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Lord McIntosh of Haringey: My Lords, perhaps the most significant facet of this amendment is not what it inserts into the Bill but what it removes from it. The amendment deletes paragraph 14 of Schedule A1. The key point about that provision is that,

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That benefit test is removed by the amendment and is not replaced by the proposed wording.

We do not believe that this will happen in most cases because before entering the moratorium the nominee must give his opinion that the company is likely to have sufficient funds to enable it to carry on its business during the moratorium. However, it is possible that to secure future essential supplies during the moratorium the giving of security for an existing debt is necessary. This would not be covered by the amendment, but it would be for the benefit of the company.

The amendment would also not ensure that the security could be enforceable only if there were reasonable grounds for believing at the time the security was taken that it would benefit the company. The position of the company's other creditors should not be prejudiced by the company giving new security over its assets to a supplier of new credit where no benefit will flow, as it is likely to reduce the amount of money available for all of them. If that was not the case the company's "free" assets which would otherwise be available to pay its unsecured creditors might be depleted to no advantage. That is why we have provided that security can be enforced only if when it was granted there were reasonable grounds for believing that it would benefit the company.

We appreciate that this throws the onus onto the creditor to satisfy himself, before taking security, that he will be able to enforce it if it is necessary to do so--we understand the thrust of the noble Lord's speech--but this should ensure the desired effect, as no one is likely to lend on the basis of security unless there is a clear benefit to the company. This is a matter of business judgment. Decisions of this kind are taken all the time in business. Creditors must act as business people, and that is what they are being asked to do here.

We can see how the amendment may enable the company to obtain funding during a moratorium, but in certain circumstances we do not consider that what is proposed is appropriate for the reasons already given. We believe it is vital that security should be enforceable only where a benefit will flow to the company. We remain of the view that we need to consult fully on the issue of funding before we can find an effective solution to this complex and difficult problem. Where security is unenforceable the lender will be an unsecured creditor. We cannot accept this amendment.

Lord Kingsland: My Lords, I am most grateful to the Minister for his full reply, upon which I shall reflect carefully before Third Reading. If these particular provisions in the Bill are to be effective this is an important matter to consider. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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Baroness Buscombe moved Amendment No. 10:

    Page 16, line 35, at end insert--

("(4) A disposal of the company's property to any person other than a person who is connected with the company shall not be avoided only on the ground that sub-paragraph (1) was not satisfied.").

The noble Baroness said: My Lords, in Committee we proposed a similar amendment with slightly different wording which brought rare praise from the Minister. However, that praise was qualified by one or two criticisms. We have considered those criticisms with care, and the result is an amendment with slightly different wording which we believe should now merit unqualified praise from the Minister. We were concerned that it was not clear whether a disposal by the company would be avoided if it should turn out that the grounds for believing the disposal would benefit the company were not reasonable. The Minister agreed that the position was doubtful and should be clarified.

This amendment makes it clear that such a disposal will not be avoided, nor will there be any cause of action against the other party, if it should turn out that the grounds for believing the disposal would benefit the company were not reasonable or if a disposal was made not in the ordinary way of the company's business. Those are matters which are best decided upon by the directors and the nominee, if he is to have any duties, rather than the third party dealing with the company, who may not have sufficient knowledge to form any view about those two matters. We hope that the amendment will meet with the Minister's approval. I beg to move.

7.45 p.m.

Lord McIntosh of Haringey: The noble Baroness is right. We recognised that similar amendments proposed in Committee had a valid point. We can see that it would be damaging to rescue attempts if third parties were reluctant to deal with a company which is in a moratorium because of doubts about whether the contracts would be enforceable against the company. We agree that this issue must be addressed in the Bill. However, I am sorry to say that the amendment does not fully achieve what is required.

The amendment would still leave a third party needing to satisfy himself as to whether the proposed transaction is in the ordinary course of the company's business; and, if not, whether the appropriate consent has been obtained from the nominee or committee under paragraph 18(1)(b). These difficulties may still make third parties wary of dealing with the company. In my view, this proposed amendment would not fully deal with the issue which concerns us all regarding the effect of paragraph 18 on third parties. However, we shall bring forward amendments as soon as we can--I am afraid that again that means in the Commons and not at Third Reading--to make it clear that contracts entered into in breach of paragraph 18 will be enforceable by third parties against the company.

While on the subject of proposed government amendments, I should like to say what else will or may be needed by way of amendment to the Bill during its

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passage through Parliament. A number of points arose at Second Reading or in Committee. Both the noble Lords, Lord Razzall and Lord Sharman, expressed concern about the possible effect of Clause 11 which relates to deceased insolvents. As I indicated in Committee, we recognise those concerns and will be bringing forward amendments to address them. We would not want an arm's length disposal of a property by a surviving partner to be made unnecessarily difficult because prospective purchasers are concerned that they might find they do not have good title because a deceased's estate is insolvent.

The noble Lord, Lord Kingsland, made the point in Committee that he thought there should be a time limit on the ability of the member of a company to go to the court if the decision of a creditors' meeting which takes effect under paragraph 35 of Schedule A1 differs from that made by the company meeting. We think that the issue will be largely self-regulating. However, we can see that there is an advantage in having a cut-off point beyond which such applications cannot be made and we shall amend the Bill for that purpose.

We have also concluded that the offence in paragraph 22 of Schedule A1 (disposal of charged property contrary to paragraph 20) needs amendment to set out in clearer terms that the offence in paragraph 22 is committed where a company makes a disposal which it has no power to make, and so we shall bring forward an amendment to do that.

The current legislation governing companies and the financial markets provides for authorities to take regulatory action, for instance to protect investors' funds and investigate companies. It is possible that in certain instances the moratorium would prevent such action unless leave of the court was obtained first. Clearly that would be inappropriate. We are considering this further and, if this is the case, we shall bring forward amendments to make it clear that such action is not to be stayed by the moratorium provided in Schedule Al.

There have been many changes and concessions. We have also concluded that the conflict between Section 347 and Section 252(2)(b) of the Insolvency Act in the way we intend it to be amended by way of Schedule 3 paragraph 2 of the Bill needs to be dealt with by express provision in the Bill. We shall bring forward an amendment to deal with that.

The period of consultation on whether landlords should be able to exercise the right of peaceable re-entry during a statutory moratorium has literally just finished and clearly we must consider the responses before we do anything. But we intend that the issue will be determined in the context of the passage of this Bill through Parliament.

Finally, following the successful passage of the Financial Services and Markets Act through Parliament, we shall need to consider whether that has any implications for this Bill. I hope that the noble Baroness, Lady Buscombe, will not pursue her amendment.

Baroness Buscombe: My Lords, I thank the Minister for his response. I am sorry that he does not find it

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acceptable in its current form. However, I am pleased to note that the Government intend to bring forward during the Bill's passage through Parliament a similar, although slightly different, amendment.

I am also pleased that the Minister has been able to tell us of a number of additional changes and concessions. We note that there has been consultation in relation to forfeiture of leases. We look forward to hearing the results of that consultation process.

I thank the Minister. I am glad that we have made progress. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 11 to 14 not moved.]

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