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Companies Bill [Lords]

Under these provisions, there will be a wider variety of people who can be sued, it will be possible to sue people for a greater variety of offences, and there will be a more straightforward procedure by which to sue people, which I think the Minister called a clearer and more accessible procedure. I foresee that the net result will be that more people will, indeed, be sued, as my hon. Friend the Member for North Wiltshire (Mr. Gray) suggested. The Government have introduced certain amendments to tighten this part of the Bill, introducing the two-stage process, which in itself could be contentious—I have doubts that it will, in the event, save costs. While we note the requirement for the claimant to establish a prima facie case in order to obtain permission to continue a derivative claim, the introduction of the threshold does not entirely address the concerns about frivolous litigation. For certain categories of claim, it will be easy to establish a prima facie case, and the threshold might not act as a deterrent. The best example that I can give is where directors or the company have been fined for regulatory breaches. Evidence of the conviction will itself amount to a prima facie case of breach of duty under clause 243(3). The threshold is also no answer to the concerns that arise from allowing shareholders to bypass the board when commencing a derivative claim. We remain concerned that part 11 empowers shareholders to commence litigation against the directors without consulting or informing the board. That increases the chances of tactical litigation, as I have made clear. Secondly, it will create the capacity for disruption. Thirdly, it will give the shareholder a primary, rather than a derived, right to bring a claim in the company’s name. On that point, we have common ground with the Liberal Democrats; it comes to the fore in relation to amendment No. 415. 9.30 pm It is a fundamental principle of company law that directors owe their duties to the company, and the company thus has the primary right to sue them in respect of wrongdoing. At present, a shareholder derives a right to sue in a company’s name in particular circumstances, including because the wrongdoers who control the company will not exercise the company’s primary right to sue. By failing to include a requirement that the board be consulted on, or informed about, a shareholder’s intention to sue the directors in the company’s name, the company will be deprived of an opportunity to exercise its primary right to sue in any circumstances in which the shareholder chooses not to consult the board. We were not convinced by the Minister’s response to that point, so although I will not press amendments Nos. 412 to 414 to a Division, I will press amendment No. 415. I beg to ask leave to withdraw the amendment. Amendment, by leave, withdrawn. Amendment proposed: No. 415, in page 121, line 33, at end insert—