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Lord Phillips of Sudbury: My Lords, I support the amendment and Amendment No. 53. At Second Reading, I said that I was amazed by the contents and philosophy underlying this mammoth Bill. I conjectured that had it been brought forward in the latter days of the former Conservative administration, those Benches which are now the Government Benches would have been in uproar.
The noble Lord, Lord Hunt, properly and fairly describes some of the defects of the bankruptcy provisions. Perhaps I may briefly allude to my 26-year stint as the "legal eagle" on the Jimmy Young Show. Nothing so enrages the so-called ordinary citizen as some of the effects of bankruptcies and liquidations. The circumstances often cause a local scandal. I would not have reduced the discharge period to a year.
Amendment No. 48 seeks to exclude subsection (2) of new Section 279. That could work in a bizarre way. The Official Receiver can file with the court a notice saying that his investigation is unnecessary or has been concluded. In that event, the bankrupt is discharged when the notice is served. That seems an extraordinarily advantageous arrangement. How quickly the investigation is dealt with will depend on how many clerks serve in the Official Receiver's office. How quickly or slowly the bureaucrats move on the matter seems an inadequate basis on which to determine the period during which a person is bankrupt. It gives an advantage to bankrupts whose affairs are simple. There may be a single creditor. For example, Nick Leeson has a single creditor for £670 million called Barings Bank. Mr Young had a single creditor for about £700 million: Morgan Grenfell. The conduct of his affairs could be dealt with quickly, perhaps within a fortnight, with a notice saying, "Over and done with", and he is free. It is a hopelessly inadequate method of dealing with a section of our law which has an element of public disapprobation attached to it.
When fundamentally changing such a basic aspect of business and personal life, at the very least it must make good sense to set up a commission, as anticipated in Amendment No. 53. I hope that the Government believe that there is good sense in doing so. It will be an opportunity for us all to take stock of the changes in a more informed way. I hope that the Government will accept that proposal and the other amendments in the group.
Finally, the Bill's changes in law as a whole are designed to make our entrepreneurial culture even more entrepreneurial. I begin to wonder whether Mr Meacher—and, I understand, Mr Bercow—in the other place may be more in tune with public concern about not the lack of entrepreneurialism but the
decline in probity, trust, honesty and public confidence in our life. All of the amendments would tilt the scales back a little in that direction.
Lord McIntosh of Haringey: My Lords, I shall attempt to deal with this rather disparate group of amendments. I do not object to them being grouped together; do not get me wrong.
Amendment No. 48 seeks to remove the provision that will allow bankrupts to be discharged within one year after the date of bankruptcy where the official receiver has concluded that further investigation of the conduct and affairs of the bankrupt is unnecessary. We have heard suggestions from the Opposition—we heard them again today—and representatives from the credit industry that the early discharge provisions will lead to an increase in the number of bankruptcies. That was referred to—not at length—by the noble Lord, Lord Hunt, when he moved the amendment. He mentioned the CEBR research. I shall say a little about that later.
Other countries that have reduced their discharge periods are often cited as examples of what will happen. We took those accusations very seriously because if it had been true—if the Opposition had been convinced that there would be anything like a 50 per cent increase in the number of bankruptcies as a result of the provisions of the Bill—the Opposition would have wished, I should have thought, to oppose very many more of the provisions on bankruptcy than they have done. The same is also true of us. If we thought for a split second that there would be anything like a 50 per cent increase in bankruptcies as a result of the Bill, we should not have put forward this legislation. That is not an intended, expected or even possible result; it is certainly not likely. When the matter was raised for the first time—on Report last week—we took it very seriously. We had further meetings with representatives of lending organisations, including the Maryland Bank of North America, which commissioned the research that has been quoted. We have not in any way neglected the arguments that were advanced.
Some people said during the passage of the Bill and in the press—the Financial Times has reported this view on a number of occasions in the past few days—that the Government's desire to reduce the stigma of bankruptcy will be seen as making bankruptcy a soft option or a rogues' charter. I am not sure who used that phrase; was it the noble Lord, Lord Hunt? I have no hesitation in repeating the Government's position, which we have put most strenuously here and in the other place. Even after the Bill is implemented bankruptcy will not be a soft option. We want to reduce the stigma of bankruptcy for those who have failed through no fault of their own, but in so doing we would not want to relieve them of the consequences of bankruptcy. Bankruptcy and its consequences are the option of last resort for almost everybody and they should remain so.
Let me repeat the consequences on somebody who becomes bankrupt: I refer to both business and consumer bankrupts. They lose their assets. Any assets
that the bankrupt has at the date of the bankruptcy order will vest in the trustee, whether or not they are disclosed to the trustee. They remain vested in the trustee even after discharge. They lose a large part of their surplus future income. The official receiver or trustee will ensure that where bankrupts have surplus income beyond that which is needed to meet their and their families' reasonable domestic needs, they will be expected to make contributions towards their debts for three years, notwithstanding discharge. That is why I resist the emphasis that has been placed, today and last week, on the period of discharge. Discharge is not the only consideration.The Bill will introduce income payments agreements as an out-of-court route to secure such payments where the bankrupt consents. If the bankrupt does not consent, an income payments order can be sought. Their credit records are severely affected. Details of the bankruptcy will continue to be advertised in newspapers and the London Gazette. Details of the bankruptcy order, and any subsequent bankruptcy restrictions order, will be recorded on the publicly available individual insolvency register and will also be reflected on the bankrupt's credit record. That will severely affect their ability to obtain credit in the future. When one thinks of how difficult it is for someone who has had a Crown Court judgment against them to obtain credit, imagine how much more difficult it will be for anyone who has been bankrupt, even if the discharge is of a year or less than a year.
7.15 p.m.
Lord Phillips of Sudbury: My Lords, does the Minister accept that the difference between the theory, which he has perfectly correctly read out, and the practice on the ground, in terms of disabilities and so on, is very wide indeed?
Lord McIntosh of Haringey: No, my Lords, I do not accept that. I had not finished my response.
Bankrupts risk losing their home. If a bankrupt owns or jointly owns an interest in a property, that interest falls within the bankruptcy estate and the trustee will seek to realise any equity. That can be done up to three years after the bankruptcy, irrespective of discharge. The bankruptcy will also make it very difficult to obtain a mortgage in the future. They could lose their job. The very fact that they are made bankrupt could lead to their dismissal; for example, being bankrupt can lead to one's being excluded from this House.
I do not accept what the noble Lord, Lord Phillips, said about the differences between the theory and what is on the ground. He did not present relevant arguments; but we cannot have that debate across the Chamber now. However, if I accept, for the sake of argument, what he said, that still has nothing to do with the period before discharge. That is the position.
I have been describing the position under current law, and it will not change. We are also retaining the current low exemption levels for assets and ensuring that in a bankruptcy or an individual voluntary
arrangement, all of a debtor's assets can be taken into account, including future income. In fact, by introducing income payments agreements, we are providing an out-of-court route that will be quicker and more easily varied than the current system. An individual can enter into an individual voluntary arrangement only with the agreement of the creditors.We are strengthening the bankruptcy regime to deal with the irresponsible or reckless by introducing the bankruptcy restrictions order regime. I say to the noble Lord, Lord Hunt, that the grounds listed in Schedule 20 for a bankruptcy restriction order, which he says are geared towards business, are not exhaustive; they mean that the courts can consider any misconduct. There are also grounds that could be used by consumers. Subparagraphs (h), (i), (j) and (m) could equally apply to consumers.
If the culpable are under any illusions that they will be able to use bankruptcy as a way to get in, get rid of their debts, and get out, they are mistaken. As I said, bankruptcy restrictions orders will impact on consumer and business bankrupts. The bankruptcy restrictions order regime will mean that instead of experiencing the effects of bankruptcy for three years, as is now the case, they could potentially experience most of those effects for up to 15 years. Those effects will include being unable to incur credit over the prescribed amount—it is currently £250—without disclosing their status and being unable to act as a director of a limited company. The fact of their bankruptcy restrictions order will be recorded on a freely available public register. That will no doubt be reflected on their credit record. Under those circumstances, can anyone seriously believe that bankruptcy is a soft option and that there will be a significant increase in the number of bankruptcies as a result of the changes?
The noble Lord, Lord Hunt, referred to the CEBR research. I do not want to give a full response but I stress that we took that criticism very seriously. Last week, we commissioned independent research into the significant part; that is, section 6 of the CEBR research. We commissioned it from Professor John Van Reenen of the department of economics at University College, London. The professor concluded that,
- "the econometric work contained in Section 6 is so seriously flawed that it should not in any way be relied upon to judge the impact of the Enterprise Bill on personal bankruptcies".
We have heard about the potential cost to the credit industry. We have listened most carefully to what has been said and have considered the wide range of factors that impact on a debtor's decision to enter bankruptcy. In particular, we have listened to the concerns expressed over early discharge. We have taken account of the views expressed both during the consultation and the parliamentary process. We have made changes to the proposed discharge period from the original six months to 12 months. We were only too
willing to accept sensible suggestions to improve the bankruptcy proceedings provisions. We did so by way of government amendments.I repeat: we do not expect all bankrupts to be discharged before the automatic 12-month period. It will happen only in those cases where the bankrupt was not at fault, where he has co-operated with the Official Receiver, where he poses no risk to the public or commercial community, and where all the investigative and administrative matters have been completed. Further, creditors will have the opportunity to object to such early discharge; indeed, we are committed to talking to interested parties on the draft rules. All this serves to convince us that the measures we propose to reduce the discharge period are more than balanced by our proposals for dealing with culpable bankrupts and for ensuring that those who can pay, do pay.
I am sorry that I have taken so long with my response, but clearly we are discussing one of the most important matters associated with this Bill. I turn, finally, to Amendment No. 53. I wish to comment on the way in which we propose to evaluate, monitor, and report on our proceedings. I have sympathy with the concept that new legislation should be monitored and evaluated. In fact, for many years I earned my living by doing just that for government. The Government have a manifesto commitment to more systematic reviews of major pieces of legislation. We are currently considering how best to achieve that aim.
As part of that process, we are committed to reviewing the Enterprise Bill not after three years, as Amendment No. 53 suggests, but within three years of implementation. In paragraph 11.2 of the regulatory impact assessment, we made it clear that the effectiveness of the new legislation will be monitored after it has been in force for a period of three years. I improved on that a short time ago by saying that that would be "within" three years of the Bill's implementation.
Therefore, without any hesitation, I can give the House a commitment that the substance of Amendment No. 53 can and will be implemented without any need for the matter to be on the face of the Bill. Indeed, it could not be on the face of the Bill in the form set out in Amendment No. 53. I am not at all sure that a "rolling study" is the correct definition of what needs to be done. Similarly, I am not at all sure that the matters set out in paragraphs (a) to (c)—with an "and" in between them—are the only considerations that apply. I do not know whether much of the amendment's wording would be appropriate. However, I am sure that we can carry out a review within a period that is no worse than the time-scale proposed in the amendment. That review will cover the points that I know the noble Lord, Lord Hunt, seeks to cover in Amendment No. 53. With that assurance, I hope that none of these amendments will be pursued.
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