Enterprise Bill

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Mr. Waterson: I beg to move amendment No. 515, in page 258, line 17, at end insert—

    '( ) Where the goods are used by the administrator to continue running the business, the administrator must make payments to the owner of the goods under the terms of the hire-purchase agreement.'.

The Chairman: With this we may take amendment No. 516, in page 258, line 28, at end insert

    'to include any additional value attributable to the owner's ability to re-hire the goods.'.

3.15 pm

Mr. Waterson: These amendments were suggested by the Finance and Leasing Association, which, in common with the TUC, has been fairly catholic in whom it has chosen to brief. It states in the covering note that the timetable in the Bill for the administration process is

    ''wholly unrealistic and will hinder rather than streamline the procedures.''

Amendment No. 515 is intended to deal with the following situation; if the administrator is using goods under a hire purchase agreement—a company might hire equipment to produce its goods, vans for distribution and so on—the owner of the goods should continue to receive payment under the terms of the agreement. The administrator should not delay disposing of the goods if they are not in use and payments are not being made under the agreement. The amendment is designed to reflect the ruling in the

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case involving Atlantic Computer Systems plc in 1992. The Minister will be familiar with its terms and will be able to tell us about it. The point needs to be made clear in the Bill, and that is the purpose of the amendment.

Amendment No. 516 deals with a slightly different issue. The market value of equipment will not in all cases compensate the lender for the goods on hire. The re-hire value is often worth more than the market value and where the equipment is still within its basic life expectancy, the lender will seek to re-hire in order to capitalise on its investment. The court should be able to use its discretion in such cases, hence the amendment.

Mr. Alexander: I shall resist the temptation to be drawn into a discussion on individual case law and refer to the amendments.

Paragraph 71 sets out the way in which the administrator can deal with hire purchase property. Amendment No. 515 would provide that where the administrator used hire purchase goods in order to continue running the business, he or she would have to make payments to the owner of the goods under the terms of the hire purchase agreement. However, that situation is better dealt with by existing provisions in insolvency law, which have been incorporated into the schedule. If the owner of the goods is not being paid for their use, paragraph 41(3) provides that he or she may ask the administrator to return them; if that is not granted, he or she may go to court to seek permission to repossess the goods.

Case law sets out a number of principles for the courts to follow in deciding such cases; in particular, administration for the benefit of unsecured creditors should not be conducted at the expense of those who have proprietary rights over goods. But the courts are also required to weigh the legitimate interests of the owner of the goods against those of the company's other creditors. In doing so, they should take into account, among other things, the prospects for the success of the administration. We want the courts to continue to be free to carry out this balancing act on a case-by-case basis.

Paragraph 71(3) provides that if the court makes an order enabling the administrator to dispose of hire purchase goods, he or she must pay the owner of the goods the net sum that would have been realised if the goods were sold at market value. Amendment No. 516 would require additional money to be paid to take account of the owner's ability to re-hire the goods. That is not right. The owner should be paid the amount that the goods are worth at market value. That will enable the owner to replace the goods if he or she wants to. If the owner believes that some value attaches to the goods as a result of their capacity to be hired, it is up to him or her to persuade the court that that should be reflected in its estimation of their market value.

Mr. Field: The amendments are designed to strengthen the position of the leasing company. If they are not accepted, there is a risk that there will be less opportunity for hire purchase. That may be detrimental to small businesses starting out, who

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may be vulnerable to the market and to difficulties in the economy, and who may therefore be disinclined to buy property outright. For example, it is the norm for small printing companies to take out hire purchase agreements on printing machines as they become obsolete so quickly, and that is the nature of their market. If there are stronger restrictions on hire purchase companies, an obvious way for small concerns to build up their business will be removed. Has the Minister given that matter any thought? Does he have any ready statistics that would suggest how the current situation could differ from what will happen in the future if the amendment were rejected?

Mr. Alexander: I cannot offer ready statistics. I hope that I can offer a rationale, although I hesitate to use the term, given the degree to which it was pored over in discussions last week.

Our intention is that the situation reflects the current position, and I listened with interest to the hon. Gentleman's observations about a smaller company using hire purchase. I cannot comment on individual commercial judgments made by printing or other companies, but consultation has taken place at every stage of the Bill. I have not seen any evidence of legitimate concerns about why the provisions are materially different from what has been anticipated after the consultation process. Although his example was credible, it was hypothetical. If a community of interests had any particular concerns, it has had ample opportunity to bring them to our attention during the consultation process. The fundamental rationale is that the provisions reflect the position at present, so I am not entirely convinced by the scenario outlined by the hon. Gentleman.

Mr. Waterson: We have had an interesting debate, but all good things must come to an end. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Alistair Carmichael (Orkney and Shetland): I beg to move amendment No. 466, in page 259, line 10, leave out ''claiming'' and insert ''on the grounds''.

The genesis of the amendment comes from concerns expressed by the Law Society about the use of the term ''claiming'', which it feels is too vague and open to abuse, with unfounded applications. The altered wording that we propose would ensure that when a creditor or member of a company applies to the court to challenge the administrator's conduct, the creditor or member must have basis in fact for doing so. It must not simply be based on some spurious claim that may or may not be justified.

I suppose we are straying into the realms of the terms of written pleadings, and if the Minister can give me some assurance that proper rules of court will be put in place to ensure that any such application will be well founded, I shall be content to leave matters at that.

Mr. Djanogly: On paragraph 73, if the creditor or member of the company thought that the administrator was acting in a way that was cost-

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excessive, would that constitute either claims or grounds?

Mr. Alexander: I am intrigued by the question, but we are in danger of making a mountain out of a molehill in terms of what the Law Society is recommending. This is simply a drafting point. The provision allows a creditor to go to court ''claiming'' that certain things have happened, whereas the amendment would allow a creditor to go to court ''on the grounds'' that certain things had happened. The effect of the proposed change is captured within the existing wording, so the amendment, which reflects the views of the Law Society, is unnecessary.

The more substantive point of excessive cost covers a wider range of issues than is captured solely in this schedule. If it will help the hon. Gentleman, I shall write to him to clarify that particular point.

Mr. Carmichael: The diversion of a Division is not without its temptation, but I shall resist. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Waterson: I beg to move amendment No. 423, in page 260, leave out from line 27 to line 24 on page 261.

The Chairman: With this it will be convenient to take the following amendments:

No. 467, in page 260, line 29, leave out 'three' and insert 'six'.

No. 517, in page 260, line 29, leave out 'three' and insert 'twelve'.

No. 468, in page 260, line 32, leave out 'a specified period' and insert

    'such period as the court shall determine appropriate'.

No. 469, in page 260, line 33, leave out

    'a specified period not exceeding three months'

and insert

    'such period as shall be determined appropriate'.

No. 518, in page 260, line 34, leave out 'three' and insert 'twelve'.

No. 424, in page 261, leave out lines 2 and 3 and insert—

    '(b) either (i) a meeting of creditors; or (ii) creditors of the company whose debts amount to at least 50 per cent. of the total unsecured debts of the company (if any).'.

No. 425, in page 262, line 12, after 'copy', insert

    'to the person or persons who appointed him, to the company and'.

Mr. Waterson: Amendment No. 423 has a strong provenance, in that the CBI and several practitioners organisations support it. It could be counter-productive to restrict the periods during which administrations may continue, even if, first, the creditors and, later, the court can extend them. It can take a long time to prepare restructuring plans and to negotiate satisfactory arrangements with potential financier suppliers and major customers to enable a business to continue. We argued the case this morning that what matters is saving a business, not necessarily a company. If a business is to be sold, it can take

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several months to prepare sales information to find a purchaser and negotiate the agreement.

If the company is to be rescued through a voluntary arrangement, it may still be appropriate for the administration to continue so that the administrator can pursue remedies that are not available to the supervisor of a voluntary arrangement. One example is to have a transaction at an undervalue set aside under section 238 of the 1986 Act. Such litigation could take two to three years; easily, I interpolate. An administration for a restricted period cannot be regarded as a substitute for an administrator receivership that is unrestricted in length. Receiverships frequently last for more than a year, for example while litigation is pursued or efforts are made to obtain planning permission for development.

Amendments Nos. 517 and 518 offer an alternative to the amendment that I just described. They keep paragraphs 75 to 77 as they are, but substitute a more sensible time limit. I would be happy if the Minister accepted either amendment.

Amendment No. 424 will be unnecessary if amendment No. 517 or amendment No. 518 is accepted. It would allow an administrator to obtain the required consent at a creditors' meeting where consent cannot be obtained from 50 per cent. of all creditors by value, because one or more large creditors are apathetic or cannot be contacted.

Those are three different ways of approaching the same problem.

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