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Lord McIntosh of Haringey: My Lords, this is a case where the non-lawyers have to stand up for their rights. The Lord Chancellor is trying to update legal language. I found myself repeating a latin phrase because somebody else had used it. The noble Lord, Lord Hunt, did so earlier without any such justification. We are trying to get this stuff out of legal language. For the purposes of Pepper v. Hart, I am advised that there is no distinction between "harm" and "prejudice"—but "harm" is a common word and more understandable to lawyers. In the cause of updating the language of law, I will resist Amendments Nos. 222 and 223.
The noble Lord did not speak to Amendment No. 225 but I will say a word, in the hope that he will not move it. Its purpose is to prevent successful actions being taken against the administrator where he has acted reasonably in all the circumstances. There is no real prospect of a successful challenge to the actions or inactions of an administrator where he or she has acted reasonably in all the circumstances. Proposed paragraph 74 in Schedule 16, which provides the right to challenge the administrator where unfair harm is alleged is based squarely on Section 27 of the Insolvency Act 1986. There is no such proviso in that section. We would not expect the courts to act significantly differently in relation to paragraph 74 than in the past in relation to Section 27—though no doubt case law will develop in light of the revised administration procedures.
Lord Hunt of Wirral: My Lords, I was awaiting the Minister's response to Amendments Nos. 222 and 223 before speaking to Amendment No. 225. I am not sure whether the Minister has yet made his will, but I will caution the noble Lord and give him some free legal advice. He should not try to remove the jargon because huge areas of jurisprudence govern the words that his will may use. If he uses everyday language, he will find that when the sad event arrives and he departs for the next world, all his goods will go in precisely the opposite direction to that which he might intend.
Lord McIntosh of Haringey: My Lords, I shall not be there.
Lord Hunt of Wirral: Yes, my Lords, but the noble Lord might like the assurance that his wishes would be fulfilled. Although the Minister may excite for a moment approval from the House by saying that he much wants to use everyday language, I caution him that where words have already been subjected to lengthy legal debate, it is often wiser to stick with the established words. But of course the Minister's brave attempt to justify the unjustifiable—which I remember doing on many occasions when I was in the noble Lord's position—gives me cause to think and ponder.
As to Amendment No. 225, the Minister is saying "Do not concern yourself. Those words will be implied. There is no need to include them expressly because the court will only act in circumstances where it is satisfied that the administrator has acted reasonably". In those circumstances, I accept the Minister's assurance. In the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 223 not moved.]
Lord McIntosh of Haringey moved Amendment No. 224:
- Page 278, line 27, at end insert—
On Question, amendment agreed to.
[Amendment No. 225 not moved.]
Lord McIntosh of Haringey moved Amendment No. 226:
On Question, amendment agreed to.
[Amendment No. 227 not moved.]
[Amendment No. 228 had been withdrawn from the Marshalled List.]
Lord Hunt of Wirral moved Amendment No. 229:
The noble Lord said: My Lords, I am in the wonderful position that the noble Lord, Lord Sainsbury of Turville, has added his name to this amendment. I beg to move.
On Question, amendment agreed to.
Lord McIntosh of Haringey moved Amendment No. 230:
On Question, amendment agreed to.
[Amendment No. 231 not moved.]
Lord Kingsland moved Amendment No. 232:
The noble Lord said: My Lords, I shall speak also to Amendments Nos. 233 to 237 and to Amendments Nos. 251 to 253—which were first tabled in Committee. They dispense with the need to obtain the consent of every secured creditor, recognising that companies increasingly borrow from a wide variety of secured creditors; and that, as a result, it may not be timely or practical to obtain the consent of every one.
The amendments either provide for a simple majority or a 75 per cent majority. The latter figure is adopted because it represents the commonly used figure internationally for the approval of "cram downs" in insolvencies.
I know that the Government are concerned that the amendments might have the effect of disenfranchising smaller secured creditors; but we consider that, for the reasons mentioned, it is impractical to require the consent of every single one. If the concern is about larger secured creditors, the preferred amendment should be for a 75 per cent majority.
So far as Amendment No. 253 is concerned, paragraph 98 provides that an administrator is discharged from liability in respect of any action in his capacity as an administrator once he has ceased to be the administrator of the company. In the case of an administrator appointed by the holder of a floating charge, the company, or its directors, his discharge takes effect at the time appointed by a resolution of the creditors' committee; or, if there is no committee, by resolution of the creditors.
Paragraph 98(3) provides that such a resolution shall be taken as passed if passed with the approval of each secured creditor of the company and a majority of the preferential creditors in value if the administrator has made a statement, in his statements of proposal, that he thinks the company has insufficient property to enable a distribution to be made to unsecured creditors. In those circumstances the unsecured creditors are disenfranchised.
That must be wrong as regards the time at which the administrator is discharged from liability in respect of any action of his as administrator. It may be his fault that there will be no distribution to unsecured creditors. The date on which he is discharged from liability is a decision that concerns them. They should be entitled to have a say; and to insist on some
Lord McIntosh of Haringey: My Lords, the period of an administration can be extended by the consent of the creditors instead of requiring the administrator to apply to a court. The time limits for sending out the statement of proposals, for the period of notice for a creditors' meeting and for the holding of the initial creditors' meeting can also be extended by consent. Currently, consent is defined as being the majority of those unsecured creditors who respond, plus all the secured creditors. Amendments Nos. 232, 235, 237 and 252 allow for consent to be considered as the majority of the secured creditors rather than all of them, whereas Amendments Nos. 233, 234, 236 and 251 seek to define consent as referring to a 75 per cent majority of secured creditors.
If I understand correctly the noble Lord, Lord Kingsland, he prefers the 75 per cent option to the majority option. But we think that the decision to extend the period of an administration and the moratorium on legal and other actions that go with it, should be one that is taken following consent of all of the secured creditors.
There may be times when it is difficult or even impossible to obtain consent of each of the secured creditors. But the administrator will, in that or any event, be able to apply to the court for an extension to the administration as an alternative. That has always been the case. It would then be up to the court to weigh up the potential benefits of the extension against the interests of creditors, including the secured creditors.
Although it is a tempting idea to provide for a bare majority or 75 per cent majority of secured creditors for the purposes of consent, we do not think it would be practical. First, the administrator always has the option to go to court for an extension for a specified period. Secondly, and more importantly, in reality the administrator must elicit the support of the secured creditors—perhaps as funders of the administration, but certainly to avoid them enforcing their security immediately at the end of an administration moratorium thus probably destroying the possibility of a rescue.
On the other hand, paradoxically, Amendment No. 253 seeks to broaden the extent to which the consent of creditors is required by including those unsecured creditors who are not going to receive any distribution from the administration, and therefore have no financial interest in it.
While I believe that it is right and proper to include all creditors in those decisions in which they have a financial stake, in those cases where this is not the case, this would simply add unnecessary administrative burdens and costs to the administration; costs that could reduce the returns for those creditors who do have a financial interest. In summary, I am opposed to relaxing the rules in all these amendments.
Lord Kingsland: My Lords, I thank the Minister for his full response. So far as concerns the question of the majority or the 75 per cent, I shall go away and reflect on whether it would be sensible to return again with a similar amendment at Third Reading. I shall also reflect on what he says about the position of an unsecured creditor. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 233 to 237 not moved.]
"( ) A creditor or member of a company in administration may apply to the court claiming that the administrator is not performing his functions as quickly or as efficiently as is reasonably practicable."
Page 278, line 41, leave out "under this paragraph" and insert "on a claim under sub-paragraph (1)"
Page 279, line 41, leave out "three months" and insert "one year"
Page 280, line 2, leave out "three" and insert "six"
Page 280, line 13, leave out sub-paragraph (a) and insert—
"(a) a majority in value of the secured creditors."
6.15 p.m.
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