§ Order of the Day for the Second Reading read.
§ THE LORD CHANCELLOR (VIS-COUNT SIMON)
My Lords, I invite your attention to this Bill and hope that it may receive your approval. It is a Bill which I presented to the House the other day, and now on the Second Reading I must briefly explain to your Lordships what is the nature of the proposal which it contains. This Bill aims at providing treatment for a problem which has specially arisen under the conditions of the present war. Unlike the war a quarter of a century ago, we have had in this country a very considerable shifting of population, part of it as a matter of precaution, part of it under Government direction; with the result that a very large number of perfectly respectable and honest people, who before the war carried on their trade or their profession in the 862 ordinary way, have been put into a position of extreme financial difficulty. I will direct attention, if I may, to the opening words of Clause 1 which show that it applies to "any person who is in serious financial difficulties owing to war circumstances." It may be a lodging-house keeper in an East Coast town who has no visitors coming, as they used to do; it may be a small trader who has had to abandon his premises and try to set up elsewhere; it may be a professional man whose clients or whose patients have moved elsewhere. In all cases of that kind it is manifest that a very great and immediate financial strain is put upon a perfectly innocent individual.
In the last war we devised a Bill called the Courts (Emergency Powers) Act, and at the very beginning of the present struggle we carried through Parliament and put on the Statute Book a similar Bill, which' was given the Royal Assent on September 1, 1939. But what the Courts (Emergency Powers) Act does is something quite different from what this Bill seeks to do. The Courts (Emergency Powers) Act will in proper cases prevent the imposition of the penalty of damages or distress for rent, because the judgment creditor or the landlord, or whoever it may be, must apply to the Courts under the Courts (Emergency Powers) Act for leave before he can execute his judgment or before he can distrain on the tenant That is, of course, a necessary provision and one which undoubtedly has operated to the general advantage already.
But your Lordships will see that the Courts (Emergency Powers) Act, though it may restrain for the time being the exaction of a payment which the unfortunate debtor in the circumstances cannot promptly make, does nothing whatever to adjust the debt. On the contrary, under such an Act, the debtor sees piling up over his head a mountain of obligations, none of which he has got rid of, and the consequence is that, sooner or later, this mountain will descend upon him and he will have to find some way or other of meeting his obligations. There is indeed only one further course he may have under the existing law, and that is to take advantage of the law of bankruptcy. But it appears to me that there are many cases in which it would be most unfair and very 863 short-sighted to allow the difficulties of a citizen such as I have described to be solved by the process of bankruptcy. That would mean, for one thing, that he would be deprived of practically all his assets. It would mean that if, thereafter, he succeeded in earning some further income he would be earning it for his creditors and not for himself. Apart from the financial consequences, the psychological consequences of making a man who has really done no wrong at all, and has been a perfectly prudent citizen all his life, go through the Bankruptcy Court, show that this is a method which is plainly inappropriate in the circumstances.
Therefore, what we in this Bill try to do—and it is not a very easy thing to do—is this. We provide machinery as simple as we can for the purpose of bringing together the debtor and his creditors and, with the help of an official created by this Bill, who will be called the liabilities adjustment officer, to see whether an arrangement can be reached which is to the mutual advantage of both debtor and creditors. The long-sighted creditor, to say nothing of the merciful creditor, will see the advantage of making a bargain from which he does not get 20s. in the pound. He knows that if he tried to get it he would be bound to fail. What he wants to do is to nurse his customer rather than kill him, and there are many cases already in which an acommodation of this sort has been made between sensible parties. One of the very great difficulties of leaving it purely to voluntary action is that, whereas one creditor may be willing to make a compromise, he has no means whatever of being assured that all the other creditors will do the same, and he is most unlikely therefore to show himself ready to make an agreement when he knows that the other creditors remain perfectly free to exact the full amount of the debt.
We propose therefore, under Clause I, as your Lordships will see, that in place of leaving people to go to the Bankruptcy Court, or in place of these private arrangements unhelped by any organised system, there should be in each district which finds it necessary a liabilities adjustment officer—I read the words of the first clause of the Bill—for advice and assistance in enabling him to arrive at an equitable and reasonable scheme 864 of arrangement with his creditors and, in particular at such a scheme of arrangement as will enable him, if he carries on a business or would, but for war circumstance, carry on a business, to preserve that business or to recover it when circumstances permit.Under this clause if, as the result of such a meeting or consultation, all the creditors agree, a scheme will be drawn up and will become operative at once. It will not be necessary to go to any Court what whatever because the arrangement will have statutory authority and sanction. I am satisfied that there are many cases in which we may hope for that conclusion without going to any Court. Supposing, however, all the creditors do not agree, but only a majority—a majority in number and value—then it is possible still for the liabilities adjustment officer, after considering the whole matter, to approve of the scheme; but there will be given the right to any minority creditor who objects to go to the Court and secure a review of the matter by the County Court Judge before a final decision has been taken That is the substance of the first clause. Certain forms of liability are excepted from the general scheme by the words of the proviso in subsection (2). For example, there is always priority for one year's taxes—that is in the interests of the Chancellor of the Exchequer—and there is always priority for debt due in the nature of wages, also for compensation due under the Workmen's Compensation Act. That is the primary scheme.
On the other hand, if your Lordships turn to Clause 3, you will see that here we have the same problem provided for in a different way in cases where the liabilities adjustment officer has not been able to produce the result hoped for. This does involve an application to the County Court, if the situation of the debtor is one in which he is on the verge of insolvency, made either by the debtor or by any creditor, and the Court is then invited itself to undertake the task of devising a liabilities adjustment arrangement. In order that nothing may be prejudiced in the meantime the first thing that the Court will do would be to make an order referred to in subsection (2) of Clause 3 called a protection order, which is in the nature of a standstill. Then, when the Court has considered the matter, the Court is given power to provide under a liability adjustment order 865 for the payment of the debts dealt with in the proceedings either to the full extent or to such extent as the Court finds in the circumstances should be necessary and reasonable.
I would more particularly ask your Lordships' attention to the words on page 7 of the Bill which really may be regarded as an overriding provision. There, in Clause 4, under paragraph (6) of subsection (3), provision is made for excepting from the property to be realised and sold any premises which are used or would but for war circumstances be used as the home of the debtor, any furniture, bedding and clothing of the debtor and his family, and the tools, if any, of the debtor's trade. If your Lordships will carry your eyes down that page to the middle, line 23, you will see these words:so, however, that in exercising the powers aforesaid the Court shall have regard to the prospects of the business and the likelihood of ultimate benefit to the creditors as well as to the debtor.I would venture to say that this scheme is not a debtors' relief scheme; it is a scheme which is to provide methods and machinery by which both debtors and creditors may hope to profit.
I have already observed that a creditor would not be likely to press his claims too far, because the only result would be to bring down any prospect that there was of his getting payment. Take for example the case which is constantly occurring in businesses both small and large. Take a case where a tradesman is supplied with his stock by his regular merchant. He is not paying for the supply as he gets it. On the contrary he waits in the ordinary way until he has realised his stock, and it is out of the money that he obtains from the sale of that stock that the shopkeeper, the debtor, ultimately pays his merchant. It would be an act of folly not to recognise that in such cases the creditor, even though he has not been paid for recent supplies, will not necessarily want to injure the debtor but will rather want to help him, and that is the idea which underlies this useful and, I think, practical proposal.
I have occupied time in describing the general nature of the Bill and I am unwilling to overload this preliminary exposition by a great deal of technical detail which such a Bill, if completely drawn, must inevitably contain, providing as it 866 does for a great many special cases. Perhaps your Lordships will wish me, before I conclude, to say one word as to leases, mortgages, or executory contracts to which the debtor is a party. If your Lordships look at Clause 1, subsection (3), you will see that a scheme if it has the assent of the other relevant parties may go so far as to vary the terms of the lease or mortgage or contract—that is, if it has the consent of the other parties concerned. A landlord in many cases may have let his premises under a lease for a rent which the tenant can no longer pay, perhaps because the greater part of the premises has been smashed up in an air raid and the occupier is only able to live in two or three rooms. What is the landlord's position? He cannot expect to find a new tenant who would pay the old rent for a building so damaged. He will no doubt ultimately, under the War Damage Act, get back compensation but that cannot be till the end of the war. There will therefore be many cases where a landlord in such circumstances will agree with his tenant that there ought to be a reduction of rent, and the tenant at the same time will agree to continue to be the tenant of the premises.
Similar provisions suggest themselves in the other matters I have mentioned—mortgages and executory contracts. I do not think it would lead to clearness or persuasiveness if I were to descant upon the many provisions which follow. Your Lordships will, I dare say, have to examine them carefully on the Committee stage, but I do very heartily commend this scheme, novel as it is, to the support of the House. In my view it is a scheme that has been most carefully worked out, one that is going to consult the real interests of the man upon whom debts are accumulating, and it is going to consult the interests of the creditor also. Most of all, it is a Bill manifestly in the national interest as a whole, for instead of leaving these unhappy people merely to their fate, as I fear the legislation hitherto has tended to do, here is an opportunity of helping them out of troubles which have come upon them through no fault of their own. I hope your Lordships will agree to help them on terms and by methods which are sound in themselves and a help to the country. I beg to move.
§ Moved, That the Bill be now read 2a.—(The Lord Chancellor.)867
§ LORD NATHAN
My Lords, may I be allowed to congratulate the Lord Chancellor on introducing a Bill that fills a gap which has clearly disclosed itself in our legislative arrangements? May I congratulate him upon the ingenuity of the Bill, and upon what I would call the admirable character, so far as I am able to judge, of its drafting? How it will appear in actual practice as it develops time alone will show, but it does seem to me that this Bill has one very singular advantage merely as a document, and that is that it is one of those rather rare pieces of legislation which should be capable of being understood by the ordinary business man and by any persons likely to be affected by it. That itself is a matter for commendation in any legislation brought before Parliament, for rarely does it occur.
This Bill seems to me to have the advantage of giving to debtors who find themselves in circumstances of difficulty at any particular moment during the war an opportunity of the advantages of the Bankruptcy Acts without any of the opprobrium attaching to those Acts, and the machinery described by this document is, as it seems to be, ingenious and apt for its purpose. But there is in relation to that machinery a question that I should like to put to the Lord Chancellor, not so much in the expectation that he will answer it now as that he may think fit to refer to it when the Bill is dealt with in Committee. There is, throughout the first Part of this Bill, a reference to the duties imposed upon the new officer, a functionary to be called the liabilities adjustment officer. It seems to me that he will have a most valuable and important function to perform, and in principle the functions reposed in him by this Bill do not differ in any marked degree from those which in the past, under different Acts such as the Bankruptcy Acts and the Deeds of Arrangement Acts, have been the function of professional men of one kind or another, generally members of the accountant's profession.
The point to which I would direct attention, and to which the noble and learned Viscount the Lord Chancellor may find it convenient perhaps to refer at some later stage of the Bill, is as to whether the references to the liabilities adjustment officer here are intended—and I will say frankly I do not think they are intended, if I understand the scheme of the Bill 868 aright—to exclude arrangements between debtors and creditors which, under arrangements such as those outlined in this Bill, may be dealt with through an accountant or any other person appointed by mutual agreement between debtor and creditor acting with the function here reposed in the liabilities adjustment officer. I think it is a matter of rather more than drafting importance because a large practice has grown up and there is long experience in a profession in dealing with matters of this kind. I think that the noble and learned Viscount the Lord Chancellor, whose duty it will be to appoint liabilities adjustment officers, may perhaps find it a little difficult to find a sufficiency of persons of adequate knowledge and free for this purpose at this time to undertake the duties which would fall on them under this Bill.
I pass from that to ask a further question of the noble and learned Viscount the Lord Chancellor. He will understand that I am not speaking in any spirit of criticism, but in that of interrogation, because my noble friends on these Benches have asked me to say that they support this Bill. I would like to ask the noble and learned Viscount what is in mind in the reference in Clause 1 (1), at line 16 of page I, to the recovery of a business "when circumstances permit." I can well understand arrangements being made whereunder a business can continue to be carried on, but I am a little doubtful as to what is meant by the reference to the recovery of a business. Such a reference, I think, appears not merely in that place but in others. There can, however, be no doubt that a Bill of this kind, whatever questions may be raised here and there on points of drafting, does perform a very definite function in that it enables debtors to discharge themselves of their liabilities on equitable terms so far as creditors are concerned, and yet not to be so far ruined that they cannot continue to earn their livelihood and conduct their business if circumstances make that possible. I think it is one of the main objects of the Bill to ensure that when so much goes to the creditor not everything shall go.
I would draw attention to one point in the Bill to which I think the noble and learned Viscount did not refer but one which, as it seems to me, is of great advantage to the debtor and equitable as 869 between debtor and creditor. In Clause 6 (2) provision is made as to vesting hire-purchase property in the purchaser on equitable terms so that when he becomes insolvent the whole of his furniture will not thereby be lost to him when he may have paid quite a large proportion of the full price. It would be interesting to pursue this Bill through its various clauses, but I hope I have said enough to indicate that in the judgment which I humbly submit to your Lordships this is a Bill deserving of support, a Bill that will be of great advantage to the commercial community at this time, and not to the commercial community alone. It does introduce some new and interesting reforms. I am not at all sure—the future alone can tell—that within this Bill there may not be the germs of a procedure which has long been required in our commercial practice, which would enable debtors to be discharged of their debts and creditors to be satisfied as to their claims, whilst still leaving the debtors an opportunity, without the opprobrium of bankruptcy, of continuing their livelihood. I observe that this Bill is designed to end with the war. I believe experience may very well show that it is a Bill which will form the basis of something permanent in our legislative practice.
§ LORD GAINFORD
My Lords, may I say a word in support of the general principle of this Bill? It seems to me a Bill calculated to meet a real hardship which is existing among many classes at the present time, especially among the professional classes. May I remind your Lordships that in the last war there was a voluntary contribution arranged from people to try and help similar people? It was raised purely on voluntary principles, but it amounted, if I recollect aright, to a few million pounds. It was distributed by various committees and it was called the Prince of Wales's Fund. I happened to be chairman of one of the committees distributing the fund among the professional classes. The great difficulty at that time was to find the hard cases, for so many people who were suffering on account of the war were not prepared to come forward and allow facts to become public in connection with their private affairs. This Bill, I think, will help to a very great degree. I feel that there may be many cases which 870 deserve pecuniary help. I am not suggesting that the Treasury should find that money or that there should be another Prince of Wales's Fund, or a similar fund, but I do say that this Bill is required for there are many hard cases which will be helped under its provisions.
§ THE LORD CHANCELLOR
My Lords, perhaps I may say just a word or two before I put the Question. The Government are grateful for the welcome given to the Bill. The noble Lord who spoke first asked what would be the difference between the work of the liabilities adjustment officer and, say, a receiver in bankruptcy. Your Lordships will appreciate that the primary object of this Bill is, so far as is possible, to keep the settlement of these matters out of the Bankruptcy Court or any Court. Moreover, if bankruptcy if resorted to, it means that with very few exceptions the debtor's assets simply pass from him to the trustee and, even if he earns in the future, what he earns is for the benefit of his creditors and not as a way of rebuilding his own fortune. Therefore, although the question is a natural one, the answer is quite clear. The Bill provides a means of adjusting liabilities even on the verge of insolvency without the consequences of bankruptcy at all. There is no ground for fearing that private arrangements, whether brought about with the help of skilful accountants or otherwise, are in any way discouraged. Our object is not to prevent agreements but to promote them. Our object is merely to provide new machinery which we hope will greatly increase the number of agreements. I am obliged to the noble Lord for the reference he made to the question of hire-purchase agreements. That is an example, but only an example, of what we have tried to do in the later clauses and I trust that it will be thought that what has been provided is equitable.
My noble friend who spoke last referred to the Prince of Wales's Fund in the last war and the various ways in which that was used. Some of us remember the time and the occasion very well. I agree with him that in view of the fact that it was a private fund, although a very big fund, there really was not adequate machinery by which it was possible to bring help to those who needed it most. That was, I am sure, the experience of the noble Lord and of anybody else who 871 was interested in the administration of that Fund.
Of course, we must not over this Bill live in a foolish and unreal paradise. When the war destroys wealth at the rate at which this war is destroying it, no ingenuity on the part of any Lord Chancellor will ever restore the position of individual citizens who have suffered to what it would be if there had not been this immense loss. It is a loss which we must endure and put up with for essential purposes. Nothing will alter the fact that you will end the war with vast numbers of people a great deal poorer than they were before it started. But it does seem a cruel shame that people who have done no wrong and who have been good citizens for many years, should by war circumstances affecting their life and trade find themselves on the verge of insolvency, when a little organisation may result in their homes and businesses being saved, to the general advantage of debtor and creditor and of the nation.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.