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Companies Bill [Lords]

I think that I gave the Minister a list of about 45 in Committee and I will leave it at that. We are not arguing here that all directors’ common law and statutory duties should be put into statute. That would be nonsensical, particularly as the common law duties are being advanced all the time. However, amendments Nos. 393 and 395 would oblige company directors to give consideration to all other common law duties of directors. A non-statutory guide, as provided for in amendment No. 398, could then give directors some guidance as to what these duties are without the guidance being enshrined in statute. A May 2006 Financial Times lead article entitled ““A missed opportunity”” says:"““The stated aim was to make directors’ duties clearer and more up-to-date. The reality is a confused list that mixes platitudes with necessary duties…the Government’s approach betrays an underlying mistrust of business.””" This area has also prompted serious concerns from the legal profession. A host—I say a host—of major corporate law firms, whose job it will be to interpret the clause, have told us that the matters listed in clause 173(1)(a) to (f) make a rigid list of factors that may artificially constrain the decision-making processes and provide inappropriate challenges to the way in which directors have exercised their discretion. The list of factors set out in clause 173(1) is applicable to all types and sizes of company, but the listed matters may not be appropriate for directors to take the best decision in all circumstances. The director of a major plc and the sole director of a corner shop will not take into account the same factors when they make important decisions, and the judgment of directors is at real risk of becoming artificially fettered by their having to tick box through a checklist of factors that may have no relevance to what their company does. The Law Society has pointed out that the list of factors in clause 173(1) which a director must consider raises the possibility that the courts will be given the power to review business decisions made by directors in good faith, thereby undermining the well-established business judgment rule. That could adversely affect the management of companies and be a significant burden for businesses in terms of both time and cost, because businesses would have to examine those factors before taking any decision. That is why we have tabled amendment No. 393 on the recommendation of the Law Society, the CBI and the Association of British Insurers. It would require directors to take into account all those factors only if those factors are relevant to the matter under consideration and if it is reasonably practicable to do so, which would qualify the requirement to take all the factors into account all the time. Amendment No. 788 would tie clause 173 to large companies, relieving smaller companies of extra bureaucracy and red tape. The introduction of factors to which directors are required to have regard in discharging their duty under clause 173 may also create new uncertainties for third parties. That is because a transaction entered into with a third party who has notice of a breach of a fiduciary duty by one or more of the directors relating to the transaction is voidable at the option of the company, which may result in third parties seeking an assurance that directors have complied with that duty and have had regard to the factors listed in clause 173. We also believe that directors will be more exposed to actions for breach of duty, in particular following a takeover or in the event of a company becoming insolvent when there is new management, who may want to recoup losses from whatever source is available, including previous directors. An increase in the risk of personal liability is likely to discourage many individuals from taking up directorships of UK-incorporated companies and is also likely to discourage those who take up directorships from taking decisions which might give rise to personal liability in the future, if those decisions ultimately turn out to be detrimental to the company.