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5.57 pm
Mr. Richard Page (South-West Hertfordshire): I know that you have occasionally shown an interest in the equine world, Mr. Deputy Speaker. I do not know whether you have ever gone to a horse sale and seen the yearlings going round the sale ring. Occasionally, one can look at a yearling and immediately identify the sire. There are some stallions that have the ability to imprint their characteristics on their foals.
The Bill has all the imprint of a Department of Trade and Industry Bill--the best of intentions out of muddle and confusion. [Interruption.] I have sympathy with the Minister, and he may well laugh nervously, but is it sensible for the Bill to be before the House at the same time as the Government are conducting a review of the Insolvency Service, the very service with which the Bill deals?
I know that the Minister tried to explain that away, as he recognises it as a weak point in his argument. Why did not the review start in 1997, so that the Bill could be up
to date and deal with the matters arising from that review? One or two questions have already probed the Minister's defence, and we were told that those matters will be dealt with by amendments. The Minister said that amendments would be introduced, and pointed out possible problems with the international scene. The Bill may make the United Kingdom less attractive for business.Before we even start, the Bill is in trouble. I do not blame the Government for trying to implement a manifesto commitment--all credit to them for doing so.
I remember that when we returned after the general election, and many hon. Members, who are now in opposition, were given more time with our families, the Government rushed forward with a Statutory Right of Interest Bill. It was supposed to solve all small businesses' problems with cash flow and money. However, nothing has happened since. The Bill simply disappeared. There were plans for volunteers and aid for sub-post offices throughout the country. That money remains locked in the toils of the European Union.
You would rightly take me to task, Mr. Deputy Speaker, if I went through all the Department of Trade and Industry Bills that failed, and I shall not do that. However, the DTI often provides more spin than substance. How much more spin can we get than that provided by the Government's Small Business Service website, which states:
- Government continues to reduce the burdens on business caused by regulation.
Flawed and ineffective as the Bill currently is, let us try to make it work. There is only a short time in the spill-over session to try to sort it out. What greater condemnation is there of the Government's legislative programme than that we have to deal with such an important Bill in the spill-over, in a rush to the line to get it done before Parliament is opened for another Session? Ministers should seriously consider their position; the proceedings have been managed appallingly. However, Conservative Members want to attack the problem by trying to be helpful, to make the Bill work and to help our businesses.
We all want businesses that can be saved to be duly rescued. I have some experience of the small business world. I do not know how many DTI Ministers have run a business and had to worry about making it succeed from day to day. I know that it is exceedingly hard to start a business; it takes a year or so to break even, and a further year or so to build up a customer base and start to make money. I also know how easy it is to close down a business at a flick.
I agree with the Minister about the inappropriateness of attempting to introduce a chapter 11 solution in this country at the moment. There is a series of differences between the United Kingdom and the United States, and some are cultural. In the United States, much more equity sharing occurs, and there are many more share options. That is the norm; the process is considered standard. In the United Kingdom, the owner wants to keep everything to himself, and banks have a loan rather than an equity culture. In this country, one can borrow as much money from the bank as one likes as long as one has the assets to back the loan.
The current system for a struggling business is a nightmare. The hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd), who has now left the Chamber, made a point about the cost of insolvency practitioners. That is part of the problem. Business men and women are reluctant to go to the bank because there is a fair chance of the manager starting insolvency proceedings. The main source of insolvency proceedings is the actions of a bank.
There is another problem. When a creditor calls in an insolvency practitioner, more often than not there is more meat on the bones than there would be if it was simply a matter of keeping the patient alive. For that reason--I say this with all due modesty--I presented a ten-minute Bill in February last year. It tried to divide responsibilities on insolvency, and provided that an insolvency practitioner who recommended that a company be placed in liquidation would not handle the insolvency. That would hopefully lead to a more relaxed, if not independent, view on the matter.
Several instances have been drawn to my attention of companies that could have been saved if their cases had been properly handled. However, it was more profitable and easier to put those companies into insolvency. With such insolvency comes the death of dreams for many business men and women. The Minister should read my ten-minute Bill before we go into Committee, probably next Tuesday. He will then be able to appreciate the realities that face some businesses when they deal with insolvency.
Mr. Bercow: I am especially grateful to my hon. Friend for his confirmation that more than mere bones are required to sustain life in the human body. Does my hon. Friend agree that, in the light of his comments on the dramatically increased regulatory burden under the Government, that it would be helpful--especially if it came from the lips of a typically helpful Minister--if the Government gave an undertaking at this juncture to publish a statement of the annual costs of regulation on British business and of their plans in the ensuing year to reduce that cost?
Mr. Page: My hon. Friend tempts me down a path that I would dearly love to follow. The various bodies that represent businesses in this country show escalating evidence of the price of regulation and the burdens on business. However, Mr. Deputy Speaker, you give me a warning glance, and if I were to go into the Government's appalling record in any detail on the regulations that have been heaped on business, you would take me to task. I must therefore pass up my hon. Friend's kind invitation to outline once more the burdens that the Government have placed on our businesses.
I can give my hon. Friend one small crumb of comfort. After the next election, when we introduce our policies, there will be a definite reduction in the number of burdens that have been placed on business. When I made those remarks a year ago, there was a great guffaw of laughter from Labour Members; today there is only a muted titter. It is muted because Labour Members realise that this party is coming back and that we have the policies that this country wants implemented after the general election.
I hope that I shall get unanimous support for my next point. Every hon. Member has experienced constituency cases in which the cost of insolvency practitioners has left
little or no money for the creditors. The insolvency practice has changed its name to R3--the Association of Business Recovery Practitioners. I regard that change with some hope that the emphasis in the organisation is starting to be on the recovery of businesses rather than simply on that of creditors' money.I welcome the main point of the Bill. However, I must register some anxiety about whether it will work in practice. It will mean extra legislation in a year or so. As the Minister has already admitted, the Bill is only a step down the path. I doubt whether the Bill is constructed in such a way as to succeed in returning the wounded to health while not dragging out the lives of the terminally ill, with the consequent reduction of payment to the creditors. We should make no mistake: whoever deals with the case--new-fangled authorised agents or insolvency practitioners--will get their cut first. We must ensure that the system will create real benefit and not simply mean more time, more bureaucracy and more cost.
I have given a general outline of the conditions and problems that face small businesses. Let us consider the specifics of the Bill. The Bill contains several controversial provisions, such as creating a new type of insolvency practitioner who can act as a nominee or supervisor of a voluntary arrangement. It envisages that such a person being authorised by a body, and recognised in turn by the Secretary of State, will satisfy certain security arrangements and requirements and will not be ineligible on certain specified grounds. Those persons need not be licensed insolvency practitioners. There is no need for that to happen because an authorised person would be automatically approved if he was already a licensed insolvency practitioner.
To what extent does a knowledge of insolvency have to be present in order that an individual can qualify to become an authorised person? The Minister started down that route and talked about aspects of the moratorium, both present and future. The new procedure for a moratorium cuts out the role of the court. Under existing law, the company can obtain a moratorium if it petitions the court for an administration order. That is normally heard within four or five days. The court can then continue the moratorium by making an administration order. An individual can obtain a moratorium if an interim order is granted by the court. Again, the court is closely involved at that early stage.
At present, we have an important safeguard. The moratorium imposes extreme restrictions on the creditors, and the court can carefully place the moratoriums. The new proposals dispense with that safeguard. The company or individual will be able to obtain a moratorium without any involvement of a court. Will that be an acceptable safeguard? It is essential that there is public confidence in the integrity and competence of those who will exercise such powers to impose a moratorium on the creditors. I have no doubt that that will be a subject of considerable discussion in Committee.
A further problem arises when a debtor, be it a company or an individual, in financial difficulties seeks the advice of a professional person. In many instances, he may seek the advice of an authorised person. That advice will probably be given free, just as any similar advice is given free by a licensed insolvency practitioner now. It is given free--very few things are free--in the hope and expectation that the person giving the advice will be appointed a nominee, a supervisor, administrator or
liquidator in due course, and will be remunerated for doing so. That remuneration will more than make up for the free advice given earlier.That is how the system works now with licensed insolvency practitioners. I can think of no reason why that should not be how the system will work with authorised persons in future if the relevant provisions are enacted.
A number of authorised persons will be tempted by the hope and expectation of earning remuneration as a nominee or supervisor in due course. They will want to recommend a moratorium and a voluntary arrangement because that is when they will be paid. If they recommend other procedures such as insolvency, bankruptcy, administration or liquidation, they probably will not be paid. The temptation is therefore a real one, and I believe a great one. It is a temptation that is in direct conflict with the one that faces insolvency practitioners now. Will some of the authorised persons succumb to the temptation? That could be an inevitable consequence of human nature. Is there a real risk that in many instances an authorised person will wrongly advise the debtor to propose a voluntary arrangement because that is the only way in which he will be paid?
Licensed insolvency practitioners may recommend one sort of insolvency procedure instead of another because they are more likely to be appointed as the insolvency holder in due course. That is likely to happen also with authorised practitioners, who will not be paid at all if they recommend insolvency procedures for which they are not qualified. I do not say that that will happen in every case; it may happen in only a few. However, we must not forget that in these instances debtors are particularly vulnerable. When a man or a woman sees his or her company much at risk and likely to go down after perhaps many years of dedication and hard work, it is human nature that he or she is liable to clutch at any straw.
There is the other side of the coin. Am I being unduly cynical to suggest that companies in financial difficulties may well hunt about from authorised person to authorised person until they land on someone who will recommend a moratorium?
The one part of the Bill with which we entirely agree--the Minister will be delighted to hear this--is the amending of the Company Directors Disqualification Act 1986. That will confer a power to accept undertakings of the Secretary of State. We believe that this will be of benefit and of help. We look forward to seeing that part of the Bill pass through Committee sweetly and smoothly.
There is a curiosity in the Bill which I believe will make it difficult to operate. My understanding of the conditions for granting a moratorium is that the nominee of a company should be satisfied by the directors that it is likely to have sufficient funds during the moratorium to carry out its business. I must challenge the Minister to explain why it is envisaged in the Bill that a company that secures a moratorium might need to borrow money to finance operations, and must be in a position to offer security to potential lenders to the benefit of the company with the sanction of the nominee and the supervisor.
There is a difficulty in envisaging a situation in which a corporate lender will make loans available when the directors of the borrowing company must act honestly in the interests of their own company and under the
supervision of a nominee, who may not be a qualified insolvency practitioner even though he or she may have the dubious advantage of being anointed by the Secretary of State.If the lending institution makes an erroneous judgment, a security may be unenforceable. I wonder how many of the creditors, and the banks in particular, will be tempted down that route.
Like the curate's egg, the Bill is good in parts. It will bring modest benefits and they will be welcome. The fundamental issue in insolvency law is being addressed in the consultation process following on from the publication last year of the Insolvency Service review of company rescue and business reconstruction mechanisms. The Bill is only one step down that path. It would have been much better if it had been tied in to the conclusion of that review rather than being part of a piecemeal operation.
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