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Mr. Christopher Chope (Christchurch): Does the Minister agree that it would be helpful to the public to know the basis on which undertakings were given? Should there not be a statement of the facts, so that there can be no subsequent dispute about facts that were agreed by the director who gave the undertaking?
Dr. Howells: I have a great deal of sympathy with that approach, but it is the subject of careful review in several quarters. If the hon. Gentleman will bear with me, as soon as I receive some constructive advice on this important issue, I shall let him know about it. I hope that that is a sufficiently diplomatic response.
Only 10 per cent. of disqualification proceedings are contested and go to a full hearing; of the remainder, 60 per cent. are unopposed and directors consent to the making of the order in the other 30 per cent. of cases. That suggests that there is a need for such undertakings. This measure should result in earlier protection at reduced cost by cutting the number of cases that go to the courts.
Of course, not all directors will agree that they should be disqualified, so the existing procedure will remain in place. The hon. Member for Brecon and Radnorshire (Mr. Livsey) nods: I know that he faces serious specific problems, and I hope that the Bill goes some way towards addressing some of them.
As happens now, the Secretary of State will apply to the court for a disqualification order when he considers that appropriate and in the public interest. The director will remain free to defend the proceedings in court. Nothing has been taken away from his right to defend himself in court if he decides to do so. This could be described as a supplementary vehicle, which can help to cut costs and save time.
The Company Directors Disqualification Act has been in operation for nearly 14 years, and experience has shown that it could benefit from a little attention. We are taking this opportunity to make some technical amendments to improve its clarity, effectiveness and efficiency. Among other things, the Bill will make it clear that disqualification represents an absolute bar on a person acting as an insolvency practitioner. I hope that the hon. Member for Somerton and Frome heard that, because I know that he is deeply involved in researching the subject, but in case he did not, I shall read it out again. Among other things, the Bill will make it clear that disqualification represents an absolute bar on a person acting as an insolvency practitioner.
Dr. Howells: The hon. Gentleman should contact the regulatory body governing the insolvency practitioner concerned, with a view to its investigating. There are numerous means whereby practitioners can be disciplined, as they should be if they are guilty of misdemeanours. We are not entirely the prey of practitioners who may be involved in such activities; means of redress already exist.
Mr. Bercow: Given that there were 270 more disqualification orders in 1999 than there were in 1997, can the Minister give us some indication of how many of those 270 were contested, and how many of the 1,489 in 1999 were contested, so that we can have an idea of the extent of the disputation and of the delay before the granting of the orders?
The bar that will be placed on a person acting as an insolvency practitioner redefines the court to which an application for a disqualification order should be made. It also redefines the court to which an application for permission to act as a director while disqualified should be made. Disqualification orders made in Northern Ireland will be given the same effect in Great Britain as those made here. That will increase the protection provided by disqualification orders.
Let me now deal with the question of reporting offences. When reporting suspicions of criminal misconduct by company directors and members under section 218 of the Insolvency Act, the liquidator in a voluntary winding-up in England and Wales does so to the Director of Public Prosecutions. The DPP can then refer such reports to the Secretary of State for investigation. We think that it would be far more sensible for those reports to be made to the Secretary of State in the first place, and that is what we provide for in the Bill. That will streamline the process and ensure that misconduct is dealt with sooner rather than later.
Mr. Richard Livsey (Brecon and Radnorshire): The Minister will know that, in certain circumstances, it is difficult to get an accurate fix on true accounting by accountants in order to establish what misconduct the directors have committed. Has he any proposals to enforce the production of accurate accounts within a specified time limit so that the case can be proved?
Dr. Howells: The hon. Gentleman's point is one of the central themes of the decision to institute an independent company law review. It is important that such transparency is at the heart of any changes made to company law. I know very well the grief and difficulty of some of his constituents resulting from apparently creative accounting in a current case. We are looking at the matter carefully.
I do not want to pre-empt the publication of the independent review. That is a major piece of work and will be an important quarry from which we can take material to ensure that such problems are properly addressed in company law.
I return to the reporting of offences. When investigating reports, the Secretary of State can use Companies Acts investigation powers, and section 219 of the Insolvency Act purports to allow answers obtained by use of compulsory powers to be used in evidence. That is clearly contrary to the decision of the European Court of Human Rights in the case of Saunders v. the United Kingdom, and we are taking the opportunity to put the situation right.
The Administration of Insolvent Estates of Deceased Persons Order came into force at the end of 1986. Broadly, the intention was that all the assets that a debtor owned immediately before his death should be available to satisfy the claims of his creditors in insolvency proceedings started after his death. It was thought that this would include his interest in any jointly owned assets. In this way, the situation in all insolvencies would be the same.
However, a decision in the Court of Appeal in 1994 in the case re Palmer (Deceased) established that the order-making power contained in section 421 of the Insolvency Act did not bring about that result. I need not trouble the House with the details of that case. Suffice it to say that its result is that property of which the debtor was a joint owner passes on his death to the remaining joint owner or owners under supervisorship rules and is not available to his creditors.
Of course, substantial assets may be involved. We do not think it right that creditors' rights can be dependent on the mere chance of whether the debtor is alive or dead when they need to have recourse to him. We are therefore taking the opportunity to address the issue and by doing so, we will, so far as is possible, restore a level playing field and create legal certainty in this area. However, we will introduce amendments to the relevant provision in the Bill because difficulties with the current text need to be addressed.
We propose that clause 11 should be amended so that the trustee of a deceased insolvent's estate should be able to apply to court for an order against the surviving joint owner for the purpose of securing that the debts and liabilities of the estate are met. The court will have discretion to make an order for a sum not exceeding the value lost to the estate.
In England and Wales, it is a requirement that liquidators of companies and trustees in bankruptcy pay funds from the realisation of assets into the insolvency services account--the ISA--at the Bank of England. For many years, the law has allowed funds held in that account on behalf of insolvent companies to be invested in Government securities for the benefit of the estate. In addition, funds of £2,000 or more remaining in the company's account attract interest at the rate of 3.5 per cent. a year. In that way, the company and its creditors and shareholders can receive a benefit from the use of the funds until they are ready to be distributed.
For reasons that are now shrouded in the mists of history, similar provisions have never applied in relation to bankruptcy estate funds. There is clearly an anomaly, which the Bill allows us to remove.
Many businesses operate across national boundaries. That phenomenon is likely to expand considerably in the future, and can give rise to problems when a business fails, because some countries are not always willing to recognise foreign insolvency proceedings. That can make the recovery of assets difficult, and sometimes impossible. The absence of any internationally accepted measures to deal with cross-border insolvencies can make the handling of such cases uncertain, inefficient and often very costly. Clearly, that cannot be in the best interests of the creditors.
In 1997, the United Nations adopted a model law on cross-border insolvency. The United Kingdom played a part in developing that model law, and there is now a concerted push to implement the law in countries such as the United States, South Africa, Canada, Australia and New Zealand, but there is a degree of reluctance to act until the intentions of other countries become clear.
The order-making powers contained in the Bill will enable us to implement the model law in this country. We think that that is the best way to proceed. It will give a clear indication of our intentions, and it will mean that that can be done at a more measured pace than would be possible if the detailed measures were included in the Bill. Importantly, it will allow for detailed consideration of what should be done, and for appropriate consultation to take place before the measure is brought back to Parliament for consideration.
We have given careful consideration to the measures in the Bill. The over-arching purpose of them all is to improve confidence in the marketplace. We believe that improved confidence will contribute to the creation of an environment that will encourage enterprise. I am therefore pleased to commend the Bill to the House.