INSOLVENCY BILL [Lords]

HC Deb 03 March 1976 vol 906 cc1459-507

10.30 a.m.

The Under-Secretary of State for Trade (Mr. Clinton Davis)

I beg to move, That the Chairman do now report to the House that the Committee recommend that the Insolvency Bill [Lords] ought to be read a Second time. I ought to say at the outset that, regrettably, I propose to take some little time in dealing with the Bill because it is a complex matter although it covers only 10 clauses. Before coming to the clauses, I want to say something about the general background against which the Bill was introduced in the Lords and is now being considered in this Second Reading Committee.

The present system of bankruptcy law in England and Wales was established in 1883. In the meantime three different committees have considered the legislation. The Bankruptcy Acts of 1914 and 1926 followed directly from two of the reports. The third committee, the Blagden Committee, reported in 1957. It found that bankruptcy law was generally satisfactory and well suited to its purpose. It did, however, suggest amendments designed to remove as far as possible certain administrative difficulties and irregularities in bankruptcy law. Unfortunately, no Government since 1957 were able to find time to introduce the legislation suggested by Blagden—a sad but hardly unprecedented reward for a hard-working committee of this character.

I am conscious of the need for more far-reaching changes in insolvency law than is proposed in this Bill—although I hope that I shall be able to satisfy the Committee that changes which enactment of this Bill would secure would be timely and significant. It is right that I should inform the Committee that the Department has started on a review to achieve this wider objective. There can be no doubt that this is a major and daunting task. It is a task which must take into account our EEC commitments and, in particular, the draft EEC Bankruptcy Convention, at present under general consideration by the member States.

The Bill is concerned with bankruptcy, winding-up of companies and also sequestration in Scotland. Its most important object is to bring certain monetary limits into line with present-day values. It is expected that, as a result, the workload of the Insolvency Service will be brought more into line with available resources. The Bill is also expected to result in a reduction of about 100 to 150 staff over the next three years, leading to a total saving of up to £750,000 a year. As I have already indicated, effect is also given in the Bill to a number of other changes in insolvency law, which are long overdue.

In Scottish law, the term "bankruptcy" has connotations shrouded fairly heavily in mystery for us poor Sassenachs. It can mean insolvency, notour bankruptcy, as well as sequestration. I had hoped that we might have the benefit of certain views this morning from a Scottish National Party Member of Parliament, namely the hon. Lady the Member for Moray and Nairn (Mrs. Ewing), but she must be talking about fishing. Perhaps I shall get into trouble for having said that. I am informed that the term "notour bankruptcy" has nothing to do with the denial of a right of free passage, but it defines the condition of one who had retired to the sanctuary of the Abbey of Holyrood for the purpose of avoiding imprisonment for debt. His insolvency, I am told by the Lord Chancellor, thereby became "notour" or, as we would put it, notorious. I understand that there are no tours to the Abbey now available.

The basis of the present law in Scotland lies in the Bankruptcy (Scotland) Act 1913. In November 1968 the Scottish Law Commission appointed a working party under Lord Kilbrandon to examine the relevant law in Scotland. It concluded that the 1913 Act had operated satisfactorily but suggested certain simplifications and improvements.

Although, therefore, there is some similarity between bankruptcy in England and Wales and sequestration in Scotland, there are significant differences both in law and practice but, in so far as the provisions of this Bill are appropriate for Scotland, they will take effect in Scotland as well as in England and Wales.

Bankruptcy refers only to individuals and partnerships. Insolvent companies may be compulsorily wound up under the provisions of the Companies Act 1948. In December 1973 our predecessors introduced into the House of Lords a Companies Bill to implement a number of the recommendations of the Jenkins Committee, which reviewed the 1948 Act and reported in 1962. Because the present Government wished to undertake a wider-ranging review of company law, that Bill was not proceeded with. However, some of the measures—which I hope will be regarded as relatively non-controversial—contained in that Bill have now been included in this Insolvency Bill. Another Bill was published today—the Companies (No. 2) Bill, which will also deal with certain matters extracted from the 1973 Bill, although it has certain novel features.

Unhappily the work of the Insolvency Service Division has been growing for a number of years, quite apart from the difficulties thrown up by the recession that we are now undergoing. In substantial part, this is due to the erosion in real value of the monetary limits laid down by the relevant statutes. We must try to adjust this work load to the specialised staff resources which are available. The most appropriate way of doing this is to restore the value of these limits.

An instance of the need for this change is afforded by the monetary limit for the minimum debt required to found a creditor's petition in bankruptcy. The limit, at present £50, was fixed before 1914. It is completely out of date. Today, even though he may be owed this comparatively trivial sum, a creditor can institute bankruptcy proceedings against his debtor. I hope that the increase of this, and other monetary limits, will lead to a considerable reduction in the number of more trivial domestic and consumer credit cases which give rise to bankruptcy proceedings. These cases do not usually involve the general public or a wide circle of trade creditors, there are few or no assets available to discharge costs, and the proceedings, which necessarily involve a substantial number of skilled officials, are an unnecessary drain on the public purse.

Some of the other major results of the restoration of the value of limits will be the raising of the amount of wages or salary allowed as a preferential debt to employees; an increase in the amount of necessary goods a bankrupt may retain, and in the minimum amount necessary to constitute the offence of obtaining credit whilst an undischarged bankrupt.

The position of employees so far as arrears of wages or salary is concerned will, of course, be improved when the relevant sections of the Employment Protection Act 1975 come into operation on 20th April this year. They provide that, in the event of an employer becoming insolvent, employees will receive early payment out of the Redundancy Fund of up to eight weeks' arrears of wages, payment in lieu of notice, holiday pay and so on, up to a total not exceeding £80 per week. The Secretary of State for Employment will then stand in the shoes of the employees in respect of such moneys paid out and will be entitled to claim in the bankruptcy or liquidation.

There is a similar right of subrogation provided in the Companies Act 1948 for any person advancing moneys to pay the wages of company employees. It has been suggested that by increasing the monetary limit for preferential wages, we are merely assisting these lenders to recover moneys advanced, to the detriment of unsecured creditors. There are, of course, several categories of preferential debts, all of which rank equally between themselves, and we take the view that it would be undesirable to make an exception of one of them, that is, wages, by not fully restoring the value of the present monetary limit. I certainly consider, however, that the whole system of preferential debt is in need of review. This will be considered during the wider-ranging review of insolvency law which we are now undertaking.

Mr. Terence Higgins

Could the Minister clarify one point? He said that it would not be desirable to give one particular part, within the group presumably, an advantage by not raising the limit to the full amount—presumably reflecting inflation. Should that read "not" or should he have said "by not making the full allowance"? I was not quite clear on that point.

Mr. Davis

I thought I said that it would be undesirable to make an exception of one of them by not fully restoring the value of the present monetary limit. Is that the point about which the hon. Gentleman is asking?

Mr. Higgins

Does that mean that it is proposed fully to restore the monetary limit? If so, it seems to be inconsistent with the line which the Government are taking on the main limit—the £300 limit as against £600, which would be the full amount.

Mr. Davis

I do not altogether agree with the hon. Gentleman, but I shall certainly consider what he is saying. Perhaps he would like to develop the point later.

May I say that we have not only set ourselves objectives for this Bill within the reasons for its introduction which I have already given, but we have taken this opportunity to effect urgently needed reforms of insolvency law, which will appear as I develop the purposes of the Bill and its clauses in detail.

I can best summarise the Bill in this way. First, it will cause the monetary limits relating to bankruptcy and winding-up to be brought up to date, and will empower the Secretary of State to increase them further by regulation. Second, it will simplify certain statutory accounting and auditing procedures, and bring them into line with modern practices. Third, it will simplify the procedure for a creditor on submitting his claim in bankruptcy and winding-up. Fourth, in certain circumstances it will enable the court to dispense with the public examination of a debtor in bankruptcy. Fifth, it will provide a special procedure for speeding up discharges from bankruptcy. This will be additional to the present discharge procedure. Sixth, it will enable the court to disqualify a person from acting as a director or manager of a company where his conduct justifies that restraint. Finally, it will extend and strengthen the administration order procedure in the county court.

The increase in the monetary limits, the simplified procedure for the lodging of creditors' claims, and the additional power to disqualify a person from acting as a director or manager of a company will apply also to Scotland.

I turn now to the various clauses in more detail. Clause 1 and Schedule 1 broadly restore the real value of a number of monetary limits which they had when fixed in 1914. They are arrived at, generally speaking, by multiplying the 1914 figure by 12. This represents the measure of inflation, regrettably, to which we have been subjected since then. If the limits were fixed or amended after 1914, the new amount is intended to correspond with the real value which they had at that later date. For example, the maximum amount for which a worker can claim preferential rights in bankruptcy and winding-up for arrears of wages or salary was increased in 1947 to £200. The figure of £800 in column 3 of Schedule 1 for this limit restores the value to what it was in 1947 with a multiplier of four. I believe that that may be the point to which the hon. Gentleman was alluding.

I must, however, refer to one important exception to this general rule. This concerns the minimum debt required to support a bankruptcy petition by a creditor. If we were to restore the 1914 value of the limit it would require an increase from the present sum of £50 to £600. We consider that in this case this would represent far too large an increase. The wage earner or self-employed person now has far wider opportunities for obtaining credit, and, sadly, the self-employed person is much more subject to becoming indebted to the revenue-collecting Departments of the Crown for taxes and social security contributions. I am advised, therefore, that an increase above £300 would place an undue restriction on bankruptcy proceedings as the best means of collecting fairly substantial debts. However, I propose to keep this position under close scrutiny.

Clause 1 also gives the Secretary of State power further to increase the monetary limits by regulations. This will enable them to be kept up to date in future without the need for primary legislation. Clauses 2 and 3 bring existing accounting procedures up to date and provide for a more economical and efficient service.

Every trustee in bankruptcy and liquidator of a company being wound up by the court is obliged to send an account of his receipts and payments to the Department of Trade at least twice a year. At present each individual account has to be audited in detail. At present trustees in bankruptcy and company liquidators must pay all moneys received by them into special accounts kept by the Secretary of State at the Bank of England. Bankruptcy moneys go into the Bankruptcy Estates Account and liquidation moneys go into the Companies Liquidation Account.

Under Clauses 2 and 3 these two procedures will be changed. The result is that, under Clause 2, the audit of accounts of trustees in bankruptcy and liquidators will be brought into line with modern auditing practice. Under Clause 3 the two special bank accounts at the Bank of England will be replaced by a single account called "The Insolvency Services Account". This will not only simplify the position but enable the day-to-day balances which are not immediately required to be used more efficiently.

Clause 4 will have the wholly desirable effect of substantially reducing the formalities required to be observed and the expenses incurred by a creditor in submitting his claim in bankruptcy, sequestration or company liquidation. At present, creditors must prove their debts by completing a complicated affidavit, which then has to be verified by formal affidavit. The clause will enable creditors to submit their claims on a simple form, without any requirement for it to be sworn, unless the circumstances are such that the Official Receiver or trustee requires an affidavit.

I think that that is wholly desirable. I must declare my interest as a solicitor and commissioner for oaths. I hope that nobody will be obliged to undergo the appalling experience which I once had in getting an affidavit sworn. The poor lady concerned was trapped in a house by an aberrant landlord and I had to hoist the affidavit, the Bible and a pen up to her in a bucket which she managed to draw to her window. I then rehearsed the oath to her from the ground. She restored the bucket and its contents to me, and we were able to go off to the judge in chambers. I do not know whether anything of that nature would occur in these circumstances, but we are at least making efforts to prevent such a thing.

Under Clause 5, on an application by the Official Receiver, the court will be empowered to dispense with the public examination of a debtor in bankruptcy. At present every debtor must undergo public examination unless he is excused on the grounds of unfitness. In many cases, however, the public examination is of little concern to the public or to the creditors and does not justify a formal court hearing. It is in such cases that the official receiver might think it appropriate to make an application to dispense with the public examinaiton. Guidance, however, will be given to ensure that no application will be made unless, first, the debtor has already made a full disclosure of his affairs to the satisfaction of the official receiver and, second, the failure does not affect a wide circle of trade creditors and, third, the failure is of little public interest.

Mr. Ian Percival

I am sure we are very glad that the hon. Gentleman has added that part of the words of his noble Friend the Lord Chancellor, because it is the beginning of some indication as to how the courts are to exercise this power. Could the hon. Gentleman tell us now—so that we can discuss the matter—what is meant by "guidance will be given"? Will it be given by means of writing into the Bill the criteria which are to be observed, or in some other way? If it is to be given in some other way, how will it be given?

Mr. Davis

My noble Friend has the power, as I understand it, to make additions to the Bankruptcy Rules. This he proposes to do. It is perfectly correct that this matter—which has caused considerable controversy in the Press, which has some expertise on these matters, and among the bodies concerned—should be explored in detail by this Committee, and, no doubt, in greater detail at a later stage.

Such an application would be made ex parte to the Registrar in Chambers not less than 21 days before the date fixed for the public examination. If the court makes an order, a copy will be served on the debtor and notice given to the creditors not less than seven days before the date fixed for the public examination. I wish to underline at this stage the fact that an order dispensing with the public examination will be capable of review by the court on motion pursuant to Section 108 of the Bankruptcy Act 1914.

Clause 6 provides that adjudication in bankruptcy should be reviewed by the court after five years for the purpose of considering whether the bankrupt should then be given a discharge. I must emphasise that the new review procedure is additional to the existing discharge procedures. A bankrupt would still be able to apply for his discharge, but, if he has not done so within the five years after adjudication, the new review procedure will come into operation.

There can be little doubt that the present law relating to discharge is defective in that it is for the bankrupt himself to apply to the court if he wishes to be discharged. Many never trouble to do so. In consequence there is an increasing population of undischarged bankrupts, which we would estimate at upwards of 60,000, perhaps as many as 100,000, at the risk of acting, perhaps inadvertently, in breach of bankruptcy laws. Under the new review procedure, all bankruptcies will be considered by the court with a view to discharging the bankrupt, without any need for any application on his part. I should expect that, since five years will have elapsed in every case since the adjudication order, the majority of bankrupts will be granted their discharge.

Mr. Higgins

I must mention that the new review procedure will not apply to any bankruptcy occurring more than five years before the date when this clause comes into force."—[Official Report, House of Lords, 4th December 1975; Vol. 366, c. 763.] That is the next section of the Lord Chancellor's speech, which the hon. Gentleman is reading out. Perhaps I can save the Minister some time. His speech is virtually word for word what the Lord Chancellor said. I wonder whether there is much point—since hon. Members will have read the Lord Chancellor's speech—in repeating exactly what he said, rather than summarising it.

Mr. Davis

I have taken a deal of trouble to consider the Lord Chancellor's speech. I have introduced a good deal of new material into mine, to which the hon. Gentleman could not have been listening while he was talking to his hon. and learned Friend the Member for Southport (Mr. Percival). It is interesting that the hon. Gentleman is reading my noble Friend's speech. However, it is necessary, for the benefit of the Committee, that not only should I cover the ground covered in another place but in certain respects I should add to some of the matters to which my noble Friend referred. The hon. Gentleman will have to put up with what I have to say.

I have already said that the Insolvency Service is under some difficulties. Clearly, it does not have the ability or resources to deal with all the undischarged bankrupts—60,000 or even 100,000 of them according to estimates. Accordingly, the new review procedure will not apply to any bankruptcy occurring more than five years before the date when this clause comes into force.

Clause 7 deals with the disqualification of directors of insolvent companies and contains, I think, a useful addition. Section 188 of the Companies Act 1948 gives the court powers to restrain certain individuals who have been concerned in the management of companies from acting in this way for a period of up to five years. The clause introduces an additional ground upon which the court may make a disqualification order, namely, the conduct of the person concerned, in his dealings as a director of two or more insolvent companies, which have gone into liquidation within a period of five years.

I know that this has caused the Law Society some concern and, no doubt, we shall have the benefit of being able to explore the points which it has made, and our rebuttal of them. We informed it well in advance of this debate and of our objections to the points which it had made. We shall have an opportunity of going into that in more detail in the Committee.

Where the court considers the person's conduct as a director of these companies is such as to make him unfit to manage a company, it may disqualify him for a period of up to five years. I hope that the Committee will agree that this provision will do something to curtail the activities of those fly-by-night operators who attempt to hoax or those who exercise insufficient responsibility towards the public in one area or another and seek to preserve the advantages of limited liability for their less than worthy operations. It may be that this provision ought to be looked at in conjunction with a new provision which appears in the Companies (No. 2) Bill to which I have already referred and which will place restrictions upon directors who are in default of their obligations under the Companies Act.

The clause provides for 10 days' notice of an intention to apply for a disqualification order. This is similar to the provisions of Section 188 of the Companies Act 1948, but under the winding-up rules the person against whom any disqualification order is sought is allowed a further eight days before the hearing of the application and such time thereafter as the court considers necessary for the preparation of a defence. At this point I want to stress another matter which concerned the Law Society and others. I make quite plain that it is intended that the normal rights of appeal will be available in respect of any order made under this clause.

Cluases 8 and 9 both make amendments to the county court administration order procedure. The general effect of an administration order is to enable the settlement of a debtor's liabilities under the supervision of the court to be satisfactorily arranged. It debars a creditor who has obtained judgment in a county court from instituting further proceedings to enforce outstanding debts against a debtor.

Usually the debtor is required to make regular payments into court. These are used to pay his debts by instalments, either fully or to such extent as the court may direct. Under the current law a county court may make an administration order against a judgment debtor if he applies for such an order and his total debts do not exceed £1,000, or where a creditor applies for an attachment of earnings order and the court considers that it would be more appropriate to make an administration order. Again in this case the debtor's total debts must not exceed £1,000.

We consider that the present system is undermined by two essential weaknesses. First, as the earnings of a self-employed person may not be attached, the self-employed person cannot be the subject of an administration order unless he makes an application for an order of that kind. Accordingly, since the abolition of imprisonment for refusing to pay ordinary civil debts, the power of the court to enforce a judgment debt against a self-employed person has been considerably eroded. Clause 8 will strengthen the position by empowering the court of its own motion—I think that is important—to make an administration order against any judgment debtor if his total liabilities are not in excess of the prescribed amount.

The exercise of the power of the court in this way may not, of course, accord with the wishes of the debtor or even the creditors, but to introduce a further stage requiring a creditor to apply to the court for an order that the debtor should provide a list of his creditors with a view to having an administration order made against him would involve extra expense and might defeat the purpose of the clause.

I now turn to Clause 9. If a debtor fails—

Mr. Higgins

How might that defeat the purpose of the clause? I am not quite clear.

Mr. Davis

The hon. Gentleman is referring to Clause 8. The purpose of this clause is to simplify matters, to avoid additional and unnecessary expense and to reduce the work-load on the insolvency services. If we were to complicate the matter by proceeding in the way I outlined, we think that it would deflect substantially from the main purposes and objectives I have described.

Mr. Higgins

That is not the main explanation which I understood the Minister to give. It was not purely a question of simplification, it was essentially a question of being able to make an administration order against the self-employed person. He then says that it would be wrong to have an arrangement whereby there could be an application for such an order, because that would frustrate the purpose of the clause. It seems a very hard rule if we are to be told that no such procedure should be allowed purely on grounds of simplification. It does not seem to me that doing so would, as the hon. Gentleman has just stated, defeat the object of the clause. It is true that it would make it rather more clumsy in operation, but the object of the clause would still be achieved.

Mr. Davis

The hon. Gentleman may prefer a different course to be followed in this respect. I believe that simplification is vital to the whole procedure we are discussing. I am not sure whether the hon. Gentleman is suggesting that the Conservatives wish to pursue that course of action at this stage. If he is proposing to do that we shall be able to discuss the position at length at a later stage.

I now turn to Clause 9. If a debtor fails to keep up his payments under an administration order the only sanction available to the court is to revoke the order thereby leaving creditors free to pursue their normal legal remedies. Clause 9 will give a much more effective sanction. In the event of default by the debtor, the court will be able to revoke the administration order and, instead, make a receiving order in bankruptcy against him. He will then be subject to normal bankruptcy proceedings.

I have already said that we take the view that the insolvency law generally must be substantially reformed. I have referred to the wide-ranging review which we are undertaking. But that, unfortunately, is bound to take a great deal of time. I am advised that it could take as long as two or three years, particularly because of the EEC situation.

I hope that the reasons I have given for introducing this stop-gap measure—which introduces some valuable reforms—will commend themselves to the Committee. We believe that the Bill provides the necessary legal provision for dealing urgently with certain matters. I believe it to be a useful Bill and I hope that the Committee will support it.

11.6 a.m.

Mr. Ian Percival

We welcome the Bill because we recognise that there is room for improvement in many aspects of the law relating to insolvency. So let me assure the Minister that we shall co operate fully with the Government to that end—to secure improvements.

But I must say straightaway that we welcome the Bill more for what we hope can be made of it than by reason of any particular enthusiasm for its contents. That enthusiasm has not been heightened by the introduction we have just heard. I am glad, however, that the Minister has dealt in some detail with the clauses, that he has added a little to what his noble Friend said, and particularly that he has made some comments on the representations made by the Joint Committee of the Law Society and the Bar. I shall follow his example of dealing in a little detail with a considerable number of the clauses.

First, however, I wish to make some general comments and voice what we consider to be some serious complaints about what has happened here. Of course, it is regrettable that we should be limited, in considering this important subject, to such a short and ill-assorted collection of provisions in an area where so much is to be done and where so many of the things which have to be done are inter-related and should be considered as a whole rather than piecemeal. What we are doing here is to consider piecemeal a ragbag of ill-assorted provisions.

However, I recognise that at the moment it would not yet be possible for the Government to put forward the comprehensive measure that we would all like. Nevertheless, even if we must accept that we can deal only with a number of points in isolation, we are not happy about the choice of points. I shall say in a moment what we do not like, but let me say first that we also think that an opportunity is being lost to do several other isolated things which could well be done.

I mention just a few. There has been a great deal of discussion about the time limit in Section 1(1)(g) of the 1914 Act. Here is an opportunity to consider that little item, which can be considered in isolation. We shall seek to satisfy the Committee that the Bill should be amended to deal with that.

Another isolated point that could well be dealt with is Section 66 of the 1914 Act. Few would dispute the proposition that, since the cases of Garvin and Davis Investments, Section 66 has become not merely useless but a liability. I shall not enlarge on the reasons. No practitioner would quarrel with that proposition I think. Here is a golden opportunity to get rid of it. We shall be seeking to satisfy the Committee that that would be a useful purpose to fulfil in this Bill.

Let me mention two other matters in the field of company law. I say at once that I do not know whether these are dealt with in the Companies Bill which appeared this morning or whether they would be better dealt with there. They are directly relevant to insolvency and, therefore, might best be dealt with in this Bill. They are a possible amendment of Section 270 of the Companies Act to make it a little less difficult to examine a director about the circumstances which have led up to the financial position, and possible amendments of Section 294 of the Companies Act to deal with the question of the qualifications which should be laid down for a liquidator and, also, to exclude from the categories of those who may be given that important task certain persons who may not be suitable for it.

Mr. Clinton Davis

Is the hon. and learned Gentleman—whose Government, incidentally, failed significantly to legislate even upon the limited basis that we are now considering—really suggesting that the last matter—the qualifications of liquidators—is a simple subject which could readily be picked up in this limited Bill, which we are considering in this new Second Reading Committee procedure?

Mr. Percival

Yes, indeed I am. In his somewhat ungracious introduction to chat remark, the Minister has overlooked the fact that we had a Bill before the House in 1973 which would have achieved a number of very sensible improvements, with which this Government have not continued.

My answer to his question is "Yes". In Committee we shall hope to satisfy him that that is a far simpler matter than many others which this Bill undertakes. I express the hope that he will at least keep an open mind on the matter until we come to it.

My purpose today is to make some general observations about what is and what is not included in the Bill and deliberately to say just sufficient about these matters so that they may receive consideration and thought before we get to them in Committee. One of the disadvantages of a Committee system is that sometimes we leave the subjects we intend to raise—either by way of new clauses or amendments to clauses—too late. Then the Minister is expected to be able to give a reply there and then off the cuff. This produces a situation in which things that might well prove useful if properly considered are not properly considered because the timing does not permit of it. I hope that the Minister will keep an open mind on these matters because they are important. I hope very much that they will receive the consideration they merit.

The third general observation I want to make is this. We find it surprising and unsatisfactory that in such an assortment of provisions as are to be found in the Bill there should be found revolutionary proposals concerning two of the matters which are, perhaps, the most important ones of all those which call for consideration and which are central to the comprehensive review that so many people believe is overdue. I refer to Clauses 5 and 6—the provisions for reducing the number of public examinations and the provisions for increasing the number of discharges and facilitating them. It is further remarkable that there should be found in such a collection of provisions as this the revolutionary provision for the enforcement of judgments which appears in Clause 8.

Lastly, on these general considerations, we find it particularly surprising and unsatisfactory that all of this, and the important provisions of Clause 1, should have been put forward without—so far as we are able to ascertain—any sort of consultation.

I understand that in the past few days there have been consultations with members of the Justice Committee and the Joint Committee of the Law Society and the Bar Council. I recommend to the Minister that he should see these people himself. He has only to look at the names of those on the committees to realise that between them they must have more knowledge of the law and experience of the practice in this area than all the rest of us put together. They are ready and willing to put the benefit of that knowledge and experience at the disposal of the Government and the House.

I am glad that, although at such a late hour, there have been some discussions with these people. I hope that they will prove to be but the first of what will be continuing discussions for the purpose of taking advantage of their expertise. The Opposition believe that such proposals should never be put before the House without consultations with the interests who can contribute so much to our discussions.

Mr. Clinton Davis

The TUC.

Mr. Percival

I do not know whether the TUC has been consulted. If not it must be the first time that it has not been consulted on anything.

Mr. Clinton Davis

I was alluding to the failure of the Conservative Government, at certain highly relevant times in history, to consult properly or at all with the TUC.

Mr. Percival

I am trying hard to keep this non-controversial so that the Committee may serve some useful purpose. The Minister has just risen from his sick bed. He sounds as if he feels a little bad-tempered. We have a great deal of sympathy with him but I hope that he can contain himself so that we may press on in a useful and constructive atmosphere.

What I am saying about consultation is intended to be constructive. No Bill like this should be brought forward by any Government without consultation beforehand with those who are obviously interested and have something to con tribute—for instance, in the case of such a Bill as this, the chambers of trade and commerce, the Retail Consortium, the accountants, the liquidators' bodies and even the lawyers, because it is a matter of law.

In this case it is even worse, because many of the things that we are discussing have been the subject of a great deal of consideration over recent years. I have referred briefly to the Committee of Justice. One could not imagine a committee with a more distinguished and knowledgeable membership. It produced a report in 1975 in which many of these matters were alluded to in detail. Recommendations were made. It is astonishing that these measures should have been put before the House—closely tied up as they are with matters discussed in that report—without any consultations with that committee. It must also have been well known to the Department and to the Government that there was a Joint Committee of the Law Society and the Bar Council which had also given considerable consideration to these matters.

A further reason why it is so surprising that there has been no consultation is that as long ago as 30th July 1974 the Lord Chancellor, in reply to a Written Question, said: The Department of Trade and the Lord Chancellor's Department are considering the question of discharge with a view to legislation when parliamentary time permits."—[Official Report, House of Lords, 30th July 1974; Vol. 353, c. 2300.] Apparently, the ideas behind Clause 6 have been under consideration since July 1974, yet there has been no consultation with anybody about them.

I may already have said enough to indicate that the Bill is not quite the non-controversial measure that some may have thought it to be.

Before I come to the clauses, I should like to say that I do not claim to be an expert in the law of insolvency, but I do claim that those of whose advice we have had the benefit, the members of the two committees I have mentioned, are those best able to give advice not merely on the law with which we are dealing but on the practical effects of it. I appreciate that many of the points to which I shall now refer might well be said to be Committee points, but I do not think that that is an objection to them. I want to say enough about the main Committee points now so that they will have had adequate consideration by the time we come to deal with them in Committee.

The Lord Chancellor said that the main object of the Bill was to bring the monetary limits and the provisions set out in Schedule 1 into line with present-day values and, by so doing, to reduce the work load and public expenditure. We have heard that from the Minister again this morning, who said that it would save £750,000 a year. The first thing I want to ask him to do is to inquire into whether there would in fact be any net saving. Presumably it is expected that by raising the limit to £300 the number of bankruptcies will be so reduced that the staff can be reduced and, by reducing the staff, £750,000 can be saved. But does it work that way? Is it not a fact that the costs of the staff in that respect either are or should be and could be covered by the fees paid for the work it is called upon to do? Might this not merely result in a loss of jobs whilst depriving creditors of a means of enforcing their debts, by reducing the number of applications made and reducing the number of people necessary to handle them, without producing any net saving for the public purse?

My second point about raising the limit to £300 is this. Even if it would produce a saving of public expense, are we not overdoing it to the detriment of creditors? I realise that the Lord Chancellor has recognised that this is a matter of judgment and no doubt the Minister will share that view. I want him to consider, in connection with making that judgment, certain aspects of the matter.

It is recognised by the Lord Chancellor that serious erosions have been made into the means available to judgment creditors for enforcing their rights. Not the least of these was the doing away with imprisonment for civil debt. By raising the limit we shall, of necessity, make a further erosion of those means. The Committee should realise from the outset that this is one of the best—not only one of the few but one of the best—remaining means of enforcing a debt against a self-employed person. The experience of those who practise in this area is that the mere threat is often sufficient to produce the money or, if one has to proceed, the initial stages of making a person bankrupt are often sufficient to produce the money or sufficient information to show that it is not worth proceeding.

That in itself is useful. It helps to keep down the number of cases which are processed and the work load which falls on the Insolvency Service, because I am told that bankruptcy is an expensive process for the judgment creditor. It does not cause much expense to the Service—certainly not much that could not be covered by an increase in fees—but it is expensive for the creditor. Therefore that is a powerful influence in restraining creditors from going ahead with bankruptcy proceedings when they feel that there will be little purpose in so doing.

Mr. Clinton Davis

The argument which the hon. and learned Gentleman is adducing is, in a sense, in conflict with the original concept of these proceedings, because a value of £50 was imposed many years ago when it was a good deal of money. The object then was to enable relatively small and trivial payments to be pursued in this way. In essence, we are going back to the original concept, which I think was correct. This was a supplementary means of enforcing debt. It should not by any means be the main one, which I believe the hon. and learned Gentleman was seeking to argue.

Mr. Percival

The difference between then and now is that, whereas it may have been a supplementary means then, we have made such great inroads into the other remedies which existed that it has now assumed the position when it is not only one of the few means but the most effective method remaining to creditors. It is because of these inroads and the recognition of the increased importance of this method, as I understand it, that the Government are making an exception here and not attempting to apply the multiplier of 12 to this figure.

The second point I wish to make in this connection is that the Lord Chancellor in his speech in the other place indicated that the amount of the deposit which must be put down by the creditor was to be increased substantially. We have heard a figure of £60 mentioned. I mention that now because I should be grateful for the Minister's assistance about this. Can he give us an indication of what the increased figure is to be? His noble Friend has indicated that there will be a substantial increase. If it were to be an increase of that order, that of itself would have quite an influence in keeping down the number of small bankruptcies, because a creditor with a small domestic or consumer debt would be unlikely to put down a deposit of £60 unless he felt that the proceedings would produce the right answer and do so quickly.

If, in addition to those factors which militate against the ability of a creditor to enforce his rights by this means, we put the limit up to £300, we shall have made a serious inroad into the usefulness of this as a means of doing that. We shall propose an amendment in committee substituting a figure of £200, so that this matter may be fully discussed. We hope that that is an aspect of the Bill to which the Government will give sympathetic and serious consideration.

Two other simpler and shorter points arise on Clause 1. I was glad to hear the Minister confirm that it is recognised that a review of everything relating to the rights of preferential creditors must take place. I do not know whether he went so far as to say that it is already in train. If it is, I hope that consultations will start quickly, because consultations are as essential in that field as in all the others.

We are worried about the fact that there would appear to be two classes of preferential creditors who may step in and leave all other creditors with little, if anything. The outstanding case is where the Inland Revenue has allowed arrears of taxation to mount up over several years. It may well be that this has arisen out of trying to help a business, out of sympathy with the difficulties of the business, and in the hope that a little holding off will enable the business to recover; but the end product is that, when the business finally becomes bankrupt, the other creditors suffer, not the people who produced the situation.

Likewise, on the question of the subrogation of the banks in respect of the rights of employees for wages and salaries, I understand that it is quite common practice now for banks to advance money for wages and salaries in very considerable sums where there is really no hope of that producing a longstanding effect—no doubt, out of goodwill for the company, no doubt in order to try to help it to keep going, but, in the event, with the result of causing further disadvantage to the other creditors because when the balloon finally goes up, the bank is all right because it is able to step in and prove for all that money as a preferential creditor, but there is little, if anything, left for the other creditors.

What we hope the Government may consider, and what we should like to discuss in Committee is whether we might take advantage of the pre-preferential creditor system which was put forward in our Government's Bill in 1973. But I shall not enlarge upon that at the moment.

The third point which we hope to discuss in Committee on Clause 1 was also referred to by the Minister. It is all very well to say that the amount of credit which can be obtained by a bankrupt is now very much out of date and should be multiplied by 12 to bring it up to date—there is a certain logic in that—but if we approach it the other way, by observing that if the Bill became law a bankrupt could obtain £120 from any one person, or perhaps from each of a large number of persons, without being guilty of this offence, one may feel that the value of that structure has gone because the total amount of indebtedness which could arise by a number of debts of £120 here and there could soon add up to a very substantial sum.

We shall ask the Government at a later stage—or if the Minister cares to comment on it today, so much the better—whether the time has perhaps come for a new approach here, possibly, for adopting that suggested by Justice in paragraph 9 of its recommendations, that is, to do away with the offence of obtaining credit as an undischarged bankrupt and substitute a different offence altogether.

On the first point, the £300, the Committee and the House has to make up its mind as to what the new figure should be—whether it is to be £200, £250 or £300. As to the other two points, I put this thought to the Government. Is it really urgent that either of these be dealt with now? If it is, is it necessary to put the sums as high as they will be if the schedule goes through in its present form?

I have nothing to say about Clause 2, I am glad to say. With regard to Clause 3, I think I heard the Minister say that the advantage of the provisions in this clause was that the money in the account would be put to better use. If I heard correctly, that would be directly related to the one observation I had to make on the clause. So far as I can see, there is no provision in the clause, or anywhere else in the bankruptcy and insolvency law, for any interest to be paid to the persons whose money is on account. We should like the Government to consider whether it would be desirable that interest should be paid at a commercial rate or, at all events, at a sensible rate rather than not at all or at a purely nominal rate on the sums in those accounts.

Clause 4 we welcome without reservation. There was a query raised on it at one stage, as to whether the same simplification of the proof of debt could be introduced into company winding-up as is here introduced for bankruptcy. I understand that that can be done by an amendment of the rules and that it is the intention that the rules should be amended to achieve that. If that be so, we welcome both what is in the clause and what is to follow by way of amendment to the rules relating to companies.

I come now to Clauses 5 and 6, and I propose to deal in general terms with our feelings about them. Let me make clear to begin with that we are fully in sympathy with, and greatly welcome, the idea of reducing the number of public examinations. Furthermore, we are fully in sympathy with, and greatly welcome, the idea of speeding up discharge and ensuring that more people are discharged, and of simplifying the method of discharge. Therefore, we are very much in sympathy with the motives underlying both Clauses 5 and 6. However, in both cases we are very sceptical of the method chosen.

I take Clause 5 first. I believe—if I am wrong, perhaps the Minister will tell us later this morning—that the method chosen is quite novel. I do not think it has ever been proposed in the report of anybody or has ever been discussed by the Department with any bodies of which I know. This is a classic example of the sort of provision about which it is not only essential that there should be consultation but that it should be on the widest possible basis, and not hurried. Here is a field in which we all want to make a big change. Until now, public examination could be dispensed with only by an order of the court on grounds of mental or physical disability. It is a very big change to decide that that is far too limited, that one wants to reduce them, and reduce them very substantially.

It is a matter of principle. It is the kind of change that calls for early and full discussion. That is particularly so here because the proposal enshrined in Clause 5 is, I understand, entirely novel and differs fundamentally from two other major alternatives which have been the subject of public discussion from time to time.

The Chairman's attention having been called to the fact that six Members were not present, he suspended the proceedings; and other Members having come into the room, and six Members being present, the proceedings were resumed.

Mr. Percival

Those two alternatives are, first, that one should provide that there should be no public examination unless one is ordered—

Mr. Clinton Davis

Would the hon. and learned Gentleman just repeat that?

Mr. Percival

Yes. The first is that we should move to a system under which there is no public examination save where one is ordered. That is the reverse of the present situation where there must be one unless an order is made dispensing with it. Alternatively, there is the intermediate possibility which has been worked out and put forward in detail by Justice, the main terms of which are that there should always be a public examination if the amount of the liabilities exceeds £10,000 but that, if the total amount of liabilities is less than £10,000, there should not be a public examination unless one or more of certain features are present in that case.

Those are two other alternatives which must be compared with the system put forward by the Government here. What we have to do—by "we" I do not just mean this Committee or this House but all of us who have an interest in making the law relating to insolvency as simple and as practical as possible—is to hammer out together which to choose.

My second point on the clause is that even if, after all that consultation, it were decided that the approach adopted in Clause 5 is the correct one, it would still be necessary to hammer out the details with much more precision than has been done here before foisting on to all concerned this totally new system. It is all very well for us to say "This is what should be done; now you get on and do it". We sometimes forget that we ought to consider more the practical needs of those who will have to carry out what we say they must do. Without exception, all those to whom I have spoken about this and who are concerned in the practical side have said that, if we are to adopt the approach of Clause 5, the clause must be much more precise about what is to be done, and it must, in particular, contain guidelines.

The Minister said that guidance would be given. I asked him "By whom, and to whom?" I hope that, before we rise this morning, he will give us a fuller answer to that. Is it guidance by the Department to somebody, and, if so, to whom, and what is the effect of that guidance? How are the courts to become cognisant of that guidance, what obligation have they to follow that guidance and so on?

The noble and learned Lord the Lord Chancellor, speaking in the other place, specified three guidelines. He thought that a public examination would be dispensed with only where the official receiver had carried out a full investigation, the number of creditors was small, and the public interest was little. That is a start. Admittedly, if one simply put those into a Bill, it would be so vague as to constitute another rather bad piece of legislation, but that is no reason for not seeking to develop them and give precision to them. If those are the sorts of consideration which the Government have in mind in asking the House to pass this law, for goodness' sake let us make them more precise than that and put them in the Bill, so that the courts which have to consider these orders will know what they are supposed to be doing. Furthermore, the official receivers will have that much guidance in making their applications, because they are the ones who will have to make the applications.

Second, we feel that the present proposals are open to the serious criticism that only the official receiver can apply. We think that that is too limited, and that others should be allowed to apply.

I am sure that everyone realises what enormously serious consequences changes like this have for debtors and creditors alike, but I doubt that we are doing justice in this instance to the seriousness of those consequences. Before we make a change like this, whichever line we decide to take, we must have the fullest discussion both inside and outside the House and with all others who are interested.

Again, we welcome the idea behind Clause 6 but we are frankly astonished at the method chosen. Here also, at least two others have been put forward and fully discussed. I refer to the Blagden proposals and the variations of Blagden put forward by Justice.

In a letter from the Department to the Law Society, in answer to some comments offered by the Joint Committee of the Law Society and the Bar, it was said of Clause 6: The provisions of this Clause are intended to implement the recommendations of the 1908 and 1924 Committees dealing with Bankruptcy Law amendment, whilst overcoming the practical objection mentioned by the Blagden Committee, by providing that the review can be undertaken by the Court in the bankrupt's absence. If that is the Government's intention, we are very surprised that it should have thought it desirable to go back to the recommendations of the Committees of 1908 and 1924 in preference to the recommendations of Blagden in 1957. Furthermore, I do not understand the second half of that sentence, because I remind the Committee that the reason Blagden gave for rejecting the recommendations of the 1908 and 1924 committees was the extra expense that would be caused and the extra burden that would fall on the Insolvency Service if those recommendations were adopted.

I draw the Committee's attention to paragraph 57 of the Blagden Report: It was recognised by both the previous Bankruptcy Committees "— those are the 1908 and 1924 committees— that no bankruptcy should be allowed to continue indefinitely without the question of the bankrupt's discharge being dealt with. The difficulty was that, if every bankrupt were to be brought before the Court for the consideration of his discharge, it would increase the costs of discharge administration fourfold, so that the recommendation of the 1924 Committee to the effect that every bankrupt should have his discharge considered by the Court was never carried out. It appears to those with practical experience in this field that great increases would inevitably follow if Clause 6 were adopted. If the official receiver is to prepare a report on every bankruptcy in the sixth year following the adjudication, and every one of those is to be heard by the court, the costs and the burden of administration must be increased enormously. Considering that the number of bankruptcies now is so much greater than it was at the time of Blagden, and will continue, so far as one can see, to be very large, despite the raising of the limits, the mind boggles at the extra work and extra expense. Confining oneself to the time and expense involved in compliance by the official receiver with the new duties that would be imposed upon him and the time and expense which would be incurred in the court proceedings which would follow, the mind boggles.

On the question of the extra expense of what is proposed the letter from which I was quoting said this: We are of the opinion that the work involved in preparing reports for the purpose of review will be less onerous than that involved in considering whether or not to apply to the Court to enter a caveat. I should say just a word about caveats, and point out that the essence of the Blagden recommendation and the Justice recommendation was that there should be automatic discharge save where a caveat had been entered. What has been overlooked in the drafting of that sentence in the Department's letter is that both committees recommended a close link between the dispensing with the public examination and the automatic discharge, and that the caveat, if one was to be entered, would normally be entered at the stage when a public examination was held. So it would not be necessary for the official receiver to go all through every case again to see whether a caveat should be entered.

In cases where there had been a public examination, the odds are that the caveat would have been entered at the close of that. In other cases, the question of entering a caveat would arise only if something happened during the course of the administration to give the official receiver cause to reconsider that particular case and, if he felt it necessary, to enter a caveat.

At the moment, we cannot see any advantage in the way that has been chosen. It would clearly cause a great deal of extra work, far outweighing the work and expense that would be saved by raising the limits in Clause 1. It would put extra burdens on debtors as well. We are not soft about debtors. I do not want what I am about to say to be thought to indicate that. We are trying to be fair to both debtor and creditor. But I entirely accept the proposition that, if it is necessary in the genuine interests of the creditor to do something which may be considered hard on the debtor, well and good. If that situation arises, preference must be given to being fair to the creditor.

Here, however, we think that this would be hard on the debtor without compensatory advantage. A debtor who had been made bankrupt five years ago, possibly with very little publicity, might find himself before a court being asked a lot of questions about what had happened in the last five years. He would have attracted to him a great deal of publicity and attention which would serve no purpose. If it can be demonstrated that that would have an advantage for the creditor, let us do it. But here we cannot see how these extra burdens are justified, or what is gained by this method which would not be gained by either of the other two methods.

We hope that, when the Bill goes into Committee, the Committee will give careful consideration to the Blagden recommendations bearing in mind also that Australia followed them in 1966 and New Zealand in 1967. At least two other countries, therefore, have thought them worthy of use. We shall not suggest that they should necessarily be slavishly copied. We have in mind that, if it was felt that two years was too short, a period of five years, or something in between, might be substituted. In this we should welcome the assistance of the Minister and the Department, because the effects of these times are not always easy to work out. It might also be sensible to introduce the variations to Blagden suggested by the Justice committee.

I do not know the Government's intention, but we feel that the advantages of Clauses 5 and 6, as I have suggested they should be dealt with, should be extended only to first-time bankruptcies. Second bankruptcies may be another matter.

It is good that these two clauses are in the Bill so that we may have a general discussion on them. At the end of the day, when they have been discussed here and there is a basis on which people outside can consider what we are doing, it may be thought right that they should be taken out of the Bill. Then everybody interested could really think about them, we could all decide what was the right approach, and they could take their rightful place as the central feature of the comprehensive measure which we hope will follow.

On Clause 7, I am glad to hear that attention has been given to the Law Society's points, and we shall, no doubt, deal with those in Committee.

The only other clause to which I wish to refer is Clause 8. The remedies which now remain to the judgment creditor of a self-employed person are very thin, and they will be even thinner after we have increased the limit to £300. Something should therefore be done about it. I do not quarrel with that—something should be done to improve the position of creditors—but I do quarrel with this proposal. What is being done here—so far unnoticed—is quite revolutionary. The court is being given power of its own motion to select a method of execution of a judgment debt. I do not know of any circumstances in the law in which such a right exists. I believe that the choice of method of execution rests solely with the creditor. It does not need much effort to see how important it is that it should. If he prosecutes his debt to the stage of final judgment, he has done it on the basis of the remedies which will be available to him, at his choice, after he has got his judgment. For the court to step in and say "We shall take a hand in this and make an administration order" is a revolutionary innovation which I find extremely unattractive.

If what is desired is to make the administration order procedure available to the creditors of a self-employed person or available at the instance of a debtor himself, let us simply say that. Let us say that a creditor who has obtained a judgment may apply for the making of an administration order, or that a debtor against whom a judgment has been made may apply, as I think he can at the moment.

What is proposed here, however, is that the court be invited and entitled to select the method of enforcement. It seems that, whether or not the creditors agree, the court may go ahead with that method although, as was recognised by the Lord Chancellor in his speech—and. I think, by the Minister—the making of the administration order would debar all creditors from any further process open to them to recover their debts.

Second, even if it were right to make this innovation, it would be wrong to do it in such vague terms. There is nothing in the clause, so far as I can see, to indicate that the court has to have any regard to the assets of the person. One would think that important in the case of an administration order. It is no good simply looking to see whether there are debts. One should be interested also in whether there are any assets to administer. There seems to be no requirement of notice to the debtor that it is proposed by the court to initiate the proceedings under the clause. The clause contains the words—if it appears to the court that the debtor "also has other debts". What does that mean? It is much too vague. Moreover, all of this is unnecessary. If the object is to make the administration order available as a means of execution to the judgment creditor of a self-employed person, let us just give the right to such a judgment creditor to apply for such an order.

I hope that I have given sufficient warning of the major matters that we shall wish to raise in Committee so that they may be fully considered. I end on the note on which I began. It is our hope to have a thorough discussion of these maters and come to sensible conclusions about them, even if the sensible conclusion may in some cases be to leave something ut for the time being. It is as the vehicle for that that I welcome the Bill and support the proposition that it be read a Second time.

12.1 p.m.

Mr. Tim Renton

I rise with great temerity to make a few observations on the Bill. I am not a lawyer and am surrounded by lawyers. In particular, I have in mind the wise remarks made by my hon. and learned Friend the Member for Southport (Mr. Percival).

Not being a lawyer, however, I take comfort from the remark made by Thomas Jefferson, referring to Congress, that for 150 lawyers to do business together was not to be expected. Therefore, as a mere company director, I venture to make a few remarks on the Bill.

It is significant, as my hon. and learned Friend said, that the number of bankruptcies and isolvencies in companies has risen substantially recently. It is ironically appropriate, therefore, that we should be considering the Bill now. I believe that the most recent figures show insolvencies to be up about 60 per cent. on the last financial year. Many of these stem from the process of inflation.

Inflation is noticeable in Schedule 1 where the limits are put up—as the Under-Secretary said—generally by a factor of 12 on the 1914 figures. However, inflation causes many companies to get into difficulties which perhaps lead to insolvency without there necessarily being bad management. This may happen when a company is dependent for its stock upon a raw material which goes up greatly in value. Copper, for example, went up from £500 to £1,400 in a matter of months. Or it may be that, flowing from this fact, the number of debtors owing money to the company increases greatly. The company may be unsuccessful in collecting its debts sufficiently quickly and thus find itself with cash flow problems. These problems can lead to insolvency, but they do not necessarily mean that there has been bad management. They certainly do not necessarily mean that there has been criminally bad management.

I believe, therefore, that in approaching the Bill we must try to strike the right balance between debtors and creditors and between management and those to whom management owes responsibilities. This is a difficult balance to achieve, but it is right that we should try to do so.

I should first like to ask the Under-Secretary about the question of wages. Schedule 1 proposes that the limit on wages ranking as preferential debt is to be increased to £800. Is that a total limit or a limit, per individual? If it is a total limit, I am surprised by the remark made by Lord Mansfield in the other place when he said that: There cannot be many cases where a sum of £800 is owed in respect of wages or salaries"—[Official Report, House of Lords, 4th December 1975; Vol. 366, c. 766.] He was referring, of course, to firms which went into liquidation. I should have thought that that was not so. The figure could well be higher than that. I should, therefore, appreciate clarification on this point.

Mr. Percival

It is per head.

Mr. Renton

My hon. and learned Friend says that it is per head. I thank him for that clarification. That deals with one of my points.

Leading on from that, it has often struck me that employees in a small company which becomes insolvent do not know their rights in that situation. Greater information should be made available to them when they become aware of the difficulties into which their companies may be getting. They should know that their wages, up to the figure of £800, will rank as preferential in insolvency proceedings. Anything which can be done to make this right of employees more widely known would be helpful.

I turn now to Clause 5. My hon. and learned Friend has rightly stressed the difficulties which we find in the clause. These difficulties have been well set out in a brief which many members of the Committee have received from Justice. As a non-lawyer, it is clear to me that the official receiver will surely be placed in a quasi-judicial position—a position which he does not occupy at present—in having to decide whether he should make an application to the court.

At a time when the work of the official Receiver is increasing because of the number of bankruptcies, is this not placing an additional burden upon him and his staff? Furthermore, are we not asking him to exercise a function which he is not competent to perform? I believe that the Bill would be improved and would find wider acceptance if allowance were made for application to be made to the court by others—certainly by the debtor—as well. If the debtor does not have the opportunity to state his case directly to the court there is a burden upon the official receiver in that he is being required to make a judgment of Solomon before the matter ever gets to court. Moreover, what the court hears must inevitably be an ex parte view of the facts. It would be wise if the Bill could be amended in that manner. I hope that the Under-Secretary will be able to give us some comfort on these lines when he replies.

The Lord Chancellor—as the Under-Secretary said—gave guidelines in another place as to the way in which this matter would be treated. However he avoided the point about others—notably the debtor—being able to make application to the court. In effect he said that only the official receiver would make such an application and that the court's discretion would be exercised on the facts of the particular case. However, if only the Official Receiver is making the application, the facts will already, in effect, have been decided by him in advance of the court hearing. I do not believe that this novel procedure can give as wide and broad a treatment of the subject in the court as it deserves.

I turn next to Clause 7. Perhaps inevitably, as a company director, I am most concerned about this clause—more perhaps than is my hon. and learned Friend. There is an element of retrospection in the clause to the degree that if a director should find himself in the unfortunate position of having been a director of a company which went insolvent within the last five years he will now, under the Bill, as I read it, be in the position that if another company of which he is a director at present were to go insolvent before the five-year period were over he could be judged by the court to be unfit for management and thus unable to play any part in his normal business life. That would be a very severe penalty.

First, to remove this element of retrospective legislation, it might be more appropriate if it were spelt out clearly in the Bill that there was no retrospective element in this, and that it did not refer to bankruptcies over the period leading up to the time when the Bill is enacted. As presently drafted, I believe that the Bill might be judged to do that.

However, there is a wider point which greatly concerns me. That is the role of the non-executive director and how he sees his responsibilities in the light of the clause. As I said in my opening remarks, and as hon. Members on both sides of the Committee will realise, many companies go bust not necessarily through bad management but because they have been caught up in the whirlwind of events. If someone was a non-executive director on the board of such a company and, as a result of the company going insolvent in circumstances in which he knew relatively little about the affairs of the company but was collectively responsible for its conduct as a member of the board, he were then to have this sword of Damocles hanging over him, he would be loth to take on further directorships lest, through misfortune more than anything else, he might find himself caught under the provisions of the clause and be unable to practise his trade as a company director.

Mr. Clinton Davis

I think it right that we should correct what I believe is a misapprehension on the hon. Gentleman's part about the nature of the provisions in Clause 7. What has to come before the court is the issue of determining whether, having regard to the criteria specified in (a) and (b), a director is unfit to be concerned in the management of a company. We have to view those two matters conjunctively and, therefore, the non-executive director who has been very largely blameless in the instance the hon. Gentleman was citing would have those matters taken very strongly into account. I cannot conceive that if those facts were found he would be in any jeopardy at all. One has to look at the two things conjunctively and that is what we are seeking to do in this particular provision.

Mr. Renton

I take that point, which it is perfectly fair for the Under-Secretary to make. I did not realise that these two subsections should be taken conjunctively. However, the point to be borne in mind is that many non-executive directors, many directors fearful of their reputations, would surely not want to run the risk of having to go before the court or having the court decide whether their conduct was likely to be such as to make them unfit to be concerned with the management of other companies. Through this clause they are exposing themselves to arrest, making themselves liable to a decision by a court which is without their normal experience at present. In a sense, it is a particularly unfortunate moment for this clause, which places new responsibilities on directors, to be introduced. We know that the Bullock Committee is looking at the whole question of employee participation on boards and flowing on from that, and as part of it, the Government are engaged in a general study of the structure of boards. While this consideration is under way I should have thought it appropriate that this new caveat on directors should be put into cold storage until the new corporate structure of boards had been decided.

It is clear from, for example, developments in the United States that there is now such a wide range of actions that can be brought by shareholders against boards that it is discouraging people of intelligence and wide experience from serving on boards. I believe it would be a great mistake if in this country we were to fall into the same trap of so legislating against members of a board that non-executive directors were discouraged from serving.

In conclusion, it is clear that we want a law on insolvency that is as feasible and as pragmatic as possible. I believe that it should be easily interpretable by the layman in companies and for that reason clarification and codification of the law on bankruptcy is most important. It is also clear that we must strike the right balance between creditors and debtors. I give, with my hon. and learned Friend, a cautious welcome to the Bill. In some respects I think it has erred and we can go in greater depth into those aspects in Committee.

12.15 p.m.

Mr. Terence Higgins

I find increasingly that versatility seems to be the hallmark both of Trade Ministers and Shadow Trade Ministers. The difference is that whereas one may be dealing with matters as diverse as the balance of payments, the insurance industry, civil aviation and shipping and even the film industry and Sri Lanka tea estates, the Government normally have expert advice on all these matters at a moment's notice but that is not always the case for Shadow Trade Ministers. The Committee will, therefore, be very grateful to my hon. and learned Friend the Member for Southport (Mr. Percival) for the extensive analysis which he has carried out this morning. It is absolutely right that we should at this stage make it clear that in our view a great many changes are necessary in the Bill and should give the Government sufficient notice for them to take that into account.

I should like to make one broad point on the whole question of reforming company law and matters such as insolvency. I become increasingly worried that the Government are taking the view that all these matters should, at some much later stage, be incorporated into some massive piece of legislation. We have outstanding many matters which were covered in the Bill which the Conservative Administration introduced. There are a great many highly controversial matters—for example, with regard to warehousing or insider dealing and the whole question to which my hon. Friend the Member for Mid-Sussex (Mr. Renton) has just referred, of employee participation. In addition to that, there are all the more fundamental or more complex points which the Minister has referred to this morning concerning bankruptcy and insolvency.

I cannot help but feel that if, eventually, such a monster were produced it would be very difficult indeed for the House to give sufficient consideration to it during the course of one Parliamentary Session. Even if it were introduced the moment the gun goes, so to speak, we would be jolly lucky if we managed to get it through all its stages with proper consideration by the end of that time. Therefore, the more sensible approach would be a series of interlocking Bills which could then be comprehended on a basis of consolidation. I am absolutely sure it is right that the House should give proper consideration to these matters and, the burdens on hon. Members being what they are, this is somewhat difficult. Even in the present and immediate context, I hope that the Minister, through the usual channels, will give very careful consideration to the relationship between this Bill and the one which he has announced has been published today—again a relatively minor matter on company legislation. I hope that we can pursue this Bill through its various stages which, obviously, will now be pretty heavy before we proceed with the Committee stage on the other Bill because, necessarily, much the same team on both sides of the House will be dealing with both of these measures.

I turn now to the substance of the Bill. We are grateful to the Minister, despite his recent indisposition, for spelling out the matter in detail. I merely interrupted him with reference to the Lord Chancellor's speech to suggest that he might spare himself some of the onerous task of going over all the issues point by point when we already had much of it on the record. I am not sure that it would not have been more helpful to have spelled out the differences between his speech and that of his noble Friend rather than go through the whole thing with certain bits added in.

But be that as it may, we are grateful to him for what he said. As far as the general scope of the Bill is concerned, one should not underestimate the degree of public interest. I was rather surprised, on carrying out a certain amount of research, to see the amount of Press coverage which there has been on this subject—not just technical articles in The Times, for example but a great many articles elsewhere. The Sunday Times on March 9th 1975 had the headline Did you know you could be bankrupt for £50? There was a very interesting article for the layman in the Daily Telegraph colour supplement on March 7th 1975 headed: Public Disclosure of Private Disaster complete with illustrations. There are other points in New Society on bankruptcy. There was an article headed: Legal snags for the liquidator in The Times. There was another in New Society on insolvency. There was even one in the Sunday Times: Bankrupts of the world unite". One should not underestimate the considerable interest in this matter.

Mr. Clinton Davis

What about page 3 of the Sun?

Mr. Higgins

I have not seen page 3 of the Sun.

As the Minister has pointed out, pan of the interest may lie in the fact that we now have a growing population of undischarged bankrupts. This is presumably not a desirable situation, and it touches one of the main objects of the Bill. I want to make some comments on that, although my hon. and learned Friend and my hon. Friend the Member for Mid-Sussex (Mr. Renton) have already made many of them. I shall not go over the same ground.

As the Minister told us, the Department has started a major review, and we need to consider all this in relation to the proposed EEC convention. I hope none the less that in this Bill we can not only correct some of the sins of commission to which my hon. and learned Friend has drawn attention but also rectify some of the sins of omision. It would be very unfortunate if measures which can be suitably incorporated, say, in a new clause are not incorporated now, instead of waiting for the other major measure to which the Minister has referred.

Looking at the history of this—some of these proposals apparently go back to committees in 1908 and 1924—we get a certain feeling of surprise that we ever managed to get rid of the debtors prison, for example. The process is very slow. But that being so, it is all the more surprising, in view of the thought given to these matters by committees in the past and the fact that Justice, the Bar and the Law Society have expressed views, that there was not adequate consultation before the Bill was introduced.

I cannot understand why that should be so. I should be grateful if the Minister could tell us how the Bill could be produced, with all its sins on its head, so to speak, and apparently without the benefit of consultation with those experts—they are indeed experts—outside the House. I hope that this can now be rectified, although we may need to do so by way of a Committee stage in this House. I hope that in that case the Minister will have an open mind and will not feel that he is somehow committed to the proposals in the Bill but that we ought to look at it objectively. We should certainly not say that he was losing face in any way if at that stage he felt obliged radically to alter certain parts of the Bill.

I almost contemplated that, even though the Bill has been described as a short and non-controversial measure, we should suggest that the Government take it back altogether and start from scratch. We ought to be able to make it a great deal better than it is, and we shall do all we can on this side to ensure that that is done. We hope that we shall have the Minister's co-operation on what is, after all, in no way a partisan measure.

Despite the Lord Chancellor's speech, the House of Lords debate was pretty perfunctory. We now need to get down to the detail of the Bill, once we have agreed, as I hope we shall today, that its Second Reading should be recommended to the House.

My first comment on detail concerns the monetary limits. I intervened in the Minister's speech to suggest that there seemed to be a somewhat inconsistent attitude about how one should adjust these limits. Here again, as has already been pointed out, the problem is to hit a balance between creditor and debtor, given the erosion of other means of seeking redress. My hon. and learned Friend has rightly drawn attention to the question whether the main £300 limit is right. The debate has tended to suggest that the £50 limit which we are now proposing to change was set in 1914. I understand that it actually goes back to 1869. If that is so, this is a remark able change. We shall need to debate on a specific amendment the right figure, bearing in mind the balance between debtor and creditor. We shall need to pursue also the point I raised with the Minister regarding the monetary limit as it applies to certain forms of preferential creditor.

It would be helpful if the Minister would consider circulating to members of the Committee the comparative figures in the schedule set against the figures which would be appropriate if adjusted, say, by the consumer price index or something of that sort. Otherwise, it is difficult to see which ones are in line and which cut of line with that concept.

Having said that, I turn now to Clauses 5 and 6. The Minister will be familiar with the representations on these clauses made by Justice. They seem to me to raise difficult questions, as my hon. Friend the Member for Mid-Sussex pointed out. The official receiver is now being asked to exercise a quasi-judicial function, which is quite different from anything he has done hitherto, the court will not have the benefit of hearing the debtor and his legal advisers and the creditors, and, in particular, there is a lack of guidelines or criteria.

I understand that one of the guidelines proposed is that the official receiver should consider whether the matter is of public interest. If that is to be a guideline, it seems very odd. How on earth is this distinguished individual to have any real criteria as to whether this or that case may be of public interest? We can think of a number of recent, almost lurid cases—I shall not go into detail—in which the official receiver might well, at an earlier stage in the proceedings, before the facts became known, have come to the view that one should not go through the existing procedure. If it is proposed to put that kind of burden on him, we shall need to consider it very carefully.

That brings out the fundamental point that the Government must be absolutely explicit on what they propose to give by way of guidelines. Will the Minister clarify for the benefit of laymen the basis of the bankruptcy rules? If it is not to be written into the Bill, we need to consider carefully how these rules can be made explicit, whether the House ought to have any consideration at all for what they should contain, or whether it is simply an administrative matter which does not have proper political—in the best sense of the word—consideration.

The Justice submission on this point suggests that amendments might be made to Clause 5 if there is insufficient parliamentary time for it to be redrafted. I do not think that that is the right approach. The objections raised by Justice are very strong, and considerations of parliamentary time, or draftsmen's time, ought not to inhibit us from settling the best possible form of Clause 5.

Similarly, on Clause 6, powerful arguments have been advanced by Justice. If every case is to be re-examined in order to dispose of outstanding cases of bankruptcy, the argument that the staff savings made by some clauses might be substantially offset by Clause 6, if not totally eliminated, may well be valid.

Similarly—this is very important—the Bill as it stands seems to create the extraordinary consequence that a public examination of a bankrupt person may be dispensed with in the first instance when the matter first comes before the authorities, but then, if I understand correctly, the same individual may find himself five years later having to appear in open court. That seems extremely odd, and perhaps the Minister will confirm whether that is so when he replies.

I make the point again. If we were to agree to the Bill in its present form, would its effect be that an individual would not have a public examination when he was faced with his problems, but five years later, when the question of his discharge arose, he would have to appear in court? That would be an extraordinary situation for the individual, since one reason why the number of bankruptcies is accumulating is that people are reluctant, despite the penalties which fall upon them for not being discharged, to go through the attendant publicity five years after their misfortune, mismanagement or folly and find that vented upon their heads.

Another question on the same point is whether the judge at that stage will, or could in any circumstances, agree to the discharge if the official receiver has been unable to trace the individual concerned. The proposals of my hon. and learned Friend the Member for South-port for an alternative arrangement seem to me to be powerful. I hope that we shall be able to go into that in Committee in some detail.

I take issue with my hon. and learned Friend on one point. He had no qualifications about Clause 4. I have a slight doubt about it because it substitutes for "a debt to be proved by affidavit"— A debt may be proved by delivering or sending through the post in a prepaid letter to the official receiver …". All Members of Parliament know how unreliable the Post Office service is. No doubt, this provision was formulated in the last century. The post was much more reliable in the middle or latter part of the last century than it is now. This is a new point which has not been mentioned before. At least, it ought to be a registered letter or something of that kind. I raise the question because Members of Parliament present a good statistical sample for appraising how often letters go astray. I had a case where five letters to the Department of Health and Social Security went astray in one week a couple of years ago, and it took months to sort out the resulting chaos. If it can happen between this place and the Department of Health and Social Security, it can happen between someone who is trying to prove a debt by sending a letter to the official receiver. That matter should receive consideration.

Various other points need to be raised. On Clause 3, the question of the funds, I understand that the two accounts are to be changed from what was originally the Insolvency Services Investment Account to the Insolvency Services Account—the word "investment" now being omitted from the title. I should be grateful if the Minister would tell us who receives the benefit of the use of the money, and whether any interest is paid on it, because it would seem unfair if the interest were to go to the Government or if the Government were to have the use of the money without interest. Presumably, the benefit should go to those who, sooner or later, will receive something from the account.

I am worried also about various time limits. I recently received a copy of the form which is used for giving someone notice that bankruptcy proceedings may be taken against him in default of payment of a debt, and the final words read: You must within three days apply to this Court to set aside this Notice, by filing with the Registrar an affidavit to the above effect. Frankly, first-class mail or not, three days seems to demand a rapid response from the individual concerned. We may wish to consider several time limits in the present context, although they are not extremely onerous on the debtor, or, indeed, in some cases the creditor as well.

There is another main source of controversy over the Bill, which it is becoming increasingly clear is far from uncontroversial, as I am sure even the Minister will agree by now. This concerns the effect of Clause 8. This clause could work in an extremely onerous or oppressive manner on debtors. I understand that some of the safeguards in previous legislation are not repeated in this. In short, the effect of the Bill, if I understand it correctly, would be to remove certain safeguards which many experts consider essential if the individuals concerned are to be adequately protected. The expression "alarm" has been used about the implications of Clause 8. Our initial feeling at this stage is that we might be better off without Clause 8 at all, unless it can be satisfactorily amended in the manner which we shall suggest.

I do not want to go into the sins of omission in detail, but I am happy to see that the Long Title is very broad, and will not preclude us from moving a number of amendments. There is one point which gives me, as a layman, increasing cause for concern. It raises broad issues, especially in regard to the operation of many institutions which give credit. It came out clearly in a television programme called "That's Life" in which Miss—or Ms—Esther Rantzen participates.

Mr. Bryan Gould

She is Miss.

Mr. Higgins

Miss Esther Rantzen acts with great effectiveness in bringing out and publicising a number of cases in which consumers and others have suffered. The way in which the operation of consumer credit is carried out at present may create a situation in which individuals are effectively blacklisted from obtaining further credit because there has been some mistake on the occasion of some previous debt. I understand that this occasionally happens through errors or wrong recording in county courts.

As a result, an individual, all unknown to himself, may find that he is constantly refused credit or has great trouble in obtaining it, because there are such errors in the records. Because he is unaware of it, the situation may persist for a long time. We should consider whether some procedure could be developed to ensure that such jeopardy does not arise for a perfectly innocent individual who has paid a debt but who is recorded as not having paid it. I raise that matter because I have had several constituency cases where this has happened, and there are genuine worries to be expressed.

Finally, we have grave doubts as to whether the Explanatory Memorandum to the Bill which gives the figures for savings and for savings in staff can be justified not on the basis of the alterations which the Government propose to make in the Bill. We shall need to probe that matter carefully. Clearly, the Opposition, as is well known, are in favour in making savings in public expenditure. However, we need to make sure that they are real savings, We must look at the matter on balance, taking fully into account both the savings, on the one hand, and the increases in expenditure or staff, on the other. It is extremely important that we do not press that particular economy, whatever the pressures of the Treasury may be on the Department of Trade, to a point at which it may result in injustice or hardship to individuals who ought to have the financial matters covered by the Bill adequately analysed by a process of law which ensures that the interests of both creditors and debtors are fully protected.

I do not oppose the Second Reading, but I think that the Bill needs radical change, and a number of new clauses may well have to be added. I hope that we shall persuade the Minister of that.

12.40 p.m.

Mr. Clinton Davis

If I may have the leave of the Committee to speak again, may I explain my attitude to the progress of the Bill? I have not come to the Committee with a closed mind, because the Bill does not involve party-political controversy. It is a Bill about which I know some reservations have been expressed, not only in the Committee but outside the House.

It has been introduced primarily because it is a short Bill. We should not have had parliamentary time for it if we had had a major review of insolvency law to contemplate within the legislation. Within that scope, I should certainly wish to see any reasonable amendments which satisfied me and the Committee incorporated in to the Bill. I make that absolutely plain. I hope that hon. Gentlemen, who have made long observations about the defects of the Bill, will also approach its consideration in Committee with an equally open mind. We shall have rather more time to adumbrate the variety of arguments about certain proposals that appear, or do not appear, in the Bill. I am sure that my view will be shared by the Opposition.

The hon. and learned Member for Southport (Mr. Percival) said that he shared the view that changes were urgently needed. In a long speech, he made a variety of points on specific clauses which, he said, were not Committee points. Equally properly, he drew the Committee's attention to the need to lay down markers so that I and my officials should have advance notice of the points that the Opposition wished to make. That is a more useful way of proceeding than for amendments suddenly to appear on the Paper late in the day and for a hurried decision to be made about points which could be of considerable importance.

The hon. and learned Member referred to Clauses 5, 6 and 8 as containing revolutionary proposals. I suppose that it depends from what base one decides to depict a revolution, but I do not think that they could be regarded in quite that light. They are different. He says that they are central to the comprehensive review that the Department must be carrying out. I do not necessarily agree, but these matters we can explore more fully in argument at a later stage. He said that the Bill had been introduced without any consultation. It is true that the Bill is, as I have indicated, of a limited nature. We were aware long ago of the representations which Justice had made after careful consideration. They are essentially representations which go to the heart of the wide-ranging review that we have to undertake. So we knew what its position was.

The Law Society made representations to us too, which were the subject of correspondence. At no time did I receive a request from either the Law Society or Justice for a meeting to discuss these wider issues. I should be happy to do so if they wish for such a meeting. It is right that I should put the record straight on that.

I should like to pick up some of the points made by the hon. and learned Gentleman in particular and by some of his hon. Friends. The hon. and learned Gentleman questioned whether, under Clause 1, we were removing a useful bludgeon on the part of the creditor against a debtor. He says that it is one of the most effective remedies available. Certainly, in some instances, it does have effect. I speak from some personal knowledge and experience, having acted for creditors seeking to enforce their debts. Relatively few creditors, in fact, avail themselves of this form of remedy. Certainly in the sort of working-class practice in which I was a partner it does not touch them to any great extent.

I do not deny that the process has its value. It certainly has its value for the Inland Revenue. It has in the past been established as a helpful way of threatening someone to pay up. As the hon. and learned Member said, it is not simply the issue of a bankruptcy notice but the initial stages of the bankruptcy proceedings that may procure the desired effect. But there is no doubt that the sum should go up. The difference between us is whether it should be £200 or £300. That is a fairly finely poised balance of judgment.

The hon. and learned Gentleman asked me the amount of the proposed deposit. The proposed deposit on the debtor's petition is to be £50, and that on a creditor's petition is to be £90. I am advised that this is not expected to achieve a sufficient reduction in the number of cases to bring the workload into line with staff resources without also increasing the limit of the petition debt to £300.

Of course, officials in the Insolvency Service have considerable expertise, particularly in the demands made upon them, their staff and their general resources. That is a factor on which they have almost more expertise than anyone else.

Mr. Percival

I hasten to recognise that. I am sure that nothing that I said would lead to any other conclusion. The Service is excellent. That is one side of the matter. The other concerns those who are at the receiving end, and that is the experience which I said was not being taken account of. But I welcome the opportunity to pay a similar tribute to the Service as that just paid by the Minister.

Mr. Davis

I accept, of course, what the hon. and learned Gentleman has said. It is a question of trying to preserve a balance.

The point about the question of interest was raised both by the hon. and learned Gentleman and by the hon. Member for Worthing (Mr. Higgins). This is a matter into which we should look further because, as I understand it, the position is that whereas in company liquidations the liquidator is able to use interest for the benefit of creditors at large, the same does not apply in bankruptcy. At the present time—and this is not simply something that has happened under the present administration but has been going on for a very long time now—the interest goes towards defraying the Insolvency Service's expenses.

We had a long argument about the effect of the provisions in Clauses 5 and 6 and the hon. and learned Gentleman was sceptical of the methods we had chosen when there were these other methods which had been put forward—namely, that we might be able to dispense with the examination except where it is ordered. There was also the Justice suggestion. I cannot do justice to that in five minutes, but we will explore those matters again with interest and, perhaps, with some mutual advantage in due course.

One thing the hon. and learned Member said—and this was also touched on by all Opposition Members who spoke—was that we should be more precise in the guidelines that were laid down. It is difficult to be precise because of the variety of matters that can affect the issues relating to the conduct of a bankrupt and the way he has gone about performing his duties and so on. It is almost as difficult, if not more so, than the criteria relating to bail.

The hon. and learned Gentleman is more expert, perhaps, than anybody else in the Committee on that matter and he knows how difficult it is to have a meaningful set of guidelines in that connection. I suggest that the same must apply here. It is perfectly true that it is laid down in the statute, but I have always wondered whether those guidelines were always as helpful as those who put them forward in the relevant debates argued at the time. However, that is another matter, but it has some relevance to the question whether we can have effective and meaningful guidelines beyond the general principles that we have proposed in this respect.

As I indicated in an intervention, the guidelines would be provided by the Lord Chancellor. He has power to do that, with the concurrence of the Secretary of State, within the Bankruptcy Rules. These are made under the Bankruptcy Act by statutory instrument and are laid before Parliament.

The hon. and learned Gentleman was amazed that we had chosen the remedy set out within Clause 6. I do not think that I have time now to go into that because it is a major area of controversy and we shall have to see how we can solve that in due course. He said that the court's power to move of its own motion was unprecedented. I think he is incorrect about that.

The Chairman

Order. Standing Order No. 64 allows us to go on for another quarter of an hour if the Committee feels that it is desirable.

Mr. Davis

I do not propose to continue for that length of time, but I am obliged to you, Mr. Pink, for reminding me of the possibility, of which I was wholly unaware.

The court does have the power to move of its own motion where, in the course of evidence given to it, it appears that a criminal offence is involved—if it becomes clear that a transaction is tainted with illegality. That is one aspect. The court may also move of its own motion under Section 4 of the Attachment of Earnings Act 1971. The court of its own motion can change its proceedings from county court to High Court, sometimes to the detriment of one party or the other, or perhaps to their advantage. But I do not think it conceivable that the court would use its power without considering the interests of both the creditor and the debtor. The rules will lay down the procedure.

The non-lawyer of the Committee, the hon. Member for Mid-Sussex (Mr. Renton), has nothing to apologise for for not being a lawyer, because he always argues his case with skill and care. I intervened in the course of his remarks about Clause 7 because I thought he had misunderstood the purpose of the provision. I shall not take up the additional quarter of an hour which has been offered, but I do not think that, if the hon. Gentleman looks again at the provision, he will conclude that the non-executive director will find himself in any greater jeopardy under this provision than he does under existing law. At present, under Section 188 of the Companies Act 1948 a court has the power, where fraudulent activity has been committed, to disqualify a director. Therefore, every director lives within that peril. We know that it would be unrealistic to expect directors to take this type of situation into account when they become directors of a company.

The hon. Gentleman said that under Clause 5 an additional burden would be imposed upon the official receiver, who would not be competent to deal with the matter. I do not accept that it is a quasi-judicial approach—a judgment—which the official receiver necessarily has to adopt. The official receiver, when he considers matters for public