RESPONSIBILITY FOR COMPANY'S WRONGFUL TRADING (Hansard, 18 July 1985)

HC Deb 18 July 1985 vol 83 cc559-70 559

§ '(1) Subject to subsection (3) below, if, in the course of the winding up of a company which has gone into insolvent liquidation, it appears that subsection (2) below applies to a director, the court, on the application of the liquidator or the official receiver, may declare that that director is to be liable to make such contribution (if any) as the court thinks proper to the company's assets for distribution pari passu to such of the company's unsecured creditors as do not fall within the provisions of paragraphs 1 to 3 of Schedule 4 to this Act.

§ (2) This subsection applies to a director who—

(a) was a director of the company at a time when it was unable to satisfy its debts and other liabilities as they fell due; and
(b) during that time knew or ought to have concluded that there was no reasonable prospect that the company would be able to satisfy all its debts and other liabilities in full; and
(c) during that time knew or ought to have known that the company was continuing to carry on its business to the detriment of any of its creditors.

§ (3) The court shall not make a declaration under subsection (1) in respect of any person if it is satisfied that he took every step reasonably available to him in the circumstances with a view to minimising any potential detriment to the company's creditors.

§ (4) For the purposes of subsection (2) and (3) above, the facts which a director of a company ought to know or ascertain, the conclusions he ought to reach, the diligence he ought to display and the steps which he ought to take are those which would be known, ascertained, reached, displayed or taken, by a reasonably diligent person having both—

(a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company; and
(b) the general knowledge, skill and experience that that director has.

§ (5) The reference in subsection (4) above to the functions carried out in relation to a company by a director includes a reference to any functions which he does not carry out, or has not carried out but which have been entrusted to him.

§ (6) Subsections (3) to (6) of section 630 of the 1985 Act (responsibility for company's fraudulent trading) shall have effect in relation to a declaration under subsection (1) above as they have effect in relation to a declaration under subsection (2) of that section, and this section is without prejudice to that section.

§ (7) For the purposes of this section a company goes into insolvent liquidation if it goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up.'.—[Mr. Gould.]

§ Brought up, and read the First time.

§ Mr. Gould
I beg to move, That the clause be read a Second time.

§ Mr. Deputy Speaker (Mr. Harold Walker)
With this, it will be convenient to discuss the following:

§ New clause 25—Wrongful trading—

§ '(1) Subject to subsection (3) below, if, in the course of the winding up of a company which has gone into insolvent liquidation, it appears that subsection (2) below applies to a director, the court, on the application of the liquidator, or the official receiver, may declare that that director is to be liable to make such contribution (if any) as the court thinks proper, to the 560 company's assets for distribution pari passu to such of the company's unsecured creditors as do not fall within the provisions of paragraphs 1 to 3 of Schedule 3 to this Act.

§ (2) This subsection applies to a director who:—

(a) was a director of the company at a time when it was unable to satisfy its debts and other liabilities as they fell due: and
(b) during that time knew or ought to have concluded that there was no reasonable prospect that the company would be able to satisfy all its debts and other liabilities in full; and
(c) during that time, negligently permitted the carrying on by the company of its business to the further detriment of creditors; or
(d) during that time knew or ought to have known that the company was continuing to carry on its business to the detriment of any of its creditors.

§ (4) For the purposes of subsections (2) and (3) above, the facts which a director of a company ought to know or ascertain, the conclusions he ought to reach, the diligence he ought to display and the steps which he ought to take are those which would be known, ascertained, reached, displayed or taken, by a reasonably diligent person having both—

(a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company; and
(b) the general knowledge, skill and experience that that director has.

§ (7) For the purposes of this section of a company goes into insolvent liquidation if it goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up.'.

§ Amendment No. 287, in clause 10, page 8, line 24, leave out 'every step' and insert 'such steps'.

§ Mr. Gould
This new clause brings us to one of the most important and widely contested issues in the Bill, and certainly one on which the Committee spent much time. The present clause 10 introduces an extremely valuable concept, and there is widespread support for the Government's attempt to establish the new notion of wrongful trading. However, the new clause is an alternative way to achieve the objective which the Government have set. It is supported by the CBI, the National Consumer Council, the Institute of Directors—although it makes a few minor amendments to the clause, which are expressed in new clause 25—the suppliers of venture capital and by many hon. Members on both sides of the House. A new clause with such unusual unanimity of support cannot be all bad.
From what is known of the Minister's position, and from correspondence between the Secretary of State and some of the bodies that support this measure, it seems clear that the Government share the objectives of the new clause. There is little difference in principle among the parties that have reached a conclusion on the issue. Where we depart from each other, and where most of us depart from the Government, is on the means by which they have chosen to achieve their objective—the drafting of clause 561 10. It is curious, to say the least, and it is less than clear. In effect, it would bring every director of every company that goes into insolvent liquidation into a big net. However, in most cases, it does so too late, given that we are trying to strike at a course of conduct over a period of time. Subsection (2) brings everyone into the net at the last possible moment.
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Subsection (3) provides the means by which people can escape the net. The method offered to them is also extremely curious and uncertain. It is almost certain that most people will escape the net. I am not sure whether that is the Government's intention, but the CBI and the Institute of Directors are worried that, although people might get out in the end, they will not be sure as to what they must do and show to escape liability. We have the worst of all possible worlds. Everyone will be caught, but too late; the means are provided by which almost everyone will escape, but in conditions of maximum confusion and uncertainty. That is a fairly dreadful list of achievements for a clause, which I accept is well-intentioned. We all agree on what we wish to achieve.
The problem is that the clause departs from the straightforward, easily comprehensible, recommendations of the review committee, which identified wrongful trading and said that we must do something about it. The Committee identified wrongful trading in a way that should commend itself to any reasonably intelligent observer approaching this matter for the first time. He would say, "Let us try to identify the elements of this new course of conduct called wrongful trading." The first thing that one must do in order to be caught by the provision is to trade—to carry on business. To be more precise, the review committee stated that trading meant taking on new liabilities and undertaking new indebtedness to a new group of people. But not everyone who trades will fall within the provisions of what should be clause 10. We are aiming only at those who trade wrongfully—in circumstances where they know, or should have known when they took on those new liabilities, that they had no reasonable prospect of meeting them.
I despair sometimes, because we have put this point repeatedly, and hon. Members who served on the Committee will know that, straightforward though it may seem, we have still not managed to persuade the Minister that this is the obvious and rational way to approach the problem.
My hon. Friends and I do not wish to support the addition of a third element—the defence of escaping liability, even if one falls within the definitions of having traded and having done so wrongfully, if one has taken every reasonable step to reduce the disadvantage to one's creditors. However, for the sake of consensus, I and my hon. Friends will support that defence, although it is otiose. We adhere strongly to the basic definition that wrongful trading means trading in the knowledge that one cannot meet one's liabilities.
Unless the Minister will accept a clause drafted along those lines, he will fail in his objective of striking at wrongful trading, and he will cause the maximum confusion and anxiety in the business community, to very little purpose.

§ Mr. Steve Norris (Oxford, East)
I should declare an interest, not as an accountant, but as a business man who was told that the way to find a good accountant was to ask 562 all the accountants that one knows how many two and two make, and to hire the one who said, "How many do you have in mind?" I represent the thousands of small businessmen who are worried about the effect of the Bill's operation. They are especially worried by what was clause 9 and is now clause 10.
Like the hon. Member for Dagenham (Mr. Gould) and, as he rightly said, every other member of the Commee, I welcome the admirable purpose of the clause, which is to define the concept of wrongful trading and establish it as a rationale for the withdrawal of limited liability. Nobody disputes that, but the danger has always been that we will throw the baby out with the bath water. In an effort to ensure that those who should not be allowed the protection of limited liability are not, we may, on occasions, find ourselves reacting to innocent directors. Such directors may have no more than made mistakes, or have been in a market that collapsed or have had a major supplier or customer who defaulted, or got into trouble in some way with the result that his business has been put into liquidation and he has been caught by the wrongful trading provisions.
With that in mind, clause 10 is too harsh. It is too difficult for the clause as it stands to distinguish between the legitimate directors and those whom we would all want to see banned. Every director, as the hon. Member for Dagenham pointed out, is caught by subsection (2)(a), (b), and (c). I cannot conceive of any circumstances in which any company goes under where the directors could not be said at some point to have been caught by this subsection. That is wrong because it cannot be the purpose of the clause, which is trying to distinguish culpability from non-culpability.
It follows from that that I take a different view from that of the hon. Member for Dagenham on whether subsection (3) provides an escape route through which most directors will be able to travel. The existence of the words "every step" provides a barrier that a liquidator could ensure was equally insurmountable to every director because "every step" is unfortunately a phrase that, in retrospect particularly, is capable of almost any definition. What is meant by "every step"? How can every director, however culpable or innocent, be sure that every step will have been taken?
Four principal bodies have come together on this. The CBI and the Institute of Directors represent the interests of business and individual directors. The British Venture Capital Association represents those who are seeking to use their skill, often in risk situations, to make companies work more efficiently. The fourth body is the National Consumer Council, whose objective is primarily to ensure that the interests of consumers are protected. That alliance is startling in its impact and shows the extent to which there are problems with this clause.
The British Venture Capital Association has said: If the Bill's wrongful trading clause is implemented as drafted, no sensible professional manager will run the additional risks of personal liability proposed, despite the attractions of share options (which are there to compensate for the loss of job security/pension rights, perks and automatic salary increases which large employers provide). The same disincentive will apply to company doctors or professional turnaround experts being prepared to go into existing businesses in trouble (which can be rescued, provided the honest/competent manager is not threatened, as at present, by clause 10). The effect of this will be that fewer small companies will be started by professional managers spinning off from 563 larger companies. Of those that start, fewer will be able to survive the natural cliffhangers that automatically affect any business. This will happen because their boards will decide on premature voluntary liquidation to ensure that they are not caught by the provisions of clause 10. What is more, where a small business is in temporary difficulties but has a real future if it can get the right sort of company doctor in, the business will simply not survive if the company doctor has to take account of the fact that if he fails—there must always be a high risk of that—he will be caught by clause 10.
The British Venture Capital Association says that clause 10 will seriously damage the health of the UK's small business sector, at a time when a fragile new dawn is appearing for all those committed to an entrepreneurial Britain". It follows from that that we must look again at the way that clause 10 is drafted.
I am obliged to differ from the solution arrived at by the hon. Member for Dagenham. I do so because the constructive knowledge test that is the essence of new clause 23 is, of itself, capable of creating the same difficulty of retrospective constructive interpretation, as is implicit in the existing form of words. We have to go on a stage further to the ascertainment of conduct showing a connivance at or continuation of a business when it is clear to the directors that they should be taking another course.
New clause 25 appears not in the form that I have set out for the clerk. It should not include subsection (2)(d) (ii). I am afraid that the original drafting of both options appear, and it is not my intention that they should do so. My intention was to insert (2)(c)(i) which has the concept within it of negligently permitted the carrying on by the company of its business to the further detriment of creditors". That is what we all want to achieve.
We want to get at the man who was not only a director at the material time but whose company went insolvent and who knew that there was no hope for it. That provision would capture everybody without exception. More particularly, it covers the director who then went on and consciously made the position worse. He is the man who, either through neglect or malfeasance, has forfeited the right to limited liability, and probably the right to be the director of a company in future.
With that in mind, I hope that my hon. Friend the Minister will not regard consideration of clause 10 as closed but will take account of the unanimity of concern expressed not only on both sides of the House but by the organisations that have raised objections to the clause. I hope that he will take whatever opportunity is open to him to have another look at the matter.

§ Mr. Bermingham
If the Minister wants a section of the Bill to achieve our aim, that is to catch the crook and negligent director and to make them personally responsible for the loss suffered by others, he should begin to listen to those who will operate the legislation—the Institute of Directors, the Confederation of British Industry, the National Consumer Council and lawyers. They are saying precisely what we have said in Committee. Clause 10, or clause 9 as it was, is badly drawn and achieves nothing. It presents a deterrent without teeth. It has had its teeth pulled.
564 We are now dealing with new clauses 23 and 25, and I concede that the concept contained in new clause 25 is valuable. The section needs to catch negligent directors. All hon. Members have heard of companies which go steadily downhill, and whose directors know that that is happening, and either through sheer incompetence and laziness or sheer negligence allow both the position to deteriorate as each day goes by and the creditors to suffer increasingly.
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Why should people who put others in a position of loss hide behind a screen which denies them personal liability when that loss is entirely their fault? If I drive my car negligently and run over an hon. Member, I am sued because it is my fault. I cannot possibly say, "It was the car that ran him over, not me", and the same is true for negligent directors. They control the business and its direction. If they know that the business is in trouble, they are under a moral duty—we all agreed about that in Committee—to do something about it. Their duty may be to cease trading, to seek help or a further injection of capital, or to restructure the business, but they are not entitled to allow the matter to drift away to the detriment of others.
If the Minister agrees with the philosophy that lies behind the arguments put forward in Committee, in the business world at large and every other section of the community, he must explain why every variation on clause 9, now clause 10, has been peremptorily rejected. Why will he reject the new clauses and use the weight of the Government's majority, or the payroll vote, as it is a Thursday, to force through this piece of nonsense? If, as the Minister said time and time again in Committee, he wants the clause to work, will he explain why he has rejected every one of the numerous ways of achieving that end suggested by people who understand these matters?

§ Mr. Allen McKay (Barnsley, West and Penistone)
The new clause gives me the opportunity to refer to a constituency matter that has been exercising me and many others for the past seven months. The clause fits the bill. The last person to be considered in insolvency cases usually appears to be the consumer.
The case relates to a desirable building site in Hoyland Swaine in my constituency, on which the builder is erecting some good houses, in most cases successfully. However, it appears that times became difficult for Manston Builders. It would have been better if the firm had decided that it was in trouble and had been honest, but it was not. It carried on building and selling homes or signing people up for homes before those homes were completed. It did that, although it obviously knew that it was in financial difficulties. Local people knew that it was running into financial difficulties when the suppliers of building materials moved in and retrieved their materials. But even then, the firm allowed people to sign up for homes and to pay deposits of up to £3,000.
I should like to quote an example. Mrs Janet Barber and her husband are extremely hard-working and genuine people. They signed for a bungalow, which is in a beautiful area in my constituency. When the house was seven eighths built, and the builder had informed them that they would be able to move in in a few weeks, they found that the builder had had to move out and had left them with an uncompleted dwelling. The Barbers had gone into debt in buying soft furnishings, carpets and furniture, which 565 they had had to put into store. They had been promised that in a few weeks they would be able to move in, so they sold their home and moved into lodgings with their parents. When the crunch came, therefore, that couple had sold their home, bought the furnishings and paid the deposit in good faith. Seven months later, they are still in lodgings with their parents.
When the matter was put into the hands of the liquidators the problems started again. Irrespective of the representations that I and the agencies acting on the couple's behalf made to the liquidators, despite the promises continually made to me that it would be only a few weeks until the house was finished, and although not only the Barbers but other people offered the liquidators the price of the completed dwelling in cash, the liquidators did not accept any of those representations or proposals. They were using those half-finished homes as a carrot to attract someone to take the whole site. Under the present law, there is nothing wrong with that because the liquidators are acting for the creditors. However, what is to happen to the poor old consumer? What protection will he have in future? He does not have it now.
Three weeks ago when I rang the liquidators again, they said that a firm was now taking over the site, and the Barbers could not have their home, although on three occasions they had offered the price of the house minus the cost needed to complete it. The liquidators were happy with the price, and I know that because they told me. However, as soon as somebody came along and said that he would buy the whole site, the poor old consumer went to the bottom of the bin and did not matter.
There is need for legislation to deal with that matter. I accept that the creditors need to be looked after, but so does the consumer. That should never happen again. As late as today, I received a final letter from the liquidators saying yet again that a person was taking over the whole site, and that it would take a few weeks to complete. In the meantime, the Barbers and other families have decided that enough is enough. Despite a loss running at £3,000 to £4,000, they have decided that the time has come for them to take up another option. Who will compensate those people for the £4,000 that they have already spent, and can ill afford? The builder knew what was happening when they signed the agreement, but they did not. It was obvious at the time that the company was going towards bankruptcy. That should not have happened. I hope that the Minister will ensure that it does not happen again.

§ Mr. Fletcher
I sympathise with the case that the hon. Gentleman has made. I cannot ensure that it will not happen again, but the measures we are taking in the Bill provide an opportunity to pursue more vigorously and to more effect directors who act in the way the hon. Gentleman has described.
Clause 10 would allow the court, in the event of an application by the liquidator, to attach personal liability to directors who trade wrongfully. That, of course, would affect their pockets, because they would lose the protection of limited liability, and that is the purpose of the clause. The hon. Gentleman has chosen the correct clause in which to make the point about his constituent.
A number of hon. Members raised other points about the clause. The hon. Member for Dagenham (Mr. Gould) said that we had spent some time discussing this clause in Committee, and that is true. The hon. Member for St. Helens, South (Mr. Bermingham) said that we had 566 dismissed in a peremptory manner all the recommendations and advice given to us by various bodies. I am bound to say to him that that does not apply to any of the recommendations made to us.
At least three hon. Members referred to a letter from the CBI and the IOD and the NCC. In relation to that, senior officials had a long discussion with all the parties together, but I am afraid that no agreement was reached.
My hon. Friend the Member for Oxford, East (Mr. 'Norris) said there was unanimity of concern. In relation to those three bodies that is the case, but there was no unanimity about how the problem should be tackled. Indeed, on the amendments before the House, there is not complete agreement between my hon. Friend and Opposition Members on what might replace the clause we are discussing.

§ Mr. Gould
Is the Minister implying that he will accept amendments to the clause on which we could establish unanimity? If he is saying that, it would take us a long way.

§ Mr. Fletcher
I can safely say that is the case, because I doubt whether unanimity could be achieved among all the parties protesting rather vigorously about this matter.
The hon. Member for Dagenham said that everyone is agreed on the overall policy. I am sure that is so. Everyone is concerned about the abuse of limited liability and the fact that directors of companies which have. shall we say, traded wrongfully appear to be able to walk away from the resulting mess they have created in relation to other people's money and have no liability attached to them. The difficulty, of course, is how best to achieve the objective of making directors personally liable for wrongful trading.
It is suggested that one of the new clauses should be accepted in order to make the Bill more understandable to the layman, not least the director, so that his mind w ill be concentrated at an early stage on the financial problems of the company. There is no doubt that that would be helpful, because the more easily the clauses are understood by the layman the better for him. But our principal purpose must be to ensure that, when tested in the courts, there will be certainty of interpretation leading to effective application and the fulfilment of Government policy. The clause, as drafted, will properly fulfil that need and enable the counts to penalise those who abuse the privileges of limited liability.

§ Mr. Bermingham
Does the Minister agree that the real argument is whether the clause, as drafted, is effective? The Minister has legal opinion which says it is, and everybody else has legal opinion which says it is not. As a compromise, would the Minister accept a third independent legal opinion between now and the next stage in the Lords? If it proves that the Minister's advisers or his parliamentary draftsmen are wrong, will he bow gracefully to the advice of any independent leading counsel he may choose? It is as simple as that.

§ Mr. Fletcher
It is the duty of the House to decide whether a Bill should be accepted and how it should be passed into legislation. There have been opportunities in the other place to consider this matter. In the other place there are many eminent legal minds, and there the clause was not amended. Nor was it amended in Committee. Therefore, I cannot recommend the amendments now before the House.
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Subsection (1) of both new clauses would exclude creditors with preferential claims from sharing in the proceeds of a successful wrongful trading application. We have already gone a long way to meet demands to reduce Government preferences. But to accept the subsection would mean that there could be no wrongful trading application where only preferential debts were outstanding. The significance of that is that there are rogue directors, to whom many references have been made, and the paying off of non-preferentials to keep suppliers reasonably happy so that they can start up their businesses again next day—what is referred to as the phoenix syndrome—is one of the tricks of rogue directors, and they could apply it on the basis of the suggested subsection (6). In any event, we argued in Committee that the proceeds of wrongful trading should be for the generality of creditors, and the Government still hold to that view.
Paragraphs (a) and (b) of subsection (2) of both clauses are the same and are in fact cumulative provisions. The starting point for the period of wrongful trading—subsection (2)(a)—requires first that default in payment of one or more due debts must occur. It would not therefore apply whilst the company maintained payments on due debts and avoided a cash flow problem by, for instance, taking deposits and prepayments from customers but failed to supply the goods. It would also enable a director to escape liability if he resigned his directorship immediately before the first cheque bounced and in anticipation of the company first encountering cash flow difficulties, even though the conditions of subsection (2)(b) applied at the time he knew that there was no reasonable prospect that the company would be able to satisfy all its debts and other liabilities in full. I acknowledge that the proposals made by my hon. Friend the Member for Oxford, East and by the hon. Member for Dagenham have some element of certainty, but at the cost of an unacceptable curtailment of liability where there has been conduct which has been wrong and damaging. It does not meet our policy needs, and I cannot accept it.
We believe that it is necessary to deal not only with the case when a company has actually found itself unable to meet its debts, but where the director knew that there was no reasonable prospect of the company avoiding insolvent liquidation; the company may or may not be technically insolvent at that time. In addition, our formula provides more flexibility for directors in that they can go on trading while technically insolvent if there is a reasonable prospect in their opinion that they can trade out of their difficulties or that an arrangement with creditors will solve the financial difficulties.
I wish to stress that under our proposals directors are allowed a reasonable opportunity to consider what steps are available to them to remedy their financial problems. They will not, as some people have claimed, risk having a wrongful trading declaration made against them if they fail to put the company into liquidation immediately a cheque bounces.
The proposition in subsection (2)(c) of new clause 23 and subsection (2)(d) of new clause 25 in our view appears to impose an unnecessary obligation on the liquidator to show that the director not only knew that the situation was hopeless but that it was getting worse because the company was continuing to trade.
Subsection (2)(c) of new clause 25 requires the liquidator to show, as an alternative, not only that the 568 director had permitted the company to carry on its business to the further detriment of creditors but had negligently done so. I submit that, in trying to make the clause clearer, my hon. Friend has made it more complex.
The obverse of negligence is diligence. That test is clearly set out in subsection (4). I am surprised that the hon. Member for Dagenham did not refer to subsection (4). He pointed to subsections (2) and (3), and I was waiting for him to bring in the very important subsection (4). Subsection (4) of the new clause is, apart from some additional words, an exact copy of subsection (4) of existing clause 10.

§ Mr. Gould
The Minister is, of course, right that subsection (4) establishes a test which is indistinguishable from that applied by the common law, but the test has to be applied to a course of conduct. The course of conduct is then defined in subsection (3), and it is that definition which is so difficult.

§ Mr. Fletcher
But the test is applied. My hon. Friend the Member for Oxford, East was arguing for a negligence test, but I believe that clause 4 meets the point that he was making. The additional words in brackets in the new clause in my view add nothing to the meaning of the subsection.
The new clauses in subsection (3) add to existing subsection (3), after the words "every step" the words reasonably available to him in the circumstances". In my view, those additional words are unnecessary. A director could not reasonably be expected to take steps which were not reasonably available to him.
Amendment No. 287, tabled by my hon. Friend the Member for Oxford, East, seeks to substitute the words "such steps" for the words "every step" in subsection (3). When the matter was raised in Committee, I said that subsection (4) of clause 10 explained fully that what was meant by "every step" was the steps which a reasonably diligent person would have taken in the circumstances, and that no useful purpose would be served by replacing "every step" with "such steps." If I remember my hon. Friend's new clause correctly, he may well have accepted that point.
Concern was also expressed in Committee about the danger of the courts applying a negligence test and making unreasonable requirements of directors who had had to make difficult decisions on uncertain questions as a matter of business judgment, and in particular doing so with the benefit of hindsight. I am sure that the hon. Member for Dagenham is aware that the courts are accustomed to putting themselves in the shoes of decision makers at the time, faced with all the difficulties, the need for quick decisions and decisions which have to be made in the heat of the moment, whether the defendant is a company director, a surgeon or a drug company. In particular, all the authorities recognise that the company director has a proper role in the exercise of commercial judgment into which the court will not inquire. I believe that this is an important and helpful point which may need to be given more emphasis.
I cannot recommend the new clauses.

§ Mr. Norris
Will my hon. Friend tell the House whether in his view, accepting that the new clause makes it easier for us to get at the rogue director, it makes it no less attractive for honest directors, company doctors and valuable people operating with companies whose futures 569 are by no means certain but which have immense potential if they can be established, put right and made to grow? Is he satisfied that those directors will not be more wary in the light of the clause than they ought reasonably to be, given that the purpose of the clause is to strike at the fraudster, not at the honest man?

§ Mr. Fletcher
I do not believe that the new clause would make it easier to catch the rogue director. I think that the clause as drafted should not hold any fear for company doctors and people whose purpose in the company is quite clearly to try to assist it. That is the usual condition on which the company doctor is employed and the court, if somebody were to suggest to the contrary, is used to recognising that that purpose is indeed a profession.
I hope that clause 10 will make the generality of directors, particularly those who carry a number of directorships, more wary. They will have to consider whether they are capable of applying all care and diligence to every directorship in future. If that results in some individuals reducing the number of directorships that they hold, that will not be a bad thing.

§ Question put, That the clause be read a Second time:—

§ The House divided: Ayes 43, Noes 140.

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Division No. 284]	[9.24 pm
AYES
Atkinson, N. (Tottenham)	Lewis, Terence (Worsley)
Banks, Tony (Newham NW)	Lloyd, Tony (Stretford)
Bermingham, Gerald	McWilliam, John
Boothroyd, Miss Betty	Madden, Max
Buchan, Norman	Millan, Rt Hon Bruce
Campbell-Savours, Dale	Nellist, David
Clarke, Thomas	O'Neill, Martin
Clwyd, Mrs Ann	Park, George
Cocks, Rt Hon M. (Bristol S.)	Pike, Peter
Cook, Robin F. (Livingston)	Prescott, John
Davis, Terry (B'ham, H'ge H'l)	Redmond, M.
Deakins, Eric	Rooker, J. W.
Dormand, Jack	Short, Ms Clare (Ladywood)
Dubs, Alfred	Short, Mrs R.(W'hampt'n NE)
Dunwoody, Hon Mrs G.	Skinner, Dennis
Faulds, Andrew	Spearing, Nigel
Foot, Rt Hon Michael	Stott, Roger
George, Bruce	Strang, Gavin
Godman, Dr Norman	Thomas, Dr R. (Carmarthen)
Gould, Bryan
Hattersley, Rt Hon Roy	Tellers for the Ayes:
Haynes, Frank	Mr. Allen McKay and Mr. Ray Powell.
Hogg, N. (C'nauld & Kilsyth)
Kaufman, Rt Hon Gerald

NOES
Alison, Rt Hon Michael	Durant, Tony
Amess, David	Eyre, Sir Reginald
Ashby, David	Fenner, Mrs Peggy
Atkinson, David (B'm'th E)	Finsberg, Sir Geoffrey
Bellingham, Henry	Fletcher, Alexander
Blackburn, John	Fookes, Miss Janet
Bowden, Gerald (Dulwich)	Forth, Eric
Brandon-Bravo, Martin	Fox, Marcus
Brown, M. (Brigg & Cl'thpes)	Franks, Cecil
Bruinvels, Peter	Fraser, Peter (Angus East)
Butler, Hon Adam	Gale, Roger
Carlile, Alexander (Montg'y)	Galley, Roy
Carlisle, Kenneth (Lincoln)	Garel-Jones, Tristan
Cash, William	Gow, Ian
Chope, Christopher	Ground, Patrick
Clark, Dr Michael (Rochford)	Hamilton, Neil (Tatton)
Clarke, Rt Hon K. (Rushcliffe)	Hargreaves, Kenneth
Cope, John	Harris, David
Crouch, David	Harvey, Robert
Dorrell, Stephen	Hawkins, Sir Paul (SW N'folk)
Dover, Den	Hawksley, Warren

570

Hayes, J.	Raffan, Keith
Hayhoe, Rt Hon Barney	Rathbone, Tim
Hayward, Robert	Rhodes James, Robert
Heathcoat-Amory, David	Rhys Williams, Sir Brandon
Hickmet, Richard	Ridsdale, Sir Julian
Hind, Kenneth	Robinson, Mark (N'port W)
Howarth, Alan (Stratf'd-on-A)	Roe, Mrs Marion
Howells, Geraint	Rowe, Andrew
Hubbard-Miles, Peter	Sainsbury, Hon Timothy
Hunt, David (Wirral)	Sayeed, Jonathan
Hunter, Andrew	Shelton, William (Streatham)
Jessel, Toby	Shepherd, Colin (Hereford)
Jones, Gwilym (Cardiff N)	Sims, Roger
Jones, Robert (W Herts)	Smith, Tim (Beaconsfield)
Key, Robert	Soames, Hon Nicholas
King, Roger (B'ham N'field)	Speed, Keith
Knight, Greg (Derby N)	Spencer, Derek
Lawson, Rt Hon Nigel	Spicer, Jim (W Dorset)
Leigh, Edward (Gainsbor'gh)	Stanbrook, Ivor
Lennox-Boyd, Hon Mark	Stanley, John
Lester, Jim	Steel, Rt Hon David
Lightbown, David	Steen, Anthony
Lilley, Peter	Stern, Michael
Lloyd, Peter, (Fareham)	Stevens, Lewis (Nuneaton)
Luce, Richard	Stevens, Martin (Fulham)
Lyell, Nicholas	Stewart, Allan (Eastwood)
McCrindle, Robert	Stradling Thomas, J.
MacKay, Andrew (Berkshire)	Taylor, Teddy (S'end E)
Marland, Paul	Thatcher, Rt Hon Mrs M.
Marlow, Antony	Thompson, Donald (Calder V)
Maxwell-Hyslop, Robin	Thompson, Patrick (N'ich N)
Mayhew, Sir Patrick	Thorne, Neil (Ilford S)
Mellor, David	Tracey, Richard
Merchant, Piers	Twinn, Dr Ian
Meyer, Sir Anthony	Waddington, David
Mills, Iain (Meriden)	Wallace, James
Mitchell, David (NW Hants)	Waller, Gary
Morrison, Hon C. (Devizes)	Wardle, C. (Bexhill)
Murphy, Christopher	Warren, Kenneth
Neubert, Michael	Wells, Bowen (Hertford)
Newton, Tony	Wells, Sir John (Maidstone)
Nicholls, Patrick	Whitney, Raymond
Onslow, Cranley	Wiggin, Jerry
Oppenheim, Phillip	Wilkinson, John
Osborn, Sir John	Wolfson, Mark
Ottaway, Richard	Wood, Timothy
Pawsey, James	Yeo, Tim
Percival, Rt Hon Sir Ian
Pollock, Alexander	Tellers for the Noes:
Portillo, Michael	Mr. Archie Hamilton and
Proctor, K. Harvey	Mr. John Major.

§ Question accordingly negatived