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Companies Bill [Lords]

I will be happy to write to my hon. Friend when I have looked at Hansard in detail. If the company to which he refers is incorporated abroad rather than in the United Kingdom, it will not be subject to UK company legislation. On the PFI issue, that depends on the kind of company to which he refers. If it is a public company, it will be covered; there will not be deregulation. But if it is a private company, there will be. Perhaps my hon. Friend would like to write to me, or alternatively, after I have looked at Hansard, I will write to him in greater detail, if that will be helpful to him. I now turn to the issue of exceptions to the rules. We recognise that, in a group situation, it might be more convenient for the loan to be made by a different company in the group. Therefore, amendments Nos. 598 and 600 make it possible for a loan under the exceptions in clauses 204 and 205 to be used by a director to fund their defence in proceedings relating not just to the company, but to any associated companies. Amendments Nos. 598 and 600 achieve the same result as Opposition amendment No. 354, but create consistency by going further and widening the exception in clause 205 in the same way—for example, to actions that the Financial Services Authority might take. We do not accept Opposition amendments Nos. 20 and 21. They would widen the exception much further. In particular, amendment No. 21 makes the exception available whenever the company would be permitted by clause 234 to give the director a qualifying third-party indemnity. Let me give an example of the sort of thing that would happen if that were the case. Without shareholder approval, a company could give a loan to a director to defend herself or himself against matters such as driving fines or offences. That would be inappropriate. Under the Companies Act 1985, it is currently the case that the prohibition on loans to directors goes much further than the restrictions on the indemnities that may be given in respect of a director. It is possible at present to give an indemnity in circumstances where a loan would be prohibited. It is important that there is some limit on the types of proceedings for which loans may be given to a director under clauses 204 and 205. Companies should not use those exceptions to make loans without member approval for matters that, in reality, have nothing to do with the company. The sums involved under these clauses could be significant, and the exceptions do not contain any financial limits. Given that, it is right that the exceptions should only be used for matters that are properly connected to the company. It would be inappropriate for the exceptions to be available for company funds to be used without member approval to defend a director against proceedings unconnected with company business. The Bill has already significantly relaxed the regime applying to loans by replacing the outright prohibition with a requirement for member approval. These clauses create exceptions where not even member approval is required. In order to provide worthwhile protection to members, it is important that those exceptions are sensible in their scope. We do not agree that there is any need to widen the exceptions even further, thus reducing the need for shareholder approvals. Amendment No. 613 makes a minor drafting improvement to clause 204, following comments made to us by the Law Society. It is designed to follow more closely the wording used in section 337A of the Companies Act 1985. It is intended to make it clear that clause 204(2) does not make any substantive changes to the current law. I now turn to substantial property transactions. Clause 191 implements a recommendation of the Law Commissions that has been widely welcomed, by allowing companies to enter into agreements that are conditional on the approval of the members of the company being obtained. Amendment No. 591 goes one step further, allowing the agreement to be conditional on approval from the members of its holding company as well, in those cases where the approval of the members of the holding company is required. That amendment responds to concerns that companies could be inconvenienced if they were to have to wait for member approvals before they can agree to a substantial property transaction. Opposition amendment No. 19 would achieve the same result. Amendment No. 644 deletes clause 223 because the provision made by that clause will now be included in clause 288, and applied not just for the purposes of part 10 of the Bill but for the entire Companies Acts. As a result of the restatement exercise, amendments Nos. 163 and 164 replace references to the Companies Act 1985 with a reference to the relevant bit of the Bill. Amendment No. 757 on the compulsory consultation with employees on directors’ service contracts was tabled by my hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins). I am sorry to tell him that, despite my best endeavours, we cannot support his approach. As he will appreciate, company law is about the relationship between the company, its members and the directors, and the directors should be accountable to the shareholders rather than to employees. However, as he knows, we do entirely agree that companies should be sensitive to pay and employment conditions elsewhere in the group when taking decisions about directors’ remuneration. Indeed, the combined code has a supporting principle that the remuneration committee should be"““sensitive to pay and employment conditions elsewhere in the group, especially when determining annual salary increases””." I hope that, with that explanation, the House can agree to these uncontentious Government new clauses and amendments.