Clause 40
Company Law Reform Bill [Lords]
5:45 pm

Quentin Davies (Grantham and Stamford, Conservative)

Again, on a point of elucidation, I refer the Committee to subsection (5):

“This clause does not affect any liability incurred by the directors, or any other person, by reason of the directors’ exceeding their powers.”

That returns to the ultra vires issue raised a few moments ago by the hon. Member for Cambridge. My problem is that the word “affect” seems slightly ambiguous. Does it mean that the subsection does not set aside any liability incurred by the directors? In other words, if the directors exceed their powers, can they be pursued by the members of the company who presumably will have suffered by the directors undertaking obligations that exceeded those powers? Or does it mean that the subsection does not give effect to any liability? In other words, does it not reinforce liability?

That is a big difference. The word “affect” covers a bundle of slightly opposite meanings. Again, my problem is with that word. Perhaps the Minister can explain whether she considers “affect” to be sufficiently precise for what is potentially a complex and dangerous area; we all know that ultra vires rules about directors have been the subject of much litigation.

Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)

I think that I can be a little more helpful on that query. Again, the purpose of the clause is to provide safeguards for those dealing with companies in good faith. It has no impact on the liability of directors, which will be dealt with in clause 157, which we will discuss later. The clause before us will not have the impact that the hon. Gentleman described.

I am reluctant to enter into a debate in Committee on whether “affect” is the appropriate word. I assumed that in the drafting of the clause, lawyers chose an appropriate word. The clause has no impact on directors’ liabilities and duties, which are covered by clause 157, which no doubt we will spend considerable time debating.

Quentin Davies (Grantham and Stamford, Conservative)

That response was doubly unsatisfactory. It is not good enough for us to say that we are not responsible for words in the Bills that we pass in this place. We are responsible for those words and cannot simply say that it is all the fault of some parliamentary draftsman or lawyer. I did not like the Minister’s abdication of responsibility.

Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)

If the hon. Gentleman was concerned about the word “affect” he could have tabled an amendment with a better term. I am saying that the parliamentary draftsmen advised me that that terminology met the purpose for which it was intended.

Quentin Davies (Grantham and Stamford, Conservative)

Encouraging me to table an amendment is a better response than the one that the Minister gave me on the first occasion.

When I raise an issue about the pertinence or meaning of a subsection, it is not satisfactory to say that the rest of the clause is perfectly all right. That is perfectly true—I totally agree with the purpose of the rest of the clause, and I likewise agree that anybody dealing with a company is entitled to take at face value the directors’ right to commit that company. That is clear, and our whole economic system would not survive were it not the case. The question, however, is whether the subsection is required at all. The hon. Lady says that directors’ liability is dealt with explicitly elsewhere in the Bill. That is perfectly correct. Why, then, do we need the subsection? It says:

“This section does not affect any liability incurred by directors, or any other person, by reason of the directors’ exceeding their powers.”

So the hon. Lady has introduced a reference to directors’ liability even though she stated that it did not belong in the clause but elsewhere in the Bill. There might be some slightly confused thinking on her part, and t is up to her to defend the presence of the subsection, because I am not convinced that it is necessary.

Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)

Let me try to help the hon. Member. In my view, the subsection is in the Bill to clarify to all who read it that there is no implication for the duties of directors as set out elsewhere. If the subsection were omitted, the implication could be that directors were acting properly. We want to clarify through the subsection—which, as the hon. Gentleman rightly says, refers to people dealing with the company on the assumption that directors are acting appropriately and in accordance with the company’s constitution—that the clause in no way overrides directors’ obligations and duties as set out elsewhere. In my view, it is clear and it is not superfluous.

Quentin Davies (Grantham and Stamford, Conservative)

The Minister’s phrase “in no way overrides” is much clearer than the phrase “does not affect” and I wish that she had put the wording that she has produced this afternoon into the Bill when she supervised its drafting. I hope that the exchange this afternoon will help those who may, under the rule in Pepper v. Hart, need to refer in future to our discussions in order to construe the Bill when it becomes an Act.