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Delegated Legislation Committee Debates

Draft Insolvency Act 1986 (Amendment) (Administrative Receivership and Urban Regeneration Etc.) Order 2003

Eleventh Standing Committee on Delegated Legislation

Thursday 10 July 2003

[Mr. Alan Hurst in the Chair]

Draft Insolvency Act 1986 (Amendment) (Administrative Receivership and Urban Regeneration Etc.) Order 2003

2.30 pm

The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Gerry Sutcliffe): I beg to move,

    That the Committee has considered the draft Insolvency Act 1986 (Amendment) (Administrative Receivership and Urban Regeneration etc.) Order 2003.

I welcome you to the Chair, Mr. Hurst, and look forward to your stewardship of our deliberations this afternoon. The draft order that we are considering today amends the provision in the Enterprise Act 2002 for exceptions in a limited number of defined areas to the general prohibition of the right to appoint an administrative receiver, inserted by the Act into the Insolvency Act 1986. I believe that the hon. Member for Cities of London and Westminster (Mr. Field), who is here today, was a member of the Enterprise Bill Committee.

It is expected that the corporate provisions of the Enterprise Act, which amend the Insolvency Act 1986, will be commenced in early September. They implement the Government's policy that the balance in corporate insolvency proceedings should be tipped firmly in favour of collective proceedings in which all creditors participate and where the office holder has a duty to take into account the interests of creditors as a whole. The Enterprise Act achieves that by streamlining the current collective procedure of administration and generally prohibiting the use of administrative receivership where the receiver's duty is principally confined to the floating charge holder—usually the bank—who appointed him or her.

By generally prohibiting the appointment of an administrative receiver, the Government seek to shift the balance in favour of the new streamlined administration procedure, thereby ensuring that account is taken of the interests of creditors as a whole, including small firms and other trade creditors whose claims are unsecured. It is recognised that the ability to appoint an administrative receiver is fundamental to the effective operation of specific markets and sectors, and should therefore be retained.

As I have said, the provisions inserted into the Insolvency Act 1986 by section 250 of the Enterprise Act provided exceptions to the prohibition of the right to appoint an administrative receiver in a limited number of defined areas. The exceptions relate to capital markets, public-private partnerships, utilities, project finance, financial markets and registered social landlords. The Enterprise Act also provides for the insertion of additional exceptions through an order approved by resolution of each House of Parliament.

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The draft order uses that power to insert two further exceptions which relate to urban regeneration projects and sectors where special administration regimes are in operation. I shall deal with each new exception in turn.

A key element in the success of the Government's policy on urban regeneration is the involvement of both the public and private sectors in delivering a programme of change and development in towns and cities. However, in many locations, such as disadvantaged communities, the viability of particular projects may be marginal or require public sector support. In those cases, private sector funders place a high value on the right to step in and appoint administrative receivers in the event of failure. Without that right, it is possible that either the finance would not be obtainable or the cost would rise substantially, thereby impacting adversely on marginal projects and undermining urban regeneration.

The need to include exceptions for specific circumstances, where funders rely on step-in rights and the appointment of an administrative receiver, is already recognised in the Enterprise Act. The current exceptions enable the appointment of an administrative receiver for very large projects where the expected level of debt is at least £50 million and, for public-private partnerships, where projects involve step-in rights. However, there is no similar exception covering the smaller purely private sector projects that the Government are keen to encourage as part of their policy of delivering an urban renaissance. The proposed exception corrects that position. In framing the exception we have been conscious of the need to ensure that it does not open up the possibility of normal commercial lending falling within its terms. The exception is tightly drawn and applies only to projects to develop land in disadvantaged areas.

I turn to the special administration regime. The second exception allows the continuation of the right to appoint an administrative receiver in respect of companies covered by special administration regimes operating in the water and transport sectors, and draws on and amends the current administration provisions. The Government's policy is that the corporate insolvency provisions, including the prohibition on appointing an administrative receiver, should not extend to special administration regimes until consideration has been given to any adjustments that need to be made to apply the reforms to the sectors involved. Section 249 of the Enterprise Act saves the current administration provisions for such regimes and disapplies section 248 of that Act, which inserts the new streamlined administration procedure in schedule 16 into the Insolvency Act 1986. However, there is not a similar provision disapplying the prohibition on the appointment of an administrative receiver in such regimes. The exception will deal with this difficulty by maintaining the ability of holders of qualifying floating charges in the sectors covered by special administration schemes to appoint an administrative receiver within the conditions set down in the particular regime.

Without creating that further exception, the holders of qualifying floating charges in companies for which

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there are special administration regimes would no longer be able to enforce their security by appointing an administrative receiver. In addition, because of the disapplication of section 248 to such schemes, they would be unable to take advantage of the new administration procedures.

I commend the draft orders to the Committee.

2.36 pm

Michael Fabricant (Lichfield): May I, too, welcome you to the Chair, Mr. Hurst? I think that this is the first time that I have been in a Committee that you have chaired, and I am pleased that you are in charge of our proceedings. I also thank the Minister for his well informed and, if I may say so, exciting report on the order.

In general, we support the order because it builds on the arguments that were presented by my hon. Friend the Member for Cities of London and Westminster and other Conservative Members when this issue was debated in 2002 during our discussions on the Enterprise Act. I am glad that the Government have learned their lesson and were in listening mode. However, I have several questions regarding the order, and the proposed new sections 72DA and 72GA.

Proposed new section 72DA addresses urban regeneration. Why was not the British Urban Regeneration Association, of all organisations, consulted? BURA's chief executive, John Ladd, has expressed concern at the overall impact that the intended entry into the sector of new developers might have on urban regeneration in the UK. He is very concerned and disappointed that this order was made without any consultation with BURA, which was formed in 1990. He feels that it was particularly heavy-handed—perhaps I am putting words in his mouth, but I will do so anyway—of the Department of Trade and Industry not to consult it. Why did the Department choose not to do so?

Mr. Ladd said that had he been approached by the Department, or even been made aware of the order's existence, BURA's members would have drawn up an extensive consultation document on the impact of proposed new section 72DA. He said that he was very disappointed to be told for the first time about a measure that will impact on urban regeneration in much in the same way as, for instance, a specific tax reduction by a shadow DTI researcher rather than the Department itself. Why did the Department not do so?

It seems unlikely that a half-regenerated brownfield or urban site will attract new developers if the original company has become insolvent. That could result in precipitate administration for ailing developers, followed by abandonment of the unregenerated sites. That issue must be addressed. There is a similar concern about proposed new section 72GA, ''Exception in relation to protected railway companies etc.'' Principally, that concerns lenders making an early move towards administrative receivership when the economic yields of the company involved are marginal. The DTI may find that sewerage or transport companies offering low or even non-existent returns are judged to be beyond rescue both by the lender and any future owner.

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I have six specific questions, and I shall ask them slowly, not as a filibuster—that would be out of order—but so that officials and the Minister can respond. First, what assessment has the DTI made of the impact that new developers entering the field will have on best practice in urban regeneration in the UK? What measures will be put in place to ensure that current best practice is preserved? Secondly, as I asked earlier, why was the British Urban Regeneration Association, which brings together private and public organisations, not even made aware of the order? After all, is not the measure a good example of private-public partnership—a buzz word often used by the Government? Why did the DTI not take advantage of the extensive and free analysis that BURA would have undertaken of the order's impact on urban regeneration in the UK?

Thirdly, will the DTI take any measures to prevent sites that are unfinished by developers and are put into administrative receivership from remaining undeveloped? How will it address that problem? Fourthly, what provisions will the Department make in the case of lenders who put a sewerage or transport company into administrative receivership, then fail to find a viable purchaser for that company? Fifthly, what assessment has the DTI made of the social impact of urban regeneration, sewerage and transport companies being hastily put into receivership if the economy slows, and the traditionally low yield in such fields dwindles? What measures would be introduced to ensure that those companies are rescued, despite the lack of incentive to do so on the part of the lenders?

Sixthly—the Minister will be relieved to know that this is my final question—does the DTI expect that, in areas affected by the order, the social advantages of increased investment will be offset by the social disadvantage of lenders putting companies into administration with comparative ease? How will that balance be determined? Those are important questions, but do not detract from our overall welcome for the principles of the order—indeed, we hailed them when the Enterprise Act was discussed in Committee. It is sad that, because of the way in which the Government put in place orders that prevent full debate in Committee, those principles were not enshrined in the Bill, and so have had to come before us today.

2.43 pm


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