Company Law Reform Bill

This short debate raises two questions. With Amendment No. 176, the noble Lord, Lord Freeman, wants to insert the words ““an existing or”” so that, if I heard him right, it becomes clear that this clause is intended to apply to existing and proposed transactions. The fact is that it is not. Clause 161 is deliberately intended to apply only to proposed transactions. Different consequences flow from not disclosing an interest in a proposed transaction and failing to disclose an interest in an existing transaction, which one gets to under Clause 165. There is a difference in fact, in principle and in business sense because, if a company is told that a director has an interest in a proposed transaction, it can decide whether to enter into the transaction, on what terms and with what safeguards, whereas, if the transaction has already taken place, we are in a very different position. So the answer to the noble Lord’s first amendment is that that is not what the clause is intended to do; quite deliberately, it is intended to cover proposed transactions. As the noble Lord says, the amendments pick up the same point, which is the meaning of the words,"““a director is treated as being aware of matters of which he ought reasonably to be aware””." The noble Lord’s second question was: how will that be tested? I could put that in legal terms: is that an objective or a subjective test? This is a discussion which the House has had in a different context in a recent Bill. I believe that the test is objective—that is, one judges objectively whether this is a matter of which the director ought to be aware reasonably. That is the answer to the question. In his intervention, my noble friend Lord Wedderburn suggested that it might be helpful to spell out what is meant by the word ““reasonably””. Should such an amendment be put down, we will consider and respond to it. As at present advised, I wonder whether that would be such a good idea. The formulation in Clause 158, which is a quite specific formulation, is about the duty which the director needs to exercise while he is going about the company’s business. That is not necessarily the same test as one would apply in deciding whether someone ought to be aware of his own interests in other transactions. I make that comment so that it may be considered in case that suggestion is to be taken further. The question is this: what is meant by the words? I understand the amendments to be probing. I would say that the test is an objective test of whether one is reasonably to be aware of the interest.