Background and summary
611.In October 1998 the Committee on Standards in Public Life presented to the Prime Minister its report on the funding of political parties in the UK. The Report recommended that any company intending to make a donation (whether in cash or in kind, and including any sponsorship, or loans or transactions at a favourable rate) to a political party or organisation should be required to have the prior authority of its shareholders. The Government accepted this recommendation, and implemented it through the Political Parties, Elections and Referendums Act 2000 («the PPERA»). The new regime for control of political donations and expenditure is in Part 10A of the 1985 Act, as inserted by section 139 of and Schedule 19 to the PPERA.
612.Part 14 of the Act restates the existing provisions in a style consistent with the other sections, but most of the key elements of the framework established by the PPERA remain. In particular:
companies will continue to be prohibited from making a donation to a political party or other political organisation or from incurring political expenditure unless the donation or the expenditure has been authorised, in a typical case by the members of the company;
a «political donation» will continue to be defined by reference to sections 50 to 52 of the PPERA, and for this purpose amendments made to the PPERA by the Electoral Administration Act 2006 (which remove from the definition of «donations» loans made otherwise than on commercial terms) will be disregarded;
an approval resolution may authorise the making of donations and incurring of expenditure for a period of not more than four years commencing with the date of the passing of the resolution up to a value specified in the resolution;
donations or expenditure by a subsidiary must, in general, be authorised by resolutions of the members of the subsidiary and of the holding company; and the directors of such a holding company will continue to be liable for unauthorised donations by the subsidiary company;
a company need not seek prior shareholder consent for a donation to a political party or organisation unless the aggregate amount of the donation together with any other relevant donations made by the company and other companies in the group of which it is a member in the previous 12 months exceeds £5,000;
there are no criminal sanctions in relation to the making of unauthorised donations or the incurring of unauthorised political expenditure;
civil remedies are available to a company in the event of breach of the prohibitions and may be pursued in the normal manner by the company. There will continue to be available an action under which shareholders may enforce on behalf of the company any of the remedies available to a company.
613.The main changes from Part 10A of the 1985 Act are that:
in line with the general approach in the Act, references to the general meeting are removed to make it clearer that private companies can authorise donations and/or expenditure by written resolution;
a holding company must authorise a donation or expenditure by a subsidiary company only if it is a «relevant holding company» (that is, the ultimate holding company or, where such a company is not a «UK-registered company», the holding company highest up the chain which is a «UK-registered company»);
a holding company is permitted to seek authorisation of donations and expenditure in respect of both the holding company itself and one or more subsidiaries (including wholly-owned subsidiaries) through a single approval resolution (section 367(1));
companies are permitted to table separate approval resolutions in respect of donations to political parties and donations to other political organisations (section 367(3));
companies are required to seek authorisation for donations to independent candidates at any election to public office held in the UK or other EU member state and for expenditure by the company relating to independent election candidates;
the sections provide greater clarity for companies about the provision of facilities (for example, meeting rooms) for trade union officials by introducing a specific exemption for donations to trade unions (section 374). The Act does not introduce a specific exemption in relation to paid leave for local councillors because this does not constitute a political donation or political expenditure under Part 10A of the 1985 Act or this Act;
there are important changes to the rules on ratification and liability in cases of unauthorised donations or expenditure;
the special rules in respect of the parent company of a non-GB subsidiary undertaking (sections 347E and 347G of the 1985 Act) are not reproduced;
The new provisions apply to Northern Ireland.
Commentary
Section 362: Introductory
614.This section explains that this Part relates to political expenditure and to political donations made by companies to political parties, political organisations and independent election candidates.
Section 363: Political parties, organisations etc to which this Part applies
615.This section establishes the general scope of the provisions of this Part and introduces the concepts of:
political parties;
political organisations other than political parties;
independent election candidates at any election to public office.
Section 364: Meaning of «political donation»
616.This section defines a "political donation" for the purposes of this Part by reference to sections 50 to 52 of the Political Parties, Elections and Referendums Act 2000. For this purpose, amendments made to the 2000 Act by the Electoral Administration Act 2006 (which remove from the definition of «donation» loans made otherwise than on commercial terms) are disregarded. This section reproduces the effect of section 347A(4) of the 1985 Act, except that it includes donations to independent election candidates.
Section 365: Meaning of «political expenditure»
617.This section defines «political expenditure" for the purposes of this Part.
618.It reproduces the effect of section 347A(5) of the 1985 Act, except that it extends the definition to expenditure incurred by the company in relation to independent election candidates.
Section 366: Authorisation required for donations or expenditure
619.This section prohibits a company from making a donation or incurring political expenditure unless the transaction or the expenditure is authorised by a resolution of the members of the company. If the company is a subsidiary of another company, a resolution may instead, or in addition, be required from the members of the holding company. Sections 1159, 1160 and Schedule 6 provide the definition of «subsidiary». This section reproduces the effect of section 347C(1) and (6) and section 347D of the 1985 Act, except that:
in line with the general approach in the Act, the section does not refer to the general meeting, to make it clear that private companies can authorise donations and/or expenditure by written resolution;
a donation or expenditure by a subsidiary company must be authorised by the members of the company and by members of a «relevant holding company» (rather than by the members of each holding company within a group). A «relevant holding company» is the ultimate holding company or, where such a company is not a «UK-registered company», the holding company highest up the chain which is a «UK-registered company»;
a resolution is not required on the part of a company that is a wholly-owned subsidiary of a «UK-registered company» (rather than of any holding company, as in section 347D of the 1985 Act);
the section does not reproduce the prohibition (in section 347C(5) of the 1985 Act) on retrospective ratification of breaches of the rules.
Section 367: Form of authorising resolution
620.This section provides that an authorising resolution may identify the subsidiaries, the heads of donations or expenditure, and the amounts that it authorises. The section reproduces the effect of the 1985 Act, but with the following changes:
under subsection (1) and (2), a holding company may seek authorisation of donations and expenditure in respect of both itself and one or more of its subsidiaries (including wholly-owned subsidiaries) in a single approval resolution. The subsidiaries do not need to be named in the resolution if it applies to all of a holding company’s subsidiaries;
under subsection (3), a company may pass separate approval resolutions in respect of donations to political parties and donations to other political organisations.
Section 368: Period for which resolution has effect
621.This section provides that an approval resolution may seek authorisation for the making of donations and incurring of expenditure having effect over a period of not more than four years. It reproduces the effect of the 1985 Act.
Section 369: Liability of directors in case of unauthorised donation or expenditure
622.This section imposes civil liability on directors where unauthorised donations are made or unauthorised political expenditure is incurred. The liabilities are owed to the company and may be pursued in the normal manner by the company; that is they may be pursued by the directors in the exercise of the management powers conferred by the articles of association. The directors will be subject to the general duties set out in Chapter 2 of Part 10 in the conduct of the company's business. In addition, section 370 provides for enforcement by shareholder action.
623.The section largely reproduces the effect of section 347F of the 1985 Act, but:
only a director of the company and of a «relevant holding company» may be liable in respect of an unauthorised donation or unauthorised expenditure. This reflects the new rules relating to the authorisation of donations or expenditure by subsidiaries in section 366;
directors of the «relevant holding company» will not be liable for an unauthorised political donation or unauthorised political expenditure by a subsidiary if they took «all reasonable steps to prevent the donation being made or the expenditure being incurred».
624.The conditions under which directors may be exempted from liability (currently set out in section 347H of the 1985 Act) are not reproduced in the new regime.
Section 370: Enforcement of directors' liabilities by shareholder action
625.This section provides a mechanism by which an authorised group of shareholders may enforce on behalf of the company any liability under section 369. In the case of a company limited by shares, an action may be brought by a group of shareholders if they are at least 50 in number, or hold at least 5% of the issued share capital. This section reproduces the effect of section 347I of the 1985 Act, except that, in a case where liability is owed by directors of a holding company in relation to a donation made by a subsidiary, the action may be brought by shareholders of the subsidiary or of the holding company.
Section 371: Enforcement of directors’ liabilities by shareholder action: supplementary
626.This section makes further provision in relation to proceedings brought under section 370. It reproduces the effect of section 347I of the 1985 Act. The group of shareholders wanting to take action under section 370 must give written notice to the company at least 28 days in advance of bringing the proceedings. Any director of the company has the right to apply to the court within 28 days of when the notice was given to request that the proceedings not be brought.
627.This section also provides that if the liability is already being pursued with due diligence by the company, the court may direct that the proceedings brought by the group of shareholders are either discontinued or brought on such terms and conditions as the court sees fit.
Section 372: Costs of shareholder action
628.This section provides that the authorised group of members are not entitled as of right to have the cost of the shareholder action met from the funds of the company, but have the right to apply to the court for an indemnity out of the company's assets in respect of costs incurred or to be incurred in a shareholder action. The court would have full discretion to grant such an indemnity on such terms as it thinks fit. The section reproduces the effect of section 347J of the 1985 Act.
Section 373: Information for purposes of shareholder action
629.This section provides that the authorised group of members is entitled, once the action is commenced, to be provided by the company in whose name it is brought with all information possessed by the company, or in its control or obtainable by it, relating to the subject matter of the action. It reproduces the effect of section 347K of the 1985 Act.
Sections 374 to 378: Exemptions
630.These sections set out five exemptions from the requirement for prior shareholder authorisation:
section 374 creates a new exemption in relation to donations to trade unions (including trade unions in countries other than the UK). The exemption covers donations such as the provision of company rooms for trade union meetings, the use of company vehicles by trade union officials and paid time off for trade union officials. However, a donation to a trade union’s political fund is not covered by the exemption;
section 375 restates the exemption in section 347B of the 1985 Act in respect of subscriptions paid to a trade association for membership of the association, except that it is not restricted to trade associations which carry out their activities mainly in the EU;
section 376 restates the exemption in section 347B of the 1985 Act in respect of donations to all-party parliamentary groups;
section 377 restates the exemption in section 347B of the 1985 Act for political expenditure that is exempt by virtue of an order by the Secretary of State. An order made by statutory instrument under this clause may confer an exemption on companies or expenditure of any description or category specified in the order. The parallel power in section 347B(8) to (11) of the 1985 Act was used in 2001 to exempt business activities such as the publication of newspapers which, by their very nature, involve the publication or dissemination of material which seeks to influence the views of members of the public;
section 378 restates the exemption in section 347B of the 1985 Act under which authorisation for donations is not required unless the donation or aggregate amount of the donations by the company exceeds £5,000 in a 12 month period. Donations by other group companies (including subsidiaries) must be taken into account in calculating whether the £5,000 threshold has been exceeded.
Section 379: Minor definitions
631.This section contains minor definitions for this Part.