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Company Law Reform Bill [Lords]

No. To be fair, the Secretary of State answered that and, however reluctant I might be to do so, I largely go along with his attitude. In Committee we will have to consider the detailed working of all the clauses. This is a crucial Bill that the House must scrutinise word by word to make sure that every potential unintended and intended consequence is foreseen and properly understood, so that as a result of this mammoth piece of legislation we do not end up with a legislative corporate nightmare. Those concerns about part 10 relate closely to concerns about part 11, which sets out a new procedure for individual shareholders to bring claims against directors. We are pleased that that procedure requires that the shareholder obtain the permission of the court to continue a claim, but we wait to see how high the bar is set when allowing such cases. This is, to some extent, an answer to my right hon. Friend the Member for Wokingham (Mr. Redwood). We believe in the principle that shareholders who suffer from the negligent actions of directors should have the right to bring an action, but because there is confusion arising from the statement of directors’ duties set out in the Bill, this part is problematic. Under the new procedure, a pressure group could purchase a relatively small number of shares in a business and attempt to sue a director for a decision that he took with which the pressure group disagreed. If that decision had some environmental consequence, for example, the pressure group could reasonably argue that insufficient regard was given to that. Even if the case failed at the first hurdle, the damage done to the company could be significant, but if the court did allow the action to proceed, the company could find itself paying the legal costs of both sides, leaving the pressure group with no financial risk. The same procedure would be open to employees and ex-employees who owned shares, whereby decisions taken by directors that affected their jobs would be open to challenge in the courts. It seems likely that this part of the Bill will increase the likelihood of litigation without sufficient safeguards. It is possibly a recipe for disaster.