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Lord Warner: My Lords, we did not have much time to discuss insolvency provisions during the Committee deliberations. Therefore, I hope that noble Lords, even at this hour, will forgive me if I spend a few moments setting out the procedure for winding up—in all senses of the word perhaps.

I reject the bold statement by the noble Baroness, Lady Noakes, that we are engaged in daylight robbery. As I said previously, in the event of failure, the Government will stand behind NHS patients and NHS

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essential services. The failure regime for NHS foundation trusts gives priority to providing continuity of essential services. Clause 25(3) allows the Secretary of State to transfer assets used in the provision of essential services and the associated liabilities from a failed NHS foundation trust to another NHS organisation. Schedule 3 provides for the transfer of employees involved in providing those services. The expectation is that suppliers and contractors will want to continue to supply to the new provider as they will want to keep the business. Therefore, so far as concerns the patients, essential NHS services will simply continue in the normal way.

Assets of a failed NHS foundation trust which are not transferred by the Secretary of State under Clause 25(3) will then be dealt with under a bespoke winding-up regime. Clause 25(6) of the Bill contains the power for secondary legislation to prescribe that regime. It will be created by applying, with appropriate modifications, the provisions in Part 4 of the Insolvency Act, which deals with winding-up procedures.

Here, we are proposing to apply Part 4 with as few modifications as possible to ensure that the regime is as fair as possible to creditors. An NHS foundation trust can be wound up only if the independent regulator makes an application to the High Court and the court orders that it be wound up. However, if directors, governors or creditors of an NHS foundation trust considered it to be necessary, they could approach the regulator and ask him to start the process. The winding up would then proceed more or less as if it were an ordinary creditors' voluntary winding up.

The liquidator will aim to realise the remaining assets of the NHS foundation trust and distribute the proceeds, after costs to creditors, under the hierarchy of distribution established by the Insolvency Act. That means that certain employees' claims are paid first as they are preferential creditors and, after the preferential creditors are paid, the remaining creditors are treated on an equal basis.

The pool of assets available in the liquidation at this stage of the process will, of course, be limited, as assets used to provide essential NHS services would have been transferred to another NHS organisation. Therefore, we need to ensure that those granting credit to NHS foundation trusts understand the basis on which they are dealing with them. It is clearly very important that the insolvency regime applied to NHS foundation trusts is completely transparent so that those who are thinking of doing business with them can properly assess the risks, particularly should one fail.

In that context, let me turn briefly to Amendment No. 228. It is unnecessary because both the Secretary of State and the regulator are under a common law duty to act reasonably. Discussions with bodies which were to receive assets and liabilities of a dissolved NHS foundation trust would in any case form a part of the transfer process because the regulator would be

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required to consult these bodies before the powers in Clause 25 of the Bill, including the transfer of property and liabilities, could be exercised.

Furthermore, Clause 25 includes a requirement for prior consultation by the independent regulator before any actions can be taken under Clause 25 leading to the dissolution of an NHS foundation trust. This means that the consultation must occur in advance of any transfer. This consultation will concentrate on the transfer of property and liabilities and is likely to cover a range of interests, including bodies with responsibilities for NHS services such as the strategic health authority, PCT commissioners and other neighbouring NHS trusts or NHS foundation trusts. These are the bodies which may receive property or liabilities by virtue of the transfer order. The bodies would have had opportunity to see the proposed transfer and would have the opportunity to respond to the regulator if they had concerns about the proposals. Seeking their consent is not, therefore, needed, as through the consultation process they will have the opportunity to make any objection known.

Again, Amendment No. 229 is unnecessary. Where a transfer takes place under subsection (3), the fair value of the property, less any associated liabilities, will be matched by the issue of public dividend capital to the receiving organisation. Public dividend capital is, in itself, a liability so the effect on the organisation's balance sheet will be neutral. The issue of payment would not therefore arise.

On Amendment No. 230, I have already set out how we expect the failure regime for NHS trusts to work. Transfer of property and liabilities associated with the provision of essential services is an integral part of that process. It ensures that NHS services can continue to be provided to NHS patients, even if a foundation trust is going through winding-up procedures.

If a foundation trust has failed, despite intervention from the independent regulator, it will, regrettably, generally be unable to meet all of its liabilities before being wound up. So the effect of the amendment would be to block the transfer of assets required for the provision of essential services, making them subject to winding-up procedures. This would put the continuing provision of NHS services seriously in doubt. It would completely undermine the objective of the failure regime and mean that the regulator would not be meeting his Clause 3 duty.

Against that background, I hope the noble Baroness will reconsider her position on these amendments.

Baroness Noakes: My Lords, I thank the Minister for that reply and will of course want to read it carefully. However, let me give him an overview of my initial reaction to his comments. I am appalled. He seems to think that ordinary creditors dealing with trusts would try to research whether they were creditworthy for what they were being supplied with. That is quite unprecedented in the NHS, which is why I said earlier that the message should go out from this House to all people who trade with NHS trusts and

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think about lending to NHS trusts that these are not the kind of bodies they should touch with a bargepole. They should simply avoid it.

The regime that the Minister has very carefully explained is designed, in the name of continuity of services—to which we do not object—to isolate the weakest creditors who would be supplying foundation trusts. The Minister said that they will want to carry on trading with any successor body. However, these are weak people who can be pushed around by this heavy-handed regime. This is quite unlike any insolvency regime that exists anywhere in the public sector and certainly has no real equivalent in the private sector. I can assure the Minister that before speaking today I took the advice of a very eminent individual who has been associated with the Society for Insolvency Professionals. The analysis that I produced was confirmed by him.

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I simply did not understand some of the points that the Minister made. That may be because of the approaching "curfew" for this House. I shall, of course, need to read those remarks. However, I leave the Minister in no doubt whatever that this is a subject to which we shall return. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 229 to 231 not moved.]

Baroness Andrews: My Lords, I beg to move that further consideration on Report be now adjourned.

Moved accordingly, and, on Question, Motion agreed to.

        House adjourned at twenty-four minutes before eight o'clock.

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