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Dr. Howells: I shall deal first with amendment No. 3 and new clause 3 in the name of my hon. Friend the Member for Great Grimsby (Mr. Mitchell).
The amendment seeks to place on a nominee and a supervisor a duty of care to employees. However, I am not sure that my hon. Friend appreciates that it would place a duty of care on a supervisor only under the existing voluntary arrangement procedure--that is, without the moratorium. It is also not at all clear whether the proposed duty on a nominee is to apply in both moratorium and non-moratorium cases. Either way, I believe that neither the new clause nor the amendment is necessary.
The first part of the amendment would provide for the supervisor to owe employees a duty of care in the existing voluntary arrangement procedure but, as I have said, that is not necessary. Section 7(3) of the Insolvency Act 1986 provides:
- If any of the company's creditors or any other person is dissatisfied by any act, omission or decision of the supervisor, he may apply to the court.
New clause 3 is not necessary either. Paragraph 26 of proposed new schedule A1 similarly allows
- any other person affected by a moratorium
Mr. Burnett: Why should employees have to bother to apply to the court? Will the Minister concede that we are not proposing an onerous duty?
Dr. Howells: A proper procedure must be followed. I shall expand on this matter when I address the important issues raised by the hon. Member for Bournemouth, West (Mr. Butterfill), who spoke about redressing the balance in the way in which the case is presented. That is an important issue. I know from the many cases that arrive on my desk from the companies investigation team at the Department of Trade and Industry that we cannot blind ourselves to the truth that there are many sharp directors who are prepared to fleece creditors, some of whom are pensioners who might have used their savings to put down a deposit on a three-piece suite, as the hon. Gentleman said. We must take into account all stakeholders, not just employees.
I think that my hon. Friend the Member for Great Grimsby might have misunderstood the function of the supervisor and the nominees in a moratorium case. Neither will assume control of the company. I have said that a number of times, but hon. Members have not taken it on board. The purpose of the supervisor will be to perform the duties as set out for him in the voluntary arrangement. The nominee's role during the moratorium is set out clearly in proposed new schedule 1A.
The directors will remain in charge of the company both during and after the moratorium. We therefore do not consider it appropriate to include a provision in the Bill that imposes such an undefined duty of care on a supervisor. Nor do we think it right that he should have to consult employees' representatives or that nominees should be subject to the duty imposed in section 309 of the Companies Act 1985. That section, which is headed
- Directors to have regard to interests of employees,
- Accordingly, the duty imposed by this section on the directors is owed by them to the company (and the company alone) and is enforceable in the same way as any other fiduciary duty owed to a company by its directors.
-
We must remember that the directors are still in charge of a company in a moratorium, and section 309 continues to apply. Therefore, they should have regard to that duty when framing a rescue plan. That is my point which, for whatever reason, my hon. Friends do not want to accept.
Dr. Howells: I readily concede that successive Governments have done a bad job in making employees aware of their rights in such circumstances, but it is clear from section 309 that those rights are already enshrined in law. Far too often, trade unions do not take sufficient notice of them and employees do not know about them. I am not so worried about employees who are represented by trade unions, but about non-union, low-paid shop workers because those people do not have the confidence or the knowledge to use what is available. That is the problem. My hon. Friend the Member for Milton Keynes, North-East (Mr. White) is right to say that we have a real job to do to educate people.
Mr. Burnett: We are not talking about directors--we know that they must comply with section 309(1). I hope that the Minister will direct his attention to the fact that new clause 3 would impose on a nominee the very small burden of having to have regard to the interests of the company's employees.
Dr. Howells: I have tried already to respond to that point. I have said that it is an unnecessary burden, and I believe just that.
My hon. Friend the Member for Great Grimsby said in Committee that he was looking for a way of ensuring that employees' interests were included in the equation. He will understand that supervisors and nominees will be aware that employees are able to make application under section 7(3) or paragraph 24, and should take that right into account when performing their duties. Additionally, supervisors and nominees will be aware that if they act in such a way as to give rise to a course of action--such as in tort--they will be vulnerable to legal action, and they would have to take that into account too.
On amendment No. 3, given the supervisor's function, it would be inappropriate for him to have regularly to consult employees' representatives. However, if an employee happened also to be a creditor, the supervisor would keep him informed of progress in the same way as he would other creditors.
I think that my hon. Friend the Member for Great Grimsby referred to amendment No. 47 after dealing with new clause 3 and amendment No. 3. It is a similar amendment to one that he tabled in Committee. Like that one, I believe that amendment No. 47 is unnecessary. First, it is not necessary for any creditor or any member of the company to be able to make such an application. If he or she is not happy with the existing nominee, they can vote to change the nominee at the meeting summoned under paragraph 29 of schedule A1. That can be achieved by proposing that it be a condition of any extension of the
moratorium that the nominee be replaced. I hope that the House accepts that. Alternatively, it can be proposed that the nominee be changed by amending the voluntary arrangement proposal considered by the meeting. It would be up to the meeting to pass such a proposal. We do not consider it appropriate that anyone should be able to apply to the court to change the nominee. The right contained in paragraph 28 to make application to the court to replace the nominee is designed to deal with specific circumstances.5 pm
The hon. Member for Bournemouth, West raised an extremely important point. I have said that I see far too many cases of shysters fleecing those whom we refer to as creditors. I know that my hon. Friend the Member for Great Grimsby knows about those cases. I had one recently that received much publicity. It involved the World of Leather, where extremely dubious practices were carried on in the last few weeks of trading.
Constituents were affected throughout the country and there were some sad results. Many people did not get their money back and they did not get their three-piece suites. They are creditors--it is not only the big banks that are creditors, along with the circulating vultures, as my hon. Friend referred to them. I know of elderly and poor people who saved up for three-piece suites and did not get them. We must remember that the process is designed to protect those people, as much as it is designed to ensure fair play in every other respect. We are offering a period of respite for companies when they feel that they are in trouble. Perhaps the Bill will significantly add to that rescue culture.
The hon. Member for Bournemouth, West asked whether directors will be encouraged to shop around for a nominee until they find one who is prepared to sign the necessary statement. His intervention was tantamount to that. The likelihood is that in practice they will not have time to do that. We should bear that in mind. However, there seems no good reason why directors should not be able to test the market.
In the early days of consideration of the Bill in Committee, there was much discussion about the enormous fees that are charged by insolvency practitioners. Many allegations were made by my hon. Friend the Member for Great Grimsby and others about dubious practices concerning fee setting and levels of fees. Perhaps the Bill will go some way towards breaking that monopoly.
Mr. Butterfill: It is not that I have any concern about people shopping around to get the best fee. That is entirely admirable. I am worried that if they shop around and are repeatedly turned down because experienced professionals say that there is no hope of their acting as nominees, they will eventually find someone who for self-interest--that of earning a few quid--will say, "Yes, I'll do it." That point, which the Government have not addressed, was addressed by the Select Committee.
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