MOTION MOVED ON CONSIDERATION OF COMMONS AMENDMENT (Hansard, 9 November 1989)

§ Lord Williams of Elvel
My Lords, I beg to move Amendment No. 166A standing in my name on the Marshalled List. It is a Motion that this House do disagree with the Commons in their Amendment No. 166.
Section 310 has caused a great deal of difficulty since it became enacted. Although in principle we are sympathetic to the reformulation that companies ought to be allowed to pay insurance premiums for directors—otherwise we would never have any directors —we are worried because the formulation includes the possibility of companies purchasing and maintaining for their officers insurance against any liability for breach of trust. Mention was made of "breach of trust" in the original Section 310 of the Companies Act 1985.
So far as concerns negligence, default or even breach of duty, I think that we may be prepared to go along with the Government and say, "Yes, a company may purchase insurance so that its officers and directors may be indemnified against any liability". However, when it comes to a breach of trust of which a director or officer is guilty in relation to the company, I think that we must take issue with the Government. I should be most grateful if the noble and learned Lord could explain exactly why the Government take that rather extreme view.
Moved, That the House do disagree with the Commons in their Amendment No. 166.—(Lord Williams of Elvel.)

§ Lord Fraser of Carmyllie
My Lords, as the noble Lord indicated, the present effect of Section 310 is subject to the exception contained in subsection (3) to render void any provision, whether contained in a company's articles or in any contract with the company or otherwise, or exempting any officer of the company or any person employed by the company as an auditor from, or indemnifying him against, any liability which by any rule of law would 1009 otherwise attach to him in respect of any negligence, default or —and this was a particular concern of the noble Lord —breach of trust of which he may be guilty in relation to the company.
The first of the Government's amendments, Amendment No. 166, would make it clear that companies may take out insurance against those liabilities on behalf of their officers and auditors without that insurance being void. It also requires the existence of such insurance to be disclosed in the directors' report. The remainder of the amendment simply tidies up the drafting.
Amendment No. 317 is the second government amendment in this grouping. It is a consequential amendment to the Building Societies Act 1986 and will enable the provision in that Act which is analogous to Section 310 to be amended.
Perhaps I may say to the noble Lord that any insurance policy which sought to cover any deliberate criminal breach of trust would continue to be void. The measure ensures that the company would receive compensation in such a case. I should have thought that many noble Lords would have welcomed the amendment, which is intended to take account of the growing concern among company directors about the potentially large sums for which they may become liable in respect of matters set out in Section 310 and the resultant possibility that they may become reluctant to take on directorships. It should be especially beneficial to non-executive directors, particularly those in small companies who are paid only relatively small sums for their services but who are, nonetheless, potentially liable in law with their executive colleagues for substantial sums.
I hope that the reassurance I have given that deliberate breaches of trust which amount to criminal activity will not be covered will satisfy the noble Lord and that he will agree with the amendment that we have put forward.

§ Lord Mottistone
My Lords, the CBI advises me that it sees this amendment as allowing companies to insure officers and auditors against liability for breaches of duty. The confederation has campaigned vehemently for this modification of Section 310 of the Companies Act 1985 and is most pleased to support the Government in introducing the amendment, which clarifies the law in this area. I trust therefore that noble Lords opposite will understand and appreciate what is proposed.

§ Lord Williams of Elvel
My Lords, I am grateful to the noble and learned Lord the Lord Advocate for explaining, if I may say so, what I thought I knew about the Commons amendment. It does indeed do exactly what he said. However, the point upon which I focused was that concerning breach of trust. I totally accept what the noble Lord, Lord Mottistone, said. I have no quarrel at all with the generality of the provisions.
My suspicion is that my problem will be solved by what are known as market forces, because I do not believe that anyone would insure against a breach of trust of a non-criminal nature. I am probably 1010 saved by the fact that the insurance market does not work in that way. Nevertheless, it is sad to write into statute something which fundamentally should not be there. Resting my hopes, as I do in the market, I hope that the market will solve that problem. I therefore reluctantly beg leave to withdraw the Motion.
Motion, by leave, withdrawn.

§ Lord Fraser of Carmyllie
My Lords, I beg to move tht the House do agree with the Commons in their Amendment No. 166.