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Lord Hunt of Wirral: I am interested in the Minister's response. I am grateful to him for conceding that perhaps there could have been a debate on some of these approaches. I quoted extensively from the report so as not to disguise the position in any way. The group called for a debate, but they also said, as I believe was recommended by the review group, that one approach would be:

"to build into our law provision for the authorities supervising an insolvency procedure to have regard to similar basic considerations to the US in considering proposals for 'superpriority' finance".

Having heard the Minister say that he and his colleagues in the department considered the report, perhaps he could let me know whether there has been any considered response to the working party. I shall not press him now, but it would be helpful to know whether the members of the review group were contacted to tell them the result of the deliberations within the department. It may be that the department held a review that reached certain conclusions, but I am not aware that such a document was ever published.

Lord McIntosh of Haringey: No, neither am I and I should be aware. I shall write to the noble Lord, Lord Hunt, about that. If it appears that there should be a further meeting between the members of the review group and officials, that should take place before Report stage.

Lord Hunt of Wirral: I am very grateful to the Minister. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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The Deputy Chairman of Committees (Lord Skelmersdale): In calling Amendment No. 305, I have to advise the Committee that if it is agreed to I cannot call Amendments Nos. 306 or 307.

[Amendment No. 305 not moved.]

Lord Kingsland moved Amendment No. 306:

Page 271, line 39, at beginning insert "Subject to paragraph 99 of this Schedule and paragraph 13 of Schedule 1 and the payment of the charges and liabilities and the payments referred to in those paragraphs during the course of the administration,"

The noble Lord said: Paragraph 64 allows an administrator of a company to make a payment to preferential and secured creditors. This is an improvement on the old law because, under the Insolvency Act 1986, administrators were not entitled to pay any dividends to creditors and it was necessary to go into liquidation before creditors could be paid.

However, paragraph 65 provides that the administrator can make a payment to an unsecured creditor only with the permission of the court or if the administrator thinks that the payment is likely to assist achievement of the purpose of administration.

We think that that provision should be clarified by making it plain that the administrator can pay all charges and liabilities arising during the course of the administration, regardless of whether or not the payment is likely to assist the achievement of the purpose of administration. These creditors are all new creditors arising during the course of the administration and should be paid during the course of administration. Given the prohibition on paying what seems to be all unsecured non-preferential creditors, including those arising during the administration in paragraph 65, the ability to pay creditors whose debts or liabilities have arisen during the course of administration should be made clear. I beg to move.

Lord McIntosh of Haringey: Just to show that I am not obdurate, I am sorry that the noble Lord, Lord Kingsland, did not move Amendment No. 305 because I was going to be quite sympathetic to all the amendments in the group. It is not that we think these particular amendments are necessary, but they have allowed us to look again at the distribution and payment provisions in the Bill. We now think that they do not work as we intended. Our aim is, first, to allow the administrator to make distributions to secured and preferential creditors; secondly, to make distributions to unsecured creditors with the permission of the court; and, thirdly, to allow the administrators to make any other form of payment to a creditor when the administrator thinks that the payment is likely to assist achievement of the purposes of administration.

The Bill presently provides that if the payment is part of a distribution to creditors generally, the standard order of priority for such payments should be followed. The Bill also needs to provide—here we think that the provisions may be lacking at the moment—that if the administrator proposes to pay a creditor who will not supply further goods without payment for previous goods, the standard order for

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priority of payment should not apply. We intend to look further at the provisions and, if necessary, return with amendments on Report.

The noble Lord, Lord Kingsland, may think that I have not addressed the text of his amendment in sufficient detail, but I hope that he will feel that there is sufficient movement in this area.

Lord Kingsland: The noble Lord seems to be gaining suppleness as the evening wears on. I am most gratified to hear what he has had to say. I know that he will be thinking about this matter over the Summer Recess. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 307 to 309 not moved.]

Lord Mitchell moved Amendment No. 310:

Page 273, line 23, at end insert—

"( ) Where the goods are used by the administrator to continue running the business, the administrator must make payment to the owner of the goods under the terms of the hire-purchase agreement."

The noble Lord said: In moving Amendment No. 310, I shall speak also to Amendment No. 312. Under the terms of a hire purchase or lease agreement, the owner of the goods should continue to receive payment where these goods are still being used. The amendment means that the administrator cannot delay disposing of the goods when they are not in use and payments are not being made.

In most cases where goods are subject to an asset finance agreement, the value of the goods reduces significantly over the time that they are being retained by the administrator. As I operate in the computer information technology area, I know that to my painful cost, at times. In theory, the lender could go to court to obtain the goods, but in practice the low cost of many goods, such as photocopiers or cars, makes that recourse unviable.

The amendment is intended to bring clarity to the situation and to ensure that the administrator makes a speedy decision to protect the lender's interest. I understand that several court cases have highlighted the need to bring certainty to lessors' rights. I beg to move.

10.15 p.m.

Lord McIntosh of Haringey: Clearly, there is a real difficulty here; there is a balancing act to be performed. On the one hand, it is desirable that hire purchase companies should not suffer a loss through lack of payment during administration; on the other, the purpose behind administration is to give companies a breathing space in which to put together rescue proposals or proposals to improve the outcome for creditors. It would be undesirable if such proposals failed, when a breathing space in payments to a hire-purchase company could have helped them to succeed.

We have replicated existing provisions, under which it falls ultimately to the courts to resolve that difficult balancing act on a case-by-case basis. Where rental

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payments were not being made, paragraph 42(3) would enable the owner of hire-purchase goods to ask the administrator for their return. If the administrator did not consent to repossession, the owner of the goods would be able to seek the permission of the court to repossess the goods.

The leading case on the existing provisions sets out clearly that administration for the benefit of unsecured creditors should not be conducted at the expense of those who have proprietary rights over goods—I think that that is my noble friend's concern. The case law will remain fully relevant to a court's consideration of the hire-purchase provision in the revised administration procedure. For that reason, I fear that I cannot accept Amendment No. 310.

For the record, I should respond to Amendments Nos. 311, 312 and 313, which are in the same group.

Lord Hunt of Wirral: It would help if the Minister could confirm that he is referring to the Atlantic Computer Systems case when he refers to the leading case. I should have thought that the amendment would bring clarity in the Bill for both administrators and lenders in line with that case.

If I may, I should also like to say a word about Amendments Nos. 311 and 312. "Hire-purchase" is, of course, a term of art that covers many different agreements, from a finance lease to a retention of title clause in a sale of goods contract. Paragraph 7(3)(b) is intended to ensure that the owner of relevant goods is compensated properly in the event that goods are sold contrary to his wishes. In particular, it will ensure that the owner receives full market value on the sale.

However, that measure of protection does not fit all cases. For example, where relevant goods are owned by a lessor who makes them available under the terms of an operating lease, as has been said, the market sale value of the relevant goods may not approach the true commercial value to be derived by the lessor from his agreement if he could continue the operating lease with the company, or if necessary with a different lessee, indefinitely. In those circumstances, the lessor may be seriously prejudiced by an order of the type envisaged under paragraph 72(3)(b).

That is why my noble friends and I tabled those amendments, which provide flexibility. They rely on the discretion of the court when ordering sale to decide what should be the compensation level for the owner. The court ought to be free to take into account all circumstances and should not be limited to compensation solely by reference to the open market sale value. I hope that those comments will assist the Minister, as he responds to Amendments Nos. 311 and 312.

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