HL Deb 02 April 1985 vol 462 cc142-51

4.5 p.m.

Consideration of amendments on Report resumed.

Clause 101 [Proceedings on creditor's petition]

The Deputy Speaker (Lord Aberdare)

My Lords, the next two amendmens have been printed the wrong way round. The next amendment I have to call is Amendment No. 177.

Lord Lucas of Chilworth moved Amendment No. 177:

[Printed earlier: col. 133.]

The noble Lord said: My Lords, I spoke to this amendment when we were discussing Amendment No. 174. I beg to move.

On Question, amendment agreed to.

Lord Lucas of Chilworth moved Amendment No. 176:

[Printed earlier: col. 133.]

On Question, amendment agreed to.

Clause 103 [Proceedings on debtor's petition]:

Lord Lucas of Chilworth moved Amendments Nos. 178 to 180:

[Printed earlier: col. 133.]

On Question, amendments agreed to.

Lord Lucas of Chilworth moved Amendment No. 181: Page 84, line 2, leave out from ("court") to end of line 10 and insert ("that, on any grounds existing at the time the certificate was issued, the certificate ought not to have been issued.").

The noble Lord said: My Lords, the court has a general discretion under Clause 103(6)(b) whether or not to issue a certficate of summary administration to a bankrupt even though he satisfies the criteria under Clause 103(6)(a.) In other words, even though the bankruptcy debts are less than the small bankruptcies level and the debtor has not been made bankrupt or made a composition with his creditors in the previous five years, the court may still not issue a certificate of summary administration if it considers it inappropriate to do so.

Because of this general discretion of the court in issuing a certificate it seems to us, on looking again at the grounds on which the court may revoke such a certificate, that the court should be given a wider discretion in deciding whether to revoke the certificate. This will ensure that the court is not unduly restricted in exercising its discretion to revoke a certificate. Under Clause 103(7) of the Bill as it stands at present the court may revoke only on the specific grounds set out in Clause 103(7)(a) and (b.)

Under the clause as it is proposed to be amended the court will be able to revoke a certificate of summary administration for any grounds existing at the time the certificate was issued, both general and specific, if it considers that the certificate ought not to have been issued. We consider it important that the court should be able to take such matters into account when deciding whether to revoke the certificate. This amendment achieves that objective. I beg to move.

On Question, amendment agreed to.

Clause 105 [Period of bankruptcy]:

Lord Bruce of Donington moved Amendment No. 182: Page 85, line 3, after ("(3)") insert ("and section 106").

The noble Lord said: My Lords, with this amendment, with the leave of the House, I should like to speak also to Amendments Nos. 183, 187, 188 and 189, which can then be considered as a whole.

Amendment No. 183: Page 85, line 9, leave out ("and") and insert— ("(aa) in a case in which a certificate has been issued under section 103(6) above and has not been revoked, by the expiration of the period of twelve months beginning with the commencement of the bankruptcy; and"). Amendment No. 187: Clause 106, page 85, line 26, after ("above") insert ("or subsection (1A) below"). Amendment No. 188: Page 85, line 27, leave out ("five") and insert ("three"). Amendment No. 189: Page 85, line 28, at end insert— ("(1A) In a case to which paragraph (b) of section 105(2) above applies, if the court is satisfied, on the hearing of the petition or the application of the official receiver made at any time before the discharge of the bankrupt, that the conduct of the bankrupt (whether before or after the making of the order) has been such as to make it inappropriate for him to be discharged as provided by that paragraph, the court may direct that the bankrupt shall not be discharged except by an order of the court under subsection (1) above. (1B) In a case to which paragraph (b) of section 105(2) above applies and unless a direction has been given under subsection (1A) above, the bankrupt may on the hearing of the petition or at any time thereafter apply for an order that he be discharged from the bankruptcy. (1C) The court may on an application under subsection (1B) above make an order discharging the bankrupt if it is satisfied that the bankruptcy was not caused or substantially contributed to by any improper or imprudent conduct or want of care on the part of the bankrupt and that it is appropriate in the circumstances that he should be discharged, and the court may under this subsection make an order discharging the bankrupt immediately after the commencement of the bankruptcy.").

The noble Lord has just been giving us an example of the mind of the Government in giving further flexibility to the courts. These amendments are in the continuing tradition, of which the Government have given an example this afternoon, of giving more flexibility to the courts as to the timing of discharges. The effect of the amendments is as follows. Where a certificate for summary administration is issued under Section 103(6)—that is to say, a small bankruptcy order made on the debtor's petition—the period for automatic discharge is reduced to one year.

Even in the case of first bankruptcies, there are occasional cases—an example is the case of one Stern—in which it would be offensive to public notions of justice to allow an automatic discharge. The new subsection 106(1A) therefore allows the court to order that, in the exceptional cases, even a first time bankrupt should not be automatically discharged. In my view it is unlikely that the number of cases in which such an order was sought or made would be enough to add significantly to the costs of bankruptcy administration.

Conversely, there are cases in which bankruptcy has been brought about by circumstances outside the bankrupt's control and he does not deserve to be disqualified at all. To cover such cases, new subsections (1B) and (1C) allow applications for discharge in non-fault cases to be made before the expiration of the automatic period, and will even make it possible in a particularly clear case for instant discharge to be ordered, the effect of which will be to vest the bankrupt's assets in the trustee for distribution among the creditors but to excuse the bankrupt from the disqualifications suffered by an undischarged bankrupt. Logically, there may be considered to be a case for going even further and making instant discharge the norm unless the official receiver establishes blameworthy behaviour by the bankrupt. This would bring bankruptcy into line with the position of company directors following the rejection of the Government's proposals for automatic discharge. This would involve a radical departure from previous practice, however, and we are therefore proposing a more modest change in the law.

The amendments also reduce the minimum period before second bankrupts can apply for discharge to three years. Even second bankruptcies can vary considerably in blameworthiness, and there will be some cases in which discharge after three years would be appropriate. I sincerely hope the Government may give consideration to these matters and agree to the amendment that I now beg to move.

Lord Lucas of Chilworth

My Lords, I was preparing to respond to the noble Lord, Lord Bruce, with regard to this series of amendments by inviting your Lordships to consider at the same time my own Amendments Nos. 184 to 186, since there is a relationship here. Amendment No. 184: Page 85, line 10, leave out from second ("the") to end of line 12 and insert ("relevant period. (2A) Subject to subsection (3) below, the relevant period for the purposes of subsection (2)(b) above is—

  1. (a) where a certificate for the summary administration of the bankrupt's estate has been issued and is not revoked before the bankrupt's discharge, the period of two years, beginning with the commencement of the bankruptcy; and
  2. (b) in any other case, the period of three years beginning with the commencement of the bankruptcy.")
Amendment No. 185: Page 85, line 15, leave out ("paragraph (b) of subsection (2)") and insert ("subsection (2)(b)") Amendment No. 186: Page 85, line 17, leave out ("period specified in that paragraph") and insert ("relevant period") The amendments which the noble Lord, Lord Bruce of Donington, has down are identical to those which were moved during the course of our Committee discussions. At that time I undertook to consider the question of accelerated discharge for bankrupts subject to a certificate of summary administration. The Government's amendment on this subject appears in the Marshalled List at No. 184. In fulfilling this undertaking that I gave we have put down these amendments which, in part, I believe, take care of the points that the noble Lord, Lord Bruce of Donington, has raised.

As the House will probably recall, the certificate may be issued under Clause 103 only where the person concerned has presented his own petition for bankruptcy, where he has not been subject to any other bankruptcy procedure or any voluntary arrangement within the previous five years and where his unsecured liabilities do not exceed the small bankruptcies level. It is expected, incidentally, that this will be fixed initially at £15,000. The principal purpose of this certificate of summary administration is to ensure that the bankrupt whose liabilities are not large does not go through the full rigours of bankruptcy in terms of a probing investigation by the official receiver unless circumstances show this to be warranted. Clause 115(6) therefore allows the official receiver discretion in the exercise of his investigatory powers where a certificate is in force. Certificates are likely to be issued mainly in respect to what one might call the consumer debtor or the small businessman, and, as I indicated during our considerations in Committee, the Government accept that such persons will normally deserve an earlier chance of rehabilitation in the form of the removal of the disabilities of bankruptcy.

Amendment No. 184 therefore secures the automatic discharge from bankruptcy of such a person after two years rather than three years, provided his certificate of summary administration has not been revoked. Amendment No. 185 ensures that the official receiver will in a case of accelerated discharge still be able to intervene under Clause 105(3) to have the court suspend the operation of the automatic discharge provisions if the bankrupt fails to co-operate in the proceedings. Amendment No. 186 makes a minor drafting improvement to Clause 105(3).

4.15 p.m.

The existing subsection (2)(a) of Clause 105 ensures that the accelerated discharge provisions will not operate in any case where the person concerned has been an undischarged bankrupt at any time in the previous 15 years, notwithstanding that a certificate may have been issued in the current bankruptcy. Such a person will in all circumstances be obliged to apply to the court under Clause 106 to obtain his discharge. The amendment that was originally proposed in Committee and the amendments which are now proposed by the noble Lord, Lord Bruce of Donington, set the shortened period at 12 months.

We have given that period very full consideration and have decided that 12 months would be too) short a period—and for very similar reasons to those given by my noble and learned friend the Lord Advocate when he spoke on this subject during the Committee stage of the Bankruptcy (Scotland) Bill. It is unlikely in most cases that the administration of a bankrupt's estate will be completed within a year. Furthermore, a bankrupt can have the bankruptcy annulled at any stage of the proceedings if he enters into a voluntary arrangement with his creditors. The acceptance of such an arrangement by creditors will normally indicate that the bankrupt has made a real effort to ensure that more assets, probably in the way of voluntary payments from future income, become available for his creditors. Apart from considerations of general acceptability, too short a period of automatic discharge will tend to discourage bankrupts from attempting such voluntary arrangements.

In addition, we retain the view that a discharged bankrupt should normally be given a completely fresh start, so far as this is possible; and that any income payments order made in respect of a first-time bankruptcy under Clause 135 should therefore cease on his discharge. If discharge were allowed after one year, creditors would receive little benefit from any income payments order. Therefore, we feel that a two-year period is appropriate for the accelerated discharge provisions and that Amendments Nos. 184 to 186 secure a positive and worthwhile advantage for the bankrupt with small liabilities while at the same time protecting the interests of creditors.

So far as the remainder of the amendments that have been proposed by the noble Lord opposite are concerned, I spoke at some length in Committee on the policy adopted by the Government in relation to discharge from bankruptcy. We believe that policy achieves a fair balance as regards the imposition of disabilities, on the one hand, and rehabilitation, on the other. I do not want to go into all these matters again although I should be quite happy to do so if your Lordships wish. I would merely repeat that we are satisfied that the new discharge procedure forms an integral and vital part of the revised bankruptcy code. It represents a clear step forward from the outdated thinking of the past.

I think that the noble Lord opposite may want to give some consideration to what I have said in connection with the amendments that I have put down, which, to a degree, argue against some of his own. I would quite understand if he so wished, but I would ask him whether, while undertaking that further consideration, he could accept what I have said and withdraw his own amendments.

Lord Campbell of Alloway

My Lords, may I ask my noble friend, before he sits down, whether in effect subsection (1C) of Lord Bruce of Donington's amendment, with its engaging and attractive elasticity, will in effect operate under excellent conditions or proposed conditions, subject to the 12 months' period?

Lord Lucas of Chilworth

My Lords, I am very sorry that I cannot tell my noble friend Lord Campbell of Alloway the answer to that, just at the moment anyway.

Lord Bruce of Donington

My Lords, I am most grateful for the reply of the noble Lord to the amendments which I have ventured to lay before your Lordships. It is indeed quite true that in his own amendment the noble Lord has gone some way to meet the points that I ventured to make in Committee. In fact, may I say to the noble Lord, for the sake of economy of time, that following his reply to the amendment that I have moved it will be unnecessary for him to enlarge further upon his own amendments and that we can take those at the same time without further argument upon them.

I can detect a relaxation of the Government's attitude towards the reliefs that it may be thought desirable to give a bankrupt in more advantageous circumstances and, to some extent, the noble Lord has met the original anxieties. I still maintain the view that there is no reason at all why the court should not be given the greater degree of flexibility which I have suggested. But this matter has been thoroughly ventilated in Committee and discussed here again this afternoon. No doubt it will receive the attention of those in another place as and when your Lordships dispose of the Bill by performing their own duties here. In the circumstances, I ask your Lordships' leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 183 not moved.]

Lord Lucas of Chilworth moved Amendments Nos. 184, 185 and 186.

[Printed above.]

The noble Lord said: My Lords, I have already spoken to Amendments No. 184 to 186. I beg to move these amendments en bloc.

On Question, amendments agreed to.

[Amendments Nos. 187 to 189 not moved.]

Clause 107 [Effect of discharge]:

Lord Lucas of Chilworth moved Amendment 190: Page 86, line 37, leave out ("has the same meaning as in the Magistrates' Courts Act 1980;") and insert ("means domestic proceedings within the meaning of the Magistrates' Courts Act 1980 and any proceedings which would be such proceedings but for section 65(1)(ii) of that Act (proceedings for variation of order for periodical payments);").

The noble Lord said: My Lords, Clause 107 re-enacts, with modification, Section 28 of the Bankruptcy Act 1914. This provides that certain debts are not released on a bankrupt's discharge. Clause 107(5) provides that a bankrupt's discharge will not release him from a debt that arose under an order made in domestic proceedings. This will normally be an order relating to the maintenance of a spouse or child. Therefore the bankrupt, though discharged, is still legally liable to pay amounts due under such an order.

The purpose of Clause 107(5) is to afford protection to persons who benefit financially under the terms of such an order but who, both under the present law and under the Bill, cannot prove in a bankruptcy. The reason they cannot prove is because the very wide discretion of the courts in making, varying and enforcing such orders means that these matrimonial debts, if I may so call them, are incapable of valuation. Because these debts are not provable in the bankruptcy, it is obviously crucial that the bankruptcy's discharge should not release him from the obligation to pay them. It would clearly be quite inequitable if maintenance creditors were treated differently, depending on whether the amounts owed to them were outstanding under an original or a varied order. This amendment is associated with Clause 107 and ensures that all maintenance orders, whether original or varied, are treated in the same manner. I therefore commend the amendment to your Lordships. I beg to move.

On Question, amendment agreed to.

Clause 111 [Restrictions on proceedings and remedies]:

Lord Lucas of Chilworth moved Amendment No. 191: Page 89, line 24, leave out ("against") and insert ("in respect or).

The noble Lord said: My Lords, in moving Amendment No. 191, I shall with the leave of the House, speak to all three amendments to Clause 111: that is, to 191, 192 and 193. Amendment No. 192: Page 89, line 28, leave out ("creditor of the bankrupt") and insert ("person who is a creditor of the bankrupt in respect of a debt provable in the bankruptcy"). Amendment No. 193: Page 89, line 30, leave out ("any bankruptcy") and insert ("that ").

The first is a minor drafting amendment. It is more accurate, in the context of the Bill, to speak of a bankruptcy petition being presented "in respect of" an individual rather than "against" him. The other two amendments, Nos. 192 and 193, have a substantive effect. Under Sections 7 and 9 of the 1914 Bankruptcy Act, at present only those creditors whose claims are provable in the bankruptcy proceedings are restricted from taking or continuing other proceedings after the presentation of the bankruptcy petition or after the receiving order is made.

However, some claims are not provable in a bankruptcy. In particular, one thinks of the maintenance claims which, as I have just mentioned, are not provable because of the wide discretion of the courts in making and enforcing maintenance orders. Where creditors have no right to prove in the bankruptcy proceedings, it would be inequitable to remove also their right to commence or continue other legal proceedings against the debtor. The amendment therefore restores the present position under the 1914 Bankruptcy Act in applying the restrictive provisions of Clause 111 only to those creditors who have a provable claim in the bankruptcy proceedings. I beg to move.

On Question, amendment agreed to.

Lord Lucas of Chilworth moved Amendments Nos. 192 and 193:

[Printed above.]

The noble Lord said, my Lords I have already spoken to these amendments. I beg to move.

On Question, amendments agreed to.

Clause 113 [Receivership pending appointment of trustee]:

The Deputy Speaker

Amendment No. 194: there is a printing error in this amendment. In the second line after the word "estate" there should be inserted the words "under this section".

Lord Lucas of Chilworth moved Amendment No. 194: Page 91, line 9, at end insert— ("(2A) The official receiver while acting as receiver or manager of the bankrupt's estate under this section shall take all such steps as he thinks fit for protecting any property which may be claimed for the estate by the trustee of that estate.")

The noble Lords said: My Lords, I am grateful to the noble Lord on the Woolsack for drawing your Lordships' attention to the correction that should be made. If I may, in dealing with this amendment, I will also speak to Amendments Nos. 202, 203 and 265, since they are closely connected. Amendment No 202: Page 93, line 43, after ("official receiver") insert ("and in the case of any property that may be claimed for the bankrupt's estate by the trustee of that estate") Amendment No. 203: Page 93, line 44, leave out ("their protection") and insert ("the protection of those things or that property.") Amendment No, 265: Clause 148, page 117, line 13, leave out from ("things") to end of line 14.

All these amendments are necessary to ensure that the official receiver has adequate powers when acting as receiver or manager after a bankruptcy order has been made but before a trustee has been able to take up office. They similarly ensure that a trustee can take steps to protect property which may be claimed for the bankrupt's estate under Clauses 133 and 134 of the Bill. The amendments will enable the official receiver or a trustee to take the necessary protective action when he believes that any property which, although not part of the bankrupts estate, could be claimed for the benefit of creditors under Clauses 133 or 134 and may be at risk.

It might be helpful if I were to explain quite briefly the type of property which may be claimed for the bankrupt's estate under Clauses 133 and 134. Clause 133 enables the trustee to claim property acquired by the bankrupt after the date of the bankruptcy order. Clause 134 enables the trustee to claim valuable items which are necessary to the bankrupt for domestic or business purposes and to replace them with less expensive equivalents. Property which may be acquired by the trustee under either of these clauses may be in the possession of the bankrupt between the date of the bankruptcy order and the coming to office of a trustee. As such property does not form part of the bankrupt's estate until claimed by the trustee, it would not fall within the range of property in respect of which the official receiver is entitled to take protective action under Clause 113 as this is presently drafted.

4.30 p.m.

The official receiver may nevertheless be of the opinion that protective action is necessary pending the appointment of a trustee in order to ensure the preservation of the property or its value until such time as a trustee is appointed and is in a position to consider whether or not to claim it. The amendments proposed to Clauses 113 and 117 will provide the official receiver with the powers appropriate to ensure that such property is protected. When the trustee takes office he is allowed a certain time to consider whether he will or will not claim property for the estate under these two clauses.

In connection with after-acquired property, the trustee may of course be making such decisions at any time during the trusteeship as and when property is acquired by the bankrupt. It is therefore appropriate that a trustee should have powers similar to those proposed to be given to the official receiver to take appropriate steps to ensure that property which he may claim for the estate is properly protected pending his decision. The amendment to Clause 148 achieves this.

I feel sure that the House will agree that the interests of the bankrupt's creditors should be fully protected and that both the official receiver and the trustee should have powers sufficient to ensure that property that may be claimed for the benefit of the estate is not disposed of or misused before it is so claimed. I think that that is a fairly straightforward and rather detailed explanation of the purpose of these two amendments. I beg to move.

On Question, amendment agreed to.

Lord Lucas of Chilworth moved Amendments Nos. 195 and 196:

[Printed earlier: 1/4/85, col. 102.]

The noble Lord said: My Lords, I spoke to Amendments Nos. 195 and 196 when I was dealing with Amendment No. 134.

On Question, amendments agreed to.

[Amendments Nos. 197 to 200 not moved.]

Clause 117 [Duties of bankrupt in relation to official receiver]:

Lord Bruce of Donington moved Amendment No. 201: Page 93, line 38 leave out ("including") and insert ("except").

The noble Lord said: My Lords, I should like at the same time to speak to Amendment No. 223.

Amendment No. 223: Clause 136, page 105, line 38, leave out ("including") and insert ("except").

The effect of these two amendments is to preserve legal professional privilege for documents in the possession of the bankrupt. A privilege, while sometimes inconvenient, is an important guarantee of liberty and should be removed only for compelling reasons. We do not think that a sufficient case has been made out for over-riding the right of privilege in the case of bankruptcy. I beg to move.

Lord Denning

My Lords, I should like to oppose this amendment. We all know that communications between a client and his solicitor are privileged; that is, they are not to be disclosed to a court or to anyone else except by the permission of the client. When you are considering a bankruptcy and a trustee in bankruptcy is concerned, in investigating the affairs the trustee ought to have possession of all relevant documents.

For instance, let us suppose that the bankrupt has had letters to and from his solicitor about a certain deal. It may go very far to show whether it was an honest deal or whether it was with intent to deceive or defraud creditors; or to give a preference to one over the other—in other words, these privileged documents, in the ordinary way of privilege, ought to be available to the trustee in bankruptcy so that he can investigate very properly all the deals and transactions of the bankrupt himself, remembering always that the trustee is equally under the seal of confidence. He cannot disclose them or do anything of that kind about them, but he can look at them for the purpose of investigating the deals and goings-on of the bankrupt. So I would be in favour of the clause as it stands, which would include those documents, and not in favour of the amendment.

Lord Lucas of Chilworth

My Lords, during the debate at Committee stage it was said that legal and professional privilege should be removed only for the most compelling reasons. In our view such reasons exist where the official receiver and the bankrupt's trustees are carrying out their duties. It is vital that the official receiver has access to all documents and matters relevant to a bankrupt's affairs for the purpose of his investigation.

No less vital is that the bankrupt's trustees should have a similar access so that he can maximise realisations for the benefit of creditors. I am strengthened in my resolve in this matter by the support which was given to the Government by the noble and learned Lord, Lord Denning, at the Committee stage, and which support we have again received this afternoon. I therefore invite the noble Lord opposite to withdraw his amendments.

Lord Bruce of Donington

My Lords, after the compelling words of the noble and learned Lord, Lord Denning, I simply have no alternative but to withdraw this amendment. I am certainly not a member of the legal profession, although I am very fond indeed of the law. But I cannot pretend to understand all its intricacies. It is really open to me, in the light of the noble and learned Lord's observations, to apologise for having produced the amendments at all. I think he let me down very lightly indeed, and in those circumstances I ask the leave of the House to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Lucas of Chilworth moved Amendments Nos. 202 and 203.

[Printed earlier: col. 149.]

The noble Lord said: My Lords, I spoke to Amendments Nos. 202 and 203 with Amendment No. 194. I beg to move both these amendments.

On Question, amendments agreed to.