HL Deb 04 February 1985 vol 459 cc906-32

8.8 p.m.

House again in Committee on Clause 45.

The Deputy Chairman of Committees (Lord Murton of Lindisfarne)

The next amendment to be taken is No. 70—

The Earl of Selkirk

This amendment is very similar to an amendment that I moved just before dinner—

The Deputy Chairman of Committees

I think that the noble Earl moved Amendment No. 69A, which I gather was withdrawn, and before Amendment No. 70A comes No. 70.

The Earl of Selkirk

Amendment No. 74A was not withdrawn.

The Deputy Chairman of Committees

I understand that the noble Earl withdrew Amendment No. 69A. The next amendment is No. 70, which is a Government amendment, and thereafter the noble Earl, Lord Selkirk, will move No. 70A. We are now on Amendment No. 70.

Lord Cameron of Lochbroom moved Amendment No. 70: Page 31, line 8, leave out ("of the company").

The noble and learned Lord said: It may be for the convenience of the Committee if I speak also to Amendment No. 72, which is to the same end.

Amendment No. 72: Page 31, line 14, leave out ("of the company").

These are primarily drafting amendments. Clause 45 makes amendments to Clause 471 of the Companies Bill. That clause sets out the powers of receivers in Scotland and in such a way as to harmonise them with the corresponding English provisions in Schedule 2 to the Insolvency Bill.

The existing drafting of Clause 471(1) of the Companies Bill includes a reference simply to "the property", which refers to the property of the company which is attached by the floating charge. It would obviously therefore be incorrect in a subsequent part of the same clause to refer to the "the property of the company", because that might be misconstrued and held to comprehend property which is not subject to the floating charge. Accordingly, I beg to move the amendment.

On Question, amendment agreed to.

The Earl of Selkirk moved manuscript Amendment No. 70A: Page 31, line 10, at end insert ("and there shall be substituted the words ("or part of it;").

The noble Earl said: This amendment amends an amendment which came from the 1985 Bill. It is frankly extremely difficult to explain, and with the leave of the Committee I shall simply read out what the effect of the amendment is. If the amendment is accepted, Clause 471(1)(o) will read: to carry on the business of the company or part of it". That, again, is very much for the same purpose as the previous amendment which I moved. It allows for the starting up of that part of an insolvent company which is workable, allowing the remainder to be disposed of if necessary. The words taken out are, so far as he"— that is, the receiver— thinks it desirable to do so". Those words are removed by the Government—I am not quite sure why, to be perfectly frank. It does not seem to me that it makes any difference, so I am perfectly happy to accept it. I beg to move the amendment which stands in my name. I beg to move.

Lord Cameron of Lochbroom

I am grateful to my noble friend Lord Selkirk for proposing this amendment. It goes along with manuscript Amendment No 69A, which your Lordships have dealt with recently. Perhaps I should simply repeat quickly what I said in relation to that amendment. I am happy with the principle but would wish to consider the form of words suitable. On the undertaking that these two matters will be covered in any appropriate amendment to be produced, perhaps my noble friend will be prepared to withdraw the amendment.

The Earl of Selkirk

I am grateful to my noble and learned friend. It may be that these amendments are quite unnecessary; that in point of fact the words in the clause already are adequate to cover the purpose I have in mind. I am quite happy to accept what my noble friend has said.

Amendment, by leave, withdrawn.

Lord Cameron of Lochbroom moved Amendment No. 71: Page 31, line 12, leave out ("new paragraph") and insert ("paragraphs").

The noble and learned Lord said: It would be convenient if, in speaking to this amendment, I could speak also to Amendment No. 73.

Amendment No. 73: Page 31, line 17, at end insert— ("(pp) power to make any arrangement or compromise on behalf of the company; (ppp) power to call up any uncalled capital of the company:"). These two amendments run together. Their purpose is to confer upon a receiver in Scotland certain additional powers which are available to a receiver in England and Wales by paragraphs 16 and 17 of Schedule 2 to the Bill; namely, the power to make any arrangement or compromise on behalf of the company and the power to call up any uncalled capital of the company.

As I have said already, it is the Government's intention that so far as possible the powers of a receiver should be the same in the case of a Scottish company as they are in the case of an English company. With that explanation, I beg to move.

Lord Bruce of Donington

We concur with the amendment.

On Question, amendment agreed to.

8.15 p.m.

Lord Cameron of Lochbroom moved Amendment No. 72:

[Printed earlier: col. 906.]

On Question, amendment agreed to.

Lord Cameron of Lochbroom moved Amendment No.73:

[Printed above.]

On Question, amendment agreed to.

Lord Cameron of Lochbroom moved Amendment No. 74: Page 31, line 19, leave out ("new").

The noble and learned Lord said: This amendment is purely to remove a word superfluous to the meaning. I do not think I require to say any more than that. I beg to move.

On Question, amendment agreed to.

Clause 45, as amended, agreed to.

Clauses 46 and 47 agreed to.

Clause 48 [Information to be given by and to receiver]:

Lord Taylor of Gryfe moved Amendment No. 74A: Page 32, line 16, leave out ("as to the affairs") and insert ("of the assets and liabilities").

The noble Lord said: This amendment and Amendments Nos. 74B and 74C belong together.

Amendment No. 74B: Clause 49, page 33, line 3, leave out ("affairs") and insert ("assets and liabilities").

Amendment No. 74C: Clause 50, page 35, line 17, leave out lines 17 to 20 and insert— ("(5) A report under this section shall include a statement of the affairs prepared by the receiver and such comments as the receiver may consider appropriate on the statement of assets and liabilities made out and submitted to the receiver under section 481.").

These are amendments about which the Law Society of Scotland have expressed some concern. This is an organisation with which I am sure the noble and learned Lord the Lord Advocate is reasonably familiar. The purpose of the amendments is to make similar provisions in this Bill as are in Clauses 19 and 20 of the Bankruptcy (Scotland) Bill, which was recently before your Lordships' House, regarding the production to the receiver of a statement of the assets and liabilities of the company as opposed to a statement of affairs.

In many cases, particularly where the company is reasonably large, if the directors were obliged to produce a statement of affairs this could involve them in very large expenditure in securing the services of professional people—accountants and so on—to produce a statement for them. It should, however, be within the competence of the normal company director to produce a statement simply showing the assets and liabilities of a company. The receiver would then be in a position to produce a statement of affairs, because under the proposal in the Bill the receiver will have to be a qualified insolvency practitioner and would normally be an accountant. The Law Society of Scotland feels rather strongly on this matter. Perhaps the noble and learned Lord the Lord Advocate would see fit to accept its proposals.

Lord Cameron of Lochbroom

I have obviously listened with great care to what the noble Lord, Lord Taylor of Gryfe, has said. I certainly accept that when dealing with the Bankruptcy (Scotland) Bill in your Lordships' House the Government accepted arguments which bear a close similarity to those which the noble Lord has just put forward. Indeed, those arguments were presented during consultations on the draft Bill attached to the Scottish Law Commission's report.

I should point out that the position of a trustee in sequestration—the officer with whom that Bill was concerned—is very different from that of a receiver. The duty of the trustee in sequestration is to ingather and realise the whole assets of the bankrupt for the benefit of the creditors as a whole—and I underline that phrase. Having regard to that particular fact, and also to the fact that the preparation of an adequate statement of affairs may be beyond the ability of most bankrupts, it was considered proper—at least in Scotland—that the trustee should be responsible for making up the statement of the bankrupt's affairs, with the cost of that falling as part of the expenses of the sequestration.

The position and task of a receiver is altogether different. He is not appointed to ingather and realise all the assets of the company in the interests of the creditors as a whole. He is appointed to take over such of the property of the company as is attached by the floating charge. It is out of that property that his expenses are payable. It is also a proper matter to bring to your Lordships' attention that a company is required to keep proper accounting records, and therefore it is thought proper that it should be responsible for the preparation of a statement of its affairs. It is from that source, among others, that the receiver should receive information, because, after all, that is the source having the greatest knowledge of the company's affairs, to enable him to decide whether the company should continue trading and therefore to secure the best outcome in the interests of all the company's creditors. My noble friend Lord Lucas indicated quite clearly the statutory and common law duties attached to a receiver.

Perhaps I should add in parenthesis that criticism has been made that the existing prescribed form of a statement of the affairs of a company is very complicated. It is therefore proposed to simplify and clarify the form as much as possible in rules which would fall to be made under the Bill. In the light of these considerations I hope that the Committee will accept that this amendment, though it might have superficial attraction, really deals with a different situation. Perhaps the noble Lords who proposed this amendment will, in view of my remarks, agree to withdraw it.

The Earl of Selkirk

My noble and learned friend says that there will be rules. Quite frankly, the word "affairs" is quite indefinite. If it includes accounting, then accounting is all that we are asking for. As my noble and learned friend has said, the accounting has been well checked, and almost anybody could put that together. But when one speaks about the affairs of a company, then technically it could mean almost anything. Any big company could take a week to put together a statement of all its affairs, if not a great deal longer.

Is this just a question of copying the other 1985 Bill, or is there some good reason for using this wording? In Scotland we have in the bankruptcy world such words as "insolvency" and "bankruptcy", which are not awfully far apart in meaning. I wonder whether my noble and learned friend will look at this point again. It is true that Clause 49 also refers to particulars. Clause 49(1)(a) refers to, the particulars of the company's assets, debts and liabilities". But is that the limit of what is required? If one wants a wider picture, which this provision seems to demand, then there may be a considerable cost.

Lord Cameron of Lochbroom

I take the point which my noble friend has made. I believe that the phrase "statement of affairs" is one well known in the company world. Indeed, it is a phrase that occurs in the corresponding English provision. I would be loath to suggest, when I am proposing in this part of the Bill to bring receivership in Scotland and England into line, to have any divergence, even on a matter of nomenclature. With that explanation, I hope that my noble friend will be satisfied.

Lord Bruce of Donington

We on this side of the Committee have some sympathy with the point made by the noble Lord, Lord Taylor of Gryfe, and by the noble Earl, Lord Selkirk. Nevertheless, we feel that the Government's attitude towards the amendment is the correct one. A statement of affairs as it is properly understood by those legal practitioners who deal with insolvency, and in particular by those whom we hope presently will be called qualified insolvency practitioners, is well known.

We are particularly grateful to the noble Lord, Lord Taylor of Gryfe, and to the noble Earl, Lord Selkirk, for having elicited from the Government the promise—and I take it to be a promise—that the existing rules relating to what was previously regarded as a rather complicated form of a statement of affairs is going to be overhauled. So although we very much admire and support the initiative of the noble Lord and the noble Earl, and however much it may stick in our political stomachs, we have no alternative on this occasion but to support Her Majesty's Government.

Lord Taylor of Gryfe

We do not wish to press this amendment to a Division. I thank the noble and learned Lord the Lord Advocate for explaining his position so fully. There are problems in this United Kingdom Bill of harmonising Scottish law. I shall study with my colleagues the full implications of the statement which the noble and learned Lord has made this evening. We shall return to this matter at Report stage, if necessary, but I hope it will not be necessary. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 48 agreed to.

Clause 49 [Company's statement of affairs]:

[Amendment No. 74B not moved.]

The Earl of Selkirk moved manuscript Amendment No. 74BA: Page 33, line 9, leave out ("residences and occupations") and insert ("and addresses").

The noble Earl said: One really does not want details of the creditors' residences; one wants to know their places of business. It is as simple as that. And I do not think that one really wants their occupations, either. All one needs to have is the address where a creditor is in business. That is what is wanted and nothing else. I beg to move.

Lord Cameron of Lochbroom

I should say at the very outset that I am extremely grateful to my noble friend for having brought this matter to the attention of the Committee. I trust that he will not think me ungrateful if I say that I should not like at this particular juncture to accept the amendment as it presently stands. I take his point about the reference to occupations, and it may be that the words "and addresses" is a perfectly suitable alternative. I shall simply advise my noble friend that I shall look at this point and probably secure a competely different form of words which, again, will harmonise generally with what appears throughout the Bill. With that assurance perhaps my noble friend will feel able to withdraw the amendment.

Lord Bruce of Donington

I do not see why, in view of the extremely simple explanation which has been given by the noble Earl, Lord Selkirk, this amendment cannot be accepted out of hand. Is it really necessary to go all the way back to the establishment machinery of the ministry and the parliamentary counsel in order to have such a very simple matter agreed? Everybody understands it.

I think that most of your Lordships were impressed by the sheer simplicity of what the noble Earl, Lord Selkirk, had to say. The noble and learned Lord himself was quite convinced. Why cannot he have the good grace to accept the amendment without all the paraphernalia of going all the way back to satisfy parliamentary counsel of whom, apparently, every Minister without exception seems to be terrified?

8.30 p.m.

Lord Mishcon

Perhaps I may assist on this small point which, nevertheless, is a question of principle. It must be right that nobody wants to know the residence, but does want to know the normal address of the creditor. Perhaps I can assist the noble and learned Lord the Minister to accept this amendment by asking him a simple question. Where the Inland Revenue is a creditor can he please tell me what its occupation is?

Lord Cameron of Lochbroom

I take up the last point made by the noble Lord, Lord Mishcon. It may be that in the name itself is contained the occupation and it might be otiose to add anything to it. I do not wish to be in any sense disingenuous or ungrateful, but in attempting from time to time in courts to unravel the intentions of Parliament and the different phraseology used in the course of one particular Act I have been conscious to suggest that it may mean different things. All I can simply say is that it might well be that, simple though the amendment appears to be, accepting it as it stands will have consequences elsewhere in the Bill. I should prefer, with the leave of your Lordships, at this stage to consider the matter in order to be absolutely clear that there is consistency throughout the Bill. I am sure your Lordships will approve of that sentiment, if no other.

The Earl of Selkirk

I know that consistency is important, but clarity is more important. I think that Parliament might well remember this, particularly in a frightfully complicated Bill such as this. I shall not press my noble and learned friend further. I have infinite confidence in what he said. I beg leave to withdraw the amendment.

Amendment by leave withdrawn.

Clause 49 agreed to.

Clause 50 [Report by receiver]:

The Deputy Chairman of Committees: Does the noble Earl wish to move Amendment No. 74C?

[Amendment No. 74C not moved.]

Clause 50 agreed to.

Clause 51 [Supervisory committee]:

The Earl of Selkirk moved Amendment No. 74D: Page 35, line 28, leave out from ("a") to end of line 30 and insert ("committee of creditors to represent the interests of creditors during the period of receivership.").

The noble Earl said: This gives virtually the same meaning, but sets it our more clearly. It leaves out words which seem to be unnecessary and makes a clear statement of what the receiver will have to do. It is, therefore, an improvement to the Bill. I beg to move.

Lord Bruce of Donington

This is the third opportunity that noble Lords opposite have had to consider the words "supervisory committee". Much time has fructified since the matter was first raised about one-and-a-half hours ago and again about an hour ago. I should have thought there has been time enough for the Government to consider the position with their advisers and arrive at a conclusion. We are grateful to the noble Earl, Lord Selkirk, for having raised the matter again. Surely the words that he now suggests are much more suitable in all the circumstances. Does not the noble and learned Lord think that without further ado, having had two hours of cogitation, we could now agree the noble Earl's amendment and, indeed, carry it back to the previous clauses where it is relevant?

Lord Taylor of Gryfe

This is a matter of some importance on which the Law Society of Scotland feels very strongly. It is opposed to the proposal contained in this clause, and also to Clause 61, that there should be a supervisory committee to supervise the receiver or liquidator in the carrying out of his functions; that is, a supervisory committee looking over his shoulder as he discharges his responsibility.

With particular reference to the receiver, the obligation of the receiver is to the holder of the floating charge and not to the creditors. Therefore, the creditors cannot oversee his activities. It is a very different matter that there should be a committee of creditors to represent the interests of creditors during the period of receivership. That is entirely different. This is in line with the proposals in the Cork Committee report, at paragraphs 447, 933 and 936. I hope that on this occasion the noble and learned Lord will see fit to accept the amendment.

Lord Cameron of Lochbroom

I am sorry, but I may have to disappoint noble Lords who have spoken on this matter. As the noble Lord opposite has reminded the Committee, this is the third time—if not the fourth—we have debated this matter tonight. On the last three occasions my noble friend Lord Lucas undertook to look at the matter again. I would simply say that as regards Scotland I fully endorse that aspect so far as the role of such a committee in Scotland is concerned.

I accept the criticisms voiced by noble Lords about the word "supervisory". If that word is to go, it may be that it will be appropriate to look at the description of the role which such a committee should play, in addition simply to giving it another name; whatever the name will be, it will smell as sweet. We must get the description in the Bill correct. With that assurance, repeating what my noble friend Lord Lucas has already said this evening, I ask my noble friend to withdraw the amendment.

Lord Taylor of Gryfe

With the assurance given that the Government are now prepared to look at the role of the supervisory committee and clearly define it, I shall certainly be glad to withdraw the amendment at this stage.

The Deputy Chairman of Committees

Does the noble Earl, Lord Selkirk, agree that the amendment should be withdrawn?

The Earl of Selkirk

I ask leave to withdraw it.

Amendment, by leave, withdrawn.

[Amendment No. 74E not moved.]

Clause 51 agreed to.

The Deputy Chairman of Committees

Unless any of your Lordships disagree, I propose to put the Question regarding Clauses 52 and 53.

Lord Mishcon

I wish to speak to Clause 52.

Clause 52 [Company's statement of affairs]:

On Question, Whether Clause 52 shall stand part of the Bill?

Lord Mishcon

The only observation I wish to make is that some of the comments I made on Clause 26 stand part apply also to this clause.

Clause 52 agreed to.

Clause 53 [Investigation by the official receiver]:

On Question, Whether Clause 53 shall stand part of the Bill?

Lord Mishcon

I ask the Committee to refer to Clause 53, where there are used the bald words: Where a winding-up order is made by the court in England and Wales, it shall be the duty of the official receiver to investigate … (b) generally, the promotion, formation, business, dealings and affairs of the company, and to make such report (if any) to the court as he thinks fit". One would imagine that the draftsman of that clause did not consider the fact that a winding-up order can be made not merely because a company is insolvent but because it is just and equitable to do so because some minority shareholder has objected to the way in which the majority shareholder has run the company or because there has been a collision between an equal number of shareholders and it is impossible to run the company while that disagreement and discord continue. Surely the provision that the official receiver has to carry out those duties can apply only to an insolvent company, and should it not say so?

I also add this, if I may. There may be some merit in those circumstances in providing for the official receiver on that basis to report to the court in any event and not leave it to his discretion to do so where it means that we are dealing with an insolvent company. But, as I repeat, it appears that the draftsman has forgotten about the other reasons for a winding-up order being made.

Lord Cameron of Lochbroom

I think that I can simply say, like my noble friend Lord Lucas, that this is a matter at which we shall look very carefully in the light of what the noble Lord has said.

Clause 53 agreed to.

Clause 54 [Public examination of officers]:

On Question, Whether Clause 54 shall stand part of the Bill?

Lord Mishcon

One also questions whether this clause should apply only to an insolvent liquidation. Perhaps the noble and learned Lord will look at that matter, too.

Clause 54 agreed to.

Clauses 55 and 56 agreed to.

Clause 57 [Appointment of liquidator in Scotland]:

The Deputy Chairman of Committees

In Clause 57, Amendment No. 74F. The Earl of Selkirk?

The Earl of Selkirk

I do not wish to move the amendment.

Lord Taylor of Gryfe moved Amendment No. 74F: Page 40, line 35, leave out ("twelve weeks") and insert ("28 days").

The noble Lord said: I apologise to the noble Earl, but my name is also down to the amendment and I should like to move it. I am sorry that the alliance which has stretched across the Committee tonight is disturbed by my insistence.

Here again, I have consulted some of my friends in Scotland who are involved in liquidation work. The general view expressed is that 12 weeks is too long and that decisions on this matter are made within a relatively short period after the appointment of a liquidator. The proposed period of 12 weeks would mean that these decisions would have been made before creditors had a chance to make their own appointment. It would further have the detrimental effect on the liquidator appointed by the court that he would be looking over his shoulder to see if he were to be replaced by a creditor's liquidator for an unacceptably long period. I suggest that it is in the interests of all concerned in this legislation that the period should not be too long for all the reasons that I have put forward. Consequently, I feel in the light of experience of Scottish legal work that 28 days is a reasonable period. I beg to move.

Lord Cameron of Lochbroom

I have listened with care to what the noble Lord has said. I would simply say this. The Government feel that a limit of 28 days is too small to make it feasible in all cases to summon the meetings which are referred to in this clause. I should like to consider this matter again. It seems desirable to retain a degree of flexibility. I would simply ask the noble Lord whether he will withdraw the amendment on the undertaking that this will be looked at again and if it is thought appropriate amendments might be brought forward.

Lord Taylor of Gryfe

I thank the noble and learned Lord for his understanding of this position. I accordingly withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 57 agreed to.

Clauses 58 to 60 agreed to.

Clause 61 [Control of liquidator by a supervisory committee in Scotland]:

The Deputy Chairman of Committees

Perhaps I should say that if Amendment No. 75 is agreed to, I shall not be able to call Amendments Nos. 75A to 75F, inclusive.

8.45 p.m.

Lord Cameron of Lochbroom moved Amendment No. 75:

Page 42, line 28, leave out subsections (1) to (3) and insert— (" (1) Where a winding-up order has been made by the court in Scotland and separate meetings of creditors and contributories have been summoned for the purpose of choosing a person to be liquidator of the company or, under section 57(2) above, only a meeting of the company's creditors has been summoned for that purpose, those meetings or, as the case may be, that meeting may establish a supervisory committee to supervise the carrying out by the liquidator of his functions. (2) The liquidator of the company may at any time, if he thinks fit, summon separate general meetings of the company's creditors and contributories for the purpose of determining whether a supervisory committee should be established and, if it is determined that one should be established, of establishing it. (3) A liquidator appointed by the court otherwise than under section 58(4)(a) above shall be required to summon meetings under subsection (2) above if he is requested, in accordance with the rules, to do so by one-half, in value, of the company's creditors. (3A) Where meetings are summoned under this section, or for the purpose of choosing a person to be liquidator of a company, and either the meeting of creditors or the meeting of contributories decides that a supervisory committee should be established but the other meeting does not so decide or decides that such a committee should not be established, the committee shall be established in accordance with the rules, unless the court otherwise orders.").

The noble and learned Lord said: This is primarily a drafting amendment the purpose of which is to bring the provisions of Clause 61, subsection (1) to (3), which relate to the control of a liquidator by a supervisory committee in Scotland, into line with the corresponding English provisions which are to be found in the immediately preceding clause. In particular, it would allow the meeting or meetings of the company's creditors and members held under Clause 57 for the purpose of choosing a person to be the liquidator of the company to establish—and I use the word loosely—a supervisory committee rather than requiring the liquidators to summon separate meetings. Accordingly, I beg to move.

Lord Bruce of Donington

Subject to the noble and learned Lord's reservation about the supervisory committee and its role, we see no objection to this amendment.

The Earl of Selkirk

I must draw attention to one word here and ask whether it tells the truth. Subsection (1) in the amendment states: that meeting may establish a supervisory committee to supervise the carrying out by the liquidator of his functions". Is that really Government policy or is it not? It seems to me to cut the ground from under the feet of a liquidator if he is going to be supervised by somebody else. I did not think that was the object of this Bill at all. I wonder whether the noble and learned Lord will look at that more closely.

Lord Cameron of Lochbroom

I assure my noble friend that that is in fact the intention. I should say that the words to which he has called attention reflect the phraseology which is found in Clause 60(1) in the provisions applying to England. I think that these are covered by the discussion that we had at an earlier stage of this debate on the whole matter of—and I use the term again loosely—the supervisory committee.

On Question, amendment agreed to.

Clause 61, as amended, agreed to.

Clause 62 agreed to.

Lord Cameron of Lochbroom moved Amendment No. 76: After Clause 62, insert the following new clause:

("Early dissolution of company in Scotland

.—(1) Where a winding up order has been made by the court in Scotland, if after a meeting or meetings have been held under section 57 above it appears to the liquidator that the realisable assets of the company are insufficient to cover the expenses of the winding up, he may apply to the court for an order that the company be dissolved.

(2) Where the liquidator makes an application under subsection (1) above, if the court is satisfied that the realisable assets of the company are insufficient to cover the expenses of the winding up and it appears to the court appropriate to do so, the court shall make an order that the company be dissolved from the date of the order, and the company is then dissolved accordingly.

(3) A copy of the order shall within fourteen days from its date be forwarded by the liquidator to the registrar of companies who shall record the company's dissolution.

(4) If the liquidator without reasonable excuse fails to comply with the requirements of subsection (3) above, he shall be liable on summary conviction to a fine not exceeding one-fifth of the statutory maximum and, for continued contravention, to a daily default fine not exceeding one-fiftieth of the statutory maximum.").

The noble and learned Lord said: This amendment gives effect to representations which have been made to the department by the Law Society of Scotland and the Institute of Chartered Accountants of Scotland that the liquidator of a Scottish company should be able to apply to the court for the early dissolution of the company after a meeting of the company's creditors under Clause 57 of the Bill—that is to say where it appears that the realisable assets of the company are insufficient to cover the expenses of the winding up. This is really applying to Scotland the provisions of Clause 62 of the Bill, which enables the official receiver to apply to the Registrar of Companies for the early dissolution of a company in England and Wales. However, the difference in phraseology is to enable the terms which are appropriate to Scottish law and practice to be used. It is based upon the existing procedure under which a liquidator can apply to the court for the dissolution of the company under Section 274 of the Companies Act, 1948, now being reenacted in Clause 568 of the Companies Bill. I accordingly beg to move.

Lord Bruce of Donington

We on this side of the Chamber see no objection to the insertion of this new clause. In view of the brevity of our support for this matter, may we make the suggestion in respect of previous amendments that for the definition of "supervisory committee", the phrase "monitoring committee" is suitable to all the circumstances?

On Question, amendment agreed to.

Clauses 63 to 66 agreed to.

Clause 67 [Effect of insolvency on members' voluntary winding-up.]:

Lord Bruce of Donington moved Amendment No. 77: Page 48, line 5, leave out ("is of the opinion") and insert ("knows or believes").

The noble Lord said: This is another endeavour by Her Majesty's Opposition to be as helpful as possible to Her Majesty's Government in expediting this Bill. We have come to the following conclusion. The words used in Clause 67, particularly in line 5, "is of the opinion that", and then, at line 13, in subsection (2)(a), "form the opinion" are rather ambiguous terms which it is desirable that we should have defined. That is not of course with final precision because final precision is impossible within the law and is confined to mathematics. However, I mean that it should be defined as near to it as possible to give those of their Lordships who sit on the judicial Bench more precise guidance as to what the words really ought to mean.

Therefore, at line 5, instead of the words, "is of the opinion", we venture to insert the words, "knows or believes". Then at page 48, at line 13, where the liquidator is stated as having "formed the opinion", we should like to substitute for that acquired the knowledge or reached the belief which we think is a little more definite than, "formed the opinion". At page 49 of the Bill, at line 11, we have inserted a further qualification to give point to the revised definition which we commend to the Committee.

Amendment No. 80: Page 49, line 11, at end insert— ("( ) A liquidator's knowledge or belief is to be taken to be that which a liquidator of the company in question should in all the circumstances reasonably be taken to have acquired or reached.").

The object of these amendments is to stop the abuse of cowboy liquidators getting into office as a result of a nominally insolvent liquidation and then clinging to office. It will be impossible to catch a rogue if the issue is when he, "formed the opinion", which, in our view, is far too vague.

I am only too sensible of the fact that the legal definition that I venture to lay before the Committee may not measure up to the standards reached in the companies division in the Court of Appeal or even in the appellate committee of this Chamber. However, it is the best I can do. If the noble and learned Lord, Lord Denning, can in any way improve on that, or at least signify his intention or his view that the words, "is of the opinion" are adequate in the circumstances, I should be greatly obliged for his support. Alternatively, for that matter, I should be grateful for support from any other quarter of this Chamber.

Lord Denning

I am afraid that I cannot support the noble Lord. I think the phrase "is of the opinion" is much better for a liquidator who has now to be a qualified and responsible person. It is much better to have his honest opinion. If you have "knows or believes", that is a little bit too difficult. If he is an honest liquidator, I think "is of the opinion" is better. I therefore oppose the amendments.

Lord Broxbourne

If one thing is certain, it is that the noble and learned Lord, Lord Denning, certainly requires no assistance or support to convey his authoritative sentiments to the Committee. However, may I respond for one very brief moment to noble Lord, Lord Bruce of Donington, who, with his customary generosity, extended his invitation not only to the noble and learned Lord, Lord Denning, but to the lesser noble Lords who sit on these Benches. That is to draw attention to a matter of drafting in the noble Lord's Amendment No. 79. Amendment No. 79: Page 48, line 13, leave out ("formed the opinion") and insert ("acquired the knowledge or reached the belief"). This concerns the phrase: "acquire the knowledge or reach the belief". Does this dichotomy not suggest the possibility of a conflict: that he can either have knowledge without belief or belief without knowledge? I ask the noble Lord to examine that possibility. I am sure it is not what he would intend. However, perhaps if he asks the noble and learned Lord, or the noble Lord who sits next to him, he may obtain some further guidance on the point.

Lord Bruce of Donington

I am very disappointed to have the reaction from the noble and learned Lord and also from the noble Lord opposite. In answer to the noble Lord's last question, I have always believed that all progress comes through conflict. Consequently, the use of the dialectic within the text of this particular amendment, "acquire the knowledge or reached the belief" is fully consistent with creative thought. That is of course not a legal concept to which I would commit my noble friend Lord Mishcon or which I should even dare to suggest to the noble and learned Lord, Lord Denning. However, it lies behind the amendment.

As I have spoken to the range of amendments, at the same time I should venture to draw the Committee's attention to Amendment No. 78, which, at line 6, substitutes for the word "will" the word "may". Amendment No. 78: Page 48, line 6, leave out ("will") and insert ("may"). The principle behind this amendment is that if there is all this uncertainty in forming the opinion or acquiring the knowledge, there is no room for uncertainty where "will" is inserted and therefore "may" is much more appropriate. I trust that that insertion may meet with the approval of those of the Committee who are far better versed in the law than I am. But it at least appears to be logical on the face of it that for the word "will" there should be substituted the word "may". I beg to move.

Lord Mishcon

I am always amused, and indeed instructed, when the noble Lord, Lord Broxbourne, poses a question to the Committee, especially when he does it with a smile. I never thought that the Bishops would have had a contribution to make to the Insolvency Bill but I imagine that if we were honoured by the presence of a Bishop tonight, he might have said that while he had not acquired the knowledge that the Deity existed, nevertheless he had reached that belief.

Lord Lucas of Chilworth

I am not quite sure where the noble Lord, Lord Bruce of Donington, is going to end this debate on the series of amendments. However, it might be helpful if I put the Government's point of view at this stage. I share the concern expressed by the noble Lord that the liquidator in a members' voluntary winding up, as in all liquidations, must act responsibly. It is vital that the interests of creditors be safeguarded. If the company is insolvent, then the liquidator must be bound to take the necessary steps to call a meeting of the creditors so that the winding up is converted to a creditors' winding up.

The Committee will probably have some knowledge—but, it is to be hoped, little—that there have been cases in which dishonest directors have made a false declaration of solvency so that the company is put into voluntary liquidation. Equally, of course, unscrupulous liquidators acting in league with the directors have then proceeded to strip the company of its assets.

9 p.m.

But the Bill approaches the problems from a different angle, and, if I may suggest it, rather more effectively, because under Part I of the Bill no person will be qualified to act as a liquidator unless he has a licence or a certificate from the Secretary of State authorising him to act as such, and he has provided security for the performance of those functions; so at least the creditors will know that the liquidator appointed in a members' voluntary winding-up will be qualified and reputable and will observe professional standards. In the unhappy event of anything going wrong, or if the creditors are dissatisfied, it is of course open to the creditors to apply to the court under Section 599 of the Companies Act 1985 for removal of the liquidator and the appointment of another, or to take action against the liquidator under Clause 14 of this Bill if he has acted wrongfully.

While I share the aims of the set of amendments before us, I wonder whether they would in practice offer very much protection for creditors. It may be that objectively, in a particular case, a liquidator ought to have realised that a company was insolvent and called a meeting of creditors. But if the liquidator does not actually realise this he will not call that meeting and the creditors will be no better off. I understand what the noble Lord, Lord Bruce of Donington, is about in this series of amendments, but I suggest to him and to the Committee that the requirements of Part I of the Bill, taken with the existing rights of creditors, actually afford very much greater and much more effective protection for the creditors. Following the exchange between noble Lords opposite, the noble and learned Lord, Lord Denning, and my noble friend Lord Broxbourne, I should imagine that I can add to their comments only by saying that, in the light of all the views and the explanation, the noble Lord might withdraw his amendment.

Lord Bruce of Donington

The noble Lord has been most kind and explanatory in support of his views, and of course he has, for my purposes, dealt with Amendments Nos. 77, 79 and 80. I should be glad if he would pass some observation on Amendment No. 78, on which I must stick at the moment. for the substitution of the word "may" instead of "will". It seems to me to be common sense in the circumstances, if I dare mention the term in such august legal surroundings.

Lord Lucas of Chilworth

I had not in fact added Amendment No. 78 to the series. I share with the noble Lord a concern that liquidators acting in a members' voluntary winding-up act responsibly at all times. The Bill requires such a liquidator to be a qualified insolvency practitioner under the terms of Part I. I think that the amendment will place an impossibly high duty on liquidators. Under Clause 67, as drafted, a meeting of creditors must be called if the liquidator thinks the company will be unable to meet its debts. This is only right and, indeed, is exactly as the law is at the moment. Changing that word "will" to "may" will in effect mean that unless at all times he—the liquidator—thinks that the company will definitely be able to pay its debts, the liquidator must call a meeting.

It is right that directors, when making the declaration of insolvency, should have to state that the company will be able to pay its debts. They, after all, are in the best position to know, but I suggest that to require a liquidator to be subject to the same test would place upon him a very high and almost impossible burden of duty. Indeed, I think it would probably discourage the most reputable of liquidators from acting. I am sorry that, while understanding what the noble Lord, Lord Bruce, is about with this series of amendments, I again have to ask him if he will withdraw this amendment also.

Lord Bruce of Donington

May I press the noble Lord a little further when we are discussing this question of "will" or "may"? Let us say that we get a liquidator who goes into a company about which one opinion may be that its liabilities are very significantly in excess of its assets; that is after perhaps taking into account a director's view or a liquidator's view as to the recoverability or otherwise of a sum of money owing to the company which is subject to considerable litigation. For example, one may have a company which, without a particular debt, has a deficit of (shall we say?) some £300,000, but, excluding that, has against a company a £½ million claim which it is not certain of recovering but which in the liquidator's mind is not entirely written off. In those circumstances, he may say, "Well, this claim, which still has to go through the courts, is unlikely to yield any result at all to the company, and therefore the company is insolvent". On the other hand, after having read through the depositions and everything else, he may come to the conclusion that the case which he will pursue on the company's behalf, or which the company's directors will pursue on its behalf, will in fact be successful, with costs, and so take another view.

The whole trouble is that the question of determining a company's liabilities is not quite so simple as it very often sounds in tidy legal terms. There are a number of practicalities which have to be taken into account. Moreover, even the valuation of assets is subject to a considerable divergence of opinion, according to who acquires, under what circumstances, at what time, whether at a break-up or as part of a going concern or a partial going concern. So to determine always "will" is, I respectfully submit, a little dangerous. It ought to be sufficient that, after having weighed up all the circumstances, the liquidator decides that "may" is probably the more appropriate attitude to take. Therefore, I should like the noble Lord to reconsider the matter a little after he has had consultation not only with his legal advisers, but also with all those who are actively engaged in the business of ordinary commerce, management and so on.

Lord Denning

Having heard the arguments on both sides, I prefer "may" to "will", and so I hope that the Government will reconsider this point.

Lord Lucas of Chilworth

When it comes to discussing words of this nature, such as, for example, "shall", "may", "will", "must" and so on, I always experience a great deal of difficulty because different people interpret such words in different ways. As I read the amendment, the purpose is to require a liquidator in a member's voluntary winding-up to call a meeting of creditors if he is of the opinion that the company may be unable to pay its debts. But under the clause as drafted he is under such an obligation only if he is of the opinion that the company will be unable to pay its debts. As regards the clause as drafted, I draw the noble Lord's attention to page 48, line 6, where it says: the company will be unable to pay its debts in full (together with interest at the rate applicable under section 74 below) within the period stated in the directors' declaration under section 577 of the 1985 Act". That seems to me to determine quite positively the liquidator's position.

I have to ask the noble Lord this. How can a liquidator be expected to say definitely that a company will be able to pay its debts? In reaching his opinion he takes account of contingent liabilities and so on. But such a duty really would be impossibly high. I must again say to the noble Lord that what he is asking for is, in practical terms, almost an impossibility. I do not want to be difficult; nor do I wish to delay the Committee's proceedings this evening. I am advised by my noble and learned friend that this clause replaces the present Clause 583 of the Companies Bill 1985, which uses exactly the same expressions as we find in front of us.

Therefore, I do not believe that there has been a shift in the position. I do not want to be difficult. I am sure that the noble Lord, Lord Bruce of Donington, understands what I have been saying. I shall look again at what he has said, but I have to say that I shall do so without very much conviction that I shall come to any different view another day.

Lord Bruce of Donington

I am most grateful for the somewhat qualified observation that the noble Lord has made. There is no need for the noble Lord to be difficult if, with a little extra effort, he could be quite impossible. But in the circumstances, and in view of the hour, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 78, 79 and 80 not moved.]

On Question, Whether Clause 67 shall stand part of the Bill?

Lord Mishcon

I wish to make a short observation and I should like to make it also as regards Clause 69, in order to save having to rise again when we reach that clause. I ask the Government this question. Would it not be helpful if Clause 67(3) and Clause 69(4) were to make some reference to the amount of secured debt and the dates on which the relevant securities were given? The noble Lord the Minister may care to have a look at Clause 26(1) in that context and compare the obligations under both clauses. It obviously would be most useful if that information could be given.

Lord Lucas of Chilworth

Of course I shall be very happy to consider the suggestion that the noble Lord, Lord Mishcon, is making. At this moment I cannot say whether such an inclusion would be helpful because I should have to look at the various strands of interest that flow from that. But, of course, I shall be very pleased to look at it and to let the noble Lord know.

Clause 67 agreed to.

Clauses 68 to 70 agreed to.

After Clause 70:

Lord Meston moved Amendment No. 80A:

[Printed earlier: col. 838.]

The noble Lord said: This amendment takes your Lordships back to the topic of prepayments. Earlier today the Committee rejected the amendment providing for consumers' money to be placed in a separate account. In the debate on that amendment the Government offered sympathy to consumers but no legislative protection. I suggest that sympathy is not enough.

9.15 p.m.

If a consumer cannot have his money kept in a separate account, that money should have some priority when the liquidation takes place. There is a real mischief here, and it is for statute to deal with it. It is notorious that traders in many areas ask for money up front; the money is provided, and then it disappears like sand through the bottom of a bucket with a large hole, and the consumer is in a hopeless position when the work is not done or is not finished, or when the service he thought he had paid for is not provided.

The consumer does not see himself as providing his money as a form of working capital for an uncreditworthy trader. He thinks that he is providing his money as an advance payment for a specific service or for specific goods, and he reasonably expects to receive those goods or that service. His money should be respected as such by the trader and protected as such by the law.

There was some debate earlier as to why such people should have particular protection. I suggest that they should have particular protection because they are the most particularly vulnerable creditors. They are not trade creditors, who at worst can claim tax relief on bad debts and, if a little more sophisticated, can have some retention of title clause inserted in their contract. In most of these cases with which this amendment is concerned the money is hard-earned money and hard-saved money for a specific purpose.

Earlier this afternoon we heard the opponents of legislative protection. They say several things. They say, of course, that reputable trade organisations have voluntary arrangements. I suggest that that is not an answer because the very fact that there have to be voluntary arrangements reflects the gaps in the law. Secondly, these arrangements do not cover the disreputable trader who does not submit to any sort of voluntary arrangement, and who does not have to. It is also said that, of course, there is the criminal law, but that is a last resort and is rarely an effective mechanism for getting money back.

If, as I anticipate, the Government will not accept this amendment, either in its letter or in its spirit, I would respectfully challenge the Government to indicate now whether they propose to do anything for consumers, whether it be by imposing some upper limit on preferential debts, by sanctioning bonding arrangements, or even by providing for elementary warnings to creditors who enter into this sort of arrangement that they should realise that they are at risk of losing their money. I beg to move.

Lord Denning

I think that we marshalled all those matters in one of the first amendments with which we dealt this afternoon. With all sympathy for these consumers, in a way this amendment seeks to make them into secured creditors or preferential creditors, whereas the Cork Committee recommended that the general principles should apply equally among all unsecured creditors. The remedy has really been indicated; namely, these defaulting and often dishonest directors of companies who take advantage of consumers in this way should be punished, challenged in the criminal courts, and disqualified, or whatever it may be. But steps should be taken against those who carry on these mischievous practices, and thus bring them to an end.

Lord Lucas of Chilworth

We have discussed this matter. It was in our first amendment this afternoon. I want to say two things, apart from saying that the noble Lord, Lord Meston, is quite right when he surmises that we should not be able to accept his amendment. I want to reiterate what the Cork Committee had to say. They said that they had looked at this issue of consumer prepayments and deposits and had reached the view that it would be unjust, as the noble and learned Lord, Lord Denning, again reminds us, to single out this group of creditors for enhanced priority.

The creation of a pre-preferential creditor would result in an entirely new class of creditor in corporate insolvency law, and that would be with priority over existing preferential creditors. This would not be a satisfactory situation. Regardless of whether or not those companies use those moneys as working capital and whether they should or should not, probably the practical effect is that they do. That is one issue.

Of course the money invariably is hard earned, hard saved, as the noble Lord, Lord Meston, says, and these people will be disadvantaged by a rogue. There are remedies. Those remedies may be tortuous to enact, they may also be expensive, but there are remedies at law of which a disadvantaged person can take advantage.

The noble Lord asked me specifically what have we to say about the position of consumers. There have been a number of statutes enacted in recent years—there are others being looked at—to preserve, to enhance, to protect the position of consumers. I outlined a number of voluntary arrangements which existed for their protection. I was tempted earlier this afternoon to quote the Esther Rantzen programme and "Checkpoint", as well as what I call the early morning chat shows on both national and local radio stations, which are continually advising consumers of their rights and the pitfalls which they may encounter. As legislative opportunity arises the laws to protect consumers will be tightened; they may even be expanded.

I do not want this Committee, and particularly the noble Lord, Lord Meston, to go away with the feeling that this Government do not have regard to consumers and consumer affairs. It would be a travesty of the facts if any Member of the Committee went away with that thought. I shall not redeploy the arguments used earlier, but shall say merely that for those reasons and in the light of some of the other points which have been made I invite the noble Lord, Lord Meston, to withdraw his amendment this evening.

Lord Taylor of Gryfe

As has been said already this evening, we have been round the course before. I want to say only that we shall ultimately withdraw our amendment, but that we have had some advice this evening not only from consumer organisations. If the noble Lord has a deep concern for the interests of consumers, he will appreciate that the amendment before the Committee is drafted by the National Consumer Association. In the light of the evidence of the Esther Rantzen programme and other consumer interest programmes on television and radio the National Consumer Council realises that there is a need for legislative protection of consumers. Consequently the National Consumer Council has proposed this amendment.

The noble Lord, Lord Galpern (who is no longer present) is a supplier of furniture, and this afternoon he said some very sensible things. Before you open an account with a company, if you are a trade creditor, you often take references on the company. You take protection because you are in business, you are sophisticated and aware. But the average chap who goes into a furniture store and is asked to put down £50 or £20 as a deposit on furniture to be delivered six months or three months hence is not sophisticated. He cannot ask for the balance sheet of the company to decide whether he can risk his £50. He is interested in buying a piece of merchandise. By any standards he is not a trade creditor in that sense. He has given someone money who is to supply goods against that cash.

I would say to my good friends on the Labour Benches that I was extremely disappointed that they remained silent on this issue, though some of their colleagues found their way into our Lobby. I hope they will not be silent if we raise this again. I was particularly disappointed by the representatives of the Cooperative movement in this Chamber who presumably represent consumer interests, who could not bring themselves to support this piece of consumer protection. I hope that if we raise this again at Report stage, we will find a more sympathetic response from these and other quarters of the Chamber.

Lord Bruce of Donington

Since the noble Lord, Lord Taylor of Gryfe, has expressed the position of my party in such felicitous terms, I hasten to assure him and all consumers that my party always has the strictest regard for the interests of consumers. Our function is not always to support any particular sectional interest. We endeavour, so far as we possibly can, to strike a balance between interests that are often conflicting.

The noble Lord will at a later stage observe that my party has proposed measures by means of an amendment which will largely eliminate the preferences of the Crown and local authorities, so that funds made available for the broad general body of unsecured creditors may be enalarged. We look forward to the support of the noble Lord on that occasion so that this may happen.

However popular the demand may be, however media-catching the turn of phrase to support one particular consumer interest—that is, the kind of consumer who tends to pay quite large sums of money well in advance for what he hopes he will receive—it is not always possible for the sake of popularity in the media and elsewhere to give unequivocal support to demands of that kind. One has to consider the whole situation, whether it is on the supply side, as the economists would have it, or on the demand side. My party will always try, without fear or favour, to be completely impartial in its approach to these matters.

Lord Meston

The arguments have all been ventilated and I shall not repeat them. Apparently we must leave it to Esther Rantzen, but with some disappointment I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 71 agreed to.

Clause 72 [Power to disclaim onerous property]:

On Question, Whether Clause 72 shall stand part of the Bill?

Lord Mishcon

I am sorry to have to say this at this hour, but we have reached a very important clause which vitally alters the law apart from having a misleading heading, to which I shall refer in a moment which reads "Power to disclaim onerous property". Three major changes in the law are made by this clause. The first is that leave of the court will no longer be required. The position of a liquidator in this respect will therefore be the same as that of a trustee in bankruptcy. That is very important.

The second alteration is that the types of property which can be disclaimed have been widened. Under Section 323 of the Companies Act 1948, four types of property can be disclaimed: first, land burdened by onerous convenants; secondly, shares in companies; thirdly, unprofitable contracts, and, fourthly, any other property that is unsaleable or not readily saleable by reason of binding the possessor to the performance of an onerous act or to the payment of money. Under Clause 72, there is the power to disclaim an unprofitable contact and also any other property which is either unsaleable or not readily saleable or is such that it may give rise to a liability to pay money or perform any other onerous act. This means that, whereas under Section 323 other property has to be unsaleable by reason of being subject to onerous requirements, under Clause 72 it is sufficient if property is unsaleable without being subject to any onerous requirement or is subject to an onerous requirement but without being unsaleable.

The third point is that the clause will, it seems, apply in relation to after-acquired property including contracts; but this is not clear and I do believe that the Government in due course ought to clarify that better. It appears that there should be a right for a person affected by a disclaimer to apply to the court within a certain time limit to have it set aside. It seems, quite frankly, that such protection is rendered particularly necessary by the extension under this clause of the kinds of property which can be disclaimed and that a person should be entitled to protection by the court against any unnecessary disclaimer of property; and this particularly arises if the property is not readily saleable but, on the other hand, not onerous, or is onerous but readily saleable.

9.30 p.m.

The next point that I should like to raise is the one to which I referred briefly and relates to the inaccurate and somewhat misleading nature of the rubric, which the Minister may care to look at. It is quite clear that the clause can apply to property merely by reason of its not being readily saleable without its being onerous. I repeat that the rubric here merely says, "Power to disclaim onerous property". That is quite misleading.

Lord Denning

I should like to say that I share the anxiety of my noble friend Lord Mishcon. This power of disclaimer is a very serious power, disclaiming not only onerous property but also anything which may be unprofitable or also give rise to a liability. It is an extension of what was done previously. It is a serious and anxious matter which I hope will be given further consideration as we go on further in this Bill.

Lord Lucas of Chilworth

Of course, I am here in conformity with the undertaking that I and my noble and learned friend gave during the course of earlier proceedings that we shall look very carefully at any matters that are raised under the general "clause stand part" debate. This is one of those. I wonder whether I may just put on record a few observations, in that the provisions that we have in Clause 72, which deals with the power to disclaim onerous property relating to winding up, are different from those relating to bankruptcy under Section 54 of the Bankruptcy Act 1914, principally in so far as in a winding up the leave of the court must always be obtained, whereas in bankruptcy this is so only in a limited area. The bankruptcy provisions contained in Clauses 134 and 135 of the Bill are themselves being modified so that the leave of the court is not required in any case. The court has an involvement in certain disclaimers, largely to protect the rights of third parties. The principal use of the disclaimer provision is in relation to the disposal of leases which cannot be assigned either for financial or for legal reasons.

The necessity in a winding up for the leave of the court to disclaim in every instance has led to the provisions falling into disuse and to unnecessary complications both for liquidators and other interested parties in seeking informal means to deal with onerous property. There is no justification for the differences between the winding up and bankruptcy codes in this area, and the provisions are therefore being harmonised. The simplified procedure should lead to a greater use of the disclaimer provisions, thus unburdening estates of onerous property at an early stage in the proceedings, reducing the expenses incurred in dealing with it, while at the same time providing safeguards for the rights of third parties in respect of leasehold property, on much the same basis as exists at present.

The advantage of using the disclaimer procedure over other informal means of dealing with onerous property is that it provides a formal means of fixing the claim in the liquidation of any person who has suffered by the operation of the disclaimer. I do not suggest at all that is a total answer to the noble Lord, Lord Mishcon; but I thought it might be rather helpful, when he gives further consideration, as I am sure he will and indeed as we are going to, if I set down the general basis of what has been put in the Bill.

Lord Mishcon

I am most grateful to the noble Lord the Minister for his courtesy. I hope he has realised that I was not in any way querying the provision here that no leave of the court has to be obtained for a disclaimer. The point I was making is that if you do not have to obtain the leave of the court and you extend the right of disclaimer, there must in justice be a right for the person affected, within a limited period of time, to apply to the court to have that disclaimer set aside. That was my point. I was not querying the matters to which he referred.

Clause 72 agreed to.

The Deputy Chairman of Committees (Earl Cathcart)

The Question is that Clause 73 stand part of the Bill. As many as are of that opinion will say, "Content"; to the contrary, "Not-Content". The Contents have it.

Clause 73 agreed to.

The Deputy Chairman of Committees

Clause 74—

Lord Mishcon

I am so sorry: I do apologise. Under Clause 73 there is only a small point but it is. I think, an important one, as to whether an order under this clause, vesting property—

Lord Denham

I wonder whether the noble Lord would give way for half a minute. I think we are getting a little out of order. Clause 73 has been called and the Question has been put. I really do not think we can go back to it.

Lord Airedale

What the Chief Whip has said is, I am sure, quite accurate, and if we had been on Report I dare say the rule would have been strictly adhered to, but when we are in Committee it is more informal. The noble Lord, Lord Mishcon, is very busy, and if he made the mistake of being a second or two late, can this not be overlooked? It would be useful to have a point raised on Clause 73. The noble Lord says it is only a small one. I will stop talking, and I hope that your Lordships will hear the noble Lord, Lord Mishcon.

Lord Denham

If we had been on Report, of course, there would not have been the Question, Whether the clause shall stand part; but that is a minor point. I think we are a little out of order. I do not know whether the noble Lord, Lord Mishcon, is going to address himself to another clause stand part, because there is not a Question in front of the Committee just at the moment. So if possibly on the next point the noble Lord would ask his question—our rules of order are a little wide in this Chamber—that would put us in order, I think.

Lord Mishcon

If I may say so, the noble Lord is taking more time objecting to my speaking than I should have taken in making the point that I wanted to make and I cannot make it upon any other clause. Obviously, I am in the hands of the Committee. I will take two seconds to make my point, which I think is a useful one that the Minister might want to have before him. But I am in the hands of the Committee.

Lord Mottistone

I support that.

Lord Mishcon

I am most grateful to the noble Lord. The point that I want to make is this. If you have an order under this clause vesting property, particularly an order under subsection (7), should it be chargeable with stamp duty? If one felt that it should not be chargeable with stamp duty then an appropriate amendment could be made to the Stamp Act 1891 in this Bill.

Clause 74 [Interest on debts]:

Lord Meston moved Amendment No. 80B: Page 55, line 30, at beginning insert ("Subject to section (Deferment of debts due to connected persons) below").

The noble Lord said: If I may, I will speak also to Amendment No. 80C.

Amendment No. 80C: After Clause 74, insert the following new clause—

("Deferment of debts due to connected persons.

.—(1) Subject to subsection (2) below debts and liabilities owed to persons who at the date of the commencement of the liquidation or at any time when the company was insolvent within twelve months before that date were connected with the company shall—

  1. (a) rank in priority after all other debts of the company, and
  2. (b) be payable with interest at the rate specified in section 74(4) above in respect of the period during which they have been outstanding since the commencement of the liquidation;
and the interest payable under paragraph (b) above shall have the same priority as the debts or liabilities on which it is payable.

(2) Subsection (1) above shall not apply—

  1. (a) to any debt or liability (other than a debt or liability in respect of a loan) arising within twelve months before the commencement of the liquidation;
  2. (b) to any liability under any enactment, for breach of trust, or in tort;
  3. (c) to other debts and liabilities so far as the aggregate of such debts and liabilities does not exceed the amount of the issued share capital of the company;

(3) The amount which by virtue of subsection (2)(c) above is excluded from deferment under subsection (1) above shall be apportioned among the creditors whose debts and liabilities are subject to deferment under subsection (1) above in proportion to the respective amount of such debts and liabilities.

(4) Any security given by the company shall be void in so far as it secures a debt or liability to which subsection (1) above applies.").

These amendments deal with the question of connected persons—a topic less exciting than might at first he thought. The position is that in its report the Cork Committee considered the criticism that there might be scope for a director who would also be the principal shareholder to avoid the loss of the capital he had invested in the company by obtaining a floating charge in his own favour. The committee recommended that on the winding-up of a company those of its liabilities which it owed to connected persons or companies, whether those liabilities were secured or not, and which appeared to the court to represent, in effect. long-term capital, should be deferred to the claims of other creditors.

It appears that the Government have not adopted this proposal and have not, so far as I am aware, commented on it, and this is to be regretted. It is unfair to require ordinary trade creditors to have their claims rank equally with what is effectively the company proprietor's long-term capital, simply because he decided to put his money in by way of a loan of some sort, rather than in the form of shareholding. The person who is the proprietor of the company will, of course, have the benefit of limited liability for his company, and therefore he and his associates should not be entitled to extract their money on the liquidation of the company equally with, or in priority to, outside unconnected creditors. On the contrary, such a person's claims should be deferred; hence this amendment. I beg to move.

Lord Lucas of Chilworth

I am most grateful to the noble Lord, Lord Meston, for describing the purpose of his two amendments, Nos. 80B and 80C. As I see it, these amendments have the effect of deferring certain debts and liabilities owed to persons who were connected with the company at the date of the commencement of its liquidation or were, perhaps, connected at any time within the 12 months before that date, if the company was insolvent at the time. Even with the exceptions provided for in subsection (2) of the proposed new clause, it seems to me that the amendment is undesirable in that it treats connected persons unduly harshly, and would have the effect of discouraging those who run businesses and those who are connected with them. I am thinking here particularly of small and medium-sized companies and also those who are investing in them. It would remove from these companies essential flexibility in arranging their affairs—companies in financial difficulties which are nevertheless capable of being pulled around with additional finance, particularly if that finance can be supplied at low cost.

I do appreciate the concern of the noble Lord, Lord Meston, that moneys might be advanced to a company by connected persons on terms which favour them unfairly in relation to the company's interests and those of its creditors. I am regardful of the time and I should like to suggest with great respect to the noble Lord that if he will between now and the next stage study the provisions in Clauses 82, 83, 84 and 85, he will find there many of the solutions to the problems he poses. If the Committee wishes, I could go through each of those clauses and describe what they contain and how I believe they meet the requirement of the noble Lord, Lord Meston, but I really do not think that this is the time.

9.45 p.m.

I am saying in effect that these clauses provide adequate protection for the company and its creditors against transactions which unfairly prejudice their interests. In view of this, the noble Lord's amendments are really rather unnecessary. They are also undesirable because they tilt the balance, of which I have spoken on more than one occasion today, too much against the bona fide transactions with connected persons that are effected with the genuine intention of assisting the company's trading activities.

I confess to the noble Lord that that is somewhat abbreviated from what I might have said. If it is perhaps not entirely satisfactory tonight the noble Lord may like to return to it at Report. I think he will find that my suggestion will meet his requirement.

Lord Denning

May I say that I have every sympathy with the amendment? It coincides with what the Cork Committee recommended, that these "connected persons"—usually the wife or husband—should not get equality over the ordinary creditors of the company. But my noble friend the Minister is quite right; in a way several of these points are already covered by the Bill. In particular Clause 85 deals with the floating charge when it is given in favour of a person who is connected with the company at the time. Several of the points are already covered in the Bill and perhaps, as my noble friend has said, something good may be done by looking at it again.

Lord Meston

I am grateful to the noble Lord for his invitation to study. I will not promise to do it tonight. I am aware of the subsequent clauses and I question whether they entirely cover the point which was discussed in the Cork Report on this topic. Indeed, I could question the argument that a clause of this nature would discourage investment in small companies because, of course, prima facie, it would leave the proprietors of those companies with limited liability.

It is a question of striking the right balance. I should have suggested that this amendment would have corrected the balance. As I have already observed, there is a burden on the Government in this Bill when they depart from the recommendations of the Cork Committee. But, in the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 74 shall stand part of the Bill?

Lord Mishcon

I should like to make three short points on Clause 74 stand part. In relation to Clause 74(4), would it not have been fairer to have provided that interest on all debts for periods after a company goes into liquidation should in the first instance be at the rate specified in Section 17 of the Judgments Act 1838 and that only to the extent of any remaining surplus would a debt which carried interest at a higher rate have such higher interest paid?

My second point is this. Would it not be helpful if the clause expressly covered the position regarding debentures issued at a discount, particularly deep discount securities, following the repeal of Section 66 of the Bankruptcy Act 1914?—and reference could be made in this connection to the case of Jessel Securities Limited, reported at 1983 BCLC 1.

My third point is that because Clause 143(2) allows interest up to the date of the liquidation to be proved—and I quote—"as part of that debt", then the reference in line 3 of Clause 74(2) to "interest on those debts" could be taken as providing for interest on pre-liquidation interest. Is that intended?

Finally, it is not fully understood why Clause 74 is necessary at all, given Clauses 143(2) and 146(4) and Clause 61(2) of the 1985 Bill. One is concerned that the inclusion of Clause 74 without further clarification might throw doubt on the exact scope of Clause 61(2) of the 1985 Bill.

Clause 74 agreed to.

[Amendment No. 80C not moved.]

Clauses 75 and 76 agreed to.

Lord Denham

I believe it is generally agreed that we have reached the place where we should resume. I beg to move that this House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.

House adjourned at eight minutes before ten o'clock.