Company Law Reform Bill [HL]

My Lords, again we do not have a complete meeting of minds on this issue. As I said in Grand Committee, we have sympathy with the idea behind this amendment but, on balance, would prefer to leave arrangements as they are and not adopt it. As has been explained, Clause 511 puts a duty on a company to circulate the statement made by a departing auditor. It then provides the company with an opportunity not to circulate it if it can persuade the court that the auditor is abusing his right, or—as it is intended to be amended by the very next amendment, which we have already debated—if he is seeking to secure"““needless publicity for defamatory matter””." There have apparently been cases where directors have gone to court for permission not to circulate an auditor’s statement and not because they genuinely believed the auditor’s purpose was to secure needless publicity for a defamatory matter. The directors hoped rather to delay the release of the auditor’s statement because it included reasonable criticism of the directors that would be valuable to the shareholders. The directors’ hope was that by the time the court had turned down their application, the auditor’s statement would be stale and would not have the impact it would have had if circulated straightaway. In considering such a case, there is an argument that the company must inform the shareholders, although it is not clear how much good it does. All they learn extra is that the directors do not want to circulate to them the statement the auditors have made. This might be of interest to them but it may not be of great value. More importantly, we should look at the main purpose of the clause, which is to enable the company not to circulate material that is unnecessarily defamatory and unlikely to be of use to the shareholders. In such cases, it is plainly of no value to the company to have to go to the expense of informing all its shareholders that it has gone to court. Whereas we can see that there are cases where circulating this information might have some value, on balance we believe that it would generally have no value, and that it would therefore be inappropriate to force this extra expense on companies. I reiterate, we do have sympathy with the thrust of this point, but ultimately it is just a balance of which is the best way to take it forward. We would prefer to stick with the current formulation.