HL Deb 23 October 1985 vol 467 cc1243-4

478 Page 181, line 18, at end insert— '42—(1) In section 669 (inability of unregistered company to pay debts), at the end of paragraph (d) there shall be inserted the words "as they fall due". (2) That section, as amended by sub-paragraph (1) above, shall be re-numbered as subsection (1) of that section and after that provision as so re-numbered there shall be inserted the following subsection—

  1. "(2) An unregistered company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company's assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.".'.

531 Page 197, line 29, leave out '41' and insert '42'.

These amendments concern the definition of "insolvency", and many of the other amendments in this group therefore flow from Amendments Nos. 457, 458 and 478. During the passage of this Bill through your Lordships' House the point was made by the noble Lord, Lord Mishcon, that there was uncertainty of meaning and inconsistency between the various uses of the terms "solvency" and "insolvency" in the Bill. A review was undertaken and these amendments were made in another place in order to resolve those uncertainties and inconsistences.

The amendments clarify the circumstances in which companies may be wound up by the court. The intention is to give effect to existing case law and to remove any doubts which may linger that a company, whether registered or unregistered, may be wound up either where it is unable to pay its debts as and when they fall due—sometimes referred to as "commercial insolvency"—or alternatively where it fails "the balance sheet test"; that is to say, where its assets are exceeded by its liabilities, including contingent and prospective claims. Amendment No. 458A, the amendment to Commons Amendment No. 458, corrects an earlier drafting error.

Amendments Nos. 211, 213, 217, 333 and 334 make corresponding revisions to the definition of the term "insolvency" in Clause 84 (transactions at an undervalue and preferences (England and Wales)) and in Clause 153 (transactions at an undervalue and preferences (individuals)), and introduce it for the first time, in Clause 87 (avoidance of certain floating charges), to provide that both "commercial insolvency" and "balance sheet tests", as above, are applied.

The two amendments to Commons amendments (Nos. 211A and 333C) have been made in response to representations made by insolvency practitioners and the Law Society in that, as Clauses 84 and 153 are drafted, employees are treated as connected persons or associates for the purposes of setting aside preferences and undervalue transactions. The point was made that this meant, in theory at least, that the receipt of wages in the period of two years before the making of a winding-up or administration order could be attacked as a preference under these clauses (indeed, that creditors might require the liquidator or administrator to attack them) and that the burden of proving that there was a preference and that the company was solvent would be placed on the employees, and that this was an unfair burden. We accept the force of these arguments and accordingly have brought forward these amendments for the purpose of Clauses 84 and 153.

Amendment No. 531 is consequential on Amendment No. 478, and Amendments Nos. 212 and 214 are of a purely technical nature. The two remaining amendments to Commons amendments, Nos. 333A and 333B, are consequential only. I accordingly commend these amendments to the House.

Moved, That this House do agree with the Commons in their Amendment No. 211.—(Lord Lucas of Chilworth.)

The Deputy Speaker

My Lords, the Question is, That this House do agree with the Commons in their Amendment No. 211, to which three amendments have been set down. Amendment No. 211ZA, Lord Mishcon.