SCHEDULE B1 TO INSOLVENCY ACT 1986

HC Deb 17 June 2002 vol 387 cc61-71

Mr. Waterson

I beg to move amendment No. 79, in page 243, line 13, after "company", insert— 'and the whole or part of its business'.

Mr. Deputy Speaker

With this it will be convenient to discuss the following amendments: No. 80, in page 243, line 14, after "not", insert "in his opinion".

No. 81, in page 243, line 18, after "not", insert "in his opinion".

No. 82, in page 256, line 22, leave out "28 days" and insert "three months".

No. 410, in page 264, line 17, leave out from beginning to end of line 13 on page 265.

Mr. Waterson

It is fair to say that the amendments—with one exception, or perhaps with none—were tabled at the relevant points of Committee proceedings. However, we continue to feel strongly about the issues with which they deal.

Amendment No. 79—in Committee, amendment No. 403—is supported by the CBI. The CBI makes the point, which was repeated by Opposition Members throughout Committee stage—much good it did us—that we should not be in the business of rescuing empty vessels, or companies as such; rather, we should be in the business of rescuing businesses. The distinction is subtle, but important. If a company has ceased trading, there is little point in rescuing it just for the sake of it. The Minister will recognise that the amendment echoes section 8 of the Insolvency Act 1986. It would make it abundantly clear that preserving and protecting businesses and enabling them to survive is the first priority.

6.15 pm

Amendments Nos. 80 and 81, which go together, would ensure that what matters at the end of the day is a judgment based on the professional knowledge and experience of the insolvency practitioner. As I said in Committee, although I do not want to labour the point, the aim is to avoid unhelpful disputes. I could not understand why the Minister in the Committee was not prepared to accept the relevant amendment, although I think it was another Minister who dealt with that part of the Bill; perhaps we shall be able to sneak it past the Minister here today.

Amendment No. 82 is somewhat symbolic. It is part of our effort to get it across to the Government that those who practise in insolvency are extremely nervous about—if not downright dismissive of—the time limits set out in the Bill. We were assured that the Bill in all its detail, including the provisions on insolvency, was widely consulted on before it saw the light of day. However, as the shoals of briefings and proposed amendments came pouring in from insolvency practitioners and others involved in insolvency, it became clear that either the consultation had not been clear or comprehensive enough, or the views expressed had not been heeded.

In Committee, I quoted one organisation that described the time limits as "preposterous". We do not believe that the time limits can be adhered to. It is all very well to say that extensions can be applied for, so it does not really matter, but that process will itself clog up the system. We did not have a satisfactory answer to that amendment in Committee, but that might again be attributable to the fact that it was another Minister who dealt with it there—a Minister who has now gone on to glory elsewhere in the Government.

Amendment No. 410 is supported by the CBI. The CBI feels strongly—strongly enough to ask us to press the amendment again on Report after doing so in Committee—that there should be no restriction on the length of time an administration can last; hence the CBI would have us remove paragraphs 75 to 77 in their entirety from schedule 16. Paragraph 78 will ensure that administrators will remain, as they are now, duty bound to seek orders terminating the administration in the event either that the purpose is fully achieved, or that it becomes clear that the purpose cannot be achieved. Paragraph 78 is perfectly acceptable both to the Opposition and to the CBI. If creditors believe that an administrator is delaying matters—something which I suspect happens only rarely—the creditors have plentiful remedies available to them. However, once the administration procedure has started, it should continue for as long as it needs to. Any attempt to cap its duration is bound to be arbitrary, and may well lead to lots of applications for extensions.

I doubt that the provisions in the Bill have a friend in the world. The CBI is not the only organisation to have condemned them—they have been condemned by just about everybody who has any practical experience of handling trading insolvency. If the Government are intent on imposing a cap, we and the CBI urge them to allow a period of at least one year, but it would be better if there were no cap at all. After Committee stage, we remain far from convinced that a cap is needed. There is none at the moment, and the system seems to work satisfactorily in that respect. I urge the House to accept the amendments.

Mr. Carmichael

It is unfortunate that we are again rehearsing a debate that we had in Committee, but the argument advanced by the hon. Member for Eastbourne (Mr. Waterson) on the need for the amendments is a good one. I hope that the Government will take on board the force of that argument.

I can see no particular reason why we are so desperate to rescue companies when, as the hon. Gentleman said, that is a fairly meaningless term. That seems to run contrary to the Government's approach in much of the Bill, where they speak about wanting to keep or foster the culture of enterprise and avoid unnecessary administration or bankruptcy. We should look at the business itself rather than the legal entity. On amendment No. 80, we should rely on the administrator's exercise of professional judgment and not encourage a rush to litigation, which is the inevitable consequence of the clause as currently framed. Amendment No. 82 deals with the problem of indecent haste. I am sure that administrators will not drag their heels, so we are putting unnecessary pressure on them by setting a time limit of 28 days. A similar argument applies to the ending of time limits in amendment No. 410. The CBI and others have made good sound arguments which reflect experience, or the practicalities, to use the Minister's own words. The Government should give greater weight to them than appears to have been the case.

Miss Melanie Johnson

Amendment No. 79 specifies that the first objective of administration is to rescue a company and all or part of its business. As the Minister of State, Cabinet Office made clear in Committee—I am sure that he did so and assure the hon. Member for Eastbourne that I am aware of what was said in Committee—that is the clear intention behind the new purpose. The hon. Gentleman and I are in agreement that there is no sense in the administrator trying to rescue companies that are empty shells, particularly if he or she could get a better deal for creditors by selling its constituent businesses as going concerns. To "rescue the company" self-evidently means to rescue it as a going concern, with all or much of its business intact. The courts will take a practical line in interpreting the purpose. I draw hon. Members' attention to the explanatory notes, which say that company rescue in the context of the clause means the company continuing as a going concern with all or a significant part of its business…For the purpose of these clauses, a proposal that would result in a shell company remaining would not be considered a rescue.

Mr. Carmichael

When the Minister makes such statements about the courts' interpretation, she is almost inviting the judiciary to make a contrary interpretation. We are dealing with common purpose, so does she not accept that that is better expressed in the amendments' wording?

Miss Johnson

The Bill was drafted by draftsmen who are familiar with what the courts are likely to do with the Bill's wording. Our aim is exactly the same as Opposition Members', so the amendment is not necessary. I hope that they understand the Government's position, as they allege they did not before. I hope that they realise that we agree utterly about the meaning of the provision; we believe it means what it says. but they would like more specific wording.

Amendments Nos. 80 and 81 deal with the test of what is "reasonably practicable", which governs the administrator's choice of objectives. They seek to qualify that test by specifying that it means "reasonably practicable" in the opinion of the administrator. Again, there is no disagreement between Opposition Members and the Government about that principle, but we diverge about the way in which the Bill will work in practice. The administrator is the person on the ground who is in possession of all the facts and is best placed to determine whether a particular course of action is reasonably practicable or not on the basis of his or her experience and professional judgment. It is not the courts' practice to second-guess administrators' commercial judgment in such cases, so we do not expect the provisions to be interpreted in that way; my hon. Friend the Minister of State, Cabinet Office said so in Committee. I therefore believe that the amendments are unnecessary.

Amendment No. 82 deals with one of the new time scales introduced in the revised administration procedure. The Bill requires the administrator to send a copy of proposals to creditors within 28 days' of his or her appointment; the amendment would extend that period to three months. Again, the issue was debated extensively in Committee, when we explained that the new time limits for administration would provide greater certainty to creditors and would help to make the procedure more accessible to small firms, for which the costs of running a lengthy administration can be a considerable barrier against entering the administration procedure. In conjunction with changes introduced elsewhere in the legislation, administration will become more accessible and attractive. Cases going into administration will become smaller and more straightforward, and the new time scales will prove more than adequate for them.

For larger and more complex cases for which the administrator needs more time, there are provisions to enable him or her to extend the time periods either by creditor consent for specified periods or with the permission of the court for whatever period the court thinks fit. The time limits in the Bill are rightly stringent to increase certainty and accessibility for companies and creditors, but the process is sufficiently flexible, particularly because of the provisions for extension, to ensure that it can be adapted to meet the needs of particular cases. I therefore hope that I have persuaded the hon. Member for Eastbourne to withdraw his amendment.

Mr. Waterson

I am not wholly convinced, but in the interests of making progress, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Miss Johnson

I beg to move amendment No. 99, in page 243, line 34, after "96", insert "and 99 to 101A".

Madam Deputy Speaker (Sylvia Heal)

With this it will be convenient to take Government amendments Nos. 100 and 101, 324 to 326, 102 to 104, 327 and 105, 106 to 124, 328, 125, 329, 126, 330, 331 and 127, 332 to 345, 128, 346, 129 and 347, 130 to 133, 348 and 134, 349 to 353, 140, 354 and 355.

Miss Johnson

It will be a relief to everyone in the Chamber, not least yourself, Madam Deputy Speaker, that these amendments are mostly technical and consequential. They do not deal with fundamental policy, so I do not propose to deal with them one by one. They will, however, ensure that the revised administration procedure works effectively. They are consequential amendments to the existing provisions of the Insolvency Act 1986 and other measures, and are necessary as a result of the proposed changes to the administration procedure. I do not propose to speak about them in detail, but if hon. Members would like me to address a particular amendment, I am happy to do so.

A number of Government amendments have been tabled in response to points raised by hon. Members in Committee. Having listened to what they said, we agreed to go away and consider certain matters further. I am pleased to say that a number of the amendments were tabled as a result of that discussion, and I hope that hon. Members will agree that they make useful improvements and support them accordingly.

I should like briefly to address Government amendment No. 101, which will ensure that the special insolvency provisions that apply to financial services businesses, including banks and insurance companies, under part XXIV of the Financial Services and Markets Act 2000, continue to have affect. I think that that is probably the only amendment that is worth mentioning at this early stage.

I hope that hon. Members will support the amendments.

6.30 pm

Mr. Waterson

You will be relieved to hear, Madam Deputy Speaker, that I certainly do not want the Minister to deal with the amendments in any detail. I am grateful to her for acknowledging that a number of them arose from points made by the official Opposition in Committee. It would be positively churlish of us to speak at any length to the amendments, let alone press them to a Division.

Mr. Mark Field

I, too, should like to express my support for many of the amendments that have been tabled as a result of the various Committee discussions. In particular, given the importance of the insurance sector in my constituency, I welcome Government amendment No. 101, to which the Minister specifically referred.

I want to make a few brief comments, partly in relation to a briefing that may bring to light one or two slight concerns about administration. I apologise to the Minister for not mentioning the matter to her already, but as I received the briefing earlier today, I have not had an opportunity to do so. She may wish to return to the subject at a later stage. Indeed, I would be happy to deal with it in that spirit.

More generally, before we consign the concept of administrative receivership to the annals of insolvency and company law history, I point out that it has been improved as a very quick, cheap and often effective means of allowing a business to be sold without interference from either companies or creditors. Many of us have recognised that the potentially unfettered power of secured creditors to appoint receivers has sometimes made them insufficiently accountable to other creditors. Such concern was expressed in Committee and is addressed by one or two of the amendments. It seemed to us that such appointments could put paid to other potential rescue plans. Clearly, the Bill seeks to water down some of those powers in an insolvency situation. One of the anxieties in Committee was to ensure for all creditors and classes of creditors as great a degree of certainty as possible as to replacement.

As I said, I should like to address a specific concern to which I have been alerted by a constituent, an international bank, in relation to the commercial property market. The briefing that I received states that there has been some anxiety about the potential knock on effects to the UK property market", which is at a tentative stage in the economic cycle as it is, of the changes proposed in the Enterprise Bill and particularly the proposal to dispense with the concept of administrative receivership. I hope that the Minister and other hon. Members will forgive me if I now quote a little more extensively from the briefing, which obviously deals with a somewhat technical matter. It goes on to state: The vast majority of commercial property refurbishment/ regeneration and development finance is structured nowadays using as a borrowing vehicle a special purpose company, the only assets of which are the project being financed. That runs slightly counter to the concerns expressed in the debate about the previous clause, when we wanted to stress that it is all too often forgotten that it is not a company, but a business, that is being maintained. In this case, however, it is a special purpose vehicle company that may run the risk of insolvency procedure and it will wish to ensure proper safeguards. The special purpose vehicles typically have no employees.

The briefing goes on to state: It is important from a funder's point of view to be able to have step in rights and to be able to appoint an administrative receiver", which must be done rapidly where there are potential difficulties. It also states: This enables the lender, in the event of financial difficulty, quickly to take control of the project, retain contractors and sub-contractors before they walk away"— under the doubtless fairly stringent terms of their own agreement— and ultimately to build out the project to completion. Invariably this is the only way to maximise the benefit to the general creditors of the company. The concern is that the abolition of administrative receivership runs the risk of increasing the level of commercial uncertainty. In a slightly more uncertain property market—I suspect that the entire property sector will face such a market during the next few years—the abolition will inevitably lead to an increase in cost for borrowers". Even more catastrophically, in relation to some of the projects that are being put into place, the abolition will also lead to a withdrawal of funding by the banking system. Of course, that would especially affect more marginal projects. That is a concern for me in central London, but I am sure that my concern is shared in all corners of the United Kingdom. It is feared that the consequences will be a reduction of refurbishment and regeneration, as well as in development funding, in the commercial property sector. That is especially important in relation to various central Government proposals to ensure substantial development on brownfield sites. Clearly, all of us who represent urban or suburban seats are keen to encourage such development.

The briefing also states: We understand the reasons for the introduction of the Enterprise Bill and believe that the commercial property market will suffer, even though the intentions of the Bill are not aimed particularly at commercial property. I understand that the Department has been lobbied for a carve out in the proposals for commercial property finance transactions that would otherwise fall within the definition of project finance. Again, that was discussed at some length when we considered some of the schedules in Committee. As the Minister will know, an exception has been created for projects where the debt is in excess of £50 million. As I have indicated, however, the difficulty with that provision in relation to specific property finance is that the threshold is way too high for the small special purpose vehicles that are being created. In relation to certain property finance transactions, might it be possible to introduce a lower threshold of, say, £5 million to £10 million? I know that that proposal was discussed tangentially in Committee, but it strikes me that a major area of Government policy is involved, especially in relation to regeneration and refurbishment projects. We run the risk of causing such projects to fall outside the protection that would otherwise be provided in the proposed administration procedure.

I appreciate that the Minister may not have had full notice of those issues, although I suspect that the Department has been subject to various lobbying in recent weeks and months. I would be happy for her to deal with the matter in a written response, if that is necessary, but I wanted to put it on record and felt that now was the most appropriate stage in today's discussions at which to raise it.

Miss Melanie Johnson

Indeed, those subjects have been much discussed and there has been considerable liaison between Departments and with interested parties about appropriate provisions in respect of property development. I do not believe that a bespoke exception is necessary. As the hon. Member for Cities of London and Westminster (Mr. Field) remarked, the definition in the Bill is wide enough to include any project company that incurs a debt of at least £50 million and over which there are step-in rights. That is the case regardless of the reason why the project in question has been set up.

I heard what the hon. Member for Cities of London and Westminster said about special purpose vehicles of £10 million in value, but it seems a little unusual, especially in the context of our earlier remarks about property values in central London. I am listening to what the hon. Gentleman has to say and I should be grateful if he would furnish me with some further details about the background. I shall certainly consider the matter further, but I do not currently believe that it necessary to introduce any further provision. I shall undertake to look further at any evidence that he submits to me.

Amendment agreed to.

Amendments made: No. 100, in page 243, line 34, leave out "the replacement of" and insert "replacement and additional".

No. 101, in page 243, line 41, at end insert—

'7A (1) A person may not be appointed as administrator of a company which—

1. (a) has a liability in respect of a deposit which it accepted in accordance with the Banking Act 1979 (c. 37) or 1987 (c. 22), but
2. (b) is not an authorised deposit taker.

(2) A person may not be appointed as administrator of a company which effects or carries out contracts of insurance.

(3) But sub-paragraph (2) does not apply to a company which—

1. (a) is exempt from the general prohibition in relation to effecting or carrying out contracts of insurance, or
2. (b) is an authorised deposit taker effecting or carrying out contracts of insurance in the course of a banking business.

(4) In this paragraph—

"authorised deposit taker" means a person with permission under Part IV of the Financial Services and Markets Act 2000 (c. 8) to accept deposits, and

"the general prohibition" has the meaning given by section 19 of that Act.

(5) This paragraph shall be construed in accordance with—

1. (a) section 22 of the Financial Services and Markets Act 2000 (classes of regulated activity and categories of investment),
2. (b) any relevant order under that section, and
3. (c) Schedule 2 to that Act (regulated activities).'.

No. 324, in page 245, line 36, after "unless", insert—

1. '(a)'.

No. 325, in page 245, line 38, at end insert—

',or

1. (b) the holder of any prior floating charge which satisfies paragraph 12(2) has consented in writing to the making of the appointment.'.

No. 326, in page 253, line 31, at end insert—

'(1A) This paragraph also applies from the time when a copy of notice of intention to appoint an administrator under paragraph 12 is filed with the court until—

1. (a) the appointment of the administrator takes effect, or
2. (b) the period of five business days beginning with the date of filing expires without an administrator having been appointed.

(1B) Sub-paragraph (1A) has effect in relation to a notice of intention to appoint only if it is in the prescribed form.'.

No. 102, in page 254, line 20, at end insert "and".

No. 103, in page 254, line 21, leave out from "letter," to end of line 23.

No. 104, in page 261, line 1, leave out sub-paragraph (2) and insert—

'(2) If the court gives directions to the administrator of a company in connection with any aspect of his management of the company's affairs, business or property, the administrator shall comply with the directions.'.

No. 327, in page 261, line 34, leave out "charge" and insert "security".

No. 105, in page 263, line 26, leave out "section 4" and insert "Part I".

No. 106, in page 264, line 36, leave out paragraph (b) and insert—

1. '(b) if the company has unsecured debts, creditors whose debts amount to more than 50% of the company's unsecured debts, disregarding debts of any creditor who does not respond to an invitation to give or withhold consent.'.

No. 107, in page 264, line 42, after first "of", insert—

'(i)'.

No. 108, in page 264, line 43, leave out "and of" and insert", and

(ii)'.

No. 109, in page 264, line 43, leave out "at least" and insert "more than".

No. 110, in page 264, line 44, leave out "total".

No. 111, in page 264, line 44, at end insert—

',disregarding debts of any creditor who does not respond to an invitation to give or withhold consent.'.

No. 112, in page 267, line 6, leave out paragraph (a) and insert—

1. '(a) that the total amount which each secured creditor of the company is likely to receive has been paid to him or set aside for him,'.

No. 113, in page 267, line 9, leave out "has been or".

No. 114, in page 267, line 28, leave out "98" and insert "84".

No. 115, in page 269, line 35, after "where", insert—

'(a)'.

No. 116, in page 269, line 35, at end insert—

1. '(b) the court is satisfied that the creditors' committee or a remaining administrator is not taking reasonable steps to make a replacement, or
2. (c) the court is satisfied that for another reason it is right for the application to be made.'.

No. 117, in page 269, line 36, leave out—

'by the holder of a qualifying floating charge he'

and insert—

'the holder of the floating charge by virtue of which the appointment was made'.

No. 118, in page 271, line 4, leave out paragraphs (a) and (b) and insert—

1. '(a) in the case of an administrator who dies, on the filing with the court of notice of his death,
2. (b) in the case of an administrator appointed under paragraph 12 or 20, at a time appointed by resolution of the creditors' committee or, if there is no committee, by resolution of the creditors, or
3. (c) in any case, at a time specified by the court.

() For the purpose of the application of sub-paragraph (2)(b) in a case where the administrator has made a statement under paragraph 50(1)(b), a resolution shall be taken as passed if (and only if) passed with the approval of—

1. (a) each secured creditor of the company, or
2. (b) if the administrator has made a distribution to preferential creditors or thinks that a distribution may be made to preferential creditors—
1. (i) each secured creditor of the company, and
2. (ii) preferential creditors whose debts amount to more than 50% of the preferential debts of the company, disregarding debts of any creditor who does not respond to an invitation to give or withhold approval.'.

No. 119, in page 272, line 43, at end insert—

'101A (1) Where a company is in administration, a person may be appointed to act as administrator jointly or concurrently with the person or persons acting as the administrator of the company.

(2) Where a company entered administration by administration order, an appointment under sub-paragraph (1) must be made by the court on the application of—

1. (a) a person or group listed in paragraph 10(1)(a) to (e), or
2. (b) the person or persons acting as the administrator of the company.

(3) Where a company entered administration by virtue of an appointment under paragraph 12, an appointment under sub-paragraph (1) must be made by—

1. (a) the holder of the floating charge by virtue of which the appointment was made, or
2. (b) the court on the application of the person or persons acting as the administrator of the company.

(4) Where a company entered administration by virtue of an appointment under paragraph 20(1), an appointment under sub-paragraph (1) above must be made either by the court on the application of the person or persons acting as the administrator of the company or—

1. (a) by the company, and
2. (b) with the consent of each person who is the holder of a qualifying floating charge in respect of the company's property or, where consent is withheld, with the permission of the court.

(5) Where a company entered administration by virtue of an appointment under paragraph 20(2), an appointment under sub-paragraph (1) must be made either by the court on the application of the person or persons acting as the administrator of the company or—

1. (a) by the directors of the company, and
2. (b) with the consent of each person who is the holder of a qualifying floating charge in respect of the company's property or, where consent is withheld, with the permission of the court.

(6) An appointment under sub-paragraph (1) may be made only with the consent of the person or persons acting as the administrator of the company.'.

No. 120, in page 274, line 3, leave out paragraph (b) and insert—

1. '(b) if the company has unsecured debts, creditors whose debts amount to more than 50% of the company's unsecured debts, disregarding debts of any creditor who does not respond to an invitation to give or withhold consent.'.

No. 121, in page 274, line 9, after first "of", insert—

'(i)'.

No. 123, in page 274, line 10, leave out "at least" and insert "more than".

No. 122, in page 274, line 10, leave out "and of" and insert", and

(ii)'.

No. 124, in page 274, line 11, at end insert—

',disregarding debts of any creditor who does not respond to an invitation to give or withhold consent.'.

No. 328, in page 274, line 37, at end insert—

'"company" includes a company which may enter administration by virtue of Article 3 of the EC Regulation,"'.—[Miss Melanie Johnson.]