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Lord Hunt of Wirral: My Lords, I am a little overwhelmed. I have never before been offered a free dinner by a Government Minister. Perhaps I may consult a little. I am grateful to the noble Lord. The Minister is noted for his courtesy. He has exceeded even his own expectations as well as mine.

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On super financing, there are a number of occasions where important businesses of immense size, with huge implications for jobs and the UK economy, at present seek to reconstruct against a backdrop which gives them no protection from creditors. An unreasonable, and often small, creditor can bring the edifice crumbling down because under our present law there is no protection.

The Minister has stated how complicated and difficult the issue is to resolve. Against that background, I welcome his words and shall reflect on them. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Speaker: My Lords, I have to inform the House that Amendments Nos. 218 and 219 have been marshalled incorrectly. I propose to call Amendment No. 219 and then Amendment No. 218.

Lord McIntosh of Haringey moved Amendment No. 219:

    Page 275, line 42, leave out paragraphs 64 to 66 and insert—

"64 (1) The administrator of a company may make a distribution to a creditor of the company.
(2) Section 175 shall apply in relation to a distribution under this paragraph as it applies in relation to a winding up.
(3) A payment may not be made by way of distribution under this paragraph to a creditor of the company who is neither secured nor preferential unless the court gives permission.
65 The administrator of a company may make a payment otherwise than in accordance with paragraph 64 or paragraph 13 of Schedule 1 if he thinks it likely to assist achievement of the purpose of administration."

The noble Lord said: My Lords, Amendments Nos. 218 and 219 cover the same subject. As I explained in Committee, the drafting of the provisions allowing an administrator to make payments to creditors did not work as we had wanted. Amendment No. 219 makes clear the type of payments that must be made in accordance with the standard order of priority set out in Section 175 of the Insolvency Act 1986. In addition, it clarifies the distinction between payments and distributions.

First, the provision will allow an administrator to make distributions to creditors as a body, in accordance with the standard order of priority. A distribution to unsecured creditors will require the permission of the court. In order to distinguish between such payments and those, usually one-off payments, that are made to individual creditors, outside of the order of priority, we have referred to the first category of payments as distributions.

Secondly, the administrator will continue to be able to make payments, by virtue of paragraph 13 of Schedule 1 to the Insolvency Act 1986, to one or more creditors in respect of debts that were owed at the date of administration as well as expenses and liabilities that arise during the course of the administration, where such payments are necessary or incidental to the performance of his duties.

Thirdly, the amendment will allow the administrator to make payments that he believes are likely to assist the achievement of the purpose of

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administration. That will involve the administrator using his commercial judgment. Examples of such a situation could be payment of outstanding debts to the supplier of equipment that requires regular safety inspections and maintenance or payment to the franchisor of a franchise business to enable necessary goods to be supplied. Payments such as those would need to be made out of the standard order of priority and to a specific creditor or creditors, rather than by way of distribution to creditors generally.

That is an important point and is not provided for in the opposition Amendment No. 218. With that one exception, we believe that the issues in Amendment No. 218 are covered in Schedule 16, as amended by Amendment No. 219. I beg to move.

Lord Kingsland: My Lords, I am curious to know why these amendments have been marshalled incorrectly. I would like to have had the opportunity to open the batting and to invite the Minister to tell me how government thinking had developed since the probing way in which I introduced this matter in Committee. From what the Minister has said, I believe that I can infer that government thinking has moved on; indeed; it has moved so far that not only have all the issues raised by us in Committee been dealt with, but an additional imaginative insertion has been made. In those circumstances I thank the Minister for dealing with the matter in the way that he has. I shall withdraw my amendment.

Lord McIntosh of Haringey: My Lords, the noble Lord, Lord Kingsland, is excessively kind and it falls to me to thank him for the way in which he raised the matter in Committee and enabled us to respond as we have.

On Question, amendment agreed to.

[Amendment No. 218 not moved.]

Lord Hunt of Wirral moved Amendment No. 220:

    Page 277, line 27, at end insert—

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

The noble Lord said: My Lords, I put the case for Amendment No. 220 in the following terms. If the administrator uses any goods under a hire purchase or lease agreement the owner of the goods should continue to receive payment under the terms of the agreement. The administrator should not delay disposing of the goods if they are not in use and payments are not being made under the agreement. The amendment reflects the ruling in Re Atlantic Computer Systems plc (I) [1992] I All England Reports 476. On the face of the Bill that will bring clarity to administrators and lenders.

Amendment No. 221 would insert the words:

    "to include any additional value attributable to the owner's ability to rehire the goods".

The market value of the equipment will not in all cases compensate the lender for the goods on hire. The rehire value is often worth more than the market value

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and, where the equipment is still within its life expectancy, the lender will seek to rehire to capitalise on his investment. The court should be able to use its discretion in such cases. I hope that the Minister will feel able to accept Amendments Nos. 220 and 221. I beg to move.

Lord McIntosh of Haringey: My Lords, I am sorry to say to the noble Lord, Lord Hunt, that I am no more sympathetic to these amendments than I was when my noble friend Lord Mitchell moved them in Committee. I understand the concerns of the Finance and Leasing Association. We have considered carefully the views expressed to us, but as I explained in Committee, the Government do not want to amend the current legislation. Clearly, where assets that are subject to such an agreement continue to be used during the administration, the hire purchase companies would suffer a loss through lack of payment during that period. But the purpose of administration is to provide a breathing space in which to put forward rescue proposals or proposals for improving the outcome for creditors. It would not be right to allow such proposals to fail as a result of a legal requirement to continue making payments of this kind throughout such a breathing space, as suggested by Amendment No. 220.

The Bill as drafted does not make a change in the existing law. It replicates existing provisions whereby it falls to the courts to resolve the difficult act of balancing the interests of the hire purchase creditor, and their need for continued payments, and the interests of the general body of creditors which requires that the breathing space is sufficient for workable proposals to be developed and implemented.

We believe that existing case law on the ability of creditors to enforce their rights during the moratorium will continue to be fully relevant to the hire purchase provision in the revised administration procedure. It remains the Government's view that the courts are best placed to resolve such matters on a case-by-case basis, taking full and proper account of the facts of each case.

Amendment No. 221 would require additional money to be paid to the owner of hire purchase goods, over and above their market value in order to account for the owner's ability, or not, to rehire the goods; that is, to pay the owner in excess of the market value of the goods to enable him or her to replace them. However, if the owner believes that some additional value attaches to the goods as a result of their capacity to be hired, it is up to that creditor to persuade the court that such an additional sum should be included in its estimation of the market value. But surely as a matter of principle all that an owner can really expect must be the market value of the goods, thus allowing the owner to replace the goods and thereafter to hire them out. I am sorry to be so negative.

Lord Hunt of Wirral: My Lords, I am grateful to the Minister for his comments on Amendment No. 220, although I regret his refusal to understand the point raised in Amendment No. 221. In the circumstances, I

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accept what he has said. I shall consider the matter further, but in the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 221 not moved.]

6 p.m.

Lord Hunt of Wirral moved Amendment No. 222:

    Page 278, line 22, leave out "harm" and insert "prejudice"

The noble Lord said: My Lords, currently the Bill provides that a creditor can apply to the court for relief if he thinks that the administrator has acted in such a way as unfairly to harm his interests. I contend that "harm" is a wide term and there is little or no jurisprudence on it. It is not a word that, in this context, has been considered judicially.

I am advised by lawyers who consider these matters in everyday terms that "harm" will cause confusion as to its scope. During the course of administration, many creditors could say that they are harmed by the action of an administrator. It is therefore far too wide a term. The scope of "prejudice" is less wide and, in its favour, it is commonly used—for example, in Section 459 of the Companies Act 1989, so has a body of judicial opinion already around it. The same change should be made to government Amendment No. 205, where the word "harm" also occurs. I beg to move.

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