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Lord Hodgson of Astley Abbotts: You certainly should.
Lord Wedderburn of Charlton: I shall try to do so. The noble Lord is ignoring the fact that what I say is true. The Bill will adjust the standards of what people perhaps ought to inquire into on an objective basis. He may have to get used to slightly new ways.
But the amendment makes the position even worse; it is not of itself consistent. Paragraphs (a) and (c) in the amendment push towards a subjective test. The person on the board would be judged, first, on his actual knowledge and, secondly, on what it would be reasonable in all the circumstances to rely on in regard to,
- "other directors . . . for ascertaining the facts or circumstances",
Paragraph (b) in the amendment is an additional required test: paragraphs (a), (b) and (c) have the word "and" connecting them. The director would have to show,
- "that proper arrangements had been established by resolution of the Board of Directors, allocating responsibility . . . to one or more directors . . . for ascertaining the facts".
If a director cannot show that there are proper arrangements—whatever the court may think are proper arrangements—he could not come under the amendment. A non-executive or executive director or anyone else on the board may have voted against the arrangements. They may have been carried in the face of his intense opposition because he did not think that they were proper. Yet, under the amendment, in the eye of the court, if they are not objectively proper the clause would give such a director no comfort or assistance.
This is a very strange amendment, which shows the lengths to which some stables will go in running horses against the objective test. I urge the Government to stay with the test of what a reasonable person ought to know who carries out those types of functions—I stress "those types of functions"—on the board.
3.45 p.m.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): I shall first cover the point made by the noble Lord, Lord Wedderburn, about what I said at the end of the previous sitting. The noble Lord, Lord Sharman, asked me to answer his question about whether he could expect a statement on the plans for reform of directors' liabilities before the Bill was passed. I said yes.
We are talking about precisely that, not a statement about the duties of directors. We will simply make a statement after we have consulted on directors' liability about that consultation. I do not think that Members of the Committee should read anything more into my statement than what it actually said.
I have listened with interest to what has been said. The amendment seeks to address some of the concerns expressed by Members of the Committee when we debated previous amendments to Clause 9 last Wednesday. There was particular concern that one director might be required to take too great a responsibility for the failure by another director to disclose information to the auditors.
It therefore might be helpful if I outline what we are trying to achieve through the statement in the directors' report, to remove any misunderstanding.
The purpose of Clause 9 is to make each director think carefully about the disclosure of information to the auditor for the purposes of the audit. We can tackle that question without a wholesale reform of the duties of directors. It is not sufficient for a director to have to consider only information of which he or she is already aware, but we do not expect directors to pursue every possible avenue that could yield relevant information. A director should have to direct his or her mind to whether there is information that is relevant to the auditor's opinion that has not been disclosed and which that person thinks is incomplete or false.
We cannot give such glamorous examples as the noble Lord, Lord Hodgson, with his experience of pubs and breweries. My noble friend Lord Evans and I have a simpler example: that of the sales director of a publishing firm who sees in the accounts a figure for stocks of books which seems to that person unrealistic—perhaps because he knows that the stock consists of political memoirs and is therefore not saleable. He must consider whether he should examine those figures to make certain whether the information has been properly disclosed to the auditors or, on the other hand, is incomplete or false.
We believe that a director should have that responsibility. It is much clearer and more limited than the noble Lord, Lord Hodgson, fears. However, as we suggested last Wednesday, we will reflect carefully on what has been said about this clause and consider whether we need to introduce amendments to clarify the provisions. We are mindful of the need to produce balanced legislation that is fair to directors but which also protects shareholders. All the amendments to this clause tabled by the noble Lord, Lord Hodgson, would limit what directors would need to consider in making a statement. Although it is not our intention to impose unreasonable requirements on directors, we must not forget that the purpose of this clause is to facilitate the audit process, providing greater market reassurance to the benefit of shareholders and others. We must not lose sight of that.
I hope that I have made it clear that we will reflect carefully on the points made both last week and today. In the light of that, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Wedderburn of Charlton: Perhaps I may press my noble friend on what he said in his clear opening remarks. Is it the case that, in the statement that the Government intend to make in the face of the consultation, he does not believe that we will get the Government's preliminary view in choosing between an objective test of the type in subsection (3) for directors generally and the business judgment rule?
Lord Sainsbury of Turville: My remark was carefully made. I said that it was a statement and noble Lords should not read into that anything more than that it is a statement. We will have to wait until the statement is made to find out what it says.
Lord Hodgson of Astley Abbotts: I am grateful to the Minister for his further reassurance that this clause will be reconsidered. His example of the sales director went to the heart of what I was driving at. The sales director is an executive and therefore would be expected to know. My problem is with non-executives who, perforce, are slightly more distanced. The noble Lord, Lord Sharman, partly underlined the issue of the difficulty that we all face in this area if we include this piece of the jigsaw but not the rest of the pieces that he outlined in his remarks.
The noble Lord, Lord Wedderburn, took me to task on several counts. However, I think that he now understands that he will not get the objective statement of government policy on directors' duties in time. He said that directors will have to get used to new ways. The reality is that boards of companies have, over the past five to 10 years, faced an unprecedented rate of change. The noble Lord may shake his head, but he need only look at the quality, length and detail of annual reports and how they have expanded to know that that is the case.
I was not suggesting that this clause would commend itself to the parliamentary draftsmen word for word—that would be asking far too much. When an amendment is even partially accepted, it always needs to be redrafted and given an imprimatur. However, I
am grateful to the Minister for his reassurance on this point. Pending his further consideration and reflection, I beg leave to withdraw the amendment.Amendment, by leave, withdrawn.
[Amendments Nos. 64 and 65 not moved.]
Clause 11 [Disclosure of tax information by Inland Revenue to facilitate application for declaration that accounts are defective]:
Lord Hodgson of Astley Abbotts moved Amendment No. 66:
- Page 13, line 10, after "disclosed" insert "at the request of, and"
The noble Lord said: The Government will note that we have given notice of our intention to oppose the Question that Clause 11 stand part, which we wish to raise later. Although we are concerned with the overall implications of the clause, we wish to raise specific points within it, as can be seen in the group of amendments to which I shall now speak—Amendments Nos. 66, 67 and 68. Clause 11 provides for the disclosure of information by the Inland Revenue to a person authorised under Section 245C of the Companies Act 1985.
Amendment No. 66 concerns subsection (1) and requires that information disclosed by the Inland Revenue to the authorised person has been requested by the authorised person. The Bill appears not to specify whether a request from the authorised person is a pre-requisite to disclosure. The amendment will guarantee that information can be disclosed only if so requested.
Amendment No. 67 would delete lines 17 to 19—subsection (2) of new Section 245D. The subsection provides that information held by the Inland Revenue,
- "may be disclosed despite any other restriction on the disclosure of information whether imposed by statute or otherwise".
I notice that the rather draconian wording of subsection 2(a) in new Section 245D is similar to that found in Section 19, entitled "Disclosure of information held by revenue departments", of the Anti-terrorism, Crime and Security Act 2001. Section 19(2) states:
- "No obligation of secrecy imposed by statute or otherwise prevents the disclosure . . . of information".
Amendment No. 68 adds to the Bill the requirement that the Inland Revenue may disclose information only,
- "if that information was lawfully obtained by the Inland Revenue for tax purposes".
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