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Company Law Reform Bill [HL]

I suspect that we will not have a meeting of minds on this point today. We accept that it is a general principle of company law that each company is a separate entity and that the directors of a company owe their duties to that company. As I have just said, we believe that it is essential in this case, for anti-avoidance reasons, that political donations or expenditure by subsidiary companies are authorised by the members of the holding company highest up the chain which is a ““UK company””. It follows that directors of such holding companies must be liable if subsidiaries make unauthorised political donations or incur unauthorised political expenditure. We also understand the concern that the directors of holding companies may be either ignorant of such matters or impotent to stop them, but we do not believe that the Bill should restrict liability to directors who were ““directly responsible””. It seems to us that this would be a difficult test to establish and would effectively negate the provision. The law should not encourage directors of holding companies to turn a blind eye to misdemeanours by directors of subsidiary companies. It should be noted that directors of holding companies will in any event need to have systems in place so that they are aware of donations made by subsidiaries, both in respect of authorisation thresholds and the related disclosure requirements. In practice, we think that it is exceedingly unlikely that an action would be brought against the directors of the holding company in the circumstances outlined by the noble Lord. I have also reminded the Committee that Part 14 will permit ratification. It is our intention that directors should be able to apply to the court for relief under Clause 759 if they believe that they have acted honestly and reasonably and, having regard to all the circumstances of the case, ought fairly to be excused.