Bankruptcy (Scotland) Bill

HL Deb 18 January 1993 vol 541 cc775-804

6.46 p.m.

Report received.

Clause 2 [Appointment and functions of interim trustee]:

The Minister of State, Scottish Office (Lord Fraser of Carmyllie) moved Amendment No. 1:

Page 4, line 38, leave out from ("shall") to ("appoint") in line 40.

The noble and learned Lord said: My Lords, it will be noted that some of the amendments before the House are in identical terms to those tabled by noble Lords opposite. That is because they deal with the same points of concern which have recently been drawn to our attention by the Institute of Chartered Accountants of Scotland. It may be helpful if I outline the objectives behind the amendments I have tabled. In so doing I hope to persuade noble Lords opposite that there is no need to proceed with their amendments or a number of other amendments which appear on the Marshalled List in their name.

I have considered the representations that have been made to me regarding the potential difficulties that could arise for some categories of debtors, particularly those in business, by any delay in the award of sequestration. I understand that a debtor in those circumstances may be constrained from carrying on his business as a going concern and would wish the early appointment of the interim trustee to safeguard his estate for the general body of creditors. An interim trustee would be able to carry on a business for that purpose. While in some cases this problem can be resolved by the debtor granting a trust deed, that solution is not suitable in every instance.

Accordingly, the first amendment proposed for Clause 4 would remove the potential difficulties I have outlined by ensuring that sequestration may be awarded forthwith after the presentation of a debtor's petition. I still consider it important, however, and consistent with the policy of the Bill, that, following a debtor's petition, the Accountant in Bankruptcy should have an early opportunity to apply for a certificate of summary administration. Accordingly, I propose an amendment to Clause 4(3), in respect of new Section 12(1A), which should have the effect of enabling the accountant to apply for a certificate of summary administration no later than seven days from the date of the award of sequestration.

The government amendments proposed for Clauses 2 and 6 within this grouping are purely consequential on those proposed for Clause 4. They recognise that in future the Accountant in Bankruptcy would not be able to apply for a certificate of summary administration prior to the award of sequestration following a debtor's petition and remove any reference thereto.

I urge your Lordships to support these amendments. With that brief explanation I hope that noble Lords opposite will feel able to withdraw the amendments they have tabled to cover what are essentially the same points.

Lord Macaulay of Bragar

My Lords, I am grateful to the Minister for that explanation of the approach taken by the Government. He has my assurance that we shall adopt the line that he has suggested and accordingly withdraw the amendments.

On Question, amendment agreed to.

Lord Macaulay of Bragar had given notice of his intention to move Amendment No. 2:

Page 5, line 24, leave out ("by a creditor or a trustee acting under a trust deed").

Lord Fraser of Carmyllie

My Lords, we have already debated this amendment and Amendment No. 16 in Committee when I explained that the Government agreed with the Scottish Law Commission that the requirements which may lead the court to appoint an interim trustee in advance of granting an award of sequestration arise only in creditor and trustee petitions. That remains our view.

The concerns expressed by the noble Lord were that under the Bill a debtor's petition was now to be considered after eight days and not dealt with forthwith as in the 1985 Act. There was therefore no means by which a debtor could secure the immediate appointment of a trustee to continue operating his business.

As I have explained in terms of the first group of amendments, I consider that the amendments are unnecessary. I hope that it may be possible for noble Lords opposite to signal their agreement to that.

[Amendment No. 2 not moved.]

Lord Lyell moved Amendment No. 3:

Page 5, line 42, at end insert: ("(8) Where the petition for sequestration was presented by a creditor or a trustee acting under a trust deed, and the appointment of interim trustee is made under subsection (5) above, the petitioner shall effect service of the petition forthwith on the debtor." ").

The noble Lord said: My Lords, your Lordships will be aware that at an earlier stage in Committee I moved an amendment at this point in our consideration of the Bill. I hope that this evening's proposal will not be seen necessarily as a variation 0on this theme.

At the outset the first thing that I should like to ask your Lordships to do—and especially my noble and learned friend on the Front Bench—is to consult Section 12(2) of the original Act. I am referring to page 12 of the 1985 Act where one can find the details about the formal service of a petition which, as is stated in Section 12, shall be … not less than 6 nor more than 14 days after the date of the citation", which I understand is called the "calling date" in a court.

The main thrust of my amendment comes in its last line which refers to the, service of the petition forthwith on the debtor". I stress the word "forthwith". It is essential that your Lordships appreciate that when the court has made an early appointment under a trust deed it is very often the case that the interim trustee will immediately try to contact the debtor to inform him of the situation. However, I am advised that in many cases the interim trustee arrives on the debtor's doorstep (perhaps to assume control of the business for the benefit of all the creditors), but the debtor might not necessarily have received full notice that a trust deed has been signed and that the interim trustee has legitimate business on his premises. I am advised that there are provisions that cover the gist of what I am seeking in this amendment under the arrangements for corporate and company liquidations. I am not entirely clear whether they are covered under the acts of sederunt which we mentioned at an earlier stage but I think that there are precedents for this. I understand also that when sheriff court officers call upon a debtor they know the drill and exactly what procedure to carry out.

I hope that my noble and learned friend and the Government will be able to see that there is every reason why the minimum of six days, which is specified in Section 12 of the original Act, is perfectly legitimate, but that there are also very good reasons for having more than 14 days before the actual date when the petition is presented. There may be problems in particular courts and delays if a court takes petitions only on a certain day of the week. I am advised that the practitioners and others involved in this sad business often wish that there could be notification by an interim trustee a little more than 14 days before the case is called and that this amendment would have some benefit. With that, I beg to move.

Lord Fraser of Carmyllie

My Lords, I have listened carefully to what my noble friend has said. It was interesting to hear the circumstances that he outlined and the difficulties that he believes might occur. I am bound to say, however, that they are not difficulties that have been brought to my attention previously. I understand that his amendment seeks to ensure that, whenever an interim trustee is appointed prior to an award of sequestration, the debtor is informed of the existence of the petition as soon as possible thereafter. As my noble friend emphasised, the word "forthwith" appears in his amendment.

As my noble friend clearly appreciates, Section 12(2) of the existing Act provides that when a creditor or trustee presents a petition for a debtor's sequestration, the court grants a warrant to cite the debtor to appear before it at a date usually not less than six days or more than 14 days from the date of citation. What I must emphasise to my noble friend—I am sure that he appreciates this already —is that such a warrant has attached to it a copy of the petition itself. In this way the debtor receives notice of the petition and accordingly should have the time to prepare a defence against the petition and the appointment of the interim trustee, if necessary.

If for any reason the petitioner fails properly to serve the warrant on the debtor then the sequestration will not proceed. I agree with my noble friend that from time to time it may prove impossible to serve the original warrant to cite in time and a fresh warrant is obtained. However, this does not affect the fact that until such a warrant is properly served, the case cannot proceed.

Present procedures should ensure that the debtor receives a copy of the petition before the court hearing. I venture to suggest that that is the critical feature. I can see that there may be circumstances where, if someone acting on behalf of the interim trustee (or the interim trustee himself) should appear before the debtor has any knowledge of it, there might be some difficulty. However, what appears to me to be more critical is that the service of the petition should have been secured. That is necessary before there can be any court hearing.

If we were to introduce yet a further complication I should be anxious if there had to be an earlier service of the petition. As I think that my noble friend will appreciate, it might be difficult if "forthwith" had to be given a precise legal definition and if procedures had to be repeated unnecessarily. I hope that that explains the position to my noble friend and that he might consider withdrawing his amendment.

Lord Lyell

My Lords, I am grateful to my noble and learned friend for spelling out the complications on his side and in the statute. He is right that there could be serious problems in precisely defining the meaning of "forthwith".

My noble and learned friend took on board one of my points and said that there might be "difficulties" where the interim trustee appeared before the warrant had been served. I am advised that on one particular occasion a young lady attended a farm—not in the area that is known to my noble and learned friend and myself—to he met by the farmer with a shotgun, saying that the interim trustee had no business there and would she kindly clear his land—or words to that effect. That was in the nature of the "difficulty" that was so tactfully referred to by my noble and learned friend.

I appreciate that there will be "difficulties" (as my noble and learned friend put it), but I wonder whether I might study what he has said, especially as he might have said that there was a chance of having a second presentation. Did he say that there would be a repeat warrant? Therefore, I wonder whether the gap might be longer than 14 days and whether the hearing could he held anything up to 28 days later because of the pressure on the court.

That was the main thrust of my amendment. I wondered whether there might be some slight relaxation of the 14-day limit. My noble and learned friend has given me an explanation and I should like to read it. I thank him for what he has said and at this stage I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

7 p.m.

Clause 3 [Petitions for sequestration]:

Lord Macaulay of Bragar moved Amendment No. 4:

Page 6, line 26, leave out from ("that") to end of line 28 and insert:

1. ("(i) he has granted a trust deed; or
2. (ii) he has given notice to his creditors as mentioned in paragraph (b) of section 7(1) of this Act, other than if the debtor has been in "business" as defined by section 73 of this Act.").

The noble Lord said: My Lords, before I say anything about the content of the amendment, perhaps I may say that it is unhappily drafted. Nonetheless, there is a point to be made. The purpose behind the amendment is to allow a trading debtor to present his own petition for sequestration even if his apparent insolvency, as defined by the principal Act, is attributed solely to him giving written notice to his creditors that he has ceased to pay his debts in the ordinary course of business.

The view of insolvency practitioners is that the Bill has been formulated to prevent a consumer debtor being in a position to secure an award of sequestration, with the consequent discharge from his liabilities, without there being any notification to or involvement of the creditors. The question is whether a trading debtor who realises his own position should be given the option of going for his own sequestration. In other words, should a debtor be entitled to self-certify his, or her, own apparent insolvency? The amendment seeks to distinguish the position of the trading debtor from that of the consumer debtor. It is believed that the definition of "business" contained in Section 73 of the 1985 Act is a clear and simple test to distinguish the category of a debtor who is presenting his own petition.

The honest debtor, and most trading debtors are honest—it is all a question of percentages, so let us say that 80 per cent. of trading debtors are honest debtors —cannot have his or her business wound up in an orderly manner by trust deed. If a person running a business realises that he is not running it profitably, then he may be guilty of fraud; for example, by trading when he knows that he cannot meet his debts. That has various consequences. In particular, if the trading debtor cannot go to the court and say, "It is hands up time, my business is not doing well", he loses, among other things, the goodwill of the business. That disappears as he waits for a creditor-led sequestration. That has other knock-on effects.

I am advised by insolvency practitioners that the insolvency provisions of the Employment Protection Act afford protection to employees in the event of a formal insolvency —for example, sequestration—but not if the business merely ceases to trade. There are factors such as arrears of wages, accrued holiday pay, redundancy and so forth. The Minister has been given notice of this matter. The amendment has been included to protect the position not just of the trading debtor who wants to put his affairs in order but that of creditors and to give them the benefit of the position in which the trader might unfortunately find himself in the present economic climate. For example, if a major company goes into liquidation, as happened last week, the trading debtor further down the line may find himself out of business because the major trader has gone. The joiner, the plumber and others may be left waiting for money from the major firm to pay their own debts. They may find themselves in a position which will lead only to insolvency. The amendment has a social purpose behind it. It is designed to assist the trading debtor and the creditor. I beg to move.

Lord Fraser of Carmyllie

My Lords, the amendment seeks to reverse an amendment to the Bill which the Government introduced at a comparable stage in another place. It was an amendment which, I understand, was accepted without division or opposition. Having said that, it may he useful to take the opportunity to explain more fully what lies behind the government amendment. It is to make it clear that a debtor who was in business could not simply rely on sending a written notice to his creditors that he had ceased to pay his debts, as the means of establishing his apparent insolvency for the purposes of a petition being made by him. The Government's view is that some more objective criterion of his financial position is required, such as his failure to meet a statutory demand for payment, before a debtor could bring a petition for sequestration without the consent of a creditor.

It is worth recalling that under the 1985 Act a business debtor may petition for sequestration only if a qualifying creditor agrees to the petition. The only other remedy available to the insolvent business debtor is to grant a trust deed and secure the appointment of a trustee to run the business for creditors.

Both such remedies still remain under the Bill. A business debtor can either seek the agreement of his creditors to his sequestration or he can grant a trust deed. However, in addition he can bring a petition without the agreement of his creditors if he can demonstrate his apparent insolvency, other than by having given a notice to his creditors that he has ceased to pay his debts, or if he has granted a trust deed, but sufficient creditors have objected so as to prevent it becoming a protected trust deed. This widens the options available to the debtor, rather than restricts them as the noble Lord suggests.

As I understand it, the central point of the noble Lord's argument is that it is in the interests of creditors generally to allow a business debtor to proceed quickly to sequestration. If the creditors agree with that assessment in any individual case, then there is nothing to stop one or more qualified creditors concurring in the debtor's petition and the result sought by the noble Lord can be achieved. If, however, the creditors are not prepared to concur in the petition, then one must assume that they have not accepted the argument that the sequestration of that debtor is in their overall interest, or indeed his or her overall interest.

I do not believe that it is appropriate or practical to try to draw a distinction between "business" and "consumer" debtors as the noble Lord seeks to do in the amendment. Such a distinction could rapidly become blurred and, in any event, runs contrary to the approach taken in the 1985 Act that all individual debtors are subject to the same procedures.

The Bill provides a business debtor with the means to reorganise his financial affairs for the benefit of his creditors. It retains the rights which such debtors presently have under the 1985 Act, but builds on them in certain respects, subject to safeguards to protect the interests of creditors.

I believe that the Bill, as amended in another place, strikes the right balance between debtor and creditors' interests. It is always a difficult balance to strike, but I believe that it has been struck. With that explanation, I hope that the noble Lord will consider withdrawing the amendment.

Lord Macaulay of Bragar

My Lords, I am grateful to the Minister for giving that explanation of the Government's approach to this aspect of insolvency and sequestration. I am not sure that I agree with everything that he has said, but no doubt those involved in these matters will read his words with interest. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Speaker (Baroness Lockwood)

My Lords, if Amendment No. 5 is agreed to, I cannot call Amendment No. 6 because it will have been pre-empted.

Lord Fraser of Carmyllie moved Amendment No. 5:

Page 7, line 8, leave out from first ("a") to ("and") in line 10 and insert ("statement of assets and liabilities").

The noble and learned Lord said: My Lords, I appreciate that the provisions in this group of amendments may seem substantive and daunting. I apologise for not giving a longer period in which to examine them. I assure your Lordships that they contain only three matters of a technical nature. A number of them were urged on me at an earlier stage in the Bill not least by my noble friend Lord Mackay of Ardbrecknish. However, the changes have led to a considerable number of consequential amendments.

The first point of note to which I draw your Lordships' attention arises in the new Section 19(1), which is substituted in paragraph 6 of Schedule 1 to the Bill. That now places an obligation on the debtor petitioner who has nominated an interim trustee to send to such trustee a statement of his assets and liabilities within seven days of the trustee's appointments. Under the 1985 Act a debtor petitioner is required to send this information to the interim trustee. That was omitted from the Bill because it was anticipated that the Accountant in Bankruptcy would be appointed interim trustee in all cases. However, noble Lords who have followed the passage of the Bill through both Houses will appreciate that that original assumption no longer applies. The position is rectified in new Section 19(i), as provided in the amendment.

The second point of significance is the definition of the statement of assets and liabilities, which appears in the amendment relating to page 25 line 17. That is now defined as containing a list of the debtor's assets and liabilities, a list of his income and expenditure and such other information as may be prescribed. In particular, I draw your Lordships' attention to the second item. As I have indicated, on an earlier occasion my noble friend Lord Mackay of Ardbrecknish tabled an amendment to Clause 3 which had a similar effect. He again tables that amendment at this stage. The amendment which I propose includes a list of the debtor's income and expenditure as an item which must be provided in the statement of assets and liabilities. Moreover, the amendment provides a general definition for application throughout the Bill.

Many of the textual amendments in the group are consequential on the insertion of the new term as defined. I am sure that my noble friend will appreciate that often what at first blush appears to be a short, simple and sensible amendment requires in its train a considerable number of consequential amendments. The amendment is a clear example of that phenomenon.

Finally, the amendments recast the offence provisions which relate to any failure by the debtor to comply with his obligations to supply a statement of assets and liabilities or to supply accurate information. The provisions also set up more appropriately the defences which would be available to the debtor in any criminal proceedings raised against him in respect of the statement of assets and liabilities. Offence provisions in the same terms as those contained in the new Section 19 are also provided under the amendments to Clause 3 in respect of the statement of assets and liabilities, which is to be provided to the Accountant in Bankruptcy. That presentation ensures that petitioners are fully aware of the position on offences at the outset.

Amendment is also made to Section 68 of the 1985 Act to bring the time limits for commencement of summary proceedings into line with those normally available for such proceedings in Scotland. I appreciate that is a technical explanation of the amendments, but I believe that in principle they will assist debtors and those advising them fully to understand the scope of their obligations and the related offence provisions which will apply if they fail to observe them. I trust that the way in which the Government have presented them will be acceptable to the House and will allow some noble Lords to withdraw their amendments, in particular Amendment No. 6 standing in the name of my noble friend Lord Mackay of Ardbrecknish.

7.15 p.m.

Lord Mackay of Ardbrecknish

My Lords, I am grateful to my noble and learned friend for accepting, as he did in Committee, my argument about the need to include the words "income and expenditure" on the face of the Bill. I apologise for the fact that my three simple words have been expanded to a fair number of words and amendments. However, my noble and learned friend has explained the position and I am grateful to him.

It is sensible that in devising legislation the Government should pat as much material as possible on the face of the Bill and as little as possible in the rules and regulations, which are "extra-parliamentary". I warmly welcome my noble and learned friend's amendments and I shall not move my Amendment No. 6.

Baroness Carnegy of Lour

My Lords, I add my thanks because I too raised the points referred to by my noble friend Lord Mackay. The Government appear to have proceeded in a complicated way; but I take my noble and learned friend's word that it is the simplest way which he could devise and that my noble friend's easier-to-understand amendment is not correct.

On Question, amendment agreed to.

[Amendment No. 6 not moved.]

Lord Fraser of Carmyllie moved Amendments Nos. 7 and 8:

Page 7, line 12, leave out from ("Bankruptcy") to end of line 13 and insert ("such statement of assets and liabilities as was lodged in court in pursuance of paragraph (a) above").

Page 7, line 13, at end insert:

("( ) After subsection (8) there shall be inserted the following subsections— (9) If the debtor—

1. (a) fails to send to the Accountant in Bankruptcy in accordance with subsection (6A) (b) above such statement of assets and liabilities; or
2. (b) fails to disclose any material fact in such statement of assets and liabilities; or
3. (c) makes a material misstatement in such statement of assets and liabilities,

he shall be guilty of an offence and liable on summary conviction to a fine not exceeding level 5 on the standard scale or to imprisonment for a term not exceeding 3 months or to both such fine and imprisonment. (10) In any proceedings for an offence under subsection (9) above, it shall be a defence for the accused to show that he had a reasonable excuse for—

1. (a) failing to send to the Accountant in Bankruptcy in accordance with subsection (6A) (b) above such statement of assets and liabilities; or
2. (b) failing to disclose a material fact; or
3. (c) making a material misstatement."").

The noble and learned Lord said: My Lords, I spoke to Amendments Nos. 7 and 8 when moving Amendment No. 5. I beg to move.

On Question, amendments agreed to.

Lord Lyell moved Amendment No. 9:

After Clause 3, insert the following new clause:

("Sequestration of other estates: amendment

.—(1) Section 6 of the 1985 Act (sequestration of other estates) shall be amended as follows.

(2) For subsection (4) there shall be substituted the following subsections—

"(4) The sequestration of the estate of a partnership shall be on the petition of—

1. (a) the partnership, if either subsection (4A) or 4B) below applies to the partnership;
2. (b) a qualified creditor or qualified creditors, if the partnership is apparently insolvent; or
3. (c) the trustee acting under a trust deed granted by the partnership if, and only if, one or more of the conditions in subsection (4C) below is satisfied.

(4A) This subsection applies to the partnership if a qualified creditor or qualified creditors concur in the petition.

(4B) This subsection applies to the partnership where—

1. (a) the total amount of the debts of the partnership (including interest) at the date of presentation of the petition is not less than £1,500;
2. (b) the partnership either—
   1. (i) is apparently insolvent; or
   2. (ii) has granted a trust deed and the trustee has complied with the requirements of sub-sub-paragraphs (a) to (c) of paragraph 5(1) of Schedule 5 to this Act but has received notification as mentioned in sub-sub-paragraph (d) of that paragraph;
   and for the purposes of this paragraph a partnership shall not be apparently insolvent by reason only that the partnership has granted a trust deed.

(4C) The conditions mentioned in subsection (4)(c) above are—

1. (a) that the partnership has failed to comply—
1. (i) with any obligation imposed on the partnership under the trust deed with which the partnership could reasonably have complied; or
2. (ii) with any instruction or requirement reasonably given to or made of the partnership by the trustee for the purposes of the trust deed; or
2. (b) that the trustee avers in his petition that it would be in the best interests of the creditors that an award of sequestration be made." ").

The noble Lord said: My Lords, I hope that my noble and learned friend will not be too worried—knowing me, he probably will not—when he sees that I seek to insert a new clause. I hasten to assure him and your Lordships that the clause raises no complications. I seek to place partnerships on the same basis as sole traders as set out in Clause 3.

The measures contained in the Bill allow an individual debtor, which includes a sole trader, to present a petition to the court for his own sequestration without the need for a concurring creditor. Your Lordships will see that that is provided for in Clause 3(2B).

I propose the new clause because I wonder whether there is any reason why other trading entities and forms of corporate bodies—I am thinking of the husband and wife partnership and other small partnerships which could be sequestrated—are not entitled to the same relaxation of the provisions for self-sequestration. It is equally important to a partnership with a trade which one would hope would continue to be allowed to protect the assets of the going concern for the benefit of all the creditors by having the ability to petition for sequestration if the partnership is insolvent.

Secondly, I wish to introduce the provision which was not incorporated in the 1985 Act. It has not been possible for a trustee under a partnership trust deed to petition on any grounds for the sequestration of the partnership. I am advised that that has caused problems since the passing of the 1985 Act. There have been occasions on which one creditor has been able to effect what we call "diligence" against the partnership in order to obtain a preference and a higher place in the queue perhaps over other equally qualified creditors. I am advised that sequestration cuts down on diligence. That may be one of the intentions. However, the Scottish Law Commission report on bankruptcy and related aspects of insolvency and liquidation suggested that cutting down on diligence should be the main reason for a trustee to be converted to sequestration.

The main thrust of the amendment is that there appears to be no reason why the partnership's assets should not be protected from diligence in the same way as the assets of a sole trader. For that reason, we believe that a trustee under a partnership trust deed should be able to petition for the sequestration of the partnership subject to the criteria which your Lordships will see in subsection (4C). Those are fairly severe and replicate what we have in Clause 3. This appears to be a fairly lengthy and complicated new clause but I hope that I have simplified matters as far as possible. I beg to move.

Lord Fraser of Carmyllie

My Lords, I have listened with great interest to what my noble friend said. I acknowledge immediately that there is some force behind the argument that the petition rights in respect of a business which is a partnership should, in general terms, be equivalent to those available in respect of a business run by an individual debtor. Although the proposed new clause is fairly lengthy and complicated, I should say to my noble friend that he has explained the situation with great clarity and I acknowledge what he wishes to say. However, there is one important aspect of the noble Lord's new clause which would create a disparity between the circumstances in which an individual debtor could petition for his sequestration and the circumstances in which a partnership could do so. For that reason, I regret to say that I cannot accept the amendment. I refer to the tailpiece to new Section 5(2B) (c), as inserted by Clause 3(2) of the Bill which provides that, for the purposes of a debtor's petition the debtor shall not be apparently insolvent by reason only that he has given notice to his creditors, under Section 7(1) (b) of the 1985 Act, that he has ceased to pay his debts.

I have no doubt that my noble friend listened to the exchange on Amendment No. 4 when I explained to the noble Lord, Lord Macaulay of Bragar, why the Government felt it to be inappropriate to allow such notice to be the cause of the presentation of a petition. Such a qualification is not present, however, in the equivalent provision of new subsection (4B) of Section 6 as inserted by the new clause. I am sure that my noble friend will accept that government policy is important as regards this matter. I cannot accept the new clause. It is a complicated clause but, as I say, I understand the force of my noble friend's argument. However, because of that very important point, I cannot accept the amendment.

Lord Lyell

My Lords, I am grateful to my noble and learned friend. Perhaps I may ask him whether Section 7(1) (b) of the 1985 Act is the only reason he cannot accept the amendment.

Lord Fraser of Carmyllie

My Lords, that is an objection of such an overwhelming character that I must indicate that I cannot accept the amendment. I repeat that there is some force behind my noble friend's argument, but I am not anxious to indicate that, if that point alone were to be removed, the amendment would then be wholly acceptable. I must found my refusal to accept the amendment on that single objection. Perhaps my noble friend will reflect on that point.

Lord Lyell

My Lords, I am grateful to my noble and learned friend. I listened carefully to what he said and I am gratified that he believes that there is some force behind the arguments which I have put forward. I shall reflect on what he said and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Macaulay of Bragar moved Amendment No. 10:

After Clause 3, insert the following new clause:

("Meaning of apparent insolvency

.—(1) Section 7 of the 1985 Act (meaning of apparent insolvency) shall be amended as follows.

(2) In subsection (1) delete "£750" and substitute "£1,500".").

The noble Lord said: My Lords, this is a technical amendment to delete the figure of £750 in Section 7(1) (d) and to substitute the figure of £1,500. The amendment is presented to your Lordships to seek to increase the limit of debt in respect of which a creditor can serve a statutory demand and is consequent upon the amendments made to Section 5 of the Act in Clause 3 of the Bill.

At present a creditor can petition for sequestration only if the debt due to him is not less than £750. That is increased by the amendments made in Clause 3 to £1,500. It appears that the Bill does not similarly increase the limit of debt in respect of which a creditor is entitled to serve a statutory demand. If that view is correct, the effect would be that a creditor having a debt of between £750 and £1,500 might serve a statutory demand in the prescribed form on the debtor and that would threaten sequestration when that creditor would have no entitlement by virtue only of the service of the statutory demand to present a petition for sequestration. On one reading of the matter, it appears that something has gone wrong. The amendment is tabled to achieve a measure of consistency in the application of the upper limit of £1,500. I beg to move.

Lord Fraser of Carmyllie

My Lords, the noble Lord has a pleasingly tidy mind on these matters. He is quite correct to draw your Lordships' attention to the fact that under the 1985 Act the same limit of £750 applies to both the statutory demand procedure and to the definition of a qualifying creditor for the purpose of presenting a petition for a debtor's sequestration.

I would, however, invite the noble Lord to consider the differences between the two procedures. Under Section 5(4) of the 1985 Act, as amended by Clause 3(3) of the Bill, two or more creditors may combine together to meet the now £1,500 limit of debt required before a petition for sequestration can be brought by them as "qualified creditors". Thus two creditors, each owed £800, will be able to act together to secure the debtor's sequestration.

However, the statutory demand procedure is restricted to a single creditor. In the example to which I have referred, if the amendment were accepted, neither creditor could take advantage of the statutory demand procedure to establish the debtor's apparent insolvency. They would be forced either to wait until one or other of their debts increased to £1,500, or take the more expensive option of raising a court action to establish the debtor's apparent insolvency. This could significantly limit the options available to a small creditor.

I do not think that a strong case has been made for such a limitation to be imposed on creditors. However, should such a change appear necessary in the future, then my right honourable friend the Secretary of State for Scotland has the option of increasing the present £750 limit by regulations made under new Section 72A.

I hope that my arithmetic is sufficiently accurate for the noble Lord to be able to understand the point that I make. With that explanation, I hope that he will feel able to withdraw the amendment.

7.30 p.m.

Lord Macaulay of Bragar

My Lords, I am obliged to the Minister for his complimentary remarks towards me. Of course I would never accuse any Minister in your Lordships' House of being devious, but what I could say is that the argument is ingenious. I shall look with interest as time goes on at how this particular clause works. I am not quite convinced by the argument. Nevertheless, in view of the undertaking given by the noble and learned Lord as to a review in future as the Act comes into practice, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Speaker (Baroness Lockwood)

My Lords, I must point out that, under the pre-emption rule, if Amendment No. 11 is agreed to, I cannot call Amendment No. 12.

[Amendment No. 11 not moved.]

Lord Fraser of Carmyllie moved Amendment No. 12:

Page 7, line 20, leave out from ("shall") to ("award") in line 21.

The noble and learned Lord said: My Lords, I spoke to Amendment No. 12 with Amendment No. 1. I beg to move.

On Question, amendment agreed to.

[Amendment No. 13 not moved.]

Lord Fraser of Carmyllie moved Amendment No. 14:

Page 7, line 33, leave out ("of presentation of the petition") and insert ("on which sequestration is awarded").

The noble and learned Lord said: My Lords, again when I spoke to Amendment No. 1 I spoke to Amendment No. 14. I beg to move.

On Question, amendment agreed to.

Lord Macaulay of Bragar moved Amendment No. 15:

Page 8, line 16, at end insert: ("(3B) Where sequestration is not awarded in pursuance of subsection (3) above, the court shall recall the appointment of an interim trustee appointed under section 2(5) of this Act and may grant such interim trustee a certificate of discharge which certificate of discharge shall have the same effect as if granted under section 27(5) of this Act." ").

The noble Lord said: My Lords, this amendment has been suggested by the insolvency practitioners. It seeks to provide that, where a sequestration petition is dismissed prior to the award of sequestration, an interim trustee previously appointed by the court will have his appointment formally recalled and a certificate of discharge granted. The position appears to be that, where a creditor presents a petition for sequestration, it is competent for the court, prior to sequestration, to appoint an interim trustee on cause shown.

In many cases the appointment of an interim trustee on warrant to cite will have the effect of prompting the debtor, in order to avoid sequestration, to make arrangements to pay the creditors' debt. If that is done the petitioning creditor will simply move at the sequestration hearing for the petition to be dismissed. However, one of the apparent deficiencies in the 1985 Act is that in this situation, which can also occur where a debtor puts forward a successful defence to a petition under the Act, there is no formal provision for recall of the interim trustee's appointment and for the interim trustee's discharge.

As the Act presently stands, an interim trustee can only get a discharge if sequestration is awarded and a permanent trustee is subsequently elected or appointed. It is pointed out that, in the absence of a nominated trustee who has submitted a letter of undertaking, the provisions of the Bill in Clause 2(6) (b) allow the Accountant in Bankruptcy to be appointed as interim trustee. This amendment would also apply to that particular event. I beg to move.

Lord Fraser of Carmyllie

My Lords, the noble Lord has indicated that an interim trustee can be discharged from liability only if sequestration is awarded and a permanent trustee is subsequently elected or appointed. While I accept that this is true, I am not aware of difficulties having emerged in practice as a consequence of the lack of any specific provision.

Furthermore, the amendment would require the court to grant the interim trustee a certificate of discharge if it dismissed a petition for an award of sequestration without any opportunity for objections to be considered in Section 27 of the 1985 Act, which contains the provisions relating to the discharge of an interim trustee. Where sequestration has been awarded, the interim trustee applies to the Accountant in Bankruptcy for a certificate of discharge. The debtor and creditors have the opportunity to lodge objections to the discharge and the Accountant has discretion whether or not to grant such discharge. I consider that any amendment would have to allow the court the right not to grant a certificate of discharge if the circumstances of a particular case warranted such a decision.

The amendment also does not address other issues which may be appropriate if specific statutory provision were to be made on the termination of the interim trustee's functions in these circumstances, including how the interim trustee's remuneration should be determined and what rights other interested parties should have to challenge the award of discharge to the trustee. Provision of that kind is made in Sections 26 and 27 of the 1985 Act.

The problem that the amendment seeks to address does not arise out of the Bill, but rather from an alleged deficiency in the 1985 Act. If this amendment had been brought to our attention at an earlier stage it may have been possible to consider amendment to the Bill in order to achieve the aim desired by the noble Lord. However, the issue raises other potentially complex matters, which frankly I doubt that we could resolve in the time remaining to us. In those circumstances, I hope that the noble Lord can withdrawn his amendment.

Lord Macaulay of Bragar

My Lords, I am grateful to the noble and learned Lord for his explanation. It seems extraordinary that we have reached this stage in the Bill and looking through the Marshalled List we find that the Government have put down Amendments 24 to 39, no doubt having had a rethink about the matters that have been raised. I see no justification for the Government not taking this particular issue on board with a view to making amendments before the Third Reading of the Bill.

It appears from what the noble and learned Lord has said that he accepts that the interim trustee is really being left in an administrative limbo over which he has no control. If that is so, it would be helpful if the Minister would at least give an undertaking that he will take it away and think about it in principle and, if possible, come back with an amendment that no doubt can be agreed with those interested in this type of activity. In the meantime, having heard what the noble and learned Lord has to say, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 16 not moved.]

Lord Carmichael of Kelvingrove moved Amendment No. 17:

After Clause 4, insert the following new clause:

("Amendment ofs. 16 of 1985 Act

.—(1) Section 16 of the 1985 Act (petition for recall of sequestration) shall be amended as follows.

(2) After subsection (3) there shall he inserted the following subsection—

"(3A) Where a copy of the petition is served in accordance with paragraph (2) above, the interim trustee or permanent trustee shall forthwith notify every creditor known to him, stating that a petition has been presented under this section and that any creditor may lodge answers to the petition within 14 days of the date of the notice from the interim trustee or permanent trustee.")

(3) In subsection (4), paragraph (a) after "of" there shall be inserted "the award of.").

The noble Lord said: My Lords, Amendment No. 17 is a highly complicated amendment. As those of your Lordships who have been listening will have realised, most of the procedures under this Bill have been rather complicated and specialised. There is no complaint about that. I believe that it is the only way we can get a full understanding into the Bill.

In this particular case I have another worry. I am sure that it is my fault and no one else's. In this amendment I would have preferred that the new clause had been divided, and that there was a new clause taking in subsections (1) and (2), and a second new clause, perhaps Amendment No. 17A, taking in subsection (3). I think it was probably my fault, or the fault of someone acting on my behalf, that that was not done. Unfortunately, I therefore find it necessary to take longer than I am sure the House would like me to at this time, but it is a complicated business and very important.

Although I understand its broad outline, it is too technical, without my reading it out, for me to give a clear explanation that would help the Minister to make his reply. The new clause sets out a requirement to advise all known creditors of the presentation of a petition for recall of sequestration. At present Section 16(3) of the 1985 Act requires the petitioner for recall to publish a notice in the Edinburgh Gazette stating that a petition has been presented and that any person having an interest may lodge answers within 14 days of the publication of the notice in the Gazette. A petition for recall is of such significance that there should be a statutory requirement for all known creditors to be notified of the presentation of such a petition.

The insertion of a notice in the Edinburgh Gazette cannot really be regarded on its own as sufficient notification. There have in the past been several instances of recall petitions being granted by the court outwith the knowledge of the creditors. Very often the creditors remain unpaid and will not know their future payment prospects. That outcome must be quite unjust to creditors who may otherwise have lodged an objection to the recall petition, unless they have been assured of repayment.

In practice the interim or permanent trustee is the only party who is aware of the names and addresses of all known creditors. It is known that some trustees will at present notify creditors merely as a courtesy, but this is neither a statutory requirement nor are there any guidance notes to this effect. In Committee a similar amendment was tabled which required the petitioner to ensure that all creditors are advised of the petition for recall. One of the answers given by the Government was that the persons most likely to have an interest in lodging answers would be the petitioning creditor, the interim or permanent trustee and the Accountant in Bankruptcy. It is difficult to know why the Government made that assumption. All creditors are surely interested to know whether their interests are being protected by a continuing sequestration or whether they will remain an unpaid creditor after recall is granted.

The second point made by the Government was that the whole procedure for the recall of an award of sequestration could be held up by additional notification requirements. This fresh amendment attempts to achieve the same result but to impose the obligation on the interim or permanent trustee who will be in possession of the names and addresses of creditors. If a debtor has allowed himself to be sequestrated, there is a strong argument that any small delay to allow all creditors to be notified, and any additional time costs incurred by the trustee, should have to be accepted by the debtor as a necessary part of the proceedings. It is only the debtor who is being disadvantaged, whereas at present the creditors are being disadvantaged.

It has also been suggested by the Government that the responsibility lies on the interim or permanent trustee to lodge answers on behalf of the general body of creditors if he considers that they are to be disadvantaged. It is believed that recall of sequestration is of sufficient importance not to rely on a trustee to act for individual creditors and for individual creditors each to have their individual right to lodge answers, if appropriate. Consideration would have to be given as to the procedure or means by which the interim or permanent trustee could certify that the notice had been issued to creditors since the petition for recall may be by the debtor or a creditor. There is also the necessity for the trustee to comply rigidly with the term "forthwith" or unnecessary delays may be incurred. The third point is whether the period of 14 days is realistic; perhaps 21 would be more appropriate. I hope the Minister will consider that.

It is therefore acknowledged that this amendment can produce procedural problems as regards implementation. It is, however, considered necessary to overcome these minor problems in order to ensure that all creditors in a sequestration are given an individual right to lodge answers by being made aware of the recall petition. Again it is emphasised that the creditors should be given notice of the recall petition and the availability to lodge answers, if appropriate. With such an important issue this responsibility should not be delegated to a trustee who may from a cost point of view be unwilling to incur costs to lodge answers. Legislation at present protects the debtor to the detriment of the creditor and this amendment seeks to redress the balance.

I again apologise to the House for the length of my speech. However, this is rather an important amendment. Perhaps it may be possible to return to this matter at a later stage of the Bill. The effect of new subsection (3) of the proposed new clause is to increase the time limit given to a debtor wishing to present a petition for recall of sequestration on certain grounds from 10 weeks from the date of sequestration to 10 weeks from the date of the award of sequestration.

A debtor may present a petition for recall of sequestration at any time if he brings it on grounds that, first, he has paid his debts in full or has given sufficient security for their payment; or, secondly, a majority in value of creditors reside in a country other than Scotland and it is more appropriate for the estate to be administered in that other country; or, thirdly, that one or more other awards of sequestration of the estate or analogous remedies (as defined in Section 10(5) of the Bankruptcy (Scotland) Act 1985) has been granted.

Where, however, the debtor wishes to bring a petition for recall of sequestration on other grounds a time limit applies. Such other grounds might include challenging jurisdiction, the regularity of service or otherwise the competency of the petition. The present time limit is 10 weeks from the date of sequestration. However, running time forward from the date of sequestration creates problems. In a creditor's petition the date of sequestration is the date when the court grants authority to serve a petition for sequestration on the debtor. Thereafter there will be a sequestration hearing which could be as much as four to six weeks after that date. If for some reason the petitioner was not able to serve the petition on the debtor, he would require to ask for warrant for re-service and a fresh sequestration hearing date would be fixed. In that situation the 10 weeks could easily have elapsed before the debtor even had a chance to challenge the petition in court.

In addition, if the debtor is served with the petition in time for the sequestration first fixed by the court and challenges the petition there could he sundry procedure before the court makes a decision. In that situation the time limit could also have elapsed. What is the debtor to do? This situation arose in a case which I am sure will be familiar to the noble and learned Lord, that is the case of Wright v Tennent Caledonian Breweries Limited 1991 SLT823. The result was that a petition had to be made to the three judges of the Inner House of the Court of Session for, in effect, leave to bring the petition late, there being no other remedy under the Act. The court granted the petition, but it is a time-consuming, expensive and unnecessary procedure for a debtor to have to present a petition to the nobile officium in such circumstances. I and my noble friends believe it makes more sense for the time limit to run from the date when sequestration is actually awarded rather than an earlier date.

As I said earlier, I am sorry I have taken so long to explain the amendment. I take full responsibility for the mix-up to which I have already referred. I feel the Minister will accept the second part of my argument concerning new subsection (3). I beg to move.

Lord Fraser of Carmyllie

My Lords, as the noble Lord has reminded us, we had a useful discussion on the procedures leading to the recall of a petition for sequestration during the Bill's Committee stage. I acknowledge that the amendment before your Lordships reflects some of the criticisms I voiced on that occasion. The noble Lord will accordingly appreciate that I have some sympathy with the idea that the interim or permanent trustee should alert creditors to the existence of a petition for recall. I have greater difficulty, however, in accepting that such notification should become a formal part of the recall procedures.

A particular difficulty raised by the amendment is that it would force the petitioner seeking a recall to be dependent on the actions of a third party, namely the interim or permanent trustee, to notify all the creditors known to him. If for any reason that interim or permanent trustee failed to notify creditors promptly and in the permitted timescale, or, worse, by some accidental error failed to send a notice to a creditor, then the petitioner could find his case delayed or, worse still, dismissed as incompetent because there had been a flaw in the procedure caused by a third party over whom he had no control. The noble Lord will appreciate that such a result would be extremely unfair to the petitioner and could have serious consequences. I do not believe that it is necessary or desirable to run such a risk. Instead, I suggest that the objective sought by the noble Lord might be achieved by less formal means.

As I mentioned at the outset, I have some sympathy with the proposal that the interim or permanent trustees should alert creditors to the existence of such a petition. I understand that some practitioners already notify creditors as a matter of courtesy and good sense. If the relevant professional bodies feel that that practice should be further encouraged, then I would be happy to invite the Accountant in Bankruptcy to address this matter in the notes for guidance which he provides to all interim and permanent trustees. In that way we can ensure that creditors have an alternative route by which they can be made aware of their right to lodge answers to the petition for recall without further complicating the procedures for the petitioner.

I have to take responsibility for a number of matters but I do not take responsibility for the form in which amendments are tabled by the Opposition Front Bench. Within the amendment the noble Lord has included a minor technical change to Section 16(4) of the 1985 Act to allow the period during which a petitioner may bring a petition for the recall of the sequestration to run from the date of the award of sequestration. For the reasons which I have spelt out, I have either to accept or reject the amendment which has been tabled in its entirety. I have to invite the House to reject the amendment in its totality, although I understand the logic which lies behind the noble Lord's approach to that minor tailpiece to his larger amendment.

With that slightly cryptic end to my explanation, I hope that the noble Lord will withdraw the amendment.

Lord Carmichael of Kelvingrove

My Lords, I am grateful to the noble and learned Lord for indicating that he is willing to consider the possibility of notifying the appropriate bodies in Scotland of the advantages and good practice of notifying people individually in the circumstances which we have discussed.

I keep returning to the matter of the Edinburgh Gazette. I cannot help feeling in relation to the recent tragic apparent bankruptcy in Scotland of Lilley that few of the company's creditors, perhaps sitting in Portakabins, would have the Edinburgh Gazette delivered to them every morning to let them know how Lilley was doing. Some of those firms had probably been dealing with Lilley for three generations at least and had no idea that that would happen.

However, I can understand some of the problems which the Minister has mentioned and accept that the matter will be considered by the appropriate bodies. I am sorry that it took so long but it was important to place the issue on the record.

As to the last part of the Minister's remarks, I am trying to make some sense of his cryptic comment and wondering whether there is some other meaning in it. I shall certainly consider the matter with great care before the next stage of the Bill to see how we can deal with it, either in this House or in another place.

I am grateful to the Minister for the time he has given to the matter and for his understanding of my rather longwinded presentation. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Macaulay of Bragar moved Amendment No. 18:

After Clause 4, insert the following new clause:

("Amendment of s. 17 of 1985 Act

.—(1) Section 17 of the 1985 Act (recall of sequestration) shall be amended as follows—

(2) In subsection (3) after paragraph (b) there shall be inserted— (bb) shall recall the appointment of the interim or permanent trustee as the case may be and shall grant a certificate of discharge to the interim or permanent trustee as the case may be which certificate of discharge shall have the effect of discharging the interim trustee or permanent trustee as the case may be from all liability (other than any liability arising from fraud) to the creditors or to the debtor in respect of any act or omission of the interim trustee or permanent trustee as the case may be in exercising the functions conferred on him by this Act"").

The noble Lord said: My Lords, this is a rather technical amendment which is intended to enable the court to make specific provision where sequestration is recalled for the recall of the appointment of the interim trustee or the permanent trustee, as the case may be, and to grant such trustee a discharge.

It appears that as matters presently stand, while the Court of Session may do a great many things, there is no specific provision for the recall of the appointment of the trustee or for him to be granted a discharge. It has been suggested that the Court of Session should be requested to make reference to the discharge of a trustee when recalling the interlocutor, but there is no provision for that in primary legislation. It is suggested that if the court did so it might be acting outwith its powers. Therefore the amendment has been tabled in order to give the court the power in legislation to deal with the matter specifically. I beg to move.

Lord Fraser of Carmyllie

My Lords, I am going through a sympathetic phase at the moment because again I have sympathy with the motives behind the amendment. However, I do not believe that it is necessary to introduce a provision which specifically requires the Court of Session to recall the appointment of an interim or permanent trustee and to grant an automatic certificate of discharge to the interim or permanent trustee on the recall of an award of sequestration.

A power enabling the court to grant a discharge already exists and has its statutory basis in Section 17(3)(c) of the 1985 Act. That provides that the court may make any such orders as it considers necessary or reasonable in all the circumstances of the case. I would advance the proposition that that power is sufficiently widely drawn to deal with the problem which the noble Lord has correctly identified. Moreover, it avoids the difficulty inherent in the amendment which obliges the court to grant a discharge without considering whether it is warranted. The substantive provisions in the 1985 Act relating to the discharge of the interim and permanent trustees provide for objections to the discharge to be considered and, if upheld, a discharge may not be granted. It would seem unreasonable, in contrast, to deny any discretion at all to our supreme court, the Court of Session, having heard representations from interested parties as to the discharge, as the amendment would provide.

I agree with the noble Lord that the power in Section 17(3) (c) may not be utilised as much as it could be in this context. I say to the noble Lord, echoing somewhat what I said in relation to Amendment No. 17, that the Accountant in Bankruptcy has indicated his willingness to draw practitioners' concerns to the attention of the supreme court and to invite it to consider how greater use might be made of Section 17(3) (c) in order to provide a discharge for the trustee in recalled sequestrations.

I believe that that is a more appropriate response to the problem than the amendment proposed, and therefore invite the noble Lord to withdraw the amendment.

Lord Macaulay of Bragar

My Lords, I am grateful to the Minister. We are in danger of being submerged by waves of sympathy. I have no doubt that the words of the noble and learned Lord will be considered with care by those who work in the field of insolvency. Having heard his full explanation, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

8 p.m.

Lord Lyell moved Amendment No. 19:

After Clause 4, insert the following new clause:

("Amendment of s. 21 of 1985 Act

.In section 21 of the 1985 Act (calling of statutory meeting) for subsection (1) there shall be substituted the following subsection— (1) The interim trustee shall call a meeting of creditors (in this Act referred to as "the statutory meeting") to be held within 60 days, or such longer period as the Sheriff on cause shown may allow, after the date of the award of sequestration." ").

The noble Lord said: My Lords, the proposed new clause is set out with commendable brevity. My noble and learned friend and practitioners will be aware that at present under Section 21 of the 1985 Act the interim trustee has only 28 days after the date of the award to hold the statutory meeting. Under the terms of Section 21 of the 1985 Act he has to give not less than seven days' notice to the creditors. That reduces the timescale to 20 days. With weekends or a bank holiday, it is reduced to about 18 days.

The appointment of the interim trustee is normally made at the same time as the award of sequestration is granted. My noble and learned friend will be aware that I touched on the matter in an earlier amendment at Committee stage. The appointment is often not notified to the interim trustee until several days after the event, in particular in the case of a creditor's petition. My noble and learned friend replied mildly at the last stage. However, he will appreciate that by a reduction to 18 days the entire process involves a short timescale in which to obtain all the names and addresses of creditors and to give them not less than seven days' notice of the statutory meeting.

Section 23 of the 1985 Act requires that the interim trustee shall chair that meeting. The difficulties of timescale that I have sought to point out cause problems for the interim trustee who may have congestion of time through his own activities, let alone those of the courts.

In the present Bill, where the Accountant in Bankruptcy is the trustee, Clause 5 allows him not 28 days but 60 days—88 days in all—after the date of sequestration in which to hold the statutory meeting. In the majority of his cases the Accountancy in Bankruptcy would have full knowledge of names and addresses of creditors since the majority of the cases will be debtors' petitions. The debtor will have lodged with the petition a copy of the list of his assets and liabilities.

I hope that I can persuade my noble and learned friend that, while it is reasonable for the Accountant in Bankruptcy to be allowed a fairly long period, it is also reasonable that the private practitioner should be allowed at least equal opportunity. The Accountant in Bankruptcy will already have available to him the addresses of creditors.

If the amendment were to be considered favourably by my noble and learned friend, we do not believe that the extension from 28 to 60 days would prejudice the position of any creditors. For many reasons the interim trustee would wish to assume the role of the permanent trustee as soon as possible. That would be in his own interests and in the interests of the creditors and the debtors. We do not believe that advantage would be taken of the 60-day period. It would be a valuable buffer and of considerable help to many of the private insolvency practitioners, in particular in the event of problems in obtaining names and addresses of creditors. There is also the problem of the chairing of the statutory meeting by the interim trustee due to congestion in his own affairs, in those of the courts and of the creditors and debtors.

I hope that my noble and learned friend will consider the extension of 28 days to 60 days. I do not propose the full 88 days that the Accountant in Bankruptcy needs. We believe that 60 days would provide a valuable benefit to the private practitioner. I beg to move.

Lord Fraser of Carmyllie

My Lords, there is no limit to my receptiveness to reasoned argument. Indeed, I entirely accept the contention that the time limit allowed to insolvency practitioners before a statutory meeting must be held should be increased to avoid burdening the courts with applications to extend the present 28 days. I have no objections in principle to his suggestion—he has argued it carefully—that the limit should be extended to 60 days.

However, I am afraid I cannot accept the amendment tabled. While my noble friend has used Section 21 of the present 1985 Act as the model for the amendment, I regret to say that paragraph 9 of Schedule 1 to the Bill amends that provision in a way which is incompatible with my noble friend's amendment.

However, I accept the merits of the amendment in principle. My noble friend will be aware that new Section 72A provides my right honourable friend the Secretary of State with powers to amend by regulation any reference in the Act to periods of time. I am therefore happy to give to my noble friend an undertaking that the Government will amend the time limit by regulation in early course.

I hope that that is a sufficient degree of victory for my noble friend, and that with that explanation he will agree to withdraw the amendment.

Lord Lyell

My Lords, my noble and learned friend was kind enough to refer to victory. As a long-time supporter of Forfar Athletic, the victory is marvellous. I am grateful to accept my noble and learned friend's assurance. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 6 [Summary administration]:

[Amendment No. 20 not moved.]

Lord Fraser of Carmyllie moved Amendment No. 21:

Page 11, line 15, leave out from ("Bankruptcy") to ("as") in line 19 and insert ("and the court has appointed").

The noble and learned Lord said: My Lords, I spoke to this amendment with Amendment No. 1. I beg to move.

On Question, amendment agreed to.

[Amendment No. 22 not moved.]

Lord Mackay of Ardbrecknish moved Amendment No. 23:

After Clause 7, insert the following new clause:

("Amendment of s. 39 of 1985 Act

.In section 39 of the 1985 Act (management and realisation of estate), after subsection (8), there shall be inserted the following subsection— (9) The permanent trustee shall, until the debtor is discharged under this Act, at the end of—

1. (a) the period of six months beginning with the date of sequestration; and
2. (b) each subsequent period of six months,

require the debtor to give an account in writing of his current state of affairs."").

The noble Lord said: My Lords, Clause 6 of the Bill introduces the summary administration procedure where the duties of the permanent trustee are modified by the new Schedule 2A. The modified duty in Schedule 2A(2) is an additional statutory obligation to what is the present position; namely, to require the debtor to give an account in writing every six months of his current state of affairs. There has never before been a statutory obligation on any permanent trustee to write to the debtor to request a current state of affairs.

It appears somewhat peculiar that the Bill places an obligation on permanent trustees under the modified procedure but that this obligation does not extend to permanent trustees in sequestrations where the summary procedure does not apply. It would seem that there is more justification for that obligation to be applied in non-summary cases. There would almost certainly be more likelihood of income from employment in non-summary cases.

Although many permanent trustees are quite assiduous regarding the question of contributions from income, it is very much left to the discretion of the individual permanent trustee. Recent statistics from the Accountant in Bankruptcy's department indicate that 35 per cent. of debtors are in employment but that only 5 per cent. are contributing from the income of that employment. That would suggest that certain insolvency practitioners may not be addressing the question of contributions and may not even know the current employment status of the debtor. While the debtor is normally advised to inform the permanent trustee of any change in income circumstances, there is no formal mechanism at present to overcome either the lack of knowledge by the permanent trustee or lack of communication by the debtor. That problem has been tackled in the Bill in the modified procedures. My amendment would extend that requirement to all sequestrations. I beg to move.

Lord Fraser of Carmyllie

My Lords, I have listened to the argument that has been impressed upon the House by my noble friend. I accept his argument that there is no reason why this obligation should be incumbent on a permanent trustee and a debtor in a summary case, but not in a non-summary sequestration. Indeed, the Government had expected that it would already be the norm for permanent trustees to invite debtors to provide them with details of their current state of affairs periodically.

I find it difficult to understand how a permanent trustee is able to perform his existing function of recovering, managing and realising the debtor's estate without routinely monitoring the debtor's circumstances. I presume some trustees simply rely on the obligation on the debtor in Section 32(7) to inform them of any new assets or significant change in the debtor's financial circumstances, while others I expect take a more pro-active role. Whichever approach is adopted, I would agree that some monitoring is needed even in summary cases, which is why the Bill allows the permanent trustee no discretion in that instance.

If the relevant professional bodies feel that it is necessary to spell this out as a duty of the permanent trustee, then I am willing to invite the Accountant in Bankruptcy to deal with it as I have suggested in relation to another matter, in his notes for guidance.

I hope that that is helpful to my noble friend and that what I have said will be studied by those relevant professional bodies which have concerned themselves with the Bill.

Lord Mackay of Ardbrecknish

My Lords, I thank my noble and learned friend for his response to my amendment and to the points that I made in introducing it. I very much appreciate that it is good practice to do exactly what my amendment seeks to enshrine in legislation. I am pleased to hear that he is prepared to listen to the relevant professional bodies on the matter. If he feels that further action is required, then that could be incorporated in the notes for guidance. With that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

8.15 p.m.

Clause 11 [Amendments and repeals]:

Lord Fraser of Carmyllie moved Amendment No. 24:

Page 14, line 6, leave out ("subsection") and insert ("section").

The noble and learned Lord said: My Lords, this is a very important, if apparently minor, amendment which is required to cure a defect in Clause 11 of the Bill. I can elaborate if anyone wishes me to do so, but with the assurance that it is important, if minor, I beg to move.

On Question, amendment agreed to.

Clause 12 [Short title, interpretation, commencement and extent]:

Lord Fraser of Carmyllie moved Amendment No. 25:

Page 14, line 23, at end insert ("section 8").

The noble and learned Lord said: My Lords, this is a technical amendment, with the simple purpose of enabling Clause 8 of the Bill to come into force on Royal Assent. This is necessary to ensure that there is a continuation of the underlying power for the Secretary of State to prescribe fees payable to the Accountant in Bankruptcy in respect of functions performed by him under the bankruptcy legislation. I beg to move.

On Question, amendment agreed to.

Schedule 1 [Miscellaneous amendments of the 1985 Act]:

Lord Mackay of Ardbrecknish moved Amendment No. 26:

Page 15, line 4, at end insert: (".In section 3 (duties of the permanent trustee), there shall be inserted at the end of subsection (1) (d)— and to report to the debtor's creditors on the debtor's current state of affairs."").

The noble Lord said: My Lords, there have been representations from many creditor bodies resulting in amendments in this House and in the other place with a view to the creditors having an opportunity to apply to court for a contribution order against the debtor.

To date, the Government have not been inclined to accept such amendments, believing that the permanent trustee alone is in a position to determine, on behalf of the general body of creditors, whether or not a contribution is appropriate.

The amendment sets out to impose a statutory obligation on the permanent trustee to report to creditors on whether the debtor is in a position to contribute to the sequestrated estate. While the Government may not accept that a creditor has an entitlement to apply to the court for a contribution order, this amendment will at least require the permanent trustee to keep the creditors advised of the situation regarding the debtor's ability to contribute to the sequestrated estate.

In some ways, the amendment can be read in conjunction with my Amendment No. 23 which we discussed a few minutes ago and the new proposals on page 11 of the Bill for modified procedures dealing with the debtor being required to tell the trustee every six months what his present position is. It seems to me that even though my noble and learned friend persuaded me to withdraw my amendment, we shall have good practice in addition to what is in the summary procedure which will mean that permanent trustees will know of the debtors' situation every six months or so. They will be in a position to tell the creditors what is the current situation.

My amendment makes it obligatory that such information should be reported to the creditors by the permanent trustee, as he deems it appropriate. As the creditor is a very interested party in any sequestration, it seems only correct that he be kept informed of the debtor's position. That is the objective of my amendment. I beg to move.

Lord Fraser of Carmyllie

My Lords, I entirely agree with my noble friend that creditors should be kept informed of any significant developments in relation to the debtor's financial circumstances. However, I do not consider that the amendment now before the House is the most appropriate means by which to achieve that objective. I hope that my noble friend will allow me a moment in which to explain my anxieties.

If the debtor's circumstances change in the six months between his previous report and the latest one, then it seems reasonable that the permanent trustee should convey this information on to the creditors. If there is no such change in the debtor's circumstances, however, then such a requirement becomes a costly and valueless burden. My worry would be that the wording of the amendment, rather than allowing a discretion, would in fact require the permanent trustee to report to creditors, whether or not there was anything of value to report. Indeed, this obligation may be imposed more often than every six months, since the amendment refers to the "current" state of affairs. Whenever there was any change in the debtor's current state of affairs, it would be a function, and thus duty, of the permanent trustee to inform creditors of that change, if he had knowledge of it.

I would be anxious that we would thereby increase the cost of administering sequestrations in this way. I consider it more appropriate to encourage permanent trustees to inform creditors of the debtor's current state of affairs when there is something relevant to report. In deciding whether a change in circumstances should be reported—and I am sure my noble friend would agree - flexibility and discretion are vital. I believe that these objectives can best be achieved by encouraging good practice, as he said. I believe that, as I said in relation to earlier amendments, good practice could be best encouraged through guidance from the Accountant in Bankruptcy, offering a greater degree of flexibility than a provision on the face of the statute.

I am happy to give to my noble friend and to the House the undertaking that I shall ask the Accountant in Bankruptcy to consider the circumstances where a permanent trustee should or should not be required to report the debtor's latest state of affairs to the creditors and to issue notes of guidance to permanent trustees accordingly.

With that undertaking and the brief explanation of what I see to be the defects in the amendment, I hope that my noble friend will feel that he can withdraw it.

Lord Mackay of Ardbrecknish

My Lords, I thank my noble and learned friend for his response to my amendment. I fully accept and understand the defects in it that he has highlighted. I am grateful to him for the point that he has taken on board that when circumstances change, it is only right and proper that the creditors be informed.

I am delighted that this short debate has led at least to the assurance that the Accountant in Bankruptcy will be asked to look at this, and if necessary put some wording into the notes for guidance which will bring about this good practice. With that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Fraser of Carmyllie moved Amendment No. 27:

Page 16, line 1, after ("one") insert ("(other than the Accountant in Bankruptcy)").

The noble and learned Lord said: My Lords, this amendment seeks to cure a defect in new Section 13 which would disqualify the Accountant in Bankruptcy from acting as an interim trustee in a sequestration. Subsection (6) of Section 13 currently prohibits any person from acting as interim trustee who would be disqualified from acting as permanent trustee by virtue of subsection (2) of Section 24. That provision in Section 24 is itself amended by paragraph 11(3) of Schedule 1 to the Bill to prevent the Accountant in Bankruptcy from being eligible for election by creditors as permanent trustee. The Government believe that where there are sufficient assets in a case to allow creditors to proceed to an election it is right and proper that private sector insolvency practitioners should undertake the work rather than a public official.

While it is, therefore, appropriate that the accountant should be ineligible for election as permanent trustee and should be appointed to that position only in those cases where a permanent trustee is not elected by a meeting of creditors, it is a fundamental tenet of this Bill that the accountant should be empowered to act as interim trustee. As presently drafted, Section 13(6) flies in the face of this principle. This amendment, though small, is central to the essence of the Bill and I commend it to the House. I beg to move.

On Question, amendment agreed to.

Lord Fraser of Carmyllie moved Amendments Nos. 28 to 33:

Page 16, line 35, leave out from beginning to end of line 8 on page 17 and insert:

("Statement of assets and liabilities

.—(1) For section 19 (requirement on debtor to deliver list of assets and liabilities) there shall be substituted the following section—

"Statement of assets and liabilities etc.

19.—(1) Where the petitioner for sequestration is the debtor he shall, not later than 7 days after the appointment of the interim trustee (where he is not the Accountant in Bankruptcy), send to the interim trustee such statement of assets and liabilities as was lodged in court in pursuance of section 5(6A) (a) of this Act.

(2) Where the petitioner for sequestration is a creditor or a trustee acting under a trust deed, the debtor shall, not later than 7 days after having been notified by the interim trustee as mentioned in section 2(7) of this Act, send to the interim trustee a statement of assets and liabilities.

(3) If the debtor—

1. (a) fails to send to the interim trustee in accordance with subsection (1) or (2) above such statement of assets and liabilities; or
2. (b) fails to disclose any material fact in such statement of assets and liabilities; or
3. (c) makes a material misstatement in such statement of assets and liabilities,

he shall be guilty of an offence and liable on summary conviction to a fine not exceeding level 5 on the standard scale or to imprisonment for a term not exceeding 3 months or to both such fine and imprisonment.

(4) In any proceedings for an offence under subsection (3) above, it shall be a defence for the accused to show that he had a reasonable excuse for—

1. (a) failing to send to the interim trustee in accordance with subsection (1) or (2) above such statement of assets and liabilities; or
2. (b) failing to disclose a material fact; or
3. (c) making a material misstatement."").

Page 17, line 10, leave out from beginning to ("after") in line 19 and insert:

(".—(1) Section 20 (duty to prepare statement of debtor's affairs) shall be amended as follows.

(2) For subsection (1) there shall be substituted the following subsection— (1) When the interim trustee has received the statement of assets and liabilities, he shall, as soon as practicable, prepare a statement of the debtor's affairs so far as within the knowledge of the interim trustee and shall indicate in the statement of the debtor's affairs whether, in his opinion, the debtor's assets are unlikely to be sufficient to pay any dividend whatsoever in respect of the debts mentioned in paragraphs (e) to (h) of section 51(1) of this Act. (3) In paragraph (a) of subsection (2) for the words "a copy of the debtor's list" there shall be substituted the words "the statement". (4)").

Page 17, line 44, leave out from ("the") to ("his") in line 1 on page 18, and insert ("statement of assets and liabilities; and (ii)").

Page 19, line 8, at end insert: ("( ) In subsection (1) for the words from "a" to "liabilities" there shall be substituted the words "the statement of assets and liabilities, and a copy".").

Page 19, line 24, leave out from ("including") to end of line 26 and insert ("the statement of assets and liabilities").

Page 24, line 47, at end insert:

("Commencement of summary proceedings

.—(1) Section 68 (summary proceedings) shall be amended as follows.

(2) In subsection (1)—

1. (a) at the beginning there shall be inserted the words "Subject to subsection (1A) below,"; and
2. (b) for the word "6" there shall be substituted the word "12".

(3) After subsection (1) there shall be inserted the following subsection— (1A) No such proceedings shall be commenced by virtue of this section more than three years after the commission of the offence.

(4) In subsection (2) for the words "subsection (1) above" there shall be substituted the words "this section".").

The noble and learned Lord said: My Lords, in moving Amendment No. 1, I spoke also to Amendments Nos. 28, 29, 30, 31, 32 and 33. I beg to move these amendments en bloc.

On Question, amendments agreed to.

Lord Fraser of Carmyllie moved Amendment No. 34:

Page 24, leave out lines 48 to 50.

The noble and learned Lord said: My Lords, this is a simple technical amendment removing from the Bill paragraph 26 of Schedule 1. The provision is no longer relevant as a consequence of the introduction to the Bill in another place of a right for a petitioner to nominate an insolvency practitioner to act as interim trustee in a sequestration in place of the Accountant in Bankruptcy. I beg to move.

On Question, amendment agreed to.

Lord Fraser of Carmyllie moved Amendment No. 35:

Page 25, line 16, after ("(4)") insert ("In subsection (1) in the definition of "statutory meeting"").

The noble and learned Lord said: My Lords, this again is a technical amendment required to clarify paragraph 28(4) of Schedule 1 to the Bill. I beg to move.

On Question, amendment agreed to.

Lord Fraser of Carmyllie moved Amendment No. 36:

Page 25, line 17, at end insert: ("( ) In subsection (1) after the definition of "standard scale" there shall be inserted the following— "statement of assets and liabilities" means a document (including a copy of a document) in such form as may be prescribed containing—

1. (i) a list of the debtor's assets and liabilities;
2. (ii) a list of his income and expenditure; and
3. (iii) such other information as may be prescribed"").

The noble and learned Lord said: My Lords, in moving an earlier set of amendments I indicated that spoke to them in relation to Amendment No. 1. I should have said that I spoke to them in relation to Amendment No. 5. I also spoke to Amendment No. 36 when I moved Amendment No. 5. I beg to move.

On Question, amendment agreed to.

Lord Fraser of Carmyllie had given notice of his intention to move Amendment No. 37:

Page 29, line 16, at end insert: ("( ) After paragraph 5 there shall be inserted the following paragraph— 5A.—(1) A person is not qualified to act as trustee under a trust deed at any time unless at that time—

1. (a) he would be qualified under Part XIII of the Insolvency Act 1986 to act as permanent or interim trustee in the sequestration of the estate of the debtor who granted the trust deed; or
2. (b) he belongs to such class or classes of persons as may be prescribed,

and he satisfies such conditions as may be prescribed; and different conditions may be prescribed for different classes of persons.

(2) A person who acts as trustee under a trust deed at a time when he is not qualified as mentioned in sub-paragraph (1) above shall be guilty of an offence and liable—

1. (a) on conviction on indictment, to a fine or to imprisonment for a term not exceeding 2 years or to both such fine and imprisonment;
2. (b) on summary conviction, to a fine not exceeding the statutory maximum or to imprisonment for a term not exceeding 6 months or to both such fine and imprisonment."").

The noble and learned Lord said: My Lords, as noble Lords will know, it has been a constant theme of the Government in the Bill to encourage the greater use of trust deeds as an alternative to sequestration. Wherever possible we have sought to remove any barriers which might artificially restrict their use. The amendments before your Lordships (Amendments Nos. 37 to 39) follow that theme and would enable my right honourable friend to take action it the present limitations on who may act as a trustee under a trust deed prove to be a restriction of choice in practice rather than an assurance of equality. They would also permit the introduction of greater competition if the costs of operating trust deeds proved excessive.

I am, however, very conscious that there has been very little time available to those most concerned to consider these proposals. While even in that brief time they have gathered some support, I am also conscious that reservations have been expressed as to whether the Government may be proceeding too quickly. Although I have tabled these amendments, on reflection I believe that further consideration of this matter would be beneficial. I do not therefore propose to move the amendments at this time, nor, indeed, when the Bill returns to the House at Third Reading. I wish to place that on the record.

If we find in practice that problems arise from this source I will not hesitate to return to the matter when a suitable opportunity arises.

[Amendment No. 37 not moved.]

Schedule 2 [Repeals]:

[Amendments Nos. 38 and 39 not moved.]