Insolvency Legislation (Hansard, 22 February 1993)

§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Baroness Denton of Wakefield)
My Lords, insolvency laws cannot themselves prevent business failures but can provide mechanisms for assisting financially troubled companies to be rescued. Such provisions already exist.

Lord Bruce of Donington
My Lords, I am grateful to the Minister for that reply. But is she aware that Sections 8 to 27 of the Insolvency Act, when taken in conjunction with Section 230, are all slanted heavily towards the ultimate liquidation of a company in difficulty? Would she agree that it would be far better were the United Kingdom to adopt something more approximate to Article 11 as applied in the United States?

§ Baroness Denton of Wakefield
My Lords, I agree with the noble Lord that it is important that if a company can be saved it should be saved. Our companies are important and irreplaceable. The Act already has the company voluntary arrangement procedure which allows a company to come to binding arrangements with its creditors for settlement of its debts, and an administration order allows a company a period of time during which creditors' rights are 2 stayed. I had a look at chapter 11 of the United States legislation and was disappointed to find that only 17 per cent. of companies into chapter 11 emerged to continue.

§ Lord Campbell of Alloway
My Lords, is my noble friend the Minister aware that to the uninitiated such esoteric discussions are virtually unintelligible?

§ Baroness Denton of Wakefield
My Lords, I feel much reassured that they are unintelligible to my noble friend too.

§ Lord Clinton-Davis
My Lords, does the Minister agree that, while such discussions may be unintelligible to the noble Lord, Lord Campbell, the fact is that practitioners in this field are almost united in asserting that the 1986 Insolvency Act failed in its ambition to enable good companies to survive financial setbacks, and survive so that they emerged stronger? Therefore is not the answer that she gave remarkably complacent in the light of their views? Is she aware that though, as she said, insolvency laws cannot by themselves resolve such problems, Customs and Excise and the Inland Revenue have proved to be the most intransigent creditors, and thousands of sound companies unable to re-schedule their debts go into receivership or insolvency?

§ Baroness Denton of Wakefield
My Lords, I reject the noble Lord's suggestion of complacency. The Government continue to monitor the working of the Act, and suggestions for improvement are always given careful consideration. I question that the majority of practitioners are unhappy. I know that some are unhappy and have made their views well known; they have been listened to. But it is not for the insolvency laws to ensure that the taxpayers' money owed to the Customs and Excise and Inland Revenue is not collected.

§ Lord Holme of Cheltenham
My Lords, is the Minister aware that a major contribution to insolvency—putting aside the legal questions raised by the noble Lord, Lord Bruce of Donington—is the late 3 payment of bills by suppliers of one sort or another? It is appropriate to pay tribute to the efforts made by the Minister herself in respect of commercial companies and the late payment of bills. But has she had a chance to scrutinise the behaviour of government departments themselves, particularly the Ministry of Defence? Does she accept that it would be reassuring to know that they are prompt in the payment of their bills?

§ Baroness Denton of Wakefield
My Lords, I thank the noble Lord for his comments. I believe that this is one of the major pressures on small firms in particular and I am extremely concerned about it. It is appropriate that today there came across my desk a press release from one of the banks' factors showing that there was some evidence that there had been more responsible behaviour from large companies.
As concerns government departments, there is a commitment from the whole of government to pay on contract terms or 30 days. I have a personal commitment that if there is an example of this not being adhered to I shall take it up. I have taken up such matters and fortunately have managed to redeem the situation.

§ Lord Hailsham of Saint Marylebone
My Lords, does my noble friend agree that the only thing that can save the unnecessary failure of large numbers of companies is the continuance of sustained and sustainable profit?

§ Baroness Denton of Wakefield
My Lords, it gives me great pleasure to reply "yes" to my noble and learned friend.

§ Lord Barnett
My Lords, is the Minister aware that I can give an example of legal aid of over £1 million being owed to a major firm of lawyers? That is for a major case and it has been outstanding for more than 12 months. Will she accept that often banks tend to take advice from accountants as to whether companies should be made insolvent? Frequently they do so with one objective in mind: namely, that they should be the receivers.

§ Baroness Denton of Wakefield
My Lords, I look forward to receiving the details of the instance quoted by the noble Lord. Of course, I cannot comment on it at the moment. The situation with banks is that in order to lend money they have to have security, but it is important that the relationship between banks and small firms is restored.

§ Baroness Nicol
My Lords, is the noble Baroness aware of the difficulties being caused to small pharmacies—which are, after all, small businesses—by slow payment in the National Health Service? Does she recall the exchange in the House about 10 days ago when we uncovered the fact that a considerable sum of money is owed to pharmacists for 90 days and many are being caused considerable difficulty through that? Will she undertake to look into that aspect when she is looking into other government departments?

§ Baroness Denton of Wakefield
My Lords, I am delighted to confirm to the noble Baroness that I am happy to look into any aspect which is outside contract terms.

The Earl of Halsbury
My Lords, has the noble Baroness observed that all over London and in every city in the country new office blocks are standing vacant with the words "To Let" across their windows? The entrepreneurs who built them are now at hazard.

§ Baroness Denton of Wakefield
My Lords, I have powers of observation, but I am not certain how that question relates to the Question on the Order Paper.

§ Lord Mackie of Benshie
My Lords, the Minister said in her reply that she cares greatly for the taxpayer's money. Is it not true that money spent in assisting small and large firms may prevent the further erosion of our manufacturing base and save the taxpayer money at the end of the day?

§ Baroness Denton of Wakefield
My Lords, I shall repeat for the noble Lord my statement that we consider it important to help keep going every firm we possibly can. Such businesses are important, particularly in the manufacturing area.

Lord Bruce of Donington
My Lords, will the noble Baroness take one more look at Section 230 of the Insolvency Act? It lays down that administrators must be insolvency practitioners before they can take up their task. Will she bear in mind that the success of a business or its rescue is far more likely to occur under a person who is qualified as an entrepreneur than one whose basic qualifications are those of an accountant?

§ Baroness Denton of Wakefield
My Lords, I agree with the noble Lord that the best way out of problems for the benefit of the future economy is to trade out of them. I shall take the noble Lord's remarks back to my honourable friend, who has asked for a review of legislation in this area.