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Lord Sharman: My Lords, I am grateful to the Minister for his response and his explanations. In the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord McIntosh of Haringey moved Amendment No. 191:

"(aa) any enactment or subordinate legislation specified in an order under section 206(2);
(ab) any enactment or subordinate legislation specified in an order under section 207(3);"

On Question, amendment agreed to.

Schedule 16 [Third party appeals]:

Lord McIntosh of Haringey moved Amendment No. 192:

    Page 258, line 5, at end insert "with the objective of"

The noble Lord said: My Lords, I shall speak also to Amendments Nos. 193, 197 and 205. I think the noble Lord, Lord Kingsland, may well move Amendment No. 196, as his name is attached to it.

The "purpose of administration" was discussed at some length in Committee. The noble Lord, Lord Hunt of Wirral, expressed some concerns about the objective of rescuing the company, suggesting that this could exclude a company's most valuable assets—often its people and business. I stated at the time that I had some sympathy with those concerns and I agreed to consider the issue and come back with an appropriate amendment on Report. We have done just that. While we are not changing our policy on the issue—and have not been asked to do so—we agree

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that further clarification on the face of the Bill would be particularly useful to those charged with making administration work.

Company rescue is at the heart of the revised administration procedure. It is, and always has been, our intention to ensure that viable companies do not fail unnecessarily. By that I mean that not only the legal entity alone is preserved, but at least a substantial part of the business of that company is also preserved with it. The noble Lord, Lord Hunt, referred in Committee to the former as "empty shells". As I have said before, it is not our policy that rescuing the company could mean simply keeping the legal entity alone intact. The Government tabled an amendment on that point, but we were happy to withdraw it and support Amendment No. 196 in the names of the noble Lords, Lord Kingsland and Lord Hunt, which makes the point crystal clear.

In addition, in Committee I confirmed that we wished to make it clear that the administrator will not be required to pursue the first objective of rescuing the company if the second objective would provide a better result for the creditors of the company as a whole. It has been suggested that this could undermine company rescue by allowing and even encouraging administrators to sell off assets in a quick and dirty sale simply to cover the secured creditor's debts, justifying such actions as being better for the creditors in the short term—in other words, business as usual for receivers turned administrators. That is simply not true.

The new purpose also does not imply that the administrator will be constrained to take the short-term view. Administrators working under the new purpose should weigh up the options in the light of their duty to the creditors as a whole. That could well result in preferring a long-term return over what could be realised in the short term.

However, there may be times when company rescue is not the best option, when the medium to longer-term viability of the business is poor. We do not want the administrator to be constrained to attempting to rescue every company irrespective of whether there is a business worth preserving. We do not want an administrator to have to pursue a company rescue that may be reasonably practicable but would result in a lower return to creditors as a whole, which could have been a consequence of the current drafting of paragraph 3. One criticism that has been made against Chapter 11 in the United States is that it can lead to cycles of repeated failure and rescue of non-viable businesses. The amendment will allow an administrator the flexibility to provide the best result to all the creditors while still maintaining the primacy of company rescue.

I am sure that we all agree that the changes that the Bill introduces to the way that floating charge holders can deal with their security marks a decisive break from the past. The Government's intention is that in all administrations the administrator should consider the possibility of rescuing the company. He must bear in mind the interests of all creditors when deciding how

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to deal with the company and its assets. While the Government and Parliament can set out the policy and legislative framework to achieve that, it is now for those involved—insolvency practitioners, lenders and others—to put it into practice.

The administrator's opinion was also raised in Committee and is addressed in this group of amendments. The Government remain of the view that the administrator is best placed to judge whether a particular objective is reasonably practicable, in the light of his experience and professional judgment. In the light of concerns expressed during the debate, we have made it clear that what the administrator thinks should determine which objective is followed.

The new paragraph 3 will therefore allow an administrator not to pursue the first objective if he thinks either that the second objective will achieve a better result for the creditors as a whole or that it is not reasonably practicable to achieve the first objective. This means that the creditors will not be disadvantaged in cases where the administrator thought it reasonably practicable to rescue the company as a going concern but the second objective would obtain a better return.

The Opposition have tabled a number of amendments that similarly deal with the issue of company and business rescue, and whether it should be for the administrator to decide whether particular objectives are reasonably practicable. I believe that these matters have all been addressed in the Government's amendments. I therefore hope that the other amendments will not be pressed. I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, I listened carefully to the Minister. Much of what he said met the thrust of the amendments, but I should like clarification on two points. Amendment No. 194 makes clear that the rescue does not have to cover the company as a whole, by inserting,

    "and the whole or part of its business".

It is not clear to me that the government amendments will give an administrative receiver or administrator the chance to deal even-handedly with the whole or part of the company's business.

The second point relates to the administrator's professional judgment. I was pleased to hear the Minister refer to that as the pre-eminent issue. That is very important. I am not clear about how the Government's amendments deal with the issue of "in his opinion". Amendment No. 199, tabled by my noble friends and myself, makes it clear by inserting "in his opinion". Part of the Government's amendment seems to meet that, but not all of it.

I should be grateful if the Minister could clarify those two points: whether the whole or part of the company is covered; and whether the administrator's opinion is pre-eminent. I am not sure that either point is covered.

Lord Hoffmann: My Lords, I am contributing to the debate having been for seven years a judge of the

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Chancery Division and having had some experience of dealing with receiverships and administrations. I am anxious about two aspects of the amendments.

The centrepiece of this area of the Bill is the part of the schedule that deals with the purposes of administration. When I first read those paragraphs, they appeared admirably drafted and entirely clear, setting out in the proper order what those purposes should be. I would have thought that no judge would experience any difficulty understanding what the paragraphs meant and applying them in a practical and common-sense way. As the Minister said, the great break with the past that those paragraphs represent is giving primacy to the prospects of rescuing the company.

As I said, two aspects of the amendments concern me. The first is the provision that now appears to place the objective of rescuing the company more or less on a par with the objective of achieving a better result for the company's creditors as a whole. It seems to me that judges faced with these clauses as they stand would in no way insist on the rescue being pursued in circumstances where this was not going to do anybody any good. However, to put the realisation of the assets in the old style—for the benefit of the creditors—as on an equal footing with the rescue seems to me to be giving a wrong signal to the profession.

The other aspect is the provision saying that what really matters is the opinion of the administrator. In my experience as a judge, the greatest respect has always been paid to the opinion of the administrator. He was the man who was in touch with the facts and who had to make the practical day-to-day decisions. It would be rare indeed for a judge to say, "No, we think that you are doing it the wrong way". If, with hindsight, one were looking at any criticism of something that the administrator has done, it would be virtually impossible to hold any administrator liable for something that he had done in good faith on the footing that the judge thought that it would have been better to take some other course.

What this amendment does, however, is to put the whole matter, even as to the future, into the hands of the opinion of the administrator. The amendment therefore precludes interested parties from coming to the court and saying, "Let us examine this matter rationally. It appears that the administrator is going about it the wrong way. It would be better, to achieve the statutory objectives, if it were done differently". The court would then be able to assess that matter. There might be occasions when the court, giving full weight to the experience and knowledge of the administrator, feels that it has to say, "No. It is quite clear that, in the best of faith, you are going about this the wrong way and you ought to do something different. The company can be rescued even though you seem to have formed the opinion that it cannot".

These amendments seem to take that power out of the hands of the court entirely and leave everything to the opinion of the administrator. In my view, both those changes represent retrograde steps.

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5 p.m.

Lord Kingsland: My Lords, an intervention in the debates of your Lordships' House by the noble and learned Lord, Lord Hoffmann, is always an occasion for celebration. I know that the Minister will be keen to reply to the testing and apposite observations of the noble and learned Lord. I rise simply to thank the Minister and his officials for their careful work in response to the amendments that we tabled at Committee stage.

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