Company Law Reform Bill

The specific amendment moved by the noble Lord, Lord Freeman, relates to the disclosure in the next annual report of the company that authorisations of conflicts of interest have been made. Clause 389(4) makes provision in general terms for what information might be included in the directors’ report. All companies have to prepare directors’ reports, although those in the small companies regime do not need to file them. There is a regulation-making power that I acknowledge could be used to include something along these lines if that were thought to be desirable. However, as things are at the moment, the Government have considered that the regime that is in place includes adequate safeguards. I want to come on to the second part of what the noble Lord, Lord Freeman, said in a moment. One has to recognise that each time one imposes an obligation, one is imposing a burden, and one has to be satisfied that it is an appropriate burden to impose. What safeguards are included? That will go some way to answering the question that the noble Lord, Lord Freeman, raised about why apply the measure to public companies. First, so far as private companies are concerned, the company’s constitution can remove that power. So the default position for a private company will be that authorisation by the directors is acceptable, but the constitution can take it away. One sees that from Clause 159(5)(a). The noble Lord, Lord MacGregor, made the point on the last occasion that for a public company there is a different provision, and it is necessary that the company’s constitution permits this to take place. There needs to be a conscious decision to include that in the constitution—either originally or by amendment in accordance with those provisions allowing for amendment—at some future date. The constitution has to permit it—in the case of a public company, advisedly, expressly and deliberately permit it. It may be that there are public companies whose members do not want such a provision to exist and will therefore not allow such a change to take place. Secondly, the authorisation has to be given without relying on the votes of the directors seeking the authorisation or any other director with an interest in it. Unlike my noble friend Lord Wedderburn in the last amendment, I anticipate that it would not be difficult to know which directors had an interest. Those directors cannot count towards the quorum either. Thirdly, any requirements under the common law for what is necessary for a valid authorisation remain in force. I draw the Committee’s attention to Clause 159(6), which says:"““The authorisation is effective only if””." It then sets out certain specific requirements. It deliberately does not say that if those requirements are met the authorisation is effective. There might be other conditions in relation to the authorisation that would be required—for example, the company’s constitution may have some specific provision with which it would be necessary to comply. Those formalities and those conditions need to be complied with as well. Finally, in general terms, the directors who are giving the authorisation will need to comply with the general duties imposed on them. Those will include, specifically, the general duty that we discussed on the last occasion to act in such a way that in good faith they consider that authorisation is the course of action most likely to promote the success of the company. They will have to have regard to the interests of the company. Against that background of safeguards, the Government’s view has been that it is not necessary therefore to impose the particular additional requirement that the noble Lord, Lord Freeman, proposed. I think that I am right in saying that the Company Law Review’s conclusion was exactly what the Bill provides for—namely, that approval should be permitted for a public company only if explicitly permitted by its constitution. That is what the clause does. I hope that I have dealt with both parts of what I perceive to be the probe that the noble Lord set in moving the amendment.