Question proposed, That the clause stand part of the Bill.

The Chairman: With this it will be convenient to discuss the following:

New clause 2—Status of charitable societies to appear on correspondence etc—

'After section 5 of the 1965 Act insert—

''5A Status of charitable societies to appear on correspondence etc

(1) Where a registered society is a charity and its registered name does not include the word ''charity'' or the word ''charitable'', the society must state the fact that it is a charity in legible characters—

(a) in all notices, advertisements and other official publications of the society;

(b) in all business letters of the society;

(c) in all bills of exchange, promissory notes, endorsements, cheques and orders for money or goods, purporting to be signed by or on behalf of the society; and

(d) in all bills, invoices, receipts and letters of credit of the society.

(2) Where a society's registered name includes the words ''elusen'' or the word ''elusennol'', subsection (1) of this section shall not apply in relation to any document which is wholly in Welsh.

(3) The statement required by subsection (1) of this section shall be in English, except that, in the case of a document which is otherwise wholly in Welsh, the statement may be in Welsh if it consists of or includes the word ''elusen'' or the word ''elusennol''.

(4) Section 62 of this Act does not apply in respect of an offence committed by a registered society under section 61 of this Act where the offence consists of a failure to comply with this section.

(5) Any officer of a registered society, or any other person acting on such a society's behalf, who—

(a) issues or authorises the issue of any document such as is mentioned in subsection (1)(a), (b) or (d) of this section; or

(b) signs or authorises to be signed on behalf of the society any document such as is mentioned in subsection (1)(c) of this section,

in which a statement required by subsection (1) is not made in accordance with this section shall be liable on summary conviction to a fine not exceeding level 3 on the standard scale.

(6) In the case of a conviction by virtue of paragraph (b) of subsection (5) of this section, the officer or other person shall further be personally liable to the holder of any such document as is referred to in that paragraph for the amount specified in the document unless that amount is duly paid by the society.

(7) In this section, ''charity''—

(a) in relation to a society whose registered office is situated in England or Wales, has the same meaning as in the Charities Act 1993;

(b) in relation to a society whose registered office is situated in Scotland, means a body established for charitable purposes only (that expression having the same meaning as in the Income Tax Acts).'' '.

New clause 3—Capacity of society and power of committee to bind it—

'After section 7 of the 1965 Act insert—

''Capacity of society and power of committee to bind it

7A Capacity of society not limited by its rules

(1) The validity of an act done by a registered society shall not be called into question on the ground of lack of capacity by reason of anything in the society's registered rules.

(2) A member of a registered society may bring proceedings to restrain the doing of an act which but for subsection (1) of this section would be beyond the society's capacity; but no such proceedings shall lie in respect of an act to be done in fulfilment of a legal obligation arising from a previous act of the society.

(3) It remains the duty of the members of the committee of a registered society to observe any limitations on their powers flowing from the society's registered rules; and action by the members of the committee which but for subsection (1) of this section would be beyond the society's capacity may only be ratified by the society by special resolution.

(4) A resolution ratifying such action shall not affect any liability incurred by a member of the committee or any other person; relief from any such liability must be agreed to separately by special resolution.

(5) The operation of this section is restricted by section 7D of this Act (application to charitable societies); and section 7E of this Act (transactions with members of the committee and connected persons in excess of powers) has effect notwithstanding this section.

(6) In this section ''special resolution'' means a resolution passed by not less than 75% of such members of the society as (being entitled to do so) vote in person, or by proxy where the society's rules allow proxies, at a general meeting of which notice, specifying the intention to propose the resolution, has been duly given according to those rules.

(7) A copy of every special resolution for the purposes of this section signed by the chairman of the meeting at which the resolution was passed and countersigned by the secretary of the society shall be sent to the Authority and registered by it; and until that copy is so registered the special resolution shall not take effect.

7B Power of committee to bind society

(1) In favour of a person dealing with a registered society in good faith, the power of the committee to bind the society, or authorise others to do so, shall be deemed to be free of any limitation under the society's registered rules.

(2) For this purpose—

(a) a person ''deals with'' a society if he is a party to any transaction or other act to which the society is a party;

(b) a person shall not be regarded as acting in bad faith by reason only of his knowing that an act is beyond the powers of the committee under the society's registered rules; and

(c) a person shall be presumed to have acted in good faith unless the contrary is proved.

(3) The references above to limitations on the powers of the committee under the society's registered rules include limitations deriving—

(a) from a resolution of the society in general meeting or a meeting of any class of members; or

(b) from any agreement between the members of the society or of any class of members.

(4) Subsection (1) of this section does not affect any right of a member of the society to bring proceedings to restrain the doing of an act which is beyond the powers of the committee; but no such proceedings shall lie in respect of an act to be done in fulfilment of a legal obligation arising from a previous act of the society.

(5) Nor does subsection (1) affect any liability incurred by a member of the committee, or any other person, by reason of the committee's exceeding its powers.

(6) The operation of this section is restricted by section 7D of this Act (application to charitable societies); and section 7E of this Act (transactions with members of the committee and connected persons in excess of powers) has effect notwithstanding this section.

7C No duty to enquire as to capacity of society or authority of committee

A party to a transaction with a registered society is not bound to enquire as to whether it is permitted by the society's registered rules or as to any limitation on the powers of the committee to bind the society or authorise others to do so.

7D Application of sections 7A and 7B to charitable societies

(1) Sections 7A and 7B of this Act (capacity of society not limited by its rules and power of committee to bind society) do not apply to the acts of a registered society which is a charity except in favour of a person who—

(a) gives full consideration in money or money's worth in relation to the act in question; and

(b) does not know that the act is not permitted by the society's registered rules or, as the case may be, is beyond the powers of the committee,

or who does not know at the time the act is done that the society is a charity.

(2) However, where such a society purports to transfer or grant an interest in property, the fact that the act was not permitted by the society's registered rules or, as the case may be, that the committee in connection with the act exceeded any limitation on its powers under those rules, does not affect the title of a person who subsequently acquires the property or any interest in it for full consideration without actual notice of any such circumstances affecting the validity of the society's act.

(3) In any proceedings arising out of subsection (1) of this section the burden of proving—

(a) that a person knew that an act was not permitted by the society's registered rules or was beyond the powers of the committee, or

(b) that a person knew that the society was a charity,

lies on the person making that allegation.

(4) Where a registered society is a charity with its registered office situated in England or Wales, the ratification of an act under section 7A(3) of this Act, or the ratification of a transaction to which section 7E of this Act applies, is ineffective without the prior written consent of the Charity Commissioners for England and Wales.

(5) In this section, ''charity''—

(a) in relation to a society whose registered office is situated in England or Wales, has the same meaning as in the Charities Act 1993;

(b) in relation to a society whose registered office is situated in Scotland, means a body established for charitable purposes only (that expression having the same meaning as in the Income Tax Acts).

7E Transactions with committee members and other persons in excess of powers

(1) This section applies where a registered society enters into a transaction to which the parties include—

(a) a member of the committee of the society, or

(b) a person connected with such a member or a company with whom such a member is associated,

and the committee of the society, in connection with the transaction, exceeds any limitation on its powers under the society's registered rules.

(2) The transaction is voidable at the instance of the society.

(3) Whether or not it is avoided, any such party to the transaction as is mentioned in subsection (1)(a) or (b) of this section, and any member of the committee who authorised the transaction, is liable—

(a) to account to the society for any gain which he has made directly or indirectly by the transaction; and

(b) to indemnify the society for any loss or damage resulting from the transaction.

(4) Nothing in the above provisions shall be construed as excluding the operation of any other enactment or rule of law by virtue of which the transaction may be called in question or any liability to the society may arise.

(5) The transaction ceases to be voidable if—

(a) restitution of any money or other asset which was the subject-matter of the transaction is no longer possible; or

(b) the society is indemnified for any loss or damage resulting from the transaction; or

(c) rights acquired bona fide for value and without actual notice of the committee's exceeding its powers by a person who is not party to the transaction would be affected by the avoidance; or

(d) the transaction is ratified by the society in general meeting in such a way as the case may require.

(6) A person other than a member of the committee is not liable under subsection (3) of this section if he shows that at the time the transaction was entered into he did not know that the committee was exceeding its powers.

(7) This section does not affect the operation of section 7B of this Act in relation to any party to the transaction not within subsection (1)(a) or (b) of this section.

(8) But where a transaction is voidable by virtue of this section and valid by virtue of that section in favour of such a person, the court may, on the application of that person or of the society, make such order affirming, severing or setting aside the transaction, on such terms, as appear to the court to be just.

7F Definitions relating to section 7E

(1) In section 7E of this Act ''transaction'' includes any act; and the reference in subsection (1) of that section to limitations under the society's registered rules includes limitations deriving—

(a) from a resolution of the society in general meeting or a meeting of any class of members; or

(b) from any agreement between the members of the society or of any class of members.

(2) In section 7E(1) of this Act ''company'' has the same meaning as in the Companies Act 1985.

(3) Section 346(2) to (8) of the Companies Act 1985 shall apply for the purposes of references in section 7E(1) of this Act to a person's being ''connected'' with a committee member or to a committee member's being ''associated with'' a company, but shall so apply—

(a) as if any reference to a director of a company were a reference to a member of a committee of a registered society; and

(b) subject to such other adaptations and modifications as may be specified by regulations made by the Treasury under this section.

(4) Any regulations made under this section shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(5) In section 7E(4) of this Act ''enactment'' includes an enactment comprised in—

(a) an Act of the Scottish Parliament;

(b) subordinate legislation, whether made under an Act or an Act of the Scottish Parliament.

(6) In section 7E(8) of this Act ''the court'', in relation to a registered society, means the court having jurisdiction to wind up the society under the provisions of the Insolvency Act 1986 as applied by section 55 of this Act.'' '.

Mr. Todd: It may be best to refresh hon. Members' memory about the purpose of the original clause 2(1), which was to protect those who trade with societies

from an ultra vires ruling that a society has acted outside its powers. It tried to mirror similar company legislation, and the new clauses—at greater length, I must admit—aim to do the same with some additional provisions for societies that are charities.

I explained on Second Reading that in theory the only certain protection to someone dealing with a society is to obtain a copy of its rules and to satisfy themselves that the society is acting within them. That is clearly a barrier to normal business transactions. It is worth remembering that the clause relates to co-operative societies as well as community benefit societies and that many co-operative societies are very substantial economic enterprises that trade in the same markets as plcs and other corporate institutions. The proposed changes do not relieve a society of its duty to operate within its rules. They simply ensure that any responsibility for that lies squarely in the society and is not transferred to its customers, business partners or others who trade with it.

The provisions allow members to act to restrain their society from actions outside the rules. They address the particular circumstances of internal transactions where a society trades, for example, with some of its own members. In that case, the assumption has been made that such actions may not be in good faith. It should be stressed that the first element of the provisions relating to ordinary transactions with third parties assumes that a good faith transaction has taken place in which both the society and the person trading with it believed that they were trading within the rules. Where a transaction takes place within the society, that assumption is not made in law, and it should be possible to void that transaction, with the parties being liable. Similar provisions apply in company law relating to transactions with directors of companies.

A further special provision relates to societies that are charities, and is additional to the Bill that was presented on Second Reading. In that situation, the priority is the protection of the society's assets as a charity, rather than the contract that has been agreed with a third party. Dealing outside the rules would thus be voidable in such instances.

New section 5A of the 1965 Act ensures that the fact that the society is a charity is declared to anyone doing business with it. The provisions modernise the law relating to co-operatives and community benefit societies and I commend them to the Committee.

Mr. Simon Thomas: I would like to speak briefly on these provisions because they are the most Welsh part of the Bill, including as they do the two Welsh words ''elusen'' and ''elusennol. '' This is perhaps the opportunity to ensure that the Bill is right for Wales. In its new form, I believe that to be the case, and I support both the new clause and the Bill.

New clause 2 is a very welcome clearing up of the law in relation to charitable trading bodies. It will make it clearer for those who are doing business that they are dealing with a charitable body. It was not until I saw the new clauses that I realised the problem that the hon. Member for South Derbyshire was attempting to address. I welcome the fact that he has

taken the opportunity, no doubt with advice from the right quarters, to ensure that in Wales that can be done bilingually.

It took a long time for co-operatives to be able to be registered as charities in the Welsh language in Wales. It was quite a long struggle to get the Charity Commission to recognise registration of charities in the Welsh language, which was rather strange, considering that Robert Owen started the whole business in Newtown. Nevertheless, that has been done, and the Welsh Language Act 1993 strengthened that position.

The question that I would like to ask the Minister arises from the 1993 Act, because that Act covers the Charity Commission, and will cover any new body that may arise from the review mentioned by the hon. Member for Eddisbury. We are aware that there might be a review of the laws on friendly societies in that regard. Can the Minister tell us how the Bill and system of registration will come within the ambit—within Wales, of course—of the 1993 Act?

Several charities and community bodies use the Welsh language—indeed, some of them exist to promote it. I want to assure them that they are completely in order in continuing to conduct their business in the medium of Welsh and that there will be nothing in this or any forthcoming Bill to stop them doing that. I welcome the new clauses, which clarify matters for the charities and those who trade with them, and I hope that they will be supported.

Mr. O'Brien: In response to the hon. Gentleman's remarks, I cannot help noting that the genesis of the co-operative movement came from the very English-sounding Newtown. I welcome new clauses 2 and 3. As the hon. Member for South Derbyshire rightly pointed out, they are longer than the clauses that they replace.

I am completely satisfied that it is appropriate to set out what is, in effect, the public proclamation on documents and other instruments on which people can rely. A charity should make a declaration. I am reminded of our discussions on the Trustee Bill. I do not remember whether the Minister piloted it—I do not believe that she did—but similar issues were raised. It may be constructive, albeit not key, for those who are advising and working on the Bill to glance back at some of those discussions.

Subsection (6) of new clause 2 is the most important, as it relates to the potential for personal liability where there is any contravention. That must tie in with new section 7C in new clause 3, which rightly sets out what we all, as practitioners of company law and business, know as ostensible authority. I do not believe that any of us would have any difficulty with that. However, that must be set beside the personal liability in new clause 2(6) and new section 7E in new clause 3, in which

''The transaction is voidable at the instance of the society''

in certain circumstances.

I do not wish to delve into the hypothetical intricacies, but as we are taking the two new clauses together, this is the moment to recognise that they provide anyone with the mal-intent to try to find a

loophole with the opportunity to do so. The proposed legislation is as I would expect, as it seems to resonate with the case law that arose in relation to companies, which is equivalent to what the Bill proposes, especially for charities, and with the special resolution procedure and the Companies Acts. As I said, I do not want to go too far into the detail, but it is important to flag up that this is where the issues may lie.

I look forward to the Minister's comments.

Ruth Kelly: I agree that, in some respects, new clauses 2 and 3 are longer than the clauses that they replace. That is all in the aid of transparency, and should make it easier to interpret and use the provisions. Again, I do not intend to repeat the comments made so ably by my hon. Friend the Member for South Derbyshire (Mr. Todd)—the promoter of the Bill—who clearly said why the changes were needed and why they should facilitate the powers and capacities of societies to enter into business transactions.

The new clauses are highly desirable, and the Government support them. I accept that the provisions for personal liability are interesting and serious. If the hon. Member for Eddisbury wants to put anything in particular to me, we will of course look at it in greater detail.

On the point about the Welsh language, I point out to the hon. Member for Ceredigion (Mr. Thomas) that we took the Welsh Language Act 1993 into account in the proposals. We will consider that further as we go forward. Again, if he wants to make representations on that issue, I will of course be happy to consider them, but I assure him that we are aware of his concern. On that note, I commend the new clauses to the Committee.

Question put and negatived. Clause 3Formalities of Carrying on Societies' Business and Pre-incorporation Contracts