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Lord McIntosh of Haringey moved Amendment No. 45:
- Page 158, line 3, leave out "or transitional" and insert ", transitory, transitional or saving"
On Question, amendment agreed to.
Clause 242 [Overseas disclosures]:
Clause 252 [Liquidator's powers]:
Lord Kingsland moved Amendment No. 47:
- Page 187, line 6, at end insert—
"3B. Power to bring or defend any action or other legal proceedings in the name and on behalf of the company"
The noble Lord said: My Lords, I apologise to the Minister for returning to this matter. On Report he will have heard me say that I would not return to it; but on reading Hansard I noted that the Minister drew my attention to the Lewis case. As soon as I reflected on the point, I realised that there had been some misunderstanding between the noble Lord and myself about the basis upon which the amendment was tabled on Report. Therefore, I return to it now.
On Report, I proposed an amendment that would have had the effect that a liquidator would need the sanction of the court, or the liquidation committee, to take legal proceedings under Sections 213, 214, 238, 239 or 423 of the Insolvency Act 1986 in a compulsory liquidation; but that there would be no such need in a creditors' voluntary liquidation.
The reason behind that amendment was that Schedule 4 to the Insolvency Act 1986 presently provides that a liquidator has power to bring or to defend any action or other legal proceedings in the name of, and on behalf of, a company and must seek the sanction for doing so in a compulsory liquidation, but not in a voluntary liquidation. My view was that proceedings under Sections 213, 214, 238, 239 or 423 of the Insolvency Act should be treated in exactly the same way.
The clause, as presently drafted, makes the distinction between proceedings in the name of, and on behalf of, the company, on the one hand, and proceedings under Sections 213, 214, 238, 239 or 423, in the name of the liquidator, on the other. The former do not require any sanction in a voluntary liquidation; but the latter would require sanction in a voluntary liquidation. I can see no rationale whatever for the distinction. Therefore, I have tabled an amendment putting all such proceedings on an equal footing.
The noble Lord, Lord McIntosh, attempted to answer my amendment but, through no fault of his own, and doubtless because of the inept way in which I put the point, he missed the point. He thought that my amendment was connected with the Lewis case, otherwise known as Floor Fourteen. Although that case has some relevance to this clause and to my amendment, it is more concerned with the costs and
I have thought carefully about what the noble Lord said. His arguments are compelling not just as regards proceedings under Sections 213, 214, 238, 239 or 423, but also about proceedings in the name of the company. The same point applies to both kinds of proceedings. Funds should not be used by the liquidator in pursuing legal action, be it under the relevant sections or in the name of the company, unless the creditors approve. That is a commercial decision for the creditors in both cases.
Therefore, on this occasion, I have tabled a different amendment. This shows the value of debate. The effect of my amendment is to put proceedings in the name of the company on exactly the same footing as proceedings under these various sections. In all such proceedings, the liquidator will need the sanction of the court or of the liquidation committee in a compulsory liquidation; and the sanction of the court, the liquidation committee or the company's creditors in a voluntary liquidation. I beg to move.
Lord McIntosh of Haringey: My Lords, I have no objection to the noble Lord, Lord Kingsland, tabling an amendment when he said he would not. That is his privilege. Unless I misunderstand him totally, I am puzzled to find him tabling an amendment that is the exact reversal of that tabled on Report. I want to ensure that I understand him correctly.
The present position is that liquidators in compulsory liquidations need the sanction of court or creditors prior to defending or bringing actions in the name of or on behalf of the company. The previous amendments were tabled to amend this section and to make all antecedent recoveries pursuable by voluntary liquidator without sanction as is the situation with bringing and defending all other legal actions at present.
This amendment would mean that liquidators in voluntary liquidation must also obtain sanction for such actions. We have provided that for antecedent recovery action in respect of fraudulent or wrongful trading, preferences, transactions at under value and transactions defrauding creditors, and those actions are not in the name of or on behalf of the company, in all liquidations sanction will be required.
We have heard no evidence from insolvency practitioners or creditors or other interested parties that they feel that there is a problem with not having to have sanction to bring or to defend legal proceedings in the name of the company. As things stand in the Bill a voluntary liquidator will have to have sanction to pursue proceedings where they are
The reason that sanction should be sought by a voluntary liquidator regarding an antecedent recovery action—for example, seeking to impugn a prior transaction as a transaction at an undervalue—is that this is an action that seeks to restore the company back to the position it should be in, and this is a decision which may use up available funds. The creditors should have the power to decide whether they wish to pursue the action in the hope of receiving a larger dividend than they would receive if no remedy was sought.
I caught a glimmer of that in what otherwise was to me a rather confusing speech. I am sure that when I read it the pure, pristine logic will become apparent. I do not believe that this change is any more desirable than that proposed on Report.
Lord Kingsland: My Lords, I am grateful to the Minister for responding so sportingly to an amendment that has first appeared at Third Reading. It would be churlish of me, having given the Minister an initial glance, to press the matter to a vote. This may be a matter to return to in the course of fresh legislation somewhere down the road. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
"We would not want any"
funds for unsecured creditors,
"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".—[Official Report, 21/10/02; col. 1131.]
7 p.m.
Clause 255 [Duration of bankruptcy]:
Lord Hunt of Wirral moved Amendment No. 48:
- Page 188, leave out lines 16 to 19.
The noble Lord said: My Lords, unless any noble Lord has an objection, in moving Amendment No. 48, I shall speak also to Amendments Nos. 49, 50, 51, 52 and 53. The amendments relate to the significant worries which have been raised by these Benches about the bankruptcy provisions.
A similar amendment to Amendment No. 48 was tabled in Committee and was the subject of extensive debate on Report. It is disappointing that the Government have not listened to the widespread and real worries raised in connection with the current provision in the Bill which would effectively allow a bankrupt to be discharged within months or, as I understand an official in the noble Lord's department estimated, eight weeks of his bankruptcy.
On Report, we had an extensive debate over the compelling research published by the Centre for Economic and Business Research which predicted that there could be an increase in the number of bankruptcies of over 50 per cent as a result of the proposed changes in legislation. The Minister was not sympathetic to that view. One of the Government's main arguments in favour of a much reduced bankruptcy period is that it would be countered by the introduction of a tougher regime of bankruptcy
restriction orders designed to apply to those whose conduct has been irresponsible, reckless or otherwise culpable. However, it appears that the criteria listed as grounds for making such restriction orders set out in Schedule 20 are aimed almost exclusively at business bankrupts. It is difficult to understand how they could apply to consumers. It is clear that in the Government's attempt, which we support, to encourage a more entrepreneurial business culture, they have given virtually no consideration to how those reforms will impact on consumers and will be perceived, in particular by those consumers who abuse the system.There is a clear risk that many, in particular those with little to lose from bankruptcy, will see the possibility of getting out of bankruptcy in a matter of months or weeks as an easy option. That will surely appeal to many consumers struggling with credit card debts. There is still a question mark over student loans. The position has not been properly clarified. Many of those consumers have few assets and would find it relatively painless and appealing to give up the struggle to repay debt and be free to start again within a few weeks. Those actions will come at a huge cost to both the borrowing and lending communities.
The Minister's response was to ask: if we believe that, why are we not coming forward with stronger amendments? On reflection, perhaps we should have gone further. But that is not an argument for rejecting this group of amendments. They preserve the spirit and aims of the Bill but seek to limit abuse and the negative effects that will surely follow if the Government do not move.
In Amendment No. 53, as a last resort we have now said to the Government "If you believe so much in what you set out in the legislation, then you should at least have a proper investigation". One of the criticisms put forward by the Minister of the compelling research published by the Centre for Economic and Business Research—I understand that the Minister's officials have had further discussions over that research—was that they were not persuaded by it. But the Government have not had independent research of their own. They are proceeding with this important legislation when there has been little consultation over the effect of this part of the Bill and little research—none by the Government—into its effects.
New Section 289 is contradictory. It imposes on the Official Receiver a duty to carry out an investigation of the bankrupt's affairs. However, in subsection (2) it permits the Official Receiver to decide for himself that it is not necessary to comply with that duty.
Instead of firing slings and arrows of outrageous insults across the Chamber, perhaps the answer is for the Minister to say, "Yes, support us on this because we believe that we are right. But we shall have a full and independent investigation"—as is proposed in Amendment No. 53—"a rolling study of the effects of the personal insolvency aspects of the legislation following the third anniversary of this Act coming into
force". That is surely a reasonable approach. I hope that the Minister will respond positively. I beg to move.
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