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Shortly after I joined the board, Mr. Tom Vyner, the then deputy chairman of Sainsbury's, was also invited to join as chairman, to strengthen the board and to consider its trading activities in greater detail. After four or five months, Tom Vyner and I became increasingly concerned that the company's cashflow did not reflect the sales and turnover figures that the executive team were giving us. After four and a half months, we took the most unusual and rather hostile step, as non-executive directors, of calling in investigating accountants. We did so through a little bit of subterfuge: we said that we wanted the investigating accountants to look at a few individual branches to find out why figures were not entirely matching up and to report to the whole board.
As soon as we received the first verbal report of the investigating accountants, we put all the executive directors on gardening leave. When we received the subsequent report, we summarily dismissed them. I have to be careful about what I say, because the executive directors may be subject to legal prosecution and it is important that I do not prejudice that case. Suffice it to say that the duties of directors are paramount and their obligation to protect the public, customers, suppliers and everyone else is their first duty.
It is right that the law should be draconian in such matters and that if directors have misbehaved in any way--whether criminally or simply negligently--the protection of the public should come before the possibility of their continuing to trade in another venture and possibly putting the public at risk. The duty of the law must be, first, to protect the public and, secondly, to consider whether those people should be allowed to trade in another venture. For that reason, I strongly support the new clauses proposed by my hon. Friend the Member for Christchurch.
Mr. Richard Page (South-West Hertfordshire): I very much support what my hon. Friend the Member for Christchurch (Mr. Chope) has said. He has introduced the real world into our debates by speaking about rogue traders and the impact that they can have on the public.
As my hon. Friend said, the measure that he proposed in Committee was a little short on certain legal requirements but its thrust and direction were right none the less. We hoped that the Minister would introduce a measure of his own, drafted by the skilled officials who ensure that legislation contains no loophole that can be challenged in the courts. I regret that no such proposal has appeared, but the Minister now has his chance to accept my hon. Friend's proposal, which has been so ably supported by my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) and the hon. Member for Torridge and West Devon (Mr. Burnett). In my own humble and stuttering fashion, I shall return to that a little later if I may.
Before the Minister responds, I should like him to consider an article that I read recently in the New Statesman, which has recently run a profile of him. May I say that it is completely relevant to the new clause, Mr. Deputy Speaker, as I can see that you are on the edge of the Chair, waiting to leap in if I go out of order for 30 seconds? This engaging little piece states:
I want to speak to amendment No. 22, which my hon. Friend the Member for Hertford and Stortford (Mr. Wells) and I tabled. The proposals for expediting and simplifying processes by which directors can be disqualified must be welcome. I accept the figures produced by the DTI and offered by Ministers in relation to the proportion of disqualification orders that do not proceed to court, and their argument about the advantages of arrangements that permit the Secretary of State to accept undertakings from people whose conduct--let us be delicate--has been faulty.
Of course it is important to safeguard the interests of those who fall within the ambit of the new procedure. On the other side of the coin, it is equally important that the interests of the public should be protected against the premature lifting or termination of disqualification undertakings. I always listen carefully to the Minister, but I did so with special care when he argued in Committee that the court should have a discretion as to whether to reduce a period for which an undertaking should be in force or to provide for it to cease to be in force. The hon. Gentleman tantalised me and, I suspect, mystified the rest of the Committee--perhaps that should be the other way round--with his immortal words:
If the Secretary of State has good grounds to seek and accept a disqualification undertaking from an individual, there should be significant material grounds for any application to the courts requesting that undertaking to be shortened or terminated. It is no good simply announcing that the courts will have the power to take into account any relevant factors in determining such an application under new section 8A(2). The Bill should include a clear direction to the courts that they must have material justification to alter or end the period of the disqualification undertaking.
Mr. Butterfill: Does my hon. Friend agree that one of the problems is that the prosecution case may take some years to come before the courts? Although the Secretary of State and the Department may be convinced that wrongdoing has occurred, it may not be possible to rely on a conviction in the courts until quite a lot of damage is done in other companies.
Mr. Page: My hon. Friend is correct, but the purpose behind the Bill is to bring about such disqualifications more quickly. That is one of the reasons why we have given it qualified support. The difficulty is that we see written into it the means whereby disqualification could become quicker, which can be to the advantage of a director, obviating the need for huge legal costs. Written into the Bill is a way for the director to get out of the disqualification period under the standard time and for no material reason. I am trying to persuade the Minister to come up with reasons.
I do not share the Minister's rose-tinted view of life; he thinks that the courts will see through all the old lags who are trying to put one over on them. Anyone with business experience, or even experience of dealing with politicians, will know how persuasive and plausible such people can be. It is better that we take specific precautions now than that we find ourselves obliged to take them later.
It is proposed to give the director a second bite of the cherry. Under the new procedures envisaged in the clause, the Secretary of State may accept a disqualification undertaking, which has the same effect as a disqualification order. So far, so good. There is a new procedure for compromising disqualification proceedings without their even being commenced. The present way of compromising such proceedings is by way of a carecraft order. If such an order were made, the director would be bound by it. If he wants to be a director of another company, he has the right, under section 17, to apply for leave to do so.
Under the new procedure, the director would still be able to apply for leave to be a director of another company. However, he is given an additional right by the proposed new section, under which he can apply to the court for the disqualification undertaking to cease to be in force or for the period of disqualification to be reduced. Does this give the director the right to backtrack or to welsh on the bargain previously made by the Secretary of State? [Interruption.] I am sorry to use the word "welsh" like that; I saw the Minister shudder and I wish to withdraw that word.
Any director with any sense will agree to a disqualification undertaking. Having fixed the maximum period for disqualification, he can then can apply, under the new section, to see whether he can reduce the period or get out of it altogether. We know that the period cannot be increased, so he has nothing to lose except the cost of court proceedings. New section 8 is a difficult luxury to justify.
I am realistic and I know that if we tabled an amendment to remove the section, the Minister would more than likely reject it. I have tabled an amendment which could be regarded as a compromise and which may be acceptable to the Minister and the Government. I propose to limit the second bite of the cherry to where there is a material change of circumstances only. The proposal does not go as far as I would like it to but, at the very least, it means that the director will not be able to give a disqualification undertaking and then apply immediately to have it cease or have it reduced. That would prevent a fairly obvious abuse and it would be difficult for the House to object.
To those who are unconvinced, I would say this: why should a director who has freely given a disqualification undertaking have the right to apply to the court to get out of it without there having been a change of circumstance--particularly when he has the right to apply for leave to act as a director of a specific company? If it remains unamended, that is the way in which the measure will operate in more cases than I would care to imagine. From my business experience, I have seen company directors reappear like phoenixes, using the same modus operandi. They have appeared to be almost untouchable. The new clause would give a specific protection to the public which does not exist at the moment.