Clause 140

Company Law Reform Bill [Lords] – in a Public Bill Committee at 10:00 am on 6th July 2006.

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Companies required to have at least one director who is a natural person

Question proposed, That the clause stand part of the Bill.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice) 10:15 am, 6th July 2006

After that historical moment—I was delighted to hear the result—we moved to the privilege amendment. I thought that we all went home after that. Fortunately, that is not the case and we now come to clause 140.

As things stand, companies can have directors who are themselves companies. The clause provides that one of them—presumably the only one if it is a private company with a single director—must be a natural person. Would the Minister please provide the justification for the change and say what representations she has received on the issue in order to explain it?

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

The hon. Gentleman went through his comments rather fast. If he asks his question again, I may be able to give him an answer.

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice)

At present, a director does not have to be a natural person. The proposal is that there will have to be a director who is a natural person. I thought it would be appropriate to put on the record the reason why the Government included that change in the Bill.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

Okay; my notes tell me that we are doing that, but not why.

Photo of Paul Farrelly Paul Farrelly Labour, Newcastle-under-Lyme

May I commend the Minister on this amendment? All too frequently, in my experience, when trying to trace the directors or owners of companies one comes across an endless chain of post-box companies and it is often difficult to find out who is behind them, especially if one is investigating fraud or financial crime. I commend the Government on making this very sensible amendment.

Photo of Margaret Hodge Margaret Hodge Minister of State (Industry and the Regions)

I thank my hon. Friend for his intervention. I wanted to answer the question properly. There are two reasons for the change: first, as the hon. Gentleman said, there are difficulties of enforcement of obligations on directors who are not individuals. Sanctions lack bite against corporate directors, because ultimately it is the shareholders of the corporate director who pay any fine while the threat of imprisonment is ineffectual.

Secondly, when companies have corporate directors it is difficult to trace who controls them. An example is that of company A being the sole director of company B, B being the sole director of company C, and C being the sole director of company A. In practice, things are more complicated but it is clear that those intending to commit fraud may use a company with corporate directors to help to obscure the identities of the individuals involved. That can be a particular problem with the corporate directors of companies established in overseas jurisdictions with poor records of transparency and corporate law enforcement. I again thank my hon. Friend the Member for Newcastle-under-Lyme (Paul Farrelly) for his helpful intervention.

Question put and agreed to.

Clause 140 ordered to stand part of the Bill.