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Session 2002 - 03
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Delegated Legislation Committee Debates

Draft Company Directors Disqualification (Northern Ireland) Order 2002 and Draft Insolvency (Northern Ireland) Order 2002

Second Standing Committee
on Delegated Legislation

Tuesday 10 December 2002

[Mr. Alan Hurst in the Chair]

Draft Company Directors
Disqualification (Northern Ireland)
Order 2002

4.30 pm

The Parliamentary Under-Secretary of State for Northern Ireland (Mr. Ian Pearson): I beg to move,

    That the Committee has considered the draft Company Directors Disqualification (Northern Ireland) Order 2002.

The Chairman: With this it will be convenient to consider the draft Insolvency (Northern Ireland) Order 2002.

Mr. Pearson: The order takes forward the former Company Directors Disqualification (Northern Ireland) Bill, which had passed Further Consideration stage in the Northern Ireland Assembly prior to its suspension.

The measure amends and consolidates Northern Ireland law on company directors disqualification. It seeks to bring Northern Ireland law into line with that of Great Britain following amendments made to the Company Directors Disqualification Act 1986 by the Insolvency Act 2000. It provides for a suitable law to deal with abuse of limited liability status by preventing unfit directors from acting as directors for a period appropriate to the degree of their unfitness.

At present, disqualification is solely by means of a court order. The measure seeks to introduce disqualification by consent without the involvement of the court if there is evidence of unfitness on the part of the director and if that director is not disputing their unfitness. In such cases the Department will be able to accept a statutory-based undertaking from the director not to act in that capacity for a specific period. Breach of an undertaking will be a criminal offence and can lead to personal liability for the company's debts.

The new system will provide three other benefits: a financial saving for the director, since there will be no legal costs to be awarded against them; a saving in court time; and a reduction of the processing time for uncontested or mitigation-only cases. There is no pressure to give an undertaking. If a director does not accept the Department's allegations of unfitness, they may still choose to defend the case in court.

A consultation document was circulated to a wide spectrum of interests in Northern Ireland. Only a few replies were received, but all respondents agreed with the general proposals behind the legislation. As I said, the order makes Northern Ireland law consistent with that in Great Britain.

The Insolvency (Northern Ireland) Order 2002 takes forward the Insolvency (Northern Ireland) Bill, which had passed its Committee stage in the Northern Ireland Assembly prior to suspension. The order is in parity with the Great Britain Insolvency Act 2000 and

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with the provisions dealing with the disqualification of company directors included in the order that I discussed previously.

The measure aims to assist small companies in financial difficulties. It gives small companies attempting to enter a voluntary arrangement with their creditors a short optional moratorium, during which they will be protected from legal proceedings. Other measures replicating those in the Insolvency Act 2000 are included. They are non-controversial and were approved by the Assembly Committee of the Department of Enterprise, Trade and Investment.

The Committee expressed concern that giving trustees who are administering deceased insolvencies the right to claim in respect of a dwelling house owned under a joint tenancy might affect women disproportionately. That could happen because most insolvencies result from engaging in business, and the majority of those engaged in businesses are men. It is thus more likely to be a widow than a widower who would face any claim in respect of a deceased's interest in their dwelling house.

I have fully considered the issues and have concluded that the wording in the order should stand. To do otherwise would be to break parity with Great Britain and thereby deny to creditors of deceased insolvencies in Northern Ireland access to what would often be a significant asset to which they could look for payment. It would leave uncorrected an anomaly in insolvency law in Northern Ireland that was corrected in Great Britain by an identical provision in the Insolvency Act 2000.

Extensive consultation took place in Northern Ireland. Few replies were received, and none were unfavourable. The measure also brings Northern Ireland law into line with that of the United Kingdom.

4.35 pm

Sir Teddy Taylor (Rochford and Southend, East): I accept the principle behind the orders as the Minister described it. However, one thing horrifies me; I wonder if it is some sort of error, and would appreciate his advice. I accept that the insolvency order will save a great deal of time and trouble, but article 9 clearly and precisely says that if evidence of something criminal, offensive, shocking or disgraceful is produced against someone by the liquidator under article 182 of the Insolvency Order:

    ''no evidence relating to the answer may be adduced, and . . . no question relating to it may be asked . . . by or on behalf of the prosecution, unless evidence relating to it is adduced, or a question relating to it is asked, in the proceedings by or on behalf of that person.''

That means that evidence produced against someone in those proceedings cannot be repeated if there is another prosecution.

The Minister is an upright, tolerable and respectable person, as we all know. If evidence were produced against him by a liquidator who, to our surprise and astonishment, said that he was guilty of doing something shameful, such as stealing lots of money and depriving people of their assets, he would think it disgraceful if, under article 9, nothing of that could be mentioned in future proceedings.

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With your legal background, Mr. Hurst, I am sure that you are horrified to hear about article 9, which says that even clear, precise and unambiguous evidence cannot be mentioned in further proceedings. That is the sort of nonsense that one expects from European rules and decisions. I am not being silly when I say that. Anything stupid, outrageous and shocking in legislation usually has something to do with a European court. I have no proof that that is the case, but I simply ask the Minister whether a European court could have something to do with this.

Can the Minister provide any justification for article 9? How does it make sense that clear and specific evidence against an individual cannot be referred to in future proceedings? It seems to run contrary to the spirit of democracy and law and order, and it is the sort of thing that will let people off for crimes and offences of which they are guilty. Why did the Minister include article 9? My great respect for the Northern Ireland Ministers—in the days when we had them—makes me sure that the idea did not come from them. Will the Minister say where it came from? Is it simply an escape clause for people who are guilty of serious offences and crimes? Why should we approve the order while it includes that ridiculous and outrageous article?

4.36 pm

Lembit Öpik (Montgomeryshire): I congratulate the Minister on his short term of office. He has already achieved a virtual consensus in Northern Ireland politics, and I hope that he will next address the Good Friday agreement.

With the exception of the hon. Member for Rochford and Southend, East (Sir T. Taylor), most Members will be comfortable with what is proposed.

Sir Teddy Taylor: What did the hon. Gentleman say?

Lembit Öpik: I was about to pay the hon. Gentleman a compliment; he is the only Member I know who can consistently use the word ''Europe'' in every speech, regardless of the subject. Nevertheless, I am sure that the Minister will reply to his points.

The company directors disqualification order has not caused me to lose much sleep. Sir Reg Empey, the Minister for Enterprise, Trade and Investment in the National Assembly when it was still operational, gave a brief summary and concluded:

    ''I believe''

that this

    ''reflects the non-controversial nature of the Bill and the fact that it applies a common-sense approach to the practicalities of the disqualification procedure.''

I can only agree with that, and the Liberal Democrats have no issue with the measure.

Secondly, on insolvency, it seems to me, as someone who was close to insolvency in 1997 following a failed attempt to run a shoe shop in Newcastle upon Tyne, that the Bill could make a significant difference to the chances of otherwise viable businesses being brought down by the limitations of existing Northern Ireland legislation. If I understand correctly, the order brings Northern Ireland into line with the system in Great

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Britain following amendments made to the Insolvency Act 1986 by the Insolvency Act 2000. If that is all it is trying to do, we have no issue with it and the Minister need do no more than confirm that that is so. It is helpful to see that, despite the Assembly's suspension, this important business-related legislation is going ahead.

4.40 pm

Mr. John Taylor (Solihull): I shall leave my jury out until the Minister has replied to my hon. Friend the Member for Rochford and Southend, East, who vigorously pursued the point that had eluded me until that time and is entitled to an answer from the Minister. I shall be equally interested in his reply. However, one or two principles are at stake.

If hon. Members have heard me make these comments, I hope that they will forgive me because they are worth restating. Here are two measures that have, it is fair to say, had a fairly long gestation or digestion period in the Northern Ireland Assembly and, no doubt, in the Executive. I have always taken the view that it ill behoves me as an English Member of Parliament to second guess the elected representatives of the Northern Ireland communities in their proper and lawful deliberations. However, citizens in England, Scotland, Wales and Northern Ireland are deemed to know the law—I can say with confidence that that applies in England, Wales and Northern Ireland—so the minimum amount of regional variation is desirable.

Likewise, if a United Kingdom business is operating with branches in England and Northern Ireland, it is clearly highly desirable for company law to be the same in both countries. Otherwise, innocent business men could be caught out unexpectedly and mischievous business men could exploit that difference. On both counts, that is undesirable. My general principle is that any measure coming before a Committee in this House to make the law in Northern Ireland the same as that in England and Wales is desirable, and I can think of very few exceptions.

Another matter about which it is worth reminding ourselves is that limited liability companies have been around since about the middle of the 19th century. I believe that that is right, but you will correct me if I am wrong, Mr. Hurst. During the 150 years that have passed since then, limited liability has come to be taken for granted by people who operate such companies as if that were the normal course of events. In fact, it is not a normality but a great privilege to be given limited liability. Most of us in our daily lives do not have limited liability. We are totally exposed with unlimited liability and could be made insolvent.

When companies operate behind the shield of limited liability, creditors are restricted to the assets of the company and, in most circumstances, can go no further. Of course, you and I know, Mr. Hurst, that banks lending money to limited liability companies will often seek personal sureties from the directors—that is, effectively, an override of limited liability—but most creditors do not have the benefit of a surety, and in the event of business failure by a limited liability

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company, creditors can form a queue and get their dividend, such as it may be, of however much in the pound. The creditors will lose, and the operators of the limited liability company, provided that they have acted lawfully and honestly, will have their liability limited to the assets of the company. Of course, different considerations arise if directors trade the company while it is insolvent, or if they act unlawfully.

It is not my wish to detain the Committee, with the qualification that I would like to hear the Minister's answer to my hon. Friend the Member for Rochford and Southend, East. With that reservation, I do not expect to bring the matter to a Division.

4.45 pm


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Prepared 10 December 2002