HL Deb 28 February 1989 vol 504 cc999-1006

Protection of creditors against forfeiture

31.—(1) During the period of six months following the making of a forfeiture order no money which is subject to the order, or which represents any property subject to it, shall be finally disposed of under this Schedule.

(2) If, in a case where any money or other property is subject to a forfeiture order—

  1. (a) the commencement of an insolvency occurs, or has occurred, in the course of any qualifying insolvency proceedings,
  2. (b) any functions in relation to that property would (apart from the forfeiture order) be exercisable by an insolvency practitioner acting in those proceedings, and
  3. (c) during the period of six months following the making of the forfeiture order any such insolvency practitioner gives written notice to the relevant officer of the matters referred to in paragraphs (a) and (b) above,
then sub-paragraph (3) below shall apply in relation to the property in question.

(3) Where this sub-paragraph applies then, subject to the following provisions of this Part of this Schedule, the property in question or, if it has been sold, the proceeds of sale—

  1. (a) shall cease to be subject to the forfeiture order and any ancillary order; and
  2. (b) shall fall to be dealt with in the insolvency proceedings as if the forfeiture order had never been made.

(4) In any case where—

  1. (a) sub-paragraph (3) above would, apart from this subparagraph, apply in relation to any property, but
  2. (b) the relevant officer, or any person acting in pursuance of an ancillary order, has entered into a contract for the sale of that property or has incurred any other obligations in relation to it,
that sub-paragraph shall not take effect in relation to that property, or its proceeds of sale, unless and until those obligations have been discharged.

(5) Where in consequence of sub-paragraph (3) above any money or other property falls to be dealt with in insolvency proceedings, the Secretary of State shall be taken to be a creditor in those proceedings to the amount or value of that property but, notwithstanding any provision contained in or made under any other enactment—

  1. (a) except in sequestration proceedings, his debt shall rank after the debts of all other creditors and shall not be paid until they have been paid in full with interest under section 189(2) or, as the case may be, section 328(4) of the 1986 Act or Article 25 of the Bankruptcy Amendment (Northern Ireland) Order 1980; and
  2. (b) in sequestration proceedings, his debt shall rank after all the debts mentioned in section 51(1) of the Bankruptcy (Scotland) Act 1985 and shall not be paid until they have been paid in full.

(6) Where by virtue of sub-paragraph (3) above any property ceases to be subject to a forfeiture order in consequence of the making of a bankruptcy order, and the bankruptcy order is subsequently annulled, the property shall again become subject to the forfeiture order and, if applicable, any ancillary orders.

(7) If the property referred to in sub-paragraph (6) above was money, or has been converted into money, the property which is to become subject to the forfeiture order and any ancillary orders shall be any property comprised in the bankrupt's estate to the same amount or value.

(8) In this paragraph— the commencement of an insolvency" means—

  1. (a) the making of a bankruptcy order;
  2. (b) the date of sequestration of a person's estate, within the meaning of section 12(4) of the Bankruptcy (Scotland) Act 1985;
  3. (c) in England and Wales, in the case of the insolvent estate of a deceased person, the making of an insolvency administration order;
  4. (d) in the case of a company—
  1. (i) the passing of a resolution for its winding up; or
  2. (ii) the making of an order by the court for the winding up of the company where no such resolution has been passed;
final disposal under this Schedule", in relation to any money, means—
  1. (a) in England and Wales, its payment to the Secretary of State in accordance with paragraph 1(3) or 9(5) above;
  2. (b) in Scotland, its payment to the proper officer in Exchequer under section 203 of the Criminal Procedure (Scotland) Act 1975;
  3. (c) In Northern Ireland, its payment into, or its disposal for the benefit of, the Consolidated Fund in accordance with paragraph 21(3) or 29(5) above;
and "finally dispose" shall be construed accordingly.

Expenses incurred in connection with the forfeiture

32.—(1) Where any money or other property would, apart from this paragraph, fall to be dealt with in accordance with paragraph 31(3) above, the relevant officer may—

  1. (a) deduct from that money any allowable forfeiture expenses; or
  2. (b) retain so much of that property as he considers necessary for the purpose of realising it and deducting any such expenses from the proceeds of realisation;
and paragraph 31(3) above shall apply only in relation to any balance remaining after making provision for those expenses.

(2) If any money or other property is delivered up in pursuance of paragraph 31(3) above and provision has not been made for any allowable forfeiture expenses, then—

  1. (a) the person who incurred them shall have a claim to their value in the insolvency proceedings; and
  2. (b) the expenses in question shall be treated for the purposes of the insolvency proceedings as if they were expenses of those proceedings.

(3) In this paragraph "allowable forfeiture expenses"—

  1. (a) means any expenses incurred in relation to property subject to the forfeiture order—
    1. (i) by the relevant officer,
    2. (li) by any receiver, administrator or other person appointed by the relevant officer; or
    3. (li)(1) by an administrator appointed under paragraph 11(1)(b) above; and
  2. (b) includes any amount paid, or required to be paid, under paragraph I(I)(d), 11(1)(c) or 21(1)(d) above.

33.—(1) In any case where—

  1. (a) an insolvency practitioner seizes or disposes of any property in relation to which his functions are not exercisable because it is for the time being subject to a forfeiture or restraint order, and
  2. (b) at the time of the seizure or disposal he believes and has reasonable grounds for believing that he is entitled (whether in pursuance of a court order or otherwise) to seize or dispose of that property,
he shall not be liable to any person in respect of any loss or damage resulting from the seizure or disposal except in so far as the loss or damage is caused by his negligence in so acting.

(2) An insolvency practitioner shall have a lien on the property mentioned in sub-paragraph (I) above or the proceeds of its sale—

  1. (a) for such of his expenses as were incurred in connection with insolvency proceedings in relation to which the seizure or disposal purported to take place; and
  2. (b) for so much of his remuneration as may reasonably be assigned for his acting in connection with those proceedings.

(3) Sub-paragraphs (1) and (2) above are without prejudice to the generality of any provision contained in the 1986 Act or the Bankruptcy (Scotland) Act 1985 or any other Act or the Bankruptcy Acts (Northern Ireland) 1857 to 1980 or the Companies (Northern Ireland) Order 1986.

(4) In this section "insolvency practitioner", in any part of the United Kingdom, means a person acting as an insolvency practitioner in that or any other part of the United Kingdom; and for this purpose—

  1. (a) any question whether a person is acting as an insolvency practitioner in England and Wales or in Scotland shall be determined in accordance with section 388 of the Insolvency Act 1986, except that—
    1. (i) the reference in subsection (2)(a) to a permanent or interim trustee in a sequestration shall be taken to include a reference to a trustee in sequestration;
    2. (ii) subsection (5) shall be disregarded; and
    3. (iii) the expression shall also include the Official Receiver acting as receiver or manager of property; and
  2. (b) a person acts as an insolvency practitioner in Northern Ireland if he acts as an Official Assignee, trustee, liquidator, receiver or manager of a company, provisional liquidator or a receiver or manager under section 68 of the Bankruptcy (Ireland) Amendment Act 1872.

Interpretation of Part IV

34.—(1) In this Part of this Schedule— the 1986 Act" means the Insolvency Act 1986; ancillary order" means any order made in connection with the forfeiture in question, other than the forfeiture order; forfeiture or restraint order" means a forfeiture or restraint order, as the case may be, of any of the descriptions referred to in Parts I to III of this Schedule; insolvency practitioner", except in paragraph 33 above, means a person acting in any qualifying insolvency proceedings in any part of the United Kingdom as—

  1. (a) a liquidator of a company or partnership;
  2. (b) a trustee in bankruptcy;
  3. (c) an interim or permanent trustee in sequestration;
  4. (d) an administrator of the insolvent estate of a deceased person;
  5. (e) a receiver or manager of any property;
qualifying insolvency proceedings" means—
  1. (a) any proceedings under the 1986 Act or the Companies (Northern Ireland) Order 1986 for the winding up of a company or an unregistered company and includes any voluntary winding up of a company under Part IV of that Act or Part XX of that Order;
  2. (b) any proceedings in England and Wales under or by virtue of section 420 of the 1986 Act for the winding up of an insolvent partnership;
  3. (c) any proceedings in bankruptcy or, in Scotland, any sequestration proceedings;
  4. (d) any proceedings in England and Wales under or by virtue of section 421 of the 1986 Act in relation to the insolvent estate of a deceased person;
 the relevant officer" means—
  1. (a) in Scotland—
    1. (i) where the forfeiture order in quest:ion is made by a court in Scotland, the clerk of that court;
    2. (ii) in any other case, the Principal Clerk of Session and Justiciary;
  2. (b) in any other part of the United Kingdom—
    1. (i) where the forfeiture order in question is made by a court in that part, the proper officer within the meaning of paragraph I or, as the case may be, paragraph 21 above;
    2. (ii) in any other case, the appropriate officer of the High Court.
 (2) Any reference in this Part of this Schedule to the proceeds of the sale or realisation of any property are references to those proceeds after deduction of the costs of sale or realisation.").

The noble Earl said: I apologise for the length of this amendment. It is a complex and technical amendment which is intended to give increased protection to creditors after a forfeiture order has been made under the Bill. Both the Drug Trafficking Offences Act 1986 and the Criminal Justice Act 1988 contain provisions to deal with the situation in which the defendant, or any other person holding realisable property, is the subject of restraint or confiscation procedures under the Act, and also of insolvency proceedings. We believe that the Prevention of Terrorism Bill should have equivalent provisions.

The Committee may find it helpful if I give an example of the kind of case in which we believe some provision is needed. A building contractor pays his employees and sub-contractors, but does not pay tax or VAT, and obtains his supplies of material on credit. When the contractor receives funds, they are diverted to terrorist purposes, and the contractor covers himself with bogus invoices, loans to associated companies, or excessive wage payments. If the offences are detected, and a restraint order is made, the main contractor will be prevented from making payment for the work done. If there is subsequently a conviction and a forfeiture order, under the Bill as it stands there may be no assets from which the creditors of the company would recover their debt, because any cash or assets might have been forfeited and paid to the Secretary of State. This is obviously unfair to those creditors who have themselves done no wrong. This amendment seeks to put this right.

The Committee will appreciate from this example that this is a technical area; and in this Bill, unlike the other two Acts, we are dealing with the whole of the United Kingdom in a single Bill. Forfeiture is not the same as confiscation, and it has therefore not been a matter simply of lifting the provisions from the Acts and inserting the words "terrorists funds". We have had to take a different approach. Where insolvency proceedings are begun within six months of the making of the forfeiture order under the Bill, the insolvency practitioner who is acting in those proceedings gives notice to the court which made the forfeiture order. The forfeiture order will then cease to have effect in relation to any property which would have been dealt with in the insolvency proceedings had there been no forfeiture order. The insolvency practitioner will then be able to realise assets to distribute to creditors from the property which is subject to the forfeiture order. The amendment also protects insolvency practitioners who unwittingly deal with assets which are subject to a restraint or forfeiture order.

I have tried to be brief in moving the amendment. I hope I have done so in a sufficiently clear and acceptable way. I beg to move.

Lord Mishcon

Before the Committee leaves this matter, we may wish to have an assurance from the Minister, if he can give one, that these insolvency provisions do not cover somebody who is in receipt of funds which he holds as agent or trustee for a terrorist organisation, the benefit of which funds, instead of being forfeited, are going for the benefit of creditors.

One can well understand people in the business community being misled by somebody who carries on a business which he thinks is an honourable one but which is drug trafficking or getting proceeds from his own crime and investing himself with those proceeds. The creditors in those circumstances should be protected. But I hope that creditors in the case of somebody holding funds as agent or trustee for a terrorist organisation—they may be genuine or non-genuine creditors as the case may be: they may even be relatives who claim some form of loan or goodness knows what—will have no protection at all.

Earl Ferrers

The noble Lord raises an important point. I am fairly convinced that I can give him the assurance that he requires. However, it is an important point and I would rather take advice on it and write to him.

Lord Mishcon

I am grateful to the noble Earl. That is the best way to deal with the matter. If we find any problem it can be dealt with at Report stage. I know that he will be anxious to look into the matter.

Earl Ferrers

I am grateful to the noble Lord. I shall certainly look into the matter.

On Question, amendment agreed to.

Schedule 4, as amended, agreed to.

Schedule 5 [Port and Border Control]:

Earl Ferrers moved Amendment No. 29: Page 47, line 17, leave out ("twelve hours but, if an examining officer") and insert ("twenty-four hours unless he is detained under paragraph 6 below, and may only exceed twelve hours if an examining officer— (a)").

The noble Earl said: Perhaps I may speak at the same time to Amendment No. 30. These amendments follow on from Amendment No. 12 to which the Committee has agreed. I beg to move.

On Question, amendment agreed to.

Earl Ferrers moved Amendment No. 30: Page 47, line 20, leave out ("he may by a notice in writing require") and insert ("; and (b) gives him a notice in writing requiring").

On Question, amendment agreed to.

Schedule 5, as amended, agreed to.

Schedule 6 agreed to.

Schedule 7 [Terrorist Investigations]:

Lord Mishcon moved Amendment No. 31: Page 53, line 31, after ("items") insert ("prima facie").

The noble Lord said: With the Committee's permission, I shall also deal with Amendments Nos. 32 and 33. The amendments deal with an important question of privilege about which the Law Society is quite concerned. Paragraph 2 of Schedule 7 is analogous to Section 8 of the Police and Criminal Evidence Act 1984. Both provisions enable a constable to apply to a magistrate for a search warrant, but the magistrate cannot issue a warrant unless he is satisfied that there are reasonable grounds for believing that the material involved does not consist of or include items subject to legal privilege.

Paragraphs 3 to 5 of Schedule 7 are analogous to Section 9 and Schedule 1 of the Police and Criminal Evidence Act. Both provisions enable a constable to apply (this time) to a circuit judge in order to compel production of or obtain a search warrant in respect of certain kinds of material. Both provisions exclude from their ambits items subject to legal privilege. In the case of Regina v. Guildhall Magistrates' Court ex parte Primlaks in the Queen's Bench Division, the court held that if the police wish to compel production of papers held by a solicitor they must apply to a circuit judge under Section 9 of the Police and Criminal Evidence Act 1984. They cannot obtain a warrant from a magistrate under Section 8 of the Act. The questions as to whether a particular item is privileged, or whether it has lost its privilege because it is allegedly held with a criminal intention, are complex. The principle underling the Primlaks judgment is that the clear parliamentary intention in the Police and Criminal Evidence Act is that these questions should be considered by a circuit judge and not by a magistrate. The court took the view that the purpose of the Police and Criminal Evidence Act requires that the words "prima facie" should be treated as inserted in the appropriate places in Section 8.

These amendments which have been suggested by the Law Society would reflect the court's decision by inserting the words "prima facie" in those provisions where a person other than a circuit judge may be faced with a question of privilege. The suggested words would make it clear that as long as material was prima facie privileged it was excluded from the provisions in question and it was not for persons other than a circuit judge to consider any question as to whether privilege had been lost. I beg to move.

Earl Ferrers

I understand why the noble Lord has moved these amendments and we have considered them carefully. However, we do not believe they are necessary to achieve his purpose. As the noble Lord said, this point arose in the case of Primlaks last December. It was held in the case that where the police seek a search warrant under the Police and Criminal Evidence Act 1984 in respect of material at a solicitor's office which appears to have the benefit of legal privilege, they should apply to a circuit judge rather than to a magistrate. In reaching this view, Lord Justice Parker said that the purpose of Parliament required that the words "prima facie" should be treated as inserted into the relevant section of the Police and Criminal Evidence Act.

The judgment in the Primlaks case has clarified the law on this point. The powers of investigation in Schedule 7 to the Bill are cast in a similar way to those in the Police and Criminal Evidence Act. We see no reason why a court would not interpret both the Act and this Bill as if the safeguard implicit in the words "prima facie" were incorporated. It seems unnecessary to amend the Bill to put this beyond doubt; the precedent in Primlaks is clear enough. Moreover, it could be very confusing if Parliament were to accept the noble Lord's amendments without making equivalent provisions in the Police and Criminal Evidence Act. That would leave us with different language in two statutes which provide for essentially similar powers. I think that that would cause unnecessary confusion.

However, there is a further reason why I think that we should not amend the Bill in the way proposed by the noble Lord, Lord Mishcon. If we did so, we could in certain circumstances be preventing the police from seizing material which may be prima facie legally privileged but in fact is not and should therefore be able to be seized. Material can appear to be legally privileged—such as, for example, a letter to a solicitor—but the contents of it, when examined, may show that it is not.

Perhaps 1 may explain the background. The Primlaks case dealt with a situation involving solicitors. If material which was at their premises was not in fact legally privileged, it was quite likely to have included material which was classed as special procedure material. The Police and Criminal Evidence Act 1984 makes special provision for access to such material, and the effect of the Primlaks judgment is to require the police to seek material at solicitors' premises— which could therefore be special procedure material—through that procedure. In comparable circumstances, the Bill would be interpreted by the courts similarly.

However, if we take a case where the material which the police seek is not on solicitors' premises and is not material which is special procedure material or excluded material, we should find the following situation. The amendments would prevent a justice of the peace from issuing a warrant if the material included items which are prima facie subject to legal privilege. They would therefore prevent the police from seizing that kind of material. But because the material is not special procedure material or excluded material, there is no other mechanism available to the police to sort out whether they should have access to it. So we should end up with the position that documents which on the face of it are subject to legal privilege but which are not special procedure or excluded material could never be obtained by the police, even though the documents were not in fact legally privileged. I do not believe that this would be right.

As the Bill stands the police can be challenged if they seek to search for, or to seize, documents which are subject to legal privilege. If the material is special procedure or excluded material the police will—as a result of Primlaks—have to go to a circuit judge, and not to a justice of the peace, for the necessary authority.

It is a complicated matter and I have no doubt that the noble Lord, Lord Mishcon, will wish to consider what I said. I have no doubt that he is fully aware of what I said, but, nonetheless, even he may have found it a trifle complicated. Therefore if he wishes to study my remarks he is certainly at liberty to do so.

Lord Mishcon

I thought it was quite complicated and I shall take advantage of the opportunity the noble Earl mentioned. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 32 and 33 not moved.]

Schedule 7 agreed to.

Schedule 8 [Consequential Amendments]:

[Amendment No. 34 not moved.]

Schedule 8 agreed to.

Remaining schedule agreed to.

House resumed: Bill reported with amendments.