Company Law Reform Bill [HL]

moved Amendment No. A10:"Page 250, line 37, leave out ““calculated”” and insert ““intended””" The noble Lord said: In moving this amendment, I will speak to the others grouped with it; namely, Amendments Nos. A11, A12, A13, A15, A16, A19 and A20. They are all put to us by the Law Society, and are intended to clarify definitions within Clause 526. Amendments Nos. A10, A15 and A19 take out the word ““calculated”” and insert ““intended”” in its place. The purpose here is to ensure that the test to be applied should be one of intent rather than an objective test of whether the securities are likely to get into the hands of the public at some stage. On the face of it, the word ““calculated”” implies that there must be some intent on the part of the company making the offer, and I understand there is judicial authority to the effect that the word ““calculated”” should be read as meaning ““likely””, which applies a wholly objective test. The jurisprudence for this is Crafter v Webster 1980, and Customglass Boats v Salthouse Bros 1976. It is with a great deal of trepidation that I quote law cases, and I do so only because the Attorney-General is not here. In the case of a private company offering shares by way of rights to its own shareholders, the directors would, as the clause is currently drafted, have to assess the likelihood of any shares being subsequently transferred to members of the public, an assessment that may in practice be almost impossible to make, unless there are very strict restrictions on transfer, which could be to the detriment of the shareholders. The purpose of Amendments Nos. A11 and A16 is to apply the test of whether the offer might be to the public to the circumstances surrounding the offer itself, rather than having to take account of circumstances that may occur at any time after the offer. In order to take advantage of the relief from the general prohibition offered by subsection (3), the amendment requires the company to assess the likelihood of the shares being offered becoming available to persons other than those to whom the offer is made. That could happen because the rights under the offer are transferable, or the securities offered are not, subject to any restrictions on transfer, once issued to the accepter of the offer. In the latter case it is quite possible that the securities may be transferred on at a later date, and if that is the case, even though the transfer would be at the behest of the allottee of the securities and outside the control of the company, the relief would not apply. Since it is the nature of the offer itself that should determine whether the company is required to re-register as a public company, the test should relate to whether the securities are available under the offer to third parties. The test in subsection (4) is new. Under the existing legislation, which is Section 742A of the 1985 Act, an offer is treated as a domestic concern, and therefore not as an offer to the public, if it is made to an existing member, employee or other connected persons on terms that it may be renounced only in favour of another member or connected person. That would permit rights issues by a private company. However, subsection (4)(c) imposes an additional test of whether the relevant securities are calculated—that is, likely, subject to Amendment No. A15—to become available to other persons not connected with the company. For the company to take advantage of the relief from the general prohibition offered by subsection (4), the clause requires it to assess the likelihood of the shares offered becoming available to other unconnected persons. That could happen because the rights under the offer are transferable or because the securities offered, once issued to the acceptor of the offer, are not subject to any restrictions on transfer. In the latter case, it is quite possible that the securities may be transferred on at a later date. If that were the case the relief would not apply, even though the transfer would again be at the behest of the allottee of the securities and outside the control of the company. That could result in a rights issue by a private company being prohibited unless the shares are subject to very strict transfer restrictions. That seems unduly restrictive. Since it is the nature of the offer that should determine whether the company is required to reregister as a public company, the test should relate to whether the securities are available under the offer to third parties. Amendment No. A12 would clarify whether paragraphs (a) and (b) of Clause 526(3) are distinct exemptions or whether the first exemption is an example of what is a private concern. The word ““otherwise”” appeared in the Companies Act 1948 and in the original 1985 Act. The received view was that the two exemptions should be interpreted as being distinct. That was reflected in Section 742A of the 1985 Act as inserted by the Financial Services and Markets Act 2000 (Commencements and Repeals) Order 2001, where the word ““otherwise”” was omitted. There seems to be no good reason to revert to the more uncertain wording of the pre-2001 legislation. Amendment No. A13 is a probing amendment which is designed to establish whether the Minister believes that the expression ““private concern”” has a meaning different from the expression ““domestic concern””, which is used in the existing legislation. There is no legislative clarity on what precisely is meant by the expression ““domestic concern””, although an Australian case in 1985, Corporate Affairs Commission v Australian Central Credit Union, held that where there was a subsisting relationship between the offerees and offeror, or a rational connection between a common characteristic of the offerees and the offer made prior to the making of the offer, the offerees did not constitute a section of the public. This test is generally applied to establish whether, under the existing law, the offer can be treated as a domestic concern. However, the position is not clear, and it is made less clear by the wording in the Bill. Amendment No. A20 is in line with Amendment No. A19. Its purpose is to clarify and put on a statutory footing the number of persons to whom an offer may be made without the offer being treated as being made to the public. The amendment is designed to raise the general issue of whether there should be some alignment of the various legislative provisions governing the offer of securities to the public as indicated in the introduction to the briefing on Part 17 of the Bill. I beg to move.