COMPANIES (DIRECTORS DUTIES) AMENDMENT BILL UPDATE

(with a compromise solution)

The end of last week saw new developments in the strange Parliamentary journey of an unnecessary amendment to the Companies Act.

The current sponsor of the Bill, Labour MP Camilla Bellich (who had to take over from the Bill’s initial sponsor when he was promoted to Cabinet) provided a last-minute Supplementary Order Paper (SOP) which now sees the proposed amendment to section 131 reading:

This doesn’t improve the proposed amendment to the directors’ primary duty under the Companies Act.  At best, it simply restates the existing law. 

But things could be worse.  A Green Party member unsuccessfully sought to move a further amendment to change the “may” to “must”.  Arguably, this would have made it mandatory for company directors to consider a raft of ESG factors when making any decision.

The Bill is on the Parliamentary order paper this week and should, therefore, complete its third reading and become law.

To do so, it goes against the advice of a list of submitters and Parliament’s own Legislative Design and Advisory Committee.

The Select Committee which reviewed the Bill could not agree that it should pass in the form it was reported back, as a result of which the Bill’s current sponsor seems to have taken some time to take stock and developed the latest change. 

The outcome is pretty meaningless.  It could be used as a hanger for various pejorative labels.

Some [might] say that the change makes the statement of directors’ duties clearer/more accessible – and that, without it, directors might be hostage to the argument that they cannot stray from profit maximisation.  This seems practically unlikely.

The Law Society counselled against such an ad-hoc approach to law reform.  There is a need to review the Companies Act, particularly in relation to directors’ duties and their interaction with an insolvency regime that is seen as not fit for purpose. 

Fundamental elements of company and business law deserve better than itinerant tinkering.  Worse still is the risk that specific legislative [policy] objectives might be slipped in through the side door of general, principles-based, companies’ legislation.