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Lord Lucas: We are in some difficulty because we are referring to different things. The noble Lord talks about matters governed by the governing legislation of the specific type of vehicle. It may be a Companies Act company, an industrial provident society, a charitable trust or various other types of vehicle. Whether or not they are insolvent will depend on the legislation governing those types of vehicle.
This Bill is concerned with the consequences of insolvency: that the housing may be put in danger of being sold on the open market. It concerns the corporation's power to deal with that, whether or not the event is due to insolvency.
Perhaps I may be allowed to make some progress in my general peroration on the subject. I do not count on giving the noble Lord the comfort that he requires but it may at least help.
The consequences of insolvency for all parties could be disruptive and expensive. The housing and public funds invested could be transferred from the social rented sector to the private rented sector. Rents could and very likely would rise to market levels. Housing benefit expenditure would rise. The Government, taxpayers and tenants would lose the benefit of the sub-market rents secured by the original capital subsidy.
This Bill introduces a moratorium following insolvency during which creditors will not be able to dispose of the landlord's land. During this period the corporation will develop a proposal which will retain the housing within the social rented sector, if necessary transferring it to an alternative landlord. With the secured creditor's consent the corporation will be able to appoint a manager to implement all or part of its proposal.
The provisions in the Bill represent a major improvement on the current position. Existing legislation does not give the corporation any right to intervene or any powers to assist if a housing association faces insolvency. The matter is dealt with entirely informally at present.
The Bill provides a statutory role for the corporation to draw up proposals which protect tenants and taxpayers' funds. It ensures that there is no leakage of social housing out of the sector until the corporation has tried to sort things out.
The earlier versions of these clauses were unacceptable to lenders because they put the corporation in control and removed lenders' automatic right to enforce their security in line with their charge deeds. After extensive discussion, the clauses were radically revised so that the corporation could act only if it had the unanimous consent of secured creditors. Lenders are now broadly content with the clauses.
The main body of existing law governing insolvency is contained in the Insolvency Act 1986. By and large the provisions in Clauses 39 to 49 run parallel with this legislation. Thus, while Clauses 40 and 41 require creditors of a registered social landlord to give notice to
the corporation before and after they take a step to enforce their security, creditors are not prevented from taking such steps. So receivers or administrators could be appointed to manage the landlord's assets. A liquidator could be brought in to wind up the landlord or the creditor could take over as mortgagee in possession of the landlord's housing.There are, however, two ways in which Clauses 39 to 49 affect the operation of established insolvency law. First, as soon as any step is taken to enforce security over a landlord's land there is, as I mentioned, a time-limited moratorium on the disposal of that land. This means that for the duration of the moratorium, which will be a minimum of 28 days, neither the landlord nor any creditor or insolvency practitioner can dispose of the land. They can engage in other activities. For instance, a receiver could take over the management of the housing, but he would not be able to sell it. The moratorium provides essential protection to the landlord's tenants and taxpayers' money which has been invested in his housing. During this period, the corporation will put forward a proposal which seeks to retain the housing within the social rented sector. The agreement of all secured creditors will be needed before the proposal can be implemented. This is the second area where these clauses affect existing insolvency legislation.
The proposals put forward by the corporation, once agreed by secured creditors, bind both those creditors and any insolvency office holder appointed over the landlord. An insolvency officer's powers may be derived from statute case law or from contract. Whatever the basis on which an office holder, for instance, a receiver, administrator or liquidator, has been appointed, his action must not frustrate the implementation of the corporation's proposal. For instance, an insolvency office holder would not be able to derail the implementation of a proposal by selling property which was affected by the proposal.
It is possible that the corporation will not be able to put together a proposal that secures the unanimous consent of the insolvent landlord's secured creditors. If the moratorium ends without an agreed proposal in place, then the corporation will bow out and creditors will be free to proceed without further corporation involvement. The restraint on the disposal of the landlord's housing will be lifted. There will then be no guarantees that it will remain within the social rented sector. This is a situation which the corporation would strive to avoid; but the Government have accepted that if an acceptable corporation proposal is not available, then lenders must be able to protect their investors and take whatever action is open to them to recover their money. There are a number of amendments later which will clarify some of the particular aspects of the ways in which the proposals will work.
The noble Lord, Lord Williams, asked earlier whether the Companies Act insolvency arrangements would be appropriate for a housing association. If a housing association decides that it cannot go on trading, it would tell its bank which would enforce its security or
it would resolve to be wound up, both of which are events mentioned in Clause 40(2) as triggering the provisions of this part of the Bill.6 p.m.
Lord Hylton: I am very much in sympathy with the Government's intentions in the clauses. It is most important to protect tenants and to ensure, so far as possible, that social housing remains available for its primary purpose. The same applies to land intended for social housing. However, I urge the Government to take into account also the interests of unsecured creditors. I think particularly of builders, contractors and suppliers of a wide range of goods and equipment. Such people may well think that they are dealing with strong, well-endowed associations, trusts or authorities. If they go bankrupt, the consequences for employment are likely to be rather serious. I do not know whether the Government can do anything to give protection in that direction. I do not expect an immediate reply, but it is worthy of consideration.
Lord Williams of Elvel: I am sure that the Government will give their reply in the course of time. I am grateful to the Minister for explaining the purpose of Clause 39. I still have problems about insolvency and what constitutes insolvency across the range of those organisations under different governing Acts who could be registered social landlords. I hope that when we come to Report the Government will have sorted out their position on it because I believe there is a difference between a Companies Act company, an industrial provident society and a charity, as well as the duties of directors of a Companies Act company and a member of the council of a housing association under the Housing Act, and so on. This lends force to Amendment No. 135 which I shall move later. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 39 [Insolvency, &c. of registered social landlord: scheme of provisions]:
[Amendment No. 134 not moved.]
Lord Williams of Elvel moved Amendment No. 135:
The noble Lord said: This amendment stands in my name and that of the noble Baroness, Lady Hamwee. It is exactly what I was trying to get from the Government in our last discussion, that the corporation should establish a code of practice on how it will use its powers under Clause 39(1). It seems to me, from what the noble Lord, Lord Lucas, said, that it would be a worthwhile
Lord Lucas: In considering this amendment, I ask the Committee to remember that the new powers in Clauses 39 to 49 are likely to be used on very few occasions. There is no telling when these powers will first be used--it could well be several years from now--or what circumstances the corporation will face when it finds it has to use them. Given this unpredictability, we do not believe that the general code the noble Lord has in mind would be particularly useful. The corporation and others would have to engage in some highly speculative thinking about the wide range of circumstances the corporation might confront in real life. It is quite possible that lenders, the National Federation of Housing Associations and tenants' organisations, would labour for months to produce a statutory document which is then not used for several years and which, when it is at last used, does not actually help the corporation to tackle the case that it is confronting.
The powers in these new clauses are important, and we have no doubt that the corporation will want to think carefully about how it might use them. My honourable friend in another place agreed to consider whether a code of some description would be appropriate. The Government have concluded that there is merit in drawing up a code of guidance on the procedures that each party would follow when the powers are used. This would help to ensure that the new powers worked smoothly, so that there are no procedural hiccups--for instance, on the giving of notice, or on the way in which the corporation consults and has regard to various parties' interests.
However, I do not think that the kind of statutory code that the noble Lord described in his amendment would be an especially helpful or useful document when it came to a messy real life situation. Indeed, the existence of a rigid statutory code drawn up on a basis which must necessarily at present be speculation and guesswork could frustrate the successful use of the clauses, whatever the situation that they might be called upon to deal with. In the light of those comments, I hope that the noble Lord will feel able to withdraw his amendment.
Page 23, line 16, at end insert--
("( ) The Corporation shall establish and publish a Code of Practice as to the use of its powers under the sections listed in subsection (1) above, taking account of the interests of the tenants of the registered social landlord and the interests of the landlord and its creditors, both secured and unsecured, and shall--
(a) consult such bodies appearing to it to be representative of tenants, registered social landlords and lenders as it considers appropriate, before establishing the Code; and
(b) review and amend the Code if requested to do so by the Secretary of State or whenever it considers this to be necessary, and in doing so shall consult the bodies referred to in paragraph (a) above.").
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