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Company Law Reform Bill [HL]

I want to make four points. First, the words ““can have””, which Amendment No. 169, in the name of the noble Lord, Lord Freeman, seeks to take out, constitute the common law. One goes back to the classic statement of Lord Chancellor Cranworth in Aberdeen Railway Co v Blaikie Brothers, which was subsequently endorsed. His formulation was that no fiduciary,"““shall be allowed to enter into engagements in which he has or can have a personal interest conflicting or which possibly may conflict with the interests of those whom he is bound to protect””." So the law already recognises that potential conflicts in certain circumstances are to be avoided. I could not therefore accept an amendment which removed that reference. An important question is raised, which the noble Lord, Lord MacGregor, developed; namely, what about multiple directorships? There is currently no absolute rule prohibiting directors from holding multiple directorships or even from engaging in business that competes with the company of which they are a director, but obviously a tension results from that degree of tolerance and the fiduciary duties which the director owes. The solution to it is that which the noble Lord, Lord MacGregor, identified—there is no prohibition of a conflict or potential conflict as long as it has been authorised by the directors in accordance with the requirements set out in subsections (5) and (6). Clause 159(4) (b) identifies the duty as not being infringed,"““if the matter has been authorised by the directors””." Subsections (5) and (6) set out what is required for that authorisation. I should add for completeness that Clause 164 also preserves any rule of law enabling the company to give authority specifically or generally for anything that would otherwise be a breach of duty, so there is a second way of dealing with it. This means that it would be open to the members or to the directors to decide whether or not the conflict or potential conflict is acceptable. The second point that I need to deal with is the proposed insertion of the words,"““take all reasonable steps to””," avoid. Like my noble friend Lord Clinton-Davis, I cannot accept those words. First, they simply water down the current obligation of directors. Surely companies are entitled to expect undivided loyalty from their directors—not something which depends on the exercise of care, even so described, as to whether they have avoided that conflict. That would be a significant change to the current law and it is not one that we would propose. I give way.