Company Law Reform Bill [HL]

When I first spoke on an amendment relating to this part of the Bill, I said that it was important to have a balance between the interests of auditors in limiting their liability and the interests of shareholders. It seems to us that the interests of shareholders require that they should not find themselves locked into a long-term limitation liability agreement. It seems sensible to say that the limitation agreement should be limited to a single year. If the directors and auditors wish to continue to limit liability in succeeding financial years, either in the same way or a different way, they should come and get further approval for that. In public companies, the directors and auditors will need to go to shareholders for a fresh resolution for each financial year. In private companies, they will not necessarily need to do that, because Clause 519(1)(a) provides that the shareholders of a private company can waive the need for approval. As I understand it, it would be open for the company to pass a resolution waiving the need for shareholders’ approval; then the directors would need to renew the limitation liability agreement each year, but the shareholders might choose to give the directors authority for several years. The principal point is that it is an important part of the balance not to lock in shareholders for too long. I do not accept the accusation of bureaucracy or of great cost. To the extent that either of those would be involved, they would be justified by the need to protect shareholders’ interests. In public companies, the shareholders will need in any event to vote each year to appoint the auditors, so there will be no significant extra cost if they approve a limitation of liability agreement at that stage. Clause 522 agreed to. Clause 523 [Termination of agreement by members of company]: