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Points of Order

3.30 pm

Mr. Nigel Spearing (Newham, South) : On a point of order, Madam Speaker. You will be aware that, under Standing Order 127, the Select Committee on European Legislation has a duty to report to the House when there arise matters of legal and political importance with regard to documents that have been laid before the Council of Ministers. The Standing Order refers also to documents laid by one institution of the Community with another. You will be aware also that, unlike the treaty on European Union, which was signed at Maastricht, the negotiations between the Union and membership applicants are a matter not for intergovernmental negotiations but for decision by the institutions of the Community and its Council within its own treaties. Documents relating to the blocking minority figures 23 and 27 have been laid before the Council and, indeed, were discussed last week and will be discussed tomorrow.

Are you, Madam Speaker, aware that no report relating to the matters placed before the Select Committee on European Legislation has been made by memorandum ? As hon. Members are under the impression that the resolution of the House of 24 October 1990 requires Ministers not to take decisions before such scrutiny has taken place, are not the Government beholden to report by memorandum and by placing those documents before the House so that hon. Members may have an opportunity to debate their merits and, indeed, their importance before a Minister indicates accession or agreement ? Will you, Madam Speaker, so rule ?

Madam Speaker : I am grateful to the hon. Gentleman for giving me notice of his intention to raise this matter. I can only repeat to him and to the House what I have already said to the hon. Member for Stafford (Mr. Cash) : that no text relevant to the issue he wishes to debate is available for scrutiny by the Select Committee on European Legislation. The chapter entitled "Institutions" in the document that has been made available is not yet agreed, but the document itself relates to a process that is actually taking place between national Governments. National Parliaments are not, therefore, yet involved, and nothing has happened that involves the responsibility of the Chair of this House. I regret that at this stage I am unable to help the hon. Gentleman further.

Mr. Spearing : I am much obliged to you, Madam Speaker, for your ruling relating to that resolution. Will you please confirm that, whereas the Government may have--indeed, have--laid before the House documents


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concerning legislation relating to tobacco advertising, to the social matters that are to be debated this Wednesday and to harmonisation of postal services, and whereas the House may debate those, the Government will not be required to take this action unless the resolution is changed ? But nor does the resolution debar the Government from placing the documents if they so wish.

Madam Speaker : I think that my statement is absolutely clear, if the hon. Gentleman will look at it.

Mr. Paul Flynn (Newport, West) : On a point of order, Madam Speaker. I want to raise with you the important subject of the accountability of Ministers to this House. Information from the evidence of Mr. Alan Moses to the Scott inquiry became available to hon. Members only this morning. The subject was raised during questions to the Attorney-General and he brushed aside questions by saying that the House will have to wait until Thursday, when he gives his evidence to the Scott inquiry.

Although the Attorney-General has a duty to give evidence to the Scott inquiry, surely he has a more important duty to give evidence to this House. Will you, Madam Speaker, rule that the accountability of Law Officers to this House is supreme and indivisible ?

Madam Speaker : Ministers are of course free to reply to questions in their own way ; it is not for the Speaker to put words into their mouths. But if Members are not satisfied, they can seek to pursue issues by way of debate. They cannot, however, insist on being given information in the form that they would like at Question Time. It is up to a Minister to answer as he thinks fit at Question Time.

Mr. Jeremy Corbyn (Islington, North) : On a point of order, Madam Speaker. You will recall that my hon. Friend the Member for Bradford, West (Mr. Madden) and I, at business questions last Thursday, raised the issue of the treatment of asylum seekers by the Home Office, and the fact that more than 100 people are on hunger strike. I understand that they have been dispersed to prisons throughout the country--their only crime, seeking asylum in this country.

May I ask whether the Home Secretary has given you any intimation of his intention to hold a meeting with hon. Members who have written to him asking for such a meeting, or of his intention to come to the House to make a statement on the appalling travesty of justice that is taking place in this country ?

Madam Speaker : I cannot answer the hon. Gentleman's first question- -I do not know the intentions of the Home Secretary--but I can tell him that I have not been informed that any Minister is seeking to make a statement on that issue.


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Orders of the Day

Insolvency (No. 2) Bill

Order for Second Reading read .

3.36 pm

The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. Neil Hamilton) : I beg to move, That the Bill be now read a Second time.

The Bill is short but it is technical. Although I shall need to be precise in some areas, I hope that I shall be able to address the broad issues without becoming enmeshed in too much detail. First, I should outline the circumstances in which we have found it necessary to introduce this Bill. The Insolvency Act 1986 contains two measures, administration and administrative receivership--the latter is known in Scotland simply as receivership--which are used frequently to rescue financially troubled companies or to save viable parts of their businesses. For the sake of convenience, I shall refer simply to receivers and receivership, but the reference will be to administrative receiver and administrative receivership in England, Wales and Northern Ireland, and receiver and receivership in Scotland.

Putting together a rescue package and seeing it through to a conclusion often takes several months--if not longer. During this time the business has to be kept going and the administrator or receiver will need to keep on at least part of the work force. The legislation, however, gives him a period of grace of only 14 days before he has to decide whether to adopt their contracts of employment. In the case of administration, the effect of adoption is that in practice the obligations under the contracts of employment become expenses of the proceedings. In an administrative receivership, however, in addition to the company's continuing liability the receiver also becomes personally liable under the contract.

Fourteen days is not a long time. It will rarely be long enough to effect a rescue or conclude a sale. Administrators and administrative receivers were clearly concerned about the implications of adopting contracts of employment right from the time the legislation came into force at the end of 1986. As early as February 1987 the receivers, in the case of Specialised Mouldings, obtained directions from the High Court that it was possible to avoid adopting such contracts but to continue to employ the employees.

From this there developed a practice whereby receivers would send letters to employees whom they wished to retain saying in essence that they were not adopting their contracts and that they accepted no personal liability, but that they would continue to pay wages, salaries and pension contributions as before. In due course this seems to have become standard practice in cases of administration too, although the legislation does not provide for an administrator to have personal liability.

On this basis, matters proceeded--apparently satisfactorily--for more than six years. However, in July 1993 a decision of the High Court in the case of Paramount Airways Ltd (No. 3) cast doubt on the effectiveness of the disclaimer--if I may call it that--which by then was being routinely used. There was an appeal to the Court of Appeal


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in February this year which upheld the decision of the High Court. Moreover, although it was an administration case, the judgment also raised serious doubts about the effectiveness of the disclaimer in receivership cases. Since then, the general perception has been that it is no longer safe to place any reliance on the use of disclaimers, with the result that if employees are not dismissed within the 14-day grace period their contracts will be held to have been impliedly adopted.

The consequence of the Paramount judgment is that the contractual rights arising from the termination by administrators of contracts of employment that they had adopted, even unwittingly, constitute a priority charge on the company's assets. Insolvency practitioners concluded that the effect of that might be so to encumber the company that there would be no substance left upon which to base an effective rescue package. Understandably, they were even more alarmed at the prospect, in receiverships, of incurring substantial personal liability. The result was likely to be that they would resort to wholesale dismissal of employees unless the business could be sold within 14 days. That would not have been good for business, employment or the economy.

Right hon. and hon Members will recall that on 14 March my right hon. Friend the President of the Board of Trade made a statement to the House on the issue. He said that he intended to bring forward legislation at the earliest opportunity which would enable an administrator or a receiver to adopt a contract of employment with more restricted effects than at present. That commitment is now honoured in the Bill. The aim is to discourage administrators and receivers from dismissing employees simply because of the fear of the extensive liabilities which may be incurred--in the case of receivers, extensive personal liabilities--as a result of the adoption of the contracts. Under the proposals, only qualifying liabilities, which I shall shortly describe, would be incurred.

In the case of administration, that aim would be achieved by the amendments to section 19 of the Insolvency Act 1986 contained in clause 1 of the Bill. Those amendments provide that only qualifying liabilities would in future be covered by the statutory priority charge over a company's assets. Qualifying liabilities are defined broadly as wages or salary or contributions to an occupational pension scheme in respect of services rendered after the adoption of the contract. That would also cover rights to holiday pay and sickness pay arising after adoption.

In the case of administrative receiverships, the aim is achieved by amendments to section 44 of the Act, which are contained in clause 2 of the Bill. Those amendments also restrict the receiver's personal liability--and consequently his statutory right of indemnity from the company's assets--to only qualifying liabilities as I have just described them.

Clause 3 of the Bill makes provision for amendment of section 57 of the Act. It introduces the limited personal liability of the new scheme into the Scottish system of receivership. Clause 4 and schedule 1 provide for the Bill's effects to be brought about in Northern Ireland by amendment of the relevant provisions of the Insolvency (Northern Ireland) Order 1989.

There will be, of course, entirely understandable concern that the proposed amendments should not disadvantage employees whose contract is terminated by an administrator or receiver. They do not.


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Liabilities, other than qualifying liabilities, arising from a contract of employment will remain, but they will be treated as an unsecured claim against the company. Moreover, the proposals will not affect the employee's position under employment law.

This measure is not intended to overturn the decision in the Paramount Airways case, which may go to appeal. It would apply only to contracts that are adopted on or after 15 March 1994. Any contract adopted before then will not be affected by the changes.

It is hoped, of course, that the proposals will be adopted and that as a result it will prove possible more often to return companies to viability or to sell their businesses as going concerns. In that way, employees will keep their jobs. They would not be affected by the proposals because their contracts of employment would not have been terminated.

That brings me back to the concerns that have caused us to act so quickly to resolve the difficulty. Those concerns are recognised on both sides of the House. In that context, I should like to thank the Opposition for their constructive approach in facilitating the measure. It cannot be in anyone's interests for administrators or receivers to feel constrained to close businesses and dismiss employees because they cannot risk an otherwise viable rescue plan being subverted by the burden of rights that arise when they find it necessary to terminate a contract of employment that they have adopted, or because they would be personally liable for those costs.

Mr. Dennis Skinner (Bolsover) : The Bill is very narrow and I suppose that it will remain so. As I am suspicious about what the Government might do, however, and as I have read in the newspapers that many Tory Members of Parliament are heading for bankruptcy, can the Minister assure us that this narrow Bill will not be amended here or in another place to ensure that they are rescued from bankruptcy ? He says that he does not believe in intervening in the market, so will he give us an assurance that, in the life of this Parliament, no Tory Members who have got up to their necks in debt with Lloyd's will be rescued by the Government, which means by the taxpayer ?

Mr. Hamilton : Like the hon. Gentleman, I wear my badge of poverty with some pride. I am not one of those people who have ever been a part of Lloyd's or a party to any other investment in which I stood to lose any substantial sum. I cannot foretell the circumstances in which the House or another place might amend the Bill. As a general rule, Ministers are not too keen on their legislation being amended. I do not propose to amend the Bill and my proposals are before the House. I think that I can give the hon. Gentleman the assurance that he requests, but it is not for me to foretell the future. It cannot be in anyone's interests for businesses that might otherwise be saved to be closed down as a result of the adventitious circumstances that gave rise to the need for us to legislate in this form today.

The statement by my right hon. Friend the President of the Board of Trade on 14 March was welcomed on both sides of the House. The Bill will give effect to his proposals, and on that basis I commend it to right hon. and hon. Members.


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3.46 pm

Mr. Stuart Bell (Middlesbrough) : I am grateful to the Minister for his short and technical introduction to our Second Reading debate on what he describes as the broad issues. I am glad that my hon. Friend the Member for Bolsover (Mr. Skinner) brought to the attention of the House one of those issues by mentioning one of the great difficulties that may lie ahead for the Government. They may find that they are forced into different streams and torrents, and that they have to distort the meaning of the Bill.

When the President of the Board of Trade, who is not here today, made his statement last week, he reminded me of the opening of the first motorway in Lancashire. Harold Macmillan, who was then Prime Minister, opened it, but two weeks later it was closed for repairs. At the time, Harold Wilson said that it was a pity that the Prime Minister had been invited to the opening but not to the closure. We cannot lay the blame for the Insolvency Act 1986 at the door of the President of the Board of Trade. He was on a short trek through the wilderness at that time and was writing such lively and entertaining books as, "Where There's A Will" and showing us what a real interventionist in the economy can do. However, the right hon. Gentleman had to tell the House about the difficulties that resulted from the 1986 Act.

The Under-Secretary of State took us a little way through the variety of legal circuits that have had to be followed. The Bill came about because of a court ruling in the case of Nicoll v . Cutts, followed by that in the case of Specialised Mouldings Ltd. on 13 February 1987. The latter judgment was never properly reported, which is astonishing. There was no report or transcript of the judgment, no note of the reasons why Mr. Justice Harman reached his conclusions and no details of the facts of the case were given. No helpful authority was given for the judgment ; and that is not merely my view, but that of the Court of Appeal.

Since 1987, the Government and practitioners of insolvency law have known that they had little authority for allowing receivers to escape their liabilities by sending a letter saying that they had not adopted the contracts of employment. Everyone knew that that was bad and unsafe law, yet the Government did nothing about it. That says a lot about the Executive ; it also says something about our legislature.

The legislation had its Committee stage, and experts served on the Committee. Time and again, Tories with expertise and knowledge are metaphorically bound and gagged in Committee : they are not allowed to say a single word that might delay the proceedings.

Notwithstanding all that was said by insolvency practitioners at the time, the Bill reached the statute book--with a hidden timebomb ticking away under every insolvency practitioner in the country. On 14 March, on the Floor of the House, the President of the Board of Trade promised this legislation. As my hon. Friend the Member for Workington (Mr. Campbell- Savours) has said, Opposition Members are concerned about the public interest, and will facilitate the Bill's passage ; nevertheless, we are anxious about certain omissions. One such omission--with which we may deal


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later, in Committee--relates to law-of- property receivers who are sent in, on behalf of banks and building societies, to recover big single assets such as hotels and office blocks.

The Minister and his Department may well have accepted that hotels and office blocks do not necessarily employ staff, and that contracts of employment will not be involved in such cases ; if they are not involved, they should not be included in the legislation. As has been said, however, when staff are involved they may need to remain involved. That suggests that an appropriate amendment should be tabled to cover the provisions of section 37 of the 1986 Act. I listened with interest to the Minister's clarification of the Government's position on retrospection. He said that the Bill would not be retrospective but would take effect from 15 March. In 1964, we had a Labour Government, whose first act was to pass retrospective legislation in respect of Burmah Oil, to reverse a decision of the Law Lords in the national interest. I believe that the President of the Board of Trade is somewhat exercised by the question whether to start from the position of 14 or 15 March, or whether to go back to 1987 : he said last week that there was a question of retrospection, and I believe that he was thinking very deeply about that. The Bill raises a serious issue. The Minister seemed to be saying that he did not wish to overrule the decision of the Court of Appeal. However, he is doing what should have been done years ago--rectifying an error that turned up in the Insolvency Act 1986. I fear--as do insolvency practitioners--that a number of law suits may result from the legislation. My hon. Friend the Member for Bolsover mentioned Lloyd's of London ; but professional indemnity insurers, who may have to pick up the tab, must be worried about the possibility of consequential claims on the insurance market. The hon. Member for Tynemouth (Mr. Trotter), with his knowledge of insolvency matters, may wish to help us in that regard.

Perhaps the Minister will give us a fuller explanation in Committee, but I am not entirely sure that it is wise to make the Bill retrospective only to 15 March, rather than taking the retrospection back to 1987. The former date may create uncertainty among lawyers, insolvency practitioners and those who have lost their jobs in the past few years, and who may suddenly feel that they have a claim that can be honoured.

Let me deal with some of the points made last week. The Minister has rightly said that this is a narrow, technical Bill. However, my hon. Friends the Members for Birmingham, Hodge Hill (Mr. Davis) and for Livingston (Mr. Cook) are still concerned about a matter that they raised then--the £205 redundancy money. That is not a huge sum in this day and age ; it is certainly less than the average industrial wage. We feel that statutory redundancy money should be increased to bring it into line with that average.

As we are amending the 1986 Act, we should ask how that Act came to be such a disappointment. Was it overwhelmed by the number of insolvencies and bankruptcies that occurred in a recession that lasted three years ? Was it overwhelmed by the number of firms that went into administration and receivership, or was the Bill simply flawed ? Do those flaws still confront the House and insolvency practitioners ?


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We are pleased that the number of insolvencies is reducing, from the high of 5,734 appointments in administration and receivership in 1991 and 3,266 in 1992, but the target of 2,000 in 1994 hardly gives the impression that the economy is thriving.

More than 4,000 firms were wound up and more than 6,000 individuals were declared bankrupt in 1992-93 as a result of actions brought by Government Departments. Those figures came from the Under-Secretary of State for Corporate Affairs. Many of those actions were taken by the Inland Revenue and Customs and Excise. I fully accept that they must both look after taxpayers' interests, but these may be equally served by keeping men and women in work and businesses viable and solvent.

Customs and Excise and Inland Revenue specialised units involved in debt recovery take into account a variety of factors, such as the company's tax history, the need to ensure future compliance and expectations if a business continues to trade. Perhaps we will learn later today, or after publication of the Government's consultation paper on the future of insolvency law, whether the United Kingdom will go to the lengths of Australia, Denmark and Canada in reducing the preferential status of the taxman.

Mr. Derek Enright (Hemsworth) : I share the suspicions of my hon. Friend the Member for Bolsover (Mr. Skinner). Has my hon. Friend the Member for Middlesbrough (Mr. Bell) considered the case of Unicorn Heritage plc, which took £200,000 from the Government and subsequently went bankrupt ? That put many other firms into bankruptcy, yet Unicorn Heritage's investors were again awarded money direct from the Government in tax returns. People employed by that company, and also those who were on its board and who played a leading part, are still able to conduct other profitable businesses and have important jobs in the Treasury. Should not that scandal be put right in future, if not by the Bill ?

Mr. Bell : I entirely agree. We have expressed concern on many occasions about phoenix companies that go into liquidation but whose directors rise from the ashes, whereas the work force pay a heavy penalty-- which is aggravated by statutory redundancy money not being as much as it should be.

We will extend as much co-operation as we can to the Minister in the preparation of a proper insolvency Bill that can be appropriately debated at every stage. We want to identify how, out of the morass of insolvency, there may be more management and worker buy-outs and employee share ownership schemes, and how those could be developed as a first option for any company in difficulty. Employees who have invested their working lives in a company should enjoy a return by having some say in the company's survival and future.

We are looking, not for a technical Bill that modifies a weakness in the law that was perceived way back in 1987, but for a comprehensive review of insolvency law, to make it easier and cheaper to obtain an administration order, to abolish the law of distress, encouraging creditors and Government Departments to use accountants to look at alternatives before closing a business, and looking more closely at the moratorium aspects of business debts. We must move away from the concept of closing down viable businesses. We must establish a culture in which troubled companies, professional advisers, creditors and


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Government are committed to ensuring that troubled businesses, when essentially sound, survive periods of economic downturn.

As we said earlier, in the public interest and that of workers, management and business who may be uncertain, we are happy to give the Bill latitude in the House after it has been given due debate on Second Reading, in Committee, on Report and on Third Reading. Nevertheless, the matter should have been brought to the House and the weakness in the law rectified a long time ago. We welcome the fact that the Government have now brought it to our attention. 4 pm

Mr. Neville Trotter (Tynemouth) : The hon. Member for Middlesborough (Mr. Bell) referred to my background as an accountant. I remind the House that I served on the Committee that considered the Insolvency Bill in 1985. The hon. Gentleman referred to, perhaps, the too hasty passage of that Bill. It was anything but hasty. It was an epic occasion, as I remember it, with more than 1,000 amendments tabled in the House. The debate went on for weeks and months. The Bill came out in a somewhat better form than many of us who served on the Committee thought likely as there had been so many amendments. It might be helpful if I explain some of the background to the situation that we now face. It was nearly 10 years before the matter came before the court ; in fact it came before the court shortly after the 1986 Act came into force on a case involving Specialised Mouldings Ltd. That case did not have the full hearing that the recent Paramount Airways case did. The receiver went to the judge and said, "I am faced with a difficult decision here. This is what I think I ought to do, but will you tell me whether I am right ?" The judge told him that he was right and upheld the situation that had previously prevailed for employee claims up until that time. That decision does not seem to have counted in the way that it might have, because, as I understand it, no transcript was made of the proceedings as has been done in the Paramount Airways case. It was on the basis of the Specialised Mouldings decision that the rescue operations for thousands of companies have taken place in the past few years. It is the doubt over the situation in those rescued companies--or cases where attempts were made to rescue companies--that gives me most concern tonight. I congratulate my hon. Friends on their speedy action in putting the situation right for the future in the light of the Paramount Airways decision. I know that there are cases throughout the country, such as the one mentioned recently in my local paper, where an attempt to save a firm will get a boost from the action now being taken. But for that action being taken, I believe that we would have seen the end of recovery situations, which is the principal aim of the insolvency legislation--to try to rescue companies and preserve jobs. We are right in putting the Bill through speedily tonight to remove the doubt and uncertainty that there would otherwise be.

The Paramount case may well go to the Lords on appeal, but we do not know what the outcome of that would be. Three learned judges in the Court of Appeal have decided as they have. I am not sure whether they had the benefit of a full explanation of the thinking in the House during the Report stage of the Insolvency Bill when the matter came up for consideration. If one reads


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Hansard , one sees that it is quite clear that the aim was not as interpreted by the Court of Appeal in the recent case. It was to "catch the case where a receiver knowingly allows an employee to contribute his services and says nothing to him for more than 14 days about payment for those services."--[ Official Report , 18 July 1985 ; Vol. 83, c. 544.]

The consequences of that would have been that an individual could have been employed by a receiver and never paid for being employed by him. The section was supposed to deal with that situation. No intention was ever outlined in Committee to bring about the consequences that the judges in the Paramount Airways case have held to be the law.

I believe that the Government are right in what they are seeking to do today, but I have grave doubts about what will happen if the need to clear up the situation for the intervening years from 1985-86 to now is not tackled. The seriousness of the situation must be stressed. Many companies are involved and, potentially, many claims could be made on the basis of the interpretation of the law in the Paramount Airways judgment, which was completely different from what the law used to be before the 1986 Act, from what was said to be the intention that lay behind that measure, from the interpretation that was applied in Specialised Mouldings and from what everyone thought the position to be in the interim, including the Department of Employment, which confirmed recently that it believes that the decision in Specialised Mouldings to be the right one and will continue to apply it.

I am supportive of the amendment that, technically, has been tabled at the last moment. If it had not been that I was on the train travelling down from Tynemouth, I would have signed it. We should give great consideration to the need to correct the situation back to 1985-86.

Similarly, I would have been happy to support the amendment that would bring section 37 of the 1986 Act within the proposed provision if I had been able to do so. Why should the receivers who are covered by section 37 be treated differently from other receivers ? We are talking of receivers or managers who are appointed under powers that are contained in an instrument for certain contracts. They have always been treated in exactly the same way as other receivers in respect of the priority of debts. I can see no reason why that should not be the position now. I am happy to support the relevant amendment.

The aim of all insolvency legislation is to preserve jobs. The action that we are taking--I have suggested previously that we should take it--will be helpful in preserving jobs in future. Without it, rescue operations will not be mounted. It is in all our interests that they should take place wherever possible, and those involved should be given every assistance to ensure that the operations are successful and preserve jobs for the future.

4.16 pm

Mr. John Gunnell (Morley and Leeds, South) : There is more or less unanimity in the Chamber this afternoon. Anyone who recognises the positive role that receivers have played in company rescues in the years since the Insolvency Act 1986 will welcome the Bill and appreciate that the major disruption in the work of receivers that has been caused by the recent judgment warrants an immediate response. We have before us an attempt to restore what was perceived to be the position before the Paramount Airways judgment.


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Will the Minister confirm that it was the Government's intention when they introduced the 1986 Act--I think that that happened in 1984-85--to make the law as it will become when the changes that are set out in the Bill take effect ? That is a key question. Our response to other issues, including those raised by the hon. Member for Tynemouth (Mr. Trotter) in relation to past receiverships, will perhaps hinge on the Minister's answer. Given the speed of the Government's reaction, it seems that a serious drafting error was made in the past. There should not be such major ambiguity in company law.

The error was not so transparent that it became quickly obvious, otherwise the present practice would not have continued for so long. It cannot be certain, therefore, that the Paramount Airways judgment will survive following appeal to the House of Lords. The Government are right not to wait to find out what will happen there, assuming that the matter goes to the House of Lords, but I would think that the receivers will insist that it does.

Am I right in thinking that confusion hangs on the meaning of "adoption" as used in present legislation ? Is it possible that the word is interpreted differently in English and Northern Ireland law from Scottish law ? Why is there no definition of "adoption" ? It reappears in the Bill, and the provision of a definition would bring an end to any confusion. Presumably, those who drafted the Bill considered the meaning to be so well known that a definition was not required. In that case, I think it might be helpful to practitioners if, in his summing up, the Minister would define very clearly what is meant by the word "adoption". Should a receiver or an administrative receiver adopt the contracts of employees if he is not necessarily aware of them at the time ? For example, at the time that a contract is dealt with there may be employees on extended sick leave or maternity leave who are not on the payroll. Despite this fact, are those employees "adopted" in the sense of the Act ? I think it is important for people to know what the Act means in this regard. I raised the question about on-going receiverships in the discussion which followed the announcement by the President of the Board of Trade and I accepted his explanation that he could not introduce retrospective legislation. As hon. Members know, that news has cost jobs already. A company called Michael Mayes--I think the Minister will know of it--is trading at Thurnscoe in south Yorkshire in the Dearne valley and its chances of survival beyond the next day or two are now remote. We were given a ruling that this legislation could not be retrospective and, therefore, the receiver had to act within 14 days. However, it was not possible for him to do so, which is a tragedy because that company may have survived. There is a real shortage of jobs in the Dearne valley, as the Minister will know, and it is far easier to lose jobs than find them. The loss of that company is significant and we are all sad about it.

The key to the way in which we deal with the past--the hon. Member for Tynemouth said correctly that he hoped that the Minister had some constructive thoughts about this matter--lies in my original question : did the Government always intend the law to operate as it has operated for the past seven years ? If that is so, I think some account must be taken of what I would call the fallout from the


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Paramount judgment. That fallout is the implications for those who have been conducting receiverships for the past seven years. As has been said already, there have been thousands of receiverships and hundreds of administration orders. Businesses have been kept going and workers kept in their jobs as a result of reliance on the court judgment already referred to--the 1987 case of Specialised Mouldings Ltd. Reasons have been given why the present judgment supersedes the 1987 judgment. Many jobs have been saved in that time. In some companies it has not been possible to save all jobs and in other companies a receiver has traded for far more than 14 days, taking on the contracts of employees on the assumption that they would not fall on himself, but has found it impossible to maintain the company in the long run. Therefore, receivers face considerable debts if the Paramount judgment is not reversed. In those circumstances, is it reasonable that receivers should be liable for the contracts of all those people who have lost their jobs, despite the fact that it was the receivers' intention to keep them in their jobs if possible ? Neither the receiver nor the employees concerned were under any illusions about who was picking up the bill--neither expected that the bill would finally pass to the receiver.

Press speculation suggests that the debt for receivers could run into millions of pounds. It seems obvious to me--I hope that the Minister will confirm this point--that this was never intended to happen. Receivers did not believe that they were liable and employees were never led to believe that the receivers would be liable. I understand that the Government will await the result of an appeal to the House of Lords, on the pretty certain assumption that there will be one. However, I very much hope that constructive thinking is taking place at the Department of Trade and Industry in respect of how to deal with a potentially messy situation should the need arise. After all, to a certain extent, the more constructive the receiver has been in his attempt to save jobs and to rescue companies, perhaps the greater is his possible exposure. That surely cannot be right. It is regrettable that the timing of the Paramount judgment, and this House's correction of it, catch some companies which are in the middle of a constructive receivership and companies which, like RFS Doncaster, are trading well. Will the Minister be able to say anything in the debate about possible additional intentions if the need for those should arise ? The Minister might be able to say something about the Government giving the matter constructive thought and that might help to keep running businesses which are on the edge at the moment only because of what has happened through the Paramount judgment.

Ironically, the seven-year time scale of the operation of what seems now to be unclear drafting, which must have taken place in the DTI, could well threaten our most experienced receivers and mean that they end up in receivership themselves.

4.15 pm

Mr. Malcolm Bruce (Gordon) : As Members in all parts of the House have welcomed the Bill, I hope that the Government will accept that the comments have been made in the spirit of ensuring that an amendment to an Act made necessary by a court hearing is passed quickly and


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correctly. That is why amendments have been tabled which have been signed by myself, the hon. Member for Middlesbrough (Mr. Bell) and the hon. Member for Tynemouth (Mr. Trotter). Although the hon. Member for Tynemouth has had to leave the Chamber, I am grateful to him for saying that the amendments have all-party support. The amendments have been tabled in a spirit of helping the Government to ensure that we pass a Bill that meets the needs raised by the court case about which we are concerned.

There is no doubt that we need a rescue culture in this country. That means not a culture which seeks to put good money after bad when a business encounters difficulties, but a culture that recognises that with careful management, a fresh approach and some reorganisation, companies which get into difficulties can be rescued and continue, albeit in a remodelled format, to generate income and to employ people.

The core of this legislation and of the problem relates to the continuation of jobs and employment. That is the single reason why there is such cross- party support for the Bill. It has been said that if a Leyland DAF situation had arisen subsequent to the Paramount Airways Ltd. case, and before this Bill had become law, a rescue operation could not have been mounted successfully and would not have been mounted. The consequences of that to the United Kingdom would have been catastrophic.

When we recall the speeches of the President of the Board of Trade at the Dispatch Box during the debates on Leyland DAF, it is clear that he must recognise that this Bill is designed to ensure that there is time for a rescue operation to be determined on proper business grounds where the Government can stand back and allow it to happen without being placed under undue pressure to intervene when that might not be the most appropriate thing to do. I hope to persuade the Minister that if he is not prepared to accept the point he may run the risk of finding himself or his boss back at the Dispatch Box in future to deal with a potentially serious situation. The hon. Member for Tynemouth advised me that one of the reasons why he has had to leave the Chamber is that he has to meet a Minister about Swan Hunter. The Swan Hunter receivership has been a long and ongoing problem which would have been threatened by the Paramount judgment. The Independent today reported that, according to Howard Davies of the Confederation of British Industry, the CBI is concerned that the uncertainty which the ruling has created in relation to outstanding claims and possible new claims threatens claims of up to £1 billion and could result in the bankruptcy of many medium-sized accountancy firms, with the consequential loss of a substantial number of jobs in the future. The Minister will recognise that that is only one person's opinion, but if it has any basis in substance it needs to be addressed.

Reference has been made to the fact that there may be an appeal to the House of Lords. I understand that Touche Ross has not yet decided whether to submit an appeal to the House of Lords. Even if an appeal is made, and is successful, however, it would be many months before it was finally processed and in the meantime a whole queue of similar claims may be made. That is a further reason why it is necessary to have a debate on the issues. The Minister must make the Government's position clear and the issues need to be addressed, not least because the courts are not only entitled but are required to look behind the


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Bill, and presumably the Act that it seeks to amend, to see what was the objective and the intention of both the Government and the House of Lords at the time.

The hon. Member for Tynemouth made it clear that the 1987 case--the Specialised Mouldings case--was decided soon after the Insolvency Bill became law. It was not a published ruling but clear guidance which until now was accepted by everyone as the definitive practice on which normal receiverships and administrations could be modelled. There is no doubt, therefore, that the judge thought at the time that he was clarifying the clear intention of Parliament. This Bill shows that that was the clear intention of Parliament and Parliament is passing amending legislation as a direct result of the judge's ruling to make that clear. One hopes that the courts will take the ruling into account when any further appeals are presented to them. I hope that the Minister will address the issue because the fact that the courts should take the ruling into account at present does not remove the immediate uncertainty. It has been reported, for example, that claims of up to £10 million are being lodged in the case of Olympia and York--the Canary Wharf development--and it has been suggested that some of the Maxwell companies may lodge similar claims. In a sense, I can see both sides of the situation. Having a former Maxwell company in my constituency, which is now British International Helicopters, I can understand employees wanting to take advantage of a ruling that might give them some benefit. One can hardly blame them for taking advantage of the ruling that the court has made available to them.

The trouble is that the consequence of the ruling going through, and the uncertainty that it creates, will inevitably lead to a situation where receivers will simply say that they do not intend to put themselves at risk in mounting a rescue operation, that 14 days is much too short a time for them to determine whether a company can be rescued and the liability to which they could be laying themselves open is much too great, so they will simply sell off the assets and completely liquidate the company, and the rescue will be abandoned. It would be for the greater good to ensure that that does not happen. We must get clear guidance and a clear ruling as quickly and as early as possible.

It is perhaps a little surprising that Mr. Justice Harman could have said that a practice that had been established for seven years, of issuing a letter saying that a contract will not be adopted, was only so much wind. That was a somewhat dismissive ruling by a judge on something which was clearly an accepted practice and which clearly reflected the wishes of Parliament.

There are amendments tabled in my name and that of the hon. Member for Middlesbrough which are tacitly and openly supported by the hon. Member for Tynemouth and on which we may have an opportunity to address the specific points in a little more detail. I shall therefore not detain the House any further, except to say that the Government have responded extremely quickly and it is appreciated that they needed to do so. It is understood that the consequence of that quick response is that there was little time to prepare the legislation--from a statement on Monday to publication of the Bill on Friday and debating it the following Monday. In those circumstances, I hope that the Government will approach the amendments and the comments that are being made in a constructive spirit and recognise that we are trying to ensure that the


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legislation, when it goes through both the Houses of Parliament, delivers the goods, meets the intention of the House and avoids any further misunderstanding.

4.24 pm

Mr. George Howarth (Knowsley, North) : I join my hon. Friend the Member for Middlesbrough (Mr. Bell) in welcoming the fact that legislation has been introduced in such a short time to deal with the particularly knotty problem which has been caused by the judgment. Although I understand the reasons for the speed with which the legislation was drafted and brought to the House, it is perhaps a missed opportunity. There are areas of insolvency legislation which give cause for concern and, where opportunities exist, they are often not fully exploited. I would like to use the opportunity of the Second Reading debate to flag up some of the issues based on my experience as a Member of Parliament dealing with constituency problems.

The first issue which concerns me--it is directly connected with the Bill-- is employee rights during the period of insolvency. I am aware that, for example, there are a number of unfair dismissal claims which are outstanding and are waiting to go before tribunals which have arisen out of the lack of clarity about the rights of an employee in that situation vis a vis the administrative receiver or, if it moves on, the liquidator.

As a result of the legislation, those rights--that is, to be able to go to a tribunal and to claim unfair dismissal--must be looked into further. The case law on the matter--Leyland DAF, which has been referred to, and the case of Bowden v. Bowden--adds up to an area where there is concern which needs to be clarified further. It is a pity that we have not taken the opportunity to try to clear up that concern now.

My main point is the issue of what have been referred to as phoenix situations, where either the work force, the management or some part of the structure of an existing company--it may even be some of the directors-- decides to try to rescue something out of a company which is in liquidation.

Let me state my experience briefly. For a fair part of the early to mid 1980s, prior to coming to the House, I was employed first by an organisation called CDS Training in Liverpool, and secondly by the Wales Co -operative Centre, which was set up by the Wales TUC. The main purpose of my employment during that period was to try to promote and set up plans for work-owned enterprises.

We were not prescriptive about it. We were involved with worker co- operatives, although often there might be just a partnership. In some cases, there was an employee share ownership plan, otherwise known as an ESOP. During that period, I was probably involved with attempts--in many cases succesful attempts--to set up 40 to 50 firms. Those mostly arose out of industrial closures and cases where the company was already in receivership.

I have some experience, and I realise the difficulties that the people in those situations are up against. However, I want to concentrate on my more recent experiences as a Member of Parliament. The Minister is familiar with at least one of the cases which I am about to mention.

In 1988, I think--so hurried has the process been, I have not had the opportunity to check everything--there was a


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company in my constituency called Greenberg. It employed about 95 people and was a long-established firm which made glass products such as patio and industrial windows. Largely through bad investment in new buildings--it was a time of high interest rates--the firm could not carry on servicing its debt and went into receivership.

I, the work force and various people advising me, including the local authority, worked for about six weeks to set up an employee share ownership plan. We raised the finance from the work force, from loans and from grants from the Department of Trade and Industry. We set up the business. It was a difficult time for the people running the business. It was badly under- capitalised, as many business start-ups find themselves, but after about a year, despite all the difficulties, it was still going, although it still had financial problems. It was taken over by another firm. It has been a success. About 25 to 30 people now work for the firm. That is considerably fewer than in the first instance, when the company was Greenberg. Nevertheless, we managed to save something out of the company. We had difficulties confronting the receivers and making them understand what was involved and in convincing everyone else that there was a business worth saving.

The second example occurred in 1993. A company in my constituency in Kirkby which had been known as Lyons Maid and at the time was known as Clarke Foods went into receivership. Sixty seven employees worked at the factory. The administrative receiver, Robson Rhodes, dismissed the work force almost immediately. The receivers managed to sell most of the Lyons Maid operation to Nestle . There followed a period during which we tried to convince Nestle to keep the factory in Kirkby going. We failed in that. However, at an early stage, Nestle told us that the plant and equipment at the factory could be passed on to the work force. So we had that assurance, but that was about all.

I had Adjournment debates in the House on the matter and tabled early-day motions. I negotiated directly with the shop stewards and Nestle and the receivers to see what we could retrieve. After many months of work, we succeeded. I pay tribute, above all to the work force, but also to Knowsley council and the Transport and General Workers Union. The Department of Trade and Industry Minister also had a direct hand in the matter. We succeeded in saving more than 30 jobs.

We were defeated in the space of about six months not by the insolvency legislation but, first, by a rather bad summer last year. The firm makes ice cream products and the grim summer did not help to sell ice cream products. However, that was not all the story. The second difficulty was Walls's virtual monopoly on freezer cabinets, which makes it difficult for any other company to break into the market. That monopoly is currently the subject of a Monopolies and Mergers Commission inquiry. The monopoly stopped us promoting the products of Pendletons, as it had become known. At that time, I became--on an unpaid basis, I hasten to add--the chairman of that company.

Thirdly, we were defeated by the tight margins that the supermarket chains can extract from manufacturers. Although we were able to supply notably the Co-op, we were in hot competition with people who had more resources than us. Those were the difficulties that we had once trading, but we also had difficulties in negotiating and


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