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Company Law Reform Bill [HL]

moved Amendment No. 307A:"Page 178, line 34, at end insert—" ““(9)   The directors responsible for preparing the review shall not be liable with respect to any forward-looking statement being untrue or misleading if— (a)   that statement is identified as a forward-looking statement and is accompanied by cautionary statements identifying factors that could cause actual results to differ materially from those in the forward-looking statement; (b)   that statement is immaterial; or (c)   the directors who signed the directors’ report in accordance with section 392 did not know that the statement was untrue or misleading. (10)   Nothing in this section shall impose upon any person responsible for preparing the business review a duty to update any forward-looking statement which has been included in the review. (11)   The Secretary of State will include in the regulations to be made under section 389(4) provisions setting out which parts of the required contents of directors’ reports shall constitute forward-looking statements for the purposes of subsection (9) above.”” The noble Baroness said: In moving Amendment No. 307A, I shall speak also to Amendment No. 307B. They concern what is colloquially known as ““safe harbour””, and provide for directors to be excused liability in certain circumstances in relation to any statements in the business review under Clause 390, which turn out to be untrue or misleading. The difference between Amendment No. 307A and Amendment No. 307B is that Amendment No. 307A confines itself to forward-looking statements within a business review. The protection for directors will apply when the forward-looking statement is accompanied by cautionary statements, the statement is immaterial or the directors did not know that the statement was untrue or misleading. That formulation draws on the safe harbour provision, which is found in Section 102 of the USA Private Securities Litigation Reform Act. The problem with the US solution for forward-looking statements is that it leads to a lot of lawyer-led disclosures and extensive standard disclaimers, together with extensive disclosure of risk factors, which inevitably accentuate the negative. Anyone who has read the report of a US registrant or a combined filing document of a dual registrant will know that it is often very difficult to see the underlying reality of the business because it is obscured by a shroud of legalese. Because of the difficulties with forward-looking statements, including defining what they are, which Amendment No. 307A leaves to regulations, Amendment No. 307B proposes a broader safe harbour provision to cover all the new business review disclosures. It covers both compliance with the provisions of Clause 390 and any statement being untrue or misleading. Of course, subsection (2) of the amendment does not excuse directors if they knew about non-compliance or about a statement being untrue or misleading. Both amendments specifically provide that there is no need to update any statement subsequently found to be incorrect. This is to allow companies to focus on the future of their business and not constantly to be looking in the rear-view mirror to ensure that things said in the past—perhaps two or three years earlier—are not now seen as misleading or inaccurate. The Minister knows that it was the belief of the Company Law Review that an operating and financial review supplemented by a safe harbour provision would ““encourage candid and experimental reporting””. We will return to the OFR in a minute, but these amendments are drafted on the basis that the OFR will disappear and that we will focus all our reporting requirements on the business review. If that changes, the amendment would need to shift as well. So it is the business review that would need the protection of a safe harbour in order to encourage it to develop the candour and experimentation that the Company Law Review want to encourage. The Minister will be aware that when the OFR was consulted on, many believed that a safe harbour provision should have been included in the initial regulations. Those regulations have now been withdrawn. The 100 Group, which comprises the finance directors of Britain’s largest organisations, was clear that a safe harbour provision was required. It posed a very pertinent question to the Government. Do the Government intend to encourage transparency and disclosure or to create a new basis for investors disappointed with performance to make claims for compensation? The lack of a safe harbour provision leads to the conclusion that the Government are more concerned to give legal courses of action than to encourage good and open reporting. The CBI and the Investment Management Association are also in favour of safe harbour provisions. I do not claim that the drafting of the amendments is perfect. They were drafted for us by some talented corporate lawyers in the City who are not parliamentary draftsmen. It is my hope that the Government will signal that they accept the need for a safe harbour provision in order to encourage good reporting under the business review requirements. I hope that we may be able to work outside the Committee to achieve the right legal result. I beg to move.