Enterprise Bill

Public Bill Committee, 14 May 2002.

Standing Committee B

Clause 242 - Abolition of crown preference

Derek Conway (Conservative, Old Bexley and Sidcup)

As the Clerk will not allow me to adjourn the Committee to the Terrace, we shall continue with the clause stand part debate.

Melanie Johnson (Labour, Welwyn Hatfield)

I can only regret that the Clerk has prevented your bid to adjourn to the Terrace on such a nice morning, Mr. Conway.

I confirm what the Minister for E-Commerce and Competitiveness, my hon. Friend the Member for Paisley, South (Mr. Alexander) has said; we estimate that the abolition of Crown preference will yield some £70 million a year for creditors, which will be very helpful to those creditors who would not have received any benefit from the previous arrangements.

Nigel Waterson (Conservative, Eastbourne)

I welcome the Under-Secretary back to the Committee. We are pleased to see her in rude good health this morning, although we will soon put a stop to that.

The proof of this particular pudding will be in the eating. If we discover, through our advice surgeries and mailbags, that small businesses are being harassed at a much earlier stage by the Revenue and by Customs and Excise in order to get around the excellent proposal of scrapping Crown preference, we may need to return to the subject. We have expressed our concerns on the issue and I have no more to say at this stage.

Question put and agreed to.

Clause 242 ordered to stand part of the Bill.

Clause 243 - Unsecured creditors

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 524, in page 170, line 16, at end insert 'appointed under such floating charge'.

Derek Conway (Conservative, Old Bexley and Sidcup)

With this we may take the following amendments: No. 439, in page 170, leave out lines 17 to 22 and insert—

'(2) A prescribed part of the company's net property shall be applied towards the satisfaction of debts that are neither preferential nor secured and shall not be distributed to the proprietor of a floating charge except in so far as it exceeds the amount required for the satisfaction of such debts.

(a) where subsection (1)(a) applies the liquidator shall use the prescribed part to pay the unsecured debts in whole or in part.

(b) where subsection (1)(b) applies the administrator shall use the prescribed part to pay the unsecured debts in whole or in part or, if so authorised by proposals approved under paragraph 51 of Schedule B1, make it available for that purpose to a liquidator of the company, the supervisor of a voluntary arrangement to which the company is subject or the company itself.

(c) where subsection (1)(c) applies the provisional liquidator shall, subject to any order of the court, retain the prescribed part until a winding-up order is made or the petition dismissed.

(d) where subsection (1)(d) applies the receiver shall use the prescribed part to pay the unsecured debts in whole or in part or make it available for that purpose to any liquidator of the company.'.

No. 440, in page 170, line 25, after 'minimum', insert

'amount or less than the prescribed minimum proportion of the unsecured debts.'.

No. 525, in page 170, line 35, after 'property', insert

'subject to a floating charge'.

Government amendment No. 479.

No. 457, in page 170, line 36, at end add

'and limited to the value of the assets over which the fixed charge subsists.'.

No. 526, in page 170, line 38, leave out 'the company's' and insert 'such'.

No. 458, in page 170, line 38, at end add

'including any trading loss incurred.'.

Government amendment No. 480.

No. 459, in page 171, line 12, after 'creation', insert

'; in Scotland, references to the creation of a charge are—

(a) in the case of a floating charge, the date on which the instrument creating the floating charge was executed by the company creating the charge, and

(b) in any other case, the date on which the right of the person entitled to the benefit of the charge was constituted as a real right.'.

No. 429, in page 171, line 13, at end insert—

' ''Receiver'' means an administrative receiver or (in Scotland) a receiver appointed under Chapter II of Part III of the Insolvency Act 1986.'.

Government amendment No. 481.

Nigel Waterson (Conservative, Eastbourne)

You will be relieved to hear that only a few of the amendments are tabled by Conservative Members, Mr. Conway, the others having been tabled by the Government or Liberal Democrats, which makes a nice change.

Amendment No. 524 is a technical amendment, which is code for saying that I shall read my brief, in the hope that someone understands it. The amendment is designed to make it clear that the requirements to make funds available out of net property, which, I believe, is the appropriate term of art, does not apply to a receiver who is only appointed under a fixed charge and, therefore, has no control over net property. I look forward to the Under-Secretary explaining the consequences of that.

On amendment No. 439, practitioners feel that the phrase ''make . . . available'' in clause 176A(2)(a) is too vague to be implemented in practice. I hope that the Under-Secretary will deal with that entirely practical concern.

Amendment No. 525 also relates to net property. I am told that the current definition of net property requires it to be calculated on all the company's properties, including not only the property subject to the floating charge, but any property subject to a fixed charge and property not subject to any charge at all. An example has been given of a receiver appointed under a floating charge over assets worth £50,000. The company has uncharged assets worth £1 million, so the required percentage to be made available to unsecured creditors is fixed at 10 per cent. The Bill would require the receiver to make available £100,000, of which only £50,000 would be under his control.

If the amendment were accepted, proposed new subsection (5)(a) would apparently still be needed because a floating charge can exist over property subject to a prior fixed charge. The subsection allows such a prior fixed charge to be taken into account but, because the definition is changed to refer only to floating charge assets, would exclude fixed charges over other assets. That seems perfectly sensible in the context.

Amendment No. 526 is minor and technical and needs no explanation. Amendment No. 429 stems from the Scottish briefing and would add a definition of ''receiver.'' Receiver is a broad term covering every kind of receiver appointed under a fixed or floating charge. The new responsibility under the proposed new clause should affect only receivers who are administrative receivers, or the Scottish equivalent; that is, a receiver appointed under a floating charge to the whole, or substantially the whole, of the company's assets.

The administrative receiver controls the company's destiny in the same sense as a liquidator, administrator or professional liquidator. It may be argued that secured creditors will endeavour to avoid the effect of the proposed new clause by taking security in the form of floating charges over only part of the company's assets, so that any receiver appointed would fall outside the scope of the new clause. That is not thought to be a significant risk, however, as the security-taking would be inconvenient and give the secured creditor no effective control of the situation.

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

My amendments are technical, but I assure the Committee that those who wrote my brief have used a brief turn of phrase, so I shall not delay our proceedings for long.

Amendment No. 457 invites the Under-Secretary to establish the extent of the liability that can be taken into account for the purposes of proposed new subsection (5)(a). Situations may occur in which the company's liability will exceed the value of the assets affected by a fixed charge. The holder of a fixed charge would not be entitled to claim more than that value, in contrast to the holder of a floating charge. The amendment stems from the Law Society of Scotland and invites the Under-Secretary to clarify whether the liability referred to in the subsection is restricted to the value of a fixed charge or not.

The purpose of amendment No. 258 is to establish whether trading losses are to be included when quantifying the cost of realising a company's property for the purposes of subsection (5)(c). The Law Society tells me that it envisages—I am sure that its position is quite reasonable—that, typically, solicitors' and estate agents' fees will be included in the cost of realising companies' property. However, it would be of some benefit if the Under-Secretary clarified whether trading losses that are incurred would also be included.

The Under-Secretary will be aware that insolvency practitioners may often continue to trade at a loss in order to secure a greater sum in realising an asset. The insolvency practitioner may realise more money for the property by continuing to trade but might, in doing so, incur trading losses. I welcome any clarification that the Under-Secretary can give us as to whether the trading losses incurred during this period are to be included in the cost of realising the company's property. There is an obvious link between the trading loss and the realisation of the property and there is a substantial argument for establishing that.

Amendment No. 459 is a technical amendment regarding the definition of the creation of a charge. It is the Law Society of Scotland's view that subsection (8) does not accurately reflect the points at which, in Scots law, a fixed or floating charge is created. The purpose of the amendment is to rectify that defect. It adopts the definitions given in section 410(5) of the Companies Act 1985 and is designed to ensure a degree of consistency of approach between the different legislation. Given the highly technical nature of the amendments, there may be some scope for the Under-Secretary to re-examine some of the matters involved. I invite her early comments.

Mark Field (Conservative, Cities of London and Westminster)

I also wish to speak briefly on this matter, but with reference to the Bill itself rather than relying on briefings from various bodies.

The Government's goal has been as far as possible to create a level playing field for unsecured creditors. I understand that reasoning, although insolvency is highly technical and something of a minefield. I tabled amendment No. 439 to register my concern about subsection (2). When paragraph (a) refers to the liquidator making a prescribed part of the net property available for the satisfaction of unsecured debts, it is not clear whether the ordinary unsecured creditor would not be in a better position than a creditor with a floating charge, who would not qualify under paragraph (a) but would be given only the crumbs under paragraph (b).

How does the Under-Secretary envisage the mechanics of the measure working, in the context of straightforward insolvency involving entirely unsecured creditors, creditors with floating charges and secured creditors? Given the Government's plans effectively to neutralise some of the effects of floating charges, it is not clear how that would operate.

Melanie Johnson (Labour, Welwyn Hatfield)

The purpose of amendments Nos. 524 and 429 is to restrict the ambit of new section 176A so that it affects only a receiver who is an

administrative receiver. The amendments are unnecessary and could provide a loophole for a secured creditor to avoid the effect of the new section. Although it is accepted that the term ''receiver'' is broad and covers every kind of receiver appointed under a fixed or floating charge, it is clear enough that the section refers only to property that is available for distribution to the holder of a floating charge.

I should like to clarify the matter of net property, so that it is clear to members of the Committee as I proceed. To answer the hon. Member for Orkney and Shetland (Mr. Carmichael), the net property is the property available for distribution to the floating charge holder and it therefore includes any trading loss if the office holder has continued the company's trading. The hon. Member for Eastbourne (Mr. Waterson) delved into the definition of net property in section 176A(5). The net property is the amount available to distribute after taking account of a variety of things, such as the liability secured by a fixed charge and any preferential debt. I should like that to be clear. I hope that hon. Members agree that the amendments are unnecessary.

On first sight, I found it difficult to understand what amendment No. 439 would achieve, and I am not entirely clear now. I can assume only that Opposition Members feel that the drafting dealing with whom the prescribed part is to be set aside for needs to be clarified. I do not agree; the new section dealing with the issue is clear.

I believe that the purpose of amendment No. 440 is to provide for the prescribed part of the company's net profit, which will be set aside for distribution to unsecured creditors, to be an amount that represents at least a prescribed proportion of the unsecured debts. I have some sympathy with the sentiments behind the amendment, but it is not necessary. We propose that there should be a set minimum financial level that the prescribed part ought to reach, and below which the liquidator will not have to consider distribution unless he or she can clearly see that the benefits of such a distribution outweigh the costs.

It is our view that the office holder does not need further discretion. We shall, of course, consult interested parties on the issue, but from discussions already held, we are minded to set the de minimis level of property available for distribution at £5,000. To provide the office holder with the discretion not to distribute if the prescribed fund is greater than that would surely lead to people questioning why we had a de minimis figure in the first place. In addition, and also from discussions held so far, we can think of few occasions when it would not be cost-effective for an office holder to distribute funds of at least £5,000.

In commenting on amendment No. 525, I shall also speak to amendments Nos. 457, 526 and 458. The amendments may have merit in seeking to achieve clarity on what constitutes the net property of a company on which the office holder can base his calculation for the prescribed part, but they are

unnecessary because we have suggested amendment No. 479 to deal with the matter.

I should explain that Government amendments Nos. 479, 480 and 481 are minor, as they clarify and ensure consistency. Amendment No. 479 makes it clear that the company's net property embraces only the property that is subject to a floating charge. That deals with the issues raised in amendments Nos. 525, 457, 526 and 458. Amendment No. 480 makes it clear that an order prescribing part of a company's net property may include other methods of calculating the prescribed amount and not just those in section 176A(6)(a) and (b). That is because, although we have it in mind that the ring fence will be set on a sliding scale with a de minimis level, we have not yet consulted interested parties, so we must ensure that the vires in the Bill are wide enough to allow other methods of calculation, if necessary.

The final Government amendment, No. 481, is merely a matter of consistency. It ensures that the same wording is used in new section 176A(9) and (10). I hope, therefore, that I have persuaded Opposition Members to support the Government amendments.

I appreciate why Opposition Members tabled amendment No. 459, but I assure them that it is unnecessary. Government amendment No. 479 makes it clear that the company's net property embraces only property that is subject to a floating charge. We are considering a further consequential amendment to remove the definition of a fixed charge in subsection (8), as the relevant section no longer refers to such a charge. As a result, amendment No. 459 is unnecessary, and there is no difference in England, Wales or Scotland as to when a floating charge is created.

On the point raised by the hon. Member for Cities of London and Westminster (Mr. Field), the floating charge holder will still have the final claim on the assets covered by the floating charge after the property has been removed from the available floating charge assets. That will still leave the majority of funds available to the floating charge holder. With that, I commend the Government amendments to the Committee.

Nigel Waterson (Conservative, Eastbourne)

I am fairly reassured by what the Under-Secretary said, although what matters is whether the practitioners are reassured. She said that there is to be further consultation on one or two amendments, which will be helpful, given that they are designed to make it easier to operate the provisions in the real world. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Derek Conway (Conservative, Old Bexley and Sidcup)

I remind the Committee that I shall not call amendments, other than Government amendments, for a Division unless the hon. Members who tabled them advise the Clerk that they want me to do so.

Amendments made: No. 479, in page 170, line 35, leave out from 'property' to end of line 39 and insert

'which would, but for this section, be available for satisfaction of claims of holders of debentures secured by, or holders of, any floating charge created by the company.'

No. 480, in page 170, line 41, after 'may', insert ', in particular,'

No. 481, in page 171, line 19, leave out 'reason' and insert 'virtue'.—[Miss Melanie Johnson.]

Question proposed, That the clause stand part of the Bill.

Nigel Waterson (Conservative, Eastbourne)

I want to use the clause stand part debate to discuss a couple of issues that were raised by the British Bankers Association. As we know, the association takes a close interest in what the Committee is up to.

The first point, which is fair, is that it is difficult to get to grips with the details of what is proposed because they are not in the clause. The Government presumably envisage making detailed regulations in due course on the nature of the pot of money for unsecured creditors and on how it will be administered. Once again, I must ask the Under-Secretary when the draft regulations are likely to be available. I assume that the plan is to produce drafts for discussion, and bodies such as the British Bankers Association will no doubt have a great deal to say about them at that time. However, it is difficult to take a significant view on those matters in the absence of the regulations.

The association also says that when the Cork committee first made its proposals about 20 years ago, it was very much of the view that the funds should be available first to the administrator or liquidator to pursue recalcitrant debtors. The funds available for distribution could then be boosted, and the balance of the fund offered to unsecured creditors.

The big idea at the time was to enable the administrator or liquidator to achieve maximum debt recovery on behalf of those creditors. The British Bankers Association points out that insolvency practitioners thought then, and still think, that the idea is good, but that it has not found its way into legislation. The Under-Secretary may be able to put my mind at rest at a stroke by saying that it will be included in the regulations, so I shall not delay for a moment the opportunity for her to tell me so.

Melanie Johnson (Labour, Welwyn Hatfield)

Indeed, I can reassure the hon. Gentleman by saying that the draft regulations will be available for consultation—we are working on them. Once the Bill has gone through its parliamentary process, we shall probably be in a position to start consultation, which will ensure that there has been a full discussion with interested parties by the time the secondary legislation is drafted.

Question put and agreed to.

Clause 243, as amended, ordered to stand part of the Bill.

Clause 244 - Liquidator's powers

Nigel Waterson (Conservative, Eastbourne)

Again, a small point has been raised with me by PricewaterhouseCoopers, which, among other things, is a well-known practitioner in insolvency matters. It suggests that the clause appears to be intended to overcome problems caused by a 2001 Court of Appeal decision involving re Floor Fourteen Ltd. One or two members of the Committee may not be as familiar as they would like with that decision, so I shall explain that it was held in that case that the costs of pursuing an action to recover money from directors for wrongful trading could not be recovered by the liquidator as a liquidation expense.

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

Incredible.

Nigel Waterson (Conservative, Eastbourne)

I assume that the hon. Gentleman is not describing his party's policies, but is commenting on the decision or the purport of it.

The same principle applies to other types of action related to pre-liquidation transactions and events. That can make it difficult for liquidators to pursue such actions and it reduces the likelihood that money will be recovered for the benefit of creditors. Incredible, as the hon. Gentleman says, is the word that springs to mind. I presume that there was no attempt to appeal to the House of Lords, which puzzles me slightly.

The clause attempts to overcome the problem by specifically including the pursuit of such actions in the powers that a liquidator can exercise, with the consent of the liquidation committee. PWC states that, unfortunately,

''So far as we can see this does not overcome the problem, as the difficulty does not lie in the scope of the liquidator's powers but in the definition of liquidation expenses in the Insolvency Rules 1986.''

Although we understand why the Government are trying to deal with the problem caused in re Floor Fourteen Ltd., the clause does not do the job. The matter can presumably be approached through regulation, and the Under-Secretary may be thinking along those lines. In the real world of insolvency practitioners, the point is significant. It seems important to me, and it should be dealt with.

Melanie Johnson (Labour, Welwyn Hatfield)

In terms of the Cork recommendation, I confirm that it will be possible to pursue antecedent recoveries subject to sanction by the creditors. Under a recent decision, the Lewis case, a liquidator may utilise funds held in a liquidation to pursue antecedent recoveries without sanction. The clause will ensure that the decision to use funds to pursue such actions lies with creditors, not the trustee.

The hon. Gentleman raises the subject of liquidators recovering costs. The Insolvency Rules 1986 are being amended to allow a liquidator to recover his costs when taking such actions.

Question put and agreed to.

Clause 244 ordered to stand part of the Bill.

Clause 245 - Duration of bankruptcy

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 455, in page 171, leave out line 33 and insert—

'(a) in the case of an individual whose bankruptcy arises from the closure of a business or trade established or operated by that

individual, one year beginning with the date on which the bankruptcy commences; and

(b) in cases not falling within subsection 1(a):

(i) where a certificate for the summary administration of the bankrupt's estate has been issued and is not revoked before the bankrupt's discharge, two years beginning with the date on which the bankruptcy commences; and

(ii) in any other case, three years beginning with the date on which the bankruptcy commences'.

Derek Conway (Conservative, Old Bexley and Sidcup)

With this it will be convenient to take the following amendments: No. 44, in page 171, line 33, leave out 'one year' and insert 'two years'.

No. 430, in page 171, leave out lines 34 to 37.

No. 519, in page 171, leave out lines 34 to 41.

No. 520, in page 172, leave out lines 10 and 11.

Nigel Waterson (Conservative, Eastbourne)

The clause is extremely important, and we need a pretty detailed stand part debate when we have disposed of the amendments to pull together some broad issues in this part of the Bill and, I hope, to save time on debates on later clauses.

I apologise for suggesting earlier that, whatever else would interest and delight us in the final part of the Bill, there was nothing political in it. I have considered the personal insolvency provisions more carefully, talked about them at length and received substantial briefing from a variety of organisations such as the Consumer Credit Trade Association, and it is plain that there might be plenty of politics in the proposals.

If the provisions go ahead as the Government envisage them, there will be not only massive practical problems, but a major redistributive effect, especially if we follow the path of places such as the United States of America, Hong Kong and—dare I say it—Scotland, where similar changes to bankruptcy practice have had such an effect. On clause stand part, I hope that you will allow us to develop those arguments, Mr. Conway, as they are causing enormous concern in the credit and banking industries. The provisions are likely to have significant effects on those borrowing money as well.

It may help if I sketch out the three broad issues that need to be covered in this and subsequent clauses on the new personal insolvency regime. The first is principle, on which there is a divide between the Government and us as to whether it is outdated and unacceptable for an element of stigma to be attached to people engaged in personal insolvency. We shall return to the more philosophical aspects of that in detail.

The second issue is effect in the real world. Plenty of evidence from other countries in similar situations seems to confirm the strong feeling that the law of unintended consequences will kick in with a vengeance if we are not careful.

The third issue is resources, which we again want to consider in detail in a more general debate. However, I flag it up because it has specific reference to the clause. If we are considering a regime in which the majority of bankrupts will come out of bankruptcy within a year at most, and in some cases much more quickly, apart from the exceptions where a special bankruptcy

restrictions order is made, will the resources, let alone the time, be available to investigate those cases fully? Will there be a rubber-stamp system, in which people's assets and ability to pay back their creditors are not gone into in any depth? Some American states take the idea to its extreme, and people can come in and out of bankruptcy within 28 days. That strikes us as phenomenal, but we need to probe further on exactly how the Minister thinks that the provisions will work.

I want to take up some general points that were made about the amendments, but if you will permit me, Mr. Conway, I shall deal with them later in more depth. Amendment No. 455 tries to deal with a central problem. Unlike the law in some countries, English law treats business and consumer bankruptcies in more or less the same way. The Bill will not change that. Its declared aim is to encourage enterprise, but we have a slight suspicion that Ministers do not understand the meaning of the word, or how it operates, and they certainly do not understand the effect that the Bill will have on the business community. We would have had precious little to say during our many enjoyable sittings were it not for the business community's legitimate and deep-seated concerns about many of its aspects, of which this is one example.

If we accept the premise that the Bill is designed to make bankruptcy a more attractive option for entrepreneurs, it seems, at least in theory, that there can be no objection to limiting its effects to those people. Of course, the effect on consumer bankrupts will be much more serious not only for them, but for the economy as a whole because of the likely expansion of insolvency as a result of this part of the Bill.

We cannot see how a sharp increase in consumer bankruptcies can possibly be good for business. Indeed, we would have thought that the opposite is true. It is a basic tenet of business that customers should pay for what they receive in goods and services, which is why amendment No. 455 would limit the new fast-track approach to business bankruptcies. If the justification for the Bill is that it should encourage entrepreneurs to take risks, to try, to fail honourably and then to try again and eventually get it right—we have problems with some of that premise, but I shall return to it in a moment—why not build that into the Bill? That is what we suggest.

I want to look in much more detail at the American experience. Much of the Bill is based on superficial ideas of what happens in the United States of America. We know that the right hon. Member for Hartlepool (Mr. Mandelson) went to the States and came back with impressions about how such provisions could be transported to the UK. Indeed, we know that the Chancellor, whom I believe to be responsible for much of the Bill, has a narrow and often misconceived admiration for what happens in the USA.

We believe that the Bill will have a different effect if we are not careful about its drafting. Speaking of the right hon. Gentleman, I am sure that the Committee shares my shock and horror that no less a personage than the Deputy Prime Minister has been overheard

saying that Hartlepool is the only place in the country to be represented by two monkeys. I hope that the press made up that story.

I do not claim that the drafting of amendment No. 455 cannot be improved. It is a probing amendment, but it draws a sharp distinction between consumer and business bankruptcies. Amendment No. 44 takes a rather broad-brush approach by changing the period of one year to two. It reflects our worry over whether the resources will be available, even for the current number of bankruptcies each year, let alone the likely increase, to make proper inquiries.

Amendment No. 430 is designed to limit the period to a year and no less. We take the view, and many practitioners agree, that a set period is desirable, as it will prevent variations in practice, procedure and resources from causing variations among different official receivers' offices. It is not a seamless service—even the Under-Secretary would not claim that—and different offices are under different pressures. Hon. Members will have found that from their experience of constituents' problems. If the discharge period is to be limited, let us make it 12 months.

Another issue raised by the practitioners, particularly PricewaterhouseCoopers, is that an early discharge may inhibit a private sector trustee when applying for an income payments order. Such an application must be made before discharge. As trustees are rarely in office within two months, and often not within three, there is little time to make the necessary inquiries, instruct solicitors and make the application.

There is also a worry that variations between official receivers' offices may lead to windfalls being available to creditors in some cases, while others remain with the discharged bankrupt in similar cases elsewhere. It is possible to envisage a situation in which a person in a business—perhaps authorship—with enormous variations in income knows that they are due to receive a large sum a year or two down the line. They could go in and out of bankruptcy, avoiding problems with previous creditors, and then receive that income scot free. That would certainly be possible without a thorough investigation of such a bankruptcy.

Official receivers, again as PricewaterhouseCoopers point out, will take on additional responsibilities, particularly bankruptcy restrictions orders and individual voluntary arrangements, which we shall discuss in more detail later. However, it is unlikely, unless the Under-Secretary has good news for us, that significant additional resources will be available, and compiling reports on early discharge will be an additional burden. With an automatic 12-month discharge, that reporting function will be unnecessary, as it is under existing legislation. In the past few months, I have asked a series of written questions about the pressures on the official receivers under the existing system. We might discuss that later.

Amendments Nos. 519 and 520 have a similar thrust—they are designed to establish a fixed period of 12 months. If we are to go down that route, we should

at least have a minimum period for people coming out of bankruptcy. It will be quite tight, based on experience under the existing arrangements, for all such cases to be investigated thoroughly within the 12 months. There will be an understandable temptation for what appear to be simple, straightforward cases to be rushed through and discharged quickly. A sensible approach to allocating resources by individual official receivers' offices will achieve that, but what appears to be simple and straightforward may not be so. On clause stand part, we want to discuss in detail the practical experience of other countries.

The amendments are just the start of the debate on this area of personal insolvency, and I shall be fascinated to hear the Under-Secretary's response.

Mark Field (Conservative, Cities of London and Westminster)

Like my hon. Friend the Member for Eastbourne, I plan to say a lot more about the aspects of principle that are at stake when we debate clause stand part. I feel discomfort at the idea that bankrupts will be able to get off as quickly as within a year. Representations that we have received, including recent ones from the National Association of Citizens Advice Bureaux, imply that because people get into debt they should have an easy route to bankruptcy. That is an uncomfortable state of affairs. Several such proposals appear in clause 258, which we shall discuss in more detail later. However, in so far as individuals find themselves in great debt and paying high rates of interest to moneylenders, that is a matter for the laws on usury rather than those dealing with bankruptcy.

On Amendment No. 455 I would like to know whose interests the Minister regards as being best served by a fixed discharge period. Surely, it is a matter of fact rather than of law as to when a bankrupt has satisfied various requirements in order to be discharged. A one-year period is too short, for reasons of resourcing and practicality that have already been discussed. Moreover, as I have said, it is a matter of fact, and a fixed limit—which will no doubt become a target limit—will place administrators under pressure to rush things through more quickly than they should. That would be to the detriment of creditors, who deserve our protection as well as individuals seeking to rely on new bankruptcy rules.

I understand the DTI's point of view and its desire to be clear and certain about these matters. However, personal bankruptcies can be very complicated or very simple. It may be that the bankruptcy can be sorted out in a matter of months, particularly if friends of the bankrupt are able to lend money and allow for the bankruptcy to be discharged in a short period of time, but each bankruptcy is a matter of fact and trying to use a 12-month limit as a template is not the right way to proceed. What is the Under-Secretary's thinking on the matter?

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

I am concerned about the Government's new approach to bankruptcy as embodied in the clause. I understand that it is necessary to find ways to encourage people to take risks. However, increased rewards are often available to those who take risks. That is a balance,

about which people have to make a decision. I have seen so many people ruined not once or twice but three or four times by people who have been bankrupt, escaped from the provisions and learned no lessons, except how to become a better criminal and find new ways of swindling people out of their hard-earned cash. I am concerned that we are not sending out the desired message—that we are encouraging enterprise and innovation and that we recognise that they are the lifeblood of the country—but a message that allows people to say, ''Here is a new escape clause from my responsibilities towards those with whom I have done business.'' I am exceedingly concerned.

To an extent, I share the scepticism of the hon. Member for Eastbourne of politicians, particularly Labour politicians, going to the USA, seeing something that looks superficially good but is embedded in a particular nation's business culture and believing that it can be transposed into a different culture and country. Very often, the exchange of ideas brings improvements that would not otherwise have been possible. However, I have to repeat that, in my 10 years of advising small businesses, I have met an awful lot of people who, if they are not crooks, love being on the brink and pitting their wits against not only the people with whom they do business but the system, creating loopholes through which to escape from their difficulties.

I will treat the amendments as probing amendments, but they bring out a flavour that is necessary to this debate and of which we must take note. People may remember the case of Freddie Laker, which perhaps brought bankruptcy into disrepute with the general public. He crashed his aeroplane company—sorry for the metaphor—and walked away, and was running another aeroplane company in a few days. That was on the corporate side, but he was the individual concerned. Would he be considered reckless under the new regulations? The thousands of travellers who lost their money certainly felt that he was.

As I have said, I am worried that we are giving the receiver the power to decide what is reckless. I am not sure whether we know what the ground rules are; the Under-Secretary must tell us how we will determine what is reckless and what is entrepreneurship that should be applauded. As the hon. Member for Eastbourne said, we need to know what arrangements there will be for dealing with what will undoubtedly be the greater number of people processed through the courts as a result of the 12-month rule. We need the answers to those questions.

To underline my point, I should say that, as a Labour Member of Parliament, I remain deeply suspicious of people who often get into trouble, not because they cannot avoid it, but because they do not take proper precautions. To take a simple example, a person's business might be doing very well with one or two customers, but he may fail to take out appropriate insurance. If one of the people with whom he deals goes down the pan and cannot pay him, there will be a ripple effect, and he will be unable to pay others. That will be because he ignored the opportunity to take out

cover, insurance and bonds, and did not run his business properly.

An awful lot of people who run small businesses should not be allowed anywhere near them. John Harvey-Jones was quizzed about the difference between American and British culture. The interviewer said, ''Sir John, you're aware that almost every city, town and small village in America runs an MBA course. If this country wants to play catch-up, should we not make similar provisions to enable people to go on courses and understand much more about their businesses so that they do not get into so much trouble?'' John Harvey-Jones was a trouble-shooter; people might remember the television show. He replied, ''I've been going round this country looking at small businesses, and I'd be pleased if people in some of them could even read a balance sheet, let alone do an MBA.''

We seem to be ignoring the education that is required to run a business. Let us consider other countries. The French, for example, will not let people join the chamber of commerce unless those responsible are satisfied that applicants can run a business properly. Other countries have similar restrictions, but we think that people can somehow simply start a business, and to hell with knowing anything about it. We think that they can simply muddle through as amateurs, but an awful lot of them get hurt.

We may be doing so inadvertently, but I cannot help but think that we are sending the wrong message on bankruptcy for individuals. If we are going to tell people, ''It's not always your fault, so let's get you cleared up and back on the road,'' we should also tell them at least to try to take some advice before starting a business. That might avoid the tragedies that often result.

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

I did not intend to contribute to this part of the debate, but I have been emboldened by the speeches of the hon. Member for Wolverhampton, North-East (Mr. Purchase) and of Conservative Members.

I well recall the issue being discussed on Second Reading, when the Under-Secretary said that the Government wanted to remove the stigma from bankruptcy. Thinking out loud, I asked what was wrong with stigma, and was accused by colleagues of being excessively Presbyterian. We all have our own backgrounds and bring our own baggage to issues, and I can think of worse insults that might be slung at me.

I have profound reservations about the clause, which stem from the same genesis as those I have already expressed. I recognise that its purpose is to strike a balance, and I take the Under-Secretary's point that we need to encourage enterprise, but I am not convinced that the bankruptcy proposals achieve that. Enterprise must be encouraged all round.

Other members of the Committee have made the observation, with which even I cannot argue, that my constituency does not contain many large public limited companies. I have a particular concern for small businesses, which are often left most damaged by business failures—as the hon. Member for Wolverhampton, North-East implied—because they

are least able to absorb losses. I see nothing in the Bill to comfort small businesses, which may run on a modest and conservative model and are uninterested in taking big risks; they are the ones that suffer most.

I share the concerns expressed about the practical implications of the measures. Clearly, a significant rise will occur in the number of cases processed. What measures will be implemented to ensure that the structure proposed is workable, even if it is undesirable? A new bankruptcy structure with whose philosophy people have reservations will be completely discredited if it does not work efficiently.

My final point may not be necessary, but in the current climate it is best to err on the side of caution. I referred to small businesses in my constituency, and I should inform the Committee that my wife is setting up a small business as part of a veterinary practice in Kirkwall.

Melanie Johnson (Labour, Welwyn Hatfield)

I am grateful to hon. Members for their wide-ranging comments on the amendments. I shall do my best to respond to them, although I may have to repeat some of my remarks during the clause stand part debate if it turns out to be a long one. It will be difficult to reply to hon. Members' comments without making general points about the amendments.

The hon. Member for Orkney and Shetland, with his Presbyterian instincts, picked out the word stigma. The fundamental point is whether that principle is appropriate in relation to bankruptcy, as the hon. Member for Eastbourne said. I should remind hon. Members that we are talking about personal insolvency, as it is easy to forget that that is a fundamental tenet of the argument.

I agree with the hon. Member for Orkney and Shetland that we are trying to achieve a better balance between those who are stigmatised for good reason, because there are those who should be stigmatised—by the way, I do not have a problem with the word stigma either—and those who are stigmatised despite their bankruptcy being no fault of their own. We are not trying to do away with the idea of stigma, as my hon. Friend the Member for Wolverhampton, North-East suggested; we are trying to ensure that the stigma attached to bankruptcy restrictions orders relates only to those who are reckless bankrupts. Tighter provision exists under the bankruptcy restrictions orders, which I will discuss in more detail in a moment.

Nigel Waterson (Conservative, Eastbourne)

Does the Under-Secretary have a very rough idea—what the Americans would call a ballpark figure—of what percentage of personal insolvencies will involve bankruptcy restriction orders once the Bill becomes law?

Melanie Johnson (Labour, Welwyn Hatfield)

I do not have an estimate to hand, and I am not sure that we could produce one, but hon. Members should bear in mind that in looking at the new arrangements, the official receiver and the courts will make decisions about who is reckless, and that will be a matter for the courts rather than for anyone else.

The hon. Member for Eastbourne is picking his expressions from across the Atlantic while chiding us for slavishly following the United States. I want to lay a myth to rest. Our bankruptcy proposals reflect the clear need to modernise the bankruptcy regime in the United Kingdom. In doing so, we have tried to strike the balance to which the hon. Member for Orkney and Shetland referred, between the interests of bankrupts and their creditors. We looked at the situation in several countries, not only in the US, and we aimed to retain those aspects of the bankruptcy regime in this country that we believe work well. The basic position is that if bankrupts can pay, they should pay. That is not currently the case in the US, where the existing regime contributed to the problems that they are experiencing.

I believe that changes are taking place in the USA that represent a convergence towards the position in the UK. I entirely refute the allegations made by the hon. Member for Eastbourne that we are slavishly following the US and taking the route that has led to problems there. We accept that there are problems in the US and are not adopting the same regime. If anything, they are moving towards the position here.

Amendment No. 455 would draw a distinction, as the hon. Member for Eastbourne said, between business and consumer bankrupts, by proposing that the reduced discharge period should apply only to business bankrupts. In the light of that, my hon. Friend the Member for Wolverhampton, North-East should reflect on how far he shares the views of Opposition Members in certain respects. The remainder would be left with the existing provisions and, therefore, would not benefit from any reduction in stigma or early financial rehabilitation. I am not sure why the hon. Member for Eastbourne tabled the amendment, which relies on a clear understanding of the distinction between consumer and business, because although he mentioned the distinction several times, he did not give any real definition. A sharp distinction cannot be drawn. It is impossible to disentangle debts that someone may have incurred ''as a consumer'' from those that they acquired in a business capacity.

Nigel Waterson (Conservative, Eastbourne)

With respect, the Under-Secretary is over-complicating the obvious. It is perfectly clear from the first subsection of the amendment that the provision simply relates to the case of a bankruptcy that

''arises from the closure of a business or trade established or operated by that individual''.

That seems to draw a workable and clear distinction.

Melanie Johnson (Labour, Welwyn Hatfield)

Whatever legal provisions are made and whatever regulations exist, those who want to subvert them will find ways around them. If a distinction of this ilk is made, somebody wishing to load things on to either the business or the consumer side of their dealings could easily take on debts that related to one part of their activity but represent them as relating to the other. In that arena, there is no easy way to make the distinction. An individual could be made bankrupt for reasons unconnected with his business or there could be a combination of business and personal indebtedness. It is often difficult, if not

well nigh impossible, to pinpoint whether the cause of the bankruptcy was the failure of the business and, therefore, to which category of bankrupt the person might belong were one to operate with that kind of distinction in mind.

Business bankrupts have consumer debts as well. The failure could be entirely due to the level of consumer debts; the business might be profitable. There is no logical reason why a business person should be given a shorter discharge period than a consumer bankrupt with smaller debts who is bankrupt because he has lost his job. That is unfair. The treatment of bankrupts, whether business or consumer, should be the same where the conduct leading to the bankruptcy is similarly culpable. That is why the Bill introduces the bankruptcy restrictions orders to differentiate between bankrupts—both business and consumer—whose conduct differs. Those who have behaved in a reasonable way are considered to be bad-luck bankrupts while those who have behaved recklessly should be subject to BROs. That is much fairer than the arbitrary distinction that the amendment proposes. For those reasons, I urge the Committee to resist the amendment.

Amendment No. 44 seeks to replace the proposed 12-month discharge period with one of two years. The discharge period is set at one year in order to reduce the stigma of bankruptcy and to encourage entrepreneurs to start new businesses, or to restart in cases in which they failed through no fault of their own. In most cases, the official receiver will have reached an initial view about a bankrupt's conduct within eight to 12 weeks of a bankruptcy order, when a report is sent to creditors. If the creditors contact the official receiver with further information, they normally do so shortly after receipt of that report. That allows sufficient time for further investigation. Information that is received after 12 months can be used to support criminal prosecution. The legislation will allow for a bankruptcy restriction order after 12 months by leave of the court.

We do not expect all bankrupts to be discharged before the 12-month period expires. That will only happen if the bankrupt co-operates fully with the official receiver and if matters raised by the creditors are investigated to the satisfaction of the Insolvency Service. If the grounds are not satisfied, the discharge period will stay at 12 months. Again, we are not talking about reckless bankrupts. There will be the tougher regime of the BROs, with the process that I have outlined, for bankrupts whose conduct has been reckless, irresponsible or otherwise culpable and, as bankrupts, they will have restrictions of between two and 15 years placed on them. I reassure my hon. Friend the Member for Wolverhampton, North-East that the difference between the two regimes is very important. The second, the BROs, reflects the seriousness of reckless bankruptcy.

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

I do not want to harass the Minister, but it is exceedingly important to know what we mean by reckless and not reckless behaviour. In my experience, people who understand the nature of their business and take care over understanding how it is doing make arrangements to wind up the business

long before bankruptcy is on the horizon to ensure that they will not be left with creditors. Experience is important; some academic understanding of bankruptcy is no substitute for what happens to small businesses on the ground.

Melanie Johnson (Labour, Welwyn Hatfield)

I appreciate my hon. Friend's points. I reassure him that matters are dealt with not by someone with a purely academic understanding of bankruptcy, but by official receivers who deal with such things all the time.

Earlier bankruptcy would be a key factor taken into account when deciding whether an application for a bankruptcy restriction order should be made. Serial bankruptcy is likely to raise issues immediately. It is much more likely, although not inevitable, that under such circumstances the bankrupt will find themselves subject to a BRO.

I shall return to a couple of earlier points raised by my hon. Friend the Member for Wolverhampton, North-East. First, the recklessness of Freddie Laker would now be tackled by the regime for company director disqualification, which gives substantial periods—I believe it is up to 15 years—for the disqualification of directors. That would be a different way of tackling a serious issue.

My hon. Friend also raised the question of multiple bankrupts, which we are addressing from a number of angles. Little can be done through the present regime to tackle those who abuse creditors except for prosecution, which, as my hon. Friend will appreciate, comes with a high standard of proof. The BRO regime will solve the very problem of which he talks, as the civil procedure will enable effective action to be taken against people on a lower standard of proof. There will be new ways to tackle problems, which I agree are serious and need tackling.

The court will decide whether an order should be made on the facts of the case. It will take specific account of the fact that the bankrupt may have been bankrupted more than once. For company director disqualification, case law will develop over time and previous judgments will provide guidance on what constitutes culpability, and on the length of orders. That approach has received wide-ranging support. In its response to the White Paper, the CBI commented:

''The grounds should not be over-prescriptive. The court should be left with sufficient discretion to make a judgement upon the known circumstances.''

The hon. Member for Eastbourne made wide-ranging remarks about our understanding of enterprise and support for the Bill. Its main measures have received support from all sorts of business organisations, including the CBI, the British Chambers of Commerce and the Federation of Small Businesses.

On amendment No. 44, in the majority of bankruptcies most administrative work is completed within the 12-month period in the Bill. In any case, the ability to realise assets is not affected by discharge.

On amendment No. 44, for the majority of bankruptcies, most administrative work is completed

in the 12-month period proposed in the Bill, and the ability to realise assets is not affected by discharge. The Bill implements bankruptcy restrictions orders to deal with rogues and could impose restrictions for up to 15 years. Furthermore, the ability to suspend the discharge period for those bankrupts who do not co-operate with the official receiver or trustee will remain, as will most of the existing criminal offences. There will be no lightening of the context in which the measures are being introduced, so going bankrupt under the new proposals will not be an easy option and will be no more attractive to rogues than the current regime. Indeed, I believe that it will be less attractive to them. However, some people become bankrupt through no fault of their own, and we believe that a distinction that has never existed in this country should now be made.

Amendments Nos. 430 and 519 would remove the possibility of discharge from bankruptcy earlier than one year from the date of the order. Amendment No. 519 would also remove the right of the official receiver or trustee to apply for suspension of discharge in cases of non-surrender and non-co-operation of bankrupts in the proceedings. I assume that hon. Members intended line 1 on page 172 to be omitted, otherwise paragraph (b) of new section 279(3) would be cast adrift with no purpose. In any event, we do not support the amendments. Our policy is to move from a ''one size fits all'' regime to one in which the discharge period reflects the circumstances of the case. The amendments go in the other direction and would recreate a ''one size fits all'' approach.

We do not expect all bankrupts to be discharged before the automatic 12-month period. That will happen only in a straightforward case when the bankrupt co-operates with the official receiver and any matters raised by creditors are investigated to the satisfaction of the Insolvency Service. The period will remain at 12 months if those grounds are not satisfied. There is no merit in preventing bankrupts who failed through no fault of their own from getting through the process as quickly as possible. That will be a factor, but only a factor, in encouraging potential entrepreneurs to restart or to start up in business and to secure their financial rehabilitation. I accept the point made by my hon. Friend the Member for Wolverhampton, North-East that many other issues to do with people's fitness to run a business must be taken into consideration.

When the administrative work on a case has been concluded, and if there are no issues of public protection, it is difficult to see any advantages or any purpose to the amendments other than a punitive one. Specifically on amendment No. 519, no purpose would be served by removing the ability to suspend a bankrupt's discharge. It is an extremely effective sanction against those who decide to ignore their obligations, so I am not sure why that was suggested. Indeed, the purpose of subsection (3) is to extend the power to enable a trustee to make a suspension application without having to refer it to the official receiver, as he does under the current regime.

Amendment No. 520 would remove the discharge cross-reference in new section 279(6)(b), the purpose of which is to help the reader when reading the section. The amendment may be consequential to another amendment, but if it is not, one is left wondering what would happen to someone who is subject to a criminal bankruptcy order and discharged by application under section 280.

I may not have gone through all the points of general principle, but I want to respond to a point on which the hon. Member for Eastbourne commented specifically on compiling reports on early discharge and whether that is an additional burden on the official receiver. The official receiver already reports to creditors in every case, and we hope that in the majority of cases the notice to which the hon. Gentleman referred will be combined with those reports. I reassure him about the nature of the process and how it would be incorporated into existing processes. There may be other more general issues of principle to which we will come during the stand part debate.

Nigel Waterson (Conservative, Eastbourne)

As the Under-Secretary rightly says, there are various points of principle that I do not want to labour now because we will come to them during the stand part debate. However, some matters in her reply still concern me. She is reluctant to give us any estimate either of the percentage of cases where a bankruptcy restrictions order might be thought appropriate, or of the proportion of bankrupts who would come out of bankruptcy in less than 12 months. I know that it is difficult to come up with an accurate percentage, but how on earth do the Government form a judgment on resources for official receivers' offices without at least a vague idea of those proportions?

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

On a point of information, the excellent résumé of the Bill by the Library points to a parliamentary answer suggesting that the estimate of bankrupts who are culpable is between 7 and 12 per cent. That was based on the official receiver having prima facie evidence of criminal acts.

Nigel Waterson (Conservative, Eastbourne)

That is very helpful, and I recall that estimate being bandied about. It is a mystery to me how it was arrived at. As I think the hon. Gentleman pointed out, it is based on criminality, but that is not what we are talking about.

The Under-Secretary has a fond notion, which I think is a massive problem with the clause, that there are two rather simple categories: culpable and non-culpable bankrupts. They are, first, the bad-luck bankrupts, who through no fault of their own, or even an inability to foresee what might happen as the hon. Gentleman suggested, find themselves facing insolvency, and, secondly, the bad guys—the rogues or the reckless. Those are difficult definitions; much of our debate will be sterile because we do not know how those definitions are to be given flesh in practice.

I made a point on Second Reading, to which we will come in more detail, that there are actually at least three categories. There are the rogues or the reckless, the bad-luck bankrupts, as the Under-Secretary calls them, and what I call the pathological optimists, who get up every morning fully intending to make the

world a better place, and are not crooked in any sense, just wildly incompetent. They leave as much of a trail of devastation behind them as the Maxwells or the Lakers. Those distinctions are difficult to make. The Under-Secretary went to some length, showing a certain sensitivity, to deny the US provenance of the changes and suggested that somehow a convergence with the US was going on. We shall consider that in more detail.

I simply do not accept what the Under-Secretary says about the problems of defining business versus consumer bankrupts. There will be marginal cases, but it seems to me that someone cannot make up the fact that they have been in business simply as a way of getting into the other category. The only real justification, the whole case for the clause, is to encourage entrepreneurs, although I do it a disservice by summarising it quite that shortly. There is absolutely no place in the legislation for helping people with what are primarily consumer-debt bankruptcies.

The only difference between myself and the Under-Secretary is the problem of definition. If she does not like the way in which we, or the Consumer Credit Association, have defined things, let her Department bring the battery of intellect that it has at its disposal to work on the issue. It is not a question of principle that divides us; it is simply a matter or practical drafting. On that basis, I shall be happy to seek leave to withdraw the amendment.

The Under-Secretary claims business support for the proposals, but I am afraid that in debate on clause stand part and later clauses such support will become less obvious, as there are real concerns about the provisions and major alarm bells ringing throughout the credit and banking industries. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Nigel Waterson (Conservative, Eastbourne)

As I said earlier, it will be convenient for the Committee to have a fairly substantial stand part debate on the clause, enabling us to return to the general points that the Under-Secretary touched on in her reply to the previous group of amendments, and to foresee and deal with some of the major philosophical issues that crop up throughout this final substantial part of the Bill.

We have to take as our starting point the Government's avowed intention. The avowed intention of the provisions is to encourage risk taking, entrepreneurship and enterprise in the British economy. It is right to say that some people might fail any number of times, for perfectly genuine reasons, although let us be clear that they will leave creditors. The one thing that all the bankrupts will have in common is that they will leave people behind who will be owed money. They will often be large organisations, such as banks, but if they lose money on one loan, they might be unable to offer a loan to someone else further down the road. I shall discuss some of the evidence from such organisations later.

Small businesses can also be involved, as the hon. Member for Orkney and Shetland pointed out. If a small business goes bust in his constituency, the main losers, apart from individuals, will be other small businesses. There will be a knock-on, or domino, effect.

Another point of principle is whether there should be stigma. We Catholics know about stigma—or stigmata—as much as the Calvinists among us. At the end of the day, the lenders of last resort for many individuals and small business men are their family and friends. They are often the people who try to bail them out when matters become desperate and who end up out of pocket. Whatever the reason for bankruptcy, whatever the blameworthiness or otherwise and luck or bad luck of the bankrupts, there will always be people left to pick up the tab. Those people might be very close to the individual concerned.

If the Tory party is anything, it is the party of business, the free market and industry, and we recognise that people sometimes have to fail first. There are any number of highly successful business men around the world who did not succeed in their first, or even their second or third, venture. We understand that. Someone once said that failure is an orphan and success has many fathers. Everyone is happy and smiling, particularly the bank manager, when matters are going well, but successful businesses are often built up by men and women who have been honed by the problems of coming through a past failed business venture.

We want to develop three basic issues in some detail. One is the question of principle—whether there should be stigma and who the losers are in such situations. Secondly, what are the effects in the real world? Are we going to end up with a rogues charter, with limited examination of many bankruptcies? Thirdly, are the resources going to be available to deal with them?

I have had a submission from the Bankruptcy Association—I do not know whether other hon. Members have had it too. It seems to be one of the organisations that do not feel that their views have been sought or taken much account of. I am not sure what qualifies one to be a member of the Bankruptcy Association, but we shall glide over that issue. It makes a couple of points that, from the briefings that I have seen, I do not think anyone else has made. They are two issues that were previously mooted, but that did not appear in the legislation.

One of those issues is the idea of financial counselling for bankrupts. I should be interested to hear what the Under-Secretary has to say on that. I shall pick out one or two points from the National Association of Citizens Advice Bureaux briefing in a moment, although we all know of the massive burden that falls on local citizens advice bureaux and the enormous shift that they have had to make in their own arrangements and resources, certainly in my time as a Member of Parliament, to deal effectively with debt counselling. As I recall, there was a suggestion that such advice be provided on a more reliable and comprehensive basis, instead of simply from people such as those working for citizen advice bureaux.

The other issue that has disappeared from the Bill—again I should be interested to know why—is the protection of a proportion of the equity in a family home.

The citizens advice bureaux have produced some good briefings, which I shall not go into at enormous length. I have referred to the debt advice service that they provide. They welcome what they call the emphasis on ''rehabilitation of debtors''. They make the point about the affordability of bankruptcy, which I hope we shall debate under new clause 9 if we have time. For now, I simply flag up the fact that the citizens advice bureaux say that many of their clients for whom bankruptcy would be a practical option cannot afford to go bankrupt because they cannot afford to pay the deposit to the Insolvency Service. They helpfully set out in considerable detail the sorts of problems that they face week in, week out, in providing debt counselling to many thousands of people.

Like other organisations, particularly consumer organisations, the citizens advice bureaux broadly support what the Government are trying to do. However, there is another side to their views: despite all the consultation and everything else that is purported to have taken place, I was struck by the strong views about the effects of the proposals that were expressed in some of the briefings that I and other hon. Members have seen.

The Finance and Leasing Association, which represents 25-plus per cent. of all the fixed capital investment in the United Kingdom and 28 per cent. of all the consumer credit, tells me:

''We wholly support the Government's aim of encouraging enterprise in the UK.''

Fine so far, but the association has considerable reservations about the reduction in the period for automatic discharge as set out in the clause, saying that it

''will mean it is viewed as a soft option.''

That is worrying. The Under-Secretary of State has not said so in terms, but if one reads between the lines, it is clear that what is envisaged is bankruptcy more or less without stigma, except for the rogues and the wreckers.

There are some parts that the Government cannot reach, as it were, and I have a shrewd suspicion that whatever we pass in the Bill, in Orkney and Shetland there will still be stigma involved in personal insolvency. In other parts of the cappuccino economy, that stigma may have largely vanished—who knows? Attitudes are sometimes slow to change, but let us be clear that in this clause as in the rest of this part of the Bill, the aim is to change people's attitudes as much as anything else. We are attempting to change the perception of personal insolvency in this country. Before even considering the practical consequences of the Bill, we must consider whether that is what we want to achieve and whether it is worth achieving.

Representations from the Finance and Leasing Association show that its members are not happy bunnies. On 31 January this year, the Association's director general, Mr. Martin Hall, met the Under-Secretary of State, which I am sure was a great pleasure for both of them,. The association says that

''despite receiving an undertaking that the Minister would try and encourage greater dialogue between the Bill Team and industry we were not even able to facilitate a meeting with the Team. I believe that the 'deluge' of briefing papers shows that we were not alone.''

That is worrying, given the association's massive responsibility for business and consumer lending in our economy.

A partner at PricewaterhouseCoopers, Mr. Patrick Boyden, made the obvious point that

''most bankruptcies are the result of consumer credit, not failed enterprises.''

Worried that reducing the stigma might encourage people to take on the wrong sort of financial risk, he said:

''Warning should be heeded from America, where a more friendly attitude towards consumer debt has led to a bankruptcy rate which is about 10 times the rate in the UK in relation to population.''

He went on to make a more chilling point that suggests what dangerous waters we might be entering. A survey in March revealed that almost half of first-time house buyers planned to borrow the cash needed for their mortgage deposits. I did not know that one could borrow a deposit, but presumably there are people out there are who are prepared to lend the money. If that figure is accurate, it is worrying, because it means that people are getting seriously over-extended in our very bullish property market.

I shall not delay the Committee, but I could cite statistics about people who do not simply borrow their deposits, but re-mortgage their properties, not to build a garage or something like that, but to improve their personal finances and pay off some of their consumer debts. That is a worrying trend. Against the background of sharply increasing consumer debt and much-increased borrowing of both mortgages and deposits to buy homes, the experience and advice of the consumer credit industry is important.

There seems to be clear blue water between the Opposition and the Government on that issue. The Under-Secretary of State would prefer us to focus on Scotland or Hong Kong, but I shall stick with America, where there is a political divide on bankruptcy. The Democrats are supportive of easier bankruptcy, while the Republicans regard it as a redistributive remedy that they oppose as anti-business and out of control. It is constructive to consider the American experience, although the Under-Secretary of State does not think so.

Melanie Johnson (Labour, Welwyn Hatfield)

The hon. Gentleman seemed to suggest earlier that it was not at all useful to consider that example.

Nigel Waterson (Conservative, Eastbourne)

There is a world of difference between considering the American experience and following it. I am merely trying to show where we might end up if we follow the Government's agenda, and America is a good place to look in that respect.

The USA has fewer small business bankruptcies than the United Kingdom, therefore our regime is already more supportive than America's of risk taking. Most of the 1.5 million bankruptcies a year in the USA are nothing to do with business but involve consumers wiping out unwanted personal debt. For that reason, the Government must find a way of distinguishing consumer debt bankruptcies and business bankruptcies.

There is a potential for redistribution; if house prices collapse or falter, the provisions could allow debtors to wipe out any unsecured mortgage overhang. The credit community has expressed concern about student loans, as students could use the law to wipe out loans from commercial lenders, leaving them to start out their careers unburdened by debt. That idea would be very attractive to the students, but lenders would have to reconsider their lending policy if it were acted on.

If the effect were to restrict the supply of credit in the economy, as the Consumer Credit Association suggested, there may be even more bankruptcies as a result. Most such organisations predict that obtaining credit will become more cumbersome and that wholly unsecured credit will become a thing of the past.

Melanie Johnson (Labour, Welwyn Hatfield)

I am trying to find my way through the hon. Gentleman's contradictory statements. He seemed to argue a moment ago that consumer credit was too freely available, but now he argues that it will not be freely enough available.

Nigel Waterson (Conservative, Eastbourne)

Unusually, the Under-Secretary of State is not paying attention. I am describing the position that may be created by the new laws contained in the Bill. Consumer credit might become more restrictive in terms of both its availability and the conditions that are applied. The Consumer Credit Association says:

''wholly unsecured credit could become a thing of the past. In other words, lenders will increasingly ask for security or for a guarantor.''

So the sort of people whom the Government are trying to benefit might be worse off under the Bill, because they are less likely to have assets or know people who are in a position to guarantee their borrowings.

I am reliably informed that another feature of the US market is that, as a result of the US approach to bankruptcy, a whole new sector of predatory lenders has sprung up to service the marginalised group who cannot get credit anywhere else. Most commentators would agree that notions of responsibility in the USA have been eroded simply by the ease with which bankruptcy can occur. It has also been estimated that the average American family pays $400 a year for the cost of bankruptcy across the US economy.

There is another practical issue. As the Under-Secretary of State will know, credit reference agencies tend to keep their records on consumers and their credit ratings for six years. If, as part of the Bill, the Government aim to make it easier for consumers and businesspeople to go in and out of bankruptcy, does the hon. Lady accept that a consumer with a bankruptcy record is unlikely to be able to get credit even if they come out of bankruptcy within 12 months or 2 months or whatever period? She wants to

rehabilitate those who have become bankrupt, for whatever reason, but does she accept that under the current credit system the Bill might have no such effect for many individuals?

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

Does the hon. Gentleman share my view that any local bank manager with any business experience would be highly suspicious of a bankrupt coming after 12 months to borrow more money or to set up any kind of business? Would not that manager take a very deep breath before committing any further funds? That underlines the point that the 12-month period will be a dead letter.

Nigel Waterson (Conservative, Eastbourne)

One of the consumer credit industry's concerns is that the Government have not forgotten about that problem but intend to deal with it in a different way. Do the Government intend to change the system through the Information Commissioner, so that it is a matter of changing data protection law? How, if at all, is the question of credit records to be dealt with?

I referred to some examples of people trying to evade their responsibilities. Has the Under-Secretary of State seen the April edition of Credit Today? I gather that it contains a detailed investigation of the possible student bankruptcy scenario. In America, bankruptcy has become a regular device for allowing people to take advantage of private health care. They go bankrupt so that they do not have to pay their dues.

Another issue that the Consumer Credit Association has raised before in relation to the Bill is that in the regulatory impact assessment the Government say that the changes would not have a significant effect. However, I do not see how the Under-Secretary of State can argue with the assertion that a clear result of this legislation must be more bankruptcies, whatever tag we apply to them. As far as I can see, no assessment or allowance has been made for that significant increase and the extra cost.

Until now, British society has regarded bankruptcy as a serious matter. That was underlined 20-odd years ago in the Cork report. Society has a genuine interest in ensuring that the reasons for bankruptcies are investigated in detail and that the availability of assets is investigated at the same time. The Consumer Credit Association states:

''The Bill looks set to sweep this away. It risks creating a 'rubber stamping' process which is completely closed to external challenge.''

That is a fair comment, because under clause 245, the Official Receiver apparently has an unfettered right to decide whether or not to investigate. It seems, however, that the Official Receiver is wholly unaccountable and is the only one who can decide whether to apply for an income payments order. Once the bankrupt is discharged, which could be within weeks or only a few months, no such order can be applied for.

The Consumer Credit Association states:

''The implications of all this are clear. If there is a massive rise in bankruptcies, the way is being paved for reduced scrutiny of each case.''

The credit industry raises other concerns of a similar nature. I have already said that of the 1.5 million bankruptcies in the United States in 2001, about 97 per cent. were consumer bankruptcies. They do not seem to have a problem in distinguishing between consumer and business bankruptcies. It is clear that relaxation of the US bankruptcy laws in the late 1970s led to an explosion of personal insolvency, from 300,000 a year in 1980 to 1.5 million now, at a total cost of $40 billion. If the Under-Secretary does not like the US experience, we could consider Hong Kong. In 1997, the year before Hong Kong insolvency laws were liberalised, 639 bankruptcy orders were made; in 2001, there were 9,151; a massive increase. Again, I hesitate to trespass into Scottish bankruptcy law, but when that changed in 1985, bankruptcy grew sharply and, by 1993, cases were running at about 14,000 a year.

To sum up, the changes—the reduced period, what we believe will be reduced scrutiny and the limited number of bankrupts who will be subject to penalty or stigma beyond the period of a year or less—will have the following effects. First, they will undermine the concept of personal responsibility. Secondly, they will reward those who choose not to repay their debts, which will increase the cost of credit and the difficulty of obtaining credit for those honest people who need loans. Thirdly, if the US experience is relevant, they will encourage a new, more aggressive and more predatory type of lender, whose job it will be to service those who are marginalised by the changes and who are perhaps least able to afford the Bill's likely effects in the real world.

That is a massive charge sheet from an industry that, according to the Under-Secretary, was squared before we started our consideration of the Bill. I do not think that it was. A lot of people are worried about its effect not only on their businesses, but on individuals.

Derek Conway (Conservative, Old Bexley and Sidcup)

Order. Before I call the next speaker, I must point out that I have allowed the debate on clause 245 to be more wide-ranging in the expectation that debates on subsequent clauses will not be as broad.

Mark Field (Conservative, Cities of London and Westminster)

My hon. Friend the Member for Eastbourne has gone into great detail and all Opposition Members would agree with the points that he raised. I want to touch on some other issues. Much has been made of the issue of stigma. As I recall, the White Paper said that it hoped to strike

''a balance between a fairer deal for the responsible majority and a more stringent regime against the minority who abuse their creditors and the public''.

That goes to the centre of one of our concerns, which is that the Government's view of the insolvency procedure is rather simplistic, as was articulated by my hon. Friend. They envisage innocent bankrupts, who find themselves in that position solely through the misfortune of the market. The hon. Member for Wolverhampton, North-East referred to people who find their business going rather well, notwithstanding insurance issues about key suppliers or debtors who go bust and leave them in great difficulty. To a large

extent, if not entirely, such people are blameless for the circumstances in which they find themselves. Alternately, the Government envisage some people with business interests who go under being largely to blame, for whatever reason. Perhaps they have cut corners in the past and will continue to do so in future.

To my view, that is a simplistic way to consider bankruptcy. In reality, it is not black and white. There are shades of grey, and within those we must ensure that any changes in law do not act to the detriment of individuals involved.

Harry Barnes (Labour, North East Derbyshire)

The Bill still contains elements of universal stigma and does not attempt to make distinctions. If we ever reach clauses 254 and 255 on disqualification of people entering the House or becoming councillors, we will see that a generalised stigma still operates.

Mark Field (Conservative, Cities of London and Westminster)

The hon. Gentleman is obviously not one of the perennial optimists referred to by my hon. Friend the Member for Eastbourne. I hope that we will reach those clauses at some point today.

Stigma remains and should remain an important part of going bankrupt, although individuals should not be prevented from setting up businesses again. Several hon. Members have made the distinction between entrepreneurs—by their nature, such people are risk takers, if sensible risk takers, one hopes—who find that their business goes under, and individuals who might try to use bankruptcy to get out of debts and difficulties. After bankruptcy, we disbar people from becoming Members of Parliament and local councillors, directing a business or acquiring fresh start-up capital. Equally, when there is full disclosure, such individuals should be able to clear the slate at some point.

One has to consider which entrepreneurs think about failure when they set up. I know from my experience that there is a lot of hope and excitement when one sets a business up. I accept that a small minority of serial bankrupts probably set up deliberately to rip the public off, but the great majority set up with genuine optimism and excitement about the first mailshot, the move into new premises and coming up with ideas. However, anyone who has set up a business knows that they have a two or three-page business plan with lots of figures, but that the figures cascade within a couple of months. Almost inevitably, the facts disprove what is put in place initially.

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

The hon. Gentleman's reference to cascading figures is such an important point. In deciding on bad luck, does he agree that the honest, straightforward and competent business person would know that when insufficient money was generated by a business to meet its existing creditors—when debts exceeded assets—action should be taken immediately? If that action cannot resolve the situation, the honourable and proper position is to go into liquidation at that point. To lose one's own money is fair enough, but to lose someone else's money by taking credit when one has no hope of paying it back has nothing to do with bad luck; it is incompetence and a lack of care for those with whom one is dealing.

Mark Field (Conservative, Cities of London and Westminster)

To a large extent, I accept what the hon. Gentleman has said. However, people who are, perhaps, in their first business venture are less aware of the ebbs and flows of the business cycle and of the importance of maintaining cash flow. I have found as a Member of Parliament—I am sure that others have done so—that a large number of relatively young and inexperienced people set up businesses. Although I take on board the hon. Gentleman's points, my experience is that business plans show cascading figures that become meaningless within three to six months, even for relatively successful businesses. Some areas of business do much better than expected and others do not move forward; we are considering shades of grey. I would worry if we were to point the finger at optimistic, young businesses that go under quickly and to categorise them as ''good'' or ''bad''.

Nigel Waterson (Conservative, Eastbourne)

Does my hon. Friend accept that the young entrepreneurs of whom he speaks—many of whom have been so good for our economy—are the sort of people I mentioned who rely on guarantees, or even loans, from their immediate family and friends, who then become the main losers when they go into bankruptcy?

Mark Field (Conservative, Cities of London and Westminster)

Again, my hon. Friend makes a valid point. Many such businesses will be small businesses and might go under with relatively small debts—tens of thousands of pounds, perhaps—most of which will be covered by personal guarantees, many of them from friends and parents. They will come, largely, outside the confines of provisions such as these. However, I am concerned that the Government's thinking is leading to the concept of personal responsibility being undermined.

My hon. Friend the Member for Eastbourne went into some detail in relation to credit and I should like to touch upon that in a moment. I accept that we are talking at the margins. The proposals do not represent an enormously radical change; it would be wrong to overstate that. Nevertheless, the Government's mindset will, to a large extent, undermine personal responsibility. Some of the representations that we have heard from consumer bodies make me fear that debtors will be allowed to walk into bankruptcy as an escape from their debts rather than appreciating that they have a responsibility. I should be most concerned if there were a view that, somehow, the provisions of the Bill allowed people to be rewarded for evading their debts.

The measure will affect the real world, albeit probably at the margins. For example, the credit industry is understandably concerned that it is too relaxed. We could speak at length about property. My fear is not that the housing market will necessarily collapse rapidly—it might not—but that many who have come to it in recent years think that the inflation rate push of the past will continue into the future. If we are to have a sustainable, low-inflation economy, such as the one that we have had for the past decade, it could be that what are now significant loans will remain significant in the long term. Formerly, people took out 25-year mortgages for, perhaps, £30,000—which was a large sum at the time but is now insignificant by comparison with the value of their

property. Now, fundamental changes in the structure of the property market might lead to substantial problems in the medium term.

I am worried that our approach to credit is too relaxed and that the Bill and economic changes may lead to the pendulum swinging quite sharply, producing a tighter squeeze at the other end; that is not desirable. Tied businesses such as banking and leasing are concerned that the measure will be symptomatic of a change in mentality; banks and lending organisations may be to blame for some of the increased and loose credit at present, but they will be under great pressure if smaller concerns can walk away from their debts with minimum difficulty. In the long term, therefore, credit may be tightened, a by-product of which, unfortunately, is that a proportion of people will be almost beyond the pale in respect of lending. The risk is that those who will benefit most from these provisions will be loan sharks, who will be delighted that our fears will be realised.

Our arguments and discussions are largely at the margins, but we are worried that the pendulum is swinging too much in the wrong direction and it will be a little too easy for individuals to escape from their financial responsibilities.

Charles Hendry (Conservative, Wealden)

I put on record my interests as shown in the Members' Register.

The Under-Secretary referred to the proposal as if there were a distinction between those who are rogues and those who are not. As my hon. Friend the Member for Cities of London and Westminster said, that is not what we are talking about. We are considering the issue at the margin; we are not looking at people who are crooked but at the extent to which people will be able to resist the temptation to go bankrupt if it is seen as a relatively attractive option.

The hon. Member for Wolverhampton, North-East was right to say that a definition of what is reckless is at the heart of the debate. We need to understand at what point people step over the boundary between what is acceptable behaviour, which has unfortunately resulted in their bankruptcy, and unacceptable behaviour, which has had the same result.

The Under-Secretary is more aware than any of us of the work done by the social exclusion unit in looking at people's access to financial services because she considered it in the Treasury. She will know of the valuable role played by the consumer credit sector. There is anxiety about the level of interest charged by loan sharks, but in some of the poorest parts of society, people borrow money for a holiday, a fridge and so on, which they would not have been able to get from anywhere else. The money is repaid in weekly instalments, usually to a female collector who lives on the same estate. People know exactly how much they will have to pay back; they know that if they are ill, or lose their job, they will still have to pay back the same amount of money, but the time frame will be adjusted to recognise their needs. Such arrangements have an important role in allowing certain groups in our society access to financial services.

However, my concern is that if the proposal is agreed to, some people will simply decide that it is more convenient to go bankrupt than to pay back their loans. The people who suffer most will not be the companies that make money out of the loans, but their neighbours on the estate who will have to pay a higher rate of interest on their borrowing; thus we enter a vicious cycle. Either more people go bankrupt because they cannot afford the higher rates of interest or, as my hon. Friend the Member for Cities of London and Westminster said, they are driven to the loan sharks, with awful consequences.

My concern is that the proposal will make things easier for people who did not start out thinking, ''I want to go bankrupt,'' but who have mounting debts from credit card and other companies. If the issue is how they juggle their debts, in the end they will come to the conclusion that it would be easier to go bankrupt because it is only for a year or perhaps even less. The people who really suffer will be their neighbours, who will be pushed closer to bankruptcy by having to pay higher interest on their loans.

My hon. Friend the Member for Eastbourne spoke about the problems of student debt. A recent study showed that the average indebtedness of people leaving university is £1,000 higher this year than a year ago. Every time that the amount increases by £1,000, more people, exactly as he said, will feel that it is easier to go bankrupt, so that they can start again with a clean sheet and do not have to repay their debts when they go out into the world.

Harry Barnes (Labour, North East Derbyshire)

Given the hon. Gentleman's line of argument about people finding it easier to go bankrupt and the considerable worries about that, why does he support new clause 9, which seems quite an admirable provision, but which would make it easier for people to go bankrupt?

Charles Hendry (Conservative, Wealden)

We are trying to make the system fairer rather than easier. The students who will be most affected will be those from less well-off backgrounds. If we consider the level of indebtedness of people leaving university, we see that those from middle class and more wealthy families have the lowest indebtedness. That is not surprising, because their parents are better able to support them.

The people whom we are doing our best to encourage to go to university will end up having to borrow more. They will become more indebted and will be pushed into bankruptcy. We all accept that, for many people, there is a stigma attached to bankruptcy, but it will be directly related to income levels. The people most at risk will not be the crooks, but those from lower-income backgrounds who simply cannot afford to pay their bills.

My hon. Friend the Member for Cities of London and Westminster and I can see that my remarks have had a tremendous effect on both our colleagues, but he will be able to read later how complimentary I have been about the important points that he made. He spoke about the motivation of people who go into business. He said that they do so because they have a

great idea and that it is only later that they discover that 400,000 other people have had the same great idea and it does not work quite so well after all. [Interruption.] I now feel less alone and isolated than I did just a few moments ago. People go into business because they have an idea for a better widget or something else that they believe will make them money. Very few people go into business because they want to go bust or defraud people; they are the minority and they make hard cases.

My hon. Friend the Member for Cities of London and Westminster spoke about optimistic young businesses, but we should recognise that the issue does not concern only them. Sometimes, because of a change of circumstance in the market, circumstances go against people who have run businesses for decades and they end up in the situation that was described so well by the hon. Member for Wolverhampton, North-East.

In the county of East Sussex, where my hon. Friend the Member for Eastbourne and I come from, there is a major business problem with care homes. People may have run care homes for years and met every standard going, but they are now closing at a horrendous rate, because their costs are rising faster than their income the whole time. People face major capital costs to keep up with the new legislation being imposed on them.

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

Does the hon. Gentleman agree that it is more honourable and fairer to creditors that those care homes close in good time, before their debts overwhelm them?

Charles Hendry (Conservative, Wealden)

I was coming to exactly that point. The overwhelming majority of people will consider their situation and say, ''We know where this is going and that in a couple of years we won't be able to continue, so we'll look for a way out.'' For many, selling their business for housing will be an attractive option, in that it will give them a huge amount of capital. Others, however, will say, ''I can run this business for a few more years and still sell it for housing in the end and therefore still get the capital. If someone else loses out in the process, I don't care.'' We should have no truck whatever with those unscrupulous people, but we should not doubt that some will go down that route.

The people who are affected by those bankruptcies will be the small, local suppliers who provide food and cleaning services. Those well-meaning and otherwise thoroughly successful businesses will then be pushed towards the edge of bankruptcy themselves. My concern is that those who are affected most will not be rich people, who can afford to engage the best solicitors and pick up the pieces, but vulnerable people, at the margins. That is why we must be deeply concerned and cautious about the way the Minister is taking us.

Melanie Johnson (Labour, Welwyn Hatfield)

I rebut the hon. Member for Cities of London and Westminster's strong and obvious suggestion that personal responsibility is in some way undermined—consciously or unconsciously—by the Bill. The Government believe strongly in individuals taking responsibility for their own affairs.

The Bill's provisions do nothing but strengthen that important link.

I welcome the recent conversion—while we are talking about Catholicism—of the hon. Member for Wealden (Mr. Hendry), and indeed maybe his colleagues, to the cause of financial exclusion. This Government have done much to tackle financial exclusion, which the previous Government for 18 years did nothing but exacerbate.

Charles Hendry (Conservative, Wealden)

If the Under-Secretary looks in the Members' Register she will find that I have been a trustee of the Big Issue for about a decade. I was chairman of the all-party group on homelessness. It is scarcely a recent conversion.

Melanie Johnson (Labour, Welwyn Hatfield)

I accept the hon. Gentleman's point, but there are wider issues in addition to homelessness here. His party has shown little interest in financial exclusion over many decades, except to exacerbate it.

While I am being difficult with Opposition Members, I remind them that we no longer have interest rates at 15 per cent. Many of their remarks would be relevant if interest rates and inflation were spiralling out of control, but the UK has stability, built by the Chancellor of the Exchequer and the Government's economic policies. We now have record low interest rates and inflation.

Mark Field (Conservative, Cities of London and Westminster)

I initially put on record that the stability in this country has been built up by business men. The Government have not hindered it as much as many might have feared. Even with the absolute interest rate of 4 per cent, real interest rates remain fairly high. They have an important bearing on debts built up by the very people to whom my hon. Friend the Member for Wealden referred.

Miss Johnson rose—

Derek Conway (Conservative, Old Bexley and Sidcup)

Order. Before the Under-Secretary speaks, I hope that we will not re-fight the recent general election throughout the course of this clause.

Melanie Johnson (Labour, Welwyn Hatfield)

I shall endeavour not to, Mr. Conway. I accept that business is a key generator of prosperity in the UK. That philosophy underpins much of the Bill. But the hon. Gentleman's remarks are undermined by the fact that were economic stability due exclusively to business and nothing to do with Government policy, what happened in the 1990s would be inexplicable. The hon. Gentleman has no account of that, except the one I gave of the difference in economic policy pursued by this and the previous Government.

I have been through many of the questions on the US. I do not think the hon. Member for Eastbourne was listening carefully to what I said, because he reiterated his earlier remarks without taking any account of the fact that I drew on experiences elsewhere of bankruptcy; I did not focus on the US. The US is moving in our direction rather than us moving in its. The hon. Gentleman has failed to take that point on board.

Nigel Waterson (Conservative, Eastbourne)

What about Hong Kong?

Melanie Johnson (Labour, Welwyn Hatfield)

I do not need to address Hong Kong, about which the hon. Gentleman quoted a statistic.

Nigel Waterson (Conservative, Eastbourne)

What about Scotland, then?

Melanie Johnson (Labour, Welwyn Hatfield)

I do not understand why the hon. Gentleman feels I need to respond to the question of regimes different from our own.

Nigel Waterson (Conservative, Eastbourne)

As the Under-Secretary has provoked me into intervening, there may be something to be learned from the results of other countries liberalising their bankruptcy laws along lines—to avoid another unnecessary argument—not dissimilar to those suggested in the Bill. If she is not happy looking at it in America, which is only a £200 plane fare away, why not look at Scotland?

Melanie Johnson (Labour, Welwyn Hatfield)

We looked widely at experiences elsewhere. We are specifically not adopting various aspects of the US regime, for exactly the reasons that the hon. Gentleman suggested. We are keeping the good parts of our provisions. The US is moving more towards us than we are moving towards it. The strengths of the UK systems and the strengths of recent developments are reflected in the Bill.

While I am on the strengths of the system, it is worthwhile quoting the Prince's Trust. In a statement to officials on 26 March it said:

''We particularly support the proposed easing of restrictions on people who have experienced business failure through no fault of their own—for example the provision to reduce bankruptcy restrictions from three years to a maximum of 12 months for this group. We welcome the proposal to distinguish more clearly between those who have made a genuine attempt to succeed in business and those who have become bankrupt through reckless or fraudulent practices.''

The House has strong connections with the trust and so hon. Members will know that it has strongly supported young entrepreneurs who have found it difficult to get funding for their business proposals through traditional means. Many of them have built very successful businesses out of the support that the trust has given them. It is pleasing to have the trust's welcome for the Bill.

I turn now to the question of the difference. Some hon. Members have failed to take any account of schedule 20 in their understanding of the distinction between those who are reckless and those who are not. It lists the grounds for making an order. I will not test the Committee's patience by reading out the relevant paragraphs (a) to (m), but they include such grounds as

''making an excessive pension contribution . . . a failure to supply goods or services that were wholly of partly paid for which gave rise to a claim provable in the bankruptcy . . . trading at a time before commencement of the bankruptcy when the bankrupt knew himself to be unable to pay his debts''.

These are all very relevant considerations. They are not an exhaustive set of reasons but they illustrate the circumstances under which we think recklessness is likely to be shown and to require a BRO.

I can only re-emphasise that bankruptcy is not an easy option. It is bound to remain the last resort. The hon. Member for Wealden suggested that people would somehow declare themselves bankrupt. Bankruptcy involves a court process. People cannot simply decide to be bankrupt one day because they feel like it. It is wrong to think that it is an easy passage.

Some of the stigma that existed in the past will remain even though some of those people should not be stigmatised in that way in the future. Bankrupts who can will have to make contributions from their income. They will still be required to do so under these provisions. Indeed, there will be a strengthening of the income payments order regime to ensure that those payments are made.

There will be a register of BROs, which will help to improve the already sophisticated information kept by credit reference agencies. The distinction between culpable and non-culpable bankrupts should help to produce more informed lending decisions about whether to provide credit. At present, there is little difference.

The hon. Member for Cities of London and Westminster spoke about shades of grey and the issue was picked up by the hon. Member for Wealden. In some cases, it will be easy to distinguish reckless from non-reckless behaviour; schedule 20 enables the courts to do so. Sometimes a strong case will be made that circumstances beyond one's control contribute to a bankruptcy. One reason why people end up with mortgage arrears—the subject greatly exercised Opposition Members in their discussion of the clause—is a breakdown of relationships. It accounts for about a third of arrears. For more than one in five, reduced income is the key factor and for nearly one in five it is unemployment. Almost 10 per cent. of arrears are attributable to ill health.

We would all accept that those examples have nothing to do with culpability, but, in some middling cases, there will be shades of grey. That is why it is for the courts to decide and why we should not constrain their ability to take decisions on the merits of each case. Many members of the Committee have legal backgrounds and know full well that the particular circumstances presented to a court are crucial for taking decisions on the level of culpability.

Although the Bill does not deal with the issue of loan sharks, a major review—the first for 30 years—of consumer credit legislation is currently taking place. We aim to tackle rogue traders through the Bill and through stop now orders, and we aim to tackle loan sharks through the review of consumer credit and measures consequent upon it. That is how we shall deal with loan sharks and those charging vulnerable consumers exorbitant rates of interest.

Nigel Waterson (Conservative, Eastbourne)

Ideally, without using the standard civil service word ''shortly'', can the Under-Secretary tell me when the review is likely to be concluded and when concrete proposals on consumer credit will emerge?

Melanie Johnson (Labour, Welwyn Hatfield)

We have produced a timetable. I do not have it in front of me, but it is a published document that sets out the various elements. I will gladly give the hon. Gentleman a reference for him to follow it up later.

Gareth Thomas (Labour, Harrow West)

Will my hon. Friend reassure me that as part of the review of consumer credit legislation, the case of Paragon

Finance, which was taken to the High Court in October and November last year, will be dealt with? Its standard interest rates quadrupled, apparently because the definition of ''extortionate'' in consumer credit legislation is insufficiently rigorous to prevent such activity.

Melanie Johnson (Labour, Welwyn Hatfield)

Certainly the definition of extortionate is one of the issues under active consideration in the review. I can reassure my hon. Friend that we have every intention of dealing with the problem that he rightly draws to our attention.

The hon. Member for Orkney and Shetland seems to have left the Committee for this morning, but I am sure that the hon. Member for Southport (Dr. Pugh), who is in his place, will relay this information to him. The individual insolvency provisions will apply only to England and Wales, and it will be a matter for the Scottish Executive and Parliament to decide whether to apply the provisions north of the border.

There are a few general points to make about the question about bankruptcy proposals fuelling consumer bankruptcy in addition to my earlier points about mortgage arrears. The Committee should remember that of more than 11 million mortgage customers in that fund in the UK, only 18,000 were repossessed during 2001, which is only 0.16 per cent. of all mortgages. It is a tiny proportion, and mortgage lending represents 81 per cent. of all consumer lending in the UK.

Conservative Members suggested that the nature of the Bill would encourage the irresponsible use of credit among consumers. In particular, two systems were suggested; a relaxed regime for those in business and no change for those whose bankruptcy is a result of non-business debts. As I mentioned earlier, the current law does not discriminate between business and consumer bankruptcies. People find themselves being made bankrupt through no fault of their own. For those in business, that could be the result of a disproportionate increase in the cost of rent or materials. For those who are not, it could be the result of redundancy, ill health or marital breakdown; the sort of reasons that also lead to problems with mortgages.

As of 31 December 2001, bankruptcy statistics show that there is a split between self-employed bankrupts and the remainder; 43 per cent. were self-employed bankrupts and 56 per cent. were on the non-self-employed or ''consumer'' side. The use of the terms ''business'' and ''consumer'' bankrupts is, as I said, a crude way of expressing the difference. A consumer bankruptcy might apply to some self-employed traders if, for example, they have simply spent more than the income generated by their businesses. Some employees may also have small businesses that they carry on in their spare time.

The bankruptcy restrictions orders cover both consumers and traders and will act as a serious deterrent to the irresponsible. I have already run through the provision concerning the restrictions of between two and 15 years. As we all know, it is not an easy option, and will not become so under our proposals, for someone to take the route into

bankruptcy. Trustees will be entitled to realise the same assets and income as now, and bankrupts who are able to contribute will still be required to do so. In fact, the income payments orders provision, which I mentioned earlier, will extend beyond discharge and run for three years, which is slightly longer than the current norm. The orders will still be advertised and the information will be held in the public domain. There will be a register, and the credit reference agencies will use the information.

The bankruptcy will affect consumers' future ability to obtain further credit and gain access to other goods and services. When a consumer has behaved irresponsibly, it will be probably be some time before lenders are prepared to risk offering credit. Therefore, there is a major disincentive for the majority of consumers. None the less, we believe that it is right to have a differentiation that has not been made before for those who ended up in that position through no fault of their own. It is also right to ensure that there is a different path of treatment, which is speedier and more effective and does not contain the stigma that is rightly appropriate for those who are placed under the BRO regime.

Question put and agreed to.

Clause 245 ordered to stand part of the Bill.

Schedule 19 - Duration of bankruptcy:

Standing Committee B

Enterprise Bill

Schedule 20 - Schedule 4A to Insolvency Act 1986

Mark Field (Conservative, Cities of London and Westminster)

I beg to move amendment No. 431, in page 286, line 13, after 'knew', insert

'or ought to have known'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this we may take amendment No. 450, in

page 286, line 13, after 'debts', insert

'or ought to have concluded that he was unable to pay his debts'.

Mark Field (Conservative, Cities of London and Westminster)

Schedule 20 refers to elements of section 246. Our concern is that there should be not merely a subjective, but an objective reasonableness test. That would tie in with the fairly well known wrongful trading provisions of section 214 of the Insolvency Act 1986. There should be some parallel between those provisions, which have an important part to play and form the basis of the post-discharge restrictions, and the schedule. If the current wording is maintained, there is a risk that a person who is bankrupt will be simply able to deny that he knew that he was unable to pay his debts, and if he could show that he was reasonable to hold that belief at the time, there would be no objective test of whether it was reasonable for him to do so.

I should be interested to know why the form of wording in the schedule was used, because there seem to be parallels between the sorts of test that should apply to post-discharge restrictions and those in the current legislation relating to wrongful trading. Is there any reason why there should be less of a burden on a bankrupt in that regard? I shall allow the Under-Secretary to have her say.

Melanie Johnson (Labour, Welwyn Hatfield)

My say will be brief, but I can help the hon. Gentleman. The amendments do not work well together as a pair. However, the sentiments behind each one are valid. I

ask the hon. Gentleman to withdraw the amendment because I accept that his points are well made and I am happy to reconsider the matter to see whether we should table an appropriate amendment to give effect to his suggestion.

Mark Field (Conservative, Cities of London and Westminster)

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

Amendment, by leave, withdrawn.

Mark Field (Conservative, Cities of London and Westminster)

I beg to move amendment No. 522, in page 286, line 28, leave out from 'also' to end of line 29 and insert

'in particular, consider whether the bankrupt had a bankruptcy order made against him at some time during the period of six years ending'.

The amendment is a relatively minor one. It would catch not only undischarged bankrupts but those against whom bankruptcy orders had been made, thereby introducing a stricter test. Will the Under-Secretary give us some guidance on the Government's position? They may be using a more certain test, but it does not provide the protection that we would want in the schedule.

Melanie Johnson (Labour, Welwyn Hatfield)

I cannot help the hon. Gentleman to any great degree, as the amendment would require that the earlier bankruptcy must have commenced some time in the six-year period for the court to be able to take it into account. That would mean that unco-operative bankrupts could not have their earlier bankruptcy considered, as the order would have been made some time outside the six-year period, probably as a result of their unco-operative activity.

The amendment is undesirable. We want to reduce the stigma for bankrupts, including those who may have failed before, as long as there is not misconduct. However, the period in question should apply to all undischarged bankrupts and not restrict the measure to those made bankrupt during the period in question. Under the new provision, those who were previously bankrupt could have the earlier bankruptcy considered in bankruptcy restrictions order proceedings, when the previous bankruptcy was within seven years. If the discharge was suspended, that time could be longer.

It is right to include those who have not co-operated with the official receiver, but the amendment would rule them out of consideration if the bankruptcy order fell outside the six-year period. That is why we are resisting the amendment.

Mark Field (Conservative, Cities of London and Westminster)

That is not the intention of the amendment. The Under-Secretary gave the example of an unco-operative bankrupt, but the order would be ongoing and would be caught within the six-year timetable, even if the individual did not co-operate. On the basis that the amendment does not seem to have scintillated the rest of the Committee enough to persuade hon. Members to join the debate, I shall not try to continue our discussion. I hope that we have made our point and we may return to the issue at a later stage. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mark Field (Conservative, Cities of London and Westminster)

I beg to move amendment No. 560, in page 287, leave out lines 11 to 14 and insert—

'5 (1) This paragraph applies to any person who—

(a) is an undischarged bankrupt who is not subject to a bankruptcy restrictions order, or

(b) is a former bankrupt in respect of whom there is a pending application for a bankruptcy restrictions order.'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to discuss the following amendments: No. 561, in page 287, line 17, leave out 'the' and insert 'an'.

No. 562, in page 287, line 18, leave out 'will' and insert 'would'.

No. 563, in page 287, line 26, at end insert—

'( ) where the order is made by virtue of sub-paragraph (1)(a), if more than twelve months elapses without an application for a bankruptcy order being made,'.

Mark Field (Conservative, Cities of London and Westminster)

The amendment was suggested by PricewaterhouseCoopers, the accountancy firm. The main point is made in the lead amendment, with the other three amendments running concurrently with it.

The amendment would allow the official receiver to be in the position to apply for an interim bankruptcy order in circumstances that he considered appropriate, to protect the public interest while he or she completed the investigation necessary to enable the official receiver to decide whether to apply for a bankruptcy order. The idea is that a little more time is effectively bought, and a stronger, slightly easier and more certain test is provided.

The matter is technical, and an accountancy body has advised us on it. One of our concerns about the schedule is that there will be insufficient opportunity for the protection of the public interest if, in a complicated bankruptcy, there is no opportunity to apply for an interim order when appropriate. There may be a delay in such a situation, which would result in the public interest not being protected.

Melanie Johnson (Labour, Welwyn Hatfield)

The Bill provides that interim bankruptcy restrictions orders can be made only as a consequence of an application for a substantive BRO. The amendments seek to break the consequential link and provide for separate applications for substantive and interim BROs.

The amendments do not make sense, because paragraph 5(2) of the schedule, which deals with the application for the interim BROs, requires that

''there are prima facie grounds to suggest that the application for''

a substantive BRO would be successful, and that

''it is in the public interest to make''

that order. If one has to be in a position to establish a prima facie case—and the court is unlikely to grant an interim order otherwise—there is no reason why the application for a substantive BRO cannot be made at the same time. If such an application were not made, one would risk criticism for undue delay. That is why the provisions on the interim BROs are drafted as they are.

The purpose of the interim orders is to prevent delays in serious cases between the application for the BRO and the court hearing, during which time the bankrupt is otherwise subject to no restrictions;

therefore, the public is not protected if he or she has been discharged from bankruptcy in the meantime. That is why I resist the amendment.

Mark Field (Conservative, Cities of London and Westminster)

Will the Under-Secretary guide us some more on the nature of the delays? We are all at one, in the sense that we effectively want to cover the vacuum that may occur between the official receiver making the application and a bankruptcy order being granted. We want to ensure full protection in that period. From what she said, I appreciate that a BRO will not be granted unless there is a strong prima facie case. Obviously, that is the basis on which an interim bankruptcy order would be granted in any event.

I hope that the Under-Secretary understands our concerns, which we raise on behalf of business interests that are worried that there may be a gap. Will she give us some comfort as to how the process will work and what the likely delays will be? On that basis, does she regard the protection that we are seeking as illusory or unlikely to be necessary in a practical sense?

Melanie Johnson (Labour, Welwyn Hatfield)

The point of the interim BRO is precisely to ensure proper protection and that there is no gap, so I share the hon. Gentleman's concern that we need to make that work. That is why the provision is drafted as it is. The gap will arise because arrangements may need to be made before the court hearing. As for applying for an interim order, it would not be good to go to court to argue for an interim BRO without a prima facie case. But, as we have made provision for in the Bill, if a prima facie case can be made, it would be perfectly reasonable to go for a substantive BRO.

Mark Field (Conservative, Cities of London and Westminster)

On balance, although the matter has been discussed, our underlying concern is that, in complicated cases, the official receiver may find it difficult to bring together enough evidence to satisfy the court that a prima facie case could be made for a fully fledged order. We were seeking guidance on whether an interim order could be made in those circumstances. I appreciate that the Government have no desire for interim orders to be handed out as if they were a rubber stamp job; particularly if, further down the line, there was insufficient evidence to mount a prima facie case and the interim order lapsed before a fully fledged order had been applied for, let alone made.

I hope that the Under-Secretary understands at least some of the concerns that have been passed on to us about the fact that strongish cases might sometimes be brought. On balance, however, we have made the point.

Melanie Johnson (Labour, Welwyn Hatfield)

Before the hon. Gentleman concludes, it may help if I say that I will write to him in a little more detail about timing, with copies sent to other members of the Committee. I assure him that our desire, like his, is that there should be no gap.

Mark Field (Conservative, Cities of London and Westminster)

That would be helpful, and I thank the Under-Secretary. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 20 agreed to.

Schedule 21 agreed to.

Clause 247 - Investigation by official receiver

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 432, in page 172, leave out lines 37 and 38.

The amendment is, in effect, sponsored by the CBI and the Consumer Credit Association, which makes me wonder whether it should not have considerable appeal. The amendment seeks to remove subsection (2) of proposed new section 289 of the Insolvency Act 1986. The provisions of clause 247 seem rather odd. Subsection (1) imposes a duty on the official receiver to conduct an inquiry or investigation into the affairs of each and every bankrupt and make a report. In a contradictory provision, subsection (2) says that the official receiver can decide for himself that it is not necessary to comply with the duty set out in subjection (1).

We do not agree with that provision; nor do the CBI and the Consumer Credit Association. We all take the view that bankruptcy is a serious and important matter and that a proper investigation—whether it is long or short is another matter—should be made into each case of personal insolvency. If an argument can be made for dispensing with that investigation, at the very least provision should be made for someone else to make that decision. It seems a bit unfortunate, to put it mildly, that the official receiver will be able to decide whether to carry out an investigation. The CBI states:

''To leave the provision as it stands invites the most self-serving abuse by an overstretched Official Receiver's department.''

The official receiver's department is already under great pressure. We have said that there will be a sharp increase in the number of insolvencies across the board, and I do not think that has been gainsaid by the Under-Secretary. If it has been I must have missed it. If, like all departments, the official receiver's department will be under relentless pressure to perform to certain standards, will there not be a temptation to cut corners and to take the view that, in many insolvency cases—particularly those involving small amounts—no fraud investigation is necessary? As the CBI says,

''If the Official Receiver is both judge and jury on the issue whether an investigation is necessary, how will we ever know whether the decision has been made properly?''

The effect of our amendment would be to require the official receiver to investigate the conduct and affairs of all bankrupts, on the basis that those who have such a duty placed upon them should not have a completely unfettered, unqualified power to release themselves from that very duty.

Melanie Johnson (Labour, Welwyn Hatfield)

As the hon. Member for Eastbourne (Mr. Waterson) said, the amendment demands a full investigation by the official receiver into all cases, regardless of the facts and circumstances of the case. There is no such requirement under existing legislation. In summary bankruptcies where the unsecured liabilities are less than £20,000, which account for a large number of bankruptcies, the

official receiver presently has discretion to investigate where he or she sees fit; I emphasise the word ''discretion''.

The Bill will remove the provisions relating to summary bankruptcy and introduce instead a general discretion to investigate. It makes for a more efficient use of resources to examine each case on its merits rather than to apply an arbitrary financial limit, as is currently the case. Indeed, the amendment would provide for many a much harsher regime than the Bill envisages. I would like to reassure the hon. Gentleman that, as is currently the case, the official receiver will continue to examine comments and requests from creditors.

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

Does my hon. Friend have in mind the kind of case in which a company is brought down because somebody with whom it has traded for many years suddenly lets it down on a huge order, as a result of which it suddenly finds itself insolvent, when previously it had always been solvent? As I have such a case in my constituency, I would be grateful if my hon. Friend were to resist the amendment.

Melanie Johnson (Labour, Welwyn Hatfield)

My hon. Friend raises a very interesting case, on the particulars of which I obviously cannot comment. However, there is no point in placing on the official receiver a duty to investigate under circumstances of the kind that he has just described with reference to his constituency issue, where there would be little to investigate. Such investigation would be intrusive and would cost money and time for all parties concerned.

Should the official receiver decide that an investigation is necessary and decide to exercise their powers under new section 279(2) to file a notice of discharge earlier than the one-year discharge period, we propose to ensure, in the insolvency rules, that the official receiver notifies the creditors before such a notice is filed before the court. That will allow the creditors to make any representations about matters that they consider the official receiver ought to investigate.

I see only disadvantages to the amendment. It is not necessary and it would not smooth things; if anything, it would create a lot of red tape and a lot of activity to no good purpose. I hope, therefore, that I have persuaded the hon. Gentleman to withdraw it.

Nigel Waterson (Conservative, Eastbourne)

I have not been persuaded on the merits. There is still the issue, apart from anything else that the Under-Secretary said, of whether the official receiver should be the person to decide whether the official receiver should carry out the investigation. However, so that we can make progress, I am happy to beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 247 ordered to stand part of the Bill.

Clause 248 - Income payments order

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 555, in page 173, line 17, leave out 'before the discharge of the bankrupt' and insert

'within twelve months of the bankruptcy order'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to take amendment No. 433, in page 173, leave out lines 19 to 23 and insert—

'(6) An income payments order must specify the period during which it is to have effect which period may end after the discharge of the bankrupt.'.

Nigel Waterson (Conservative, Eastbourne)

To an extent, these amendments overlap slightly. They try to sort out the same problem as we perceive it and as it is perceived by some practitioners in this part of the law. As the Bill stands, it will be possible for bankrupts to be discharged as soon as the official receiver has decided that there is nothing calling for an investigation. In theory, that can happen quite quickly; within weeks or, certainly, two or three months. That means that the trustee will have little time in which to decide whether or not to apply for an income payments order, which gives the trustee an incentive to apply for such an order as soon as possible and gives the bankrupt an incentive to conceal his income from his trustee for as long as possible. If the amendment is accepted, it will put trustees and bankrupts on an equal footing and will stop possible variations between different official receivers' officers around the country.

Our justification for amendment No. 433 is that there should be no limit on the length of time for which an income payments order or an agreement can last. The decision about whether to cap the length of time should be left to the discretion of the court. Only the court will be in a position to give due consideration to an individual's circumstances and his ability to make future payments. The point is to ensure that debtors who can pay, do pay, and that they are not able to avoid their obligations. Both of the amendments are designed to ensure that, in the scramble to allow someone to come out of bankruptcy within less than the stipulated period of 12 months, creditors are protected and—as far as possible—assets are made available for them.

Melanie Johnson (Labour, Welwyn Hatfield)

First, I shall address amendment No. 555. The administration of a bankruptcy case by the official receiver will enable IPOs to be dealt with at an early stage. In cases in which such information has not been made available, it is possible to suspend discharge until it has been delivered. The provisions introducing income payments agreements will speed up the process still further by avoiding court application. There is no real advantage in extending the time available for an IPO application, except in cases in which it is strictly necessary. That is already achieved by means of the facility to suspend discharge. Indeed, the amendment would affect those cases in which a bankrupt had been suspended from discharge. If, after 12 months, he co-operated, the trustee would be time-barred from making such an application. That does not seem to be a sensible consequence.

Turning to amendment No. 433, I agree that those bankrupts who are able to make contributions from their income should be required to do so. However, setting a 3-year limit to the duration of IPOs recognises that there must be a balance between the

benefits that that would bring to the bankrupt's creditors and the rehabilitation of the individual. It would not be fair or consistent to impose a far more stringent system than already exists, as would be the effect of the amendment. I therefore trust that both amendments will be withdrawn.

Nigel Waterson (Conservative, Eastbourne)

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

Amendment, by leave, withdrawn.

Clause 248 ordered to stand part of the Bill.

Clause 249 - Income payments agreement

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 556, in page 173, line 36, leave out 'or'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to take the following amendments: No. 435, in page 173, line 38, after 'specified', insert 'part or'.

No. 557, in page 173, line 39, at end add ',

(c) both (a) and (b)'.

No. 434, in page 174, leave out lines 9 to 13 and insert—

'(5) An income payments agreement must specify the period during which it is to have effect which period may end after the discharge of the bankrupt.'.

Nigel Waterson (Conservative, Eastbourne)

We can dispense with these amendments fairly briskly. Amendments Nos. 556, 557 and 435 are technical amendments, which would introduce more flexibility and cover a situation in which a bankrupt had both earned and unearned income.

Amendment No. 434 echoes our debate on the previous clause, but relates to the duration of the income payments agreement. I simply reiterate what the CBI and others have said: there is no clear reason for the limitation, and it would make more sense to leave the issue to the discretion of the courts, which will quickly establish their practice in the matter while retaining the power to deal more rigorously with exceptional cases. This has nothing to do with entrepreneurialism or enterprise; it is driven by the rule that where a debtor can pay, he should pay. However, given that some of the arguments relating to amendment No. 434 are similar to those that the Under-Secretary contemptuously dismissed in relation to the previous clause, I have little hope that she will accept the amendment.

Melanie Johnson (Labour, Welwyn Hatfield)

I am sorry; I am trying to dismiss suggestions gently.

Amendment No. 556 provides for a situation in which a bankrupt can make payments to his trustee under an income payments agreement both by himself and from a third party at the same time. It is difficult to envisage such a situation arising. Payments are generally made by third parties, such as employers, for example, because a bankrupt has failed, for whatever reason, to make the payments himself, and the trustee goes directly to the employer with an attachment of earnings order to enforce payment. The proposals provide that where an IPA is breached by the

bankrupt, the trustee may, under subsection (3), apply to the court for a variation for direct payment by a third party.

By removing the word ''or'', as the amendment would, an income payments agreement could provide only for both a bankrupt and a third party to make payments. Individual payment by one or the other would not be possible. I am sure that that is not what was intended. It certainly does not seem necessary or appropriate.

Amendment No. 435 would ensure that the same terms are used in referring to the contributions from a bankrupt's income made under an income payments agreement, irrespective of whether they are made direct by the bankrupt or from a third party, such as the bankrupt's employer. Although that might seem sensible at first sight, it would be wrong. Clause 249 introduces new section 310A into the Insolvency Act 1986 relating to income payments agreements. Subsection (1)(a) states that an IPA might provide for a proportion or part of the bankrupt's income to be paid to the trustee or official receiver, whereas subsection (1)(b) provides only that a proportion of the money due to the bankrupt by way of income should be paid to the trustee or official receiver by a third party. The amendment would do away with that distinction.

The reason for the distinction is that paragraph (a) deals with the whole of the bankrupt's income, from whatever source, and allows the bankrupt to agree to designate either a proportion of his income or specific part of it, whereas paragraph (b) deals only with money due to the bankrupt from a third party—for example, salary from employment. In that instance, it is sufficient for the agreement to specify a proportion of it.

I find it difficult to imagine the situation covered by amendment No. 557, which provides for a situation in which a bankrupt can make payments under an IPA both by himself and from a third party. The amendment is unnecessary because, generally, payments are made by third parties, as I said before.

On amendment No. 434, it is right that those bankrupts who are able to make contributions from their income should still be required to do so. I entirely agree with the hon. Member for Eastbourne on that, but setting a three-year limit to the duration of the new income payments agreements reflects both the current and proposed treatment of income payments orders—both the IPA and IPO arrangements. It recognises that there should be a balance between the benefits that that will bring to the bankrupt's creditors and the rehabilitation of the individual concerned.

It is also hard to see why anyone who entered an IPA would want to bind themselves for a longer period than could be made under an IPO. That could waste a large amount of court time, which is what IPAs seek to avoid. For those reasons, I invite the hon. Member for Eastbourne to withdraw the amendment. Before I do so, I should like to tackle a further issue that he raised. The term ''income'' covers all forms of income, whether earned or unearned.

Nigel Waterson (Conservative, Eastbourne)

I am grateful for that nugget in an otherwise rather dispiriting response from the Under-Secretary. We have achieved something by establishing what income includes, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 249 ordered to stand part of the Bill.

Clauses 250 and 251 ordered to stand part of the Bill.

Clause 252 - Individual voluntary arrangement

Nigel Waterson (Conservative, Eastbourne)

I hope that this clause stand part debate will be short, but I have no control over such matters. I am sure that the Under-Secretary will cite the figures—I do not have them to hand, but I remember seeing them—that tell us that there are a relatively small number of individual voluntary arrangements compared with the overall picture of insolvency.

Melanie Johnson (Labour, Welwyn Hatfield)

There are 7,000, I believe.

Nigel Waterson (Conservative, Eastbourne)

I recall that the numbers have gone down slightly in recent years, but IVAs obviously have carved a niche for themselves in our system. Many people, especially professionals, will strive for an IVA rather than formally enter insolvency proceedings, for the obvious reason that they may be able to continue to practise as, for example, solicitors. People have used IVAs on a fairly widespread basis over several years. In terms of saving court time and professional fees, I am sure that we would all encourage a relatively informal solution whereby a debtor sat down with his creditors and hammered out an agreement on how he would repay them over a period, in whole or in part.

All the commentators seem to agree—which is a blessing—that IVAs will become significantly less popular because of the Bill. To put it broadly, if someone can go in and out of bankruptcy in a year or possibly much less time, what is the attraction of an IVA? It might be interesting to discuss under a later clause whether IVAs would still be any attraction when professions were involved. The Under-Secretary may be able to help me in an intervention.

We are clearly changing the position somewhat for Members of Parliament and others such as justices of the peace, although I read only two days ago in the paper that they are no longer supposed to call themselves that. If not in this debate, I hope that later we can clear up what the attitude of professional bodies such as the Law Society will be. Perhaps they will take a similar view and say that if someone goes into insolvency he will not suffer the risk of being unable to practise his profession unless a bankruptcy restrictions order applies to him. In any event, it is clear that IVAs have fulfilled a purpose in the treatment of people in this country with financial difficulties. However, they do not always achieve what they are supposed to.

In the context of the clause and how the Under-Secretary might reconsider it, I want to raise an issue

on behalf of my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond). He asked me to mention a case in which two of his constituents were put to some trouble and cost when one of the other leaseholders went in for an IVA, which was ran by an insolvency practitioner based at the other end of the country. Many of my hon. Friend's constituents' difficulties were caused—at least indirectly—by the fact that the gentleman in the IVA had failed to declare what amounted to beneficial ownership of his flat in the block. It was difficult to pin down who was speaking on his behalf, but it became apparent in the course of the IVA that the man had not fully declared his assets and, in particular, his beneficial ownership of the flat.

The problems generated by that failure provoked correspondence between my hon. Friend and the chief executive—the inspector general and agency chief executive, to give him his full title—of the Insolvency Service. The inspector general confirmed that, although the person nominated to run the IVA must be a licensed insolvency practitioner, he must take only reasonable steps to satisfy himself about the debtor's true position as to assets and liabilities, and ensure that it does not differ in any material respect from that represented to the creditors.

We do not believe that IVAs always work splendidly. I have provided just one example of an IVA that was undermined by the very informality of the IVA procedure. What role does the Under-Secretary predict for IVAs? Will they become a thing of the past, and if so, will that be a good thing?

Melanie Johnson (Labour, Welwyn Hatfield)

First, I should point out that the concept that those who can pay should pay is a long-established principle of our individual insolvency regime. People in debt already use a variety of procedures to deal with debt, including the formal debt-management plans run by the public and private sector, or more formal, court-based procedures, such as county court administration orders, of which there are about 8,000 a year. However, that regime can be used only when the debtor has total debts of less than £5,000 and a judgment against them.

The IVA regime set out in the Insolvency Act 1986 has provided about 7,000 IVAs per year. Very few IVAs are entered into after a bankruptcy order has been made, however. A benefit of the post-bankruptcy IVA is that the bankruptcy order can be annulled and the debtor is no longer subject to bankruptcy restrictions. If a person defaults on an IVA, there are grounds to petition again for bankruptcy.

We have proposed that the official receiver should be able to act as a nominee and draw up the IVA proposal, which is then put to creditors, and a supervisor who implements and manages the proposal approved by creditors in post-bankruptcy IVA cases. That proposal was first included in ''Bankruptcy—A Fresh Start,'' the Insolvency Service consultation document that was issued in 2000, and last year's White Paper, ''Productivity and Enterprise—Insolvency—A Second Chance'', and was welcomed by both debtors and creditors.

Most stakeholders agree that IVAs can lead to a better return to creditors, but debtors and creditors have criticised the level of entry fee and the administration fees charged by supervisors. Allowing the official receiver to act in fairly straightforward post-bankruptcy cases will bring competition into the lower end of the IVA market. The official receiver is well placed to establish whether an IVA would be appropriate for a bankrupt, as he already has details of assets and income through his examination of the bankrupt's affairs.

I turn to some of the points that the hon. Member for Eastbourne raised. First, the offence of providing false information will be drawn to the bankrupt's attention before she or he provides information to the official receiver on an IVA proposal. Additionally, if the official receiver has any doubts about the veracity of the bankrupt statement, she or he is likely to decline to act as the nominee for that person. The continuing attraction of IVAs, to which the hon. Gentleman referred, is that the bankruptcy is annulled and not discharged—it is as though it never was. IVAs will continue to be attractive for that reason under the new regime, notwithstanding the hon. Gentleman's points.

The intention, though, is not to increase the number of post-bankruptcy IVAs. Only around 0.5 per cent. of IVAs annually are post-bankruptcy. I hope that that clarifies the points for the hon. Gentleman. I commend the clause to the Committee.

Mark Field (Conservative, Cities of London and Westminster)

A number of friends of mine have been through the IVA treatment and it strikes me that it is one aspect of the Insolvency Act 1986 that has worked quite well. It has been a sensible and pragmatic approach, especially for those who have taken it without going for fully fledged bankruptcy. I reiterate the concern expressed by my hon. Friend the Member for Eastbourne that there is a danger that making bankruptcy relatively more attractive—the exit route being that much swifter—will create a strong disincentive to take the IVA route, which is a sensible one, particularly for individuals with fairly minimal debts. People may have debts totalling a few tens of thousands of pounds, some of which is with the bank and some with individuals or small trading companies.

My experience in advising a friend who took the IVA route was that he was able to reach a sensible deal that did not involve the large expense or the lengthy process of a fully fledged bankruptcy. However, an individual who might under the current regime be happy to take the IVA route, whereby all the creditors get a certain number of pence in the pound, might feel that, because the time limit for bankruptcy discharge has become more attractive, they should take that route and pay far less. They might do so because they have relatively little in realisable assets, or are unable to cut a deal that involves borrowing money from a friend, for example. That is my only concern. I am not entirely convinced about the provision. The proof of the pudding will be in the eating: whether the take-up of IVAs begins to decrease. Conservative Members have at least had a chance to utter a word of warning.

Nigel Waterson (Conservative, Eastbourne)

I would like to come back on a couple of the Under-Secretary's points. What she said was very helpful but it is worth noting in passing that this is yet another new responsibility for the official receiver. I hope that the Committee will take as read the point about resources to which we keep returning.

There is the further issue of stigma. As I said in the original debate on that point, one of the main attractions of the IVA route is that it does not have the stigma of bankruptcy, and the Under-Secretary has confirmed that. I do not know whether she will be dealing with this later but, given the new arrangements for bankruptcy and bankruptcy restrictions orders, I am curious to know what the professions are going to do about stigma. Will they align their position with that of justices of the peace and Members of Parliament? We may be able to deal with that when we get to the relevant clauses, but I am curious—I could have found out about the issue before this afternoon's sitting, if I had thought about it—as to how that will work. If we analysed figures on those who have taken the IVA route, we would find that a high proportion of them wanted to avoid the stigma of bankruptcy. That probably means that they are professionals of some sort.

Melanie Johnson (Labour, Welwyn Hatfield)

We think that the clause adds to the options available. It is about a range of choice for those who are prepared to deal responsibly with their debts. We think that people will continue to pursue the route.

On the points made about the official receiver's resources, the Insolvency Service has been given substantial additional funding for the next two years. Those extra resources will enable it to be ready to introduce the proposed reforms, which are to invest in its infrastructure, to train staff and to continue to deliver the service that customers expect.

The processing of IVAs under the new financial regime will be cost-neutral. The official receiver will act only in straightforward cases, and the fast-track regime will maximise returns. The official receiver will acquire much of the information needed to make decisions on viability of IVAs through examination of the bankrupt's affairs. Official receivers are experienced in assessing bankrupts' disposable income through the operation of a similar regime for income payments orders.

I hope that I have reassured the Committee that the resources are in place, with the experience alongside them.

Question put and agreed to.

Clause 252 ordered to stand part of the Bill.

Schedule 22 - Individual voluntary arrangement

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 451, in page 291, line 21, leave out 'a bankruptcy debt' and insert

'a debt which is a bankruptcy debt or would be a bankruptcy debt if a bankruptcy order were made in relation to the debtor on the day the official receiver considers whether subsection (2) applies'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this we may take the following amendments: No. 452, in page 291, leave out lines 27 to 32 and insert—

'(b) must include an invitation to creditors to approve the voluntary arrangement in accordance with section 258 and the Rules.'.

No. 453, in page 291, line 32, at end insert—

'(4A) When applying to section 258 and the Rules to subsection (4)—

(a) references to section 257 shall be omitted,

(b) subsection (3) of section 258 shall not apply, and

(c) the meeting may approve the proposed voluntary arrangement with modifications but shall not do so unless both the debtor and the official receiver consent to each modification.'.

No. 436, in page 292, line 1, after 'court', insert 'and the creditors'.

Nigel Waterson (Conservative, Eastbourne)

I am indebted again to PricewaterhouseCoopers for the group of amendments. They are designed to approach some practical issues in the schedule, which deals with the nuts and bolts of IVAs under the Bill.

First, I shall speak to amendment No. 451. I am told that to restrict the definition of creditor to those who were creditors at the date of the bankruptcy could prejudice those who became creditors after the bankruptcy order. Under proposed new section 263A of the Insolvency Act 1986, fast-track IVAs can be proposed at any time before the debtor is discharged, which could be up to 12 months after the bankruptcy order. The amendment brings proposed new section 263B(3)(a) of the 1986 Act into line with the existing provision on IVAs for undischarged bankrupts, which hon. Members will readily recall is section 257(3) of that Act.

Amendments Nos. 452 and 453 go together. Some provision must suggest modifications when, for example, creditors are aware of undisclosed assets. Without such a provision, many arrangements may be doomed to fail or end up in the courts. It has been suggested that there should not be a mechanism for the appointment of the supervisor other than the official receiver. To facilitate that, there must be an opportunity for a meeting of creditors on the same basis as for other IVAs.

As drafted, proposed new section 263B(4)(b) permits the official receiver to decide his own criteria for judging whether the proposed voluntary arrangement has been accepted. In theory, he could say that the proposal would be accepted if 1 per cent. of the creditors voted in favour, which is obviously nonsense and would be unacceptable. The criteria for the acceptance of a fast-track IVA should be the same as for any other IVA: to ensure consistency with them and between different official receiver officers. If accepted, amendments Nos. 452 and 453 would bring proposed new section 263B into line with provisions related to other IVAs, but with additional protection for the official receiver.

Amendment No. 436 would deal with the fact that the Bill does not provide for creditors to be notified of the outcome of a fast-track IVA proposal. They could therefore be aware that such an IVA had been

proposed, but not whether it had been approved. That is unacceptable, especially as the creditors will be bound by the IVA if it is approved. The amendment would simply bring the fast-track IVA into line with other IVAs, and would be a sensible and practical improvement to the Bill.

Melanie Johnson (Labour, Welwyn Hatfield)

On amendment No. 451, those who are currently eligible to vote are creditors in relation to a bankruptcy debt—those whose claims run up to the date of bankruptcy. The provision does not allow any creditor to claim for a debt or liability, or for a debt or liability arising out of an obligation occurring after the bankruptcy. The amendment would allow creditors of a debt or liability incurred after bankruptcy, or of debts or liabilities arising out of obligations occurring after bankruptcy, up to the date of the official receiver's decision on whether the IVA is likely to be approved, to vote on a proposal for an IVA.

If debts are incurred, another bankruptcy order can be obtained in respect of them. There must be some cut-off point concerning the administration of the estate, and that is set by the 1986 Act as the date of the bankruptcy order. That approach is taken in all insolvency proceedings, including fast-track, post-bankruptcy IVAs. If debts are incurred after bankruptcy and are unpaid, the proper course of action is for that creditor to present another bankruptcy petition against the bankrupt.

One must also bear in mind that the bankruptcy order will be annulled after agreement to the fast-track IVA. Creditors of debts incurred after the bankruptcy order are not creditors in that bankruptcy. Furthermore, the rules on existing IVAs clearly set out two types of IVA case. Rule 5.1 of the Insolvency Rules 1986 sets out that case 1 applies where the debtor is an undischarged bankrupt and case 2 applies where he is not. Rule 5.17 sets out that creditors in case 1 are allowed to vote for amounts that are due up to the date of bankruptcy. It also provides that, in case 2, debts can be calculated up until the date of the creditors' meeting to approve, modify or reject the proposal.

That clear delineation between debtors who are undischarged bankrupts and those who are not has worked successfully since the Conservatives introduced IVAs in the 1986 Act. We have no wish to muddy the waters, which we would if we were to accept the amendments.

Amendments Nos. 452 and 453 propose the addition of further steps to the new regime for fast-track IVAs. They would require a creditors' meeting to be held to consider a debtor's proposal for an IVA. At the meeting, modifications to the proposal could be suggested, but would not be made unless the debtor and official receiver consented to them. That would add significantly to the costs of the process, as I am sure that the hon. Member for Eastbourne appreciates. It would also negate the purpose of fast-track IVAs, which are intended to provide low-cost arrangements in straightforward cases and make IVAs more accessible in small cases.

The fast-track procedure will not work to the disadvantage of creditors. The official receiver is well practised in assessing the level of income that bankrupts are able to pay, and he or she will agree to act only in cases where there is a reasonable level of returns to creditors. Creditors will still be able to reject the IVA if they are not satisfied. Therefore, little purpose would be served by the holding of a meeting.

On amendment No. 436, we want to ensure that the result of the creditors' vote on the new fast-track IVA is also reported to the court, for which the Bill already provides. That will trigger the annulment of the bankruptcy in successful cases. However—to answer the point made by the hon. Member for Eastbourne, at least in part—we will prescribe in the insolvency rules for the new fast-track IVAs that creditors must be notified of the results of their votes at the same time as the result is reported to the court. That would reflect current IVA legislation under section 259 of the 1986 Act, whereby persons, other than the court, who are to be notified of the result of a creditors' meeting, are prescribed in rule 5.22. For that reason, I ask the hon. Gentleman to withdraw his 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. 454, in page 293, leave out lines 29 to 34. This not a technical amendment, but one of principle. I am, again, indebted to PricewaterhouseCoopers. The proviso in subsection (1) restricts the official receiver to handling fast-track and other IVAs for undischarged bankrupts. Removal of that proviso would enable the official receiver to act as nominee or supervisor in any IVA. That is, in any view, beyond the traditional role of official receivers and it could be argued that it would put them into direct competition with private sector insolvency practitioners. Because official receivers are employees of the Insolvency Service, the service would be competing with those whom it is responsible for regulating. It would therefore have, on the face of it, a conflict of interest. That concerns practitioners and I think that they have a point.

Melanie Johnson (Labour, Welwyn Hatfield)

The amendment is to restrict the possibility, as the hon. Gentleman has said, that the new fast-track IVA regime can be extended by order to cases in which the debtor is not an undischarged bankrupt. We have no plans to do that at the moment, but we would want to keep open the possibility of extending fast-track IVAs to other cases, should the scheme prove popular with debtors and creditors. Therefore, we have provided an order-making power to allow the Secretary of State to repeal the proviso that the official receiver can act as nominee or supervisor only in post-bankruptcy IVAs. Any exercise of that power will be subject to affirmative resolution with the full consideration of both this House and the other place.

The fast-track regime is aimed at generating more monies for creditors and getting more people out of bankruptcy. It will also have a more transparent fee

regime than does the current IVA regime. A number of us have received complaints from constituents about the fees charged by some, certainly not all, insolvency practitioners. If the new fast-track regime results in some insolvency practitioners charging lower fees and being more transparent about their costs, I do not see that as bad thing. A little healthy competition is good for consumers, as we have already debated at length when considering earlier parts of the Bill.

I am sure that Opposition Members would not want to be branded as people who are protecting insolvency practitioners from an element of competition. I do not accept their argument that there is something unfair about the competition, so I hope that they feel able to withdraw the amendment.

Nigel Waterson (Conservative, Eastbourne)

It is a bit unreal for the Under-Secretary to lecture Conservative Committee members about the benefits of competition. We are firmly committed to red-blooded, healthy competition. However, does she not at least consider the possibility that it might reasonably be said that it is unhealthy competition when an arm of Government is competing with private practitioners? She might have a point about their fee structure, with which I do not necessarily disagree, but why should they have to compete with an arm of Government with all the resources that that has at its disposal? I am so alarmed by what she has said that I am even more wedded to the amendment.

The Under-Secretary has prompted a range of other questions, including, for example, will there be cross-subsidy within the Insolvency Service, in terms of competing, healthily or otherwise, with private insolvency practitioners? She has tweaked the curtain and revealed the true purport of this, which is to have what she calls healthy competition. That raises a lot of serious questions and I suspect that we shall return to the matter on Report, once the insolvency practitioners have had a chance to digest the full implications of what the Under-Secretary has said. However, for the moment I am happy to beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 22 ordered to stand part of the Bill.

Clause 253 - Disqualification from office: justice of the peace

Harry Barnes (Labour, North East Derbyshire)

I want to give the Under-Secretary a chance to explain the clause. It seems that people will no longer be disqualified from becoming justices of the peace for being bankrupt. If so, what is the explanation? The answer might enlighten our debates on following clauses.

Melanie Johnson (Labour, Welwyn Hatfield)

We do not want society to lose the benefit of the expertise contributed by people who are justices of the peace merely because they have been made bankrupt. The Lord Chancellor already has in place a system of local advisory committees through which the conduct of JPs can be investigated. The

advisory committees allow the Lord Chancellor to operate a discretionary regime in respect of misconduct by JPs. That mechanism can also encompass those who become bankrupt. Perhaps, Mr. Beard, I should declare an interest as I was a JP, and I am still on the supplemental list.

The current automatic bankruptcy restriction imposed by the Justices of the Peace Act 1997 is, in our view, both unnecessary and somewhat heavy-handed. We recognise that certain bankrupts will not be suitable persons to act as JPs. The making of bankruptcy restrictions orders against JPs would be a clear indication that the conduct of their financial affairs had been found to be wanting and, depending on the circumstances, would be likely to lead to their removal. Equally, there may be cases where the removal of a JP on the making of a bankruptcy order might be appropriate. The clause will ensure that the Lord Chancellor can deal with each case on its merits and remove JPs from office only when it is appropriate. The provisions of this and subsequent clauses reflect the basic tenet and philosophy of the Bill in relation to bankruptcy. We are merely carrying it forward to cover particular situations and, in this case, certain extra protections.

Harry Barnes (Labour, North East Derbyshire)

After that explanation, it seems an entirely sensible clause. The explanation may be relevant also to later clauses.

Question put and agreed to.

Clause 253 ordered to stand part of the Bill.

Clause 254 - Disqualification from office: Parliament

Harry Barnes (Labour, North East Derbyshire)

The Under-Secretary's explanation of justices of the peace being able to retain their position when bankrupt seems relevant to this clause, which disqualifies bankrupts as Members of Parliament. Why is someone disqualified for bankruptcy not allowed to stand for Parliament, and why will a Member of Parliament who is declared bankrupt lose his seat? That applies to both Houses—and it will apply to the Lords however people are appointed to that House in the short or the long run.

It was pointed out that, depending on someone else's judgment, it is still possible to get rid of bankrupt JPs. Something complex might be needed in order to carry that provision forward for those elected or appointed to Parliament. Although bankruptcy disqualifications date back to 12 and have travelled from one bit of legislation to another, scant attention

has been paid in Parliament to those provisions. In some cases, no attention has been paid. The Act of 1812 was called An Act to suspend and finally vacate the Seats of Members of the House of Commons, who shall become Bankrupts, and who shall not pay their Debts in full within a limited Time. My researcher in the Library states:

''I have checked the main series of debates held in Derby Gate but have been unable to trace a debate on this particular Act.''

It may be that no debate took place on that Act, and legislation has simply moved on and been adopted from that point.

The 1812 legislation arose because those who stood for Parliament had to meet a property qualification, which was discriminative in democratic terms. However, disfranchising people due to bankruptcy tied in with the logic of having a property qualification, because bankruptcy removed the qualification. That logical link was technically broken in 1858, when the property qualification was removed, but reality chugged on for some time until the first payment of MPs in 1911 and the two-stage move to universal franchise in 1918 and 1928.

To establish that point, I quote from an article published by W. L. Burn in an edition of Parliamentary Affairs from the summer of 1949, entitled ''Property qualifications in the House of Commons.'' A parliamentarian called Locke King introduced the measure in 1858; the year before, on an unsuccessful attempt, he quoted W. L. Burn in arguing that

''so long as the suffrage was not universal the existence of property qualifications for membership of the House of Commons was unnecessary. Certainly the abolition of those qualifications made little immediate or direct difference in the type and standing of Members elected. The fact was that a property qualification continued to exist in fact though not in law.''

The qualification existed until those early 20th century developments to which I referred.

Nigel Waterson (Conservative, Eastbourne)

I am fascinated, as I am sure that all hon. Members are, by the thorough research that the hon. Gentleman has done. I wonder whether there could be another factor involved, however. I cannot remember at what time in Dickens' lifetime people stopped being imprisoned for debt, which affected Dickens personally as much as it cropped up in his books. Could that have been another factor in why MPs were treated differently?

Harry Barnes (Labour, North East Derbyshire)

That may be the case, but it does not affect or destroy the logic of my point.

I do not understand what the case is for disqualification when we get past the early 20th century, given that there will be no inhibition in terms of property rights. In 1835, Sir Robert Peel raised the problem that concerns me when he was debating the Municipal Corporations Act, which extended the bankruptcy disqualification to any mayor, alderman or councillor. During the Committee stage of that Bill, he said:

''If property was not to be a qualification, why should bankruptcy or insolvency disqualify?''

That is a key question that needs a response, even if it was not responded to in 1835. However, that was before the change to the property qualification in 1858 and related to local government, where there was a stronger attachment to a fuller franchise.

If the argument is that some people are not fit to serve in Parliament because of their manipulations and incompetencies, resulting in bankruptcy, should that argument apply to those who are not held to be culpable for the bankruptcy, as in the case of justices of the peace, where there is an attempt to square the circle?

Mark Field (Conservative, Cities of London and Westminster)

Likewise, I am fascinated by the research. Before the hon. Gentleman moves on to other concerns in addition to the property qualification, will he say whether he found any evidence that, between 1812 and the end of the 19th century, there were attempts to unseat a Member who did not fulfil the property qualification, although he was not a fully-fledged bankrupt? We can appreciate that bankruptcy would clearly be evidence of failure to meet a property qualification, but was it the property issue alone that was felt to be important, or other aspects of bankruptcy as well?

Harry Barnes (Labour, North East Derbyshire)

It seems that the property qualification was not rigorously adhered to. Burn claimed:

''It was a matter of common assumption that such men as Pitt, Fox, Burke and Sheridan possessed no qualifications which could bear examination: indeed Fox said quite candidly that the enforcement of the Act 'would exclude talents from obtaining entrance into the House.'''

The situation began to change a few years later as a result of a particular case in which a Member was removed from the House because of the provision. Presumably, that sent shudders through those Members of the House who might have been in the same position as Fox and others.

New clause 9 would make things easier for those on income support or those who have got into difficulties with the Child Support Agency and built up debts, so that they will not have to incur the expense involved in becoming a bankrupt and will not be prevented from doing something that might enable them to handle their matters better in the future. Will people in that category be excluded? Even though people in certain groups in society might find it easier to get selected, I would have thought it desirable and democratic to be open about who can seek to qualify to represent people. The next clause, on appointments to local government, has similar implications.

Nigel Waterson (Conservative, Eastbourne)

We are all indebted to the hon. Member for North-East Derbyshire for having done such painstaking research on the matter; I knew that red box that he carries would come in handy one day. I think that he said that the arguments applied equally to justices of the peace, as they used to be called, or to members of local government, although my hon. Friend the Member for Cities of London and Westminster might want to pick up some specific points.

We have to be careful as Members of Parliament—by definition, we all have an interest in the clause—

about giving ourselves any greater privilege than exists at the moment. I cannot help the hon. Gentleman to pin down why the law changed at the beginning of the 19th century. There are two, or possibly three, reasons for that. He touched on one; the property requirement. Clearly, nobody took the opportunity, when that requirement went, to change the rule about bankrupts, so perhaps it is not that. It might have been the restrictions placed on bankrupts; there are restrictions under the present system, but also the greater restriction in those days of possible incarceration for debt. That would have hampered the average MP, even in those days, from going about his duties. I like to think that it was the feeling that it would bring the House into disrepute. I shall come back to that.

There is a tantalising fourth possibility. I pricked up my ears when the hon. Member for North-East Derbyshire mentioned 1812. If I remember rightly, that was the year in which the only British Prime Minister ever to be assassinated, Spencer Perceval, was shot on his way in to the House of Commons. He was shot by a bankrupt by the name of Bellingham, a direct descendent of whom currently sits in this House for North-West Norfolk. Whether the House took against bankrupts for that reason in 1812, I do not know, but it seems more than a coincidence that that was the year in which they decided that bankrupts should not be able to sit in the House as MPs.

Leaving historical speculation to one side, I return to the possibility of its bringing the House into disrepute. We are, in a sense, back to the stigma argument. Under the previous clause, which I did not rise to speak on, the Under-Secretary used the word ''merely''. That put the whole argument into context. Merely because somebody had become bankrupt, it did not mean that they should not sit as a JP. I assume that the Under-Secretary would apply the same argument to Members of Parliament.

Melanie Johnson (Labour, Welwyn Hatfield)

With regard to the new arrangements, as distinct from somebody subject to a bankruptcy restrictions order, I made a clear distinction.

Nigel Waterson (Conservative, Eastbourne)

Absolutely. I was not going to misrepresent the Under-Secretary. I was coming on to say that. As I understand new section 426A, everything would remain the same as under the current system, but disqualification would apply only to those subject to a BRO. However, people who, to use the Under-Secretary's word, were ''merely'' bankrupt, without the benefit of a BRO, could continue to sit as Members of Parliament. They could even stand for election, although if they stood and were elected under subsection (3), they would be disqualified and their election would be void, as is currently the situation even though there is no distinction between ''mere'' bankruptcy and having a BRO.

There is an argument to be had, as in so many areas, about whether there should be a different test for Members of Parliament and those who wish to become or to remain Members of Parliament and the rest of society. If we are in the business of removing the stigma from ordinary citizens—I am not suggesting that we are extraordinary, as our

proceedings reveal—are we saying that it should no longer apply to Members of Parliament? Or is there a higher test, not one of principle or ethics, in which we simply ask whether people want to have as their Member of Parliament somebody who has managed to become bankrupt, but without a bankruptcy restrictions order?

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

Does the hon. Gentleman not agree that people can end up bankrupt through circumstances outside their control? They may not have been profligate or behaved unwisely, but may have been badly let down by people whom they had every right to trust. They may have become subject to legal proceedings, as has happened in the House, and, through no will or fault of their own, become drawn into a process that results in the haemorrhaging of their resources. I hope that the hon. Gentleman would be rather more sympathetic to such cases.

Nigel Waterson (Conservative, Eastbourne)

I do not mean to be unsympathetic, although it may come across that way, because, but for the grace of God, it could happen to any of us. However, I wonder if we should ask a little more than that of people who want to be Members of Parliament.

The hon. Gentleman is touching upon what, in another context, the Under-Secretary called bad-luck bankrupts. I remind the Committee that the Opposition do not accept that we should use neat little boxes to contain culpable and non-culpable bankrupts; the totally innocent bankrupts, and the rogues, the villains and the reckless, who should be pilloried and subject to the stigma of bankruptcy restrictions orders. As I said before, some people are pathological optimists. Do we really want as our Member of Parliament—or even as our neighbouring Member of Parliament—someone who may be a rogue? We have had our share of those; the name Maxwell, the former Member for Buckingham, comes to mind, as do John Stonehouse and others. It has happened reasonably regularly for 200 years or more, so we are not discussing the subject in a vacuum.

Harry Barnes (Labour, North East Derbyshire)

The argument is about existing Members being removed because they have brought the House into disrepute, but it is a bit difficult to have a provision that applies only to people who are already Members. The question is about those who wish to become Members, and whether the electorate should have the right, even when they know about a person's bankruptcy and other factors, freely to elect them. We might have to put up with those who could bring the place into disrepute in order to protect the electorate's right to elect someone whom we might judge to be unsuitable.

Nigel Waterson (Conservative, Eastbourne)

I am not sure that I wholly follow that intervention. It was way over my head. As the hon. Gentleman pointed out, we are talking people who are already Members, who can be excluded from the House if they become bankrupt, and about those who stand for election and become Members who, it subsequently emerges, are already bankrupt and cannot be allowed to sit, in which case the election would be void. I hope that any remotely competent party would try to ensure that its candidates were checked beforehand, particularly if they thought there was a chance of them winning.

It occurs to me that there is a third category. Even if someone were discharged from bankruptcy, having satisfied all his creditors, it would be difficult for the fact not to end up in the public domain; it is bound to come out sooner or later. Again, it is one of the judgments that voters have to make about the candidates standing in the election.

I return to the central issue. We have a problem with the stigma argument. First, is it Parliament's business to tell people that there should not be a stigma attached to being bankrupt for any reason, except in certain circumstances and if there is a bankruptcy restrictions order? Whatever the arguments in favour of that for the ordinary citizen, should we not apply a slightly stiffer test for Members of Parliament or potential Members? I am slightly troubled by that, because I believe that even if a bankruptcy is wholly innocent—it may be due to optimism, world trends or whatever—for a Member to be bankrupt is a pretty serious business. Whatever the motives or reasons, there are victims. It is not a victimless crime—it is not a crime at all—but it is not victimless because creditors are left behind who will not get their money.

If an MP has been judicious enough to run up debts elsewhere than in his constituency, I can understand the argument that has been made, but if he is leaving a lot of his constituents out of pocket, everything becomes very messy. That is why we would be unwise, without proper debate, simply to change the position for Members of Parliament—for ourselves—without due consideration.

Mark Field (Conservative, Cities of London and Westminster)

I endorse entirely what my hon. Friend the Member for Eastbourne said about not trying to address such things in this Bill. There is a good case to be made for, if not exempting Members of Parliament from bankruptcy rules, not automatically disqualifying them on the basis of bankruptcy. The hon. Member for North-East Derbyshire (Mr. Barnes) went into great detail about that and the hon. Member for Hemel Hempstead (Mr. McWalter) made similar comments. Although the matter should perhaps be discussed in great detail, it would be wholly inappropriate to reach any conclusion in debate of this Bill alone.

Discretion might be the better part of valour; I am perhaps a more sympathetic soul than my hon. Friend the Member for Eastbourne, who is now absent. Although on many occasions a Member of Parliament would be ill advised to get himself into a position to go bankrupt, there are certain circumstances in which he or she could spiral quickly into enormous financial problems. The hon. Member for Hemel Hempstead brought that up earlier. Although it would not be a Government's first priority to look at that, it would be sensible for Parliament to consider at some point whether MPs who go bankrupt should automatically be disqualified.

The hon. Member for North-East Derbyshire offered an important historical analysis. Restrictions

may well have been put into place 200 years ago with property aspects and considerations in mind. It might therefore be that that somewhat dated concept should be reconsidered. Equally, however, here and now is not quite the place and time for such a full and important debate.

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

I want to comment briefly on a matter that goes to the heart of the Bill, although it might appear peripheral and tangential. It comes down to whether we agree with the hon. Member for Eastbourne in not making a distinction, among bankrupt people, between those who are malign and those who are benign. It seems clear to me that in some cases the bankruptcy is malign—a person has deliberately run up a series of debts, let lots of people down, cheated, lied and dissimulated their way into a lifestyle way beyond their resources, and made many other people suffer for it.

I understand that such people are likely to be made subject to a bankruptcy restrictions order, and I think it quite right, because they have failed to co-operate or have evaded their responsibility, to make the judgment that they will have the weight of bankruptcy around their neck for a considerable time and have their behaviour made subject to various kinds of restriction. It is entirely appropriate that we call the people at that end of the spectrum malign bankrupts.

There is another set of people, who get into the same financial predicament, but who have fully co-operated, tried their level best to discharge their responsibilities to the victims of their straitened economic circumstances, and done everything that they can to co-operate with the authorities, whether that results in the winding up of their business or in other inconveniences for them. They have tried hard to discharge their responsibilities, and I call them benign—for want of a better word—bankrupts.

That distinction is at the core of the Bill. Those in the benign category will not be tarred and feathered in the same way as the other lot. On any spectrum, there will be intermediate and difficult cases. We know those at one end of the spectrum when we meet them, which, luckily, we do so often. We know those at the other end, too. Then there are the difficult cases in the middle—there always are—when the law requires judgments to be made. However it turns out, I hope that my hon. Friend the Under-Secretary will stick to her guns and say that the distinction will be made in all cases and that the clause will remain as drafted. It removes the odium that has always been visited on benign bankrupts, and I welcome the fact that the matter has been thought through in that regard as well as others.

Melanie Johnson (Labour, Welwyn Hatfield)

I should put on record my thanks to my hon. Friend the Member for North-East Derbyshire for provoking such an interesting debate and for giving such an interesting set of historical perspectives. The issue is of interest to us because we are Members of Parliament, and of interest to the House and society more generally because it concerns the standing of Members and their credibility as and appropriateness to be MPs.

We made clear in the White Paper on insolvency our intention to review the mandatory restrictions on bankrupts and cited the restrictions placed on Members of Parliament as examples. They include a restriction on being elected to the House and sitting or voting in either House or in a Committee of either House in the event of becoming subject to section 427 of the Insolvency Act 1986, which provides that a person who becomes bankrupt in England and Wales or Northern Ireland, or has their estate sequestrated in Scotland, is disqualified. A Member of this House could continue to undertake constituency work, but if after six months they remained bankrupt or sequestrated, their seat would be vacated. Those are the current arrangements.

We recognise that the arrangements are a matter for Parliament and not for the Government alone. In drawing up the proposals in the Bill, my right hon. Friend the President of the Council consulted the Chairman of the Standards and Privileges Committee.

Nigel Waterson (Conservative, Eastbourne)

If the Under-Secretary is conceding—rightly—that this is a matter for the House and not the Government, will the Committee have a free vote on the clause?

Melanie Johnson (Labour, Welwyn Hatfield)

It is not for me to comment on voting in Committee. As the hon. Gentleman knows well, my hon. Friend the Member for Dudley, South (Mr. Pearson), who has remained silent, is the person to whom the question might be addressed outside the Committee.

In his reply to the request from my right hon. Friend the President of the Council, the Chairman of the Standards and Privileges Committee, the right hon. Member for North-West Hampshire (Sir George Young), confirmed that in the context of the Government's objective of reducing the stigma of bankruptcy, it would no longer be appropriate for a Member who becomes bankrupt to be disqualified from sitting or voting, nor would it be fair to their constituents. The Standards and Privileges Committee also felt that when a Member becomes subject to a bankruptcy restrictions order or an interim order, their seat should be vacated along the lines of the points made by my hon. Friends. By the same token, only bankrupts subject to a bankruptcy restrictions order or an interim order should be disqualified from election to the House.

As I said when discussing justices of the peace in response to earlier remarks, that picks up on the pattern and philosophy that we are advocating in other areas of the Bill, as argued for by my hon. Friends. The Government are grateful for the Committee's consideration and have accepted its advice, which is reflected in this clause and in clause 256.

Harry Barnes (Labour, North East Derbyshire)

I accept very much that the provision on bankruptcy restrictions orders goes a long way to meeting the points that I have been making. If they are dealt with in the way that my hon. Friend the Member for Hemel Hempstead has suggested, the provision will go a considerable way towards meeting my concerns. I welcome the fact that the provision is a change from the previous position.

Melanie Johnson (Labour, Welwyn Hatfield)

I am grateful for my hon. Friend's remarks and for his support and clarification on how the provision connects with what he feels should be included in the Bill.

The clause disqualifies peers who are subject to a bankruptcy restrictions or interim order from sitting and voting. Initially, the proposals will apply only to those persons made bankrupt in England and Wales. That is because Scotland and Northern Ireland have their own devolved, individual, insolvency regimes. Until such times as those are amended, Members sequestrated in Scotland or made bankrupt in Northern Ireland will continue to be subject to the current arrangements. However, we have consulted colleagues in the devolved Administrations and, as with the current arrangements, the new provisions will apply in the same way to Westminster and the devolved Assemblies. For example, Members of this House, the Scottish Parliament, the Northern Ireland Assembly or the Welsh Assembly who are made bankrupt in England or Wales will be able to carry on sitting and voting unless a bankruptcy restrictions or interim order is made against them, at which point their seats will become vacant.

We also propose that Greater London Assembly Members and the Mayor of London should be treated on an equivalent basis to Members of Parliament and members of local authorities. We intend to use the order-making powers in the Bill to give effect to that intention.

We have not sufficiently considered the question raised by my hon. Friend the Member for North-East Derbyshire on whether there is a need for a further, consequential amendment to deal with the election of Members of Parliament. That is not covered in the way that it might be. I advise my hon. Friend that I will consider his particularly useful points and see whether a consequential amendment is necessary. Under proposed new section 426A, only a person subject to a bankruptcy restrictions order will be disqualified from membership of the House of Commons. It is our intention that people subject to a bankruptcy order will be able to stand for election and to sit in the House—but the standing part needs to be considered further.

Mark Field (Conservative, Cities of London and Westminster)

There are of course already some anomalies as a result of which people are entitled to stand for Parliament even if they are not entitled to take their seat and represent their constituents. Someone between the ages of 18 and 21 can stand for Parliament, but would not be able to take a seat if elected. As the Under-Secretary will recall, when Viscount Stansgate—as he briefly was—stood for the Bristol South-East by-election in 1961, he was re-elected, but his Conservative opponent was declared the winner even though he had come second in the poll.

Melanie Johnson (Labour, Welwyn Hatfield)

I am grateful to the hon. Gentleman for that. Obviously, we are specifically considering the context of insolvency and bankruptcy, and it is to that context that we have confined our consideration. I am sure that the Committees of the House take an active

interest in many of those issues and there are appropriate forums for discussion of other aspects of legislation as it affects the House or other related bodies.

I agree that we cannot—indeed, should not—tell people that there will be no stigma and cannot legislate to enshrine a stigma. One important thing that we have heard in this afternoon's debate is that whatever happens on the provision concerning bankruptcy and MPs, at the end of the day the electorate will decide, as they always do, whether or not it is appropriate to support someone's candidature and make them a Member of Parliament. Nothing that we do in Committee will interfere with that. The changes that we are making reflect both what the Joint Committee felt was necessary and the new regime. It will not place undue demands on Members of Parliament, but they will not be treated differently from—to use the words of the hon. Member for Eastbourne—any other ordinary member of the public. That is right because we are here as ordinary members of the public representing ordinary members of the public.

Nigel Waterson (Conservative, Eastbourne)

We have discussed the whole gamut from bad-luck bankrupts to benign bankrupts, which I hope do not become terms of art in the insolvency practitioners' world. We are a long way away from enterprise. What changing the rules for Members of Parliament has to do with encouraging enterprise and risk taking in this country completely eludes me, but I dare say that one of these days wisdom will descend on me and I will work it out.

Question put and agreed to.

Clause 254, as amended, ordered to stand part of the Bill.

Clause 255 - Disqualification from office: local government

Harry Barnes (Labour, North East Derbyshire)

The same principles apply to clause 255, which concerns councils. There are, however, some extra considerations that need to be taken into account. Councillors, unlike Members of Parliament, are blocked by decisions made in Parliament, which include statutes, regulations following statutes and ministerial circulars. When, for instance, they deal with planning matters, they have to be very careful about how they handle them and ensure that they are not publicly taking sides because they operate in a semi-judicial capacity. They are subject to investigation by the district auditor, and can be surcharged for supporting illegitimate expenditure by their authority. A surcharge can lead to their debarment from a council.

Earlier, I referred to Clay Cross, where Biwater was situated. As a consequence of the Local Government Act 1972, in the early 1970s, two teams of councillors in Clay Cross were removed from office because of the surcharge provisions. One was removed for refusing to raise rents according to provisions contained in the 1972 Act. It was claimed that what the team was doing

was not illegal because a housing commission could have been sent in. In the end, however, it lost out. A number of its members went into bankruptcy in connection with the surcharge. They were excluded from being able to stand for office during the period of the bankruptcy, and were excluded for an extra five years in relation to the surcharge provision.

Fresh elections were held in Clay Cross, where 11 seats were elected for the council. Labour, which had had 11 out of 11 in the first team, now took 10 out of the 11 seats. They were in office for only a month or so and then became a parish council under local government reorganisation. The local government legislation had a knock-on effect and it was claimed that the first team had been caught by other measures.

In order to get them surcharged, the district auditor dealt with them jointly and severally. The debts were just over £2,000, the amount by which one could be surcharged under the debarment provision. Should there be joint provisions? Some members had to get out of their bankruptcies and serve another five-year period before they could seek to return to local government office. One who did that is now the highly respected leader of North East Derbyshire district council, but he went through a period when his actions made him look as though he were beyond the pale.

Are councillors sufficiently safeguarded by the bankruptcy restrictions order procedure? The clause improves their position considerably, but if they are caught up in measures that seem to be outside their control and they become benign bankrupts, will they be catered for? The Clay Cross councillors were clearly political advocates on behalf of their community. They had strong support within the community and there were massive turnouts at the second election, although the community was divided. They did not take all the seats, only 10 out of the 11.

The quotation that I gave from Sir Robert Peel related to councils. According to the report of that debate in 1835:

''Sir Robert Peel thought that if we reposed so much confidence in the electing body as to fix no qualification for a councillor, on the same principle we ought to allow of the election of a person who had been a bankrupt if the electors thought that the individual had acted with integrity.''

One could say that however they made that judgment, whether it was a matter of integrity or not, that person was the one they wanted to represent them.

In view of the rather controlled nature under which councillors already function, and even though there is an extension of the bankruptcy restrictions order that limits the people involved, I wonder whether they are safeguarded enough. What would have been the decision in the Clay Cross case? They may have been quite willing to face the debarment and the five years from the surcharge provision. Although some survived, other local political careers were virtually ruined by that development, despite the support in the community.

Mark Field (Conservative, Cities of London and Westminster)

Those in local government often feel that they have even greater restrictions placed upon them than Members of this House. Historically that has

been the case, although perhaps less so with some of the regulations imposed on Members of the House of Commons over the past six or seven years since the Neill committee and various other restrictions.

We have discussed at some length the relation to the interim order. I appreciate that in the discussions on schedule 20 the Under-Secretary confirmed that such orders would be made only when there is a prima facie case for a fully fledged bankruptcy restrictions order. But what if, after the interim order is made, the BRO does not come to pass? Would a councillor subject to an interim order, perhaps for only a few weeks, then have to resign and a by-election be called? Is there some opportunity by which the interim order can be done away with?

Under clause 255, an interim order would be enough for the disqualification to come into effect. Would that disqualification be declared void? What would take effect? In local government, the wheels of bureaucracy might move more quickly than in national Government. There was a high-profile case, in different circumstances, in the Newham constituency during the previous Parliament, where a disqualification order was subsequently declared void by the High Court. It is likely that the process will be accelerated with local government.

I should be interested to know whether consideration has been given to when an interim order is not upheld for some reason; whether it is intended that councillors should be disqualified and a by-election held; or whether some time mechanism will be put into place to ensure that the process is not so accelerated that an interim order alone would result in disqualification.

Melanie Johnson (Labour, Welwyn Hatfield)

Similar issues were raised on earlier related clauses. This clause enacts a parallel provision for councillors to that we have been discussing for Members of Parliament and Justices of the Peace. It does not necessarily follow that bankruptcy makes individuals unfit to serve as local councillors. There might be circumstances under which they were able to continue. There is the same distinction with those subject to bankruptcy restrictions orders.

The interim order requires a prima facie case before it is made. I confirm that a councillor subject to an interim BRO would have to resign. That may not be the answer the hon. Gentleman seeks, but there has to be a good prima facie case in the first place for an interim BRO to be issued. The kind of eventuality he contemplates is therefore unlikely to occur.

Question put and agreed to.

Clause 255 ordered to stand part of the Bill.

Clause 256 - Disqualification from office: general

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 559, in Clause 256, page 177, leave out lines 26 to 28.

This takes us back to the stigma problem. Looking at this from the other end of the telescope, whatever one's views on it, the Government's policy is to reduce the stigma of bankruptcy. However, Clause 256(8)(c) actually extends the definition of a bankrupt to include those in England and Wales who are subject to IVAs and deeds of arrangements and those in Scotland who are subject to something called trust deeds for creditors. According to PricewaterhouseCoopers, such people have never before been treated as bankrupts for any purpose and have never been subject to any of the restrictions on bankrupts. One of the attractions of a composition of creditors is that they enable the debtor to avoid the stigma and restrictions of bankruptcy, including, for example, any restrictions on exercising their profession. So we take the view that this is a retrograde step and I would like the Minister to justify why there should be this significant change from the current practice.

Melanie Johnson (Labour, Welwyn Hatfield)

Amendment No. 559, if passed, would create a harsher regime for those who are not bankrupt than for those who are, so I am not quite clear how that relates to the hon. Gentleman's earlier remarks. Many debtors come to an agreement with their creditors outside of bankruptcy, through composition of debts, through a deed or through a settlement or an arrangement. Those people have tried to face up to their financial position by attempting to discharge their debts and we believe that is a responsible attitude that should be encouraged. The effect of these amendments would be that restrictions could still be lifted and amended for those who are bankrupt, but not for those who are in agreements with creditors outside of the bankruptcy. That seems paradoxical, as it would lead to a harsher regime for those who are not bankrupt than for those who are. I therefore trust that that was merely a probing amendment, that I have now persuaded the hon. Gentleman and that he will withdraw it.

Nigel Waterson (Conservative, Eastbourne)

Absolutely. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 484 in clause 256, page 177, line 27, after second 'a', insert 'trust'.—[Miss Johnson]

Question proposed. That the clause, as amended, stand part of the Bill.

Nigel Waterson (Conservative, Eastbourne)

As the excellent explanatory notes make clear, this clause

''will provide a wide order-making power for any Secretary of State or the National Assembly for Wales, to review legislation under his or her policy control and to maintain, repeal, amend or abolish such restrictions on bankrupts as they deem appropriate.''

It is, on the face of it, an extraordinarily wide provision.

I am curious as to what kind of people, situations and officers that we may be referring to here. We have gone to the lengths of having in the Bill clauses dealing with the situation of justices of the peace, Members of Parliament and members of local councils, so what situations do the Government envisage under the clause? It is a very wide provision, it gives tremendous powers, presumably it could impose disqualification

where none exists, and also the opposite. With what areas is it designed to deal?

Melanie Johnson (Labour, Welwyn Hatfield)

The Bill provides an opportunity to review the relevance of restrictions that appear unnecessary or outdated and there are a great number of other restrictions in both primary and secondary legislation that are automatically imposed on bankrupts by other legislation that might be appropriate for culpable bankrupts, but not in the remaining cases. Examples of restrictions include not being able to be a school governor, a member of a regional flood defence committee or a registrar of births, deaths and marriages. [Laughter.] Well, the hon. Gentleman asked, so I am telling him.

One area that is greatly affected by the automatic provisions is health. Numerous boards and tribunals that deal with health matters require members who have been made bankrupt to resign. Following an internal review, the Department of Health has confirmed that it intends to remove references to bankrupts in the legislation and replace them with references to bankruptcy restriction orders.

A number of the bodies that prohibit a bankrupt's involvement have never met. An example is the arbitration tribunal set up under the Wireless Telegraphy Act 1949—I am trying to vie with my hon. Friend the Member for North-East Derbyshire in going back to previous times. A number of bankrupts serve the local community in one way or another, and requiring them to refrain from such service is often one of the most embarrassing and traumatic effects of bankruptcy.

Colleagues in other Departments will review on their merits each of the restrictions for which they have policy responsibility, and appropriate proposals will be made in secondary legislation. That does not mean that all restrictions will be lifted, because they may be appropriate in certain cases. However, I have given a flavour of the wide diversity of cases covered by the clause and the reasons for supporting it.

Nigel Waterson (Conservative, Eastbourne)

The Under-Secretary has certainly given us a flavour of those cases, which is helpful. I can imagine that it would be intolerably embarrassing to be asked to resign from a regional flood committee on the basis of one's bankruptcy, so I immediately withdraw all my reservations about the clause.

Question put and agreed to.

Clause 256, as amended, ordered to stand part of the Bill.

Clause 257 ordered to stand part of the Bill.

Schedule 23 agreed to.

Clause 258 - Fees

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 528, in page 178, line 38, at end insert—

'(5) Where the Secretary of State cancels the recognition of a body because of a failure to pay fees under subsection (1):

(a) any member of that body who, immediately before such cancellation, was authorised to act as an insolvency practitioner by virtue of his membership and was so acting in relation to any other person or persons, shall continue to be authorised to act as an insolvency practitioner in relation to that person or those persons notwithstanding such cancellation, but

(b) if the court is satisfied that such a member is not a fit and proper person to act as an insolvency practitioner it may order that this subsection shall not apply or shall cease to apply to him.'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to take new clause 9—Fees: further provision—

'.—The following shall be inserted after section 415(3) of the Insolvency Act 1986 (Fees orders (individual insolvency proceedings in England and Wales)):

''(3A) An order under this section shall provide for:

(a) exemption from any fees payable under this section by applicants who, at the time when a fee would otherwise be payable, are in receipt of income support, income-based jobseekers allowance, working families tax credit or disabled persons tax credit (working tax credit and pension tax credit from April 2003) and any other benefit that the Secretary of State may by order specify;

(b remission of all or part of any fees payable under this section where the Secretary of State considers that the payment of any fees payable under this section would, owing to the exceptional circumstances of the particular case, cause undue financial hardship;

(c) a reduction in the fees payable under this section where:

(i) two or more people living in the same household petition for bankruptcy at the same time, and

(ii) they are jointly and severally liable for at least one debt in both petitions;

(d) payment of any fees payable under this section by instalments''.'.

Nigel Waterson (Conservative, Eastbourne)

I hope that the reason for amendment No. 528 is fairly self-evident. It is another one of our amendments inspired by the professions. If a professional body's recognition is cancelled because of a failure to pay fees due to the Secretary of State, all those whom it licensed to act as insolvency practitioners will automatically cease to be licensed. They could therefore lose their livelihoods through no fault of their own. Although that eventuality will not keep all members of the Committee awake at night, it must be addressed.

As vacation of office is automatic on the loss of an insolvency licence, there is also a theoretical possibility—horror of horrors—that the cancellation of a professional body's recognition could cause several thousand insolvency estates to lose their officeholders overnight. Attempts to resolve the problem could overload both the courts and those hapless remaining insolvency practitioners. With wonderful understatement, the briefing says:

''This result is presumably unintended.''

The amendment is designed to avoid it by allowing practitioners licensed by a body that ceases to be recognised because of non-payment of fees to complete their existing cases. Subsection (5)(b) provides protection against unscrupulous practitioners whose conduct would justify the withdrawal of the licences they had been given by the formerly recognised body. I hope that that is reasonably clear.

New clause 9 is of more immediate importance to our constituents. It is drafted and thoroughly supported by the National Association of Citizens Advice Bureaux. The wording is fairly clear: the hon. Member for North-East Derbyshire touched on it in an earlier speech. It has three basic aims. One is to remove financial exclusion from bankruptcy for people on means-tested benefits and tax credits by exempting them from paying the court and deposit fees. The second is to help people on low incomes pay court and deposit fees by allowing for remission of all or part of those fees and providing for payment by instalments. The third is to reduce the fees paid by couples when they both meet a petition for bankruptcy at the same time. The citizens advice bureau service reminds us that it has seen a staggering 39 per cent. increase in consumer credit debt problems over the past four years. Last year it reckoned that it advised on debt and equivalent problems totalling £1.2 billion, so it knows what it is talking about.

The briefing picks up a point made by the Under-Secretary on Second Reading—that customers can get free advice from the local CAB and that administration orders can be obtained through the county court to deal with multiple debt problems. It states:

''Whilst these remedies help many people every year, there are also many people for whom bankruptcy is the most effective way of resolving their debt problem and giving them a fresh start.''

It also makes the point that

''the county court Administration Order process is not available if they owe more than £5,000 or do not have a debt which is the subject of a county court judgment.''

It explains why bankruptcy can be suggested as the right option for certain people—mainly those with substantial debts of £10,000 or more when improvement in the near future is unlikely, insufficient surplus income is available to pay off creditors and little or no assets are possessed. In those circumstances, bankruptcy

''can mean a fresh start and relief from the stress''.

Let me quote a couple of brief examples. A CAB in east London reported that a client, a local authority tenant who was employed but owed £33,000 in credit debts, was under such stress that she considered committing suicide. She was advised that bankruptcy was the best option as otherwise it would take about 20 years to repay her debts. In the event, the official receiver decided not to make an income payment order and not to sell any of her goods. Things are now looking up for this client.

A CAB in Sussex reported that one of its client's debt problem spiralled out of control when she had to give up work due to health problems. A £5,000 loan grew to more than £18,000 because one creditor refused to suspend interest charges. The stress was making her condition worse, so she decided on the advice of the CAB to go bankrupt.

Remarkably, it is much more expensive for an individual to go bankrupt in England, Wales and Northern Ireland in comparison with Scotland—£370 as opposed to £58. Since none of the Liberal Democrats is present, including the hon. Member for

Orkney and Shetland (Mr. Carmichael), it is impossible to have that verified immediately. As the briefing points out, for a single person in receipt of jobseeker's allowance, the deposit fee represents nearly five weeks' income. The Under-Secretary may be able to tell us more. A recent legal challenge, R v. Lord Chancellor ex parte Lightfoot, was unsuccessful, but the court obviously wanted to do something because it acknowledged that people might have to face

''a lifetime of unrelieved indebtedness''.

NACAB makes it clear that many of its clients are forced to borrow money from their friends and family simply to enable them to pay the fees for going bankrupt. I would hope that because the proposal clearly benefits a section of society for whom bankruptcy can be the answer it will command support from all parts of the Committee. The hon. Member for North-East Derbyshire has already put down a marker on it. As with all our amendments, we are not proud. If the Under-Secretary can improve on it and produce the same result, we are happy to proceed on that basis. However, I hope that the new clause will find favour with the Committee and with the Government.

Harry Barnes (Labour, North East Derbyshire)

Clay Cross is at the forefront of my contributions and our debates and I have received representations from the Clay Cross citizens advice bureau on this matter. As the hon. Member for Eastbourne pointed out, although court fees can be waived for various people, such as those on income support, a problem arises with the deposit that must be placed for the administration of the bankruptcy. The bureau has brought to my attention a particular case involving a couple whose indebtedness is dealt with in both their names, so that the fees are double those for others on deposit. The bureau's letter states:

''We have dealt with the case of a couple with three children living in rented property. They have no assets but owe nearly £35,000 in consumer debts including County Court Judgements. Both the couple are long-term sick and although bankruptcy would not be an easy step, it would go a long way to relieve them of considerable stress.''

I grant that going bankrupt should not be an easy move, allowing people to opt for it in many circumstances, but when organisations such as citizens advice bureaux judge that it might be an avenue for people in such circumstances to help them to regulate their arrangements in the long run, we should take that seriously. We should consider the problem of the costs involved, with which the amendment attempts to deal. It is a crazy situation if somebody needs to go bankrupt and the judgment is made that they should do so, but they cannot afford to. We should remove the potential for that.

Melanie Johnson (Labour, Welwyn Hatfield)

Amendment No. 528 would ensure that insolvency practitioners can continue to act in cases where they have been appointed to act, even where recognition of their authorising body by the Secretary of State is revoked due to non-payment of the fee payable by that body under subsection (1) of the new section 415A. It includes a caveat that where an individual insolvency practitioner is regarded by the court as unfit to act this shall not apply.

There is specific provision for such situations in present legislation, but this amendment would deal with them differently and in a bureaucratic way. The current situation, set out in section 391 of the Insolvency Act 1986, is that where recognition is revoked by the Secretary of State when a body fails to meet the criteria set out in that section, an order may specify that members of that body are treated as authorised for a specified period after the revocation takes effect. The amendment deals with this differently and in a way that appears to involve the courts in some areas.

I am grateful to the hon. Member for Eastbourne for highlighting the issue. It is right that we consider the implications for individual insolvency practitioners where recognition of their professional body is revoked through non-payment of the fee. Therefore, I would like to consider the matter further and, if necessary, table a suitable amendment on Report. In the light of that, I hope that the hon. Member for Eastbourne will withdraw the amendment in due course.

The new clause seeks to provide for the exemption or remission of all or part of the fees in cases of hardship, for reduction on joint petitions and for payment of fees by instalments after a bankruptcy order has been made. It would apply to all fees payable to the Secretary of State, not only those on entering bankruptcy. On applying for bankruptcy, a debtor must currently pay £370 to the court. That is made up of a court fee of £120 and a £250 deposit, which is passed to the Insolvency Service and used to defray, in part, the costs of administering the case.

I assure my hon. Friend the Member for North-East Derbyshire that there is recognition for hardship cases through special provisions for debtors in receipt of benefits and those who can otherwise show undue hardship. In particular, such debtors can seek a waiver or reduction of the £120 court fee.

Harry Barnes (Labour, North East Derbyshire)

The problem is that that still leaves the £250, which is not dealt with by the waiver provisions.

Melanie Johnson (Labour, Welwyn Hatfield)

I understand that. Clearly, the new clause goes further and reduces or waives all fees in hardship cases, but that is not justified. It would mean that all the costs of case administration would have to be met from other sources. It would not be fair on creditors in other cases to require them to cover those costs, and we do not believe that general taxation should pay for people to enter bankruptcy when they may have taken on debts irresponsibly.

I would like to stress that the courts have found that a person's entry into bankruptcy is not a right, and should be considered very much a last resort. That relates to R v. Lord Chancellor ex parte Lightfoot, to which the hon. Member for Eastbourne referred.

Bankruptcy is not the only method of dealing with debts, but before I move on to the others, I should mention Scotland. The difference between England and Wales and Scotland represents different legal systems, and the fact that the Insolvency Service's administration fees reflect the full cost recovery in

England and Wales. That is not the case in Scotland, where there is subsidy by the taxpayer.

Many routes other than bankruptcy are available for debtors. Several of them do not require a deposit, which meets my hon. Friend the Member for North-East Derbyshire's point. Individuals with small debts can and do apply to the county court for county court administration orders, which allow a person in financial difficulty to pay off an affordable sum each month. There is no need to make an initial payment to the court, as administration costs will be deducted from payments for the duration of the order. To qualify, the person must have two or more outstanding debts and at least one outstanding High Court or county court judgment, and the total debts must be less than £5,000. About 8,000 such orders are made each year.

Nigel Waterson (Conservative, Eastbourne)

I am grateful to the Under-Secretary, who kindly reiterated the two restrictions to which the NACAB briefing referred. Although it is beyond the scope of the Bill, and certainly that of her speech, I wonder whether there is merit in reconsidering the £5,000 limit. As time goes on, it will be less and less useful and assist fewer and fewer people.

Melanie Johnson (Labour, Welwyn Hatfield)

I would like to reflect on the hon. Gentleman's point and perhaps return to it on Report.

The growing numbers of individuals with debt problems seek advice and assistance from organisations in the voluntary sector, such as the Consumer Credit Counselling Service and Paylink. Those organisations will administer debt repayment plans on behalf of debtors at no cost to the debtor.

The new clause proposes a reduction in fees for joint bankruptcies, but it is right that individual affairs should be examined independently as they relate to separate legal entities. That not only ensures privacy for each individual, but assists in establishing whether either case warrants further investigation. The court's discretion to waive the court fee will apply to both applicants. Merely because a couple have one or more common debts does not mean that any less resource is necessarily required to deal with their bankruptcies than would be to deal with two completely separate cases.

The new clause would apply to more than the court fee on entering bankruptcy, as it would apply to all fees payable to the official receiver or the Secretary of State to cover the cost of administering the bankruptcy. There is already a de facto abatement for the other fees in cases in which there is little, if any, money. Because the fees are paid from the bankrupt's estate, in cases in which there are insufficient assets in the estate any fees beyond the level of the deposit remain unpaid.

I am grateful to Opposition Members and to my hon. Friend the Member for North-East Derbyshire for the opportunity to debate the issue and to respond to NACAB's concerns. I hope that I have persuaded the hon. Gentleman to withdraw the amendment.

Nigel Waterson (Conservative, Eastbourne)

I am not minded to press the matter to a vote, but we shall want to return to it on Report.

Although the Under-Secretary has made a couple of interesting suggestions and concessions, and I should like her to look at the administration order limit—that is a way in to dealing with another part of the same problem—it is still a major problem, and a growing one, as has been brought to our attention by NACAB. I hope that the Under-Secretary will come up with something much closer to what is set out in new clause 9 by the time we discuss this on Report. There is plenty of time in which to consider it; it is a campaign that NACAB has run for some time and we shall press it hard on Report unless the Government come up with

something a lot better. For now, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 258, as amended, ordered to stand part of the Bill.

Clause 259 ordered to stand part of the Bill.

Clause 260 ordered to stand part of the Bill.

Further consideration adjourned—[Mr. Pearson.]

Adjourned accordingly at four minutes to Seven o'clock till Thursday 16 May at half-past Nine o'clock.