§ [Nos. 144–150]
§ Clause 54, page, 53, line 32, leave out from ("body") to ("all") in line 33
§ Clause 54, page, 53,line 41, leave out from beginning to end of line 9 on page 54 and insert—
- ("(b) a requirement that assets of the company, society or body to a value not less at any time than the amount of its domestic liabilities at that time shall be maintained in the United Kingdom;
- (c) a requirement that assets of the company, society or body of a specified description, free from any mortgage or charge and to a value not less at any time than which ever is the greater of the following amounts, that is to say, the amount of a specified proportion of the domestic liabilities of the company, society or body at that time, and £50,000, shall be maintained in the United Kingdom and that those assets, or, in the case of any of them to which there are documents of title, those documents, shall be held in the custody of a person approved for the purposes of this section by the Board of Trade.")
Clause 54, page 54, line 13, at end insert—
("(1A) A requirement imposed by virtue of paragraph (b) or (c) of subsection (1) above may either be so framed as to come into effect immediately after the day on which it is imposed or he so framed as to come into effect after the expiration of a specified period (or such longer period as the Board of Trade may allow).
(1B) Assets of a company, society or body held in the custody of a person shall he taken to be held by him in compliance with a re- 1250
quirement imposed by virtue of paragraph (c) of subsection (1) above if, but only if, they are assets in whose case the company, society or body has given him written notice that they are to be held by him in compliance with such a requirement or they are assets into which assets in whose case the company, society or body has given him such written notice have, by any transaction or series of transactions, been transposed by him on the instructions of the company, society or body; and documents of title to assets of a company, society or body held in the custody of a person shall be taken to be held by him in compliance with such a requirement if, but only if, they are documents in whose case the company, society or body has given him notice that they are to be held by him in compliance with such a requirement.")
Clause 54, page 54,line 18, leave out subsection (3) and insert—
("(3) The Board may rescind a requirement imposed under this section if it appears to them that it is no longer necessary for the requirement to continue in force, and may from time to time vary any such requirement (other than one imposed by virtue of paragraph (b) of subsection (1) above).")
Clause 54, page, 54, line 19, at end insert—
("(3A) When the Board impose under subsection (1)(c) of this section a requirement on a company, society or body, or rescind or vary a requirement so imposed, they shall forthwith serve—
§ (3B) A notice served in pursuance of the last foregoing subsection on the registrar of companies shall be open to inspection, and a copy thereof may be procured by any person on payment of such fee as the Board may direct; and every document purporting to be certified by the registrar of companies, or by a person appointed in that behalf by the President of the Board of Trade, to be a copy of such a notice shall be deemed to be a copy of that notice and shall be received in evidence as if it were the original notice, unless some variation between it and the original be proved.
§ (3C) Section 71(1) of the Industrial and Provident Societies Act 1965 (which empowers the Treasury to make regulations respecting inter alia, the inspection of documents kept by the appropriate registrar under that Act) shall have effect as if the reference to documents so kept included a reference to notices served in pursuance of subsection (3A) above on the appropriate registrar.")1251
Clause 54, page, 54, line 19, at end insert—
("(4A) In this section any reference to a domestic liability is a reference to a liability arising under a contract made in the United Kingdom, or under a contract of insurance made elsewhere, being a contract of insurance in whose case, if only one premium is payable thereunder, the premium, or, if more than one premium is payable thereunder, any of the premiums so payable, is payable or has been paid in the United Kingdom; and in computing the amount of any liabilities for the purposes of this section, all contingent and prospective liabilities shall be taken into account, but not liabilities in respect of share capital.")
§ After Clause 54, insert the following new clause—
§ Provisions relating to assets subject to certain requirements imposed under section 54
§ (".—(1) No assets held in the custody of a person in compliance with a requirement imposed by virtue of paragraph (c) of section 54(1) of this Act, and no documents so held in compliance with a requirement so imposed shall, so long as the requirement is in force, be withdrawn from the custody of that person except with the written consent of the Board of Trade.
§ (2) If a mortgage or charge is created by a company, society or body at a time when there is in force a requirement imposed on the company, society or body by virtue of paragraph (c) of section 54(1) of this Act, being a mortgage or charge conferring a security on any assets which are held in the custody of a person in compliance with the requirement or on any assets documents of title to which are so held in compliance with the requirement, the mortgage or charge shall, to the extent that it confers such a security, be void against the liquidator and any creditor of the company, society or body.")
§ 5.39 p.m.
§ LORD WALSTON
My Lords, here, again, I would ask your Lordships to agree to my speaking to several other Amendments; namely, Nos. 144 to 150 inclusive, No. 180, No. 182, No. 185 and No. 187. The purpose of these Amendments is to provide an additional safeguard, for United Kingdom policyholders, which I think noble Lords will agree is a desirable aim, by empowering the Board of Trade to require that the company's liabilities to the United Kingdom policyholders be backed by assets in the United Kingdom, and that a specified proportion of those assets (or the documents of title relating to them) should be held in custody in the United Kingdom by "a person"—and that, of course, would include a bank—approved by the Board of Trade. A second purpose is to go as far as possible to meet a particular objection of the British Insurance Association to the wording of the existing clauses.
1252 As worded at the present time, Clauses 54(1)(b) and 65(1)(b) would give the Board power to require an insurance company to maintain in Great Britain a specified proportion or value of its assets. The power could be used only during the first five years after the issue of an authorisation, or when it appeared that there was a risk of the company becoming insolvent. So it is either the young companies or companies about which there is a legitimate doubt. There was a serious attempt to meet the objections that the British Insurance Association put forward. In fact, they were the subject of Amendments in your Lordships' House earlier on, but those Amendments were withdrawn, I am told, on the understanding that the Government would try to find a more satisfactory formula. However, drafting problems have proved extremely difficult, as we warned at the time, and in the event no solution has been found which would both provide the powers at present contained in Clauses 54 and 65 and, at the same time, meet the B.I.A.'s objection in its entirety. Your Lordships will realise that we have to hold the balance between the reasonable wishes of the reputable insurance companies for the efficiency of their business and the protection of the policyholders in the case of companies which are somewhat less reputable.
As at present worded, these clauses provide in one respect greater powers than are really needed, and accordingly we can go some way to meet the B.I.A.'s fears of our encouraging the imposition of excessive localisation of funds overseas by limiting the Board's powers simply to requiring companies to maintain here assets of no greater value than the company's liabilities in the United Kingdom. Here, perhaps, I may point out that the liabilities are those defined in the 1958 Act—in fact, in Clause 13, subsection (2). On the other hand, we must retain the power to require the maintenance of assets, or the documents of title thereto, in specified custody. We must know where they are. This is to prevent insurance companies from being set up in the United Kingdom with a share capital which is either illusory from the start or, even if it is real, quickly removed outside of the country. Of the various ways of remedying this situation, the most practical is that which empowers the Board 1253 to require that assets in the United Kingdom of an amount related to the company's liabilities in this country (with a minimum of £50,000) should, during the first five years of the company's life, be held in approved custody.
Amendment No. 144 removes the present limitation whereby the Board's use of the powers provided within Clause 54(1) cannot be applied for any purpose other than that ofsecuring the proper conduct of the business of the company …It is good to remove this limitation, I suggest, because of the changes in the nature of the requirements introduced by these Amendments, and I believe that the domestic creditors will be adequately protected in this way. As to Amendment No. 145, the substitution of "United Kingdom" for "Great Britain" has been made and put in at the request of the Northern Ireland Government. Amendment No. 146 makes it incumbent on the insurance company to notify the authorised custodian in writing that the assets are to be held by him in compliance with a requirement imposed under Clause 54(1)(c). This is to meet the case where the custodian was the insurance company's normal bankers, and where it would be necessary for the bankers to distinguish between the assets which they were holding in their capacity as bankers to the company rather than as authorised custodian.
The new clause introduced by Amendment No. 150 would, under subsection (1), allow the withdrawal from custody of the assets referred to in the proposed new subsection only where the written consent of the Board of Trade has been obtained; and subsection (2) would have the effect of nullifying any mortgage or charge by the insurance company on assets which were held, or the documents of title to which were held, in custody under the requirements of Clause 54(1)(c) as amended. In order to protect a mortgagee, or a potential mortgagee, Amendments Nos. 148 and 185 were made following a suggestion by the Opposition in Committee in another place, so that arrangements could be made to warn prospective mortgagees when certain assets of an insurance company were the subject of a requirement under the clauses to which I have already referred. The 1254 Amendments require the Board of Trade to put a notice giving details of the imposition, recission or variation or any such requirement on the public file of the insurance company, and this, of course, is open to inspection by the public. My Lords, I beg to move that this House doth agree with the Commons in the said Amendment.
§ Moved, That this House doth agree with the Commons in the said Amendments.—(Lord Walston.)
§ LORD CHORLEY
My Lords, I think we should all agree that this is a very valuable group of clauses, in so far as it goes. What I am not quite clear about—it may be that I am wrong, and I should be glad to have the Government's view about it; if I am right there is not much we can do about it—is as to whether this is sufficiently tied up. What I am particularly worried about is this period of five years during which the assets are to be held in approved custody. The noble Lord said that the object of this was to cover the period while the insurance company was getting on its feet. I can understand that; but what has happened in a number of cases is that it is not a company which is getting on to its feet but a company which has been on its feet which is bought up.
This happened both after the First World War and after the Second World War. It happened to a number of companies of some prominence in the insurance world which had at some time had large businesses but in which, during the war years, things went wrong; and the same thing might happen even in peace years. After the First World War, at least, there were two, if not three, important companies bought up by rather speculative groups of people in the City; and I think it happened once or twice after the Second World War, too. The result was that they did insurances on a very unsound basis. In particular, after the First World War, there was an enormous increase in motor car insurance, on which the premiums are not easy to calculate. Certainly in those cases—and I remember them very well, because it was when I was first practising at the Bar—there were some very serious losses which occurred throughout the country.
I do not see that that position is tied up by this group of clauses. It may be 1255 that I am wrong. A company might get itself well established and then be taken over in the way which has become very familiar to us in connection with the take-over of companies by a group of people who are not very scrupulous. They might be companies which were not sufficiently firmly established, although by this time the five years has expired, after which, apparently, the assets no longer have to be held at the bank or otherwise kept in approved custody.
How is this to be dealt with? I appreciate that the Board of Trade are given powers, in cases where they are satisfied that the company is shaky, to call upon it to provide security. I am not altogether clear how far this goes, but in this type of case an organisation like the Board of Trade is apt to move rather slowly. It may be that the company had been ordered to be wound up by the court, possibly before the Board of Trade made the order; and certainly before the company in question had succeeded in providing the security that the Board of Trade had ordered them to provide. This strikes me as being a possible weakness in this arrangement. I should be glad to have the Government view about it. If in fact it is a possible weakness, perhaps it could be borne in mind to be put right in the Bill that we hope to have later on.
§ LORD DRUMALBYN
My Lords, I wonder whether I could make one or two observations. I should have thought that what the noble Lord, Lord Chorley, has in mind is covered by the necessity to notify any change of ownership. This raises an important point. It is that all the Amendments made—indeed all of the Bill—is going to place a great deal more responsibility for insurance on the Board of Trade than they have at the present time. This was a matter that we discussed at an earlier stage. Many of the Amendments that are here before us are clearly going to involve the Board of Trade in employing people with a very considerable experience of insurance, and in expanding very rapidly their insurance department. The House has not heard about this, and it seems to me that this is a matter of which we ought to take cognizance when we are dealing with these Amendments. That is the main 1256 point I wanted to make. There is only one rather grumpy observation that I should like to make. It is that, Clause No. 182 is pretty ghastly. There are about 24 lines, purely of reference upon reference. I wonder whether it is really necessary to draft it in this way. I cannot possibly let that kind of clause go past without protest.
§ LORD WALSTON
My Lords I will reply briefly. It is unusual for the noble Lord, Lord Drumalbyn, to be grumpy. I think that if he skims, rather than reads carefully, through Clause No. 182, he will be less grumpy. I am assured that it is the most effective and clear way of expressing the intention of the Bill.
§ LORD WALSTON
My Lords, my words were, "I am assured"; there was no committal on my part. With regard to the point of the noble Lord, Lord Chorley, I am grateful to the noble Lord—I can almost call him "my noble friend"—Lord Drumalbyn. He answered the question so effectively. Clause 65 is the answer to this. There has to be a notification of change of ownership; and if there is good reason to believe that the company is likely to become insolvent, that there is a risk, the Board of Trade has power to act. All through this Bill, and particularly in these clauses which deal with insurance companies, we have to hold this balance between protecting the public against the unscrupulous and the inefficient and in not interfering unduly with the reputable and efficient. If we gave complete protection to the public there would necessarily be a great deal of interference with people who need not be interfered with. If we gave a full and desired degree of freedom to the reputable companies then there would be a smaller degree of protection to the general public against the others. We have attempted and, I believe, succeeded, in holding the balance here. With regard to the extra work imposed upon the Board of Trade, that is true: there will have to be a strengthening of the Department. I am sure there will be a strengthening not only in numbers but in the quality of numbers.
§ LORD BOOTHBY
My Lords, I think this is a good Bill. I have supported it all through. It is necessary and desirable. I think it has been hurriedly drafted, although that is neither here nor there. But I am a little worried about not only the extra work to be imposed on the Board of Trade but the extra burden of work to be imposed upon every single company in this country. I wonder whether the Government would have a look at this point, just to see whether they can ease the burden not only on the Board of Trade but on companies in general; because they really will be required to do a tremendous amount of extra work.
§ LORD CHORLEY
My Lords, may I say how grateful I am to the noble Lord opposite and also to my noble friend? Actually, what he said was, in effect, what I was saying. I was aware that there was this power in the Board of Trade to make an order; but that is not necessarily the solution to this problem. For example, a company which is a going concern is taken over; all its insurances are going on and the agents up and down the country continue to write new insurance. It is during this gap that the assets have gone. You cannot expect the Board of Trade to discover until a certain amount of time has elapsed that the new management is shaky. When it does so, then the necessary routines are to be gone through. The noble Lord opposite, as an ex-Minister, is well aware of how slowly the machinery of a Government Department grinds.
It seems to me that it would be very much better if these assets were kept in the safe custody of the bank, or where-ever it may be, indefinitely, and not just for the period of five years. I am sure there is a sensitive period during which it might be that large numbers of people might find their policies were no longer of any value, and that serious accidents and tragedies would occur which they would find were not covered. All this business we have had during the last year—we have had reports of it in the newspapers—would be repeated. There would be the same public dissatisfaction; and we should then be told that this Bill was not effective.
§ LORD DRUMALBYN
My Lords, may I ask whether the noble Lord is suggesting 1258 that each time there is a change of ownership of an insurance company—and this may be the right solution; I do not know—a fresh authority would have to be obtained? I think this is the logical outcome of what he is saying.
§ LORD CHORLEY
If the assets had to be kept at the bank, not only for five years but during the time that the company was in fact writing insurance, then when it was taken over by some other company they would have to replace them before they could be allowed to take over the management. In effect, the new owners would have to give the security needed. The security is not enormous when one considers the underwriting commitments of the average insurance company. It seems to me that it ought to be maintained indefinitely. People doing this sort of business are being given a very valuable area in which to operate. It does not seem to me out of the way to require that they should secure themselves. At Lloyds, by a very ingenious and not too complicated system, this has been very much more effectively covered than we are doing it in this Bill.
§ LORD MCCORQUODALE OF NEWTON
My Lords, I wonder whether one general observation might come in at this stage. I am entirely in agreement with these Amendments to strengthen the law about insurance; indeed I am sure that the whole House is. But I think there is one danger. There may be so much publicity about everybody being protected, every insurance company being perfectly safe, and all the rest of it, that the obligation on the individual to take the same care in the future as in the past that his insurance is placed, not wherever he thinks right, but with some care, may go by the board. I think it would be a pity if that impression got about and nobody took any care in the future, because it is quite impossible to protect everybody from the fruits of their folly.
§ On Question, Motion agreed to.
§ 6.0 p.m.