Company Law Reform Bill [HL]

moved Amendment No. 216:"Page 189, line 32, after ““wholly”” insert ““or mainly””" The noble Baroness said: My Lords, Amendment No. 216 amends Clause 413(5)(b). The effect of that is that if information that should be on a company’s website is unavailable, the criminal offence set out in Clause 412 will not apply if the failure is wholly or mainly attributable to circumstances that it would not be reasonable for the company to prevent or avoid. The clause excuses the directors only if the failure is wholly attributable to such circumstances. When we debated this in Grand Committee, the Minister said that the formula had been in use for more than five years since the Companies Act 1985 was amended and had caused no problems. Although it is true that the wording about electronic communication is in line with what is now Section 238 of the Companies Act 1985, that applies to a rather different situation, where members could elect to dispense with hard copy and access documents on the company’s website. I do not know what take-up there has been of that provision, but I know that there is considerable shareholder resistance to relying on electronic communication alone. I suspect that the provision has hardly been used and it is therefore no surprise that no problems have emerged. We now have a new situation with Clause 412, which requires companies to place certain information on their websites and criminalises company officers if the information is not available. Although I do not much like the extensive use of criminal offences throughout company law, if they are to be used, we need to keep a sense of proportion. The clause will encourage risk-averse behaviour by companies and thereby impose regulatory costs that are unnecessary. Let me give the example of a terrorist attack, or, perhaps, a major fire in a fuel depot that knocks out the communications of the company’s head office. The company’s first priority is the safety of its staff; its second priority will be to ensure that its operating capacity is restored. Then it will move on to supply-chain issues, logistics, accounting integrity, systems availability, and so on. Some way down the line, the priority will shift to ensuring that the investor relations part of its website is back up and running. After day one, non-availability of the website is not wholly due to the attack or the fire; it is due to the company’s list of priorities. Is it reasonable for the company to make that a low priority? Where on the priority list do the Government expect it to be? The Minister said that the Institute of Chartered Secretaries and Administrators has said that companies should give serious thought to setting up a backup facility for websites. What if the company’s list of priorities leads to it having backup for its customer-facing website—for example, online ordering—but not the investor relations part, because of cost? What cost do the Government think it reasonable for companies to avoid? I hope that the Government will look at this again because, if they do not, I predict that the law of unintended consequences will spring up. Companies will be advised by their lawyers and company secretary that if they want to be sure to avoid criminal penalties—99.9 per cent of company directors care about not incurring criminal penalties—they must gold-plate their business arrangements. No more cost/benefit analysis; no more evaluation of risk; just failsafe provisions at whatever cost. I hope that the Government will agree with me that that would be an unfortunate outcome. I beg to move.