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Mr. Martin O'Neill (Ochil): I welcome the Bill. I realise that it is modest in content and that a review is taking place. I think that we would have complained had we had a modest Bill and no review. We would have complained even more had we had no Bill.
When we look to the United States, we see the success of its economy and its ability to sustain new business growth and to encourage new businesses to be established. In large part, the business community is self-confident enough to support new enterprise. The culture in this country is more concerned about chasing assets than about preserving businesses. It is equally concerned about punishing short-term business failure, rather than seeking to recognise potential entrepreneurial acumen. It is in that light that we should recognise that the Bill is welcome.
We are not talking about changing the fundamental legal structure in one fell swoop. We cannot with one axe hack away the centuries of prejudice which had people being sent to the debtors' prison for business failure. Although there has been an increase in the recognition or identification of criminal elements and directors, the overwhelming majority of businesses go bust through incompetence or bad luck, not through criminal activities. The law should, in its way, take account of that.
We no longer live in Dickensian times, where a Micawberish style of expenditure would result in being sent to prison. Although people, are thankfully, no longer sent to prison for bankruptcies brought about through bad luck or incompetence, they are nevertheless punished in such a way that they are denied the opportunity to start again.
When I talk to people in the United States who are engaged in supporting new businesses, and discuss with venture capitalists how they look at the matter and what they are prepared to do to support new businesses, the conversation quickly moves towards a line that I heard repeatedly on visits to the United States. They often say that they would rather support someone whose business has failed once, although perhaps not two or three times. They do not want serial failures, but they recognise that, if people have had one or two spats, more often than not those spats will result in them being more aware, better educated and better able to address the challenges.
Last year, the Select Committee on Trade and Industry, which I have the honour of chairing, was invited to comment on some of the draft clauses. A rather grudging consultative process was entered into. We had only a few weeks to do it. It was a highly inconvenient time. It had a wee bit of the token about it; the response to some of the points that we made suggested that, but I will not labour that point. However, I will happily wait until after the general election for some thorough reform of insolvency procedures. I hope that it will be within the general company legislation that the next Labour Government are committed to introducing. Like so many of the Government's policies for enterprise and competitiveness, it will be welcomed by the business community.
The ritual ranting about regulation is different from the complaints that we used to hear about the uncertainties of the business cycle, the problems of inflation or the vagaries of interest rate changes. In the past two or three years, we have had exactly the stability that small businesses need to flourish, but they need other things as well.
I take the point about the insolvency profession: it is reminiscent of the Boilermakers Society of days of old. It alone had the means and skills whereby the job could be carried out. It is strange that, when Baroness Thatcher and her colleagues tried to end restrictive practices, they seemed to have a certain blindness when it came to organisations in the business sector. They did not seem to have the same 20:20 vision that they had with the trade union and labour movement, but the fact that we recognise the position of the insolvency profession is welcome. That should be widened, and more suitably qualified individuals should be capable of being involved.
I take the point--it is interesting--that several hon. Members have made about rogue elements within the insolvency profession. There are means whereby they can be dealt with, but it is difficult, in the middle of insolvency, for individuals who are not fulfilling their duties in a proper and fit way to be stopped. I suspect that we shall have to wait for subsequent legislation to deal with that. Nevertheless, we must be helpful.
Some of us were a wee bit surprised that section 218 of the Insolvency Act 1986 has achieved a place in the legislation. Nevertheless, we could look at it. It might have been possible to consider the matter further if we had more time--or if my hon. Friends had more time, because I do not think that I will be able to participate in the Standing Committee, and I am giving no indication of a willingness so to do. I hope that the Whips Office takes due note of that in the weeks that lie ahead. I am pleased that no Whips are in the Chamber at the moment.
Quite early in the life of the Government, the then Minister, my hon. Friend the Member for Edinburgh, South (Mr. Griffiths), said that he hoped that legislation would be introduced. Two years ago, the then Secretary of State for Trade and Industry, now the Secretary of State
The Bill started in late February in the House of Lords. It is not that bad that it reached this House by July, but it is unfortunate that there will probably be insufficient time to deal with all its inadequacies. Given the desire for change in the House, it would probably get out of control if we had too much time.
I imagine that, as the Bill will not be unduly controversial, it will be possible for it to be dealt with, but I hope that the Minister will look at the financing of a company voluntary administration. My colleagues on the Select Committee raised concerns about the company and its landlord, its utility suppliers and those who lease it the tools of its trade. We were not satisfied that the Bill, modest though it is, was too narrow to deal with those issues. An opportunity has been lost. I would be doing my colleagues an injustice if I did not raise those matters with the Minister. They should be dealt with with greater urgency.
Let me deal with one small point that came up: the question of deceased debtors. There is a human dimension to the process: matters relating, for example, to the matrimonial home of a deceased debtor and the risk that the title to such homes may be put in doubt by the Bill. We would like clarification. Often, when a business person dies, the spouse imagines that he or she still has the assets of a home but, for whatever reasons, those can be arrested. We could have dealt with that in advance of some wide-ranging inquiry.
As I said earlier, legislation will not resolve the big questions. That will involve a cultural change in our country's business community. However, on some specific issues, where personal and familial problems could be avoided, my hon. Friend the Minister could take the opportunity afforded in Committee to look again. I realise that there are time problems, which are always part of the difficulty.
This is not the single most important piece of company legislation that the House will face in the next few years. It is a modest but important step because it shows the business community that the Government and the Department of Trade and Industry are on the job and are continuing to pursue the wretched business of insolvency in the United Kingdom, the suffering that it causes to families and individual business people and the way it affects the confidence of those who, with a wee bit better luck and a little chance, might have been able to turn their businesses round or keep them going a bit longer--perhaps the extra three months afforded by the moratorium. It might offer them the opportunity to obtain slightly better advice than they have had in the past. Those things will make a difference in a number of instances, and if that can help to remove the stigma of short-term failure from so many of our potential entrepreneurs, it will have gone a long way to helping the business community and enterprise in this country.
Dr. Vincent Cable (Twickenham): I thank the Minister for guiding us through some esoteric issues in this extremely specialised area of commercial law. As the Minister rapidly read through his highly technical brief, as a non-lawyer and non-accountant I felt a little like the swimmer from Equatorial Guinea in the Olympic games, struggling desperately to keep afloat.
As this is a Second Reading, the appropriate approach, as the hon. Member for Ochil (Mr. O'Neill) has already suggested, is to look at the big picture and the big messages that emerge from this specialised and limited piece of legislation. It is essentially about trying to restore the balance between lenders and borrowers and between rentier and entrepreneur. The hon. Member for Ochil referred to the situation in the United States. An interesting study in a recent edition of Accountancy Age showed that, of all the major western countries, Britain has the most creditor-friendly regime. By contrast, the United States has the most creditor-unfriendly regime, which is most friendly to equity and shareholders. The United States has stay-on assets for companies in extreme cash-flow difficulties and it is possible for management to remain in decision-making positions and to manage a crisis in a way that is not possible here.
It was clear from his speech just over a year ago that the then Secretary of State for Trade and Industry, now the Secretary of State for Northern Ireland, and his right hon. Friend the Chancellor of the Exchequer were endeavouring to push British legislation in a north Atlantic direction. This Bill is a small step on the way.
I have not had many cases in my constituency, but they all illustrate the big imbalance between lender and borrower in personal and corporate insolvencies and bankruptcies. The lenders are often commercial banks, which have a powerful position in such a situation. They will have a charge on the assets and there will often be a personal guarantee. Their business is highly profitable and secure, which is why the Government have referred their small lending business to the Office of Fair Trading following the Cruickshank report. We often see cases in which the commercial banks are trigger happy and will precipitate an insolvency in a way that a creditor who has much more self-interest with a company will not. We might have a trigger-happy precipitation of a crisis at one end of the chain, leading to thorough, often vindictive, pursuit of assets at the other. If the legislation, through the three-month moratorium, redresses that balance even a little by reducing costs by removing the need for court proceedings, it will have made a useful contribution.
The legislation seems broadly satisfactory, but I want to put a few questions to the Minister. My first question follows a point made by the hon. Member for South-West Hertfordshire (Mr. Page) on why this limited measure is being introduced in isolation from other inquiries. He mentioned one, which is relevant--the insolvency working party. It is not clear why the findings of that working party are not being assimilated into the legislation and why the legislation cannot wait for that. In addition, an inquiry into bankruptcy law has the important task of determining the difference between crooks and honest business failures. That important distinction is germane to the issue of business disqualification. I am not entirely clear why that inquiry cannot complete its business before the whole of insolvency and bankruptcy law is brought up to date in a consistent way. I agree with the hon. Member for South-West Hertfordshire that there is a process question to answer.
I want to ask about the international ramifications. The legislation tries to deal with the problem of globalisation of business, such as cross-border lending and cross- border ownership, through encouragement of the model
On the specifics of the Bill, my colleagues in the other place, who are much more knowledgeable about this than I am, have made some particular points, which I shall rehearse for the record. Lord Sharman, who has a good deal of experience as a practitioner, has drawn attention to problems that arise from the issue of nominees. He says that, although it may be desirable to have nominees who are not qualified insolvency practitioners on grounds of cost--that issue has been raised already--there are powerful arguments for involving qualified people. One of their roles is to advise an insolvent company on the variety of business options and it is important that those concerned are properly qualified. There is a pro and a con there.
Lord Razzall made the point that, when we are talking about the disqualification of directors, we are talking about proceedings that are often as much criminal as civil. There is usually a combination of the two. If people are to be disqualified on the grounds of possible criminal activity, the principles of the European convention on human rights begin to apply and a more onerous standard of proof is required. As it was not mentioned in the Minister's introductory remarks, it is important to have clarification from him as to how far that issue has been thought through.