Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)

This provision deals with transactions involving directors or their associates, and it ties in with section 322A of the Companies Act 1985. It was introduced relatively recently by the Companies Act 1989. At that time there was quite a lot of discussion about it, but there has not been much discussion since then, and it was not mentioned at all in the Lords. It provides some broad powers, particularly relating to  interpretation and the courts’ ability as set out in subsection (6) to make orders

“on such terms as appear to the court to be just.”

Will the Minister provide details on the operation of the clause in practice and on the extent to which time has shown it to be fit for purpose?

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

The clause retains the substance of section 322A of the Companies Act 1985. It applies to a transaction if or to the extent that its validity depends on clause 40, which is concerned with the powers of directors to bind a company. It provides that where the party to a transaction with the company is an insider, such as a director of the company or a person connected with such a director, the protection afforded by the clause does not apply. That is, the transaction will be voidable at the instance of the company. Irrespective of whether the transaction is voided, the insider, and any director who authorised the transaction, are liable to account to the company for any gain that they have made as a result of the transaction, and to indemnify the company for any loss or damage that it has incurred. However, where the insider is not a director of the company, it may be possible for him to avoid liability if he can show that at the time he entered into the transaction with the company he was unaware that the directors were exceeding their powers.

As now, under subsection (4) a transaction will cease to be voidable in certain circumstances, such as, for example, if a restitution of any money or asset that has been lost as a result of the transaction is no longer possible. It is purely transferring the substance of a section of the 1985 Act into the current Bill.

Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)

I am not entirely sure that the Minister answered my question, which related to how this has worked in practice and to what extent it has been used. If she could drop me a line me on that at a later date I should be grateful. My impression would be that it would be a negative answer, but could she confirm that?

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

For the record, my understanding is that there has not been a problem with the way that this provision has operated within the 1985 Act and I think that is why it has not been an issue of contention. If people have raised it with the hon. Gentleman, I will willingly look at it again. I understood that this was a completely uncontentious transposition of existing powers.