Company Law Reform Bill [HL]

My Lords, these amendments relate to the existing ““principal purpose”” exception to the general prohibition on the giving of financial assistance by a public company contained in Section 153 of the 1985 Act. The exception is retained by Clause 570 of the Bill. The exception provides that such assistance is not prohibited if the ““principal purpose”” of the assistance is not to give it for the acquisition of shares or where the assistance is incidental to some other larger purpose of the company. In those circumstances, the assistance is permitted and no offence is committed by the company or its officers. The concern that has prompted these amendments, and various others tabled in Grand Committee, is that the courts, and in particular this House in its judicial capacity, have interpreted the words ““principal purpose”” too narrowly. We have some sympathy with that view, but first I shall explain why we think that this amendment is not the answer. On that, I can only reiterate what I said in Grand Committee: namely, that the Government are not convinced that the suggested wording means anything other than what is intended by the current wording. We have discussed this issue at some length with the Law Society—we are most grateful for its input—but have not been persuaded that any transactions which companies might wish to enter into, and which would be compatible with the second directive, fall outside the current test but within the suggested reformulated exception. If we are to take this matter forward, a clear indication is required of the intended effect of the suggested words rather than the substitution of one pair of words by another pair, which, on the face of it, mean the same. In other words, we cannot have a rational debate about this subject unless we can agree about the difference between ““principal purpose”” and ““predominant reason””. Until we can agree that, we cannot debate whether things that we all might want to do would be allowed by the change. As I commented in Grand Committee, this may point to a reworking of the provision so as to have the intended effect. Such a new provision could refer to concepts along the current lines or may be framed on an entirely different basis so long as it remained consistent with the implementation of Article 23 of the second company directive. In this connection I would remind noble Lords that the Government are proposing to take a power to make, by secondary legislation, provisions relating to capital maintenance and we believe that such a reworking would be more suitably addressed by use of that power than by piecemeal amendment to the existing sections.