HL Deb 23 October 1985 vol 467 cc1210-3

130 Clause 44, page 31, line 6, leave out from beginning to 'for' in line 7 and insert— '44.—(1) Section 478 of the 1985 Act (vacation of appointment by receiver) shall be amended as follows. (2) '.

131 Page 31, line 16, at end insert— '(3) For subsection (4) there shall be substituted the following subsection— (4) Where at any time a receiver vacates office—

  1. (a) his remuneration and any expenses properly incurred by him; and
  2. (b) any indemnity to which he is entitled oui of the property of the company,
shall be paid out of the property of the company which is subject to the floating charge and shall have priority as provided for in section 476(1).". (4) In subsection (5) for the words "7 days" there shall be substituted the words "14 days".'

451 Schedule 5, page 177, line 21, at end insert— '(3) In subsection (3), after the word "(provides) there shall be inserted the words 'and on any contract of employment adopted by him in the performance of those functions". (4) After that subsection there shall be inserted the following subsections—

  1. "(4) For the purposes of subsection (3)(a)' the receiver or manager is not to be taken to have adopted a contract of employment by reason of anything done or omitted to be done within fourteen days after his appointment.
  2. (5) Where at any time a receiver or manager so appointed vacates office—
  3. (a) his remuneration and any expenses properly incurred by him;
  4. (b) any indemnity to which he is entitled out of the assets of the company,
shall be charged on and paid out of any property of the company which is in his custody or under his control at that time in priority to any charge or other security held by the person by or on whose behalf he was appointed." '.

451A Line 14, at end insert ("and").

So far as these amendments are concerned, they have two broad purposes. First, Amendments Nos. 108,130,131 and 451 improve the drafting of Clauses 37 and 44, which reinforce the indemnity in respect of personal and other liabilities as well as remuneration expenses to which receivers appointed out of court are to be entitled on their vacation of office. Subsection (5) of Amendment No. 451 also extends this reinforcement of the indemnity to all receivers afforded protection against personal liability by virtue of Section 492 of the 1985 Act.

Secondly, Amendments Nos. 103 to 105, 128 and 451 deal with the liability of receivers in England, Wales and Scotland under contracts they enter into or adopt. At present the Bill provides that the receiver is to be personally liable for debts incurred by him under contracts he enters into or adopts unless the contract otherwise provides. Clause 36 provides that the administrative receiver would be liable to meet such debts incurred by him from the assets of the company in respect of which he was appointed. As I explained when moving Amendment No. 68, great concern was expressed that the existing provisions in these clauses in relation to the adoption of contracts were not satisfactory.

We are now satisfied that provisions as broad in scope as Clauses 21 and 36 are not necessary. Generally speaking, receivers pay for benefits they obtain after their appointment under contracts which existed at the time of their appointment. There is, however, a difficulty in relation to contracts of employment, to which I have already drawn your Lordships' attention earlier in speaking on Amendment No. 68.

The amendments now before this House are therefore designed to make it clear that debts and liabilities incurred under contracts of employment adopted by receivers shall be a personal liability which he will be expected to meet either from funds made available to him by his chargeholder or from his indemnity out of and charge over the company's assets. These liabilities will rank for payment ahead of the chargeholder by whom he was appointed. Receivers and administrators are given a chance to decide whether or not to adopt existing contracts of employment on their appointment in that, for a period of 14 days, nothing they do or omit to do will be taken as constituting adoption.

So far as the amendments to Amendment No. 108 are concerned, they ensure that an administrative receiver will not commit an offence under subsection (5) inserted by Amendment No. 108, if he has a reasonable excuse for not sending the requisite notice to the registrar. This is in line with other provisions in the Bill.

The amendment to Amendment No. 451 is purely a drafting amendment. As for the amendment to Amendment No. 128, this removes a contradictory qualification on a Scottish receiver's personal liability by removing the reference to Section 473(1) of the Companies Act 1985 in Section 473(2) of that Act. The consequential amendment inserts the relevant words into the repeals schedule to the Bill.

On Amendment No. 104A, which was put down by the noble Lord, Lord Bruce of Donington, which I undertook to consider in this particular answer, I made clear that this amendment is not acceptable, for these reasons. The purpose of Commons Amendments Nos. 103 and 104 is to provide a measure of protection to employees of companies to which administrative receivers are appointed. The recent decision of the Appeal Court concerning the effect of Section 492 of the 1985 Act, to which I have already referred, appeared to indicate that a receiver could take the benefit of services under an existing employment contract and then refuse payment on the grounds that the contract of employment was with the company, which was of course insolvent. Clearly this is not a desirable state of affairs.

These amendments therefore indicate to the court that during the period of grace of 14 days after appointment the receiver should normally take steps to indicate to employees whether or not he intends to adopt their employment contracts. This does not mean that failure to do so of itself will constitute adoption. I think it is perhaps fear of that consequence that has alarmed some practitioners. Where, for example, the contract is not discovered for a month after appointment, the court will not deem adoption to take place by that fact alone; rather it will examine the circumstances, including in particular whether services under the contract had been rendered to the receiver. Thus fears of the kind that I have mentioned are not justified or justifiable.

Amendment No. 104A would undermine this proposal by providing the alternative formulation of a specific document expressly signed constituting adoption. The receiver would be able to argue that in the absence of such a document no adoption had taken place. That is very far from the purpose which the amendments are intended to secure. I hope that the noble Lord will bear these matters in mind when the amendment is reached.

Lord Bruce of Donington

My Lords, throughout the proceedings the noble and learned Lord has adopted the method of the pre-emptive strike—in other words, in discussing the various amendments that he is putting forward and in discussing the Commons amendments, the procedure he has adopted endeavours to cut the ground from beneath my feet before I have even started to extol the virtues of my amendments. I am not over-disturbed by this. I must defer to my noble friend Lord Mishcon in these matters because he is a lawyer and I am not; but it appears that I was trying to help the noble and learned Lord and he was trying to help me, and we have the roles mixed. It would have been more appropriate for the noble and learned Lord on his understanding of the position to have moved my amendment and for me to have moved his.

The wording of the amendment gives me cause for some thought. Clause 36 of Bill 127 says at page 25: The administrative receiver of a company—

  1. (a) shall be deemed to be the agent of the company unless and until the company goes into liquidation;
  2. (b) shall be personally liable on any contract entered into or adopted by him in the carrying out of his functions (except in so far as the contract or a notice under subsection (2) below otherwise provides); and
  3. (c) shall be entitled in respect of that liability to an indemnity out of the assets of the company".
In Amendment No. 104 the noble and learned Lord wants to add at the end of line 42, if my arithmetic is correct, immediately after paragraph (c) of the clause in Bill No. 127: and for the purposes of paragraph (b) above"— that is the one that makes him personally liable— the administrative receiver is not to be taken to have adopted a contract of employment by reason of anything done or omitted to be done within fourteen days after his appointment". I now understand why learned members of the bar are able to earn such prodigious fees in arguing with one another about the construction of various clauses. I must confess that the straightforward logic of this one does not appear to me. It is very difficult to understand.

The only reason why my amendment was put down with the words, or unless by a specific novation signed by him or on his behalf he adopts such a contract expressly", was that I was under the impression that the receiver might, for fear of becoming personally liable, dismiss employees, which of course is the exact opposite of the desired effect. That is the logic as I see it. The noble and learned Lord, who, I repeat, is much more learned in matters of the law than I am—in fact, I operate on the very fringes of the law—has put forward an alternative version in which he obviously believes. I have not even taxed my noble friend Lord Mishcon on what he thinks about it.

I have no alternative, given the legal reputation of the noble and learned Lord opposite, but to prefer his explanation to mine. His wisdom must prevail over my apparent ignorance, and in the circumstances, I do not propose moving my amendment to Amendment No. 104A.

On Question, Motion agreed to.