PENALTIES FOR NOT COMPLYING WITH SECTION 1 WITHIN THE PERIOD ALLOWED FOR LAYING AND DELIVERING ACCOUNTS (Hansard, 19 October 1976)

§ Mr. Loveridge
I beg to move Amendment No. 16, in page 7, line 33, leave out 'all'.
Clause 4(2) provides: Where a person is charged with an offence … it shall be a defence for him to prove that he took all reasonable steps for securing that those requirements would be complied with before the end of the period allowed for laying and delivering accounts. 1348 The offences relate to the duty to prepare and deliver accounts by reference to the accounting periods, and those periods represent a difficult concept for many people. It is possible to be fined £400 and £40 per day for not sending in the accounts to be filed.
The defence is to prove that any director of the firm "took all reasonable steps". What is the word "all" doing in that sentence? What does it mean?
If a director told the secretary of the company that he had to comply with the requirements of the law and reminded him to do so, would that constitute "all"? Should he have written to the secretary and the auditors? Should he have written to the secretary and the auditors and the chairman? Should he have written to the secretary and the auditors and the chairman and fellow directors?
The words "all reasonable steps" are, to use the Parliamentary Secretary's phrase, too subjective. Such subjective phraseology leaves too much power with any vengeful official who wishes to bring a prosecution, even though he knows that such prosecution could not succeed because the court would surely interpret the word "reasonable" in a sensible manner. None the less, such power should not be given to officials to start proceedings in such circumstances. It ought to be an adequate defence for such a director to prove that he took reasonable steps for securing that those requirements would be complied with". The subsection does not need the word "all". It does not strengthen the law. It merely gives the opportunity to a vicious official, if such there might be—we hope that there is not—to bring a prosecution.
The fines of £400 and the further £40 a day, which are to be paid out of taxed income and would soon accumulate to a substantial sum of money, might bankrupt any poorer man so fined.
I read in The Times this morning that these fines may be amongst those lists of fines which are to be revised upwards in line with inflation. I hope that we shall have an assurance from the Parliamentary Secretary that there is no intention of raising these amounts upwards together with the others forecast in The Times. I hope, too, that he will accept the amendment.

§ Mr. David Mitchell
There is a genuine point here. Therefore, I hope that the Minister will feel able to accept the amendment to enable us to make progress.
The inclusion of the word "all" makes the test so much more severe. A company can be placed in difficulty as a result of someone being ill. For example, if the company's accountant is ill and is going to be ill for some time, should it dismiss him and employ someone else to be able to comply with the requirements or allow the accounts to be delayed? The intricacies of a small company are not a subject that an outsider can quickly pick up, completing the processes involved within the scheduled time.
These are practical problems, and the inclusion of the word "all" would make interpretation all the more difficult. To specify "reasonable" would be a reasonable approach, and I hope that the hon. Gentleman will be reasonable.

§ Mr. Arthur Davidson
I assure the hon. Member for Upminster (Mr. Loveridge) that there is no intention of increasing the fines. I can put his mind at rest on that point straight away. But I am afraid, although he moved the amendment very gently, as is usual with him, and was gently supported by the hon. Member for Basingstoke (Mr. Mitchell), that I must advise the House to resist it.
The amendment would broaden in a quite unacceptable manner the defence open to a person charged with having failed to prepare, lay and file accounts in accordance with the provisions of Clause 1. This Bill places the responsibility for producing and filing a company's accounts squarely with the directors of the company and, therefore, all those who were directors at the date when accounts should have been laid and filed are liable for the default, unless they can demonstrate that they took all reasonable steps to secure compliance.
The word "all" makes it clear that the director must do everything which is necessary and which it is reasonable for him to do in order to ensure that the requirements are met. It cannot be sufficient, for instance, that a director should delegate the function to an employee and thereafter take no action to 1350 check that the employee had executed the task.
What will constitute "all reasonable steps" will, of course, vary according to the circumstances and will depend in particular on the position occupied by the person concerned. More would be expected of a finance director than of, for instance, a non-executive director. However, as the Government have explained, a director has to establish only on the balance of probabilities that he took all reasonable steps. The burden of proof which he has to discharge is a lesser burden than that which the prosecution has to discharge in establishing his guilt.

§ Mr. Higgins
I think that the hon. Gentleman said something just now that on reflection he may wish he had not said, although it is understandable that he should have done so at this late hour. He said that the duties of a finance director would be more stringently interpreted than those of a non-executive director. I do not think that he intended to say that. I am sure he agrees that the duties of all directors in their responsibilities in this matter must be the same.

§ Mr. Davidson
The duties must be the same, but in interpreting "all reasonable steps" much will depend on circumstances, and, of course, much will depend on the position occupied by the person concerned. The duties are the same, but more would be expected of a finance director than of a non-executive director. I do not think that the point is of any particular consequence, and I do not rest my case on it. If the hon. Gentleman takes issue with me on it, I am quite prepared to put it forward merely as supporting evidence, and no more than that.
As I was saying, the director has to establish only on the balance of probabilities that he took all reasonable steps. The burden of proof he has to discharge is a lesser burden than the prosecution has to discharge in establishing guilt. The prosecution in all cases has to establish the guilt of the accused beyond all reasonable doubt, which is a much sterner test.

§ Mr. David Mitchell
May I give one simple illustration of the quandary in which we find ourselves? Suppose that a company has reached the time at which its accounts should be filed. The accounts 1351 are not ready. The managing director is due to go on holiday with his family. If he cancels the holiday, for which he has booked, he can file the accounts. If he does not, he cannot file the accounts. Would he be taking all reasonable steps if he went ahead with his holiday, or should he cancel it? What is "reasonable"?

§ Mr. Arthur Davidson
Of course I cannot guide the House and say whether that would be reasonable. The courts are used to these matters. It is not for me to make a judgment on that.
Having listened to the debate, I do not think there is anything further that I can usefully add. I do not think that the words "all reasonable steps" are unreasonable or overburdensome. In the circumstances I ask the House to resist the amendment.