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10.53 pm

The Minister for Competition and Consumer Affairs (Dr. Kim Howells): I congratulate the hon. Member for Harrogate and Knaresborough (Mr. Willis) on securing the debate. I listened to his speech carefully. It was well delivered and constructed, and he presented a compelling case. I am sure that his constituent, Mr. Whitaker, will be pleased with that.

The case is especially difficult for technical reasons, which I shall try to tackle. William Melvyn Jones was made bankrupt on 4 October 1993. He was involved, as the hon. Member for Harrogate and Knaresborough said, in a company called Pallet Ancillary Management Services Ltd. or PAMS. The hon. Gentleman's constituent, Mr. M. J. Whitaker, alleged that Mr. Jones was active in the management of PAMS while he was an undischarged bankrupt. That is at the heart of the case.

Mr. Jones received automatic discharge from bankruptcy on 3 October 1996. Mr. Whitaker is the trustee of a pension fund, which manages a property at Lidgate crescent in South Kirkby. PAMS is a tenant of the property and Mr. Jones is a personal guarantor.

It was alleged that property belonging to PAMS was transferred to two other companies, as the hon. Gentleman said, and that its directors included Susan Wood, Mr. Jones' daughter. Mr. Whitaker made several

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complaints between August 1996 and September 1998. The first was to the official receiver in Sheffield, who reported an allegation under section 11 of the Company Directors Disqualification Act 1986. As PAMS was a live company, the complaint was forwarded to the companies investigation branch with a view to making an inquiry under section 447 of the Companies Act 1985. The case was vetted by the CIB in February 1997 and turned down.

Mr. Whitaker provided additional information in May 1997. The matter was reconsidered by legal services prosecutions and referred to the CIB, which vetted the case in June 1997 and sent for a section 447 inquiry. However, the decision was reversed in October. Mr. Whitaker used the telephone hotline in August 1998 to repeat his allegations. The case was reviewed again by the Insolvency Service, legal services prosecutions and the CIB, but it was decided that no further action would be taken.

The hon. Member for Harrogate and Knaresborough, Mr. Whitaker's Member of Parliament, requested the Secretary of State to use his statutory powers to investigate the company. Perhaps I should explain them. The Secretary of State has a range of investigatory powers under the Companies Acts 1985 and 1989 and the Financial Services Act 1986. Most often used are those that enable confidential inquiries. The start of those inquiries is not announced and they do not lead to a publishable report. Section 447 of the 1985 Act enables the Secretary of State to direct a company to produce specified documents and to authorise an officer of his or any other competent person to require a company or a person who appears to be in possession of specified documents to produce and explain them.

Those statutory powers are discretionary. They are invoked when, as the statute says, there is "good reason" to do so, which is taken to mean primarily grounds to suspect fraud or misconduct. Investigations are not undertaken on the basis of unsubstantiated rumours--not that these matters are unsubstantiated rumours. I want to make that very clear. The then Government's response to the Trade and Industry Committee report on company investigations published in 1990 included the following statement:

Section 447 enables the Secretary of State, in pursuance of his regulatory functions, to investigate and ascertain what has happened with a view to deciding whether further regulatory action--including, where appropriate, the prosecution of crime--should be taken by the Secretary of State or whether information should be disclosed to other regulators for action. Although the use of section 447 powers can be triggered by suspicion of dishonesty and although such an investigation ultimately may lead to a criminal investigation and prosecution, the investigation is not a criminal one that itself leads to a decision whether to prosecute. Nor is it an alternative to private litigation. Those considerable powers are for use in the public interest and Parliament has prescribed the

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other bodies that may receive the confidential information that may emerge from such inquiries. They do not include creditors, who have their usual remedies.

Unless there is evidence of non-co-operation by a bankrupt during his bankruptcy, the court will not suspend his discharge from bankruptcy. As the hon. Gentleman has told us, following the report of non-co-operation--perhaps owing to an administrative error--William Melvyn Jones was automatically discharged on the third anniversary of his bankruptcy order, as the court was not convinced of the non-co-operation.

Let me now deal with the methodology behind criminal investigations and prosecutions undertaken by my Department in relation to companies in insolvent liquidation and in relation to bankrupts, which have a particular bearing on the case that concerned the hon. Gentleman's constituent.

The Secretary of State is also a prosecuting authority, and the majority of offences prosecuted by the Department arise under the Companies Act 1985, the Insolvency Act 1986 or the Company Directors Disqualification Act 1986. When the Department receives allegations of criminal offences--in the majority of cases, they come from the Insolvency Service--a lawyer will consider whether a criminal investigation should take place. Any criminal investigation will be carried out by one of the Department's own investigation officers, who are experienced fraud investigators, mainly with a police background. No statutory powers are available to such officers when they are carrying out criminal investigations. At the conclusion of the investigation, the case will again be considered by a lawyer who will decide whether criminal proceedings should be instituted.

The code for Crown prosecutors is issued under section 10 of the Prosecution of Offences Act 1985, and applies directly to all prosecutors in the Crown Prosecution Service. In common with other public prosecutors, the Department applies the code so that it can make fair and consistent decisions about prosecutions. The code explains that there are two stages in the decision to prosecute, and that the first stage is the evidential test. Crown prosecutors must be satisfied that there is enough evidence to provide a "realistic prospect of conviction" against each defendant on each charge. They must consider what the defence case may be, and how that is likely to affect the prosecution case. A realistic prospect of conviction is an objective test. It means that a jury or bench of magistrates, properly directed in accordance with the law, is more likely than not to convict the defendant of the charge alleged.

When deciding whether there is enough evidence to prosecute, Crown prosecutors must consider whether the evidence can be used and is reliable. There will be many cases in which the evidence does not give them cause for concern, but there will also be cases in which it may not be as strong as it appeared at first. The Crown prosecutors must ask themselves whether the evidence can be used in court, and whether it is reliable.

The decision on the sufficiency of the evidence must be made by a lawyer, with the benefit of advice from an independent practitioner such as counsel where appropriate. As the code makes clear, the "realistic prospect of conviction" test is an objective one. That does not mean that there is not room for differing views on whether the test has been passed, but it does mean that the margin of appreciation is relatively small.

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When the decision on whether to start a criminal investigation is under consideration, regard will be had to the two tests laid down in the code for Crown prosecutors. For example, if it appears unlikely that an investigation will be able to obtain sufficient evidence to meet the evidential sufficiency test, an investigation will not be started.

The Department takes its enforcement responsibilities seriously, and is aware of the need to strike a proper balance between protecting the rights of creditors and protecting those of insolvent companies and persons. Prosecution is an important weapon in enforcement, and the Department will prosecute whenever it is satisfied that the evidential sufficiency test has been met, and that the public interest requires a prosecution.

Mr. Whitaker, the hon. Gentleman's constituent, complained to the Insolvency Service in 1996 that an undischarged bankrupt had, from December 1993 until October 1996, acted as a director of Pallet Ancillary Management Services Ltd. without leave of the court, in contravention of section 11 of the Company Directors Disqualification Act 1986. There were also allegations about the improper transfer of assets to successor companies. Those allegations were repeated in a complaint by Mr. Whitaker to the hotline in August 1998.

Because those allegations touched on the affairs of a live company, they were referred to the companies investigation branch of the Department to consider whether the use of statutory investigation powers was appropriate. Officials concluded that it would not be

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appropriate. The question of whether to start a criminal investigation was considered on both occasions. On each occasion, the view was taken that there was insufficient evidence for a criminal investigation to be launched.

Courts can disqualify directors for between two and 15 years if they are unfit. Phoenix companies are particularly targeted. The courts take such cases very seriously. The Insolvency Service has sufficient resources to pursue all identified cases of serious misconduct. In the past two years, more than 2,800 directors have been disqualified.

The business sector that is most affected, although it will not concern the hon. Gentleman, is the clothing industry, or the rag trade. The Government have been concerned at possible delays in all disqualification proceedings and will introduce a fast-track system of disqualifying directors, which will cut out the courts and dramatically reduce the time that it takes to conclude disqualification.

The hon. Gentleman said that there was a danger that the legislation would become a rogue's charter. I do not think that it will be a rogue's charter. It will help us to disqualify more of those people and to do so more easily. I am sorry that the evidential test does not seem to have applied in that case and that the good case that the hon. Gentleman made on behalf of his constituent could not be pursued any further. If there is fresh evidence, I will look at it. If I can take the case forward, I certainly will.

Question put and agreed to.

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