|Previous Section||Index||Home Page|
Dr. Howells: That issue is being considered by the independent company law review that is under way at the moment, and I understand that it is being examined from several directions. It is an important point, because if the insolvency practitioner is considered to be guilty of misdemeanours, the whole process is put in jeopardy. That certainly will do nothing to help a company that is desperately seeking a means of rescue. However, when I come to this point later, I hope that the hon. Gentleman will be able to draw comfort from what I shall say about the way in which the behaviour of insolvency practitioners and, subsequently, nominees and company directors will be monitored and reviewed.
Mr. John Bercow (Buckingham): I am grateful to the Minister for giving way, especially as I unavoidably missed his opening remarks. Will he tell the House whether the regulations that flow from clause 13, and that relate to the model law on cross-border insolvency, will be subject to the negative or to the affirmative resolution procedure?
In the past few days, we have received several representations about possible difficulties that the introduction of the option of a moratorium might pose for what are known as special purpose vehicles--SPVs. They are ordinary Companies Acts companies, but they are often used in quite complex structures, particularly in relation to large-scale financing operations. Because the proposal to introduce a moratorium has been widely known about for some time, it is unfortunate that the potential problems appear only just to have been identified. However, from the discussions that my officials have had with those who have raised the matter, it is fair to say that the problem seems to arise from what we are told will be an assumption made by those institutions that are involved in such large-scale financing.
Overall, the sums of money involved are large and those institutions are worried that the proposal that small companies should be able to obtain a moratorium risks upsetting agreed arrangements. If that risk is perceived to be real, financing the arrangements will become more expensive and, we are told, the United Kingdom will become a less attractive place within which to base such arrangements. Clearly, we do not intend the Bill to have such a consequence, so we are urgently considering ways in which the problem might be addressed for the future and for existing arrangements.
However, in view of the complexities involved and the time likely to be needed to resolve them, our view is that it would not be sensible to address that matter in the Bill. Instead, we are considering whether the appropriate approach would be by way of modification of the
Mr. Austin Mitchell (Great Grimsby): My hon. Friend has just said something that worries me greatly. He is effectively saying that we should give a Second Reading to a Bill which--admittedly rather belatedly--vested interests have said might damage them and might not be workable, and that he will take account of those representations in regulations. That is an alarming mess to put before the House. Rather than a special procedure for small companies, would it not be more sensible, even at this stage, to apply to all companies the more simple option of a chapter 11 provision, as in the United States, which protects for a period companies such as Chrysler, which is facing going bust?
Dr. Howells: No, I do not think that a chapter 11 route is the right one. Chapter 11 is really a licence for lawyers to print money. The previous Government and this Government steered away from that because it is not the best method of addressing the problem. My hon. Friend's point about the lateness of the objections is important, but it would be wrong to pretend that we ought not to take the problem seriously. It needs to be raised before the House. I have explained one way in which we can address it, and I hope that that will be a good way of doing so.
I should like to take a little further the question of chapter 11 in the United States of America and why we have not adopted a procedure based on it. It is notoriously complex, time-consuming and very expensive. Unlike our procedure, it entails extensive court involvement. Virtually all major steps in chapter 11 require court approval and result in high lawyers' fees. Moreover, there would be serious practical problems in adopting a system that has its roots in a very different business and legislative culture.
Mr. Martin O'Neill (Ochil): Did my hon. Friend take into account the fact that chapter 11 is no panacea in the United States? It is bandied about, but closer examination of the statistics suggests that it is not used in every instance. Indeed, it is used quite selectively, often owing to the difficulties that he has just described. The cases in which it is used and works tend to be those in which such arrangements would work anyway.
Dr. Howells: My hon. Friend makes a valuable point. Perhaps when my hon. Friend the Member for Great Grimsby (Mr. Mitchell) contributes to the debate he can explain to us the virtues of bringing chapter 11 to the United Kingdom, because I cannot see them.
The Bill will also make other modifications to the company and voluntary arrangement procedures in the Insolvency Act 1986 to improve their efficiency and effectiveness. One difficulty with the present schemes is that they do not bind creditors who are not notified at the meeting called to consider the proposal for a voluntary arrangement. That is an important point because the
Another problem is that both creditors and shareholders must agree to a company voluntary arrangement before it can be implemented, and that can sometimes be extremely difficult. In the majority of cases, the company's financial position is such that, if it were to be liquidated, only creditors would receive any payment. The Bill recognises that fact and provides that, in the event of disagreement, decisions of creditors' meetings will prevail over those of shareholders. That will obviate the risk of losing what might otherwise be a workable rescue simply because shareholders cannot or will not agree to all or part of it. However, there will be appropriate safeguards for shareholders' interests.
On the question raised by the hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd), we consider that, in addition to insolvency practitioners, there may be others who have the skills needed to turn around ailing companies. In recognition of that fact, we have included in the Bill a provision that will allow the Secretary of State to recognise a body whose members could act as nominees or supervisors of voluntary arrangements. We want greater use to be made of voluntary arrangements and to ensure that those who have the skills needed to make rescues work are able to contribute.
The hon. Member for Somerton and Frome (Mr. Heath) mentioned disqualification undertakings. The power to disqualify rogue directors is an important safeguard for business and public alike. In the past two years, we have disqualified more than 2,800 unfit directors. If confidence in the market is to be maintained, it is essential that those who abuse the protection of limited liability and use companies to cheat creditors are disqualified. We believe that, when the Secretary of State and the director are agreed that disqualification is appropriate, it is in everybody's best interests to achieve it as quickly and as cheaply as possible, and the Bill provides for that.
Currently, only the courts can disqualify. The vast majority of disqualification orders are made on the application of the Secretary of State under section 6 of the Company Directors Disqualification Act. They are based on evidence of unfit conduct in relation to insolvent companies. However, the process can and does take a long time and it can be expensive for all those involved. The courts have been helpful in devising a procedure, known as the carecraft procedure, whereby an individual can consent to a period of disqualification, but a disqualification achieved in that way still requires court proceedings to be instituted, with delay and cost frequently being the result.