Section 54 (1) of the principal Act. On the other hand, it does not cover an interest under an authorised unit trust (Section 28 (9) ). Finally, Section 28 (3) – which re-enacts Section 195 (10) (b) of the principal Act but is worth mentioning nevertheless - deems a person to be interested in securities if a body corporate is interested in them and either its board customarily acts on his instructions or a third or more of its voting shares is held or controlled by him. ... Section 28 contains one of the most astonishing provisions in an Act littered with curiosities. Sub-section (11) states that 'delivery to a person's order of shares or debentures in fulfilment of a contract for the purchase thereof by him . . . shall be deemed to constitute an event in consequence of the occurrence of which he ceases to be interested in them'. Probably the most common of all the events requiring notification and registration under Sections 27 and 29 will be a purchase by a director of shares in the company of which he is a director. The effect of Section 28 is that the director must give notice that he has become interested in the shares when he enters into the contract to buy them (sub-section (4) (a) ) and he must, it seems, give notice under sub-section (11) that he has ceased to be interested in them when he or his broker takes delivery of the transfer executed by the vendor and the share certificate! What is more, the maximum penalty for failure to give the notices required by Section 27 is, on summary conviction, imprisonment for three months or a fine of £100 or both and, on indictment, imprisonment for two years or a fine, or both (Section 27 (8)). Time for notification Notification must generally be given within fifteen business days (i.e. three weeks) after the relevant event; normally, of course, the relevant event will be caused by the director's own acts but occasionally an event of which the director has no immediate knowledge (e.g. the death of a life tenant) may cause an interest to arise or determine. In this event, the duty is modified by Section 27 (3) so as to require notification within fifteen business days after the date on which the event comes to his knowledge. Section 29 which replaces Section 195 of the principal Act contains much of the same material with regard to a company's duties to maintain a register of directors' interests in securities of the group. However, the duties are somewhat enlarged the register has to be made up within three business days of notification being received, and the date of inscription noted; events have to be listed chronologically against each name (Section 29 (3)) and the register has to be available for inspection by members and others on the same footing as the register of members. The register has to be kept at the registered office or at the place where the register of members is kept and notice of its situation (if it is not kept at the registered office) has to be given to the Registrar of Companies within fourteen days after the date on which the section comes into operation (27th October, 1967); notice also has to be given of any change. Copies of the register of directors' interests can be obtained by members and others on payment of a fee, whereas under the principal Act only the Board of Trade were entitled to ask for a copy. It is to be noted that Section 29 (5) of the new Act (which reproduces Section 195 (3) of the principal Act) confers a right on directors to require the nature and extent of their interest in any securities to be noted. However, the company is not thereby fixed with notice of third party rights affecting its shares or debentures (Section 29 (6) ). Option Dealing Section 25 prohibits a director from dealing in options in shares or debentures of the company of which he is a director or of any other company in the group in respect of whose shares or debentures a quotation has been granted on a recognised Stock Exchange (and presumably has not been permanently withdrawn). Accordingly, any director who buys a 'call', 'put' or 'put or call' option in quoted shares or debentures of any company in the same group as the company of which he is director is guilty of an offence and liable to a fine or imprisonment, or both. There is, of course, still no objection to a director being granted an option to subscribe for shares or debentures by any company within the group or (subject to any restrictions imposed by the granting company) to his buying or selling such an option. Equally, the purchase of a convertible debenture is not treated as the purchase of an option for the purpose of this section (Section 25 (4) ). It is to be noted Section 30 has the effect of bringing not only directors, but their wives and infant children within the prohibition and that once again the meaning of director has been extended to include 'constructive' directors. Service Contracts Another section which imposes duties on companies in relation to its directors is Section 26; this requires a company to keep available for inspection by members a copy of each director's service contract as varied from time to time or, where this is not in writing, a written memorandum setting out the current terms of such contract. The obligation does not extend to the contract of service of a director who is required to work wholly or mainly outside the United Kingdom or one which has less than a year to run or which can, within the next twelve months, be terminated by the company without payment of compensation for loss of office. The scope of the section is surprisingly narrow: only members are entitled to inspect service contracts and in many cases the contracts which the shareholder wishes to inspect will not be with the company in which he holds shares but with its subsidiary. Copies of all such contracts and memorandums [sic] have to be kept in the same place, which may be the registered office of the company, the place where the register of members is kept or (unlike the register of directors' interests) the company's principal place of business - provided this is within the country of incorporation (Section 26 (2)). Notice of the place where such documents are kept has to be sent to the Registrar of Companies unless they have always been kept at the company's registered office. Section 33 requires a person interested in ten per cent. or more in nominal value of a class of relevant share capital (that is, capital carrying full voting rights of a company any part of whose share capital has been granted a quotation) to give notice to the company of the extent of his interest and also of all subsequent alterations in it until his interest in such capital falls below the 10 per cent. level; he must also give notice of the event which brings it below that level (Section 33 (1)). It is to be noted that the relevant share capital need not itself be quoted - the obligation arises if any part of the capital has been granted a quotation on a recognised stock exchange (Section 33 (10) ). In determining what constitutes an interest for the purpose of this section, the rules contained in Section 28 are applied, although by Section 33 (4) certain interests in shares which fall within Section 28 are expressly excluded for the purposes of Section 33: of these the most important are the interest of a tenant for life under an irrevocable settlement in which the settlor has no interest in the income or property of the settlement and the interest of a person whose ordinary business includes the lending of money and who holds the shares as security for a transaction entered into in the ordinary course of that business (Section 33 (4) (a) and (b)). The notice has to be given within fifteen days after the event in question and has to identify the event, give the date of its occurrence and indicate the amount of relevant share capital in which the person is, after the event, interested. The same provisions apply to all persons who are interested in 10 per cent. of the relevant share capital of a quoted company on 27th October, 1967, on the date when a company obtains a quotation for part of its share capital or when a class of its share capital becomes relevant share capital. Section 34 requires a register of substantial shareholdings to be kept on almost identical lines to the register of directors' interests: it has to be kept at the same place, made up in the same manner and within the same time and entries do not fix the company with notice of third party rights regarding its shares. The only special feature of the section is the qualification to the general rule that the register has to be available for inspection by members and others: if a company which has given notice pursuant to Section 33 has availed itself in its own accounts of the exemption in Sections 3 (3) or 4 (3), the entries relating to its interest in the register of substantial shareholdings of the company in which it holds the shares must not be open for inspection. Miscellaneous Inspection and Investigation Sections 32 and 35 to 42 and Sections 109 to 118 are designed to ensure that in future the Board of Trade are able to act both earlier and more effectively with regard to their investigations into companies' affairs. Production of documents One of the difficulties encountered by the Board of Trade in recent years has been their inability to obtain information from a company with a view to establishing whether the circumstances are such as to warrant the appointment of an inspector. This particular hurdle has been overcome in the new Act by Sections 109 and 110: the former entitles the Board of Trade to direct a wide variety of bodies (including foreign companies which have carried on business in Great Britain) to produce specified books and papers, to copy them, to enquire as to their whereabouts and to demand their production by any person (including a solicitor) who possesses them and to demand explanations of any part of them. These sweeping powers are qualified by Section 116 so as to afford some protection to solicitors from the obligation to disclose privileged communications with their clients. The protection is not, however, as wide as that afforded by Section 175 of the principal Act since it only exempts a solicitor from producing documents containing privileged communications made by or |