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Baroness Noakes: My Lords, will the noble Lord say something about the timescale for consultation and the manner in which the eighth directive will be implemented?
Lord McKenzie of Luton: My Lords, as I said, the directive has to be introduced by June 2008, so the consultation clearly has to take place between now and then. The process will be the normal one that applies. We expect it to consult all those who are interested in a wide and consistent manner. But it is important that we address each of the issues that I have outlined. I hope that the noble Baroness will accept that the amendment which is before us would not be particularly helpful standing alone without all those other issues that need to be looked at as part of the implementation of the directive.
Baroness Noakes: My Lords, I thank the Minister for that reply. I was disappointed by the highly legalistic nature of the arguments that he made. This, of course, is not an issue about private companies; it is fundamentally about companies with dispersed shareholdings and in particular those companies which have listings, because it is in those circumstances that there is a wider interest in the reasons for removal. But I will consider carefully what the Minister has said. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord McKenzie of Luton moved Amendment No. 337:
Page 239, line 9, leave out from second "the" to end of line 10 and insert "auditor is using the provisions of this section to secure needless publicity for defamatory matter"
The noble Lord said: My Lords, in moving Amendment No. 337, I wish to speak also to the other amendments in the group.
In Grand Committee we agreed to take on board an amendment to what is now Clause 505, which was put forward by the noble Baroness, Lady Goudie, and supported by the noble Baroness, Lady Noakes.
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We have looked at the various places in the Bill where a company is obliged to circulate a statement made by an auditor who is ceasing to hold office. We have agreed that the test for whether a company can be relieved from its obligation should be if the auditor is seeking to secure,
I am grateful to noble Lords who have put down similar amendments to four of the five clauses but I do not believe that the effect of them would be very different from our amendments. I suggest that we go with the wording provided by parliamentary counsel. I beg to move.
Baroness Noakes: My Lords, I have three amendments in this group. I am delighted that the Government took the measure away and brought forward their own better and more comprehensive amendments.
Baroness Goudie: My Lords, I am very happy with these government amendments. I will not move my amendment when we reach it.
On Question, amendment agreed to.
Clause 505 [Failure to re-appoint auditor: special procedure required for written resolution]:
Lord McKenzie of Luton moved Amendment No. 338:
Page 240, line 22, leave out from "the" to end and insert "auditor is using the provisions of this section to secure needless publicity for defamatory matter"
On Question, amendment agreed to.
[Amendments Nos. 339 and 340 not moved.]
Clause 506 [Failure to re-appoint auditor: special notice required for resolution at general meeting]:
Lord McKenzie of Luton moved Amendment No. 341:
Page 241, line 19, leave out from second "the" to end of line 20 and insert "auditor is using the provisions of this section to secure needless publicity for defamatory matter"
On Question, amendment agreed to.
[Amendments Nos. 342 and 343 not moved.]
Clause 509 [Rights of resigning auditor]:
Lord McKenzie of Luton moved Amendment No. 344:
Page 242, line 40, leave out from second "the" to end of line 41 and insert "auditor is using the provisions of this section to secure needless publicity for defamatory matter"
On Question, amendment agreed to.
[Amendments Nos. 345 and 346 not moved.]
Clause 510 [Statement by auditor to be deposited with company]:
Baroness Goudie moved Amendment No. 347:
16 May 2006 : Column 146
Page 243, line 10, leave out from "of" to end of line 14 and insert "any circumstances connected with his ceasing to hold office which he considers should be brought to the attention of the members or creditors of the company, or if he considers that there are no circumstances, a statement that there are none"
The noble Baroness said: My Lords, in moving Amendment No. 347, I wish to speak also to my other amendment which is grouped with it.
While the intention to change the existing Companies Act makes it more difficult for auditors to be candid about the circumstances of the loss of office, the proposed amendment reinstates the relevant voting. My second amendment makes Clause 506 redundant. I would like the Government to look at the matter again. I beg to move.
Baroness Noakes: My Lords, my name appears on Amendment No. 349, with that of the noble Baroness, Lady Goudie, but I also support her other amendments in this group.
In Grand Committee the Minister explained that the Government positively wanted auditors of quoted companies to make a statement of circumstances connected with their leaving office. Amendment No. 349, to which I have added my name, makes it clear that this is a subjective test, which is an extremely important issue.
In Grand Committee the noble Lord, Lord McKenzie, said that the objective test was correct because the auditors were protected from having committed an offence by having taken reasonable steps. I suggest that that misses the point. That defence addresses a different issue of whether they took reasonable steps to issue the statement, but it does not address the auditor setting out his own views and not the views of someone else, or some hypothetical auditor on the Clapham omnibus. The issue is that the statement should be of the circumstances that the auditor thinks are appropriate, so I support the amendments.
Baroness Goudie: My Lords, may I come back on Amendment No. 349 as well? The policy proposed by the Audit Quality Forum recommends a statement of the circumstances which the auditor considers are connected with his seeking to hold office. That qualification is important as it is a statement from the auditors and therefore involves judgment, and the current wording does not make that clear.
Lord Lyell: My Lords, I support the noble Baroness, Lady Goudie, and my noble friend in what they have said; particularly my noble friend, since she has considerable experience. Indeed, my own experience of auditing goes back rather like the admiral in that admirable musical "Evita" who says, "They still call me an admiral but I left the sea many years ago". It is of vital importance that the auditor should have the freedom—I hope not the licence, but the freedom—to say what needs to be said and perhaps to give all the explanations and to put totally at rest any doubts with the company shareholders or indeed with the wider world; with others who might be interested. That is
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why my noble friend and indeed the noble Baroness, Lady Goudie, have addressed the matter with great clarity. I hope the Government will see their way to support it.
Viscount Bledisloe: My Lords, I would like to support Amendment No. 349. Although the distinction may seem initially to be very slight, to a lawyer I think it would be very substantial. The statement which an auditor makes under Clause 510(3) will be a statement protected by privilege if he is sued for libel in respect of that statement. If the statement can relate only to the circumstances that were actually connected with his ceasing to hold office, he cannot express the circumstances where he feels that he has been removed because members of the company think that he is getting a little too close to the awkward truth.
Surely what is needed is that he can say, "I feel that I am being removed because I am very unhappy about transaction xyz and I wish to investigate it further, and I think I am being removed because they don't want me to do that". If he can only say what has actually happened and not announce his suspicions he will be prevented by his partners from going down the latter route for fear of landing them in a massive defamation suit. Therefore, Amendment No. 349 is worthy of serious support.
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