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Companies Bill [Lords]

The problem that we face is due simply to a slip that a Minister in the House of Lords made when attempting to be helpful by describing the meaning of ““recklessly””. That Minister was not a lawyer and his words caused the auditing and legal professions some anxiety about the Government’s intention in their use of the word. Whatever the Minister meant to say, the entire problem was cleared up in Committee by the Under-Secretary of State for Constitutional Affairs, the hon. and learned Member for Redcar (Vera Baird), when she said—as she repeated today—that ““recklessly”” was used for a thoroughly subjective offence because a risk taken must be unreasonable in the mind of the person taking it. If so, I do not think that the bad consequences identified by the hon. Member for Putney (Justine Greening) will follow. If we are to understand the situation as it now stands, we must go back to the legal context of actions against auditors. There are two liability pressures on auditors in civil law: the auditor’s contract with the company; and the threat of a negligence action by other possible victims. An important aspect of the introduction of the new crime with which we are faced is that the Bill will reduce the contractual pressure that might be put on auditors. The Bill will, for the first time, allow auditors to contract to limit their liability to the company itself. Indeed, we will later debate amendments that challenge that very possibility.