Company Law Reform Bill [HL]

This explanation will be a short journey into company legal history. The clauses in this chapter restate Section 23 of the 1985 Act and the related schedule. There is no change of substance, nor has there been any pressure for change. The statutory prohibition on a subsidiary being a member of its holding company, which reinforces a longstanding common law rule that a company cannot be a member of itself, was enacted in Section 23 of the Companies Act 1948. That provision was introduced on 1 July 1948, hence the reference to that date in both the existing Section 23 and this clause. The effect of the clause as drafted, which again restates the provisions of the Companies Act 1985, is that where a company acquired shares in its holding company prior to that date and the related date for the introduction of the prohibition in Northern Ireland, it is not subject to the ban in Clause 127 and may continue to be a member of that holding company, but it may not vote in respect of the shares at class or general meetings of the holding company. If the amendment were accepted, the right of a subsidiary to continue to be a member of its holding company would apply where the subsidiary acquired the shares before the commencement of this chapter of the Bill, which would cover shares acquired before 1 July 1948, but only if the shares were acquired in circumstances in which the prohibition in Section 23 of the Companies Act 1985 or its predecessor, Section 27 of the Companies Act 1948, did not apply. Clearly, the ban in Section 27 of the 1948 Act could apply only from its commencement—1 July 1948—so it leaves open the question of what is to happen to shares acquired before the ban was introduced. Are subsidiary companies permitted to continue as members or not? We consider that the current drafting renders the position relating to such shares clear so that subsidiary companies may continue as members of the company, subject to the curtailment of their rights to vote in respect of them. This is the current position and we are not aware that there has been any doubt or controversy surrounding it. We do not know the number of companies covered by this requirement.