§ 4.22 p.m.
§ Consideration of amendments on Third Reading resumed.
§ Clause 52 [Public examination of officers]:
§ Lord Bruce of Donington moved Amendment No. 3:
Page 38, line 28, at end insert—
("(7) A statement made by any person in answer to any question put to him in the course of his public examination shall
not be admissible in evidence in any subsequent criminal proceedings against the person making the statement, except where the proceedings are in respect of a charge of perjury relating to the statement.").
§ The noble Lord said: My Lords, I should like to speak, if I may, to Amendments Nos. 3 and 4 together.
Amendment No. 4: Clause 119, page 98, line 3, at end insert—
("(6) A statement made by a bankrupt in answer to any question put to him in the course of his public examination shall not be admissible in evidence in any subsequent criminal proceedings against the bankrupt, except where the proceedings are in respect of a charge of perjury relating to the statement.").
§ The texts of the respective amendments are self-explanatory. They seek to provide protection for the officer of a company (in Amendment No. 3 to Clause 52) and to a bankrupt (in Amendment No. 4 to Clause 119) against self-incrimination while permitting full scope for public examination. I do not propose to speak at length on these amendments because, as I have said, your Lordships will find that the texts of them are self-explanatory.
§ The amendments are identical in text and deal with the position arising during a public examination in the case of officers of a company, under Clause 52, and of a bankrupt, under Clause 119. Before the noble Lord, Lord Lucas of Chilworth, gives the amendments his chilling and customary rejection, I should also say, almost as a matter of note, that they conform to the recomendations of the Scottish Law Commission.
With your Lordships' indulgence, I should like to read out what the Scottish Law Commission says on this very point. At paragraph 14.35, on page 213 of the report, the Commission states:
The Law is faced here with a classic conflict between on the one hand. the need to protect the individual by not placing him in the dilemma of having either to tell lies or to harm himself or others, coupled with the need to secure that the evidence given on public examination should be given freely and without risk of the deponent being deterred by the possible consequences to himself and to others, and, on the other hand, the need to facilitate the prosecution of criminal offences".
The recommendation is made:
On the whole, we consider that the balance of public interest lies in adopting a solution similar to that proposed by the Irish Bankruptcy Law Committee, which would compel all persons examined to answer all relevant questions but make their answers inadmissible against them in subsequent proceedings, except upon a charge of perjury in respect of such answers".
The Commission continues:
We recommend, therefore, that the bankrupt or any other person examined in the course of the public examination should not be excused from answering questions the answers to which may tend to incriminate himself, but that those answers should not be admissable in evidence against the person examined in subsequent criminal proceedings, exept where the proceedings relate to a charge of perjury arising from the answers".
§ As one would expect, the lawyers have put it so much more lucidly than a mere accountant is capable of doing. Therefore, I shall not add anything further to the text I have read out. I beg to move.
§ Lord Denning
My Lords I hope that your Lordships will not accept this amendment. We are concerned with a bankruptcy case. A man being examined in a public examination is asked, for instance, "Did you know you had no money in the bank when you drew that cheque?" He answers, "Yes, I knew I did not have anything there." In a way he is incriminating himself, but it is most important information for the public and 625 everyone to know. I do not know what Scotland has done in regard to bankruptcy proceedings, but in this country in 1927, in the case of In re Paget the Master of the Rolls, Lord Hanworth, affirming a decision of 1912, said:In the course of the public examination of a debtor the debtor is not entitled to refuse to answer questions put to him on the grounds that the answers thereto may incriminate him, the purpose of the Act being to secure a full and complete examination and disclosure of the facts relating to the bankruptcy, in the interests of the public and not merely in the interests of those who are the creditors of the debtor".That is the principle of our English law so far as bankruptcy is concerned.
As regards other cases, the matter is much considered by the Criminal Law Revision Committee for England in its report relating to theft and related offences. It sets out two or three sentences on the ordinary principle before one comes to bankruptcy. Paragraph 203 states:There is a substantial argument that a person should not get any protection in respect of criminal proceedings merely because he has disclosed his offence in civil proceedings, even on compulsion".In other words, there is a substantial argument, with which I agree, that you do not let a man get away with it simply because he is saying that it would incriminate him.
The report goes on to give a solution, apart from bankruptcy. It states:The right course in our opinion is to make the statement or admission in the civil proceedings inadmissible in evidence against the matter in the criminal proceedings".That is the principle in Scotland, recommended by the Commission, and it is the general principle here.
The report then goes on to state:In the case of bankruptcy proceedings we have come to the conclusion that disclosure concerning an offence should not give any protection in relation to subsequent criminal proceedings for the offence".I gather that it is that recommendation as it stands which is now being dealt with by the Government, and they are not putting in any protection here at all. I have studied the various statutes on the matter. There have been statutes which have given similar protection, such as the Bankruptcy Act and the Theft Act, but they are repealed by this Bill.
It seems to me that it is right, because bankruptcy proceedings are on a footing of their own. When a man is examined in bankruptcy proceedings, as in the case I have indicated, as to whether he knew there was not any money to meet the cheque, and all those kinds of matters, in the public interest such matters ought to be available if he is afterwards charged with an offence. It seems to me that that is the sensible way of dealing with it. It is in accordance with the recommendations made by a criminal law revision committee and therefore I oppose the amendment.
§ 4.30 p.m.
§ Lord Lucas of Chilworth
My Lords, I am most grateful to the noble Lord, Lord Bruce of Donington, for speaking to his two amendments together: I shall respond in the same way. I think it would be useful to have on the record the position in English law, as I see it. At Report stage, when we were dealing with other amendments tabled by the noble Lord opposite, in connection with public examinations, we established 626 that under the present law a person must answer all questions which the court puts or allows to be put to him during the course of such an examination, even if the answers incriminate him. I am advised that the relevant authorities for this proposition are Section 15(8) of the Bankruptcy Act 1914, Section 564(2) of the Companies Act 1985 and case law, in particular the 1927 case of In re Paget, to which the noble and learned Lord, Lord Denning, referred and which we discussed during Report stage.
This requirement will continue under the new legislation, by virtue of the rules to be made under the powers contained in paragraph 17 of Schedule 4 and paragraph 25 of Schedule 6 to the Bill, and we remain convinced that it is right that this should be the case in view of the need to make the public examination an effective investigative tool and to ensure the full disclosure of facts in the public interest. The value of the public examination was ably described at some length by the noble and learned Lord, Lord Denning, on Report, and he has again alluded to it this afternoon.
The amendments that are now before us, although different from those tabled by the noble Lord during Report, would in effect modify the provisions of Clause 205 of the Bill by making statements made by a person during the course of a public examination inadmissible in evidence against him in any subsequent criminal proceedings. The only exception would be in relation to perjury proceedings in connection with those statements. This would be a complete reversal of the existing law in England and Wales.
Under the present law notes of a person's public examination, representing statements made by him during the course of such examination, may be used in evidence against him in any subsequent proceedings. The authority for this in bankruptcy is again contained in Section 15(8) of the Bankruptcy Act 1914 and for winding up in Section 564(5) of the Companies Act 1985. The only exception to this general rule is to be found in Section 166 of the Bankruptcy Act 1914, which excludes the use of such statements given in a public examination in bankruptcy as evidence in proceedings relating to the Theft Act.
Clause 205 of the Bill, as I attempted to explain in Committee, gathers together and re-enacts various provisions relating to the use of documents and statements as evidence in proceedings. The word "statement" as used in Clause 205 is intended to encompass statements made during the course of a public examination and therefore to re-enact the present provisions of Sections 15(8) of the 1914 Act and Section 564(5) of the Companies Act. The exception to the general rule to be found in Section 166 of the Bankruptcy Act, to which I have just referred, has not been included in Clause 205 because we are still considering whether it is an appropriate exception. It has its roots in the Larceny Act 1861 and has been carried into modern legislation by the Theft Act 1968, seemingly as a consolidating measure. The exception does not apply in relation to public examinations in a winding up.
Again, there is a body of case law interpreting the legislative provisions and this even extends to allowing a shorthand writer to give verbal evidence as to 627 statements made by a person during his public examination, even if that person did not sign the notes of the examination. This was established in the 1896 case of Regina v. Erdheim. Statements made during the course of a public examination can only be used in evidence against the person who makes them.
The principal purpose of public examinations is to adduce evidence on oath from bankrupts or company officers on matters in respect of which the official reciever, trustee or liquidator has otherwise been unable to obtain adequate explanations. It is the duty of bankrupts and company directors to co-operate with and to make a full disclosure of relevant facts to the official receiver and office holders, as the case may be, to enable them to carry out their duties relating to investigation, the realisation of assets and the general administration of insolvency proceedings. Clauses 82, 120 and 151 of the Bill restate and enhance the present law in this respect.
As the noble Lord, Lord Bruce of Donington pointed out, the Bankruptcy (Scotland) Bill, at Clause 44(3), makes a provision on the lines proposed by his amendment. That provision, which does not appear in the Bankruptcy (Scotland) Act of 1913, is as he rightly said, based on a recommendation of the Scottish Law Commission and he also quoted the relevant parts. He also quoted—and of course correctly—the conclusion to which the Scottish Law Commission came.
However, the present law can be said to be based on the assumption that if a public examination is necessary to enforce co-operation and disclosure, there is no compelling reason for statements made by the examinee not to be admissible in evidence against him in any future proceedings which may be brought. On the other hand, it may well frustrate the expeditious bringing and conduct of such proceedings if that evidence is not readily available.
Due conflict is indeed a classic one, and we should wish to consider the matter very carefully. Of course I have taken very careful note of what the noble Lord said. Perhaps to the surprise of the noble Lord, Lord Bruce of Donington—I do not think in fact he was quite right but I will certainly ensure that I will not have a cutting rejection to this—I may say that we believe at this stage that it is possible to make a very strong case for retention of the present law. At the same time we recognise why the Scottish Law Commission recommended as it did. In view of what has been said, I am quite prepared to look at the matter again. With that assurance, I would ask the noble Lord to withdraw his amendment.
§ Lord Mishcon
My Lords, I am sure that the House will be grateful to the noble and learned Lord for his dissertation on the law as well as the conclusion that he reached.
§ Lord Lucas of Chilworth
My Lords, I am most grateful to the noble Lord opposite. I regret that I am neither legal nor learned in that sense.
§ Lord Mishcon
My Lords, the noble Lord is doing very well and deserves the title that I gave him. We are most grateful to him for that dissertation on the law and certainly for the conclusion that he reached, which 628 is really the fairly straightforward one that further consideration will be given to this matter. I wish only to emphasise, if I may, what is the basis of the amendment. I turn to the noble and learned Lord, Lord Denning, and quote his example of the bankrupt in public examination asked the question, "Did you know when you issued that cheque that it had no hopes of being met?" That is a question that is sometimes asked. Much more usual is the question, "When you received the proceeds of sale of this asset, what did you do with it, to whom did you hand it and in what coinage was it?" That is a very much more usual series of questions.
The dilemma so clearly explained in the passage quoted by my noble friend from the Scottish Law Commission was the desirability of truthful answers being encouraged and lies being discouraged. Obviously, if what is going to be revealed in answer to the question will get the man into trouble, human beings being what they are the chances are that the whole truth will not out. Possibly half the truth will out and quite possibly there will be a direct lie.
I know about the saving considerations of perjury mentioned in the amendment. However, is it not sensible to consider carefully the recommendation of the Scottish Law Commission? I think I am right in saying that the Irish Bankruptcy Law Committee also came to exactly the same conclusion. It may be that England and Wales are wiser than Scotland and Ireland. But the learned members of the commission and of the committee deserve the respect of having their views properly considered. The noble Lord the Minister has been good enough to say that he realises that there is a balance of advantage and disadvantage. I believe that I am correct in saying—my noble friend who moved the amendment has given me permission to say it—that we shall withdraw the amendment but hope very much that the consideration will be concentrated because it is very hard to find the right balance.
§ Amendment, by leave, withdrawn.
§ Clause 119 [Public examination of bankrupt]:
§ [Amendment No. 4 not moved.]
§ The Deputy Speaker (Lord Ampthill)
My Lords, before calling Amendment No. 5, I should point out to the House that if it is agreed to I cannot call Amendment No. 6.
§ Schedule 3 [Preferential debts]:
Lord Mottistone moved Amendment No. 5:
Page 169, line 18, leave out sub-paragraph (1).
§ The noble Lord said: My Lords, with your Lordships' permission, I should like to speak only to Amendment No. 5 at this stage and reserve comment on Amendment No. 6 depending upon your Lordships' view on Amendment No. 5.
Amendment No. 6: Page 169, line 20, leave out ("twelve") and insert ("six").
§ Your Lordships will remember that at Report stage, when a Government Amendment, No. 235, was moved by my noble and learned friend the Lord Advocate, I commented on the great move forward 629 that the Government had made in providing the amendment but expressed regrets that VAT in particular was still left with preferential treatment. I received support for this general view from the noble Lord. Lord Bruce of Donington, in his earlier statement on the same subject, and very strong support from the noble and learned Lord, Lord Denning. I felt therefore that having taken advice—I am advised, as your Lordships are aware, by the CBI in these matters—it was reasonable to pursue the point further with regard to VAT.
§ When speaking on Amendment No. 235, I made the point that I agreed that the so-called collector tax of PAYE was reasonably left in its preferential position because of the effect on individuals. PAYE, unlike VAT, is widely recognised to form moneys that do not, and never did, belong to the company. It is money that a company is required by law to deduct from its employees' wages, and it acts as an agent for the Crown in its collection. VAT, on the other hand, is the employers' own tax debt. It is in the nature of a business tax as opposed to a tax on individuals. Furthermore, VAT moneys are more clearly ascertainable by the company as compared with PAYE and National Insurance contributions that can only be clearly and precisely assessed at the end of the tax year.
§ 4.45 p.m.
§ One of the Government's purposes in introducing this Bill was to help creditors. That being so, one of the greatest contributions towards fulfilling this would be to abolish the preference on VAT debts. I would particularly wish to stress the importance of the abolition of the preference so far as the small company creditor is concerned. Such companies depend heavily on getting a proportion of credit back in the event of a trading partner's insolvency. More often than not the recovery of the VAT debt by Customs and Excise will wipe out all that is left of the assets of the wrecked company. The effect of this on the other business creditors can be devastating.
I turn now to what my noble and learned friend the Lord Advocate said at col. 175 of Hansard of 2nd April:
So far as VAT is concerned, on reaching a certain level of turnover a person has a statutory requirement to charge tax on supplies and to account for that tax to the Customs. Customs and Excise, like other revenue-collecting departments, cannot therefore choose their debtors, and it is limited in the measures that it can take to secure its debts".
§ The point here—and I take it—is that it is a question of whether the body concerned can choose its debtors. I would suggest to my noble friends that a small company may well be unable to choose effectively its debtors. One can imagine a small transport company in a given area which finds that it is only able to obtain its specialist transport needs from one customer. It therefore has to supply its service to that customer. It is effectively unable to choose its debtor. If that is the argument, I do not see why the Customs and Excise should be in a special position in relation to that small company.
§ We hear this phrase, "collector taxes". I suspect that it is a sort of developed phrase, an easy portmanteau word to describe a situation. It is not, so far as I know, 630 a legal term to describe things. If it suits the revenue collecting bodies to lump together various taxes which they see as collector taxes, I would not have thought that it is necessary, or indeed fair, under the circumstances that I have described, automatically to assume that they should always be lumped together. I hope therefore that I shall have support for the amendment. I beg to move.
§ Lord Denning
My Lords, I should like to support the amendment. The general principle, as recommended by the Cork Committee, was:In our view, the ancient prerogative of the Crown to priority for unpaid tax cannot be supported by principle or expediency, and cannot stand against the powerful tide calling for fairness and reform".The Government have conceded that in regard to income tax, rates and so forth. The Cork Committee lumped VAT together with PAYE and so forth as a collector tax. In the next paragraph, No. 1418, it stated:In these cases, the Crown's claim is for moneys collected by the debtor, whether by deduction or charge, and for which the debtor is accountable to the Crown; the debtor is to be regarded as a tax collector rather than a taxpayer".I venture to suggest that that is a wrong conception of the nature of VAT. It was imposed by the Finance Act 1972, Section 2 of which says:Tax on the supply of goods or services shall be charged only where … and shall be payable by the person supplying the goods or services".It is payable by the person who supplies the goods or services. He is the debtor to the Crown. When the builder puts 15 per cent. VAT on your bill, he is not collecting it for the Government: he is already the debtor to the Government for that VAT, and very often he may be able to cross-claim against it by way of the input matters which he has already had to pay to his supplier in regard to other goods. So he may not pay that VAT at all to the Crown or the Customs; he may have it offset by his input matters and the like.
Section 33 of the Finance Act makes it clear that, whether or no the amount of tax is chargeable, the tax is due from the person issuing the invoice. So the person who issues the invoice, the supplier of the goods or services, is the debtor, and not the person who receives them. Therefore, he is not collecting it for the Government at all; he is paying his own tax, which is imposed upon him like income tax and the like.
Therefore, I suggest that for once the Cork Committee was wrong in including VAT as a collector tax. It is not a collector tax; it is a tax on the man who is supplying the goods and services. I suggest that VAT ought not to be given a preference any more than income tax and other taxes. I support the amendment.
Lord Bruce of Donington
My Lords, it is unnecessary for me to add anything to what the noble and learned Lord, Lord Denning, has said. I have already had the honour of addressing the House on this question at earlier stages in the Bill, and I do not propose to repeat the arguments now. We on this side entirely support the amendment moved by the noble Lord, Lord Mottistone.
§ Lord Noel-Buxton
My Lords, I also support this amendment, moved by my noble friend Lord 631 Mottistone. While the Government have thrown the burden of argument on those seeking change, I believe that this burden in relation to value added tax should have been discharged by now, especially having regard to what the noble and learned Lord, Lord Denning, and my noble friend have said. The abolition of the preference of VAT debts would indeed greatly help creditors, particularly the small company creditors.
The Earl of Selkirk
My Lords, I should like to say a few words. Insolvency takes very different shapes and forms, but there are many cases when the small tradesman, who perhaps has not been paid by the insolvent person, is very hard hit. Insolvency is not only a tragedy to the individual; it is a tragedy to those who, through no fault of their own, are caught up with it. They deserve a consideration which is superior to that given to our great national Treasury, with the £40 billion or £50 billion which it collects every year. It may be a matter of only a few pounds—perhaps £10, £20 or £50—but it may be quite a severe blow to the tradesman. There is an element of sheer generosity here which should have received much more consideration than the traditional line of Crown preference. I do not believe that this was meant to hit small tradesmen who have not been paid, or who are brought into difficulty through no fault whatever of their own.
§ Lord Meston
My Lords, I should like to echo that remark and in general support any amendment which chips away at Crown preference. The expression "collector taxes" is not a term of art. I believe that a person who pays and receives VAT makes a mistake if he ever regards that money as his own. He is only a temporary caretaker of the money and is already a debtor to the Government, subject to whatever slight set-off he can claim. I am told by the noble and learned Lord, Lord Denning, that I am wrong in that interpretation.
However, perhaps more importantly, we should not lose sight of the inevitable fact that reduction of Crown preference does not leave more room at the bottom of the ladder for the innocent unsecured creditors: it simply leaves more room in the middle of the ladder for the sometimes unmeritorious proprietors of the company who have secured their position with a floating charge. It is that defect which remains in this Bill as it leaves this House.
§ Lord Cameron of Lochbroom
My Lords, I am grateful to all noble Lords who have spoken on this matter. It is ground with which we have become increasingly familiar, and perhaps in some sense I can claim greater familiarity with it because I have spoken on it on two previous occasions, when we were discussing the Bankruptcy (Scotland) Bill. I discussed this matter with certain of your Lordships but not with all your Lordships who are here today.
I remain unconvinced by the arguments that have been advanced. I align myself entirely with the noble Lord, Lord Meston, about the care with which we must proceed here by way of looking at what appears to be a hard case and using that to aim at the wrong target. If I may say so, the noble Lord is absolutely right. Whatever one does with Crown preference 632 merely means that more will inure to the benefit of those who are otherwise secured. The plea which my noble friend Lord Mottistone makes for the small trader who cannot choose his debtor, either, and who apparently is unable to get credit, or secure his credit, will not be assisted by some form of movement of this kind. It may well be that the issue is one which can be dealt with otherwise.
I return to the point which was made at the beginning, that this is not a collector tax. With the very greatest deference to those who have argued otherwise—and here I include the noble and learned Lord, Lord Denning—certainly that was the view of the Cork Committee, and obviously I have taken aboard in the arguments that have been advanced in this House in the past the very high regard that he has paid to what was said by that committee and, indeed, the expertise that was available to it.
However, may I also pray in aid another committee, one which was prayed in aid earlier this afternoon by the noble Lord, Lord Bruce of Donington—the Scottish Law Commission. The Scottish Law Commission also reported on the matter of Crown preference. Admittedly they reached a different conclusion. This is what they had to say at paragraph 15.8:Althoug value added tax has different features from tax collected under the PAYE system, the collection system is essentially"—observe that they say "essentially"—the same, that is, the supplier in the case of the one and the employer in the case of the other is an involuntary collector".That is to say, they regard those two taxes as being collector taxes; there is no difference in principle between the two.
The mood, as I had picked it up, of your Lordships' House at Committee stage was that a number of your Lordships seemed to accept that taxes of that kind can be loosely described as taxes where monies are held in trust for the Government, and that it was proper—as the Cork Committee said—that those taxes, and the monies collected by virtue of them, should be treated as preferential debts in insolvency. Of course the Government have accepted that directly assessed taxes should not enjoy preferential treatment. It is clear that your Lordships welcome that concession as a good concession, and I understood that a fair compromise position had been reached. The Government took that decision on the basis that the taxes that were held on a quasi trust basis would retain an element of preference.
I would suggest to your Lordships that there is no logical distinction to be drawn between VAT and PAYE. It is proper to remember that it is the trader's customer who pays the tax so that it is a tax, as the noble and learned Lord, Lord Denning, properly said, on supply, but is a tax which is taken from the customer and paid to the supplier, and it is accounted for as such by the supplier. That makes no difference to the nature of the tax.
It is only because of the way that the accounting periods have been fixed that the trader has the facility in the meantime to use the money temporarily for his own purposes, but as the noble Lord, Lord Meston, indicated it is money that can be looked at as 633 impressed with a trust. That being so, the customer of the trader certainly regards the trader, the supplier, as the collector of the tax.
Looking at PAYE, there again it is remitted, or accounted for, by employers on a monthly basis. Strictly speaking that is the employer's money. It starts off being his money. He pays it over in a sense to the employees. He is then asked to deduct part of it and to account for that on a monthly basis to the Inland Revenue. In like manner as VAT, if he pays the employee weekly there is a period of time during which he does not require to remit monies, and he may use them in a sense as being part of his own funds impressed with the trust. It is the same concept as that which is available in VAT.
Accordingly I would strongly submit to your Lordships that there is no distinction in principle between PAYE (which would of course remain as Crown preference if my noble friend's amendment were carried) and VAT. The Government's concession was made clearly on the basis of a distinction between assessed taxes and those taxes which are collected taxes where there is this element of trust: that element to which the Cork Report made specific reference and which it regarded as being the proper justification for the distinction made between assessed and collector taxes.
That being so, I would suggest to your Lordships that all the arguments advanced by noble Lords and noble and learned Lords in this debate are fully answered. For that reason I would invite my noble friend Lord Mottistone to accept that there is no distinction in principle between PAYE and VAT, and to withdraw his amendment. I am grateful to him for having brought forward the amendment. He properly gave notice at Report that he would wish to consider the position. He has done so and he has put forward reasons which I trust I have answered for your Lordships. With that assurance, I would ask him to withdraw this amendment.
§ Lord Mottistone
My Lords, before my noble and learned friend sits down perhaps I may refer to his opening remarks about the small trader. He is perhaps the one for whom I have the greatest sympathy. My noble and learned friend commented on the small trader and finished by saying, "and would be dealt with otherwise". Can my noble and learned friend expand on what he means by "otherwise"?
§ Lord Cameron of Lochbroom
My Lords. I accept that I may not have expressed myself very well. I was taking up a point made by the noble Lord, Lord Meston, about concern for the small trader, which I fully understand, and which has been voiced in your Lordships' House on other parts of the Bill. I am simply saying that the small trader with no security will not obtain any real advantage from the avoidance of this part of Crown preference, because any funds which would be freed of Crown preference would immediately be made available to other preferred creditors.
The point that the noble Lord, Lord Meston, was making was that the way in which to protect persons of that kind may be at another part of the Bill which deals with the question of giving preference at an 634 earlier stage, and we have talked about fixed debts and floating charges. There were answers made by my noble friend Lord Lucas at that stage with regard to those arguments. I am simply saying that to use that kind of argument, the small trader argument, as a gun at this target is firing at the wrong target. The true target is elsewhere.
§ Lord Mottistone
My Lords, my noble and learned friend said that he was not convinced by the great weight of argument that came from all sides of the House. I find it hard to be convinced by him. On the other hand, I do not think that this is the time to press this further. I hope that I shall find a more ready acceptance of the next amendment. I beg leave to withdraw this amendment.
§ Amendment, by leave, withdrawn.
§ Lord Mottistone moved Amendment No. 6:
§ [Printed earlier.]
§ The noble Lord said: My Lords, on the assumption that my noble and learned friend's arguments about the position of the Customs and Excise and its taxes are accepted, the other point is the question of how long should be the period of preference. On that point there was even stronger argument at the last stage of the Bill. My noble friends Lord Noel-Buxton and Lord Selkirk came in strongly for a shorter period of the order of six months.
My noble and learned friend the Lord Advocate said on 2nd April, at col. 175 of Hansard:
As I have already indicated, 12 months is the present rule and a rule which has been present for some considerable time. I suggested in Committee that it is for those who seek to move on to some shorter period to justify the need for such a change".
§ I have read carefully what has already been said. and I hope that I may now convince your Lordships that there is justification for a shorter period.
§ The Government justification of the 12-month period for reference for VAT on the grounds of administrative convenience, given that this is a financial year period on which income tax is based, would only be tenable if insolvencies occurred at the end of the tax year and if VAT were collected yearly, as opposed to quarterly as the situation now is. Accordingly, what I should like to see would be a limit for preference reduced to six months, which is a generous period by any standards as it allows for a three-month period between payments, plus a further three months. This is long enough to enable a reasonably diligent VAT collector to make his inquiries and to set in train the procedures for recovery in the event of default.
§ To give an illustrative example of Customs and Excise general practice: at the end of an accounting period of three months, taking January to March inclusive, a business must pay over the VAT collected by it; that is, by the last day of the month following the end of the accounting period, the last day of April. If it defaults the commissioners should normally issue an assessment as soon as possible but not later than four to six weeks' later. In this example that is by the period 1st to 15th May at the latest. The issued assessment must mature for 30 days before a demand notice for immediate payment is made; that is, by the period 1st to 15th June in the example that I have given. 635 Normally three clear working days are allowed for response to this by the debtor, whereupon authority to levy distress can be issued under the England and Wales Regulation 58 and the Scottish Regulation 59 of the VAT General Regulations 1980.
§ It will be clear from this example that the whole process of VAT debt recovery can take place comfortably within six months, even allowing for reasonable extensions of time at each stage. It will be noted that most ordinary creditors do not have these additional powers of distress in the event of default by a debtor. So because we are talking about timescales which are of a special type related to VAT it seems only reasonable that the shortened interval of six months, which my amendment calls for, is reasonable as a good compromise position. My noble and learned friend,on more than one occasion in his remarks on the last amendment, said that he thought that the removal of preference from the assessed taxes and retaining it over collected taxes was a reasonable compromise. I would suggest to him that a six-months' period in these VAT circumstances is also a reasonable compromise. I beg to move.
Lord Bruce of Donington
My Lords, we on this side of the House entirely support the amendment proposed by the noble Lord, Lord Mottistone. I was a little puzzled during the course of the exchanges that the noble and learned Lord had with the noble Lord, Lord Meston, concerning the position of the unsecured creditors. It appeared that the noble and learned Lord was arguing that if Crown preference were abolished it would not affect the unsecured creditors, anyway, because those who held the floating charge would take the money. I trust that the noble and learned Lord will agree that that is rather an oversimplification of the position.
In the first place, a number of companies or firms go into liquidation in respect of which no floating charge exists. So clearly if Crown preference is reduced there will be more money available for the unsecured creditors, unless the total asset realisations do not reach the total of the preferred debts, when they would all tend to abate equally. Even in the case where there is a floating charge what the noble Lord says is not entirely true, if I may say so with respect. On the realisation of the floating charge and on the assets being sold there may be a surplus arising on asset realisation which exceeds the liability secured by the floating charge. With respect, the argument that the noble and learned Lord put forward is not so generally applicable as he, perhaps quite unintentionally, sought to convey. Otherwise the whole argument against the abolition of Crown preference is entirely useless in any event. We support entirely the amendment put forward by the noble Lord, Lord Mottistone, and sincerely hope that other noble Lords sitting elsewhere in your Lordships' House will see fit on this occasion to support it.
§ 5.15 p.m.
§ Lord Denning
My Lords, I, too, support the amendment. Even though we have to submit to a 636 preference for VAT, why is it 12 months? I only need to read paragraph 1423 of the Cork Report to find:In these circumstances, we have reached the conclusion that the present 12 month period for preference is excessive, and propose that it be shortened. We consider that in future the period for preference for each tax should be related to the intervals between returns.".That is just what the noble Lord, Lord Mottistone, was saying. The returns may be quarterly but let us compromise on six months. That is a very sensible way and will give some way of reducing this preference. I, too, support the amendment.
§ Lord Meston
My Lords, I support this amendment as a sensible compromise. I apologise if I have been the source of an over-simplification. The point I was trying to make was that to remove Crown preference does not automatically benefit those at the bottom of the ladder. It may or may not benefit them, depending upon the number and the size of the other secured creditors who are on the middle rungs of the ladder. Perhaps that is by the by in the context of this amendment. It is certainly a sensible amendment.
§ Lord Noel-Buxton
My Lords, I, too, support this amendment moved by my noble friend Lord Mottistone. My noble friend Lord Erroll of Hale and myself moved in Committee similar amendments which I hope we fully explained at that time and which accord entirely with what my noble friend Lord Mottistone proposes today.
§ Lord Cameron of Lochbroom
My Lords, at the outset I accept entirely what the noble Lord, Lord Bruce, says about what may happen in certain cases. Perhaps I should merely plead that I am only a lawyer and not an accountant; and therefore when it comes to figures I would defer to what would be the conclusions reached in certain instances where certain figures arise. I can only plead that I did not state categorically that it would arise in every case; I merely said it would arise in certain cases. It would be very likely to enure only to the benefit of preferred creditors. I can only say, with the noble Lord, Lord Meston, that that is by the by in the amendment with which we are now dealing.
I remind your Lordships that this is a specific amendment to Schedule 3. It affects only that part of Schedule 3 which relates to value added tax. It does not affect any of the other preferential debts which remain. For instance, it does not affect the sums due on account of deductions of income tax which under paragraph 1 will remain due for the period of 12 months next before the date. It does not apply to the debts due to the Customs and Excise under paragraph 2(2) in relation to car tax or in relation to general betting duty or bingo duty under paragraph 2(3). It does not apply to social security contributions, all of which are fixed by reference to the period of 12 months.
It has been urged upon the Government that there should be some compromise, but, as I think I said in argument before, the Cork Committee recommended a reduction, and the noble and learned Lord, Lord Denning, has very properly reminded us of that. But that reduction was over all the area of collected taxes. When speaking on this in the House previously, I pointed out that the Cork Committee provided no 637 reasoning for the reduction that they recommended from 12 months to three months. Certainly—and, again, I think that I have put this forward—there is really no logical basis for suggesting that the limit should simply be related to the interval between returns. Indeed, as my noble friend Lord Selkirk reminded the House last time, insolvency does not occur in relation to accounting periods.
The period of 12 months has been a compromise which the Crown has accepted for a considerable period of time. While my noble friend Lord Mottistone has properly sought to persuade the Government that in relation to VAT there should be a reduction from 12 months to six months, I am hound to say that I could find no logical argument being produced by him for such a reduction while leaving PAYE and the other taxes to which I referred at 12 months. If it is to be a compromise, then I say that your Lordships already have a compromise in the Bill as it stands; because if the basis for a preference is accepted by your Lordships (as, indeed, I think it has been accepted already in relation to the collector taxes) then this is money which in some ways is impressed with a trust. Then, logically, the Crown would be entitled to take credit for all such monies which are impressed with a trust; but, in fact, it has limited it to 12 months.
That being so, I would simply suggest that to have some different period of preference for PAYE, on the one hand, and VAT, on the other, is simply inconsistent, illogical and in some sense, one might say, even productive of injustice. Why is it that the creditors should achieve some benefit from the reduction of Crown preference for VAT and none from the other? Of course, that is an argument which noble Lords opposite would no doubt say is for reducing it over the whole. But that is not the amendment before the House today, and I am simply pointing out that there is an illogicality.
I would simply invite your Lordships to say here that the use of the word "compromise" is not a substitute for argument. There is really no logical reason why VAT should be treated in any other, different way from that of the other taxes which will remain as Crown preferences. Therefore, with that submission, I would suggest to your Lordships that the Government have always, even in the present Bill, adopted a wholly reasonable attitude in relation to Crown preferences in respect of those taxes which are impressed with this sense of trust and that nothing has been said today that would logically lead to treating VAT in a different sense.
I would therefore urge my noble friend to withdraw the amendment. Once again, I am very grateful to him for having allowed this matter to be ventilated, but, in my submission, with this amendment he would really produce an absurdity which cannot either in logic or in reason be supported.
The Earl of Selkirk
My Lords, before my noble and learned friend sits down, may I ask him one question? He has very frequently used the word "trust". If my noble and learned friend goes into a shop and buys, say, a pair of shoes on credit, does that not create the element of trust, or is it only a question of morality?
§ Lord Cameron of Lochbroom
My Lords, I would simply respond to my noble friend by quoting, if I may, from a passage in the Cork Report which I think has been mentioned in previous debates. It is in paragraph 1418, and it says:In certain special cases, however, such as PAYE, National Insurance contributions, value added tax and car tax, different considerations obtain. In these cases, the Crown's claim is for moneys collected by the debtor, whether by deduction or charge, and for which the debtor is accountable to the Crown; the debtor is to be regarded as a tax collector rather than a taxpayer. Unless some measure of priority were accorded to the Crown for moneys collected on its behalf, or they were to be regarded as impressed with a trust, they would go to swell the insolvent's estate to the advantage of the general body of creditors.What the Cork Committee was saying, as I understand it, was that there is something equivalent to a trust, although I accept entirely the point which I think my noble friend was seeking to make. There is, in fact, in law, no trust created; but it is looking at the matter in a broad, realistic frame of mind.
§ Lord Mottistone
My Lords, I was interested that at an earlier stage my noble and learned friend called upon those seeking to move for a shorter period to justify the need for such a change. He mentioned again in his recent speech that Cork had not justified the need for change. I spelled out at some length why it seemed reasonable that six months, in practical terms, was a good reason for change. My noble and learned friend did not refute that in any sense whatever, so I take it that he accepted my argument as being a good reason for change.
He concentrated his objection to the amendment on the fact that we were relating it only to VAT and not to the other taxes which are still within the preferential list. There are two reasons for that, the most important of which is that I have always understood that when it comes to Third Reading, one should limit one's amendments to the very few for which one has built up a good case and of which one has given proper warning over the whole period of the time. The only amendment in this area of reducing the time interval that was left at the end of the Report stage was the VAT amendment. It seemed to me, therefore, that it was not reasonable to cover the other taxes that might or might not remain.
I would have thought that that was not much of an argument, particularly in view of the fact that this Bill will now go to another place to receive the full treatment. If your Lordships agree (as I hope you will) that the arguments in favour of six months are amply proven, it will be up to the Government to make whatever changes are necessary in another place to bring the other taxes into line.
It would seem to me that, if one reads the Cork Report, one of the reasons that perhaps led them not to specify in detail why they thought these reductions would be reasonable was that they were dealing with a whole series of different taxes for which different reasonings and different intervals might be more appropriate. I think that that is another reason why it has perhaps been rather a weak argument from the beginning.
As to the question whether 12 months is a compromise, my noble and learned friend said at an earlier stage that the 12-month rule had been in force 639 for a considerable time. If that is so, it is not really a sort of compromise to leave it there if you are seeking to make some sort of change. Legislation is all about change. So I find that argument very weak indeed. Accordingly, much as I regret it—because I was hoping very much that at this stage we might get some sort of move on the part of the Government, in view of the fact that they did not wish to take our very good arguments for removing VAT altogether from the preferential list—one has now to find out from the House what it thinks about this. Accordingly, I beg to move.
§ 5.31 p.m.
§ On Question, Whether the said Amendment (No. 6) shall be agreed to?
§ Their Lordships divided: Contents, 101; Not-Contents, 90.640
|DIVISION NO. 2|
|Amherst, E.||Killearn, L.|
|Ampthill, L.||Kinnaird, L.|
|Attlee, E.||Kirkhill, L.|
|Bacon, B.||Lawrence, L.|
|Banks, L.||Llewelyn-Davies of Hastoe, B.|
|Beaumont of Whitley, L.||Lloyd of Hampstead, L.|
|Bernstein, L.||Longford, E.|
|Beswick, L.||Lovell-Davis, L.|
|Birk, B.||McGregor of Durris, L.|
|Blyton, L.||MacLeod of Fuinary, L.|
|Bottomley, L.||McNair, L.|
|Brockway, L.||Marsh, L.|
|Bruce of Donington, L.||Mayhew, L.|
|Buckmaster, V.||Meston, L.|
|Caccia, L.||Mishcon, L.|
|Caradon, L.||Monson, L.|
|Carmichael of Kelvingrove, L.||Mottistone, L. [Teller.]|
|Collison, L.||Mountevans, L.|
|Craigavon, V.||Mulley, L.|
|Croham, L.||Nicol, B.|
|David, B.||Noel-Buxton, L. [Teller.]|
|Davies of Leek, L.||Northfield, L.|
|Denning, L.||Perry of Walton, L.|
|Diamond, L.||Ponsonby of Shulbrede, L.|
|Elwyn-Jones, L.||Raglan, L.|
|Elystan Morgan, L.||Rhodes, L.|
|Ennals, L.||Ritchie of Dundee, L.|
|Ezra, L.||Rochester, L.|
|Falkland, V.||Ross of Marnock, L.|
|Fisher of Rednal, B.||Saltoun, Ly.|
|Foot, L.||Seear, B.|
|Gallacher, L.||Selkirk, E.|
|Galpern, L.||Shinwell, L.|
|Gladwyn, L.||Somers, L.|
|Glenamara, L.||Stallard, L.|
|Graham of Edmonton, L.||Stedman, B.|
|Gregson, L.||Stewart of Fulham, L.|
|Grey, E.||Stockton, E.|
|Grimond, L.||Stoddart of Swindon, L.|
|Halsbury, E.||Strabolgi, L.|
|Hampton, L.||Taylor of Gryfe, L.|
|Harris of Greenwich, L.||Taylor of Mansfield, L.|
|Hatch of Lusby, L.||Tordoff, L.|
|Henderson of Brompton, L.||Walston, L.|
|Houghton of Sowerby, L.||Wells-Pestell, L.|
|Hylton-Foster, B.||White, B.|
|Irving of Dartford, L.||Wigoder, L.|
|Jacques, L.||Wilson of Langside, L.|
|Jeger, B.||Wilson of Rievaulx, L.|
|Jenkins of Putney, L.||Zouche of Haryngworth, L.|
|Alexander of Tunis, E.||Hives, L.|
|Allerton, L.||Hornsby-Smith, B.|
|Belhaven and Stenton, L.||Ironside, L.|
|Beloff, L.||Lane-Fox, B.|
|Belstead, L.||Lauderdale, E.|
|Bessborough, E.||Lucas of Chilworth, L.|
|Brabazon of Tara, L.||Lyell, L.|
|Broxbourne, L.||McFadzean, L.|
|Bruce-Gardyne, L.||Macleod of Borve, B.|
|Cairns, E.||Margadale, L.|
|Caithness, E.||Marley, L.|
|Cameron of Lochbroom, L.||Marshall of Leeds, L.|
|Campbell of Alloway, L.||Maude of Stratford-upon-Avon, L.|
|Campbell of Croy, L.|
|Carnegy of Lour, B.||Mersey, V.|
|Cathcart, E.||Milverton, L.|
|Coleraine, L.||Morris, L.|
|Cottesloe, L.||Nugent of Guildford, L.|
|Cox, B.||Orkney, E.|
|Davidson, V.||Orr-Ewing, L.|
|Denham, L. [Teller.]||Pender, L.|
|Donegall, M.||Rankeillour, L.|
|Dormer, L.||Rawlinson of Ewell, L.|
|Drumalbyn, L.||Reay, L.|
|Dundee, E.||Renton, L.|
|Ellenborough, L.||Rochdale, V.|
|Elliot of Harwood, B.||Rodney, L.|
|Elton, L.||St. Aldwyn, E.|
|Enniskillen, E.||St. Davids, V.|
|Erroll of Hale, L.||Sandys, L.|
|Faithfull, B.||Shuttleworth, L.|
|Ferrers, E.||Skelmersdale, L. [Teller.]|
|Ferrier, L.||Soames, L.|
|Fortescue, E.||Sudeley, L.|
|Fraser of Kilmorack, L.||Suffield, L.|
|Gainford, L.||Teynham, L.|
|Gardner of Parkes, B.||Thomas of Swynnerton, L.|
|Gisborough, L.||Trefgarne, L.|
|Glanusk, L.||Trenchard, V.|
|Glenarthur, L.||Trumpington, B.|
|Gowrie, E.||Ullswater, V.|
|Haig, E.||Vaux of Harrowden, L.|
|Hailsham of Saint Marylebone, L.||Vickers, B.|
|Hankey, L.||Whitelaw, V.|
|Henley, L.||Yarborough, E.|
§ Resolved in the affirmative, and amendment agreed to accordingly.
§ An amendment (privilege) made.
§ 5.39 p.m.
§ Lord Lucas of Chilworth
My Lords, I beg to move that this Bill do now pass.
We may from time to time have had our differences about the way in which reform of insolvency legislation should proceed, but I believe that the very full and careful consideration given to this substantial measure has once again underlined the reputation of your Lordships' House for a determination to improve the quality of legislation brought before it.
At the outset, perhaps I may, on behalf also of my noble and learned friend the Lord Advocate, express gratitude to all noble Lords who have contributed to the task of scrutinising this Bill. Those contributions have raised matters which I and colleagues shall consider before the Bill makes progress in another place. In doing so, full account will be taken of the volume of detailed and helpful comment on the Bill which has been received by my department. I am sure that the result of this process will be to enhance significantly the effectiveness of this measure.
641 Before I say a few words about matters which remain outstanding, I should like to express appreciation of the non-contentious and constructive spirit in which noble Lords have spoken during our debates. I believe that our discussions have been all the more effective as a result.
The Bill's provisions to the effect that in future a person will not be qualified to take office as an insolvency practitioner unless he holds a certificate authorising him to act have been widely welcomed. The new arrangements will do much to remove dissatisfaction with the present absence of checks on those who may act as insolvency practitioners. In response to the point put to me by the noble Lord, Lord Bruce of Donington, regarding restrictions on acting where associates are involved, I confirm that we are looking at the definition of the term "associate" to ensure that it is not too widely drawn. I am grateful to the noble Lord for focusing my attention on this matter.
I now turn to the provisions of the Bill which introduce new penalties in cases where directors have behaved improperly. I believe that it is generally accepted and welcomed that the existing law on insolvency must be strengthened to reinforce the duty that directors have to consider the interests of creditors. Changes have been made in the Bill to reflect the view of your Lordships that the disqualification provision must apply to all directors whether their companies are being wound up voluntarily or by order of the court.
Nevertheless, I have to say to noble Lords that the Government are not convinced as to the wisdom of the amendment to Clause 7 of the Bill which was made during Report at the instigation of the noble Lord, Lord Benson, and which has the effect of inserting guidance to the court about the matters it should take into account when considering a disqualification order. I say at once that I recognise and understand the concern that directors should know where they stand and that those who have acted honestly and reasonably should not be at risk. There is no disagreement between us on that latter point. However, I repeat that we are not convinced that the amendment which was agreed by your Lordships is well judged and we shall be considering this question further as the Bill makes progress.
Turning to the Bill's provisions concerning administration orders, the new procedure will add to the options open where a company is in financial difficulties. I think that this reform is generally considered useful. The discussions we are having with practitioners in the insolvency field should enable us to bring forward technical improvements in due course. I should add that I was grateful to the noble Lord, Lord Mishcon, for bringing to my attention some of the views of practitioners. I regret that it has not so far been possible to meet the point of the noble Lord, Lord Bruce of Donington, that the appointment of an administrative receiver should be allowed between the presentation of an administration order petition and the hearing of that petition. I assure him that the Government will bring forward an amendment to this effect.
The Bill also introduces simplified and modernised 642 winding-up and bankruptcy codes, including revised voluntary arrangement procedures. The Bill's provisions in these areas are of course very detailed and extensive, and I should again like to express my appreciation of noble Lords' diligence in examining these provisions and in raising a considerable volume of substantive and technical points. A number of these have already resulted in amendments to the Bill and I assure your Lordships that those matters which remain unresolved are receiving further examination.
We are, for example looking very carefully at the question of the family home in regard to bankruptcy. As I indicated to the House on Report, a working paper on this subject has now been issued. A copy has been placed in the Library and a copy has also been sent individually to those noble Lords who took part in the debate on the matter both in Committee and on Report. The working paper contains the Government's view as to the scope of the amendments which should be tabled in another place which we feel strikes the right balance between the interests of creditors and the bankrupt's family. That view is obviously subject to the comments which will be received from a number of bodies, and I hope that those of your Lordships who have particular views will also make those known either to me or to my honourable friend.
At the same time we are looking very carefully at the jurisdictional issues in connection with the ability of creditors to present bankruptcy petitions. I should like to say in this connection that I am appreciative of the contributions made by the noble Lords, Lord Bruce of Donington and Lord Meston, to our consideration of these matters. It would be an oversight if I did not also express my appreciation to my noble friend Lord Selkirk for the close eye which he has kept on the draftsmen of this Bill and to the noble and learned Lord, Lord Denning, for his absorbing and influential observations on a number of matters, whether in sympathy or, from time to time, entirely out of sympathy with the Government's proposals.
Finally, the Bill now contains new provisions in the area of Crown preference, and I think it will be widely agreed that these represent a substantial measure of reform, though I have to exclude from those remarks the matter upon which your Lordships have just given your judgment. I was, in fact, referring to the earlier element. Many noble Lords gave the Government the benefit of their views on the matter of Crown preference, but I should, I think, acknowledge the contributions made by my noble friends Lord Noel-Buxton, Lord Erroll of Hale and Lord Mottistone, and again my noble friend Lord Selkirk, whose amendments were the principal focus of our debate, particularly in Committee.
I believe that this measure is an important and valuable one. In the Bill we have a worthwhile and much needed update of legislation which dates hack 70 years or more. I believe that the Bill will go to another place with still much work to be done upon it, but certainly in an improved state from that in which it arrived in this House in January. My Lords, I beg to move.
§ Moved, That the Bill do now pass.—(Lord Lucas of Chilworth.)643
§ 5.50 p.m.
Lord Bruce of Donington
My Lords, we on this side of the House are quite conscious that the Bill as it leaves your Lordships' House is a considerable improvement on the one that was originally presented to us. In particular, the reassertion by your Lordships' House of the fundamental principle that in the United Kingdom a person does not have to prove himself innocent but has to be proved guilty, and the elimination of automatic provisional disqualification, are matters for which the whole House can take some credit. As I said, the Bill is now, thanks to the efforts of your Lordships in all parts of the House, a much better Bill than when it came. However, I cannot disguise from your Lordships my own view that it is still not a very good Bill. I must reiterate my view—and I have already said this strongly many times—that it would have been far better if the Cork Report, which was published over two years ago, had been debated in both Houses of Parliament so that the Government could have had the views not only of Members of another place but also of those of your Lordships who have wide interests in commerce, trade and industry, so that they could have been taken into account prior to the Government coming forward with their own proposals.
Moreover, it will not have escaped your Lordships' attention on detailed examination of the Bill that it is still very much an enabling Bill. Much still has to be known as to what will be comprised in the rules that are mentioned on no less than 50 occasions in various parts of the Bill, and also as to the various statutory instruments that are envisaged in it. It would have been far better if the Bill had been much more comprehensive and if there had been a great deal of pre-debate.
Your Lordships will recall that one of the recommendations of the Cork Report, to which a very justifiable tribute has been paid from all quarters of your Lordships' House, was about the establishment of insolvency courts. Many of the troubles and difficulties of the various branches of the judiciary could have been solved if it had been decided to have special insolvency courts with specialist people dealing with the issues involved. The Bill itself, as it has passed through your Lordships' House and particularly after the rejection by your Lordships of automatic disqualification of directors, contains, quite properly, very stringent provisions as to the qualifications of insolvency practitioners and of all those who act as liquidators and receivers, while in the matter of reporting it has laid very heavy responsibilities indeed upon them, in default of which there are quite a number of penalties, aside from the penalties involved in withdrawing their licence to practise. So a very great responsibility has now been placed upon them.
Perhaps it is unfortunate that, although these new and very welcome reforms about the qualifications, activities, powers and duties of insolvency practitioners have been laid down, the Government have not taken equivalent steps to make sure that they can operate at all. The Cork Report gave the Government the opportunity, by the levying of a charge of 10 per cent. of floating charges, for there to 644 be funds available in various companies that go into liquidation. In addition to providing relief in respect of unsecured creditors, it would have made sure that there were sufficient funds for insolvency practitioners to operate at all.
What has now happened is that we have a car of a kind, not quite the Rolls-Royce that we should have liked but, at any rate, a passable vehicle that will travel along and that can be steered. But the Government have not provided the petrol, because no insolvency practitioner, even one with the most altruistic sense of public duty, can possibly be in a position to function as an insolvency practitioner unless there are funds available to pay him. It just will not happen.
Since the noble Lord's principal objective in bringing forward the original Bill was to relieve the official receiver of a number of duties in the insolvency division and a number of responsibilities which made a profit of £2,700,000 last year, the Bill as now constructed, without making proper provision by adopting the Cork Report's recommendation of 10 per cent. trust money held out of the floating charge, has made it very difficult for the insolvency practitioner to function at all over quite a wide area.
I do not know what the other place will do about this. They may well think—and it would he unwise and, indeed, improper of me to make any suggestion as to what conclusion they may arrive at—that the Bill ought to provide some propellant to enable insolvency practitioners to function in circumstances where their services are most definitely required, particularly in reporting on delinquent directors, in reporting on their conduct and in reporting on all those responsibilities that are laid on them under the Bill. That is one point.
The other point that I was bound to notice—and I plead guilty as an accountant to noticing it perhaps more than many of your Lordships who are not so intimately connected with the profession—was the resistance by the Government to asserting the paramount necessity of companies keeping proper books of account, in accordance with the provisions of the Companies Act. Your Lordships will recall that I sought to put forward an amendment to make that a prime responsibility, a breach of which would have rendered a director liable to serious penalties.
I do not know whether the Department of Trade thinks with two minds upon these matters, but I observe with some dismay that a document which may feature in the debate that is to be held tomorrow afternoon—if it appears on the Order Paper—Burdens on Business, contains a suggestion of some relaxation of auditing standards. I ask the Government: did that section of the Department of Trade and Industry that was concerned with the conduct of directors have any contact with that portion of the Department of Trade which issued this document, Burdens on Business, which advocates a relaxation of auditing standards?
It is absolutely certain that a relaxation of auditing accounting standards, and of the rules as they are now laid down, would greatly accelerate the number of bankruptcies and liquidations that occur, because, as I have indicated to your Lordships—and those of your Lordships who have had experience of trade and commerce know this perfectly well—one of the first attributes of a successful business is that correct and 645 adequate records are kept. Otherwise, it is impossible for the mangement and the directors to know what is happening. It is impossible for them to be able to guide the business in the correct way. I personally regret that the amendments that I put forward in that respect were not incorporated in the guidelines which many in my profession consider absolutely necessary.
An endeavour has been made to use this Bill to discipline directors. This is quite proper. But never let it be forgotten that there have been Acts on the statute book since 1948 which have not been used by successive Governments and which could have brought delinquent directors to book long ago, without the application of the clauses in this Bill. I think in particular of the derisory number of prosecutions that have taken place even though the attention of the authorities has been drawn to them. It is to be regretted that this relaxation is contemplated, and I hope that in due course, perhaps in another place, the Government may amplify their attitude.
I should like to thank the noble Lord, Lord Lucas of Chilworth, and the noble and learned Lord the Lord Advocate for the way they have steered the Bill through this House, particularly in the late hours when patience tends to become a little short and one tends to become a little fatigued. For my part, I should like to thank them for the way they have conducted it. I am sorry that the Bill is not better but I am very glad that the House has parted with a better Bill.
§ 6.1 p.m.
§ Lord Denning
My Lords, in parting with this Bill, perhaps I may say just a few words. Insolvency is a disagreeable subject. It is a slough of despond not only for those who fall into it but for the lawyers and accountants who have to deal with it and try to pull them out. For more than 80 years the law has been in a mess. There was that excellent report by Sir Kenneth Cork, and I should like to thank the Government for the extent to which they have implemented that report. Many of the report's most important proposals are implemented in this Bill and I am sure that they will do a great deal of good for the future and make it easier, I hope, for the lawyers and accountants to follow.
There are of course some disappointing things—we know there are some disappointing things—but on the whole it is an excellent reform of a piece of the law which greatly needed reform, and I should like to thank the Government for bringing it forward.
§ Lord Meston
My Lords, perhaps I may join in thanking the noble Lord, Lord Lucas, and the noble and learned Lord the Lord Advocate for the trouble they have obviously taken in dealing with the enormous number of amendments which have been put forward during the course of the Bill. I venture to agree that it has been considerably improved during its passage through your Lordships' House, albeit the genesis and progress of this Bill have called into some question the whole mechanism of law reform in this country. It is a matter of particular regret that the Government were not able always to accept the recommendations of the Cork Committee.
I feel a mixture of disappointment and relief that the Government are apparently keeping in reserve a large 646 number of amendments for another place. It is also a matter of some disappointment that the Government have not felt able to express more sympathy for the plight of consumer creditors. But I am particularly grateful to the noble Lord, Lord Lucas, for writing to me with a copy of the consultation paper relating to the family home. I am most grateful for his response to both my amendment on that topic at Committee stage and the similar amendment moved by the noble Lord, Lord Bruce, at the Report stage.
The impact of insolvency upon the family home is a matter on which the Cork Committee itself took consultation, reported and recommended. It is slightly a matter for regret that the Government did not accept the wisdom of the Cork Report without reservation. I certainly hope that the Government will keep an open and a sympathetic mind in this matter. Action on this point will ensure that, whatever else emerges from this reforming legislation, the opportunity is not lost to make an important social and legal reform to protect the truly innocent victims of insolvency.
§ Lord Mottistone
My Lords, I too should like to congratulate my noble friend Lord Lucas of Chilworth and my noble and learned friend the Lord Advocate on the stalwart way in which they defended their corner throughout these debates and on the charm with which they sought to say the unpalatable. I am sorry that there were occasions when I had to take the side against them, in order, I assure them—this is absolutely serious—to ensure that the Government were aware of where they might themselves be going into error.
I think it was a very good point that they made in producing a new Clause 7 for us. This was a splended reaction to an obviously amateur Clause 7 which was so ably thought up as well as presented by the noble Lord, Lord Benson. I noted that my noble friend said that the amendments to that clause which we sought to achieve and did achieve on Report were going to be considered further. I should expect that in the same way as the original new Clause 7 in Committee was considered further and a better one produced.
I would hope very much that the Government will do what they did then, which is to build upon what has been achieved in Clause 7 as it now stands and not, dare I say? petulantly sweep away what we put in. I think that there is a good deal of sound sense in it, and the fact that we got a majority in this House to agree with us surely means that it would be most unwise not to take the benefit of the wisdom of this House and build upon what had been achieved, rather than do something desperate like taking it away.
The same would, I hope, go for the amendment that we have just achieved on the preferential treatment of VAT. I hope that that too will be built upon and not in any sense disregarded and thought not to be of importance.
I believe, I think rather more strongly than the noble Lord, Lord Bruce, that this Bill is not only very necessary and a splendid way, albeit perhaps not brought forward as soon as people would have liked, of implementing the Cork Report, but, as it now stands (with a need perhaps for a little tidying up) a very good Bill which will achieve two main objects. It will deter 647 the wrongdoer or the inadequate and unfit doer, but it will not frighten off the chap who is trying to make a success of a company which is in difficulty. It must stay that way and that is what it is all about. I hope very much that when we get it back, it will not have been torn about too much.
The Earl of Selkirk
My Lords, I should like to thank the noble and learned Lord the Lord Advocate and the noble Lord, Lord Lucas, for the amendments affecting Scotland which were carried. I know that the Scottish Law Society will be very grateful to them for what they have been able to do. I should like particularly to congratulate the noble Lord, Lord Lucas, on his manner in conducting an extremely complicated Bill about which I expect he knew nothing whatsoever six months ago.
§ On Question, Bill passed, and sent to the Commons.