Company Law Reform Bill [HL]

moved Amendment No. 404:"Page 253, line 33, at end insert—" ““(8) An offer is not regarded as an offer to the public if— (a)   it is made to fewer than 100 persons, (b)   it is made on terms allowing the person to whom it is made to renounce his rights, which may only be renounced in favour of a person connected with the company or another person to whom the offer is made, and (c)   it cannot properly be regarded, in all circumstances, as being intended to result, directly or indirectly, in securities of the company becoming available to persons other than those receiving the offer or persons not already connected with the company. (9)   The Secretary of State may by regulations specify other conditions applicable to an offer which, to the extent satisfied, would result in an offer not being deemed to be an offer to the public for the purposes of this section 526. (10)   Any such regulations, as set out in subsection (9), shall be subject to affirmative resolution procedure.”” The noble Lord said: My Lords, this is another amendment to Clause 530, which defines what is meant by an offer to the public with regard to the prohibition of public offers by a private company. The starting point for this amendment is the point I made in Grand Committee; that the current interplay of the various regulations creates uncertainty concerning the number of individuals to whom an offer can be made by a private company. I could count in large numbers of filing cabinets the letters I have seen from firms of lawyers which, when asked whether a particular offer can be made by a private company, go on to describe regulations for three pages, but ends up with the position still uncertain. The purpose of this amendment is to clarify the position that an offer is not regarded as an offer to the public if it is made to fewer than 100 people by a private company, or under the other conditions set out in that amendment. When this amendment was discussed in Grand Committee, the Minister said:"““I stress again to the noble Lord that there is no number which is allowed””.—[Official Report 15/3/06; col. GC 478.]" In another reply, he said:"““We do not consider that private companies should be offering their shares to strangers””.—[Official Report 15/3/06; col. GC 472.]" I will let the noble Lord, Lord McKenzie, into a secret: it is entirely common practice in the City for private companies seeking seedcorn or development capital to do so from outside investors or private equity funds, without being obliged to register as public companies. Indeed, his answer would mean that an offer of shares to even two people unconnected to the company could be treated as an offer to the public—a view that goes beyond any understanding of either the existing law or what the law should be. The second argument of the noble Lord, Lord McKenzie, was that in cases of doubt a company could easily re-register as a public company. I can do no better than refer the noble Lord to the final report of the Company Law Review, which said:"““We believe that private companies should not feel obliged to take the unnecessary precaution of registering as a public company, with the tighter regulation that this entails, simply because the existing provisions lack clarity””." There are significant disadvantages for companies with a small number of shareholders in having to re-register as public companies. It certainly goes beyond current practice in the City and elsewhere. The final point I would like to make is that the Company Law Review went on to recommend the retention of the basic prohibition against private companies offering shares to the public, but with a power to prescribe detailed exceptions to the prohibition by statutory instrument. It referred to the definitions in the old Public Office of Securities Regulations. The second purpose of this amendment is to provide for an enabling power along those lines, which could then allow further consultation and consideration before regulations are brought in. I hope that, with the assistance of the Law Society and others, I have dealt with the reasons why the noble Lord, Lord McKenzie, rejected this amendment in Grand Committee and I hope he will reconsider. I beg to move.