Company Law Reform Bill [HL]

My Lords, I am grateful for that, and I am sorry if I misheard the noble Lord. But really that enables me to take my argument further that it is actually changing the law. Of course directors pay attention to all the six issues that are mentioned, but the point is that by having them expressed in statute it opens up huge possibilities for new legal action and opportunistic legal challenges. I have two examples. Individual shareholders or groups, perhaps acting on behalf of another company, could use the new possibilities opened up here in a way that is not possible now to challenge directors’ decisions or to raise any issues incurring substantial costs and management distractions against the interests of the shareholders generally. They have to go through one or two processes on the derivative claims, but nevertheless there is a fear that in some cases they will get through those and the problems will arise. More particularly, I am concerned about the possibilities that the provision extends to hedge funds, particularly aggressive American ones. Companies that have been subject to American pressures before this, even under existing legislation—and I have been given a clear illustration of one such company—know how American practitioners could exploit this legislation if it goes through as proposed by the amendment. The directors of that company believe that they would have been in a difficult situation if this legislation had been in place and they were trying to do a major restructuring both in the interests of the company and the economy generally. Indeed, they argued that some of the directors may have been deterred from serving on that board if the Bill was in place when they were carrying that through. We live in an age of globalised markets. In many of the big corporate restructurings, hedge funds would have greater opportunities to apply pressure for their own ends. Many are American, they have deep pockets, and they are used to American litigation practices. I indicated in Committee that I had been told that a number of American law firms were looking to come here to exploit these opportunities. It may be that some, indeed many, will be deterred by the new amendments on derivative claims; I readily acknowledge that. But the fear is that others will not be deterred, and even the new approach will still give a shareholder new ways to bring claims to include substantial costs for the company and to be a great diversion for senior management at times when it may be least in the company’s interests. I hope that I am wrong; but the people who have been expressing these fears to me are more experienced and qualified than I am, and they feel that the concerns are still there. If they are right, considerable damage could be done, and it will certainly not be easy to amend this legislation, because we have already heard from the noble Lord, Lord Sainsbury, and others that he hopes—and I expect that this will be right—that we will not have another company law Bill for a number of years, and this would be a comparatively minor point. It will not be easy. I have these fears, which are widely shared outside, and that is why I believe it is right to support my noble friend’s amendment.