HL Deb 23 October 1985 vol 467 cc1122-4

6. The extent of the director's responsibility for the causes of the company becoming insolvent. 7. The extent of the director's responsibility for any failure by the company to supply any goods or services which have been paid for (in whole or in part). 8. The extent of the director's responsibility for the company entering into any transaction or giving any preference, being a transaction or preference liable to be set aside under section 84 of this Act or section 522 of the 1985 Act or challengeable under section 615 A or 615B of that Act or under any rule of law in Scotland. 9. The extent of the director's responsibility for any failure by the directors of the company to comply with section 68 of this Act. 10. Any failure by the director to comply with any obligation imposed on him by or under section 482 of the 1985 Act (company's statement of affairs) or section (Statement of affairs to be submitted to administrator), (statement of affairs to be submitted to administrative receiver), 50, 68, 81 or 82 of this Act.'.

440 Schedule 4, page 174, line 46, at end insert— '18A. Provision as to the manner in which the liquidator of a company is to act in relation to the books, papers and other records of the company, including provision authorising their disposal. 18B. Provision imposing requirements in connection with the carrying out of functions under section 7(7) of this Act (including, in particular, requirements with respect to the making of periodic returns).'.

442 Page 175, line 10, after first 'section' insert '7(8).'

525 Schedule 8, page 196, line 13, after '2' insert '—(1)'.

526 Page 196, line 13, leave out from 'Where' to end of line 16 and insert (a) an application is made under section 7 of this Act by virtue of paragraph (a) of subsection (9) of that section; and'.

527 Page 196, line 19, leave out 'the order it is required to make by' and insert 'an order under'.

550 Schedule 9, page 204, line 16, column 3, leave out 'Part II of Schedule 12' and insert 'In Schedule 12, Part II and paragraphs 15 and 16'.

The amendments to Clause 7—that is, the duty of a court to disqualify unfit directors—are designed to strengthen the overall reporting and disqualification procedure. The amendments, which have the support of the insolvency practitioners, will require administrators and adminstrative receivers to report to the Secretary of State if they consider a director's conduct makes him unfit to be concerned in the management of a company.

As the Bill left your Lordships' House, only the liquidator had this duty placed upon him. If the change I am suggesting were not made, an administrator or administrative receiver would be able to inform the Secretary of State of the unfitness of directors of the company with which he was concerned but would not have the clear protection of qualified privilege from defamation actions that compliance with the satutory duty brings. Moreover, we would not have the wider range of information that a mandatory requirement should provide.

The amendments also cater for the position in Scotland where there is no Official Receiver's Office. Liquidators of companies being wound up in Scotland will have a duty to report to the Secretary of State concerning unfit conduct whether the company is being wound up voluntarily or by the court. In order to bring about these changes it has been necessary to introduce separate definitions of when a company "becomes insolvent" for the purpose of this clause and when it "goes into insolvent liquidation" for the purpose of Clause 9—that is the clause dealing with wrongful trading. This is achieved by Amendments Nos. 29 and 35 respectively. An examination of the text will provide sufficient explanation.

On the matter of the time limit for the bringing of applications, the Government recognise the concern that was expressed on behalf of directors that they should not have the threat of being made subject to a disqualification order hanging over their heads indefinitely. However, we felt that the one-year limit suggested by the noble Lord, Lord Benson, was too short a time and might allow an unfit director, or an alleged unfit director, to escape disqualification on a technicality. The type of technicality one envisages is a case where the director absconds and where it may take more than 12 months for the evidence to come to light by virtue of that. Amendment No. 23 will therefore prevent an application for a disqualification order being made more than two years after the company became insolvent unless the court gives leave for an application to be made out of time.

The second part of Amendment No. 440 is designed to meet concern that the insolvency practitioner should be obliged to demonstrate in every case that he has considered the conduct of the directors in relation to the guidelines as to unfitness. It will enable the Secretary of State to require by way of the rules, for example, that the practitioner shall make a report to the Secretary of State after 12 months, including, to meet the requirement which was identified in another place, nil returns in those cases where no evidence as to unfitness has come to his attention.

Amendments Nos. 525 to 527 make consequential amendments to the transitional provisions contained in Schedule 8. Amendment No. 550 is a technical amendment consequential upon the repeal by this Bill of Section 300 of the Companies Act 1985. That was the section dealing with disqualification by reference to association with insolvent companies.

During the Report stage in your Lordships' House I indicated that the Government would give serious thought to the possibility of including in the Bill guidelines on what constitutes unfit conduct. Amendment No. 34 is intended to implement the Government's decision in favour of providing what I think at that time we were calling a kind of highway code. That was the description of the noble and learned Lord, Lord Denning, of how he foresaw the guidelines. These guidelines are expressed in Amendment No. 415 by way of a schedule, Schedule 2, setting out matters for determining unfitness of directors. Schedule 2 will enable the court to direct its attention particularly, but not necessarily exclusively, to those matters which Parliament considers indicate a person's unfitness to take part in the management of a company. It will be of use to liquidators, administrators, administrative receivers and the Official Receiver in deciding what particular aspects of directors' conduct they should report to the Secretary of State. I should add that the schedule will be of illustrative help to directors as a means of keeping themselves and their fellow directors on what I might call the right path.

The schedule reflects both the experience of the insolvency service and the comments of experienced insolvency practitioners. It identifies the areas of noncompliance with the Companies Act and company law generally which are encountered in companies that are found to have been controlled by less than competent directors. In the interests of the private consumer, paragraph 7 of the schedule directs attention to the extent of a director's responsibility for any failure by the company to supply goods or services for which prepayments or deposits have been made. I wish to emphasise that the list is illustrative rather than exhaustive, and it may very well be reviewed as and when appropriate.

The new clause introducing the schedule provides for its modification by statutory instrument. The standards which we may reasonably expect from those who direct limited liability companies will continue to evolve, and the schedule may be revised from time to time in the light of such developments and indeed of the experience which we will all gain from operating the provisions of the Bill. That experience will show us the extent of the improvements in the standard of management in companies which we expect to result from the new disqualification and wrongful trading provisions in particular, and enable us to see more clearly whether more needs to be done. I beg to move that this House do agree with the Commons in the said amendments.

Moved, That this House do agree with the Commons in their Amendments Nos. 20 to 28.—(Lord Lucas of Chilworth.)

On Question, Motion agreed to.