Mr.
Gauke: I beg to move amendment No. 179, in
clause 132, page 71, leave out lines 28 to
33. The
amendment relates to the applied provisions set out in the clause that
would amend section 178 of the Insolvency Act 1986. Our concern is that
the provisions amended by the Bill for the most part relate to
administration, as one would expect given that the clause relates to
administration. Section 178 of the 1986 Act relates to
liquidation and specifically gives power to a liquidator to disclaim
any onerous property. For those purposes onerous property
includes “any
unprofitable contract, and...any other property of the company
which is unsaleable or not readily saleable or is such that it may give
rise to a liability to pay money or perform any other onerous
act.” Why
should that power of disclaiming onerous property be available to an
administrator rather than a liquidator? I recognise that the power is
only to be given with the Bank of England’s consent and
exercised with that consent, but it does not seem appropriate to give
the power of disclaiming onerous property to an administrator,
especially given the protection for creditors in section 178(6) of the
1986
Act: “Any
person sustaining loss or damage in consequence of the operation of a
disclaimer under this section is deemed a creditor of the company to
the extent of the loss or damage and accordingly may prove for the loss
or damage in the winding
up.” With
an administration there may not be a winding-up, so that section does
not fit well with the modification to it in clause 132. It would help
the Committee if the Minister could explain why section 178 is amended
and
why it is necessary for an administrator to be able to disclaim
property, given that as a rule administrators do not have that
ability. Ian
Pearson: Amendment No. 179 would remove the ability of a
bank administrator to disclaim onerous property. I shall set out why
that ability is important and why we disagree with the
amendment. Onerous
property includes unprofitable contracts and property that is
unsaleable or not easily saleable, or that might give rise to a
continuing liability. The ability to disclaim onerous property is a
useful tool for the benefit of creditors, but it is normally
available—as the hon. Gentleman says—only to a
liquidator. We have applied the provision to bank administration, with
some modifications, as giving the bank administrator that power will
help to achieve the best result for creditors. Many members of the
insolvency community, including practitioners and lawyers, think that
an ordinary administrator should also be able to disclaim onerous
property, so it is sensible to apply such a provision, which benefits
creditors, to the bank administration
procedure. The
modifications in clause 132 are in line with the application of other
powers that are normally available only to a liquidator, for example
the ability to bring an action before the court for fraudulent or
wrongful trading and to pay dividends to unsecured creditors without
requiring permission from the court. Such provisions will ensure that a
bank administrator has all the powers necessary to fulfil his or her
objectives. The application of the liquidation powers, including the
power to disclaim, will also help to ensure that the bank
administration procedure is a cost-effective and efficient stand-alone
regime, which operates in the best interests of
creditors. I
thank the hon. Gentleman for his amendment because it has enabled us to
look at why table 2 applies only to section 178 of the 1986 Act, and
not the following four sections, which also deal with disclaimers. He
has brought that point to our attention and we will look into it. If
technical amendments are required to apply further provisions of the
1986 Act relating to the operation of disclaimers, we will consider how
to deal with them. Any necessary amendments will, of course, be subject
to normal scrutiny. I urge the hon. Gentleman to withdraw his amendment
because it is sensible that bank administrators have that power, but we
will look at whether we need to address in due course the issues raised
by the
amendment.
Mr.
Gauke: I am grateful to the Minister for his remarks. At
times, we do seek to be a constructive Opposition, and we have been in
this case, even if
inadvertently. I
am not entirely convinced by the Minister’s argument that as
some insolvency lawyers think that the power to disclaim onerous
property should apply to administrators generally we should therefore
apply it in these provisions. There may or may not be a case for
general reform. However, I will not press for a Division; the Minister
has given his explanation and it has been useful to highlight the
matter. I beg to ask leave to withdraw the
amendment. Amendment,
by leave,
withdrawn. Clause
132, as amended, ordered to stand part of the
Bill. Clauses
133 to 137 ordered to stand part of the
Bill.
Clause
138Property
transfer from bridge
bank 11.15
am
Ian
Pearson: I beg to move amendment No. 167, in
clause 138, page 75, line 7, after
first ‘bank’ insert ‘(“the original
bank”)’.
The
Chairman: With this it will be convenient to discuss
Government amendments Nos. 168 to
174.
Ian
Pearson: The amendments are of a technical nature. They
provide for two things. First, amendments Nos. 167 to 172 clarify some
of the terms used in the clause in relation to “original
bank” and “onward transferee”. Secondly,
amendments Nos. 173 and 174 provide for an added level of flexibility
in relation to onward property transfers from a bridge bank. Where an
onward property transfer is made from a bridge bank to a transferee, it
may require services from the original residual bank—clause 138
already provides for that—but it may also require services from
the bridge bank. This is because some of the facilities may have been
transferred from the residual bank to the bridge bank. These may be
necessary to operate the business transferred from the bridge
bank. Amendments
Nos. 173 and 174 provide that both the original residual bank and the
original bridge bank may provide services to business transferred from
the bridge bank. These are sensible amendments, which ensure that the
bank administration procedure is effective for additional resolution
scenarios. Amendment
agreed
to. Amendments
made: No. 168, in
clause 138, page 75, line 7, after
‘bridge bank’ insert ‘(“the original bridge
bank”)’. No.
169, in
clause 138, page 75, line 10, after
‘bridge bank’ insert
‘to a transferee
(“the onward
transferee”).’. No.
170, in
clause 138, page 75, line 11, leave
out
‘transferee
under the onward property transfer instrument’
and insert
‘onward
transferee’. No.
171, in
clause 138, page 75, line 13, after
first ‘the’ insert
‘onward’. No.
172, in
clause 138, page 75, line 15, leave
out
‘bridge bank
under the original property transfer instrument’
and insert
‘original bridge
bank’. No.
173, in
clause 138, page 75, line 17, leave
out subsection (3) and
insert— ‘(3) In any other
case, the Bank of England may determine that the original bridge bank
is to be treated as a residual bank for the purposes of this
Part. (3A) Where the original
bridge bank is put into bank administration in reliance on subsection
(2)(b), Objective 1 shall apply in accordance with section 125(4) in
relation to both— (a)
services provided by the original bank to the original bridge bank,
and (b) services provided by
the original bridge bank to the onward
transferee.
(3B) Where the original bridge bank is put into bank
administration in reliance on a determination under subsection (3),
Objective 1 shall apply in accordance
with— (a) section 125(3)
in relation to services provided by the original bridge bank to the
onward transferee, and (b)
section 125(4) in relation to services provided by the original bank to
the original bridge bank. (3C)
But the Bank may
determine— (a) that
subsection (3B) does not apply,
and (b) that section 137 shall
apply as if the Bank had
given— (i) an Objective
1 Interim Achievement Notice in respect of the original bridge bank,
and (ii) a notice under section
137(1)(b) in respect of the onward
transferee.’. No.
174, in
clause 138, page 75, line 22, leave
out subsection (4).—[Ian
Pearson.] Clause
138, as amended, ordered to stand part of the
Bill. Clause
139 ordered to stand part of the
Bill.
Clause
140Successful
rescue Question
proposed, That the clause stand part of the
Bill.
Mr.
Gauke: The clause relates to the successful rescue of a
bank and it applies if the bank administrator has pursued objective
2(a), which is the rescue of a residual bank as a going concern, and
believes that it has been achieved. It also sets out various procedural
matters. It appears that the decision as to whether a successful rescue
of a residual bank has been achieved is left to the bank administrator
and he will say, “We’ve made the decision. That’s
it.” But what happens if the FSA or the Bank of England take a
different view? Will the FSA and the Bank of England as a matter of
course examine the rescue bank and if they feel that the threshold
conditions have not yet been achieved, can they influence the bank
administrator? On
the subject of successful rescue and the point at which a residual bank
has been rescued, we have an example of how the system works in the
case of Bradford & Bingley—as we have mentioned on a number
of occasions—although I do not want to go into the case of the
Icelandic banks. What progress is being made on Bradford & Bingley
and does the Minister ever envisage that it could be rescued as a going
concern? Does the Treasury expect that to happen and, if so,
when?
Ian
Pearson: I do not particularly want to be drawn on
Bradford & Bingley, which does not really have much to do with what
the clause seeks to achieve. Clauses 140 and 141 provide for different
ways of bringing a bank administration to an end. The approach is
consistent with the ways in which an ordinary administration can be
brought to a close—the hon. Gentleman will be familiar with
them. Clause 140 is a straightforward technical clause providing a
simple way to bring a bank administration to an end where both
objective 1—support for a private sector purchaser or bridge
bank—and objective 2(a)—rescue of the residual
bank as a going concern—have been achieved. In those
circumstances, the bank administrator can bring a bank administration
to an end by following the process for formal administration set out in
paragraph 80 of schedule B1 to the Insolvency Act
1986. That
means that the bank administration is brought to an end when the bank
administrator files an appropriate notice with the court and Companies
House. To ensure that creditors are aware that the administration is
complete, a copy of that notice must be sent to all the
company’s creditors and made available to them on request. As
the residual bank will have been rescued as a going concern, the FSA
must also be notified
accordingly. Mr.
Peter Bone (Wellingborough) (Con): The Minister said that
the clause had nothing to do with Bradford & Bingley but he then
described exactly the situation that the Bradford & Bingley
residual bank is in. Have I missed something? Does the Minister not
want to comment on it because of commercial confidentiality? Surely it
is exactly the situation that Bradford & Bingley is
in.
Ian
Pearson: I do not want to be drawn into parallels with
Bradford & Bingley. We are talking about new legislation. The Bill,
as I have already indicated, parallels very closely the Insolvency Act
1986 provisions when there has been a successful rescue.
The hon.
Member for South-West Hertfordshire asked about rescue situations. We
need to be clear that the Bank of England would already have issued an
objective 1 achievement notice and the bank administrator must be
satisfied that the residual company has been rescued. However, as I
have pointed out, the procedures are similar to those set out in
paragraph 80 of schedule B1 to the Insolvency Act 1986. Clause 140
provides an appropriate way to bring a bank administration to an end
where support for a commercial purchaser or bridge bank is no longer
necessary and the residual bank has also been rescued as a going
concern. Question
put and agreed
to. Clause
140 ordered to stand part of the
Bill. Clause
141 ordered to stand part of the
Bill.
Clause
142Disqualification
of
directors Question
proposed, That the clause stand part of the
Bill.
Mr.
Gauke: The clause refers to the Company Directors
Disqualification Act 1986. Given our recent debate on clause 65 and the
treatment of company directors, does the Minister anticipate that
clause 65 could be used to amend that
Act?
Ian
Pearson: The clause establishes that the provisions of the
Company Directors Disqualification Act 1986 are applied to the bank
administration procedure. That ensures that, where appropriate, action
can be taken in the public interest against the directors of the
company. As the hon. Gentleman notes, under that Act when a company
goes into insolvency the office-holder—the
liquidator or the administrator—is required to consider the
conduct of the directors of the failed company and report to the
Secretary of State.
Action may
then be taken, if it is considered to be in the public interest, to
disqualify a person from acting as a company director for a specified
period. The 1986 Act prescribes that a wide range of matters may be
considered in determining whether a director’s conduct has been
such that action should be taken to bar him or her from acting as a
director for a period of between two and 15 years.
Clause 142
applies the Act with necessary modifications. These are important
powers to protect the public and it is therefore appropriate to apply
them to the bank administration procedure. The provisions of the
Company Directors Disqualification Act are of long standing and will
therefore be familiar to companies and their professional advisers. The
provisions of the clause are straightforward and consistent with the
Government’s overall approach that the bank administration
procedure should be generally consistent with existing insolvency law
and practice. That is an approach strongly supported by
stakeholders.
Clause 65
could in theory amend the 1986 Act but it is not necessary in the bank
administration procedure, due to the application in clause 142. The
hon. Gentleman is right: we would want to look at whether the Company
Directors Disqualification Act powers should be used with regard to a
failing company. It would be abnormal to say that because a bank had
failed we did not want to consider whether the conduct of the directors
of the failed company had been appropriate. I hope that gives the hon.
Gentleman the reassurances he
seeks. Question
put and agreed to.
Clause142
ordered to stand part of the Bill.
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