HC Deb 22 June 1981 vol 7 cc109-18

Motion made, and Question proposed, That this House do now adjourn—[Lord James Douglas-Hamilton.]

10.12 pm
Mr. Phillip Whitehead (Derby, North)

It is a proper use of Adjournment debates to bring to light cases of individual injustice. They need not be massive, but if they reflect on the competence and integrity of our commercial life and the ability of the Government to monitor it they should be brought to a wider public.

I have been dealing with the problems of my constituent Mr. George Sheward, of Mickleover, near Derby, for the past four and a half years, ever since the company for which he worked—Stevenson, Jordan and Harrison—went into liquidation by court order. The case has involved lengthy attempts to secure action by the liquidator and the official receiver, the involvement of both the Department of Employment and the Department of Trade and an appeal to the Ombudsman,—which was ruled to be outside his terms of reference. Stevenson, Jordan and Harrison was put into compulsory liquidation on 16 January 1978. To my personal knowledge, Mr. Sheward had been among the employees of the company making valiant efforts to save it until that time. At the creditors' meeting on 14 March 1978, a committee of inspection was appointed to work with the liquidator. Mr. Sheward was chosen as a member of that committee. It has never met in the four and a half years of this dispute.

No massive sums were involved. In 1978, the assets, worth £3,813, were realised, with several outstanding sums unaccounted for, to which I shall return. En two separate areas since then, the liquidator, Mr. P. W. J. Hartigan, who was appointed by the official receiver in April 1978, can be shown, I believe, to have acted with extreme lassitude. Many attempts to stir the official receiver into action over this case have failed.

I shall mention the first area only briefly, because it does not fall within the responsibilities of the Minister who is answering tonight. It illustrates the endless prevarications adopted in this case. Mr. Sheward submitted his claims for holiday payment and payment in lieu of dismissal on 7 April 1978. He was told by the official receiver in a letter on 22 May 1978 that these claims would be met as soon as the approved forms are returned". But in October 1978 the liquidator wrote to say that he would not pass the claim for payment in lieu of notice until he had satisfied himself about expenses paid to employees of the firm.

There, matters stalled. Mr. Sheward decided to take the matter to an industrial tribunal. On 12 March 1979, the tribunal found for him in all particulars. It gave the liquidator until 30 June 1979 to determine the claim and to pay up—holiday pay, arrears of salary and 12 weeks' pay in lieu of notice.

On 28 June, two days before that deadline, the then Under-Secretary of State for Employment, the hon. Member for Beeston (Mr. Lester), wrote to me: efforts were made to persuade the liquidator, Mr. Hartigan, to submit Mr. Sheward's claim in the normal manner so that payment could be made. As these approaches were proving unsuccessful, it was decided that the amounts due should be paid direct to Mr. Sheward by the Department. The Department apologised fully to him. The payment in lieu of notice was passed to the liquidator. But only on 3 August was it sent by him to Mr. Sheward. Worse, other employees of the firm had to wait far longer than Mr. Sheward for some of their payments, some far into 1980.

I submit that these events thus far show cause for concern about the liquidator's conduct of this matter. There is, however, more to come. Here I come directly to the responsibilities of the Department of Trade and the Under-Secretary of State who is to answer this debate.

Mr. Sheward had been in correspondence since March 1978 with the official receiver about the return of pensions contributions deducted from employees' salaries, to which they had a claim under the Employment Protection Act. These inquiries were referred to the liquidator. It took three and a half months for Mr. Hartigan to send a reply to Mr. Sheward enclosing a letter from the National Employers Life Group of companies which he had had in his possession since the previous August, many months before Mr. Sheward wrote to him. That letter showed that premiums for policies held in the names of Mr. Sheward and four other employees had been refunded when the scheme was dropped.

Where had that money gone? It is alleged that it was paid into the account of a subsidiary company, Smithancote Limited. It is further alleged that one of the two trustees of the fund, Mr. Brian Fulwell, made a series of withdrawals between 21 December 1977 and 31 January 1978, the period which includes the final collapse of Stevenson, Jordan and Harrison Limited.

Mr. Sheward first raised this matter, naming Mr. Fulwell, in a letter to the official receiver on 28 November 1979. I wrote to the Minister on 7 December in that same year. We were told in reply in January 1980 that the liquidator had no power to deal with the company's pension scheme. That had to be wound up by its trustees, Mr. Kenrick and Mr. Fulwell, although the latter had resigned in May 1979. I was told that the Department was not in a position to intervene. Mr. Sheward was understandably incensed by this and began to prepare a complaint for the Ombudsman. It was when the latter ruled that the complaint, being principally about the official receiver, was outside his terms of reference that I decided to raise it on the Floor of the House. The Minister had already acknowledged in a letter to me on 21 March that £1,403.55 was paid out to Mr. Fulwell from the Smithancote account and that Smithancote itself went into liquidation on 15 May 1978. The liquidator appointed in that case was, perhaps by coincidence, Mr. P. W. J. Hartigan. So the substance of what Mr. Sheward has been saying since 1979 appears to be agreed.

The Under-Secretary of State will recollect that he replied to me in his letter in March: so far as I can ascertain, no explanation has been received from Mr. Fulwell so far as to why these payments were made and no attempt has been made to recover these payments which may be construed as moneys properly available to the employees. My Department has drawn the liquidator's attention to these transactions and he has been asked to make further inquiries. No doubt Mr. Sheward will inquire as to the position when he attends the Committee of Inspection meeting which Mr. Hartigan has indicated he will be convening shortly In his last letter to me, the Minister quoted his responsibility under section 250 of the Act to take cognisance of the conduct of a liquidator and the duty laid on him under section 250, which states: If a liquidator does not faithfully perform his duties and duly observe all the requirements imposed on him by statute, rules, or otherwise with respect to the performance of his duties, or if any complaint is made to the Board by any creditor or contributory in regard thereto, the Board shall inquire into the matter, and take such action thereon as they may think expedient. "The Board" was then the Board of Trade and is now the Department of Trade.

Mr. Sheward's complaints have been numerous but never petty or trivial. They have been brushed aside with perfunctory expressions of regret or ignored altogether. There were no indications that the conduct of the liquidator was under investigation. There still is not. Yet section 236 of the Companies Act 1948 states, inter alia, that the Official Receiver may inquire whether any fraud has been committed by any person in its promotion or formation, or by any officer of the company in relation to the company since the formation thereof". That was exactly three months ago, and there has been still no meeting of any committee of inspection—at least, Mr. Sheward has not been notified of any such meeting, and he is a member of the committee.

We now come to the nub of this matter, and that is the responsibility of the Department of Trade in overseeing the activities of the official receiver and his appointed liquidators under the Companies Act 1948.

There were surely grounds for further investigation when the allegations relating to the possible misappropriation of funds were made in 1979, again in 1980 and again this year. All that we are told, continuously, is that the liquidator's attention has been drawn to the transactions and that he has been asked to make further inquiries. One is bound to ask "Quis custodiet ipsos custodes", or "Who guards the guardians?" The official receiver has not. The Department says that it cannot and that it does not have administrative control of the winding up. However, it is authorised under section 224 of the Companies (Winding Up) Rules issued in 1949 to regulate matters of an administrative and not a judicial nature.

Do not these cover, first, the failure to answer my constituent's letters; secondly, the failure to call the committee of inspection in spite of repeated requests; thirdly, the failure to send out a statement of accounts; and, fourthly, the failure to follow up allegations about payments to a trustee of the pension fund made not for purposes for which they were held in trust?

Who checks on the activities of liquidators after they are appointed? That is the central point of this case. The House might think that the sums involved are small. However, the point is as big as the whole principle of accountability under the law.

My constituent happens to be a knowledgeable and vigorous correspondent. He has taken four and a half years to get to this point. He would be the first to admit that it is for the many others in his position who simply accept administrative evasion and incompetence as their natural lot, whatever the financial costs to themselves, that I am raising this matter tonight. I say to the Under-Secretary of State that the buck stops with him. Can he give some assurances tonight about the future of this matter which will go far beyond anything that I have had so far from the Department or the official receiver when they have seen fit to reply to my constituent or to me?

10.23 pm
The Under-Secretary of State for Trade (Mr. Reginald Eyre)

Perhaps at the outset I should explain the role and function of official receivers in the compulsory winding up of companies. Although they are salaried officers of my Department, they are primarily officers of the courts to which they are appointed and so are answerable to the courts for the way in which they carry out their duties. Although my Department appoints, trains and advises official receivers and their staff, it has no right to intervene in individual cases to direct the official receiver. Such directions, if they are needed, are the sole prerogative of the court.

From the time of the winding-up order to the appointment of a liquidator, the official receiver acts as provisional liquidator as well as official receiver, so that within that short period—usually only a few weeks—he is in sole charge of the company's affairs. As official receiver, his duty is to begin lengthy interviews with the directors to establish the assets and liabilities, the cause of the company's failure and whether or not those responsible for forming and running the company have been guilty of any impropriety. As provisional liquidator, he takes custody of and protects the company's assets until the creditors have had an opportunity to nominate someone else as liquidator. In more recent years he has also had the task of "relevant officer" under the Employment Protection Act 1975 and in that different capacity carries out initial inquiries to establish claims of employees under that legislation.

Sometimes, as in the case which is the subject of this debate, the creditors decide to nominate another liquidator, and that nomination is reported by the official receiver to the court, which, if it is satisfied as to the fitness of the person proposed, makes an order appointing him liquidator of the company. Thus the liquidator, too, is an officer and appointee of the court, and it is the court which has the administrative control of liquidators in compulsory liquidations. Neither the official receiver nor my Department supervises the liquidator's administration. He is responsible to the creditors and to the court.

Having dealt in general terms with the position of official receivers, liquidators, the courts and my Department in compulsory liquidations, I want to turn to the specific case raised by the hon. Member for Derby North (Mr. Whitehead). Mr. Sheward's case was first brought to the notice of my Department in June 1978, when the hon. Gentleman wrote to my predecessor in the Labour Government. Since that time there have been other letters from him to the Department of Employment and, more recently, to me.

Mr. Sheward was one of the employees of Stevenson Jordan and Harrison Limited, which was ordered to be wound up by the High Court of Justice in January 1978. At the beginning of the insolvency, the company's net assets were expected to realise little more than £3,200, and by March 1981 the assets had realised £3,813. The preferential claims against the company were estimated at £38,997.

Mr. Sheward had worked for the company for more than 17 years. He lodged with the official receiver a claim for a total of £6,455, including £3,000 for redundancy pay and £1,687 for payment in lieu of notice. As the hon. Member will know, redundancy claims are determined and settled direct with the Department of Employment, and so that aspect of Mr. Sheward's claim did not involve the official receiver. He was, however, concerned as "relevant officer" with the claims under the Employment Protection Act 1975 which Mr. Sheward made at the end of January 1978 for arrears of salary, holiday pay and payment in lieu of notice. Claims by employees have a special character because of the employment protection legislation, which is intended to secure for them a speedy payment of certain moneys owed to them on the financial failure of their employer.

The official receiver, as "relevant officer", is normally able to deal fairly quickly with the examination and verification of such claims before passing them to the Department of Employment, which provides the funds to meet the agreed claims. Where there is some doubt about entitlement, there may, however, be some delay while information is being sought. The first part of Mr. Sheward's claims under the Employment Protection Act 1975, for arrears of salary, was settled by a net payment of £96.40 to Mr. Sheward on 20 March 1978. On 7 April 1978, Mr. Sheward completed the supplementary form needed by the Department of Employment to deal with his claim for payment in lieu of notice. The official receiver, when he had collated similar claims from other employees, forwarded the form to the Department of Employment on 28 April 1978. The official receiver's inquiries into the entitlement of employees to holiday pay were continuing, and on 20 May 1978 he wrote to Mr. Sheward disputing his right to claim holiday pay.

Correspondence on that topic was still in progress when, on 13 June 1978, the official receiver handed over the case to Mr. Hartigan, the liquidator appointed by the court on the nomination of the first meeting of creditors. From the time that Mr. Hartigan took up his duties as liquidator—that is, in the middle of June 1978—the official receiver had no further responsibilities for dealing with the claims of creditors or of protecting or realising the company's assets. The task of "relevant officer" under the Employment Protection Act 1975 went to Mr. Hartigan as well. All the official receiver's correspondence that was relevant was passed to him.

Mr. Sheward felt that he did not get the sympathy and immediate response from the official receiver that he would have liked, but I am satisfied that the official receiver dealt with Mr. Sheward's claims and correspondence with reasonable expedition. It is, however, only right to say that in the early stages of a liquidation many problems make urgent demands upon the official receiver and his staff, and it is therefore inevitable that from time to time a creditor will feel that he has not had the efficient and expeditious service that we would all like him to have.

It is right that I should emphasise that the official receiver's responsibilities in this liquidation were of short duration—from the middle of January to the middle of June 1978, a period of five months. During that time, he was both official receiver and provisional liquidator. Nothing that I have heard leads me to think that he did not do his duty properly while so acting.

Since June 1978 the company's affairs have been in the hands of the liquidator, Mr. Hartigan. Mr. Sheward and Mr. Hartigan, unfortunately, do not seem to have got along together well. Mr. Sheward's complaints about Mr. Hartigan's administration of the company's affairs reveal a basic misunderstanding of the position. Although Mr. Sheward has been aware of Mr. Hartigan's involvement since the meeting of creditors which nominated him, and at which Mr. Sheward was present, he has continued to write to the official receiver, who has forwarded the letters to the liquidator. This belief by Mr. Sheward that Mr. Hartigan is an employee or agent of the official receiver underlies various complaints which Mr. Sheward has made over the years.

If Mr. Sheward feels aggrieved at the way the liquidator is carrying out his duties, he has a number of remedies open to him. First, he can go to the court. The Companies Act specifically provides this avenue of relief. Secondly, as a member of the committee of inspection, he can himself convene a meeting of that committee and seek to persuade other creditors to support him in his approaches to the liquidator.

The hon. Gentleman asked me for an additional assurance at the end of his speech. That causes me to emphasise that Mr. Sheward has it within his power to call a meeting of the committee and thereupon to bring his arguments to bear on the liquidator.

Mr. Whitehead

I am sure that the Under-Secretary will accept that in his letters to me he has said that the liquidator will call a meeting of the committee. No such meeting has been called.

Mr. Eyre

I appreciate that. I shall put forward my view to the liquidator that he should soon, as he said, arrange such a meeting. However, I emphasise that the power is with Mr. Sheward, should he wish to do so, to call such a meeting himself.

Thirdly, if Mr. Sheward believes that the liquidator's conduct falls short of that expected of a professional man, he can complain to the professional institute of which the liquidator is a fellow.

I said at the beginning of this speech that my Department does not supervise the liquidator's administration of the company's affairs. I owe it to the hon. Gentleman to expand that statement. The liquidator has regularly to submit statements of accounts to my Department for audit and has to pay the company's funds into the insolvency services account at the Bank of England and answer any inquiries made by the Department About the liquidation. Subject to these statutory accounting requirements, the Companies Act requires the liquidator to respond to directions of the court, resolutions of the creditors or contributories or directions of the committee of inspection. Section 250 of the Companies Act 1948 places a duty upon my Department to take cognisance of the conduct of liquidators of companies which are being wound up by the court in England, and, if a liquidator does not faithfully perform his duties and duly observe all the requirements imposed on him by statute, rules or otherwise with respect to the performance of his duties or if any complaint is made to the Board"— now the Department— by any creditor or contributory in regard thereto, the Board"— which is now the Department— shall inquire into the matter and take such action thereon as they may think expedient. Mr. Sheward's complaints against Mr. Hartigan, essentially complaints of delay, were regarded by my Department as complaints covered by section 250. Inquiries were carried out and information was obtained. In the particulars given by the hon. Gentleman, he conceded that the question of arrears of pay was settled on 20 March 1978, but, unfortunately, the payments in lieu of notice and the holiday pay claim were disputed and when these disputes came before a tribunal in March 1979—I regret that the tribunal took so long to be set up—Mr. Sheward's claims were upheld. Mr. Sheward therefore received payment direct from the Department of Employment, as the hon. Gentleman said, in respect of holiday pay in June 1979. Payment in lieu of notice was made in mid-July 1979, I am told, by the Department of Employment to the liquidator, and the liquidator passed on this payment to Mr. Sheward on 3 August 1979.

After those inquiries, my Department is and always has been of the view that the liquidator has not been guilty of any misbehaviour which would justify any action against him, and he was entitled as liquidator, and obliged, to dispute the claim which he thought was incorrect and to await the decision of the tribunal.

Finally, I must mention the vexed question of the company's pension schemes because I believe that there is a misapprehension about this. This has naturally been a sore point with Mr. Sheward throughout the liquidation. Two sums of money, one of £1,847 and the other of £1,403 are at issue. Both result from the refunded premiums from pension schemes which collapsed. At the outset of the liquidation, the official receiver hoped that these moneys could be claimed as part of the assets of the company, but inquiries showed that the moneys were probably trust funds under the control of trustees for the employees and, therefore, not assets of the company. It is open to Mr. Sheward to pursue whatever rights he may have against the trustees, and that would be in respect of any claim he may have as a potential beneficiary under those trust funds.

I hope that this may clear up some of the problems and difficulties surrounding this unhappy liquidation.

Mr. Whitehead

Does not the Minister feel that the Department should take a view of the fact that it is alleged that one of the trustees of one of the pension funds has had the money drawn out for his own or other purposes, not related to the employees whose contributions are actually involved?

Mr. Eyre

I note the point that the hon. Gentleman makes. I emphasise that it cannot be a point specifically for my Department to deal with, for the reasons that I have explained with regard to the duty of the liquidator. The trouble is that the nature of those funds is such that they are apparently held in trust by separate trustees and, therefore, cannot be said to be the assets of the company. It therefore follows that the beneficiaries under the trust, who include Mr. Sheward, would have to pursue those funds to be able to obtain any claim to which they were entitled. If, in the course of that, one of the trustees may have mishandled funds—I must not presume to say that I have any knowledge of that—that would make more difficult the case of the beneficiaries who were seeking to pursue the assets. Again, in this respect Mr. Sheward, as a potential beneficiary, certainly has my sympathy. But I emphasise that if the property is in trust that cannot be a duty which falls upon the liquidator. I hope that I have been able to explain that.

I sympathise with Mr. Sheward, who has lost a well-paid job and is out of pocket as well. I am sorry, too, that the liquidation is not finally concluded. I understand that the liquidator is still trying to recover assets from abroad but that even if he is completely successful it is unlikely that Mr. Sheward and his fellow unsecured creditors will receive benefit, because the preferential liabilities of the company are substantial.

I am sorry to have to tell the hon. Gentleman of the miserable situation. I hope that Mr. Sheward will, if he wishes, feel well able as a result of the debate to call a meeting of the committee.

Mr. Whitehead

According to the Minister's letter to me, Mr. Hartigan said that he would convene a meeting. How soon will it be called? How shortly is "shortly"? Three months have passed since the letter.

Mr. Eyre

The hon. Gentleman will understand that I have described the complicated system that necessarily applies to the administration of liquidation of such companies and how ultimately the liquidator is under the supervision of the court. I, therefore, am not able to answer the hon. Member's question, but it is not an unreasonable one. In the circumstances of the company, it would be desirable for the liquidator to call a committee together and explain the latest situation. To help the hon. Gentleman, I shall use my office to indicate my opinion to the liquidator and make it clear that it would be desirable to call a meeting in that way, although I repeat that Mr. Sheward has the right to call the committee together should there be delay.

Question put and agreed to.

Adjourned accordingly at nineteen minutes to Eleven o' clock.