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Standing Committee Debates

Draft Cross-Border Insolvency Regulations 2006

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Fourth Standing Committee on Delegated Legislation

The Committee consisted of the following Members:


†Mr. David Marshall

†Blunt, Mr. Crispin (Reigate) (Con)
†Bone, Mr. Peter (Wellingborough) (Con)
†Burt, Lorely (Solihull) (LD)
†Corbyn, Jeremy (Islington, North) (Lab)
Davey, Mr. Edward (Kingston and Surbiton) (LD)
†Dhanda, Mr. Parmjit (Gloucester) (Lab)
†Djanogly, Mr. Jonathan (Huntingdon) (Con)
†Kirkbride, Miss Julie (Bromsgrove) (Con)
†Kumar, Dr. Ashok (Middlesbrough, South and East Cleveland) (Lab)
†Love, Mr. Andrew (Edmonton) (Lab/Co-op)
Miller, Mrs. Maria (Basingstoke) (Con)
†Mole, Chris (Ipswich) (Lab)
†Robertson, John (Glasgow, North-West)
†Ruddock, Joan (Lewisham, Deptford) (Lab)
†Stewart, Ian (Eccles) (Lab)
†Sutcliffe, Mr. Gerry (Parliamentary Under-Secretary of State for Trade and Industry)
†Williams, Mrs. Betty (Conwy) (Lab)
Mrs Emily Commander, Committee Clerk

† attended the Committee

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Monday 20 March 2006

[Mr. David Marshall in the Chair]

Draft Cross-Border Insolvency Regulations 2006

4.30 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 Cross-Border Insolvency Regulations 2006.

Good afternoon, Mr. Marshall and members of the Committee. I hope that the Committee will not be detained too long but that it will give adequate scrutiny to the regulations.

The regulations will implement the main measures of a model law that was formulated in 1997 by the United Nations Commission on International Trade Law. The model law is designed to assist countries to equip their insolvency laws with a modern, harmonised and fair framework to deal with insolvencies that cross international borders. For example, it would cover cases where a debtor has assets in more than one country or where creditors are located in a different country from the one in which the insolvency proceedings are taking place.

National insolvency laws often are not designed to cope with instances of cross-border insolvencies and the problems that may arise. That makes it difficult to deal with insolvencies quickly and effectively. Any conflict between national laws can lead to the loss of assets and the loss of a potential opportunity to rescue a viable business. Such uncertainties can be a barrier to trade and can have a negative impact on the flow of investment between countries.

The Government are committed to the promotion of a rescue culture, and the regulations will provide a legislative framework that will facilitate a global approach to the administration of cross-border insolvencies as promoted by the UNCITRAL model law.

Implementation of the model law will provide encouragement to other countries that may be contemplating introduction of the legislation, thus allowing insolvency officeholders in Great Britain to enjoy the same benefits abroad as their international counterparts will enjoy here. As a consequence, costs incurred in recovering assets from overseas will be reduced, and funds available for creditors will increase.

I hope that hon. Members will agree that this is a constructive piece of legislation and a sensible use of
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the powers under section 14 of the Insolvency Act 2000. I am sure that all stakeholders involved will support the measure.

4.32 pm

Mr. Jonathan Djanogly (Huntingdon) (Con): As we heard from the Minister, the regulations give effect to UNCITRAL’s model law, which is intended to provide a framework to be incorporated into the insolvency laws of states to allow for easier cross-border insolvency proceedings. It is a procedural code designed to assist foreign representatives to apply to UK courts to commence and participate in insolvency proceedings. Likewise, the regulations will entitle UK insolvency officeholders to act in proceedings under UK law.

The regulations will be beneficial when an entity is placed in a form of insolvency administration in one jurisdiction yet has assets or a place of business in another state. It should be noted that in the past there have been relatively few cases of cross-border insolvency proceedings involving UK entities and, presumably, larger groups. Therefore, use of the regulations in proceedings is expected to be low in the short term, but we should recognise their possible future importance as an aspect of the globalisation process in the longer term.

The regulations will apply only to applications from foreign representatives of non-EU states, as the EU regulation on insolvency proceedings is already in place. There is a significant overlap between the provisions of the model law and the EC regulation. If there is a clash between the two, the EC regulation is to take precedence.

The intended effect of the regulations should be beneficial. The process of tracing assets across borders should be simplified, and the cost of bringing insolvency proceedings across borders should be reduced. That should encourage parties to pursue claims that they previously would not have deemed to be worth while due to the expense of such actions, and the regulations should provide an opportunity to make restructuring of financially troubled businesses a more flexible and streamlined process. That should make the rescue of businesses with assets located in more than one jurisdiction a more likely occurrence.

However, I would be grateful to hear the Minister’s views on certain issues. First, the right of UK officeholders to bring proceedings in foreign jurisdictions under the regulations will be limited to those jurisdictions where the model law has the force of law. I understand that only a dozen or so states have introduced the model law into their insolvency laws to date. It is unclear to some insolvency practitioners and lawyers in the United Kingdom whether the regulations provide an automatic recognition of the interests of all foreign courts, creditors and representatives or only those from jurisdictions that have adopted the model law. Will the Minister please clarify that issue?

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If anyone were allowed to bring proceedings in UK courts under the regulations, even if that person was from a jurisdiction that has not yet implemented the model law, the model law will not be reciprocal. That would not be a novel concept in the UK’s insolvency laws, as section 426 of the Insolvency Act 1986 already provides representatives from Commonwealth states with the right to issue proceedings in UK courts, whether or not a reciprocal right is afforded to UK representatives.

However, in light of the Government’s high profile failings in the non-reciprocity of our extradition arrangements with the United States, can the Minister clarify that no such similar situation will be caused under the legislation? If a country’s citizens can wind up a British company, it is only fair that our citizens should have the same right in that country. Will the hon. Gentleman explain how other countries, beyond the existing signatories, will be encouraged to adopt the model law? Is it relevant to World Trade Organisation discussions, for instance? Will signatures be included in trade deals?

Finally, the regulations are not to be extended to credit institutions and insurance companies, apparently as a result of European Community legislation being prepared in respect of such matters. Such an omission could have profound consequences when considering the size and importance of the banking and insurance industries in the United Kingdom. One of the greatest challenges to have faced the insolvency industry in recent years in respect of cross-border insolvencies was the collapse of BCCI. The regulations in their present form would not assist if such a situation were to occur again in relation to a credit institution or insurance company based primarily outside the EU. Will the Minister explain when the regulations will be extended to include credit institutions and insurance companies?

4.37 pm

Lorely Burt (Solihull) (LD): I welcome the regulations. We are very much in a global market and anything that we can use to facilitate better resolution when a company has gone into liquidation is to be welcomed. When a liquidation is announced, the problem often is that all the assets of the company seem to disappear. Anything to enable cross-border justice for creditors is to be welcomed.

4.38 pm

Mr. Peter Bone (Wellingborough) (Con): I declare an interest. I am a chartered accountant. Will the Minister clarify a few points? What is the relationship with the United States of America? This country has one of the highest regarded insolvency practitioners and I wonder if our practitioners will be put at a disadvantage if people can come from overseas who do not have the model law in place. One of the main problems in respect of a failing company is speed. To
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save it, action must be taken quickly. I am not sure whether the regulations would hinder or help such a process. Can the hon. Gentleman clarify that?

4.39 pm

Mr. Sutcliffe: I am grateful that the hon. Member for Huntingdon (Mr. Djanogly) is with us afternoon. It is good to see him back in his role at the Department of Trade and Industry, although he has other duties. He can always be called on to ask Ministers searching questions to which, on this occasion, I hope this Minister has the answers. He was right to welcome the model law. I am grateful to the hon. Member for Solihull (Lorely Burt) for welcoming the regulations. The world is changing. Globalisation means that there will be an increased number of insolvencies, which is one of the reasons why model law is being put in place.

The hon. Member for Wellingborough (Mr. Bone) asked whether the regulations will disadvantage UK insolvency practitioners. No, they will not. As for reciprocity and whether certain specified countries will be excluded, we hope that the model law will provide an example to other countries that will encourage them to implement it. As such, we have decided not to make reciprocity a prerequisite for granting assistance under the regulations.

Miss Julie Kirkbride (Bromsgrove) (Con): On that point, will the cost of insolvencies be cut? My constituency experience is that insolvency proceedings tend to cost more than the operation in the first place.

Mr. Sutcliffe: The cost of insolvency will not be affected. We may soon discuss the Insolvency Service and issues relating to that elsewhere. We have regular meetings with insolvency practitioners and we must try to balance the cost of the Insolvency Service against recovery of the cost of offering the service. I know that the hon. Lady supports that.

On non-friendly countries, we believe that court powers under article 6 to refuse assistance on public policy grounds would be sufficient to prevent the court from giving any assistance in a case that is contrary to British public policy. It should also be noted that the US has implemented the model, so office holders will have the same rights in the US.

The hon. Member for Huntingdon asked about credit institutions and insurance undertakings being included within the scope of the regulations. As a result of the consultation process, we accept that there could be benefits in bringing those entities within the ambit of the regulations because they conduct business throughout the world. Following consultation with the Treasury and in the light of extensive EC legislation on the winding up and reorganisation of credit institutions and insurance companies, we decided to exclude those bodies from the regulations for the time being, but we will consider their inclusion as soon as practicable.

I was asked whether the regulations would impact on EC regulation on insolvency proceedings. When
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EC regulation applies, it prevails over these regulations, as the hon. Member for Huntingdon said. That means that regulations can apply to the extent that the EC regulation does not or to the extent that the model law regulations do not conflict with the EC regulation.

The hon. Member for Wellingborough asked about speed. We feel that the model law will provide a framework that will allow for quicker resolution of international issues on insolvency cases.

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I hope that that covers the points that have been raised by hon. Members. There is a broad welcome for the regulations from all the stakeholders involved. We believe that they are sensible and hope that they enjoy the Committee’s support.


    That the Committee has considered the draft Cross-Border Insolvency Regulations 2006.

Committee rose at eighteen minutes to Five o’clock.


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