Company Law Reform Bill [HL]

My Lords, as the noble Lord said, there are two parts to the amendment. The part that he has just referred to would dispense with the requirement that a majority in number of the creditors or members must vote in favour of a scheme for it to be binding. The noble Lord’s amendment provides that it would be enough if three-quarters by value did so. The Company Law Review observed that that would mean that larger creditors and members could impose their will unfairly on smaller creditors and shareholders. Protection would be removed by this part of the amendment. It could be said, ““Well, we could rely upon the court’s discretion to protect those members””. That is not a satisfactory answer—why should the court have a better view of the interests of those persons than they have themselves? So, in principle, I could not accept the amendment. The noble Lord tempts us by painting a picture of abuse taking place, with people splitting their shareholdings up into a series of nominee companies. It may be that he has evidence that that takes place; if so, it is not evidence that has reached me and I note that the noble Lord shakes his head—so it seems that he does not have evidence of that, either. That theoretical possibility is not a good enough reason to do away with the protection which this provides. I turn now to the second part of the amendment. We have some doubts as to whether this is really necessary. As the noble Lord has made clear, the point is to allow the courts to approve a scheme of arrangement even if relevant classes have not been correctly constituted, provided—and this is an important condition—that the fairness of the scheme is not affected. Companies have been given quite a lot of guidance to make sure that the problem does not arise. The courts have issued a practice statement in 2002 reminding companies for example that, in case of doubt, they should take all reasonable steps to notify any person who may be affected by the scheme, and requiring them to identify any issues as to composition of classes at an early stage of the court procedure. Those steps should already prevent most of the problems of wasted time and effort that the noble Lord’s amendments are targeted at. Having said that, we are not convinced that the amendment is necessary in practice, or that it would serve a useful purpose. But if the noble Lord will not press his amendment now we will discuss the question of the court’s discretion further with interested parties to see if there are practical difficulties that such an amendment could address. That is as far as I can go in relation to that part of the amendment today.