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Lord Ezra: My Lords, I, too, am grateful to the noble Lord for having explained so clearly this rather technical and complex proposition. I have two questions to ask him. First, are the calculations for the blocking minority generally acceptable to licence holders based on the responses to the consultation document? Was there not pressure to set the blocking minority at a lower figure than 20 per cent? Indeed, figures of 15 per cent or 10 per cent were mentioned. Why did the Government decide on the 20 per cent figure?
Secondly, what kind of modifications under the collective licence modifications procedure are likely to be proposed by Ofgem? Are these of a major nature? Are they likely to be frequent? If so, would that not introduce a disturbing element of uncertainty into the trade for gas and electricity? I would be obliged to the noble Lord if he could answer those questions.
Lord Davies of Oldham: My Lords, I am grateful to noble Lords for the response to the order, which has its technical aspects as the noble Baroness, Lady Miller, indicated. I have some sympathy with the views she expressed in terms of mastering the intricacies of the order. Let me see whether I can deal with the points that have been raised.
As the noble Baroness indicated, it would appear that licensees with a market share of more than 20 per cent have a veto on the issue, but the essence of the modification process is to permit necessary modifications only when there is a high degree of consensus. So, if a significant market player holding above 20 per cent objects, the authority would have to look at that matter again and choose another route. The whole concept behind the operation of the threshold is to guarantee that the major players are part of the consensus which gives effect to these provisions. I think, therefore, that the threshold is not too low. It raises the issue of veto but, on the other hand, the task is not manageable unless all major players are suitably on board with regard to the matter.
The noble Lord also asked me about the cut-off dates for consultation. As he will recognise, that is an issue of judgment again. He is right: the later the cut-off point, the more accurate the information will be and, therefore, the more accurately it will reflect the market. But, as I said in my introduction, we also need to give the industry the opportunity to respond in good time. We have specified in the order the necessary material that must be taken into account; we have a date for that somewhat in advance of the latest date to allow proper digestion of the implications by the industry for it adequately to respond. That is why that date has been chosen.
For gas suppliers, Ofgem will propose to remove the right to object for non-termination of contract, and to create a right to object on consumer response. For industrial and commercial suppliers, Ofgem will propose to remove the right to object for non-termination of contract and to create a right to object where that is in the contract with the customer.
Ofgem will propose that suppliers be obliged to participate in a new supply-point administration agreement to ensure that information about a meter is transferred efficiently between suppliers and their agents, thereby improving the customer transfer process. Ofgem envisages applying that to domestic suppliers, but would consider extending it to industrial and commercial suppliers in the light of consultation responses. Ofgem also proposes to limit the right of gas suppliers to block the right to object to a transfer for certain prepayment meter customers with an outstanding debt. The parallel change for electricity has just been agreed in the MRA process.
The noble Lord said: My Lords, I beg to move that the draft order laid before the House on 12th June be approved. It introduces changes to the corporate insolvency provisions of the Insolvency Act 1986 as inserted by the Enterprise Act 2002.
The corporate insolvency provisions of the Act are intended to facilitate the rescue of viable companies where practicable, or to achieve a better result for creditors as a whole than in an immediate winding-up. In order to achieve that objective, the Act streamlines the process of administration to make it fast, fair and focused on rescue and places a great, general prohibition on the appointment of an administrative receiver.
By generally prohibiting the appointment of an administrative receiver, the Government seek to shift the balance in favour of the new streamlined administration procedure, thereby ensuring that account is taken of the interests of all creditorsincluding small firms and other trade creditors whose claims are unsecured; whereas an administrative receiver has a duty principally to the holder of the charge appointing him.
However, the Government recognise that there are instances where the appointment of an administrative receiver is fundamental to the effective operation of a specific market or sector and not simply a device to facilitate the realisation of assets to satisfy the claim of a floating charge holder. Section 250 of the Act makes a number of exceptions to the prohibition of the right to appoint an administrative receiver to deal with such circumstances. The exceptions are in respect of capital markets, public private partnerships, utilities, project finance, financial markets and registered social landlords. The Act also provides for the insertion of additional exceptions through an order approved by resolution of each House of Parliament.
The draft order before us introduces two further exceptions to the prohibition; namely, an exception in respect of urban regeneration projects; and one in sectors where special administration regimes are in operation. I will deal with each new exception in turn.
On urban regeneration, government policy is to deliver an urban renaissance through a programme of change and development in towns and cities. That will be achieved only through engaging the private sector. In many locations, such as disadvantaged communities, the necessary development may be marginal or require public sector support. In those cases, funders place a high value on the right to step in to appoint administrative receivers in the event of failure. Without that right, the cost of finance is likely to rise, impacting on marginal projects and, therefore, undermining regeneration policy.
The Enterprise Act 2002 already includes exceptions from the prohibition on the appointment of an administrative receiver for very large projects where the expected level of debt is at least £50 million; and for private-public partnership projects involving step-in rights. However, the current exceptions do not cover smaller, purely private projects in disadvantaged areas, which the Government are keen to encourage. The draft order provides an exception for such projects, without which they are likely to be susceptible to increases in the cost of finance which, in turn, could undermine their viability.
For special administration regimes, the draft order introduces a further exception to the prohibition of the right to appoint an administrative receiver in respect of the water and transport sectors, where special administration regimes operate that draw on and amend the current administration provisions. Section 249 of the Enterprise Act saves the current administration provisions for such regimes and disapplies Section 248 of the Act, which inserts the new streamlined administration procedure contained in Schedule 16 into the Insolvency Act 1986.
Without creating that further exception, the holders of qualifying floating charges over companies for whom there are special administration regimes would no longer be able to enforce their security by appointing an administrative receiver. In addition, because of the disapplication of Section 248 to such schemes, they would be unable to take advantage of the new administration procedures. The exception will correct that lacuna and allow the holders of qualifying floating charges to continue to be able to enforce their security through the appointment of an administrative receiver, within the limitations set out in the special administration regimes for the sector concerned.
Baroness Miller of Hendon: My Lords, I shall be brief in supporting the confirmation of the order. I want to focus on its main objective, which is to prevent the holder of a floating charge from appointing an administrative receiver of a company. The fact is that the majority of such floating charges are in favour of banks, and are often supplementary to a fixed charge over a specific property asset.
It is more difficult to enforce a mortgage than it is to appoint an administrative receiver, because such an appointment can be made at the stroke of a pen. Once appointed, an administrative receiver answers to those who appointed him and his primary duty is to realise assets to clear the debt secured by the floating charge, irrespective of any adversepossibly fataleffects on the company. Perhaps the greatest number of complaints made to the Department of Trade and Industry relate to the activities of administrative receivers. Despite recent legislation, we still lack the full-blooded protective
Before I sit down, perhaps I may take the opportunity, while I have the Minister's attention, to ask him if there is any hope in the not-too-distant future of there being a consolidating Act to bring the Insolvency Act into tidier form. At the moment, with all the amendments that have been made to it in the almost 20 years since it was first passed, it is difficult to check what the law is without access to a specialised law library, because the Act itself now resembles a patchwork quilt.
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