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Lord Hunt of Wirral: My Lords, I join the Minister in thanking his officials very warmly for having met today's deadline, and I look forward to the bedtime reading. Undoubtedly, the noble Lord, Lord Sharman, has already assimilated the draft rules because he has an extraordinary expertise. But I am only a mere solicitor, and it may take me a few hours longer to do so. However, we appreciate the way that officials have responded. As I have said in previous debates, they always seem to manage to achieve the most unrealistic targets and objectives, which they are often given by Ministers. I am very grateful to the Minister.

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I am also grateful to him for his words in relation to Amendment No. 207 and for his assurance that, if further amendments prove necessary in the light of further scrutiny of the rules, he will have no objection to that. Of course, we have to move reasonably swiftly because it is anticipated that the next stage of the Bill may be held next week. However, in all those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 208 and 209 not moved.]

The Deputy Speaker (Lord Haskel): My Lords, I have to tell your Lordships that, if Amendment No. 210 is agreed to, I cannot call Amendment No. 211 by reason of pre-emption.

Lord McIntosh of Haringey moved Amendment No. 210:

    Page 271, line 43, leave out from "proposals" to end of line 45.

The noble Lord said: My Lords, this amendment was spoken to with Amendment No. 206. I beg to move.

On Question, amendment agreed to.

[Amendment No. 211 not moved.]

Lord McIntosh of Haringey moved Amendments Nos. 212 to 215:

    Page 272, line 3, at end insert—

"( ) The administrator shall comply with sub-paragraph (4)—
(a) as soon as is reasonably practicable after the company enters administration, and
(b) in any event, before the end of the period of eight weeks beginning with the day on which the company enters administration." Page 272, line 4, leave out "have complied" and insert "comply"

    Page 272, line 5, leave out "before the end of the period referred to in that sub-paragraph"

    Page 272, line 26, leave out "not be after the end of the period of six" and insert "be—

(a) as soon as is reasonably practicable after the company enters administration, and
(b) in any event, within the period of ten"

The noble Lord said: My Lords, these amendments were spoken to with Amendment No. 206. I beg to move.

On Question, amendments agreed to.

[Amendment No. 216 not moved.]

Lord Hunt of Wirral moved Amendment No. 217:

    Page 275, line 11, at end insert—

Powers of court to approve financing of companies in administration

57A (1) The administrator of a company may at any time following his appointment apply to the court for approval of super priority financing.
(2) In this paragraph "super priority financing" means financing for a company in administration provided by a lender who shall enjoy repayment priority over existing secured and unsecured creditors of that company.

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(3) The court shall not make an order granting an application for super priority financing under this paragraph unless it is satisfied that—
(a) the monies to be borrowed are to be used for expenditure necessary to preserve the company's business for the benefit of the company's creditors; or
(b) the monies to be borrowed are necessary to continue the operation of the business of the company in order to assist in meeting the administrator's aims under paragraph 3(1)(a); and
(c) the secured creditors are not prejudiced by the provision of super priority financing; and
(d) in all the circumstances it is appropriate to make an order in the interests of the administration."

The noble Lord said: My Lords, this provision follows a debate that we had in Committee, when I sought to deal with the key issue of super priority finance in company and business rescues. I should tell your Lordships that the Minister, the noble Lord, Lord Sainsbury, explained to me, and no doubt the noble Lord, Lord McIntosh of Haringey, will shortly confirm, that the Government's position is essentially that the decision to lend to a company should be left to the commercial judgment of the lending market, based on whether free assets are available to use as security, among other things.

However, with the greatest respect, I believe that that approach appears to misunderstand the position that many small and medium-sized companies find themselves in when facing serious problems involving insolvency. Of course, if assets are available to lend against, why would such a company seek administration at that point? The key is to give a company protection from its creditors. That is why we have the moratorium on creditor action. Then, of course, it must have the finance to carry on while a rescue plan is put into place; otherwise, in many cases, the company would not have the funds to carry on and another potentially viable business would be lost.

I understand that much of the international community still considers our insolvency system within the UK to be essentially a liquidation process. Many small and medium-sized businesses view the system in the same way—that is, as something to be avoided at all costs, often until it is too late.

I believe we are making great progress with this Bill in reforming the whole structure. But if the new administration process does not allow a business properly to restructure and to be adequately financed while it does so, we risk making no real improvements to the rescue culture and nothing much will change. That is why I make no apology for raising again the issue of financing because I believe that it needs to be considered and properly debated.

In Committee, the noble Lord, Lord McIntosh of Haringey, noted that the Government would take part in any debate on the issue. I am informed by the noble Lord, Lord Sainsbury, that some debate has taken place during the Recess. The noble Lord, Lord Sainsbury, mentioned to me a meeting with some former members of the review group on the company rescue and business reconstruction review and some United States bankers. I have not had time to speak to all the members of the review group but those

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members to whom I have spoken were unaware that the meeting had taken place. Following the comments of the noble Lord, Lord McIntosh of Haringey, that he or his officials would be in touch with the review group, several members have been awaiting a telephone call but have heard nothing further. The report took some degree of effort and commitment by those who participated. The group has not met since the report was presented, nor has it been asked to attend any meeting. There is need for further debate and discussion.

It may help if the noble Lord, Lord McIntosh of Haringey, could let me know who attended that meeting, the views expressed and conclusions reached. It is a vital issue which has to be considered further in order to have the positive effect on the whole rescue business that the Bill admirably seeks to achieve. I beg to move.

5.45 p.m.

Lord McIntosh of Haringey: My Lords, it is a difficult and complex issue. It is true that there are some parallels with practice in the United States; but it is also true that there are differences about which we have to be careful. Yes, we debated the issue in some detail in Committee. There has been correspondence between the noble Lord, Lord Hunt, and the noble Lord, Lord Sainsbury. The noble Lord, Lord Hunt, wrote to me on the matter within the past 10 days or so. I hope that he has received the letter in which I replied to him this morning.

I go back to the origins of the issue. The noble Lord, Lord Hunt, again referred to them. The report of the joint DTI/Treasury review group, entitled A Review of Company Rescue and Business Reconstruction Mechanisms, was published in November 2000. The review was quoted in Committee. However, as I said then, I have to record the fact that the report did not make any recommendation in relation to "super priority" financing because of the difficulty of the issue and its view that it would be necessary to have courts that were able to take largely commercial decisions to consider applications under such a procedure.

Having published its report, the work of the review group was completed. I do not know who its members were. The group does not exist at present. But it is true that the Insolvency Service has continued to draw on the expertise of members of the group. The noble Lord, Lord Hunt, raised the issue that former members of the group—I do not know which of them but I shall find out—met with US bankers to consider the issue of "super-priority" funding, but concluded only that this was a complex issue which would need careful consideration. That is, after all, what the review group said two years ago.

One major reservation on such funding for a company that is in administration is that it would essentially guarantee a return to lenders advancing funds on the basis of such priority irrespective of the commercial viability of the rescue proposals. The decision to finance such companies must be an

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economic one based on the viability of the company. The review group thought that that was not necessarily within the skills of the courts as presently constituted. It is not the intention of this Government that all companies should be given the chance of rescue irrespective of their viability, but rather that an administrator, on being appointed, should determine whether the company and/or its businesses can be rescued. Therefore—it is the point I made in Committee—whether to finance such a rescue should be a commercial decision, best left to the judgement of the lending market and not the court. The courts have made clear on a number of occasions, and it is generally recognised, that it is not the role of the courts to make judgements on commercial matters. That is for the parties concerned. That has been acknowledged in our discussions on other aspects of the administration process.

When considering the substance of Amendment No. 217, it difficult to see in the context of UK corporate lending, where lenders take fixed and floating charges usually over all of the property of a company, how the court could satisfy itself in relation to proposed new paragraph 57A(3)(c), where it may not make an order for super priority financing, unless satisfied that,

    "the secured creditors are not prejudiced by the provision of super- priority financing".

In practice, there may be few occasions where that could be possible.

The review group's report concluded, and former members of that group found when they subsequently met with US Bankers, that the whole issue of super priority financing is an extremely complex one, with far-reaching potential effect. Legislative changes should be proposed only following extensive consideration and wide consultation. That is not something that should be dealt with in the Bill's progress.

Having said that, of course, I shall give the noble Lord, Lord Hunt, the information he seeks about who took part—unless they wish me not to give that information, although I cannot imagine that. I shall continue to keep the need for insolvency reform under review. As part of that process we are happy to consider any comments. I have said in a letter sent this morning to the noble Lord, Lord Hunt—I am sorry to learn that he has not received it—that we continue to be concerned about the issue and willing to discuss it with him. With reference to his kind offer to host a dinner, it would probably be more appropriate for us to do so, if there were to be such an occasion.

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