Previous Section | Back to Table of Contents | Lords Hansard Home Page |
Lord Sharman: I rise to speak briefly to Amendments Nos. 296 and 323 in this group.
The noble Lord, Lord Hunt, has spoken eloquently about the need for balance in this approach. I believe, based on some considerable experience of these matters, that the time-scales are unrealistically short. In my view, they will lead to significant numbers of applications being made to the court for extensions. That will give rise to more costs and will take up more time for insolvency practitioners and creditors. It will inevitably mean a return to the kind of time-scales that we have now. The noble Lord, Lord Hunt, did not use the expression but, "If it ain't broke, why fix it?" That is the message that I leave with the Minister.
Lord Mitchell: I should like to speak to my Amendment No. 321, which is in this group. In doing so, I declare several interests. First, I am chairman of Syscap plc, which leases, rents and hire purchases high-technology equipment, as is set out in my declaration of interests. My company is also a member
of the Finance & Leasing Association, and I have been working closely with the association, which is very interested in the Bill.The Bill states that the appointment of an administrator shall finish at the end of three months. I welcome the sentiment behind this time limit, which means that the administrator will no longer be able to enjoy an unlimited period for the completion of administration. But there is no evidence that the majority of administrations are completed within three months. There are often legitimate reasons why cases cannot be completed within this time-scale. We do not have to look too far. We have seen what has happened recently with Railtrack and Ondigital.
In the vast majority of administrations, the administrator would need to apply for a time extension. The Bill currently proposes that this will be for only a further three months. I believe that this would be a wholly unsatisfactory and impractical arrangement. Its consequences are best illustrated by a simple example. If we consider a 10-year administration under the Bill's current proposal, the administrator would need to apply to the courts for time extensions no fewer than 39 times. I am confident that the Minister will agree that this would place unreasonable pressure both on the courts and on the administrator.
This amendment leaves the three-month limit in place; but it offers a more realistic and flexible working alternative. Indeed, it is far more realistic than the present arrangement. The court would need to carry out a rigorous review of applications for a 12-month extension, and grant them only where absolutely necessary. In contrast, as the Bill currently stands, a three-month extension period is likely to become a "rubber-stamping" exercise.
Lord Freeman: I find myself in sympathy with the arguments of the noble Lord, Lord Mitchell. As the Bill stands, we have moved from a situation which was probably too loosein the sense that it was largely up to the administrator to determine when to bring an administration to an end, subject to the overall powers of the courtto the proposal in Bill, which seems too inflexible. The CBI, among other bodies, has voiced its concern, as has the noble Lord, Lord Mitchell.
Amendments Nos. 317 to 319, standing in my name and in the names of my noble friends, offer a menu to the Minister and might provide an opportunity for the noble Lord to comment. Amendment No. 318 is the first alternative to a return to the present positionthat is, giving the administrator maximum leewayby providing that the administrator must provide reports to the court if it is not possible to end the administration within three months. Despite what the noble Lord, Lord Sharman, says from great experience, we have the example of Railtrack, and there are many other complicated administrations which require much longer. I believe that the three-month provision the Bill is too restrictive. Amendment No. 319 replaces the initial three-month period, when the administration must come to an end unless it is
extended with the consent of the court for a further three months, to 12 months. I am sure that the Committee will welcome the Minister's comments.
Lord McIntosh of Haringey: There are two issues in this group of amendmentsa minor one and a major one. The minor one is the frequency of reporting. I take the point that the noble Lord, Lord Freeman, makes about the reporting obligations in Amendments Nos. 318 and 316. Under the current rules, the administrator must send a report to creditors every six months. I sympathise with the proposal that when the new time limits are extended he should be subject to some form of regular reporting. We need to consult further on the frequency, content and recipience of these reports, but we would make provision for these and other detailed matters by amending the insolvency rules through secondary legislation.
The major issue is time-scalesnot just the 28 days, but the six weeks and the three months. We have introduced the timetables because of the criticism that administration is too long drawn-out and cumbersome. There has been general recognition that we have to have a time limit, not just for creditors, who rightly want certainty about when they might be paid, but also for small firms, for whom the costs of an open-ended and potentially lengthy administration are a significant barrier to entering administration. My experience is that when I have had customers who were in difficulties and went into administration, the last thing I wanted was for that administration to continue beyond the end of my financial year so that I had to take the whole of the bad debt into my accounts, even though there was a possibility of some percentage coming back afterwards. There is a great argument against lengthy time-scales from the point of view of creditors.
We have looked at experience in other countries. Similar or more stringent time limits have been adopted in Australia, where they seem to work satisfactorily. The time-scales in the Bill are stringent, although, as the noble Lord, Lord Hunt, recognised, there has been some flexibility to allow them to be extended when necessary, on a case-by-case basis. We are taking powers to extend time-scales generally.
There is a conflict of interest between the insolvency profession on the one hand and creditors and small companies on the other. I have listened carefully to what has been said all round the House. The noble Lord, Lord Sharman, put the issue very well on Second Reading, saying that it is hoped that many cases will be completed sooner than the limit, but a sensible and viable limit is needed. There will be cases in which the administration period, whenever it is fixed, is not long enough, but we do not want a law that is honoured more in the breach than in the observance. We must set time-scales that reflect the day-to-day practicalities of administration and in which all those with an interest in administration can have confidence.
We have had amendments to extend the time-scales for the administrator to send proposals to creditors and the time scale for the administration procedure. Differing views have been expressed this evening about
whether both limits need extension and how far. I am not able to support the amendments before us, but I am willing to take the matter away and give it urgent consideration in consultation with interested parties, including the insolvency profession, but also representatives of lenders and business. In the light of those discussions, I would be prepared to table government amendments on Report to provide for limits that command a wider consensus.
Lord Hunt of Wirral: The Minister has announced a significant concession. He is aware that concern about the time limits is expressed not only by the experts, such as R3, but also by the CBI and a number of other organisations. He has offered to look at the issue further and perhaps have wider consultation during the Recess to ensure that whatever proposals he comes back with on Report command as wide a range of support as possible. I readily accept that generous offer and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 297 not moved.]
Lord Kingsland moved Amendment No. 298:
The noble Lord said: Under paragraph 50, the administrator must call an initial creditors' meeting for the purposes of approving his proposals with or without modification. As currently drafted, that initial meeting must be held within six weeks of the company entering into administration. However, the administrator need not call an initial creditors' meeting where the statement of his proposals says that he thinks that,
We feel that even in those circumstances there should be an initial creditors' meeting to consider the administrator's proposals. The administrator is given extensive powers to manage the company's affairs, business and property without interference from anyone. We feel that at the very least he should report to the creditors at one meeting what he proposes to do. Creditors must be given a chance to voice their concern and they should not be denied that right, particularly where the administrator thinks the company has insufficient property to enable a distribution to be made to unsecured creditors. These creditors will recover nothing, and at the very least they must be satisfied that nothing can be done for them and be able to test that at the meeting.
Accordingly, we propose that paragraph 50(1) be omitted from the Bill. The Minister may well respond on this matter as he did to me on Amendment No. 295that all this will be dealt with by regulation.
In relation to Amendment No. 327, under paragraph 76, the appointment of an administrator ceases to have effect after three months. That period can be extended by the court or with the consent of the creditors. Paragraph 78(2) provides that the consent of each of the secured creditors of the company, and a majority of the preferential creditors if the administrator thinks that a distribution may be made to them, is sufficient for the purposes of an extension if, but only if, the administrator has stated in his statement of proposals that he thinks the company has insufficient property to enable a distribution to be made to unsecured creditors.
The effect is that unsecured creditors are in reality disenfranchised when the administrator thinks, perhaps wrongly, that he will not be able to make a distribution to them. We think that that is unfair. We do not believe that unsecured creditors should be disenfranchised simply because the administrator thinks that there will be no distribution to them. Indeed, since the unsecured creditors are losing more than any other class of creditor, they must be treated more sympathetically than others and have a right to be heard. I beg to move.
Next Section
Back to Table of Contents
Lords Hansard Home Page