HL Deb 29 January 1985 vol 459 cc565-72

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 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 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 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 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 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?

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 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 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 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.