Company Law Reform Bill [HL]

My Lords, the effect of the amendment—I understand that the noble Lord has identified it as a probing amendment—would be that none of the general duties would apply to shadow directors. The amendment says that the duties do not apply to shadow directors and then says,"““save as otherwise provided for in the Companies Acts””." But the Companies Acts do not provide for any general duties of this sort to be applied to shadow directors, so in that sense, they are meaningless. The noble Lord has indicated that the common law is uncertain—we talked about that in Grand Committee—and it would be better if the general duties to apply to shadow directors were spelt out, but of course his amendment does not do that. His amendment does not attempt to identify what general duties should apply to shadow directors. It has the effect of saying that none of them should. That is not a position with which the Government could agree. Perhaps I can set out the context. The concept of shadow directorship is to catch individuals who are effectively acting as directors via the agency of the real directors who deal with third parties and enter into contracts on behalf of the company according to the instructions of the shadow director. If the shadow director had himself done those things in relation to the company that they are directing, that person would almost certainly be, at least for those purposes, sufficiently involved to be a de facto director. Therefore, we think that although the concept of shadow director is a creation of statute, it would be wrong for a shadow director to be able to escape all of the general duties, merely because of a quirk in the way that the person is acting. The law commissions were alive to that danger. They stated that the better view was that shadow directors were to be regarded as akin to de facto directors and that they could incur the liability of a properly appointed director under the general law, where they effectively act as a director through the people whom they influence. That is why the Company Law Review made a clear recommendation that the general duties should apply to shadow directors. It is a concept designed to prevent those who really exercise control sheltering behind a puppet board. The law is still developing. It would not be right for the general duties not to apply at all to a shadow director, but the law may develop in such a way that some do and some do not. It is right to leave that area, as now, to the courts, as I indicated when we spoke about this in Grand Committee. There was a view in jurisprudence that these general duties should apply to shadow directors, but then an impressive, well reasoned further judgment took a different view. Certainly, I cannot accept the noble Lord’s amendment. He has not put forward any alternative proposal, other than that the duties should not apply at all to shadow directors, which is not one we can agree with. It leaves the area as one for the courts to develop; that is true of other aspects of this Bill. Those on the noble Lord’s Side of the House have not disagreed with this in other areas, precisely because it leaves the law where it is, rather than changing it. The noble Lord has probed and I have sought to answer; I hope he will withdraw the amendment.