Grand Committee Report of 15 June 2000

Official Report of the Grand Committee on the Insolvency Bill [H.L.]
Thursday, 15th June 2000.
The Committee met at Four of the clock.
[The Deputy Chairman of Committees (Lord Ampthill) in the Chair.]
The Deputy Chairman of Committees (Lord Ampthill): Before I put the Question that the Title be postponed, it may be helpful to remind your Lordships of the procedure for today's Committee stage. Except in one important respect, our proceedings will be exactly as in a normal Committee of the Whole House. We shall go through the Bill clause by clause; noble Lords will speak standing; all noble Lords are free to attend and participate; and the proceedings will be recorded in Hansard. The one difference is that the House has agreed that there shall be no Divisions in a Grand Committee. Any issue on which agreement cannot be reached should be considered again at Report stage, when, if necessary, a Division may be called. Unless, therefore, an amendment is likely to be agreed to, it should be withdrawn.
I should explain what will happen if there is a Division in the Chamber while we are sitting. This Committee will adjourn as soon as the Division Bells are rung and then resume after 10 minutes.
Title postponed.
Clause 1 agreed to.
Schedule 1 [Moratorium where directors propose voluntary arrangement]:
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 1:
Page 10, line 5, leave out ("Part I of").
The noble Lord said: Paragraph 1 of Schedule 1 to the Bill provides for the Insolvency Act 1986 to be amended in accordance with Part I of the schedule. Members of the Committee will have observed that Schedule 1 is not divided into parts; therefore, the amendment removes the words "Part of". I beg to move.
On Question, amendment agreed to.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved. Amendment No. 2:
Page 10, line 8, leave out ("apply for") and insert ("take steps to obtain").
The noble Lord said: In moving this amendment, I shall speak also to Amendments Nos. 3 and 4. The directors of an eligible company are to be able to obtain a moratorium by filing the required documents at the court. That is provided for in paragraph 8 of Schedule A1 to the Bill. The directors do not, of course, have a free hand. Before they can obtain a
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moratorium, they need a nominee to say that he thinks a successful rescue is likely to result. One of the documents filed will need to be the nominee's "consent to act". However, paragraphs 2 and 3 of Schedule 1 and paragraph 6 of Schedule A1 currently say that the directors can "apply for" a moratorium. That might be taken as implying that an application to court is necessary and that the application will then have to he determined in some way by the court before a moratorium can be obtained. To avoid the possibility of these paragraphs being interpreted in that way, we propose that they be amended to make it clear that no application to court is necessary to obtain a moratorium. I beg to move.
On Question, amendment agreed to.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendments Nos. 3 and 4:
Page 10. line 20, leave out ("apply for") and insert ("take steps to obtain").
Page 12, line 4, leave out ("propose to apply for") and insert ("wish to obtain").
On Question, amendments agreed to.
Baroness Buscombemoved Amendment No. 5:
Page 12. line 16, after ("arrangement") insert;"(with or without modifications)").
The noble Baroness said: In moving Amendment No. 5, I wish to speak also to Amendments Nos. 6. 24, 28, 67, 84 and 86. Paragraph 6(2)(a) of the new Schedule A1 inserted by paragraph 4 of Schedule 1 to the Bill provides for the nominee to submit a statement to the directors as regards his opinion on, among other things, whether or not the proposed voluntary arrangement has a reasonable prospect of being approved and implemented.
It is, however, open to the creditors meeting to approve the proposed voluntary arrangement with modifications. Paragraph 6(2)(a) does not refer to any possible modifications that might be proposed by the creditors. On one view, the nominee in forming his opinion should not take into account such modifications. This point is made good if one looks at paragraph 22(1)(a) and 23(2)(a)(i), which refer only to modifications under paragraph 29(7), which are modifications for which the directors intend to seek the approval of the meeting. It appears to be intended that the nominee can have regard to only those modifications proposed by the director and only if he has received notice of them. He must therefore ignore all other possible modifications. That, we believe, imposes far too strict a test.
In essence, the nominee has to form a view on whether the proposed moratorium has a reasonable prospect of being approved and implemented. He might form that view that it needs only minor modifications and might be confident that in that case it has a reasonable prospect of being approved and implemented.
Paragraph 6 does not permit him to have regard to those minor changes, so he cannot submit the statement. In other places in the Bill he is entitled to certain specific modifications. At first sight this might

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appear to be a pure drafting point, but by looking at paragraph 22(1)(a) and 23(2)(a)(i) one sees that he is entitled to have regard to some modifications, and therefore by saying some, it automatically means not all. We believe that this conflict would easily be cured by adding, where appropriate, a number of "with or without modifications".
With all due deference, it appears to us that perhaps in certain areas the drafting has been done by different individuals. I beg to move.
Lord McIntosh of Haringey: These amendments would mean that the nominee would be required to consider not only the proposed voluntary arrangement as it stands before him at the point of time at which he is required to consider it, whether in relation to a company or an individual, but also the proposed voluntary arrangement in the light of any modifications which might possibly be made to it.
We consider that the nominee should look at the proposed individual or proposed company voluntary arrangement as he understands it will be put to the creditors and, if applicable, to shareholders. The Bill, as drafted, already makes provision for the nominee to consider the proposal as amended by any modification notified to him by the directors. We would not want him to consider it as it might conceivably be modified.
The directors might never be prepared to agree to further modifications, in which case the meetings would be unlikely to approve and implement the voluntary arrangement. We would not want the company to, say, be able to obtain a moratorium in such circumstances as it would be entirely inappropriate. Indeed, it would undermine the necessary confidence of the nominee that the moratorium was justified. The amendments would also place an unreasonable burden on nominees, who would be obliged to make decisions on the basis of what inevitably would be conjecture.
It is very unusual for a voluntary arrangement to be prepared before the moratorium starts without the proposed nominee being a party to its drafting. I understand the desire of the noble Baroness, Lady Buscombe, for more flexibility, but I think that amendments of this kind would lead to the risk that moratoriums were put forward before they had been properly thought out and agreed.
Baroness Buscombe: I thank the Minister for his response to the amendments, although I cannot agree with what he has said. I shall want to read his words carefully in Hansard. It appears to be intended that the nominee can have regard only to those modifications proposed by the directors, and only if he has received notice. We believe that that is too strict. We do not think that we are being too flexible by making the suggested changes. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 6 not moved.]
4.15 p.m.
Baroness Buscombe Baroness Buscombe moved Amendment No. 7:
Page 13, line 12. leave out ("either of those meetings") insert ("the meeting of the creditors").
The noble Baroness said: Paragraph 8(3) of new Schedule Al provides for the moratorium to end if either the meeting of the company or the meeting of its creditors has not first met before the end of the specified period. If no one turns up to the meeting of the company it may be said that the meeting has not been held. The moratorium will therefore end at the end of the specified period. However, paragraph 34 of the new Schedule Al makes it clear that if the meeting of the company and the meeting of the creditors come to different decisions, the decision of the meeting of the creditors is to take effect subject to an application to the court by a member of the company. We entirely agree with that provision. Once a company's financial affairs are such that a moratorium is appropriate, the views of creditors must be paramount.
The possibility of members not turning up to the meeting of the company and bringing the moratorium to an end in accordance with paragraph 8(3) is, therefore, we believe, inconsistent with the principle that the creditors' views are paramount. If creditors' views are paramount surely it is wrong for the moratorium to end just because members do not turn up. It is even conceivable that members might decide not to bother to hold a meeting and so destroy any prospect of a moratorium. They may ask why they should bother to attend, and quite often members are simply not interested; they say "There is nothing in it for us so why bother?". That does happen in practice. Indeed, it is possible, and does happen, that one might have to go so far as to offer something to them in order for them to turn up, something which otherwise would go to the creditors. I beg to move.
Lord McIntosh of Haringey: I am grateful to the noble Baroness, Lady Buscombe, for her explanation of the amendment. It seems to me to devalue the role of the company's shareholders, who, after all, will remain as the company's owners if the rescue is successful, in deliberations about whether or not a moratorium should be extended beyond the initial period of 28 days. We are talking about the extension of the moratorium and not the original setting-up of the moratorium.
We take the view that any decision to extend a moratorium should be considered by both the company and its creditors. The question at issue is that of agreement of a proposal which is presumably, and has to be, a proposal by the company's directors for a voluntary arrangement. I invite the noble Baroness, Lady Buscombe, not to lose sight of the fact that the Bill does not introduce a new voluntary arrangement procedure. The arrangement will still be under Section 1 of the Insolvency Act. It will still be the one for a composition in satisfaction of the company's debts or a scheme of arrangement of its affairs. It will still be a proposal made,
"to the company and its creditors".

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That is why paragraph 8(3) provides for the moratorium to end automatically if either of the meetings summoned under paragraph 27—that is, either the company or the creditors' meeting—has not met within 28 days of the start of the moratorium. They do not have to be concluded but both must have been held in order for the moratorium not to come—
Baroness Buscombe: It may be helpful to interrupt the Minister now, because the last thing we want to do is destroy the possibility of a moratorium. That is not what we are seeking here. What we seek is a situation whereby the creditors do not lose out because the members have not had a meeting. The shareholders' position has already been devalued, in which case we believe the creditors' position should be paramount, and that loss of position would occur, in our view, if the members do not have a meeting and therefore the moratorium comes to an end.
Lord McIntosh of Haringey: The moratorium had already started because we are talking about extension, are we not? The moratorium had already started and for it to be in force by the end of the 28 days—in other words, not to have collapsed—both the members and the creditors must have had meetings, and they have to agree this will happen. A nominee has to be appointed and if necessary a successor supervisor must have been appointed; so the moratorium is in action at this stage.
These amendments are not about starting a moratorium but the extension of the moratorium. I do not know whether that is what is intended. I hope it is. We are saying that an extension of a moratorium has to be considered both by the company and its creditors. If it is not agreed by the company, for whatever reason, either by it not having a meeting or not turning up to one, it should not be extended and then one has to go into insolvency procedures. It could not be continued on the opinion only of the creditors; that would make no sense. The nominee could not continue with it or have any confidence that it had a reasonable prospect of success if the directors of the company have not had a meeting and responded.
Baroness Buscombe: Surely then the creditors might lose out of this voluntary arrangement because of the apathy of the members.
Lord McIntosh of Haringey: If the directors are not willing to go on with a moratorium under any circumstances, whatever the reason, it has to come to an end. The nominee has to be satisfied that there is a reasonable prospect of success. Clearly, if the directors have no confidence, there is no reasonable prospect of success, the moratorium has to come to an end and the company has to be declared insolvent. The moratorium has failed and it does not matter exactly how it is brought to an end, whether by the creditors or by the company. But both sides have to be in agreement for it to be extended.
Baroness Buscombe: I thank the Minister. It has been worthwhile having this debate. Again, I shall read
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with great care in Hansard what he has said and perhaps return to the point on Report. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Buscombe Baroness Buscombe moved Amendment No. 8:
Page 13, line 37, leave out ("petitioning").
The noble Baroness said: In moving Amendment No. 8, I shall speak also to Amendment No. 9. Paragraph 10 of the new Schedule 1A provides for the nominee to advertise and notify the Registrar of Companies, the company itself and any petitioning creditor of the moratorium. In our view, all the creditors of the company should be informed of the moratorium, if only so that they know not to bother to take any of the steps referred to in paragraph 12.
In essence, let us suppose that an existing creditor is not paid and presents a winding-up order provision and then suddenly realises that what he has done is in breach of paragraph 12. What would happen if a debentureholder or a landlord takes proceedings for possession of the lease, or a sheriff wants to go in and levy distress, or the Inland Revenue wants to move? We believe that the provision is unworkable in its present form.
It is of paramount importance that all the creditors of the company should be informed so that they can act accordingly, in which case they would not be in breach of paragraph 12. I beg to move.
Lord McIntosh of Haringey: We are mirroring exactly, or certainly as far as applicable, the procedures that apply to the notification of an Administration and Winding Up Order under the 1986 Insolvency Rules. In those cases, at the outset, as we intend here, the commencement of the procedure is advertised and also notified to the Registrar of Companies so that the information is available on the company's public record, and then creditors are made aware of the start of the procedure when they are individually notified of the meeting of creditors. We do not see why notice in moratorium cases should he any different. We can see why all creditors, of whose claim the nominee is aware, should be made aware of the moratorium, but the moratorium is only 28 days and the nominee will be contacting all the credit ors very soon after it comes into force to notify them of the meeting of creditors, to consider the proposal for a voluntary arrangement. They will obviously learn of the moratorium at that early stage.
To have to notify them twice in a short space of time would involve unnecessary expense. I cannot see what advantage would be gained from it. The moratorium procedure is a low-cost one, or it will not work at all. Although, strictly speaking, there is a possible interval in time between the notification which these amendments would provide and the notification of the meeting, it is a very short gap which does not justify departing from the procedure I have already described in regard to a winding-up order. In any case, if a creditor tries to do something forbidden by the moratorium, someone from the company will tell him or her when they try to do it. The same type of

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provision exists as regards administration. In those cases, where a creditor tries to take action, the administrator informs him or her of the moratorium. The amendments are not wrong but they are just out of keeping with what already happens and they do not bring any significant benefit.
Baroness Buscombe: I thank the Minister for his response to the amendment. I accept much of what he has said. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 9 not moved.]
Lord Kingslandmoved Amendment No. 10:
Page 14, line 9, at end insert (", without the consent of the nominee or the leave of the court and subject (where the court gives leave) to such terms as the court may impose").
The noble Lord said: New Schedule Al sets out the effects of a moratorium under Section 1A of the Insolvency Act 1986. In general terms, it prevents third parties from enforcing their rights against the company during the period when the moratorium is in force.
Paragraph 12 of New Schedule Al deals with the effects of the moratorium which substantially interfere with the rights of creditors. An administration order, of course, has similar effects. As the Minister is well aware, however, there is an important distinction. The moratorium which comes into effect in the case of an administration order is subject to the court's control within five days of the presentation of the petition. The moratorium under paragraph 12, by contrast, comes into effect on the authority of a person who is likely to have substantially less experience than an insolvency practitioner and perhaps less testing qualifications.
At the very least, the creditor must be entitled to apply to the court to take one or more of the steps referred to in paragraph 12, and not just in those instances where reference is made to the leave of the court. To save unnecessary applications to the court, the consent of the nominee should suffice as well. I beg to move.
Lord McIntosh of Haringey: The purpose of paragraph 12 of Schedule A1, as the noble Lord, Lord Kingsland, rightly says, is to provide protection from legal action for a company which is subject to a moratorium. In particular, there is a general ban on other insolvency-related procedures being commenced during the period of the moratorium.
If the court—or the nominee, for that matter—were able to grant leave to permit another insolvency procedure to be commenced during the moratorium, which would be the effect of these amendments, the situation would arise where two conflicting insolvency procedures could be on foot at the same time—one, a company voluntary arrangement moratorium and the other, a liquidation. Those procedures would have competing and conflicting purposes and that would not be a situation we would want to allow. The objective of a moratorium is to give the company the opportunity to put a rescue plan to its creditors.
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We should not lose sight of the fact that the initial moratorium is very short. Any other co-existing or supplanting insolvency procedure would thwart that rescue attempt. For that reason we do not consider that the court should be able to permit other insolvency procedures to be commenced during a moratorium. The only exceptions to that principle should be where a petition is presented by the Secretary of State or the Bank of England in the limited circumstances specified in paragraph 12(5) of Schedule A1.
Clearly, where the nominee considers insolvency proceedings are appropriate, he can no longer be of the opinion that the voluntary arrangement has a reasonable prospect of being approved and implemented. It seems self-evident that he will have to withdraw his consent under paragraph 23 and bring the moratorium to an immediate end.
If a creditor considers another form of insolvency procedure appropriate he should tell the nominee who, if suitable, could withdraw his consent to act and, in that way too, bring the moratorium to an end. The meeting of the company's creditors would also provide the creditor with an opportunity to express his concerns and vote against any extension of the moratorium or approval of the proposed voluntary arrangement.
We do not consider it appropriate for the nominee to be allowed to authorise a breach of the statutory moratorium in respect of paragraph 12(1)(f)—that is,leave to enforce security—or paragraph 12(1) (g)— that is, leave to take proceedings. These are matters which, in our view, the court should decide.
The situation is rather different, however, in relation to the calling or requisitioning of a company meeting. The members of a company may need to meet in order to satisfy certain obligations under the Companies Act. That is why we have made provision for a nominee to consent to such a meeting under paragraph 12(1)(b) or for the court to give leave for such a meeting.
I am sorry that we are not able to support these amendments.
4.30 p.m.
Lord Kingsland: I thank the Minister for his brisk reply. Perhaps I should say that he seems to exaggerate the problem of two separate winding-up procedures. If a winding-up order is made, the moratorium would come to an end. There would then only be one insolvency procedure—that of liquidation.
Lord McIntosh of Haringey: That is why in those circumstances, we do not need the amendment. The other circumstances that I have outlined would bring the moratorium to an end. The moratorium comes to an end, most obviously, if the nominee loses confidence in it. It can, however, come to an end if the creditors' meeting votes against it and the nominee loses confidence in it—if a significant shareholder indicates his objection to its continuation. If it comes to an end, naturally liquidation proceedings would

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then be appropriate. If people are agreed—if the shareholders, where appropriate, the company and the creditors are agreed—by votes in both meetings that the moratorium should continue, it seems somehow wrong that there should be the alternative, destructive procedure starting in the middle of a moratorium. It is after all, rather a short moratorium.
Lord Kingsland: The noble Lord has, possibly, made my point for me; but I shall look carefully in Hansard to see whether or not that assessment is correct. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. II not moved.]
Lord Kingslandmoved Amendment No. 12:
Page 14, leave out line 19.
The noble Lord said: There is another important difference between the moratorium in paragraph 12 and that which arises when an administration petition is presented; it relates to the position of a debentureholder. As noble Lords are by now aware, under paragraph 12 it is proposed that in some instances a third party can enforce its rights against a company if it obtains the consent of the nominee or the leave of the court.
The leave of the court can, of course, be granted on terms. For example, a landlord who wants to take proceedings to forfeit a lease can apply for the leave of the court. If he does, the court may give him leave and may impose terms, such as ordering that he can only take proceedings for forfeiture if the company does not pay the rent during the moratorium. Such an order would prevent a landlord from taking advantage of the past indebtedness but would give him priority during the course of the moratorium.
In contrast, some third parties are not given the right to apply to the court for leave to enforce their rights. An example of this is a debentureholder who wishes to appoint an administrative receiver. Thus, there are two classes of rights: those which can be enforced with the leave of the court and those which cannot be enforced even with that leave. Rights that can be enforced with the leave of the court include calling or requisitioning a meeting of the company, taking steps to enforce security over the company's property, repossessing goods in the company's possession under any hire purchase agreement, commencing or continuing proceedings, execution or other legal process and levying distress against the company or its property.
By contrast, the other rights referred to in the paragraph cannot be enforced at all, even with the leave of the court: no petition can be presented to wind up the company; no resolution may be passed or order made for the winding-up of the company; no petition for an administration order may be presented; and no administrative receiver of the company may be appointed. However meritorious the claim, those rights cannot be enforced.
It is difficult to see any policy reasons for the distinction between the two classes. The distinction is also unreal if one considers the position of a
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debentureholder with a debenture containing fixed and floating charges. A debentureholder will be able to enforce the fixed charges in the debenture with the leave of the court, but will not be entitled to appoint an administrative receiver under the floating charge. Why should that be the position?
The position is particularly odd as regards a debentureholder who wants to appoint an administrative receiver under the floating charge. That is because the approval of the voluntary arrangement brings the moratorium to an end and the voluntary arrangement cannot prevent the debentureholder from appointing an administrative receiver. It seems extraordinary that a debentureholder can appoint an administrative receiver if a voluntary arrangement is approved but cannot do so before it is approved while there is a chance that it might be.
This strange situation is even more baffling when compared with the administration order procedure. Under Section 10 of the Insolvency Act 1986, there is a limited moratorium during the period beginning with the presentation of a petition for an administration order and ending with the making of an order or the dismissal of the petition. The hearing of the petition is usually within five days. During that relatively short period, there is a limited moratorium; however, it does not prevent the presentation of a petition for the winding-up of a company or for the appointment of an administrative receiver. A debentureholder has an absolute right to appoint an administrative receiver and, if he exercises that right, the court cannot make an administration order.
Effectively, the debentureholder has a veto on an administration order being granted. So far as concerns a creditor who presents a winding-up petition, he is entitled to be represented at the hearing for an administration order and can argue against an administration order. Those rights are abrogated by paragraph 12 without the protection of the court; neither the debentureholder nor the creditor who wishes to present a winding-up petition has any right to apply to the court for leave to appoint an administrative receiver or present a winding-up petition. That is manifestly undesirable.
As a general rule, company directors will, understandably, go to almost any lengths to avoid a winding-up order. If paragraph 12 is accepted in its present form, a petitiosn can be prevented from being presented, simply by a nominee's recommendation under the provision in paragraph 7, however strong the grounds for a winding-up petition may be.
Similar considerations apply with respect to the appointment of an administrative receiver. Today, one has to apply for an injunction restraining the debentureholder from appointing an administrative receiver, usually with little chance of success. In future, all one will need to do is to find an insolvency practitioner and get him to obtain a moratorium under paragraph 7, and that will prevent the debentureholder from appointing an administrative receiver. The scope for abuse is immense.

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As I understand it, the Government's first response to this argument is to say that it would be unacceptable to have two insolvency procedures of the same kind; but if a winding-up order is made—and I have made this point already in another context—the moratorium would come to an end. There would be only one insolvency procedure thereafter, and that would be liquidation.
The Government also say that a creditor could apply to the court to challenge the nominee's decision not to withdraw his consent; but the test is likely to be stiff. It would probably be necessary to show, in these circumstances, that the nominee's decision is manifestly unreasonable, or based on a failure to consider relevant matters, or the consideration of irrelevant matters. That could be a formidable obstacle to surmount. Why should he have to negotiate simply to present a winding-up petition or appoint an administrative receiver?
We have reflected on further amendments to this paragraph. The aim of the moratorium is the approval of the proposed voluntary arrangement under paragraph 29. It prevents creditors breaking rank. Sub-paragraph (4) of paragraph 29 prevents a meeting of members or creditors approving any proposal or modification which affects the right of a secure creditor to enforce the security, except with his concurrence.
The approval of the voluntary arrangement which the moratorium was intended to facilitate will allow secure creditors to enforce their security. However, the effect of the moratorium in paragraph 12 is to prevent secure creditors from doing so. On the one hand that seems to us to be wrong; because success in the shape of approval of the voluntary arrangement is the result of allowing a secure creditor to enforce his security, which is a mark of failure. It is therefore in the interests of unsecured creditors not to approve the voluntary arrangement in order to prevent a secure creditor from enforcing his security.
On the other hand, it may be desirable to forestall the secure creditors while negotiations are conducted with them with a view to their concurring in the voluntary arrangement. Furthermore, if they are secured they should be protected during the period of the moratorium and are unlikely to suffer much prejudice.
The Minister will no doubt be relieved to hear that, on balance, we prefer the moratorium to prevent secure creditors enforcing their security except as regards debenture holders with power to appoint administrative receivers. As I have already explained, they fall into a different category because such debentureholder security usually extends to assets that can be easily disposed of during the course of a moratorium. Accordingly, we do not propose any amendment other than this. I beg to move.
Lord McIntosh of Haringey: Indeed, the noble Lord, Lord Kingsland, ended by answering his own case very effectively; he led his troops up the hill and down
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again. This is the same argument as applied to the previous group of amendments. The only successful outcome of a moratorium is that everybody is satisfied that the business carries on and that the directors are left in charge of the business and everyone, including the debentureholders, the floating charge holders, are satisfied with whatever arrangement is agreed to. That is the only way in which a moratorium can be successful.
If that is to happen, one cannot have two procedures going on at the same time. That is the fundamental argument. The amendment would reduce the benefit for a company of obtaining a moratorium. Our intention is to give the company's management a short breathing-space in which to put a rescue plan to all its creditors. The amendment could make that pointless. The amendment would mean that would be nothing to stop a floating charge holder from appointing an administrative receiver during the moratorium. That would almost certainly be disastrous for any rescue attempt.
Lord Kingsland: With the leave of the court?
4.45 p.m.
Lord McIntosh: I will come on to the point about the leave of the court. If that happened, with or without the leave of the court, the receiver would be in charge of the assets of the company—that is what happens with receivership. He would assume control of all the company's assets and he would then presumably proceed, as receivers do, to dispose of them with a view to repaying the moneys due to the floating chargeholder, the debentureholder. We cannot see why a debentureholder should be the only creditor whose actions should not be stayed by the moratorium. If we are serious about giving companies the necessary short breathing place to put a rescue plan to all its creditors, then we have to reject this amendment. If not, the legislation, frankly, becomes a "dead letter". This could easily be a wrecking amendment.
We have provided that a company is only able to obtain a moratorium if the nominee is of the view that the directors' proposal for a voluntary arrangement has a reasonable prospect of being approved and implemented and also that the company is likely to have sufficient funds to enable it to carry on its business during the moratorium. Thus, any company that obtains a moratorium should stand a reasonable prospect of being able to agree and implement a rescue plan with its creditors. With the other safeguards in the Bill, that should give sufficient comfort to the creditors for the duration of the moratorium. If the debentureholder makes it clear to the nominee that the debentureholder, the floating chargeholder, is determined to go ahead and appoint a receiver and assume control of the assets of the company, I do not see how any nominee could have the necessary confidence that the proposal has a reasonable prospect of being approved and implemented.

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In any case, the moratorium will be of a maximum period of 28 days and there are limitations on it being extended. We intend to allow secured creditors—which include the floating chargeholder—to vote for the full amount of their claims on any proposal for an extension of the moratorium beyond that initial period. So they will be able to have their say on whether or not the moratorium should be extended by any period up to a further two months.
If this amendment were to be accepted it could give rise to two conflicting and competing insolvency procedures at the same time; that is, the moratorium and the administrative receivership. In view of what I have said about control of assets, it would effectively wreck the moratorium.
If any creditor, and that includes a creditor who holds a floating charge, felt that a rescue via a moratorium would not work for some reason, he should express his concerns to the nominee. The purpose of that is to persuade the nominee that he must withdraw his consent to act and so bring the moratorium to an end. Under paragraph 23 of Schedule A1, the nominee is obliged to withdraw his consent to act if he forms the view that the proposed voluntary arrangement does not have a reasonable prospect of being approved or implemented or the company will not have sufficient funds to carry on its business throughout the moratorium.
The floating chargeholder may, perhaps, make it plain that he fully intends to appoint an administrative receiver the moment the moratorium comes to an end, and that may in itself affect the viability of the voluntary arrangement, which in turn may cause the nominee to withdraw his consent and end the moratorium. However, in the event that the nominee declined to withdraw his consent to act and the floating chargeholder was dissatisfied with that decision, application could still be made to the court under paragraph 24 to challenge that decision. Among other things, the court could bring the moratorium to an end and then the appointment of an administrative receiver could go ahead. We would expect any floating charge holder, who viewed a moratorium as pointless as he fully intends to appoint an administrative receiver, to approach the nominee to make that point. Because of his potential ability to wreck the implementation of an approved voluntary arrangement, it may well be that the nominee will feel the need to approach such chargeholders at an early stage to sound out their views on the proposed rescue attempt.
Lord Kingsland: I certainly could not have made my point at any greater length; but I might possibly have made it with greater clarity. Nevertheless, from the way in which the Minister has responded to me it is clear that he has understood what I am seeking.
Lord McIntosh of Haringey: Did the noble Lord, Lord Kingsland, say that I have understood, or have not understood?
Lord Kingsland: I said that the noble Lord had understood. It is not rare for the Minister to
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understand me; he has become very used to having to understand me in the course of the Finance Bill and the Utilities Bill, and he is becoming even more practised with the Insolvency Bill. The Minister was concerned about the destructive effect that accepting my amendment might have on the moratorium; but would that not equally apply to the forfeiture of a le…ise in the case of a landlord? A landlord is entitled to move in under the forfeiture rules in a manner which would totally destroy the moratorium. So why does he have a special privilege but not the debentureholder?
Lord McIntosh of Haringey: The noble Lord has tabled amendments on the forfeiture of lease, and I am very happy to debate them.
Lord Kingsland: I am sure the Minister has amendments and—
Lord McIntosh of Haringey: No, the noble Lord has amendments.
Lord Kingsland: We have amendments but I am asking the Minister that question in relation to the basis upon which he argued against my amendment in this instance.
Lord McIntosh of Haringey: I am willing to stand up and make the case about landlords and forfeiture of lease when we are debating an amendment on that point. I have listened to the lengthy exposition of the noble Lord, Lord Kingsland. I do understand the amendments correctly, and he has acknowledged that, but they would wreck the moratorium.
Lord Kingsland: Let us suppose that I accept that proposition. It is also true in those circumstances that full forfeiture would wreck the moratorium.
Lord McIntosh of Haringey: I accept that.
Lord Kingsland: The noble Lord has just advanced another argument.
Lord McIntosh of Haringey: To which I shall respond when we reach that amendment.
Lord Kingsland: The Minister will have the pleasure of responding to my noble friend Lady Buscombe, because it will be my noble friend and not I who will be advancing the amendment. Meanwhile, I beg leave to withdraw this amendment.
Amendment, by leave, withdrawn.
[Amendment No. 13 not moved.]
Baroness Buscombe Baroness Buscombe moved Amendment No. 14:
Page 14, line 27, after ("property") insert ("and no lease of the company may be forfeited").
The noble Baroness said: In moving Amendment No. 14 I wish to speak also to Amendments Nos. 82 and 110. We are focusing here on what might be described as a long-standing omission or mistake in the Insolvency Act 1986. I refer to the ability of the landlord to effect peaceable entry during the period of a moratorium. We are very grateful for the discussions

CWH 15
which we had with the Minister on this point following Second Reading. However, we continue to believe that there are insufficient reasons for the Government not to treat peaceable re-entry in exactly the same way as other proceedings. That said, were these amendments accepted they would be inconsistent with similar provisions in the Insolvency Act, and so would not of themselves cure the inconsistency.
We believe that this point must be carefully considered, as we discussed with the Minister. It cannot be ignored. We are therefore particularly interested to hear what the Minister has to say. On that basis we may or may not consider returning to the point on Report. I beg to move.
Lord McIntosh of Haringey: This is clearly a very important matter. We discussed it between the Second Reading and the Committee stage and I acknowledged clearly enough that we take this very seriously indeed. Perhaps I may start by marking the distinction between forfeiture of a lease, a floating charge and an administrative receiver. If a landlord forfeits the lease then the company loses the lease. That may or may not be critical to its ability to do business. Some businesses can continue, particularly in this electronic age, without having a lease. They could retreat to the back bedroom. However, if a floating chargeholder appoints an administrative receiver then the company loses control of all of its assets and there is no possibility of it carrying on or making a rescue attempt.
Having made that distinction between the debentureholder and the landlord, we recognise the importance that this issue may have in determining whether or not a successful rescue is achieved. We can understand the need to bring forward these amendments and we are grateful to have the opportunity to debate them. There are, of course, implications for bankruptcy cases as well. This is potentially a very complex and controversial area, which needs careful consideration before we legislate. That is why we did not put it into this Bill. This is a very modest Bill about a moratorium rather than a review of the whole of insolvency legislation. It is also why the joint DTI/Treasury review of company rescue mechanisms was specifically asked to consider the area separately—some months ago—which it has done done.
It could be argued that there is no need to legislate to prevent landlords from effecting peaceable re-entry as steps can be taken to prevent that happening. For example, a landlord cannot effect peaceable re-entry if there is someone present at the premises at the time who opposes the re-entry. However, that may well involve incurring costs the company can ill afford. Additionally, a landlord who wishes to forfeit a lease by way of peaceable re-entry, other than for arrears of rent, must issue a notice under Section 146 of the Law of Property Act. A tenant then has the right to apply to the court for relief from forfeiture. As we understand it, relief is usually granted where the breaches are capable of remedy within a reasonable period.
CWH 16
However, that could also involve costs that the company cannot afford. Forfeiture is not a means of recovering outstanding rent but a longstanding right designed to allow a landlord to protect his interests in the property where there has been some act or omission on the part of the tenant. Furtermore, while other creditors can decline to offer further credit during a moratorium, if a landlord is unable to exercise his right to forfeiture where rent is not forthcoming he becomes an unwilling and involuntary creditor—though clearly he would not be alone in that respect. For instance, owners of leased assets are currently unable to take action under their agreements without the leave of the court while a moratorium is in existence.
However, we recognise that, where exercised, this self-help remedy can deprive a company of its trading premises and, in certain circumstances, wreck its business. Consultation on this particular matter is, however, important. The noble Baroness, Lady Buscombe, in her comments on consultation at Second Reading, suggests that she recognises that. Since Second Reading, therefore, we have put in hand a brief consultation on the point. We have requested views on the proposals that landlords should not be able to effect peaceable entry without consent or the leave of the court, while a company or individual is subject to a statutory moratorium in the context of an insolvency procedure.
The closing date for responses to this brief consultation process is 7th July. We intend that the matter will be determined in the context of the passage of this Bill through Parliament. By this I mean that it is unlikely to be in this House but we will reach a conclusion on it before the Bill leaves another place. I hope that will reassure the Opposition that we have taken seriously the views that were expressed at Second Reading and that this amendment would not be appropriate at this stage.
Baroness Buscombe: I thank the Minister for his comments. This is extremely good news. It is a complex and controversial issue which deserves serious consideration. We take a number of the points that he has made—particularly, for example, in relation to costs that would probably be incurred by landlords—and obviously want to read with great care what the Minister had to say.
The consultation itself is important. We are delighted to hear that there is now in place a consultation with the industry so that it has an opportunity perhaps to offer ideas for a resolution to this. We note his remarks and therefore have pleasure in withdrawing the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 15 and 16 not moved.]
Lord McIntosh of Haringeymoved Amendment No. 17:
Page 14, line 48. at end insert—
(" .—(1) This paragraph applies where there is an uncrystallised floating charge on the property of a company for which a moratorium is in force.
(2) If the conditions for the holder of the charge to give a notice having the effect mentioned in sub-paragraph (4) are met at any time, the notice may not be given at that time but may instead be given as soon as practicable after the moratorium has come to an end.
(3) If any other event occurs at any time which (apart from this sub-paragraph) would have the effect mentioned in subparagraph (4), then—

(a) the event shall not have the effect in question at that time, but

(b) if notice of the event is given to the company by the holder of the charge as soon as is practicable after the moratorium has come to an end, the event is to be treated as if it had occurred when the notice was given.

(4) The effect referred to in sub-paragraphs (2) and (3) is—

(a) causing the crystallisation of the floating charge, or

(b) causing the imposition, by virtue of provision in the instrument creating the charge, of any restriction on the disposal of any property of the company.

(5) Application may not be made for leave under paragraph 12(1)1f) or (g) with a view to obtaining—

(a) the crystallisation of the floating charge, or

(b) the imposition, by virtue of provision in the instrument creating the charge, of any restriction on the disposal of any property of the company.").

The noble Lord said: The concept of a floating charge, as I have been calling it—a debenture as the noble Lord, Lord Kingsland, has been calling it—is well known in this country, particularly to those who have needed to obtain financial support for their companies. Indeed, it is worse than that. Having run my own company for 30 years I am very familiar with the floating charge and, indeed, very familiar with personal guarantees, which go much further than the floating charge.
As the name suggests, the floating charge is a form of security which does not attach to a particular asset. It covers, like the Sword of Damocles, assets not subject to a fixed charge. Generally, it attaches itself only to those assets, or "crystallises". as it is usually called, when some specific event or events occur. What these events are is usually set out in the legal documents creating the charge. A consequence—and a very desirable one at that—of the charge floating is that the company is free to deal with the assets without constantly having to refer back to the chargeholder.
However, on Second Reading I referred to our concern that without this amendment the stay of creditors' rights contained in the Bill would not be fully effective against possible action by the holder of a floating charge. The intention is that we have an effective stay on creditors' rights and so give the company the breathing space it needs to put its rescue plan to creditors. We have therefore brought forward this amendment so as to prevent a floating charge from crystallising, or restrictions being imposed upon the company's ability to dispose of charged property during a moratorium. This leaves the company able to deal with its assets during the moratorium in the same way as it could before the moratorium was obtained. That is because if we permitted either of those events to occur during a moratorium it would be likely to result in a virtual paralysis for the company. To dispose of any goods covered by the charge if either of those events had occurred would need the consent of
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the chargeholder or the permission of the court under paragraph 19. That clearly would be impractical in a trading situation and make any rescue attempt very difficult to achieve, if not an impossibility.
However, we have also provided that the charge may crystallise, or restrictions be imposed on the disposal of assets, once the moratorium ends —if that is what the floating chargeholder wishes. The reason is that the secured creditor's rights are only stayed during a moratorium and they should be reinstated as soon as the moratorium ends. That will be achieved by the chargeholder issuing a notice to that effect once a moratorium has come to an end. That will mean that the floating chargeholder will still be able to rely on an event which occurred during the moratorium, so as to crystallise their charge or impose restrictions. Without such a provision, in certain circumstances such an opportunity might otherwise be lost—for example, where crystallisation is to be based on an event which cannot be repeated, such as the resignation of a specific individual.
This approach is consistent with the impact of a moratorium on the treatment of other creditors who are generally prohibited from taking action against the company—other than with the leave of the court—for the period that a moratorium is in force, and whose rights are restored once a moratorium ends, subject to their not being bound by an approved voluntary arrangement. A stay on creditors' rights is fundamental. Without it, the directors will not have the necessary short breathing space within which to put the rescue plan to creditors.
Members of the Committee will note the symmetry of my amendment with those which were moved by the noble Lord, Lord Kingsland, in an earlier group. I beg to move.
On Question, amendment agreed to.
Lord Kingslandmoved Amendment No. 18:
Page 14, leave out lines 49 to 51 and insert—
("13.—(1) Any security granted by the company at a lime when a moratorium is in force in relation to the company is invalid except for the extent of the aggregate of—

(a) the amount of any money paid, or the value of goods or services supplied, to the company at the same time as, or after, the security is granted, which is, and is intended to be, secured by the security, and

(b) the amount of such interest (if any) as is payable on the amount falling within paragraph (a) in pursuance of any agreement under which the money was so paid or the goods or services were so supplied.

(2) For the purposes of sub-paragraph (1)(a), the value of any goods or services supplied is the amount in money which at the time they were supplied could reasonably have been expected to be obtained for supplying the goods or services in the ordinary course of business and on the same terms (apart from the consideration) as those on which they were supplied to the company.").
The noble Lord said: Paragraph 13 of the new Schedule A1 provides that any security granted during the period of the moratorium can be enforced only if, at the time it was granted, there were reasonable grounds for believing that it would benefit the company. That provision will make it extremely

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difficult to raise finance during the moratorium. Its validity would depend on whether there were reasonable grounds for believing that the security would benefit the company, and that is too demanding a criterion.
Instead, we suggest that the Bill imitates the provisions of Section 245 of the 1986 Act, which avoids floating charges created within a specified period before a company goes into liquidation. Such charges are invalid, save with respect to fresh money or the value of new goods and services provided after the security was granted. That test would, in our view, be a workable one. I beg to move.
The Deputy Chairman of Committees: I remind the Committee that this amendment pre-empts Amendments Nos. 19 and 20.
5 p.m.
Lord Sharman: I would like to speak to Amendments Nos. 19 and 20 which stand in my name. As the noble Lord, Lord Kingsland, has already explained, there are concerns, which I share, about the ability to raise finance during the period of the moratorium, were paragraph 13 to remain unamended.
Amendment No. 19 effectively creates some sort of safe haven, albeit a small one, for a funder who acts in good faith in dealing with the nominee who, in his opinion, is taking the right action in accepting the security.
Amendment No. 20 seeks to clarify the issue hut, of course, it is difficult, even in my judgment, for security to benefit an entity; it is the transaction which gives rise to the granting of security that should be the test in terms of benefiting the entity.
For the reasons outlined by the noble Lord, Lord Kingsland, the paragraph does need amendment. My own view is that it could be simply amended as I have set out in these proposals.
Lord McIntosh of Haringey: I propose to speak to the three amendments together. I apologise for not having grouped them together when we first sent out the groupings list yesterday.
We can see that Amendment No. 18 would guarantee the enforceability of a charge taken where new moneys are advanced or goods or services are supplied on credit during a moratorium; that is clearly its intention. It is possible, however, that giving security for an existing debt may be necessary in order to, say, secure future essential supplies during the moratorium. This would not be covered by the amendment, but it would be for the benefit of the company.
The amendment would not ensure that the security could only be enforceable if there were reasonable grounds for believing—at the time the security was taken—that it would benefit the company. I remind the Committee that the phrase "for the benefit of the company"—I am not sure whether the noble Lord,
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Lord Kingsland, thinks that it is not clear enough or not important enough, but in any case he does not think it is sufficient—is absolutely critical to this part of the Bill. This pre-condition of benefit is essential. The position of the company's other creditors should not be prejudiced by the company giving new security over its assets to a supplier of new credit where no benefit will flow, as it is likely to reduce the amount of money available for them all. If a plausible case were put to a bank for credit and the directors went off on holiday with the money, clearly that is not an acceptable use of the moratorium, and the other creditors would have a right to feel aggrieved.
The company's "free" assets, which would be available to pay its unsecured creditors, may be depleted to no advantage. And that is why we have provided that security can only be enforced if there were reasonable grounds, when it was granted, for believing that it would benefit the company. We appreciate that this throws the onus on the creditor to satisfy himself, before taking security, that he will be able to enforce it if it is necessary to do so. But this should ensure the desired effect as no one is likely to lend on the basis of security unless there is a clear benefit to the company.
We can also see how this amendment might enable the company to obtain funding during a moratorium. But in certain instances we do not consider that what is proposed would be appropriate, for the reasons I have given, as equity to the other creditors. We consider it vital that security should only be enforceable where a benefit would flow to the company. We remain of the view that we need to consult fully on the issue of funding before we can find an effective solution to this complex and difficult problem. We should not overlook the fact that before entering the moratorium the nominee would need to have given his opinion that the company is likely to have sufficient funds to enable it to carry on its business during the short moratorium period.
As for Amendments No. 19 and 20, we consider it appropriate that the onus should be on a potential lender to satisfy himself, before he takes new security from a company during a moratorium, that he will be able to enforce it if necessary. By placing the onus on the creditor this should produce the desired effect as no one is likely to lend on the basis of security unless there is a clear benefit to the company; in effect, as if he had read the Bill or the rules which will be publicised if and when the Bill is enacted.
We consider it undesirable for the nominee to be involved, particularly as, no doubt, lenders would want to satisfy themselves that their security will be enforceable if they need to take action to recover their debt by realising their security. We see that the granting of the security and the transaction leading to it is inextricably linked, so there is no real need to distinguish between the two as the noble Lord, Lord Sharman, suggested. Thus, alas, we are not able to accept these amendments.
Lord Kingsland: Perhaps I could just say to the Minister that the merits of our amendments are that,

CWH 21
in so far as these things can be specific and measurable, they are unlikely to lead to an excess of ex post litigation. By contrast, the Minister's criterion is exceedingly vague and open to many interpretations and, therefore, likely to lead to prolonged disputes in the courts long after the company has been wound up.
I urge the noble Lord to reflect on what the opposition have said about this matter; and hope that he will come back at Report stage absolutely convinced that we are right. Meanwhile I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos.19 and 20 not moved.]
Lord Sharmanmoved Amendment No. 21:
Page 15. line 31, at end insert—
("and for the purposes of this paragraph, "hire purchase agreement" shall not include conditional sale agreements, chattel leasing agreements or retention of title agreements").
The noble Lord said: As I speak to move this amendment standing in my name, it is to help me understand what I saw as a potential conflict between the definitions of what constituted a, hire purchase agreement. By virtue of paragraph 1 of Schedule A1 a retention of title clause comes within the definition of a hire purchase agreement. In paragraph 16(2)(a) we also refer to a hire purchase agreement, or a conditional sale agreement. However, the hire purchase agreement is defined in paragraph 1 as including a condition of sale agreement as well as a chattel leasing agreement and retention of title agreement. It is not clear to me whether paragraph 16(2)(a) is intended to encompass the latter two types of agreement. If it is then I believe it needs to be specific, and if it is not then perhaps some further clarification would be useful. I beg to move.
Lord McIntosh of Haringey: I think I can answer the question simply. The current wording in paragraph 16 follows that used in the corresponding provision in Section 360 of the Insolvency Act 1986, with an extended definition of hire purchase agreement to include conditional sale agreements, chattel leasing agreements and retention of title agreements. The extended definition of hire purchase is to be found in paragraph 1 of Schedule 1A, and of course is the same as that which the noble Lord uses in the amendment.
The offence of obtaining credit in paragraph 16 is explicitly extended by paragraph 16(2) to include,
"where goods are bailed (in Scotland. Hired)…or…agreed to be sold"
under the two types of agreement specifically referred to; namely, hire purchase for goods being bailed and conditional sale agreements for goods agreed to be sold. As it is not generally apt to refer to bailment in the context of a conditional sale agreement, it is necessary to make separate reference to the circumstances in which the goods are agreed to be sold under this type of agreement in order that this provision will have the effect we intend. Moreover, goods supplied under a chattel leasing or retention of title agreement will not be caught by paragraph
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16(2)(a) for the same reason. The paragraph as drafted is beastly complicated but it is necessary to ensure that prosecution can be undertaken in appropriate circumstances.
Perhaps the noble Lord, Lord Sharman, will allow me, while I am still in the mode of hire-purchase agreements, to say something about his Amendment No. 23 which I know he has not yet moved but which concerns the same issue.
A company that has entered a moratorium may have goods that are subject to hire-purchase, conditional sale, chattel leasing or retention of title agreements. Under paragraph 19, during the moratorium the company is able to deal with these goods within the terms of the relevant agreements because the company is, of course, carrying on business as usual. Paragraph 19 also provides that a company may dispose of goods, which are the subject of such agreements, provided certain conditions are first satisfied.
If we agree to Amendment No. 23 it would mean that the company's ability to dispose of goods under conditional sale, chattel leasing or retention of title agreements would be restricted to the company's ability to dispose of them under the terms of the relevant agreements. This would be, in our view, unduly restrictive, as the company may need to dispose of such goods in order to raise funds or reduce overheads. It might be a perfectly proper business decision. However, the rights of the holder of security, or the owner, as the case may be, are protected by subparagraphs (4) and (6).
I hope that that anticipates the arguments that the noble Lord, Lord Sharman, was going to use about Amendment No. 23 and I hope that what I have said about Amendment No. 21 will persuade him that our view is correct.
Lord Sharman: I agree entirely with the noble Lord when he says that the drafting of this is difficult to understand but, having heard his explanation, I wish to reflect on it. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
5.15 p.m.
Baroness Buscombemoved Amendment No. 22:
Page 16, line 8, at end insert—
("(4) A disposal of the company's property to any person other than a person who is connected with the company shall not be avoided only on the ground that sub-paragraph (1)(a) was not satisfied, but any officer of the company who authorises or permitted the contravention, without reasonable excuse, is liable to indemnify the company for any loss or damage resulting from the disposal.").
The noble Baroness said: Paragraph 17 of the new Schedule A1 restricts a company from disposing of its property unless there are reasonable grounds for believing that the disposal would benefit the company and the disposal is approved by the moratorium committee or, where there is no such committee, by the nominee. It is not clear whether or not any such

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disposal is avoided if it should turn out that the grounds for believing that the disposal would benefit the company were not reasonable.
That must be clarified, we believe, because it is not acceptable for any disposal to someone who is not connected with the company to be avoided at a subsequent date. That would have a substantial effect on the price to be paid. Both the company and the purchaser would be prejudiced. The company would get a lower price for its property and the purchaser would obtain property which might subsequently be claimed back by the company. That would be particularly unacceptable for any purchaser because such a purchaser should not be put on enquiry as to the grounds for the belief that the disposal would benefit the company, particularly if approved by the moratorium committee or the nominee.
The point is that, as the Bill is currently drafted, when forming an agreement with a third party and entering into a contract with him where there has been a moratorium, the contract is going to be of dubious validity, unless there are reasonable grounds for believing that their disposal would benefit the company. What sort of a contractual restriction is that? Why should a third party be interested in or concerned with whether the transaction is going to be for the benefit of the company? We do not believe that this is realistic. Moreover, if there is a risk of the contract being avoided, why would a person enter into it in the first place? He would surely go elsewhere. I beg to move.
Lord McIntosh of Haringey: I apologise to the noble Baroness, Lady Buscombe, for having my attention distracted.
Baroness Buscombe: Would the noble Lord like me to repeat that?
5.15 p.m.
Lord McIntosh of Haringey: I hope the noble Baroness will forgive me on the basis that I am going to make a friendly response to the amendment. We recognise the concern that if disposal were made contrary to paragraph 17 of Schedule A1, they could be invalid and unenforceable. We have concluded that this is right. We see that it would be damaging to rescue attempts if third parties were reluctant to deal with a company which is in a moratorium because of doubts about whether the contract would be enforceable against the company. We agree that this issue must be addressed in the Bill. Unfortunately, the amendment does not fully achieve what is required.
The amendment also seeks to make officers liable to indemnify the company for any loss or damage they cause to it by permitting, or authorising, a disposal which is contrary to paragraph 17 of Schedule A 1. Paragraph 38 of Schedule A1 provides that the court can make such order as it thinks fit when the actions of the directors are challenged. Such an order may require a director to indemnify the company where it
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had suffered a loss because he had caused the company to make a prohibited disposal. The Bill already deals with that particular point.
The amendment would still leave a third party needing to satisfy himself as to whether the proposed transaction is in the ordinary course of the company's business, and if not, whether the appropriate consent has been obtained from the nominee or committee under paragraph 17(1)(b). These difficulties may still make third parties wary of dealing with the company. In my view the proposed Amendment No. 22 would not fully deal with the issue which concerns us all regarding the effect of paragraph 17 on third parties. However, we will be bringing forward amendments as soon as we can—and I am not promising that it will be at Report stage—to make it clear that contracts entered into in breach of paragraph 17 will be enforceable by third parties against the company.
Baroness Buscombe: I thank the Minister for his very helpful response. We look forward to seeing the amendments when they are drafted. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 23 and 24 not moved.]
Lord Kingsland Lord Kingsland moved Amendment No. 25:
Page 18, leave out lines 3 to 5.
The noble Lord said: Paragraph 22 of the new Schedule AI imposes an obligation on the nominee to monitor the company's affairs during the moratorium. He has to believe that the proposed voluntary arrangement has a reasonable prospect of being approved or implemented; and that the company will have sufficient funds available to it during the remainder of the moratorium to enable it to carry on business. If he does not hold that opinion he must withdraw his consent to act in accordance with paragraph 23.
Paragraph 22(3) provides that, in forming his opinion, he is entitled to rely on the information submitted to him by the directors under subparagraph (2),
"unless he has reason to doubt its accuracy".
This provision is similar to the provision in paragraph 6(3).
In our view, during the course of the moratorium a nominee should be under a duty to verify the information submitted to him by the directors from independent sources. When a company's financial affairs are so parlous that a moratorium is appropriate the directors are often desperate enough, no doubt frequently innocently, to mislead a nominee. We believe it is unreasonable for a nominee to rely upon the judgment of directors during the course of a moratorium; although at the beginning of the process there appears to be no alternative to this course.
We do not believe that, during the course of the moratorium, the nominee should only rely on the information submitted to him by the directors. He must obtain some cross co-ordinates. I beg to move.
Lord McIntosh of Haringey: The noble Lord, Lord Kingsland, is entirely right. We intend that during a

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moratorium the nominee should be entitled to rely on the information given to him by the directors, for monitoring purposes, unless he has reason to doubt its accuracy. There is a very good reason for that. If the nominee had to establish and/or verify the information for himself the process would be likely to be prohibitively expensive. These additional costs would probably deny those companies which need the new moratorium the most the opportunity to use it. If that were so, this would undermine our purpose in legislating in this area.
However, the Bill does address the concerns which lie behind this amendment. First, we have provided, under paragraph 23(2)(c) of Schedule A1, that the nominee must withdraw his consent to act and so end the moratorium if the directors do not supply the necessary information required of them under paragraph 22. Also, supplying incorrect information would mean that the directors have not complied with that obligation and on becoming aware of that fact the nominee would have to withdraw in that instance too.
Secondly, depending on the circumstances, a director may also have committed an offence contrary to paragraph 40 of the schedule if he fails to provide the nominee with the requisite information or submits incorrect information. We consider that that should discourage any misconduct in this area by rogue directors who hope to prevent a nominee from ending a moratorium by providing misleading information.
We therefore consider it essential that paragraph 22(3) of Schedule Al is retained, rather than removed as proposed by the amendment. We also consider that adequate safeguards are in place to deal with the concerns which have led to this amendment.
Lord Kingsland: I thank the Minister for his reply. I am partially reassured by what he has said and will look again at the amendment to see whether or not there is another way to put the point. Meanwhile, I beg leave to withdraw it.
Amendment, by leave, withdrawn.
Lord Sharman Lord Sharman moved Amendment No. 26:
Pap 18, line 12, leave out ("must") and insert ("may").
The noble Lord said: In moving this amendment, I shall speak also to Amendments Nos. 27, 29 and 34, which are grouped with it.
All of these amendments deal with the situation in which the nominee ceases to act or may be required to cease to act. Amendment No. 26. changes the obligation on the nominee from a mandatory obligation to an optional one. Given that the purpose is to create a relatively short moratorium, which should—as the Minister has already said—be flexible, it would be beneficial to give the nominee, who after all would be someone experienced in these matters, the flexibility, rather than the obligation to withdraw in those circumstances.
Amendment No. 27 also deals with the circumstances in which the nominee must or may withdraw his or her consent to act. It adds to the clause the obligation that the opinion on which that decision
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might be founded should be a reasonable one. Circumstances could be envisaged in which it would be unreasonable for somebody to state a particular opinion in these circumstances and the requirement that it should be based on reason is necessary.
Amendment No 29 deals with the circumstances in which a nominee may wish to withdraw his consent to act, which fall outside the terms as set out currently in paragraph 23. Paragraph 23 provides for very specific circumstances in which a nominee may withdraw his or her consent to act. It would be good to have an all-encompassing provision, where the nominee could apply to the court for reasons based on circumstances that fall outside those relatively narrow definitions. Amendment No. 29 seeks to do just that.
Finally, Amendment No. 34 extends the remit in paragraph 26 of Schedule 1 to allow, by the application of a creditor, for the replacement of a nominee who has failed to carry out any of his or her duties. I will return to the issue of the fundamental duty of the nominee later in our discussions. However, on Second Reading I made the point that I was concerned that there needed to be an understanding of where the duty of the nominee fundamentally lies. Is it a care to the creditors, to the court, to the company, or to the directors? I believe it is necessary that the creditors should have the right to apply for the removal of a nominee who has failed to comply with the duties imposed on him in this Schedule. I beg to move.
5.30 p.m.
Lord McIntosh of Haringey: I shall deal with each of these amendments in turn. To accept Amendment No. 26 would give the nominee discretion to withdraw his consent to act, rather than being obliged to do so.
If it becomes clear that the voluntary arrangement is unlikely to be approved and implemented, the moratorium should be brought to an end. If no rescue is in prospect we consider that the company should not have the protection afforded by a moratorium and so the nominee must withdraw his consent to act.
Similarly, we consider that the nominee should have no option but to withdraw his consent to act if he becomes aware that when the company filed for a moratorium it was ineligible to do so. A company should not have the continuing benefit of a moratorium if it was not entitled to the moratorium in the first place.
Similarly, again, if the directors do not provide the information the nominee requests, so that he can monitor the company's affairs during the moratorium, we consider he must also be required to withdraw his consent to act. Monitoring is an important safeguard in the moratorium period. If the nominee cannot monitor the company's affairs as he thinks fit the company should not continue to have the benefit of the moratorium.
The circumstances set out in paragraph 23(2) requiring a nominee to withdraw are such that he should have no option but to withdraw if he forms the opinion that one or more of them applies. We

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therefore do not consider the nominee should have the discretion to remain in office under these circumstances and we cannot support this amendment.
Amendment No. 27 would require that the nominee must only withdraw his consent if he forms the reasonable opinion that, first, the proposed voluntary arrangement no longer has a reasonable prospect of being approved or implemented or, secondly, the company will not have sufficient funds available to it during the moratorium to enable it to continue in business.
We agree that where the nominee does form an opinion under paragraph 23(2) it should be reasonably held. However, inserting the additional requirement that his opinion should be reasonable is not necessary in this paragraph. If the nominee acts unreasonably then his decision can be challenged by an application to the court under paragraph 24. It follows therefore that, where challenged, if a nominee withdrew his consent to act under paragraph 23 on the basis of an unreasonable opinion the court can make an appropriate order which would provide the remedy which I think the noble Lord, Lord Sharman, is seeking.
It seemed to be suggested that there is a conflict of roles for the nominee during a moratorium—that of an independent office holder with a duty to the general body of creditors and that of a professional adviser with a duty of care to his client. We do not see any conflict of role for the nominee. His role is set out in the Bill and that role determines his duties and responsibilities. He has functions to fulfil under Schedule A1. For example, before a company can obtain a moratorium he is required to express his opinion on various matters. He will either consider that he can make the required statement set out in paragraph 6, or not. In certain instances he is required to give notice to various individuals and in other instances he is required to approve certain transactions which the company may only enter into if they satisfy certain requirements. He will either be content that they satisfy those requirements, or he will not. He has to monitor the company's affairs so that, if the circumstances require, he will withdraw his consent to act and bring the moratorium to an end.
Turning to Amendment No. 29, this amendment seeks to give the nominee an ability to withdraw his consent to act—thus bringing the moratorium to an end—by way of obtaining leave from the court. But the Bill already provides enough flexibility to enable him to withdraw his consent where appropriate. We have provided that he must withdraw his consent to act at any time during a moratorium, if he forms the opinion, which I have already set out in my response to the earlier amendment, that the voluntary arrangement, as proposed or with modifications no longer has a reasonable prospect of being approved or implemented, or that the company will not have sufficient funds available to it to enable it to continue to carry on its business during the remainder of the moratorium.
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He must also withdraw his consent to act if he becomes aware that when the company filed for a moratorium it was ineligible to do so, or if the directors fail to provide him with the necessary information.
One or other of these grounds would provide for the nominee to withdraw his consent in any appropriate circumstances and that would bring the moratorium to an end. These are decisions for the nominee and not for the court and we would not wish to provide further that the nominee could withdraw his consent to act with the leave of the court. I believe case law shows that if a nominee went along to the court in those circumstances the court would be likely to say "It is nothing to do with us, go back and do your job". Under those circumstances, I ask the noble Lord, Lord Sharman, not to press this amendment.
On Amendment No. 34, in our view it would be inappropriate to extend the scope of paragraph 26 to allow creditors to apply to the court to replace a nominee. A creditor who is not satisfied with the conduct of a nominee can already apply to the court under paragraph 24 and the court can make any order it thinks fit to deal with the situation complained of.
Alternatively, the replacement of the existing nominee by another nominee could be made a condition of any extension of the moratorium under paragraph 31, or approval of a voluntary arrangement under paragraph 29. We think nothing further is needed.
Lord Sharman: I listened with great care to what the Minister had to say. I should like to read it carefully in Hansard and reflect upon it, but I do see a fundamental difference of view between us. That is the difference between an individual having a number of different roles and an individual having a different duty of care. In many cases one can carry out different roles, but one's duty of care very frequently can become conflicted if it is to more than two or three people. Having said that, however, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 27 to 29 not moved.]
Lord Sharmanmoved Amendment No. 30:
Page 18. leave out lines 36 to 48 and insert—
("Directions to nominee
24. The nominee may apply to the court for directions in respect of any matter arising in connection with the performance by him of his functions.").
The noble Lord said: I beg your Lordships' indulgence because in moving Amendment No. 30 I shall speak also to Amendment No. 32, which is grouped with it. The issue here is to whom the nominee owes his fundamental duty of care. Amendment No. 30 seeks to provide the ability for the nominee to apply to the court for directions. It also removes the answerability to parties other than the creditors generally and to the court.
An individual may be fulfilling a number of roles. It is difficult for me to see how his fundamental duty of care can be to more than one particular body. He may

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well be there to supervise a moratorium for a limited period of time, but it will be found to be almost impossible to attract professionals into this function unless there is a clear definition of the duty of care. In my judgment, this amendment seeks simply to put that issue on the table and suggest that it should be to the creditors generally and to the court. Amendment No. 32 is a consequence of that decision. I beg to move.
The Deputy Chairman of Committees (Lord Brougham and Vaux): I should advise the Committee that if this amendment is agreed to I cannot call Amendment No. 31.
Baroness Buscombe: I should like to speak to Amendment No. 30 and, with it, Amendments Nos. 31 and 32. We are in considerable agreement with regard to the amendment moved by the noble Lord, Lord Sharman—to the extent that we agree that the nominee should be able to apply to the court for directions in respect of any matter arising in connection with the performance by him of his functions. However, we do not agree to the extent that the noble Lord seeks to remove lines 36 to 48. It is our view that a creditor would then be unable to challenge the nominee's decision. We cannot believe that that is the noble Lord's intention. It would be unrealistic for creditors to be allowed the right to challenge the decision of the nominee. There is common ground between us and we should be happy if Amendment No. 31 were accepted. However, the removal of lines 36 to 48 would present a problem. The nominee should have the right to ask the court for directions. This jurisdiction has always been given to office-holders in the position of the nominee. The original right was that of a trustee to apply to the court for directions, and that right has been given to all office-holders who do not act in self-interest, or similar office-holders.
We cannot support the noble Lord's second amendment on this point, Amendment No. 32. It seeks to remove a further right from the creditor; namely, the right of the creditor, and others, to take proceedings against the nominee. Would that have the effect of granting immunity to nominees—many of whom are likely to be accountants?
Lord McIntosh of Haringey: Amendments Nos. 30 and 32 are -ferocious" amendments which would remove from creditors a considerable element of the protection which, as the noble Baroness, Lady Buscombe, has rightly pointed out, is carefully provided for in this part of the schedule. Paragraph 24 provides that,
"(1) I f any creditor, director or member of the company, or any other person affected by a moratorium, is dissatisfied by any act, omission or decision of the nominee during the moratorium, he may apply to the court".
In general terms, paragraph 25 provides that,
"(1) Where there are reasonable grounds for believing that—

(a) as a result of any act, omission or decision of the nominee during the moratorium, the company has suffered loss, but

(b) the company does not intend to pursue any claim it may have against the nominee,

any creditor of the company may apply to the court".
I repeat the warning that I gave about applications to the court. Courts are quite unlikely to entertain such applications and Mr Justice Neuberger in a recent case expressed the view that the courts should not be used by the administrator in relation to an administration order as a way of avoiding commercial and administrative decisions which are properly for him, and to enable him to obtain the court's endorsement of his intended course of action. The judge said that the court was not there to act as a bomb shelter for the administrator. The case was T&D Industries plc v Another—and, as he is nodding, it seems that the noble Lord, Lord Kingsland, knows the case.
I do not believe that the duty of care issue is as the noble Lord, Lord Sharman, described it. There is only one possible successful outcome of a moratorium, and that is an agreed voluntary arrangement. Thai: cannot be achieved without a duty of care to all the parties; they all have to accept that the voluntary arrangement is agreed to. However, these "ferocious" amendments would remove the important safeguards provided by paragraphs 24 and 25 for those affected by a moratorium which enable interested parties 1.o challenge a nominee's actions. They are replaced with a provision that the nominee may apply to the court for directions in respect of any matter arising in connection with the performance by him of his functions. That provides no safeguard for interested parties, but offers a nominee the means to seek directions from the court, which, as I have indicated, is unlikely to be successful. The nominee should be accountable for his actions; that is why we need paragraphs 24 and 25.
I now turn to Amendment No. 31. We do not consider that the nominee should be given the power to apply to the court for directions, for exactly the reason I gave in response to other amendments. The nominee's role in the moratorium is such that he should not be in a position where such an application is appropriate. We must not lose sight of the fact that the nominee will not have any of the company's assets in his possession nor will he be running its affairs.
Commercial and administrative decisions are for the nominee, not for the court. We do not consider hat the courts should be used to provide the nominee with a way to avoid taking decisions which are rightly for him and to enable him to obtain the court's endorsement of his intended course of action. That is what I believe Mr Justice Neuberger was saying.
5.40 p.m.
Lord Sharman: I can see very little wrong with immunity for accountants. That said, it was my expectation that, under the Bill's provisions, quite a number of people who would act as nominees and supervisors would not be accountants; they would be from a new body or bodies to be recognised. I fear there is still some distance between us on the issue of duty of care and I want to reflect on the matter. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 31 and 32 not moved.]
Baroness Buscombe Baroness Buscombe moved Amendment No. 33:
Page 19. line 18, after ("in") insert ("and fund").
The noble Baroness said: Paragraph 25 of new Schedule A1 gives the creditor the right to apply to the court where the company has suffered loss as the result of some act or omission of the nominee. On such application, the court can authorise the creditor to pursue a claim in the name of the company. In our view, the court should have power to direct the company to fund the creditor in bringing the claim.
In essence, where the company has suffered loss as a result of an act, omission or decision of the nominee, and where the company has no intention of pursuing a claim it may have against the nominee, we believe that not only, as the Bill provides, should the creditor be able to apply to the court for authorisation to pursue a claim and direct the company to assist in the pursuit of a claim; we believe it only reasonable, only equitable, that the company should fund that claim.
That approach is in accordance with numerous decisions, including, for example, Wallesteiner v Moir and subsequent cases. Where a minority shareholder wishes to bring a minority shareholder's action in the name of a company, he can apply for an indemnity against the costs of that action. We feel that a similar opportunity should be provided here; otherwise, the creditor is paying for litigation for the benefit of the company—in which case, the Bill as drafted discourages any such creditor. I beg to move.
Lord McIntosh of Haringey: I hope I can reassure the noble Baroness. The amendment indicates a concern that the court may not be able to order the company to fund a claim where it authorises—as it can do under 25(3)—a creditor to pursue a claim against a nominee under that paragraph. Paragraph 25(4) gives examples of matters which may be covered by an order made under sub-paragraph (3). It is clear from the words "among other things" in sub-paragraph (4) that matters which may be covered by such an order are not limited to those set out in sub-paragraph (4). Therefore, if the court thought it appropriate to order the company to fund pursuit, by a creditor, of the company's claim against the nominee, it could do so without the further words being added.
Baroness Buscombe: I listened with care to what the noble Lord said and am not entirely happy with it. I will read his comments in Hansard, but, for the moment, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 34 not moved.]
5.45 p.m.
Lord Sharman Lord Sharman moved Amendment 35:
Page 20, line 4, at end insert (", except that all creditors shall be entitled to attend and vote").
The noble Lord said: In moving this amendment I have but one purpose; namely, to enable the Minister to confirm what I understand he said earlier—that it
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is the Government's intention to amend the insolvency rules to enable secure creditors to vote on any proposed extension of the moratorium. Having said that, I beg to move.
Lord McIntosh of Haringey: I can confirm that we will consider the point raised by this amendment when we come to revise the insolvency rules, with a view to giving effect to the Bill. The provisions currently determining who is able to attend and vote at meetings is dealt with in the insolvency rules. One moment, I may have gone too far? Or—I can go further! We intend that secure creditors will be able to vote in full on the extension of the moratorium.
Lord Sharman: I find that response totally satisfactory, in which case I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Buscombe Baroness Buscombe moved Amendment No. 36:
Page 20, line 17, leave out (". or authorised to act as nominee,").
The noble Baroness said: In moving this Amendment, I shall also be speaking to Amendments Nos. 38, 49, 66, 68, 69, 77, 83, 85, 87, 88 and 94.
Subsections (3) and (4) of Clause 4 create a new type of insolvency practitioner who can act as a nominee or supervisor of a voluntary arrangement. Subsection (4) envisages such a person being authorised by a body recognised by the Secretary of State satisfying certain security requirements and not being ineligible on certain, specified grounds. These persons need not be insolvency practitioners.
As we said at Second Reading, that is worrying because it is inherently likely that an authorised person will be someone who has not made it as an insolvency practitioner and who has therefore become an authorised person instead. There would be no need for him to be an authorised person if he were already an insolvency practitioner. The result would be that an authorised person could in practice be less able than an insolvency practitioner.
This is particularly dangerous because of the new procedure for a moratorium, which cuts out the role of the court. Under existing law, a company can obtain a moratorium if it petitions the court for an administration order. The petition is usually heard within 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. The court is, therefore, closely involved at a very early stage. This is an important safeguard, since a moratorium imposes extreme restrictions on creditors, so the courts police these moratoria carefully.
The Bill as currently drafted will get rid of this important safeguard. A company or individual will be able to obtain a moratorium without any involvement by a court. To allow mere authorised persons, who may not be insolvency practitioners, to be the only real safeguard is unacceptable.

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In discussions with the Minister, following Second Reading, he made quite clear that the Government see no reason for standards to drop. However, I believe we should reflect upon the fact that, thanks to the Insolvency Act 1986, standards for insolvency practitioners have risen. We see the introduction of this new animal, this new style authorised person if you like, as a dumbing down of those standards. At the moment to be an insolvency practitioner and have a licence one must pass exams and have experience, and one is regularly policed by the joint monetary unit inspectors, with the threat always hanging over one of disciplinary tribunals and fines.
It is our belief that a further important point must also be taken into account with regard to these amendments. These authorised persons will only be able to handle a voluntary arrangement. It is our belief that they will inevitably recommend a voluntary arrangement, because otherwise if they recommend, for example, a bankruptcy in practice they will not be able to act and so they will not receive a fee.
Perhaps I may offer an example. Take someone who is in considerable debt and has no assets. He goes to a "new style" insolvency practitioner, an authorised person, who then will draft a voluntary arrangement proposal. He is bound to get it through the practice. Creditors would be paid, say 10 pence in the pound over the next five years. The fees of the insolvency practitioner for this would be, for example, £5,000. If the individual went bankrupt he would be much better off, but then, of course, the authorised person would not receive his fee.
As we speak, bankruptcy registrars who police the situation are trying to stop this practice. If we have individuals who are only licensed to handle a voluntary arrangement then this is bound to happen. I beg to move.
Lord Sharman: I should like to speak to Amendments No. 98 and 99 which stand in my name and are grouped with this amendment. I agree with the noble Baroness about the enabling aspects of this legislation. I am sure that the Minister will tell us that enabling provisions are contained in this Bill, and that we should wait and see.
There are two conflicts here. First, it is my judgment that the process by which a moratorium may be selected will inevitably be dominated by insolvency practitioners. I cannot envisage circumstances in which the directors of a company, with the duty of care they have to their shareholders and the provisions for failing or becoming insolvent, would think it sensible to take advice from anybody other than a practitioner in insolvency. It may be difficult to see this group of persons, whomever they may be, emerging. Nevertheless, if it is desirable that this enabling provision be included in the Bill then the body so recognised must have proper ethical standards, proper training and so on.
Amendments Nos. 98 and 99 seek to add the words "regulated professional" to the clause so that we are talking about "regulated professional bodies". That would require that any body falling into that category
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was subject to regulations, proper rules of ethics, and appropriate training and development for the task they would be carrying out. That would be a sensible provision.
The Earl of Sandwich: I hope that I may speak to Amendments Nos. 96 and 97, although we are straying into Clause 4. I have some sympathy with the remarks made by the noble Baroness, although this is not a subject on which I have had any expertise, or even familiarity, up to now, except in the context of Third World insolvency, in which the Minister also has a special responsibility. By chance I have been in conversation with a friend who is an insolvency practitioner who has privately expressed concerns about this Bill to me. I decided they were important enough to bring them before the Committee. I know from reading the documents that all noble Lords are aware of these in general, but I will not repeat them in detail since they were aired at Second Reading. As we have heard, they enabled the Secretary of State to recognise bodies and to authorise persons to act as nominees or supervisors not otherwise authorised to act.
I know enough about the professional status of other professions to be genuinely surprised by this clause, which appears to threaten the integrity of a highly respected profession in which much public confidence is vested. We have seen, for example, that the proposed nominees, albeit on a temporary basis, would not just be acting as practitioners but be defined as such, although evidently not qualified to make judgments on other kinds of insolvency procedure. This is where I support the noble Baroness, Lady Buscombe, and I understand that it lies at the heart of concerns among the practitioners as well as their professional body, the Association of Business Recovery Professionals. They argue that there is a clear risk that these acting practitioners will tend to recommend the voluntary arrangements where another process might be more appropriate. This could alter the whole direction of an insolvency procedure.
I know the Minister sought to answer this point during the Second Reading debate. He suggested (at col. 1271 of the Official Report of 4th April 2000) that the ABRP has already allowed some of its members to qualify through business rescue experience, but he will know that such company reconstruction work is carried out outside the formal procedures whereas in this case we are talking about formally appointed practitioners.
The Minister admitted that he did not know how this new role would work out and that the Government. were in no hurry to implement the measure; so why is it necessary? Are there not enough fully qualified professionals? Will this clause not give the public and the profession a sense of unease and uncertainty about the value and status of the insolvency practitioners and even about their credibility.

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I understand the profession as a whole supports the general direction of the Bill, but this clause causes professionals, such as my friend, much concern and I would like to pass the Minister's comments and assurances to him.
I am also interested to know whether the Minister has considered the question of a name for the new type of practitioner should this clause remain in the Bill as there is likely to be much confusion about it.
Finally, I also support the noble Lord, Lord Sharman, in his amendment to the new section, which requires the nominee to be a member of a body recognised.
It clearly follows from what I have already said that this needs to be a professional body and that the wording should at least be in line with Section 390(2) of the Insolvency Act.
6 p.m.
Lord McIntosh of Haringey: I am glad to have had the opportunity to listen to this useful debate. At present, only licensed insolvency practitioners may act as nominees and supervisors of voluntary arrangements. I have no hesitation in acknowledging that their skills, education, training and experience make them particularly suited for this and I have no doubt they will continue to undertake these roles.
However, that is not to say that there is, or could be, no other body whose members might also be capable of acting as nominees or supervisors or that such a body might not emerge in the future. That is particularly true in relation to the new moratorium.
We are not alone in recognising that. The insolvency practitioners have already recognised that people other themselves might have relevant skills. The trade association, formally the Society of Practitioners of Insolvency, is now called the Association of Business Recovery Professionals. Membership of that body is open to others with expertise in financial rescues. Those skills may prove very useful in achieving rescues by way of voluntary arrangements. If a body exists or is formed whose members are capable of acting as nominees and supervisors we see no good reason why its members should be prevented from playing a part in the rescue process, and that is why the power to recognise such a body was included in the Bill. Put another way, it is not essential that a nominee or supervisor need have the skills of an "undertaker" which is the way of commonly characterising an insolvency practitioner, as well as those of a "doctor"; he only needs those of the "doctor" to achieve the rescue.
It is clear that the Secretary of State would only recognise bodies which have in place suitable regimes to ensure that their members are up to the required standards. That regime will, of course, include suitable provision for recognition and measurement of skills, education and training, experience and so on. I do not see why any nominees or supervisors who could have been authorised in this clause should be thought to be "not up to the mark", as the noble Baroness, Lady
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Buscombe said, just because they do not choose to become insolvency practitioners but choose to specialise as doctors rather than undertakers.
We should not ignore the fact that some voluntary arrangements never get off the ground because the company or debtor concerned cannot afford the fees of the insolvency practitioner. If these amendments are passed it will prevent people coming into the marketplace who are capable of doing those jobs of nominee and supervisor to a satisfactory standard and perhaps at a lower cost. However, I cannot overemphasise that the reason for taking this power is to ensure that we can harness skills which, but for Clause 4 in its original and unamended form, would not be available to those attempting a rescue. We see no reason why standards should drop if the Secretary of State is allowed to recognise new bodies under new Section 389A.
From what was said on Second Reading, and here again today, it is clear that noble Lords are content with the Secretary of State's ability to recognise bodies to authorise insolvency practitioners. It will therefore be understood that we are slightly puzzled when it is suggested that the new class of nominee and supervisor will not be up to the mark. For that to be the case, it has to be assumed that the Secretary of State would recognise a body which did not have in place an appropriate regulatory regime meeting the requirements of Clause 4. That will simply not be the case—if a body cannot come up with a suitable regime to ensure that those it would authorise are up to the mark, it will not be recognised under Clause 4.
The regime of a body recognised under Clause 4 may, of course, be different from that of a body recognised under Section 391, since the members of a body recognised under Clause 4 will only be authorised to act as nominees and supervisors and not as insolvency practitioners generally.
I do, however, recognise that a difference between Section 391(2) of the Insolvency Act 1986 and what will be new Section 389A(5) may have caused some of the concern regarding standards. That may have resulted in the two amendments to which the noble Lord, Lord Sharman, has spoken. Section 391(2) refers to the recognition of a body which "regulates the practice of a profession" whereas new Section 389A(5) does not. But nothing of significance should be lost by that difference.
If it is suggested that the new breed of nominee supervisor would only recognise a voluntary arrangement, I would reply that the recognition of bodies under Section 391 of the Insolvency Act 1986 is only for the purpose of authorising individuals to act as insolvency practitioners, say as the liquidator and administrator of a company, or as a trustee in bankruptcy; or, indeed, as a nominee or supervisor. Thus recognition of a body under Clause 4 is only for the purpose of authorising individuals to act as nominee and supervisor. Neither power purports to regulate the provision of advice to a company or debtor that is in financial difficulties.

CWH 37
Such companies and debtors should seek advice from those they consider most suited to give it. That may or may not be an individual authorised by a body recognised under Section 391 or Clause 4. We simply do not accept that this point is valid. We consider that it is important that those who have the skills to achieve a rescue by way of a voluntary arrangement are able to assist companies and debtors in this way. Even the Association of Business Recovery and Professionals recognises that people other than insolvency practitioners already have skills which can usefully be brought to hear in achieving a rescue.
We consider that the Secretary of State will be able to ensure that recognition is only given to a body under Clause 4, where it can ensure that its members are up to standard and conduct themselves in an appropriate manner. Any concerns about the ability of those authorised by virtue of Clause 4 to do their job properly as nominee or supervisor should be unfounded. If standards are not maintained, the Secretary of State can revoke an order recognising a body under Clause 4. Under those circumstances, we cannot accept these amendments.
Baroness Buscombe: I thank the Minister for his response but ask him to clarify a point that I may not have quite right. Is he saying that I am wrong in suggesting that an authorised person is licensed only to handle a voluntary arrangement?
Lord McIntosh of Haringey: He is licensed only to act as a nominee or supervisor in a moratorium.
Baroness Buscombe: In which case, is he therefore not able to suggest other routes which might in fact be more beneficial to the person who has gone to him? I made the point about the small man who is in debt but would actually be better off going bankrupt than having a voluntary arrangement.
Lord McIntosh of Haringey: He can do that, of course, and he can give the advice. However, the successful outcome of a moratorium—that is what a moratorium is for—is a way in which the business carries on trading with the agreement of its creditors. The form that takes, whether it is a formal, voluntary arrangement, is open. A failure of a moratorium, however, is where the business goes bust and the creditors decide they would rather the business go bust than that it should be allowed to continue. That must, however, be their judgment and the nominee or supervisor is there to seek to achieve the continuation of the business.
Baroness Buscombe: I thank the Minister for his response. I am still unhappy with regard to the point we have made; namely, that whatever the circumstances the authorised person is almost bound to recommend a voluntary arrangement even where other procedures might be more appropriate. Indeed, in a sense I am saying that it is much less expensive. I agree with the noble Lord, Lord Sharman, that directors of the company are not likely to go to an authorised person. I thank him for his support.
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However, I return to my example of the individual, the small man, who is in debt without any assets, and take up the point made by the noble Earl, Lord Sandwich. He is unlikely really to know who he is going to. The point made by the noble Earl, Lord Sandwich, is very important in that there is some confusion as to the role, and indeed the credibility, of these new authorised persons. They are not just acting as insolvency practitioners but, in a sense, holding themselves out as insolvency practitioners.
Lord McIntosh of Haringey: I think I understand the difficulty we are having. The point being made by the noble Baroness, Lady Buscombe, is about pre-moratorium advice: in other words, whether or not we should go into a moratorium. I now understand and I am sorry to have been slow on the uptake. Neither the power under Section 391, which is the insolvency practitioner power, nor the power under Clause 4, purports to regulate the provision of advice to a company or a debtor that is in financial difficulty. That is not restricted to an insolvency practitioner or an authorised person, or anybody.
Companies or debtors seek advice from the people they consider most suited to give it. That could be their auditors, their bank managers, their brothers-in-law, or whoever it might be. What we are doing is nothing to do with advice before considering whether or not to go to a moratorium. We are looking at the qualifications for being a nominee or supervisor.
Baroness Buscombe: We made this point because an authorised person is only able to handle a voluntary arrangement; he is almost liable to recommend a voluntary arrangement. This may be cynical, but it will happen in practice because that is the only way he is going to get paid.
Lord McIntosh of Haringey: He gets paid as a nominee also, but as a supervisor, of course. If the phrase "voluntary arrangement" is being used as an alternative to "moratorium", anyone can ad vise on whether a moratorium is a good idea, and both creditors and the company have to agree to it—I stress "anyone", not merely an authorised person or insolvency practitioner. The nominee comes in when a decision has been taken in principle to go for a moratorium and he is paid as the nominee or the supervisor of the moratorium.
Baroness Buscombe: I thank the Minister for that response. The exchange on this point has been helpful. Again, I shall read the noble Lord's remarks with care.
I should like to return briefly to the points made by the noble Earl, Lord Sandwich, in regard to naming the authorised persons. It is important, particularly in relation to the "small guy" who is in difficulty and who needs help, that he should understand clearly, up front, whom he is approaching and what advice they are able to give. I thank the Minister. We shall read with care all that has been said and we may return to this point at Report stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
6.15 p.m.
Baroness Buscombemoved Amendment No. 37:
Page 20, line 43, leave out from ("a) to ("that") in line 45 and insert ("moratorium may be extended (or further extended), with or without conditions, if a meeting summoned under paragraph 27 resolves that it be adjourned (or further adjourned) and resolves").
The noble Baroness said: In introducing this amendment, I have a similar point to make in relation to Amendment No. 39. If the Minister is content, it may make sense to take the amendments together.
Lord McIntosh of Haringey: Yes, indeed.
Baroness Buscombe: Under the Bill as drafted, the meeting can resolve to extend the moratorium. However, the wording does not necessarily have that effect. It is a question of semantics. We do not question the purpose of the clause; both amendments merely propose a drafting point. A meeting can resolve itself to do anything, but that does not necessarily mean that it gives effect to that resolution. We believe that the wording should be the other way round: that the moratorium should be extended if the committee so resolves. The same is true of Amendment No. 39, which states that,
"A committee shall be established if, with the consent of the nominee, a meeting summoned under paragraph 27 resolves that the moratorium be extended … and resolves that such a committee be established; and such a committee may exercise the functions conferred on it by the meeting".
Although this is a drafting point, it is an important point of meaning. I beg to move.
Lord McIntosh of Haringey: I am glad that the noble Baroness, Lady Buscombe, has taken these two amendments together, because I can give the same happy reassurance on both of them. We are convinced—and we have taken further legal advice on the matter—that the amendments do not change the substance of paragraph 30(1) or paragraph 33(1) in any way. Amendment No. 37 merely re-states the content of paragraph 30(1) in different terms. The meaning of paragraph 30(1) is perfectly clear. It provides that where a meeting of the company or its creditors convened to consider the approval of a proposal for a voluntary arrangement is to be adjourned, the meeting may also resolve to extend, or further extend, the moratorium period, subject to any conditions the meeting may impose.
Amendment No. 39 relates to paragraph 33(1). The meaning of the paragraph is perfectly clear. It provides that if a meeting of the company or its creditors resolves to extend, or further extend, the moratorium, it may also, with the consent of the nominee and subject to paragraph 33(2), resolve to establish a committee to exercise the functions conferred on it by that meeting. Those seem to us the objectives of the amendment. We are convinced that our wording achieves those objectives.
Baroness Buscombe: We are going to have to agree to disagree at this point. Amendment No. 39 seeks to amend paragraph 33 of New Schedule A1, which merely gives a meeting summoned under paragraph 27
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power to resolve that a committee be established. However, it does not establish such a committee. I wonder if we could flag up that this is purely a drafting matter and might be approached in a different way. It is purely a matter of semantics.
Lord McIntosh of Haringey: I think that a motion to resolve a committee establishes a committee.
Baroness Buscombe: Perhaps I have a different legal background. I looked up the word "resolve" in the dictionary and it states,
"to disintegrate, or break up".
Lord McIntosh of Haringey: That is the meaning of "dissolve"!
Baroness Buscombe: The Oxford Dictionary states that "resolve" means to disintegrate; that is one meaning. I think that I will have to return to this matter at Report stage. However, I press the point that if one resolves to do something that does not give effect to it. It is a great idea; you can resolve to do all sorts of things, but it does not necessarily mean that they will happen. I should have thought the Government intend that the measure should have the effect of summoning a committee.
Lord McIntosh of Haringey: The noble Baroness and I have no doubt spent far too much of our lives in committees. I believe that a resolution of a meeting which states that a committee is established establishes a committee. However, I shall write to the noble Baroness on that matter.
Baroness Buscombe: I thank the noble Lord. That is an excellent idea. On that basis I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 38 and 39 not moved.]
Lord Kingsland Lord Kingsland moved Amendment No. 40:
Page 22, line 23, at end insert ("but must be made within seven days of the decision taken by the creditors' meeting").
The noble Lord said: I rise to move Amendment No. 40 and in doing so will speak to Amendment No. 70. Paragraph 34 of the New Schedule Al provides that the decision of the creditors' meeting is to prevail in any decision of the company meeting. It also gives the right to a member of the company to apply to the court to rule that the decision of the company meeting has effect instead of the decision of the creditors' meeting. There appears to be no time limit for a member to make that application.
Since these decisions are fundamental to the whole scheme of the moratorium, it is, in our view, desirable that there be a short time limit for a member to apply to the court. We believe this time limit should be seven days. The New Section 4A of the 1986 Act inserted by paragraph 5 of Schedule 2 should be consistent with this proposed amendment. I beg to move.
Lord McIntosh of Haringey: I understand the concern of the Opposition that the supervisor may be

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afraid to start to implement the voluntary arrangement because a member of the company may apply to the court in instances where the decision of the creditors and company meetings are at variance. However, supervisors should not be hesitant about implementing voluntary arrangements in these circumstances.
Paragraph 34 of Schedule A1 and paragraph 5 of Schedule 2 both make it clear that if the decisions of the two meetings are at variance, the decision of the creditors' meeting is the one that has effect. So those concerned may rely on that decision and act accordingly. That would continue to be the case until such time as the court ordered otherwise. For that reason the timing of any application by a member of a company is not critical for the nominee or supervisor, so we do not see any reason to restrict the time period in which a member of a company can make such an application, particularly as we have given the court adequate powers under paragraph 34(5) to deal with the situation where it sees merit in an application by a member. Indeed, a member may well need considerably more than seven days to consider his position.
However, if a member was concerned that prompt implementation of a voluntary agreement, as approved by the creditors and rejected by the members, was damaging to his circumstances, he would need to make an early application to the court in order to protect his interests. He would do that promptly because it is in his interest to do so, irrespective of any time limit.
In addition, the amendments do not work on their own terms. They require an application to be made to the court within seven days of the decision of the creditors' meeting which is at variance with that taken by the meeting of the company. But the company meeting which takes that decision may take place, say, 10 days after the decision taken by the creditors' meeting. Where that happens the time limit for making an application to the court will have expired before it is known that the two decisions are at variance.
Lord Kingsland: I am perfectly happy to accept that amendment to my amendment. The point I am making is that we need a clear rule. I shall return to this matter at Report and meanwhile beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Kingsland Lord Kingsland moved Amendment No. 41:
Page 22, leave out line 36 and insert—
("(ii) could have been so entitled (but was not present or represented at it) but did not have notice of it,").
The noble Lord said: In moving this amendment I shall also speak to Amendments Nos. 45, 46, 71, 75, 76, 89 and 93.
Paragraph 35 of the new Schedule Al deals with the effect of the approval of a voluntary arrangement. Sub-paragraph (2) provides that a voluntary arrangement binds those who are entitled to vote at a creditors' meeting and those who would have been so
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entitled if they had had notice of it. However, a creditor would still be entitled to vote at a creditors' meeting even if he had not had notice of it. Subparagraph (2)(b)(ii) has no effect because no creditor would have been entitled to vote if he had had notice of the creditors' meeting. Notice is irrelevant for the purposes of entitlement to vote. I beg to move.
Lord McIntosh of Haringey: These amendments certainly address real issues, which we do recognise. Firstly, they replace the word "would" with "could" and secondly replace "if he had had" with -but did not have".
If these amendments were to be accepted we consider that, in relation to the first issue, on occasion they may have the unfortunate consequence of the "unknown creditor"—that is, the one who had not had notice of the meeting to consider the voluntary arrangement proposal—being bound by that arrangement when he should not be. We only want a voluntary arrangement to bind those who would have been entitled to vote at a meeting if they had had notice of it. We do not want a creditor who could have been entitled to vote to be bound by a voluntary arrangement in the event that they would not have been so entitled at the meeting once the votes had been determined.
What we do intend to do—and I hope this will reassure the noble Lord—is to make provision in the Insolvency Rules to define in which circumstances an unknown creditor would have been entitled to vote at the creditors' meeting if he had had not ice of it. This will make it possible to say with certainty whether a creditor would have been entitled to vote and therefore whether he is bound by the arrangement. I think the Red Queen would have one or two things to say about this issue.
With regard to the amendments which address the second issue, these may be consequential on those which address the first, but we do not see that they would change the substance of relevant paragraphs in any way. The amendments only restate the contents of those paragraphs in different terms. We are satisfied that the meaning of those paragraphs is perfectly clear.
As the case may be, they either provide that a voluntary arrangement binds every person who in accordance with the rules would have been entitled to vote at the meeting to consider a voluntary arrangement proposal if he had received notice of it; or provide that such a person may apply to the court to challenge the decisions taken at those meetings.
The noble Lord, Lord Kingsland, said that notice is not relevant as to the entitlement to vote, but Rule 1.17 of the Insolvency Rules says:
"Subject as follows: every creditor who was given notice of the creditors' meeting is entitled to vote at that meeting".
I realise that this is a complicated issue but it is certainly our intention to meet the objectives of these amendments with provision in the Insolvency Rules.

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Again, perhaps it might be helpful if I could expand on that by writing to the noble Lord, Lord Kingsland, and others who have taken part in these debates.
Lord Kingsland: This is the first occasion this afternoon, when the noble Lord the Minister had given me some grounds for hope. I am much obliged to the Minister for his reply, which I shall read with the utmost care. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Sharman Lord Sharman moved Amendment No. 42:
Page 22, line 37, at end insert—
("(2A) Nothing in sub-paragraph (2) shall affect the rights of any creditor to bring legal proceedings against the company and to obtain judgement against the company in the full amount of its debt for the sole purpose of making a claim against an insurer by virtue of the Third Parties (Rights Against Insurers) Act 1930.").
The noble Lord said: In moving this amendment, I shall speak also to Amendments Nos. 72 and 90. All three of these amendments concern the position of creditors who may have rights under the Third Parties (Rights Against Insurers) Act 1930.
As we have just discussed, paragraph 35 binds creditors into the terms of a voluntary arrangement. However, that could have the effect of prejudicing their position against a third party insurer. Such creditors should not be bound by those arrangements if it prejudices those rights to recover their claim from the insolvency insurer. In the case of Sea Voyager Maritime Inc and others v Bielecki, the court held that a creditor who was bound by an arrangement was unfairly prejudiced because the compromise of his debt prevented him from proceeding against the insurer. This problem would be exacerbated by the proposed new provisions unless we made a specific exemption for creditors who have such claims.
The amendments to the three pieces of the Bill provide just that. They provide statutory protection solely for the purpose of enabling the creditor to proceed against an insurer. I beg to move.
Lord McIntosh of Haringey: Again, I think I can reassure the noble Lord, Lord Sharman, on this point. I understand the concern that the noble Lord has expressed and I sympathise with it, but we do not consider the amendments are necessary. We take the view, and there is case law which supports it, that creditors who are able to make a claim under the Third Parties (Rights Against Insurers) Act 1930 and who find themselves bound by a voluntary arrangement should be able to seek relief from the court on the grounds of unfair prejudice under either paragraph 36 of Schedule Al of the Bill, or Sections 6 or 262 of the Insolvency Act 1986 as appropriate.
It was decided in the case of Sea Voyager Maritime Inc and others v Bielecki that a person who is bound by a voluntary arrangement is prejudiced as a creditor by the terms of the arrangement if that person is not able, or at the very least, may not be able, to proceed to judgment for the full amount of any claim that it may
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have against the debtor and thus cannot, or may not be able to, recover in respect of that claim against the insurer under the 1930 Act. The application for relief in that case was made under Section 262 of the Insolvency Act 1986, because it relates to individual voluntary arrangements. That section is reproduced in paragraph 36 of Section A1 and Clause 6 of this Bill, and Section 6 of the Act.
Thus, a person who suffers unfair prejudice because their rights under the 1930 Act have been impaired may apply to and should be granted relief by the court under either paragraph 36 of Schedule A1 to the Bill, or Sections 6 or 262 of the Act as appropriate.
Lord Sharman: I am very grateful to the Minister for his response and much encouraged by it. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 43:
Page 22, line 39, leave out ("dividend") and insert ("amount").
The noble Lord said: With this amendment I speak also to Amendments Nos. 44, 73, 74, 91 and 92. These amendments relate to the company voluntary arrangement procedure, with or without a moratorium, and to the individual voluntary arrangement procedure, with or without an interim order, respectively. They are taken together as they address an identical point.
Paragraph 35 of Schedule Al, paragraph 6 of Schedule 2, and paragraph 9 of Schedule 3 all provide for "unknown creditors"—that is, those creditors bound by a voluntary arrangement even though they did not receive notice of the meeting to consider the proposal—to receive any "dividend" to which they would have been entitled. But the word "dividend" carries the connotation that it is a sum calculated at a rate of so many pence in the pound. However, a voluntary arrangement can provide for different creditors to receive varying amounts which might be calculated in different ways. For example, it could provide that each creditor should receive a specific sum, say £l,000, irrespective of the amount of individual claims, or, say, 10 per cent. in the pound on the amount of his claim; or perhaps a sum calculated by way of reference to the sum paid to a class of known creditors. We do not intend to fetter those proposing voluntary arrangements in such a way that proposals can only provide for the position of unknown creditors to be addressed in only one way, so the amendments will replace "dividend" with "amount" to achieve that result. I beg to move.
On Question, amendment agreed to.
6.30 p.m.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 44:
Page 22, line 43, leave out from ("person") to end of line 44 and insert ("the amount payable under the arrangement").
On Question, amendment agreed to.
[Amendments Nos. 45 and 46 not moved.]
Lord Kingsland Lord Kingsland moved Amendment No. 47:
Page 24, line 1, after ("and") insert ("may").
The noble Lord said: I speak to Amendments Nos. 47 and 48, extremely tersely. In paragraph 36(5) of new Schedule A1, the reference to paragraph 30 should be a reference to paragraph 34. We also think it would be appropriate for the court to have a discretion as to whether or not it revokes and suspends any decision as proving the voluntary arrangement which has effect on paragraph 34. I beg to move.
Lord McIntosh of Haringey: Paragraph 36(5) largely replicates Section 6(5) of the Insolvency Act 1986, which deals with company voluntary arrangements.
In both cases the effect of the provision is that, where the court is satisfied that a revised proposal will not be submitted for consideration by the meetings which the court has directed to be held, it is required to revoke the direction and revoke or suspend any decision approving the voluntary arrangement which has taken effect.
If this amendment were to be agreed to, an inconsistency would be introduced between the procedure leading to a company voluntary arrangement which is preceded by a moratorium and one which is not. That is to say that where the arrangement is preceded by a moratorium the court may revoke or suspend any decision approving the voluntary arrangement. But where there is no moratorium the court must revoke or suspend the decision. This inconsistency would not be appropriate. It is our intention to insert a moratorium into the existing company voluntary arrangement procedure—that is what this Bill is about—and the existing procedure should only be modified where the existence of the moratorium requires it, which is not the case here.
Some people might suggest that it is Section 6(5)—that is, the original scheme—which is wrong and that the court should be able to exercise its discretion in these circumstances in relation to both Section 6(5) and paragraph 36(5). However, that would be inappropriate as well. The challenges we are concerned with here arise from situations where the court has accepted that some form of unfair prejudice or material irregularity has taken place and where the court has directed that further meetings be held but is satisfied that the directors do not intend to submit a revised proposal. In such circumstances, it is clearly appropriate that the court should either suspend the decision approving the voluntary arrangement or revoke it, thus giving relief from the effects of the unfair prejudice or the material irregularity concerned.
Lord Kingsland: I must confess that the noble Minister's remarks will lead me to think again about these amendments and in those circumstances I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Kingsland Lord Kingsland moved Amendment No. 48:
Page 24, line 3, leave out ("30") and insert ("34").
The noble Lord said: I beg to move.
Lord McIntosh of Haringey: I did not realise that the noble Lord, Lord Kingsland, had spoken to Amendment No. 48. He is quite right about Amendment No. 48. Paragraph 36(5)of Schedule A1 to the Bill refers to the decision approving a company voluntary arrangement following a moratorium under paragraph 30 of that Schedule, but in fact such decisions have effect under paragraph 34 of that Schedule, not paragraph 30. I am pleased to accept the amendment.
On Question, amendment agreed to.
[Amendment No. 49 not moved.]
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 50:
Page 25, line 10, leave out ("by petition").
The noble Lord said: There is no need for the application—which creditors or member; of a company can make under paragraph 38 of Schedule A1 to the Bill—to challenge the acts or omissions of the company's directors during the moratorium to be made "by petition". It is more appropriate—and more consonant with modern practice—for such applications to be made in accordance with the system in Part 7 of the Insolvency Rules 1986, which set out how court applications are made in insolvency cases. This amendment removes the words "by petition" from paragraph 38(2). I beg to move.
On Question, amendment agreed to.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 51:
Page 25, line 35, at end insert—
("( ) In making an order under this paragraph the court shall have regard to the need to safeguard the interests of persons who have dealt with the company in good faith and for value.
( ) In relation to any time when an administration order is in force in relation to the company, or the company is being wound up, in pursuance of a petition presented before the moratorium came into force, no application for an order under this paragraph may be made by a creditor or member of the company; but such an application may be made instead by the administrator or (as the case may be) liquidator.").
The noble Lord said: Paragraph 38 of Schedule A1 enables any creditor or shareholder of the company to challenge the acts or omissions of the directors of the company during the moratorium. They can do this either during the moratorium or after it h as come to an end. When dealing with such an application the court can make such order as it thinks fit for giving relief in respect of the matters complained of. It could, for instance, order a transaction to be reversed or compensation to be paid by whoever the court decided.
On Second Reading it was suggested that third parties might be discouraged from dealing with a company during a moratorium period because of fears that the transaction in which they were involved might later be overturned by the courts. It is probably

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unlikely that a court would upset a transaction to the detriment of a third party who dealt with the company in good faith and for value. However, we recognise that a fear of that possibility could act as a real disincentive for people to deal with a company during a moratorium, so we have brought forward this amendment, first, to make it clear that when a court is considering giving relief in respect of a complaint under paragraph 38, it must safeguard the interest of persons who have dealt with the company in good faith and for value.
The second part of the amendment addresses the position under paragraph 38 when an administration order or winding-up order is made against the company on a petition which had been presented to the court before the moratorium was obtained. This situation necessarily implies that no voluntary arrangement has resulted.
Both administration and liquidation are collective insolvency procedures; that is, they operate so as to affect the interests of all the insolvent's creditors who are then dealt with in accordance with the statutory schemes in the Insolvency Act. It is therefore appropriate that when one of those procedures is invoked on a petition which was presented before a moratorium was obtained, but was then stayed by it, the right to make an application under paragraph 38 should be exercisable by the administrator or liquidator rather than by individual creditors or shareholders, otherwise there would be an unacceptable conflict.
The amendment also removes the right of creditors and shareholders to take individual action under paragraph 38 in these circumstances and gives it instead to the liquidator or administrator. I beg to move.
On Question, amendment agreed to.
Baroness Buscombe Baroness Buscombe moved Amendment No. 52:
Page 25, line 45. leave out ("(c). (d) and (e)") and insert ("(a) to (f)").
The noble Baroness said: In speaking to Amendment No. 52 I shall also speak to Amendment No. 53. Very briefly, paragraph 39 of the new Schedule AI creates certain offences where a moratorium has been obtained. The prohibited acts are contained in sub-paragraph (4). It appears from sub-paragraphs (2)(b) and (3)(b) that an officer of the company does not commit an offence if he is privy to someone else fraudulently removing any part of the company's property and other similarly prohibited acts. We can see no justification for that privilege. I beg to move.
Lord McIntosh of Haringey: We have modelled paragraph 39 of Schedule A1 on Section 206 of the Insolvency Act 1986 which deals with fraud and the like in anticipation of the winding-up of the company. This is a long-established provision which has been found to work perfectly satisfactorily and that is why we have used it as the basis for paragraph 39. We would not wish to see it amended in the way suggested.
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Section 206—Members of the Committee will like this part—is derived from the Companies Act 1985, which was derived from the Companies Act 1948, which, in turn, was derived from the Companies Act 1929. The section in the 1929 Act seems to have been based on another provision in the Bankruptcy Act 1914, which, in turn, was derived from the Debtors Act 1869. All of these sections refer to a company officer, or the debtor, as the case may be, being guilty of an offence if he is, or is privy to another, concealing, destroying or mutilating or falsifying relevant books or papers, making a false entry in such books or papers or fraudulently parting with or altering or making omissions from such books or papers. However, none of those other sections provides for an officer, or a debtor, to be guilty of an offence if they are privy to another concealing, fraudulently removing or pawning any of the company's or debtor's property. However, that is not a difficulty as existing legislation already allows for the prosecution of directors who are privy to others dealing with the company's property in a way which constitutes an offence under Section 206 of the Act and paragraph 39 of Schedule A1. Officers might be prosecuted in this regard under, say, The Accessories and Abettors Act 1861.
Accordingly, if this paragraph were to be amended as is proposed, it could cast doubt on the meaning of the existing provisions on which it was modelled and also on the use of other legislation to prosecute those officers who are privy to offences by others in relation to company assets.
Baroness Buscombe: I have to admit to being stumped on this. First, I was going to say to the Minister that I do not remember the Act of 1869, I am not sure whether he does.
Lord McIntosh of Haringey: I took part in the debates!
Baroness Buscombe: It begins to feel like that in this place. I certainly do not remember the Act of 1861. I am not sure that I agree with what he has had to say but I will read with care what he has said. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 53 not moved.]
Baroness Buscombe Baroness Buscombe moved Amendment No. 54:
Page 26, line 5, leave out ("to the value of £500 or more.").
The noble Baroness said: I shall speak also to Amendments Nos. 55, 56 and 64. The point I make here is brief. It may have been relevant to the previous amendments. We can see no justification for the limit of £500 in sub-paragraphs (4)(a) and (b). Any officer who conceals any part of a company's property, even if worth under £500, should be guilty of an offence. I am aware that this goes back to 1914 but should that alone allow people to remove, for example, a second-hand lap-top, something which is eminently stealable? Surely this is why we have a Parliament so that we can make and change laws, otherwise what are we here for? We have an opportunity to make sure that this does

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not happen and to make sure that the officers act responsibly and that is why we have brought forward this amendment. I beg to move.
Lord McIntosh of Haringey: I like the idea of using a legislative opportunity to improve the law. However, I would like to point out, first, that the two offences where this limit will apply are very specific offences which can only apply in insolvency situations; in this case, during the 12 months immediately before the moratorium commenced and during the moratorium itself. These two offences are concealing any part of the company's property or fraudulently removing any part of the company's property. If misconduct which could amount to theft has occurred—or any other type of offence— it could be considered for prosecution as such and no minimum financial limit prescribed by the Bill would apply to that. Secondly, similar offences exist elsewhere in the Insolvency Act 1986; for example, in Section 206, which deals with offences in relation to companies that are would up and, in Section 354. relating to bankruptcies. Both have a £500 minimum limit and offences of this kind have had a minimum limit at least as far back as the Bankruptcy Act 1914, to which the noble Baroness, Lady Buscombe, referred, when the figure involved was £10.
Thirdly, if we discovered that we could not prosecute individuals for these two offences in cases where we thought we should be able to, we would review the £500 minimum limit and we would not need primary legislation to do so. Paragraph 10 of Schedule I gives the Secretary of State the power to vary the minimum value of the property for the purpose of these offences and we would have no hesitation in reviewing that level if we felt it was appropriate. However, experience in relation to both Sections 206 and 354 suggests that £500 is the right cut off point and it seems a perfectly reasonable assumption that it will be the appropriate level here too. "If it ain't broke, don't fix it."
Baroness Buscombe: I hear what the Minister has said but cannot agree with him. I think it is "broke" and that we should fix it, in which case we will consider what he has had to say today but may well return to this at Report stage. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 55 and 56 not moved.]
6.45 p.m.
Lord Kingsland Lord Kingsland moved Amendment No. 57:
Page 27, line 5, after ("charge") insert (", or any instrument creating an obligation secured or to be secured by a floating charge,").
The noble Lord said: In moving Amendment No. 57 I shall also speak to Amendment No. 59. Paragraph 41 of the new Schedule A1 renders any provision of a floating charge void if a moratorium, or a preliminary step, should be a crystallising event. The Opposition
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believe, with the greatest possible respect, that this paragraph needs refining which is what these amendments seek to do. I beg to move.
Lord McIntosh of Haringey: It is standard practice for a debenture creating a floating charge to identify certain events, the occurrence of which will trigger the floating charge to crystallise and/or the right to appoint a receiver. In practice, a debenture may cross-refer to the events of default set out in the documentation for the loan which the debenture is securing because those events of default will commonly be events which will trigger crystallisation of a floating charge and/or the right to appoint a receiver. This device avoids the need for these events of default to be set out in full in both the document creating the floating charge and the loan documentation.
The fact remains, however, that the provision which provides for or will trigger crystallisation will be contained in the debenture itself and not elsewhere. That will be so even when crystallisation is triggered by cross referencing to events contained in other documentation. Paragraph 41, therefore, properly targets provisions contained in an instrument creating a floating charge. I urge the noble Lord, Lord Kingsland, to withdraw these two amendments.
At the same time, I wish to speak to Amendment No. 58, which is in the same group. On Second Reading I said that we had a concern that without an amendment the stay on creditors' rights contained in the Bill would not be fully effective against possible action by the holder of a floating charge. This was dealt with by Amendment No. 17. I said also that we would bring forward an amendment to ensure that provisions that might be included in charge documents, which would allow restrictions to be imposed on the company's ability to deal with assets covered by a floating charge, could not be triggered either because a moratorium had been obtained or because of anything done to obtain a moratorium. This amendment deals with the latter point.
Paragraph 41 already provides that a provision in the document allowing a floating charge to crystallise—that is, become a fixed charge—if a company obtains a moratorium or takes action with a view to obtaining a moratorium, is to be void. Otherwise, such provisions might become commonplace and make rescues very difficult. This amendment provides that a provision in the floating charge document, which would allow restrictions to be imposed on the company's ability to deal with its assets, is also to be void if triggered by a company obtaining a moratorium or taking action to obtain a moratorium. Without this amendment, such provisions might also become a standard feature of floating charge documents and mean that a company would not be able to deal with its assets in the way it could before it took action to obtain the moratorium. Obviously, if as a consequence of such a provision, a company had to seek leave of the court or permission' of the chargeholder under paragraph 19 of Schedule Al before it could deal with its assets during a

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moratorium, its ability to conduct its business would be seriously hampered and the rescue would become much more difficult and costly to achieve.
Lord Kingsland: I thank the Minister and shall read what he said closely in Hansard. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 58:
Page 27, line 10, after ("crystallise") insert ("or causing restrictions which would not otherwise apply to be imposed on the disposal of property by the company").
On Question, amendment agreed to.
[Amendment No. 59 not moved.]
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 60:
Page 27, line 24, after ("Regulations") insert ("(except regulations under paragraph 5)").
The noble Lord said: In moving this amendment, I shall speak also to Amendment No. 61. The amendments provide for the regulation-making power in paragraph 5 of Schedule A1, the power to modify the qualifications for eligibility of a company for a moratorium, to be subject to the affirmative resolution procedure. We have brought forward these amendments after consideration of the recommendations made by the Select Committee on Delegated Powers and Deregulation in its Sixth Report of 16th February. I beg to move.
On Question, amendment agreed to.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 61:
Page 27, line 26, at end insert—
("( ) Regulations under paragraph 5 of this Schedule are to be made by statutory instrument and shall only be made if a draft containing the regulations has been laid before and approved by resolution of each House of Parliament.").
On Question, amendment agreed to.
Baroness Buscombe Baroness Buscombe moved Amendment No. 62:
Page 27, leave out lines 29 to 37.
The noble Baroness said: With this amendment we are responding to the proposed additional grounds for a winding-up petition in paragraph 6 of Schedule 1, which we believe to be a waste of time. If the company is insolvent, a petitioner can rely upon paragraph (f) in Section 122(1) of the Act. If the company is not insolvent, there is no reason for the ground. Why should a moratorium come to an end with no voluntary arrangement being approved, to give a right to a creditor to wind up a solvent company? I beg to move.
Lord McIntosh of Haringey: Where a company has not been able to reach an accommodation with a creditor, it will almost certainly be in considerable financial difficulty. Cessation of business is probably almost inevitable and liquidation is highly likely—and probably appropriate. In such circumstances, what
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would be the point of requiring a creditor intent on winding up the company to suffer the delay and expense in establishing the company's insolvency to the satisfaction of the court as would otherwise be required of him by Sections 122 and 123 of the Insolvency Act 1986? It is far better to allow that creditor to petition on the grounds that no voluntary arrangement had been agreed when the moratorium ended.
However, even that does not mean that liquidation is inevitable. The court will, of course, retain its discretion on whether or not to make a winding-up order on such an application. If it did not consider it appropriate to exercise its discretion to make a winding-up order, then no order would be made, notwithstanding the fact that the company had failed to secure agreement of a voluntary arrangement following a moratorium.
Baroness Buscombe: I shall read the Minister's response with care. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Sharman Lord Sharman moved Amendment No. 63:
Page 28, line 7, leave out ("of filing") and insert ("on which the arrangement takes effect").
The noble Lord said: In moving this amendment, I shall speak also to Amendment No. 95. Both amendments seek to clarify the position of claims by creditors arising in the case of voluntary arrangements. Paragraph 42(9) provides that the effective date of these claims should be that of filing. There can be a delay between filing and the date on which the arrangement takes place. I believe it is important that the claims of creditors arising in the period between filing and the approval of the arrangements should be included in those arrangements. That is what Amendment No. 63 seeks to achieve.
In the case of Amendment No. 93, paragraph 12 of Schedule 3 deals with the situation where claims arise between an interim order and the approval of a voluntary arrangement. With this amendment I am seeking to ensure that the claims of creditors which arise in the period between that of an interim order, where there is one, and the approval of a voluntary arrangement are included in that arrangement. I beg to move.
Lord McIntosh of Haringey: I hope I can assure the noble Lord, Lord Sharman, on this point. The effect of paragraph 9 of Schedule 1 and paragraph 13 of Schedule 3 will be that when a company voluntary arrangement is approved following a moratorium, the date by reference to which any preferential debts are to be established will be the date of the commencement of the moratorium. In insolvency legislation this reference date is described as the "relevant date".
This proposal will be consistent with a consequential change which we propose to make to the Insolvency Rules 1986. This concerns the calculation of the amount of creditors' claims for the purposes of both

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voting on and being bound by a proposal for a voluntary arrangement involving a moratorium. Under existing rules 1.17, to which I have already referred, and 5.17 creditors' claims are usually calculated as at the date of the meeting. But we believe that, where a moratorium is involved, they should be calculated at the date the moratorium comes into force and we propose to amend the rules accordingly.
As a result, only those creditors for debts outstanding when the moratorium is obtained will be eligible to vote on and be bound by any agreed voluntary arrangement. Those creditors for debts incurred after the start of the moratorium will not be eligible to vote on and will not be bound by the voluntary arrangement and will, once the moratorium comes to an end, be able to pursue the company or debtor for those debts in the normal way. Accordingly, debts arising during a moratorium will be dealt with on a different basis from pre-existing debts.
In non-moratorium cases the date for calculating creditors' claims will remain the date of the meeting to approve the arrangement and that is why the relevant date for calculating preferential debts in those cases will be the date on which the voluntary arrangement takes effect, as provided in Schedule 2 paragraph 11 and Schedule 3 paragraph 13.
If the amendments proposed to paragraph 9 of Schedule 1 and paragraph 13 of Schedule 3 were to be accepted the result would be that preferential creditors would be placed at a disadvantage in relation to other creditors.
Lord Sharman: I am grateful to the Minister for his response and in particular for his assurances on the amendment of the Insolvency Rules. On that basis I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 64 not moved.]
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 65:
Page 28, line 25. leave out ("17(3), 18(3)") and insert ("17(3)(a), 18(3)(a)").
The noble Lord said: The purpose of paragraph I1 of Schedule 1 to the Bill is to amend Section 432(4) of the Insolvency Act 1986. The paragraph has the effect that various offences contained in Schedule A1 to the Bill are to be exceptions to the general rule provided for in Section 432(4). The references in paragraph 11 to paragraphs 17(3) and 18(3) of Schedule A1 are inaccurate as in each case the offence is actually contained in paragraph (a) of sub-paragraph 3 rather than in sub-paragraph (3) as a whole. We have brought forward this amendment to ensure accuracy in the proposed amendment to Section 432(4) of the Insolvency Act. I beg to move.
On Question, amendment agreed to.
Schedule 1, as amended, agreed to.
Clause 2 agreed to.
Schedule 2 [Company voluntary arrangements]:
[Amendments Nos. 66 to 72 not moved.]
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 73:
Page 31, line 2, leave out ("dividend") and insert ("amount").
On Question, amendment agreed to.
7 p.m.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 74:
Page 31, line 6, leave out from ("person") to end of line 7 and insert ("the amount payable under the arrangement".").
On Question, amendment agreed to.
[Amendments Nos. 75 to 77 not moved.]
Lord Kingsland Lord Kingsland moved Amendment N o. 78:
Page 32, line 48, after ("answer") insert ("or obtained by examination of that person under section 133 or section 236 of this Act").
The noble Lord said: In moving this amendment I shall speak also to Amendments Nos. 79 to 81 and 101 to 105. As your Lordships are aware Clause 10 amends Section 219 of the 1986 Act by restricting the use of evidence obtained in an investigation under Section 218(5) in criminal proceedings. This amendment is made because of the terms of the Human Rights Act 1998.
In our submission, the same issue arises with respect to evidence obtained under Section 133 and Section 236 of the 1986 Act. Following the decision of the European Court of Justice in the case of Saunders v the United Kingdom, the Secretary of State has developed and applied a policy of not using against an accused in criminal proceedings a transcript of his compelled evidence.
As far as insolvency proceedings are concerned, evidence is compelled from office holders pursuant to the powers contained in Section 236 of the Insolvency Act 1986 or by inspectors appointed under the Companies Act. In a case called ex parte McCormick, a judicial review over the use of compelled evidence failed. However, it was by definition, a case that took place before 2nd October 2000, the date when the Human Rights Act comes into force; and the narrow principles of Wednesbury, unreasonableness and irrationality, are likely to limit the usefulness of this precedent for the future.
There are associated two issues here, issues with which the Minister will by now be extremely familiar as a result of his experiences in taking through your Lordships' House the Financial Services and Markets Bill, now the Act, and the Utilities Bill. The first of these issues concerns whether or not, in effect, the procedures to which I have already referred under the 1986 Act are essentially criminal.
In deciding whether a given charge is criminal under the Human Rights Convention, the first matter to consider is how the offence is described in the domestic system of law. If it is described as criminal that is the end of the matter. If it is not, that is not the end of the matter because then the court must consider the nature of the offence and the degree of severity of the penalty that the person accused is likely to incur.

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In the opinion of the European Commission for Human Rights, it is relevant if the measure complained of affects the general interests of society normally protected by the criminal law. In a recent case called Société Stenuit v France, the European Commission for Human Rights held that a ministerial power to fine a company for anti-competitive practices did, indeed, involve a criminal charge. Although disqualification proceedings are not criminal proceedings according to domestic law, they have many characteristics which would align them to criminal penalties.
The proceedings are undertaken on the initiative of the authorities. The allegations are instituted following a formal investigation undertaken by officials invested with special powers. The penalties are really severe if the party investigated is found to have offended. The investigations involve considerable interference with the freedom of the individual. And the penalties involved impose a heavy costs burden and affect the status of the individual as a consequence.
For all those reasons, I believe there are sound grounds for arguing that, in effect, these offences are criminal offences. If that is so, any individual pursued under them would be entitled to the full protection of Articles 6.1 to 6.3 of the European Convention. It is clear that that protection is not reflected in the Bill.
Even if I am wrong, these offences still attract substantial protection for the individual under Article 6.1; because the protection under Article 6.1 applies to civil as well as criminal offences. The European Court of Human Rights has held in a number of cases that in determining the civil rights of an individual, the principles of "equality of arms" and "fair balance" apply between the parties.
This is not an appropriate moment to develop this point any further. I believe I know what the Minister is going to say in response to what I have said; if I do not then I have cautious grounds for optimism. I look forward with great interest to hearing what he has to say. I beg to move.
Lord Sharman: I should like to speak to Amendment No. 101, which is included in this group, and by comparison with the recent exposition of the noble Lord, Lord Kingsland, is a modest contribution to the debate. It seeks to clarify what evidence the prosecution would be capable of leading to, or introducing into, criminal proceedings.
The term "relating to" used in Clause 19 is a wide one. As presently drafted, it seems to prohibit the prosecution from taking any evidence related to the terms of the reply, including the circumstances surrounding the making of the reply. That is too wide. While on the one hand compelled evidence is clearly not something that one would want to see used in prosecution, it should be possible to ensure that the privilege of non-self-incrimination is maintained while allowing the prosecutor to bring in other competent evidence. Therefore, replacing the words "relating to" with the word "or would achieve that objective.
Lord McIntosh of Haringey: I am the last person to dwell on,
"old, unhappy, far-off things,
And battles long ago".
The noble Lord, Lord Kingsland, knows perfectly well that we believe that these human rights issues are important. That is why Clause 10 of the Bill amends Section 219 of the Insolvency Act. Clause 10 provides in terms that answers obtained using the powers exercisable under Section 218(5) of the Act—namely, those exercisable under Sections 431 or 432 of the Companies Act 1985—cannot be used in evidence in criminal proceedings against the person who gave those answers other than in very limited circumstances. Similar provision is made in relation to new Section 7A(6) of the Act by paragraph 10 of Schedule 2.
However, it is already the case that answers given at an examination under Section 133 and 236 of the Insolvency Act cannot be used in evidence in criminal proceedings against the person concerned, again, subject to limited exceptions. That is because, on 14th April of this year, paragraph 7 of Schedule 3 of the Youth Justice and Criminal Evidence Act 1999 came into effect amending Section 433 of the Insolvency Act. Section 433 is not relevant to evidence obtained under Section 219 as proposed to be amended or Section 7A, as those sections provide for the use of powers contained in the Companies Act, not the Insolvency Act.
Therefore, given that evidence obtained under Sections 133 and 236 of the Insolvency Act cannot be used in criminal proceedings against the person concerned except for limited purposes, I urge the noble Lord, Lord Kingsland, not to press these amendments.
7.15 p.m.
Lord Kingsland: I thank the Minister for his reply. I shall read his remarks carefully in Hansard, either to return or not to return to this matter at Report stage.
Amendment, by leave, withdrawn.
[Amendments Nos. 79 to 81 not moved.]
Schedule 2, as amended, agreed to.
Clause 3 agreed to.
Schedule 3 [Individual voluntary arrangements]:
[Amendments Nos. 82 to 90 not moved.]
Lord McIntosh of Haringeymoved Amendments Nos. 91 and 92:
Page 36, line 25, leave out ("dividend") and insert ("amount").
Page 36, line 29, leave out from ("person") to end of line 30 and insert ("the amount payable under the arrangement."").
On Question, amendments agreed to.
[Amendments Nos. 93 to 95 not moved.]
Schedule 3, as amended, agreed to.
Clause 4 [Qualification or authorisation of nominees and supervisors]:
[Amendments Nos. 96 to 99 not moved.]
Clause 4 agreed to.
Clauses 5 to 8 agreed to.
Schedule 4 [Minor and consequential amendments about disqualification of company directors etc.]:
Lord Sharman Lord Sharman moved Amendment No. 100:
Page 39, line 9, at end insert—
("( ) It shall be competent for a director to object to proceedings being retained in the wrong court and to apply to the court to transfer proceedings to the proper or more appropriate court for determination: and if the court is satisfied that proceedings should be transferred, they shall be transferred to a specified court for determination.").
The noble Lord said: This amendment seeks to make clear that a director can object to proceedings being retained in the wrong court and seek to have them transferred to the proper or more appropriate court. Under the Bill as drafted, proceedings could be raised in the wrong court, to the prejudice of a respondent director. If the director should be given an opportunity to address this issue, then it is appropriate that he or she be afforded the opportunity of making representations in the proper form. That is what the amendment seeks to achieve. I beg to move.
Lord McIntosh of Haringey: It is not necessary to make this provision. The court already has the power to transfer proceedings to another court when it considers it appropriate to do so. Therefore, it is open to a party to the proceedings to apply to transfer those proceedings.
Lord Sharman: I am grateful to the Minister for his response, on which basis I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 4 agreed to.
Clause 9 agreed to.
Clause 10 [Restriction on use of answers obtained under compulsion]:
[Amendments Nos. 101 to 105 not moved.]
Clause 10 agreed to.
Clause 11 [Insolvent estates of deceased persons]:
Lord Sharman Lord Sharman moved Amendment No. 106:
Page 7. line 28, at end insert—
("(6) Subsection 5 shall not apply in relation to the estate of a person who died before the coming into force of that subsection."").
The noble Lord said: This amendment refers to a matter to which I spoke at Second Reading, dealing with the position of insolvent estates. It is necessary that there should be no retrospective effect on any third party who might have acquired property in good faith. This is why the amendment states:
"Subsection 5 shall not apply in relation to the estate of a person who died before the coming into force of that subsection".
I beg to move.
Lord McIntosh of Haringey: We understand the concern of the noble Lord, Lord Sharman, which he also raised at Second Reading. We agree that, left as it is, this clause could prejudice the marketability of property where the deceased's interest in jointly-owned property has passed to the survivor on death, irrespective of whether the deceased is solvent or not. We would not wish an arm's length disposal of a
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property by a surviving partner to be made unnecessarily difficult because prospective purchasers were concerned that they might find they did not have good title if the deceased's estate became insolvent.
However, we are not in a position to put down an amendment to deal with this point at this stage. We are in the process of preparing one which should deal with this concern and we will bring this forward as soon as it is ready.
We also propose that the new provision will apply only in those cases where the petition for the insolvency administration order is presented after the new provision has come into force. We recognise that this will not go as far as the proposed amendment. However, on that point I would have to say that we are not convinced that the creditors of an insolvent estate should be in a worse position if the debtor has died than if he is living. We think that limiting the application of the new provision in the way I have just described strikes an appropriate balance.
We are also looking at how we might protect the position of innocent third parties where there have been dealings in the property between the date of death and an insolvency administration order. I hope that reassures the noble Lord, Lord Sharman.
Lord Sharman: I thank the Minister for his reply. I a m much reassured and I look forward to seeing the amendment. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 11 agreed to.
Clause 12 agreed to.
Clause 13 [Model law on cross-border insolvency]:
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 107:
Page 7, line 41, leave out ("made with the agreement of the Lord Chancellor").
The noble Lord said: In moving this amendment I shall speak also to Amendment No. 109. The amendment provides that the consent of Scottish Ministers must be obtained before the Secretary of State makes regulations extending to Scotland giving effect to the UNCITRAL model law on cross-border insolvency under this clause. This is appropriate as implementation of the model law is likely to touch on matters which have been devolved to that jurisdiction. Additionally, the amendment makes it clear that the agreement of the Lord Chancellor is only necessary where such regulations are to extend to England and Wales.
Perhaps I may refer to Amendment No. 108. In that amendment the noble Lord, Lord Sharman, proposes that regulations under Clause 13 should be made with the agreement of the Advocate General for Scot land as well as that of the Lord Chancellor, but we propose by amendment of this clause that regulations be made, in so far as they extend to Scotland, with the agreement of Scottish Ministers. That has been done with the consent of the Scottish Parliament. Furthermore, the clause, as we propose it to be amended, will mean that regulations extending to England and Wales will be made with the agreement of the Lord Chancellor. I beg to move.

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On Question, amendment agreed to.
[Amendment No. 108 not moved.]
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 109:
Page 8, line 26, at end insert—
("( ) Making regulations under this section requires the agreement—

(a) if they extend to England and Wales, of the Lord Chancellor,

(b) if they extend to Scotland, of the Scottish Ministers.").

On Question, amendment agreed to.
Clause 13, as amended, agreed to.
[Amendment No. 110 not moved.]
Remaining clauses and schedule agreed to.
Title agreed to.
Bill reported with amendments.
The Deputy Chairman of Committees: That concludes the Committee's proceedings on the Bill.
The Committee adjourned at twenty-four minutes past seven o'clock.