Companies Bill [H.L.]

HL Deb 02 March 1989 vol 504 cc1214-49

House again in Committee.

Clause 102 [False or misleading information]:

Lord Williams of Elvel moved Amendment No. 246B: Page 108, line 31, leave out ("two") and insert ("seven").

The noble Lord said

This is in the nature of a probing amendment. It seems to us that Clause 102 has similarities to Section 47 of the Financial Services Act 1986 in the sense that anyone who provides false or misleading information under that Act is subject to a penalty of seven years' imprisonment and here we have provision for a term of two years' imprisonment. I certainly do not wish the amendment to be incorporated into the Bill because it is not the function of the Opposition to try to increase the prison population, but I believe that there is a divergence between the provisions in the Bill and those in the Financial Services Act. I should therefore be most grateful if the noble Lord, Lord Strathclyde, could explain why that is the case. I beg to move.

Lord Strathclyde

A maximum term of imprisonment of two years seems to us to be about right for an offence of this kind, involving giving false or misleading information to the competition authorities. The penalties were taken directly from the more limited offences which Clause 102 replaces; that is, those in Sections 46(3) and 85(6)(b) of the Fair Trading Act 1973.

It is true that the maximum penalty for insider dealing, to which I think the noble Lord was. referring, was increased in 1988 from two years to seven years. That reflected experience of the offence and indications that the original penalty provided an insufficient deterrent in relation to the size of the gains to be made. We are not introducing this new offence because of any evidence of widespread abuse and there is no reason, therefore, to increase the penalty from that which applies to the present offences; it is the scope of the offence which is being broadened. I hope that that explanation will satisfy the noble Lord.

Lord Williams of Elvel

Am I right in thinking that Section 47 of the Financial Services Act, which concerns the provision of misleading information recklessly or otherwise, carries a maximum penalty of seven years' imprisonment? Further, is that not exactly the problem which we are addressing in this clause of the Bill?

Lord Strathclyde

I still think that what I said basically explains the situation in that whereas some penalties were specifically created to deal with a major perceived problem, what we are dealing with here is not a problem which is perceived to be particularly great, or something which gives us great cause for concern, but rather a penalty which has been taken from the old section of the FairTrading Act. In fact, all we are really doing is broadening the scope of the provisions. Therefore we believe that any similarity with that which has occurred in other Acts, especially the Financial Services Act, is irrelevant. Indeed, there is in this case no significant problem which we need to deal with by means of such a serious penalty as seven years' imprisonment, as suggested by the noble Lord. I hope that that further explanation clarifies the position.

Lord Williams of Elvel

I wonder whether the noble Lord will reflect upon this problem for a moment. As I understand it, having read Section 47 of the Financial Services Act, anyone who provides misleading information, whether recklessly or otherwise, suffers a maximum penalty of seven years' imprisonment. However, anyone convicted under this clause of providing false or misleading information in what, after all, are very similar circumstances, can receive a maximum penalty of two years' imprisonment. There seems to me to be an inconsistency between the two. Therefore, I very much hope that the noble Lord will reflect upon the matter.

Lord Lloyd of Kilgerran

Surely the circumstances in the Financial Services Act which the noble Lord is citing differ from those in the Fair Trading Act. To have a sentence of seven years' imprisonment under the Fair Trading Act even for giving reckless or misleading information in a material particular is too savage.

Lord Williams of Elvel

I wholly agree with the noble Lord, Lord Lloyd of Kilgerran. I am not trying to introduce seven years into the Bill. I am trying to ensure consistency between the treatment of offenders under a certain section of the Financial Services Act for providing false information, whether reckless or otherwise, and under the Bill. It seems to be that it is a problem that might well be cleared up.

Lord Lloyd of Kilgerran

I do not understand the noble Lord when he says that he is not putting seven years into the Bill. Surely he is amending subsection (3)(b), which says two years. The noble Lord wants seven years. It is a horrifying idea to introduce such a savage sentence into the Fair Trading Act 1973.

Lord Williams of Elvel

As I tried to explain to the noble Lord, Lord Kilgerran, I am not trying to put seven years into the Bill.

Lord Lloyd of Kilgerran

I beg the noble Lord's pardon.

Lord Williams of Elvel

It is a probing amendment to see whether the Government have compared the provisions that they are putting into Clause 102 with Section 47 of the Financial Services Act. I should prefer Section 47 of the Financial Services Act to have a penalty of two years.

Lord Lloyd of Kilgerran

The noble Lord did not say that.

Lord Williams of Elvel

I cannot say that because I cannot amend the Bill in that respect.

Lord Strathclyde

I do not believe so, but we may have genuinely missed something here. It may help if I were to check up on that point and let the noble Lord know.

Lord Williams of Elvel

I am grateful to the noble Lord. It is a point of consistency. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 102 agreed to.

Clause 103 [Fees]:

Lord Williams of Elvel moved Amendment No. 246C:

Page 109, line 38, leave out subsection (8) and insert— (" (8) Regulations under this section shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.".)

The noble Lord said

It is a rare occasion when the Opposition can move for a negative procedure rather than an affirmative procedure, as it is in the Bill. I am being helpful to the Government in moving the amendment in the light of the fact of course that this afternoon the Secretary of State was extremely helpful to us in accepting some of our amendments.

It seems to me that when the Secretary of State makes regulations about fees they should not be subject to the affirmative procedure. The matter comes before this place. It is debated. There is a Motion. All sorts of procedures have to be gone through. If there is ever a case for having a negative procedure I should have thought that this was one. I am trying to help the Government by moving the amendment. I beg to move.

Lord Strathclyde

I was amazed when I saw the amendment, because the noble Lord, Lord Williams, has been so hard on us whenever we have tried to introduce any sort of regulation. I am not sure whether the noble Lord has gone through some biblical conversion. I shall briefly explain the position.

Many of the details of the system of fees for merger control have been left to be spelt out in regulations. That is to enable us to vary not only the level of fees but the way in which they are charged and collected, and the categories subject to them. Because of that, we thought it appropriate to make the regulations subject to the affirmative resolution procedure. That would ensure that they would always be scrutinised by this place and in another place. If the noble Lord feels that that is unnecessary and that the negative resolution procedure is sufficient we could perhaps be persuaded to reconsider the matter.

Lord Williams of Elvel

I am grateful to the noble Lord. It is not a biblical conversion, if I may say so to the noble Lord. As always, I am extremely reasonable. Whenever possible I try to help the Government. On many occasions it is not possible, and I oppose the Government.

Lord Lloyd of Kilgerran

At length.

Lord Williams of Elvel

At considerable length. In this case it seems to me that the negative procedure is probably the right one. In that spirit, should I withdraw the amendment? Will the noble Lord consider it?

Lord Strathclyde

Yes.

Lord Williams of Elvel

In that case, I will withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 107 agreed to.

8.15 p.m.

Lord Peston moved Amendment No. 246D:After Clause 103, insert the following new clause: ("Monopolies and Mergers Commission

(Performance of Functions) Order 1989.

. In the Monopolies and Mergers Commission (Performance of Functions) Order 1989, paragraph 2(2) is omitted.").

The noble Lord said: I shall speak briefly to the amendment, which, on the face of it, is nearly incomprehensible. I shall explain what my noble friend Lord Williams and I have in mind. During the Government's period of office I have been most concerned about the activities of the MMC. The problem essentially is that the Government, having abandoned what we called industrial policy, then discovered, not surprisingly, that many issues arise in the economic field which require them to have an industrial policy and an agency to deal with it.

In a desperate condition because they try to abolish all our agencies that they do not like, the Government have tried to squeeze within the monopolies and mergers criteria some means by which the commission may consider matters which are not matters of competition policy but of industrial policy. It seemed to me that it would be useful if I were to draw to the Committee's attention what has happened and to say that if that is what has happened we should recognise that the Government push industrial policy on to the MMC. In some ways, it should not do so; but if it does we should recognise it.

The purpose of the amendment, which, in the end, refers to an order, is to indicate what has happened and to enable us to point out with some regret that the MMC, which should be overwhelmingly merely a competition body, has been given these other tasks. We do not like to see the way that the Secretary of State has to contort himself to justify referring certain matters to the MMC which prima facie are not competition policy matters. That is the reason for the amendment. We should like to hear the noble Lord, Lord Strathclyde, make some response with a view to enlightening us on whether the Government have now recognised that they could do with a proper commission which would be their industrial policy arm. Even if the Government do not recognise that fact, the country would like to have such a body.

Lord Strathclyde

I am not going to sound very encouraging to the noble Lord, Lord Peston. I remember the noble Lord, Lord Williams, giving notice of his intention to seek to reverse this provision of the Monopolies and Mergers Commission (Performance of Functions) Order when it was before this place for approval in January. The noble Lord is, if I may say so, making a major issue out of a minor procedural change, unless I have missed something in what the noble Lord said.

The provision in question reduced from five to three the minimum number of members on the groups through which the MMC's investigations are carried out. I emphasise the word "minimum". It does not mean that the size of the groups will be reduced for all, or even most, investigations. Six (one more than the existing minimum) has been the normal number in recent years, and is likely to continue to be so. The change merely provides the flexibility to use a smaller group where that is appropriate to the task in hand.

It will continue to be for the chairman to decide the point, obviously having regard to the need to ensure a sufficient range of experience, together with the need for speed and efficiency and the use of public resources commensurate with the significance of the issue under investigation. For example, it is unlikely that a major inquiry such as that into credit cards will be given to a smaller group; but a narrower issue, such as a local newspaper merger or a particular anticompetitive practice might be. The commission, and the group performing the functions of the commission for the purpose, would be working to the same broad public interest test and would be able to draw on the expertise of the commission's staff as a whole.

Lord Williams of Elvel

With the greatest of respect, the noble Lord has not started to address the problem that my noble friend Lord Peston put to him. The proposal is to reduce the MMC panel from five to three members. However, in almost every Bill that comes before your Lordships' House there is reference to the Monopolies and Mergers Commission and a considerably increased load is being put upon the MMC. Given that and given that the commission now seems to be responsible for running industrial policy in the whole country, is it right that the chairman should have the sole discretion to decide on a panel of three members? Those three members would, as the noble Lord has pointed out, have total authority to commit the Monopolies and Mergers Commission on the issues which they were discussing.

It seems at least to us that there should be a rather broader spread of opinion. The chairman should be able to say, "I have to have five people because there are major issues. It is not in my discretion to reduce them to three". I understand what the noble Lord is saying about the small Monopolies and Mergers Commission inquiries, but there will be large Monopolies and Mergers Commission inquiries. Until we have some assurance, such as a statement from the chairman or a statement from the Government through the Secretary of State, that there is a distinction between different kinds of inquiry, that some will merit a panel of five and others may be reduced to three—until we have some sort of guidance on how the chairman will exercise his functions under this change in the order made under the Act, I am afraid we must persist with our thought that the Monopolies and Mergers Commission is a responsible body. It must make sure that there is a broader spread of opinion than the order allows it.

Lord Strathclyde

The Monopolies and Mergers Commission has a very reasonable and respectable chairman who makes these kinds of decisions quite happily. It is for him to decide how many members and in what way to use the committees and commissioners. The noble Lord himself has experience in the procedures of public bodies, having been chairman of one himself. He reminded us that the Price Commission worked as a commission, not, as the MMC does, through groups. Yet I believe I am correct in saying that, although the final reports were agreed by the full commission, they were in practice drawn up by panels of members. So perhaps there is a similarity between what the Price Commission was doing when the noble Lord was in charge of it and what we are suggesting that the MMC should be doing now—that is, trying to make its activities as efficient and expedient as possible through the good decision of the chairman.

Lord Peston

Were the noble Lord to say that the Monopolies and Mergers Commission would farm out investigations to a panel of three and that those investigations would come before the full Monopolies Commission for discussion and approval, then I should support him. But at present under the Fair Trading Act it is perfectly clear, and under the Competition Act it is carried forward that, the Monopolies and Mergers Commission can form a panel which, without reference to the full commission, can commit the commission. That is the problem. If there is to be a panel of three which can issue a report without any reference at all to other members of the commission and commit the Monopolies Commission, that seems to us to be an undesirable state of affairs.

Lord Strathclyde

It seems to us to be entirely fair enough. There is no danger of the MMC's inquiries becoming arbitrary or capricious as a result of the order and as a result of there being on occasions smaller committees of three members. The statute, not to mention the possibility of judicial review, contains sufficient safeguards against that.

I hope that I have convinced the noble Lord that his fears are unfounded and that he will not persevere with the amendment, which would undo a small but extremely useful change to the procedures of the MMC.

Lord Peston

I am certainly not persuaded. My view is exactly the reverse. It is that the MMC is overloaded and this is introduced in some way to try to keep it still operational. However, we have a duty as an Opposition to point out the longer term implications of the Government's frivolous actions. We have done our duty in that regard and we have also listened to the noble Lord in his attempt to justify what the Government are doing. We have happily made our point and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 104 agreed to. Schedule 15 [Amendments about mergers and related matters]

: [Amendment No. 247 had been withdrawn from the Marshalled List.]

Lord Lloyd of Kilgerran moved Amendment No.: Page 197, line 29, at end insert— (. In section 2(I) of the Fair Trading Act 1973—

(a) after first "activities" insert "including anti-competitive activities;

(b) after paragraph (b) insert—

(c) and generally to keep under review receive and collate evidence with respect to such activities as are mentioned in the preceding two paragraphs which may appear to him to be contrary to the public interest.";

(c) in section 5(1)(a) of that Act after first "situation" insert "or anti-competitive activities".".)

The noble Lord said

I wish to move Amendment No. 247A and speak to Amendment No. 248. We are coming to a very interesting and important part of the Bill.

A Noble Lord

Yes, it is.

Lord Lloyd of Kilgerran

I am glad that I have some support in that! Schedule 15 is entitled: Amendments about mergers and related matters Iwas advised that the amendments that I wished to put forward were more suitably placed under Schedule 15 than in the earlier part of the body of the Bill.

I shall not be entering into long dissertations about philosophy or history and that sort of thing. I take a very pragmatic view in order to try to help improve the Bill. The first amendment is directed towards bringing the Fair Trading Act 1973 up to date, having regard to the terms of the Competition Act 1980. Section 2 of that Act refers to "anti-competitive activities" in its title. The Fair Trading Act 1973, seven years earlier, was enacted at a time when industry had not become involved with competitive or anti-competitive activities. Therefore the first part of Amendment No. 247A proposes that: In section 2(1) of the Fair Trading Act 1973— (a) after first 'activities' insert 'including anti-competitive activities' ". All that does is to bring the Fair Trading Act 1973 up to date, having regard to the terms of the Competition Act 1980.

Following upon that Section 2(1)(a), paragraph (b) of my amendment is necessary: after paragraph (b) insert '(c) and generally to keep under review receive and collate evidence with respect to such activities as are mentioned in the preceding two paragraphs which may appear to him to be contrary to the public interests.' That is a very pragmatic approach. All that has to be done is to keep under review and collate the evidence with respect to the matters in the previous two paragraphs. Having regard to the first part of my amendment, it therefore follows that it will be necessary to amend Section 5(1)(a) of that Act, after the first reference to "situation" and insert "or anti-competitive activities". Consequently, that amendment is entirely directed to bringing up to date or at any rate up to the date of the Competition Act, the Fair Trading Act 1973. That Act contains no reference at all as it should in these modern times, to "anti-competitive activities".

Amendment No. 248 is consequential. I wish to leave out the words the Fair Trading Act 1973 and insert "that Act" because those words are referred to at the beginning of my Amendment No. 247A. It is getting late and no doubt it will get later, but this is a very important amendment. It is simply directed to bringing Section 2 of the Fair Trading Act 1973 up to date, having regard to the terms of the Competition Act 1980. At that date it was becoming quite clear to industry, to lawyers, to institutions and even to the Government that it was necessary to deal with anti-competitive activities. With that introduction of the words "anti-competitive activities", the Fair Trading Act 1973 will become far more relevant to industry and advisers to industry than it is now. I beg to move.

8.30 p.m.

Lord Peston

I wish to say a few words in support of the noble Lord, Lord Lloyd of Kilgerran. I, too, have no idea whether Schedule 15 is the right place for this provision. But that is a minor matter. I have several points to make here. The provisions that are suggested in the amendments which we are discussing should take place anyway. My guess is that, in practice, they may well happen anyway. I look for some reassurance from the Minister on that.

I particularly draw the attention of the Minister to the point that the noble Lord, Lord Lloyd of Kilgerran, made concerning the phrase "anticompetitive activities". In the past 15 years or so we have learnt a great deal about the nature of competition, and the nature of forces endeavouring to restrict competition. One hopes that all those working in the competition field recognise the problem of anti-competitive activities. A.s I know the relevant people, I am confident that they recognise the problem. However, I am entirely sympathetic to the view of the noble Lord, Lord Lloyd of Kilgerran, that it would be extremely useful to amend the Fair Trading Act 1973 so that that particular phenomenon appeared on the face of the legislation and was made clearer.

I interpret the noble Lord, Lord Lloyd of Kilgerran, to be partly asking for a response about what is happening in terms of the practice of competition policy, but also to be stating that we have the chance to bring other bits of legislation up to date. The Government are doing that in a number of their amendments. This amendment provides another good opportunity to bring legislation up to date.

Lord Strathclyde

I too shall speak to Amendments Nos. 247A and 248. Amendment No. 247A, and Amendments Nos. 253, 254 and 255, which we shall come to shortly, are all concerned with applying the public interest test set out in Section 84 of the Fair Trading Act 1973 in various new ways. It may therefore help if I start by reminding the Committee how this test operates at present.

The Monopolies and Mergers Commission is the body to which this legislation gives the task of determining whether matters are against the public interest or not. We shall come later to the question of what may be taken into account by the MMC in determining the public interest, when we consider Amendment No. 251, so I shall just say that Section 84 requires the MMC to take into account all matters which appear to it to be relevant, and contains a list of particular matters which is inclusive, not exclusive.

Thus in deciding whether to refer questions to the MMC, the Director General of Fair Trading and Ministers have to consider whether there are issues of the public interest which merit examination by the MMC, but they do not prejudice the question of whether matters actually are or are not against the public interest.

Amendment No. 247A would make three amendments to the Fair Trading Act 1973. Two of them are additions to the duties of the Director General of Fair Trading under Section 2 of the Fair Trading Act. This section already requires the director general to keep commercial activities in the UK under review, and collect information, so as to become aware, among other things, of: : practices which may adversely affect the economic interests of consumers". He must also be aware of: monopoly situations or uncompetitive practices". This is in our view quite broad enough to cover everything which might raise matters of the public interest and be within his field of expertise. This would encompass anti-competitive activities, so specific reference to those is unnecessary. But in any case, there are the separate provisions of the Competition Act under which the director general can investigate anti-competitive practices.

The third of the amendments to the Fair Trading Act made by Amendment No. 247 is to the duty of the Monopolies and Mergers Commission under Section 5(1) of the Fair Trading Act to investigate and report on questions referred to it relating to possible monopoly situations. It would add a duty to investigate anti-competitive activities. This addition is also in our view unnecessary. The section sets out the principal functions of the MMC—its basic raison d'être—but it is not a comprehensive list: it is supplemented by more explicit provisions elsewhere relating to particular kinds of reference. However, one thing distinguishes all its functions; it can only investigate matters referred to it. These already include anti-competitive practices referred by the director general under the Competition Act. It can also, in considering whether monopolies operate against the public interest, look at anti-competitive behaviour in that context. Amendment No. 247A does not add to the reference powers already available—and, given the existing power I have mentioned, this would be unnecessary anyway.

I have to say, therefore, that Amendment No. 247A seems to us unnecessary, and I hope that the noble Lord will be prepared to withdraw it.

Lord Lloyd of Kilgerran

Once again the Government have not addressed themselves to the problems that we, as parliamentarians, have to deal with. We have to produce an Act that may be read not only by Ministers or members of institutions but also by members of the public, and advisers to industrialists and must be understood by them. The brief of the noble Lord did not address itself to this problem. The problem arises in the Fair Trading Act. Let us put ourselves in the position of an adviser to an industrialist. The adviser looks at Section 2(1)(a) of the Fair Trading Act 1973. He knows that it will be necessary for the director general to keep under review the: carrying on of commercial activities in the United Kingdom". He then looks at the definition part of the legislation—that is Section 137. There he discovers that commercial activities in the United Kingdom are defined as: any of the following, that is to say, the production and supply of goods in the United Kingdom, the supply of services in the United Kingdom and the export of goods from the United Kingdom". A very important matter arises today as regards competition policy and anti-competitive practices. The Bill, as it now stands, is entirely silent on that matter. I believe it is the Government's public duty to ensure that when a Bill becomes an Act anybody who reads it will understand quite clearly that anticompetitive activities are a vital matter to which the director general must have regard.

As the Bill stands in its present form it is not clear that the director general will have to take account of anti-competitive activities. It is all very well to say that in the Competition Act there are here and there references to anti-competitive practices. But we are dealing with the Fair Trading Act 1973. That Act still stands, subject to amendments. I think that the amendment that is vitally required is somehow or other to insert into the Act the provision that the director general must look out for anti-competitive practices. Then the industrialist and his advisers will have to take account of that very important matter. It is very necessary to draw that to the attention of industry.

Lord Strathclyde

I realise that the noble Lord, Lord Lloyd of Kilgerran, is extremely experienced in this particular field and that he has spent much time on these matters. However, I do not really understand why he is worried about the conclusions drawn by a legal adviser from Section 2 of the Fair Trading Act concerning the duties of the Director General of Fair Trading when there is also Section 2 of the Competition Act under which the director general can investigate anti-competitive practices on the part of businesses.

Furthermore, I have no doubt that industrialists are constantly referring to Section 2(1) of the Fair Trading Act. I am sure that no one who has been involved in an inquiry by the Director General of Fair Trading or the MMC under the Act is in any doubt about the powers to consider anti-competitive behaviour. Perhaps, in the light of that explanation, the noble Lord would like to read what I have said. Perhaps it may make better sense then.

Lord Lloyd of Kilgerran

I am grateful to the noble Lord for his attempts to get this matter right. But he is saying that the Fair Trading Act as it stands is irrelevant to anti-competitive practices. That is a most unreasonable situation. The Fair Trading Act 1973 is still in being. Certainly the Competition Act introduced other regulations and practices, but the Fair Trading Act, which we are trying to improve, does not have that important reference. It seems to me most unreasonable for the Government to leave the Act in that position.

The noble Lord was very kind to mention my expertise. I have been concerned with merger problems and matters relating to the Treaty of Rome since the 1960s, before this country became a member of the European Community. Consequently I have in mind the problems that will be encountered by people endeavouring to collaborate with firms abroad—smaller firms which the Government are encouraging to become more active and create wealth. They do not understand the problems. When the secretaries or directors of the companies, who are probably not lawyers, read the Act they will think that all that has to be taken into account is commercial activities in the United Kingdom. Their attention will not be drawn to the need to have great regard to anticompetitive activities.

I should have thought that in those circumstances the noble Lord might wish to reflect upon the matter, as I shall reflect on his speech. Perhaps he will be good enough to reflect upon my presentation of the matter.

Lord Strathclyde

The noble Lord has put his case extremely well. As I said earlier, he is more than expert in the subject. I shall read with care what he has said. However, I cannot give any commitment that we shall be able to improve on the present situation. We feel that the two Acts complement each other and that it is therefore not necessary to update the Fair Trading Act. I hope that he will feel able to withdraw his amendment.

Lord Lloyd of Kilgerran

I am obliged to the noble Lord. We have moved a step further. The Government may feel that some reference could be made to the Competition Act 1980 in the Fair Trading Act 1973. That might be helpful to advisers of industrialists and to small companies which are trying to create wealth for the country.

In the light of what the noble Lord said, I shall reflect upon his speech. In the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 248 not moved.]

Lord Lloyd of Kilgerran moved Amendment No. 249:

Page 197, line 42, at end insert— (" . In section 64(1)(b) of that Act omit "£5" and insert "£25".".)

The noble Lord said

We now come to Section 64 intituled in the margin: Merger situation qualifying for investigation". I need not read through the section. It provides that to qualify for investigation the value of the assets taken over must exceed £5 million. The object of my amendment is to raise the sum of £5 million, which was established in 1973, to a figure which is more relevant to today's circumstances, having regard to inflation.

It is a probing amendment. I have suggested a figure of £25 million although that seems somewhat on the low side. I beg to move.

Lord Strathclyde

The noble Lord explained the position very well. However, I am glad to be able to tell him that the figure already stands at £30 million. It was increased to that level in 1984 by the Merger References (Increase in Value of Assets) Order 1984, a copy of which can be found in the Library.

Lord Lloyd of Kilgerran

I am very much obliged to the noble Lord. I had not discovered that amendment to the amount. I did not gather in which regulation it is to be found, but I accept that the figure of £30 million has replaced the figure of £5 million. In those circumstances I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

8.45 p.m.

Lord Strathclyde moved Amendment No. 250: Page 198, line 9, at end insert—

(7A. In section 75(4) of that Act—

(a) after "sections 66" there is inserted "66A", and

(b) for paragraph (a) there is substituted—

"(a) section 66 shall apply, where an event by which any enterprises cease as between themselves to be distinct enterprises will occur if the arrangements are carried into effect, as if the event had occurred immediately before the date of the reference.

(aa) section 66A shall apply, where a transaction falling within subsection (2) of that section will occur if the arrangements are carried into effect, as if the transaction had occurred immediately before the date of the reference.".)

The noble Lord said

I have already spoken to Amendment No. 250 in connection with Amendment No. 245A. I beg to move.

On Question, amendment agreed to.

Lord Lloyd of Kilgerran moved Amendment No. 250A:

Page 198, line 24, at end insert— (". In section 84(1)(a) of that Act after "competition" insert "and the control of anti competitive practices".)

The noble Lord said

In moving Amendment No. 250A I should like to speak also to Amendments Nos. 252A, 255 and 256A. Amendment No 250A is an amendment to Section 84, about which we have heard a great deal this evening, dealing with the public interest. The section sets out criteria for determining what constitutes the public interest. The maintaining and promoting of effective competition is one of those criteria. Another important factor is the control of anti-competitive practices.

The amendment therefore would further update the Fair Trading Act 1973 and put it into terms which are understood in practice with regard to competition. Not only must effective competition be promoted—that one can understand in relation to competition between companies or institutions—but anti-competitive practices or activities must also be controlled. Once again this is a probing amendment intended to enable small companies and their legal advisers to understand the importance of anticompetitive practices in industry today.

Amendment No. 252A embodies the same philosophy. Section 137(2) defines certain terms. The amendment defines anti-competitive practices as including any agreement, decision, arrangement, transaction or obligation. It sets out those five terms in order to help the reader to understand what those anti-competitive devices or practices are.

Many of the terms I have listed are conditions which are taken into account by M MC or the Director General of Fair Trading in considering merger problems. They also take account of the terms of Articles 85 and 86 of the Treaty of Rome as they are understood today, having regard to the string of cases on anti-competitive matters which have arisen since the introduction of the Fair Trading Act in 1973.

It would take me a long time to explain to the Committee the kind of cases that are now relevant and understood, having regard to the decisions of the courts and the practice of the commission. There is a whole string of cases from the Continental Can case of 1972 or 1973 to the very complicated and long Philip Morris v. Rothman case of 1987. I have endeavoured to put into the definition of anticompetitive practices some references to matters that could be of great use to the advisers of small companies. That is what is generally understood when we refer to anti-competitive devices.

Paragraph (a) refers to one of the conditions with which my amendment deals. That is the type of condition laid down, for instance, in the recent British Gas case. It states that an anti-competitive practice occurs when, directly or indirectly, selling prices are fixed with or without any other trading conditions. Any attempt which, limits or controls production, marketing, technical development or investment could be an anti-competitive device. If one limits or controls shares, markets or sources of supply—as stated in paragraph (c)—that again could be anticompetitive.

I need not read the rest, but I shall read again the provision which relates to Article 85 of the Treaty of Rome and refers to, arrangements or supplementary obligations resulting in competitive disadvantages of any kind". The last provision is a very important one. My advisers tell me that, if it had been clear and if the Fair Trading Act 1973 and the Competition Act 1980 had covered those points, it would probably not have been necessary for the GEC-Siemens v. Plessey case to go to court as happened just before Christmas.

Paragraph (e) states that an anti-competitive practice is one which, may lead directly or indirectly to any abuse of a dominant position affecting or likely to affect the course of trade by one or more enterprises". That, in effect, is a paraphrase of Article 86 of the Treaty of Rome, which is of great importance to industrialists when they enter into agreements on the Continent.

Added to that paragraph is a definition of a dominant position. It states: 'a dominant position' means when a market share of the order of 40 per cent. to 45 per cent. is reached". Those figures are taken from recent decisions of the EC in the courts. It is necessary to try to help those people who are concerned with creating wealth by means of agreements with foreign countries.

The other amendment to which I should like to speak is Amendment No. 255, which states: (" . In section 14 of that Act at end insert—

"((4) In determining for the purpose of what constitutes "against the public interest" the appropriate Minister or the Comptroller shall have regard to the matters set out in section 84 of the Fair Trading Act 1973"). That Act is concerned with the public interest. I have read that out. There is no need for me to argue or present any support for the amendment. The words are there before the Minister and his advisers and I shall be interested to know what they have to say.

The last amendment to which I ask leave to speak is Amendment No. 256A. That seeks to insert in Section 33(2) of the Act two terms that I used earlier; namely, "anti-competitive practice" and "a dominant position". I shall explain the amendment as briefly as possible. On page 200, there is a list of terms. As I have used the two terms "anticompetitive practice" and "a dominant position", it is appropriate that they should be inserted in Section 33(2) of that Act. I beg to move Amendment No. 250A.

Lord Strathclyde

I shall speak to the same amendments as the noble Lord. He seems to think that the existing provisions for referring anti competitive practices to the Monopolies and Mergers Commission are insufficient. We have discussed his proposed additions to the functions of the MMC in this respect, in considering Amendment No. 247A, and I hope that I have explained why we consider the present provisions for referring anti-competitive behaviour cover the ground quite well.

Amendment No. 250A would require the MMC in considering the public interest to have regard to the desirability of promoting or maintaining control of anti-competitive practices. However, the section already refers to the desirability of maintaining and promoting competition in the UK, and it is hard to see how that can be done without controlling anticompetitive behaviour. Indeed, since this test would apply when the MMC has anti-competitive practices referred to it, there is an element of circularity. In effect, it says that in deciding whether anticompetitive practices are against the public interest the MMC should have regard to the desirability of controlling anti-competitive practices.

It has not been found necessary to define competition in the existing competition legislation. The Competition Act, which contains powers to deal with anti-competitive practices, defines engaging in an anti-competitive practice in very broad terms: it is a course of conduct, in the course of business, which has or is intended to have or is likely to have the effect of restricting, distorting or preventing competition in the supply of goods or services in the UK. A similar definition is used for "uncompetitive practice", which is the term—slightly less graphic, I think—used in the Fair Trading Act at present.

Amendment No. 252A, which defines the term "anti-competitive practices" used in Amendment No. 250A, is both more specific in certain respects and broader in others. Although I recognise it is inclusive, not exclusive, it does not have the breadth given by the reference to preventing, restricting or distorting competition in the existing UK legislation and in Article 85 of the Treaty of Rome, or by the reference to abuse in Article 86. Also, in defining a dominant position as 40 per cent. to 45 per cent. of the market, it lacks the flexibility of Article 86, which contains no definition but leaves it to be assessed in the light of the structure of the relevant market and of the UK monopolies legislation, which sets the threshold for monopolies at 25 per cent.

At the same time it attempts to conflate Article 85—which deals with what we would call restrictive trade practices or cartels—and Article 86, which deals with abuse of a dominant position. Thus, it brings in agreements between firms as well as single firm behaviour. Agreements are already regulated under the restrictive trade practices legislation which, as the noble Lord is aware, we have been reviewing. Moreover, because of the separate legislation with its own procedures, when the MMC investigates a monopoly it is explicitly precluded from dealing with agreements caught by that legislation.

The absence of either agreement or abuse from the definition of anti-competitive practice also has the effect that behaviour on the part of a single firm which is everyday commercial practice, such as the setting of prices or trading conditions or the establishment of production schedules, could be regarded as anti-competitive.

My intention has not been to criticise the noble Lord's drafting for the sake of it, but to show why we think that the existing definition of anti-competitive behaviour covers the ground rather better. There are problems with trying to be too precise, and this amendment intrudes into areas covered by other legislation. That is not to say that there are no lessons to be learnt from the Treaty of Rome. On the contrary, we are, as he knows, proposing to adopt a similar system to deal with cartels, and I am sure he will take a close interest in the legislation on that as and when parliamentary time permits. I would not rule out the possibility of looking again at the way in which our legislation on anti-competitive practices works, at some stage, but there is a limit to how much we can do at a time, and it would be a mistake to embark on piecemeal changes rather than looking at the whole system. I hope, therefore, that the noble Lord will agree to withdraw his amendment.

Perhaps I may turn briefly to Amendment No. 255, which would amend Section 14 of the Competition Act. It suggests that Ministers or the Comptroller-General of Patents should apply a public interest test. This is not their role; instead they rely on the public interest findings of the Monopolies and Mergers Commission.

It is for them to apply appropriate remedies. Since in doing so they are already bound by the MMC's public interest findings it would be wrong to require them in effect, to reopen that assessment.

In any case, the Copyright, Designs and Patents Act 1988 will when it is brought into force repeal and replace this section. I am sure that the noble Lord would agree that it is far too soon to start reopening matters settled in that Act, on which he spent so much time last Session, and that he will therefore withdraw his amendment.

Lord Lloyd of Kilgerran

I am very grateful to the noble Lord for the careful way in which he has dealt with this. It has been very helpful in order to decide what action 1 may or may not take in the future. I shall read with care the interesting presentations that he has made. In the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

9 p.m.

Lord Lloyd of Kilgerran moved Amendment No. 251: Page 198, line 24, at end insert— (9A.—(1) In section 84(1)(a) of that Act, after "United Kingdom" insert "and exporting to markets outside the United Kingdom". (2) In section 84(I)(b) of that Act, after "purchasers" insert "exporters".

(3) In section 84(I)(c) of that Act, omit "through competition" and after "markets" insert "and in and exporting outside the United Kingdom".

(4) In section 84(1)(d) of that Act, after "distribution" insert "and regional development".

(5) In section 84(1)(e) of that Act, omit "competitive" and after "in" insert "and export from".

(6) In section 84(1) of that Act, at end insert "and (f) of having regard to any European Economic Community obligation.".").

The noble Lord said

We come to an important series of amendments. This amendment is directed to improvements to Section 84 of the Fair Trading Act 1973 in order to bring it up to date. I can deal with the matter very quickly. In Section 84(1)(a) I suggest that after "United Kingdom" there should be inserted and exporting to markets outside the United Kingdom". It is not clear that it is the duty of the commission to have regard to maintaining and promoting effective competition between persons supplying goods and services outside the United Kingdom. It deals only with goods and services in the United Kingdom. The first part of the amendment is directed to providing, and exporting to markets outside the United Kingdom", which is a very important function of any company these days.

The second part of this amendment is directed to one of the criterion under paragraph (b) for public interest. After "purchasers" my amendment would insert "exporters". As the Bill stands it relates only to the criterion involving purchasers, but exporters are also of considerable importance in this field.

In the third section of my amendment I refer to the third criterion in Section 84(1) which does not provide for exporting outside the United Kingdom. It is concerned with markets in the United Kingdom. The criterion for public interest surely should be extended to deal with exporting outside the United Kingdom. The fourth section of this amendment is very important. It should deal with regional development in my view. At the present time Section 84(1)(d) states that one of the criterion for deciding what is the public interest is maintaining and promoting the balanced distribution of industry and employment in the United Kingdom". Those are the present words. I have suggested that after "balanced distribution" should be inserted "and regional development". Regional development is a very important factor with regard to British industry at this time.

The fifth part follows what I have said previously: one should have regard to exporting goods as well as dealing with goods in the United Kingdom.

The last part of the amendment refers to the fact that there should be inserted a further criterion to determine what is meant by "in the public interest" in this section. I have suggested that there should be added a paragraph (f) stating as one of the criterion involving public interest that regard must be paid to any European Community obligation.

I was going to say that I am almost singing the same tune. I am talking of directors or advisers of small companies. They will have their attention directed to this criteria for determining what is meant by the public interest. One of the factors in 1989 and thereafter is that they should have regard to any European Community obligation which is relevant to their own industries. It would remind the readers, the advisers or the directors of the companies that we are now in the age of the Single European Act. We are in close contact with other countries in the Community. Therefore one criterion that should be regarded is any European Community obligation.

This is a long amendment. It is composed of a number of factors that are interrelated. I am quite sure that the drafting could be improved. I shall be glad to hear what the Minister has to say. I beg to move.

Lord Strathclyde

Amendment No. 251 would make a number of changes to the public interest test applied by the Monopolies and Mergers Commission when looking at matters referred to it. I should remind noble Lords that Section 84 of the Fair Trading Act requires the MMC, in determining whether a matter operates or may be expected to operate against the public interest, to take account of all matters which appear to it to be relevant. The list of particular desiderata which follows, although fairly wide-ranging, is not exclusive. The weight to be attached to particular factors will vary from case to case.

I am not sure that the noble Lord's amendments would change the test fundamentally. On the other hand, it has stood the passage of time well, and therefore we need to be wary of tinkering with it unnecessarily. In fact I wonder whether the additional points the noble Lord wants to include are not already covered. Several relate to fostering exports, but Section 84(1)(e) already deals with that. It refers to, maintaining and promoting competitive activity in markets outside the United Kingdom on the part of producers of goods, and of suppliers of goods and services, in the United Kingdom". Curiously the noble Lord's amendment would remove the word "competitive" here, but it is difficult to see how exporters can succeed without being competitive. Maintaining and promoting the balanced distribution of industry and employment in the United Kingdom". allows regional factors to be considered where appropriate. Therefore the noble Lord's addition to paragraph (d) seems unnecessary. So does the addition of the term "exporters" in paragraph (b), since in so far as UK exporters are users or purchasers of goods and services in the UK, their interests are already taken care of.

The theme of the section is however the public interest, which for UK competition legislation must mean the public interest in the UK. Thus paragraph (a) of subsection (1) refers to competition between persons supplying goods and services in the United Kingdom. The noble Lord's proposed addition at the end would suggest that the MMC should concern itself with competition in markets outside the UK. To take a hypothetical example, the commission might take the view that the public interest would not be harmed by the merger of two major exporters; but relying on this provision as amended it might be forced to conclude that the loss of competition in export markets was against the public interest.

Finally, Amendment No. 251 would require the MMC to have regard to European Community obligations. That is unnecessary and understates the case as under the European Communities Act 1972 we are bound to observe Community obligations. We could not therefore use the power in this legislation in ways which conflicted with our obligations. Therefore, it is not just desirable but essential that the MMC takes this into account, if it is to act correctly.

We could talk at length about which matters are to be considered in assessing public interest in particular cases. Whatever the disagreements about these, however, I believe there would be general acceptance that there is nothing in the existing provisions of Section 84 to prevent the MMC taking any matter which might be of concern into account, including the kind of issues that the noble Lord has raised. I hope that he will agree to withdraw his amendment.

Lord Lloyd of Kilgerran

Once again I must express my gratitude to the noble Lord. I listened with great interest to what he said. He said that he could not understand activities being competitive and wondered why on earth I should remove the words "competitive activity" in subsection (1)(e). Section 84 refers to, maintaining and promoting competitive activity in markets outside the United Kingdom". The word "competitive" does not seem to be necessary because the expression implies that there must be some kind of competition. However, that is an extremely minor point at this late hour.

I shall read what the noble Lord said and consider what action to take. I must express great surprise that the Government are refusing very firmly for a number of reasons, many of which I, as a practising professional in this field, do not understand, to help persons concerned in industry to look out for anticompetitive devices and practices and also to look at factors involving exports from the United Kingdom to parts of the European Community. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Strathclyde moved Amendment No. 252

Page 199, line 41, leave out ("'93B"') and insert ("'section 93B".').

The noble Lord said

This is a drafting amendment correcting a consequential amendment to Section 132 of the Fair Trading Act which refers to the various sections of the Act containing offences. I beg to move.

On Question, amendment agreed to.

(Amendments Nos. 252A to 255 not moved.

Lord Lloyd of Kilgerran moved Amendment No. 256Page 200, line 43, at end insert—

(".In section 19(3) of that Act there is inserted

"(g) The Treaty establishing the European Economic Community.

(h) The Single European Act." ".)

The noble Lord said

This amendment is directed at improving the Competition Act 1980. Section 19 of that Act refers to restrictions on disclosure of information and subsection (2) sets out a number of enactments referred to generally. Subsection (3) cites enactments referred to in subsection (2) and lists about six Acts: the Trade Descriptions Act 1968, the Fair Trading Act 1973, the Consumer Credit Act 1974, the Restrictive Trade Practices Act 1976, the Resale Prices Act 1976, and the Estate Agents Act 1979. The Committee can see that in 1980 these enactments were being brought up to date as far as possible.

My amendment suggests that in 1989 there should be added to that list the treaty establishing the European Economic Community, often referred to as the Rome Treaty and, secondly, that there should also be referece to the Single European Act which is so important to the United Kingdom at present in terms of the position in the European Community.

The amendment seeks to put information into the Competition Act in order to bring it up to date in respect of the enactments to which the earlier part of Section 19 refers. Members of the Committee have a list of six Acts passed up to 1979. It is now most significant that the Competition Act should draw attention to the fact that two other important matters should be added. They are the treaty establishing the European Economic Community and the Single European Act. I beg to move.

Lord Strathclyde

The noble Lord is concerned that information obtained by the UK competition authorities under the Competition Act should, where necessary, be able to be passed on for the purposes of the EEC treaty and the Single European Act. We believe that this is already adequately provided for by Section 19(2)(d), which permits disclosure in pursuance of a Community obligation. Therefore, I hope that the noble Lord's question does not arise.

9.15 p.m.

Lord Lloyd of Kilgerran

The Minister has drawn attention to an interesting point of interpretation of the Act. Subsection (2)(d) states: in pursuance of a Community obligation". Nowhere does the Competition Act define the word "Community". Nowhere does it state what is meant by "a Community". There is an almost half-hearted reference to "a Community". What is "a Community"? It is obvious that what is meant is the treaty establishing the European Economic Community.

At present the Competition Act 1980 does not make the position clear. I hoped that the Minister would show some sympathy, even at this late hour, and agree that "a Community obligation" is not as clear as it should be. If he is saying that the phrase "Community obligation" is clear and therefore it refers to the treaty establishing the European Economic Community, he should include the Single European Act as a further enactment of significance at this time.

Lord Strathclyde

It is not that I do not wish to be encouraging or generous to the noble Lord—I am always delighted to be so. However, in this case the expression "Community obligation" is defined in the European Communities Act 1972. There is no doubt to which Community and obligation the reference is made. The noble Lord said that I was referring to the European Economic Community and therefore I feel sure the position is understood. In those circumstances, I hope that the problem is solved.

Lord Lloyd of Kilgerran

The Minister, the noble Lord, Lord Williams, and I understand the position, as will all Members of the Committee. However, it is not understood by the ordinary working-class adviser, particularly those in small firms. The hour is too late for me to pursue the matter further.

I express my surprise at the Government's reluctance to insert a more clear provision about the Community. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 256A not moved.]

Schedule 15, as amended, agreed to.

Clause 105 [Introductory]

On Question, Whether Clause 105 shall stand part of the Bill?

Lord Williams of Elvel

At this point we embark on a new part of the Bill dealing with financial markets and insolvency. My amendments are designed to be probing and to elicit clarification of the proposals made by the Government in this part of the Bill.

Clause 105 is the introductory clause. I have informed the noble Lord, Lord Strathclyde, that the object of having a clause stand part debate is to continue the somewhat foreshortened Second Reading debate.

Insolvency has been the subject of numerous pieces of legislation over the years but most recent has been the Insolvency Act 1986, which was a consolidation of the Insolvency Act 1985 with amendments. The principle of what is known as pari passu distribution was strengthened by substantially reducing the classes of creditors entitled to preference to the benefit of unsecured creditors generally. That was in accordance with the recommendations of the Cork Committee.

As I understand it, the Government now seek to override the general Insolvency Act by introducing a special category. It is argued—and I hope that the Government can produce counter-arguments—that the financial markets should properly observe the Insolvency Act 1986 provisions and should deal with the problem which the Government seek to address in this part of the Bill by compensation arrangements to ensure that outsiders who deal with members in the exchange will not suffer. Compensation schemes have already been set up and in our view it would be more appropriate to compel those various bodies to increase the compensation levels rather than override the Insolvency Act—the pari passu principle—in one particular case. By opposing that the clause stand part, I seek a considered view from the Government on why this legislation is desirable.

Lord Strathclyde

I am grateful to the noble Lord, Lord Williams, for being relatively brief. I am also glad that he gave notice that he would oppose the Question that the clause stand part of the Bill. I apologise that I am not able to be quite as brief because this is obviously a very technical and highly complex issue and perhaps I should explain it as fully as I can.

The integrity of the financial markets is important for their members, for investors and for the UK economy. Defaults are rare but we cannot shut our eyes to the possibility that they occur. The markets have therefore developed systems to minimise the disruption which a default could cause. In particular the systems aim to prevent a domino effect, where one default causes a second and then a third.

Naturally the markets themselves have tried to frame their systems in such a way that they cannot be successfully challenged in the courts. Until recently very few people had any doubts about the legal foundation of these systems. Participants in the markets assumed without question that they would prove effective in the event of an insolvency. But doubts have been expressed in certain quarters and the Government have had to address the issue. It is not an issue which can be ducked.

Unfortunately insolvency law is complex and the rules and other contractual arrangements which embody these systems are also complex. In applying one complexity to the other, it is very difficult to be certain what view the courts would take if the issues were ever taken to court. There has been little relevant case law in this area.

The Government's position is simple. On a question of such importance, uncertainty is not acceptable. It may be that the courts would find nothing objectionable in the operation of these systems. It may be that the powers of an office-holder would not be exercised in the manner feared. But it could take many months, perhaps years after a default, before the legal issues were finally resolved. Financial markets move rapidly. Participants cannot wait that long to learn what is to be done with their contracts.

The Government have considered the various methods which the markets have accepted to handle defaults. Broadly speaking, we consider them to be fair and satisfactory. Our aim is therefore to remove any doubts that there may be about their legal effectiveness.

I should like to emphasise two general points. First, most of the provisions in Part VII have a broadly similar effect to that of the current law. Let me give one example. Insolvency law enshrines the important principle of set-off. If the insolvent owes a debt to me, and I owe a debt to the insolvent, I am entitled—subject to certain conditions—to set one debt off against the other. Part VII follows this principle by providing for the rights and obligations under an unsettled market contract to be converted into a debt from one party to the other. If there are two or more contracts between the same two parties, Part VII provides for the resulting debts between them to be netted off.

My second general point is this. The integrity of financial markets is in everybody's interest. Part VII is not merely about protecting members of the market. Directly or indirectly it protects investors too. By preventing a domino effect, the investors who have put their business through other members are protected; and those investors who have put their business through the defaulter will be covered by the part. Their unsettled contracts may be transferred to other members. If that is not possible they will benefit from the procedures laid down in the part for converting unsettled contracts into debts and for netting-off those debts.

To give a comprehensive account of the interaction between insolvency law and the various market systems would require not merely a letter to noble Lords but a book. Indeed, I believe a book is being written. The noble Lord may prefer me to give a few examples of possible conflicts.

The first concerns the pari passu principle whereby all creditors with the same priority are treated equally and given a pro rata distribution if the insolvent's assets are inadequate. The courts have shown themselves ready to strike down systems which run counter to this principle. It might be argued that the market systems offend against the principle, because they are concerned only with particular creditors of the defaulter; namely, members and investors. On the other hand, insolvency law incorporates the principle of set-off of the debts between two parties. Market systems have been structured around this principle; but we cannot be certain that the courts would accept this.

Would the principle extend to a case where instead of debts between the two parties there are unsettled contracts, for example? If not, the liquidator has a specific power to disavow contracts which are unprofitable to him. He might therefore be able to pick and choose which contracts to perform. Heads he wins, tails you lose. The courts might decide that picking and choosing was inequitable in a particular case. But, then again, they might not.

Another problem arises from a contract entered into after a petition to wind up a member has been presented. His counterparty may be unaware of the petition and may enter into the contract in good faith. Normally such post-petition contracts would be void. The court has a discretion to order that the contract should stand; but there is no certainty that it would do so.

My final example concerns the deposit of margin with a clearing house. This is an essential part of a system whereby the clearing house assumes the depositing member's obligation to perform the contract for his counterparty. The purpose of the margin deposit is to protect the clearing house if the member defaults. It could be argued that this deposit is a preference under the Insolvency Act because it seeks to place the clearing house in a better position than other creditors if the depositing member becomes insolvent. If it could be struck down as a preference, margin-based systems which operate on all the future exchanges would be undermined.

The courts have a wide discretion under insolvency law on some of these issues. The examples indicate some of the areas of uncertainty which we wish to sweep away.

I hope we all share the objective behind Part VII, which is to safeguard the financial markets in the event of a default. These markets are fast moving and can only work if participants are confident that their bargains will be settled. If the other party to the bargain has collapsed, it may not always be possible to guarantee settlement in full. In any event, the market's settlement system must be allowed to operate speedily and securely so that people know exactly where they stand. Lengthy disputes in court over the relationship between the settlement system and the law must be avoided.

Lord Williams of Elvel

I am grateful to the noble Lord for setting out the reasons the Government have produced Part VII of the Bill. I hope he will accept that consultation on this part was limited. There may be very good reasons why consultation was limited. It was extremely useful for the Committee to have the noble Lord's explanation as to exactly what this part is about.

We and our advisers will have to read carefully what the noble Lord said in order to frame our views when we come to the next stage. The amendments that. I shall move are all in the spirit of probing amendments to discover the Government's reasons for the various clauses they put forward in this part.

Clause 105 agreed to.

Clauses 106 and 107 agreed to.

Schedule 16 agreed to.

Clauses 108 and 109 agreed to.

9.30 p.m.

Clause 110 [Proceedings of exchange or clearing house take precedence over insolvency procedures]:

Lord Williams of Elvel moved Amendment No. 256B: Page 112, line 36, leave out subsection (2).

The noble Lord said

In our view there is a certain inconsistency between Clause 110(1) and (2). Subsection (2) refers to "a relevant office-holder" as defined in Clause 129. We believe that there is also an inconsistency with Schedule 16. I should be grateful if the noble Lord could explain exactly where, if we are wrong, we are wrong. I beg to move.

Lord Lloyd of Kilgerran

I have some difficulty with this subsection for a different reason. I wonder whether the subsection is really necessary. Subsequent clauses give much more detailed provisions in relation to the specific powers of the office-holder and the courts.

Lord Strathclyde

Clause 110 is an important element in the protection which the part is designed to give to exchanges and clearing houses. It establishes the principle that where conflict might arise between insolvency law and the systems of the exchanges and clearing houses, the latter are to take precedence. To achieve this result, subsections (1) and (2) are both necessary. It is not enough to ensure—as subsection (1) does—that contracts and rules are valid. It is also necessary that the clearing and settlement systems and the default rules should be able to deal with those contracts. That is the purpose of subsection (2).

The objective is that the market's systems should take precedence. I think the Bill should say so clearly, as it does in the subsection. Moreover the functions of a liquidator are to get in, realise and distribute the property of the company. He has a duty to do this. He must initially take all the property of the company into his custody or control, and then in due course distribute it. Clause 110 ensures that these functions and duties, which are cast in wide general terms, do not lead to a conflict with exchanges and clearing houses operating their rules, or prompt the liquidator to challenge them on a general basis.

Lord Williams of Elvel

I am grateful to the noble Lord. He mentioned Clause 110(1). Is this intended to cover receiverships and administration orders? If so, why is this not specifically stated? As to subsection (2), some clarification of "relevant office-holder" does seem to be necessary. I draw attention also to the fact that under Clause 110(4) there arises the question of voting procedures at meetings called for the purposes of the Insolvency Act which seem somewhat unclear.

I do not expect an immediate response because I have not moved an amendment in this respect. However, I hope that the Minister may take my concern on board and consider it. Perhaps he will feel moved to write to me and to the noble Lord, Lord Lloyd of Kilgerran, who is always anxious to receive letters from the Government Front Bench.

In spite of the general principle that the Minister has announced, some technical problems arise. We believe that there is an inconsistency of law relating to the distribution of assets. I hope very much that the Minister will be able to respond.

Lord Strathclyde

It was pleasing to hear the noble Lord discuss the possibility of future amendments in his name. We look forward to those.

Clause 110(1) is not concerned with administrative receivership because we do not consider that there is likely to be any conflict. Therefore, it does not arise. Furthermore, the relevant office-holder is the office-holder appointed to the member. I hope that that answers the noble Lord's question.

Lord Williams of Elvel

I am grateful to the Minister. No doubt he will read what l have said; I shall read what he has said; and we will study the matter with care. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 110 agreed to.

Clause 111 [Duty to give assistance for purposes of default proceedings]:

Lord Williams of Elvel moved Amendment No. 256C: Page 113, line 15, leave out subsection (3).

The noble Lord said

This is a probing amendment. In the view of my advisers, the costs of assisting the market in its default proceedings should be borne by the market itself. Clause 111(3) appears to envisage that non-market creditors will bear these costs. That seems inequitable. I shall be most grateful if the Minister can help me on this point. I beg to move.

Lord Strathclyde

The noble Lord suggests that the exchange or clearing house should meet the cost of providing assistance. The Government do not believe this is appropriate save in circumstances in which there is no prospect of the cost being recovered out of the insolvent's estate for which the clause already provides.

We have two reasons for taking this view. First, the whole of the clause is essentially about co-operation. In practice, in the case of a default the exchange or clearing house concerned and the office-holder are going to need to work very closely together. It is unlikely that the expenses incurred will be significant. I suggest that in most cases it will be no more than a question of exchanging information on the telephone. As the assistance will be reciprocal it really does seem right that the costs should be borne where they fall on either side.

Secondly, it should be noted that the requirement on the exchange to deal with all the defaulter's unsettled contracts and to produce a report certifying the sum due to or from the defaulter in respect of each counterparty will relieve the office-holder of a substantial burden of work which he would otherwise have to perform himself, and the cost of which would have to be met out of the estate. It is surely not unreasonable, therefore, that any costs incurred in giving assistance, which as I said are likely to be relatively minor, should be met out of the estate. Having said that, I hope that the noble Lord will feel able to withdraw the amendment.

Lord Williams of Elvel

I am grateful to the noble Lord for his explanation of the Government's intentions. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 111 agreed to.

Clause 112 [Duty to supply and return documents]:

Lord Williams of Elvel moved Amendment No. 256D: Page 113, line 27, leave out ("or copies of them").

The noble Lord said

I am unclear as to whether original documents are to be provided, and if they are not, whether the copies of them will be in some sense certified copies. The object of the amendment is to make sure that we have this point clear in our minds. We want to know whether any originals held will be to the order of the relevant office-holder. I beg to move.

Lord Lloyd of Kilgerran

This amendment is of some practical importance. The noble Lord, Lord Williams, has suggested that copies should be certified copies. I have known photostats to be quite acceptable in certain circumstances. It often happens that original documents are not available but copies are. If they are certified or photostat copies they would do just as well.

Lord Strathclyde

I am sorry but I shall be brief. It is not intended that the copies should be certified copies.

Lord Williams of Elvel

Or photocopies?

Lord Strathclyde

Photocopies would be fine. What is important is speed. That is the main requirement. Copies would be perfectly all right.

Lord Williams of Elvel

But there must be some procedure for ensuring that they are copies of the original document and that they are not just handwritten reproductions of the original document. There must be some evidence that they are copies of the original document. Is that not the case?

Lord Lloyd of Kilgerran

I understand the Minister to be accepting my suggestion that they should be photocopies.

Lord Strathclyde

It is a fact that the copy can be a photocopy. It is quite acceptable for it to be a photocopy. The noble Lord, Lord Williams, asked whether there would have to be proof that the copy, whether a photocopy or any other type of copy, was a copy of the original document.

Lord Williams of Elvel

Yes. My problem is that the word "copies" can mean several things. It can mean an authenticated, properly signed copy, or it can mean that a copy of the Marshalled List in my own handwriting is a copy of a certain document. All I am trying to establish is what the Government mean by saying "copies".

Lord Strathclyde

We mean what we say. A copy is a copy. I understand the noble Lord's example. It would be easy for him to make a copy and it would not necessarily be an exact copy. It will always be possible for the originals to be handed over so they can be left in the hands of the insolvency practitioner. I am not sure whether that entirely answers the question posed by the noble Lord, but perhaps this is a matter at which we can look further. However, there is obviously no guarantee that we shall necessarily come back with any changes.

9.45 p.m.

Lord Williams of Elvel

I fully understand that there is no guarantee. There is a certain difficulty here but no doubt that can be resolved. It is not for the Committee this evening to resolve such a difficulty across the Floor. In the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 112 agreed to.

Clause 113 [Supplementary provisions as to default proceedings]:

Lord Williams of Elvel moved Amendment No. 256E: Page 114, line 21, leave out subsection (4).

The noble Lord said

Subsection (4) seems to us to remove the general bar on actions against an insolvent for no obvious good reason. We consider that the leave of the court should be required to bring proceedings, for instance, against an insolvent defaulter; that is to say, that the normal procedure which we have at present should continue to apply. I beg to move.

Lord Lloyd of Kilgerran

I go along with the noble Lord, Lord Williams of Elvel, as regards part of this deletion, but I am most reluctant to do anyting which involves Scottish law. When I see no mention of the Bankruptcy (Scotland) Act 1985 in this amendment, I am also tempted to suggest that it should be struck out. However, I think that that would be too courageous of me at this time of night.

Lord Williams of Elvel

I hasten to assure the noble Lord, Lord Lloyd of Kilgerran, that this is a probing amendment rather than an amendment designed to trespass upon important legal matters north of the Border.

Lord Strathclyde

I am very glad to have that reassurance from the noble Lord, Lord Williams. The purpose of subsection (4) is to ensure that an exchange or clearing house can take action without delay in relation to the defaulter or his property in connection with default proceedings. The amendment would reintroduce scope for delay, by requiring leave of the court (or alternatively, in the case of Section 11(3) of the Insolvency Act, of the administrator) to be obtained in such circumstances. This would be undesirable for two main reasons.

First, there is the scope for additional delay. When a default happens, all necessary action has to be taken quickly. This is particularly important at times when the markets are highly volatile, and of course it is quite possible that, were a default to occur, it might be at a time of particular market volatility. Thus if any kind of action or proceedings does need to be taken, this should require as few steps as possible. Procedural delay may risk reducing the effectiveness of the action taken.

Secondly, it is desirable that the exchange or clearing house should be able to act with certainty. The requirement to seek the leave of the court introduces an element of uncertainty into an area where certainty is important. For example, a clearing house acts effectively as guarantor in relation to the contracts which it clears. It takes margin to cover itself against the cost of effecting the guarantee of performance. Where it takes margin in a form other than cash, it needs to be sure that it can realise the margin promptly if need be. I hope the noble Lord will understand that.

Further, the Government believe that this subsection is necessary in the interests of speed and certainty. The provisions in the Insolvency Act are widely drawn; for example, Section 130 refers to any action or proceeding and is not explicitly limited to legal action. Were this to extend to actions such as realising property provided as cover for margin, or indeed to the application of margin for the purposes of default proceedings, the effectiveness of default proceedings could be seriously jeopardised by the need to seek leave before any action is taken.

The Government believe that that would be unacceptable in the context of the problems addressed by the Bill. We believe that the subsection is necessary to ensure that default proceedings can be executed effectively. I know that the noble Lord will understand why we see the need for speed and certainty in this area as being important and perhaps, therefore, he will be prepared to withdraw the amendment.

Lord Williams of Elvel

I am most grateful to the noble Lord. In all cases where the normal procedure is overridden by the Bill, we shall require government explanations as to why it should be so. The noble Lord has given the Government's explanation, at which we shall look most carefully and at a later stage, if we feel that it is necessary, we shall return to the matter. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 113 agreed to.

Clause 114 [Duty to report on completion of default proceedings]:

Lord Williams of Elvel moved Amendment No. 256F: Page 114, line 31, leave out subsection (3).

The noble Lord said: Again, there is a difficulty on the basis of conversion of foreign currency into sterling because what is proposed is inconsistent with the procedure established in the Insolvency Rules 1986, which specify the date of liquidation as the relevant date for conversion. That is acceptable for the purposes of default proceedings, but in insolvency proceedings it is considered that the proof should be admitted under Clause 115, using the basis for conversion laid down in the Insolvency Act and rules. Again, we have a difference between the procedure proposed in the Bill and the procedure in the Insolvency Act. I beg to move.

Lord Strathclyde

The effect of the amendment would be that the normal Insolvency Act provisions on currency conversion would apply if the exchange or clearing house reported a debt expressed in foreign currency. I do not see any objection to the noble Lord's approach, and we shall bring forward a government amendment.

Lord Williams of Elvel

I am most grateful to the noble Lord. We are making a great deal of progress with the Bill. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 114 agreed to.

Clause 115 agreed to.

Clause 116 [Disclaimer of property, rescission of contracts, &c.]:

Lord Williams of Elvel moved Amendment No. 256G: Page 116, line 8, leave out subsection (3).

The noble Lord said

It seems to us that subsection (3) is not drawn tightly enough. We accept that contracts with third parties which are bona fide and for proper value should not be capable of upset by the avoidance procedures which are at present in the Insolvency Act 1986; but all contracts which fail that test should be open to attack under the general insolvency procedures. It cannot be in the interest of general creditors or the market that any contracts failing that test can be enforced. The amendment is again a probing amendment; and I should like to have the Government's response to that point. I beg to move.

Lord Strathclyde

As I have already explained, the underlying purpose for Part VII of the Bill is to remove the uncertainty that would exist between the interaction of insolvency law and the clearing and settlement systems of those financial markets included in Part VII, if a member of a market were to default, by making specific provisions for the application of insolvency law to those markets. This clause is a piece of that jigsaw, and it may assist the Committee if I spend a few moments outlining the aim of the clause.

Basically it is designed to achieve two goals: first, it prevents ordinary market transactions from being overturned in the event of the insolvency of one of the parties to a market contract, and so forth; and, secondly, it enables the recognised investment exchange or recognised clearing house to carry out the procedures required under their default rules without the possibility of any necessary transactions entered into being upset by a liquidator, trustee or the court.

In winding-up or bankruptcy proceedings, contracts may be disclaimed by a liquidator or trustee if they are onerous or unprofitable. They may be rescinded by the court.They may be void dispositions of property. On the other hand, the contracts may be allowed to stand. In each case there is an element of discretion which imports uncertainty.

If markets are to operate efficiently it is necessary that those dealing in them should be certain that proper commercial transactions will not subsequently be overturned and that the clearing house concerned is able to use the margin provided by the defaulting member as, in effect, the security provided by him to finance the settlement of bargains under the default procedure.

However, the Government have no intention of allowing a third party to gain an illegitimate advantage from procedures which are designed to safeguard the market and ensure certainty. The insolvent's estate is thus protected by enabling a trustee or liquidator acting in the interest of all the creditors to recover from a third party any profit or benefit arising from a contract entered into after a winding-up or bankruptcy petition had been presented against the insolvent member where the other party to the contract knew of those proceedings. This protection is contained in subsection (3) of the clause, which the noble Lord seeks to remove.

I have said, although certain provisions concerning avoiding contracts have been disapplied, the Government consider that subsection (3) provides an important level of protection for the general body of a defaulter's creditors. Thus where a person knew that a winding-up or bankruptcy petition had been presented against a member of an exchange or clearing house he would not be able to retain the value of any profit or benefit arising from a contract entered into after he had that information, unless the court specifically orders.

I am surprised that the noble Lord is seeking to remove this protection, but in the light of my explanation I hope that he will be able to withdraw his amendment.

Lord Williams of Elvel

I am most grateful to the noble Lord. As I hope I have pointed out on numerous occasions, these are probing amendments. We are not trying to remove subsections of the Bill but trying to establish what the Government's intentions are. The noble Lord has set out the intention of the Government. I hope he will accept that the principle of a court having discretion, if a transaction is not bona fide, is accepted and not challenged by what the Government are trying to write into the Bill.

Lord Strathclyde

That is a matter which obviously involves many of the principles surrounding the whole aspect of insolvency law. When we are talking about this, there are many principles of insolvency law. When it comes to a court deciding between—as the noble Lord said—whether or not a settlement or bagain is valid under the terms of the law—

Lord Williams of Elvel

Perhaps I may help the noble Lord by reinterpreting what I am saying. We accept that contracts with third parties which are bona fide and of proper value should not be capable of being upset. Nevertheless, the court should have the ultimate jurisdiction or discretion if the transaction was not bona fide.

Lord Strathclyde

I can now see exactly what the noble Lord is getting at. If it is not bona fide, the court will have the necessary discretion to provide the remedy.

Lord Williams of Elvel

I am most grateful to the noble Lord for that assurance. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 116, agreed to.

Clause 117 [Adjustment of prior transactions]

: On Question, Whether Clause 117 shall stand part of the Bill?

Lord Williams of Elvel

Clause 117 deals with the adjustment of prior transactions. In our view, it will be of some detriment to creditors. If Clauses 116 and 117 are taken together they will mean that claims which might otherwise be avoided will be settled within the default procedure. Assets which would otherwise be available to creditors would be lost.

In our view, what seems to be needed is a requirement that the exchange report all transactions to the relevant office-holder, who is then empowered to investigate their validity, to advise the exchange of those which are not bona fide and seek the termination of all such transactions not finalised. It may be that Clause 117 goes too far. I hope the noble Lord will he able to reassure me that our worries are unnecessary.

10 p.m.

Lord Strathclyde

I have already outlined the principles underlying Part VII of the Bill. The aim of this particular clause is to protect persons who have entered into a market contract with the insolvent, without being aware that the contract was at undervalue, which gave them a preference over, or prejudiced, other creditors. The same protection extends to the exchange or clearing house where it deals with part of the defaulter's estate under the provision of their rules.

Under insolvency law the court may order restoration of the position following transactions at an undervalue or which create a preference upon application by the liquidator, trustee or administrator. It does not matter whether the person who had the benefit of the transaction realised its effect. But it will not be certain whether the court will make an order or not, and there will be inevitable delays while applications are made to the court even if hearings are expedited. It is certainty and speed that are essential to the market's operation.

Moreover, the rules of the market in some ways limit the member's ability to choose the persons with whom he deals and the way in which deals are done. Provisions which are appropriate to deal with transactions entered into between parties who have sufficient time to assess one anothers' motives and who are fully aware of each other's identities will not necessarily be appropriate to deal with transactions effected on an exchange in accordance with the rules of the exchange and clearing house. If the preference and undervalue provisions were not disapplied, uncertainty and confusion could arise in dealings in the market. However, a safeguard has been introduced to provide that if the person was aware that the transaction was at an undervalue or gave him a preference, then the court may set it aside.

The effect of omitting the clause would be to retain the existing insolvency law provisions relating to preferences and undervalue transactions so far as market contracts are concerned. As I have explained, the Government think that this is undesirable. Dealings on markets or exchanges are not conducted in the same way as most businesses are conducted. Strict rules govern them. Such rules do not exist in the normal commercial environment.

These provisions could cause doubt and uncertainty about the effectiveness of transactions entered into in the market. This is particularly so in relation to contracts pursuant to which margin is paid. It may assist the Committee if I give a brief illustration of the type of practical problems that could ensue where a market contract was entered into and where winding-up, bankruptcy or administration proceedings ensue in relation to one party if the normal insolvency provisions in this area were to continue to apply. As I am sure the Committee will appreciate, the price at which market transactions take place can vary throughout a given day. In a volatile market, price movements may be substantial. Bearing in mind this scenario, if I were to buy investments, I would obviously wish to do so at the lowest price available. However, suppose that the seller was, unknown to me, insolvent at the time I purchased the investments, and that later in the day the price had on the market risen so that I would have had to pay substantially more for my investments if I had bought at that time.

Now, suppose that the insolvent seller is wound up. Under the insolvency law provisions, his liquidator will look at the sale of the investments to me at what may well appear to be a remarkably low price and may conclude that I had the benefit of a transaction which was at an undervalue. However, my gain had been due purely to market fluctuations—I could just as easily have made a loss—and certainly was not due to any improper conduct on my part. Even if he has sold at a value considerably below other deals being done at the same time, that may be no more than evidence that his expectation as to price movements was different to other members. At the same time, the effect of the transaction may have been to put me into a better position than I would have been if the transaction had not been entered into. If the insolvency legislation relating to preferences were to remain in force, however, this might enable an application to be made to the court for an order to restore the position.

The possibility of these orders could effect the way in which the market operated by creating uncertainty in the minds of buyers and sellers. It is to avoid such uncertainty and to create a stable market environment that provisions relating to preferences and undervalue transactions are specifically disapplied by this clause. I hope that the Committee will accept that the provision is a necessary one. The exchange will report the transactions. We intend that the office-holder can then examine them to see whether they are bona fide. Having said that, I hope that the noble Lord will not oppose the clause standing part of the Bill.

Clause 117 agreed to.

Clause 118 to 120 agreed to.

Clause 121 [Market charges]:

Lord Williams of Elvel moved Amendment No. 256H: Page 118, line 34, at end insert ("or").

The noble Lord said

In speaking to Amendment No. 256H standing in my name and that of my noble friend Lord Peston, I should also like to speak to Amendments Nos. 356J and 256K.

In Clause 121 we are dealing with a rather strange concept called "market charges". That strange concept, with which we have to begin to grapple, embodies a notion which, in our view, has not appeared before in English law, namely the ability to take a charge on indeterminate assets for the benefit of unknown persons. That is an extraordinary notion. Perhaps it will go down in legal history. It is wholly open-ended.

I think that the Government need to consider very carefully whether that is absolutely necessary for the benefit of the Bill and for the purposes they have in mind in Part VII. It is quite extraordinary. I beg to move.

Lord Strathclyde

Is that it? The noble Lord said that the provision was extraordinary. I hope that I shall be able to prove that it is not.

In responding to the amendment I shall also speak to Amendments Nos. 256J and 256K. The effects of Amendments Nos. 256H and 256J would be to remove from the definition of market charges, charges given in favour of their settlement banks by members of the Bank of England's Central Gilts Office system. While transactions in gilts take place on a recognised investment exchange—namely, the Stock Exchange—the transactions are cleared not through that exchange's settlement system but through the Central Gilts Office. I can expand on the way the CGO operates if the Committee would find that helpful. The essential point, however, is that the charge which underpins the gilts clearing arrangements is given not in favour of the Stock Exchange, or indeed in favour of the Central Gilts Office itself, but in favour of a bank—known as the member's settlement bank—which undertakes to make payments on the member's behalf in respect of transfers of gilts within the CGO system. Those charges are an essential feature of the system, and it is important that they should be within the definition of market charges. In the light of that explanation I hope that the noble Lord will feel able to withdraw the amendments.

The effect of Amendment No. 256K is uncertain. Without subsection (2) it would not be clear whether the protection of the part was available to charges granted partly for purposes specified in subsection (1) and partly for other purposes or whether the protection was available only to charges granted solely for specified purposes. The Government want it to be clear that a charge of the former kind is to be eligible for protection, but that protection is to be available only in so far as the charge has effect for purposes specified in subsection (1).

As a matter of practice, charges granted by market members for any of the purposes set out in subsection (1) of the clause may secure a wider range of liabilities than those with which the clause is concerned. For instance, the charge granted by a member of the Central Gilts Office to its settlement bank may secure its ordinary overdraft, as well as liabilities incurred in connection with gilts settlement thorugh the Central Gilts Office system. It would be inconsistent with the purposes of the part if such a charge attracted the modified insolvency regime in relation to the ordinary overdraft. Yet there might be difficulties if separate charges had to be granted for the two purposes.

It is therefore necessary to provide that such a mixed charge will be a market charge, and will attract the modified insolvency regime, only in so far as it has effect for the market-related purposes described in subsection (1). In practice, it will be necessary to specify in some detail the precise purposes for which particular market charges may be granted, the assets subject to such charges which are to be realised in accordance with the clauses and the liabilities which may be secured by such charges. That will be done in regulations made under these clauses.

As regards the detail of the regulations, we will use the charge granted by members of the Central Gilts Office to their settlement bank as an example. It is intended that regulations under the market charges clauses should have the effect that the modified insolvency regime for charges (set out in Clauses 123 to 124) should apply in the following way. First, the protection should extend only to certain assets covered by the charge. The assets would be specified securities (i.e. mainly gilts) in the member's CGO account and moneys receivable in respect of transfers of such securities out of that account. Secondly, the protected assets, when realised, could be used only to secure certain liabilities. Those liabilities would be the liability of the member to the ban arising in connection with transfers of specified securities into the member's account.

I hope that after what I have said the noble Lord will withdraw his amendments.

Lord Williams of Elvel

I am most grateful to the noble Lord. I wonder whether he will kindly write to me to explain whether there is any precedent in English law regarding the ability to take a charge on indeterminate assets to an unspecified person.

Lord Strathclyde

I shall be delighted to write to the noble Lord.

Lord Williams of Elvel

I am most grateful. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 256J to 256L not moved.]

Clause 121 agreed to.

Clause 122 [Modifications of the law of insolvency]

: [Amendment No. 256M not moved.]

Clause 122 agreed to.

Clause 123 [Administration orders, &c.]

: [Amendment No. 256N not moved.]

Lord Williams of Elvel moved Amendment No. 256P: Page 120, line 3, leave out ("knows") and insert ("knew or ought to have known").

The noble Lord said: It is not entirely clear to us what Clause 123(5) is designed to cover. We believe that the wording appears rather restrictive and should be expanded in the way that the amendment proposes. I beg to move.

Lord Strathclyde

This amendment also concerns the part of Clause 123 which relates to dispositions of property. It seeks to amend Clause 123(5), which currently provides that the disapplication of Sections 122 and 284 of the Insolvency Act 1986, by virtue of subsection (4) of the clause, cannot benefit a person other than the chargee who was a party to a relevant disposition of property and who knew at the time of the disposition that a winding-up or bankruptcy petition had been presented against the party that made the disposition. Such a person may be required to pay the value of such a profit or benefit to a liquidator or trustee of the insolvent defaulting party unless the court directs otherwise.

The noble Lord's amendment would effectively widen the scope of the subsection and provide that the person would be subject to two alternative tests before he could retain the value of any profit or benefit in such circumstances: the person must either not have known about the presentation of the petition or had no reason to have known about any such petition. This is an altogether more stringent test and by its very scope is likely to create uncertainty in the very place where certainty is most needed—the market itself.

The subsection as drafted is intended to create certainty in the minds of all market users, certainty which is vital to the market's effective operation and certainty which the amendment would undermine. In the circumstances I hope that the noble Lord will be able to withdraw the amendment.

Lord Williams of Elvel

I am grateful to the noble Lord. Again we will read what he has said and put on the record and may revert to it at a later stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 123 agreed to.

Clauses 124 to 131 agreed to.

Lord Henley

I beg to move that the House do now resume.

House resumed.

House adjourned at a quarter past ten o'clock.