Previous SectionIndexHome Page

Mr. Burns: A climbdown.

Mr. Letwin: I would not want to be as aggressive as to describe it in those terms, but the Government have listened to our argument that at least one legally qualified person should be on the tribunal panel. However, I fear that their listening has not been profound, because no provision has been made for all members to be judges or otherwise legally qualified. It could be that two of the three are not legally qualified.

What is going on? The Secretary of State, through an administrative action, is taking to an appeal tribunal constituted by the Secretary of State--a tribunal two of whose members may not have legal training--a person who is liable to be subject to what is, in effect, a criminal penalty, without a jury. The Secretary of State must then persuade the appeal tribunal that that person should be subject to the criminal penalty because he or she is guilty of the highly vexed charge of neglect, on which even a court with a judge and jury might--indeed ought to--find it difficult to decide.

I fear that what we have here is something different from a streamlined process that does not deny the rights of individuals. There is indeed streamlining--that is the admirable side of the case--but it is a streamlining which I fear rides roughshod over deep principles of British jurisprudence.

Miss Julie Kirkbride (Bromsgrove): I am interested in what my hon. Friend says, but those of us who have not

13 May 1998 : Column 392

followed the Bill in as much detail as he has would like to know what the position is at present, how directors of phoenix companies are dealt with, what the change is with regard to the Secretary of State's powers, and who sits on the tribunal. My hon. Friend has gone into some detail about those things, but I am afraid that, at the moment, I am still a little uncertain about the precise arrangements.

Mr. Letwin: My hon. Friend asks some important questions, and I can best answer them by referring her to the straightforward and simple amendment that Lord Goodhart suggested in the other place. It shows clearly both what the current position is and how it should be changed. Lord Goodhart simply suggested that the word "appears" should be replaced by the word "is". That would force the matter before a court, which is exactly where it would currently lie, and where it ought to lie.

In the end, a court ought to decide criminal penalties and whether the actions alleged to have occurred did occur. A court should decide whether the person in question is sufficiently culpable to be adjudged to deserve a criminal penalty, if the action itself is adjudged to have occurred.

That is all we are asking for--a little bit of listening on the spot. We did not see much of that in Committee.

Mr. Waterson: A pragmatic approach.

Mr. Letwin: How right my hon. Friend is; a pragmatic approach is all we ask--a slight change of wording, which must already have been considered by Ministers and officials, because it was proposed in another place. That slight change in the wording would have the miraculous effect of rescuing the Bill, which, as was pointed out in Committee, is already deficient in many respects concerning unrestrained regulation, and bringing it into the terrain occupied by the fine traditions of British criminal justice.

The Minister has a golden opportunity to make that slight listening gesture: a small pragmatic concession to good sense. If he does not do that, this or a subsequent Government will have to amend the legislation once they recognise that some individuals' rights are not respected properly because to the structure that the amendment creates.

Mr. Edward Leigh (Gainsborough): I have some experience in this area, as, in January and February, I was engaged as a barrister in a seven-week fraud trial involving a phoenix company. Therefore, I may have as much recent practical experience in this area as anyone. I shall try to explain some of the difficulties associated with fraud charges concerning phoenix companies, why I think that the speech by my hon. Friend the Member for West Dorset (Mr. Letwin) was so apposite and why the House should pause before embarking on a novel legal procedure.

Fraud trials are immensely complex and difficult to determine. We are not dealing with simple facts concerning shoplifting, bodily harm or the usual nuts and bolts cases that come before the criminal courts. The fraud trial with which I was concerned involved a phoenix company whose directors were charged with setting out deliberately to close the company. There were no fewer than 3,000 separate exhibits in the trial. There were

13 May 1998 : Column 393

initially three defendants, but one defendant pleaded guilty. The trial lasted for seven weeks and initially involved three Queen's Counsel, three juniors and solicitors. Hon. Members might think that the trial cost a lot of money--and it did. It cost a lot of money because people's freedom was at stake.

At least two of the defendants were people of previous good character: they were upstanding and credible members of society, and the trial was the most important event in their lives. As it happens, they were found guilty--I shall not go into the details of what happened to them. It took seven weeks to determine the matter in a public court, where the case was aired fully, with enormous attention paid to detail.

The Government's proposal is similar to what they are proposing in the Crime and Disorder Bill--I serve on the Committee that is considering that legislation, and I am making similar points there. The Government are short-circuiting our traditional and very careful ways of determining guilt. In the Crime and Disorder Bill, the Government are introducing all sorts of measures, such as anti-social orders, curfews and so on. Ministers argue that they will not criminalise anyone because they will be civil procedures. They claim that cases will be determined on the balance of probabilities--as will occur in this instance, which is even more worrying. At least matters will be brought before the magistrates court under the Crime and Disorder Bill. In this case, the Government apparently propose to establish a private inquiry.

As my hon. Friend the Member for West Dorset explained to the House, a Government Department will effectively initiate the proceedings. It will be the prosecutor of those proceedings, it was initially to be the defendant in the proceedings--perhaps that will not occur now--and it will be the final judge of the proceedings. If it was the 18th century, people would be up in arms about that. They would be extremely concerned that a Government Department could pursue company directors and other upstanding members of society who are engaged in legitimate business. I know from practical experience--I spent eight weeks this year examining the matter in detail as it applied to one company--that it is incredibly difficult to resolve such issues.

The company with which I was concerned was in Barnsley. For years, it had traded successfully as a subcontractor for British Coal, which had increasingly asked small companies to go into the mines on salvage operations. The company was run by a tremendous character--everyone in the industry knew him--but he flew by the seat of his pants and had, before the new directors were brought in, built up enormous debts with Customs and Excise and the Inland Revenue.

When he was told that his company would go under, he brought in an accountant, who was subsequently charged with fraud, and an investor with experience of investing all over the world--he was a considerable business man--who was also subsequently charged with fraud. The charges against them were that they had created a phoenix company--they had closed down the first company, deliberately leaving behind the debts to the Inland Revenue and to Customs and Excise, and set up a new company, which also subsequently closed down.

13 May 1998 : Column 394

4.45 pm

During the trial, these matters were extremely difficult to understand. I think that I am of moderate intelligence--although I am not nearly as bright as my hon. Friend the Member for West Dorset--but, for the first three months in which I read the papers and ploughed through the 3,000 separate exhibits, I found the terms of art incredibly difficult to understand. People who engage in fraud are not fools; they cover their tracks. We are not talking about a poor old lady nicking Kellogg's packets at the supermarket.

At the end of the lengthy trial, it was determined that the defendants had been engaged in fraud. However, there were further complications, as British Coal had started to close down the contracts to the company. The second company went into debt, not because of inefficiency, but because British Coal had turned off the tap, as it were--that was, effectively, the company's defence.

Mr. Letwin: My hon. Friend makes a massively learned contribution, which clarifies matters. Does he agree that the measure could create an even worse situation than the one that he is describing, as we could be dealing not with fraud, but with neglect? From his vast experience of these matters, can he cast any light on how difficult it might be for a court, let alone a tribunal, to establish what constituted such neglect--not even undue neglect--as to lead to a director facing a quasi-criminal penalty?

Mr. Leigh: I am glad that my hon. Friend has made that point, as that has worried me for some time. Fraud has to be proven, which is extremely difficult. We hear numerous complaints in the House about lawyers wasting public money, but it is difficult to determine whether someone has set out to commit fraud. However, it is possible to find out; in the case with which I was dealing, the jury found some pointers that showed fraud.

Difficult as it is to prove fraud, how much more difficult is it, as my hon. Friend the Member for West Dorset said, to prove neglect? Is neglect a matter of incompetence or the changing market, for example? If I was conducting a hearing in the rather alarming specialised unit that is proposed, I am not sure how I could prove neglect. We want to hear much more from the Minister about how the specialised hearings will be conducted. I am also worried about the penalties.

One of the defendants in the trial had no equity in the company, but was an accountant who was paid a fee. The jury concluded, rightly or wrongly, that the fee was out of all proportion to the advice that he gave to the second company. There were literally days of evidence about the amount that he charged. As I understand the clause, an accountant who received a relatively low fee could be held liable for massive debts--more than £2 million in the case that I have cited.

We have deliberately created complex company law over generations to try to encourage enterprise and convince directors that, as long as they do not act fraudulently, they have some protection against the vagaries of the marketplace. Many companies went down in the 1980s through no fault of their own. The issue has been blown up because of the few lackadaisical, or perhaps criminal, directors who have allowed companies to go under and then started new ones; but the criminal courts are there to deal with that.

13 May 1998 : Column 395

If the Government are convinced that there is a real problem, they must bring those people before a British judge and jury, and prove beyond reasonable doubt that they are guilty, in which case they should go to prison, or be fined, or both. We are about to enter another massive recession. How many companies will go under through no fault of their own? How many directors will wonder whether they will be liable for national insurance contributions and whether some civil servant will sit in judgment on them?

In the case in which I was involved, it was all very easy: we sat in a comfortable court in London, five years after the company had gone under. Do we remember what was happening in the coalfields five years ago? Debates were raging in the House and miners were losing their livelihoods. The directors' defence was that they were fighting to save the company.

The first defendant had put his whole life into the coal industry, but the company went down. The jury found that he must have known what was happening, and that although he might have been trying to save the company--which was in trouble, perhaps because of investment problems--he deliberately took the decision that the only way in which to save the business that he loved--he employed 150 people--was to close down the first company and leave the debts behind.

Was that defendant fraudulent, negligent or dishonest? All those issues were being determined five years later. What will happen to company directors in future? At least now they have the comfort of knowing, as they struggle with the difficulties of the marketplace, that the company may go down, but that they will not be dragged before a court and have their names besmirched in mud unless they have acted fraudulently. If they have not lied and cheated, they can rely on traditional British justice.

Company directors may be dragged to some secretive tribunal run by the Government, and forced to cough up tens of thousands of pounds and to lose the homes in which their wives and families live. They will have no traditional rights, no jury and perhaps no proper legal aid to help them to deal with the thousands of pieces of paper: if anybody thinks that modern companies are easy to investigate, they are deluding themselves.

Next Section

IndexHome Page