Company Law Reform Bill [HL]

My Lords, we are extremely grateful to the noble Lord, Lord Hodgson, for proposing Amendments Nos. 16 and 17. It does seem that, as drafted, Clause 23 could be read as giving companies a general power to provide that they could never amend or repeal specified provisions of their articles, even with the unanimous consent of all their members. Our intention in this clause is to implement a recommendation of the Company Law Review that companies should be able to entrench elements of their constitution, that is, provide that the amendment or repeal of some provisions of the articles requires a bigger majority than is required to pass a special resolution, or the satisfaction of some other special condition. On reflection, the clause as it stands does not have the desired effect. We do not wish to give companies generally a power to set particular provisions in stone for ever. That would run against the grain of our company law and could lead to unfortunate results in particular cases. We are not sure that the amendments are the best way to achieve the desired results, but we will give careful thought to what amendments should be brought forward at a later stage to make the position clearer. On Amendment No. 18, which is also concerned with the articles of association, where a company’s articles contain provision for entrenchment, that is a provision which can only be altered if certain conditions are met. Any change that the company makes to its articles must be accompanied by a statement of compliance. The registrar is entitled to rely on that statement as sufficient evidence that all of the procedural requirements as regards the alteration to the company’s articles have been met. In addition to making a statement of compliance, the company must also give separate notice to the registrar, under Clause 24(1), where it has inserted a provision for entrenchment in its articles. The purpose of this notice is to ensure that when the registrar receives the document making or evidencing a change, the registrar and persons searching the public register are on notice that special conditions apply. On the other hand, when a company that has made provisions for entrenchment in its articles changes its articles so they no longer contain such any such provision, any flagging of the articles on the public register to the effect that they contain provision for entrenchment needs to be removed, so that the registrar’s systems will not be expecting any future changes to its articles to be accompanied by a statement of compliance under Clause 24(2) and persons searching the public register will not be misled. Hence the requirement to give a notice under Clause 25(1) which will trigger the removal of a flag put on following notice under Clause 24(1). Amendment No. 18 would introduce a further requirement to file a notice when an existing provision for entrenchment is altered. This is unnecessary. Once a notice under Clause 24(1) has triggered the flagging of a company’s articles as containing provision for entrenchment, not much is added by requiring a further notice to be given on the amendment of that provision, since any changes made by the company will need to be accompanied by a statement of compliance under Clause 24(2) until notice is given under Clause 25(1). This is another bit of regulatory overkill. In the circumstances, I hope that the noble Lord will agree to withdraw this amendment.