RegulationCorporate GovernanceGovernment makes concessions over OFR replacement

Government makes concessions over OFR replacement

'Narrative reports' which have replaced the OFR will have some form of 'safe harbour' says trade minister

The government has signalled a positive response to demands voiced in the
Lords by Baroness Noakes, former President of the ICAEW, for some form of ‘safe
harbour’ for the content of the ‘narrative reports’ that have replaced the OFR.

Trade minister Lord Sainsbury announced the intention to provide some shelter
from liability for the reports – provided they are not deliberately or
recklessly misleading – under a series of amendments to the Company Law Reform
bill which the government intend to introduce, probably when the bill reaches
the Commons.

The proposals were outlined during Lords debates on the measure, but
Sainsbury was uncertain whether the changes would be ready for debate before
Lords deliberations are completed.

He said: ‘Depending on the response of interested parties, we shall consider
what measures on this might be brought forward for inclusion in the bill. It
would be unwise to rush into introducing measures seeking to limit liability.

‘We need to set the hurdle for any potential legal challenge high enough so
that directors can feel confident in what they say in their reporting, but not
so high that there is little incentive to be careful.’

He said he understood that there needed to be ‘clear limits to the liability
of directors’ in connection with business reviews, but it was unhelpful to look
at this in isolation from other disclosure requirements in the bill and under
the EU transparency obligations directive. He said that with too strict a
liability, directors would load statements with caveats and qualifications, and
there would be needless bureaucracy.

He said consultations were under way on draft clauses on liability for
directors’ reports, directors’ remuneration reports or summary financial
statements derived from them, and for disclosures under the new transparency
rules.

He said they ‘ensure that directors will only be held liable for untrue or
misleading statements and omissions made in bad faith or recklessly, and where
there is deliberate and dishonest concealment’.

Noakes said she was disappointed there was no commitment to introduce the new
clauses before the bill leaves the Lords by the end of June and she pressed for
provision for updating the reports because they looked forward.

She said the government had not handled the OFR debate well, ‘veering from
one policy position to another, and satisfying none of the interest groups’, but
she thought the government ‘has achieved the right balance’.

But Lord Sharman, for the Lib Dems, said it would ‘just be a matter of time
before someone decides that we need a reporting standard for the business
review’.

The Bishop of Chester pressed for multinationals to be made responsible
through the reviews for the actions of contractors in developing countries – a
move Sainsbury rejected out of hand.

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