Draft Insolvency Act 1986 (Amendment) (No.3) Regulations

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Mr. Prisk: With a low limit of about £2.8 million for turnover and 50 for the number of employees, does my hon. Friend agree that one danger is that we could penalise capital-intensive business? Does he share my concern?

Mr. Waterson: My hon. Friend makes a penetrating point. As I understand the regulations, if any one of the limits is exceeded, the company is no longer described as a small company and cannot benefit from a small company moratorium. As my hon. Friend rightly points out, it is possible to have a company with few employees but substantial assets. Indeed, the opposite situation could apply, and neither would come under the legislation.

Leaving behind the debates on the 2000 Act, I could do no better than to quote the hon. Member for Great Grimsby (Mr. Mitchell), who called the Act

    ''a little mouse of a measure.''—[Official Report, 24 October 2000; Vol. 355, c. 183.]

That calls into question the philosophy behind the Government's plans for corporate insolvency.

As you will be aware, Mr. Atkinson—I know that you follow such matters closely—the Government are seeking to pass the Enterprise Bill in parallel with the regulations. One of the Bill's stated purposes is to encourage entrepreneurial activity, and a stated basis for doing that is to copy the American system, which makes it easier for business people and other individuals to become insolvent, go into bankruptcy and emerge from it without any stigma. The Government are also trying to make more efficient and speed up the process with corporate failures, to which no one could object as a principle.

However, if we going to copy the American system, we must examine chapter 11 or 12—I have forgotten which. I am not qualified to speak about the detail, but it gives companies a much more powerful basis to shelter for a significant period, in which they can have a moratorium, try to keep the company going, return

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to profitability and satisfy their creditors. To echo the hon. Member for Great Grimsby, this is a ''mouse of a provision''—

The Chairman: Order. I apologise for interrupting the hon. Gentleman. The debate is entering the wider realms of insolvency, while the regulations relate only to companies that are eligible for a moratorium. I would be grateful if the hon. Gentleman concentrated his comments on the contents of the regulations.

Mr. Waterson: On the specifics on the regulations, the Government are trying to make them even more restrictive. I have described the existing restrictions in schedule A1 to the Insolvency Act 1986. The Government believe that even those modest limits in terms of companies being able to take advantage of the provisions are too generous.

Andrew Selous (South-West Bedfordshire): Does my hon. Friend agree that we have had an example in the past few weeks of why the criteria should be more generous and accommodate larger companies? Albert Fisher Frozen Foods in Norfolk went into liquidation and there was great worry among the employees because a scheme of arrangement could not be put in place to safeguard their jobs; happily, the business is now successful but that was nearly prevented from happening. Had the criteria that we are discussing under schedule 4A been more generous, that business would have been able to take advantage of them and would have had more time to safeguard the employees.

The Chairman: Order. We are not debating that schedule of the Insolvency Act 1986. We are debating the order, which defines the companies that will not be eligible for a moratorium. It is a narrow order and the debate should reflect that.

Mr. Waterson: I entirely agree, Mr. Atkinson. The order is narrow but has enormous potential significance for the companies that fall either side of the line. I am not familiar with the case referred to by my hon. Friend; I am grateful to him for drawing it to my attention. It would be interesting to know—I suspect that no member of the Committee does—whether that company would have been eligible but for the changes proposed under the regulations.

The Minister went into some—but not enough—detail about his reasons for choosing those criteria for narrowing the eligibility for a moratorium for a small company. I wish to probe that. He talked about securitisation transactions involving finance of £10 million or more—a suspiciously round figure. He was not present at the debates about securitisation during the Committee stage of the Enterprise Bill but I am sure that they have been brought to his attention. On what basis does he take that figure of £10 million or more, which I suspect is below the radar in the securitisation business of most major City transactions? Is it based on widespread consultation with people in the securitisation business, in the City of London and elsewhere? The Minister talked about incurring a liability of £10 million or more under an agreement. Would he give more detail on what sort of agreement we are talking about; the statement seems slightly vague? He may wish to intervene or write to me if he does not have the answer to hand. I can see

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the logic of the regulation on the holding company of a large group because what may on paper seem a small company may be the tip of the iceberg. I therefore have no particular difficulty with that.

The issue of step-in rights, which is another exemption, arose during the Committee stage of the Enterprise Bill. To paraphrase the Minister who was speaking about amendments pertaining to step-in rights—I refer to the Committee proceedings on 9 May, from column 605—he said that they were rights taken by financiers to protect their security when a project runs into trouble, enabling them to step into someone's shoes and take over the running of that project. I do not wish by paraphrasing to distort the Minister, but I understood him to say that he is thinking particularly of public-private partnerships where someone has in theory the right to step into a project. I also understood his concern to be that someone in that position could, for example, bring the underground to a halt and stop it running. Again, I cannot follow the logic of that. I cannot imagine why anyone stepping into this situation under the step-in rights would have the remotest interest in bringing the project to a halt and stopping the income flow of the project, whatever it might be. There was a considerable debate, which I will not go into, about the appointment of administrative receivers in the case of people who have the step-in rights.

The other contentious issue, which was dealt with later in that Committee sitting, is the threshold for exemption from the new rules about administration. All sorts of concerns were expressed by, among others, the Royal Institution of Chartered Surveyors, the Association of Property Bankers and the Investment Property Forum about the threshold of £50 million in what was then clause 241. I apologise because I do not know what number it is now. We pressed the Minister—a different Minister, admittedly—about how that figure was arrived at. It is intended to enable project finance companies to appoint administrative receivers. Curiously enough, those various expert bodies were lobbying for that figure to be reduced to £10 million, which they considered to be a realistic figure. Indeed, the Association of Property Bankers suggested that the majority of projects with which its members were involved were funded below the £50 million threshold. The British Bankers Association had something similar to say.

I do not think that this is finished business, in the sense that I recall that the Minister said that he would go away and think about it. I was not entirely satisfied with the explanation that the Minister gave about the relationship between the £10 million set out in the regulations, the figure of £50 million set out in one of the schedules to the Bill, and the serious lobbying from City interests and others that it should be reduced to £10 million. It sounds to me as if the figure of £10 million in both those slightly different circumstances could be correct. The Minister cannot have it both ways.

Finally, may I say a few words on the mechanics of the moratorium, Mr. Atkinson? I know that you will pull me up if I stray too far, but I need to be clear about precisely how that is to work in practice. Indeed,

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my hon. Friend the Member for Hertford and Stortford (Mr. Prisk) made the point that the original provisions were not yet in force, which is a little unfortunate to put it mildly. One wonders how many companies could have benefited from them in the time that it has taken to sort the matter out.

As I understand it, a small company within the existing definition, which is narrowed by the new criteria in these regulations, could make a voluntary arrangement with its creditors by going for the option of a moratorium. That would give the management time to produce a rescue plan, to make any modifications relating to the company and to tidy up the situation before it became completely out of hand. That is not dissimilar in some ways to the situation in America. The explanatory notes to the Insolvency Act 2000 describe a moratorium as

    ''a temporary stay, or in Scotland a sist,''—

the Minister will know more about that than I do—

    ''on certain legal acts and processes from being performed or continued.''

These regulations cover the whole of Great Britain.

Part I of the Insolvency Act 1986 introduced individual voluntary arrangements as well as company voluntary arrangements. A nominee is chosen by the directors to put the voluntary arrangement to the creditors of the company and to act as a supervisor of the arrangement if it is implemented. I should be grateful if the Minister could tell me the sort of qualifications that are expected of such a nominee. For example, are they supposed to be insolvency practitioners and accountants, or can a company director or anyone apply? Could the nominee for the purposes of the voluntary arrangements of the moratorium go on to become the administrator or receiver if those arrangements did not work? The moratorium puts a bar on any creditor of the company's taking legal action against the assets of the company, thus jeopardising the prospects of the voluntary arrangements succeeding.

For the sake of completeness, I want to return to the point made by my hon. Friend the Member for South-West Bedfordshire (Andrew Selous). I am looking at the explanatory notes prepared for the Insolvency Act 2000—

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