Company Law Reform Bill

I will speak to the stand part Motion and to Clause 209. When I have explained it, I hope that the noble Lord will see that we are applying common sense as well. The courts have said that disclosure is required under Section 370 of the Companies Act, even in the case of a sole director. The Company Law Review recommended that the requirement should be disapplied in respect of a sole director. The Bill implements that recommendation, but only where the company legitimately has just one director. I hope the noble Lord sees that that is a common-sense approach. Plainly, a requirement of a sole director to make disclosure to himself is a nonsense. But the position is different where, at that point in time, the company has only one director when it should have more than one—for example, if it were a public company. In that circumstance, Clause 169 provides that the sole director must record in writing the nature and extent of his interest in any transaction or arrangement that has been entered into, and that the declaration has to form part of the proceedings at the next meeting of the directors after the notice has been given. The consequence is that there will be a record so that when another director comes along, as should be the case, the position is clear and can be seen. However, I repeat that if a sole director is entitled to be a sole director, the provision does not apply. Clause 209 replaces Section 322B of the Companies Act 1985, which in turn implemented Article 5 of the 12th Company Law Directive. Under this clause, contracts entered into by a limited company with its only member must be recorded in writing if the sole member is also a director or shadow director of the company. That does not apply to contracts entered into in the ordinary course of the company’s business. Contracts entered into not in the ordinary course of business will be of particular interest to a liquidator should the company become insolvent; hence the need for them to be adequately evidenced.