Company Law Reform Bill [HL]

Subsection (3)(a) of Clause 525 ensures that the prohibition on offering shares or debentures to the public does not apply if the offer or the agreement to allot shares or debentures is done in good faith in pursuance of arrangements under which the company is to reregister as a public company before the shares or debentures are allotted. Subsection (3)(b) similarly exempts offers which include as part of their terms an undertaking by the company to reregister as a public company within six months of the offer. This enables a private company intending to go public to make an offer to the public before it has completed the formalities of reregistration, without breaching clause. The exemption also recognises that despite the good faith intentions of the company, the reregistration application might fail or the arrangements to reregister might be derailed. Circumstances can change; for example, the company might suffer an unexpected downturn in trading, such that it no longer meets the requirements of Clause 92 as regards its net assets. In those cases, we do not consider that the company should be held at fault under these clauses for the things it has done in the good faith expectation that it would become a public company. Under subsection (3)(a), offers or agreements to allot shares or debentures will fall within the exemption if they are made in good faith in pursuance of arrangements under which the company is to reregister as a public company. These arrangements do not need to be legally binding, but they do need to be a genuine intention or plan on the part of the company. The offer or agreement to allot must form a part of the arrangements leading to the reregistration of the company as a public company. There must therefore be an expectation on the part of the company in making the offer or agreement to allot that, as part of the overall process the company will reregister as a public company, although this expectation need not be intended to have legal force. The amendment would restrict this aspect of the exemption, so that the exemption is only available if the company makes an offer, which is conditional upon its reregistration as a public company or, as is the case under subsection (3)(b), the company gives an undertaking to reregister as a public company. Both these scenarios are already included in the exemption, but subsection (3) goes further in allowing offers and agreements to allot made in good faith in pursuance of arrangements to reregister, whether or not those arrangements are legally binding and whether or not the reregistration eventually takes place. As long as the company is acting in good faith, in the genuine expectation that it will, as part of the course of action it has embarked upon, reregister as a public company, we consider it appropriate that the exemption should apply. The company should not have to worry about breaching the prohibition on public offers in such circumstances; nor do we consider that the company should be held in breach of this clause for the actions it has carried out in good faith, if it subsequently transpires that it is unable to reregister as a public company or, due to changing circumstances, it is no longer desirable for it to do so. I hope that that has dealt with the points that the noble Lord raised and that he will feel able to withdraw his amendment.