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Company Law Reform Bill [Lords]

I welcome the Secretary of State to his first Second Reading debate in his new role. I had the pleasure of being his opposite number in my previous role as shadow Secretary of State for Transport. The Secretary of State went to great lengths to explain what is in the Bill. Although I do not agree with him on some aspects of it, I am grateful for his explanation. Furthermore, I appreciate the way in which he took many interventions during his speech. I am sure that the Bill will receive detailed scrutiny in Committee, as far as we are able to engage in it. We broadly support the Bill. As it has nearly 1,000 clauses, it is pleasing that we have to disagree with only a handful of them. We are glad that the Government have moved towards our position on some of the issues that remain before us. The reports, consultations and reviews on which the Bill is based argued for putting deregulation and a ““think small first”” approach at the heart of company law. The Bill that has come to us, much amended in another place, is broadly to be supported. In many areas it deregulates and simplifies existing law, for which companies will be grateful. The Opposition have some concerns about a number of the provisions in the Bill. I hope that the Secretary of State will not sweep aside our concerns on the ground that the overall effect of the Bill is to be deregulatory. We must examine the specifics. Our shared objective with business is that it should achieve sustainable economic growth. That is why, under the leadership of my right hon. Friend the Member for Witney (Mr. Cameron), Conservatives have put ideas such as corporate social responsibility very much at the heart of the agenda that we wish to champion. Company law forms the framework in which business must operate. Achieving our aim of seeing a growing, competitive and high productivity economy depends on the legal framework being right. It has to be comprehensive and effective yet simple to understand and as unburdensome as possible. Against those measures, much of the Bill stands up very well. Existing companies legislation certainly needs revision so that it better reflects modern business practice and technological developments such as electronic communications. Businesses have rightly complained that existing law involves unnecessary formalities and creates administrative burdens that no longer have any corresponding benefits. The Bill does good work in tackling some of these issues. We therefore congratulate the Government on realising how important such matters are. Small business and private companies have in the past suffered from having to comply with requirements that were designed for larger public companies. The Bill goes some way towards rectifying that. We support, for example, the provision that one person alone can set up a company and that he will not have to appoint a company secretary, although they may choose to do so if they so wish. The requirement to hold an annual general meeting was a burdensome formality—it was a nuisance for some small firms. It is the recognition of these issues in the Bill that we thoroughly support. I should offer my thanks to their lordships for their admirable work on the Bill. They took a long time, quite rightly, to consider it. I particularly thank Lord Hodgson of Astley Abbotts, Lady Noakes and Lord Freeman, who on behalf of the Opposition put in an enormous amount of work to improve the Bill. More than 1,600 amendments were considered in the other place. We are pleased that, on some issues, the Government took our suggestions on board. For example, the removal of what was part 31 was a sensible victory for the principle that the law should be clear to those who must abide by it. The idea that the fundamentals of company law should be changed by a Government without the full scrutiny of Parliament was deeply disturbing to people who know how difficult this area of law is. We are pleased, too, that the Government have agreed that the Bill should fully replace the Companies Act 1985. It was absurd to expect to be able to repeal of three quarters of that Act, leaving behind a stubby remnant and making cross-referencing impossible and company law even more complex. We welcome the extension of shareholders’ rights to ensure that someone who invests in a company has the same rights regardless of whether they invest in their own name or do so through an individual savings account, personal equity plan or nominee account. I heard what the Secretary of State said a moment ago, but we must debate the issue in Committee. I hope that between us we can find a workable solution that will extend shareholder democracy without placing an unwarranted burden on company administration. The wording of the relevant provision requires significant work, and during the passage of the Bill we will go to great lengths to consult interested parties to achieve the workable solution that we all want. Other significant improvements have been made to the Bill, and I hope to come on to them shortly. Elsewhere, however, serious problems arise from provisions that add new burdens and from clauses that confuse existing practice. In the other place, a number of controversial issues became clear. One that attracted significant public notice was the codification in statute of directors’ duties. We support the principle underpinning the relevant provision. Good directors take account of a range of long-term factors when acting in the best interests of their business. Good business involves making assessments of short and long-term risks, and using them to achieve success for the company. Furthermore, we entirely agree that a successful director pays close attention to the factors listed in clause 158, as well as many others. Fulfilled employees and satisfied customers are good for business, and a concern for the environmental impact of one’s activities may attract consumers and investors who are increasingly conscious of corporate social responsibility. Our anxiety is not that part 10 fails to fit with an ideological position, but that it is inflexible and will lead to confusion. In flagging up the issues associated with part 10, the Opposition were initially on their own, but now, largely as a result of the work done by my noble Friends and my hon. Friend the Member for Huntingdon (Mr. Djanogly), we have received the support of the Financial Times, The Economist, the Law Society and the CBI. The existing common law position holds that directors’ duties are more complex than simply maximising profit from a given transaction. The provision appears likely to reduce the courts’ ability to develop the law to suit changes in business practice, so we must look at what the codification adds.