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Clause 46—(Appointment And Powers Of Inspectors To Investigate Ownership Of Company)

Volume 440: debated on Friday 25 July 1947

The text on this page has been created from Hansard archive content, it may contain typographical errors.

I beg to move, in page 43, line 18, at the end, to insert:

"(3) Where an application for an investigation under this Section with respect to particular shares or debentures of a company is made to the Board of Trade by members of the company, and the number of applicants or the amount of the shares held by them is not less than that required for an application for the appointment of an inspector under Section one hundred and thirty-five of the principal Act, the Board of Trade shall appoint an inspector to conduct the investigation, unless they are satisfied that the application is vexatious, and the inspector's appointment shall not exclude from the scope of his investigation any matter which the application seeks to have included therein, except in so far as the Board of Trade are satisfied that it is unreasonable for that matter to be investigated."
This Amendment and the Amendments to this Clause which follow deal with the question of how we are to make the best provision for seeing that people do not do things that are undesirable by reason of the system of nominee shareholdings. Before coming to these specific Amendments, I would like to say a word or two on this difficult and vexed question of nominee shareholding. It is, as it were, only one of the lesser by-products of the Cohen Committee Report and of this legislation, but, nevertheless, it is a matter to which I, personally, attach considerable importance, as I am sure do other Members of the Committee.

The broad aim of making provision as regards nominee shareholders is to do three things: First, to ascertain ownership where it is a matter of national importance that that should be done; second, 'to check improper dealings by directors the securities of the companies of which they are directors, which they could co by concealment; third, to make the register of members more informative to companies and to the public. The first two, to ascertain ownership where it is nationally important, and to check improper dealings, can only be done by the powers of investigation that are given in this Clause to the Board of Trade. The third, to make the register more informative, is not, in terms, met by the powers of Clause 46, and it was for that reason that some of my hon. Friends put down an Amendment, which is now Clause 69, during the Committee stage. We are now moving to delete that, and to substitute for it certain Amendments which we think will come nearer to achieving their aim than their new Clause, which is in the Bill.

I do not want to go through the history of how these various changes came about as everybody is familiar with it, but it is known that the Cohen Committee first of all arrived at certain recommendations, and that there was then a good deal of criticism from the point of view of their practicability. Indeed, Lord Justice Cohen himself, not as a member of the Committee, suggested that some of the recommendations were not practicable. Some were inserted in the first draft of the Bill, and some were not.' The recommendation of the Committee was never designed to cover the full disclosure of all the interests. It was designed to divide shareholders into sheep and goats, that is to say, those who had beneficial ownership and those who had not. It became clear, during the examination, that it would be impossible to get a division into two categories, because probably the largest category of all would be those who did not declare anything—people abroad, people who did not understand, and those represented by others—that they would form the third and largest bulk of those from whom no answer had been received.' That was only one of the difficulties with regard to this method of trying to get people to disclose whether or not they were beneficial owners. The other great difficulty was where to draw the line as to what is a beneficial owner.

3.30 p.m.

Before my right hon. and learned Friend leaves that important point may I ask a question. He said there might be one-third who were foreign holders from whom no information could be obtained. Do we know, for instance, who owns Vickers of which the Guaranty Trust Company of New York owns 500,000 shares? How are we to find out whether they do own it or not.

If my hon. Friend would not mind my putting it in my own way, it is so much easier. I am dealing with it, I hope, in a reasonable way and I am going on to the question of the necessity for defining beneficial ownership. If you are trying to have two categories, one beneficial and one not, it is agreed generally that you must have a purely artificial definition of beneficial ownership; that is to say, in cases where you have deposits with banks, and so on, you would have to deal with it artificially for this purpose. Someone who, in law, would be a beneficial owner, under this would not, and vice versa; so when you start making these two categories, so far as anyone with legal knowledge is concerned, you make confusion worse confounded because you put them in the wrong category. As regard any ordinary old lady who owns shares and in a letter is asked whether she is a beneficial owner or not, it is hard enough if you ask it like that, but if you then have an, artificial description of what is a beneficial owner, setting out a complicated thing about mortgages and liens and so on, obviously she will not be able to cope with it.

In Clause 69 the onus of making this declaration is placed upon the registered holder to notify the company of the particulars. The registered holder, assuming he is not the beneficial owner, is therefore made responsible for disclosing who is the true beneficial owner, There may be many stages in these holdings; in fact, the more ingenious the man is, the more stages there are, and the one who is next to the registered owner may say, "I do not propose to disclose who is the beneficial owner," but the registered owner will be responsible, and will be guilty if he discloses, not the true beneficial owner, but the one next to him, whom he believes to be the beneficial owner but who is not for the purposes of this Bill. Therefore, in every case where you really want to get the discovery because you think something is wrong, you are less likely to get the discovery; in fact, in 99.5 per cent. of cases where it does not matter a bit, you possibly get the truth or perhaps half of it, but in the other cases where people really want to conceal this, you certainly will not get the truth because of the vagueness of the definition.

In order to add point to the difficulty that arises, may I take the question of mortgages and liens. It has been accepted generally that they must be disregarded, that is to say that that type of relationship must be dealt with as if it were not there because of the custom of pledging securities in the ordinary course of business, and it is quite impossible that people should have to keep changing registrations every hour of the day as those kinds of transactions which are normally business transactions are carried through. The other thing which is being held to be quite impossible would be to require an aggregation of the shares in one ownership when that ownership is partly beneficial and partly non beneficial, that is to say, trustee ownership and ordinary beneficial ownership. If I own some shares for my own purposes and also some as a trustee under a marriage settlement or something else, it is quite obvious that in the normal course, if we are trying to arrive at who has control, the ones I hold as trustee would not be regarded as in my beneficial ownership, as they are not indeed. Therefore, you must exclude the aggregation in those cases where you have the same person registered in two different interests. However, if you exclude it, you give the person a very obvious way of putting some of his shares into trust for his wife or somebody else, and thereby not disclosing that he is the beneficial owner of both amounts of shares. One could cloak that with the greatest ease.

Supposing the right hon. and learned Gentleman has two sets of shares, one in his own beneficial ownership and the other on trust for his wife or for a family settlement. Why should he discriminate in the share register saying, "this is for myself and the others are for Mrs. Cripps," or for whoever it might be?

The point about aggregation is that one of the provisions as regards disclosure was that if somebody owned more than one per cent. of the shareholding of a company he should have to disclose. That was one of the provisions of the Cohen Committee Report, but what they said in association with that was that you could not aggregate under those circumstances. Therefore, my one per cent. must not be made up of one-half per cent. mine and one-half per cent. belonging to my trustee. If, on the other hand, you do not aggregate for that purpose, it means that a person who wants to do so can put half his shares into trust and gets out of the provision.

Nevertheless, there are further objections to this method of trying to deal with the position. I have already mentioned that one cannot put the obligation of collecting the information upon the registered holder, because he is not in fact the person you are trying to get at or who has done the thing which you want to get under—in other words, he is not the person who has wrongfully, from the point of view of public interest, cloaked his action. Secondly, as I have already stated, in the definition of ownership you have the difficulty of dealing with two classes of ownership. The interests which amount to beneficial ownership are what in fact you want to get disclosed. You want to know the man who is really controlling. There are a whole lot of ways in which you can control besides being a beneficial owner. You may have just as effective control through personality. For instance, if a financier has a lady of whom he is fond and he puts shares in her name he can continue to control the business although she is the beneficial owner of I he shares.

That may be so, but it has been done on many occasions, and, as the right hon. Gentleman knows, it is one of the ways in which the less desirable financier has cloaked his dealings. Indeed, he need not even do that, but can make a so-called sale, have the shares mortgaged back to him after the sale, and so reverse positions. X starts by selling the shares to A, A mortgages back to X, A becomes the beneficial owner and X ceases to be the beneficial owner, so that the position is changed over. Alternatively, it can be changed over in the other direction in exactly the same way. There are, therefore, all these multifarious devices which make it really impossible to get hold of the man who wants to get out of it, and it is not worth having a vast amount of trouble in registration if you are to be unable to get at the person you want to get at.

Then there is another case which is of the greatest difficulty. Take, for instance, trusts under wills and settlements. A great many people are beneficial owners, of a part of a fund arising out of a trust under a will. They are responsible for saying of what they are beneficial owners. The trust owns a hundred securities of which the income, let me say, is £1,000. They have an income of £10 a year out of the fund, but of which of the securities are they beneficial owners? Are they beneficial owners of the whole hundred, and have they therefore to take the responsibility of seeing that they are on the register as beneficial owners of too investments if they do not even know the name of them? There is no reason why they should know the name of the investments because it is a trust fund held by trustees in their benefit. They do not concern themselves with investment, nor is it their duty to do so since it is the duty of the trustees, but they are the beneficial owners aid therefore you would get a completely false state of affairs if, in such a case, 20 different beneficial owners were to go on to the register of 100 different kinds of shares instead of the trustees remaining on the register—the trustees in fact being tie people who control the voting interests and everything else, if anybody does at all. I only give an example in order to show that there cannot be any better definition of real controls by drawing on something like Clause 69, than by leaving it at large and having a very rigid system of examination in cases where any doubt is raised.

On the other hand, I sympathise with my hon. Friends who felt, first of all, that the Board of Trade might not have the facts sufficiently brought to their attention or indeed that if they did, they might not be keen enough in following them up. Therefore, I have suggested in the first Amendment that if one-tenth of the shares or 200 shareholders put forward a case for investigation, then there shall be an investigation unless it is purely vexatious or something of that kind, which the Board can judge. In other words, the shareholders themselves in the company can, if they are disturbed about who is controlling the company and if one-tenth or 200 come forward and demand an investigation, ensure that an 'investigation shall be held.

Ten per cent. of the shareholders is not a very great number. Let me give a true example. As far as Carreras are concerned, I believe that the Baron family hold 5 per cent. of the shares and the other 95 per cent. are held by investors who can do nothing about stopping that family's control.

They can do something about it, for if 10 per cent. do not know who holds the shares and want an investigation as to who does—and we are only dealing with holding of shares—an investigation can be held under Clause 42. If 10 per cent. of the shareholders want to know who are the other 90 per cent. with whom they are in partnership they will be able to find out.

Is it 10 per cent. of the shareholders which would have to make the application or the holders of 10 per cent. of the shares?

Ten per cent. of the shares or 200, whichever is the less. The second thing we propose is in regard to the anxiety that was felt about the question of the publication of the report when it came to be made. We have suggested in the Amendment a proposal which makes it a little bit tighter than before, so, unless there is a very good reason for not divulging the contents of the report, it will be divulged and may be published. The reason why we have put in the reservation is that there are sometimes matters of national interest and importance which it is highly undesirable to have broadcast all over the world, and that reservation is not intended because we do not anticipate publishing, but simply to give us the foothold for deleting a passage from the document if it is contrary to the public interest. It is our idea that these should be public, because that is the real idea behind the whole thing. I hope the Committee will agree with that. I have been rather long, but I wanted to give a full explanation to the Committee and I hope that they will now accept the Clause.

3.45 p.m.

If I did not run the risk of being accused of qualifying for the Coal Board, or some other board, I should like to congratulate the right hon. and learned Gentleman on the way in which he has marshalled the extremely convincing arguments against Clause 69 as it stands. In Committee upstairs we supported the Solicitor-General in his efforts to avoid the introduction of that Clause for the reasons which the right hon. and learned Gentleman has so lucidly stated. At the same time, I do not think there is any disagreement between the two sides of the Committee as to the objectives we seek to obtain. In regard to the Amendment to page 43, line 18, I thought it was implicit in the right hon. and learned Gentleman's argument that the number of applicants asking for an investigation as to the ownership should have some grounds for that request, and that it should not be a purely automatic response on the part of the Board of Trade to any invitation. Otherwise, I think there is a danger, while we do not want to stop investigation in proper cases, of the power given to applicants under the Bill being very gravely abused, and companies will be put to considerable extra expense.

The Amendment provides:

"unless they are satisfied that the application is vexatious."

Really, the interruption was not necessary. The hon. and learned Member will be aware that because there is a vexatious litigant, it does not follow that a litigant who is not vexatious has not a good reason for embarking on litigation. I should like to see something in the Clause to the effect that some sort of reason for the investigation must be put forward by the applicant, and that it should not be done automatically. One must bear in mind that although in a big company the number of shareholders who make the application may be substantial, in a small company there may be a small number who, without adducing reasons to the Board of Trade, can secure an investigation. I think that was implicit in the right hon. and learned Gentleman's speech, and this is solely a matter of drafting.

The hon. and learned Member for Daventry (Mr. Manningham-Buller) will agree that in the nature of things, in cases where this is likely to apply one does not know whether there are good grounds for the application until the investigation has taken place.

What I meant was a prima facie case for investigation. I do not think there is anything between the two sides of the Committee except in terms. I suggest that the application should go to the Board of Trade stating that for this, that, or the other prima facie good reason an investigation is required. All that is stated in the Amendment is that the application should not be vexatious. I do not consider that the two things are the same. There may be an application which is not made for good reasons, but which at the same time is not vexatious. I merely put this forward as a drafting point.

There are two qualifications, and the second is,

"except in so far as the Board of Trade are satisfied that it is unreasonable for that matter to be investigated."
If it is considered unreasonable, the Board say that the matter shall not be investigated. There are the two safeguards, one, that the application must not be vexatious, and secondly, that it must not be unreasonable.

I was coming to the second proviso a little later. I fully appreciated that it was there. Again I am not sure—there is an Amendment on the Order Paper in the name of my hon. and gallant Friend the Member for New Forest and Christchurch (Colonel Crosthwaite-Eyre)—that this Clause would not have been better if the proviso had been put the other way round. At the same time I do not think that that proviso quite covers the point I have made. I would like to see something in the Clause to the effect that there has to be pima facie good reason put before the Board of Trade. I do not think that that point is quite covered. It strikes me as being a point of some importance. Perhaps the President of the Board of Trade would give further consideration to the drafting of this important Clause. Apart from those criticisms of the Clause, I think the general line of this Amendment, and the deletion of Clause 69, for the very powerful reasons which the right hon. and learned Gentleman has given, will be an improvement.

Unfortunately, I was not a member of the Standing Committee which dealt with this Bill. I feel very worried about the situation with reference to nominee shareholders. I have recently been investigating a certain industry in this country, a very important one, which is a fairly important export industry. I found it very difficult indeed to discover who controls it. I am sure I shall have the agreement of the hon. and gallant Member for Ayr Burghs (Sir T. Moore), who made some reference to this on another matter. I wish to make one or two things clear. A company can be controlled not by 51 per cent. of the shareholders but probably by five or 10 per cent. There can be holding companies, and by having five or 10 per cent. of their shares, those shareholders can control large parts of the industry of this country. I do not want to go into details at the moment. I am mainly concerned about my right hon. and learned Friend trying to find reasons why this could not be done. I do not want to spend any time in discussing the question of A, passing on to X and X passing back to A, and of finding out who really is the beneficial owner, or whether that beneficial owner should be disclosed. I do not mind whether certain persons get paid £10 a year, or whether their emoluments or salaries come out of a trust fund, and who they are and to what extent they are the beneficial owners. My right hon. and learned Friend, for whom I have a great respect, was really going out of his way a great deal in his speech in trying to explain how difficult it was to do the right thing.

The law is broken over and over again. We can lay down that it is illegal to kill some one. That is the law of this country, and has been for many years. Never- theless, people are murdered, and people are hanged. It is better security, from the point of view of the cleanliness of company law if it is laid down—my hon. Friend the Member for Bolton (Mr. J. Lewis) is shaking his head. He appears to have a great knowledge of the operation of companies, and he has backed the Tory Party throughout this Debate. They are—

On a point of Order. My hon. Friend the Member for Nuneaton (Mr. Bowles) has suggested that I have been backing the Tory Party in the whole of this Debate. If the Tory Party find themselves in agreement with the Government in regard to this Bill, then as a supporter of the Government, I feel he should withdraw his suggestion that I am in any way associated with the Tory Party.

It is not the first time my hon. Friend has agreed with the Tory Party over this matter.

Further to my point of Order. I hope my hon. Friend will withdraw that suggestion that there is anything improper in supporting the Government on this Bill.

All that I am concerned about is that it is perfectly clear that in the last 50 or 100 years in this country there has been—

Further to that point of Order. I do not know if the hon. Member for Bolton (Mr. J. Lewis) heard the more serious suggestion about his having a peculiar knowledge of the operation of companies.

I am very much obliged to the hon. and learned Gentleman for drawing my attention to the fact that there was a further and more serious inference on the part of my hon. Friend. I must confess that I missed the inference. If my hon. Friend is suggesting in any way that there was any form of improper action I hope that he will withdraw that too.

My hon. Friend can take legal advice from the hon. and learned Member for Daventry (Mr. ManninhamBuller).

I think it will be better if the hon. Gentleman confines himself to the precise subject under discussion.

My hon. Friend appears to have less knowledge than I thought. The people who have studied company history over the past 20 or 30 years know perfectly well the kind of fiddles which have gone on in the past. I say frankly that I am perfectly certain that one of the grew' anxieties of many people in this country is when, and if ever, we shall know, so long as nominee shareholdings remain, that the industry of this country is not owned, for example, by the Americans. That is the real issue I am concerned about. I put a hypothetical question to my right hon. and learned Friend. Suppose a certain company called the Guaranty Trust Company of New York has issued so many depository receipts, presumably to Americans, in Metropolitan Vickers, then Metropolitan Vickers is controlled sufficiently by the Americans—

Certainly, the Russians or the French. Frankly, one of the great concerns of my hon, Friends and myself—and I am not supporting the Government in this at all: I shall vote against this Amendment—is that it is about time this country really got alive to the kind,of inter-directorates, fixed by international shareholding companies, by international depository receipts, by companies about which the right hon. Gentleman the Member for Bournemouth (Mr. Bracken) knows a great deal—

I do not think that the hon. Gentleman realises that, of course he is naturally offensive. I think we must all assent to that, but I would like him to explain what he meant just now. I am not willing to accept such slurs from him. He knows a good deal about the capitalist system.

the right hon. Gentleman may not be naturally offensive but he is certainly artificially offensive almost every time he gets up.

I think the hon. Member must really address himself to the subject under discussion. We cannot have these personal references on either side.

On a point of Order. Might we not get on much quicker if this sort of language was not flying about.

I do not want to argue with the noble Lord whose sober charm and kindness we have known for the last 43 years. The noble Lord has been here so long that he is unaware what other hon. Members think about him I am very serious about this and I am perfectly certain—[Interruption.] Try to be noble —I am not addressing the Chair when I say that. What I am concerned about is that I insist, so far as I can, that His Majesty's Government will no', insist upon this going through tonight We should not have any hiding of nominee-ship holding. If I want to inquire into the affairs of a certain company why should I not—

It being Four o'Clock, lire CHAIRMAN left the Chair to make his report to the House.

Committee report Progress; to sit again upon Monday next.