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Employment (Religious Beliefs)

Mr. Edward Leigh accordingly presented a Bill to allow certain employers to have regard to the religious beliefs of those whom they employ; to make provision with respect to the application of European Community law to those employers; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 3 November, and to be printed [Bill 175].

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Orders of the Day

Insolvency Bill [Lords]

[Relevant documents: The Second Report from the Trade and Industry Committee, Session 1999-2000, HC 112, on the draft Insolvency Bill and the Government's response thereto, HC 237.]

Order for Second Reading read.

5.19 pm

The Parliamentary Under-Secretary of State for Trade and Industry (Dr. Kim Howells): I beg to move, That the Bill be now read a Second time.

Given the way in which this debate has been trailed in speeches and interviews during the past 24 hours by my right hon. Friend the Member for Chesterfield (Mr. Benn), perhaps I should be a little more muted as to the virtues of the Bill than I might otherwise have been. After all, it is easy for a humble Trade and Industry Minister such as myself to get excited about a modest Bill such as this one, designed as it is to help enterprises and small businesses to make a success on behalf of the nation.

I freely admit that I do not have the vast experience and visionary perspectives of my right hon. Friend. It was my right hon. Friend who used parliamentary time to introduce legislation to allow, for example, the construction of a fleet of Concorde jet aircraft and the administrative triumph of the advanced gas-cooled reactor programme. I have to settle for something that will not cost the nation billions of pounds. Nor, I am afraid, will the Bill allow the likes of Sir David Frost, Andrew Neil or Dame Joan Collins to hurtle back and forth across the Atlantic--suitably refreshed--promoting peace between nations. Such ministerial triumphs are reserved--quite properly--for our political giants.

I, on the other hand, will state only simple pleasure at being able to bring this now famous Bill, which I even heard trumpeted on the "Today" programme this morning, before the House. The measure will make important changes in insolvency law. The broad purpose of those changes is clear: to support the Government's determination to make our country one that encourages enterprise and is a good place to do business.

That determination needs to be supported by appropriate measures to increase business confidence. One of the things of which we need to be sure is that those entering and operating in the marketplace can have certainty as to what will happen if a business gets into financial difficulties, or if--ultimately--it fails. We need appropriate and effective procedures to deal with such eventualities.

Inevitably, there will be cases where businesses get into short-term financial difficulties for one reason or another, but that should not mean that the only--or even the usual--way out of those difficulties is to bring the business to an end. That cannot be in the best interests either of those who have a stake in the business--its suppliers, customers, creditors, employees and so on--or of the wider economy. If the underlying business is fundamentally sound, we need procedures that will make a rescue possible.

Of course, there will be many cases where there is no realistic prospect of rescue or rehabilitation. Within the procedures for handling those cases when a business does

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come to an end there is a particular need to be able to deal appropriately with those people whose misconduct brings about the failure. If we do not do that, confidence will be undermined and enterprise will not be encouraged--in fact, quite the contrary.

Both the Insolvency Act 1986 and the Company Directors Disqualification Act 1986 already go a long way towards providing such a regime. The measure will build on that by introducing important amendments and improvements to existing procedures.

In a market economy, it is inevitable that some businesses will fail. The reasons for that are many and varied. When that happens, those failures have consequences--not only for the creditors or the employees but for the wider community. If at least some of those companies could be rescued, it is probable that creditors would receive a better return than on a winding up; jobs would be saved and the companies would continue to make a positive contribution to the economy.

The Insolvency Act, which came into force more than 13 years ago, brought the company voluntary arrangement procedure into our law as a means of rescuing companies. Since then, the number of such arrangements has risen, from 21 in 1987 to 475 in 1999. The introduction of that procedure, which allows a financially troubled company to reach a binding agreement with its creditors, was a fairly radical development, because it focused on rescue rather than on winding up. However, the recession of the early 1990s showed that it was not particularly appropriate for small companies in financial difficulty. As there is no stay on creditors' actions, before an arrangement is agreed, creditors are able to take individual recovery action--such as levying execution on the company's goods. That is the real problem. As a result, the company may, for instance, lose its stock-in-trade and so simply be unable to continue in business, and that renders a voluntary arrangement unworkable and dooms any rescue attempt to almost certain failure. What is clearly needed is a stay--but a relatively short stay--on creditors' rights, so that the company's management can have the opportunity to put a rescue plan to the creditors.

Of course, there is always the administration order procedure, which does now provide for a moratorium; but the problem for the small company is that, generally, the procedure is too costly for it. There is also an understandable reluctance on the part of management--especially owner managers--to use the procedure because they know that they will be displaced by a court-appointed administrator. So the Bill will give a company's management the option of obtaining a short breathing space within which to put a rescue plan to creditors, and it will stop creditors enforcing their rights, initially for a period of up to 28 days. The provision of that moratorium in the Bill will honour our commitment to

Mr. Elfyn Llwyd (Meirionnydd Nant Conwy): I am much obliged to the Minister for giving way at this point. I agree that the Bill has many useful parts, but will the hon. Gentleman look at one subject in particular-- the situation where an insolvency practitioner is brought in? I know from personal experience of the law that there

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have been many cases where the exceedingly high fees that insolvency practitioners charge tip the business into the red and that ruins the whole situation from day one. Will the Minister or his Department examine the question of those scale charges, which are, to put it mildly, exorbitant?

Mr. Howells: I thank the hon. Gentleman; he has made a very important point. Later in my speech, I shall address the subject of what we are terming, for now at least, nominees, who may well be able to offer services that at the moment can be provided by insolvency practitioners only.

Some people have questioned whether now is the right time to be acting as we are, when we are reviewing and consulting on what more might be done to improve the prospects for company rescues generally. We see no inconsistency in this. We think that there is little doubt that a stay of creditor actions is an essential part of any rescue procedure. The review of company rescue and business reconstruction mechanisms is looking at potential barriers to rescues, including, but not limited to, those that might be achieved by way of a company voluntary arrangement. What we are doing here is putting in place the first building block in our work on company rescues. The measure is needed now, and it should not have to await the outcome of a wider review. To delay it now would mean that more businesses might be put at risk and unnecessarily lost.

In summary, we propose that directors should remain in control of the company and its business during the period of the moratorium. To obtain that moratorium, the directors will first have to obtain, and file at court, a statement from the proposed nominee to the effect that the proposed voluntary arrangement stands a reasonable prospect of being agreed and implemented. Subject to the agreement of the creditors, the nominee will become the supervisor, and therefore oversee the implementation of the voluntary agreement once it is agreed.

The moratorium would last for up to 28 days, but it will be extendable by up to a further two months with the agreement of the creditors--so it could last for a maximum of three months. It will also be binding on all parties. During the moratorium, the nominee will have the task of monitoring the company's activities. If it appears at any stage that the proposal is no longer likely to be accepted by the creditors, he will have to withdraw his consent to act as a nominee. That will have the effect of bringing the moratorium to an immediate end. There will be penalties for directors who seek to abuse the process by making false representations to obtain a moratorium or by seeking to spirit away assets or business records under the cover of the stay. There will also be restrictions regarding the disposal of assets during the moratorium.

The issue involves balancing many competing interests--those of the company, shareholders, suppliers and creditors, employees and others. However, we think that the proposals in the Bill represent the best fit for all concerned.

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