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Session 2001- 02 Publications on the internet Other Bills before Parliament Arrangement of Clauses (Contents)

Enterprise Bill

These notes refer to the Enterprise Bill as introduced in the House of Commons on 26th March 2002 [Bill 115] ENTERPRISE BILL EXPLANATORY NOTES INTRODUCTION 1.     These explanatory notes refer to the Enterprise Bill as introduced in the House of Commons on 26 March 2002. They have been prepared by the Department of Trade and Industry (DTI) in order to assist the reader in understanding the Bill and to help inform debate on it. They do not form part of the Bill and have not been endorsed by Parliament. 2.     These notes need to be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So, where a clause or part of a clause does not seem to require any explanation or comment, none is given. OVERVIEW OF THE BILL 3.     The Bill is divided into eleven parts and has 269 clauses and 26 Schedules. 4.     Part 1: establishes the Office of Fair Trading (OFT), sets out its general functions, and provides for arrangements for making super-complaints to the OFT. 5.     Part 2: establishes and makes provisions for proceedings before the Competition Appeal Tribunal (CAT). 6.     Part 3: provides for a new merger regime, covering the definition of a qualifying merger, the duty of the OFT to make references to the Competition Commission (CC); how references are determined; the procedures that relate to certain public interest cases and other special cases; powers of enforcement; undertakings and orders; and various supplementary matters, such as information and publicity requirements and powers to require information. 7.     Part 4: makes provision for new market investigations arrangements. It sets out the power of the OFT and the Secretary of State to make references to the CC, and how the CC should report on the references. It provides for particular arrangements to [Bill 115-EN]     53/1 apply in public interest cases, and also covers powers of enforcement and various supplementary matters. 8.     Part 5: establishes the Competition Service, and provides for rules of procedure for the CC. 9.     Part 6: deals with the creation of a cartel offence. 10.     Part 7: deals with a number of miscellaneous competition provisions, including powers to disqualify directors who engage in serious competition breaches. 11.     Part 8: deals with new procedures for enforcing certain consumer legislation, and miscellaneous related matters. 12.     Part 9: provides for rules to govern the disclosure of certain consumer and competition information held by a public authority, covering the circumstances in which it is permissible to disclose the information, and various related matters. 13.     Part 10: changes insolvency law by providing for a new regime for company administration and restricting the future use of administrative receivership; abolishing Crown preference; establishing a new regime for the insolvency of individuals; and making changes to the operation of the Insolvency Services Account. 14.     Part 11: contains a number of supplementary provisions, such as commencement, short title and territorial extent. SUMMARY 15.     The Bill implements a pledge in the Government's 2001 election manifesto to give more independence to the competition authorities, to reform the bankruptcy laws and to tackle trading practices that harm consumers. The White Paper 'Productivity in the UK: Enterprise and the Productivity Challenge' (available at http://www.hmt.gov.uk/mediastore/otherfiles/26.pdf), published in June 2001, set out the Government's intention to focus on enterprise and productivity as the cornerstone of its economic reforms in this Parliament. The specific measures in this Bill were foreshadowed by three White Papers: 'Productivity and Enterprise: A World Class Competition Regime' (Cm 5233) and 'Productivity and Enterprise: Insolvency - A Second Chance' (Cm 5234) published in July 2001, and 'Modern Markets: Confident Consumers' (Cm 4410), published in July 1999. 16.     The main provisions of the Bill are: Competition reform A new merger regime, with decisions taken in most cases by independent competition authorities against a competition-based test rather than the current public interest test. Replacement of the monopoly regime established by the Fair Trading Act 1973 (FTA 1973) with a new regime for investigating markets. Most decisions will be taken by independent competition authorities against a competition-based test rather than the current public interest test. The introduction of criminal sanctions for individuals who engage in hard-core cartels. The OFT will be given a new power for the court to disqualify directors involved in breaches of competition law. Persons harmed by a breach of competition law will be able to bring claims for damages before a specialist competition body (the Competition Appeal Tribunal (CAT)). Amendment to the Competition Act 1998 (CA 1998) to provide third parties with a direct right of appeal to the CAT against decisions of the OFT or Directors General of the sectoral regulators with concurrent powers. Repeal of the arrangements for the exclusion of designated professional rules from the prohibitions under CA 1998. Consumer reform Reform of Part III of FTA 1973 to extend the protection to consumers under the Stop Now Orders regime to those areas not covered by the Injunctions Directive. Repeal of Part II of FTA 1973, but with savings for two existing Orders made under this Part. Enabling the OFT to introduce a new regime for approving business-to- consumer Codes of Practice. Requiring the OFT to respond in a set timescale to 'super-complaints' from designated consumers bodies. Enabling the OFT to provide information, advice and educational materials. Insolvency reform Corporate insolvency Streamlining the administration procedure. Restricting the ability of lenders to appoint an administrative receiver to the holders of pre-existing floating charges and certain capital market and other transactions. Crown Preference Removing the Crown's preferential rights in all insolvencies and making provision to ensure unsecured creditors are major beneficiaries. Insolvency of individuals Providing for the automatic discharge of nearly all bankrupts after a maximum of 12 months. Reducing the number of restrictions that are automatically imposed on undischarged bankrupts. Providing for a court-based regime - Bankruptcy Restrictions Orders - to be attached to those bankrupts whose conduct, before and during bankruptcy, the court has found to be culpable. Financial regime Enabling reform of the Insolvency Service financial regime, in particular, facilitating the return to creditors of more of the income from monies held in the Insolvency Services Investment Account. COMMENTARY ON CLAUSES 17.     The commentary on clauses is set out by Part, with the commentary on the various Schedules included in that for the Part to which they relate. In these notes, the following abbreviations are used: -     administrative receiver (AR); -     bankruptcy restrictions orders (BROs); -     bankruptcy restrictions undertakings (BRUs); -     Company Directors Disqualification Act (CDDA 1986); -     company voluntary agreement (CVA); -     Competition Act 1998 (CA 1998); -     Competition Appeal Tribunal (CAT); -     Competition Commission (CC); -     Control of Misleading Advertising Regulations 1988 (CMARS 1988); -     County Court Administration Orders (CCAOs); -     Criminal Justice Act 1987 (CJA 1987); -     Criminal Justice and Police Act 2001 (CJPA 2001); -     Director General of Fair Trading (DGFT); -     Estate Agents Act 1979 (EAA 1979); -     European Community Merger Regulation (ECMR); -     Fair Trading Act 1973 (FTA 1973); -     insolvency practitioners (IPs); -     Office of Fair Trading (OFT); -     The Postal Services Commission (POSTCOMM); -     public-private partnership (PPP); -     Regulation of Investigatory Powers Act 2000 (RIPA 2000); -     Serious Fraud Office (SFO); -     Stop Now Orders (EC Directive) Regulations 2001 (SNORs); -     Water Industry Act 1991 (WIA 1991). PART 1: THE OFFICE OF FAIR TRADING Establishment etc. of Office of Fair Trading Clauses 1 and 2 & Schedule 1: The Office of Fair Trading & The Director General of Fair Trading 18.     Clause 1 establishes a new corporate authority to be known as the OFT. Clause 2 abolishes the office of DGFT and transfers the DGFT's functions, property, rights and liabilities to the OFT. The office of DGFT was established by FTA 1973. The DGFT has a wide range of functions in respect of consumer protection and competition matters. 19.     The OFT is to be a body corporate and is to consist of a Chairman and at least four other members. As a Non-Ministerial Government Department, the OFT will be a Crown body and its staff will be civil servants. 20.     The organisation currently known as the OFT is not a statutory body, but simply the administrative support that has grown up around the DGFT to support him or her in the exercise of his or her statutory functions. The OFT name has also traditionally been used when publicising and explaining the work of the DGFT. References in the Bill to the OFT are purely to the new corporate authority. 21.     Schedule 1 sets out in more detail the OFT's internal structure. The Chairman is to be appointed by the Secretary of State. The other members are to be appointed by the Secretary of State in consultation with the Chairman. Members may be removed from office by the Secretary of State only on the grounds of incapacity or misbehaviour. The Schedule also gives the OFT the power to do anything that it thinks will facilitate or assist with the performance of its functions, and sets out its powers of delegation. Clause 3: Annual plan 22.     This clause provides that the OFT will, before each financial year, publish an annual plan setting out its main objectives and priorities for the year ahead, and lay the plan before Parliament. It also obliges the OFT to consult before publishing each annual plan. Clause 4: Annual and other reports 23.     This clause provides that, after the end of each financial year, the OFT will publish an annual report on its activities and performance, and lay the report before Parliament. 24.     Subsection (2) stipulates that each annual report will include a general survey of developments in respect of matters falling within the scope of the OFT's functions and an assessment of progress against the year's annual plan (see clause 3). This is the minimum that must be included in the report; it is open to the OFT to include more information if it wishes. 25.     Subsection (4) allows the OFT to prepare other reports on issues that fall within its functions, and to publish them. Schedule 24: Transitional and transitory provisions and savings 26.     This Schedule contains various transitional provisions relating to the creation of the OFT and the abolition of the office of DGFT. General functions of OFT Clause 5: Acquisition of information etc. 27.     This clause gives the OFT the function of obtaining and reviewing information relating to any of its functions, both in respect of competition and consumer matters. This information-gathering role, which may involve research, is with a view to the OFT having the information it needs to make decisions and carry out its functions. Clause 6: Provision of information etc. to the public 28.     The OFT is given the function of promoting to the public the benefits that competition has for consumers and the economy. The OFT may also provide the public with information or advice on matters relating to its functions. 29.     In relation to these roles, the OFT may publish educational literature or take part in educational activities (such as seminars or lectures). It may also provide support to others producing educational literature or carrying out educational activities. Clause 7: Provision of information and advice to Ministers etc. 30.     The OFT can, of its own volition, make proposals or give other information and advice to Government Ministers or public authorities on matters relating to its functions. Such advice may address the impact of future as well as existing legislation. 31.     In addition to the OFT acting of its own volition, Government Ministers may also request proposals, information or advice from the OFT on matters relating to its functions. Clause 8: Promoting good consumer practice 32.     This clause enables the OFT to set up and undertake an enhanced role in respect of codes of practice produced by a variety of bodies. 33.     Subsection (1) sets out the OFT's general function to promote good practice in the carrying out of activities that may affect the economic interests of consumers in the UK. 34.     Subsection (2) provides that the function includes encouraging and approving codes of practice. Under FTA 1973, the DGFT has a general duty to encourage the preparation and dissemination of codes of practice, and has given support to the development of codes by 42 trade associations in 24 sectors. 35.     As a result of this clause, the OFT will encourage relevant associations, as defined, to develop codes that promise to deliver on core criteria set by OFT. OFT will confirm in writing where a code appears to meet the core criteria and is likely to be of practical benefit to consumers and good traders. At the second stage, associations will need to provide evidence of delivery of the initial promises in the code and the OFT will endorse and promote the code once it is satisfied that this burden of proof has been met. An approved code of practice will contain a redress mechanism and a complaints procedure. It might also include sector-specific criteria. 36.     Subsection (3) allows for approval of codes of practice to be signified in any manner that OFT thinks fit, including the creation of a logo and authorisation of sponsors and members of their codes to display it. 37.     Subsection (4) defines a code of practice. It is intended that adherence to a code of practice should ensure good practice by businesses when dealing with consumers. 38.     Subsections (5) defines a relevant association. The definition covers a wide range of organisations, including local authorities, chambers of commerce, and various types of trade associations. Miscellaneous Clause 9: Repeal of certain powers of direction 39.     This clause repeals section 12 FTA 1973 and section 13 Competition Act 1980. Clause 10: Part 2 of the 1973 Act 40.     Part II of FTA 1973 was created to allow the Secretary of State, on the advice of the DGFT and a then newly-created Consumer Protection Advisory Committee, to make orders to prevent or modify unfair (but not illegal) trade practices that harmed the economic interests of consumers. Only three orders have been made under Part II (of which two are still in force) and the Consumer Protection Advisory Committee, upon whose report the order-making power is dependent, has not existed in practice since 1983. 41.     This clause retains the two orders made under Part II that are still in force, and the enforcement provisions for those orders. It includes a power to repeal the remaining provisions of Part II that are no longer required: subsection (1) repeals sections 3, 13-22 and Schedule 2 of FTA 1973; section 3 and Schedule 2 of FTA 1973 provide for the creation of the Consumer Protection Advisory Committee and set out the terms by which members of the Committee will be appointed and retained. They also set out the Committee's procedures for voting and arrangements for deputising for the Chairman. The Committee lost its quorum in 1982 and the last appointments expired in 1983; sections 13-16 FTA 1973 set out the role and duties of the Consumer Protection Advisory Committee. They set out the circumstances in which the Secretary of State, any other Minister, or the DGFT can ask the Committee to consider whether a specified consumer trade practice adversely affects the economic interests of consumers in the UK, and the requirements for the Committee to report on its findings; sections 17-21 FTA 1973 set out the circumstances in which the DGFT can, in a reference to the Advisory Committee, recommend that the Secretary of State makes an order to prevent a practice that is harming the economic interests of consumers from continuing. They also set out the requirements for the Committee to report on its findings; section 22 FTA 1973 gives the Secretary of State the power to make such an order following a recommendation by the Committee. Two orders made as a result of this provision remain in force today. These are the Consumer Transactions (Restrictions on Statements) Order 1976 (1976/1813 as amended by SI 1978/127) and the Business Advertisements (Disclosure) Order 1977 (1977/1918). No orders have been made under section 22 since then; The Consumer Transactions (Restrictions on Statements) Order 1976 makes it a criminal offence: (i) to use notices to attempt to restrict consumers' statutory rights, and (ii) to issue guarantees that do not mention that a consumer's statutory rights are not affected by the guarantee; The Business Advertisements (Disclosure) Order 1977 requires that anyone seeking to sell goods in the course of a business must ensure that any advertisements published make it reasonably clear that the goods are to be sold in the course of a business. An example of this in practice is where classified advertisements for car sales include a (T) where they are trade rather than private sales. 42.     Subsection (2) provides that these two orders shall remain in force, notwithstanding the repeal of section 22 under which they were made. They will continue to be enforced under the provisions set out at sections 23-33 FTA 1973. The subsection also preserves the effect of section 22 so far as relating to any revocation of the orders. Accordingly, any revocation order will be subject to the affirmative resolution procedure. 43.     Subsection (3) provides that, when those orders are revoked, the Secretary of State may repeal, by order, any remaining provisions of Part II of FTA 1973, and subsection (2) above, which will no longer be needed. 44.     Subsection (3) allows for other consequential amendments or modifications that are necessary as a result of these repeals. Subsection (4) allows for transitional or savings provisions to be made in connection with these. It also sets out that any orders under Subsection (3) will be made by negative resolution in either House of Parliament. Clause 11: Super-complaints to the OFT 45.     This clause gives certain designated consumer bodies the right to make a 'super-complaint' where they consider that there are market features, such as the market structure or the conduct of firms operating within it, that may be harming consumers to a significant extent. The market in question may be regional, national or supranational (where the UK forms part of that market). The aim of this procedure is to encourage groups who represent consumers to make relevant complaints on their collective behalf, and the OFT will be obliged to respond to a super-complaint within a specified time. 46.     Subsections (2) and (3) set out the timeframe in which the OFT must respond. The OFT will be required to make a considered response to a super-complaint, setting out what action it proposes to take under its competition or consumer powers, if any, within 90 days. Eventual outcomes could, for example, include a formal reference to the CC or the publication by the OFT of a report recommending changes to regulation or self-regulation. The OFT must also explain the reasons behind its decision. 47.     Subsection (4) allows the Secretary of State to alter the 90 day period for an OFT response should this period of time, through experience, prove to be either too lax or too limiting. 48.     Subsection (6) provides for the route by which super-complainants will be named and describes who may qualify for super-complainant status: namely, those bodies who appear to represent consumer interests and meet any other criteria that the Secretary of State may specify. 49.     Subsection (7) obliges the OFT to issue guidance on the presentation of a reasoned case. The OFT will of course require some evidence from the super-complainant in support of the super-complaint and super-complainants will expect to provide some supporting evidence. What constitutes a reasoned case will vary from case to case, but the OFT guidance will help super-complainants to submit a reasoned case. The OFT may also issue other relevant guidance, for example on the publicising of super-complaints or on super-complaints concerning the regulated sectors. 50.     Subsection (9) cross-refers to the relevant definitions in Part 4 of the Bill. PART 2: THE COMPETITION APPEAL TRIBUNAL The Competition Appeal Tribunal Clause 12: The Competition Appeal Tribunal 51.     This clause creates the CAT. The CAT will take over the functions formerly performed by the appeal tribunals of the CC. Clauses 15, 16, 17, 110, 114, and 169 of the Bill give the CAT additional functions. Schedule 2: The Competition Appeal Tribunal 52.     This Schedule sets out the terms of appointment to the CAT for the President, chairmen and ordinary members. The Lord Chancellor appoints the President and chairmen. The Secretary of State appoints ordinary members. Clause 13: Constitution of Tribunal for particular proceedings and its decisions 53.     This clause sets out the arrangements for proceedings before the CAT. Clause 14: Tribunal rules 54.     This clause gives the Secretary of State the power to make the rules of the CAT. Schedule 3: Tribunal: procedure 55.     Part 1 of this Schedule contains provisions concerning Tribunal decisions, and provides procedures for their enforcement. Paragraph 1 of this Schedule provides the procedure relating to decisions taken by the CAT. It contains similar provisions to those currently in paragraph 4 of Schedule 8 to CA 1998 (repealed by paragraph 8(5) of Schedule 4). 56.     Paragraph 2 provides a procedure for the enforcement of certain decisions of the Tribunal that is distinct from the procedure for the enforcement of decisions of the OFT. At present, directions given by the CAT are enforced in the same way as OFT directions: thus the OFT must apply to the court under section 34 CA 1998 for an order requiring compliance with the CAT's direction. The new provisions provide a more direct means of enforcement, both of directions given by the CAT and awards of damages and costs. 57.     The new procedures permit most decisions of the Tribunal to be enforceable by registration at the High Court in England and Wales, and by corresponding procedures in Scotland and Northern Ireland. By virtue of those procedures, the decision becomes enforceable in the same way as a judgment of the High Court (or, in Scotland, the Court of Session). However, penalties imposed by a decision of the Tribunal will continue to be enforced as a civil debt due to the OFT, under section 37 CA 1998. 58.     Part 2 of Schedule 3 (paragraphs 2-22) sets out some of the areas that the Rules of the CAT may cover, and is based on the current Part II of Schedule 8 (repealed by paragraph 8(5) of Schedule 4). New provisions have been added to take into account the CAT's new roles, including appeals on judicial review grounds (for cases under Part 3 and Part 4) and damages claims in competition cases. The CAT rules do not have to cover all of the areas mentioned, and can also cover issues that are not specified. 59.     Part 2 includes provisions for rules to be made in relation to the rejection of proceedings by the CAT in cases where there are no reasonable grounds for bringing a particular claim, where the party bringing the claim does not have sufficient interest or where the proceedings are deemed vexatious. Proceedings under Part 1 of 1998 Act Clause 15: Third party appeals 60.     This clause replaces the existing section 47 CA 1998 by a new version that removes the current requirement for a third party first to request the OFT to withdraw or vary its decision before having a right of appeal to the CAT. For those purposes, a 'third party' is a person who is not a party to the agreement (or the author of the conduct) in respect of which the OFT has made its decision. 61.     Section 47(1) specifies which decisions by the OFT may be appealed by a third party. The decisions covered are the same as in the existing version of section 47(1). 62.     Section 47(2) specifies that a third party appeal may only be made by a person with sufficient interest or who represents persons with sufficient interest. This preserves the existing position, but responsibility for determining whether the party has sufficient interest will lie with the Tribunal and not the OFT as at present. 63.     Section 47(3) preserves the existing position under the current section 47(7).

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Prepared: 26 March 2002