HC Deb 07 December 1992 vol 215 cc638-50

Motion made, and Question proposed, That this House do now adjourn.—[Mr. David Davis.]

6.32 pm
Mr. George Howarth (Knowsley, North)

On Friday 16 November, 67 employees of the Lyons Maid operation in Kirkby in my constituency were made redundant. They have not yet received any severance pay. Until today, however, there was still hope that they would be re-employed by Nestlé, which has since acquired the parent company, Clarke Foods, which was put into receivership by the National Westminster bank on 13 October.

Within the past hour it has been drawn to my attention that Nestlé has no intention of retaining the Kirkby plant. It argues that that plant has some technical problems which make its retention impossible. I do not wish to comment on that in detail until I have had an opportunity to discuss it with the employees at that plant; I can then consider the points that Nestlé has raised.

Today's announcement will be a body blow to the people of Kirkby from which they will find it difficult to recover. We may be talking about only 67 jobs, but in a town that has one of the highest rates of unemployment in the country, those 67 jobs were precious and there were high hopes that they would be retained. We shall have to consider what steps we can take to see whether there is anything that can be retrieved in the next few weeks.

My purpose in seeking a debate on the Adjournment is to highlight serious and potentially alarming concerns about the events that led up to Clarke Foods going into administrative receivership. Clarke Foods was Britain's second largest ice cream manufacturer. It was set up and controlled by Mr. Henry D. Clarke junior, a United States citizen.

In March 1992, Mr. Clarke's company acquired the Lyons Maid operation from Allied-Lyons for just over £13 million. At that time, Lyons Maid had two factories, one in Greenford in the constituency of my hon. Friend the Member for Ealing, Southall (Mr. Khabra), and the other in Kirkby. I know that my hon. Friend had hoped to be here for this debate. Unfortunately, the fact that it has started earlier than expected has, I believe, caught him at his constituency surgery. I know that he will be bitterly disappointed to have missed the debate.

Prior to acquiring Lyons Maid, Clarke Foods had also acquired factories in Telford, Stourbridge and Stoke-on-Trent from Hillsdown Holdings, the latter of which was closed down some six months earlier. Clarke Foods left debts reported to be between £25 million and £40 million. I understand that among the substantial creditors are the National Westminster bank, Allied-Lyons, Hillsdown Holdings and Alfa-Laval, which is apparently owed money for machinery that was purchased and delivered, but not paid for.

It is also worth pointing out that part of the purchase agreement between Allied-Lyons and Clarke Foods involved a discount of £1.4 million in a fund allocated for severance payments, including pension funds at the Greenford factory, which, as had already been agreed, would close. There are persistent rumours that all the money cannot be accounted for. However, no doubt that will be covered in the receivers' report to the Secretary of State to which reference was made in the letter to me of 12 November from the Under-Secretary of State for Corporate Affairs.

Clarke Foods had a working relationship with Guinness Mahon and Co. and Henderson Crosthwaite Corporate Finance Ltd. Both firms were reported in the Financial Times of 11 March as sponsoring Clarke Foods' entry into the unlisted securities market. I have spoken to representatives of Guinness Mahon and they say that their relationship with Clarke Foods was that of financial adviser and that its associate company, Henderson Crosthwaite, acted as stockbroker to Clarke Foods.

One common denominator between those associated firms and Clarke Foods is Mr. Martin Riley. Mr. Riley is described by Guinness Mahon as having been a non-executive director of Clarke Foods and a director of Henderson Crosthwaite.

I recognise the responsibilities that go with parliamentary privilege and I made a determined effort to contact Mr. Riley on Friday last week, through Henderson Crosthwaite and Guinness Mahon. It became clear to me, however, that I would be given no opportunity to speak to him, even though it was my stated and honest intention to give him the chance to put his side of the argument before the debate. I understand that Mr. Henry D. Clarke is currently in the United States and unavailable for comment, although at least one of his sons is still in the United Kingdom.

According to the Liverpool Echo, which has thoroughly investigated this matter, it was obvious that, during the summer, Clarke Foods made serious errors of judgment and some bad management decisions. In July, by which time it must have been clear to both Mr. Clarke and Mr. Riley that Clarke Foods was in serious trouble, those men both sold their shareholdings, which, I understand, were substantial. According to Paul Foot in the Daily Mirror of 4 December 1992, that sale amounted to 310,102 shares at their peak price of £1.60 each. By the time the company went into receivership in October, share prices had fallen to 8p each.

Last Friday, I spoke to a spokesman for Guinness Mahon, Mr. Duncan Campbell. He told me that Guinness Mahon did not know that there were financial problems with Clarke Foods until September this year.

Courtesy of the Library, I have an article from The Sunday Times, dated 14 June 1992, headed Clarke Foods. Directors' Share Deals". It includes an informative graph describing how share deals had taken place between Mr. Riley and Mr. Clarke and describes at length the problems that the company was experiencing as early as June. It says: The approach of summer heralds ice-cream time and marks a good season for Clarke Foods, Britain's number two producer since it bought Lyons Maid from Allied-Lyons in January. Three years ago the company, then Yelverton Investments, had its core business in properties and securities. The transformation was due to Henry Clarke, the chairman, who had made a fortune from the frozen confection in America. In January 1991 he bought three loss-making ice-cream companies from Hillsdown Holdings. Clarke invested heavily in new equipment and cut the workforce, pushing the three firms into the black in their first full year after the takeover. Then came the £12 million Lyons Maid coup. The company was stagnant, making heavy losses and was the perfect challenge for him. One ageing and unionised Lyons Maid factory is to close, with production shifting to the renovated factories at Stourbridge and Telford. Last year Clarke's pre-tax profits were up to £1.14 million and are predicted to be £3.4 million this time. Friday's price was 160p, up from 50p since its £6.8 million rights issue to buy Lyons Maid. The difficult task ahead is to improve the product range and increase sales in an increasingly competitive market. And investors will not be encouraged that late last month two directors, Henry D. Clarke Jr and Martin Riley, sold a total of 310,102 shares at 160–161p, signalling that the price may fall, although both say they are selling to buy pension plans. At that stage, there was clearly some knowledge of share dealings and the fact that, although the company was still predicting profits, there were things going on in the organisation which would have raised alarm bells with Guinness Mahon. I am not therefore convinced that I was told the full position when I spoke to Mr. Duncan Campbell on Friday.

On 30 October, I wrote to the Secretary of State in support of Lyons Maid workers and their trade union, the Transport and General Workers Union, seeking an inquiry into the affair. I repeat that call tonight. The first issue that an inquiry must cover is whether Mr. Clarke and Mr. Riley were guilty of insider dealing. They must have known that Clarke Foods was in serious financial difficulty at that stage and that to dump a large shareholding on to the market would precipitate a slump in the value of the shares, thereby accelerating the firm's difficulties. An inquiry must also look into what will happen to the £1.4 million pension and severance fund. Has it been used fraudulently; if so, by whom and on what authority?

A further issue for an inquiry relates to Mr. Henry D. Clarke's fitness to run a company anywhere, given his track record in the United States. In the 1960s, Mr. Clarke ran a company called the National Environmental Corporation, which was involved in house building and nursing homes. Mr. Clarke was ousted as president of that company in 1970 and was subsequently bankrupted. During the 1970s, through various companies—Clabir, Klondyke Ice Cream and the General Defense Corporation—Mr. Clarke built up yet another conglomerate with diverse interests in ice-cream and chocolate manufacture and armaments manufacturing. He was ousted as president of that group of companies in 1989 after Clabir defaulted on debentures.

Given the irregular mix of products in which Mr. Clarke was involved, anybody who subsequently examined his involvement in that group of companies would have raised questions, particularly in the light of the Iran contra scandal.

The following year, Mr. Clarke came to the United Kingdom and began to re-establish himself, together with his sons, in the ice-cream business. On the basis of his record in the United States, sufficient evidence should have been available to suggest that Mr. Clarke was not a fit and proper person to run a company. However, Guinness Mahon and its associate company, Henderson Crosthwaite, seem to have warmly welcomed him, despite the fragile financial basis of his operations and his track record.

All that is bad enough, but last Friday I was given a copy of a letter from Mr. Ray Scannell, director of research with the Bakery, Confectionary and Tobacco Workers International Union, dated 3 December 1992. In the letter, Mr. Scannell says: Rumours … picked up in Tampa and PA had it that Clarke, Clabir and General Defense Corporation were part of a network of CIA front companies involved in supplying the Nicaraguan contras. This is plausible. Numerous news reports have revealed that the CIA often brought in businessmen to 'own' front companies and those fronts often invested in legitimate businesses to maintain the legitimate facade for the agency. (They also sometimes were engaged in drug running)". Mr. Scannell concludes: These allegations are obviously unproven, and probably unprovable. But they warrant taking an even closer look at the Clarkes. For example, what were the specific circumstances of Clabir's default? Under what terms did Clarke leave the US? Does he continue to have legal and financial obligations and/or problems here? Whose money is behind Clarke? If he had connections with the CIA, do they continue? That letter clearly raises further questions. That admittedly inconclusive evidence has been obtained by my trade union colleagues with comparative ease. It seems odd that, before entering a business relationship with Mr. Clarke, an organisation like Guinness Mahon did not make similar inquiries.

There have been weeks of anxiety for the workers and their families about their future and today any hope has been dashed by Nestlé's announcement that those jobs have no chance of being saved. The matter is so serious and the implications so vast that the Department of Trade and Industry must now agree to an inquiry, or possibly several inquiries, under the provisions vested in it under the Companies Act 1989.

Will the Minister instruct the receivers, Robson Rhodes, to produce an interim report on Clarke Foods, including any preliminary evidence of fraud and insider dealing? Will he initiate a preliminary inquiry through the stock exchange on what checks or inquiries, if any, were made through Guinness Mahon or stock exchange procedures into Henry D. Clarke's fitness as a director prior to Clarke Foods being listed? I give the Minister notice that I fully intend to raise that aspect of the affair until it is fully investigated and brought out into the open. Will he consider at this stage setting up a team of inspectors to look into the share dealing issue urgently?

I wish to acknowledge the Liverpool Echo and the Transport and General Workers Union for their work in investigating those disturbing issues and events. The allegations that I have made tonight cannot be attributed directly to them.

There seems to have been an effort in some high and influential quarters to keep the issue quiet. On the basis of the evidence that I have collected, it would he scandalous if the issue were not looked into fully. Many people are entitled to know what went on, not least those whose employment, pensions and redundancy payments have been shattered. Employees may even have been swindled. Surely it is right that the DTI should take its responsibilities seriously and get to the bottom of what has happened.

The jobs that have been lost in my constituency and that of the hon. Member for Ealing, North (Mr. Greenway) raise serious issues about the values in our society. It seems that people can operate on any basis that they choose in our economy and that jobs, redundancy payments, pension funds and people's prospects in life do not count.

I know that in my constituency, and especially in Kirkby, people will be alarmed and despondent that there now seems no prospect of Nestle; saving these jobs. For several weeks, they have been hoping that that would prove possible. The values that seem to have been applied throughout the sorry saga which I have recounted—especially by Mr. Clarke, but certainly by others bring no credit on individuals and place serious responsibilities on the Government to investigate exactly what has been going on and, even at this late stage, to make efforts to save the jobs that are at stake in Kirkby and sort out the pension fund problems in Greenford. Events of the sort that I have described should not be allowed to take place without the Government accepting some responsibility to try to clear up the mess that they leave in their wake. Not least among the mess are many of my constituents, people who can ill afford to lose their jobs. They will wake up tomorrow morning in the knowledge that their last hope—that offered by Nestle—has gone.

6.50 pm
Mr. Harry Greenway (Ealing, North)

I congratulate the hon. Member for Knowsley, North (Mr. Howarth) on securing the Adjournment debate. Many of us have been trying to do so for some weeks, in the knowledge that there was an important issue to bring to the notice of the House. The hon. Gentleman has been successful in the ballot and he is to be congratulated on that and on all the good work that he has done.

My concern and interest lies with the Greenford plant of Clarke Foods, which lies firmly within my constituency. Of the 108 workers who have been made redundant, almost all of them are my constituents. There are one or two who live in Ealing, South and there are others in Ealing, Acton.

I have had meetings with the displaced work force and I have seen several members of it separately in my constituency over a period. The Lyons Maid site, which was purchased by Clarke Foods and became the Clarke site, is one that I have known for 18 years and visited regularly. I have known it as the site of a company that produced the best ice-cream in the world. I attempted to persuade people to eat Lyons ice-cream rather than anyone else's because it was the best and was made in the best place.

I was puzzled when I learnt that during the hot summers of the recent past Lyons Maid started to lose as much as £5 million a year. I still do not understand how that happened, hearing in mind the sales that the company must have had during the hot summers that we enjoyed in the late 1980s and early 1990s. In any event, the losses were made and the directors felt that they were unable to continue. As a result, they sold out to Clarke Foods. I should mention my hon. Friend the Member for Ealing, Acton (Sir G. Young), the Minister for Housing and Planning, who I know would wish to be present this evening. One or two of his constituents who worked at the Greenford plant have been made redundant. I know that he has been seeing them and helping them.

Lyons Maid was sold to Clarke Foods. The work force was happy to continue in the new set-up and it gave its all, as I am sure did the work force in Liverpool. That can certainly be said of my constituents. When I met them, I was reminded of the work force at the nearby Hoover factory, which was closed. That closure was declared on a terrible day 10 years ago this week. I spoke to 1,200 members of that work force on a hoary December morning after the announcement had been made that they would lose their jobs. They were told that they would all, except the headquarters staff, lose their jobs by March. They worked with enormous dignity until the last minute of their employment. My constituents who worked at the Greenford plant have been the same. They put a great deal into Lyons Maid, first, and then Clarke Foods. They deserve better than they have had.

As the hon. Member for Knowsley, North said, when Lyons Maid sold to Clarke Foods there was an allowance of £1.4 million. I am not certain how to interpret that. I do not know whether that meant that Clarke Foods acquired the company for £1.4 million less. I note that the hon. Gentleman is nodding. I do not know whether any other prospective purchasers were in line.

Mr. George Howarth

Perhaps I can help the hon. Gentleman. According to a report that appeared recently in the Financial Times, the original sale price was discounted by £1.4 million.

Mr. Greenway

I think that that is a fair transaction.

I met the directors of Lyons Maid shortly after I met the work force on the Clarke Foods site at Greenford. I promised that I would see the directors. They explained matters to me. They said clearly that they thought that the money to which I have just referred should have covered any redundancy payments. I am glad to say that at Greenford there are no problems with pensions, which are safeguarded and assured. On the other hand, the members of the work force have had no redundancy pay. Some of them worked at the site for 40 years. It cannot be morally right that suddenly they should find themselves put out of work, having lost a fortnight's pay because effectively they were put out of work by the receiver. Holidays were due to them and they received no redundancy payments.

It is only natural that these people are looking to Lyons for some sort of payment. One can only appeal to Lyons—I do so again tonight—to make an ex gratia payment. The company has explained to me that it has no legal obligation to make such a payment. I am not a lawyer and I have to accept that, but when a company has employed people for a long time—some for as long as 40 years—I would hope that it might be able to find a way of making ex gratia payments to them. I think that they deserve that.

Mr. William O'Brien (Normanton)

I sympathise fully with the hon. Gentleman's constituents. As he has said, they worked for the company for 40 years and then they were just dismissed. Does he agree that it would be better for his constituents and other workers like them—where there is no trade union to defend their interests—if wages councils were to remain in place? The councils would be of benefit to the hon. Gentleman's constituents and to many thousands of others throughout the country, especially in the catering trade.

Mr. Greenway

I do not want to be taken down that road. When my constituents were dismissed, wages councils existed. The question does not arise in this instance. I know that that point was made genuinely because I know the hon. Gentleman too well to say otherwise, but it is not valid.

I appeal to my hon. Friend the Minister to do anything that he can to secure for the workers involved the ex gratia payments that they surely deserve, or any other sort of payment that they can be given. I have written to the receiver on their behalf. I have not received an answer; I am not terribly impressed with that. It is some time since I wrote to him. He should answer letters punctually, whoever has written them.

Mr. Peter Kilfoyle (Liverpool, Walton)

Is the hon. Gentleman aware that the former employees at the Greenford site who served for 40 years would have been entitled to about £100,000 each in combined redundancy and severance pay?

Mr. Greenway

They are certainly entitled to large sums of money—hence their grievance. They are morally entitled to that money, and I should have hoped that they were legally entitled to it. Instead, they have lost everything—the wages due to them and their other benefits. It is a sorry and unjust tale. I hope that all concerned will be able to do something for people who have given their loyal and honest work over many years in—an honourable, fair-minded and genuine way.

7 pm

The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. Neil Hamilton)

I congratulate the hon. Member for Knowsley, North (Mr. Howarth) on being fortunate enough to secure this important debate. I know what a doughty fighter he is for the interests of his constituents; his reputation for that is well known far beyond Knowsley. I have listened with considerable attention and concern to what he has had to say, and to the remarks of my hon. Friend the Member for Ealing, North (Mr. Greenway) and the hon. Members for Liverpool, Walton (Mr. Kilfoyle) and for Normanton (Mr. O'Brien), whom I am pleased to see here.

The appointment of receivers is always a sad event in the life of any company, especially when it results in a considerable number of employees being made redundant. I extend my sympathy to those affected by redundancy in Clarke Foods, and to their families. I know very well that this has been a bitter blow for Knowsley, and, as a north-west Member and DTI Minister responsible for the north-west, I know of the social problems involved.

Clearly, the hon. Member for Knowsley, North believes that all is not well with the way in which certain aspects of Clarke Foods' affairs were conducted, particularly those related to planned redundancy payments after it took over the Lyons Maid business earlier this year. As a result, the hon. Gentleman wants the Secretary of State to authorise an investigation of Clarke Foods using his powers under the Companies Acts. I can understand that; I should have been surprised had he not pressed hard in support of his constituents' interests. Before dealing with the issues involved in an investigation, I ought to set out the facts of the matter as they are known to me.

Clarke Foods (United Kingdom) Ltd. bought the Lyons Maid trading operation from Allied-Lyons in February this year. I understand that even before the sale Allied-Lyons had decided that the Lyons Maid operation needed rationalisation. Parts of that involved closing the plant at Greenford, in the constituency of my hon. Friend the Member for Ealing, North. To make the reorganisation more acceptable, the company proposed to offer enhanced redundancy terms to employees. Those would apparently have been rather more attractive than the terms that apply under the statutory redundancy payments scheme.

No action had apparently been taken by the time of the purchase by Clarke Foods. It has, however, been reported that, as a result of the proposed redundancy arrangements, Clarke Foods was able to renegotiate a reduction of £1.4 million in the price that it paid to Allied-Lyons.

I know that this brief outline of the facts may give rise to the assumption that Clarke Foods had, at least by implication, agreed to make available the same redundancy package as Allied-Lyons had proposed. Hon. Members may even suspect that, as has been suggested in this debate, the sum of £1.4 million was put aside for this purpose, although that is doubtful. As far as I am aware, there was never any written agreement between the company and its employees relating to the proposed redundancy package. Needless to say, if hon. Members have evidence to the contrary, I shall be happy to receive it—it should also be given to the receivers. I make no comment on the discount in the purchase price of Lyons Maid that Clarke Foods apparently negotiated.

Following the sale, the proposed reorganisation of the company's trading operations did not take place. Initial indications are that that was because of substantial cash flow problems affecting Clarke Foods. Those difficulties prompted the company's backers, the National Westminster bank, to commission a report on the company's financial health from City accountants Robson Rhodes——

Mr. George Howarth

Based on the inquiries that the Minister has made, can he tell us at what point these cash flow problems became apparent?

Mr. Hamilton

I cannot give the hon. Gentleman that information, because we have not instigated inquiries under the powers given to us by the Companies Acts. If the hon. Gentleman were to contact the receivers, he might acquire the information from them.

I understand that the report presented to the National Westminster bank was submitted in September. The bank was clearly unwilling to continue to support the company, and on 13 October it appointed two Robson Rhodes partners as joint administrative receivers. The receivers' primary obligation is to look after the interests of the bank that appointed them. Of course, they cannot ignore the other legitimate interests involved, including those of Clarke Foods' employees, and they did authorise a continuation of trading in the hope that income from such trading would be sufficient to meet the company's liability to the bank. However, I am informed that the financial pressures of funding the company during the trade-on period following the receivers' appointment were extreme.

The success or otherwise of the post-receivership trading was always going to depend heavily on the generation and availability of funds to meet the numerous obligations implicit in trading on the business. Quite quickly, it became impossible to maintain the size of the work force, and hon. Members will know that the receivers have found it necessary to make 280 employees redundant—148 at the Greenford plant and 67 at Knowsley.

Fortunately, we have in place legislative provisions to mitigate the effects of redundancy in cases such as these. Under the provisions of the redundancy payments scheme, employees who are declared redundant and who satisy the qualifying conditions are entitled to a lump sum payment calculated according to their age, length of service and rate of pay. In addition, the redundancy payment service can also pay certain debts owed to employees of insolvent employers—these include arrears of pay, accrued holiday pay and pay in lieu of notice.

I understand that there has been a misconception in some quarters to the effect that the wheels of this scheme grind rather slowly. Of the 178 claims for redundancy pay received by the Department of Employment, 145 have already been paid; and there have also been 92 claims for insolvency payments, of which 79 have been paid.

Mr. Harry Greenway

May I express my gratitude for that? I raised the matter the moment I knew of the problem at Greenford, and the rapid response is greatly appreciated.

Mr. Hamilton

I am most grateful for my hon. Friend's kind remarks. I assure him that the Departments of Employment and of Trade and Industry will do their best to respond as quickly as possible if anything further can be done to benefit those who have suffered from these distressing events.

All is not entirely lost, although I fully appreciate that the constituents of the hon. Member for Knowsley, North can derive little pleasure from the circumstances that he outlined. Hon. Members will be pleased to learn that on 16 November the receivers apparently sold the Clarke Food business to Nestle, and as a result about 300 jobs have been saved.

I come now to the suggestion that this is a case into which the Secretary of State should initiate an immediate investigation under the Companies Acts. I understand the hon. Gentleman's concern, but I believe any action of this sort to be premature, pre-empting, as it would, consideration by the receivers of the relevant facts. Before I clarify certain important aspects of the receivers' role, I shall outline the responsibilities of the Department's investigation branch, because in my experience there is a significant degree of misunderstanding about how investigations are set in train and about the principles on which we act to use the powers available to us.

The hon. Gentleman asked me to investigate under the various powers that we have, but the companies investigation branch follows up investigations under the Companies Act 1985, the Companies Act 1989, the Financial Services Act 1986 and the Insurance Companies Act 1982, where appropriate. The investigative powers can be used only when the Secretary of State thinks that there is good reason to do so. In a typical case, if there are sufficient grounds to suspect fraud, misfeasance or serious misconduct, inquiries may be authorised under section 447 of the Companies Act 1985, as amended by the Companies Act 1989. Those investigations are confidential and are not generally announced. Prosecutions are instituted when the investigations bring to light misconduct of a criminal nature. The reports that the Department receives when such an investigation has been authorised are confidential. We have no powers under the Act to publish them and cannot do so.

That pall of secrecy which inevitably surrounds the investigation under that section of the Act creates some confusion about the circumstances in which the Department can act. It often raises in the minds of those who are suspicious the inference that perhaps we have something to hide and are trying to effect a cover-up. I assure the hon. Member for Knowsley, North that the Department has no interest whatever in covering up fraud, misfeasance or other misconduct in companies. On the contrary, in recent years we have significantly tightened the available penalties, and the circumstances in which we are able to take action against errant company directors have been significantly extended in the Company Directors Disqualification Act 1986.

Hon. Members asked my Department questions about Clarke Foods and requested an inquiry. Before any decision can be taken on whether an investigation beyond that carried out by the receiver is warranted, considerably more information will be required. I shall consider any information that has been provided in the debate and I shall carefully consider submissions by any hon. Member who would like to write to me.

Mr. George Howarth

Will the Minister confirm that the receiver has scope in his report to cover the issue of share dealing and my allegations that there is possible evidence of insider trading? Will he also confirm that, even as this stage, he could ask for an interim report?

Mr. Hamilton

Insider dealing is dealt with under a different section of the Companies Act, section 177. If the receiver suspects material fraud and has the evidence to back it, it is incumbent on him to present that information in his report. We would be able to take that into account in deciding whether to take action under the various powers that are available to us.

I warn hon. Members of the danger of assuming that there is something suspicious about every insolvency. Grounds for suspicion are not made stronger merely by virtue of large sums being involved. It is important and a basic principle of natural justice that Ministers who are given these heavy responsibilities, the exercise of which can have a significant impact on those who are subjected to them, must use them conscientiously and only in circumstances where we believe it to be reasonable on the facts to do so. It would be wrong for Ministers to exercise those functions arbitrarily and in cases where they did not have to satisfy themselves that there was "a serious case to answer on the Facts as revealed to us."

Prima facie evidence to justify an investigation cannot be gathered in every case, even though the consequences of whatever has happened have been a disaster for many people, as is the case with several hundred constituents of hon. Members who are present for the debate. We must exercise our powers within the law and must not exceed them through excessive liberality in their interpretation.

Many companies that fail do so for genuine reasons. Insolvency is not necessarily accompanied by dishonest motives, nor are all directors of failed companies guilty of misconduct. In this instance, I must satisfy myself that the ingredients of dishonest motive, or other motives of that kind, are present before I can use these rather draconian powers. It is not a pleasant experience to be investigated under the powers of the Companies Act. The rigour of such an investigation cannot be fully appreciated unless one is involved in some capacity in the process. As the Minister responsible, I have come to understand that very well in the six months or so that I have held this office.

In a case such as Clarke Foods where the company has gone into administrative receivership, the administrative receiver has a duty to report to the Secretary of State if he forms the view that the conduct of a director makes him unfit to run a company. The hon. Member for Knowsley, North spoke about that. In practice, those reports are submitted to my officials in the Insolvency Service's disqualification unit. It is then a matter for the Secretary of State's discretion whether it is expedient and in the public interest to apply to the court for a disqualification order against the director who is the subject of the report. In determining the application, the court has to have regard to those aspects of conduct specifically mentioned in the Company Directors Disqualification Act 1986. These include breach of duty, misapplication of assets, responsibility for the causes of the company's failure, preferences and a breach of statutory duty.

The events that the hon. Member for Knowsley, North described in respect of Mr. Clarke's other companies in the United States could not, I understand, be brought within the areas to which we have to have regard in taking decisions under legislation in this country. That is because the definition of a company for the purposes of the Act, which is set out in section 22(2), includes any company which may be wound up under part V of the Insolvency Act which applies, of course, only to companies registered in the United Kingdom.

Mr. Kilfoyle

The Minister spoke about whether it would be expedient and in the public interest for the Secretary of State to recommend an inquiry on the basis of the receiver's report. Is he now saying that the record in another country of a company director in this country has no bearing whatever, even if it involves fraud or criminal acts?

Mr. Hamilton

I am open to correction, but my understanding of the Company Directors Disqualification Act is that the companies to which it applies are only those that are incorporated in the United Kingdom. Earlier, I said "registered": I should have said "incorporated". I shall check that matter, as I am speaking off the top of my head, and it is dangerous to do that when trying to be as helpful as possible at the Dispatch Box. If I have inadvertently misled the hon. Gentleman, I shall inform him and see what we can do to remedy the defect.

In deciding whether disqualification proceedings should be brought the Secretary of State must have regard to a number of matters. Can he satisfy the requirements about evidence placed on him by the courts? Part of the problem that we would face in this case is the acquisition of evidence to prove that which is alleged in court. When dealing with a foreign jurisdiction, it is difficult to be sure that the facts which gave rise to an offence in another country would be relevant to a prosecution for a similar offence in this country. That is because the elements of the crime, or whatever the charge, and the standards of proof may be different. A variety of factors would have to be considered. It is not certain that the evidence to be placed before the court would necessarily be as meaningful as evidence derived from experience in relation to a British company in the United Kingdom. That is my surmise of what I understood the position to be. I shall check that to ensure that my understanding is correct.

We should have to take into account also whether there is a reasonable prospect of the disqualification order on the company director being made. Prosecutors always have to bear that point in mind. If they believe that their prosecution will not succeed, it will not be possible for them to bring the case before the court.

We must take into account also any factors that, in the public interest, would weigh against bringing proceedings. However, if proceedings are taken and a conviction is obtained, the director is disqualified and the order that is made by the court can run for between two and 15 years. In some cases, the maximum penalty has been exacted, and that is a significant tightening of the powers in respect of misfeasance on the part of company directors, an offence that has been in existence for only four years. That shows how seriously the Government take company fraud and other malpractice.

As the administrative receivers need time to consider all the relevant facts, the legislation allows them up to six months to do so. In the case of Clarke Foods, that period will elapse in April next year and I cannot anticipate what the receivers will find or whether they will consider it necessary to submit a report.

Mr. George Howarth

Will the Minister confirm that he has the power to ask the administrative receivers to produce an interim report? In those circumstances, would it not be sensible to do so?

Mr. Hamilton

I can ask the receiver to produce an interim report and, if the hon. Gentleman asks me to do so, I shall; but I cannot say whether the receivers will agree to do so.

In all the circumstances, it would be more sensible not to pre-empt the outcome of the inquiries by proceeding with a Companies Act investigation at this stage. After all, if the receivers have discovered information that throws light on some criminal activities or some other breach of the law, they will bring that forward in due course. It would make it more difficult for us to take action that would succeed in the hon. Gentleman's aim of bringing miscreants to justice if that is what proves to be the case. I cannot prejudge the facts on the company.

We want to ensure that all the relevant ingredients of an offence can be proved, and we shall not be able to take action until we have sufficient information to enable us to do that. I wonder how far an interim report would help to take us further down the road towards a realisation of the hon. Gentleman's objective, which is the same as mine—to ensure that if there has been wrongdoing, it is exposed and, where possible, punished.

I take seriously the points made by all hon. Members in the debate and, although I cannot prejudge what may be discovered, I shall give them the promise that if we discover wrongdoing and form the view, in conscientious exercise of our power, that disqualification proceedings or further action should be taken, the Department will have no hesitation in taking it.

Mr. Harry Greenway

The request made by the hon. Member for Knowsley, North (Mr. Howarth) and my hon. Friend's response are of the utmost importance. None the less, as far as I can see, they will not be putting any money back into the pockets of the work force, which is what those workers will be most concerned about. Will my hon. Friend support my moral contention that someone, somewhere, ought to support an ex gratia payment to the work force?

Mr. Hamilton

It would be wrong for me to give an opinion on that. If there is no legal obligation on any company to make a payment, it would be improper for Ministers to lean on it and exert what my hon. Friend calls moral pressure. It is for him to make the case, as I am sure that he has been doing and will continue to do, that his constituents deserve an ex gratia payment. However, it is not for Ministers to use their position to influence companies or private individuals to do more than the law requires. That would be to abuse the power of my office. because I would have no means to distinguish in different cases between deserving and undeserving cases, especially where there are significant elements of subjectivity.

Mr. Kilfoyle

Is not the crux of such problems, which occur far too often, that, right at the back of the queue in all the assessments—legal, moral or whatever—are the employees? Commitments to the employees go out the window with the start of the legal arguments about the responsibility on one company in a takeover of another. In this instance, I am sure that Mr. Clarke will thrive and prosper no matter what he does but, as the hon. Member for Ealing, North (Mr. Greenway) said, the employees will suffer.

Mr. Hamilton

It is incontestable that the employees are already suffering. In so far as they become creditors of the company, they are not treated any differently from any other creditors. They are not disadvantaged through being employees. Through the Insolvency Act 1986, which was a significant reform of the law, we have tried to reduce the number of preferred creditors so as not to disadvantage individuals who might not be as able to defend their own interests as some of the public authorities or companies that might be preferred creditors of the company concerned.

I disagree with the hon. Gentleman's implication that, under the present law, insolvency provisions discriminate against employees. They are in the same position as other creditors, but many of their rights are protected by law—for example, under the redundancy payments schemes—and the Department of Employment will make the necessary payments to them.

All hon. Members can sympathise with that. Unfortunately, I can do little more than express that sympathy, but I reiterate the promise that I gave before my hon. Friend the Member for Ealing, North intervened. If any wrongdoing is revealed, and we can take action, we shall not hesitate to do so.