directors can be taken on the basis of information that was obtained or generated by an inspector (or came to his knowledge) as a result of his investigation, notwithstanding whether such information is or will be included in any formal report. In some cases this may speed up the ability to seek to disqualify directors.”

It is the last issue that gives me some concerns. I do not think that it will necessarily always be in the best interest of companies or anyone else that the directors can be more easily disqualified. If a disqualification order is made on the back of a court case after full due process, all well and good, but there are concerns that rapid use of orders organised by Ministers or through their civil servants, based on, for instance, a few public complaints may not work in the best interests of justice. To defend against such an order can be an expensive business and if the process is now to be made even simpler in evidential terms, as the clause proposes, could perhaps work against the innocent as much as stop the guilty. We are talking about people’s livelihoods.

Margaret Hodge (Labour, Barking)

Indeed, people’s livelihoods are important, but the matters would still have to go to court, so the decision would be taken by the court. That ensures that individuals are properly protected and their rights to innocence can be promoted within the court processes.

Jonathan Djanogly (Conservative, Huntingdon)

I am pleased to hear that assurance from the Minister. I am not entirely sure that the clause will not mean that the process could be speeded up to the detriment of the individual, depending on the situation, but I will think further on the matter.

Clause 699

Jonathan Djanogly (Conservative, Huntingdon)

We are now dealing with part 28 of the Bill and overseas companies. The definition of an overseas company is wider in the clause than in section 744 of the Companies Act 1985, which it replaces. It changes “Great Britain” to “United Kingdom”. That is consistent with the rest of the Bill’s changes to company law to bring Northern Ireland in line with the rest of the country. However, the explanatory notes explain that this part

“will replace the provisions made by Part 23 and Schedules 21A-D of the 1985 Act. Regulations made under this Part will continue to implement the requirements of the Eleventh Company Law Directive (89/666/EEC), which imposes disclosure requirements on overseas companies that set up branches in the UK.”

It might be helpful if the Under-Secretary put on record why it is thought that the existing regimes need to be changed.

Vera Baird (Labour, Redcar)

As the hon. Gentleman said, the clause replaces the definition of an overseas company in section 744 of the 1985 Act, which refers to companies incorporated outside Great Britain that establish a place of business in Great Britain. Clause 699 takes a different approach by defining an overseas company simply as a company incorporated outside the UK. The various provisions of part 28 to which the hon. Gentleman referred or the regulations made under them will then state to which overseas companies they apply. For example, regulations under clause 700 must require an overseas company to register with the registrar if it opens a branch in the UK. Clause 705 enables regulations to impose trading disclosure requirements on overseas companies carrying on business in the UK. I think that that explanation is reasonably self-sufficient. We think that the different format is advantageous.

Jonathan Djanogly (Conservative, Huntingdon)

My question was basically why the Government think that it is more advantageous.

Vera Baird (Labour, Redcar)

Presumably, the new format allows for more detailed consideration of regulations in relation to the separate headings set down in the appropriate clauses. Under one clause, regulations will be made that deal with a company that has a branch in the UK. Regulations under another clause will deal with a company that is carrying on business in the UK. That seems to provide maximum flexibility. I cannot see that there is anything more to be said about it, but I am getting wisdom even as I speak. Strangely, that often happens here. The company law review made a number of recommendations about overseas companies and proposed that the current regimes should be replaced with a single one based on the existing concept of a place of business, and that complies with the requirements of the 11th company law directive. I hope that that explanation assists the hon. Gentleman.

Clause 700

Jonathan Djanogly (Conservative, Huntingdon)

The clause deals with the duty to register particulars in relation to overseas companies. It forces overseas companies with branches in the UK to register in the UK. It also implements the requirements of the 11th company law directive, under which an overseas company must register if it opens a branch in the UK. It is designed to prevent fraud and money laundering, and to help British lenders and other such companies. The clause, and this part generally, will presumably require a raft of regulations. When and how does the Minister propose to deal with them? Has consultation started?

Vera Baird (Labour, Redcar)

The hon. Gentleman summarises what the clause is about, so I shall not repeat what he said. My information is that we will carry out a consultation, so it is implicit that we have not started it yet. I commend the clause to the Committee.

None

Jonathan Djanogly (Conservative, Huntingdon)

The clause provides a framework for the names under which overseas companies must register, and it appears to be consistent with the regulations for UK companies. Will the Minister explain how the provisions interrelate with the provisions in part 5 which deal with the names of British companies? I would particularly like to know whether a foreign company with a long-established name but with a different foreign connotation of limited liability—for example, GmbH or SA—which is substantively the same name as a British company, could be registered. It seems that the position might be different for European economic area states, and I ask the Minister why. If the companies were engaged in totally different businesses, would that have any bearing on the position?

Vera Baird (Labour, Redcar)

The only constraints on names in part 5 which do not apply to overseas companies are the requirements of clauses 59 and 60, which are for the names of certain types of companies to end with letters such as Ltd or plc. They do not apply to overseas companies because they are specific to the types of company formed under the 1985 Act. The hon. Gentleman’s question is, I suppose, whether an EEA company is free to trade in the UK under a name for which a UK company would require approval or under one which is very like that of a UK company. I shall deal with both those aspects.

All companies carrying on business in the UK, including EEA companies, are subject to part 34, which concerns business names and which we will debate in due course. That means that EEA companies, like all others, require prior approval for carrying on business in the UK under a name that implies a connection to a Government or includes a sensitive word or expression. That is about approval, but a question that might be more relevant is whether an EEA company is free to trade in the UK under the name of a UK company. The answer is, yes, it can register with the Registrar of Companies under its corporate name, even if it is the same as an existing UK company name, but if it trades under that name, there is a separate issue of passing off. In any event, the scope for confusion between the two will be limited by the requirements for trading disclosures. Regulations made under clause 705 will require overseas companies carrying on business in the UK to state their country of incorporation on all their business letters and order forms used in the UK.

I think that the hon. Gentleman’s third query was: are fewer restrictions imposed on EEA companies and if so, why? The corporate name of an EEA company is a matter for the law of the country or territory in which it is incorporated. We take the view that the freedom of establishment restricts our ability to prevent registration of an EEA company by its corporate name unless there is a justification for doing so.

I understand the hon. Gentleman’s concern, or curiosity—whichever is a better description—because clause 701 is very different from section 694 of the 1985 Act, which enabled the Secretary of State to give notice to an overseas company that its name would not be registered if it was incorporated under that Act. Under that system, we can also serve notice on an overseas company that its name is the same as, or too like, another’s registered name and that it should register a different name. The clause takes a different approach. Except in the case of the corporate name of an EEA company, it applies the same rules to the registered name of an overseas company as a reply by part 5 to a UK company, save for the parts about the letters Ltd and plc that I mentioned. I hope that that is a comprehensive explanation.

Jonathan Djanogly (Conservative, Huntingdon)

I thank the Minister for what was certainly a comprehensive response. It contained quite a lot of law and I will have to read it at a later date, but I thank her for her explanation.

Clause 702

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 375, in clause 702, page 349, line 34, at end insert—

‘(2A) Legal proceedings may be issued against the overseas company at any time in either its name or the name under which it is registered pursuant to this section.’.

The clause allows overseas companies to register under alternative names and allows companies whose ordinary names do not fulfil the other requirements of the Bill—those that use symbols that are not permitted, such as foreign alphabets—to register under an appropriate name. It also allows companies that have registered abroad under a name that is already registered in this country to choose an alternative name.

The explanatory notes state:

“The change of name will not affect any legal proceedings that are continued or commenced by or against the company.”

Does that mean that legal proceedings will, at any point, be capable of being issued against the company in the UK, either in its real or alternative registered name?

Vera Baird (Labour, Redcar)

Subsections (4)(c) and (5) achieve the purpose that the hon. Gentleman’s amendment seeks to achieve. As the clause stands, proceedings may be commenced against a registered overseas company, whether one uses its home country name or the current name under which it is registered in the UK. The clause also deals with what happens if the company changes its registered name after proceedings have been issued.

I appreciate that the hon. Gentleman tabled the amendment only to test our reasoning and whether we have covered all those circumstances. I hope that he will feel able to withdraw it, because we are confident that subsection (4)(c) and (5) accomplish all that he intended and that proceedings can be started under either name at any time in this country, supposing there is a course of action.

Jonathan Djanogly (Conservative, Huntingdon)

I thank the Minister for that clarification, and on the basis of her reassurance, I beg to ask leave to withdraw the amendment.

Clause 703

Jonathan Djanogly (Conservative, Huntingdon)

The regulations under the clause will replace sections 699AA to 703 and schedule 21D to the 1985 Act and will be subject to the negative resolution procedure. The clause brings overseas companies with a branch in the UK into line with the UK accounting requirements, and confers on the Secretary of State a power to make regulations requiring overseas companies to prepare accounts and directors’ reports, and to obtain an auditors’ report. The requirements must be like those imposed on companies formed and registered under the Bill. The accounts, directors’ report and auditors’ report requirements applying to companies formed and registered under the Bill appear in parts 15 and 16.

If an overseas company registers in the UK, it must file accounts. Presumably, such companies that do not want to go the whole way in terms of reporting will have set up a branch with light requirements. Can it be that by bringing branches into the net, fewer foreign companies will be encouraged to conduct business in the UK? I ask that as a probing question rather making than a statement. Did the Minister’s Department do any research on that?

Vera Baird (Labour, Redcar)

I thank the hon. Gentleman for making his point clear. I understand that, currently, all overseas companies registered under the place of business or branch regimes must deliver accounts. The future requirements to be imposed by regulations under the clause will be the subject of consultation, but I think that that represents no change.

Jonathan Djanogly (Conservative, Huntingdon)

I thank the Minister for clarifying that, and I will re-examine the matter.

Clause 704

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 376, in clause 704, page 351, line 6, leave out ‘negative’ and insert ‘affirmative’.

The regulations will replace section 699A and schedule 21C to the 1985 Act. The clause brings overseas companies with a branch in the UK into line with the UK accounting requirements. Why did the Government think it appropriate for changes to a sensitive and complicated area to be subjected only to the negative resolution procedure?

Vera Baird (Labour, Redcar)

Obviously, the approach in the Bill is to have the basic principles in primary legislation and the technical details in regulations. The rationale for that, and the consequent choice of the negative resolution procedure, went before the Delegated Powers and Regulatory Reform Committee, which concluded that the procedure was reasonable and appropriate. Indeed, the negative resolution procedure is the same as that under the previous clause, although the hon. Gentleman was not concerned about that. Clause 703 also applies to the registration of overseas companies and replaces section 700 of the 1985 Act.

There are several constraints on the regulations that can be made under clause 704. They will need to continue the bank branches directive and they will also be limited by subsection (3) so that they may impose only requirements that are like those that the Bill imposes on companies that are formed under it. Consequently, it appears that the negative resolution procedure is appropriate, and I hope that the hon. Gentleman will feel himself persuaded.

Jonathan Djanogly (Conservative, Huntingdon)

I hear what the Minister says. I appreciate that the power to make regulations under the clause follows the same pattern as that under clause 703, although I would not say that my point was wrong because of that. However, I hear what the Minister says, and I beg to ask leave to withdraw the amendment.

Clause 705

Jonathan Djanogly (Conservative, Huntingdon)

Regulations can be made under the clause to replace provisions made by section 693 of the 1985 Act. The clause confers on the Secretary of State a power to make regulations as to the information that overseas companies must display in specified locations, include in specified documents or communications, or provide to those who may request it in the course of business. Earlier, the Minister mentioned one way in which the clause would apply.

To what extent do the Government intend to differentiate the disclosure regime from that which applies to UK companies? Is it likely that changes will be suggested to what happens now? What is the timing on the new proposals? I appreciate that those issues tie in closely with clause 706, and I would make the same points in relation to that clause.

Vera Baird (Labour, Redcar)

As to the timing, I shall perhaps be able to help the hon. Gentleman in a moment.

The hon. Gentleman’s other question was about the difference between the duties to be imposed as regards the disclosure of particulars on overseas companies trading in the UK and companies incorporated in the UK. The regulations will cover the information that overseas companies must display in specified locations, include in specified documents or communications, or provide to those who make a request in the course of business.

By way of example, the regulations could require an overseas company to display a sign with its name on outside a branch, include its name and country of incorporation on every invoice, and provide its name to anyone who asks for it when doing business with the company. The regulations can impose civil and criminal sanctions for failing to comply with the trading disclosure requirements, and those will correspond to the sanctions imposed on UK companies.

On the timing, we shall consult on the regulations after Royal Assent.

To complete my answer to the hon. Gentleman’s points, let me add that overseas companies will be required to provide details of their country of registration—their nationality, as it were—and their registered number there.

The current requirements will continue until the new regulations come into force, which I hope is reassuring. I am informed that the experts think that there is unlikely to be much difficulty.

Jonathan Djanogly (Conservative, Huntingdon)

I am reassured, and I thank the Minister for that answer.

Clause 707

Jonathan Djanogly (Conservative, Huntingdon)

Are offences for foreign companies compatible with breaches of the same type of regulations for UK companies? Have the Government received advice on the human rights implications of that?

Vera Baird (Labour, Redcar)

We must have received advice on the human rights implications, because the whole Bill has been certified compatible with the European convention on human rights. When the hon. Gentleman refers to compatibility of offences committed by overseas companies as opposed to those in the UK, is he asking whether the offences will be the same?

Jonathan Djanogly (Conservative, Huntingdon)

Basically, if a registration requirement for an overseas company is similar to a registration requirement for an English or Welsh company, but slightly out of kilter, could the overseas company make a claim that it was being treated unfairly?

Vera Baird (Labour, Redcar)

I suppose I take the hon. Gentleman’s point. If the conditions were more stringent on overseas companies than on local companies, there might be a suggestion of discrimination or nationalism. I am not aware of any distinctions that raise that potential mischief, but I shall investigate the matter further and write to him if I find any.

Jonathan Djanogly (Conservative, Huntingdon)

I thank the Minister for that clarification.

Clause 713

Jonathan Djanogly (Conservative, Huntingdon)

Part 29 deals with the registrar of companies and unifies the approach for the whole UK. Clause 716 replaces section 708 of the Companies Act 1985 and provides more information on the issues that the regulations might cover, although the lists are not exhaustive. Is the Minister pleased with the way in which the registrar of companies is working? Is it considered to be an efficiently run function? Are any reviews of its workings proposed?

Vera Baird (Labour, Redcar)

The Registrar of Companies is a she, so she is by definition excellent. In any event, we do not have any cause for concern. When we come to what may be an interesting discussion about compensation for errors made by the registrar, we will find that the amount of compensation that has been paid during the ex gratia system is small—£130,000 over the past five years. I am sure that we will discuss it in more detail, but it does not suggest that a good deal is going wrong.

There is a complaints system that rectifies errors quickly anyway, and I am not aware that any strategic or important changes are going to be made. There is a quinquennial review of all executive agencies including that one, and it does not throw up any cause for worry.

Clause 717

Jonathan Djanogly (Conservative, Huntingdon)

The clause provides for the possibility of an alternative to publication in the Gazette of the notice of issue of certificates of incorporation. Will the Minister explain why publication in the Gazette is still felt necessary? Could an alternative form of publication be used, or perhaps none at all?

Vera Baird (Labour, Redcar)

Clause 15 ensures that the registrar issues a certificate of incorporation to a company when it is formed and there are other stages in a company’s life when a certificate of incorporation can be issued. For example, when a company changes its name it will receive a new certificate. The fact that a company has been duly formed will often be of interest to third parties. The current law requires the registrar to publish the fact that she has issued a certificate of incorporation by placing a notice in the Gazette. The Bill replicates that requirement, but there are two important changes. The Gazette is a well known and long-standing publication—it is longer standing than the Middlesbrough Evening Gazette, which is my local paper—and users are accustomed to referring to it for accurate information, which is not necessarily the case with some other newspapers, to get news of incorporation. There is no intention that the registrar will stop publishing information in the Gazette in the foreseeable future, but we recognise that over time, particularly as technology develops, it is possible that alternative mechanisms will become useful. In clause 769, the availability of alternative mechanism is registered in the Bill.

There was a second change to the previous law which, the hon. Gentleman may wish to know, was introduced by the Opposition in another place. When publicising certificates of incorporation the registrar merely uses the company’s name, but in future she will state the registered number, which will help users.

I suppose that the hon. Gentleman was asking whether anyone uses the Gazette, whether it is an arcane publication and whether we should do more. There is a power in clause 769, which we will discuss when we come to it, and we could do that as well as or instead of continuing publication in the Gazette, but we should not dispense with the obligation to publish notices in the Gazette without careful consultation about the extent to which it is used. Most of the existing obligations to give notice in the Gazette derive from EC law, and the facility to provide alternative means of publication has only recently been made available. The extent to which it has been used in other member states is unclear, and we should take that into consideration. We should not throw the Gazette away, but we should make available other means of publication. Publication is important because there is often third-party interest in incorporations.

Jonathan Djanogly (Conservative, Huntingdon)

We will come to a debate on the Gazette. I am certainly not questioning its historical validity because it is an ancient and venerable institution, but perhaps we should think about moving on. However, specifically in relation to clause 717, my point was that if a certificate of incorporation was published, many more people would have notice of it if it was put on microfiche at Companies house than if it was placed in the Gazette, which not many peoplelook at.

Vera Baird (Labour, Redcar)

I suppose that it is a matter of belt and braces. We are terribly fond of the Gazette and we do not propose to abandon it yet.

There is no concrete argument for abolishing it. I understand the hon. Gentleman’s saying that other ways are available and implicit in the procedure, but does he have a good reason for simply stopping publication in the Gazette?

Jonathan Djanogly (Conservative, Huntingdon)

I think I do, Mr. Illsley. The cost of the Gazette is not insignificant. When we have a fuller debate on the Gazette, it may be helpful if the Government could look up and have ready some facts and figures about the cost to the state—Companies House—of publishing it as well as the cost to companies because I shall ask about that. However, I am happy to leave the matter for the moment.

Clause 721

Jonathan Djanogly (Conservative, Huntingdon)

The clause gives the registrar a power to make rules about the form, authentication and manner of delivery of documents, including their physical form, the means of communication to be used, the format of the documents, the address to which they are to be sent and, where appropriate, technical specifications. The power conferred does not authorise the registrar to require documents to be delivered in electronic form.

I believe that Companies House periodically reviews the format of its forms, both hard copy and online, and consults on alternatives. Presumably, once the Bill comes into force, every form will need to be changed, even if only to reflect the new section numbers. Will the registrar use that as an opportunity for a general, thorough review of the format of the forms, and will the Minister confirm that there will be wide consultation?

Vera Baird (Labour, Redcar)

It would seem opportune for the registrar to do exactly what the hon. Gentleman suggests and, if so, I would be very surprised if there were not consultation. Indeed, there will be.

Jonathan Djanogly (Conservative, Huntingdon)

I thank the Minister for that assurance.

Clause 722

Jonathan Djanogly (Conservative, Huntingdon)

The explanatory notes say that the Secretary of State

“will have a new power to provide for electronic-only delivery of classes of document.”

Is the Minister saying that that will happen, and is there a proposed timetable for a move to fully electronic delivery? That would be the equivalent in company law of the TV switch from analogue to digital. It would be onerous for small businesses, which might still not use the internet. Will the Minister confirm that a much wider debate will be had nearer the time, and can she provide us of some idea of when that time is likely to be?

Vera Baird (Labour, Redcar)

Under clause 722 the Secretary of State, not the registrar, will have the new power. It is subject to certain restrictions; for example, it can be exercised only in respect of classes of documents that are authorised or required to be delivered and for which the registrar has published rules on electronic delivery—in other words, where it is clear precisely what the mechanism for electronic communication is. It is important for me to make it clear that we have no intention of using the power in the foreseeable future.

Take-up of electronic services is increasing and we can expect more and more companies to become equipped and willing to use electronic means of delivery, but we are a very long way from a position in which a requirement to send documents electronically could apply to all companies without imposing an undue burden on some. It is right that the power should be in the clause to provide for future flexibility. There is a spot of philosophy in my notes about how quickly the world is changing, with which I shall not trouble the Committee. We are a long way from the point of making the requirement in question, and there will be an opportunity to debate such a requirement because the clause requires the affirmative resolution procedure.

Jonathan Djanogly (Conservative, Huntingdon)

I am grateful to the Minister for accepting that such a requirement would be a significant move and for the clarification that there will be no proposals in the near future.

Clause 723

Jonathan Djanogly (Conservative, Huntingdon)

I read the clause as setting out that the registrar may make one-off agreements with specific companies to receive electronic documents. Will the Minister elaborate on why the clause is thought necessary? Presumably, as a matter of general policy, it is preferable that all companies play by the same rules on the delivery of documents, not least to provide certainty and consistency. Why the need for specific agreements?

Vera Baird (Labour, Redcar)

The clause sets out the power of the registrar to make agreements with companies to deliver information only electronically. In other words, Companies House and a particular company will be able to agree that they want to communicate electronically and how to do so. In practice it is likely, as I am sure the hon. Gentleman can envisage, that Companies House will draw up agreements in standard form containing detailed provisions for such communications, including the possible use of codes and encryption. The agreements need not be available to everyone in the same form, or at all. The essential point is that they will be entered only if both parties think that there is benefit in doing so. It seems sensible that such arrangements should be available.

It might help if I explain that the intention is to prevent fraud—it actually says in my notes “to present fraud”, but I do not suppose that that is what is meant. If a company only delivers documents electronically, Companies House would not usually accept hard copies. That means that as long as a company keeps its password and so on secret, it will have complete control over what is filed. So the agreements will facilitate that extra protection. And why not, if both parties find it acceptable?

Jonathan Djanogly (Conservative, Huntingdon)

I thank the Minister for that clarification. I do not think that I read the clause incorrectly; it could provide for Companies House to make different agreements with different companies, which I think that the Minister said was not the intention, as is sensible. But it does provide for that, so I have concerns that it could be used for one-off agreements, which could be confusing. Perhaps the Minister would like to think about that further.

Vera Baird (Labour, Redcar)

I am grateful for the opportunity to do so. Clearly, although the intention is that there be a standard form, the same agreement need not be required, or any at all, for everyone. I am not sure what confusion the hon. Gentleman foresees, but I shall reflect on it, and if I can deduce confusion, I shall write to him to try and clear it up.

Clause 724

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 378, in clause 724, page 358, line 21, leave out subsection (1).

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to discuss amendment No. 377, in clause 724, page 358, line 22, after ‘(2)’, insert

‘Notwithstanding the provisions of subsection (1),’.

Jonathan Djanogly (Conservative, Huntingdon)

Subsection (2) appears to be aimed at providing for exceptions to the rule in subsection (1). The latter states:

“A document is not delivered to the registrar until it is received by the registrar.”

If that is the case, subsection (2) needs to be carved out of subsection (1). That is the purpose of amendment No. 377. However, the question then arises about whether subsection (1) is required at all, if the question of delivery is to be dealt with by the registrar’s rules. So amendment No. 378 is aimed at deleting subsection (1).

Vera Baird (Labour, Redcar)

The concept of delivery in the Bill is an important one. Much depends on whether a particular document has been delivered. For example, in many circumstances, a delivered document will then be placed on the public register. If it has not, or has been incorrectly delivered, the register might need to issue a notice to rectify the matter.

Given those consequences, it is important to avoid scope for confusion or argument about whether a particular document has been delivered. For that to be clear, it is necessary to have a rather precise definition of delivery—more precise than the definition in common language.

So the clause does two things. Subsection (1) makes clear the central proposition that for a document to be delivered it must be received. It is not enough for the company to say that it put it in the post or pressed “send” on the e-mail. Subsection (2) allows the registrar to set out in rules further details of what it means for a document to be “received”. So the first specifies that it is not delivered until it is received, and the second provides for rules and further details of what is meant by “received”. In many ways, that is related logically to registrars’ ability under clause 721 to set out requirements for the delivery of documents. For example, it might be prescribed that a document is formally received when it is opened and recorded on to Companies House systems, or a particular office in Companies House specified for where the document should be received.

It seems to me that both those elements are necessary. For the avoidance of doubt, we need the central proposition that for a document to have been delivered it must be received and, secondly, the registrar must be able, subject to that central proposition, to set out more details about precisely what is meant. Taken together, the provisions will ensure that a clear set of rules that everyone can understand is available. That will minimise, or eliminate—one would hope—any risk of misunderstanding. The hon. Gentleman’s amendment would detract from that position, either by removing the basic proposition in the first place or by enabling the registrar to have rules to make decisions that contradict it, which would not be helpful. The position is clear and desirable, so I invite the hon. Gentleman to withdraw the amendment.

Jonathan Djanogly (Conservative, Huntingdon)

I thank the hon. and learned Lady for that run-around—I was quietly discussing the matter with my hon. Friend the Member for Hornchurch and we also thought that it was somewhat circular. The point is legalistic rather than substantive, and on that basis I beg to ask leave to withdraw the amendment.

Clause 725

Jonathan Djanogly (Conservative, Huntingdon)

I am not sure what the purpose of subsection (1) is. It says that a document is not delivered unless other things are done, which are set out separately, but is that not stating the obvious and repetitive?

Vera Baird (Labour, Redcar)

When the registrar receives documents she has to decide whether to make the information contained in them available for public inspection. The clause clarifies her powers in that area and ensures that the registrar has the power to omit from the register any or all of the information contained in a document that does not meet the necessary requirements. Examples of that could be information that is not sent in conformity with the rules, in a form or manner of delivery that is not properly authenticated, or where the necessary fee has not been paid. The registrar will still be able to accept and register such a document at her discretion, but by accepting it she will not be exempting the person who is filing it from any consequence that might attach to their failure to comply with the original requirements for delivery.

Taken together, the elements of the clause provide a sensible framework for ensuring that defective material does not get accepted and placed on the public register, and that there is appropriate discipline on companies to ensure that they file documents in the correct way—that is surely the main point—while providing a degree of discretion to the registrar in cases of genuine doubt.

Jonathan Djanogly (Conservative, Huntingdon)

Although I maintain that the clause is repetitive, I accept what the Minister said, in terms of setting a framework for someone to have easier access round the Bill than they might have otherwise.

Clause 726

Jonathan Djanogly (Conservative, Huntingdon)

Again, the clause provides the registrar with a power to amend the register if incomplete details are given. Will the registrar formulate an amendment process, so that unfairness or inconsistency cannot slip into the system?

Vera Baird (Labour, Redcar)

The clause introduces a new provision, giving the registrar power to correct information that has been supplied by informal means—for example, by making a phone call to the recognised contact of the company in question. The ability to make informal corrections, rather than having to reject the information or correct it through a more bureaucratic process of issuing formal notices, is an important one that companies ought to welcome. The provision will operate in defined circumstances, which could be where the information originally received is incomplete—for example, where some fields on a standard form have been left blank by accident—where information is internally inconsistent, such as where a company name does not correspond to the company number, or where unnecessary information has been provided that needs to be weeded out.

Given the informality of the process, there need to be protections in it. The ability to make informal corrections will apply only where companies have informed the registrar that corrected information should apply. The registrar will need to initiate the correction and be satisfied that the person is authorised to give the information sought. In order to be satisfied as to the authority of the person whom she is telephoning, the registrar will be able to provide for identification numbers or other checks of identity. There are some precautions but, none the less, maximum flexibility and a provision that has a good deal of utility.

Jonathan Djanogly (Conservative, Huntingdon)

I thank the Minister for that explanation, which clarifies the matter. I certainly support the clause, but the potential evil that I was trying to describe was the problem that can arise from an inconsistent approach by the registrar.

Standing Committee D

Clause 728

Jonathan Djanogly (Conservative, Huntingdon)

Sometimes, unnecessary or wrong documents are sent to the registrar. As things stand, it can be virtually impossible to have the register amended, and companies are often told that a court order is necessary. Often in such cases, a document—say, a form—has been filled in wrongly. All that the person who filled it in wants to do is get it back, put it right and file it again. That must happen dozens of times every day, but the process is much too inflexible.

I note that the clause heading includes the words “unnecessary material”. Will that be interpreted as including documents that a filing company feels are unnecessary?

Paul Farrelly (Labour, Newcastle-under-Lyme)

Will the hon. Gentleman confirm my arithmetic? In Committee this afternoon, we have eight Labour Members while he is the sole representative of the Conservative Opposition.

Eric Illsley (Labour, Barnsley Central)

Order. I do not think that we need to go down that line, given that at 4.30 pm the Committee was not even quorate.

Jonathan Djanogly (Conservative, Huntingdon)

Thank you, Mr. Illsley. As I was saying, will the words “unnecessary material” be interpreted as including documents that the filing company, rather than just the registrar, believes are unnecessary?

Vera Baird (Labour, Redcar)

The clause provides for cases in which a delivered document contains unnecessary material for which there is no legal requirement. It is clearly sensible that the registrar should not be obliged to put such information on the register, so she can exclude it and treat it as having been delivered defectively under clause 725. She may then use the various procedures provided in the Bill for remedying the situation, for example—this is the key one—the informal correction procedure. She can also issue a notice to remedy the defective delivery.

The provision is intended to be broad enough to cover all the matters that the hon. Gentleman raised. It is a great advance and will be in everybody’s interests.

Jonathan Djanogly (Conservative, Huntingdon)

I thank the Minister for that reply, but will she clarify whether the provision is to be used broadly and whether it will work both ways so that the documents covered are what not just the registrar, but a company, consider unnecessary?

Vera Baird (Labour, Redcar)

I think it will be for the registrar to decide whether material is unnecessary, using the criteria set out in subsection (2), which defines unnecessary material as that which

“is not needed to comply with an obligation under any enactment, and...not specifically authorised to be delivered to the registrar.”

It is within the ambit of the registrar to decide whether material comes within that definition.

Jonathan Djanogly (Conservative, Huntingdon)

I take the Minister’s point that it is ultimately down to the registrar to decide, but the point that I am trying to make is that, in practice, a lot of companies will complete and send in wrong forms, and all they will want to do is get their forms back, fill them in properly and send them back. Will the registrar be broad minded in her use of the clause to facilitate companies changing their forms?

Vera Baird (Labour, Redcar)

The informal correction procedure will cover that. If there has been a mistake, the company and the registrar can telephone each other and put it right, whatever it is, but it more appropriately falls under clause 726. Informal contact is a great improvement.

Paul Farrelly (Labour, Newcastle-under-Lyme)

Will my hon. and learned Friend the Minister join me in welcoming a second Conservative Member to the Committee to join the nine Labour Members?

Vera Baird (Labour, Redcar)

A second Tory is welcome. It is nice to see him.

Shailesh Vara (Conservative, North West Cambridgeshire)

I am grateful for that welcome. Forgive me,Mr. Illsley, but may I say to Labour Members that with their record in this Committee, they should enjoy the moment while they can?

Vera Baird (Labour, Redcar)

That is what is happening.

Clause 730

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 380, in clause 730, page 361, leave out line 23.

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to discuss amendment No. 389, in clause 751, page 372, leave out line 41.

Jonathan Djanogly (Conservative, Huntingdon)

The clause, which deals with the public notice of receipt of certain documents, replaces section 711 of the Companies Act 1985. I appreciate that some issues require publication, which is also provided for in subsection (1)(b), but may I probe the Minister and ask, further to the discussion that we had on this earlier today, why in the electronic age people should still have to publish in the Gazette?

There is a cost to Companies House and to the company in placing an advertisement, but it is unnecessary red tape, particularly as there could be a central website on which all such notices were published at what I expect would be a much lower cost.

I would like to know who reads the Gazette. Not many people, I imagine. In reality, it puts the public on notice only technically. Publishing an advertisement in the Gazette is not like publishing one in the Sundays.

On amendment No. 389, the Bill again requires in clause 751 that notice be given in the Gazette. Is that not expensive and does it not go unnoticed? Can we not move on to cheaper, more practical notice provisions? It would help to have an idea of the costs involved. The amendments are probing and aim to discover from the Minister how much Companies House and companies spend per year on advertising in the Gazette.

Vera Baird (Labour, Redcar)

Just so that I do not appear the slightest bit churlish, let me welcome the third and fourth Opposition Members to the Committee. We have nine Members on our side, but perhaps this running commentary ought to cease soon.

The cost of the Gazette is some £80,000 per annum. It lists well over 1 million transactions, or entries, and is a permanent record that libraries keep. I know that the hon. Gentleman in fact likes the Gazette. As was said earlier, there is no reason to do away with it. The registrar must give appropriate publicity on incorporation, and it is published in the London Gazette, Edinburgh Gazette or Belfast Gazette, depending on where the company is. The Gazette is well known and of long standing, and users are accustomed to referring to it for news of incorporations. Even I know that one can look in it.

There is no intention that the registrar will cease to publish in that way in the near future. It is possible that developments in electronic publishing over time will mean that alternative mechanisms become equally or more appropriate. As the hon. Gentleman knows, clause 769 makes such alternatives available.

Does anyone use the Gazette? I cannot tell the hon. Gentleman what the readership is and I do not know how we can pin it down. We would have to find out how many copies are purchased and then how many people, on average, read each issue. That is the sort of thing that one gets only from Bradshaw, so I do not know whether we can help further.

The point is that a lot of the existing obligations to give notice in the Gazette come from European Community law, and the facility to provide alternative means has been made available only recently. It is not clear to what extent our partners in other member states would be aware if we ceased to publish in that tried and tested way, so in due course we will look at alternatives. However, there is currently no intention of discontinuing publication in that way.

Nick Palmer (Labour, Broxtowe)

May I briefly indicate some sympathy with the Opposition on this point? In this day and age, it seems appropriate to move to electronic publication for easier access and reduced cost. I would not go as far as to vote for the amendment, and I do not think that the Opposition will press it anyway, but I want to flag that point up.

Jonathan Djanogly (Conservative, Huntingdon)

It seems that the Gazette is going to get a reprieve this afternoon.

In this day and age, there must be a better alternative to what is in most practitioners’ minds a bore, to be frank. I shall leave my comments there, but I hope that the Government will perhaps put their mind to how that could be changed. I appreciate that the Bill provides for changes to be made in the use of the Gazette, if necessary. I beg to ask leave to withdraw the amendment.

Clause 731

Jonathan Djanogly (Conservative, Huntingdon)

The clause deals with documents subject to the directive disclosure requirements and replaces section 711 of the 1985 Act. It continues to implement the first company law directive as amended by directive 2003/58/EC and lists the documents of which notice must be published in the Gazette. Will the Minister confirm that that list is identical to the current one?

Vera Baird (Labour, Redcar)

Sometimes, I could swear that the hon. Gentleman is reading my notes. The clause, which partly replaces section 711, lists the documents to which the directive disclosure requirements apply. It derives from Community legislation—principally, the first company law directive as amended by directive 2003/58/EC. So, there is little or no discretion about the content of the clause.

The clause is important for how it links in with other clauses, such as clause 730, which provides that the registrar must publish notice when issuing listed documents, and clause 721, which ensures that the listed document be capable of being sent in electronic form. From what I said in the first paragraph of my remarks, that seems to be continuity rather than change. I think that that answers the hon. Gentleman’s question.

Jonathan Djanogly (Conservative, Huntingdon)

My question is indeed answered, and I can assure the Minister that I did not see her notes before the debate. Obviously, she is well advised and her advisers saw me coming. With that, I thank her.

Clause 732

Jonathan Djanogly (Conservative, Huntingdon)

The clause deals with the effect of the failure to give public notice and replaces section 42 of the 1985 Act. It sets out how a company, in its dealings with third parties, may not rely on the consequences of certain events—those set out in subsection (2)—unless notice of the event has duly appeared in the Gazette or been published in some other way provided for in clause 769.

If the company shows the third party the documents related to the event, such as an amendment to the company’s articles, within the 15-day period set out in subsection (3), can the company rely on such disclosure having happened at that earlier stage?

Vera Baird (Labour, Redcar)

The clause replaces section 42 of the 1985 Act, setting out how a company in its dealings with third parties may not rely on the consequences of certain events, unless notice of the events has duly appeared in the Gazette or been published in some other way, as provided for in clause 769. Subsection (1) says:

“A company is not entitled to rely against other persons on the happening of any event to which this section applies unless...

(b) the company shows that the person concerned knew of the event at the material time.”

Therefore, actual notice seems to cover the situation.

Jonathan Djanogly (Conservative, Huntingdon)

To clarify, would that apply if the notice was given before the 15th day?

Vera Baird (Labour, Redcar)

Yes.

Clause 733

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 381, in clause 733, page 364, line 11, leave out from ‘from’ to ‘that’ in line 12 and insert ‘all documents’.

When talking about the register in the abstract, we need to keep it in mind that we are talking about a record of every filed document, which normally appears on a plastic fiche. Under subsection (3), after 1 January 2007, only the

“documents subject to the Directive disclosure requirements”

in clause 731 will need to be kept in electronic form. Surely it is not the intention to have half the company’s documents on the register in electronic form and the other half—or whatever the proportion might be—still on fiche. The amendment therefore states that all documents should be in electronic form.

While on the subject, will the Minister please advise the Committee how the preparations for the switch to electronic form are going? Are they being made within the budget and will they be made on time? Will searches of the records cost less as a result and will they be faster?

Vera Baird (Labour, Redcar)

The hon. Gentleman asks whether searches will be cheaper and faster, and whether preparations are on the way. The documents set out in clause 731 are those that are subject to various requirements under European Community law, one of which is that information derived from those documents should be kept in electronic form by the registrar. They are, on the whole, the more significant company documents. The obligation to keep the information electronically therefore ensures that the majority of key documents have to be kept in that way.

The hon. Gentleman’s amendment would extend the obligation to keep information electronically to all documents, not just the key ones. Electronic communications are an enormous benefit to users of Companies House services and Companies House itself. The registrar shares the Government’s desire to see the growth of that and is taking steps to ensure that electronic services are available wherever appropriate. The question is whether it should be obligatory to keep the information electronically or whether, where European law includes a discretion, we should maintain that discretion.

It is probable that over time the registrar will choose to keep all information electronically—I am told that we are not far from that position already—but there can be operational issues at the margin. Altogether, it is better to leave the registrar with some flexibility, just as we agree that companies should have flexibility in how they communicate with the registrar in the first place, which is almost bound to be faster and cheaper, but I do not know whether I can give the hon. Gentleman a more specific response to that point at present.

Companies House is in the middle of a significant programme to upgrade its facilities for receiving and storing information electronically. To the best of our understanding, the programme is going well. If the hon. Gentleman wants any more specifics on progress, we shall write to him about that, although the point on the process being cheaper and faster is bound to be correct. However, the flexibility is important, so I invite him to withdraw the amendment.

Jonathan Djanogly (Conservative, Huntingdon)

I thank the Minister for her comprehensive response, although I would appreciate a note, so that we will know how the process is going. My understanding is that by 1 January 2007 people who want copies of a document might still have to get some of it on fiche and some of it electronically. The intention is that that should not happen, but it might. We hope that it does not, in so far as it would be terribly inconvenient. However, on the basis of what I have heard, I beg to ask leave to withdraw the amendment.

Clause 735

Jonathan Djanogly (Conservative, Huntingdon)

The clause deals with the allocation of unique identifiers, which is a new concept. The use of unique identifiers will be a great help in enhancing the security of the register and avoiding confusion, particularly where people have the same name. Will the Minister please take this opportunity to explain how the system is likely to work? In mechanical terms, what needs to be done to put it in place? When is that likely to happen? In debates on other amendments, I have asked her to explain the Government’s approach to dealing with fraud, so perhaps she will elaborate on how this system will be of benefit.

Vera Baird (Labour, Redcar)

I cannot, as the hon. Gentleman requests, set out in detail the mechanical processes that will bring the system to fruition. The clause obviously supports the provisions to allow directors’ home addresses to be kept off the public record. The unique identifier will also be useful in enabling searches to distinguish between different persons of the same name and in clearly identifying people whose addresses will not go forward. However, I shall have to write to the hon. Gentleman about the mechanics and the stage we are at.

Clause 736

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 382, in clause 736, page 365, line 42, at end insert

‘provided that if the registrar has received a written request from the company for possession of such documents, then the registrar shall send such documents in hard copy form to the company.’.

The clause deals with the preservation of original documents. There might be situations in which companies wish to retain original resolutions and other documents that have been signed. They might not want the registrar to destroy those documents after three years, and the amendment would give them the opportunity to get the documents back.

The company’s reasons might be unofficial—perhaps it keeps its papers for historical record purposes—but has the Minister considered that there might be other reasons? For instance, if a company issues shares other than on a cash basis, Companies House will want to have the contract under which the shares were issued, with stamp duty on it, filed. The company may be required by law to keep that contract for more than three years. Has she considered that? Would Companies House not destroy such a contract?

The amendment is aimed at not making document release an onerous process for Companies House, in so far as it would be for the company to action the request.

Vera Baird (Labour, Redcar)

The amendment would be likely to impose a very onerous burden on Companies House, and its goal would be attainable only at significant cost. It is clearly sensible that Companies House should at some point be able to destroy the originals of documents that it receives. The information on the hard copy is translated into electronic form and made publicly accessible so that the importance of the hard-copy original disappears. One imagines that that basic proposition is accepted.

Companies House gets millions of documents a year, and an indefinite obligation to keep the originals would be unworkable. The amendment would enable companies, prior to the destruction of the originals, to request their return, but I do not know how many companies would want to make use of it. However, any well run company would surely have retained its own records as necessary, and the information in the documents would generally continue to be publicly accessible.

Where a company or an individual sends information to a public body, the onus is on the person supplying the information to keep a record if they think that they will need it—all the more so if they are under an obligation to keep it.

The costs and the burden imposed by the amendment would be significant. Although Companies House can, and generally does, organise and hold electronic information according to company, hard-copy documents are generally stored according to the nature of the document, which makes perfect sense from an archive point of view when the documents are translated into electronic information. However, it would make complying with request for the return of all original hard-copy documents relating to a specific company hugely labour intensive.

Obviously, Companies House would need to operate on a cost-recovery basis if it performed the service, and the charges would necessarily be high, so the amendment would be, if not completely impossible, not practical, very expensive and unnecessary, as the onus should surely remain on the company to keep all the records it needs to keep.

Jonathan Djanogly (Conservative, Huntingdon)

I hear what the Minister says. I think that, in practice, the service would be used relatively rarely and that companies that wanted it would not have a problem meeting its cost. I agree that it makes sense to destroy originals that have passed the three-year mark. I just thought that the company should have the choice, if it so wished, to have access to the originals, but I beg to ask leave to withdraw the amendment.

Clause 739

Jonathan Djanogly (Conservative, Huntingdon)

Are the fees for copies likely to be affected by these new provisions? In particular, will costs be reduced by the increased use of electronic filing and/or will electronic filing start-up costs be recouped from the fees paid for searches?

Vera Baird (Labour, Redcar)

The clause makes it clear that anyone is entitled to a copy of material on the register, so it is similar in purpose to the preceding clause, which we have just agreed to and which provides that any person can inspect the register.

A general principle of how Companies House is established is that it operates on a cost-recovery basis. It would therefore in any event expect to charge users of its services fees consistent with the costs of providing the relevant service.

In this instance, an explicit provision of European law governs the costs of providing copies, so the clause sets it out, for the avoidance of doubt, that the fee for a copy may not exceed the administrative cost of providing the service. If Companies House is to be able to recoup the administrative costs of providing the service, it is likely to have to recoup the costs of setting up the system, but in the longer term one might expect electronic communications to reduce transaction costs in any event.

Clause 740

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 383, in clause 740, page 367, line 46, at end insert—

‘(ja) any name or address of any member of the company (save for the subscribers);’.

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to discuss the following amendments: No. 385, in clause 741, page 368, line 10, after ‘address’, insert ‘and name’.

No. 386, in clause 741, page 368, line 10, after ‘address’, insert ‘or all addresses’.

No. 384, in clause 741, page 368, line 13, at end insert

‘in addition to the company and the individual whose name and address is the subject of disclosure’.

Jonathan Djanogly (Conservative, Huntingdon)

We debated at some length the question of access to the register of members and I highlighted the fact that clause 115 might be ineffectual in protecting shareholders if the company sent details of its shareholders’ names and addresses to Companies House with its annual return. I make the point now that whatever we say about access to members’ personal details, that should be a debate on the register of members in which we accept the need for a balance between access for valid reasons and security concerns, which will restrict access to some extent.

We see no need for such a debate in relation to the annual return or details held on file at Companies House, not least because the details of members do not reflect who is or is not a member of the company except on the date of the return, hence the reason for tabling our amendment, which simply says that any name or address of any member shall not be made available. That should be historical, and not just for future filings, to stop the problem that we have with directors’ old filings, which might mean that a person has to move home to make redundant the historical filed details.

If the Government are unwilling to accept amendment No. 383, we need to move on to making the less practical approach that they propose as watertight as possible. Two issues require amendment. The first relates to the fact that this provision applies only to addresses, not the names of shareholders. Do the Government intend to retain the provision that companies must include lists of their members with their annual returns? We think it will not offer enough protection. I also note that the clause seems towork only on a one-off basis: each shareholder will have to apply individually to have his or her address removed.

While I agree that there should be a provision for individual application to the registrar, in the example of GlaxoSmithKline, which would involve thousands of shareholders being approached, surely we need to provide for the company to have the means to ask for all shareholders collectively to be removed. We note that clause 741(2)(a) does not spell out who may make an application. We assume that both the company and an individual will be able to apply at the very least, and our amendment aims to clarify that.

On further reflection, we find the Government’s application here somewhat inconsistent. The basis of the system in clause 741 is to have an application made in relation to a single address, yet the system used in clause 115 for access to the members’ register is the opposite, with only the company, and not individuals as we wanted, being given the right to block access to all shareholders’ details.

Will the Minister please explain that difference of approach? To me, it smacks of rushed legislation and not putting things into context. The gaps and hoops that I have identified in relation to the clause somewhat undermine the Government’s announcements during consideration in the Lords that they would deal with this problem comprehensively. They are dealing with it, but not as effectively as we believe they should.

Vera Baird (Labour, Redcar)

I hope that I can give the hon. Gentleman a comprehensive answer. AmendmentNo. 383 would deprive the public of information about who owns any company. Members themselves and third parties often have a legitimate interest in being able to find out who a company’s members are. The advantage of that being held by the registrar is that it is not only available with minimal inconvenience and expense, either to searches or to the company itself, but readily available if the company itself is being obstructive.

In addition, the information can be checked without the company’s knowledge. That is very important when relations between company members and the directors are strained and company members need to be able to be in touch with each other, or if there is a concern about whether directors have been acting properly.

So, it seems imperative that that information should remain where it is for all those purposes. Although I am conscious of the fact that everyone has rehearsed and not accepted each other’s arguments on this issue already, I hope that the hon. Gentleman will none the less withdraw the amendment. It seems important that members’ names should be there for ordinary commercial purposes in the ordinary, proper democracy of companies, which he has on other occasions espoused and indeed championed.

Clause 741 provides for circumstances in which addresses held by Companies House might be made unavailable. That is in addition to the provision in clause 225 whereby directors’ home addresses will no longer be on the record and the provision in clause 260, which does not require public company secretaries to provide a home address in future. Amendment No. 385 would extend clause 741 so that the provisions for addresses held by Companies House being made unavailable for public inspection might be extended to names. That would take privacy too far.

The company law review argued that information on who controls or who can influence limited companies should be readily available, and we agree. It would not be right to provide for secrecy and anonymity in any such matter, whether it be the names of members or directors, or anyone else whose name is required. I well understand the hon. Gentleman’s concern and know that it has particular relevance to his constituency.

Paul Farrelly (Labour, Newcastle-under-Lyme)

I am not sure whether the Minister was here when I made extensive remarks on similar amendments that advocated this approach. I would like to repeat them now for the record. Such an approach would drive a coach and horses through effective corporate governance. It would be dangerous and tantamount, in determined hands, to a rogues’, crooks’ and fraudsters’ charter.

Vera Baird (Labour, Redcar)

I take my hon. Friend’s point. Although it is impossible not to understand the force behind the amendments, the matter has already been debated extensively and people have taken fairly rigid positions. I was not present for the whole debate on the topic, but my view is that a large number of the points that the hon. Member for Huntingdon (Mr. Djanogly) raised as problems that have befallen shareholders are those against which they could not be protected by secrecy. They were largely due to inadequacies in policing and therefore not related to the Bill. It is important to ensure that the democratic accountability of companies is retained.

Amendments No. 386 and 384 are more technical. The hon. Gentleman mentioned the matter of who can make an application, which clause 741 leaves open. That is deliberate—not all addresses should be treated in the same way. Take the address of a mortgagee. It may be useful to have a means to allow creditors to contact each other, but if amendment No. 384 were accepted companies could take their mortgagees’ addresses off the register without their consent. That would be utterly unsatisfactory and a real impediment to the smooth functioning of company commerce.

Amendment No. 386 is about drafting rather than policy. There is nothing to prevent the regulations from providing for a single application to cover multiple addresses. I hope that the hon. Gentleman finds that comprehensive enough and withdraws the amendment.

Jonathan Djanogly (Conservative, Huntingdon)

Is the Minister therefore saying that either an individual or a company may make an application? That is one of my concerns.

Vera Baird (Labour, Redcar)

Yes. Clause 341 leaves open who may make an application, which means it is wide enough to permit a company or an individual to do so. I should add that we intend to use the power to make regulations regarding the annual return, which the hon. Gentleman raised, to ensure that addresses are not required for private company members or the vast majority of plc members.

I hope that that is sufficient to persuade the hon. Gentleman that he shot his bolt in our earlier discussion and that there is nothing new in the clause. It is overwhelmingly the case that information should be publicly available for the good company governance for which we all wish. I therefore hope that he will withdraw the amendment.

Quentin Davies (Conservative, Grantham and Stamford)

This is an important matter, not a technical one at all. There are many circumstances in which it is necessary for people to be able to communicate with the shareholders of a company. One obvious situation is that of somebody preparing a bid for a company who wishes to make an offer to its shareholders—perhaps an unfriendly one that would not be recommended by its directors.

Another example, which is very important in corporate governance, is that a shareholder might want to get together with other shareholders to form a minority, or even majority, shareholders’ group with a view to changing policy or the directors, or challenging resolutions that the directors put forward at an annual or extraordinary general meeting.

Such mechanisms are essential in any good system of corporate governance, and it would be a great mistake if the new company law that we are putting together precluded their use or placed undue obstacles in their way.

My hon. Friend the Member for Huntingdon is right to bring up a new issue. Since the House last debated company law, there has been the menace of animal rights activists threatening the shareholders of pharmaceutical or other biological industry companies. One can envisage circumstances in which not just those sectors would be targeted by some lunatic or terrorist organisation.

We must provide protections for citizens who happen to be shareholders of companies. I want to ensure that we get the balance and trade-off right, because I do not suppose that the House will have an opportunity to return to company law in general for another 20 or25 years. Some of us might not even be here when it does.

In that context, I want to ask the Government for an explanation. Subsection (5) states that the regulations “may provide” that if an address is not to be made available, a service address must be made available. It seems desirable that the regulations should make such provision so that if, for any reason, the addresses were not provided—I agree totally with my hon. Friend that there are circumstances in which the addresses should not be provided and in which we should allow individuals to apply not to have their addresses revealed or disclosed—a service address would be substituted so that people could receive communications such as those I have suggested or others of a fairly legitimate character.

Will the Minister assure us that when she writes that the regulations “may” provide, she intends that they will so provide? An alternative—I rather regret not having thought of it before as I am now unable to table an amendment—is providing that the company is obliged to communicate with or to pass on communications to shareholders, which is not ideal because it involves incurring some cost.

One way or another, we must resolve the contradiction between the need to establish rules to provide for good corporate governance and the needto provide physical protection for people who happen to be shareholders of controversial companies.

Paul Farrelly (Labour, Newcastle-under-Lyme)

Again, for the record, I do not think that the hon. Gentleman was here when I made an extensive contribution on other amendments tabled by Conservative Front Benchers. His remark, as a response to animal rights extremists, that any change in company law must be balanced and proportionate, not harmful to corporate governance and no encouragement to fraud or such behaviour is absolutely right.

Is the hon. Gentleman aware of the effect that some amendments tabled by Conservative Members would have had? For instance, he talks about bids. Making shareholding registers not available at Companies House would deter bids. In certain circumstances, some of the amendments would not have allowed minority shareholders to establish whether secret concert parties were running companies against their interests. Is he aware of that?

Quentin Davies (Conservative, Grantham and Stamford)

That is quite a long intervention to respond to. My hon. Friend the Member for Huntingdon has been incredibly conscientious and thorough in considering the Bill. I have been immensely impressed by his hard work in producing so many amendments, which have allowed some educated discussions on these subjects. He deserves the approbation and gratitude of the whole Committee for his work, which has inspired us to many thoughts and insights on company law that we would not otherwise have had, including in this example.

Paul Farrelly (Labour, Newcastle-under-Lyme)

Is that a yes or a no? Is the hon. Gentleman aware of the subject of those amendments?

Quentin Davies (Conservative, Grantham and Stamford)

In answer to the question whether I have read every amendment tabled by my hon. Friend the Member for Huntingdon, I hope that I have the reputation of being an honest man and I have some difficulty in saying an unambiguous yes.

I say to my hon. Friend that although I shall certainly vote for his amendment if he wishes to press it to a vote, as it is clearly necessary to provide some protection, I hope that he has in mind, or as part of his plan to amend the Bill, the need to provide, first, that shareholders can be communicated with and, secondly, that any company may not possibly ask, for quite the wrong reasons, for the addresses of all its shareholders to be removed from disclosure, as it might well be trying to block a bid, prevent other shareholders from communicating with each other or prevent the dissemination of views on the governance of the company that run counter to the policy of the board. That would be an appalling attack on shareholder democracy.

Vera Baird (Labour, Redcar)

May I take the opportunity to satisfy the hon. Gentleman about the provisions of subsection (5)(b)? I am sure he will accept that the proposal that the company should have a duty is much less satisfactory than ensuring that service addresses are available. Putting a duty on the company is very much a second best. I understand that the regulations will provide for current addresses and not historic ones. I hope that that is satisfactory. I am grateful to him for his examples of when communication between members is important.

Quentin Davies (Conservative, Grantham and Stamford)

I think that I am happy with what the Minister said, but is it definitely the intention, in so far as individuals have asked for their addresses not to be disclosed and in so far as the company has asked for addresses not to be disclosed, that the company will be obliged to pass on communications to the shareholder? Is my understanding right?

Vera Baird (Labour, Redcar)

No, I do not think so. The hon. Gentleman was keen that the regulations should provide that if an address was not to be made available, it had to be replaced by a service address. He commented on the fact that the regulations “may” provide, and asked me whether it was our intention that they would provide. The intention is that they would; it is not that an address cannot be made unavailable unless there is a service address. That principle is right for current addresses, but I am not sure what he means about the company having a further duty. If he sets that out more extensively, and if it still troubles him after my second attempt to reply, I am sure that I can get some assistance.

Quentin Davies (Conservative, Grantham and Stamford)

I am grateful to the Minister. She satisfies me entirely about current shareholders with current addresses. She assures the Committee—an assurance that the Committee accepts—that we can read the word “may” as “shall” for current shareholders with current addresses. However, the provision is not intended to govern a company’s activities and obligations only for the next month or two; it is doubtless intended to govern them for the next 25 years. It is important that the same mechanism should be applied to future shareholders, with future addresses. The Minister leaves me confused by saying that the regulations will not apply to future shareholders with future addresses, so how can we ensure that when, in future, addresses are not themselves directed as closed, there will nevertheless be a mechanism for communicating with the shareholders of the company?

Vera Baird (Labour, Redcar)

I did not say that the regulations would not provide for future addresses; I said that they would not apply for historic addresses. We start with addresses that are current when the legislation comes into force, and all current addresses thereafter will come under the provisions of clause 741(5)(b).

Quentin Davies (Conservative, Grantham and Stamford)

I am grateful to the Minister for that clarification. Perhaps I did not hear her correctly before. We are changing the law and going forward, and the provisions for withholding addresses will apply only to new addresses once the law comes into effect.

It has been a useful discussion. I hope that there is consensus.

Jonathan Djanogly (Conservative, Huntingdon)

I can confirm to my hon. Friend that there is consensus, and I shall explain why. First, however, I shall deal with other points raised by the Minister.

I am grateful for the Minister’s clarification of who can apply for privacy, and that such removal could be done by groups rather than individually—I think that she said that the provision could be used either way. I did not raise the subject, but I was interested to hear the Minister say that she was concerned that my amendments could be used so that mortgagees could apply not to share their addresses. That is a concern of mine, too, but I understand from my correspondence with Lord Sainsbury that the Government propose to allow mortgagees to use agency addresses. The Minister might like to confirm that.

On amendment No. 383, it is important to say that we accept—my hon. Friend will be pleased to hear this—that members and others have a legitimate interest in accessing members’ details. We accept and applaud that. However, there are two ways in which to access those details: from the register of members or the details filed at Companies House.

Members’ details at Companies House are filed only once a year and so at any particular point could be wildly inaccurate and not relate in any way to who is a member of the company. It is simply a statement given at a point in time—when the annual return is filed—and is not a reflection of who is a member of the company. For instance, nine months after filing, the list of actual members would probably be wildly different from that in the Companies House details.

I agree with my hon. Friend that if a company is preparing for a bid or wants to set up a shareholder group—I think that he mentioned that—it is important that details can be accessed, other than in the most extreme circumstances such as a terrorist campaign. We debated that earlier, and I agree that in this case access to those details is important. It would be done by people asking for copies of the register. We are not saying that that should not happen.

We are talking, however, about details filed once a year at Companies House. We remain of the view that those serve no proper purpose. To the extent that they do, they are probably out of date and will mislead people more than tell them the state of play.

Clause 741

Vera Baird (Labour, Redcar)

May I take the opportunity of this notional stand part debate to clarify something? The hon. Member for Huntingdon asked whether mortgagees would be able to use agents’ addresses instead of their own. The answer is that the Government intend to take powers to amend the system of registration of charges, in which we would intend to include such a provision.

Clause 744

Jonathan Djanogly (Conservative, Huntingdon)

The explanatory notes say that, owing to the amended first company law directive, 68/151/EEC, copies provided in hard copy need to be certified unless the applicant chooses otherwise. Apparently that is not the case for electronic copies, although subsection (4) seems to imply that that might be required, but will be dealt with in another, as yet unspecified way. Will the Minister elaborate on that?

The rest of the debate is in Hansard.