My Lords, I shall indeed speak to Amendment 170 and I thank the noble Lord for his comments on it. This concerns the procedure for disqualification of directors where there has been a criminal conviction of a company, or a deferred prosecution agreement. The amendment seeks to make it possible, following a criminal conviction of a company, for the court to consider whether any directors should be disqualified. This is not seeking to make a criminal conviction against directors—disqualification is a civil procedure—but to put company criminality procedures on a par with that which exists when there is a breach of competition law.
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Under Section 9A of the Company Directors Disqualification Act, the court must make a disqualification order against a person if a company of which they are a director commits a breach of competition law and the court considers that their conduct as a director makes them,
“unfit to be concerned in the management of a company”.
This means that the Competition Commission can seek disqualification orders as part of its suite of enforcement powers. In contrast, after a corporate criminality finding, the matter would have to be brought to the attention of the Secretary of State, who is the only person entitled to make a disqualification application to the court. However, there does not seem to be a mechanism by which conduct reports or the like are sent to the Secretary of State in such a case, as they would have to be for insolvency; nor does the Secretary of State have the specialised knowledge to address the public interest issues arising out of the prosecution. It also prevents the prosecuting authority having the power to use disqualification as a direct tool to punish or deter criminal behaviour by companies.
When I raised disqualification at Second Reading, the Minister explained three things. First, she said:
“Where a director is convicted, they can be disqualified as part of their sentence”.
I agree; it happens some of the time. Last year there were 47 disqualifications under Section 2 out of 483 referrals.
Secondly, the Minister said:
“Where a company is convicted of a Part 3 offence and the director is not party to that, fairness requires a separate hearing of application to disqualify”.
I do not understand why criminality differs from competition breach. The Minister will recognise that there is a sequence, as in the recent competition case, where the director disqualification was dealt with after the finding of competition breach. If there has been a “failure to prevent” conviction under the Bribery Act or under this Bill, or indeed if the company has been convicted of fraud, money laundering or some other serious crime and it appears that one or more of the directors has not exerted the right kind of responsibility and control, why is that treated less seriously than competition breach or various aspects of insolvency, where reports on director behaviour are required?
Thirdly, the Minister explained:
“Where a director of a corporation is implicated in wrongdoing, they can be subject to prosecution. If their actions amount to criminality or facilitating tax evasion where their actions fall short of being criminal, investigators can already investigate whether they are fit and proper to continue to hold the position of a company director and report their findings to the Secretary of State”.—[Official Report, 9/3/17; col. 1521.]
With due respect to the Minister, I think this misses the point. The point at issue is not the criminality or near-criminality of the director—that is the identification doctrine hang-up—but their role in adequate governance. As I mentioned before, there are no comprehensive provisions for reports to be prepared beyond those in Section 432 of the Companies Act 1985, which relates to fraud or misfeasance towards members.
When disqualification was raised in the other place, the Minister of State, Mr Wallace, gave a similar answer to that given by the Minister, and also said:
“There is no evidence of which we are aware that the power is not being used in the appropriate cases. When not used, it is not used for appropriate reasons”.—[Official Report, Commons, Criminal Finances Bill Committee, 22/11/16; col. 149.]
There are a lot of negatives there, which of course are hard to prove. After some investigation by me, aided by some QCs—it is still ongoing—I have a negative of my own: I can find no evidence that the general Section 8 powers are being used. I have discovered from BEIS that Section 8 was used five times last year. I understand this was on referral from the insolvency agency and with respect to Sections 447 and 432 of the Companies Act 1985. That takes us back to behaviour and reports that affect members—shareholders—not anything that is in the public interest. So who does the report on bribery or tax evasion? Is it ad hoc? If a prosecutor did it, could he be challenged as outside his remit in some way?
Of course one problem is that getting convictions against large companies is notoriously difficult but the point of principle, clearly brought out in a failure to prevent conviction, is: “What was the role of the directors in making sure that the appropriate procedures were in place?”. This goes to the heart of governance. There is no other public accountability mechanism and if it is right for competition, why not for bribery, tax avoidance or other serious criminality? Why should the specialist prosecutor not have the full toolkit?