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Companies Bill [Lords]

I shall begin by discussing Opposition amendments Nos. 439 and 440. I will then turn to the three amendments tabled by my hon. Friends, and to the six Government amendments that make up the balance of this group. This new offence has been debated extensively—hyperbole is a tool that is frequently used, but ““extensively”” is probably an understatement—and I do not suggest for one minute that the hon. Member for Putney (Justine Greening) is trying to defend the bad auditor. Rather, she is considering the possible impact on the good and honest auditor, and I accept that it is right that she do so. But frankly, the dismal picture that she paints is based on the misunderstanding that we are criminalising negligence by auditors. I agree with her entirely that to do so would be counterproductive, but that is not what we are doing: the Bill does not criminalise negligence. Recklessness and negligence are well-established legal concepts, and they are very different. I explained this at tedious length in Committee, and most members of it seemed satisfied with my explanation. I am grateful to the hon. Member for Cambridge (David Howarth), who indicated that I satisfied him on that point. But as the distinction is so central, let me explain its elements one more time. To prove that someone has behaved recklessly, it is necessary to show that the auditor was aware that an action, or a failure to act—the latter is probably much more likely—carried risks; that they knew that the risks were not reasonable ones to take; and that despite knowing this, they went ahead anyway. I did not set the position out in Committee in quite that way; I think that I quoted pretty much the sentence structure used in the House of Lords case of Crown v. G, which dealt with the question of whether recklessness was a subjective or an objective test. The Lords made it very clear that the test is exactly as I have just set out, so I hope that the hon. Member for Putney will at last be satisfied that we have been very careful in casting this offence, and that it will not have the consequences that she fears. The hon. Lady also said that it might not be clear in some circumstances which team member behaved ““knowingly or recklessly””. If there is no evidence against a particular team member, there will be no prosecution. The offence deals with cases in which there is sufficient evidence, and absolutely nothing in the clause would allow all team members to be prosecuted in the hope that one could be caught. The provision could be used only in respect of a person against whom there was evidence that they had been in the state of mind that I have described a number of times. That is a very long way from negligence. My noble Friend Lord Sainsbury went further. He has been faintly criticised in that regard, but he was trying to be reassuring when he said that the guidance to be issued under clauses 522 and 523 would say that for a prosecution to be brought under the new offence, there should be specific evidence of recklessness, and that one should not generally rely on an inference of recklessness from hindsight, even where such hindsight showed a judgment to have been so wrong that it was not credible that the auditor did not know the risk that they were running. We intend that, as a further protection, the guidance will make it clear to prosecutors that that should be the position. Let me reassure my hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins) that this provision will be used, if necessary. It is one of a portfolio of offences, and it fills a gap. I have it on the authority of no less a person than the Solicitor-General that the insider dealing provisions led to many prosecutions and to at least one conviction while they were on the statute book.