I take it we are taking amendments to amendment 126 as well.
SECTION 90.
Debate resumed on amendment No. 112:
In page 79, to delete lines 41 and 42, and in page 80, to delete lines 1 to 5, and substitute the following:
"‘securities' means—
(a) shares, debentures or other debt securities issued or proposed to be issued, whether in the State or otherwise, and for which dealing facilities are, or are to be, provided by a recognised stock exchange;
(b) any right, option or obligation in respect of any such shares, debentures or other debt securities referred to in paragraph (a);
(c) any right, option or obligation in respect of any index relating to any such shares, debentures or other debt securities referred to in paragraph (a); or
(d) such interests as may be prescribed;".
No, to 118.
I thought we were taking 116, 117, 118, 122, 125 and 126 together.
Yes.
Then amendments to amendment 126 would be taken as well.
I moved amendment No. 112 the last day we had a debate on this group of amendments. The only amendment I am aware of to one of these amendments is an amendment to amendment No. 118. There are no amendments down to any of the other amendments. I think I went fully through the reasons for this group of amendments the last day and a number of Deputies commented on them and so on. The debate was coming to an end, as far as I recall, when we finished the last day but if there is any specific point that any member wishes to raise I will try to deal with it again if necessary.
Can the Minister let us know in regard to amendment No. 118 what an underwriting agreement is in this context? Also can he give an explanation of subsection (2) (d) of that amendment which relates to transactions by way of a mortgage or charge of securities or a mortgage, charge, pledge or lien of documents of title to securities? Paragraph (d) does not make sense.
Is this in section 90?
It is amendment No. 118.
It is a new section 93.
While I am at it could I ask another question? I raised this before. It relates to amendment No. 122 which concerns co-operation between the authorities of this State and other member states of the Community. As I mentioned already in regard to insider trading, reporting arrangements and so on, the Isle of Man is not included. It is not a member of the European Community and, as we know, the Isle of Man has been promoting itself as a haven for companies who do not have the same reporting requirements as companies who are located within the European Community and would be subject perhaps to legislation analogous to this. What arrangements will be made to prevent, for example, insider traders operating from the Isle of Man or, in general, has the Minister any response to this problem of people evading their obligations generally under the Companies Act by locating their company there and trading in it there rather than here?
So far as amendment No. 118 is concerned, the first matter the Deputy asked about, it seeks to replace section 93 and it again arises from the directive which we are implementing here in this Part. The directive in this instance requires us to narrow to a slight extent the list of transactions under our Bill which will not be regarded as unlawful.
Subsection (2) (d) of the amendment which the Deputy inquired about specifically exempts dealing in securities arising out of a transaction involving a mortgage or charge on securities or a transaction involving documents of title to the securities where the person actually doing the dealing may have inside information about the securities concerned. This is designed to facilitate the completion of legal transactions relating to securities or documents of title to securities. For example, the securities, that is the share certificates in a company, may be given as security for a mortgage or loan and a transaction involving them could be caught by the prohibition under section 91 if the parties involved had inside information. This paragraph will, however, exempt such transactions which are a normal part of commercial life.
I think, therefore, the second line of subsection (2) (d) should read "on" instead of "of" before "securities". I think there is a misprint in the amendment.
It should read: "a transaction by way of, or arising out of, a mortgage of or charge on securities".
A mortgage of or charge on.
Yes. On the next line, "or a mortgage, charge, pledge or lien of documents of title" is also wrong. The different words would require a different preposition. If you bulk a lot of words together, which require a different preposition, you should use the preposition that is appropriate to the last noun that you use. Therefore, the word "lien" should be followed by the word "on". I am sorry that these mistakes were made but it is better that we put them right. Section 93(2)(d) should then read: "A transaction by way of or arising out of a mortgage of or charge on securities or a mortgage, charge, pledge or lien on documents of title to securities". That does not mean a lien on documents but it has been put in a curious way. It is described as documents of title to securities. Properly drafted that should read, "lien on securities".
There are one or two changes which everybody agrees are necessary to clarify this. If the Minister consults with the parliamentary draftsman on these changes, because there seems to be some doubt about them, he can then make them on Report Stage.
Might I suggest to Deputy Bruton that there seems to be some difficulty in the paragraph as a whole and maybe it would be more appropriate for the Minister to discuss it with the parliamentary draftsman rather than making a decision today which we might have to change at some future time.
We have to take a decision in order to have the changes made for the Report Stage.
Would the committee agree to adopt the clause with the three changes that I have suggested? I agree it is wrong as it stands but it is only wrong in a technical kind of way in that it is badly drafted because the wrong prepositions are used. I would ask the committee to adopt it with those three changes that I have suggested and if it is necessary to change it further, we could do so on Report Stage.
I am not clear as to why the second part of the sentence is necessary—"a transaction by way of or arising out of a mortgage of or charge on securities." Am I missing the meaning of it? What is proposed is a lien on securities, not on the title document. Am I missing the sense of that?
Yes. The distinction is that the first half of the clause relates to a mortgage of or charge on securities. The second half relates to a mortgage, charge, pledge or lien on the documents of title to the securities as opposed to the securities themselves. You can put the charge on the security without necessarily having to have the documentation whereas if you wanted to maintain a lien on a share certificate you would have to have the share certificate in your physical possession. That is why there is the distinction between the two.
I am looking at the original section 91. I think there is another technical error in that section. In subsection (10) (c) (ii), should the word "of" be "or"?
The person could be representing a company or an officer of that company, an officer, perhaps, of a substantial shareholder, not necessarily the shareholder himself. That would be my interpretation of it.
Yes, that assumes that the shareholder is a corporate shareholder.
Is the Minister accepting amendment No. 119 in the name of Deputy Barrett and myself?
What I said the last day was that I thought it was unnecessary to accept it because the point seemed to be covered. Section 93 (3) (d) of the present text was designed simply to enable two trustees to transfer the legal estate and securities from one to the other where this is necessary for the proper discharge of their functions. This would most commonly arise where an existing trustee wished to resign, retire or whatever. However it seems that the content of subsection (3) (d) was already covered by subsection (3) (a) which exempts transactions carried out in good faith by trustees and, therefore, it was unnecessary to repeat it. Having said that, the amendment proposed by Deputies Bruton and Barrett seems to cover a different situation, in other words where a trustee might wish to transfer the ownership from the trust itself to the beneficial owner of the securities. This could typically arise when a parent leaves an estate, including securities, to a child but the estate is administered by a trustee until the child comes of age. I agree that we should not prevent the necessary transfer taking place when the time is right.
However, I have already referred to section 93 (3) (a) which would become 93 (2) (c) under amendment No. 118 which provides that where a trustee enters into any transaction in good faith in the performance of his functions as a trustee he will be exempted from the prohibition in subsections (1), (2), (3) and (6) of section 91. This would, of course, include the transfer of the ownership of securities to the beneficial owner. For that reason he is covered already.
There is just one other point, Chairman, before you move on. Deputy Bruton raised another point in regard to an underwriting agreement which I will just try to deal with briefly if I can before we go on, because there is an exemption. Whenever a company are preparing for a quotation on a stock exchange or for the issue of further shares, consideration is always to be given to the necessity to arrange to have the subscription underwritten. This means that if for any reason all the shares are not taken up by investors, the underwriters will, as a last resort, take up all unsubscribed shares and agreement regarding this or to this purpose is an underwriting agreement.
In the nature of things, to secure the services of an underwriter, detailed information about a company's situation would have to be disclosed to the underwriter. This could, of course, include inside information, but clearly it would frustrate the whole process of share issues if the blanket prohibition in section 91 were to prevent underwriters fulfilling their contractual obligations. Remember that their contractual obligation is not necessarily to subscribe for a share but only contingently to subscribe in the event of the failure of the market to take up the shares as a whole.
Accordingly, this subsection exempts such contractual transactions from the scope of the prohibitions in subsections 1, 3 and 6 of 91. That covers all the points that have been raised in that group of amendments.
There is one other point I will make, if I may, for the sake of completeness. Deputy Bruton raised the question of how we are going to look at the Isle of Man if it is going to advertise its wares. I propose to have talks urgently with the British authorities on that because if it is a problem for us, it must be an infinitely greater problem for them. I will talk to them on that in advance of the next Council and see what way they propose to deal with it because whatever steps we would take should obviously be consistent with whatever they are going to do. If incorporation on the Isle of Man is going to be abused, the problem will be much greater in Britain than here. The Isle of Man is not, of course, the only such place to which people resort. There is a long list of such places.
Deputy Cowen took the Chair at 3 o’clock.
Perhaps the Minister will let us know, during the course of one of our discussions here, the outcome of his talks.
I will. Certainly it should be said that, for example, in the Channel Islands — which is in a similar position to the Isle of Man because it is part of the United Kingdom but not part of the European Community — there is no serious suggestion that incorporation in the Channel Islands has by and large given rise to abuse.
Amendment agreed to.
Question proposed: "That section 90, as amended, stand part of the Bill".
Could I, on section 90, make a short statement to the committee by reason of the necessity to do so in order that I can refer back to it on Report Stage? I cannot put down the amendments if I have not adverted to the problem on Committee Stage. It is as follows.
I would like to say at this point that I am currently reflecting on two particular technical issues to which I may wish to return on Report Stage in section 90. The first of these issues has to do with matters which may be prescribed under various provisions of the Bill including indeed section 90 itself. I am advised that while "prescribe" is defined in section 3 of the Bill as meaning "prescribed by regulations", it may be necessary to insert a clause in that section giving the Minister the actual power to prescribe in these situations.
The second issue I am thinking of here arises from the use throughout the Bill, but particularly in Part V, of the phrase "recognised stock exchange". This is defined in a certain way in section 3 of the Bill at present but I want to be sure that the Minister of the day will have sufficient powers to take into account the different kinds of exchanges which we have seen emerging in recent times and which may indeed evolve in the future. I may wish to return to these matters on Report Stage and I thought it as well to state that for the record now.
Section 90, as amended, agreed to.