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Company Law Reform Bill

moved Amendment No. A64:"Page 265, line 42, leave out subsection (2)." The noble Lord said: In moving government Amendment No. A64, I shall speak also to Amendments Nos. A66 and A200. At present, where a company does not have a share capital, the question of how members’ rights may be varied will depend to a large extent on whether provision for this has been made in the memorandum or articles of the company. In future, where it is proposed that there should be a variation of members’ rights, it will be possible for this to be done in accordance with the provisions of new Section 125A of the 1985 Act. As for the existing provision for variation of shareholders’ class rights, this new section provides a comprehensive code for the variation of class rights in companies without a share capital. This new section is inserted into the Act by Clause 557. The procedure for varying members’ rights under new Section 125A is comparable to the procedure for varying class rights in companies with a share capital. In particular, there is a minimum requirement as to members’ consent. As a general rule, members’ rights may be varied under new Section 125A only if three-quarters of the members of the class affected consent in writing or if a special resolution of that class is passed. Provision similarly needs to be made for members to object to the variation by analogy with the provision for shareholders. The clause inserted into the Bill by Amendment No. A66 inserts new Section 127A into the 1985 Act and amends Section 127 of that Act. New Section 127A sets out the procedure that must be followed where there is an objection to a variation of members’ rights. It enables members amounting to not less than 15 per cent of the members of the class affected to apply to the court to have the variation cancelled and it gives the court the power to confirm or disallow the variation if the court is satisfied that it would unfairly prejudice the members of that class. Amendment No. A64 is a paving amendment for Amendment No. A66. Noble Lords will realise that this is a complex area of the law, but I have tried to outline some of the considerations that apply where there is a variation of members’ rights. I trust that noble Lords will agree that, where there is a possibility that a class of members may be unfairly prejudiced by a variation of their class rights, the members affected by the change should have the right to object. I turn finally to Amendment No. A200. This amendment is consequential on the restatement introduced by Amendment No. A66. In particular, paragraph 6 of Schedule 4 to the Bill has been replaced by new Section 127B, which is introduced by Amendment No. A66. I beg to move. On Question, amendment agreed to. Clause 556, as amended, agreed to. Clause 557 [Variation of class rights: companies without a share capital]: