Lords Sitting of 29 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 Chelmsford.

Second World War: Commemoration
The Lord Archbishop of York: 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 intend to include representatives from the USSR and the Federal Republic of Germany in any celebrations to mark the 40th anniversary of the end of the Second World War in Europe.
The Parliamentary Under-Secretary of State for the Armed Forces (Lord Trefgarne): My Lords, we are planning a national commemoration in this country and participation by our wartime and post-war allies is a factor we shall bear in mind when considering the form of that commemoration. As my right honourable friend the Prime Minister said in another place on 17th January, we shall expect many of the representatives in this country, either as ambassadors or high commissioners, to attend.
The Lord Archbishop of York: My Lords, may I thank the noble Lord for that Answer and welcome the fact that the Government are going to do something. May I press him by asking whether the Government are fully aware of the educational possibilities and also the possibilities for confirming peace which might be produced by some imaginative celebrations involving people from all the countries concerned in the war at various levels, including from the top level and Church leaders, as well as young people?
Lord Trefgarne: My Lords, I am sure that the most reverend Primate is right. We see the ceremonies that we plan to organise as being in the nature of a thanksgiving for the sacrifice that was offered during the World War and also for the nearly 40 years of peace which have followed.
Lord Elwyn-Jones: My Lords, can the noble Lord say how the termination of hostilities in the Far East will be celebrated? We should not overlook that equally important event.
Lord Trefgarne: My Lords, I certainly agree with the noble and learned Lord that we should not lose sight of the fact that there was the very considerable conflict in that part of the world at the same time. I think that we rather anticipate that these ceremonies should take into account the whole World War rather than two separate aspects of it.
Lord Airedale: My Lords, does the Minister agree that we do not want so much to emphasise
558
celebrations as remembrance, as we do on a particular Sunday every November? I think that the noble Lord was steering in that direction with his Answer.
Lord Trefgarne: My Lords, I am sure that the noble Lord is right. We most certainly agree.
Lady Saltoun: My Lords, in view of the fact that we gave thanks 40 years ago, does the noble Lord not think that we do too much celebrating of too many things too often?
Lord Trefgarne: My Lords, I think that the 40th anniversary of the ending of the Second World War is an important occasion and ought to be recognised in an appropriate way.

Nuclear Sites: Security
2.40 p.m.
Lord Hatch of Lusby: 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 the rules of engagement issued by the Ministry of Defence to armed forces guarding nuclear installations take precedence over or are subordinate to Section 3 of the Criminal Law Act 1967.
Lord Trefgarne: My Lords, the rules of engagement issued to servicemen do not themselves constitute legal authorisation. They give guidance on the use of force based upon and consistent with the requirements of the law including, in England and Wales, Section 3 of the Criminal Law Act 1967.
Lord Hatch of Lusby: My Lords, the noble Lord will recall that on 14th January I asked him a similar Question. Is he aware—I am sure that he is—that Section 3 of the Criminal Law Act 1967 governs the use of force by members of Her Majesty's forces? What I am asking him now is whether the rules of engagement as issued to servicemen take precedence over the law or whether they are subordinate to it. According to all the published reports, those rules of engagement give the right to servicemen to shoot at unarmed civilians who are protesting and attempting to occupy nuclear installations. Which law takes precedence? Is it not the case—
Noble Lords: Order!
Lord Hatch of Lusby:—that if the Ministry of Defence has issued those rules of engagement despite the existing law—
Noble Lords: Order!
Lord Hatch of Lusby:—then it is an executive decision—a prerogative making of law by a department of state?
Lord Trefgarne: My Lords, the rules of engagement are of course confidential, so the noble Lord cannot be familiar with them. As I said on the earlier occasion

559
when he asked me about this matter, the criminal law applies to everybody, including servicemen.
Lord Cledwyn of Penrhos:. My Lords, this is admittedly a difficult area, but can the noble Lord say whether American servicemen defending non-nuclear equipment are in any way permitted to shoot at people they believe to be interfering with that equipment? I ask the question because this has appeared in several newspapers and I think it requires clarification.
Lord Trefgarne: My Lords, I can only again remind the noble Lord of the words I used on the earlier occasion when we discussed this matter; that is, that the rules of engagement permit the use of firearms only when life or vital national interests are threatened.
Lord Cledwyn of Penrhos: My Lords, is there any distinction between what a British serviceman is entitled to do and what an American serviceman is entitled to do in the same situation—that is, defending non-nuclear equipment?
Lord Trefgarne: No, my Lords, I am not aware of any distinction.
Lord Hatch of Lusby: My Lords—
Noble Lords: Order!
Lord Hatch of Lusby: My Lords, does the noble Lord recall that in answering a similar question on 14th January he made this statement in column 774 of Hansard:
"I can confirm that United States personnel involved in these duties are governed by exactly the same law as United Kingdom personnel"?
Is it the case that United States servicemen are entitled to shoot, on either nuclear or non-nuclear installations, against unarmed protesters? Do they come under the Visiting Forces Act, or do they come under Section 3 of the Criminal Law Act of 1967?
Lord Trefgarne: My Lords, the question of whether or not protesters are liable to be shot, as the noble Lord puts it, depends essentially, in fact, precisely, upon what they are doing.
Lord Hatch of Lusby: My Lords—
Noble Lords: Order!
Lord Hatch of Lusby: My Lords, that is not an answer to my question—
Noble Lords: Order!
Lord Hatch of Lusby: My Lords, do United States servicemen come under the same British law as British servicemen, or do they come under the Visiting Forces Act?
Noble Lords: Order!
Lord Trefgarne: My Lords, I am sorry to tell the noble Lord that I have not heard his question.
Lord Hatch of Lusby: My Lords, do American servicemen come under the Visiting Forces Act or under British law?
The Earl of Cork and Orrery: My Lords, I beg to move that the noble Lord be no more heard.
The Lord Chancellor (Lord Hailsham of Saint Marylebone): My Lords, the Question is that the noble Lord be no longer heard. As many as are of that opinion will say, "Content"?
Noble Lords: Content.
The Lord Chancellor: To the contrary, "Not-content"?
Noble Lords: Not-content.
The Lord Chancellor: Clear the Bar.
Lord Hatch of Lusby: My Lords, will the noble Lord answer my question?
The Lord Chancellor: My Lords, the Question has been put; the voices have been collected and I have ordered the Bar to be cleared.
2.48 p.m.
On Question, Whether the noble Lord be no longer heard?
Their Lordships divided: Contents, 103; Not-Contents, 59.

DIVISION NO. 1

CONTENTS

Airedale, L.

Gisborough, L.

Alexander of Tunis, E.

Glanusk, L.

Allerton, L.

Glenarthur, L.

Ampthill, L.

Harvington, L. [Teller.]

Auckland, L.

Holderness, L.

Avon, E.

Home of the Hirsel, L.

Belhaven and Stenton, L.

Hylton-Foster, B.

Beloff, L.

Inglewood, L.

Belstead, L.

Kaberry of Adel, L.

Boyd-Carpenter, L.

Kilmany, L.

Brabazon of Tara, L.

Kinloss, Ly.

Caithness, E.

Kinnaird, L.

Caldecote, V.

Kintore, E.

Campbell of Croy, L.

Lane-Fox, B.

Carnegy of Lour, B.

Lauderdale, E.

Cayzer, L.

Long, V.

Chelmsford, Bp.

Lothian, M.

Constantine of Stanmore, L.

Lucas of Chilworth, L.

Cork and Orrery, E. [Teller.]

Macleod of Borve, B.

Cottesloe, L.

Mar, C.

Cromartie, E.

Margadale, L.

Cullen of Ashbourne, L.

Marley, L.

De Freyne, L.

Masham of Ilton, B.

Denham, L.

Maude of Stratford-upon-Avon, L.

Denning, L.

Derwent, L.

Maybray-King, L.

Duncan-Sandys, L.

Melville, V.

Eccles, V.

Mersey, V.

Effingham, E.

Middleton, L.

Ellenborough, L.

Milne, L.

Elliot of Harwood, B.

Milverton, L.

Elton, L.

Molson, L.

Faithfull, B.

Montagu of Beaulieu, L.

Ferrers, E.

Mottistone, L.

Fraser of Kilmorack, L.

Mowbray and Stourton, L.

Gainford, L.

Munster, E.

561

Noel-Buxton, L.

Sandys, L.

Norfolk, D.

Seebohm, L.

Northbourne, L.

Skelmersdale, L.

Norwich, Bp.

Smith, L.

Nugent of Guildford, L.

Stamp, L.

O'Brien of Lothbury, L.

Strathclyde, L.

O'Neill of the Maine, L.

Sudeley, L.

Orkney, E.

Terrington, L.

Polwarth, L.

Thorneycroft, L.

Porritt, L.

Tranmire, L.

Portland, D.

Trenchard, V.

Reilly, L.

Trumpington, B.

Rochdale, V.

Vaux of Harrowden, L.

Rodney, L.

Vivian, L.

St. Aldwyn, E.

Westbury, L.

Saltoun, Ly.

York, Abp.

NOT-CONTENTS

Ardwick, L.

Howie of Troon, L.

Avebury, L.

Hutchinson of Lullington, L.

Blyton, L.

Jacques, L.

Bottomley, L.

Jeger, B.

Briginshaw, L.

Kearton, L.

Brockway, L.

Leatherland, L.

Bruce of Donington, L.

Melchett, L.

Buckmaster, V.

Molloy, L.

Caradon, L.

Monson, L.

Carmichael of Kelvingrove, L.

Moran, L.

Cledwyn of Penrhos, L.

Nicol, B.

Collison, L.

Oram, L.

David, B. [Teller.]

Ponsonby of Shulbrede, L. [Teller.]

Davies of Leek, L.

Dean of Beswick, L.

Prys-Davies, L.

Donaldson of Kingsbridge, L.

Rea, L.

Elwyn-Jones, L.

Roberthall, L.

Energlyn, L.

Ross of Marnock, L.

Ennals, L.

Rugby, L.

Ewart-Biggs, B.

Sefton of Garston, L.

Falkland, V.

Shinwell, L.

Fisher of Rednal, B.

Simon of Glaisdale, L.

Foot, L.

Stallard, L.

Gaitskell, B.

Stewart of Fulham, L.

Gallacher, L.

Stoddart of Swindon, L.

Galpern, L.

Underhill, L.

Gregson, L.

Wallace of Coslany, L.

Grey, E.

Walston, L.

Hatch of Lusby, L.

Whaddon, L.

Heycock, L.

Wilson of Langside, L.

Resolved in the affirmative, and Motion agreed to accordingly.

London Regional Transport: Services
2.56 p.m.
Lord Underhill: 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 are the levels of bus and Underground services (in bus and train miles) provided by London Regional Transport, whether LRT have any proposals for reducing their services and, if so, for what reasons.
Lord Brabazon of Tara: My Lords, LRT's annual business plan, published in December, indicates that LRT propose to increase Underground service levels slightly, from 29.4 million train miles this year to 29.5 million next year, and to reduce total bus mileage by 2 per cent, from 170 million to 167 million bus miles. The increase in Underground train mileage is accounted for by the opening of the Heathrow Terminal 4 extension to the Piccadilly line, and by
562
other improvements to the system. The decrease in bus mileage is broadly in line with the expected decline in demand for bus services of 2½ per cent.
Lord Underhill: My Lords, I thank the Minister for that information. Is it not correct that, as from 2nd February, London Regional Transport are proposing to cut or cancel some 40 bus services? Would he not agree that it is rather foolish for any undertaking not to match their services to demand bearing in mind that paragraph 24 of the annual business plan of London Regional Transport states that the demand for services in the current year was 16 per cent. above 1983, the reasons given being the fares policy and the introduction of the travelcard? Does not paragraph 13 of the same report say that the increase in bus usage was 10 per cent. and the increase in Underground usage 20 per cent, according to London Regional Transport's own figures?
Lord Brabazon of Tara: My Lords, it is true that LRT have announced a substantial number of bus service changes with effect from 2nd February. Where demand has proved insufficient to justify a continued service reductions are being made, but new services are also being introduced where demand has been identified. This represents a sensible adjustment of service provision to match changes in demand.
Lord Shinwell: My Lords, would the noble Lord not agree that efficient transport for London and its surburbs is of the utmost importance? Is he not aware that communications to enable people to get to work and to business, and to arrive home at a reasonable time, are essential from a morale point of view, and that if one interferes with communications in any state or form it is detrimental to our trading arrangements, and that we cannot afford? Can we have an assurance that there will be no reduction in London Transport services or interference in its efficiency unless this is utterly essential in the interests of the nation?
Lord Brabazon of Tara: My Lords, I quite agree with the noble Lord that an efficient system of transport for London is absolutely essential. As I have said, there is to be a small increase in the provision of Underground services and a small reduction in the provision of bus services, but only where the supply has to meet the demand.
Lord Avebury: My Lords, can the Minister say whether any of the reduction in bus mileage is attributable to the cancellation of services which are affected by violence against drivers and conductors, and whether the Government are satisfied with the measures that have been taken, following representations made by the trade unions concerning this problem, to combat the threat to the lives and limbs of bus drivers and conductors, and, indeed, of Underground staff?
Lord Brabazon of Tara: My Lords, so far as I know, no reductions in bus services have been caused for that reason. I can perhaps remind the noble Lord that I am answering an Unstarred Question from my noble friend Lord Belhaven and Stenton on precisely that subject tomorrow evening.
Lord Wallace of Coslany: My Lords, will the noble Lord say what constitutes demand and what constitutes service? On what basis is lack of demand or increased demand decided?
Lord Brabazon of Tara: My Lords, the reasons for change in demand have been the increase in car ownership and shifts of population. I do not have the figure with me, but I believe that the population of London as a whole has fallen by some 10 per cent. over recent years.
Lord Sefton of Garston: My Lords, surely that was not the question. The question was: what were the criteria for determining demand? Do the Government know? If they do not know those criteria, will they make sure that they are told?
Lord Brabazon of Tara: My Lords, the decision to provide the services rests with London Regional Transport. Obviously they look into the situation as best they can to try to meet supply and demand.
Lord Sefton of Garston: My Lords, so in effect the Members of this Chamber can take it that the control of the supply of services in London is no longer in the hands of any elected representatives?
Lord Brabazon of Tara: No, my Lords. The overall responsibility for London Regional Transport rests with the Government—my right honourable friend the Secretary of State—but, as with all nationalised industries, the day-to-day management rests with the board.
Lord Underhill: My Lords, my noble friend Lord Wallace asked: what is demand? Would the noble Lord agree that if a service to a hospital—Claybury; service number 275—is cancelled on a Sunday, then naturally demand is cancelled because nobody can travel on it?
Lord Brabazon of Tara: My Lords, I am afraid that I have no details of that particular service. All I can say is that I shall make sure that London Regional Transport are aware of the noble Lord's concern.

Soil Survey: Future Funding
3.2 p.m.
Lord Gainford: 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 make a statement on the future of the Soil Survey of England and Wales.
The Minister of State, Ministry of Agriculture, Fisheries and Food (Lord Belstead): My Lords, over the past 12 years the Ministry of Agriculture has funded the work of the Soil Survey at a total cost of approximately £12 million, and we have recently considered what resources should be made available for future work in this area. My right honourable friend announced on 12th January that, while there
564
will be no change in the funding of the survey in 1985–86, the Ministry's commission will be set at half the present level in 1986–87. This is intended to give the survey and the Agricultural and Food Research Council an opportunity to explore the possibility of alternative sources of income for future years.
Lord Gainford: My Lords, I thank my noble friend the Minister for that reply. In a Written Answer to an honourable Member in another place about the Soil Survey, the Minister mentioned the publication of maps at a scale of 1:250,000, which is four miles to the inch. Considering the varied geological features of this country, could not Her Majesty's Government encourage those concerned to produce survey maps at a larger scale?
Lord Belstead: My Lords, survey information at greater detail may well be required by a wide range of organisations, and this should offer potential for future funding through commissioned opportunities.
Lord Collison: My Lords, is not the noble Lord the Minister aware that his reply will give cause for concern to many people, not only those in research? This is because the work of the survey team is of such importance in classifying the soil. Surely it helps in agriculture to ensure that the right crop goes into the right kind of soil. It also helps the environmentalists and those who are concerned with planning, including the local authorities. Would he not agree that it would be disappointing to learn that this help is not going to continue in the longer term? Would he not agree that, in view of the importance of the work which is being done by the survey team, it should be allowed to continue, with help, into the more distant future?
Lord Belstead: My Lords, I agree entirely with the noble Lord, Lord Collison, that a number of organisations, both private and public, make use of survey information: for instance, the water industry, civil engineering and indeed nature conservation. This suggests that scope exists for generating income to cover future operations.
Lord Gallacher: My Lords, will the Minister not agree that to be thinking in terms of halving the level of the subsidy in 1986–87 will, unless alternative sources of funding are found, have a very serious effect on the value of the Soil Survey as such? Will he not further agree that this may well coincide with some of the toughest decisions which the Ministry of Agriculture has to take regarding the future of land use in this country, stemming directly from reviews by the European Community of support prices for agriculture?
Lord Belstead: My Lords, may I make it clear that we feel this is an area which ought to be commissioned by those who use the work of the survey? I in no way disagree, on behalf of the Government, with the fact that there are many organisations which are closely interested in the work of the survey. After 1986–87, obviously the Ministry of Agriculture could be a future customer, but no mass funding has actually been committed from that date onwards.
Lord Walston: My Lords, in view of the emphasis which is now being placed on the movement of agriculture from solely food production to the general realm of environmental protection, can the Minister assure us that this move will not be jeopardised in any way as a result of the curtailment of the Soil Survey financing?
Lord Belstead: My Lords, I see no reason why there should be that jeopardy. I have visited the Soil Survey, and I was shown work which is done for environmental organisations. If that work is of value, as I believe it is, I would envisage that it will be funded in the future.
Earl Ferrers: My Lords, can my noble friend say, in the absence of any private funding of the Soil Survey, what percentage of the staff of the Soil Survey would find their employment curtailed?
Lord Belstead: My Lords, that is a matter for the Agricultural and Food Research Council.

Business
Lord Denham: My Lords, at a convenient moment after 3.30 this afternoon my noble friend Lord Gowrie will, with the leave of the House, repeat in the form of a Statement an Answer to a Private Notice Question in another place on interest rates. This will be followed by my noble friend Lord Lucas of Chilworth, who, with the leave of the House, will repeat a Statement on financial services; and this will be followed by my noble friend Lord Brabazon of Tara, who, again with the leave of the House, will repeat a Statement on London Regional Transport: High Court judgment.
It may be for the convenience of the House if I announce that the Committee stage of the Insolvency Bill will be adjourned at approximately 7.30 p.m. for a short period, and that during this adjournment the Tyne and Wear Metro (Rateable Values) Order 1984 will be taken.

Dangerous Vessels Bill [H.L.]
Report received.

Insolvency Bill [H.L.]
3.8 p.m.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth): My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, that the House do now resolve itself into Committee.—(Lord Lucas of Chilworth.)
On Question, Motion agreed to.
House in Committee accordingly.
[The LORD ABERDARE in the Chair.]
Clause 1 [Unqualified persons not to act as insolvency practitioners]:
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 1:
Page 1, line 15, leave out ("a") and insert ("an insolvent").
The noble Lord said: This amendment relates to a person acting as an insolvency practitioner in relation to an insolvent company, by acting as its liquidator, administrator or administrative receiver, and the whole purpose of this amendment is to allow solvent companies to be liquidated without fuss or the involvement of an insolvency practitioner.
The definition of "insolvency" which appears in Amendment No. 2 is taken from Clause 82(8) of the Bill. The possible abuse of insolvent liquidations starting off as fake solvent liquidations is, as your Lordships' Committee will know, fully covered in Clause 67 of the Bill. This is a comparatively non-controversial amendment and I hope that the noble Lord will be able to accept it. I beg to move.
Lord Lucas of Chilworth: I am grateful to the noble Lord, Lord Bruce of Donington, for introducing the amendment. I had understood, however, that he was intending at this stage to speak also to Amendment No. 2. I imagine, therefore, that his outline has in fact included Amendment No. 2, though he did not formally say so?
Lord Bruce of Donington: I must apologise for that. I wish to make it clear that I was speaking to both Amendments Nos. 1 and 2 together.
Amendment No. 2: Page 1, line 17, at end insert ("and a company is insolvent for these purposes if its assets are for the time being insufficient for the payment of its debts and other liabilities.").
Lord Lucas of Chilworth: I regret to tell the noble Lord that I am unable to accept either of these two amendments. The Committee will be aware that one of the principal aims of the Bill is to overcome the concern expressed over the manner in which some insolvent estates have been administered in the past. At present, almost anyone can act as liquidator of a company or trustee of an individual. Being unqualified in an accountancy or legal profession, or being even a convicted criminal, holds no bar to these offices. It is proposed that in future any person who acts as an insolvency practitioner must be qualified to act in accordance with the provisions contained in the Bill.
The proposed amendments, if adopted, would have the effect of limiting the definition of insolvency practitioners to those acting only in relation to insolvent companies. On the face of it, this may appear to be quite reasonable as not all companies are insolvent when they go into liquidation or receivership and the procedure then may seem to be simpler. But that is not in fact so. First, the assets, which may be substantial, need to be administered by someone subject to the safeguards, such as bonding, that will be incorporated in the new licensing system. Secondly, there is no rigid distinction between solvent and insolvent liquidations. In particular, in the case of a member's voluntary winding-up, closer inspection of the company's financial position may show it to be insolvent and, indeed, in Clause 67 we have made

567
improved provision for the liquidator's duties when this becomes apparent to him. It would be very inconvenient if at that stage a new and qualified liquidator had to be brought in. Additionally, an unqualified person might fail to recognise the financial position and fail to ensure that the liquidation became a creditor's voluntary winding-up, which is provided for in Clause 67.
There is a final point, and that relates to administrators. An administration order can be made by the court in respect of a company which is still able to pay its debts, but which the court is satisfied will become unable to do so. Such a company would not come within the definition of "insolvency" in the proposed second amendment because its assets would, at the time, be sufficient for the payment of its debts and liabilities. Accordingly, an unqualified person could be appointed administrator. Subsequently, if the company becomes insolvent and unable to pay its debts—as was the prospect when the court made the administration order—a qualified insolvency practitioner would then have to be appointed as administrator. During the period between the administration order and the new appointment, the assets of the company would have been under the control of an unqualified person with the resulting risk to creditors and their shareholders.
I have spoken at some length in explaining our objection to both of these amendments. I hope that with that explanation, which is for the general protection of creditors, the noble Lord will agree to withdraw his two amendments.
Lord Denning: I hope that your Lordships will not accept this amendment. Whether it is a liquidator, an administrator or an administrator's receiver, you need a man with expertise—such as the expertise of a chartered accountant or a solicitor—to conduct the work and to do it properly, no matter whether the company is solvent or insolvent. Therefore, I hope that the amendment will not be pressed.
3.15 p.m.
Lord Bruce of Donington: I am most grateful for the explanation which has been given by the noble Lord and, oddly enough, for the support which has been given to the noble Lord by the noble and learned Lord, Lord Denning. Perhaps I was bending over backwards to ensure that the accountancy professions did not get a monopoly of these winding-ups and I rather sought to give the noble Lord a way out if he decided that, on the whole, solvent companies ought to be exempt from this provision. After all, last year there were 3,772 members' voluntary liquidations that went through quite successfully.
As your Lordships' Committee is probably aware, there has to be a declaration of solvency before there is a member's voluntary winding-up. I was most anxious that the professions should not be seeking to enforce a monopoly when no monopoly was strictly necessary. The noble Lord has indicated that he wishes the monopoly to be retained and, of course, as the noble and learned Lord, Lord Denning, has indicated, it is very desirable frequently, even in a member's
568
voluntary winding-up of a company, particularly in view of the fact that the state may change between the initial stage and the later stage. Perhaps it is better after all to have approved practitioners involved. I am most grateful to the noble Lord and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 2 not moved.]
Clause 1 agreed to.
Clause 2 [Qualification of insolvency practitioners]:
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 3:
Page 2, line 40, leave out ("or an associate of his").
The noble Lord said: Amendment No. 3 seeks to eliminate from the Bill at line 40 on page 2 the words, "or an associate of his", because the associate is referred to twice. It can produce some very bizarre results because this is a criminal clause and it ought to be drawn with very great care. Some of the results that might accrue from this may be stated as follows. For example, a cleaning lady of a firm of insolvent practitioners may have divorced her husband 20 years ago. If the person works for the particular company involved, then the partner could not act as its receiver. Again, an insolvency practitioner would be disqualified from acting as a trustee, whether he knew of the relevant facts or not, if the divorced former husband of a granddaughter of his owed any money to the common law wife of the bankrupt's grandfather. That would tend to be a little bizarre, and I cannot help feeling that when this part of the Bill was originally drawn possibly these very wide concepts had not been taken fully into account. I beg to move.
Lord Lucas of Chilworth: I am sure that the Committee will recognise that it is desirable that the public should have trust in those who handle insolvencies, and the proposed Clause 2 provides that a person is not qualified to act as an insolvency practitioner unless he has a certificate issued under Clause 3 authorising him to act. However, that is not sufficient in itself. It is also essential that there are provisions to prohibit persons who are closely connected with a debtor or a company from acting as an insolvency practitioner. Accordingly, Clause 2 provides that a person is not qualified to act as an insolvency practitioner in relation to a particular person if he or an associate of his (and I am sure the noble Lord accepts that "he" also means "she") is an associate of that person or is connected with that person in one way or another.
The word "associate" is of course defined at length in Clause 200, and it includes such persons as husbands, wives, relatives, partners, employers and employees. The effect of the proposed amendment to omit the words "or an associate of his" from Clause 2 would be to reduce the area covered by the net cast by the clause and ensure that the relationship between a practitioner's associates and the bankrupt company and its associates did not disqualify the practitioner from acting. For example, the amendment would allow a practitioner to act as trustee in the bankruptcy of the wife of his employee. That employee might well

569
be the senior manager of the insolvency practice, and clearly this would be undesirable.
While we are anxious to ensure that the new provisions work to protect the interests of the creditor and the shareholder, we are aware from early consultation with both the accountancy and the legal professions that they are concerned as to the complexity and range of relationships and persons caught by the provision—not, I have to confess, that any of those bodies has proposed such a bizarre relationship as that advanced by the noble Lord, Lord Bruce of Donington. But those bodies are particularly concerned that their members will inadvertently render themselves liable to criminal penalties.
We acknowledge that concern and the view of the noble Lord opposite. I think that the proper action this afternoon would be for me to give the Committee an assurance that we shall review the position to see whether it can be made simpler while at the same time preserving the basic principle that insolvency practitioners must not act when they have a conflict of interests. That must be quite clearly shown to them so that there is, as it were, a self-regulatory process. I am quite happy to give that assurance. If the noble Lord, Lord Bruce, or, indeed, the noble Lord, Lord Prys-Davies, can help us in our further consideration, I should be most grateful to both of them.
Lord Lloyd of Kilgerran: The Minister has said that he will give an assurance to look at this matter again. I wonder whether, at the same time, he would look at the definition of an "associate" in Clause 200. I was in two minds about what to do about this amendment, but I was extremely alarmed to see that the definition of the word "associate" takes up a page and a half in Clause 200. I should have thought that the Minister might also think that a revision of Clause 200 might be a useful exercise to undertake at this stage.
Lord Prys-Davies: I am not, and I shall never be, a replacement or a substitute for my noble friend Lord Mishcon; and I appreciate that this is a very important Bill. But I shall do the best I can to support my noble friend Lord Bruce, although I am sure that that support will be inadequate. Like the noble Lord, Lord Lloyd of Kilgerran, I am very concerned about the definition of "associate" in Clause 200. We very much agree with the Minister that an insolvency practitioner should be, and should be seen to be, an independent party, because he has to act impartially in the interests of creditors.
However, I am in difficulty (and it may be due to my own inadequacy) in understanding Clause 200(8). Who is a relative by virtue of this definition? It seems to me that it is at least a person descending from each of the four grandparents. But that is not the end of the matter because the subsection goes on to speak of an individual's brother, sister, uncle, aunt, nephew, niece, lineal ancestor or lineal descendant. A lineal descendant could descend from the eight grandparents. Is that the intention? Therefore, I should be very grateful if the Minister could deal with the meaning of "lineal descendant" as well as what he describes (although not necessarily all of us would concede this) as the bizarre example which my noble friend Lord Bruce has given to the Committee.
Lord Lucas of Chilworth: Notwithstanding the opening remarks of the noble Lord, Lord Prys-Davies, I am quite sure that the Committee will enjoy the benefit of his experience over a wide field. The noble Lord will of course understand that I have not been, and have never been, involved in the legal profession, and this afternoon I do not propose to debate with him the lineal descent point which he has outlined. Nor, I must confess, have I come prepared to debate Clause 200, which seemed to me to be about three or four days away from us this afternoon. However, as both the noble Lord, Lord Lloyd of Kilgerran, and the noble Lord opposite have made the point quite forcefully, I add to my earlier assurance a second assurance that at the same time we shall have a look at Clause 200 so that when we reach it we can find a larger measure of agreement than is obvious this afternoon.
Lord Lloyd of Kilgerran: I should like to thank the Minister for that assurance.
Lord Bruce of Donington: I am grateful to the noble Lord. It was, of course, quite clear from the moment that this amendment was tabled that Clause 200 would be involved in this, because Clause 200 is the definition clause and any reference to an "associate" in this particular clause of the Bill would automatically draw one's mind to Clause 200.
I invite the Committee's attention to the fact that the definition in subsection (8), to which my noble friend has referred, applies in its duality. As the word "associate" is repeated twice it means that, although subsection (8) applies to the first "associate", it also applies in detail to every component of the second "associate". Quite clearly that must be wrong. For what it is worth, my own view—and I am not a lawyer—is that the noble Lord and his department tried to tie this up too tightly. They determined that they would include in the statute every conceivable word and every conceivable subsection that would make it absolutely impossible for a liquidator or receiver who was connected to the subject of the winding-up, however remotely, to act.
I cannot help feeling that there must be another way. I hope that the noble Lord will address himself to that problem. In view of his assurance, which is in quite categorical terms, I myself, and speaking for my noble friends on this side of the Committee, am quite willing to leave this matter to the Report stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
3.30 p.m.
On Question, Whether Clause 2 shall stand part of the Bill?
Lord Bruce of Donington: Now that we have got the amendments on this particular section of the Bill out of the way, I wonder whether between now and the Report stage, the noble Lord can give consideration to other matters. Can he give consideration to including within this clause minors and people of unsound mind? Will he consider giving that some specific recommendation?

571
Can he also give consideration to the position of individuals who have been convicted at any time of an offence involving serious fraud and whether they should be entitled to act as insolvency practitioners? It may be argued that this is already covered within Clause 4(1)(a), but it is a matter on which we on this side of the Committee would welcome clarification at the Report stage, or, if the Government felt inclined to put down an amendment for the Report stage covering these two particular points, it might be of advantage to the further progress of the Bill.
Lord Lucas of Chilworth: Since an insolvency practitioner will be required to be licensed generally under the Bill it would seem odd were a person who had been convicted of a serious fraud to find himself able to meet the fitness to practise conditions that would apply in the case of a licence. I would suspect that there is provision to debar minors and those people of unsound mind, although I understand that the law is not absolutely clear on this latter point. However, I shall be quite happy, in the consideration of the detailed point which I have undertaken to give, to consider the wider points.
Clause 2 agreed to.
Clauses 3 and 4 agreed to.
Schedule 1 [The Tribunal]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 4:
Page 156, line 10, leave out ("in") and insert ("of").
The noble Lord said: I beg to move Amendment No. 4. This amendment corrects a minor printing error which has crept into paragraph 1(1)(a) of Schedule 1 to the Bill. The Lord President's title should be "the Lord President of the Court of Session" rather than "in Session" as presently printed. I beg to move.
On Question, amendment agreed to.
Schedule 1, as amended, agreed to.
Clause 5 and 6 agreed to.
Clause 7 [Automatic disqualification in certain cases of directors of companies going into liquidation]:
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 5:
Page 4, line 37, after ("Act") insert ("or in respect of a company which may be wound up under Part XXI of the 1985 Act").
The noble Lord said: I beg leave to move the amendment standing in my name. It is desired to put into this particular subsection of Clause 7 words which bring companies which are overseas companies into the ambit of the Bill. Rogues may well use Jersey or other overseas companies to avoid risk of disqualification. It is our view that the sanction ought to extend to all companies wherever formed which trade in the United Kingdom and are therefore likely to be compulsorily wound up there.
If the noble Lord looks at page 410 of the Companies (Consolidation) (Consequential Provisions) Act, as it will soon be, he will find there the provisions relating to winding up of unregistered
572
companies. It was thought that the inclusion of these words would achieve the purpose we have in mind. There are companies which trade in the United Kingdom, which attract creditors in the United Kingdom, which incur indebtedness in the United Kingdom, which are nevertheless registered outside, and it might be a good thing if these were brought into the ambit of the particular clause that we are now discussing.
I have no firm views as to the exact wording of this. If the noble Lord and his advisers think that it is completely unnecessary, I am prepared to accept the position. It is in essence a probing amendment, and I should be obliged if I could have the noble Lord's attitude towards it. I beg to move.
Lord Lucas of Chilworth: I do not think that this amendment is in fact necessary. The clause applies when an unregistered company is wound up if it is unable to pay its debts—that is in subsection (5)(b)—or if the court is of the opinion that it is just and equitable that the company should be wound up.
So far as concerns a company registered outside the United Kingdom but trading in the United Kingdom under the circumstances which the noble Lord has described, that company, if it were to be wound up, would be wound up as an unregistered company. Therefore I believe that there is an adequate provision.
Lord Bruce of Donington: The noble Lord has been advised on this point and I have heard his reply. I ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Brabazon of Tara: I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Interest Rates
3.39 p.m.
The Chancellor of the Duchy of Lancaster and Minister for the Arts (The Earl of Gowrie): My Lords, with the leave of the House, I shall now repeat in the form of a Statement the Answer to a Private Notice Question being given in another place by my right honourable friend the Chancellor of the Exchequer. The Statement reads as follows:
"At noon yesterday, following a rise in market interest rates, one of the clearing banks raised its base rate from 12 to 14 per cent. The Bank of England raised its dealing rates by a corresponding amount when it dealt in the bill market at 12.15 p.m. The other clearing banks followed within the next hour or so.
"Yesterday afternoon, I gave evidence on these and related matters at considerable length to the Select Committee on the Treasury and Civil Service, which I understand will be reporting to the House shortly".
My Lords, that concludes my right honourable friend's Statement.
Lord Stoddart of Swindon: My Lords, I should like to thank the noble Earl for repeating the Statement which was made by the Chancellor of the Exchequer in reply to a Private Notice Question in the other place. Does the noble Earl agree that the Statement is not very forthcoming, bearing in mind the seriousness of the position? Is he aware that the recent savage increases in the interest rate, culminating in the 2 per cent. increase yesterday, have sent shock waves throughout the City and the financial markets causing uncertainty and convulsions throughout all our national institutions? That is the seriousness of the matter.
Can the noble Earl tell the House what is the Government's policy on the value of the pound abroad? Is it still that it should float freely or do recent events indicate a radical change in policy? Can he also inform the House what the Government believe to be the correct value of the pound against other currencies? Is it 1 dollar 10 cents, 1 dollar 11 cents, 1 dollar 20 cents against the dollar or what figure? How far are the Government prepared to go in raising interest rates to defend the Government's perceived true value of the pound? Is the figure 14 per cent., which we now have; is it 15 per cent., which we could have tomorrow, or is it 18 per cent. or 20 per cent? What is the figure? Just how high will the Government allow interest rates to go?
Can the noble Earl tell the House, because this is so important, what effect these interest rate rises will have on industry? Is it not likely that industry will stop investing and is that not serious for the country? Is it not likely that these high interest rates will stop the Chancellor's much-vaunted economic recovery in its tracks and also reduce his room for manoeuvre in the forthcoming Budget? Finally, do not the Government deserve the deepest censure for their handling of the economy to date in allowing over-reliance on oil revenues to undermine Britain's manufacturing base, and with it the long-term interests of this country?
Lord Ezra: My Lords, I should like to say that the Private Notice Question was asked by a member of the Alliance in another place. May I reiterate the points raised by the noble Lord, Lord Stoddart of Swindon, in drawing attention to the seriousness of this situation? We are concerned that the answer to this PNQ was given in such laconic terms.
If one considers the movement of interest rates in this country over the past year or so one finds that it is quite staggering. Having been raised to 12 per cent. in the middle of last year, it came down to 9.5 per cent. by the end of the year, then moved up steadily in the course of this year, which is still relatively young, to no less than 14 per cent. The question I should like to raise, in view of the fact that one of the major objectives of economic policy in this country must be the regeneration of industry, is on the basis of these violent moves in interest rates how can we expect that to occur?
Related to that question is the way in which the Government are reacting to movements in the value of the currency. We were told right up to the last minute that this was merely a market phenomenon and that the Government wished to keep their hands off. Then we were told that the Government wished to intervene
574
to make sure that currency did not fall too low and they felt it was too low now. Thus there were these precipitate rises in interest rates.
As a second question, we have to ask whether there is no other way in which the Government can seek to ensure that we have a more stable currency without juggling about with the interest rates. It seems that a situation which could have been prepared for, bearing in mind our dependence upon our oil wealth, was not prepared for. This situation, which might have been anticipated, seems to take the Government completely by surprise. The result of it is that the measures taken to introduce stability into the currency have in turn led to a serious situation for industry.
If we continue in this manner with wildly fluctuating currency values and wildly fluctuating interest rates, we shall surely as an economy be seriously harmed. I should welcome the comments of the noble Earl on those matters.
The Earl of Gowrie: My Lords, as with rather different language both noble Lords on the Front Benches opposite effectively asked me the same questions, perhaps the House will allow me to try to answer them together.
Of course industry does not welcome, any more than anyone welcomes, increases in interest rates; but what counts is the aggregate of those increases overall over a period of time. In this context, I commend the wise words of the director of the CBI, Sir Terence Beckett, as reported in The Times this morning. He said that the base rate rise was no help to industry and had no internal justification. But:
"steps have to be made to combat international speculation against sterling in the short term."
In reply to the noble Lord, Lord Stoddart of Swindon, may I say that there is no target for the exchange rate. However, both noble Lords asked me how this squares with the Government's view of the markets. There is a world of difference between allowing markets to determine the general level of a currency and reacting to short-term speculative pressures. All governments have to react to movements in sterling and this has been particularly true of the past 10 or 15 years when the financial interactions of the Western world have been particularly close. What matters really is the result of these reactions in aggregate over time.
We have reacted to give very strong signals to the money markets that there is no slacking whatsoever by this Government on our counter-inflationary policies or targets. Any remarks which would indicate that there was any slacking on these targets would have an adverse effect.
Lord Shinwell: My Lords, now that the Front Benches have had their say, perhaps we Back-Benchers may be permitted to ask a question or two.
The Statement repeated by the Minister which has been made in another place was very short. It was particularly brief in the context of the euphoria which we have heard for several weeks about cutting down taxes in the next Budget. Regarding the important situation in which the pound had found itself there was nothing to worry about. In fact, the country was on the

575
road to the creation of a new kind of society supported by the noble Earl, Lord Stockton, who tried to give it a bit of a boost. I regret that he is not present. Are we to understand that there is something wrong with the pound? Were we not always told that to retain the value of sterling was of fundamental importance?
I have been reading the press. What we are getting from the press media, if they are truthful—and it has been said that the only truth one gets from the press is the date of publication—is that they have been talking about a financial crisis. What is to happen? Is the country in a terrible mess? What has gone wrong? Is it just a matter of a drop in oil prices? Were we not aware that something of the kind would happen? Have we no strength when the OPEC meets and discusses the price of the oil, be it crude oil or light oil?
The Government should now become a little bit ashamed of themselves. But do not get me in a hurry; we are entitled to express an opinion about our resources. We are concerned about our taxes, we are concerned about our cost of living, and we are concerned about a variety of other matters affecting our livelihoods. And we are concerned about the nation and the various facets of the nation. Now is the time to speak out. We are not going to be content with a number of short Statements as we have had from the Minister. We know the Minister is very capable—perhaps sometimes too capable. Some day when he is too capable, we will discover how clever he is.
Anyway, let us leave him for the moment. The point is that we are not going to be content with Statements of this kind. In fact, this calls for a debate. I have no right to ask for a debate, but my comrades on the Front Bench have much more authority than I possess and I am not wishing to intervene in regard to that authority. They may think that this is an occasion when we should ask for a full-blooded debate; and, by the way, not the kind of debate that we had the other day on the economic situation when I had to listen for four or five hours to a succession of the platitudes that I have heard for the last 20 years in your Lordships' House. The television experiment was all right. But what a collection of speeches! I was horrified when I listened to them. I could speak them all, by heart, almost every one from both sides of the House. I have heard them so often. There was not a fresh idea. Nobody had one.
The noble Earl, Lord Stockton, tried to introduce one; but his also is beginning to fade a bit. And who discovered that? The press have discovered it. A few weeks ago he was a star performer. Look at the papers now! Look at the Daily Telegraph—the Telegraph, of all papers which, as everyone knows, is a Tory propaganda sheet.
My Lords, something has got to be done and the way to deal with the situation is to have a debate on the financial position of our country at the present time and on what is the remedy. Is there a remedy? If there is one, tell us what it is. If there is not a remedy, we have got to put up with it.
The Earl of Gowrie: My Lords, as to the brevity of my right honourable friend's Statement, I can do no
576
more in this House than repeat what he said. But it is only fair to my right honourable friend to say that he gave a very detailed, publicly broadcast statement yesterday precisely on these issues. My right honourable friend's stern counter-inflationary policy applies to rhetoric as well as to money.
On the question that the noble Lord, Lord Shinwell, put to me directly—I am glad that he is lending his great weight and influence to pressures to reduce taxation; and I heartily agree with him there—as to whether the country was in a crisis over this issue, we certainly believe that anxieties over sterling have been enormously overdone, as has been the emphasis on potential oil price developments. To read some market comment, one would think that this country was a one-commodity economy; whereas the fact of the matter—which the whole world, not least the intelligent men who run the money markets can see—is that oil accounts for only 5 per cent. of our national output and 8½ per cent. of tax revenues. So that even if one got to the wholly surreal position of a zero value on this important commodity, the territory affected would be only 5 per cent. and 8½ per cent. respectively.
It is understandable as part of our tradition that the Opposition would "have a go" on the devaluation of sterling and the measures that the Government have had to take to react to it, as have all governments. But I do not think that even the sternest critics of the present Government are hurling the same kinds of criticism against the Swiss or the West Germans, let alone the French. But, in fact, since this Government came into office, the Swiss franc has fallen 35 per cent. against the dollar, the deutschmark has fallen by 40 per cent. and sterling by 46 per cent. So that the European economies are all agreed that part of the difficulty is what seems to us to be a gross overvaluation by markets of the dollar. The fact that the world's reserve currency is now the major trading currency in the world gives difficulties for other currencies as well as our own.
We have been much more sharply anxious about whether the world markets—perhaps as a result of listening to some debates in your Lordships' House and elsewhere—might be suspicious as to whether the Government would be relaxing their counter-inflationary targets; and we have taken these measures to give a very sharp reply to those suggestions.
Lord Bruce-Gardyne: My Lords, in the light of the question of the noble Lord, Lord Stoddart of Swindon, can my noble friend tell us which national institutions have gone "into convulsions" since mid-day yesterday? And is it not the fact that the underlying situation today, with very low external borrowings and a much lower rate of inflation, is fundamentally different from previous so-called sterling crises of the past; and that, in view of the Government's assurance that they are determined to persevere with the elimination of inflation, there is very good reason to expect that sterling will re-establish its status fairly rapidly?
The Earl of Gowrie: My Lords, I am grateful to my noble friend for giving me the chance to remind the House that the noble Lord, Lord Stoddart, supported

577
the last Labour Government, who went bankrupt and had to go cap in hand to the IMF. By contrast, as my noble friend has reminded us, we have paid off huge tranches of accumulated debt, brought down inflation substantially, and have seen sustained growth for four years in a row. The present response is proof that we are continuing to keep up the counter-inflationary pressure without which, over time, that sustained growth would be threatened.
Lord Dean of Beswick: My Lords, bearing in mind that one of the major areas of conflict at this point in time is that between Her Majesty's Government and the local authorities, with the shameful rate-capping legislation, may I ask the noble Earl the Minister what effect the dramatic increases in borrowing rates referred to in his last two announcements will have on the amount that local authorities have to repay on their loan debt charges? I have in mind that, as I understand it, today's announcement will mean that in order to cope with the situation the City of Birmingham, for instance, may well have to find a sum of £20 million, without any extra spending; and that Leeds may have to find about £14 million to £15 million, without extra spending. Can the noble Earl give an undertaking that, if that is the case, it will be taken into account in the rate-capping process?
The Earl of Gowrie: My Lords, I must say that after what seems to me like year after year of repetition of simple truths it seems quite extraordinary that the noble Lord could assume that local authorities could behave as if they occupied a different economy from the national economy, particularly in view of the fact that more than 50 per cent. of local authority money is supplied by central taxpayers. Just as the Government have to react to events which they do not welcome and which they think are over-estimated in intensity externally, so, I am afraid, there is no way that one can protect local authorities from the same consequences. But I am sure that if we all keep our heads and our nerves and keep our counter-inflationary policies—policies which Governments of both parties have laid emphasis upon when they have been in office—there is no reason over the longer term why these immediate movements in the money market should be too disruptive.
Lord Dean of Beswick: My Lords—
The Earl of Gowrie: My Lords, I do consider that I answered it in terms. I said that we could not insulate local authorities from other factors operating in the national economy.
Viscount Eccles: My Lords, having lived for the best part of the last three months in or around New York, I should like to ask my noble friend whether he is aware how they look at sterling from that end. First of all, they say that the dollar has risen against all currencies but a little more against sterling than against the other major currencies. When they ask why that is it always comes down to the miners' strike. They are not interested in interest rates; they are not very much interested in petrol prices; but what they are interested in is that we should settle the miners' strike so that the responsibility for the industry is
578
returned to the National Coal Board. If my noble friend can assure us that that is coming fairly soon, he will see a big change in the sterling rate.
The Earl of Gowrie: My Lords, I congratulate my noble friend on his return from honeymoon in New York and I hope that that honeymoon was not bedevilled by too much economic debate. It is indeed the case that the world outside is watching our country carefully in respect of our sorting out our internal affairs. As my noble friend is well aware, whether it is on counter-inflationary issues or on issues of who manages great nationalised industries, the Government have made their position clear and are keeping the pressure up. I am glad to say that in this respect they seem to be going in the right direction.
Lord Ross of Marnock: My Lords, as I understood the Statement, it consisted purely of what the banks have done in reacting to a situation. We have not heard a word of what the Government have done or of what they are going to do in this situation or in respect of the consequences to industry. There is a complacency being shown that is really frightening.
The Earl of Gowrie: My Lords, I would say to the noble Lord, Lord Ross, that in my respectful judgment it would be extremely complacent if the Government behaved as if there were no consequences to the national economy of these speculative movements in the money markets. That is why, as I said earlier, all Governments have to react to them, and we have done so. We are confident that the underlying situation is sound and that therefore our reaction will have the right results.
Lord Stallard: My Lords, may I say to the noble Earl that his replies this afternoon will be of little comfort to the millions of unemployed out there who are worried about the possibility even in the remote future of finding work? They will be of little comfort to the thousands of millions of home owners who are very concerned about the effects on their mortgages or to those people who are genuinely concerned, as was the noble Viscount who has just come back from America, about the Government's inability to settle the miners' dispute.
May I remind him of what was said by my noble friend who spoke from these Front Benches and by the noble Lord who spoke from the Alliance Benches on the question of manufacturing industry? He will recall that in the debate last week a number of Members made the point about the decimation and destruction of our manufacturing industry. Is not what we are witnessing now a direct reflection of that Government policy—the decimation of manufacturing industry and the impression, rightly or wrongly, given abroad throughout the world that we are now simply a one-commodity economy—oil—and no more? That is not destined to bring investment into our industry. Will the noble Earl answer those points rather than try to make petty party points?
The Earl of Gowrie: My Lords, I am not aware of having made any points which would have been resoundingly endorsed by Central Office, but the

579
miners are settling the miners' dispute and, since it is their industry, surely that is the right way forward.
As to the view that Britain is a one—commodity economy, as I have said, the facts of the matter wholly disprove this and the Government do not behave as if it were. I am confident, however, that our reactions to short—term and erratic speculative pressure have been the right ones and I hope that, in the interests of the whole country, for which the noble Lord himself was appealing, and not least because of the concern that we all feel about unemployed people and their prospect of jobs, we shall leave it at that.
Lord Diamond: My Lords, why does the noble Earl keep on referring to short—term speculative pressures, when the pound has been coming down, if one looks at the graph, almost in a straight line from the time when it was at $2.40 to the time today when it is $1.11? How on earth can the noble Earl reconcile that with the true situation? How on earth can he reconcile the facts with what his noble friend Lord Eccles has just said about the miners' strike? Of course the miners' strike has done enormous damage to the economy of this country, but why should sterling suddenly shoot downwards—not even fall, but shoot downwards—when the miners' strike looks like being settled? Why does he take comfort from the noble Lord, Lord Bruce—Gardyne, who suggests to him that it is purely temporary and that the pound is likely to go up? Does he recollect that another noble Lord—I am grateful for his attention—asked him a similar question only a short time ago, with the same result, and the net result has been that the pound has gone down since then? When will the Government take their responsibilities in this field seriously?
The Earl of Gowrie: The noble Lord, Lord Diamond, has asked me a serious question and I will give him a serious answer. The fact of the matter is that I remember many people, not least supporters of the noble Lord, Lord Diamond, and many supporters of the Government, complaining fiercely at the way money markets—erratically, as it turned out, and those were the words I used—over-valued the pound when it was standing at $2·40. It is very difficult to establish what precisely the right rate is. There are some factors in the money markets' movements against sterling which are wholly outside the Government's control. Some, like our own counter-inflationary policy and interest rate policy, are within our control and we have reacted accordingly.
Lord Stoddart of Swindon: My Lords, the noble Earl castigated my noble friend Lord Dean of Beswick for not understanding simple truths. I thought that that was rather unkind. Is it not one of the simple truths at the moment that real interest rates, after yesterday's rise, are the highest they have been in the United Kingdom for 150 years? Is not that a simple truth that really ought to worry the Government?
Is he aware that we perfectly well understand the short-term difficulties that he describes, but I would ask: how short is "short-term"? If he has a term in mind can he tell us when interest rates are likely to drop? That, I am sure, is a question that many
580
industrialists, including Sir Terence Beckett, and certainly many local authorities and house owners will be asking.
The Chancellor, as I am sure the noble Earl would agree, did not give answers to these vital questions in his evidence to the Select Committee yesterday. Indeed, would the noble Earl not agree that the Chancellor's performance was hesitant and that he had no idea where this country was going? Is it not a real and proper condemnation of this Government to say that they simply do not have any proper objectives in view and they are allowing the economy to run them instead of themselves running the economy, in spite of the fact that over the last five years, unlike the last Labour Government, referred to by the noble Lord, Lord Bruce-Gardyne, this Government have had $13,000 million a year of extra revenue from the North Sea—something that in fact they have not taken proper advantage of and indeed have dissipated in a virtual economic rake's progress?
The Earl of Gowrie: My Lords, that statement is untrue on so many points that it is very difficult to answer it in a question and answer session. But may I say that the Government have never hesitated to make their policy wholly clear. It is sustained growth with low inflation. That, as I pointed out to your Lordships in a recent debate, has in fact been achieved by the Government over a period of four years. It is not sufficient to rest policy on that central objective, but it is quite impossible to achieve other objectives without holding to that central objective: and Government after Government in this country, regardless of their political disposition, have learned that the hard way.
As for the question of historical rates of interest, of course these are far too high, and I made it clear in my earlier remarks that we believe the anxieties about sterling which have generated these very high rates of interest are greatly overdone. I would point out to the noble Lord. Lord Stoddart of Swindon, that, in fact, in recent months and over the last two years interest rates in America have been at an historical high as well. We are living in a very different world from the world that we all grew up in—a world in which there are very large sums of money moving electronically and short-term around the money markets of the world. We have to react to this but we cannot be conditioned by it, and in our central policies we are not being conditioned by this.
Lord Mackie of Benshie: My Lords, is the noble Earl aware that the German deutschmark has been performing relatively better in the rise of the dollar and yet their interest rates are way below ours? Is this not significant, and should the Government not be considering what the West Germans are doing which we are not doing, when they manage to hold interest rates down to a reasonable figure for their industry?
The Earl of Gowrie: My Lords, I agree with a great deal of that. The Germans have been running a lower rate of inflation than we have, and that is one of the reasons why we give such emphasis to this policy. Nevertheless, while acknowledging admiringly that truism about the German economy, I would point out to the noble Lord and the House that the

581
deutschmark—even the mighty deutschmark!—has devalued by 40 per cent. against the dollar since 1979. Our figure is 46 per cent. So the difference is not too great.
Viscount Caldecote: My Lords, will my noble friend not agree that one of the factors putting pressure on the sterling exchange rate is the fact that pay increases in industry are running ahead of increases in productivity, and that one of the greatest contributions that noble Lords opposite could make would be to encourage their trade union friends not to ask for pay rises above increases in productivity, so restoring greater confidence in industry and making it more competitive?
The Earl of Gowrie: My Lords, I am grateful to my noble friend. It is indeed the case that a factor in the lower German inflation rate has been a lower level of pay increases overall. I would also point out, particularly in respect of the remarks made by the noble Lord, Lord Dean of Beswick, that American real wages over the last three or four years have been falling, or have kept level-pegging, and that this is a major factor in their better performance on unemployment than our own.
Lord Diamond: My Lords, owing to the total inadequacy of the noble Earl's right honourable friend's Statement and to the inadequacy of the noble Earl's replies, and, indeed, to the inappropriateness of this kind of exchange for dealing with this most serious situation, we shall certainly be pressing through the usual channels for a full debate in the Government's time.
The Earl of Gowrie: My Lords, that is the noble Lord's right, and I shall be delighted to engage in debate with him if the House wishes me to do so. But the fact of the matter is that after spelling out what seems to me to be fairly widely agreed (indeed, they might be criticised for being simplistic) facts of life about the modern international economy, I do not accept the criticisms that he has made.

Financial Services
4.14 p.m.
Lord Lucas of Chilworth: My Lords, it might be for the convenience of the House if, with the permission of the House, I repeat a Statement on financial services which is now 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 wish to make a statement about the Government's proposals to establish a new regulatory framework for the financial services industry. These proposals are published in a White Paper which I have today laid before the House and, subject to the parliamentary timetable, I plan to introduce a Bill in the next Session for their implementation.
"Modern technology and intense international competition are bringing about rapid changes in the financial services industry. The responsibility for
582
responding effectively to these changes lies principally with the industry. The Government's task—in this sector as in others—is to create an environment in which it can do so. This is best done by allowing market forces to operate responsibly but without unnecessary constraints, in a way which promotes efficient and competitive business.
"A prerequisite for an internationally competitive industry is a clear regulatory framework within which practitioners and customers can deal with confidence, and which safeguards the interests of investors. This regulatory framework must be capable of adjusting to changes in the shape of the markets, and of accommodating rather than stifling innovation.
"This, the proposals set out in the White Paper are designed to achieve. They will assist enforcement, deter fraud and malpractice, improve disclosure and lay down the principles on which business should be conducted. The proposals cover both a new regulatory framework and a new institutional structure through which it will work.
"First, the regulatory framework. This will be based on new and comprehensive definitions of investment and of investment business. It will be an offence to carry on an investment business in the United Kingdom without authorisation. To obtain such authorisation, an investment business will have to show it is fit and proper and will be required to observe detailed rules for the conduct of business based on principles to be set out in the legislation. Breach of these rules will be subject to sanctions up to and including the withdrawal of the authorisation to trade. There will be a number of important further changes. I intend to rationalise and update the legal provisions dealing with offer documents and the advertising of investments, first to make clear what must be disclosed and second to establish standard provisions on civil and criminal liability for omissions and mistakes. I also propose to liberalise some restrictions on the unit trust industry and enable it, subject to appropriate safeguards, to offer a greater variety of schemes to the public. Commissions and other payments to intermediaries will be disclosed. As far as is possible, the marketing of life assurance contracts will be treated in a manner similar to the marketing of other investments.
"I now turn to the institutional structure designed to implement the new regulatory framework. It is based on my belief that the crucial tasks of authorising investment businesses and keeping high standards of business conduct amongst those so authorised can be discharged much more effectively by those closest to the market—practitioners and their customers—rather than by Government. Malpractices can be identified and dealt with more quickly by these people than by Government regulators.
"I therefore intend to build upon what is best in self-regulation. I shall propose legislation to confer on the Secretary of State the necessary powers to grant authorisation to investment businesses; but also to enable him to delegate regulatory responsibility, including the power of authorisation,

583
to one or more bodies composed both of those who provide and those who use financial services. Before doing so I shall be required to be satisfied on the composition, constitution and proposed rules of these bodies and I will have power to withdraw delegated powers in the event that such a body fails to continue to meet the criteria. Steps are already in train to set up the bodies. I hope that those concerned in the financial services industry will press ahead, so that the structure is in place by the time the legislation is on the statute book.
"The Government see great advantages in the system of self-regulation within a statutory framework. At the same time we recognise that self-regulation should receive statutory backing only if there is proper accountability. The White Paper sets out the detailed means by which accountability of these bodies to Government and Parliament will be achieved.
"I would highlight three particular statutory safeguards. First, there will be a right of appeal on authorisation and on penalties for breach of the rules to an independent tribunal to be appointed by the Secretary of State. Secondly, the Secretary of State will have the power, to be exercised on the advice of the Director General of Fair Trading, to revoke or amend rules which have anti-competitive effects. Thirdly, the Secretary of State will have various powers of appointment. I believe our proposals combine the advantages of self-regulation within a statutory framework and proper accountability to Parliament.
"I have today set out the Government's aims; our proposals for a new regulatory framework; and our proposals for a new institutional structure. The White Paper contains many details which the House will no doubt wish to study and then debate. I look forward to the contribution to be made by those both within and without the House especially those with knowledge and experience in these matters. We have much benefited already from the advice of Professor Gower; the Governor of the Bank of England; and of the groups chaired by Mr. Jacomb and Mr. Field.
"The Government's proposals offer advantages to investors, to industry and commerce, and to the financial services industry itself. To the investor, our proposals offer more comprehensive protection against fraud or negligence, and better and fuller information on which to make investment decisions. To industry and commerce they offer the prospect of keener and more innovative financial services and therefore of finance at cheaper rates. To the financial services industry, they offer a system administered by those familiar with the markets and without unnecessary Government involvement. The high standards which we seek to promote will be in the interests of all".
My Lords, that concludes the Statement.
Lord Bruce of Donington: My Lords, the House will be grateful to the noble Lord for the doubtless painstaking reading of this very long Statement. It is noteworthy that, whereas the former Statement about
584
interest rates was announced to your Lordships' House and in another place with arrogant brevity, this particular Statement, if I may say so, errs slightly on the side of being unnecessarily voluble. We shall indeed read with interest the White Paper. We would take it that it is probably only slightly longer than the Statement that has been made this afternoon because it goes into such detail. Indeed, it may be said that if Her Majesty's Government paid half as much attention to the needs of manufacturing industry as the detailed consideration that they lavish on their friends the financial institutions and the City, the country might possibly be in a much better position.
We have in the Statement the customary genuflection to allowing market forces to operate responsibly but without unnecessary constraints. There is of course a slight contradiction here in a way because the basic philosophy of the party opposite is to allow market forces to operate without restraint, without tiresome Government regulations, and so on. So quite plainly they have had second thoughts about that.
The Statement itself of course arises from the original withdrawing by Act of Parliament of the action that was being brought by the Director General of Fair Trading, since when there has been a good deal of cogitation in the City; there has been the consideration of the Gower Report; and what we are now told is that the Government themselves have determined a clear regulatory framework, even though the form of that, according to the Statement, has not yet been decided.
We note with some interest that the Government intend to rationalise and up-date the legal provisions dealing with offer documents and the advertising of investments. Well, it comes a bit late, after the grossly excessive advertising of the British Telecom issue for which the Government had to seek special legislation in order to carry it out. I take it that the Government will make it quite clear to the institutions and to other offerers of shares that the kind of behaviour for which they themselves were responsible in the pushing of BT will not be tolerated so far as ordinary investment and ordinary offers in the United Kingdom are concerned.
We note further that the Government consider that their proposals will deter fraud, and that the regulations will cover these matters and will make the detection and prevention of fraud much easier. We shall be very interested when we see the document just how that is proposed to be done because it is quite clear, if I may say so with respect to the noble Lord, that the view is widely held in the City of London itself that the Government themselves are responsible because they do not permit the fraud squads in the country to have resources that are really adequate; fraud goes undetected precisely because of the economies of the Government on that side. Moreover, as is well known and is discussed quite frequently in the City, the technical resources available to the Director of Public Prosecutions are grossly inadequate to deal with the load of actual fraud that is taking place at the present time upon which no action is being taken whatsoever, either on grounds of excessive complication, as in the case of the sanctions busting which became too complicated, or because it is too

585
small in relation to the resources that must be devoted to it.
We shall applaud any efforts that are made by the Government and incorporated in the structure to enable investors to have better protection and to have more information. We shall know when we see the White Paper itself what kind of balance has been struck between the self-regulatory aspect of the matter and the regulatory framework, the statutory framework, within which it will operate. The Statement of course gives no clue of that; it merely consists of a reiteration of the original intentions that were expressed at the time of the Second Reading of the Bill to exempt the Stock Exchange from the legal proceedings that were being brought against it at the time. One hopes therefore that we shall have more information.
Lord Taylor of Gryfe: My Lords, from these Benches we wish to thank the Minister for the interesting and informative Statement that has been read to the House this afternoon. We very much look forward to the generalities of the Statement being translated into legislation which will enable us to debate it in some detail. But may I say from these Benches that we welcome the assurances contained in this document and I am quite sure that the City will welcome it. I do not adopt a snide or sneering attitude to the City because of the substantial contributions which it makes to our invisible exports and because of its importance as an international financial centre. If we do not provide the rules and regulations to make it an effective and credible international financial centre we shall suffer as a country.
I welcome particularly the assurances of paragraph 4 that the White Paper will set out how we will assist enforcement, deter fraud and malpractice, improve disclosure and lay down the principles on which business can be conducted. I welcome the nice balance that has been achieved in the Statement between the powers of self-regulation and the continuing oversight and authority of the Minister.
We have avoided the strict legalistic arrangements of the SEC with a system that lays great responsibility on the people who practise in the City, and its financial institutions, and at the same time we have the oversight of the Minister, who has powers to withdraw their licence to operate—which would mean the termination of their existence as practitioners.
I would welcome some advice in respect of the statement that,
"the marketing of life assurance contracts will be treated in a manner similar to the marketing of other investments".
At present, the insurance industry is fairly well regulated in its practices and general operations by the Department of Trade and Industry. What additional supervisory responsibilities will now be assumed in the life assurance industry?
As I have said, it is important that there should be a balance, and paragraph 8 of the Statement states:
"we recognise that self-regulation should receive statutory backing only if there is proper accountability".
This is the price that the City will have to pay for self-regulation and the freedom which that enjoins; that it will be accountable.
586
I welcome also not only the continued involvement of the Minister as the supervisor of all these operations but the continued interest of the Office of Fair Trading as a protection against monopolistic practices. It will be recalled that this Statement derives from the threat by the Office of Fair Trading made about a year ago to refer the Stock Exchange and its practices to the Monopolies Commission. It is probably a good thing that the Secretary of State will continue to have the advice and guidance of the Director of Fair Trading. That is a very useful provision.
In general, the assurance that provision gives to the small investor and the recognition of his interests as a consumer, if you like, of the services of the Stock Exchange are also covered. In the last analysis, the City of London will have to prove its ability to operate within the terms of this Statement. It will survive by the integrity of the men and women who work there and by the credibility of its institutions. This Statement places on the City and on the people who work in the City a vast responsibility for ensuring that London continues to be highly regarded as an international financial centre.
4.32 p.m.
Lord Lucas of Chilworth: My Lords, I am grateful—yes, I am grateful—to both the noble Lord, Lord Bruce of Donington, and the noble Lord, Lord Taylor of Gryfe, for their reception of the Statement I have just repeated. I find the noble Lord, Lord Bruce of Donington, extremely difficult to please; would that I could please him more often. He complains on the one hand that my noble friend the Chancellor of the Duchy of Lancaster is too brief, and he complains on the other that I was too painstaking in my reading of the Statement. It was a complex Statement and I believed that it should be read carefully, not only for the benefit of noble Lords who have knowledge of these matters but also for the benefit of those outside your Lordships' House who may wish to read about the Government's intentions.
The noble Lord, Lord Bruce of Donington, was unfair in drawing a comparison between industry and "friends in the City". We have friends outside the City also who wish to and will benefit from these regulations. They are the hundreds of thousands of people who used their own money and are using their own money to buy shares, particularly in the companies for which they work. The measures set out in the White Paper will help them in making the right judgments. There are many people who are currently moving into the area commonly known as wider share ownership who, deservedly, need more protection than hitherto. That is what the White Paper will provide.
I do not know whether the noble Lord, Lord Bruce of Donington, meant to confuse the House or himself with the comments he made concerning advertising. He knows full well that the reference in the Statement is to do with misleading advertising and not with the actual volume of advertising. The noble Lord also spent some time talking about British Telecom. BT had a full prospectus. It was a success in selling shares to that wider ownership to which I have referred.
The noble Lord spoke also about fraud and asked specifically what the Government are going to do. The

587
fraud investigation group has now been set up; it was established earlier this month. It will enable the Fraud Squad to work closely with the Director of Public Prosecutions and with the Department of Trade and Industry's inspectors. That is a further measure of the steps we intend to take.
The noble Lord, Lord Taylor of Gryfe, with his very great knowledge of the City (and is it not odd how frequently I find myself answering both noble Lords?) has my gratitude for his reception of this Statement. I agree with him that the proposals in the White Paper to be enacted in legislation will be acceptable to the City. The City is prepared to accept responsibility for its own actions and, incidentally, to foot the bill for them. This is very important.
I do not disagree with the noble Lord at all when he reminds us of the extremely large and very valuable contribution the City makes to the economic wellbeing and prosperity of our country. It is necessary that the City's endeavours are seen to be as fair as possible within the regulatory framework proposed. That will lead to greater confidence throughout the world in maintaining London as the world centre of financial activity.
The noble Lord, Lord Taylor, asked particularly about assurance. The Government have paid regard to the steps taken by the life assurance industry to develop licensing. To some extent, those proposals were drawn up to deal with the marketing issues to which the White Paper is addressed. It will be a matter for the industry itself to deal with the organising committee in deciding the best way of restructuring, so that the industry will fall in line with the Marketing of Investments Board's proposals. It is in general terms expected that life assurance, pension funds and so on will be treated in the same way as any other investment. I believe that I have covered the main points which have arisen from this exchange.
Lord Boyd-Carpenter: My Lords, is my noble friend aware that in asking one simple question I hope I shall not be charged by the noble Lord, Lord Bruce of Donington, with arrogant brevity? At least one element of that charge cannot be attributed to the noble Lord, Lord Bruce of Donington, himself. Is my noble friend aware that many people will consider that this announcement is particularly well timed, as, first, an indication of the Government's concern to preserve and develop the economically immensely important—never more important—activities of the City of London, and, secondly, as an encouragement to the hundreds of thousands of people who will, it is hoped, become shareholders in public companies for the first time and who will require rather more guidance through the complexities of investment than did the smaller number of more sophisticated investors in the past?
Lord Lucas of Chilworth: My Lords, I am grateful to my noble friend Lord Boyd-Carpenter for his question. I of course endorse his sentiments on the preservation and development of city financial institutions. It is very important that these financial services and other service industries are developed, because they are continuing to take a large share of our
588
overseas business, so making their contribution to our balance of payments.
In my response to the noble Lord, Lord Bruce of Donington, I referred to the new shareholder. It is interesting that, while we have been at pains over some years to protect buyers from faulty or unsafe goods, and so on, the Government now feel it proper that they should move into the area of finance. Many more people are taking an interest in investment and need very much more protection; indeed, not only protection but help. We believe that the provisions in the White Paper will enable the securities and insurance industries to provide both guidance which is easily understood and the framework for regulation which is necessary to protect people moving into the market perhaps for the first time.

London Regional Transport: High Court Judgment
4.41 p.m.
Lord Brabazon of Tara: My Lords, with the leave of the House. I will now repeat a Statement being made in the other place by my right honourable friend the Secretary of State for Transport. The Statement reads:
"With permission, Mr. Speaker, I shall make a statement about the recent court judgment concerning the payment of grants to London Regional Transport by the Greater London Council.
"The Government took over responsibility for London Regional Transport on 29th June 1984, part way through the present financial year. Before we took over, the GLC had budgeted and precepted to pay grants to London Transport for the whole of 1984–85. Parliament therefore granted powers in Section 49 of the London Regional Transport Act for the GLC to be directed to continue paying grants to LRT until the end of March 1985.
"Accordingly I made a direction on 29th June 1984, on the facts known to me at that time, requiring the GLC to pay a total of £281.3 million in grants to LRT in instalments up to the end of this financial year. The main factors which I had in mind in determining this figure included the GLC's decisions about revenue and capital grants to London Transport for 1984–85; LRT's financial needs for the remainder of the year, as assessed at that time; and the GLC's decision that LT should lease £27 million of assets, which imposed future liabilities on LRT. This was in accordance with the Government's intentions, as I made clear during the passage of the legislation.
"The House will be aware that the direction was subsequently challenged by the GLC and has recently been quashed by the High Court. It is clear from the judgment that the court took a different view of the way in which the powers under Section 49 of the London Regional Transport Act should be exercised from that which I told Parliament that the Government intended in taking the powers in the first place.
"The effect of the judgment would be to reduce the money available to LRT by over £50 million at

589
a very late stage in the financial year. A corresponding amount would accrue to the GLC. The Government regard this as contrary to the interests of ratepayers and LRT's passengers.
"After studying the terms of the judgment, I have concluded that any new direction which could be made under the existing legislation either would not accomplish what was originally intended or would be vulnerable to further legal challenge, thus failing to resolve the damaging uncertainty which now exists over LRT's financial position for 1984–85 and beyond. Nor am I confident that an appeal would satisfactorily resolve the problems over the interpretation of Section 49 which the judgment has brought to light.
"In the circumstances the Government consider that the matter can only be settled by the authority of Parliament. I shall shortly introduce new legislation to enable Parliament to determine once and for all the amount of grant to be paid to LRT by the GLC in 1984–85, and thereby ensure that the original purpose of Section 49 of the London Regional Transport Act is carried out".
My Lords, that concludes the Statement.
Lord Underhill: My Lords, I wish to thank the noble Lord for repeating the Statement made in another place. Noble Lords will have noticed that in the fourth paragraph the Statement says:
"the court took a different view of the way in which the powers … should be exercised".
That does not give a full account of the position revealed in the court hearing on 11th January.
In his judgment Mr. Justice McNeill said that the Secretary of State had exceeded his statutory authority, had wrongfully asked for £10.2 million too much in his original demand, and, although this sum had been paid by the GLC, had wrongfully failed to deduct it from his demand. In addition, he said that the Minister had wrongly included in the demand the sum of £20.8 million for future London Regional Transport leasing repayments which were not covered by the relevant section of the Act. Additionally, a further sum in the demand arose from mistaken assessment of the possible performance of LRT because money which the GLC had contracted to keep down fares had not been used for that purpose.
The ruling of the court was that the Secretary of State's action was "unlawfully, irrationally and procedurally improper". I say nothing more about that. The judge added that it was not reasonable to expect the GLC to pay the demand at the expense of other services.
It would appear that there were three alternatives facing the Government. The first was to accept the situation and confirm the lower demand on the basis of the judgment—but, of course, that might have led to fare increases unless they were prepared to guarantee increased grant. Secondly, there could have been an appeal against the judgment, but obviously the Government lawyers did not want that despite the fact that on a number of occasions the Secretary of State, and the Minister of State in the Committee stage of the Local Government Bill, emphasised that no comment could be made on the matter because it was the
590
intention to appeal. But an appeal would have been protracted and could have upset the Government's intended timetable on rate-capping.
The third alternative was to introduce new legislation. It is made clear in the statement that that is what the Government intend to do. Is this not retrospective legislation? The demand was required to be made at the end of June. The Statement makes it clear that it was made on 29th June 1984. The demand will be reckoned as from June, which was the date on which LRT took over its responsibilities for the remainder of the financial year.
The judge also said that the GLC had a legitimate expectation that it would be consulted about the demand but that that had not happened. I ask the Minister why the GLC was not consulted. What undertakings will be given about this type of consultation for the future? When will the legislation be introduced? What will be the expected timetable for the legislation?
What will be the position of the GLC budget? It would appear obvious that it cannot proceed with its budget with the substantial figure of at least £50 million, and possibly as much as £73 million, unresolved. Will the GLC's inability to prepare a budget because that significant sum is left unresolved affect rate-capping (which includes the GLC), the order for which the Government are to introduce tomorrow?
Lord Diamond: My Lords, we on these Benches would like to record our gratitude to the Minister for repeating this Statement. The Minister will be glad to know that I have no questions to ask beyond those which have already been put so well by the noble Lord who has just spoken. We on these Benches take the view that a Minister acts in good faith until the contrary is proved, that he acted in good faith in the actions he took and thought that he was carrying out the will of Parliament. It appears that he was not carrying out the will of Parliament and therefore the matter must be clarified. I am most grateful to him and to the Government for the decision they have taken to reintroduce this matter to Parliament so that all these issues and allegations can be fully debated and fully discussed in both Houses. To my mind, that is the proper way of carrying on.
However, I should be grateful if the noble Lord the Minister would, if he can at this stage, indicate what view the Government take about the possibility of retrospective legislation. That is indeed a most important matter of principle. Obviously it can well be argued that the Government are not capable of tracking back where Parliament has passed a law which is capable—in the Government's view, because they are not appealing—of one interpretation only. Therefore I should be grateful for a fuller explanation of that aspect of the matter.
Lord Brabazon of Tara: My Lords, I should like to thank the noble Lords, Lord Underhill and Lord Diamond, for their reception of the Statement. I shall try to answer some of the questions which have arisen. The noble Lord, Lord Underhill, asked about overturning the court's decision, or about the fact that we did not agree with the court's decision. Perhaps I

591
may expand slightly on our view on that. After studying the judgment, it was clear to us that the courts take a different view of the way in which the powers under Section 49 of the LRT Act should be exercised from that which we intended in taking the powers in the first place. The Government are not criticising the court's decision or attempting to overturn it. On the basis of the court's judgment we have simply decided that it would be in the best interests of passengers, ratepayers and taxpayers to clarify the legislation rather than to make a new direction under the existing legislative provision.
On the question of appeal, it is quite true to say that my right honourable friend the Secretary of State gave notice of his intention to appeal when the judgment was delivered. That is quite correct. However, the first priority must be to give certainty to LRT and GLC about the grant to be paid in respect of 1984–5. Having carefully studied the High Court judgment, the Secretary of State concluded that an appeal might still leave problems over the interpretation of the existing legislation and that in the circumstances the right course was to clarify the legislation. It is the only course which will give much-needed certainty about LRT and GLC's financial position.
The noble Lord, Lord Underhill, and the noble Lord, Lord Diamond, asked about retrospective legislation. I can assure noble Lords that the Bill will not be retrospective. The GLC will not be asked to pay more than it would have had to under the original direction.
I am afraid that that is all I can say on the matter at the moment. As noble Lords know, the Bill will be coming out very soon—"Very soon" is the answer to Lord Underhill's question as to when. Until that happens, I really cannot expand on it any further.
Lord Harmar-Nicholls: My Lords, is my noble friend aware that people listening to the Statement and the comments upon it will have to come to the conclusion that both the courts and the Government are acting in an exemplary way? It is very good. It is important that they are not trying to patch up this difference of interpretation: they are going to bring in new legislation. That is very good and it is an example that I hope people will follow. But I was a little bit puzzled at the last sentence about the retrospective element. I should hate the principle of retrospection to be brought in here. I think retrospective legislation is bad and unfair. Although this may have elements in it which would perhaps justify a certain element of retrospection, I hope the Government will forgo that for the benefit of the higher principle of not having retrospective legislation.
Perhaps my noble friend can put me right: he seemed to say that in his view it is not retrospective, yet he then seemed to say that the decision that they came to when they were interpreting their own Act was that the amount the GLC would be asked to pay would be the same. If the position is that they are asked to pay back the same amount, then that would be retrospective. I think we ought to get that clear, because it would be very sad if this very excellent example of how the courts and governments can work
592
were spoiled by infringing a principle which has nothing whatever to do with it but which is deeply held in many parts of both Houses.
Lord Brabazon of Tara: My Lords, I thank my noble friend Lord Harmar-Nicholls for his remarks. May I try to clarify what I said about retrospection? As I said, we shall have to wait to see what the Bill says. However, I can assure the House that the Bill will not go beyond what the GLC were originally given notice that they might be required to pay in relation to Section 49 of the LRT Act.
Lord McIntosh of Haringey: My Lords, will the noble Lord accept that his answer is quite inadequate from the point of view of the Controller of Finance of the Greater London Council, who has to advise his members as to the likely outturn, in financial terms, of the financial year 1984–5—and that forms a major part of the consideration of the following year's Budget?
The noble Lord will correct me if I am wrong—I ask him whether I am wrong—but as I understand it, the position is that, as of January 11th, the GLC thought it had not got to pay this money and the proposal is that, when and if this Bill is passed, it will again have to pay the money which it had considered as part of its reserves. Will the noble Lord not accept that this is a most unsatisfactory situation and that his answer about retrospection is not adequate for that purpose?
Lord Brabazon of Tara: My Lords, I should say that by our bringing in this Bill, the GLC's anxieties will be settled a great deal more quickly than they would have been had we gone to appeal, with all the procedure in the courts that goes with that.
Lord Diamond: My Lords, of course we endorse that. I have already indicated that we on these Benches certainly endorse the attitude the Government have taken. But I must press the noble Lord a little further on the question of retrospective legislation, as indeed he has been pressed by those on the Benches behind him. Does not the noble Lord realise that, although Parliament can do a great deal, it cannot bail the Government out on every mistake they make? If the Government have made a mistake and have been supported by Parliament, and the court has drawn attention to that mistake, the law is the law as the judge has decided. That covers the period up to the date when the new legislation is brought in or becomes effective. In those circumstances, how can the Government possibly justify coming to Parliament with a proposal which is flatly in contradiction with what the judge has decided was the law of the land at the time the judge was asked to make the decision?
Lord Brabazon of Tara: I would generally agree with the noble Lord, Lord Diamond, about retrospective legislation. However, as I said, we should otherwise have had to go to appeal. By bringing in this Bill, we shall clarify the situation a great deal quicker than we should have done if we had gone to appeal.
Lord Underhill: My Lords, I shall not press the matter further but of course the Government had a fourth way out. They could themselves have made a

593
grant to LRT to cover the difference if they thought there was need for it. But will the Minister consider this point though he may not be in a position to answer? The orders for rate capping are to be laid tomorrow. These will include the GLC. If the GLC cannot complete its budget because this substantial sum is still unresolved, will the Government give serious consideration to withdrawing the order?
Lord Brabazon of Tara: My Lords, I can assure the noble Lord, Lord Underhill, that my right honourable friend the Secretary of State for the Environment will be taking into account all the relevant factors, including this proposed legislation, in arriving at a decision on the limitations of the GLC's rates next year.

Insolvency Bill [H.L.]
5 p.m.
House again in Committee on Clause 7.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 6:
Page 5, line 2, leave out ("shall") and insert ("may if it is satisfied that that person's conduct makes him unfit to be concerned in the management of a company").
The noble Lord said: This is the first of a series of detailed amendments to Clause 7 of the Bill as it now stands. Amendment No. 6 right the way through to Amendment No. 14 seek to amend the more objectionable features of Clause 7 in detail, while leaving the main framework of the existing clause intact.
Amendment No. 7: Page 5, line 5, leave out from ("day") to end of line 9.
Amendment No. 8: Page 5, line 14, leave out from ("voluntarily;") to end of line 18.
Amendment No. 9: Page 5, line 21, after ("order") insert ("or for such further period as the court may allow if application to annul under subsection (5) of this section has been made").
Amendment No. 10: Page 5, line 37, leave out paragraph (c) and insert—
("(c) that the evidence or basis upon which a provisional disqualification order was made was erroneous or inadequate;").
Amendment No. 11: Page 5, line 43, at end insert ("or that it would be just and equitable so to do").
Amendment No. 12: Page 5, line 44, leave out subsection (6).
Amendment No. 13: Page 6, line 20, after ("receiver") insert ("or any creditor").
Amendment No. 14: Page 6, line 21, at end insert ("or may appear by his solicitor or counsel and evidence may be given for the purposes of this subsection by affidavit if the court so permits.").
I should perhaps inform your Lordships' Committee that there are later amendments, notably Amendments Nos. 15 and 16, which will assail the whole structure of Clause 7 from top to bottom and will provide perhaps a convenient opportunity for many noble Lords who feel strongly on these matters to offer their views to the Government.
Amendment No. 15: Leave out Clause 7 and insert the following new clause:
Disqualification in certain cases.
("7.—(1) This section applies in circumstances where—

(a) at the time when a resolution to wind up a company is passed, the company is unable to pay its debts or is insolvent (as defined in subsection (2) below); or

(b) a winding-up order has been made by the court.

(2) For the purposes of subsection (1) above a company is insolvent when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up.
(3) Where subsection (1) above applies—

(a) the Secretary of State or the Director General of Fair Trading; or

(b) the liquidator or a creditor,

may apply jointly or severally to the court for a disqualification order, or a declaration (or both), in respect of any director or shadow director at that time.
(4) Any application made under subsection (3)(b) above must be obtained with the leave of the court.
(5) No director or shadow director shall be the subject of any application for a disqualification order under subsection (3) above unless he held the office of director within the period of two years prior to the date of the resolution or winding-up order referred to in subsection (1) above.
(6) On an application under subsection (3) above the court may—

(a) order that a director or shadow director be disqualified from acting in such a capacity in any company for such period as the court may decide; or

(b) declare the extent to which each director or shadow director is personally liable for all or any of the debts or other liabilities of the company,

or both.
(7) In determining whether to make a disqualification order or a declaration, under subsection (6) above, the court shall consider whether—

(a) the director or shadow director knew, or in the circumstances ought reasonably to have known, that the business of the company of which he was director was carried on with intent to defraud the creditors of the company or for any fraudulent purpose;

(b) the directors have failed to keep proper books of account within the meaning of sections 221 and 222 of the 1985 Act; or

(c) the director or shadow director knew or in the circumstances ought reasonably to have known that the company of which he was director had no reasonable prospect of avoiding going into insolvent liquidation.

(8) For the purposes of this section, the director or shadow director shall not be liable if the court is satisfied that that person took any steps reasonably open to him with a view to minimising the potential loss to the company's creditors.
(9) Section 630 of the 1985 Act (responsibility of individuals for company's fraudulent trading) shall apply without prejudice to any section of this Act.
(10) Where a court makes a declaration under subsection (6)(b) above or section 630 of the 1985 Act that a director or shadow director is to be personally responsible, without limitation of liability, for all or any of the debts or other liabilities of a company, then, whether or not an application for a disqualification order is made by any person, the Court may, if it thinks fit, also make a disqualification order against the person to whom the declaration relates.
(11) The costs of any successful application under subsection (3) above shall be borne by the Crown in the event of there being insufficient funds from the assets of the company after all creditors have been paid and all liabilities discharged".)
Amendment No. 16: Leave out Clause 7 and insert the following new clause—
("Disqualification and liability of directors.
7.—(1) This section applies in circumstances where—

(a) there is a resolution to wind up a company; or

(b) a winding up order has been made by the court.

(2) For the purposes of this section—

(a) the directors of the company shall be individually and collectively responsible for the management of the company and the manner in which its business is conducted;

(b) "relevant date" means the date upon which the resolution referred to in subsection (1)(a) is passed or as the case may be, the date upon which the winding up order referred to in subsection (1)(b) is made.

(3) Where this section applies, the Secretary of State, the Director General of Fair Trading, the Official Receiver, the liquidator or, with the leave of the court, any other person may apply to the court for an order in respect of any person named in the application that such person shall—

(a) be disqualified for such period not exceeding five years as the court may decide from holding office as a director of any company, and

(b) be personally liable for all or any of the debts or other liabilities of the company.

(4) No application may be brought under this section later than one year after the relevant date.
(5) No person shall be the subject of any order under this section of this Act, unless he held the office of director, or acted in the capacity of director at any time during a period of one year prior to the relevant date.
(6) In determining whether an order should be made under this section against any person named in the said application, the court shall first be satisfied that immediately prior to the relevant date the assets of the company were insufficient for the payment of its debts and other liabilities at their due date for payment and that any one or more of the following circumstances applied namely—

(a) the person knew, or in the circumstances ought reasonably to have known, that the business of the company concerned was carried on with intent to defraud the creditors of the company or for any fraudulent purpose, or

(b) the person, by false pretences or by means of any other fraud, induced any other person to give credit to the company, or

(c) the company failed to present management accounts or financial statements, at regular intervals appropriate to the business, which revealed (to the directors) the state of its trading operations and its financial position, or

(d) the person knew or in the circumstances ought reasonably to have known that the company concerned had no reasonable prospect of meeting its liabilities as they fell due.

(7) Notwithstanding that the court may be satisfied as to any of the matters described in subsection (6), no order shall be made against a person if it is shown to the satisfaction of the court that he took such steps as were reasonably open to him to minimise or prevent potential losses to the company's creditors.").
However, dealing with the detailed points on Clause 7, your Lordships' Committee will recall that the present Bill provides in Clause 7(2):
"Subject to subsection (3) below, immediately upon making the winding-up order the court shall (without any application having been made) make a provisional disqualification order against every person appearing to the court to have been a director of the company on the relevant day".
The amendment, instead of making the issue of a provisional disqualification order mandatory in terms of "shall", seeks to substitute the words:
"the court may if it is satisfied that that person's conduct makes him unfit to be concerned in the management of a company",
and then continues with a reference to the making of the provisional order.
This is a very important question, involving assessment of a principle as to whether it is right that any person should be subject to the imposition of what clearly is a very serious disability by the courts that is completely mandatory, the only way of reversing it being for that person to prove himself innocent of any kind of offence, or alleged offence, that may have been sufficient reason, at any rate in some people's mind, for the granting of the provisional disqualification order.
Lord Mottistone: Do I understand that the noble Lord is speaking to these amendments separately from Amendments Nos. 15 and 16? The only embarrassment, from the point of view of the time of the Committee, is that the speech that the noble Lord has just delivered, which I entirely support, is going to be a part—a major and important part—of the speeches that I, and, I suspect, other noble Lords will make when speaking to Amendment No. 16. I quite see the point of what the noble Lord is doing. Is there not some way, however, of avoiding using up the time of the Committee in running over the same ground more than once?
Lord Bruce of Donington: I am most indebted to the noble Lord. My intention, where I have referred in detail to some of these matters on intermediate amendments, is to refrain from duplicating those remarks when it comes to discussion on Amendments Nos. 15 and 16, in the hope that noble Lords will be able to express their views freely without being inhibited by any repetition on my part. I shall of course reserve the right, in moving Amendment No. 15, to refer briefly to some of the matters that will not be covered in detail in the arguments that I now adduce. But the noble Lord may rest assured—I have already given the noble Lord the assurance—that, in this matter, I shall endeavour to expedite the progress of the Bill as much as is conceivably possible.
Lord Mottistone: That is fine. There is one small point. I quite understand what the noble Lord wants to do. The only difficulty for the rest of us is that if we adopt the same inhibition, we shall naturally want to preserve our ammunition for our own main amendment which, in the case of myself and some of my colleagues and noble friends, is Amendment No. 16. We shall therefore feel inhibited from supporting the noble Lord, Lord Bruce of Donington, in an amendment such as that to which he is now speaking, even though we may think it a jolly good amendment. That is the complication. We do not want to waste our time, although we may well like what he is saying. I have not studied the other amendments, but on that now under discussion the noble Lord is depriving himself of a certain amount of support if all of us play the game in the way that I think he suggests.
Lord Bruce of Donington: My views on this Bill are well known. I regard it as a completely non—party issue. Although there may be certain questions of vital principle to which all of us should give attention, I do not regard it as necessary for me on this Bill to adopt a posture of adversary politics to which I am accustomed and which, of course, is correct within a democratic assembly. I shall endeavour to be as brief as possible, but there may be some considerations that noble Lords care to bear in mind when they come to consider the rather wider amendments.
I wonder whether it has occurred to the Government, when drafting a subsection of this kind, the extent of the considerable disabilities that will immediately fall upon any director to whom the full rigour of this clause will be directed, especially of course a completely innocent director—one, who, in the event, and before the time limit expires, does eventually succeed in persuading the court that a provisional order should not have been made against him at all. An innocent director, who has acted in a totally responsible manner, at some personal expense, is automatically disqualified. How long is it going to take him to set aside the order? It could take months. He will need to consult a solicitor, and briefing the solicitor in detail will take several hours. He will certainly have to get a solicitor to brief counsel, as a solicitor has no right of audience in the High Court. He will need to attend one conference, and perhaps two conferences, with counsel. He will need to swear an affidavit prepared by his solicitors. He will need to attend court to give evidence if necessary.

597
Even though he goes through all that process—it can be still more complicated than that—he is going to embark, and will have to embark, on considerable expense to prove himself innocent. From our standpoint, sitting on these Benches, and I am sure from the point of view of quite a number of your Lordships sitting on other Benches, this is not really a tolerable position.
For example, if the clause were not amended to give the court complete discretion, who knows what precedents this would create for application in other spheres? A director, aside from his possibly privileged position in relation to other members of society, possibly has a higher standard of life, though not invariably so; and possibly it is an agreeable profession compared with many others in which the citizens of our country are engaged. All these things should mean that he is treated just like anybody else. I do not like a citizen of our country being in that position. I do not like his being put under the disability, at considerable cost, of having to overturn what is, under this particular subsection, a mandatory responsibility for the court to enforce. I beg to move.
Lord Boyd-Carpenter: This is an important amendment, as the noble Lord said, and one on the merits of which I am bound to say that I have some sympathy with him. I am bound to say also that I welcome very much the concern which he has shown, which is not always shown from those Benches, for that persecuted class of humanity, the directors of public companies. But I rise really to question the procedure—
Lord Bruce of Donington: Will the noble Lord forgive me for interrupting? I am most grateful to him. If I may say so, it is not only a question of directors of public companies. Indeed, as I think will emerge later, most of the directors likely to be involved in this are in fact directors of smaller companies and private companies. It is very rarely that precedents of this kind are going to be brought to bear in connection with a large, public liability company.
Lord Boyd-Carpenter: I am particularly obliged to the noble Lord, because that indicates that the width of his benevolence and human sympathy is even wider than appeared at first sight; and that is a very agreeable element to introduce into this discussion.
I rise simply to question the procedure which we are following. My noble friend Lord Mottistone referred to the fact that there are two amendments on the Marshalled List—Amendments Nos. 15 and 16—which propose the complete deletion of Clause 7 and its substitution by another clause. Meanwhile, we are embarked on a series of 10 amendments to Clause 7 as it stands. Should either Amendment No. 15 or Amendment No. 16 be successful, any labour which we have put into Amendments Nos. 6 to 14 will be wasted, whether those amendments have been successful or unsuccessful.
I wonder whether the noble Lord, Lord Bruce of Donington, has considered this. His suggestion of holding back relevant arguments on Amendments Nos. 15 and 16 because he has used them on Nos. 6 to 14 is going to make for very ragged debate, even if in
598
fact the noble Lord's self-control is strong enough to enable him to carry out that suggestion. Some of us who have studied the noble Lord's dialectical skills may have reservations about that. Would it not have been better not to have moved any of these amendments, Nos. 6 to 14, at this stage, but to have awaited the outcome of Amendments Nos. 15 and 16 to see if Clause 7 remains in the Bill? If the outcome—I have no idea what the outcome will be—is that it remains in the Bill, it would then be open to the noble Lord to move all these amendments to Clause 7 on Report, on the basis that he was moving them to a clause which really was in the Bill. As it is, we may be wasting a lot of very valuable time, to no point whatever.
5.15 p.m.
Lord Bruce of Donington: I am most grateful to the noble Lord, Lord Boyd-Carpenter, for pointing out a solution to the problem which really I ought to have thought of myself. I must apologise to the Committee for not having thought more constructively about this. It seems to me that the suggestion put forward by the noble Lord, Lord Boyd-Carpenter, is the most sensible one in all the circumstances; and on the basis, which I believe to be true, that if I do not move the amendments in Committee it will be possible, within the rules of order, within the rules of your Lordships' House, to move them on Report, then I think that is a much better solution to the problem and I am perfectly willing to fall in with it. Is it in order if I do that? I am just seeking advice as to whether that is in fact possible on the Report stage, if I have not moved the amendments in Committee.
I am very happy to accommodate myself to the suggestion of the noble Lord, Lord Boyd-Carpenter. I shall therefore postpone moving any of the Amendments Nos. 6, 7, 8, 9, 10, 11, 12, 13 or 14. That may also make for the expedition of our proceedings and entitle me to the undying gratitude of the Government Chief Whip.
Viscount Colville of Culross: Before the noble Lord sits down, I should like to say that it occurs to me that another possibility would be that, if Clause 7 remains in the Bill after the subsequent major clauses have been discussed, there is always the possibility of recommitting Clause 7 as it stands, which might give us a full discussion on all the points in the noble Lord's amendments.
Lord Bruce of Donington: Yes. The noble Lord, Lord Boyd-Carpenter, has brought forward a suggestion, and that possibility did occur to me. However, I thought that, in view of the very important issues which were going to be raised today and the number of contributions which were likely to come from your Lordships in all parts of the Committee, it might be wise to allow a lapse of time between the Committee stage and the Report stage, so that mature reflection could take place based on the contributions which I hope will fall from the lips of noble Lords and which I shall then be able to take into account over a rather more protracted period of time, as I should like to do in order to study them thoroughly.
The Deputy Chairman of Committees (Lord Jacques): We have to take this in two parts. First of all, Amendment No. 6 has been moved, but the noble Lord, Lord Bruce, has given an intimation that he wishes to withdraw the amendment. Is it your Lordships' pleasure that this amendment be withdrawn?
Amendment, by leave, withdrawn.
The Deputy Chairman of Committees: The noble Lord has also given notice that he does not propose to move Amendments Nos. 7 to 14 inclusive.
[Amendments Nos. 7 to 14 not moved.]
The Deputy Chairman of Committees: We therefore go to Amendment No. 15.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 15:
[Printed earlier: col. 593.]
The noble Lord said: I have already given at least one reason why I do not agree with the whole structure and emphasis of the existing Clause 7: first, because it makes the decision of the court mandatory over a very wide area; and, secondly, because it places the onus of proof on the presumed guilty to prove themselves innocent. I do not like this, for reasons which I have already expressed. It seems to me that the clause, in its existing form, is going to inhibit people coming forward as non-executive directors or administrators—whatever they may be—in order to assist companies in difficulties if they feel that they are going to be subject, or are in danger of being subject, to a provisional disqualification. That is the reason why this clause has been drafted in its present form.
One cannot help feeling that the reason why the existing clause has been drafted in a way that throws the onus on the director himself to prove his innocence is that the Government themselves are reluctant, first, to apply the existing law; and, secondly, to involve the Official Receiver in the normal responsibilities attaching to his office.
It is as though the Government have thrown their hands up in the air and said, "Well, there are all these offences that are taking place"—and I am bound to say that they take place on a daily basis—"and if we were going to prosecute and pursue all the suspected cases of misfeasance by directors—and indeed fraud by directors or wrongful trading by directors—it would involve us in a very considerable sum of money. It would involve masses of actions against individual directors that would cost the state a great deal of money. Therefore, it is by far best to adopt a blanket measure which says, 'right, if you were the director of a company which goes into compulsory liquidation you are for the hatchet, and it is up to you to hack your way out of the situation' ". I do not think that that is a very good way of going about it.
Over the past few years there have been cases in which prosecutions have taken place under Section 332 of the Companies Act 1948. That is the particular section which has been in existence for a long time and it enables the state to bring prosecutions against fraudulent directors. The trouble is that these prosecutions have not been pursued very rigorously,
600
partly because of the Fraud Squad itself being undermanned and partly also as a result of the Fraud Squad establishment itself not containing sufficient people of professional accounting investigation skills. Also, similar considerations apply to the office of the Director of Public Prosecutions which—and I think that I speak within the knowledge of the Committee—is miserably understaffed to deal with the tremendous responsibilities that accrue to the director under the various Acts.
In 1976 only 13 persons were proceeded against; in 1977 there were 2; in 1978, there were 4; in 1979, there were 16; in 1980, there were 22; in 1981, there were 37; in 1982, there were 40; and in 1983, there were 40. These must represent a very small proportion of those directors in the country who have been engaged in fraudulent or at any rate highly dubious activities and in wrongful trading even within the definitions to which we are accustomed.
It cannot be too heavily emphasised that the bulk of the British public companies do not suffer from this disability. It is very rare that large public companies—PLCs—go into liquidation. Quite clearly the whole drift of this Bill regarding the disqualification of directors is fundamentally concerned with those very well publicised instances of directors who put their own companies into liquidation and who have a pally liquidator who will sell them the business at a very small price, distribute the small amount of funds available to the creditors and then repeat the practice over and over again. That is quite true, and it has been dealt with to some extent already in the Bill by requiring liquidators to be specially qualified people under the Act. But that is what the Bill is really concerned with—the smaller and medium-sized companies.
As your Lordships will be aware, a large number of the smaller and medium-sized companies have gone into liquidation. In fact, in 1984 there were 1,671, mainly concerned with building construction, textiles, clothing, engineering, furniture, upholstery, food, agriculture, chemicals and wholesale and retail outlets. But one could not include within their number any of the large PLCs which I am happy to see have featured among the 500 most successful companies in Europe, of which no less than 222 are British. We are dealing with the smaller people.
What bothers me is that it is the small firms which get into difficulties for quite bona fide reasons. They get themselves into difficulties possibly because of external events. Noble Lords must face it—and I do not want to make this a too controversial point and underline it, but it is a fact—that the high rate of exchange in 1980–81 of 2.40 dollars inflicted very grievous injury on many medium-sized and small firms in the country; and, of course, some of those firms are less equipped to withstand economic recession in comparison with other firms. It is also quite true that many of these firms can benefit by having the help of either consultants or non-executive directors who have had some experience of finance and industry, and some may possibly have more extensive experience in marketing or even in production engineering and the close alliance that has to be established between production engineering and design.
All those services can very often be provided—not necessarily on a full-time basis, but that is sometimes so—by a non-executive director. Very often the services of these consultants (by whatever name they are called) are sought when the proprietors of the firm, the directors of the small and medium-sized firms, suddenly apprehend that they are going to get into difficulties and they seek help from outside. It has very often been the case that consultants—management consultants, non-executive directors or whatever they may be—have succeeded in aiding the full-time and possibly more technical directors or owners of the company in producing a turn-round.
It has been the policy not only of the Institute of Management but also of the CBI and other very distinguished organisations in the country (including that to which I have the honour to belong) that this tendency should be encouraged and that increasingly more advice should be sought along these lines. Therefore, nothing should be done to discourage that.
5.30 p.m.
My own view—and other noble Lords who have far more experience than I in other fields will no doubt be able to elaborate in an even more authoritative way on this matter—is that the clause as it now stands will act as an inhibitor. One of the subsections in the new Clause 7, which I am moving—and it is similarly dealt with, although not in precisely the same words, in the amendment standing in the name of the noble Lord, Lord Benson—says that:
"In determining whether to make a disqualification order … the court shall consider whether—
(b) the directors have failed to keep proper books of account within the meaning of sections 221 and 222 of the 1985 Act".
I am particularly concerned about the insertion of this subsection. Of one thing I am quite certain: even though the issue by the court of a disqualification order should be the court's own voluntary decision—that is, it should be a positive decision rather than a mandatory one—it should take into account certain factors that are specified in subsection (7) of the new clause. Included in these is the keeping of proper books of account.
As I indicated briefly on Second Reading, as a result of the experience that I have had in investigating cases of alleged fraud in liquidations, it appears that one of the principal reasons for the failure of medium and small companies, outside cases of direct fraud, which are already covered, is that they failed to keep proper books of account. I have met that time and time again.
Unfortunately, the prosecutions which have taken place under Section 222 of the new Act, which corresponds to Section 147 of the 1948 Act and Section 12 of the 1976 Act, have been very few indeed. No proceedings were taken in 1979; two were taken in 1980; six in 1981; 10 in 1982; and 18 in 1983. In fact, the requirements to keep proper books of account have been laid down since 1948. They are very simple requirements relating only to the keeping of the barest possible details concerning everyday transactions. There is nothing complicated about them. The company merely has to keep a record as distinct from the accounting superstructure on which it is erected.
In my view, failure to keep proper books of account has been responsible for a very large number of businesses failing and going into liquidation. I hope that your Lordships may be constrained to agree with me, because I know that the view is held quite widely in the accountancy profession that, where a company has not kept proper books of account within the simple requirements of the Act, which has been on the statute book for well over 30 years, that ought to be a ground for a disqualification by the court after it has taken a factor of that kind into account.
I shall leave the remainder of the arguments in support of the clause to other noble Lords who have had experience in this field and who feel very strongly about the matter. One reason why this new clause has been tabled is that Amendment No. 7 seeks to take out of the existing clause that part which allows the court to assume that a disgruntled creditor or a person ill-disposed towards a director only has to name someone in a petition for a compulsory winding-up, whether it is true or false, and that automatically becomes grounds for the issue of a provisional disqualification, This particular feature, which is set out on page 5, lines 5 to 9 of the Bill, is quite absent in new Clause 7.
I hope that the amendment that stands in my name will command the support of noble Lords; but, if it does not (possibly because of its origins, and I am not noted for being non-controversial in your Lordships' House), I should be very glad to commend Amendment No. 16 to the Committee. I beg to move.
Lord Lucas of Chilworth: As the change in the order in which we shall proceed has been agreed by the Committee, perhaps I may intervene at this stage. At the outset I should like to say that I am quite willing to accept that the Government may not have got this clause completely right. It is controversial. That controversy has been broadcast around your Lordships' House and in other places over the past 10 days to a fortnight. Therefore, I should like noble Lords to appreciate that I accept that, not as a charge but as a simple statement.
In order that the Government may best benefit from this debate, I think it would be helpful if, alongside the general objection of the noble Lord, Lord Bruce, to the clause—and I listened carefully to him and should like to respond to him when I have heard all the arguments that will be adduced this evening—I give our general reason for including the clause in the Bill.
We wish to prevent the continued abuse of limited liability and, very importantly, we wish to encourage directors to take a closer interest in the financial affairs of their companies and to take prompt action when problems arise. The Cork Report, at page 407, paragraph 1808, recognised this problem and said:
"To provide proper safeguards to the general public, the law must also provide that those whose conduct has shown them to be unfitted to manage the affairs of a company with limited liability shall, for a specified period, be prohibited from doing so. It is desirable that restraints of this kind should apply as much to the director of an insolvent company as they apply to the individual who has become insolvent".
An individual insolvent who makes a voluntary arrangement with his creditors suffers none of the disabilities of the bankrupt, but the individual who is made bankrupt by the court is disqualified from being

603
a director of a company until he has obtained his discharge. On the other hand, a director is treated no differently whether the creditor agrees to the company being wound up voluntarily or whether it is wound up compulsorily by the court. We believe that this is wrong and that there should be a distinction, one effect of which will be to encourage directors to take prompt action when difficulties arise. That is why subsection (3)(b) provides that no provisional disqualification order is made against the directors if the company is being wound up voluntarily or has had an administration order made in respect of it.
The second and main reason why we believe there should be a distinction and why we have introduced automatic disqualification following a compulsory winding up order is this. A company whose financial difficulties are allowed to grow to the stage where the interest of creditors requires the court to intervene to ensure an orderly winding up when other procedures exist for reorganising or winding up the company at the initiative of those controlling it at an earlier stage has clearly been run in a way which reflects badly on those controllers and raises the question of their fitness to act as directors. This is not, as has been claimed, a reversal of the burden of proof and contrary to the concept of justice.
The process of automatic disqualification is a two-stage procedure in which the making of the winding up order raises a prima facie case against the directors. They are not, as some have argued, deemed guilty and required to prove in one stage that they are innocent, in isolation. I do not myself care in fact for this terminology of "guilt" and "innocence". We are talking all the time in this section of the Bill of an unfitness; of a prima facie case demonstrating an unfitness to proceed with the job of being a director. We are not dealing with a criminal matter, but just with the question of fitness.
Directors are able to refute a prima facie case against them by satisfying the court that they meet the criteria for relief set out in the clause. They will be better able to demonstrate that they can meet those criteria than the Official Receiver would be able to demonstrate that they cannot. Such a two—stage procedure for determining liability is a well established technique in English law. I would refer your Lordships to the means of proving carelessness in actions for negligence, which will be familiar to noble Lords and to noble and learned Lords as the doctrine of res ipsa loquitur. The person then has to disprove carelessness to escape liability. There is an analogous procedure under Section 11(1) of the Civil Evidence Act whereby a connection on a criminal charge can be introduced as evidence into civil proceedings, and once admitted the effect is that the defendant has to displace the presumptions raised against him by the fact of connection.
The advantages of making the disqualification automatic are certainty, simplicity and swiftness. It is certain because every director or potential director knows the course of events which will follow should his company go into compulsory liquidation, and he also knows what avenues of relief are open to him. The procedure will be simple. There are no long drawn out
604
court hearings to determine whether or not the order should be made. Finally, it is quick. It prevents unnecessary loss being suffered by creditors of his other companies through his continued unfitness to manage or be a director of those other companies.
5.45 p.m.
When the Government's proposals were first published in the White Paper they were criticised as being too harsh, and amendments were made to take account of the concern expressed without destroying the concept which lies behind the clause. First, to avoid the stigma (if that is what it is) of having a disqualification order made against a director who is, if fact, competent, we provided in subsection (2) that the court would only make a provisional disqualification order against those persons named in the petition. By subsection (3)(b) the court is prevented from making a provisional order against those named if, when the winding up petition was presented, the company was being wound up voluntarily or an administration order was in force. This was to encourage directors to take action (perhaps some may say that such action may be at a very late stage) in an endeavour to minimise the loss suffered by creditors.
Subsection (4) provides for the provisional order to have no effect for three months. This will enable the court to hear applications from persons claiming relief under subsection (5). Grounds (a) and (d) are straight-forward. Ground (b), which allows relief to the person who joined the board of the company for the first time during the three months before the relevant day, is designed to safeguard the director who joins the board as part of a rescue operation as a so-called company doctor, or perhaps as the nominee of an institutional investor.
If I may digress, I agree with the noble Lord, Lord Bruce of Donington, that persons in either of those two roles do indeed have a most valuable contribution to make to industry, to commerce, and to many companies which find themselves in difficulties.
Three months may appear to be a short time. Perhaps it is too short; but we wish to encourage people to consider carefully before they join a board, whether it is in the capacity of a "doctor" or as a non-executive director, because, in our eyes, whatever prefix you put before the word "director" the responsibilities are exactly the same. We feel therefore that this would provide encouragement for these people being invited to join a company to consider carefully whether the company's activities are, and will continue to be, viable. Professional directors, if I may use that expression, should be well able to acquaint themselves properly, certainly before they join the company or most exactly in three months of their joining.
Paragraph (c), together with subsection (6), grants relief where the court is satisfied that for three months before the relevant day and up to the petition being presented the applicant not only acted in the best interests of the creditors but also, within that three-month period, served notice on his fellow directors that the company should seek either an administrative order or that the company should be wound up voluntarily. This will protect what I perhaps might

605
describe as the caring director who cannot persuade his fellow directors to take the action he would like, or the action which might minimise the loss to creditors, and who, rather than resign his position, sees it more proper and to the benefit of the company and his creditors that he should stay on the board to protect those interests.
To obtain relief the applicant is required to set down the application within 28 days of the making of the provisional order, arid a copy of the application setting out the grounds for relief will have to be served on the Official Receiver or, in Scotland, the Secretary of State. It is proposed to provide in the rules that the Official Receiver will either endorse the application "not opposed" or report to the court the grounds for his opposition to relief if, from the information available to him at the time, he is of the opinion that the grounds on which the relief is sought are not correct. The Official Receiver, in turn, will be restricted to reporting on the facts set down in that application for annulment, and therefore there will be cases where an unfit person avoids automatic disqualification. However, in those circumstances the Official Receiver would be able to make an application for a disqualification order under Clause 9, notwithstanding that relief had been granted earlier under the provisional disqualification provisions.
Finally, having outlined the purposes behind the clause and what we aimed to achieve by it, I repeat that it is possible that the Bill does not provide sufficient grounds for relief in any case. There may be, for example, grounds for granting relief to a person who can satisfy the court that there were good reasons; perhaps an enforced hospitalisation where he was incommunicado might be a valid reason; perhaps he had not received a copy of the statutory demand or the petition; perhaps he did not have access to the company's financial records for some reason or another. There could be a person—I should find it difficult to believe—continuing to serve on a board who was quite unaware that his fellow directors were perpetrating a fraud. If any of those cases applied, there would not be the automatic disqualification from holding directorships on other boards because there is provision in the Bill for that director to apply for leave to act.
That outlines the Government's reasoning behind the amendment. I reiterate that our views are not set firmly in concrete, that I myself and my colleagues who are dealing with this Bill in another place, are not rigid in any way about what we have set down. I see this evening as the opportunity—in the light of the amendments, Amendments Nos. 15 and 16, that are set down, and of the views that have been expressed to me personally—for those in the Committee who wish to do so to put forward a different view or perhaps an alternative.
I shall look forward with great interest and much concentration—that I promise—to hearing what noble Lords have to say. Perhaps the Committee will allow me to respond at the end. But I repeat that in no way am I sitting down rigid and inattentive.
Lord Benson: Under the procedures of the Committee, I ask leave to speak to Amendment No. 16, which is all part of the same subject, and on that
606
basis I now speak to that amendment. Its object is to substitute one simple, intelligible clause for the existing Clauses 7, 8, 9, 10, 11 and 12. There are many defects in those clauses, but I intend now to stress probably the first six of them.
The first arises under Clause 7. I still do not understand what is the intention of that clause. If it is designed to force directors to go into voluntary rather than compulsory liquidation, it is a sledgehammer to crack a nut. But the more offensive part of it is that to achieve its purpose it puts the director under threat of losing his livelihood. That is the offensive part of the clause, if that is its intention.
If that is not the intention of the clause, and we take it as it stands, it is offensive for other reasons. It imposes compulsory and immediate disqualification and all the obloquy which falls upon a director as a consequence. The director then, within 28 days, has to prove his innocence at his own expense.
I know it will be urged that that is not proof of guilt, but ordinary individuals such as myself and ordinary directors will regard it as conviction without trial. I believe it is contrary to what the ordinary man in the street understands as natural justice. I do not intend to develop this subject any further. I dare say that the clause in its present form is repugnant and I hope that it will be withdrawn in due course.
The second point is that what these clauses are attempting to do is to impose sanctions when a company goes into liquidation and does not pay its creditors in full and, in addition, to stop wrongful trading. It does not really matter whether a company goes into voluntary or compulsory liquidation. It is still necessary to deal with the situation when creditors are not paid in full. I suggest therefore that the confusion between voluntary liquidation and compulsory liquidation which appears here and there in the six clauses should be removed and that the provisions should apply whatever form of liquidation is adopted.
The third objection to the Bill is based on the same premise that what we are dealing with is failure to pay debts on liquidation and wrongful trading. But there are two standards of behaviour imposed upon the directors.
Under Clause 9(1)(c) the director's conduct must have been such as to make him unfit to be a director. There is no definition of unfitness and that leaves the matter at large. The second standard of behaviour is under Clause 11 and that is so complex that I cannot attempt to précis it for the Committee. My point is that it is unreasonable to have two different standards of behaviour to achieve the same purpose. What is even more unsatisfactory is that there are different penalties under the two different forms of behaviour.
The fourth point is that under Clause 11 it is apparently open to directors of the same company to arrive at different conclusions at the prospect of insolvent winding up. Under those conditions, it is not clear whose view is to prevail or by what standards one view is to be preferred to another.
The fifth objection is that all the clauses are extremely complex and tortuous. I am glad to see that in the recent Oxford Dictionary the word "gobbledygook" has been brought in. The definition

607
of "gobbledygook" is "unintelligible jargon". I suggest that there is a great deal of gobbledygook in these clauses which ought to be removed so that directors and the public at large may really know what is intended.
But the final objection is compelling. So long as these complicated, inconsistent clauses remain I can say without risk of contradiction that it will not be possible to recruit the quality of director which is needed for the conduct of British commerce and industry, particularly in companies which are going through a difficult patch and which need to recruit directors with special skills to bring them back to prosperity. It would be a strange result if this Bill and the subsequent Act prevented the recruitment of the high quality directors necessary.
Those are just some of the objections to the clauses in their present form. I should like to suggest some of the advantages that would flow if the concept in Amendment No. 16 is adopted. I know many of your Lordships may find deficiencies in the wording, and there are possibly warts. All I suggest is that the concept is sound and what it attempts to do is, first, to remove simply and clearly the difference between compulsory and voluntary liquidation. Secondly, in legislation dealing with directors, I suggest that it is imperative to say what they can and cannot do so that they know where they stand. It must be put absolutely simply before them.
6 p.m.
All directors, all boards of directors, are entitled to make errors of judgment. We all do that every day of the week upon one scale or another. What I suggest boards of directors should not be allowed to do is, first, to conduct their business fraudulently, and, secondly, to conduct it recklessly or irresponsibly. What the amendment to which I am speaking attempts to do, I hope fairly successfully, is to express that perfectly straightforwardly and clearly.
The third point I should like to suggest is that we must deal with wrongful trading—a point on which the Cork Committee laid great stress. With I hope the same clarity, the amending clause to which I am speaking makes it clear that wrongful trading, be it fraudulent trading or irresponsible trading, will attract severe sanctions on the directors concerned.
There is a fault to which I should like to draw particular attention. If one looks at Clause 7(2)(a) of the amendment to which I am speaking, one will see that it makes clear that directors are collectively responsible for the business which they are running. I do not think that the Government will be able to restructure these clauses unless they make up their mind what are the responsibilities of directors.
I have had the misery of attending the obsequies of a very large number of companies. On the day in question what happens, I am sad to say, is that there are piteous cries from the non-executive directors, who say, "I'm not responsible. How could I know what was happening? Nobody told me." The refrain is then picked up by the functional directors and one hears exclamations like, "I'm not responsible. I was only the sales director. How could I know what was
608
happening?" The fact is that the main responsibility, of course, rests with the chairman and the managing director; but the whole responsibility rests collectively on the board: I think that that has got to be made clear.
May I direct attention to one other clause of the amendment? It is very short and I attach the most enormous importance to it. I will read it because it is so short. It is Clause 7(6)(c) and it says:
"the company failed to present management accounts or financial statements, at regular intervals appropriate to the business, which revealed (to the directors) the state of its trading operations and its financial position".
If your Lordships cared to make an inquiry as to the reasons for the insolvencies which have taken place in the last 15 years, beginning with Rolls-Royce and ending recently with Johnson Matthey, I think that you would find that one of the major features, if not the sole feature, which caused the insolvency was that the directors collectively did not have in front of them clear statements of what was happening to the business so that they could take steps and avoiding action in time. I commend those two points very strongly to this Committee in the hope that they will meet an answering and sympathetic chord.
The last advantage that I claim for the amendment to which I speak is simply that, in that form, it is clear what directors may do and I do not think that it will deter the recruitment of directors of adequate quality, particularly in those cases where they are needed when a company is going through a very bad patch. We shall listen in due course with great attention to the revisions to the clauses which the Government have in mind.
Lord Seebohm: I have put my name down in support of the amendments that have been sponsored by the noble Lord, Lord Benson, not because I object to the Bill as a whole but because I think it is high time that we had something like this to protect the ordinary creditors in business. The noble Lord, Lord Benson, himself has immense experience in the currency field and also as a director of companies. I do not propose to repeat the, I think, very convincing arguments that he has made to show that some amendments are certainly necessary to this Bill and particularly to Clause 7, which practically all businessmen in your Lordships' House will find, in some ways at least, objectionable.
I speak as one who has been chairman of a number of companies and who has naturally made a number of directors' appointments when I have been chairman. The reasons for appointing directors are various—some are appointed because they have special technical knowledge. Not necessarily does one want to have them assisting in the management of the company. Others in my case—and generally when I have been in an international company—have been people who knew all about the international markets. Again, they would not necessarily be expert on financial matters from the point of view of the company. Therefore, I think that we are putting some very onerous burdens on directors and I would say therefore that one must perhaps look to see if one can give them some protection at the same time.
The noble Lord, Lord Benson, has mentioned something which I myself believe to be very

609
important: that is that companies just must produce at regular intervals meaningful accounts which can be looked at by all the directors. I would say myself that this certainly should be quarterly. A lot of people would say (and probably rightly) that they should appear at less than that interval—monthly; but there is a growing tendency in businesses to have a two-tier system nowadays. I was chairman of a board which had a two-tier system. The top tier met, generally speaking, quarterly. Therefore, I say that there should be, if possible, a legal requirement anyway that accounts (which need not be audited) should be produced and presented to the directors at least every quarter.
There is another matter which disturbs me very much. In recent years auditors, in qualifying accounts, apart from reporting that they present a true and fair situation of the affairs of the company, add on the words, "as a going concern". This is a warning order. It means that the company is not completely liquid; in other words, that all its liabilities could be paid off in liquid assets. It means that there are fixed assets which may well be of a very specialised nature, properly valued in the balance-sheet—because that is what they cost, less depreciation—but, in the case of a liquidation, would be valueless because nobody else wants them. They are specialist assets.
In this case sometimes when a liquidator is appointed it is in fact the liquidator who makes the concern insolvent. It is not the directors because the directors have a properly-produced and valued balance-sheet. I welcome very much in this particular case the end of this Bill which produces the principle of an administrator who can look after a company, particularly in this position, to see whether in fact it should not be continued in order to preserve what is very probably a specialist situation. This is nothing new. In fact, it has been operating in South Africa for years and years. When I operated there we found it of great use to appoint what we called in those days a judicial manager, who was able to freeze the creditors and carry on the business; and very often (in the medium businesses, anyway) he succeeded in pulling them round. I think that I can say that I agree entirely with what the noble Lord, Lord Benson, has said and with pretty well everything that the noble Lord, Lord Bruce of Donington, has said. I shall not say any more than that; but I believe that this matter must be looked at very carefully. I do not believe that Clause 7 will do as it stands.
Lord Denning: Not as a man who has had any practice in business but just as a lawyer, may I say that I have considerable sympathy with the approach of the Government to this clause; but, on the other hand, I have even more sympathy with the fact of leaving it out altogether at this stage. This is because the principle underlying Clause 7, as it stands, is that there is to be automatic disqualification of a director on a compulsory winding up order being made. It goes through the report a good deal that, in a way, the framers of it assume that when a compulsory winding up order is made it gives rise to a suspicion of misconduct or dishonesty in regard to the directors concerned. The report says in paragraph 628:
610
"Under our proposals, the making of a compulsory winding up order will be reserved for the comparatively few serious cases. These include cases where those responsible for conducting the company's affairs are suspected of having been guilty of dishonesty or other serious misconduct in relation to the company, and where their conduct requires investigation, as well as cases where the insolvency is a matter of legitimate public concern".
So the report proceeds on the basis that when there is a compulsory winding up order there is something suspicious, and indeed wrong, in the conduct of the directors; and that is why they proceed on the principle that if there is dishonesty or suspicion of wrong doing that is a prima facie case against them and the director concerned must be called upon to prove his innocence. That is how they view the burden of proof.
I would suggest that that is wrong. A compulsory winding up order can be made if a company is unable to pay its debts or if it is just inequitable that it should not. It does not follow in the least, certainly, that all the directors have been guilty of any misconduct in any way at all. So I would suggest that automatic disqualification straightaway is wrong in principle, and it is wrong in principle to presume that upon a compulsory winding up order being made the directors have been guilty in same way. The burden should be the other way, and that is why, in these amendments which are being put forward, it is said: "Do not let it be automatic. Let there be an application made to the court for the judge to consider because automatic disqualification puts the burden entirely on the man concerned".
Of course I can see the arguments on the other side. I can see what the committee were concerned about. We must remember that directors have no particular qualifications. With the great public companies, as I have said before, they are a self-perpetuating oligarchy. No doubt they hardly ever get into trouble. But what we are concerned with more is the small private company, the one-man company—maybe himself or his wife. The committee thought that if the man is made bankrupt he is automatically disqualified if he is carrying on a personal business; he is automatically disqualified from being even a director of a company. In our little town there is a man—quite a humble man—who carries on, first, a taxi business in his own name, and then he has a business which hires out cars in the name of a company. Then he has another apparent interest in yet another company. If his personal business fails and he is made bankrupt, he is disqualified from being a director of those companies; but if one of the companies fails and is wound-up, he is not disqualified from going on.
The underlying theme throughout the Cork Report was indeed the bringing of them together in this way, and I will read what their recommendation was at page 446:
"the introduction of a simplified and flexible court procedure for the administration of the affairs of insolvent debtors, with a view to ensuring that the more severe process, namely, bankruptcy in the case of an individual or compulsory winding up for a company, is restricted to serious cases where misconduct exists or is suspected, and that other less serious cases are dealt with by a process of liquidation of assets, or … under a debts arrangement order".
So they are saying that in severe cases there should be compulsory winding up and in less severe cases there should be a liquidation of assets.

611
The underlying theme behind much of this thought is that there must now be a new system of an administrator. An administrator will be appointed by the company or the court when the company is on the verge of liquidation. The aim throughout these proposals seems to be that instead of compulsory liquidation the company should go into voluntary liquidation or have an administrator appointed. I do not know whether that is a satisfactory solution. It seems to me that, on the whole, Clause 7 has two great defects. It is wrong to impose automatic disqualification, which should only be on the order of the court; and it is wrong to put the burden of proof on the director concerned. So I would support the amendments, or one of them.
6.15 p.m.
Lord Harmar-Nicholls: If I understand parliamentary language, my noble friend on the Front Bench has made it clear that the Government are not satisfied with Clause 7, either. He has made it perfectly clear, I think, with the words that he used, that they are prepared to look at this again and to take into account what has been said. If that is the message that he intended to give, I should like him to know that, from some experience connected with small companies, if the eventual Bill does not convey the message which is contained in subsection (7)—the last subsection in Amendment No. 16—it will not be satisfactory to me and I do not think it will be doing true justice. Subsection (7) in Amendment No. 16 says
"Notwithstanding that the court may be satisfied as to any of the matters described in subsection (6)"—
this is the important part—
"no order shall be made against a person if it is shown to the satisfaction of the court that he took such steps as were reasonably open to him to minimise or prevent potential losses to the company's creditors".
If that is not the principle which is enshrined in the Bill when it becomes part of the statute, I do not think it will be satisfactory. Those words sum up what we ought to aim at.
I was a little disturbed at the distinction made by my noble friend between what he called an order and a provisional order. I was interested that he should say that the prefix in front of "director" does not matter. He said that whether he was an executive or a non-executive director, the prefix was not important: it is the fact that they are directors. I would say exactly the same with the order, in terms of the effect it would have upon any individual's reputation and his general standing. Whether the order is an order or a provisional order it would be devastating, and I do not believe that an order, whether in a provisional form or in any other form, ought to be inflicted upon any individual until the court itself has decided that all the circumstances surrounding whatever a man has done in the years he has been a director have been taken fully and properly into account.
The automatic decision is no good, and the suggestion that a provisional order may be mitigated to some extent I do not think is satisfactory. I was in the Isle of Man recently in connection with the Commonwealth Parliamentary Association, and we were told about Witch's Hill. Apparently, in medieval
612
times it only required one person to say "She's a witch!" and automatically, because that charge had been made by one person, the accused woman was taken to the top of the hill and put into a barrel which had spikes inside it. Then the barrel was rolled down the hill and, apparently, when it got to the bottom, if the person was still alive she was adjudged to be a witch because she had survived, but if she was dead then she was declared innocent and not a witch.
I believe that this mandatory clause, as it stands at present, would be equivalent to the witch's barrel, and I do not think it would be either natural or even intellectual justice. I hope that the language that my noble friend has used means that they will look at this again and will make of this Bill a good and necessary Bill, and one that is a just Bill to those individuals who are concerned with running businesses in this country, whether large or small. I hope it will contain the spirit of subsection (7) in Amendment No. 16. Anything less than that I do not think would be good enough.
Lord Marsh: I think that the problem with this clause and with some of the following clauses is not that it is in need of looking at again and reconsidering; in many cases, it is fundamentally wrong in its aims. I certainly hope that the Committee will see fit to support Amendment No. 16, although Amendment No. 15 moved by the noble Lord, Lord Bruce of Donington, would also be an improvement.
It is wrong, because it is aimed at the wrong target. I think that the Government, quite understandably, are deeply concerned at the attitude of directors who are either consciously fraudulent or grossly irresponsible, and one can make a very strong case of criticism of the authorities in not using the powers already at their disposal in many of those cases. As the noble Lord, Lord Benson, said, the words of the Bill tend to use a blunderbuss to crack what is a very specific problem. But it is not only that some of the shot will go to the side and perhaps injure odd individuals; I think that the Bill as drafted could have an extremely damaging effect upon smaller, start-up companies.
The noble Lord, Lord Lucas, mentioned this and referred to it on Second Reading when he was talking of the three months' exclusion and said: "Surely, within three months it is possible for a director to examine the evidence before him and to decide whether or not the company is in a healthy position". If a director takes on the responsibilities of a company, it ought to take him far less than three months to establish the situation that the company is in, and I agree with the noble Lord, Lord Lucas.
But the problem is not simply defining the condition of the company; it is then deciding what one should do about that situation. Should one at that stage immediately pull the rug, with all that that implies for people inside and outside the company who are already at considerable risk, or should one seek to save it? That is one of the damaging aspects of the Bill as drafted, because it is possible then to examine the situation of the company and to determine—frequently, fairly easily—what the problems are.
In small companies the problems are very frequently those of cash-flow and lack of experience. In great public companies that is unacceptable, but in

613
many small, start-up companies, which subsequently become big companies by definition, they frequently lack experience, they are under-capitalised, they make mistakes, and possibly their overheads are far too high for the likely revenues. All those things can be identified quickly.
Cost reduction is not something that can always be achieved quickly, and therefore over and over again people in companies of this size find themselves with two conflicting desires: one is to achieve more money by cash or by credit, and the other is to achieve more time. Frequently, they need more time to achieve more credit or more cash. It is not easy, if a company is in difficulties, to go to a bank and ask for another couple of million pounds. One has to show that steps are being taken in that direction. At the very moment when the directors of a company decide to make a fight, to see whether they can save the company and the jobs, avoid redundancy payments, and secure the creditors they continue to exacerbate the situation.
I have been a member of the boards of public companies and private companies. One private company of which I became chairman was in a very serious financial situation. It took some three months before we could eventually get the additional funding needed and that proved insufficient, because we could not get the costs down rapidly enough. It took nine months before we managed to obtain a complete restructuring of the company. One of my colleagues said to me some time afterwards: "At least, now when we see the light at the end of the tunnel we know that it is not Kenneth Cork tearing down towards us in his car." While that company is not out of all its problems, it can now meet all its creditors, it can give stability to its labour force, and it has every chance of being a highly profitable company.
My fear is that as the Bill stands no director in his right mind would take risks of that sort and the tendency would be to pull the rug much more early. That would be damaging to many companies after they have overcome the initial difficulties, after they have run all the risks and after they have had, as the amendment rightly demands, the responsibility of having to say that they could not reasonably have been expected to know that there was no reasonable prospect of meeting the company's liabilities. That is a judgment that they have to make. If the company falls, they will very rightly be held to account, but if they take that risk they have to be very clear that they believe they can justify the actions which they have taken. My fear is that under the present Bill as it stands they will not take that risk and the country will be poorer for it.
Lord Meston: Your Lordships' Committee has to consider the rival attractions of three versions of Clause 7 and I would respectfully say that the Government's flexible attitude is welcome. Your Lordships have stated the objections and I shall not repeat them, but there is one risk upon which your Lordships have not touched and that is the risk that Clause 7 in its present form could be used by the unscrupulous as a blackmail weapon. The other defect of Clause 7 in its present form is that it deals only with the compulsory liquidation. The Government say that that is a deliberate omission to encourage voluntary
614
liquidation, but I question that. In the real world the directors of small companies simply do not have the resources or the inclination to go to so-called company doctors or even to consult their accountants for the necessary advice.
One other objection that I shall briefly mention—it is an important one, if a little mundane—is really a logistic and administrative objection. If one keeps the figures simple, and if there are 10,000 liquidations a year of companies, each of which has two directors, then there are at least 20,000 potentially disqualified directors every year. If 75 per cent. of those feel that they are able to apply to be exonerated under the terms of Clause 7 as at present drafted, there will be something like 15,000 applications a year.
In each of those the official receiver will have to consider the application on its merits and, even if the official receiver decides that he will not oppose the application, the court will have to give some consideration to the application on its merits, which will sometimes involve quite a detailed analysis of the state of the company in its dying period and a detailed analysis of the state of mind of each individual director of that company. Our Companies Court and our county courts are simply not equipped for that sudden burden of work, and even if the Government had adopted the Cork recommendations for a separate insolvency court, the position would be no better.
The thrust of Clause 7 in any of these versions is a protection of the public interest, but I suggest that it is not in the public interest to impose such a disproportionate burden on the courts and such a disproportionate burden of expense and effort on the truly innocent director. There are much better mechanisms than Clause 7 in its present form for bringing the truly delinquent director to the attention of the appropriate authorities, to be dealt with by the courts, and I therefore seek to support Amendment No. 15.
Viscount Colville of Culross: I wonder whether I may ask my noble friend Lord Lucas a little about the logic of this part of the Bill, because I believe that it has a distinct bearing on the question of automatic disqualification under Clause 7. It is good to see that in subsequent clauses in this Bill the Government are, indeed, taking the question of disqualification very seriously. For instance, having introduced, most admirably in my view, the concept of wrongful trading in Clause 11, they then provide that the court can disqualify on an individual basis any person who is responsible for that wrongful trading.
In addition to wrongful trading, Clause 12 provides for disqualification for the even more serious offence of fraudulent trading, which is the subject of Section 630 of the new Companies Act. Then, as my noble friend has already pointed out, in Clause 9 we have provisions whereby further disqualification orders may be made in somewhat vague circumstances; perhaps, for instance, where people have behaved in such ways as are described in Section 626 of the Act, which involve all kinds of offences by directors and officers of companies created in the course of a liquidation, whether it is voluntary or compulsory.
6.30 p.m.
All those kinds of disqualifications are aimed at persons who have been identified as being at fault individually, to a greater or lesser extent. The disadvantage of doing it that way inevitably means that the courts will have to come to a conclusion about the individual fault of the person and that may mean that the disqualification does not happen immediately. The person will be able to continue as a director of other companies—perhaps not behaving any better in that capacity—for a substantial period of time before the court finally disqualifies him.
Then we come to the provisions of Clause 7 which apply only to the compulsory windings up. As many noble Lords have said and have explained from wide experience, the directors who are involved in those companies may by no means necessarily be individually at fault at all. There is no reason why, if the matter was to be adjudged—there is a provision for it to be adjudged—they should end up by being disqualified after the three months because they would be exonerated. Yet the illogicality is that, where there is no primary implication of fault, they are immediately disqualified, while where the cases are matters of serious dereliction of duty—involving fraud, wrongful trading and so on—they may go on being directors for a substantial period of time until, as a result of an individual application by the receiver, the Secretary of State or somebody of a similar basis, and upon a proper adjudication by the court, they are found to be unfit to be directors and are disqualified. I cannot understand the logic of this.
It seems to me that the automatic disqualification is exactly the wrong solution for the people who have not yet been determined to be in dereliction of their duties as a director. Yet it comes at the forefront of this whole provision and reverses, as noble Lords have said, the burden of proof. I do not understand the logic of the way in which this part is laid out. I very much approve of the individual basis upon which some of the later provisions for disqualification are approached—by an application by the receiver or somebody else, and by an adjudication by the court—even if it does take some time. I can not see how that stands with the provisions of Clause 7 as it stands at the moment.
Lord Templeman: As a former practitioner in the Companies Court, perhaps I may draw attention to the very great step that is made in this Bill. There is already legislation and material for dealing with fraudulent persons, and for the first time this Bill attempts to put limitations on incompetent directors. The whole object of Clause 7, as I understand it, is to protect creditors from incompetent directors. The reason that they need protection is that towards the twilight end of a company's existence it is really trading, although it may not know it, on the creditors' money. It is accepted by both the Government and those who moved amendments that we need to move into the area in which incompetent directors can be disqualified and also will possibly have to pay towards the company's liabilities. That obtains from both the amendments and the Government's original proposals. So the principle is apparently acceptable.
616
The question is: what are the steps to be taken to prove that a director has been incompetent?
In Clause 7, as the Government have laid it down, the crucial provision is subsection (6), which provides:
"The court shall not annul a provisional disqualification order … unless it is also satisfied that, within the period of three months ending with the relevant day"—
that is 28 days before there is a presentation of a petition for compulsory winding-up—
"the person against whom the order was made gave to the other directors of the company … notice of his opinion",
in effect, that they ought to go into voluntary liquidation.
As the Minister said, the object of Clause 7 and of subsection (6) in particular is this. A company often goes into compulsory liquidation because the directors are ignorant and incompetent. They are not fraudulent. They do not realise in time what is happening; and when they do realise they stand there petrified until some creditor does not get paid, issues a writ, gets judgment and then presents his petition. This clause will mean that whenever a director is with a company it will be his duty to see whether the company has reasonable prospects of surviving. If he thinks it does, he will do nothing. If he is proved to be wrong, I do not see why he should not be disqualified. If he is right, there is no problem.
Your Lordships' Committee will observe that by subsection (6) the director is safeguarded if, within the period of four months before a compulsory winding-up petition, ending with one month, he gives a notice saying that the company ought to be wound up voluntarily. Normally he will not have to give the notice because if he has formed that view, the company will go into voluntary liquidation. So this clause is saying to directors, "We do not accuse you of fraud, but you must, out of fairness to the creditors, consider from time to time whether the company reasonably has a prospect of going on. If it has not, you must not wait until a creditor comes along and we get all the cost, the expense and the delay of the court; you must act at once and you must act at once by putting the company into voluntary liquidation".
In voluntary liquidation there is less expense to the state. The voluntary liquidation is controlled by the creditors. It is said in the Cork Report, and the Government accept it, that, generally speaking, it is desirable that a company should be wound up at the behest of the creditors, rather than by the company. If your Lordships' Committee rejects Clause 7 as at present set down, it will be rejecting the opportunity to point the finger at directors and give them instructions that they must from time to time consider the position of the company, saying that if they wish to avoid being deprived of the privilege of being a director of any company, they must act in time under subsection (6).
At the same time perhaps I may draw attention to the second requirement of Clause 7, which is in subsection (5)(c). First of all, if a director wishes to avoid automatic disqualification, he must come along and show that he has given a notice under subsection (6). But then in addition he must show that he has acted for a requisite period,
"in a manner which, in the circumstances, was in the best interests of the company's creditors".

617
If that subsection stands, there has to be an application by the director and he will presumably put in an affidavit. The official receiver will presumably also have to put in the facts. Of course, a well meaning director will probably be content to rely on his own affidavit and on what the official receiver puts in. But one must recognise—we have frequently come across it in the courts—that the most obstinate director is the most ignorant. It is the obstinate director who will come along and attempt to prove under subsection (5)(c); he will say that he wants to cross-examine the official receiver; that it was all the fault of his bank manager; and he will extend the proceedings ad infinitum.
I wonder whether the Government would consider deleting subsection (5)(c) and making subsection (6) the sole requirement for a director who wishes to show that he is not automatically to be disqualified. He will come along with his notice, prove that he was in favour of the company going into voluntary liquidation, and show that he failed to prevail with his other directors. That ought to be a complete defence to automatic disqualification. It will not cost the court any time. It will not cost the impecunious company any money. It will be automatic.
If a director does come along with such a notice, he is not automatically absolved. He is absolved from automatic disqualification, but he can still be caught under Clauses 9 and 11 if he has done something really rather wrong. I suggest to the Government and to the Committee that there is no defence in subsection (7). And if it be said that, shorn of subsection (5)(c) how unfair it is that there should be automatic disqualification, then I should answer this: I would say to the noble Lord who said that there was no fault that there is always fault.
If a director does not recognise within one month of a winding up petition being presented that there is something wrong with his company, then he is either fraudulent or so ignorant that he ought not to remain a director. That is why disqualification ought to be automatic. The director does not have to put the company right; all he has to do is recognise that the dangers are dangers not to him (because of the limited liability) but to the creditors. He ought then to put the company into voluntary liquidation.
If he does not put the company into voluntary liquidation, and if within a mere month there comes rattling through the company's door a winding up petition, how can he turn round and exclaim, "How surprised I am! I have been a director of this company for months (or years). I know that I have responsibilities. But to my very great surprise, I thought everything was fine, but here is a winding up petition which will result in the court making a compulsory order".
I would say that if a director does not within a year suspect that a company is in a rocky position and does not take advice accordingly, without necessarily going into liquidation—because he ought to have a feeling about how his company is progressing—and then does not know what the situation is within a month, then to my mind his incompetence has been proved and he should be automatically disqualified. His defence
618
would be, "I did consider the matter. I did come to the right conclusion. I served a notice under subsection (6), but my directors would not tolerate it".
I shall now say á few words about Clauses 9 and 11—
Lord Marsh: Before the noble and learned Lord does so, on the point concerning the serving of a notice on fellow directors, does he not believe that in those circumstances the director concerned would have no alternative but to resign immediately, and that the company would in reality find itself in liquidation forthwith as a result of that?
Lord Templeman: A company does not go into liquidation because a director resigns; that is the answer to the noble Lord's question. A company can go into liquidation only if there is a resolution of the creditors at a meeting properly called, or if there is an order of the court under the presentation.
That question takes away from my main argument that there is merit in subsection (7). To the argument that it is unfair to have automatic disqualification I point the finger at every director who gets within a month of the presentation of a compulsory winding up order and has the impudence to turn round and say "I didn't know. I thought that everything in the garden was lovely". Either he knew and the company should have gone into voluntary liquidation, or he ought to have known. There can be no escape from that.
Turning to Clause 9, this provides for the disqualification of unfit directors. It has this difficulty: it requires the official receiver, the Secretary of State, or the liquidator or former liquidator of a company, to take action. Mostly, the companies concerned have no money, or they would not be the subject of compulsory liquidation. No liquidator could take proceedings unless he was financed by the creditors, and it is doubtful whether they would finance him. I wonder whether Clause 9 is necessary when, Under Clause 11, there is a procedure whereby a director who has been guilty of carrying on a company that has no reasonable prospect of success can be made liable personally and can also be disqualified. I suggest to the Government that Clause 11 by itself is quite sufficient.
There is an incentive in Clause 11 for a liquidator to take proceedings because under that clause a defaulting director can be made personally liable. Therefore, so long as the defaulting director is worth powder and shot, and even if he is not, then proceedings can be brought against him under Clause 11.
There is one point on which I would like some clarification. Clause 11 provides in subsection (1) that the court,
"may, if it thinks it proper to do so, declare that person to be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company".
I am not sure whether that is intended to saddle a defaulting director with all the debts.
Take this case: a company is £100,000 in the red. A director comes along and the court comes to the conclusion that that director has been to blame. But perhaps he has not been to blame for the whole loss; perhaps others have been more responsible for it than

619
he has been. Perhaps he came into the company at a later stage. Under this subsection, is it competent for a judge to say, "I consider that you ought to be made personally liable, but in all the circumstances, and having heard all the evidence, the limit of your liability ought to be £10,000", or that it ought to be £20,000, or whatever? In other words, can the court temper the wind to the shorn lamb? Directors' incompetence and bad habits vary from company to company and from director to director. I should like to suggest that the court be given discretion and that it should not be, as it appears to be in Clause 11, all or nothing.
6.45 p.m.
My second observation on Clause 11 is to question whether subsection (4)(b) should not be deleted. I take the point raised by my noble friend Lord Benson, when he said it was unfair that there should be two standards applied to two different directors. There is the standard in subsection (4)(a) that the director will be expected to use the general skill and experience which, in effect, directors ought generally to employ. That is the objective test. I suggest that subsection (4)(b) should be deleted and that as between, for example, one director who is a skilled accountant and ought to have known better and a bookmaker who perhaps did not, it could be left to the judge under Clause 11(1) to say at his discretion. "I consider that one director, in all the circumstances, ought to be liable for all the debts, but that the other director I should make liable only for a particular sum". Those are the only suggestions I make.
So far as the amendments are concerned, the test in Clause 11 as it stands for the liability of a director is that he knew or ought to have concluded that there was no reasonable prospect of the company not going into insolvent liquidation. I can see that that is a test which the court can satisfy; it can make up its mind. Some of the tests laid down in the amendments—I will not go into detail—talk about being just and equitable and introduce various phrases which are much more vague than the existing wording.
One does not want to saddle the court. Under Clause 11 it will be difficult enough anyway. The test must be fairly sure; otherwise the work of the Companies Court will be taken up in litigation and long arguments about the precise meaning of the expressions in the Bill. There ought to be some simple test. If I may say so, the test which the Government are proposing in subsection (2) seems to be near the point. No doubt this matter can be looked at again, because it is very important that if liability is to be visited on a director, then the test on which that director is to be judged by the court should be certain. I say no more.
Lord Harmar-Nicholls: On the basis of the noble and learned Lord's own example of where it has been adjudged that one director ought to be made liable for the whole of the debt because of his particular discrepancies is he suggesting that the other directors should then be automatically discharged under the clause as it now stands? Under those circumstances would not the noble and learned Lord agree that the situation ought to be either provisional or permanent?
Lord Templeman: With great respect, that is a confusion of thought. Clause 7 is the clause which concerns automatic disqualification, and Clause 7 has nothing to do with the differences between one director and another. Clause 7 says this: whether you are an accountant or a bookmaker, or whatever you know, if you take on the responsibilities of a director and you do not know within a month of a compulsory order that that company is on the rocks, then either you are fraudulent or you are incompetent—probably incompetent. Therefore it is not under Clause 7 that one needs to differentiate among directors. All directors ought to know in how sorry a state a company is within a month of its being killed off by the Companies Court. If they do not, they have no right to be directors.
Clause 11 is entirely different. It fixes personal liability. Under Clause 11 it is very important to know the difference between directors and to see those who are more culpable than others. But in my submission the issue does not arise under Clause 7 which starts with the principle that no director should be surprised if a winding-up petition arrives on his desk.
Lord McIntosh of Haringey: Faced with the serried ranks of solicitors, barristers, accountants and others with experience of big business, I quail, and I particularly quail after hearing the noble and learned Lord and feeling myself held with his glittering eye. However, perhaps I may be permitted a very short story. I am the kind of person who your Lordships are all talking about. I am the director of small private companies. If I may be permitted to say something personal from this Dispatch Box, perhaps it may bring some of this discussion to a personal level.
For 20 years I have run a private company of which I am the major shareholder, which I hasten to say is in no danger whatsoever of insolvency and which has provided advice to other companies on marketing matters. A couple of years ago my company provided advice to a group of people who proposed to form a company. When the advice was favourable and this looked like a good prospect, they asked me whether I would join the board of the company. It seemed to me that I had a duty to put my money where my mouth was and to take some continuing responsibility for the professional advice that I had been giving. I hasten to say that I have not received a penny from my directorship of this company.
At the same time it is relevant I think that the active directors of the company have been rushing around like mad, buying machinery and making arrangements for the production and marketing of their product, and they have failed in several more than just technical respects in terms of financial reporting. I have written a letter to the secretary of the company which has been drafted for me by my legal advisers in the light of this Insolvency Bill among other things.
I must say that when I first saw Clause 7 of the Bill and the complexity of the letter that I had to write in order to protect my position, I realised that if the Bill had been on the statute book a year ago when I became a director of this company, I should simply never have become involved at all. If anything like Clause 7 is enacted as part of this legislation, I shall immediately resign from the directorship of the company.

621
My experience may not seem relevant to many other noble Lords. It may be that the contribution that I make to this company is very minor. But the point that has been made, notably by the noble Lord, Lord Marsh, about the importance of having outside directors with particular experience which cannot be available to the executive directors is relevant here and I believe supports the case for either Amendment No. 15 or Amendment No. 16.
Lord Taylor of Gryfe: Time is moving on, and I wonder whether the Minister will be a little forthcoming about his attitude to the matters that have been raised. He indicated at the outset that he was prepared to be less rigid than is normally the case. The case against the clause has been well and truly stated. Quite apart from what has been said in the debate in this Committee, he must, I am sure, take cognisance of the considerable representations that have been made by bodies such as the CBI, the Institute of Chartered Accountants, the Law Society, and so on. With all that weight of opinion which is critical of Clause 7, perhaps he could indicate to the Committee that in the light of this afternoon's discussion he is prepared to look at the matter again and thereby avoid the necessity of voting. We all share the concern of the noble Lord to do something about the situation. If he were to act accordingly, I think that it would be with the consensus and support of the Committee.
Lord Mottistone: I should briefly like to add to the discussion. My name is on Amendment No. 16. I think that it is fair to say to my noble friend Lord Lucas that except for the noble and learned Lord on the Cross-Benches who spoke one from last, with whom I do not agree a bit from practical experience, I think that all of us have made it quite clear that the general tenor of Amendments Nos. 15 and 16 is much more what we would want to see.
My reason for that is that I think that there are three things which need to be done when a company is in difficulty. The first is to save the position of the creditors if one possibly can. The second is to make sure that the existing directors, when they are working into trouble, do not inadvertently and expeditiously go into voluntary liquidation so as to escape trouble, but try to fight the battle as well as they possibly can for so long as they possibly can. The third thing is that, if they find somebody expert to assist them in this battle to survive, they can get a decent chap and he is not put off.
I think that all noble Lords who have spoken—and I believe some who have not—would agree that those are the three priorities behind which Clauses 7 to 12 need to be constructed. I do not think that those clauses, as they are at the moment, are constructed with those priorities. There are other priorities of which my noble friend gave us a thought when he spoke earlier. I think that the noble Lord, Lord Benson, when moving Amendment No. 16 was working on the best lines that we have heard so far. I do not believe that any of the amendments are perfect and they will require re-writing.
However, when my noble friend Lord Lucas spoke earlier, he said that this part of the Bill was not cast in
622
stone and that the Government would look at it in the light of this debate. I do not think that that is quite good enough. If he cannot say something more than that—for instance, "I have heard what noble Lords have said and we shall give serious thought to this with the intention of putting down on Report a Government amendment that embodies the thoughts of this debate"—I would recommend to my noble friend Lord Benson (if I may so describe him as I am supporting this amendment with him) to go to a Division on Amendment No. 16. I think that there is enough thought in the Committee to support it. I hope very much that my noble friend the Minister will be able to give us the undertaking that I have indicated.
Earl De La Warr: I should like to support my noble friend Lord Mottistone in what he has just said. The reason is this. I am quite sure that my noble friend Lord Lucas will find himself in considerable difficulty with his department. He has shown himself to be commendably understanding of our point of view; but we cannot possibly run the risk that we withdraw the amendment and he comes up with something which the department has written for him and which is totally inadequate, when we might then find it very difficult under the rules of this House to return to the matter. Therefore, I agree with my noble friend Lord Mottistone that we must ask him to be specific when he comes to reply now.
7 p.m.
Lord Noel-Buxton: I wholeheartedly agree with my noble friends who have just spoken. My difficulty is something of a procedural one, too. I have yet another alternative to Clause 7, which is really its deletion, and an amended Clause 9. But, I suppose strictly speaking that I should only speak on whether Clause 7 shall stand part of the Bill. I do not really want to oppose that—though I do not want the clause to stand part—if my noble friend Lord Lucas would assure me that the Government will satisfy what I understand to be the feeling of the Committee, which is that Clause 7, as drafted, will not do.
Lord Lucas of Chilworth: We have had a very long, deep, serious and to me most instructive debate this evening over what is probably one of the most important parts of the Bill before us. With due respect to the noble Lord, Lord Benson, and others, may I separate the two issues—that of disqualification and that of wrongful trading—because I believe that most of this afternoon or this evening we have concerned ourselves with the aspect of disqualification.
I believe that the noble Lord, Lord Bruce of Donington, will commend me for doing this: I have abandoned my brief. I want to respond as I see the situation not as an accountant or a lawyer but as a businessman. Perhaps at the end of my response I shall say how I see it as a member of the Government.
The first situation which I think I have failed to describe accurately is the description which we are going to attach to a director whose company is compulsorily wound up without his having taken any action other than to sit and watch it happen. We are not saying that he is a criminal. We are not necessarily

623
saying he is grossly incompetent, a cheat, a fraudster. What we are saying is that his company of which he was a director—perhaps one of many—has been wound up; creditors have become tired of hearing the same story; he is unable to meet the company's liabilities; a petition has been made, the court has granted a petition and the official receiver—the state—has had to come to attend to the affairs of the company. There is a prima facie case here that that director was not fit. I believe that this is exactly what the noble and learned Lord, Lord Templeman, said. It is here that we start with a company going "bust" and somebody else having to come in compulsorily to wind it up. The directors have done nothing; they have sat around. As at that moment a director cannot be fit to be a director and there follows an automatic disqualification.
We have set down in the Bill quite specific grounds that enable him to seek relief. I accept that it may be the wish of some members of the Committee to enlarge those grounds of relief. I have no quarrel with that. That would be one of the areas which I should be content to take away with the real intention—if I may address that to my noble friend Lord Mottistone—of meeting the objections that the Committee have made. However, I have to start with this presumption: that because the company has gone into compulsory liquidation there is a prima facie case of the directors not being fit. They have other opportunities in which to demonstrate their fitness. They are set down in the Bill.
The noble and learned Lord, Lord Templeman, drew attention to the appropriate subsection in the Bill. He read it out. May I add to what he said? He did not underline the other alternative which is available to a director who sees his company going into difficulties. This director wants to avoid a liquidation of the company. He certainly wants to avoid a compulsory wind-up. He wants also to avoid rushing headlong into a voluntary wind-up. He thinks there is a slender chance of a rescue. He has the other procedure open to him which is that of applying to the court for an administrator. It may well be that were the court to grant that administration order, that director may be required by the administrator to resign the directorship. Almost undoubtedly that administrator would take over as the chief executive. But if an administrator is appointed the administrator enjoys the benefit of a 12 months' moratorium. The effect of that order is to bring about a complete moratorium on creditors' rights for 12 months.
I think this answers the point made by the noble Lord, Lord Marsh, when he said, "Here is a situation that has arisen. The great problem is to decide what to do about it". Frankly, I agree with him in the way that he saw the problem. I think he said his solution was to talk to the creditors in confidence and seek their support. They may not give him support. He said that it is not always a question of just obtaining money.
Lord Marsh: I hesitate to interrupt the noble Lord and I am grateful to him. That is a misunderstanding. It was certainly not my suggestion that if a company was in serious difficulties you should call all the creditors together and ask what to do next. I think that would be self-fulfilling very rapidly.
Lord Lucas of Chilworth: Perhaps I wrongly inferred that. If the noble Lord will forgive me, I shall certainly read exactly what he said. He said that very frequently what one wants is time. If one does apply for the administrator procedure one receives time: it is a period of 12 months. If there is not a pull-round in 12 months I fear that there is little that anybody could do.
I was upset that the noble Lord, Lord Benson, should find the provisions of Clause 7 offensive. He said, "Here is a disqualification, compulsory and immediate". It is a provisional disqualification. There is a fundamental difference because there are the grounds set out in the Bill for setting it aside. I believe that the procedures, if one applies for those specific forms of relief, are not going to be so time-consuming or, indeed, costly. The concept in this Amendment No. 16 of what directors can and cannot do, I can accept. I acknowledge exactly what the noble Lord said with regard to the individual and the collective responsibility of directors. Again, in the case that he raised, the noble Lord, Lord McIntosh of Haringey took an individual director's view of the state of that company. He advised the company that they were buying machinery with abandon, or words to that effect. He saw trouble looming and took the right and proper action to protect himself. He could, of course, had he wished to stay with the company, have taken other action.
The noble Lord, Lord Seebohm, suggested a provision to the effect that meaningful accounts should be a statutory requirement. That is another point to which I would be happy to give serious consideration. However, I suggest with some seriousness that an opposing lobby may well say, "Oh, dear—yet further burdens being imposed in law on a small company!" The noble and learned Lord, Lord Denning, had, I thought, some sympathy for the general intent of the Government in the Bill. The noble and learned Lord said, however, that he had more sympathy for leaving out the clause altogether because he did not like automaticity. It was wrong, he said, that there should be a presumption of guilt. I find it quite extraordinary that the noble and learned Lord should use that term. We are not presuming a guilt of any kind. I return to my opening remarks. What we are saying is that where there is a prima facie case because the company has collapsed and because the court is seeking a compulsory wind up, there is ground to suppose that there has been an element of unfitness of the director.
I noted what my noble friend Lord Harmar-Nicholls had to say about Amendment No. 16 in regard to Clause 7. There are, however, a number of problems in a technical sense. I do not think that it would help the Committee if I outlined them here. I followed my noble friend Lord Colville of Culross through his earlier remarks about wrongful trading being a separate issue, about fraud being a separate issue, and also about the issues contained in the Companies Act. My noble friend said that disqualification is delayed. He asked me specifically what is the logic in Clause 7 as it stands.
The logic is that if a company fails by virtue of a compulsory wind up, if no steps have been taken either by administrative procedure or by voluntary wind up,

625
or through the individual action that the director himself can take, if the court has had to step in and if the company has failed, there is a degree of unfitness of the directors who, at that time, were directing the company which led to that situation. It would seem to me, therefore, that it would logically follow that it would be in the best interests of the creditors of other companies in which that man may be a director if he were provisionally disqualified. He can then go for relief in the way that I have described. That is a perfectly logical way of dealing with the problem that we currently face.
I have, I think, dealt with the points made by the noble and learned Lord, Lord Templeman, in the earlier part of his remarks. In response to his suggestion that we might delete subsection (5)(c) and rest on subsection (6), I would be most happy to consider that to see where it might lead us elsewhere. He also put suggestions in relation to Clause 11. We can consider those suggestions arising from the stage that we reach in our wider consideration, particularly the subsection (4) element.
7.15 p.m.
As to the test of liability on a director, yes, I agree. The noble and learned Lord, while criticising and commenting adversely on what the Government have put down, has provided us with some real suggestions that I can take away. I hope that my noble friends, Lord Mottistone and Lord Noel-Buxton are not going to take the action that they have partially suggested. If we were to do so, I believe that we would not be able, in your Lordships' House, to do properly that which, on the one hand, we want to do—that is to get this Bill right—and, on the other, to do our duty as a revising chamber, because we should leave, in my view, a great mishmash to go down the corridor.
I gave an assurance in my opening remarks. I have told the Committee how I think we could take advantage of this debate and the suggestions that have been made. I make a further offer to any noble Lord who wishes to talk with me and with my officials on this matter, or indeed with the Parliamentary Under—Secretary in my department, before further drafting is considered. That offer is open. I shall be very pleased if noble Lords take advantage of it. I ask the noble Lord, Lord Bruce, and the noble Lord, Lord Benson, if they will withdraw their amendments on the assurances I have given.
Viscount Caldecote: My noble friend Lord Lucas is very persuasive. I understand the important point that he has made about the prima facie incompetence of a director of an insolvent company. However, with great regret, I do not believe that my noble friend has gone far enough to satisfy those of us who support the amendment moved by the noble Lord, Lord Benson. I have no wish to protect incompetent, irresponsible and idle directors, but I believe that the point is covered adequately in the amendment that I hope the noble Lord, Lord Benson, will press.
It is also right, as other noble Lords have made clear, to encourage and not to deter responsible directors to join and to remain with ailing companies, to do their best to bring those companies through their difficulties and to restore them to health. We have seen this in
626
hundreds of cases in Investors in Industry, where we have investments in thousands of small companies. This is important if the necessary risk taking and innovation are to take place in the economy of this country.
With great regret, I do not think that my noble friend Lord Lucas has given sufficient weight to that very important point. I hope very much that the noble Lord, Lord Benson, will press his amendment. In fact, I encourage him to do so. It is a great improvement, even though it may need further amendment at a later stage, perhaps, to strengthen it or to improve it in other ways.
Lord Bruce of Donington: I have listened to the observations that have been made by so many of your Lordships on the vexed questions raised by Clause 7 and, indeed, my own suggested amendment to it. I must confess that I am a little apprehensive about the absolute certainty with which the noble and learned Lord, Lord Templeman, approached the subject, more particularly in view of the fact that the noble and learned Lord, Lord Denning, was not quite as definite as he.
If we were moving in an area of certainty of legal interpretation—there are very often conflicting views from the Bench, even in the Companies Division, on various interpretations of the law—we should probably be all right. But my experience has been—I have listened in person to many judgments which have been delivered by noble and learned Lords—that matters are not always quite as certain as they appear. In this particular clause we are dealing with what is essentially the best commercial judgment, sometimes intuitive, of people who are not themselves of the precise mind of the law but are administrators or entrepreneurs—people who are accustomed to taking risks, people who have to balance judgments very finely indeed. Sometimes the pros and cons of taking one particular course of action are very closely balanced. So although I think that the noble and learned Lord, Lord Templeman, moved essentially in support of the clause as it stands, I myself remain very considerably in dissent.
Perhaps I may draw your Lordships' Committee's particular attention to one ground for automatic suspension that is in the Bill. It is from line 5 onwards, to line 9. It says:
"for the purposes of this subsection the court may assume that every person who in accordance with the rules is named in the petition as having been a director … on a particular day was such a director on that day".
I cannot help thinking, on reflection, that many of your Lordships will not disagree with the concept of this particular part of the clause as a blackmailer's charter, because as soon as he gets a petition the petitioner may say to the director or the person concerned, "Pay out of your own pocket or I will get you disqualified and put you to the cost of getting yourself disqualified". The person who is named in the petition may not have been a director at all, according to these five lines of subsection (2).
It is true enough that he may ultimately rehabilitate himself, because he will undoubtedly be able to prove in court that he was not in fact a director. But consider

627
all the trouble and hassle that he is being put to in order to establish this. Why should he, for the sake of legal tidiness, be put to this personal endeavour, and why should he have the expense of it? It is all very well to say, "Well, if in 28 days he cannot do this, why shouldn't he be held to be unfit?" You need only two days of being dubbed as provisionally disqualified in the City of London to have your reputation ruined. It takes only 48 hours for that to happen; it does not take 28 days. I think that possibly sometimes one is a little sheltered from the impression and the social and other consequences which would eventuate if a person was provisionally disqualified. People do not always make these fine differences between "provisional" and "disqualified". They say, "It's sufficient; therefore there must be something wrong with this chap".
I do not like the clause. There is one thing I want to make quite clear. I am very much impressed by, and warmly appreciate, the co-operative attitude in this matter of the noble Lord, Lord Lucas of Chilworth. I am bound to say, as one who has had talks with him, sometimes unofficially, over a large number of days, that he has invariably shown himself very sensitive indeed to the various misgivings which have emanated from various parts of your Lordships' Committee. I deeply appreciate that, and I trust that through the remaining stages of the Bill this co-operative attitude, in what is essentially a non-party matter, will continue.
At the appropriate time I shall ask the Committee's permission to withdraw Amendment No. 15, but at the same time, as and when Amendment No. 16 is put to your Lordships, I shall most certainly support it. Bearing in mind the goodwill that has been shown to the noble Lord by not only noble Lords but also the Committee, I think it would be a better way of proceeding if Amendment No. 16 were now incorporated in the Bill, in Committee, and then the noble Lord and the Government, after further consultation, can seek to amend that on Report—in other words, the onus is put the other way around—so that finally we can get at what we want. I sincerely hope that that will commend itself to the noble Lord. In the meantime, I ask the leave of the Committee to withdraw Amendment No. 15.
Amendment, by leave, withdrawn.
The Deputy Chairman of Committees (Lord Murton of Lindisfarne): We now come to Amendment No. 16. Lord Benson.
Lord Lucas of Chilworth: I wonder whether the noble Lord, Lord Benson, will forgive me—
Lord Ponsonby of Shulbrede: The amendment must first be moved; it has not been moved yet.
Lord Benson Lord Benson moved Amendment No. 16:
[Printed earlier: col. 594.]
The noble Lord said: I beg to move the amendment standing in my name.
Lord Lucas of Chilworth: I apologise to the Committee for being a little premature. I wonder whether the noble Lord, Lord Benson, will allow me
628
just a moment or two. I am grateful to the noble Lord, Lord Bruce of Donington, for the kind remarks he has just made. I forbore during our earlier discussion from spending very much time on Amendment No. 16, tabled by the noble Lord, Lord Benson, and I do not want to do that now. Since I last spoke, and while sitting on the Bench and listening, and considering what has been said, I have been wondering whether I may invite the noble Lord, Lord Benson, to withdraw his amendment on the grounds that not only would I take back those matters of which I have spoken, but I would give an undertaking to take back the entire clause as it stands and see what we can do.
It is quite clear to me that noble Lords have not been persuaded as to the detailed points that I have offered. I believe that, were we to adopt the suggestion of the noble Lord, Lord Bruce of Donington, and amend this, we should be in a very unhappy state, because the amendment by the noble Lord, Lord Benson, goes over two separate issues which I do not believe could be conveniently separated by amending his amendment. The noble Lord will at Report stage have procedurally all the opportunities that he has today if I or my colleagues fail to satisfy him.
Lord Benson: I have listened intently, but I am not quite clear about what the noble Lord, Lord Lucas of Chilworth, wants me to do. Does he wish me not to divide the Committee on the amendment? Sadly, I cannot do that. I listened with immense care and attention to what the noble Lord, Lord Lucas, said and I made it clear to him outside the confines of this House that I did not want to press the matter to a Division if it were possible not to do so. But there was not the ring of conviction in what he said to the Committee which would allow me to feel that he was going to comply with the clear expression of opinion as I hear it from the members of the Committee. Under those conditions I feel that the Committee must divide.
7.31 p.m.
On Question, Whether the said Amendment (No. 16) shall be agreed to?
Their Lordships divided: Contents, 95; Not-Contents, 47.

DIVISION NO. 2

CONTENTS

Airedale, L.

Craigmyle, L.

Alexander of Tunis, E.

David, B.

Attlee, E.

Davidson, V.

Aylesford, E.

Dean of Beswick, L.

Benson, L. [Teller.]

De La Warr, E.

Boyd-Carpenter, L.

Diamond, L.

Brockway, L.

Elwyn-Jones, L.

Brooks of Tremorfa, L.

Evans of Claughton, L.

Bruce of Donington, L.

Foot, L.

Buckinghamshire, E.

Gallacher, L.

Caldecote, V.

Galpern, L.

Carmichael of Kelvingrove, L.

Gisborough, L.

Chelwood, L.

Graham of Edmonton, L.

Cledwyn of Penrhos, L.

Greenhill of Harrow, L.

Collison, L.

Greenway, L.

Colville of Culross, V.

Grey, E.

Craigavon, V.

Hampton, L.

629

Hanworth, V.

Mountevans, L.

Harmar-Nicholls, L.

Munster, E.

Harris of Greenwich, L.

Napier and Ettrick, L.

Hayter, L.

Noel-Buxton, L.

Henderson of Brompton, L.

Northfield, L.

Hooson, L.

Ogmore, L.

Houghton of Sowerby, L.

Oram, L.

Hylton-Foster, B.

Pender, L.

Inglewood, L.

Perry of Walton, L.

Ingrow, L.

Pitt of Hampstead, L.

Jeger, B.

Polwarth, L.

John-Mackie, L.

Ponsonby of Shulbrede, L.

Kagan, L.

Prys-Davies, L.

Kilbracken, L.

Rochester, L.

Kilmarnock, L.

Rodney, L.

Kinloss, Ly.

Seebohm, L. [Teller.]

Kintore, E.

Selkirk, E.

Lauderdale, E.

Simon, V.

Lock, L.

Stewart of Fulham, L.

McGregor of Durris, L.

Stoddart of Swindon, L.

McIntosh of Haringey, L.

Strathclyde, L.

McNair, L.

Taylor of Gryfe, L.

Mar, C.

Teynham, L.

Marsh, L.

Underhill, L.

Merrivale, L.

Vaux of Harrowden, L.

Meston, L.

Whaddon, L.

Milne, L.

White, B.

Milner of Leeds, L.

Wilson of Langside, L.

Monson, L.

Winstanley, L.

Montgomery of Alamein, V.

Winterbottom, L.

Mottistone, L.

NOT-CONTENTS

Auckland, L.

Lothian, M.

Avon, E.

Lucas of Chilworth, L.

Bauer, L.

Margadale, L.

Belstead, L.

Marley, L.

Brabazon of Tara, L.

Mersey, V.

Brookeborough, V.

Middleton, L.

Broxbourne, L.

Molson, L.

Caithness, E.

Morris, L.

Cameron of Lochbroom, L.

Murton of Lindisfarne, L.

Campbell of Alloway, L.

Orkney, E.

Coleraine, L.

Portland, D.

Denham, L. [Teller.]

Renton, L.

Elton, L.

Rochdale, V.

Faithfull, B.

St. Aldwyn, E.

Ferrier, L.

Skelmersdale, L.

Glanusk, L.

Stodart of Leaston, L.

Gray of Contin, L.

Templeman, L.

Hailsham of Saint Marylebone, L.

Teviot, L.

Tranmire, L.

Henley, L.

Trefgarne, L.

Holderness, L.

Trumpington, B.

Kilmany, L.

Ullswater, V.

Lane-Fox, B.

Vickers, B.

Long, V. [Teller.]

Whitelaw, V.

Resolved in the affirmative, and amendment agreed to accordingly.
Lord Skelmersdale: I think that this might be an appropriate moment to break. I beg to move that the House do now resume.
Moved, That the House do now resume.—(Lord Skelmersdale.)
Lord Ponsonby of Shulbrede: Before the House resumes, can the noble Lord perhaps give an indication that we shall not return to this business before 8.40 p.m.?
Lord Denham: Eight-forty p.m. is absolutely right.
On Question, Motion agreed to.
House resumed.

Tyne and Wear Metro (Rateable Values) Order 1984
7.42 p.m.
The Parliamentary Under-Secretary of State, Department of the Environment (The Earl of Avon)The Parliamentary Under-Secretary of State, Department of the Environment (The Earl of Avon) rose to move, That the order laid before the House on 12th December 1984 be approved. [6th Report from the Joint Committee.]
The noble Earl said: My Lords, it may be helpful to the House if I briefly explain the background to this order. The powers required to set up the Tyne and Wear Metropolitan Railway—the Metro—were provided in the Tyneside Metropolitan Railway Act 1973. The Tyne and Wear Passenger Transport Act 1979 made various additional provisions which included those necessary to rate the Metro by statutory formula. It is not possible for land occupied by the operational premises of the Tyne and Wear Passenger Transport Executive to be rated in the normal way. And in any case, since the Metro crosses four of the five rating districts in Tyne and Wear, some method of attributing a value to the elements in each district was needed. Section 7 of the 1979 Act therefore provides that the rateable value of the operational land and premises—the Metro system itself—in each rating area is to be determined by a statutory instrument made by the Secretary of State, after consultation with the interested parties.
The statutory formula aims to achieve a rateable value for the undertaking as a whole which is as fair as possible. This means it attempts to produce a rate burden as close as possible to what might have been expected if the system had been capable of being rated normally. In order to achieve such a result we have involved closely the passenger transport executive, the county and the five rating districts. I am happy to say that all these parties are content with the order before us today.
The Tyne and Wear Metro opened in August 1980 and was extended gradually until it became fully operational in March 1984. Separately rateable offices and other buildings have been assessed in the normal way, but we felt it right to wait until the network became fully operational before introducing the statutory formula method of fixing its rate burden for the future. It has been agreed between all the interested parties that passenger mileages travelled should form the basic method for assessing the total cumulo value of the Metro. We now have a sufficiently firm estimate of the mileages travelled on the completed system to bring this order forward.
Perhaps I may briefly take your Lordships through the detail of the order. It sets out, first, a method of ascertaining an annual cumulo value for the whole of the Metro's operational network; and, secondly, a method of dividing this total between the four rating districts in which the Metro operates, to give a rateable value in each area. Each district will then levy its own rate poundage on this notional rateable value. All these aspects have been the subject of detailed consultations between my department and the Valuation Office of the Inland Revenue, the passenger transport executive and the county and rating authorities.
The initial total rateable value, known as the cumulo value, has been based on a comparison with a notional rateable value for the London Underground network, in relation to the passenger mileages travelled on each system. The basic comparison takes account of the rate poundages payable in each London borough in calculating LRT's notional rateable value. It is also adjusted for differences in 1973–74 rateable values, reflecting rent levels in London and in Tyne and Wear at the date of the "tone" of the list, since the cumulo value must be set at the "tone" of the valuation list drawn up at the last revaluation; that is, at 1973 prices. The calculation is based on an estimated total passenger mileage for the Metro in its first year of full operation—1984–85—of 174 million passenger miles to be travelled. Using the appropriate figures for travel on LRT, the initial cumulo value proposed is £193,000.
Like other values fixed by statutory formula, the cumulo value of the Metro will be varied each year to take account of reductions or increases in the value of the system as measured by passenger mileage travelled. The order proposes that 50 per cent. of any change in passenger miles travelled from the initial figure of 174 million miles will be reflected in the cumulo value in the next year but one. The apparently complicated formula—it sounds complicated to me as well—in paragraph 2(2)(c) multiplies the initial cumulo value of £193,000 by a factor giving changes in the mileages travelled; your Lordships will rapidly see that 174/348 reduces easily to ½
No rates have yet been paid on the Metro's operational network, although the first section opened in August 1980. The county, the PTE and the districts have agreed that the initial payment of rates from 1st February to 31st March 1985 should reflect a payment in respect of rates to those authorities in whose areas it has been operating. The initial cumulo value of £2,514,000 also reflects the fact that rates will be levied only for the last two months of the year; that is, one-sixth of the rating year.
The district councils have agreed that the cumulo value should be divided between the four areas in which the Metro operates according to the passenger mileages travelled in each of these four districts. The apportionment of the initial sum is set out in paragraph 3(a).
Finally, paragraph 4 of the order ensures that the matters determined by the order can be effected without the procedures for proposals and appeals appropriate to changes in valuation by normal method. It also enables the valuation officer to ensure that the annual adjustments required by paragraph 2(2)(b) and (c) may take effect immediately on 1st April each year. This is a of particular importance in 1985, when the substantial initial cumulo, effective for only two months, should be reduced to £193,000 and apportioned to the districts accordingly.
Before presenting the order to the House we have consulted very thoroughly those parties directly interested—the PTE, the county and the five districts in Tyne and Wear—and also their local authority associations. This draft order represents the outcome of those discussions and I commend it to the House.
632
With that brief explanation I hope that I can persuade the House to accept this order. My Lords, I beg to move.
Moved, That the order laid before the House on 12th December 1984 be approved.—(The Earl of Avon.)
7.49 p.m.
Lord Graham of Edmonton: My Lords, the noble Earl, Lord Avon, will find no opposition to this order from this side of the House, even if there was a convention that orders were opposed if they were not either understood or supported. The convention aside, I was going to press the Minister on the first part of the order where it says:
"after consultation with those associations of local authorities or of persons carrying on undertakings appearing to him to be concerned".
More than once—and I think wisely—the Minister in effect stressed that, outwith what I would call the larger, more dramatic dimensions of the future of the authority, there has been both consultation and agreement on the complicated formula which is contained in the order. For that I am certainly very grateful.
More than once the Minister stressed that the basis of the order in the future would rest upon mileages travelled. In other words, the future reapportionments will depend to some extent upon the uses and methods of the local people on Tyneside. I was born on Tyneside and I have travelled on the Metro fairly recently, and I share some of the pride which everyone who is associated with Tyneside must feel at that event. Nevertheless, what we have with the order is the opportunity to press the Minister on the further consequences.
When one turns to page 2 one sees in the first line item (c):
"for any rate period beginning on or after 1st April 1986".
On or after 1st April 1986 a great deal is likely to happen which can be affected by the wording in this order. The Minister knows that he and his colleagues are pressing on with two pieces of legislation. The first is the Local Government Bill which is in Committee in another place, and the other is the Transport Bill which we have yet to have presented to us, but which I understand is likely to be presented in another place within a matter of two or three weeks.
I know that this is not directly the responsibility of the Minister but he is a member of the Government. In the Standing Committee on the Local Government Bill (the seventh sitting on 17th January at col. 455), his governmental colleague, the Minister of State, Department of Transport, Mrs. Chalker, said:
"When I am looking for export business for transport industries I always point to the Tyne and Wear Metro—it is a firstclass piece of engineering. I also point to its cost because there is no way in which one should not be honest about the way an organisation is running. But the basic engineering is very good indeed. It is a fine example of British engineering."
The Minister must be aware of the extreme anxiety which exists not merely among the politicians on Tyneside but among the millions of passengers and users of the Metro at what is likely to happen if the Minister and his colleagues have their way.

633
Both Bills will have a severe bearing on the matter. For instance, if the abolition Bill becomes an Act the Secretary of State, a colleague of the Minister answering tonight, will take to himself the power—and after that power has been taken away from the existing metropolitan authority—the right, the duty and the obligation to set the rate for the first three years. The Minister will be aware that this is not an idle power. It is put in there in order that the Secretary of State can control the amounts of money which will be spent by the new authority.
The Secretary of State is well aware, as the House must be aware, of the importance of the Metro to the people of Tyne and Wear. Tyne and Wear has only 49 per cent. of a car-owning population. It is the lowest car-owning population in any county in the country. There are more people who rely upon the use of public transport and the Metro on Tyne and Wear than in any other comparable part of the country. Seven million journeys are made every week.
They are not made merely by the Metro but by buses, trains, and ferries. The transport system on Tyne and Wear is the best form of integrated transport that this country has had. With an investment of more than £280 million over the past 10 years it is the greatest single—and most successful—transport investment not merely of the decade but for many years before.
We have something which is successful and which is expanding; something which is constantly looking for better ways to serve its community. I am told by the people who have been in touch with me and have been alerted by this order—not opposing the order, but asking me to support it—to make sure that the Ministers and others are well aware of their anxieties.
Their basic anxiety stems not merely from the inability of placemen and placewomen of a future Minister to understand the problems of the area as well as they do; but it also runs along the lines of what the Minister and his colleagues intend to do with the Transport Bill. We know that the Transport Bill is going to deregulate local bus services, enabling commercial operators to register and operate services where and when they wish for commercial reasons without regard to the needs of the community.
That means that the integrated transport system, of which I know the Minister is proud as well as everyone else, will be put at risk. The question must be asked: why? Operators will operate buses in parallel, when the Metro was organised in such a way as to make sure that the maximum and most efficient use was made of every service.
Operators will decide that they will start at six in the morning and end at six at night. The unprofitable parts of the day will not be serviced. The peak hours will be a heyday, and after that ordinary people will have to fend for themselves. All of that is based on a system which was tried out in Hereford and which has been laughed at not only by the people of Hereford but by other people who are looking at the possible consequences. There will be a diminution of the service in an area which desperately needs stability.
Tyneside is one of those areas which has a greater unemployment rate than many. The mobility of workers and those seeking work has been augmented
634
inestimably by the success of the Tyne and Wear Metro. Over the next period—that is 1985—when these two great measures come before this House and the other place they will be argued over (I use the term they will be fought over); but the Minister at the beginning of the year, not as a result of this order but in other ways, has an opportunity to say to his Governmental colleagues, "Is it not possible to think again?"
I argue the case for the Tyne and Wear Metro, and clearly that cannot be separated from other major national considerations, but I say to the Minister that he has an opportunity to take back to his colleagues the concern which has been expressed to me not only by politicians but also by other users. At the moment there is one authority, the Tyne and Wear authority, making the laws, rules and regulations concerning things, but people are fearful that in the future there will be separate small authorities which will be responsible for trying to maintain the same level of service, the same level of safety, the same level of fares, etc. People are very worried about this.
So far as we are concerned on this side of the House we shall not oppose the order, but we are fearful of the future. The pride of Tyneside and Wearside has risen out of their ability to persuade the noble Earl's Government and former Labour Governments to provide the money and the service. Therefore, it would be a tragedy if after 1986 the service was to disintegrate, passenger mileage was to go down, and the rates which are affected by this order had to be adjusted, all, so far as we are concerned, to no avail.
The Earl of Avon: My Lords, I am grateful to the noble Lord, Lord Graham, for welcoming this order. I, too, have seen the Metro, have been very impressed by it and, indeed, have been shown how it works. I assure him, and add to the pledges of my honourable friend the Minister of Transport, Mrs. Chalker, by saying that we are looking forward to a successful and expanding Metro system. In no way do we expect that the abolition next year will have anything but a beneficial effect on the railway.
I understand that, under deregulation, the executive will have a role in promoting the co-operative arrangements between operators, including the co-ordination of time-tabling and through ticketing. I am sure that my right honourable friend the Secretary of State for Transport, in setting precept limits for the new joint board, will take full account of the various needs for expenditure in the different areas. It will be for the joint board, as the new transport authority, to decide on the allocation. I am sure there will not be a diminution, but I hope that the Tyne and Wear Metro will continue to prosper.
The noble Lord asked me what will happen after 1st April 1985 and in future years. In this case the cumulo value will be apportioned according to the proportion of the total passenger miles travelled on the Metro in each district in the appropriate period. The apportionment for 1985–86 will be based on the PTE's estimate of miles travelled in each district in 1984–85. In future years it will be the figure certified by the PTE as having been travelled in the last year but one.

635
I hope that that clarifies the point that the noble Lord asked. I commend this order.
On Question, Motion agreed to.
Lord Skelmersdale: My Lords, I beg to move that the House do now adjourn during pleasure until 8.40 p.m.
Moved accordingly, and, on Question, Motion agreed to.
[The Sitting was suspended from 8.3 until 8.40 p.m.]

Insolvency Bill [H.L.]
House again in Committee.
New Clause 7 agreed to.
Clause 8 [Duty of court to disqualify in certain cases of directors of companies in liquidation]:
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 17:
Page 7, line 11, leave out ("shall") and insert ("may, if it is satisfied that the person's conduct makes him unfit to be concerned in the management of a company,").
The noble Lord said: I beg to move Amendment No. 17, which stands in my name. It will be noted that at line 11, in the paragraph that follows Clause 8(2)(b), the amendment seeks to remove the mandatory element on the making of a disqualification order and to substitute:
"may, if it is satisfied that the person's conduct makes him unfit to be concerned in the management of a company".
This is an inevitable conclusion which follows the passing of Amendment No. 16 relating to Clause 7. There may be some technical overlap between the two clauses, but the amendment I am now moving is thoroughly in accord with the intentions of Amendment No. 16, which your Lordships have passed. In order to eliminate the mandatory aspect of the disqualification order and make it more a matter for the discretion of the courts, I beg to move.
Lord Lucas of Chilworth: The events of a short while ago have thrown me, anyway, into a certain amount of confusion. My understanding is that this amendment is unnecessary because it would only be applicable if the court had made a provisional disqualification order. Since the Committee adopted the version of Clause 7 proposed by the noble Lord, Lord Benson, which does not provide for this provisional disqualification order, what is before us now becomes unnecessary. That is my understanding of the position at the moment. I think that the best I can offer the Committee is that, if they will accept that that is the understanding which I now have, if I find that my understanding is not totally correct then, of course, we shall find a means to bring it back at a later stage.
Lord Bruce of Donington: I immediately accept the noble Lord's explanation and his undertaking, and ask leave to withdraw the amendment.
Amendment by leave, withdrawn.
8.45 p.m.
Lord Benson Lord Benson moved Amendment No. 18:
Leave out Clause 8 and insert the following new clause:
("Costs
8. The costs of any sucessful application under section 7 to disqualify a person, or where it is determined by the court that the person is personally liable for all or any of the debts, shall be borne by the Crown in the event of there being insufficient funds from the assets of the company concerned, after all creditors have been paid and all liabilities discharged.").
The noble Lord said: I beg to move Amendment No. 18, which stands in my name and in the names of other noble Lords. I am in some difficulty in not quite realising how the procedures work, because the intention of the new Clause 7—the amendment which the Committee accepted—was to replace the whole of the then existing Clauses 8, 9, 10, 11 and 12. This amendment was tabled on the assumption that Amendment No. 16 was agreed to, and I should like to speak to it to get on record what it is about.
The point is that when creditors are not paid in full, the liquidator should not spend the creditor's money in pursuing the delinquent directors. It is suggested that the cost of pursuing delinquency is essentially a matter for the state and not the creditors, and that the cost should properly be born by the Government. I suggest to the Committee that this has merit in justice and common sense, because if the application is made by the Secretary of State or the Official Receiver the cost is automatically borne by the state. Where it is borne by the liquidator, the person best knowing what should be done, then the cost has to be borne by the creditors. The point of this amendment is to suggest that the cost of pursuing delinquent directors should rest on the Government. I beg to move.
Lord Bruce of Donington: We on this side of the Committee accept the reasons that have been given by the noble Lord, Lord Benson. It is quite unnecessary for me to repeat anything that he has said. We entirely concur.
Lord Meston: We on these Benches would also agree with the idea that it would be wrong for past creditors to pay for the protection of possible future creditors. The wider public interest involved makes it proper that the public purse should bear the costs where necessary in the circumstances envisaged by this new clause. For those reasons, we support this amendment.
Lord Lucas of Chilworth: Again, I am in some little difficulty, in that we are talking about successful applications under the new Clause 7. As far as the cost of any application is concerned, subsection (11) provides for the costs of the successful applicant to be borne by the Crown and not only that but the Crown itself would be unable to recover its costs until all the creditors had been paid in full and liabilities discharged. This goes far beyond any benefits available under legal aid. I think that I should have had some sympathy with the provision had it been restricted to applications for a disqualification order, because that is effectively the position today.
If this provision requires the taxpayer to provide a free debt collecting service for the creditors of a company, one effect of adopting the amendment would be, I think, that if a company had a deficiency

637
of, say, £50,000 and the court made the directors liable for only £10,000, the Crown would not be able to cover its costs. I do not believe that that is reasonable or fair. I do not believe, in all seriousness, that would be totally acceptable to your Lordships.
I think that I should have to give further consideration to this question of costs in the light of the detail which flows from the new clause of the noble Lord, Lord Benson. I would invite him in the light of that to withdraw his amendment while I give serious consideration to the implication that his new Clause 7 has for this element of the Bill.
Lord Benson: That would be entirely acceptable to me and I beg leave to withdraw the amendment standing in my name.
Amendment, by leave, withdrawn.
Clause 8 agreed to.
Lord Denham: I am of course in the hands of the Committee, and it was agreed through the usual channels that we should carry through with this Bill tonight until we reached the end of Clause 10. I do understand that there is a great deal of difficulty with the new Clause 7 as to how the other amendments until the end of Clause 10 are affected. Unless any noble Lord disagrees—and I shall sit down and give any noble Lord who wishes the opportunity to do so—I suggest to the Committee that we should resume the House and adjourn the Committee stage at this point. But I should welcome suggestions on this point from any other side of the Committee.
Lord Bruce of Donington: We on this side understand that it would be quite desirable, for administrative reasons, to allow a reappraisal of the situation to take place in some detail before we continue further with the Bill. We on this side think that the suggestion put forward by the Government Chief Whip is a most sensible one and, for our part, are disposed to agree with him.
Lord Taylor of Gryfe: I should like to support the suggestion, from these Benches. Obviously the carrying of the amendment has a whole lot of repercussions on the Bill—not only in relation to cost but in relation to other aspects of the Bill—and it would be wise for the Committee to think over the full implications regarding the Bill and to adjourn now. I support the suggestion.
Lord Denham: I should like to make it quite clear that I am not looking at other aspects of the Bill. It is just the question that I think it would be wrong for the Committee to be discussing amendments when the full implications of the previous amendment are not understood, and with absolutely no commitment at all about how we proceed from now on. Of course there will be talks with the usual channels. I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Valerie Mary Hill and Alan Monk (Marriage Enabling) Bill [H.L.]
Reported from the Unopposed Bill Committee with amendments.

Brunei and Maldives Bill [H.L.]
Returned from the Commons agreed to.
House adjourned at seven minutes before nine o'clock.