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Companies Bill [Lords]

After much complaining by the Conservatives that there was inadequate time to deal with the Bill, we managed to finish business early yesterday. We did not need all the time that was allowed under the programme motion. The Conservatives complain a lot about the time available, but when they are offered time they do not seem to use it very well. However, we should not let the debate degenerate. It has been a good debate. I want to focus on the real issues. On boiler room scams, which were mentioned by the hon. Member for Huntingdon (Mr. Djanogly), under Government legislation introduced on 1 May 1999 and replaced on 11 December 2003 by the Privacy and Electronic Communications (EC Directive) Regulations 2003, it is unlawful to make unsolicited direct marketing calls to any individual who is registered with the telephone preference service. That is a whole lot easier than applying for an individual member’s confidentiality order as suggested in the amendment. The Bill provides that a court may relieve a company from the obligation to allow access to its register if the court is satisfied that the access is not sought for a proper purpose. We consider that that strikes a balance between, on the one hand, protecting members from attempts to harass or defraud them, and, on the other hand, the right of the public and members to know who owns a company and to contact them. New clauses 16 and 17 would destroy that balance. As for amendment No. 384, there was a debate on this issue in Committee, so I shall be brief. Fifteen days is too long a period to allow in all cases where a company is considering a request for access to the register. Let us suppose that a shareholder is trying to contact other members about a resolution that has already been tabled for a general meeting that has been called—particularly an extraordinary general meeting on 14 days’ notice. In such a case, giving the company 15 days to process the request enables the management to frustrate the shareholder’s purposes without even having to justify themselves in court. Moreover, the difficulties of assessing requests for access can be overstated. At the risk of generalising, I suspect that the assessment process will rarely involve detailed research or analysis. A request will either look suspect, or it will not. In our view, five days—remember, that is five working days—will be enough. Amendment No. 758 addresses a rather different topic. It proposes that companies’ registers of members should include details of not just the registered members, notably the legal owners of shares in companies limited by shares, but the holders of any underlying economic interests in the company that may stand behind its registered members. In other words, it would lead to a register not just of legal entitlements, but any related beneficial interests. I must tell my hon. Friend the Member for Great Grimsby (Mr. Mitchell) that we would not be prepared to accept such a huge change at this stage. It would represent a huge change not only in company law, but to the way in which all sorts of perfectly legitimate businesses are run. If one thinks about what the amendment would mean in practical terms, it soon becomes clear that however desirable it might be in certain circumstances as a matter of principle, it would have undesirable consequences in other cases. It would also probably fail to achieve many of its objectives, even if it did not simply prove to be unworkable. The first question is how on earth one would enforce a universal requirement to disclose beneficial interests in companies. A company will generally be unaware of the identity, or even existence, of those who hold such interests. Even the registered member may not have all the information if he is only the first link in a chain of intermediaries between the company and those with the underlying economic interest in its shares. If the requirement is unenforceable, it is likely that any criminal elements that might benefit from the limitations of the existing system will also be able to find a way round the proposed new system. An equal worry is that compliance with the proposed new system would impose hugely increased costs on investors, companies and the financial services sector because of the capturing and processing of all the additional information required, without, I regret to say, delivering any benefits commensurate with those costs. If I give a single example of which my hon. Friend might not have thought that is taken from an everyday situation, it might illustrate the complexities involved. People who live in flats often have a share in the company that owns the flats. They also often have mortgages, and it is common for the lender to be in a position to require the resident of a flat’s share to be transferred to the lender. That gives the lender a beneficial interest in the share. The amendment would require the register to identify the lender’s beneficial interest and to update that information every time the resident switched to a different lender, as often happens, or whenever the lender was taken over by another institution, which also often happens. None of that would serve any especially useful purpose. Okay, we could deal with that problem by way of a further amendment to exclude such situations, but the example shows us the sort of unforeseen consequences that might arise from the amendment. Finally, it is worth pointing out that there are already powerful statutory mechanisms, at least for public companies, that enable companies to get to the bottom of who might be behind their registered members. These will shortly be supplemented by further measures under the transparency obligations directive. When such mechanisms are used, there is provision for records to be kept of the beneficial owners whose interests have been identified and for those records to be disclosed. My hon. Friend also spoke to amendment No. 683. Clauses 10 and 11 contain powers that enable the Secretary of State to prescribe in regulations made under the Bill the types of identity information that must be provided in the statements that are to be included in the application for registration, which are the statement of capital and initial shareholding that is required when a company is to be formed as limited by shares and the statement of guarantee that is required when a company is to be formed as limited by guarantee. Given those circumstances, I think that the amendment is unnecessary, because we will achieve the result that my hon. Friend wants, albeit by a different route. We are not especially attracted by the particular wording of the amendment, although I appreciate that that could be altered. However, I hope that my hon. Friend will accept that we achieve the result that he wants through the route already provided for, rather than by using the route that he proposes. Government amendment No. 222 is a minor amendment that will clarify the Bill. I do not think that it will give rise to any controversy, but I will be happy to answer questions on it if necessary.