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Shadow Directors

Volume 980: debated on Monday 3 March 1980

The text on this page has been created from Hansard archive content, it may contain typographical errors.

Amendment proposed: No. 251, in page 72, line 12, leave out 'subsection (2)' and insert 'subsections (2) and (5)'.—[ Mr. Eyre.]

8.30 pm

No. 380, in page 72, line 14, after 'act', insert

'or a person otherwise able to control the policy of the company'.

No. 381, in line 14, after 'act', insert

'or a person otherwise able materially to influence the policy of the company'.

No. 95, in line 16, leave out 'are accustomed so to', and Government amendment No. 303.

I shall speak to our amendments Nos. 380 and 381. In our view, the words in the subsection are imprecise and require elucidation. The object which the Government seek to achieve here is not in dispute between us. Our concern is to achieve the necessary precision. The words of the subsection are as follows:

"Subject to subsection (2) below, a person in accordance with whose directions or instructions the directors of a company are accustomed to act ('a shadow director') shall be treated for the purposes of this Part of this Act as a director of the company "—
and so on.

The phrase "accustomed to act" assumes that the directors will be to some extent subservient to the activities of an individual on more than one occasion. If a person causes considerable damage by reason of a single act and he is someone who, in effect, controls or materially influences the policy of the company, that piece of conduct on his part may cause just as much damage as would a series of actions on his part.

In our view, it would be far better if the Minister were to adopt the words which we suggest, which, in my judgment are in no way redundant to the objectives which he seeks. I hope that he will not rule out our proposal because it may not accord with his briefing. It is a sensible proposal. I do not consider that the words "accustomed to act" are sufficient. The precision needed here is not available in the subsection, and I hope that the Minister will give a positive response to our suggestion.

Opposition amendments Nos. 380 and 381 appear to add something to the definition of "shadow director", but I believe that their intention is already comprised by the clause as drafted. I understand the emphasis which the hon. Member for Hackney, Central (Mr. Davis) puts upon the phrase, but when we speak of a director being "accustomed to act" on the directions or instructions of another person, we are referring to someone who, although not one of the duly appointed directors, exerts a permanent influence over the board. I do not think that the amendments add to that concept.

The use of the word "otherwise" in amendments Nos. 380 and 381 may refer to the apparent limitation represented by the use of "directions or instructions" as the instruments of control by a shadow director. But I am advised that the sense of "directions and instructions" is wide enough to enable a court to look at the facts in each particular case. I appreciate the time and trouble to which the hon. Gentleman has gone in tabling these amendments and in presenting the arguments to the House. But on the grounds of the advice that I have received, I must advise the House to reject the two amendments as well as amendment No. 95.

With the leave of the House, Mr. Deputy Speaker. I do not think that that offers any reasonable explanation for the rejection of these proposals.

The Parliamentary Private Secretary may think that it does, but he agrees with absolutely every word and breath of his Minister. He is the most loyal PPS that I have ever seen, but then, he ought to have been a Minister.

What the Minister has not said, and I do not think that he can say it, is that the words that we are suggesting in amendments Nos. 380 and 381 would in any way injure the purpose which he is seeking to serve. At most he is saying that they are redundant or otiose, and that is not a submission that I am able to accept. I think that there is something inadequate about using the term "accustomed to act" simpliciter. That seems to suggest that there must be a series of acts undertaken before a director would be deemed a shadow director within the meaning of the subsection. I do not think that that is a satisfactory state of affairs, and that is what amendments Nos. 380 and 381 seek to cure.

I am most anxious to accept the reasoning of the hon. Gentleman, because I appreciate the thought and effort that he has put into the amendments. However, a good deal of effort has also gone in to the detailed consideration of the amendments which he has tabled. We do not consider that a single act of control—and the hon. Gentleman spoke of this—should qualify a person as a shadow director. What we are after is a person who persistently influences the company. Almost anyone could be responsible for advising on one act, but that should not count as control.

Amendment agreed to.

Amendment made: No. 303, in page 72, line 43, at end insert—

'(5) A body corporate shall not be treated as the director of any of its subsidiary companies by reason only of subsection (1) above.'—[Mr. Le Marchant]