MOTION MOVED ON CONSIDERATION OF COMMONS AMENDMENT (Hansard, 13 November 1989)

§ Lord Williams of Elvel
My Lords, when the Bill left this House it contained Clause 161, entitled in the rubric "Set-off in bankruptcy". This clause was put into the Bill as a result of a number of months if not years of discussion between officials in the Department of Trade and Industry and members of the insolvency profession —both lawyers and accountants—who were worried about the impact of Section 323 of the Insolvency Act 1986.
That section had tried to restate Section 31 of the Bankruptcy Act 1914, but in changing the language it raised a number of problems which, in the view of the insolvency practitioners, were material. There was, is and should be a right of set-off between credits and debits when the liquidation is in process and a creditor is conducting business with the bankrupt organisation. That may appear to be a relatively simple matter, but it becomes complicated when the language of the 1914 Act, which talks about the concept of debts being due, is confused with the language of the 1986 Act, which is somewhat different. The interpretation of what is a debt and when it becomes due has been the object of considerable argument.
This point is of very great importance to businesses which have mutual dealings with customers and suppliers, but it is of greater importance to banks and other providers of finance for business. Although this matter sounds very technical and is very technical, it should not be disregarded as being a technical point. It is a point of great materiality.
When the Bill left your Lordships' House Clause 161 was accepted by members of the Insolvency Practitioners' Association and several learned ladies and gentlemen who have advised on insolvency practice. It is believed by those who advise me that the Government then started tinkering with Clause 161 and that that tinkering led to so many complications that Ministers decided to delete the clause completely. I am advised that this is giving rise to a great deal of concern among those who practise in insolvency because Section 323 of the 1986 Act gives rise to enormous complexity and difficulty of interpretation. Clause 161 was a satisfactory clarification of the position. There is no dispute about what the position should be. It was believed that Clause 161 should remain in the Bill.
1123 I think that it would be wrong to allow the Bill to leave Parliament for its Royal Asset without making this point and without having on the record a statement from the Government as to why they think that the views of the insolvency practitioners were wrong that Clause 161 should remain in the Bill.

§ Lord Trefgarne
My Lords, I have listened with interest to the noble Lord's speech. It may help if I briefly set out the background to Clause 161. Set-off has been a basic principle of bankruptcy law since the last century. Before the Insolvency Act 1986 the provision was detailed in the Bankruptcy Act 1914, which had stood the test of time. There was no intention significantly to amend the law relating to set-off when insolvency law was reviewed in 1985–86. The existing legislation —Section 323 of the Insolvency Act 1986 —is therefore closely based on the provisions of the earlier Act.
Set-off permits a creditor to add up all his mutual credits and debits with an insolvent person and claim the net figure. Clause 161 was introduced to respond to doubts expressed as to whether Section 323 of the Insolvency Act 1986 permits debts which were not due and payable at the commencement of a bankruptcy to be incorporated in a set-off. The clause substitutes a new Section 323 and seeks to deal with the perceived doubt by omitting the word "due". Following further consideration we have concluded that the clause, while it clarifies the position of some contingent claims, potentially widens the scope of those claims capable of being included in the set-off unacceptably and creates fresh uncertainty. It is desirable as far as possible to maintain the principle of pari passu or fair distribution in insolvency. It is also desirable to avoid creating fresh uncertainty. We have concluded that it would be preferable to retain the existing law and to leave it to the courts to develop this point.
The variety of claims that can be outstanding between an insolvent person and his creditors and debtors is very wide. In some cases it is appropriate that they should be available for set-off and in others it is not. The approach that English law adopts to this matter is to make a general statement of principle, leaving the courts considerable discretion in applying it to different facts. Other legal systems list in considerable detail all the different kinds of claim that can, and cannot, be set-off.
There are advantages in either approach, but as long as we retain the former it is important that the scope for claiming a set-off should be kept within bounds. I am not satisfied that this clause has this effect, and in all the circumstances it is sensible and desirable to delete the clause. I hope therefore that the House will in due course agree with the Commons in their proposal and that the noble Lord will therefore see fit not to press his amendment.

§ Lord Williams of Elvel
My Lords, I am grateful to the noble Lord for reading out his brief with such 1124 elegance. I am bound to say that I do not think that his department has taken on board the arguments that have been put forward by the Insolvency Practitioners Association and those who advise the Law Society, all of whom say that Clause 161, as it left our House, was a useful, sensible clarification, and have not been persuaded to the contrary by any arguments that have been put forward by departmental officials.
I accept that we have on the record a statement of what the department believes. I am sure that the noble Lord will accept that it is not agreed by many distinguished lawyers (including those who advise the Law Society on the matter) that greater uncertainty would be created by including Clause 161. It is believed that Clause 161, which was a sensible clause, would have clarified section 323. The noble Lord is right in reciting the history of the Bankruptcy Act and the Insolvency Act 1986 and the problems to which those Acts have given rise. Nevertheless I think that the Government ought to be aware that the courts will have enormous difficulty in interpreting the law as it now stands if Clause 161 is not included.
However, as I said, although this is an important matter it is a technical matter and I do not intend to divide the House on the issue. We have had a statement of how the Government see the position. I believe, and others believe —this is not a party-political issue in any way —that the Government are wrong. We will see in the event how that works out. I beg leave to withdraw my Motion.
Motion, by leave, withdrawn.

§ Lord Trefgarne
My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 315.