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Companies Bill [Lords]

If the hon. Gentleman had been here earlier in the debate, he would realise that I do not agree with that point at all. If the director has behaved inappropriately, we want the shareholder to be able to take a course of derivative action that will enable them to enforce the company’s rights. The shareholder is seeking to enforce the company’s rights—that is the key thing, and it is where I began. We need to ensure that we have the proper balance in place, and I fear that the provisions that the Opposition seek to insert into the clause would create a lack of balance, so the shareholder could not take action when they need to do so if there is impropriety by a director. This is about balance and the need for care. We have got the balance right, and although the Opposition are taking points from outside organisations, they might not have got that balance right. Clause 263 sets out the criteria that must be taken into account by the court in considering whether to give permission to continue a derivative claim. Subsection (2) provides that the court must—I emphasise the word ““must””—refuse leave to continue a derivative claim if it is satisfied that a person acting in accordance with the duty to promote the success of the company would not seek to continue the claim; or where the cause of action arises from an act or omission that has not yet occurred, that act or omission has been authorised by the company; or where the cause of action arises from an act or omission that has already occurred, that act or omission has been either authorised or ratified by the company. Amendments Nos. 416 and 417 seek to add to the list of factors matters that, if established to the satisfaction of the court, would constitute a bar to the continuation of a derivative claim. The Bill’s approach follows the Law Commission’s recommendation that whereas ratification of a breach should constitute a bar to the bringing of a derivative action, the fact that a breach of duty is ratifiable should not constitute a bar, but should feature as one of a list of factors to which the court should have regard in considering whether to grant permission to continue the claim. Amendment No. 416 would add three further grounds that, if established to the court’s satisfaction, would constitute a bar to the continuation of a derivative claim. Therefore, let me consider each briefly. The first new bar to the bringing of a derivative claim would be a decision by the directors not to pursue the claim, unless the court considers that there is a substantial risk that, in reaching their decision, they acted in breach of their duties to the company. That factor already appears on the list of matters that have been taken into account. The second new factor under the amendment would be a claim that the company in general meeting could validly decide not to pursue, unless the court considers that there is a substantial risk that a decision not to pursue the claim would be taken only as a result of votes cast by members with a personal interest, direct or indirect. It is not clear from the drafting whether the amendment refers to a claim relating to a breach of duty that the company might ratify in general meeting, or to something short of that. In either case, we do not consider that this is a matter that should bar a derivative claim. The clause already provides that where a breach of duty has been ratified, that will constitute a bar and the claim will go no further. The third factor that the amendment would insert into clause 263 is that pursuing the claim would not be in the interests of the company. That overlaps in an unhelpful way with the existing factor in subsection (2)(a), namely,"““that a person acting in accordance with section 173…would not seek to continue the claim””." It is important that clause 173 and part 11 use consistent wording. Amendment No. 417 would add two further grounds that are variants of those proposed by amendment No. 416, and once again we are not persuaded, for substantially the same reasons as before, of the arguments of the hon. Member for Huntingdon. I therefore ask him to consider withdrawing the amendment. If he does not do so, we will feel it necessary to oppose it.