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Lord McIntosh of Haringey: My Lords, let me immediately say in response to the noble Lord's final point that officials have already met the London Law Society. If, following today's consideration, the society wants a further meeting, I am sure that that may be arranged. If the noble Lord, Lord Hunt, is referring to some other adviser, we would include him in that meeting or make separate arrangements.
First, let me say what is a capital market arrangement. It is defined in Clause 72B(1) and paragraph 1 of the schedule. It is an arrangement that involves the issue of a capital market investment; that
involves, or is expected to involve, a debt by at least one party of at least £50 million; and that involves security being granted to a person holding it on trust for someone who holds a capital market investment issued by a party to the arrangement.There seems to be a fear that the definition of a capital market arrangement contained within paragraph 1(1)(a) of Schedule 2A will be insufficiently wide to encompass all potential capital market arrangements. That is true, but it has never been our intention that that subparagraph should cover all such arrangements; that is why we have subparagraphs (b), (c) and (d). The exception provisions provided by paragraph 1 of the Schedule are for all sorts of structures within the capital markets. It must be possible to ensure that an arrangement falls within those provisions.
Indeed, officials have spent much time considering and drafting the exceptions with various interested parties—including City lawyers—and are completely satisfied that, while the exceptions are not so broad so as to encourage avoidance, they will in practice prove to be flexible. The matter would also presumably impact on the eligibility criteria for the new company voluntary arrangement procedure introduced by the Insolvency Act 2000, which was amended specifically to deal with capital market arrangements by an instrument approved by this House on 24th July—without comment of which I am aware.
The proposals in the Bill and the eligibility criteria for the new company voluntary arrangement impact on similar capital market arrangements. It makes sense to have comparable definitions. Indeed, to adopt different definitions would create the potential for confusion and uncertainty and call into question the instrument accepted by Parliament only three months ago. I must resist the amendment.
Lord Hunt of Wirral: My Lords, the Minister resists the amendment with such good grace and such a kind offer to allow those who advise to consult further with him and his colleagues that in the circumstances, I have no alternative but to beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 247 [Unsecured creditors]:
Lord McIntosh of Haringey moved Amendment No. 261:
- Page 179, line 28, at end insert—
The noble Lord said: My Lords, in moving the amendment I shall speak also to Amendments Nos. 262 to 263. In dealing with Amendment No. 261, I thank the Opposition for giving us the opportunity to reconsider since Committee whether an office-holder—a liquidator, administrator or receiver—should be free not to implement the ring fence where,
On further consideration of the issue over the summer, we have reached the conclusion that new Section 176A would benefit from an express provision to allow the office-holder to apply to court to disapply the obligation to set aside the prescribed part where such a situation arises. The amendment will do this where the court is satisfied that the costs of distribution would outweigh the benefits.
We are grateful to the City of London Law Society for bringing the need for Amendments Nos. 262 and 263 to our attention. Our policy has always been that the calculation of the prescribed part is not to apply to charges created before the section's commencement—and that is consistent with the provision that the holder of an existing floating charge will continue to be able to appoint an administrative receiver—but that it is to apply to any floating charge created after the section's commencement.
The easiest way to explain that is to give an example. Where a company has granted both pre- and post-commencement floating charges, the liquidator, say, would pay out to fixed security holders; then pay the expenses of the winding-up; then pay any remaining preferential claims; then pay out to the pre-commencement floating charge holder, or holders; and then he would apply the prescribed part to the net property available to the post-commencement floating charge holders.
We do not anticipate a problem with pre-commencement charges that have subordinated their claim to a post-commencement charge. They will have done so in the knowledge that they will be waiving their right not to be subject to the new Section 176A. I beg to move.
On Question, amendment agreed to.
Lord McIntosh of Haringey moved Amendments Nos. 262 and 263.
On Question, amendments agreed to.
Clause 248 [Liquidator's powers]:
Lord Kingsland moved Amendment No. 264:
The noble Lord said: My Lords, in a liquidation certain powers are only exercisable with the sanction of the court, the sanction of the liquidation committee or the company's creditors. For example, a liquidator can make a compromise with creditors only with sanction. In contrast, a liquidator can raise money on the security of assets of the company without sanction. Some powers are exercisable with sanction in a compulsory liquidation, but without sanction in a voluntary liquidation.
One such power is to bring or defend any action or other legal proceeding in the name, and on behalf of, the company. In a compulsory liquidation the liquidator must seek sanction for doing so. By contrast, in a voluntary liquidation there is no need for him to do so. He can take proceedings in the name and on behalf of the company, without seeking the sanction of the court or, indeed, anyone else.
Clause 249 provides that the legal proceedings under Sections 213, 214, 238, 239 and 423, which are proceedings in the name of the liquidator but for the benefit of the company in liquidation, can be exercisable only with sanction both in a compulsory and a voluntary liquidation, despite that in a voluntary liquidation the liquidator can bring proceedings in the name and on behalf of the company without sanction. We can see no reason why proceedings under Section 213, 214, 238, 239 or 423 should be treated differently from proceedings in the name and on behalf of the company.
If it is right that a liquidator can take legal proceedings in the name and on behalf of the company without sanction in a voluntary liquidation, we believe it must be right that he can take proceedings under the above-mentioned sections in his own name without sanction as well. All such proceedings should be treated in the same way. I beg to move.
Lord McIntosh of Haringey: My Lords, the noble Lord, Lord Kingsland, has moved that amendment without one reference to the Lewis case, which I thought was going to be the central point. However, as currently drafted Clause 248 will mean that the liquidator of a company will need to seek the sanction of the court or the liquidation committee, or a meeting of creditors where there is no committee, before taking any civil recovery action. That will be the same whether the company is in compulsory or voluntary liquidation. The amendment seeks to remove the need for sanction if the company is in voluntary liquidation. We do not believe that is appropriate.
Perhaps I may remind the House of the reasons behind that provision. Until a recently decided case—the Lewis case, otherwise known as Floor Fourteen—
However, it was clear from the judgment in that case that civil recovery actions are not actions in the name of, or on behalf of, the company. Therefore, it became apparent that no liquidator would require the sanction of creditors to take such action. That has led us to review the whole process of making civil recoveries and the issue of whether a liquidator—whether in a compulsory or voluntary case—ought to require sanction from creditors in order to take such action.
Consideration of that matter led us to look at the impact of the removal of the Crown's preference, whose abolition is aimed at generating funds for unsecured creditors. We would not want any such sums to be used by the liquidator in pursuing legal action unless the creditors approve. After all, it is a commercial decision for the creditors to choose between, say, a five pence in the pound dividend payable now, or whether to allow the liquidator to pursue a claim which may result in a 50 pence in the pound dividend at a later stage.
That is why we have put in the new power for the liquidator in Part 1 of Schedule 4 to the Act, which covers powers exercisable with sanction in both voluntary and compulsory liquidation.
"( ) Subsection (2) shall also not apply to a company if—
(a) the liquidator, administrator or receiver applies to the court for an order under this subsection on the ground that the cost of making a distribution to unsecured creditors would be disproportionate to the benefits, and
(b) the court orders that subsection (2) shall not apply."
6.30 p.m.
Page 179, line 44, after "creation" insert "and which is created after the first order under subsection (2)(a) comes into force"
Page 180, line 2, leave out subsections (9) and (10) and insert—
"(9) An order under this section may include transitional or incidental provision."
Page 180, leave out lines 10 to 14 and insert—
"The following shall be inserted in Part II of Schedule 4 to the Insolvency Act 1986 (c. 45) (liquidator's powers in winding up: powers exercisable without sanction in voluntary winding up, with sanction in winding up by the court) after paragraph 4—
"4A. Power to bring legal proceedings under section 213, 214, 238, 239 or 423.""
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