RESTRICTION ON USE OF COMPANY NAMES (Hansard, 18 July 1985)

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

Mr. Deputy Speaker
With this it will be convenient to discuss Government amendments Nos. 9 and 10.

§ Mr. Fletcher
The purpose of new clause 12 is to interpret part I of the Bill. and amendment 9 deletes clause 5 from the Bill.
Amendment No. 10 to clause 6 is to give power to make regulations concerning the criteria for assessing whether a person is "fit and proper"; to prohibit acting in conflict of interest and to provide for the supervision of authorised practitioners, and other necessary matters.

§ 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 the following amendments: (a), in line 36, at end add— '(8) In this section "director" excludes any director who together with connected persons does not hold more than 5 per cent. of the equity shares of the company.'. Government amendments Nos. 15 to 17 and 103 and 234.

§ Mr. Fletcher
As the House is aware, the problems of the so-called phoenix syndrome, as a result of which innocent members of the public or suppliers are often misled by unscrupulous company directors, leading them to sustain often considerable financial loss, have become increasingly apparent during recent times. Many of the provisions of the Bill are directed at preventing such abuse in the future.
We indicated, however, in Committee that the restriction on the subsequent use of a company's name as presently provided by clause 86 of the Bill was perhaps not the best way to approach the problem of abuse relating to the use of names of companies in liquidation, which is one of the manifestations of the phoenix syndrome. The company name itself is often a valuable asset which the liquidator can dispose of to the benefit of the creditors of the insolvent company.
The proposed new clause, rather than preventing the continuing use of a company name, shifts the emphasis to those who have been directors, or shadow directors, of the company in insolvent liquidation in the 12 months before the liquidation. Such directors must not, unless they have the leave of the court, for a period of five years from the commencement of the liquidation, be involved in any other company which uses the same, or a very similar, name, including any trading style used by the liquidated company. Contravention of such provisions will be an offence and may also lead to personal liability for the new company's debts.
Genuine cases of former directors wishing to buy out the business of a company in liquidation will, we feel, be sufficiently rare to justify their having to apply to the court for leave to use the same or a similar name in carrying on the new business. Liquidation will not come about immediately without any warning. There will always be a petition for winding up or a meeting called to pass an appropriate resolution if a company is to be wound up voluntarily, and the persons concerned will have time to apply to the court for leave to continue to be involved in companies with similar names to that of the company in liquidation, for instance, where a group of companies is involved.
Amendment (a), tabled by my hon. Friends the Members for Richmond and Barnes (Mr. Hanley) and for. Tynemouth (Mr. Trotter), seeks to exempt certain directors from the provisions of new clause 18. We feel that such an exemption would lead to unnecessary complications, particularly as there is, within the new clause, provision whereby such persons can apply to the 542 court for leave to continue to act as a director of a relevant company. It might also provide scope for abuse through the use of nominees or the manipulation of shareholdings at a late stage prior to liquidation. An application to the court in genuine circumstances would prove no more onerous than an application for some form of clearance certificate from the Secretary' of State suggested by my hon. Friend the Member for Richmond and Barnes in Committee in relation to clause 86 which this new clause replaces. I therefore ask my hon. Friends to withdraw their amendment.

§ Mr. Gould
This is a welcome fulfilment of a promise which the Minister gave in Committee. It is a better and more accurate solution to an obvious problem than is clause 86. The hon. Member for Richmond and Barnes (Mr. Hanley) might be able to persuade me otherwise, but I am inclined to accept the Minister's reasoning.

§ Mr. Hanley
I tabled the amendment late one night earlier this week in response to yet more new clauses. Considerable research has been done on ministerial statements promising amendments. I counted 27 such occasions and nine new clauses are now suggested
Many of the amendments are in response to the professions. Those practising in insolvency are grateful for the way in which the Minister has responded to their advice. The problem is that the Minister might continue to respond until a Bill to amend this Bill is introduced next Session.
Although new clause 18 is better than it was before, no hon. Member in his right mind would defend anyone who tried to set up another organisation using a name that was like another to defraud innocent people. As I said in Committee, often the name of the organisation is the most valuable asset that a liquidator has. There is another asset—the organisation's managers. Companies that have failed—perhaps through inexperience or, even worse, the deceit of certain directors—might be able to flourish with new capital and new management. It would be a disaster if certain people such as production, design and marketing directors, who are called "directors" but who are really senior managers, were allowed, without having to go to court, to be transferred with the name to another organisation.
I fully accept that the new clause provides that one should go to court. We are trying not only to protect the innocent but to save the businesses that can be saved We are not trying to take the weakest companies to the wall if they can succeed with the help of an intravenous financial drip—for example, new management initiatives. If a valuable commodity such as the name of the business and its senior employees cannot be transferred without too many restrictions—especially, the severe restriction of having to go to court—the Bill may not be doing the job that we had hoped.
I shall not press amendment (a). I have had an opportunity to express my concern and that of many insolvency professionals that the new clause will restrict the power of a liquidator to sell the name of a company with senior management who were innocent of any wrongdoing before the liquidation. Senior managers, who 543 are sometimes called production or design directors, should be able to transfer freely as long as the liquidator feels that they are bona fide.
I am inexperienced in this matter, so I must explain that I did not declare my interest as a certified accountant earlier in this debate, because I had done so at the beginning of the Committee stage.