Enterprise Bill

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The Minister for E-Commerce and Competitiveness (Mr. Douglas Alexander): It is always a pleasure to serve under you on a Committee, Mr. Conway, and today it is a somewhat unexpected one.

The debate has been so wide-ranging that had I not spent most of last night reading the detail of the blizzard of amendments to be discussed in the coming 10 hours, I might have thought that we had covered all the issues. However, the point on which the hon. Member for Cities of London and Westminster (Mr. Field) ended is fair. Our challenge will be to focus on the detail. The virtue of starting the sitting with such a broad debate is that it ventilates some of the principal issues. With the indulgence of the Committee, I will answer some of the substantive points that have been raised. There will be plenty of scope to address the specifics of timings.

I was struck, not least in light of my last appearance before the Committee, by the somewhat uncharacteristically harsh tone of the criticism of the hon. Member for Eastbourne. I will bear in mind the scale of his concern about some of the details that have been brought to his attention. I hope that I will be able to offer him some comfort on certain points.

The first basic point, on which I would have thought we could find common cause across the Committee, is that a huge number of representations have been made to us. The complexity of the issues that we are dealing with partly explains the volume of material that we are receiving. The hon. Member for Twickenham (Dr. Cable) added to that point by suggesting that after an initial period of consultation there had been

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amendments or developments in policy, but there had not been time to reflect that in further consultation. In all candour, the Government sometimes find themselves between a rock and a hard place. If we are serious in conducting a consultation, amendments and developments will inevitably result. One of the benefits of the time that has been allocated to this part of the Bill will be that, where there has been innovation and development in policy in light of consultation, we will have the opportunity to discuss that.

The hon. Member for Eastbourne suggested that we had a superficial understanding of the position in the United States. He referred to a trip to the United States made by a previous Secretary of State. As an alumnus of an Ivy League institution, I yield to no one in my admiration of the entrepreneurial culture of north America and the United States in particular. However, the Bill has been informed not just by looking at the United States and finding out what lessons can be learned from its approach to enterprise and its entrepreneurial culture, but by looking around the world.

We unashamedly assert that we have looked far and wide to ensure that innovations in policy that give us a world class position in our treatment of corporate insolvency and a range of other factors are peppered throughout the Bill. We make no apology for seeking to learn from overseas instances of best practice. On timing, which I sense will cause some contention and controversy, there are very insightful and interesting examples of equivalent processes elsewhere which support the Government's proposals.

The hon. Member for Twickenham suggested that some of the issues before the Committee were dense. In the wee small hours of this morning, the corrupting thought entered my brain that it was not the clauses that were dense, but the Minister who was advancing them. I leave it for members of the Committee to judge.

We shall cover timing in specific discussions. However, it would be difficult to disaggregate it from our general approach, which is to encourage the use of administration. That is the best way forward.

I appreciate that the point about the company as distinct from the business is of concern to the hon. Member for Huntingdon. He was kind enough to refer to the fact that we would have the opportunity to speak about it later, but I shall address his remarks specifically. Before I do so, I want to reflect on the observations of my hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase). I shall bear in mind his remarks on personal bankruptcy, but given the scale and complexity of the clauses, I shall focus—with his indulgence—primarily on corporate insolvency. I am alive to the issues that he has raised, and there will be opportunities later to consider them in detail.

Before I turn to general points of principle, I want to address the specific example of Railtrack because if I do not do so immediately, I fear that it may be raised on several occasions. The administration of Railtrack is being dealt with under separate and distinct provisions, and not under the provisions that we are

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discussing. I would not want to allow that red herring to continue to swim for the rest of the morning, although reference may be made to other, more prominent administrations. Thanks to the excellent blizzard of briefing that I have just received, I can inform hon. Members that the specific provisions under which Railtrack is being dealt with consist of an administration scheme that is specific to the railways regime.

Mr. Waterson: I understand why the Minister wants to set Railtrack aside, but even if it is being dealt with under a separate regime, it is not being dealt with so wholly differently from other administrations that lessons cannot be learned.

Mr. Alexander: I am happy to accept that there is a discrete statutory basis for Railtrack. The substantive point is that the timings under the Bill preclude the possibility of highly complex administrations, whether or not they fall within the Bill's remit, and I am confident that provision is made for the court's ability to recognise complexity and reflect it in the timings available to the administrator.

The substantive point raised by the hon. Member for Huntingdon was that company rescue rather than business rescue was the focus of the Bill. The hon. Member for Cities of London and Westminster said that he was a junior lawyer in the 1990s—a sin of which I am also guilty. When I looked at the briefing, I reflected that one of my principal tasks as a junior lawyer in the corporate law department was to establish and incorporate shelf companies for use by clients.

I am therefore aware of the hon. Gentleman's point about the capacity to have a legal entity that does not reflect the reality of the business. However, I am confident that the Bill reflects our intention, and that it will give the courts sufficient comfort.

In light of the way in which the courts interpret the statute, it may be helpful to explain to the Committee our thinking so that we have some clarity at the beginning of the discussion. We may return to some issues in discussion on the relevant clauses, but I shall give the Committee a flavour of the approach that has informed the judgment of the statutory wording. We want company rescue to be at the heart of our insolvency procedures to ensure that companies that can be saved have a decent chance of survival and are not driven to the wall unnecessarily. That will be good not just for companies, but for suppliers, customers and employees.

The hon. Member for Eastbourne referred to his deep and profound concern for employment. Has he had the opportunity to see the briefing on the Bill from the TUC, which I received only this morning? It welcomes the Bill. Given the TUC's track record on and regard for employment issues, I place great weight on that endorsement.

The first objective of administration would be to rescue the company and the whole or part of its business. We recognise that there is no use at all in making the administrator try to rescue companies that are, as the hon. Member for Huntingdon suggested,

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merely empty shells, at the expense of rescuing viable businesses. The purpose ''to rescue the company'' evidently means to rescue it as a going concern, with the whole or much of its business intact. We are confident that the courts would interpret the purpose in exactly that way.

We also recognise that there will be some cases in which the break-up and sale of some or all of a company's individual businesses as a going concern will result in a better return for the creditors. Where that is the case, the duty of the administrator to act in the interests of the creditors will steer him towards that outcome. However, for administration to be effective as a rescue vehicle, it is important that we encourage companies, as well as their creditors, to use the procedure. In particular, we want to encourage smaller companies, many of which will have owner-managers, to use the procedure as a rescue vehicle at the early stages of financial difficulty.

Although there has been reasonable concern to ensure that statutory interpretation reflects the Government's intention, we must, equally, think about how the Bill will work in practice. To that extent, we have considered what the motivations of owner-managers would be in such circumstances. If the objective of administration were to rescue the company's businesses rather than the company itself, frankly there would be little incentive for directors of the company to enter into administration, which is one of the intentions of the Bill. We are confident, in legal terms, that the statutory interpretation bears that out.

Mr. Djanogly: Assuming that the directors are shareholders, they would normally have every reason to want to save the company rather than the business, because then they would not lose their investment.

Mr. Alexander: I would accept that point were it not that timing is critical in such circumstances. One of our concerns was to ensure that, at the appropriate time, there would be a process of administration that offered a realistic chance of rescuing the business and company in question. The point at which directors make the judgment is key to the outcome. We believe that we have struck the appropriate balance to ensure that the motivation is there, and we are confident that statutory interpretation of the Bill will reflect our broader intentions.

On financing, which I am sure we will revisit later this morning, the hon. Gentleman suggested that the measure was somehow damaging to the interest of the banks. I refer to a statement of the British Bankers Association:

    ''Since then we have enjoyed a dialogue with your Department in which we have had the opportunity to explain how banks attempt to rescue businesses in severe difficulty and to suggest amendments to the proposals which would help the Government to achieve its objectives.

    The Enterprise Bill, published today, reflects that dialogue.''

Many of the experienced members of the Committee are aware that such an endorsement is not offered lightly by organisations such as the British Bankers Association. We are confident that there has been

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serious and genuine engagement by the Government and interested parties in the consultation on the Bill and that the outcome is adequately reflected in its drafting.

I am conscious that we will inevitably revisit several of the issues that have been raised in the stand part debate when we come to the specific parts of the schedule 16. I shall simply narrate the detail of clause 239 as a courtesy to the Committee, before asking it to support it. At that point, it would be appropriate to move on.

Clause 239 will do three things. It will replace the existing administration procedure provided for in part II of the Insolvency Act 1986 with schedule B1, which is set out as schedule 16 to the Bill. It will introduce schedule 17, which deals with minor and consequential amendments relating to administration, and it will provide the Secretary of State with the power to make consequential amendments to both primary and secondary legislation. On that basis, I move that the clause stand part of the Bill.

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