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Companies Bill [Lords]

The example that occurred in practice was precisely an attempt to sue a director for selling a business at less than maximum value. In that example, a director needs the protection of the new law and is not threatened by it at all. My point was therefore that directors are not threatened by the new law, as the hon. Member for Huntingdon was saying, because the only examples of a loss would be where a company could be said to have made a financial loss as a result of taking into account wider interests. In those circumstances, and only in that direction, directors might be vulnerable to personal actions. That is why I said in Committee that clause 173 was a deregulatory clause that protects directors from actions that might otherwise be brought against them. A problem with the new clause is that if the hon. Member for Bedford is right that the word ““endeavour”” makes it harder for directors to fulfil their duty than the words ““have regard””, in a way, that reduces directors’ protection, as they will be less likely to be able to argue that they have fulfilled their duties under the law and cannot therefore be sued for what they did. I fear that that is an unintended effect of the new clause as drafted. The Government’s existing proposal, because it might be slightly looser, is in practice more helpful for directors who want to do the right thing I now turn to the amendments tabled by the hon. Member for Huntingdon. Some are slightly puzzling, and one wonders why they are needed. Amendments Nos. 393 and 394 use subjective words and phrases such as ““in good faith”” or ““relevant””, but that subjectivity is already to be found in clause 173. In fact, the House of Lords changed the original draft to ensure that that subjectivity suffuses the clause as a whole, and one of the arguments about new clause 4 is that it renders part of clause 173 objective rather than subjective. Amendments Nos. 393 and 394 would not add anything to the Bill. They are merely confusing, as they throw into doubt how the start of clause 173 should be read. Similarly, why is amendment No. 392 needed? It talks about requiring directors to act appropriately for the size of a company, but that is implied in the duty already set out in clause 173, where directors are required to act in the way that they think would promote a company’s success. If amendment No. 392 did serve to reduce the scope of the duty placed on directors, it would also have the unfortunate effect of reducing the scope of the protection to them offered by new clause 4, and so could be said to be objectionable on those grounds. Amendment No. 395 deals with common law duties. The hon. Member for Huntingdon has said in the past that there are 640 or 650 of them, but there is some confusion in his approach. I have done some digging and discovered that many are simply examples of duties that are in the Bill, such as the duties not to exceed the powers of the company, or to act in accordance with the company’s constitution, or to act with skill and care, and so on. Other examples are not, in the strict sense, directors’ duties at all, as they are not duties to the company but duties to someone else, as set out in the wider environmental, employment or other law. The company law review team and the Law Commission have put years of work into these matters, and so it would be surprising for them to get the law as badly wrong as the hon. Member for Huntingdon suggests. Amendment No. 788 worries me a bit, as it proposes that the"““duties implied by this section shall not apply to small and medium sized companies.””" First, I do not know what the word ““implied”” means in that context. It would usually refer to duties not mentioned elsewhere in the clause, but in this case it must refer to duties that are not mentioned but implied by the clause. I am not at all clear what is meant: if the amendment refers to all the duties in the clause, why does not the hon. Member for Huntingdon want the fundamental duty to promote the success of the company to apply to SMEs? That would make no sense, as that duty must apply to companies of all sizes. Perhaps the hon. Member for Huntingdon really means that the wider concerns that follows the words ““have regard”” in clause 173 should apply only to large companies. If so, the amendment would achieve only a reduction in the protection offered to directors of SMEs against the sort of legal action that I described earlier. I think that those directors of SMEs who follow corporate and social responsibility requirements closely are entitled to the same protection as are directors of large companies. Therefore, I do not understand what amendment No. 788 is getting at. It may be more of a symbolic gesture rather than something that the hon. Gentleman really wants to be agreed to. Finally, amendments Nos. 396 and 397 contradict one another, and both cannot be accepted. Amendment No. 396 states that no duty takes precedence over any other, whereas amendment No. 397 states that the duty to ““promote success is paramount.”” Duties are either equal or unequal; they cannot be both. I hope that the hon. Member for Huntingdon is able to choose between the two alternatives that he offers. As it stands, and as all speakers have accepted, clause 173 means that the duty to promote the company’s success is paramount, so there is no need to add what is proposed in amendment No. 397. The fact that amendment No. 396 would throw that priority into doubt is unfortunate, and I hope that the hon. Member for Huntingdon will not press it to a vote.