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Companies Bill [HL]

My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 13 and 14. The subject of entrenchment, which is the basis of this group of amendments, has rather unexpectedly stirred deep passions during the passage of this Bill. It may help if I begin by summarising how we got to where we are now. The principle set out in Clause 22 is not in any sense something new. It is just that it stands out a little more clearly in the Bill than in the 1985 Act. Under the 1985 Act, a company can provide that certain provisions of its constitution either cannot be altered at all—what we call ““absolute entrenchment””—or can be altered only if conditions more onerous than the passing of a special resolution are met, which we refer to as conditional entrenchment. The Bill as introduced preserved the ability of companies to adopt absolute or conditional entrenchment for specified provisions of their articles. The only changes from the 1985 Act in the Bill as introduced as regards entrenchment were procedural. In future, in keeping with the reduced role of the memorandum, provision for entrenchment will need to be made in the articles rather than the memorandum. The Bill also provides for a special form of notification to the registrar when ““provisions for entrenchment”” are inserted into or removed from a company’s articles. The aim of this is to help to ensure the accuracy of the public register. In our earlier debates, the noble Lord, Lord Hodgson, said that the Bill went too far as regards entrenchment. As a result, we moved a number of amendmentsin the other place. The most important change is Amendment No. 14, which removes ““absolute entrenchment””. In future, companies will not be able to say that specified provisions of their articles can never be amended or repealed. However, they will be able to set conditions which are more onerous than the passing of a special resolution for amending or repealing them. We did this because it seemed to us that absolute entrenchment was not only very rarely used, but that it was sometimes used unwisely. Companies may find themselves trapped with rules that are inappropriate, but very hard to get rid of. Amendment No. 17 makes it clear that, whatever the terms of a provision for entrenchment, it will always be capable of being removed or changed by the unanimous consent of the company’s members, or by order of a court or other competent authority. Amendments Nos. 18 to 21 provide new and clearer drafting of Clauses 23 and 24. In the process, they slightly reduce the administrative burdens on companies with provisions for entrenchment and take account, like Amendment No. 17, of the possible involvement of courts or other authorities. Colleagues of the noble Lord, Lord Hodgson, and the noble Lords, Lords Sharman and Razzall, have variously attacked us both for removing absolute entrenchment and for retaining conditional entrenchment. In defending the changes we have made, let me begin by recalling one of the few points on which all sides in this debate can agree. The Bill may facilitate entrenchment, but it does not encourage it. The general rule is, and will remain, that a company’s articles are a kind of contract between the company and its members, which, unlike most contracts, can be changed, and have parties added to or removed from it, without the agreement of all concerned. All that is required is a special resolution. Entrenchment is an exception to that general rule: it is not something we are recommending, but it is something that companies sometimes want. Most companies will not want to make provision for entrenchment, and those that do should think carefully and take professional advice about the possible consequences before they do so. We do not think, as the Conservatives appear to do, that entrenchment of any kind is too dangerous to be allowed. We do not agree with the Liberal Democrats that the usefulness of absolute entrenchment outweighs the problems that it can cause. So we have removed what seemed to be the most dangerous element of the scheme—absolute entrenchment—and retained conditional entrenchment, but emphasised the escape routes from it. We see that as a third way on entrenchment. It is interesting that even with an obscure subject we can have a third way. We think this strikes the right balance. Moved, That the House do agree with the Commons in their Amendments Nos. 13 and 14.—(Lord Sainsbury of Turville.) On Question, Motion agreed to.