ASSURANCE COMPANIES (WINDING UP) BILL. [H.L.] (Hansard, 21 February 1933)

§ THE LORD CHANCELLOR (VISCOUNT SANKEY)

My Lords, I beg to move that this Bill be now read a second time. It deals with a somewhat technical subject. The object of the Bill is to enable the Board of Trade to petition the Court for the winding-up of insolvent insurance companies carrying on any of the classes of insurance business to which the Assurance Companies Act, 1909, applies. Those classes of business are life, fire, accident, employers' liability, bond investment and motor vehicle. Let me at once say that of the many activities of British trade and commerce one of which we are most justly proud is that carried on by our great insurance companies. If in any part of the world there is a great earthquake, or a great fire, or some vessel is burnt out on the high seas, you will probably find that those who are affected by it have insured themselves in the City of London.

Your Lordships will remember, however, that the Road Traffic Act of 1930 compelled all motorists to insure against third-party risks. This led to a very large increase of accident policies. As a result a number of companies started to transact this class of business and their anxiety to enter into it has in some few 757 cases been greater than their ability to conduct it. The present Bill proposes to meet this situation and in considering what action should be taken to deal with the position which has arisen the Board of Trade has received the active co-operation of representative insurance institutions, and it is understood that they welcome these provisions to put an end to what, if left untouched, may have serious developments. The Bill does not propose to make drastic changes in the law, but merely to give the Board of Trade power to apply to the Court to wind up companies which, having regard to their insolvent position, are not able to meet their obligations.

Permit me to give your Lordships a short history of the matter. Ever since the passing of the Life Assurance Companies Act, 1870, Parliament has recognised that the carrying on of certain classes of insurance business ought to be subject to statutory control and that special safeguard are needed with regard to the operations of those carrying on such business, in the interests alike of policy holders and the public. The Act of 1870, which dealt with life business only, provided for deposits to be made by companies carrying on that class of business. That Act has been repealed and the present legislative code is contained in the Assurance Companies Act, 1909. That Act is a comprehensive Statute imposing detailed requirements in regard to the working of insurance companies carrying on any of the various classes of business to which it applies. For example, it provides for the making of deposits in Court and also that every person or company carrying on assurance business shall render to the Board of Trade, at the expiration of every financial year, detailed accounts, balance sheets, etc., in the forms contained in the Schedule to the Act. It also makes provision for quinquennial valuations of liability, and actuarial investigations of the company's financial condition. Although all this detailed information is, by the Statute, to be given to the Board of Trade, there is no power conferred on the Board of Trade to take any action with regard to the future operations of any company where the accounts show it to be financially unsound.

As a result of representations made to the Government as to the inadequacy of 758 the safeguards contained in the Assurance Companies Act of 1909, the then President of the Board of Trade, in 1924, appointed a Departmental Committee to consider what amendments were desirable in that Act. That Committee, which was presided over by Mr. (now Mr. Justice) Clauson, one of His Majesty's Judges of the Chancery Division, reported as far back as 1927. Their terms of reference were very wide and covered the whole question of the statutory control of assurance companies. Many recommendations were made by the Committee as to the form which this control should take, and one of them was that authority should be given to the Board of Trade to take action by applying to the Court for an order to wind up in the case of apprehended insolvency. It has not, however, been possible hitherto to find Parliamentary time to introduce the somewhat complicated legislation which would be necessary to give legislative effect to the Committee's Report, but the necessity for adopting the recommendation giving the Board of Trade additional powers in the case of insolvency has become urgent by reason of the passing of the Road Traffic Act, 1930, to which I have referred. By that Act, as I have already mentioned, motorists are compelled to insure against third-party risks, and since Parliament has been pleased to make such insurance compulsory it is obviously undesirable that companies with which the motorist insures should be allowed to accept premiums when there is little prospect of their being able to pay claims which may be made against them. The position must be safeguarded, not only for the motorist but for the potential third-party claimant.

It is not for me to speculate whether the fact that they are insured makes some motorists more reckless in driving, but I can assure your Lordships that the number of cases of personal injuries which now come before the Courts has reached alarming proportions. Statistics have been taken of the number of actions tried in 1932 in the High Court of Justice for personal injuries, which are in nearly every case due to motor car accidents, and they disclose a sinister state of affairs. I have before me the number of cases tried by special and common juries not only in London but in every assize town in England and Wales. I will not 759 weary your Lordships with the figures for every circuit, but the totals are as follows: Altogether 1,197 actions were tried by juries in the High Court last year in England and Wales, and out of the 1,197, 783 were for personal injuries; that is to say, that in the High Court 65 per cent. of the jury cases are in respect of personal injuries. It has not been possible to get the figures for the County Courts in the Kingdom, or to get all those cases which were settled before they reached trial.

Let me, however, give an example of what may happen. A man is run over by some motorist. After a good deal of pain and suffering in hospital, a great loss of wages, and possibly permanent injuries, he obtains a verdict from a jury, say, for £1,000. The driver of the motor car may be a poor man earning £3 or £4 a week, who has his car on the hire system and cannot pay a penny of the damages. He passes on the claim to his insurance company which, owing to its financial position, is unable to pay it—a grave injustice both to the man who was injured and to the man who has insured against risk. In order to provide some protection to policy, holders and to the public, motor vehicle insurance business was brought by the Road Traffic Act, 1930, within the scope of the Assurance Companies Act, 1909. The protection, however, afforded by that Act has been found not to be adequate. This being the case it is a virtual necessity that the Board of Trade should have the power advocated by the Clauson Committee, to intervene where insolvency can be shown and to ask the Court to put an end to the operations of these companies before any great harm is done.

It is perfectly true that by Section 37 of the Road Traffic Act an insurance company has to deposit a sum of £15,000 before entering into business, but that is quite a small sum. Take up any morning a daily newspaper and you will find juries giving verdicts for £2,000 or £3,000 in particular cases. Over and above that the making of a deposit is by no means the only way of protecting the public in cases of this character. May I be allowed to read a short extract from paragraph 14 of the Report of the Clauson Committee? They say on page 8: To this it may be added that, in the view of the Committee, the primary pur- 760 pose served by exacting a deposit is to discourage unsubstantial and purely speculative concerns from undertaking insurance business; it is not, in the opinion of die Committee. primarily to the deposit that a policy-holder should look for security; the deposit must, unless enormously increased, be entirely inadequate if it is to be so regarded. The best protection for the policy-holder is to be found in the publicity as to the insuring company's position resulting from the necessity of making the statutory returns. I would like to give your Lordships one instance of the present state of affairs, as illustrating the danger. There is one motor insurance company which was wound up at the end of 1931. It included nearly 22,000 policy holders, of whom 1,874 had claims outstanding on their policies. From the position as now revealed by the Official Receiver's report it appears that it would be possible to meet only to a very small extent the liabilities on these claims. Had the Board of Trade possessed the powers asked for in the present Bill they would undoubtedly have been able to compel the company to cease operations long before it was forced to do so. It is no use locking the stable door when the horse has been stolen.

Turning now to the particular provisions of the Bill, it will be remembered that under the Companies Act, 1929, a petition to wind up a company—and this expression also includes assurance companies—may be presented by a creditor or a contributory, and, in addition to this general provision, there is a special provision in the Assurance Companies Act, 1909, under which ten or more policy holders, owning policies of an aggregate value of not less than £10,000, may also petition to wind up an assurance company. The grounds upon which a petition to wind up may be presented are set out in Section 168 of the Companies Act, 1929, arid among those grounds is the ground of inability to pay debts. Accordingly, Clause 1 of the Bill provides that a petition for the winding up of an assurance company upon the ground that it is unable to pay its debts within the meaning of the Companies Act, 1929, may, with the leave of the Court, be presented by the Board of Trade. The provision that the petition should only be presented with the leave of the Court is put in at the request of the assurance companies who have been consulted in the matter and who want to have some safeguard that at any rate a prima facie case of 761 insolvency shall be shown before the petition to wind up is advertised in accordance with the existing rules of the Court. Such a provision already exists in the case of a petition by policy holders and also by contingent creditors, and there seems to be no real objection to it.

Clause 2 is a machinery provision enabling the Board of Trade to require assurance companies to give information additional to that already supplied by them in the accounts which they have rendered to the Board under the provisions of the 1909 Act. It is not improbable that, in order to enable the Board to ascertain whether a company is insolvent or not, they may require some information in addition to that appearing in the statutory accounts by way of explanation or otherwise. Furthermore, under the existing law the statutory accounts have to be lodged with the Board of Trade under the Act of 1909 within six months after the close of the period to which those accounts relate. It may very well he, therefore, that the information given by the accounts is not only insufficient but also out of date when it is obtained by the Board. The existing law gives the Board of Trade no power to obtain information which is obviously necessary if the Bill is to be of any practical value, and the clause therefore enables the Board to obtain both additional arid up-to-date information with regard to the financial position of a company.

If the company fail to give further information on request the Board of Trade are given power to apply to the Court for an order directing that the information should be given, which application will, of course, give the company who objects an opportunity to make any case it can to the Court, against the giving of the information. I draw your Lordships' attention to this fact—that the matter is not left to the autocratic determination of the Minister; the decision is left to the Court. If the Court orders any information to be given and default is made in complying with that order, power is given to the Board of Trade to ask the Court either to appoint an inspector so that the information can be obtained, or to petition the Court to wind the company up upon the ground that there is default in complying with the Court's order. This additional ground for winding up in the case of a company which is in contempt 762 of an order of the Court is analogous to the recommendation contained in the Clauson Committee's Report that it should be a ground for winding up if default is made in complying with any of the requirements of that Act, for a period of three months after notice of default. It is not unreasonable to assume that if a company refuses to obey an order of the Court to give information to the Board of Trade as to its financial condition, its refusal is due to the fact that the disclosure of the information would probably show that the company is insolvent. The remaining provisions of the Bill are really consequential and it is not thought necessary to refer to them in detail at this stage. It is not expected that the administration of this Bill will result in any additional expenditure by the Board of Trade. The work will be undertaken by the existing staff. I beg to move.