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Lord Higgins: My Lords, I suspect that in the course of this debate I shall find myself an innocent surrounded by lawyers. That may not be the case; I am not sure. But at all events I have added my name to this amendment. The Minister was kind enough to arrange

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some discussion about it a few days ago. I certainly do not think that there is any difference between us on the need to act with regard to the directors of so-called phoenix companies. The noble Lord set out the arguments clearly in moving the amendment. It may be that we should give some further thought to the matter between this stage of the proceedings and the next. It would be superfluous for me to add to the noble Lord's remarks, save to make one point with regard to the existing Clause 63. In subsection (9)(a), the "officer" of a body corporate means:

    "any director, manager, secretary or other similar officer of the body corporate".
There is some danger that the expression "manager" in the context of such companies might be rather broad and might take into its scope someone who did not have sufficient responsibility to be held accountable.

Other than that, my own feeling is that in these matters inadequate or insufficient use is sometimes made of the disqualification of directors who engage in this sort of practice. However, as I say, I am to some extent an innocent among lawyers. The arguments advanced by the noble Lord, particularly regarding the difficulties that may arise in relation to the European Convention on Human Rights, deserve serious consideration.

Lord Haskel: My Lords, the noble Lord, Lord Higgins, is certainly not an innocent no matter who surrounds him--even if he is surrounded by lawyers. The noble Lord, Lord Goodhart, found two defects in the clause as drafted: in relation to the European Convention on Human Rights, and in the matter of apportioning blame.

So far as concerns the European Convention on Human Rights, we have discussed the matter with him and with officials on two occasions. We are satisfied that the clause meets the Government's obligations under the European Convention on Human Rights. We shall simply have to agree to differ with the noble Lord on that point. It might be helpful if I briefly restate the Government's aims in introducing these provisions. I shall then be able to explain why we have arrived at the need to apportion blame.

The first important point to make is that this clause must be considered in the context of the whole package of penalty measures in the Bill. The current outmoded criminal offences relating to national insurance are being replaced by civil monetary penalties. That will bring national insurance penalties in line with tax penalties and accords with the recommendations in the Keith Committee. The whole thrust of the Government's approach is to encourage better compliance by employers and the self-employed and to get contributions paid over on time. The Government are placed in the position of always being a creditor without any means of prevention.

The majority of company directors are honest business people, and pay the national insurance contributions due for themselves and for their employees in the proper way. Clause 63 allows the

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Government to make directors personally liable for debts which cannot be paid by the company in cases where directors or officers of a company have perpetrated fraud, or been negligent in carrying out their responsibilities.

To answer the question put by the noble Lord, Lord Higgins, as to the meaning of "manager" in company law, I have before me two quotations:

    "A manager would be, in ordinary talk, a person who has the management of the whole affairs of the company; not an agent who is to do a particular thing, or a servant who is to obey orders, but a person who is intrusted with power to transact the whole of the affairs of the company".
A manager has also been described as,

    "a person holding, whether de jure or de facto, a post in or with the company of a nature charging him with the duty of managing the affairs of the company for the company's benefit".
Those definitions arise from Re B Johnson & Co. (Builders), Ltd. 1955. That is the meaning given to the term "manager".

Lord Simon of Glaisdale: My Lords, will the noble Lord allow me to intervene? Does that not amount to saying that a manager is a person who manages?

Lord Haskel: It probably does, my Lords.

Baroness Hollis of Heigham: If it does not, we are in trouble!

Lord Haskel: My Lords, perhaps I may briefly describe how decisions will be taken by officials. I shall then be able to arrive at why we think it right to apportion blame and responsibility to individuals rather than jointly and severally.

Decisions in these cases will be taken by a specialised unit which will have the necessary training and expertise to deal with the issues involved. I emphasise that these are not entirely new areas of work for the Contributions Agency. Staff in the agency, and of course also in the Inland Revenue and Customs and Excise, regularly deal with cases of fraud, and with insolvent companies. But administering this measure will be specialised work and it will be done by specialised staff.

Secondly, a decision will be made only after all the relevant facts have been fully investigated. All interested parties, including the company's accountant, will be interviewed and statements will be taken. The compliance history of the firm will also be looked at. Only after all those facts have been weighed up will a decision be made to issue a personal liability notice or notices.

I hope that this reassures your Lordships that we will be taking all reasonable steps to ensure that the initial decision to issue a liability notice under this clause will be a high-quality decision taken in the knowledge of all relevant facts.

The noble Lord, Lord Goodhart, spoke about the appeals mechanism. The amendments before us would mean that the cases would all be heard by a court in the first instance. The Government do not consider that that would be appropriate. Tribunals are effective, quick and

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less costly than court procedures. We believe that it is better for the directors to have a speedy route by which to appeal. It is also better for the general taxpayer, who does not have to bear the cost of lengthy and expensive court hearings. It allows the Government to proceed more speedily to stop the rogue director offending again by setting up another company and perhaps withholding more government money.

The noble Lord, Lord Goodhart, expressed concern that Section 121D--covering appeals in relation to personal liability notices--does not make clear that it is possible for an appeal to be made on the grounds that no debt is owing from the company, or on the grounds that the amount of the debt had been incorrectly calculated. It is certainly the Government's intention that these matters should be appealable, and I am happy to take away these points and consider whether a government amendment would be appropriate at Third Reading.

The noble Lord is also concerned that the onus of proof should fall clearly on the Secretary of State to prove guilt rather than on the appellant to prove innocence and that when an appeal goes to a tribunal it will be able to hold a full hearing on the matter. I understand the noble Lord's concerns on this point and I am happy to take this matter away for further consideration.

I wish now to deal with the other question which the noble Lord, Lord Goodhart, raised. That is the apportionment of the debt between culpable directors. The amendments provide for debts to be recovered from any culpable director. That would mean that any one of the officers deemed at all culpable could have to pay the whole amount.

The Government propose to apportion the debt between the directors who have been culpable in accordance with their degree of culpability. We recognise that all directors may not be equally culpable. It may be that a decision not to pay national insurance contributions in full was taken at a board meeting. Equally, however, the decision might have been taken only by one or two of the directors acting on their own and steps taken to hide the non-payment would be hidden from the other directors. Limited liability is a principle of key importance in company law, but the Government recognise that the device of incorporation can be used for an improper or illegal purpose. Where that happens, we believe that it is right to allow the corporate veil to be lifted, provided that the persons penalised are those who are guilty of wrongdoing. We decided against making directors jointly and severally liable under the new clause because we want to ensure that the officers served with a personal liability notice are those who are culpable of fraud or neglect. That is why under subsection (3) of the clause the Secretary of State is required to assess an officer's culpability and, where appropriate, to apportion the sum to be paid between the officers of the company who are individually culpable. That will neither penalise individual directors unfairly nor weaken the concept of limited liability; it will allow us to pursue directors or managers who have acted dishonestly or committed a gross breach of their duties. That is a position which

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I believe everyone should be able to support, and consultations that we have carried out indicate that it has support.

Much thought and consultation went into the planning of this measure. Its aims are to recoup moneys owing to the National Insurance Fund from which contributory benefits must be paid and, by showing that the Government mean business, to deter further thefts from the fund--for that is what they are. I beg to move.

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