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Companies Bill [Lords]

In our last debate, when my hon. Friend the Member for Great Grimsby (Mr. Mitchell) and I tried to draw the House’s attention to the possibility of market regulation in dealing with our new overmighty subjects—the big four accountancy firms—it was reasonably clearly established that we can await rescue from the United States in due course. In this debate, we will consider what the legal situation is as regards these matters. We are in the hands of a powerful array of impressive lawyers, although I see that we do not currently have the assistance of the Solicitor-General, who did heroic work in former times. We are dealing with a situation in which there was already moral hazard because of the enormous power and influence of a few institutions, the domination that they had over their own markets, and the need to open up those markets to a much wider range of audit and accountancy firms that could seek to challenge them. We now have an attempt to strengthen and embed the privileges and to deepen the moral hazards that such institutions already have. The hon. Member for Cambridge (David Howarth) may put me right, but the Caparo judgment was the first step on the route towards embedding the privileges of these powerful firms. In 1997, two further court cases—it is unnecessary to go into detail—limited the liabilities of the big firms even further and established the idea of proportionate liability, which has become part of our courts’ practice. Not content with that, in 2000, the Government introduced the concept of limited liability partnerships, which effectively further strengthen and defend the powers of a few large firms to dominate the audit and accountancy market. On that point, I have a great deal of sympathy with the hon. Member for Putney (Justine Greening) when she spoke up for the smaller firms. New entrants to the big end of accountancy will find it extraordinarily difficult, given the market power of a few large firms and their international reach and connections. It is extraordinary that the Government seek to add even further limitations on liability and even more protections. I hope that they will clarify how much further they intend to go in regulation. There has already been a cascade of protections, yet the Government propose an additional one. The new clause would simply provide that people apart from the members of a company—the Government have already accepted in clause 429 that such people should receive relevant documents from the company—should also receive the information about the limitation of liability agreements so that they are in a position to challenge it. It is a small point and perhaps the Government intend to cover it in regulations. The debate provides an opportunity for my hon. Friends on the Front Bench to clarify that. In the general structure of introducing liability limitation agreements, amendment No. 763 would provide at least that no one should specify a figure that represents an absolute cap on liability. That would protect the principle of proportionate liability, which has already become a feature of our common law and hardly needs the further reinforcement of the Government opening up the possibility of a final and absolute cap. I ask my hon. Friends on the Front Bench to consider how the big four accountancy firms behave in the public interest when they act through the insolvency procedures in which they become administrators of a company. An extraordinary case was brought against the Bank of England and convulsed it for years because it had to put legal and manpower resources into defending itself. The big four accountancy firms, which brought the case, made a great deal of money through the way in which they work the fee system in insolvency cases, despite the compensation that they may ultimately have to pay the Bank of England. It worries me—and should worry hon. Members—that, when those firms act in insolvency cases, they are adept at suing each other, yet they seek ever further and deeper protections against the common world. I hope that my hon. Friends on the Front Bench can clarify their future line of march on the matter. We already have examples in the European Union of attempts to introduce a general system of liability protection, and the Government must set out how they propose to deal with that. Of course, the gaping hole in all these arrangements represented by the very different course being taken by the United States could bring the structure of liability protections that the Government are seeking to introduce crashing to the ground. That, too, is something on which the Government Front Bench ought to express a view.