HL Deb 14 February 1989 vol 504 cc151-68

House again in Committee on Clause 82.

Lord Williams of Elvel moved Amendment No. 227Z(54): Page 78, line I, after ("refuses") insert ("or fails after being requested to do so").

The noble Lord said: Here we are dealing with the possibility that the further particulars might fail to be signed by either the company or the chargee. It seems to us that there is a supplementary amendment to subsection(3)(a) of new Section 401 of the Companies Act, which covers an eventuality not covered at the moment; namely, where the company or the chargee does not refuse and yet does not sign. In our view he must be requested to do so and fails if he does not sign when requested to do so. This is a relatively small point but it rounds out the solution to all the possibilities, which at the moment I do not believe is rounded out in the Bill as at present drafted. This is not a very important amendment, but it has been suggested to us by a member of the Law Society and I hope that the Government are able to respond to it. I beg to move.

Lord Strathclyde

I do not believe that this amendment is necessary or desirable. It is unnecessary because if the company or chargee fails to sign after a reasonable number of reminders, any court would take the view that it was being recalcitrant and was refusing to sign. The amendment is undesirable because it is much better left to the court to decide what is or is not a refusal. The amendment would allow an application to be made to the court at the shortest delay on the part of the person whose signature was being sought.

Presumably it is not the intention behind the amendment that any delay, however minimal, should permit an application to the court. The delay would have to be unreasonable. But if it is unreasonable, the court is free on the existing wording of the section to take the view that the delay amounts to a refusal anyway. In the light of this, I ask the noble Lord to withdraw his amendment.

Lord Williams of Elvel

What happens if the court makes a decision and the matter goes to appeal and further appeal on the grounds that there is a failure in time? Should we not have something in the Bill if it is uncontentious? It would allow the court to take a perfectly reasonable decision that there has been a failure after the request. The fact of the request can be established very simply.

Lord Strathclyde

Perhaps I have not explained fully to the noble Lord what is suggested by our wording. We believe that our wording already allows an application to the court if a person fails to sign. However, I am prepared to look at what the noble Lord said and if we feel that he has a point, we shall consider whether an amendment is necessary.

Lord Williams of Elvel

I am grateful to the noble Lord. As I said, this is a matter of rounding out—a little more than drafting. If the Minister will look at it and perhaps produce something on Report, I shall be happy to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Strathclyde moved Amendment No. 227Z(55): Page 78, line 15, after ("and") insert ("any person appearing from the particulars to be").

On Question, amendment agreed to.

Lord Strathclyde moved Amendment No. 227Z(56): Page 78, line 16, after ("chargee") insert (", and if the particulars were delivered by another person interested in the charge to that person,").

The noble Lord said: Perhaps I may also speak to Amendment No. 227Z(64). These amendments rectify omissions in new Sections 401(5) and 404(4) to bring them into line with new Section 398(6). Particulars under new Section 398, further particulars under new Section 401 and memoranda of satisfaction or release under new Section 403 may be delivered by the company, the chargee or any other person interested in the charge. New Section 398(6) requires the registrar to send a copy of particulars received to the company and the chargee. If the particulars were delivered by another person interested in that charge, he must also send a copy to that person. New Sections 401(5) and 403(4) as drafted do not include this last requirement. The amendments put the omission right. If further particulars or a memorandum are delivered by another person interested in the charge, the registrar will be required to send a copy to that person. I beg to move.

Lord Williams of Elvel

There is no problem with this amendment. However, I should like the noble Lord to clarify that the other person interested in the charge is a person whose interest is registered in the particulars of the charge and not somebody who may be extraneously interested in the particulars of the charge.

Lord Strathclyde

Perhaps I may clarify what we are trying to do. The requirement for the signatures of both the company and the chargee provides a safeguard for both of them. Without the requirement, the company might deliver particulars that understated the extent of the charge or a memorandum that claimed incorrectly that a charge had been discharged. In those circumstances the charge would be void in respect of the inaccuracy. It is necessary, therefore, for the chargee to approve any further particulars or memorandum. Similarly, if the chargee delivers further particulars that result in an overstatement of the extent of the charge, the company will suffer because the register may exaggerate its indebtedness, putting off other potential creditors.

The noble Lord, Lord Williams, asked a specific question concerning whether the other person would be in the particulars of the charge. I assure him that the answer is that it will be a assignee or guarantor.

On Question, amendment agreed to.

Clause 82, as amended, agreed to.

Clause 83 [Effects of errors and omissions in particulars delivered]:

Lord Strathclyde moved Amendment No. 227Z(57): Page 78, leave out lines 23 to 25 and insert ("are incomplete or inaccurate").

The noble Lord said: In speaking to this amendment I should like also to speak to Amendments Nos. 227Z(58), (59) and (62). These amendments deal with two related points, one of them technical and the other of substance, but it is convenient to deal with them together.

It is necessary to recast the drafting of new Section 402(1), together with new Section 402(6) to improve the drafting and make it more precise. The provisions as drafted apply the avoidance sanction only in respect of rights which should have been disclosed by the particulars…but were not so disclosed".

In the case of particulars delivered under new Section 398, the reference to "should have been" is appropriate since there is a duty to deliver complete particulars in the prescribed form. But in the case of particulars under new Section 401, the expression "should have been" is less satisfactory because there is no duty to deliver further particulars—the new section is permissive. The only reason why such further particulars "should have been" delivered is that the charge will be partially ineffective if they are not delivered.

The amendments deal with this point by referring in new Section 402(1) to particulars that are "incomplete or inaccurate" and providing that a charge is void to the extent that it confers rights which "would be" rather than "should have been", disclosed by the particulars delivered for registration if those particulars were complete and accurate but are not disclosed". Because of this recasting of new Section 402(1) it is necessary to interpret "complete" in new Section 402(6). The interpretation of "complete" inserted in new Section 402(6) contains a substantive change. Amendment No. 227Z(62) would create a new subsection (6)(b) saying that, particulars shall not be regarded as incomplete or inaccurate by reason only of their omitting or mis-stating the name of the chargee". The result of this is that a charge will not become void as a result of either an error in identifying the chargee in the original particulars or a change in the identity of the chargee after the particulars have been delivered. Without this exception, the whole charge might become void because of a simple and possibly quite minor mistake in respect of the chargee's name in the original particulars. I beg to move.

8.45 p.m.

Lord Williams of Elvel

The noble Lord described one of the amendments as being material. Indeed, it is material. The expression in Amendment No. 227Z(62) that, particulars shall not be regarded as incomplete or inaccurate by reason only of their omitting or mis-stating the name of the chargee", does seem to be a material change in the Bill.

If I lend some money, which I would never dream of doing, to the noble Lord, Lord Lloyd of Kilgerran, and he omits to put his name to the bill I am discounting for him, or I omit to put my name when he lends me money, that would appear to be a serious problem. If the particulars are not complete through that fact I do not understand how the charge can be valid. Perhaps the noble Lord can explain.

Lord Lloyd of Kilgerran

I am inclined to agree. I agree that the first three amendments are a considerable improvement on the original clause. However, I cannot understand why, omitting or mistaking the name of the chargee", should be put into subsection (6)(b) in the way that it has been. I agree entirely with the noble Lord, Lord Williams of Elvel, on this point.

Lord Strathclyde

Perhaps I can answer the questions put by both noble Lords by saying this. The exception would also preclude avoidance where particulars become inaccurate because of a change in the identity of the chargee. It would be a considerable burden if all those in whom the security rights of the charge were newly vested had to deliver further particulars. Particulars would have to be delivered, for example, every time there was an assignment of a charge. Since the identity of the chargee is not a crucial piece of information which third parties would rely on for their own assurance or to secure their own position, it is unnecessary to impose such a burden.

Lord Williams of Elvel

With respect, the identity of the chargee is very important. If the identity of the chargee is the Bank of England, no one will challenge that charge. However, if the identity of the chargee is the lowest citizen in the land someone can walk across that charge and fight it in the courts. If the lowest citizen in the land cannot fight it in the courts like the Bank of England can, then there is a difference. The Government are treating this in a slightly cavalier manner—I make no such comment—on a personal basis—and it is a matter that requires further examination.

Lord Lloyd of Kilgerran

If the reference was to "mis-spelling" the name of the chargee instead of "mis-stating" the name of the chargee, I would be perfectly happy. However, to have omitting and mis-stating the name of the chargee seems to be impracticable.

Lord Strathclyde

There is obviously no desire on the part of the Government to be cavalier in their attitude and I take note of the strong feelings of both noble Lords. The amendment addresses a concern expressed by many outside bodies, which is why it has been brought forward in this form. The whole charge might become void because of a relatively minor mistake. The main purpose of the register is to know whether the property itself is encumbered.

I can see the noble Lord, Lord Williams of Elvel, is shaking his head, but what is not so important is to whom it is encumbered. The point of the register is to make sure whether or not a property has a charge on it.

Lord Williams of Elvel

I am sorry to intervene, but there is a serious disagreement between the Government and myself and the noble Lord, Lord Lloyd of Kilgerran, on the matter of who has the lien over the property in question. It makes a difference. If one goes to the register to make a search and discovers that the Bank of England is the chargee, that is something to which you pay attention. if you discover, as I suggested, that the lowest citizen in the land is the chargee, you may pay less attention. That in itself is a matter of importance.

I accept the noble Lord's point that the fact of whether or not a property is encumbered is the central point, but there is nevertheless the subsidiary point I have just made. If the noble Lord could accept the suggestion made by the noble Lord, Lord Lloyd of Kilgerran, that a mis-spelling or misprint could not render the particulars invalid, I can see no problem; but "omitting" or "mis-stating" the name of the chargee seems to be much more serious.

Lord Strathclyde

There is obviously considerable strength of feeling from Members opposite. Therefore, I shall be happy to look at what has been said without giving any undertaking that we will come back with amendments.

I have already said, but perhaps I may repeat it, that the principal purpose of the register of charges at Companies House is to allow searchers to assess the indebtedness of the company and to allow potential secured creditors to check whether the property they are being offered as security is already subject to a prior charge. If particulars of a charge appear on the register, the identity if the chargee will be a matter of little significance to them. On the rare occasion where it might be, they would be able to inspect the register and instrument of charge kept at the company's registered office under new Section 408.

Earlier the noble Lord, Lord Williams of Elvel, referred to the Bank of England, but the point he made is not as important as he believes it to be because a charge is valid irrespective of the status or identity of the chargee. I said I would look at what has been said. If we can agree this amendment in the meantime, then I shall look at the Official Report to see if any further amendment needs to be brought forward at the next stage.

Lord Lloyd of Kilgerran

I did not understand what the noble Lord said regarding the substitute Section 408. It is entirely my fault and I am sorry. It may be that it is immaterial.

Lord Strathclyde

Very briefly, the point is that if the identity of the chargee is a matter of significance to a searcher, then he can inspect the register and the instrument of the charge itself, which is kept at the company's registered office under the new Section 408.

Lord Lloyd of Kilgerran

I am very much obliged.

Lord Williams of Elvel

I am also obliged to the noble Lord and I accept his reference to Section 408. We have problems with this new section which is the object of amendment. Until we have discussed that we cannot accept the Government's assurance that all will be solved by the new Section 408. I understand that we do not wish to delay matters. I am not prepared to oppose this amendment, but I wish the noble Lord and the Government to understand that the register is not simply a record of whether a property is encumbered or not. It is whether there is indebtedness and the quality of that indebtedness. That is why we have the particulars set out in the Act.

On Question, amendment agreed to.

Lord Strathclyde moved Amendments Nos. 227Z(58) and 227Z(59): Page 78, line 27, leave out ("should have been") and insert ("would be"). Page 78, line 28, leave out ("but were") and insert ("if those particulars were complete and accurate, but are").

On Question, amendments agreed to.

Lord Strathclyde moved Amendment No. 227Z(60): Page 78, line 35, leave out from ("value") to ("acquires") in line 37.

The noble Lord said: This amendment has already been spoken to and I beg to move.

On Question, amendment agreed to.

Lord Strathclyde moved Amendment No. 227Z(61): Page 78, line 37, after ("in") insert ("or right over").

The noble Lord said: Since I have spoken to Amendments Nos. 227Z(61) to (65), would it be convenient if I dealt with these together?

Lord Williams of Elvel

No.

Lord Strathclyde

I beg to move Amendment No. 227Z(61).

On Question, amendment agreed to.

Lord Strathclyde moved Amendment No. 227Z(62): Page 79, line 18, leave out from beginning to ("the") in line 21 and insert— ("6) In this section—

  1. (a) references to the particulars of a charge delivered for registration are to such particulars and further particulars as may have been delivered from time to time;
  2. (b) references to the particulars being complete are to their including all the prescribed particulars, but particulars shall not be regarded as incomplete or inaccurate by reason only of their omitting or mis-stating the name of the charges; and
  3. (c)").

The noble Lord said: I have already spoken to this amendment.

On Question, amendment agreed to.

Clause 83, as amended, agreed to.

Lord Strathclyde moved Amendment No. 227Z(63): Page 80, line 5, after ("and") insert ("any person appearing from the memorandum to be").

On Question, amendment agreed to.

Lord Strathclyde moved Amendments Nos. 227Z(64), (65) and (66): Page 80, line 6, after ("chargee") insert (", and if the memorandum was delivered by another person interested in the charge to that person,"). Page 80, line 14, leave out from ("value") to ("acquires") in line 16. Page 80, line 16, after ("in") insert ("or right over"). The noble Lord said: I beg to move these amendments en bloc.

On Question, amendments agreed to.

Lord Strathclyde moved Amendment No. 227Z(67): Page 80, line 23, at end insert— ("(6) Where a relevant event occurs as a result of which a charge becomes void to any extent by virtue of this section, the whole of the money secured by it is repayable (together with any interest) on demand.").

The noble Lord said: This amendment puts right a simple omisson from new Section 403. New Sections 399 and 402 already provide that where a charge becomes void or partially void upon a relevant event, the whole of the money secured by it is repayable (together with any interest) on demand. A similar provision is already contained in Sections 395(2) and 410(3) of the 1985 Act. The amendment will apply the provision to avoidance arising out of the delivery of a memorandum of satisfaction or release in circumstances where the debt has not been satisfied and the charge has not been released. I beg to move.

On Question, amendment agreed to.

Clause 84, as amended, agreed to.

Clause 85 [Further particulars to be delivered]:

Lord Strathclyde moved Amendment No. 227Z(68): Page 81, line 9, at end insert— ("(5) This section does not apply in relation to companies registered in Scotland (for which corresponding provision is made by sections 53, 54 and 62 of the Insolvency Act l986).").

The noble Lord said: New Section 405 repeats Section 405 of the 1985 Act. There is no equivalent section in Chapter II of the 1985 Act in respect of companies registered in Scotland, because corresponding provision is made in the Insolvency Act 1986 (and was included in preceding legislation). The amendment, therefore, disapplies new Section 405 in relation to Scotland, where it is unnecessary. I beg to move.

On Question, amendment agreed to.

Lord Lloyd of Kilgerran moved Amendment No. 227Z(69): Page 81, leave out lines 13 to 16.

The noble Lord said: The effect of the substituted Section 406 is that the Secretary of State will have the power to make regulations to require notice to be given of the crystallisation of a floating charge. This occurs when, in accordance with the terms of a charge, an event occurs that enables the lender to declare a charge to be a fixed charge on specified assets. I shall not make any complaint a t this stage and at this late hour, but this raises another issue of principle. The noble Lord, Lord Rippon, reminded us earlier this evening that it raised the question of the powers of the Secretary of State.

There is a major problem arising in the substitute Section 406 (1)(a) to be found in lines 13 to 16 of the Bill. This amendment is directed to delete that subsection (1)(a). As I read the subsection, the lender will be obliged to give public notice of an event and entitle him to crystallise a floating charge whether or not he exercises this entitlement. I am advised that this can be damaging to the commercial lending process as well as being virtually impossible in practice. The lender will frequently become aware of a technical default and will not ask the borrower to correct it. It will be corrected and that will be the end of the matter.

A public notice may cause panic among all creditors of that company and trigger cross-default clauses in other charging documents. I do not believe that the Government have thought through the applications of these four lines. I beg to move for their deletion.

Lord Williams of Elvel

The noble Lord, Lord Lloyd of Kilgerran, has brought to the attention of the Committee a very important point. As I understand it the point is that the Secretary of State may by regulation require notice in some form that he is to prescribe to be given to the registrar of whatever he decides are the events and the occurrence of such events. The Bill as drafted continues at page 81, line 14, affecting the nature of the security under a floating charge". A floating charge is a charge on the assets or the partial assets of a company. A floating charge may be affected in its nature by a variation in the current asset ratio of a company, by a variation in the ratio of net worth to current assets of a company or by other factors. The nature of the charge may be affected by any number of considerations. If the floating charge has been registered and particulars have said that it is a charge of a floating nature on all the assets of the company, which is a perfectly normal way of expressing it, anything which affects the assets of that company could affect the nature of that charge. I do not see how the Secretary of State could specify or prescribe what events could affect that charge and how they might occur. The drafting is loose to the point of absurdity, and the noble Lord, Lloyd of Kilgerran, has drawn our attention to an important defect in the Bill.

9 p.m.

Lord Strathclyde

I think I should explain first the reason for giving the Secretary of State a power to require notice of events in new Section 406(1)(a) that cause a floating charge to crystallise. The knowledge that a floating charge has crystallised is important to other prospective chargees. For example, a crystallised floating charge will take priority over a subsequently created equitable fixed charge. It is desirable, therefore, to have a means of providing for disclosure of the crystallisation of floating charges. Without the power to require notice of events prescribed under new Section 406(1)(a), the Secretary of State would not be able to ensure that the register of charges disclosed full information about floating charges.

I am aware that there is some concern that certain events causing a floating charge to crystallise might not be in the knowledge of either the company or the chargee. The use of "automatic crystallisation clauses" has become accepted commercial practice. These clauses might provide that a floating charge shall automatically crystallise if, say, the company exceeds a specified borrowing limit. The company might not know immediately that the limit had been reached, and the chargee would not know either unless the company told him. Some have said that this sort of automatic crystallisation should not be allowed, and, indeed—

Lord Williams of Elvel

I am sorry to interrupt. Is the noble Lord distinguishing between covenants in a loan agreement, which cover the point he has just raised, and a floating charge?

Lord Strathclyde

I do not see that that question arises.

Lord Williams of Elvel

The noble Lord described what I would call an event of default in a loan agreement where, if a current ratio or an indebtedness ratio goes above a certain limit, there is an event of default. That is not a floating charge.

Lord Strathclyde

No, but that is what could trigger off an automatic crystallisation of a floating charge. A charge could be over a variety of assets which would therefore justify it as being a floating charge.

Lord Williams of Elvel

It might or might not trigger off a floating charge. It would depend on the loan agreement. If the loan agreement simply says that in the event of a current ratio becoming this, that or thus, there will be an event of default, then, under usual loan agreements the company will have a period of time during which it can rectify that event of default. Only in the event of it being unable to rectify that default are charges triggered. Those may be floating charges or other charges.

Lord Strathclyde

I must point out that the example I am using is only an example. I do not see that the difficulties the noble Lord has with it are necessarily valid. All we are trying to point out in this instance is that, if the terms of the floating charge specified that it would automatically crystallise if the company exceeded a specified borrowing limit, the company might not know immediately that the limit had been reached and the chargee would not be able to know unless the company had already told him.

Under new Section 406(1)(a) the Secretary of State would have the power to make such a crystallisation ineffective. It is not, however, his intention to require the notification of any events which are not of such a nature as to be within the knowledge of the party on whom the obligation to notify is imposed. He would intend to use his powers under this new section to require the company or the chargee (as the case may be) to notify only those events which would be within the knowledge of the company or the chargee. I do not think that it is possible to argue that such events should not be notifiable. An aspect of the policy underlying Part IV of the Bill is that chargees should have to deliver particulars notifying any change in the terms of a charge if they want to enjoy any extra protection afforded by the new terms as against third parties. This principle is behind new Section 402. It is entirely consistent with that principle that the holder of a floating charge should have to give notice when it crystallises and in effect attaches to property as a fixed charge.

I know that there has been a certain amount of concern about the provision. Perhaps the noble Lord, Lord Lloyd of Kilgerran, would like to say something at this stage.

Lord Williams of Elvel

Before the noble Lord decides what he wants to do with his amendment, I should like to say that the Government's response to it has been somewhat less than we might have expected. There is a difference between a floating charge, which is a perfectly clear arrangement, and the covenants that may appear in loan agreements and other documents. The triggering off of cross-default clauses in other loan agreements, which the noble Lord, Lord Lloyd, mentioned in his original introduction, can be through a crystallisation of a floating charge or an event of default under one of the loan agreements which form part of the cross-default mechanism that most companies now have.

The point is that a floating charge is a charge. It is not a covenant under a loan agreement. A great deal of what the noble Lord has been saying is irrelevant to the crystallisation of a charge. When a charge, whether floating or fixed, is crystallised, then, as the Bill properly says, there is no legal impediment to the money which has been lent on the charge being repaid at sight; but that is different from an event of default under a loan agreement. It is different from a cross-default clause under a loan agreement which, again, may give time for the company to repay or to correct the default if the whole thing is not brought down and the repayment is at sight.

We are dealing with a technical and difficult matter. I hope that the noble Lord will look at this point. Perhaps we can have a further discussion, because it is too late for us to concentrate on the point. I am sure that the noble Lord, Lord Lloyd of Kilgerran, will wish to add his word after the Minister has replied to me.

Lord Strathclyde

Before the noble Lord, Lord Lloyd of Kilgerran replies, perhaps I may say that the noble Lord spoke of loose drafting. Consideration was given to framing the power in such a way that notice would be required only of events within the knowledge of prescribed persons. However, there are a number of difficulties with that requirement. To avoid unnecessary complexities, the power is framed in general terms. As I said, however, the intention is that it should be exercised in relation to prescribed events which are known to the company which is charging.

In view of the concern expressed by noble Lords, I am prepared to look at this point again and report back. I cannot promise a solution, but we shall look carefully at the arguments put forward by both noble Lords.

Lord Lloyd of Kilgerran

When I moved the amendment I spoke rather bluntly. I said that I did not believe that the Government had thought through the implications of the four lines in the subsection. Frankly, I am reinforced in that view having regard to our discussions. In view of the fact that the Minister has agreed to look at the matter again, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 85, as amended, agreed to.

Clause 86 [Interpretation]:

Lord Strathclyde moved Amendments Nos. 227Z(70) to 227Z(73): Page 82, leave out lines 8 and 9. Page 82, line 21, at end insert ("or right over"). Page 82, line 23, at end insert ("or right"). Page 82, leave out lines 24 to 30.

On Question, amendments agreed to.

Clause 86, as amended, agreed to.

Clause 87 [Copies of instruments and register to be kept by companies]:

Lord Williams of Elvel moved Amendment No. 227Z(74): Page 83, line 4, leave out ("a") and insert ("an up to date").

The noble Lord said: It may be for the convenience of the Committee if I speak also to Amendment No. 227Z(75). I mentioned a few moments ago that the reliance on new Section 408 of the Companies Act, which is suggested in Clause 87, was perhaps a rather doubtful crutch upon which the Government should lean because in many cases a company's register is not kept up to date and there is no check that it is kept up to date.

Amendments Nos. 227Z(74) and 227Z(75) are designed to ensure that companies' registers are kept up to date and are properly verified as being up to date. I accept that there may be a dispute about whether the register of charges in a company should be inspected once or twice a year, once a quarter or whatever it might be; but at least the company auditors should inspect the register in the way that they inspect the company's schedule or assets. It is obvious that if we are to rely on companies' registers—it is right to rely on them, and they should keep up-to-date registers of charges—the statutory obligations are necessary. I hope that the Government will accept them. I beg to move.

Lord Strathclyde

I do not disagree with the intention behind these amendments. I do not think anyone would wish to argue against the proposition that a company should keep its register properly and up to date. Unfortunately, these amendments would not assist that objective. Amendment No. 227Z(74) was based on the belief that the new Section 408(2) does not require companies to keep an up-to-date register, but the section as drafted does impose that requirement. It imposes a duty on a company to keep a register of all charges containing certain entries. Those entries must be accurate and up to date if the duty is to be fulfilled.

The noble Lord's amendment might have been necessary if the requirement had been for companies to enter in a register details of a charge when it was created. However, the duty is to keep a register: this is a continuing duty to maintain an accurate register. The addition of the words "up to date" is therefore unnecessary.

The more substantial proposal is contained in Amendment No. 227Z(75). I am aware that, as part of their audit, some auditors regard it as best practice to inspect the register of charges. But what would an annual inspection by auditors achieve in so far as the maintenance of the register was concerned? It would not ensure that the register was properly kept during the remainder of the year, and even lithe auditors did discover that the register was inadequate, they could not be expected to do much more than inform the company itself that it was failing in a statutory duty.

I do not think it worth while imposing another task by statute on a company's auditors such little purpose. There are many duties that are placed upon companies which are not subject to inspection by their auditors. The maintenance of a register of charges is only one of them. While the intention behind the amendments is sensible, we should not add unnecessary words to the Bill or make unnecessary work for company auditors. Therefore, I would ask the noble Lord to withdraw his amendment.

Lord Williams of Elvel

I accept that the Government's interpretation of subsection (2) of the new Section 408 might well render my Amendment No. 227Z(74) otiose. I am still doubtful about it and wish to take advice but I accept the noble Lord's point, subject to reading carefully what he has said, and subject to further advice.

I am not prepared to accept that there should be no effort at all at enforcement in regard to company registers. The fact is that company registers are not kept up to date and anybody who has been in the real world and dealt with the matter will know this. One of the original reasons why there was a public register in the first place was that company registers were not kept up to date. I believe that the Government have to take company registers and the enforcement of this obligation upon companies much more seriously than they have hitherto. So I should like to hear the noble Lord say to me that he will think about this again. I am quite certain that if the Government do not put this in they are not recognising a major problem and a major difficulty with this Bill—that the company register is a fallible object at the moment. Whether the auditor inspects the register once every three months, once a year or whatever it may be, at least he has the right to go and look at it and to remind companies of their statutory duty. If there is no policeman I am afraid the register will get out of date, as it has in the case of very many companies. I can produce a number of instances from my own personal knowledge, where bankers have relied on registers being up to date and they have not been up to date. So I hope the Government will pause and think again before rejecting this second amendment. Perhaps we might have another discussion on this at Report stage after they have thought.

Lord Lloyd of Kilgerran

I do not wish to appear to be otiose at this late hour in having any difference at all with the views of the noble Lord, Lord Williams of Elvel, on this matter. The noble Lord the Minister raised the question of cost and I wondered whether the noble Lord, Lord Williams, has thought that this inspection of the register by the company's auditors every year should not be forced upon the companies which are colloquially called SMEs, the smaller companies and not the larger companies.

Lord Williams of Elvel

I have no particular views on this. I regard the cost of an audit, the additional marginal cost of doing this, as opposed to looking at the schedule of fixed assets, to be absolutely minimal. We are probably talking about another £500 on the audit fee. If that is going to be critical to a public company or an SME, I would say there is something wrong with the company. So I do not regard the marginal cost of doing this as being something essentially important.

Lord Strathclyde

I find myself surprised that the noble Lord, Lord Williams, is being so forceful about this point. I thought I had explained the matter rather carefully in my original reply to his Amendment No. 227Z(75). I must point out that there are so many duties of companies which are not subject to audit. As the noble Lord knows, there are 600 pages in the 1985 Companies Act and the vast majority of them concern duties which are not related to accounting and audit matters.

The noble Lord does not need me to tell him that the Government are firmly committed to lifting the burden of regulation that is not necessary. We cannot accept a new requirement that will create extra work for auditors and extra costs for companies, with no benefit to anyone.

Lord Williams of Elvel

What would happen if an auditor discovered that the schedule of fixed assets of a company was incorrect?

Lord Strathclyde

Auditors audit registers as part of their duties in relation to the company's accounts. It is not part of their job to inspect those registers. The alleged difficulty has not been apparent in our consultations. There have been no complaints at Companies House.

Lord Williams of Elvel

If the Minister says that auditors audit or examine these registers as part of their audit, I am afraid that that is not the truth: they do not do so. I believe that they should do so. There is no difference between examining and inspecting in auditing terms. One can use whatever expression one likes. I want the auditors every year to look at the register and ensure that it is as up to date and properly kept as the schedule of fixed assets. They do not do that at present.

Lord Strathclyde

This may not be the appropriate time to debate what should or should not be included in the work carried out under an audit. Part IV is specifically about the registration of company charges. Any proposal for an inspection of the register must be justified on its merits, not because it would be relevant to an entirely different function. I know that the noble Lord feels strongly about the point. Perhaps he would look at what has been said in Hansard, and then, if he feels strongly about it, he can bring it back at a later stage.

Lord Williams of Elvel

I shall certainly look at what has been said in Hansard, but nothing that has been said so far persuades me that the Government have answered the points that I have made at all.

However, I accept that it may be appropriate to bring in an amendment in Part I of the Bill—that is probably the place that I shall do it—on Report. I am afraid that the Minister will not rest easy because I shall come back to the matter. It is an important point. A lot of the backing of the public register is from the companies register itself. We must make sure that it is right, up to date and properly checked. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 227Z (75) not moved.]

Clause 87 agreed to.

Claue 88 [Charges on property of oversea company]:

Lord Williams of Elvel moved Amendment No. 227Z(76): Page 86, line 1, leave out ("400 and 402") and insert ("and 400").

The noble Lord said: I beg to move Amendment No. 227Z(76). It may be for the convenience of the Committee if I speak also to Amendment No. 77.

The amendments may seem very small in terms of wording, but they are important. The Law Society of England and Wales at least considers them to be very important. The society has made representations to us, of which I am sure the Minister is aware—it has sent the appropriate representations to the department—that it does not agree with the retention of provisions in relation to registration of charges by foreign companies which have the effect that such charges are void unless registered within a specified period. The society believes that what is proposed is unworkable and will lead to great uncertainty. Furthermore, it considers that the provision in the new Section 703 for determining when charges created by foreign companies are registrable raises serious practical difficulties.

I do not wish to expand on the Law Society's reasons at this late hour. I believe that the department has received the representations, which I am sure will have been studied also by the noble Viscount, Lord Long.

Lord Lloyd of Kilgerran

I wish briefly to intervene to say that I also have been instructed by the Law Society. I accept its submissions, which are largely along the lines of what the noble Lord, Lord Williams, said.

Lord Strathclyde

I am grateful to both the noble Lords for having spoken relatively briefly. We have obviously received representations from the Law Society.

Prospective creditors who search the register in order to discover the existence of any prior charges created by companies are just as much in need of protection from unregistered charges where the company is an overseas company as they are where the company is a domestic company. It is quite true that the holder of a charge created over the property of an overseas company may not necessarily know whether the property is situated in Great Britain at the expiry of the period allowed for delivery of the particulars. But the chargee has the remedy in his own hands. He can register the charge as a prudent precaution in the light of the likelihood of the property subject to the charge being situated in Great Britain on the relevant date.

As regards property which is situated abroad at the date of the charge or property which is not yet owned by the company at that date, if the chargee considers that the risk of the property becoming situated in Great Britain without his knowledge is unacceptable, he has only to register his charge at the time of creating. This does not seem by any means an unreasonable demand to make of such chargees. The obligation to register charges applies only in respect of those overseas companies which have registered in Great Britain under Section 691 of the Companies Act 1985. The sanction of avoidance of failure to do so will not apply in respect of those charges granted before the date when the overseas company is registered under Section 691.

If a chargee wishes to have the benefit of his security in respect of property which may at a later date be situated in Great Britain, he need only register the charge in Great Britain. If he does not know whether the company is registered in Great Britain, he need only inquire. A chargee who wishes to have the benefit of the security and priority to other creditors in this country can reasonably be expected to comply with the requirements and conditions which apply in this country for securing such a priority.

An overseas company which has a place of business in this country and is registered for business in this country is very likely to be seeking credit in this country. It is almost certain to be disposing of its property in this country. No creditor can reasonably treat his charge as though it existed in a vacuum, insulated from the competing claims of other persons who acquire interests in the same property, and no chargee can treat his charge as though it existed in a vacuum of immunity from the law of the country where he seeks to enforce his claim to priority.

It is perfectly reasonable to expect a company of any foreign nationality and a chargee of any nationality to register charges created by the foreign company in any country in which that company is registered for business and in which therefore it is likely to be dealing with its property and soliciting business. In light of that I ask the noble Lord to withdraw his amendments.

Lord Hacking

I am a little reluctant to rise at this stage in the proceedings of the Committee because I have not had an adequate opportunity to participate in the same detail at this stage as I should have liked on such a highly technical Bill as this. However, the company law committee of the Law Society has given a very detailed paper to the Government. The Minister has been kind enough to acknowledge that.

I do not wish to debate the problem in detail but it is complicated. It is of extreme importance that persons who are examining a company should have access to a register with information that is wholly up to date, and information on which the company making the inquiry can rely. The difficulty with this amendment is that by a movement of dates, which I can explain in more detail, it does not give the protection that should be given to persons who examine the register. Without going further into the technicalities, I ask the Government to look very carefully at this long memorandum. I know that it was prepared only a matter of days before the Second Reading. The Government have not had an opportunity to give it the detailed consideration that it truly deserves. I would be grateful if the Minister could at least assure the Committee that this detailed memorandum will be given very careful consideration before Report.

Lord Williams of Elvel

I am sure he Committee will echo the words of the noble Lord, Lord Hacking, that the Government should give the views of the Law Society the attention that they deserve.

On the particular point that we haw. discussed this evening and on these two amendments to which I have been speaking, I accept that we have been through the process of exploring how the Government arrived at the decision they did. It is now for us to look at the reasons that the noble Lord has set out. We shall analyse those and see whether we agree with them and wish to move the matter further on Report. Unless any other Member of the Committee wishes to speak to these amendments, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 227Z(77) not moved.]

Lord Strathclyde moved Amendment No. 227Z(78): Page 86, line 36, leave out from ("Chapter)" to end of line 41 and insert ("(2) In relation to such a company Section 408 applies with the substitution, for the reference to the company's registered office, of a reference to its principal place of business in Great Britain.").

The noble Lord said: This amendment takes out an incorrect reference to new Section 409(3) in new Section 703E. The reference has the effect of disapplying new Section 409(3) from the provisions on overseas companies. This was not intended. I beg to move.

On Question, amendment agreed to.

Lord Strathclyde moved Amendment No. 227Z(79): Page 87, leave out lines 1 to 7 and insert— ("(2) The following provisions apply for determining for the purposes of this Chapter whether a vehicle which is the property of an oversea company is situated in Great Britain—

  1. (a) a ship, aircraft, or hovercraft shall be regarded as situated in Great Britain if, and only if, it is registered in Great Britain;
  2. (b) any other description of vehicle shall be regarded as situated in Great Britain on a day if, and only if, at any time on that day the management of the vehicle is directed from a place of business of the company in Great Britain.").

The noble Lord said: Under new Section 703F(2) as drafted the decision as to where a ship, aircraft or hovercraft is situated is determined according to the place from which it is managed. It has been pointed out to us that this might result in potential conflicts of priority with the registration procedures for such ships, aircraft or hovercraft under the laws of foreign countries. The amendment therefore determines their situation according to whether they are registered in Great Britain. The amendment also replaces an incorrect reference to England with one to Great Britain. I beg to move.

Lord Williams of Elvel

The Government amendment rectifies a couple of points. I am still unclear as to the definition of "vehicle" in either the orginal Bill or the Government's amendment as drafted.

Lord Strathclyde

I am sorry the noble Lord is worried about the definition of "vehicle". I presume that that comes from new subsection (2). Vehicles are those things which are not ships, aircraft or hovercraft.

Lord Williams of Elvel

The Government amendment rectifies a couple of points. I am still carriage which is mobile but which has no independent means of propulsion would come within the definition of "vehicle". If a railway waggon or carriage is not itself a vehicle, we can foresee confusion arising in practice in relation to charges over trains where it is intended to charge both the train and railway waggons or carriages coupled to it, given the different rules relating to registration of charges which would then apply.

The whole question of the Eurotunnel or the Channel Tunnel will come into operation. Similar issues arise in relation to mobile caravans and trailers. I hope by now that the noble Lord may have a different definition of the word "vehicle".

Lord Strathclyde

I certainly do not in any way wish to confuse the noble Lord or the other Members of the Committee. The term "vehicle" means any mobile conveyance for the carriage of goods and persons. So a cart without a horse is a vehicle, as are trailers and rolling stock without a tractor unit. I hope that that covers the point.

On Question, amendment agreed to.

Clause 88, as amended, agreed to.

Clause 89 agreed to.

Clause 90 [Consequential amendments]:

Lord Strathclyde moved Amendment No. 227Z(80): Page 87, line 46, after ("sections") insert (",45(5)").

The noble Lord said: Clause 90(2) discontinues the daily default fine in respect of offences of failing to deliver documents relating to the appointment or cessation of the appointment of a receiver. This is consequential upon the discontinuance of the daily default fine under new Section 405. The amendment corrects a failure to refer to Section 45(5) of the Insolvency Act, which concerns the variation of his office by an administrative receiver if he ceases to be qualified to act as an insolvency practioner. I beg to move.

On Question, amendment agreed to.

Clause 90, as amended, agreed to.

Lord Strathclyde

I beg to move that the House do now resume.

Moved accordingly and, on Question, Motion agreed to.

House resumed.

House adjourned at twenty four minutes before ten o'clock.