| Previous Section | Back to Table of Contents | Lords Hansard Home Page |
Lord Sainsbury of Turville: When the Government published draft regulations in February, setting out the sort of provisions we expect to introduce under the powers in this part of the Bill, we did not include any provisions relating to this power. We admitted as much in the notes that accompanied the draft, and said that suitable provisions would be prepared at a later stage in discussion with the social enterprise sector.
I can reassure the Committee that the absence of draft provisions under this power, to date, does not mean that we think the power is redundant. It simply reflected our view that this is one of the simpler delegated powers in this part of the Bill, at least for the purposes of your Lordships' consideration of the Bill. The department's memorandum to the Delegated Powers and Regulatory Reform Committee commented that the procedures to be set out using this power will be technical and should not be contentious.
In view of the amendment, I should like to set out briefly what we think those procedures will cover, and why the power is needed. Our intention is that the appeal officer will be free to establish his own procedures within the parameters laid down by regulations. In other words, this power will enable a degree of statutory control over the practice and procedure to be followed by the appeal officer.
Such a power is not an attack on the independence of the appeal officer. The power cannot be used to influence or direct the appeal officer as to what his findings should be. Instead, the power exists to ensure that the appeal process is subject to rules and properly established procedures. This will help to ensure that it is consistent and fair for everyone who makes use of it.
The Bill specifically refers to the power to impose time limits for appeals. That is obviously an important area because in a sense deadlines have a limiting effect on the right to appeal itself. It is important that it is possible to set a time limit as otherwise there would always remain a degree of uncertainty over the status of the regulator's decisions and orders. The more time that passes, the more impracticable a rehearing of the facts becomes.
It therefore seems appropriate to make provision for appeal time limits, but as the appropriate deadline will depend on several factors, including the type of decision or order that is being appealed, this is too detailed and technical a topic for the Bill. Leaving it to regulations will also allow flexibility for the time limits to be adjusted in the light of experience. The time limits should not be too short to cause injustice to those who wish to appeal by making it difficult to meet the deadline or to prepare for the appeal, but they should not be so long as to cause intolerable uncertainty and difficulty for CICs and those who deal with them.
At this point I am not in a position to hazard a guess at what the finalised regulations will say on these points—that is, what the time limits might be, and so on. As I have said, we intend that the detail will be
finalised in discussion with the social enterprise sector. We shall want also to look at precedents under other appeal procedures so that the procedures of the appeal officer are based on what is regarded as good practice.I cannot see any reason why these procedures should not be in the regulations. It seems to me entirely right to have that flexibility in regulations, which will obviously be considered when they come before the House. On that basis, I ask the noble Lord to withdraw the amendment.
Lord Glentoran: I thank the noble Lord for that explanation. However, it is not right that we should pass regulations that do not exist. I shall certainly return to the matter on Report. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 26 [Official Property Holder]:
On Question, Whether Clause 26 shall stand part of the Bill?
Lord Glentoran: I wish to speak to Clause 26 and Amendment No. 111, which stands in my name and pertains to Schedule 5.
I am bemused by this new role of the official property holder. We already have a regulator and an appeal officer. Now we are to have a third official who is designated as a "property holder". I fail to see what the role of this "property holder" is.
I understand correctly that if a CIC is winding up or has become insolvent there is a statutory requirement for any residual assets to be transferred to another charity or CIC. I presumed that this would be a matter of having the assets frozen so that they could not be distributed by an unscrupulous director or cashed in for personal profit. This would be one of the conditions or obligations for any company signed up as a CIC. I fail to see, then, why there needs to be an actual position of official property holder to oversee that. This seems to me to be needless bureaucracy.
Can the Minister clarify what the actual role of the official property holder is? Why can the regulator not simply hold property on behalf of a CIC? That would seem only logical given paragraph 4(1) of Schedule 5 which reads:
- "The Official Property Holder holds property vested in or transferred to him on trust for the community interest company by which (or in trust for which) the property was held before it was vested or transferred.
- (2) But he may not release or deal with the property except in accordance with directions given by the Regulator".
This paragraph is also extremely vague. We are given no circumstances under which property will be vested in, or transferred to, the official property holder. Can the noble Lord provide us with some examples? I am not certain that the measure is intended solely for situations where a CIC is winding up or going insolvent.
I seem to remember the Bill team explaining to me—I am not entirely sure and therefore I hope that I shall be forgiven if I am wrong—that property can be transferred to the official property holder in other circumstances; for example, where a dodgy director of the CIC is accused of misconduct, perhaps in the appropriation of assets. The Bill gives no clue as to how the practicalities of such a case would work, how long the property would be held in trust by the official property holder, at what stage it is envisaged that it would be returned, and so on. It was my understanding that a CIC could simply ensure that its assets were safeguarded in the event of mismanagement by having a lock on assets in-built within the constitution of a company.
Our Amendment No. 111 focuses on one final issue. We have grave concerns that, due to the lock on assets, there may be circumstances where, when a CIC goes insolvent, its assets cannot be used to pay back debts or to satisfy creditors but can be appropriated by another CIC or charity. That would be highly unsatisfactory. In terms of community interest, the special circumstances of a CIC which constrain the distribution of its assets must not, under any circumstances, overcome the mandatory obligation of a CIC to satisfy its creditors before handing over its remaining assets to another CIC. We have received some assurances that that goes without saying, but it is nowhere on the face of the Bill and we would feel happier if it were made explicit.
Lord Phillips of Sudbury: I support the opposition to Clause 26 standing part of the Bill—again, on a speculative basis. It is interesting and important that the Charity Law Association, which, after all, represents virtually all the lawyers who will have a mainstream practice in dealing with these entities, is firmly against the whole institution of the official property holder.
It follows that if Clause 26 goes, so will Clause 45. Clause 45 spells out what the regulator may ask or require the official property holder to do. That amounts to a draconian set of powers. The main reasons for the Charity Law Association being sceptical about this set of provisions—as, indeed, am I—are as follows: it hugely complicates the whole regime without a worthwhile return, so to speak, in terms of improvement to the regime; it will possibly, if not probably, deter investors if they have to confront the powers given to the regulator vis-a-vis the property holder; and it is also, in my view, egging the already wide powers of the regulator to an unnecessary degree. The regulator will have powers to carry out formal investigations, to control dividend interest, and so on, to appoint and remove directors, and to appoint a manager. The regulator will have the power, as will the members, to institute civil proceedings against the directors. All in all, unless there is some justification that has not yet been understood, I am sympathetic to the opposition to the clause.
6.15 p.m.
Lord Sainsbury of Turville: Clause 26 creates the office of the official property holder, who will be a member of the regulator's staff. It also introduces Schedule 5, which contains detailed provisions about the official property holder.
I shall deal with a basic point, which is why we need an official property holder. The noble Lord, Lord Glentoran, asked why that could not be vested in the regulator. The reason for that is that the official property holder is a corporation sole, which means that there is no need to transfer the property held by the official property holder when the office holder changes. In addition, the corporation continues to exist and hold property, even if the office if not continuously occupied.
The regulator is not a corporation sole, so there may be situations where there is no regulator in place, for example where the regulator has resigned, and a replacement has not yet been appointed. In such cases, the absence of the regulator would mean that vested property is not properly protected.
The second question on which the noble Lord, Lord Glentoran, focused is what that would be used for. The answer is that the appointment of a manager or director, or the removal of a director, will not always be appropriate to protect property, particularly if there is an immediate risk to CIC property. In such circumstances the regulator can use his powers under Clause 45 to protect the property until management changes are in place.
Where the regulator wishes only to protect specific items, the appointment of a manager or director or the removal of a director may be an excessive reaction to what can be achieved more simply by temporarily vesting the property in the official property holder.
The function of that person is to protect the property of CICs where it is at risk of abuse, in accordance with the powers to vest property that the regulator is given by Clause 45.
Where the regulator maintains that it is necessary to maintain confidence in CICs, perhaps because the property of a CIC is at risk, and where the company default condition set out in Clause 38 is satisfied, he will be able to make an order vesting the property in the official property holder. That will enable the regulator to take immediate action to safeguard assets for the community interest.
It will be appropriate for the regulator to use this power where other powers, such as appointing a director, may not fully ensure that the property is quickly or sufficiently protected. Property which belonged to the CIC before it was transferred to the official property holder will continue to belong to the CIC. The official property holder will hold the property on behalf of the CIC as trustee.
The regulator will use the different supervisory powers where appropriate. The power to vest property in the official property holder allows the regulator to take immediate action to secure the assets. That enables the regulator to take quicker action to
safeguard the property for the community interest than would be the case in removing directors or appointing a manager. That is vital to maintain public confidence in CICs where there is the risk of abuse of assets.At this point I need to say a few words about how the official property holder will interact with the company insolvency regime. This is a point which Amendment No. 111 addresses. One of the principles underlying this part of the Bill is that CICs should resemble other companies as far as possible in terms of the way in which company law applies to them. In the particular case of insolvency, the Government intend that company insolvency law should apply to CICs in exactly the same way as it does to other companies, except in the case of the treatment of residual assets, which is governed by Clause 28. This parity of treatment is important, because it is vital that third parties feel confident that they can trade with CICs with the full protection that company law provides to creditors in the event of insolvency.
Amendment No. 111 seeks to ensure that the regulator's ability to transfer property to the official property holder and to give him instructions does not undermine the normal processes that take place on insolvency. I am grateful to the proposers of the amendment for identifying the possible need for a refinement to the drafting in this area, which has also been identified by others including the Charity Law Association.
However, the amendment does not appear to us to address all the issues. In particular, on insolvency, it is the liquidator rather than the CIC or its directors, who is responsible for winding up the company's affairs and distributing its assets.
It is our intention that, in the event of the insolvency of a CIC, the regulator will direct that any assets that the official property holder is holding on trust for the CIC should be released so that they can be used to satisfy the CIC's liabilities. Indeed, the assets could not be used in any other way as no one else would have a right to them. However, there is currently no express obligation in the Bill requiring the official property holder to release such assets in that situation. We are actively considering whether that point needs to be clarified in the Bill.
I should add that we are also considering whether it would be helpful to clarify the relationship between the company insolvency regime and the power that Clause 44 gives the regulator to appoint a manager to a CIC. I shall touch on that when we discuss Clause 44.
Finally, I should like to advise the Committee that, after discussions with the National Audit Office, we are considering an amendment to Schedule 5 in order to make it clear that the official property holder must provide the regulator with reports on the exercise of his functions. Those reports will be laid before Parliament.
To summarise, Clause 26 and its associated schedule help to give effect to one of the supervisory powers that will ensure that the property of CICs is used for the community rather than for private gain.
Next Section
Back to Table of Contents
Lords Hansard Home Page