EFFECT OF APPLICATION (Hansard, 28 October 1985)

§ Mr. Howard
I beg to move, That this House doth agree with the Lords in the said amendment.

§ Mr. Speaker
With this it will be convenient to take amendments Nos. 13 to 27.

§ Mr. Howard
Amendment No. 64 made by the House was intended to translate into Scottish legal terminology what is meant by the reference in clauses 15 and 16 to execution being "commenced or continued" and to "distress being levied". The translation, however, went further than intended and the proposed amendment to it, amendment No. 12, ensures that it has a similar effect in Scotland as in England and Wales.
Amendments Nos. 13 to 17 are designed to meet concern on the part of insolvency practitioners that, after displacement by an administrator, receivers might still be held to be liable to pay preferential debts. Amendment No. 17 makes it clear that they are not liable once displaced, although they continue to be liable for their actions while in office.
Amendments Nos. 18 and 19 both make further refinements to the Bill's provisions. The first of them enables the company or the directors, as well as a continuing administrator, a committee of creditors or creditors of the company, to apply to the court for an order to fill a vacancy in the office of administrator. The second, 682 amendment No. 19, which was made in response to comments by those who have been consulted, brings administration into line with the winding-up code and receiverships which provide statutory sanction for the giving of directions by the court to compulsory liquidators, receivers and debenture holders.
Amendment No. 72 introduced a new clause that entitled the administrator to exercise his powers, including his power of disposal, in relation to property covered by a debenture conveying a floating charge capable of leading to the appointment of an administrative receiver, property covered by any fixed charges held by the debenture holder and book debts covered by a charge. The clause preserved the security over such property by providing that any existing security should "follow" the proceeds of property disposed of as if the security, whatever its original nature, were a crystallised or attached floating charge.
However, we have received strong representations from financial institutions and practitioners and the Government are persuaded that it would be unjust for fixed charges held by a person who also has a floating charge and those over book debts to be dealt with differently from those held by other fixed chargeholders. Amendment No. 20 therefore removes from subsection (1) property subject to fixed charges held by a floating chargeholder and fixed charges over book debts. The administrator must therefore apply to the court for authorisation to dispose of property subject to such charges. He will remain entitled to dispose of assets subject to floating charges.
To remedy a defect in subsection (4), amendment No. 21 transfers the security holder's priority to any property representing, directly or indirectly, the charged property disposed of. Thus, for example, if the administrator sells charged plant and machinery, the chargeholder's security would attach to the moneys obtained from the sale and then to any asset that those moneys might be converted into.
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I make no apology for emphasising that amendment No. 20 effects a substantial change in the manner in which an administrator will conduct the business of the company. We have accepted the strong representations of financial institutions and insolvency practitioners that, in its unamended state, the clause puts the interests of the secured financial creditors at very great risk by enabling the administrator to use their secured assets for trading funds. They saw themselves as being compelled in effect to make "forced loans" to someone over whom they had no control. In such circumstances, where possible, they would always appoint an administrative receiver to obtain control of the secured assets even though that might destroy the company's chances of rehabilitation.
The widespread adoption of that attitude would make the administration procedure unworkable and we sought by the amendment to meet the fears expressed. We accept in practice that the administrator will, in most cases, need to obtain finance for trading from a company's bankers, but we anticipate that the institutions, having supported or consented to the appointment of the administrator, will play an important role in the achievement of the purposes of the administration and provide on sensible terms the finance required. We trust that the changes in the procedure will improve its acceptability to the present structure of financing business in this country and provide a useful additional means of rehabilitating enterprises that would otherwise be destroyed.
683 Finally, amendment No. 22 is a technical amendment which makes it clear that, in Scotland, where any hire purchase goods are disposed of by the administrator, the disposal has the effect of extinguishing any of the rights of the hire purchase owner in the goods. The hire purchase owner would, of course, still have rights to the net value of the goods by virtue of subsection (5) of the new clause inserted by amendment No. 72.
Amendments Nos. 23 to 27 inclusive are all minor drafting and technical amendments.

§ Mr. Gould
I am happy to give a general welcome to this group of amendments.
I wish to say only one small word of commendation in respect of amendment No. 20. In the light of the representations that the Minister has received, he was right to move swiftly to make sure that the administration procedure, which I regard as one of the most constructive new features of the Bill, was not jeopardised. Given the hon. and learned Gentleman's explanation of the circumstances as they might have been affected by the Bill as drafted, when creditors with fixed charges might immediately have appointed an adminstrative receiver rather than allow an administration order to be made, the Minister's hon. Friends in another place were right to table the amendment and effect the change. It is important that the administration order procedure is given a fair wind.

§ Mr. Hanley
I believe that it would be wise to pay tribute to the many bodies that consulted the Minister and that the Minister consulted over the past few months during the summer recess. I am sure that the House will bear with me if I mention the names of the eight associations because they are important particularly in the development of the amendments that we are now discussing. The Department consulted the Institute of Chartered Accountants in England and Wales, the Institute of Chartered Accountants of Scotland, the Institute of Chartered Accountants in Ireland, the Association of Certified Accountants, the Insolvency Practitioners Association, the Law Society, the Law Society of Scotland and the Committee of London and Scottish Bankers, the latter having the greatest effect on amendment No. 20, which was mentioned by the hon. Member for Dagenham (Mr. Gould).
It is vital that consultation takes place on technical matters of this sort. I echo the view of the hon. Member for Dagenham that if only a draft Bill had been put forward, many of the 1,000 amendments, in a 200-clause Bill— it is only a 200-clause Bill—would have been avoided. I know that it takes time to formulate a draft Bill, but it requires the confidence of the Government in the House to deal non-politically with matters of technical content. Therefore, if a draft Bill had been devised for the matter, many of the embarrassments over the past months might have been avoided.
However, the consultation, albeit late, has taken place. I am grateful to my hon. and learned Friend the Minister for allowing changes before Lords amendments. The Lords have changed the Bill from what was very much a disappointing if not an impossible Bill to work into a Bill that has many good chances of surviving in future. It may survive with amendment in future, but we can give it a fair wind.
684 With regard to amendment No. 20, in commenting on the provisions concerning administrators as they left this House, many practitioners noted that any banks which held fixed and floating charge security were not likely to allow the appointment of an administrator. It was a great shame, because the administrator is one of the great hopes for saving many businesses. This was because of the effect that they would have had on their fixed charge security, and who could have blamed them?
The amendments made in the other place have brought major changes to administration orders. The administrator is not the animal that he was when he left this House, and I am grateful. His dominion is now only over floating charged assets. That allays the fears of the financial institutions but it leaves considerable uncertainty as to where an administrator's cash flow is to come from. Where there is a fixed charge on his fixed assets, that is one thing, but where there is a fixed charge on book debts, which is increasingly the case, one wonders where the administrator's funds will come from. Therefore, the practitioners in insolvency can give the amendment only a qualified welcome. The pendulum has swung too often over the procedure for us to know whether it is resting in exactly the right place.

§ Mr. Howard
I thank the hon. Member for Dagenham (Mr. Gould) and my hon. Friend the Member for Richmond and Barnes (Mr. Hanley) for the welcome that they have given to the amendments. In particular, I associate myself and the Government with the tribute paid by my hon. Friend the Member for Richmond and Barnes to the various bodies which have participated in the extensive consultation that has taken place on the contents of the Bill in general and on these clauses in particular.