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7.18 pm
The Parliamentary Under-Secretary of State for Trade and Industry (Miss Melanie Johnson): I start by congratulating my hon. Friend the Member for Leeds, West (Mr. Battle) on securing the debate, and on the way in which he continues to represent his constituents in this most important and serious matter. The Government fully understand the concerns that he raises. Those who suffer from this dreadful condition have my utmost sympathy, as do those who may have come into contact with asbestos in the past and who still live with the uncertainty that they may be affected in the future by its potentially lethal legacy. I fully recognise the anxieties of those affected, and I welcome this opportunity to respond to the issues raised by my hon. Friend.
My hon. Friend spoke about Turner and Newall. I can confirm that, on 1 October 2001, partners of the accountancy firm Kroll Buchler Phillips were appointed by the court as administrators of 133 out of 182 of the Federal Mogul UK group of companies, as part of a global rescue plan in parallel with chapter 11 proceedings in the United States of America. The company known as Turner and Newall Ltd. is the largest trading company in this UK group of companies.
The Federal Mogul group, which I will refer to as the FM group, is an automotive and vehicle parts manufacturer which carries on business from approximately 295
locations in 53 countries. It is the sole-source provider of one or more critical components for most automobiles produced in the USA and Europe. The business, as my hon. Friend says, is indeed profitable. Global turnover for 2000 was approximately US$6 billion, with 31 per cent. of the total sales made in Europe. The UK group of companies had a turnover in the year to 31 December 2000 of approximately £400 million. It currently employs about 4,500 people.I understand that the FM group's involvement in the UK commenced, to a significant extent, with the acquisition of Turner and Newall Ltd. in November 1997. That acquisition greatly increased the FM group's exposure to asbestos-related claims from claimants in both the USA and the UK. It is my understanding that those actual and contingent asbestos-related liabilities are threatening the solvency of the FM group. As of 30 June 2001, the FM group estimated its future total asbestos- related liability at US$1.6 billion.
The administration order has been made for the purpose of achieving one or more of the following—the survival of the company and the whole or any part of its undertaking as a going concern, the approval of an arrangement or compromise with creditors, and/or better realisation of the company's assets than would be achieved on a winding-up.
Administration is a collective insolvency procedure involving all creditors and giving all creditors a say. Proposals are put to creditors for their approval in the initial stages. Creditors also have ongoing rights during the course of the administration procedure. They may set up a committee to represent them, for example, and the committee may require the administrator to attend its meetings to give it information.
The creditors also have the power to apply to the court if they consider that the company's affairs are being managed by the administrator in a manner that is unfair or prejudicial. In this case, the administrators of the UK group consider that it is in the best interests of the creditors that the companies should survive so that they can pay their debts from future income—as I have sketched out, there is clear future income and profit in this case—and that the companies should continue to be managed as a group.
In consultation with the administrators, the FM group intends to commence discussions in relation to the development of an agreed global plan or reorganisation, designed to be approved by all classes of creditors. It is expected that this plan will provide a mechanism for managing the asbestos liabilities and propose an arrangement for payment or compromise of all claims.
I am told that the FM group decided to file for chapter 11 protection in the USA because of a growing number of asbestos-related law suits in which the plaintiffs claim to have suffered injury owing to exposure to products containing asbestos. In most cases, the defendants are companies that were acquired by the FM group through merger and acquisition.
In the USA, those members of the FM group that have the bulk of the asbestos liabilities, including Turner and Newall, are defendants in more than 300,000 pending asbestos-related personal injury claims, as of 30 June last year. Additionally, Federal Mogul Corporation, as the current corporate parent of these entities, is named in certain of these law suits, as are several other companies
in the FM group. Certain members of the FM group, particularly Turner and Newall, are also defendants in a substantial number of asbestos-related actions in the UK.I make these points because I understand that the increasing amount of litigation has been due to a number of factors, including the filing of chapter 11 petitions by numerous other parties alleged to be potentially responsible for the injuries suffered by asbestos plaintiffs; many of the former are co-defendants with the FM group in numerous lawsuits. The resulting stay of litigation against such parties has placed increased financial pressure on the group in the form of higher settlement demands from plaintiffs as well as efforts to force it to cover the contributions of now bankrupt co-defendants in existing settlement agreements.
As I said, as of 30 June 2001, the FM group estimated its total asbestos-related liability at $1.6 billion for claims pending and those that can reasonably be expected to be asserted in the future, with $350 million of such liability payable within the following 12 months. The FM group further estimated that more than $900 million of that amount would not be covered by insurance.
The point of going through the detail is to show that, on that basis, it is not difficult to see that the cost of the litigation could overwhelm the FM group. I am told that the magnitude of the litigation left it with no realistic alternative but to seek reorganisation under chapter 11 of the bankruptcy code in the United States and administration under the Insolvency Act 1986 in the United Kingdom.
I understand my hon. Friend's concern and his arguments about attrition and the history of the case. However, there has been a change and I have set out the circumstances that now face those who are trying to achieve their just compensation.
The costs faced by the FM group are greater owing to the approach adopted by the US legal system. It allows individuals to receive compensation even though they are not and may never become ill—there is a marked difference between the US and the UK, as here, only those who are ill receive compensation. Furthermore, in the US, the cases of those who show no signs of illness are grouped with those who have been diagnosed and already show signs, in the hope that juries will sympathise with and award compensation to all, which cannot happen in the UK. Also, large punitive damages to punish a company's activity are awarded in the US even though asbestos production stopped in the early 1970s, which does not happen in the UK. Those factors all drain money away from that available to pay people suffering from asbestos-related illnesses, both in the US and the UK.
I appreciate the fact that my hon. Friend is representing many people who are already suffering the effects of the illness.
Mr. Battle: I appreciate the detail in my hon. Friend's response, but what worries me is that cases won already in Leeds and elsewhere will be swamped by those yet to come in America. Will it be possible for her, perhaps with her officials, to meet the lawyers who represent people who have already won cases, to see if we can find a way through this? Administration can take between two and 11 years and all the people claiming will be dead before they get any further forward.
Miss Johnson: I appreciate my hon. Friend's concern about the urgency for those affected. Initially, I will be
happy to meet him and discuss those matters in further detail. He has made a number of points about the nature of administration. The compensation cheques that are already outstanding bounce even though a company can still be trading. When a company goes into administration, all payments to creditors are stopped. That is a feature of the administrative arrangements.I appreciate my hon. Friend's concern about the fact that the administration could take a long time, but we believe that it is in the best interests of all those with outstanding claims for the company to continue to trade, and that a way is found through administration for that to happen.
I cannot say much about the insurance position, which is extremely complex. My hon. Friend endeavoured to sketch out some of that. The legal specialists are working hard to resolve it. There are a number of possibilities and I am assured that the administrators will make a formal announcement as soon as they can. The Employers Liability (Compulsory Insurance) Act 1969 made it mandatory for certain firms to take out policies when it came into effect in 1972. I understand that Turner and Newall has assured the administrators that it has always complied with its obligations in that regard.
The administrators are working hard to establish the full position as regards both employer's and public liability insurance.I would like to restate that the Government understand and sympathise with the concerns expressed in the debate about those who are suffering from asbestos-related diseases. I hope that my hon. Friend will agree that the group is profitable and successful—I believe that we have both said so—and that the interests of claimants will not be served by driving it into liquidation.
The approach adopted by the FM group seems to us the most sensible in the circumstances, but what is important is that the administrators and those representing the interests of all concerned get on with the job quickly. With that in mind, I have asked my officials in the Department's insolvency service to keep me in close touch with the progress of the case, and in response to the arguments that he has made, I invite my hon. Friend to come and discuss further with me in the Department the aspects to which he wants to draw attention.
The motion having been made after Seven o'clock, and the debate having continued for half an hour, Madam Deputy Speaker adjourned the House without Question put, pursuant to the Standing Order.
- Adjourned at twenty-nine minutes to Eight o'clock.
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