Enterprise Bill

HL Deb 29 July 2002 vol 638 cc763-806

8.32 p.m.

House again in Committee

Schedule 15 agreed to.

Clause 237 [Criminal proceedings]:

[Amendment No. 256 not moved.]

Clause 237 agreed to.

Clause 238 [Overseas disclosures]:

[Amendments Nos. 257 and 258 not moved.]

Lord Sainsbury of Turville moved Amendment No. 259: Page 168, line 44, leave out from "must" to end of line and insert "have regard in particular to the following considerations—

1. (a) whether the matter in respect of which the disclosure is sought is sufficiently serious to justify making the disclosure;
2. (b) whether the law of the country or territory to whose authority the disclosure would be made provides appropriate protection against self-incrimination in criminal proceedings;
3. (c) whether the law of that country or territory provides appropriate protection in relation to the storage and disclosure of personal data;
4. (d) whether there are arrangements in place for the provision of mutual assistance as between the United Kingdom and that country or territory in relation to the disclosure of information of the kind to which section 232 applies.

(6A) Protection is appropriate if it provides protection in relation to the matter in question which corresponds to that so provided in any part of the United Kingdom. (6B) The Secretary of State may by order—

1. (a) modify the list of considerations in subsection (6);
2. (b) add to those considerations;
3. (c) remove any of those considerations.

(6C) An order under subsection (6B) must be made by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament.

On Question, amendment agreed to.

[Amendment No. 260 not moved.]

Clause 238, as amended, agreed to.

Clause 239 [Overseas disclosures: criteria]:

On Question, Whether Clause 239 shall stand part of the Bill?

Lord Sainsbury of Turville

Clause 239 requires the OFT to publish criteria to be applied by a public authority in deciding whether to disclose information in pursuance of Section 238. However, in light of the previous government Amendment No. 259, which adds to the considerations to which a public authority must have regard before disclosing information to an overseas authority, this clause is now obsolete. Therefore, I oppose the Question that Clause 239 shall stand part.

Clause 239 negatived.

Clauses 240 to 244 agreed to.

Schedule 16 [Schedule B1 to Insolvency Act 1986]:

Lord Hunt of Wirral moved Amendment No. 261: Page 253, line 30, leave out "rescuing" and insert "preserving the whole or part of the business of

The noble Lord said: In moving Amendment No. 261 I shall speak also to Amendment No. 262. Part 10 of the Bill deals with insolvency. We are here concerned with some significant reforms of the existing law which did not receive sufficient scrutiny in the House of Commons from all sides of the House, and once again it falls to this House to consider them carefully. I hope that the Minister will accept that the amendments that we have tabled are designed to make the changes work in practice. I hope that they will give rise to some interesting discussions.

Schedule 16 contains the detailed provisions relating to the administration of a company. It involves the appointment of a person to manage the company's affairs, business and property in the interests of the creditors of the company. The person appointed to manage the company's affairs, business and property is called an administrator.

Paragraph 3 of Schedule 16 provides that the administrator must perform his or her functions with the objective of rescuing the company, achieving a better result for the company's creditors as a whole than would be likely if the company were wound up or realising property in order to make a distribution to one or more secured or preferential creditors.

However, I am concerned with the objective of rescuing the company. As the Minister, with his experience of business, will know, often the greatest asset of a company is the people whom it employs. It is possible to envisage under the Bill as presently drafted—paragraph 3 of Schedule 16—that, it would be possible to keep and to preserve the company as a shell while the people, the company's most important asset, walk out through the door. Therefore, here we are dealing with the urgent necessity not only of the administrator being able to move to preserve and to rescue the company, but also the business itself.

I believe that rescuing the company on its own is a pointless objective. I have sought to demonstrate that by looking at a possible end result. Perhaps I can give an example. Suppose a company has gone into administration; the administrator of the company has performed his functions with the objective of rescuing the company and has been completely successful so that he is left as the administrator of a company with no debts or liabilities and no assets or business. That is perfectly possible under the present wording. It would mean that he was the administrator of a company that was rescued but the result is entirely worthless. A company that has nothing, does nothing and has no purpose is of no use.

By contrast the objective of preserving all or part of the company's business would be beneficial to the employees of the business, creditors of the company who may be paid out of the proceeds of the sale of the business or from future profits, and of course it would be beneficial to the economy as a whole.

Amendment No. 261 has been put forward by the reconstruction experts R3, the Association of Business Recovery Professionals. I suppose that it is slightly curious that I should be asking the Minister to prefer Amendment No. 262. The noble Lord sits there with such a benign countenance; indeed, Hansard should record that I have just had the benefit of a Cheshire cat smile, which greatly uplifted me in the belief that perhaps he agrees with me that Amendment No. 262 might be the better of the two amendments. But I await hearing from him.

The Government should support the aim of these amendments. I was a little mystified as to why they were unable to do so in the other place. I therefore propose an amendment—Amendment No. 262 is preferred but Amendment No. 261 as an alternative—to focus attention on preserving all or part of the existing business rather than just the company. I beg to move.

Lord Sharman

The name of my noble friend Lord Razzall stands to two amendments in the group. I rise to support the underlying principle behind the group of amendments. Current practice in administration is normally to effect a rescue by the sale of a business or the undertaking, not necessarily by preserving the company. The Bill would impose a primary duty to rescue the company. In that sense I think that it needs revision.

I shall not delay the Committee long. If the Bill passes into law in its current form, administrators will be more cautious about selling businesses in the future than they have been in the past, with the related adverse effect on the economy and on employment as the noble Lord, Lord Hunt, has already said. I support the amendment.

Lord McIntosh of Haringey

I am grateful to the noble Lord, Lord Hunt, for giving me notice that he intended to separate out Amendments Nos. 261 and 262 from the group. It gives me a certain amount of difficulty because I proposed to be sympathetic to one of the two amendments in this group and to several of the amendments in the next group. The arguments for my sympathy are much the same. This group deals with the issue of company and business rescue. The next group deals with a mixture of that and of who is responsible for deciding whether or not certain objectives are reasonably practicable.

I shall confine myself to the first issue of company and business rescue. I have listened carefully to what has been said. Company rescue is at the heart of the revised administration procedure. We want to make sure that viable companies do not go to the wall unnecessarily. That is why we are restricting administrative receivership and revising administration to focus on rescue and to make it more accessible to companies as well as their creditors. That is not just good for the companies themselves; it is also good for their suppliers, customers and employees.

The emphasis on company rescue will create more incentive for company management to take action promptly and use the administration procedure before the situation becomes terminal. That is why the purpose directs the administrator first to perform his or her functions "with the objective of rescuing the company". But if noble Lords will look at paragraph 630 of the Explanatory Notes, they will see that rescuing the company is qualified by, i.e. the company and as much of its business as possible". The amendment has drawn attention correctly to the importance of preserving a business activity in the company and not just rescuing what the noble Lord, Lord Hunt, calls "empty shells". That is our clear policy intention.

The first priority is to rescue the company as a going concern with much of its business intact. We would not want the administrator to rescue the company if it is to the detriment of creditor value. We must be quite clear on that, both for practitioners who need to act on it and for the courts which need to interpret it. So we intend to table an amendment on Report to make clear that the first objective of administration will be to rescue the company as a going concern. I do not have the exact wording. We intend to table an amendment to make clear that the administrator will not be required to pursue the first objective of rescuing the company if the second objective would provide a better result for the creditors of the company as a whole.

By contrast, I am not so sympathetic to Amendment No. 261. It would remove the concept of rescuing the company entirely in favour of preserving the whole or merely a part of the business of the company. The noble Lord, Lord Hunt, will remember the city fathers of Limerick who resolved that the existing city gaol should be replaced, that it should remain in use until the new gaol was ready but that it should be built from the same stones as the existing gaol. I think that we would be unwise to follow that example. But I hope that, with my expression of sympathy for Amendment No. 262, Amendment No. 261 will be withdrawn.

8.45 p.m.

Lord Hunt of Wirral

I am grateful to the Minister. I have already indicated my preference for Amendment No. 262. I am interested in his idea of introducing a phrase similar to "a going concern". I shall want to study the words that he comes forward with if he does not adopt Amendment No. 262, which I would still hope that he might consider. But this is a time to reflect and to return to the matter later. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 262 not moved.]

Lord Freeman moved Amendment No. 263: Page 253, line 30, after "company" insert "and the whole or any part of its undertaking— (aa) where in his opinion it is not reasonably practicable to achieve the result mentioned in paragraph (a), with the objective of rescuing the whole or any part of the company's undertaking.

The noble Lord said: In moving Amendment No. 263 I shall speak also to Amendments Nos. 265 and 267 which were previously grouped with Amendments Nos. 261 and 262 but which have now been separated. I shall be brief because a large part of what I would have said has been much more eloquently said by my noble friend Lord Hunt and by the noble Lord, Lord Sharman.

However, I have one additional point. The sequence of objectives which administrators in my judgment should face lacks an intermediate objective—the first one the Minister has indicated that he is minded to accept an amendment on. The prime objective is to save the company and all or a substantial part of the undertaking. I believe that a second objective should be inserted after that, which is that if the administrator cannot save both the company and the undertaking then he should try to save the whole or part of the undertaking. Then third and fourth priorities are as set out in the Bill—a better result for the creditors than in a winding-up and to realise property for one or more secured creditors or preferential creditors.

The proposed amendment is a refinement—an additional minor but important point—to the amendment that the Minister has indicated that he might accept.

I remind the Minister that most administrators end up by saving part of all of the undertaking and not the company. That is the reality of the situation today. My amendment addresses that. I beg to move.

Lord McIntosh of Haringey

We are now into quite a large group which includes the issues that I referred to briefly in passing about who is responsible for deciding whether particular objectives are reasonably practicable or not.

I deal with the amendments in this group in turn. Amendment No. 263, which the noble Lord, Lord Freeman, has just moved, would insert a new objective so that if rescuing the company was not reasonably practicable, next down the hierarchy would be to rescue the whole or part of any of its undertaking. Rescuing businesses is exactly the kind of outcome that the second objective is already intended to recover. If it is not reasonably practicable to rescue the company, selling the constituent businesses as going concerns will almost always be the next best thing. I hope that that will reassure the noble Lord, Lord Freeman, that the effect of the provision as drafted will be to cover and give priority to business rescues, as he intends.

I should like to take away for consideration Amendments Nos. 264 to 268. The new purpose for administration has a hierarchy of objectives, as the noble Lord, Lord Freeman said, and choices within that hierarchy are governed by the test of what is "reasonably practicable". The amendments would make it clear that it is for the administrator to decide whether or not a particular objective is reasonably practicable. I agree that that is what should happen in practice. The administrator is the person on the ground who is best placed to judge whether or not a particular objective is reasonably practicable, in the light of his experience and professional judgment.

We think that, as it stands, that is how the provision would work. It is not the practice of the courts to second-guess the commercial judgment of administrators in such cases, and we would not expect the provisions to be interpreted in that way. But I have listened to the concerns expressed, and I think that it would be helpful if we reconsidered the Bill's drafting to make our intentions clear. I intend to table an amendment on Report to make it clear that the test for moving from one objective to the next will be whether or not the administrator thinks it is reasonably practicable—that is, it will be for the administrator to reach a conclusion as to whether or not the objectives are reasonably practicable, taking into account all the circumstances of the particular case of which he or she is aware at the time.

Amendments Nos. 329A, 329B, 329C, 329D, 331A, 331B, 331C and 358A would make decisions by the office-holder subject to the test of what he "reasonably believes" rather than what he "thinks". That is a part of parliamentary counsel's drafting that we should be wary of questioning. The present wording would mean that if the administrator's view were then to be tested, it would be subject to a "rationality" test—that is, his decisions would be subject to successful challenge if it could be shown that no reasonable administrator would have acted in such a way in the particular circumstances of a case.

As I said, we do not think that the courts should or will second-guess the administrator's professional or commercial judgment in exercising his or her dudes. The administrator is best placed to determine what is appropriate. Again, that is without prejudice to the rights under paragraph 74 of creditors or members to challenge the administrator's decision where that decision has unfairly prejudiced his or her interests. That is why we prefer our wording to that proposed in the amendments.

Having expressed my sympathy for Amendments Nos. 264 to 268, I hope that Amendment No. 263 will not be pressed.

Lord Hunt of Wirral

I am grateful to my noble friend Lord Freeman for having moved Amendment No. 263 and spoken to this group of amendments. I am equally pleased that the Minister has agreed to reconsider. It is so important not to allow scope for vexatious actions by parties who with hindsight take a view that the administrator ought to have taken a different course of action.

However, I hope that the Minister will reconsider the draftsman's wording of "thinks" rather than "reasonably believes". I leave him with the thought that an objective rather than a subjective test is a better way forward. He has agreed to ponder, although he is still reluctant to change the present wording. However, I thank him very much for the manner in which he has approached this group of amendments, which I am sure will result in a better outcome than would otherwise have been the case.

Lord Sharman

I add my commendations to the Minister on the way in which he has approached the matter. It is wholly right that we should consider the matter. I endorse what the noble Lord, Lord Hunt, said about changing the word "thinks", to "reasonably believes". I, too, believe that a positive rather than a negative construction is required.

Lord Freeman

I am also grateful to the Minister and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 264 to 268 not moved.]

Lord Hunt of Wirral moved Amendment No. 269: Page 255, line 8, after "debts" insert "(within the meaning given to that expression by section 123)

The noble Lord said: I should have thought that it is necessary to try to keep to a clear statutory definition, but it will be interesting to hear from the Minister why he believes that the provision needs to be as wide as drafted. I beg to move.

Lord Sharman

We support the amendment. The important thing is that we maintain both the balance sheet and cash flow aspects of the definition of debt. All that the amendment would do is bring the provision into line with the relevant sections of the Insolvency Act 1986.

Lord McIntosh of Haringey

I agree entirely with those arguments, but the amendment is unnecessary because on page 287, paragraph 111(1) of Schedule 16 already provides: 'unable to pay its debts' has the meaning given by section 123"— of the Insolvency Act 1986.

Lord Hunt of Wirral

I am grateful to the Minister for pointing out that I was trying to remove any doubt that that was the case. I should now like to ponder his emphatic and robust response and, in the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Hunt of Wirral moved Amendment No. 270: Page 255, line 20, at end insert—

"() An administration application shall give the name of the person the applicant proposes to be appointed administrator and shall be accompanied by a statement by that person—

1. (a) that he consents to act if appointed;
2. (b) that in his opinion the purpose of administration is reasonably likely to be achieved; and
3. (c) giving such other information and opinions as may be prescribed;

and for the purposes of a statement under this sub-paragraph, that person may rely on information supplied by the directors of the company (unless he has reason to doubt it accuracy)."

The noble Lord said: I rise to move Amendment No. 270, with which are grouped Amendments Nos. 276 and 287. Amendment No. 270 was suggested by the Law Society. It would require applications for administration made through the court to be accompanied by the proposed administrator's consent to act and a statement from the proposed administrator that, in his opinion, the purposes of the administration were reasonably likely to be achieved.

What I am really seeking to discover from the Minister is where we are with the rules to deal with such matters. In the other place, it was said that the rules were being prepared and it would be helpful to know the exact present position and whether we may see the rules before Report.

Amendment No. 276 would insert, at the end of line 31, A statement under sub-paragraph (3) must be signed by the administrator".

The requirements set out in paragraphs 13 to 20 of Schedule 16 contain provisions relating to the appointment of an administrator by the holder of a floating charge. Paragraph 13 gives the holder of a floating charge power to appoint an administrator; and paragraph 17 sets out the requirements for his appointment. The person who appoints an administrator must file a notice of appointment and such other documents as may be prescribed by the court. The notice of appointment must include a statutory declaration and be accompanied by a statement by the administrator, inter alia, that he consents to the appointment. Paragraph 18 provides that the appointment of the administrator takes effect when the requirements of paragraph 17 are satisfied.

Those requirements will be satisfied only when the person who appoints the administrator of the company has filed the notice of appointment—and such other documents as may be prescribed—with the court. It is only upon filing with the court that the appointment becomes effective.

We should consider the problem that would be caused if an administrator were appointed at 4.30 p.m. on a Friday. Such an appointment may be urgently necessary for commercial reasons, as it would give the administrator the entire weekend to get himself into a position to manage the company's affairs, business and property by Monday morning. That frequently happens at present, when the holder of a floating charge appoints an administrative receiver. It will now be impossible. If a decision is made to appoint an administrative receiver at 4.30 p.m. on a Friday, it will be impossible to file the notice of appointment and such other documents as may be prescribed in court because the court will be closed. The administrator will, therefore, be unable to start taking over the management of the company's affairs, business and property until the court opens on the Monday morning. During the weekend, goods not paid for will be repossessed; landlords will exercise their rights of forfeiture by peaceable re-entry; and various items of equipment might go missing. The entire business could be lost. It may prove difficult or impossible to save the business by the following Monday.

It is essential, therefore, that the appointment of an administrator should take immediate effect without the necessity to file documents with the court. The amendment would achieve that by inserting a new sub-paragraph in paragraph 17 requiring the statement by the administrator that accompanies the notice of appointment to be signed by the administrator. The amendment to paragraph 18 would provide that the appointment of the administrator would take effect when the statement was signed by the administrator.

Amendment No. 287 would also insert the words, A statement…must be signed by the administrator".

It is similar. The present provision should be amended to provide that the appointment takes effect when the statement accompanying the notice of appointment is signed by the administrator. The appointment could then take place at the weekend.

I hope that the Minister understands the way in which I approach the amendments. If there is another way in which he can satisfy me, I look forward to hearing it. With the Bill in its present form, we have a difficult potential problem. I beg to move.

9 p.m.

Lord Sharman

I shall speak to Amendment No. 270, which deals with the consent of the person who is to be the administrator to his appointment. At this stage, I shall not address the issue of timing; it is covered by other amendments.

My principal purpose in supporting the amendment is to ensure that the administrator knows that he is being appointed and is appointed with his consent. As the Bill stands, it is feasible that an administrator could be appointed without knowing it. That would be wholly unwise.

Lord McIntosh of Haringey

I have no difficulty with much of what has been said. However, the matters raised by the amendments are really matters for the insolvency rules, rather than primary legislation. The noble Lord, Lord Hunt of Wirral, recognised that when he asked where we were with the insolvency rules. The difficulty is that they cannot be finalised until the Bill is in its final form. In other words, we cannot produce something to put out for consultation until we have a Bill.

I appreciate the desirability of offering draft insolvency rules to the Opposition while the Bill is progressing, but I do not want to prejudice the necessary consultation with the experts. If the noble Lords, Lord Hunt of Wirral and Lord Sharman, will forgive me, I will say simply that I recognise the importance of consent and signatures. We will amend the insolvency rules to effect those changes. It is probably a step too far to say whether the insolvency rules will then behave exactly as the amendments propose.

The amendments do not deal with the interesting and important issue of the Friday night application, raised by the noble Lord, Lord Hunt of Wirral. That is dealt with by the amendments in the group led by Amendment No. 275. I do not mind jumping the gun, if other noble Lords do not mind my doing so. The appointment of an administrator must take effect at the point at which the notice is filed in court. One of the effects for a company entering administration is that it becomes subject to a moratorium on legal and other proceedings. The court must be made aware of the point at which the administrator's appointment takes effect. That is the starting point.

It is also important that the court should underpin the administrative procedure, including cases in which the administrator is appointed by one of the out-of-court routes. We have provided that all administrators will be officers of the court, and that will give the court supervisory jurisdiction over them. It is right that the filing of the notice should be the trigger for their appointment.

The Friday night issue is valid. We want to make sure that administrators can act quickly and effectively. We must make sure that the arrangements for appointing administrators reflect practical realities and take account of cases in which time is of the essence, as the noble Lord, Lord Hunt of Wirral, said. Officials are working with colleagues in the Lord Chancellor's Department, the Court Service and the devolved Administrations to develop options for making court filing quick and accessible, including provision for filing documents outside normal court opening hours, when that is necessary.

I hope that that is a suitable response, not just to this amendment but to the later amendments.

Lord Freeman

I anticipate that I will not speak later to an amendment to which the Minister referred. I welcome what he said. Will he comment on the proposal that has been circulating for some kind of fax-back arrangement? That would be a recognition by officers of the court that proper notice has been given, so that an administrator can proceed, if necessary, over the weekend.

Lord McIntosh of Haringey

That is one of the options that Department of Trade and Industry Insolvency Service officials and officials from the Lord's Chancellor Department and the Court Service can consider. It makes good sense to me.

Lord Sharman

I had intended to speak to the issue when we came to the group led by Amendment No. 275. As it has been raised now, I must say that the practical experience is that those who seek to avail themselves of the assets of insolvent companies do not always pay attention to the niceties of the law. It is critically important that the administrator should be able to secure premises and the like. To do so, he needs the force of the law behind him. I hope that the Minister will, as he says, consider seriously this "weekend problem", as we might graphically describe it.

Lord McIntosh of Haringey

I agree entirely.

Lord Hunt of Wirral

We might have a way forward in looking at rules. As the Minister rightly said, the Bill is not yet in its final form. The rules to which he refers are almost certainly in draft form at the present time and are therefore not in their final form. Surely it is appropriate that the draft rules should be circulated to the Opposition Benches, and, indeed, to the Government Benches, so that we have an opportunity to look at them and to see the extent to which our fears are met by the detail of the rules. I do not expect the Minister to respond now, but perhaps he might think about my suggestion.

We respect that the rules would be in draft form and we agree that in no circumstances must the consultation he prejudiced in any way. The Minister has been forthcoming in responding so positively to this debate, which is linked with the later debate on Amendment No. 275. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 271 not moved.]

Lord Kingsland moved Amendment No. 272: Page 256, line 37, leave out "two" and insert "five

The noble Lord said: In moving the amendment I shall speak also to Amendment No. 273. Amendment No. 272 is about timing. The extra days' notice to floating chargeholders would make the time limit more manageable. Amendment No. 273 is also about timing. Its purpose is to ensure that no delay should occur in urgent cases where all the competing secure creditors agree. I beg to move.

Lord McIntosh of Haringey

The reason we have a two-day notice period for the holders of prior floating charges is to make it compatible with the notice requirements for companies or their directors appointing administrators by the out-of-court route. A company has to give five days' notice to floating chargeholders before appointing an administrator. That allows the floating chargeholder the opportunity to appoint his own choice of administrator if he so decides. Before appointing, the floating chargeholder will have to give notice to the holder of any prior charges. To give those prior chargeholders five days' notice would take them beyond the date that the company or its directors could appoint their own choice of administrator. That is why we want a shorter period.

The issue behind Amendment No. 273 was raised in the Commons. We tabled an amendment on Report to make sure that a prior floating chargeholder was able to consent in writing, in which case the full two-day period would not be necessary. That government amendment is now paragraph 14(1)(b).

Lord Kingsland

It sounds as though the Minister has some good answers. I shall reflect on them, and meanwhile beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 273 not moved.]

Lord Kingsland moved Amendment No. 274: Page 257, line 11, after "appointed" insert "on a winding-up petition presented by a creditor

The noble Lord said: In moving the amendment I shall speak also to Amendments Nos. 284 and 285.

Lord McIntosh of Haringey: Not to Amendment No. 286?

Lord Kingsland

I am not sure that I shall speak to Amendment No. 286, unless the Minister has a major concession to make on it. He is shaking his head, so I shall leave him to reflect on it over the summer.

The purpose of the provisions is to permit secured creditors, whose loan is in default, to proceed quickly and cheaply to appoint an administrator of their choosing. Where a provisional liquidator has been appointed on a creditor's winding-up petition, it is fair to require that the secured creditor should apply to the court for the appointment of an administrator, who will, in effect, replace the provisional liquidator.

However, it would be wrong, in principle, to have such a requirement where the provisional liquidator is appointed on the company's own petition. It is acutely undesirable that the company should be given a further opportunity to compete with the secured creditor over the choice of the insolvency office holder.

I have two observations on Amendments Nos. 284, 285 and 286—if I may draw Amendment No. 286 into the family. First, in a so-called rescue culture there is much to be said for not limiting the remedies available to all stakeholders in any way. Regardless of history, the board of a company might, legitimately, take the view that, in the circumstances currently facing the company, the appropriate course of action would be to take the company into administration. Serial protection seekers will get into quite enough trouble without needing this provision as well.

Moreover, if paragraph 23 remains, we should prevent directors circumventing the clause by lending the company a nominal amount secured by fixed and floating charges over the whole of the assets and then appointing an administrator under paragraph 13. I beg to move.

9.15 p.m.

Lord Sharman

I support Amendment No. 274, to which my noble friend Lord Razzall has added his name. I will add nothing to what was said by the noble Lord. Lord Kingsland; he said it far more eloquently than I could.

Lord McIntosh of Haringey

I appreciate the concern expressed by the noble Lord, Lord Kingsland, that the floating chargeholders should not be prevented from using the new quick out-of-court route for putting a company into administration if a provisional liquidator has been appointed following a petition by the company. But under the proposals in the Bill the provisional liquidator will not have been appointed by the company but by the court, which will have decided that it was right to do so. Therefore, given that the provisional liquidator is a court appointee, it would not be right for a floating charge holder to be able to displace him or her without a court hearing. In those circumstances, it would be open for the floating chargeholder to apply for administration through the court, but not in the way that Amendment No. 274 would provide.

As regards Amendment No. 284, I share the aim of making administration as accessible as possible to companies which get into financial difficulties. However, we believe that the prohibition we have included—that is, against using the out-of-court route in the 12 months following the end of an unsuccessful attempt to put in place the company's voluntary arrangements—is a necessary protection to prevent a small minority of unscrupulous companies and directors from making serial use of moratorium procedures to the detriment of their creditors.

If there are genuinely good reasons for the company to go into administration during this period, it can apply through the courts, but it should not be using the out-of-court route here. That strikes the right balance between protecting the interests of creditors and ensuring that administration is accessible to companies and their directors.

Amendments Nos. 285 and 286 are different versions of the same thing. I fully support the principle behind them but they are not necessary. The matter has been dealt with elsewhere. Section 245 of the Insolvency Act 1986 deals with situations where a company gives connected parties floating charges. Where a charge is granted to a connected party in the two years before an administration, Section 245 provides that it is invalid except for the value of moneys lent to the company at the time when the charge was created.

If only a nominal sum was lent for the purpose of establishing a floating charge, the floating charge would be valid for that nominal sum. However, it would be unlikely to relate to the whole, or substantially the whole, of the company's property, so it would not entitle the holder to appoint an administrator by the out-of-court route.

Lord Kingsland

I am grateful to the noble Lord who is, however, proving uncharacteristically obdurate today. It seems to me that, under Amendment No. 274, there is an important distinction to be made between the situation where a secured creditor applies to the court for the appointment of an administrator and that where the provisional liquidator is appointed under the company's own petition. That distinction is not made under the Bill and I hope that, over the summer adjournment, the Minister will think again about its importance. Meanwhile, beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Hunt of Wirral moved Amendment No. 275: Page 257, line 16, leave out "with the court" and insert "on the next day the court office is open

The noble Lord said: As the Minister has pointed out, we dealt with a substantial part of this group of amendments in an earlier debate. The previous amendment was withdrawn on the clear understanding from the Minister that arrangements for filing need to follow practical realities, particularly where timing is of the essence.

Perhaps I may deal with the other amendments in the group, particularly Amendments Nos. 281, 282 and 283. They are technical amendments designed to ensure that the administrator's appointment does not come into effect before he is aware of it. With those provisos, and referring hack to the previous issue, I beg to move.

Lord Sharman

We debated these amendments earlier. I want simply to reiterate what I said then. The weekend problem is a very real one, as is the issue of an administrator acting without knowing that he has been appointed. I hope that the Minister will take these matters on board.

Lord McIntosh of Haringey

I can certainly give an assurance that ways will be found of ensuring that the administrator knows that he has been appointed. There will be no difficulty about that.

As regards the discussions on taking account of cases where time is of the essence, to which I have already referred, if any progress has been made in the inter-departmental discussions I shall write to noble Lords opposite before we reach the Report stage. I hope that it will be possible to do so.

Lord Hunt of Wirral

In the light of that assurance, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 276 to 291 not moved.]

Lord Hunt of Wirral moved Amendment No. 292: Page 262, line 20, at end insert "or stay any voluntary winding-up of the company

The noble Lord said: This is a technical amendment to ensure that paragraph 37 applies equally to compulsory and voluntary liquidations. I look forward to the Minister's response. I beg to move.

Lord McIntosh of Haringey

I believe that this point was answered in the debate in the other place. If a company is in liquidation, a court may make an administration order only on the application of the liquidator. Paragraph 37(2)(c) then allows the court to make any other consequential provision as may be necessary. That could include an order to stay a voluntary winding-up.

Lord Hunt of Wirral

In the light of that explanation, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 293 and 294 not moved.]

Lord Kingsland moved Amendment No. 295: Page 267, line 35, after "proposals" insert ", a copy of the statement of affairs and a list of the creditors of the company of whose claim he is aware giving the name and address of and the amount of the claim by every such creditor

The noble Lord said: Under paragraph 48 of Schedule 16, the administrator of a company is obliged to send a statement of his proposals for achieving the purpose of the administration to every creditor of the company of whose name and address he is aware. This is an important document because it will be considered by the creditors at a meeting and may be approved by them, either without or with modification, provided that the administrator consents to the modification. The administrator then manages the company's affairs, business and property in accordance with those proposals. They form, in effect, the basis of the future conduct of the administration.

We believe that it is essential for the creditors to be sent a statement of the company's affairs prepared pursuant to paragraph 46 so that they can make a proper decision as to whether to approve the administrator's proposals. The statement of the company's affairs should contain a comprehensive account of the company's financial position. Furthermore, it is essential that that should be made available to the creditors before the creditors' meeting. The creditors cannot make a reasonable decision on the administrator's proposals without such financial information. We therefore believe that the statement of affairs should be sent out with the administrator's proposals.

We also feel that it would be appropriate for creditors to be sent a list of names and addresses of all the other creditors and the amounts of their claims. We think that this is also an important document and one to be sent at an early stage so that creditors can identify other creditors with a view to summoning a creditors' meeting.

Under paragraph 51, the administrator need not call an initial creditors' meeting to consider his proposals if, for example, he forms the view that the company has insufficient property to enable a distribution to be made to unsecured creditors. However, paragraph 51(2) provides that the administrator shall summon an initial creditors' meeting if it is requested by creditors of the company whose debts amount to at least 10 per cent of its total debts. A creditor who wants the administrator to summon an initial creditors' meeting must be able to contact other creditors with a view to joining with them so that their debts amount to at least 10 per cent of the total debts of the company. Creditors will also need to know what the total debts of the company are, and that should also be apparent from the statement of affairs and from the list of creditors.

In short, we believe that it is essential that the creditors are sent a list so that they can take steps to request an administrator to summon a creditors' meeting for the purpose of approving the administrator's proposals. I beg to move.

Lord McIntosh of Haringey

Although the noble Lord, Lord Kingsland, has moved only Amendment No. 295, I shall have to respond also to Amendment No. 294 because the two are linked.

I can now do a little better than saying, "This is a matter for the insolvency rules, copies of which we shall get to noble Lords as soon as possible", because this issue is already covered by the insolvency rules. Rule 2.16 requires an administrator to send a copy or a summary of the statement of affairs along with his or her proposals.

As to the list of creditors, the administrator will need details of the company's creditors in order to notify them of his or her appointment and, in due course, to send them copies of his or her proposals and to invite them to a creditors' meeting if one is to be held. This information may not be held by the company in the form of the list required by the amendment, but once it has been assembled and given to the administrator it will constitute a list for the purposes of the provision. It will, after all, have been drawn principally from the company's own records. So I can give an even firmer assurance that the insolvency rules will cover both of these points.

Lord Kingsland

That is a most refreshing response. I thank the Minister, and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

9.30 p.m.

Lord Hunt of Wirral moved Amendment No. 296: Page 267, line 36, leave out "28 days" and insert "three months

The noble Lord said: We move now to some very important amendments dealing with time-scales. In moving Amendment No. 296, I shall speak also to Amendment No. 297.

Paragraph 48(4) provides that the administrator is under an obligation to send a copy of the statement of his proposals for achieving the purpose of the administration to the registrar of companies, to every creditor of the company and to every member of the company within a relatively short period of 28 days. I believe that to be an unrealistic period for the following reasons.

We are referring to a very important document because, if approved by the creditors' meeting, the administrator must manage the company's affairs, business and property in accordance with the proposals in the document. The statement of his proposals will have to be a detailed document setting out the history of the company, its present financial position and the future plans during the administration and give sufficient financial information to enable the creditors to form a view as to whether or not they should approve the proposals.

Gathering the factual information for this statement of proposals will of course take some considerable time if it is done properly. The facts will need to be considered once the information has been gathered and decisions will have to be taken as to how to manage the company's affairs, business and property. Once those decisions have been taken, the relevant factors and the grounds for the decision will have to be put together in the statement. It then has to be printed, and sent out to all the creditors.

Therefore, we are talking about an extremely important exercise. On reflection, I believe that the Minister will conclude that it is unrealistic to expect an administrator to be able to prepare such a document within the relatively short period of 28 days. Of course, if he manages to do so, the doctrine of "more haste, less speed" may well come into operation. Although the administrator may well have complied with the time limit in this paragraph, the quality of the statement of his proposals will surely have suffered as a consequence. Indeed, in the more complex cases, or where there are thousands of creditors, the time limit of 28 days is, I believe, completely unrealistic.

The Minister may tell me and the Committee that the time limits can be extended under paragraphs 107 and 108 of the schedule either by the court, or with the consent of each secured creditor of the company or a majority of the creditors by value. However, I believe that it would be unrealistic to expect to obtain the informed consent of the creditors of the company before the time limit has expired, especially if there are thousands of creditors. Therefore, under the present provisions, it will surely become common practice for administrators to apply to the court for an extension of the 28-day time limit.

I can envisage circumstances in which the application would have to be made in almost every administration. Of course, if that application is to be made properly, the court will have to be put fully in the picture by being given all the relevant facts so that it can make up its mind as to whether or not to grant the extension of time. I suspect that such an application will need as much detail as is presently required for a petition for an administration order. Anything less than that sort of detail would be mere rubber-stamping, which would increase costs for no conceivable effect, or benefit. If the court then refuses the extension of time, as no doubt it should if insufficient evidence is put before it, the position would then become even more impossible because the application to the court will have wasted several days.

Although I understand the wish to produce a package of reforms that will speed up the whole process—and, indeed, sympathise with it—I hope that the Minister will accept that the present period for the approval of an administrator's proposals when an administration order is made is three months. That is a much more sensible period. As far as I am aware, there has been no criticism of that period. Therefore, in the absence of any criticism, I wonder why we should seek to change so dramatically to a period of 28 days.

Paragraph 50 of the schedule provides that the initial creditors' meeting, must not be after the end of the period of six weeks beginning with the date on which the company enters administration".

If we extend the period for sending out the statement of the administrator's proposals to creditors, it will be necessary to hold the initial creditors' meeting at a later date. In Amendment No. 297, I have suggested that the period of four months to hold that initial creditors' meeting ought to be sufficient, given the fact that the administrator will have had three months within which to prepare a statement of his proposals. That will allow the creditors a month to consider those proposals and form a view for the purposes of the initial creditors' meeting.

In conclusion, those who have any experience of administration will know that the first few weeks of the process place enormous demands upon the administrator. As we discussed earlier, his first priority will be the stabilisation of the business. I hope t hat the Minister will look favourably on these amendments, which I believe will considerably improve the proposed legislation. I beg to move.

Lord Sharman

I rise to speak briefly to Amendments Nos. 296 and 323 in this group.

The noble Lord, Lord Hunt, has spoken eloquently about the need for balance in this approach. I believe, based on some considerable experience of these matters, that the time-scales are unrealistically short. In my view, they will lead to significant numbers of applications being made to the court for extensions. That will give rise to more costs and will take up more time for insolvency practitioners and creditors. It will inevitably mean a return to the kind of time-scales that we have now. The noble Lord, Lord Hunt, did not use the expression but, "If it ain't broke, why fix it?" That is the message that I leave with the Minister.

Lord Mitchell

I should like to speak to my Amendment No. 321, which is in this group. In doing so, I declare several interests. First, I am chairman of Syscap plc, which leases, rents and hire purchases high-technology equipment, as is set out in my declaration of interests. My company is also a member of the Finance & Leasing Association, and I have been working closely with the association, which is very interested in the Bill.

The Bill states that the appointment of an administrator shall finish at the end of three months. I welcome the sentiment behind this time limit, which means that the administrator will no longer be able to enjoy an unlimited period for the completion of administration. But there is no evidence that the majority of administrations are completed within three months. There are often legitimate reasons why cases cannot be completed within this time-scale. We do not have to look too far. We have seen what has happened recently with Railtrack and Ondigital.

In the vast majority of administrations, the administrator would need to apply for a time extension. The Bill currently proposes that this will be for only a further three months. I believe that this would be a wholly unsatisfactory and impractical arrangement. Its consequences are best illustrated by a simple example. If we consider a 10-year administration under the Bill's current proposal, the administrator would need to apply to the courts for time extensions no fewer than 39 times. I am confident that the Minister will agree that this would place unreasonable pressure both on the courts and on the administrator.

This amendment leaves the three-month limit in place; but it offers a more realistic and flexible working alternative. Indeed, it is far more realistic than the present arrangement. The court would need to carry out a rigorous review of applications for a 12-month extension, and grant them only where absolutely necessary. In contrast, as the Bill currently stands, a three-month extension period is likely to become a "rubber-stamping" exercise.

Lord Freeman

I find myself in sympathy with the arguments of the noble Lord, Lord Mitchell. As the Bill stands, we have moved from a situation which was probably too loose—in the sense that it was largely up to the administrator to determine when to bring an administration to an end, subject to the overall powers of the court—to the proposal in Bill, which seems too inflexible. The CBI, among other bodies, has voiced its concern, as has the noble Lord, Lord Mitchell.

Amendments Nos. 317 to 319, standing in my name and in the names of my noble friends, offer a menu to the Minister and might provide an opportunity for the noble Lord to comment. Amendment No. 318 is the first alternative to a return to the present position—that is, giving the administrator maximum leeway—by providing that the administrator must provide reports to the court if it is not possible to end the administration within three months. Despite what the noble Lord, Lord Sharman, says from great experience, we 'have the example of Railtrack, and there are many other complicated administrations which require much longer. I believe that the three-month provision the Bill is too restrictive. Amendment No. 319 replaces the initial three-month period, when the administration must come to an end unless it is extended with the consent of the court for a further three months, to 12 months. I am sure that the Committee will welcome the Minister's comments.

Lord McIntosh of Haringey

There are two issues in this group of amendments—a minor one and a major one. The minor one is the frequency of reporting. I take the point that the noble Lord, Lord Freeman, makes about the reporting obligations in Amendments Nos. 318 and 316. Under the current rules, the administrator must send a report to creditors every six months. I sympathise with the proposal that when the new time limits are extended he should be subject to some form of regular reporting. We need to consult further on the frequency, content and recipience of these reports, but we would make provision for these and other detailed matters by amending the insolvency rules through secondary legislation.

The major issue is time-scales—not just the 28 days, but the six weeks and the three months. We have introduced the timetables because of the criticism that administration is too long drawn-out and cumbersome. There has been general recognition that we have to have a time limit, not just for creditors, who rightly want certainty about when they might be paid, but also for small firms, for whom the costs of an open-ended and potentially lengthy administration are a significant barrier to entering administration. My experience is that when I have had customers who were in difficulties and went into administration, the last thing I wanted was for that administration to continue beyond the end of my financial year so that I had to take the whole of the bad debt into my accounts, even though there was a possibility of some percentage coming back afterwards. There is a great argument against lengthy time-scales from the point of view of creditors.

We have looked at experience in other countries. Similar or more stringent time limits have been adopted in Australia, where they seem to work satisfactorily. The time-scales in the Bill are stringent, although, as the noble Lord, Lord Hunt, recognised, there has been some flexibility to allow them to be extended when necessary, on a case-by-case basis. We are taking powers to extend time-scales generally.

There is a conflict of interest between the insolvency profession on the one hand and creditors and small companies on the other. I have listened carefully to what has been said all round the House. The noble Lord, Lord Sharman, put the issue very well on Second Reading, saying that it is hoped that many cases will be completed sooner than the limit, but a sensible and viable limit is needed. There will be cases in which the administration period, whenever it is fixed, is not long enough, but we do not want a law that is honoured more in the breach than in the observance. We must set time-scales that reflect the day-to-day practicalities of administration and in which all those with an interest in administration can have confidence.

We have had amendments to extend the time-scales for the administrator to send proposals to creditors and the time-scale for the administration procedure. Differing views have been expressed this evening about whether both limits need extension and how far. I am not able to support the amendments before us, but I am willing to take the matter away and give it urgent consideration in consultation with interested parties, including the insolvency profession, but also representatives of lenders and business. In the light of those discussions, I would be prepared to table government amendments on Report to provide for limits that command a wider consensus.

Lord Hunt of Wirral

The Minister has announced a significant concession. He is aware that concern about the time limits is expressed not only by the experts, such as R3, but also by the CBI and a number of other organisations. He has offered to look at the issue further and perhaps have wider consultation during the Recess to ensure that whatever proposals he comes hack with on Report command as wide a range of support as possible. I readily accept that generous offer and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 297 not moved.]

9.45 p.m.

Lord Kingsland moved Amendment No. 298: Page 268, line 27, leave out "Paragraph 50(1) shall not apply

The noble Lord said: Under paragraph 50, the administrator must call an initial creditors' meeting for the purposes of approving his proposals with or without modification. As currently drafted, that initial meeting must be held within six weeks of the company entering into administration. However, the administrator need not call an initial creditors' meeting where the statement of his proposals says that he thinks that, the company has sufficient property to enable each creditor of the company to be paid in full…that the company has insufficient property to enable a distribution to be made to unsecured creditors…or…that neither of the objectives specified in paragraph 3(1)(a) and (b) can be achieved"— they being the objectives of rescuing the company or obtaining a better result from the company's creditors as a whole than would be likely if the company were to be wound up.

We feel that even in those circumstances there should be an initial creditors' meeting to consider the administrator's proposals. The administrator is given extensive powers to manage the company's affairs, business and property without interference from anyone. We feel that at the very least he should report to the creditors at one meeting what he proposes to do. Creditors must be given a chance to voice their concern and they should not be denied that right, particularly where the administrator thinks the company has insufficient property to enable a distribution to be made to unsecured creditors. These creditors will recover nothing, and at the very least they must be satisfied that nothing can be done for them and be able to test that at the meeting.

Accordingly, we propose that paragraph 50(1) be omitted from the Bill. The Minister may well respond on this matter as he did to me on Amendment No. 295—that all this will be dealt with by regulation.

In relation to Amendment No. 327, under paragraph 76, the appointment of an administrator ceases to have effect after three months. That period can be extended by the court or with the consent of the creditors. Paragraph 78(2) provides that the consent of each of the secured creditors of the company, and a majority of the preferential creditors if the administrator thinks that a distribution may be made to them, is sufficient for the purposes of an extension if, but only if, the administrator has stated in his statement of proposals that he thinks the company has insufficient property to enable a distribution to be made to unsecured creditors.

The effect is that unsecured creditors are in reality disenfranchised when the administrator thinks, perhaps wrongly, that he will not be able to make a distribution to them. We think that that is unfair. We do not believe that unsecured creditors should be disenfranchised simply because the administrator thinks that there will be no distribution to them. Indeed, since the unsecured creditors are losing more than any other class of creditor, they must be treated more sympathetically than others and have a right to be heard. I beg to move.

Lord McIntosh of Haringey

There are a number of amendments in this group, and I shall try to deal with all of them. I refer first to Amendments Nos. 298, 299, 300, 327 and 333A.

Paragraph 50(1) provides that an administrator does not need to hold an initial creditors' meeting in certain circumstances if he or she thinks that the company has sufficient property to enable creditors to be paid in full or that the company has insufficient property to enable the distribution to be made to unsecured creditors other than the prescribed part, or that the first two objectives of administration cannot be achieved. The amendments would require the administrator to hold an initial creditors' meeting in all of those cases or seek the permission of the court not to do so.

I certainly agree with the spirit behind the amendments, which is that creditors have the right to be involved in the process of administration. Incidentally, I shall not rely on regulation at all in this answer. However, it is right and proper that creditors' involvement should be focused on cases where their financial interest is at stake. That is why the Bill provides that in the specified cases where this is not the case, the administrator does not need to hold a creditors' meeting or seek all creditors' consent or approval for his actions because that would add unnecessarily to costs, burden the courts and reduce the returns for those creditors who did have a financial interest.

In addition, paragraph 51(2), which would be deleted by Amendment No. 300, provides that in cases where the administrator is not required to hold a meeting, he or she must do so if requested by creditors whose debts amount to at least 10 per cent of the total debts of the company. That is a low threshold. Having been a creditor many times, I would never have dreamed of attending a creditors' meeting. I would not have known what to do in order to get my views expressed. I believe that the virtues of creditors' meetings are grossly exaggerated. It costs a lot of money for the boss of a small company to attend a creditors' meeting, possibly more than he is owed.

Creditors also have ways in which they can challenge the conduct or actions of the administrator, for example, if they believe that he or she is unfairly harming their interests or is guilty of malfeasance. In our view the provision should provide sufficient protection to unsecured creditors even where they have no financial interest.

Amendments Nos. 301 and 302 provide that the administrator must report the decision of an initial creditors' meeting within seven days rather than as soon as is reasonably practical. Our view is that the administrator should make such a report as soon as he reasonably can. That is what the Bill provides. We do not think that there is any room for uncertainty here.

Amendment No. 303 narrows the scope of the provision in the case of the failure to approve a revision so that the courts' powers can be used only where the administrator considers that the original proposals are not reasonably likely to be achieved. We do not think that that is necessary. Paragraph 54 allows the court the power to make such provision as it deems necessary. It will not prevent an administrator from pursuing proposals that have been approved by creditors if the court is persuaded by the administrator that that is the right way to proceed.

Finally, Amendment No. 304 would remove the facility to conduct creditors' meetings through correspondence. But the provision to do that was made in response to suggestions by people rather like me that that would avoid the cost and bureaucracy of a meeting of creditors when business can be conducted just as effectively via correspondence. As the paragraph says, the details of how an administrator should deal with such correspondence will be set out in the rules—to that extent I am relying on regulation—and will ensure that the business could not be conducted in such a way as to disadvantage a particular creditor or group of creditors. However, we believe that being able to conduct business by correspondence will save creditors the time and expense of attending meetings when it is not really justified.

Lord Kingsland

I am glad that the Minister at least agrees with the principle lying behind these amendments although he may not feel quite so comfortable with the detail. The Minister appeals to his own experience as a creditor and draws certain conclusions from that about the attitude the Government should take to the amendments. Perhaps over the summer break the Minister might try to think what it is like to be a different sort of creditor in different circumstances from himself and then come back and look again at these amendments and see whether his mind changes.

Lord McIntosh of Haringey

I believe that I should imagine myself as a floating charge holder—as a banker. In either role, I should be glad about the abolition of Crown preference. That is what I should be thinking about.

Lord Kingsland

The Minister seems to be an admirable example of the unsecured creditor. Having said that, I swiftly beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 299 to 304 not moved.]

Lord Hunt of Wirral moved Amendment No. 304A: Page 271, line 5, at end insert—

"FINANCING ADMINISTRATIONS

Powers of court to approve financing of companies in administration

57A (1) The administrator of a company may at any time following his appointment apply to the court for approval of the provision of super-priority financing to the company.

(2) In this section "super-priority financing" means finance provided to a company in administration which shall rank as an expense in the administration with priority over the claims of existing secured and unsecured creditors.

(3) The court shall not make an order granting an application for super-priority financing under this section unless it is satisfied that—

1. (a) the monies to be provided will be used for expenditure necessary to—
1. (i) continue the operation of the business of the company in order to meet the administrator's objectives; or
2. (ii) otherwise to protect and preserve the business and assets of the company during the administration; and
2. (b) the secured creditors are not prejudiced by the provision of super-priority financing; and
3. (c) it is appropriate to make the order in the overall interests of the administration."

The noble Lord said: I hope that the Minister will not take me too much to task for the point in the Bill at which I seek to place the amendment. I wanted an opportunity to discuss the important need for super-priority financing, which does not appear to be mentioned in the Bill as it is currently drafted.

It is now some time since a review was set up by agreement between the Chancellor of the Exchequer and the Secretary of State for Trade and Industry, with the following terms of reference: To review aspects of company insolvency law and practice in the United Kingdom and elsewhere relating to the opportunities for, and the means by which, businesses can resolve short to medium term financial difficulties, so as to preserve maximum economic value; and to make recommendations".

That was a very timely review. One of the principal areas of focus given to the review was: The further development of the rescue culture".

That was clearly set out as one of the review's objectives.

I have had an opportunity to examine the report of the review group, which is entitled, A Review of Company Rescue and Business Reconstruction Mechanisms. The report, which comes from the Insolvency Service, is a most interesting document. I refer in particular to page 33, which is headed, "Financing Company or Business Rescues". The review group states its belief that the issue of financing, is central to any discussion of a rescue culture in the UK". It goes on: Continued trading is essential for some form of going concern to emerge at the end of the process", just as it is essential, for a company to continue trading through an insolvency procedure", but often only if it receives access to some form of external finance.

The review group states: Unless that finance is available the rescue will fail, the assets will have to be sold piece-meal and the company will usually be forced into liquidation".

The review group rightly centred on the need for a special form of financing if a company was to continue as a going concern. In broad terms, new secured finance is only available to support a rescue procedure in the UK to the extent that existing secured creditors agree, and/or if the company has uncharged assets (or charged assets with sufficient equity)".

We have previously been referred to the position in the United States, where, in recognition of the critical nature of post-petition funding, Chapter 11 of the US bankruptcy code creates a framework in which new lenders can be afforded an advantageous position as regards other creditors of the company.

The review group concluded that it would be wholly inappropriate to attempt to replicate Chapter 11 in the United Kingdom, where the business culture and the economic environment are quite different. But it went on to say: we nonetheless thought that the basic principles underlying US practice were the most important aspect for our purposes".

The review group continued: We would summarise these basic principles as follows: The provision of additional finance to businesses in distress can be 'value-enhancing' for the business, provided it is part of a properly considered plan for financial recovery".

I could not agree more. The issue of finance and, in particular, super-priority finance in company and business rescues was, indeed, recognised as a key issue in that original report, which, I understand, was produced in May 2000.

What I cannot understand is what has happened since. The working group strongly recommended detailed consideration and wide consultation on the issue. It concluded: The review group believes that there is a case for a more radical approach to company rescues giving the courts (or supporting tribunals) discretion to agree to superpriority finance within tight criteria. This would be a major change, and there would need to be detailed consideration and wide consultation. Key issues would include the development of institutions and a legal framework to support it".

The review group concluded: We recommend that a debate on this proposal should begin as soon as possible".

That was in May 2000. So far as I can see, the idea has been dropped. The Bill does not provide for it anywhere, and, I say to the Minister, surely there needs to be some kind of explanation as to exactly what has happened. If an enhanced form of administration is to be used successfully as a rescue tool, I believe it is necessary to tackle the issue of funding. In future, under these changes in the Bill, funding will not necessarily be forthcoming from the party who seeks the appointment of an administrator. Therefore, it is important to have a mechanism which provides for companies having access to ongoing finance during a rescue.

I believe that we heard a declaration of interest earlier. I should ensure that the Committee is aware that I am the senior partner of a law firm called Beachcroft Wansbroughs. We have some very bright young lawyers in our insolvency department. They warned the Minister's Bill team that I was going to raise these issues and refer to this report, and rightly so. I believe that those who served on the working party deserve an explanation.

The clause that I propose provides for super-priority financing where priority is given to a lender who is prepared to put cash into a business in order to keep it going while a rescue is worked out. I believe that failure to provide for that financing during an administration under the new regime proposed by the Bill will undermine the ability of administration to operate as an effective rescue tool.

Therefore, this is not an attempt to introduce a Chapter 11-type system—far from it. Rather, I believe that the amendment provides for a key component currently missing from the Bill to facilitate properly business rescues and to give the aims which the Bill seeks to achieve a real chance of working. I beg to move.

10 p.m.

Lord McIntosh of Haringey

I am grateful to the noble Lord, Lord Hunt, for having given the notice that he did about the background to the amendment. Of course, we are familiar with the review of company rescue and business reconstruction mechanisms. However, I hope that the noble Lord will agree that the conclusion of the review was a good deal more tentative than one might suppose by listening to what he said. He said that they called for debate. Indeed, they did but they did not actually recommend anything. They discussed the whole issue of super-priorities, but they did not reach a concluded view. In the absence of a concluded view, we have taken a view. I agree that we have not gone for an extended debate. Perhaps we could be at fault on that, although I assure the noble Lord, Lord Hunt, that if there is to be a debate we would happily take part. I want to explain our position, which can be our contribution to the debate for the time being.

We have taken the view that the issue of whether to lend to a company that is in administration should be a commercial one, best left to the commercial judgment of the lending market. If the proposed rescue would constitute a commercially viable proposition, or if there are free assets which can be offered as collateral, then it is for a lender to decide whether or not to lend. It is not an issue, as the amendment says, for the courts to make an order granting an application for super-priority financing. We do not consider it an issue with which the courts should be equipped to deal. Perhaps the suggestion is that there are uncharged assets, which certainly is the case in the United States, but it is much more rare in corporate insolvencies in this country, where we have so many floating charges.

If the suggestion behind the amendment is that there is little or no funding available during a rescue, that is clearly not the case. In company rescues, a company's existing bankers are the most likely source of continued funding, but alternative sources of finance for companies and businesses have emerged. There is the growth of asset financing, factoring and discounting where funders may be more oriented towards the rescue environment and prepared to advance funding to companies in administration and subject to company voluntary arrangements.

We shall certainly keep the matter under review and we shall certainly participate in any debate that takes place. There will need to be a continuous review as the new provisions in the Bill take effect because they will need to be monitored. However, our present position is that the matters of funding should be left to the commercial judgment of the lending market.

Lord Hunt of Wirral

I am interested in the Minister's response. I am grateful to him for conceding that perhaps there could have been a debate on some of these approaches. I quoted extensively from the report so as not to disguise the position in any way. The group called for a debate, but they also said, as I believe was recommended by the review group, that one approach would be: to build into our law provision for the authorities supervising an insolvency procedure to have regard to similar basic considerations to the US in considering proposals for 'superpriority' finance". Having heard the Minister say that he and his colleagues in the department considered the report, perhaps he could let me know whether there has been any considered response to the working party. I shall not press him now, but it would be helpful to know whether the members of the review group were contacted to tell them the result of the deliberations within the department. It may be that the department held a review that reached certain conclusions, but I am not aware that such a document was ever published.

Lord McIntosh of Haringey

No, neither am I and I should be aware. I shall write to the noble Lord, Lord Hunt, about that. If it appears that there should be a further meeting between the members of the review group and officials, that should take place before Report stage.

Lord Hunt of Wirral

I am very grateful to the Minister. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Chairman of Committees (Lord Skelmersdale)

In calling Amendment No. 305, I have to advise the Committee that if it is agreed to I cannot call Amendments Nos. 306 or 307.

[Amendment No. 305 not moved.]

Lord Kingsland moved Amendment No. 306: Page 271, line 39, at beginning insert "Subject to paragraph 99 of this Schedule and paragraph 13 of Schedule 1 and the payment of the charges and liabilities and the payments referred to in those paragraphs during the course of the administration.

The noble Lord said: Paragraph 64 allows an administrator of a company to make a payment to preferential and secured creditors. This is an improvement on the old law because, under the Insolvency Act 1986, administrators were not entitled to pay any dividends to creditors and it was necessary to go into liquidation before creditors could be paid.

However, paragraph 65 provides that the administrator can make a payment to an unsecured creditor only with the permission of the court or if the administrator thinks that the payment is likely to assist achievement of the purpose of administration.

We think that that provision should be clarified by making it plain that the administrator can pay all charges and liabilities arising during the course of the administration, regardless of whether or not the payment is likely to assist the achievement of the purpose of administration. These creditors are all new creditors arising during the course of the administration and should be paid during the course of administration. Given the prohibition on paying what seems to be all unsecured non-preferential creditors, including those arising during the administration in paragraph 65, the ability to pay creditors whose debts or liabilities have arisen during the course of administration should be made clear. I beg to move.

Lord McIntosh of Haringey

Just to show that I am not obdurate, I am sorry that the noble Lord, Lord Kingsland, did not move Amendment No. 305 because I was going to be quite sympathetic to all the amendments in the group. It is not that we think these particular amendments are necessary, but they have allowed us to look again at the distribution and payment provisions in the Bill. We now think that they do not work as we intended. Our aim is, first, to allow the administrator to make distributions to secured and preferential creditors; secondly, to make distributions to unsecured creditors with the permission of the court; and, thirdly, to allow the administrators to make any other form of payment to a creditor when the administrator thinks that the payment is likely to assist achievement of the purposes of administration.

The Bill presently provides that if the payment is part of a distribution to creditors generally, the standard order of priority for such payments should be followed. The Bill also needs to provide—here we think that the provisions may be lacking at the moment—that if the administrator proposes to pay a creditor who will not supply further goods without payment for previous goods, the standard order for priority of payment should not apply. We intend to look further at the provisions and, if necessary, return with amendments on Report.

The noble Lord, Lord Kingsland, may think that I have not addressed the text of his amendment in sufficient detail, but I hope that he will feel that there is sufficient movement in this area.

Lord Kingsland

The noble Lord seems to be gaining suppleness as the evening wears on. I am most gratified to hear what he has had to say. I know that he will be thinking about this matter over the Summer Recess. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 307 to 309 not moved.]

Lord Mitchell moved Amendment No. 310: Page 273, line 23, at end insert— () Where the goods are used by the administrator to continue running the business, the administrator must make payment to the owner of the goods under the terms of the hire-purchase agreement.

The noble Lord said: In moving Amendment No. 310, I shall speak also to Amendment No. 312. Under the terms of a hire purchase or lease agreement, the owner of the goods should continue to receive payment where these goods are still being used. The amendment means that the administrator cannot delay disposing of the goods when they are not in use and payments are not being made.

In most cases where goods are subject to an asset finance agreement, the value of the goods reduces significantly over the time that they are being retained by the administrator. As I operate in the computer information technology area, I know that to my painful cost, at times. In theory, the lender could go to court to obtain the goods, but in practice the low cost of many goods, such as photocopiers or cars, makes that recourse unviable.

The amendment is intended to bring clarity to the situation and to ensure that the administrator makes a speedy decision to protect the lender's interest. I understand that several court cases have highlighted the need to bring certainty to lessors' rights. I beg to move.

10.15 p.m.

Lord McIntosh of Haringey

Clearly, there is a real difficulty here; there is a balancing act to be performed. On the one hand, it is desirable that hire purchase companies should not suffer a loss through lack of payment during administration; on the other, the purpose behind administration is to give companies a breathing space in which to put together rescue proposals or proposals to improve the outcome for creditors. It would be undesirable if such proposals failed, when a breathing space in payments to a hire-purchase company could have helped them to succeed.

We have replicated existing provisions, under which it falls ultimately to the courts to resolve that difficult balancing act on a case-by-case basis. Where rental payments were not being made, paragraph 42(3) would enable the owner of hire-purchase goods to ask the administrator for their return. If the administrator did not consent to repossession, the owner of the goods would be able to seek the permission of the court to repossess the goods.

The leading case on the existing provisions sets out clearly that administration for the benefit of unsecured creditors should not be conducted at the expense of those who have proprietary rights over goods—I think that that is my noble friend's concern. The case law will remain fully relevant to a court's consideration of the hire-purchase provision in the revised administration procedure. For that reason, I fear that I cannot accept Amendment No. 310.

For the record, I should respond to Amendments Nos. 311, 312 and 313, which are in the same group.

Lord Hunt of Wirral

It would help if the Minister could confirm that he is referring to the. Atlantic Computer Systems case when he refers to the leading case. I should have thought that the amendment would bring clarity in the Bill for both administrators and lenders in line with that case.

If I may, I should also like to say a word about Amendments Nos. 311 and 312. "Hire-purchase" is, of course, a term of art that covers many different agreements, from a finance lease to a retention of title clause in a sale of goods contract. Paragraph 7(3)(b) is intended to ensure that the owner of relevant goods is compensated properly in the event that goods are sold contrary to his wishes. In particular, it will ensure that the owner receives full market value on the sale.

However, that measure of protection does not fit all cases. For example, where relevant goods are owned by a lessor who makes them available under the terms of an operating lease, as has been said, the market sale value of the relevant goods may not approach the true commercial value to be derived by the lessor from his agreement if he could continue the operating lease with the company, or if necessary with a different lessee, indefinitely. In those circumstances, the lessor may be seriously prejudiced by an order of the type envisaged under paragraph 72(3)(b).

That is why my noble friends and I tabled those amendments, which provide flexibility. They rely on the discretion of the court when ordering sale to decide what should be the compensation level for the owner. The court ought to be free to take into account all circumstances and should not be limited to compensation solely by reference to the open market sale value. I hope that those comments will assist the Minister, as he responds to Amendments Nos. 311 and 312.

Lord McIntosh of Haringey

They will indeed. The leading case is, of course, the case of Atlantic Computer Systems. Our difficulty with Amendment No. 310 is not that it clarifies the Atlantic Computers case; it would change the law. In other words, the law would come down on one side, whereas, as things stand, there is scope for such matters to be considered by the courts on a case-by-case basis.

Amendments Nos. 311 and 312 are drafting points. The provisions as drafted work as intended. The reference to "any additional money" in paragraph 72(3)(b) has the same meaning as, any additional sum of money", as proposed by the amendment. Similarly, it will be understood that the requirement referred to is one imposed by the court. Amendment No. 313 would require additional money to be paid to the owner of hire purchase goods, over and above their market value. The reasoning behind the requirement to pay the owner the market value of the goods is to enable him or her to replace them. If the owner believes that some value attaches to the goods as a result of their capacity to be hired, it is up to him to persuade the court that that should be reflected in its estimation of their market value.

Lord Mitchell

I am sorry that my noble friend the Minister does not agree with Amendment No. 310. Perhaps he would consider some of the points again. However, time is pressing, and we must get through the Bill. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 311 to 313 not moved.]

Lord Sharman moved Amendment No. 314: Page 274, line 28, at end insert "unless the court is satisfied that the administrator acted reasonably in all the circumstances

The noble Lord said: The amendment deals with the issue of a challenge to the administrator's conduct. Paragraph 74 allows any creditor or member of a company to apply to the court on the grounds that the administrator's actions are prejudicial to their interests. In our judgment, there is scope for vexatious actions.

We also find it odd that, under that paragraph, the court can make an order, even if the action complained of was taken in reliance on a court order under paragraphs 71 or 72, which deal with the powers of the court to dispose of property. We would like to see a provision that, at least, allowed the court to decline to make an order, if it were satisfied that the action of the administrator was, in all the circumstances, reasonable. That is provided by paragraph 27(3) of Schedule A1 to the Insolvency Act 1986, which is incorporated into Schedule 1 to the Insolvency Act 2000. I beg to move.

Lord Kingsland

There is scope for vexatious conduct, and we support the amendment proposed by the noble Lord, Lord Sharman.

Lord McIntosh of Haringey

I agree with what the noble Lord, Lord Sharman, said, rather than with the amendment. I agree that, as long as an administrator acts reasonably, he or she should be free to conduct the administration in accordance with the provisions of the Bill. In revising the administration procedure, we have been keen to ensure that court resources are focused on where they are most necessary. In other words, we must avoid using them wherever we can.

It does not seem right to introduce, as the amendment would do, a further threshold beyond the need to establish the fact that harm had been caused and that that harm was unfair. The courts will examine closely the facts of any case, and they are used to taking decisions after weighing the different interests. Administrators who act using their commercial and professional judgment have nothing to fear from the provision. The amendment is unnecessary.

Lord Sharman

I am grateful to the Minister for his reply. I shall reflect on it over the recess. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Hunt of Wirral moved Amendment No. 315: Page 275, line 31, leave out "discharged" and insert "released

The noble Lord said: I want to probe why the Minister has moved away from the traditional wording and brought in a new verb. Under existing terminology it is the normal procedure for the administrator to seek "release" rather than "discharge". I am slightly confused as to why the terminology has been changed; no doubt the Minister will explain. I beg to move.

Lord McIntosh of Haringey

I am slightly puzzled, because I am advised otherwise. My understanding is that the term "discharged" reflects the language used in current legislation, which provides that when an administrator ceases to be the administrator, he has his release and the effect of the release is that he is discharged from any liability. They are slightly different things, with certain exceptions. However, I do not want to get into a semantic debate with the noble Lord, Lord Hunt. I had better write to him with examples of current legislation.

Lord Hunt of Wirral

I recognise that the Minister is a distinguished philologist. I am but a tautologist, and therefore I shall await his letter with great expectations. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 316 to 323 not moved.]

Lord Hunt of Wirral moved Amendment No. 324: Page 276, line 10, leave out paragraph (a) and insert— (a) secured creditors whose debts amount to 75% or more of the company's secured debts.

The noble Lord said: In moving the amendment I shall speak also to Amendments Nos. 325, 328, 329, 335 and 336. Amendment No. 325 seeks to leave out "each secured creditor" and insert, a majority in value of the secured creditors".

The amendments deal with the obtaining of consent by secured creditors. The Bill currently requires the consent of every secured creditor in these clauses, but I submit to the Minister that companies increasingly have a wide variety of secured creditors. I hope he will recognise that this batch of amendments seeks to implement a system where it may often not be timely or practical to obtain the consent of every one.

Amendments Nos. 328, 329, 335 and 336 are similar to the amendment moved, so I look forward to the Minister's response. I beg to move.

The Deputy Chairman of Committees

I should point out to the Committee that if this amendment is agreed to, I cannot call Amendment No. 325.

10.30 p.m.

Lord McIntosh of Haringey

I am afraid that this is another case in which there is potential for conflict of interest. There is probably no one single perfect solution for all circumstances. It may appear unfair that one secured creditor, whose debt may be relatively small, could frustrate an extension—it is, after all, about an extension of administration—supported by the majority of creditors.

It should be recognised that extending the administration, and with it the moratorium on action against the company, affects the rights of each secured creditor to enforce his proprietary rights. The amendment would effectively give the big secured creditors—for example, the bank—the power to override the wishes and interests of the smaller ones, whose only remedy would then be to apply to the court under paragraph 74.

If there is no consensus among the secured creditors, the administrator is always able to apply to the court for an extension of the time limit. It would be up to the court to weigh up the potential benefits of the extension against the needs of the secured creditors. However, a change of this kind, which could disenfranchise a minority of secured creditors, does not appear to be desirable.

Lord Hunt of Wirral

I would like to reflect on what the Minister has said. It is a difficult balance which undoubtedly he is seeking and I would like to think carefully about the points he has made. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 325 not moved.]

Lord Hunt of Wirral moved Amendment No. 326: Page 276, line 11, leave out paragraph (b) and insert— (b) either—

1. (i) a meeting of creditors; or
2. (ii) creditors of the company whose debts amount to at least 50% of the total unsecured debts of the company (if any)"

The noble Lord said: The amendment would leave out paragraph (b), which states: if the company has unsecured debts, creditors whose debts amount to more than 50% of the company's unsecured debts, disregarding debts of any creditor who does not respond to an invitation to give or withhold consent", and would insert a new paragraph (b), stating, (b) either—

1. (i) a meeting of creditors; or
2. (ii) creditors of the company whose debts amount to at least 50% of the total unsecured debts of the company (if any)".

The amendment would allow an administrator to obtain the required consent at a creditors' meeting where consent cannot be obtained from 50 per cent of all creditors by value because one or more large creditors are apathetic or cannot be contacted within the time-scale.

I hope that the Minister will have had an opportunity of reflecting on the amendment, which was moved in Committee in another place. The ministerial response was that the Government would want to reflect on the matter further and I hope that they have had the opportunity of doing so. I look forward to hearing the Minister's response, and I beg to move.

Lord Sharman

I endorse what the noble Lord, Lord Hunt, has said. In practical cases of administration and insolvency, it is sometimes difficult to obtain consent as envisaged in this part of the Bill. I believe that the proposed amendment is an eminently sensible way of enabling the administration to proceed with speed, which is what we are seeking to do in the Bill, and I commend it to the Committee.

Lord McIntosh of Haringey

We certainly have reflected on the issue and the noble Lord, Lord Hunt, is right in saying that it was raised in the Commons. We return to what I was saying earlier about creditors' meetings. The consent of creditors does not have to be achieved by a physical meeting. The Bill provides that 50 per cent in value of unsecured creditors who have responded to the request will have to consent to the extension of the administration. That 50 per cent could be reached by voting by correspondence or by voting at a creditors' meeting. I hope that what I said previously about the desirability of voting by correspondence will allay some of the fears that have been expressed.

Lord Hunt of Wirral

I am grateful to the noble Lord, Lord Sharman, for his support. Both he and I want to reflect further because we are a little disappointed in the Minister's response. Perhaps this is a matter to which we shall want to return at a later stage, but in the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 327 to 329D not moved.]

Lord Hunt of Wirral moved Amendment No. 330: Page 277, line 26, after "copy" insert "to the person or persons who appointed him, to the company and

The noble Lord said: With the words I seek to add, sub-paragraph (4) would then read: Where the administrator files a notice he shall within the prescribed period send a copy to the person or persons who appointed him, to the company, and to every creditor of the company of whose claim and address he is aware".

Thus the amendment would require notice of cessation to be given to the appointer and the company to enable them to take whatever action they consider appropriate. I commend the amendment and I beg to move.

Lord Sharman

Once again I rise to support the amendment, which appears eminently sensible; that is, those who have to take action as a result of the notice of cessation should be in receipt of a notice.

Lord McIntosh of Haringey

Certainly it is desirable that the administrator should notify his or her appointer and the company itself if the administration ceases because its purpose has been achieved. As a general point, the persons to be given notice of various matters in administration will be dealt with in the new insolvency rules. Those rules will be required to accompany the revised administration procedure. We do not think that this is a matter which needs to be set out on the face of the Bill. We shall consult with interested parties on the revisions to the insolvency rules.

The noble Lord, Lord Hunt, was good enough to challenge me by asking whether we can do any more, without prejudice to the consultation, in the direction of transparency as regards the insolvency rules before we reach Report stage. I did not respond to that because he did not ask me to, but I shall respond now by saying that I will see what I can do.

Lord Hunt of Wirral

That is a very welcome response at this late hour. I warmly applaud the Minister for agreeing to consider this further. It would greatly reassure those who have expressed concerns about a number of provisions in the Bill if it could be shown that the matters in question are being dealt with properly and in accordance with revisions to the rules.

In those circumstances, I hope that it will be possible to see the draft during the course of the Recess so that, if necessary, we can return to the point at a later stage. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Hunt of Wirral moved Amendment No. 331: Page 278, line 24, at end insert— (5) If the liquidator, provisional liquidator or administrator of a company becomes aware that this paragraph applies but that the court has not made an order under sub-paragraph (3) he shall apply to the court for directions.

The noble Lord said: Amendment No. 331 would insert on page 278 a new sub-paragraph (5) to be worded as follows: If the liquidator, provisional liquidator or administrator of a company becomes aware that this paragraph applies but that the court has not made an order under sub-paragraph (3) he shall apply to the court for directions".

I believe that the amendment is self-explanatory. It would simply allow for a liquidator, a provisional liquidator or an administrator to seek directions in the case of a public interest winding up. I beg to move.

Lord McIntosh of Haringey

I hope that I shall be able to persuade the noble Lord, Lord Hunt, that we have covered this point. The Minister in another place pointed out that the provisions allowing an office holder to apply to the courts for directions in these circumstances already exist in the Insolvency Act 1986 or are provided for in Schedule 16 to the Bill.

For example, Section 168(3) of the 1986 Act gives a broad power to a liquidator, which includes a provisional liquidator, to go to court for directions in relation to a particular matter arising in the course of a winding up, and paragraph 16 of this schedule enables the administrator to apply to the court for directions regarding his functions. I believe that those two provisions cover the points made by the noble Lord.

Lord Hunt of Wirral

I am grateful to the Minister for that explanation. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 331A to 331C not moved.]

Lord Hunt of Wirral moved Amendment No. 332: Page 282, line 19, leave out "A creditors'" and insert "The initial creditors' meeting, or any creditors' meeting held before that

The noble Lord said: Where paragraph 97(3) presently reads A creditors' meeting may act", the amendment seeks to substitute the words The initial creditors' meeting, or any creditors' meeting held before that". The amendment is self-explanatory and I look forward to the Minister's response. I beg to move.

Lord McIntosh of Haringey

Paragraph 97 of Schedule 16 concerns the replacement of administrators who are appointed by the company or its directors under the out-of-court route where there are no floating charge holders to veto the appointment. The amendment would restrict the creditors' opportunity to replace an administrator appointed in this way to the period up to and including the initial creditors' meeting.

We expect that the occasions on which creditors will want to replace the administrator will be rare, but if it is restricted to only that period leading up to and including the initial creditors' meeting, they would have little opportunity to assess the administrator in his or her performance. It is likely that the first opportunity for creditors to interact with the appointed administrator will be at the initial creditors' meeting and it does not seem sensible that it should also be their last opportunity to veto the company's or directors' choice of administrator.

Lord Hunt of Wirral

I am grateful to the Minister for that explanation. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 333 to 336 not moved.]

Schedule 16 agreed to.

The Deputy Chairman of Committees (Lord Geddes)

I should advise the Committee that Amendment No. 337 has been misplaced. It will be called after Clause 246 stand part.

Schedule 17 agreed to.

Clause 245 [Special administration regimes]:

Lord Borrie moved Amendment No. 338: Page 171, line 30, at end insert", or (f) an energy network company within the meaning of section (Meaning and effect of special administration order) of this Act (a company authorised to transmit or distribute electricity under section 6(1)(b) or (c) of the Electricity Act 1989 (c. 29) or as a gas transporter under section 7 of the Gas Act 1986 (c. 44).

The noble Lord said: In moving Amendment No. 338, I shall speak also to the following amendments up to and including Amendment No. 346, which stand in my name and the names of my noble friends Lord Currie of Marylebone and Lord Peston. I apologise profoundly—especially at this hour—for the length of the amendments. Fortunately, it will take me less time to explain their purpose than it would to read them out.

In legislation for both the railways and the water industry, governments have promoted legislation to cover the unfortunate situation where a network goes into insolvency, it is no longer possible to operate the network and there is then a public safety risk. Existing legislation in those fields enables the appointment of a special administrator who can keep the network operational.

Prior to the Utilities Act 2000, the present Government's White Paper proposed that the Act should contain similar provisions for the appointment of a special administrator in the case of a network failure in the gas or electricity industries. In their White Paper, the Government said that the chances of a major regulated energy network business getting into serious financial difficulties was small, but the document went on to say: However small the risk, electricity and gas are so important to life that it would be provident to have in place arrangements to deal with the consequences of such an occurrence".

Sadly, these government plans were abandoned, apparently for lack of parliamentary time, and, initially, the DTI appeared to support the idea that such provisions be inserted into this Enterprise Bill.

The risk of insolvency is probably more than the Government admitted, because companies holding network licences may be involved in other, more risky, ventures and have highly-leveraged financial structures. The energy regulator—still commonly known as "Ofgem", though possibly it should be called GEMA (the "Gas and Electricity Markets Authority")—is keen to make up for what it sees as a flaw in the regulatory network for energy network licensees and has briefed me on these amendments.

I declare an interest as a former member of Ofgem's management board. If my noble friend Lord Currie of Marylebone, in whose name these amendments also stand, were here, he would do the same. The amendments draw heavily on equivalent provisions in the Water Industry Act 1991 and the Railways Act 1993. They are meant to provide that the Government and Ofgem can act to ensure that gas and electricity continues to flow to end-users in the event of the insolvency, or potential insolvency, of a network business; and to avoid the nightmare scenario of, for example, air entering pipes when gas pressure drops thus creating a potential explosive mix of gas and air.

Under these amendments the Secretary of State, or the regulating authority, may petition the court for a special administrator. He would be charged with making a scheme for the transfer of the licensee's assets and undertaking to a new licensee appointed by the Secretary of State, or the authority, and, in the mean time, with ensuring that the licensee continues to trade. Amendment No. 343 would enable the Secretary of State to make available funds to enable the licensee to continue to trade.

Since I raised the matter on Second Reading at the beginning of the month, my noble friend Lord McIntosh of Haringey kindly wrote to me expressing broad sympathy with what these amendments seek to achieve. He also expressed the need for consultation, as well as an examination of the implications and consequences for all concerned. Now, as we go into the Summer Recess tomorrow, it is clear that there is a considerable gap between the Committee stage and the Report stage of this Bill. Therefore, I ask my noble friend the Minister whether he will consider that, by the Report stage, in, let us say, October of this year, there could be adequate time for consultation. In those circumstances, it would be most valuable if the Government could produce amendments of this kind in order to ensure the public safety objectives that. I have outlined. I beg to move.

Lord McIntosh of Haringey

These are very serious matters. The potential circumstances which these amendments seek to address deserve careful consideration.

At present, there are no problems in the electricity and gas sector, but it is important to cater for the most serious eventualities which might not be readily foreseen. That is the essence of the amendments. I recognise where they come from.

The amendments follow the special administration regimes which have been put in place in other sectors. The noble Lord, Lord Borrie, mentioned water and railways. These are substantial pieces of legislation. They are legislation about water and railways, rather than about insolvency. That is as it should be, given the importance and complexity of the subject matter.

I know that Ofgem wants to see such legislation developed in the electricity and gas network area. But we have also received representations from other interested parties that such legislation should not be developed in a rush and without proper consultation with all interested parties. I am concerned that, without advance consultation, one consequence of the amendments may be that they would have an unintended impact—potentially an adverse impact—on the ability of energy network companies to raise finance in the future.

I can assure the noble Lord, Lord Borrie, that the Government fully recognise the crucial service provided by the gas and electricity network operators and the broad sense of what the amendments seek to achieve. However, we need to take account of the particular circumstances of the gas and electricity networks and the interests of all of the parties involved.

So we should not launch into new provisions without a full understanding of the implications and consequences for all of the parties. That could be achieved only by careful development of proposals, and consultation to refine those proposals. That has not been undertaken, and I have to say that I do not believe that it should be undertaken in the context of this Bill. I was asked specifically whether it could he carried out in the two-month interval before Report. My answer has to be that I cannot imagine how it could be, particularly given that the two months are August and September.

But the points have been well made and the department will examine them thoroughly with all the interested parties. Depending on the results of that examination, we shall proceed to consult on them in the interests of future, appropriate, legislation.

Lord Borrie

I am bound to express some disappointment with my noble friend's comments. As I indicated, the Government were quite firm two or three years ago that this kind of provision should be introduced. From what my noble friend has said, it appears that nothing has been done within government departments. In the meantime, it is clear, as he said, that consultation is needed to ensure that we introduce the right statutory provisions. But it is disappointing that he suggests that there is not enough time to deal with the matter before Report. I shall consult with my advisers at Ofgem. For the moment, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 245 agreed to.

[Amendments Nos. 339 to 346 not moved.]

Clause 246 [Prohibition of appointment of administrative receiver]:

Lord Hunt of Wirral moved Amendment No. 347: Page 172, line 25, after "instrument" insert "and the date so appointed shall be a date after the date of such order

The noble Lord said: I am grateful to have an opportunity to speak to this amendment, and link with it the previously misplaced Amendment No. 337 and also Amendment No. 353.

We are dealing here with capital markets. As we are aware, structured capital markets transactions can take many forms. It is essential, if these markets are not to be disrupted, that within the spirit and purpose of the capital markets exemption, that appropriate transactions are exempt from the prohibition on appointment of an administrative receiver.

The current wording of paragraph 1(1)(a) of Schedule 2A, relating to the definition of a capital market arrangement for the purpose of the exception to the appointment of an administrative receiver, focuses on the security structure in relation to such arrangement. Unfortunately, only one type of security structure is included. There are a number of other types which are frequently used in the structured finance markets which should also be exempt to ensure that transactions with that type of security structure are also exempt.

I could go into much greater detail, but it may be helpful if I reverse roles and say that I shall write in more detail to the Minister. I recognise that this is an important issue. A number of structures come within the exemption, but the Bill currently covers only one of them. It would be unfortunate if the Bill provided for some types of finance techniques dealing with special purpose vehicles—SPVs—but not others when there appear to be no sound policy or political reasons for the distinction. I shall give the Minister every opportunity to respond now or, if he wishes, when I have let him have much greater detail on the amendments with diagrams to illustrate my point. I beg to move.

Lord McIntosh of Haringey

I could save the noble Lord trouble by offering that he can e-mail me instead of writing and can include the diagrams as attachments if he likes. I shall forward them to the relevant officials for response. That would be helpful to have.

I shall respond to the amendments to see whether that helps. When Amendment No. 347 came up in the Commons, Melanie Johnson, the Minister for Competition, Consumers and Markets, gave an unequivocal assurance that the power will not be exercised in such a way that it applies to any floating charge created before new Section 72A comes into force. I can confirm that and give an unequivocal assurance that we shall not legislate retrospectively, which is what the amendment is about.

The issue covered by Amendment No. 337 has been raised in many meetings between officials and the City of London Law Society. I have heard everything that has been said about the fact that paragraph 1(1)(a) of Schedule 18 does not cover this or that type of arrangement. It was never our intention to make that sub-paragraph the entirety of the exception provision. That is why sub-paragraphs (1)(b), (1)(c) and (1)(d) exist. The exception provisions in paragraph 1 are for all sorts of different structures within the capital markets. We see no reason to believe that it will not be possible to ensure that an arrangement falls within its provisions.

We spent considerable time and thought ensuring that the exceptions are not drafted so broadly as to encourage avoidance by lending agreements that they were not intended to cover, but they are very flexible. We have no doubt that City advisers will be able to structure arrangements that should rightly be within the exceptions to take advantage of them.

Finally, we do not object to the wording used in Amendment No. 353, we just do not believe that it is necessary. We think that the amendment is striving to ensure that an investment that falls within the exemption provisions is a capital market investment, whether it is traded on a UK or a foreign market. We do not think the amendment is necessary because the paragraph also includes the term "traded". As used in this paragraph, "traded" is defined as "admitted to trading", which has a wider meaning than "listed" and is relevant not just to EU markets but to those outside the EU. We have confined "listed" to its use in the Financial Services and Markets Act 2000—listed on the London Stock Exchange. "Admitted to trading" is a generic term that simply means that the securities may be traded on whatever market is specified.

11 p.m.

Lord Hunt of Wirral

My e-mail will now be even longer. I also look forward to e-mailing the Minister with diagrams. We shall no doubt return to this matter at a later stage. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord McIntosh of Haringey moved Amendment No. 348: Page 172, line 34, leave out "72F" and insert "72FA

The noble Lord said: In moving Amendment No. 348, I shall also speak to Amendments Nos. 349, 350, 351, 352 and 361. These amendments are on an issue that was raised very eloquently on Second Reading by the noble Lords, Lord Best and Lord Joffe, and the noble Baroness, Lady Maddock, among others. The issue has also been raised with the department by various interested parties which are concerned with the protection and survival of registered social landlords, as are we.

We are grateful for the helpful and informative meetings that have taken place between officials and representatives from all parts of the social housing sector. Following those discussions, we recognised that both the Housing Act 1996, which covers England and Wales, and the Housing (Scotland) Act 2001 provide for a moratorium period which provides an alternative means to facilitate rescues, and a stay on unilateral action by lenders when registered social landlords are in financial difficulty. These provisions reply to housing associations which are registered social landlords within the meaning of the Act. These amendments exclude such organisations from both the prohibition on appointment of administrative receiver of companies and the enabling power extending administration to industrial and provident societies. They cover England, Wales and Scotland, and I hope that it will be agreed that they cover the points raised on Second Reading. I beg to move.

Lord Sharman

As the Minister quite rightly said, my noble friend Lady Maddock spoke to this issue on Second Reading. Unfortunately she cannot be with us this evening, but she has advised me that in her view the amendments as tabled do exactly what she was looking for. She has asked me to express her thanks to the Minister for addressing the issue.

On Question, amendment agreed to.

Lord McIntosh of Haringey moved Amendments Nos. 349 to 352: Page 174, line 18, at end insert—

"72FA SIXTH EXCEPTION: REGISTERED SOCIAL LANDLORD

Section 72A does not prevent the appointment of an administrative receiver of a company which is registered as a social landlord under Part I of the Housing Act 1996 (c. 52) or under Part 3 of the Housing (Scotland) Act 2001 (asp 10)." Page 174, line 19, leave out "72F" and insert "72FA Page 174, line 20, leave out "72F" and insert "72FA Page 174, line 28, leave out "72F" and insert "72FA

On Question, amendments agreed to.

Clause 246, as amended, agreed to.

Schedule 18 [Schedule 2A to Insolvency Act 1986]:

[Amendment No. 353 not moved.]

Schedule 18 agreed to.

Clause 247 [Abolition of Crown preference]:

[Amendments Nos. 354 end 355 not moved.]

Clause 247 agreed to.

Clause 248 [Unsecured creditors]:

[Amendments Nos. 356 to 360 not moved.]

On Question, Whether Clause 248 shall stand part of the Bill?

Lord Hunt of Wirral

Clause 248 inserts a new Section 176A after Section 176 of the Insolvency Act 1986. New Section 176A provides for a percentage share of the company's assets to go to unsecured creditors although the percentage will be set by statutory instrument and will be subject to consultation. I think that in its current form this clause is most unsatisfactory. It concerns a vital issue which is the share of floating charge assets that will be given to unsecured creditors. I feel strongly that this is a radical proposal that will have an inevitable effect on lending to businesses.

In the circumstances, I really do not believe that it is good enough that a point as fundamental as this does not appear yet to have been thought through by the Government. We shall have to await consultation later in the year followed by a statutory instrument and therefore there will be no real debate. My purpose in initiating a brief debate on Clause 248 is for the Minister to have the opportunity to reassure me, to give some detail about the extent and timing of the consultation and to respond to the points that I have made. I look forward to hearing the Minister's response.

Lord McIntosh of Haringey

I hope that I can do a little more than that. I shall try to respond to the consultation point. Perhaps it would be helpful if I said a little more about the effect of Clause 248 and the way it will work.

We announced in the White Paper, Insolvency: A Second Chance, that we would make provisions to ensure that the benefit of the abolition of the Crown's preferential status will go to unsecured creditors. It is, after all, they who are at the end of the queue and for whom there is often nothing left after costs and secured creditors have been paid. It is estimated that an additional £70 million per year will become available to unsecured creditors as a result of the Crown giving up its preferential status. It is only right that unsecured creditors—including those in cases in which a floating charge has been given—receive the benefit of this money. This clause achieves that promise.

Therefore, in company insolvency cases where a floating charge has been given, this clause instructs the office-holder to set aside—or "ring-fence"—a proportion of the money that he has available for the floating charge holder and to hold it for distribution to unsecured creditors.

While exact figures are not available to show what the Crown gets as a result of its preferential status as a proportion of all distributions made in insolvencies, we estimate—from figures held by the Insolvency Service—that, preferentially, the Crown gets somewhere in the region of 10 per cent of all distributions—it is certainly not less than that and nor do we believe that it is as much as 20 per cent.

But, we would not want the costs of distribution to the unsecured creditors to outweigh the benefits of the additional money and so we propose to set the ring fence on a sliding scale with a de minims level. We shall prescribe by secondary legislation exact figures in the light of consultation with interested parties. I believe that that was the matter about which the noble Lord, Lord Hunt, was concerned. But, for example, we might provide that the ring fence is 50 per cent of the first £10,000 available for distribution to the floating charge holder; then 10 per cent until the net property reaches the value of £1,000,000; and thereafter the figure should be reduced to 5 per cent. I give that as an example, but consultation will take place. This section will apply to property subject to a floating charge of any company over which a liquidator—or provisional liquidator—has been appointed, or which is in administration or receivership. But it allows for creditors agreeing to a voluntary arrangement to set the ring fence aside.

As I say, consultation will take place with all interested parties. In other words, it will not be restricted. We shall carry it out as soon as we can. We shall start immediately after Royal Assent. We intend to bring it to a close in the New Year.

Clause 248 agreed to.

Lord Grocott

I beg to move that the House be now resumed.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.

House adjourned at ten minutes past eleven o'clock.