HL Deb 23 October 1985 vol 467 cc1135-7

37 Clause 11, page 8, line 38, after 'order' insert 'of section [Restriction on use of company names] above'.

38 Page 9, line 2, after 'order' insert ', to be in contravention in relation to that company of section (Restriction on use of company names) above'.

39 Page 9, line 30, after 'order' insert ', to be in contravention in relation to that company of section (Restriction on use of company names) above'.

Lord Lucas of Chilworth

My Lords, I beg to move that this House do agree with the Commons in their Amendments Nos. 36 to 39,en bloc, but as amended by No. 36A. With permission, I wish to speak also to Amendments Nos. 203 and 529.

203 Leave out Clause 77.

529 Schedule 8, page 196, line 28, at end insert— '4A. Section (Restriction on use of company names) of this Act shall not apply where the relevant company within the meaning of that section) went into liquidation before the coming into force of that section.'.

Clause 77 of the Bill had the intention of preventing an important element of the so-called phoenix syndrome; namely the use in successive companies or other businesses of the same or a similar name to that used by a company which had gone into insolvent liquidation. This procedure is often conducted by a company name-swap carried out shortly before liquidation with a newly-acquired off-the-shelf company taking the insolvent company's name and being run by persons connected with the insolvent company. The new company obtains the benefit of customer and/or supplier goodwill, and may also acquire assets of the insolvent company at an undervalue. This would certainly be to the detriment of the creditors of the old company.

The provisions inserted into the Bill at the Commons Committee stage relating to voluntary winding up (Clauses 66 to 70, as amended) and the necessity for liquidators to give information to creditors' committees as to sales of assets to connected persons, contained in Commons Amendments Nos. 307 to 309, 460 to 463, 470 and 472, together with the disqualification and wrongful trading provisions, all move in different ways to prevent the phoenix syndrome abuse. Clause 77 was one more piece in what I might call that jigsaw.

The clause attempted to alleviate the confusing situation which arises by these company name changes. A major drawback was that it created difficulties by preventing the continued use of a company name which might possibly prevent the disposal of a company as a going concern to totally independent persons, where indeed the trading name was an asset of some value.

5.45 p.m.

The new clause introduced by Commons Amendment No. 36 and the amendments consequential upon it approach the problem from what we believe to be a more effective angle. Rather than preventing altogether the continued use of a company name or trading style, the new clause strikes at the directors or shadow directors of the company in insolvent liquidation in that, subject to their being able to obtain the leave of the court to do so, they must not within five years of the commencement of the liquidation be involved in any other company using the same name as the company in liquidation or, indeed, any other name which is so similar that it would suggest an association with that company. Contravention of this may involve personal liability for the debts of the new company.

Amendment No. 36A widens the scope for exemption from the provisions of this clause. Although the new provisions were welcomed in the other place as tackling a genuine abuse of present company law, reservations have been expressed by some members of that House and by practitioners that the provisions could adversely affect the sale of businesses or parts of businesses as going concerns: that is, of course, sales by an administrative receiver, an administrator or a liquidator.

The new amendment which I am proposing meets that criticism by allowing exemption from the provisions in certain circumstances to be held and prescribed by rules. It is intended here that discussions will be held with practitioners to formulate appropriate circumstances, but that they will involve sales by administrative receivers, administrators and liquidators who will be under a duty to obtain undertakings from the buyers, and that those undertakings will ensure that those subsequently dealing with the new company are properly and adequately informed about the circumstances in which it is using the relevant name. This would ensure thereby that they are not misled.

That is a rather fulsome and perhaps convoluted explanation of what is in essence a proper attempt to meet the requirements and also to satisfy the fears expressed in both Houses during the earlier proceedings. I commend the amendments to your Lordships.

Moved, That this House do agree with the Commons in their Amendments Nos. 36 to 39, as amended by Amendment No. 36A.—(Lord Lucas of Chilworth.)

Lord Bruce of Donington

My Lords, I thank the noble Lord, Lord Lucas of Chilworth, for his explanation of Amendment No. 36, and also for his Amendment No. 36A, which goes some way to meet the anxieties of many who find themselves in the position where they are in charge of the company's assets and for the benefit of creditors or principals are required to dispose of a business as a going concern.

The difficulty is this. In many cases apprehended by, among others, the Institute of Chartered Accountants of England and Wales it is very often the case that the only people able and willing to take over a business as a going concern are in fact directors or shadow directors who are not of necessity dishonest by reason of being directors or shadow directors. As I see it, this clause, even as amended, would still prevent any disposal to a director or a shadow director of the company going into liquidation, and that bothers me a little. I repeat, not every director or shadow director of a company going into voluntary liquidation is of necessity a crook or of necessity is involved in any kind of phoenix syndrome, or in any case remotely culpable in the matter to be taken into consideration to determine his fitness as set out in Schedule 2 of the revised Bill. It is that which I am bothered about.

I put it to the noble Lord that the powers he has already taken in the Bill to report on the fitness of directors, or their unfitness (as the case may be) and to enable the Secretary of State to demand and to receive reports on individual directors, plus the powers of the courts to punish or disqualify (as the case may be) are themselves pretty formidable weapons without adding this extra safeguard against the phoenix syndrome. If all the other safeguards in the Bill, which are very properly being taken, are enforced, including, I must say again, the rigid enforcement of Section 221 of the Companies Act 1985, then this extra safeguard to prevent the Phoenix syndrome might prove unnecessary.

I must defer to the noble Lord's inquiries in these matters. It is, again, one of these questions where, had we had time to consider in depth and had we had time to make the necessary consultations with those well versed in these matters among the legal and accountancy professions, we could probably have found a form of words that would safeguard everyone. As it is, it seems to me still to be a bit of a bludgeon. Well, it cannot be helped. I have undertaken to facilitate the passage of our proceedings today with the utmost expedition. I do not intend to pursue the matter further. Therefore, although I have much misgiving, I trust sincerely that the noble Lord will do his best to allay this through the practice of his department.

On Question, Motion agreed to.