Insolvency Bill [H.L.]

HL Deb 04 February 1985 vol 459 cc835-90

3.6 p.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth)

My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.

Moved, That the House do now again resolve itself into Committee.—(Lord Lucas of Chilworth.)

Lord Bruce of Donington

My Lords, we noted with some interest the observations of the Government Chief Whip in which, for reasons which seemed entirely proper to him and for which I have some sympathy, he declined to give the House an assurance that the recommittal of the particular clauses in question would take place before the Report stage. Be that as it may, it cannot be denied that the passing of Amendment No. 16 in the names of the noble Lord, Lord Benson, and others has led to considerable confusion.

Clearly it has had an effect on the remaining clauses in Chapter I of Part II about which the Opposition, together with other parties, have co-operated by withdrawing by notification through the usual channels. But the consequences of passing Amendment No. 16 have run-on effects outside the remainder of Chapter I of the Bill. They spill over into other parts of the Bill, excluding those particular parts which deal with individual insolvency.

Therefore, the House is entitled to know, not the precise text of amendments which are going to be put down, but whether it is the Government's intention to proceed ahead with the principle encapsulated in its original Clause 7 of automatic disqualification. We are entitled to know whether that is going to be proceeded with or not. If automatic disqualification is going to be proceeded with in any form, clearly the financial estimates set out in the concluding section of the introduction to the Bill which envisage a saving on staff costs of £500,000 a year will have to be drastically amended.

If automatic disqualification in cases of compulsorily winding-up is to occur on anything like the scale that obtained in 1983, when nearly 4,000 companies went into compulsory liquidation, a large number of cases will have to be heard of directors who may be provisionally disqualified, whose recourse is by application to the courts to have their name cleared and their position restored. A conservative estimate of the number of cases involved might fall between 4,000 and 10,000 a year. One trusts that this is a matter which has been reviewed by the noble and learned Lord the Lord Chancellor because clearly many more judges would have to be appointed to deal with these cases.

We are entitled to know what is to happen to this principle before the Bill proceeds further. Unless we know what is the clear intention and principle of the Government, I do not see how we can usefully continue in Committee on very important sections of the Bill.

Lord Denham

My Lords, the House will appreciate that it was because of uncertainty, caused by the acceptance by your Lordships of the amendment moved by the noble Lord, Lord Benson, that I suggested to the various noble Lords who were concerned with the Bill that we should recommit Clauses 7 to 14. This is something that is not done very often by a Government. It was suggested by me because I thought it was right in this case.

I believe that the noble Lord, Lord Bruce of Donington, is going a little far. We are to recommit these clauses, and now I suggest that we carry on with the rest of the Bill from Clause 15 onwards, as soon as the House has been resolved into a Committee, and that any fine tuning of business arrangements should be discussed by the usual channels outside. It is difficult to discuss the mechanics of the running of the House across the Floor of the Chamber.

Lord Mottistone

My Lords, I wonder whether I might help my noble friend the Chief Whip. When he moved Amendment No. 16 the noble Lord, Lord Benson, was seeking to use it to replace Clauses 7 to 12 inclusive, which fall within the bracket that the Chief Whip has put aside for recommitment later. It was never his intention—as I believe the noble Lord, Lord Bruce of Donington, was suggesting—to affect the rest of the Bill in any sense; the noble Lord, Lord Benson, would not have sought to do so. What the noble Lord the Chief Whip is proposing is entirely reasonable, and I suggest that the House accepts it.

Lord Taylor of Gryfe

My Lords, I beg to move—

The Lord Chancellor

My Lords, we have first to put the Question, unless the noble Lord wishes to speak on the Question.

On Question, Motion agreed to.

House in Committee accordingly.

[The LORD ABERDARE in the Chair.]

Clauses 9 to 14 agreed to.

Lord Taylor of Gryfe moved Amendment No. 36A:

After Clause 14, insert the following new clause:

("Powers of the Secretary of State to make regulations in respect of prepayments etc.

.—(1) With a view to protecting the interests of unsecured creditors in a winding-up, the Secretary of State may make regulations making provision as to the manner in which companies are to be required to hold prepayments, advance payments or deposits received from customers in respect of uncompleted orders.

(2) Without prejudice to the generality of subsection (1), regulations under this section may—

1. (a) Specify the type of company to which the regulations are to apply, whether by reference to the identity or nature of such companies, the type of trade or business which they carry on or the type of orders in question;
2. (b) make different provision according to the amount of a prepayment, advance payment or deposit;
3. (c) make provision for the holding of prepayments, advance payments or deposits in separate bank accounts;
4. (d) make provision for the transfer of such prepayments, advance payments or deposits from separate bank accounts on completion of a customer's orders;
5. (e) require the keeping of such records and books of account as may be specified;
6. (f) provide for exemptions from any provision of the regulations;
7. (g) otherwise make different provisions for different circumstances or provision relating only to specified circumstances: and
8. (h) contain such incidental and supplemental provisions as the Secretary of State considers appropriate.

(3) No regulations may be made under this section unless a draft of the regulations has been laid before and approved by a resolution of each House of Parliament.

(4) A person who contravenes any regulation made under this section shall be guilty of an offence and shall be liable—

1. (a) on summary conviction, to imprisonment for a term not exceeding six months or to a fine not exceeding the statutory maximum or to both;
2. (b) on conviction or indictment, to imprisonment for a term not exceeding two years or a fine or both.").

The noble Lord said: This deals with the important area of consumer protection. In this matter, I have received support from the Consumers' Association which has a special interest in this field. I am also assured by many Members of the other place that in their post bags, they receive from their constituents more representations on this subject than on many other subjects of concern.

The new clause deals with the question of consumer prepayments; at present the use of separate bank accounts in which prepayments are credited applies in the case of certain companies on a voluntary basis. This practice has been widely praised. But there are many areas where such action is desirable but it is not forthcoming. I had the experience myself last week of going into a furniture store to order a piece of furniture. The salesman said, "Yes, but we need a prepayment if you are going to order. Delivery is eight to 12 weeks, but would you please put down £50 as a prepayment". In the event of that company becoming insolvent I would be treated like any other creditor who had loaned money to the company to enable it to carry on its business. I suggest that prepayment is a separate category which should be protected by putting these funds into a separate account.

3.15 p.m.

The Office of Fair Trading in a recent discussion on prepayment has suggested an action similar to that which I suggest in the amendment. It is estimated by the Office of Fair Trading that there are about 15 million transactions of this kind each year and consumers who make the prepayments do not think of themselves as extending credit to the business. It is in a totally different category. Consumers think of it as their money—they have paid for a piece of furniture, a television set, double glazing or something of that kind. It is a prepayment and they should not be regarded as trading creditors in such a situation.

The most obvious improvement that is needed is to ensure that consumers who have paid for uncompleted orders should stand a much better chance of getting their money back. They should have priority over government, banks and other trade creditors who are in a much better position to look after their own interests. The people who make the prepayments have no status in the matter, in winding-up or insolvency. The Cork Report said: We have adopted the approach that no debt should be accorded priority unless this can be justified by reference to principles of fairness and equity which would be likely to command general public acceptance".

I suggest that this amendment might be taken with Amendment No. 80A, which covers largely the same ground. The principles of fairness and equity demand that a much better deal for consumers should be observed in this legislation. I have much pleasure in moving Amendment No. 36A, and I am prepared to take it with Amendment No. 80A. I beg to move.

Amendment No. 80A: After Clause 70, insert the following new clause:

("Consumer prepayments and deposits.

.—(1) Section 614 of the 1985 Act (preferential payments) shall be amended as follows.

(2) In subsection (1) the words "Subject to subsections (2A) and (2B) of this section" shall be inserted before the words "In a winding-up".

(3) After subsection (2) there shall be inserted the following subsections— (2A) There shall be paid in priority to the preferential debts any claim arising from a deposit of money or prepayment made before the relevant date in relation to the purchase, leasing, hire of rental of goods from the company or the provision of services by the company for use or consumption other than in the course of business. (2B) The claims mentioned in subsection (2A) above shall—

1. (a) rank equally among themselves and be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions; and
2. (b) so far as the assets of the company available for payment of general creditors are insufficient to meet them, have priority over the claims of holders of debentures under any floating charge created by the company, and be paid accordingly out of any property comprised in or subject to that charge.

(2C) In the section "the relevant date" has the same meaning as in Schedule 19.".")

Lord Denning

I am sure everyone will have every sympathy with these people who pay their money in advance in return for goods which are to be sent forward in two or three months and, when it comes to insolvency or liquidation, they become just one of the general creditors, whereas in fairness, as my noble friend Lord Taylor says, they should be given priority.

While having every sympathy with them, that would be contrary to the views of the Cork Committee. Although there are many creditors with whom one would have sympathy, on the other hand the general principle should prevail that the great body of creditors should join or lose rateably all along the line and that no particular class should be given preference, even the Crown, to which we shall come later. While having every sympathy with the amendment, I am not sure it would be wise to accept it in view of the general principle that all creditors should share rateably.

Lord Campbell of Alloway

For the reasons which have been given by the noble and learned Lord, Lord Denning, although of course one has sympathy, I would oppose the amendment. After all, if you stand back and look at it the situation, nobody is under an obligation to put down the advance payment, and there is also the problem of other creditors. On the general principles of fairness, to which the Cork Report refers and uses as a beacon, I suggest that it would not be justified.

Lord Donaldson of Kingsbridge

I think that it is bitterly disappointing to hear the lawyers taking this view. As very much a non-lawyer, it seems to me to be absolutely monstrous that the money in prepayment put forward in the ordinary course of daily business which has grown up since all these laws were made (where it is customary for people who are selling things to demand a prepayment; not as an extension of credit but as a guarantee that the man does not cancel his order, the seller thereby losing the sale) should not, when received as part payment, be kept as part payment for that article. If, owing to insolvency, the supplying company cannot deliver the article, then they should return the part payment. If there is any laymen who thinks otherwise, I should like to hear him say so.

Lord Lucas of Chilworth

I am obliged to the noble Lord, Lord Taylor of Gryfe, for explaining so clearly the reasons behind this amendment. He has taken me a little off balance in suggesting that we deal with his Amendment No. 80A at the same time. But, with respect to him, I think that these two amendments are really rather different in that the one we have before us now is dealing with powers of the Secretary of State, while the other goes a little further. I have to say at the outset that we would resist this amendment. Let me say at once that the Government are sympathetic to the plight of many unsecured creditors who find themselves last, only of course to the shareholders, in the winding up of an insolvent company.

We are aware of the concern expressed about the unsecured creditor who is a consumer who has paid in advance for goods and services, and faces at that time little or no prospect of receiving a share in any distribution of assets. But I have to ask myself this question. Is the answer to the problem the creation of further rules and regulations relative to companies carrying on business in the particular way envisaged by the amendment? If the Secretary of State imposes regulations on a particular company, is it going to make that company less competitive, perhaps by increasing its overheads, perhaps by depriving it of working capital and, as a result, precipitating its failure? Regulations, however they are arrived at, would also raise the question of enforcement. In the case of a trader with whom consumer prepayments are most at risk, compliance with a regulation cannot be relied upon. How and by whom is this to be done? It would seem to me that a good deal of effort would have to be invested. Of course, eventually the burden will fall on the consumer.

The noble and learned Lord, Lord Denning's recollection of the review committee chaired by Sir Kenneth Cork is quite right. That committee looked specifically at the issue of consumer prepayments and deposits. It reached the view that the recommendations it had received for legislation requiring prepayments and deposits to be paid into a special account were impracticable, in many cases depriving traders of essential working capital. The review committee also concluded that it would be wrong to give consumer creditors preferential status; and the Government accept the committee's recommendations. I believe that this is essentially the point that my noble friend Lord Campbell of Alloway was underlining in his remarks.

I mentioned at Second Reading the position of the Office of Fair Trading. Perhaps it would be right if, in fairness, I were to amplify my few remarks on that occasion. The Office of Fair Trading produced a discussion paper called the Protection of Consumer Prepayments, and in that paper support was given for the giving of preferential status to consumer creditors. But at the same time the Office of Fair Trading went on to say that, other than insolvency law reform, it saw no need for any universal action, preferring the development of voluntary schemes designed to cover particular problem areas. The Government support these schemes. They are generally operated by trade associations and take the form either of a single compensation fund or a scheme under which another member steps in to fulfil the contract. There are now five mail-order protection schemes run by the main associations of newspaper publishers. Purchasers of air package holidays have their prepayments protected in a number of ways, notably through bonding. There are numerous schemes operating in the home-improvement sector.

We think that these voluntary schemes, together with the existing legislation, will be complemented by the general provisions of the Insolvency Bill. Here, in this Bill, we are striving to provide alternatives to bankruptcy and liquidation which will in turn benefit creditors and will at the same time encourage directors who perhaps in the past have not been as assiduous in looking after their directoral affairs to take a greater interest in the running of the companies, so avoiding insolvency. These are the reasons, coupled with those expressed by the noble and learned Lord, Lord Denning, and my noble friend Lord Campbell of Alloway, why we would invite the noble Lord to withdraw the amendment.

Lord Mishcon

I think that we are dealing with a matter which causes a great deal of difficulty to the public and a great deal of injustice to many would-be consumers. I can well understand why the noble Lord the Minister felt that he had to answer this amendment in the form that he did because of what the Cork Committee, after a lot of investigation, found. In other words, one can see why it is difficult, in view of their recommendation, to pass an amendment which will put into this Bill the requirement for payment into separate accounts and matters of that kind. However, the Committee would not want to leave the subject in quite this way as though there was no remedy that the Government can think of and that this Committee can think of and that nothing is to be done.

It would be helpful if the noble Lord the Minister would utter a warning to those companies who take these prepayments and deposits knowing perfectly well at the time they take them that they are insolvent or that there is no intention to deliver the goods. I hope that there will be a prosecution of directors of companies of that kind with rather more assiduity than there has been in the past; because we have all heard of scandalous cases on the radio and elsewhere where no action has been taken by the police in spite of these happenings.

I believe that something good may come out of this discussion if the noble Lord the Minister would say that it is not just a question of taking credit from people who are purchasing in the normal way, that it is not just a question of taking credit of supplies of materials, but that offences are committed where companies take prepayments, when traders take prepayments, well knowing that there is every chance that the goods will not be supplied.

3.30 p.m.

Lord Campbell of Alloway

Before the noble Lord sits down, may I say that the noble Lord, Lord Mishcon, put his finger on the nub of the problem. This is a criminal situation, and it would be wrong to stretch the civil law and to create regulations when the nub of the problem involves what is a crime. This has to be dealt with on that basis. I agree entirely, if I may say so, that it has not been dealt with sufficiently assiduously in the past.

Lord Donaldson of Kingsbridge

I do not think that what the noble Lord, Lord Mischcon, has suggested is enough. I certainly agree with it. It is fraudulent if somebody who is on the verge of bankruptcy accepts money for something they know they can never deliver: that is a quite separate thing. What worries me is that it is the small man, as always in these affairs, who gets hit. If you go round any prosperous working-class area—nowadays frequently less and less prosperous—where there are a lot of factories and wage-earners you will find that they have very extensive instalment payments in order to equip themselves with what most people today require as part of their ordinary living. This Bill is suggesting that in the case of a man who has paid instalments for two years for an item of goods which he is now using, he having got it in advance, if the company goes bankrupt those instalments count for nothing and the machine can be taken away from him.

It seems to me that if a man who is on a weekly or monthly wage and who uses the ordinary facilities of 1985 by way of the instalment system—your Lordships may think it is a bad system, but it is one which works all over the country—is to trust that system, he must feel that those instalments are what they are said to be; namely, part-payments for an item of goods which he has received. If he cannot finish the payments the goods are taken away from him—and quite right, too. But if the supplier goes bankrupt he cannot possibly take the goods away from him because the man has not finished paying for them when in fact he could have done. It is a very complicated situation. It seems to me that to the layman it is perfectly clear that the man should receive those goods and should not have the value he has paid for them taken away from him, through no fault of his own.

Lord Davies of Leek

May I put another point of view? Suppose it is not furniture but a service that you are buying. Suppose a man buys a service from a solicitor, not knowing anything about law or about professionalism in that area of service; and suppose that that solicitor (as happened quite a lot in the old days in South Wales), when he gives that service to some poor miner's wife, knows full well that he himself is about to become a bankrupt and she will have no protection when he is charged with bankruptcy. What happens in the case when you are buying a service rather than buying goods?

Lord Lucas of Chilworth

As I said at the outset, the Government have exactly the sympathy that the noble Lord, Lord Mishcon, sought, because people are taken unawares. What we are talking about here is something rather different, in that if there were an intent to get monies by way of deposit or prepayment knowing full well that the company was insolvent then that would in itself be an offence; and I believe that the protection the consumer deserves is in penalising in some way, or certainly in bringing to book, those who allow that situation to arise. The position with hire-purchase is different, in that the person has the goods. In most instances the instalment situation is a little different, in that the person has the goods before all the payments are made.

I take the point made by the noble Lord, Lord Davies of Leek. If in fact a person goes to a law firm which, having taken money from him to undertake some activity, then goes bankrupt, I believe that the Law Society have their own means of dealing with that, as do air companies through IATA, and so on, as I have described. So I think there is protection there. If the noble Lord, Lord Davies, is thinking in terms of a plumber who perhaps is merely going to provide the work and not the material and who goes into insolvency during the course of the work and disappears, the cost having been paid—and, let us face it, one can think of the roofing contractors or the driveway asphalters as being more particularly the ones who have been in the newspapers in recent years—one has to say that there is really very little that the law can do if somebody is induced to part with their money on the rather flimsy evidence that the seller of the service provides. As I understand it, if there were a criminal offence in that the provider of the service committed a fraud, then the full panoply of the law can be applied. So there are remedies, but, of course, they are always in the most extreme cases. Certainly I do not believe that we should attempt to tackle that particular problem in the way that has been suggested in the amendment.

The noble Lord, Lord Mishcon, asked whether I could sound a warning note. I think I have done so. Let us have a look, as we consider some of the clauses, to which we shall return, with regard to fraud, incompetence, unfitness and so on, because it is there that the remedy will probably lie.

Lord Bruce of Donington

Is the noble Lord aware that one of the principal misgivings that we have in connection with this can be best expressed by some doubt as to whether in fact the Government have either the will or the means to deploy the full resources of the law in prosecuting fraud? This lies at the base of it. There are, of course, cases in which there is pure inadvertence and which unfortunately lead to people paying deposits for goods and not receiving them. Some of those cases happen in circumstances which do not involve fraud, but there are quite a number that do. One is permitted to doubt. I think, whether the Government really have the will to deploy their resources where fraud arises. There are numerous cases even today where there is a marked disinclination to prosecute, sometimes because of under-manning in the Fraud Squad itself—in fact in practically all cases it is due to under-manning in the Fraud Squad—and, in cases where the office of the DPP is the appropriate one, undermanning and understaffing in that department. If the Government were to give your Lordships an indication that regardless of cost these frauds would be pursued, it would do much to reassure the Committee.

Lord Lucas of Chilworth

I do not know why the noble Lord, Lord Bruce of Donington, should adopt that stance in demanding an assurance from me because it was only last week, when he and I were dealing with the Statement on financial services, that I told him quite directly that the Government had through my department instituted the new Fraud Investigation Group. That was in January. If that is not a demonstration of the Government's intent to pursue fraud and to assist the Fraud Squad itself, which has acknowledged the setting up of the FIG and the help that it will provide, I do not know what is.

Lord Taylor of Gryfe

In earlier discussions on this Bill this Chamber has been very sensitive to the question of the protection of directors, particularly non-executive directors, of companies. All I am suggesting in this amendment is that it should be equally sensitive about the small man, the consumer. Yesterday afternoon I visited a large furniture store to see how it works. There were there hundreds of working-class people who had money to spend and on each order taken a 20 per cent. deposit was demanded. The people who were spending their money buying bedroom suites, television sets or whatever did not take a view of the insolvency of that company. They did not ask for the balance sheet. They do not read the Financial Times about the difficulties of companies, and they paid their money.

They are in a different category from the creditor who is supplying merchandise to that distributor or wholesale warehouse and who takes a commercial view of his commercial risks in supplying. The average consumer is not in that position and is not entitled to regard his 20 per cent. deposit, on an item which will be delivered in three months' or six months' time from now, as working capital for the company. Even if it is difficult to operate the provisions of this amendment, requiring that payment should be made into separate accounts etc., if the Minister gives us some assurance that he will look at this question of consumer protection in this Bill I shall then be glad to withdraw the amendment.

Perhaps I may encourage him in so doing by saying that in the United States, where they have had similar problems, they have incorporated in their bankruptcy code a provision which gives high priority to unsecured claims of individuals who have paid for services that were not delivered or provided. If something similar were incorporated in the Bill or some assurance were given which might help us to proceed with this matter, I should certainly be prepared to withdraw the amendment.

As the Minister said, in the travel trade they have their own scheme, but this Bill is covering the whole area of trade and commerce and it would be extremely difficult to have a unified scheme covering the whole of trade and commerce, unless it were incorporated in the law. In the tourist and travel trade you can do it. You know who the traders are, you have a list of them, and you can adopt a code. But we are now talking about people who supply furniture, television sets, double glazing and the whole range of consumer services, and without the support of the law it would be extremely difficult to incorporate some code which would give some protection to the small man, the consumer. I ask the Minister to give us some assurance to help us in this regard.

Lord Boyd-Carpenter

The noble Lord repeats again and again his concern for the small man, but I wonder whether he and your Lordships fully appreciate that he is asking for that small man, the consumer, to be given preference over what may be other small people—the suppliers of goods to the insolvent company. It is very easy to feel well disposed towards giving priority to somebody, but it is necessaryto recall that if one does, one is pushing somebody else further down the ladder. There is no reason to assume that the consumer in this case is any smaller a man than the supplier of goods. I hope that my noble friend will not go along the road of allowing priority to be given to one particular class of person.

The noble Lord referred to the travel trade, with which I have had some connection. That is very properly organised through ABTA and the ABTA bonding scheme. It is organised not on a basis that deprives the other creditors of anything if a travel firm goes bust, but simply by putting money by in advance into the bonding scheme, so that the consumer is protected. That is done for good commercial reasons, because travel firms know that if there is a doubt about a payment by a customer when a travel firm goes bust, it will be bad for the trade and for the industry. I suggest that that is the way to do it; not by quite arbitrarily picking out one set of creditors in general and giving them preference over another lot who may be just as meritorious.

3.45 p.m.

Lord Galpern

Does the noble Lord agree, in distinguishing between the two categories of creditors, that the small trader has facilities through the trade for ascertaining the financial standing of the company which he proposes to supply with goods, whereas the small man knows nothing of those circumstances or of the method of ascertaining whether his 20 per cent. deposit will be lost? Therefore, he is at a distinct disadvantage as compared with the small trader who has trade facilities which can guide him as to the financial stability of the firm which he proposes to supply.

Lord Boyd-Carpenter

In some cases he certainly has, but in others he has not. The really small supplier of goods may be a member of a trade association and have the advantage of that, but he may not. But what I was protesting against, and do protest against, is the idea of giving an absolute priority when one of these unfortunate things happens to one creditor rather than to another.

Lord Campbell of Alloway

I hope that my noble friend the Minister will not give way. It really is a question of helping Peter to pay Paul.

Lord Donaldson of Kingsbridge

It is a question of an absolutely different category, and that is why we insist on it. There is no comparison whatever between a housewife who buys something and a man who manufactures something in order to sell it. They are in quite different categories, and given long enough I could identify exactly how. I am sure the noble Lord cannot really feel that they are in the same category, and I do not think that we are giving preference.

I should like to ask one further question. Let us suppose that the receiving firm puts the money in a separate account, as happens when one pays a deposit for buying a house, which I have just done. I hope to goodness that the people I am buying it from have deposited it with their solicitor. What happens if they go bust?—and there is no reason why they should not. They are selling their house—maybe because they are in trouble; I do not know. I have made what inquiries I can and at the moment I am satisfied; it is a perfectly clear case. But if they go bust, are the Government suggesting that it would be correct that the money held by a third party should be taken away from me and given to the creditors of that particular firm? It seems to me absolutely inconceivable.

Lord Boyd-Carpenter

With great respect, it does not arise on this amendment and I am therefore not saying that.

Lord Mishcon

I do not know whether it assists the noble Lord, Lord Donaldson, to say that I assume he is asking for the protection of the Committee by way of absolute privilege in regard to what he has said about the vendor of the house that he is purchasing. Having said that, and only to get the position absolutely clear, if you pay, as is usual, a deposit to a stakeholder, the property in that deposit does not pass at all. But if, as many people do, you have paid the deposit to somebody as an agent for the vendor or to the vendor himself, then the property in that deposit does pass.

Lord Taylor of Gryfe

I am sorry that I have not had any response from the Minister in this regard and as I feel that this is a matter of very important principle I propose to divide the Committee.

3.49 p.m.

On Question, Whether the said amendment (No. 36A) shall be agreed to?

Their Lordships divided: Contents, 53; Not-Contents, 99.

DIVISION NO. 1
CONTENTS
Ardwick, L.	Kilmarnock, L.
Attlee, E.	Leatherland, L.
Aylestone, L.	Listowel, E.
Banks, L.	Llewelyn-Davies of Hastoe, B.
Blyton, L.	Lloyd of Kilgerran, L.
Bottomley, L.	Longford, E.
Brockway, L.	McIntosh of Haringey, L.
Caradon, L.	McNair, L.
Chitnis, L.	Mayhew, L.
Collison, L.	Melchett, L.
Davies of Leek, L.	Meston, L.
Diamond, L.	Milford, L.
Donaldson of Kingsbridge, L. [Teller.]	Milverton, L.
	Monson, L.
Donnet of Balgay, L.	Phillips, B.
Ewart-Biggs, B.	Porritt, L.
Ezra, L.	Roberthall, L.
Galpern, L.	Seear, B.
Gladwyn, L.	Stallard, L.
Grey, E.	Stoddart of Swindon, L.
Grimond, L.	Strabolgi, L.
Hall, V.	Taylor of Gryfe, L.
Hampton, L.	Tordoff, L. [Teller.]
Harris of Greenwich, L.	Wallace of Coslany, L.
Hatch of Lusby, L.	Wedderburn of Charlton, L.
Hooson, L.	White, B.
Hutchinson of Lullington, L.	Willis, L.

NOT-CONTENTS
Airey of Abingdon, B.	Brabazon of Tara, L.
Allerton, L.	Caithness, E.
Alport, L.	Cameron of Lochbroom, L.
Ampthill, L.	Campbell of Alloway, L.
Atholl, D.	Campbell of Croy, L.
Avon, E.	Clancarty, E.
Belhaven and Stenton, L.	Coleraine, L.
Beloff, L.	Cottesloe, L.
Belstead, L.	Cox, B.
Boyd-Carpenter, L.	Cromartie, E.

Cullen of Ashbourne, L.	Mersey, V.
Davidson, V.	Molson, L.
De Freyne, L.	Morris, L.
Denham, L. [Teller.]	Mottistone, L.
Denning, L.	Mowbray and Stourton, L.
Dilhorne, V.	Murton of Lindisfarne, L.
Drumalbyn, L.	Newall, L.
Effingham, E.	Nugent of Guildford, L.
Ellenborough, L.	Onslow, E.
Elliot of Harwood, B.	Orkney, E.
Elton, L.	Orr-Ewing, L.
Faithfull, B.	Peyton of Yeovil, L.
Fraser of Kilmorack, L.	Portland, D.
Gainford, L.	Rankeillour, L.
Gardner of Parkes, B.	Reay, L.
Gray of Contin, L.	Renton, L.
Gridley, L.	Saltoun, Ly.
Hailsham of Saint Marylebone, L.	Sandford, L.
	Selkirk, E.
Halsbury, E.	Sempill, Ly.
Hayter, L.	Skelmersdale, L.
Holderness, L.	Stamp, L.
Home of the Hirsel, L.	Strathcona and Mount Royal, L.
Hood, V.
Hylton-Foster, B.	Strathspey, L.
Ilchester, E.	Sudeley, L.
Kaberry of Adel, L.	Swansea, L.
Killearn, L.	Swinton, E. [Teller.]
Kilmany, L.	Terrington, L.
Kinloss, Ly.	Thomas of Swynnerton, L.
Lauderdale, E.	Tranmire, L.
Long, V.	Trefgarne, L.
Lucas of Chilworth, L.	Trumpington, B.
Macleod of Borve, B.	Vaux of Harrowden, L.
Margadale, L.	Vickers, B.
Marley, L.	Vivian, L.
Marsh, L.	Ward of Witley, V.
Massereene and Ferrard, V.	Westbury, L.
Maude of Stratford-upon-Avon, L.	Whitelaw, V.
	Young, B.
Merrivale, L.	Young of Graffham, L.

Resolved in the negative, and amendment disagreed to accordingly.

3.58 p.m.

Clause 15 [Power to make order]:

On Question, Whether Clause 15 shall stand part of the Bill?

Lord Mishcon

I am in some difficulty, but I hope that the Committee will bear with me. The difficulty arises out of the fact that, without any doubt, it is the will of all sections in the Chamber that this Bill, the general principles of which we agree to, shall emerge from your Lordships' House in the best possible state. The fact of the matter is that the Bill has not in our view been very carefully or well drafted, with the result that there are many points with regard to clauses of the Bill with which the lawyers are unhappy. A very distinguished colleague of mine who belongs to one of our leading firms and who individually has been through this Bill as an expert has raised many of those points, and, indeed, he has communicated them not only to me but also to the noble Lord the Minister and to the noble Lord, Lord Benson. To ignore them at the Committee stage would be quite wrong; to expect the noble Lord the Minister to reply to them, as we reach clause stand part on every one of these clauses, would in my view be a most discourteous and unjust position to take up.

The noble Lord the Minister may not have had time to consider these matters and he will obviously need expert advice, if I may humbly say so. What I propose—and this is where I ask for the Committee's patience—is that when the Question that the clause stand part is put, and these technical points (some of which are rather lengthy) may then be considered. I will raise them with the Committee. But I shall well understand, as will the Committee, if the Minister will simply consider the points and in due course let me, and any other noble Lord who is interested, have his observations on them.

We have now reached the first of these clauses, and I ask for your Lordships' patience. We are dealing here with Clause 15 of the Bill. Clause 15(1)(a) contains the expression, unable to pay its debts". This wording is both ambiguous and defective. I will point out what the defects appear to be. It is clearly established that the test for Clause 518(1)(e) of the 1985 Companies Bill (which, your Lordships will remember, will consolidate various company legislation), which replaces Section 223(d) of the 1948 Act, is the balance sheet test; that is, liabilities exceeding assets. If I may be technical for a few moments, the authority for what I have just said is Buckley at Volume pages 534 and 535; and the 1970 case of Capital Annuities Limited, which is reported at 1979, Weekly Law Reports, at page 170.

In the light of that case, Clause 15 appears to certain lawyers to suffer from two defects. First, it fails to include the wording requiring the court to take into account contingent and prospective liabilities—which provision has appeared in the Companies Acts since 1907—although Clause 16(1) of this Bill hints at that. The effect of Clause 15 as presently drafted may therefore be to require the court not to take such liabilities into account. Anyone who refers as a lawyer to In re Equitable Life Assurance Society, which is an 1869 case, will see the force of what I am saying. One contrasts with this Clause 190(1)(b) of our present Bill.

The second effect is that even if Clause 15(1)(a) were amended to make it clear that a company's inability to pay its debts could be established under either of the methods specified in Clause 518(1)(a) or (b) of the 1985 Bill as well as by the balance sheet test under Clause 518(1)(e), there would still remain one important type of insolvency which Clause 15 would not cover. I refer to insufficient liquid assets to pay all debts presently owing where, first, there is no negative net worth on the balance sheet test; secondly, there has been no unsatisfied demand and no unsatisfied execution under Clause 518(1)(a) and (b) of the 1985 Bill. That is the first important point for the Government to consider.

I apologise for making two more points before I sit down, on the understanding that the Committee already has from the understanding I sought to express at the beginning of my remarks. Another important point is that it is surely desirable that the clause should specify on what basis on a forced sale, for example, a company's assets should be valued for its purposes; and how far it is legitimate to take into account any uncalled capital.

Finally, it is of great importance that Clause 15 should describe clearly and accurately the financial conditions in which a company or its creditors can seek the protection in all the common types of insolvency.

The learned note which I received from my colleague—who happens to be the chairman of the companies committee of the Law Society but who has made his observations, which have been communicated to the Minister and to the noble Lord, Lord Benson, in an individual capacity—goes on to comment on the various ways in which the common types of insolvency he is talking about should be taken into account. I will not weary the Committee with them; the Minister has those examples in the note he has received. I feel that the valid points made in respect of the clause ought to be placed on the record at Committee stage, and I shall be doing this throughout the Bill.

Lord Lucas of Chilworth

I have no learned note in front of me. I view this particular section of the Bill on administration orders in a rather more bread and butter way. It seems to me that some of the points which the noble Lord, Lord Mishcon, has presented are not relative to a court agreeing with a company that they should seek an administrative order which does, of course, provide for other things. Nevertheless, having said that—and particularly in response to the noble Lord's opening remarks—I am very happy to listen to what he has to say in terms of the advice he has in front of him. I am happy to give what consideration I can to these matters and let him have the benefit of our observations. I say that without committing myself, my department or the Government to any further action than just that. If the noble Lord is happy with that assurance, then I am happy for him to make the points he wishes to make, and I will respond if I can. If I cannot respond, then the noble Lord will accept that I will do just that.

Lord Denning

I just want to say that I sympathise very much with the comments of the noble Lord, Lord Mishcon. When one reads Clause 15, is one to take it that the words that a company is or will be unable to pay its debts include contingent or prospective liability? The courts will have to decide, if the statute does not make that clear. As to the realising of assets, will that be on a forced sale or on a free sale? The whole clause will be a feeding ground for the lawyers unless we have these matters cleared up at some stage during the passage of the Bill.

Lord Mishcon

I am most grateful to the noble and learned Lord, Lord Denning. I am afraid that the Minister did not exhibit his usual graciousness in answer to what I thought was a rather courteous invitation, which excused him as well from any need to reply at this stage. It is not an answer from a Minister who understands what I was saying to speak merely in terms of this being an administration order and that the courts will know that under Clause 15 they can make an administration order. The very point I was making—and which was made to me by a very distinguished lawyer, and communicated to the Minister as well as to me and the noble Lord, Lord Benson—was that the court will not know (as the noble and learned Lord has said) when it is supposed to make the order, what the wording unable to pay its debts means, and what the question of the valuation of the sale of assets should be. For the Minister to say that it all seems very clear to him puts him, if I may say so, in front of the Court of Appeal and the House of Lords.

Clause 15 agreed to.

Clause 16 [Application for order]:

Lord Meston moved Amendment No. 36B: Page 13, line 8, leave out subsection (3).

The noble Lord said: Clauses 15 and 16, as the Committee has already heard, provide for administration orders with two express purposes in mind. They are stated in Clause 15(3):

1. "(a) to secure the survival of the company, or the whole or any part of its undertaking, as a going concern;
2. (b) to secure a more advantageous realisation of the company's assets than would be effected on a winding up.".

The Committee will observe that under Clause 15(1) the court has a discretion. The trouble is that Clauses 16(3) and 16(4) as drafted in their present form inhibit the powers of the court in making administration orders by stipulating that a petition for an administration order must be dismissed if a receiver has been or will be appointed or if someone is entitled to appoint a receiver and that person opposes the petition.

One has a competition between the proposed administration order by the court and the receiver appointed or to be appointed, and under the terms of the Bill as at present drafted the receiver will always win that competition. The purpose of the amendment is to suggest that that is wrong in principle. It is submitted in support of the amendment that the court's power to make an administration order, which is a very important limb of this Bill, should override and not be overridden by a secured creditor's power to appoint a receiver because, on the one hand, an administrator appointed by the court will have the duties imposed by Clause 15(3) and will be concerned with the interests of the creditors as a whole; on the other hand, the receiver will have a duty primarily to realise the assets of the company for the benefit of the single creditor who appointed him and he will not be concerned with the wider interests of the creditors as a whole. Indeed, the appointment of a receiver is in practice the prelude to liquidation in a great many cases.

Therefore, it is suggested that the balance in the Bill as presently drafted is wrong and that the court's power should not be inhibited in this way. To remove subsections (3) and (4) of Clause 16 will still leave the court with the discretion vested in it by Clause 15, and those who have appointed or have the right to appoint a receiver will still have the right to be notified under Clause 16(2) and to be heard by the court. Indeed, under Clause 33 those people have an enhanced priority at the end of the day.

Very simply, if this automatic bar to administration orders remains the benefits of those orders will be, in the great majority of cases, largely frustrated by creditors who have floating charges—giving them, therefore, the power to appoint receivers—because those people will naturally want a quick realisation of the assets of the company for their own benefit and will not be concerned with the wider, meritorious purposes set out in Clause 15(3). I beg to move.

Lord Denning

I am not sure that this is desirable. This idea—it is a very important one—that there should be an administrator appointed by the court to run the company's business is a very good project and it follows on the success of the receivers and managers appointed under a floating charge by the debenture holders. In future the administrative receiver is to be a qualified insolvency practitioner—a person of repute—who can carry it on. He is not to carry on the business or resolve it simply for the sake of the debenture holders. He must have in mind all the creditors. We have had law cases about that. In a way therefore the administrative receiver is a very good, qualified man to take on the administration of a company, and in those circumstances there would be no need to have an administrator appointed by the court. I can see that that is the reason underlying what the Government have done, and I should have thought therefore that the amendment was not necessary.

4.15 p.m.

Lord Bruce of Donington

One of the problems to which the Cork Committee addressed itself was the undue power that was apprehended in the hands of a receiver for the debenture holders. Complaints were laid, and complaints continue, that very often receivers for the debenture holders apply themselves quite ruthlessly to the realisation of assets in order to satisfy the charge comprising the debenture with, in some cases, scant regard either to the future of the business itself or even the plight in which creditors further down the line might find themselves.

The Cork Committee considered this but it also had to bear other considerations in mind. It is undoubtedly a fact that in modern industry and commerce the issue of debentures plays an important part in providing capital for industry. Therefore, anything that seriously prejudices the approach by companies for loans upon security must be very carefully considered. If persons making loans to industry or commerce on a debenture charge feel that as a result of the application of this Bill their position would be prejudiced and that they were not as secure as they thought they were it might act as an inhibition against the raising of capital in that way.

As I see it, the Cork Committee itself and the Government have come some way towards being fairer to the continuance of the company and fairer to the general body of creditors by making provision for the appointment of an administrative receiver with certain specific powers and subject to certain specific qualifications. It is a very delicate balance, and for my part, subject to any observations that my noble friend has to make upon the legal construction of the clauses, on which he is uniquely qualified, I should prefer to leave the balance more or less where it appears to be in the Bill as it stands.

Lord Lucas of Chilworth

I start by briefly explaining the reasons for the inclusion of a blocking power. We think that it is essential to avoid disturbing too severely the existing commercial lending practice in the United Kingdom and the power is one of a series of checks and balances included in the procedure to avoid undermining the relative positions of creditors.

The procedure of an administrator introduces in Clauses 17 and 18 a moratorium on pre-administration debts. In most cases this will affect the major providers of finance more than any other single creditor. It removes temporarily a right of enforcement that they would otherwise enjoy. The counterbalance is that a lender with a floating charge will be notified of the application, as in Clause 16(2), and will have the power to appoint an administrative receiver and prevent an administration. He thus has a choice to make based on his knowledge concerning the company's affairs and must, in the light of that knowledge, form a judgment regarding which is the best course to take—receivership or administration.

The noble Lord, Lord Meston, is perhaps being unduly pessimistic. I am not contending that the right to appoint an administrative receiver will always be waived; but to suggest that the existence of the power will undermine the procedure runs contrary to the wide welcome that the concept of an administrator has received, most particularly from the banks and other financial institutions.

I think that the point that the noble Lord, Lord Bruce, makes is valid. The practical aspect of financial backing from major financial institutions is essential right through the operation of a company. Certainly if an administration procedure is entered into, the company will need the further backing of the financial institution.

Whatever happens to the amendment, in effect, a blocking mechanism will continue to exist. The provisions in the Bill regarding the floating charge holders' rights simply set out an orderly mechanism under which financial institutions will make their decisions as to what procedure is most appropriate.

I should have thought that it is a little too early to judge the effect of an administration procedure. As for offering a third avenue, I ask the Committee to accept the principle behind the administration procedure as offering a third avenue. As such, we do not think it will be held in check, as it were, by having a blocking power.

Lord Meston

I am grateful to your Lordships for your observations on this amendment. The duties of a receiver to third parties were explained and enhanced by the noble and learned Lord, Lord Denning, in a case called. I think, Standard Chartered Bank v Walker. But, as I understand it, it is still the law that a receiver does not have to inform creditors or other potential victims of what is going on until it has indeed been done. It is still the position that the functions and interests of a receiver are not the same as the functions and interests of an administrator. It is because the administration provisions of this Bill are so welcome that they ought not to be fettered. Nevertheless, having heard your Lordships' observations, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 36C not moved.]

On Question, Whether Clause 16 shall stand part of the Bill?

Lord Mishcon

I promise your Lordships' Committee that this time I shall make a shorter observation. Clause 16 leaves open the point as to whether the court can hear an application made by a creditor without the company being represented. Clause 16(2) does not provide that, where a creditor presents a petition, he shall forthwith give notice to the company, although it must clearly be wrong for a petition presented by a creditor to be heard without the company being given an opportunity to be represented at the hearing. One would have thought that that should he covered by the company insolvency rules. Can the Minister say whether that will be done?

Lord Lucas of Chilworth

No, I cannot say that. In responding to the remarks of the noble Lord, Lord Mishcon, may I say that I wished no discourtesy in my earlier remarks? We want to consider all representations, from wherever they come, in order to get the Bill right. I have not been able to identify the document to which he refers in a box full of documents on the Bill that has been sent to my department. It is not perhaps so very important this afternoon that I should be able to identify it, particularly in the light of the remarks that he made. I suspect that probably before the end of today's proceedings we shall have acquired a copy, but I have no trace of the particular document to which he refers.

Again, we shall listen to what the noble Lord has to say, taking account of that which will be put in front of us in the document. I reiterate, perhaps rather more fulsomely, that we shall then certainly be able to respond to the points that he is making.

Lord Mishcon

All that I ask the noble Lord in the first instance is that he should in his courtesy respond to these points, either saying that there is no substance to them, which he may say—though I hope that he will not, because I believe that there is substance in all these comments—or, where he can do so, saying that the Government are bringing forward their own amendments, in which case I shall know where I stand at the Report stage.

My only anxiety—and I want the Minister to understand this; and I am responsible for what I am saying, not in regard to any document; I am saying it and it is a record of the Committee—and all that I want to do is, with all your Lordships, to try to make this Bill better. We have said from this Front Bench that there are no party politics in this at all. We agree with the principle of the Bill. We are glad that the Cork Committee's recommendations in some way are being implemented. As our only object is to be helpful, one hopes that the noble Lord will be helpful, as he usually is, in making observations on these comments of mine before the Report stage.

Clause 16 agreed to.

Clause 17 [Effect of application]:

Lord Bruce of Donington moved Amendment No. 37: Page 13, line 28, at end insert ("unless the court otherwise orders").

The noble Lord said: Clause 17(1) reads: During the period beginning with the presentation of a petition for an administration order and ending with the making of such an order or the dismissal of the petition— (a) no resolution may be passed or order made for the winding up of the company". The purpose of this amendment, which adds the qualification, unless the court otherwise orders", is to meet the following situation. If a petition is threatened and to avoid compulsory liquidation the directors bow to the pressure and opt for voluntary liquidation, a vindictive creditor can stop shareholders passing a winding-up resolution by petitioning for an administration. It is to give the court some power in circumstances such as that that this small amendment is put down. I beg to move.

Lord Lucas of Chilworth

I thank the noble Lord for explaining the purpose that lies behind the amendment. I rather imagined that that was the case. In fact, his amendment will not do that. Clause 17 currently provides that once the application for an administration order is made, no winding-up order may be made. If we accepted the amendment, it would allow the court to wind up a company notwithstanding the fact that a meritorious administration order application were pending. If it did so, no administration order could be made, as Clause 15(2)(a) precludes the making of such an order once a company is in liquidation.

If the noble Lord is under the impression that his later amendment would freeze the effect of a winding-up order made before the hearing of an application for the appointment of an administrator, he is wrong; it would not do so. It would in fact have the consequence that I have just described. The amendment would allow companies to be wound up while an administration order is pending. We think that that cannot have a beneficial consequence. If one considers the case of a company in difficulties but for which there are good prospects of salvaging a substantial part as a going concern, one sees that the amendment would allow the court to wind it up and to damage gravely the prospects of saving either the whole of the company or certainly the viable parts of it. I do not think that this can be a very sensible course, either. The administration application would be heard first. If there are no grounds for thinking that anything can be saved, the court should then consider whether liquidation is the proper option. With that explanation, I hope the noble Lord will understand that we cannot accept his amendment.

4.30 p.m.

Lord Bruce of Donington

I am very grateful to the noble Lord for answering in the way that he has. It would seem that the wording of the amendment would not achieve the purpose I had in mind. However, it still leaves the problem. I should be very glad if, before the Report stage, the noble Lord would consider how this particular problem can be dealt with, if my wording in this particular instance has proved inadequate to achieve the end that I desire.

Lord Lucas of Chilworth

Yes, certainly. Let me have the opportunity of considering the merits of the proposal. I will see if it is necessary to do anything to protect the position which the noble Lord has envisaged.

Lord Bruce of Donington

In those circumstances I ask for the leave of the Committee to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Bruce of Donington moved Amendment No. 38: Page 13, line 30, after ("property") insert ("(other than by way of crystallization of any floating charge or the appointment of an administrative receiver)").

The noble Lord said: Subsection (1)(b) of Clause 17 provides: no steps may be taken to enforce any charge on or security over the company's property, or to repossess goods in the company's possession under any hire-purchase agreement or retention of title agreement, except with the leave of the court and subject to such terms as the court may impose". The purpose of this amendment is, after the word "property", to insert the words, other than by way of crystallization of any floating charge or the appointment of an administrative receiver". That is because we apprehend that you could have a calamitous delay. For example, consider an airline with assets likely to be seized by creditors overseas, when someone has petitioned for an administrator, and no receiver can be put in by the bank for weeks. Clause 16(3)(a) talks of a position where a receiver has been appointed, and this is in conflict with Clause 17(1)(b) which prevents the appointment of a receiver. I beg to move.

Lord Lucas of Chilworth

I mean no discourtesy to the noble Lord, Lord Bruce of Donington, when I say that unfortunately the amendment as drafted does not quite achieve the purpose. Also it does not cope with situations where there are two or more charges of differing seniorities. In considering the amendment we identified the reason lying behind it and the spirit of Lord Bruce of Donington's amendment. Therefore, in accepting the general tenor of what he says, I wonder whether we could have another look at this with a view to bringing forward something rather more appropriate to meet the point.

Lord Bruce of Donington

I thank the noble Lord for his co-operative response. The noble Lord will appreciate that in a Bill of this kind it is very often a little difficult to be able to devise the precise wording to achieve the result one wishes for. But I am grateful to the noble Lord for his assurance. On the basis of that assurance, I ask for the leave of the Committee to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Lucas of Chilworth moved Amendment No. 39: Page 14, line 3, leave out ("the execution of").

The noble Lord said: I beg to move the amendment standing in my name. This is a drafting amendment to make clear that the presentation of a petition for, or the making of, an administration order prevents the carrying out of any diligence in Scotland. As presently drafted, Clause 17(3) has the effect of preventing, in these circumstances, the execution of diligence. It is not entirely clear what is meant by "execution of diligence", but it implies something narrower than diligence itself. It is intended that it should no longer be possible to carry out any diligence after a petition has been presented or an administration order made. I beg to move.

On Question, amendment agreed to.

On Question, Whether Clause 17, as amended, shall stand part of the Bill?

Lord Mishcon

May I make one short point? Since the presentation of a petition for an administration order prevents a creditor from taking steps to enforce payment of his debts, one would think that at the very least a notice of such a petition should have to be filed with the Registrar of Companies. It should be made, should it not, the duty of the person presenting a petition to file, on the same day, a notice with the registrar? Can the Government consider this?

Lord Lucas of Chilworth

Of course, on the face of it this sounds reasonable. In practical terms, I wonder just how it can be done. That is because not all the creditors would necessarily be known, particularly in some cases of companies who are less than careful in their record-keeping—or are so at that particular time. But let us give the consideration which the point deserves.

Lord Mishcon

I am so sorry. The noble Lord the Minister did not follow my point. It was not that all the creditors should be notified. I talked about the notice of the petition being given to the Registrar of Companies, so that anybody searching against the company would see it there.

Lord Lucas of Chilworth

I am sorry; I did misunderstand. However, the same remark applies: let us have a look at the point.

Clause 17, as amended, agreed to.

Clause 18 [Effect of order]:

Lord Bruce of Donington moved Amendment No. 40: Page 14, line 6, at end insert ("but shall be entitled to seek directions from the court in relation to the period of his appointment as if he were still receiver.").

The noble Lord said: With permission, I should like to deal with Amendments Nos. 40, 42 and 59 together.

Amendment No. 42: Page 14, line 17, at end insert— ("and (d) the administrator shall have the same duties to preferential creditors as any receiver vacating office had at the time of the administrator's appointment; and (e) any receiver vacating office on the administrators appointment shall retain (in priority to the administrator) any right of indemnity against the assets of the company he had at the time of the administrator's appointment.").

Amendment No. 59: Page 25, line 5, after ("themselves") insert (", and equally with expenses of an administrator or receiver not satisfied or paid at the commencement of the winding up,").

Clause 18(1) states: On the making of an administration order, any receiver or manager or, in Scotland, receiver of the company's property shall vacate office". The words it is desired to insert by this amendment are: but shall be entitled to seek directions from the court in relation to the period of his appointment as if he were still receiver". This is, in certain circumstances, to allow the receiver to be treated fairly and to obtain the court's help if he deems that to be necessary.

The next amendment, Amendment No. 41, would leave out lines 9 to 12, which in fact are subsection (2)(a) and (b), and insert different words:

1. "(a) a resolution may be passed for the winding up of a company; and
2. (b) an administrative receiver may be appointed by a person entitled to do so".

Then, Amendment No. 43 inserts—

Lord Lucas of Chilworth

I wonder whether the noble Lord will just give way?

Lord Bruce of Donington

I am sorry.

Lord Lucas of Chilworth

I have a feeling that the noble Lord has gone a little further ahead than he intended. I do not think he is wrong, but my understanding is that we should be talking, in the second amendment, to page 14, line 17. The relative paragraphs are (d) and (e).

Lord Bruce of Donington

I beg your Lordships' pardon, yes. It is Amendment No. 43. That is to insert at the end the words: Provided that during that period any resolution passed for the winding up of a company or any appointment of an administrative receiver shall only have effect as from the time the administration order is discharged". I must apologise to the Committee. I am dealing with Amendment No. 42—I had my papers confused. The reason for the amendment is that it is not seen at the moment how else an administrator could take over without putting the receiver in an impossible position, particularly towards preferential creditors, including employees, in respect of wages, as the Bill does not have a scheme for preferential creditors in an administration. I beg to move.

Lord Lucas of Chilworth

I too will speak to this amendment, Amendment No. 40, and also to Amendments Nos. 42 and 59, standing in the name of the noble Lord, Lord Bruce of Donington. All three amendments deal with the position of the receiver who is displaced by an administrator. I am particularly grateful that the noble Lord should draw attention to the potential problems with such transitions. Our original view was that problems were unlikely to arise; but in considering the amendments, I think further thought is required and certainly I agree that potential problems may well arise in respect of a displaced receiver's obligations to preferential creditors and in respect of his personal liability indemnity out of assets which then would be no longer under his charge. We should like to look again in detail at these questions and I should like to give the noble Lord the assurance that an appropriate amendment to resolve any of the transitional problems which are identified will be brought forward at a later date. With that assurance, I anticipate the noble Lord will withdraw his amendment.

Lord Bruce of Donington

I am most grateful to the noble Lord for his assurance, and even more grateful for his tolerating my digression into other amendments owing to a misreading of my papers. How could I resist his courtesy by not withdrawing the amendment? I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Bruce of Donington moved Amendment No. 41:

Page 14, leave out lines 9 to 12 and insert—

1. ("(a) a resolution may be passed for the winding up of a company; and
2. (b) an administrative receiver may be appointed by a person entitled to do so; but").

The noble Lord said: I beg to move Amendment No. 41, to which I referred in error when discussing Amendments Nos. 40, 42 and 59. This amendment is to insert, in substitution for lines 9 to 12, which are in effect subsections 2(a) and 2(b), the words:

1. ("(a) a resolution may be passed for the winding up of a company; and
2. (b) an administrative receiver may be appointed by a person entitled to do so; but").

Associated with that, there is a proposed new insertion at the end of subsection (2):

Amendment 43: Page 14, line 17, at end insert— ("Provided that during that period any resolution passed for the winding up of a company or any appointment of an administrative receiver shall only have effect as from the time the administration order is discharged.").

This is put on the basis that, without this, an administration which fails can only lead to a compulsory liquidation and automatic disqualification on the assumption that the original intentions of Clause 7 are established. Which directors are likely to take the risk of an administration if failure will lead to automatic disqualification? A receivership can be ended and winding-up terminated if the administration works out well and the company is restored to health, so they are never put into effect. This is one of the examples, I am afraid, where an earlier section of the Bill which has now been at any rate put in suspense—in particular Amendment No. 8, which provided for leaving out from the word "voluntarily" to the end of line 18 in Clause 7—has an effect upon the remaining sections of the Bill and has spilt over into this particular chapter. I should be grateful if the noble Lord could see fit to pass observations on the basis of Amendments Nos. 41 and 43, standing for the time being on their own merits.

4.45 p.m.

Lord Lucas of Chilworth

Amendments Nos. 41 and 43, as we see them, stand alone and on their own merits, since Amendment No. 43 is closely associated with Amendment No. 41. We feel that these two amendments subtract from rather than add anything to the company administrative procedure. Instead of prohibiting winding-up or appointment of administrative receivers to companies in administration, as the Bill currently does, both these amendments would allow such events to take place but would freeze their effect until the administration order is discharged.

There are two principal reasons for objecting. First, they ignore the fact that the administration procedure is aimed at the rehabilitation of companies as well as the reorganisation and the beneficial liquidation. Where an administrator is aiming at rehabilitation of a company and its eventual return to the shareholders, it would make little sense to allow the court to make what would amount to a frozen winding-up order while it is in administration; and yet of course during the period when such a company is in administration there is every reason to think that it would be unable temporarily to pay its debt, which of course is the usual reason for winding-up.

Secondly, I resist the amendments because they require the court or the floating charge holder to make a judgment as to the eventual circumstances of the company at a time—perhaps it could be quite a long time—before the administration order is discharged. I cannot believe that this is the right course. The company's future status should be judged when the time comes for the administration order to be discharged. When the administrator has completed his work either he, the creditors or the court decides that it would be in the best interests of creditors generally for the administration to come to an end.

Finally, I believe that the Bill already allows the court to make at the proper time this judgment regarding the company's future status. Clause 31(3) makes it clear that when the court decides that discharge of the administration order is the proper course then it may make any consequential order it judges appropriate to the particular circumstances of the company and its creditors. For example, if the administrator has carried out a beneficial liquidation and has maximised the realisation of the assets by sale of viable parts of the business, then he may well seek termination of the administration order and then the winding-up of the company. If the court agrees that his work is complete, then it will make a winding-up order so that the sums realised may be distributed to creditors. In such a case I can see no virtue in there having been a frozen receivership appointment or winding-up order which, in any event, would prove irrelevant to the court's ultimate decision.

Directors are excluded from automatic disqualification if an application is made for an administration order. However, the noble Lord, Lord Bruce of Donington, suggested that this matter had spilled over from our proceedings last week. In fact there has been no spillover either in the light of what was originally in that clause or, indeed, in the light of Lord Benson's new clause, because an administration order gave relief from that potential disqualification which we were discussing last week.

The Bill as drafted offers the better approach towards providing a moratorium on receivership and winding up once the court has placed an administrator, on behalf of the creditors, in charge of a company's affairs. I do not think, therefore, that the amendments proposed would help to achieve that object and I ask the noble Lord to withdraw them.

Lord Denning

The Government's view seems to me to be quite right. The whole essence of the administrator who is being appointed by the court is that he should manage and run the business and that there should be a stay on all types of proceedings involving the courts by the creditors or anyone else. It is very desirable that while that administration is operating it should not be interfered with at all by resolutions made for winding up or for administrative receivers, even if they are not going to take part until afterwards. It is best for the court to deal with everything after the administration comes to an end—when it is discharged. Then all these people can be dealt with by the court. Meanwhile, there should be no resolution for winding up or for the administrative receiver. In other words, I suggest that the Bill as it stands is quite in order.

Lord Bruce of Donington

I must confess that I had it in mind to argue with the noble Lord opposite concerning what ought or ought not to happen during the period for which an administration order is in force, until I heard the broadside that was delivered by the noble and learned Lord, Lord Denning, against whom on political issues I am willing to argue at any time but against whom on matters of law I am certainly not qualified to argue and, indeed, do not intend to do so. Therefore, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 42 and 43 not moved.]

On Question, Whether Clause 18 shall stand part of the Bill?

Lord Mishcon

I have an idea that the noble and learned Lord, Lord Denning, will have great sympathy with the four points that I am now going to make in regard to whether this clause shall stand part of the Bill. I always find that when I invite the noble and learned Lord's support it seems to have some type of advantageous effect. I hope that I shall not be disappointed on this occasion if he cares to address the Committee on what I believe are four essential points.

The first point I want to make is that the effect of Clause 18(3) as regards the retention of title agreements is limited, as your Lordships will see, to preventing the seller from repossessing the goods. The buyer remains in possession, but surely a well-drafted clause would stop him from processing or selling the goods once an administration order is made or, alternatively, would give the seller some rights in relation to any proceeds of sale. Clause 18(3) will, therefore, have to go further if it is to have any real commercial effectiveness. It may need to provide that title in the goods should vest in the buyer on the making of an administration order. That is my first point.

Secondly, should it not be made clear that, when an order under Clause 18(4) expires after 12 months, the administrator can apply for another order and so on, and that it is not considered sufficient to rely on Section 12(1) of the Interpretation Act 1978 to make that possible?

Thirdly, Clause 18(4), as drafted, does not make it a condition of the granting of such an order that the company should have paid all interest accrued on the debt concerned since the making of the administration order. In fact, if one looks at Clause 18(4), one sees that the company is given effectively a 12-months holiday on interest. Is that intended?

Fourthly, Clause 18(4) surely does not aptly cover the case where the charge created by the company secures the obligations of some other person; that is, where the charge is given by way of a guarantee. In such a case it is suggested that the clause should provide that no order may be made unless the court is satisfied not only that all relevant obligations of the company will be performed, but also that all relevant obligations of the principal debtor will be performed.

I come to my final point, and it can be made in one simple sentence. Is there not a typographical error in line 30, on page 14, where there is reference to an "administrative order" when obviously it should be an "administration order"? That is not the most important point that I shall be making on this Bill, but I refer the Minister to it so that a correction can be made.

Lord Denning

In the time honoured words, I entirely agree and have nothing to add.

Lord Lucas of Chilworth

I can only again repeat the assurance that I have given to the noble Lord, Lord Mishcon. I readily understand his final point, and with that I must agree. As regards the other points which the noble Lord has made, I hope that he will allow us to give them consideration and to give our observations a little later.

Lord Bruce of Donington

I am sorry to intervene on this very short point. The noble Lord has been kind enough to indicate that he will be giving his detailed views on these matters. We on this side of the Committee are most anxious to avoid the necessity of putting down a whole host of amendments at the Report stage. If the noble Lord could give his views as early as possible in writing to my noble friend and to myself, it would help towards the further easy passage of what is, after all, in the party sense almost a non-controversial Bill.

Lord Lucas of Chilworth

I do, of course, accept the last point that the noble Lord has made. Certainly if at the Report stage there were a great number of probing amendments, they would take up possibly a good deal of unnecessary time. I understand that the noble Lord, Lord Mishcon, has said that most of these matters are very legal and in some cases extremely technical. Obviously if they can be resolved without resort to amendments, we would wish to do so, and we would wish to do so as soon as we possibly can.

On Question, Clause 18 agreed to.

Clauses 19 and 20 agreed to.

Clause 21 [General powers and duties]:

Lord Bruce of Donington moved Amendment No. 44: Page 16, line 28, leave out from ("security") to ("or") in line 29.

The noble Lord said: I beg to move Amendment No. 44, and with the leave of the Committee I propose also to discuss—and I hope that I have got it right this time—Amendments Nos. 45, 47, 49, 50, 51 and 52:

Amendment No. 45: Page 16, line 31, leave out subsection (6).

Amendment No. 47: Clause 22, page 17, line 42, leave out subsection (3).

Amendment No. 49: Clause 23, page 18, line 8, after ("shall") insert ("not").

Amendment No. 50: Page 18, line 11, after ("provides") insert ("but, subject to section 33, contractual commitments entered into by an administrator in the name of and on behalf of the company, in the course of his duties, shall be an expense of the administration.").

Amendment No. 51: Page 18, line 14, after first ("the") insert ("unchanged").

Amendment No. 52: Page 18, line 21, at end insert— (" ( ) For the purposes of this section a contract is adopted when by novation an administrator becomes personally liable under it.")

One way or the other, the purpose of all these amendments is to preserve the security of debenture holders under their own terms. I would point out that of course I have a reservation when I come to Amendment No. 82, when I swing the balance slightly the other way. So in the particular circumstances of Clause 21 the security debenture holders should not be destroyed. The reason why Amendment No. 45 has been tabled is that it seems to us—and I do not wish in any way to be discourteous, particularly as I am a non-lawyer—that the draftsman may perhaps have got it wrong. Is the draftsman saying—and, of course, the subsection will have to be legally interpreted—that the administrator can sell assets, ignoring charges, and keep the money? If that is the correct interpretation of the existing subsection, we would move to delete it.

5 p.m.

Amendment No. 47, to leave out subsection (3), follows the same point in order to preserve the security of debenture holders. Amendment No. 49, to Clause 23, is to insert the word "not" after the word "shall" in line 8 on page 18. It might be more convenient to deal with Amendment No. 50 when we come to discuss Clause 23.

All these amendments are designed to protect the security of the debenture holders in so far as it is considered that the interests of the debenture holders ought to be protected. I beg to move.

Lord Lucas of Chilworth

I am grateful to the noble Lord, Lord Bruce of Donington, for accepting that we should group this fairly considerable number of amendments to Clause 21 and 23. With the leave of the Committee, I shall also speak to the amendment in the name of the noble Lord, Lord Meston, because this whole package of amendments concerns much the same area.

Amendment No. 46A: Page 17, line 37, leave out ("Subject to subsection (3) below.")

Both the two sets of amendments, Nos. 45, 46A, 47 and 51 in Clauses 21 to 23, and Amendments Nos. 49,

50 and 52, as we see it, constitute a package of proposals, but they appear to be designed to reverse the Bill's provisions regarding the administrator's ability to contract with personal liability, the nature of his contractual commitments and the nature of the indemnity he is to enjoy in respect of his personal liability.

It would perhaps be generally helpful if I were briefly to explain the Bill's provisions in this area. I shall deal first with the administrator's indemnity against personal liability. The Bill provides that the administrator should be indemnified out of uncharged assets, floating charge assets and any assets subject to fixed charges held by floating charge holders. His remuneration and expenses have a similar priority. This is the effect of Clause 33(4), which has to be read in conjunction with Clause 23(1).

This recreates the effective position of a receiver over the whole of a company appointed by a financial institution which has, as is usually the case, a number of fixed charges in addition to the floating charge. In order to make this indemnity effective, Clauses 21 and 22 allow him to retain sums realised from the sale of assets which comprise his indemnity. Without these provisions he might, when the administration order is discharged and winding up commences, have insufficient funds to meet the commitments he has made with personal liability.

The four amendments to Clauses 21 and 22 and the amendment to Clause 23 would entirely undo this very carefully devised arrangement. First, the amendments would provide that the administrator's indemnity would he out of the uncharged assets only. Secondly, they would prevent him from retaining funds realised from the sale of charged assets which, in the Bill, comprise his indemnity. I understand that these amendments are linked to three further amendments in the name of the noble Lord, Lord Bruce of Donington, to Clause 23, and I shall say something about these further amendments shortly.

But to propose that the administrator's indemnity should be so meagre as to be out of the uncharged assets, even in the light of the changes envisaged in Clause 23, would be to undermine the procedure quite gravely. A responsible insolvency practitioner would have to be a very brave man to take on an appointment with such little protection. It is a fact of modern commercial life that many companies are subject to a whole raft of fixed and floating charges taken out by their bankers as a standard measure, with the result that an indemnity out of uncharged assets is virtually worthless.

I suggest that these amendments would confine application of this new procedure to companies not subject to floating charges. We certainly hope that the administrator's procedure will fill the gap caused by the absence of a floating charge and the consequent inability to appoint a receiver. But we foresee other applications for this procedure, particularly where administration, with its moratorium, would be better than receivership for all concerned. The amendments I am now addressing would prejudice such applications, and I urge noble Lords not to support them.

I turn now to the three linked amendments to Clause 23—Amendments Nos. 49, 50 and 52. Their effect would be twofold. First, they would provide that administrators must contract without personal liability unless the contract notice otherwise provides. This is the reverse of the Government's proposal that they should contract with personal liability unless the contract or notice otherwise provides; that is, they would have to "opt in" for personal liability rather than "opt out". Secondly, all contractual commitments of an administrator would be deemed to be expenses of the administration and payable in advance of all other debts of the company except those listed in subsection (2)(a) of Clause 33. I imagine it is this last proposal which prompted the amendments designed to devalue the administrator's indemnity on the grounds that his contractual commitments would anyway receive the same priority as a result of Amendment No. 50, whether or not he had contracted with personal liability.

I have to say at once that these amendments are not acceptable to the Government. The reason why personal liability plus indemnity has worked so well in receiverships is that there is nothing like personal liability to make an insolvency practitioner more aware of the risks he is taking. It is vitally important that a practitioner is aware of risks because every pound he loses and finances from his indemnity is a pound lost to the creditors, and it is of course for the benefit of the creditors that this particular procedure is suggested. We have adopted in the Bill the proven system in receivership of presuming personal liability unless the other party is notified otherwise, and providing an indemnity from the assets.

If one considers the effects of the amendments, I would suggest first that any contract would be presumed to be without personal liability; the other party might never know this and, worse still, would not be able to ascertain the value of the assets available to satisfy any claim under the contract as a deemed expense of the administration.

Secondly, deeming a contractual commitment to be an expense of the administration with a prior claim to the assets releases the administrator from the pressure of wondering whether his personal liability is capable of being met from the indemnity. Any incentive to contract with personal liability is removed by giving the contractual expense the same priority as the Bill grants to the indemnity and by time devaluing at the same time that indemnity, in many cases, to vanishing point.

This would not be acceptable. The administrator must he aware at all times of the creditors he represents and cannot be allowed to expend the assets on which they have a claim merely by entering contracts whose liabilities are so-called "administrative expenses", or expenses of the administration. They are not expenses at all, but they are contractual obligations, and it is for the administrator who incurred them to satisfy those liabilities out of the indemnity granted. This is provided for in the Bill.

I have in fact spoken at some length to eight amendments covering three clauses. They stand or fall together and they touch on quite a vital matter at the heart of the new procedure. I suggest that, taken together, the amendments tilt the balance of financial responsibility in an administration in entirely the wrong way; that is, away from reminding the insolvency practitioner that his primary responsibility is to the creditors whose interests he represents. If the adoption of the package of amendments were accepted, that balance would not remain.

It is a fundamental of the principle of the administrative procedure that there is the alternative option for the company, one which can best look after the interests of the creditors. With that rather long and detailed explanation, I trust that the noble Lords will withdraw their amendments.

Lord Denning

It is all very complicated, but I am sure that the administrator should be left free to contract and to make himself personally liable. After the administration order is made and the administrator is appointed, he has to carry on the business. Therefore, he has to make contracts, or adopt previous ones. When he does so, he should be personally liable, otherwise other people will not contract with him to supply goods and the rest.

Therefore in principle he should be personally liable, but equally being personally liable if he is going to undertake the job at all he has to be properly indemnified, and indemnified therefore out of such assets as are there already. Indeed, even if some assets are subject to charges, fixed or floating and the like, methods should be arranged whereby he can be relieved of those charges and be able to get his indemnity from all proper quarters and assets of the company. Although it is troublesome and technical, on the whole I feel that the Government and my noble friend are on the right side.

5.15 p.m.

Lord Bruce of Donington

I could not possibly dissent from the observation of the noble and learned Lord, Lord Denning, about the responsibilities of the administrator to the creditors. However, surely the business of an administrator is in a way twofold because the administrator is often appointed with the object of rescuing the business in any event. Therefore he has to have regard, if I may be non-legal for the moment, to the normal principles governing the field of management.

If he is going to carry on the business with a view to securing its ultimate viability, he has to undertake a certain amount of risk. Directors and liquidators are not personally liable for the debts of their companies except in the case of directors under certain circumstances under the old Companies Act and in anticipated circumstances in the current Bill. Why should administrators and receivers be personally liable?

I am not at all sure that the Government may not have to look at this again because it is going to be hard to find administrators with no cash and no indemnity except from the assets, if any and free of charge. Therefore, the additional burden of personal liability seems wrong however legally convenient it may be.

This seems to me to be more a question of balancing the ordinary managerial interests of a company and the responsibility to creditors. I should have thought that it is precisely because an administrator has been envisaged in this dual and responsible role, and it is going to be a difficult path for an administrator to follow, that he ought not to be exposed to personal liability to the extent envisaged in the Bill.

I appreciate the Government's difficulty and I deeply respect the observations of the noble and learned Lord, Lord Denning, but I cannot help feeling that this is not really managerial, or that the managerial considerations—the ordinary conduct of the everyday affairs of a business in difficulties, or where difficulties are apprehended—have been fully taken into account. I should be glad if this could have some reconsideration.

Lord Meston

The amendments proposed to Clauses 21 and 22 had, so far as I was concerned, a much narrower intention than the noble Lord, Lord Lucas, gave me credit for. They were really consequential upon the amendment to Clause 16 which has now been withdrawn, the position being under the Bill that a secured creditor who had power to block an administration order by appointing a receiver but chose not to do so, and chose not to exercise his power, could not then claim the benefit of his security during the administration period. That is what the Bill provides and that is clearly fair.

However, it would be unfair, on the other hand, if he had no power to block the administration order. But of course, as a result of the withdrawal of my amendment to Clause 16, there will in a great majority of cases be that block, and in any event the receiver will be heard. In those circumstances, I should be content, for my part, to withdraw my amendment.

Lord Lucas of Chilworth

I am grateful to the noble Lord, Lord Meston.

The best way in which I can answer the noble Lord, Lord Bruce of Donington, is to establish the rôle of administrator as we see it. The noble Lord, Lord Bruce of Donington, has suggested that since the administrator comes in as a substitute manager he should be subject to all the same commercial risks and disciplines that the previous management had. We are suggesting that the rôle of the administrator is, in the first instance, to rebuild the company, if necessary to reconstitute the company, with the ultimate view of returning it to its owners, reformed, reinvigorated and so on: hence the moratorium.

Therefore, it would seem that the administrator should have much the same protection as a receiver in an existing situation, although an existing situation does not provide for this procedure. Nevertheless at the end of the day if such a management exercise is not successful both would have to have regard to the position of the creditors. Were the administrator in his managerial capacity deprived of the protection that the Bill gives him, it would be difficult for him if he were necessarily the one to take the company into the next stage.

Lord Bruce of Donington

The noble Lord has not answered to my satisfaction the objections that I have raised and the alternatives that I have put forward. In the circumstances I think the best thing to do is to leave them for the Report stage, because there will be a number of matters of legal construction to be investigated before that happy event. In the meantime I am hopeful that the Government will look at the considerations I have put forward at the same time as they are kind enough to consider the more skilled representations that have been made by my noble friend Lord Mishcon. In those circumstances I ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 45 not moved.]

On Question, Whether Clause 21 shall stand part of the Bill?

Lord Mishcon

I apologise because this time I have five points, all of them important, to make in relation to the drafting of this clause. These are points that all members of your Lordships' Committee will appreciate, not just those versed in the technical aspects of these matters, which are very complex.

The first is that it is considered that subsections (2) and (3) will, taken together, cause confusion. Subsection (2) should be expressed to be "subject to subsection (3)". That will make it clear that any nonmanagement powers of the directors, for example, an authority to allot shares, can only be exercised with the sanction of the court, because those powers are obviously other than management powers.

It is noted that the effect of Clause 21(2) is to ensure that the directors have no residual powers or duties at all. One thinks of convening meetings of the company, providing information and advice to shareholders and, if one is a lawyer, one considers Re Union Accident Insurance Co. Ltd [1972] 1 Weekly Law Reports page 640, and Peel v. London and North Western Railway [1907] reported at 1 Chancery page 5. Is this intended?

Secondly, the terms of Clause 23(3) indicate that, if the administrator does anything which falls outside the scope of paragraph (a), his act will be invalid if he did not obtain a court order sanctioning it under paragraph (b) of that clause. Notwithstanding Clause 23(4) and the terms of Schedule 2, it is thought that the somewhat restrictive wording of Clause 23(3)(a) should be relaxed if accidental invalidities are to be prevented. In addition it is thought that the court should be given a power to sanction or validate transactions retroactively. The exercise of that power might be subject to conditions similar to those which appear in Section 404(1) of the Companies Bill 1985.

The third point is one that I believe all members of the Committee will readily understand. If one looks at Clause 21(5), words appear which are very important words. They are: any debt to which the company was subject". If one is correct in assuming that the intention is to prevent payment of any liabilities of any kind to which the company was then subject, first, the clause should refer not only to any debt but also to any liability. One with this compares Clause 187 of the Bill and Clauses 11(6), 26(1) and 82(3)(a) and also Section 302 of the Companies Act 1948.

Secondly, the clause should make it clear that it applies to a debt or a liability even though at the date of the administration order the debt or liability has not yet become due for payment, or the debt or liability was purely contingent, or the amount of the debt or liability had not yet been ascertained—for example, a future payment calculated by reference to sales during a period not ended.

Again, this clause ought to provide for an exclusion of damages and other sums payable by way of compensation, including unliquidated damages for tort, due in respect of any cause of action which accrued before the date of administration order. Here one looks by way of contrast at Clause 187(2) of the Bill.

My fourth point is that Clause 21(5) does not cover retention of title agreements, although by Clause 18(3) no action may be taken under such an agreement to repossess goods in the company's possession. Should not a person who has the property in goods under a retention of title agreement be treated in the same way as the holder of a fixed charge and not, for example, in the same way as the holder of a floating charge?

Moreover, as I indicated on a previous occasion when I addressed your Lordships on clause stand part, unless Clause 18(3) is amended the administrator may be powerless to make any use of the goods unless he pays for them.

This is the last point I make on this clause. Where a variation of class rights is involved, a resolution of the shareholders of the class concerned is normally required, either under the company's articles or under Section 125 of the Companies Bill 1985. Clause 21(8) contains nothing to dispense with that requirement, which may be triggered by an issue of shares ranking ahead of the class concerned or, in some cases, by an issue of shares of the same class. Is this intended?

Lord Lucas of Chilworth

I can only repeat what I said before with regard to the points of noble Lord, Lord Mishcon, on clause stand part: I will give them the consideration he asked for.

Clause 21 agreed to.

Clause 22 [Power to sell property free from charges etc.]:

5.30 p.m.

Lord Bruce of Donington moved Amendment No. 46: Page 17, line 26, after ("agreement") insert ("or retention of title agreement").

The noble Lord said: This amendment touches on the matters raised on what are called the Romalpa clauses of a contract. It is designed to insert after the word "agreement" in line 26 (which is at Clause 22(1)(a)) the words "or retention of title agreement". The reason for the amendment is that there does not seem to be any point in stopping a Romalpa clause holder from getting his goods back if the administration cannot sell them and keeping the proceeds for his cashflow to pay wages and to buy new supplies. However, compensation at the end of the administration should be available, with luck, under Clause 33 if the administrator has not paid for the goods of an administration expense. I beg to move.

The Earl of Selkirk

I should like to support this amendment which has been briefly and clearly explained by the noble Lord, Lord Bruce. I should like to add one point. I would suggest that this amendment be utilised also in line 35 after the word "agreement", and again in line 41 after "hire purchase agreement". I think that this is necessary and proper, and I am glad it is being raised.

Lord Lucas of Chilworth

The difficulty with the noble Lord's proposals is that they assume that reservation of title agreements are of a similar nature to fixed charges and hire purchase, leases and other similar agreements. But, on reflection, I think that he will agree that they are not because the fixed charges and the other agreements covered by Clauses 22 and 33 are concerned with the provision of large sums of finance in return for security in one form or another. Reservation of title agreements, on the other hand, where they form part of a sale agreement, are part and parcel of the provision of short-term trade credit. I think that then it is quite inappropriate to seek to provide for compensation for lost reservation-of-title grants within the context of Clauses 22 and 33 which deal with the long-term financial arrangements.

Nevertheless, it is true that the Bill as introduced contains no provision designed to compensate unpaid suppliers of goods on reservation-of-title terms. I am grateful to the noble Lord, Lord Bruce of Donington, for drawing attention to this fact. I also accept the support of my noble friend Lord Selkirk. I am not going to respond to the two other points that he made at this time because I should like to suggest that we take back this clause so that we can see how better it could be redrafted to take care of the principle of the points which both my noble friend and the noble Lord, Lord Bruce, have made. With that assurance, I would ask him to withdraw the amendment.

Lord Bruce of Donington

I am grateful to the noble Lord for having at any rate accepted the point that lies behind the amendment that I venture to lay before the Committee. On the assumption that the reconsideration will follow the same procedure of that already outlined to my noble friend Lord Mishcon, I should be very happy indeed to withdraw the amendment in the hope that further information may be forthcoming from him in order that we may avoid any complications at Report stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Meston moved Amendment No. 46A:

[Printed earlier: col. 862.]

The noble Lord said: I have already indicated the limited purpose of this amendment so far as I am concerned. I do not want to inhibit the amendment which it complements (that is, Amendment No. 47) and if that were to be seriously pressed then, of course, I should not at this stage withdraw my amendment. Perhaps an indication from the other movers of Amendment No. 47 would be appropriate. If not, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 47 and 48 not moved.]

On Question, Whether Clause 22 shall stand part of the Bill?

Lord Mishcon

My observations on this clause I hope will show the Members of the Committee how useful these points are and how necessary it is for the Government to consider them. We have been looking at Clause 22 and I wonder how many of us realise that (as I believe to be the case) under Clause 22, the only sales which the court can authorise have to be sales for cash. The authority for that proposition is a very recent one. It is In re Westminster Property Group plc which was reported in The Times only a few days ago, on 30th January. Surely, it would be useful, for instance, to enable a sale to take place for shares or debentures in order to assist hive-downs to subsidiaries. In any event, the clause should be widened to enable the court to authorise an administrator not only to sell but also to grant leases or to effect other dispositions, including the creation of charges ranking prior to those charges to which the clause applies, and perhaps also exchanges. For example, if the company is in the process of constructing a block of flats, a power to grant leases would be essential. It is also common, as the Committee knows, for debentures to give receivers power to raise money on the security of charges ranking prior to the debentures concerned. I may say, only because it will stop me from making the observation again, that what I have just said also applies to Clause 37.

Clause 22 agreed to.

Clause 23 [Agency and liability for contracts.]:

[Amendments Nos. 49 to 52 not moved.]

Clause 23 agreed to.

Clause 24 [Vacation of office and release.]:

Lord Lucas of Chilworth moved Amendment No. 53: Page 18, line 37, leave out from ("in") to ("such") in line 2 on page 19 and insert ("any other case")

The noble Lord said: This amendment relates to the mechanisms provided in subsection (3) and paragraph (b) to (d) of Clause 24, under which an administrator will be able to obtain his release from personal liability. The effect of the amendment is to replace with a single mechanism the different means set out in paragraphs (b) to (d) by which an administrator can obtain the release. The amendment provides that in any circumstances other than vacation of office by day (which is dealt with in paragraph (a)) the administrator will be required to apply to the court for the date of release to be fixed. The reason for this change of approach is quite simply that it is more appropriate for the court to deal with questions of release under the procedure set out in the Bill.

The court appoints the administrator, receives notice of reservation and considers application for the administrator's removal. It is logical, therefore, that the court should consider the associated question of release. It is now thought particularly inappropriate, as is currently provided for in paragraph (c), that the administrator's release should be automatic on submission of his resignation to the court. The court may well wish to consider questions of the administrator's conduct and hear the representations of creditors on the matter. It is for this reason that I beg to move the amendment.

Lord Bruce of Donington

We are grateful to the noble Lord for that explanation. The amendment provides the greater flexibility which the noble Lord was describing and we support it.

On Question, amendment agreed to.

Clause 24, as amended, agreed to.

The Deputy Chairman of Committees (The Earl of Listowel)

The Question is that Clauses 25 to 32 shall stand part of the Bill?—

Lord Mishcon

I wish to refer to Clause 25, and I regret to say that there will be observations on other clauses between Clauses 25 and 32.

Clause 25 [Information to be given by and to administrator]:

On Question, Whether Clause 25 shall stand part of the Bill?

Lord Mishcon

I can be very brief in regard to my comment on the Question, Whether the clause shall stand part? This clause does not appear to require any publicity to be given to changes in the identity of the administrator under Clause 24 and Clause 20(2). Obviously that matter should be looked at.

Clause 25 agreed to.

Clause 26 agreed to.

Clause 27 [Statement of Proposals]:

On Question, Whether Clause 27 shall stand part of the Bill?

Lord Mishcon

I apologise to the Committee because my observations on Clause 27 will be somewhat numerous and lengthy, but I cannot help it, because they are all important points. The first question one has to ask is: can there be confirmation from the Department of Trade and Industry that the view is taken that Section 12(1) of the Interpretation Act 1978 will permit the court to make more than one extension of time under the opening words of Clause 27(1)? I have raised a similar point before on clause stand part. The terms of Clauses 27(1)(a) and 31(1)(a) seem to indicate that an administration order should contain a statement of the purpose mentioned in Clause 15(3), for the achievement of which the order is made. In the absence of such a statement it might be impossible to identify for certain the relevant purpose to which the proposals of the administrator have to be directed. Therefore, should not Clause 15 expressly provide that the order has to state what is the relevant purpose for the achievement of which it is made?

Following from that, the clause should surely expressly permit an order to specify both the purposes mentioned in Clause 15(3), either jointly or in the alternative. If the two purposes were specified jointly, it would be clear that an administrator could be appointed, for example, to secure the survival of some divisions of a company and to dispose of the other divisions. If the two purposes were specified in the alternative, an administrator who had originally been appointed to secure the survival of the company as a going concern would not need to apply for the administration order to be discharged in the event that it became clear that the company could not survive if he could nevertheless realise its assets more advantageously than a liquidator. Then a consequential change would be necessary in Clause 31(1).

5.45 p.m.

It is also correct that Clause 27, which we are considering, provides no direct guidance as to the matters which an administrator's proposal must cover. From Clause 30(1), however, it is possible to deduce that the administrator's proposals must state how he proposes to manage the affairs, business and property of the company, and from Clause 21(4) it may be inferred that management matters include among other things any matter covered by Schedule 2. The implication of Clause 30 appears to be that if an administrator's proposals make no reference to a particular management matter, he has no power to implement it until appropriate revised proposals have been approved by creditors.

Clause 27(1) appears to require the proposals also to include any non-management transaction; for example, a general compromise with creditors, which the administrator considers necessary to achieve the purposes of the administration order. On that basis, in order to carry out a non-management transaction. a liquidator would not only have to obtain the sanction of the court under Clause 21(3)(b); but in addition it would seem that he would have to refer to the transaction in his proposals and that the proposals would have to be approved by creditors, although neither Clause 31 nor Clause 21(3)(b) expressly preclude the administrator from effecting, or the court from sanctioning, a non-management transaction to which the proposals did not refer.

If this is the case, is it not considered that Clause 27(1) should be redrafted to make the position clearer and in particular to bring out the idea, if this is the correct idea, of the proposals being the administrator's objects clause, with the result of his having power to carry out only those transactions, whether of a management nature or not, which were mentioned in the proposals or any other transactions reasonably incidental thereto?

In many cases the administrator will form the view that some scheme of arrangement with creditors is necessary to achieve a survival of the company. If that be so, the position under the Bill would appear to be: first, that the administrator's proposals must at least refer to the scheme and quite possibly give the terms of the scheme; secondly, that the proposals have to be approved by a meeting of creditors—probably a single meeting under Clause 28; and, thirdly, that the scheme of arrangement also has to be approved by a single meeting of creditors summoned by the court under Clause 425 of the 1985 Bill, as applied by paragraph 7 of Schedule 4 to the present Bill.

Two creditors' meetings are therefore required: one under Clause 28, to approve the proposals, and the other under Section 425, to approve the scheme. Further, it might well be the case that from a commercial point of view it would be impossible to give a proper consideration to the administrator's proposals on management matters unless one also had details of the proposed arrangement with creditors; and this could lead to delays in submitting proposals with requests for extension of time while a court scheme was being prepared. Moreover, it might well be that creditors would be prepared to approve proposals only subject to a court scheme being approved at a court meeting and being sanctioned by the court. In such a case the decision as to whether or not the administrator's proposals should be adopted would ultimately rest not with the creditors' meeting under Clause 28, but with the meetings under the court scheme.

These and other matters require further consideration. When I look at my notes and see that I have a few more points to raise it seems to me that possibly the rest of the points under this clause might be more conveniently raised by a letter which I can send to the Minister, incorporating these points, although, as I said, he has the document somewhere in his department. I do not want to weary your Lordships' Committee any further, but I want to make the point quite definitely that these clauses, their effects and their practicality have not—and I say this with the greatest of respect—been very carefully considered.

Lord Lucas of Chilworth

I hope the noble Lord, Lord Mishcon, will not misunderstand me or accuse me of any lack of courtesy when I tell him that these clauses have received a good deal of consideration—many of them go back over 12 months now—in drafting, in discussion and in consultation. So I really must rebut the suggestion that the officials in my department have not given the proper consideration to the matters before us which they might have done. The question whether they are complicated, and whether there may be one part of a very learned profession which seeks to disagree with what the Bill provides, or indeed how it might provide it, are different matters. Of course, I shall give further consideration to these matters, as indeed I promised I would.

Lord Mishcon

I am tempted to rise for only one more minute because, with great respect, the Minister cannot get away with those last comments. He has now caused me to raise one simple point which I did not raise before and which I was going to raise in writing. If one is talking about careful draftsmanship and careful thought, I invite your Lordships to look at Clause 27(1)(b). The Committee will see that it specifies a minimum period of notice which must be given of a creditors' meeting, but it fails to prescribe any maximum period from the making of an administration order during which a creditors' meeting must be held. If that is care, if that is attention and if that is good draftsmanship, I must be very much mistaken in how a Bill of this kind ought to be drawn.

Clause 27 agreed to.

Clause 28 agreed to.

Clause 29 [Supervisory committee]:

On Question, Whether Clause 29 shall stand part of the Bill?

The Earl of Selkirk

May I ask a general question of my noble friend? Why has the word "supervisory" been selected? I know that the Cork Committee said that the previous words, "the committee of investigation", were inappropriate. But it went on to give what I call a less active name to these committees, whereas the word "supervisory" is an extremely active name. It is an executive term. If my noble friend cares to look at the Shorter Oxford English Dictionary, for example, he will find that a supervisor is a person who exercises general direction or control over a business, a body of workmen, etc". This is directly opposite to what the Cork Committee recommended. It wanted to emphasise that this committee was to advise the liquidator on any of these appointments which are made.

As I read this Bill, there are only two things that the creditors' committee can do. It can demand to meet the receiver, the liquidator or whoever it is, and it can cross-question him and get him to explain what he is doing, which the Cork Committee said he should do about once a month. If the committee fundamentally disagrees with what he is doing, it can appeal to the court. None of these things is in any sense of the word executive, and it may mislead the public. It may well mislead the members of the committee into thinking that they have some power to do something or other when, in fact, they have not. I have not put down an amendment, though I have some later amendments down. I only ask my noble friend whether he has any explanation or observation as to why this totally inappropriate word has been selected.

Lord Mishcon

I am so grateful to the noble Earl, Lord Selkirk, and so glad that I asked him whether he would go first in his comments, because I have been taking up so much of the time of the Committee. I was about to develop precisely the same point in a slightly different way, if your Lordships will permit it. The word "supervise" means that you have control, but there are no supervisory powers for the committee set out in this Bill. You cannot supervise without control, and obviously it is a wrong use of the word.

Lord Lucas of Chilworth

I am grateful to my noble friend Lord Selkirk and to the noble Lord, Lord Mishcon, for underlining what is worrying them. If the creditors accept the adminstrator's proposal, they are entitled to form a committee, as my noble friend has suggested, to oversee the progress of the administration, to receive information from time to time, to raise questions and to receive answers. I accept what both noble Lords have said with regard to their understanding of the words "supervise", "supervisory" or "supervision", and I can promise that we will see whether we can find a more explanatory word to describe the activity of that committee.

Lord Mishcon

Or, if the noble Lord the Minister intends to give the committee some supervisory powers, does he agree that they must, of course, be set out in the Bill so that we know what we are dealing with?

The Earl of Selkirk

I should like to thank my noble friend for saying that. I hope that he will find a suitable word, because this is very misleading indeed.

Clause 29 agreed to.

Clause 30 [Duty to manage company's affairs etc. in accordance with approved proposals]:

On Question, Whether Clause 30 shall stand part of the Bill?

Lord Mishcon

May I comment briefly on Clause 30? The first comment is that it should be made clear that Schedule 2, paragraph 5, authorises an administrator to bring proceedings against previous directors or management for breach of duty. Secondly—not a major point, but an important one for correct draftsmanship—will the Minister say why Clause 30(1) and (2) use the terms "revised" and "revisions", and not the term "modifications", which is the term defined in Clause 199 of the Bill?

Lord Lucas of Chilworth

If the noble Lord expects me to respond in the only way in which I can respond, I must tell him that I do not know. But I will find out and let him know.

Clause 30 agreed to.

Clause 31 agreed to.

Clause 32 [Protection of interests of creditors and members]:

On Question, Whether Clause 32 shall stand part of the Bill?

Lord Mishcon

This is a very important clause and I am afraid that, again, there are apparent defects in it, and certainly there is a case to answer in regard to those defects. In practice, this will be an important clause because it governs the rights of shareholders and creditors to object to what is being done in the course of administration. Perhaps I may deal first with the scope of the clause, because it seems on the present wording that a member or a creditor can complain, first, about the overall scheme represented by the proposals as a whole or some aspect of the proposals; secondly, about some particular transaction which the administrator has effected or will effect in pursuance of the proposals; or, thirdly, if it seems—and I underline the words "it seems"—a transaction which the administrator has effected or will effect before his proposals are presented to creditors is "unfairly prejudicial". If that is correct, then Clause 32 should make that clear.

The second stage one reaches is the position of shareholders. It seems that a shareholder could object to proposals which have been approved under Clause 28 either because those proposals were unfair as regards shareholders inter se or because they were unfair as between shareholders, on the one hand, and creditors, on the other. Could the Minister's department confirm that this is their interpretation of the clause?

6 p.m.

Thirdly, one reaches the question of safeguards. If the assumptions I have made under the other two headings are correct, the effect of Clause 32 is to make any proposal which has been agreed under Clause 28 by the administrator and the required majority of creditors open to attack by minority creditors or even by shareholders. No time limit is imposed for the commencement of proceedings; nor is any attempt made to restrict the ability to appeal from the decision of the judge at first instance. If one looks at the case of Carruth v. ICI, which is a case on appeal reported in 1937 Appeal Cases at page 707, one sees an example of the heavy and protracted litigation which a determined minority can institute in such a case.

It is honestly considered that Clause 32 in its present form may not be workable from a practical point of view. In particular, it is considered appropriate for the clause to give more curtailed rights for minorities than Section 75 of the Companies Act 1980, since the affairs of the company under administration will be managed by an independent insolvency practitioner and also because in such situations it is usually essential for the reorganisation of a company to be effected with the minimum of delay. On that basis the suggestion is that, first of all, strict time limits should be imposed for any application to challenge matters agreed under Clause 28 or revised under Clause 30 and specifically mentioned in the proposals or proposed revisions; secondly, so far as possible, rights of appeal should be restricted; and, thirdly, it should be made impossible to challenge a transaction effected in accordance with proposals which can no longer be challenged.

I should like to make two further points. It should be stated expressly that nothing sanctioned by the court under Clause 21 (3)(b) or Section 425 of the 1985 Bill can be challenged under Clause 32. Lastly, it should be provided that any order which the court makes under Section 32 shall be without prejudice to the rights or interests which any third party has acquired or agreed to acquire in any property of the company in good faith and for value, and for those claiming under him.

Lord Donaldson of Kingsbridge

I think that this is the last of the bundle of clauses which the noble Lord, Lord Mishcon, intends to treat in this way. I found what he had to say (in so far as I was able to understand it, which was not all the way) very interesting, but I think it is a wrong procedure in this Committee. I have been through many Committee stages. I have been in your Lordships' House for 18 years, and never before have I heard difficult points dealt with in clause after clause simply on the Question, Whether the clause shall stand part?

If I am right in thinking that the noble Lord's points are important—and I think they are—it seems to me that the correct way is to set down amendments, in which case the Minister's advisers will go into the question, the Minister can be fully briefed, there can be argument and people like me who know nothing about it can begin to understand what it is all about. So far as I am concerned, from about Clause 21 until now I have not had the slightest idea of what is going on. I am not complaining; I am remarking on a situation which seems to be an entirely new one. It has never happened before in my experience, and it is altogether less satisfactory than the normal procedure. That is all I wanted to say: it is merely a comment.

Lord Broxbourne

So far from having 18 years' experience of your Lordships' House, I have a very minimal experience indeed, although I had a little preparatory experience in another place. I should like respectfully to support what the noble Lord has just said. Following as best I could on these difficult and esoteric matters what the noble Lord, Lord Mishcon, with his customary clarity, said, it appeared that to this clause he proposed a series of measures, all of which, I should have thought, were capable of being formulated as amendments. Indeed, if effect is to be given to them, at some stage they will have to be formulated as amendments. Would it not therefore have been more helpful to Ministers and to the Committee as a whole, and therefore to the Bill, if that had been done? Noble Lords would then have had an opportunity—not only the Minister but noble Lords generally—of familiarising themselves with the points to be taken, of following more easily the cogent arguments of the noble Lord, Lord Mishcon, and possibly of preparing their minds to make some comment upon them.

Lord Bruce of Donington

May I briefly respond to what the noble Lord has just said? It is quite clear to us on this side of the Committee that following the Second Reading much more time should have been allowed on this Bill before the Committee stage was reached. Repeated representations were made in the light of this. It was pointed out, first of all, that the report of the Cork Committee itself was a very comprehensive document—"full of meat" would be the ordinary conversational way of describing it—and that, although being very largely non-controversial, it proposed far-reaching changes in the law which had been virtually unchanged in many respects for about 100 years. In short, it was pointed out that the matter was one of great complexity.

When the Bill was finally published it again became quite clear to us that, as no debate had taken place either in another place or in your Lordships' House on the original Cork Report, when a whole series of matters could have been clarified and explained, as the Bill only partially covered the matters raised in the undebated Cork Report and, indeed, ignored others, and as it was full of legal complexity, at least a month ought to elapse between Second Reading and the Committee stage. Unfortunately, owing to priorities in Government business that was not permissible, and one had to shorten the matter to within a fortnight. I can assure the noble Lord, as one who has examined the Bill and the Cork Report for hours and hours per day, that it would have been impossible, bearing in mind that we do not have vast armies of civil servants behind us, to have drafted all the amendments that have been so ably covered by my noble friend this afternoon. That is the reason.

Lord Lucas of Chilworth

All I can say is that my noble and learned friend the Lord Advocate, my noble friend Lord Brabazon and I are entirely in the hands of the Committee. We shall respond to the Committee as the Committee wishes. Other considerations are a matter for the usual channels or, perhaps, for the Procedure Committee. I leave it there.

Lord Mishcon

I believe that I owe a personal explanation to the very courteous Members of your Lordships' Committee who have commented on my interventions on clause stand part. May I assure them both that I regard the method I have used as being most unsatisfactory. I wish that I did not have to use such a method. In amplification of my noble friend's comments, and without attempting to abscribe blame to anybody, I would say that the profession which the noble and learned Lord, Lord Broxbourne, graces had precisely the same opportunity, as from the 10th and 11th December, and immediately preceding the Christmas Recess, to go through this extremely important, lengthy and complex Bill.

I myself received notes from my very distinguished colleague and from others literally only over the past 48 hours. I have therefore had to confront this quandary: I could not possibly have put down amendments to cover all these points, and so was I to allow the Committee stage to go by without drawing to the attention of the Minister and to the Members of the Committee the very salient points being raised by distinguished lawyers in regard to the defects of this Bill? Should I have remained silent, or if I did not remain silent, then what course could I adopt? There was only one course to adopt, and that was to raise these points on clause stand part, hope that they could be dealt with by the Minister between now and Report stage, and then decide at Report stage what amendments ought to be put down.

I apologise to your Lordships for my frequent and somewhat lengthy interventions. I make them as a matter of duty, but I make them feeling somewhat uncomfortable; I have no other alternative.

Lord Broxbourne

May I briefly thank the noble Lords, Lord Mishcon and Lord Bruce of Donington, for the courtesy and clarity of the explanations that they have been good enough to give. For myself, I fully understand the difficulties they have faced, and I can only hope that on future occasions more time will be available for the study and preparation of amendments to these complex provisions. There is never any need for the noble Lord, Lord Mishcon, to apologise for any of his contributions to the proceedings in this Chamber, which so greatly assist your Lordships in your various debates.

Lord Donaldson of Kingsbridge

The noble Lord, Lord Mishcon, questions whether it would have been better if he had remained silent. I say, God forbid! I am very pleased to have been told the reasons. This is not my Bill and I have not studied it, but it seems to me that we must ask for a longish interval between now and Report stage. We must ask for time for the Minister to write replies to the noble Lord, Lord Mishcon, and his colleague and for them to have time to put down amendments, so that these matters can be properly dealt with on Report. Otherwise, we shall be trying to force a very complicated Bill through this House in a way that is quite inadequate.

Lord Lucas of Chilworth

I would not wish to usurp the position of my noble friend the Chief Whip in arranging the business of your Lordships' House, but my understanding is that Report stage will be reached in the first days of March, which gives some time. Some noble Lords will have heard from the noble Lord, Lord Mishcon, the basis of some of his inquiries and, unless a particular matter is debated in this Chamber at a later stage, such noble Lords will not have the benefit of knowing the Government's response. Perhaps it will satisfy all parties concerned if, when I respond to the noble Lord, Lord Mishcon, I place a copy of my response in the Library, so that other noble Lords will be able to know the other view.

Clause 32 agreed to.

Clause 33 [Enhanced priority for certain debts]:

6.15 p.m.

The Deputy Chairman of Committees (Lord Wells-Pestell)

Clause 33, Amendment No. 54; Lord Bruce of Donington.

Lord Bruce of Donington moved Amendment No. 55: Page 24, line 21, at end insert ("or by the administrative receiver of the company.").

The noble Lord said: I beg to move the amendment standing in my name on the Marshalled List, which relates to Clause 33(1)(b), and proposes to insert after the words, by a creditor holding a prior charge or security", the words, or by the administrative receiver of the company".

Lord Lucas of Chilworth

I beg the noble Lord's pardon, but I believe that the Deputy Chairman of Committees has not in fact cleared Amendment No. 54.

Lord Bruce of Donington

It is not moved.

[Amendment No. 54 not moved.]

The Deputy Chairman of Committees

Amendment No. 55; Lord Bruce of Donington.

Lord Bruce of Donington

I have already spoken to this amendment. I beg to move.

Lord Lucas of Chilworth

Amendment No. 55 draws attention to the drafting of the clause. It is not our intention in this clause to create enhanced priority where the creditor himself sells the assets or goods returned to him. I should like to give further consideration to Amendment No. 55. If it is considered desirable, then we will put down an appropriate amendment at a later stage.

Lord Bruce of Donington

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Bruce of Donington

had given notice of his intention to move Amendments Nos. 56, 57 and 58:

Amendment No. 56: Page 24, line 21, at end insert— ("and (c) an advance payment or deposit has been paid to the company by a consumer who has a claim for the supply of goods or services which as a result of the insolvency of the company have not been or are not on the balance of probabilities likely to be supplied or provided within three months of the commencement of the winding up, and "consumer" shall for the purposes of this section have the same meaning as a person entitled to make an application under section 139(1)(a) of the Consumer Credit Act 1974;").

Amendment No. 57: Page 24, line 21, at end insert— ("unless the claims of the creditors in question have been paid, satisfied or compounded for in the course of an administration or receivership immediately preceding the commencement of a winding up of the company.").

Amendment No. 58: Page 24, line 26, after ("day") insert ("or if a consumer shows he has a claim within paragraph (c) of subsection (1) above,").

The noble Lord said: In the light of the observations which have fallen from the lips of the noble Lord, I have given further consideration to the text of Amendments Nos. 56, 57 and 58. I propose to give them even further consideration in the light of earlier proceedings in Committee. In the meantime, the amendments are not moved.

[Amendments Nos. 56, 57 and 58 not moved.]

[Amendment No. 59 not moved.]

On Question, Whether Clause 33 shall stand part of the Bill?

Lord Mishcon

With some discomfiture I again appear before your Lordships' Committee, as I have observations to make on Clause 33. The nub of the clause—if I may turn to the noble Lord, Lord Donaldson of Kingsbridge, and address him directly on this matter—in subsection (2). That, it is considered, is defective in two respects.

First, the detriment which a creditor suffers under Clause 18 is not that he is being prevented from selling on the day on which an administration order is made the property which is comprised and is charged; the detriment is being prevented from selling such property over a period of 12 months or more. It therefore appears illogical that Clause 33(2) should require him to prove that he could have sold the asset concerned on the date of the administration order, and provides for the amount for which he has enhanced priority to be calculated by reference to the price which he could have obtained on that day.

It may have been the case that when the administration order was made it was impossible to sell the assets of the company comprised in the secured creditors' charge, except at extremely low forced sale prices. If the secured creditor was precluded, under Clause 18, from selling for, say, 18 months after the administration order and the market for his asset revived six months after the date of the administration order, why should the creditor's enhanced priority he calculated only on the basis of the very low price which could be obtained on the first day of the administration? Equally, it may be absolutely impossible to sell the asset on the date on which the administration order is made; for example, the asset may be shares in a company in which dealings are suspended on that day, or a deposit in a foreign currency in which dealings are suspended. It is thought that the enhanced priority of a secured creditor should be calculated by reference to price levels obtaining during the period of, let us say, nine months, or whatever may be deemed to be the appropriate period, from the relevant day.

The second point is this. Subsection (2) does not appear to take interest into account. I give your Lordships an example. A creditor may have a debt of £1 million and on the relevant day the accrued and unpaid interest is £100,000. On that day the creditor could have sold the asset concerned for £1.1 million so as to pay off both principal and all the interest. However, under Clause 18 he is precluded from selling for 12 months. He sells the asset immediately at the end of that period. The price he obtains is still £1.1 million but the accrued and unpaid interest had increased from £100,000 to £200,000. The creditor therefore has effectively lost £100,000 as a result of Clause 18, but he obtains no enhanced priority in respect of this loss under Clause 33. So the question is: is this intended?

It is also noted that Clause 33 does not cover losses incurred by selling under retention of title agreements, despite the fact that Clause 18 prohibits such sellers from repossessing their goods. Is that, too, intended?

Clause 33 agreed to.

Clause 34 [Appointment of receiver or manager]:

On Question, Whether Clause 34 shall stand part of the Bill?

Lord Mishcon

I have one short point to raise on Clause 34. It appears that paragraph (b) of this clause could result in the effectiveness of the appointment of a receiver or manager being back-dated to a date prior to the date on which he accepted his appointment. Clarification is required from the Minister's department as to whether this is the correct interpretation and, if so, why this provision is considered necessary.

Clause 34 agreed to.

Clause 35 [Liability for invalid appointment]:

On Question, Whether Clause 35 shall stand part of the Bill?

Lord Mishcon

I have three short points on Clause 35. The first relates to the words, is discovered to be invalid". Those words would appear to exclude a case where a charge was later set aside in a winding up; for example, under Clause 82 of the Bill or as in the case only last year of Rolled Steel Products (Holdings) Limited v. British Steel Corporation—

reported at 1984 BCLC 466. It seems that such cases should clearly be covered.

The second point concerns the restriction of the liabilities in respect of which an indemnity may be obtained to those which arise, solely by reason of the invalidity of the appointment". That restriction is thought to be very unfortunate and could be used to found an argument that a receiver is not entitled to an indemnity against any damages payable by him for conversion, or any compensation which he is ordered to make as a constructive trustee.

The third and last short point is that Clause 35 should obviously be without prejudice to any right of indemnity which the receiver has under the instrument appointing him or any other instrument or document and to his rights under the Civil Liability (Contribution) Act 1978, or at common law.

Clause 35 agreed to.

Clause 36 agreed to.

Schedule 2 [Powers of Administrator or Administrative Receiver]:

Lord Bruce of Donington moved Amendment No. 60:

Page 158, line 7, leave out paragraph 8 and insert— ("8. Power to use, attest and affix in his presence the company's common seal as well after as before the commencement of a winding up of the company.").

The noble Lord said: I should like to speak also to Amendment No. 61.

Amendment No. 61: Page 158, line 8, leave out paragraph 9 and insert— ("9. Power to execute in the name of and on behalf of the company any agreement, option, transfer, assignment, conveyance, lease, power of attorney, release, discharge, receipt or other deed or document which the company itself had power to enter into and to deliver and perfect the same by all acts necessary or appropriate for those purposes.").

Both these amendments seek to clarify, in so far as I am capable of clarifying them, the receiver's powers and for that purpose refer to Schedule 2 on page 158. Instead of paragraph 8 we should prefer to use the words: Power to use, attest and affix in his presence the company's common seal as well after as before the commencement of a winding up of the company". In substitution for paragraph 9 we suggest the insertion of the words: Power to execute in the name of and on behalf of the company any agreement, option, transfer, assignment, conveyance, lease, power of attorney, release, discharge, receipt or other deed or document which the company itself had power to enter into and to deliver and perfect the same by all acts necessary or appropriate for those purposes".

In moving these two amendments, I ought to make clear to the Committee, if it is not clear already, that I myself did not devise this legal wording, but I have it on eminent legal advice. I do not know if it is as eminent as that which is available to other noble Lords but these words are necessary for clarification and are not mere legal pedantry. I beg to move.

Lord Denning

We might as well have it, I think. The amendment makes it clearer and better.

Lord Lucas of Chilworth

Paragraph 8 provides the administrative receiver with the power to use the common seal of the company. The amendment of the noble Lord, Lord Bruce of Donington, affects the paragraph in two ways. It suggests that the word "use" is insufficient in itself and that "attest and affix" are also necessary. I hear what the noble and learned Lord, Lord Denning, said but I should have thought that the word "use" on its own would have been quite sufficient. I think that at the end of the day we shall have to leave this to the draftsmen.

On the second element, I am grateful to the noble Lord, Lord Bruce of Donington, for raising it because the question whether the power should exist after liquidation is important. I understand that it is the case that absence of the power post-liquidation does present some problems. I assure the noble Lord that this matter and the associated case law are under consideration. We shall have to see whether the provision can be made more clear at a later stage.

6.30 p.m.

I regret that I am reluctant to bracket my acceptance of what underlies the noble Lord's earlier amendment with an acceptance of Amendment No. 61. In paragraph 9 of Schedule 2 we are dealing with the powers of execution of administrative receivers and administrators. Amendment No. 61 does not appear to extend the effect of the power set out in paragraph 9. It appears to me that it would expand the terms in which the paragraph is written. I do not believe that it adds anything to the provision, and I think that it is unnecessary. I hope that on my undertaking to have a look at Amendment No. 60 and to come up with something, and on the ground that Amendment No. 61 is unnecessary (although I acknowledge the amendments' interface), the noble Lord will be kind enough to withdraw both amendments.

Lord Bruce of Donington

I am not sure whether I interpret the remarks of the noble Lord as meaning that he is willing to look at both Amendments Nos. 60 and 61 together or whether his promise of consideration is limited to only one. On the basis that it extends to both, I am happy to beg leave to withdraw the amendment, but I should like the point clarified. At this stage I should hate to put the Committee to the inconvenience of dividing on one matter because I cannot get a satisfactory assurance.

Lord Lucas of Chilworth

I had meant the former and not the latter, but since the noble Lord tempts me, may I give him the assurance on both?

Amendment, by leave, withdrawn.

[Amendment No. 61 not moved.]

On Question, Whether Schedule 2 shall be agreed to?

Lord Mishcon

I have four very brief points which I ask the Minister to consider, if he would. First, if one looks at paragraph 1 it appears that the power to take proceedings is rendered redundant by paragraph 5. My second point is this. Should not paragraph 2 be expanded to give a clear power to transfer all or part of the company's undertaking and property in exchange for securities? The noble Lord may remember that this is the point that I raised before to deal with hiving-down and other types of reorganisation. Thirdly should not the power read, "to borrow and raise money"; and should not the paragraph make it clear how far an administrator and an administrative receiver has power to create security ranking prior to existing charges? Lastly, will the Minister consider whether the paragraphs are really set out in a logical order? For example, paragraph 14, which reads: Power to carry on the business of the company", should, one would have thought, be pragraph 2; and paragraph 16 seems to me more logically to appear under paragraph 6.

Lord Lucas of Chilworth

Having started the backward trend on Schedule 2, which I hope I shall finish—I mean by that the backward trend—it seems to me right to give proper and full consideration to all matters that noble Lords have raised on Schedule 2, and this I undertake to do.

Schedule 2 agreed to.

Clause 37 [Power to sell property free from charges etc.]:

Lord Bruce of Donington moved Amendment No. 62: Page 26, line 9, after ("security") insert ("or any goods in the possession of the company under a hire-purchase agreement").

The noble Lord said: With the leave of the Committee, I shall speak also to Amendments Nos. 63, 64 and 65.

Amendment No. 63: Page 26, line 11, at end insert ("or to assist in the advantageous realisation of the assets").

Amendment No. 64: Page 26, line 16, at end insert ("or hire-purchase agreement").

Amendment No. 65: Page 26, line 19, at end insert ("or hire-purchase agreement").

All these amendments are of a comparatively minor nature and designed to ensure that the receiver should have the same, and not inferior, powers as an administrator. I have no doubt that these amendments will command the support of the noble Lord. I beg to move.

Lord Lucas of Chilworth

The noble Lord has been very brief. Perhaps I should be brief too and tell him that I cannot possibly accept Amendments Nos. 62, 64 and 65. I think that they are undesirable. If he is agreeable, I shall deal with Amendment No. 63 separately. The important amendment in the group is Amendment No. 62, which would give the administrative receiver the power to compel the sale of goods subject to hire-purchase and other agreements. However, the administrative receiver, unlike the administrator, does not have the protection of a statutory moratorium on creditors' rights of enforcement of their security or repossession of their goods. He would be unable therefore to prevent the owners of such goods from repossessing their property. In these circumstances the power to sell property free from the security or agreements would be both worthless, since they would be unable to retain them. It would also be oppressive, since there can be no justice in allowing an administrative receiver to sell goods no longer in his possession and over which the owner has the sole right of sale. It would also be unjust to the owners of such goods if a receiver was allowed to deprive them of their assets by compulsory sale when the company itself would have no such power and there was no moratorium to justify it.

The reason why there is no moratorium in receivership is that, in contrast to administrations, receivership is a private debt collecting mechanism, essentially. The administrative receiver, although he has duties to other creditors under both the common and statute law, acts principally in the interest of the debenture holder. To extend the moratorium to administrative receivers would, I think, lead to substantial injustice, since such receivers are not and will not be answerable to other creditors in the same way as a receiver is to his appointor. Those are the objections to Amendment No. 62, and to Amendments Nos. 64 and 65 which are related to it.

However, Amendment No. 63 appears to suggest that the power should be available on another ground. Although the noble Lord did not spend too much time explaining it, I think that I have the gist of the argument from the amendment itself. I should be happy to take back Amendment No. 63 which reads: Page 26, line 11, at end insert ('or to assist in the advantageous realisation of the assets')", but for the reasons that I have given, I invite the noble Lord to withdraw the other amendments in the group.

Lord Bruce of Donington

Is the noble Lord saying that he will accept Amendment No. 63? I am prepared to withdraw Amendments Nos. 62, 64 and 65, but I should be glad if he would notify his agreement to Amendment No. 63.

Lord Lucas of Chilworth

I am saying just that. The noble Lord has identified a problem. We can talk about it, and bring forward an amendment to meet what lies behind his point.

Amendment, by leave, withdrawn.

[Amendments Nos. 63, 64 and 65 not moved.]

Clause 37 agreed to.

Clause 38 [Agency and liability for contracts]:

[Amendments Nos. 66 and 67 not moved.]

Lord Bruce of Donington moved Amendment No. 68:

Page 26, line 33, at end insert— ("Provided that, subject to section 33, contractual commitments entered into by a receiver in the name of and on behalf of the company, in the course of his duties, shall be an expense of the receivership.").

The noble Lord said: This amendment is to Clause 38, at page 26, line 33. It makes a new provision covering the administrative receiver of a company who, under subsection (1)(a): shall be deemed to be the agent of the company unless and until the company goes into liquidation". It also deals with the various contractual commitments. Amendment No. 68 wishes to insert: Provided that, subject to section 33", with which your Lordships have already dealt, contractual commitments entered into by a receiver in the name of and on behalf of the company, in the course of his duties, shall be an expense of the receivership". It raises the same points as those that have been raised before. If it is still considered that directors and liquidators are not personally liable, why therefore should administrators and receivers be so liable in these particular circumstances?

Lord Lucas of Chilworth

Amendment No. 68 would have much the same effect by way of eliminating the need for personal liability as those we discussed a little earlier. It would define an administrative receiver's contractual liabilities as expenses of the receivership; that is, with a high priority for payment, as defined in clause 33. This is the virtual removal of the pressure of contracting with personal liability, and is a dangerous proposal. The noble Lord will remember the arguments I advanced earlier on the matter of personal liability. That is when I said that the receiver should be aware at all times of creditors' interests and I mean the interests of all the creditors, not just the appointing chargeholder's interests. Also, he must not be allowed to reduce the value of the assets on which they have a claim by entering into contracts where costs are to be deemed as simply "receiver's expenses". That is the basic objection to Amendment No. 68.

Perhaps I may prejudge (which is, I admit, a little risky) the remarks of Lord Bruce of Donington on Amendment No. 69, because I link the two together.

Amendment No. 69: page 26, line 40, at end insert— ("( ) For the purpose of this section a contract is adopted when by novation an administrative receiver becomes personally liable under it."). It is Amendment No. 69 which entirely undermines the proposals that receivers should notify third parties if they intend to allow contracts to run on without incurring personal liability. To define adoption as novation defeats the purpose of the provision, since novation constitutes the creation of a new contract, and that is already covered by the legislation. I do not think that Amendment No. 69, dealing, as it does, with the parallel point of Amendment No. 68, is at all helpful.

The amendments alter the allocation of financial responsibility in receivership in entirely the wrong way. The receiver's primary object is to obtain the best price possible for the assets under his control so that the claims of creditors can be met to the fullest extent. The existing provisions in respect of personal liability, added to modestly by the Bill, have for many years successfully encouraged fulfilment of this responsibility. I would suggest that the Bill is the more useful vehicle for encouraging the fulfilment of the receiver's responsibility. I would ask the Committee not to support these (as I think) damaging amendments. Also, I believe them to be unnecessary.

Lord Bruce of Donington

The Committee are at the moment discussing Amendment No. 68. Although the noble Lord has linked it with No. 69, I wish to return to No. 69, which I assess quite independently of the particular amendment we are now discussing, although had this amendment been carried it would have had some relevance to it.

I should like the opportunity of reading exactly what the noble Lord has said, both in regard to this amendment and to Amendment No. 52. I should like to examine his remarks in cold print tomorrow and to take legal advice upon them. In the meantime, I ask the Committee's leave to withdraw this amendment.

Amendment, by leave, withdrawn.

6.45 p.m.

Lord Bruce of Donington moved Amendment No. 69:

[Printed above.]

The noble Lord said: I beg to move the amendment standing in my name. On legal authority which I regard as eminent I am given to understand that the word "adoption" (or "adopted", as used in line 29, which is Clause 38(1)(b)) is of rather uncertain legal interpretation. The purpose of this amendment is to define more closely what we assume the Government mean when they say "adopt". I hope I carry at least one noble and learned Lord with me in saying that I believe "adoption" is a rather vague legal term. Consequently, even for the purposes for which the Government have designed this particular clause it is desirable that the word "adoption" be more closely defined. Accordingly, I beg to move the insertion of the words: For the purpose of this section a contract is adopted when by novation an administrative receiver becomes personally liable under it".

Lord Denning

I am not sure that it is at all helpful to have this amendment. "Novation" is just as difficult as "adoption". We have no end of trouble deciding whether or not something has been novated. I do not think this amendment helps. In fact it may obscure the position. Therefore, it is better to leave the wording as it is without the amendment.

Lord Bruce of Donington

The remarks that have fallen from the lips of the noble and learned Lord, Lord Denning, leave me absolutely no alternative but to unequivocally withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 38 agreed to.

The Deputy Chairman of Committees

The Question is that Clause 39, Clause 40, Clause 41 and Clause 42 be agreed to.

Lord Mishcon

I wonder whether the Minister can, either now or hereafter, tell us what is the need or purpose of Clause 41(5).

Lord Lucas of Chilworth

I am afraid I will resort to the tactic often used at Question Time and say, "Not without notice".

Clauses 39 to 42 agreed to.

Clause 43 [Supervisory committee]:

On Question, Whether Clause No. 43 shall stand part of the Bill?

Lord Mishcon

I have an idea that the noble Earl, Lord Selkirk, will similarly have some sympathy with the words I shall now express. It is not thought appropriate that an administrative receiver should be subjected to the supervision of a supervisory committee. As we have said before, the word "supervise" connotes some degree of control. A person is not usually called a supervisor if he is powerless to give directions to those whom he oversees as to the manner in which they perform their tasks. This is surely the position in this case. The administrative receiver's primary duties are of course owed to the person who appoints him and he is bound, first, to have regard to the interest of that person. It does seem that the position of an administrative receiver can only be complicated by making him not only answerable to but also subject to the directions of a supervisory committee.

Often the unsecured creditors will have no interest in the company's assets sufficient to justify their having any of these powers, because the assets comprised in the debenture holder's general charge may not be sufficient even to pay him out in full, quite apart from allowing any surplus to the unsecured creditors. It is thought that the obligation of an administrative receiver to the unsecured creditors, or a committee of them, should be limited expressly to that imposed by subsection (2). It is also thought that the provision should be included—and this is important—to prevent members of creditors' committees from making any improper use of information which they are given by an administrative receiver.

The Earl of Selkirk

I am very glad that the noble Lord, Lord Mishcon, has raised this matter again. Surely the whole principle we are working on is that when a thing goes wrong you put one good man in charge—you may call him an administrator or a liquidator—and he must have power. I do not see why it is necessary to put under him a supervisor. What is he doing? Is he supervising the liquidator? Who is he supervising? I do not know. I find it impossible to explain.

Lord Broxbourne

Before my noble friend replies to what my noble friend Lord Selkirk has asked him, may I ask him a further question, for enlightenment on that matter? Where in this Bill do we find the exact functions of the supervisory committee? They have been described as "executive". The only functions which I, with a very imperfect knowledge of the Bill, find are the functions given in Clause 33 and again in Clause 43, Clause 33 of course being the one on which my noble friend Lord Selkirk originally raised this point. The only functions which the supervisory committee seems to have are to call the administrator before it and cross-examine him, so to speak. What happens then, when it has done that and has the answers to the questions it put to him? What flows from that? What executive powers in fact does it have, and where are they defined? I may be the only noble Lord in the Committee who is unaware of the answer, but it is just conceivable that I am not.

Lord Taylor of Gryfe

I think the answer to the noble Lord who has just spoken, who asked where the supervisory power arises, is that it is in Clause 51, on page 35, in which we have some definition of the supervisory powers, and to which appropriate amendments have been submitted.

Lord Broxbourne

With very great respect, that is a reiteration of the power to call the receiver and, as it were, cross-examine him. My question was: what is the stage after that? What executive supervisory function is the supervisory committee then able to exercise, and where is the power specified?

Lord Donaldson of Kingsbridge

With respect, the Minister did say he would take away "supervisory" and bring back something better. It was agreed by all concerned, when we discussed it, that what was meant by "supervisory" was not its ordinary meaning; it was "advisory", or something of that kind. That is what I think we are going to hear from the Minister, but he has already promised to take it away and, with the help of his various advisers and legal experts, come back with something better.

Lord Lucas of Chilworth

I am most grateful to the noble Lord, Lord Donaldson. I confirm that I said I would take that back, as I shall also take back the reference in this clause. When we find, if we can, the right kind of words, we can also find exactly the definition which we are going to attach to this advisory committee.

Clause 43 agreed to.

Clause 44 agreed to.

Clause 45 [Powers of receiver]:

The Deputy Chairman of Committees

I have to draw the Committee's attention to Amendment No. 69A, which is a manuscript amendment standing in the name of the Earl of Selkirk. Perhaps I ought to read it. It is: Page 31, line 7, after ("works") insert ("and the hiving down of assets for a subsidiary company in exchange for shares and other considerations").

The Earl of Selkirk moved manuscript Amendment No. 69A: Page 31, line 7, after ("works") insert ("and the hiving down of assets for a subsidiary company in exchange for shares and other considerations").

The noble Lord said: This is a change from the powers in the 1945 Act to those in this Bill. The first one is comparatively simple—I am referring to paragraph (m)—since this is the power to do all the things that are necessary. Since then, the words in brackets—this is on page 31—have come in: (including the carrying out of works) as may be necessary". It is thought by some people, for good or bad, that those words may specify and also restrict; so it is suggested that, to make quite certain we are right, we should put in that this does not exclude a company from, hiving down of assets for a subsidiary company in exchange for shares and other considerations". That really means simply this: that you take the part of the company which works and sell off the remainder. This is a perfectly normal procedure, I am given to understand, and I think it may be necessary. My noble friend may say that I am being over-suspicious, that it is not necessary in fact to put in these words, that it is not necessary to provide for the exclusion of the power to sell off a company. I am informed that some people think it may be necessary, and it is for that reason that I beg to move this amendment.

The Lord Advocate (Lord Cameron of Lochbroom)

I am grateful to my noble friend for having raised this amendment. This is a clause which sets out the statutory powers of receivers, and the amendment is plainly designed to remove doubts about the exact nature of these powers. I should say that I am entirely happy to accept the principle to which this amendment is directed. However, I am given to understand that there are certain technical problems in the drafting of it. I may say that the expression "hiving down" is one which is new to me, as a Scots lawyer. Accordingly, I would simply invite my noble friend to withdraw his amendment on the undertaking that an appropriate amendment will be brought forward in due course.

The Earl of Selkirk

I am very pleased with what my noble and learned friend has said. I am very happy to do that. I ask the Committee's leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Brabazon of Tara

I think this might be a convenient moment to break for dinner, until 8 o'clock. Therefore, I beg to move that the House do now resume.

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

House resumed.