HC Deb 29 July 1964 vol 699 cc1733-42

7.41 a.m.

Mr. B. T. Parkin (Paddington, North)

When I put down as one of the subjects to be raised in the debate tonight the Government's policy in regard to the implementation of Section 165 of the Companies Act, I had in mind to ask the Parliamentary Secretary why the Government this year were so eager to use the permissive Clauses of that Act over Rolls Razor, and why they were so unwilling a year ago to use them to investigate the Rachman estate.

I would have greatly enjoyed challenging the Minister on a number of points and presenting him with a great deal of new material which I have brought with me and which will come out sooner or later as evidence of the continued existence of large parts of that Rachman estate, and of continuing chicanery, fraud and concealment of ownership, and many aspects which would have been worth studying.

We should have had a dossier of evidence which could have formed the basis of new legislation for new control over that sort of risk. However, certain more recent information of a more urgent and topical kind has come to light, and it is a rather different kind of speech I am going to make now.

I want to thank the Parliamentary Secretary for having made himself available at 3.30 a.m. this morning to discuss with me some of the points I am going to raise now, but I am still entitled, I think, to reproach him for not having had the inquiry into the Rachman estate. I submitted to him a year ago a great deal of documented evidence about Deancroft Estates. If he is not sure that the leases were fraudulent, Rachman himself was obviously conscious of it because he executed a deed of surrender when challenged with the matter.

If the inquiry had taken place, in the intervening months we should have had a great deal of information on many points which I am not going to raise now. We should have received information about the ownership of No. 47, Norfolk Square, Paddington, which is a hotel where Mrs. Rachman used to engage the servants for her own house up in Hampstead, and where a great deal took place in connection with Rachman's affairs.

If the inquiry I urged into further details of that house had been carried out, it would have led us into an examination of the affairs of the Whitfield Corporation. Nos. 34, 35 and 39, Norfolk Square are some of the properties owned by the Whitfield Corporation and Nos. 10, 19 and 20, London Street, Paddington, Nos. 8 and 10, Talbot Square, and No. 24, St. George's Square in Pimlico. Although the Whitfield Corporation is in liquidation, yet Mr. Henry Whitfield himself appears to be controlling and owning these properties, and is at this moment engaged in trying to evict tenants from some of them in the best Rachman style.

An investigation of the Whitfield Corporation would have brought out the name of Henry Whitfield, whose rascally record as an oppressive and shifty owner of slum property in Paddington is written large in the records of Paddington Council, Marylebone County Court and the Rent Tribunal. I will refresh the Minister's ministerial memory, because the facts are in the Ministry, in documents under the control of his own Department, about this rogue Henry Whitfield, who is now the centre of the scandal over Fiesta Tours—a scandal which need not have happened if he had been exposed in time, as he would have been exposed if the inquiry which I suggested had taken place last year.

Mr. Henry Whitfield started his business career by going bankrupt in 1926 for £16,000, which was quite a lot of money in those days. He paid his first and final dividend of 3d. in the £. In 1945 he got 18 months for receiving. On a number of occasions since, companies with which he has been concerned have gone bankrupt.

Last year he was concerned with the "Under 30's Travel Club", which went "bust". He has emerged as the purchaser—so he says—innocent—so he says—inexperienced—so he says—of Fiesta Tours. The Government are faced with a situation in which the public are alarmed and shocked, and holiday makers at this time, many of whom may have booked with other tourist agencies whose reputation is unchallenged and whose papers may be perfectly valid, are beginning to wonder whether they will be able to make the journey. That is why I am cutting short my speech to enable at the earliest moment the Parliamentary Secretary, if he is ready to do so, to make some reassuring statement about this scandal.

He ought to announce not one but three inquiries. He ought to announce instantly that there is to be a proper inquiry into the affairs of the Whitfield Corporation, which means into the whole of the personal affairs of Mr. Henry Whitfield. Secondly, he ought to announce instantly a Board of Trade inquiry into the affairs of Fiesta Tours. Thirdly, he ought to announce as a longer-term project an inquiry into an aspect of consumer protection in a field where the consumer is most vulnerable—tourist agencies. Urgently as I want the Minister to make that statement, at the same time I do not want him to say anything which would suggest that small, independent travel agencies without much capital should in some way be excluded or suppressed. It would be a mistake, I am sure, if we moved towards a situation in which the big travel agencies, those with the biggest reserves, were the only agencies allowed to operate and the others were excluded. If we are to get the maximum variety, initiative and enterprise in this important field, we must find a place for the man with a bright idea and a new notion of how to go to a new area.

I hope that the Board of Trade will take this matter very seriously. I have very few proposals to make at the moment. May I make one request? I request that the Parliamentary Secretary, in this crisis—I know that he cannot offer money; we have not the time to vote it for him—should offer reassurance to the customers by announcing that at least all the administrative help and experience which the Board of Trade can offer will be immediately available to the consumers.

I wonder if the hon. Gentleman would put his lawyers on to the possibility of prosecuting for fraud cases where vouchers are issued which purport to be travel documents but which are not backed by valid tickets actually purchased from the railways or airways or whatever, because this at least would obviate the danger that people are supplied with a book of vouchers which purport to entitle them to travel on a hospitality basis. I would have thought that even under the existing law it would have been possible to bring a test case to discourage people from doing that, and to point out to them that if they do it and vouchers are not properly backed—as seems to have happened in the case of Fiesta Tours—those responsible will be open to very severe penalties indeed.

This is a very humiliating position for the Government, because they have not shown energy enough in investigating deficiencies of the company law. Recently, they had a splendid opportunity, which they threw away last year for political reasons which we can well understand. I need not humiliate them now with that. Great opportunities have been missed, but they could be caught up with. I hope that we shall get an assurance now, because the Government have had to stand and watch a man get hold of a tourist agency in which was involved some £53,000 of other people's money and the shocked, bewildered, betrayed holiday-makers have had to be rescued by the British Travel Association which had to pay altogether £30,000 at short notice to meet the needs, whereas this wicked old man, who has been at the centre of it all, is pretending he has only got £7,500 of his own, which is, of course, nonsense.

I am hoping that the Parliamentary Secretary by this time may have ventured to see what the Secretary of State had to say when he had finished drinking his tea, and whether a specific announcement is to be made now. At least we hope an announcement of proposals to meet this situation to reassure the public will be made today.

7.52 a.m.

The Parliamentary Secretary to the Board of Trade (Mr. David Price)

It is my task at this very late or middlish early hour, whichever is the appropriate term, to reply to the hon. Member for Padding-ton, North (Mr. Parkin), who, as he has told us, gave me notice that he would raise the subject of Government policy in administering Section 165 of the Companies Act, 1948. It is to this subject that I shall address my remarks. In the course of his speech the hon. Member has gone a good deal wider than Section 165 and raised a number of other matters. During the middle watch the hon. Member did me the courtesy to mention to me some of those other specific matters he intended to raise. In so far as they went beyond the scope of Section 165 he will not expect me to be able to give a full answer now. I shall, of course, write to him when I have had the chance to examine these various points in detail and, whenever possible, point out the relevant facts to him.

I should just like to remind the House what Section 165 is all about. Section 165 of the Companies Act, 1948, reproduces Section 43(1) of the 1947 Act. I need not remind hon. Members that the 1947 Act was introduced by the late Sir Stafford Cripps. The 1948 Act was a consolidation Measure. The purpose of Section 165, according to the title of the Section, is Investigation of company's affairs in other cases. It is preceded by Section 164, which deals with Investigation of company's affairs on application of members. Section 165 deals with investigations other than, in the main, those made on the application of members. It falls into two parts which deal with different sets of circumstances. Section 165(a) lays down that the Board of Trade is bound to appoint an inspector or inspectors to investigate the affairs of a company in two specific cases. These are, first, where the company by special resolution has declared that its affairs ought to be investigated by an inspector appointed by the Board of Trade; secondly, where the court, having appropriate jurisdiction declares that the company's affairs ought to be investigated by an inspector appointed by the Board of Trade. These powers are not discretionary; they are mandatory upon the Board of Trade. The question of Government policy simply does not arise—indeed it cannot arise

Section 165(b) is different. The powers of the Board of Trade here are discretionary. They enable the Board to appoint an inspector or inspectors to investi- gate a company if it appears to the Board that there are circumstances suggesting, first, that its business is being conducted with intent to defraud its creditors or the creditors of any other person or otherwise for a fraudulent or unlawful purpose or in a manner oppressive to any part of its members or that it was formed for any fraudulent or unlawful purpose; secondly, that persons concerned with its formation or the management of its affairs have in connection therewith been guilty of fraud, malfeasance or other misconduct towards it or towards its members; or thirdly, that its members have not been given the information which they might reasonably expect.

I point out that these are powers of discretion. The Board of Trade does not think it should light-heartedly embark on the appointment of inspectors. The mere knowledge that an inspector has been appointed could cause a company very considerable harm. The Board of Trade must therefore be reasonably satisfied that there are circumstances suggesting the various matters which are specified in Section 165(b) which I have quoted.

It might be of interest to the House in this connection for me to quote the comment in Palmer's "Company Law", 20th edition, probably the standard work on this subject, which makes this observation: The power thus given to the Board of Trade is not readily exercised. Prima facie, shareholders in a company are expected to manage their own affairs in accordance with the company's constitution. It is also worth reminding the House that the Jenkins Committee Report on Company Law thought the Board of Trade was right to be cautious in matters of this kind. However, it made certain suggestions which it will be more appropriate to discuss when the House considers further legislation—such as enabling the Board of Trade to make preliminary inquiries short of the formal appointment of an inspector. This would make it easier for the Board of Trade to discover, in doubtful cases, whether in certain circumstances Section 165(b) should be used.

Nevertheless, the Board of Trade causes inquiries to be made under this Section, possibly more frequently than the hon. Member realises. It will be of interest to the House to know that since 1954 the Board has appointed inspectors on its own initiative to inquire into the affairs of 43 different companies. That includes the recent case of Rolls Razor Limited. The hon. Member asked how the Board of Trade decides to use these powers. Whether or not the Board of Trade appoints an inspector is determined by the particular circumstances of each case. I can assure the hon. Member that there is no question of a general Government policy in the exercise of these powers in terms of saying, "We shall not use them in relation to property companies, but we shall in relation to washing machine companies." It is a question of forming a view on the available information in each case, bearing in mind the criteria of Section 165(b). If at a later stage more information is made available, one can always reconsider the matter.

Mr. Parkin

The Minister quoted some important words from the Section. Would he not agree, in connection with the phrase "other fraudulent purposes", that if there has been a public scandal in which property companies in particular appear to have been used for fraudulent purposes—for purposes of defrauding people of their tenancies, for example—and are developing into a social problem generally, the Government would be justified, on political and social grounds, to interpret the phrase "other fraudulent purposes" in connection with those things?

Mr. Price

One would not be entitled to do so politically and merely say that one did not like the activities of a particular company. One would not be acting properly if one allowed those considerations to weigh in one's evaluation of the available information as to whether there had been a fraud. We must remember that there is moral fraud as well as legal fraud. We must, in these matters, deal with behaviour as it is likely to arise under the law and, in the ultimate, as it is likely to appear to a court of law. It is, as I say, a question of forming a view on the available information in each case and thus it happens in some cases—such as that which the hon. Member quoted, of Rolls Razor—that the Board of Trade is satisfied at a relatively early stage that there is a case for the appointment of an inspector under Section 165.

The hon. Member raised the question of the Denecroft Estates Ltd., which was the subject of discussion between us last year, and last December he inquired of the Board of Trade whether we would appoint inspectors to go into the affairs of Denecroft Estates Ltd. in connection with the grant and disposal of leases on a number of properties, unknown to the company or its members.

The position was that the members of Denecroft Estates Ltd. must have been aware of the facts alleged. There were only three members of the company, who were all directors, and, as my right hon. Friend the Secretary of State explained in his replies to Questions asked by the hon. Member on 5th and 9th December, 1963. there was no case for investigation since the material facts were known to Denecroft Estates Ltd. It was, therefore, open to the company to take any suitable legal steps to recover any moneys of which it might have been defrauded. Further, this company has made no approach to the Board of Trade on these matters.

As a matter of practice, we do not appoint inspectors when the facts are sufficiently known for those concerned to exercise their legal rights, if so minded. Nevertheless, if the hon. Member has any further information which he considers would bring the cases in which he is interested within the provisions of Section 165, we will consider it.

I entirely reject the charge that the Board of Trade does not investigate the affairs of what the hon. Member calls the Rachman companies for political purposes. It remains open for any hon. Member to produce information such as would lead us to take the view that a case came within the provisions of Section 165. We are always prepared to look at such matters again.

The hon. Member referred in an interjection to that part of Section 165(b)(i) which speaks of a company that has been used for … a fraudulent or unlawful purpose … and said that the Board of Trade should have made greater use of the Section. A business could hardly be said, in the view of the Board of Trade, to be conducted with an unlawful purpose if, incidentally to its conduct for legitimate purposes, the civil rights of others were infringed. For example, with the introduction of noisy or badly-behaved tenants, the remedy is in the hands of those who are prejudiced. If the matter complained of involves considerable offences against criminal law, it would be an appropriate matter for the police to investigate. I should remind the House that the Board of Trade is not a general criminal investigation department—the police are. On the other hand, I would not pretend for a moment that there are not criminal circumstances in which we, rather than the police, might act first.

The hon. Gentleman raised the current issue of Fiesta Tours. Clearly, this case is very much in our minds at present. I should tell the House that no representations have been made to the Board of Trade for the appointment of an inspector, and on the information so far available there would not seem to be a case for such an appointment. None the less, we in the Board of Trade are seeking further information. If the hon. Member for Paddington, North, or any other hon. Member, has any specific information about this company, I should be very glad to receive it.

I should, however, add that, to be helpful, the information must be specific and related to specific matters. General information charging that Fiesta Tours have behaved badly is not quite the sort of information I seek. I seek more specific information. I assure the House that our minds are by no means closed on this subject, but we must have sufficient information to warrant an inquiry under this Section. I must point out, in passing, that the fact that a company has incurred liabilities which it is unable to meet is not in itself, of course, a ground for an appointment under Section 165, unless those liabilities were incurred in circumstances that suggest fraud.

The hon. Member also raised the question whether at the Board of Trade we would have an inquiry into tourist agencies. I am rather doubtful whether an inquiry is necessary, as I think that many of the facts are known. But, as I have replied on earlier occasions to Parliamentary Questions in the last few weeks, I can repeat to the hon. Gentle- man that this matter is receiving our very close attention.

I prefer to write to the hon. Member on the subject of vouchers. He would not expect me, not being a lawyer—and I know that he is not, so he can probably sympathise with me—to give an off-the-cuff opinion, having been up all night, as to when a voucher may be said to constitute a ticket—to use the hon. Gentleman's term, is "legitimate"—and when, also in his term, it might be said to be an unsatisfactory bill of exchange. I will therefore write to him on this subject.

I would sum up by saying that we have in the administration of our discretionary powers under Section 165(b) to take into account the fact that this is a very important form of investigation, and that we must not use it lightly, as we might do considerable harm to companies. On the other hand, Parliament has given us these powers for a purpose, that we shall always fulfill provided we can get sufficient information which meets the various criteria laid down. The House will have observed that most of the criteria deal with fraud and fraudulent actions, and so on.

I repeat what I said to the hon. Member on what he calls the Rachman cases, that if he can give us more information we are always ready to look at it. As for Fiesta Tours, which has been the main burden of his argument this morning, I assure him that as far as we are concerned the matter is by no means closed. Any information that he or any other hon. Member can give us will be extremely welcome.