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Clause 353

Company Law Reform Bill [Lords] – in a Public Bill Committee at 4:30 pm on 29th June 2006.

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Enforcement of directors’ liabilities by shareholder action

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

I beg to move amendment No. 315, in clause 353, page 158, line 16, at end insert

‘or, in the case of a claim under section 352(3), to the relevant subsidiary;'.

Photo of John Bercow John Bercow Conservative, Buckingham

With this it will be convenient to discuss the following amendments: No. 316, in clause 353, page 158, line 18, at end insert

‘or, in the case of a claim under section 352(3), by the relevant subsidiary;'.

No. 317, in clause 353, page 158, line 20, at end insert—

‘(d) that a resolution satisfying the provisions of sections 348 and 349 has been made in connection with the relevant political donation or political expenditure.'.

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

The clause provides a mechanism for shareholders to bring proceedings to enforce the liability of any person under clause 352 in the event of an unlawful political donation being made or if unlawful political expenditure is incurred. Subsection (4) provides relief from liability in certain circumstances, including if the unauthorised amount has been made good to the company or if proceedings have been brought by the relevant company.

Amendments Nos. 315 and 316 are probing amendments, as subsection (1) talks about proceedings being enforced by the company. When holding company director action might apply, I want to be clear whether the reference to the company means the company that has incurred the illegal donation or expenditure, the holding company or both alternatives. If the latter two constructions are applied, the directors of the holding company should be granted relief if an action is diligently pursued by the subsidiary or if the sum is made good to the subsidiary as contrasted with the holding company.

Amendment No. 317 raises a different issue, and confirms that ratification of an action by shareholders will provide relief. Obviously, under section 347C(5) of the 1985 Act, ratification is not allowed. I note that that section is not incorporated here, and therefore the view is that ratification is, by the omission of such provisions, permissible. That certainly is the intended effect of the provisions. The amendment was intended to put clarification on the face of the Bill, given that the clause is a reversal of the pre-existing situation, and to make the position absolutely clear.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions) 4:45 pm, 29th June 2006

I am grateful to the hon. Gentleman for bringing amendments Nos. 315 and 316 to our attention. We should like to reflect on and return to the issue that he has raised. He rightly said that clause 352 imposes a liability on the directors of the subsidiary donor company and its relevant holding company. Clause 353 gives conduct of legal proceedings to enforce the liability to members of the company. In that case, “the company” means the donor company, not the relevant holding company. However, if the company is a wholly owned subsidiary, it will not have any members with an interest in pursuing the action. Accordingly, the action must be capable of being brought in the name of the donor company by members of the relevant holding company, and, arguably, by members of any intermediate holding company, too.

Although we cannot accept amendments Nos. 315 and 316 as drafted, we accept their intent, and I am  happy to undertake to table amendments on Report to address the issue that the hon. Gentleman has drawn to our attention.

I am not sure whether I am right or wrong, but with amendment No. 317 it seems that the hon. Gentleman would like to provide for a director to apply to court when there had been an authorising resolution, so as to prevent the bringing of a shareholder action relating to an unauthorised political donation. If there is an authorising resolution, the political donation cannot be unauthorised. I do not know whether there was a drafting issue, but the amendment does not make sense, and he may want to consider that.

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

I am grateful to the Minister for accepting that, with the first two amendments, there is a legitimate issue that deserves further examination. I am grateful to her for agreeing to table on Report amendments to address that position. I note her comments about amendment No. 317. My approach was to highlight the ratification issue that I discussed. If I have inadvertently drawn any conclusions in relation to that, I apologise to the Committee. In light of those comments and the Minister’s assurance about amendments Nos. 316 and 316, I beg to ask leave to withdraw the lead amendment.

Amendment, by leave, withdrawn.

Clause 353 ordered to stand part of the Bill.

Clauses 354 and 355 ordered to stand part of the Bill.