Lords Sitting of 1 April 1985

Preamble
The House met at half-past two of the clock Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Ely): The LORD CHANCELLOR on the Woolsack.
The Earl Russell—Made the solemn Affirmation.

Parole Licensees: Further Offences
Lord Boyd-Carpenter: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government how many offences have been committed in each of the last five years by convicted persons while on parole during the currency of sentences imposed on them by the courts.
The Parliamentary Under-Secretary of State, Home Office (Lord Glenarthur): My Lords, the numbers known to have been convicted of further offences while on parole licence, as given each year in the Parole Board's Report, are as follows: in 1980 417; in 1981 537; in 1982 690; and in 1983 516. The provisional figure for 1984 is 431.
Lord Boyd-Carpenter: My Lords, I thank my noble friend for those rather disturbing figures. May I ask him whether they would not be smaller if the wise and experienced people who now serve on the Parole Board actually saw the convicted man before deciding to recommend his release upon the public?
Lord Glenarthur: My Lords, in practical terms that would be difficult. There are over 100 establishments—that is to say, prisons—scattered throughout the country and over 5,000 cases a year. Of course, it is an administrative procedure and not a judicial one, and the figures that I gave must be set against the numbers who are paroled and who do not commit offences.
Lord Harris of Greenwich: My Lords, following the point made by the noble Lord on the Government Front Bench, does he agree, first, that it would be quite impossible for the Parole Board to interview several thousand prisoners a year and wholly outside their capacity to undertake such a task? Secondly, is he aware that many of us regard the figures he has given as rather encouraging, indicating as they do a reduction in the number of prisoners who have committed offences in the last three years?
Lord Glenarthur: Yes, my Lords, I think that the noble Lord is right. In answering my noble friend's supplementary question, that is precisely the point that I sought to make. So far as his second supplementary question is concerned, yes, I think it is encouraging.
Lord Elwyn-Jones: My Lords, can the noble Lord give the figure of the number of those granted parole, but who did not subsequently commit a criminal offence? It might be a very useful corrective.
Lord Glenarthur: My Lords, I can tell the noble and learned Lord that in 1983, to take the most recent year for which we have figures, of 5,346 who were paroled, 4,830 did not commit an offence. I think that that makes the noble and learned Lord's point.
Lord Boyd-Carpenter: My Lords, is my noble friend aware that his administrative argument against what would have seemed to many to be the elementary practice of seeing a convicted man before he is released upon the public, will not altogether satisfy those members of the public who suffer from the depredations of people unnecessarily released on them, nor would it seem to be an adequate answer to those who object to it?
Lord Glenarthur: My Lords, it was only part of the answer which I gave. The fact is that, of course, the Parole Board are constantly vigilant about the sort of cases that they have to deal with, and they realise their responsibilities as much as any of us do.
Lord Hunt: My Lords, is the Minister able to confirm that the relatively low percentage of offences

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committed while on parole have, with very few exceptions, been relatively minor offences against property valued at under £100 and have been committed by inadequate petty, persistent criminals who need supervision and support in the community? Has not Home Office research shown that that supervision and support has been effective in limiting the number of offences, not only during parole but for two years after completion of the sentence?
Lord Glenarthur: Yes, my Lords. I think that the noble Lord is right. The percentage of serious offences which have been committed—and by "serious" I am thinking of violence, robbery and sexual offences—in 1983 was 14 per cent. and it has reduced provisionally to 11 per cent. in 1984. I think that that is the sort of figure that the noble Lord is concerned about.
Lord Allen of Abbeydale: My Lords, we naturally hear a good deal about the cases which go wrong, but not so much about the cases which are successful. I wonder whether the noble Lord will convey to his noble friend and to the other members of the Parole Board the great appreciation which many of us feel for the conscientious, and in general pretty successful, way in which they discharge a very difficult task.
Lord Glenarthur: My Lords, I am very grateful to the noble Lord for that question and of course I shall do as he asks. They have a major responsiblity to bear and the noble Lord is quite right when he says that it is the individuals who go wrong who always hit the headlines.

National Gallery: Purchasing Policy
2.35 p.m.
Lord Strabolgi: My Lords, on behalf of my noble friend Lord Jenkins, and at his request, I beg leave to ask the Question standing in his name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what was the price paid by the National Gallery for its recent purchase of a painting by Joseph Wright of Derby, and who decided to pay this price.
The Chancellor of the Duchy of Lancaster and Minister for the Arts (The Earl of Gowrie): My Lords, the price paid at public auction for the painting "Mr and Mrs. Thomas Coltman About to Set Out on a Ride" by Joseph Wright of Derby was £1,419,600, including auction premium and VAT. The painting was bought on behalf of the Trustees of the National Gallery. It is for the trustees to decide what to acquire for the collection, and how much money they are prepared to pay.
Lord Strabolgi: My Lords, I thank the noble Earl for that reply. As the hammer price was 1.3 million, and as there was a very high VAT element in the final price which the National Gallery had to pay, would the Government consider zero rating the National Gallery and other national collections, in the same way as the
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metropolitan museums and indeed foreign buyers are zero rated?
The Earl of Gowrie: My Lords, as the noble Lord will be well aware, VAT applies across the public sector, including the National Gallery loosely in this category, and the tendency in modern life is for there to be pressures to extend VAT, not to reduce it.
Lord Strabolgi: My Lords, all I am asking is that the National Gallery should be zero rated in the same way as other museums and collections in the rest of the country, provided that they are not national museums, are zero rated.
The Earl of Gowrie: My Lords, I am well aware of what the noble Lord was asking. I was simply somewhat modest about my power to deliver it.
The Earl of Radnor: My Lords, does my noble friend agree that it might be sensible if the National Gallery concentrated more on exhibiting the pictures that it owns, rather than on purchasing more?
The Earl of Gowrie: My Lords, the National Gallery like other great institutions, has to strike a balance. This is certainly a major British painting and perhaps the greatest painting by Wright of Derby. It is, of course, a very high price. It is because I am sensible of what my noble friend has said that I have very reluctantly reduced the National Gallery's purchasing grant this year, in the interests of there being greater overall provision for conservation and display of paintings in our national institutions and for the maintenance of the buildings that show them.
Lord Annan: My Lords, does the noble Earl share my astonishment at the question he was asked by the noble Earl opposite, in view of the fact that every painting in the National Gallery is on view to the public, except those paintings which are either in conservation or on loan elsewhere? Every painting is available to the public to be seen. Furthermore, is the noble Earl aware, in regard to the price paid for this painting, that it has to be compared with the price paid for the Turner owned by the late Lord Clark, which went for £7 million at auction? That was a Turner which, by reason of its quality, the National Gallery would not have shown on the main floor.
The Earl of Gowrie: My Lords, I do not think I shall be lured into discussion with the noble Lord, Lord Annan, about the quality of the Turner or other paintings. I endorse what he said about the record of the National Gallery in displaying the marvellous national pictures that it owns. I feel that it is important for the House to realise, and for people generally to realise, that we probably now are in the era of £5 million, £6 million or £7 million being quite commonplace prices for old master paintings.
Lord Grimond: My Lords, is the noble Earl absolutely sure that all the pictures held by the National Gallery are always on view if they are not being repaired or conserved? Secondly, may I ask him whether he agrees that this picture, which is a genuine part of the British inheritance, is probably rightly in

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the National Gallery, and that the National Gallery might be better spending its funds on this type of picture rather than on buying very expensive and prestigious drawings and pictures which originate in other lands and which it is very doubtful are part of our heritage at all?
The Earl of Gowrie: My Lords, I do not think that the National Gallery has a kind of Aladdin's Cave or private file of paintings which are denied to the rest of us. I would certainly defend the noble Lord, Lord Annan, in that respect. The question of national heritage is a large and slightly difficult one. We do of course have a great history as a collecting nation, as a nation which collected works by artists round the world, and we have to consider that part of our heritage as well; but I agree with the noble Lord, Lord Grimond, that it was a good thing that the National Gallery acquired this great Wright of Derby.
Lord Annan: My Lords, I wonder whether the noble Earl will excuse me if I come in again. Is he aware that no drawings are ever bought by the National Gallery, although they are bought by the British Museum? If the noble Lord, Lord Grimond, descends a spiral staircase which goes from the main floor to the ground floor, he will there see all the paintings that are not on display on the main floor. Those paintings are not of course hung in quite the same style as those on the main floor, but they are there for the public to see.
The Earl of Gowrie: My Lords, I am of course well aware that it is the British Museum, with the Victoria and Albert Musuem, rather than the National Gallery, that tends to be the repository of great drawings. As for the noble Lord, Lord Grimond, I am sure that both he and the National Gallery can enjoy each other's company whenever the noble Lord suggests.
Lord Kennet: My Lords, can the noble Earl be lured into answering one other question? Is not the underlying social and economic meaning of VAT that, at the various stages in the manufacture or production of an object or service for sale, somebody adds to its value and that addition is then taxed? Can the noble Earl tell the House who added all that value to the Joseph Wright picture?
The Earl of Gowrie: My Lords, I am tempted to say that the person who really added the value was Joseph Wright; and he, happily for himself, is beyond the reach of VAT.

South Africa: Policy
2.41 p.m.
Lord Hatch of Lusby: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what is their response to the moves taking place in the United States Congress in the USA to impose economic sanctions on South Africa.
The Minister of State, Foreign and Commonwealth Office (Baroness Young): My Lords this is a matter for the United States. But in our view economic sanctions would cause hardship without helping to bring about the fundamental reforms we wish to see.
Lord Hatch of Lusby: My Lords, is the noble Baroness aware that the brutal system of segregation has existed in South Africa at least throughout this century, during which time various British Governments have maintained a dialogue with the South African Government? Does she agree that apartheid, like Nazism, can only be abandoned or defeated; it can never be reformed? Can she say what effect the Government's policy of dialogue with the South African Government has had on the system of apartheid and on the welfare of the 24 million black Africans in that country?
Baroness Young: My Lords, we attach importance to our relations with South Africa, as there are major British interests there, but our policy is to encourage a process of reform in South Africa, and we have of course condemned apartheid on many occasions. We continue to believe that the new constitution should be given the test of time, and the current parliamentary session will he a major test.
Lord Paget of Northampton: My Lords, have not the recent events in South Africa brought home even to my noble friend the kind of problem with which the South African Government are faced in seeking racial peace—the digging up of infant children and the burning of their bodies for no better reason than that their parents are suspected of having favoured racial peace and co-operation—as well as the point that to deal with that kind of savagery, which seems to have the approval of Bishop Tutu and his friends, is not an easy problem? South Africa has been a loyal ally to us in two wars and now is the time to show who our friends are.
Baroness Young: My Lords, we consistently condemn violence in South Africa, from whatever quarter, and the South African Government can be in no doubt where we stand. As I indicated in my answer to the earlier question, we attach importance to our relations with South Africa.
The Earl of Lauderdale: My Lords, would my noble friend not agree that economic sanctions have never brought any change in the country against which they were directed?
Baroness Young: My Lords, I would agree with my noble friend that we do not believe that sanctions would bring change.
Lord Cledwyn of Penrhos: My Lords, would the noble Baroness not agree unequivocally that the appalling events in South Africa are the direct consequences of the policy of the South African Government; namely, the policy of apartheid? Secondly, would she agree that successive British Governments have in fact adjusted and changed their policies towards the Government of South Africa in the light of what has taken place there; for example,

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the export of armaments? Thirdly, in view of the events of the past few weeks, it is not now time for Her Majesty's Government to make a complete reappraisal of their policies towards South Africa; for example, making a decision on no new investments, whatever is the case with existing commercial investments?
Baroness Young: My Lords, we have deplored the tragic and unnecessary loss of life in South Africa over the incidents in Uitenhage. My right honourable and learned friend the Secretary of State issued a forthright condemnation of the shootings, and my honourable friend Mr. Rifldnd summoned the South African Ambassador and expressed our shock and called for a full investigation. We accept certain constraints on our relationship with South Africa as a measure of our abhorrence of apartheid; that is to say, we support the United Nations' arms embargo and the Gleneagles agreement, and we have no nuclear or military collaboration.
Lord Boyd-Carpenter: My Lords, is my noble friend aware that if we ceased to make new investments in any country whose Government's actions we disapproved of, our foreign trade would be very restricted indeed in the world of today?
Baroness Young: Yes, my Lords; and in this case we believe that it would be unlikely to influence South African policies, it would inflict hardship on the black community, and it is not at all clear that it would have much economic impact, anyway.
Lord Brockway: My Lords, while I welcome the Government's recent protest against the killings in South Africa, may I ask the Minister whether she would not agree that it is inconsistent with the antiapartheid policy of the Government that they should be supporting the investment in South Africa of millions of pounds which is maintaining the apartheid system? Is not profit being placed before principle?
Baroness Young: My Lords, I really do not think that there is anything further I can say to the noble Lord, Lord Brockway, beyond what I have already said in answering earlier questions.
Lord Monson: My Lords, would the noble Baroness not agree that, as anybody who has taken the trouble to visit South Africa recently will be well aware, the improvement in the economic and social status of the black population during the past eight or nine years has been quite staggering? While there is still obviously plenty of scope and need for further improvements, account must be taken of the danger of an electoral backlash from the working class and lower middle class whites—those who feel most at risk—if the pace of political change advances too fast. Is not the answer in the short term, therefore, to try to reduce the heavy unemployment among the rapidly expanding black population by increasing investment in South African industry, rather than reducing it?
Baroness Young: My Lords, on the question of investment, this is of course a matter for the
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commercial judgment of firms. However, I would confirm that some important measures have been announced by the South African Government this year—in President Botha's speech in January—indicating a willingness to engage in a wider dialogue with the blacks.
Lord Seebohm: My Lords, will the noble Baroness let us know whether anybody has bothered to ask the black Africans what they think about the American initiatives?
Baroness Young: My Lords, there is evidence that the black community is divided on this issue, with a strong body of opinion opposed to sanctions.
Lord Bruce of Donington: My Lords, the noble Baroness indicated that it was the policy of Her Majesty's Government to leave questions of investment to the commercial judgment of individual firms. Would she not agree that in the circumstances the Government ought to have some priorities in these matters, and that priority should be given to investment in the United Kingdom, in order to reduce unemployment here, rather than to bolstering up the existing South African regime by investment there?
Baroness Young: My Lords, that question is completely wide of the Question on the Order Paper.
Lord Hatch of Lusby: My Lords, may I ask the noble Baroness to address herself to my first supplementary question? What evidence is there that the pious words uttered by a succession of governments in condemnation of apartheid and the continuation of investment have brought any succour to the 24 million black Africans in South Africa over the period of this century? Is the noble Baroness aware that her words apparently supporting the new constitution will cause a great deal of concern to people throughout the world who recognise that that constitution excludes the 24 million Africans from any part in the determination of their own affairs?
Baroness Young: My Lords, the reforms to which I referred in answer to an earlier question were contained in President Botha's speech of 25th January, in which he indicated a willingness to engage in a dialogue with the blacks, suspension of forced removals pending a review of policy, extension of 99-year leasehold rights to blacks in the Cape area, and the decision to develop Crossroads as a black residential area. Those moves may not have gone far enough, but they are a start.

British Shipbuilders: Orders
2.52 p.m.
Lord Orr-Ewing: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government how many orders for merchant ships have been won by British Shipbuilders in the financial year 1984–85 and how does this compare with previous years.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth): My Lords, British Shipbuilders have won orders for 22 merchant vessels, totalling 221,000 compensated gross tonnes, compared with 13 merchant vessels totalling 116,000 compensated gross tonnes in 1983–84, and 19 vessels totalling 180,000 compensated gross tonnes in 1982–83.
Lord Orr-Ewing: My Lords, does not this excellent news arise because of better industrial relations, better working practices, and improved productivity which now places this country ahead of other competitive shipbuilding countries?
Lord Lucas of Chilworth: My Lords, I agree with my noble friend in the first part of his supplementary and would merely add that the implementation by British Shipbuilders of their new merchant ship product strategy, backed by the considerations which my noble friend mentioned, has also been a contributing factor. While both Japan and Korea continue to take a very much higher share of the world market, our own efforts have to be doubled and redoubled.
Lord Shinwell: My Lords, is the Minister aware that one of the reasons why the shipping companies in Great Britain are not ordering more vessels to be registered under British registration is that for several years now—for far too long—British shipping companies (I regret to have to say this, and am prepared to have what I say challenged) have been selling their ships to foreign countries, to Greece and some countries in the third world, at low prices and in competition with British shipping? As long as that goes on, obviously we cannot expect to build up an effective British maritime situation.
Lord Lucas of Chilworth: My Lords, while what the noble Lord, Lord Shinwell, says may be true—and I must say to him that I rather doubt it—I believe that where British ships are sold, whether they are flag in or out, has very little to do with the Question on the Order Paper.
Lord Bruce of Donington: My Lords, can the noble Lord give an indication of the percentage of the orders referred to in both the Question and Answer which came from British shipowners during the two years under review? Will he confirm that the competition which British Shipbuilders and shipbuilders throughout Western Europe are encountering from Korea, which pays wages of the order of some 30 per cent. of those paid in Western Europe, still presents a problem which which Her Majesty's Government, in association with the EEC, ought to be dealing?
Lord Lucas of Chilworth: My Lords, with regard to the orders referred to in my original Answer—the 22 ships totalling 221,000 compensated gross tonnes—I believe that they are all for United Kingdom operators. United Kingdom shipbuilders took some 2.2 per cent. of world new orders in the first nine months of 1984. With regard to the final part of the noble Lord's supplementary, the question of unfair competition is one that continually engages Her Majesty's Government. We are presently negotiating
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with the Commission with regard to the areas of assistance which our Government can give to our shipbuilders.
Lord Taylor of Gryfe: My Lords, would not the Minister agree that in addition to the factors mentioned by the noble Lord, Lord Orr-Ewing, the question of financial arrangements in support of these bids is also important? I congratulate the Government and the banks concerned on the financial packages they put together recently in the placing of some of this business. I should like also to ask the Minister whether the financial arrangements are in all cases competitive with those of our major competitors in this field.
Lord Lucas of Chilworth: My Lords, I am grateful to the noble Lord, Lord Taylor of Gryfe, and I am glad to confirm that in most instances the influence of the finance markets, of which he has a great deal of knowledge, is an important factor in tendering for new ships. I have to confess that not always is the competition truly fair or our arrangements competitive.
Lord Greenway: My Lords, is the noble Lord the Minister aware that possibly greater future competition for our shipbuilding industry will come from the People's Republic of China, whose shipyards have recently been set up—largely with British help?
Lord Lucas of Chilworth: My Lords, what the noble Lord, Lord Greenway, says may well be true, but as it has not yet happened one can only take note of developments. In truth, it is the Finns who have risen to third place in world shipbuilding capacity.

Business
2.58 p.m.
Lord Denham: My Lords, it may be for the convenience of the House if I announce that the Report stage of the Insolvency Bill will be adjourned at approximately 7 p.m. for a short period, and that during this adjournment the Committee stage of the Road Race (Northern Ireland) Order 1977 (Amendment) Bill will be taken.

Further Education Bill [H.L.]
The Earl of Swinton: My Lords, I beg to introduce a Bill to empower local education authorities to supply goods and services through further education establishments and to make loans to certain other persons to enable them to do so; to repeal Section 28 (h) of the Sex Discrimination Act 1975; and for connected purposes. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read a first time.—(The Earl of Swinton.)
On Question, Bill read a first time, and to be printed.

Local Government Bill
The Bill, having been brought from the Commons on Friday last and printed pursuant to Standing Order 48, was read a first time.
London Docklands Railway (No. 2) Bill
Bill read a third time, and passed, and returned to the Commons with amendments.

Insolvency Bill [H.L.]
3 p.m.
Report received.
Clause 1 [Unqualified persons not to act as insolvency practitioners]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 1:
Page 1, line 7, leave out ("at a time when he") and insert ("in relation to a company or an individual at a time when he is, and")
The noble Lord said: My Lords, if your Lordships permit, I shall also speak to Amendments Nos. 6 and 7, in that order.
Amendment No. 6: Page 2, line 24, leave out ("of the 1985 Act and includes") and insert ("given by section 735 (1) of the 1985 Act or")
Amendment No. 7: Page 2, line 28, at end insert—
(" "liquidator" includes provisional liquidator")
The first amendment relates to Clause 1(1), which makes it a criminal offence for any person to act as an insolvency practitioner when he knows, or has reasonable cause to suspect, that he is not qualified to do so. However, an individual can act as an insolvency practitioner only in relation to a particular insolvent company or individual; as subsections (2) and (3) of Clause 1 make clear. As presently worded, it might be construed that the mere fact of an individual holding himself out to be an insolvency practitioner constituted an offence, with no need to provide that he had actually acted as an insolvency practitioner. The amendments make it clear that the offence lies in acting in a particular situation where, for any reason, he is in fact unqualified to act in relation to the particular insolvency and either knows it or has reasonable cause to suspect it.
Amendment No. 6 related to the definition of a company in subsection (5). The existing reference is a general one to the consolidated Companies Act 1985, and the amendment makes a specific reference to the actual section; that is, Section 735(1).
Amendment No. 7 is a minor drafting amendment to clarify that a person will be acting as an insolvency practitioner in relation to a company if he acts as its provisional liquidator. I beg to move.
Lord Bruce of Donington: My Lords, this amendment is quite acceptable to us.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 2:
Page 2, line 3, leave out from ("bankruptcy") to second ("or") in line 4 and insert ("or interim receiver of his property").
The noble Lord said: My Lords, in speaking to Amendment No. 2, I should like also to speak to Amendments Nos. 3, 4 and 5, which also include Amendments Nos. 285, 286 and 287:
Amendment No. 3: Page 2, line 9, leave out ("or")
Amendment No. 4: Page 2, line 12, at end insert ("or
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(d) in the case of a deceased individual to the administration of whose estate this section applies by virtue of an order under section 195 below, as administrator of that estate.")
Amendment No. 5: Page 2, leave out lines 20 to 23.
Amendment No. 285: Clause 194, page 151, line 6, after ("may") insert ("make different provision for different cases and may") Amendment No. 286: Clause 195. page 151, line 14, leave out ("Part III of')
Amendment No. 287: Page 151, line 17, after ("may") insert ("make different provision for different cases and may")
All these amendments concern the power of the Lord Chancellor, with the concurrence of the Secretary of State, to make an order under Clause 195 for the administration of the insolvent estates of deceased persons; that is, whether the debtor died before or after the presentation of the bankruptcy petition. The amendments will ensure flexibility by providing that the order may specify in what circumstances the administrator of an insolvent estate must be a qualified insolvency practitioner.
Under the present law, where a deceased person's estate is being administered under Section 34(1) of the Administration of Estates Act 1925, which is to be repealed by this Bill, and it is discovered, as sometimes happens, that the estate is insolvent, that Act makes provision for the executor or any other person administering the estate to pay the debts in accordance with the rules applied under the laws of bankruptcy to a person judged bankrupt. Under the Bill, the administration of such estates will be provided for by order under Clause 195. This order will include a reenactment of the provisions of Section 34(1) of the Administration of Estates Act.
The intention here is to harmonise the administration of insolvent estates, in or out of court, to the bankruptcy rules so as to achieve equality of treatment of creditors. It is not the intention that an administrator of such an estate should be required to resort to bankruptcy proceedings in order that the estate be then administered by a person qualified to act as an insolvency practitioner. Where bankruptcy proceedings are not taken, such a case may be exempted—that is, by the order under Clause 195—to permit the administrator, even though he is not qualified as an insolvency practitioner, to continue with the administration of the estate in accordance with the provisions of any order made under that clause. There would otherwise be unwarranted interference with family executorships of small estates and the executorship activities of banks and other incorporated bodies.
The amendment to Clause 195 enables the provisions of the whole Bill, and not just Part III relating to individual insolvency, to be applied for the purposes of the administration of estates under Clause 195. The opportunity is also taken here of making two further small amendments to Clause 194, which deals with insolvent partnerships, and also Clause 195, to enlarge the order-making power so as to enable different provisions to be made for different cases. I beg to move.
Lord Bruce of Donington: My Lords, we are in some slight, but not insurmountable, difficulty in connection with these amendments because, under the grouping with which we were kindly provided by the Whips prior to the commencement of our debates,

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Amendment No. 2 fell to be considered on its own merits and was not grouped. Amendment No. 3 was grouped with Amendments Nos. 4, 5, 285, 286 and 287. It is possibly necessary for us to deal directly with Amendment No. 2 and to say immediately that we agree with it because it slightly reduces the ambit of the insolvency practitioner as laid down in subsection (3)(a). The original definition at subsection (3) is:
"A person acts as an insolvency practitioner in relation to an individual by acting (a) as his trustee in bankruptcy, interim receiver of his property or administrator of his estate or, in Scotland, as permanent or interim trustee in the sequestration of his estate".
Amendment No. 2 deletes the words,
"Interim receiver of his property or administrator of his estate".
This is quite an important limitation of the definition of an insolvency practitioner. Indeed, we accept it.
Dealing with the next series of amendments, Amendments Nos. 3, 4 and 5, there is a slight difference between these amendments, taken as a group, and Amendments Nos. 285, 286 and 287. I do not complain about the extremely lucid way in which the noble Lord dealt with these amendments as a group, but it should be noted that the first three amendments, Nos. 3, 4 and 5, are specifically provided for in the statute direct, whereas, of course, Amendments Nos. 285, 286 and 287 give the Lord Chancellor powers to do certain things. This is rather important, and indeed will be important, as the noble Lord will discover as the debate proceeds.
It will be found that the Lord Chancellor has powers to make rules governing matters over a very wide area of the Bill. One does not want to be too pessimistic or give cause for wild exaggeration, but it has been said in professional circles—and the House ought to know that it has been said—that some 25 per cent. of the revision of the insolvency law has taken place in the Bill and about 75 per cent. will be left to rules. At some time during the process of the Bill, we hope before Third Reading, it will be for the advantage of the House if copies of the proposed rules are made known to us. Otherwise, it will be most difficult for noble Lords, in whatever part of the House they sit, to assess the impact and the totality of the Bill, after it has been enlarged, possibly in very many important particulars, by rules of which we know nothing, and by statutory instruments of which we have only a hint.
I lay down a marker at this stage. It is a theme to which I may have to return at later stages in our proceedings, with your Lordships' permission. But I entirely accept the explanation that the noble Lord has given in respect of the seven amendments to which he referred, and we entirely support them.
Lord Lucas of Chilworth: My Lords, I am grateful to the noble Lord. He talked about the power delegated to the Lord Chancellor. He will not forget, I am quite sure, that that power is concurrent with that of the Secretary of State, so it is not such an isolated provision.
I understand what the noble Lord says with regard to the proposed rules. I would not at this stage want to argue with him whether 25 per cent. of the provisions are in the Bill and 75 per cent. will be by way of rules. However, he will know, perhaps far better than myself,
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that the rules have formed a great part of insolvency and bankruptcy law for many years. The Bill comes before your Lordships some 70 years since the last major reform, and it is probable that with the quickening of pace in commerce and business the rules are likely to be more widely used in the future, perhaps, than they have been in the past, merely to take care of the differences that are occurring. But I note the noble Lord's point.
Lord Bruce of Donington: My Lords, with the leave of the House, may I respond to what the noble Lord said? It is precisely because the insolvency law, which was reviewed by the Cork Committee within its historic context over two years ago, comprised so many rules that the committee addressed itself to the problem as a whole. It is perhaps unfortunate, as I previously ventured to point out to your Lordships, that the Cork Report was in its totality never debated in either House. One of the committee's purposes was precisely to avoid the plethora of rules which hitherto bedevilled insolvency legislation, out of date though it was.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 3, 4 and 5:
[Printed earlier: cols. 11 and 12.]
On Question, amendments agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 6 and 7:
[Printed earlier: col. 11.]
The noble Lord said: My Lords, I beg to move Amendments Nos. 6 and 7, to which I have already spoken.
On Question, amendments agreed to.
Clause 4 [Refusal and revocation of certificates]:
3.15 p.m.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 8:
Page 4, line 11, leave out ("not refuse to issue or") and insert ("decide to issue or not to")
The noble Lord said: My Lords, this is a minor drafting amendment designed to clarify Clause 4 (4)(c). If the Secretary of State is minded to refuse or revoke a certificate authorising an individual to act as an insolvency practitioner, he must give notice to the applicant or holder. The applicant or holder, in turn, has the right to ask for his case to be referred to a tribunal. Once the tribunal has reported to the Secretary of State, he must carry out the recommendation of the tribunal as to the issue or revocation of the certificate. The amendment before your Lordships clearly puts a positive obligation on the Secretary of State to issue or not to revoke a certificate where the tribunal recommends it. I beg to move.
Lord Bruce of Donington: My Lords, this is an entirely satisfactory amendment. We on this side of the House concur in it.
On Question, amendment agreed to.
Clause 7 [Duty of court to disqualify unfit directors of companies in liquidation]:
Lord Benson Lord Benson moved Amendment No. 9:
Page 5, line 16, at end insert—
(" (1A) In making a disqualification order under subsection (1) above, the court shall include consideration of—

(a) whether at some time, but in any event not more than two years, before the commencement of the winding up of the company, the person knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation; and

(b) whether the person failed to ensure that management accounts or financial statements, at regular intervals appropriate to the business, which revealed the state of its trading operations and its financial position, were presented to the directors.

(1B) The court shall not make a disqualification order under subsection (1) above with respect to any person if it is satisfied that, after the conditions specified in subsection (1A) (a) and (b) above were first met in relation to him, that person took every reasonable step open to him with a view to minimising the potential loss to the company's creditors as (assuming him to have known that there was no reasonable prospect that the company would avoid going into insolvent liquidation) he ought to have taken.").
The noble Lord said: My Lords, this amendment stands in the name of the noble Lord, Lord Mottistone, and myself. With the leave of the House, at the same time I should like to speak to Amendments Nos. 11 and 12, because they are on the same subject.
Amendment No. 11: Page 5, line 19, at end insert—
(" ( ) No application may be brought under this section later than one year after the date upon which there is a resolution to wind up the company or as the case may be the date upon which a winding-up order has been made by a court.").
Amendment No. 12: Page 6, line 7, at end insert ("; and (c) to furnish him with particulars of the management accounts or financial statements which were presented to the directors.").
These three amendments deal with three principles. Those principles were explicit in the amendment which was passed some six to eight weeks ago when the House discarded the principle of compulsory disqualification. These same principles have been spoken to on all sides of the House, both in that debate and subsequently.
This Bill places heavy burdens on directors. Nobody has any objection to that: but it could destroy a director's livelihood and, even if it did not do that, it could leave a stigma on him for the rest of his business life, which means that he would never be likely to get any other employment. For those reasons it is important that the legislation which is passed should make it clear where directors stand. That is all that these three amendments seek to do.
The three principles are these. The first is time limits. In most civil and criminal cases it is quite difficult to fix time limits because very often the event which took place or the people concerned cannot be readily identified for some time afterwards, but in this case the event is clearly identified by liquidation and the people concerned can be readily identified very soon thereafter. For that reason it seems to be right that there should be time limits within which action may be taken against directors under this very severe clause which may destroy their livelihood.
The second principle is that directors should have some knowledge of the criteria which will be applied in deciding whether they are unfit. In that respect I feel that I am pushing at an open door. The Government
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appear already to have accepted that principle in Clause 9, and I see no reason why it should not be accepted in Clause 7.
The third principle is that directors who have behaved honestly and reasonably should be enabled to escape from the mischief of the clause. Here, again, I feel that I am pushing at an open door, because that relief is already given in Clause 9 and there is no reason at all why it should not be repeated in Clause 7.
Coming now to the details of the Bill, Amendment No. 9 deals with two subjects. This is the second principle, that of giving directors some idea of the criteria by which they will be judged. Paragraph (a) of the amendment is no more than, mutatis mutandis, already appears in Clause 9(2)(b) of the Bill. There are some minor changes which I shall speak to if necessary but it seems to me that what is acceptable in Clause 9 should also be acceptable in Clause 7 as indicating one of the criteria by which directors should be judged.
Paragraph (b) of the amendment speaks of the need for information to be available to directors so that they know what is happening in the business. I have spoken so loudly and, it seems to me, so frequently on this subject that I shall not weary the House by repeating all those arguments. I believe that anybody who understands the administration of companies at all will know that this information is fundamental to the administration of any company, large or small, and I should have expected the Government to accept this amendment with open arms.
The only major difference between paragraph (a) of the amendment and what appears in Clause 9(2)(b) is the insertion of a time limit of two years. That time limit has been inserted for the reasons to which I have already spoken in speaking to the principle.
As regards subsection (1B) of Amendment No. 9, this goes to the third principle. That is that directors who have behaved honestly and reasonably and very often are seeking to revive a declining company should be given the benefit of some saving clause where it appears to the court that it is appropriate to do so. Here again, mutatis mutandis, we have adopted verbatim the wording in Clause 9(3). I see no reason why, if it is acceptable in Clause 9(3), it should not also be acceptable here. The point, which has been explained and mentioned to this House over and over again from all parts of it, is that what is necessary is to protect directors, particularly those who come in to try to help companies which are in a difficult position, in finding their way out of the morass. I am afraid we shall not get the directors of quality we need unless this modest saving clause, already enshrined in Clause 9 of the Bill, is provided for them.
Amendment No. 11, to which I am now speaking, is only a question of time limit. This is the question of providing that application shall be made to the court within one year of liquidation. My own experience of liquidations is that you can tell very quickly, after liquidation supervenes, why the company has gone wrong and who has been responsible. My own experience is that you can very often tell it within a week. You can certainly tell it within three to six months. I have consulted Sir Kenneth Cork, who has a wider experience in these matters than I, and he is of the same opinion. It is for that reason that we have

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suggested a reasonable time limit of one year, which gives some room for emergency or contingencies.
Amendment No. 12 is very short and simple. It is only consequential and rests upon the two previous amendments. It ensures that the liquidator will provide to the Secretary of State, when called upon to do so, information as to whether or not the directors had proper financial information in front of them to enable them to run the business.
There is nothing capricious or difficult about these amendments. They are very simple and straightforward. They are designed solely to try to help the Bill, which, in its present form, seems incomplete. I stress that they have been referred to on many occasions from all sides of this House. I hope that the noble Lord, Lord Lucas, will be able to smile upon them. I beg to move.
Lord Denning: My Lords, while I sympathise very much with the objectives of my noble friend, I am afraid I shall not go with him on these amendments. We are dealing in this clause with disqualification of directors for being unfit, their conduct showing them to be unfit to be directors. In Clause 9, to which my noble friend referred, we are dealing with wrongful trading and the liability personally to make good any of the moneys which may have been wrongfully dealt with.
However, on the question of unfitness, I say first that the clause as drafted is very wide. It is in the same terms of unfitness as the 1976 Acts. It is whether a director's conduct makes him unfit to be concerned in the management of a company. Those are very wide words but such matters are often dealt with like that in statutes for this reason. The statute cannot go into the mass of possible circumstances which make a director unfit—for instance, that he has not attended a board meeting for two years, or he has put the accounts into the wastepaper basket, or he has been drunk, or whatever it may be. All those matters which may constitute unfitness cannot be set out in a statute.
The way guidance is given and, if more, rules are made, as to distinguishing whether or not a director is unfit, is by a code of practice. For instance, take the Highway Code. The statute says you must drive with due care and attention; you must not drive recklessly. It does not go into the detail. That is left, as in many statutes now, to a code of practice which is to be drawn up. The effect of a code of practice, as in statutes like the Road Traffic Act, is not so much of a regulation, but not just mere guidance. What you do is this: you look at the code, see whether or not it has been disobeyed and, on that finding, find whether or not the man is unfit or whatever it may be. That happens continually in Highway Code cases. A man breaks the Highway Code. That is an element on which you can consider whether or not he has been guilty of want of due care and attention.
I suggest that the right way to deal with some of the provisions which my noble friend Lord Benson wants, particularly with regard to the management's accounts, is this. I can see entirely why, with all this wide experience, my noble friend stresses the importance for our companies of having proper accounts regularly and properly brought up and the
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directors inspecting them and seeing what the state of the companies is. There are provisions in the Companies Act, 201 and 202, I believe, which provide expressly for proper accounts to be kept showing the financial position of the company, and for them to be available to the directors and so forth. That is already laid down in the statute. Then the code of practice would say that, if a director does not see that there are proper accounts, if he does not inspect them and look at them, and does not take any notice of them, that is a ground on which a court may find him to be unfit.
Therefore, in a way, I should suggest that in this case we can follow the precedent not only of the Highway Code and of the Industrial Relations Code but of others. Nowadays, codes proliferate. In this case we could have a code which goes to shoe the circumstances under which a director's conduct may be such as to make him unfit to be the director of a company. So, while sympathising greatly with the desire for the importance of management accounts to be brought home to people which my noble friend stresses, I suggest that the way to do this is not by Amendment No. 9 but in a code of practice, which should be provided for in the statute.
As to the other matters, time limits and the like, they can be considered by the courts when they decide whether or not a director is unfit. One may not be able to discover his unfitness, or what he has not been doing, for quite a time. In most cases you can but you need not necessarily limit it to a year. Why limit it to a year? Why not give the court general power to see whether he is unfit or not? In other words, it would seem that the statute, if coupled with a proper code of practice, could deal with all these matters without the need for these amendments.
3.30 p.m.
Lord Bruce of Donington: My Lords, I am in some difficulty in passing authoritative observation on this amendment because of the remarks that have fallen from the noble and learned Lord, Lord Denning, whose judgment I always hold in the highest possible respect. My difficulty in following the noble and learned Lord, Lord Denning, is that there is no code of practice. There is no Highway Code before the House as an annexe to the Bill. And so far, to the best of my recollection, Her Majesty's Government have exhibited no inclination to provide any kind of code which might, as the noble and learned Lord, Lord Denning, has said, form a useful guide for the courts to come to the conclusion as to whether or not a particular director is unfit. Therefore on the straight issue I am bound to say that, in the absence of a code incorporated by way of annexe to the Bill, or as part of its schedules, or even hinted at, upon which the noble and learned Lord, Lord Denning, was good enough to place such great reliance, I come down in favour of an amendment that has been tabled.
The Bench in the United Kingdom is composed of some of the most illustrious citizens that it is our privilege to have. However, they would not claim I think on their own behalf that they have a most profound understanding of all the details of management and business. In fact, some of them on occasion, aside from the particular, narrow legal issues involved, have expressed themselves as not

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knowledgeable about the particular managerial or indeed technical aspects of a business that comes up before them from time to time. On balance, I am bound to say that any solution to the problem is better than none. On the basis of the lowest common denominator, I must therefore support the amendments moved by the noble Lord, Lord Benson.
However, there are additional reasons. One of the reasons, frequently lost sight of—it should be reinforced by us in the House—is that it is from time to time necessary in the case of an ailing company for directors to be appointed to boards by large creditors such as banks or institutions who, on the basis of the rudimentary reports that they have received or the signals that they have received, have come to the conclusion that there is a chance, provided that the correct management and accounting and financial criteria are applied, of that company recovering. The noble Lord, Lord Benson, has made the point that unless the position of those directors who go into companies for the purpose of aiding the company to recover is adequately safeguarded against possible disqualification, no bank or no institution will be encouraged to ask anyone to go on the board as a kind of company doctor for that purpose.
As the Bill stands, without the amendments put forward by the noble Lord, Lord Benson, I feel that the existing structure of Clause 7 does not adequately safeguard the position of those individuals. When I use the words "does not safeguard", it may be that in the ultimate if a case ever came to court, with an all-wise judge or an all-wise Lord of Appeal, particular directors would not be disqualified. What is important is not the ultimate result but what the director apprehends before he enters the employment of a company that should be reconstructed or have some help. In those circumstances, although I agree entirely that some of the wording may give rise to a little misunderstanding at the level of the Bench, particularly in the absence of any definition of what constitutes financial accounts or financial statements, I am bound to say that on balance for the time being we would support the amendment, and leave it, should it still prove unsatisfactory, to be dealt with either at Third Reading or by another place.
Lord Scarman: My Lords, I support the amendments for the reasons developed by my noble friend Lord Benson and by the noble Lord, Lord Bruce of Donington. It must improve the certainty of the law if guidelines could be introduced along the lines suggested by my noble friend Lord Benson into Clause 7. Like the noble Lord, Lord Bruce of Donington, I suspect that without statutory guidelines when these questions of disqualification come before the courts, the courts will allow their eyes to slide down to what is now Clause 9 and they will see the circumstances in which directors can be made responsible for contributing in insolvency. They will take those as some sort of indication of the criteria that they should adopt in dealing with applications under Clause 7. I respectfully agree with the noble Lord, Lord Bruce of Donington, that it really is unsatisfactory that directors and others who seek to bring companies out of trouble into a state of solvency in which they can
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continue to trade should not know exactly where they stand. I find Clause 7 as it stands obscure and uncertain. I find extremely attractive—I realise that this is a matter for argument—the three principles that animate the amendments proposed by my noble friend Lord Benson. For those reasons, shortly given, I support the amendments.
Lord Lucas of Chilworth: My Lords, I am grateful to the noble Lord, Lord Benson, for the manner in which he introduced his series of amendments. However, I take issue with him when he said in his opening remarks that the Bill already places a heavy burden on a director and that were a director declared unfit, it would be a stigma upon him for life and he would not be able to work again. I believe that the noble Lord was exaggerating somewhat and that he has perhaps put behind him one of the main purposes of the Bill—that is, to make directors more aware of their responsibilities in the management of companies particularly in relation to the effect of failure of that company on the creditors.
There have been many men go bankrupt and go into liquidation who have put that house in order and who have found ample and good work again. We heard I think something of an exaggeration. We discussed at some length the matters contained in these amendments during recommitment. I must confess that I feel rather sorry that the noble Lord has seen fit to put a very similar series of amendments down again. If one looks at Amendment No. 9, and particularly at subsection (1A), it is disappointing to me personally because the noble Lord and his friends are well aware that the Government intend—indeed, have already begun—to have discussions on guidelines for judging unfitness. It was an assurance I gave during recommitment, and I think that this is a little premature. I shall probably return to this in a moment.
I wonder whether the amendment to subsection (1A) is not a purely defensive ploy. Is it, for example, to limit the possible exposure of a director to a disqualification order; or is it perhaps to limit the extent of the liquidator's inquiries? Whatever the reason, I suggest it could damage the effectiveness of the clause. If there were evidence that a person knew three years beforehand that there was no reasonable prospect that the company would avoid going into insolvency and there was no subsequent evidence, is it intended that that fact would not be available to the liquidator to include in his report? I do not think that that is what is intended. Or is it? It seems an entirely arbitrary period to choose. In any event, the company is in insolvent liquidation, so what is the point of including this as a guideline? That highlights what I said in Committee at recommitment and earlier this afternoon about the dangers of setting guidelines too precisely.
I do not believe that there is a complete solution to this problem of guidelines, neither in having them included nor in disregarding them. I believe that there may also be unfortunate side effects contrary to those which we intend. For reasons which I think we have been over four separate times, before putting anything at all in the statute we would want to consult and see whether there is any comprehensive guideline which might be so formulated. I believe that it would be quite

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foolish of us to put into this Bill at this stage anything of this nature. I also think it would be foolish of me to undertake to put something in at a later stage because there has to be a net benefit in including in statute something approaching codes of practice or guidelines.
To turn to the remarks that the noble and learned Lord, Lord Scarman, made, we consider the criteria in Clause 7 and in Clause 9 should be kept separate. The test in Clause 9 is designed to assist the court to decide on a director's personal responsibility for the loss of creditors. But in Clause 7 the test of unfitness is to enable the court to decide whether future creditors need to be protected from the activities of a person whose fitness is then in question as a result of his actions.
I turn to another part of Lord Benson's submission. We have explored in some detail previously the problems associated with trying to legislate for management accounts. We know that there have to be indications as to what factors are proper or improper in determining whether a person is to be declared unfit to be a director. We shall do this when our discussions are completed, as I have indicated. By whatever means the guidelines are set down, whether it is legislative in nature or otherwise, they must be flexible to take account of the changes that happen in accounting and other practices.
3.45 p.m.
I do not often call in aid the noble Lord, Lord Bruce of Donington, but I do so now because during our discussions on recommitment he was suggesting that having management accounts as a guideline in the Bill would mean a field day for lawyers because of the difficulty of definition. I agreed with him then and I do so now. The Government consider that what would be a much more practical application would be for us to explore whether it is possible to introduce a requirement for an adequate system of management information for directors to be specified. Again, that in itself would be very difficult, and I think it would be wrong at this stage to say how such a requirement might be dealt with. I do not think that it should be in the Bill. Again, I call in aid the noble Lord because he said during recommitment that he favoured guidelines being incorporated in a statutory instrument or the rules so they could be changed as commercial practices change. Whether it is guideline or whether it is a code, it has to be clear and flexible to meet the changing requirements. The noble and learned Lord, Lord Denning, spelt that out very clearly.
Who decides in any event what should go in and what should stay out? Who decides what is to be adequate or inadequate? I suggest that obviously the requirement would be different, even within the same type of business, for someone with an accountancy background from that for somebody who has no such background and who even where management accounts—call them what you will—were presented might not in fact understand them. Would it be fair to state it so specifically? Surely it must be for the court to determine in the light of all the circumstances of that director's behaviour.
I turn now to subsection (1B) of the amendment. In our view, it is far too restrictive of the court's power to
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say that it shall not make a disqualification order if it is satisfied that the person had ensured that management accounts were presented to directors and that once he knew or ought to have concluded there was no reasonable prospect that a company could avoid going into insolvent liquidation he took every reasonable step open to him to minimise the potential loss to the company's creditors. That type of relief is all well and good for a declaration of personal liability where we are seeking to establish what financial recompense a director should make; but I think that it is wholly inappropriate in the context of this clause where we are seeking to determine general unfitness. Again, I think the noble and learned Lord, Lord Denning, made exactly this point.
If the Bill were to be amended in that way it would mean that however reprehensible a director's conduct had been, even if it had caused enormous losses with creditors, the court would be unable to disqualify him provided he had taken steps to minimise the potential loss to the company's creditors and had ensured that management accounts—whatever they may or may not mean in this context—had been presented to directors. This provision is not relevant to deciding whether he is unfit to manage companies in the future, and we certainly wish to avoid the necessity of steps having to be taken to mitigate the consequences of incompetence. The clause is aimed at the basic unfitness of the director, and if he is unfit then he should be disqualified.
Finally, I turn to the question of the time limit for bringing an application. When we last debated this matter I said that I was in favour of a speedy application but that I preferred the flexible approach so that an unfit director would not be able to escape disqualification on a technicality. I still think that a year is too short a period.
The last of this series of amendments seems to me to be rather unnecessary because the words,
"books, papers and other records relevant to that person's conduct",
in subsection (5)(b) would surely include "management accounts". I underline that we are having discussions with regard to directors' guidelines and a code of practice. However, for all the reasons that I have given, I do not think that these amendments are suitable for inclusion in the Bill and I ask the House to reject them.
Lord Bruce of Donington: My Lords, before the noble Lord the Minister sits down, I wonder whether he would mind interpreting one point for me The noble Lord refreshed his memory from the notes in front of him, and in refering to the proposed subsection (1B) and its reference to "subsection (1)" he endeavoured to limit the application of subsection (1B) to the proposed subsection (1A)(b)—the management accounts. In short, he fastened on the management accounts aspect of the matter—particularly in view of the observations that I made on recommittal and also again today—to narrow the effect. However, in fact that particular part of the proposed subsection (1B) which says,
"The court shall not make a disqualification order under subsection (1) above with respect to any person",
refers to the whole of subsection (1) and not merely to

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subsection (1A)(b), upon which the noble Lord, presumably for political reasons, has concentrated. Perhaps I may refresh his memory and perhaps he will confirm that subsection (1A) provides that:
"In making a disqualification order under subsection (1) above, the court shall include consideration of".
I repeat that it says, "shall include consideration of". It does not centre purely on subsection (1A)(b). Perhaps after looking again at the notes from which he refreshed his memory, the noble Lord will agree that by concentrating on that matter he entirely overlooked the point that it is to subsection (1A) as a whole that subsection (1B) refers.
Lord Denning: My Lords, with the leave of your Lordships, I should like to say that I am not wedded to the code which I suggested. That is not provided for in the Bill as it stands. I should be quite happy with guidelines which were discussed with all responsible people and which would give guidance to the directors of the company and all those dealing with it, and, indeed, to the judges when they come to consider disqualification. Guidelines would be quite sufficient to deal with the problem and it would be unwise to tie the matter too closely to particular statutory provisions. Let the question of unfitness be decided by the court with guidelines agreed, perhaps, by many interested parties.
Lord Lloyd of Kilgerran: My Lords, the noble Lord the Minister has approached this matter with his usual cautiousness and courtesy. However, I personally follow the submissions made by the noble Lord, Lord Bruce of Donington, and particularly his submission in connection with that part of the amendment which is described as the proposed subsection (1B). I strongly support the noble Lord, Lord Benson's amendments on one point. Indeed. I am consolidated—if that is the correct expression—in my support of the amendments because the noble Lord the Minister has not made any comment upon one practical matter; that is, as the noble and learned Lord, Lord Scarman, said, the position of the doctor non-executive director who is brought in when the company finds itself in a very difficult situation. Is it not likely that the person required to give such assistance would be discouraged, as the noble Lord, Lord Bruce, has indicated, by the rather draconian wording in Clause 7?
The noble Lord the Minister prefaced some of his remarks with the phrase, "It would be foolish for me to accept these amendments", and he gave certain reasons. In my view it would be foolish for the Government to leave in a Bill words which would frighten off men of great experience who would otherwise come in to help a company in distress. That is the point with which the Minister has not yet dealt.
Lord Mottistone: My Lords, in sharing this amendment with the noble Lord, Lord Benson, who in my view made the case for it very well indeed, I must confess that I found the comments by my noble friend the Minister extremely disappointing. He totally neglected to pick up the point which my noble friend (if I may so describe him) Lord Benson made and which other noble Lords have made: that we must be
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sure that, in the last resort, the best action possible is taken to safeguard the creditors. That can only come about in a company that is in difficulty if, on the one hand, to begin with the company directors do their best to try to save it, and if, on the other hand, when the company gets into difficulties there is no discouragement for somebody who has been described as a company doctor to come in to help.
Not once did my noble friend mention the question of the company doctor and he did not mention the fact that it will not be in the creditors' interest for the existing board to take the line of least resistance from the beginning because they are frightened by what is before them. It is most disappointing.
The other point which I think that my noble friend has, in a sense, got upside down is that one of the reasons for putting in the financial requirements both in the new proposed subsection (1A)(b) and also again in Amendment No. 12, which deals with the latter part of the clause, is specifically to make sure that the financial aspect of how a company is behaving is absolutely crucial to knowing whether or not it will be successful, and crucial to understanding whether the director in question is or is not unfit. In my view it is very important that these financial points are included, although the actual wording is unimportant because that can be improved by experts.
As far as I can make out, my noble friend made the remark that some directors may not be able to read figures. If a director cannot read figures then he should not be a director: he is unfit before he starts. That is quite disgraceful and I hope that my noble friend will study that part of his speech and will not repeat it again. The provisions that are written into these amendments are a precaution to ensure that directors behave better and to ensure that they are fit. I would agree with my noble friend that unfit directors should be disqualified. However, we need to make sure that directors know the basis of potential unfitness. This is the minimum that could reasonably go in.
4 p.m.
As regards the question whether or not we should have guidelines, I take the view that certainly guidelines may be a solution to this particular problem. But we have not seen the guidelines, and we are not going to see the guidelines before this Bill leaves your Lordships' House. Unless we can see the guidelines and know the form they are going to take, it is difficult to take on trust that these essential points are not included in the Bill. As to saying that the provisions of the clause now deal with a different case, of course they do. The wording of the amendments which we have phrased in outline in the same way as the relevant parts of Clause 9 are not the whole of the Clause 9 provisions: they are just the ones relevant to Clause 7. That is why we put them there.
What makes me extremely distressed is the attitude of my noble friend in not taking up the importance of making sure that the right end result is produced, and not making sure that the best people are not going to be discouraged from helping companies in difficulties. That is the crucial point. It may be that I am saying this again, because I said it at Second Reading, at

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Committee, and at the recommitment, and I shall go on saying it until my noble friend himself bothers to mention it. It is fundamental to this matter.
My own inclination, which was the same as that of the noble Lord, Lord Bruce of Donington, was that perhaps we should listen to what had to be said and should let the process work forward and take it further at Third Reading. But from what my noble friend has said I do not believe that that is good enough. Accordingly, so far as I am concerned, I would support the noble Lord, Lord Benson, if he took this to a Division.
Lord Lucas of Chilworth: My Lords, with the leave of the House, may I answer three questions that have been raised? The noble Lord, Lord Lloyd of Kilgerran, spoke about the company doctor and the discouragement to the company doctor that this Bill would have. I cannot possibly accept that for one moment. One calls in a company doctor as a man of great experience who can help a company in difficulties. If he does that job properly, there can be no way under this Bill that he could be declared unfit. That he might possibly stray into the area of fraud is a different matter, and I am sure that the noble Lord did not mean that at all.
The noble Lord referred to page 5, Clause 7(1)(b), where it says:
"makes him unfit to be concerned in the management of a company".
Exactly those words have been used since 1976, in the Companies Act. They have provided no deterrent whatsoever to company doctors coming forward, nor to other people becoming directors.
Lord Lloyd of Kilgerran: My Lords, may I ask the Minister what his evidence is for his statement that no case has arisen when a man has refused to be a director? I can tell your Lordships of several cases where particularly people with considerable scientific experience have been called in, or have been invited to go in, and they have said, "No, we are not going to risk coming in, in circumstances of this kind".
Lord Lucas of Chilworth: My Lords, until this very moment no case had been brought before your Lordships' House to substantiate the argument that the words in the 1976 Act ought not to prevail in this Act. This is the first time we have heard it. That suggests to me that they are not bearing great weight on the potential company doctors.
The noble Lord, Lord Mottistone, said that nobody should become a director if he does not understand figures, and he thought that what I said in that regard was a bit feeble. There is no qualification whatsoever required of any person other than age, so far as I am aware, before he can become a director. If all had to have some financial knowledge then the boards of some companies would be bereft of a number of good people. One asks people to join boards because they have certain specific knowledge. They may be scientists or chemists, or a wide variety of things, and they would not necessarily expect to be burdened with the responsibility of the financial matters, and they would expect to take guidance from their colleagues.
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I do not find any of the remarks of my noble friend Lord Mottistone at all persuading me that I should offer to give further consideration to this matter. I think I have made the Government's view abundantly clear. I do not believe for one minute that the noble Lord, Lord Benson, nor my noble friend Lord Mottistone, have made out any case other than a defence of the status quo in regard to where directors stand, and particularly in relation to this Bill I suggest that they have it wrong.
Earl De La Warr: My Lords, I should like to add a word in strong support of the noble Lord. Lord Mottistone. The way that my noble friend has been talking—and I do not want to go into some of the technical details—convinces me that the Government are not paying sufficient attention to the need to have directors take risks on behalf of young companies. This is particularly tragic in the light of another part of the Government's determination to help young companies get under way. Had my noble friend been able to express some greater sympathy with this aspect of the matter we would feel less unhappy about the line that the Government are so clearly taking.
Lord Harmar-Nicholls: My Lords, I have to support my noble friend Lord Mottistone on this The Government are taking a line which gives the appearance that they are absolutely sure. But I do not think that they are taking practical experience into account. The practical experience is embodied in the words that my noble friend Lord Mottistone has used.
It is not just new directors being called in, or company doctors being called in. It is a matter of retaining to the last point where perhaps some good can flow from some of the directors who have already been there. If it would help my noble friend in putting this to his colleagues in the department, I was in precisely that position as recently as last year. A company of which I was a director, and had been for a few years, produced balance sheets—it was not their fault; it is the times generally—which gave me the impression that it verged on insolvency. Bearing in mind the rights that creditors have, I thought it ought to be known. When I had that view because I saw the final figures, I immediately went to my noble friend's department, Trade and Industry, and put them completely in the picture. I said, "This is the situation. I think there is a chance that certain rescues can be brought about which would be to everybody's advantage, and perhaps we ought to keep together to see if there is anything we can do". I had a lot of confidence in my colleagues on the board. There was no question that they were rogues. If I had thought that at any time, I would not have been there at all.
My noble friend will be able to check this with his department because they will recognise what I am talking about as it is recent enough for it to be still in their minds, but I got the view from the people in his department that they, being practical persons and responsible in the department, thought that perhaps it was a good idea that I should continue because there were certain contributions that one could make, particularly with getting in money that was owed. It is much easier to get into a balance sheet money that is owed when it is done by someone who has been

27
connected with it rather than a complete stranger or liquidator. The people who owe money to a company, when the liquidator is there, think that that is a good reason not to pay, and usually get away with it.
I think this is a very good Bill. I want to support it. Even on these amendments I shall not vote against it because I think that perhaps your Lordships' House is doing a little too much recording of votes against things that have been considered in detail by the Government. Our job is to revise and to advise, but not to flex our muscles on this sort of thing. If my noble friend and his colleagues in the Government want people to continue to adopt the attitude that I am adopting—that I want to make a contribution where I have practical experience that I believe may be helpful—I should like a slightly more generous reaction towards having the matter considered again. I believe there is a possibility here that we may frighten away people who could rescue a company or who could minimise the damages that could flow from going into liquidation. My noble friend will not have me voting against him if it is pushed to a vote, but even at this last minute I should like him to say that he will confer again with his colleagues just on the off-chance that it is possible that words could be found which would not be a deterrent against people continuing, as is the case if the words are left as they are.
Lord Lucas of Chilworth: My Lords, with the leave of the House, since my noble friend Lord Harmar-Nicholls has specifically invited me so to do I should like to say that I have little doubt that a court would take an opposite view to that of my Department when the noble Lord brought his particular problem with regard to the potential insolvency or rescue of the company of which he spoke. That is exactly the action of a responsible director. He has made the case for me. I would remind him that I gave an assurance that the Government were giving consideration to the worthwhileness or otherwise of guidelines for the benefit of directors.
Lord Benson: My Lords, I have little to add to what I said before. The noble Lord, Lord Lucas, chided me for again bringing this matter before the House. My only reason for doing so is that on the first and the second occasions when this matter was in Committee, the noble Lord promised to look into it to see what he could do; but the result of that consideration has produced nothing. This is extremely disapointing.
On the second point, the noble Lord, Lord Lucas, said that consultations would take place about rules and guidelines. That is too late. That consultation should have taken place before the Bill came before this House for approval. On the third point, the noble Lord, Lord Lucas, said that the Government would consider providing management information. They do not have to look any distance, because the amendment before the House is management information. That is precisely what it is and what it is intended to be. I found the defence made by the noble Lord, Lord Lucas, extremely disappointing, as did the noble Lord, Lord Mottistone. He and I agreed, when we put this amendment down, that we would not go to a Division, hoping that we would be given some assurances that
28
these matters would be considered and that some changes that would be helpful would be made. The reply has been so unsatisfactory that I agree with the noble Lord, Lord Mottistone, that we must go to a Division.
4.15 p.m.
On Question, Whether the said amendment (No. 9) shall be agreed to?
Their Lordships divided: Contents, 85; Not-Contents, 84.

DIVISION NO. 1

CONTENTS

Alport, L.

Lawrence, L.

Ardwick, L.

Leatherland, L.

Aylestone, L.

Llewelyn-Davies of Hastoe, B

Barnett, L.

Lloyd of Kilgerran, L.

Benson, L. [Teller.]

Lockwood, B.

Beswick, L.

Lovell-Davis, L.

Blyton, L.

McNair, L.

Boston of Faversham, L.

Mayhew, L.

Bottomley, L.

Merrivale, L.

Briginshaw, L.

Milford, L.

Brockway, L.

Monson, L.

Bruce of Donington, L.

Mottistone, L. [Teller.]

Burton of Coventry, B.

O'Brien of Lothbury, L.

Cledwyn of Penrhos, L.

Oram, L.

Collison, L.

Plant, L.

Craigavon, V.

Ponsonby of Shulbrede, L.

Davies of Leek, L.

Ritchie of Dundee, L.

De La Warr, E.

Rugby, L.

Dean of Beswick, L.

Sainsbury, L.

Denington, B.

Scarman, L.

Donaldson of Kingsbridge, L.

Seear, B.

Donnet of Balgay, L.

Seebohm, L.

Ennals, L.

Selkirk, E.

Ewart-Biggs, B.

Shaughnessy, L.

Falkender, B.

Shepherd, L.

Fisher of Rednal, B.

Shinwell, L.

Foot, L.

Somers, L.

Gaitskell, B.

Stallard, L.

Galpern, L.

Stamp, L.

Graham of Edmonton, L.

Stedman, B.

Hampton, L.

Stewart of Fulham, L.

Hanworth, V.

Strabolgi, L.

Harris of Greenwich, L.

Taylor of Blackburn, L.

Hayter, L.

Taylor of Gryfe, L.

Henderson of Brompton, L.

Taylor of Mansfield, L.

Heycock, L.

Terrington, L.

Hunt, L.

Tordoff, L.

Hylton-Foster, B.

Wallace of Coslany, L.

Jenkins of Putney, L.

Wells-Pestell, L.

John-Mackie, L.

White, B.

Killearn, L.

Wigoder, L.

Kilmarnock, L.

Wootton of Abinger, B.

Kinloss, Ly.

NOT-CONTENTS

Alexander of Tunis, E.

Constantine of Stanmore, L.

Allerton, L.

Cork and Orrery, E.

Ampthill, L.

Cottesloe, L.

Auckland, L.

Cullen of Ashbourne, L.

Belhaven and Stenton, L.

Davidson, V.

Bellwin, L.

De Freyne, L.

Beloff, L.

Denham, L. [Teller.]

Belstead, L.

Denning, L.

Boyd-Carpenter, L.

Drumalbyn, L.

Brabazon of Tara, L.

Effingham, E.

Caithness, E.

Ellenborough, L.

Cameron of Lochbroom, L.

Elles, B.

Campbell of Alloway, L.

Elliot of Harwood, B.

Campbell of Croy, L.

Elton, L.

Chelwood, L.

Ferrier, L.

29

Foley, L.

Pender, L.

Fortescue, E.

Penrhyn, L.

Fraser of Kilmorack, L.

Plummer of St. Marylebone, L.

Gardner of Parkes, B.

Glanusk, L.

Porritt, L.

Glenarthur, L.

Portland, D.

Gray of Contin, L.

Radnor, E.

Gridley, L.

Rankeillour, L.

Hailsham of Saint Marylebone, L.

Reigate, L.

Renton, L.

Hemphill, L.

St. Davids, V.

Lane-Fox, B.

Sandford, L.

Lauderdale, E.

Skelmersdale, L.

Long, V.

Strathcarron, L.

Lucas of Chilworth, L.

Swinton, E. [Teller.]

McAlpine of Moffat, L.

Teviot, L.

McFadzean, L.

Teynham, L.

Mancroft, L.

Trefgarne, L.

Marley, L.

Trumpington, B.

Maude of Stratford-upon-Avon, L.

Vaux of Harrowden, L.

Vickers, B.

Mersey, V.

Vivian, L.

Molson, L.

Westbury, L.

Newall, L.

Whitelaw, V.

Noel-Buxton, L.

Wynford, L.

Nugent of Guildford, L.

Young, B.

Onslow, E.

Young of Graffham, L.

Orkney, E.

Zouche of Haryngworth, L.

Orr-Ewing, L.

Resolved in the affirmative, and amendment agreed to accordingly.
4.23 p.m.
Lord Taylor of Gryfe Lord Taylor of Gryfe moved Amendment No. 10.
Page 5, line 16, at end insert—
(" ( ) For the purposes of this section, in determining whether a director's conduct makes him unfit to be concerned in the management of a company, the court shall consider whether the company of which he was a director solicited or received deposits of money or prepayments in relation to the purchase, leasing, hire or rental of goods or the provision of services in circumstances where the company had not taken adequate steps to ensure the supply of such goods or services.").
The noble Lord said: My Lords, the discussion of the previous amendment has made clear the difficulties of definition of the reasons for making a disqualification. I hope that noble Lords will not regard the addition of this amendment as making it more difficult. I am moving this amendment at the request of, and with the support of, the Consumers' Association and the Consumer Council. It raises a question which was discussed to some extent at the Committee stage. The Bill makes provision for protecting the position of shareholders and directors, including company doctors, and creditors but there is one category in the whole trading business which is neglected.
I refer, of course, to the position of consumers. It is suggested in this amendment that one of the reasons for disqualification that renders the director unfit to be concerned in management of a company is, as the amendment reads:
"…the court shall consider whether the company of which he [is] a director solicited or received deposits of money or prepayments in relation to the purchase … where the company had not taken adequate steps to ensure the supply of such goods or services".
This highlights a very important issue. It is estimated by the Office of Fair Trading that no fewer than 430,000 consumers in the last two years made prepayments to companies in respect of services and goods promised to them and lost on an average of £80 per person—which means that something like £34
30
million was lost to consumers in these cases. The amendment does not exclude the other reasons for declaration of unfitness; it simply adds to the declaration of unfitness. To that extent, I feel that this might reasonably be accepted. I beg to move.
Lord Denning: My Lords, I would oppose this inclusion, on the same lines as the last. It is obvious that when a judge is considering whether a director of a company was unfit he would consider these very matters which are put in here. He would consider whether the company was acting in this way, providing services and so forth, getting payment and not giving those services. It is the very matter which the judge, of course, will consider. There is no need to put it into a statute because it would bear the impression that if the judge has got to be told especially to consider this, he may not consider other things. I would leave it, if need be, to the guidelines or whatever it is. But I would leave the judge to consider everything relating to whether the director is or is not unfit. I do not think that the amendment is necessary, and it may be embarrassing.
Lord Lucas of Chilworth: My Lords, I would not like it thought that I am unsympathetic—or indeed that the Government are unsympathetic—to the hardships that are suffered by some consumer creditors when a company goes into liquidation when the creditors have made advance payments and then are not able to recover their money. Having said that, I do not think that including this particular test of unfitness in the Bill would prove to be any answer. Perhaps one or two people may be caught, but that is about all. It seems to me that the far more likely effect would be for a company to curtail their activities because the directors of such a company would not know how a court would be likely to determine what they might have done.
I said earlier that we are consulting on the possibility of guidelines or a code of practice, or whatever one may call it, for unfitness to be a director. I would think that the point that the noble Lord, Lord Taylor of Gryfe, has made would be one aspect of conduct that ought to be considered. Having said that, and having heard the noble and learned Lord, Lord Denning, put his view, I would urge the noble Lord, Lord Taylor, to withdraw his amendment.
Lord Taylor of Gryfe: My Lords, having listened to the noble and learned Lord, Lord Denning, with his usual concise logic, I think that I will withdraw this amendment and perhaps return to the subject on a clause which would provide for keeping prepayments in separate accounts so that this may be excluded as a category from trade creditors, rather than introducing it into this clause which deals with disqualification. Accordingly, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Benson Lord Benson moved Amendment No. 11.
[Printed earlier.]
The noble Lord said: My Lords, I beg to move the amendment standing in my name. It has been spoken to already.
On Question, amendment agreed to.
4.30 p.m.
Lord Benson Lord Benson moved Amendment No. 12:
[Printed earlier.]
The noble Lord said: My Lords, this is all part of the same subject that we have been discussing. I beg formally to move.
On Question, amendment agreed to.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 13:
After Clause 7, insert the following new clause:
("Liquidator's report to be confidential.
.—(1) A liquidator or former liquidator who discloses any matter under subsection (5) of section 7 above to a person other than the Secretary of State or the official receiver shall be guilty of an offence.
(2) Subsection (1) above does not apply to any disclosure of matter which is made—

(a) for the prevention or detection of crime or for the purposes of any criminal proceedings; or

(b) in pursuance of the order of a court.

(3) A person guilty of an offence under this section shall be liable—

(a) on summary conviction to a fine not exceeding the statutory maximum; or

(b) on conviction on indictment, to a fine.").

The noble Lord said: My Lords, this is an exploratory amendment upon which it is not my intention to invite the House to divide. We want really to obtain the Government's reaction to its purpose with a view to our then being able to make up our minds whether or not to pursue it at a later stage. All the amendment seeks to do is to protect the confidentiality of the report that the liquidator is under various clauses required to make to the Secretary of State.
In Part I of the Bill it was laid down that the Secretary of State would determine the nature of the qualifications required for the appointment of an insolvency practitioner; in other words, the appointments of insolvency practitioners would rest with him. We had it in mind, although I am bound to confess that we did not do so, to write into the Bill a list of those professional bodies with whom the Secretary of State should consult before agreeing to the appointment of insolvency practitioners. But as it is, subject only to the approval of the Secretary of State and the appointment by him of insolvency practitioners, there are no particular criteria as to qualifications laid down.
In the profession to which I have the honour to belong, and indeed in many others, the need for confidentiality is drilled into us when we are articled clerks. We are strictly enjoined that in no circumstances whatsoever, even to our families, must we ever reveal the nature of a client's affairs. Indeed, if members of the professions which are singled out for special mention in the Companies Acts were the only people to be appointed as insolvency practitioners, one could safely rely on the professional internal discipline imposed by, among others, the Institute of Chartered Accountants in England and Wales, the Institute of Chartered Accountants in Scotland, the Institute of Chartered Accounts in Ireland, certified public accountants, and so on, to maintain confidentiality.
However, one has to face the fact that the Secretary of State may appoint people who do not belong to
32
professional organisations that impose very strict disciplines upon their members. This contingency has to be faced and this is the reason why the amendment has been put down, so that, if an insolvency practitioner other than a member of the recognised professional bodies is appointed, he strictly understands from the outset that confidentiality is required.
As I indicated at the beginning, it is not our intention to press this amendment to a Division. It is designed specifically to raise the various points to which the House has been kind enough to listen while I have been addressing myself to the subject, and with a view to eliciting what is in the Government's mind about an extremely important matter in this connection: the complete confidentiality of the reports that are made.
We live in an era of leaks, as your Lordships know. Many leaks come directly from the Government themselves, into which they subsequently institute inquiries. Leaks are not unknown but they must not happen in this field because they may, if they fall into the wrong hands of sensation-mongers—who very often I am afraid have no regard for the whole truth—do damage to people unjustly. So we should like the Government's reaction to the amendment. I beg to move.
Lord Denning: My Lords, this amendment would introduce a fresh and unexpected principle into our law. We have many breaches of confidence. What happens under the Bill if the Secretary of State receives a report, and a clerk or someone else in his department leaks it? There is nothing in this provision to make them liable. We should be coming up against the Official Secrets Act before we knew where we were. But apart from that, there are things done in confidence every day—disclosure to the medical profession, disclosure of documents to the legal profession in the course of proceedings, and disclosure to bankers; but never has a leak been made a criminal offence. Of course it is an offence against which employers and others can take steps and confidence must be ensured so far as is possible. If it is properly communicated, it is usually protected by qualified privilege; but if it is not, there may be a liability for defamation. This is a new principle which I do not think we should accept into our law.
Lord Lucas of Chilworth: My Lords, I was glad to hear from the noble Lord, Lord Bruce of Donington, that he was making an exploration here; and it was interesting, in the light of that exploration, to hear what the noble and learned Lord, Lord Denning, had to say about it. I agree with the noble Lord, Lord Bruce of Donington, that it is right that a director should be protected wherever he can be from unauthorised disclosure about himself or his company's affairs. However, the new clause goes a little too far because any matter under subsection (5) of Clause 7 includes anything relating to the conduct of the director, and the liquidator can disclose information relating to such conduct only to the Secretary of State, or the official receiver, or for the purposes of the prevention or detection of crime or for criminal proceedings. Any other disclosure needs the consent of the court.

33
Is the liquidator therefore required to obtain the leave of the court before he can consult his legal adviser on whether a misfeasance or wrongful trading claim arises out of a director's conduct? The new clause would make it impossible for the liquidator to function if any discussions or any communications involving a director's conduct required advance clearance by the court. I do not think that the noble Lord, Lord Bruce of Donington, is intending that.
The noble Lord talked about the bodies to whom responsibility for appointing insolvency practitioners would be devolved from the Secretary of State. Clause 5 of the Bill provides that the Secretary of State can delegate functions of certifying the insolvency practitioners, and the bodies which will have that authority will he the professional ones which the noble Lord has outlined. We are discussing with all accountancy bodies and of course the Law Society how far that power of delegation should go.
I share the noble Lord's concern on this matter of confidentiality, particularly that matters should be disclosed only for appropriate purposes. I do not think that this clause strikes the right balance. As the noble and learned Lord, Lord Denning, has suggested, it would be very difficult to make a watertight area here. Since it is a matter newly raised I am quite happy for us to give it further consideration; but I must confess that on first sight I do not promise that anything very germane is likely to come out of our consideration.
Lord Bruce of Donington: My Lords, I am most grateful to the noble Lord for his assurances and also for his explanation. I expected to be shot down immediately by the noble and learned Lord, Lord Denning. Indeed, I was almost deterred from putting the amendment down at all, precisely for that reason. But I am satisfied that the matter has been raised and that the noble Lord has taken on board the confidentiality which has to be emphasised. Indeed, the fact that we have discussed and underlined confidentiality in this House may, itself, serve a useful purpose insofar as prospective insolvency practitioners are concerned to ensure that this is still a very prime and important matter. Nevertheless, I accept the noble Lord's assurance, and I ask the leave of the House to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 8 [Disqualification after investigation of company]:
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 14:
Page 7, line 4, at end insert—

("(4) (a) The court shall not make an order under subsection (2) above unless it is satisfied that a notice has been served on the person against whom the application is made not later than the period of 21 days ending on the date of the application.

(b) Such a notice shall state

(i) the time and place where the application is to be heard; and

(ii) that the person is entitled to obtain a copy of the report of the Inspector from the Secretary of State.

(c) Notice of the application may be served on a person either by delivering it to him or by leaving it at his proper address or by sending it by post to him in a registered letter or by the recorded delivery service.

(d) For the purposes of this section, the proper address of a person, in the case of a director of a company, shall be that
34
of the registered or principal office of that company, and in the case of a former director shall be his last known address.").

The noble Lord said: My Lords, the general terms of this amendment are to provide a degree of protection for directors who are liable, or are thought to be liable, to disqualification. The sole purpose of this clause is to ensure that they are informed of the nature of the charges, or rather of the nature of the report, on which they may be adjudged to be unfit to be directors. They have been set out in detail and indeed are self-explanatory.
I have a feeling that I am going to be told—perhaps I shall be told again by the noble and learned Lord, Lord Denning—that the existing rules of the court are such that the various safeguards that I have inserted here in the various sub-paragraphs are already automatically in the rules and that all directors' positions are already covered in what is standard practice in the courts. If that is the case, I must apologise to your Lordships for my ignorance and trust that your Lordships will forgive my zeal in ensuring that they are brought to attention and that directors do in fact in the circumstances have certain rights to be provided with all the information on which they are likely to be judged; that they are given all the appropriate notices, and so on. If the noble Lord can assure me that my suspicions are right I shall be only too happy to withdraw the amendment after having directed his attention to the safeguards that I require. I beg to move.
Lord Denning: My Lords, my noble friend is quite right. These matters are all well dealt with by rules of court. I think they are already sufficiently provided for. But if not, they can be amplified so as to provide for this. But an Act of Parliament is not the place—they are really for rules of court.
4.45 p.m.
Lord Lucas of Chilworth: My Lords, the noble Lord, Lord Bruce of Donington, is right in his suspicions. I commend him for his zeal because it is right that, where there is doubt, these matters should be confirmed; and I am obliged to the noble and learned Lord, Lord Denning, for his intervention.
In the Government's view there is no reason for applications of this nature to be dealt with any differently from those under Clause 7. The procedure will be the same as presently exists for applications under Clause 300 of the Companies Act 1985. That is governed by Part II of Schedule 12 to the Act of 1985, which is being repealed by the Bill and transferred to the rules. I should perhaps point out that there is an exception. The one exception is that the person will not necessarily be entitled to a copy of the inspector's report, which may contain matters unrelated to the application before the court. What he will be entitled to is a copy of the application and any supporting documents on which the court will base its decision.
Subsection 4(a) requires the notice to be served on the person,
"not later than the period of 21 days ending on the date of the application".
This is surely intended to be not less than a period of 21 days. Finally, the sub-paragraph does require the

35
court not to make an order under this clause unless it is satisfied that proper notice has been served. What is needed here is that the court shall not hear the application unless the proper notice has been given. I do not think the noble Lord, Lord Bruce of Donington, need have any doubts as to how the matters would be conducted, and I do not really think his amendment is necessary.
Lord Bruce of Donington: My Lords, I ask the leave of the House to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 9 [Responsibility for company's wrongful trading]:
Lord Benson Lord Benson moved Amendment No. 15:
Page 7, line 13, after ("time") insert ("but in any event not more than two years").
The noble Lord said: My Lords, I beg to move Amendment No. 15 which is standing in the names of the noble Lord, Lord Mottistone, and myself. With the leave of the House, I should like to speak also to Amendments Nos. 16 and 17 at the same time.
Amendment No. 16: Page 7, line 22, after ("every") insert ("reasonable").
Amendment No. 17: Page 7. line 22, after ("step") insert ("open to him").
The amendment can be dealt with very shortly. Amendment No. 15 only brings into Clause 9 wording which was imported into the amendment recently carried in Clause 7. If it has been accepted in Clause 7, I hope it might be acceptable to the Government to put it into Clause 9 because the point of principle is identical. Amendments Nos. 16 and 17 are merely for clarification. There is no wish in any way to weaken or undermine Clause 9(3); but as written it says that, "that person took every step". In fact, "every step" is not the same for every person. Some persons can take some steps and some can take others. All that is suggested is that this should be made perfectly clear so that it should be "every reasonable step open to him". This was wording which was used in Clause 7—in the amendment that has just been dealt with—and I hope that the Government will perhaps be willing to agree to these minor changes.
Lord Bruce of Donington: My Lords, we entirely agree with these amendments, and in view of the lucid explanations of the noble Lord, Lord Benson, we have nothing to add to them.
Lord Noel-Buxton: My Lords, perhaps I may say a few words on Amendments Nos. 16 and 17, although the noble Lord, Lord Benson, in fact moved Amendment No. 15. I do not actually agree with that amendment but I very much agree with Amendments Nos. 16 and 17. It is unreasonable to expect of any person in any circumstances that he takes every step without qualification. So unreasonable is such a concept that I suspect the court would surely qualify it, and may no doubt use the very words used in this amendment. Be that as it may, let us put the matter beyond all doubt and insert the words, "reasonable and open to him" as suggested by Amendments Nos. 16 and 17 which I support.
Lord Lucas of Chilworth: My Lords, I listened very carefully to what the noble Lord, Lord Benson, had to say, as I did to the noble Lord, Lord Bruce of Donington, and to my noble friend. But in my view this series of amendments is a further attempt by noble Lords to weaken the "wrongful trading" clause. I am not convinced that these three amendments will assist the operation of the clause as it is in any way at all. To restrict the period of wrongful trading to two years prior to the commencement of the winding up will certainly give directors some comfort but it could lead and, I believe, would lead to creditors being seriously disadvantaged.
To take again the same example I used when considering a similar amendment to Clause 7, a director could have behaved disgracefully—short of fraud perhaps, but certainly with ineptness—and caused through that action considerable loss to the creditors for four years before the commencement of the winding up. It could be shown that he knew that there was no reasonable prospect that the company would avoid going into insolvent liquidation. Nevertheless, as I read the amendment, the liquidator would be able to apply for a wrongful trading declaration only if the point in time at which the director knew or ought to have concluded that there was no reasonable prospect occurred in the period of two years prior to the commencement of the winding up.
If the director shows that he knew or ought to have known before that period, is he to escape the section entirely? I suggest that if this is so, it cannot possibly be acceptable to your Lordships. Even if the intention is that he is to be liable but only for conduct in the two-year period, the example I have given shows that the creditors will suffer from the arbitrary cut-off date.
So far as the attempt further to qualify the steps which the person has to take to minimise the potential loss to the company's creditors by the addition of the words"reasonable" and "open to him" is concerned, I suggest to your Lordships that the words add nothing to the understanding of the clause—which refers to steps he ought to have taken. I draw your Lordships' attention to subsection (4) of the clause, which gives guidance to both the court and the director about the steps which he ought to take; that is, those taken by a reasonably diligent person as amplified in paragraphs (a) and (b) of the subsection.
I may also refer your Lordships, and particularly the noble Lord, Lord Benson, to the pertinent comment made by the noble Lord, Lord Meston, on the word "ought" when we discussed this matter last time. He said in effect that there was really nothing gained and nothing taken away by adding to the words in the Bill.
The phrase "every step" should be interpreted without any difficulty on the basis clearly set out in the clause. For the proper working of the Bill, there is nothing in these three amendments which would help. I believe them to be unnecessary and would ask the noble Lord, Lord Benson, to withdraw them.
Lord Denning: My Lords, I do not support this amendment. We are here dealing with Clause 9 as it stands, although another amendment is soon to come. As Clause 9 stands, it deals with a new principle in our company law of wrongful trading. It is different from

37
Clause 7 concerning disqualification of directors. I see no reason why the period should be limited to two years. One never knows for how long wrongful trading has been going on. Further, it is a very sensible precaution that the authorities must be satisfied that the director took "every step". These amendments would weaken the clause, which is designed to guard against wrongful trading, and I do not believe that it should be weakened in any way.
Lord Mottistone: My Lords, I should like to make one or two remarks. With this amendment, to a greater extent than earlier amendments, I have been advised by the CBI, whose views need to be taken into account because it has the coverage of a large number of businessmen of all kinds and it has expert committees on this subject.
The point in argument in respect of all these amendments, and particularly in the case of Amendment No. 15, is that the words "at some time" are vague. The words "at a particular time'' might, for example, be a better way of putting it. I take my noble friend the Minister's argument and shall not press this matter, but I invite him to examine the point that the phrase "at some time", unless it has the backing of much usage in legislation, could be misinterpreted and lead to disadvantage to an individual who might become involved in wrongful trading unwittingly.
My second point, which has already been touched upon, particularly by my noble friend Lord Noel-Buxton, is the very definiteness of the phrase "every step". In English, the words "every step" admit to no other interpretation. As the noble Lord, Lord Benson, has made clear, there will be various steps which various directors can take. Therefore, although I fully accept that there may be another way of qualifying this matter, if a word other than "every" could be used, this might be helpful.
I hope that my noble friend will consider these points between now and the next stage, to see whether he can find a way of altering the English so as to make the words "at some time" less vague and the word "every" less definite.
Lord Benson: My Lords, in view of what has been said, I beg leave to withdraw Amendment No. 15.
Amendment, by leave, withdrawn.
[Amendments Nos. 16 and 17 not moved.]
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 18:
Leave out Clause 9 and insert the following new clause:
("Wrongful Trading.
9.—(1) A company shall be trading wrongfully within the meaning of this section if—

(a) any business of the company is carried on with the intent to defraud creditors of the company or creditors of any other person or otherwise for any fraudulent purpose; or

(b) at a time when the company is insolvent or unable to pay its debts as they fall due it incurs further debts or other liabilities to other persons without a reasonable prospect of meeting them in full.

(2) Save for declarations made under subsection (6), declarations may be made by the court in respect of wrongful trading by a company on the application of the official receiver, its liquidator, its administrative receiver or administrator or a creditor or contributory thereof but only if—

(a) it shall be in course of a winding up; or

38

(b)an administrative receiver shall have been appointed on behalf of the holders of any debentures of the company secured by a floating charge over the whole or substantially the whole of the assets of the company and has not ceased so to act; or

(c) an administrator has been appointed by the court in respect of the company.

(3) the court, on any such application, may declare that any person party to the carrying on of the business of the company shall be personally responsible, without any limitation of liability, to make such contribution (if any) to the company's assets as the court thinks proper, if it appears that such person—

(a) knew; or

(b) as an officer of the company, ought, in all the circumstances, to have known,

that the company's trading was wrongful; provided that if upon such application it appears to the court that such person has acted honestly and that having regard to all the circumstances of the case he ought fairly to be excused that court may relieve him, either wholly or in part, from personal liability on such terms as it may think fit. On the hearing of any such application the official receiver or liquidator or the administrative receiver or the administrator, as the case may be, may himself give evidence or call witnesses.
(4) Where the court makes any such declaration, it may give such further directions as it thinks proper for the purpose of giving effect to that declaration, and in particular may—

(a) make provision for making the liability of any such person under the declaration a charge on any debt or obligation due form the company to him, or on any mortgage or charge or any interest in any mortgage or charge on any assets of the company held by or vested in him or any company or person on his behalf, or any person claiming as assignee from or through the person liable or any company or person acting on his behalf, and may from time to time make such further order as may be necessary for the purpose of enforcing any charge imposed under this subection.

For the purpose of this paragraph the expression "assignee" includes any person to whom or in whose favour, by the directions of the person liable, the debt, obligation, mortgage or charge was created, issued or transferred or the interest created, but does not include an assignee for money or money's worth given in good faith and without notice of the matters which constituted the trading wrongful; and

(b) provide that sums recovered under this section shall he paid to such persons or classes of persons, for such purposes, in such amounts or proportions at such time or times and in such respective priorities inter se such declaration shall specify.

(5) The provisions of this section shall have effect notwithstanding that the person concerned may be criminally liable in respect of the matters on the ground of which the declaration is to be made.
(6) Any company and (if with the company's consent) any person party to or interested in becoming party to the carrying on of the business of the company, may apply to the court in chambers to determine whether all or any of the trading of the company at and after such application would be wrongful and on any such application the court may, on or subject to such terms and conditions and generally as in its discretion it may think fit, declare that any such trading of the company for any such period or periods or in any such events as should then be specified should not be wrongful and on any such application the relief granted may include such provisions as to the court shall seem fit tier the best ensuring the confidentiality of or publicity for the declaration made thereon or the terms and conditions thereof or any part or parts of them or either of them.
(7) If in relation to any application under subsection (6) any person wilfully makes a statement which is false in any material particular, either knowing it to be false or being reckless as to the truth or falsity, he shall on such being declared by the court, be disentitled to any benefit from the order made on such application and shall be guilty of a misdemeanour and shall be liable on conviction in Scotland on indictment and for imprisonment for a term not exceeding two years, and be liable on summary conviction in England or Scotland to imprisonment for a term not exceeding four months, and in either case to a fine not exceeding £5,000 in lieu of or in addition to such imprisonment; provided that:—

(a) the fine imposed on summary conviction shall not exceed £100;

39

(b) nothing in this section shall affect the provision of the Perjury Act 1911 or the False Oaths (Scotland) Act 1933.

(8) For the purposes of this section the express "officer" shall include any person in accordance with whose directions or instruction the directors of a company have been accustomed to act.
(9) Nothing in this section shall give rise to any liability for wrongful trading except as provided by this section or shall preclude any liability whatsoever arising independently of this section.
(10) This section shall apply to the carrying on of the business of the company whether in England and Wales or not and whether before or after the commencement of this Act.").
The noble Lord said: My Lords, as I indicated on recommittal of this particular part of the Bill, it was my intention to move a completely new clause in place of the existing Clause 9—one which has already been published and which follows very closely the recommendations of the Cork Committee on this particular matter. Indeed, apart from one particular part which is designed to bring certain wording into conformity with that already insisted upon by the Government in another part of this Bill, the amendment I have put down is exactly on all fours with the Cork Committee proposals.
The noble Lord, in the course of his remarks on recommittal, undertook to point out, if he had time, the defects of the draft submitted by the Cork Committee and reproduced by me in the form of Amendment No. 18. He indicated that he would point out the defects. For good measure, I said that I would put down the amendment again in order to afford him the opportunity. So, when the noble Lord comes to reply, he will have an adequate opportunity to do so.
It is important to emphasise some points of difference between the Cork draft clause on wrongful trading as reproduced in this amendment and Clause 9 put into the Bill by the Government. There are a number of minor differences but there are three principal differences which I venture to draw to the attention of your Lordships.
Subsection (2) of the draft clause proposed by me is rather more stringent towards the director than the Government's own version. Your Lordships will see that an application can be made to the court on the application of the liquidator, whereas the Cork version of the clause extends this to the application:
"of the official receiver, its liquidator, its administrative receiver or administrator or a creditor or contributory thereof".
So the scope for complaint for wrongful trading is much greater than that envisaged by the noble Lord in his clause in the Bill.
5 p.m.
The other matter to which I draw attention relates to subsection (4) in the amendment, which I shall read out for your Lordships' information:
"Where the court makes any such declaration"—
that is, a declaration that a director may be individually responsible for some or all of the debts of the company—
"it may give such further directions as it thinks proper for the purpose of giving effect to that declaration, and in particular may—
(a) make provision for making the liability of any such person under the declaration a charge on any debt or obligation due from the company to him, or on any mortgage or charge or any interest in any mortgage or charge on any assets of the company held by or vested in him",
40
and so on. There is no similar provision in the Government's clause. Indeed, the amendment essentially follows the recommendation of the Cork Report because in paragraph 1797, under the heading,
"Courses open to the Court",
the report states:
"We consider that the Court should be given far more flexibility with regard to the beneficiaries of any award in respect of wrongful trading than is available at present under section 332. The possible diversity is endless, but a few examples might be helpful:

(a) if one creditor has at his own expense and risk successfully brought the proceedings, it may be just that what is recovered should go first to him rather than merely swell the sum available to the general body of creditors;

(b) it may be that one creditor has sued in effect as representative or trustee of himself and others of a certain class: and

(c) a distinction may sometimes need to be drawn between debts incurred at different times, or, perhaps, between creditors who, for example, knew that the company was insolvent but took the risk of not being paid and those who were deceived into thinking that the company was solvent."

Subsection (4) of the amendment is designed specifically to give the court that discretion.
The other part which marks off the Cork version, which has been reproduced in the amendment, from that which is already incorporated in the Bill at Clause 9, is the anticipatory declaration. The noble Lord, Lord Harmar-Nicholls, in the course of a debate on an earlier clause, gave a very stirring account of his encounter with the Department of Trade and Industry in connection with a company of which he was a director. Clearly, he derived considerable advantage from it. In effect, the amendment is to give directors who are in doubt as to their position an opportunity of going to the court.
In paragraph 1798 the Cork Report states:
"We propose that the company concerned or any person who considers that he is or may become party to its wrongful trading should be able to apply to the Court in Chambers for relief in advance. The Court will have power to declare that. however matters later turn out, future trading of the kind which it has sanctioned should not be capable of giving rise to any claim for wrongful trading. The following are examples of the sort of declarations we have in mind:

(a) that trading for a specified period should not be wrongful;

(b) that unless or until a certain level of borrowing has been reached trading should not be wrongful;

(c) that trading with a view to completing certain existing or prospective contracts only should not be wrongful."

Those are the grounds on which subsection (6) of my draft of Clause 9 are moved. They supply the principal differences between Clause 9, as drafted, and Clause 9 as originally recommended by the Cork Committee.
I hope, in spite of the time I have found it necessary to take for a meticulous examination of this aspect of the matter, that my amendment will find favour with your Lordships. In my view it is certainly far fairer to directors. It gives them an opportunity to obtain some anticipatory decisions. It is in many ways stronger because it permits application to be made by a far wider body of persons and gives a certain flexibility to the court when it comes to determine the whole question of contributions by the individuals concerned. I beg to move.
Lord Denning: My Lords, I should like to completely support this amendment. The Cork Committee considered wrongful trading to be the most

41
important of its recommendations. Previously in the law we have had the concept of fraudulant trading. If a man was guilty of fraudulant trading, or with intent to defraud, he could be personally liable and he could also be criminally prosecuted. However, the Cork Committee said that that does not go far enough. The position is that a director may be reckless or incompetent. He may have said, "Oh well, perhaps in time we shall get through", and he would be acquitted of fraud. But the Cork Committee said that it is not good enough that creditors should be deprived in this way. The committee considered it very carefully and, in the most important chapter in the whole of its report, on page 404, under the heading,
"The justification for the new concept",
the committee said:
"A balance has to he struck. No one wishes to discourage the inception and growth of businesses, although both are unavoidably attended by risks to creditors. Equally a climate should exist in which downright irresponsibility is discouraged and in which those who abuse the privilege of limited liability can be made personally liable for the consequences of their conduct. We believe that our proposals in this chapter strike a fair balance between those two conflicting needs. We regard them as of the greatest importance, and their implementation as a matter of urgent necessity".
To that end—and it is the only chapter in which it did so—the committee proposed a draft clause, which is the very clause which the noble Lord, Lord Bruce of Donington, has moved.
Clause 9 as it stands in the Bill is far weaker than the Cork Committee recommended. In the first place, it is only in the winding-up of a company that this arises, and it is only when it so appears to the liquidator, and on his application, that it can be done; whereas the Cork Committee does not confine it only to the liquidator as someone who can complain. Any person can complain, including a contributory creditor, or whoever it may be. It carries on, not only during the liquidation but during the other steps which occur in a company: the administration of it by a receiver or the administration by new persons appointed to run the show. Any of those people can apply.
In drafting this clause—and this is important—the Cork Committee had before it a section of the Companies Act now consolidated. It is Section 630, which replaces earlier sections. The committee followed the very wording of that section in paragraph after paragraph:
"The court, on the application of the official receiver, or the liquidator or any creditor or contributory of the company, may, if it thinks proper to do so, declare that any persons who were knowingly parties",
and so on. The committee took the very words of Section 630 as the basis of this clause but applied them not only to fraudulent trading but also to wrongful trading. That is an essential principle.
For myself, I see no reason whatever why this new clause which is recommended by the Cork Committee should not be inserted as it is, subject to one or two minor amendments which have already been incorporated in the proposed draft by my noble friend Lord Bruce. One phrase, for instance, is, "to make such contribution". It brings in the word, "knew". Then there is the objective statement:
"as an officer of the company, ought, in all the circumstances to have known".
42
I submit that the Cork Committee gave the greatest care to introducing a new principle and drafting a clause for your Lordships' consideration. It is far better, and far more capable of putting down wrongful trading and getting redress for it, than the words in what is now Clause 9 of the Bill, so I would support the amendment altogether.
Lord Mottistone: My Lords, I must thank the noble Lord, Lord Bruce, for his earlier support for the amendments which had my name to them, but I have to tell him that I cannot support this amendment, even though that means my crossing swords with the noble and learned Lord, Lord Denning. I should add that my advisers agree with me.
The amendment is too long and too complicated. As to its repeating Section 630 of the Companies Act 1985, that is taken care of in subsection (6) of the Government's drafting. Apart from the amendments which we should like to have had to the Government's clause but which have been withdrawn, the Government's drafting seems to me to he an admirable exposition of the case, and should therefore be the provision that stays in the Bill.
Lord Lucas of Chilworth: My Lords, the noble Lord, Lord Bruce, gave me the opportunity, which I accept, of again setting down why the Government do not feel that his proposed new clause is right and proper for inclusion in the Bill. On recommitment, I described what we felt was wrong with the Cork draft. I am grateful to my noble friend Lord Mottistone for his support of the Government's position, and nothing I have heard this afternoon has made me feel any different. I know that this proposed new clause is not an exact copy of the Cork clause, but there is still too much of the original left to make it a workable alternative to the provision that the Government have down.
There is a minor matter to start with. Subsection (1)(a) would allow the courts to deal with both fraudulent and non-fraudulent trading on the same basis. In our view, that is wrong. Declarations of personal liability for fraudulent trading are already provided for by Section 630 of the Companies Act 1985, and the Government see no benefit from amalgamating those two provisions.
We have heard why the test in the existing clause of what a person ought to know before an application can be made makes for difficulties. That test is that the person knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation. It may be difficult to apply in particular circumstances, but it is a test that has to be made and can be made on the basis of existing law and procedure, and I explained that at considerable length in the recommitment debate. I merely underline it this afternoon.
5.15 p.m.
What the noble Lord's amendment requires is two tests. The applicant has to show that the person knew or ought to have known, first, that the company was insolvent or was unable to pay its debts as they fall due. We all perhaps know what being unable to pay our debts as they fall due is like. But it may be that what is intended by those words is more akin to commercial

43
insolvency as outlined in Section 518 of the 1985 Act, all of which are grounds for a petition to wind up a company; or are we, on the other hand, talking about a balance sheet insolvency (that is, when assets are insufficient to meet the company's liabilities), and, if so, are we talking about valuations on a going concern basis or on a liquidation basis?
Having proved either one of those two facts, the applicant then has to show that the person allowed the company to incur further debts or other liabilities to other persons without a reasonable prospect of meeting them in full. I have had some difficulty in interpreting subsection (1)(b) of the suggested clause. Does the phrase,
"incurs further debts or other liabilities to other persons",
with the emphasis on the last two words, mean just that, so that a company could continue to increase its indebtedness to its existing creditors without trading wrongfully? It also appears that if no further credit is obtained, the company's assets could be dissipated at the expense of the existing creditors by, for example, excessive remuneration, without the directors being liable for wrongful trading. Surely that cannot be acceptable.
I explained in the debates in Committee why the Government consider it inappropriate for applications to be made by any one other than the liquidator. I think at this juncture I should say that I accept that a case could probably be made out for the administrator to make these applications, and, if noble Lords wish, we should be prepared to give this further consideration.
The noble Lord, Lord Bruce, altered subsection (3) of the Cork clause so that his proposed clause now reads that the person,
"shall be personally responsible … to make such contribution … to the company's assets,"
rather than, as the draft Cork clause provided, that he should be personally responsible for all or any of the debts or other liabilities of the Company. The Government made a similar alteration to Clause 11 of the Bill so as to make it clear to the court that it did not have to identify particular debts or liabilties and make the person responsible to pay that amount. I do not therefore follow why the noble Lord did not follow Government thinking all the way and delete subsection (4)(b) from his amendment.
By giving us that subsection, the court has discretion to decide which creditors shall benefit from any amount by providing that the declaration shall specify the persons or classes of persons to whom the amount recovered shall be paid, which means that the court will need to hear representative arguments on behalf of the various classes of creditors before it can make its declaration. This appears directly to contradict subsection (3) because that requires the contribution to be distributed in accordance with the normal order of priorities in liquidation.
Whichever method the noble Lord actually intends, I am suggesting that the discretionary route will be time consuming and very costly; and it will have to be paid for by the creditors. I suggest to your Lordships that this will make liquidators very much less inclined to make these applications. It is far better in our view
44
to provide that the amounts recovered remain as part of the company's assets for distribution to the creditors in the normal way.
The point that the noble Lord, Lord Bruce of Donington, makes in his subsection (4) of his new clause, the point about the ability to charge assets to support a declaration of personal liability for wrongful trading, is already dealt with. It is in Clause 9(6) of the Bill. That provides that Section 630(4) of the Companies Act, the consolidation Act of 1985, will apply. That provides exactly what the noble Lord is seeking.
I think it will be claimed that the subsection was deliberately framed to allow the court flexibility in dealing with merits of different claimants. For this reason also the subsection provides that applications can also be made by a creditor or a contributory. I have to say to your Lordships that in the Government's view this is not the right solution. It is tempting to say that the creditors who should receive the money are those whose debts have been incurred during the period of wrongful trading. However, if that trading had not taken place the assets available for existing creditors might well have been greater. If those circumstances prevailed, who then should benefit? What would happen is that directors would be placed under pressure to settle out of court to avoid legal costs; and even if that did not happen there would inevitably be a scramble by creditors to pursue their claims before the directors' assets themselves were dissipated.
Subsection (6) of this amendment—and that allows a person to obtain relief from the court should the company's future trading prove to have been wrongful—is one provision which the Government have consistently said is inappropriate. The anticipatory declaration was claimed by Cork in paragraph 1799 to be a way of allaying fears of bankers concerned at extending facilities to and monitoring the performance of companies of doubtful solvency and to those intending to inject money into such a company or to take up a position on its board. The fact of the matter is that applications for relief would not be restricted to such people because the subsection allows applications to be made by any company or any person with the company's consent. The Cork Report at paragraph 1798 gave a number of examples. The noble Lord himself referred to that paragraph.
Basically what the court is being asked to do is to validate a transaction or a course of action on the basis of a person saying, "We want to do this particular thing. We think it is perfectly proper but it might just conceivably be wrongful trading, so please grant us relief from any personal liability in case we are wrong". The court will have to make a decision without the benefit of hearing arguments in opposition based on evidence which might in the event turn out to be of a dubious nature provided, incidentally, by perhaps less than honest directors. I should add that this clause in the Bill does not extend to persons other than the directors or shadow directors, and for the reasons explained on re-commitment the need that Cork saw for anticipatory relief does not apply.
The Cork Report, in paragraph 1800b, page 403, recognised that the courts are well able to deal with

45
such applications in the same way that they presently deal with applications under Section 227. That is now Section 522 of the Companies Act 1985. The reason for applications under the old Section 227—and that can only be invoked once a petition to wind up the company has been presented—is to enable the essential conduct of the company's business to be carried on until the petition is heard. If that section was not available no transactions could take place because Section 227 provides that any disposition of the property of the company made after the commencement of the winding up is void, and not voidable. It follows therefore that a liquidator could seek to recover property sold by the company between petition and winding up and it would be for the buyer to seek to move the court to have the transaction validated. A major difference between a Section 227 application made prior to a winding-up order and an anticipatory declaration as envisaged by this amendment is that under the Section 227 application the court is able to hear the petitioning creditor's views as to the merits of the application. I do not know whether or not the noble Lord opposite has considered how much use would be made of this facility. Indeed, the Cork Report gave no indication at all. But I will suggest to your Lordships that it may well be used quite extensively—and in my view unnecessarily—and that in itself would seriously overload the court system.
Why should the courts he involved in matters which, if the applicants are right, they will never become involved in again because the company does not go into liquidation or trade wrongfully? I suggest to your Lordships that in the circumstances where an application for an anticipatory relief would be appropriate a person should be able to resist any subsequent wrongful trading application by showing—as provided for in subsection (3)
"that such a person has acted honestly and that having regard to all the circumstances of the case he ought fairly to be excused".
Surely, that is the way these matters should be dealt with. Let the person rely on his own honest conduct for relief rather than request the court to give him an exemption.
I am sure that it was not intended but it would be possible for the court to grant anticipatory relief (without being fully aware of the facts, I admit) to a company which was subsequently found to be trading fraudulently. I do not think any of the noble and learned Lords would be happy to be placed in that situation.
Finally, subsection (10) of this amendment would have a rather curious effect. My understanding—and I think I understand it correctly—is that it provides that if the company has been wound up after the commencement of the Insolvency Act, applications can be made to the court for declarations of personal liability in respect of wrongful trading which took place at any time before the Act came into force. It would thus be retrospective. I should again suggest to your Lordships that if such a provision were left in the Bill there would be a scramble by directors—who might be at risk—to liquidate their companies before commencement. Again, I do not think that that is what the noble Lord opposite intended.
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I invite the noble Lord, Lord Bruce of Donington, to withdraw this amendment and to let the Bill proceed in its present form. After all, we are all agreed that wrongful trading needs to be dealt with. The only matter on which we differ is how best to achieve our objective. The matter has been a source of great discussion both in the Chamber and elsewhere. I have to say that the Government believe that they have the drafting of the clause right. No useful purpose will be served by trying to say in the Bill what steps a reasonably diligent person should take.
It is the Government's view that if there is any doubt in a director's mind about the correct action to take in a particular situation—we have discussed this earlier—then his best course would be to consult his professional advisers. I believe that I have answered all the points that were raised on recommitment and during the noble Lord's speech in introducing his amendment. I believe that my arguments are better than his. I invite him to withdraw his amendment.
5.30 p.m.
Lord Bruce of Donington: My Lords, the nature and scope of the noble Lord's reply to the introduction of this proposed new clause illustrates once again the great mistake made by Her Majesty's Government in not initiating a complete debate on the complete Cork Report itself. It is quite clear that, by selective quotations from the Cork Report either for or against any particular course of action, one can adduce very powerful and logical arguments. The noble Lord's reply reminded me of minestrone soup. There was everything in it bar the kitchen stove. The noble Lord even hazarded as a reason why we should not accept the amendment that certain information that the clause requires should be given to the court might be lying information. He knows perfectly well that if one lies to the court one can be caught under the perjury Act, anyway. It is no reason at all, alleging that the court might rely on inaccurate information in coming to the conclusion it did.
I must say that the noble Lord's construction of subsection (10) of the new draft clause is one that I find wholly incomprehensible. Only a draftsman at the last stage of his resources and wanting to sling something in for good measure could advise the noble Lord in the manner undoubtedly contained in the notes from which he refreshed his memory in the course of his remarks. At the risk of incurring your Lordships' mild displeasure, I should like to acquaint you with the particular paragraph in the Cork Report that dealt precisely with the kinds of conflicts that the noble Lord dreamt up in his imagination as arising from the adoption of the draft clause. I invite your Lordships to consider this particular quotation. It is the last that I shall give from the Cork Report on this issue.
I invite you to consider the calm and balanced way in which the matter is put as distinct from the recommendations incorporated in the noble Lord's notes. Paragraph 1805, headed "The justification for the new concept", states:
"A balance has to be struck. No one wishes to discourage the inception and growth of businesses, although both are unavoidably attended by risks to creditors. Equally a climate should exist in

47
which downright irresponsibility is discouraged and in which those who abuse the privilege of limited liability can be made personally liable for the consequences of their conduct. We believe that our proposals in this chapter strike a fair balance between those two conflicting needs. We regard them as of the greatest importance, and their implementation as a matter of urgent necessity".
These were the conclusions of one of the most competent professional committees that has ever been set up in this country to examine insolvency law. It contained people who are household names in the particular field, who have a lifetime of experience, all of them in concert together. I shall refrain from mentioning the names of the principals. But they are people who command great public respect and who hold positions of great honour This is their balanced conclusion.
We, on this side of the House, cannot help it if, for reasons of time conservation and the various other excuses that are occasionally put up by Governments, important reports are not discussed, or if Members of your Lordships' House, through proper constraints on time, have not been made aware of these balanced considerations that were dealt with in the Cork Report. For our part, we stand solidly behind the balanced approach that the Cork Report put forward against the near hysterical reaction that has come from the Government on this matter.
5.35 p.m.
On Question, Whether the said Amendment (No. 18) shall be agreed to?
Their Lordships divided: Contents, 64; Not-Contents, 113.

DIVISION NO. 2

CONTENTS

Ardwick, L.

Llewelyn-Davies of Hastoe, B.

Aylestone, L.

Lockwood, B.

Beswick, L.

McNair, L.

Boston of Faversham, L.

Mayhew, L

Bottomley, L.

Milford, L.

Briginshaw, L.

Molloy, L.

Brockway, L.

Mulley, L.

Bruce of Donington, L.

Northfield, L.

Carmichael of Kelvingrove, L.

Ogmore, L.

Chitnis, L.

Oram, L.

Cledwyn of Penrhos, L.

Paget of Northampton, L.

Collison, L.

Phillips, B.

Davies of Leek, L.

Ponsonby of Shulbrede, L.

Dean of Beswick, L. [Teller]

Ritchie of Dundee, L.

Denington, B.

Ross of Marnock, L.

Denning, L.

Shaughnessy, L.

Donnet of Balgay, L.

Shepherd, L.

Elwyn-Jones, L.

Shinwell, L.

Ennals, L

Stallard, L.

Ewart-Biggs, B.

Stedman, B.

Fisher of Rednal, B.

Stewart of Fulham, L.

Gaitskell, B.

Stoddart of Swindon, L. [Teller.]

Galpern, L.

Gladwyn, L.

Strabolgi, L.

Graham of Edmonton, L.

Taylor of Gryfe, L.

Grey, E.

Taylor of Mansfield, L.

Hanworth, V.

Tordoff, L.

Houghton of Sowerby, L.

Wallace of Coslany, L.

Jenkins of Putney, L.

Wedderburn of Charlton, L.

John-Mackie, L.

Wells-Pestell, L.

Lawrence, L.

White, B.

Leatherland, L.

Wigoder, L.

Listowel, E.

48

NOT-CONTENTS

Ailesbury, M.

Inglewood, L.

Airey of Abingdon, B.

Ingrow, L.

Aldington, L.

Kaberry of Adel, L.

Alexander of Tunis, E.

Kinloss, Ly.

Allerton, L.

Lane-Fox, B.

Ampthill, L.

Lauderdale, E.

Auckland, L.

Lindsey and Abingdon, E.

Belhaven and Stenton, L.

Long, V.

Beloff, L.

Lucas of Chilworth, L.

Belstead, L.

Lyell, L.

Benson, L.

McFadzean, L.

Birdwood, L.

Mancroft, L.

Bledisloe, V.

Margadale, L.

Boardman, L.

Marley, L.

Boyd-Carpenter, L.

Masham of Ilton, B.

Brabazon of Tara, L.

Maude of Stratford-upon-Avon, L.

Broxbourne, L.

Caccia, L.

Merrivale, L.

Caithness, E.

Mersey, V.

Cameron of Lochbroom, L.

Molson, L.

Campbell of Alloway, L.

Mottistone, L.

Campbell of Croy, L.

Noel-Buxton, L.

Chelwood, L.

Nugent of Guildford, L.

Constantine of Stanmore, L.

O'Brien of Lothbury, L.

Cork and Orrery, E.

Onslow, E.

Cottesloe, L.

Orkney, E.

Craigavon, V.

Orr-Ewing, L.

Cranbrook, E.

Pender, L.

Cullen of Ashbourne, L.

Penrhyn, L.

Davidson, V.

Plummer of St. Marylebone, L.

De Freyne, L.

De La Warr, E.

Polwarth, L.

Denham, L. [Teller.]

Portland, D.

Dilhorne, V.

Radnor, E.

Drumalbyn, L.

Rankeillour, L.

Ellenborough, L.

Reigate, L.

Elles, B.

Renton, L.

Elliot of Harwood, B.

Renwick, L.

Elton, L.

Rodney, L.

Faithfull, B.

St. Davids, V.

Ferrier, L.

Sandford, L.

Fortescue, E.

Selkirk, E.

Fraser of Kilmorack, L.

Sharples, B.

Gainford, L.

Skelmersdale, L.

Gardner of Parkes, B.

Swansea, L.

Glanusk, L.

Swinton, E. [Teller.]

Glenarthur, L.

Terrington, L.

Grantchester, L.

Teviot, L.

Gray of Contin, L.

Teynham, L.

Greenway, L.

Trefgarne, L.

Gridley, L.

Trumpington, B.

Hailsham of Saint Marylebone, L.

Vaux of Harrowden, L.

Vickers, B.

Harmar-Nicholls, L.

Vivian, L.

Hayter, L.

Whitelaw, V.

Hemphill, L.

Wynford, L.

Henley, L.

Young, B.

Hylton-Foster, B.

Zouche of Haryngworth, L.

Resolved in the negative, and amendment disagreed to accordingly.
Clause 14 [Application for order]:
5.45 p.m.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 19:
Page 11, line 35, leave out subsection (3).
The noble Lord said: My Lords, I beg to move the amendments standing in my name, and with your Lordships' permission I will deal with Amendments Nos. 19, 20, 22, 23, 24 and 25 together.
Amendment No. 20: Page 12, line 9, leave out ("Subject to subsection (3) above,")
Amendment No. 22: Clause 19, page 15, line 28, leave out ("(other than one to which subsection (6) below applies)")
Amendment No. 23: Page 15, line 31, leave out subsection (6).

49
Amendment No. 24: Clause 20, page 16, line 37, leave out ("Subject to subsection (3) below")
Amendment No. 25: Page 17, line 1, leave out subsection (3).
Under the Bill, a petition for an administration order must be dismissed if an administrative receiver has already been appointed or if a person entitled to appoint a receiver opposes the petition. It is for consideration as to whether the court's power to make an administration order should override the secured creditors' power to appoint a receiver. It is a view that ought perhaps to commend itself to your Lordships. An administrator will manage a company with a view to saving it or securing an advantageous realisation of its assets for the protection of creditors as a whole. A receiver will seek to realise the assets of a company for the benefit of the creditor who appointed him. Although a secured creditor should be entitled to oppose a petition for an administration order, and Clause 14(2) should accordingly be retained, such opposition should not be conclusive.
Clause 31 gives a reasonably adequate degree of protection to secured creditors whose power to appoint a receiver is overriden. However, as the Bill now stands, the power to make an administration order will be extremely limited because the great majority of companies for which an administration order would be appropriate will have granted floating charges over their assets and the chargeholders will, in the great majority of cases, prefer to appoint a receiver with a view to a quick realisation of the available assets. In our view, the interests of the unsecured creditors require that, at least where there is a reasonable prospect of the company's return to solvency, the court should have an overriding power to appoint an administrator.
The amendments proposed to Clauses 19 and 20 are consequential upon the amendments put forward in connection with Clause 14. The position under the Bill is that a secured creditor has power to block an administration order by appointing a receiver but if he chooses not to exercise that power he cannot claim the benefit of his security during the administration period. This would be unfair if he has no power to block the administration order. I beg to move.
Lord Lucas of Chilworth: My Lords, Amendments Nos. 19 and 20 in the name of the noble Lord would have a very similar effect to the amendment which was moved by the noble Lord, Lord Meston, during our consideration in Committee of what was then Clause 16 of the Bill.
I have listened very carefully to what the noble Lord, Lord Bruce of Donington, has had to say in explaining these two amendments. I must confess that I was a little more convinced by the reasons he gave during Committee for opposing the removal of subsection (3) than I am now by his support for removing the subsection. I remain of the view that it would be most unwise to proceed as is now suggested.
I explained during Committee that the reason for including in subsection (3) a blocking power for floating chargeholders to prevent the making of administration orders is twofold. First, the administrative procedure is a new and therefore, to some extent, experimental one. Accordingly, we believe it to be of importance that floating chargeholders should
50
not be placed in an uncertain position with regard to their security. This would undermine unnecessarily existing lending and security practice. It is greatly to be preferred that, where there is a floating charge over a company, the chargeholder should make a judgment based on his knowledge of the company's affairs as to whether receivership or administration is the better course to adopt.
Secondly, it must be recognised that administrators, like receivers, will need financial support if they are to make a success of rehabilitating or, indeed, reorganising the company. This support is most likely to be available from a company's existing provider of finance. The provision of a formal blocking power is thus a recognition of the practical problems which will arise if administrators are appointed against the wishes of the major providers of credit. It puts in place an orderly mechanism under which the financial institution will decide on the most appropriate insolvency procedure.
I am quite sure that the administrator procedure will evolve as experience is gained of its operation. As that happens, it may be appropriate at some stage to consider whether a blocking power continues to be necessary or whether the court should be given full discretion. I am sure that it is better for the moment not to disturb too radically the way in which capital is provided and security is taken in the United Kingdom. I hope that on this question the noble Lord will be persuaded to return to the view that he held a little while ago.
As regards Amendments Nos. 22 to 25, I had hoped that I had already convinced the noble Lord that they were not necessary to preserve the interests of secured creditors. Sadly, that does not happen to be the case. I accept that it is not a simple matter to divine from the Bill the property which comprises the administrator's indemnity against personal liability obligations and against his costs and remuneration. The effect of the provisions in Part II, Chapter II, is however to grant to the administrator an indemnity out of property which is uncharged, which is subject to a floating charge, and which is subject to fixed charges held by persons who are also floating chargeholders. This is to apply in administration the effective indemnity which is available to receivers. For that reason Clause 19(6) and Clause 20(3) permit the administrator to retain funds realised under fixed charges where these charges are held by a floating chargeholder. Again, this recreates for administrators the effective position of receivers. It is not intended to place the fixed and floating chargeholder of a company in administration in a worse position than if the company were in receivership.
The noble Lord's amendments would require the administrator to hand over funds realised in respect of fixed charges where those charges were held by a floating chargeholder, even though he might require some part of those funds to meet his personal liabilities and his costs and remuneration. Clearly this would be contradictory and would therefore undermine his indemnity. As I am quite sure that the noble Lord has no intention of making it difficult for insolvency practitioners to accept appointments as administrators, I hope that he will not press those amendments.

51
There is one further point which I think the noble Lord, Lord Bruce, will welcome. As I indicated just a moment ago, the provisions regarding the property which is to comprise the administrator's indemnity and his right to retain funds realised in respect of such property, is not at all clear from the present drafting of Part II, Chapter II. However, it has been possible in discussion with practitioners in the insolvency field to identify a more straightforward approach to these matters and I expect that amendments to the Bill will flow from those discussions. I again assure your Lordships that this more straightforward approach will no more compromise the position of secured creditors than do subsections (6) and (3) of Clauses 19 and 20 respectively. It is only fair at this stage to say that it would be difficult for me to say exactly when these amendments would be ready for consideration. However, I give the noble Lord the assurance that we expect them to flow from the discussions which we have been having.
Lord Bruce of Donington: My Lords, I am most grateful to the noble Lord for his assurances. Let me assure him also that I accept full responsibility for the degree of flexibility that I have obviously shown between the Committee stage and Report. These matters are very complex and it is possible for the mind to move both for and against them according to the depth and comprehensiveness of the arguments that are presented. Let me say in my own defence that perhaps my flexibility has in part been due to the fact that single-handed I have had to consider some 300 Government amendments in the period of some three or four days, which does not always present one with the greatest possible ease and felicity to distinguish the complicated from the simple.
However, I accept the noble Lord's assurances and I shall study in considerable depth the Hansard Report in which his detailed reply will be given. I should, however, give notice to the noble Lord, in the same way as he has been kind enough to give me notice, as follows. Should I find on detailed examination of Hansard, where he has dealt with the technicalities of the various amendments moved by me, that his arguments prove to be unsatisfactory, he will understand that I shall return to these matters on Third Reading. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 20 not moved.]
Clause 18 [Appointment of administrator]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 21:
Page 14, line 26, leave out ("supervisory").
The noble Lord said: My Lords, I beg to move Amendment No. 21. With your Lordships' permission, I shall also speak to a rather long list of amendments which are as follows: Amendments Nos. 31, 32, 51, 52, 74, 75, 85, 94 to 108, 147, 148, 155 to 166, 205 to 208, 214 to 220, 227 to 230, 274, 294, 309, 310, 312, 321 and 327.
52
Amendment No. 31: Clause 27, page 21, line 5, leave out from ("a") to end of line 6 and insert ("committee to exercise the functions conferred on it by or under this Part").
Amendment No. 32: page 21, line 7, leave out ("a supervisory committee is so") and insert ("such a committee is").
Amendment No. 51: Clause 41, page 29, leave out lines 12 and 13 and insert ("committee to exercise the functions conferred on it by or under this Part.").
Amendment No. 52: page 29, line 14, leave out ("a supervisory committee is so") and insert ("such a committee is").
Amendment No. 74: Clause 49, page 34, line 28, leave out from ("a") to end of line 30 and insert ("committee to exercise the functions conferred on it by or under this Act or Part II of the Insolvency Act 1985.").
Amendment No. 75: page 34, line 31, leave out ("a supervisory committee is so") and insert ("such a committee is").
Amendment No. 85: Clause 54, page 39, line 26, leave out ("supervisory committee should be established") and insert ("committee should be established under that section").
Amendment No. 94: Clause 58, page 40, line 38, leave out from ("a") to end of line 39 and insert ("committee to exercise the functions conferred on it by or under this Part or the 1985 Act.").
Amendment No. 95: page 41, line 1, leave out ("a supervisory") and insert ("such a").
Amendment No. 96: page 41, line 13, leave out ("supervisory committee should be established") and insert ("committee should be established under this section").
Amendment No. 97: page 41, line 14, leave out ("such a committee should not be") and insert ("a committee should not be so").
Amendment No. 98: page 41, line 18, leave out ("The supervisory committee") and insert ("A committee established under this section").
Amendment No. 99: page 41, line 21, leave out ("that") and insert ("such a").
Amendment No. 100: page 41, line 24, leave out ("supervisory committee") and insert ("committee established under this section").
Amendment No. 101: page 41, line 25, leave out ("the supervisory") and insert ("such a").
Amendment No. 102: Clause 59, page 41, line 34, leave out from ("a") to end of line 35 and insert ("committee to exercise the functions conferred on it by or under this Part or the 1985 Act.").
Amendment No. 103: page 41, line 39, leave out ("a supervisory") and insert ("such a").
Amendment No. 104: page 42, line 6, leave out ("supervisory committee should be established") and insert ("committee should be established under this section").
Amendment No. 105: page 42, line 7, leave out ("such a committee should not be") and insert ("a committee should not be so").
Amendment No. 106: page 42, line 12, leave out ("supervisory committee, the functions of the supervisory") and insert ("committee established under this section, the functions of such a").
Amendment No. 107: page 42, line 16, leave out ("the supervisory committee") and insert ("a committee established under this section").
Amendment No. 108: page 42, line 19, leave out ("supervisory") and insert ("such").
Amendment No. 147: Schedule 3, page 159, line 44, leave out from ("the") to ("the") in line 45 and insert ("functions, membership and proceedings of a committee established under section 27, 41, 58 or 59 of this Act or section 482B or 590 of").
Amendment No. 148: page 160, line 1, leave out from first ("a") to ("that") in line 2 and insert ("committee established under section 58 or 59 of this Act or section 590 of the 1985 Act").
Amendment No. 155: Schedule 4, page 164, line 3, leave out ("subsections (1) and (4)") and insert ("subsection (1)").
Amendment No. 156: page 164, line 4, leave out ("supervisory committee") and insert ("committee established under section 58 or 59 of the Insolvency Act 1985").
Amendment No. 157: page 164, line 12, leave out ("supervisory committee") and insert ("committee established under section 58 or 59 of the Insolvency Act 1985").

53
Amendment No. 158: page 164, line 14, at end insert—
("(4) In subsection (4), for the words "committee of inspection" there shall be substituted the words "committee established under section 58 or 59 of the Insolvency Act 1985".").
Amendment No. 159: page 164, line 15, leave out sub-paragraph (1).
Amendment No. 160: page 164, line 19, leave out ("that section") and insert ("section 540").
Amendment No. 161: page 164, line 25, leave out paragraph (a).
Amendment No. 162: page 164, line 30, leave out ("or by the supervisory committee").
Amendment No. 163: page 164, line 35, leave out ("or by the supervisory committee").
Amendment No. 164: page 164, line 37, leave out sub-paragraph (3).
Amendment No. 165: page 164, line 44, at end insert—
(" 21A. In section 562 (attendance at company meetings (Scotland)), for the words "committee of inspection" there shall be substituted the words "committee established under section 59 of the Insolvency Act 1985".
21B. In section 567(2) (delegation of powers to liquidator (England and Wales)), for the words "committee of inspection" there shall be substituted the words "committee established under section 58 of the Insolvency Act 1985".").
Amendment No. 166: page 165, line 1, leave out paragraph 23 and insert—
("23.—(1) In subsection (1) of section 589 (appointment of liquidator), for the words "section 588" there shall be substituted the words "section 68 of the Insolvency Act 1985".
(2) For subsection (2) of that section there shall be substituted the following subsection—
"(2) The liquidator shall be the person nominated by the creditors or, where no person has been so nominated, the person (if any) nominated by the company."
23A. For subsection (1) of section 590 (appointment of committee of inspection) ther shall be substituted the following subsection—
" (1) The creditors at the meeting to be held under section 68 of the Insolvency Act 1985 or at any subsequent meeting, may if they think fit, appoint a committee of not more than 5 persons to exercise the functions conferred on it by or under this Act or Part II of that Act."
23B. In section 591(2) (remuneration of liquidator: cessor of director's powers) fir the words "committee of inspection" there shall be substituted the words "committee established under section 58 or 59 of the Insolvency Act 1985".
23C. In section 593 (application of section 582 to creditors' voluntary winding up), for the words "committee of inspection" there shall be substituted the words "committee established under section 58 or 59 of the Insolvency Act 1985".
23D. In section 598(1) (power and duties of liquidator in voluntary qwinding up), for the words "committee of inspection" there shall be substituted the words "committee established under section 58 or 59 of the Insolvency Act 1985".").
Amendment No. 205: Clause 122, page 96, line 36 leave out ("supervisory committee") and insert ("committee under section 127 below").
Amendment No. 206: page 96, line 38, leave out ("section 127 below") and insert ("that section").
Amendment No. 207: Clause 123, page 97, line 27, leave out ("supervisory committee") and insert ("committee under section 127 below").
Amendment No. 208: page 97, line 29, leave out ("section 127 below") and insert ("that section").
Amendment No. 214: Clause 127, page 100, line 26, leave out from ("a") to end of line 28 and insert ("committee to exercise the function conferred on it by or under this Part.").
Amendment No. 215: page 100, line 33, leave out from ("creditors") to end of line 36.
Amendment No. 216: page 101, line 4, leave out ("supervisory committee") and insert ("committee under this section").
Amendment No. 217: page 101, line 10, leave out ("or confer any functions on a supervisory") and insert ("a committe under this section, or confer any function on such a").
Amendment No. 218: Clause 128, page 101, line 15, leave out ("supervisory committee established") and insert ("committee established under section 127 above").
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Amendment No. 219: page 101, line 23, leave out ("supervisory committee") and insert ("committee established under section 127 above").
Amendment No. 220: page 101, line 25, leave out ("the supervisory committee under this Part") and insert ("such a committee").
Amendment No. 227: Clause 139, page 108; line 5, leave out ("supervisory committee") and insert ("committee established under section 127 above").
Amendment No. 228: page 108, line 40, leave out ("supervisory committee") and insert ("committee established under section 127 above").
Amendment No. 229: page 109, line 9, at end insert—
("(4A) Where the trustee has done anything without the permission required by subsection (2) or (3) above, the court or the committee established under section 127 above may, for the purpose of enabling him to meet his expenses out of the bankrupt's estate, ratify what the trustee has done; but that committee shall not do so unless it is satisfied that the trustee has acted in a case of urgency and has sought its ratification without undue delay.").
Amendment No. 230: page 109, line 20, leave out ("supervisory committee") and insert ("committee established under section 127 above").
Amendment No. 274: Schedule 6, page 171, line 10, leave out ("membership and proceedings of a supervisory") and insert ("functions, membership and proceedings of a").
Amendment No. 294: Schedule. 7, page 176, line 11, leave out ("supervisory committee") and insert ("committee established under section 127 of the Insolvency Act 1985").
Amendment No. 309: page 181, line 33, leave out ("supervisory").
Amendment No. 310: page 181, leave out lines 36 to 40 and insert—
(" (ii) for sub-paragraph (iv) of that paragraph there shall be substituted the following sub-paragraph—
"(iv) to be a member of a committee established for the purposes of Part XX or Part XXI of the Companies Act 1985 under section 590 of that Act or under section 58 or 59 of the Insolvency Act 1985 or of a committee of inspection appointed for the purposes of Part V or Part IX of athe Companies Act (Northern Ireland) 1960";
(iii) in the words after the said sub-paragraph (iv) for the words "committee of inspection" there shall be substituted the words "such a committee as is mentioned in paragraph (b)(ii) or (iv) above";").
Amendment No. 312: page 182, line 39, leave out from ("(7),") to end of line 41 and insert ("for the words "committee of inspection" there shall be substituted the words "a specified committee".").
Amendment No. 321: Schedule 9, page 190, line 19, column 3, at end insert—
("In section 540, in subsection (1), the words "or by the committee of inspection".").
Amendment No. 327: page 191, line 47, column 3, leave out ("section") and insert ("sections 28(6) and").
This is a somewhat formidable group of amendments. However, they all have a single aim—the reformulation of the name and functions of the "supervisory committee". The House will be aware that throughout the Bill there are numerous references to the "supervisory committee", a body established by the creditors (or creditors and contributories jointly in the case of a corporate insolvency) at a general meeting, to supervise the administration of the estate by the liquidator, trustee, administrator or administrative receiver, as the case may be.
The term "supervisory committee" replaced the term used in existing legislation, that is to say the "committee of inspection". This term was considered by the review committee to be misleading, as it connotes greater rights of the committee to investigate

55
the activities of the insolvent than it in fact possesses. The review committee considered the title to be no longer appropriate as it did not reflect current practices. Taking into account the review committee's views, the term "supervisory committee" was decided upon to harmonise and be used in connection with all forms of individual and corporate insolvency. However, following the comments of your Lordships in Committee, and after further consultation with various legal, accountancy and financial bodies, we agreed that the name "supervisory committee" may not be the most appropriate replacement for the "committee of inspection". Perhaps I should emphasise that the term was meant to be merely a convenient label for such committees and it was not really intended to imply that the committees concerned would have a direct right to supervise the activities of the relevant practitioner.
6 p.m.
We considered various alternatives but have found that they all, in some way or another, give rise to problems. We are now convinced that a label for the committee is not absolutely necessary and that the simplest solution is to refer to a committee established under a particular section of the Bill with the functions conferred upon it by the appropriate part of the Bill and of course the Companies Act 1985. The term "committee" can then be used on its own without need for further description.
There are numerous consequential amendments resulting from this change, but I give your Lordships an assurance that despite their number they are, in the main, technical in nature and are all concerned with removing the word "supervisory". All references to the role of the committees being to supervise are also removed. If the House wishes, I should be quite happy to describe in detail the effect of each amendment, but, if not, I now propose to go into more detail on the specific amendments within the group which are not merely consequential on the change of name.
Under existing legislation the committee of inspection has power, in relation to windings-up by the court and bankruptcies in England and Wales, to give directions to any liquidator or trustee in office. The Bill as presently drafted does not alter the position in this respect. However in reviewing the role of the committees we have reached the conclusion that they should no longer have these powers of direction. All insolvency practitioners will be required by the Bill to be licensed, thus ensuring greater control and affording more protection to creditors generally. In view of this, we consider that the powers of a committee in a compulsory winding-up and a bankruptcy to give directions are excessive and may lead to unnecessary interference in the administration of the estate. In addition, the present position is anomalous in that the power to give directions exists in windings-up by the court in England and Wales but not in such a winding-up in Scotland or in any voluntary winding-up.
There is scope under existing legislation and under the Bill for the committee or any of its members to go to the creditors or, in his capacity as a creditor or contributory, to the court, if they are dissatisfied with the practitioner's handling of the case. As the ultimate
56
sanction, the creditors or the court, and in certain circumstances the Secretary of State, can remove the liquidator or trustee, and if he has been negligent in his management of the estate Clauses 12 and 130 of the Bill provide remedies against him.
As a result of our reconsideration of these matters Amendment No. 215, to Clause 127, which deals with the control of the trustee by creditors in an individual insolvency, removes the powers of direction from the committee. Similarly, Amendments Nos. 159 to 161, to Schedule 4, remove the similar provision in windings-up by the court, thus harmonising the position of all windings-up in England and Wales and in Scotland. Having given that short explanation, and with the assurance that I am prepared to give noble Lords a detailed explanation of each of the other amendments if they so wish, I beg to move.
The Earl of Selkirk: My Lords, I think I raised this question first. We are all extremely grateful to the noble Lord for accepting the amendment which we suggested, for the full explanation of his reasons for doing so and the consequences therefrom. My own view is that the word is totally unsatisfactory in every way, and I am grateful to the Government. I am grateful also that they are not trying to christen the child by some other name. It is right to leave it open. In many cases it would just be the "creditors' committee"; in other cases it may be known by the chairman of that committee. I think that the course that the Government have taken is wise, and I am most grateful.
Lord Bruce of Donington: My Lords, we too are grateful to the noble Lord for having implemented the undertaking he gave in the course of the Committee stage. I have managed to trace through most of the amendments—not all of them—that he has put forward. I am quite satisfied, and take his word on the matter, that where they are not consequential they are indeed necessary and technical drafting amendments. We support the amendments.
Lord Lucas of Chilworth: My Lords, I am grateful to the noble Lord, Lord Bruce of Donington, and to my noble friend Lord Selkirk. Little did he realise—neither did I when I gave the undertaking to him—that it would result in such a raft of amendments.
On Question, amendment agreed to.
Clause 19 [General powers and duties]:
[Amendments Nos. 22 and 23 not moved.]
Clause 20 [Power to sell property free from charges etc.]:
[Amendments Nos. 24 and 25 not moved.]
Clause 23 [Information to he given by and to administrator]:
The Lord Advocate (Lord Cameron of Lochbroom)The Lord Advocate (Lord Cameron of Lochbroom) moved Amendment No. 26:
Page 18, line 32, leave out ("the administrator") and insert ("a person").
The noble and learned Lord said: My Lords, with your Lordships' permission I shall move this amendment and speak to Amendments 30, 39, 43, 60, 65, 79, 136, 137 and 149.
Amendment No. 30: Clause 24, page 19, line 28, leave out from ("with") to ("shall") in line 30 and insert ("this section, he").
Amendment No. 39: Clause 38, page 26, line 38, leave out ("the administrative receiver") and insert ("a person").
Amendment No. 43: Clause 39, page 27, leave out lines 34 and 35 and insert ("this section, he").
Amendment No. 60: Clause 46, page 31, line 41, leave out ("the receiver") and insert ("a person").
Amendment No. 65: Clause 47, page 32, line 45, leave out from ("with") to ("shall") in line 2 on page 33 and insert ("this section, he").
Amendment No. 79: Clause 50, page 36, line 10, leave out from ("he") to ("liable") in line 12.
Amendment No. 136: Clause 79, page 59, line 37, leave out from ("be") to end of line 40 and insert ("liable").
Amendment No. 137: Clause 79, page 60, line 4, at end insert—("(c) on conviction on indictment, to a fine").
Amendment No. 149: Schedule 3, page 161, line 23, at end insert—
("20A. Provision conferring power on the court to make orders for the purpose of securing compliance with obligations imposed by or under section 23(2), 24, 38(2), 39, 50 or 79 of this Act or section 481(2) or 482 of the 1985 Act.").
These amendments make various changes to provisions in the Bill dealing with offences. I shall take first of all Amendments Nos. 26, 39 and 60 which are to Clauses 23, 38 and 46 respectively. These amendments make it clear that failure to submit a statement of affairs within the time provided by Clause 23(2), Clause 38(2), or Section 481(2) of the Companies Act 1985 constitutes an offence. As Clauses 24, 39, 47, 50 and 79 are presently drafted, should a company officer fail to comply with his duty to submit a statement of the company's affairs or attend upon and provide information to the relevant office holder, including the official receiver, in any corporate insolvency proceeding, he will be guilty of contempt of court and liable to be punished accordingly as well as being liable, upon conviction, to a fine.
Upon reflection, we feel that the possibility of a double penalty for what is essentially the same offence goes too far. Amendments 30, 43, 65, 79 and 136 therefore remove the automatic contempt of court penalty from the clauses I have just mentioned. We do not, however, intend in any way to lessen the effect of these clauses, which are essential both to the administration of the estate by the relevant office holder and to the investigative duty of the official receiver.
In place of the offence of contempt, therefore, power is to be conferred on the relevant office holder, including the official receiver as appropriate, to apply to the court for an order to enforce compliance with the obligations imposed under the relevant clauses. The procedure for obtaining such an order will be prescribed in the rules and will in effect be an improved and simplified version of the procedure presently used by the official receiver in these circumstances in winding-up proceedings. We feel that these amendments strike the right balance between enforcement of the relevant provisions on the one hand and equity to offending office holders on the other. I beg to move.
Lord Bruce of Donington: My Lords, we support these amendments.
On Question, amendment agreed to.
Clause 24 [Company's statement of affairs]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 27:
Page 19, line 1, leave out (", residences and occupations") and insert ("and addresses").
The noble and learned Lord said: My Lords, with your Lordships' leave, it would be convenient if I speak to this amendment and to Amendments Nos. 40, 61 and 77 together, as they are all connected.
Amendment No. 40: Clause 39, page 27, line 7, leave out (", residences and occupations") and insert ("and addresses").
Amendment No. 61: Clause 47, page 32, line 9, leave out (", residences and occupations") and insert ("and addresses").
Amendment No. 77: Clause 50, page 35, line 8, leave out (", residences and occupations") and insert ("and addresses").
These amendments give effect to the undertaking I gave in Committee in response to an amendment tabled to a later clause by my noble friend Lord Selkirk. When a statement of a company's affairs is submitted in any type of corporate insolvency proceedings, it is required at present that the statement should contain details of the names, residences and occupations of the creditors. Criticism was made in Committee by your Lordships of the words "residences" and "occupations". We accept that criticism and acknowledge that what is required in the statement of affairs are details of creditors' names and addresses. Accordingly, these amendments make the necessary changes in the relevant clauses. It was not possible when the amendment was originally tabled in Committee by my noble friend Lord Selkirk to accept it at that time because it was thought, as indeed is the fact, that similar changes would be required elsewhere in the Bill. I beg to move.
The Earl of Selkirk: My Lords, I thank my noble and learned friend for this amendment, which he promised. I made it under Part IV, and I believe he has covered that already, has he not?
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 28:
Page 19, line 19, leave out ("during") and insert ("within").
The noble and learned Lord said: My Lords, again with permission I would speak to certain other amendments; namely, Amendments Nos. 29, 41, 42, 62, 63, 78 and 78A, which are identical in effect.
Amendment No. 29: Page 19, line 22, leave out ("during") and insert ("within").
Amendment No. 41: Clause 39, page 27, line 25, leave out ("during") and insert ("within").
Amendment No. 42: Page 27, line 28, leave out ("during") and insert ("within").
Amendment No. 62: Clause 47, page 32, line 35, leave out ("during") and insert ("within").
Amendment No. 63: page 32, line 38, leave out ("during") and insert ("within").
Amendment No. 78: Clause 50, page 35, line 21, leave out ("during") and insert ("within").
Amendment No. 78A: page 35, line 24, leave out ("during") and insert ("within").
I should express gratitude to the Law Society and to the Bar for drawing attention to these drafting improvements which can be made to the Bill.
The clauses to which amendment is proposed are concerned with the submission of statements of affairs in an administration, receivership or compulsory winding-up. The persons who may be obliged to lodge a statement of affairs include persons who were employed by the company, or who were officers of the company, "during" the year preceding the making of the relevant order or the appointment of a receiver. The intention is to apply these provisions to persons employed by the company at any time during that year. However, as the Law Society and the Bar have pointed out, the clauses as drafted could be construed as meaning that the employment must have been throughout the year. That was not the intention of the clauses, and these amendments put the matter beyond doubt. I beg to move.
On Question, amendment agreed to.
6.15 p.m.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 29:
[Printed above.]
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 30:
[Printed earlier: col. 57.]
The noble and learned Lord said: My Lords, I spoke to this amendment with Amendment No. 26. I beg to move.
On Question, amendment agreed to.
Clause 27 [Supervisory committee]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 31:
[Printed earlier: col. 52.]
The noble and learned Lord said: My Lords, perhaps, with your Lordships' leave, it might be convenient if I moved this together with Amendment No. 32, which are both consequential upon Amendment No. 21, to which my noble friend Lord Lucas spoke.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 32:
[Printed earlier: col. 52.]
On Question, amendment agreed to.
Clause 32 [Appointment of receiver or manager]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 33:
Page 24, line 19, leave out ("such period as may be prescribed by the rules") and insert ("the business day next following that on which the instrument of appointment is received by him or on his behalf").
The noble and learned Lord said: My Lords, again with your Lordships' leave, I would speak to this amendment together with Amendment No. 34 and Amendments Nos. 53 and 54.
Amendment No. 34: Page 24, line 22, leave out from ("made") to end of line 24 and insert ("at the time at which the instrument of appointment is so received.
(2) This section shall apply to the appointment of two or more persons as joint receivers or managers of a company's property under powers contained in an instrument subject to such modifications as may be prescribed by the rules.
(3) In this section "business day" means any day other than a Saturday, a Sunday, Christmas Day, Good Friday or a day which is a bank holiday in any part of Great Britain.").
Amendment No. 53: Clause 42, page 29, line 22, after ("charge)") there shall be inserted ("(a)").
Amendment No. 54: page 29, line 38, at end insert ("and
(b) after subsection (7) there shall be inserted the following subsection—
"(8) In this section, 'business day' means any day other than a Saturday, a Sunday, Christmas Day, Good Friday or a day which is a bank holiday in any part of Great Britain." ").
These amendments are designed to clarify the provisions relating to a receiver's appointment and to harmonise Clause 32, which applies in England and Wales, with Clause 42, which is the parallel provision in Scotland. The purpose of the amendments is to set out the time from which the appointment of a sole receiver is to be effective, rather than leaving detailed provisions to insolvency rules. The clauses will still contain references to rules in relation to joint appointments. This will enable us to consult the practitioners about the practical requirements regarding the appointment of joint receivers before the necessary rules are made. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 34:
[Printed above.]
On Question, amendment agreed to.
Schedule 2 [Powers of administrator or controlling receiver]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 35:
Page 158, line 20, at end insert—
("14A. Power to establish subsidiaries of the company.
14B. Power to transfer to subsidiaries of the company the whole or any part of the business and property of the company.").
The noble and learned Lord said: My Lords, if I may, I shall also speak to Amendment No. 57 at the same time.
Amendment No. 57: Clause 43, page 30, line 20, at end insert—
("pppp) power to establish subsidiaries of the company;
(pppp) power to transfer to subsidiaries of the company the business of the company or any part of it and any of the property;").
These amendments are to extend the powers of administrative receivers and of receivers in relation to England and Wales and to Scotland respectively. In bringing forward these amendments I do so in response to undertakings which my noble friend Lord Lucas gave to the noble Lord, Lord Mishcon, and also to my noble friend Lord Selkirk in Committee to consider the points which were then discussed. On reflection, we have come to agree with them that it will be of assistance to make clear that administrative receivers in England and Wales and receivers in

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Scotland have the power to transfer all or part of a company's business and property to subsidiaries. This will confirm that such transfers—what I now understand are known as hiving down—are a legitimate course to follow. I make clear our thanks to both noble Lords for bringing this point to our attention and for enabling these amendments to be tabled to make more comprehensive the powers of the receiver. I beg to move.
The Earl of Selkirk: My Lords, I should like to thank my noble friend. A slightly complicated situation arises between the two previous amendments, Amendments Nos. 55 and 56, but perhaps I may content myself with thanking my noble friend now.
On Question, amendment agreed to.
Clause 35 [Power to sell property free from charges etc.]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 36:
Page 25, line 9, leave out from ("promote") to end of line 11 and insert ("a more advantageous realisation of the company's assets than would othwerwise be effected; and").
The noble Lord said: My Lords, I beg to move Amendment No. 36, which is in response to the undertaking that I gave the noble Lord, Lord Bruce of Donington, in Committee. This was to consider a modification of the grounds on which a court might authorise an administrative receiver to sell an asset subject to a fixed charge or security. I am grateful to him and I agree with him that it would be helpful to amend the clause to clarify the grounds in the way he suggested.
The amendment also makes an addition of a minor and technical nature by inserting the word "and" between paragraphs (a) and (b) of subsection (1). The effect is to require that the court must be satisfied that the conditions in (a) and (b) will both be satisfied before it authorises a sale under the clause. The omission of the word "and" leaves the matter in some doubt and this is clearly not desirable. I beg to move.
Lord Bruce of Donington: My Lords, I am most grateful to the noble Lord for his courtesy and for having brought forward the amendment.
On Question, amendment agreed to.
Clause 37 [Vacation of office]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 37:
Page 26, line 1, leave out ("in the prescribed circumstances").
The noble and learned Lord said: My Lords, with permission, in moving Amendment No. 27 I will speak to Amendment No. 38 to Clause 37 and to Amendments Nos. 58 and 59 to Clause 44.
Amendment No. 38: Page 26, line 2, leave out ("to the person by whom he was appointed") and insert ("in the prescribed manner to such persons as may be prescribed").
Amendment No. 58: Clause 44, page 30, line 30, leave out ("in the prescribed circumstances").
Amendment No. 59: Page 30, line 32, leave out ("to the person by whom he was appointed") and insert ("in the prescribed manner to such persons as may be prescribed").
The amendments to each of these clauses have the same effect, with the amendments to Clause 37 applying to England and Wales and those to Clause 44 to Scotland. They are minor technical amendments, which are designed to remedy the same defect in both clauses. They replace the requirement for notice of resignation to be given by the receiver,
"to the person by whom he was appointed",
with a requirement to give notice,
"in the prescribed manner to such persons as may be prescribed".
This removes the express requirement to notify the appointer alone and provides flexibility for the rules to lay down more extensive notice requirements—for example, to include the committee appointed by the creditors. The amendment also makes the words "in the prescribed circumstances" on page 26, line 1, and on page 30, line 30, unnecessary. I beg to move.
Lord Bruce of Donington: My Lords, we concur with these amendments.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 38:
Page 26, line 2, leave out ("to the person by whom he was appointed") and insert ("in the prescribed manner to such persons as may be prescribed").
On Question, amendment agreed to.
Clause 38 [Information to be given by and to receiver]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 39:
[Printed earlier: col. 57.]
The noble and learned Lord said: I spoke to this under Amendment No. 26. I beg to move.
On Question, amendment agreed to.
Clause 39 [Company's statement of affairs]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 40:
[Printed earlier: col. 58.]
The noble and learned Lord said: My Lords, I moved this under Amendment No. 27. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 41:
[Printed earlier: col. 58.]
The noble and learned Lord said: My Lords, I spoke to this under Amendment No. 28. This also applies to Amendment No. 42. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 42:
[Printed earlier: col. 58.]
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 43.
[Printed earlier: col. 57.]
The noble and learned Lord said: My Lords, I spoke to this amendment under No. 26. I beg to move.
On Question, amendment agreed to.
Clause 40: [Report by administrative receiver]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 44:
Page 28, line 4, leave out from ("to") to ("a") in line 6 and insert ("any trustees for secured creditors of the company and (so far as he is aware of their addresses) to all such creditors")
The noble Lord said: My Lords, in moving Amendment No. 44 I should like to speak also to Amendments Nos. 46–50, 66, 68, 69, 70, 71 and 73.
Amendment No. 46: Page 28, line 23, after ("all") insert ("unsecured")
Amendment No. 47: Page 28, line 25, after ("which") insert ("unsecured")
Amendment No. 48: Page 28, line 29, after ("company's") insert ("unsecured")
Amendment No. 49: Page 28, line 40, leave out subsection (4) and insert—
(" (4) Where the company has gone or goes into liquidation, the administrative receiver—

(a) shall, within seven days after his compliance with subsection (1) above or, if later, the nomination or appointment of the liquidator, send a copy of the report to the liquidator; and

(b) where he does so within the time limited for compliance with subsection (2) above, shall not be required to comply with that subsection.")

Amendment No. 50: Page 29, line 9, at end insert—
(" (7) In this section "secured creditor", in relation to a company, means a creditor of the comppany whose debt is secured by a charge on assets of the comany, and "unsecured creditor" shall be construed accordingly.")
Amendment No. 66: Clause 48, page 33, line 14, leave out from ("any") to ("a") in line 15 and insert ("trustees for secured creditors of the company and (so far as he is aware of their addresses) to all such creditors")
Amendment No. 68: Page 33, line 33, after ("all") insert ("unsecured")
Amendment No. 69: Page 33, line 36, after ("which") insert ("unsecured")
Amendment No. 70: Page 33, line 41, after ("company's") insert ("unsecured")
Amendment No: 71: Page 34, leave out lines 11 to 16 and insert
("(4) Where the company has gone or goes into liquidation, the receiver—

(a) shall, within 7 days after his compliance with subsection (1) above or, if later, the nomination or appointment of the liquidator, send a copy of the report to the liquidator; and

(b) where he does so within the time limited for compliance with subsection (2) above, shall not be required to comply with that subsection.")

Amendment No: 73: Page 34, line 23, at end insert—
("(7) In this section 'secured creditor', in relation to a company, means a creditor of the company whose debt is secured on assets of the company, and "unsecured creditor" shall be construed accordingly.")
Since the amendments to both the clauses are identical, I think it would be better were I to explain those being proposed in relation to Clause 40. The purpose of this group of six amendments is to deal with several technical problems which arise with the clause as we introduced it. The first amendment makes it clear that the administrative receiver is to send his report to all debenture holders and their trustees. The next five establish that the administrative receiver is to send his report to unsecured creditors and that the meeting and committee of creditors is to consist of unsecured creditors.
Finally, the last purpose of this group of amendments is to provide more effectively for the duty
64
of the administrative receiver in the case where a liquidator is appointed within the time limit imposed on the administrative receiver for circulating or advertising his report to unsecured creditors. In these circumstances, he is released from the duty to circulate or advertise his report if, instead, he sends his report to the liquidator. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 45:
Page 28, line 15, leave out ("section 614 of the 1985 Act") and insert ("section (Preferential debts) below").
The noble and learned Lord said: My Lords, your Lordships will recall that one of the main aims of this Bill has been to simplify and harmonise the legislation relating to bankruptcy and company liquidations wherever possible. Under the Bill which is presently before your Lordships, the preferential status of certain debts in bankruptcy is conferred by Clause 145 and Schedule 5; whereas in company liquidations it is the provisions of Section 614 and Schedule 19 to the Companies Act 1985 that continue to govern the payment of preferential debts. There was insufficient time before the introduction of the Bill to harmonise and amalgamate these two different sets of provisions, and the opportunity is now being taken to convert Schedule 5 into a schedule which will govern the payment of preferential debts in both bankruptcies and windings up.
But, in order that this harmonisation may take place, there are at the outset these three amendments, Amendments Nos. 45 and 67, which are purely consequential upon the introduction of the preferential debts clause which will be Amendment No. 130 and will replace the reference to Section 614 of the Companies Act 1985 with the reference to this new clause.
Amendment No. 67: Clause 48, page 33, line 26, leave out ("section 614") and insert ("section (Preferential debts) of the Insolvency Act 1985").
Amendment No. 130: Before Clause 70, insert the following new Clause—
("Preferential debts.
—(1) In a winding up the preferential debts listed in Part I of Schedule 5 to this Act shall be paid in priority to all other debts; and Part II of that Schedule shall have effect for the interpretation of the said Part I.
(2) Preferential debts—

(a) shall rank equally among themselves and shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions; and

(b) so far as the assets of the company available for payment of general creditors are insufficient to meet them, shall have priority over the claims of holders of debentures under (and, in Scotland, holders of) any floating charge created by the company, and shall be paid accordingly out of any property comprised in or subject to that charge.

(3) Without prejudice to section 523 of the 1985 Act, where in the case of a company which is being wound up by the court in England and Wales, any person (whether or not a landlord or person entitled to rent) has distrained upon the goods or effects of the company in the period of three months ending with the date of the winding-up order, those goods or effects, or the proceeds of sale of those goods or effects, shall be charged for the benefit of the company with the preferential debts of the company to the extent that the property of the company is for the time being insufficient for meeting them.
(4) Where by virtue of any charge under subsection (3) above any person surrenders any goods or effects to a company or makes a payment to a company, that person shall, in respect of the

65
amount of the proceeds of the sale of those goods or effects by the liquidator of the company or, as the case may be, the amount of the payment, rank as a preferential creditor of the company, except as against so much of the company's property as is available for the payment of preferential creditors by virtue of the surrender or payment.").
Amendment No. 130 introduces a new clause to reenact the substance of Section 614 and provides that in the winding up of a company the debts listed in Part I of Schedule 5 to the Bill are to be paid in priority to other debts.
The clause also replaces subsection (4) of Section 614, which relates to the charge of preferential debts on goods distrained upon, with two subsections, subsections (4) and (5), which expand and clarify the existing position. These new subsections were originally contained in paragraph 24 of Schedule 4 to the Bill, which is to be repealed by a later Amendment, No. 167. Their new position in the Bill is merely a result of this wholesale reorganisation of the preferential debts provisions. The corresponding provisions for bankruptcy are those contained in subsections (3) and (4) of Clause 156. I beg to move.
6.30 p.m.
Lord Bruce of Donington: My Lords, I am grateful to the noble and learned Lord for the explanation that he has given in respect of Amendment No. 45 and also Amendments Nos. 67 and 130. I must confess that prior to his explanation my own studies over the weekend left me a little fogged, and I must express my gratitude to him for having explained the position so lucidly. As I have not given the matter the detailed examination that I like to give, I should like to reserve my position until I have examined the implications of everything that the noble and learned Lord has said. I believe that this is a desirable amendment, and certainly at this stage I should not dream of offering any opposition to it.
Lord Mayhew: My Lords, in view of the noble and learned Lord's explanation, may I ask whether in Amendment No. 45 in place of the word "section" should be the word "schedule"?
Lord Cameron of Lochbroom: No, my Lords. As I have explained, there is to be a new clause which will incorporate the old Section 614 of the Companies Act. It is that to which attention is directed here. In the new clause there will then be a reference to Schedule 5 to this Bill, which will contain the list of debts to which preference attaches.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 46 to 50:
[Printed earlier: col. 63.]
The noble Lord said: My Lords, I spoke to Amendments Nos. 46 to 50 when we were discussing Amendment No. 44. I beg to move these amendments en bloc.
On Question, amendments agreed to.
Clause 41 [Supervisory committee]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 51 and 52:
[Printed earlier: col. 52.]
The noble Lord said: My Lords, with the leave of the House, I wish to move Amendments Nos. 51 and 52, to which I spoke when we were discussing Amendment No. 21. I beg to move.
On Question, amendments agreed to.
Clause 42 [Appointment of receiver]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 53 and 54:
[Printed earlier: col. 60.]
The noble and learned Lord said: My Lords, with the leave of the House, I beg to move Amendment No. 53 along with Amendment No. 54, to which I spoke when moving Amendment No. 33. I beg to move.
On Question, amendments agreed to.
The Deputy Speaker (Lord Wells-Pestell): My Lords, if Amendment No. 55 is agreed to, I cannot call Amendment No. 56.
The Earl of Selkirk The Earl of Selkirk moved Amendment No. 55:
Page 30, line 9, leave out paragraph (d) and insert—
("(d) for paragraph (o) of that section there shall be substituted the following paragraph—
"(o) power to carry on the business the company or any part of it;").
The noble Earl said: My Lords, there are several drafting errors in Amendment No. 55. First, this amendment is to Clause 43; secondly, there is the word "section" instead of "subsection"; and, thirdly, the word "of" is missing from the phrase "business of the company". I should like to ask the noble and learned Lord the Lord Advocate whether either of these clauses is now necessary. In Amendment No. 57 he has substantially met the points that I had in mind. I do not know whether or not he thinks it necessary, but this is specifically the point which I raised.
I have taken the liberty of redrafting the clause which the Government have put down and I have done so for this reason. While it is common enough to take sections or subsections out of other Bills, this drafting divides one sentence into two parts, neither of which is comprehensible if viewed separately. One part is in the 1985 Companies Act and the other part is in this Bill. I think that it is an unnecessary complication for other people who will have to read the Bill, and therefore I have put the two parts together in this Bill. That makes clear the meaning in this Bill, which has to do with the power to carry on the business of a company or any part of it. That is what is meant and that is quite clear. I must say that the draughtsman's version amends both the Act of 1985 and this Bill, but all we are left with, which is "any part of it", means nothing, and I suggest that it is very much better to put in the whole sentence. I beg to move.
Lord Cameron of Lochbroom: My Lords, I was certainly grateful to my noble friend for having raised this matter in Committee. My response to him must

67
be that I am advised that it is easier to have the amendment which is proposed as Amendment No. 56 as an amendment to the Bill than that which he proposes, which would not operate in quite the same way as that which is intended by Amendment No. 56, although at the end of the day it would achieve the same object. My noble friend asked me whether there is any requirement now for that in view of the terms of Amendment No. 57 to which I spoke when speaking to Amendment No. 35. I think it is enough to say that the amendment which is proposed as Amendment No. 56 is supported by the Law Society of Scotland, and it appears to enable a receiver to carry on either the business of a company as a whole or any part of the business, and it may be that in certain circumstances that would also be a helpful power. With that explanation, I hope that my noble friend will not press Amendment No. 55 and will allow Amendment No. 56 to go forward.
The Earl of Selkirk: My Lords, the noble and learned Lord is right in the sense that there is a suggestion in Amendment No. 57 that these are subsidiaries of the company, whereas there is no such suggestion in Amendment No. 56. I think that the answer which the noble and learned Lord has given to me is highly departmental. I have to say that here is a straightforward statement. The clause is extremely obscure. I do not suppose that many have looked up the Act of 1985 to try to distinguish between the two amendments. Both have part of it and it is very difficult to see what remains. I think it is a pity. We are a revising Chamber and our first duty should be to see that the text is readable and understandable. I bet that no noble Lord in this House understands Amendment No. 56, unless he has the 1985 Act in front of him. It is not comprehensible, whereas this Amendment makes perfectly clear a statement which cannot be misunderstood by those who read this Bill. With respect, I do not object to what the noble and learned Lord has done in this clause; but it is our duty to try to get the drafting as good and clear as we can.
Lord Bruce of Donington: My Lords, I am from north of the border by descent even though I practise below the border. But I am bound to say that, having listened to the noble Earl, Lord Selkirk, and to the noble and learned Lord himself, the noble Earl, Lord Selkirk, appears to me far more logical. The words he has suggested clarify a very complex situation, whereas I am afraid that Amendment No. 56, which the noble and learned Lord evidently prefers, makes the position in my view—I am only a simple soul—all the more obscure.
I am quite sure that the noble Earl will not wish to take this matter to a Division, but I think that in the present circumstances Her Majesty's Government ought to look far more closely at what the noble Earl has said. I hope that if necessary they can get some clarification on Third Reading, because Amendment No. 56 does not appear to me to meet the situation with any kind of reasonable clarity. I do not know if the courts north of the border are any more perspicacious than those below it, but the mind boggles at the interpretations which could be given to
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Amendment No. 56 in association with its parent clause. I support the noble Earl.
Lord Cameron of Lochbroom: My Lords, with your Lordships' leave, perhaps I may explain that there is really nothing between my noble friend and myself. The point is one of drafting. I have received advice on it. Clause 43 is in itself an amendment of Section 471 of the 1985 Act. Paragraph (d) of Clause 43 provides that,
"in paragraph (o) of that subsection"—
that subsection is of course subsection (1) of Section 471 of the 1985 Act—certain words shall be omitted. The purpose of this Government amendment, Amendment No. 56, is simply to take out the words:
"so far as he thinks it desirable to do so",
and to substitute the words:
"or any part of it".
So if the Government amendment is accepted the Bill will read:
"in paragraph (o) of that subsection, or any part of it".
I fully understand the difficulty of my noble friend but I am assured that the purpose of Amendment No. 56 is the manner in which the result which my noble friend intends in Amendment No. 55 is appropriately brought about. In fact, at the end of the day the operative section, which is the section of the Companies Act 1985, will read as he intends and indeed as I intend.
The Earl of Selkirk: My Lords, I have listened with fascination to the noble and learned Lord the Lord Advocate. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 43 [Powers of receiver]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 56:
Page 30, line 9, leave out from ("subsection") to end of line 10 and insert ("for the words "so far as he thinks it desirable to do so" there shall be substituted the words "or any part of it";").
The noble and learned Lord said: My Lords, I think I have attempted to say to what end this amendment was directed, in answering my noble friend's amendment just now. There is nothing I can usefully add. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 57:
[Printed earlier: col. 60.]
The noble and learned Lord said: My Lords, I have already spoken to this amendment under Amendment No. 35. I beg to move.
On Question, amendment agreed to.
6.45 p.m.
Clause 44 [Vacation of appointment by receiver]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 58 and 59:
[Printed earlier: col. 61.]
The noble and learned Lord said: My Lords, with your Lordships' leave, I shall move these amendments together. I have already spoken to them under Amendment No. 37. I beg to move.
On Question, amendments agreed to.
Clause 46 [Information to be given by and to receiver]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 60:
[Printed earlier: col. 57.]
The noble and learned Lord said: My Lords, I spoke to this amendment under Amendment No. 26. I beg to move.
On Question, amendment agreed to.
Clause 47 [Company's statement of affairs]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 61:
[Printed earlier: col. 58.]
The noble and learned Lord said: My Lords, I spoke to this amendment under Amendment No. 27.1 beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 62:
[Printed earlier: col. 58.]
The noble and learned Lord said: My Lords, I spoke to this amendment under Amendment No. 28. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 63:
[Printed earlier: col. 58.]
The noble and learned Lord said: My Lords, likewise, I spoke to this amendment under Amendment No. 28. I beg to move.
On Question, amendment agreed to.
The Earl of Selkirk The Earl of Selkirk moved Amendment No. 64:
Page 32, line 43, at end insert—
("( ) Any person making the statement and statutory declaration shall be allowed, and shall be paid by the receiver (or his successor) out of his receipts, such costs and expenses incurred in the preparation and making of the statement and statutory declaration as the receiver (or his successor) may consider reasonable, subject to an appeal to the court.").
The noble Earl said: My Lords, we have discussed before the nature of the report which is to be made to the receiver or whoever it may in fact be. It has been agreed that these reports are, or can be, extremely complicated. Indeed, the noble and learned Lord the Lord Advocate said that himself.
The report itself has to be made within 21 days and will contain the particulars of the company's assets and debts—that is probably not too difficult—the names and addresses of the members; the securities held by them; and the dates when the securities were respectively given. Then we come to this one:
"such further or other information as may be prescribed".
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This is all on page 32 of the Bill. We have no idea what they will be. But I can show you here the report prescribed in the 1972 Act. That consists of 16 pages, which have to be filled, including among other things preferential creditors for rates, taxes, salaries, wages and so on. In other words, it is a pretty complicated document. I suspect that in most cases it will have to be performed by professional people: accountants and others.
The Government will certainly notice that I have taken this clause straight out of the 1985 Act, which enables the receiver to pay for such professional reports as may be necessary. This is a very important document because it is the basis on which the receiver, or whoever it is, will operate. It is important that it should be complete. It is important that it should be detailed and correct. I think I am right in saying that there is no means by which it can be paid for. I do not know who will pay for it. Where you have an insolvent company, who is going to pay the accountant, or lawyer, if necessary, for preparing that report? It is extremely important that it should be right and proper. I am suggesting, as was suggested in the 1985 Act, that it should be possible for the person making the statement to pay for this. Unless you have the means of paying for it, you will not get a good report. For those reasons, I beg to move this amendment.
Lord Cameron of Lochbroom: My Lords, my noble friend is perfectly correct; that this clause, which replaces Section 482 of the Companies Act, does not reproduce subsection (3), which is the subject of his amendment. I assure my noble friend that by not reproducing it we are certainly not intending to suggest that we are denying persons who prepare and submit a statement of affairs the right to be paid for the costs and expenses reasonably incurred by them.
The reason for the omission is that it is intended that this matter, along with certain other procedural matters, will in future be dealt with in the rules. Indeed, my noble friend Lord Lucas explained this at an earlier stage. In a Bill of the length and complexity of this Bill, it is only sensible that its provisions should be limited to items which need to be dealt with by primary legislation.
In the light of what I have said—that the purpose of this amendment is to be fully met in the rules—I hope my noble friend will be agreeable to withdrawing his amendment. I must add that I am very grateful to him for having given me an opportunity to place on record the Government's intention in this regard.
Lord Bruce of Donington: My Lords, I, too, am grateful to the noble Earl for having put down this amendment and to the noble and learned Lord for his reply. I have to declare an interest in this matter; my own firm has performed and continues to perform the functions described in Section 482 of the main Act in occasionally preparing professional statements of affairs.
I share the anxiety expressed by the noble Earl, since we are considering the whole ramifications of the revised Section 482 of the Companies Act. The words at lines 14 and 15 on page 32, in Clause 47, require,
"such further or other information as may be prescribed".

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The noble and learned Lord has been kind enough to indicate that the rules will prescribe some provisions for fees properly earned in the cause of the preparation of the statement of affairs. For this we are most grateful, and I have already declared my interest. But the provision for,
"such further or other information as may be prescribed",
as highlighted by the noble Earl, Lord Selkirk, throws into relief once again the whole question of the rules which are to be prescribed—the whole scope of many parts of this Act.
We are grateful for the noble and learned Lord's indication of what he proposes to do but must once more express our anxiety—which will be expressed again on Third Reading and possibly in another place—that so much of the whole purpose and practice arising from this Bill will be left to rules rather than to the statute itself.
The Earl of Selkirk: My Lords, I am grateful for my noble and learned friend's explanation, but it is an astonishing revelation that there is to be a transference from an Act of Parliament to rules—to be governed, I think, by the Lord Chancellor. Is this the way we are to proceed in future in the government of this country? Are we to abolish the statutes and all that we do in this House and replace them with rules which will be substantially drawn up in the Department of Trade and Industry? Is this really to be the consistent policy of the Government? If so, it is one that will need a great deal of examination by this House and, if I may say so, by another place.
As far as I know, we have had today the first revelation of any of the rules. I do not believe that any one of them has been revealed until now. Now we are to take a provision which was in an Act, and which has been there for some time, and put it in a rule. This is an example of Government policy which I wholly and totally regret.
This point is one to which the Minister concerned should have his attention drawn. This is a very big change; taking away from an Act of Parliament and putting into rules which may or may not be seen in this House and which we cannot amend in any way. If this is to be extended practice, then this House will have a very great deal to say about it.
I will not press this matter any further. I regret very much what we have heard and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 65:
[Printed earlier: col. 57.]
The noble and learned Lord said: My Lords, I spoke to this amendment with Amendment No. 26. I beg to move.
On Question, amendment agreed to.
Clause 48 [Report by receiver]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 66:
[Printed earlier: col. 63.]
The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 44. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 67:
[Printed earlier: col. 64.]
The noble and learned Lord said: My Lords, I spoke to this amendment with Amendment No. 45. I beg to move.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 68 to 71:
[Printed earlier: col. 63.]
The noble Lord said: My Lords, when speaking to Amendment No. 44, I spoke also to Amendments Nos. 68, 69, 70 and 71, and I beg to move these amendments en bloc.
On Question, amendments agreed to.
The Deputy Speaker: My Lords, I have to inform your Lordships that Amendment No. 72 is not to be moved.
[Amendment No. 72 not moved.]
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 73:
[Printed earlier: col. 63.]
The noble Lord said: My Lords, I spoke to Amendment No. 73 with Amendment No. 44. I beg to move.
On Question, amendment agreed to.
Clause 49 [Supervisory committee]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 74 and 75:
[Printed earlier: col. 52.]
The noble Lord said: My Lords, when discussing Amendment No. 21 I spoke also to Amendments Nos. 74 and 75. I beg to move both those amendments.
On Question, amendments agreed to.
Clause 50 [Company's statement of affairs]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 76:
Page 34, line 40, leave out ("in England and Wales")
The noble and learned Lord said: My Lords, it may be convenient if I speak to this amendment together with Amendment No. 80, which is consequential upon it:
Amendment No. 80: Page 36, line 17, at end insert—
("(8) In the application of this section to Scotland references to the official receiver shall be construed as references to the liquidator or, in a case where a provisional liquidator is appointed, the provisional liquidator.")
The purpose of these amendments is to extend and adapt Clause 50 to apply in Scotland, where, as your

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Lordships will now be well aware, there is no official receiver. They have the effect of providing that, in the case where a court in Scotland has made a winding-up order or has appointed a provisional liquidator, the liquidator or provisional liquidator may require the person specified to submit to him a statement of affairs of the company.
At present there is no statutory provision requiring a statement of affairs of a Scottish company to be submitted to the liquidator or provisional liquidator. In these circumstances, I am sure your Lordships will agree that these amendments remedy an obvious omission. With that explanation, I beg to move.
Lord Bruce of Donington: My Lords, we entirely concur with these amendments.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 77:
[Printed earlier: col. 58.]
The noble and learned Lord said: My Lords, I spoke to this amendment with Amendment No. 27. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 78 and 78A:
[Printed earlier: col. 58.]
The noble and learned Lord said: My Lords, with the leave of the House, I move these amendments together. I have already spoken to both amendments with Amendment No. 28. I beg to move.
On Question, amendments agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 79:
[Printed earlier: col. 57.]
The noble and learned Lord said: My Lords, I spoke to this amendment with Amendment No. 26. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 80:
[Printed earlier: col. 72.]
The noble and learned Lord said: My Lords, I spoke to this amendment as consequential to Amendment No. 76. I beg to move.
On Question, amendment agreed to.
Lord Brabazon of Tara: My Lords, I think that this would be a convenient moment at which to adjourn our proceedings on this Bill until 8 o'clock. I beg to move that consideration on Report be adjourned.
Moved accordingly, and, on Question, Motion agreed to.

Road Races (Northern Ireland) Order 1977 (Amendment) Bill [H.L.]
7.1 p.m.
Lord Dunleath: My Lords, I understand that no amendments have been set down to this Bill and that
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no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. Therefore, unless any noble Lord objects, I beg to move that the order of commitment be discharged.
Moved, That the order of commitment be discharged.—(Lord Dunleath.)
On Question, Motion agreed to.
Viscount Long: My Lords, I beg to move that the House do now adjourn during pleasure until 8 o'clock.
Moved accordingly, and, on Question, Motion agreed to.
[The Sitting was suspended from 7.2 until 8 p.m.]

Insolvency Bill [H.L.]
Consideration of amendments on Report resumed.
Clause 52 [Public examination of officers]:
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 81:
Page 37, line 9, leave out ("shall") and insert ("may").
The noble Lord said: My Lords, with your Lordships' permission, I should like to speak at the same time to Amendments Nos. 197, 198 and 199, all of which accomplish the same principle.
Amendment No. 197: Clause 116, page 93, line 12, leave out ("shall") and insert ("may").
Amendment No. 198: Page 93, line 27, after ("bankrupt") insert ("(a)").
Amendment No. 199: Page 93, line 28, after ("section") insert—("or
(b) refuses (except on the ground that the answer would tend to incriminate him) to answer any question properly put to him in that examination").
I can be very short about this. These amendments make the court's duty to order a public examination discretionary rather than mandatory, so that it can refuse a public examination if it appears that it would serve no useful purpose. The amendments also make it clear that the examinee must answer any questions properly put to him except that he can abstain if it means self-incrimination. I believe that this latter point has already been considered favourably—and the answer was in the affirmative—by the Scottish Law Commission. I am content to accept the noble Lord's correction if I happen to be wrong on that.
I do not think I need speak at length. The amendments would merely give the court the discretion rather than make a public examination mandatory. That would help to save time if the court came to the conclusion that it need not have a public examination. The requirement to make the examinee answer questions properly and truthfully is also a good point, as is the fact that he should be exempt from revealing matters that would be self-incriminating. I beg to move.
Lord Denning: My Lords, I would support these amendments. They are quite sensible. The court ought not to be compelled to have a public examination. It ought to have a discretion with the insertion of the word, "may". In addition, a person ought to have to reply unless he has a proper ground for refusing to answer. I support the amendments.
Lord Lucas of Chilworth: My Lords, I am sorry to say that I am not able to accept the amendment to Clause 52 or indeed the identical amendment to Clause 116. I should perhaps say that the noble Lord has rather caught me on the wrong foot because I was not prepared at this moment to speak to the other group of amendments, Amendments Nos. 82 and 83, with the consequential amendments, Amendments Nos. 198 and 199. However, I shall do the best I can. In fact the basic argument is the same overall.
Amendment No. 82: Clause 52, page 37, line 25, after ("person") insert ("(a)").
Amendment No. 83: Page 37, line 26, after ("section") insert ("or
(b) refuses (except on the ground that the answer would tend to incriminate him) to answer any question properly put to him in that examination").
Clauses 52 and 116 require the court to direct the holding of a public examination if the official receiver applies for one. I ought to emphasis from the outset that there is no question of the official receiver asking for a public examination in all cases, or even a majority of them. The public examination will be reserved for the case where the official receiver cannot obtain relevant information or co-operation from the potential examinee in any other way. Furthermore, where creditors requisition an examination under Clause 52(2) or Clause 116(2) the official receiver will, if he thinks that the requisition is purely vindictive or that there is otherwise no good reason for holding a public examination, be able to go to the court for an order under Clause 52(2) or Clause 116(2) that he should not apply for an examination to be fixed.
Our concern is that, if these amendments were accepted, the application for a public examination would inevitably turn into a full-blown pre-trial of the issues. We envisage that, if it had to consider whether a public examination should be held, the court would need to see a detailed report from the official receiver (or in Scotland the liquidator) setting out the reasons why the examination should be held and would allow representations from the potential examinee. This could drastically reduce the value of the public examination when ultimately fixed, since the potential examinee would effectively be put on notice of all the matters the official receiver wished to raise at the subseqeunt examination.
Such problems have already been encountered in relation to the winding up of companies under Section 563 of the Companies Act 1985, where allegations have to be laid against a person before the court can consider whether to fix a public examination. As pointed out by the review committee, those provisions have fallen into disuse because of the difficulties they create.
I turn now to the latter points which come under, I think it is, Amendments Nos. 82 and 83, which connect with Amendments Nos. 198 and 199, and I have again to refuse these. The refusal is twofold. First, it is not necessary for the Bill to provide expressly that refusal to answer questions put in the course of a public examination is a contempt of court. Such a refusal is punishable by the courts as a contempt in exercise of their inherent jurisdiction.
The other limb of the amendments proposed is that a person may refuse to answer questions put to him in the course of a public examination on the grounds that
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the answer would tend to incriminate him. This is not acceptable since it could well defeat the purpose of the public examination. The leading authority on this is the 1927 case of In re Paget, a case heard by the Court of Appeal. I am sure that the noble Lord, Lord Bruce, will appreciate that I am advised in this matter. In that case, the Master of the Rolls gave a very clear analysis of the purpose of the public examination. He pointed out that its object was not merely to obtain a full and complete disclosure of the assets and facts relating to a bankruptcy but was also the protection of the public. The protection of creditors and of the public might be frustrated if a debtor was entitled to refuse to answer questions put to him at his public examination on the ground of self-incrimination.
The noble Lord specifically raised the matters contained in the Bankruptcy (Scotland) Bill at Clause 44(3). That provides that on a public examination a person is not excused from answering a question on the grounds that it may incriminate him.
Under the Scottish Bill, where an examination is applied for, the court must arrange this. That is in Clause 42(2). However, perhaps I can reassure the noble Lord, Lord Bruce of Donington. This might be helpful: the protection that I think he is seeking in his amendments—protection given at present to persons in a public examination that they need only answer such questions as the courts may put or allow to be put to them—will be restated in the rules.
Since Section 564 of the 1985 Companies Act is repealed by virtue of Schedule 9 to this Bill, it would be necessary for that protection to be restated. Again, notwithstanding what my noble friend Lord Selkirk had to say, I have to advise the House that it is intended that those provisions will be restated in the rules. This continuing discretion of the court will go some way to meeting the underlying points which the noble Lord, Lord Bruce of Donington, has made. I realise that his amendments may seek to go rather further but I have to tell him that we can go no further than I have suggested.
Lord Bruce of Donington: My Lords, the noble Lord astonishes me. In the earlier amendments that we have been discussing, for example, when I was emphasising the necessity for alleged delinquent directors being informed of the nature of the reports made against them, the noble Lord seemed to be all in favour of that. But one of his complaints is that if the application came before the court for argument, under subsection (3) of the clause we have in mind, then it would put the person on notice. Well, the noble Lord has been busy giving us assurances that the person would be placed on notice anyway, so what is the noble Lord complaining about? What is the point of having an application to the court under subsection (1) if the court has to grant the application anyway? It seems quite absurd.
All the first amendment does is to say "may" instead of "shall". What on earth is wrong with that? Does the noble Lord not trust the courts, or something? Surely, on a matter of this kind, no matter what the detail of the report submitted by the liquidator—and without casting any aspersions on his bona fides or on his desire to reach the truth—the reason for an application being made is to apply. If you

77
apply for something, surely the assumption follows from that that the application can be denied or it can be granted. As I say, the noble Lord objects to it on the grounds, inter alia, that of course it would give the debtor a notice of the matters. Well, he ought to have notice anyway. The noble Lord has been kind enough to underline that at an earlier stage in the Bill.
On this question of self-incrimination, the noble Lord first of all started to reply by saying that selfincrimination—or rather the absence of evidence that might lead to self-incrimination—would be undesirable in the public interest. But five minutes later he assures me that the measures against self-incrimination are in any case covered by the rules. Which does he want? Does he want a person to say things that are going to incriminate him, or does he not? He cannot have it both ways. I must insist that this as rather a frivolous way of dealing with quite serious amendments of this kind, which profoundly affect the liberty of the subject, and which indeed from the way the noble Lord is putting it seem to call into question the competence of the courts.
Once again the noble Lord refers to the rules. Your Lordships will be glad to hear that I do not want to expatiate on the rules any further tonight. Certainly, the way the Government are going, they will hear much more about government by rule. It seems to me that the longer this wretched Government continue in existence, the more reliance they have upon rules and the less they try to legislate through the ordinary democratic machinery of Parliament. That is another example but I shall not enlarge on that.
I ask the noble Lord seriously to think again about these amendments before he gives his final veto to them.
8.15 p.m.
Lord Denning: My Lords, perhaps I may say one word. If an application is made to the court, the result is that the court can either grant it or refuse it. In my experience it is quite unusual to have an application which the court "must" grant or "shall" grant. That is the first point. The second point is this. When there is a public examination, the question of what questions should be allowed or what answers accepted is a matter for the person who is holding the public examination. There is really no need for any special rules about it. I would entirely agree with the Court of Appeal in 1927—I expect the Master of the Rolls then was Viscount Hanworth—in saying that there would not be an answer that tended to incriminate because one of the very things which the court wants to find out is whether there is anything incriminating being done. In a way, I would support the amendment in regard to the word "shall" being made, but I would not go so far as to support the other one.
Lord Lucas of Chilworth: My Lords, with the leave of the House, may I say that since the noble and learned Lord, Lord Denning, is the only other noble Lord who has added a voice to this series of amendments, and in view of what the noble Lord, Lord Bruce of Donington, has said, I should like to assure him that I have no reason to be, nor was my purpose to be, frivolous about this matter.
After all, as the noble Lord, Lord Denning, has said,
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a public examination, or the purpose of a public examination, is to bring out one matter before one court to see whether evidence can be adduced on oath which has been withheld from the official receiver if he has not been able to obtain it otherwise. The purpose here is really to put the facts before the court for its consideration as to fitness or otherwise of a director while considering the question of disqualification. Surely that is right and proper. Certainly it is no wish of Government to prejudge or indeed to thwart the court's thinking in this matter.
I felt fairly confident that the Government had this right. I still think that we have. I do not think that the noble Lord, Lord Bruce of Donington, has added very much to it. However, without committing myself further, I am prepared to give this matter additional consideration in the light of what he has said. I have to emphasise that I should not wish to commit myself any further than considering most carefully the points which he has added.
Lord Bruce of Donington: My Lords, I am grateful to the noble Lord for having repeated the 11 th Commandment, "Thou shalt not commit thyself', and for saying that he will have another look at this matter. We shall return to the question; but in the meantime I ask the leave of the House to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 82 and 83 not moved.]
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 84:
Page 37, line 43, at end insert—
("( ) A person who is to be examined under this section shall be entitled to legal representation at his public examination.").
The noble Lord said: My Lords, if I may, I shall speak to this amendment and to Amendment No. 200 together.
Amendment No. 200: Clause 116, page 93, line 31, at end insert—
("( ) A bankrupt who is to be examined under this section shall be entitled to legal representation at his public examination.").
Both amendments cover substantially the same point. They would give the officers of a company and bankrupts the right to be legally represented at their public examination. One of the objects of public examination will be to obtain information from the examinee for the purposes of an action for wrongful trading. The examinee may need advice as to which questions amount to self-incrimination. A similar system of public examination to that proposed in the Bill exists in Australian bankruptcy law. This has now been held not to allow the right to legal representation. These amendments would put the issue beyond doubt and would enable the impecunious examinee to obtain legal aid.
That is the purpose of the amendment. I am bound to tell the noble Lord that it is not an amendment that I propose to ask the House to divide upon. However, I should like some public pronouncement by the noble Lord in response to the representations that I have made, so that it can be indicated which way the Government's mind is moving. There is reason to suppose that further amendments to the Bill may be made in another place, time in your Lordships' House

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being close to running out, and that the Government may amend the Bill at some stage to ensure that anything said at the public examination will be admissible against the officer or bankrupt in other proceedings. We suspect that this may be in the mind of the Government. If it is not in the mind of the Government, we all know that the noble Lord is privy to everything that goes on in the Government's mind, particularly at the Department of Trade and Industry, and we would be glad if he would share his confidences with us. Otherwise, we would appreciate a formal statement of the Government's reaction to the proposals comprised in both amendments. I beg to move.
Lord Denning: My Lords, I should have thought that this was unnecessary. I believe that a person under public examination would be entitled to have his lawyer there, without any provision in the statute about it, and able to take such part as the person holding the examination allows. It seems to me that this would apply apart from any provision in the statute.
Lord Lucas of Chilworth: My Lords, let me say straight away that I am able to accept the principle of these amendments. I am grateful to the noble Lord, Lord Bruce of Donington, for bringing them forward although, as I will explain, I do not think, as indeed the noble and learned Lord, Lord Denning, does not, that they are necessary.
The procedure at public examinations in both winding-up and bankruptcy will in future be set out in the rules under the powers contained respectively in paragraph 17 of Schedule 3 and paragraph 25 of Schedule 6 to the Bill. The present provision of Section 564(3) of the Companies Act 1985, which allows a person being publicly examined in a winding-up to be legally represented at his examination, is therefore being repealed but the substance of that provision will be re-stated in the rules. I have taken on board as, indeed, my noble and learned friend has taken on board, the comments of noble Lords throughout the House with regard to the rules. But that is how we see the position at this moment.
Although there is no equivalent statutory provision in bankruptcy, it is the practice of the court to allow a bankrupt to be legally represented when he is publicly examined. Consequently, the rules will provide expressly that a bankrupt may be legally represented at his public examination for the purpose of enabling him to explain or qualify any answers given by him. His legal representative will also be able to make representations on behalf of the bankrupt.
It will be apparent, I believe, from what I have said that the purpose of the noble Lord's amendments will be achieved by the provisions which will appear in the rules. On that basis, I would ask him to withdraw his amendment although I recognise that, at this moment, anyway, he has some underlying reluctance to rely upon rules. We have talked about this previously. I think that we shall talk about it again. Of course, I have no objection to that. But, as the Bill stands before your Lordships, I reiterate that I do not think that the purpose for which these amendments have been set down, and as the noble Lord has explained it, they are
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necessary. I would therefore invite him to withdraw the amendment.
Lord Bruce of Donington: My Lords, this is a most remarkable position. The noble Lord concedes the validity of the amendments. They are quite desirable. The only thing that divides us is whether they should be in the Bill or whether they should be in the rules. What harm is there at all in those circumstances in having them here in the Bill? I have taken all the trouble to put them there. There is no need to trouble the Lord Chancellor's Department and to incur all the public expenditure that would undoubtedly arise from the Lord Chancellor's participation in drawing up the rules. I am trying to economise. I have already done it for the noble Lord. He does not need to spend any more money.
This is merely another example of where this Bill, which could have been a comprehensive Bill on the lines of the Cork Report, bringing the whole of the law up to date publicly and openly, is being converted into an enabling Bill which, once passed, allows the Government to do exactly what they want in the rules or rather allows the Lord Chancellor to do so, thus breaching his own famous dictum about the elective dictatorship of the present Government. What is the purpose of having public and democratic discussion of Bills that affect quite a wide area when the main substance of the Bill is not in the Bill itself but in regulations that are not available at the time the Bill is being discussed? So we have no idea what will be the final form of the entire legislation. We cannot see the context, we cannot see the setting, within which the Bill itself is to be set.
Really, I must protest in the strongest possible terms about this tendency to pass enabling legislation, some of the principles of which are not discussed in this House at all and are not subject to the ordinary checks and balances. This business of legislating sub rosa in some obscure background or some obscure office in Whitehall is not one that this House should encourage. I must therefore protest, but having protested and observing that I have not a built-in majority in your Lordships' House, I beg leave to withdraw the amendment.
Lord Lucas of Chilworth: My Lords, just before the noble Lord seeks the leave of the House, I think that I have to protest also because he has made some very powerful statements. I want to remind him of one thing. Under the present law, rules relating to insolvency are made by the Lord Chancellor and they are laid before Parliament after they have been made. This Bill introduces in Clause 86 and Clause 193 an element of parliamentary control which is not available at present.
8.30 p.m.
It does this by making the rule subject to annulment by resolution of either House of Parliament; so really it is quite wrong of the noble Lord opposite to go on about taking matters of this nature out of the realm of Parliament, because it is just not true.
For a number of years there has been a source of frustration to the Insolvency Rules Advisory Committee—and that itself was established under the Insolvency Act of 1976—that in its consideration of

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the present rules there has been the inability to harmonise and modernise various procedures in the bankruptcy and winding-up codes because of this mismatch in primary and secondary legislative provisions. The inclusion of various matters in secondary legislation will enable the Government to introduce a number of provisions based on the recommendations of the Insolvency Law Review Committee without a significant increase in the size of Bills.
The Government and your Lordships will have a keen and high regard for those members of the rules advisory committee, as I do, and I think the noble Lord opposite would acknowledge that. I say that only because I want to get into perspective the impression that your Lordships may have following Lord Bruce of Donington's reply to my response to his amendment. I believe by repeating that to your Lordships I have brought that into perspective. The law and Parliament have a role.
Lord Bruce of Donington: My Lords, with the leave of the House, perhaps I may briefly reply to the response that the noble Lord has made. He has said there is an element of democratic participation by making the rules and the orders or the instruments subject to the approval of either House of Parliament. That illustrates the point beautifully: it is either House, not both, whichever one suits the Government. If the Government think they can get the provision through the Lords, they will send it to the Lords for approval; if they do not, they will send it to the Commons. This is the way in which it will work. It is no answer at all to ordinary democratic participation.
Amendment, by leave, withdrawn.
Clause 54 [Functions of official receiver in relation to office of liquidator]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 85:
[Printed earlier: col 52.]
The noble Lord said: My Lords, I spoke to this amendment earlier this afternoon, in speaking to Amendment No. 21. I beg to move.
On Question, amendment agreed to.
Clause 55 [Appointment of liquidator in Scotland]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 86:
Page 39, line 31, after ("made") insert ("by the court").
The noble and learned Lord said: This is a purely drafting amendment. It makes it clear that where Clause 55(1) is referring to a winding-up order in Scotland, it has to be a winding up order made by a court. That brings the wording of this clause into line with the wording used elsewhere in this part of the Bill. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 87:
Page 39, line 34, after ("shall") insert ("continue in office until another person becomes liquidator in his place under this section or section 56 below.
(1A) The interim liquidators shall").
The noble and learned Lord said: My Lords, it might be convenient to your Lordships if, in addition to speaking to this amendment, I speak to Amendments No. 90, 91 and 92.
Amendment No. 90: Page 39, line 43, leave out ("(1)") and insert ("(1A)").
Amendment No. 91: Page 40, line 2, leave out from ("is") to ("meetings") in line 3 and insert ("appointed or nominated by the meeting or").
Amendment No. 92: Page 40, line 5, at end insert—
("(4) A person who becomes liquidator of the company in place of the interim liquidator shall, unless he is appointed by the court, forthwith notify the court of that fact.").
The purpose of these amendments is twofold. First, they make it clear that any person who becomes liquidator of the company under Clauses 55 or 56 does so in place of the interim liquidator. Secondly, they require any person who becomes liquidator in place of the interim liquidator forthwith to notify the court of that fact, except in the case where he is appointed by the court itself. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 88:
Page 39, line 35, leave out ("twelve weeks") and insert ("twenty-eight days").
The noble and learned Lord said: My Lords, in the case of this amendment it would also, I think, be to your Lordships' convenience if I spoke to the next amendment, No. 89.
Amendment No. 89: Page 39, line 36, after ("made") insert ("or such longer period as the court may allow").
The first of these two amendments is similar to that which the noble Lord, Lord Taylor of Gryfe, moved at Committee. It reduces from 12 weeks to 28 days the period within which the interim liquidator appointed by the court is required to summon meetings of the company's creditors and members for the purpose of choosing a person to replace him as liquidator. The Government agree that it is desirable that these meetings should be summoned as soon as practicable after the appointment of this interim liquidator. However, as was mentioned at Committee stage, the Government consider that it would be desirable to retain a degree of flexibility in case it might not be possible in any particular case for an interim liquidator to summon these meetings within the reduced period of 28 days. Accordingly, the second amendment allows the court to extend the period within which these meetings may be summoned. Since these two amendments run together, with the leave of the House, I would move the two en bloc. I beg to move.
On Question, amendments agreed to en bloc.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 90 to 92:
[Printed above].
The noble and learned Lord said: My Lords, I beg to move Amendments Nos. 90, 91 and 92 en bloc. They were spoken to when I spoke to Amendment No 87.
On Question, amendments agreed to.
Clause 56 [Choice of liquidator at meetings of creditors and contributories]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 93:
Page 40, line 13, leave out subsection (3) and insert—
("(3) The liquidator shall be the person nominated by the creditors or, where no person has been so nominated, the person (if any) nominated by the contributories.").
The noble Lord said: My Lords, in moving Amendment No. 93 I should also like to speak to Amendment No. 166.
[Printed earlier: col. 53.]
Clause 56 of the Bill and Section 589 of the Companies Act 1985 provide for the appointment of a liquidator in a compulsory and creditors' voluntary winding-up respectively. Under both provisions, the liquidator is to be the person nominated by the creditors. If no nomination is made by the creditors, then any person nominated by the members will be liquidator. It has been represented to us that what Clause 56 and Section 589 do not make clear is who is to be liquidator where no person is nominated by the creditors. This is a valid criticism and Amendment No. 93 makes it clear that in a compulsory winding up it is always the person nominated by the creditors who will act as liquidator. Only in cases where the creditors fail to nominate a person will the nomination of the contributories be appointed as liquidator.
A similar amendment is made to the appointment of a liquidator in a creditors' voluntary liquidation by virtue of Amendment No. 166, so far as it relates to Schedule 4, paragraph 23. I beg to move.
Lord Bruce of Donington: My Lords, we on this side of the House have no objection to this amendment at all. However, for the record, my note shows that, when speaking to Amendment No. 21, the noble Lord also spoke to Amendments Nos. 155 to 166 inclusive. He now claims to be speaking to Amendment No. 93 and 166. Perhaps in due course the record might be corrected. The amendments seem eminently sensible and we have no objection to them on this side of the House.
On Question, amendment agreed to.
Clause 58 [Control of liquidator by a supervisory committee in England and Wales]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 94 to 108:
[Printed earlier: col. 52.]
The noble Lord said: My Lords, when I was speaking earlier today on Amendment No. 21, I addressed myself also to Amendments Nos. 94 to 108 inclusive. I beg to move these amendments en bloc.
On Question, amendments agreed to.
Clause 63 [Removal of liquidator and vacation of office]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 109:
Page 45, line 37, at end insert—
(" (7A) Where an order is made under section 61 above for the dissolution of the company, the liquidator shall forthwith vacate office.").
The noble and learned Lord said: My Lords, it may be convenient to the House if, in speaking to this amendment, I also speak to Amendment No. 112.
Amendment No. 112: Clause 64, page 46, line 29, after ("63 (6)") insert ("or (7A").
The purpose of these amendments is to remedy an omission in the Bill by making provision for the removal from office of the liquidator, and his release, in the case where the court in Scotland makes an order for the early dissolution of the company.
The first amendment provides for the liquidator to vacate his office forthwith where the court has made such an order under Clause 61. The second amendment—Amendment No. 112—has the effect of providing that such a liquidator should have his release with effect from such time as the Secretary of State may, on an application made by him, determine. I beg to move.
Lord Bruce of Donington: My Lords, this is one of the detailed matters raised in the amendments which, due to the vast number that has been inflicted upon us over the last few days, I have not yet had an opportunity to examine in detail. I have no reason to doubt at all anything that the noble and learned Lord has said about these amendments, and, while reserving my position for a later stage, we have no objection to them going through at this time.
On Question, amendment agreed to.
Clause 64 [Release of liquidator]:
8.45 p.m.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 110:
Page 46, line 24, leave out ("or contributories or") and insert ("that has not resolved against his release or by a general meeting of the company's contributories or who").
The noble Lord said: My Lords, in moving Amendment No. 110 I should like to speak also to Amendments Nos. 111, 113, 114, 210, 211, 212 and 213.
Amendment No. 111: Page 46, line 28, after ("office") insert ("by a general meeting of the company's creditors that has resolved against his release or")
Amendment No. 113: Page 46, line 37, leave out ("resolves that he should not have his") and insert ("has resolved against that person's")
Amendment No. 114: Page 46, line 40, leave out ("in any other case") and insert ("if that meeting has not resolved against that person's release")
Amendment No. 210: Clause 125, page 98, line 42, leave out ("or") and insert ("that has not resolved against his release or who")
Amendment No. 211: Page 99, line 2, after ("office") insert ("by a general meeting of the bankrupt's creditors that has resolved against his release or")
Amendment No. 212: Page 99, line 11, leave out ("resolves that the trustee should not have his") and insert ("has resolved against that person's")
Amendment No. 213: Page 99, line 14, leave out ("in any other case") and insert ("if that meeting has not resolved against that person's release").
The amendments are identical save that one group applies to winding up and the others to bankruptcy. The amendments provide that where a liquidator or trustee (other than the official receiver) is removed from office by a meeting of creditors held under Clauses 63 or 124, he will be released upon vacating

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office, unless the creditors resolve against his release. Where the creditors pass such a resolution, the liquidator or trustee will have to apply for his release to the Secretary of State.
These amendments would harmonise the release procedure which results from the removal of a liquidator or trustee by a creditors' meeting during the course of the liquidation or bankruptcy with the release procedure which flows from the final meeting of creditors convened by a liquidator or trustee under Clauses 62 and 147.
In our view, it is right that, in the, hopefully, rare cases where a liquidator or trustee is removed from office by the creditors, it should be possible for creditors to indicate any dissatisfaction with the liquidator's or trustee's handling of the case by withholding his release, so that he (the liquidator or the trustee) has to apply to the Secretary of State to obtain it. The Secretary of State will then have an opportunity to look into the circumstances which have resulted in the refusal of release.
Under the present legislation, a liquidator or trustee must notify the creditors who have proved their debts (and in winding up proceedings, the contributories) of his intention to apply for his release. Any creditor (or contributory) who objects to the granting of the release must notify his objection to the Department of Trade and Industry within 21 days of the date of the notice.
Upon receipt of any objection, the department withholds the release until the objection has been fully investigated. The nature of the objection dictates the level of investigation carried out: in most cases, objections concern minor matters and are quickly and easily resolved. More serious complaints obviously result in more detailed investigation. An aggrieved creditor can also bring his objection to the court. Once a complaint has been fully investigated and resolved, the department will grant the release. The objector may apply to the court, if he still feels aggrieved.
The investigative role of the Secretary of State in this respect will continue, although the professional standards required to enable a person to act as liquidator or trustee will, it is expected anyway, reduce the number of cases in which the Secretary of State is involved. Should creditors withhold release upon grounds that are well founded, it is intended that the Secretary of State will be able to report the liquidator or trustee concerned to the relevant professional body under the new arrangements for licensing insolvency practitioners which we discussed a little earlier today.
The bonding requirements will ensure that creditors do not incur permanent loss if the liquidator's or trustee's release is withheld due to negligence on their part, and aggrieved creditors (or contributories) can apply to the court under Clauses 12 and 130 (for corporate and personal insolvency proceedings respectively) if a liquidator or trustee has acted in breach of duty. Application under Clauses 12 and 130 can be made either before or after the liquidator's or trustee's release, although in the latter circumstance only with the leave of the court.
We believe that these amendments provide an important safeguard for creditors, and accordingly I beg to move.
Lord Bruce of Donington: My Lords, we on this side of the House have no objection to these amendments, which seem to us to provide for elementary safeguards. However, in the course of his introductory remarks the noble Lord made mention of certain bonding requirements so far as insolvency practitioners were concerned. Will the noble Lord kindly enlarge upon what he said? What are the bonding requirements to which he referred?
Lord Lucas of Chilworth: My Lords, I am not able to enlarge very much further than my memory serves me and that means calling into sharp relief discussions which I believe we had at the end of January or in early February when we were discussing the early part of the Bill and the new arrangements with which it would be necessary for insolvency practitioners to comply. Clause 2 of the Bill deals with the qualification of practitioners. The noble Lord will see that Clause 2(2)(b) says that an individual will have to provide,
"such security or, in Scotland, caution for the proper performance of his functions as may be prescribed."
Lord Bruce of Donington: Or rules.
Lord Lucas of Chilworth: No, my Lords, they are not rules. The situation is put quite clearly in Clause 2. That gives, in effect, the bonding requirements. My answer to the noble Lord's question has been put together a little from memory and with a little help from my noble and learned friend, and I hope that that satisfies the noble Lord opposite.
Lord Bruce of Donington: My Lords, the point is a comparatively small one. The noble Lord was asked a question as to bonding arrangements. The noble Lord replied that that is dealt with at Clause 2. Yes, it is. It says:
"such security … as may be prescribed".
That is no answer at all. The noble Lord is saying once again that the rules are going to lay it down. We do not know the rules, and therefore we cannot judge.
Lord Lucas of Chilworth: My Lords, with the leave of the House, perhaps I may say that the noble Lord is not doing himself justice when he argues this way. Practitioners have always had bonding arrangements. Those arrangements have not been set down in statute. They have been practice, and practice evolved through the application of rules. There is nothing very new here. I have a little suspicion that the noble Lord, Lord Bruce of Donington, is being perhaps a little frivolous on this amendment.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 111:
[Printed earlier: col. 84.]
The noble Lord said: My Lords, I have just spoken at some length to Amendment No. 111. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 112:
[Printed earlier: col. 84.]
The noble and learned Lord said: My Lords, I spoke to this with Amendment No. 109. I beg to move.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 113 and 114:
[Printed earlier: col. 84.]
The noble Lord said: My Lords, I spoke to Amendments Nos. 113 and 114 with No. 110 just a few moments ago. I beg to move both these amendments.
On Question, amendments agreed to.
Clause 66 [Effect of insolvency on members' voluntary winding up]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 115:
Page 48, line 10, after first ("the") insert ("relevant locality, that is to say the").
The noble Lord said: My Lords, in speaking to Amendment No. 115, it might also be convenient to your Lordships if I spoke to Amendments Nos. 116 to 119, and also 124 to 127.
Amendment No. 116: Page 48, line 11, leave out ("is situated.") and insert ("was situated during the relevant period.").
Amendment No. 117: Page 48, line 23, leave out from first ("the") to ("for") in line 24 and insert ("relevant locality").
Amendment No. 118: Page 48, line 29, leave out subsection (4) and insert—
("(4) Where the company's principal place
of business in Great Britain was situated in different localities at different times during the relevant period, the duties imposed by subsections (2)(c) and (3)(c) above shall apply separately in relation to each of those localities.
(4A) Where the company had no place of business in Great Britain during the relevant period, references in subsections (2)(c) and (4) above to the company's principal place of business in Great Britain shall be construed as references to the company's registered office.").
Amendment No. 119: Page 48, line 41, at end insert—
("(5A) In this section "the relevant period" means the period of six months immediately preceding the day on which were sent the notices summoning the company meeting at which it was resolved that the company be wound up voluntarily.").
Amendment No. 124: Clause 68, page 50, line 3, after first ("the") insert ("relevant locality, that is to say the").
Amendment No. 125: Page 50, line 4, leave out ("is situated") and insert ("was situated during the relevant period.").
Amendment No. 126: Page 50, line 26, leave out from beginning to ("for") in line 27 and insert ("relevant locality").
Amendment No. 127: Page 50, line 34, leave out subsection (5) and insert—
("(5) Where the company's principal place of business in Great Britain was situated in different localities at different times during the relevant period, the duties imposed by subsection (2)(c) and (4)(c) above shall apply separately in relation to each of those localities.
(5A) Where the company had no place of business in Great Britain during the relevant period, references in subsections (2)(c) and (5) above to the company's principal place of business in Great Britain shall be construed as references to the company's registered office.
(5B) In this section "the relevant period" means the period of six months immediately preceding the day on which were sent the notices summoning the company meeting at which it was resolved that the company be wound up voluntarily.").
My Lords, Clauses 66 and 68 are both designed to ensure that where a meeting of creditors is to be held in a members' or creditors' voluntary winding up, that meeting is given adequate publicity. Notices of the
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meeting must be sent to the creditors, where their names and addresses are known. Furthermore, the meeting must be advertised in the Gazette and local newspapers circulating in the area of the company's principal place of business in Great Britain. If the company has no place of business in Great Britain, then the advertisements must be placed in newspapers circulating in the locality of the company's registered office. These provisions ensure that the meeting is advertised in the area in which the company traded and where many of its creditors are likely to be.
On re-examining these clauses it has occurred to us that the purpose of local advertisement may be defeated where directors change the company's principal place of business, or registered office, immediately prior to passing a resolution to wind up the company. The question arises: what of the creditors in the old locality? These proposed amendments would ensure that advertisements are placed in the local newspapers for all the localities where the company had its principal place of business, or, if it had no place of business, its registered office in the six months before the company meeting to wind up the company is summoned. We consider that these amendments afford a small but necessary protection to local creditors, and I hope that your Lordships will be able to accept them. I beg to move.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 116 to 119:
[Printed above.]
The noble Lord said: My Lords, in speaking to No. 115 I spoke to Nos. 116 to 119. I beg to move these amendments en bloc.
On Question, amendments agreed to.
Clause 67 [Liquidator nominated by company in creditors' voluntary winding up]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 120:
Page 49, line 2, leave out ("is") and insert ("has been").
The noble Lord said: My Lords, I beg to move Amendment No. 120, and with the leave of the House I should like to speak also to Nos. 121, 122 and 123.
Amendment No. 121: Page 49, line 22, leave out subsection (5).
Amendment No. 122: Page 49, line 30, after ("shall') insert ("within seven days of the relevant day").
Amendment No. 123: Page 49, line 31, at end insert—
("(7) In subsection (6) above "the relevant day" means the day on which the liquidator was nominated by the company or the day on which he first became aware of the default, whichever is the later.
(8) If the liquidator without reasonable excuse fails to comply with subsection (2), (4) or (6) above, he shall be liable on summary conviction to a fine not exceeding the statutory maximum.").
These amendments are contained in Clause 67, which deals with the abuse of a company appointing a liquidator in a creditors' voluntary winding up and then delaying the holding of the creditors' meeting while the assets are sold before the creditors are apprised of the position. This practice provides scope for abuse by directors in collusion with liquidators to dispose of assets in a manner advantageous to themselves. Although the new provisions on qualified insolvency practitioners will go a long way towards

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eliminating such abuse in this context, Clause 67 restricts the liquidator's powers pending the creditors' meeting and imposes certain duties on him.
A liquidator appointed by the company in a creditors' voluntary winding up is under a duty under Clause 67(6) to apply to the court for directions where the company and the directors are in default of their obligations to call a meeting of creditors and supply it with the requisite information. However, under Clause 67(6) as drafted no sanction is imposed on a liquidator who fails to make such an application.
A liquidator appointed by the company and acting in collusion with the members or directors could therefore take no action under subsection (6) deliberately so that a creditors' meeting was not called (and hence the liquidator could not be replaced) or proper information was not provided, for the benefit of creditors, by the directors. This is clearly undesirable and the amendments therefore secure that the liquidator will be guilty of an offence if he fails to comply with the duty set out in subsection (6) of the clause within seven days from being nominated or from becoming aware of the default in addition to those set out in subsections (2) and (4). I beg to move.
9 p.m.
Lord Bruce of Donington: Yes, my Lords, we on this side entirely agree with the noble Lord in regard to these amendments. We note that the Secretary of State for Industry and thereby the creditors have the same safeguards in the matter in that if a liquidator acts in collusion either with the directors or with selected creditors he runs the risk of losing his licence. That, in the ordinary way, should be quite sufficient.
This may go some way to eliminating the menace of the phoenix companies. It may go only a little way, but even a little way is very helpful. The whole trouble about phoenix companies is that what often appears to be a corrupt transaction need not necessarily be so. In a liquidation one finds that in taking over the assets of a company the difference between the going concern and the balance sheet values of assets is very different from their ordinary valuation on a break-up valuation as passed by a certified valuer. Therefore, when a liquidator offers assets for sale at their breakdown value and scouts around to try to get offers for them, sometimes a former managing director of the company is the only person who comes up with any offer that matches the independent valuation of the assets concerned.
If he takes the company over and starts again, that gives the impression that this is a phoenix company. But it is not necessarily so. One should therefore have a good deal of caution before one stigmatises every event of that kind as being another example of some kind of improper liaison between a liquidator and the former directors. Often there is no feasible alternative to the asset take-over in the absence of other offers and in the interests of the creditors generally. Nevertheless, having said that, I entirely agree with this as an extra safeguard to be written into the Bill. On this side of the House it has our entire support.
Lord Lucas of Chilworth: My Lords, I am much obliged to the noble Lord, Lord Bruce of Donington.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 121.
[Printed earlier: col. 88.]
The noble Lord said: My Lords, when I was moving Amendment No. 120, I spoke also to Amendments Nos. 121, 122 and 123, and since I addressed Amendments Nos. 124 to 127 when I moved Amendment No. 115, it may be for the convenience of the House if I were to take en bloc Amendments Nos. 121 to 127.
The Deputy Speaker (Earl Cathcart): My Lords, with the leave of the House I shall put Amendments Nos. 121 to 127 en bloc. Also with the permission of the House, I shall not read them out.
On Question, amendments agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 128:
After Clause 68, insert the following new clause:
("Removal etc. of liquidator in voluntary winding up.
.—(1) This section applies with respect to the removal from office and vacation of office of the liquidator of a company which is being wound up voluntarily.
(2) Subject to subsection (3) below, a liquidator may be removed from office only by an order of the court or—

(a) in the case of a members' voluntary winding up, by a general meeting of the company summoned specially for that purpose; or

(b) in the case of a creditors' voluntary winding up, by a general meeting of the company's creditors summoned specially for that purpose in accordance with the rules.

(3) Where a liquidator was appointed by the court under section 599 of the 1985 Act, a meeting such as is mentioned in subsection (2) above shall be summoned for the purpose of replacing him only if the liquidator thinks fit or the court so directs or the meeting is requested, in accordance with the rules—

(a) in the case of a members' voluntary winding up, by members representing not less than one-half of the total voting rights of all the members having at the date of the request a right to vote at the meeting; or

(b) in the case of a creditors' voluntary winding up, by not less than one-half, in value, of the company's creditors.

(4) A liquidator shall vacate office if he ceases to be a person who is qualified to act as an insolvency practitioner in relation to the company.
(5) A liquidator may, in the prescribed circumstances, resign his office by giving notice of his resignation to the registrar of companies.
(6) Where—

(a) in the case of members' voluntary winding up, a final meeting of the company has been held under section 585 of the 1985 Act; or

(b) in the case of a creditors' voluntary winding up, final meetings of the company and of the creditors have been held under section 595 of that Act,

the liquidator whose report was considered at the meeting or meetings shall vacate office as soon as he has complied with subsection (3) of that section and has given notice to the registrar of companies that the meeting or meetings have been held and of the decisions (if any) of the meeting or meetings.").
The noble Lord said: My Lords, in moving Amendment No. 128 I should like to speak also to Amendment No. 129.
Amendment No. 129: insert the following new clause:
("Release of liquidator in voluntary winding up.
.—(1) This section applies with respect to the release of the liquidator of a company which is being wound up voluntarily.
(2) A person who has ceased to be a liquidator shall have his release with effect from the following time, that is to say—

(a) in the case of a person who has been removed from office by a general meeting of the company or by a general meeting of the company's creditors that has not resolved against his release or who has died, the time at which notice is given to

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the registrar of companies in accordance with the rules that that person has ceased to hold office;

(b) in the case of a person who has been removed from office by a general meeting of the company's creditors that has resolved against his release or by the court or who has vacated office under subsection (4) of section (Removal etc. of liquidator in voluntary winding up) above, such time as the Secretary of State may, on the application of that person, determine;

(c) in the case of a person who has resigned, the time at which his notice of resignation was given to the registrar of companies;

(d) in the case of a person who has vacated office under subsection (6)(a) of section (Removal etc. of liquidator in voluntary winding up) above, the time at which he vacated office;

(e) in the case of a person who has vacated office under subsection (6)(b) of that section—

(i) if the final meeting of the creditors referred to in that subsection has resolved against that person's release, such time as the Secretary of State may, on an application by that person, determine; and

(ii) if that meeting has not resolved against that person's release, the time at which he vacated office.

(3) Where a liquidator has his release under subsection (2) above, he shall, with effect from the time specified in that subsection, be discharged from all liability both in respect of acts or omissions of his in the winding up and otherwise in relation to his conduct as liquidator; but nothing in this section shall prevent the exercise, in relation to a person who has had his release under subsection (2) above, of the court's powers under section 12 above.").
I have no doubt that the House is aware that to provide greater protection for creditors the Bill imposes stricter controls on voluntary liquidators, in that they must be licensed insolvency practitioners under Part I of the Bill. They must also take out insurance in respect of every company of which they are appointed liquidator, as is the present position with liquidators appointed for companies being wound up by the court, although not for voluntary liquidators. Where bonding exists, it is also necessary to have a release procedure so that the liquidator can be discharged from liablity for his acts or omissions during the winding-up. This means that the practitioner's insurance cover can then be terminated as from the date of his release. The necessity for a release procedure, in turn, gives rise to a need to codify the method by which a voluntary liquidator may vacate office, since this is linked with the release procedure.
These new clauses provide similar provisions for a voluntary liquidator's removal, vacation of office and release, to those for compulsory liquidators contained in Clauses 63 and 64 of the Bill. They provide that the voluntary liquidator may be removed from office by the court or by meetings of the company's members or creditors, depending on whether the winding-up is a members' voluntary or a creditors' voluntary. He will also be required to vacate office if he ceases to be qualified to act as an insolvency practitioner in relation to the company, and in any event he must vacate office once the final meetings of members and of creditors are held.
The second new clause to be inserted specifies the time at which the release of the voluntary liquidator takes effect. I would draw attention in particular to new subsection (2)(e)(i), which provides that if the final meeting of creditors resolves against the liquidator's release because it is dissatisfied with him he will only
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obtain release on application to the Secretary of State, who will investigate the circumstances surrounding the refusal of release. As I am sure your Lordships will recognise, this provision is on all fours with the amendments we have made to Clause 64, which we have just discussed. It is important for the reasons which I explained in connection with those amendments also. These two new clauses are necessary to ensure the proper working of the Bill and I commend them to your Lordships.
Lord Bruce of Donington: My Lords, during the passage of these proceedings so far I have become so accustomed to being benevolent towards the noble Lord in regard to his amendments that it is with some sense of personal shock that I find myself getting a little worried about Amendments Nos. 128 and 129, which apply to the removal of liquidators in a voluntary winding up and the release of a liquidator in the case of a voluntary winding up. When the noble Lord's right honourable friend was giving a press interview on the occasion of his announcement of the abdication from the position of compulsory disqualification, his right honourable friend made it clear that, even though he was relinquishing the position that he then took up, nevertheless he was going to make quite sure that insolvency practitioners took some of the burden that he himself was about to assume.
I can only therefore suggest that Amendments No. 128 and 129 are the result of his right honourable friend's determination that solvency practitioners are going to be made to toe the line and, if necessary, occasionally to feel the lash of the whip. I do not object to that particularly in principle, but in view of the time that these amendments became available and the time that has been available to me to consider them and to consult professional colleagues about them, while, for the moment, I am prepared to assent to their going through, I must reserve my position in case, on further examination, something undesirable from the professional standpoint, at any rate, might emerge and might therefore be a suitable candidate to be raised on Third Reading. Subject to that, I have no objection to the new clauses as they now stand.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 129:
[Printed earlier: col. 90.]
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 130:
[Printed earlier: col. 64.]
The noble and learned Lord said: My Lords, this is the new clause that will take the place of Section 614 of the Companies Act and will also incorporate material which is presently to be found in paragraph 24 of Schedule 4 to this Bill—and that for the reasons which I explained when speaking to Amendment No. 45. I beg to move.
Lord Denning: My Lords, I wish only for a word of explanation. I heard my noble and learned friend Lord Cameron say at Committee stage, "We are not going to have all these Crown preferences, and all that sort of thing". But now, when I look at this, I do not understand it. It says:

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"In a winding up the preferential debts listed in Part I of Schedule 5 … shall be paid in priority to all other debts".
When I look at Part I, I see all those old things there, including the rates and everything. I am sure that I must have misunderstood it. I should like to know what the explanation is. I thought that the Crown were giving up their preference.
Lord Mottistone: My Lords, before my noble and learned friend comments, I apologise for not being in the House when Amendment No. 45 was taken. I had not realised that it was the first of this lot, which I imagine includes Amendments Nos. 152, 153 and 170, 235 and 264. All that I should like to say is that I am grateful in principle for what the Government have done in these amendments, but, rather like the noble Lord. Lord Bruce, on the previous amendment, there has not been time to consider the detail of it and it is just possible that we might come back at Third Reading on some part of it. In principle, I thank the Government for what they have done in response to what, at an earlier stage of the Bill, they said that they would do.
Lord Cameron of Lochbroom: My Lords, with the leave of the House, perhaps I might deal with the two points that have been raised. First, in response to the noble and learned Lord, Lord Denning, I think that I spoke to this in that, when explaining Amendment No. 45, I said that the intention is to deal with preferential debts both in the context of bankruptcy and of company insolvency within this Bill and not to have it spread over the Companies Act and this Bill. For that reason, I simply limited the amendments to which I spoke when introducing Amendment No. 45 to the three of which this is the third.
The consequences of the undertaking which I gave in the course of Committee arise in amendments to Schedule 5 itself. The result of those amendments, if this House accepts them, will be that what is stated in Schedule 5 will then incorporate the Government amendments which will give account to the undertaking which I gave. But I did not embark upon an explanation of those amendments when speaking to Amendment No. 45, for the simple reason that it did not seem to me to be appropriate to do so at that stage. I hope that with that explanation I have satisfied both the noble and learned Lord and also my noble friend.
On Question, amendment agreed to.
Clause 73 [Interest on debts]:
9.15 p.m.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 131:
Page 55, line 17, leave out from ("payable") to end of line 18 and insert ("in accordance with this section on any debt proved in the winding up, including so much of any such debt as represents interest on the remainder.").
The noble Lord said: My Lords, in moving Amendment No. 131, I should also like to speak to Amendments Nos. 276, 277 and 278.
Amendment No. 276: Clause 186, page 143, line 33, at end insert ("(a)").
Amendment No. 277: Page 143, line 35, after ("or") insert ("(b)").
Amendment No. 278: Page 143, line 39, at end insert ("and any interest provable as mentioned in section 142(2) above.").
These amendments do not make any change at all of substance to the Bill. They are technical, drafting amendments which result from representations we have received that the Bill could be made clearer in one respect in particular. Under Clause 142 of the Bill, creditors will be able to prove in a bankruptcy for interest accrued on the debts owed to them up to the date of the bankruptcy order. A similar provision will be applied to company liquidations in rules to be made under the power in paragraph 11 of Schedule 3 to the Bill.
Furthermore, under Clauses 73 and 145, where there is a surplus after creditors have been paid in full the surplus will be applied first in paying the interest on those debts which have accrued since the date of the winding-up or the bankruptcy order. The purpose of the amendments is to make it clear that the debts which can be proved in a winding-up or bankruptcy may include interest, and that any post-liquidation or post-bankruptcy interest will be calculated on the whole of the provable debt, including any part of it which represents interest.
I would only add that there are provisions elsewhere in the Bill, in Clauses 83 and 152, to deal with agreements that seek to charge an extortionate rate of interest. I beg to move.
On Question, amendment agreed to.
The Deputy Speaker (Earl Cathcart): My Lords, in calling Amendment No. 131A, I should point out that there is a misprint in the amendment as it appears on the Marshalled List. It should read "Page 55, line 24" and not "line 25".
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 131A:
Page 55, line 24, at beginning insert ("Subject to section (Deferment of debts due to connected persons) below").
The noble Lord said: My Lords, if I may, at the same time as moving this amendment I should like to speak to Amendment No. 132, which deals with the same point.
Amendment No. 132: After Clause 73, insert the following new clause—
("Deferment of debts due to connected persons.
.—(1) Subject to subsection (2) below debts and liabilities owed to persons who at the date of the commencement of the liquidation or at any time when the company was insolvent within twelve months before that date were connected with the company shall—

(a) rank in priority after all other debts of the company; and

(b) be repayable with interest at the rate specified in section 73(4) above in respect of the period during which they have been outstanding since the commencement of the liquidation,

and the interest payable under paragraph (b) above shall have the same priority as the debts or liabilities on which it is payable.
(2) Subsection (1) above shall not apply—

(a) to any debt or liability (other than a debt or liability in respect of a loan) arising within twelve months before the commencement of the liquidation;

(b) to any liability under any enactment, for breach of trust, or in tort;

(c) to other debts and liabilities so far as the aggregate of such debts and liabilities does not exceed the amount of the issued share capital of the company.

(3) The amount which by virtue of subsection (2)(c) above is excluded from deferment under subsection (1) above shall be apportioned among the creditors whose debts and liabilities are subject to deferment under subsection (1) above in proportion to the respective amount of such debts and liabilities.
(4) Any security given by the company shall be void in so far as it secures a debt or liability to which subsection (1) above applies.").
These amendments are intended to give modified effect to the recommendation of the Cork Committee, notably paragraph 1963, that the debts which are owed to connected persons and are, in effect, part of the long-term capital structure of the company should be deferred in liquidation, and we on this side of the House concur in that principle. The reasoning behind the proposal is similar to that in connection with the amendment to invalidate floating charges in favour of connected persons; namely, that if a person is given the benefit of limited liability for his business he and his associates should not be entitled to finance their business by means of loan capital secured or unsecured, which is repayable either in priority to or equality with outside creditors.
The amendment defers all debts due to persons connected with the insolvent company, with the following exceptions. The first exception is debts other than loans incurred within the 12 months preceding liquidation. This would include, for example, undrawn salaries or arrears of rent for premises occupied by the company. If these debts are unpaid for more than a year it is reasonable to treat them as part of the loan capital. The second exception is debts not exceeding in total the company's issued share capital. We think it is not unreasonable to allow some of the company's capital to be financed by loans, but it is necessary to keep a reasonable proportion between share capital and loan capital. I trust, following the quite explicit findings of paragraph 1963 of the Cork Committee's report, with which I shall not weary the House unless your Lordships specifically desire me to read the particular paragraph, that the Government will feel constrained to agree wholeheartedly with the amendment and pass it without further ado. I beg to move.
Lord Lucas of Chilworth: My Lords, these two amendments are, of course, identical to those tabled by the noble Lord, Lord Meston, at the Committee stage of the Bill and are, as the noble Lord, Lord Bruce of Donington, said, taken virtually out of the Cork Report. I said in Committee that our objection to the proposed new clause is that it treats connected persons unduly harshly, particularly when considered with other provisions of the Bill. I shall say a little more about that in a moment.
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If this amendment is accepted, it will in our view be a positive disincentive to those who run their own businesses and invest in them—and I am thinking here particularly of small and medium sized businesses. Where companies or businesses are in financial difficulties but could nevertheless be pulled round with additional finance—particularly low cost finance—why should proprietors of the business and their connected persons be penalised if they invest in their companies, whereas there would be no such penalty if they invested in totally unconnected companies?
Where connected persons seek to obtain an unfair advantage over other creditors, there are various provisions of the Bill which may then come into play. But Clauses 81 and 82 enable the court on the application of the liquidator to make orders restoring the position of the company and its creditors to what it would have been if the company had not entered into a transaction at an undervalue; or indeed had given a preference to a person. The clauses are more strict in dealing with connected persons than with non-connected persons, in that a preference given to a connected person is open to challenge if made in the two years before a liquidation, rather than six months as in the case of a non-connected person.
Clause 83 entitles the court to vary or set aside extortionate credit transactions between the company and the creditor so that if a connected person abuses his relationship with a company by, for example, charging an extortionate rate of interest, that transaction may be set aside. Furthermore, Clause 84 provides for certain floating charges be invalidated in the event of a subsequent winding up, and again charges in favour of connected persons are treated more stringently than those in favour of non-connected persons.
We consider that the amendments, if accepted, would disrupt business practices, particularly those of small companies. The implications of this go far beyond the law of insolvency, which is after all what the Bill is about. Therefore, I would ask the noble Lord to withdraw his amendment.
Lord Bruce of Donington: My Lords, I am not satisfied with the noble Lord's reply but I should like to have further time to study it. In the meantime, I have no objection to it going through, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 132 not moved.]
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 133:
After Clause 74, insert the following new clause:
("Consumer advance payments
.—(1) So much of any unsatisfied consumer advance payment made to a company as does not exceed the prescribed amount shall be a preferential debt in the liquidation of the company ranking equally with the debts listed in Schedule 19 to the 1985 Act.
(2) For the purposes of subsection (1) above a consumer advance payment is made if—

(a) a person ("the supplier or agent") is carrying on a business of supplying goods or services or procuring the supply by other persons of goods or services to members of the public or a section of the public;

(b) the supplier or agent in the course of that business enters into a contract or arrangement with another person ("the customer") to supply or procure the supply of goods or services to the customer;

(c) it is a term of the contract or arrangement that the customer shall pay all or part of the price or anticipated price of the goods or services to the supplier or agent or some other person nominated by him before the goods or services are provided; and

(d) the customer makes the payment so required.

(3) For the purposes of subsection (1) above, a consumer advance payment is unsatisfied if—

(a) it was made pursuant to or in anticipation of a contract which has been disclaimed under section 71 above; or

(b) the customer has demanded and would but for the bankruptcy be entitled to repayment of it by the bankrupt".

The noble Lord said: My Lords, I should like at the same time to speak to Amendments Nos. 252 and 263.
Amendment No. 252: Schedule 5, page 168, line 6, at end insert—
(" . So much of any unsatisfied consumer advance payment made to the bankrupt as does not exceed the prescribed amount.").
Amendment No. 263: Page 169, line 37, at end insert—
(" .—(1) For the purposes of Part I of this Schedule, a consumer advance payment is made if—

(a) a person ("the supplier or agent") is carrying on a business of supplying goods or services or procuring the supply by other persons of goods or services to members of the public or a section of the public;

(b) the supplier or agent in the course of that business enters into a contract or arrangement with another person ("the customer") to supply or procure the supply of goods or services to the customer,

(c) it is a term of the contract or arrangement that the customer shall pay all or part of the price or anticipated price of the goods or services to the supplier or agent or some other person nominated by him before the goods or services are provided; and

(d) the customer makes the payment so required.

(2) For the purposes of paragraph 7 of Part I of this Schedule, a consumer advance payment is unsatisfied if—

(a) it was made pursuant to or in anticipation of a contract which has been disclaimed under section 140 of this Act; or

(b) the customer has demanded and would but for the bankruptcy be entitled to repayment of it by the bankrupt.").

All of these amendments have a bearing on the whole question of consumer credit. They represent an attempt to deal with the problem of ordinary members of the public who have made advance payments to an individual or company for goods and services—for example, to a mail order firm or to a travel agent—which individual or company has then become insolvent, so that they lose their money without getting what they have paid for.
As the noble Lord, Lord Taylor of Gryfe, pointed out in Committee, a number of consumer organisations have proposed that all businesses which obtain consumer advance payments should be required to pay them into a separate trust fund and
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retain them in the fund until the goods or services are provided, so that on liquidation or bankruptcy the money in the trust fund will not form part of the assets of the insolvent and will be repayable to the customers. The view has been taken, however, that an obligation to set up a trust fund would cause considerable difficulties to businesses in terms of both extra administrative costs and loss of potential cash flow, and therefore should not be supported.
The amendments I venture to put forward are an alternative which would give customers considerably better rights than they now have without causing problems to insolvent businesses. As preferred creditors up to the "prescribed amount"—and the noble Lord will observe that I have used the words which have become hallowed by him in the course of various clauses in this Bill, and therefore I am resting upon the rules—customers would rank ahead of holders of floating charges, as well as other unsecured creditors, although not getting full trust fund protection.
It will be clear that by increasing the number of preferred creditors who rank ahead of the holders of floating charges the provision by banks and other lending institutions of finance on the security of floating charge will become more risky and therefore more expensive and less freely available. It is also quite clear that it is unfair to trade and other creditors, whose position would be made worse.
Those are valid arguments. There are, of course, countervailing arguments to those, and we should seek as far as we can to balance the other considerations. The other considerations are that the present system—that is to say, without these amendments—is unduly favourable to floating charges and makes it too easy for banks and other strong creditors to protect themselves at the expense of weaker creditors.
I do not believe that these particular proposals would lead to any significant increase in interest rates. In other words, I do not believe that the existence of such provisions would bother the banks overmuch. It is normally the banks who make loans available on the basis of a floating charge. If it did, it could only happen in relation to a relatively small number of businesses where consumer advance payments are required. Trade creditors have other means of protecting themselves, although not in every case, such as reservation of title claims under ROMALPA-type agreements, and know that they are providing credit, while ordinary consumers are, in effect, defenceless. So those are the two opposing considerations.
Your Lordships will recall that at Committee stage I produced an amendment which reproduced the Cork proposal that 10 per cent. of the proceeds of enforcement of a floating charge should be set aside for the benefit of unsecured creditors. This would give some benefit to consumer creditors, but the benefit would be much smaller than that which might result from the amendment. In many cases, a fund of 10 per cent. would be too small to be worth bothering about.
This is a matter where the arguments for and against are most evenly balanced, and one has to take a view upon them. It is quite clear that the ordinary and unsuspecting person who replies to an advertisement, who puts down £25 and then receives nothing at all

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because four or five days later the company to which he has sent the money goes bankrupt or the concern goes into liquidation, is in a position in which he is defenceless. He is in the position of possessing far less knowledge about the firm than the ordinary trade creditor.
I am well aware that the ordinary trade creditor under normal circumstances—particularly where there is a very high scale of preferential debt—also does not stand very much chance of getting his money. Indeed, one's reaction can be that if the ordinary trade creditor who may supply £3,000 or £4,000 worth of goods two days before the company goes into liquidation cannot be treated in any way as a preferential creditor, then why should the small depositor of money be treated on any other different basis?
It is a very difficult argument to resolve. Clearly, consumers are worried; but clearly, also, are small businesses which advance money, on credit, to firms which go into liquidation a comparatively few days after the goods have been supplied. That is the reason why I put into the amendment the magic formula, to which the noble Lord is much addicted, of "the prescribed amount". That leaves it to the all-wise Lord Chancellor's department as to how much the amount should be. It might be small, it might be only a token, but it would be in the Lord Chancellor's hands and a chance for him to exercise his judgment as to how far consumer interest should be at any rate partially reimbursed, should there be any bankruptcy or liquidation which leaves unsatisfied deposits.
9.30 p.m.
I am well aware that the amendments are not satisfactory. I am well aware that the arguments are evenly balanced; but I think they ought to be ventilated, and that it is in the interests of consumers generally that the Government's explicit views on this should be known. If the Government come down against even this very moderate amendment, which leaves the entire abatement of indebtedness in the lap of the Lord Chancellor, they should say so. It will be a good thing if the country at large knows exactly where the Government stand, and this amendment, which I hope I have moved in reasonably temperate terms, gives them the opportunity of stating precisely where they stand in the matter. I beg to move.
Lord Denning: May I say a word on this? The Cork Committee, when it advocated the abolition of a lot of Crown preferences, saw that that would be a very valuable increase to banks and other people who held floating charges, so that they would get a good deal more money in hand. Therefore, it recommended, as a package deal, that 10 per cent. should be reserved and made available for the unsecured creditors. The report referred to, and advocated a 10 per cent. fund. I think that many commercial concerns are in favour of a 10 per cent. fund.
On our previous discussions that was not found acceptable; nor is there any amendment or anything here to provide for a 10 per cent. fund as recommended by the Cork Committee. As an alternative we have this clause, to which one would be sympathetic;
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namely, that those who advance money and do not receive their goods, and so on—consumer advance payments—should be treated preferentially if they arise within 12 months, or whatever it may be, before the liquidation. The Cork Committee rejected that because it is almost impossible to decide between the rights and wrongs of unsecured creditors. One must take the unsecured creditors as they are, whether or not they were shortly before the liquidation. You cannot draw any distinction between them, so you cannot give any particular group a preference. The Cork Committee was against such a clause as this. I would be, too; and I am disappointed that we have no trace of a 10 per cent. fund in the Bill.
Lord Lucas of Chilworth: Yes, indeed, my Lords, the noble Lord, Lord Bruce of Donington, has put forward the amendments in a temperate and very sympathetic way, but the House will probably recall that the noble Lord, Lord Meston, and the noble Lord, Lord Taylor of Gryfe, introduced similar amendments in Committee which I resisted at that time. I resisted them successfully.
One of the arguments that I used at that time was that the Government were in favour of the view taken by the review committee chaired by Sir Kenneth Cork. That committee looked at the question of deposits and prepayments and considered that the provision of credit in that way was not appreciably any different from other forms of trade credit. The Government have recently made the decision to reduce the scope of their preferential claims for assessed income taxes. A change in that decision would be quite inconsistent with a creation of a new class of preferential claim.
I say now, as I said then, that we are sympathetic to consumers who find themselves as unsecured creditors in a liquidation or bankruptcy when they have advanced moneys to traders for either goods or services not yet supplied. The problem was looked at specifically by the review committee. Quite specifically it said that it would be wrong to give consumer creditors preferential status. It took the view that there was no essential difference between the customer who extends credit by paying in advance for goods or services, and the trader who supplies goods or services in advance to be paid for later. Both give credit and both thereby take a risk.
Let us look at a different side of the coin: the position of a small trader. For example, a small furniture retailer with insufficient storage space and not enough capital to stock every item of furniture in every colour and pattern. Nevertheless, he is prepared to accept an order and to place that order for a special item, however bizarre it may be. The prepayment by the consumer is very often regarded purely and simply as a demonstration of good faith—good faith to ensure at least to some extent the customer is likely to complete the contract. What would happen if we abandoned that or made specific and particular requirements? I suggest that it would put that man in some jeopardy. I do not think that in the end result there would be any great advantage to the consumer.
The noble Lord, Lord Bruce, asked that on this occasion the Government's view should be made quite clear. I can only repeat the view which we have had

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since we started discussing the Bill some four months ago. I reiterate that we believe that the answer to the problem lies in our policy of encouraging the development of voluntary schemes through trade and other associations designed to cover particular problem areas, rather than the invidious task of singling out particular groups for enhanced protection. That development can be assisted if the Government concentrate on encouraging those directors who have in the past neglected their businesses and responsibilities to take a much greater interest in the running of the companies and so obviate that position.
To turn to the Government's proposed reduction in preferential claims for assessed taxes and general rates, we go a long way towards the principle advocated by the review committee that pari passu distribution should be the cornerstone of insolvency law. However sympathetic one is to the plight of the unsecured, consumer creditor, it would be quite wrong, we believe, to qualify that principle so as to deal with particular problems of certain classes of creditor. If we did that, undoubtedly there would be other classes which considered that they had a claim to preferential treatment and we should end up in exactly the same situation as hitherto.
No, the answer is in the general principles lying behind this Bill rather than in particularising. I do not want to make an issue of one or two small points that I might draw attention to, but there are a number of drafting errors in the amendment. I have a feeling that the noble Lord, Lord Bruce of Donington, will not press his amendment. I shall certainly invite him to withdraw it. I do not think it would be helpful—certainly on this occasion—were I to point out those minor drafting errors.
Lord Bruce of Donington: My Lords, I am most grateful to the noble Lord for his reply, even if I am a little disappointed with it. I am grateful to him for having pointed out a series of unspecified drafting errors. In view of the fact that the Government themselves put down 300 amendments within the last few days, I think I may be excused for any minor inaccuracies that I have made in putting down the 47 which I ventured to lay in the time at my disposal.
The noble Lord says that the policy of the Government in regard to these victims of consumer credit difficulties is to rely on voluntary codes of conduct in the trades themselves. This will not do. A large number of instances of cases where consumer disappointment takes place, and very often fraud takes place, are a result of the non-application of the law by the Government, the non-enforcement of it due to their economy cuts. This is part of the reason. The absence of effective enforcement over a whole mass of law at the present time is one of the reasons why these frauds take place.
We are not discussing fraud today. We are only discussing the results of unfortunate situations in which consumers find themselves. The noble Lord can say that this distorts the pattern and that the Cork Committee in any case did not endorse the proposals. No, the Cork proposals were, as the noble and learned Lord, Lord Denning, pointed out, to be taken as a package and as a balanced whole. It does not lie in the
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mouths of the Government to complain of an endeavour at any rate partially to remedy their remissions by referring to inconsistencies i n the particular approach.
It is quite true that it has been necessary to recommend something outside the Cork Report itself. But that has been entirely due to the fact that the Government's own Bill has distorted the Cork Report as a whole. As the noble and learned Lord, Lord Denning, has mentioned, they have not brought in anything at all concerning the 10 per cent. deposit or withholding, as it is, from the floating charge for the benefit of creditors.
I am well aware that the amendment itself is unsatisfactory. I am equally well aware that the arguments are very evenly balanced. I am very glad to have received at any rate a partial ventilation of the case and I am very grateful indeed for the intervention of the noble and learned Lord, Lord Denning. I ask the leave of the House to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 78 [Delivery and seizure of property]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 134:
Page 58, line 26, after ("Where") insert ("(a)")
The noble Lord said: My Lords, perhaps I may speak also to Amendments Nos. 135, 195, 196, 221 and 222. They are identical in effect.
Amendment No. 135: Page 58, line 27, leave out from ("and") to end of line 33 and insert—
("(b) at the time of the seizure or disposal the office holder believes, and has reasonable grounds for believing, that he is entitled (whether in pursuance of an order of the court or otherwise) to seize or dispose of that property,")
Amendment No. 195: Clause 113, page 91, line 19, after ("Where") insert ("(a)")
Amendment No. 196: page 91, line 22, leave out from ("and") to end of line 27 and insert—
("(b) at the time of the seizure or disposal the official receiver believes, and has reasonable grounds for believing, that he is entitled (whether in pursuance of an order of the court or otherwise) to seize or dispose of that property,")
Amendment No. 221: Clause 130 page 102, line 17, after ("Where") insert ("(a)")
Amendment No. 222: page 102, line 19, leave out from ("and") to end of line 24 and insert—
("(b) at the time of the seizure or disposal the trustee believes, and has reasonable grounds for believing, that he is entitled (whether in pursuance of an order of the court or otherwise) to seize or dispose of that property,")
It is important that liquidators, administrators, the official receiver and trustees in bankruptcy are adequately protected if they should seize and dispose of property which they reasonably believe they are entitled to seize or dispose of and it turns out subsequently to belong to a third party. Such protection is increasingly important given the proliferation of hire purchase and retention of title agreements. We have received representations from the legal and accountancy professions that the defences afforded by Clauses 78, 113 and 130 could be improved in certain respects. We are grateful to those bodies for their suggestions. The amendments before

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your Lordships harmonise the defences available under all three clauses. They afford a defence to an office holder, official receiver or trustee in bankruptcy who has reasonable grounds for believing that he is entitled to seize or dispose of property,
9.45 p.m.
Clearly, if a third party has notified the office holder of an interest in the property concerned, he will not be able to seize or dispose of it until the claim has been investigated and the true ownership of the property ascertained. The office holder will also remain liable for any loss or damage resulting from his seizure or disposal of a third party's property that is caused by his negligence. Finally, the amendments make clear that the power to seize and to dispose of an insolvent's property is available to the office holder either with or without a court order having been obtained. I beg to move.
Lord Bruce of Donington: My Lords, I should like to take the opportunity of examining these amendments more closely than we have had the opportunity to do so far. In the meantime, they appear to be a step in the right direction.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 135:
[Printed earlier: col. 57.]
On Question, amendment agreed to.
Clause 79 [Duty to co-operate with office holder]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 136:
[Printed earlier: col. 57.]
The noble and learned Lord said: My Lords, this amendment and Amendment No. 137 are amendments to which I spoke when speaking to Amendment No. 26.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 137:
[Printed earlier: col. 57.]
On Question, amendment agreed to.
Clause 80 [Inquiry into company's dealings]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 138:
Page 61, line 11, leave out ("that goes into liquidation") and insert ("in respect of which a winding-up order has been made by the court").
The noble Lord said: My Lords, Clause 80 deals with the office holder's powers to apply to the court for the private examination, in court, of any person
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specified in subsection (1). Such examinations are normally required to assist the office holder in his duties to recover and realise assets of the company, for the benefit of creditors, and in his general inquiries into the company's affairs, particularly in cases where the person so summoned has failed to co-operate fully with the office holder.
Subsection (6) specifies that these powers of the office holder extend to the official receiver, whether or not he is liquidator of the company. As presently worded, the clause gives the official receiver these powers in the case of any company that goes into liquidation in England and Wales, whether that liquidation is compulsory or voluntary. In a case where a company goes into voluntary liquidation, however, the official receiver will not become involved in the administration unless a winding-up order is subsequently made by the court, and therefore it is neither necessary nor desirable that such powers should be conferred upon him.
The proposed amendment provides that the official receiver's powers to apply for a private examination shall only extend to cases of companies against which the court makes a winding-up order in England and Wales; that is, only in respect of companies where the official receiver is directly involved in the administration. I beg to move.
On Question, amendment agreed to.
Clause 83 [Extortionate credit transactions]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 139:
Page 64, line 39, leave out from beginning to ("was") in line 1 on page 65 and insert ("the transaction is or was extortionate and").
The noble Lord said: My Lords, in speaking to this amendment, I should also like to refer to Amendments Nos. 140, 141, 267 and 268.
Amendment No. 140: Page 65, line 2, leave out ("it") and insert ("the company").
Amendment No. 141: Page 65, line 13, at end insert—
("and it shall be presumed, unless the contrary is proved, that a transaction with respect to which an application is made under this section is or, as the case may be, was extortionate.").
Amendment No. 267: Clause 152, page 122, line 20, leave out from beginning to ("was") in line 22 and insert ("the transaction is or was extortionate and").
Amendment No. 268: Clause 152, page 122, line 32, at end insert—
("and it shall be presumed, unless the contrary is proved, that a transaction with respect to which an application is made under this section is or, as the case may be, was extortionate.").
I said during the Committee stage that I was grateful to the noble Lords, Lord Meston and Lord Taylor of Gryfe, for bringing forward at that stage proposed amendments to Clause 85 and Clause 152. The purpose was to provide that, as in the Consumer Credit Act, the onus of proof should be on the creditor to establish that his transaction was not extortionate. I undertook that the Government would in due course bring forward their own amendment for the same purpose. These are the amendments now before your Lordships. They remove the burden of establishing that the transaction was extortionate from the office

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holder or trustee in bankruptcy. The burden of proof is now placed on the creditor. I hope that your Lordships will agree that the amendments achieve the purpose sought by the amendments tabled by noble Lords. I beg to move.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 140 and 141:
[Printed above.]
On Question, amendments agreed to.
Clause 84 [Avoidance of certain floating charges]:
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 142:
Page 66, line 3, leave out ("relevant period") and insert ("period of twelve months ending with the day of the commencement of the winding up")
The noble Lord said: My Lords, I beg leave to move Amendment No. 142. Perhaps I may at the same time speak to Amendments Nos. 143, 144 and 145.
Amendment No. 143: page 66, line 13, leave out subsection (2).
Amendment No. 144: page 66, line 25, leave out from ("charge") to end of line 28.
Amendment No. 145: after Clause 84, insert the following new clause:
Charges in favour of connected persons.
(" .—(1) Subject to subsection (2) below, a floating charge on the company's undertaking or property is invalid if the person in whose favour the charge was created was connected with the company at the time the charge was created.
(2) Subsection (1) above shall not apply if—

(a) the floating charge secures debentures which are listed on any stock exchange; or

(b) the benefit of the floating charge has at any time been acquired for full consideration in money or money's worth by a person who was not at the time of such acquisition connected with the company and did not have notice at that time that the floating charge was invalid under subsection (1) above.")

It is plainly inevitable that those who operate limited companies should not only have the benefit of limited liability but should have the opportunity to give themselves priority over unsecured creditors of the company by financing the company's activities by means of a loan secured by a floating charge. This seems to us to be quite unacceptable. For example, for someone to set up a £100 company financed by advancing £100,000 on the security of floating charge and thereby claim priority over unsecured creditors if the company fails. The same principle applies equally strongly, if not more so, to inter-company indebtedness within the group. In this respect, perhaps we are permitted to disagree with the Cork Committee's views, and I should be interested if on this one occasion we have Government support for something that the Cork Committee have recommended.
We believe that it should be the principle that those who obtain the protection of limited liability and their associates should not be allowed to obtain any priority over other creditors. However, in order to preserve the marketability of debt, exceptions need to be made for debentures quoted on the Stock Exchange or acquired by purchasers for value without notice.
That is clearly desirable; but equally clearly you do not get companies floated on the Stock Exchange, at
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any rate not within Stock Exchange rules and subject to the normal prospectus rules, where you have an issued share capital of £100 and loans of £100,000 secured by a floating charge on the part of the owners. So the exception is not altogether as incongruous as it sounds. I do not propose to press these amendments to a Division; but once again I should like the Government's thought about the situation created by floating charges in favour of owners to be made fully public, full ventilated and logically established. I beg to move.
Lord Denning: My Lords, I am very much in sympathy with these proposals. I gave illustrations earlier in Committee of what often happens. A man forms a £100 company so the capital of the company is only £100, but with that company he buys a business; he buys a business which may have its stock and its vans and everything like that. He does not pay for it with £100. He gets £100,000 of his own and lends it to the company to enable it to make purchases. He then takes a floating charge over all the assets of the company for his £100,000 or he may take it in his wife's name. He trades for years and years, and eventually the assets are milked. When the company eventually goes into liquidation, what happens? The floating charge takes all those assets and he has priority over everyone.
At paragraph 1550 of the Cork Report, the committee said:
"Some of those who have given evidence to us have urged that directors or controlling shareholders of the debtor company and their associates should be prohibited from taking the benefit of a floating charge over any of its assets".
They go on:
"While understanding the reasons which have led them to make this suggestion, we consider that it goes too far."
Then in paragraph 1566 they say:
"There remains the question of floating charges created in favour of persons closely connected with the company, whether directors, controlling shareholders, or other companies in the same group. We are sympathetic to the widely held view that the freedom of such persons to rely upon the security of a floating charge over the assets of their company should be more narrowly circumscribed than that of other persons".
That is the view of the Cork Committee. Surely it is the common sense view that the right of these relatives, whoever they may be, or the right of the man himself in the case of the one-man company who takes this floating charge, should be circumscribed. He should not be able to take off all the assets in this way. The proposal of my noble friend Lord Bruce of Donington is very short and simple: let it be invalid if he is connected with the company, but it does not apply if it is listed on the Stock Exchange or if the benefit of the floating charge would bring full value for money. It goes much further than the Cork Committee recommended.
It is difficult to follow it through, but it seems to me that probably Clause 84, as it stands, is quite a good effort to endorse what the Cork Committee recommended. I have not studied it in detail, but it seems to me that in a way Clause 84 as it stands is in line with what the Cork Committee recommended. However, I would certainly agree with my noble friend Lord Bruce of Donington that this is a matter which should be cleared up and the Government's view upon it should be made known.
10 p.m.
Lord Lucas of Chilworth: My Lords, by way of introduction I have to say that the Government are not able to accept this series of amendments, and before I finish my remarks I shall ask the noble Lord, Lord Bruce of Donington, to withdraw them. The noble and learned Lord, Lord Denning, has spoken at some length and has quoted from the Cork Report and I should like at some time to return to that matter. However, perhaps I may respond specifically to the noble Lord, Lord Bruce, because he asked—as did the noble and learned Lord, Lord Denning—if I would set out the Government's view.
These amendments seek to remove from Clause 84 all references to persons connected with the company and the applicability of the clause in relation to the appointment of an administrator. The effect of this would be to leave the clause very much in the terms of the present Section 617 of the Companies Act 1985, which was formerly Section 322 of the Companies Act 1948. The noble Lord, Lord Bruce of Donington, seeks in Amendment No. 145 to insert in the Bill a new clause relating to floating charges created in favour of connected persons. I want to speak about that particular amendment in a moment.
Let me respond to the invitation of the noble Lord, Lord Bruce of Donington, and the noble and learned Lord, Lord Denning, to explain Clause 84 as it relates to administrators and connected persons. Those provisions are based on specific recommendations made by the review committee in Chapter 36 of its report. Subsection (2) (a) gives effect to recommendations contained in paragraphs 1554 and 1566 respectively of the review committee's report. It enables the provisions as regard the avoidance of floating charges to apply where an administrator is appointed and extends the period during which the creation of such a charge is liable to be set aside in the case of a charge in favour of a person connected with the company; the period in those circumstances will be two years instead of the usual 12 months.
Subsection (3) gives effect to a further recommendation contained in paragraph 1566 of the report. It provides that where a floating charge is created in favour of a connected person it is no defence that the company was solvent immediately after the creation of the charge.
The combined effect of Amendments 142, 143, 144 and 145 would be to replace the provisions which I have just mentioned by a clause invalidating in all but exceptional circumstances any floating charge created in favour of a connected person. This was an option considered by the review committee at paragraph 1550 of its report, to which the noble and learned Lord, Lord Denning, referred. The committee felt, however, that such a provision would go too far and preferred provisions along the lines of those now contained in Clause 84 of the Bill. The Committee argued that, if I may quote:
"there is no reason why even persons concerned in the management of a company should not take a floating charge to secure new money genuinely advanced by them to the company, and which might not otherwise be forthcoming".
We agree with the views of the review committee on this subject. I suggest to your Lordships that the new clause which Amendment No. 145 seeks to
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introduce goes too far. It would discourage owners of businesses, especially small and medium-sized companies, from investing in those businesses, perhaps on terms advantageous to the company in comparison with those that might be offered by other sources of finance. We believe that this is clearly undesirable. I have set out clearly how the Government view the clause, and my response to the noble Lord's amendment. I believe that Clause 84 as it is now in the Bill is a better way of achieving that which we want to achieve, and I would invite the noble Lord to withdraw his amendment.
Lord Bruce of Donington: My Lords, I am most grateful to the noble Lord for his long and detailed reply. He will appreciate that much of what he said was highly technical and will have to be examined when the Official Report appears tomorrow, in conjunction with the relevant clauses and with the amendments that I venture to propose to your Lordships. I still remain dissatisfied with the situation, which demands much further examination. In the circumstances, I ask leave of the House to withdraw the amendment and I do not intend to move Amendments Nos. 143, 144 and 145.
Amendment, by leave, withdrawn.
[Amendments Nos. 143, 144 and 145 not moved.]
Clause 85 [Unenforceability of liens on books etc.]:
The Earl of Selkirk: moved Amendment No. 146:
Page 66, line 44, at end insert ("but any person delivering such books, papers or other records to the office holder shall be entitled to receive from him out of his receipts such outstanding fees and costs as were before such delivery secured by such lien.")
The noble Earl said: My Lords, at an earlier stage I moved that Clause 85 should be removed. It embraces quite a new concept. I believe that this matter has never caused trouble in the past and putting it in has itself caused difficulty. The clause provides that those who hold the books and papers and other records have no lien on them when the receiver, or whoever it may be, demands them back. That does not apply to the company which has gone bankrupt or become insolvent. It applies only to a third party. The most likely third party is the auditors, who may, for one reason or another, have the papers in their offices. They will by this rule be prevented from exercising what I believe is common law in Scotland and may be in England too. If anybody is asked to do work on any object such as a shoe, a motor car or a wireless set, the party doing the work has a lien on that object until the work is paid for.
In the ordinary course of events, I understand that that applies to an auditor who, for one reason or another holds the books of some company that has gone bankrupt. As it stands, the clause would mean that the receiver would be able to take those books without paying the auditor's fee. This is quite wrong and I have tried to produce an amendment which would cover this item; that is to say that when they deliver the goods they are entitled to be paid. That would seem to be common sense; it is in accordance with my understanding of the common law and I think it is a provision which should be included. I should prefer the clause to be taken out altogether, but if it is

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not taken out I ask that these words should be added so that those who, for any reason, hold the papers are entitled to demand their fees. They have been paid up to quite recently when doing the annual audit and they should have a lien now. I beg to move.
Lord Polwarth: My Lords, while I can never claim in my accountancy career to have had to delve into the mysteries of insolvency law, it seems to me in all equity that the amendment proposed by my noble friend Lord Selkirk should be accepted.
Lord Cameron of Lochbroom: My Lords, I am obviously grateful to my noble friends who have spoken on this, which is undoubtedly a highly technical matter. The clause applies both in Scotland and also in England and Wales. The purpose of it is to make in corporate insolvency an equivalent provision for that which presently obtains regarding liens in an English bankruptcy. Noble Lords will understand what I said earlier this evening. The idea is to harmonise the law on bankruptcy and corporate insolvency.
In English bankruptcy, Bankruptcy Rule 386, which is re-enacted in Clause 158 of the Bill, provides that any lien is completely unenforceable against an office holder unless the lien is on documents which give a title to property and which are held as such. The principles behind this provision are, first, that the office holder and the official receiver in a winding-up by the court or in bankruptcy in England and Wales should have full access to all records of the insolvent company or the insolvent individual; and, secondly, that an otherwise unsecured creditor should not be in a position to elevate his claim to a secured or pre-preferential position to the detriment of other creditors. The effect of this amendment would be to eliminate the second principle of which I have just spoken. The holder of the records would, in return for handing them over to the office holder, be entitled to be paid on the basis of a first charge out of the otherwise uncharged assets in the insolvent company's estate, thus securing payment of what otherwise would be an unsecured non-preferential claim.
Insolvency practitioners in England and Wales have welcomed Clause 85 of the Bill and its harmonising effect with the law of bankruptcy in England and Wales. They see it as a positive benefit and an aid in maximising realisations for creditors. Nevertheless, I appreciate that the bankruptcy law in Scotland is different from that in England and Wales, and Clause 37 (4) of the Bankruptcy (Scotland) Bill has the effect which this amendment seeks to introduce into the corporate insolvency provisions in this Bill. It may be that this is a case where such a fundamental variation in the laws obtaining in the two jurisdictions is such that one standard provision ought to apply in both corporate and personal insolvency in Scotland and another should apply in England and Wales.
This is something that we should like to consider. The present amendment would obtain both in Scotland and England and Wales, and, for the reasons I have set out already, practitioners in England and Wales have welcomed this clause. But, obviously, the matter of corporate insolvency in Scotland does raise a different question, and if my noble friend Lord
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Selkirk is prepared to understand that we shall look at this I would ask him to withdraw his amendment to give us an opportunity to do so.
The Earl of Selkirk: My Lords, I am grateful to my noble and learned friend. I do not see why we should corrupt the law of Scotland because it suits practitioners in England. I can see no reason whatever why that should be carried out. This is what is wanted in Scotland. There is nobody who wants this clause, which they consider totally unnecessary. May I also say that I do not understand how the English practitioners welcome it. If accountants are not paid their fee, they will not do their job. If they do not do the job, the receiver will not know what is in the accounts. It seems to me that to think that you can get away without the accountant being paid for preparing the accounts means that you are crying for something you will not get. I do not know how the English Act works. I will engage myself in trying to find out about the Acts quoted by my noble and learned friend. In the meantime, I am grateful for what he has said and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 3 [Provisions capable of inclusion in company insolvency rules]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 147 and 148:
[Printed earlier: col. 52.]
The noble Lord said: In speaking to Amendment No. 21 earlier this afternoon, I spoke also to Amendments Nos. 147 and 148. With the leave of the House, I should like to move both amendments together.
On Question, amendments agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 149:
[Printed earlier: col. 57.]
The noble and learned Lord said: My Lords, I spoke to this amendment earlier when speaking to Amendment No. 26. I beg to move.
On Question, amendment agreed to.
Lord Denham: My Lords, I think it is the general consensus of the House that we have probably got as far as we can usefully go tonight. I beg to move that further consideration on Report be now adjourned.
Moved accordingly, and, on Question, Motion agreed to.
House adjourned at sixteen minutes past ten o'clock.