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Linda Perham (Ilford, North): I welcome the proposals in the Bill on insolvency, a matter that the Select Committee investigated three years ago, when we

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went to the United States and saw what was being done there. Will my right hon. Friend address the concerns of the TUC about consulting employees and protecting workers in cases of insolvency?

Ms Hewitt: It is extremely important to take account of the position and interest of employees in cases of insolvency. The provisions and the reforms of administration, to which I shall turn in greater detail in a moment, will ensure that, in the case of a failed business, there is more money available to the creditors, who may well include employees; either directly, because wages or holiday money are due to them, or indirectly, because national insurance contributions have not been paid on their behalf. Employees will benefit, along with other creditors, from our proposed reforms.

My hon. Friend the Member for Ilford, North (Linda Perham) referred to the experience of the United States, upon which the Select Committee drew in formulating its recommendations. It is noticeable that, in the United States, there is much less fear of failure. Only one in five people in America say that fear of failure would deter them from starting a business. Indeed, it seems that if people do not have one or two failures under their belt in America, they are hardly regarded as serious entrepreneurs.

Mr. Tony McWalter (Hemel Hempstead): My right hon. Friend is assuaging the fears of some of those who have seen the Bill. Like my hon. Friend the Member for Ilford, North (Linda Perham), I greatly welcome the proposals on insolvency and the consultations with insolvency practitioners that my right hon. Friend has undertaken to provide. Will my right hon. Friend give an assurance that she will look carefully at the provisions on the possible impact on voluntary organisations such as citizens advice bureaux and the debt advice sector? That would do much to generate widespread acceptance of these measures.

Ms Hewitt: My hon. Friend makes an important point. Our regulatory impact assessment draws attention to the possible increase in the need for advice and an updating of the advice given by citizens advice bureaux and money advice centres to take account of these provisions. So we are already aware of that issue.

It is important to encourage entrepreneurship by addressing this fear of failure and supporting business start-ups. The Bill contains a number of measures to address that.

Mr. Gareth R. Thomas (Harrow, West): My right hon. Friend knows that I have an interest in industrial and provident societies. She, as a champion of social enterprises, will be aware that many use the industrial and provident society legal form. Given her comments about insolvency and the attractiveness to companies of the new regimes in the measure, will she ensure that Government officials keep under close consideration the possibility of applying the benefits of these measures across industrial and provident societies at some point?

Ms Hewitt: I welcome the private Member's Bill that my hon. Friend has introduced to modernise the statutory framework for industrial and provident societies. I know that colleagues in the Treasury who are working with him

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on the Bill are considering the best way to ensure that the present regime for mutuals that go into administration can be updated in the light of the reforms in the Bill.

We are getting rid of the present "one size fits all" regime for individuals who become bankrupt and introducing a differentiated regime that takes account of the circumstances of the case. The Bill reduces the period before which a bankrupt is discharged from restrictions to a maximum of 12 months for those who have failed, through no fault of their own, and who co-operate with the official receiver. However, for those bankrupts who have acted recklessly, irresponsibly or dishonestly, the Bill introduces a new court-based bankruptcy restrictions order regime under which they will face much tougher restrictions lasting between two and 15 years. So there will be tougher penalties for the minority of dishonest bankrupts but a much lighter regime to encourage the honest but unfortunate entrepreneur to learn from his mistakes, try again and go on to business success. The Bill also removes many of the irrelevant and outdated restrictions that apply to bankrupts.

Mr. Mark Field (Cities of London and Westminster): I welcome, to a large extent, the thinking behind the changes on insolvency. However, the right hon. Lady's talk about the dichotomy between honest bankrupts and dishonest traders exposes the Bill's backward-looking and traditional British thinking on insolvency. As has already been said, there is an entirely different outlook on insolvency in the United States, where people do not see it in black-and-white terms of honest and dishonest bankrupts and insolvents.

Ms Hewitt: I do not really accept the hon. Gentleman's point. The new regime that we are putting in place—the fact that there will be a maximum of 12 months for those who have failed through no fault of their own and co-operate with the official receiver as well as a set of restrictions that can last for between two and 15 years—will enable the courts to graduate their response according to the circumstances of the case.

The reforms have been widely welcomed, not least by the Prince's Trust, which has done so much to encourage entrepreneurship among young people from disadvantaged backgrounds. It says:

That is a distinction that we are right to make, but by giving the courts a proper time scale over which restrictions can be imposed they can make their judgment on an individual case.

Mrs. Browning: Will the right hon. Lady clarify how the difference is to be determined? Clearly, in some cases it will be obvious that people have become bankrupt through no fault of their own, but in the case of a company which is up against it in the tail end weeks and months, it is often the practice to pay preferential creditors in order to keep stock coming in. That is illegal, but one can understand why it is done. Would such a person or company be deemed to be on the two-to-15 year track?

Ms Hewitt: Each case will have to be decided by the courts on the individual facts, but the new administration

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procedure will encourage companies to come forward earlier once they get into difficulties rather than going up against the wire in the way that the hon. Lady describes and behaving in a way which, on the face of it, could be regarded as dishonest. That system of administration which, as I say, has been so widely welcomed, will encourage company rescue rather than insolvency wherever possible.

Mr. Richard Page (South-West Hertfordshire): Having been involved in business, I welcome the fact that someone who has become bankrupt through no fault of their own is to be given the chance to start again, but how shall we define "through no fault of their own"? There has to be some error of judgment in the management of a company for it to go down. The right hon. Lady's words have a good spin to them, but the practicalities on the ground might be slightly different.

Ms Hewitt: I cannot help feeling that the hon. Gentleman is making rather heavy weather of this. We have consulted insolvency practitioners, and the British Bankers Association wrote to me a couple of weeks ago expressing its appreciation of the constructive dialogue that it enjoyed with the Department's officials and their willingness to listen. I have no doubt that in individual bankruptcy cases the courts will be able to make common-sense judgments based on the evidence before them and having heard from the individual concerned.

Mr. McWalter: My point is similar to that of the hon. Member for South-West Hertfordshire (Mr. Page), in that there is a clear distinction between the malevolent bankrupt and those who have done their best, although perhaps not doing everything according to the book. I hope that my right hon. Friend might consider changes in the Bill's terminology to reflect that distinction more clearly. In particular, the odious word "bankrupt" really should not be used for those who are in the basically honest camp.

Ms Hewitt: In Committee and at other stages in the Bill's passage, we shall of course see whether we can improve the wording. I welcome the support of my hon. Friend and others for the principle here. The Federation of Small Businesses, which has extensive experience of the problem, has also said that, clearly,

It goes on to say:

I hope that our discussions can focus on the details of how we implement the principle rather than on any disagreement about the principle itself.

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