AGENCY AND LIABILITY OF RECEIVER FOR CONTRACTS

HC Deb 18 July 1985 vol 83 cc543-4

`(1) Section 473 of the 1985 Act (agency and liability of receiver for contracts) shall be amended as follows.

(2) In subsection (2) after the words "provides" there shall be inserted the words ", and on any contract of employment adopted by him in the carrying out of those functions".

(3) After subsection (4) there shall be inserted the following subsections— (4A) For the purposes of subsection (2), a receiver is not to be taken to have adopted a contract of employment by reason of anything done or omitted to be done within 14 days after his appointment. (4B) This section does not limit any right to indemnity which the receiver would have apart from it, nor limit his liability on contracts entered or adopted without authority, nor confer any right to indemnity in respect of that liability —[Mr. Fletcher.]

Brought up, and read the First time.

Mr. Fletcher

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker

With this it will be convenient to take amendment (a), line 7, leave out

`or omitted to be done',

Government new clause 20—Disposal of interest in property—

Government amendments 60, 61, 264, 265, 64 to 77, 79, 80, 114, 174, 202 and 208 to 210.

Mr. Fletcher

New clauses 20 and 21 and the 26 amendments to the Scottish receivership provisions in chapter V of part II are principally designed to bring them into line with changes made to those provisions relating to England and Wales, which were made in Committee. They accord with amendments to the England and Wales provisions which the House will be invited to make later.

Mr. Hanley

Amendment (a) stands in my name and that of my hon. Friend the Member for Tynemouth (Mr. Trotter). This is an important point, as new clause 21 introduces a principle that I find difficult to countenance.New subsection (4A) states: For the purposes of subsection (2), a receiver is not to be taken to have adopted a contract of employment by reason of anything done or omitted to he done within 14 days after his employment. This introduces a fairly new principle into this type of law—by doing nothing, the receiver is in effect allowing something to be ratified. If a receiver does not step in and say within 14 days to an employee, "This contract of employment is invalid", three, four or five months later he may be in difficulty. He may be confronted by a person who says, "I have an agreement with this company. I am the employee of a subcontractor to the company. I have been working with the company." The receiver may not have known of the conditions of employment that would have enabled that employee to be rejected within 14 days. Does this mean that a receiver has to accept the contract of employment of anyone who comes to his attention after the 14-day period?

In a business that has a worldwide payroll there may be people who do not come to the administrative receiver's attention within that 14-day period. This would bind the receiver and later in the Bill the administrative receiver to contracts of employment about which they were totally ignorant. I am concerned that the receiver will be bound by inaction. The 14-day period is far too short for large worldwide receiverships and liquidations. This could be extremely dangerous for the receiver, especially with respect to personal liability.

Mr. Fletcher

I am afraid that the amendment proposed by my hon. Friend the Member for Richmond and Barnes (Mr. Hanley) is not acceptable. When I move amendment No. 29 I shall explain in more detail our proposals in relation to the liabilities of receivers generally in England, Wales and Scotland.

I hope that I can allay my hon. Friend's concern. He is afraid that the court will consider a receiver to have adopted a contract of employment where he fails to inform an employee that he is not adopting his contract after 14 days have elapsed—perhaps where the receiver is in ignorance of the contract or simply omits, by accident, to give notice of non-adoption because the employee has contributed no service to the company during the 14 days' grace provided for by new subsection (4A) of section 473 of the 1985 Act. That is not the intention. New subsection (4A) is designed to catch the case where a receiver knowingly allows an employee to contribute his services and says nothing to him for more than 14 days about payment for those services.

Current law appears to allow the receiver to say to the employee that his contract is with the company, that the company is insolvent and that he has no intention of paying him. This would clearly be wrong, as my hon. Friend the Member for Richmond and Barnes pointed out. We allow the receiver a period of grace in which to decide whether to adopt contracts of employment. New subsection (4A) does that, and the grace period is a fortnight.

If the receiver knowingly allows an employee to contribute his services and says nothing to him for more than 14 days about his contract of employment, he should not be allowed to refuse to make payment for those services. Given the current state of the law, I am afraid that that would be the effect of my hon. Friend's amendment. I hope that he will withdraw it in the light of my remarks. If I have not entirely reassured him, perhaps he would be kind enough to allow me to move amendment No. 29 before pressing me further on this point.

Mr. Hanley

Will this principle of adoption by not doing anything be extended to other contracts outside employment? If so, it will have remarkable consequences.

Mr. Fletcher

No. We are dealing with a particular situation in current law.

Question put and agreed to.

Clause read a Second time, and added to the Bill.