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Lord Rooker: These amendments are similar to those tabled by the noble Lord in relation to Parts 2 and 5 of the Bill which we discussed on 22nd April and 13th May. As the noble Lord explained, the effect of the amendments would be to narrow the definition of "property" as it appears in Part 8 in relation to investigations and the similar definition in Part 11 relating to co-operation.
The Committee will recall that when a similar amendment was tabled in respect of Part 2, my noble friend Lord Bassam of Brighton gave an assurance to the noble Lord that we would reconsider that amendment and provide him with a fuller answer on
some of the issues that it raised. I believe that I have since written to the noble Lord—I certainly hope that I have; I have written a lot of letters about this Bill—to explain our position, but it may be helpful if I inform the Committee about some of the content of that letter as exactly the same considerations will apply in respect of assistance which we give to other countries under Part 11. Different considerations apply to Part 8 and I shall deal with those separately.The main concern is the fact that a restraint order can extend beyond the defendant's interest in property to encompass the whole of the property in question. Where the defendant's interest is only a small proportion of the property as a whole, such as a leasehold interest in a block of flats, this seems inequitable. The noble Lord believes that only the defendant's, or the gift recipient's, interest in the property should be restrained, both in a domestic case and in respect of a request to freeze assets received from an overseas jurisdiction.
The provisions in the Bill replicate the provisions in the existing legislation which are a central component of a restraint scheme which has worked well for many years. Property is often held in complex arrangements and it will not always be easy to extricate the defendant's interest from the rest of the property. At the restraint stage it may not be clear how far the defendant's interest extends or, indeed, whether the whole arrangement is a sham. Where a third party is affected by a restraint order it is open to him to apply for a variation of that order under Clause 43(3) and we intend to make similar provision in respect of overseas requests in the relevant Order in Council made under Clause 438.
We believe that it is best to rely on such a safeguard and to allow the court to determine whether an interest in property can easily be extricated from the rest of the property. If we did not allow the property to be restrained in the first place we would risk losing valuable assets that should have been available for confiscation. The same considerations apply to requests to freeze overseas assets.
As to the noble Lord's amendments in respect of Part 8, we have looked again at the relationship between the definition of "property" and the purpose of the powers of investigation. We believe that it would be difficult to conclude that precisely the same considerations apply, particularly in respect of investigations, because the powers are not aimed at the property as such; rather they are aimed at obtaining material which will be helpful in ultimately bringing proceedings.
However, this is a very complex and technical area. The best I can do is to offer to write again to the noble Lord, setting out our views on this matter. With another two stages of the Bill remaining, it is, of course, open to him to return to the matter. I do not want to snuff out the debate about property because there are a lot of questions to be asked and they are deserving of answers.
Lord Thomas of Gresford: I am grateful to the Minister for that explanation. I know it is a matter that
concerns my noble friend Lord Goodhart. I am sure that he will read the explanation in conjunction with the letter that has already been sent, and he may or may not take the matter further. For the moment, I beg leave to withdraw the amendment.Amendment, by leave, withdrawn.
[Amendment No. 270B not moved.]
Clauses 409 and 410 agreed to.
Clause 411 [Modifications of the 1986 Act]:
Baroness Buscombe moved Amendment No. 271:
- Page 235, line 20, leave out "excluded from" and insert "included in"
The noble Baroness said: In moving this amendment, I shall speak also to Amendments Nos. 272 to 274; to the Question whether Clause 413 shall stand part of the Bill; to Amendments Nos. 275 to 278; to the Question whether Clause 416 shall stand part of the Bill; to Amendments Nos. 279 to 282; to the Question whether Clause 419 shall stand part of the Bill; to Amendments Nos. 283 to 285; to the Question whether Clause 421 shall stand part of the Bill; to Amendments Nos. 286 to 288; to the Question whether Clause 423 shall stand part of the Bill; to Amendments Nos. 289 and 290; to the Question whether Clause 426 shall stand part of the Bill; and to the Question whether Clause 427 shall stand part of the Bill. This rather large group of amendments relates to Part 9, dealing with insolvency.
One of the odd features of this Bill and previous Acts giving the prosecution wide powers of confiscation is that almost all of them provide that any property subject to the relevant order does not form part of a bankrupt's estate in the event of the defendant being adjudged bankrupt. The consequence is that the proceeds of the disposal of the property are paid into the Consolidated Fund and are not available to pay creditors. That seems to us to be very unfair, as many of those creditors will be completely innocent of any wrongdoing and the consequence for them could be disastrous.
An innocent tradesman without the investigatory powers of the police or the Serious Fraud Office will give credit in the normal course of his business. He may be encouraged to do so because of the apparent wealth of the debtor. He will be lulled into a false sense of security and may lend more than he otherwise would because of that apparent wealth. In the event of bankruptcy, that apparent wealth should be available to satisfy the innocent trader, and should not be paid into the Consolidated Fund. The innocent trader is in no way to blame because he cannot possibly carry out the sort of inquiries necessary to ensure that there is no possibility of an order under the Bill which would deprive him of the possibility of being paid.
It may even turn out that the creditor is an involuntary creditor, in the sense that he may be a victim of some criminal activity of the bankrupt defendant. In such a case the injustice is only too apparent. The loss suffered by the victim may well have been caused by the very conduct that leads to an order under the Bill, and yet he will be deprived of any
compensation because of such an order. It will be no comfort to him that, instead of his money being distributed to him and to other victims of the crime, this money will be paid into the Consolidated Fund.We therefore propose that property subject to an order under the Bill should form part of a bankrupt's estate, but giving the applicant for such an order the right to prove in the bankruptcy but to be paid after all other creditors. The order of payment of creditors will be: first, preferential creditors such as the Inland Revenue in respect of the preferential element of the tax owing: secondly, ordinary creditors; then the applicant for the relevant order under the Bill, who will then pay the dividend he receives into the Consolidated Fund. Such an order of priority meets the justice of the case, but with no benefit to the criminal and bankrupt defendant. The amendment does not improve his position at all, but will improve the position of innocent creditors.
Under Section 339 of the Insolvency Act 1986, a trustee in bankruptcy can apply to the court where the bankrupt has at the relevant time entered into a transaction with a person at an undervalue. The court then has power to make such an order as it thinks fit for restoring the position to what it would have been if the bankrupt had not entered into that transaction. Under Section 423 of the same Act the trustee in bankruptcy, or the victim of the transaction, can apply for a similar order where a bankrupt enters into a transaction for the purpose of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him or otherwise prejudicing the interests of such a person in relation to the claim that he is making or may make. These are valuable weapons in a trustee in bankruptcy's armoury for recovering assets for the benefit of creditors.
Clause 413 of the Bill prevents the court from making an order under either Section 339 or Section 423 of the Insolvency Act 1986 when proceedings for an offence have been started against the bankrupt and have not been concluded, an application has been made under certain clauses in the Bill against that person or in respect of that person which has not been concluded, or the relevant property is subject to a restraint order. If any of those conditions is satisfied, no order can be made under either Section 339 or Section 423 and the relevant assets cannot be recovered for the benefit of creditors of the bankrupt. If any of those conditions is satisfied, there is an automatic defence to any proceedings under Section 339 or Section 423, even if it should turn out that the criminal proceedings are dismissed or the application for a relevant order under the Bill is dismissed as well.
This provision is extraordinary. It assists the recipient of a tainted gift by giving him a defence that he would otherwise not have. It gives him a defence at the expense of the innocent creditors to whom I have referred. The provision is unacceptable. It serves no useful purpose and yet it will limit the rights of innocent creditors and perhaps even victims of the very
offence in respect of which criminal proceedings have been started on recovering or attempting to recover the money they are owed. I beg to move.
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