Standing Committee A
Tuesday 14 September 2004
(Morning)
[Derek Conway in the Chair]
Companies (Audit, Investigations and Community Enterprise) Bill [Lords]
8.55 am
Motion made, and Question proposed,
That, during the proceedings on the Companies (Audit, Investigations and Community Enterprise) Bill [Lords], the Standing Committee do meet on Tuesdays and Thursdays, when the House is sitting, at 8.55 am and 2.30 pm—[Jacqui Smith.]
Mr. Andrew Mitchell (Sutton Coldfield) (Con): I support the sittings motion. I draw the Committee's attention to my interests, which are clearly listed in the Register of Members' Interests. I am a director of Lazard's, and of a number of its subsidiaries. Lazard's is not a public company. I am also senior strategy adviser to Accenture. As we hope to deal with the question of auditor liability later this morning, I should point out that that company does no public audits of any kind.
I thank the Minister for agreeing to a sittings motion. When I arrived today, no less than three and possibly four Government Whips were circling around the Room. I do not know whether that was because of the slightly different way in which we have programmed proceedings on the Bill, but there they were. We are considering the Bill in the old way, Mr. Conway—the way that was used many years ago, when you and I were Government Whips. We did not take a programme motion on the Floor of the House; in those days, such matters were agreed between the usual channels—the old style of procedure. The sittings motion is none the worse for that.
Question put and agreed to.
The Chairman: Before we make progress, I remind the Committee that we have a money resolution and a Ways and Means resolution in connection with the Bill, copies of which are available in the Room. I also remind colleagues that adequate notice should be given of amendments. As a general rule, my co-Chairman and I do not intend to call starred amendments, including any starred amendments that may be reached during an afternoon sitting of the Committee.
I also remind Members to switch off their mobile phones, especially as one of my co-Chairmen was once irritated by a phone ringing—until he discovered, to his horror, that it was his own. It is warm in the Room, so if any of my colleagues wish to do so, it is acceptable for them to remove their jackets.
The Minister for Industry and the Regions (Jacqui Smith): I beg to move,
That the order in which proceedings in Standing Committee on the Companies (Audit, Investigations and Community Enterprise) Bill [Lords] are to be taken shall be: New Clause 1; New Clause 3; Clauses 1 to 12, Schedule 1; Clauses 13 to 23; Schedule 2; Clauses 24 and 25; Schedule 3; Clause 26; Schedule 4; Clause 27; Schedule 5; Clauses 28 to 31; Schedule 6; Clauses 32 to 40; Schedule 7; Clauses
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41 to 62; Schedule 8; Clauses 63 to 65; remaining new Clauses; new Schedules; any other proceedings relating to the Bill.
I start, Mr. Conway, by welcoming you to the Chair. This is the first time that I have had the honour to serve on a Committee under your chairmanship. I am also aware that we will have the services of my hon. Friend the Member for North-West Leicestershire (David Taylor) available to us during our debates. It would be difficult to find two better-qualified Chairmen.
I take this opportunity to welcome my hon. Friend the Member for West Bromwich, East (Mr. Watson) to the Committee. Despite the comments of the hon. Member for Sutton Coldfield (Mr. Mitchell), he has already dispensed with the services of the other Whips and taken up his new role as Whip for what I am sure will be an extremely successful first outing. He could not wish for a better start.
I do not believe that there is anything controversial about the order of consideration motion. The hon. Member for Sutton Coldfield made great play of the old way of doing things. I hope that what he and I thought was a sensible way of giving the Bill the appropriate scrutiny will find favour with the Committee. It seems sensible that we should look first at the new clauses dealing with directors, followed by the new clauses tabled by the hon. Gentleman on auditor liability, and then a detailed scrutiny of the remainder of the Bill. Those are important issues and they will be the subject of Government consultation; it is right that we should focus our attention on them this morning.
Although I am a fan of the new way of doing things, I have no doubt that, with the Committee's co-operation, we will make progress and give the Bill the scrutiny it deserves. That will enable us to deliver its objective of improving corporate governance and trust, and ensure the success of UK plc—an objective we all share.
Mr. Mitchell: I echo the Minister's comments in welcoming you, Mr. Conway, and the hon. Member for North-West Leicestershire to the Chair. This is the second Committee on which I have sat under your benign chairmanship, although the first considered a statutory instrument, so its proceedings were rather shorter than I anticipate ours being today.
I also agree with what the Minister said about the aspirations for the Bill and with the order of consideration motion. I thank her for facilitating the Opposition's desire to consider the Bill in the way that has been proposed, which will, I hope, be agreed to.
Question put and agreed to.
New Clause 1
Relaxation of prohibition on provisions protecting directors etc. from liability
'(1) After section 309 of the Companies Act 1985 (c.6) insert—
''309A Provisions protecting directors from liability
(1) This section applies in relation to any liability attaching to a director of a company in connection with any negligence, default, breach of duty or breach of trust by him in relation to the company.
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(2) Any provision which purports to exempt (to any extent) a director of a company from any liability within subsection (1) is void.
(3) Any provision by which a company directly or indirectly provides (to any extent) an indemnity for a director of—
(a) the company, or
(b) an associated company,
against any liability within subsection (1) is void
This is subject to subsections (4) and (5).
(4) Subsection (3) does not apply to a qualifying third party indemnity provision (see section 309B(1)).
(5) Subsection (3) does not prevent a company from purchasing and maintaining for a director of—
(a) the company, or
(b) an associated company,
insurance against any liability within subsection (1).
(6) In this section—
''associated company'', in relation to a company (''C''), means a company which is C's subsidiary, or C's holding company or a subsidiary of C's holding company;
''provision'' means a provision of any nature, whether or not it is contained in a company's articles or in any contract with a company.
309B Qualifying third party indemnity provisions
(1) For the purposes of section 309A(4) a provision is a qualifying third party indemnity provision if it is a provision such as is mentioned in section 309A(3) in relation to which conditions A to C below are satisfied.
(2) Condition A is that the provision does not provide any indemnity against any liability incurred by the director—
(a) to the company, or
(b) to any associated company.
(3) Condition B is that the provision does not provide any indemnity against any liability incurred by the director to pay—
(a) a fine imposed in criminal proceedings, or
(b) a sum payable to a regulatory authority by way of a penalty in respect of non-compliance with any requirement of a regulatory nature (however arising).
(4) Condition C is that the provision does not provide any indemnity against any liability incurred by the director—
(a) in defending any criminal proceedings in which he is convicted, or
(b) in defending any civil proceedings brought by the company, or an associated company, in which judgment is given against him, or
(c) in connection with any application under any of the following provisions in which the court refuses to grant him relief, namely—
(i) section 144(3) or (4) (acquisition of shares by innocent nominee), or
(ii) section 727 (general power to grant relief in case of honest and reasonable conduct).
(5) In paragraph (a), (b) or (c) of subsection (4) the reference to any such conviction, judgment or refusal of relief is a reference to one that has become final.
(6) For the purposes of subsection (5) a conviction, judgment or refusal of relief becomes final—
(a) if not appealed against, at the end of the period for bringing an appeal, or
(b) if appealed against, at the time when the appeal (or any further appeal) is disposed of.
(7) An appeal is disposed of—
(a) if it is determined and the period for bringing any further appeal has ended, or
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(b) if it is abandoned or otherwise ceases to have effect.
(8) In this section ''associated company'' and ''provision'' have the same meaning as in section 309A.
309C Disclosure of qualifying third party indemnity provisions
(1) Subsections (2) and (3) impose disclosure requirements in relation to a directors' report under section 234 in respect of a financial year.
(2) If—
(a) at the time when the report is approved under section 234A, any qualifying third party indemnity provision (whether made by the company or otherwise) is in force for the benefit of one or more directors of the company, or
(b) at any time during the financial year, any such provision was in force for the benefit of one or more persons who were then directors of the company,
the report must state that any such provision is or (as the case may be) was so in force.
(3) If the company has made a qualifying third party indemnity provision and—
(a) at the time when the report is approved under section 234A, any qualifying third party indemnity provision made by the company is in force for the benefit of one or more directors of an associated company, or
(b) at any time during the financial year, any such provision was in force for the benefit of one or more persons who were then directors of an associated company,
the report must state that any such provision is or (as the case may be) was so in force.
(4) Subsection (5) applies where a company has made a qualifying third party indemnity provision for the benefit of a director of the company or of an associated company.
(5) Section 318 shall apply to—
(a) the company, and
(b) if the director is a director of an associated company, the associated company,
as if a copy of the provision, or (if it is not in writing) a memorandum setting out its terms, were included in the list of documents in section 318(1).
(6) In this section—
''associated company'' and ''provision'' have the same meaning as in section 309A; and
''qualifying third party indemnity provision'' has the meaning given by section 309B(1).''
(2) In section 310 of that Act (provisions exempting officers and auditors from liability), the following provisions cease to have effect—
(a) in subsection (1), the words ''any officer of the company or'', and
(b) in subsection (3)—
(i) the words ''officer or'' (in both places), and
(ii) the words from ''section 144(3)'' to ''nominee) or'';
and in the sidenote, for ''exempting officers and'' substitute ''protecting''.'.—[Jacqui Smith.]
Brought up, and read the First time.
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