HC Deb 26 October 1976 vol 918 cc332-46
Mr. Percival (Southport)

I beg to move Amendment No. 15, in page 9, line 7, leave out Clause 10.

I know already that the amendment is to be accepted by the Government. It is as nice as it is rare to know that a substantial change like this is to be accepted. But even though I know that it is to be accepted, I should say something about the amendment because, as Ministers recognise, we have been pressing for a very long time to get rid of Clause 10 and the battle over it has raged up until very recently. Therefore, I think that I should say a word or two about why we have been so insistent in our requests or demands—call them what one will—to have it removed. I think at the same time that I can, without straying beyond the rules of order, at least not far, say on this amendment almost everything I want to say on all the amendments put together.

It is important to remember that the law of insolvency is dealing mainly with bankruptcy in the case of firms and individuals and with liquidation on the ground of insolvency in the case of companies. Much of it, if not most of it, is concerned with safeguarding the position of creditors, so that a creditor may not be deprived of his just desserts by a debtor, whether that debtor be an individual, a firm or a limited company. The case mentioned by the hon. Member for St. Helens (Mr. Spriggs) graphically illustrates the need for such protection, if it may also demonstrate the deficiencies of the existing situation. Whether or not it does the latter, it certainly illustrates the former.

It is in that context that the provisions of the Bill have to be considered. Furthermore, they have to be considered against this factor relating to the position of creditors—namely, that it is commonly agreed that the position of creditors has been substantially eroded over recent years. The remedies open to them are considerably less now than they were some time ago. I refer in particular to imprisonment for debt. It was very largely a threat, because the number of people who actually served imprisonment for debt was very small—a minute proportion of those against whom an order was made. That demonstrates that it really was the most effective threat, and it secured for creditors in an enormous number of cases, getting on for 1 million a year, payment of their debts.

That has gone. I shall not argue why it has gone. Also, the availability to creditors of the very effective process of High Court execution has been eroded over the years. Therefore, those professionally engaged with the position of creditors, as well as creditors themselves, have been much concerned about the deteriorating position of creditors in that respect and also worried because there have been other changes in the wind, such as abolishing the register of county court debts, the compulsory transferring of High Court debts from the High Court to the county court for execution, and a number of other moves which have been suggested from time to time and on which the Solicitor-General may wish to say a word.

In that context, it is not difficult to see why those particularly concerned in this matter felt that bankruptcy was increasingly becoming the one remaining effective remedy for the enforcement of lawful debts. Let us not forget that what we are talking about is debts lawfully owed. We are dealing with the collection of sums which people are owed in law. Therefore, one starts from the assumption that the creditor is entitled to recover sums of money owed to him, and the law is an ass if it provides a judgment stage but no remedy for the enforcement of the judgment.

For that reason, many of those actively concerned were becoming worried that the position of the judgment creditor was being eroded to such an extent as greatly to distort the balance which must be held between all the interests relevant to this matter. They were concerned, when the Bill was presented in its original form, that it would make such inroads into the bankruptcy provisions as to reduce it to a second-class service and, therefore, represent a further serious erosion of the remedies open to creditors. They were worried that a first-class service might be reduced to the status of a second-class service.

6.30 p.m.

It is right that we should pay tribute to everybody engaged in the bankruptcy service—the Department, officials, registrars and so on. It is a first-class service. Those practising in this sphere were concerned that, if the Bill went through in its original form, it would have reduced to a second-class service that which they all regarded as a first-class service.

Where does Clause 10 fit into all this? The Government have recognised from the outset that there was substance in the general proposition that the remedies open to creditors are fewer now than they were some time ago. The general proposition that, if we increase the minimum debt on which to found a bankruptcy petition, we shall thereby reduce the remedies available to some creditors is incontrovertible. Therefore, we have always accepted the general proposition that, by raising the limits and making bankruptcy less available, we should be further eroding the means available to judgment creditors for enforcing their rights.

Clause 10 was said to be an addition to the law tending to move the balance a little way back by giving to creditors certain new rights which were of some value and, therefore, to some extent it made up for the further erosion of their rights by making bankruptcy less available to them.

There are three reasons why we still feel that Clause 10 should not be in the Bill. First, because of the other changes which have been made, we think that the Bill is very much better now than when it first came before Parliament. It makes fewer inroads into the availability of bankruptcy to creditors than would have been the case if later amendments which are not now to be proposed had been put forward.

Secondly, we have always taken the view that Clause 10 was useless. It would not add anything to the armoury of weapons open to the judgment creditor. I wish that what I now have to say was not right. I wish that the administration order had lived more nearly up to what was expected and hoped of it. Unfortunately, it has not done so. It is very little used voluntarily. We have always taken the view that at best it was a delusion to suggest that the clause added anything of sufficient significance to offset what was being taken away.

The matter does not rest there. We have always felt that there were objectionable features about Clause 10. One objectionable feature—the provision that the ordering of a list of creditors would operate as an act of bankruptcy—would have been removed by one of the proposed Government amendments if the clause had been staying in the Bill.

Another objection to which we have drawn attention was that the remedy had the peculiar feature—I mean peculiar in the literal sense—that it could be invoked by the court of its own motion. That may sound harmless, but we take the view that our purpose should be to provide remedies at law for judgment creditors to pursue their just rights and to give protection to debtors against being unduly harassed, and so on. Having provided the remedies, it should then be left to the persons concerned to decide which of those remedies they should pursue. The court, of its own motion, should not be able to say "Even if you would rather pursue your judgment debt by execution, by putting in the bailiffs, and even though the debtor is not applying to us for protection in the form of an administration order, we shall order the making of an administration order." That is what could have been done under the clause as it stood without any notice being given to either party.

Another of the amendments which would have been moved by the Government had the clause been staying in the Bill would have had the effect of providing that the court could make the order of its own motion only after giving notice to and the opportunity for both parties to be heard. To that extent the situation would have been improved, but it would still have meant that, after giving both sides the opportunity to be heard, and they having said "No, we do not want that", the court would be entitled to make the order of its own motion. We thought that that was objectionable.

Thirdly, as the Solicitor-General in an intervention said, Clause 10 could have had the effect of depriving a creditor of some of the other remedies open to him. For instance, if an administration order were made, a creditor could not continue with the process of putting in the bailiffs or of instituting bankruptcy proceedings. If, after an administration order had been made, a creditor wanted to continue with bankruptcy proceedings, he would have to apply under Clause 11 as it stands and the court could, if all the conditions were satisfied, substitute a receiving order.

For those reasons, the so-called remedy provided by Clause 10 had the great weakness that it gave the court no power to investigate the debtor's assets, to protect those assets for the benefit of the creditor against fraud by the debtor, or to get them in if they had not been disposed of.

Mr. John Lee (Birmingham, Handsworth)

I have been listening with considerable interest and I have followed the hon. and learned Gentleman's reasoning. Instead of deleting the clause, would it not be better to add the armoury of investigative procedures which he has enumerated regarding assets?

Mr. Percival

That is arguable. It was not a practical alternative in this instance. We might have had a proposition from the Government which would have had that effect, but we should have been entering a different area. We would have been making an administration order a sort of mini-bankruptcy order. There would be a great deal to be considered in taking such a step. One might ask why it should be done in that way when there are already bankruptcy provisions; why not allow people to use the existing procedures? It would not have been a practical alternative in this Bill.

It is sometimes overlooked that one of the first purposes of Bankruptcy Acts, which date back to the early seventeenth century, was to protect creditors against fraudulent debtors. There was a Bankruptcy Act as early at 1623, and Chalmers and Haigh said of it: The examination of the bankrupt's wife was provided for and the penalty prescribed for non-disclosure of his property by the bankrupt was that he was to be set upon the Pillory in some publick place for the space of two hours and to have one of his or her ears nailed to the Pillory and cut off'. The House will see that I was not exaggerating when I said that the remedies open to a creditor to enforce a judgment have been substantially eroded in the past 350 years.

Added to the provisions protecting a creditor—the investigatory powers and the powers to follow up assets—were those introduced for the protection of the debtor, with means to secure the orderly getting-in of his assets and their distribution.

All these features of bankruptcy are absent from the administration order procedure. There is, therefore, force in my proposition that the procedures which it was intended to introduce in Clause 10 were, if not useless, misleading and would have deprived creditors of some of their remedies.

Some tributes should be paid. The passage of the Bill has been an excellent example of the co-operation which can exist between representatives of the professions and others outside this House who are directly concerned with and, therefore, knowledgeable about these provisions, the Government, the Opposition and officials. Since Second Reading, there has been a full and free exchange of views with the working party composed of solicitors and barristers. They have made available their views on these matters to the Government and to us and this has been of enormous assistance on this highly technical subject. I wish, on behalf of the Opposition generally and myself in particular, to pay the warmest possible tribute to the working party for its assistance.

I also wish to acknowledge that the Ministers concerned with the Bill have been ready to discuss all these matters with us and to make available officials who have also discussed these points freely. It is all highly satisfactory. This does not always happen during the passage of Bills through the House, so one should make the point and mark it when it does occur.

It is also highly satisfactory that the end product has been that the Government have accepted our arguments almost 100 per cent. There is no major topic in which our arguments have been rejected. The Government have considered them carefully and accepted them in all important respects.

6.45 p.m.

The Solicitor-General

I repeat that it is my intention to advise the House to approve this amendment. I am happy that we have pleased the hon. and learned Member for Southport (Mr. Percival), but I am not sure that we shall please everyone. Everybody knows that Governments have a succession of moods. They are either weak and vacillating, cowardly in the face of pressure, lacking resolution and blown by every wind, or they are obstinate, impervious to reason, undemocratic and arrogant. Every concession to one group disappoints another.

I hope that I shall be forgiven if I spend a moment discussing Clause 10, not in order to indulge any personal whim but for a serious purpose which will become clear. In the face of what the hon. and learned Member for Southport fairly said, I should like to explain why Clause 10 was originally included in the Bill.

I echo some of the hon. and learned Gentleman's sentiments about the erosion of remedies available to creditors. In consequence of that, bankruptcy has played an increasing rôle and it is not unusual for bankruptcy proceedings to take place when a comparatively small debt is in question rather than when someone is hopelessly insolvent. The rôle of bankruptcy has extended to a debt-collecting function which it did not originally possess.

I am a little concerned that serious bankruptcy proceedings should be used in this way. I take the point of my hon. Friend the Member for Birmingham, Handsworth (Mr. Lee) that perhaps we should be looking for other ways rather than this heavy-handed method. This may be a matter to be considered by the review committee.

The fact that creditors often use bankruptcy as part of the armoury of debt-collection weapons must be weighed against the need of the Insolvency Service to reduce its work load in order to confine it within available staff resources. And I add my tribute to that which the hon. and learned Member for Southport paid to the work of the Insolvency Service.

One of the instances of a weapon in the armoury of creditors being eroded was the abolition of imprisonment for debt. The abolition of nailing someone's ear to the pillory had taken place rather earlier.

Imprisonment for debt was abolished by the Administration of Justice Act 1970. The judgment summons on which some of us cut our teeth at the Bar now has little importance for the ordinary civil debtor. I know that this step was not taken with everyone's approval. The whole problem with enforcement of judgments is to achieve a fair balance between the debtor and the creditor. The abolition of imprisonment left a gap.

Where a debt is substantial and the assets equally so, there is the remedy of bankruptcy proceedings. Where a debtor has a bank account, there is the remedy of garnishee proceedings. Where the debt is below the minimum which would support bankruptcy proceedings or the debtor has few assets, bankruptcy is not appropriate. When dealing with a debtor who has no assets except future earning capacity, the sensible course is to get him to pay by instalments out of future earnings.

Where possible, judgment creditors should have at least that remedy. One step to close the gap was taken in 1971 with the attachment of earnings provisions, but they apply only when a debtor is in employment. Where he is self-employed, the attachment of earnings procedure is not applicable.

Some people felt that the administration order helped to provide something of an answer. It had been known to the law since 1883. It was already available under Section 148 of the County Courts Act 1959, but there, basically, it was on an application of the debtor. Unless the debtor chose to initiate the proceedings, they could not take place. It was available under the Attachment of Earnings Act 1971, but there, of course, only in the case of a debtor in employment. If one was dealing with a self-employed debtor, therefore, and the debtor chose not to apply for an administration order, there was a very real problem.

My noble Friend still quite regularly receives representations either from creditors or on behalf of creditors asking when something can be done to meet this very real problem of the self-employed debtor. The hon. Member for Harborough (Mr. Farr) raised this matter with the Lord Chancellor of the day back in 1973. I have been studying his letter, which emphasises the problem very fairly.

It was thought, therefore, that it might be helpful if this provision could be included so that an administration order could be made even where the debtor did not apply. It was also the solution to another problem, because it may not be only the debtor and the single creditor who have an interest in what is going on. There may be other creditors.

When one is dealing with most methods of execution, the creditor who first applies obtains priority. There is, therefore, little incentive for any single creditor to show indulgence to the debtor. That is a pity. Sometimes, if the creditors hold their hand, the debtor may survive a bad patch and may be able to pay off all his debts fully, which he could not do if someone asked for bankruptcy proceedings. Therefore, it might be to everyone's advantage that there should not be a race between creditors to use the other remedies. They may prefer order to be brought into the process, which is what the Payne Committee said in paragraph 738 of its report. I do not propose to read that as I appreciate that time is limited. However, that was why Clause 10 was introduced into the Bill—as an attempt to meet those two very serious difficulties which my noble Friend is being constantly urged to meet.

The hon. and learned Member for Southport says that it does not meet the problem at all and that it is not an additional weapon in the armoury of the creditors. The debtor may be ordered to pay debts by instalments, but what is the sanction if he fails? That sanction, says the hon. and learned Gentleman, is simply to revoke the order under Rule 19 and allow a creditor to proceed with his other remedy, so he is no better off than he would be if the order had not been made in the first place and meanwhile all his other remedies are suspended.

I have three comments to make about that. First, in many cases there is no other effective remedy anyway. Where there is a more appropriate remedy, I imagine that normally the court would not make an administration order. It is worth pointing out that in Section 150 of the County Courts Act 1959 there is the proviso that, although normally the creditor may not proceed with his other remedies, he may do so with the leave of the court.

Secondly, I am sure that the hon. and learned Gentleman will not have overlooked Section 151 of the County Courts Act 1959. The creditor is entitled as of right to ask for execution against the debtor's goods. We must not now get into the muddle that we got into in Committee. We are talking here only about goods, and not all other assets—although these may often be the only assets which the debtor has anyway. I am aware that the Payne Committee envisaged repeal of that section, but, as both sides agreed in Committee, the Payne Committee was envisaging a whole package.

And I am bound to tell my hon. Friend the Member for Handsworth that the kind of package which Payne had in mind and which he has in mind is not available at present. Unhappily, it is not one of the options available to us.

I must be frank about this. Section 151 is not used at all frequently. Normally, by the time someone comes to apply for an administration order, execution against the goods has been tried already and has failed to produce anything. It is modestly helpful in the kind of situation where the debtor transpires to have more goods than was originally thought.

Thirdly, and by far the most important point Clause 11 provides a sanction here. It provides an additional weapon in the armoury of the creditor, because the court can make a receiving order, and it can make a receiving order even if the debt is below the sum on which otherwise a bankruptcy petition could be founded. By this process, the situation can be brought—

Mr. Lee

I do not want to interrupt my hon. and learned Friend's flow of thought, but will he comment on actions on the court's own motion? The hon. and learned Member for Southport (Mr. Percival) seemed to deprecate this. I should have thought that there were many instances, not confined to this field of law, where it was not unreasonable, and of perhaps marginal advantage, for the court to have the power to undertake proceedings on its own motion, possibly when it got notice that the conduct of a party was reprehensible.

The Solicitor-General

I entirely agree. I shall respond to that point shortly, but perhaps I may finish what I am now saying.

The combination of Clauses 10 and 11 included an additional weapon in the armoury of the creditor. It may be asked why, if one can bring the situation within the bankruptcy process by these two steps, one could not do it in the first place, and why not remove the financial limitations on bankruptcy proceedings. The answer is that it is an attempt to get the balance as fair as possible between the debtor and the creditor. What was felt that this weapon should be available only after the debtor had been given the opportunity to pay by instalments and had failed to do so. Therefore, it is felt that Clause 10 would have cut ice. It empowers a court to tell the debtor that he must make an effort to pay by instalments, and it offers a real incentive to him to comply with that order. This is the view of experienced county court registrars.

I am aware of the views of the joint working party. They have already been mentioned by the hon. and learned Member for Southport. I echo his tribute to all the processes and consultations which have taken place in this case. But this is not the view of the registrars. I do not accept what the hon. and learned Member said about the administration order being used very little. It is true that not all registrars regard it as an effective remedy. The practice varies from one court to another, but some courts find it very helpful.

The Payne Committee had this to say about it, in paragraph 742: Its popularity has varied from district to district and it has met with differing success dependent upon the experience and enthusiasm of local county court officers. There can be little doubt that properly used it has met with great success and we have had many recommendations to the effect that the figure of £300 should be substantially increased"— as of course subsequently it was.

I have here details of the number of occasions on which administration orders have been made in recent years. Perhaps I may recite them briefly. In 1969 there were 1,740. In 1970 there were 1,723. In 1971 there were 2,516; in 1972, 2,634; in 1973, 2,150; in 1974, 2,231; and in 1975, 2,100.

It certainly would be misleading to say that registrars generally do not regard the order as of importance. In Committee there was a reference to Mr. Registrar Meeke of the Sheffield County Court. He has said, in a letter: It would appear to me that it will be possible, as soon as there is a judgment which is not honoured, for me to order a self employed person or an unemployed person for that matter, to file a list of his creditors and the amounts and presumably if he does not do so, enforce it by a normal 194. Upon him doing so make an Administration Order and if he does not pay under that, make him bankrupt. I am quite sure that by using the threat of bankruptcy, which is of course, more important to a self-employed person than to one who is in employment, we shall obtain a considerable amount of money. In honesty, I must disclose that he added: The clever thing is of course that it is being done without being noticed. Perhaps we must take issue with him on that. That was his view on the subject.

I have here also a letter from the Past President of the Association of County Court and District Registrars—admittedly dated only yesterday—because we asked for some of these oral con- sultations to be put in writing. He wrote: We were particularly pleased with what is now clause 10, which had been previously suggested by us as a much needed improvement in the machinery for enforcing judgments. It will give the Court power to do what is often done now on a voluntary basis with a co-operative debtor and with the sanctions behind it we shall be able to deal with the unco-operative debtor, particularly the self-employed one against whom we have little remedy at present—a matter which has caused the practising members of the legal profession and the public much concern. That is the view of the registrars.

7.0 p.m.

My hon. Friend the Member for Handsworth invited me to say something about the power of the court to make an order of its own motion. The court may be dealing with people of very little experience in such matters. Many of them will not have advice, and solutions to their problems too often go by default. The creditor may hope to get an advantage over other creditors. If the court waits for an application it may not come, although there may be a number of people who stand to benefit. I accept what my hon. Friend has said and I would echo it.

The reason why I have spoken at some length is that the Government do not believe that this clause is devoid of merit or advocates. It is not for that reason that I am accepting the amendment. I make no secret of the fact that the vigour of what was said about the clause in Committee took the Government by surprise. At one stage we hoped that we might meet all the various difficulties which were being expressed by a series of amendments, but it is quite clear that there is some real concern about this proposal. My noble Friend has considered it and he feels that it should not be introduced without further consideration and discussion. Measures of law reform obviously have a better prospect of success if they do not begin life in an atmosphere of strong controversy. But it does not follow that my noble Friend is persuaded that nothing can be done to solve the problems which we have been discussing.

I am content that the clause shall be deleted from the Bill, but I hope that there will be further consideration by all concerned. There is to be a review of insolvency law in due course, but I hope we shall not necessarily have to defer the discussions until that full review has taken place.

My noble Friend and I propose to invite those concerned to discuss this matter further in the hope that we shall reach an accommodation which will satisfy all those who face these difficulties. With those words, I advise the House to accept the amendment.

Mr. Percival

I gladly echo the Solicitor-General's closing hopes. I hope this will not be the end but the beginning of discussions because I think that in the field we are talking about there is a lot to discuss. I mention two of the things to be discussed, namely, the suggested closing of the county court registrar judgments and the possible transfer from the High Court to the county court of all High Court judgments in respect of collection. They are all part and parcel of the same thing.

I absolutely agree with what the Solicitor-General's noble Friend has said—that law reform has a much better chance of succeeding if it is agreed. If that is something that parties in all parts of the House can agree upon it will probably get nearer to a better solution, particularly if it is agreed by those outside who practice in these particular fields. I echo the Solicitor-General's hope and assure him of our fullest co-operation in any such discussions.

I would only mention three points which the Solicitor-General made. He referred to the Payne Committee. While the Payne Committee referred to the possible advantages of administration orders I am sure the Solicitor-General would be the first to acknowledge that it advocated the increasing use of them only in the context of the package which it put forward. I do not have a copy of the committee's report with me. Some hon. Members may be pleased because I might be tempted to quote from it. I am sure that in its recommendations about administration orders the committee stressed that these must be backed by the proper investigatory powers, and full powers to get any assets. The trouble with our reference to the Payne Committee is that the committee worked for a long time and produced a comprehensive report and recommendations which were a package. What we have done is nibble away at this package, at a num- ber of small things; but we cannot deliver the essential part of the Payne Committee's recommendations, namely, the investigatory process.

I do not query the figures that the Solicitor-General mentioned but I do invite those who are concerned with this to look at the success rate of these orders. The Solicitor-General gave the number of orders that were made. I think I am right in saying that the average time taken for the collection of debts under administration orders is something like four years. That may be why they are not used more frequently. Of course, they went up considerably in the years that the Solicitor-General mentioned, because the upper limit of the jurisdiction was increased. Since then they have fallen off again. That is disappointing but it is a fact.

With these comments on the points made by the Solicitor-General I would finish by repeating that we echo the hopes expressed by the Solicitor-General. I assure him not only of our co-operation but of our real interest and desire to find some agreed improvement. It is necessary, if people's respect for the law is to be maintained, that some effective steps in the field that we are talking about are taken.

Amendment agreed to.

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