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Lord Kingsland: My Lords, I am grateful to the Minister for his reply. The concern we are seeking to meet here is a situation in which the directors have proposed certain modifications which would not be acceptable to the creditors and the members. In those circumstances, the members and creditors might be able to suggest to the nominee certain solutions which the nominee could then put to the directors in order to achieve a proposal which would ultimately be acceptable. That is the issue that we are seeking to confront in our amendments.
I can see a look of astonishment passing across the face of the Minister. Perhaps he would like to articulate his response.
Lord McIntosh of Haringey: My Lords, I still remain a little puzzled here. If all that the noble Lord, Lord Kingsland, seeks to achieve with his amendments is to say that the nominee is a channel of communication between the creditors and the directors and that if a matter arises from the creditors that he should suggest to the directors, nothing in the Bill would create any difficulty in that capacity. The difficulty lies in the range of modifications proposed in the amendments.
Lord Kingsland: My Lords, the amendments seek to do formally what the Minister says there is no difficulty in doing informally. We believe that it is important that this opportunity for the members and creditors appears on the face of the Bill. The Minister does not agree--hence his opposition to the amendment. I beg leave to withdraw it.
Amendment, by leave, withdrawn.
Baroness Buscombe moved Amendment No. 5:
- Page 13, line 12, leave out ("either of those meetings") and insert ("the meeting of creditors").
The noble Baroness said: My Lords, in Committee we proposed the need for this amendment carefully, in terms which we felt were clearly understood by the Minister. The Minister appeared to be entirely happy with the idea of the moratorium coming to an end simply because the members of the company did not bother turning up to their meeting.
However, it is equally clear that the Minister was perhaps under the impression that the directors would all be members of the company; or, dare I say it, that all the members of the company were directors. He went on to say that the nominee could not continue with the moratorium or have any confidence that it had a reasonable prospect of success if the directors of
the company had not had a meeting and responded. That possibly indicates a misapprehension of what a director is and what a member or shareholder is. The Minister will know that, quite often, directors are not members and that not all members are directors.It may well be that all the directors are keen that the voluntary arrangements should be approved and implemented and that the moratorium should continue. Indeed, it is inherently likely that they will be, because the structure of the Bill involves their active participation. On the other hand, the company is insolvent and there is little or no prospect of any money going to the members of the company. They are unlikely to have any incentive to turn up to the meeting of members because there is nothing in it for them. It is worse than that; it may well be the case that the creditors and directors are extremely keen for the moratorium to continue and that the members appreciate that, if they do not turn up to the meeting, the moratorium will come to an end. An astute member will extract a price for turning up at the meeting. Is that what the Minister intends? If so, it seems to us that the procedure here is fundamentally flawed.
Again, I believe that the Minister's comments are based on a false premise. He said in Committee that if the extension of the moratorium was not agreed by the company, for whatever reason--either by it not having a meeting or not turning up to one--it should not be extended. He said it should not be continued on the opinion only of the creditors, because that would make no sense. He went on to say that the nominee could not continue with the moratorium or have any confidence that it had a reasonable prospect of success if the directors of the company had not had a meeting and responded. With respect, that premise is misconceived. Why on earth would it make no sense that the moratorium should not continue on the opinion only of the creditors? That statement is plainly wrong. One can test it by asking the question: should the moratorium come to an end merely because the members have no interest whatever in turning up?
As I said, the Minister seems to be confusing directors with members. The directors of the company do not have a meeting; it is the members of the company who have a meeting--and they may not be directors. The members are in a very different position from that of the directors and the creditors. When a company is insolvent, the members have no interest in the company. The directors may have an interest and the creditors may have an interest. Why should someone with no interest be able to prevent the creditors extending the moratorium when it is their sole interest to do so? That makes no sense. I beg to move.
7.15 p.m.
Lord McIntosh of Haringey: My Lords, I think I owe the noble Baroness an apology. I thought--and she has quoted my words in Committee--that what she sought to do was to disenfranchise the shareholders. I have thought again about what she said and have
concluded that that was not her purpose. Indeed, she has confirmed that today--although it could be the effect of the amendment.We can now see that the Bill as drafted could lead to a curious outcome. If the creditors' meeting met and decided to extend the moratorium and the company meeting met but decided not to, the result would be that the moratorium would be extended--that is, against the express wish of the shareholders (the members), unless, of course, the court ordered otherwise under paragraph 35.
But if, instead, the company meeting had not met, the result would be that the moratorium would come to an end. In other words, the creditors would not have their wish, even though no one had even turned up for the company meeting. That is clearly a perverse outcome. We shall therefore bring forward amendments to address the issue raised by the noble Baroness, taking into account, although not necessarily following, the arguments that she has used today. She has raised some new points which we shall have to consider. We shall not be able to do this in time for Third Reading, but we shall do it when the Bill goes to the House of Commons. I hope that on that basis the noble Baroness will feel able to withdraw the amendment.
Baroness Buscombe: My Lords, I thank the Minister for his apology. I am pleased to learn that he will be bringing forward amendments. I am sorry that our amendments do not fit the bill. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Kingsland moved Amendment No. 6:
- Page 14, leave out line 19.
The noble Lord said: My Lords, we on this side of the House are still very troubled by the provisions in the Bill which will prevent a debenture holder from appointing an administrative receiver when entitled to do so. We debated this point at some length in Committee and, although the noble Lord, Lord McIntosh of Haringey, appeared to grasp thoroughly the points that I made, he indicated that the proposed amendments were not acceptable to the Government. However, I urge him to reconsider his position. I do not propose to repeat all the arguments--indeed, any of the arguments--that I made in Committee. The noble Lord understood them and rejected them. Therefore, I shall approach the issue in a different way.
The Bill, when enacted, will affect the rights of debenture holders even where the debenture has been granted before the Act comes into force. Existing rights will be changed without any agreement with the party prejudiced. All debenture holders will be deprived of the opportunity of appointing an administrative receiver as provided in the debenture when an authorised person says so. In other words, the Government are re-writing the bargain between the debenture holder and the company. In so doing they are depriving themselves of the services of an individual who can manage the company's business
and sell it as a going concern. Businesses will be preserved, along with all the jobs necessary to run them. That is good for the economy and, therefore, good for the country.In responding to my criticisms in Committee, the Minister was concerned that the appointment of an administrative receiver during the moratorium would almost certainly be disastrous for any rescue attempt. With great respect, I suggest that the noble Lord is mistaken. The appointment of an administrative receiver would not be disastrous for any rescue attempt. Indeed, the contrary is the case because administrative receivers are appointed with a view to receiving the company's assets and administering them in order to realise the company's assets and its business for the best possible price. The receiver's role usually involves preserving both the business and jobs. With the greatest possible respect, the Minister's approach is misconceived.
If the Bill as drafted is enacted, the decision of an insolvency practitioner will prevent a debenture holder appointing an administrative receiver who may preserve the business and jobs in seeking to realise a company's assets. Instead, the directors of the company, who quite freely accepted the debenture holder's money and may well be responsible for the company's poor trading, will be left in control until the moratorium comes to an end.
If past performance is any indication of future performance, the company's financial position will probably deteriorate further and the debenture holder will lose more money. He will still be able to appoint an administrative receiver but only after the moratorium has come to an end. It is quite possible that, in those circumstances, there will be little left for the administrative receiver either to administer or to receive. Debenture holders will therefore be severely prejudiced if these amendments tabled by the Opposition are not accepted. And for what benefit? To gain a short breathing space. The company will not be able to prevent the debenture holder subsequently appointing an administrative receiver. The benefit is insignificant in comparison to the prejudice.
The noble Lord the Minister did not express much concern for the rights of existing debenture holders. What about future debenture holders? They are plainly going to be deterred from lending money to companies which qualify for this new procedure. These are often small companies, and from small companies great businesses grow. Without these companies we would not be the economic power that we are today. We must encourage small companies and encourage debenture holders to lend money to them.
However, with these new procedures which prevent a debenture holder from appointing an administrative receiver when it is considered appropriate to do so, lenders will think very carefully about the terms of any loan and, in many instances, about whether to lend any money at all. A serious economic effect will flow from these new provisions. Small companies will find it
harder to borrow money and that will inevitably have an effect on the future prosperity of this country. I beg to move.
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