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Company Law Reform Bill [HL]

moved Amendment No. 301CB:"Page 152, line 7, leave out paragraph (b)." The noble Lord said: This amendment raises a significant practical point regarding directors of holding companies. Directors of a holding company will be liable to make good to a subsidiary the amount of any unauthorised donation or expenditure with interest, and will have to compensate the subsidiary for any loss or damage sustained by it as a result of the unauthorised donation or expenditure having been made. As a general principle of company law each company is a separate entity. The directors of a company owe their duty to that company. This is often an issue in other areas with regard to holding companies and their subsidiaries but here we are dealing specifically with the question of political donations. Clause 343(3)(b) runs entirely contrary to that principle and imposes liabilities on the directors of a holding company where the subsidiary has made an unauthorised donation. As I say, the general principle of company law is that each company is a separate entity with its own board of directors. However, the measure that I am discussing contravenes natural justice. First, it means that the directors of the holding company could be liable when they have been completely unaware of the unauthorised donation. However, they are still required to make good to the subsidiary. Secondly, it covers the case where the directors are aware of a proposed unauthorised donation but may not be in a position to do anything about it as the definition of ““subsidiary”” does not only include 100 per cent subsidiaries. Companies can be subsidiaries of a holding company in circumstances where the directors of the holding company—even if they are aware of the actions of the relevant directors in regard to political donations (although action of that company in any area could be at issue)—are unable to influence or direct the directors of the subsidiary. That seems to be fundamentally unfair. Presumably, the Government will say that in those circumstances the directors of the holding company can either get ratification or relief but that seems a cumbersome way of going about it. This matter is of significant concern to the Law Society and ought to be of significant concern to anyone who has the temerity to sit on the board of directors of a holding company. I beg to move.