HL Deb 25 January 1993 vol 541 cc1120-8

7.47 p.m.

Read a third time.

Lord Carmichael of Kelvingrove moved Amendment No. 1:

After Clause 3, insert the following new clause—

("Sequestration of other estates.

—(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 subparagraphs (a) to (c) of paragraph 5(1) of Schedule 5 to this Act but has received notification as mentioned in subparagraph (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 or that the partnership has given notice to its creditors as mentioned in paragraph (b) of section 7(1) of this Act.

(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, this new clause was moved at Report stage as Amendment No. 9. It was not acceptable to the Government on the ground that it allowed a partnership to self-certify its own apparent insolvency. The new clause has now been amended to ensure that this self-certification cannot be allowed. The new clause reflects verbatim the provisions of Clause 3 of the Bill in respect of a sole trader. The measures in the Bill allow an individual debtor, including a sole trader, to present a petition to court for his own sequestration without the need for a concurring creditor. The new criteria are listed in Clause 3(2) (b). There appears no reason why other trading entities can be sequestrated and that, for instance, partnerships are not entitled to the same relaxation of the provisions of self-sequestration.

This amendment seeks to introduce a 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. This has caused considerable problems in the past. There have been occasions where one creditor has effected diligence against partnerships in order to obtain a preference. There does not appear to be any reason why the partnership assets should not he protected from diligence in the same way as the assets of a sole trader would be. Consequently it is believed that a trustee in a partnership trust deed should be able to petition for sequestration of the partnership subject to the strict criteria of subsection (4) (c). I beg to move.

The Minister of State, Scottish Office (Lord Fraser of Carmyllie): My Lords, when a similar amendment to the one now before your Lordships was moved at Report stage by my noble friend Lord Lyell, who is not here this evening, I acknowledged that I could understand the logic behind the proposals. At that stage, your Lordships may recall, I felt unable to accept the amendment because it would have established a right for a partnership to constitute its apparent insolvency for the purposes of a debtor's petition by giving notice to its creditors that it had ceased to pay its debts. I acknowledge that the latest amendment deals with that particular point.

Nevertheless, I still find myself unable to accept the amendment. I did indicate during the Report stage debate that the removal of that provision alone would not necessarily make the amendment as revised wholly acceptable. My difficulty with the amendment lies primarily in the fact that this is a complex issue. The matter is brought forward at a late stage in our deliberation on the Bill. The amendment does raise matters of new policy. The present provisions in Section 6(4) of the 1985 Act were introduced following detailed consideration of the implications by the Scottish Law Commission. Based on that consideration, a distinction is drawn in the 1985 Act between these different categories of debtor for the purpose of presenting a petition for sequestration. The amendment before us removes that distinction.

While, as I have said, I can understand the logic behind the proposal, I do not believe we should move without full and careful consideration of the consequences to change the position taken by the Scottish Law Commission. I would have wished to have consulted more widely before accepting this proposal. Unfortunately, that has not proved to be possible in the time available, and I must therefore say that I feel unable to accept the amendment today. With that explanation and understanding of what lies behind the proposal, I hope that the noble Lord will be able to withdraw this amendment.

Lord Carmichael of Kelvingrove

My Lords, I thank the Minister for his reply. While it is true that the amendment has come at rather a late stage in the Bill's consideration, it is unfortunate that the Minister has some sympathy for the purpose of the amendment but feels that, because of the lateness of its arrival, it is not possible for him to carry out the consultation that would be necessary. I can understand that. That is one of the difficulties which we have when dealing with complicated Bills of this kind. However, perhaps some good ideas are thrown up. I am grateful to the noble Lord, Lord Lyell, for having raised the matter originally. The question always is when we shall return to deal with this subject again. Perhaps this matter will be raised in the next law report on this subject. Will the Minister make a point of raising it? No doubt those responsible will look at the Minister's words and not mine and it may be possible to make an improvement at some later stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 [Award of sequestration]:

Lord Carmichael of Kelvingrove moved Amendment No. 2:

Page 8, line 9, at end insert:

("(3A) For subsection (2) there shall be substituted the following subsection— (2) Where a petition for the sequestration of a debtor's estate is presented by a creditor or a trustee acting under a trust deed, the court to which the petition is presented shall grant warrant to cite the debtor to appear before it on such date as shall be specified in the warrant, to show cause why sequestration should not be awarded, and such citation shall be made not less than 6 days before such date.").

The noble Lord said: My Lords, the effect of this amendment is that in the event of a petition presented by a creditor or a trustee under a trust deed, this amendment requires the petitioner to serve the petition on the debtor at any time after the presentation of the petition but not less than 30 days before the date of the sequestration hearing.

Section 12(2) of the Act states that the debtor should be formally served with a copy of the petition not less than six nor more than 14 days prior to the sequestration hearing. There seems no good reason other than historical legislation, why the petition cannot be served more than 14 days before the date of the hearing. It has always been accepted that, while you can give too short a period of notice, you can never give too long a period of notice. The timescale for citation under the Bankruptcy (Scotland) Act 1913 was the same as in the 1985 Act. There is one reported case to which I referred at the earlier stage of the Bill —that is to say, Hill v. Hill (1984) as reported in the Scottish Law Times. The debtor was cited 19 days before the sequestration hearing and the court agreed that that was valid service.

It is sometimes not convenient. Fourteen days in the modern world is probably not as long as some people require. They can be away from their place of business or abroad for two weeks, which is not uncommon. Therefore, they would be unable to appear. Warrants for the re-service of the petition are frequently issued by the courts. This amendment would render many of these warrants for re-service unnecessary since there is a more flexible period prior to the sequestration hearing for the petition to be served on the debtor. It would become practice that the petitioners served the petition as soon as possible, and, if unsuccessful, they would have the opportunity to resolve any difficulties of effecting service.

The vast majority of petitions are through the Sheriff Courts and the practical difficulties involved in those courts should be considered, as opposed to the relatively limited experience of the Court of Session. Statute at present does not impose any strict time constraint for fixing the date for a sequestration hearing. It is the view of the majority of the insolvency practitioners that the present wording of Section 12(2) does not in any way encourage the Sheriff Courts to fix an earlier date for sequestration hearings. The Sheriff Courts will work very much independently from their own timetables.

An earlier date of service of the petition on the debtor would also be sensible in the case where an interim trustee has been appointed at the same date as the warrant to cite was granted. Where the petition for sequestration is against a trading debtor with a going concern, the interim trustee can be in control of the business. As Section 12(2) presently stands, formal service of the petition may not be effected on the debtor until some weeks after the trustee has been appointed. It should therefore be considered poor practice that a debtor can have a court-appointed trustee running his business while not having the right to be served with a copy of the petition which actually appointed that person. I believe that this matter was well discussed last time, but that the Minister said that he would look at the matter again. I beg to move.

Lord Fraser of Carmyllie

My Lords, I understand the logic which has prompted the noble Lord to table his amendment. It does seem appropriate to allow a debtor the maximum notice of a petition for the sequestration of his estate. However, the provision which the noble Lord seeks to amend does more than provide for notice of the petition to be served on the debtor. I believe it is also intended to ensure that a date is specified in the warrant for the hearing of the petition and that date should be no more than 14 days from the date of granting of the warrant to cite; that being the earliest date on which citation could be effected. Such an interpretation is entirely in keeping with the summary nature of sequestration and the need to deal quickly with any petition.

I accept that not all courts share that view and I have tended to operate the provision in the way described by the noble Lord. That can lead to cases being delayed for some time before the petition is finally dealt with. I may be wrong in the interpretation I have put before your Lordships, but I am sure that the noble Lord's amendment would in effect mean that the courts had an entirely free hand to determine when the hearing should be. I fear that might encourage further delays in dealing with sequestration petitions, which I and, I believe, the whole House, will be anxious to avoid. I hope therefore that the noble Lord will understand why I feel unable to accept this amendment.

Lord Carmichael of Kelvingrove

My Lords, I am grateful to the Minister, especially for his last point, in which I can see some force, and the suggestion that the amendment might give the courts too much flexibility. In view of the example that I gave of 19 days being allowed in one case, perhaps the courts themselves will be reasonably flexible. Therefore, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

8 p.m.

Clause 5 [Calling of statutory meeting]:

Lord Carmichael of Kelvingrove moved Amendment No. 3

Page 9, line 34, leave out ("not later than") and insert ("to be held within").

The noble Lord said: My Lords, perhaps it will be for the convenience of the House if we consider also Amendment No. 4. These amendments seek to clarify the position regarding the calling of the statutory meeting of creditors by the accountant in bankruptcy. Both subsections (5) and (6) of Clause 21 make no specific reference to the holding of the meeting. It could be argued that, while the clauses instruct the calling of—that is, the convening of—the meeting, that meeting could be held at any time—months or even years later. While this suggestion might appear nonsensical, the amendments would bring the wording of these subsections into line with the very clear wording of Section 21(1) of the 1985 Act.

Perhaps there is some hidden point which I have totally missed. Although it seems unlikely that a meeting could be called but not held, that is nevertheless something that could happen. I wonder whether the Minister has any answer to that point. I beg to move.

Lord Fraser of Carmyllie

My Lords, while I have listened to the arguments advanced by the noble Lord in respect of these amendments, I am not convinced that they are necessary. It can be seen from the full context of Section 21(A) that the term "call" is not used in any sense of giving notice to those who would attend the statutory meeting. That is provided for in Section 21(A) (7), whereby the creditors are to be given at least seven days' notice by the interim trustee of the date fixed for the statutory meeting. Nor could the expression "call" be interpreted as meaning some unexpressed intention to hold a statutory meeting at some undetermined, future date. Where under Section 21(A) the statutory meeting is to be called, the interim trustee is obliged to do so not later than 28 days after notice. That means that a date for the meeting must be fixed and, indeed, the meeting held within the time limit.

With that explanation of the terminology that is used in this provision, I hope that the noble Lord will accept that, although I understand his point, his amendment is nevertheless unnecessary.

Lord Carmichael of Kelvingrove

My Lords, I am grateful to the Minister. I had thought that there would be a clearer explanation of what I had understood. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 4 not moved.]

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

Lord Fraser of Carmyllie moved Amendment No. 5:

Page 15, leave out line 3.

The noble Lord said: My Lords, this is a technical amendment which removes Clause 1 from the list of provisions under Clause 12(3) which will come into force on Royal Assent. I beg to move.

On Question, amendment agreed to.

Schedule 1 [Miscellaneous amendments of the 1985 Act]:

Lord Carmichael of Kelvingrove moved Amendment No. 6:

Page 17, line 23, at end insert:

("Petitions for recall of sequestration

4A.—(1) Section 16 (petitions for recall of sequestration) shall be amended as follows—

(2) In subsection (4) (a) after the word "of" there shall be inserted the words "the award of".").

The noble Lord said: My Lords, I believe that this amendment is extremely technical. I must confess that I am not fully aware of all the technicalities although I am aware of its total impact. I have, however, agreed to move the amendment so that the Minister can give an explanation.

As I understand it, Clause 3 allows individuals to self-sequestrate with creditor-driven apparent insolvency. I believe that the amendment is trying to say that if it is all right for an individual sole trader to self-sequestrate, the new subsection would allow some entitlement for a trading partner. That is the best that I can do by way of explanation of this amendment which I have been asked to move. I hope that the Minister can cast greater light upon it and help me to understand what it is really about. The people who drafted the amendment are obviously highly experienced, but they have not given quite as much information as I should have liked. I beg to move.

Lord Fraser of Carmyllie

My Lords, I am so overwhelmed by the powerful logic of the argument behind the noble Lord's amendment that I am happy to accept it.

On Question, amendment agreed to.

8.5 p.m.

Lord Fraser of Carmyllie

My Lords, I beg to move, That the Bill do now pass.

The Bill entered your Lordships' House after full and lengthy consideration in another place. It has received further careful scrutiny from your Lordships. I am particularly grateful to those noble Lords who have taken an interest in what is a highly complex and technical piece of legislation. I should like to express my gratitude for their positive and constructive contributions to our debates on the Bill.

Not only in relation to the last amendment, which I was prepared to accept, but also at an earlier stage, noble Lords, including my noble friends Lord Mackay of Ardbrecknish and Lady Carnegy of Lour, have drawn attention to a number of practical matters which have either been dealt with by amendment to the Bill or which can be dealt with subsequently by regulations or by guidance to trustees. I have made that point on a number of occasions.

I believe that as a result of our deliberations the Bill leaves your Lordships' House much improved. I am sure that it will be appreciated in another place that where we have amended the Bill as it left there, no new policy has been introduced. No substantive matter has been introduced which was not previously discussed there. I believe that the amendments have improved the Bill as a whole and I am grateful to those who have contributed towards it achieving that state.

Accordingly, I commend the Bill to the House.

Moved, That the Bill do now pass.—(Lord Fraser of Carmyllie.)

Lord Carmichael of Kelvingrove

My Lords, I should like to thank the Minister for his kind words to the whole House on the improvements that have been made to the Bill. I thank him also for the charming way in which he has handled the passage of the Bill. I am, of course, grateful for having had an amendment accepted.

Perhaps I should have apologised earlier on behalf of my noble friend Lord Macaulay of Bragar who has found it impossible to be present tonight. He would have been the correct person to have handled the passage of the Bill from this side. We have received good explanations about the few amendments with which we have been dealing tonight, and we have had one accepted. That is something about which we should all be glad. Therefore, I shall be pleased to allow the Bill to have its Third Reading.

Baroness Carnegy of Lour

My Lords, as the only Peer speaking from the Back Benches who has taken part in our discussions on this Bill who is not addressing a haggis somewhere about the country tonight, I should like to thank my noble and learned friend Lord Fraser of Carmyllie for the way in which he has conducted the Bill through the House. I thank also the noble Lord, Lord Carmichael of Kelvingrove, for the patient way in which he has entered into our discussions.

I noted that my noble and learned friend the Minister said that the Bill has not been changed in such a way that the other place will find that new matter has been introduced. I am sure that that is right. The Bill has been tidied up and improved and the House should be pleased about what has been done.

Lord Tordoff

My Lords, lest it be thought that we cannot produce any Scots from our Benches, I must offer an apology. I am sure that my noble friend Lord Mackie of Benshie would have been here—he is not devoting himself to the Immortal Memory this evening—if he had not, sadly, had to attend the funeral of a close friend today. He sends his apologies to your Lordships. I am sure that he would want to join in the thanks to all those who have taken part in our discussions on this Bill.

On Question, Bill passed, and returned to the Commons with amendments.

House adjourned at ten minutes past eight o'clock.