§ Order for Second Reading read.5.19 pm
§ The Parliamentary Under-Secretary of State for Trade and Industry (Dr. Kim Howells)
I beg to move, That the Bill be now read a Second time.
Given the way in which this debate has been trailed in speeches and interviews during the past 24 hours by my right hon. Friend the Member for Chesterfield (Mr. Benn), perhaps I should be a little more muted as to the virtues of the Bill than I might otherwise have been. After all, it is easy for a humble Trade and Industry Minister such as myself to get excited about a modest Bill such as this one, designed as it is to help enterprises and small businesses to make a success on behalf of the nation.
I freely admit that I do not have the vast experience and visionary perspectives of my right hon. Friend. It was my right hon. Friend who used parliamentary time to introduce legislation to allow, for example, the construction of a fleet of Concorde jet aircraft and the administrative triumph of the advanced gas-cooled reactor programme. I have to settle for something that will not cost the nation billions of pounds. Nor, I am afraid, will the Bill allow the likes of Sir David Frost, Andrew Neil or Dame Joan Collins to hurtle back and forth across the Atlantic—suitably refreshed—promoting peace between nations. Such ministerial triumphs are reserved—quite properly—for our political giants.
I, on the other hand, will state only simple pleasure at being able to bring this now famous Bill, which I even heard trumpeted on the "Today" programme this morning, before the House. The measure will make important changes in insolvency law. The broad purpose of those changes is clear: to support the Government's determination to make our country one that encourages enterprise and is a good place to do business.
That determination needs to be supported by appropriate measures to increase business confidence. One of the things of which we need to be sure is that those entering and operating in the marketplace can have certainty as to what will happen if a business gets into financial difficulties, or if—ultimately—it fails. We need appropriate and effective procedures to deal with such eventualities.
Inevitably, there will be cases where businesses get into short-term financial difficulties for one reason or another, but that should not mean that the only—or even the usual—way out of those difficulties is to bring the business to an end. That cannot be in the best interests either of those who have a stake in the business—its suppliers, customers, creditors, employees and so on—or of the wider economy. If the underlying business is fundamentally sound, we need procedures that will make a rescue possible.
Of course, there will be many cases where there is no realistic prospect of rescue or rehabilitation. Within the procedures for handling those cases when a business does 161 come to an end there is a particular need to be able to deal appropriately with those people whose misconduct brings about the failure. If we do not do that, confidence will be undermined and enterprise will not be encouraged—in fact, quite the contrary.
Both the Insolvency Act 1986 and the Company Directors Disqualification Act 1986 already go a long way towards providing such a regime. The measure will build on that by introducing important amendments and improvements to existing procedures.
In a market economy, it is inevitable that some businesses will fail. The reasons for that are many and varied. When that happens, those failures have consequences—not only for the creditors or the employees but for the wider community. If at least some of those companies could be rescued, it is probable that creditors would receive a better return than on a winding up; jobs would be saved and the companies would continue to make a positive contribution to the economy.
The Insolvency Act, which came into force more than 13 years ago, brought the company voluntary arrangement procedure into our law as a means of rescuing companies. Since then, the number of such arrangements has risen, from 21 in 1987 to 475 in 1999. The introduction of that procedure, which allows a financially troubled company to reach a binding agreement with its creditors, was a fairly radical development, because it focused on rescue rather than on winding up. However, the recession of the early 1990s showed that it was not particularly appropriate for small companies in financial difficulty. As there is no stay on creditors' actions, before an arrangement is agreed, creditors are able to take individual recovery action—such as levying execution on the company's goods. That is the real problem. As a result, the company may, for instance, lose its stock-in-trade and so simply be unable to continue in business, and that renders a voluntary arrangement unworkable and dooms any rescue attempt to almost certain failure. What is clearly needed is a stay—but a relatively short stay—on creditors' rights, so that the company's management can have the opportunity to put a rescue plan to the creditors.
Of course, there is always the administration order procedure, which does now provide for a moratorium; but the problem for the small company is that, generally, the procedure is too costly for it. There is also an understandable reluctance on the part of management—especially owner managers—to use the procedure because they know that they will be displaced by a court-appointed administrator. So the Bill will give a company's management the option of obtaining a short breathing space within which to put a rescue plan to creditors, and it will stop creditors enforcing their rights, initially for a period of up to 28 days. The provision of that moratorium in the Bill will honour our commitment toact quickly to introduce a legal right for a small company in financial difficulty to a moratorium on its debts for a limited period in order…to put together a rescue package.
§ Mr. Elfyn Llwyd (Meirionnydd Nant Conwy)
I am much obliged to the Minister for giving way at this point. I agree that the Bill has many useful parts, but will the hon. Gentleman look at one subject in particular—the situation where an insolvency practitioner is brought in? I know from personal experience of the law that there 162 have been many cases where the exceedingly high fees that insolvency practitioners charge tip the business into the red and that ruins the whole situation from day one. Will the Minister or his Department examine the question of those scale charges, which are, to put it mildly, exorbitant?
§ Mr. Howells
I thank the hon. Gentleman; he has made a very important point. Later in my speech, I shall address the subject of what we are terming, for now at least, nominees, who may well be able to offer services that at the moment can be provided by insolvency practitioners only.
Some people have questioned whether now is the right time to be acting as we are, when we are reviewing and consulting on what more might be done to improve the prospects for company rescues generally. We see no inconsistency in this. We think that there is little doubt that a stay of creditor actions is an essential part of any rescue procedure. The review of company rescue and business reconstruction mechanisms is looking at potential barriers to rescues, including, but not limited to, those that might be achieved by way of a company voluntary arrangement. What we are doing here is putting in place the first building block in our work on company rescues. The measure is needed now, and it should not have to await the outcome of a wider review. To delay it now would mean that more businesses might be put at risk and unnecessarily lost.
In summary, we propose that directors should remain in control of the company and its business during the period of the moratorium. To obtain that moratorium, the directors will first have to obtain, and file at court, a statement from the proposed nominee to the effect that the proposed voluntary arrangement stands a reasonable prospect of being agreed and implemented. Subject to the agreement of the creditors, the nominee will become the supervisor, and therefore oversee the implementation of the voluntary agreement once it is agreed.
The moratorium would last for up to 28 days, but it will be extendable by up to a further two months with the agreement of the creditors—so it could last for a maximum of three months. It will also be binding on all parties. During the moratorium, the nominee will have the task of monitoring the company's activities. If it appears at any stage that the proposal is no longer likely to be accepted by the creditors, he will have to withdraw his consent to act as a nominee. That will have the effect of bringing the moratorium to an immediate end. There will be penalties for directors who seek to abuse the process by making false representations to obtain a moratorium or by seeking to spirit away assets or business records under the cover of the stay. There will also be restrictions regarding the disposal of assets during the moratorium.
The issue involves balancing many competing interests—those of the company, shareholders, suppliers and creditors, employees and others. However, we think that the proposals in the Bill represent the best fit for all concerned.
§ Mr. David Heath (Somerton and Frome)
The Minister referred to misconduct by directors, but I have at least one constituent who is extremely concerned about misconduct 163 by an insolvency practitioner. Will this narrowly drawn Bill do anything about the regulation of practitioners, or can we expect further legislation in the near future?
§ Dr. Howells
That issue is being considered by the independent company law review that is under way at the moment, and I understand that it is being examined from several directions. It is an important point, because if the insolvency practitioner is considered to be guilty of misdemeanours, the whole process is put in jeopardy. That certainly will do nothing to help a company that is desperately seeking a means of rescue. However, when I come to this point later, I hope that the hon. Gentleman will be able to draw comfort from what I shall say about the way in which the behaviour of insolvency practitioners and, subsequently, nominees and company directors will be monitored and reviewed.
§ Mr. John Bercow (Buckingham)
I am grateful to the Minister for giving way, especially as I unavoidably missed his opening remarks. Will he tell the House whether the regulations that flow from clause 13, and that relate to the model law on cross-border insolvency, will be subject to the negative or to the affirmative resolution procedure?
§ Dr. Howells
I shall certainly come to that point, because it is important and we should deal with it properly.
§ Dr. Howells
I do not need the notes actually, but it was a good gag.
In the past few days, we have received several representations about possible difficulties that the introduction of the option of a moratorium might pose for what are known as special purpose vehicles—SPVs. They are ordinary Companies Acts companies, but they are often used in quite complex structures, particularly in relation to large-scale financing operations. Because the proposal to introduce a moratorium has been widely known about for some time, it is unfortunate that the potential problems appear only just to have been identified. However, from the discussions that my officials have had with those who have raised the matter, it is fair to say that the problem seems to arise from what we are told will be an assumption made by those institutions that are involved in such large-scale financing.
Overall, the sums of money involved are large and those institutions are worried that the proposal that small companies should be able to obtain a moratorium risks upsetting agreed arrangements. If that risk is perceived to be real, financing the arrangements will become more expensive and, we are told, the United Kingdom will become a less attractive place within which to base such arrangements. Clearly, we do not intend the Bill to have such a consequence, so we are urgently considering ways in which the problem might be addressed for the future and for existing arrangements.
However, in view of the complexities involved and the time likely to be needed to resolve them, our view is that it would not be sensible to address that matter in the Bill. Instead, we are considering whether the appropriate approach would be by way of modification of the 164 eligibility criteria for obtaining a moratorium. Therefore, the Bill proposes a power for the Secretary of State to modify the eligibility criteria by regulations. That may be the best way to deal with the issue once we have determined the real extent of the problem. In case anyone should think that in that way the House might be deprived of the opportunity to debate the issue, let me say that the proposed regulation-making power will be capable of being exercised only by way of the affirmative procedure.
§ Mr. Austin Mitchell (Great Grimsby)
My hon. Friend has just said something that worries me greatly. He is effectively saying that we should give a Second Reading to a Bill which—admittedly rather belatedly—vested interests have said might damage them and might not be workable, and that he will take account of those representations in regulations. That is an alarming mess to put before the House. Rather than a special procedure for small companies, would it not be more sensible, even at this stage, to apply to all companies the more simple option of a chapter 11 provision, as in the United States, which protects for a period companies such as Chrysler, which is facing going bust?
§ Dr. Howells
No, I do not think that a chapter 11 route is the right one. Chapter 11 is really a licence for lawyers to print money. The previous Government and this Government steered away from that because it is not the best method of addressing the problem. My hon. Friend's point about the lateness of the objections is important, but it would be wrong to pretend that we ought not to take the problem seriously. It needs to be raised before the House. I have explained one way in which we can address it, and I hope that that will be a good way of doing so.
I should like to take a little further the question of chapter 11 in the United States of America and why we have not adopted a procedure based on it. It is notoriously complex, time-consuming and very expensive. Unlike our procedure, it entails extensive court involvement. Virtually all major steps in chapter 11 require court approval and result in high lawyers' fees. Moreover, there would be serious practical problems in adopting a system that has its roots in a very different business and legislative culture.
§ Mr. Martin O'Neill (Ochil)
Did my hon. Friend take into account the fact that chapter 11 is no panacea in the United States? It is bandied about, but closer examination of the statistics suggests that it is not used in every instance. Indeed, it is used quite selectively, often owing to the difficulties that he has just described. The cases in which it is used and works tend to be those in which such arrangements would work anyway.
§ Dr. Howells
My hon. Friend makes a valuable point. Perhaps when my hon. Friend the Member for Great Grimsby (Mr. Mitchell) contributes to the debate he can explain to us the virtues of bringing chapter 11 to the United Kingdom, because I cannot see them.
The Bill will also make other modifications to the company and voluntary arrangement procedures in the Insolvency Act 1986 to improve their efficiency and effectiveness. One difficulty with the present schemes is that they do not bind creditors who are not notified at the meeting called to consider the proposal for a voluntary arrangement. That is an important point because the 165 phenomenon is pretty wide ranging. It means that, if a previously unknown creditor suddenly comes to light—perhaps for a substantial and unexpected claim for, say, faulty goods—that creditor can pursue the company for the full amount of its claim. The result might be that the voluntary arrangement collapses, with disastrous consequences for all concerned. The Bill therefore provides that across the piece—in company or individual arrangements, with or without a moratorium—unknown creditors will be bound by a voluntary arrangement. Of course, appropriate safeguards will also have to be provided to prevent unfair prejudice.
Another problem is that both creditors and shareholders must agree to a company voluntary arrangement before it can be implemented, and that can sometimes be extremely difficult. In the majority of cases, the company's financial position is such that, if it were to be liquidated, only creditors would receive any payment. The Bill recognises that fact and provides that, in the event of disagreement, decisions of creditors' meetings will prevail over those of shareholders. That will obviate the risk of losing what might otherwise be a workable rescue simply because shareholders cannot or will not agree to all or part of it. However, there will be appropriate safeguards for shareholders' interests.
On the question raised by the hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd), we consider that, in addition to insolvency practitioners, there may be others who have the skills needed to turn around ailing companies. In recognition of that fact, we have included in the Bill a provision that will allow the Secretary of State to recognise a body whose members could act as nominees or supervisors of voluntary arrangements. We want greater use to be made of voluntary arrangements and to ensure that those who have the skills needed to make rescues work are able to contribute.
The hon. Member for Somerton and Frome (Mr. Heath) mentioned disqualification undertakings. The power to disqualify rogue directors is an important safeguard for business and public alike. In the past two years, we have disqualified more than 2,800 unfit directors. If confidence in the market is to be maintained, it is essential that those who abuse the protection of limited liability and use companies to cheat creditors are disqualified. We believe that, when the Secretary of State and the director are agreed that disqualification is appropriate, it is in everybody's best interests to achieve it as quickly and as cheaply as possible, and the Bill provides for that.
Currently, only the courts can disqualify. The vast majority of disqualification orders are made on the application of the Secretary of State under section 6 of the Company Directors Disqualification Act. They are based on evidence of unfit conduct in relation to insolvent companies. However, the process can and does take a long time and it can be expensive for all those involved. The courts have been helpful in devising a procedure, known as the carecraft procedure, whereby an individual can consent to a period of disqualification, but a disqualification achieved in that way still requires court proceedings to be instituted, with delay and cost frequently being the result.
The Bill provides that, when there is agreement between the Secretary of State and the director, disqualification can be achieved administratively, without 166 the involvement of the courts. When the Secretary of State considers that an individual should be disqualified in the public interest, he will be able to accept from that individual an undertaking not to act as a director for a mutually agreed period of between two and 15 years. The Bill also provides that breach of the terms of such an undertaking will carry the same criminal and civil consequences as breach of a disqualification order, so there will be no diminution in protection for business and public. Concluding matters by way of an undertaking will be possible in the circumstances set out in clause 6, and those in clause 8 following a Companies Acts investigation. Undertakings will also be a matter of public record.
§ Mr. Christopher Chope (Christchurch)
Does the Minister agree that it would be helpful to the public to know the basis on which undertakings were given? Should there not be a statement of the facts, so that there can be no subsequent dispute about facts that were agreed by the director who gave the undertaking?
§ Dr. Howells
I have a great deal of sympathy with that approach, but it is the subject of careful review in several quarters. If the hon. Gentleman will bear with me, as soon as I receive some constructive advice on this important issue, I shall let him know about it. I hope that that is a sufficiently diplomatic response.
Only 10 per cent. of disqualification proceedings are contested and go to a full hearing; of the remainder, 60 per cent. are unopposed and directors consent to the making of the order in the other 30 per cent. of cases. That suggests that there is a need for such undertakings. This measure should result in earlier protection at reduced cost by cutting the number of cases that go to the courts.
Of course, not all directors will agree that they should be disqualified, so the existing procedure will remain in place. The hon. Member for Brecon and Radnorshire (Mr. Livsey) nods: I know that he faces serious specific problems, and I hope that the Bill goes some way towards addressing some of them.
As happens now, the Secretary of State will apply to the court for a disqualification order when he considers that appropriate and in the public interest. The director will remain free to defend the proceedings in court. Nothing has been taken away from his right to defend himself in court if he decides to do so. This could be described as a supplementary vehicle, which can help to cut costs and save time.
The Company Directors Disqualification Act has been in operation for nearly 14 years, and experience has shown that it could benefit from a little attention. We are taking this opportunity to make some technical amendments to improve its clarity, effectiveness and efficiency. Among other things, the Bill will make it clear that disqualification represents an absolute bar on a person acting as an insolvency practitioner. I hope that the hon. Member for Somerton and Frome heard that, because I know that he is deeply involved in researching the subject, but in case he did not, I shall read it out again. Among other things, the Bill will make it clear that disqualification represents an absolute bar on a person acting as an insolvency practitioner.
§ Mr. David Heath
I am grateful to the Minister—although he did not need to read that passage twice, 167 because I heard it the first time. It does not, however, address the issue that concerns me—the difficulty caused by malpractice on the part of a practitioner in insolvency. It stops someone who has previously been disqualified becoming an insolvency practitioner, but it does not deal with the specific case of which I am thinking. It sounds to me as if the Bill does not cover the area involved, and I look forward to legislation that does.
§ Dr. Howells
The hon. Gentleman should contact the regulatory body governing the insolvency practitioner concerned, with a view to its investigating. There are numerous means whereby practitioners can be disciplined, as they should be if they are guilty of misdemeanours. We are not entirely the prey of practitioners who may be involved in such activities; means of redress already exist.
§ Mr. Bercow
Given that there were 270 more disqualification orders in 1999 than there were in 1997, can the Minister give us some indication of how many of those 270 were contested, and how many of the 1,489 in 1999 were contested, so that we can have an idea of the extent of the disputation and of the delay before the granting of the orders?
§ Dr. Howells
I cannot give the hon. Gentleman the figures, but I shall certainly procure them for him.
The bar that will be placed on a person acting as an insolvency practitioner redefines the court to which an application for a disqualification order should be made. It also redefines the court to which an application for permission to act as a director while disqualified should be made. Disqualification orders made in Northern Ireland will be given the same effect in Great Britain as those made here. That will increase the protection provided by disqualification orders.
Let me now deal with the question of reporting offences. When reporting suspicions of criminal misconduct by company directors and members under section 218 of the Insolvency Act, the liquidator in a voluntary winding-up in England and Wales does so to the Director of Public Prosecutions. The DPP can then refer such reports to the Secretary of State for investigation. We think that it would be far more sensible for those reports to be made to the Secretary of State in the first place, and that is what we provide for in the Bill. That will streamline the process and ensure that misconduct is dealt with sooner rather than later.
§ Mr. Richard Livsey (Brecon and Radnorshire)
The Minister will know that, in certain circumstances, it is difficult to get an accurate fix on true accounting by accountants in order to establish what misconduct the directors have committed. Has he any proposals to enforce the production of accurate accounts within a specified time limit so that the case can be proved?
§ Dr. Howells
The hon. Gentleman's point is one of the central themes of the decision to institute an independent company law review. It is important that such transparency is at the heart of any changes made to company law. I know very well the grief and difficulty of some of his constituents resulting from apparently creative accounting in a current case. We are looking at the matter carefully.
168 I do not want to pre-empt the publication of the independent review. That is a major piece of work and will be an important quarry from which we can take material to ensure that such problems are properly addressed in company law.
I return to the reporting of offences. When investigating reports, the Secretary of State can use Companies Acts investigation powers, and section 219 of the Insolvency Act purports to allow answers obtained by use of compulsory powers to be used in evidence. That is clearly contrary to the decision of the European Court of Human Rights in the case of Saunders v. the United Kingdom, and we are taking the opportunity to put the situation right.
The Administration of Insolvent Estates of Deceased Persons Order came into force at the end of 1986. Broadly, the intention was that all the assets that a debtor owned immediately before his death should be available to satisfy the claims of his creditors in insolvency proceedings started after his death. It was thought that this would include his interest in any jointly owned assets. In this way, the situation in all insolvencies would be the same.
However, a decision in the Court of Appeal in 1994 in the case re Palmer (Deceased) established that the order-making power contained in section 421 of the Insolvency Act did not bring about that result. I need not trouble the House with the details of that case. Suffice it to say that its result is that property of which the debtor was a joint owner passes on his death to the remaining joint owner or owners under supervisorship rules and is not available to his creditors.
Of course, substantial assets may be involved. We do not think it right that creditors' rights can be dependent on the mere chance of whether the debtor is alive or dead when they need to have recourse to him. We are therefore taking the opportunity to address the issue and by doing so, we will, so far as is possible, restore a level playing field and create legal certainty in this area. However, we will introduce amendments to the relevant provision in the Bill because difficulties with the current text need to be addressed.
We propose that clause 11 should be amended so that the trustee of a deceased insolvent's estate should be able to apply to court for an order against the surviving joint owner for the purpose of securing that the debts and liabilities of the estate are met. The court will have discretion to make an order for a sum not exceeding the value lost to the estate.
In England and Wales, it is a requirement that liquidators of companies and trustees in bankruptcy pay funds from the realisation of assets into the insolvency services account—the ISA—at the Bank of England. For many years, the law has allowed funds held in that account on behalf of insolvent companies to be invested in Government securities for the benefit of the estate. In addition, funds of £2,000 or more remaining in the company's account attract interest at the rate of 3.5 per cent. a year. In that way, the company and its creditors and shareholders can receive a benefit from the use of the funds until they are ready to be distributed.
For reasons that are now shrouded in the mists of history, similar provisions have never applied in relation to bankruptcy estate funds. There is clearly an anomaly, which the Bill allows us to remove.
169 On cross-border insolvency—the hon. Member for Buckingham (Mr. Bercow), who raised the matter, seems to have left the Chamber—
§ Dr. Howells
Many businesses operate across national boundaries. That phenomenon is likely to expand considerably in the future, and can give rise to problems when a business fails, because some countries are not always willing to recognise foreign insolvency proceedings. That can make the recovery of assets difficult, and sometimes impossible. The absence of any internationally accepted measures to deal with cross-border insolvencies can make the handling of such cases uncertain, inefficient and often very costly. Clearly, that cannot be in the best interests of the creditors.
In 1997, the United Nations adopted a model law on cross-border insolvency. The United Kingdom played a part in developing that model law, and there is now a concerted push to implement the law in countries such as the United States, South Africa, Canada, Australia and New Zealand, but there is a degree of reluctance to act until the intentions of other countries become clear.
The order-making powers contained in the Bill will enable us to implement the model law in this country. We think that that is the best way to proceed. It will give a clear indication of our intentions, and it will mean that that can be done at a more measured pace than would be possible if the detailed measures were included in the Bill. Importantly, it will allow for detailed consideration of what should be done, and for appropriate consultation to take place before the measure is brought back to Parliament for consideration.
We have given careful consideration to the measures in the Bill. The over-arching purpose of them all is to improve confidence in the marketplace. We believe that improved confidence will contribute to the creation of an environment that will encourage enterprise. I am therefore pleased to commend the Bill to the House.
§ Mr. Richard Page (South-West Hertfordshire)
I know that you have occasionally shown an interest in the equine world, Mr. Deputy Speaker. I do not know whether you have ever gone to a horse sale and seen the yearlings going round the sale ring. Occasionally, one can look at a yearling and immediately identify the sire. There are some stallions that have the ability to imprint their characteristics on their foals.
The Bill has all the imprint of a Department of Trade and Industry Bill—the best of intentions out of muddle and confusion. [Interruption.] I have sympathy with the Minister, and he may well laugh nervously, but is it sensible for the Bill to be before the House at the same time as the Government are conducting a review of the Insolvency Service, the very service with which the Bill deals?
I know that the Minister tried to explain that away, as he recognises it as a weak point in his argument. Why did not the review start in 1997, so that the Bill could be up 170 to date and deal with the matters arising from that review? One or two questions have already probed the Minister's defence, and we were told that those matters will be dealt with by amendments. The Minister said that amendments would be introduced, and pointed out possible problems with the international scene. The Bill may make the United Kingdom less attractive for business.
Before we even start, the Bill is in trouble. I do not blame the Government for trying to implement a manifesto commitment—all credit to them for doing so.
I remember that when we returned after the general election, and many hon. Members, who are now in opposition, were given more time with our families, the Government rushed forward with a Statutory Right of Interest Bill. It was supposed to solve all small businesses' problems with cash flow and money. However, nothing has happened since. The Bill simply disappeared. There were plans for volunteers and aid for sub-post offices throughout the country. That money remains locked in the toils of the European Union.
You would rightly take me to task, Mr. Deputy Speaker, if I went through all the Department of Trade and Industry Bills that failed, and I shall not do that. However, the DTI often provides more spin than substance. How much more spin can we get than that provided by the Government's Small Business Service website, which states:Government continues to reduce the burdens on business caused by regulation.Last year, the Government introduced more regulations than had been introduced in any year of this country's history. They are on track for breaking that record this year.
Flawed and ineffective as the Bill currently is, let us try to make it work. There is only a short time in the spill-over session to try to sort it out. What greater condemnation is there of the Government's legislative programme than that we have to deal with such an important Bill in the spill-over, in a rush to the line to get it done before Parliament is opened for another Session? Ministers should seriously consider their position; the proceedings have been managed appallingly. However, Conservative Members want to attack the problem by trying to be helpful, to make the Bill work and to help our businesses.
We all want businesses that can be saved to be duly rescued. I have some experience of the small business world. I do not know how many DTI Ministers have run a business and had to worry about making it succeed from day to day. I know that it is exceedingly hard to start a business; it takes a year or so to break even, and a further year or so to build up a customer base and start to make money. I also know how easy it is to close down a business at a flick.
I agree with the Minister about the inappropriateness of attempting to introduce a chapter 11 solution in this country at the moment. There is a series of differences between the United Kingdom and the United States, and some are cultural. In the United States, much more equity sharing occurs, and there are many more share options. That is the norm; the process is considered standard. In the United Kingdom, the owner wants to keep everything to himself, and banks have a loan rather than an equity culture. In this country, one can borrow as much money from the bank as one likes as long as one has the assets to back the loan.
171 The current system for a struggling business is a nightmare. The hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd), who has now left the Chamber, made a point about the cost of insolvency practitioners. That is part of the problem. Business men and women are reluctant to go to the bank because there is a fair chance of the manager starting insolvency proceedings. The main source of insolvency proceedings is the actions of a bank.
There is another problem. When a creditor calls in an insolvency practitioner, more often than not there is more meat on the bones than there would be if it was simply a matter of keeping the patient alive. For that reason—I say this with all due modesty—I presented a ten-minute Bill in February last year. It tried to divide responsibilities on insolvency, and provided that an insolvency practitioner who recommended that a company be placed in liquidation would not handle the insolvency. That would hopefully lead to a more relaxed, if not independent, view on the matter.
Several instances have been drawn to my attention of companies that could have been saved if their cases had been properly handled. However, it was more profitable and easier to put those companies into insolvency. With such insolvency comes the death of dreams for many business men and women. The Minister should read my ten-minute Bill before we go into Committee, probably next Tuesday. He will then be able to appreciate the realities that face some businesses when they deal with insolvency.
§ Mr. Bercow
I am especially grateful to my hon. Friend for his confirmation that more than mere bones are required to sustain life in the human body. Does my hon. Friend agree that, in the light of his comments on the dramatically increased regulatory burden under the Government, that it would be helpful—especially if it came from the lips of a typically helpful Minister—if the Government gave an undertaking at this juncture to publish a statement of the annual costs of regulation on British business and of their plans in the ensuing year to reduce that cost?
§ Mr. Page
My hon. Friend tempts me down a path that I would dearly love to follow. The various bodies that represent businesses in this country show escalating evidence of the price of regulation and the burdens on business. However, Mr. Deputy Speaker, you give me a warning glance, and if I were to go into the Government's appalling record in any detail on the regulations that have been heaped on business, you would take me to task. I must therefore pass up my hon. Friend's kind invitation to outline once more the burdens that the Government have placed on our businesses.
I can give my hon. Friend one small crumb of comfort. After the next election, when we introduce our policies, there will be a definite reduction in the number of burdens that have been placed on business. When I made those remarks a year ago, there was a great guffaw of laughter from Labour Members; today there is only a muted titter. It is muted because Labour Members realise that this party is coming back and that we have the policies that this country wants implemented after the general election.
I hope that I shall get unanimous support for my next point. Every hon. Member has experienced constituency cases in which the cost of insolvency practitioners has left 172 little or no money for the creditors. The insolvency practice has changed its name to R3—the Association of Business Recovery Practitioners. I regard that change with some hope that the emphasis in the organisation is starting to be on the recovery of businesses rather than simply on that of creditors' money.
I welcome the main point of the Bill. However, I must register some anxiety about whether it will work in practice. It will mean extra legislation in a year or so. As the Minister has already admitted, the Bill is only a step down the path. I doubt whether the Bill is constructed in such a way as to succeed in returning the wounded to health while not dragging out the lives of the terminally ill, with the consequent reduction of payment to the creditors. We should make no mistake: whoever deals with the case—new-fangled authorised agents or insolvency practitioners—will get their cut first. We must ensure that the system will create real benefit and not simply mean more time, more bureaucracy and more cost.
I have given a general outline of the conditions and problems that face small businesses. Let us consider the specifics of the Bill. The Bill contains several controversial provisions, such as creating a new type of insolvency practitioner who can act as a nominee or supervisor of a voluntary arrangement. It envisages that such a person being authorised by a body, and recognised in turn by the Secretary of State, will satisfy certain security arrangements and requirements and will not be ineligible on certain specified grounds. Those persons need not be licensed insolvency practitioners. There is no need for that to happen because an authorised person would be automatically approved if he was already a licensed insolvency practitioner.
To what extent does a knowledge of insolvency have to be present in order that an individual can qualify to become an authorised person? The Minister started down that route and talked about aspects of the moratorium, both present and future. The new procedure for a moratorium cuts out the role of the court. Under existing law, the company can obtain a moratorium if it petitions the court for an administration order. That is normally heard within four or five days. The court can then continue the moratorium by making an administration order. An individual can obtain a moratorium if an interim order is granted by the court. Again, the court is closely involved at that early stage.
At present, we have an important safeguard. The moratorium imposes extreme restrictions on the creditors, and the court can carefully place the moratoriums. The new proposals dispense with that safeguard. The company or individual will be able to obtain a moratorium without any involvement of a court. Will that be an acceptable safeguard? It is essential that there is public confidence in the integrity and competence of those who will exercise such powers to impose a moratorium on the creditors. I have no doubt that that will be a subject of considerable discussion in Committee.
A further problem arises when a debtor, be it a company or an individual, in financial difficulties seeks the advice of a professional person. In many instances, he may seek the advice of an authorised person. That advice will probably be given free, just as any similar advice is given free by a licensed insolvency practitioner now. It is given free—very few things are free—in the hope and expectation that the person giving the advice will be appointed a nominee, a supervisor, administrator or 173 liquidator in due course, and will be remunerated for doing so. That remuneration will more than make up for the free advice given earlier.
That is how the system works now with licensed insolvency practitioners. I can think of no reason why that should not be how the system will work with authorised persons in future if the relevant provisions are enacted.
A number of authorised persons will be tempted by the hope and expectation of earning remuneration as a nominee or supervisor in due course. They will want to recommend a moratorium and a voluntary arrangement because that is when they will be paid. If they recommend other procedures such as insolvency, bankruptcy, administration or liquidation, they probably will not be paid. The temptation is therefore a real one, and I believe a great one. It is a temptation that is in direct conflict with the one that faces insolvency practitioners now. Will some of the authorised persons succumb to the temptation? That could be an inevitable consequence of human nature. Is there a real risk that in many instances an authorised person will wrongly advise the debtor to propose a voluntary arrangement because that is the only way in which he will be paid?
Licensed insolvency practitioners may recommend one sort of insolvency procedure instead of another because they are more likely to be appointed as the insolvency holder in due course. That is likely to happen also with authorised practitioners, who will not be paid at all if they recommend insolvency procedures for which they are not qualified. I do not say that that will happen in every case; it may happen in only a few. However, we must not forget that in these instances debtors are particularly vulnerable. When a man or a woman sees his or her company much at risk and likely to go down after perhaps many years of dedication and hard work, it is human nature that he or she is liable to clutch at any straw.
There is the other side of the coin. Am I being unduly cynical to suggest that companies in financial difficulties may well hunt about from authorised person to authorised person until they land on someone who will recommend a moratorium?
The one part of the Bill with which we entirely agree—the Minister will be delighted to hear this—is the amending of the Company Directors Disqualification Act 1986. That will confer a power to accept undertakings of the Secretary of State. We believe that this will be of benefit and of help. We look forward to seeing that part of the Bill pass through Committee sweetly and smoothly.
There is a curiosity in the Bill which I believe will make it difficult to operate. My understanding of the conditions for granting a moratorium is that the nominee of a company should be satisfied by the directors that it is likely to have sufficient funds during the moratorium to carry out its business. I must challenge the Minister to explain why it is envisaged in the Bill that a company that secures a moratorium might need to borrow money to finance operations, and must be in a position to offer security to potential lenders to the benefit of the company with the sanction of the nominee and the supervisor.
There is a difficulty in envisaging a situation in which a corporate lender will make loans available when the directors of the borrowing company must act honestly in the interests of their own company and under the 174 supervision of a nominee, who may not be a qualified insolvency practitioner even though he or she may have the dubious advantage of being anointed by the Secretary of State.
If the lending institution makes an erroneous judgment, a security may be unenforceable. I wonder how many of the creditors, and the banks in particular, will be tempted down that route.
Like the curate's egg, the Bill is good in parts. It will bring modest benefits and they will be welcome. The fundamental issue in insolvency law is being addressed in the consultation process following on from the publication last year of the Insolvency Service review of company rescue and business reconstruction mechanisms. The Bill is only one step down that path. It would have been much better if it had been tied in to the conclusion of that review rather than being part of a piecemeal operation.
§ Mr. Martin O'Neill (Ochil)
I welcome the Bill. I realise that it is modest in content and that a review is taking place. I think that we would have complained had we had a modest Bill and no review. We would have complained even more had we had no Bill.
When we look to the United States, we see the success of its economy and its ability to sustain new business growth and to encourage new businesses to be established. In large part, the business community is self-confident enough to support new enterprise. The culture in this country is more concerned about chasing assets than about preserving businesses. It is equally concerned about punishing short-term business failure, rather than seeking to recognise potential entrepreneurial acumen. It is in that light that we should recognise that the Bill is welcome.
We are not talking about changing the fundamental legal structure in one fell swoop. We cannot with one axe hack away the centuries of prejudice which had people being sent to the debtors' prison for business failure. Although there has been an increase in the recognition or identification of criminal elements and directors, the overwhelming majority of businesses go bust through incompetence or bad luck, not through criminal activities. The law should, in its way, take account of that.
We no longer live in Dickensian times, where a Micawberish style of expenditure would result in being sent to prison. Although people, are thankfully, no longer sent to prison for bankruptcies brought about through bad luck or incompetence, they are nevertheless punished in such a way that they are denied the opportunity to start again.
When I talk to people in the United States who are engaged in supporting new businesses, and discuss with venture capitalists how they look at the matter and what they are prepared to do to support new businesses, the conversation quickly moves towards a line that I heard repeatedly on visits to the United States. They often say that they would rather support someone whose business has failed once, although perhaps not two or three times. They do not want serial failures, but they recognise that, if people have had one or two spats, more often than not those spats will result in them being more aware, better educated and better able to address the challenges.
We know that, in the first year, businesses are not just undercapitalised and underfinanced. In most instances, they are frightened of the day they never saw because of 175 the draconian punishments that are meted out to those who are deemed to have failed or to be near to failure. We could change the law and have innumerable inquiries, but we must try to change the culture in this country and the way in which it inhibits enterprise and holds back not just enterprise but the willingness of people with money to support those who need that resource to get their businesses going.
Last year, the Select Committee on Trade and Industry, which I have the honour of chairing, was invited to comment on some of the draft clauses. A rather grudging consultative process was entered into. We had only a few weeks to do it. It was a highly inconvenient time. It had a wee bit of the token about it; the response to some of the points that we made suggested that, but I will not labour that point. However, I will happily wait until after the general election for some thorough reform of insolvency procedures. I hope that it will be within the general company legislation that the next Labour Government are committed to introducing. Like so many of the Government's policies for enterprise and competitiveness, it will be welcomed by the business community.
The ritual ranting about regulation is different from the complaints that we used to hear about the uncertainties of the business cycle, the problems of inflation or the vagaries of interest rate changes. In the past two or three years, we have had exactly the stability that small businesses need to flourish, but they need other things as well.
I take the point about the insolvency profession: it is reminiscent of the Boilermakers Society of days of old. It alone had the means and skills whereby the job could be carried out. It is strange that, when Baroness Thatcher and her colleagues tried to end restrictive practices, they seemed to have a certain blindness when it came to organisations in the business sector. They did not seem to have the same 20:20 vision that they had with the trade union and labour movement, but the fact that we recognise the position of the insolvency profession is welcome. That should be widened, and more suitably qualified individuals should be capable of being involved.
I take the point—it is interesting—that several hon. Members have made about rogue elements within the insolvency profession. There are means whereby they can be dealt with, but it is difficult, in the middle of insolvency, for individuals who are not fulfilling their duties in a proper and fit way to be stopped. I suspect that we shall have to wait for subsequent legislation to deal with that. Nevertheless, we must be helpful.
Some of us were a wee bit surprised that section 218 of the Insolvency Act 1986 has achieved a place in the legislation. Nevertheless, we could look at it. It might have been possible to consider the matter further if we had more time—or if my hon. Friends had more time, because I do not think that I will be able to participate in the Standing Committee, and I am giving no indication of a willingness so to do. I hope that the Whips Office takes due note of that in the weeks that lie ahead. I am pleased that no Whips are in the Chamber at the moment.
Quite early in the life of the Government, the then Minister, my hon. Friend the Member for Edinburgh, South (Mr. Griffiths), said that he hoped that legislation would be introduced. Two years ago, the then Secretary of State for Trade and Industry, now the Secretary of State 176 for Northern Ireland, indicated in his important White Paper that legislation would be forthcoming. Some 14 months later, the Bill saw the light of day.
The Bill started in late February in the House of Lords. It is not that bad that it reached this House by July, but it is unfortunate that there will probably be insufficient time to deal with all its inadequacies. Given the desire for change in the House, it would probably get out of control if we had too much time.
I imagine that, as the Bill will not be unduly controversial, it will be possible for it to be dealt with, but I hope that the Minister will look at the financing of a company voluntary administration. My colleagues on the Select Committee raised concerns about the company and its landlord, its utility suppliers and those who lease it the tools of its trade. We were not satisfied that the Bill, modest though it is, was too narrow to deal with those issues. An opportunity has been lost. I would be doing my colleagues an injustice if I did not raise those matters with the Minister. They should be dealt with with greater urgency.
Let me deal with one small point that came up: the question of deceased debtors. There is a human dimension to the process: matters relating, for example, to the matrimonial home of a deceased debtor and the risk that the title to such homes may be put in doubt by the Bill. We would like clarification. Often, when a business person dies, the spouse imagines that he or she still has the assets of a home but, for whatever reasons, those can be arrested. We could have dealt with that in advance of some wide-ranging inquiry.
As I said earlier, legislation will not resolve the big questions. That will involve a cultural change in our country's business community. However, on some specific issues, where personal and familial problems could be avoided, my hon. Friend the Minister could take the opportunity afforded in Committee to look again. I realise that there are time problems, which are always part of the difficulty.
This is not the single most important piece of company legislation that the House will face in the next few years. It is a modest but important step because it shows the business community that the Government and the Department of Trade and Industry are on the job and are continuing to pursue the wretched business of insolvency in the United Kingdom, the suffering that it causes to families and individual business people and the way it affects the confidence of those who, with a wee bit better luck and a little chance, might have been able to turn their businesses round or keep them going a bit longer—perhaps the extra three months afforded by the moratorium. It might offer them the opportunity to obtain slightly better advice than they have had in the past. Those things will make a difference in a number of instances, and if that can help to remove the stigma of short-term failure from so many of our potential entrepreneurs, it will have gone a long way to helping the business community and enterprise in this country.
§ Dr. Vincent Cable (Twickenham)
I thank the Minister for guiding us through some esoteric issues in this extremely specialised area of commercial law. As the Minister rapidly read through his highly technical brief, as a non-lawyer and non-accountant I felt a little like the swimmer from Equatorial Guinea in the Olympic games, struggling desperately to keep afloat.
177 As this is a Second Reading, the appropriate approach, as the hon. Member for Ochil (Mr. O'Neill) has already suggested, is to look at the big picture and the big messages that emerge from this specialised and limited piece of legislation. It is essentially about trying to restore the balance between lenders and borrowers and between rentier and entrepreneur. The hon. Member for Ochil referred to the situation in the United States. An interesting study in a recent edition of Accountancy Age showed that, of all the major western countries, Britain has the most creditor-friendly regime. By contrast, the United States has the most creditor-unfriendly regime, which is most friendly to equity and shareholders. The United States has stay-on assets for companies in extreme cash-flow difficulties and it is possible for management to remain in decision-making positions and to manage a crisis in a way that is not possible here.
It was clear from his speech just over a year ago that the then Secretary of State for Trade and Industry, now the Secretary of State for Northern Ireland, and his right hon. Friend the Chancellor of the Exchequer were endeavouring to push British legislation in a north Atlantic direction. This Bill is a small step on the way.
I have not had many cases in my constituency, but they all illustrate the big imbalance between lender and borrower in personal and corporate insolvencies and bankruptcies. The lenders are often commercial banks, which have a powerful position in such a situation. They will have a charge on the assets and there will often be a personal guarantee. Their business is highly profitable and secure, which is why the Government have referred their small lending business to the Office of Fair Trading following the Cruickshank report. We often see cases in which the commercial banks are trigger happy and will precipitate an insolvency in a way that a creditor who has much more self-interest with a company will not. We might have a trigger-happy precipitation of a crisis at one end of the chain, leading to thorough, often vindictive, pursuit of assets at the other. If the legislation, through the three-month moratorium, redresses that balance even a little by reducing costs by removing the need for court proceedings, it will have made a useful contribution.
The legislation seems broadly satisfactory, but I want to put a few questions to the Minister. My first question follows a point made by the hon. Member for South-West Hertfordshire (Mr. Page) on why this limited measure is being introduced in isolation from other inquiries. He mentioned one, which is relevant—the insolvency working party. It is not clear why the findings of that working party are not being assimilated into the legislation and why the legislation cannot wait for that. In addition, an inquiry into bankruptcy law has the important task of determining the difference between crooks and honest business failures. That important distinction is germane to the issue of business disqualification. I am not entirely clear why that inquiry cannot complete its business before the whole of insolvency and bankruptcy law is brought up to date in a consistent way. I agree with the hon. Member for South-West Hertfordshire that there is a process question to answer.
I want to ask about the international ramifications. The legislation tries to deal with the problem of globalisation of business, such as cross-border lending and cross-border ownership, through encouragement of the model 178 agreements under the United Nations Commission on International Trade Law. That seems to be a sensible approach. I do not fully understand the relationship between the global approach to the harmonisation or reconciliation of different insolvency procedures with the European directive—it is taking place in parallel—that comes into force at the end of 2002. Are the two approaches consistent? Which supersedes which and what is the relationship between them? I do not know the answer. That is an important question if we are talking about the compatibility of regulation.
On the specifics of the Bill, my colleagues in the other place, who are much more knowledgeable about this than I am, have made some particular points, which I shall rehearse for the record. Lord Sharman, who has a good deal of experience as a practitioner, has drawn attention to problems that arise from the issue of nominees. He says that, although it may be desirable to have nominees who are not qualified insolvency practitioners on grounds of cost—that issue has been raised already—there are powerful arguments for involving qualified people. One of their roles is to advise an insolvent company on the variety of business options and it is important that those concerned are properly qualified. There is a pro and a con there.
Lord Razzall made the point that, when we are talking about the disqualification of directors, we are talking about proceedings that are often as much criminal as civil. There is usually a combination of the two. If people are to be disqualified on the grounds of possible criminal activity, the principles of the European convention on human rights begin to apply and a more onerous standard of proof is required. As it was not mentioned in the Minister's introductory remarks, it is important to have clarification from him as to how far that issue has been thought through.
The legislation seems uncontentious and desirable and has our support in principle, but technical issues and possible issues of procedure regarding parallel inquiries need to be answered.
§ Mr. Austin Mitchell (Great Grimsby)
This is a fairly small and simple measure—which makes it even more surprising that the hon. Member for South-West Hertfordshire (Mr. Page) has made such heavy weather of it. I could not understand what he was getting at. We can welcome this legislation in its own right because it makes some small improvement in the current situation, and that is to be welcomed.
It has to be pointed out, however, that that improvement is only a minuscule nibble at a major problem that the Government should be tackling. There is a pressing need for proper and effective regulation of accountancy practitioners and for redressing the current odds that favour those who have the money and those who put up the money—particularly the banks—against small businesses which are struggling to survive. The current odds are very unfair and very unreasonable. We need to regulate the affairs of the insolvency practitioners and control their activities so that small businesses are protected rather than used as fee-generating material.
The 1992 Labour party manifesto dealt with the need to redress those odds, and our 1997 business manifesto dealt with the need for independent regulation of 179 insolvency. Since then, however, we have become very friendly with the business community and those issues have been shelved. We are being presented not with proposals for independent regulation, but with a series of miniature, partial measures—such as this Bill and the shabby Limited Liability Partnerships Act 2000, which we debated some months ago in an equally excitable and crowded House.
Vested interests have played the dominant role in the passage of this type of legislation. The consultations on this Bill have been dominated by the vested interests. As my hon. Friend the Member for Ochil (Mr. O'Neill) said, the consultations of the Trade and Industry Committee on the Bill were conducted at break-neck speed—so that there could not be proper consultation. The consultations were also dominated again by the vested interests, such as insolvency practitioners and banks, which earn the fees and at whose mercy small businesses lie.
In reading the report of the debate on the Bill in the other place, I see that those with great names such as Kingsland and Sharman—valiant defenders of the working class and the poor in these matters—made the running and won concessions from the Government. However, the debate is dominated already by vested interests to which a Labour Government should not be making concessions. Now, the Minister tells us that there have been last-minute representations from those vested interests to change the legislation's proposed regulations.
Although small businesses are struggling, and some of them are dying, we seem to want to consult the vultures that are hovering overhead. We seem to prefer a society for the defence of vultures to a society that protects small businesses or stakeholders, such as employees, unions, consumers and suppliers. Stakeholders want to load the odds in favour of the survival of small companies, but they are not being involved in the consultation.
The victims of the vested interests—the small businesses closed down by big money—also were not included in the consultations. Mr. Barry Chapman, managing director of J. S. Bass, of Manchester, provides the classic example of a business being closed down by the insolvency practitioners and the banks working in collusion and using force majeure. Voices such as Mr. Chapman's have not been heard in any of the consultations.
The Bankruptcy Association of Great Britain and Ireland, which is based in Hull, was not consulted in the proceedings. Such consultation was neglected in favour of gimmicks. Although issues such as establishing a rescue culture and tackling rogue directors need to be addressed, they should be addressed within an over-arching regulatory framework and not in minimal measures such as this Bill.
The safeguards that have been provided so far in our minimalist legislation safeguard only vested interests, which we are anxious not to offend greatly. We are particularly anxious not to offend the banks, which have the monstrous advantage of being able to impose a floating charge. Such a charge is unknown in most other systems; it is certainly unknown in the United States. It allows banks to crucify small businesses and to grab back money that they loan for development. Even a change in bank manager can produce an entirely different climate for small businesses. Here we are, however, loading the odds in favour of those types of large institutions, instead of doing something about the major scandals.
180 Banks have a habit of installing an accountancy firm in a small business, asking it to report on the state of that business, and, subsequently—after the accountancy firm recommends liquidation—giving the insolvency work to the insolvency arm of that same accountancy firm. That is a crying scandal that should have been dealt with. The Royal Bank of Scotland has dealt with it by refusing to give both types of business to one firm, resulting in a reduction not only in the number of liquidations, but in the costs of the overall operation. We should be making that type of provision in this legislation.
We are consulting the vultures and giving them more power, rather than safeguarding the interests of the victim in the desert who is crawling to shade and safety. The victim might make it to safety if the vultures were not being helped in our insolvency vulture culture. We should be helping the victims to survive, but we are only offering them a little piece of Elastoplast.
I should like to deal with a few problems in the legislation. Hon. Members are right to praise provision of an extendable 28-day moratorium. However, why have only 28 days been provided? That is a very short time to allow businesses to put their affairs in order and to make a rescue plan. The United States chapter 11 procedure provides for 90 days, and that makes more sense. We should allow more time.
Additionally, why is that 28-day period provided only for small businesses with fewer than 50 employees? If it is sauce for the small goose, surely it is also sauce for the big gander. Why cannot that protection be extended to medium and large-sized businesses? What is the problem? If we agree that there should be a rescue culture, and that the aim should be to keep the company going, to sustain jobs and to maintain the nexus of stakeholder connections, why is the provision made only for small businesses?
The Minister told us that the provision is better than chapter 11. I do not think it is, for reasons that I shall explain later. However, if it is better than chapter 11, surely it should be extended to medium and large-sized enterprises, which affect many more jobs and the health of many more communities. Perhaps the Minister will tell us how many firms will be saved by the current proposal, and how many would be saved if the provision were extended to medium and large-sized businesses. If the provision is effective, it should be made available to every business.
My preference is for a 90-day provision, as under chapter 11 in the United States, which gives companies such as Chrysler a chance to reorganise and restructure their finances, to get a grip on things and to come through. That is what we should do. We should put the onus on bringing the company through. We have a grabbing insolvency culture, in which people say, "Let's get our hands on the assets and flog them off as much as we can. Let's keep things going as long as we can to get the fees as high as we can." The fees are usually exorbitant. The culture should be entirely the opposite; it should be one of keeping firms going, and chapter 11 provides for that.
As we heard earlier, lawyers have to be paid and chapter 11 is subject to all kinds of constraint, but so is the procedure under the Bill. The new practitioners will have to be paid considerable sums to get the procedure going. Either way, professional assistance and support must be financed, but chapter 11 seems to be more fundamental and better because it changes the whole culture.
181 The Bill will provide minimal protection, which will neither change attitudes much nor provide generous help to small companies. Chapter 11 changes the culture and places the onus on survival, so why not use chapter 11 provisions for medium and large businesses?
We promised before we came to power to promote a stakeholder culture. We should indeed promote a stakeholder culture, but the employees of small businesses are crucial to such a culture. The employees may or may not be organised in unions, but they should be part of the consultative process to institute the new procedures. Why are they excluded from them? Why is the only interest considered, especially by the banks involved, that of taking the decision for a creditor's voluntary arrangement? That is a matter of vital concern to the employees, both part-time and full-time. Their jobs are affected; they have a vital stake; so why cannot they be consulted?
Employees will be taken into account in the insolvency proceedings because they will become creditors if things do not work out, even if they were not notified of the arrangements. Why cannot they be included in the consultative procedure? The creditors, part-time employees, pieceworkers and subcontractors working from home all need to participate and be specifically recognised in the process. They need specific protection, but the Bill will not give it to them. That is a serious flaw.
The vested interests in the procedure are still too strong. If a company runs into difficulty and its directors think that it is trading while insolvent, they are personally liable for its debts. Therefore, at the first sign of a problem, they will rush to an insolvency practitioner, saying, "What are we going to do?" The practitioner will charge them a fee, thus compounding the problem. He may refer the directors to the new supervisor or nominee provided for in the Bill, who will charge another fee.
The insolvency practitioner who the directors approach is unlikely to be anxious to avoid the opportunity to make money by advising them to use a voluntary arrangement and, subsequently, turning it into an administration, from which he will receive fees. Such scams have been going on for 20 years or more, and I have constantly notified the Department about them, but no action results.
Let us imagine that a company finds itself in difficulty. Significant creditors will come together and the banks will dominate the proceedings. It is likely that the banks will not agree to a voluntary arrangement unless they first receive a report from an accountant. As now, they will want to see an accountant's report. Therefore, rather than giving a clean bill of health, the accountant will have a vested interest to get subsequent work for his firm. He will suggest that if a company has problems, it should consider a voluntary arrangement, which involves fees, or that it should be put into liquidation, which will provide more fees for his firm. Vested interests are still involved.
We have not dealt with the problem of restraining the vested interests and requiring that those people in a firm who provide accountancy advice should not deal with the voluntary arrangement or the insolvency if a company goes into liquidation. There is a definite pressure on those people to recommend a certain course of action and that their firm should carry out the work.
182 I have corresponded for a long period with the hapless, pathetic regulators in insolvency and with the DTI about the J.S. Bass case in Manchester. In that case, there was clearly a ramp between Barclays bank and Ernst and Whinney—subsequently Ernst and Young—which was put in to write the report, recommend liquidation, grab the fees and liquidate the company, even though its assets were substantially greater than its debts, so putting it out of business. That firm was bigger than one with 50 employees as referred to in the Bill, so it would not benefit from such arrangements. However, pressures to do what was done in that case still exist and remain unregulated, which will affect the voluntary arrangements, too. We shall not provide effective protection unless we regulate and remove that anomaly so that those who carry out the investigation should not be involved in the other arrangements.
Will the nominee or supervisor—the man who will handle the turning around of a company—have a duty of care and, if so, to whom will it be owed? Will it be owed to the individual creditors or a creditor, perhaps the bank, or to the creditors collectively? Will it be owed to individual shareholders, to shareholders collectively, or to other stakeholders?
The Minister made an important point. I had better call him my hon. Friend; I have every confidence in him as a Minister and he makes the points very well. However, he is effectively expanding a state guaranteed market. The insolvency practitioners will have a monopoly; they will have a state guarantee.
An answer to a parliamentary question that I tabled states that there are only 1,800 licensed practitioners, of whom 1,270 are currently taking appointments. That is a very small number of insolvency practitioners. There is a pressing need to regulate them, as well as adding to their number under the Bill. Regulation should ensure that practitioners publish meaningful information about their affairs, as should the new nominees. What is their record on saving businesses and rescuing jobs? What fees do they charge? Such information should be in the public domain so that a company in difficulty, which is considering bringing in a nominee and submitting itself to a voluntary arrangement, knows who to turn to for help, what support is available and what the fees will be. What information will be published? The public must be aware of such matters.
If the advice and support service is to be restricted to small firms only, why cannot the DTI provide it? Why must it be provided by another group of practitioners? Why cannot there be fair competition from the public sector? Those involved will be subject to professional regulation, but it will not extend to fees. The Association for Accountancy and Business Affairs has published a series of examples of that. I recommend to the Minister our exciting publication entitled, "Insolvent Abuse: Regulating the Insolvency Industry", which shows that the fees charged go as high as £500 an hour. That is not peanuts. When will such huge charges be regulated? They have a crucial effect on a small firm's ability to survive.
When will the insolvency profession be regulated effectively? My hon. Friend has said that a new regulator will be appointed. At present, 1,800 practitioners are regulated by eight professional bodies, and the Department of Trade and Industry. I argue that that structure should be simplified to one independent regulator, but the Government propose to add another, 183 non-independent, regulator at the apex of the structure. That regulator will not have the power to deal with individual cases and complaint investigation procedures, and there will not be the ombudsman necessary for effective appeals. The need for an effective appeals machinery, for effective redress and the control of fees, is even more acute for small businesses. The Bill gives small businesses additional help towards survival, but we should regulate the insolvency profession at the same time. The culture in that profession is to grab the fees, and to make them as high as possible.
It is important to regulate insolvency practitioners. Voluntary arrangements have been in place since 1986. My hon. Friend gave the House figures that show that such arrangements are rarely invoked. In 1998, 11,771 companies were wound up, of which only 470 went into a voluntary arrangement. That shows, tellingly, that the provision made in 1986 is not much used.
My hon. Friend hopes that the Bill will cause that provision to be used more widely, and so do I, but is the provision little used because people are scared of the insolvency profession and the fees that are charged? Are they worried that they will not receive reasonable and fair treatment? There is no right of appeal about the treatment that they receive and no way to contest the fees that are imposed. Is it not possible that people are put off entering voluntary arrangements more by such factors than by the difficulties that the Bill is designed to ease? I believe that the central problems are the scale of fees and the lack of regulation.
In conclusion, I am worried that the Bill and its fast-track disqualification procedures will conflict with the human rights legislation to which we now are subject.
§ Dr. Howells
I am pleased that my hon. Friend has raised the vexed question of human rights. However, I can assure him that the Department has studied the matter in depth, and we believe that the Bill is compatible with the European convention on human rights.
§ Mr. Mitchell
I thank my hon. Friend for that intervention, and I hope that that is the case, but the new procedure makes the Department of Trade and Industry investigator, judge, jury and deal maker in the agreements under which wealthy directors will disqualify themselves. The Bill does not say that the Secretary of State will have to publish a full transcript of any deal struck with such directors. In fact, the convictions in this country of the directors involved in the Guinness affair have been overturned recently by the European Court on the ground that they contravened the convention on human rights in ways similar to those I have described this evening. I am worried about passing a Bill that could be stymied and rendered unenforceable by the appeals that could be generated.
The Bill is a little mouse of a measure. It is welcome—I love small animals. It will bring about an incremental change, but it will not change the insolvency industry's culture, which is loaded far too heavily against small firms and small entrepreneurs, and against survival and in favour of safeguarding the banks and grabbing company assets.
The Bill misses an opportunity in that respect. My hon. Friend accused me, in connection with the Limited Liability Partnerships Bill, of trying to regulate through 184 legislation. However, that would not be necessary if the Department of Trade and Industry were to do its job and impose a proper framework of regulation on this benighted industry.
§ 7.6 pm
§ Mr. Christopher Chope (Christchurch)
I am delighted to follow the hon. Member for Great Grimsby (Mr. Mitchell). When I worked for Ernst and Young, partners in that firm made it clear that the hon. Gentleman was held in great esteem. There was respect, if not reverence, for his views and for his ability to get publicity for them in the accountancy press.
I hope that the Minister will respond to one of the questions that the hon. Member for Great Grimsby asked. Why is the Bill not being extended to cover medium-sized and large businesses? One of the rationales for introducing the Bill is that it will save jobs. Only 0.5 per cent. of all businesses have more than 100 employees, but the businesses excluded from the terms of the Bill account for about 55.7 per cent. of business turnover in the United Kingdom, and employ 48.8 per cent. of those employed in this country.
Extending the provisions of the Bill to larger companies would have a very considerable impact. As the hon. Gentleman has outlined, it might be more realistic to apply them to larger businesses than to very small ones. I am grateful to the Federation of Small Businesses for the data on the proportion of people employed in businesses that are much larger than those specified in the Bill as small businesses.
I support what my hon. Friend the Member for South-West Hertfordshire (Mr. Page) said about the Bill being considered so late in the parliamentary Session. It need not have happened that way. In appendix 7 on page 58 of the second report from the Select Committee on Trade and Industry, the evidence given on 20 October 1999 by the permanent secretary at the Department is printed. Trying to justify the fact that there had been a minimum period of consultation and a very small number of consultees, he said:You will know from the copy consultation letter sent to the Committee that it is Ministers' hope to be able to introduce an Insolvency Bill at a relatively early stage in the 1999–2000 session of Parliament.The Bill was included in the Queen's Speech of 17 November 1999, but it was not introduced into the other place until 3 February this year. The Bill received its Second Reading on 4 April, and was considered by a Committee of the whole House for one day on 15 June. The Report stage took place on 3 July, and Third Reading on 26 July.
The Minister was right to be rather defensive when he began his remarks by referring to the pertinent observations of the right hon. Member for Chesterfield (Mr. Benn) in yesterday's debate. The right hon. Gentleman memorably said that perhaps this should be called the Bankruptcy Bill [Commons] rather than the Insolvency Bill [Lords]. His point was that we should be more inclined to hold the Executive to account for the waste of legislative time, which is precious indeed.
This is an example of the Government saying that they will legislate at speed but instead legislating very slowly and delaying the consultation process. Then, as the right hon. Gentleman pointed out, after a 12-week recess, the 185 first full day's debate must be given over to this Bill which, although everyone accepts it is important, is not the most important issue facing the country. Yet we have to spend Tuesday debating it because the Committee of Selection meets on Wednesday, and if the Bill is not given a Second Reading before then, the Committee will not be able to decide on the membership of the Standing Committee to meet next week. For the Government to have created a situation in which this House has to debate the least important legislation at the very beginning of the spill-over Session is an indictment of the Executive. We should not allow it to happen again and it should certainly not go unremarked by the House. I therefore agree with the right hon. Gentleman's remarks.
The Minister has told us that the legislation is proceeding ahead of decisions on two broader reviews, initiated by the Government, on company rescue and personal bankruptcy. It is a pity that the Government seem to be the author of the delay that has resulted in this piecemeal legislation. Let me illustrate my point.
In December 1998, when the right hon. Member for Hartlepool (Mr. Mandelson), was Secretary of State for Trade and Industry, he launched the competitiveness White Paper. He announced reviews into company rescue and the stigma of bankruptcy. Under that White Paper implementation plan, the idea was that the company rescue review would be completed by July 1999. If it had been, the results could have been fed in to the legislation. Needless to say, it was not completed by July 1999, and the resulting delays mean that the results of the review are not available.
On the reform of bankruptcy law, the same White Paper in December 1998 announced by the Secretary of State was re-announced on 2 February 1999. He said that the review would report to him by the end of April 1999. Officials did, indeed, report to Ministers by the end of April 1999. The Secretary of State took rather a long time to consider their views—he did not make an announcement until 2 July. In other words, it took him the whole of May and June to decide what to do in the light of a review which had itself taken only two months.
The right hon. Gentleman then announced that there would be further consultation. The announcement was made at a big event at which the right hon. Gentleman was obviously short of other things to say. He was giving a speech to a joint United States embassy, Department of Trade and Industry and Treasury conference on "Fostering Enterprise—the American Experience". He said:I now plan to consult on this proposal and on the possibility of differentiating between bankrupts who have been simply unfortunate and those who are guilty of unacceptable behaviour.Fine—but then what happened? We had to wait until 7 April 2000 before he actually issued his consultation document—a further nine-month delay.
The consultation paper was then issued, setting out five options. Consultees were required to respond by 30 June, which they did, yet their responses are apparently still being analysed—or, if they have now been analysed by the Insolvency Service and the information has been given to the current Secretary of State, he has not yet thought fit to divulge the results to the House.
It is vital that we have the benefit of the outcome of that much-delayed consultation to inform the Committee's proceedings on the Bill. I hope that the Minister will be 186 able to tell us that the information and documentation will be made available to members of the Committee so that they can use it to inform their detailed scrutiny of the Bill in Committee.
I fear that the whole exercise has been designed to ensure that the results of the consultation are not available until after the legislation has been passed so that the Government can then say that it is too late and nothing can be done. However, the Government have said that they wish to legislate—although they had the opportunity to do so in this Session and wasted it. As the hon. Member for Great Grimsby said, we now have this mouse of a Bill. What a way to run a Government and what a way to treat this legislature—this mother of Parliaments. The problem is that the Government are obsessed with soundbites and do not get down to the substance.
I am concerned about a couple of elements in the Bill. In an intervention, I asked the Minister about directors who undertook to accept a disqualification for whatever period and whether there would be any basis for other people to know the facts underlying those undertakings. If a disqualification takes place, particularly if it does not happen in a court, it is important for outside and third parties to have access to the information on the basis of which the decision was reached. This will be important if a director subsequently applies to have his undertaking altered. For example, having undertaken to be disqualified for five years, he could, after two or three years, ask to be relieved of his undertaking and have the disqualification lifted straight away. The people dealing with the arrangements will need to know the basis and the facts on which the director accepted the undertaking in the first place.
I have an acquaintance who was the subject of proceedings under the Company Directors Disqualification Act 1986. There were implications for him from the consequences of the professional disciplinary hearings that followed. He had a big argument with his professional body because there was no basis on which to agree on the facts on which the disqualification had been based. The abbreviated procedure before the courts had been used in that instance.
It is vital and in the public interest that there should be an agreed statement of facts, behind which the director cannot go subsequently, so that comparisons can be made between the agreed statement of facts in one case and another. We are talking about a very wide discretion being given to allow disqualifications by undertaking lasting from anything between two and 15 years. It is not as if case law can be studied, so how are people to know what the benchmark is for a disqualification for a period of two, three, five or 15 years?
It should not be possible for a director to accept an undertaking to be disqualified for a period of as long as 15 years for a serious offence. Similarly, if people are caught speeding on our roads, they might receive a fixed penalty notice, but the police and prosecuting authorities have the discretion to bring the matter before a court if they think it is sufficiently serious. If an offence is sufficiently serious to warrant a 15-year disqualification, or even a five-year disqualification, surely it should be brought before the courts and be open to public scrutiny.
The Select Committee made that point in its inquiry. It came up with a concise recommendation, on which the 187 Government then commented, saying that they were not convinced of the select committee's argument. in paragraph 41 of its report the select committee said:we consider that there could usefully be explicit provision for a statement of fact on which the undertaking was based to be available to the court in the event of subsequent proceedings.In their response the government said:we note the committee's views and understand its concerns. We are mindful, however, of the danger of placing too much emphasis on the form of the procedure (statement of unfitted conduct) rather than on the substance of the underlying legislation (early provision of the protection for business and for the public generally which the Company Directors Disqualification Act 1986 is intended to provide).I am sure, Mr. Deputy Speaker, that in your wisdom you immediately understand the Government's reasoning. However, the members and Clerk of the Select Committee found the Government's response or justification obscure in the extreme, which relates to the obtuse reply that the Minister gave me earlier. I hope that in Committee the Minister will introduce into the Bill a provision that will permit an agreed statement of fact to underlie the acceptance of undertakings for disqualification, which will introduce a degree of transparency important to this process.
I also wish to express solidarity with the Institute of Directors, which is concerned that undue pressure may be put on directors to accept undertakings rather than go to court, and says:We agree that the option of disqualification undertakings should be introduced. However, it will be very important that directors offered the option of an undertaking are not under any pressure to take it, rather than going to court. It would not be healthy for a plea-bargaining culture to develop, on the lines of "Accept a three-year disqualification undertaking, or go to court where we will press for five years".The institute's concern is genuine and, to avoid such danger it suggests thatprocedures governing the way in which the option of an undertaking is brought up and discussed with a director need to be developed and published.The institute continues:There may be much to be learnt here from the Inland Revenue's procedures under which people caught evading tax are offered the option of an informal financial settlement.The criteria that apply to whether someone should be disqualified for two, five or 15 years should be made open to all so that a director facing disqualification who is negotiating on his own behalf has access to information that otherwise might not be available. It could be oppressive for him to argue against the authorities, who could say that he might get a much higher sentence if he does not accept the position and goes to court. The Institute of Directors makes a good point, and I hope that the Minister will respond to it.
I deal now with the financial effects of the Bill. More than once in his opening remarks, the Minister said that savings in time and money would result from the accelerated disqualification procedure. However, according to the explanatory notes to the Bill, there are no beneficial financial effects, which leads to concern about whether the savings that the Minister used to justify the procedure will take place. Indeed, the explanatory notes justify the procedures relating to directors on the basis that that will speed up the process and do not state that there will be a saving. Will the Minister explain a conundrum? 188 Surely, if fewer cases are referred to the court and each case takes less time, savings will result from that accelerated disqualification procedure. If there are not going to be savings, why is the House being asked to rush the Bill through?
Finally, although some people may feel that these changes will be beneficial, a much larger body of consumers will be concerned about rogues who do not operate within the protection of a company framework. Tomorrow, the hon. Member for Luton, South (Ms Moran) will ask for leave to introduce a Bill on rogue traders under the ten-minute rule motion. Our constituents are genuinely concerned about rogue traders who are not incorporated. The Government are introducing piecemeal legislation and I expect them to confirm that they will not be able to introduce legislation on consumer affairs in the coming Session, as they originally forecast. The result of misuse and waste of parliamentary time is that issues relating to rogue traders who are not incorporated will not be the subject of legislation in this Session or, indeed, during the course of this Parliament, which is to be regretted.
§ Mr. Page
With the leave of the House, Mr. Deputy Speaker. I began my earlier contribution to this debate by speculating on the equine parentage of the Bill. You were not in the Chair then, and did not have the privilege of hearing my introduction, but many right hon. and hon. Members know that I have an interest in the horse-racing industry. Having listened carefully to the Minister's arguments and hon. Members' comments, I have no doubt that the Bill reflects sound ideas and good intentions. However, I am not fully convinced of its chances of remedying the problems that it aims to address. It seems less of a thoroughbred than I would have hoped and more of a slightly battered carthorse.
§ Mr. Page
The Minister can relax, as I shall come to him in a moment or two.
Generally, the Opposition welcome the Bill, with the proviso that we shall try to improve it in Committee. I very much welcome the observations of the hon. Member for Ochil (Mr. O'Neill), who said that, unavoidably, he has to go away. I took great pleasure in his railing against the closed shop of insolvency practitioners. There is great joy in heaven over a sinner who repenteth. I accept the hon. Gentleman's reservation that, if we are going to open up that closed shop, we must make sure that the authorised person is qualified to undertake the work.
The hon. Member for Twickenham (Dr. Cable) very much agreed with me that the review processes should have taken place before the Bill was introduced. I believe that the House generally is of that opinion.
The hon. Member for Great Grimsby (Mr. Mitchell) started loyally by saying that he could not understand any of my doubts about the Bill, but spent the next 20 minutes outlining his own doubts and worries about how it would work, and if it would work at all. I share many of the hon. Gentleman's concerns, and he can do no harm in my eyes since he has endorsed the principle of my ten-minute Bill under which the role of the insolvency practitioner in recommending administrative receivership should be 189 taken away from those asked to undertake that receivership. The situation is similar to having a judge and jury who would be paid £10 for letting a defendant off but £100 for finding the accused guilty.
My hon. Friend the Member for Christchurch (Mr. Chope), having heard the rumour that there will be no Department of Trade and Industry Bills in the forthcoming Queen's Speech, outlined in his efficient and effective manner the chaos of the Government's timetable management. His every word was a hammer blow against the incompetence and inefficiency that the DTI displayed in handling its affairs this year. Normally, I would blame the Minister for that, but he is just the fall guy. The Secretary of State should have taken a grip to prevent the year of confusion that the DTI has gone through. I shall not spend the time of the House going through the various Bills that had to be curtailed or cut in half or the record number of amendments that had to be tabled, as that would take me out of order, Mr. Deputy Speaker.
My hon. Friend was right to discuss the principles involved in the process of disqualification of a director. They must be clearly understood, and we look to the Minister to expand on what is written in the Bill and to tell us exactly how it will work to prevent future problems.
One of the Bill's basic problems is that it fails fully to reflect the realities of the business world. The hon. Member for Great Grimsby touched on much of that problem. It is all very well to place a moratorium on the shoulders of a small company facing difficulties. The merits of requiring it to seek the views of an insolvency practitioner on the practicality of proposals for a voluntary agreement with creditors have been rehearsed in the other place, and by me and others today.
Any creditor of sense will approve arrangements that will ensure the payment of what is owed. I do not dispute that. In real life, however, the slightest hint that a small company is in trouble and may be unable to meet its obligations will almost certainly cause banks or trade creditors to act before the firm's directors can even begin to seek a moratorium. I hope that I am wrong, but I fear that the Bill may prove counter-productive. Often, only the threat that creditors will lose everything allows companies in trouble to recover, as I know from my business experience. However, banks, which are so often the instigators of proceedings, are also often in a protected position, and are therefore released from that pressure.
I am greatly concerned about the Government's apparent belief—contained in the words of Lord McIntosh in the other place—that the directors of a small companyshould remain in control of the company and its business during the moratorium.—[Official Report, House of Lords, 4 April 2000; Vol. 611, c. 1249.]That is hardly compatible with the powers to monitor the company's activities which are to be granted to nominees during the moratorium, or with extensive restrictions on the capacity of such companies to enter into market contracts. We all know the difficulties that will be placed on a small business that is trying to operate during a moratorium and trying to gain money to buy and sell stock.
It is not surprising that the Minister takes such a relaxed attitude towards allowing the decisions of a nominee to be challenged in the courts by the creditors, directors or 190 members of a company or any other persons who are affected by the moratorium. Whether we like it or not, such a provision is a standing invitation for aggrieved parties to hamstring the aims of the Bill. Nominees are unlikely to be willing to place themselves in situations in which their decisions might be subject to such challenges. Exactly what supervisors and nominees would gain from the new procedures envisaged in the Bill remains to be explained.
These practical issues must be explored in Committee. The Conservatives will seek more convincing arguments than have come from the other place or, dare I say it, from the Minister today. We shall, however, go into Committee willingly and positively, and try to make the Bill work. We shall do what we can to help small businesses to survive and live longer in a difficult world.
Mr. Deputy Speaker
Order. I am sure that the Minister would wish to seek the leave of the House if he wants to speak a second time.
§ Dr. Howells
With the leave of the House, Mr. Deputy Speaker, I should like to reply to some of the points raised. I am afraid that the new regime seems to have gone to my head.
I welcome the partial support offered by the hon. Member for South-West Hertfordshire, but I am at a loss to understand why the Government are being pressed to hold off. For years, we have been urged to provide for a moratorium in the company voluntary arrangement procedure, and we have been told that that is necessary to make the procedure more effective. Yet the moment that we act to put the first building block in place, we find ourselves urged not to act, but to delay so that there can be time for further consideration. Where does that leave companies that need a breathing space now? Are they to be allowed to go under because the Bill is not sufficiently elegant to draw entirely on the two reviews mentioned by the hon. Gentleman?
§ Mr. Page
The Minister is, if I may put it delicately, being disingenuous. He well knows that the complaint that we are making against the Government is that the reviews were not started earlier so that they could have been combined with the Bill. No one wants to hold the Bill up. Indeed, I am complaining that it was not enacted with greater expedition and much sooner.
§ Dr. Howells
I accept that there has been some congestion, and that it has been caused mostly by DTI Bills: I know, because I have presented most of them. However, I am staggered to hear the Opposition react as they have. Much of what we are doing is based on a draft Bill drawn up by the Conservative Government of the mid-1990s. For whatever reason—no time or no political will—they could not get their act together to put the Bill on to the statute book. We are trying to enact, but we are hearing grudging delaying tactics from the hon. Member for Christchurch (Mr. Chope). It was pretty rich of him to talk about delays when it was all I could do to stay awake 191 as he went through his catalogue of imagined delays that he presumed the Government to be applying on purpose. That is, of course, complete nonsense.
§ Dr. Howells
The consultation paper, "Bankruptcy: A Fresh Start", touches on individual voluntary arrangements under the Insolvency Act 1986. Again, however, its scope is much broader than that limited area. I admit that we are a long way from reaching conclusions on those matters, but the changes that we propose through the Bill to the individual voluntary arrangement procedure are needed now if we are to make it more efficient and effective.
The Bill includes proposals on other important matters, all of which have received a broad measure of support both in and out of Parliament. Those issues are needed now, not at some indeterminate time in future. I hope that we shall hear no more suggestions that the Bill should be delayed.
Unfortunately, because of lengthy speeches—by me as well as by the hon. Member for Christchurch—some prime contributors to this debate have left the Chamber, for unavoidable reasons.
I welcome the important contribution made by my hon. Friend the Member for Ochil (Mr. O'Neill), which was the only one to set the issue in a broader context. He reminded us that we should have a different attitude towards honest business failure, which should not carry the stigma that it so often does. The Unites States has a different attitude—that that experience goes under the belt of the business man or woman who suffered it. It is often seen as an asset.
My hon. Friend also mentioned—as did others—the time allowed for consultation. There is no question about the fact that we were pushed for time. I will not try to excuse it. We tried hard to consult as widely as we could. In response to my hon. Friend the Member for Great Grimsby (Mr. Mitchell), who is also pressed for time, let me say that we talked to some of the "victims"—as he put it—as well as the vested interests that he also mentioned.
My hon. Friend the Member for Ochil was concerned, as was the hon. Member for South-West Hertfordshire, with the important matter of how to prevent a landlord or a utility company closing in during a moratorium on a company. Paragraphs 5 to 12 of schedule 1 make consequential amendments to the Insolvency Act 1986. For example, the amendments to section 233 will not permit suppliers of gas, water and electricity to require a nominee to pay outstanding debts for supply as a condition of supply during the moratorium. I hope that that is helpful.
I am glad that the hon. Member for Carshalton and Wallington (Mr. Brake) is present on the Liberal Democrat Benches because his hon. Friend the Member for Twickenham (Dr. Cable) made a constructive contribution. He asked about international issues, which are difficult. The UNCITRAL measures—I cannot think of another way of pronouncing that hideous acronym—cannot apply if the European Community regulation applies. The hon. Gentleman asked whether the power would impact on the EC regulation on insolvency proceedings. I hope that the hon. Member for Carshalton and Wallington will tell him that the answer is no. Where 192 the EC regulation applies, it will do so to the exclusion of any other provision. That EC regulation comes into force on 31 May 2002.
My hon. Friend the Member for Great Grimsby, who has now left the Chamber—he was here when I looked round just now—warned us not to be lured on to the rocks by the siren voices of vested interests. He repeated some of the criticisms about the restricted nature of the consultation process. As I have said, there has been extensive consultation. Much of what my hon. Friend had to say went beyond the measures in the Bill. You were right, Mr. Deputy Speaker, to let him run with that theme, which I have heard a number of times. It is a healthy route for him to follow. We sometimes need to be reminded that some powerful vested interests might be strengthened by aspects of the Bill if it were not drafted so expertly.
The hon. Member for Christchurch seemed to do his level best to add to the delay—which may or may not have taken place—in the process of this legislation. However, his argument about introducing transparency into the disqualification undertaking is important. I told him that I would try to answer some of his questions. He seems more concerned with form than substance. The purpose of the disqualification process is to get the director out of the corporate sphere as quickly as possible. That is what concerns me most. The hon. Gentleman questioned how we can guarantee that costs will be less, which is an interesting issue. That is substantially a matter not for the Department but for the courts and defendants. However, I shall try to supply him with up-to-date figures on impact assessment before the Bill goes into Standing Committee—I hope that he will be a member of that Committee because he inevitably graces such Committees with his erudite comments and criticisms.
The intention is that the case against each director will be prepared up to the point at which proceedings could be issued. At that juncture, the Secretary of State will contact the director concerned, who will be invited to say whether he wishes to consent to a specified period of disqualification by way of giving an undertaking. The intention is not to pressurise. If a director does not take up that opportunity, proceedings will be issued in the normal way. It will remain for the director to decide whether he wants to contest the disqualification application in the courts.
§ Dr. Howells
That gives rise to the question whether there should be a schedule of unfitted conduct. Would it be a precondition of a disqualification undertaking and how long might it be? I think that a schedule of unfitted conduct would not be a precondition, but as a matter of practice the Secretary of State would agree the unfitted conduct before accepting an undertaking in accordance with practice post the Woolf civil justice procedure reforms. However, for a variety of reasons, that might not always be possible. For the Secretary of State only to be able to accept an undertaking in cases when a schedule has been agreed would be unduly restrictive and could delay putting in place the protection that the Company Directors Disqualification Act 1986 is intended to provide. It might also increase costs if there is a difficulty in agreeing to a schedule.
193 I hope that I have answered most of the questions. I have no doubt that we can explore them further in Committee. On the basis of what I have said, I commend the Bill to the House.
§ Question put and agreed to.
§ Bill accordingly read a Second time, and committed to a Standing Committee, pursuant to Standing Order No. 63 (Committal of Bills).