Part IV Reorganisation of the Post Office
Section 62: Transfer of property etc. to nominated company
91.Section 62 permits the Secretary of State, after consulting the Post Office, to transfer by order all the property, rights and liabilities of the Post Office to a company wholly owned by the Crown which has been formed under the Companies Act 1985. He may vary or revoke the order with a subsequent order before any transfer has taken place. Further provisions about the transfer are made in Schedule 3.
Section 63: Government holding in the Post Office company and certain subsidiaries
92.Section 63 requires the Post Office company or any of its wholly owned subsidiaries to issue securities (securities are defined insection 82) upon the direction of the Secretary of State with the consent of the Treasury. Those securities shall, as directed by the Secretary of State, be issued to the Treasury or the Secretary of State, or to a person approved for the purpose of a disposal under section 67, or to the Post Office company or a relevant subsidiary (as defined in subsections (8) and(9)). Section 79 has the effect that nominees may be appointed by the Treasury or the Secretary of State for the purpose of receiving securities issued under this section. The Secretary of State’s power to direct for the purpose of section 63 ceases in the event that the Crown no longer wholly owns the Post Office company.
93.Securities issued under this section can be issued at such times and on such terms as the Secretary of State directs, but any shares issued will bear a nominal value, as directed by the Secretary of State and be treated as if fully paid for the purposes of the Companies Act 1985 or the Companies (Northern Ireland) Order 1986.
94.A relevant subsidiary is defined in subsection (8) as one which delivers, collects, receives, sorts or conveys relevant postal packets (of the type defined in section 4) in the United Kingdom or which provides a registered postal service in the United Kingdom or any other subsidiary of the Post Office company which holds shares or share rights in, or is connected to, any such subsidiary. A subsidiary is connected to another under subsection (9) for the purpose of the section if it forms part of a chain of subsidiaries of the Post Office company, each holding shares or share rights in the other, which includes the relevant subsidiary.
Section 64: Government investment in securities of the Post Office company and its subsidiaries
95.Section 64 empowers the Treasury or the Secretary of State (with Treasury consent) to acquire any securities issued by the Post Office company or any of its subsidiaries. The Secretary of State can only dispose of such securities with the consent of the Treasury. The Secretary of State does not require the consent of the Treasury for disposals permitted under section 67 nor for a disposal to the Treasury or the Treasury’s nominee. Section 79 has the effect that nominees may be appointed by the Treasury or the Secretary of State for the purpose of this section.
Section 65: Restriction on issue of shares to third parties
96.Section 65 prevents shares or share rights in the Post Office company or any relevant subsidiary being issued to anyone other than the Treasury and the Secretary of State (or any nominee of either of them), unless approval has been given by Parliament under the procedure set out in section 67 to dispose of shares to a named third party. Subsection (2)(b) also permits shares or share rights in relevant subsidiaries being issued to the Post Office company or another relevant subsidiary of which the subsidiary concerned is itself a subsidiary.
Section 66: Restriction on disposals of shares to third parties
97.Section 66 prohibits the Treasury and the Secretary of State (or any nominee) disposing of shares or share rights in the Post Office company (or any relevant subsidiary) other than to each other, as permitted by subsection (3). However, the prohibition does not apply if the prior approval of Parliament has been obtained in accordance with section 67. This follows the policy, set out in the Government’s White Paper (Post Office Reform, cmnd 4340), that after transformation to a Companies Act company, the Post Office company would remain Government-owned and shares would only be exchanged or sold in order to cement commercial strategic alliances.
98.Subsection (2) prohibits the Post Office company or any of its subsidiaries (or their nominees) disposing of shares or share rights in any relevant subsidiary (as defined in section 63), though subsection (4) permits their disposal to the company or another subsidiary (or their nominees). Again, in accordance with subsection (5), the prohibition does not apply if Parliamentary approval has been obtained under the procedure in section 67.
Section 67: Approved disposals
99.Section 67 sets out the procedure to be followed in order to obtain the approval of Parliament to make share issues or disposals of shares or share rights which would otherwise be prohibited by sections 65 and 66.
100.Subsection (2) specifies the minimum information to be contained in a motion to be presented for the approval of both Houses.
101.Subsection (3) sets out the conditions that must be met before a motion relating to the disposal of shares or share rights in the Post Office company may be moved, notably that the company has agreed to take part in a joint venture or other partnership which it considers to be in its commercial interests, which involves the issue or disposal of shares or share rights in the Post Office company. In addition the motion may not be moved unless the Post Office company has recommended to the Secretary of State that the disposal takes place, the Secretary of State is satisfied that the issue or disposal secures the proposed arrangement and that it is in the commercial interests of the company; and the Treasury has given consent to the proposed issue or disposal.
102.Subsection (4) sets out the pre-conditions to be met before moving a motion relating to issue or disposal of shares or share rights in a relevant subsidiary (as defined in section 63) in order to enable the Post Office company or a relevant subsidiary to take part in a joint venture or other partnership. The pre-conditions are generally similar to those set out in subsection (3).
Section 68: Loans by the Secretary of State to the Post Office company and its subsidiaries
103.Section 68 empowers the Secretary of State, with the approval of the Treasury, to lend to the Post Office in any currency once it becomes a company and authorises the necessary funds to be provided from the National Loans Fund. The section provides for lending either to the Post Office company or direct to any of its subsidiaries on terms to be agreed (with the Treasury’s consent) between the Secretary of State and the Post Office company/subsidiary, except that interest rates are to be as directed by the Secretary of State with the approval of the Treasury. The lending and issues from the National Loans Fund may be in any foreign currency if the loan is to be in that currency, as well as sterling. Any monies repaid to the Secretary of State in respect of interest or capital on the loan will be repaid into the National Loans Fund. The provisions of this section make section 5 of the National Loans Act 1968 applicable to the rate of interest payable on loans and the rate will be subject to the requirements of that section.
Section 69: Guarantees by the Secretary of State for the Post Office company and its subsidiaries
104.Section 69 empowers the Secretary of State to give guarantees in respect of any financial obligation of the Post Office company or its subsidiaries. This power is taken because under Treasury guidance, it is usual practice for nationalised industries which are borrowing from non-Government sources (e.g. to provide an overdraft facility) to obtain a Government guarantee to secure the cheapest available funds for the public sector. However, this may not be appropriate in all circumstances, and it is not envisaged that this power would be used often in the case of the Post Office or its subsidiaries.
105.The Secretary of State must make a statement to Parliament about the giving of any such guarantees as soon as practicable after they have been given. If any payments are made by the Secretary of State under a guarantee, the Secretary of State will direct the terms (as to interest and capital) on which the monies are repayable by the Post Office company or, as relevant, by the subsidiary.
106.As soon as practicable after the end of any financial year in which any monies were paid by the Secretary of State in respect of a guarantee, a statement will be laid before each House of Parliament stating the sums paid. A statement will also be laid before each House as soon as practicable after the end of each financial year regarding the amount of any outstanding debt or obligation which is the subject of the guarantee given by the Secretary of State. This will allow Parliament to be informed about the remaining risk under any outstanding guarantees. In addition, the statement laid must include any amounts received by the Secretary of State during the financial year concerned in repayment of sums, or interest on sums, paid by the Secretary of State in fulfilment of any guarantee given under this section. The statement must also include any amount outstanding and unpaid at the end of the financial year in respect of the sums paid by the Secretary of State. This will allow Parliament to be informed of what has been paid back to the Government by the Post Office company or its subsidiaries in respect of any guarantees fulfilled by the Secretary of State and what amounts remain to be repaid. These statements will cover both the principal and the interest and are intended as an aid to public accountability.
Sections 70, 72 and 74: Provisions about financial restructuring
107.Sections 70 and 72 are intended to facilitate the restructuring of the balance sheet by 1 April 2002, as announced in the White Paper. The balance sheet will be restructured in order to place the Post Office company on a more commercial footing and allow benchmarking against its competitors. At present the Post Office holds on its balance sheet the government securities and deposits with the National Loans Fund (NLF) which represent accumulated reserves, in effect accumulated dividends, which were not payable to the Consolidated Fund.
108.Section 70 empowers the Secretary of State with the consent of the Treasury by order to cancel any liability of the Post Office company or any of its subsidiaries, including any in respect of sums paid in fulfilment of guarantees, but not principal of or interest on loans owed to the Secretary of State and payable into the National Loans Fund or any form of taxation duty or fine. The Secretary of State must consult the Post Office company before extinguishing any of its liabilities and must consult that company and the subsidiary concerned before extinguishing any liabilities of a subsidiary. However, the Secretary of State may by order repeal the section, with the consent of the Treasury, and it would be the intention to do so once the purpose of the section is spent, i.e. the restructuring of the balance sheet of the Post Office company is complete.
109.Section 72 empowers the Secretary of State, after consultation with the Post Office company and with the consent of the Treasury, to give directions to the Post Office company requiring it to allocate amounts to general reserves or to reserves for a particular purpose; and to reallocate those reserves to other specified purposes. The Secretary of State may also direct the Post Office company to cause any of its subsidiaries to create such reserves or to reallocate them for other purposes.
110.The Secretary of State may also direct how amounts allocated to a reserve are to be applied and may require such amounts to be paid out as if they were profits available for distribution within the meaning of section 263(1) of the Companies Act 1985 or Article 271(1) of the Companies (Northern Ireland) Order 1986 (distributions to be made out of profits). This provision therefore enables the Secretary of State to require the payment of dividends out of these reserves.
111.Subsection (4) provides that no reserve created under this section shall count as an undistributable reserve for the purposes of section 264(3)(d) of the Companies Act 1985 or Article 272(3)(d) of the Companies (Northern Ireland) Order 1986 (restriction on distribution of assets). However, under subsection (5), amounts allocated to reserves, apart from any amounts which the Secretary of State has authorised to be applied as if they were profits available for distribution, shall be treated as if they were unrealised profits of the company (for the purpose of section 264(3)(c) of the Companies Act 1985 or article 272(3)(c) of the Companies (Northern Ireland) Order 1986). This means that the reserves created under this section would only be distributable once the Secretary of State has given a direction requiring their application as distributable profit.
112.This section enables the Government to extract as a dividend, payable to it and then into the Consolidated Fund, the Post Office company’s holdings of government securities and deposits with the National Loans Fund which represent accumulated reserves.
113.Section 74 gives the Secretary of State further powers for the purposes of restructuring the balance sheet of the Post Office company by April 2002 by injecting debt to create a commercial level of gearing and removing from it value representing reserves accumulated because the company could not as a statutory corporation pay government a dividend. It enables the Secretary of State to create debt owed by the Post Office company including debt in the form of debentures or bonds. These powers are only to be exercised after consultation with the Post Office company and with the consent of the Treasury. They are not limited to the time when the company is wholly owned by the Crown as the timing of restructuring in relation to any commercial partnering of the Post Office cannot be predicted and flexibility is required. However the Secretary of State may by order repeal the section and it would be the intention to do so once the purpose of the section is spent, i.e. the balance sheet of the Post Office company has been restructured. The section contains a definition of “debt securities” for the purpose of Part IV of the Act and this includes debentures, bonds and loan stock.
Section 71: Limit on loans and other arrangements with government
114.Section 71 sets a limit of £5,000 million on the total of the Crown’s financial arrangements with the Post Office company and any of its subsidiaries and defines what is to be included in the calculation of the figure. The Secretary of State may increase the limit set out in the Act by an order approved by a resolution of the House of Commons. The limit is in part required in order to provide assurance to Parliament that the Post Office company and its subsidiaries are not being afforded unlimited access to the National Loans Fund. The limit also provides assurance that unlimited calls may not be made on monies to be provided by Parliament.
Section 73: Statutory accounts of the Post Office company
115.Section 73 provides for continuity in the business across the transfer from statutory corporation to public limited company by providing that the Post Office’s closing accounts are in effect also the Post Office company’s opening statutory accounts. The section will mean that assets and liabilities of the Post Office are to be taken as transferred at the value given by the accounts of the Post Office for its last accounting year. It also means that anything done by the Post Office is treated for accounting purposes as if it had been done by the Post Office company. For example, the profits of the Post Office are carried forward and treated as profits of the Post Office company and the same would be true of losses, if there were any.
Section 75: Dissolution of the Post Office
116.Section 75 provides for the Post Office to continue in existence after the day of transfer of the business of the Post Office to the Post Office company, for a transitional period. It gives the Secretary of State the power to dissolve the Post Office by order, following consultation with the Post Office and Post Office company, once he is satisfied that nothing further remains to be done under paragraph 9 of Schedule 3 or an order made under the Act.
Section 76: Accounts of the Secretary of State in relation to loans
117.Section 76 requires the Secretary of State, at the Treasury’s direction, to prepare an account in the form required by the Treasury showing:
sums issued to him from the National Loans Fund for lending to the Post Office company and its subsidiaries;
repayments to him in respect of those loans and payments of interest on them; and
how he disposed of the sums issued to him for lending and of the repayments of and interest on loans made by him, the repayments and interest being payable by him into the National Loans Fund.
118.The account must be sent to the Comptroller and Auditor General by 30 November following the end of the financial year in question and he will examine, certify and report on the account and lay copies of it and his report before each House.
Section 77: Publicity requirements for certain accounts and reports of the Post Office company
119.Section 77 requires the Post Office company to send to the Secretary of State:
a copy of all annual accounts on which the company’s auditors have made a report under section 235 of the Companies Act 1985, and
a copy of the auditor’s report
as soon as is practicable after the report is made. The Post Office company must also send to the Secretary of State a copy of its directors’ report made in respect of each financial year under section 234 of the Companies Act 1985 as soon as is practicable after the report has been approved and signed. The Secretary of State is required to lay a copy of the accounts and reports before both Houses of Parliament. In this section, “annual accounts” means annual accounts within the meaning of Part VII of the Companies Act 1985 which relate to any year which includes the appointed day or to any subsequent year.
Section 78: Information requirements on the Post Office company
120.Section 78 empowers the Treasury to require the Post Office company to provide information (for example, forecasts of its capital expenditure and profits) for the performance of its functions in relation to public sector finance. The Treasury may apply to the court for any default under section 78 to be made good.
Section 79: Exercise of functions through nominees
121.Section 79 empowers the Treasury, or the Secretary of State with the Treasury’s consent, to appoint a person to act as their nominee for the purposes of section 63 (government holding in the Post Office company and its subsidiaries), section 64 (government investment in securities of the Post Office company) and section 74(3) and (4) (further provisions relating to the capital structure of the Post Office company). Any nominees shall hold and deal with the securities or debt securities on such terms and manner as directed by the Treasury, or with the consent of the Treasury, the Secretary of State.
Section 80: Shadow directors
122.Section 80 exempts the Secretary of State and the Treasury from certain administrative duties which would be imposed on them under the Companies Acts in respect of the Post Office company, in the event that either of them fell within the definition of “shadow director”. A shadow director is defined by section 741(2) of the Companies Act 1985 as “a person in accordance with whose directions or instructions the directors of a Company are accustomed to act;”. As detailed in the White Paper, the Government aims to reserve to itself controls over certain functions of the Post Office company, but the formulation of strategy and the running of the company will be the responsibility of the board of directors.
123.This section does not remove any of the substantive obligations and duties falling on a shadow director. The Secretary of State or the Treasury would still bear the same substantive responsibilities and liabilities as any other director of the Post Office company in so far as those responsibilities would require the Secretary of State or the Treasury to behave with due care and diligence towards the company. But, in the event that the Secretary of State or the Treasury was a shadow director, no useful purpose is served by obliging them to comply with the provisions specified which are of an administrative nature, such as section 288 which imposes obligations on a company to keep particulars of its directors (name, address and occupation) and to notify the registrar of any changes.
Section 81: Tax
124.Section 81 gives effect to the provisions in Schedule 4, which sets out the tax provisions in relation to the transfer of property, rights and liabilities from the Post Office to the Post Office company. The provisions ensure that the transfer is tax neutral i.e. the Post Office company will not gain any tax advantage from the transfer or suffer any tax disadvantage.
Section 82: Interpretation
125.Section 82(1) defines various terms used in Part IV of the Act. Subsections 2 and 3 clarify the interpretation of property, rights and liabilities of the Post Office.
