HL Deb 27 March 1980 vol 407 cc1057-9

199 After Clause 45, insert the following new Clause: Civil remedies for breach of s. (Prohibition of loans, etc. to directors and connected persons).

.—(1) Where a company enters into a transaction or arrangement in contravention of section (Prohibition of loans, etc., to directors and connected persons) the transaction or arrangement shall be voidable at the instance of the company unless—

  1. (a) restitution of any money or any other asset which is the subject matter of the arrangement or transaction is not longer possible, or the company has been indemnified in pursuance of subsection (2)(b) below for the loss or damage suffered by it; or
  2. (b) any rights acquired bona fide for value and without actual notice of the contravention by any person other than the person for whom the transaction or arrangement was made would be affected by its avoidance.

(2) Without prejudice to any liability imposed otherwise than by this subsection but subject to subsection (3) below where an arrangement or transaction is made by a company for a director of the company or its holding company or person connected with such a director in contravention of section (Prohibition of loans, etc.. to directors and connected persons), that director and the person so connected and any other director of the company who authorised the transaction or arrangement shall (whether or not it has been avoided in pursuance of subsection (1) above) be liable—

  1. (a) to account to the company for any gain which he has made directly or indirectly by the arrangement or transaction; and
  2. (b) (jointly and severally with any other person liable under this subsection) to indemnify the company for any loss or damage resulting from the arrangement or transaction.

(3) Where an arrangement or transaction is entered into by a company and a person connected with a director of the company or its holding company in contravention of section (Prohibition of loans, etc., to directors and connected persons), that director shall not be liable under subsection (2) above if he shows that he took all reasonable steps to secure the company's compliance with that section, and, in any case, a person so connected and any such other director as is mentioned in that subsection shall not be so liable if he shows that, at the time the arrangement or transaction was entered into, he did not know the relevant circumstances constituting the contravention.

Lord LYELL

My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 199. This amendment and other amendments deal with civil and criminal remedies which shall apply to breaches of the provisions on loans and credit. The civil remedies in this amendment are largely based on the remedies available under common law and equitable principles where a fiduciary is in breach of his duty. We believe that they strike a fair balance between the need of the company to be able to recover the resources it has lost and the avoidance of injustice to parties who, although involved in a contravention, are involved only in good faith. We also believe that, where larger companies are involved, additional criminal safeguards are necessary. We shall be coming to Amendment No. 200, but perhaps I may speak to that when we come to it.

Moved, That this House doth agree with the Commons in the said amendment. —(Lord Lyell.)