Company Law Reform Bill [HL]

In responding, I shall speak first to the first group. If the second group is to be moved formally, I will address it then. Chapter 4 of Part 16 is headed, ““Removal, Resignation, etc of auditors””. When someone ceases to be an auditor, for whatever reason, he generally has either an opportunity or a duty to make a statement to be sent out to members of the company. This is an important protection for shareholders, particularly minority shareholders. If an auditor is being forced out by the directors, or by the majority shareholders, perhaps because he has uncovered shortcomings in the way in which the company is being run, it is important that all shareholders know about it. Against this, if the auditor uses his statement merely to make personal attacks on the directors that are not helpful to the shareholders, the company has the right to go to court to argue that he should not be required to circulate it. At the moment, under the Companies Act, the test is based on whether the auditor is using the statement to,"““secure needless publicity for defamatory matter””." In the generalised modernisation of the language in the Bill and the introduction of consistency across similar provisions, the wording has changed in the test of whether the rights conferred have been abused. It is quite possible that the effect of the test will be the same when cases go to court; the courts have interpreted the existing wording as requiring an element of bad faith—in other words, of abuse—on the part of the auditor. But I accept that the new wording, based on abusing a right, is not always appropriate. For example, under Clause 506, as has been pointed out, an auditor of a quoted company who ceases to hold office, for whatever reasons, is required to give the company a statement of the circumstances of his leaving. This is a duty on the auditor rather than a right. I know this is an important issue, and that it can have serious practical consequences. Getting the test right of whether an auditor statement can be suppressed is important, as there is a risk that unscrupulous directors will use court proceedings to delay such a statement even when there are no good grounds. In light of all of this, I agree to consider this group of amendments.