Company Law Reform Bill [HL]

moved Amendment No. 89:"Page 70, line 17, at end insert ““; or" (   )   if the matter has been authorised by the company’s constitution insofar as such authorisation is not contrary to any applicable common law rule or equitable principle.”” The noble Lord said: My Lords, in moving this amendment, I also speak to Amendments Nos. 91 and 92, but not to Amendment No. 90, which I will not be moving. Amendment No. 89 seeks to preserve the existing flexibility, as interpreted by the courts, for companies’ articles to authorise a director’s conflicts of interest, subject to their being resolved. This resolution is a routine one of directors declaring a conflict, or potential conflict—for example, parallel directorship of a company with an overlapping business activity—of interest, and taking appropriate action, such as leaving the meeting, not voting, in some cases resigning from one board, or not accepting any financial payment. There are a number of remedies. Normal, sensible, practical ways of handling conflicts of interest, when they arise, are accepted and normal practice. We on this side of the House are concerned that the effect of Clause 159 will be to make it almost impossible for a director of more than one company to manage conflicts which may arise between the interests of the companies of which he is a director. As a result, it is likely that not only will directors be required to resign from multiple boards more frequently, but individuals will be very reluctant to take up non-executive posts. I exaggerate the argument deliberately. The crucial concern I have is for multiple directorships in overlapping industries, and the adverse effect that, without this amendment, directors may be reluctant to take up opportunities, and may even resign. I appreciate that it is impossible to derogate by way of permission in articles to avoid Clauses 155, 156 and 158. That is self-evident and accepted. In Clause 157, which covers the duty to exercise independent judgment, there is an ability to derogate through the company’s constitutional articles. My concerns may be resolved by Clause 164(4), but I contend that this is unclear. This lack of clarity in Clause 164(4) leaves Clauses 159 and 160 in an unsatisfactory condition, as they are silent about whether the articles can deal with conflicts of interest. If the Government want a total prohibition on the use of articles to regulate and control conflicts of interest, Clauses 159 and 160 present, it has been argued by those who have lobbied us, a major change of established UK law. This is unsatisfactory. I use my concerns about multiple directorships in particular as an example; I hope I have explained them as helpfully as possible. As I said, I shall not be moving Amendment No. 90. Amendments Nos. 91 and 92, which are bracketed with Amendment No. 89, repeat the language, this time in relation to Clause 160.