| Previous Section | Index | Home Page |
Mr. Butterfill: I support everything that my hon. Friend the Member for Christchurch (Mr. Chope) said. The evidence that we heard at the Select Committee hearings was very powerful. The Committee was
unanimous in its concern that a moratorium would require funding. A moratorium is not of itself necessarily a panacea--indeed, it could make the situation of creditors worse.The fact that there is a 28-day delay while a funding proposal is produced is frightfully important. In a large number--if not the majority--of cases the rescue attempt will probably not succeed. That is not to say that it may not be worth trying, but if the procedure is used frequently, and, in particular, without sufficient deliberation beforehand, some people may end up worse off than they would have been. That is why the Government should have taken more notice of the Select Committee's recommendations and why I support the amendment.
Dr. Howells: The obtaining of a moratorium will result in significant restrictions being imposed on the exercise of creditors' rights. For that reason, we consider it important that there should be reasonable grounds for confidence that a voluntary arrangement is likely to be approved and implemented at the end of a moratorium. The formulation of amendment No. 16 would only require the nominee to express a view on whether what is likely to be put to creditors would be workable. It does not ask him to say whether he thinks the directors' actual voluntary arrangement proposal, once provided, is likely to be approved and implemented.
The requirement is important because the moratorium is not intended to be a refuge for hopeless cases. A proposal could be workable but it might be evident that it would not be acceptable to creditors, perhaps because it would pay them less than they would get in a liquidation. Only companies that are eligible and whose rescue proposals have a reasonable chance of success should be able to obtain a moratorium. That is why we believe that a company should not be able to obtain a moratorium unless the nominee considers that a voluntary arrangement proposal, as provided by the directors, stands a reasonable chance of being approved and implemented.
Given the key role of the nominee in that regard, it would not be acceptable to expect him to express such a view on anything less than a properly worked out proposal. Therefore, information indicating that it might be possible to put a proposal together once a moratorium has started will not be enough. We wish the nominee to be able to see exactly what the directors propose by way of a voluntary arrangement and then use that document as a basis for expressing his opinion on whether a successful rescue is likely to result.
If a company is to have the benefits afforded by a moratorium, there should be reasonable grounds for confidence that a voluntary arrangement is likely to be approved and implemented. There was disagreement in the Committee about whether the amendment that the hon. Member for South-West Hertfordshire (Mr. Page) proposed to the paragraph would introduce a lower or higher hurdle, but I do not think that there is much doubt about whether the amendment would result in an easier text; it does not offer that assurance, and I therefore urge the hon. Member for Christchurch (Mr. Chope) to withdraw it.
Mr. Chope: We again have the Minister's views on record. At least he is being consistent by taking the same
line that he took in response to the Select Committee report, which is more than can be said for his approach to an earlier amendment. Although the debate occasionally seemed like a dialogue of the deaf, in the atmosphere of benevolence that is developing, I beg to ask leave to withdraw the amendment.Amendment, by leave, withdrawn.
6.30 pm
Mr. Page: I beg to move amendment No. 18, in page 16, line 33, after "enforced", insert--
'against a liquidator representing interests including interests of creditors of the company at the time of the moratorium'.
Mr. Deputy Speaker (Sir Alan Haselhurst): With this it will be convenient to discuss the following amendments: No. 19, in page 16, line 33, leave out "that" and insert "the".
No. 20, in page 16, line 33, after "time", insert "of its grant".
No. 31, in page 16, line 34, leave out "it" and insert--
'the consideration for which the security was granted'.
No. 32, in page 16, line 34, at end insert--
'or if, at any time, the security is approved by the committee established under paragraph 35(1) or, where there is no such committee, by the nominee.'.
Mr. Page: The amendments touch on matters that I raised in Committee, and to which I believe it is important that we return.
The parts of schedule 1 that provide for invalidating a security to be granted during a moratorium seem at first glance to be sensible enough. They would ensure that a company under the protection of a moratorium would not be able to grant security to one preferred creditor to the detriment of others. That is fair enough. However, there is the fundamental point that the company's other creditors need protection primarily in circumstances arising from the failure of the moratorium. If the moratorium succeeds, cheers all round. The loans will be safe and they will be repaid in due course.
In its present form, the schedule seems to protect companies under the aegis of a moratorium irrespective of the outcomes. A company that has experienced a moratorium and subsequently has grown will be under no obligation to meet its freely negotiated dues if the schedule is unaltered. I believe that the amendments address the issue. They will remove an anomalous and unnecessary advantage that may accrue to companies that successfully recover from a moratorium. There is no good reason for creating that extra protection for companies and I would be glad to hear what the Minister has to say, working on the assumption that I have interpreted this part of the Bill correctly.
Amendment No. 32 is closely related to amendment No. 18. It deals with the key issue of the likelihood of banks or other institutions lending to small companies during the moratorium. It is clear from the present drafting of the relevant paragraph in the schedule that the Department has missed the point. Under these provisions, the banks will be less likely to advance funds available during the moratorium rather than more likely. It will be on the banks and other lending institutions that the duty of determining whether there are reasonable grounds for making loans will fall.
Hon. Members on both sides of the House who have experience of running small firms will know how lengthy and time-consuming such inquiries can be. Lenders will not have access to the papers and statements that are available to the nominee, and may not necessarily be able to rely on information offered by the directors. Quite often it is the breakdown in communication between the directors and the banks that is partially responsible for the situation arising in the first place. In these circumstances it is understandable that banks will be highly cautious about lending.
It is one of the potential ironies of the Bill that it may reduce the flow of money to small companies when they are most likely to need it. A little experience in business suggests that that could well happen. The amendment will go some way to remove a future difficulty. I hope that the Minister finds it in his heart to accept it.
Dr. Howells: The purpose of amendment No. 18 is not clear. It appears to suggest that security granted by a company during a moratorium could be enforced only against a liquidator. That seems not to make sense. Security granted by a company over its assets is enforced by the holder of the security against those assets and not by a liquidator. Furthermore, a liquidator would not have been in office at the time that the security in question was given because a moratorium was in force. So we are left asking ourselves what security could be enforced and against whom if the amendment succeeded. The proposal could also be read as suggesting that security is generally enforceable other than against a liquidator. If that was what was intended, the amendment does not seem to achieve it.
It is also not clear what interests in addition to the interests of creditors it is intended a liquidator should represent. We consider that paragraph 14 should not be amended in that way.
Amendments Nos. 19 and 20 are simply unnecessary. The use of the phrase "at that time" in paragraph 14 is a clear reference to the time at which security is given by a company during a moratorium. Both amendments would only add unnecessary words.
Amendment No. 13 adds nothing. The granting of a security and the security itself are inextricably linked. A security could be of benefit to the company only if the company got something in return for granting it--for example, the funds necessary to enable it to finance a viable business. That security will either be of benefit to the company, or it will not. If it were not, we would want the security to be enforceable. Therefore, no more is needed to achieve the intended effect and I hope that the amendment will be withdrawn.
Mr. Page: In view of the Minister's response, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendments made: No. 10, in page 19, line 33, at end insert--
| Next Section
| Index | Home Page |