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Company Law Reform Bill [HL]

In moving Amendment No. 155, my noble friend has given us a foretaste of what he will say to Amendment No. 163, which deals specifically with imposing an obligation on directors to settle the taxation liabilities of a company. Lest there be any doubt, I ought to make it plain that I am very much in favour, as are the Government, of directors making sure that the tax liabilities of companies are met. I will develop that point, if necessary, when we come to Amendment No. 163. Amendment No. 155, however, would cause a problem. The general duties are, as I was saying earlier, to be interpreted and applied in the same way as common law rules and equitable principles. That would, in one sense at least, bring the spirit of the general duties into play. It is also right that the general duties are expressed in general terms. We think that that is a strength, because it enables one to focus on principle and not descend to an ossified set of details. One of the duties, which we shall come to shortly, is that of a company to act in accordance with the company’s constitution. That is already set out in Clause 155(a). I do not therefore think that the amendment is necessary. There is a particular problem with the amendment. It would apparently impose upon the director an obligation in effect to demonstrate—to prove—that he has acted in accordance with the company’s constitution. That is a reversal of the normal burden of proof. If a company was alleging that the director had broken his duty, it would be for the company to demonstrate that. I fear that my noble friend’s amendment would shift that the wrong way round and put the onus on the director because he would have to demonstrate that he had acted within the spirit as well as the letter of the company’s constitution. That is not just a technical concern about the purity of the English rules of procedure in civil claims; it could also impact on the way in which the director did his duty. If he thought he had to demonstrate that rather than meet a claim, he might well be more defensive and act in a more risk-averse way than would be in the best interests of the company. So while I recognise the spirit in which my noble friend has moved the amendment, the Government cannot accept it.