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Baroness Buscombe moved Amendment No. 52:

The noble Baroness said: In speaking to Amendment No. 52 I shall also speak to Amendment No. 53. Very briefly, paragraph 39 of the new Schedule AI creates certain offences where a moratorium has been obtained. The prohibited acts are contained in sub-paragraph (4). It appears from sub-paragraphs (2)(b) and (3)(b) that an officer of the company does not commit an offence if he is privy to someone else fraudulently removing any part of the company's property and other similarly prohibited acts. We can see no justification for that privilege. I beg to move.

Lord McIntosh of Haringey: We have modelled paragraph 39 of Schedule A1 on Section 206 of the Insolvency Act 1986 which deals with fraud and the like in anticipation of the winding-up of the company. This is a long-established provision which has been found to work perfectly satisfactorily and that is why we have used it as the basis for paragraph 39. We would not wish to see it amended in the way suggested.

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Section 206—Members of the Committee will like this part—is derived from the Companies Act 1985, which was derived from the Companies Act 1948, which, in turn, was derived from the Companies Act 1929. The section in the 1929 Act seems to have been based on another provision in the Bankruptcy Act 1914, which, in turn, was derived from the Debtors Act 1869. All of these sections refer to a company officer, or the debtor, as the case may be, being guilty of an offence if he is, or is privy to another, concealing, destroying or mutilating or falsifying relevant books or papers, making a false entry in such books or papers or fraudulently parting with or altering or making omissions from such books or papers. However, none of those other sections provides for an officer, or a debtor, to be guilty of an offence if they are privy to another concealing, fraudulently removing or pawning any of the company's or debtor's property. However, that is not a difficulty as existing legislation already allows for the prosecution of directors who are privy to others dealing with the company's property in a way which constitutes an offence under Section 206 of the Act and paragraph 39 of Schedule A1. Officers might be prosecuted in this regard under, say, The Accessories and Abettors Act 1861.

Accordingly, if this paragraph were to be amended as is proposed, it could cast doubt on the meaning of the existing provisions on which it was modelled and also on the use of other legislation to prosecute those officers who are privy to offences by others in relation to company assets.

Baroness Buscombe: I have to admit to being stumped on this. First, I was going to say to the Minister that I do not remember the Act of 1869, I am not sure whether he does.

Lord McIntosh of Haringey: I took part in the debates!

Baroness Buscombe: It begins to feel like that in this place. I certainly do not remember the Act of 1861. I am not sure that I agree with what he has had to say but I will read with care what he has said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 53 not moved.]

Baroness Buscombe moved Amendment No. 54:

    Page 26, line 5, leave out ("to the value of £500 or more,").

The noble Baroness said: I shall speak also to Amendments Nos. 55, 56 and 64. The point I make here is brief. It may have been relevant to the previous amendments. We can see no justification for the limit of £500 in sub-paragraphs (4)(a) and (b). Any officer who conceals any part of a company's property, even if worth under £500, should be guilty of an offence. I am aware that this goes back to 1914 but should that alone allow people to remove, for example, a second-hand lap-top, something which is eminently stealable? Surely this is why we have a Parliament so that we can make and change laws, otherwise what are we here for? We have an opportunity to make sure that this does

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not happen and to make sure that the officers act responsibly and that is why we have brought forward this amendment. I beg to move.

Lord McIntosh of Haringey: I like the idea of using a legislative opportunity to improve the law. However, I would like to point out, first, that the two offences where this limit will apply are very specific offences which can only apply in insolvency situations; in this case, during the 12 months immediately before the moratorium commenced and during the moratorium itself. These two offences are concealing any part of the company's property or fraudulently removing any part of the company's property. If misconduct which could amount to theft has occurred—or any other type of offence—it could be considered for prosecution as such and no minimum financial limit prescribed by the Bill would apply to that. Secondly, similar offences exist elsewhere in the Insolvency Act 1986; for example, in Section 206, which deals with offences in relation to companies that are would up and, in Section 354, relating to bankruptcies. Both have a £500 minimum limit and offences of this kind have had a minimum limit at least as far back as the Bankruptcy Act 1914, to which the noble Baroness, Lady Buscombe, referred, when the figure involved was £10.

Thirdly, if we discovered that we could not prosecute individuals for these two offences in cases where we thought we should be able to, we would review the £500 minimum limit and we would not need primary legislation to do so. Paragraph 10 of Schedule 1 gives the Secretary of State the power to vary the minimum value of the property for the purpose of these offences and we would have no hesitation in reviewing that level if we felt it was appropriate. However, experience in relation to both Sections 206 and 354 suggests that £500 is the right cut off point and it seems a perfectly reasonable assumption that it will be the appropriate level here too. "If it ain't broke, don't fix it."

Baroness Buscombe: I hear what the Minister has said but cannot agree with him. I think it is "broke" and that we should fix it, in which case we will consider what he has had to say today but may well return to this at Report stage. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 55 and 56 not moved.]

6.45 p.m.

Lord Kingsland moved Amendment No. 57:

    Page 27, line 5, after ("charge") insert (", or any instrument creating an obligation secured or to be secured by a floating charge,").

The noble Lord said: In moving Amendment No. 57 I shall also speak to Amendment No. 59. Paragraph 41 of the new Schedule A1 renders any provision of a floating charge void if a moratorium, or a preliminary step, should be a crystallising event. The Opposition

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believe, with the greatest possible respect, that this paragraph needs refining which is what these amendments seek to do. I beg to move.

Lord McIntosh of Haringey: It is standard practice for a debenture creating a floating charge to identify certain events, the occurrence of which will trigger the floating charge to crystallise and/or the right to appoint a receiver. In practice, a debenture may cross-refer to the events of default set out in the documentation for the loan which the debenture is securing because those events of default will commonly be events which will trigger crystallisation of a floating charge and/or the right to appoint a receiver. This device avoids the need for these events of default to be set out in full in both the document creating the floating charge and the loan documentation.

The fact remains, however, that the provision which provides for or will trigger crystallisation will be contained in the debenture itself and not elsewhere. That will be so even when crystallisation is triggered by cross referencing to events contained in other documentation. Paragraph 41, therefore, properly targets provisions contained in an instrument creating a floating charge. I urge the noble Lord, Lord Kingsland, to withdraw these two amendments.

At the same time, I wish to speak to Amendment No. 58, which is in the same group. On Second Reading I said that we had a concern that without an amendment the stay on creditors' rights contained in the Bill would not be fully effective against possible action by the holder of a floating charge. This was dealt with by Amendment No. 17. I said also that we would bring forward an amendment to ensure that provisions that might be included in charge documents, which would allow restrictions to be imposed on the company's ability to deal with assets covered by a floating charge, could not be triggered either because a moratorium had been obtained or because of anything done to obtain a moratorium. This amendment deals with the latter point.

Paragraph 41 already provides that a provision in the document allowing a floating charge to crystallise—that is, become a fixed charge—if a company obtains a moratorium or takes action with a view to obtaining a moratorium, is to be void. Otherwise, such provisions might become commonplace and make rescues very difficult. This amendment provides that a provision in the floating charge document, which would allow restrictions to be imposed on the company's ability to deal with its assets, is also to be void if triggered by a company obtaining a moratorium or taking action to obtain a moratorium. Without this amendment, such provisions might also become a standard feature of floating charge documents and mean that a company would not be able to deal with its assets in the way it could before it took action to obtain the moratorium. Obviously, if as a consequence of such a provision, a company had to seek leave of the court or permission of the chargeholder under paragraph 19 of Schedule A1 before it could deal with its assets during a

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moratorium, its ability to conduct its business would be seriously hampered and the rescue would become much more difficult and costly to achieve.

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