Enterprise Bill

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Mr. Waterson: I am happy to beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 491, in page 255, line 11, at end insert—

    '( ) make an order on a petition for winding up suspended by virtue of paragraph 38(1)(b);'.—[Mr. Alexander.]

Mr. Waterson: I beg to move amendment No. 542, in page 256, line 34, leave out paragraph 64.

The Chairman: With this we may discuss the following amendments:

No. 417, in page 256, leave out lines 34 and 35 and insert

    'The administrator of a company may make a distribution to creditors of the company who are neither secured nor preferential only—'.

Government amendment No. 492.

Mr. Waterson: Amendments Nos. 542 and 417 are supported by the CBI and some practitioners in the business, who believe that the provision is misconceived. The provision assumes that the administrator needs a power to pay what are called ransom creditors in the interests of creditors generally. Currently, administrators deal with ransom creditors as a matter of discretion, without involving the court. It is therefore difficult to see why the provision is needed.

There is much to be said, however, for providing administrators with a power, in appropriate circumstances, to make distributions to all unsecured creditors as they go along. That is particularly the case if the administration needs to continue for some time, such as when parallel litigation is going on. Currently, the only way in which the administrator can find a medium for distribution is to go through the rather artificial process of proposing a parallel company voluntary arrangement for distribution purposes only. We believe that the administrator should have a power to distribute, but only with the blessing of the court. I commend the amendments to the Committee.

Mr. Alexander: I shall deal with amendments Nos. 542 and 417 before speaking to Government amendment No. 492. The Bill introduces the power for administrators to make payments to unsecured creditors with the permission of the court. That would include payments to all the unsecured creditors in part or final settlement of their claims in proportion to those claims, which in insolvency procedures are usually referred to as a ''distribution.''

Amendment No. 417 would allow the administrator to make distributions, rather than simply payments, to unsecured creditors during the administration. However, as I have said, the Bill already allows that. Amendment No. 542 would remove the requirement

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for an administrator to seek the permission of the court for any such payment to creditors. The Bill requires that, in all cases, other than under the Crown preference ring fence. We recognise on reflection that there will be circumstances in which the administrator should be able to make a payment to an unsecured creditor without the court's permission when the payment would help to achieve the purpose of the administration. Amendment No. 492 will allow for that. In light of that, I ask the hon. Gentleman to withdraw the amendment.

As I indicated, amendment No. 492 deals with the circumstances in which an administrator can make payments to unsecured creditors. At the moment, paragraph 64 provides that the administrator can make payments to unsecured creditors with the permission of the court, or without the permission of the court if the money is part of the fund that has been ring-fenced for unsecured creditors by virtue of new section 176A, following the abolition of Crown preference.

On reflection, however, we do not think that a distinction should be drawn in that way based simply on whether the money is part of the ring-fenced funds. Removing the reference to section 176A will ensure that the payment of ring-fenced money is treated by the administrator in the same way in which any other payments to unsecured creditors are treated. We would usually expect the administrator to put the company into voluntary liquidation in order to make distributions to unsecured creditors; otherwise he or she will have to get the permission of the court.

As I already mentioned, the amendment will ensure that the administrator should be able to make a payment to an unsecured creditor without the permission of the court when the payment would help to achieve the purpose of the administration. In the case of a company that operated from a tall office block, if the lifts broke down and the administrator was trying to rescue the company, it would be vital to get the lifts working again. If the lift maintenance company refused to carry out the work unless debts owed to them were paid, and it was difficult to obtain service from another company, the administrator should be able to pay the debt without court sanction. With that colourful example, I ask hon. Members to support the amendment.

Mr. Waterson: I hate to think of people stuck in lifts as a result of the amendment. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 492, in page 256, leave out line 37 and insert:

    '(b) if the administrator thinks that the payment is likely to assist achievement of the purpose of administration.'—[Mr. Alexander.]

Mr. Waterson: I beg to move amendment No. 446, in page 257, line 9, at end insert:

    '(1A) Subject to sub-paragraph (3), where no proposals have been approved under paragraph 51 the administrator of a company shall manage its affairs, business and property in accordance with paragraph 3'.

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The Bill does not indicate how the administrator should manage the company's affairs in the period before the initial creditors' meeting. Many businesses are too fragile to withstand the hiatus between insolvency and that meeting. The administrator needs full powers from the time of his appointment, which he currently has. That practical point has been made by people who do this sort of thing day in, day out, and who ought to know what they are talking about.

Mr. Field: I will speak only briefly to the amendment, as what we are trying to achieve is self-explanatory. Much of the Insolvency Act 1986, in effect, is being repealed and other elements are being integrated in the Bill. We are entering a new area of insolvency law. As my hon. Friend the Member for Eastbourne rightly pointed out, until we have had several years of what might be called normal practice and custom, administrators may be concerned to avoid doing anything for which they may be criticised. There is therefore concern that the hiatus may be for days or, for whatever reason, a fortnight or so.

There is a risk that administrators and directors of companies will do nothing, and will feel hamstrung and paralysed against taking any action. It would be sensible to clarify what the administrators' powers are, so that if there is to be a period between the insolvency and administration and the initial creditors' meeting, actions can be taken to ensure that the good will of the company is maintained as far as possible, particularly in the smaller service-related sector. An important element of good will is often the people who work for a company. Even a two-week period between insolvency and a fully-fledged creditors meeting can be difficult when the whole place is paralysed and it is difficult to hide. Some key employees might end up feeling that the best thing would be to walk out on the business. That would be entirely counter to the Government's aim of improving enterprise and ensuring that insolvency provisions allow companies to remain a going concern as far as possible.

Will the Minister offer some guidance and explain why the change is being made? How does he envisage the administrators' powers falling into place within the hiatus period? During the interregnum period and the next few years, as a new area of law comes into force, guidance will be necessary as administrators will not be able to rely on custom.

Mr. Alexander: I have listened carefully to the arguments of both hon. Gentlemen. Neither under existing legislation nor under the Bill is it intended to make an administrator seek the directions of the court. Rather, an administrator merely has to comply with any directions that the court gives, if its opinion has been sought.

The Bill sets out, albeit in modern, plainer language, the provisions under existing legislation; that the administrator may do anything necessary or expedient for the management of the affairs, business and property of the company and that he or she may apply to the court for directions in connection with his or her functions. Paragraph 67 is intended to apply where any such directions have been obtained and requires the administrator to manage the affairs,

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business and property in accordance with those directions. We have no intention of changing the law in that regard and the drafting does not do so. I am happy, however, to reflect further on the hon. Gentlemen's comments and return to the issue on Report. In that light, I hope that the amendment will be withdrawn.

Mr. Waterson: I am grateful for the Minister's clarification. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Alexander: I beg to move Government amendment No. 493, in page 257, line 36, leave out first 'charge' and insert 'security'.

The Chairman: With this we may take Government amendments Nos. 494 to 496.

Mr. Alexander: These are simply technical amendments to change the term ''charge'' to ''security'' in paragraph 70. ''Security'' is slightly broader than ''charge'' and is the term used in section 15 of the Insolvency Act 1986—we referred to it this morning—which is replaced by paragraph 70. Our intention is that the scope of the existing provision should not be altered. I therefore invite hon. Members to support the amendments.

Amendment agreed to.

Amendments made: No. 494, in page 257, line 37, leave out 'charge' and insert 'security'.

No. 495, in page 258, line 5, leave out 'charge' and insert 'security'.

No. 496, in page 258, line 7, leave out 'charges' and insert 'securities'.—[Mr. Alexander.]

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