I move amendment No. 21 :
Before subsection (3) to insert a new subsection as follows :
" () The company shall, with 21 days after the making of the order, deliver a copy of the order to the registrar of companies for registration."
SECTION 63.
I am advised that amendment 22 is consequential and that amendments 21 and 22 might be taken together.
This amendment was suggested by the Registrar of Companies as mentioned in the brief supplied, the object being to ensure that files kept in the Registration Office will be up to date. Amendment No. 22 is consequential. This section itself was recommended by the Committee and perhaps I may briefly explain the purpose of it. The present law does not permit the issue of shares at a discount although certain transactions, for example, payment of commission, allotment of shares for property the nominal value of which is less than the value of the shares which amount in effect to the same thing are permissible.
The reason why the issue of shares at a discount has always been prohibited is that in a company limited by shares, the benefit of limited liability, i.e., of not being liable to pay more than the nominal amount of the share, is obtained upon the terms that the member shall be liable to pay to the company that nominal amount.
This brings us to the dominant and cardinal principle of the Act, which is that an investor shall purchase immunity from liability beyond a certain limit on the terms that there shall be and remain liability up to that limit. The Committee in paragraph 61 of their report thought that the issue of shares at a discount would be a desirable reform and this section is designed to meet their recommendation.
Amendment agreed to.
I move amendment No. 22 :—
In subsection (3), page 51, to delete lines 11 to 13, and to insert a new subsection as follows :
" () If default is made in complying with subsection (3) or (4), the company and every officer of the company who is in default shall be liable to a fine not exceeding £100."
Amendment agreed to.
Question proposed : " That Section 63, as amended, stand part of the Bill."
Paragraph (c) of subsection (1)—I do not see what the point of including that clause is when, in any event, you have to go to court to get sanction. It could be one of the matters the court might consider on the application for sanction. When a court application is compulsory, why should we say that it cannot be done for three years ?
The idea of putting a three-year period here is that it would be presumed that a company which has been established for that period would be known to the public. Its performance would be known and, as well, the court, when application is made, would have something positive to go on.
I do not see what is the necessity to put the paragraph in at all.
It is specifically recommended in the report.
This three years ?
Paragraph 62 sets that out.
What is the period in England ?
One year. I take it the same applies there, that a company which is in operation for a year will have some record of performance and the public will have some opportunity of observing its activities and the court will have something to go on when an application is made. If Deputy Sweetman would suggest a reduction of the period, I would not be averse to reducing it.
I think it is tying it unnecessarily.
My main reason is that it was recommended in the Committee's report. I have no hard and fast reason for adhering to it.
Question put and agreed to.
SECTION 64.
Question proposed: " That Section 64 stand part of the Bill."
This is a re-enactment of Section 2 of the 1959 Act and, as the members of the Committee will remember, the 1959 Act was brought in to implement certain recommendations of the Company Law Reform Committee. It is just a re-enactment of what has been in existence since 1959.
I appreciate that, but there are a few points I would like to query. Subsection (1), paragraph (a) provides that the shares can only be redeemed out of profits or out of a fresh issue. Subsection (d) goes on—" where any such shares are redeemed otherwise than out of the proceeds of a fresh issue ". Why is it expressed in that negative way, instead of the normal way—" where such shares are redeemed out of profits ".
In relation to subsection (6) I do not see why the capital redemption reserve fund could not be used in relation to other redeemable preference shares of a new issue, of a new class. The redeemable preference shares in toto are excluded by the two phrases in brackets and why is it right that the redeemable preference shares of a new issue should be excluded)? I do not see why the company could not, if it so wished, change its preference shares, shall we say, from six per cent. redeemable preference shares to five per cent. redeemable preference shares. As I read subsection (6), it would be prohibited from so doing.
The idea in permitting the utilisation of the capital redemption reserve fund for the purposes set out is that you really only substitute one capital form for another. It was thought desirable on the enacting of the section now to prohibit its utilisation for the issue of redeemable preference shares, for the reason that schemes could be devised which would have as their object the leaking back of the fund to the shareholders and that is something which we would not wish to permit. This capital redemption reserve fund should be a capital item which you cannot use to pay out money to the shareholders. If you permit redeemable preference shares under subsection (6) that kind of thing could happen.
Not if you restricted it to the premium on such shares. I do not see why you should prevent a company changing the terms of its existing redeemable preference issues if it wished to do so. In a reconstruction, it might be desirable to change six per cent. shares to four per cent. and I think this section prevents that.
I do not think so because it relates only to the capital redemption reserve fund. They have not got this restriction in Britain but I would not be surprised to see it introduced there because it is now recognised as a loophole to permit the use of that fund for the issue of redeemable preference shares. I do not think it would have undesirable consequences of the kind Deputy Sweetman mentions.
I am not sure. What is intended is that it would not be used for the purpose of redemption of what I might call the main body of the shareholdings.
We have an example here of how the section operates. I will have a copy made for the information of the Committee.
Question put and agreed to.