Company Law Reform Bill

The noble Lord finished his comments by saying, ““where they act in good faith and properly””, and we need to come back to the significance of that important qualification. The amendment deals with two distinct parts: first, exempting or excluding from these provisions the case of an indemnity by a parent company to directors of its wholly owned subsidiaries; and, secondly, dealing with pension trustees. I shall deal with them separately. The 2004 Act, to which I have already drawn attention, closed an important loophole concerning the indemnification of directors by third parties. It used to be the practice in some groups that one group company would indemnify the director of another group company. It was possible thereby in effect to circumvent the rule that the company could not indemnify its own directors. We take the view that that should continue to apply and that what we consider is an important prohibition—to continue to make directors properly accountable for what they do in relation to the company—should stand. I turn to the slightly narrower category in which the director of one group company is indemnified not just by another group company but by the parent of that company. That is a narrower category, but in our view there remains scope for potential mischief there. We are not therefore persuaded that it would be right to provide a carve-out in that category of case. I turn to the second part of the measure, which addresses indemnification by an associated company of a director of a company acting as a trustee of an occupational pension scheme. I entirely accept the importance of the work that is done by those who are prepared to be trustees of occupational pension schemes. Indeed, the Government attach great importance to the work of such directors. I am equally aware that it can be difficult sometimes to recruit people of high quality to serve as such trustees. I am delighted that the noble Lord, Lord Hodgson, is doing just that at the moment and I am sorry to hear that that is causing some difficulty. The question, though, is whether it is right to provide a specific exemption from the prohibition on indemnification in respect of corporate trustees of occupational pension schemes. Before we got to that stage it would be necessary to hear more about the case for that exemption being made, and being made in that way. It is a broad measure because it would remove the whole exemption with all that that implies. I have already indicated the significant areas where it is open to give indemnification against third-party claims. I do not know whether the problem to which the noble Lord referred could be covered by that because the concern is from third parties rather than from the company itself. We are certainly willing to listen further to the case for such an exemption, but we would need to see the evidence and how specific it was. I promise that we will look at it, but I cannot make any promises regarding what we will do subsequently.