View from the House

The Law Commission has set its face against any reform of joint and several liability – and the new Act, when it comes into force, will still mean liabilities will fall both on the assets of a limited liability partnership and an individual auditor.

The Law Commission view is supported by the Company Law Steering Group in its document Modern Company Law. The government’s consultation on what company law should be in a modern economy shall be completed by next March, when the Secretary of State shall announce his own views – just in time for them to be incorporated in government’s new Business Manifesto on which to fight the election.

But if the government cannot abolish joint and several liability it should include in the business manifesto a commitment to widen the duty of care of auditors to encompass additional responsibilities and at the same time limit liability – thus converting the audit from a floodlight blaze to a narrow laser beam in terms of liability.

This can be only be achieved by statute, with the Auditing Practices Board getting round the Law Commission’s contention that any limitation of liability would contravene the Unfair Contract Terms Act 1977.

There is a fair wind for such a limitation within the Company Law Steering Group, but it is important for the government not only to accept this but to commit itself in its manifesto.

The limitation might need to be approved by shareholders at their agm and the government should commit itself to better defining the duties of directors so they themselves become liable for negligence, fraud and breach of duty of directors and employees.

Focusing the government’s attention on liability issues will be an important task, but the best chance to influence the thinking of a future government is before a General Election – not after.

  • Stuart Bell MP is parliamentary adviser to Ernst & Young.

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