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6.39 pm

Mr. Austin Mitchell (Great Grimsby): This is a fairly small and simple measure--which makes it even more surprising that the hon. Member for South-West Hertfordshire (Mr. Page) has made such heavy weather of it. I could not understand what he was getting at. We can welcome this legislation in its own right because it makes some small improvement in the current situation, and that is to be welcomed.

It has to be pointed out, however, that that improvement is only a minuscule nibble at a major problem that the Government should be tackling. There is a pressing need for proper and effective regulation of accountancy practitioners and for redressing the current odds that favour those who have the money and those who put up the money--particularly the banks--against small businesses which are struggling to survive. The current odds are very unfair and very unreasonable. We need to regulate the affairs of the insolvency practitioners and control their activities so that small businesses are protected rather than used as fee-generating material.

The 1992 Labour party manifesto dealt with the need to redress those odds, and our 1997 business manifesto dealt with the need for independent regulation of

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insolvency. Since then, however, we have become very friendly with the business community and those issues have been shelved. We are being presented not with proposals for independent regulation, but with a series of miniature, partial measures--such as this Bill and the shabby Limited Liability Partnerships Act 2000, which we debated some months ago in an equally excitable and crowded House.

Vested interests have played the dominant role in the passage of this type of legislation. The consultations on this Bill have been dominated by the vested interests. As my hon. Friend the Member for Ochil (Mr. O'Neill) said, the consultations of the Trade and Industry Committee on the Bill were conducted at break-neck speed--so that there could not be proper consultation. The consultations were also dominated again by the vested interests, such as insolvency practitioners and banks, which earn the fees and at whose mercy small businesses lie.

In reading the report of the debate on the Bill in the other place, I see that those with great names such as Kingsland and Sharman--valiant defenders of the working class and the poor in these matters--made the running and won concessions from the Government. However, the debate is dominated already by vested interests to which a Labour Government should not be making concessions. Now, the Minister tells us that there have been last-minute representations from those vested interests to change the legislation's proposed regulations.

Although small businesses are struggling, and some of them are dying, we seem to want to consult the vultures that are hovering overhead. We seem to prefer a society for the defence of vultures to a society that protects small businesses or stakeholders, such as employees, unions, consumers and suppliers. Stakeholders want to load the odds in favour of the survival of small companies, but they are not being involved in the consultation.

The victims of the vested interests--the small businesses closed down by big money--also were not included in the consultations. Mr. Barry Chapman, managing director of J. S. Bass, of Manchester, provides the classic example of a business being closed down by the insolvency practitioners and the banks working in collusion and using force majeure. Voices such as Mr. Chapman's have not been heard in any of the consultations.

The Bankruptcy Association of Great Britain and Ireland, which is based in Hull, was not consulted in the proceedings. Such consultation was neglected in favour of gimmicks. Although issues such as establishing a rescue culture and tackling rogue directors need to be addressed, they should be addressed within an over-arching regulatory framework and not in minimal measures such as this Bill.

The safeguards that have been provided so far in our minimalist legislation safeguard only vested interests, which we are anxious not to offend greatly. We are particularly anxious not to offend the banks, which have the monstrous advantage of being able to impose a floating charge. Such a charge is unknown in most other systems; it is certainly unknown in the United States. It allows banks to crucify small businesses and to grab back money that they loan for development. Even a change in bank manager can produce an entirely different climate for small businesses. Here we are, however, loading the odds in favour of those types of large institutions, instead of doing something about the major scandals.

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Banks have a habit of installing an accountancy firm in a small business, asking it to report on the state of that business, and, subsequently--after the accountancy firm recommends liquidation--giving the insolvency work to the insolvency arm of that same accountancy firm. That is a crying scandal that should have been dealt with. The Royal Bank of Scotland has dealt with it by refusing to give both types of business to one firm, resulting in a reduction not only in the number of liquidations, but in the costs of the overall operation. We should be making that type of provision in this legislation.

We are consulting the vultures and giving them more power, rather than safeguarding the interests of the victim in the desert who is crawling to shade and safety. The victim might make it to safety if the vultures were not being helped in our insolvency vulture culture. We should be helping the victims to survive, but we are only offering them a little piece of Elastoplast.

I should like to deal with a few problems in the legislation. Hon. Members are right to praise provision of an extendable 28-day moratorium. However, why have only 28 days been provided? That is a very short time to allow businesses to put their affairs in order and to make a rescue plan. The United States chapter 11 procedure provides for 90 days, and that makes more sense. We should allow more time.

Additionally, why is that 28-day period provided only for small businesses with fewer than 50 employees? If it is sauce for the small goose, surely it is also sauce for the big gander. Why cannot that protection be extended to medium and large-sized businesses? What is the problem? If we agree that there should be a rescue culture, and that the aim should be to keep the company going, to sustain jobs and to maintain the nexus of stakeholder connections, why is the provision made only for small businesses?

The Minister told us that the provision is better than chapter 11. I do not think it is, for reasons that I shall explain later. However, if it is better than chapter 11, surely it should be extended to medium and large-sized enterprises, which affect many more jobs and the health of many more communities. Perhaps the Minister will tell us how many firms will be saved by the current proposal, and how many would be saved if the provision were extended to medium and large-sized businesses. If the provision is effective, it should be made available to every business.

My preference is for a 90-day provision, as under chapter 11 in the United States, which gives companies such as Chrysler a chance to reorganise and restructure their finances, to get a grip on things and to come through. That is what we should do. We should put the onus on bringing the company through. We have a grabbing insolvency culture, in which people say, "Let's get our hands on the assets and flog them off as much as we can. Let's keep things going as long as we can to get the fees as high as we can." The fees are usually exorbitant. The culture should be entirely the opposite; it should be one of keeping firms going, and chapter 11 provides for that.

As we heard earlier, lawyers have to be paid and chapter 11 is subject to all kinds of constraint, but so is the procedure under the Bill. The new practitioners will have to be paid considerable sums to get the procedure going. Either way, professional assistance and support must be financed, but chapter 11 seems to be more fundamental and better because it changes the whole culture.

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The Bill will provide minimal protection, which will neither change attitudes much nor provide generous help to small companies. Chapter 11 changes the culture and places the onus on survival, so why not use chapter 11 provisions for medium and large businesses?

We promised before we came to power to promote a stakeholder culture. We should indeed promote a stakeholder culture, but the employees of small businesses are crucial to such a culture. The employees may or may not be organised in unions, but they should be part of the consultative process to institute the new procedures. Why are they excluded from them? Why is the only interest considered, especially by the banks involved, that of taking the decision for a creditor's voluntary arrangement? That is a matter of vital concern to the employees, both part-time and full-time. Their jobs are affected; they have a vital stake; so why cannot they be consulted?

Employees will be taken into account in the insolvency proceedings because they will become creditors if things do not work out, even if they were not notified of the arrangements. Why cannot they be included in the consultative procedure? The creditors, part-time employees, pieceworkers and subcontractors working from home all need to participate and be specifically recognised in the process. They need specific protection, but the Bill will not give it to them. That is a serious flaw.

The vested interests in the procedure are still too strong. If a company runs into difficulty and its directors think that it is trading while insolvent, they are personally liable for its debts. Therefore, at the first sign of a problem, they will rush to an insolvency practitioner, saying, "What are we going to do?" The practitioner will charge them a fee, thus compounding the problem. He may refer the directors to the new supervisor or nominee provided for in the Bill, who will charge another fee.

The insolvency practitioner who the directors approach is unlikely to be anxious to avoid the opportunity to make money by advising them to use a voluntary arrangement and, subsequently, turning it into an administration, from which he will receive fees. Such scams have been going on for 20 years or more, and I have constantly notified the Department about them, but no action results.

Let us imagine that a company finds itself in difficulty. Significant creditors will come together and the banks will dominate the proceedings. It is likely that the banks will not agree to a voluntary arrangement unless they first receive a report from an accountant. As now, they will want to see an accountant's report. Therefore, rather than giving a clean bill of health, the accountant will have a vested interest to get subsequent work for his firm. He will suggest that if a company has problems, it should consider a voluntary arrangement, which involves fees, or that it should be put into liquidation, which will provide more fees for his firm. Vested interests are still involved.

We have not dealt with the problem of restraining the vested interests and requiring that those people in a firm who provide accountancy advice should not deal with the voluntary arrangement or the insolvency if a company goes into liquidation. There is a definite pressure on those people to recommend a certain course of action and that their firm should carry out the work.

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I have corresponded for a long period with the hapless, pathetic regulators in insolvency and with the DTI about the J.S. Bass case in Manchester. In that case, there was clearly a ramp between Barclays bank and Ernst and Whinney--subsequently Ernst and Young--which was put in to write the report, recommend liquidation, grab the fees and liquidate the company, even though its assets were substantially greater than its debts, so putting it out of business. That firm was bigger than one with 50 employees as referred to in the Bill, so it would not benefit from such arrangements. However, pressures to do what was done in that case still exist and remain unregulated, which will affect the voluntary arrangements, too. We shall not provide effective protection unless we regulate and remove that anomaly so that those who carry out the investigation should not be involved in the other arrangements.

Will the nominee or supervisor--the man who will handle the turning around of a company--have a duty of care and, if so, to whom will it be owed? Will it be owed to the individual creditors or a creditor, perhaps the bank, or to the creditors collectively? Will it be owed to individual shareholders, to shareholders collectively, or to other stakeholders?

The Minister made an important point. I had better call him my hon. Friend; I have every confidence in him as a Minister and he makes the points very well. However, he is effectively expanding a state guaranteed market. The insolvency practitioners will have a monopoly; they will have a state guarantee.

An answer to a parliamentary question that I tabled states that there are only 1,800 licensed practitioners, of whom 1,270 are currently taking appointments. That is a very small number of insolvency practitioners. There is a pressing need to regulate them, as well as adding to their number under the Bill. Regulation should ensure that practitioners publish meaningful information about their affairs, as should the new nominees. What is their record on saving businesses and rescuing jobs? What fees do they charge? Such information should be in the public domain so that a company in difficulty, which is considering bringing in a nominee and submitting itself to a voluntary arrangement, knows who to turn to for help, what support is available and what the fees will be. What information will be published? The public must be aware of such matters.

If the advice and support service is to be restricted to small firms only, why cannot the DTI provide it? Why must it be provided by another group of practitioners? Why cannot there be fair competition from the public sector? Those involved will be subject to professional regulation, but it will not extend to fees. The Association for Accountancy and Business Affairs has published a series of examples of that. I recommend to the Minister our exciting publication entitled, "Insolvent Abuse: Regulating the Insolvency Industry", which shows that the fees charged go as high as £500 an hour. That is not peanuts. When will such huge charges be regulated? They have a crucial effect on a small firm's ability to survive.

When will the insolvency profession be regulated effectively? My hon. Friend has said that a new regulator will be appointed. At present, 1,800 practitioners are regulated by eight professional bodies, and the Department of Trade and Industry. I argue that that structure should be simplified to one independent regulator, but the Government propose to add another,

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non-independent, regulator at the apex of the structure. That regulator will not have the power to deal with individual cases and complaint investigation procedures, and there will not be the ombudsman necessary for effective appeals. The need for an effective appeals machinery, for effective redress and the control of fees, is even more acute for small businesses. The Bill gives small businesses additional help towards survival, but we should regulate the insolvency profession at the same time. The culture in that profession is to grab the fees, and to make them as high as possible.

It is important to regulate insolvency practitioners. Voluntary arrangements have been in place since 1986. My hon. Friend gave the House figures that show that such arrangements are rarely invoked. In 1998, 11,771 companies were wound up, of which only 470 went into a voluntary arrangement. That shows, tellingly, that the provision made in 1986 is not much used.

My hon. Friend hopes that the Bill will cause that provision to be used more widely, and so do I, but is the provision little used because people are scared of the insolvency profession and the fees that are charged? Are they worried that they will not receive reasonable and fair treatment? There is no right of appeal about the treatment that they receive and no way to contest the fees that are imposed. Is it not possible that people are put off entering voluntary arrangements more by such factors than by the difficulties that the Bill is designed to ease? I believe that the central problems are the scale of fees and the lack of regulation.

In conclusion, I am worried that the Bill and its fast-track disqualification procedures will conflict with the human rights legislation to which we now are subject.


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