§ 78A In subsection (2A)(b) leave out from ("he") in line 2 to ("shall") in line 5 and insert ("or any predecessor was administrator").
§ 78B Leave out last four lines.
§ I will deal with Amendment No. 68 first. The first part of this amendment was made in response to concern which was expressed by many of those consulted about the frequent recourse to the courts. Thus the administrator will be able to negotiate with 1190 the parties concerned in proceedings against the company to enforce security or repossess goods in the company's possession under, for instance, a hire-purchase agreement and also to exercise his discretion. Where matters remain in dispute, it will still be open to the court to resolve the case. The remainder of the amendment is concerned with providing for the remuneration, expenses and indemnity of receivers who are removed from office on the appointment of an administrator.
§ This amendment would secure the position of those vacating office by providing that the receiver's expenses and remuneration and his indemnity out of the assets against personal liability will be a charge prior to the charges held by his appointer.
§ Amendment No. 78 deals with debts and liabilities incurred under contracts entered into or contracts of employment adopted by an administrator. On further consideration, it was judged that the original proposal set out in Clause 21, which made the administrator personally liable for all post insolvency contractual obligations, would be impractical. Instead, it is proposed to adopt an approach similar to that applicable in liquidation where such debts and liabilities incurred by the practitioner form part of the costs of the liquidation and are payable first out of the assets. This was felt to be simpler to operate.
§ The intention of Amendment No. 7 2A. to Amendment No. 72, which has already been discussed, is that the administrator's charge would rank prior to a debenture containing a floating charge capable of leading to the appointment of an administrative receiver. The logic of this is that if the floating chargeholder allows the appointment of an administrator, then the administrator should have an indemnity out of the assets subject to the floating charge. The administrator's remuneration expenses will be subject to a separate charge and will rank in priority behind that securing the debts and liabilities incurred by the administrator. I should perhaps explain the references to contracts entered into and contracts of employment adopted. As originally proposed the administrator was personally liable for debts and liabilities incurred under contracts entered into or adopted by him in carrying out his functions. However, practitioners and many others were concerned that the concept of adoption of contracts, if applied to all types of contracts into which companies had entered prior to the appointment of an administrator, would be onerous and would seriously divert administrators from their central purpose of rescue of businesses.
§ However, it is not possible to abandon the concept of adoption altogether: a recent case in the Court of Appeal indicated that the interests of employees could be put at risk through the operation of Section 492 of the 1985 Companies Act. Accordingly the administrator is to be liable (as receivers will be under Amendments Nos. 103 and 104) for contracts of employment which he adopts, although he is to have a grace period of 14 days in which to consider whether he wishes to adopt any such contract.
§ Finally, the group of five amendments, Nos. 68A to E to Commons Amendment No. 68, make it clear that any receiver displaced by the making of an ad ministration 1191 order or by the administrator is released from his obligations to the preferential creditors under Sections 196 and 475 of the 1985 Act. This release is of course only from the time he vacates office; the receiver remains fully accountable for his actions while acting in that capacity.
§ I should like to deal in advance with an amendment which the noble Lord, Lord Bruce of Donington, put down to Amendment No. 78. It might be of assistance if I just explain precisely how paragraph (b) of subsection (2A) will work. Its principal purpose is to encourage people to contract with the administrator, after he is appointed, by making any liabilities that he incurs a charge on the free or floating charge assets of the company. It also implements the protection of the employees' interests, which I have just explained.
§ The amendments would have the effect of making all debts and liabilities incurred by an administrator a charge on the free and floating charge, the protection for post-administration order debts, and liabilities. This is not the case. Indeed, it would not be acceptable because, for instance, it would mean that, if an administrator was liable in fort for, say, negligence, that liability would then have the status of a charge on the assets. That could not possibly be right, as the object of the provision is to provide some assurance to those contracting with the company that their debts will be met. If all liabilities were to have this advantageous status the effect would be lost.
§ I would also add that paragraph (b) of the new subsection (2A) does not impose personal liability, as when the administrator contracts he does so as the agent of the company. I point this out because this is the reverse of the position when we first considered this Bill and I think a number of noble Lords argued a contrary policy. On reconsideration of the matter we agreed with them. I beg to move.
§ Moved, That this House do agree with the Commons in their Amendment No. 68, as amended by Amendments Nos. 68A to 68E.—(Lord Cameron of Lochbroom.)
§ On Question, Motion agreed to.