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Companies Bill [Lords]

I appreciate the attempt, but the question is whether it is entirely successful. Amendment No. 416(f) is a new departure, in that it would insert in the Bill the sort of catch-all provision to which one would normally object on the grounds that it is vague and unclear. The amendment has its merits, therefore, but needs more work. I have already dealt with amendment No. 417, which I said was not a good idea because it would bring back the notion of fraud on the minority. Finally, the Bill is an important attempt at reform, as the hon. Member for Huntingdon has noted. He seems to think that that reform is not desirable, but many people would differ with him about that. The particular question that I am dealing with here is whether it is necessary to prove that the directors made a gain from their wrongdoing before a derivative suit can be brought. The present law states that such an action cannot be brought against directors who have committed negligence, except where that negligence has resulted in a gain for the wrongdoer. It is not entirely clear why that rule is in place. I agree with the many people who think that it is simply an historical accident, the result of taking too seriously the notion of ““fiduciary””—that a gain has to be identified before legal action can be taken. Another possibility is that the relevant case law was not consistent, so that judges went one way, regretted it, and then decided to go the other way. The underlying question is whether a derivative suit should be possible when directors have lost the company money through their negligence. That would give rise to a claim that belongs to the company, and the next question is whether the proposed reform in the Bill would give directors an incentive to do their job better. I think that it would and therefore am in favour of it. I recognise that there could be a problem if people on the outside think that what is being is a codification rather than a reform. That would not be correct: the Bill proposes not a codification but a reformed system that has some merits.