Company Law Reform Bill [HL]

moved Amendment No. 93:"After Clause 164, insert the following new clause—" ““MODIFICATION OF PROVISIONS IN RELATION TO CHARITABLE COMPANIES (1)   In their application to a company that is a charity, the provisions of this Chapter have effect subject to this section. (2)   Section 159 (duty to avoid conflicts of interest) has effect as if— (a)   for subsection (3) (which disapplies the duty to avoid conflicts of interest in the case of a transaction or arrangement with the company) there were substituted— ““(3)   This duty does not apply to a conflict of interest arising in relation to a transaction or arrangement with the company if or to the extent that the company’s articles allow that duty to be so disapplied, which they may do only in relation to descriptions of transaction or arrangement specified in the company’s articles.””; (b)   for subsection (5) (which specifies how directors of a company may give authority under that section for a transaction or arrangement) there were substituted— ““(5)   Authorisation may be given by the directors where the company’s constitution includes provision enabling them to authorise the matter, by the matter being proposed to and authorised by them in accordance with the constitution.””. (3)   Section 164(2)(b) (which disapplies certain duties under this Chapter in relation to cases excepted from requirement to obtain approval by members under Chapter 4) applies only if or to the extent that the company’s articles allow those duties to be so disapplied, which they may do only in relation to descriptions of transaction or arrangement specified in the company’s articles. (4)   After section 26(5) of the Charities Act 1993 (c. 10) (power of Charity Commission to authorise dealings with charity property etc) insert— ““(5A)   In the case of a charity that is a company, an order under this section may authorise an act notwithstanding that it involves the breach of a duty imposed on a director of the company under Chapter 2 of Part 10 of the Company Law Reform Act 2006 (general duties of directors).””. (5)   This section does not extend to Scotland or Northern Ireland.”” The noble and learned Lord said: My Lords, one of the issues that has been raised in this debate—indeed, it was raised in relation to the last amendment—is the duty placed on directors to avoid conflicts of interest. The Bill relaxes the position in a number of respects. First, authorisation is no longer needed for conflicts of interest arising in relation to transactions or arrangements with the company. A different duty, that of disclosure, is imposed by Clause 161. Secondly, provision is made for conflicts of interest to be authorised by the directors of the company. At Second Reading, the noble Baroness, Lady Bottomley, pointed out that with charitable companies it is the exception rather than the norm for the directors to be paid. The same can be said for interests in transactions with the charity and other conflicts of interest. She raised concerns that, as a result of relaxing the strict no-conflict rule for the directors of companies, the directors of charitable companies will have weaker duties than other charity trustees. The relaxations of the no-conflict rule are appropriate for and have been welcomed by business. Those companies that wish to reverse the relaxations may do so through their constitutions. But that approach is not thought appropriate for charitable companies, where the payment of directors remains the exception rather than the rule and where the interests of the company are reflected primarily in the pursuit of their objects for the benefit of the public, rather than the benefit of their members. At the moment, charities are subject to similar rules regarding the management of conflicts of interest, whether they are set up as companies or not. Together with the Charity Commission, we have come to the conclusion that that should continue to be the case. That means that charitable companies should be able to take advantage of the relaxations that are proposed in the Bill only if and to the extent that their constitutions allow them to do so. The effect of this new clause is to reverse the various relaxations to the strict no-conflict rule made by the Bill. Charitable companies will still be able to take advantage of the various relaxations where their constitutions allow. That has the benefit of transparency. It will be clear from the charity’s constitution whether it is able to take advantage of the relaxation of the strict no-conflict rule. As a result of this new clause, the no-conflict rule will continue to apply to charitable companies with the same strictness as under the present law. There will be no two-tier system between charities set up as companies and charities using some other form. This clause applies to England and Wales. Discussions are taking place about whether provision should be made in the Bill in this regard for Scotland and Northern Ireland. I beg to move.