Company Law Reform Bill [HL]

moved Amendment No. 199:"After Clause 395, insert the following new clause—" ““DIRECTORS’ LIABILITY (1)   The directors responsible for preparing the review required by section 395 shall not be liable as a result of— (a)   the review not complying with the provisions of that section relating to the preparation and contents of the review; or (b)   any statement in the review being untrue or misleading. (2)   Subsection (1) does not apply if the directors who signed the directors’ report in accordance with section 397 knew that the provisions of this section relating to the preparation and contents of the review were not complied with, or that any statement in the review was untrue or misleading. (3)   Nothing in this section shall impose upon any person responsible for preparing the business review a duty to update any statement which has been included in the review.”” The noble Baroness said: My Lords, Amendment No. 199 introduces a new clause after Clause 395. This new clause introduces what is known as a safe harbour provision. Clause 395 concerns extended narrative reporting to improve the information that companies make available about themselves and their performance. When the Government first consulted on introducing an OFR, which was the predecessor to what is now Clause 395, a number of responses said that the OFR would never advance beyond legalistic boilerplate unless there was a safe harbour provision. Indeed, the company law review also recommended a safe harbour provision, but the Government ignored that when they introduced the initial OFR requirements. We will never know what kind of OFRs might have come out of the statutory instrument that was introduced last year but withdrawn before it ever came into effect. We are clear, however, that the new business review requirements will not succeed unless there is adequate protection from legal liability. The Government have now introduced the new business law requirements but have not yet introduced related safe harbour provisions. Although I am well aware that, last week, the Government issued draft clauses on the liability of directors, they are not tabled for today’s Report debate. Therefore, I felt it would be important for your Lordships’ House to have an opportunity to debate the key features of a required safe harbour provision for a business review in the hope that whatever the Government bring forward for Third Reading will be satisfactory. I hope the Minister will outline the timetable for the new clauses and confirm that he will be tabling an appropriate amendment at Third Reading. We feel it would be inappropriate for this Bill to go to another place without a safe harbour provision. It will be clear that Amendment No. 199 is a probing amendment. When I tabled the amendment at Grand Committee the debate proceeded on general principles, not on the specifics. I am aware that the Government’s draft clause is structured in a different way and, hence, is not directly comparable to Amendment No. 199. I shall not be arguing that the structure and scope of my amendment are superior, but I would like to draw the Minister’s attention to subsection (3) of my amendment, which relates to the updating of statements included in the business review. As far as I can see, there is no equivalent in the Government’s draft clause. This subsection was drafted to ensure it was clear that the directors had no ongoing responsibility to update statements in the business review. As I am sure the Minister is aware, it is based on the provisions of Section 102 of the 1995 Private Securities Litigation Reform Act in the United States of America. There is common ground that the most valuable aspects for a business review will be the insights it gives for the prospects of a company. So it is quite likely the information that is given about the prospects of the company will be overtaken by later information. Let us suppose that information is given about a company’s market share based on trade association data, which several months later is revised and the market share is, thus, a smaller or larger figure. Alternatively, the company may comment on the relationship of its business to GDP growth but an oil price shock or something similar comes along, which destroys that relationship. Clearly, if that puts a company into profit-warning territory, there are already market obligations to update shareholders about the changes. But all sorts of changes that have been put into a business review would not put a company into profit warning territory. So the question arises whether the directors have to do anything if circumstances change after the business review has been prepared. My amendment makes it clear that they do not because anything else would require the directors to have their eyes firmly on the rear-view mirror, which is the very antithesis of what they should be doing to promote the success of the company. I hope that the Minister will explain the Government’s position on the correction of information once it has been published. I beg to move.