Company Law Reform Bill [HL]

moved Amendment No. 336:"Page 238, line 30, at end insert—" ““(   )   The notice of the resolution must state the reasons for the proposed removal of the auditor from office.”” The noble Baroness said: My Lords, I rise to move Amendment No. 336, which inserts a new subsection into Clause 502, which deals with the special notice procedure for removing an auditor from office. I am pleased to see that so many noble Lords are interested in this issue. My amendment requires the notice of the resolution to include the reasons for the proposed removal. In most cases members appoint auditors at the annual general meeting. In some cases the directors appoint new auditors if one resigns during the year. Quite rightly the auditors cannot be removed by the directors during the year; instead they must seek the members’ approval. The auditors can submit their own representations, and in most cases the directors have to circulate them. However, the directors are not required to say why they are seeking a resolution to get rid of the auditors. Indeed, if the auditors prepare no representations, there might be no information at all available to shareholders, who need to decide how to cast their proxy votes, or whether to make the effort to attend the meeting. The current procedure seems designed to keep the shareholders in the dark, placing the entire burden of information on the auditors’ representations. But the auditors are not seeking their own removal. In any event, the directors do not in all cases have to circulate the representations. A related point is Part 1 of Article 36 of the eighth directive, which the Minister told us in Grand Committee the Government do not know how to implement. This says that auditors must not be removed on the grounds of divergence of opinion on accounting treatments or audit procedures. It is highly likely that at present, when auditors are removed, it is precisely for these reasons. I rather suspect that the Government resisted my amendment in Grand Committee because it would make transparent the fact that auditor removal occurs in the very circumstances which will be prohibited by the directive. In Grand Committee, the Minister merely told us that implementing the directive caused problems because it might stop members getting rid of an auditor they no longer trust. The truth is that members have no role in initiating the removal of auditors, other than to approve the directors’ recommendation. It is not the members’ trust but that of the directors that is at issue. In the absence of members being protected from directors removing auditors if they disagree with them over auditing or accounting, we believe that the case for disclosure of reasons is doubly strong. I beg to move.