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Company Law Reform Bill [HL]

The noble Lord is right in saying that there is a lack of law at the moment on the extent to which the general duties of directors apply to shadow directors. There are differences of view about it as well. The law commissions took the view that the duties apply to a shadow director where he effectively acts as a director through the people whom he can influence, and recommended that the duties should apply to shadow directors. That was the approach adopted in earlier consultation drafts of these provisions. However, several consultation responses argued that the general duties do not and should not apply to shadow directors. On top of that, although there are cases in the past that suggest that some of the general duties may apply to a shadow director, a recent well argued and impressive judgment suggests the opposite. The Government took the view that in these circumstances the law should be left to develop further. As its future direction is not at all clear, we do not consider it appropriate to set it out in statute at this time. Therefore, subsection (5) leaves the question open. The noble Lord suggested that the words would crystallise the position as it is now. He is reading the words,"““where, and to the extent that, the corresponding common law rules or equitable principles so apply””," as meaning, ““so apply at this moment in time””. I am not sure that that is right. There is a provision that statutes are always speaking, and that tends to mean that one looks at the position when one is considering the statute rather than when it was passed. I will look at that point and ensure that that subsection does what we believe it does. However, if the subsection were removed, as would be the effect of Amendment No. 152, it would leave the position completely in doubt because it would not be clear whether it was being said that shadow directors owe all the duties or none of the duties. It is necessary to say something on that, and, in the light of the consultation responses, the better course to take is to let the law develop and to say that they should apply to the extent that the law provides. The noble Lord said that it would be better to develop the law. I do not think that he indicated in what way he would have it develop. Amendment No. 152 does not develop the law and would lead to confusion. Amendment No. 153 would specifically provide that all the general duties would apply to shadow directors but without any qualification of the circumstances in which they would. I did not understand the noble Lord to say that that is what he wants as the end result, but if he does, then at least I know what his position is. However, for the reasons I have given, the Government do not think that it is the right position, at least at the moment.