Enterprise Bill

Public Bill Committee, 9 May 2002.

Standing Committee B

Clause 239 - Replacement of Part II of Insolvency Act 1986

Nigel Waterson (Conservative, Eastbourne)

I want to speak briefly, largely to set the scene and to give some structure to our debates on part 10 of the Bill. In common with many outside organisations, we welcome some of the provisions intended to improve corporate insolvency. I find it remarkable that, despite what seems to have been fairly widespread consultation, I am being deluged with briefing papers and proposed amendments from a range of specialised organisations, which have a great deal to say on the subject. For example, major concerns, which we shall develop in depth in later debates, have been raised about the scrapping of administrative receivership in most instances. That is not necessarily helpful.

Perhaps the most dramatic problem that we will have to grapple with in our debates on part 10 is the fact that, broadly speaking, the rules in this country do not distinguish between corporate and personal insolvency. That creates a number of problems. Yet again, it seems that Government policy is driven by a rather superficial and partial understanding of what happens in the United States of America. When the right hon. Member for Hartlepool (Mr. Mandelson) visited the USA a few years ago, he came back with all sorts of ideas about encouraging enterprise and so on, and we are told that they are part of the main thrust of the reforms to be made under part 10.

Much of the reasoning behind part 10 is seriously flawed because it fails to distinguish between personal and business insolvency. Again, we shall develop that point when we debate the personal insolvency rules. It seems that the Government are in danger of changing the rules so dramatically that, far from encouraging enterprise, they will make borrowing more difficult and more expensive, encourage the feckless and even the dishonest to run up large amounts of credit, and leave creditors less able to recover assets from those who go into bankruptcy. At the end of the day, we may see here what happened in the USA, where there was an explosion in the number of personal insolvencies and a slight reduction in the number of corporate insolvencies. We shall go through the figures in the debate on a later clause.

Most people take the view that it would be wrong to remove all stigma from bankruptcy and all the difficulties associated with it because in a civilised

society the rule has to be that, when possible, debts are paid. To remove all the inconvenience and stigma of insolvency, particularly for individuals, would send a dangerous signal. That is particularly so now, at a time when we are seeing an explosion in consumer credit. We hear that people are borrowing more than ever, particularly on credit cards, but with less and less certainty that they will be able to repay the debt. Much of that is fuelled by the boom in house prices, a worrying development on which we shall be putting forward evidence from lenders. For instance, people taking out mortgages are borrowing not only 90 per cent. of the value of their new property, but the deposit, too. That bodes extremely ill for the future, particularly if there is a downturn in property prices, as there surely will be.

Those are some of the themes that we want to develop. We have also been asked to raise a mass of technical, practical concerns about how part 10, and particularly its initial provisions, will work in practice, and we shall explore those concerns in our amendments. I thought, however, that it would helpful to set out some of our thinking at this stage, and a short clause stand part debate seemed to provide the best opportunity.

Vincent Cable (Liberal Democrat, Twickenham)

I should like to echo those remarks. We have a dense agenda, and the many technical amendments, particularly to schedule 16, will take up quite a bit of the morning.

It is useful for us to have a clause stand part debate, because the basic principle behind the proposals is not in great dispute. The Government are replacing receivership with an administration system that will attempt to enable going concerns to keep going, and we endorse that principle. For reasons that I do not fully understand, however, the consultation process did not work well. The feedback that we have—I am sure that the hon. Member for Eastbourne (Mr. Waterson) has the same sources—is that the consultation was often highly perfunctory. There was a round of consultation, a lot of feedback, and a very different draft emerged, but there was little consultation on it. This is a very specialised area, and there is a feeling among specialists that the consultation was not satisfactory and that there was not enough feedback, which is why they have suggested reams of amendments.

Many of the amendments deal with two sorts of failings in the Bill, which relate specifically to the Government's attempt to produce a streamlined administration system. First, the Bill often misses opportunities to speed up the administration process. Secondly, insolvency practitioners have told us that the time scale set for administration is hopelessly unrealistic. Indeed, we currently have the test-tube example of the Government's attempt to manage the administration of Railtrack. As far as I can see, the time taken far exceeds what is allowed for in the Bill. I would have hoped that there would be consultation with the Department for Transport, Local Government and the Regions on the practical problems of running a complex administration. Many of the amendments to schedule 16 relate to the concern

of professionals—there is no ideology involved—to make the process expeditious, as the Government originally intended.

In conclusion, I have a couple of general points. As the hon. Gentleman said, there is a problem with treating personal and corporate bankruptcy in the same way and in the same spirit. Poor individuals often have a problem accessing bankruptcy, and some of the new clauses suggest that that should be made easier in some cases, although the same philosophy may not be required in the corporate sector. Similarly, the philosophy of distinguishing between good and bad bankrupts is fraught with problems, although we shall come to that later.

Ken Purchase (Labour/Co-operative, Wolverhampton North East)

It is appropriate to raise a couple of points that insolvency practitioners have put to me. First, on individual insolvency, the 12-month bankruptcy term may make bankruptcy more attractive to some debtors. The problem, it is suggested, is that it may substantially increase the number of orders, and the pressure on the courts to deal with them will increase by the same proportion.

Nigel Waterson (Conservative, Eastbourne)

I am sure that the hon. Gentleman is aware—perhaps he was about to say this—that the Bill envisages a time scale that is significantly shorter than 12 months in many cases. Will he comment on that?

Ken Purchase (Labour/Co-operative, Wolverhampton North East)

Yes, it makes worse the scenario that I am painting about the pressure on courts to determine those matters adequately and expeditiously. The Committee needs to hear, at an early point, what arrangements may be put in place to deal with those provisions in the Bill.

My second point is that it is now the official receiver who will determine whether the financial activity of a bankrupt was reckless. There is already considerable pressure on the Insolvency Service, so we need confirmation that it will be able to cope with an even greater work load. Will the Minister say what constitutes reckless financial activity, because understanding that would go a long way towards expediting what could otherwise be a messy process, resulting in a long queue of people waiting for their cases to be determined?

In general, we have imported into the provision ideas that stem principally from the American chapter 11 procedures, to prevent the unnecessary loss of residual business by precipitate action. I entirely support that, but if we follow that route, it is even more important that the safeguards that I mentioned should be in place.

Jonathan Djanogly (Conservative, Huntingdon)

On the general purpose behind the comparative systems of administrative receivership and administration, we currently have two complementary systems. On the face of it, in clause 239, we are being asked to get rid of one of those systems, administrative receivership, and to enforce the system of administration. However, the more I look at the provisions, the more I see that

they would actually take something that is currently called administration and turn it into a new beast, which will be a combination of administration and receivership. Does that form the subject of a stand part debate on clause 239 or on clause 241, because the same issues arise in both clauses? It is important that we have a comparative debate, and to consider the question now, so I shall say a little more now and a little less in the debate on clause 241.

There are serious concerns for companies about the proposal to merge the two systems. The Government contended, in the White Paper and on Second Reading, that administrative receivership was somehow unfair to unsecured creditors, but there is a transparency in the current system that has often been missed. If someone wants to do business with a company, they can always do a quick check of the companies register to see whether a floating charge exists, and if it does, that usually dictates the terms on which trade is carried out. For example, order sizes may need to be restricted and payment terms made tighter than usual. For larger lenders, there is always the possibility of debt priority agreements, which are often used in practice.

The main point, however, concerns the cost of one system compared with the others. Receivership is relatively cheap and much quicker than administration, which tends to be court-intensive, slow and expensive.

It is important to appreciate that, under the present system, most companies that go into administration are eventually wound up. That is vastly more expensive, and so incurs a greater loss to creditors, than it would be to go into administrative receivership in the first place. That is why the process is not used so much at the moment for smaller companies, for which the costs of administration generally make it unrealistic. The Bill will mean more administrations, so more costs and possibly even less money for creditors.

The key to realising value to creditors in the majority of insolvencies, in which perhaps a voluntary arrangement or some other negotiation with creditors is not a possible alternative, will lie directly with the speed at which the underlying business of the company can be sold. Every hour of delay will increase the likelihood of selling the business as a going concern, which will reduce the value of goodwill and therefore the return to creditors.

By way of comparison between the two systems, it is vital that we understand the difference between a business and a company, which comes up throughout this part of the Bill. Many who have commented on the Bill have raised the subject. A company is the corporate body that owns the business. It can sell its business, become a shell with cash in it, and distribute that cash to its shareholders. If insolvency practitioners, whether administrators or administrative receivers, moved into a company, they could force it to sell assets or the whole or part of the company's business. In that case, the distribution would not be to shareholders, who would be bottom of

the pile. Distribution would apply first to secured creditors and then to unsecured creditors. Shareholders often receive little or nothing.

Before the Bill was drafted, the basic presumption in insolvency law was that the priority was the continuation of the business, which contained the goodwill and the employees. Effectively, that took priority over the interests of the company.

Nigel Waterson (Conservative, Eastbourne)

We are all agog at this important seminar, from which I am certainly benefiting, as I think is everyone. Does my hon. Friend agree that some Labour Members may have been unaware of the potential impact of the changes on employment? They may not have known that, as he suggests, there may be more of an impetus to get rid of employees of a company, rather than to make a go of it.

Jonathan Djanogly (Conservative, Huntingdon)

I thank my hon. Friend for clarifying the matter. That is exactly the point that I am coming to. By moving the impetus from continuation of the business towards keeping the company going under administration, the business could suffer as the value falls. As we know, most companies in administration go into liquidation anyway. The prospect of loss of jobs would become much greater. That is a great concern about the provisions. When insolvent, the value of a company will be its goodwill, but goodwill and job security will dissolve much quicker. That is why a speedy sale of the business through administrative receivership is often preferable to dragging the process out through administration, which could make matters much worse, as my hon. Friend said.

In certain circumstances, administration does give the company, and therefore possibly its employees, a greater chance of survival. However, that is at the risk of producing much less value to creditors if things do not go well, and if things do not go well, jobs are lost anyway. As administrations tend to end up in liquidation, that is serious. Returns to creditors are affected not only by the falling value of the company. The ongoing large costs of using insolvency practitioners are inevitably larger in administration, as is clear from the costs involved in the Railtrack administration.

I have been taking a straightforward line. The reality of putting the comparative systems into practice, insolvency practitioners tell me, is a lot more subtle and complicated. Administrative receivership is portrayed in the Bill as a practice that does not give everybody as fair a say in an insolvency process as in administration. In fact, since the last recession, receivership has been used increasingly sparingly by the banks. They do not generally use it as a quick way to dissolve companies—the slash and burn style that was prevalent in the 1980s. Now they use it much more as a lever to encourage insolvent companies to get round the table and enter into a debt arrangement—for example, a company voluntary arrangement. That is the best way to ensure the survival of the business.

The removal of administrative receivership will take away such leverage and, in effect, force companies to go down the administration route. It is important to

appreciate that that is a court process which, in most cases, will be unlikely to improve on decisions that are normally taken by right-thinking people who have a good idea of what is happening to a company on a day-to-day basis. I am informed by one insolvency adviser that, in the court process, judges rarely, if ever, review the insolvency accounts, because they are not accountants. In most cases, they take a view on what the insolvency practitioner puts in front of them. That often means that companies are able to run on, with fees going to the insolvency practitioners. The point is important because it is in the personal interest, although not the statutory interest, of insolvency practitioners that administration continues for as long as possible. That is how they earn their fees. That will happen increasingly when liquidation is the most appropriate route.

Another insolvency adviser describes the proposals as receivership by another means. That is because, importantly, floating charges will not be abolished by the legislation. Many in the insolvency world who did not see how the Bill was evolving did not realise that, but it is the case. The proposals might allow unsecured creditors a bit more of a say, but how will that help when the bank has all the votes? It is rather like sitting on the Conservative Benches in this Committee. Unsecured creditors will not receive any more money at the end of the day, but everybody will incur more costs through the administration procedure. There lies one of the big gaps in the provisions. We had a great chance to address the problem of excessive costs in the system, and we have not done so.

There is a major problem getting banks to lend to start-up and small businesses. That was no doubt in the Government's thinking when they made the proposals. Having looked at them carefully and spoken to many insolvency practitioners about how they work, I fear that they could make the problem worse rather than better, because in the absence of administrative receivership, banks might become less willing to lend to small companies without increased assets cover from which they can take their fixed charges. When they decide to lend, the interest could be higher because the risk is greater. In addition, a much greater use of personal guarantees is likely, which will hardly encourage the enterprise culture. I have concerns not only about the workings of the administration process vis-a-vis the administrative receivership process, but about the wider impact that the provisions might have on enterprise.

Mark Field (Conservative, Cities of London and Westminster)

I shall speak briefly because my hon. Friend the Member for Huntingdon (Mr. Djanogly) has covered many points. Clearly, we shall discuss some of the Government's intentions during the next four sittings.

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

Four sittings?

Mark Field (Conservative, Cities of London and Westminster)

Only four sittings, I hasten to add.

Conservative Members support the underlying efforts to rationalise insolvency law. I confess to having been one of the legal fraternity, as I was a junior

lawyer in the early 1990s and was involved in several corporate restructurings. We often wished that we could have a chapter 11-type situation. That debate has continued and will no doubt be discussed more specifically.

I have two key concerns. My hon. Friend made the point that secured creditors will no longer have the same rights and that the real risk, especially for smaller companies, is that there will not be the same through-flow of money. There is great difficulty in this country in giving seedcorn capital to small companies. Taking the equity route is often impossible because venture capital outfits are not well suited to providing relatively small amounts of money, such as a few hundred thousand pounds. Debt, therefore, remains the main way in which such companies are funded in order to set up and to maintain operations in their first year or two of business.

I can understand the thinking behind the Government measure, but it has unintended consequences. A big difficulty is that, if there is no longer an opportunity for secured creditors to have a preference, companies may be starved of cash. As my hon. Friend pointed out, the other option is for individuals who are directors of such companies to act as personal guarantors, although that is also likely to create difficulties, especially for small start-up businesses.

I have recently been impressed by how many relatively young people—people in their 20s—are setting up businesses on their own. People of that age generally do not have assets, although they may have wealthy parents who could be personal guarantors—but that is less than ideal. The possibility that the banking sector is to be starved of money is clearly of great concern.

Tony McWalter (Labour/Co-operative, Hemel Hempstead)

Does the hon. Gentleman agree that the abolition of Crown preference has the effect of introducing a significant source of new moneys into the system, which will make it more attractive for banks and others to undertake investment?

Mark Field (Conservative, Cities of London and Westminster)

I should tell the Committee that I had not briefed the hon. Gentleman, because I was about to make that point.

There is another unintended consequence of the abolition of Crown prerogative—

Nigel Waterson (Conservative, Eastbourne)

Preference.

Mark Field (Conservative, Cities of London and Westminster)

Preference. If only we could get rid of Crown prerogative, how easy life would be.

In relation to Crown preference, the Government have given headline figures along the lines of £70 million. Many small companies have felt the claws of the Inland Revenue and Customs and Excise at their backs when going through financial difficulties. I should point out to the hon. Member for Hemel Hempstead (Mr. McWalter) that there is an unintended consequence even in this regard. Local Inland Revenue departments, if not Customs and

Excise, have been more amenable to smaller companies in letting them pay over a period of time and in making allowances for the cash-flow problems to which they may be subject. The real danger of abolishing Crown preference lies in that relationship with the Inland Revenue.

The affairs of many small companies will be dealt with by relatively junior members of staff who will feel that they need to perform and will find themselves criticised if many of the companies under their ward go under owing large debts to the Crown. The risk in lifting Crown preference is that, instead of having a strong relationship with the Inland Revenue so that during a certain period money need not be paid in order to assist and facilitate cash flow, such companies may go under more quickly. The Crown will realise that it has a once and for all chance of getting hold of its moneys and that if it does not do so immediately and waits for a few more months, allowing the money to go on tick, the company will go under. Thought needs to be given to that.

I would like to think that, in principle, at least in relation to corporate insolvency, we on the Conservative Benches support much in the legislation. However, as is so often the case, the devil will be in the detail. I point out to the hon. Member for Orkney and Shetland (Mr. Carmichael) that that is one of the reasons why we will spend the next 10 hours teasing out aspects of that detail.

Douglas Alexander (Labour, Paisley South)

It is always a pleasure to serve under you on a Committee, Mr. Conway, and today it is a somewhat unexpected one.

The debate has been so wide-ranging that had I not spent most of last night reading the detail of the blizzard of amendments to be discussed in the coming 10 hours, I might have thought that we had covered all the issues. However, the point on which the hon. Member for Cities of London and Westminster (Mr. Field) ended is fair. Our challenge will be to focus on the detail. The virtue of starting the sitting with such a broad debate is that it ventilates some of the principal issues. With the indulgence of the Committee, I will answer some of the substantive points that have been raised. There will be plenty of scope to address the specifics of timings.

I was struck, not least in light of my last appearance before the Committee, by the somewhat uncharacteristically harsh tone of the criticism of the hon. Member for Eastbourne. I will bear in mind the scale of his concern about some of the details that have been brought to his attention. I hope that I will be able to offer him some comfort on certain points.

The first basic point, on which I would have thought we could find common cause across the Committee, is that a huge number of representations have been made to us. The complexity of the issues that we are dealing with partly explains the volume of material that we are receiving. The hon. Member for Twickenham (Dr. Cable) added to that point by suggesting that after an initial period of consultation there had been

amendments or developments in policy, but there had not been time to reflect that in further consultation. In all candour, the Government sometimes find themselves between a rock and a hard place. If we are serious in conducting a consultation, amendments and developments will inevitably result. One of the benefits of the time that has been allocated to this part of the Bill will be that, where there has been innovation and development in policy in light of consultation, we will have the opportunity to discuss that.

The hon. Member for Eastbourne suggested that we had a superficial understanding of the position in the United States. He referred to a trip to the United States made by a previous Secretary of State. As an alumnus of an Ivy League institution, I yield to no one in my admiration of the entrepreneurial culture of north America and the United States in particular. However, the Bill has been informed not just by looking at the United States and finding out what lessons can be learned from its approach to enterprise and its entrepreneurial culture, but by looking around the world.

We unashamedly assert that we have looked far and wide to ensure that innovations in policy that give us a world class position in our treatment of corporate insolvency and a range of other factors are peppered throughout the Bill. We make no apology for seeking to learn from overseas instances of best practice. On timing, which I sense will cause some contention and controversy, there are very insightful and interesting examples of equivalent processes elsewhere which support the Government's proposals.

The hon. Member for Twickenham suggested that some of the issues before the Committee were dense. In the wee small hours of this morning, the corrupting thought entered my brain that it was not the clauses that were dense, but the Minister who was advancing them. I leave it for members of the Committee to judge.

We shall cover timing in specific discussions. However, it would be difficult to disaggregate it from our general approach, which is to encourage the use of administration. That is the best way forward.

I appreciate that the point about the company as distinct from the business is of concern to the hon. Member for Huntingdon. He was kind enough to refer to the fact that we would have the opportunity to speak about it later, but I shall address his remarks specifically. Before I do so, I want to reflect on the observations of my hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase). I shall bear in mind his remarks on personal bankruptcy, but given the scale and complexity of the clauses, I shall focus—with his indulgence—primarily on corporate insolvency. I am alive to the issues that he has raised, and there will be opportunities later to consider them in detail.

Before I turn to general points of principle, I want to address the specific example of Railtrack because if I do not do so immediately, I fear that it may be raised on several occasions. The administration of Railtrack is being dealt with under separate and distinct provisions, and not under the provisions that we are

discussing. I would not want to allow that red herring to continue to swim for the rest of the morning, although reference may be made to other, more prominent administrations. Thanks to the excellent blizzard of briefing that I have just received, I can inform hon. Members that the specific provisions under which Railtrack is being dealt with consist of an administration scheme that is specific to the railways regime.

Nigel Waterson (Conservative, Eastbourne)

I understand why the Minister wants to set Railtrack aside, but even if it is being dealt with under a separate regime, it is not being dealt with so wholly differently from other administrations that lessons cannot be learned.

Douglas Alexander (Labour, Paisley South)

I am happy to accept that there is a discrete statutory basis for Railtrack. The substantive point is that the timings under the Bill preclude the possibility of highly complex administrations, whether or not they fall within the Bill's remit, and I am confident that provision is made for the court's ability to recognise complexity and reflect it in the timings available to the administrator.

The substantive point raised by the hon. Member for Huntingdon was that company rescue rather than business rescue was the focus of the Bill. The hon. Member for Cities of London and Westminster said that he was a junior lawyer in the 1990s—a sin of which I am also guilty. When I looked at the briefing, I reflected that one of my principal tasks as a junior lawyer in the corporate law department was to establish and incorporate shelf companies for use by clients.

I am therefore aware of the hon. Gentleman's point about the capacity to have a legal entity that does not reflect the reality of the business. However, I am confident that the Bill reflects our intention, and that it will give the courts sufficient comfort.

In light of the way in which the courts interpret the statute, it may be helpful to explain to the Committee our thinking so that we have some clarity at the beginning of the discussion. We may return to some issues in discussion on the relevant clauses, but I shall give the Committee a flavour of the approach that has informed the judgment of the statutory wording. We want company rescue to be at the heart of our insolvency procedures to ensure that companies that can be saved have a decent chance of survival and are not driven to the wall unnecessarily. That will be good not just for companies, but for suppliers, customers and employees.

The hon. Member for Eastbourne referred to his deep and profound concern for employment. Has he had the opportunity to see the briefing on the Bill from the TUC, which I received only this morning? It welcomes the Bill. Given the TUC's track record on and regard for employment issues, I place great weight on that endorsement.

The first objective of administration would be to rescue the company and the whole or part of its business. We recognise that there is no use at all in making the administrator try to rescue companies that are, as the hon. Member for Huntingdon suggested,

merely empty shells, at the expense of rescuing viable businesses. The purpose ''to rescue the company'' evidently means to rescue it as a going concern, with the whole or much of its business intact. We are confident that the courts would interpret the purpose in exactly that way.

We also recognise that there will be some cases in which the break-up and sale of some or all of a company's individual businesses as a going concern will result in a better return for the creditors. Where that is the case, the duty of the administrator to act in the interests of the creditors will steer him towards that outcome. However, for administration to be effective as a rescue vehicle, it is important that we encourage companies, as well as their creditors, to use the procedure. In particular, we want to encourage smaller companies, many of which will have owner-managers, to use the procedure as a rescue vehicle at the early stages of financial difficulty.

Although there has been reasonable concern to ensure that statutory interpretation reflects the Government's intention, we must, equally, think about how the Bill will work in practice. To that extent, we have considered what the motivations of owner-managers would be in such circumstances. If the objective of administration were to rescue the company's businesses rather than the company itself, frankly there would be little incentive for directors of the company to enter into administration, which is one of the intentions of the Bill. We are confident, in legal terms, that the statutory interpretation bears that out.

Jonathan Djanogly (Conservative, Huntingdon)

Assuming that the directors are shareholders, they would normally have every reason to want to save the company rather than the business, because then they would not lose their investment.

Douglas Alexander (Labour, Paisley South)

I would accept that point were it not that timing is critical in such circumstances. One of our concerns was to ensure that, at the appropriate time, there would be a process of administration that offered a realistic chance of rescuing the business and company in question. The point at which directors make the judgment is key to the outcome. We believe that we have struck the appropriate balance to ensure that the motivation is there, and we are confident that statutory interpretation of the Bill will reflect our broader intentions.

On financing, which I am sure we will revisit later this morning, the hon. Gentleman suggested that the measure was somehow damaging to the interest of the banks. I refer to a statement of the British Bankers Association:

''Since then we have enjoyed a dialogue with your Department in which we have had the opportunity to explain how banks attempt to rescue businesses in severe difficulty and to suggest amendments to the proposals which would help the Government to achieve its objectives.

The Enterprise Bill, published today, reflects that dialogue.''

Many of the experienced members of the Committee are aware that such an endorsement is not offered lightly by organisations such as the British Bankers Association. We are confident that there has been

serious and genuine engagement by the Government and interested parties in the consultation on the Bill and that the outcome is adequately reflected in its drafting.

I am conscious that we will inevitably revisit several of the issues that have been raised in the stand part debate when we come to the specific parts of the schedule 16. I shall simply narrate the detail of clause 239 as a courtesy to the Committee, before asking it to support it. At that point, it would be appropriate to move on.

Clause 239 will do three things. It will replace the existing administration procedure provided for in part II of the Insolvency Act 1986 with schedule B1, which is set out as schedule 16 to the Bill. It will introduce schedule 17, which deals with minor and consequential amendments relating to administration, and it will provide the Secretary of State with the power to make consequential amendments to both primary and secondary legislation. On that basis, I move that the clause stand part of the Bill.

Harry Barnes (Labour, North East Derbyshire)

On the representations and involvement of the British Bankers Association, it may be remembered that earlier, when we were dealing with mergers, I quoted at length from an internal document of the BBA. I have been informed by a journalist who has investigated the matter that the BBA claims it is a forgery. Why it is a forgery, and why someone has gone to such great lengths to present it to me and alert me to other matters that we have been discussing, is of interest.

Question put and agreed to.

Clause 239 ordered to stand part of the Bill.

Schedule 16 - Schedule B1 to Insolvency Act 1986

Douglas Alexander (Labour, Paisley South)

I beg to move amendment No. 485, in page 239, line 18, after first ''office'', insert

''(by reason of resignation, death or otherwise)''.

Derek Conway (Conservative, Old Bexley and Sidcup)

With this it will be convenient to take Government amendments Nos. 500 and 501.

Douglas Alexander (Labour, Paisley South)

Amendment No. 485 will clarify paragraph 1(1)(d), to make it clear that a company does not cease to be in administration simply because an administrator resigns or dies. We would not want a company to lose the protection of the moratorium in such circumstances and for the company or creditor to have to go to the trouble and expense of putting the company back into administration because a particular administrator had resigned or died. Provisions later in the schedule deal with the replacing of an administrator in such circumstances.

Amendments Nos. 500 and 501 change the wording of paragraphs 97(1) and 98(1) to reflect the new wording of paragraph 1(1)(d). I ask the Committee to support the amendments.

Nigel Waterson (Conservative, Eastbourne)

I do not object to the amendments in principle, but I want to make the point that the first snowflake in this blizzard of amendments is a set of Government amendments. There are many Government amendments to this part of the Bill. The CBI has pointed out, not just in the context of these amendments, but more generally, that the changes to the Bill are

''very different from the measures foreshadowed in the various stages of consultation.''

When it refers to consultation as ''perfunctory'', we should be rather concerned. It is evident that these and what the Minister has called a blizzard of amendments will take up a lot of the Committee's time, and it is because of matters that were not thought through when the Bill was drafted. However, broadly speaking, this first raft of Government amendments, one of very many at which we shall be looking, is not at all objectionable.

Douglas Alexander (Labour, Paisley South)

For the record, it might be helpful if I clarify the consultation process that has been undertaken. There was consultation on personal bankruptcy for the White Paper in 2000, which contained the ''Fresh Start'' proposals for insolvency. There was further consultation on personal and company proposals in July 2001. In the light of that consultation, policy was refined. It is fair to say, as I emphasised in moving the amendments, that we have sought a balanced approach. On the one hand, we have ensured genuine consultation with the parties involved, but on the other we have reflected that that has a consequential impact on drafting and recognised that amendments might, therefore, need to be made.

I fear that the alternative is to have a consultation process but, regardless of its outcome, not introduce any amendments. A more constructive way for the Government to prove their sincerity over consultation and discussion is to ensure that, where points need to be made, either of a technical nature, such as those that I have just outlined, or more substantive ones, they are brought before the Committee so that there is an opportunity to discuss them.

Amendment agreed to.

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 403, in page 239, line 25, after ''company'', insert

''and the whole or part of its business''.

Derek Conway (Conservative, Old Bexley and Sidcup)

With this it will be convenient to take the following amendments: No. 460, in page 239, line 25, after ''company'', insert

''or the whole or any part of its undertaking''.

No. 575, in page 239, line 26, after ''where'', insert

''in the opinion of the administrator''.

No. 404, in page 239, line 26, after ''not'', insert ''in his opinion''.

No. 461, in page 239, line 26, after ''company'', insert

''or the whole or any part of its undertaking''.

No. 576, in page 239, line 30, after ''where'', insert

''in the opinion of the administrator''.

No. 405, in page 239, line 30, after ''not'', insert ''in his opinion''.

No. 462, in page 239, line 30, after ''company'', insert

''or the whole or any part of its undertaking''.

Government amendment No. 486.

Nigel Waterson (Conservative, Eastbourne)

I am happy to speak to amendments Nos. 403, 404 and 405. The Liberal Democrats will speak to their amendments, and there is also a Government amendment in the group.

The amendments return us to the question of whether we are trying to save companies or businesses. My hon. Friend the Member for Huntingdon has dealt very eloquently with that issue, which runs through this part of the Bill. With all due respect to the Minister, it is all very well for him to say that he agrees that it is businesses that need to be saved—I paraphrase, and hope I do not do him any unfairness in doing so—but in that case, why does the Bill not say so? The Bill does not make that clear. That is why the CBI and others are quite exercised about the matter. To reiterate our position, which is also the CBI's, it is the rescue of businesses not necessarily companies that matters.

Sometimes, a business is best and most appropriately rescued through its corporate structure. Sometimes, it is best just to sell off the business to another organisation. Rescuing the company should never be a narrow first priority where it still has an ongoing business. I endorse the CBI's comment in its briefing that nothing is gained from rescuing empty vessels. If a company has stopped trading, there is no point in rescuing it. Amendment No. 403 is designed to echo section 8 of the 1986 Act to make it clear—it sounds like the Minister agrees with this—that surviving businesses are the first priority.

Jonathan Djanogly (Conservative, Huntingdon)

The same situation may result when a vessel is full but its liabilities are even fuller.

Nigel Waterson (Conservative, Eastbourne)

I am sure that that is right. A vessel may be half full or half empty and still get into such situations. The Minister has confessed to producing in a different incarnation empty vessels to put on the shelf. No doubt that was part of a tax-avoidance scheme, and there is nothing wrong with that. I am sure that he was not doing anything inappropriate or illegal.

Amendments Nos. 404 and 405 go together. Sub-paragraphs (1)(b) and (c) identify alternative objectives where higher objectives are not reasonably practicable. The current wording could lead to frequent, unhelpful and distracting arguments about whether a higher objective is practicable. At the end of the day, the decision must be driven by the professional judgment and experience of the insolvency practitioner. Administrators should be able to progress down through the hierarchy of objectives whenever it is not practicable to achieve the higher objectives, and they are accountable for making that judgment. The amendments are designed to avoid unhelpful disputes that would distract from the central objective in a particular administration.

Derek Conway (Conservative, Old Bexley and Sidcup)

Before I call the next speaker, I want to make it clear to the Committee that because this is a large group of amendments, unless the proposers of an amendment other than in this instance the hon. Member for Eastbourne and subsequently the Minister with Government amendment No. 406 indicate to me that they intend to divide the Committee, I will not put the questions individually. If anyone wants to divide the Committee on any of their amendments in the group, they need to inform me quietly to ensure that that happens.

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

For my part, these are points of detail rather than principle, and it is unlikely that I will seek to divide the Committee.

Since other Members have spoken in general terms, I shall place on record my unbounded joy at the prospect of four sittings on the detail of insolvency. Like the Minister, my background involves membership of the Law Society of Scotland. However, years spent trawling around the sheriffs courts dealing with criminal court business, occasionally dabbling in personal injuries actions and, to the extreme alarm of my former employers, occasionally undertaking a domestic conveyance, do not qualify me to speak as an authority on insolvency law.

A useful briefing and drafting supplied by the Law Society of Scotland, the full worth of which I did not fully appreciate when I was in practice, provides the genesis of amendments Nos. 460 to 462. Since I have left practice, that organisation's usefulness has suddenly blossomed, and I must place on record my gratitude to it. The Minister may wish to express his gratitude to it, because he is still a member. Politics is a funny old business and one day we may go back to dabbling in conveyancing.

Amendments Nos. 460 to 462 are all the same. One is consequential on the other, and I intend to deal with them together. The Minister has already indicated a fair degree of sympathy for them during the stand part debate on clause 239. Under the Bill, the administrator of a company must perform his functions with the objective of rescuing the company. However, an administrator may believe that he or she can rescue the business of the company, or part of the business, without rescuing the company itself. In those circumstances, the administrator would not be entitled to act under the Bill. That represents a departure from the circumstances in which an administrator can act at present.

The amendment would ensure that paragraph (3) is consistent with provision on administration in section 83A of the Insolvency Act 1986. I am sure that I do not need to remind hon. Members of the terms of that. However, I will do, to remind myself. The terms are that administrators have frequently been able to preserve businesses or parts of them, and consequentially the employment that comes with that, even though the company itself has been beyond rescue. The amendments make it clear that that remains a permissible objective. They are intended to be supportive of the broad thrust of the schedule, and of the broad thrust of insolvency provision, which was expounded quite eloquently on Second Reading by the

Under-Secretary when she spoke at some length on the question of a business failure not necessarily meaning disaster.

The question of what is supportive or reasonably practicable may be the subject of lengthy mitigation. Under amendments Nos. 575 and 576, however, it would be for the administrator to decide what is reasonably practicable, and thus truncate—or possibly avoid—lengthy, unhelpful court proceedings.

Jonathan Djanogly (Conservative, Huntingdon)

Having heard the debate so far, I would maintain that we are seeing a change of emphasis, as mentioned by the hon. Member for Orkney and Shetland, away from the prioritisation of the business towards a situation in which the survival of the company becomes the priority. I shall not go into that in great detail because I have discussed it previously, but it is an important issue.

The Minister believes that the interests of the business are important and that a court would interpret it in that way. Why can he not see that many people have a problem with that, and are saying that there will be a problem of interpretation? If he believes that that is the case, why can we not simply insert it into the Bill and make the position clear to everyone? The Government would do well to go away and have a little think about that.

However, there is a second leg to the series of amendments which we have not discussed much. It concerns the situation in which the decision has to be taken on when it is appropriate to save the company, or when the administrator has to decide to either wind up the company or start selling off its assets. The question that derives from the amendments is whether it should be the administrator's opinion that dictates what is to happen, or whether there should be an objective test. The Bill leaves the test as objective. I assume that the Government would assert that there are many interests at stake and that the court should decide the terms, and I see the sense in that line of argument. On the other hand, the amendments tabled by my hon. Friends and the Liberal Democrats take a position that the administrator should decide which course is best in the circumstances. That is the position of the CBI, PricewaterhouseCoopers and others. I understand why it is necessary in the circumstances of the Bill. Businesses are in favour of that position because they want speed and certainty in decision making, and if the test is open and objective, and it is a court process, it is likely that decisions will be dragged out and delayed.

I support the amendments, but reluctantly. This is an instance of where the banks have had a significant say in the drafting of the Bill. They want the provisions to be as much like administrative receivership as possible. An administrator's view of how to proceed may not be objective. It will normally be a bank's view, as the banks usually appoint the administrators. A bank may want a rapid sell-off of assets when it would be better to run the company. There will often be a fine line between the two.

The amendments assume that the administrators will always act in the best interests of the company, as they are required to do by statute, but, again, there may be a fine line. Some insolvency practitioners are better than others and, as in every profession, some firms are large and high powered and others consist of two men and a dog. Insolvency lawyers will say that they prefer to stay away from some insolvency practitioners and that some are seen within the profession as more professional than others. The problem with the Bill as drafted, which implies that there is objectivity, is that that cannot always be taken for granted.

The provisions are in many ways a botched job because they fall between two positions. The administration process is being consulted on with the banks, which are trying to make it as close as possible to administrative receivership. With the two distinct systems having gone, there could be a free-for-all.

The amendments, admittedly, would detract from the concept of parity between secured and unsecured creditors, but in the context of the Bill as a whole they would give some definition to a system that would be worse than the present one.

Douglas Alexander (Labour, Paisley South)

I shall deal first with some of the specific points made by the hon. Member for Eastbourne and then with the points made by the hon. Member for Orkney and Shetland.

The hon. Member for Eastbourne paraphrased my position in a somewhat cavalier way. I did not say that only business rescue matters. It may be helpful if I clarify what I said. Of course we are not opposed to business rescue when that is the best outcome for creditors. When all things are equal it is better to rescue a company than to break it up. That is consistent with our ambitions in the Bill.

I shall assist the Committee by clarifying the relationship between paragraphs 3(1)(a) and 3(1)(b). Sub-paragraph (1)(b) would achieve a better result for a company's creditors, but we must recognise that sub-paragraph (1)(a), which would rescue the company, takes precedence when ''reasonably practicable''. Again, I refer hon. Members to the explanatory notes on that point.

The hon. Member for Orkney and Shetland asked whether I would be willing to pay due respect to the amendment suggested by the Law Society of Scotland. Of course I am happy to do that. It is part of a more general system that has served this and other Committees well, because it allows us to benefit from the expertise of outside professional bodies. Indeed, I am happy to record our gratitude for the work of a range of bodies in strengthening and informing the Committee's discussions.

The hon. Gentleman was kind enough to mention that I was still a member of the Law Society of Scotland. I merely make an observation on the transition from being a practising solicitor in Scotland to being a Member of Parliament. It is somewhat curious that, when one is elected to the House, one receives a letter from the Law Society of Scotland indicating that, although it was previously necessary to undertake continuing professional development in

order to remain a member of the profession, it sees no requirement for continuing professional development for Members of Parliament. Whether it is correct in its judgment is a matter for the Committee.

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

The principal difference for me on becoming a Member—I was a solicitor in criminal practice—is that the criminals that I was used to dealing with had already been caught.

Derek Conway (Conservative, Old Bexley and Sidcup)

Order. Much as we non-lawyers enjoyed that exchange, I hope that we can stick to the Bill.

Douglas Alexander (Labour, Paisley South)

I shall try to keep to the subject of debate.

Amendment No. 403 would specify that the first objective of administration was to rescue the company and the whole or part of its business. That is certainly the clear intention behind the new proposal, a point that I was happy to make in my introduction. As the hon. Member for Eastbourne said, there is no use at all in making the administrator try to rescue companies that are empty shells if it is done at the expense of rescuing viable businesses. However, we consider that the purpose ''to rescue the company'' self-evidently means to rescue it as a going concern, with the whole or much of its business intact, and that the courts would interpret the purpose in that way.

I draw the Committee's attention to the explanatory notes, which the hon. Member for Eastbourne was kind enough to identify in previous debates as being a useful source of expert guidance on the Government's intentions. The explanatory notes on the schedule underline the fact that we are confident that that purpose can be achieved by the statutory working offered in the Bill.

Amendments Nos. 460, 461 and 462 would put the breaking-up of the company and rescue of its constituent businesses on a par with the rescue of the company. Clearly, there will be some cases where the break-up and sale of some or all of a company' s individual businesses as going concerns would result in a better return to the creditors. When that is the case, the duty of the administrator under paragraph 3(2)(b) to act in the interests of the creditors as a whole will steer him towards that outcome. However, the amendments would go further than that; they would mean that in cases where all was equal, there would be no particular obligation on the administrator to rescue the company rather than breaking it up. That cannot be right, and we would therefore resist the amendments.

Amendments Nos. 404, 405, 575 and 576 deal with the ''reasonably practicable'' test that governs the new purpose for administration. The amendments seek to qualify this test by specifying that it means reasonably practicable in the opinion of the administrator. I, for one, would never suggest that the Law Society of Scotland's amendment might, in any way, be motivated by a desire for more work for Edinburgh lawyers; but we must be alive to the intention of the Bill, which is, whenever possible, to keep lawyers away

from what otherwise would be more expeditious and business-friendly processes. That is exactly how the provision will work in practice.

The administrator is the person on the ground and in possession of all the facts, and he is best placed to determine whether a particular course of action is reasonably practicable, on the basis of his or her experience and professional judgment. It is not the practice of the courts to second-guess the commercial judgment of administrators in such cases, and we would not expect these provisions to be interpreted in that way. However, under paragraph 3(2), the administrator must have regard to the interests of the creditors, and we would not want to tie the test of what is ''reasonably practicable'' so closely to the administrator's opinion that his or her decisions were beyond legal challenge. For example, under paragraph 73, creditors or members of the company can challenge the administrator's decisions where their interest has been unfairly prejudiced. Decisions should also be open to challenge in cases where bad faith, for example, can be established. I therefore ask hon. Members not to press their amendments.

Nigel Waterson (Conservative, Eastbourne)

Like many amendments, those before us were partly intended to allow the Minister to put on record the thinking behind the clauses so that the phalanx of professionals who closely follow our every word can find out what on earth will happen in practice. He has done that. On that basis, and for other reasons, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 486, in page 239, line 34, leave out 'exercise' and insert 'perform'.—[Mr. Alexander.]

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 407, in page 240, line 32, at end insert—

'(9A) An administration application shall give the name of the person the applicant proposes to be appointed administrator and shall be accompanied by a statement by that person—

(a) that he consents to act if appointed;

(b) that in his opinion the purpose of administration is reasonably likely to be achieved; and

(c) giving such other information and opinions as may be prescribed;

and for the purposes of a statement under this sub-paragraph, that person may rely on information supplied by the directors of the company (unless he has reason to doubt its accuracy).'.

This is very much a technical amendment. It would prevent administrators from being appointed in cases that they know nothing about, and is consistent with similar provisions for out-of-court appointments. One problem with debating the present provisions is that detailed rules will be produced at some time and will be the practitioners' bible, and they may deal with the issue. Will the Minister therefore tell us whether any draft rules are floating around and, if so, what the time scale is for producing them?

Jonathan Djanogly (Conservative, Huntingdon)

Why is the wording in the amendment not included here, given that it is included in, I think, paragraph 16, on non-court appointments?

Douglas Alexander (Labour, Paisley South)

The amendment would require applications for administration that are made through the court to be accompanied by the proposed administrator's consent to act, and a statement from the proposed administrator that, in his or her opinion, the purpose of administration was reasonably likely to be achieved.

I can confirm that the rules will deal with the information to be provided with court applications for administration, as is presently the case. In particular, the revised rules will include a requirement that court applications be accompanied by the proposed administrator's consent to act.

We also intend to take forward the existing requirement in rule 2.4(5) that the applicant must state that, to the best of his or her knowledge and belief, the proposed administrator is qualified to act as an insolvency practitioner in relation to the company.

I can confirm that no rules are available at this stage, but I assure the Committee that there will be consultation on that point later in the year. On that basis, I ask the hon. Member for Eastbourne to withdraw the amendment.

Nigel Waterson (Conservative, Eastbourne)

It was helpful of the Minister to give that indication, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 408, in page 241, leave out lines 11 and 12.

Paragraph 11(1) confers on the court the widest possible discretion to make whatever order is appropriate in a particular case. It is, however, not appropriate in what purports to be a rescue-based system to provide the court with the discretion to order liquidation without warning and purely unilaterally on a petition that is geared to achieving the statutory purpose of administration. The practical consequences of exercising the power envisaged in paragraph 11(1) would be far-reaching and, on that basis, the wording should be significantly narrowed—hence the amendment.

Douglas Alexander (Labour, Paisley South)

The intention behind the amendment is to remove the power of the court to treat an application for administration as a petition for winding up the company. That power would be used only in circumstances in which the court believed it inappropriate for the company to go into administration, and that the best solution would be for it to be wound up. Allowing the court to make a winding-up order in such cases would save the time and expense of presenting a one-year petition. I ask the hon. Member for Eastbourne to withdraw the amendment.

Nigel Waterson (Conservative, Eastbourne)

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Douglas Alexander (Labour, Paisley South)

I beg to move amendment No. 582, in page 241, line 31, leave out 'or'.

Derek Conway (Conservative, Old Bexley and Sidcup)

With this it will be convenient to take Government amendments Nos. 487 and 583.

Douglas Alexander (Labour, Paisley South)

The amendments are technical, and solely ensure that paragraph 12(2) reflects what happens in practice. Sub-paragraph (2) sets out what makes a floating charge a qualifying floating charge, which enables the holder to appoint an administrator by the out-of-court route. It has been put to us that the documentation that creates the charge does not often specifically refer to the appointment of an administrative receiver. Instead, it simply refers to the appointment of a receiver. When that person is appointed, if he or she falls within the definitions given in, respectively for England and Wales and for Scotland, sections 29(2) and 251(b) of the Insolvency Act 1986, he or she is an administrative receiver.

Amendments Nos. 487 and 583 will ensure that paragraph 12(2) of schedule 16 to the Bill, which relates to the out-of-court appointment of an administrator by a floating charge-holder, reflects that. Amendment No. 582 is a technical amendment to remove the ''or'' from the end of sub-paragraph (2)(b). That is necessary because amendment No. 583 adds an additional provision, sub-paragraph (2)(d), so the ''or'' will move from the end of sub-paragraph (2)(b) to after sub-paragraph (2)(c).

I hope that that is entirely clear.

Derek Conway (Conservative, Old Bexley and Sidcup)

I enjoyed that enormously. Mr. Waterson, do you wish to speak to the amendments?

Mr. Waterson indicated dissent.

Derek Conway (Conservative, Old Bexley and Sidcup)

Very sensible.

Amendment agreed to.

Amendments made: No. 487, in page 241, line 32, leave out

'appoint an administrative receiver of the company' and insert 'make an appointment which would be the appointment of an administrative receiver within the meaning given by section 29(2)'.

No. 583, in page 241, line 33, after sub-sub-paragraph (c) insert

(d) purports to empower the holder of a floating charge in Scotland to appoint a receiver who on appointment would be an administrative receiver.'.—[Mr. Alexander.]

Vincent Cable (Liberal Democrat, Twickenham)

I beg to move amendment No. 578, in page 242, line 2, at beginning insert—

'Unless the consent of the holder of any prior floating charge has been given,'.

Derek Conway (Conservative, Old Bexley and Sidcup)

With this we may discuss the following amendments: No. 531, in page 242, line 3, leave out 'two' and insert 'five'.

No. 409, in page 242, line 4, at end insert

'or the holder of such a charge has consented to the appointment in writing'.

No. 410, in page 242, line 18, after 'appointed', insert

'on a winding-up petition presented by a creditor'.

Vincent Cable (Liberal Democrat, Twickenham)

I want to say a little about amendment No. 578, which is one of many technical amendments moved from the Opposition Benches. I need not repeat on every occasion that they are technical, but merely suggest from where the ideas for them came. The idea for the amendment came partly from industrialists, as represented through the CBI, partly from the financing community, which has pooled its thoughts through the Finance and Leasing Association and is in the business of providing liquidity to companies and partly from lawyers north and south of the border. There is some consensus from those different bodies as to how the Bill can be improved.

The amendment relates, as do those in the next group, to the crisis point when a company is going into administration. The practitioners stress that there is a frantic period in which hours or minutes can be crucial, let alone days and weeks. Often, confidence collapses and creditors scramble for their assets, so it is important that the orderly process of administration starts as quickly as possible.

The amendment makes the point that, in many cases, the secured creditors are already in consultation and have agreed a way forward. If there were consensus among the creditors, it would be possible to save the two days provided for in the schedule by moving straight into administration. That seems a sensible and practical way to achieve what the Government want, which is to get an administration process operating quickly and smoothly. I would be surprised if the Minister found that difficult to accept.

Nigel Waterson (Conservative, Eastbourne)

I very much endorse what the hon. Member for Twickenham said. In a sense, we are not masters of our own fate because we have been bombarded with amendments—many of which are highly technical—from practitioners, such as consumer credit organisations, lending institutions, the City of London Law Society, which has taken a particular interest in the matter, various accountants and insolvency practitioners. I find this part of the Bill a little like doing one's final examinations in something that one is never going to make use of again. The nearest I ever came to that was failing my conveyancing paper as a law student. I am pleased to say that I eventually passed it, but I have never had to carry out a conveyance and would never wish to, although it seems infinitely preferable to practising in insolvency.

Like amendment No. 578, tabled by the Liberal Democrats, our amendments are partly to do with timing. Amendment No. 531 speaks for itself; it will have to, because I cannot find the briefing on it. It seems eminently sensible and will, no doubt, make everyone's life much easier.

Amendment No. 409 is also to do with timing. Its purpose is to ensure that no delay should occur in urgent cases when all the competing secured creditors

agree with the proposed measures. That chimes with the Liberal Democrat amendment. A raft of amendments, relating to various parts of the Bill, are designed to unclog the procedures, where there is some element of consensus and—as is almost always the case in administrations—an element of urgency to save the business, goodwill and jobs.

Amendment No. 410 has a slightly different purpose. The provisions would permit a secured creditor whose loan is in default to proceed quickly and cheaply to appoint an administrator, but it is the view of the CBI that that would be wrong in principle. Where a provisional liquidator has been appointed on a creditor's winding-up petition, it is fair to require the secured creditor to apply to the court for the appointment of an administrator. However, it would be wrong in principle to require that in cases where the provisional liquidator was appointed on the company's petition.

Douglas Alexander (Labour, Paisley South)

I am taken by the points raised by the hon. Member for Twickenham, whose observations, especially on the two-day period, are reasonable. On that basis, I am prepared to reconsider amendments Nos. 578 and 409.

Tony McWalter (Labour/Co-operative, Hemel Hempstead)

I hope that my hon. Friend will not accept the Liberal Democrat amendment as drafted, which would create the abomination of a sentence that includes the word ''unless'' twice. It would also be ambiguous.

Douglas Alexander (Labour, Paisley South)

I cannot give my hon. Friend the comfort that he is looking for; in the wee small hours of the morning, I did not notice that point. However, he anticipated what I was about to say, namely that I hope hon. Members will feel able to withdraw amendments Nos. 578 and 409 on the basis that we will reconsider those matters and ensure that, in terms of grammar and policy, our ambitions are reflected in the statute.

On amendments Nos. 531 and 410, I can offer less comfort. The reasoning behind the two-day notice period for the holders of prior floating charges is to make the notice requirements compatible with those for companies and their directors appointing administrators by the out-of-court route. A company or its directors must give five days notice to the floating charge-holders before appointing an administrator by the out-of-court route. During the notice period, we have provided that a floating charge-holder who is notified of the intentions of the company or its directors to appoint an administrator can choose to appoint a different administrator by an out-of-court route. In order to do that, a floating charge-holder will have to give notice to anyone who holds a prior floating charge. If the notice period were extended from two to five days, it would run beyond the notice period given by the company or its directors to the floating charge-holder. That would effectively make it impossible for the floating charge-holder to appoint an administrator by the out-of-court route in a case in which someone held a prior floating charge. That is

why the notice period to holders of prior floating charges needs to be two rather than five days. On that basis, I ask the hon. Gentleman to consider withdrawing the amendment.

I also resist amendment No. 410. The intention behind the amendment was to allow a floating charge-holder to appoint an administrator by the out-of-court route in cases in which a provisional liquidator has been appointed on the company's own petition. However, provisional liquidators are appointed by the court and it would not be right for a floating charge-holder to be able to displace a court-appointed office holder without a court hearing. In such circumstances, it would be open to floating charge-holders to apply for administration through the court. I ask the hon. Gentleman to withdraw the amendment.

Vincent Cable (Liberal Democrat, Twickenham)

I will happily do so, given the Minister's assurances. I hope that that element of give and take and flexibility will pervade the rest of the discussion. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Vincent Cable (Liberal Democrat, Twickenham)

I beg to move amendment No. 579, in page 242, line 23, after 'file', insert

'on the next day the court office is open'

Derek Conway (Conservative, Old Bexley and Sidcup)

With this it will be convenient to take amendment No. 513, in page 242, line 23, leave out 'with the court—' and insert

'on the next day the court office is open—'.

Vincent Cable (Liberal Democrat, Twickenham)

This amendment is in the same spirit as the last. The legal eagles have spotted that courts, unlike Tesco stores, are not open for 24 hours a day, at weekends and on bank holidays. That might present a practical problem in cases in which the administration process needs to get under way immediately or in a short time. Whereas it is necessary to complete the formalities of filing once the courts have opened, that should not be a barrier to the process of negotiation that is part of administration. The purpose of the amendment is simple; it is to enable the process of administration to proceed immediately, whether there is a public holiday or it is 3 o'clock in the morning, so that the practical business of rescuing a going concern can proceed and the formalities that take place through the courts can take place at the slightly more casual pace at which the court system operates. I hope that the Minister will find that as easy to accept as the last amendment.

Douglas Alexander (Labour, Paisley South)

I fear that I shall disappoint, given the spirit of the constructive engagement over the last series of amendments. However, I can offer some comfort to the hon. Gentleman. We are alive to the fact that arrangements for filing at court need to reflect the practical realities of which he spoke, including the requirement of creditors for a facility to deal with cases in which time is of the essence. I am considering with colleagues who have responsibility for courts and for courts administration including provisions for filing documents outside normal court opening hours where that is necessary. I would emphasise that, as an alternative, applicants needing to make out-of-hours

appointments will be able to use the court route into administration. Procedures are already in place to enable such applications to be dealt with, given the time constraints that sometimes operate. I therefore ask the hon. Gentleman to withdraw the amendment.

Nigel Waterson (Conservative, Eastbourne)

I rise only to say that it is curious that our amendment has exactly the same wording as that of the Liberal Democrats, and that I was going to endorse what the hon. Member for Twickenham said. I am delighted to hear what the Minister has to say. If there is another practical way of dealing with a perceived problem, nobody will be happier than I am.

Vincent Cable (Liberal Democrat, Twickenham)

In view of those comments, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Douglas Alexander (Labour, Paisley South)

I beg to move amendment No. 488, in page 242, line 24, leave out 'in the prescribed form'.

Derek Conway (Conservative, Old Bexley and Sidcup)

With this it will be convenient to take Government amendment No. 489.

Douglas Alexander (Labour, Paisley South)

These are simply tidying-up amendments to remove some unnecessary words. I assure my hon. Friend the Member for Hemel Hempstead that we are keen to ensure rigour and clarity wherever we can.

Paragraphs 16(1)(a) and 27(1)(a) both refer to filing notices ''in the prescribed form''. However, later in the same paragraphs, it is stated that notices must be ''in the prescribed form''. The amendments delete the first reference in each case and I hope that hon. Members will feel able to support the amendments.

Amendment agreed to.

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 532, in page 243, leave out lines 6 and 7.

Derek Conway (Conservative, Old Bexley and Sidcup)

With this it will be convenient to consider the following amendments:

No. 411, in page 243, leave out line 7 and insert—

'the notice of appointment signed by or on behalf of the person appointing the administrator has been delivered to and accepted by the administrator'.

No. 533, in page 243, line 13, at end insert—

'18A The appointment of an administrator under paragraph 12 takes effect when he is notified that the requirements of paragraph 16 are satisfied.'.

No. 534, in page 246, leave out lines 2 and 3.

No. 535, in page 246, line 9, at end insert—

'30A The appointment of an administrator under paragraph 20 takes effect when he is notified that the requirements of paragraph 27 are satisfied.'.

Nigel Waterson (Conservative, Eastbourne)

Amendments Nos. 532 and 411 deal with a largely technical issue. When an administrator is appointed by notice under hand, it is essential that he should be able to act immediately. Appointments can occur late at night, just before the weekend and occasionally just before public holidays. I suspect that, life being what it is, they almost invariably occur on

those occasions. Certainly, when I was practising full-time as a maritime lawyer, ships were almost always arrested on a Friday afternoon, usually after one had had a rather satisfactory lunch.

Although there must be the public filing and notification obligations anticipated by paragraph 16, the appointment must be effective immediately to enable the administrator to act quickly and effectively. That is an extremely important point in practical terms. I should stress again that these questions are almost invariably raised by people who have to make the rules work in the real world. Waiting to hear that specific documents have been filed at court could cause damaging and wholly unnecessary delays, and a similar amendment should be made to clause 29.

Amendments Nos. 533, 534 and 535 are technical. They are designed to ensure that the administrator's appointment does not come into effect before he is aware of it, which I imagine would be helpful. I cannot imagine that anyone could reasonably argue against that, but the Minister may well try.

Douglas Alexander (Labour, Paisley South)

I am happy, for the entertainment of the Committee, to be full of surprises. I shall try to explain the basis on which we will ask the Committee to resist the amendments.

The Bill provides that appointments of administrators by the out-of-court routes take effect when a notice of appointment has been filed with the court. The amendments are designed to change the point at which the appointment of the administrator takes effect. However, one of the effects of administration is to put a moratorium on court proceedings, so the court must be notified at the point when that moratorium commences; that is when the administrator is appointed. In addition, the court will provide an essential underpinning to the new administration procedure.

Although we are providing for administrators to be appointed without court hearings, which will save considerable time and expense, it is important that all administrators should be officers of the court, whether they are appointed by the court or the out-of-court routes. That will give the courts supervisory jurisdiction over administrators, which I hope the Committee would agree is important.

We recognise that arrangements for filing at court need to reflect practical realities—we have considered the issues raised around that matter—and the needs of creditors, including the facility to deal with cases where time is of the essence. With the help of officials with responsibility for courts elsewhere in the United Kingdom, I am considering the options, including provision for filing documents outside normal court opening hours when that is necessary.

As an alternative, applicants needing to make an out-of-hours appointment will be able to use the court route into administration. Procedures are already in place to enable such applications to be dealt with. The appointment actually takes effect when the papers, including a statement from the administrator that he or she is willing to act, are filed in court. It is important

to concentrate on the key fact of when the supervisory jurisdiction kicks in. On that basis, I ask the Committee to oppose the amendments.

Nigel Waterson (Conservative, Eastbourne)

On the basis of the Minister's claim that he has examined some of the practicalities of the matter, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 412, in page 243, line 34, leave out paragraph 22.

Derek Conway (Conservative, Old Bexley and Sidcup)

With this it will be convenient to consider amendment No. 413, in page 244, line 4, leave out 'under paragraph 20' and insert—

'(a) under paragraph 12 by a person connected with the company within the meaning of section 249, or

(b) under paragraph 20.'.

Nigel Waterson (Conservative, Eastbourne)

Amendment No. 412 is a point of principle and amendment No. 413 is, as the Minister will have immediately spotted, of a technical nature.

Amendment No. 412 is an expression of the idea that in a rescue culture, there is much to be said for not limiting the remedies available to all stakeholders in any way. The board of a company might legitimately take the view that in certain circumstances the appropriate course is to take the company into administration. Serial protection-seekers will get into enough trouble without that provision.

On amendment No. 413, if clause 22 is allowed to stand, we should prevent directors from circumventing the clause by lending the company a nominal sum secured by fixed and floating charges over the whole of the assets and then appointing an administrator under paragraph 12.

Douglas Alexander (Labour, Paisley South)

On amendment No. 412, the administration procedure, with its attendant moratorium on creditors enforcing their rights, provides important protection for companies that get into financial difficulties. It is only right that adequate safeguards should be put in place to prevent unscrupulous companies and directors from taking advantage of the moratorium procedure to the detriment of their creditors.

Paragraph 22 will prevent a company or its directors from appointing an administrator by the out-of-court route in the 12 months following the end of an unsuccessful CVA moratorium. The provision would ensure that companies and their directors could not abuse the procedure by making serial use of moratorium provisions in order to enjoy continued protection from their creditors. The amendment would remove that safeguard.

Of course, there may be very good reasons for putting a company into administration within 12 months of the ending of an unsuccessful attempt to put in place a CVA. If companies can be saved, we certainly want to encourage that to happen. In such cases, we think that it is right that the court should

have the opportunity to scrutinise the application and decide whether or not it is appropriate to make an administration order.

I therefore ask the hon. Gentleman to withdraw the amendment.

Nigel Waterson (Conservative, Eastbourne)

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 489, in page 245, line 13, leave out 'in the prescribed form'.—[Mr. Alexander.]

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 536, in page 247, line 25, at end insert

'or stay any voluntary winding-up of the company'.

This is a technical amendment to ensure that paragraph 36 applies to compulsory and voluntary liquidations equally.

Jonathan Djanogly (Conservative, Huntingdon)

There is a basic point to be made. Why should a liquidator want to appoint an administrator? I should have thought that an administrator's job would have been done by that stage, or that the process would have moved on.

Douglas Alexander (Labour, Paisley South)

My official brief is uncharacteristically robust on this point. It starts by saying that the amendment is ''not necessary.'' Perhaps I can add some clarity to that statement.

If the company is in liquidation, only the administrator will be able to apply to the court for it to be put into administration. If the court makes an administration order, it will be able to make consequential provisions to deal with the voluntary liquidation. On that basis, I ask the hon. Gentleman to withdraw the amendment.

Nigel Waterson (Conservative, Eastbourne)

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Douglas Alexander (Labour, Paisley South)

I beg to move amendment No. 490, in page 248, line 32, at end insert

'to which the administrative receiver or receiver is entitled out of the assets of the company'.

The amendment will make the provisions in paragraph 39 consistent with the provisions in the Insolvency Act 1986, which deal with the remuneration of a receiver or administrative receiver who has been dismissed. Section 11(4)(b) of the 1986 Act makes it clear that the indemnity referred to is an indemnity to which the receiver or administrative receiver is entitled out of the assets of the company. Without the amendment, the reference to an indemnity in paragraph 39(4)(a) could be given a wider interpretation, which is not our intention. I therefore ask hon. Members to support the amendment.

Amendment agreed to.

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

I beg to move amendment No. 463, in page 249, line 33, at end add—

'(9) A provision in any contract which purports to terminate the contract on the appointment of an administrator or the giving of notice of intention to appoint an administrator shall except—

(a) with the consent of the administrator; or

(b) with the permission of the court, have no effect.'.

This is another amendment from the awfully clever chaps from the Drumsheugh gardens in Edinburgh. The amendment would ensure that a contract could not be used to frustrate the aims of the Bill. A creditor may in some circumstances seek to secure his or her rights by a provision in a contract purporting to terminate the contract on the appointment of an administrator or the notice of intention to appoint an administrator. That contractual provision could defeat the effect of a moratorium and have an adverse impact on the administration. The purpose of the amendment is to ensure that the contract cannot be used to frustrate the Bill.

Jonathan Djanogly (Conservative, Huntingdon)

I find this amendment strange. Almost every contract contains a basic provision that if a company becomes insolvent—including being put into administration—the contracting party can pull out of it. The amendment would create a one-way street in which whoever provides a service must continue to provide it without being paid. That is extremely unfair to anyone who provides a service to an insolvent company. If that route were taken, the moratorium should work both ways; while the contract is in limbo, as well as the company not having to pay, the service should not have to be provided during the moratorium. I do not suggest that as the best way forward in any event.

Douglas Alexander (Labour, Paisley South)

This is a rare instance in which I find myself more in favour of the argument offered by the hon. Member for Huntingdon than that offered by the hon. Member for Orkney and Shetland.

The hon. Member for Orkney and Shetland said that the amendment was inspired by the Law Society of Scotland. A keystone of jurisprudence north and south of the border is freedom of contract and that is the fundamental difficulty with the amendment. I realise that the hon. Gentleman is trying to improve the prospects of company rescue by locking in suppliers, but in practice the amendment would have the opposite effect. If those entering into contracts knew that the terms could be overridden, they might be less likely to enter into or continue a contract if they became aware that the company was in financial difficulty. Consistent with the spirit of the Bill, I ask the hon. Gentleman to withdraw the amendment.

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

If the Minister and the hon. Member for Huntingdon both believe that I am wrong, I am probably right. Notwithstanding that, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 537, in page 250, leave out lines 32 and 33.

This is another short amendment that seeks to bring paragraph 43 into line with the current requirements for administration and other corporate insolvency procedures. Accountants involved in insolvency believe that there is no justification for wider rules in administration than in other procedures.

Douglas Alexander (Labour, Paisley South)

I have some sympathy with the hon. Gentleman's argument and am happy to consider it. The intention in paragraph 43(3) is to replicate the existing requirements in section 12 of the Insolvency Act 1986, which deals with notification of the appointment of an administrator. However, as the hon. Gentleman noted, the wording is slightly different and I am grateful to him for pointing that out.

I should like the opportunity to consider the implications further before deciding whether the present wording should be amended. I ask the hon. Gentleman to withdraw the amendment and I undertake to consider the matter.

Nigel Waterson (Conservative, Eastbourne)

On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 414, in page 250, line 39, after '(a)', insert

'Unless appointed by the company'.

Derek Conway (Conservative, Old Bexley and Sidcup)

With this it will be convenient to take amendment No. 415, in page 250, leave out line 42.

Nigel Waterson (Conservative, Eastbourne)

First, there is no point in requiring an administrator to notify a company when he has been appointed by the company, under clause 21.

Secondly, under amendment No. 415, details of creditors normally need to be assembled from a variety of sources. There is not usually

''a list of the company's creditors''

to be obtained. The amendment would necessitate a small additional amendment to page 251, line 1 adding ''of the company'' after ''creditor''. The purpose of the amendment is to make the process more workable.

Mark Field (Conservative, Cities of London and Westminster)

Perhaps the Minister will elucidate the reasons for the proposal because, clearly, we need to be certain about the moment at which administration begins.

In so far as there will be a company-appointed administrator, I appreciate the comments by my hon. Friend the Member for Eastbourne that it seems perverse that there should be a burden on them. I suspect that the argument is that that would protect their position because they would have control over putting out a formal notification. I should be interested to receive some practical guidance from the Minister on why such a burden will be put in place and whether it would not be easier to put the obligation on a company to trigger the public notification that administration has begun.

Douglas Alexander (Labour, Paisley South)

On amendment No. 414, I appreciate the point made by the hon. Member for Eastbourne that serving notice to a company appears to be unnecessary if it has appointed an administrator. However, it will be more straightforward to have the same notice requirements in all cases. It will also protect against abuse by ensuring that a company is

aware of the appointment if someone attempts to appoint an administrator without the appropriate authority.

Amendment No. 415 would remove the requirement for an administrator to obtain a list of a company's creditors. An administrator needs the creditors' details in order to notify them of their appointment and, in due course, to send them their proposals and invite them to a creditors' meeting, if one is to be held. Although I agree that, in practice, details of creditors normally need to be assembled from a variety of sources, once they have been assembled they will constitute a list for the purposes of the provision.

Nigel Waterson (Conservative, Eastbourne)

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

I beg to move amendment No. 464, in page 252, line 24, leave out 'thinks' and insert 'reasonably believes'.

Derek Conway (Conservative, Old Bexley and Sidcup)

With this we may discuss the following amendments: No. 465, in page 254, line 19, leave out 'thinks' and insert 'reasonably believes'.

No. 470, in page 261, line 31, leave out 'thinks' and insert 'reasonably believes'.

No. 476, in page 263, line 41, leave out 'thinks' and insert 'reasonably believes'.

No. 456, in clause 243, page 170, line 26, leave out 'thinks' and insert 'reasonably believes'.

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

The purpose of the amendments is to clarify that the assessment that an administrator makes under paragraph 47(2)(b), paragraph 52(1)(c) and subsequent paragraphs will be justified on an objective basis. The Law Society of Scotland takes the view that the words ''reasonably believes'' would achieve that objective, whereas the word ''thinks'' will not. If that is what the society thinks, who am I to argue with it? If an administrator takes the view that the objectives mentioned in schedule 16(3)(1)(a) and (b) cannot be achieved, the assessment should be capable of justification on an objective, rather than a subjective, basis. It is as simple as that.

Douglas Alexander (Labour, Paisley South)

The hon. Member for Orkney and Shetland made it clear that the group of amendments relate to a single point. I heard what he said about the desire for decisions made by the administrator, or other office holders in the terms of the ring fence, to be subject to an objective test rather than a test that he considers to be purely subjective. The word ''thinks'' in those paragraphs means that the administrator will have to reach a considered view. In such situations, the administrator's decision would be subject to a rationality test by which it would be challenged if it could be shown that no reasonable administrator would have acted in such a way in those circumstances.

We neither expect nor want the courts to second-guess an administrator's professional or commercial judgment in exercising their duties. The administrator is the person who will have all the facts about a case

and will be best placed to determine what is appropriate. That is, of course, without prejudice to the rights of creditors or members under paragraph 73 to challenge an administrator's decision where it has unfairly prejudiced their interests. I therefore argue that the approach taken in the drafting best captures the spirit and intention of the Bill.

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

I assure the Minister and the Committee that I am not willing to divide the Committee on the amendment. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 416, in page 252, line 33, leave out '28 days' and insert 'three months'.

The amendment is a perfect example of a theme that has already been touched on, and will be touched on many more times, which is that of the time limits set out in the Bill. The CBI has some pretty trenchant things to say about those. They complain about the stringent time limits, and make the point that those carrying out the consultation have been told that the proposed time limits are wholly unworkable over and over again by people who know what they are talking about. The CBI also said that experienced practitioners have described the limits as preposterous, and suggests that the only reason for sticking with them is purely political. It goes on to say that they are most unwelcome.

I must say that I am bemused as to what possible political benefit they could accrue to anyone, even on the assumption that the average voter would have a clue what we are all on about. Indeed, if some Martian were to descend to our Committee, he would probably wonder whether we were some strange sect that met in secret to recite chants. I slightly discount the political motive; I err more on the side of natural incompetence. There seems to be a flaw in the consultation. I cannot help feeling that everyone here would be far better occupied doing other things, and the Minister and his officials would be far better occupied sitting down with the practitioners, rather than using the elaborate procedures of the Committee to bring the two together.

Amendment No. 416 would delete the words ''28 days'' and insert the words ''three months''. We are advised that the period of 28 days is too short. The first few weeks of any administration make great demands on the administrator. The first priority is to establish the situation, and stabilise the business as far as possible. The practitioners have asked what is wrong with a period of three months. That figure is not just plucked from the air. It is currently prescribed by section 23 of the Insolvency Act 1986. Best practice would be to send out the administrators' proposals as soon as possible. There is no reason why an administrator should hold back once he has formed his views on the situation of a particular company. However, insistence on a period of 28 days will, apart from anything else, lead to an avalanche of applications to the court under paragraph 105 for extensions of time.

The amendment is based wholly on practicalities and common sense. If 28 days is thought by practitioners to be absurdly inadequate in many cases, why not stick with the period of three months as set out in the 1986 Act?

Tony McWalter (Labour/Co-operative, Hemel Hempstead)

Although I very much enjoy the descriptions by the hon. Member for Eastbourne of how arcane our deliberations are, it seems to me that there is an important point at stake. Most of the time, I have viewed the representations of the Opposition regarding increased or decreased time scales with considerable suspicion. In this case, however, I think that they might be on the right lines.

I was approached by the Non-Administrative Receivers Association—the association for insolvency practitioners—at the back end of 1997. I organised a meeting for those practitioners with the then Minister to discuss the unsatisfactory state of the law in relation to insolvency and protecting businesses from going under unnecessarily.

The issue is serious and, whether it has an electoral impact or not, it is incumbent on us to do our level best to ensure that the state of such arrangements is satisfactory. I am worried that the effect of too short a time scale could be that the administration arrangements, particularly those designed to achieve a rescue of a company or some part of a company's activities, would be frustrated by the fact that the administrator was given insufficient scope and time to devise a statement that did justice to the capacity of the company to persist with all, most or some of its activities. On this rare occasion, I hope that the Minister gives some careful thought to the representations that were made, however humorously, by the Opposition.

Derek Conway (Conservative, Old Bexley and Sidcup)

I am glad that the hon. Gentleman has just finished to save me cutting him off mid-flow.

It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Two o'clock.

Standing Committee B

Enterprise Bill

Nigel Beard (Labour, Bexleyheath and Crayford)

On Tuesday, the hon. Member for South Cambridgeshire (Mr. Lansley) asked on a point of order whether it would be possible for the Committee to debate new clause 8 separately, as further issues concerning it had become apparent only after the group of amendments, in which it was included, had been debated. Having examined Hansard, I have concluded that it is reasonable for the Committee to have the opportunity to consider the new clause further. So, if Members want to debate it, they will be able to do so when we consider new clauses next Thursday.Schedule 16 Schedule B1 to Insolvency Act 1986

Schedule 16 - Schedule B1 to Insolvency Act 1986

Andy Burnham (Labour/Co-operative, Leigh)

I do not want to detain the Committee, but I would like to comment on the administration process and, in particular, the provisions on the consultation of employees. The purpose of the amendment appears to be to ensure as full and detailed consultation as possible, and that all parties relevant to the administration are kept abreast of developments.

In that context, I want to take a second fully to endorse the points raised by the Trades Union Congress about this part of the Bill. The TUC strongly supports its thrust, which is to facilitate company rescue where practical and make it the main aim of administration, and says:

''Whether or not a company rescue is possible, it is essential that workers and their representatives are kept informed of developments and consulted as to their views on the possible options under consideration by the administrator. There should be an obligation on the administrator to keep the workforce and their representatives informed of developments as they unfold and to consult them before making decisions on how to proceed.''

Labour Committee members would strongly endorse that view. We know that the Bill says that the administrator should send a copy of his proposals

''to every member of the company of whose address he is aware.''

In supporting the TUC's comments, I ask the Minister whether he is satisfied that the period of 28 days gives sufficient opportunity to get those proposals to all company employees and, if possible, consult them on the steps ahead.

Jonathan Djanogly (Conservative, Huntingdon)

I have spoken to several insolvency practitioners, and the time limit was the one issue on which they all concurred. They feel that the 28-day period is simply unrealistic. As one of them said about the proposal,

''Frankly, if you're dealing with a company that owns a shoe shop, it would be fine. But, if you're dealing with an Enron or Federal-Mogul''—which owns some 600 to 700 companies as part of its group—''the idea of putting this together in 28 days is simply not feasible.'' I was also told that if the Government want to follow the time-limit approach, they should relate it to the size of the administration. There could be a 28-day period for a single company or small group of companies, and an increasing amount of time as the case becomes more complicated. The Government may wish to consider something along those lines.

Mark Field (Conservative, Cities of London and Westminster)

For practical purposes, I imagine that the Government would wish to avoid the administrator being little more than a rubber stamp. There is a great danger that a 28-day rather than a three-month period would risk the administrator seeing the full list of proposals merely as a boilerplate document. As those of us who have worked in legal firms know, too often the first instinct is to ask, ''Is there a precedent?'' and to follow the two-page document shown on the word processing system.

There is a danger that a 28-day time frame would risk the administrator seeing what should be an important document as a perfunctory part and parcel of the process. A standard, vague, two-page document would be provided that did not go to the heart of his efforts to put things in place. The best administrators work in tandem with the key management of a company in trouble by having a recovery plan in place. I accept that it should be in the directors' hands before the administrator is appointed, as there needs to be a vision about how a company can be driven forward in future. An administrator can play an important role in that regard.

A restrictive deadline such as the one proposed would risk the process becoming a paper chase. The period of time proposed will not allow the administrator to use his commercial acumen and his experience of other administrations to make a genuine difference to the company's long-term recovery, its business assets and the future rights and opportunities of the employees.

Douglas Alexander (Labour, Paisley South)

I start with an observation: I concur with the point made by the hon. Member for Eastbourne (Mr. Waterson) in noting, with some curiosity, the description of the Government's motivation in the matter as political. In our many deliberations on strategy in the run-up to the last election, the time scale of corporate insolvency did not feature prominently. None the less, several matters relating to timing have been raised by my hon. Friend the Member for Hemel Hempstead (Mr. McWalter), and by Opposition Members. The issue is important and worthy of a serious response, which I shall endeavour to provide.

In respect of amendment No. 416, there is some nervousness in the insolvency profession about the proposed time scales, although I believe, not least in the light of hon. Members' contributions, that those concerned are unduly cautious about what is

achievable. That touches on the point made by the hon. Member for Cities of London and Westminster (Mr. Field). The proposed time scale will not result in a pro forma exercise; it will provide the basis on which a substantive document can be produced. The view expressed may be unduly influenced by those practitioners who deal with large cases, especially given that the example cited was of either a shoe shop or Enron. However, in cases of such scale and significance as a company the size of Enron, there is provision for an application to be made to the court about the timings involved.

My officials have taken clear soundings with those practitioners who specialise in the smaller cases—

Jonathan Djanogly (Conservative, Huntingdon)

It is important to appreciate that each application will have significant cost implications. The cost for a large case would be about £15,000 per application, and that money would be taken away from creditors.

Douglas Alexander (Labour, Paisley South)

We must be aware of the incentives intended to ensure that administrations are more broadly used and thus to give a degree of certainty when people go into administration and when they anticipate coming out of it. The proposed time scales probably strike the right balance. The amendment refers to the time scale in the proposal, but there is also specific provision for an extension or an application directly to the court. There is thus a balanced approach, which recognises the gradations and possibilities.

My officials have taken soundings with practitioners who specialise in the smaller cases, who think that the time scales will be more than adequate for cases at the smaller end of the market. As I said, clear exit points will be important for smaller companies for which at present costs are a potential barrier to entering administration.

Tony McWalter (Labour/Co-operative, Hemel Hempstead)

I do not want to make my hon. Friend's life more difficult, but I give an example of a case with which I was dealing in which I thought Customs and Excise behaved very unreasonably. Although the company was small, its paperwork was not in the best order. That sometimes gives rise to the size and expectations of the operation that makes a claim on the company's assets. The company's capacity to respond might be out of kilter with that, even though it has strong claims to viability, as was the case in the example that I have given.

Douglas Alexander (Labour, Paisley South)

I am grateful for my hon. Friend's points. Two issues arise: the conduct of Customs and Excise and the possibility of Inland Revenue involvement. I have some observations to make on Crown preference, when we come to discuss it, that will allay some of his concerns about the actions of public bodies. His second point accords with the spirit of the Bill, which is to ensure that administration will become more accessible and attractive, not least to the type of smaller firm that is conscious of the costs and paperwork involved.

The profile of cases going into administration as a result of the Bill will shift towards those that are

smaller and more straightforward, for which the time scales will prove to be more than adequate. In response to the point made by the hon. Member for Huntingdon (Mr. Djanogly), I accept that some cases cannot be completed within those time scales. Where an extension is required, it can be obtained by consent from the company's creditors and/or from court for a further period of anything up to three months. An extension from the court can be for any period that it considers appropriate, and it will be up to the administrator to justify the period sought. There should therefore be no need for frequent applications for extensions for the consequential costs involved.

Jonathan Djanogly (Conservative, Huntingdon)

Returning to the shoe shop scenario, there may be 10 creditors who can be called in one morning. We are talking about a company that has 600 or 700 subsidiaries. I would challenge anyone to call round the creditors and organise consent.

Douglas Alexander (Labour, Paisley South)

As I have endeavoured to show, we are alive to the reality that there is a spectrum of potential cases for which administration seeks to address the outcomes. Our substantive point is to provide a more accessible and streamlined approach that addresses the particular needs of smaller firms and has the flexibility necessary to accommodate some of the larger and more complex cases, about which the hon. Gentleman spoke. Even in those larger cases where, for example, the automatic three-month period of administration might not be long enough, it should often be possible for the administrator to seek an extension of sufficient length to remove the need for more than one application thereafter.

It may be of some use and give some comfort to the Committee to know that my officials have been in contact with their opposite numbers in Australia who introduced a similar system some years ago. We have re-lived some of their experiences in the protests that were raised before today's sitting about the time scales. The time scales in Australian voluntary administration procedures are even tighter than those in the Bill. Proposals have to be prepared within 21 days—not 28 days, as the Bill proposes. Similar concerns were initially raised about the time limits being too short. However, I understand that the general consensus now emerging is that although timing is tight, especially for businesses with complex operations, it is not impossibly so. Officials in Australia have reported that they are happy with the way their system is working, and that the benefits of the tight time scales far outweigh the costs.

A key point that arose from the consultation process was the view that administration takes too long, and that there is no certainty of when creditors will get their money. That needs to be addressed to reassure the lending community. Our time scales are not unreasonable in the light of experience in Australia. The amendment would extend the period during which an administrator will be required to prepare and send out his or her proposals from 28 days to three months. The 28-day time scale is rightly stringent. The process will be sufficiently flexible, as I have sought to show, not least because we have incorporated sufficient opportunity for that time limit and others to be extended when necessary.

My hon. Friend the Member for Leigh (Andy Burnham) made a point about information and consultation of employees, which the TUC briefing addressed. Employees are also creditors, and there will be consultation mechanisms in the Bill. However, that is subject to a recently agreed EC directive, on which there will shortly be consultation about implementation. I therefore argue that it is inappropriate to deal with that issue in this insolvency legislation. The issue is, after all, a more general one of employment rights. I am nevertheless aware of my hon. Friend's point.

I hope that I have answered the Committee's concerns and I invite the hon. Member for Eastbourne to withdraw the amendment.

Jonathan Djanogly (Conservative, Huntingdon)

How did this time change arise? It seems to be yet another example of a mish-mash of two regimes becoming one regime. Other examples include the ability of companies to appoint their own administrative receivers, or of holders of floating charges to appoint their own administrators when previously they had to go to court. We see a merging of two regimes, which applies in this instance to insolvency practitioners saying that they need more time, and to the banks—having got to the Government—saying that if administrative receivership is being abolished, the new system should be as close as possible to it so that their interests are not prejudiced. Will the Minister comment?

Douglas Alexander (Labour, Paisley South)

It was certainly good to see so many responses during the consultation process, not least from insolvency practitioners and the banks. I would be intrigued if anyone interpreted my earlier remarks to mean that we have somehow been ''got at'' by anybody, though we were determined to maintain an overall rationale for the Bill; providing greater certainty and streamlining to produce a more attractive and accessible process. Of course, that means making fundamental choices. I appreciate that the community of insolvency practitioners has some anxieties on this matter, but I hope that the Australian example, in which even more stringent time scales were set, will assure them that the process can work effectively for the relevant practitioners.

The time scale of 28 days was included in the original consultation documentation of July 2001, which was the White Paper. Less comment was then made on this issue than on others. The opportunity for ventilating the issues has been provided. Ultimately, the Government must choose.

Tony McWalter (Labour/Co-operative, Hemel Hempstead)

My hon. Friend has nearly convinced me. He has provided strong arguments for the 28-day period, but is not the small window of opportunity partly a consequence of what precedes the appointment of an administrator? We are trying to achieve a more co-operative relationship between a company in trouble and the available expertise. Will the Minister affirm that the Small Business Service could be revamped to become more accessible to small businesses and allow them to take advantage of help at an earlier stage?

Douglas Alexander (Labour, Paisley South)

I shall answer my hon. Friend with a couple of remarks. Our ambition is partly connected with time scale, but also, more broadly, with administrative re-fashioning. We want to make help more accessible to precisely the sort of firm that my hon. Friend describes. The profile of companies that have used the administration procedure up to now suggests scope for a rebalancing to address my hon. Friend's point. If managers or directors of companies can anticipate getting into difficulties and secure help earlier, it would be entirely consistent with the spirit of the Bill. We want to provide the means for a company to go into administration, but also to come back out again within fairly tight time scales, ideally in circumstances where company business and employment is safeguarded and the organisation can find a way forward.

I am aware of the role of the Small Business Service in supporting a range of different small businesses. I shall ensure that my hon. Friend's comments are brought to its attention.

Nigel Waterson (Conservative, Eastbourne)

We have had a remarkably long debate on an amendment that talks about leaving out ''28 days'' and inserting ''three months'', but it is an important point. It is not raised by the Conservative party, as the Minister pointed out. There is little political glory for anyone in these provisions, although when we come on to personal insolvency we will suggest that there is clear blue political water between the parties. We are simply trying to put across the views of practitioners who, in perfectly good faith and based on experience, say that some of these time limits are ''preposterous''. They should know what they are talking about.

I cannot comment on the experience in Australia. History dictates that it is dangerous to assume that one can transplant a set of proposals from one jurisdiction to another and it will all work out the same. Nor do I have the benefit of the briefing from the TUC on which the Minister and other hon. Members have relied. I assume that the TUC thought it not worth the postage to send it to Conservative members of the Committee. It would be an interesting acid test to see whether the TUC bothered to send it to the Liberal Democrats or which of the three factions within their membership it chose. The TUC briefing would no doubt have changed our views on the whole issue. If I thought that we would win the vote I would probably ask my hon. Friends to support me in pushing this to a vote. As I do not, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 441, in page 253, line 25, leave out

'Paragraph 49(1) shall not apply'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to take the following amendments: No. 443, in page 253, line 33, at end insert

'paragraph 49 shall apply unless the court orders otherwise but paragraph 51 shall not apply.'

No. 444, in page 253, leave out lines 34 to 43.

No. 538, in page 254, line 7, leave out 'After the conclusion' and insert

'Within seven days'.

No. 539, in page 254, line 8, leave out

'as soon as is reasonably practicable'.

No. 540, in page 255, line 6, at end insert

'and that he considers the proposals approved at the initial creditors' meeting are not reasonably likely to be achieved'.

Government amendment No. 491.

No. 541, in page 255, line 31, leave out paragraph 56.

No. 449, in page 266, line 39, leave out 'A creditors' and insert

'The initial creditors' meeting, or any creditors' meeting held before that'.

Nigel Waterson (Conservative, Eastbourne)

Yet again, I have not had the benefit of the TUC's views on these amendments, but I will struggle on regardless. I will speak to amendments Nos. 441, 443 and 444 together. As currently drafted, paragraph 50 allows the administrator to dispense with an initial creditors meeting in any of the circumstances mentioned in sub-paragraph (1). I hope that hon. Members are listening as I may ask questions at the end. At present, initial creditors meetings are held in all insolvencies, including administrative receiverships, where there is likely to be no return to unsecured creditors. Those are the circumstances foreseen by sub-paragraph (1)(b).

Even if there are no decisions for the creditors to make, such meetings provide them with an essential opportunity to raise matters of concern, both as regards the events leading up to the insolvency and the further conduct of the insolvency. The amendments are designed to change the Bill to require a creditors meeting to be held in all cases, with the proviso that the court can order otherwise, but to remove the creditors' powers in relation to the administrator's proposals under paragraph 51 where the creditors are unaffected by those proposals. I hope that that is clear.

Amendments Nos. 538 and 539 relate to what is supposed to be a key step in what is anticipated to be a fairly short period of administration. Putting in a definite period will provide a greater degree of consistency. Rule 1.24(3) of the 1986 insolvency rules requires the chairman of a voluntarily arranged meeting to report the results to the court within four days. We think that seven days should be perfectly reasonable in that context.

There does not appear to be any need to cause an administration to fail automatically on the rejection of a revision if the original proposals can still be pursued effectively. Amendment No. 540 would still give the administrator the protection he needs and brings administrations into line with the current practice on voluntary arrangements, which I am told has worked reasonably well.

Amendment No. 541 would simply leave out paragraph 56. That is based on the view that, in the interests of transparency and accountability, matters

to be considered by creditors should always be considered at meetings. A meeting would also enable creditors to debate the issues among themselves and raise points and concerns of which the administrator may be unaware.

Amendment No. 449 concerns paragraph 96. Paragraph 96 allows an administrator appointed by the company to be replaced by the creditors at any time, which could make administrators reluctant to take on commitments and responsibilities. The amendment would provide that creditors could not replace the administrator once the initial meeting had taken place. The court would still have the power to replace an administrator. The amendment has the additional advantage of giving the administrator an incentive to hold the initial creditors meeting as quickly as possible. As I explained, if the amendments to paragraph 50 were accepted, there would always be an initial creditors meeting.

The amendments have all been suggested by accountants and practitioners in the field and are designed to make the system work more effectively. I commend them to the Committee.

Douglas Alexander (Labour, Paisley South)

I shall speak first about amendments Nos. 441, 443 and 444. Although we agree that creditors should be fully involved, it is right and proper to focus their involvement in cases in which they have a financial interest. The amendments would create an obligation to convene a creditors meeting, or to seek leave of the court not to do so in all cases, including those in which it is unlikely that the unsecured creditors will have any financial stake. That would add to costs, burden the courts and reduce the returns for those creditors who have an economic interest.

Amendments Nos. 538 and 539 would require the administrator to report on any decision taken at an initial creditors meeting within seven days rather than as soon as is reasonably practicable. If the administrator is able to issue the report sooner than seven days, why should he not do so? The administrator should report as soon as is reasonably practicable, which is what the provision requires.

Amendment No. 540 relates to paragraph 53. The paragraph allows the court to make provision in cases in which an administrator reports to the court that a creditors meeting has failed to approve his or her proposals. In cases in which the creditors have failed to approve a revision of the administrator's proposals, the amendment would provide that the administrator only reported to court if he considered that the proposals approved at the initial creditors meeting were not reasonably likely to be achieved.

However, the amendment is unnecessary. The administrator is required to report the outcome of the creditors meeting to the court so that it has a record of the administration's progress. Paragraph 53 allows the court to make provision in such circumstances, but does not require it. In deciding what to do, the court is likely to attach a great deal of weight to the professional judgment of the administrator. If the administrator made it clear that he or she believes that the initial proposals that were

approved by the creditors are still workable, and that the creditors were aware when they voted on the revisions that if they rejected the revisions the administrator intended to follow the initial proposals, the court would be likely to allow the administrator to continue with the administration and follow the initial proposals.

When creditors have rejected revisions to an administrator's proposals, it is right that the court should have the opportunity to consider the circumstances of the particular case and end the administration, or make an order if it thinks that is appropriate. However, the power is discretionary and will not prevent an administrator from pursuing proposals that have already been approved by creditors if the administrator persuades the court that that is the right way to proceed. I therefore ask the hon. Gentleman not to press the amendments.

Amendment No. 491 is a Government amendment. The Bill provides that a floating charge holder can appoint an administrator by the out-of-court route when there is an outstanding winding-up petition against the company. In such cases, the winding-up petition will be suspended rather than dismissed, as the court has not made an order on it. That will mean that the creditor concerned does not have to go to the trouble and expense of presenting a petition if the administration is not successful. Amendment No. 491 will allow the court to consider the suspended winding-up petition and make an order on it if a creditors meeting fails to approve the proposals put to it by the administrator, and the administration therefore does not reach a successful conclusion. I ask hon. Members to support this amendment.

Amendment No. 541 would remove the provision that allows a creditors meeting to be held by correspondence. The purpose of the provision is to prevent unnecessary bureaucracy and costs in cases in which the business that needs to be conducted at a creditors meeting can just as easily be handled by correspondence.

The details of how the administrator should go about dealing with creditors through correspondence will be covered in the rules that accompany the new legislation. They will ensure that any correspondence is handled appropriately and fairly so that creditors are not disadvantaged. On the contrary, conducting business by correspondence will save creditors the time and expense of having to travel to meetings. I ask that the amendment be withdrawn.

I ask the Committee to resist amendment No. 449, which would restrict the creditors' ability to replace an administrator appointed by the directors or company to the period up to the initial creditors meeting. That paragraph relates to the replacement of those administrators appointed by the directors or company through an out-of-court route where there are no floating charge holders to veto the appointment. Although we do not anticipate that creditors in such a case would wish to replace the administrator as a matter of course—or indeed often—if the opportunity to do so is restricted only

to the period leading up to the initial creditors meeting, they will have little opportunity to assess the office holder or his or her performance. It is likely that the first opportunity for creditors to interact with the appointed administrator will be the initial creditors meeting, so it does not seem appropriate that that should also be their last opportunity to veto the directors' or company's choice of appointment.

Nigel Waterson (Conservative, Eastbourne)

I am happy to beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 491, in page 255, line 11, at end insert—

'( ) make an order on a petition for winding up suspended by virtue of paragraph 38(1)(b);'.—[Mr. Alexander.]

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 542, in page 256, line 34, leave out paragraph 64.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this we may discuss the following amendments:

No. 417, in page 256, leave out lines 34 and 35 and insert

'The administrator of a company may make a distribution to creditors of the company who are neither secured nor preferential only—'.

Government amendment No. 492.

Nigel Waterson (Conservative, Eastbourne)

Amendments Nos. 542 and 417 are supported by the CBI and some practitioners in the business, who believe that the provision is misconceived. The provision assumes that the administrator needs a power to pay what are called ransom creditors in the interests of creditors generally. Currently, administrators deal with ransom creditors as a matter of discretion, without involving the court. It is therefore difficult to see why the provision is needed.

There is much to be said, however, for providing administrators with a power, in appropriate circumstances, to make distributions to all unsecured creditors as they go along. That is particularly the case if the administration needs to continue for some time, such as when parallel litigation is going on. Currently, the only way in which the administrator can find a medium for distribution is to go through the rather artificial process of proposing a parallel company voluntary arrangement for distribution purposes only. We believe that the administrator should have a power to distribute, but only with the blessing of the court. I commend the amendments to the Committee.

Douglas Alexander (Labour, Paisley South)

I shall deal with amendments Nos. 542 and 417 before speaking to Government amendment No. 492. The Bill introduces the power for administrators to make payments to unsecured creditors with the permission of the court. That would include payments to all the unsecured creditors in part or final settlement of their claims in proportion to those claims, which in insolvency procedures are usually referred to as a ''distribution.''

Amendment No. 417 would allow the administrator to make distributions, rather than simply payments, to unsecured creditors during the administration. However, as I have said, the Bill already allows that. Amendment No. 542 would remove the requirement

for an administrator to seek the permission of the court for any such payment to creditors. The Bill requires that, in all cases, other than under the Crown preference ring fence. We recognise on reflection that there will be circumstances in which the administrator should be able to make a payment to an unsecured creditor without the court's permission when the payment would help to achieve the purpose of the administration. Amendment No. 492 will allow for that. In light of that, I ask the hon. Gentleman to withdraw the amendment.

As I indicated, amendment No. 492 deals with the circumstances in which an administrator can make payments to unsecured creditors. At the moment, paragraph 64 provides that the administrator can make payments to unsecured creditors with the permission of the court, or without the permission of the court if the money is part of the fund that has been ring-fenced for unsecured creditors by virtue of new section 176A, following the abolition of Crown preference.

On reflection, however, we do not think that a distinction should be drawn in that way based simply on whether the money is part of the ring-fenced funds. Removing the reference to section 176A will ensure that the payment of ring-fenced money is treated by the administrator in the same way in which any other payments to unsecured creditors are treated. We would usually expect the administrator to put the company into voluntary liquidation in order to make distributions to unsecured creditors; otherwise he or she will have to get the permission of the court.

As I already mentioned, the amendment will ensure that the administrator should be able to make a payment to an unsecured creditor without the permission of the court when the payment would help to achieve the purpose of the administration. In the case of a company that operated from a tall office block, if the lifts broke down and the administrator was trying to rescue the company, it would be vital to get the lifts working again. If the lift maintenance company refused to carry out the work unless debts owed to them were paid, and it was difficult to obtain service from another company, the administrator should be able to pay the debt without court sanction. With that colourful example, I ask hon. Members to support the amendment.

Nigel Waterson (Conservative, Eastbourne)

I hate to think of people stuck in lifts as a result of the amendment. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 492, in page 256, leave out line 37 and insert:

'(b) if the administrator thinks that the payment is likely to assist achievement of the purpose of administration.'—[Mr. Alexander.]

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 446, in page 257, line 9, at end insert:

'(1A) Subject to sub-paragraph (3), where no proposals have been approved under paragraph 51 the administrator of a company shall manage its affairs, business and property in accordance with paragraph 3'.

The Bill does not indicate how the administrator should manage the company's affairs in the period before the initial creditors' meeting. Many businesses are too fragile to withstand the hiatus between insolvency and that meeting. The administrator needs full powers from the time of his appointment, which he currently has. That practical point has been made by people who do this sort of thing day in, day out, and who ought to know what they are talking about.

Mark Field (Conservative, Cities of London and Westminster)

I will speak only briefly to the amendment, as what we are trying to achieve is self-explanatory. Much of the Insolvency Act 1986, in effect, is being repealed and other elements are being integrated in the Bill. We are entering a new area of insolvency law. As my hon. Friend the Member for Eastbourne rightly pointed out, until we have had several years of what might be called normal practice and custom, administrators may be concerned to avoid doing anything for which they may be criticised. There is therefore concern that the hiatus may be for days or, for whatever reason, a fortnight or so.

There is a risk that administrators and directors of companies will do nothing, and will feel hamstrung and paralysed against taking any action. It would be sensible to clarify what the administrators' powers are, so that if there is to be a period between the insolvency and administration and the initial creditors' meeting, actions can be taken to ensure that the good will of the company is maintained as far as possible, particularly in the smaller service-related sector. An important element of good will is often the people who work for a company. Even a two-week period between insolvency and a fully-fledged creditors meeting can be difficult when the whole place is paralysed and it is difficult to hide. Some key employees might end up feeling that the best thing would be to walk out on the business. That would be entirely counter to the Government's aim of improving enterprise and ensuring that insolvency provisions allow companies to remain a going concern as far as possible.

Will the Minister offer some guidance and explain why the change is being made? How does he envisage the administrators' powers falling into place within the hiatus period? During the interregnum period and the next few years, as a new area of law comes into force, guidance will be necessary as administrators will not be able to rely on custom.

Douglas Alexander (Labour, Paisley South)

I have listened carefully to the arguments of both hon. Gentlemen. Neither under existing legislation nor under the Bill is it intended to make an administrator seek the directions of the court. Rather, an administrator merely has to comply with any directions that the court gives, if its opinion has been sought.

The Bill sets out, albeit in modern, plainer language, the provisions under existing legislation; that the administrator may do anything necessary or expedient for the management of the affairs, business and property of the company and that he or she may apply to the court for directions in connection with his or her functions. Paragraph 67 is intended to apply where any such directions have been obtained and requires the administrator to manage the affairs,

business and property in accordance with those directions. We have no intention of changing the law in that regard and the drafting does not do so. I am happy, however, to reflect further on the hon. Gentlemen's comments and return to the issue on Report. In that light, I hope that the amendment will be withdrawn.

Nigel Waterson (Conservative, Eastbourne)

I am grateful for the Minister's clarification. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Douglas Alexander (Labour, Paisley South)

I beg to move Government amendment No. 493, in page 257, line 36, leave out first 'charge' and insert 'security'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this we may take Government amendments Nos. 494 to 496.

Douglas Alexander (Labour, Paisley South)

These are simply technical amendments to change the term ''charge'' to ''security'' in paragraph 70. ''Security'' is slightly broader than ''charge'' and is the term used in section 15 of the Insolvency Act 1986—we referred to it this morning—which is replaced by paragraph 70. Our intention is that the scope of the existing provision should not be altered. I therefore invite hon. Members to support the amendments.

Amendment agreed to.

Amendments made: No. 494, in page 257, line 37, leave out 'charge' and insert 'security'.

No. 495, in page 258, line 5, leave out 'charge' and insert 'security'.

No. 496, in page 258, line 7, leave out 'charges' and insert 'securities'.—[Mr. Alexander.]

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 515, in page 258, line 17, at end insert—

'( ) Where the goods are used by the administrator to continue running the business, the administrator must make payments to the owner of the goods under the terms of the hire-purchase agreement.'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this we may take amendment No. 516, in page 258, line 28, at end insert

'to include any additional value attributable to the owner's ability to re-hire the goods.'.

Nigel Waterson (Conservative, Eastbourne)

These amendments were suggested by the Finance and Leasing Association, which, in common with the TUC, has been fairly catholic in whom it has chosen to brief. It states in the covering note that the timetable in the Bill for the administration process is

''wholly unrealistic and will hinder rather than streamline the procedures.''

Amendment No. 515 is intended to deal with the following situation; if the administrator is using goods under a hire purchase agreement—a company might hire equipment to produce its goods, vans for distribution and so on—the owner of the goods should continue to receive payment under the terms of the agreement. The administrator should not delay disposing of the goods if they are not in use and payments are not being made under the agreement. The amendment is designed to reflect the ruling in the

case involving Atlantic Computer Systems plc in 1992. The Minister will be familiar with its terms and will be able to tell us about it. The point needs to be made clear in the Bill, and that is the purpose of the amendment.

Amendment No. 516 deals with a slightly different issue. The market value of equipment will not in all cases compensate the lender for the goods on hire. The re-hire value is often worth more than the market value and where the equipment is still within its basic life expectancy, the lender will seek to re-hire in order to capitalise on its investment. The court should be able to use its discretion in such cases, hence the amendment.

Douglas Alexander (Labour, Paisley South)

I shall resist the temptation to be drawn into a discussion on individual case law and refer to the amendments.

Paragraph 71 sets out the way in which the administrator can deal with hire purchase property. Amendment No. 515 would provide that where the administrator used hire purchase goods in order to continue running the business, he or she would have to make payments to the owner of the goods under the terms of the hire purchase agreement. However, that situation is better dealt with by existing provisions in insolvency law, which have been incorporated into the schedule. If the owner of the goods is not being paid for their use, paragraph 41(3) provides that he or she may ask the administrator to return them; if that is not granted, he or she may go to court to seek permission to repossess the goods.

Case law sets out a number of principles for the courts to follow in deciding such cases; in particular, administration for the benefit of unsecured creditors should not be conducted at the expense of those who have proprietary rights over goods. But the courts are also required to weigh the legitimate interests of the owner of the goods against those of the company's other creditors. In doing so, they should take into account, among other things, the prospects for the success of the administration. We want the courts to continue to be free to carry out this balancing act on a case-by-case basis.

Paragraph 71(3) provides that if the court makes an order enabling the administrator to dispose of hire purchase goods, he or she must pay the owner of the goods the net sum that would have been realised if the goods were sold at market value. Amendment No. 516 would require additional money to be paid to take account of the owner's ability to re-hire the goods. That is not right. The owner should be paid the amount that the goods are worth at market value. That will enable the owner to replace the goods if he or she wants to. If the owner believes that some value attaches to the goods as a result of their capacity to be hired, it is up to him or her to persuade the court that that should be reflected in its estimation of their market value.

Mark Field (Conservative, Cities of London and Westminster)

The amendments are designed to strengthen the position of the leasing company. If they are not accepted, there is a risk that there will be less opportunity for hire purchase. That may be detrimental to small businesses starting out, who

may be vulnerable to the market and to difficulties in the economy, and who may therefore be disinclined to buy property outright. For example, it is the norm for small printing companies to take out hire purchase agreements on printing machines as they become obsolete so quickly, and that is the nature of their market. If there are stronger restrictions on hire purchase companies, an obvious way for small concerns to build up their business will be removed. Has the Minister given that matter any thought? Does he have any ready statistics that would suggest how the current situation could differ from what will happen in the future if the amendment were rejected?

Douglas Alexander (Labour, Paisley South)

I cannot offer ready statistics. I hope that I can offer a rationale, although I hesitate to use the term, given the degree to which it was pored over in discussions last week.

Our intention is that the situation reflects the current position, and I listened with interest to the hon. Gentleman's observations about a smaller company using hire purchase. I cannot comment on individual commercial judgments made by printing or other companies, but consultation has taken place at every stage of the Bill. I have not seen any evidence of legitimate concerns about why the provisions are materially different from what has been anticipated after the consultation process. Although his example was credible, it was hypothetical. If a community of interests had any particular concerns, it has had ample opportunity to bring them to our attention during the consultation process. The fundamental rationale is that the provisions reflect the position at present, so I am not entirely convinced by the scenario outlined by the hon. Gentleman.

Nigel Waterson (Conservative, Eastbourne)

We have had an interesting debate, but all good things must come to an end. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

I beg to move amendment No. 466, in page 259, line 10, leave out ''claiming'' and insert ''on the grounds''.

The genesis of the amendment comes from concerns expressed by the Law Society about the use of the term ''claiming'', which it feels is too vague and open to abuse, with unfounded applications. The altered wording that we propose would ensure that when a creditor or member of a company applies to the court to challenge the administrator's conduct, the creditor or member must have basis in fact for doing so. It must not simply be based on some spurious claim that may or may not be justified.

I suppose we are straying into the realms of the terms of written pleadings, and if the Minister can give me some assurance that proper rules of court will be put in place to ensure that any such application will be well founded, I shall be content to leave matters at that.

Jonathan Djanogly (Conservative, Huntingdon)

On paragraph 73, if the creditor or member of the company thought that the administrator was acting in a way that was cost-

excessive, would that constitute either claims or grounds?

Douglas Alexander (Labour, Paisley South)

I am intrigued by the question, but we are in danger of making a mountain out of a molehill in terms of what the Law Society is recommending. This is simply a drafting point. The provision allows a creditor to go to court ''claiming'' that certain things have happened, whereas the amendment would allow a creditor to go to court ''on the grounds'' that certain things had happened. The effect of the proposed change is captured within the existing wording, so the amendment, which reflects the views of the Law Society, is unnecessary.

The more substantive point of excessive cost covers a wider range of issues than is captured solely in this schedule. If it will help the hon. Gentleman, I shall write to him to clarify that particular point.

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

The diversion of a Division is not without its temptation, but I shall resist. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 423, in page 260, leave out from line 27 to line 24 on page 261.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to take the following amendments:

No. 467, in page 260, line 29, leave out 'three' and insert 'six'.

No. 517, in page 260, line 29, leave out 'three' and insert 'twelve'.

No. 468, in page 260, line 32, leave out 'a specified period' and insert

'such period as the court shall determine appropriate'.

No. 469, in page 260, line 33, leave out

'a specified period not exceeding three months'

and insert

'such period as shall be determined appropriate'.

No. 518, in page 260, line 34, leave out 'three' and insert 'twelve'.

No. 424, in page 261, leave out lines 2 and 3 and insert—

'(b) either (i) a meeting of creditors; or (ii) creditors of the company whose debts amount to at least 50 per cent. of the total unsecured debts of the company (if any).'.

No. 425, in page 262, line 12, after 'copy', insert

'to the person or persons who appointed him, to the company and'.

Nigel Waterson (Conservative, Eastbourne)

Amendment No. 423 has a strong provenance, in that the CBI and several practitioners organisations support it. It could be counter-productive to restrict the periods during which administrations may continue, even if, first, the creditors and, later, the court can extend them. It can take a long time to prepare restructuring plans and to negotiate satisfactory arrangements with potential financier suppliers and major customers to enable a business to continue. We argued the case this morning that what matters is saving a business, not necessarily a company. If a business is to be sold, it can take

several months to prepare sales information to find a purchaser and negotiate the agreement.

If the company is to be rescued through a voluntary arrangement, it may still be appropriate for the administration to continue so that the administrator can pursue remedies that are not available to the supervisor of a voluntary arrangement. One example is to have a transaction at an undervalue set aside under section 238 of the 1986 Act. Such litigation could take two to three years; easily, I interpolate. An administration for a restricted period cannot be regarded as a substitute for an administrator receivership that is unrestricted in length. Receiverships frequently last for more than a year, for example while litigation is pursued or efforts are made to obtain planning permission for development.

Amendments Nos. 517 and 518 offer an alternative to the amendment that I just described. They keep paragraphs 75 to 77 as they are, but substitute a more sensible time limit. I would be happy if the Minister accepted either amendment.

Amendment No. 424 will be unnecessary if amendment No. 517 or amendment No. 518 is accepted. It would allow an administrator to obtain the required consent at a creditors' meeting where consent cannot be obtained from 50 per cent. of all creditors by value, because one or more large creditors are apathetic or cannot be contacted.

Those are three different ways of approaching the same problem.

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

Amendment No. 467 would extend the period for the appointment of an administrator under paragraph 75, schedule 16 from three months to six months. The Law Society of Scotland and the Institute of Chartered Accountants of Scotland support the amendment. They have expressed concerns that three months is too short for administration to be completed. The Law Society in particular refers to the sale of assets such as heritable property, which may take substantially longer than the three months that the timeframe provides. I can think of several erstwhile colleagues who would have regarded a conveyancing transaction of three months as one that was conducted with indecent haste. They might find difficulty even with six months. The alternative is that the administrator will be required to obtain consent or leave from the court to remain in office, which may lead to further costs and the diminution of the return to the creditors. Given the length of time at issue, I can see no reason in principle why such unnecessary costs should not be avoided, if possible.

On amendments Nos. 468 and 469, administration may, for the best of reasons, occasionally take longer than three months to complete. On occasions, it may be virtually impossible to determine exactly how long it will take. It will be open to obtaining the consent of the creditors to extend the period of administration. Thereafter a return to court is required.

The purpose of the amendment is that the period of any such extension to be granted by the court might relate to a specific event, such as the sale of heritage or perhaps the conclusion of litigation proceedings. That

would obviously put creditors in a much better position. There would also be substantial penalties to several creditors if the claims were left unresolved at the conclusion of an administration.

I offer the amendments as probing amendments, and I shall be interested to hear the Minister's views.

Douglas Alexander (Labour, Paisley South)

The hon. Member for Eastbourne seemed determined to cover all the bases, so I shall speak to amendments Nos. 423, 467, 517, 468, 469 and 518. The amendments seek to remove the automatic end of administration after a period of three months and to leave the administration procedure to continue indefinitely, as in amendment No. 423. Alternatively, they seek to extend the period to either six months, as in amendment No. 467, or 12 months, as in amendment No. 517, subject to a further extension that could be agreed by the court indefinitely, as in amendment No. 468, or by creditors' consent, either indefinitely, as in amendment No. 469, or by 12 months, as in amendment No. 518. We covered the ground in detail this morning in the context of earlier amendments. The same arguments clearly apply.

Amendment No. 424 seeks to provide that a creditors meeting can agree an extension to the administrator's term of office. The Bill already provides for 50 per cent. of the creditors, by value, to extend the administration, although I recognise that it may on occasion be difficult to meet that threshold without incurring disproportionate costs. That would be the case when, for example, there was a large number of creditors, or when one or more large creditors did not respond or could not be contacted.

Paragraph 56 allows for anything that needs to be done at a creditors meeting to be done by correspondence between the administrator and the creditors. I do not think that a formal obligation to hold a meeting is required, but if Opposition Members will not press the amendment, I will agree to reflect on the points raised and return to the matter, if necessary, on Report.

Finally, I want to touch on amendment No. 425. The Bill already requires an administrator to notify the court, the registrar of companies and the company's creditors when the administration is concluded.

Nigel Waterson (Conservative, Eastbourne)

On a point of order, Mr. Beard. I do not think that we have got that far yet. [Hon. Members: ''Yes, we have.''] I assumed that amendment No. 425 was in its own group, so I did not speak to it. Do you want me to do so?

Nigel Beard (Labour, Bexleyheath and Crayford)

I would prefer to allow the Minister to continue his remarks.

Douglas Alexander (Labour, Paisley South)

If it would be easier and more convenient for the amendment to be spoken to, and for me then to respond, I would be more than happy.

Nigel Waterson (Conservative, Eastbourne)

I would be interested to hear the Minister respond to something that I had not said. I have a short point. The mistake was entirely mine, as I had failed to notice the plus sign between the amendments. I wonder why.

The amendment is important, because practitioners and the CBI back it. Notice of cessation must be given to the appointer and the company, to enable them to take any action that they consider appropriate. That is my point in a nutshell.

Douglas Alexander (Labour, Paisley South)

With spontaneity, I can say that we will resist amendment No. 425, which will come as no surprise. The Bill already requires an administrator to notify the court, the registrar of companies and the company's creditors when the administration is concluded. The administrator's duty is to the creditors of the company, and the Bill's proposals will reflect that. In cases when the administrator was appointed by the company or directors, normal working practice would require the administrator to notify those persons that the objective of the administration had been achieved. I therefore ask the hon. Gentleman not to press the amendment.

For clarity, I should say that we seek to resist amendments Nos. 423, 467, 517, 468, 469 and 518. I have given an undertaking to consider and, potentially, to address on Report amendment No. 424, but I resist amendment No. 425. I ask the hon. Gentleman to withdraw the amendment.

Nigel Waterson (Conservative, Eastbourne)

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 546, in page 263, line 14, after 'that', insert

'the company has no secured creditors or that'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to take amendment No. 547, in page 263, line 17, leave out 'has been or'.

Government amendment No. 497.

Amendment No. 548, in page 263, line 28, after 'copy', insert

'to the person or persons who appointed him to the company and'.

Government amendment No. 498.

Amendment No. 426, in page 263, line 34, leave out '98' and insert '84(1)(c)'.

Amendment No. 550, in page 263, leave out lines 36 to 39 and insert

'and

(c) the administrator becomes the liquidator of the company and continues in office unless and until another person is appointed liquidator by the creditors at a meeting held in the prescribed manner and within the prescribed period.'.

Government amendment No. 499.

Nigel Waterson (Conservative, Eastbourne)

Amendment No. 546 is short in compass and intends simply to avoid pointless theoretical debate.

On amendment No. 547, there is no point in a creditors' voluntary liquidation unless some distribution is to be made to unsecured creditors. The amendment also brings the position in England and Wales into line with that for Scotland, in paragraph 82(2)(b).

Amendment No. 548 is a technical amendment.

Jonathan Djanogly (Conservative, Huntingdon)

There is another reason why shareholders may want a voluntary arrangement. For many, the aura that surrounds bankruptcy is unfavourable, so even if the company does not have significant assets or anything to make a distribution with, people may fund the company so that it can be wound up on a voluntary rather than a compulsory basis.

Nigel Waterson (Conservative, Eastbourne)

I am grateful to my hon. Friend, who speaks from experience; professional experience, of course. I do not want unwittingly to smear him, even if privilege applies to everything that I say.

On amendment No. 548, notice of the conversion to a liquidation must be given to the appointer to enable him to take any action that he considers appropriate to protect his interest. For that matter, the company also needs to be notified that it is now in liquidation. One would have thought that that would have been painfully obvious.

Amendment No. 426 is a technical amendment, tabled again with the support of the CBI. Section 98 relates to the first creditors' meeting for the creditors' voluntary liquidation, not to the winding-up resolution governed by section 84.

Finally, I turn to amendment No. 550, which is also a technical amendment. As things stand, sub-paragraph (6) can be interpreted as meaning that the administrator does not become liquidator until it is known that the creditors are not going to appoint someone else. The amendment would avoid that problem, mirroring the existing section 136(3) of the Insolvency Act 1986, under which the official receiver automatically becomes liquidator of a company in compulsory liquidation unless and until someone else is appointed.

Douglas Alexander (Labour, Paisley South)

I shall speak first to amendment No. 546.

One condition for moving from administration for creditors' voluntary liquidation is that

''each secured creditor . . . has received a payment in respect of his debt and is not likely to receive any significant further payment in that respect''.

It stands to reason that the condition would automatically be satisfied if the company did not have any secured creditors, so the amendment is unnecessary and I ask him to withdraw it.

I turn next to amendment No. 547. The primary purpose of moving a company from administration to creditors' voluntary liquidation, notwithstanding the observations of the hon. Member for Huntingdon, is to enable the administrator to make a distribution to unsecured creditors. Therefore, the only relevant condition in relation to unsecured creditors is whether the administrator will make a distribution to them in the future. I agree with the hon. Members that the reference to distribution already having been made appears inappropriate in this context, but I would like the opportunity to consider further how to deal with it. Therefore, I ask the hon. Gentleman to withdraw the amendment on the basis that I shall return to it later.

Amendments Nos. 497 and 499 would provide that if an administrator wants to move a company from

administration and into creditors' voluntary liquidation or dissolution, he or she will have to file a copy of the notice given to the registrar of companies with the court. That will complete the court records for the administration that will have been opened when the procedure began.

Amendment No. 498 simply corrects a reference to a sub-paragraph number in paragraph 82(5). I ask hon. Members to note that the reference to sub-paragraph (4) should be to sub-paragraph (3). I therefore ask the Committee to support amendments Nos. 497, 498 and 499.

Turning to amendment No. 548, the Bill already requires an administrator to notify the court, the Registrar of Companies and the company's creditors when the administration is concluded. The administrator's duty is to the creditors of the company and the Bill's proposals will reflect this. In cases where the administrator was appointed by the company or directors, normal working practice would require that the administrator should notify those persons that the objective of the administration has been achieved. I therefore ask the hon. Gentleman not to press the amendment.

Amendment No. 426 seeks to amend a reference to the Insolvency Act 1986 that concerns the date on which a company enters creditors voluntary liquidation. Paragraph 82 allows for a company to be wound up as if a resolution for voluntary winding-up under section 98 were passed. However, section 98 relates to the first creditors meeting in a creditors voluntary liquidation. Section 84(1)(c) specifically deals with the company passing the resolution to place the company into creditors voluntary liquidation. I therefore agree to consider this amendment.

Having considered the alternative wording proposed in amendment No. 550, I cannot see that it makes any material difference to the meaning of the provision. Both the existing provision and the proposed amendment provide the creditors of the company with the opportunity to nominate someone other than the administrator to serve as the liquidator; and both provide that if this is not done, the administrator will become the liquidator. Given that there appears to be no material difference between the effect of the provision at present and as amended, the amendment is unnecessary. I therefore ask Conservative Members not to press the amendment.

Nigel Waterson (Conservative, Eastbourne)

On the basis of the Minister's assurances, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 497, in page 263, line 28, leave out 'send a copy' and insert—

'(a) file a copy of the notice with the court, and

(b) send a copy of the notice'.

No. 498, in page 263, line 30, leave out '(4)' and insert '(3)'.

No. 499, in page 264, line 4, leave out 'send a copy' and insert—

'(a) file a copy of the notice with the court, and

(b) send a copy of the notice'.—[Mr. Alexander.]

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 551, in page 265, leave out lines 36 and 37 and insert—

'(2) The creditors' committee shall be entitled to appear on any application made in reliance on sub-paragraph (1)(b) to (d).'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to consider amendment No. 427, in page 265, line 37, at end insert—

'or where the creditors committee fails to apply under sub-paragraph (1)(a) within seven days following the event specified in paragraph 89'.

Nigel Waterson (Conservative, Eastbourne)

Amendment No. 551 would make the role of the creditors committee clearer. This is needed in case a creditors committee cannot make a decision quickly because, for example, its members are widely scattered or it is deadlocked on some issue. The ability to appear on the applications should still give sufficient protection to the committee.

Amendment No. 427 is designed to preserve the ability of the company directors and creditors to act should the creditors committee fail to do so. Creditors committees have not historically been separately represented under our law and committees will be unused to acting independently. The CBI takes the view that there is a real risk that a committee, even when empanelled, might not take the initiative. That could lead to the affairs of a company drifting dangerously. I commend both of the amendments, which are of a fairly technical nature, to the Committee.

Douglas Alexander (Labour, Paisley South)

Amendments Nos. 427 and 551 are of a technical nature and deal with situations in which there is a creditors committee and an administrator dies, resigns, is removed from office by the court or ceases to be qualified to act as an administrator. Conservative Members appear to be concerned that the committee might not make an application to the court to appoint a replacement administrator. However, as a creditors committee is appointed to represent the interests of all creditors, it is difficult to imagine that such a committee would fail to appoint a replacement administrator if the previous administrator were unable to continue. Our intention is that paragraph 94(b) should provide for the court to replace an administrator on the application of the creditors committee, company, directors, creditors or a joint administrator who remains in office. That would, of course, include any instance where a creditors committee did not appear to be taking the necessary steps to replace an administrator.

I accept, however, that the drafting of the paragraph may not be clear enough, and parliamentary counsel has been asked to reconsider it and to prepare any necessary Government amendment. In the circumstances, I agree to further reflect on the matters that have been raised.

I should clarify that the paragraph that I mentioned largely replicates the effect of section 13(3) of the Insolvency Act 1986 on the replacement of an administrator, but, in the circumstances, I shall further reflect on the matter. In the meantime, I ask the hon. Gentleman not to press the amendment.

Nigel Waterson (Conservative, Eastbourne)

I am grateful to the Minister for taking the trouble to explain his thinking on the amendments. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 500, in page 267, line 3, leave out 'dies, because he vacates office or' and insert

'vacates office by reason of resignation, death or otherwise, because he'.

No. 501, in page 267, line 16, leave out 'dies, because he vacates office or' and insert

'vacates office by reason of resignation, death or otherwise, because he'.—[Mr. Alexander.]

Douglas Alexander (Labour, Paisley South)

I beg to move amendment No. 502, in page 267, line 38, leave out 'be disregarded in determining whether a contract is adopted' and insert

'not be taken to amount or contribute to the adoption of a contract,'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this we may discuss the following: Government amendments Nos. 503 and 504.

Amendment No. 552, in page 268, leave out line 6.

Government amendment No. 505.

Douglas Alexander (Labour, Paisley South)

Amendment No. 502 clarifies paragraph 98(5)(a) to make it consistent with the provisions in section 19(6) of the Insolvency Act 1986. The intention behind that section is to provide that the administrator will not be taken to have adopted contracts of employment as a result of anything done or not done within the first 14 days of his or her appointment.

Paragraph 98(5)(a) is intended to replicate that provision, but it has been suggested that it is too broad as currently drafted. It states that no account shall be taken of the administrator's actions in the first 14 days in determining whether a contract is adopted. That could be taken to mean that actions specifically taken by the administrator to terminate contracts of employment would not have effect. That is not our intention.

Amendment No. 502 will make it clear that the administrator is not to be taken to have adopted a contract of employment by reason of anything done or not done within 14 days of his or her appointment, which is the case at present.

Amendments Nos. 503 to 505 are simply technical amendments, which change the terms ''leave'' and ''an entitlement'' to ''holiday'' in paragraph 98(6) to make it consistent with the existing provision in section 19(9) of the Insolvency Act 1986, which the paragraph replicates. I therefore ask hon. Members to support the amendments.

On amendment No. 552, paragraph 98(6) defines what constitutes ''wages or salary'' for the purpose of determining liabilities arising out of certain contracts of employment. It replaces section 19(9) of the Insolvency Act 1986, and is intended to have the same effect. We are aware that the scope of the phrase

''a sum payable in lieu of an entitlement''

is more ambiguous than the existing provision, and I have tabled an amendment to ensure that the paragraph is consistent with the provision that it replaces. I therefore ask the hon. Gentleman not to press the amendment.

Nigel Waterson (Conservative, Eastbourne)

I am happy not to press the amendment in my name.

Amendment agreed to.

Amendments made: No. 503, in page 268, line 1, leave out 'leave' and insert 'holiday'.

No. 504, in page 268, line 3, leave out 'leave' and insert 'holiday'.

No. 505, in page 268, line 6, leave out 'an entitlement' and insert 'holiday'.—[ Mr. Alexander.]

Douglas Alexander (Labour, Paisley South)

I beg to move amendment No. 584, in page 271, line 31, after 'make', insert

', in or towards the satisfaction of the debt secured by the floating charge,'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to discuss Government amendments Nos. 585 and 586.

Douglas Alexander (Labour, Paisley South)

Amendments Nos. 584 and 586 deal with the order of priority of payments. The law of receivership in Scotland has developed separately from its English and Welsh counterparts, and the order of priority of payments that an administrative receiver can make to creditors is set out in primary legislation. The purpose of the amendments is to ensure that the current situation is replicated by incorporating into the primary legislation the fact that any payments that an administrator makes to a floating charge holder in Scotland must be consistent with the order of priorities for such payments and in respect of the relevant floating charge.

Amendment no. 585 simply corrects an incorrect reference in paragraph 113(2). The reference to section 176 should be to 176A. I ask the Committee to support the amendments.

Amendment agreed to.

Amendments made: No. 585, in page 271, line 36, leave out '176(2)(a)' and insert '176A(2)(a)'.

No. 586, in page 271, line 42, at end insert—

'114 In Scotland, the administrator in making any payment in accordance with paragraph 113 shall make such payment subject to the rights of any of the following categories of persons (which rights shall, except to the extent provided in any instrument, have the following order of priority)—

(a) the holder of any fixed security which is over property subject to the floating charge and which ranks prior to, or pari passu with, the floating charge,

(b) creditors in respect of all liabilities and expenses incurred by or on behalf of the administrator,

(c) the administrator in respect of his liabilities, expenses and remuneration and any indemnity to which he is entitled out of the property of the company,

(d) the preferential creditors entitled to payment in accordance with paragraph 65,

(e) the holder of the floating charge in accordance with the priority of that charge in relation to any other floating charge which has attached, and

(f) the holder of a fixed security, other than one referred to in sub-sub paragraph (a), which is over property subject to the floating charge.'.—[Mr. Alexander.]

Schedule 16, as amended, agreed to.

Schedule 17 - Administration:

Douglas Alexander (Labour, Paisley South)

I beg to move amendment No. 565, in page 272, line 6, at end insert—

'Companies Act 1985 (c. 6)

1A The Companies Act 1985 shall be amended as follows

1B In section 225 (alteration of accounting reference date)—

(a) in subsection (4) for ''an administration order is in force'' substitute ''the company is in administration'', and

(b) in subsection (6) for ''An accounting reference period may not in any case, unless an administration order is in force'' substitute ''A company's accounting reference period may not in any case, unless the company is in administration''.

1C In section 425(1) (power of company to compromise) for ''an administration order being in force in relation to a company'' substitute ''in administration''

1D In section 427A(3) (mergers and divisions of public companies) for ''an administration order being in force in relation to the company'' substitute ''where the company is in administration''.'

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to discuss Government amendments Nos. 566, 567, 506 and 568 to 573.

Douglas Alexander (Labour, Paisley South)

Amendments Nos. 565 to 573 add various new paragraphs to schedule 17, which makes some of the amendments consequent upon the changes to the administration procedure contained in the Bill. The amendments are the result of further necessary changes coming to our attention.

Amendment No. 506 corrects a cross-referencing error in paragraph 21 of Schedule 17. The Committee will be aware that the Secretary of State has the power to amend schedule 17 if further amendments are found to be necessary once the Bill has obtained Royal Assent.

I therefore ask hon. Members to support the amendments.

Amendment agreed to.

Amendments made: No. 566, in page 272, line 8, at end insert—

'2A In section 1 (proposal for company voluntary arrangement)—

(a) in subsection (1) for ''(other than one for which an administration order is in force, or which is being wound up)'' substitute ''(other than one which is in administration or being wound up)'', and

(b) in subsection (3) for paragraph (a) substitute—

''(a) where the company is in administration, by the administrator,''.

2B In section 5(3) (approval of company voluntary arrangement)—

(a) for ''an administration order is in force'' substitute ''is in administration'', and

(b) for ''discharge the administration order'' substitute ''provide for the appointment of the administrator to cease to have effect''.

2C In section 6(2)(c) (challenge of decision in relation to company voluntary arrangement) for ''an administration order is in force'' substitute ''is in administration''.'

No. 567, in page 272, line 23, at end insert—

'5A In section 140 (appointment by court of liquidator following administration or voluntary arrangement) for subsection (1) substitute—

''(1) Where a winding-up order is made immediately upon the appointment of an administrator ceasing to have effect, the court may appoint as liquidator of the company the person whose appointment as administrator has ceased to have effect.'' '.—[Mr. Alexander.]

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 553, in page 272, line 23, at end insert—

'5A In section 129 after subsection (1) add—

''(1A) If the court makes an order under paragraph 11(1)(e) of Schedule B1 that the company be wound up, the winding up of the company is deemed to commence at the time of the order.''.'.

This is a technical amendment suggested by PricewaterhouseCoopers. Section 127 of the Insolvency Act 1986 makes any disposition of a company's property after the commencement of its compulsory liquidation void unless the court orders otherwise. Under section 129(2), a compulsory liquidation, except one following a voluntary liquidation, is deemed to start when a petition is presented. That can make it impossible for a company to continue to trade once a winding-up petition has been presented, because any further transactions are valid when they are entered into, but will become invalid if a winding-up order is eventually made on the petition. Courts are sometimes asked to make validation orders under section 127, to allow the company to continue trading normally. Paragraph 11(1) of Schedule B1 will allow the court to make one of any number of orders when hearing an administration application. It could even treat the administration application as a winding-up petition and make a winding-up order. That could lead to administration applications also making it possible for a company to continue trading because of the risk that the court would decide to treat the application as a winding-up petition, with transactions after the presentation of the application then becoming invalid under section 127.

The suggested amendment attempts to avoid that result by changing the deemed commencement date to be the date of the winding-up order, thus ensuring that any transaction after the presentation of the administration application will continue to be valid even if the court makes a winding-up order instead.

Douglas Alexander (Labour, Paisley South)

I can assure the hon. Gentleman that his rousing rendition of the amendment has not been in vain. The amendment makes provision in the Insolvency Act 1986 that allows for the commencement of winding up—if a winding-up order is made following the hearing of an application for an administration order—to be the making of the order. I thank the hon. Member for Huntingdon for drawing the Committee's attention to the issue and would ask him to withdraw the amendment on the understanding that we shall consider it and hope to return to it on Report.

Jonathan Djanogly (Conservative, Huntingdon)

On the understanding that the Minister will review the issue, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 506, in page 275, line 27, leave out '82(4)(b)' and insert '82(5)(b)'.—[Mr. Alexander.]

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 554, in page 275, line 27, at end insert—

'22 (1) For section 387(1)(a) substitute—

''(a) if—

(i) the winding up is by the court and the winding-up order was made on the termination of an administration, or

(ii) the company was placed into creditors' voluntary liquidation under paragraph 82 of Schedule B1,

the relevant date is the date on which the company entered into administration.''.'.

This technical amendment is to ensure that the relevant date for calculating the preferential claims does not change if the company moves directly from administration to liquidation. The existing legislation achieves that for compulsory liquidations but not for creditors of voluntary liquidations. That has caused problems in cases in which a creditor's voluntary liquidation would be the most beneficial way of winding up the company's affairs, but would be unfair to preferential creditors because it changed the relevant date. The courts have found innovative ways around the difficulty, but it would be better to include—

Tony McWalter (Labour/Co-operative, Hemel Hempstead)

Could the hon. Gentleman go a little more slowly please?

Jonathan Djanogly (Conservative, Huntingdon)

I shall do my best, having neared the end. It is our intention to ensure that the necessary provision should be included in the Bill.

Douglas Alexander (Labour, Paisley South)

The hon. Gentleman is on something of a roll this afternoon. The amendment intends to amend section 387 of the Insolvency Act 1986 so that a provision is included that sets the relevant date for the calculation of preferential claims if a company has been in administration and the administrator then puts the company into voluntary liquidation under paragraph 82 in order to make a distribution to unsecured creditors. I thank the hon. Member for Huntingdon once again for raising an important issue and reassure him that we shall consider the points that he has raised and return to it on Report. I would ask him to withdraw the amendment on that understanding.

Jonathan Djanogly (Conservative, Huntingdon)

Being on something of a roll, I think that I should stick to the script. In any event, I am grateful to the Minister for his assurance that he will consider the matter and beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 568, in page 275, line 32, at end insert—

'22A In section 424(1)(a) (application for order in relation to transaction defrauding creditor) for ''in relation to which an administration order is in force'' substitute ''is in administration''.'

No. 569, in page 275, line 33, leave out paragraph 23 and insert—

'23 (1) Schedule A1 (moratorium where directors propose voluntary arrangement) shall be amended as follows.

(2) In paragraph 4(1) (exclusion from eligibility for moratorium)—

(a) for paragraph (a) substitute—

''(a) the company is in administration,'', and

(b) after paragraph (f) (and before the word ''or'') insert—

''(fa) an administrator appointed under paragraph 20 of Schedule B1 has held office in the period of 12 months ending with the date of filing,''.

(3) In paragraph 12(1) (effect of moratorium on creditor) for paragraph (d) substitute—

''(d) no administration application may be made in respect of the company,

(da) no administrator of the company may be appointed under paragraph 12 or 20 of Schedule B1,''.

(4) In paragraph 40 (challenge of directors' actions during moratorium) for sub-paragraph (7) substitute—

''(7) Sub-paragraph (8) applies where—

(a) the appointment of an administrator has effect in relation to the company and the appointment took effect before the moratorium came into force, or

(b) the company is being wound up in pursuance of a petition presented before the moratorium came into force.

(8) No application for an order under this paragraph may be made by a creditor or member of the company; but such an application may be made instead by the administrator or (as the case may be) the liquidator.'' '.

No. 570, in page 275, line 38, at end insert—

'23A(1) Schedule 8 (scope of insolvency rules) shall be amended as follows.

(2) In paragraph 10 (provision as to committees) for ''section 26, 49, 68, 101, 141 or 142 of this Act'' substitute ''section 49, 68, 101, 141 or 142 of, or paragraph 55 of Schedule B1 to, this Act''.'

(3) In paragraph 29 (general provision) for ''section 22, 47, 66, 131, 143(2) or 235 of this Act'' substitute ''section 47, 66, 131, 143(2) or 235 of, or paragraph 45 of Schedule B1 to, this Act''.'.

No. 571, in page 277, line 11, at end insert—

'Company Directors Disqualification Act 1986 (c. 46)

24A The Company Directors Disqualification Act 1986 shall be amended as follows

24B In section 6 (duty of court to disqualify unfit director of insolvent company)—

(a) for subsection (2)(b) substitute—

''(b) the company enters administration,'',

(b) for subsection (3)(c) substitute—

''(c) where neither paragraph (a) nor (b) applies but an administrator or administrative receiver has at any time been appointed in respect of the company in question, any court which has jurisdiction to wind it up.'', and

(c) for subsection (3A)(b) substitute—

''(b) in a case within paragraph (c) of that subsection, to the appointment of the administrator or (as the case may be) administrative receiver.''

24C In section 7(3) (duty of office-holder to report to Secretary of State) for paragraph (c) substitute—

''(c) in the case of a company which is in administration, the administrator,''.

No. 572, in page 277, line 12, at end insert—

'24D The Companies Act 1989 shall be amended as follows

24E In section 161(4) (disapplication of enactments to default proceedings) for ''sections 10(1)(c), 11(3), 126, 128, 130, 185 or 285 of the Insolvency Act 1986'' substitute ''section 126, 128, 130, 185 or 285 of, or paragraph 41(6) (including as applied by paragraph 42) of Schedule B1 to, the Insolvency Act 1986''.'

No. 573, in page 278, line 22, at end insert—

'30A In section 215(3) (provision of Financial Services Compensation Scheme in relation to insolvency) for ''presents a petition under section 9 of the 1986 Act or Article 22 of the 1989 Order'' substitute ''makes an administration application under Schedule B1 to the 1986 Act or presents a petition under Article 22 of the 1989 Order''.'—[Mr. Alexander.]

Schedule 17, as amended, agreed to.

Clause 240 ordered to stand part of the Bill.

Clause 241 - Prohibition of appointment

Douglas Alexander (Labour, Paisley South)

I beg to move amendment No. 581, in page 166, line 40, after first 'of', insert

'a receiver who on appointment would be'.

This is a technical amendment to correct a reference to a floating charge-holder in Scotland being entitled to appoint an administrative receiver. It has been put to us that the relevant charge documentation often refers not specifically to the appointment of an administrative receiver but to the appointment of a receiver. When that person is appointed, if he or she falls within the definition given in section 51 of the Insolvency Act 1986, by virtue of section 251(b) of that Act, he or she is an administrative receiver. The amendment will ensure that clause 241, which deals with the prohibition of appointment of such a receiver, reflects that. I ask hon. Members to support the amendment.

Amendment agreed to.

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 523, in page 167, line 7, after 'instrument,' insert

'and the date so appointed shall be a date after the date of such order'.

The amendment is designed to prevent the Secretary of State from fixing the date retrospectively. If she could do that, it would mean that the parties to a floating charge would not know when they created the charge whether it would carry the right to appoint an administrative receiver or not. That would make the decisions involved more difficult for both the lender and borrower. In a detailed press release of 12 November 2001, the Under-Secretary was quoted as saying that the existing provisions would apply to all floating charges entered into before the commencement of this part of the Bill. It would be reassuring for the business community if that matter could be set straight in the Bill.

Jonathan Djanogly (Conservative, Huntingdon)

I certainly support the amendment. Clearly, there will be an interim period between Royal Assent and the date when the order is made and it is important that businesses should know where they stand. However, I want to ask the Minister why the Government have included these provisions at all? If the Government believe that prohibiting administrative receivership is the way forward, why not say that and allow the Bill to receive Royal Assent? Why should that provision be introduced by way of order?

Douglas Alexander (Labour, Paisley South)

Put simply, the amendment is unnecessary. It is designed to add a provision to the

Bill to prevent the Secretary of State from legislating retrospectively. I can assure Conservative Members that we have made it clear to all interested parties—and I am happy to confirm it for the record—that the power will not be exercised so as to apply the new law retrospectively to any floating charge created before new section 72A comes into force. I hope that that gives the degree of comfort that is sought.

Mark Field (Conservative, Cities of London and Westminster)

There is a practical concern, with which the Minister has not dealt in any detail. There will now be a great incentive for creditors to ensure that their interests are protected by a floating charge prior to the Bill coming into force. That will have a negative effect, given what the Government are trying to achieve. Would it therefore not be better to go down the road of this amendment than to find that a lot of floating charges are created to fall just inside the time limit to which the Minister referred?

Douglas Alexander (Labour, Paisley South)

To be perfectly honest, I am not convinced by the argument outlined by the hon. Gentleman or the rationale of the amendment. Bringing in powers on the appointed day by order is normal practice and although we are cognisant of the risks of retrospective legislation, we believe that the existing drafting of the provision is suitable for the implementation of complex provisions. We have given assurances, which I have been happy to confirm today, that deal with the concerns expressed by the hon. Member for Eastbourne. The statutory construction that we propose is the correct way forward and it advances the Bill's objectives. On that basis, I ask the hon. Gentleman to withdraw the amendment.

Jonathan Djanogly (Conservative, Huntingdon)

I would appreciate a reply to my question. Why do the powers need to be brought in by order at all?

Douglas Alexander (Labour, Paisley South)

It is normal practice to do so. I hope that that answers the hon. Gentleman's point. We retain our original position on that.

Nigel Waterson (Conservative, Eastbourne)

I do not want to appear churlish, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Douglas Alexander (Labour, Paisley South)

I beg to move amendment No. 477, in page 168, line 17, leave out from second 'project' to end of line 20 and insert—

'which—

(a) is a financed project, and

(b) includes step-in rights.'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to consider Government amendment No. 478.

The rest of the debate is in Hansard.