Company Law Bill [HL]

Part 20 is the Government’s response to industry-led proposals for new arrangements for holding and transferring securities without paper certificates or transfer forms. The vast majority of shares in UK-listed companies are already held and transferred into a paperless, or ““dematerialised””, environment using the CREST system. The operation of that system is provided for in regulations made under Section 207 of the Companies Act 1989. The industry’s goal is to reduce further the number of shares still being held in paper form. The main difference between the new arrangements under discussion by an industry working group and the current dematerialisation regime, and the main reason Section 207 does not provide a sufficient basis for legislating to facilitate the new arrangements, is that any new arrangements are likely to involve a greater level of compulsion. That compulsion may come in the form of legislation making it compulsory to hold and transfer all securities in a designated class of companies in paperless form, as has happened or is happening in some other jurisdictions. Alternatively, it may be left to individual companies to opt to ““dematerialise”” all their shares. We are very grateful to the groups which have been working on these proposals and to their advisors. However, many of the details remain uncertain, particularly the costs and benefits of the proposed new arrangements. We understand that a further consultation paper on this subject will be published by the Institute of Chartered Secretaries and Administrators in the near future. The Government will want to consider the responses to this consultation carefully before deciding whether, and if so how, to legislate for the new arrangements. The purpose of Part 20 is to ensure that the necessary legal framework can be put in place in regulations. Clause 586 aims to make clear exactly how the Bill broadens the regulation-making powers in Section 207 of the 1989 Act so as to take account of potential new elements of compulsion and other likely features of the new arrangements such as statements of share holdings. As a result, Clause 586 contains only what is new: what is old remains in Section 207 of the Companies Act 1989. Separating the extension from the underlying power in Section 207 of the 1989 Act also leaves the basis for the existing uncertificated securities regulations undisturbed pending the development of the new arrangements and any regulations to facilitate them. However, although we are satisfied that the current drafting achieves the legal results which we intend, we can see that there are arguments in favour of a different drafting approach. By not having all the enabling provisions in one place, we have given rise to concerns about the relationship between Clause 586 and Section 207. Both these amendments and a number of the amendments put down by the noble Lords, Lord Sharman and Lord Razzall, seek to clarify that relationship. We shall give serious thought to bringing forward amendments on Report to deal with the concerns which have been raised with us. I hope that the noble Lords, Lord Sharman and Lord Razzall, will not take it amiss if I indicate now that we are currently more inclined to combine the provisions of Section 207 with Clause 586 in one place than to leave Section 207 in place and to tweak Clause 586, as their amendments suggest. We will, of course, take their views very carefully into account, but I would imagine that they would prefer to bring things together rather than tweaking Section 207 and Clause 586. Any revised drafting will have to take care, as we have to date, to leave the legal basis for the current uncertificated securities regulations undisturbed. Any redrafting would reflect Amendments Nos. A108, A110, A111 and A112, if your Lordships are content with these amendments.