Company Law Reform Bill [HL]

Clause 137 confers on the Secretary of State a power to make regulations to compel companies to provide information to other persons nominated by the registered member. The intention, should the power be exercised, would be to require companies to provide information electronically or by website. However, the power may be exercised to the extent of compelling companies to provide information in hard copy—paper format—if the Secretary of State is satisfied that the benefits arising to the nominated persons would be significant and not impose disproportionate costs on companies. The Secretary of State’s power is intended to encourage the development of voluntary measures to ensure that indirect investors have access to the information they require to engage in the governance of the companies in which they invest. Better informed investors will be better equipped to demand voting and other governance rights from nominees and the companies in which their investments are made. The power is to be used only if it becomes clear that considerable difficulties in communications exist between companies and their indirect investors, and that the market is not developing appropriate solutions We welcome the fact that the noble Baroness, Lady Murphy, does not oppose the Question that Clause 137 shall stand part of the Bill. However, her amendment would extend significantly the scope of the Secretary of State’s power to compel companies not only to provide information to other persons nominated by the registered member, but also to enfranchise such persons to exercise all governance rights of the member. We believe this is unnecessary. The mechanism whereby nominee operators can confer voting and other governance rights on indirect investors already exists. Nominee operators will be able to use the proxy rights under Clause 299 to allow indirect investors to attend, speak and vote at general meetings. The current scope of the power is the result of considerable consultation through the Company Law Review and the Government’s subsequent White Papers in 2002 and 2005. The clause was originally drafted to allow companies to opt, through their articles, to send or supply information to those nominated by registered members electronically only. The objective was to enhance the delivery of information electronically through the investment chain, from company to intermediaries to investors, without imposing undue cost burdens. In light of the concerns raised in some consultation responses to the 2005 White Paper, the scope of the power was extended to compel companies to provide information in hard copy, subject to the Secretary of State being satisfied of the cost benefit case. The scope of the power that we now have under Clause 137, as part of the package—I emphasise this—with Clause 136 to encourage greater enfranchisement of indirect investors, balances properly the many different interests of companies, shareholders, investors and investment intermediaries. The scope of the power should not, and does not need to, be extended.