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Session 2001- 02
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Standing Committee Debates
Enterprise Bill

Enterprise Bill

Column Number: 621

Standing Committee B

Tuesday 14 May 2002


[Mr. Derek Conway in the Chair]

Enterprise Bill

Clause 242

Abolition of crown preference

Question proposed [9 May], That the clause stand part of the Bill.

10.30 am

Question again proposed.

The Chairman: As the Clerk will not allow me to adjourn the Committee to the Terrace, we shall continue with the clause stand part debate.

The Parliamentary Under-Secretary of State for Trade and Industry (Miss Melanie Johnson): I can only regret that the Clerk has prevented your bid to adjourn to the Terrace on such a nice morning, Mr. Conway.

I confirm what the Minister for E-Commerce and Competitiveness, my hon. Friend the Member for Paisley, South (Mr. Alexander) has said; we estimate that the abolition of Crown preference will yield some £70 million a year for creditors, which will be very helpful to those creditors who would not have received any benefit from the previous arrangements.

Mr. Nigel Waterson (Eastbourne): I welcome the Under-Secretary back to the Committee. We are pleased to see her in rude good health this morning, although we will soon put a stop to that.

The proof of this particular pudding will be in the eating. If we discover, through our advice surgeries and mailbags, that small businesses are being harassed at a much earlier stage by the Revenue and by Customs and Excise in order to get around the excellent proposal of scrapping Crown preference, we may need to return to the subject. We have expressed our concerns on the issue and I have no more to say at this stage.

Question put and agreed to.

Clause 242 ordered to stand part of the Bill.

Clause 243

Unsecured creditors

Mr. Waterson: I beg to move amendment No. 524, in page 170, line 16, at end insert 'appointed under such floating charge'.

The Chairman: With this we may take the following amendments: No. 439, in page 170, leave out lines 17 to 22 and insert—

    '(2) A prescribed part of the company's net property shall be applied towards the satisfaction of debts that are neither preferential nor secured and shall not be distributed to the proprietor of a floating charge except in so far as it exceeds the amount required for the satisfaction of such debts.

    (a) where subsection (1)(a) applies the liquidator shall use the prescribed part to pay the unsecured debts in whole or in part.

Column Number: 622

    (b) where subsection (1)(b) applies the administrator shall use the prescribed part to pay the unsecured debts in whole or in part or, if so authorised by proposals approved under paragraph 51 of Schedule B1, make it available for that purpose to a liquidator of the company, the supervisor of a voluntary arrangement to which the company is subject or the company itself.

    (c) where subsection (1)(c) applies the provisional liquidator shall, subject to any order of the court, retain the prescribed part until a winding-up order is made or the petition dismissed.

    (d) where subsection (1)(d) applies the receiver shall use the prescribed part to pay the unsecured debts in whole or in part or make it available for that purpose to any liquidator of the company.'.

No. 440, in page 170, line 25, after 'minimum', insert

    'amount or less than the prescribed minimum proportion of the unsecured debts.'.

No. 525, in page 170, line 35, after 'property', insert

    'subject to a floating charge'.

Government amendment No. 479.

No. 457, in page 170, line 36, at end add

    'and limited to the value of the assets over which the fixed charge subsists.'.

No. 526, in page 170, line 38, leave out 'the company's' and insert 'such'.

No. 458, in page 170, line 38, at end add

    'including any trading loss incurred.'.

Government amendment No. 480.

No. 459, in page 171, line 12, after 'creation', insert

    '; in Scotland, references to the creation of a charge are—

    (a) in the case of a floating charge, the date on which the instrument creating the floating charge was executed by the company creating the charge, and

    (b) in any other case, the date on which the right of the person entitled to the benefit of the charge was constituted as a real right.'.

No. 429, in page 171, line 13, at end insert—

    ' ''Receiver'' means an administrative receiver or (in Scotland) a receiver appointed under Chapter II of Part III of the Insolvency Act 1986.'.

Government amendment No. 481.

Mr. Waterson: You will be relieved to hear that only a few of the amendments are tabled by Conservative Members, Mr. Conway, the others having been tabled by the Government or Liberal Democrats, which makes a nice change.

Amendment No. 524 is a technical amendment, which is code for saying that I shall read my brief, in the hope that someone understands it. The amendment is designed to make it clear that the requirements to make funds available out of net property, which, I believe, is the appropriate term of art, does not apply to a receiver who is only appointed under a fixed charge and, therefore, has no control over net property. I look forward to the Under-Secretary explaining the consequences of that.

On amendment No. 439, practitioners feel that the phrase ''make . . . available'' in clause 176A(2)(a) is too vague to be implemented in practice. I hope that the Under-Secretary will deal with that entirely practical concern.

Column Number: 623

Amendment No. 525 also relates to net property. I am told that the current definition of net property requires it to be calculated on all the company's properties, including not only the property subject to the floating charge, but any property subject to a fixed charge and property not subject to any charge at all. An example has been given of a receiver appointed under a floating charge over assets worth £50,000. The company has uncharged assets worth £1 million, so the required percentage to be made available to unsecured creditors is fixed at 10 per cent. The Bill would require the receiver to make available £100,000, of which only £50,000 would be under his control.

If the amendment were accepted, proposed new subsection (5)(a) would apparently still be needed because a floating charge can exist over property subject to a prior fixed charge. The subsection allows such a prior fixed charge to be taken into account but, because the definition is changed to refer only to floating charge assets, would exclude fixed charges over other assets. That seems perfectly sensible in the context.

Amendment No. 526 is minor and technical and needs no explanation. Amendment No. 429 stems from the Scottish briefing and would add a definition of ''receiver.'' Receiver is a broad term covering every kind of receiver appointed under a fixed or floating charge. The new responsibility under the proposed new clause should affect only receivers who are administrative receivers, or the Scottish equivalent; that is, a receiver appointed under a floating charge to the whole, or substantially the whole, of the company's assets.

The administrative receiver controls the company's destiny in the same sense as a liquidator, administrator or professional liquidator. It may be argued that secured creditors will endeavour to avoid the effect of the proposed new clause by taking security in the form of floating charges over only part of the company's assets, so that any receiver appointed would fall outside the scope of the new clause. That is not thought to be a significant risk, however, as the security-taking would be inconvenient and give the secured creditor no effective control of the situation.

Mr. Alistair Carmichael (Orkney and Shetland): My amendments are technical, but I assure the Committee that those who wrote my brief have used a brief turn of phrase, so I shall not delay our proceedings for long.

Amendment No. 457 invites the Under-Secretary to establish the extent of the liability that can be taken into account for the purposes of proposed new subsection (5)(a). Situations may occur in which the company's liability will exceed the value of the assets affected by a fixed charge. The holder of a fixed charge would not be entitled to claim more than that value, in contrast to the holder of a floating charge. The amendment stems from the Law Society of Scotland and invites the Under-Secretary to clarify whether the liability referred to in the subsection is restricted to the value of a fixed charge or not.

Column Number: 624

The purpose of amendment No. 258 is to establish whether trading losses are to be included when quantifying the cost of realising a company's property for the purposes of subsection (5)(c). The Law Society tells me that it envisages—I am sure that its position is quite reasonable—that, typically, solicitors' and estate agents' fees will be included in the cost of realising companies' property. However, it would be of some benefit if the Under-Secretary clarified whether trading losses that are incurred would also be included.

The Under-Secretary will be aware that insolvency practitioners may often continue to trade at a loss in order to secure a greater sum in realising an asset. The insolvency practitioner may realise more money for the property by continuing to trade but might, in doing so, incur trading losses. I welcome any clarification that the Under-Secretary can give us as to whether the trading losses incurred during this period are to be included in the cost of realising the company's property. There is an obvious link between the trading loss and the realisation of the property and there is a substantial argument for establishing that.

Amendment No. 459 is a technical amendment regarding the definition of the creation of a charge. It is the Law Society of Scotland's view that subsection (8) does not accurately reflect the points at which, in Scots law, a fixed or floating charge is created. The purpose of the amendment is to rectify that defect. It adopts the definitions given in section 410(5) of the Companies Act 1985 and is designed to ensure a degree of consistency of approach between the different legislation. Given the highly technical nature of the amendments, there may be some scope for the Under-Secretary to re-examine some of the matters involved. I invite her early comments.


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