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Company Law Reform Bill [HL]

I find myself agreeing with my noble friend Lord Clinton-Davis in the thrust of what he says. The amendment would substitute a subjective, or at least partly subjective, test for what is at the moment an objective test. Following consultation, the Government have already adjusted the provision that now appears in subsection (4)(a) so as not to use the version in the March 2005 White Paper which referred to there being no real possibility of a conflict of interest, but to use instead the expression,"““if the situation cannot reasonably be regarded as likely to give rise to a conflict of interest””." This introduces the concept of reasonableness which makes the situation easier from the point of view of a director and avoids a very harsh test, although it is still a heavy duty and intended to be so. If one substitutes for that something which depends on the good faith as well as the reasonableness of the director, the company would be in the position of being able to enforce the duty of the director only if it could show that the director’s belief was unreasonable or that he was acting in bad faith. It is the director’s belief which, under the amendment, would matter. While I do not perhaps put it in quite the same language, my noble friend Lord Clinton-Davis is right that that would be a heavy duty for a company to undertake. It would be a much more significant watering down of the duty of loyalty which directors should owe to the company than we are prepared to countenance. With that explanation in mind, I hope that the noble Lord will see that this is not a good amendment and that it should not be pursued.