Company Law Reform Bill

As my noble friend has rightly identified, and as I said when the Committee last met, this clause changes the position from the pre-existing law. My noble friend has indicated, at least to some extent, the history that gets us to this point. It is right that the new approach would be to say that the duty to avoid conflicts of interest would not be infringed if the matter has been authorised by the directors in accordance with the constitution. Subsection (5) sets out how the matter is to be proposed and authorised by the directors. Plainly, the intention is that the directors should therefore be entitled to give consent to their fellow director—provided that the constitution so provides, in the case of a public company—in a situation in which a conflict of interest could arise. I agree with my noble friend that their consent needs to be informed consent. One would hope, in the case of directors of a public company, that they would require that the consent be informed in any event, and that they would want to know enough in order to make their decision. The clause is not prescriptive about the degree of specificity with which information should be provided. The situation—or the ““matter””, which, as my noble friend says, is the word used in the clause—needs to be disclosed or else the directors could not authorise the matter. The Government prefer to leave it to the general law to identify the degree of specificity with which they do that, rather than by adding any particular epithet in the Bill at this stage. We can see circumstances in which, if an epithet were put in, it may give rise to difficulties. An example that we have debated in Committee was where a director might wish to become a non-executive director of another company. He may rightly be concerned that this might in the future put him in a position where he may have conflicting interests or duties, and so needed to ask for the authorisation of his fellow directors to take up that post. It would be open to them at that stage to say, ““Yes, but””, or to limit the authorisation in some way. If they did not, it may well be that, properly understood, the authorisation should then be capable of covering any conflicting interest or duty that subsequently arose as a result of that non-executive directorship. That would be what the directors would intend by consenting to his taking up that post. The amendment proposed by my noble friend might cause difficulties with that by raising doubts subsequently about whether, by not having identified things in advance that might arise, the director has put himself in breach of his duty. The Government think it is not really possible to prescribe the level of information to be given, which will depend on the circumstances of each case. The key point is that there will need to be an effective authorisation and that the extent of that authorisation will be for the general law to determine in the light of the authorisation that is given. My noble friend ended his helpful speech in moving this amendment by saying that he wanted to understand the Government’s position, which is what I have sought to set out.