Lords Sitting of 15 January 1985

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Oxford.

Middle East Peace Initiatives
Lord Molloy: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what efforts they are currently making to seek a just and peaceful solution to the problems of the Middle East.
The Minister of State, Foreign and Commonwealth Office (Baroness Young): My Lords, we are ready to support constructive moves by the parties directly concerned towards negotiated solutions of the area's problems. Together with our partners in the Ten we intend to remain active on the basis of our well-known balanced approach.
Lord Molloy: My Lords, may I thank the noble Baroness for, and congratulate her on, that reply? Would she not agree that it is now very urgent indeed that Britain throws her weight quite openly behind Iraq in trying to end the appalling situation there? Is she further aware that the admirable endeavours of the British Foreign Secretary to try and guarantee safety for all the lands in the Middle East, Israel and the Arab states, and his remarks that that can only ultimately be achieved when the settlements are given back to their rightful owners, will help enormously in trying to achieve peace?
Baroness Young: My Lords, I agree that there is an urgent need for early progress, and we shall remain active and ready to support initiatives by the parties.
Lord Cledwyn of Penrhos: My Lords, can the noble Baroness say whether she has any information about the latest intentions of the Israeli Government to withdraw Israeli troops to the Litani River? Are Her Majesty's Government in favour of this move? Will she recall the visit of her right honourable and learned friend the Foreign Secretary to the Middle East in October when he said that he would personally do all he could to advance the cause of peace in the area? That is something which we warmly support. Is she able to say whether any initiatives have been taken by him since then?
Baroness Young: My Lords, I understand that the Israeli Government want an early withdrawal from Lebanon and so indeed do the Lebanese; but there is need for agreement between the parties on security arrangements. On the second part of the noble Lord's question, I do not think that I have anything further to add to what I have already said in answer to the original question.
Lord Cledwyn of Penrhos: My Lords, has the noble Baroness any information about the latest intentions of the Israeli Government to withdraw unilaterally to the Litani River in the light of the breakdown of the recent talks?
Baroness Young: Yes, my Lords, the Israeli Government do want an early withdrawal. We hope in fact that we shall achieve success under the military talks now taking place at Naqoura, and where Mr. Brian Urquhart, the United Nations Under-Secretary-General, is visiting the area.
Lord Gladwyn: My Lords, if I understand the position correctly, there are certain indications in the press this morning that the Americans and the Russians might conceivably be getting together to talk about Middle Eastern questions. If that proves to be true, will the Government do everything possible to foster such an initiative which may well be the hope of the future?
Baroness Young: Yes, my Lords. We believe that the United States has a crucial role to play, and we are glad that at the 1984 United Nations General Assembly President Reagan confirmed his proposals of 1st September 1982.
Lord Molloy: My Lords, would the noble Baroness not agree that if the United States of America were to move considerably closer to the admirable viewpoint expressed by the British Foreign Secretary, that too would make a magnificent contribution to easing the situation in the Middle East and the establishment of a just and honourable peace?
Baroness Young: My Lords, I am glad to hear the tribute paid to my right honourable and learned friend the Secretary of State who has done what he can to help a settlement in the Middle East. I confirm that we believe that the United States has a crucial role to play in any settlement.
Lord Mayhew: My Lords, can the noble Baroness confirm that the Government still support the principle of the Venice Declaration—in particular the recognition of Israel by the Arabs—and on the other hand self-determination for the Palestinians on the West Bank, and the participation of the PLO in peace negotiations?
Baroness Young: My Lords, I can confirm that we still support the Venice Declaration; and that was what was implied when I said that we supported a balanced approach to the problem.
Lord Tordoff: My Lords, in reply to my noble friend, the noble Baroness indicated that the Government supported the United States involvement in this matter; but she gave no indication of her views on the involvement of the Soviet Union, which was the subject of part of my noble friend's question.
Baroness Young: My Lords, I think it is recognised that it is crucial that there should be the involvement of the United States in any solution in the Middle East.
Lord Tordoff: My Lords, I am sorry to press the noble Baroness, but the specific question was: what was her view on the involvement of the Soviet Union in that process as well?
Baroness Young: My Lords, the Soviet Union, too, clearly has an interest in peace in the Middle East.
The Earl of Onslow: My Lords, is the subject of this question not so wide and so varied that it would be much more suitable for a debate than for it to be discussed at Question Time, when one is trying to extract information from Her Majesty's Government? It is a much more suitable subject for a 2½ hour debate.
Baroness Young: My Lords, I should like to thank my noble friend for his supplementary question. It is a very wide subject.

NHS: Drug Prescribing
2.44 p.m.
Lord Kilmarnock: My Lords I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will withdraw their proposed limited list for National Health Service prescription drugs, in favour of the recommendation contained in paragraph 24 of the Greenfield Report on Effective Prescribing.
The Parliamentary Under-Secretary of State, Department of Health and Social Security (Lord Glenarthur): No, my Lords. The Government are committed to the introduction of a limited list of less important drugs for the National Health Service. A limited list will result in substantial savings to the National Health Service for better patient services which generic substitution would not, and avoids the problems of divided professional responsibilities for patient care which generic substitution can entail.
Lord Kilmarnock: My Lords, that is a disappointing reply. Would the noble Lord not agree that the course which has been chosen by the Government goes completely contrary to recommendation 25 of their own Greenfield Committee which included six representatives of the department in its 14-man membership? Is it not the case that this list has been widely criticised as being both clinically and pharmacologically inept and liable to cause widespread suffering if it is implemented on 1st April? Perhaps more important, is it not the case that there are now indications that most of the interested parties will be prepared to settle for the Greenfield proposals, and in the circumstances will the noble Lord's department not seize the opportunity to get an agreed system of generic substitution which all parties can subscribe to in the interest of patients?
Lord Glenarthur: My Lords, so far as recommendation 25 of the Greenfield Report is concerned, times have moved on since then, as the noble Lord will be aware. Our present proposals are the result of a study
868
of the whole subject which has been undertaken in great depth since 1981 in the light of experience not only here, but also in other countries. As a result we have evolved a scheme which not only provides value for money for the taxpayer, but also ensures that effective medicines remain available for doctors to prescribe for their patients under the National Health Service.
Lord Ennals: My Lords, may I put two questions to the Minister? First, bearing in mind the strong condemnation of the Government's proposals by the British Medical Association, the pharmaceutical industry, the pharmacists and those who speak on behalf of the elderly and infirm, what support do the Government have for the proposals that are now before the country and before Parliament?
Secondly, can the Minister say how he squares this? He referred to studies since 1981. In 1981 the Secretary of State for Social Services said that the Government would resist any system of limiting the freedom of doctors to prescribe. He said that there would be no limited lists, no black lists and no compulsory substitution of generics. How does the Minister manage to justify the statement then made by the Secretary of State with the action which is now being discussed?
Lord Glenarthur: My Lords, so far as the second part of the noble Lord's supplementary question is concerned, I think that was made clear in what I said earlier—that times change and move on, and we have been conducting a thorough survey of what happens in this country and what happens abroad. Those facts must be taken into account. Concerning support for our proposals, the noble Lord will be aware that the list put out was a consultative one. There have been many representations made about that list. The Chief Medical Officer in my department has written to all doctors and has received over 650 letters which go into some detail on the sorts of medicines which ought to be included. I should have thought that that was a perfectly sound way to approach the question.
Lord Hunter of Newington: My Lords, will the Minister please tell us whether in future all drugs prescribed in the National Health Service will have to be approved by Ministers, or is it the intention that a final list be arrived at by consultation with the professional people?
Lord Glenarthur: My Lords, Ministers are not themselves experts on drugs, and the noble Lord will be aware that the members of the committee on the safety of medicines are the people who approve drugs—the doctors, the pharmacists and others—and that will be the method which is held to in future.
Lord Chelwood: My Lords, have not some of the criticisms of Her Majesty's Government been premature and greatly exaggerated? Do not the two letters in The Times—one yesterday from the Chief Medical Officer of the Department of Health and Social Security, and one today from the President of the Royal College of Physicians—put this question into a much more sensible perspective?
Lord Glenarthur: Yes, my Lords, I am grateful to my noble friend. There has been much wild exaggeration which has preyed on the minds of many people who have no need to worry. I am grateful to my noble friend for his supplementary question.
The Lord Bishop of Norwich: My Lords, I thank the noble Lord for the assurance he has given. But is the Minister aware that the initial restricted list sent to doctors by the Department of Health and Social Security may adversely affect the quality of life of the aged who are on pensions because at present they receive, as an example, bulking and stool softening medicines, and they get them free? They will probably be most at risk because they can least afford to pay. So under the new arrangements they will be the most disadvantaged if this restricted list is brought in. I assure the Minister before he replies that I have no personal interest in the matter. I eat bran, and what is good enough for rabbits is good enough for prelates.
Lord Glenarthur: My Lords, I am delighted to hear that the right reverend Prelate is so well, and I can assure him that the points he makes are exactly the kind that will be borne in mind by those people such as the Chief Medical Officer who will be drawing up this list.
Lord Molloy: My Lords, does the Minister not agree that the valid points raised by my noble friend Lord Ennals deserve examination in that the BMA and the Royal College of Physicians are appalled and extremely anxious, so much so that the general opinion is that any Government who thought up such a scheme must be ill and sick? Does he not agree that these great organisations should be consulted before anything is passed into legislation?
Lord Glenarthur: My Lords, we have asked the BMA to comment. It has refused to do so. The ball is in its court.
Baroness Masham of Ilton: My Lords, are the Government aware that there is great concern among the severely disabled about limited prescribing? Will the Government look sympathetically at the specialised needs of these people? Is the Minister aware that I have had many letters from doctors and disabled people throughout the country?
Lord Glenarthur: My Lords, I am grateful to the noble Baroness for that. That, again, is the sort of point to be borne in mind by the experts who are looking at it at the moment.
Lord Ennals: My Lords, does not the Minister recognise that the reason why the BMA have not cared to comment is that they are totally opposed to the whole principle on which the Government are now basing a limited list? Does he not understand that?
Lord Glenarthur: My Lords, I understand it: but then I draw the attention of the noble Lord to the remarks of my noble friend behind me who pointed out the letters that had been written in support of our proposals, one of which is from the Royal College of Physicians.
Lord Kilmarnock: My Lords, in relation to the intervention of the noble Lord, Lord Chelwood, is the noble Lord aware that the President of the Royal College of Physicians—and I have the letter here in front of me—specified that one of the important points is that,
"Drugs should be available to meet the full range of desired therapeutic activities"?
That is a quotation from his letter in today's The Times. Is that condition being met by the removal of the whole of the intermediate range of analgesics, so that doctors will have nothing to prescribe for conditions between mild pain and exquisite agony? Is he also aware of the concern that has been expressed about laxatives, particularly so in the case of cancer patients, and would he not agree that he will have to extend his limited list so that, rather than coming out at £100 million, it may come out at something much nearer £50 million? In those circumstances, would it not have been much better to go for Greenfield which would secure the co-operation of all the parties concerned?
Lord Glenarthur: My Lords, the Greenfield Report was published in February 1983. We accepted its recommendation that a limited list should not then be introduced because there was not enough convincing evidence that the potential financial benefits would outweigh the administrative problems in drawing up and maintaining one. Since then, as I have said, we have done more work on the subject and we have learned from our experience, and from the experience of others, that savings are worthwhile. A lot of what the noble Lord has asked concerns matters which will be fully taken into account as the list is discussed—and it is being discussed at the moment—and I dare say that the list that was first issued will not be the same when it comes into effect on 1st April.
Baroness Lane-Fox: My Lords, will my noble friend the Minister bear very sympathetically in mind the repeated needs of paraplegics, polio and cancer sufferers for certain medication drugs to deal with that very unpopular problem of constipation? Intense worry has been expressed to me in letters about the exclusion of Dorbanex from the official list.
Lord Glenarthur: My Lords, I shall certainly draw my noble friend's remarks to the attention of my right honourable friend and I am sure that the Chief Medical Officer is also very well aware of the views which she expresses.

Income Tax: Military Expenditure
2.54 p.m.
Lord Jenkins of Putney: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether, in the light of their Answer of December 13th (Official Report, col. 423), it would not be a proper exercise of the sovereignty of Parliament to pass legislation designed to make it possible for a taxpayer, subject to safeguards similar to those applied to persons

871
seeking exemption from military services on conscientious grounds, to direct that the part of his or her income tax which would normally be devoted to military expenditure be directed instead to a non-military peace-building fund.
The Chancellor of the Duchy of Lancaster and Minister for the Arts (The Earl of Gowrie): No, my Lords.
Lord Jenkins of Putney: My Lords, will the noble Earl reconsider his rather sharp negative to this Question? Is he not aware that it is considered appropriate in the case of persons with conscientious objection to provide special provision so that they do not have to undertake military service? In view of this special provision which is made for persons with conscientious objection in this category, would it not also be reasonable to make a special concession for those who have to pay for the cost of that military service?
The Earl of Gowrie: My Lords, the noble Lord is famous for his sense of humour but I fear that on this occasion he must be indulging it at the public expense. The obligation to pay taxes (as he knows well as a former Minister) is a general one which has no specific conscientious implications in itself in the sense that no part of any individual's taxes can be said to fund or not to fund a particular item of public spending.
Lord Taylor of Gryfe: My Lords, may I ask the Minister whether he is aware that two officials of the religious Society of Friends (Quakers) will appear in the courts next week, being responsible as employers for the staff of Friends House who have withheld tax as suggested in the Question asked? May I ask the Minister whether he will read the evidence which will be presented in the court to see how far the admirable provisions in our constitution for conscientious objection may be taken into account in the framing of our tax laws in the future? I emphasise that I am making no comment on the action that is being taken, but I would ask the Minister to look at this particular case.
The Earl of Gowrie: My Lords, I am happy, as always, to take the noble Lord's advice, and I certainly have no intention of commenting upon a case which may be before the courts. But I would point out to the noble Lord and to the House that there was a recent case before the European Commission of Human Rights which concerned the individual's right to divert a proportion of tax to a peace-building fund, in that particular instance. The Commission said a number of things, but they also said that if an applicant considers the obligation to contribute through taxation to arms procurement an outrage to his or her conscience, he or she may advertise the attitude and thereby try to obtain support for it through the democratic process. That remains the situation.
Lord Harvington: My Lords, if my noble friend the Minister were to give way to this Question, which the questioner seems to desire, where would it end? Would not the League against Cruel Sports and the Support
872
ers of the organisation for the protection of cats, and so forth, all claim that on moral grounds they ought to have exemption from income tax?
The Earl of Gowrie: My Lords, I think my noble friend is quite right. The questioner, in the form of the noble Lord, Lord Jenkins of Putney, and I might both come out badly as previous and present Arts Ministers.
Lord Stoddart of Swindon: My Lords, my noble friend Lord Jenkins of Putney would not expect me to follow him down the road of the hypothecation of revenues, but would the Minister not agree that the question that my noble friend has raised reflects the growing abhorrence of people against weapons of mass destruction and genocide, such as Trident? In these circumstances would the Government not be seen in a more favourable light if they abandoned this project, which is now estimated to cost twice the £5,000 million which the Government put forward originally?
The Earl of Gowrie: My Lords, I have seldom heard a supplementary question so far wide of the original Question. I suggest that the noble Lord, with his experience and his contacts, studies the record of the Government which he used to support.
Lord Henderson of Brompton: My Lords, with reference to the text of this Question—and I refer to the Question itself—is it not inappropriate to use the word "building" in conjunction with the word "peace"? Is it not right that one can keep or breach the peace, or offer to make peace, but can one build it?
The Earl of Gowrie: My Lords, I think I must resist making a comment on the noble Lord's supplementary question, but, as one who has worked in your Lordships' House for 15 years, I have during that time, on issues of nomenclature, always taken the advice of the noble Lord who asked the last question. I intend to go on doing so.
Viscount Trenchard: My Lords, would my noble friend agree that that part of Lord Jenkins's taxes or other taxpayers' taxes which goes to maintain deterrence against potential aggressors probably does more, and is more willingly paid by the mass of taxpayers, than almost any other part of taxation, and that those taxes to maintain deterrence are more likely to maintain peace in Europe than are many of the noble Lord's Questions?
The Earl of Gowrie: My Lords, I agree very profoundly and personally as a child of military parents and as someone born at the beginning of the last war who has now reached middle age during a period of peace.
Lord Jenkins of Putney: My Lords, I think the noble Earl will agree that this Question appears to be a little in advance of what noble Lords are at present prepared to agree to. Nevertheless, I think he will accept that, while he and I are agreed about the desirability of the maximum possible expenditure on the arts, on this issue, having regard to that qualification in the Question that there should be safeguards similar to

873
those applying to persons seeking exemption from military service, this is a matter which the noble Earl will be required to reconsider at a future date.
The Earl of Gowrie: My Lords, I think that very unlikely. It would surely completely undermine the sovereignty of Parliament, which the noble Lord mentioned in his Question, to allow sections of the community to decide that they did not accept Parliament's decisions on overall public spending.
Lord Leatherland: My Lords, can the Minister tell me whether it is a fact that the armed services are protecting conscientious objectors in the event of war and that therefore their services are worthy of support?
The Earl of Gowrie: My Lords, I am sure that the noble Lord is right.

Youth Custody Sentences
3.1 p.m.
Lord Campbell of Alloway: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether it is the intention to implement the hope expressed by the Lord Chief Justice (Times Law Report, 6th December 1984) that the law relating to sentences of youth custody should be altered to enable them to he suspended in whole or in part.
The Minister of State, Home Office (Lord Elton): My Lords, the Government are examining this question. We have sought the views of a number of interested bodies, and my right honourable friend the Home Secretary is considering the comments that have been received.
Lord Campbell of Alloway: My Lords, I am grateful to my noble friend the Minister for his reply. Might I ask him, pursuing perhaps the same line—I hope so—whether he is aware that the value of this sentencing option has been affirmed by judges and recorders attending the Roehampton judicial seminars in 1983 and 1984; and that again last week, with an attendance of about 100 there was unanimous support for the view of the noble and learned Lord, Lord Lane? Is he also aware that unanimity is not exactly the order of the day at such seminars? Might I ask my noble friend the Minister whether perhaps appropriate amendments could be carried into the Administration of Justice Bill at the Committee stage to give effect to the concern of the judiciary?
Lord Elton: My Lords, I am aware that there is a weight of opinion that favours such a step. I am also aware that there is a weight of opinion against it. The Home Secretary, having taken the views, is now considering where the balance lies. I do not think I can say more than that at this stage; nor do I think I can commit the Government to a legislative move before we have decided in what direction it should be made.
Lord Elwyn-Jones: My Lords, but has not the power to suspend sentences of imprisonment been extremely helpful in a limited number of cases already?
Lord Elton: My Lords, I am so sorry; I missed the beginning of the noble and learned Lord's question.
Lord Elwyn-Jones: My Lords, the noble Lord was no doubt being helpfully interrupted. I was asking whether it is not the case that in a number of cases the suspending of sentences of imprisonment has proved to be very beneficial.
Lord Elton: My Lords, in a number of cases no doubt it has, but we are looking at a particular class of case and my right honourable friend is at present considering the opinions on that class of case which have been put before him.
Lord Wigoder: My Lords, may I ask who has expressed an opinion against it?
Lord Elton: My Lords, I have not seen all the opinions although I think there are over 20 of them at present under review. They are all being considered by my right honourable friend.
Lord Hutchinson of Lullington: My Lords, does the Minister not agree that the criteria which were inserted in the Criminal Justice Act, which govern the circumstances in which custodial sentences can be imposed on young people, are simply not reconcilable with the concept of suspension? Would he not inform the Lord Chief Justice that in the case of a young person, if the mitigation is such that if he were an adult the whole sentence would be properly suspended, then a custodial sentence should not be passed at all? Moreover, if mitigation is such that it should be partially suspended, then the sentence should not be longer than the part which would be justifiably suspended.
Lord Elton: My Lords, I am aware of the view which the noble Lord has so succinctly put before the House, and it is one which is before the Home Secretary at the moment.
Baroness Masham of Ilton: My Lords, may I ask the Minister whether he agrees with me that now that borstal training has been replaced by youth custody, the emphasis is on custody? As many children aged 15 and 16 are being sent to youth custody, would he not agree that the emphasis for children should be more on training, schooling and rehabilitation? Would it not be better to keep them out of custody altogether, if possible?
Lord Elton: My Lords, the principle that young people should be kept out of custody wherever possible is one which we have enshrined in statute in the first section of the Criminal Justice Act recently passed by this House. But the Question I have before me relates to whether or not we should implement a suggestion relating to the suspension of sentences of youth custody. I think my noble friend has strayed a little beyond that.
Baroness Masham of Ilton: My Lords, with respect, that is what I meant to say—that suspended sentences might help to keep these young people out of youth custody, and therefore I support the Question put by the noble Lord, Lord Campbell of Alloway.
Lord Elton: My Lords, it is the delicate business of my right honourable friend to weigh those considerations against the considerations put foward by the noble Lord, Lord Hutchinson of Lullington, and many others.
Lord Mishcon: My Lords, if the noble Lord the Minister cannot give the information asked for by the noble Lord, Lord Wigoder, in regard to who was opposing, can be at least indicate to the House the basis of the reasoning of those who oppose?
Lord Elton: I would have thought not, my Lords, at this point of time, because this is meant to be a Parliamentary Question and not a debate on the subject. My right honourable friend is considering views put before him by different bodies who have given their own reasoning. I do not think that I can adduce the reasoning behind particular points of view in advance of the conclusion of my right honourable friend's considerations.
Lord Mishcon: My Lords, can the noble Lord the Minister at least indicate to the House, so that we can intelligently follow questions and answers, any reason which has been given in the body of opinion which is against? Can be give one reason as an example?
Lord Elton: My Lords, this has already been done, I think more ably than I could, by the noble Lord's noble friend Lord Hutchinson of Lullington.

Business
The Earl of Swinton: My Lords, at a convenient moment after 3.30 this afternoon my noble friend Lord Lucas of Chilworth will, with the leave of the House, repeat a Statement that is to be made in another place on British Aerospace.
It may also be for the convenience of the House if I announce that dinner will be available this evening at the usual time of 7.30.

Insolvency Bill [H.L.]
3.8 p.m.
The Lord Advocate (Lord Cameron of Lochbroom): My Lords, on behalf of my noble friend Lord Lucas of Chilworth, I beg to move that this Bill be now read a second time.
Seventy years have elapsed since the last major Bill on bankruptcy law was introduced and this area of the law has remained largely untouched now for over a century. Much the same can be said in relation to corporate insolvency law. At the same time major changes have taken place in business practice and in society generally; so much so that the insolvency legislation is in need of a major overhaul.
876
Amendments to the bankruptcy law in Scotland are being dealt with in a separate Bill—the Bankruptcy (Scotland) Bill—which your Lordships' House has already considered. The provisions relating to corporate insolvency are, broadly speaking, common to England and Wales and Scotland, although again there are entirely separate provisions concerning company receivership. The task of identifying those areas of the law requiring modernisation and amendment was given to the Review Committee on Insolvency Law and Practice chaired by Sir Kenneth Cork. Its report, published in June 1982, represents the most comprehensive study so far undertaken in this area of the law. I am sure that I speak for all your Lordships in offering sincere appreciation of the valuable contribution the committee has made to highlighting the deficiencies of the existing legislation and the ways in which these deficiencies may be set to rights.
Since that report was published wide consultation has taken place, first on the report itself, and subsequently on the basis of the White Paper A Revised Framework for Insolvency Law, published in February last year. Very many helpful comments were received on the Government's proposals from interested bodies and individuals. The outcome of these consultations is the measure we are considering today. It is founded on a broad spread of opinion and includes the majority of the review committee's proposals, either directly or in spirit. I think this underlines the importance of the work undertaken by the review committee chaired by Sir Kenneth Cork.
I am sure your Lordships will wish to know the main purposes of the Insolvency Bill. I shall explain these briefly now before dealing in more detail with the Bill's contents.
The first purpose is to ensure that those who act as insolvency practitioners are fit to do so. The second purpose is to combat the abuse of limited liability by a small minority of persons whose actions undermine the legitimate commercial purpose for which it was established, as well as to encourage directors to take a close interest in the affairs of their companies and to take early action when financial difficulties loom. The third purpose is to clarify the law on receivership and to create a new insolvency mechanism, known as company administration, specifically designed to facilitate company rescue and reorganisation. The fourth purpose is to simplify and reform corporate and personal insolvency procedures to reduce unnecessary involvement of the courts and the insolvency service. This will help the smoother working of insolvency procedures and enable the insolvency service to concentrate on its protective and investigative work.
The Government will be bringing forward some amendments to the Bill during its passage in this House. These will mainly be of a technical nature to improve the insolvency procedures. They will include provision to give effect to the announcement made in another place on 29th November last year that essential utilities should be prevented from ensuring more favourable treatment than other creditors on the insolvency of a customer; that is by threatening to discontinue supply. They will also reflect the usual helpful contributions that I am sure will flow from the professions now that the Bill has been published.

877
I now turn to a more detailed explanation of the Bill's main themes. I am sure noble Lords will forgive me if I do not proceed clause by clause. There are, of course, rather too many for that. I shall therefore deal first with the question of insolvency practitioners, professional qualifications and licensing.
The evidence submitted to the Review Committee on Insolvency Law and Practice confirmed the view that the majority of insolvency practitioners carry out their duties in a way which gives no justifiable cause for complaint. But, unfortunately, a minority of practitioners have engaged in questionable activities to the detriment of creditors. It is the Government's view that it is not only desirable but also essential that the public should have confidence in those who handle insolvencies.
At present, with few exceptions, anyone can act as an insolvency practitioner. The review committee recommended that measures should be introduced to ensure that professional standards are observed by all insolvency practitioners and that in future fidelity insurance should be compulsory for all forms of insolvency proceedings. The committee further recommended that transitional arrangements should be made to allow experienced but unqualified practitioners to act.
The Bill adopts these recommendations and provides that a person will not be qualified to act as an insolvency practitioner unless he has a certificate authorising him to act and has provided security for the performance of his functions. In addition, a person will not be qualified to act in a particular case unless he is independent of the company or individual concerned. These provisions will apply also to practitioners who act as interim trustees and permanent trustees within the terms of the Bankruptcy (Scotland) Bill.
The Bill further provides for the Secretary of State to issue a certificate authorising an individual to act as an insolvency practitioner. If the Secretary of State intends to refuse to grant or revoke a certificate, the applicant or holder may have the matter considered by an independent tribunal to be set up under the Bill.
The Bill also provides that the Secretary of State's functions as regards the issuing, renewal and revocation of certificates may be delegated to an appointed body. I should perhaps at this point mention that no final decision has been taken about the level of experience and training which will be required of an applicant for a licence or in respect of those bodies to which the Secretary of State's licensing function will be delegated.
I would also stress that the Bill does not restrict the certification of experienced but unqualified persons to existing insolvency practitioners. It provides for unqualified persons who obtain the necessary practical experience in future to apply for a certificate. It is not intended that these provisions will apply to receivers appointed by a fixed charge holder, but they will apply to administrative receivers as defined in Clause 89 of the Bill and to company administrators appointed under Clause 15.
I now wish to explain to your Lordships the Government's proposals for dealing with abuse of limited liability. Earlier, I made it clear that one of the
878
main aims of the Bill is to encourage company directors to take a closer interest in their companies' affairs in order that they may identify and tackle financial problems at an early stage and to penalise them if they fail to do so. The Bill has three new provisions designed to achieve these aims. First, there is the imposition of personal liability for all or part of the debts of a company if a person allows it to trade wrongfully. Secondly, there is the extension of the power of the court to make a declaration of personal liability for a company's debts against a person who takes part in the management of a company when he is disqualified or acts on the instructions of a person he knows to be disqualified. Finally, there is a strengthening of the court's powers to disqualify a person from acting as a director of a company.
This is an area in which the Government's proposals have caused most comment. We have been accused of being either too weak or too draconian; the nature of the accusation of course tends to depend on whether it stems from the creditors' or from the directors' side of the fence. I am sure, therefore, that your Lordships will wish me to go into some detail in explaining the Government's proposals.
The review committee was concerned at the ease with which a person can allow a limited liability company to become insolvent, form a new company and then carry on trading much as before, leaving behind him a trail of unpaid creditors and in the worst cases repeating the process several times—the so-called "phoenix syndrome". To combat abuses of this sort the committee recommended that there should be a new form of civil liability for a company's debts, known as "wrongful trading". Clause 11 of the Bill, therefore, allows the court to declare a director of a company which has gone into insolvent liquidation personally liable for the liabilities of a company if it is satisfied that the company has traded wrongfully. Wrongful trading will occur if before the liquidation a director knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation and he did not take steps that he ought to have taken to minimise the potential loss to the creditors.
I now turn to the question of disqualification of directors and others from acting in that capacity. It was proposed in the White Paper published in February of last year that directors who allowed their insolvent companies to be wound up compulsorily should be automatically disqualified for three years from taking part in the management of a company. Automatic disqualification for directors involved in insolvent compulsory liquidation is designed to help to ensure that directors carefully monitor the financial position of their companies at all times and thereby avoid the need for compulsory liquidation. It is the duty of all directors, non-executive as well as executive, to take timely action to minimise loss when financial difficulties arise or can be foreseen. Where the directors of a company have allowed it to get into such a state that the court has to intervene in its affairs, it is right that their fitness to act as directors should no longer be taken for granted.
One of the Government's major objectives is to encourage directors to take a close interest in their company's affairs and to identify and tackle financial

879
problems at an early stage. By taking early action, directors can rehabilitate their company or at least minimise loss to creditors. However, the Government recognise that not all directors involved in a compulsory liquidation have failed to live up to their responsibilities. The Bill therefore provides grounds for relief, so that the truly innocent director is safe.
The Bill provides that on the making of a winding up order the court will be required to make a provisional disqualification order against those appearing to have been directors 28 days before steps were taken to put the company into liquidation, unless the company can only be wound up compulsorily or it was in voluntary liquidation or subject to an administration order when the winding up petition was presented. The provisional disqualification order has no effect for three months after it is made, and then takes effect for a period of three years. During the period of 28 days following the making of the order, the director may apply to the court for annulment of the order on the grounds stated in Clause 7(5). The Government believe these grounds are sufficient to cover the case of directors who innocently find themselves involved in a compulsory liquidation.
As a result, there will have to be changes in the way some directors approach their duties. Existing and prospective directors will have to be careful to familiarise themselves with their companies' financial affairs, and to make arrangements to monitor their progress regularly. Those who come on to the board as part of a rescue operation (sometimes known as "company doctors") and the providers of risk capital are strongly placed to do this. There may be individuals who will have to limit or even reduce their commitments so as to devote sufficient attention to their companies. I am certain that your Lordships would not regard this as unwelcome.
Some have argued that, in order to avoid automatic disqualification and personal liability for wrongful trading. directors will place their companies in voluntary liquidation prematurely. There is no reason why this should happen. Directors who monitor their company's financial affairs closely will identify and tackle problems at an early stage. The board which does this will probably, if the company's operations are viable, be able to avoid liquidation entirely. They will certainly have time to explore options, which could range from a fresh injection of capital to invoking an appropriate insolvency procedure.
I now wish to say something on the Bill's provisions on company rescue procedures. The review committee recommended that more emphasis should be placed on business rescue and reorganisation, and suggested that a new insolvency procedure should be established—the company administration procedure—under which the court may appoint an administrator if it considers that the appointment would promote one of the purposes set out in Clause 15.
A key element in company rescue is that the possibility should exist of giving the company a breathing space, during which plans can be put together to return the company to operation on a sound financial basis, or at least to secure survival of
880
parts of the business as going concerns. The absence of this breathing space all too often means the demise of any hope or rehabilitation or reorganisation of companies. The administration procedure therefore provides for a statutory moratorium on all actions and proceedings against a company, including creditors' rights to enforce their security.
An important issue in relation to the new procedure is the use likely to be made of it as opposed to receivership. No clear-cut answer is possible at this stage, but certainly it will be of value where no floating charge exists and no receiver can be appointed to keep a company trading. The Government's expectation is that the procedure will also be of value in circumstances where a large company with a complex organisation encounters severe difficulties but where it is evident that a good deal, if not all of the business, can be saved. Here, the moratorium will provide the breathing space needed to prevent a downward spiral into financial chaos.
I will turn now to the provisions amending the law relating to receivership. The review committee drew attention to two principal areas of weakness in the existing law as it applies in England and Wales. The first was that the nature of a receiver's powers and duties was not clear, and the second concerned his accountability to unsecured creditors. The main thrust of the provisions, therefore, is to remedy deficiencies in these areas. I should point out that in relation to the accountability of receivers some amendment is required to Clauses 42 and 43 of the Bill. They are designed principally to benefit unsecured creditors, and amendments will be introduced to make this clear. For convenience, I will describe these provisions as we intend that they will stand after this clarification.
The Bill will then contain four provisions aimed at meeting the criticism that administrative receivers should be more accountable to unsecured creditors. First, it will provide that unsecured creditors, as well as secured creditors, should be notified of an administrative receiver's appointment. Secondly, it will require the administrative receiver to prepare a report within three months setting out the company's position, his proposed course of action and the prospects for repayment of creditors other than his appointor. Thirdly, it will require the administrative receiver, unless the court otherwise directs, to lay his report before a meeting of unsecured creditors. At this meeting the unsecured creditors will be entitled to appoint a supervisory committee. The committee will be empowered to obtain information from the administrative receiver, and require him to attend before it. Fourthly, the administrative receiver will be obliged to give notice of his resignation to creditors. The debenture holder's power to dismiss the administrative receiver will also be removed and given to the court. This will protect administrative receivers from pressure to commit acts which may be in the debenture holder's interest but which are detrimental to other creditors.
The Bill sets out in Schedule 2 the powers which administrative receivers will be deemed to possess subject to provision to the contrary in debenture documents. It also grants further powers to administrative receivers to facilitate their work. These are to be found in Clauses 37 and 38 and 78 to 81. Clause 37,

881
in particular, is designed to enhance the ability of the administrative receiver to rescue businesses rather than selling them on a break-up basis.
Finally, I should like to clarify the position in relation to Scotland. Separate provisions regarding floating charges and receivership exist in Scotland at present, and will continue to exist by virtue of Clauses 462 to 487 of the Companies Bill. Clauses 44 to 51 of this Bill amend the existing Scottish provisions in the light of the new English and Welsh provisions.
I now wish to consider the detailed procedural parts of the Bill relating to the winding up of companies and the insolvency of individuals. It is essential that a modern insolvency code should ensure that the causes of commercial failure are the subject of close inquiry, both in the interests of those who have suffered financially and in the public interest, to help promote a healthy environment in which business may flourish. Much, however, of the detailed procedure underlying these principles is now outdated, and the review committee emphasised the need for the law relating to insolvency to be brought up to date. Many of the recommendations made by the review committee on the detail of insolvency procedures have been accepted, and provisions based upon them are either contained in the Bill or will appear in the rules and regulations which will complement it.
So far as the official receiver is concerned, simplification of procedures and an emphasis on private practitioners taking on the role of liquidator or trustee in more cases are intended to allow him more time to concentrate on his investigative function with a view to the institution of criminal proceedings. In addition, the official receiver still has an important role to play in protecting assets in the early stages of windings up by the court and in bankruptcies.
Various measures are also included with a view to the harmonisation of winding up and bankruptcy proceedings—another of the major themes of the review committee's report. Secondary legislation will have an important role to play in this area and many of the minor and harmonising amendments to procedures will appear in the rules and regulations in due course.
Part III of the Bill, therefore, constitutes a new code, which replaces the Bankruptcy Act 1914, covering both the formal bankruptcy procedures and the legal framework in which voluntary arrangements can be negotiated, which can help debtors avoid the stigma of bankruptcy. The new bankruptcy provisions have been designed to establish a humane but efficient system for dealing with those who cannot pay their debts, with an emphasis on allowing the debtor the opportunity of continuing to make a living, so as to provide for himself and his family and to make a contribution from future income towards the payment of his creditors.
In line with the undertaking which I gave on the Bankruptcy (Scotland) Bill, the Government are currently examining the level of penalties for offences throughout the proposed insolvency legislation.
I am aware that I have dwelt at some length on the contents of this weighty measure. I trust that there will be general agreement as to the urgent need for reform of the insolvency legislation. I hope, therefore, that
882
your Lordships will welcome the Government's proposals as a useful and desirable reform of this area of the law. I beg to move.
Moved, That the Bill be now read a second time—(Lord Cameron of Lochbroom.)
3.32 p.m.
Lord Bruce of Donington: My Lords, the House will be grateful to the noble and learned Lord for having taken us briefly through the extremely complex provisions of this Bill, which contains no less than 203 clauses and some nine schedules. For our part on this side of the House we find ourselves in general support of this measure and we shall seek to facilitate its passage.
Of course, there will remain a number of points of difference—differences of principle—which have been aired by a number of interested professional bodies which have helped the Government in the framing of this legislation. I feel that these differences with the Government's approach will consequently not be expressed on party lines but will probably come from the House as a whole, regardless of party. It is therefore to be hoped that the Government will have every sympathy with some of the constructive suggestions and amendments that may he put forward in due course.
I should like to associate myself and my colleagues with the noble and learned Lord's appreciation of the work done by the Insolvency Review Committee, under the chairmanship of Sir Kenneth Cork. It may be well known in this House, and indeed outside it, that Sir Kenneth speaks with very great authority in that he and his brother, Mr. Norman Cork, have for many years conducted a very large professional practice concentrating in some respects on insolvency matters. Therefore, the Cork Report itself is not only a reflection of an intellectual appreciation of what the law is and, indeed, what the law should be, but also a result of long practical experience by most of the distinguished gentlemen who have been members of the Insolvency Review Committee and of the very skilled staff, some of them very senior, who have assisted all the members of the committee.
I should have thought that it might have been better if the Cork Report, as it has come to be called, together with the revised framework of insolvency law in the Government's White Paper, Cmnd. 9175, were to have been the subject of debate in the other place, and here, before the Government proceeded to draft their legislation. The Cork Report became available in June 1982, which is two-and-a-half years ago, and the Government's White Paper, which represented their second thoughts on their earlier, preliminary thoughts, has been available for nearly a year. I should have thought that it would have been better if some parliamentary opinion had been sought on the contents of those two documents before the Government brought forward legislation.
It is true, of course, that the Government have taken counsel of the various professional bodies and other interests and that they have paid some attention to them, even though they may not have been able to accept all the recommendations. However, in our view, that does not replace an initial parliamentary

883
debate on the whole principle of the matter, so that the Government would have had the benefit of the opinion of both Houses on the reports before legislation was brought forward.
The result is an extremely complex Bill. I observe somewhat wryly that the Bill has been designed to simplify. I do not know how many of your Lordships have ventured to go through the 203 clauses, but in any way to associate simplicity with them is, I think, possibly a slight over-statement. It will not have escaped the notice of connoisseurs of parliamentary Bills—and all your Lordships are, of course, connoisseurs—that there are no less than 49 references to "the rules", but what the rules are is at the moment mercifully hidden from us. It does not always make for good continuity of thought if, every now and again when the Government draftsmen or their political overseers suddenly come to a difficult point or to something for which they cannot think up an answer to put before parliamentary counsel, they shove into the Bill the words "in accordance with the rules". It would be useful to know—and in Committee we shall probably make more pertinent demands—at every stage where "the rules" are mentioned (and there are some 49 instances, unless my counting late at night has misled me) just exactly what they mean.
Coming to the Bill itself it is, of course, unnecessary for me to follow the ground which has been so adequately covered by the noble and learned Lord, bearing in mind that there will be further explanations in reply to this debate by the noble Lord, Lord Lucas of Chilworth. However, company liquidations and bankruptcies are becoming a matter of very considerable national importance, and it is right that Parliament should consider the legislation and the procedures relating to them.
At the risk of incurring the occasional spark of political displeasure, I am bound to point out that company liquidations and bankruptcies are the one area in the economy which appears to be expanding at the present time, despite the efforts that it is said are being made to revive the economy. In 1981 there were 8,227 company liquidations and in 1984 the figure had risen to 13,647. Bankruptcies were 4,976 in 1981 and last year they were over 6,000. We are in the presence of a considerable problem.
I should like, however, to emphasise one matter in complete agreement with the words that have fallen from the lips of the noble and learned Lord. The vast majority of liquidations and bankruptcies that occur in the United Kingdom are the result of inadvertence, miscalculation or misfortune. The vast majority of companies in the United Kingdom, whether large, medium-sized or small, are conducted by their directors with considerable rectitude. It is not right that the whole body of directors in the United Kingdom, whether of public, private or close companies, small or medium-sized, should be regarded as not to be trusted. As the noble and learned Lord said, it is only in a minority of cases in the United Kingdom that directors behave either fraudulently or recklessly or indulge in outright theft.
Although such cases receive very great publicity—and rightly so—they do not represent the
884
whole caucus of directors of limited liability companies in the United Kingdom. It is important to remember that when we come to later stages of the Bill. I am sure that the House will agree that it would be unwise if we were to take restrictive steps in respect of a very small minority indeed which might inhibit people from assuming directorial responsibilities, particularly of medium-sized and small companies.
Your Lordships may recall that in the Financial Times in August last year it was revealed that more than half the businesses set up in 1983 were likely to collapse within the decade. Indeed, the record of failure of new ventures—new ventures which, of course, have been encouraged by the Government, with, I may say, the support of Her Majesty's Opposition—after their initial start is alarmingly high. I would submit to the House that this is not the time to place restrictions upon directors which would inhibit them as non-executive directors in giving aid and assistance to these newly formed companies and indeed to medium-sized companies in difficulty. I think that the role of the non-executive director in many of these smaller companies can be crucial.
I am not referring for the moment to the proposed role of the new administrator, which is referred to at a later stage in the Bill. I am referring to the normal commercial practice of small and medium-sized firms seeking to have on their board directors of experience who can perhaps guide them into some of the fields of commerce, finance, marketing and R & D, as well as financial accounting and otherwise, to the very great benefit of the company concerned. If, for example, directors were to be inhibited by the provisions of this Bill from offering their services, I think that we should be doing the business economy a very great disservice. Therefore, in approaching the Bill as a whole, while taking every step to prosecute the wrongdoer (the person who connives at wrongful trading, fraud or anything else of that kind) and making provision for the sternest punishments for those delinquent directors, including, where necessary, recourse to their private assets, it is important that we make quite sure that we do not take steps which, while achieving that aim—and a very laudable aim it is, too—inhibit the new non-executive directors from functioning.
I have had some experience as a management consultant in advising companies in difficulties in order that they might recover their position, improve their performance and in very many cases avoid going into liquidation. I think that I speak for quite a number who find themselves in that field. They do not want to put themselves in a position where, quite inadvertently, they are subject to a provisional disqualification order against which they may then appeal. That goes contrary to the concept of justice as we understand it, in that a person ought not to have to prove his innocence. The onus should be the other way: his guilt should have to be proved. I have some reservations, therefore, about the automatic disqualification provisions set out in the Bill from Clause 7 onwards. I shall not go into that further now because these are Committee points.
There is, however, one particular point on which I would he open to be persuaded about the onus being left on the director. I have no firm views about this at the moment and have still to consult my colleagues,

885
but my view is that, where a receiver, or a liquidator in the case of a voluntary winding-up, discovers, and as a result of his investigations is prepared to swear an affidavit for submission to the court, that the company has not kept books of account properly, the court might feel constrained to issue a disqualification order.
The responsibility for keeping books of account—and by that I mean not the superstructure from the primary books of account which are, of course, the profit and loss account, the balance sheet, the movement of funds, and so on, but the prime books of accounts—was laid on companies, and therefore their directors, by Section 147 of the Companies Act 1948. It was repeated in Section 12 of the Companies Act 1976, and is now enshrined in Section 221 of the new consolidated Act of 1985, requiring that companies keep proper books of account.
There can be no excuse whatsoever for the very simple provisions of the Companies Act, in this respect, not being kept. There can be no excuse for ignorance by any director of the fact that proper books of account have not been kept. I have had a little personal experience in this field by way of post-liquidation investigations. I find that in the overwhelming number of liquidations involving small and medium-sized businesses proper books of account have not been kept. How, therefore, can directors be informed of the state of affairs of their company in order to bring them even within the scope of Clause 7 of the new Bill? It is of course entirely impossible for them to be informed.
I am well aware that the noble and learned Lord, Lord Denning, has rather strong views about the onus of proof on people who are accused of offences. It may well be that the noble and learned Lord, Lord Denning, would disagree with me when I say that in these cases the onus of proof could quite properly lie upon the director to prove that he did not know that proper books of account had not been kept. In my view, this is one of the basic problems that lie behind the failures of many newly-established businesses, small and otherwise—of course, outside the scope of those who deliberately do not keep books anyway.
The number of prosecutions at the instance of successive Governments under Section 147 of the Companies Act 1948, or under Section 12 of the Companies Act 1976, has probably been derisory. It should also be borne in mind that the Government already have powers under the Companies Acts—notably, I think, at Section 323, but I may have the wrong section—and they have a right and an obligation, to bring actions against delinquent directors. These powers have very rarely been used. I am bound to say that the proposal that directors should be automatically disqualified and then, in effect, should have to prove their innocence may have been put in by the Government because they are not willing to enforce their own laws or the laws that are already on the statute book. It may be very costly if they do, but the laws are there to be obeyed. The Government who make the laws (or who do not amend them, if they inherit the position) have a responsibility to enforce them. I suspect that a disinclination to go to the trouble and expense of initiating prosecutions may be—I repeat, may
886
be—behind this desire of the Government to shift the onus of proof.
Like many other noble Lords, I am certainly open to arguments and reason on this matter—and, indeed, in our view on this side of the House that is how this Bill should be approached. In my view it should be open to creditors, to liquidators and to receivers to make application to the court for the disqualification of a director, rather than leaving it the other way round. Since applications are a costly matter, the courts ought to be given the power, in all meritorious applications, to make an order for costs in the applicant's favour. If they had that power, they would of course by the same token have the power to order a person making a frivolous application, or an application not well-founded, to hear his own costs for so doing, and, in suitable cases, perhaps even bear the costs of the other side as well. I think this would be a far better way of proceeding, and would put the onus back where I think it ought to be. After all, directors are individuals. Where they are accused of an offence, then they should not be required to prove their innocence; the onus should lie the other way.
I have taken a long time on that particular point because it has attracted a very considerable amount of attention in the press. A number of organisations, such as the CBI, the Institute of Directors, the Law Society, and so on, have all taken a very considerable interest in this matter. I sincerely hope that we may regard the existing clauses as open to review.
Perhaps I ought to say to the noble and learned Lord, if he will excuse my temerity, that when we come to Clause 7 it will be possible to avoid personal disqualification even under the existing provisions of the Bill, as far as I understand them. I am not a lawyer, and I stand open to correction by any noble and learned Lord or any Peer who is a member of the legal profession, but it seems to me, looking at Clause 7, that once an application under Section 223 of the Companies Act has been made—which itself, of course, then becomes, under certain circumstances, an act of bankruptcy—it will be possible for an unscrupulous managing director, when he knows that a Section 223 notice has come in, immediately to call a meeting of members, dispensing with notice of the meeting on the assumption that he can get all the shareholders, so that they can thereupon pass a resolution to go into voluntary liquidation. They could then file that with the registrar, and publish it in the London Gazette. It would of course become a creditor's voluntary liquidation, and in those circumstances would avoid the whole of the compulsory procedure which is set out at Clause 7, and would in fact prevent it happening. That is the way that I read it. The noble Lord may have some correction, or may tell me in due course that I am wrong.
In so far as insolvency practitioners are concerned, I agree with the noble and learned Lord that there have been many cases during the past few years in which those acting in company liquidations have not quite lived up to the standards that are commonplace among the professions. There has very often been connivance between the directors of a company and a related (or, indeed, unrelated) liquidator without any qualifications at all, as a result of which the creditors

887
have received a very raw deal altogether, the assets being "flogged off" for very little, often back to a new company founded by the directors of the old company. Therefore, quite rightly the Government have accepted the provisions that were set out in draft by the Insolvency Review Committee. We agree entirely with those provisions. I have, of course, to declare a personal interest in this part of the Bill, since I have acted as an insolvency practitioner and I am, as the House knows, a partner in the firm of Halpern and Woolf, which customarily acts in this field.
I believe, however, that the clauses in this part of the Bill should be amended to bring them more in accordance with the requirements of the Companies Act in relation to the appointment of auditors. As your Lordships are aware, auditors of companies are restricted to members of certain professional bodies. There should be some provision so that the appointment is made following consultation with those bodies together with, in this case, the Law Society and the Insolvency Practitioners Association. This is possibly a matter that can be considered.
In so far as receivers are concerned, I welcome the provisions of the Bill. They do not go all the way with the provisions recommended by the Cork Committee, in spite of the fact that the noble and learned Lord was kind enough to announce four additional amendments, which are quite acceptable, to delineate more closely the responsibility of receivers. There is only one aspect on which I should like to make some observations. It was dealt with by the Cork report. Where there is a floating charge on the assets of a company, unsecured creditors often find that they are left completely in the cold. On the realisation of the assets to meet the requirements of those in whose favour the security is granted, there is little remaining for them. It was recommended by the Cork Committee that a 10 per cent. fund should be set up so that, if necessary, after the realisation of the floating charge on the assets of a company there would be some fund out of which to reimburse the liquidator himself, with something left over for the unsecured creditors.
That brings me to the position of the unsecured creditors themselves. Their position is, of course, bad enough if a receiver is appointed by a debenture holder. Although it is the duty of the receiver to secure the most favourable realisation of assets that he can, not only for the discharge of the debenture itself but also for the benefit of unsecured creditors, it becomes a little difficult for the unsecured creditors. If the unsecured creditors in a company liquidation are to receive a better deal than they get at the moment, it will, I think, be necessary for us to revise Schedule 5 to the Bill, which deals, with the whole question of preferential debts, notably debts due to the Inland Revenue, to local authorities and to others.
Some steps will have to be taken, as they are in the United States, to protect what we shall call for the moment the consumer creditors, who pay deposits for goods that are never received by them. They are not creditors in the ordinary sense of being creditors for goods supplied. They are very often people who apply for goods that they never receive at all. This is an aspect of the Bill that we shall have to deal with a little
888
more closely with a view to giving some degree of preference to them, as happens in the United States.
There are many other aspects of the Bill with which I could deal, but I have already spoken for a little too long. All I can say is that we on this side will give the Bill our critical examination. We shall bring forward constructive amendments wherever we consider them necessary. We are hopeful that, in view of the fact that the Second Reading of the Bill and its subsequent processes are taking place in this House, the Government may take a slightly more relaxed attitude towards amendments which they may not like but which can, after all, he debated in another place when it comes to review the activities upon which we, in this House, shall be engaged. We welcome the Bill as a whole. We shall do our very best, in collaboration with noble Lords on all sides of the House, to make it a better Bill where necessary, and to facilitate its passage.

British Aerospace
4.7 p.m.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth): My Lords, it may be for the convenience of the House if I now repeat, with the leave of the House, a Statement on British Aerospace which is being made in another place by my right honourable friend the Secretary of State for Trade and Industry. The Statement is as follows:
"With permission, Mr. Speaker, I should like to make a statement about the Government's residual shareholding in British Aerospace plc.
"My right honourable and learned friend the Chief Secretary to the Treasury told the House on 14th March last year that it was the Government's policy to sell minority residual shareholdings in privatised companies as the circumstances of the companies, the prospectus undertakings and market conditions permit. In pursuit of that policy, the Government have now decided to sell our residual shareholding in British Aerospace. Since 1981, when it became the first nationalised industry to be denationalised, British Aerospace has been operating successfully in the private sector. We intend, subject to satisfactory market conditions, to offer for sale all our shares in British Aerospace (48.43 per cent. of the company's issued share capital) in the spring or early summer of this year.
"The company has agreed that, before the sale is made, it will recommend to shareholders a resolution providing for the Government to retain a special share in the company. The purpose of this special share will be to ensure that no change may be made without Government consent to the provisions of the company's articles of association which restrict the foreign ownership of shares in the company and require the directors to be British nationals. When British Aerospace was privatised, the Government said they would retain at least 25 per cent. of the shares in the company so as to be able to block any changes to those articles. This Government shareholding will be rendered unnecessary by the issue of the special share which

889
will have the same blocking effect. We will also have the right to nominate a director to the company.
"It is the company's intention to raise new equity capital at the same time as the Government's shares are sold. The British Aerospace chairman, Sir Austin Pearce, is making a statement about this this afternoon. Subject to the approval as necessary of the company's shareholders, it is intended that the offer for sale should take the form of a simultaneous offering of the Government's existing shares and new shares issued by the company."
My Lords, that concludes the Statement.
Lord Bruce of Donington: My Lords, we are indebted to the noble Lord for having repeated the Statement. It is a somewhat surprising one. The 50p shares in British Aerospace were yesterday quoted at £3·68 per share—a drop of 15 points on the day before. One wonders at what price the shares are going to be offered to the public. If they are offered to the public at the same time as a new issue is raised it should be quite clear that the sale will be part of what might be conceived as a slightly watering-down situation.
What has impelled this sudden sale, which at yesterday's quoted price is going to produce only about £92 million? What do the Government want £92 million for at this juncture? Are they getting short of petty cash, or something? What good does it do? What extra impetus to existing businesses in the United Kingdom does this swap of ownership give? What new surge of enterprise does it insert in the British manufacturing economy? Of what conceivable benefit is it, even to the Government themselves, to sell off part of their shareholding in a successful company in respect of which they presumably hope to get dividends? Why the sudden need for £92 million? Is it because the Chancellor of the Exchequer, following the somewhat bizarre announcement of yesterday, is scraping around to get money so that he may at any rate partially honour his promise to reduce taxation? Is that one of the reasons?
Why the desire suddenly to get £92 million? Is it, alternatively, to make up for the money that would have been received by the projected privatisation of British Airways, which has apparently run into difficulties owing to the apparent inability of BA to come to a settlement with the receiver of Laker's? What is the reason? Why the panic? Surely the Government have not been knocked so far off their perch that they need to scrape around in this way. What conceivable financial advantage accrues to the taxpayer as a result of it? What happens to the £92 million? If it is going into research and development aid, or something of that kind, or if it goes into capital projects, all well and good. What do they want it for? As I say, we on this side of the House regard this Statement as an exhibition of minor panic. Why should this be? Perhaps the Government will explain.
4.13 p.m.
Lord Taylor of Gryfe: My Lords, while we on these Benches take a fairly pragmatic view of the question of privatisation and sales of Government assets—we try to view these matters in the light of good housekeeping on the part of the taxpayer—I must say that on these
890
terms we share some of the anxieties that have been expressed by the noble Lord, Lord Bruce of Donington. We should like to know why this is being done. Is it really just to finance tax cuts in the next Budget? If that is so, it represents very bad housekeeping, because you are selling assets in a company which has a very successful record under its present régime. I have here the balance sheet of British Aerospace and I notice that last year the profits after taxation had increased to £82 million, as against £23 million in the previous year, and that the earnings per share, on a net basis, had increased to 41·1 pence as against 11·5 pence in the previous year. It does not represent good housekeeping in any company—and we in this House are custodians of the nation's assets—to sell off
I should like to inquire, too, about the point raised by the noble Lord, Lord Bruce of Donington, on the price the Government expect to realise on the shares. I know they cannot give an undertaking today that it will be so-and-so, but if you look at the record of this company you will see that when 50 per cent. of this company was privatised it was floated at 150 pence per share in 1981. Within six months that had gone to 250 pence. It was a good day for the stags. Similarly, in yesterday's Financial Times this company is quoted at 368 pence per share, even in the slightly depressed state of the market at the present time, and its recent nervousness.
If the Government are going to issue these Government shares at the same time as the company is going to issue additional capital an obvious dilution takes place, and I should be interested to know just what the Minister has in mind as to the total amount of money that is going to be realised by this exercise. I notice that they are going to retain the golden share. But the golden shares provision is only to prevent foreign ownership of the company. I wonder how far the golden shares' powers might be exercised in the nation's interests or even on the social obligations of this company. We are now dealing with a company with 80,000 employees, with a very substantial export performance, and half of its business in defence contracts. Is it safe on the part of the nation to float off this company entirely to shareholders who will be concerned exclusively about the return on their invested capital? If the Government would give us the assurances we have sought in this regard it might help us to understand the strategy they have in mind.
4.17 p.m.
Lord Lucas of Chilworth: My Lords, I am grateful to the noble Lord, Lord Bruce of Donington, and the noble Lord, Lord Taylor of Gryfe, for their reception of the Statement which I have just repeated. There is no panic in the Government's announcement. We have, as a matter of policy, made it clear that we wish to dispose of secondary interests in privatised companies. Consideration of this matter has been going on for some months, and in the light of speculation on the markets in recent days it was decided to make the Statement today. It is intended that the sale will probably be effected in the late spring or early summer; that is very much dependent upon the market.

891
I am not too sure exactly where the noble Lord. Lord Bruce of Donington, got his figures, but my understanding is that before the suspension of shares on the market this morning the British Government's stake in the company was something of the order of £350 million. Further speculation about what the company wishes to do could only have an unsettling effect on the company, and that indeed might have an adverse effect on the extraordinarily successful operation of the company—that success which the noble Lord. Lord Taylor of Gryfe, has emphasised.
In reply to the rather disconnected comments by the noble Lord, Lord Bruce of Donington, in regard to what has been happening in the market in recent days, I can perhaps say that in this respect it is business as usual. We are giving due notice that we are in business as usual. The noble Lord, Lord Taylor of Gryfe, asked about the price. I cannot tell what the price will be, and he acknowledged that. Perhaps I can repeat one piece of the Statement. I quote again:
"the Chief Secretary to the Treasury told the House on 14th March last year that it was the Government's policy to sell minority residual shareholdings in privatised companies as the circumstances of the companies, the prospectus undertakings and market conditions permit".
I do not think that I can go any further in answering the noble Lord, Lord Taylor of Gryfe, on that matter.
The noble Lord asked specifically about the special share, the golden share. That share is specifically to ensure that ownership of the company does not fall into foreign hands. It also maintains the necessity for all the directors to be of British nationality. At the same time it retains the Government's right to nominate a director. With those safeguards, I think that it could be seen that there is no danger of the company not being able to fulfil the very successful role it played even before nationalisation in attending to the defence requirements of this country.
Lord Boyd-Carpenter: My Lords, while welcoming the announcement of a further step towards privatisation, particularly in the light of the great success of this company when predominantly privatised (as was so helpfully brought out by the noble Lord, Lord Taylor of Gryfe), I should like to ask my noble friend a little more about the blocking mechanism or the golden share. Is that a power which can be exercised only in the event of a proposal either to turn the company into a foreign held company or to alter the articles in that respect; or is it a power which, in the discretion of the Government. can be exercised in any circumstances? I should be very grateful if my noble friend would describe the details of the power. Is it a share with voting rights equivalent to all the other shares, or is it some specially restricted blocking mechanism related only to proposals to amend the articles?
Lord Lucas of Chilworth: My Lords, I am grateful to my noble friend Lord Boyd-Carpenter for asking his question because it gives me the opportunity to set down the record. The share does not rank as other shares. It is not intended that the Government will sell their 48·43 per cent. until such time as by resolution of the shareholders the special share is created. In other words, there will be no period at which the
892
Government's blocking mechanism will be lost. That blocking mechanism is designed to ensure that no more than 15 per cent. of the entire issued shares of the company may be held by foreigners. In that way the company will be retained by British shareholders. It is also intended by this mechanism that all the directors of the company will be of British nationality. It is only with respect to the articles of association that are concerned with those matters that the blocking mechanism is available to the Government, and the Government will retain the right to use that blocking mechanism if they see fit.
Lord Bruce of Donington: My Lords, will the noble Lord clarify one or two points? As regards the golden share, may we take it that the blocking mechanism would be used in the event of a British company seeking to take over British Aerospace? If so, under what circumstances and under what criteria would the Government consider using it, bearing in mind of course that changes in ownership are quite irrelevant to the performance of the company concerned or indeed its public activities? They are merely changes in ownership; that is all. Will the noble Lord also kindly answer the question put to him by the noble Lord, Lord Taylor of Gryfe, in regard to his suspicion of a dilution of capital taking place on the occasion of the issue of new shares and the sale of the Government's own holding which I should have thought at £3·68 amounts to some £177 million?
Lord Lucas of Chilworth: My Lords, as regards British Aerospace falling into the hands of another company or another body, my understanding is that if that company were English, it would be subjected to the provisions of the Fair Trading Act and it might involve a reference to the Monopolies and Mergers Commission. In so far as it falls under the control of a foreign company, that is where the blocking mechanism would apply. As regards the underlining of Lord Taylor's question, I understand that the chairman of British Aerospace probably released a statement a short while ago in which he said that the company, in seeking to raise further equity on the market, is not intending to expand the equity capital by more than 25 per cent. Of course I think one must accept that the amount of shares that the company offer—and it will be a joint offer with our own as well—is for the commercial consideration of the company. It is a matter of convenience both to the company and, indeed, to the Government that the sale of both those shares and the Government's holding should be at the same time.
Lord Morris: My Lords, I should like to ask my noble friend whether I am right in thinking that the fundamental reason why Her Majesty's Government have decided to sell their minority interest in British Aerospace lies behind the philosophy—with which I happen to agree entirely—that it is not the business of Government to be in business. Furthermore, have Her Majesty's Government considered the measure of protection that is afforded to minority shareholders, which Her Majesty's Government will remain, by virtue of Section 210 of the Companies Act 1948, which is the section designed for the protection of minorities' interests?
Lord Lucas of Chilworth: My Lords, I am grateful to my noble friend Lord Morris for his questions. In general, yes, the decision to dispose of the Government's interests in the company accords with our general philosophy in that matter.
Lord Diamond: My Lords, can the noble Lord explain what is the general philosophy in that matter, other than scraping the barrel to find whatever money they can and continuing the process of selling the family silver in order to pay for the groceries? I can understand no other reason myself. It is not a question of privatisation; it is a question of realisation of shares for cash. It is very simple indeed. Privatisation is totally irrelevant to the announcement that the Government have just made.
Will the noble Lord also say what is the reason why the Government are proposing to reduce their power of control of the situation which they at present possess? At present they have an interest in shares which enables them to control, and, if necessary, prevent, the alteration of any single article. The Government's proposal is that the golden share should enable them to control two articles. Why are the Government giving up control of all the other articles of association?
Lord Lucas of Chilworth: My Lords, the noble Lord, Lord Diamond, has asked a number of questions. First, it is not necessary—as I think my noble friend Lord Boyd-Carpenter spelled out—to control the company by necessarily having 48.43 per cent. of the shares. The general philosophy underlined by my noble friend Lord Morris was, I should have thought, the answer. Instead of saying, "What is the value of privatisation?", one might actually say, "What is the value of keeping a national interest in that company?", which has done so expressly well, as underlined by the noble Lord, Lord Taylor, when he quoted from the company's accounts. There can be no value to us in holding it. The company can he free and can go about its business in a more commercial manner.
There is no question of scraping barrels at all. We do not feel that there is value in the Government continuing to hold 48.43 per cent. of the shares. We can look after those two interests. The so-called blocking mechanism concerning the articles of association, to which the noble Lord, Lord Diamond, referred, is where we think we should hold an interest. That is why we have the special share arrangement with the company.
Lord Morris: My Lords, my natural demurity makes me hesitate to press my noble friend, but he did not answer in any way my question with regard to Section 210 of the Companies Act 1948. I understand the reason why. May I ask whether my noble friend would be good enough to write to me on that matter?
Lord Lucas of Chilworth: My Lords, of course, I shall be happy to expand and write to my noble friend. As is the arrangement in your Lordships' House when a letter is promised to a noble Lord, a copy will also he laid in the Library.

Insolvency Bill [H.L.]
4.31 p.m.
Second Reading debate resumed.
Lord Taylor of Gryfe: My Lords, we now return to the subject of the Insolvency Bill. I apologise to the House for being on my feet longer than I ought to be in one day. Perhaps this may even be just the forerunner to the amount of time we shall devote to this Bill at the Committee stage, because this is a complex Bill. I know of no Bill since the British Telecom Bill on which I have had more professional advice, lobbying and representation. I am indebted to the various professional organisations which have been good enough to give me their views.
Like the noble Lord, Lord Bruce of Donington, I do not regard this as a party Bill. Thankfully, this House will be discharging its responsibilities sensibly as a revising Chamber looking at a piece of legislation in a totally objective way with the purpose of improving it as law. Therefore we welcome the attempt of the Government to deal with the complicated problems which arise in dealing with insolvency procedures.
This has been digested over a number of years. I think it was Edmund Dell as president of the Board of Trade who appointed the Cork Committee to look at insolvency law with a view to modernising the present cumbersome insolvency procedures. I know that we on these Benches, and those on other Benches, have been pressing the Government to do something about this, not simply because of wrongful trading and substantial abuses which are exercised within the present law, but also because since Cork reported in June 1982 there have been 33,000 company liquidations.
As the noble Lord, Lord Bruce of Donington, said, this is a growth industry because the rate of liquidations is still tending to show increases. Therefore it is important that the regime which governs these insolvencies should be well understood and that certain protections should be built in to save depositors, shareholders and creditors from existing abuses.
The House will be happy to hear that my comments at this stage will be limited to a few generalisations because the detail of this Bill will be examined in the course of the Committee stage. In looking at the Bill as an attempt to improve the present law there are one or two deficiencies which I hope will be clarified in the course of Committee stage. One which interests us greatly and on which I have had representations from the Consumers' Association, Justice, and other organisations concerned with consumers, is the so-called protection of depositors, the people who take out hire-purchase agreements with companies who go "bust" and have little protection within the existing provisions.
These are members of the public that I would regard as in a different class from the ordinary trade creditors. The ordinary trade creditor in his dealings with any company where money is lost is able to reclaim VAT, had debt relief, and in any event has a profit element included in the sales price and can write this off against his corporation tax return. It is the consumer, the

895
small person, who suffers greatly and who has no adequate protection as a consumer in the legislation that is proposed.
There is also the point that while trade creditors can reclaim VAT bad debt relief in a liquidation, they cannot do this in a receivership. Perhaps we could have some examination of this point. Nor is it clear whether this can be done in a scheme of arrangement or in administration, and perhaps this could be looked at as the Bill proceeds.
There is also the question of preferential rankings. There has been no change in the Government's preferential rights, and indeed there has been an extension whereby the right of set off between Government departments is being used more aggressively in the legislation before us. This is a point that might be seriously looked at.
The question of the disqualification of directors is the subject which has had the greatest amount of publicity and discussion because a lot of people are interested and involved, and many Members of this House probably feel themselves vulnerable to the provisions of disqualification of directors. It has been rightly said by various organisations who have written to me that it is highly desirable in the public interest that some suitable and effective mechanism should be available to deal with directors who fail to conform to acceptable standards and who are not fit to be in control of a company. We subscribe to the view of the Government that it is necessary that that should be done.
However, we are strongly of the view that within the present provisions it will sometimes be extremely difficult to attract people to rescue operations in companies which require assistance and secure support from men of great experience. For example, a man might readily be a director of Imperial Chemical Industries and feel that he has some talent to assist a company which seems to be having a rough time. If he joins the board of that company to assist its revival and the company does not in fact succeed, he could well be vulnerable to losing his directorship of Imperial Chemical Industries. It occurs to me that there will be a reluctance on the part of experienced directors who hold other and prestigious appointments as non-executive directors of companies who might be invited to carry this unusual degree of risk to their other commitments by playing a responsible part in the rescue of companies.
It is an interesting point, and I am sure that this will be discussed at great length. I do not know whether the directors of Dunlop, for example, rather than having received a golden handshake for their exercise might suddenly become liable under the provisions of the Act. I feel that this is an area which requires clarification.
For example, take the director of a family business who feels that he has certain skills in a local community to give to the revival of a particular company in the area for which he just feels a social responsibility. By making his services available to that company, if the company fails, then within the provisions of this legislation there could be a charge that he has been negligent and he could lose his
896
directorship of his own family company. I am all in favour of people taking risks in trying to rescue companies and stimulate the economy, but I feel that this provision might be inhibiting.
There is also the question of insolvency courts. Unlike in bankruptcy, where there are special bankruptcy courts, there is no insolvency court which can deal with the specialised nature of insolvency problems. Perhaps we could have some reassurance on that point. There is a real minefield in the area of reservaton of title which requires to be more clearly defined in the legislation. This is another area that might be looked at between now and the Committee stage. The rights of associated companies and directors' loans are sometimes used for voting purposes in a liquidation to the benefit of directors as opposed to the benefit of creditors. This is something else that we must protect in the legislation that we are examining.
I very much welcome the assurances of the noble and learned Lord in taking care of the special provision of Scottish law. I know it is a matter very close to the heart of the noble and learned Lord the Lord Advocate, but there is a feeling in Scotland expressed through the Institute of Chartered Accountants and the Law Society of Scotland that their representations have not been adequately considered. The Scottish Act is a distinct, self-contained code in the areas which it covers. The concern is that the changes that may be made in this Act to bring it into line with the provisions proposed for England and Wales without due consideration of the distinctive features of the substantial and procedural context of law and practice as contained in Scottish law in the 1972 Act are not truly accounted for. I know that this is a matter of deep concern to the noble and learned Lord the Lord Advocate. Perhaps in the process of making subsequent amendments he may further consult the professional bodies in Scotland that I have mentioned with a view to taking account of the Scottish law on this matter.
I do not want to detain the House long because we shall be examining the details of this Bill. We support the desirability of providing that insolvency practitioners will have certain minimum qualifications and that this requirement should apply both in relation to corporate and individual insolvency including acting as a trustee, both interim and permanent, in Scottish sequestration under the Bankruptcy (Scotland) Bill which this House has dealt with recently.
I do not expect an immediate response or reply tonight to some of the points made, but many submissions have been received by all of us who have taken an interest in the Bill. I am impressed by the representations from organisations such as Justice and the Consumers' Association in dealing with the consumer—the neglected element in this whole legislation. I hope that in the Committee stage we will have an opportunity of sensibly amending these provisions.
4.43 p.m.
The Earl of Buckinghamshire: My Lords, it is something of a relief to find a subject, after some eight

897
months of listening to your Lordships' debates, on which I may speak with a degree of interest. I should declare self-interest since I am a director of a limited company. In making my maiden speech I ask for the customary courtesy extended by your Lordships.
I wish to make it quite clear that I accept and welcome the main thrusts of this Bill. It has been apparent for many years that the insolvency law has been in need of reform. The need for reform has been brought to our attention most clearly by the Cork Committee findings. I am not sure that Sir Kenneth Cork will approve totally all aspects of this Bill, and many of its omissions, but clearly we all owe a debt of gratitude to the work of that committee.
This Bill seeks to strengthen insolvency procedures and to improve professional standards of directors and insolvency practitioners. I agree with noble Lords' comments with regard to simplification. With over 200 clauses to the Bill it is complex and certainly not simple. As there are over 200 clauses, I wish to confine myself to discussing two aspects of it. These matters have been raised by noble Lords who have preceded me, so I apologise if in the course of my speech I duplicate anything that has already been said.
The two clauses about which I wish to speak are Clause 11, which deals with the concept of wrongful trading, and Clause 7, which deals with the disqualification of directors. In discussing these two clauses it is, I am sure, realised that limited liability has been significantly abused. The major area of abuse has been caused by the Phoenix syndrome, with dishonest directors moving from one company to another, leaving debts which cannot be met. The Office of Fair Trading estimates that over 200,000 people suffer each year by a loss of over £18 million in prepayments. Only today in my car as I drove to the House I heard of another case of a liquidation where over £40,000 was owed to people.
Your Lordships may have reservations about the introduction of a liability based on constructive and subjective knowledge where we are thinking about wrongful trading. This is because there will be much doubt and uncertainty as to the circumstances in which liability can arise. This, as a side effect, may deter those most able to turn a company around, and serve to hasten the demise of a company. It is not good to have any uncertainty in the wording of the Bill.
An argument will be put forward that directors have the availability of appointing an administrator rather than going into voluntary liquidation. I have to ask whether this will assist in turning around companies. Creditworthiness is very important and there must be serious doubts whether other solvent companies will extend credit to a company under an administrator which still operates under the threat of a wind-up.
Detailed consideration will be required on Clause 11 as the penalties for wrongful trading are stringent. The Bill provides for directors to be personally responsible, without limitation of liability, for the debts of the company. Your Lordships may wish to note that, following pressure from the Institute of Directors, the Insolvency Bill repeals that section of the Social Security Act 1975 which has been used to make company directors personally liable for national insurance contributions in a liquidation. We now see it replaced and extended under Clause 11.
898
The concept of penalising "wrongful trading" cannot be disputed. The form of words needs to be carefully considered in the framework of this Bill. The benefit of hindsight will be used to the utmost and I doubt whether, in the majority of cases, there is any one moment in time when directors could have concluded that the course they were taking would lead inevitably to insolvency. I am aware that such judgments have been made in the past. Your Lordships may recall the case of Rolls-Royce in the early 1970s when the inspector's report stated that the company was lost from the moment it took the fateful decision to develop the RB.211 engine. Presumably this Bill would catch those Rolls-Royce directors for wrongful trading, but are they the directors with whom we are primarily concerned who would be penalised for a decision relating to commercial risk turning out to be wrong? Your Lordships may consider that the present definition is unfair in certain areas and not strong enough in others to catch delinquent directors with whom we are primary concerned.
I now turn to automatic disqualification of directors under Clause 7. Much comment has been made on this clause. Mr. Alex Fletcher has been reported in the Financial Times as stating that:
"honest and responsible directors have nothing to fear".
I am quite sure that is true. A shadow trade spokesman for the Opposition said that there would be considerable anxiety at the automatic disqualification of directors. He added that this provision may fail to catch the dishonest director and contradict one of the intentions of the Bill by hastening companies into liquidation. I was particularly interested here in the comments made by the noble Lord, Lord Bruce of Donington, on the deterrence aspect of this Bill where company directors of good repute will be unwilling to serve on other companies which may well need their services because of the fear of losing their major directorships.
It is the automatic nature of this disqualification that is the problem. There is a view which says that automatic disqualification is arbitrary, failing to distinguish between those to blame and those to exonerate. One answer is that the innocent, of course, will obtain relief from the court during the three-month period, but side effects may be that directors will resign rather than remain to protect the creditors' interests and, indeed, it may give creditors an opportunity to assert unreasonable pressure under threat of a petition. I am afraid that the good intentions listed here by the noble and learned Lord, Lord Cameron, may be somewhat hopeful in this area of improving the standards of directors.
Alternatives to the measures in this clause have been put forward to the Minister. One of these is that in every winding up, whether voluntary or compulsory, the liquidator would be obliged to report whether or not in his opinion the Secretary of State should seek a disqualification order. The onus would then switch from the need of the director to prove his innocence, at his own considerable cost, to the obligation of the Secretary of State to establish a prima facie case for disqualification. The burden of administration—and I do not think that we should underestimate this—on our courts would switch from the courts to the

899
Secretary of State whose powers for this purpose are already in place.
It may be considered that the way this clause is currently drafted will catch only the innocent and leave free those who are most guilty, because of the emphasis placed on compulsory liquidations. Furthermore, I have no doubt that your Lordships will wish to consider carefully whether or not the introduction of the concept of "guilty until found innocent" is a concept that should be lightly introduced into our legal system. In asking this question I am well aware of the convenience of a system which will disqualify dishonest and delinquent directors so easily and assist to remedy the abuse of limited liability. But I am also aware, as the noble Lord, Lord Bruce of Donington, has said, that the Government departments have failed to use the powers that are already in their hands.
I have raised two areas for your Lordships' consideration. There are many others which in due course will be fully debated by your Lordships. But, having had a Scottish connection for some time and following Scottish Lords in this debate, I cannot resist drawing the attention of the House to the concern that is expressed in Scotland with some parts of this Bill. In particular, I think the aspects concerning voluntary wind-ups and court wind-ups need to be closely considered.
In conclusion, may I say that the new remedies for wrongful trading and misapplication of assets will be of benefit in making it possible to bring action against delinquent directors. However, there are weaknesses present in the Bill. Although it is a welcome move to enable the liquidator to apply to the courts for a disqualification order in a voluntary wind-up, your Lordships should note that it is the creditors who will have to pay the costs. Equally, this Bill does not allow for individual creditors to bring action to recover debts; and this I know is something which the Consumers' Association has raised.
Secondly in my concluding areas, it is a widely held belief that in the insolvency profession the present remedies for disqualification exist under the four Companies Acts and the Theft Act 1968, so that civil and criminal liabilities potentially exist for delinquent directors. There are two problems to this. The one which has already been mentioned is the failure of Government departments to bring actions on applications from the Official Receiver's Department. The second problem is that criminal law does not assist in the recovery of debts.
This Bill is extremely important in the business and industrial regeneration that this country requires. It is critical to strike the right balance between encouraging the growth of our business and industrial base through the willingness of directors to take commercial risks and the rights and protection of those who deal in good faith with companies that go into liquidation. Your Lordships may consider that to introduce legislation that could stifle commercial risk taking and deter company directors of integrity from undertaking the vital jobs of rescuing companies who would otherwise go into liquidation could be thought about again. No doubt your Lordships could think of more than one public company presently undergoing such a process.
900
Reform that does not catch the fly-by-night directors is equally in need of reconsideration.
I am told that professional bodies such as the Institute of Directors, the Law Society, the Institute of Chartered Accountants, and the Consumers' Association have all expressed reservations on these two clauses. Their viewpoints may be different, but they are all united in the desire to catch those directors who trade with the intent to defraud the public, and it is the means rather than the end which is under discussion. Therefore, my Lords, while I welcome the main parts of this Bill, I have some reservations and I look forward with great interest to listening to the views of your Lordships.
4.56 p.m.
Lord Denning: My Lords, I am sure that all your Lordships will join with me in congratulating the noble Earl on his speech so well and clearly spoken. I, more than twice his age, would say that he is a standing symbol of the work of the hereditary principle. His words today and the research that he has done have contributed much to our knowledge of this Bill. I am sure that during the Committee stage his words will be of the greatest value to your Lordships, and I hope that we shall have the benefit of his help for many years to come.
This Bill is of the first importance. Our law as to bankruptcy is archaic, antiquated, abstruse. I have always shied absolutely clear of it, and I think that most lawyers have, too. They talk about the act of bankruptcy. I do now know myself what it is. You have to look at the statute; and then you do not understand it. You have to have a receiving order and you have to have goodness knows what. Thank goodness we have Mr. Muir Hunter. Queen's Counsel, who has edited the standard book on the subject, Williams on Bankruptcy. He was on Sir Kenneth Cork's committee and they have made a jolly good job of modernising the bankruptcy proceedings for personal individuals, which was completely out of date, the last statute being that of 1914.
Having said that, for the commercial community of this country the provisions dealing with companies and the directors of companies are of the first importance. Although they are tucked away, so to speak, in an abstruse Bill, they will affect the whole of our company law system. Let me remind your Lordships that our company law system of limited liability goes back only about 100 years, to 1862, the year of the first Act. Since that time it has become universal throughout the world that a company has a corporate personality of its own in law different from all the directors or shareholders. It alone is responsible for its debts and obligations. If it cannot pay its debts, it can be wound up. But no one, no creditor, can attack the director who orders the goods or any officer of the company, or go against him in his personal capacity. There is the veil of corporate personality which protects the individual from any personal liability at all. That is the fundamental principle of our company law.
But then you have to reckon with this. Although most directors are efficient and good and look after their businesses, there are some who are dishonest and delinquent. Let me speak plain. Let us see how

901
directors are appointed. Take your PLC or public limited company. How are the directors appointed? I do not know whether many shareholders attend annual meetings that appoint directors, but there are usually only a handful there. The new directors are appointed by the outgoing directors, or they are a self-perpetuating oligarchy. Mark you, in most great companies they are very well selected and appointed, but they are a self-perpetuating oligarchy who are appointed largely by themselves and not by the shareholders.
If one takes the private limited company—the one man with his 100 shares and £2 capital paid up—he appoints the directors. He appoints himself, of course, and his wife. He runs that company and of course he has no personal liability. If the company takes orders for goods, as many of them do, it can get money for the orders, pocket the money, and not supply the goods. The poor individual who has paid the money has no recourse. This report draws attention, in paragraph after paragraph, to what is called the phoenix symbol. It is time the community at large knew what that phoenix symbol is.
A man acquires or forms a private company in which he holds a majority of the shares. He himself may be a director—he and his wife and one or two of his friends. What do they do? They incur debts; they milk the assets; and within a year, perhaps, the company goes into voluntary liquidation. A liquidator is appointed and the liquidator proceeds to sell the assets; the liquidator is not necessarily a qualified man at all. A good buyer comes on the scene. The director who has been running that company gets a new company. He buys it "off the shelf- by buying the shares of the company, and he buys the assets of the former company from the liquidator at a giveaway price. So he gets the assets of the first company into the hands of the second company. He changes the name of the second company to be very like the name of the first, so that people get mixed up between the two; and then having got this second company going, he goes through the whole process again. He incurs debts and gets such assets as there are; and he winds up the company. In each case he leaves a trail of creditors behind him.
That is the phoenix symbol—this bird that rises from the ashes of the old; it then expunges itself and another phoenix arises from the ashes, leaving trails of creditors behind. That is the dishonesty which is pointed out in page after page of this great report by Sir Kenneth Cork. Let me pause for a moment to praise that report as I would wish to praise it. It is absolutely first-class, and the most experienced people of the country—lawyers and accountants—have done a marvellous job in pointing out the defects and analysing the difficulties.
Having said that, having exposed these delinquent and dishonest directors, let me say that the report also has regard to the important spirit of enterprise. This company law system which we have has fostered enterprise. People have taken risks and they have done it under the company name. That is quite right, and we must preserve and maintain our company law system because of that spirit of enterprise. Those things would not have been undertaken had they not
902
been free of personal liability. Let me emphasise that too, as the report does.
This report, which has been largely accepted by the Government, modernises our law in this way. It ensures that all the people involved—the liquidators, the receivers and the trustees in bankruptcy, and all the people who deal with this complicated subject—are now to be qualified. They are to be qualified as insolvency practitioners and they are to come from the ranks of the people who know about it—the lawyers and the accountants. I have known many of them and a first-rate body they are—qualified insolvency practitioners. They are in future to be the only people to handle these important matters.
In the past they have misunderstood their role. We had a case not long ago where a receiver was appointed for the debenture holder, the debenture holder being a bank which had lent a manufacturing company a lot of money. When it was not repaid they appointed a receiver for the debenture holder. He was selling a factory with a lot of machinery in Gloucestershire or somewhere nearby. He did not advertise the sale properly but only sent out notices to a few people. He advertised the sale and had it held on a cold day in January or February. It turned out to be a very cold day with snow everywhere, and hardly anybody turned up. He said, "Well, I'll sell the best I can". He was not going to postpone the sale at all even though few people were there. The receiver said, "I am not concerned with the creditors; I am only concerned with my bank. I am a receiver for the debenture holder, the bank. I have nothing to do with those creditors". There were one or two cases in the book which supported that view. He sold off the assets at about a quarter of the price they were worth: the bank got what they could and the unsecured creditors got nothing. I am glad to say that in the Court of Appeal we held that the receiver for the debenture holder has not only to consider the debenture holder but to consider the others, too. We hope that we put that right. But that case shows the importance of having qualified practitioners to run our insolvency system, whether it is ordinary bankruptcy or a company winding-up. This is the first recommendation in Sir Kenneth Cork's report. Excellent it is, and it will be maintained in this Bill.
I will deal with another point, which is not controversial. The receiver on a floating charge is a very good system when a company is in difficulty and you do not want to spoil the company; you want the company still to run and to carry on business, perhaps selling off one piece and leaving another piece. That is a very good institution. What this report has said is: do not let us confine receivers to debenture holders; provide for a floating charge. As a general position, have an administrator. If a company is on the verge of going broke, let us have an administrator.
The administrator would be a qualified practitioner. He would come in and would run the business as it ought to be run, perhaps selling off some parts and retaining others. At all events, this is altogether a new system in our law. When a company is in difficulties or on the verge of going broke, let us have an administrator to come in and run it. That is the second new institution in this Bill. I will not go through all the others. Those are the good points.

903
But what about the dishonest and delinquent directors? We have had provisions, going back to 1976, to deal with fraudulent trading. In their recommendations Sir Kenneth Cork and his colleagues have brought a new concept—that of wrongful trading—into our company law. They actually went so far as to draft a clause for the legislators to say what wrongful trading is and how it should be dealt with so that when a company is in voluntary liquidation, it can he brought to hook. I do not mind the new clause as it is brought in in Clause 11 of the Bill. That goes most of the way to meet Sir Kenneth Cork's clause. It applies when a company is in insolvent liquidation and when, some time before the commencement of the winding up, the director knew or ought to have concluded,
"that there was no reasonable prospect that the company would avoid going into insolvent liquidation".
In other words, when the director knew or ought to have known that the company was going broke. If he knew or ought to have known it was going broke, then he may be guilty of wrongful trading.
If that is found against the person who knew—not against the innocent ones—then we have this new concept in our law that such a man is to be personally liable. He can no longer bring down the veil of corporate personality and say that it is only the company. If he carried on business when he knew or ought to have known that the company could not pay its debts and could not pay for the goods—if it ordered goods and he knew that it could not pay for them—then he may be personally liable. There will be the discretion of the judge and all sorts of safeguards for the innocent man, but if there is wrongful trading, then he is abusing the company law system and he is abusing the corporate veil. When he abuses it in that way, he should be personally liable.
That is the new wrong of wrongful trading which Sir Kenneth Cork and his committee drew up. It drew up the whole clause. It has been adopted by the Government in this Bill and surely it is right. There may be details to be looked into, but in principle it is right. A director who has been guilty of wrongful trading can be personally liable himself—he cannot put it on to the company—to such an extent that the judge wishes. That is wrongful trading.
Apart from that, some directors have proved themselves so unfit that they ought to be disqualified. I have told your Lordships before that no qualification is needed to become a director. A man can appoint himself, his friends or whoever; but if he behaves badly or wrongly, he can be disqualified. There are provisions in this Bill for disqualification. These too are of the first importance. The director who has wrongfully traded can not only be made personally liable but can he disqualified.
The other important clause is Clause 7. As the committee and the Government point out, when a company goes into compulsory liquidation, when a company lets things go so badly that the court has to intervene to say that this company must be wound up compulsorily—usually there would be something wrong going on on the board, something dishonest, discreditable or whatever it may be—there is provision
904
under Clause 7 for automatic disqualification. It is provisional at first—the director can get out of it if he says he had nothing to do with it—but after three months or so, it can be made an automatic disqualification for three years. He cannot serve as a director of any other company for another three years. That is the automatic disqualification clause. There may be some question about the burden of proof but I will not go into that now. It just shows that the other way of dealing with delinquent directors is disqualification. These are the great new remedies brought into our law. There is the personal liability of dishonest directors, or incompetent directors if need be; and there is also automatic disqualification which they can get out of if they show that they have been acting properly. Those are the main provisions, as I would see it, of the Bill.
There is only one further point which surely needs a mention—that is the position of Crown creditors; the income tax people who say, "Oh well, for centuries the Crown has had a preference over anyone else. If anyone goes bankrupt or cannot pay his debts in full, we the Crown can take it for our taxes." They have done it for goodness knows how long. There is no justification for it that I can see except on historical grounds. But they have always done it. I put aside value added tax and things like that which have to be collected for the Government. I refer to ordinary income tax and ordinary rates. Why should the income tax people have preference over the rest of the unsecured creditors? Unsecured creditors have often supplied goods and not been paid. They have often had to try to get judgments to get the monies paid. They are not voluntary creditors at all. They have had contracts. There is no distinction at all in principle.
Sir Kenneth Cork and his colleagues said how ordinary people are outraged that the Crown and the tax people should have this preference over everybody else and get their debts in full before unsecured creditors get anything. I am glad to say that Sir Kenneth Cork and his colleagues were of that view like most ordinary people. But the Government look after themselves. In this Bill they say, "We do not want any of that. Let the Crown keep its taxes". It is not a good or plausible reason. It does not convince me and it does not convince Sir Kenneth Cork and his committee. I should like to see an amendment which would he in accordance with ordinary justice to the effect that Crown debts and other debts all rank together. If it is 10 shillings in the pound, then everybody ought to have it. The Crown should not take one pound while the unsecured creditor has one shilling. They should all be equal.
There are several points in the Bill to be looked into. In conclusion, I would say that Sir Kenneth Cork and his committee have done magnificent work. It is a magnificent report. I should like to see it implemented in full. The Government with their extra White Paper have modified it a little and have not gone all the way, but they have gone far enough. I hope that their new Bill will commend itself to your Lordships, subject to any modifications which are brought up in Committee. I support the Bill.
5.18 p.m.
Lord Aylestone: My Lords, I have only one point to raise on this Bill. It is a small point in relation to the

905
wider scope of the Bill, but nevertheless it is an important point affecting some company directors who are involved in companies which fail and become insolvent. It is a point which has already been made in the debate by my noble friend Lord Taylor of Gryfe and others. I think it is worth bearing it in mind for Committee stage, and, from whatever direction the amendment may come, we will certainly look at it very carefully and if necessary support it.
Under Clause 7, the Bill disqualifies a director from holding a directorship in another company, or could do, for as long as three years. There are unquestionably cases of negligence, or even something worse than negligence, where this is undoubtedly right. There are exceptions which the Bill, as drafted, recognises. However, there is a different case, a case on the other side of the coin, that of what I term the specialist director or, if you wish, a doctor/consultant director, who is brought onto the board of a company for a specific purpose. It may be because of his specialist knowledge.
He is invited to join the board because at that stage the company are struggling on the verge of insolvency. He has to look very carefully at the situation before he agrees to accept. One of the problems he has to bear in mind is that if things go wrong it could result in his disqualification as a director of any other company.
May I suggest that one way of considering this problem is by taking a hypothetical case—in fact, I know of one such company and I know some of its directors. The case which I shall treat as hypothetical concerns a company that is very anxious to continue trading and which has diverse interests in engineering, in potteries, and in a number of other areas. It is anxious to continue trading and extremely anxious to retain its labour force as far as is possible. The company certainly has no intentions of going into liquidation unless it is forced to do so.
In this particular hypothetical case the company has decided to invite onto its board a director who is extremely skilled in certain respects: in capital restructuring, in market arrangements, and in many other areas, too. He is invited to join the board. But on considering the invitation he realises that if he accepts and is successful and the board continues then everything in the garden will be lovely and his efforts will have been worth while—but what if he fails? What if the company goes into liquidation?
Having been on the board for rather longer than six months, he would face the possibility—and I will not put it any higher than that—of disqualification from joining any other board for a period of three years. Under the Bill, he could of course apply to the court for annulment of his disqualification, and there is no doubt that his case would receive careful consideration. But that would be a costly procedure. At least, he imagines it would be; and I imagine that, too. Maybe we are both wrong; if so, we shall probably be told. Nevertheless, that course of action was not necessary in a particular case I have in mind.
However, the time limit in the Bill as drafted would be likely to disqualify such a director for a very much longer period of time. This is a Committee point. I believe that the House understands it because it is a point which has been mentioned before. I hope that
906
the Minister, when replying, will say something about it. A number of directors would be anxious to help a struggling company, but under such terms they would be nervous and hesitant about doing so; they would not want to join the board of such a company because of the provisions contained in this Bill—although, as I have already said, they are very necessary in many cases.
5.23 p.m.
Lord Milne: My Lords, I echo the congratulations so beautifully expressed by the noble and learned Lord, Lord Denning, on the excellent maiden speech of the noble Earl.
Within the compass of a Second Reading speech it is scarcely possible to do justice to this Bill. I propose therefore to limit my remarks to corporate affairs, of which I have had practical experience on both sides of the fence and in the grey area of company medicine. I find that my views are very close to those expressed by the noble Lord, Lord Bruce of Donington. I agree that the Cork Report is a most remarkable document. Nothing like it has been attempted for years; and the authors are to be congratulated. This report will be essential reading on the subject for many years to come.
Those used to present practice will welcome the many proposed changes in the law, some in detail but some fundamental. There are also some notable discrepancies between the report and the Bill. I imagine that Part I, dealing with the appointment, etc., of practitioners, is unexceptionable. Chapter I of Part II, on the disqualification and liability of directors, is much more controversial, but as it has been discussed, and will be discussed, in detail, I will not elaborate except to repeat that in my view first-time disqualification with or without liability would discourage enterprise, particularly in exposed industries; would freeze the recruitment of experienced non-executive directors; would hit small business rather than large, where directors are more insulated by holding company status and open to the possibility of takeover or rescue; and would punish the majority for the sins of the few.
Further, insolvency may occur through no fault of management, however carefully they may monitor the company's affairs—such as through a prolonged strike. As the Bill is drafted, it seems as though speed rather than equity is the aim, no doubt to avoid the particular abuse which the noble and learned Lord has described as the phoenix.
One defence for the directors—an obvious one—is that the company could pay its debts at the time of the winding up order. In assessing solvency for this purpose under Clause 7(5)(d) contingent liabilities though not, apparently, contingent assets, are to be brought into account. This means that directors ex post facto are to be judged on liabilities, the values of which at the time they could not possibly know, and which may well be unquantifiable and which may turn the balance.
If directors are to suffer these indignities, surely they must be judged on the outcome of the liquidation when contingencies, both plus and minus, can be evaluated and permitted to rank. Admittedly, this may

907
take some time where lawsuits or guarantees are involved. As the Bill stands, a board may be stampeded by the threat of large legal claims into making a wrong decision. Subject to the above, if the Government are resolved on disqualification, then that under Clauses 8 or 9, on an application, is less repugnant. Surely, automatic disqualification on a second offence might be a reasonable compromise.
Much has been said about the liability of directors for wrongful trading under Clause 11. If the present law is too tightly drawn, then the wording of the proposed clause seems to me to be unfortunate for what is a perfectly reasonable concept. It will, I am sure, be amended during the passage of the Bill.
On the ranking of creditors, I am sure there will be general disappointment—as voiced by the noble and learned Lord, Lord Denning—that the Government have not accepted the recommendations of the report on preferential creditors or on VAT. While considering preferential claims, the wording of Schedule 5(1) is I think suspect so far as corporation tax is concerned.
Although admittedly it is a very difficult question, neither the committee nor the Bill has tackled the problem of insolvency and liability within groups of companies. I am well aware there are outside considerations, but the matter may arise anyway in certain circumstances through wrongful trading. Where inter-group accounts can be shown to be long-term or of a capital nature there seems to be a strong argument for deferral by statute.
To conclude, I have exposed my own reservations about the Bill. There is much else besides, mostly embracing the recommendations in the report. Subject to those therefore I welcome the Bill.
5.30 p.m.
Lord Hutchinson of Lullington: My Lords, I venture to intervene in this debate not because I am an expert in this highly complex field of the law—and I am delighted to find that my general distaste for this branch of the law has been shared all these years by the noble and learned Lord, Lord Denning—but for two other reasons. First, I am aware of the reservations and disappointments felt by a number of my erstwhile legal colleagues on studying the provisions of the Bill which they, as practitioners, will have to understand and operate. Secondly, I have for long been concerned, along with the ordinary consumer, at the ease with which unscrupulous operators have hitherto been able to make use of the bankruptcy laws to fleece the public. Indeed, I have noted, too, in the criminal courts how difficult it is to obtain a conviction for fraudulent trading as that offence is now defined.
The committee's purpose was to achieve unification, or at least harmonisation, of the various codes governing the law of insolvency. It set out to recommend a system which,
"is simple and easily understood"
and to satisfy reiterated demands,
"that the law be expressed in modem language".
While congratulating the Government on bringing forward so massive a Bill within 2½ years of the
908
appearance of this remarkable report, I am bound to express the practitioner's profound disappointment that all the relevant law has not been concentrated into one Bill—which is the case in nearly all the principal commercial countries of Europe, as I understand it—and, further, a Bill which might have set up, as recommended by the committee, an insolvency court with exclusive jurisdiction in all insolvency matters and forming part of the High Court. As it is, the practitioner will have to refer extensively to the provisions of the new Companies Bill and to other statutes such as the Deeds of Arrangement Act 1914. In addition, although the Bill gets rid of the old concept of an act of bankruptcy, it preserves intact the criminal bankruptcy provisions of the 1973 Act which are based on that very concept. These provisions have not been successful in achieving any substantial financial recoveries in the criminal courts for the benefit of victims, and I am extremely sorry that the opportunity to consider their reform has been missed.
Much of the Bill is also found by practitioners to be dense and verbose. It must be clear to all noble Lords that its 194 pages are very far from being "simple and easily understood". Furthermore, as has already been mentioned, the Bill makes remarkably extensive use of remitting matters of substance to be dealt with by subordinate legislation. Schedules 3 and 6 contain no fewer than 52 provisions (I think the noble Lord, Lord Bruce, calculated it as 49) to be included in company and individual insolvency rules. It is impossible for a practitioner to understand the policy behind the Bill without a thorough perusal of a draft of the rules themselves—much as we were unable to assess the provisions of the Police Bill without digesting the contents of the codes.
Hitherto the advisory committee on bankruptcy rules, chaired by a distinguished chancery judge and with a highly expert membership, has had a duty to review the rules and make recommendations to the Lord Chancellor. Now, as I understand it, under Clause 194 that committee is to be stripped of its advisory function and it is the Lord Chancellor who is to initiate rules after no more than consultation with the committee. Surely a broader and better informed rule-making authority is called for in these circumstances rather than a less informed and narrow one.
Like all other speakers, I welcome Part I and the laying down, at last, of professional standards for insolvency practitioners. I also welcome the advent of an administrator and the creation of an administration procedure. It will of course help the rehabilitation of companies which get into trouble and the restoration of their profitability with the keeping in operation of their viable parts, all for the benefit of creditors.
Part II introduces in Clause 11—as has been mentioned by a number of speakers—the concept of wrongful trading. That was suggested by the committee, and in my opinion is very long overdue. As I have already said, the offence of fraudulent trading involves proof of dishonesty and is based on the need to prove that there was no reasonable prospect of debts being paid as they fell due. That is a very difficult concept to establish in the grey area of irresponsibility, over-confidence and stupidity, all of which shade imperceptibly into dishonesty. That area

909
was very well touched on, if I may say so, by the noble Earl in his maiden speech which was full of experience and wisdom.
Wrongful trading gives rise only to civil liability. It will encourage directors to consider the financial position of a company at a much earlier stage; but, although it may catch the irresponsible director of the smaller company, it could also push larger companies into liquidation at a much earlier—and sometimes a much too early—stage, impelled by a very natural fear of the possible consequences which may befall their directors.
The committee proposed a well-considered power to be given to apply to the courts for anticipatory relief to cover the short period in which to get a company on its feet; but again this very sensible idea has not been taken up in the Bill. Clause 11—here I venture with trepidation to differ from the noble and learned Lord, Lord Denning—seems to be very obscure and confusing. It is a great pity that the draftsmen have not adopted the clear and simple wording of the draft clause on page 404 of the report, to which the noble and learned Lord referred.
As regards automatic disqualification of directors of wound-up companies, I should have thought that most experienced practitioners would be against compulsory disqualification, and indeed against compulsory penalties in almost all cases; whether it was hanging for sheep stealing, for capital punishment for murder or 12 months' disqualification for driving with an excess of alcohol. These automatic penalties always lead to irrational decisions and questionable procedures. The committee recommended mandatory disqualification only on proof of some delinquent conduct, which surely would be a much wider course to follow. No doubt the provision is directed to the encouragement of voluntary liquidation. Indeed, that is a course which I suppose rogues will now follow. Whether it be in the manner that the noble Lord, Lord Bruce, indicated, it will obviously give rise to this course now being taken by such operators.
Voluntary liquidation with power to apply for a disqualification order is, I know, in the Bill, but I would ask the House whether a liquidator is likely to embark on such an application. He will be concerned with getting in the money and would be unlikely (would he not?) to expend further money and effort on taking that course and making such an application, which would inevitably give rise to a period of dispute.
Finally, there is the plight of the unsecured creditor. The committee makes a point of highlighting the volume of evidence it received which was, in its own words:
"deeply hostile to a law which so often frustrates any fair distribution of uncharged assets to unsecured creditors".
It wanted to ensure that no debt would be accorded priority unless shown positively to be fair and equitable and to command public acceptance.
It recommended—and we have already heard about this from the noble and learned Lord, Lord Denning—that certain Government preferences (tax arrears, rates, PAYE, VAT) should either be abolished or should have the period of the preference shortened. As I understand it, abolition has been incorporated into the insolvency laws of a number of other
910
countries. Alas, that has not been reflected in the Bill, and Crown preference has been retained. I was delighted to hear the castigation of that decision which fell from the lips of the noble and learned Lord. The excuse that the Crown is an involuntary creditor as regards tax has no basis at all other than an historical one. Indeed, the committee was at pains to point out that the Crown possesses exceptional remedies for obtaining prompt payment of its debts which are not available to ordinary creditors.
Lastly, in relation to unsecured creditors, they would, I suggest to the House, be put at a disadvantage in this Bill in regard to the appointment of an administrator. If the holder of a floating charge wishes to exercise his right to appoint a receiver, it will not be possible under the provisions of this Bill to appoint an administrator. The result may well be that the receiver, owing an allegiance to the chargee, will wish to realise the assets as quickly as possible, leaving nothing for the unsecured creditor; whereas, if an administrator was appointed, he would want to keep the business going as long as it was possible to assist the unsecured creditor.
Those are the only points about the Bill that I wish to make at this stage. As I say, it is a matter of congratulation for the Government to have produced a Bill in this time, and of course one must welcome the Bill as a whole. But the Cork Committee report was a report of great lucidity and very great brilliance. I do not think that anyone could describe this Bill in those precise words.
5.44 p.m.
Lord Mottistone: My Lords, I should like to add my congratulations to my noble friend Lord Buckinghamshire, who not only made a splendid maiden speech, but also covered so much of the ground that I proposed to cover that it will make it much simpler for me to address your Lordships. I hope very much that we shall not only hear a lot more of him, but perhaps also have his support when it comes to the Committee stage, which I always believe is the greatest fun in any Bill.
Like my noble friend, I should declare an interest, as a director of a very small company. One is of course at once worried by what one reads. In contributing to your Lordships' debate, I, too, have been advised by lots of people, but in the main by the CBI and also by the Institute of Directors. I was hoping very much to succeed my noble friend Lord Caldecote, who asked me to apologise to your Lordships for his having to go away to an appointment which came up earlier than he expected in relation to the debate. He invited me to say what I thought that we had both discussed. I shall do my best on his behalf; but, as your Lordships know, he has great experience in finding funds for small companies and is very well aware of the problems relating to small companies in getting them going and getting people of great competence to serve on their boards, where that is necessary.
I agree in principle with the Bill and in detail with most of its substance. I, too, should like to add my congratulations to Sir Kenneth Cork on his report, which formed the basis of this Bill, or at any rate part of it.

911
I recognise the threat of what the noble and learned Lord, Lord Denning, described to us so succinctly as the phoenix company and the directors of that sort of company who are obviously the people whom nobody wishes to succeed. One wholly welcomes any efforts to restrain them within this legislation. However, as many noble Lords have said, there is another side to the picture. My noble and learned friend, Lord Cameron, said—and I hope that I quote him correctly—that the aim of the Bill was to encourage directors to take a closer personal interest in the affairs of a company. That is right, and in so far as it goes, it is wholly to be welcomed. All directors should take a closer personal interest. But the question is whether some features of the Bill do not in fact negate that very good intention. It would seem to me that the key to what needs to be achieved is to encourage good, as well as bad, directors to take a close personal interest in companies, especially those in difficulties.
If one turns to the item that many noble Lords have commented on—the question of automatic disqualification for three years of all directors in a company compulsorily wound up—one cannot help questioning whether, as written at the moment, Clause 7 does not provide a disincentive to join a company that is starting to struggle for the very people whom my noble friend, Lord Caldecote, would wish to put into it. Other noble Lords have said this and there will be amendments to cover it. It is something that my noble friend on the Front Bench, in whose name the Bill is, may like to note.
Questioning of the wording of Clause 7 in its present form has come from all sides of the House. It came from my noble friend Lord Buckinghamshire who is, as it were, fresh to the scene. It came from the Cross-Benches; and I think that we might have some more support from the Cross-Benches at Committee stage. It came from the Alliance Benches, and it came from the Opposition Front Bench. Questioning would also have come from my noble friend Lord Caldecote had he been here. This is not, as has been said, a party political Bill, but in this particular area there is room for making quite certain that there is not a disincentive, either for people to start up companies and take risks—that is, for decent, honest people to do this—or for people to save a company which may be in difficulty.
Of course, if a company is in genuine difficulties, it might result in that company going into voluntary liquidation so as to avoid this particular penalty, rather than the directors making a real effort to turn the business round. That surely is not what my noble friend the Minister wants. It cannot be his intention to encourage companies that are trying to get themselves started to go into voluntary liquidation. This applies particularly now when they are creating employment in the country. Everybody agrees that it is the small companies which are starting up which will get the country moving again along its proper way. Yet this legislation will create a position where people will be more likely, in unnecessary circumstances, to go into voluntary liquidation than they would have been before. That must be wrong. I hope my noble friend will take this point and will therefore be very sympathetic to any amendments that may be put
912
before him at a later stage to try to put it right. I shall not labour the point, since other pople have mentioned it.
There is also a problem with the wording of Clause 11 in relation to wrongful trading. That point, too, has been tackled from other sides of the House, but I should like to add my voice to it. As a matter of principle I very much dislike, wherever it appears—in legislation, or elsewhere—the excessive use of the phrase "ought to". I think that much of the trouble in the world today is caused by people saying that so-and-so ought to have done something or other. The fact of the matter is that if so-and-so did not do something or other, he probably had a very good reason—and I am not talking about businesses. It is no good my saying that the noble Lord, Lord Mishcon, ought to make a speech which appeals to me, because he does not want to make a speech which appeals to me. Why should he? He is speaking from another Bench. However, if I was being very self-centried about it, I might think that I would be happier if he did make a speech which appealed to me. I object, and have objected for many years, to the use of the phrase "ought to" because it causes far more trouble in this world than many other little phrases. To find it in legislation, and what is more to find it in legislation in the past tense, where it says, "ought to have concluded", is presumptuous. It is really very presumptuous to assume that people ought to have done something when they in fact did not. So I think we have to alter that part of the proposal regarding wrongful trading.
The next point which I really cannot resist making concerns the preferred creditor status of the Government. On the whole the noble and learned Lord, Lord Denning, was more complimentary about this Bill than the rest of us have been. He did not even really take Clauses 7 and 11 to task. But he came in against the preferred creditor status of the Government. Sir Kenneth Cork has done this. I am not otherwise going to be involved in it, but I have had a brief from the National Farmers' Union and they have said that they think this is disgraceful. The point is, why on earth should the Government, who have lots more money than the small creditors, have any preference over the small creditor? The Government will not go "bust" if they do not receive their £1,000 or £2,000 for PAYE or whatever, whereas the small creditor who does not receive £750 may well go "bust". So it really is jolly unfair of the Government to continue to look after themselves.
As the noble Lord, Lord Hutchinson, has just said, there are other countries—and I understand it is shortly to be the case in France and West Germany and is already largely the case in the United States—where the government is on all fours with other creditors. I think it is quite right that they should be. I shall endeavour to assist any noble Lord who tables an amendment to try to put that right.
I have one other small point before I finish. The Consumers Association have been in touch with me on the telephone about it. They said—and I agree in principle with this—that the Cork Report studied the situation fairly carefully and recommended that there should be special arrangements for small creditors and that certain sums should be set aside from any assets that eventually were available to make sure that the

913
small creditors received preferential treatment. In a sense it follows on from what I have just been saying. It seems to me that this is very reasonable because large creditors are either large companies in their own right or are people who have committed their services in a fairly massive way and so they know what they are doing. But the small creditor is not so aware of the penalties that might result if the company suddenly gets into difficulty. So it seems to me that what Sir Kenneth Cork was referring to in that respect was sound. It seems that here is an omission from the Bill which perhaps might well be rectified at an appropriate stage during its passage through this House.
With those main provisos, and taking into account those areas in which I hope we shall persuade the Government to change their mind, I wish to repeat that the Bill as a whole is an excellent one and I have great pleasure in supporting its Second Reading.
Lord Mishcon: My Lords, I—
Noble Lords: Order!
Lord Mishcon: I am so sorry, my Lords.
5.57 p.m.
Lord Meston: My Lords, as your Lordships have all observed, the need for reform is clear. It is also clear, with respect to the noble and learned Lord, Lord Cameron, that it is not a question of simply overhauling the machinery but a question of rebuilding the machinery, as Cork in its undiluted form recommended. Only then can the law deal with the diversity of provisions for corporate and personal insolvency and with the accretion of piecemeal legislation dating back to the last century. If the noble and learned Lord, Lord Denning, finds the present law abstruse, it truly must be. Like him and the noble Lord, Lord Hutchinson, I endeavour to steer clear of it if I can, but I cannot always avoid it.
The Cork Committee described the present state of affairs as in decay and liable to further decay. That echoed the Justice report of 1975, which described the 19th century structure as ill-adapted to the needs of the small debtor and of his creditors, as well as of society generally. That, in turn, echoed the Blagden Committee in 1957, which identified three objectives in this area of the law which I suggest still hold good. They were: first, to penalise and deter the dishonest debtor; secondly, to assist the honest and perhaps unfortunate debtor to rehabilitate himself and his dependants; and, thirdly, to distinguish those two categories for the benefit of the trading community. The Blagden Report suggested that practical experience showed that the law failed badly in all those primary objectives.
The statistics have already been mentioned to your Lordships. Last year was a record year for insolvency. I hesitate to join in criticising the mathematics of the noble Lord, Lord Bruce of Donington, and perhaps it does not matter, but I think he said there were 6,000 bankruptcies last year. I am told that there were 8,000. For example, yesterday 200 companies were listed in the High Court for undefended winding up. That is a typical, if rather light, Monday morning's list in London alone.
914
Those statistics are a symptom of the economic state of the country. They are a symptom of the growth of dependence by businesses and by individuals upon credit, at all levels of society. The idea "Never a borrower nor a lender be" has become as outdated as the propositions of Mr. Micawber. A modern-day Micawber would be seeking credit facilities to deal with his temporary cash flow difficulties.
I would also suggest that the statistics are a symptom of the failure of any Government to implement the recommendations of the Payne report in 1969 for a rationalised debt enforcement body and debt counselling service. The fact is that bankruptcy is one of the blunter instruments of debt collection. At one extreme, the unscrupulous creditor can threaten his debtors with the stigma of bankruptcy. At the other extreme, the unscrupulous debtor can use the threat of the proverbial penny in the pound to stave off his creditors. Distinctions have therefore to be drawn. The statistics do not conceal only dishonesty or folly: they conceal also disappointments and frustrated hopes. Not all failures are blameworthy, and not all the blameworthy are criminals, or at least can be proved to be criminal. Indeed, not all of their dependants know what is going on, or benefit at the expense of the bankrupt's creditors.
A cynic has observed that if you go "bust" for £700 you are probably a fool, if you go "bust" for £7,000 you are probably in the dock, and if you go "bust" for £7 million you are probably rescued by the Bank of England. That leads me to suggest that we must consider the less able creditors who themselves can be pushed to the limits of solvency. In practice, I suggest that this must mean setting the level of fees and deposits for small creditors in insolvency proceedings at a reasonable level so that they do not feel that they are risking good money after bad. It is still, the position I think that it is cheaper for a creditor to give his debtor the necessary fee to present his own petition in bankruptcy than to pay the higher fee for presenting a creditor's petition.
Another way of assisting the smaller creditor, as many of your Lordships have observed, is by reducing, without removing, the status of the Crown in its various manifestations as a preferential creditor. If your Lordships look at Schedule 5 to the Bill, you will see that betting and bingo tax come before the butcher and the baker and the innocent consumer. It simply cannot be right. The Crown is untroubled by the payment of fees to commence proceedings. It is able to proceed in London, unlike other creditors, wherever the debtor or those creditors may live and however inconvenient it may be. And, of course, it has the preference to which I have already referred.
Very often the modest trade creditor has only one incentive in proceeding at all, and that is to get value-added tax bad debt relief. It is possible, in my submission, to devise a structure that does not remove the incentive to the powerful creditor and yet does not drive away the smaller creditor and prevent him pursuing his proper remedies. The Cork Committee provided a comprehensive package: this Bill is selective. I would respectfully echo many of your Lordships' remarks that the Cork report was a remarkable report and that its recommendations were clear. I would suggest that there is a heavy burden on

915
the Government to justify any departure from the recommendations of the Cork report. I would also agree that the Bill provides far too much for sub-ordinate legislation. Even the Rules Committee, as the noble Lord, Lord Hutchinson, observed, has been demoted and emasculated, if that is the appropriate phrase to use in respect of a Chancery judge.
I agree with some of the criticisms of the wording of the clauses dealing with delinquent directors and wrongful trading. I join in congratulating the noble Earl on his clear and interesting maiden speech in this respect. It is right, I suggest, that there should be an automatic and mandatory disqualification of directors which does not depend upon their criminality, or upon their being involved in more than one liquidation, or upon the Official Receiver taking the initiative. One has to remember that there is a menace to the public not just from the crook but from the technically honest, over-confident entrepreneur who soldiers on in the belief that he can trade his way out of the financial mess into which he has got himself or that somehow or another his ship will come in. He goes on robbing Peter to pay Paul, or, in modern jargon, robbing Nigel to pay Nigel; in other words, paying his national insurance at the expense of value-added tax or his value-added tax at the expense of income tax. I would go further and say that the burden should be on the disqualified director, once disqualified, to show that he is fit to be allowed back into the commercial ring.
The other side of the same coin is the personal liability of directors. It is right that there should be a higher degree of personal liability on those who use corporate vehicles. The original theory, as the noble and learned Lord, Lord Denning, observed, was that companies were independent bodies that could outlive their members. That has been overtaken in practice by the members of companies creating and killing them off with ease, to the detriment of creditors. The separate but similar theory of limited liability of the members of a company as a means of assisting commerce is of no use at all where the company's liability is more limited still. Companies are bought off the shelf for a few hundred pounds and other people's money is too easily removed offshore. Again, I respectfully agree with the noble Lord, Lord Bruce of Donington, that basic book-keeping is often overlooked. One comes across that all too often in practice. To use the vivid expression of one wise judge, "People cling modestly to the corporate veil as if it concealed some closed monastic order, vowed to silence and poverty".
The same principle must also apply to the abuse of the corporate group; in other words, where a holding company hides behind some under-capitalised subsidiary. These problems only add to those of the consumer who falls foul of the unincorporated trader operating behind some uninformative name such as "A and B Builders". The difficulties of the consumer in that respect have become all the more difficult since the repeal of the Registration of Business Names Act.
I turn to a few more parts of the Bill. I welcome the re-casting of Section 42 of the Bankruptcy Act and Section 172 of the Law of Property Act into modern language. It has been very difficult to grapple with them in the past. I welcome Clauses 84 and 153, which
916
enable the court to set aside or vary extortionate credit bargains. Those clauses are borrowed from Sections 135 to 139 of the Consumer Credit Act. The problem of course is in the definition of the word "extortionate", because it is not enough to show that a rate of interest is exorbitant. It has to be shown to be grossly exorbitant. A further problem in this Bill is that, unlike the Consumer Credit Act, the burden is not on the creditor to show that his rate of interest is not exorbitant. I look back with some nostalgia to the Moneylenders Act and the presumption against interest in excess of 48 per cent.
Finally, may I turn to a matter which has not been touched on by any of your Lordships; that is, the interaction of matrimony and bankruptcy. I do not suggest that one inevitably leads to the other, or vice versa. In a typical case of course the main asset is the family home. It is needed by the family and by creditors alike. By the law in its present state the creditors almost invariably prevail, however sympathetic the trustee in bankruptcy and however sympathetic the court. The impact of bankruptcy can be devastating on the home and family, and the courts have none of the flexible and powerful powers which they have on divorce. The wife and even small children can be lucky if they get a few months' grace before they have to give up possession. The wife will retrieve only what she can prove to be her strict beneficial interest. Children in these circumstances often suffer a double loss, because if there is a divorce they lose their father and then shortly lose their home, and it can be at a critical time in their education.
The Cork Report, at paragraphs 1114 onwards, in a carefully reasoned and compelling passage, put forward proposals for the postponement in appropriate cases of the creditors' interests to those of the dependants of the debtor. Typically that would be until the children reach their majority or until the wife remarries or cohabits or goes off elsewhere. Of course it has to be an appropriate case. Commercial creditors can bear this postponement. Of course it is without prejudice to the powers of the court to set aside wrongful dispositions to a wife. Of course it should only be a postponement in the interest, and of course interest should accrue. I would suggest it should be encouraged in cases where payments to the creditors can be made out of income in the meanwhile.
It is a great misfortune, I suggest, that the Cork Committee's recommendations in this area have not been adopted in this Bill, and I would urge the Government to look again at those paragraphs of the report to bring this country in line with other common law jurisdictions. To disregard Cork in this area would be to waste a valuable opportunity for important law reform. Subject to those observations, I join in giving a qualified welcome to this Bill and urge that there should be some constructive amendment.
6.13 p.m.
Lord Mishcon: My Lords, I apologise to the noble Lord, Lord Meston, if I somewhat prematurely endeavoured to carry out my task of winding up this debate on behalf of the Benches which I proudly occupy. In winding up I shall do my level best to deliver a speech which will completely satisfy the noble Lord, Lord Mottistone, if for one moment he

917
would agree to accept these words from me. He obviously is not so prepared, because he is discussing a very weighty matter with somebody else. I was just telling the noble Lord—and I thought that he would smile back at me—that on this Bill, which has no politics in it, I was endeavouring to make a speech which would wholly satisfy him.
Insolvency is not a very thrilling or amusing subject, and I thought that your Lordships would agree with me if I observed that it would only be somebody like the noble and learned Lord, Lord Denning, who could turn such a dull subject into a matter of complete and absolute pageant. The way in which he illustrates the points that he makes, with such lurid recollections of cases that came before him, in that magnificent and individual style of his, is always a delight to your Lordships.
I must from these Benches—it is the first opportunity anybody has had from these Benches —congratulate the noble Earl, Lord Buckinghamshire, on his very welcome speech.
Perhaps I may try to summarise what we have been discussing this afternoon. It has been a very interesting debate, and like all of your Lordships I want to pay my tribute to the Cork Committee, to the 11 members of it who sat through innumerable sittings, and the three gentlemen who I notice were invited to attend those meetings because of their very special qualifications. We have before us a report of some 460 pages, described by others of your Lordships as a memorable report. As has already been said, your Lordships will want to know with very clear reasoning why and where the recommendations of this committee, which sat for so long and so arduously, and which made its recommendations with very valid logical reasoning and experience behind them, are varied from or not indeed included in any way in this Bill.
The background of the Bill is 100 years of a history of this subject, which has not been looked at by the Legislature with any amount of reforming zeal. After that time, as the noble and learned Lord, Lord Denning, said, we have got to go back to a picture of limited liability in this day and age which is so different from the time when limited liability was first thought of. There were then companies, few in number, where it was thought that it was right and proper that people should venture into trade without a personal liability. But nobody then envisaged the welter, the millions, of limited companies which would grow up and possibly the only object of which was endeavour to evade liability, which was never the object of those who first conceived the idea of limited liability.
And so we at once, in trying to face these problems, looked at the Cork Report with the greatest of interest. We found that the first evil that they thought they had to deal with was the question of the liquidator who was either not worthy of being a liquidator because he was acting in a very dubious capacity, or who did not have the competence to do so, even though there was no evil in his mind. Your Lordships, I know, will have welcomed the suggestion that there should be qualification attached to the job of liquidator. I am hoping, quite obviously, that that qualification will be automatic in regard to the profession to which I have the honour of belonging, and automatic, too, for the recognised bodies of accountants.
918
I hope that, in another respect, the qualified surveyor will not be forgotten, because very often in a case of receivership, in particular where it is merely a question of realising property or advising on property, there is no earthly reason why a properly qualified surveyor should not at least be regarded as a proper person to serve as a receiver, and possibly even in some cases as a liquidator.
Then the Cork Committee obviously went on to consider a matter of great concern to the nation. I might almost describe it as involving the "Checkpoint" cases, which have horrified the public and where it is obvious that swindling of the worst possible order has taken place by what have been described as the phoenix companies. I think the committee has done a very thorough job here. I do not know why the Government departed from its recommendations.
I at once turn of course to the problem of the automatic disqualification of directors. Like the noble Lord, Lord Hutchinson, I do not like automatic penalties unless they have to be invoked. I should not necessarily have agreed with him about the drunk-in-charge case, but nevertheless I do want to take up the question of the disqualification of directors.
There are three things wrong, as I see it, with the provisions in this Bill on disqualification. First of all, the Cork Committee dealt with the question of disqualification on a mandatory basis and on a discretionary basis. I shall not take up your Lordships' time in repeating what they have said. However, I invite your Lordships to look at the way in which they dealt with that matter at page 409 of their report. I thought that they did so in a very just way: where certain things had gone dreadfully wrong, that could be proved mandatorily; where there was some doubt about it, the court had to exercise a discretion.
Quite apart from the points that have been raised so eloquently by Members of your Lordships' House as to the discouragement that there might be in certain circumstances—especially to the non-executive director who is very often valued in a company because of his specific experience but who is not required as a rule to take a very active part in the conduct of the company—it really is and must be wrong for someone to be disqualified automatically for a fixed period of three years, regardless of whether or not it is a most serious matter in respect of the conduct of the company's affairs so far as he is concerned, or whether it just borders on the fact of meriting disqualification. There is just a fixed period of three years which cannot be varied.
Quite apart from that, I am trying to envisage the procedure during the period of the three months' suspension whereby a perfectly decent, honourable director tries to get rid of this automatic disqualification. Anyone who knows the justice of our courts will know that every opportunity must be given for an investigation of such a serious matter. The lists in our courts are crowded. How long is such a procedure to take before a man knows whether or not the disqualification is to be lifted? Where is the Government's suggestion—if that is what they have in mind—for some sort of summary, but completely just, procedure? There is nothing about it in the Bill.

919
Therefore, if the ordinary court procedures are to be adopted, I venture to think that this cannot be a just way in which to deal with the matter and that Cork is very much better.
Finally, on that point, I cannot for the life of me understand why it is that somebody who is a director of a company that is compulsorily wound up is subject to an automatic disqualification; whereas someone who is a director of a company wound up because of a creditor's voluntary liquidation is not subject to an automatic disqualification. I do not understand it. I can only say that, in the course of some experience professionally without being a specialist in this field at all, I can think of most dreadful cases which have ended up with a creditor's voluntary liquidation. I can also think of some perfectly innocent cases which have ended up for some reason as a compulsory or as a court liquidation. It sometimes happened that although everybody else agreed that there should be a voluntary liquidation, there was a persistent creditor who could not give any reason for it but who said, "I am going for compulsory liquidation. I do not like the look of this board and I do not like the fact that I have lost my money. I am going for a compulsory liquidation". In the old days especially, if I may be learned for a moment, the court would say, "Ex debito justitiae you are entitled to a compulsory order". So much for the question of disqualification.
As regards the question of wrongful trading, I must say that I do not know why the Cork Report's definition of "wrongful trading" has been departed from. I personally prefer it to that which is in the Bill, but that may be a Committee point. However, I do consider that the following point should be raised at Second Reading. Why is it only the liquidator who can apply for this personal liability? The liquidator may for some reason—possibly lack of funds—not want to do it. Why should not an ordinary creditor be able to apply for this, if necessary with the leave of the court, showing a prima facie case, so that it is not used for blackmail purposes?
I should like to move on rapidly to the various points that have arisen in the debate. I must say that there appears to have been expressed—and I believe that this is the view of the noble Lord, Lord Mottistone, with whom, as he has noticed, I agree, and I think it is the view of everybody on the various Benches who has dealt with the question of preferences—some worry about the fact that the Government appear to be clinging on to their present rights in spite of the fact that other countries have decided not to do so. The Cork Report deals with these matters on pages 320 and 321—and again I shall not quote them—in a very reasonable way.
As regards the question of the floating charge, I must quote from page 336 of the report because I think it worthy of appearing at all events in your Lordships' Official Report on the Second Reading of this important Bill. The first case that really decided the question of the separate identity of the individual from the company, to which the noble and learned Lord, Lord Denning, referred, was the famous case of Salomon v. Salomon & Co., in 1897. The great Lord Macnaghten delivered of himself the following words in Salomon v. Salomon & Co., in 1897:
920
"I have long thought, and believe some of your Lordships also think, that the ordinary trade creditors of a trading company ought to have a preferential claim on the assets in liquidation in respect of debts incurred within a certain limited time before the winding up. But that is not the law at present. Everybody knows that when there is a winding up debenture holders generally step in and sweep off everything: and a great scandal it is".
If a great scandal it was in 1897, it has not lost its quality of being scandalous in 1984.
The Cork Committee suggested that this fund of 10 per cent. out of the assets realised by the receiver for the debenture holder ought to be there for the unsecured creditors so that the liquidator has something by way of costs in order to pursue whatever remedies he thinks he has (it may be against the receiver himself or generally) and there is something left for the unsecured creditors. The Government were wrong in omitting that recommendation from their Bill.
I must have mercy on your Lordships at this time of the evening and shall therefore rapidly make merely two points and then sit down. The first point I want to make is how correct it is to have endorsed the Cork Committee's recommendation about the administrator procedure and how helpful I hope that that will be in rescuing many worthy companies from disaster.
The second or final point I make is not quite so much in praise of the Government. I do not understand—and I say this deliberately—the penal way in which a director of a company, when it becomes insolvent if it is a compulsory winding up, is treated by the Government in this Bill, and the absolute kid glove method of dealing with individual bankrupts who may be just as guilty in regard to their bankruptcy and cause just as much hardship as any limited liability company can cause. I do not understand this business of the automatic discharge after three years, provided that in the bankruptcy itself there has been no breach by the bankrupt of what he ought to do. Again, along with the Cork Committee, I think that there ought to be the procedure that we have at present of an application for discharge. If the bankrupt does not make it, then the court itself considers the position after five years. Why should there be an automatic release so that once again other people can he owed money which is not paid to them? In many of these cases they are little people and they are subjected to the gravest disadvantages by the behaviour of individuals just as much as they are by companies. In concluding my winding up, of course I say along with others that there is much good in this Bill; it is not so good where the Government have not followed the Cork Report.
6.30 p.m.
Lord Lucas of Chilworth: My Lords, first may I thank all noble Lords who have contributed to this afternoon's debate on the Second Reading of this important Bill? Seldom have I been able to take part in a Second Reading debate which has been so full of accord, if I may put it that way. Neither have I had the opportunity before at a Second Reading of being able to congratulate a maiden speaker, and I congratulate my noble friend Lord Buckinghamshire on his spech to us this afternoon, although I have to tell him here and now that I could not agree with quite a lot of what was contained in that speech.

921
We have considered four major themes in the Bill before us. They included the provision first to curb the unprofessional activities of insolvency practitioners by introducing a system requiring all those acting in this capacity to be professionally qualified and/or licensed. Secondly, we have considered curbing the continued abuse of the privilege of limited liability by directors and others, and encouraging directors to take very much earlier action when financial or other difficulties loom in the affairs of a company.
Thirdly, we have discussed placing a greater emphasis on business rescue by introducing the concept of the company administration procedure and by reforming company receivership law. Lastly, we have considered how to simplify and reform both personal and corporate insolvency procedures so that they work more smoothly and reduce some of the demands on the courts and the insolvency service.
We have had a wide-ranging and interesting discussion on the objects of the Bill. Clearly there are a number of areas which we shall have to discuss in much greater detail at a later stage. I would give the noble Lord, Lord Bruce, the assurance he implicitly sought in his opening remarks when I noted down, "Yes. The Government will view quite sympathetically any suggestions that may be advanced for the improvement of this important piece of legislation".
The first of the themes we discussed was that of the insolvency practitioners. The Bill provides that the practitioners will in the future be professionally qualified or licensed by the Secretary of State for Trade and Industry. Questions have been raised about the arrangements for certification of those currently with experience and those who obtain sufficient experience in the future. I have listened carefully to your Lordships' submissions on this point. May I take this opportunity of assuring your Lordships that the requirements proposed will provide adequate arrangements for such persons.
The noble Lord, Lord Bruce, and the noble Lord, Lord Mishcon, both mentioned the classes (if I may put it this way), of persons who may become insolvency practitioners. I am sure that the noble Lord, Lord Bruce, will be aware that discussions are taking place with the accountancy bodies and the Law Society on who should be able to act as a practitioner. There will also be discussions with other interested bodies before any final decision is made. On the specific point that the noble Lord, Lord Mishcon, made with regard to a qualified surveyor acting as a receiver, he will know—and I merely underline it—that they usually act as receivers on behalf of debenture holders holding a fixed charge on real property. They still will be able to do so because insolvency practitioner provisions would not apply to appointments such as that.
I am tempted to spend some little time on this section of the Bill under the heading of disqualification and wrongful trading because this has, perhaps not surprisingly, dominated most of this afternoon's discussions. Again I listened carefully to everything that has been said about the new régime. It is interesting because particularly outside Parliament it has been said with force on both sides that on the one
922
hand we are not doing sufficient to curb abuse by directors of limited liability, and on the other hand that we are being too harsh.
In all the conversations and consultations we have had over many months now what we have tried to do is to secure an acceptable balance between these considerations. I believe—and I put it quite sincerely to your Lordships—that the provisions before your Lordships today strike that balance. The Bill avoids imposing on directors a régime which would actively discourage legitimate commercial practice, and yet it strengthens the law to curb serious abuses of limited liability. The noble Lord, Lord Aylestone, recounted a story—and indeed others have done so—about that. I want, if I have the opportunity, to turn specifically to those points a little later on.
What one has to accept is that voluntary liquidation does not necessarily exonerate a bad director. I think the point the noble Lord, Lord Mishcon, made was that all he had to do was go into voluntary liquidation and he let himself off the hook. That is not so, because the concept of wrongful trading then comes in and the receiver, or the liquidator, who then has sufficient grounds to believe that that is what that director took action specifically to avoid can petition the court and that director would get, as it were, his just deserts.
Lord Mishcon: My Lords, I know that the noble Lord will not expect me to interrupt very often, and I promise not to do so. But he is referring to a point that I am supposed to have made which was not the point that I made. The point I made was in the differentiation that he makes between a voluntary and a compulsory liquidation. Why should the director of the voluntary liquidation company be free from these provisions whereas the director of a compulsorily wound up company is subject to them? That was my point.
Lord Lucas of Chilworth: My Lords, I obviously have not expressed myself very well. What I am saying is that a director of a company which goes into voluntary liquidation does not necessarily escape the penalties that the director of a company going into compulsory liquidation, or compulsory wind-up, may face. We may debate this further later; but I hope that on reading what I have said the noble Lord will appreciate the difference.
I do not share the view that has been expressed today on this automatic disqualification. The Bill provides grounds for directors and others to avoid the automatic disqualification. Obviously there will be some shift in emphasis of attention that directors must pay to the fulfilment of their duties. That is more likely to be beneficial than harmful.
We have discussed the business rescue scheme, the third of the Bill's themes concerning the increased emphasis to be given to rescue. The Bill introduces the new insolvency mechanism, the company administration procedure. I was glad that the noble Lord, Lord Mishcon, welcomed this without reservation in the brief remarks that he made this evening, contrary to the comments that my noble friend Lord Buckinghamshire made with regard to this, because he suggested that as soon as an administration manager had been put in, doubts would creep in with

923
customers, with suppliers, and so on, as to whether the company was good, and whether the company was able to continue. I am suggesting that for all those people there is a much greater chance of the company continuing rather then either going into voluntary liquidation—in which case there may not be much hope of it continuing—or waiting for a compulsory wind-up, in which case the company has gone. So it is, as it were, a third strand. I believe it will be a very valuable addition. We will be examining later in our consideration of the Bill the procedure for this new strand and I am sure that we shall be able to identify some refinements.
The provisions on company receivership have two aims: primarily to improve receivership as a business rescue mechanism by adding to the administrative receiver's powers, and to improve the administrative receiver's accountability as well as to clarify the extent of his powers and duties.
Finally, the Bill implements a substantial number of the review committee's recommendations in relation to the detailed procedure of insolvency law. Secondary legislation, which will appear in due course, will be a more suitable vehicle for such matters. That will do even more in that direction. Procedures common to both winding up and bankruptcy have been harmonised wherever the intrinsic nature of the codes does not make this impossible to achieve. More than anything else in this context the Bill provides a complete up-to-date legal framework for bankruptcy expressed in modern language which is capable of being understood by the lay person as well as the expert.
I want now to touch on some of the main points of comment this afternoon. The noble Lord, Lord Bruce, spoke about failure to provide a 10 per cent. fund for unsecured creditors. My understanding is that Sir Kenneth Cork commented on his committee's recommendation that he saw that 10 per cent. fund as being more of a fighting fund for the benefit of unsecured creditors rather than a fund for distribution, because if it went in that way there would be little to stop those who can secure their indebtedness from so doing by a fixed charge. So we did not think that idea was so good.
The noble Lord, Lord Taylor of Gryfe, and also the noble Lord, Lord Bruce, spoke about the consumer creditors—the pre-payments. The Government are aware of the concern felt by many people about the treatment, following insolvencies, of these kind of payments. The review committee consider that the provision of credit in this way was not appreciably different from other forms of credit. We agreed with their conclusion that there should be no difference in the position of those making advance payments and other unsecured creditors. The introduction of a much tougher régime of disqualification for delinquent directors, together with greater responsibility for making them personally liable for their companies' debts (particularly through the wrongful trading provisions) will reduce the likelihood that consumers will lose their money in future. Our view that the remedy does not lie in specific legislation is supported by the Director-General of Fair Trading. In his recent discussion paper on the subject he suggested that the
924
answer lies probably more in increased public awareness of the risk and wider adoption of voluntary schemes such as that operated by ABTA.
The noble Lord, Lord Aylestone, and other speakers referred to disqualification and relief particularly for what he described as protection for the company doctor—the expert who has gone in to help. I think that there is a misconception here. We shall obviously return to it in Committee. But the relief provisions outlined recognise that there may well be situations when a director is unable to prevent a company going into compulsory liquidation particularly where he has only recently joined the board and the information given to him initially has proved to be inaccurate. The Bill therefore grants relief to those joining the board within three months before the relevant day. It may be argued that to grant relief to those joining the board only three months before that date does not give a person adequate or reasonable time to acquaint himself properly with the company's financial position. But I am sure that this will be dealt with when we discuss the matter in Committee.
It would be wrong to be over-generous and to allow people to take on directorships without having to consider carefully beforehand whether the company's activities are and will continue to be viable. After all, if these people are so-called company doctors, so-called experts, it does not take them very many days of investigation before they join the board to appreciate whether there is an opportunity of rescue or not. They can then make their choice. I do not believe that this will inhibit those who really want to help a company, whether it is in difficulty or not.
I felt that I would leave the remarks of the noble Lord, Lord Taylor of Gryfe, and my noble friend Lord Buckinghamshire with regard to the provision in Scotland, to my noble and learned friend to deal with when we reach that stage during the Committee proceedings. I also add my thanks to the extremely interesting—and I do not wish to be flippant to the noble and learned Lord, Lord Denning—and humorous way in which he gave us his views of the Bill. I was glad to have his endorsement. I took the point of Crown preference made by himself, the noble Lord, Lord Milne, and others. I feel that it would be perhaps better if we left that to the more detailed discussion which will undoubtedly occur.
The noble Lords, Lord Hutchinson and Lord Bruce, raised the subject of what are called the rules. There was some small misconception here on the noble Lord's part. The Insolvency Rules Advisory Committee, which was set up under the Insolvency Act 1976, has recently completed a comprehensive review of the present rules and the new rules using the results of that review as a working base. These will now be produced and duly vetted by the advisory committee to complement the contents of the Bill. The general power of review which is removed from the Committee by Clause 194 of this Bill is therefore now superfluous as, once the new rules are produced via the committee, they are expected to stand without substantial amendment for many years to come. In addition, when those rules are made, they will, in accordance with Clause 87(3) and Clause 184(3), be subject to the scrutiny of Parliament. That is not the case under the present arrangements.

925
The noble Lord, Lord Hutchinson, and others also suggested on the point of automatic disqualification and wrongful trading that this was far more likely to push companies into early liquidation. I do not believe that this is so because one of the Government's major objectives in the Bill is to encourage the company director to take a closer interest in the company's affairs and to identify and tackle problems at a much earlier stage. The board which does this will be able to examine a number of options: the very last option would be that of liquidation. I do not think that there would necessarily be the question of pushing them into it.
Perhaps I should conclude by reminding the House that the intention of the Government is to strengthen the body of insolvency law so that insolvency is handled by properly qualified and experienced people. Those who abuse the valuable privilege of limited liability will be detected and will receive their just deserts there. A further aim is to bring this legislation up to date to simplify the associated procedures. Finally, we propose to modify the statutory provisions regarding receivership. We also intend to establish a new insolvency mechanism, company administration, specifically designed to prevent unnecessary loss of viable businesses in whole and in part. Everybody who has spoken has given a welcome to the Bill and it would seem only necessary for me formally to ask that your Lordships give this Bill a second reading.
On Question, Bill read a second time, and committed to a Committee of the Whole House.

Betting, Gaming and Lotteries (Amendment) Bill [H.L.]
6.51 p.m.
Lord Newall: My Lords, I beg to move that this Bill be now read a second time.
This rather modest Bill which I am promoting is designed almost exclusively to assist the present declining fortunes of greyhound racing. The Bill will endeavour to do two things; namely, to deregulate both greyhound and horse racing from the present restrictions on the number of betting days it can be held in the licensing year. Greyhound racing is presently constricted to 130 days and horse racing to 104 days. Greyhound racing also must notify the racing authority 28 days in advance of the month when racing is due to take place and not more than 14 such days can be held in a month. Horse racing does not have this particular restriction. It is also intended to legalise carry-forward pools in greyhound racing on lines similar to those currently operating in horse racing.
The House may remember that in 1980 I was able successfully to promote another Bill for greyhound racing which increased the number of races at race meetings and also increased the number of special betting days. At that time negotiations had not been held with the Home Office concerning these two further points which are now before the House in this Bill. However, consultations have been taking place with the Home Office, and their help is very much appreciated.
926
Before I refer to the detailed provisions of the Bill I thought that I should outline to the House the current problems affecting greyhound racing. It is still the second largest spectator sport in the country after soccer, attracting annually some 4½ million patrons. It has an on-course betting turnover of £230 million, but 75 per cent. of this is with the on-course bookmakers, and £600 million is bet off the course.
Greyhound racing must operate as a commercial enterprise because it does not receive any subvention by way of off-course levy, as is the case with horse racing. It is the permitted percentage from the greyhound totalisator, currently fixed at a maximum of 17½ per cent. by order made by the Home Secretary, which, together with profits from admissions and catering, form the main source of revenue to a greyhound operating company.
The fact that the maximum permitted percentage is now so high possibly reflects the inflation which has occurred over the last 16 years, since it was first increased in 1969 from the then 6 per cent. Too high a deduction from the greyhound pools (now 21½ per cent., which includes the 4 per cent. on-course general betting duty) is making betting with the tote unattractive and patrons are turning more and more to the on-course bookmakers, who contribute nothing to the running of the tracks and stadiums. The amount which the bookmakers pay for the right to make their books is limited by statute to merely five times the admission charge for the enclosure in which they operate—a farcical state of affairs which, I am pleased to say, the bookmakers are now beginning to recognise. But until it is changed they are on the pig's back. Perhaps in another parliamentary Session there may be an opportunity, with the consent of the Government, for a further Bill to be introduced to amend Section 18 of the Betting, Gaming and Lotteries Act 1963 by way of an agreed amendment.
I do not know how many noble Lords have gone to the dogs; it is not public knowledge. But before I elaborate on how dog racing can be helped by my Bill, perhaps it is worth touching on the social importance of our sporting events in society. It is common knowledge that opportunities for leisure activities are increasing all the time during the passage of our lives. It must, therefore, be sensible to try to maintain and improve our existing sporting facilities, which have provided entertainment for a large number of spectators for many years. Greyhound racing has suffered adversely from the legalisation of the betting offices in 1961 and, as I have said, it was not given the protection of an off-course levy at that time in the same way as was horse racing.
In addition, greyhound racing was singled out for special taxation from 1948 to 1966, independent of all other betting sports which were not similarly taxed. The pressure on greyhound managements to redevelop their race courses for other purposes, such as supermarkets, is now immense because the current return now being obtained from the promotion of greyhound racing and other associated sports is insufficient for their capital assets.
The Government have done well out of greyhound racing by way of its revenue from taxation, but if this Bill were not to proceed, there can be no doubt that

927
greyhound racing would cease as a national spectator sport within two or three years and the Government would lose approximately £8 million per annum. If this Bill is acceptable to Parliament, then the Government can at least be assured that the revenue will by and large be retained.
I shall now turn to the detailed provisions of the Bill. Clause 1(a) removes the present restrictions that carry-forward pools cannot be operated at a greyhound track. All pools must currently be completed by the end of the meeting, and this clause will now remove that prohibition. This is an enabling provision, as the Home Secretary will need to make new regulations to provide for these new pools. It is no different from the jackpot and what goes on in horse racing. Subsection (b) provides that when a pool is carried forward the appropriate deductions for both the allowed percentage and the on-course general betting duty shall be made from the pool before the net units then remaining are transferred to the next meeting.
Subsection (c) is merely a procedural amendment and provides for notification to the accountant who is appointed at each race meeting by the licensing authority whenever the totalisator is being operated. Subsection (d) relates to a further sophistication of the carry-forward pools in that multi-venue pools could be established so that if they are not won at track A, they could be transferred to track B by consent. In that case the totalisator accountants will be the authorising persons in relation to the transferring of the necessary units from track to track. There is no difference from horse racing in this suggestion; it is already happening there.
Broadly speaking, there are three types of pools which the British Greyhound Racing Board have in mind. There are the carry-forward pools, which would be operated at a race course on a single race or a series of races, and, in the event of no winning bets, a pool carried on to other meetings at the same race course until such time as the pool is won; the multi-venue pools, which would be an extension of this, with the idea of carrying forward the pools to another race course on one or more races and on further race courses until the prize was won: and, lastly, inter-track pools, which would be a device to enable racegoers at other tracks to make bets on to the track where the inter-track pool is being operated. If, for example, a punter at Newcastle wished to place a bet on the Greyhound Derby at Wimbledon, he would be able to have his bet transmitted by landline to the tote at the London track. Horse racing has the equivalent already.
In the case of all these carry-forward pools, the appropriate deduction for betting duty and operating expenses would be made and extracted before the pool was passed on to the next meeting. At the next meeting, or at the next racecourse, deductions would only be made on the extra money added to the pool at that meeting. On each occasion the tote accountant, who is appointed by the licensing authority, would certify the net amount of units to be carried forward and the pools would then operate in accordance with the statutory regulations.
I think I should mention that at the present time the Dog Racecourse Totalisator Regulations, which were
928
amended in 1967, provide for a very detailed supervision over the construction and operation of the greyhound totalisator. In addition, an accountant and a skilled mechanic are appointed by the licensing authority, who are able to ensure that at all times the totalisator is operated correctly. It is not intended in any way that these arrangements should be amended in any form, and, indeed, the greyhound racing fraternity wants them to continue. It is very much hoped that carry-forward pools will appeal to patrons in order to bring them back from the betting offices to the tracks—because these pools would be operated only on the course and it would not be possible for off-course betting offices to participate in them. Eventually the 1967 regulations will, it is hoped, be amended to incorporate provisions for these new types of pools, and be related to the use of the computerised technology which is now available. Many of the totalisators currently in operation are out of date and need to be replaced by more modern equipment, which is much easier to obtain and gives more detailed information to the accountants and the management.
Clause 2 is basically a repeal measure in order to achieve the deregulation of the sports of greyhound and horse racing. At the present time it is felt that local managements should have more flexibility to decide when race meetings will take place, having regard to the wishes of their local patrons. For instance, seaside tracks such as Yarmouth and Brighton will be able to race more times in the summer and fewer times in the winter period to suit their local arrangements. The present statutory restrictions prohibiting racing on Sunday, Good Friday and Christmas Day will still operate. Perhaps I should mention also that the Royal Commission on Gambling stated in its final report that, as opportunities for betting were now available universally from licensed betting offices, the case for abandoning restrictions altogether was now a real one, especially as they felt that only a few more meetings would be held because demand would not sustain them.
With regard to horse racing, the amendment now proposed is to remove an outstanding anomaly no longer required, particularly if the Bill is successful for greyhound racing. There is no point in retaining on the statute book a restriction which is not used because, as is well known, horse racing does not take place on a continual basis at any racecourse in Britain. As the House no doubt realises, statutory restrictions governing the operation of greyhound racing were first laid down in the Betting and Lotteries Act 1934 and are still in continuance at the present time, save only where they have been amended by private measures such as this Bill. Greyhound racing is a very well organised and well conducted sport, and it does not incur any difficulties with its spectators such as occur in other activities.
Before ending, perhaps I should stress that Clause 1 is only an enabling provision to allow some flexibility of betting on tracks, to counteract the imbalance in favour of betting in shops. It is hoped to encourage more people on to the tracks, where the whole family can be catered for with good amenities and excellent meals. Horse racing already has these facilities, so why deny them to greyhound racing? The principle is not new, and so the consequences are easily foreseeable.

929
Without Clause 1 betting shops will win, greyhound racing will die, and both bookmakers and Government will lose a large slice of revenue. So I hope the House will understand the need to assist greyhound racing. I beg to move that the Bill be now read a second time.
Moved, That the Bill be now read a second time.—(Lord Newall.)
7.5 p.m.
Lord Westbury: My Lords, I should like to congratulate my noble friend Lord Newall on introducing this Bill at such an appropriate time. When many horse racing fixtures have had to be abandoned due to the arctic conditions we are experiencing, the fortunes of the nation's punters are at present resting heavily on greyhound racing.
Speaking on behalf of the Jockey Club, of which I am a member, I wish this Bill a successful and speedy passage. However, for those Members of your Lordships' House who have not had a chance to study the full implications of the Bill, perhaps I should point out that although the Bill includes a provision to remove restrictions on the number of days in which horse racing may take place, it is actually of no great importance to the horse racing industry at this moment. The present restrictions mean that racing can take place on only 104 days in any one year at any one racecourse. As your Lordships will appreciate, the maximum number of fixtures which any one race course holds in a year is about 30—nowhere near the present limit of 104 days.
However, we should always be prudent and look to the future, and there may come a time (not in my lifetime, I hope) when, if we switch from turf to dirt tracks, we might conceivably wish to exceed the current restriction of 104 days. I therefore know that I speak on behalf of the stewards of the Jockey Club in supporting this Bill.
7.7 p.m.
Lord Mancroft: My Lords, I should like to thank my noble friend Lord Newall for the extremely able way in which he has introduced this modest little Bill to your Lordships' House, coming once again to the aid of the greyhound sport, as he did so successfully some four or five years ago. I hope he will meet with equal success tonight. I should also like to thank my noble friend Lord Westbury for his support on behalf of the Jockey Club.
Before I explain to your Lordships why I welcome this Bill, I must of course declare an interest. I am, and have been for the past eight years, the chairman of the British Greyhound Racing Board, in which position I succeeded my noble friend Lord Ward of Witley, who I am glad to see in his place here this evening. This board is the controlling board of the whole of the sport. It represents all branches of the sport. It is democratically elected, and I hope, therefore, that I can be heard to be speaking on behalf of the sport generally.
The noble Lord, Lord Newall, mentioned attendance figures of four-and-a-half million for the last year. It is that which worries me and causes me to tell your Lordships about my worry. I am seriously worried—and my colleagues are, too—concerning the
930
future of the whole of this sport. When I first took an interest in it, in the 'fifties when I was first an owner—and, I am happy to say, a successful owner—the attendance was 25 million a year, and now it is four-and-a-half.
If I may, in a moment I shall give your Lordships my thinking as to why that decline has occurred, but I should like to remind your Lordships of what the effect would be if that decline continues, as I fear there is a risk it may, and if the noble Lord's pessimism proves correct, as I fear it also may. First, there will he a loss of jobs in the sport. Secondly, we shall be depriving a large number of decent, ordinary people of their favourite sport. It is, as your Lordships now know, the second spectator sport in the country, after soccer. Unlike soccer, it is a respectable sport. Bottles are not thrown about; grandstands are not pulled down; and you very seldom see a policeman at a greyhound track. The reason, of course, is the very strict standard of stewarding which we insist upon in the sport and which the sport likes to have. Thirdly, of course, there will be an enormous loss of revenue.
The noble Lord's Bill does not ask for any favouritism to be shown to the greyhound sport. It merely asks that we should be treated fairly and on the same level as horse racing and other sports. That is something we have never had. We have never had parity. It has been this financial and fiscal prejudice that has given us so much of our trouble. Let me remind noble Lords of one or two examples.
The noble Lord has said that there is no levy. That was strongly brought home to me at once. When I was chairman of the tote some years ago I represented the tote on the Levy Board. I realised at once what a sharp difference there was financially between the two sports—one with the levy and the other one without it. Then there was the Royal Commission under Lord Rothschild which momentarily went off its head and decided that it considered greyhound racing to he an industry or a trade rather than a sport. With all possible respect to the noble Lord, Lord Westbury—the last thing I would wish to do is to offend him—if he turns his mind (and your Lordships do, too) to the sales that take place in the horse racing world where highly bred thoroughbreds change hands at astronomical figures, he will see that there must be some element of commerce in that. If your Lordships turn to football where slightly less well bred centre forwards also change hands at enormous rates, surely there is an element of commerce in that. To penalise us in the greyhound racing world because we are a trade seems frankly to be ridiculous.
The noble Lord, Lord Newall, has told us about the betting tax. I will not go into that in any detail now because I shall simply lose my temper. It is a very complex matter. Both the Jockey Club and ourselves have of course been many times to the Treasury, which unfortunately has slightly more important matters on its table at the moment, and we shall continue to do so on this matter. I do not want to offend the bookies, with whom I am on friendly terms, because they are represented on my board. They realise too that they are getting far too much of the gravy. They realise that and they realise that if this sport were to go out of business—if that is the right word to use nowadays—they would lose a very large

931
amount of money, quite apart from the spectators losing their sport. So they have attempted to help by occasionally giving us benevolent donations. That is no way to run a sport and it is certainly no way to run a business.
Then there was the Bill which has exactly the same name as the Bill we are discussing this afternoon. It was introduced by Sir Ian Gilmour in another place and is now an Act; so I shall call it the Gilmour Act. This is the Act which makes life much more comfortable in the betting offices. The Home Office in the very near future is going to issue a paper describing exactly what it proposes and what it approves. My Lords, I do not like to say, "I told you so"; but I told you so. And so did the late Lord Wigg in the last speech he made in this House, and as usual it was a very powerful and persuasive speech. He said that the only effect of making betting shops more comfortable would be to take more money off the tracks and put more money into the bookmakers' pockets. That is what is happening now. That is the danger. We have mentioned this to the Treasury.
The last point I must make on this subject is this: what have we done in the sport to put our own house in order? Are we just crying before we are hurt? The promoters and all concerned with the sport have done everything they possibly can to make their sport more attractive, to make the facilities more readily available, to reduce prices and to make the racing of a higher standard. They have done everything they possibly can.
There have been two final straws to break the poor old greyhound's back. The first is television. This sport of ours is primarily an evening sport. Would your Lordships like to come greyhound racing with me this evening? I inquired of the track at Yarmouth two or three days ago whether they were thinking of having any racing as that was the next one on my list. They said that not only were they having no racing but that they could not see out of the window. Your Lordships would rather stay at home, would you not, in front of your televisions watching snooker and watching darts? I mention those two particularly because they are not very great sports but they are highly reasonable sports for the fireside and television. They are very agreeable sports to watch. They have taken a very great deal away from greyhound racing. One has only to look out of this window to see why. Furthermore, a greyhound race is a very difficult thing to televise in itself, if one were thinking of doing that. A game of snooker lasts half an hour; a race around the track at Yarmouth lasts 29½ seconds. It is not very easy to televise.
The next straw that has nearly broken the greyhound's back is the sale of some of the leading greyhound tracks. The noble Lord, Lord Newall, mentioned this. The White City, which is known as the flagship of the greyhound sport, has gone—I always think that that is rather an odd metaphor; if one called the "QE2" the stadium of the Cunard Line one would be in trouble, I think. There is a risk that Harringay may go and that others will go, too. But I believe there is a hope that the GRA, which owns the White City, may build a new track near Wormwood Scrubs.
932
The reason for it is obvious—there are not enough people to fill the tracks, for the reasons I have explained. The tracks were built to take 25 million people a year; there are now 4·5 million a year. So people who have to make money for their shareholders out of their tracks naturally look to a more lucrative outlet such as shopping markets. There are good parking facilities nearby and they are in the middle of populated areas. This is merely adding further to our troubles.
The Bill is a simple one. It will come to our aid. The jackpot provisions which the noble Lord has explained to us with some considerable clarity and detail are admittedly a little complicated. There may be i's to be dotted and t's to be crossed, in which case I am quite certain that the noble Lord who answers for the Government will help us do so. The opening times are only reasonable, surely. We have heard the publicans before us many times in this House talking about the ridiculous situation in a holiday resort like Cornwall, where nobody wants a pub opened on a day like this compared with the middle of August when they want the pubs opened for 12 hours a day. The same principle applies to our sport.
Therefore, I commend the Bill strongly to your Lordships as being a help. I hope that it will do a good deal to arrest what I regard as a dangerous decline. I was glad that the noble Lord mentioned the question of Sunday opening. I now speak only for myself, not for the rest of my board. I am opposed to it. I know opinions have been canvassed on this subject throughout the sport. I do not believe that the public will ever stand for betting on a Sunday, on horses or on dogs, as they do in Europe. I do not think so. On that uplifting and high-minded note, I ask your Lordships to support strongly my noble friend's Bill.
7.18 p.m.
Lord Mishcon: My Lords, I feel a sense of privilege in being allowed to participate in such an esoteric debate. I have learnt—and I am grateful for the lesson—from the noble Lord, Lord Newall, who introduced this Bill in such an appealing way, what forward pools are, what multivenue pools are and what intertrack pools are. We are all indebted to the noble Lord, Lord Mancroft, for learning that he is very friendly with bookies, and furthermore for knowing what his evening occupation is in watching television—darts and snooker: I must confess a complete surprise about someone who has such an academic mind and, I should have thought, far more literary tastes in the evening. However, all this I have been introduced to, and I am grateful for it.
If I may concentrate for one moment, seriously, on the provisions of the Bill, greyhound racing has been described as the poor man's sport. I am not quite so sure that it deserves that description now, but apparently the sport is in a parlous state and the recommendations that have been put before us that we should support the Bill seem to be based upon grounds of justice and fairness. And so from these Benches I have personally no objection to this Bill being granted the Second Reading for which the noble Lord asks.
I wonder whether, without any sternness in my voice at all and with some humility, I may turn to the noble Lord, Lord Westbury, only because, if I may say

933
so, he might have created an undesirable precedent, which I am sure he did quite unconsciously. Twice in the course of his admirable speech he addressed the House and said that he was speaking on behalf of the Jockey Club and on behalf of the stewards of the Jockey Club. I would only remind him, with the utmost respect, of the rules of debates of this House. I am reading from page 41 of the Companion:
"When speaking in the House, Lords may indicate that an outside body agrees with the substance of the views that they are expressing: but they speak for themselves and not on behalf of outside interests".
I know that the noble Lord will appreciate that the only reason I raise this point is that I am sure he would be the last person in the world to want to create a precedent by Members of this House thinking that it was in order to speak on behalf of outside interests. With those few remarks, I do not oppose the Second Reading of this Bill.
7.20 p.m.
Lord Elton: My Lords, I have listened with interest and respect to this debate. It has long been very clear that greyhound racing has fallen upon hard times. There was a time when it was a great national spectator sport. Millions attended the meetings up and down the country—25 million, my noble friend Lord Mancroft tells us. As he also reminded us, it is still the second most popular spectator sport in the country, but the number of tracks and the size of the gate have now decreased. One has only to drive out of London on the A40, as I often do, past the wreckage of the White City stadium, to see that it is the sport itself that is now in danger of going to the dogs.
I am not at all surprised, therefore, that the British Greyhound Racing Board and their supporters are looking about them for ways of lessening the difficulties which they face and increasing the attractions of what they have to offer. In my noble friend Lord Newall they have chosen a worthy champion—worthy and well qualified, for he has at least two private Member's Bills to his credit on the statute book.
Lord Newall: Three, my Lords.
Lord Elton: So, my Lords, one might say that my noble friend has both experience and form. And my noble friend Lord Mancroft speaks with considerable and apt authority as chairman of the British Greyhound Racing Board—though not, as the noble Lord, Lord Mishcon, would hasten to assure us, on their behalf.
Your Lordships will know that successive Governments have acted, as this Government now act, on the principle that while people should not be prevented from betting, they should not be stimulated artificially into doing so. I believe this approach is one which the House as a whole would commend because of the difficulties which some individuals who gamble excessively can get into and because of the abuses which may arise when the wrong people are tempted to offer gambling facilities by the prospect of easy pickings. I take the principle of avoiding the artificial stimulation of demand for gambling as a starting point quite deliberately. It is not a principle we seek to apply
934
slavishly to preserve provisions which in practice no longer serve any sensible purpose.
The Bill has, as my noble friend points out, two separate purposes, each comprised in a single clause. Perhaps I may take them in the order of the Long Title. The two purposes of the Bill are, first,
"to remove restrictions on the number of days on which horse racing and greyhound racing may take place",
and, secondly,
"to enable pools on dog races to be operated in connection with more than one event and on more than one track".
The first of those purposes is attempted in Clause 2 of the Bill and the Government are perfectly content for the objects of that clause to be achieved.
As my noble friend Lord Newall has said, the restrictions on greyhound racing date from 1934. In those days greyhound racing tracks provided the main opportunity for lawful cash betting in many urban areas. By limiting the number of greyhound race meetings and the number of races at each meeting it was possible to limit the opportunities for cash betting. Since 1960, however, we have seen the spread of cash betting shops into every high street and into many other shopping areas as well.
Few people who want to place a bet have to travel very far to do so. The number of greyhound races still operates as a brake on the amount of greyhound racing permitted and hence on the number of events on which betting is possible. But the ample opportunities most people now already enjoy to place a cash bet if they choose to do so in a betting shop, even with the controls over greyhound racing, mean that those restrictions no longer have the same significance.
I believe it would be generally accepted now that the sport itself should be free to arrange its fixtures as it sees fit, without artificial interference by statute. As my noble friend has indicated, the promoters intend that they should arrange greyhound racing fixtures more flexibly. It is not their desire to increase the number of race meetings drastically. With this in mind we see the logic, if the present restriction is to be changed, for it to be removed altogether, as the Bill proposes.
As my noble friend said in his introduction, the last Royal Commission expressed some sympathy with that view, even though it did not bring the matter to the point of an actual recommendation—chiefly, it would seem, because the representatives of greyhound racing at that time pitched their proposals modestly, asking for an increase in the number of days allowed rather than the removal of the restriction altogether. Now that greyhound racing would like to see the restriction removed, we can find no reason to object on grounds of betting policy and no reason to prefer instead a new, higher limit on the number of betting days. I am strengthened in that view by noting that provision will not be made for racing on Sundays or on Good Friday or Christmas Day.
As regard horse racing, my noble friend explained that the deregulation on the number of greyhound betting days in Clause 2 would at the same time remove an equivalent restriction on horse racing. As we understand it, there is no objection to this from those involved in horse racing, although, as my noble friend Lord Westbury has confirmed, it is unlikely to

935
result in any changes to the horse racing calendar, at least in the foreseeable future. It was extremely helpful to hear my noble friend's remarks in this respect. For those reasons, we see no reason to object to Clause 2 of the Bill.
I said earlier that Clause 2 attempts to achieve the stated purpose. I did so because I believe it suffers from some drafting defects. I am all too aware of the very great difficulty of drafting statutes in a way that satisfies all the requirements of legislation. Our own draftsmen are at present under very considerable pressure, but I am glad to tell my noble friend and the House that the Government are nonetheless ready to give assistance with correcting the drafting of Clause 2, so that the aims as stated are achieved.
I now come to the second stated aim of the Bill and to Clause 1. I must at once tell your Lordships that there is a similar difficulty here, but that it is on a much more formidable scale. It is not, in the words of my noble friend Lord Mancroft, simply a matter of dotting the i's and crossing the t's. Clause 1 proposes to enable the greyhound tote to offer a greater variety of bets. We can see the attraction to greyhound tracks of offering to carry forward pools as my noble friend proposes.
When the restriction barring carry-forward pools was devised the computer technology which makes some of the pools possible now did not exist. But the restriction also reflected the nature of the system of surpervision being applied to betting at greyhound tracks. This is a local system, the most important responsibility of the local authority being to ensure that an accountant is appointed to be on the scene whenever the totalisator is in operation. He represents a safeguard on the security and integrity of local totalisator betting.
The proposal for carry-forward pools therefore goes to the heart of the control on tote betting at greyhound tracks. It envisages bets on races at more than one track or carrying forward money placed in bets to different tracks on different days. We do not suggest that this creates difficulties for the present system of local supervision which are necessarily insuperable. It is possible to imagine arrangements between the accountants at tracks which could, with good will on all sides, offer the same degree of supervision that exists at present. But the fact is that the proposal for carry-forward pools represents a fundamental change in the statutory control, and I am afraid that this has wide implications for the drafting.
I shall give just one example of the kind of difficulty we are up against. Clause 1(a) of the Bill tries to deal with the problem of rendering lawful the operation of a totalisator taking bets from a second track elsewhere in the country. But nowhere in the Bill is there any provision making lawful the placing of a bet at that second track to be included in the totalisator at the first track. For this reason we believe that the bets which are envisaged would remain unlawful under Section 1 of the 1963 Act. The principle that people attending greyhound tracks may bet only on greyhound racing unfolding at that time and at that course runs right through the 1963 Act and is not evident only at the point addressed by Clause 1 of this Bill. That is only
936
one example of the sort of difficulties which confront any attempt to bring about this kind of change.
In order to put the Bill into a form which could be commended, we believe a considerable amount of work is necessary. While we sympathise with the purpose behind Clause 1, we do not at present have the spare capacity within the department which could be devoted to assisting the promoters with this task. The Government cannot, therefore, smile on Clause 1 as they are prepared to smile on Clause 2.
We shall certainly reflect on this debate, and I know that my noble friend Lord Newall and his supporters will want to do so, too. This may be a case, although it is not of course for me to press it, of "better half a loaf than no bread". I say this in a spirit of friendliness and with the prospects of the Bill making progress in another place this Session very much in mind. Time for debate and improving the drafting of Clause 1 will unavoidably be very limited. The prudent course on this occasion might well therefore be to concentrate efforts on Clause 2.
I must, of course, restrict myself to talking about the Bill in hand, but I should just mention that I was very interested to hear the suggestion that on another occasion the basis of payments to greyhound tracks by bookmakers, in Section 18 of the 1963 Act, might be the subject of a Bill. If the parties were able to reach agreement on a new basis for payment we would certainly look at that with an open mind.
I hope this explanation of the Government's attitude has been helpful. We can certainly see a case for both proposals in the Bill. For the reasons I have given, however, we feel bound to distinguish between them. Of the two, that in Clause 2, removing the restriction on betting days, seems to us to be the one that is most likely to succeed. I hope my noble friend and his friends, both here and outside Parliament, will take due note of which way the wind is blowing, and will set their sails to catch it.
7.32 p.m.
Lord Newall: My Lords, I am most grateful to all noble Lords who have spoken in this short debate, not least to my noble friend Lord Westbury, who obviously, to my mind, spoke his own opinion and was able to bring in that he had some support from his friends.
My noble friend Lord Mancroft, who also gave great support to the Bill, made many telling points in his own inimitable fashion, pointing out that greyhound racing has many handicaps and labours under penal regulations which are not comparable with those in other sports. I am most grateful to the noble Lord, Lord Mishcon, for the obviously lengthy time he has spent on the Bill, considering he has had nothing else to do for the past few days! His support is extremely welcome.
I come to my noble friend the Minister, who, of course, was quite justified in criticising the drafting of the Bill. Those of us who have been working on the Bill have always been aware that it had some short-comings, and I am sorry that I have not been able to introduce an enabling Bill which is technically perfect. I wonder if anyone ever has. I can only say that I shall be more than happy to co-operate with the Home

937
Office and receive any drafting guidance which is offered. There is no doubt that betting and gaming legislation is extremely complex, and if there are some consequential amendments which should be made we shall seek to put that right in Committee.
My noble friend also indicated some concern over the safeguard arrangements for the carry-forward inter-track pools. I am more than satisfied that the arrangements for accounting and administration procedures will be enforced as efficiently and as well as they are currently operated on the greyhound totalisator. The rules are very stringent, and I am not certain why the Minister fears that the money might not be properly accounted for. Perhaps the problem is mainly in the drafting, and I accept that there are some problems. We shall no doubt look at the whole situation in greater detail to see whether we can come up with something which will make the Government understand that we are sincere and do not show any inclination to want half a loaf. We need a whole loaf; otherwise, the Bill is a waste of time.
Without further ado, I can only hope that the Bill does go some way towards restoring the balance in the racing industry, and hope that noble Lords will give it a Second Reading.
On Question, Bill read a second time, and committed to a Committee of the Whole House.

Northern Ireland (Emergency Provisions) Act 1978 (Continuance) (No. 2) Order 1984
7.35 p.m.
The Parliamentary Under-Secretary of State, Northern Ireland Office (Lord Lyell)The Parliamentary Under-Secretary of State, Northern Ireland Office (Lord Lyell) rose to move, That the draft order laid before the House on 27th November be approved. [4th Report from the Joint Committee.]
The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper.
I am pleased that this evening's debate on the renewal of the Emergency Provisions Act will, among other things, provide your Lordships with the opportunity to discuss the late Sir George Baker's review of the Act. I can assure your Lordships that the Government will take careful note of the views expressed, for this legislation is of crucial importance to the community in Northern Ireland and we are determined to listen to all shades of opinion to ensure that any changes which we introduce are the right ones for all the people of the Province. It is they whom the emergency provisions are designed to protect with the minimum disturbance of conventional procedures and safeguards.
As your Lordships are no doubt aware, the preparation of the report on the Emergency Provisions Act was Sir George's last public duty and it was one that he undertook with great diligence and an acute appreciation of the problems confronting the Province. It is a hard task to strike the correct balance between protecting civil liberties and protecting life and property in a free society which is plagued by terrorism; but this report clearly identifies those issues which the Government and Parliament must consider when examining the provisions of the Act.
However, before I comment further on Sir George's report, I should like to refer more generally to the Government's role in security matters. The Northern Ireland (Emergency Provisions) Act which now requires renewal is the legislative expression of the Government's security policy in Northern Ireland. The Government's aim is the eradication of terrorism and a return to a situation in which the people of Northern Ireland can go about their daily lives free from fear. There are of course relationships between the security problem, the need for political development and the economic situation. Violence brings tragedy to many in the Province; it heightens tension, places a major constraint on political development, and inhibits economic development. In turn the lack of political agreement adds to the instability, and unemployment leads to discontent which terrorists try to exploit. We must make progress on all these fronts but the Government recognise that continued violence represents the most pressing problem.
In such circumstances there is a temptation to look for short cuts to end terrorism; but in a free, open democratic society such as ours terrorism is best countered by the resolute application of the criminal law. We should maintain arrest powers, court procedures and treatment in prison which are as standard as they can practicably be in the face of a terrorist campaign. This means that we should look to the police to charge terrorists and bring them before courts whose independence cannot seriously be questioned, where the rules of evidence apply and where fundamental safeguards for defendants are maintained. To act otherwise would only weaken respect for law and order and help the terrorists to rally support in the Province and elsewhere.
In this context, I should like to make it clear that there can be no question of a policy of summary executions or what is known as "shoot to kill" in Northern Ireland. However, in the violent campaign which faces them the security forces have at times no option but to use force. Faced with terrorists who are likely to be armed, or with dangerous riots, quick decisions have to be taken under intense pressure. But all fatalities are fully investigated and reports go to the independent Director of Public Prosecutions who considers whether the force used was reasonable and whether there are grounds for prosecution. If there is a prosecution, it is right that the same safeguards—in particular the test of proof beyond reasonable doubt—should apply to members of the security forces as they apply to other members of the community.
Responsibility for maintaining public order and enforcing the rule of law in Northern Ireland, within the framework established by the Government and Parliament, lies of course with the RUC, aided where necessary by the Army. The establishment of police primacy is a thoroughly healthy development which the Government mean to maintain.
In order to undertake this task, the RUC has in recent years trebled in size and expanded its capabilities enormously. It is a tribute to the qualities of those in the force that this has been accomplished with the minimum of dislocation. The changes have resulted in the creation of a highly competent, professional and, above all, determined police force. The courage,

939
dedication, and, only too often, sacrifice of the men and women who make up that force and its reserve place us greatly in their debt. That is not to say that all officers have responded in exactly the right way to the many difficult situations that they have faced. Policing a divided community is a highly sensitive task, particularly when the police have at the same time to counter a vicious terrorist campaign supported by a sophisticated and insidious propaganda machine. But the record of the RUC shows that the will is there to enforce the law even-handedly and in the interests of the whole community, and I know that the chief constable and police authority are determined to see that the force maintains the highest standards and that its resources are effectively deployed to protect the community as a whole from terrorist attack and public disorder.
Effective policing depends on the establishment of links between the police and the community and on the creation of a fund of trust and good will. The public's support has to be earned, and it can be a slow process. But this is not a one-sided process. The Government and political leaders on both sides of the community must work to remove the obstacles in the way of full-hearted acceptance throughout the community of the RUC as an impartial professional police force.
As I indicated earlier, behind the police stands the Army, since military support is still required by the RUC in certain areas of the Province and in certain operational situations. I am sure that your Lordships will join with me in paying tribute to the Army commanders and individual soldiers for their hard work and courage over the years. An invaluable contribution has been made by the Ulster Defence Regiment which provides front-line military support to the RUC over much of Northern Ireland. There is little doubt that the Government and the people of Northern Ireland will continue to need their services.
I should also like to add a word about the men and women of the Northern Ireland prison service who have faced, with courage and dedication, large-scale protest action within the prisons and attacks on them outside. Finally, our gratitude is also due to the security forces of the Republic of Ireland, who have themselves lost lives in the fight against the common enemy of terrorism. The co-operation between us is crucial in bringing about the defeat of the men of violence, and we must work to make it stronger.
The efforts of the security forces are continuing to show results: 528 individuals were charged with terrorist-type offences in 1984, including 109 with murder or attempted murder; and 8,535 pounds of explosives, 197 weapons and 27,000 rounds of ammunition were recovered.
There has in fact been a marked improvement in the security situation since the early 1970s, and at present the security statistics show a continuing decline in most categories of violence. This offers hope for the future but should not generate complacency. There were still 64 deaths last year in incidents arising from the security situation, including 36 civilians, both Catholics and Protestants; and a further 353 members of the security forces and 513 civilians were injured.
940
Improving statistics can bring no comfort to the families and friends of those who died or to the injured. In any event, we know that we are faced with ruthless groups of criminals who continue to have access to recruits, to money, to arms and to explosives. This is shown by the fact that there were a total of 230 shooting incidents and 193 explosions, and that 55 explosive devices were neutralised in 1984. I would therefore be misleading your Lordships if I predicted that the present relatively favourable trend will lead to an end to terrorism in the near future.
As I said at the outset of my remarks, the operations of the security forces against terrorists, and the way that the courts deal with cases of a terrorist nature, have been greatly helped by the various emergency measures contained in the Northern Ireland (Emergency Provisions) Act 1978. The Act confers special powers of arrest, search and seizure on the police and armed forces. It also provides for trial without jury in certain specified classes of serious criminal offences and imposes stricter than normal bail conditions in such cases. It contains a number of other provisions intended to make it possible to bring terrorists to justice through the courts without unduly affecting their rights. The Act further contains provisions which would permit the detention of suspected terrorists without trial, though this power has not been used since 1975 and has not been in force since 1980. The position of successive parliaments and governments has been that these exceptional powers should be continued in force only for so long as necessary. This approach still obtains. Such powers should be available only to the extent that the circumstances render them strictly necessary.
Having studied the security situation in Northern Ireland very carefully, Sir George Baker concluded that there was a continuing need for emergency powers such as those in this Act. The Government agree with him; so indeed does the Standing Advisory Commission on Human Rights, which after long and exhaustive studies of these problems, reached a similar conclusion.
The Government have, however, undertaken a detailed scrutiny of the provisions of the Act in the light of Sir George's report, and in broadly agreeing with both the tone of the report and its conclusions believe that there is some scope for making changes; these would reflect developments in the security situation and strike more precisely the right balance between individual liberties and the need to give the security forces and courts adequate powers to deal with terrorism.
Rather than go through Sir George's many recommendations seriatim, I now propose to set out the Government's views in general terms, so as to assist the debate in your Lordship's House on the issues raised by the report. A number of Sir George's recommendations point in the direction of improving the safeguards for persons suspected of terrorist crimes, while maintaining the effective security measures needed to protect the community. In general, we regard these recommendations sympathetically and propose to implement them, except for a few subsidiary recommendations which we believe would cause undue practical difficulties and be of little benefit. Thus, we are inclined in principle to

941
accept Sir George Baker's recommendation of the rationalisation of police arrest powers. The recommendations on the Army arrest powers will, however, need the most careful consideration, taking account of the principles involved and of the practical implications. We are inclined to accept most of Sir George's recommendations for increasing the scope of the Attorney-General's discretion to certify particular offences out of the scheduled, non-jury, mode of trial. The Government do, however, intend to examine more closely the list of offences which Sir George has proposed might be triable by jury in an increased number of cases.
Sir George made a number of other recommendations designed to rationalise the emergency provisions in areas where the practices and operational needs of the security forces and of the courts have moved some way since the Act was last amended. His recommendations on bail and on the admissibility of statements are good examples of this category. In each of these cases, the practice of the courts is somewhat different from that which a superficial reading of Sections 2 and 8 of the Act, respectively, might suggest. Sir George, while endorsing current practice, has made recommendations aimed at bringing the wording of the statute more closely into line with the way in which the intentions of Parliament have been interpreted by the courts. We are not yet wholly satisfied that such cosmetic changes to the law are strictly necessary.
However, one of the most important questions which Sir George raises is whether there is a continuing need for the detention provisions which are still contained, although no longer in force, in the 1978 Act. At present these powers could be brought into effect immediately by order, which would have to be approved within 40 days by resolution of each House. While tempted to repeal, the Government wonder whether it would be prudent to repeal a reserve power, which we certainly hope may never have to be used, but which at least stands on the statute book should there ever be a short-term crisis during a parliamentary recess. A similar power is of course retained in the Republic of Ireland. I should welcome the views of your Lordships on this particular matter.
But if we go further with Sir George's report, we see that a number of his recommendations arise from his concern that delays in the judicial process should be kept to a minimum. The Government share that concern. My right honourable friend the Secretary of State is keeping in close touch with the Attorney-General and my noble and learned friend the Lord Chancellor on this particular matter, and every possible avenue for reducing waiting times is being explored. There is no doubt that the appointment of 11 new silks and an additional county court judge will assist in this direction. However, we have to say that delays can often occur at the request of the accused, in particular when the services of a particular defence counsel are awaited.
Sir George has dealt at length with the use of accomplice evidence. While supporting the use of such evidence, he suggested that efforts be made to reduce the number of defendants to 20 or fewer in trials involving such evidence. There have been very few cases involving more than 20 defendants and,
942
although the Government will obviously look very closely at this issue, we are not so far convinced that trying a number of defendants simultaneously affects the standard of justice or causes undue delay. Indeed, longer delays for some accused might result if different batches had to be brought to trial separately.
Sir George further went on to deal with the composition of the court before which scheduled offences are tried. Sir George endorses the present use of a single judge to try cases where there is terrorist involvement. Underlying his conclusion are substantial arguments both of principle, in terms of the workability and standard of justice which might be provided by a multiple judge court, and of resources. But if we are to make progress in reducing delays in the judicial system in Northern Ireland. I am sure your Lordships will agree that it is crucial to make the very best use of the limited judicial resources available to us.
Sir George's arguments point to a policy of continuing with a single judge court operating without a jury in terrorist cases, but I shall listen with great care to whatever your Lordships may wish to say on this. However, I should point out that we cannot see any way in which we could in present circumstances return to jury trials for the worst offences of terrorism in Northern Ireland. I am sure this approach will cause no surprise to your Lordships. However, it does not in any way proclude the possibility of our taking an increased proportion of trials out of the scheduled non-jury procedure by means of the Attorney-General's certificate, to which I referred a few moments ago.
Finally, Sir George dealt at some length with the police complaints procedure. An effective system for handling complaints against the police quickly and fairly is an important safeguard for the citizen and for the police themselves in a community where complaints are often used for propaganda purposes. The reform of the police complaints procedure in England and Wales, by way of the Police and Criminal Evidence Act 1984, provides us with a timely opportunity to consider how best similar changes might be introduced in Northern Ireland, and that we are doing.
The Government look forward to hearing views on all the matters that I have raised this evening in what I hope will be a wide-ranging and comprehensive debate. But the emergency provisions represent important protection against the men of violence who still beset the Province. Of course it is still important that these provisions strike the right balance and that the institutions involved in their application are so designed, administered and staffed that they serve, and, above all, are seen to serve, the genuine interest of all in the Province. I assure your Lordships that we are working to that end. In the meantime, while we decide on the changes to be made to the Emergency Provisions Act it is essential for the people of Northern Ireland that the present powers be renewed. With that in mind I commend this Motion to your Lordships. I beg to move.
Moved, that the draft order laid before the House on 27th November be approved. [4th Report from the Joint Committee.]—(Lord Lyell.)
7.53 p.m.
Lord Underhill: My Lords, first, I should like to thank the noble Lord, Lord Lyell, for the general tone of his introductory speech and also for explaining in some detail some of the Government's thoughts on the Baker Review. Also at the outset I wish to echo what the noble Lord the Minister has said in paying a tribute to all the security forces. I am pleased that he included the prison officers and that he also mentioned the co-operation from the Republic.
Whenever I deal with security matters in Northern Ireland I do so with some sense of humility because I do not live there and therefore do not experience the intense feeling that there must be among both communities. If one needed amplification, it was given in some detail in the New Ireland Forum's report, The Cost of Violence. This report gives details of deaths and injuries in both communities. The amazing fact on the figures here is that the number of deaths in the Catholic community is greater than that in the Protestant community. The report mentions the security costs for both the United Kingdom and the Republic and the costs in economic and social terms.
If I still had any doubts, the depth of feeling and the general problem were made absolutely apparent in the Airlie House conference which I attended last week in the United States, just outside Washington, where all the constitutional parties in Southern and Northern Ireland and in Great Britain were represented. I was pleased that the Northern Ireland Minister, Mr. Christopher Patten, was present throughout and participated in the various discussions.
I stress these points because for the second time the Labour Opposition in the other place voted against the renewal of the emergency provisions. In reply, the Minister in the other place said it was irresponsible to vote against renewal. Why, then, did my friends in the other place oppose, when every constitutional party in the North, in the South, and in Great Britain, (except Sinn Fein) condemn violence to achieve political ends and in general support the need for effective measures of security to control violence? Why, then, oppose?
When, in accordance with the legislation, we have had the opportunity to debate the renewal order every six months it has always provided a chance also to review security operations. Ever since 1979 the Labour Opposition, both in the other place and in this House, have expressed reservations about certain aspects of the emergency provisions, even though we had, until the last occasion, supported the renewal.
In April 1983 the Government announced the appointment of the late Sir George Baker to carry out a review of the provisions. On 13th May that year, 1983, I said I hoped that that would be the last time there would be need to renew the order for the existing emergency provisions and that as a result of the review new legislation would be brought forward.
On the next occasion when we had an order before us, on 13th December 1983, I said that we would await the report of the late Sir George's review with interest. I said:
"I agree completely with the noble Earl"—
That was the noble Earl, Lord Mansfield—
"on the review being conducted by Sir George Baker and that subsequent legislation should keep a balance between what is
944
required for security and what is required for civil liberties. There is always a great danger that we forget the struggles that everyone went through to get out democratic rights and popular representations. These can easily be pushed aside in the interests of security".—[Official Report, 13/12/83; col 189.]
Then Sir George's report was published in April 1984. Once again we had the periodic order to renew the provisions before the House on 17th July last year. I repeat what I said then in paying tribute to the late Sir George both for his work on the report and the quality of it, although making clear, as I did then, that we do not necessarily accept all the report's recommendations. The noble Lord, Lord Lyell, said at that time that he hoped that there would be an opportunity to debate Sir George's detailed conclusions. We have not had that opportunity until tonight. And, frankly, this is not the occasion for the sort of detailed debate we should be having. The noble Lord said on 17th July last year, at column 1398, what he said again tonight:
"I can say that the Government are in broad agreement with both the tone of Sir George's report and most of his conclusions and recommendations".
I stated then that I hoped that this would be the last time that we would be asked to renew the order containing the existing provisions.
The other place debated the review for five hours on the day before rising for the Christmas Recess. This preceded its debate to approve the current renewal order. I must refer to the nature of the Opposition amendment because it explains our attitude. The Opposition in the other place proposed an amendment which regretted the Government's delay in responding to the Baker review and which continued:
"and affirms that law and order are best served by methods of law enforcement which are seen to be fair, compassionate and non-discriminatory".
Despite what the noble Lord the Minister says, I do not believe that this is the occasion to go right through the Baker Report and to consider all the recommendations. We would need possibly a five-hour or six-hour debate to do so. But we have been concerned with certain aspects—the alleged abuse of arrest powers, powers of internment and interrogation, trial by Diplock non-jury courts, the use of super-grasses and so on. I was pleased that the noble Lord, Lord Lyell, gave the Government's thinking on quite a number of recommendations, some associated with these points. He will, however, recognise that we shall need to read carefully what he has said before commenting on the Government's reactions. One would have needed to know those reactions before embarking on this debate.
I must stress, as others have done, the terms of reference given to Sir George. The terms of reference began by saying:
"Accepting that temporary emergency powers are necessary to combat sustained terrorist violence …".
He had to work on the basis that such emergency powers are necessary. Obviously, his report was directed to that end. In evidence submitted to Sir George, the National Council for Civil Liberties stressed that the premise of the inquiry should have been: "In what ways, if any, is the ordinary criminal law inadequate? The onus is on those who want these extraordinary powers to demonstrate that they are necessary".

945
One finds in evidence submitted by the Cobden Trust that 60 per cent. of a sample of persons held under the emergency legislation were not questioned about any specific offence at all. The comment is made that it appears that they were detained for information gathering. The trust also said that 90 per cent. of the arrests under the emergency powers did not result in charges. These figures are confirmed in the Baker Report. In paragraph 276 Sir George quotes the figure supplied by the RUC that 76 per cent. of persons arrested are released without charge. Sir George added:
"But it is hard to believe that the arrests of all the 76 per cent. are justifiable if the intelligence is as good as it is said to be".
He went on to say that, although afterwards released, detention for 72 hours rather than for 48 hours becomes a focus of discontent.
The Cobden Trust also alleged that 76 per cent. of those who asked to see a solicitor were refused their request and that, of the remainder, none saw a solicitor within 48 hours. The trust also made comments to Sir George on the Diplock court procedure. Reviewing a sample in 1981, it said that 60 per cent. were remanded for more than nine months before sentence and 10 per cent. were remanded for more than 15 months. The Baker review, at paragraph 176, said that the tendency was for numbers in custody for over 46 weeks to rise sharply in some months of 1983. Sir George added:
"There is serious concern that unacceptable delays could develop in 1984 affecting all trials".
The trust added that 40 per cent. of those tried in Diplock courts had no connection whatever with political violence and that of those charged with robberies 87 per cent. had ordinary criminal motives and were not concerned in terrorism. Yet, as the trust says, they were denied right to trial by jury because the offences are not de-scheduled.
The noble Lord the Minister has referred to bail. It is argued, as I do now, that the granting of bail needs to be reviewed. Again, Sir George's report, at paragraph 76, states that, between 1978 and 1982, of 7,133 applications by adults and 333 by juveniles for bail under the emergency provisions, 42·5 per cent. were granted. Of those, only 55 persons absconded. In fact, the Baker Report in Appendix G(4) quotes even more substantial figures. The appendix gives the figures for the years 1973 to 1983 and shows that of 13,000-odd applications, just under 41 per cent. were granted bail. Much other useful information and figures are given in the appendices but because of the time I shall not deal with them this evening.
The Minister referred to the view of the Standing Advisory Commission on Human Rights. The noble Lord said that in broad terms it recognised that the people of Northern Ireland still require special protection and that exceptional measures are still needed. As all noble Lords, I think, know, the advisory commission is an institution set up under Section 20 of the Northern Ireland Constitution Act 1973. It is therefore a bona fide body. Despite its view, the commission has urged acceptance of a number of recommendations arising from the review. I shall refer to some of them.
946
It says that there should be a reduction in the number of trials by non-jury Diplock courts. It says that a three-judge collegiate court should deal with the remaining scheduled offences; that restrictions on the use of super-grass evidence should be made if three-judge courts are not established; that there must be a review of the use of force by the security forces; that reasonable suspicion should be required for search and arrest powers; that there should be a code of practice stating the rights of suspects in police custody, and that a Bill of Rights should be introduced for the administration of justice. Those points were made by the commission, despite the fact that it recognised and accepted the view of Sir George that there must be emergency provisions.
The Kilbrandon Committee, of which, as I have made clear, I was a member, stated this in chapter 10 of its report on law enforcement:
"If nationalists are to assist willingly in the task of bringing offenders before the courts, they must respect the courts before which they will appear".
Some noble Lords do not like the use of the expression, "alienation of the minority community". Sufficient evidence was given to the Kilbrandon Committee to justify the word "alienation", and sufficient evidence was given to us at the Airlie House conference, to which I have referred earlier, to justify the use of that word. It is vital that the sense of alienation should be removed. Sir George, in his report, recommended that there should be a new Act.
Viscount Brookeborough: My Lords, may I ask the noble Lord to tell me what "alienation" means in this context?
Lord Underhill: My Lords, my interpretation of "alienation", in the terms given to me, is that a section of the community feel themselves not in tune with the administration of justice, in particular, in the area in which they are living. That is something that must be dispelled.
Sir George Baker recommended that there should be a new Act and that there should be a new title. He made 74 recommendations. That is why I am not dealing with all the 74 recommendations this evening. A number of them were of a negative kind—in other words, he wanted no changes—but he recommended quite a number of positive changes. Of course, we support efforts for law and order and for the suppression of terrorism; but, as the spokesman for the Opposition in the other place said, in a civilised country emergency powers should not outlive the emergency which brought them into being. We do not accept everything that Sir George recommended, but we ask the Government to look at each of the existing emergency provisions. Is the particular provision necessary, over and above normal criminal law? If it is necessary, are there adequate safeguards for civil liberties? We should like to see a new Bill which would enable noble Lords to debate in some detail each proposal of the Government.
There was reference at the end of that speech to comments Members might have on possible joint security action with the Republic. Despite the unfortunate comments after the last summit, I hope there will be discussions. I hope there can be joint

947
security activities. But it will be asking too much to urge that the Republic should join in security discussions while being barred from any discussions on the position of political change in Northern Ireland. The fight against violence, the preservation of civil liberties and the working for constitutional change—I must not use the expression "constitutional change"; rather, I should say, the work towards a political settlement—are things which must all go on together.
8.17 p.m.
Lord Hampton: My Lords, I thank the noble Lord, Lord Lyell, for introducing this continuation order, and I also join in his tributes to the security forces. I have listened to the noble Lord, Lord Underhill, with great interest but not with entire agreement. Very relevant to our debate, of course, are the recommendations in the report by Sir George Baker, which he completed shortly before he died. I did not know him personally, but a brief correspondence with him left me with great respect for both his intelligence and his integrity.
The amendment moved by Mr. Peter Archer, for the Labour Opposition in the other place, to which the noble Lord, Lord Underhill, has just referred, easily invites one to support it. It all sounds so very sensible. Who would challenge the assertion that methods of law enforcement should be seen to be fair, compassionate and non-discriminatory? What I find less helpful is the suggestion that the Government have been dilatory in responding to the report of Sir George Baker. It seems to me only reasonable that a new Secretary of State should pause for a moment to consider and also, as he clearly stated, to take note of the views of both Houses of Parliament.
There is no easy answer to questions concerning the enforcement of law and the defeat of terrorism in Northern Ireland, and a rush into ill-considered action could be dangerously counter-productive. Nevertheless, I hope the Government will take careful note of opinions raised in debates in both Houses and will be able to take some positive action. The noble Lord the Minister referred to this, and the noble Lord, Lord Underhill, suggested there might be further debate on the Baker Report. I do not think we can give it proper treatment this evening.
The basic argument for easing the present emergency provisions is that they interfere with personal liberty. I can only repeat my conviction that the extreme of interference comes with loss of life or limb of oneself or of those one knows and loves. Unfortunately, the terrorist threat continues, and we on these Benches have no doubt that this order must once again be passed.
There are, however, a number of questions I should like to put to the Minister. I refer in particular to a number of points raised by the noble Lord and by his right honourable friend the Secretary of State in the other place. First—the noble Lord, Lord Lyell, mentioned this—reference has been made to the Baker recommendation for the rationalisation of police arrest powers. I wonder whether the noble Lord can give any further details as to how it is suggested that these should be implemented. Secondly—and again
948
the noble Lord referred to this—Sir George recommends increasing the scope of the Attorney-General's discretion to certify particular offences out of the scheduled non-jury mode of trial. Can the Minister give any further details here? There is no doubt in my mind that jury trial at present is often not going to produce true justice, due to the threat from intimidation, but it would be interesting to know more as to what positive steps could be taken in this field.
Thirdly, I want to quote from the Secretary of State's speech on 20th December, as reported at column 580 of Hansard of the other place. He said:
"Sir George suggests that an amendment to the Act might endorse what is already the well-established practice of the courts, namely, that admissions by accused persons should not be admissible as evidence when there is reason to suppose that they have been extorted by violence or by the threat of violence".
This would indeed be a serious situation, and it does not seem to be happening. But what steps will the Government take to see that justice is done without any possible suggestion of violence, and is seen to be done?
My last question is as to what the Government can and will do to see that delays in the judicial process are kept to the minimum. It appears that there has at times been very considerable delay—months, or even years—between remand and trial, which is tantamount to sentence without conviction. I believe, though, that this is certainly not always the fault of the prosecution. What improvements here can the Government foresee? Can the noble Lord go further? He referred to this point, and I wonder whether he can go further in explanation.
I do not myself think that the situation in Northern Ireland is unrelievedly black, or that we should be despondent if progress in security is only slow. Amid the gloom, I believe there are grounds for hope. At the same time, I repeat: we do not question that this renewal order must be passed today.
8.19 p.m.
Viscount Brookeborough: My Lords, I should like to begin by thanking the noble Lord for his very comprehensive review of the legislation and of Sir George Baker's report. I do not think he would thank me very much if I accepted his challenge to go into the report in detail, because, together with the noble Lord, Lord Underhill, I think we should be here to the very early hours; and certainly I am not very good at dealing with matters in detail. However, he was very rash when he asked us to do so.
I should like to support his tribute to all the security forces and to the prison service, all of whom do a magnificent job under very great danger. The noble Lord asked about the retention of the power of detention within the Act. I am quite sure that it is right still to retain it, even if we do not use it.
The noble Lord, Lord Underhill, made great play of the percentage of people who are arrested under emergency powers and are then not subsequently charged. I think that he is forgetting the fact that during the emergency the IRA have spent considerable time training their activists to resist giving information under interrogation. The percentage demonstrates their success in that teaching.

949
The proof of what I am saying is borne out by the fact that many of those who are subsequently found guilty, very often on the evidence of a super-grass, have been found to have been arrested at least once, and some of them many times, before without there being evidence on which they could be convicted.
Every noble Lord except the noble Lord, Lord Underhill, has said that it is vital to approve this order tonight. Coming from Northern Ireland I should like to say that we in Northern Ireland consider it a vital part of the fight against terrorism. It is extremely sad to have to suspend liberties for which we have fought for very many years. It is extremely sad to believe, as I do, that we shall have to continue to renew this order, or something very similar, for many years to come. However, in saying that, I support the noble Lord, Lord Hampton, in the view that all is not dark. There has been an improvement, but I am always very cautious about saying that there has been an improvement. We who live in the area feel and know about the improvement, but we do not like it being shouted from the rooftops. We are aware when things are better.
I should like tonight to record my sadness that a young car thief who drove through a road block, trying to drive over some soldiers, has ended up by being shot dead. That is a tragedy, and it is made more horrific in that the young man was only 17 and has lived nearly all his life—certainly all his conscious life—in times of violence. He has never known peace. That horrific fact should not cloud our judgment on the actions of the soldiers which, on the face of it, were fully justified. Certainly their actions do not justify the most intemperate remarks by the Foreign Minister for the Irish Republic in his condemnation of the UDR. Surely, knowing perfectly well that every action in which somebody is killed is fully inquired into, he should have waited. I hope that the Government will not allow to go unanswered this and other irresponsible and ill-informed verbal bombardments against our institutions in Northern Ireland.
In the past it has seemed to me that the Irish Government have been free to libel our institutions from our courts through to our forces without any public denial and any really straightforward reply. I do not believe that it is right for the Irish Government publicly to attack. If they are members of the Government, they have the diplomatic service through which they may register their protest. I hope that our Government have at least been registering their protest about these intemperate remarks. These attacks really have eroded any goodwill that might have been created in the Unionist population in Ulster by Dr. FitzGerald—and he did create goodwill.
Furthermore—and this is the really critical matter—it is playing right into the hands of the IRA to say that the institutions of the state are not acceptable. How are they not acceptable? The Foreign Minister and other extreme Republican politicians have been talking about the alienation of the nationalist community. Indeed, the noble Lord, Lord Underhill, talked about it. The noble Lord, Lord Fitt, spoke so well on that subject. As the noble Lord said, alienation, in the terms in which it has been used, simply does not exist, and I should like to deny any evidence that was given to the Kilbrandon Committee
950
in that respect. I repeat, it does not exist. But to use the term in the way in which the noble Lord, Lord Underhill, used it, there is alienation which is growing and which should be welcomed and that is the alienation, the isolation in West Belfast in particular, of the men of violence from the ordinary Republican citizen.
The best illustration of that occurred just the other day at the funeral of a top IRA active serviceman or officer called McIlvenny. The House will have seen many times colossal crowds at IRA funerals, following the cortege. The television pictures have done so much to enhance the publicity for the IRA. At this particular funeral there were only a very few hundred followers—that is all they could drum up. They had even to hire taxis to fill up the back of the procession. That is the alienation, and it is increasing. The ordinary population keep saying to the men of violence, "Get off our backs". That is a very encouraging feature, and it should be fostered.
It has been a good year for the Army, the Royal Ulster Constabulary, and the UDR. Despite accusations, the attacks and the speeches by the Irish Government and the extreme politicians, the fact of the matter is that in West Belfast there is an increasing number of citizens who accept and welcome the Royal Ulster Constabulary, and nobody who has been there can deny it. Indeed, the noble Lord himself knows that what I am saying is true because he has been all over Northern Ireland, and for that I pay tribute to him.
I should like to turn to a facet of the fight against terrorism which has been sadly neglected. I refer to smuggling, which is the one growth industry in Northern Ireland. In days of yore smuggling used to be a small time industry, with somebody taking a cart of pigs across the Border. That has all changed. It is now a large-scale business, which is wireless controlled and which uses 40-foot containers. This trade which goes across unapproved roads simply cannot exist without the involvement or approval of the IRA. It is called "rent-a-road", and for renting a road a considerable contribution goes into the coffers of the IRA. The Army know all about it. They see the lorries and they stop the lorries, but because it is smuggling they can do nothing but stand and watch. At times convoys of lorries are smuggling electronic goods or whiskey and thereby millions of pounds of VAT and other taxes are lost to the Irish Government—and the Irish Government certainly cannot afford to lose that type of money; they are in a very bad way economically. At other times there is grain coming North, thereby defrauding the EEC.
It must be possible to stop this smuggling. It may be that the Army and the police should be made agents for the Customs authorities, thereby giving them extra power, instead of what the noble Lord was talking about; namely, reducing their powers. It is a major source of funds to the IRA, and it must be stopped. We must leave no avenue unguarded in our fight against terrorism. I welcome this order.
8.28 p.m.
Lord Hylton: My Lords, there is a certain degree of predictability about our remarks on these occasions and I should like to apologise in advance if by any

951
chance I sound like a rather old fashioned gramophone record that has got stuck in a groove. I was very glad to hear the noble Lord, Lord Underhill, stressing the seriousness and importance of these occasions. In July I described our debate as a matter of life and death. Today I would just say that emergency law is both a symptom and a cause of many of the troubles and problems of Northern Ireland. It is for those reasons that I protest as strongly as I can against the timing of these debates. Look at the acres of empty Benches. Why do we have to consider these orders at a most unsocial time of day? Why was it that the other place debated Sir George Baker's review on the last sitting day before the Christmas Recess? We deserve answers on these points.
Why is it that we have to take this order after Bills dealing with insolvency and lotteries? Are the Government serious about the whole question? It is now nine months since Sir George Baker reported and his review showed clearly that all was not for the best in the best of all possible worlds. His review proved the existence of many grey areas, and the mere number of his recommendations I believe to be most significant. Can the Government say tonight when we shall be given a chance to have a full debate on this matter? Given that not all of the recommendations of the review require legislation, are the Government determined to make progress? The noble Lord, Lord Lyell, today repeated many of the remarks previously made by the Secretary of State and by his honourable friend Mr. Nicholas Scott on 20th December almost word for word, but can he say tonight when he winds up whether Government thinking has moved forward since December? Have they made some progress in those three weeks? I know there was Christmas in the middle, but we should still like to hear that there has been some progress. We should like to hear when definite proposals are going to be brought forward for those points which require legislation.
I should like to refer to a suggestion which I made in correspondence with Mr. Nicholas Scott in August and September. I suggested that there should be created a permanent review body both for the emergency provisions Act and for the Prevention of Terrorism Act, in so far as they concern Northern Ireland. I suggested that this permanent review body might be composed of a small number of privy counsellors, as being almost the only people capable of receiving the sensitive information that is bound to be involved. Such a permanent review body could produce reports and reviews as often as was required and not once in seven years, if we are lucky, as has unfortunately been the situation in the past. Such a body could examine complaints brought by groups rather than by individuals, for whom we already have an Ombudsman and various other procedures. A review body of this kind could look at issues referred to them by the Government. For instance, such difficult questions as have cropped up over time concerning detention, interrogation, the use of plastic bullets, and prisoners' rights. Had there been a body of this kind in existence when these problems surfaced, we might have been spared a great deal of unnecessary trouble and anxiety, and the IRA and other terrorists might have been denied a great deal of propaganda,
952
and some of the points made by the noble Viscount, Lord Brookeborough, might have been met much sooner and much better.
The noble Lord, Lord Lyell, himself referred in the course of his introductory remarks to the matter of killings by the security forces, which are of course always serious and usually lead to a great deal of concern, and sometimes more than concern. If there were a permanent review body of the kind that I have indicated much of this might have been capable of being defused in advance.
I have mentioned in your Lordships' House before now the matter of coroners' inquests and the serious delays which frequently happen before an inquest can even begin. This matter was brought to public attention more sharply than usual by the resignation of the coroner of Armagh in August of last year. One is bound to wonder whether the findings when the coroner's inquest eventually sits in some of these cases are really worth while in any sense at all. I hope that the Government can announce—if not tonight then soon—that some progress is being made on this aspect of things. The noble Lord, Lord Lyell, also touched on the question of police complaints. It is good to know that England and Wales will fairly soon be getting an improved procedure. Northern Ireland deserves one just as much, perhaps more.
Mr. Scott wrote to me again in September saying that the Government hoped that there would be a consultation paper published on this matter before the end of last year. So far as I know, it has not yet appeared. Can the noble Lord say when we may hope to see it? Can the noble Lord also indicate what attitude the Government are taking towards proposals made by the Alliance Party of Northern Ireland? They were first made, I understand, in 1974 and have been made at intervals since and were made with rather more force last year.
From police complaints I move to another most important subject which is that of liaison, good understanding, and good co-operation between the police and the general public in Northern Ireland. This again was mentioned by the noble Lord speaking for the Government. Several times before now I have described in your Lordships' House the successful system which has existed since, I think, 1970 in the City of Derry, where there is a model police and public liaison committee. I have asked before now whether this proven method and system cannot be extended to other cities in Northern Ireland and perhaps even to the whole of the six counties. So far I have had had no satisfactory answer whatsoever on this.
Now may I just touch on a highly technical and complex matter, which concerns the derogation from the European Convention on Human Rights that has been in force for quite a long time. In August of last year the Government—seemingly without much prior announcement or discussion of a public kind—informed the Council of Europe that they were withdrawing their derogation. This is puzzling to a good many people. It is certainly puzzling to such bodies as the Committee on the Administration of Justice and the Standing Advisory Commission on Human Rights in Northern Ireland. It seems to such people that Section 5 of the European Convention and

953
probably at least four of its subsections are contravened in one way or another by the emergency provisions Act and the Prevention of Terrorism Act. If the Government can throw any light on this tonight it would be most helpful and I think would remove some of the suspicions.
I should like to conclude by mentioning that for many years now there has been in Northern Ireland a strong desire to see a Bill of Rights enacted. There is some serious thought and study of a voluntary kind being given to this matter at the present time. Any encouragement that the Government can give will of course be most welcome, and it would be of interest to hear their views on this topic and to know to what extent, for instance, they see any possibility of incorporating at least some of the provisions of the European Convention on Human Rights into the general public law of Northern Ireland and then, as the noble Lord, Lord Wade, and the noble and learned Lord, Lord Scarman, and others have suggested, into the general public law of Great Britain.
8.40 p.m.
Lord Lyell: My Lords, we are immensely grateful for the amount of attention and detailed study that has been carried out by all your Lordships who have spoken this evening on a subject which, despite the strictures of the noble Lord, Lord Hylton, has aroused great interest from the spokesmen on Northern Ireland in your Lordships' House. Above all, those of your Lordships who have spoken will agree that the report of Sir George Baker on the emergency provisions Act is extremely difficult and very technical. This has been borne out by the quality of the questions which have been put to the Government this evening and the quality of the debate.
I should like to start by thanking the noble Lord, Lord Underhill, and all of your Lordships who have spoken. Everyone who has spoken has paid tribute to the security forces, the prison officers, the Ulster Defence Regiment, the regular Army, the RUC and the security forces of the Republic. I am sure these tributes will be noted. We are grateful that your Lordships have paid these special tributes.
I will attempt to answer the questions raised by the noble Lord, Lord Underhill. I noticed that he started by mentioning paragraph 276, paragraph 176, paragraph 76 and I wondered what was coming next in the seriatim descending order. I commend him for his diligence and for his full understanding of the layout of Sir George Baker's report.
The first query that the noble Lord, Lord Underhill, asked was the possible constraint imposed by the terms of reference in Sir George Baker's report. I think your Lordships might agree that, despite his terms of reference, Sir George specifically commented on the need for emergency powers in Northern Ireland. In paragraph 32 of the report he said this:
"Unfortunately they remain broadly necessary to curb violence and to bring the guilty criminals to justice".
I shall not be tempted by your Lordships' cries of, "Go on, go on" which your Lordships might think might disprove my case. We agree with that short quote from paragraph 32.
954
We took note of the comments of the noble Lord, Lord Underhill, on the Standing Advisory Commission on Human Rights and no doubt they, too, will be pleased that the noble Lord has brought them into the debate.
I turn to one of the queries raised by the noble Lord, Lord Hampton. I am grateful that he gave me notice so that I had some chance to answer his query this evening. He wished to know what is meant by the rationalisation of police arrest powers and whether this could be further improved. I am sure that he would agree that persons in Northern Ireland who are believed by the police to have been involved in terrorist crimes may be arrested under Section 12 of the Prevention of Terrorism (Temporary Provisions) Act 1984, or under Section 11 of the Northern Ireland (Emergency Provisions) Act 1978, or even Section 13 of the Northern Ireland (Emergency Provisions) Act. The noble Lord will agree that Sir George considered that this was potentially confusing. Paragraphs 267 and 268 of this report are particularly relevant here. But these recommendations on police arrest powers are intended to eliminate any overlap between the existing powers and thus they would wish to reduce the scope for any confusion. The Government accept this point in principle, though we do not necessarily go along with Sir George with the details in the recommendation on this point.
The noble Lord also raised this fascinating procedure known as certifying out of the schedule. This confused me during my recess reading and required a certain amount of study and elucidation today to have this clarified in my mind. The emergency provisions Act makes provision for certain terrorist-type offences which are listed in Schedule 4 of the Act—hence they are called scheduled offences—to be treated in a particular way. Anyone who is accused of a scheduled offence may be granted bail only by a High Court judge. Such cases would be tried in Diplock courts and so on. But the Act recognises that certain of the offences listed in the schedule may be committed by non-terrorists. The noble Lord, Lord Underhill, will be pleased about this. It provides that the Attorney-General may issue a certificate in such cases enabling a non-terrorist who has committed certain offences to be tried before a jury in the normal way. Sir George Baker recommended that this discretion should be capable of being exercised in respect of a greater number of offences. The Government believe that there is scope to extend the list of these offences. It is complicated and I hope I have gone some of the way, if not all, to assist the noble Lord, Lord Hampton.
Lord Hylton: My Lords, while the noble Lord is still on that point can he say when the Government hope to begin this process of de-scheduling?
Lord Lyell: My Lords, if the noble Lord will contain himself I shall come to his remarks. I hope to be able to cover that point and others. I would never forget the noble Lord, and will cover his individual questions in the order in which they arose.
The noble Lord, Lord Hampton, next asked about the admissibility of statements. Your Lordships will be aware that Sir George Baker endorsed the courts'

955
present interpretion of Section 8 of the emergency provisions Act. It has been demonstrated in one example that the right to disregard any statement will be exercised in the interests of justice. But it is also clear that in practice statements will be disregarded if they are shown to have been obtained by improper pressure, whether or not it came strictly within the terms of Section 8 of the Act. Here the question of admissibility is whether the law should be changed when the courts' interpretation of it is entirely satisfactory. However, I take the noble Lord's point that justice must be seen to be done. I am afraid I am not sure that an amendment to Section 8 of the Act as we have it before us is necessary to achieve that aim. I take note of this matter and will be studying it.
The noble Lord, Lord Hampton, also mentioned the problem of delays between arrest and trial. I am sure he would agree that the Director of Public Prosecutions, the courts and the police continue to cope very well with processing the very large number of cases which involve serious offences. The average time between arrest and trial, as I pointed out in my opening remarks, fluctuates with various factors, not least the rate of arrests. In the first six weeks of 1984 the average waiting time from first remand to trial for terrorist-type offences was down to 43 weeks from 46 weeks in 1983. But the Government will continue to monitor this situation and to ensure the fullest cooperation between the police, the Director of Public Prosecutions and the courts to make the process as rapid as possible. I referred in my opening remarks to the appointment of an extra county court judge and to help to overcome other problems. The Lord Chief Justice recently appointed 11 extra silks.
The noble Viscount, Lord Brookeborough, was very kind to pay tribute to me for travelling around Northern Ireland extensively, and I should like to reciprocate those tributes to everybody in this particular area. I should like to thank him for everything he has done to show me what goes on in all parts, and particularly his homeland, of Northern Ireland. I was interested to note his thoughts on alienation, and was also interested to note that he, too, raised the problem of the time between arrest and sentence. He also drew attention to the proportion of those arrested of those released. I also found his comments on smuggling interesting. I listened to them with considerable interest, and will note them.
The noble Lord, Lord Hylton, had several questions. He asked when there would be a proper debate on Baker. I am sure he will appreciate that this is a matter for your Lordships' House and the usual channels; but nobody could fail to be aware of his desire for what he calls a proper debate. I will pass on his comments to the usual channels. I believe that our discussions this evening has provided an opportunity for a full debate, and the Government will consider very carefully all the points that have been raised.
The noble Lord, Lord Hylton, also asked about the implementation of those recommendations not requiring legislation. We are still engaged in consultation on all the recommendations, and this evening is still part of that process. But the great majority of the recommendations, I have to tell the noble Lord, would require legislation. I assure him
956
that the Government will make their conclusions public as soon as we possibly can. The noble Lord also raised the question of the coroners' inquests. I understand that Mr. Curran, who is the Armagh coroner, resigned over apparent inconsistencies in the RUC evidence at the trial of police officers following a fatal shooting incident. These matters are under investigation by a senior officer from a force in England. For that reason, I cannot comment further this evening.
The noble Lord also brought us back as he did in July, to (I think) paragraph 445 of Sir George Baker's report and mentioned the possibility of a permanent review committee which he thought might be composed of Privy Counsellors. I hope I shall be able to vary the menu this evening so that the words are not just the same as last year. I would tell him that the legislation is already subject to review. We have the comprehensive report of Sir George Baker; and Parliament has an opportunity to consider the case for renewing the powers every six months. But other bodies, and in particular the Northern Ireland Standing Advisory Commission on Human Rights, undertake studies of the emergency provisions, and they publish their conclusions.
Individual complaints about the misuse of powers are already fully investigated under the police complaints procedure. Where appropriate, reports go to the independent Director of Public Prosecutions. But I would assure the noble Lord that individuals also have recourse to litigation. In these circumstances, I am afraid that I am not convinced that the establishment of a standing review committee would significantly increase the safeguards which are already available. The noble Lord also asked about the Government's response to the Alliance Party's paper on police complaints. The Government are already giving a great deal of thought to the police complaints procedures and the form which this might take. I stress to the noble Lord that we shall shortly be seeking the views of all interested parties on our proposals.
The noble Lord raised the question of the police liaison committees, and drew attention to that which was already in effect in Derry. We are giving serious consideration to the machinery for public consultation in conjunction with the chief constable and the police authority. This is an issue to which the Government attach great importance. The problem with the existing groups is, that there is insufficient minority community participation; and I am sure the noble Lord will take that to heart.
The noble Lord wondered whether we had information on any new systems for investigating any deaths which had been caused by the security forces. I said in my opening remarks, and I stress again, that every single incident involving the possibility of criminal offences by police officers is investigated fully, and a report goes to the completely independent Director of Public Prosecutions, who can direct that further inquiries be conducted. The Government do not believe that a public inquiry would be the way to conduct investigations in these particular cases, which are subject to the same procedures as those involving other members of the community.
The noble Lord asked a rather technical point, I think he would agree, about derogation from the

957
Human Rights Instrument. I think he quoted Articles 5 and 6. He was quite right. It was 22nd August last year when the Government withdrew their notices of derogation from the European Convention for the Protection of Human Rights and Fundamental Freedoms and from the International Covenant on Civil and Political Rights. The decision to withdraw these notices was taken after very careful consideration. We concluded that the emergency powers still necessary to deal with terrorist violence are consistent with both the European Convention and the international covenant. In coming to our decision, we took account of the fact that detention without trial is no longer in force.
The noble Lord also raised the question of a Bill of Rights. Our mind is not closed on this issue, which the noble Lord and your Lordships would accept is very sensitive. But there are important practical, and indeed formidable constitutional, difficulties in introducing a Bill of Rights, whether for Northern Ireland alone or for the United Kingdom as a whole. I am afraid I am yet to be convinced, bearing in mind the extensive safeguards that we have gone through this evening which the report of Sir George Baker spells out to protect human rights in Northern Ireland—and these have been introduced in recent years—that a Bill of Rights really is necessary.
I hope that that covers most if not all of the points that have been raised by your Lordships. I am particularly grateful to the noble Lords, Lord Hylton and Lord Hampton, who were kind enough to warn me of the points they would raise. We have had a particularly detailed and constructive debate on the nature and scope of emergency legislation in Northern Ireland. What is clear from this debate is that your Lordships accept that there continues to be a need for exceptional legislative provisions in Northern Ireland. The Government accept that there is some scope for amending these provisions, but I stress that there is only limited room for manoeuvre in this particular area. Your Lordships would accept that it is very important that any exceptional legislative measures should be kept under review and that only those departures from normal practice which can be entirely justified should he kept in force.
The review of Sir George Baker's report and the debate which your Lordships have had this evening have been major contributions to the public discussion of these issues. Certainly, for my part, I believe that as a result the Government are much better placed to frame legislative proposals for amending the Northern Ireland (Emergency Provisions) Act. Given that, my Lords, I commend the order to the House.
Lord Underhill: My Lords, before the noble Lord sits down, can he give some indication as to whether we are going to have either actual legislation or an indication of the actual legislation the Government will propose before we are asked for another renewal of the order? I ask this bearing in mind that when the noble Lord spoke last July he said that the Government were in agreement with most of Sir George's conclusions and recommendations, and they came to that conclusion within three months. He has repeated that again tonight.
Lord Lyell: My Lords, I cannot go further. I hope that we are making progress on the exceptional issues, but I cannot go further than that. However, if I have any detailed observations after reading everything that has been said this evening, and if I can help the noble Lord, I shall certainly write to him.
On Question, Motion agreed to.
House adjourned at nine o'clock.